SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) November 13, 1996
HMH PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
52-1822042 33-95058
(I.R.S. Employer Identification Number) (Commission File Number)
10400 Fernwood Road, Bethesda, Maryland 20817
(Address of Principle Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (301) 380-9000
(Former Name or Former Address, if changed since last report.)
<PAGE>
Item 2.Acquisition or Disposition of Assets
The Registrant acquired the 80% general partner interest in the Salt Lake City
Hotel Partners (the "Partnership"), a general partnership owning the Salt Lake
City Marriott (the "Hotel"), held by Metropolitan Life Insurance Company for
approximately $41 million and the 20% general partner interest in the
Partnership from Host Marriott Corporation for approximately $10 million.
Subsequent to the acquisition, the Company intends to pay off a mortgage loan on
the property of approximately $16 million. Included herein are the financial
statements of the Partnership and certain pro forma financial information for
the Registrant.
Item 7.Financial Statements and Exhibits
(a) Financial statements of the Salt Lake City Hotel Partners
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 1
Statement of Operations for the years ended
December 31, 1995 and 1994 2
Balance Sheet as of December 31, 1995 and 1994 3
Statement of Changes in Venturers' Capital
for the years ended December 31, 1995 and 1994 4
Statement of Cash Flows for the year ended
December 31, 1995 and 1994 5
Notes to Financial Statements 6
Statements of Operations for the thirty-six weeks
ended September 6, 1996 and September 8, 1995 11
Balance Sheet as of September 6, 1996 12
Statement of Cash Flows for the thirty-six weeks ended
September 6, 1996 and September 8, 1995 13
Notes to Financial Statements 14
</TABLE>
(b) Pro Forma financial information as of September 6, 1996 and for the periods
ended September 6, 1996 and December 29, 1995 of the Registrant reflecting the
acquisition of the Hotel and other transactions are included herein.
<TABLE>
<CAPTION>
Page
<S> <C>
Pro Forma Condensed Consolidated Financial Data 15
Pro Forma Condensed Consolidated Balance Sheet
as of September 6, 1996 16
Pro Forma Condensed Consolidated Statement of Operations
for the year ended September 6, 1996 17
Pro Forma Condensed Consolidated Statement of Operations for
the period ended December 29, 1995 18
Notes to Pro Forma Condensed Consolidated Financial Data 19
</TABLE>
-2-
<PAGE>
SIGNATURES
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 hereunto duly authorized.
HMH PROPERTIES, INC.
By: /s/ Donald D. Olinger
-------------------------
Donald D. Olinger
November 27, 1996 Vice President and
Corporate Controller
-3-
Report of Independent Accountants
---------------------------------
April 17, 1996
To the Venturers of Salt Lake City Hotel Partners
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in venturers' capital and of cash flows present fairly,
in all material respects, the financial position of Salt Lake City Hotel
Partners (a Utah general partnership) at December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the venture's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Washington, D.C.
