<PAGE>
================================================================================
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 June 16, 2000 Commission File No. 0-25087
HOST MARRIOTT, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 52-2095412
------------------------ ----------------
(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
-----
Units outstanding
Class at July 21, 2000
--------------------- ----------------
Units of limited partnership interest 283,834,349
================================================================================
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION (Unaudited): Page No.
--------
<S> <C> <C>
Condensed Consolidated Balance Sheets -
June 16, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Twelve Weeks and Twenty-four Weeks Ended
June 16, 2000 and June 18, 1999 4
Condensed Consolidated Statements of Cash Flows -
Twenty-four Weeks Ended June 16, 2000 and
June 18, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition 22
Quantitative and Qualitative Disclosures about Market Risk 26
II. OTHER INFORMATION AND SIGNATURE 27
</TABLE>
-2-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(im millions)
<TABLE>
<CAPTION>
June 16, December 31,
2000 1999
------ ------
(unaudited)
ASSETS
------
<S> <C> <C>
Property and equipment, net............................................... $7,108 $7,108
Notes and other receivables (including amounts due from
affiliates of $125 million and $127 million, respectively)............. 173 175
Rent receivable........................................................... 89 72
Investments in affiliates................................................. 96 49
Other assets.............................................................. 539 515
Cash and cash equivalents................................................. 155 277
------ ------
$8,160 $8,196
====== ======
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt
Senior notes........................................................... $2,539 $2,539
Mortgage debt.......................................................... 2,296 2,309
Convertible debt obligation to Host Marriott........................... 492 514
Other.................................................................. 272 221
------ ------
5,599 5,583
Accounts payable and accrued expenses..................................... 143 148
Deferred income taxes..................................................... 48 49
Deferred rent............................................................. 291 --
Other liabilities......................................................... 396 426
------ ------
Total liabilities.................................................. 6,477 6,206
------ ------
Minority interest......................................................... 136 136
Cumulative redeemable preferred limited partnership interests of third
parties at redemption value ("Preferred OP Units") (representing
0.6 million units)..................................................... 6 5
Limited Partnership interests of third parties at redemption value
(representing 63.4 million and 64.0 million units at June 16, 2000
and December 31, 1999)................................................. 622 528
Partners' Capital
General partner........................................................ 1 1
Cumulative redeemable preferred limited partner........................ 196 196
Limited partner........................................................ 718 1,120
Accumulated other comprehensive income................................. 4 4
------ ------
Total partners' capital............................................ 919 1,321
------ ------
$8,160 $8,196
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions, except per unit amounts)
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
REVENUES
Rental income.......................................................... $ 183 $ 187
Interest income........................................................ 8 8
Net gains on property transactions..................................... 2 4
Equity in earnings of affiliates....................................... 3 1
Other.................................................................. 3 3
------ ------
Total revenues..................................................... 199 203
------ ------
EXPENSES
Depreciation and amortization.......................................... 75 67
Property-level owner expenses.......................................... 63 62
Minority interest expense.............................................. 5 7
Interest expense....................................................... 104 109
Corporate expenses..................................................... 10 8
Other expenses......................................................... 6 4
------ ------
Total expenses..................................................... 263 257
------ ------
LOSS FROM OPERATIONS BEFORE INCOME TAXES.................................. (64) (54)
Provision for income taxes................................................ (2) (1)
------ ------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS........................... (66) (55)
Extraordinary gain (loss)................................................. (2) 13
------ ------
NET LOSS.................................................................. $ (68) $ (42)
====== ======
Less: Distributions on preferred limited partner units to Host Marriott... (5) --
------ ------
NET LOSS AVAILABLE TO COMMON UNITHOLDERS.................................. $ (73) $ (42)
====== ======
BASIC LOSS PER UNIT:
Loss from operations before extraordinary items........................... $(0.26) $(0.19)
Extraordinary gain (loss)................................................. -- 0.04
------ ------
BASIC LOSS PER UNIT....................................................... $(0.26) $(0.15)
====== ======
DILUTED LOSS PER UNIT:
Loss from operations before extraordinary items........................... $(0.26) $(0.19)
Extraordinary gain (loss)................................................. -- 0.04
------ ------
DILUTED LOSS PER UNIT..................................................... $(0.26) $(0.15)
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions, except per unit amounts)
<TABLE>
2000 1999
------ ------
<S> <C> <C>
REVENUES
Rental income............................................................ $ 356 $ 358
Interest income.......................................................... 17 16
Net gains on property transactions....................................... 3 16
Equity in earnings of affiliates......................................... 3 2
Other.................................................................... 5 3
------ ------
Total revenues....................................................... 384 395
------ ------
EXPENSES
Depreciation and amortization............................................ 149 135
Property-level owner expenses............................................ 122 120
Minority interest expense................................................ 10 11
Interest expense......................................................... 208 217
Corporate expenses....................................................... 20 15
Other expenses........................................................... 12 6
------ ------
Total expenses....................................................... 521 504
------ ------
LOSS FROM OPERATIONS BEFORE INCOME TAXES.................................. (137) (109)
Provision for income taxes................................................ (3) (2)
------ ------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS........................... (140) (111)
Extraordinary gain........................................................ 3 13
------ ------
NET LOSS.................................................................. $ (137) $ (98)
====== ======
Less: Distributions on preferred limited partner units to Host Marriott.. (10) --
------ ------
NET LOSS AVAILABLE TO COMMON UNITHOLDERS.................................. $ (147) $ (98)
====== ======
BASIC LOSS PER UNIT:
Loss from operations before extraordinary items........................... $(0.53) $(0.38)
Extraordinary gain........................................................ 0.01 0.04
------ ------
BASIC LOSS PER UNIT:...................................................... $(0.52) $(0.34)
====== ======
DILUTED LOSS PER UNIT:
Loss from operations before extraordinary items........................... $(0.53) $(0.38)
Extraordinary gain........................................................ 0.01 0.04
------ ------
DILUTED LOSS PER UNIT..................................................... $(0.52) $(0.34)
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions)
<TABLE>
2000 1999
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Loss from operations before extraordinary items........................... $(140) $(111)
Adjustments to reconcile to cash from continuing operations:
Depreciation and amortization.......................................... 149 135
Income taxes........................................................... (20) (8)
Deferred contingent rental income...................................... 291 253
Net gains on property transactions..................................... (3) (16)
Equity in earnings of affiliates....................................... (3) (2)
Changes in operating accounts.......................................... (39) (142)
Other.................................................................. 13 2
----- -----
Cash from operations............................................... 248 111
----- -----
INVESTING ACTIVITIES
Proceeds from sales of assets............................................. -- 35
Acquisitions.............................................................. (40) (4)
Capital expenditures:
Capital expenditures for renewals and replacements..................... (106) (86)
New investment capital expenditures.................................... (59) (75)
Other investments...................................................... (20) (16)
Note receivable collections, net.......................................... 3 (17)
----- -----
Cash used in investing activities.................................. (222) (163)
----- -----
FINANCING ACTIVITIES
Issuances of debt, net.................................................... 290 413
Scheduled principal repayments............................................ (18) (23)
Debt prepayment........................................................... (245) (323)
Issuances of common units................................................. 2 --
Distributions............................................................. (129) (130)
Redemption or repurchase of OP Units for cash............................. (47) (3)
Repurchases of Convertible Preferred Securities........................... (15) --
Other..................................................................... 14 (8)
----- -----
Cash used in financing activities.................................. (148) (74)
----- -----
DECREASE IN CASH AND CASH EQUIVALENTS..................................... $(122) $(126)
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-6-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
Host Marriott Corporation ("Host REIT"), a Maryland corporation formerly
named HMC Merger Corporation, operating through an umbrella partnership
structure, is a self-managed and self-administered real estate investment
trust ("REIT") with its operations conducted solely through an operating
partnership, Host Marriott, L.P. (the "Operating Partnership" or "Host LP")
and its subsidiaries. As REITs are not currently permitted to derive
revenues directly from the operations of hotels, Host REIT leases all of the
hotels to subsidiaries of Crestline Capital Corporation ("Crestline") or
other lessees (collectively the "Lessee").
