<PAGE>
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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. 1-14635
CRESTLINE CAPITAL CORPORATION
6600 Rockledge Drive
Bethesda, Maryland 20817
(240) 694-2000
Maryland 52-2151967
- ------------------------- ------------------
(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 April 21, 2000
- -------------------- -----------------
Common Stock, $.01
par value per share 16,669,000
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<PAGE>
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
=====
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION (Unaudited):
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
March 24, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations - 4
Twelve Weeks Ended March 24, 2000 and
March 26, 1999
Condensed Consolidated Statements of Cash Flows - 5
Twelve Weeks Ended March 24, 2000 and
March 26, 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of 8
Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. OTHER INFORMATION AND SIGNATURE 15
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 24, December 31,
2000 1999
----------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net.......................................... $ 738,186 $ 745,615
Hotel working capital................................................ 89,650 89,650
Due from hotel managers.............................................. 75,162 42,259
Due from Marriott Senior Living Services............................. 8,148 5,729
Other assets......................................................... 65,025 44,841
Cash and cash equivalents............................................ 29,604 36,774
----------- -----------
$ 1,005,775 $ 964,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt:
Mortgage debt..................................................... $ 292,891 $ 279,271
Other debt........................................................ 27,235 26,946
----------- -----------
320,126 306,217
Hotel working capital notes payable to Host Marriott.............. 89,650 89,650
----------- -----------
Total debt...................................................... 409,776 395,867
Accounts payable and accrued expenses................................ 15,874 16,912
Lease payable to Host Marriott....................................... 82,734 61,315
Deferred income taxes................................................ 64,360 63,940
Other liabilities.................................................... 28,424 26,086
----------- -----------
Total liabilities............................................... 601,168 564,120
----------- -----------
Shareholders' equity:
Common stock, 75 million shares authorized, 22.3 million shares
issued and outstanding, respectively, $.01 par value............ 223 223
Additional paid-in capital........................................ 451,385 451,639
Retained earnings................................................. 56,177 46,158
Treasury stock, 5.5 million and 5.1 million shares, respectively.. (103,178) (97,272)
----------- -----------
Total shareholders' equity...................................... 404,607 400,748
----------- -----------
$ 1,005,775 $ 964,868
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended March 24, 2000 and March 26, 1999
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES
Hotels
Rooms.......................................................................... $ 606,577 $ 582,896
Food and beverage.............................................................. 264,582 256,450
Other.......................................................................... 69,879 64,638
---------- ----------
Total hotel revenues....................................................... 941,038 903,984
---------- ----------
Senior living
Routine........................................................................ 54,224 51,505
Ancillary...................................................................... 5,556 5,448
---------- ----------
Total senior living revenues............................................... 59,780 56,953
---------- ----------
Other revenues...................................................................... 1,433 1,188
Equity in earnings of affiliates.................................................... 219 223
---------- ----------
Total revenues................................................................. 1,002,470 962,348
---------- ----------
OPERATING COSTS AND EXPENSES
Hotels
Property-level operating costs and expenses
Rooms...................................................................... 141,939 132,583
Food and beverage.......................................................... 192,955 187,971
Other...................................................................... 235,892 227,690
Other operating costs and expenses
Management fees............................................................ 60,346 58,305
Lease expense.............................................................. 292,076 286,670
Depreciation and amortization.............................................. 1,008 --
Other...................................................................... 164 --
---------- ----------
Total hotel operating costs and expenses.............................. 924,380 893,219
---------- ----------
Senior living
Property-level operating costs and expenses
Routine.................................................................... 34,733 32,402
Ancillary.................................................................. 3,334 4,107
Other operating costs and expenses
Depreciation and amortization.............................................. 5,401 5,069
Management fees............................................................ 3,666 3,422
Property taxes and other................................................... 2,177 1,681
---------- ----------
Total senior living operating costs and expenses...................... 49,311 46,681
---------- ----------
