Exhibit 99.2
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MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
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1998 Second Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 Second Quarter Report for Marriott
Residence Inn II Limited Partnership. Discussion of the Partnership's
performance and Inn operations is included in Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations. You are
encouraged to review this report in its entirety. If you have any further
questions regarding your investment, please contact Host Marriott Partnership
Investor Relations at (000) 000-0000.
Potential Transaction
As previously reported to you, Host Marriott Corporation on behalf of the
General Partner, Marriott RIBM Two Corporation, filed a preliminary
Prospectus/Consent Solicitation Statement with the SEC in December 1997 which
proposed the consolidation (the "Consolidation") of this Partnership and five
other limited partnerships into a publicly traded real estate investment trust
("REIT").
In addition, we reported to you that there are existing REIT's which are active
in the moderate price and extended stay hotel segment that have expressed an
interest in acquiring the hotels owned by the six limited partnerships. The
General Partner has had preliminary discussions with some of these companies and
continues to pursue the possibility of a potential transaction involving the
sale of the Partnership's assets or a merger of the Partnership with an existing
publicly traded company.
The General Partner has retained Xxxxxxx Xxxxx to advise the Partnership with
respect to the Partnership's strategic alternatives. The General Partner intends
to continue to explore these alternatives and determine which path to pursue,
obviously subject to appropriate partner approval.
Secondary Market Activity
There has been an increase in the number of third party solicitations for this
Partnership's limited partner units. Although we are not in a position to advise
you as to whether you should accept such offers, limited partners should be
aware that the Partnership Agreement contains certain restrictions on the
assignment of partnership interests. Among these restrictions is a prohibition
on sales of additional Partnership interests in any calendar year if such
additional transfers would result in the Partnership not being able to qualify
for at least one of the "safe harbors" which govern the circumstances under
which a limited partnership will cease to be treated as a partnership and will
instead be treated as a corporation for tax purposes. If Partnership sales
activity for 1998 brings the Partnership to the safe harbor limit for 1998, the
Partnership would be unable to allow additional unit sales in 1998. You should
check with the General Partner before signing any sale document to determine if
your transfer can be accepted.
In addition to reviewing the information provided in this report, we encourage
you to consult with your financial and tax advisors when deciding if you should
sell your Partnership units. Due to the allocation of tax losses and income to
you over the life of the Partnership as well as any cash distributions paid to
you, your tax basis in this investment may be significantly lower than your
original investment amount. Therefore, there may be negative tax effects
resulting from the sale of these units that may impact your decision to sell.
Once you have begun the sale process we will do whatever is in our power to
facilitate the transfer of your units. Please note, the General Partner does not
charge a fee in connection with the transfer of Partnership units. If you wish
to effect a transfer, please contact our transfer agent, Trust Company of
America/Gemisys at 0-000-000-0000 for the necessary documents.
Capital Expenditure Budgets
Based upon current capital expenditure budgets, the Partnership's property
improvement fund is forecasted to be insufficient beginning in 1998. This
shortfall is primarily due to the need to complete total suite refurbishments at
the majority of the Partnership's Inns in the next several years. As a result,
the General Partner established a reserve (the "Capital Reserve") in 1996 for
future capital needs of the Partnership's Inns. The current property improvement
fund shortfall estimate is $6.4 million through 1999. The Partnership has
received written approval from the lender to fund $4.1 million of the property
improvement fund shortfall from the Capital Reserve, with the remaining $2.3
million to be funded by increasing the property improvement fund contribution
rate from 5% to 6% in 1998 and 7% in 1999. Funding of the 1998 shortfall of $2.5
million is expected to begin during third quarter 1998 with repayments scheduled
to begin in first quarter 1999.
Amounts Paid to the General Partner and Marriott International, Inc. and
Affiliates.
The chart below summarizes amounts paid (in thousands) to the General Partner
and Marriott International, Inc. and affiliates for the twenty-four weeks ended
June 19, 1998 (unaudited):
Marriott International, Inc. and Affiliates:
Residence Inn system fee.........................$ 1,285
Chain services and Marriott Rewards Program...... 952
Marketing fund contribution...................... 803
Base management fee.............................. 674
Incentive management fee......................... 530
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$ 4,244
General Partner:
Administrative expenses reimbursed...............$ 161
Capital distribution............................. 35
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$ 196
