Host Marriott Reports Strong Results of Operations for Fourth Quarter and Full Year 2004 and Issues 2005 Guidance
BETHESDA, Md., Host Marriott Corporation (NYSE:HMT) , the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the fourth quarter and for the year ended December 31, 2004. Results of operations for 2004 and 2003 were affected by several transactions, including: the 2004 and 2003 debt prepayments; the 2004 preferred stock redemption; the 2003 New York World Trade Center hotel insurance...
BETHESDA, Md., Host Marriott Corporation (NYSE:HMT) , the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the fourth quarter and for the year ended December 31, 2004. Results of operations for 2004 and 2003 were affected by several transactions, including: the 2004 and 2003 debt prepayments; the 2004 preferred stock redemption; the 2003 New York World Trade Center hotel insurance settlement; the 2003 loss on foreign currency forward contracts; and the 2003 directors' and officers' insurance settlement. Fourth quarter and full year results include the following:
- Total revenue was $1,181 million and $3,640 million for the fourth quarter and full year 2004, respectively, as compared to $1,042 million and $3,288 million for the fourth quarter and full year 2003, respectively.
- Net income (loss) was $61 million and $(0.1) million for the fourth quarter and full year 2004, respectively, as compared to net income of $150 million and $14 million for the fourth quarter and full year 2003, respectively.
- Earnings (loss) per diluted share was $.15 and $(.12) for the fourth quarter and full year 2004, respectively, as compared to an earnings (loss) per diluted share of $.46 and $(.07) for the fourth quarter and full year 2003, respectively.
- Adjusted EBITDA, which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items, was $267 million and $790 million for the fourth quarter and full year 2004 (both of which have been reduced by approximately $1 million for distributions to minority interest partners of Host Marriott, L.P.), respectively, as compared to $222 million and $709 million for the fourth quarter and full year 2003, respectively.
- Funds from Operations (FFO) per diluted share were $.35 and $.77 for the fourth quarter and full year 2004, respectively, as compared to $.53 and $.99 for the fourth quarter and full year 2003, respectively.
- For full year 2004, the transactions discussed above resulted in a decrease of approximately $.18 and $.17 for earnings per diluted share and FFO per diluted share, respectively. These transactions did not impact the fourth quarter 2004 results of operations. For full year 2003, these transactions resulted in an increase of approximately $.54 and $.34 for earnings per diluted share and FFO per diluted share, respectively, and a decrease of approximately $8 million in Adjusted EBITDA. For the fourth quarter of 2003, these transactions resulted in an increase of approximately $.48 and $.29 for earnings per diluted share and FFO per diluted share, respectively, and a decrease of approximately $17 million in Adjusted EBITDA. These transactions are further discussed in the "Schedule of Significant Transactions Affecting Earnings per Share, Funds From Operations per Diluted Share and Adjusted EBITDA" attached to this press release.
FFO per diluted share, Adjusted EBITDA and comparable hotel adjusted operating profit margins (discussed below) are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission (SEC). See the discussion included in this press release for information regarding these non-GAAP financial measures.
Operating Results
Comparable hotel RevPAR for the fourth quarter increased 8.6% and comparable hotel adjusted operating profit margins increased 2.0 percentage points when compared to the fourth quarter of 2003. The Company's fourth quarter increase in comparable hotel RevPAR and comparable hotel adjusted operating profit margins were driven by a 5.4% increase in average room rate and a 2.0 percentage point increase in occupancy. Full year 2004 comparable hotel RevPAR increased 7.3% (comprised of a 2.9% increase in average room rate and an increase in occupancy of 2.9 percentage points), while comparable hotel adjusted operating profit margins increased 1.0 percentage point as compared to full year 2003.
Christopher J. Nassetta, president and chief executive officer, stated, "We had a strong fourth quarter, with significant RevPAR growth and margin improvement. We expect the momentum we built in 2004 to carry into 2005."
