<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 March 24, 2000 Commission File No. 001-14625
HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Maryland 53-0085950
- -------------------------- ------------------
(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
-----
Shares outstanding
Class at May 1, 2000
- --------------------- --------------
Common Stock, $0.01 par value 220,076,924
Purchase share rights for Series A Junior Participating
Preferred Stock, $0.01 par value --
Class A Cumulative Redeemable Preferred Stock, $0.01 par value 4,160,000
Class B Cumulative Redeemable Preferred Stock, $0.01 par value 4,000,000
================================================================================
<PAGE>
INDEX
-----
Part I. FINANCIAL INFORMATION (Unaudited): Page No.
--------
Condensed Consolidated Balance Sheets-
March 24, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations-
Twelve Weeks Ended March 24, 2000 and March 26, 1999 4
Condensed Consolidated Statements of Cash Flows-
Twelve Weeks Ended March 24, 2000 and March 26, 1999 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 12
Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION AND SIGNATURE 17
-2-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
March 24, December 31,
2000 1999
--------- ------------
(unaudited)
ASSETS
------
<S> <C> <C>
Property and equipment, net............................................................. $ 7,120 $ 7,108
Notes and other receivables (including amounts due from
affiliates of $128 million and $127 million, respectively)........................... 176 175
Rent receivable......................................................................... 84 72
Investments in affiliates............................................................... 49 49
Other assets............................................................................ 531 521
Cash and cash equivalents............................................................... 126 277
------- -------
$ 8,086 $ 8,202
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Debt
Senior notes......................................................................... $ 2,539 $ 2,539
Mortgage debt........................................................................ 2,304 2,309
Other................................................................................ 221 221
------- -------
5,064 5,069
Accounts payable and accrued expenses................................................... 145 148
Deferred income taxes................................................................... 49 49
Deferred rent........................................................................... 123 --
Other liabilities....................................................................... 396 426
------- -------
Total liabilities.................................................................. 5,777 5,692
------- -------
Minority interest....................................................................... 472 508
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary whose sole assets are the convertible
subordinated debentures due 2026 ("Convertible Preferred Securities")................ 475 497
Shareholders' equity
Cumulative redeemable preferred stock ("Preferred Stock"), 50 million shares
authorized; 8.2 million shares issued and outstanding................................ 196 196
Common stock, 750 million shares authorized; 219.8 million shares
and 223.5 million shares issued and outstanding, respectively........................ 2 2
Additional paid-in capital.............................................................. 1,810 1,844
Accumulated other comprehensive income.................................................. 1 2
Retained deficit........................................................................ (647) (539)
------- -------
Total shareholders' equity......................................................... 1,362 1,505
------- -------
$ 8,086 $ 8,202
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended March 24, 2000 and March 26, 1999
(unaudited, in millions, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
REVENUES
<S> <C> <C>
Rental income...................................................................... $ 173 $ 171
Interest income.................................................................... 9 8
Net gains on property transactions................................................. 1 12
Equity in earnings of affiliates................................................... -- 1
Other.............................................................................. 2 --
-------- --------
Total revenues................................................................ 185 192
-------- --------
EXPENSES
Depreciation and amortization...................................................... 74 68
Property-level owner expenses...................................................... 59 58
Minority interest benefit.......................................................... (11) (8)
Interest expense................................................................... 96 99
Dividends on Convertible Preferred Securities...................................... 7 9
Corporate expenses................................................................. 10 7
Other expenses..................................................................... 6 2
-------- --------
Total expenses................................................................ 241 235
-------- --------
LOSS BEFORE INCOME TAXES............................................................... (56) (43)
Provision for income taxes............................................................. (1) (1)
-------- --------
NET LOSS .............................................................................. $ (57) $ (44)
======== ========
Less: Dividends on preferred stock..................................................... (5) --
Add: Gain on repurchase of Convertible Preferred Securities, net of
income tax expense of $1 million................................................. 4 --
-------- --------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS.............................................. $ (58) $ (44)
======== ========
BASIC LOSS PER COMMON SHARE............................................................. $ (.26) $ (.19)
======== ========
DILUTED LOSS PER COMMON SHARE........................................................... $ (.26) $ (.19)