In these condensed consolidated financial statements, the "Company" or "Host
Marriott" refers to Host Marriott Corporation before, and Host Marriott,
L.P., after Host Marriott Corporation's conversion to a REIT (the "REIT
Conversion"). Host Marriott Corporation is presented as the predecessor to
the Operating Partnership since the Operating Partnership and its
subsidiaries received substantially all of the continuing operations, assets
and liabilities of Host Marriott Corporation and its subsidiaries.
On December 15, 1998, shareholders of Host Marriott Corporation approved a
plan to reorganize Host Marriott's business operations through the spin-off
of Host Marriott's senior living business as part of Crestline and the
contribution of Host Marriott's hotels and certain other assets and
liabilities to a newly formed Delaware limited partnership, Host Marriott,
L.P. Host Marriott merged into HMC Merger Corporation (the "Merger"), a
newly formed Maryland corporation (renamed Host Marriott Corporation) which
intends to qualify, effective January 1, 1999, as a REIT and is the sole
general partner of the Operating Partnership. On December 29, 1998, Host
Marriott completed the previously announced spin-off of Crestline through a
taxable stock dividend to its shareholders. Each Host Marriott shareholder
of record on December 28, 1998 received one share of Crestline for every ten
shares of Host Marriott Corporation owned. In connection with the REIT
Conversion, Host Marriott contributed its hotels and substantially all of
its other assets and liabilities to the Operating Partnership and
subsidiaries (the "Contribution") in exchange for units of partnership
interest in the Operating Partnership. The Contribution was accounted for at
Host Marriott's historical basis. As of June 16, 2000, Host REIT owned
approximately 77% of the Operating Partnership.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of
the Company and its subsidiaries have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. The Company
believes the disclosures made are adequate to make the information presented
not misleading. However, the unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the fiscal year ended December 31, 1999.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of June 16, 2000 and
December 31, 1999, and the results of operations for the twelve and twenty-
four weeks ended June 16, 2000 and June 18, 1999, and cash flows for the
twenty-four weeks ended June 16, 2000 and June 18, 1999. Interim results are
not necessarily indicative of fiscal year performance because of the impact
of seasonal and short-term variations.
-7-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Certain reclassifications were made to the prior year financial statements to
conform to the current presentation.
The Company's leases have initial terms ranging from 2 to 10 years, subject
to earlier termination upon the occurrence of certain contingencies, as
defined. Effective November 15, 1999, the leases with Crestline were amended
to give Crestline the right to renew each of these leases for up to four
additional terms of seven years each. The rent due under each lease is the
greater of base rent or percentage rent, as defined. Percentage rent
applicable to room, food and beverage and other types of hotel sales varies
by lease and is calculated by multiplying fixed percentages by the total
amounts of such revenues over specified threshold amounts. Both the minimum
rent and the revenue thresholds used in computing percentage rents are
subject to annual adjustments based on increases in the United States
Consumer Price Index and the Labor Index, as defined.
The Company recognizes percentage rent when all contingencies have been met,
that is, when annual thresholds for percentage rent have been met or
exceeded. Percentage rent received pursuant to the leases but not recognized
is included on the balance sheet as deferred rent. Contingent rental revenue
of $168 million and $138 million, respectively, for the twelve weeks ended
June 16, 2000 and June 18, 1999, and $291 million and $253 million,
respectively, for the twenty-four weeks ended June 16, 2000 and June 18,
1999, have been deferred.
3. Earnings Per Unit
Basic earnings per unit is computed by dividing net income available to
common unitholders by the weighted average number of common units
outstanding. Diluted earnings per unit is computed by dividing net income
available to common unitholders as adjusted for potentially dilutive
securities, by the weighted average number of common units outstanding plus
other potentially dilutive securities. Dilutive securities may include units
distributed to Host Marriott Corporation for Host Marriott Corporation common
shares granted under comprehensive stock plans and the Convertible Preferred
Securities. Dilutive securities may also include those common and preferred
Operating Partnership Units ("OP Units") issuable or outstanding that are
held by minority partners which are assumed to be converted. No effect is
shown for securities if they are anti-dilutive.