-1-
<PAGE>
STATEMENT OF OPERATIONS
Salt Lake City Hotel Partners
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
REVENUES (Note 3)........................................$ 10,289,793 $ 9,294,570
---------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization........................ 1,793,401 1,865,978
Interest............................................. 1,776,919 1,787,418
Incentive management fees............................ 1,435,684 1,279,920
Base management fees................................. 722,723 682,005
Property taxes....................................... 711,218 643,067
Ground rent and other................................ 510,490 594,246
---------- ----------
6,950,435 6,852,634
---------- ----------
NET INCOME...............................................$ 3,339,358 $ 2,441,936
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
BALANCE SHEET
Salt Lake City Hotel Partners
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Property and equipment, net (Note 4)........................$ 23,893,644 $ 24,443,321
Due from Marriott International, Inc........................ 1,562,387 1,527,897
Deferred lease acquisition costs, net....................... 542,551 592,632
Property improvement fund................................... 872,371 808,240
Cash and cash equivalents................................... 1,667,042 1,322,986
---------- ----------
$ 28,537,995 $ 28,695,076
=============== ================
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES
Mortgage note (Note 5)......................................$ 15,989,544 $ 16,373,984
Capital lease obligation (Note 6)........................... 1,073,582 1,230,873
Accounts payable and accrued expenses....................... 142,548 129,256
---------- ----------
Total Liabilities....................................... 17,205,674 17,734,113
---------- ----------
VENTURERS' CAPITAL
Metropolitan Life Insurance Company......................... 9,065,658 8,768,172
Host Marriott Corporation................................... 2,266,663 2,192,791
---------- ----------
Total Venturers' Capital................................ 11,332,321 10,960,963
---------- ----------
$ 28,537,995 $ 28,695,076
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
STATEMENT OF CHANGES IN VENTURERS' CAPITAL
Salt Lake City Hotel Partners
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Metropolitan Host
Life Insurance Marriott
Company Corporation Total
------- ----------- -----
<S> <C> <C> <C>
Balance, December 31, 1993..............................$ 8,657,623 $ 2,164,404 $ 10,822,027
Net income......................................... 1,953,549 488,387 2,441,936
Capital distributions.............................. (1,843,000) (460,000) (2,303,000)
---------- --------- ----------
Balance, December 31, 1994.............................. 8,768,172 2,192,791 10,960,963
Net income......................................... 2,671,486 667,872 3,339,358
Capital distributions.............................. (2,374,000) (594,000) (2,968,000)
---------- --------- ----------
Balance, December 31, 1995..............................$ 9,065,658 $ 2,266,663 $ 11,332,321
================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
STATEMENT OF CASH FLOWS
Salt Lake City Hotel Partners
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................................$ 3,339,358 $ 2,441,936
Noncash items:
Depreciation and amortization............................. 1,793,401 1,865,978
Loss on disposition of assets............................. 7,742 22,543
Changes in operating accounts:
Accounts payable and accrued expenses..................... 13,292 (92,639)
Due from Marriott International, Inc...................... (34,490) (263,466)
---------- ----------
Cash provided by operations.......................... 5,119,303 3,974,352
---------- ----------
INVESTING ACTIVITIES
Additions to property and equipment........................... (1,201,385) (2,338,928)
Change in property improvement fund........................... (64,131) (161,995)
---------- ----------
Cash used in investing activities.................... (1,265,516) (2,500,923)
---------- ----------
FINANCING ACTIVITIES
Proceeds from Metropolitan Life Insurance Company............. --- 1,349,847
Capital distributions to venturers............................ (2,968,000) (2,303,000)
Payments on capital lease..................................... (157,291) (118,974)
Repayment of mortgage note.................................... (384,440) (374,015)
---------- ----------
Cash used in financing activities.................... (3,509,731) (1,446,142)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS............................. 344,056 27,287
CASH AND CASH EQUIVALENTS at beginning of year.................... 1,322,986 1,295,699
---------- ----------
CASH AND CASH EQUIVALENTS at end of year..........................$ 1,677,042 $ 1,322,986
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................$ 1,680,861 $ 1,863,393
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Salt Lake City Hotel Partners
December 31, 1995 and 1994
NOTE 1. THE VENTURE
Salt Lake City Hotel Partners (the "Venture"), a Venture organized in the State
of Utah, was formed on October 15, 1981 to own and operate the Salt Lake City
Marriott Hotel (the "Hotel") which also commenced operations on October 15,
1981.
On December 29, 1995, Host Marriott Corporation's operations were divided into
two separate companies: Host Marriott Corporation ("Host Marriott") and Host
Marriott Services Corporation. The Hotel is managed by Marriott International,
Inc. ("MII") under a long-term management agreement. The Venturers are
Metropolitan Life Insurance Company ("Metropolitan"), and Host Marriott, whose
respective interests in the Venture are 80% and 20%. These respective Venture
interests are the basis for all distributions and allocations except for a
special tax allocation. This special tax allocation allocates depreciation
expense, for Federal income tax purposes, to the Venturers according to their
respective tax bases in the original building and equipment costs.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Venture's records are maintained on the accrual basis of accounting and its
fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenues and Expenses
Hotel revenues represent house profit of the Venture's Hotel since the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit of the Hotel to MII. House profit reflects
hotel operating results which flow to the Venture as property owner and
represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real and
personal property taxes, ground and equipment rent, insurance and certain other
costs, which are disclosed separately in the Venture's statement of operations.