Other operating costs and expenses.................................................. 1,021 959
---------- ----------
Total operating costs and expenses......................................... 974,712 940,859
---------- ----------
OPERATING PROFIT BEFORE MINORITY INTEREST, CORPORATE
EXPENSES AND INTEREST.......................................................... 27,758 21,489
Minority interest expense........................................................... (275) --
Corporate expenses.................................................................. (3,861) (3,962)
Interest expense.................................................................... (7,252) (5,106)
Interest income..................................................................... 612 964
---------- ----------
INCOME BEFORE INCOME TAXES.......................................................... 16,982 13,385
Provision for income taxes.......................................................... (6,963) (5,488)
---------- ----------
NET INCOME.......................................................................... $ 10,019 $ 7,897
========== ==========
BASIC EARNINGS PER COMMON SHARE..................................................... $ .59 $ .35
========== ==========
DILUTED EARNINGS PER COMMON SHARE................................................... $ .57 $ .35
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve weeks ended March 24, 2000 and March 26, 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 10,019 $ 7,897
Adjustments to reconcile net income to cash from operations:
Depreciation and amortization................................... 6,600 5,285
Amortization of debt premiums and deferred financing costs...... (119) (358)
Income taxes.................................................... 4,477 4,910
Other........................................................... 7 83
Change in other operating accounts.............................. (19,182) 2,946
----------- -----------
Cash from operations................................................. 1,802 20,763
----------- -----------
INVESTING ACTIVITIES
Acquisitions...................................................... (14,120) -
Purchase of minority interests in senior living partnership....... - (6,888)
Expansions of senior living communities........................... (3,204) (14,005)
Other capital expenditures........................................ (1,903) (1,321)
Dispositions...................................................... 6,206 -
Other............................................................. (3,318) 1,326
----------- -----------
Cash used in investing activities.................................... (16,339) (20,888)
----------- -----------
FINANCING ACTIVITIES
Repayments of debt................................................ (1,282) (870)
Repurchases of common stock....................................... (5,963) (4,394)
Issuances of debt................................................. 15,000 -
Other............................................................. (388) (589)
----------- -----------
Cash provided by (used in) financing activities...................... 7,367 (5,853)
----------- -----------
Decrease in cash and cash equivalents................................ (7,170) (5,978)
Cash and cash equivalents, beginning of period....................... 36,774 66,779
----------- -----------
Cash and cash equivalents, end of period............................. $ 29,604 $ 60,801
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Crestline
Capital Corporation and subsidiaries (the "Company") have been prepared by
the Company without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes the disclosures made are adequate to make the
information presented not misleading. However, the condensed consolidated
financial statements should be read in conjunction with the 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 (which include
only normal and recurring adjustments) necessary to present fairly the
financial position of the Company as of March 24, 2000 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.
Approximately one-fourth of the Company's leased full-service hotels have
managers that have a different accounting calendar from the Company. For
these hotels, which record revenues on a monthly basis versus the four
week period for the Company, the accompanying condensed consolidated
financial statements reflect only two months of operations. The Company
will record three months of operations in each of the second and third
quarters and four months of operations in the fourth quarter.
2. Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding plus other
potentially dilutive securities.
A reconciliation of the number of shares utilized for the calculation of
diluted earnings per common share follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------
March 24, March 26,
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Weighted average number of common shares outstanding...................... 16,971 22,294
Assuming distribution of common shares granted under
the comprehensive stock plan, less shares assumed
purchased at average market price...................................... 481 95
--------- ---------
Shares utilized for the calculation of diluted earnings
per share.............................................................. 17,452 22,389
========= =========
</TABLE>
3. The Company operates in four business segments: hotel management, hotel
leasing, hotel ownership and senior living community ownership. The
Company's managed hotels are upscale limited-service and full-service
hotels operated under the Marriott, Hilton, Courtyard by Marriott,
Residence Inn, Crowne Plaza and Holiday Inn brand names. The Company's
owned limited-service hotels are operated under the Residence Inn brand
name. The Company's leased full-service hotels are operated under the
Marriott, Ritz-Carlton, Four Seasons, Hyatt, Hilton and Swissotel brands.
