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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) May 12, 1999
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HOMESTEAD VILLAGE INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Maryland
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(State or Other Jurisdiction of Incorporation)
1-12269 74-2770966
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(Commission File Number) (I.R.S. Employer Identification No.)
2100 RiverEdge Parkway, Atlanta, Georgia 30328
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(Address of Principal Executive Offices) (Zip Code)
(770) 303-2200
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(Registrant's Telephone Number, Including Area Code)
Not applicable
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(Former name or former address, if changed since last report)
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<PAGE>
Item 5. Other
On May 12, 1999, Homestead Village Incorporated ("Homestead")
announced (i) its results for the first quarter of 1999, (ii) the fact that
it anticipates certain second quarter write-offs and special charges and
(iii) several changes in management. A copy of this press release is filed
as an exhibit to this report and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
None.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
99.1 Press Release dated May 12, 1999.
<PAGE>
SIGNATURES
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 hereunto duly authorized.
HOMESTEAD VILLAGE INCORPORATED
Dated: May 14, 1999 By: /s/ Jeffrey A. Klopf
------------------------------------
Jeffrey A. Klopf
Senior Vice President and Secretary
News Release Contact: Investor Relations, Kelly F. Lee
800/201-9455 o 770/303-8299
HOMESTEAD VILLAGE REPORTS A 70.6% INCREASE IN FIRST QUARTER EBITDA
Anticipates Second Quarter Write-Offs and Special Charges of Approximately
$65 Million and Announces Several Changes in Senior Management
ATLANTA -- (May 12, 1999) -- Homestead Village Incorporated (NYSE: HSD), a
leading owner and operator of moderately priced, extended stay lodging
facilities, today reported an increase of 70.6% in EBITDA (earnings before
interest, taxes, depreciation and amortization) per diluted share to $0.29
in the first quarter of 1999, compared with $0.17 per share for the same
period one year ago. Aggregate EBITDA for the first quarter 1999 was $16.4
million, a 52.7% increase over the $10.8 million EBITDA in the first
quarter 1998. The company had 125 operating properties as of March 31,
1999, and eleven properties under development.
In its press release issued March 15, 1999, the company stated that it
anticipated first quarter EBITDA of between $17 million and $18 million.
Subsequent to the March 15 release, management determined that it would be
necessary to reduce the amount of costs that were capitalized because of
the rapid decline in development activity resulting from the shortage of
capital affecting the extended stay industry. The shortfall in first
quarter reported EBITDA is attributable primarily to expensing
approximately $1.5 million more in development-related costs than had been
anticipated.
Homestead also reported EBDADT (earnings before depreciation, amortization
and deferred taxes) for the first quarter of $0.13 per diluted share,
compared with $0.17 per diluted share for the prior year period. Interest
costs increased to $11.3 million in the first quarter of 1999 from $520,000
in first quarter 1998; this increase was a significant factor in the
decline in EBDADT per diluted share.
Homestead's financial statements reflect the company's adoption of
"Reporting on the Costs of Start-Up Activities" Statement of Position 98-5
(SOP 98-5) at the beginning of fiscal year 1999. As a result, the company's
first quarter results include, as a cumulative effect of an accounting
change, a $14.2 million write-off of unamortized organizational,
pre-opening and start-up costs. On a pro forma basis, Homestead would have
expensed $3.6 million under SOP 98-5 in the first quarter of 1998.
Portfolio Weekly RevPAR Increased 10%
Homestead's first quarter 1999 property-level performance compared to first
quarter 1998 can be characterized by an increase in weekly rate combined
with a decline in occupancy (whether considering comparable or "same store"
properties, stabilized, pre-stabilized or the entire portfolio). Weekly
revenue per available room (RevPAR) for the company's entire portfolio
increased 10% to $221 from $201; the number of operating properties
increased to 125 as of March 31, 1999, from 82 at March 31, 1998. The
weekly rate for the company's portfolio increased 24.8% to $352 in first
quarter 1999 from $282 in the prior year period, while occupancy declined
to 62.8% in first quarter 1999 from 71.1% one year ago.
RevPAR for the company's same-store or comparable universe of 49 properties
was $209 in the first quarter 1999, a 4.1% decline from the $218 RevPAR in
the first quarter 1998. The average same-store weekly rate increased 11.2%
(to $307 from $276), while occupancy declined to 68.0% from 79.1%.