Balance Sheet
As of December 31, 2004, the Company had $347 million of cash and cash equivalents and $575 million of availability under its credit facility. The Company's total debt balance was reduced by approximately $455 million in 2004 to approximately $5.0 billion, excluding the Company's Convertible Subordinated Debentures which, in accordance with new accounting standards, were classified as debt effective January 1, 2004.
W. Edward Walter, executive vice president and chief financial officer, stated, "In 2004, we continued to increase our financial flexibility, improve our interest coverages and strengthen our balance sheet. Our annual interest obligations decreased approximately $54 million due to our 2004 financing activities and we decreased our weighted average interest rate by approximately 65 basis points." Mr. Walter added, "With our significant available cash and the additional flexibility and capacity of our credit facility, we are well-positioned to take advantage of opportunities that may arise in the future."
Acquisitions and Dispositions
During the fourth quarter, the Company purchased the 270-suite Scottsdale Marriott at McDowell Mountains for approximately $58 million, including the assumption of approximately $34 million of mortgage debt.
During December 2004, the Company sold two non-core hotels for total proceeds of approximately $95 million and recorded a gain on the sales of approximately $34 million. The Company sold four additional non-core hotels in January 2005 for total proceeds of approximately $128 million and recorded a gain on the sales of approximately $14 million. The Company also announced an agreement to sell 85% of its equity investment in the Courtyard joint venture with Marriott International, Inc. for approximately $92 million. Under the terms of the agreement, the Company has the right to have its remaining interest in the joint venture redeemed under certain conditions between 2007 and 2009. This transaction is subject to several closing conditions and is expected to be completed in March 2005. The proceeds from these sales will be reinvested in either the acquisition of upper-upscale or luxury hotels, return on investment or repositioning projects, repayment of debt or other corporate purposes.
James F. Risoleo, executive vice president, acquisitions and development, stated, "We acquired over $500 million of high-quality assets in 2004, which represents our highest level of acquisitions since 1998. We will continue to pursue single asset and portfolio acquisitions that meet our target profile. As evidenced by our recent sales and our pending Courtyard sale, we also will continue to dispose of non-core assets and recycle our capital to build on our unmatched portfolio of properties."
2005 Outlook
The Company expects comparable hotel RevPAR for the first quarter and full year 2005 to increase approximately 6.0% to 8.0% and 6.5% to 8.5%, respectively. For full year 2005, the Company also expects operating profit margins under GAAP to increase 160 basis points to 240 basis points, respectively, and comparable hotel adjusted operating profit margins to increase 100 basis points to 150 basis points, respectively. Based upon this guidance, the Company estimates that for 2005 its:
- earnings per diluted share should be approximately $.10 to $.12 for the first quarter and $.18 to $.28 for the full year;
- net income should be approximately $46 million to $52 million for the first quarter and $100 million to $136 million for the full year;
- Adjusted EBITDA should be approximately $864 million to $904 million both of which have been reduced by approximately $6 million for distributions to minority interest partners of Host Marriott, L.P. for the full year;
- FFO per diluted share should be approximately $.20 to $.22 for the first quarter and $.98 to $1.07 for the full year (including approximately $40 million, or $.10 per diluted share, related to charges for call premiums and the acceleration of deferred financing costs for debt expected to be refinanced or prepaid in 2005); and
- Dividend per common share should be approximately $.07 to $.09 for the first quarter.
Mr. Nassetta stated, "We are very optimistic about our prospects for 2005. With strong demand and limited supply growth, we expect to have meaningful growth in RevPAR, earnings, Adjusted EBITDA and FFO per diluted share, which should result in increasing dividends for our stockholders." Mr. Nassetta added, "We believe that the combination of our strategic vision and disciplined approach to capital allocation will continue to result in increasing stockholder value now and in the future."
