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 14, 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
Page
No.
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
June 14, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Twenty-Four Weeks Ended June 14, 1996
and June 16, 1995
Condensed Consolidated Statements of Cash Flows - 6
Twenty-four Weeks Ended June 14, 1996 and
June 16, 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
- 2 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
June 14, December 29,
1996 1995
(unaudited)
---------- -----------
ASSETS
<S> <C> <C>
Property and equipment, net.................................................... $ 794 $ 999
Note receivable from affiliate................................................. 144 145
Due from hotel managers........................................................ 26 25
Investments in affiliate ...................................................... 17 16
Other assets................................................................... 101 21
Cash and cash equivalents...................................................... 208 16
--- --
............................................................................... $ 1,290 $ 1,222
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Senior Notes................................................................... $ 600 $ 600
Notes secured by real estate assets............................................ 99 100
Other notes.................................................................... 34 34
--- ---
Total debt................................................................ 733 734
Deferred income taxes.......................................................... 91 78
Other liabilities.............................................................. 53 26
--- ---
Total liabilities......................................................... 877 838
--- ---
Shareholder's equity
Common stock, 100 shares issued and outstanding, no par value............. -- --
Additional paid-in capital................................................ 414 397
Retained deficit.......................................................... (1) (13)
--- ---
Total shareholder's equity ........................................... 413 384
--- ---
$ 1,290 $ 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 June 14, 1996 and June 16, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels......................................................................$ 51 $ 46
Net gains (losses) on property transactions................................. -- (10)
Equity in earnings of affiliate............................................. 1 1
--- ---
52 37
--- ---
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees
of $9 million and $7 million in 1996 and 1995, respectively).............. 27 21
--- ---
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 25 16
Corporate expenses.............................................................. (2) (4)
Interest expense................................................................ (16) (14)
Interest income................................................................. 5 4
--- ---
INCOME BEFORE INCOME TAXES...................................................... 12 2
Provision for income taxes...................................................... (5) (1)
--- ---
INCOME BEFORE EXTRAORDINARY ITEM................................................ 7 1
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $8 million)......................................... -- (14)
--- ---
NET INCOME (LOSS)...............................................................$ 7 $ (13)
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four Weeks Ended June 14, 1996 and June 16, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels......................................................................$ 97 $ 96
Net gains (losses) on property transactions................................. -- (10)
Equity in earnings of affiliate............................................. 2 2
--- ---
99 88
--- ---
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$15 million and $14 million in 1996 and 1995, respectively)............... 53 48
Other....................................................................... -- 1
--- ---
53 49
--- ---
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 46 39
Corporate expenses.............................................................. (4) (6)
Interest expense................................................................ (31) (28)
Interest income................................................................. 9 7
--- ---
INCOME BEFORE INCOME TAXES...................................................... 20 12
Provision for income taxes...................................................... (8) (5)
--- ---
INCOME BEFORE EXTRAORDINARY ITEM................................................ 12 7
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $8 million)......................................... -- (14)
--- ---
NET INCOME (LOSS)...............................................................$ 12 $ (7)
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four Weeks Ended June 14, 1996 and June 16, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...............................................................$ 12 $ (7)
Extraordinary loss on extinguishment of debt, net