Management noted that many of the same-store properties are in weaker
Southwestern markets and include Homestead's oldest and least competitive
properties.
- more -
<PAGE>
Homestead 1Q 1999 Results/Page Two
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Management believes that the normal first quarter seasonal downturn was more
pronounced in 1999 for Homestead than in previous years, as the company now
has 30.8% of its investment in operating properties in Northeastern and
Midwestern markets. These markets typically are more negatively impacted by
winter weather than the Southwestern and Southeastern markets. Nevertheless,
while those properties that reached stabilization during the first quarter of
1999 took longer to achieve stabilization (an average of 20.2 weeks) than
historic experience, five new properties opened in the first quarter 1999 had
an average occupancy rate of 73.9% for April 1999.
Management Objectives
Homestead's management has established three near-term objectives. First,
management will focus on expeditiously generating cash proceeds from its land
held for sale, which will be used to retire debt and fund working capital
needs. Second, overhead levels will be adjusted downward to reflect a company
with stabilized operations involving 136 properties. Third, management intends
to reemphasize delivery of a high-quality, value-oriented product with
occupancy levels greater than currently being experienced by the company. As a
result of implementing these objectives, the company will have a one-time
charge in the second quarter for severance costs of at least $8 million.
The Rights Offering
The company is currently conducting a $225 million rights offering. The rights
expire on May 21, 1999, with funding anticipated on May 28, 1999. A portion of
the proceeds from the rights offering will be used to repay a $200 million
bridge line of credit. Remaining proceeds from the rights offering will be
used to fund cash needs, including completion of the properties currently
under construction. Security Capital Group Incorporated (NYSE:SCZ),
Homestead's largest shareholder, has committed to purchase all rights not
exercised by others.
Extending Debt Maturities
During the first quarter, the company focused on extending its near-term
debt maturities. At the beginning of the quarter, Homestead had $700.4
million of debt, of which $479.1 million was due to mature prior to June
30, 1999. During the quarter, Homestead completed a $145 million sale and
leaseback transaction on 18 properties, proceeds of which were used to
repay $122 million of debt scheduled to mature in June 1999. The company
has also extended $200 million working capital lines of credit through
December 2000; the original maturity of the lines was April 23, 1999. As of
March 31, 1999, the working capital lines of credit were fully drawn.
Upon completion of the pending rights offering and repayment of the $200
million bridge line of credit, Homestead will have no debt maturing until
December 2000.
Land Held for Sale and Related Second Quarter 1999 Write-Offs
Homestead has made substantial investments in ownership of land held for
development as well as in pursuit costs for additional development sites.
During the second quarter, Homestead determined, based on its inability to
obtain financing for development of sites beyond those already under
construction, to further curtail its development program including its
Urban initiative. All land previously held for development will be held for
sale. Homestead will record a special charge in the second quarter 1999
allowing for write-down of the carrying cost of land held for sale, to its
estimated fair value less estimated costs to dispose.
Third Party
Expenses and
Capitalized Overhead Total
Land Type Cost Interest Allocation Cost Write-Off New Basis
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Suburban $25,067 $2,125 $12,211 $39,403 ($16,024) $23,379
Urban 73,760 8,908 13,209 95,877 (26,693) 69,184
Excess 4,208 139 4,347 (344) 4,003
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Total $103,035 $11,033 $25,559 $139,627 ($43,061) $96,566
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Homestead 1Q 1999 Results/Page Three
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The company has also discontinued the pursuit of 14 additional land sites,
which will result in a write-off of approximately $7.1 million, consisting
of pursuit costs and loss of non-refundable earnest money deposits.
The land-related special charges to earnings are currently estimated to
exceed $52 million. All of the land-related write-offs will be recorded in
the second quarter 1999 and will have a material adverse affect on the
reported earnings of the company for the second quarter. All of the land
and pursuit costs being written-off have been previously funded and,
therefore, the write-offs related to the land do not require additional
cash expenditures.
Carrying costs on the land sites, such as interest and property taxes, will
be expensed until the sites are disposed of and will negatively affect
earnings until disposal. The majority of the land sites are encumbered by
the working capital lines of credit and, upon sale, the proceeds must be
used to pay down the working capital lines.
