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 September 6, 1996 Commission File No. 33-95058
HMH PROPERTIES, INC.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 52-1822042
(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
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
September 6, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Thirty-Six Weeks Ended September 6, 1996
and September 8, 1995
Condensed Consolidated Statements of Cash Flows - 6
Thirty-Six Weeks Ended September 6, 1996 and
September 8, 1995
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of 13
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 17
</TABLE>
- 2 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
September 6, December 29,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net.................................................... $ 817 $ 999
Note receivable from affiliate................................................. 143 145
Due from hotel managers........................................................ 22 25
Investments in affiliate ...................................................... 17 16
Other assets................................................................... 83 21
Cash and cash equivalents...................................................... 220 16
----- -----
$ 1,302 $ 1,222
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Senior Notes................................................................... $ 600 $ 600
Notes secured by real estate assets............................................ 98 100
Other notes.................................................................... 34 34
----- -----
Total debt................................................................ 732 734
Deferred income taxes.......................................................... 92 78
Other liabilities.............................................................. 74 26
----- -----
Total liabilities......................................................... 898 838
----- -----
Shareholder's equity
Common stock, 100 shares issued and outstanding, no par value............. -- --
Additional paid-in capital................................................ 414 397
Retained deficit.......................................................... (10) (13)
----- -----
Total shareholder's equity ........................................... 404 384
----- -----
$ 1,302 $ 1,222
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels......................................................................$ 41 $ 40
Equity in earnings of affiliate............................................. 1 1
---- ----
42 41
---- ----
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees
of $8 million and $5 million in 1996 and 1995, respectively).............. 29 25
---- ----
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 13 16
Corporate expenses.............................................................. (3) (2)
Interest expense................................................................ (16) (13)
Interest income................................................................. 7 3
---- ----
INCOME BEFORE INCOME TAXES...................................................... 1 4
---- ----
Provision for income taxes...................................................... (1) (2)
---- ----
NET INCOME......................................................................$ -- $ 2
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels......................................................................$ 138 $ 136
Net gains (losses) on property transactions................................. -- (10)
Equity in earnings of affiliate............................................. 3 3
---- ----
141 129
---- ----
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$23 million and $19 million in 1996 and 1995, respectively)............... 82 73
Other....................................................................... -- 1
---- ----
82 74
---- ----
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 59 55
Corporate expenses.............................................................. (7) (8)
Interest expense................................................................ (47) (41)
Interest income................................................................. 16 10
---- ----
INCOME BEFORE INCOME TAXES...................................................... 21 16
Provision for income taxes...................................................... (9) (7)
---- ----
INCOME BEFORE EXTRAORDINARY ITEM................................................ 12 9
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $8 million)......................................... -- (14)
---- ----
NET INCOME (LOSS)...............................................................$ 12 $ (5)
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...............................................................$ 12 $ (5)
Extraordinary loss on extinguishment of debt, net
of taxes.................................................................. -- 14
---- ----
Income before extraordinary item.......................................... 12 9
Adjustments to reconcile to cash from operations:
Depreciation and amortization................................................ 29 35
Income taxes................................................................. 9 5
Limited service hotel valuation adjustment................................... -- 10
Changes in operating accounts................................................ 17 3
Other........................................................................ 1 1
---- ----
Cash provided by operations............................................... 68 63
---- ----
INVESTING ACTIVITIES
Proceeds from sales of assets................................................... 342 337
Less noncash proceeds........................................................ (33) (33)
---- ----
Cash received from sales of assets ............................................. 309 304
Acquisitions.................................................................... (91) (60)
Capital expenditures............................................................ (31) (28)
Other........................................................................... (40) 7
---- ----
Cash provided by investing activities..................................... 147 223
---- ----
FINANCING ACTIVITIES
Issuances of debt, net of related expenses...................................... -- 582
Transfers to Hospitality, net................................................... -- (138)
Dividends to Parent............................................................. (9) (25)
Repayment of debt............................................................... (1) (588)
Other........................................................................... (1) --
---- ----
Cash used in financing activities......................................... (11) (169)
---- ----
INCREASE IN CASH AND CASH EQUIVALENTS...........................................$ 204 $ 117
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of HMH
Properties, Inc. and subsidiaries (the "Company"), a wholly-owned direct
subsidiary of Host Marriott Hospitality, Inc. ("Hospitality"), have been
prepared by the Company without audit. Hospitality is a wholly-owned
subsidiary of Host Marriott Corporation ("Host Marriott"). 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 Company's annual report on Form 10-K for
the fiscal year ended December 29, 1995.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of September 6, 1996, the results of
operations for the twelve and thirty-six weeks ended September 6, 1996 and
September 8, 1995 and cash flows for the thirty-six weeks ended September
6, 1996 and September 8, 1995. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
2. Revenues represent house profit from the Company's hotel properties, net
gains (losses) on property transactions and equity in earnings of an
affiliate. House profit reflects the net revenues flowing to the Company as
property owner and represents hotel operating results less property-level
expenses excluding depreciation and amortization, real and personal
property taxes, ground rent, insurance, lease payments and management fees
which are classified as operating costs and expenses.