of taxes.................................................................. -- 14
--- ---
Income before extraordinary item.......................................... 12 7
Adjustments to reconcile to cash from operations:
Depreciation and amortization................................................ 20 25
Income taxes................................................................. 8 4
Changes in operating accounts................................................ (1) (18)
Other........................................................................ -- 10
--- ---
Cash provided by operations............................................... 39 28
--- ---
INVESTING ACTIVITIES
Proceeds from sales of assets................................................... 342 188
Less noncash proceeds........................................................ (33) (18)
--- ---
Cash received from sales of assets ............................................. 309 170
Acquisitions.................................................................... (91) (31)
Capital expenditures............................................................ (23) (14)
Other........................................................................... (40) 6
--- ---
Cash provided by investing activities..................................... 155 131
--- ---
FINANCING ACTIVITIES
Issuances of debt, net of related expenses...................................... -- 583
Transfers to Hospitality, net................................................... -- (137)
Repayment of debt............................................................... (1) (588)
Other........................................................................... (1) --
--- ---
Cash used in financing activities......................................... (2) (142)
--- ---
INCREASE IN CASH AND CASH EQUIVALENTS...........................................$ 192 $ 17
======== =========
</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 June 14, 1996, the results of
operations for the twelve and twenty-four weeks ended June 14, 1996 and
June 16, 1995 and cash flows for the twenty-four weeks ended June 14, 1996
and June 16, 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 Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Sales
Rooms................................... $ 89 $ 82 $ 175 $ 174
Food & Beverage......................... 30 24 58 49
Other................................... 8 6 17 12
--- --- --- ---
Total Hotel Sales..................... 127 112 250 235
--- --- --- ---
Department Costs
Rooms................................... 20 18 40 39
Food & Beverage......................... 22 18 45 37
Other................................... 6 3 10 6
--- --- --- ---
Total Department Costs................ 48 39 95 82
--- --- --- ---
Department Profit......................... 79 73 155 153
Other Deductions.......................... 28 27 58 57
--- --- --- ---
House Profit.......................... $ 51 $ 46 $ 97 $ 96
======= ======= ====== ======
</TABLE>
- 7 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 June 14, 1996 and
June 16, 1995, respectively, and $2 million for the twenty-four weeks ended
June 14, 1996 and June 16, 1995, respectively.
The partnership's summarized operating results are as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Revenues........................... $ 4.1 $ 3.4 $ 8.2 $ 6.8
Operating profit................... 2.4 1.9 4.8 3.7
Net income......................... 1.6 1.1 3.4 2.2
</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 escrw 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's rights to the deferred
proceeds and obligations under the lease for the 18 Residence Inns will
remain with the Company.
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.
5. 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.
The following condensed, consolidating financial information sets forth the
combined financial position as of June 14, 1996 and December 29, 1995, the
results of operations for the twelve and twenty-four weeks ended June 14,
1996 and June 16, 1995 and cash flows for the twenty-four weeks ended June
14, 1996 and June 16, 1995 of the parent, the Guarantor Subsidiaries and
the Non-Guarantor Subsidiary.
- 8 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Balance Sheets
(in millions)
June 14, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Property and equipment, net................................... $ 342 $ 310 $ 142 $ 794
Note receivable from affiliate................................ -- 144 -- 144
Due from hotel managers....................................... 4 13 9 26
Investment in affiliate....................................... 17 -- -- 17
Other assets.................................................. 70 14 17 101
Cash and cash equivalents..................................... 208 -- -- 208
--- --- --- ---
Total assets............................................... $ 641 $ 481 $ 168 $ 1,290
========= ========= ========= =========
Debt.......................................................... $ 639 $ 19 $ 75 $ 733
Deferred income taxes......................................... 23 66 2 91
Other liabilities............................................. 27 (2) 28 53
--- --- --- ---
Total liabilities.......................................... 689 83 105 877
--- -- --- ---
Owner's equity................................................ (48) 398 63 413
--- --- --- ---
Total liabilities and owner's equity....................... $ 641 $ 481 $ 168 $ 1,290