In addition, Homestead will immediately begin to expense previously
capitalized costs of its internal development personnel, except for
construction in progress.
Michael D. Cryan Resigns; C. Ronald Blankenship Named Interim Chairman
and Chief Executive Officer
Michael D. Cryan, co-chairman and chief operating officer of Homestead, has
announced his resignation as of May 11, 1999. Mr. Cryan joined Homestead
December 18, 1996, and has been instrumental in developing the company's
marketing program and overseeing operations of the properties. C. Ronald
Blankenship, vice chairman and chief operating officer of Security Capital
Group, has been elected to the Homestead board of directors to fill the
vacancy created by Mr. Cryan's resignation and selected interim chairman
and chief executive officer of Homestead. Mr. Blankenship will continue to
serve as vice chairman of Security Capital.
David C. Dressler, Jr., who had been co-chairman and chief investment
officer of Homestead, will become president of the company, focusing his
attention on maximizing the value in Homestead's asset portfolio, including
the land held for sale. Mr. Dressler remains a member of the Homestead
board of directors. James C. Potts will become Homestead's executive vice
president, with responsibility for optimizing Homestead's property-level
performance.
Homestead Village Incorporated is a leading owner and operator of
moderately priced, extended stay lodging properties throughout the United
States. Homestead is focused on the corporate business traveler, and has
developed a proprietary operating system to ensure its customers a
consistent, high-quality, uniform lodging experience. The company seeks to
build a national brand recognized and valued by its major corporate
customers by concentrating on delivering high-quality service and product
in strategic locations. As of March 31, 1999, Homestead had 125 properties
operating in 37 markets, including 24 of the top 25 travel destination
markets, and 11 properties under construction, all of which are expected to
open by the third quarter of 1999.
# # #
<PAGE>
Homestead's press releases, SEC filings, financial data and corporate
information are available on the company's web site at www.stayhsd.com. The
web site also includes an interactive studio room tour and on-line property
directory.
In addition to historical information, this press release contains
forward-looking statements under the federal securities laws. These
statements are based on current expectations, estimates and projections
about the industry and markets in which Homestead operates, management's
beliefs and assumptions made by management. Forward-looking statements are
not guarantees of future performance and involve certain risks and
uncertainties, which are difficult to predict. Actual operating results may
be affected by changes in national and local economic conditions,
competitive market conditions, changes in financial markets or interest
rates that could adversely affect Homestead's cost of capital and its
ability to meet its financing needs and obligations, weather, obtaining
governmental approvals and meeting development schedules, and therefore,
may differ materially from what is expressed or forecasted in this press
release.
<PAGE>
First Quarter 1999
Unaudited Financial Results
Statements of Earnings Before Depreciation, Amortization
and Deferred Taxes (EBDADT)
(In thousands, except per share amounts and percentages)
Three Months Ended March 31,
----------------------------
1999 1998 % Change
Statements of EBDADT: ---- ---- --------
Revenue:
Room revenues and other revenues $49,022 $27,528 78.1%
Interest income 154 289 (46.7%)
------- ------- -------
Total revenue $49,176 $27,817 76.8%
------ ------ -----
Expenses:
Property operating expenses 23,107 11,873 94.6%
Corporate operating expenses 9,487 4,899 93.7%
Non-real property depreciation 256 172 48.8%
Net interest expense on other than
convertible debt 7,676 520 1376.2%
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Total expenses $40,526 $17,464 132.1%
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EBDADT (diluted)(1) $8,650 $10,353 (16.4%)
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EBDADT per share (diluted) $0.13(2) $0.17 (23.5%)
==== ==== =======
Basic weighted average shares
outstanding 38,245 35,736
====== ======
Diluted weighted average shares
outstanding 57,492 62,418
====== ======
Reconciliation of Earnings to EBDADT:
Net earnings (loss) ($18,961) $1,688 (1223.3%)
Add back:
Real property depreciation 9,120 5,625 62.1%
Amortization of trademark and
intangibles 621 590 5.3%
Net interest expense on convertible
debt 3,640 2,450 48.6%
Cumulative effect of accounting
change (3) 14,230 -- n/a
------ ------ ---------
EBDADT (diluted) $8,650 $10,353 (16.4%)
===== ====== =======
Notes:
(1) EBDADT for Homestead is total revenues, plus interest income, less
property operating expenses, corporate overhead, non-real property
depreciation, interest expense (other than convertible debt
interest expense) and current tax expense. Homestead presents
EBDADT as a measure of operating performance. EBDADT is not to be
construed as a substitute for net earnings in evaluating operating
results nor as a substitute for cash flow in evaluating liquidity.