The Company's subleased limited-service hotels are operated under the
Courtyard by Marriott and Residence Inn brands. The Company's senior
living communities are operated under Marriott brands.
-6-
<PAGE>
The Company evaluates the performance of its segments based primarily on
operating profit before depreciation, corporate expenses, and interest
expense. The Company's income taxes are included in the consolidated
Federal income tax return of the Company and its affiliates and are
allocated based upon the relative contribution to the Company's
consolidated taxable income or loss and changes in temporary differences.
The allocation of income taxes is not evaluated at the segment level and,
therefore, the Company does not believe the information is material to the
condensed consolidated financial statements.
<TABLE>
<CAPTION>
Twelve Weeks Ended March 24, 2000
------------------------------------------------------------------------
Hotel Hotel Hotel Senior Corporate
Leasing Ownership Management Living & Other Consolidated
------- --------- ---------- ------ ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $924,145 $ 9,004 $ 7,889 $59,780 $ 1,652 $1,002,470
Operating profit..................... 13,839 2,549 270 10,469 631 27,758
Interest income...................... 319 68 - 119 106 612
Interest expense..................... (1,074) (1,072) - (5,106) - (7,252)
Other................................ (924) (333) - (448) (2,431) (4,136)
Income (loss) before income taxes.... 12,160 1,212 270 5,034 (1,694) 16,982
Depreciation and amortization........ - 858 150 5,401 191 6,600
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended March 26, 1999
------------------------------------------------------------------------
Hotel Hotel Hotel Senior Corporate
Leasing Ownership Management Living & Other Consolidated
------- --------- ---------- ------ ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 903,984 $ - $ - $56,953 $ 1,411 $ 962,348
Operating profit..................... 10,765 - - 10,272 452 21,489
Interest income...................... - - - 325 639 964
Interest expense..................... (1,137) - - (3,945) (24) (5,106)
Other................................ (1,829) - - (640) (1,493) (3,962)
Income (loss) before income taxes.... 7,799 - - 6,012 (426) 13,385
Depreciation and amortization........ - - - 5,069 216 5,285
</TABLE>
4. In February 2000, the Company sold one of its Residence Inns for a net
sales price of $6.2 million, which approximated its carrying value.
5. In March 2000, the Company purchased the hotel management business of
Stormont Trice Management Corporation for $9.7 million plus a contingent
purchase price of up to an additional $4.5 million if certain performance
criteria are met. Pursuant to the acquisition, the existing management
contracts for nine hotels and four conference centers and lease agreements
for two hotels were assigned to the Company.
6. In March 2000, the Company purchased the hotel management business of the
Durbin Companies for $4.4 million, plus a contingent purchase price of
$500,000 if one of the leases is renewed under certain conditions.
Pursuant to the acquisition, the existing management contracts for ten
hotels and lease agreements for two hotels were assigned to the Company.
7. Through March 24, 2000, the Company has repurchased a total of 5,608,000
shares of its common stock for $106 million. In 2000, the Company's Board
of Directors authorized the Company to repurchase 3,000,000 additional
shares of the Company's common stock subsequent to the first quarter of
2000.
-7-
<PAGE>
CRESTLINE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward-looking Statements
- --------------------------
Certain matters discussed herein or delivered in connection with this
Form 10-Q are forward-looking statements within the meaning of the Private
Litigation Reform Act of 1995. Certain, but not necessarily all, of such
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 comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from any future transactions, results, performance or
achievements expressed or implied by such forward-looking statements. These may
include: (i) national and local economic and business conditions or governmental
regulations that will affect demand, prices, wages or other costs for hotels and
senior living communities; (ii) the level of rates and occupancy that can be
achieved by such properties; (iii ) the Company's ability to compete effectively
in areas such as access, location, quality of properties and rate structures;
(iv) the ability to maintain the properties in a first-class manner (including
meeting capital expenditure requirements); (v) the availability and terms of
financing; (vi) governmental actions and initiatives including tax law changes
that may eliminate the need for a lease structure by lodging and senior living
REITs; and (vii) changes to the public pay systems for medical care and the need
for compliance with environmental, licensure and safety requirements. Although
the Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions and business opportunities, it
can give no assurance that its expectations will be attained or that any
deviations will not be material. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.