-8-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
--------------------------------------------------------------------------
June 16, 2000 June 18, 1999
------------------------------------ ------------------------------------
Income Units Per Unit Income Units Per Unit
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Loss...................................... $(68) 283.6 $(.24) $(42) 292.5 $(.15)
Distributions on preferred limited partner
units and Preferred OP Units................. (5) -- (.02) -- -- --
Basic loss available to common ---- ----- ----- ---- ----- -----
unitholders per unit.......................... (73) 283.6 (.26) (42) 292.5 (.15)
Assuming distribution of units to Host
Marriott Corporation for Host Marriott
Corporation common shares granted under
the Host Marriott comprehensive stock
plan, less shares assumed purchased at
average market price......................... -- -- -- -- -- --
Assuming conversion of Preferred OP
Units........................................ -- -- -- -- -- --
Assuming issuance of minority OP Units
issuable under certain purchase
agreements................................... -- -- -- -- -- --
Assuming conversion of Convertible
Preferred Securities......................... -- -- -- -- -- --
---- ----- ----- ---- ----- -----
Diluted Loss per Unit......................... $(73) 283.6 $(.26) $(42) 292.5 $(.15)
==== ===== ===== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Twenty-four Weeks Ended
--------------------------------------------------------------------------
June 16, 2000 June 18, 1999
------------------------------------ ------------------------------------
Income Units Per Unit Income Units Per Unit
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Loss...................................... $(137) 284.4 $(.48) $(98) 292.0 $(.34)
Distributions on preferred limited partner
units and Preferred OP Units................. (10) -- (.04) -- -- --
----- ----- ----- ---- ----- -----
Basic loss available to common
unitholders per unit......................... (147) 284.4 (.52) (98) 292.0 (.34)
Assuming distribution of units to Host
Marriott Corporation for Host Marriott
Corporation common shares granted under
the Host Marriott comprehensive stock
plan, less shares assumed purchased at
average market price......................... -- -- -- -- -- --
Assuming conversion of Preferred OP
Units........................................ -- -- -- -- -- --
Assuming issuance of minority OP Units
issuable under certain purchase
agreements................................... -- -- -- -- -- --
Assuming conversion of Convertible
Preferred Securities......................... -- -- -- -- -- --
----- ----- ----- ---- ----- -----
Diluted Loss per Unit......................... $(147) 284.4 $(.52) $(98) 292.0 $(.34)
===== ===== ===== ==== ===== =====
</TABLE>
-9-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. Unit Repurchases
In September 1999, the Board of Directors of Host Marriott Corporation
approved the repurchase, from time to time on the open market and/or in
privately negotiated transactions, of up to 22 million of the outstanding
shares of Host REIT common stock, OP Units, or a corresponding amount (based
on the appropriate conversion ratio) of Host REIT's Convertible Preferred
Securities. Additionally, under the terms of the partnership agreement, an
equivalent number of OP Units will also be repurchased on a one-to-one basis
from Host Marriott Corporation. Such repurchases will be made at management's
discretion, subject to market conditions, and may be suspended at any time at
Host Marriott Corporation's discretion. During the twelve weeks ended March
24, 2000, Host Marriott repurchased approximately 4.9 million common shares,
325,000 OP Units, and 435,000 shares of the Convertible Preferred Securities
for a total investment of $62 million. During the first quarter of 2000, we
extinguished approximately $22 million of the convertible debt obligation to
Host REIT through the purchase of 435,000 shares of Host REIT's Convertible
Preferred Securities on the open market. We recorded an extraordinary gain of
approximately $5 million on this transaction, based on the discount at which
we purchased the Convertible Preferred Securities. No repurchases were made
during the second quarter of 2000. Since the inception of the program in
September 1999, Host Marriott has spent, in the aggregate, approximately $150
million to repurchase 16.2 million equivalent shares.
5. Dividends and Distributions Payable
On March 23, 2000 and June 21, 2000, the Board of Directors of Host Marriott
declared quarterly cash dividends of $0.21 per share of Host Marriott
Corporation common stock and corresponding distributions of $0.21 per unit of
limited partnership interest. The first quarter dividends and distributions
were paid on April 14, 2000 to shareholders and unitholders of record on
March 31, 2000. The second quarter dividends and distributions were paid on
July 14, 2000 to shareholders and unitholders of record on June 30, 2000.
On March 23, 2000 and June 21, 2000, Host Marriott declared quarterly
distributions of $0.625 per cumulative redeemable preferred limited partner
unit, which were paid on April 14, 2000 and July 14, 2000 to unitholders of
record on March 31, 2000 and June 30, 2000.
6. Acquisitions and Developments
In February 2000, construction of the 717-room Tampa Waterside Marriott
adjacent to the convention center in downtown Tampa, Florida was completed at
a total development cost of approximately $104 million, not including a $16
million tax subsidy provided by the City of Tampa.
On May 16, 2000, the Company acquired a non-controlling partnership interest
in the JWDC Limited Partnership, which owns the JW Marriott Hotel, a 772-room
hotel located on Pennsylvania Avenue in Washington, DC. The Company, which
previously held a small interest in the venture, invested approximately $40
million in the form of a preferred equity contribution.
7. Debt Issuances and Refinancings
In February 2000, the Company refinanced the $80 million mortgage on
Marriott's Harbor Beach Resort property in Fort Lauderdale, Florida. The new
mortgage is for $84 million, at a rate of 8.58%, and matures in March 2007.
-10-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During June 2000, the Company modified its bank credit facility. As
modified, the total facility has been permanently reduced to $775 million,
consisting of a $150 million term loan and a $625 million revolver. In
addition, the original term was extended for two additional years, through
August 2003. As of June 16, 2000, $176 million is outstanding under the bank
credit facility, and the available capacity under the line of credit balance
is $599 million. In connection with the renegotiation of the bank credit
facility, the Company recognized an extraordinary loss of approximately $2
million, representing the write-off of deferred financing costs and certain
fees paid to the lender.
8. Geographic Information
As of June 16, 2000, the Company's foreign operations consisted of four
hotel properties located in Canada. There were no intercompany sales between
the properties and the Company. The following table presents revenues for
each of the geographical areas in which the Company owns hotels (in
millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------ -----------------------
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
United States.................................... $ 197 $ 199 $ 379 $ 389
International.................................... 2 4 5 6
----- ----- ----- -----
Total.......................................... $ 199 $ 203 $ 384 $ 395
===== ===== ===== =====
</TABLE>
9. Comprehensive Income
The Company's other comprehensive income consists of unrealized gains and
losses on foreign currency translation adjustments and the right to receive
cash from Host Marriott Services Corporation subsequent to the exercise of
the options held by certain former and current employees of Marriott
International, pursuant to the distribution agreement between the Company
and Host Marriott Services Corporation. For the twelve and twenty-four weeks
ended June 16, 2000, comprehensive loss totaled $67 million and $137
million, respectively. The comprehensive loss was $40 million and $97
million for the twelve and twenty-four weeks ended June 18, 1999,
respectively. As of June 16, 2000 and December 31, 1999, the Company's
accumulated other comprehensive income was $4 million.
10. Summarized Lease Pool Financial Statements
As discussed in Note 2, as of June 16, 2000, almost all the properties of
the Company and its subsidiaries were leased to Crestline. In conjunction
with these leases, Crestline and certain of its subsidiaries entered into
limited guarantees of the lease obligations of each lessee. The full-service
hotel leases are grouped into four lease pools, with Crestline's guarantee
limited to the greater of 10% of the aggregate rent payable for the
preceding year or 10% of the aggregate rent payable under all leases in the
respective pool. Additionally, the lessee's obligation under each lease
agreement is guaranteed by all other lessees in the respective lease pool.