HOST MARRIOTT CORPORATION
Consolidated Balance Sheets (a)
(unaudited, in millions, except share amounts)
December 31,
2004 2003
ASSETS
Property and equipment, net $7,274 $7,085
Assets held for sale 113 73
Notes and other receivables 7 54
Due from managers 75 62
Investments in affiliates (b) 69 74
Deferred financing costs, net 70 82
Furniture, fixtures and equipment
replacement fund 151 144
Other 161 138
Restricted cash 154 116
Cash and cash equivalents 347 764
Total assets $8,421 $8,592
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt
Senior notes, including $491 million,
net of discount, of Exchangeable
Senior Debentures as of December 31, 2004 $2,890 $3,180
Mortgage debt 2,043 2,205
Convertible Subordinated Debentures (b) 492 -
Other 98 101
Total debt 5,523 5,486
Accounts payable and accrued expenses 113 108
Liabilities associated with assets
held for sale 26 2
Other 156 166
Total liabilities 5,818 5,762
Interest of minority partners of Host
Marriott L.P. 122 130
Interest of minority partners of
other consolidated partnerships 86 89
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary whose sole assets are
convertible subordinated debentures due 2026
("Convertible Preferred Securities") (b) - 475
Stockholders' equity
Cumulative redeemable preferred stock
(liquidation preference $350 million and
$354 million, respectively), 50 million
shares authorized; 14.0 million shares
and 14.1 million shares issued and
outstanding, respectively 337 339
Common stock, par value $.01, 750 million
shares authorized; 350.3 million shares
and 320.3 million shares issued and
outstanding, respectively 3 3
Additional paid-in capital 2,953 2,617
Accumulated other comprehensive income 13 28
Deficit (911) (851)
Total stockholders' equity 2,395 2,136
Total liabilities and stockholders' equity $8,421 $8,592
(a) Our consolidated balance sheets as of December 31, 2004 and 2003 have
been prepared without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with GAAP have been omitted. The consolidated balance
sheets should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-
K.
(b) We adopted Financial Interpretation No. 46 "Consolidation of Variable
Interest Entities" (FIN 46) in 2003. Under FIN 46, our limited purpose
trust subsidiary that was formed to issue trust-preferred securities
(the "Convertible Preferred Securities") was accounted for on a
consolidated basis as of December 31, 2003 since we were the primary
beneficiary under FIN 46.
In December 2003, the FASB issued a revision to FIN 46, which we refer
to as FIN 46R. Under FIN 46R, we are not the primary beneficiary and
we are required to deconsolidate the accounts of the Convertible
Preferred Securities Trust (the "Trust"). We adopted the provisions of
FIN 46R on January 1, 2004. As a result, we recorded the $492 million
in debentures (the "Convertible Subordinated Debentures") issued by
the Trust and eliminated the $475 million of Convertible Preferred
Securities that were previously classified in the mezzanine section of
our consolidated balance sheet prior to January 1, 2004. The
difference of $17 million is our investment in the Trust, which is
included in "Investments in affiliates" on our consolidated balance
sheet. Additionally, we classified the related dividend payment of
approximately $10 million and $32 million for the fourth quarter and
full year 2004, respectively, as interest expense. We adopted FIN 46R
prospectively and, therefore, did not restate prior periods. The
adoption of FIN 46R had no effect on our net loss, loss per diluted
share or the financial covenants under our senior notes indentures.
