Host Marriott Reports Strong Results of Operations for Third Quarter 2005
BETHESDA, Md., Host Marriott Corporation (NYSE:HMT) , the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the third quarter ended September 9, 2005. Third quarter results include the following:
BETHESDA, Md., Host Marriott Corporation (NYSE:HMT) , the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the third quarter ended September 9, 2005. Third quarter results include the following:
- Total revenue increased 7.7% to $841 million for the third quarter and 8.0% to $2,647 million for year-to-date 2005.
- Net income (loss) was $(5) million and $92 million for the third quarter and year-to-date 2005, respectively, compared to $(47) million and $(61) million for the third quarter and year-to-date 2004, respectively. Earnings (loss) per diluted share was $(.03) and $.19 for the third quarter and year-to-date 2005, respectively, and $(.17) and $(.28) for the third quarter and year-to-date 2004, respectively.
- For year-to-date 2005, net income includes a net gain of $15 million ($.04 per share) from the following transactions: the sale of 85% of the Company's interest in a joint venture that owns 120 Courtyard by Marriott hotels; gains on hotel dispositions; and, costs associated with refinancing the Company's senior notes and the redemption of preferred stock. By comparison, for the third quarter and year-to-date 2004, net income (loss) includes a net loss of $19 million ($(.05) per share) and $43 million ($(.13) per share), respectively, associated with similar transactions in 2004. For further detail, refer to the "Schedule of Significant Transactions Affecting Earnings per Share and Funds From Operations per Diluted Share" attached to this press release.
- Adjusted EBITDA, which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items, increased 18.8% to $158 million for the third quarter and 15.9% to $606 million for year-to-date 2005. (Adjusted EBITDA has been reduced by $2 million and $4 million for the third quarter and year-to-date 2005, respectively, for distributions to minority interest partners of Host Marriott, L.P.)
- Funds from Operations (FFO) per diluted share was $.19 and $.70 for the third quarter and year-to-date 2005, respectively, compared to $.06 and $.40 for the third quarter and year-to-date 2004, respectively. Costs associated with refinancing the Company's senior notes and the redemption of preferred stock reduced the Company's FFO per diluted share for year-to-date 2005 by $.09. The Company's FFO per diluted share for the third quarter and year-to-date 2004 was reduced by $.05 and $.18, respectively, associated with similar transactions in 2004.
Adjusted EBITDA, FFO per diluted share 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 third quarter of 2005 increased 8.0%, which was at the high end of our previous guidance, and comparable hotel adjusted operating profit margins increased 9.8%, or 1.8 percentage points, when compared to the third quarter of 2004. The Company's third quarter increases in comparable hotel RevPAR and comparable hotel adjusted operating profit margins were driven by a 6.3% increase in average room rates and a 1.2 percentage point increase in occupancy. Year-to-date 2005 comparable hotel RevPAR increased 9.1% (comprised of an increase in average room rates of 7.5% and an increase in occupancy of 1.1 percentage points), while comparable hotel adjusted operating profit margins increased 7.7%, or 1.7 percentage points, when compared to year-to-date 2004. Based on a calendar quarter end of September 30, comparable hotel RevPAR would have increased 9.5% for the third quarter of 2005.
Comparable hotel RevPAR does not include results from the New Orleans Marriott, which incurred damage as a result of Hurricane Katrina. It is unlikely that operations for this hotel will return to historical levels for a period of time. While the total extent of the property damage and business interruption cannot be determined at this time, the Company believes its insurance coverage should be sufficient to cover substantially all of the property damage to the hotel and the near-term loss of business. The overall effect of the hurricane on our third quarter operations was not significant.
Christopher J. Nassetta, president and chief executive officer, stated, "We had another outstanding quarter, with very strong RevPAR growth and margin improvement, which drove significant growth in Adjusted EBITDA and FFO per diluted share. We expect lodging demand and business travel will continue to increase in the fourth quarter and into 2006, driving further improvements in our operating results and dividends to our stockholders."
As of September 9, 2005, the Company had $402 million of cash and cash equivalents, approximately $274 million of which were used subsequently to acquire the Hyatt Regency, Washington, D.C. The Company also had $165 million of restricted cash, $68 million of which the Company believes will be released in the fourth quarter.
W. Edward Walter, executive vice president and chief financial officer, stated, "Our credit ratios have continued to improve due to the significant improvement in our operations and the financing transactions we have completed over the last two years. Our strong balance sheet, available cash and ready access to the capital markets enables us to invest in our current portfolio or pursue appropriate acquisition opportunities in the market place."