Results of Operations
- ---------------------
Revenues. Hotel revenues represent property-level revenues from owned
and leased hotels as well as managed hotels operated under lease agreements and
management fees from managed hotels operated under management agreements. Senior
living revenues represent property-level revenues. Overall revenues increased by
$40.1 million, or 4.2%, to over $1.0 billion for the first quarter of 2000 from
$962 million for 1999.
Hotel revenues increased $37.1 million, or 4.1%, to $941 million in the
first quarter of 2000. The increase in hotel revenues is primarily due to the
leased full-service hotel room REVPAR growth and the incremental revenues from
the acquisition of a controlling interest in a portfolio of Residence Inn hotels
in the second quarter of 1999 and the acquisition of a hotel management
portfolio in the first quarter of 2000 through a newly created, wholly owned
subsidiary, Crestline Hotels and Resorts, Inc.
Leased hotel revenues increased $20.2 million, or 2.2%, to $924 million
in the first quarter of 2000. Improved results for the Company's leased
full-service hotels were driven by increases in comparable REVPAR of 2.3% to
$120.41 for the first quarter of 2000. Comparable average room rates increased
5.1%, while comparable average occupancy decreased over two percentage points to
76.1% for the full-service properties. REVPAR for the Company's subleased
Courtyard by Marriott hotel properties increased 1.3% to $74.05 due to an
increase in average room rates of 5.3%, despite a decrease in average occupancy
of three percentage points to 76.1%. REVPAR for the Company's subleased
Residence Inn properties increased 1.2% to $82.84 due to an increase in average
room rates of 1.0% and a slight increase in average occupancy to 81.4%.
-8-
<PAGE>
The Company's owned hotels contributed $9.0 million of revenues in the
first quarter of 2000. REVPAR for the Company's owned Residence Inns was $83.14
as a result of an average room rate of $99.79 and an average occupancy of
83.3%.
The Company's managed hotels contributed $7.9 million of revenues in
the first quarter of 2000. REVPAR for the Company's managed full-service hotels
was $96.35 due to an average room rate of $126.60 and an average occupancy of
76.1%. REVPAR for the managed limited-service hotels was $65.19 as a result of
an average room rate of $76.96 and an average occupancy of 84.7%.
Senior living community revenues increased by $2.8 million, or 5.0%, to
$59.8 million in the first quarter of 2000. The average daily rate increased
3.2% to $95.21, while average occupancy increased almost one percentage point to
90.9%. The revenue growth is due to the addition of 241 expansion units in 1999
and the growth in the average daily rate.
Operating Costs and Expenses. Hotel operating costs and expenses for
the Company's leased hotels principally consist of hotel property-level
operating costs and expenses plus hotel management fees and lease expenses.
Hotel operating costs for the Company's owned hotels principally consists of
hotel property-level operating costs and expenses plus management fees,
depreciation, property taxes, ground rent, insurance and certain other costs.
Hotel operating costs and expenses for the Company's managed hotels principally
includes amortization of the management contract acquisition price and, for the
hotels managed under lease agreements, property-level operating costs and
expenses, lease expense, property taxes and insurance. Senior living community
operating costs and expenses consist of property-level expenses plus management
fees, depreciation, property taxes, ground rent, insurance and certain other
costs. Other operating costs and expenses principally consist of salary and
related costs and expenses for the Company's asset management group. Total
operating costs and expenses increased $33.9 million, or 3.6%, to $975 million
for the first quarter of 2000.