Revenue on rooms is recognized over the period in which the rooms are occupied
by the Hotel guest.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets as follows:
Leasehold improvements 27 to 40 years
Furniture and equipment 4 to 10 years
-6-
<PAGE>
Cash and Cash Equivalents
The Venture considers all highly liquid investments with a maturity of less than
three months at date of purchase to be cash equivalents.
Deferred Lease Acquisition Costs
Lease acquisition costs were deferred and are being amortized using the
straight-line method over the initial 25-year term of the land lease.
Accumulated amortization of lease acquisition costs at December 31, 1995 and
1994 totalled $709,000 and $659,000, respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in the financial
statements since the Venture does not pay income taxes but rather allocates its
profits and losses to the individual Venturers. Significant differences exist
between the net income for financial reporting purposes and the net income or
loss reported in the Venture's tax return. These differences are due primarily
to the use, for income tax purposes, of accelerated depreciation methods and
shorter depreciable lives of the assets.
New Statement of Financial Accounting Standards
The Venture is required to adopt Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" no later than its year ending December 31,
1996. The Venture does not expect that the adoption of SFAS No. 121 will have a
material effect on its financial statements.
NOTE 3. REVENUES
Revenues of the Venture consist of Hotel operating results for the two years
ended December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
HOTEL SALES
Rooms.........................................................$ 15,429,263 $ 14,360,143
Food and beverage............................................. 7,128,933 6,839,157
Other operating departments................................... 1,532,582 1,534,216
---------- ----------
24,090,778 22,733,516
---------- ----------
HOTEL EXPENSES
Departmental Direct Costs
Rooms..................................................... 3,519,107 3,353,144
Food and beverage......................................... 5,118,867 4,986,022
Other operating expenses...................................... 5,163,011 5,099,780
---------- ----------
13,800,985 13,438,946
---------- ----------
REVENUES..........................................................$ 10,289,793 $ 9,294,570
=============== ===============
</TABLE>
-7-
<PAGE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Leasehold improvements............................$ 31,763,714 $ 31,773,739
Furniture and equipment........................... 5,526,471 4,381,575
----------- -----------
37,290,185 36,155,314
Less accumulated depreciation..................... (13,396,541) (11,711,993)
----------- -----------
$ 23,893,644 $ 24,443,321
=============== ================
</TABLE>
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are estimated to be equal to
their carrying amounts. The estimated fair value of the mortgage debt obligation
is based on expected future debt service payments discounted at estimated market
rates.
NOTE 6. MORTGAGE NOTE
The Venture's non-recourse mortgage note bears interest at 10-3/8% per annum and
is secured by the Hotel. Payments of principal and interest are based on a
30-year amortization schedule until November 1, 2001, at which time the
remaining principal of $12,751,000 will be due.
Maturities of the mortgage note at December 31, 1995 are as follows:
1996.............................................$ 426,277
1997............................................. 472,668
1998............................................. 524,108
1999............................................. 581,146
2000............................................. 644,391
Thereafter....................................... 13,340,954
----------
$ 15,989,544
=================
NOTE 7. CAPITAL LEASE
The Hotel entered into a capital lease with Metropolitan Life Insurance Company
for equipment and building improvements for renovations. Property and equipment
under this lease totalled $1,349,847 and accumulated amortization totalled
$318,549 and $106,183 as of December 31, 1995 and 1994, respectively. The
depreciation related to these assets is included in total depreciation expense
on the statement of operations.
-8-
<PAGE>
Minimum annual rentals during the term of the lease are as follows:
1996.............................................$ 252,282
1997............................................. 252,282
1998............................................. 252,282
1999............................................. 252,282
2000............................................. 252,282
2001............................................. 63,072
---------
Total Minimum Lease Payments..................... 1,324,482
Less amount representing interest................ 250,900
---------
Present Value of Minimum Lease Payments..........$ 1,073,582
=================
NOTE 8. MANAGEMENT AGREEMENT
The Venture has a hotel management agreement (the "Management Agreement") with
MII to manage the Hotel for an initial term of 30 years which began on January
2, 1982, with three consecutive 15-year renewal options.
