<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. 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
-----
<TABLE>
<CAPTION>
Shares outstanding
Class at July 21, 2000
--------------------- ----------------
<S> <C>
Common Stock, $0.01 par value 220,487,544
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
</TABLE>
================================================================================
<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 15
Quantitative and Qualitative Disclosures about Market Risk 20
Part II. OTHER INFORMATION AND SIGNATURE 21
</TABLE>
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 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............................................................................ 545 521
Cash and cash equivalents............................................................... 155 277
---------- ----------
$ 8,166 $ 8,202
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Debt
Senior notes.......................................................................... $ 2,539 $ 2,539
Mortgage debt......................................................................... 2,296 2,309
Other................................................................................. 272 221
---------- ----------
5,107 5,069
Accounts payable and accrued expenses................................................... 143 148
Deferred income taxes................................................................... 48 49
Deferred rent........................................................................... 291 --
Other liabilities....................................................................... 396 426
---------- ----------
Total liabilities................................................................. 5,985 5,692
---------- ----------
Minority interest....................................................................... 440 508
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; 220.2 million shares and
223.5 million shares issued and outstanding, respectively........................... 2 2
Additional paid-in capital.............................................................. 1,816 1,844
Accumulated other comprehensive income.................................................. 3 2
Retained deficit........................................................................ (751) (539)
---------- ----------
Total shareholders' equity....................................................... 1,266 1,505
---------- ----------
$ 8,166 $ 8,202
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions, except per share 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 benefit.......................................................... (11) (5)
Interest expense................................................................... 97 101
Dividends on Convertible Preferred Securities...................................... 7 8
Corporate expenses................................................................. 10 8
Other expenses..................................................................... 6 5
---------- ----------
Total expenses................................................................ 247 246
---------- ----------
LOSS FROM OPERATIONS BEFORE INCOME TAXES............................................... (48) (43)
Provision for income taxes............................................................. (2) (1)
---------- ----------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS........................................ (50) (44)
Extraordinary gain (loss).............................................................. (3) 13
---------- ----------
NET LOSS .............................................................................. $ (53) $ (31)
========== ==========
Less: Dividends on Preferred Stock................................................... (5) --
---------- ----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS.............................................. $ (58) $ (31)
========== ==========
BASIC LOSS PER COMMON SHARE:
Loss from operations before extraordinary items......................................... $ (0.25) $ (0.19)
Extraordinary gain (loss)............................................................... (0.01) 0.05
---------- ----------
BASIC LOSS PER COMMON SHARE............................................................. $ (0.26) $ (0.14)
========== ==========
DILUTED LOSS PER COMMON SHARE:
Loss from operations before extraordinary items......................................... $ (0.25) $ (0.19)
Extraordinary gain (loss)............................................................... (0.01) 0.05
---------- ----------
DILUTED LOSS PER COMMON SHARE........................................................... $ (0.26) $ (0.14)
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions, except per share amounts)
<TABLE>
<CAPTION>
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 benefit.......................................................... (22) (13)
Interest expense................................................................... 193 200
Dividends on Convertible Preferred Securities...................................... 14 17
Corporate expenses................................................................. 20 15
Other expenses..................................................................... 12 7
---------- ----------
Total expenses................................................................ 488 481
---------- ----------
LOSS FROM OPERATIONS BEFORE INCOME TAXES............................................... (104) (86)
Provision for income taxes............................................................. (3) (2)
---------- ----------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS........................................ (107) (88)
Extraordinary gain (loss).............................................................. (3) 13
---------- ----------
NET LOSS .............................................................................. $ (110) $ (75)
========== ==========
Less: Dividends on Preferred Stock................................................... (10) --
Add: Gain on repurchase of Convertible Preferred Securities........................... 4 --
---------- ----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS.............................................. $ (116) $ (75)
========== ==========
BASIC LOSS PER COMMON SHARE:
Loss from operations before extraordinary items......................................... $ (0.52) $ (0.38)
Extraordinary gain (loss)............................................................... (0.01) 0.05
---------- ----------
BASIC LOSS PER COMMON SHARE............................................................. $ (0.53) $ (0.33)
========== ==========
DILUTED LOSS PER COMMON SHARE:
Loss from operations before extraordinary items......................................... $ (0.52) $ (0.38)
Extraordinary gain (loss)............................................................... (0.01) 0.05
---------- ----------
DILUTED LOSS PER COMMON SHARE........................................................... $ (0.53) $ (0.33)
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four Weeks Ended June 16, 2000 and June 18, 1999
(unaudited, in millions)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Loss from operations before extraordinary items...................................... $ (107) $ (88)
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.................................................... (40) (141)
Other............................................................................ (46) (35)
---------- ----------
Cash from operations......................................................... 221 98
---------- ----------
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 prepayments..................................................................... (245) (323)
Issuances of common stock............................................................ 2 (3)
Repurchases of common stock.......................................................... (44) --
Dividends............................................................................ (102) (117)
Repurchases of Convertible Preferred Securities...................................... (15) --
Repurchases and redemptions of OP Units.............................................. (3) --
Other ............................................................................... 14 (8)
---------- ----------
Cash used in financing activities............................................ (121) (61)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS................................................ $ (122) $ (126)
========== ==========
</TABLE>
Supplemental schedule of noncash financing activities:
Approximately 264,000 shares of common stock were issued during the twenty-four
weeks ended June 16, 2000 upon the conversion of outside OP Units valued at $2.5
million.