HOST MARRIOTT CORPORATION
Consolidated Statements of Operations (a)
(in millions, except per share amounts)
Quarter ended Year ended
December 31, December 31,
2004 2003 2004 2003
Revenues
Rooms $686 $592 $2,153 $1,914
Food and beverage 387 352 1,141 1,042
Other 75 69 239 220
Total hotel sales 1,148 1,013 3,533 3,176
Rental income (b) 32 29 106 100
Other income 1 - 1 12
Total revenues 1,181 1,042 3,640 3,288
Expenses
Rooms 168 151 536 483
Food and beverage 282 262 856 786
Hotel departmental expenses 315 276 983 888
Management fees 47 41 145 132
Other property-level expenses (b) 86 82 292 293
Depreciation and amortization 111 108 354 347
Corporate and other expenses 24 21 67 60
Total expenses 1,033 941 3,233 2,989
Operating profit 148 101 407 299
Interest income 3 4 11 11
Interest expense, including interest
expense for the Convertible
Subordinated Debentures in 2004 (c) (127) (166) (483) (488)
Net gains on property transactions 7 1 17 5
Loss on foreign currency and
derivative contracts (4) (17) (6) (19)
Minority interest expense (6) (16) (4) (5)
Equity in losses of affiliates (4) (9) (16) (22)
Dividends on Convertible Preferred
Securities (c) - (10) - (32)
Income (loss) before income taxes 17 (112) (74) (251)
Benefit from income taxes 8 4 10 13
Income (loss) from continuing
operations 25 (108) (64) (238)
Income from discontinued operations (d) 36 234 64 252
Income (loss) before cumulative effect
of a change in accounting principle 61 126 - 14
Cumulative effect of a change in
accounting principle (e) - 24 - -
Net income (loss) 61 150 - 14
Less: Dividends on preferred stock (9) (8) (37) (35)
Issuance costs of redeemed Class A
preferred stock (f) - - (4) -
Net income (loss) available to common
stockholders $52 $142 $(41) $(21)
Basic and diluted earnings (loss) per
common share $0.15 $0.46 $(0.12) $(0.07)
(a) Our consolidated statements of operations presented above have been
prepared without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
GAAP have been omitted. The consolidated statements of operations
should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-
K.
(b) Rental income and expense for the quarters ended and years ended
December 31, 2004 and 2003 are as follows:
Quarter ended Year ended
December 31, December 31,
2004 2003 2004 2003
Rental income
Full-service $5 $5 $26 $25
Limited service and office buildings 27 24 80 75
$32 $29 $106 $100
Rental and other expenses (included
in other property-level expenses)
Full-service $2 $2 $7 $7
Limited service and office buildings 24 24 78 74
$26 $26 $85 $81
(c) See discussion of FIN 46R in footnote (b) to the consolidated balance
sheets. Interest expense also includes approximately $59 million for
full year 2004 and $36 million and $33 million for full year 2003 and
the fourth quarter of 2003, respectively, for the payment of call
premiums, the acceleration of deferred financing costs and incremental
interest expense related to the debt redemptions and repayments.
(d) Reflects the results of operations and gain on sale, net of the
related income tax, for nine properties sold in 2004 and eight
properties sold in 2003, as well as the results of operations for four
properties classified as held for sale as of December 31, 2004 and the
gain on disposition and business interruption proceeds for the New
York Marriott World Trade Center hotel.
(e) We adopted SFAS No. 150 "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" on June 21, 2003
and recorded a loss of $24 million as a cumulative effect of change in
accounting principle in the third quarter of 2003. Subsequently, on
November 7, 2003, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position (FSP) 150-3 indefinitely deferring the
application of a portion of SFAS 150 with respect to minority
interests in consolidated ventures entered into prior to November 5,
2003, effectively reversing its guidance of October 8, 2003. In
accordance with the FSP 150-3, we recorded a gain from a cumulative
effect of a change in accounting principle of $24 million in the
fourth quarter of 2003, reversing the impact of our adoption of SFAS
150 with respect to consolidated ventures with finite lives.
(f) Emerging Issues Task Force Topic D-42, "The Effect on the Calculation
of Earnings per Share for the Redemption or Induced Conversion of
Preferred Stock," requires that the excess of the fair value of the
consideration transferred to the holders of preferred stock redeemed
over the carrying amount of the preferred stock should be subtracted
from net earnings to determine net earnings available to common
stockholders in the calculation of earnings per share.
On August 3, 2004, the fair value paid to holders of our Class A
preferred stock, or $104 million (which was equal to the redemption
price and par value) exceeded the carrying value of the preferred
stock ($100 million, which was net of $4 million of original issuance
costs). Accordingly, the $4 million of original issuance costs has
been included in the determination of net loss available to common
stockholders for the purpose of calculating our full year 2004 basic
and diluted loss per share.