EBDADT is presented on a diluted basis which assumes conversion of
the convertible mortgage notes, thus interest expense associated
with the convertible notes is not deducted in arriving at diluted
EBDADT. EBDADT, as calculated above, may not be comparable to
other similarly titled measures of other companies.
<PAGE>
(2) In accordance with the methodology of Statement of Financial
Accounting Standards No. 128 "Earnings per Share" basic EBDADT per
share is presented for the three months ended March 31, 1998 as
exclusion of convertible interest expense and use of diluted
weighted average shares outstanding are anti-dilutive. Basic
EBDADT per share of $0.13 for the three months ended March 31,
1999 is derived by subtracting convertible interest expense of
$3,640 from diluted EBDADT of $8,650 and dividing by 38,245 basic
weighted average shares outstanding.
(3) Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities ("SOP 98-5") requires that costs associated with
organizational, pre-opening, and start-up activities be expenses
as incurred for fiscal years beginning after December 15, 1998.
Homestead adopted SOP 98-5 beginning with its 1999 fiscal year and
has written off unamortized organizational, pre-opening and
start-up costs as a cumulative effect of an accounting change in
first quarter 1999. On a pro forma basis, application of SOP 98-5
to the three months ended March 31, 1998 would have resulted in
EBDADT of $6,712 and EBDADT per share of $0.11.
1
<PAGE>
First Quarter 1999
Unaudited Financial Results
Statements of Operations and of Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA)
(In thousands, except per share amounts and percentages)
Three Months Ended March 31,
-------------------------------
1999 1998 % Change
---- ---- --------
Room revenues and other revenues $49,022 $27,528 78.1%
Property operating expenses (23,107) (11,873) 94.6%
Corporate operating expenses (9,487) (4,899) 93.7%
------- ------- -----
EBITDA (diluted)(1) $16,428 $10,756 52.7%
====== ====== =====
Interest income 154 289 (46.7%)
Net interest expense (11,316) (2,970) 281.0%
Depreciation and amortization (9,997) (6,387) 56.5%
Provision for income taxes -- -- n/a
------- ------ -------
Net earnings (loss) before cumulative
effect of accounting change (4,731) 1,688 (380.3%)
Cumulative effect of accounting change (14,230) -- n/a
-------- ----- --------
Neat earnings (loss) ($18,961) $1,688 (1223.3%)
======= ===== =========
EBITDA per share (diluted) $0.29 $0.17 70.6%
==== ==== =====
Basic weighted average shares outstanding 38,245 35,736
====== ======
Diluted weighted average shares outstanding 57,492 62,418
====== ======
Notes:
(1) EBITDA is defined as earnings before interest, income taxes,
depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with generally
accepted accounting principles (GAAP), it is not to be considered
an alternative to net income or any other GAAP measurements of
operating performance and is not necessarily indicative of cash
available to fund all cash needs. Homestead has included EBITDA
here because management believes that it is one measure used by
certain investors to determine operating cash flow. EBITDA, as
calculated above, may not be comparable to other similarly titled
measures of other companies.
(2) Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") requires costs associated with
organizational, pre-opening, and start-up activities be expensed
as incurred for fiscal years beginning after December 15, 1998.
Homestead adopted SOP 98-5 beginning with its 1999 fiscal year and
has written off unamortized organizational, pre-opening and
start-up costs as a cumulative effect of an accounting change in
first quarter 1999. On a pro forma basis, application of SOP 98-5
to the three months ended March 31, 1998 would have resulted in
EBITDA of $7,115 and EBITDA per share of $0.11.
