SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 22, 1996 Commission File No. 333-00768
HMC ACQUISITION PROPERTIES, INC.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 52-1888825
(State of Incorporation) (I.R.S. Employer
Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes No N/A X
<PAGE>
HMC ACQUISITION PROPERTIES INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 2
March 22, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 3
Twelve Weeks Ended March 22, 1996 and March 24, 1995
Condensed Consolidated Statements of Cash Flows - 4
Twelve Weeks Ended March 22, 1996 and March 24, 1995
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Results of 7
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 10
- 2 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 22, December 29,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net............. $ 490,800 $ 455,602
Investment in affiliate................. 20,000 --
Due from hotel managers................. 11,949 8,994
Other assets............................ 13,095 16,592
Cash and cash equivalents............... 65,058 107,119
------------- -------------
$ 600,902 $ 588,307
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt.................................... $ 350,000 $ 350,000
Deferred income taxes................... 11,869 9,718
Other liabilities....................... 12,360 4,839
------------- -------------
Total liabilities............... 374,229 364,557
------------- -------------
Shareholder's equity
Common stock, 100 shares issued ........ -- --
and outstanding, no par value
Additional paid-in capital.............. 214,374 214,374
Retained earnings....................... 12,299 9,376
------------- -------------
Total shareholder's equity ......... 226,673 223,750
------------- -------------
$ 600,902 $ 588,307
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended March 22, 1996 and March 24, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES.............................................. $ 22,459 $ 17,824
--------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization ...................... 4,205 2,755
of property and equipment
Base and incentive management fees (including
Marriott International management fees of $3,058
and $2,038 in 1996 and 1995, respectively)........ 3,273 2,378
Property taxes...................................... 1,875 1,410
Ground rent, insurance and other.................... 489 600
--------- ---------
Total operating costs and expenses................ 9,842 7,143
--------- ---------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST..................... 12,617 10,681
Corporate expenses.................................... (1,146) (735)
Interest expense...................................... (7,531) (3,489)
Interest income....................................... 1,134 79
---------- ---------
INCOME BEFORE INCOME TAXES............................ 5,074 6,536
Provision for income taxes............................ (2,151) (2,596)
--------- ---------
NET INCOME............................................ $ 2,923 $ 3,940
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Weeks Ended March 22, 1996 and March 24, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 2,923 $ 3,940
Adjustments to reconcile to cash
provided by operations:
Depreciation and amortization...................... 4,205 2,755
Income taxes....................................... 2,151 2,596
Other.............................................. 168 143
Changes in operating accounts...................... 4,698 (3,599)
---------- ---------
Cash provided by operations..................... 14,145 5,835
---------- ---------
INVESTING ACTIVITIES
Acquisitions.......................................... (44,561) (14,742)
Capital expenditures.................................. (9,583) (6,736)
Other................................................. (1,456) 682
---------- ---------
Cash used in investing activities............... (55,600) (20,796)
---------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings, net......................... -- 14,800
Repayments of debt.................................... -- (5,000)
Other................................................. (606) --
---------- ---------
Cash provided by (used in) financing activities (606) 9,800
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS................. $ (42,061) $ (5,161)
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated financial statements of HMC Acquisition
Properties, Inc. and subsidiaries (the "Company"), a wholly-owned indirect
subsidiary of Host Marriott Corporation ("Host Marriott"), have been
prepared by the Company without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for
the fiscal year ended December 29, 1995.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of March 22, 1996, the results of
operations and cash flows for the twelve weeks ended March 22, 1996 and
March 24, 1995. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term
variations.
2. Revenues represent house profit from the Company's hotel properties.
House profit reflects the net revenues flowing to the Company as property
owner and represents hotel operating results less property-level expenses
excluding depreciation and amortization, property taxes, ground rent,
insurance and base and incentive management fees which are classified as
operating costs and expenses.
House profit generated by the Company's hotels for the first quarter of
1996 and 1995 consists of:
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 22, March 24,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Sales
Rooms................................. $ 42,476 $ 29,944
Food & Beverage....................... 19,667 14,394
Other................................. 3,841 2,307
--------- ---------
Total Hotel Sales.................. 65,984 46,645
--------- ---------
Department Costs
Rooms................................. 10,022 7,023
Food & Beverage....................... 15,210 11,093
Other................................. 2,294 1,395
--------- ---------
Total Department Costs............. 27,526 19,511
--------- ---------
Department Profit....................... 38,458 27,134
Other Deductions........................ 15,999 9,310
--------- ---------
House Profit....................... $ 22,459 $ 17,824
========= =========
</TABLE>
- 6 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. In the first quarter of 1996, the Company acquired the 374-room Toronto
Delta Meadowvale hotel for approximately $25 million. The Company also
acquired a minority equity interest in a joint venture with Host Marriott
that holds a controlling interest in two hotels in Mexico City, Mexico
totalling 914 rooms for $20 million. One of the hotels (314 rooms) is under
construction and will open in the third quarter of 1996.