Acquisitions and Dispositions
On September 30, 2005, the Company acquired the 834-room Hyatt Regency, Washington, D.C. on Capitol Hill for approximately $274 million, financed with available cash. On October 7, 2005, the Company also completed the sale of the 297-room Charlotte Marriott Executive Park for approximately $21 million.
James F. Risoleo, executive vice president of acquisitions and development, stated, "We are very pleased with the acquisition of the Hyatt Regency, Washington, D.C. on Capitol Hill. We believe that the Washington, D.C. market will continue to perform very well for the foreseeable future. We continue to pursue acquisitions that are consistent with our target profile of upper-upscale and luxury properties in markets with significant barriers to entry, while seeking to dispose of non-core assets to recycle and build on our truly unmatched portfolio of properties."
2005 Outlook
The Company expects comparable hotel RevPAR for full year 2005 to increase approximately 8.0% to 9.0%. For full year 2005, the Company also expects operating profit margins under GAAP to increase approximately 210 basis points to 240 basis points and comparable hotel adjusted operating profit margins to increase approximately 130 basis points to 150 basis points as compared to 2004. Based upon this guidance, the Company estimates that for 2005 its:
- earnings per diluted share should be approximately $.38 to $.42 for the full year;
- net income should be approximately $166 million to $180 million for the full year;
- Adjusted EBITDA should be approximately $894 million to $909 million for the full year, both of which have been reduced by approximately $6 million for distributions to minority interest partners of Host Marriott, L.P.; and
- FFO per diluted share should be approximately $1.07 to $1.10 for the full year (including a charge of approximately $36 million, or $.09 per diluted share, for the full year, related to the refinancing of senior notes and the redemption of the Class B preferred stock).
2006 Outlook
The Company is in the preliminary stages of its budget process for 2006. Accordingly, certain key items such as detailed property-level operating budgets and capital expenditure requirements, as well as corporate-level acquisition and disposition targets and financing requirements have not been determined, all of which could significantly affect results of operations. However, based on preliminary discussions with the Company's operators and hotel general managers, as well as a review of booking pace and other metrics, the Company believes comparable hotel RevPAR for full year 2006 will increase approximately 7.0% to 9.0%. For full year 2006, the Company also believes operating profit margins under GAAP will increase approximately 190 basis points to 230 basis points and comparable hotel adjusted operating profit margins will increase approximately 125 basis points to 175 basis points as compared to 2005.
Based upon this guidance, the Company estimates that for 2006 its:
- earnings per diluted share should be approximately $.42 to $.53;
- net income should be approximately $174 million to $212 million;
- Adjusted EBITDA should be approximately $996 million to $1,036 million, both of which have been reduced by approximately $9 million for distributions to minority interest partners of Host Marriott, L.P.; and
- FFO per diluted share should be approximately $1.35 to $1.45.
This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, including references to assumption and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the potential for terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; our ability to complete pending acquisitions and dispositions; and our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes and other risks and uncertainties associated with our business described in the Company's filings with the SEC. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of October 11, 2005, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
(*) This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.
Host Marriott Corporation, herein referred to as "we" or "Host Marriott," is a self-managed and self-administered real estate investment trust (REIT) that owns hotel properties. We conduct our operations as an umbrella partnership REIT through an operating partnership, Host Marriott, L.P., or Host LP, of which we are the sole general partner. For each share of our common stock, Host LP has issued to us one unit of operating partnership interest, or OP Unit. When distinguishing between Host Marriott and Host LP, the primary difference is approximately 5% of the partnership interests in Host LP held by outside partners as of October 11, 2005, which is reflected as minority interest in our consolidated balance sheets and minority interest expense in our consolidated statements of operations. Readers are encouraged to find further detail regarding our organizational structure in our annual report on Form 10-K.
For information on our reporting periods and non-GAAP financial measures (including Adjusted EBITDA, FFO per diluted share and comparable hotel adjusted operating profit margins) which we believe is useful to investors, see the Notes to the Financial Information.