========= ========= ========= =========
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................................................ (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)
<TABLE>
<CAPTION>
Twelve Weeks Ended June 14, 1996
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES...................................................... $ 24 $ 17 $ 11 $ 52
OPERATING COSTS AND EXPENSES.................................. 11 8 8 27
--- --- --- ---
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 13 9 3 25
Corporate expenses............................................ (1) (1) -- (2)
Interest expense.............................................. (14) (1) (1) (16)
Interest income............................................... 2 3 -- 5
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAXES............................. -- 10 2 12
Provision for income taxes.................................... -- (4) (1) (5)
--- --- --- ---
NET INCOME (LOSS)............................................. $ -- $ 6 $ 1 $ 7
======== ======== ======== ========
Twelve Weeks Ended June 16, 1995
REVENUES .................................................... $ 23 $ 14 $ -- $ 37
OPERATING COSTS AND EXPENSES.................................. 13 8 -- 21
--- --- --- ---
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 10 6 -- 16
Corporate expenses............................................ (2) (2) -- (4)
Interest expense.............................................. (13) (1) -- (14)
Interest income............................................... -- 4 -- 4
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM......................................... (5) 7 -- 2
Provision for income taxes.................................... 2 (3) -- (1)
--- --- --- ---
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................... (3) 4 -- 1
Extraordinary item - loss on extinguishment of debt........... (14) -- -- (14)
--- --- --- ---
NET INCOME (LOSS)............................................. $ (17) $ 4 $ -- $ (13)
======== ========= ======== =========
</TABLE>
- 10 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statements of Operations
(in millions)
<TABLE>
<CAPTION>
Twenty-four Weeks Ended June 14, 1996
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES...................................................... $ 53 $ 33 $ 13 $ 99
OPERATING COSTS AND EXPENSES.................................. 28 15 10 53
--- --- --- ---
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 25 18 3 46
Corporate expenses............................................ (2) (2) -- (4)
Interest expense.............................................. (27) (2) (2) (31)
Interest income............................................... 3 6 -- 9
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAXES............................. (1) 20 1 20
Provision for income taxes.................................... -- (7) (1) (8)
--- --- --- ---
NET INCOME (LOSS)............................................. $ (1) $ 13 $ -- $ 12
======== ======== ======== ========
Twenty-four Weeks Ended June 16, 1995
REVENUES .................................................... $ 65 $ 23 $ -- $ 88
OPERATING COSTS AND EXPENSES.................................. 37 12 -- 49
--- --- --- ---
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 28 11 -- 39
Corporate expenses............................................ (4) (2) -- (6)
Interest expense.............................................. (27) (1) -- (28)
Interest income............................................... -- 7 -- 7
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM......................................... (3) 15 -- 12
Provision for income taxes.................................... 1 (6) -- (5)
--- --- --- ---
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................... (2) 9 -- 7
Extraordinary item - loss on extinguishment of debt........... (14) -- -- (14)
--- --- --- ---
NET INCOME (LOSS)............................................. $ (16) $ 9 $ -- $ (7)
======== ======== ======== =======
</TABLE>
- 11 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statement of Cash Flows
(in millions)
Twenty-four Weeks Ended June 14, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS................................... $ 13 $ 24 $ 2 $ 39
--- --- --- ---
INVESTING ACTIVITIES
Cash received from sales of assets, net.................... 309 -- -- 309
Acquisitions............................................... (91) -- -- (91)
Capital expenditures....................................... (9) (12) (2) (23)
Other...................................................... (40) -- -- (40)
--- --- --- ---
Cash provided by (used in) investing activities......... 169 (12) (2) 155
--- --- --- ---
FINANCING ACTIVITIES
Repayment of debt.......................................... (1) -- -- (1)
Other...................................................... (1) -- -- (1)
--- --- --- ---
Cash used in financing activities....................... (2) -- -- (2)
--- --- --- ---
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 180 $ 12 $ -- $ 192
======== ======== ======= ========
Twenty-four Weeks Ended June 16, 1995
CASH PROVIDED BY OPERATIONS................................... $ 13 $ 15 $ -- $ 28
--- --- --- ---
INVESTING ACTIVITIES
Cash received from sales of assets, net.................... 170 -- -- 170