MII earns a base management fee equal to 3% of the Hotel's gross sales and an
incentive management fee equal to 20% of the Hotel's operating profit, as
defined. Pursuant to the terms of an amendment to the Management Agreement
executed in 1989, payment of this incentive management fee is subordinate to the
Venture receiving a priority return equal to ground rent, mortgage debt service
and a percentage of invested capital. For 1995 and 1994, invested capital was
$18,305,000. The percentage of invested capital was 10% for 1995 and 1994. MII
is not entitled to receive any incentive management fees not paid in the year in
which the fees are earned.
Pursuant to the terms of the Management Agreement, MII is required to furnish
the Hotel with certain services ("Chain Services") which are generally provided
on a central or regional basis to all hotels in the MII full service hotel
system. Chain Services include central training, advertising and promotion, a
national reservation system, computerized payroll and accounting services, and
such additional services as needed which may be more efficiently performed on a
centralized basis. Costs and expenses incurred in providing such services are
allocated among all domestic full service hotels managed, owned or leased by MII
or its subsidiaries. In addition, the Hotel also participates in MII's Honored
Guest Awards Program ("HGA"). The cost of this program is charged to all hotels
in the MII full service hotel system based upon the HGA sales at each hotel. The
total amount of Chain Services and HGA costs charged to the Venture were
$1,211,000 and $1,110,000 for 1995 and 1994.
Pursuant to the terms of the Management Agreement, the Venture is required to
provide MII with working capital and supplies to meet the operating needs of the
Hotel. MII converted cash advanced by the Venture into other forms of working
capital consisting primarily of operating cash, inventories, and trade
receivables and payables which are maintained and controlled by MII. Upon
termination of the Management Agreement, the working capital and supplies will
be returned to the Venture. The individual components of working capital and
supplies controlled by MII are not reflected in the Venture's balance sheet. As
of December 31, 1995 and 1994, $1,099,828 has been advanced to MII for working
capital and supplies which is a non-interest bearing receivable from MII on the
accompanying balance sheet.
In accordance with the Management Agreement, 5% of the Hotel's gross sales is
deposited in a property improvement fund to provide for replacements and
renewals to the Hotel's furniture, fixtures and equipment.
-9-
<PAGE>
NOTE 9. GROUND LEASES
The Venture leases the land on which the Hotel is located pursuant to an
operating lease with an initial term of 25 years ending December 31, 2006 and
five consecutive 10-year renewal options. Annual rentals are the greater of
$132,000 or 2.1% of Hotel room sales through 1993 and the greater of $132,000 or
2.6% of Hotel room sales thereafter. In addition, the Venture also leases the
land on which a ballroom addition was built pursuant to the terms of an
operating lease agreement with an initial term of nine and one half years and
two consecutive 10-year renewal options. Annual rentals are equal to $7,700
throughout the initial term of this lease. Ground rent expense was $399,000 and
$381,000 for 1995 and 1994, respectively.
Minimum future rentals under non-cancelable ground leases are:
1996.....................................$ 140,000
1997..................................... 140,000
1998..................................... 132,000
1999..................................... 132,000
2000..................................... 132,000
Thereafter............................... 792,000
---------
$ 1,468,000
============
Note 10. (Unaudited)
The Partnership was acquired by HMH Properties, Inc., a wholly-owned subsidiary
of Host Marriott Corporation on November 13, 1996. The 80% general partner
interest in the Salt Lake City Hotel Partners held by Metropolitan Life
Insurance Company was purchased for approximately $41 million. The 20% general
partner interest held by Host Marriott Corporation was purchased for
approximately $10 million. HMH Properties, Inc. also assumed the approximate $16
million mortgage loan on the property, which it intends to pay off.