House profit generated by the Company's hotels for 1996 and 1995
consists of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Sales
Rooms................................... $ 85 $ 78 $ 260 $ 252
Food & Beverage......................... 26 21 84 70
Other................................... 8 6 25 18
---- ---- ---- ----
Total Hotel Sales.................... 119 105 369 340
---- ---- ---- ----
Department Costs
Rooms................................... 21 19 61 58
Food & Beverage......................... 24 15 69 52
Other................................... 2 4 12 10
---- ---- ---- ----
Total Department Costs............... 47 38 142 120
---- ---- ---- ----
Department Profit......................... 72 67 227 220
Other Deductions.......................... 31 27 89 84
---- ---- ---- ----
House Profit......................... $ 41 $ 40 $ 138 $ 136
======= ======= ====== ======
</TABLE>
3. The Company's 49% limited partner interest in an affiliate that owns a
Marriott hotel in Santa Clara, California is accounted for using the equity
method. The Company's 49% interest in the operating profits (income before
interest costs) of the partnership is included in equity in earnings of
affiliate and was $1 million for the twelve weeks ended September 6, 1996
and September 8, 1995, respectively, and $3 million for the thirty-six
weeks ended September 6, 1996 and September 8, 1995, respectively.
- 7 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The partnership's summarized operating results are as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Revenues........................... $ 3.6 $ 3.5 $ 11.8 $ 10.3
Operating profit................... 1.9 1.9 6.7 5.6
Net income......................... 1.2 1.2 4.6 3.5
</TABLE>
4. In February 1996, the Company entered into an agreement with a real estate
investment trust to sell and lease back 16 of its Courtyard properties and
18 of its Residence Inn properties for $349 million (10% of which would be
deferred). On March 22, 1996, the sale and leaseback of three Courtyard and
five Residence Inn properties were completed for approximately $91 million
(10% of which was deferred). In the second quarter of 1996, the Company
completed the sale and leaseback of the remaining 26 properties (two of
these 26 properties remain in escrow pending resolution of certain title
issues which must be accomplished by December 31, 1996) for $258 million.
During the second quarter of 1996, Host Marriott purchased the Company's
rights to the deferred proceeds and obligations under the lease for the 16
Courtyard properties for $13 million. The Company will retain its rights to
the deferred proceeds and obligations under the lease for the 18 Residence
Inns.
In the second quarter of 1996, the Company acquired the 254-room Dulles
Marriott Suites Hotel for $29 million, the 256-room Jacksonville Marriott
Hotel for $21 million and the 354-room Oklahoma City Marriott Hotel for $23
million. In the third quarter of 1996, the Company acquired, through
foreclosure, a controlling interest in the 250-room Newport Beach Marriott
Suites. The Company had purchased an 83% interest in the mortgage loans
secured by the hotel for $18 million in the first quarter of 1996. During
the fourth quarter of 1996, the Company acquired the 447-room Ritz-Carlton
Hotel in downtown Atlanta for $62 million and the 279-room Palm Beach
Gardens Marriott for $28 million.
5. During the third quarter of 1996, a $9 million dividend was paid to Host
Marriott, as permitted under the senior notes indenture.