Acquisitions............................................... (31) -- -- (31)
Capital expenditures....................................... (13) (1) -- (14)
Other ..................................................... 6 -- -- 6
--- --- --- ---
Cash provided by (used in) investing activities......... 132 (1) -- 131
--- --- --- ---
FINANCING ACTIVITIES
Issuances of debt, net of related expenses................. 583 -- -- 583
Transfers to Hospitality, net.............................. (137) -- -- (137)
Repayment of debt.......................................... (588) -- -- (588)
--- --- --- ---
Cash used in financing activities....................... (142) -- -- (142)
---- --- --- ---
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 3 $ 14 $ -- $ 17
======== ======== ======= ========
</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 second quarter 1996 revenues of $52 million represented
a $15 million, or 41%, increase from the second quarter of 1995. Year-to-date
revenues increased $11 million, or 13%, to $99 million. The Company's revenue
and operating profit were impacted by:
- improved lodging results from comparable properties;
- the addition of seven full-service hotel properties during 1995 and 1996;
- the 1996 acquisition of an 83% interest in a mortgage loan secured by a
full-service property;
- 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 $5 million, or 11%, to $51 million in the second
quarter of 1996. Year-to-date revenues increased $1 million to $97 million. The
1996 hotel revenue increases reflect the addition of seven 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. Both of the Company's lodging segments 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 second quarter revenue for nearly all of the Company's full-service
hotels were improved or comparable to second quarter of 1995 results. Improved
results were driven by strong increases in REVPAR of nearly 13% for comparable
units for the second quarter and 11% year-to-date. On a comparable basis,
average room rates increased 6% for both the quarter and year-to-date, while
average occupancy increased nearly five percentage points for the quarter and
four percentage points year-to-date. Results for the quarter and year-to-date
were further enhanced by almost a two percentage point increase in the house
profit margin. 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 17% increase in comparable
full-service revenues for the quarter and a 12% increase year-to-date.
- 13 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's extended-stay Residence Inn properties, reported a 5% increase in
REVPAR for both the 1996 second quarter and year-to-date due primarily to an
increase in average room rates of 6% while average occupancy decreased slightly.
Due 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 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 $6 million to $27 million for the second
quarter of 1996. Year-to-date operating costs and expenses increased $4 million
to $53 million. The Company's hotel operating costs and expenses for the second
quarter of 1996 increased $6 million to $27 million, primarily reflecting the
addition of seven full-service properties during 1995 and 1996, increased
management fees and rentals tied to improved operating results and properites
sold and leased back, partially offset by the sale of certain limited-service
properties. Year-to-date hotel operating costs increased $5 million to $53
million. As a percentage of hotel revenues, hotel operating costs and expenses
represented 53% of revenues and 46% of revenues in the second quarter of 1996
and 1995, respectively, reflecting the shifting emphasis to full-service hotels.
Year-to-date hotel operating costs and expenses represented 55% of revenues and
50% 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 increased by $9 million
to $25 million, or 48% of revenues, in the second quarter of 1996 from $16
million, or 43% of revenues, in the second quarter of 1995. Year- to-date
operating profit increased $7 million to $46 million, or 46%, of revenues. Hotel
operating profit decreased by $1 million to $24 million, or 47% of hotel
revenues, in the second quarter of 1996 from $25 million, or 54% of revenues, in
the second quarter of 1995. Year-to-date hotel operating profit decreased $4
million to $44 million, or 45% of revenues. Excluding the impact of the
non-comparable items discussed earlier, full-service hotel operating profit
increased approximately $1 million, or 12%, over the second quarter of 1995 and
$2 million, or 9%, year-to-date.
CORPORATE EXPENSES. Corporate expenses decreased $2 million to $2 million, or 4%
of revenues, for the second quarter of 1996 and decreased $2 million to $4
million, or 4% of revenues, year-to-date due to a decrease in corporate expenses
allocated to the Company by Host Marriott.
INTEREST EXPENSE. Interest expense increased $2 million to $16 million for the
second quarter of 1996 and increased $3 million to $31 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 net income for the second quarter of 1996 was
$7 million, or 13% of revenues, compared to a loss of $13 million for the second
quarter of 1995. Year-to-date net income for 1996 was $12 million, or 12% of
revenues, compared to a loss of $7 million in 1995. The 1995 net losses include
the impact of a $14 million extraordinary loss on the extinguishment of debt.
