to $97 million, Compared to Loss
of $47 million Last Year;
Likely Will Not Pay a 4th Qtr Dividend
Hotel Operational Data
|BETHESDA, Md., Oct. 15, 2003 -- Host Marriott Corporation (NYSE: HMT
- News), the nation's largest lodging real estate investment trust (REIT),
today announced results of operations for the third quarter of 2003. Third
quarter results include the following:
Comparable hotel RevPAR for the third quarter declined 2.5% as a result of a 1.5% reduction in average room rate and an occupancy decline of 0.7 percentage points compared to the same period in 2002. Year-to-date comparable hotel RevPAR declined 5.6% with a decline in room rate of 2.6% and a decrease in occupancy of 2.2 percentage points compared to the same period in 2002. The Company's earnings and FFO per diluted share include certain unusual items described on page 22.
Christopher J. Nassetta, president and chief executive officer, stated, "Our results for the third quarter were generally in line with expectations, with RevPAR at the higher end of our range and margins at the lower end. Our RevPAR results have clearly improved over the first half of the year. Further improvement should occur in 2004, as lodging demand benefits from a strengthening economy and levels of new supply continue to decline."
Acquisitions and Dispositions
The Company recently announced that it has signed an agreement to acquire the 806-room Hyatt Regency Maui Resort and Spa, a premier luxury resort hotel in Hawaii for $321 million, or $398,000 per room. In addition to increasing the geographic diversity of the portfolio, the hotel benefits from extremely high barriers to entry for new supply. The acquisition is consistent with Host Marriott's strategy of acquiring high quality properties in difficult to duplicate locations. The purchase is subject to customary closing conditions and is expected to close by year-end.
"We are pleased with the pending acquisition of the Hyatt Regency Maui. It will be the Company's first property in Hawaii, a market that should continue to perform well. We are continuing to pursue additional acquisitions that are consistent with our target profile of upscale and luxury properties in markets with significant barriers to entry," said James F. Risoleo, executive vice president, acquisitions and development.
As of September 12, 2003, the Company had $547 million in cash on hand and $250 million of availability under its credit facility. The Company does not believe that it will need to borrow under the credit facility for the remainder of 2003.
During August 2003, the Company issued 27.5 million shares of common stock for net proceeds of $251 million, which will be used to partially fund the purchase of the Hyatt Regency Maui.
Also in August, the Company entered into two, four-year interest rate swap agreements, which mature October 2007, effectively converting its $242 million Series G senior notes to floating rate debt. The Company also redeemed $71 million of its Series A senior notes using the proceeds from the sale of three non-core properties. In September, we refinanced the $95 million mortgage debt secured by the JW Marriott Hotel in Washington, D.C. with an $88 million floating-rate mortgage loan. The effect of these transactions is that the Company's total fixed rate debt has been reduced from 90% to 84%.
W. Edward Walter, executive vice president and chief financial officer, stated, "The combination of our equity issuance, which will facilitate the acquisition of the Hyatt Regency Maui, the senior notes redemption, the swap transaction and the mortgage refinancing have furthered our progress toward reducing our leverage and adding flexibility to our balance sheet."
The Company's updated guidance for RevPAR for full year 2003 is for a decline of approximately 4% to 5% and fourth quarter RevPAR of flat to down 2.5%. Based upon this guidance, the Company estimates the following for full year 2003:
HOST MARRIOTT CORPORATION
Host Marriott Corporation, herein referred to as we or Host Marriott, is primarily the owner of hotel properties. We operate as a self-managed and self-administered real estate investment trust, or REIT. 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 the 8% partnership interests of Host LP held by outside partners as of September 12, 2003, which is reflected as minority interest in our balance sheet and minority interest expense in our statement of operations. Readers are encouraged to find further detail regarding our organizational structure in our annual report on Form 10-K.
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial measures," which are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with generally accepted accounting principles, or GAAP, within the meaning of applicable SEC rules. They are as follows: (i) Funds From Operations per diluted share, (ii) EBITDA, (iii) Adjusted EBITDA and (iv) Comparable Hotel Results. The following discussion defines these terms and presents why we believe they are useful measures of our performance.
