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 September 6, 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 X No
<PAGE>
HMC ACQUISITION PROPERTIES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
September 6, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Thirty-six Weeks Ended
September 6, 1996 and September 8, 1995
Condensed Consolidated Statements of Cash Flows - 6
Thirty-six Weeks Ended September 6, 1996 and
September 8, 1995
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of 9
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 12
</TABLE>
- 2 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 6, December 29,
1996 1995
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Property and equipment, net.................................................... $ 518,673 $ 455,602
Due from hotel managers........................................................ 10,440 8,994
Other assets................................................................... 14,608 16,592
Cash and cash equivalents...................................................... 47,518 107,119
------------- -------------
$ 591,239 $ 588,307
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt ........................................................................ $ 350,000 $ 350,000
Deferred income taxes.......................................................... 14,861 9,718
Other liabilities.............................................................. 10,303 4,839
------------- ------------
Total liabilities........................................................ 375,164 364,557
------------- ------------
Shareholder's equity
Common stock, 100 shares issued and outstanding, no par value.............. -- --
Additional paid-in capital................................................. 214,374 214,374
Retained earnings.......................................................... 1,701 9,376
------------- ------------
Total shareholder's equity .............................................. 216,075 223,750
------------- -------------
$ 591,239 $ 588,307
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
REVENUES................................................................ $ 23,453 $ 14,526
--------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization......................................... 5,146 3,167
Base and incentive management fees (including Marriott International
management fees of $1,813 and $1,620 in 1996 and 1995,
respectively)....................................................... 2,329 2,047
Property taxes........................................................ 1,891 1,405
Ground rent, insurance and other...................................... 1,893 360
--------- ---------
Total operating costs and expenses.................................. 11,259 6,979
--------- ---------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST....................................... 12,194 7,547
Corporate expenses...................................................... (1,017) (676)
Interest expense........................................................ (7,534) (3,523)
Interest income......................................................... 500 181
--------- ---------
INCOME BEFORE INCOME TAXES.............................................. 4,143 3,529
Provision for income taxes.............................................. (1,879) (1,447)
--------- ---------
NET INCOME.............................................................. $ 2,264 $ 2,082
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
REVENUES.................................................................. $ 67,905 $ 47,517
--------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization........................................... 13,798 9,536
Base and incentive management fees (including Marriott International
management fees of $8,206 and $6,055 in 1996 and 1995,
respectively)......................................................... 9,255 6,812
Property taxes.......................................................... 5,536 4,198
Ground rent, insurance and other........................................ 3,304 1,817
--------- ---------
Total operating costs and expenses.................................... 31,893 22,363
--------- ---------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST......................................... 36,012 25,154
Corporate expenses........................................................ (3,039) (2,027)
Interest expense.......................................................... (22,600) (10,496)
Interest income........................................................... 2,095 457
--------- ---------
INCOME BEFORE INCOME TAXES................................................ 12,468 13,088
Provision for income taxes................................................ (5,143) (5,366)
--------- ---------
NET INCOME................................................................ $ 7,325 $ 7,722
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 7,325 $ 7,722
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization.................................... 13,798 9,965
Income taxes..................................................... 5,143 5,287
Changes in operating accounts.................................... (191) 2,666
Other............................................................ 532 --
---------- ---------
Cash provided by operations...................................... 26,607 25,640
---------- ---------
INVESTING ACTIVITIES
Acquisitions..................................................... (61,405) (58,864)
Dispositions..................................................... 20,000 --
Capital expenditures............................................. (27,724) (15,588)
Other............................................................ (779) (396)
---------- ---------
Cash used in investing activities................................ (69,908) (74,848)
---------- ---------
FINANCING ACTIVITIES
Dividend to Host Marriott Corporation............................ (15,000) --
Proceeds from borrowings, net.................................... -- 58,598
Repayments of debt............................................... -- (16,000)
Other............................................................ (1,300) --
---------- ---------
Cash provided by (used in) financing activities.................. (16,300) 42,598
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS............................... $ (59,601) $ (6,610)
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 6 -
<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 September 6, 1996 and December 29,
1995, the results of operations for the twelve and thirty-six weeks ended
September 6, 1996 and September 8, 1995 and the cash flows for the
thirty-six weeks ended September 6, 1996 and September 8, 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, management fees and certain other costs which are classified as
operating costs and expenses.