See Notes to Condensed Consolidated Financial Statements
-6-
<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 June 16, 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 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.
Certain reclassifications were made to the prior year financial statements
to conform to the current presentation.
-7-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 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.
-8-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended
------------------------------------------------------------------------
June 16, 2000 June 18, 1999
---------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss..................................... $ (53) 220.1 $ (.24) $ (31) 227.9 $ (.14)
Dividends on preferred stock................ (5) -- (.02) -- -- --
Gain on repurchase of Convertible Preferred
Securities................................ -- -- -- -- -- --
-------- -------- -------- -------- ------ --------
Basic loss available to common
shareholders per share...................... (58) 220.1 (.26) (31) 227.9 (.14)
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............................... (16) 63.5 -- (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....................... $ (74) 284.2 $ (.26) $ (43) 292.5 $ (.14)
======== ======== ======== ======== ====== ========
<CAPTION>
Twenty-four weeks ended
-----------------------------------------------------------------------
June 16, 2000 June 18, 1999
---------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss..................................... $ (110) 220.7 $ (.50) $ (75) 227.4 $ (.33)
Dividends on preferred stock................ (10) -- (.05) -- -- --
Gain on repurchase of Convertible Preferred
Securities................................ 4 -- .02 -- -- --
-------- ------------ -------- -------- ----------- --------
Basic loss available to common
shareholders per share...................... (116) 220.7 (.53) (75) 227.4 (.33)
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............................... (34) 63.7 -- (24) 64.6 --
Assuming conversion of preferred
OP Units.................................. -- 0.6 -- -- -- --
Assuming conversion of minority OP Units
issuable.................................. -- -- -- -- -- --
Assuming conversion of Convertible
Preferred Securities...................... -- -- -- -- -- --
-------- ------------ -------- -------- ----------- --------
Diluted loss per share....................... $ (150) 285.0 $ (.53) $ (99) 292.0 $ (.33)
======== ============ ======== ======== =========== ========
</TABLE>
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
-9-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. No repurchases were made during the
second quarter of 2000. Since the inception of the repurchase program in
September 1999, the Company has spent, in the aggregate, approximately
$150 million to repurchase 16.2 equivalent shares.
5. Dividends and Distributions Payable
On March 23, 2000 and June 21, 2000, the Board of Directors declared
quarterly cash dividends of $0.21 per share of common stock. The first
quarter dividend was paid on April 14, 2000 to shareholders of record on
March 31, 2000. The second quarter dividend was paid on July 14, 2000 to
shareholders of record on June 30, 2000.
On March 23, 2000 and June 21, 2000, Host Marriott declared quarterly
dividends of $0.625 per share of Preferred Stock, which were paid on April
14, 2000 and July 14, 2000, to shareholders of record on March 31, 2000
and June 30, 2000, respectively.
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.
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 revolver
portion is $599 million. In connection with the renegotiation of the bank
credit facility, the Company recognized an extraordinary loss of
approximately $3 million, representing the write-off of deferred financing
costs and certain fees paid to the lender.
-10-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, the comprehensive loss totaled $51
million and $109 million, respectively. The comprehensive loss was $29
million and $74 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 approximately $3
million and $2 million, respectively.
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 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):
-11-
<PAGE>
HOST MARRIOTT CORPORATION
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>
-12-
<PAGE>
HOST MARRIOTT CORPORATION
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
====== ====== ====== ====== ========
<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
====== ====== ====== ====== ========
<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
<CAPTION>
As of 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>
-13-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. 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.
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.
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.
12. 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.
-14-
<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 $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
-15-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
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 new capital projects placed in service in 2000,
including the Tampa Waterside Marriott, 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 Benefit. For the twelve weeks and twenty-four weeks
ended June 16, 2000 and June 18, 1999, respectively, we recognized a
minority interest benefit of $11 million and $5 million, and $22 million
and $13 million, reflecting the minority owners' share in the net loss,
which is primarily the result of the deferral of contingent rental income
of $168 million and $138 million, and $291 million and $253 million,
respectively. The benefit will be reversed in subsequent quarters as we
earn the contingent rent.