6. All but two of the subsidiaries of the Company guarantee the Senior Notes.
The separate financial statements of each guaranteeing subsidiary (each, a
"Guarantor Subsidiary") are not presented because the Company's management
has concluded that such financial statements are not material to investors.
The guarantee of each Guarantor Subsidiary is full and unconditional and
joint and several and each Guarantor Subsidiary is a wholly- owned
subsidiary of the Company. The non-guarantor subsidiaries (the
"Non-Guarantor Subsidiaries") are the owners of the Marriott World Trade
Center hotel, which was acquired by the Company in late December 1995, and
HMH HPT Residence Inn, Inc., the lessee of the Residence Inn properties.
Currently, there is no subsidiary of the Company the capital stock of which
comprises a substantial portion of the collateral for the senior notes
within the meaning of Rule 3-10 of Regulation S-X of the Securities and
Exchange Commission.
The following condensed, consolidating financial information sets forth the
combined financial position as of September 6, 1996 and December 29, 1995,
the results of operations for the twelve and thirty-six weeks ended
September 6, 1996 and September 8, 1995 and cash flows for the thirty-six
weeks ended September 6, 1996 and September 8, 1995 of the parent, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.
- 8 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Balance Sheets
(in millions)
September 6, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Property and equipment, net................................... $ 364 $ 312 $ 141 $ 817
Note receivable from affiliate................................ -- 143 -- 143
Due from hotel managers....................................... 8 8 6 22
Investment in affiliate....................................... 17 -- -- 17
Other assets.................................................. 47 15 21 83
Cash and cash equivalents..................................... 220 -- -- 220
---- ---- ---- ----
Total assets............................................... $ 656 $ 478 $ 168 $ 1,302
======= ======= ======= =======
Debt.......................................................... $ 638 $ 19 $ 75 $ 732
Deferred income taxes......................................... 24 66 2 92
Other liabilities............................................. 54 (7) 27 74
---- ---- ---- ----
Total liabilities.......................................... 716 78 104 898
Owner's equity (deficit)...................................... (60) 400 64 404
---- ---- ---- ----
Total liabilities and owner's equity....................... $ 656 $ 478 $ 168 $ 1,302
======= ======= ======= =======
December 29, 1995
Property and equipment, net................................... $ 557 $ 298 $ 144 $ 999
Note receivable from affiliate................................ -- 145 -- 145
Due from hotel managers....................................... 17 8 -- 25
Investment in affiliate....................................... 16 -- -- 16
Other assets.................................................. 7 10 4 21
Cash and cash equivalents..................................... 16 -- -- 16
---- ---- ---- ----
Total assets............................................... $ 613 $ 461 $ 148 $ 1,222
======= ======= ======= =======
Debt.......................................................... $ 640 $ 19 $ 75 $ 734
Deferred income taxes......................................... 21 57 -- 78
Other liabilities............................................. 15 1 10 26
---- ---- ---- ----
Total liabilities.......................................... 676 77 85 838
Owner's equity (deficit)...................................... (63) 384 63 384
---- ---- ---- ----
Total liabilities and owner's equity....................... $ 613 $ 461 $ 148 $ 1,222
======= ======= ======= =======
</TABLE>
- 9 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statements of Operations
(in millions)
Twelve Weeks Ended September 6, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES...................................................... $ 17 $ 12 $ 13 $ 42
OPERATING COSTS AND EXPENSES.................................. 11 8 10 29
---- ---- ---- ----
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 6 4 3 13
Corporate expenses............................................ (2) -- (1) (3)
Interest expense.............................................. (14) -- (2) (16)
Interest income............................................... 3 3 1 7
---- ---- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES............................. (7) 7 1 1
Provision for income taxes.................................... 4 (4) (1) (1)
---- ---- ---- ----
NET INCOME (LOSS)............................................. $ (3) $ 3 $ -- $ --
======= ======= ======= =======
Twelve Weeks Ended September 8, 1995
REVENUES .................................................... $ 34 $ 7 $ -- $ 41
OPERATING COSTS AND EXPENSES.................................. 21 4 -- 25
---- ---- ---- ----
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 13 3 -- 16
Corporate expenses............................................ (2) -- -- (2)
Interest expense.............................................. (13) -- -- (13)
Interest income............................................... -- 3 -- 3
---- ---- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES............................. (2) 6 -- 4
Provision for income taxes.................................... -- (2) -- (2)
---- ---- ---- ----