HOST MARRIOTT CORPORATION
Earnings (Loss) per Common Share
(unaudited, in millions, except per share amount)
Quarter ended Quarter ended
December 31, 2004 December 31, 2003
Income
Income Per (loss) Per
(loss) Shares Share (Numer-) Shares Share
(Numerator) (Denominator) Amount (ator) (Denominator) Amount
Net income $61 350.2 $0.17 $150 310.7 $0.48
Dividends on
preferred
stock (9) - (0.02) (8) - (0.02)
Basic earnings
available to
common
stockholders
per share (a) 52 350.2 0.15 142 310.7 0.46
Assuming
distribution
of common
shares granted
under the
comprehensive
stock plan, less
shares assumed
purchased at
average market
price - 2.9 - - - -
Diluted earnings
available to
common
stockholders
per share (a)(b) $52 353.1 $0.15 $142 310.7 $0.46
Year ended Year ended December
December 31, 2004 31, 2003
Income
Income Per (loss) Per
(loss) Shares Share (Numer-) Shares Share
(Numerator) (Denominator) Amount (ator) (Denominator) Amount
Net income
(loss) $- 337.3 $- $14 281 $0.05
Dividends on
preferred
stock (37) - (0.11) (35) - (0.12)
Issuance costs
of redeemed
Class A
preferred
stock(c) (4) - (0.01) - - -
Basic and
diluted loss
available
to common
stockholders
per share(a)(b) $(41) 337.3 $(0.12) $(21) 281.0 $(0.07)
(a) Basic earnings (loss) per common share is computed by dividing net
income (loss) available to common stockholders by the weighted average
number of shares of common stock outstanding. Diluted earnings (loss)
per common share is computed by dividing net income (loss) available
to common stockholders as adjusted for potentially dilutive
securities, by the weighted average number of shares of common stock
outstanding plus other potentially dilutive securities. Dilutive
securities may include shares granted under comprehensive stock plans,
those preferred OP Units held by minority partners, other minority
interests that have the option to convert their limited partnership
interests to common OP Units, the Exchangeable Senior Debentures and
the Convertible Subordinated Debentures. No effect is shown for any
securities that are anti-dilutive.
(b) Our results for 2004 and 2003 were significantly affected by several
transactions, which are detailed in the table entitled, "Schedule of
Significant Transactions Affecting Earnings per Share, Funds from
Operations per Diluted Share and Adjusted EBITDA."
(c) For discussion of accounting treatment, see footnote (f) to the
consolidated statements of operations.
HOST MARRIOTT CORPORATION
Hotel Operational Data
Comparable Hotels by Region (a)
(unaudited)
As of December 31, 2004
No. of No. of
Properties Rooms
Pacific 20 10,720
Florida 12 7,337
Mid-Atlantic 10 6,720
Atlanta 13 5,940
North Central 13 4,923
South Central 7 4,816
DC Metro 10 3,890
New England 7 3,413
Mountain 6 2,351
International 5 1,953
All Regions 103 52,063
Quarter ended December 31, 2004
Average
Average Occupancy
Daily Rate Percentages RevPAR
Pacific $149.43 68.8% $102.83
Florida 159.17 66.9 106.41
Mid-Atlantic 212.85 79.9 170.16
Atlanta 148.36 63.3 93.86
North Central 134.43 66.2 88.99
South Central 136.64 70.8 96.73
DC Metro 161.54 72.6 117.26
New England 156.11 72.2 112.70
Mountain 107.67 54.0 58.14
International 127.57 71.4 91.10
All Regions 156.58 69.2 108.34