2
<PAGE>
First Quarter 1999
Unaudited Financial Results
Balance Sheets and Statements of Cash Flows
(In thousands)
Balance Sheets
March 31, December 31,
Assets 1999 1998
- ------ ---- ----
Cash and cash equivalents $ 16,943 $ 12,144
Investment in property and equipment, net 1,155,595 1,137,869
Other assets 84,794 68,378
---------- ----------
Total assets 1,257,332 1,218,391
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Lines of credit 399,000 357,080
Mortgages payable -- 122,028
Convertible mortgages payable 221,334 221,334
Capital lease obligation 143,260 --
Accounts payable, accrued expenses and
other liabilities 54,659 59,924
-------- --------
Total liabilities 818,253 760,366
------- -------
Shareholders' equity 439,079 458,025
------- -------
Total liabilities and shareholders' equity $ 1,257,332 $ 1,218,391
========= =========
Statements of Cash Flows Three Months Ended March 31,
1999 1998
Operating Activities: ---- ----
Net property operating income $ 25,888 $ 15,038
Proceeds from sales of excess land -- 5,882
Interest income 154 289
Less:
Corporate operating expenses 9,302 4,899
Interest expense 11,316 2,462
Current tax expense -- --
Net cash flow provided by operating activities 5,424 13,848
------ ------
Investing Activities:
Capital expenditures
Real estate development (41,644) (125,492)
Other capital expenditures (2,191) (1,772)
Other balance sheet accounts (19,942) (1,986)
-------- ----------
Net cash flow used in investing activities (63,777) (129,250)
-------- ---------
Financing Activities:
Line of credit advances, net of repayments 41,920 (25,608)
Mortgage debt advances (repayments) (122,028) 4,000
Capital lease obligation, net of payments 143,260 --
Equity offering, net of costs -- 154,241
Net cash flow provided by financing activities 63,152 132,633
------ -------
Net increase (decrease) in cash and cash
equivalents 4,799 17,231
Cash and cash equivalents, beginning of period 12,144 2,974
------ -------
Cash and cash equivalents, beginning of period 16,943 20,205
====== ======
3
<PAGE>
First Quarter 1999
Unaudited Financial Results
Operating Property Performance
Three Months Ended March 31,
----------------------------
1999 1998 Change
---- ---- ------
Stabilized Properties: (1)
Number of properties 100 49 104.1%
RevPAR (3) $219 $218 0.5%
Average Weekly Rate (4) $337 $276 $22.1%
Occupancy % 65.1% 79.1% (14.0)
Property Operating Income Margin 53.5% 57.8% (4.3)
Investment in Stabilized Properties (000's) $740,410 $296,131 150.0%
Percent of Stabilized Investment to
Total Investment 76.4% 51.0% 25.4
Stabilized, Comparable Properties
("Same-store"): (2)
Number of properties 49 49 0.0%
RevPAR (3) $209 $218 (4.1%)
Average Weekly Rate (4) $307 $276 11.2%
Occupancy % 68.0% 79.1% (11.1)
Property Operating Income Margin 52.3% 57.8% (5.5)
Investment in Stabilized, Comparable
Properties (000's) $296,131 $296,131 0.0%
Percent of Comparable Investment to
Total Investment 30.5% 51.0% (20.5)
Pre-Stabilized Properties:
Number of properties 25 33 (24.2%)
RevPAR (3) $228 $168 35.7%
Average Weekly Rate (4) $430 $300 43.3%
Occupancy % 3.2% 56.1% (2.9)
Property Operating Income Margin 50.2% 51.2% (1.0)
Investment in Pre-stabilized Properties
(000's) $229,000 $284,303 (19.5%)
Percent of Pre-stabilized Investment to
Total Investment 23.6% 49.0% (25.4)
Total Properties:
Number of Properties 125 82 52.4%
RevPAR (3) $221 $201 10.0%
Average Weekly Rate (4) $352 $282 24.8%
Occupancy % 62.8% 71.1% (8.3)
Property Operating Income Margin 52.8% 55.9% (3.1)
Investment in Operating Properties (000's) $969,410 $580,434 67.0%
Notes:
(1) Stabilized properties represent those properties that have achieved
80% occupancy or have been open for 24 weeks.
(2) Stabilized, comparable properties represent those properties that
were stabilized as of the beginning of the first quarter 1998.
(3) Weekly revenue per available room ("RevPAR") is determined by
dividing room revenue by the number of guest room days available for
the period and multiplying by seven.
(4) Average weekly rate is determined by dividing room revenue by the
number of guest room days occupied for the period and multiplying
by seven.
4