NET INCOME (LOSS)............................................. $ (2) $ 4 $ -- $ 2
======= ======= ======= =======
</TABLE>
- 10 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statements of Operations
(in millions)
Thirty-six Weeks Ended September 6, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES...................................................... $ 70 $ 45 $ 26 $ 141
OPERATING COSTS AND EXPENSES.................................. 39 23 20 82
---- ---- ---- ----
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 31 22 6 59
Corporate expenses............................................ (4) (2) (1) (7)
Interest expense.............................................. (41) (2) (4) (47)
Interest income............................................... 6 9 1 16
---- ---- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES............................. (8) 27 2 21
Provision for income taxes.................................... 3 (11) (1) (9)
---- ---- ---- ----
NET INCOME (LOSS)............................................. $ (5) $ 16 $ 1 $ 12
======= ======= ======= =======
Thirty-six Weeks Ended September 8, 1995
REVENUES .................................................... $ 104 $ 25 $ -- $ 129
OPERATING COSTS AND EXPENSES.................................. 61 13 -- 74
---- ---- ---- ----
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 43 12 -- 55
Corporate expenses............................................ (6) (2) -- (8)
Interest expense.............................................. (41) -- -- (41)
Interest income............................................... -- 10 -- 10
---- ---- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM......................................... (4) 20 -- 16
Provision for income taxes.................................... 2 (9) -- (7)
---- ---- ---- ----
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM....................... (2) 11 -- 9
Extraordinary item - loss on extinguishment of debt........... (14) -- -- (14)
---- ---- ---- ----
NET INCOME (LOSS)............................................. $ (16) $ 11 $ -- $ (5)
======= ======= ======= ========
</TABLE>
- 11 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statement of Cash Flows
(in millions)
Thirty-six Weeks Ended September 6, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS................................... $ 51 $ 16 $ 1 $ 68
------- ------- ------- -------
INVESTING ACTIVITIES
Cash received from sales of assets, net.................... 309 -- -- 309
Acquisitions............................................... (91) -- -- (91)
Capital expenditures....................................... (14) (16) (1) (31)
Other...................................................... (40) -- -- (40)
---- ---- ---- ----
Cash provided by (used in) investing activities......... 164 (16) (1) 147
---- ---- ---- ----
FINANCING ACTIVITIES
Repayment of debt.......................................... (1) -- -- (1)
Dividends to Parent........................................ (9) -- -- (9)
Other...................................................... (1) -- -- (1)
---- ---- ---- ----
Cash used in financing activities....................... (11) -- -- (11)
---- ---- ---- ----
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 204 $ -- $ -- $ 204
======= ======= ======= =======
Thirty-six Weeks Ended September 8, 1995
CASH PROVIDED BY OPERATIONS................................... $ 22 $ 41 $ -- $ 63
------- ------- ------- -------
INVESTING ACTIVITIES
Cash received from sales of assets, net.................... 304 -- -- 304
Acquisitions............................................... (30) (30) -- (60)
Capital expenditures....................................... (17) (11) -- (28)
Other ..................................................... 7 -- -- 7
---- ---- ---- ----
Cash provided by (used in) investing activities......... 264 (41) -- 223
---- ---- ---- ----
FINANCING ACTIVITIES
Issuances of debt, net of related expenses................. 582 -- -- 582
Transfers to Hospitality, net.............................. (138) -- -- (138)
Dividend to Parent......................................... (25) -- -- (25)
Repayment of debt.......................................... (588) -- -- (588)
---- ---- ---- ----
Cash used in financing activities....................... (169) -- -- (169)
---- ---- ---- ----
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 117 $ -- $ -- $ 117
======= ======= ======= ========
</TABLE>
- 12 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
REVENUES. Revenues consist of house profit from the Company's hotel properties,
net gains (losses) on real estate transactions and equity in earnings of an
affiliate. The Company's third quarter 1996 revenues of $42 million represented
a $1 million, or 2%, increase from the third quarter of 1995. Year-to-date
revenues increased $12 million, or 9%, to $141 million. The Company's revenue
and operating profit were impacted by:
- - improved lodging results from comparable properties;
- - the addition of eight full-service hotel properties during 1995 and 1996;
- - the 1996 sale and leaseback of 18 of the Company's Residence Inn
properties;
- - the sale of 53 of the Company's Courtyard properties during 1995 and 1996;
- - a $10 million charge in the 1995 second quarter to write down the carrying
value of certain Courtyard and Residence Inn properties held for sale to
their net realizable value. Such charge is included in revenues as part of
"Net gains (losses) on property transactions"; and
- - the 1995 sale of four of the Company's Fairfield Inns.