HOST MARRIOTT CORPORATION
Consolidated Balance Sheets (a)
(unaudited, in millions, except share amounts)
September 9, December 31,
2005 2004
ASSETS
Property and equipment, net $7,204 $7,274
Assets held for sale 13 113
Due from managers 66 75
Investments in affiliates 42 69
Deferred financing costs, net 69 70
Furniture, fixtures and equipment
replacement fund 154 151
Other 133 168
Restricted cash 165 154
Cash and cash equivalents 402 347
Total assets $8,248 $8,421
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt
Senior notes, including $492 million
and $491 million, net of discount,
of Exchangeable Senior Debentures,
respectively $3,054 $2,890
Mortgage debt 1,858 2,043
Convertible Subordinated Debentures 492 492
Other 97 98
Total debt 5,501 5,523
Accounts payable and accrued expenses 129 113
Liabilities associated with assets
held for sale - 26
Other 153 156
Total liabilities 5,783 5,818
Interest of minority partners of Host
Marriott L.P. 117 122
Interest of minority partners of
other consolidated partnerships 28 86
Stockholders' equity
Cumulative redeemable preferred stock
(liquidation preference $250
million), 50 million shares
authorized; 10.0 million shares and
14.0 million shares issued and
outstanding, respectively 241 337
Common stock, par value $.01, 750
million shares authorized; 353.3
million shares and 350.3 million
shares issued and outstanding,
respectively 3 3
Additional paid-in capital 2,967 2,953
Accumulated other comprehensive
income 17 13
Deficit (908) (911)
Total stockholders' equity 2,320 2,395
Total liabilities and stockholders'
equity $8,248 $8,421
(a) Our consolidated balance sheet as of September 9, 2005 has 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 out most recent Annual Report on Form 10-K.
HOST MARRIOTT CORPORATION
Consolidated Statements of Operations (a)
(unaudited, in millions, except per share amounts)
Quarter ended Year-to-date ended
Sept. Sept. Sept. Sept.
9, 10, 9, 10,
2005 2004 2005 2004
Revenues
Rooms $532 $487 $1,612 $1,463
Food and beverage 230 218 785 751
Other 57 55 174 164
Total hotel sales 819 760 2,571 2,378
Rental income (b) 22 21 76 74
Total revenues 841 781 2,647 2,452
Expenses
Rooms 135 127 392 366
Food and beverage 189 183 592 572
Hotel departmental expenses 243 228 710 666
Management fees 34 29 112 98
Other property-level expenses (b) 69 69 205 206
Depreciation and amortization 85 83 254 242
Corporate and other expenses 16 18 45 43
Total operating costs and expenses 771 737 2,310 2,193
Operating profit 70 44 337 259
Interest income 5 3 17 8
Interest expense (94) (108) (317) (356)
Net gains on property transactions - 5 77 10
Gain (loss) on foreign currency and
derivative contracts (1) (2) 1 (2)
Minority interest income (expense) - 4 (12) 2
Equity in earnings (losses) of
affiliates - (4) (1) (12)
Income (loss) before income taxes (20) (58) 102 (91)
Benefit (provision) for income taxes 15 10 (23) 2
Income (loss) from continuing
operations (5) (48) 79 (89)
Income from discontinued operations (c) - 1 13 28
Net income (loss) (5) (47) 92 (61)
Less: Dividends on preferred stock (6) (9) (21) (28)
Issuance costs of redeemed preferred
stock (d) - (4) (4) (4)
Net income (loss) available to common
stockholders $(11) $(60) $67 $(93)
Basic and diluted earnings (loss) per
common share:
Continuing operations $(0.03) $(0.17) $0.15 $(0.36)
Discontinued operations - - 0.04 0.08
Basic and diluted earnings (loss) per
common share $(0.03) $(0.17) $0.19 $(0.28)
(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 most recent
Annual Report on Form 10-K.
(b) Rental income and expense are as follows:
Quarter ended Year-to-date ended
Sept. Sept. Sept. Sept.
9, 10, 9, 10,
2005 2004 2005 2004
Rental income $4 $3 $22 $21
Full-service 18 18 54 53
Limited service and office
buildings $22 $21 $76 $74
Rental and other expenses
(included in other property
level expenses) $2 $2 $5 $5
Full-service 18 18 54 54
Limited service and office
buildings $20 $20 $59 $59
(c) Reflects the results of operations and gain (loss) on sale, net
of the related income tax, for four properties sold in the first
quarter of 2005, the one property classified as held for sale as
of the end of the third quarter of 2005, and nine properties sold
in 2004.
(d) 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
income (loss) available to common stockholders for the purpose of
calculating our third quarter and year-to-date 2004 basic and
diluted earnings (loss) per share.