FFO per Diluted Share
The National Association of Real Estate Investment Trusts, or NAREIT, defines Funds From Operations, or FFO, as net income (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO is presented on a per share basis after making adjustments for the effects of dilutive securities. We use FFO per diluted share as a measure of our performance because historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, because real estate values have historically risen or fallen with market conditions, most industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be less informative. NAREIT adopted the definition of FFO in order to promote an industry-wide standard measure of REIT operating performance. Accordingly, as a member of NAREIT, we have adopted FFO per share as a measure to evaluate our performance in comparison to our peer group in NAREIT, substantially all of which use the same measure. We believe that the presentation of FFO per diluted share provides useful information to investors regarding our results of operations because it is a better measure of our operating performance. In addition, it facilitates comparisons between us and other REITs, including when making investment decisions. FFO per diluted share is also used by the Compensation Policy Committee of the Board of Directors to establish criteria for performance-based compensation and in the annual budget process.
Earnings before Interest Expense, Income Taxes, Depreciation and Amortization, or EBITDA, is a commonly used measure of performance in many industries which management believes provides useful information to investors regarding our results of operations. EBITDA helps us and our investors evaluate the ongoing operating performance of our properties and facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. Management uses EBITDA to provide a baseline when evaluating hotel results. Management also uses EBITDA as one measure in determining the value of acquisitions and dispositions and, like FFO per diluted share, it is widely used by management in the annual budget process.
Management has historically adjusted EBITDA when evaluating our performance because we believe that the exclusion of certain recurring items described below is necessary to provide the most accurate measure of the performance of our investment portfolio and to more fully reflect the ongoing value of the company as a whole. We adjust EBITDA for the following items and refer to this measure as Adjusted EBITDA:
* Gains and Losses on Dispositions and Related Debt
Extinguishments -- We
* Consolidated Partnership Adjustments -- We exclude
the minority interest
* Equity Investment Adjustments -- We exclude the
equity in earnings
* Cumulative effect of a change in accounting principle
Limitations on the Use of FFO per Diluted Share, EBITDA and Adjusted EBITDA
FFO per diluted share, as presented, may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO. In addition, although FFO per diluted share is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs. EBITDA and Adjusted EBITDA, as presented, may also not be comparable to measures calculated by other companies. This information should not be considered as an alternative to net income, operating profit, cash from operations, or any other operating performance measure prescribed by GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital expenditures), interest expense (for EBITDA and Adjusted EBITDA purposes only) and other items have been and will be incurred and are not reflected in the EBITDA, Adjusted EBITDA and FFO per diluted share presentations. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statement of operations and cash flows include disclosure of our interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. Additionally, FFO per diluted share, EBITDA and Adjusted EBITDA should not be considered as a measure of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions. In addition, FFO per diluted share does not measure, and should not be used as a measure of, amounts that accrue directly to shareholders' benefit.
Comparable Hotel Results
We present certain operating results and statistics for the periods included in this report on a comparable hotel basis. We define our comparable hotels as full-service properties (i) that are owned or leased by us and the operations of which are included in our consolidated results, (ii) for which we reported operating results throughout the reporting periods being compared, and (iii) that have not sustained substantial property damage or undergone large-scale capital projects during the reporting periods being compared. We consider 116 of our portfolio of 120 full-service hotels to be comparable hotels for the periods presented in this quarterly report. The operating results of the following hotels that we own as of September 12, 2003 are excluded from comparable hotel results:
In addition to excluding non-comparable full-service properties, our comparable hotel operating results reflect the following adjustments:
While these measures are based on GAAP, costs such as depreciation and amortization, income taxes, interest expense, corporate expenses, and other corporate items have been incurred by us and are not reflected in this presentation. As a result, the comparable hotel results do not represent our total revenues, expenses or operating profit and these comparable hotel results should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statement of operations includes such amounts, all of which should be considered by investors when evaluating our performance.