- 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 $192 million
for the twenty-four weeks ended June 14, 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 three
full-service hotels and to acquire an 83% interest in the mortgage loans secured
by a full-service property. Cash flow provided by operations increased $11
million to $39 million for the twenty-four weeks ended June 14, 1996.
Cash provided by investing activities increased $24 million to $155 million for
the twenty-four weeks ended June 14, 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 three full-service properties ($73 million) capital expenditures
of $23 million, primarily related to the construction of an urban Residence Inn
near National Airport ($6 million) and renewals and replacements on existing
properties, and expenditures of $18 million for the acquisition of 83% of the
mortgage loans securing the Newport Beach Marriott Suites.
Cash used in financing activities decreased $140 million to $2 million for the
twenty-four weeks ended June 14, 1996, primarily reflecting the first quarter
1995 transfers to Hospitality.
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") decreased $1 million, or 3%, to $36 million
in the second quarter of 1996 from $37 million in the second quarter of 1995.
Year-to-date EBITDA decreased $4 million, or 5% to $69 million. The 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 seven 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 therein) 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.
The Company's 1996 second quarter hotel EBITDA of $31 million represented a
decrease of $4 million, or 10%, over 1995 second quarter results. Year-to-date
EBITDA decreased $8 million, or 12%, to $63 million. Full-service EBITDA
increased $11 million, or 59%, to $29 million for the 1996 second quarter and
increased $17 million, or 50%, to $51 million year-to-date. As a percentage of
hotel EBITDA, full- service hotel EBITDA increased to 92% of hotel EBITDA in the
second quarter of 1996 from 52% of hotel EBITDA in the second quarter of 1995
and 81% of hotel EBITDA year-to-date in 1996 from 48% of hotel EBITDA in 1995.
On a comparable basis, full-service EBITDA increased 13% for the second quarter
of 1996 and 9% year-to-date.
- 15 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
EBITDA........................................... $ 36 $ 37 $ 69 $ 73
Interest expense................................. (16) (14) (31) (28)
Depreciation and amortization.................... (9) (11) (20) (25)
Income taxes applicable to operations............ (5) (1) (8) (5)
Gain (loss) on dispositions of assets
and other non-cash charges, net................. 1 (10) 2 (8)
--- --- --- ---
Net income before extraordinary item.......... $ 7 $ 1 $ 12 $ 7
======== ========= ========= =========
</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:
June 12,1996 - Amendment to Current Report on Form 8-K/A dated April 15,
1996 to include financial statements of the Dulles Marriott Suites and pro
forma financial data for HMH Properties, Inc.
April 15, 1996 - Current Report on Form 8-K dated March 29, 1996 to report
the acquisition of the Dulles Marriott Suites and the sale and leaseback
of 16 Courtyard and 18 Residence Inn properties.
March 7, 1996 - Amendment to Current Report on Form 8-K/A dated January
17, 1996 by filing updated financial statements of the New York Vista.
January 29, 1996 - Amendment to Current Report on Form 8-K/A dated January
17, 1996 to include updated pro forma financial statements for HMH
Properties, Inc.
January 17, 1996 - Financial statements of acquired business, the New York
Vista and pro forma financial statements for HMH Properties, Inc.
- 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.
July 26, 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> 6-mos
<FISCAL-YEAR-END> Jan-3-1997
<PERIOD-START> Dec-30-1995
<PERIOD-END> Jun-14-1996
<EXCHANGE-RATE> 1
<CASH> 208
<SECURITIES> 0
<RECEIVABLES> 26
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 985
<DEPRECIATION> 191
<TOTAL-ASSETS> 1,289
<CURRENT-LIABILITIES> 0
<BONDS> 733
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,289
<SALES> 0
<TOTAL-REVENUES> 99
<CGS> 0
<TOTAL-COSTS> 53
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 20
<INCOME-TAX> 8
<INCOME-CONTINUING> 12
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