As a result, the Company believes that the operating results of each full-
service lease pool may be material to the Company's financial statements.
Financial information of certain pools related to the sublease agreements
for limited service properties are not presented, as the Company believes
they are not material to the Company's financial statements. Financial
information of Crestline may be found in its quarterly and annual filings
with the Securities and Exchange Commission. Further information regarding
these leases and Crestline's limited guarantees may be found in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1999. The results of operations for the twelve and twenty-four weeks ended
June 16, 2000 and June 18, 1999 and summarized balance sheet
-11-
<PAGE>
HOST MARRIOTT, L.P.
NOTEST TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
data as of June 16, 2000 and December 31, 1999 of the lease pools in which
the Company's hotels are organized are as follows (in millions):
-12-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended June 16, 2000
---------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms...................................... $152 $170 $147 $159 $ 628
Food and beverage.......................... 69 87 72 91 319
Other...................................... 16 17 24 22 79
---- ---- ---- ---- ------
Total hotel sales..................... 237 274 243 272 1,026
Operating Costs and Expenses
Rooms...................................... 35 39 34 34 142
Food and beverage.......................... 52 61 51 62 226
Other...................................... 59 58 59 61 237
Management fees............................ 13 20 12 20 65
Lease expense.............................. 75 91 83 92 341
---- ---- ---- ---- ------
Total operating expenses.............. 234 269 239 269 1,011
---- ---- ---- ---- ------
Operating Profit................................ 3 5 4 3 15
Corporate and Interest Expenses................. -- -- -- (1) (1)
---- ---- ---- ---- ------
Income before taxes....................... 3 5 4 2 14
Income taxes.............................. (1) (2) (2) (1) (6)
---- ---- ---- ---- ------
Net Income............................ $ 2 $ 3 $ 2 $ 1 $ 8
==== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended June 18, 1999
--------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms...................................... $144 $157 $141 $145 $587
Food and beverage.......................... 68 76 67 81 292
Other...................................... 16 16 19 19 70
---- ---- ---- ---- ----
Total hotel sales..................... 228 249 227 245 949
Operating Costs and Expenses
Rooms...................................... 33 36 34 31 134
Food and beverage.......................... 51 55 47 56 209
Other...................................... 57 55 57 55 224
Management fees............................ 11 16 10 17 54
Lease expense.............................. 72 83 76 83 314
---- ---- ---- ---- ----
Total operating expenses.............. 224 245 224 242 935
---- ---- ---- ---- ----
Operating Profit................................ 4 4 3 3 14
Corporate and Interest Expenses................. -- (1) -- -- (1)
---- ---- ---- ---- ----
Income before taxes....................... 4 3 3 3 13
Income taxes.............................. (2) (1) (1) -- (4)
---- ---- ---- ---- ----
Net Income............................ $ 2 $ 2 $ 2 $ 3 $ 9
==== ==== ==== ==== ====
</TABLE>
-13-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twenty-four Weeks Ended June 16, 2000
-------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms...................................... $281 $313 $272 $292 $1,158
Food and beverage.......................... 128 153 132 166 579
Other...................................... 30 30 43 41 144
---- ---- ---- ---- ------
Total hotel sales..................... 439 496 447 499 1,881
Operating Costs and Expenses
Rooms...................................... 66 76 62 63 267
Food and beverage.......................... 96 111 95 113 415
Other...................................... 111 109 109 113 442
Management fees............................ 22 35 22 38 117
Lease expense.............................. 137 157 152 167 613
---- ---- ---- ---- ------
Total operating expenses.............. 432 488 440 494 1,854
---- ---- ---- ---- ------
Operating Profit................................ 7 8 7 5 27
Corporate and Interest Expenses................. (1) (1) -- (1) (3)
---- ---- ---- ---- ------
Income before taxes....................... 6 7 7 4 24
Income taxes.............................. (2) (3) (3) (2) (10)
---- ---- ---- ---- ------
Net Income............................ $ 4 $ 4 $ 4 $ 2 $ 14
==== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Twenty-four Weeks Ended June 18, 1999
-------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms...................................... $273 $294 $268 $273 $1,108
Food and beverage.......................... 127 137 128 153 545
Other...................................... 30 29 38 34 131
---- ---- ---- ---- ------
Total hotel sales..................... 430 460 434 460 1,784
Operating Costs and Expenses
Rooms...................................... 64 68 63 58 253
Food and beverage.......................... 97 102 91 104 394
Other...................................... 110 107 107 103 427
Management fees............................ 20 30 21 33 104
Lease expense.............................. 133 147 146 157 583
---- ---- ---- ---- ------
Total operating expenses.............. 424 454 428 455 1,761
---- ---- ---- ---- ------
Operating Profit................................ 6 6 6 5 23
Corporate and Interest Expenses................. (1) (1) (1) (1) (4)
---- ---- ---- ---- ------
Income before taxes....................... 5 5 5 4 19
Income taxes.............................. (2) (2) (2) (1) (7)
---- ---- ---- ---- ------
Net Income............................ $ 3 $ 3 $ 3 $ 3 $ 12
==== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
As of June 16, 2000
-------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets.......................................... $ 52 $ 48 $ 53 $ 50 $ 203
Liabilities..................................... 45 43 48 48 184
Equity.......................................... 7 5 5 2 19
</TABLE>
<TABLE>
<CAPTION>
As December 31, 1999
---------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets.......................................... $ 39 $ 37 $ 41 $ 38 $ 155
Liabilities..................................... 36 36 40 38 150
Equity.......................................... 3 1 1 -- 5
</TABLE>
-14-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. Supplemental Guarantor and Non-Guarantor Subsidiary Information
All subsidiaries of the operating partnership guarantee the Company's senior
notes except those among the twenty full service hotels listed below and HMH
HPT Residence Inn, LLC and HMH HPT Courtyard, LLC, the lessees of the
Residence Inn and Courtyard properties, respectively. The separate financial
statements of each guaranteeing subsidiary (each, a "Guarantor Subsidiary")
are not presented because 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. The non-
guarantor subsidiaries (the "Non-Guarantor Subsidiaries") own the following
full-service hotels: the Albany Marriott; Atlanta Marriott Marquis; Grand
Hyatt, Atlanta; Marriott's Harbor Beach Resort; Hartford Marriott; Hyatt
Regency, Cambridge; Hyatt Regency, Reston; Manhattan Beach Marriott;
Minneapolis Southwest Marriott; New York Marriott Marquis; Ontario Airport
Marriott; Pittsburgh City Center Marriott; The Ritz-Carlton, Amelia Island;
San Diego Marriott Hotel and Marina; San Diego Mission Valley; Swissotel,
Atlanta; Swissotel, Boston; Swissotel, Chicago; The Drake (Swissotel) New
York; and the Oklahoma City Waterford Marriott.