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Weeks Ended March 24, 2000 and March 26, 1999
(unaudited, in millions)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss................................................................................ $ (57) $ (44)
Adjustments to reconcile to cash from operations:
Depreciation and amortization....................................................... 74 68
Income taxes........................................................................ (21) (4)
Deferred contingent rental income................................................... 123 115
Net gains on property transactions.................................................. (1) (12)
Equity in earnings of affiliates.................................................... -- (1)
Changes in operating accounts....................................................... (27) (110)
Other............................................................................... (23) (8)
-------- --------
Cash from operations........................................................... 68 4
-------- --------
INVESTING ACTIVITIES
Proceeds from sales of assets........................................................... -- 36
Acquisitions............................................................................ -- (4)
Capital expenditures:
Capital expenditures for renewals and replacements.................................. (54) (50)
New investment capital expenditures................................................. (34) (20)
Other investments................................................................... (11) (6)
Note receivable collections, net........................................................ -- 2
-------- --------
Cash used in investing activities.............................................. (99) (42)
-------- --------
FINANCING ACTIVITIES
Issuances of debt, net.................................................................. 83 299
Scheduled principal repayments.......................................................... (9) (12)
Debt prepayments........................................................................ (80) (323)
Issuances of common stock............................................................... 1 --
Repurchases of common stock............................................................. (44) (4)
Dividends............................................................................... (51) (69)
Repurchases of Convertible Preferred Securities......................................... (15) --
Repurchases and redemptions of OP Units................................................. (3) --
Other .................................................................................. (2) (5)
-------- --------
Cash used in financing activities.............................................. (120) (114)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS................................................... $ (151) $ (152)
======== ========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Approximately 66,000 shares of common stock were issued during the first quarter
of 2000 upon the conversion of outside OP Units valued at $612,000.
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Host Marriott Corporation, a Maryland corporation formerly named HMC
Merger Corporation ("Host REIT"), operating through an umbrella
partnership structure, is primarily the owner of hotel properties. Host
REIT operates as a self-managed and self-administered real estate
investment trust ("REIT") with its operations conducted through an
operating partnership and its subsidiaries. As REITs are not currently
permitted to derive revenues directly from the operations of hotels, Host
REIT leases substantially all of its hotels to subsidiaries of Crestline
Capital Corporation ("Crestline" or the "Lessee") and certain other
lessees.
On December 15, 1998, shareholders of Host Marriott Corporation, ("Host
Marriott"), a Delaware corporation and the predecessor to Host REIT,
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. (the "Operating Partnership" or "Host LP"). Host
Marriott merged into HMC Merger Corporation, 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. Host Marriott and its subsidiaries'
contribution of its hotels and certain assets and liabilities to the
Operating Partnership and its subsidiaries in exchange for units of
partnership interest in the Operating Partnership ("OP Units") was
accounted for at Host Marriott's historical basis. As of March 24, 2000,
Host REIT owned approximately 77% of the Operating Partnership.
In these condensed consolidated financial statements, the "Company" or
"Host Marriott" refers to Host Marriott Corporation and its consolidated
subsidiaries, both before and after the merger and its conversion to a
REIT (the "REIT Conversion").
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 March 24, 2000
and December 31, 1999, and the results of operations and cash flows for
the twelve weeks ended March 24, 2000 and March 26, 1999. Interim results
are not necessarily indicative of fiscal year performance because of the
impact of seasonal and short-term variations.
Certain reclassifications were made to the prior year financial statements
to conform to the new presentation.
The Company's leases have remaining 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
-6-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Crestline were amended to give Crestline the right to renew each of these
leases for up to four additional terms of seven years each at a fair
rental value. 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 $123 million and $115 million, respectively, for the
twelve weeks ended March 24, 2000 and March 26, 1999 have been deferred.
3. Earnings Per Share
Basic earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of shares
of common stock outstanding. Diluted earnings per share is computed by
dividing net income available to common shareholders as adjusted for
potentially dilutive securities, by the weighted average number of shares
of common stock outstanding plus other potentially dilutive securities.
Dilutive securities may include shares granted under comprehensive stock
plans and the Convertible Preferred Securities. Dilutive securities may
also include those common and preferred 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.