Overall hotel operating costs and expenses increased $31.2 million, or
3.5%, to $924 million in the first quarter of 2000. Leased hotel operating costs
and expenses increased $17.1 million, or 1.9%, to $910 million. Owned hotel
operating costs and expenses were $6.5 million in the first quarter of 2000.
Operating costs and expenses for the Company's managed hotels were $7.6 million
for the first quarter of 2000. Total hotel property-level operating costs and
expenses increased $22.5 million, or 4.1% to $571 million. Hotel management fees
increased $2.0 million, or 3.5%, to $60.3 million, while lease expense increased
$5.4 million, or 1.9%, to $292 million.
Overall senior living operating costs and expenses increased $2.6
million, or 5.6%, to $49.3 million for the first quarter of 2000. Senior living
community property-level operating costs and expenses increased $1.6 million, or
4.3%, to $38.1 million, while other operating costs and expenses increased $1.1
million, or 11%, to $11.2 million for the first quarter of 2000 due primarily to
the additional depreciation from the expansions added in 1999 and 2000.
Operating Profit. As a result of the changes in revenues and operating
costs and expenses discussed above, the Company's total operating profit
increased $6.3 million, or 29%, to $27.8 million for the first quarter of 2000.
Overall hotel operating profit increased $5.9 million, or 55%, to $16.7
million for the first quarter of 2000. Operating profit for the Company's leased
hotels increased $3.1 million, or 29%, to $13.8 million. The increase in leased
hotel operating profit is attributable mostly to the continued cost controls
implemented by the managers of the Company's full-service hotel properties.
-9-
<PAGE>
The Company's owned Residence Inns acquired in the second quarter of
1999 contributed $2.6 million of operating profit in the first quarter of 2000.
The Company's managed hotels contributed $0.3 million of operating
profit since their acquisition during the first quarter of 2000.
Senior living community operating profit increased $0.2 million, or
1.9%, to $10.5 million in the first quarter of 2000. The increase in operating
profit is primarily due to increases in residency fees due to the increase in
the average daily rate, partially offset by an increase in depreciation and
amortization as a result of the expansions during 1999.
Corporate Expenses. Corporate expenses decreased $0.1 million to $3.9
million, or 0.4% of total revenues, for the first quarter of 2000.
Interest Expense. Interest expense increased to $7.3 million in the
first quarter of 2000. The increase in interest expense is primarily
attributable to the additional interest expense on the mortgage debt assumed
from the acquisition of a controlling interest in a portfolio of Residence Inns
and interest expense on the Company's line of credit. Interest expense includes
$1.1 million in both the first quarters of 2000 and 1999, respectively, related
to interest on the hotel working capital notes payable to Host Marriott.
Interest Income. Interest income decreased $0.4 million to $0.6 million
for the first quarter of 2000.
Net Income. Net income for the first quarter of 2000 was $10.0 million,
or $.57 per diluted share, compared to $7.9 million, or $.35 per diluted share,
for the first quarter of 1999. The 63% increase in diluted earnings per share in
the first quarter of 2000 was due to the strong growth in operating profit
discussed above as well as a reduction of the Company's common stock outstanding
due to the stock repurchases during 1999 and 2000. Excluding the impact of stock
repurchases as well as the acquisition of a controlling interest in a portfolio
of Residence Inns and a hotel management portfolio, the Company's diluted
earnings per share increased by 29% in the first quarter of 2000.