The following condensed combined consolidating information sets forth the
financial position as of June 16, 2000 and December 31, 1999, and results of
operations for the twelve weeks and twenty-four weeks ended June 16, 2000
and June 18, 1999, respectively, and cash flows for the twenty-four weeks
ended June 16, 2000 and June 18, 1999 of the parent, Guarantor Subsidiaries
and the Non-Guarantor Subsidiaries.
-15-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Consolidated Balance Sheets
(in millions)
June 16, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Property and equipment, net.......................... $1,323 $3,577 $2,208 $ -- $7,108
Notes and other receivables.......................... 652 51 23 (553) 173
Rent receivable...................................... 17 36 36 -- 89
Investments in affiliate............................. 1,403 -- -- (1,307) 96
Other assets......................................... 163 210 206 (40) 539
Cash and cash equivalents............................ 89 43 23 -- 155
------ ------ ------ ------- ------
Total assets........................................ $3,647 $3,917 $2,496 $(1,900) $8,160
====== ====== ====== ======= ======
Debt................................................. $1,241 $3,027 $1,157 $ (318) $5,107
Convertible debt obligations to Host Marriott........ 492 -- -- -- 492
Deferred income taxes................................ 9 32 7 -- 48
Deferred rent........................................ 64 157 70 -- 291
Other liabilities.................................... 285 343 186 (275) 539
------ ------ ------ ------- ------
Total liabilities................................... 2,091 3,559 1,420 (593) 6,477
Minority interests................................... 9 56 71 -- 136
Limited partner interest of third parties at
redemption value.................................... 628 -- -- -- 628
Owner's capital...................................... 919 302 1,005 (1,307) 919
------ ------ ------ ------- ------
Total liabilities and owner's capital............... $3,647 $3,917 $2,496 $(1,900) $8,160
====== ====== ====== ======= ======
December 31, 1999
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Property and equipment, net.......................... $1,227 $3,642 $2,239 $ -- $7,108
Notes and other receivables.......................... 685 51 24 (585) 175
Rent receivable...................................... 11 23 38 -- 72
Investments in affiliate............................. 1,593 -- -- (1,544) 49
Other assets......................................... 175 214 175 (49) 515
Cash and cash equivalents............................ 199 58 20 -- 277
------ ------ ------ ------- ------
Total assets........................................ $3,890 $3,988 $2,496 $(2,178) $8,196
====== ====== ====== ======= ======
Debt................................................. $1,189 $3,062 $1,168 $ (350) $5,069
Convertible debt obligation to Host Marriott......... 514 -- -- -- 514
Deferred income taxes................................ 17 32 -- -- 49
Other liabilities.................................... 314 346 198 (284) 574
------ ------ ------ ------- ------
Total liabilities................................... 2,034 3,440 1,366 (634) 6,206
Minority interests................................... 9 54 73 -- 136
Limited partner interest of third parties at
redemption value.................................... 533 -- -- -- 533
Owner's capital...................................... 1,314 494 1,057 (1,544) 1,321
------ ------ ------ ------- ------
Total liabilities and owner's capital............... $3,890 $3,988 $2,496 $(2,178) $8,196
====== ====== ====== ======= ======
</TABLE>
-16-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Twelve Weeks Ended June 16, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES............................................. $ 4 $ 90 $ 71 $34 $ 199
Depreciation......................................... (17) (37) (21) -- (75)
Property-level expenses.............................. (11) (24) (28) -- (63)
Minority interest.................................... (2) (2) (1) -- (5)
Interest expense..................................... (33) (61) (23) 13 (104)
Corporate expenses................................... (1) (6) (3) -- (10)
Other expenses....................................... (4) (1) (1) -- (6)
---- ---- ---- --- -----
(Loss) income before income taxes.................... (64) (41) (6) 47 (64)
(Provisions for) benefit from income taxes........... (2) -- -- -- (2)
---- ---- ---- --- -----
(Loss) income before extraordinary item.............. (66) (41) (6) 47 (66)
Extraordinary loss................................... (2) -- -- -- (2)
---- ---- ---- --- -----
NET INCOME (LOSS).................................... $(68) $(41) $ (6) $47 $ (68)
==== ==== ==== === =====
</TABLE>
Twelve Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES............................................. $ 34 $104 $ 64 $ 1 $ 203
Depreciation......................................... (15) (35) (17) -- (67)
Property-level expenses.............................. (11) (23) (28) -- (62)
Minority interest.................................... (2) (4) (1) -- (7)
Interest expense..................................... (42) (55) (25) 13 (109)
Corporate expenses................................... (2) (5) (1) -- (8)
Other expenses....................................... (2) (1) (1) -- (4)
---- ---- ---- --- -----
(Loss) income before income taxes.................... (40) (19) (9) 14 (54)
Provision for income tax............................. (1) -- -- -- (1)
---- ---- ---- --- -----
(Loss) income before extraordinary item.............. (41) (19) (9) 14 (55)
Extraordinary gain................................... -- -- 13 -- 13
---- ---- ---- --- -----
NET INCOME (LOSS).................................... $(41) $(19) $ 4 $14 $ (42)
==== ==== ==== === =====
</TABLE>
-17-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Twenty-four Weeks Ended June 16, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES............................................. $ (2) $ 174 $139 $73 $ 384
Depreciation......................................... (35) (73) (41) -- (149)
Property-level expenses.............................. (23) (44) (55) -- (122)
Minority interest.................................... (3) (6) (1) -- (10)
Interest expense..................................... (63) (123) (46) 24 (208)
Corporate expenses................................... (1) (12) (7) -- (20)
Other expenses....................................... (9) (2) (1) -- (12)
----- ----- ---- --- -----
(Loss) income before income taxes.................... (136) (86) (12) 97 (137)
(Provision for) benefit from income taxes............ (4) 1 -- -- (3)
----- ----- ---- --- -----
(Loss) income before extraordinary item.............. (140) (85) (12) 97 (140)
Extraordinary gain................................... 3 -- -- -- 3
----- ----- ---- --- -----
NET INCOME (LOSS).................................... $(137) $ (85) $(12) $97 $(137)
===== ===== ==== === =====
</TABLE>
Twenty-four Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES............................................. $ 47 $ 205 $118 $25 $ 395
Depreciation......................................... (30) (70) (35) -- (135)
Property-level expenses.............................. (21) (45) (54) -- (120)
Minority interest.................................... (3) (7) (1) -- (11)
Interest expense..................................... (83) (103) (46) 15 (217)
Corporate expenses................................... (2) (9) (4) -- (15)
Other expenses....................................... (4) (1) (1) -- (6)
---- ----- ---- --- -----
(Loss) income before income taxes.................... (96) (30) (23) 40 (109)
Provision for income tax............................. (2) -- -- -- (2)
---- ----- ---- --- -----
(Loss) income before extraordinary item.............. (98) (30) (23) 40 (111)
Extraordinary gain................................... -- -- 13 -- 13
---- ----- ---- --- -----
NET INCOME (LOSS).................................... $(98) $ (30) $(10) $40 $ (98)
==== ===== ==== === =====
</TABLE>