Operating Results (as reported in our statement of operations). The results we report in our statement of operations are based on results reported to us by our hotel managers. These hotel managers use different reporting periods. Marriott International, Inc., the manager of the majority of our properties, uses a year ending on the Friday closest to December 31 and reports twelve weeks of operations for each of the first three quarters and sixteen or seventeen weeks for the fourth quarter of the year for our Marriott branded hotels. In contrast, other managers of our hotels, such as Hyatt, report results on a monthly basis. In addition, Host Marriott, as a REIT, is required by tax laws to report results on the calendar year. As a result, we elected to adopt the reporting periods used by Marriott International, but have modified them so that our fiscal year always ends on December 31 to comply with REIT rules. Our first three quarters of operations end on the same day as Marriott International, but our fourth quarter ends on December 31.
Two consequences of the reporting cycle we have adopted are: (1) quarterly start dates will usually differ between years, except for the first quarter which always commences on January 1, and (2) our first and fourth quarters of operations and year-to-date operations may not include the same number of days as reflected in prior years. For example, the third quarter of 2003 ended on September 12 and the third quarter of 2002 ended on September 6, though both quarters reflect twelve weeks of operations. In contrast, year-to-date results through the third quarter of 2003 reflect results through September 12, 2003 and include 255 days of operations, while our year-to-date results as of September 6, 2002 reflect 249 days of operations.
In addition, for results reported by hotel managers using a monthly reporting period (approximately one-fourth of our full-service hotels), the month of operation that ends after quarter-end is included in our results of operations in the following fiscal quarter. For example, if our first quarter ends March 15th, operations for the entire month of March for the hotel are reported in our second fiscal quarter. Accordingly, our results of operations include results from hotel managers reporting results on a monthly basis as follows: first quarter (January, February), second quarter (March - May), third quarter (June - August), and fourth quarter (September - December).
Hotel Operating Statistics. We use a measure common in the industry to evaluate the operations of a hotel-room revenue per available room, or RevPAR. RevPAR is defined as the product of the average daily room rate charged and the average daily occupancy achieved. RevPAR does not include food and beverage or other ancillary revenues such as parking, telephone, or other guest services generated by the property. In contrast to the reporting periods for our statement of operations, our hotel operating statistics (i.e., RevPAR, average daily rate and average occupancy) are always reported based on the reporting cycle used by Marriott International. This facilitates year-to- year comparisons of hotel results, as each reporting period will be comprised of the same number of days of operations as in the prior year (except in the case of fourth quarters comprised of seventeen versus sixteen weeks). This means, however, that the reporting periods we use for hotel operating statistics may differ slightly from the reporting periods used for our statement of operations for the first and fourth quarters where, as noted above, we are required by the REIT tax laws to report results on the calendar year. For the hotel operating statistics reported here:
* hotel results for the quarters ended September
12, 2003 and September 6,
* hotel results for year-to-date September 12, 2003
This press release contains forward-looking statements within the meaning of federal securities regulations. 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 that will affect occupancy rates at our hotels and the demand for hotel products and services; threats of terrorism that affect travel patterns and demand for hotels; 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; and our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes. For further information regarding risks and uncertainties associated with our business, please refer to 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 14, 2003 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.
Host Marriott is a Fortune 500 lodging real estate company which currently owns or holds controlling interests in 120 upscale and luxury hotel properties primarily operated under premium brands, such as Marriott, Ritz-Carlton, Hyatt, Four Seasons and Hilton.
Host Marriott Corporation
|Also See:||Host Marriott to Acquire the Hyatt Regency Maui Resort and Spa For $321 Million, $398,000 per room / October 2003|
|Host Marriott Reports Loss of $43 million Compared with Loss of $8 million in Year-ago 1st Quarter; Forecasts a Loss for the Full Year / Hotel Operational Data / April 2003|
|Host Marriott Reports a 3rd Quarter Loss of $47 million Compared with a Loss of $16 million in Prior Year; Expects RevPAR for full year 2002 to Decline between 4% and 5% / Oct 2002|