<TABLE>
<CAPTION>
Twelve weeks ended
----------------------------------------------------------------------
March 24, 2000 March 26, 1999
---------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss..................................... $ (57) 221.4 $ (.26) $ (44) 226.9 $ (.19)
Dividends on preferred stock................ (5) -- (.02) -- -- --
Gain on repurchase of Convertible Preferred
Securities................................ 4 -- .02 -- -- --
-------- ----- -------- -------- ------ ---------
Basic loss available to common
shareholders per share...................... (58) 221.4 (.26) (44) 226.9 (.19)
Assuming distribution of common shares
granted under the comprehensive stock
plan, less shares assumed purchased at
average market price...................... -- -- -- -- -- --
Assuming conversion of minority OP Units
outstanding............................... (17) 63.8 -- (12) 64.6 --
Assuming conversion of preferred
OP Units.................................. -- .6 -- -- -- --
Assuming conversion of minority OP Units
issuable.................................. -- -- -- -- -- --
Assuming conversion of Convertible
Preferred Securities...................... -- -- -- -- -- --
--------- -------- --------- --------- --------- ----------
Diluted loss per share....................... $ (75) 285.8 $ (.26) $ (56) 291.5 $ (.19)
======== ====== ======== ======== ===== =========
</TABLE>
-7-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Stock Repurchases
In September 1999, the Board of Directors 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 the
Company's common stock, OP Units, or a corresponding amount (based on the
appropriate conversion ratio) of the Company's Convertible Preferred
Securities. Such repurchases will be made at management's discretion,
subject to market conditions, and may be suspended at any time at the
Company's discretion. During the twelve weeks ended March 24, 2000, the
Company 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. Since inception of the repurchase program
through May 1, 2000, the Company has spent, in the aggregate,
approximately $150 million to repurchase 16.2 million equivalent shares.
5. Dividends and Distributions Payable
On March 23, 2000, the Board of Directors declared a cash dividend of
$0.21 per share of common stock and a corresponding distribution of $0.21
per common OP Unit. The first quarter dividend and distribution were paid
on April 14, 2000 to shareholders and unitholders of record on March 31,
2000.
On March 23, 2000, the Company declared a quarterly dividend of $0.625 per
share of Preferred Stock, which was paid on April 14, 2000 to shareholders
of record on March 31, 2000.
6. Development
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.
7. Debt Issuances and Refinancing
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.
8. Geographic Information
As of March 24, 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):
Twelve Weeks Ended
------------------------------
March 24, 2000 March 26, 1999
-------------- --------------
United States........................... $ 182 $ 189
International........................... 3 3
--------- ---------
Total............................... $ 185 $ 192
========= =========
-8-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Other 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 weeks ended
March 24, 2000 and March 26, 1999, the comprehensive loss totaled $58
million and $45 million, respectively. As of March 24, 2000 and December
31, 1999, the Company's accumulated other comprehensive income was $1
million and $2 million, respectively.
10. Summarized Lease Pool Financial Statements
As discussed in Note 1, as of March 24, 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 and summarized balance sheet data of the lease pools in which
the Company's hotels are organized are as follows (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended March 24, 2000
---------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Hotel Sales
<S> <C> <C> <C> <C> <C>
Rooms..................................... $ 129 $ 143 $ 125 $ 133 $ 530
Food and beverage......................... 59 66 60 75 260
Other..................................... 14 13 19 19 65
----- ----- ----- ----- -----
Total hotel sales.................... 202 222 204 227 855
Operating Costs and Expenses
Rooms..................................... 31 37 28 29 125
Food and beverage......................... 44 50 44 51 189
Other..................................... 52 51 50 52 205
Management fees........................... 9 15 10 18 52
Lease expense............................. 62 66 69 75 272
----- ----- ----- ----- -----
Total operating expenses............. 198 219 201 225 843
----- ----- ----- ----- -----
Operating Profit............................... 4 3 3 2 12
Corporate and Interest Expenses................ (1) (1) -- -- (2)
----- ----- ----- ----- -----
Income before taxes...................... 3 2 3 2 10
Income taxes............................. (1) (1) (1) (1) (4)
----- ----- ----- ----- -----
Net Income........................... $ 2 $ 1 $ 2 $ 1 $ 6
===== ===== ===== ===== =====
</TABLE>
-9-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended March 26, 1999
---------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms..................................... $ 129 $ 137 $ 127 $ 128 $ 521