-18-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Cash Flows
(in millions)
Twenty-four Weeks Ended June 16, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Cash from operations............................................. $ 34 $ 116 $ 98 $ 248
----- ----- ---- -----
INVESTING ACTIVITIES
Cash received from sales of assets............................... -- -- -- --
Acquisitions..................................................... (40) -- -- (40)
Capital expenditures and other investments....................... (45) (114) (26) (185)
Other............................................................ 3 -- -- 3
----- ----- ---- -----
Cash used in investing activities................................ (82) (114) (26) (222)
----- ----- ---- -----
FINANCING ACTIVITIES
Issuances of debt................................................ 207 -- 83 290
Repayment of debt................................................ (166) (6) (91) (263)
Issuances of common units........................................ 2 -- -- 2
Distributions.................................................... (129) -- -- (129)
Redemption or repurchase of OP Units............................. (47) -- -- (47)
Repurchase of Convertible Preferred Securities................... (15) -- -- (15)
Other............................................................ (5) 22 (3) 14
Transfers to/from Parent......................................... 91 (33) (58) --
----- ----- ---- -----
Cash used in financing activities................................ (62) (17) (69) (148)
----- ----- ---- -----
INCREASE (DECREASE) IN CASH AND CASH $(110) $ (15) $ 3 $(122)
EQUIVALENTS................................................... ===== ===== ==== =====
</TABLE>
-19-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Twenty-four Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash (used in) from operations................................... $ (5) $ 116 $ -- $ 111
------ ------------ ------------ ------------
INVESTING ACTIVITIES
Cash received from sales of assets............................... 1 34 -- 35
Acquisitions..................................................... -- -- (4) (4)
Capital expenditures and other investments....................... (49) (107) (21) (177)
Other............................................................ (17) -- -- (17)
------ ------------ ------------ ------------
Cash used in investing activities................................ (65) (73) (25) (163)
------ ------------ ------------ ------------
FINANCING ACTIVITIES
Issuances of debt................................................ (2) 256 159 413
Repayment of debt................................................ (25) (256) (65) (346)
Distributions.................................................... (130) -- -- (130)
Redemption or repurchase of OP Units............................. (3) -- -- (3)
Other............................................................ (8) -- -- (8)
Transfers to/from Parent......................................... 65 (12) (53) --
------ ------------ ------------ ------------
Cash (used in) from financing activities......................... (103) (12) 41 (74)
------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................... $ [173) $ 31 $ 16 $ (126)
====== ============ ============ ============
</TABLE>
12. Contingencies
On March 16, 1998, limited partners in several limited partnerships filed a
lawsuit, the Texas Multi-Partnership Lawsuit, naming the Company, Marriott
International Inc. ("Marriott International"), and others as defendants and
claiming that they conspired to sell hotels to the partnerships for
inflated prices, that they charged the partnerships excessive management
fees to operate the partnerships' hotels and otherwise breached their
fiduciary duties. The lawsuit involved the following partnerships:
Courtyard by Marriott Limited Partnership, Courtyard by Marriott II Limited
Partnership, Marriott Residence Inn Limited Partnership, Marriott Residence
Inn II Limited Partnership, Fairfield Inn by Marriott Limited Partnership,
Desert Springs Marriott Limited Partnership and Atlanta Marriott Marquis
Limited Partnership. Three other lawsuits, collectively, the Partnership
Lawsuits, involving limited partners of some of the aforementioned
partnerships had also been filed, at various dates beginning in June 1996,
and include similar actions naming the Company, Marriott International and
others as defendants.
On February 24, 2000, the Company and Marriott International announced that
we have executed a definitive settlement agreement to resolve the Texas
Multi-Partnership Lawsuit and the Partnership Lawsuits. The understanding,
which is still subject to numerous conditions, including court approval and
various consents, has two principal features. First, the Company and
Marriott International expect, through a joint venture to be formed between
their affiliates, to acquire the equity interest of the limited partners in
the two Courtyard partnerships for approximately $372 million. The
Company's share of the acquisition costs of the Courtyard partnerships is
expected to be approximately $82 million. Second, the Company and Marriott
International will each pay approximately $31 million to the limited
partners of the remaining partnerships in exchange for settlement of the
litigation and a full release of claims. As a result of the proposed
settlement, the Company recorded a non-recurring, pre-tax charge of $40
million during the fourth quarter of 1999.
-20-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company has also been named a defendant in other lawsuits involving
various hotel partnerships. The lawsuits are ongoing, and although the
ultimate resolution of lawsuits is not determinable, the Company does not
believe the outcome will be material to the financial position, statement of
operations or cash flows of the Company.
13. Subsequent Event
On June 21, 2000, the additions of a 500-room tower and 15,000 square feet
of meeting space at the Orlando World Center Marriott were completed at an
approximate development cost of $84 million.
-21-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward-looking Statements
--------------------------
Certain matters discussed herein are forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology, such as
"believes," "expects," "may," "will," "should," "estimates," or "anticipates,"
or the negative thereof or other variations thereof or comparable terminology.
All forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual transactions, results, performance
or achievements to be materially different from any future transactions,
results, performance or achievements expressed or implied by such forward-
looking statements. Although we believe the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, we can give no
assurance that our expectations will be attained or that any deviations will not
be material. We disclaim any obligations or undertaking to publicly release any
updates or revisions to any forward-looking statement contained in this
quarterly report on Form 10-Q to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
Results of Operations
---------------------
Revenues. Our revenues primarily represent rental income from our leased
hotels, net gains on property transactions, interest income and equity in
earnings of affiliates. As discussed in Note 2 to the financial statements,
percentage rental revenues of $168 million and $138 million for the twelve weeks
ended June 16, 2000 and June 18, 1999, respectively, and $291 million and $253
for the twenty-four weeks ended June 16, 2000 and June 18, 1999, respectively,
were deferred in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 ("SAB 101"). Percentage rent will be recognized as
income during the year once specified hotel sales thresholds are achieved.
The table below represents hotel sales from which rental income is computed as
discussed in Note 2 to the condensed consolidated financial statements. The
table is presented in order to facilitate an investor's reconciliation of hotel
sales to rental income.