Quarter ended December 31, 2003
Percent
Average Average Change
Daily Occupancy in
Rate Percentages RevPAR RevPAR
Pacific $146.08 65.8% $96.11 7.0%
Florida 150.18 64.1 96.32 10.5
Mid-Atlantic 197.99 76.4 151.34 12.4
Atlanta 141.96 62.9 89.30 5.1
North Central 128.42 64.9 83.37 6.7
South Central 131.61 73.8 97.06 (0.3)
DC Metro 152.68 67.4 102.90 14.0
New England 149.34 67.1 100.27 12.4
Mountain 100.68 55.0 55.39 5.0
International 116.94 71.9 84.07 8.4
All Regions 148.49 67.2 99.74 8.6
As of December 31, 2004
No. of No. of
Properties Rooms
Pacific 20 10,720
Florida 12 7,337
Mid-Atlantic 10 6,720
Atlanta 13 5,940
North Central 13 4,923
South Central 7 4,816
DC Metro 10 3,890
New England 7 3,413
Mountain 6 2,351
International 5 1,953
All Regions 103 52,063
Year ended December 31, 2004
Average
Average Occupancy
Daily Rate Percentages RevPAR
Pacific $148.93 73.3% $109.10
Florida 163.16 71.5 116.69
Mid-Atlantic 189.17 78.3 148.19
Atlanta 143.30 67.1 96.15
North Central 123.93 67.8 84.06
South Central 131.73 75.1 98.87
DC Metro 155.75 73.4 114.29
New England 146.12 73.0 106.72
Mountain 102.34 59.7 61.10
International 122.86 72.3 88.87
All Regions 149.64 71.9 107.66
Year ended December 31, 2003
Percent
Average Average Change
Daily Occupancy in
Rate Percentages RevPAR RevPAR
Pacific $148.71 67.9% $101.03 8.0%
Florida 158.40 68.8 109.00 7.1
Mid-Atlantic 180.11 74.3 133.85 10.7
Atlanta 138.16 65.6 90.67 6.0
North Central 123.52 66.6 82.28 2.2
South Central 131.46 75.9 99.79 (0.9)
DC Metro 148.07 70.7 104.65 9.2
New England 142.32 67.5 96.11 11.0
Mountain 97.56 61.0 59.52 2.7
International 114.67 66.0 75.64 17.5
All Regions 145.42 69.0 100.35 7.3
HOST MARRIOTT CORPORATION
Comparable Hotel Operating Data
Comparable Hotels by Property Type (a)
(unaudited)
As of December 31, 2004
No. of No. of
Properties Rooms
Urban 40 25,068
Suburban 38 14,081
Airport 16 7,332
Resort/Conference 9 5,582
All Types 103 52,063
Quarter ended December 31, 2004
Average
Average Occupancy
Daily Rate Percentages RevPAR
Urban $178.66 72.3% $129.16
Suburban 124.40 64.6 80.31
Airport 115.21 72.3 83.31
Resort/Conference 186.61 62.8 117.19
All Types 156.58 69.2 108.34
Quarter ended December 31, 2003
Percent
Average Average Change
Daily Occupancy in
Rate Percentages RevPAR RevPAR
Urban $168.08 71.3% $119.85 7.8%
Suburban 117.73 63.3 74.51 7.8
Airport 111.12 66.5 73.92 12.7
Resort/Conference 179.40 59.2 106.28 10.3
All Types 148.49 67.2 99.74 8.6
As of December 31, 2003
No. of No. of
Properties Rooms
Urban 40 25,068
Suburban 38 14,081
Airport 16 7,332
Resort/Conference 9 5,582
All Types 103 52,063
Year ended December 31, 2004
Average
Average Occupancy
Daily Rate Percentages RevPAR
Urban $165.67 74.4% $123.21
Suburban 121.44 67.2 81.63
Airport 113.12 74.6 84.37
Resort/Conference 192.56 69.6 133.99
All Types 149.64 71.9 107.66
Year ended December 31, 2003
Percent
Average Average Change
Daily Occupancy in
Rate Percentages RevPAR RevPAR
Urban $159.79 72.2% $115.40 6.8%
Suburban 117.25 65.4 76.72 6.4
Airport 111.66 67.5 75.36 12.0
Resort/Conference 190.79 65.7 125.26 7.0
All Types 145.42 69.0 100.35 7.3
(a) See the introductory notes to financial information for a discussion
of reporting periods and comparable hotel results.