EBITDA
The Company's earnings before interest expense, taxes, depreciation and
amortization and other non-cash items ("EBITDA") increased $7.0 million, or 31%,
to $29.8 million in the first quarter of 2000 as compared to the first quarter
of 1999
The following is a reconciliation of EBITDA to the Company's net
income:
<TABLE>
<CAPTION>
First Quarter
-------------------
2000 1999
---- ----
(in thousands)
<S> <C> <C>
EBITDA................................................. $ 29,767 $ 22,722
Interest expense....................................... (7,252) (5,106)
Hotel working capital note interest expense............ 1,074 1,137
Depreciation and amortization.......................... (6,600) (5,285)
Income taxes........................................... (6,963) (5,488)
Other non-cash charges, net............................ (7) (83)
--------- --------
Net income........................................ $ 10,019 $ 7,897
========= ========
</TABLE>
The Company's interest coverage was 4.7 times for the first quarter of
2000 compared to 5.3 times for the first quarter of 1999. Interest coverage is
calculated as EBITDA divided by cash interest expense,
-10-
<PAGE>
which is defined as GAAP interest expense less amortization of deferred
financing costs, amortization of debt premiums and the interest on the hotel
working capital notes. The ratio of earnings to fixed charges was 1.10 to 1.0
for the first quarter of 2000 and 1.08 to 1.0 for the first quarter of 1999.
EBITDA data is presented because such data is used by certain investors
to determine the Company's ability to meet debt service requirements and is used
in the Company's line of credit as part of the tests determining its ability to
incur debt and meet certain covenants. The Company considers EBITDA to be an
indicative measure of the Company's operating performance due to the
significance of the Company's long-lived assets and because EBITDA can be used
to measure the Company's ability to service debt, fund capital expenditures and
expand its business; however, such information should not be considered as an
alternative to net income, operating profit, cash flows from operations, or any
other operating or liquidity performance measure prescribed by GAAP. In
addition, EBITDA as calculated by the Company may not be comparable to similarly
titled measures reported by other companies. Cash expenditures for various
long-term assets, interest expense and income taxes have been, and will be,
incurred which are not reflected in the EBITDA presentation.
-11-
<PAGE>
Cash Flows and Financial Condition
- ----------------------------------
The Company's principal sources of liquidity are cash on hand, cash
flow from operations and borrowings under the Company's line of credit. As of
March 24, 2000, the Company had cash and cash equivalents of $30 million and
restricted cash of $24 million, which is included in other assets in the
accompanying condensed consolidated financial statements. The Company's
restricted cash consists of funds transferred into segregated escrow accounts
for (i) debt service, fixed asset, real estate tax and insurance reserves
pursuant to the Company's secured debt agreements for certain of the senior
living communities and owned hotels, and (ii) fixed asset reserves pursuant to
the Company's senior living and owned hotel management agreements. As of March
24, 2000, the outstanding balance under the Company's $100 million line of
credit was $60 million.
Cash from operations was $1.8 million for the first quarter of 2000.
The cash from operations for the first quarter of 2000 was impacted by the
seasonality of the Company's leased hotels as the lease payable to the hotel
owner exceeded the rent receivable from hotel managers by $19.1 million at
December 31, 1999 compared to $7.6 million at March 24, 2000. Cash used in
investing activities was $16.3 million in the first quarter of 2000. The cash
used in investing activities principally consists of the acquisition of the
management businesses of two hotel management companies, expansions for one of
its senior living communities and capital expenditures for renewals and
replacements and expansions for its owned hotels and senior living communities,
partially offset by the sale proceeds of one of its owned hotels. Cash provided
by financing activities was $7.4 million for the first quarter of 2000. The
Company's cash provided by financing activities consists primarily of draws on
the Company's line of credit, partially offset by debt principal repayments and
repurchases of the Company's common stock.
In February 2000, the Company sold one of its Residence Inns for a net
sales price of $6.2 million.
In February 2000, the Company entered into an agreement to acquire the
205-room Courtyard by Marriott in the Inner Harbor of Baltimore, Maryland for
$21 million upon the completion of construction. The hotel is scheduled to open
in November 2000. The Company will manage the hotel pursuant to a franchise
agreement with Marriott International.