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------ -----------------------
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
--------- -------- --------- ---------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Hotel Sales
Rooms.................................................. $ 710 $ 672 $1,323 $1,272
Food and beverage...................................... 330 310 604 578
Other.................................................. 82 72 153 135
------ ------ ------ ------
Total hotel sales................................. $1,122 $1,054 $2,080 $1,985
====== ====== ====== ======
</TABLE>
Rental income decreased $4 million, or 2%, to $183 million for the second
quarter of 2000 and decreased $2 million, or less than 1% to $356 million year-
to-date, primarily driven by the sale of five properties in 1999, and partially
offset by the growth in room revenues generated per available room or REVPAR for
comparable properties and the opening of the Tampa Waterside Marriott, which was
placed in service in February 2000. REVPAR increased 7.0% to $130.66 for the
second quarter of 2000 and 5.2% to $126.69 year-to-date for comparable
properties, which consist of the 114 properties owned, directly or indirectly,
by us for the same period of time in each period covered, excluding two
properties where significant expansion at the hotels affected operations and
five properties where reported results were affected by a change in reporting
period. On a comparable basis, average room rates increased approximately 5.9%
and 5.6%, while average occupancy increased less than one percentage point and
decreased less than one percentage point for the second quarter of 2000 and
year-to-date, respectively.
-22-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Depreciation and Amortization. Depreciation and amortization increased $8
million or 12% for the second quarter of 2000 and increased $14 million or 10%
year-to-date, reflecting an increase in depreciable assets, which is primarily
the result of $361 million in capital expenditures during 1999, partially offset
by net asset disposals of approximately $174 million in connection with the sale
of five hotels during 1999.
Property-level Owner Expenses. Property-level owner expenses primarily consist
of property taxes, insurance, and ground and equipment rent. These expenses were
$63 million and $62 million for the second quarters of 2000 and 1999,
respectively, and increased less than 2% to $122 million year-to-date,
reflecting, in part, the effect of the sale of five hotel properties in 1999.
Minority Interest Expense. Minority interest expense decreased 29% to $5
million in the second quarter of 2000 and 9% to $10 million year-to-date.
Interest Expense. Interest expense decreased 5% to $104 million in the second
quarter of 2000 and decreased 4% to $208 million year-to-date, primarily due to
repayments on the term loan portion of the bank credit facility totaling $225
million during the second half of 1999.
Corporate Expenses. Corporate expenses were $10 million and $8 million for the
second quarters of 2000 and 1999, respectively, and increased $5 million to $20
million year-to-date, resulting primarily from an increase in compensation
expense related to employee stock plans.
Extraordinary Gain (Loss). During the first quarter of 2000, we extinguished
approximately $22 million of the convertible debt obligation to Host REIT
through the purchase of 435,000 shares of Host REIT's Convertible Preferred
Securities on the open market. We recorded an extraordinary gain of
approximately $5 million on this transaction, based on the discount at which we
purchased the Convertible Preferred Securities. During the twelve weeks ended
June 16, 2000, we recorded an extraordinary loss of approximately $2 million
representing the write off of deferred financing costs and certain fees paid to
our lender in connection with the renegotiation of the bank credit facility.
During the twelve weeks ended June 18, 1999, we recorded an extraordinary gain
of $13 million on the forgiveness of accrued incentive management fees related
to the renegotiation of the management agreement for the New York Marriott
Marquis.
Net Loss. Our net loss increased $26 million to $68 million for the second
quarter of 2000 and increased $39 million to $137 million year-to-date.
Net Loss Available to Common Unitholders. The net loss available to common
unitholders increased $31 million to $73 million for the second quarter of 2000
and increased $49 million to $147 million year-to-date. The net loss available
to common unitholders reflects year-to-date distributions of $10 million on
preferred limited partner units to Host Marriott, which were issued during the
second half of 1999.
COMPARATIVE FFO and EBITDA
--------------------------
We consider Comparative Funds From Operations ("Comparative FFO"), which
consists of Funds From Operations, as defined by the National Association of
Real Estate Investment Trusts, plus contingent rent, as well as our consolidated
earnings before interest expense, income taxes, depreciation, amortization and
other non-cash items (including contingent rent) ("EBITDA") to be indicative
measures of our operating performance due to the significance of our long-lived
assets. Comparative FFO and EBITDA are also useful in measuring our ability to
service debt, fund capital expenditures and expand our business. Furthermore,
management believes that Comparative FFO and EBITDA are meaningful disclosures
that will help shareholders and the investment community to better understand
our financial performance, including
-23-
<PAGE>
HOST MARRIOT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
comparing our performance to other Real Estate Investment Trusts. However,
Comparative FFO and EBITDA as presented may not be comparable to FFO and EBITDA
amounts 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 or liquidity performance measure prescribed by generally
accepted accounting principles. Cash expenditures for various long-term assets,
interest expense (for EBITDA purposes only) and income taxes have been, and will
be incurred which are not reflected in the EBITDA and Comparative FFO
presentations.
Comparative FFO available to common unitholders increased $20 million, or 13%,
to $172 million in the second quarter of 2000 and increased $22 million, or 8%,
to $291 million year-to-date. The following is a reconciliation of the loss from
operations before extraordinary items to Comparative FFO (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------------ ------------------------------
June 16, 2000 June 18, 1999 June 16, 2000 June 18, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Funds from Operations
Loss from operations before extraordinary items........... $(66) $(55) $(140) $(111)
Depreciation and amortization............................. 74 67 146 135
Other real estate activities.............................. (1) (5) (1) (16)
Partnership adjustments................................... 4 11 11 14
---- ---- ----- -----
Funds from operations of Host LP........................... 11 18 16 22
Effect on funds from operations of SAB 101.............. 166 134 285 247
---- ---- ----- -----
Comparative funds from operations of Host LP............... 177 152 301 269
Distributions on preferred units.......................... (5) -- (10) --
---- ---- ----- -----
Comparative funds from operations of Host LP $172 $152 $ 291 $ 269
available to common unitholders........................... ==== ==== ===== =====
</TABLE>
EBITDA increased $27 million, or 11%, to $282 million in the second quarter of
2000 and increased $32 million, or 7%, to $513 million year-to-date, reflecting
primarily EBITDA growth from owned properties, partially offset by EBITDA
related to assets sold during 1999. In 2000 and 1999, respectively, Hotel EBITDA
was $122 million and $125 million for the second quarters, and $236 million and
$240 million year-to-date, which does not include deferred rental income of $168
million and $138 million, and $291 million and $253 million for the quarters and
year-to-date, respectively.