Hotel revenues increased $1 million, or 3%, to $41 million in the third quarter
of 1996. Year-to-date revenues increased $2 million to $138 million. The 1996
hotel revenue increases reflect the addition of eight full-service hotel
properties in 1995 and 1996 and overall improved lodging results, partially
offset by the sale of 37 Courtyard properties and four Fairfield Inn properties
in 1995, and the sale of 16 Courtyard properties in the first and second
quarters of 1996. The Company's full-service hotels and Residence Inn properties
reported growth in revenue per available room ("REVPAR") for comparable hotels.
REVPAR is a commonly used indicator of market performance for hotels which
represents the combination of the average daily room rate charged and the
average daily occupancy achieved. REVPAR does not include food and beverage or
other ancillary revenues generated by the property.
Overall third quarter revenues for nearly all of the Company's full-service
hotels were improved or comparable to third quarter of 1995 results. Improved
results were driven by strong increases in REVPAR of nearly 15% for comparable
units for the third quarter and 12% year-to-date. Hotel sales increased $14
million, or 13%, to $119 million for the quarter and $29 million, or 9%, to $369
million year-to-date, reflecting REVPAR increases for comparable units and the
increase in full-service properties during 1995 and 1996. On a comparable basis,
average room rates increased 9% for the quarter and 7% year-to-date, while
average occupancy increased four percentage points for both the quarter and
year-to-date. Results for the quarter and year-to-date were further enhanced by
a two percentage point increase in the house profit margin for comparable
properties. Management believes REVPAR will continue to grow through steady
increases in average room rates, combined with minor changes in occupancy rates.
However, there can be no assurance that REVPAR will continue to increase in the
future. The REVPAR growth contributed to a $3 million, or 18%, increase in
comparable full-service revenues for the quarter and a $9 million, or 14%,
increase year-to- date.
The Company's extended-stay Residence Inn properties, reported a 7% and 6%
increase in REVPAR for the 1996 third quarter and year-to-date, respectively,
due primarily to an increase in average room rates of 8% and 6% for the third
quarter and year-to-date, respectively, while average occupancy decreased
slightly. Due
- 13 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
to the high occupancy of these properties, the Company expects future increases
in REVPAR to be driven by room rate increases, rather than occupancy increases.
However, there can be no assurance that REVPAR will continue to increase in the
future.
In the first and second quarters of 1996, the Company sold and leased back its
16 remaining Courtyard properties. The Company then sold its residual interest
in the lease of these properties to Host Marriott Corporation for approximately
$13 million early in the second quarter of 1996 and, accordingly, the Company no
longer records the revenues related to these properties. Through the date of
their disposition, 1996 revenues and operating profit for the Courtyard
properties were comparable to 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of
depreciation, amortization, management fees, real and personal property taxes,
ground and equipment rent, insurance, lease payments and certain other costs.