Food and beverage......................... 59 61 61 72 253
Other..................................... 14 13 19 15 61
----- ----- ----- ----- -----
Total hotel sales.................... 202 211 207 215 835
Operating Costs and Expenses
Rooms..................................... 31 32 29 27 119
Food and beverage......................... 46 47 44 48 185
Other..................................... 53 52 50 48 203
Management fees........................... 9 14 11 16 50
Lease expense............................. 61 64 70 74 269
----- ----- ----- ----- -----
Total operating expenses............. 200 209 204 213 826
----- ----- ----- ----- -----
Operating Profit............................... 2 2 3 2 9
Corporate and Interest Expenses................ (1) -- (1) (1) (3)
----- ----- ----- ----- -----
Income before taxes...................... 1 2 2 1 6
Income taxes............................. -- (1) (1) (1) (3)
----- ----- ----- ----- -----
Net Income........................... $ 1 $ 1 $ 1 $ -- $ 3
===== ===== ===== ===== =====
As of March 24, 2000
--------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Assets......................................... $ 46 $ 32 $ 46 $ 42 $ 166
Liabilities.................................... 41 30 43 41 155
Equity......................................... 5 2 3 1 11
As of December 31, 1999
-----------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Assets......................................... $ 39 $ 37 $ 41 $ 38 $ 155
Liabilities.................................... 36 36 40 38 150
Equity......................................... 3 1 1 -- 5
</TABLE>
11. Subsequent Event
In April 2000, the Company borrowed $40 million under the revolver portion
of the bank credit facility. As a result, the available capacity under the
line of credit was reduced to $860 million, and the total line remains
$1.025 billion.
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 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.
-10-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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.
-11-
<PAGE>
HOST MARRIOTT CORPORATION
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 $123 million and $115 million for the twelve weeks ended
March 24, 2000 and March 26, 1999, respectively, were deferred on the balance
sheet 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, in
order to facilitate an investor's understanding of the operation of our
properties.
Twelve Weeks Ended
------------------------------
March 24, 2000 March 26, 1999
-------------- --------------
(in millions)
Hotel Sales
Rooms...................................... $ 613 $ 600
Food and beverage.......................... 274 268
Other...................................... 71 63
------- -------
Total sales........................... $ 958 $ 931
======= =======
Rental income increased $2 million, or 1%, to $173 million for the first quarter
of 2000 versus the first quarter of 1999, primarily driven by the growth in room
revenues generated per available room or REVPAR for comparable properties, and
partially offset by the sale of five properties in 1999. REVPAR increased 3.3%
to $122.38 for the first quarter of 2000 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%, while average
occupancy decreased 1 percentage point.
-12-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Depreciation and Amortization. Depreciation and amortization increased $6
million or 9% for the first quarter of 2000 versus the first quarter of 1999,
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 Expenses. Property-level owner expenses primarily consist of
property taxes, insurance, and ground and equipment rent. These expenses
increased less than 2% to $59 million for the first quarter of 2000 versus first
quarter of 1999, reflecting, in part, the effect of the sale of five hotel
properties in 1999.
Minority Interest Benefit. For the twelve weeks ended March 24, 2000 and March
26, 1999, respectively, we recognized a minority interest benefit of $11 million
and $8 million, reflecting the minority owners' share in the net loss, which is
primarily the result of the deferral of contingent rental income of $123 million
and $115 million. The benefit will be reversed in subsequent quarters as we earn
the contingent rent.
Interest Expense. Interest expense decreased 3% to $96 million in the first
quarter of 2000, primarily due to repayments on the term loan portion of the
bank credit facility totaling $225 million during the second half of 1999.
Dividends on Convertible Preferred Securities. Amounts reflect the dividends
accrued during the first twelve weeks of fiscal year 2000 and 1999 on the
outstanding shares of 63/4% Convertible Preferred Securities. The $2 million
decrease to $7 million for the first quarter of 2000 is due to repurchases under
our stock repurchase program (see Note 4 to the condensed consolidated financial
statements), which commenced during the fourth quarter of 1999, totaling 1.5
million shares of the Convertible Preferred Securities through March 24, 2000.
Corporate Expenses. Corporate expenses increased $3 million to $10 million for
the first quarter of 2000, resulting primarily from an increase in compensation
expense related to employee stock plans.
Net Loss. Our net loss increased to $57 million for the first quarter of 2000
from $44 million for the first quarter of 1999.