In March 2000, the Company purchased the hotel management business of
Stormont Trice Management Corporation ("Stormont Trice") for $9.7 million plus a
contingent purchase price of up to an additional $4.5 million if certain
performance criteria are met. Pursuant to the acquisition, the existing
management contracts for nine hotels and four conference centers (including the
Portsmouth Renaissance Hotel and Waterfront Conference Center and Baltimore
Inner Harbor Courtyard currently under construction) and lease agreements for
two hotels were assigned to the Company. The terms, including renewal periods,
of the management and lease agreements range from three to 26 years with an
average remaining life of 16 years. Under the management and lease agreements,
the Company earns a base management fee generally equal to 2% to 5% of revenues
plus in some cases, an incentive management fee generally equal to 10% to 25% of
operating profit after a priority to the owner. Under the lease agreements, the
Company pays a fixed minimum rent plus a percentage of revenues and retains all
cash flow after rent. The hotels are generally managed under franchise
agreements that were assigned to the Company and are operated under the
Marriott, Renaissance, Courtyard by Marriott and Residence Inn brand names.
Under the franchise agreements, the Company pays a franchise fee generally equal
to 3% to 6% of certain revenues.
In March 2000, the Company also purchased the hotel management business
of the Durbin Companies ("Durbin") for $4.4 million, plus a contingent purchase
price of $500,000 if one of the leases is renewed under certain conditions.
Pursuant to the acquisition, the existing management contracts for ten hotels
and lease agreements for two hotels were assigned to the Company. The terms,
including renewal periods, of the management and lease agreements range from
three to 47 years with an average remaining
-12-
<PAGE>
life of 15 years. Under its management agreements, the Company earns a base
management fee generally equal to 2% to 4% of revenues plus, in some cases, an
incentive management fee generally equal to 10% to 20% of operating profit after
a priority to the owner. Under its lease agreements, the Company pays a fixed
minimum rent plus a percentage of revenues and retains all cash flow after rent.
All of the hotels are managed under franchise agreements that were assigned to
the Company and are operated under the Marriott, Hilton, Courtyard by Marriott,
Crowne Plaza, Holiday Inn and Ramada brand names. Under the franchise
agreements, the Company pays a franchise fee generally equal to 3% to 6% of
certain revenues.
Through March 24, 2000, the Company has repurchased a total of
5,608,000 shares of its common stock for $106 million. In 2000, the Company's
Board of Directors authorized the Company to repurchase 3,000,000 additional
shares of the Company's common stock subsequent to the first quarter of 2000.
-13-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have significant market risk with respect to
foreign currency exchanges or other market rate or price risks, and the Company
does not hold any financial instruments for trading purposes. However, the
Company does have certain debt obligations that are sensitive to changes in
interest rates. The interest rates, fair values and future maturities associated
with these financial instruments have not changed materially from the amounts
reported in the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1999.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
27.1 Financial data schedule
b. Reports on Form 8-K:
None.
-15-
<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.
CRESTLINE CAPITAL CORPORATION
May 4, 2000 By: /s/ Larry K. Harvey
- ----------- ------------------------
Date Larry K. Harvey
Senior Vice President, Treasurer and Controller
(Chief Accounting Officer)
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CRESTLINE CAPITAL CORPORATION CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
OPERATIONS AS OF THE TWELVE WEEK PERIOD ENDED MARCH 24, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-24-2000
<CASH> 29,604
<SECURITIES> 0
<RECEIVABLES> 83,310
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 802,710
<DEPRECIATION> 64,524
<TOTAL-ASSETS> 1,005,775
<CURRENT-LIABILITIES> 0
<BONDS> 409,776
0
0
<COMMON> 223
<OTHER-SE> 404,384
<TOTAL-LIABILITY-AND-EQUITY> 1,005,775
<SALES> 1,002,470
<TOTAL-REVENUES> 1,002,470
<CGS> 974,712
<TOTAL-COSTS> 974,712
<OTHER-EXPENSES> 3,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,252
<INCOME-PRETAX> 16,982
<INCOME-TAX> 6,963
<INCOME-CONTINUING> 10,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,019
<EPS-BASIC> .59
<EPS-DILUTED> .57
</TABLE>