House profit generated by the Company's hotels for 1996 and 1995 consists
of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Sales
Rooms.............................. $ 44,645 $ 30,369 $ 127,371 $ 92,501
Food & Beverage.................... 19,229 14,274 58,848 46,149
Other.............................. 4,277 3,076 12,028 8,818
--------- --------- --------- ---------
Total Hotel Sales............... 68,151 47,719 198,247 147,468
--------- --------- --------- ---------
Department Costs
Rooms.............................. 10,974 7,766 30,977 22,660
Food & Beverage.................... 15,468 11,675 45,818 36,265
Other.............................. 2,339 1,722 6,648 5,147
--------- --------- --------- ---------
Total Department Costs.......... 28,781 21,163 83,443 64,072
--------- --------- --------- ---------
Department Profit.................... 39,370 26,556 114,804 83,396
Other Deductions..................... 15,917 12,030 46,899 35,879
--------- --------- --------- ---------
House Profit.................... $ 23,453 $ 14,526 $ 67,905 $ 47,517
========= ========= ========= =========
</TABLE>
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<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. In the second quarter
of 1996, the Company acquired, for approximately $17 million, a 95%
interest in a venture that acquired the 400-room Pittsburgh Hyatt Regency.
The property was renovated, converted to the Marriott brand, and re-opened
in July 1996.
During the first quarter of 1996, the Company acquired for $20 million a
minority interest in a joint venture with Host Marriott that holds a
controlling interest in two hotels in Mexico City, Mexico. The Company
subsequently sold its interest to Host Marriott for $20 million in the
third quarter of 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. Operating results presented for the
period ended September 8, 1995 are for comparative purposes only as the
senior notes were issued in December 1995.
Combined summarized operating results of the Guarantor Subsidiaries are as
follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------------------- -------------------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues............................................. $ 4,507 $ 2,620 $ 11,314 $ 7,010
Operating profit before corporate expenses
and interest....................................... 3,489 1,873 7,078 4,935
Net income........................................... 1,041 148 2,584 3,218
</TABLE>
Combined summarized balance sheet information of the Guarantor Subsidiaries
is as follows:
<TABLE>
<CAPTION>
September 6, December 29,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
Property and equipment, net....................................... $ 87,506 $ 63,044
Other assets...................................................... 13,074 5,333
----------- -----------
Total assets.................................................... $ 100,580 $ 68,377
=========== ===========
Debt.............................................................. $ 43,879 $ 40,679
Other liabilities................................................. 4,542 --
----------- -----------
Total liabilities............................................... 48,421 40,679
Equity............................................................ 52,159 27,698
----------- -----------
Total liabilities and equity.................................... $ 100,580 $ 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.
- 8 -
<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.
The Company's third quarter 1996 revenues of $23.5 million represented a $8.9
million, or 61%, increase from the third quarter of 1995. Year-to-date revenues
increased $20.4 million, or 43%, to $67.9 million. The Company's revenues were
impacted by improved lodging results and the addition of three full-service
hotel properties during 1995 and two full-service hotel properties 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 17% and 13% for
comparable units for the quarter and year-to-date, respectively. On a comparable
basis, average room rates increased 11% and 9% for the 1996 third quarter and
year-to-date, while average occupancy increased three percentage points for both
the quarter and year-to-date reflecting the impact of the five properties
converted to the Marriott brand. Management believes REVPAR will continue to
grow in the near future through steady increases in average room rates, combined
with less significant increases in occupancy rates. However, there can be no
assurance that REVPAR will continue to grow in the future. The comparable REVPAR
growth contributed to a 28% increase in comparable hotel revenues for the
quarter and a 19% increase year-to-date.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of
depreciation and amortization, management fees, property taxes, ground rent,
insurance and certain other costs. The Company's operating costs and expenses
for the third quarter of 1996 increased $4.3 million to $11.3 million and
year-to-date operating costs and expenses increased $9.5 million to $31.9
million. As a percentage of revenues, operating costs and expenses represented
48% of revenues for both the third quarter of 1996 and 1995, respectively.
Operating costs and expenses represented 47% of revenues for both year-to-date
1996 and 1995, respectively.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit increased $4.6 million
to $12.2 million, or 52% of revenues, in the third quarter of 1996 from $7.5
million, or 52% of revenues, in the third quarter of 1995. Year-to- date
operating profit rose $10.9 million to $36 million, or 53% of revenues, in 1996
from $25.2 million, or 53% of revenues, in 1995. Several hotels, including the
San Francisco Airport Marriott, the Westfields Conference Resort and the Dallas
Quorum Marriott, posted significant improvements in operating profit. Three
properties which were renovated and converted to the Marriott brand in 1995, the
Denver Marriott Tech Center, Vail Marriott Mountain Resort and the Williamsburg
Marriott, have also shown significant improvement over prior year results. These
gains have been partially offset by the performance of the South Bend Marriott
which experienced lower operating profit due to increased competition.