Net Loss Available to Common Shareholders. The net loss available to common
shareholders was $58 million for the first quarter of 2000, an increase of $14
million over the first quarter of 1999. The net loss available to common
shareholders for the first quarter of 2000 reflects dividends of $5 million on
preferred stock, which was issued during the second half of 1999, and a $4
million gain, net of taxes, on the repurchase of 435,000 million shares of the
Convertible Preferred Securities during the first quarter of 2000.
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
-13-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
meaningful disclosures that will help shareholders and the investment community
to better understand our financial performance, including 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 shareholders increased $1 million, or 1%, to
$92 million in the first quarter of 2000 over the first quarter of 1999. The
following is a reconciliation of the net loss to Comparative FFO (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------------
March 24, 2000 March 26, 1999
-------------- --------------
Funds from Operations
<S> <C> <C>
Net loss...................................................................... $ (57) $ (44)
Depreciation and amortization................................................. 72 68
Other real estate activities.................................................. -- (11)
Partnership adjustments....................................................... (10) (9)
------- -------
Funds from operations of Host LP............................................... 5 4
Effect on funds from operations of SAB 101.................................... 119 113
------- -------
Comparative funds from operations of Host LP................................... 124 117
Dividends on preferred stock.................................................. (5) --
------- -------
Comparative funds from operations of Host LP available to
common unitholders............................................................ 119 117
Comparative funds from operations of minority partners of Host LP............. (27) (26)
------- -------
Comparative funds from operations available to common shareholders of
Host REIT..................................................................... $ 92 $ 91
======= =======
</TABLE>
We are the sole general partner in the Operating Partnership and as of March 24,
2000 held approximately 77% of the outstanding OP Units. The $27 million and $26
million deducted for the twelve weeks ended March 24, 2000 and March 26, 1999,
respectively, represent the Comparative FFO attributable to the interests in the
Operating Partnership held by those minority partners. OP Units owned by holders
other than us are redeemable at the option of the holder, generally commencing
one year after the issuance of their OP Units. Upon redemption of an OP Unit,
the holder would receive from the Operating Partnership cash in an amount equal
to the market value of one share of our common stock, or at our option, a share
of our common stock.
EBITDA increased $6 million, or 3%, to $218 million in the first quarter of
2000, reflecting primarily EBITDA growth from owned properties, partially offset
by EBITDA related to assets sold during 1999. Hotel EBITDA was $114 million in
both the first quarter of 2000 and 1999, which does not include deferred rental
income of $123 million and $115 million, respectively.
The following schedule presents our EBITDA as well as a reconciliation of EBITDA
to the net loss (in millions):
-14-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------------
March 24, 2000 March 26, 1999
-------------- --------------
EBITDA
<S> <C> <C>
Hotels....................................................................... $ 114 $ 114
Office buildings............................................................. -- --
Interest income.............................................................. 9 8
Corporate and other expenses................................................. (15) (11)
Effect on revenue of SAB 101................................................. 123 115
------- -------
EBITDA of Host LP............................................................... 231 226
Distributions to minority interest partners of Host LP....................... (13) (14)
------- -------
EBITDA of Host REIT............................................................. $ 218 $ 212
======= =======
Twelve Weeks Ended
------------------------------
March 24, 2000 March 26, 1999
-------------- --------------
EBITDA of Host REIT............................................................. $ 218 $ 212
Effect on revenue of SAB 101.................................................... (123) (115)
Interest expense................................................................ (96) (99)
Income taxes.................................................................... (1) (1)
Dividends on Convertible Preferred Securities................................... (7) (9)
Depreciation and amortization................................................... (74) (68)
Minority interest benefit....................................................... 11 8
Distributions to minority interest partners of Host LP.......................... 13 14
Other non-cash charges, net..................................................... 2 14
------- -------
Net loss...................................................................... $ (57) $ (44)
======= =======
</TABLE>
Distributions to minority holders of OP Units for the twelve weeks ended March
24, 2000 and March 26, 1999 were $13 million and $14 million, respectively.
These OP Units are convertible into cash or our common stock at our option. The
first quarter distributions were declared on March 23, 2000 and March 15, 1999,
respectively, and subsequently paid on April 14, 2000 and April 14, 1999,
respectively.
Our interest coverage, defined as EBITDA divided by cash interest expense, was
2.3 times and 2.2 times for the 2000 and 1999 first quarters, respectively. The
deficiency of earnings to fixed charges was $68 million for the first quarter of
2000 and $50 million for the first quarter of 1999, which is primarily due to
the deferral of contingent rental revenue of $123 million and $115 million for
the same periods, respectively.