-10-
<PAGE>
STATEMENT OF OPERATIONS
Salt Lake City Hotel Partners
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES ................................................$ 8,810 $ 7,197
------------ ------------
OPERATING COSTS AND EXPENSES
Depreciation and amortization........................ 1,362 1,242
Interest............................................. 1,309 1,001
Incentive management fees............................ 1,188 1,235
Base management fees................................. 573 500
Property taxes....................................... 517 494
Ground rent and other................................ 280 416
------------ ------------
5,229 4,888
------------ ------------
NET INCOME...............................................$ 3,581 $ 2,309
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-11-
<PAGE>
BALANCE SHEET
Salt Lake City Hotel Partners
September 6, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996
----
<S> <C>
ASSETS
Property and equipment, net ................................$ 23,071
Due from Marriott International, Inc........................ 1,141
Deferred lease acquisition costs, net....................... 1,357
Property improvement fund................................... 508
Cash and cash equivalents................................... 2,311
----------
$ 23,388
===============
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES
Mortgage note .............................................$ 15,710
Capital lease obligation ................................... 962
Accounts payable and accrued expenses....................... 103
----------
Total Liabilities....................................... 16,775
----------
VENTURERS' CAPITAL
Metropolitan Life Insurance Company......................... 9,290
Host Marriott Corporation................................... 2,323
----------
Total Venturers' Capital................................ 11,613
----------
$ 28,388
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-12-
<PAGE>
STATEMENT OF CASH FLOWS
Salt Lake City Hotel Partners
Thirty-six Weeks Ended September 6, 1996 and September 8, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................................$ 3,581 $ 2,309
Noncash items................................................. 1,362 1,242
Changes in operating accounts................................. 382 62
----------- -----------
Cash provided by operations.......................... 5,325 3,613
----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment........................... (505) (543)
Change in property improvement fund........................... (485) (329)
----------- -----------
Cash used in investing activities.................... (990) (872)
----------- -----------
FINANCING ACTIVITIES
Capital distributions to venturers............................ (3,300) (1,708)
Payments on capital lease..................................... (112) (103)
Repayment of mortgage note.................................... (279) (252)
----------- -----------
Cash used in financing activities.................... (3,691) (2,063)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS............................. 644 678
CASH AND CASH EQUIVALENTS at beginning of period.................. 1,667 1,323
----------- -----------
CASH AND CASH EQUIVALENTS at end of period........................$ 2,311 $ 2,001
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................$ 1,098 $ 1,125
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-13-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Salt Lake City Hotel Partners
September 6, 1996
Note 1.
The accompanying condensed financial statements of Salt Lake City Hotel Partners
(the "Venture") have been prepared by the Venture without audit. The Venture,
which was organized in the State of Utah, was formed on October 15, 1981 to own
and operate the Salt Lake City Marriott Hotel (the "Hotel") which also commenced
operations on October 15, 1981. Certain information and footnote disclosures
normally included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. The Venture
believes the disclosures made are adequate to make the information presented not
misleading. However, the condensed financial statements should be read in
conjunction with the Venture's financial statements for the fiscal years ended
December 31, 1995 and 1994.
In the opinion of the Venture, the accompanying unaudited condensed financial
statements reflect all adjustments ( which include only normal recurring
adjustments) necessary to present fairly the financial position of the Venture
as of September 6, 1996 and the results of operations 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 variation.
Note 2.