The following schedule presents our EBITDA as well as a reconciliation of EBITDA
to the loss from operations before extraordinary items (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------------ ------------------------------
June 16, 2000 June 18, 1999 June 16, 2000 June 18, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
EBITDA
Hotels.................................................. $122 $125 $236 $240
Office buildings........................................ 1 1 1 1
Interest income......................................... 8 8 17 15
Corporate and other expenses............................ (17) (17) (32) (28)
Effect on revenue of SAB 101............................ 168 138 291 253
---- ---- ---- ----
EBITDA of Host LP.......................................... $282 $255 $513 $481
==== ==== ==== ====
</TABLE>
-24-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------------ ------------------------------
June 16, 2000 June 18, 1999 June 16, 2000 June 18, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
EBITDA of Host LP.......................................... $ 282 $ 255 $ 513 $ 481
Effect on revenue of SAB 101............................... (168) (138) (291) (253)
Interest expense........................................... (104) (109) (208) (217)
Income taxes............................................... (2) (1) (3) (2)
Depreciation and amortization.............................. (75) (67) (149) (135)
Minority interest expense.................................. (5) (7) (10) (11)
Other non-cash charges, net................................ 6 12 8 26
----- ----- ----- -----
Loss from operations before extraordinary items......... $ (66) $ (55) $(140) $(111)
===== ===== ===== =====
</TABLE>
Our interest coverage, defined as EBITDA divided by cash interest expense, was
2.7 times and 2.7 times for the twenty-four week periods of 2000 and 1999,
respectively, and 2.4 times for full year 1999. The deficiency of earnings to
fixed charges was $123 million through the second quarter of 2000 and $100
million through the second quarter of 1999, which is primarily due to the
deferral of contingent rent of $291 million and $253 million for the same
periods, respectively.
Cash Flows and Financial Condition
----------------------------------
We reported a decrease in cash and cash equivalents of $122 million during the
twenty-four weeks ended June 16, 2000. Cash from operations was $248 million
through the second quarter of 2000 and $111 million through the second quarter
of 1999. The $137 million increase in cash from operations primarily relates to
changes in operating accounts. 1999 cash from operations were affected by the
addition of 36 properties as of December 30, 1998 and the timing of the receipt
of cash payments as a result of our hotel leases, which were effective beginning
January 1, 1999 in connection with the REIT Conversion. 1999 cash from
operations were also affected by cash expenditures incurred in connection with
the REIT Conversion and the renegotiation of the ground lease for the New York
Marriott Marquis.
Cash used in investing activities was $222 million and $163 million through the
second quarters of 2000 and 1999, respectively. Cash used in investing
activities through the second quarter includes capital expenditures of $185
million and $177 million for 2000 and 1999, respectively, mostly related to
renewals and replacements on existing properties and new development projects.
Property and equipment balances include $170 million and $243 million for
construction in progress as of June 16, 2000 and December 31, 1999,
respectively. The reduction in construction in progress is due to the Tampa
Waterside Marriott, which was placed in service in February 2000. The current
balance primarily relates to properties in Orlando, Memphis, Naples and various
other expansion and development projects.
On May 16, 2000, we acquired a non-controlling partnership interest in the
JWDC Limited Partnership, which owns the JW Marriott Hotel, a 772-room hotel
located on Pennsylvania Avenue in Washington, DC. The Company, which previously
held a small interest in the venture, invested approximately $40 million in the
form of a preferred equity contribution.
Cash used in financing activities was $148 million through the second quarter of
2000 and $74 million through the second quarter of 1999. Cash used in financing
activities through the second quarter of 2000 includes increased borrowings
under our bank credit facility of approximately $51 million, a portion of which
funded the previously discussed acquisition, as well as repurchases under our
stock buyback program and the payment of distributions.
In February 2000, we refinanced the $80 million mortgage on Marriott's Harbor
Beach Resort property in Fort Lauderdale, Florida. The new mortgage is for $84
million, at a rate of 8.58%, and matures in March 2007.
-25-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During June 2000, we modified our bank credit facility. As modified, the total
facility has been permanently reduced to $775 million, consisting of a $150
million term loan and a $625 million revolver. In addition, the original term
was extended for two additional years, through August 2003. As of June 16,
2000, $176 million is outstanding under the bank credit facility, and the
available capacity under the line of credit balance is $599 million.
On June 21, 2000, the Board of Directors of Host Marriott Corporation declared
cash distributions of $0.21 per OP Unit and $0.625 per unit of cumulative
redeemable preferred limited partner interest, which were paid on July 14, 2000
to unitholders of record on June 30, 2000. On April 14, 2000, first quarter cash
distributions of $0.21 per OP Unit and $0.625 per unit of cumulative redeemable
preferred limited partner interest were paid to unitholders of record on March
31, 2000.
During the first quarter of 2000, we continued our stock repurchase program
making repurchases of approximately 4.9 million common shares, 325,000 OP Units,
and 435,000 shares of Convertible Preferred Securities, for a total investment
of $62 million. No repurchases were made during the second quarter of 2000.
Since the inception of the repurchase program in September 1999, repurchases
under the program total 16.2 million common shares or equivalents for a total
investment of $150 million. We will continue to consider stock repurchases based
on our stock price and to the extent they can be made in a manner that is
relatively leverage neutral. Primarily, we anticipate that any stock repurchases
would be made from future asset sale proceeds, if any, with a portion of any
such proceeds being used to pay down debt. There are no such asset sales pending
at this time.
In April 2000, the resort property in Singer Island, Florida was converted to
the Hilton brand, representing our first property under this brand.
On June 21, 2000, the additions of a 500-room tower and 15,000 square feet of
meeting space at the Orlando World Center Marriott were completed at an
approximate development cost of $84 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our borrowings under the term loan portion of the bank credit facility as well
as the mortgage on The Ritz-Carlton, Amelia Island are sensitive to changes in
interest rates. The interest rates on these debt obligations, which were $266
million and $215 million, respectively, at June 16, 2000 and December 31, 1999,
are based on various LIBOR terms plus 200 to 225 basis points. The weighted
average interest rate for these financial instruments are 8.97% for the twenty-
four weeks ended June 16, 2000 and 7.58% for the year ended December 31, 1999.
-26-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated by reference to the description of legal proceedings in footnote 12
to the condensed consolidated financial statements set forth in Part I,
"Financial Information."
Item 4. Submission of Matters to a Vote of Security Holders
On May 18, 2000, Host Marriott Corporation held its Annual Meeting of
Shareholders to elect members to the Board of Directors, among other matters.
-27-
<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.
HOST MARRIOTT, L.P.
BY: HOST MARRIOTT CORPORATION
Its General Partner
July 25, 2000 /s/ Donald D. Olinger
------------- ---------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