Operating costs and expenses increased $4 million to $29 million for the third
quarter of 1996. Year-to-date operating costs and expenses increased $8 million
to $82 million. The Company's hotel operating costs and expenses for the third
quarter of 1996 increased $4 million to $29 million, primarily reflecting the
addition of eight full-service properties during 1995 and 1996, increased
management fees and rentals tied to improved operating results and properties
sold and leased back, partially offset by the sale of certain limited-service
properties. Year-to-date hotel operating costs increased $9 million to $82
million. As a percentage of hotel revenues, hotel operating costs and expenses
represented 71% of revenues and 63% of revenues in the third quarter of 1996 and
1995, respectively, reflecting the shifting emphasis to full-service hotels and
the impact of the lease payments on the Residence Inn properties which have been
sold and leased back. Year-to-date hotel operating costs and expenses
represented 59% of revenues and 54% of revenues in 1996 and 1995, respectively.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit decreased by $3 million
to $13 million, or 31% of revenues, in the third quarter of 1996 from $16
million, or 39% of revenues, in the third quarter of 1995. Year-to-date
operating profit increased $4 million to $59 million, or 42%, of revenues. Hotel
operating profit decreased by $3 million to $12 million, or 29% of hotel
revenues, in the third quarter of 1996 from $15 million, or 38% of revenues, in
the third quarter of 1995. Year-to-date hotel operating profit decreased $7
million to $56 million, or 41% of revenues. Excluding the impact of the
non-comparable items discussed earlier, full-service hotel operating profit
increased approximately $1 million, or 8%, over the third quarter of 1995 and $3
million, or 9%, year-to-date. Across the board, the Company's hotels recorded
substantial improvements in corporate operating results. Several hotels,
including the Gaithersburg Marriott Washingtonian Center and the Miami Airport
Marriott, posted particularly significant improvements in operating profit for
the quarter and year-to- date. The Company's Atlanta properties also posted
outstanding results due to the 1996 Summer Olympics.
CORPORATE EXPENSES. Corporate expenses increased $1 million to $3 million, or 7%
of revenues, for the third quarter of 1996 and decreased $1 million to $7
million, or 5% of revenues, year-to-date.
INTEREST EXPENSE. Interest expense increased $3 million to $16 million for the
third quarter of 1996 and increased $6 million to $47 million year-to-date
primarily due to debt incurred in conjunction with the acquisition of certain
hotel properties during 1995.
NET INCOME (LOSS). The Company's results were breakeven for the third quarter of
1996, compared to net income of $2 million, or 5% of revenues, for the third
quarter of 1995. Year-to-date net income for 1996 was $12 million, or 9% of
revenues, compared to a loss of $5 million in 1995. The 1995 year-to-date net
loss includes the impact of a $14 million extraordinary loss on the
extinguishment of debt and the $10 million charge to write down the carrying
value of certain Courtyard and Residence Inn properties held for sale to their
net realizable value.
- 14 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company reported an increase in cash and cash equivalents of $204 million
for the thirty-six weeks ended September 6, 1996. This increase is primarily due
to proceeds from the sale of certain limited-service properties and cash from
operations, partially offset by the use of funds for the acquisition of four
full-service hotels. Cash flow provided by operations increased $5 million to
$68 million for the thirty-six weeks ended September 6, 1996.
Cash provided by investing activities decreased $76 million to $147 million for
the thirty-six weeks ended September 6, 1996 primarily reflecting the impact of
the 1995 and 1996 sale of 53 Courtyard properties and the sale and leaseback of
18 Residence Inns in 1996. Cash from investing activities for 1996 includes
approximately $309 million in net sales proceeds from the sale/leaseback of
thirty-four of the Company's Courtyard and Residence Inn properties. These
sources of cash from investing activities were partially offset by the
acquisition of four full-service properties for $91 million, and capital
expenditures of $31 million, including costs related to the construction of an
urban Residence Inn near National Airport for $7 million and renewals and
replacements on existing properties.
During the second quarter of 1996, the Company acquired the 254-room Dulles
Airport Marriott Suites for $29 million, the 354-room Oklahoma City Marriott for
$23 million and the 256-room Jacksonville Marriott for $21 million. The Company
completed the sale of 16 of its Courtyard properties and the sale and leaseback
of 18 of its Residence Inn properties (two of the 16 Courtyard properties remain
in escrow pending resolution of certain title issues which must be accomplished
by December 31, 1996) for $349 million (10% of which was deferred). In the third
quarter of 1996, the Company acquired, through foreclosure, a controlling
interest in the 250-room Newport Beach Marriott Suites. The Company had
purchased an 83% interest in the mortgage loans secured by the hotel for $18
million in the first quarter of 1996. In addition, during the fourth quarter of
1996, the Company acquired the 447-room Ritz-Carlton in downtown Atlanta for $62
million and the 279-room Palm Beach Gardens Marriott for $28 million.