Revenues of the Venture consist of Hotel operating results for the thirty-six
weeks ended September 6, 1996 and September 8, 1995 (unaudited):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
HOTEL SALES
Rooms.........................................................$ 12,894 $ 10,844
Food and beverage............................................. 5,097 4,768
Other operating departments................................... 1,132 1,060
--------- ---------
19,123 16,672
--------- ---------
HOTEL EXPENSES
Departmental Direct Costs
Rooms..................................................... 2,752 2,449
Food and beverage......................................... 3,631 3,346
Other operating expenses...................................... 3,930 3,680
--------- ---------
10,313 9,475
--------- ---------
REVENUES..........................................................$ 8,810 $ 7,197
============== ===========
</TABLE>
-14-
<PAGE>
HMH PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited Pro Forma Condensed Consolidated Statement of Operations of HMH
Properties, Inc. (the "Company") reflect the following transactions for the
thirty-six weeks ended September 6, 1996 and for the fiscal year ended December
29, 1995, as if such transactions had been completed at the beginning of each
period:
- - - Fourth quarter 1996 acquisition of the Salt Lake City Marriott hotel
- - - 1996 acquisition of six full-service properties, including the acquisition
of two properties in the fourth quarter of 1996
- - - 1996 sale/leaseback of 16 Courtyard and 18 Residence Inn properties
- - - 1995 acquisition of three full-service properties
- - - 1995 sale/leaseback of 37 Courtyard properties
- - - 1995 sale of the Company's remaining four Fairfield Inns
- - - Consummation of the Offering (as defined below)
- - - Transfer of certain assets into and out of the Company in conjunction with
the Offering
The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
reflects the fourth quarter 1996 acquisitions of the Salt Lake City
Marriott (the "Hotel") and two other full-service properties, as if such
transactions had been completed on September 6, 1996.
During the first and second quarter of 1996, the Company sold (subject to
leaseback) 16 of its Courtyard properties and 18 of its Residence Inns. In
conjunction with the sale, a subsidiary of Host Marriott Corporation purchased
the Company's rights to the deferred proceeds and obligations under the leases
for the Courtyard properties at their fair market value. The six full-service
properties acquired in 1996 for approximately $182 million includes the Newport
Beach Marriott Suites in which the Company acquired, through foreclosure, a
controlling interest in the hotel. 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 1995 , the Company added four full-service hotels to its lodging
portfolio. The accompanying unaudited Pro Forma Condensed Consolidated Statement
of Operations does not reflect any pro forma adjustments related to the Marriott
World Trade Center due to the suspension of hotel operations and the renovation
of the hotel as a result of extensive damage from an explosion on February 26,
1993. Because the hotel did not resume full operations until mid-1995, the
historical operations of the hotel during the periods presented are not
meaningful.
During 1995, the Company sold (subject to leaseback) 37 of its Courtyard
properties to a real estate investment trust (the "REIT") and also sold its four
remaining Fairfield Inns.
The Company issued $600 million of senior notes through its May 1995 offering
(the "Offering"). In conjunction with the Offering, two full-service lodging
properties were transferred from Host Marriott Travel Plazas, Inc. to the
Company, and the Company transferred to a subsidiary of Host Marriott
Hospitality, Inc. the leases and related assets of the 37 Courtyard properties,
a note receivable, and certain undeveloped land parcels (collectively, the
"Transfers").
The unaudited Pro Forma Condensed Consolidated Financial Data of the Company are
presented for informational purposes only and may not reflect the Company's
future results of operations and financial position or what the results of
operations and financial position of the Company would have been had such
transactions occurred as of the dates indicated. The unaudited Pro Forma
Condensed Consolidated Financial Data and notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the fiscal year
ended December 29, 1995.
-15-
<PAGE>
HMH PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 6, 1996
(in millions)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Property and equipment $ 817 $ 66 (A) $ 973
90 (B)
Note receivable from affiliate 143 -- 143
Investment in affiliate 17 -- 17
Due from hotel managers 22 -- 22
Other assets 83 2 (A) 86
1 (B)
Cash and cash equivalents 220 (67)(A) 62
(91)(B)
----- ----- -----
$ 1,302 $ 1 $ 1,303
======= ====== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Senior Notes $ 600 $ -- $ 600
Notes secured by real estate assets 98 -- 98
Other notes 34 -- 34
----- ----- -----
Total debt 732 -- 732
Deferred income taxes 92 -- 92
Other liabilities 74 1 (A) 75
----- ----- -----
Total liabilities 898 1 899
Shareholder's equity 404 -- 404
----- ----- -----
$ 1,302 $ 1 $ 1,303
======= ====== =======
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Data.