Cash Flows and Financial Condition
We reported a decrease in cash and cash equivalents of $151 million during the
twelve weeks ended March 24, 2000. Cash from operations was $68 million for the
first quarter of 2000 and $4 million for the first quarter of 1999. The $64
million increase in cash from operations primarily relates to changes in
operating accounts, specifically rent receivable. First quarter 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.
Cash used in investing activities was $99 million and $42 million for the first
quarter of 2000 and 1999, respectively. Cash used in investing activities for
the first quarter includes capital expenditures and other investments of $99
million and $76 million for 2000 and 1999, respectively, mostly related to
renewals and replacements on existing properties and new development projects.
Property and
-15-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
equipment balances include $163 million and $243 million for construction in
progress as of March 24, 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.
Cash used in financing activities was $120 million for the first quarter of 2000
and $114 million for the first quarter of 1999. Cash used in financing
activities includes $80 million in prepayment of debt, offset by a similar
amount of debt issuances, as well as repurchases under our stock buyback program
and the payment of dividends.
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.
On March 23, 2000, the Board of Directors declared a cash dividend of $0.21 per
share of common stock, and a corresponding distribution of $0.21 per common OP
Unit, which was paid on April 14, 2000 to shareholders and unit holders of
record on March 31, 2000. In addition, the Board of Directors declared a
dividend of $0.625 per share of Preferred Stock, which was paid on April 14,
2000 to shareholders of record on March 31, 2000.
In September 1999, the Board of Directors 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 our common stock, OP Units, or a
corresponding amount (based on the appropriate conversion ratio) of our
Convertible Preferred Securities. The repurchases have been financed in part
through cash from operations and the net proceeds from sales of assets, prior to
their reinvestment in real estate assets. Based on current market conditions, we
believe that, at our current stock price, the stock repurchase program reflects
a favorable return on investment for our shareholders. However, we will continue
to look at strategic acquisitions as well as evaluate our stock repurchase
program based on changes in market conditions and our stock price. During the
first quarter of 2000, we repurchased 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. Since inception of the repurchase program
through May 1, 2000, repurchases under the program total 16.2 million common
shares or equivalent for a total investment of $150 million.
In April 2000, the resort property in Singer Island, Florida was converted to
the Hilton brand, representing our first property under this brand.
In April 2000, the Company borrowed $40 million under the revolver portion of
the bank credit facility. As a result, the available capacity under the line of
credit was reduced to $860 million, and the total line remains $1.025 billion.
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 $214.8
million and $215.0 million, respectively, at March 24, 2000 and December 31,
1999, are based on various LIBOR terms plus certain basis points which range
from 165 to 200 basis points. The weighted average interest rate for these
financial instruments are 7.77% at March 24, 2000 and 7.58% at December 31,
1999.
-16-
<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 April 17, 2000, Host Marriott Corporation announced the annual meeting of
shareholders to be held on May 18, 2000 to elect members to the Board of
Directors, among other matters.
Item 6. Reports on Form 8-K
b. Reports on Form 8-K
. February 24, 2000--Report that Host Marriott Corporation and Marriott
International, Inc. announced that they have reached a non-binding
understanding to resolve pending litigation involving certain limited
partnerships formed in the mid-to late 1980's.
-17-
<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 CORPORATION
May 4, 2000 /s/ Donald D. Olinger
- ----------- ---------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOST
MARRIOTT CORPORATION CONDENSED CONSOLIDATED INTERIM BALANCE SHEET AND CONDENSED
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS AS OF AND FOR THE PERIOD ENDED
MARCH 24, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-24-2000
<CASH> 126
<SECURITIES> 0
<RECEIVABLES> 260
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,411
<DEPRECIATION> 1,291
<TOTAL-ASSETS> 8,086
<CURRENT-LIABILITIES> 0
<BONDS> 2,539
475
0
<COMMON> 2
<OTHER-SE> 1,360
<TOTAL-LIABILITY-AND-EQUITY> 8,086
<SALES> 173
<TOTAL-REVENUES> 185
<CGS> 0
<TOTAL-COSTS> 241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (56)
<INCOME-TAX> (1)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57)
<EPS-BASIC> (.26)
<EPS-DILUTED> (.26)
</TABLE>