In the second quarter of 1996, the Company acquired, for $18 million,a 95%
interest in a venture that acquired the 400-room Pittsburgh Hyatt Regency.
The property is currently closed and is being converted to the Marriott
brand. The property is scheduled to re-open in July 1996.
4. During the second quarter of 1996, a $15 million dividend was paid to Host
Marriott, as permitted under the senior notes indenture.
5. All direct and indirect subsidiaries of the Company guarantee the senior
notes. The separate financial statements of each guaranteeing subsidiary
(each, a "Guarantor Subsidiary") are not presented because the Company's
management has concluded that such financial statements are not material
to investors. The guarantee of each Guarantor Subsidiary is full and
unconditional and joint and several and each Guarantor Subsidiary is a
wholly-owned subsidiary of the Company.
Combined summarized operating results of the Guarantor Subsidiaries
are as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 22, March 24,
1996 1995
---- ----
<S> <C> <C>
Revenues........................................ $ 2,926 $ 1,880
Operating profit before corporate expenses
and interest.................................. 1,895 626
Net income...................................... 405 376
</TABLE>
Combined summarized balance sheet information of the Guarantor
Subsidiaries is as follows (in thousands):
<TABLE>
<CAPTION>
March 22, December 29,
1996 1995
---- ----
<S> <C> <C>
Property and equipment, net..................... $ 87,299 $ 63,044
Other assets.................................... 9,916 5,333
----------- -----------
Total assets.................................. $ 97,215 $ 68,377
=========== ===========
Debt............................................ $ 56,623 $ 40,679
Other liabilities............................... 1,489 --
----------- -----------
Total liabilities............................. 58,112 40,679
Equity.......................................... 39,103 27,698
----------- -----------
Total liabilities and equity.................. $ 97,215 $ 68,377
=========== ===========
</TABLE>
The operating results and balance sheet information include the
pushed-down effect of that portion of the Company's senior notes allocated
to the guarantor subsidiaries.
- 7 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- - ---------------------
REVENUES. Revenues represent house profit from the Company's hotel properties.
Revenues increased $4.6 million, or 26%, to $22.5 million for the first quarter
of 1996. The Company's revenues were impacted by improved lodging results and
the addition of three full-service hotel properties during 1995 and one in 1996.
The Company's hotels reported strong growth in revenue per available room
("REVPAR") for comparable hotels. REVPAR is a commonly used indicator of market
performance for hotels which represents the combination of the average daily
room rate charged and the average daily occupancy achieved. REVPAR does not
include food and beverage or other ancillary revenues generated by the property.
Improved results were driven by strong increases in REVPAR of 14% for comparable
units for the quarter. On a comparable basis, average room rates increased 7%
for the 1996 first quarter, while average occupancy increased more than four
percentage points reflecting the impact of the properties converted to the
Marriott brand during 1995. Management believes REVPAR will continue to grow in
the near future through steady increases in average room rates, combined with
minor changes in occupancy rates. However, there can be no assurance that REVPAR
will continue to grow in the future. Revenues for the quarter were negatively
impacted by the renovation of the Denver Marriott Tech Center.
The renovation should be completed in the second quarter of 1996.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of
depreciation amortization, base and incentive management fees, property taxes,
ground and equipment rent, insurance and certain other costs. The Company's
operating costs and expenses for the first quarter of 1996 increased $2.7
million to $9.8 million. As a percentage of revenues, operating costs and
expenses represented 44% of revenues in the first quarter of 1996 and 40% of
revenues in the first quarter of 1995 reflecting an overall increase in
depreciation expense, incentive management fees and the impact of the renovation
of the Denver Marriott Tech Center.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit increased $1.9 million,
or 18%, to $12.6 million in the first quarter of 1996 from $10.7 million in the
first quarter of 1995. Several hotels, including the San Francisco Airport
Marriott, the Vail Marriott Mountain Resort, which was renovated in early 1995,
and the Dallas Quorum Marriott posted significant improvements in operating
profit. The Fort Lauderdale Marina Marriott reported an overall decrease in
operating profit from particularly strong 1995 results due to the Super Bowl
being held in nearby Miami in 1995.