-16-
<PAGE>
HMH PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Thirty-six Weeks Ended September 6, 1996
(in millions)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Hotels $ 138 $ 9 (C) $ 161
19 (D)
(5)(F)
Equity in earnings of affiliate 3 -- 3
----- ----- -----
141 23 164
----- ----- -----
Operating costs and expenses
Hotels 82 4 (C) 93
7 (D)
3 (E)
(3)(F)
----- ----- -----
82 11 93
----- ----- -----
Operating profit before corporate
expenses and interest 59 12 71
Corporate expenses (7) -- (7)
Interest expense (47) -- (47)
Interest income 16 (1)(C) 12
(2)(D)
(1)(G)
----- ----- -----
Income before income taxes 21 8 29
Provision for income taxes (9) (3)(M) (12)
----- ----- -----
Net income $ 12 $ 5 $ 17
====== ====== ======
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Data.
-17-
<PAGE>
HMH PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended December 29, 1995
(in millions)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Hotels $ 189 $ 10 (C) $ 191
35 (D)
(27)(F)
11 (H)
(26)(I)
(1)(K)
Net loss on property transactions (10) -- (10)
Equity in earnings of affiliate 4 -- 4
----- ----- -----
183 2 185
----- ----- -----
Operating costs and expenses
Hotels 102 5 (C) 115
16 (D)
14 (E)
(13)(F)
7 (H)
(15)(I)
(1)(K)
Other 1 (1)(L) --
----- ----- -----
103 12 115
----- ----- -----
Operating profit before corporate
expenses and interest 80 (10) 70
Corporate expenses (10) -- (10)
Interest expense (61) (1)(H) (61)
1 (J)
Interest income 15 -- 15
----- ----- -----
Income (loss) before income taxes 24 (10) 14
(Provision) benefit for income taxes (9) 4 (M) (5)
----- ----- -----
Net income (loss) $ 15 $ (6) $ 9
===== ===== =====
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Data.
-18-
<PAGE>
HMH PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
A. Represents the adjustment to record the fourth quarter 1996 acquisition of
the Hotel as follows:
- Record property and equipment of $66 million
- Record other assets of $2 million
- Record the use of cash of $67 million
- Record other liabilities of $1 million
B. Represents the adjustment to record the fourth quarter acquisition of
two full-service properties as follows:
- Record property and equipment of $90 million
- Record other assets of $1 million
- Record the use of cash of $91 million
C. Represents the adjustment to record the revenue and operating costs for the
acquisition of the Hotel, including depreciation expense reflecting the
Company's basis in the assets, and a reduction in interest income for the
use of proceeds from the 1996 sale and leaseback of 16 Courtyard properties
and 18 Residence Inns.
D. Represents the adjustment to record the revenue and operating expenses for
the 1996 acquisition of six-full service properties, including depreciation
expense reflecting the Company's new basis in the assets.
E. Represents the adjustments to eliminate the depreciation expense and record
the incremental lease expense for the 1996 sale/leaseback of the 18
Residence Inns.
F. Represents the adjustment to eliminate the revenues and the operating costs
for the 1996 sale/leaseback of the 16 Courtyard properties and the transfer
of the lease and residual interest to Host Marriott Corporation.
G. Represents the adjustment to eliminate the interest income for the Newport
Beach Marriott Suites mortgage which was acquired in the first quarter of
1996. The Company acquired, through foreclosure, a controlling interest in
the hotel in the third quarter of 1996. The operating results for the hotel
have been included above in adjustment D.
H. Represents the adjustments to record the incremental revenues, operating
costs and secured debt interest expense for the 1995 addition of three
full-service proeprties.
I. Represents the adjustments to eliminate the revenues and the operating
costs for the 1995 sale/leaseback of the 37 Courtyard properties.
J. Represents the adjustment to interest expense to reflect the decrease in
interest rates as a result of the Offering of $2 million, net of the
additional interest expense of $1 million on the $24 million of incremental
debt issued through the Offering.
K. Represents the adjustment to eliminate the revenues and the operating costs
for the 1995 sale of the four remaining Fairfield Inns.
L. Represents the adjustment to reduce operating expenses as a result of the
Transfers between the Company and Hospitality.
M. Represents the income tax impact of pro forma adjustments at statutory
rates.
-19-