CORPORATE EXPENSES. Corporate expenses increased $0.3 million to $1 million in
the third quarter of 1996 and increased $1 million to $3 million year-to-date
primarily due to higher average assets for the Company during 1996, which
resulted in an increase in the allocation of corporate expenses to the
- 9 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Company by Host Marriott. As a percentage of revenues, corporate expenses were
4% of revenues for the 1996 third quarter and year-to-date, respectively,
compared to 5% of revenues for the 1995 third quarter and 4% year-to-date.
INTEREST EXPENSE. Interest expense increased $4 million to $7.5 million in the
1996 third quarter and $12.1 million to $22.6 million year-to-date primarily due
to the increase in the overall level of debt, as well as a higher average
interest rate, as a result of the December 1995 debt offering.
INTEREST INCOME. Interest income increased $0.3 million to $0.5 million for the
1996 third quarter and increased $1.6 million to $2.1 million year-to-date,
primarily due to the impact of available proceeds from the December 1995 debt
offering.
NET INCOME. The Company's net income for the third quarter of 1996 increased
$0.2 million to $2.3 million, or 10% of revenues. Year-to-date net income
decreased $0.4 million to $7.3 million, or 11% of revenues, principally due to
the change in interest expense discussed above, partially offset by improved
lodging results.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a decrease in cash and cash equivalents of $60 million in
the thirty-six weeks ended September 6, 1996. This decrease is primarily due to
the use of funds to fund capital expenditures and acquire two full-service
properties. Cash flow provided by operations increased $1 million to $27 million
for 1996 primarily due to improved hotel operating results.
Cash used in investing activities increased $46 million to $70 million in the
thirty-six weeks ended September 6, 1996, reflecting capital expenditures of $28
million for the renovation of certain properties and renewals and replacements
on other properties, in addition to expenditures of approximately $62 million
for the acquisition of two full-service hotels and a minority equity interest in
a joint venture controlling two hotels in Mexico City, Mexico. The Company
subsequently sold its interest in the joint venture to Host Marriott during the
third quarter of 1996 for $20 million.
Cash used in financing activities was $16 million for the thirty-six weeks ended
September 6, 1996 principally due to a $15 million dividend to Host Marriott.
In the first quarter of 1996, the Company acquired the 374-room Toronto Delta
Meadowvale Hotel for $25 million. In the second quarter of 1996, the Company
acquired, for approximately $17 million, a 95% interest in the venture that
acquired the 400-room Pittsburgh Hyatt Regency. The property was renovated,
converted to the Marriott brand and re-opened in July 1996.
EBITDA
The Company's consolidated Earnings Before Interest Expense, Taxes,
Depreciation, Amortization and other non-cash items ("EBITDA"), increased $6.5
million, or 60%, to $17.1 million in the 1996 third quarter and $17.8 million,
or 54%, to $50.5 million year-to-date. The increase in EBITDA is due to the
increase in comparable hotel EBITDA of 34% for the 1996 third quarter and 23%
year-to-date, and the addition of three full-service hotels in 1995 and two
full-service hotels 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
- 10 -
<PAGE>
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.
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
EBITDA ...................................... $ 17,148 $ 10,696 $ 50,528 $ 32,764
Interest expense................................ (7,534) (3,523) (22,600) (10,496)
Depreciation and amortization................... (5,146) (3,167) (13,798) (9,536)
Income taxes.................................... (1,879) (1,447) (5,143) (5,366)
Other non-cash charges, net..................... (325) (477) (1,662) 356
--------- ----------- ---------- ----------
Net income...................................... $ 2,264 $ 2,082 $ 7,325 $ 7,722
========= =========== ========== ==========
</TABLE>
- 11 -
<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 of 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.
- 12 -
<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.
October 17, 1996 /s/ DONALD D. OLINGER
- - ---------------- -----------------------------------
Date Donald D. Olinger
Vice President and Corporate Controller
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HMC
Acquisition Properties, Inc.'s Condensed Consolidated Balance Sheets and
Condensed Consolidated Statements of Operations and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0001007076
<NAME> HMC Acquisition Properties, Inc.
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jan-3-1997
<PERIOD-START> Dec-30-1995
<PERIOD-END> Sep-6-1996
<EXCHANGE-RATE> 1
<CASH> 47,518
<SECURITIES> 0
<RECEIVABLES> 10,440
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 548,536
<DEPRECIATION> 29,863
<TOTAL-ASSETS> 591,239
<CURRENT-LIABILITIES> 0
<BONDS> 350,000
0
0
<COMMON> 0
<OTHER-SE> 216,075
<TOTAL-LIABILITY-AND-EQUITY> 591,239
<SALES> 0
<TOTAL-REVENUES> 67,905
<CGS> 0
<TOTAL-COSTS> 31,893
<OTHER-EXPENSES> 3,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,600
<INCOME-PRETAX> 12,468
<INCOME-TAX> 5,143
<INCOME-CONTINUING> 7,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,325
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