CORPORATE EXPENSES. Corporate expenses increased approximately $.4 million to
$1.1 million in the first quarter of 1996 primarily due to higher average assets
for the Company for the first quarter of 1996, which resulted in an increase in
the allocation of corporate expenses to the Company by Host Marriott. As a
percentage of revenues, corporate expenses increased from 4.1% of revenues in
the first quarter of 1995 to 5.1% of revenues in the first quarter of 1996.
INTEREST EXPENSE. Interest expense increased $4 million to $7.5 million in the
1996 first quarter due to the increase in the level of debt and the interest
rate as a result of the December 1995 debt offering.
- 8 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NET INCOME. The Company's net income for the first quarter of 1996 decreased $1
million to $2.9 million, principally due to the change in interest expense
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company reported a decrease in cash and cash equivalents of $42 million in
the first quarter of 1996. This decrease is primarily due to the use of funds to
fund capital expenditures and acquire one full-service property and a minority
equity interest in a joint venture controlling two hotels in Mexico City. Cash
flow provided by operations increased $8.3 million to $14.1 million for 1996
primarily due to improved hotel operating results.
Cash used in investing activities increased $34.8 million to $55.6 million for
the first quarter of 1996, reflecting capital expenditures of $9.6 million for
the renovation of certain properties and renewals and replacements on other
properties, expenditures of $25 million for the acquisition of one full-service
hotel and $20 million for the acquisition of a minority equity interest in a
joint venture controlling two hotels in Mexico.
In the first quarter of 1996, the Company acquired the 374-room Toronto Delta
Meadowvale Hotel for $25 million. The Company also acquired a minority equity
interest in a venture with Host Marriott that holds a controlling interest in
two hotels in Mexico City, Mexico totaling 914 rooms for $20 million. In the
second quarter of 1996, the Company acquired, for $18 million, a 95% interest in
the venture that acquired the 400-room Pittsburgh Hyatt Regency. The property is
currently closed and is being converted to the Marriott brand. The property is
scheduled to re-open in July 1996.
EBITDA
- - ------
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA"), increased $4.1
million, or 32%, to $17.1 million in the 1996 first quarter. The increase in
EBITDA is due to the increase in comparable hotel EBITDA of 16%, including the
impact of the converted properties, and the addition of three full-service
hotels in 1995 and one full-service hotel in 1996. The Company believes that
EBITDA is a meaningful measure of the Company's operating performance due to the
significance of the Company's long-lived assets (and the related depreciation
thereon) and because EBITDA can be used to measure the Company's ability to meet
debt service requirements and is used in the senior note indenture as part of
the tests determining the Company's ability to incur debt and to make certain
restricted payments. EBITDA information should not be considered as an
alternative to net income, operating profit, cash from operations, or any other
operating or liquidity performance measure prescribed by generally accepted
accounting principles.
- 9 -
<PAGE>
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 22, March 24,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
EBITDA.......................................... $ 17,094 $ 12,876
Interest expense................................ (7,531) (3,489)
Depreciation and amortization................... (4,205) (2,753)
Income taxes.................................... (2,151) (2,596)
Other non-cash charges, net..................... (284) (98)
--------- ---------
Net income...................................... $ 2,923 $ 3,940
========= =========
</TABLE>
- 10 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
None.
- 11 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMC ACQUISITION PROPERTIES, INC.
May 13, 1996 /s/ DONALD D. OLINGER
Date Donald D. Olinger
Vice President and Corporate Controller
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the first quarter 10-Q and is qualified in its entirety
by reference to such 10-Q.
</LEGEND>
<CIK> 0001007076
<NAME> HMC Acquisition Properties, Inc
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JAN-3-1997
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-22-1996
<CASH> 65,058
<SECURITIES> 0
<RECEIVABLES> 11,949
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 490,800
<DEPRECIATION> 21,465
<TOTAL-ASSETS> 600,902
<CURRENT-LIABILITIES> 0
<BONDS> 350,000
0
0
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 600,902
<SALES> 0
<TOTAL-REVENUES> 22,459
<CGS> 0
<TOTAL-COSTS> 9,842
<OTHER-EXPENSES> 1,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,531
<INCOME-PRETAX> 5,074
<INCOME-TAX> 2,151
<INCOME-CONTINUING> 2,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,923
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