Cash used in financing activities decreased $158 million to $11 million for the
thirty-six weeks ended September 6, 1996, primarily reflecting the first quarter
1995 transfers to Hospitality. The Company also paid a $9 million dividend in
the third quarter to Host Marriott as permitted under the senior notes
indenture.
EBITDA
The Company's consolidated Earnings Before Interest Expense, Taxes,
Depreciation, Amortization and other non-cash items (principally non-cash
writedowns of lodging properties and equity in earnings of an affiliate, net of
distributions received) ("EBITDA") remained at $29 million for the third quarter
of 1996. Year-to-date EBITDA decreased $4 million, or 4%, to $98 million. The
year-to-date decrease in EBITDA is due to the sale of 37 of the Company's
Courtyard properties and four Fairfield Inns in 1995 and the sale of 16
Courtyards and 18 Residence Inns in 1996, partially offset by an increase in
comparable hotel EBITDA and the addition of eight full-service hotels in 1995
and 1996. The Company believes that EBITDA is a meaningful measure of the
Company's operating performance due to the significance of the Company's long-
lived assets (and the related depreciation thereon) and because EBITDA can be
used to measure the Company's ability to meet debt service requirements and is
used in the senior notes indenture as part of the tests determining the
Company's ability to incur debt and to make certain restricted payments. EBITDA
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.
- 15 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's 1996 third quarter hotel EBITDA of $22 million represented a
decrease of $5 million, or 19%, over 1995 third quarter results. Year-to-date
hotel EBITDA decreased $13 million, or 13%, to $84 million. Full-service EBITDA
increased $8 million, or 60%, to $22 million for the 1996 third quarter and
increased $25 million, or 53%, to $72 million year-to-date. As a percentage of
hotel EBITDA, full-service hotel EBITDA increased virtually 100% of hotel EBITDA
in the third quarter of 1996 from 51% of hotel EBITDA in the third quarter of
1995 and 86% of hotel EBITDA year-to-date in 1996 from 49% of hotel EBITDA in
1995. On a comparable basis, full-service EBITDA increased 25% for the third
quarter of 1996 and 14% year-to-date.
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
EBITDA........................................... $ 29 $ 29 $ 98 $ 102
Interest expense................................. (16) (13) (47) (41)
Depreciation and amortization.................... (9) (10) (29) (35)
Income taxes applicable to operations............ (1) (2) (9) (7)
Gain (loss) on dispositions of assets
and other non-cash charges, net................. (3) (2) (1) (10)
---- ---- ---- ----
Income before extraordinary item ............. $ -- $ 2 $ 12 $ 9
======== ======== ======== ========
</TABLE>
- 16 -
<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 the Company.
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:
None.
b. Reports on Form 8-K:
None.
- 17 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMH PROPERTIES, INC.
October 17, 1996 /s/ Donald D. Olinger
Date ---------------------------------------
Donald D. Olinger
Vice President and Corporate Controller
(Principal Accounting Officer)
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HMH
Properties, Inc. Condensed Consolidated Balance Sheets and Condensed
Consolidated Statements of Operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000905038
<NAME> HMH Properties, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jan-3-1997
<PERIOD-START> Dec-30-1995
<PERIOD-END> Sep-6-1996
<EXCHANGE-RATE> 1
<CASH> 220
<SECURITIES> 0
<RECEIVABLES> 22
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,013
<DEPRECIATION> 197
<TOTAL-ASSETS> 1,302
<CURRENT-LIABILITIES> 0
<BONDS> 732
0
0
<COMMON> 0
<OTHER-SE> 404
<TOTAL-LIABILITY-AND-EQUITY> 1,302
<SALES> 0
<TOTAL-REVENUES> 141
<CGS> 0
<TOTAL-COSTS> 82
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 21
<INCOME-TAX> (9)
<INCOME-CONTINUING> 12
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