Interest Expense. Interest expense decreased 4% to $97 million in the
second quarter of 2000 and decreased 4% to $193 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 twelve weeks ended June 16, 2000, we
recorded an extraordinary loss of approximately $3 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 $22 million to $53 million for the second
quarter of 2000 and increased $35 million to $110 million year-to-date.
Net Loss Available to Common Shareholders. The net loss available to
common shareholders increased $27 million to $58 million for the second
quarter of 2000 and increased $41 million to $116 million year-to-date.
The net loss available to common shareholders reflects year-to-date
dividends of $10 million on Preferred Stock, which was issued during the
second half of 1999, and a $4 million gain, which represents the common
shareholders' portion of the gain on the repurchase of the Convertible
Preferred Securities.
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,
-16-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 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 $15 million, or
13%, to $133 million for the second quarter of 2000 over the second
quarter of 1999, and increased $16 million or 8%, to $225 million
year-to-date compared to the same period in 1999. 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.... $ (50) $ (44) $ (107) $ (88)
Depreciation and amortization...................... 74 67 146 135
Other real estate activities....................... (1) (5) (1) (16)
Partnership adjustments............................ (12) -- (22) (9)
------- ------- ------- -------
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
Dividends on preferred stock....................... (5) -- (10) --
------- ------- ------- -------
Comparative funds from operations of Host LP
available to common unitholders.................... 172 152 291 269
Comparative funds from operations of minority
partners of Host LP.............................. (39) (34) (66) (60)
------- ------- ------- -------
Comparative funds from operations available
to common shareholders of Host REIT................ $ 133 $ 118 $ 225 $ 209
======= ======= ======= =======
</TABLE>
We are the sole general partner in the Operating Partnership and as of
June 16, 2000 held approximately 77% of the outstanding OP Units. The $39
million and $34 million, and $66 million and $60 million, deducted for the
twelve weeks and twenty-four weeks ended June 16, 2000 and June 18, 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 $26 million, or 11%, to $268 million in the second
quarter of 2000 and increased $32 million, or 7%, to $486 million
year-to-date over the comparable periods in 1999, reflecting primarily
EBITDA growth from owned properties, partially offset by EBITDA related to
assets sold during 1999. In
-17-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
Distributions to minority interest partners
of Host LP................................ (14) (13) (27) (27)
------- ------- ------- -------
EBITDA of Host REIT............................ $ 268 $ 242 $ 486 $ 454
======= ======= ======= =======
<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 REIT............................ $ 268 $ 242 $ 486 $ 454
Effect on revenue of SAB 101................... (168) (138) (291) (253)
Interest expense............................... (97) (101) (193) (200)
Income taxes................................... (2) (1) (3) (2)
Dividends on Convertible Preferred
Securities................................... (7) (8) (14) (17)
Depreciation and amortization.................. (75) (67) (149) (135)
Minority interest benefit...................... 11 5 22 13
Distributions to minority interest partners of
Host LP...................................... 14 13 27 27
Other non-cash charges, net.................... 6 11 8 25
------- ------- ------- -------
Loss from operations before extraordinary
items..................................... $ (50) $ (44) $ (107) $ (88)
======= ======= ======= =======
</TABLE>
Distributions to minority holders of OP Units were $14 million and $13
million, respectively, for the twelve weeks ended June 16, 2000 and June
18, 1999, and $27 million for both the twenty-four weeks ended June 16,
2000 and June 18, 1999. These OP Units are convertible into cash or our
common stock at our option. First quarter distributions of $0.21 per unit
were declared on March 23, 2000 and March 15, 1999, and subsequently paid
on April 14, 2000 and April 14, 1999. Second quarter distributions of
$0.21 were declared on June 21, 2000 and June 15, 1999, and subsequently
paid on July 14, 2000 and July 14, 1999.
Our interest coverage, defined as EBITDA divided by cash interest expense,
was 2.5 times and 2.7 times for the 2000 and 1999 twenty-four week
periods, 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 rental revenue of $291 million
and $253 million for the same periods, respectively.
-18-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 $221
million through the second quarter of 2000 and $98 million through the
second quarter of 1999. The $123 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 $121 million through the second
quarter of 2000 and $61 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 payments of distributions and repurchases under our stock
buyback program.
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.
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 declared cash dividends of $0.21
per common share and $0.625 per share of Preferred Stock, which were paid
on July 14, 2000 to shareholders of record on June 30, 2000. In addition,
on April 14, 2000, first quarter dividends of $0.21 per common share and
$0.625 per share of Preferred Stock were paid to shareholders 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 referred
-19-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
-20-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated by reference to the description of legal proceedings in footnote 11
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.
-21-
<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
July 25, 2000 /s/ Donald D. Olinger
------------- ---------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