On May 20, 2005, the fair value paid to holders of our Class B
preferred stock, or $100 million (which was equal to the
redemption price and par value) exceeded the carrying value of the
preferred stock ($96 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
income (loss) available to common stockholders for the purpose of
calculating our year-to-date 2005 basic and diluted earnings
(loss) per share.
HOST MARRIOTT CORPORATION
Earnings (Loss) per Common Share
(unaudited, in millions, except per share amounts)
Quarter ended Quarter ended
September 9, 2005 September 10, 2004
Income Income
(loss) Shares Per (loss) Shares Per
(Numer- (Denomi- Share (Numer- (Denomi- Share
ator) nator) Amount ator) nator) Amount
Net loss $(5) 353.1 $(0.01) $(47) 348.7 $(0.13)
Dividends on
preferred stock (6) - (0.02) (9) - (0.03)
Issuance costs of
redeemed preferred
stock (a) - - - (4) - (0.01)
Basic and diluted loss
available to common
stockholders (b) (c) $(11) 353.1 $(0.03) $(60) 348.7 $(0.17)
Year-to-date ended Year-to-date ended
September 9, 2005 September 10, 2004
Income Income
(loss) Shares Per (loss) Shares Per
(Numer- (Denomi- Share (Numer- (Denomi- Share
ator) nator) Amount ator) nator) Amount
Net income (loss) $92 352.6 $0.26 $(61) 331.5 $(0.18)
Dividends on
preferred stock (21) - (0.06) (28) - (0.09)
Issuance costs of
redeemed preferred
stock (a) (4) - (0.01) (4) - (0.01)
Basic earnings (loss)
available to common
stockholders (b) 67 352.6 0.19 (93) 331.5 (0.28)
Assuming distribution
of common shares
granted under the
comprehensive stock
plan less shares
assumed purchased at
average market price - 2.4 - - - -
Diluted earnings (loss)
available to common
stockholders (b)(c) $67 355.0 $0.19 $(93) 331.5 $(0.28)
(a) For discussion on accounting treatment, see footnote (d) to the
consolidated statements of operations.
(b) 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.
(c) Our results for certain periods presented were significantly affected
by certain transactions, which are detailed in the table entitled,
"Schedule of Significant Transactions Affecting Earnings per Share
and Funds From Operations per Diluted Share."
HOST MARRIOTT CORPORATION
Comparable Hotel Operating Data
(unaudited)
Comparable Hotels by Region (a)
As of September 9, 2005
No. of No. of
Properties Rooms
Pacific 20 11,035
Florida 11 7,027
Mid-Atlantic 10 6,720
North Central 13 4,923
DC Metro 11 4,661
Atlanta 12 4,265
South Central 6 3,526
New England 6 3,032
Mountain 5 1,940
International 5 1,953
All Regions 99 49,082
Quarter ended September 9, 2005
Average
Average Occupancy
Daily Rate Percentages RevPAR
Pacific $165.84 81.6% $135.28
Florida 137.38 68.7 94.38
Mid-Atlantic 194.11 79.3 153.95
North Central 131.84 74.3 97.98
DC Metro 168.33 77.3 130.05
Atlanta 146.11 66.1 96.53
South Central 121.64 73.1 88.88
New England 151.03 81.6 123.22
Mountain 89.85 71.7 64.42
International 134.49 74.4 100.00
All Regions 153.38 75.6 115.98
Quarter ended September 10, 2004
Average Percent
Occupancy Change
Average Percent- in
Daily Rate ages RevPAR RevPAR
Pacific $154.84 78.5% $121.53 11.3%
Florida 133.13 67.2 89.47 5.5
Mid-Atlantic 175.44 81.3 142.56 8.0
North Central 122.41 73.9 90.47 8.3
DC Metro 151.45 74.9 113.37 14.7
Atlanta 146.04 68.7 100.27 (3.7)
South Central 112.98 72.5 81.93 8.5
New England 151.77 79.9 121.27 1.6
Mountain 89.25 63.1 56.33 14.4
International 122.97 73.4 90.28 10.8
All Regions 144.24 74.4 107.34 8.0
As of September 9, 2005
No. of No. of
Properties Rooms
Pacific 20 11,035
Florida 11 7,027
Mid-Atlantic 10 6,720
North Central 13 4,923
DC Metro 11 4,661
Atlanta 12 4,265
South Central 6 3,526
New England 6 3,032
Mountain 5 1,940
International 5 1,953
All Regions 99 49,082