SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 28, 1997 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
March 28, 1997 and January 3, 1997
Condensed Consolidated Statements of Operations - 4
Twelve Weeks Ended March 28, 1997 and
and March 22, 1996
Condensed Consolidated Statements of Cash Flows - 5
Twelve Weeks Ended March 28, 1997 and
March 22, 1996
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of 11
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 14
- 2 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
March 28, January 3,
1997 1997
----------- ----------
(unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net.................................................... $ 991 $ 944
Note receivable from affiliate................................................. 140 140
Due from hotel managers........................................................ 29 19
Investments in affiliate ...................................................... 19 17
Other assets................................................................... 46 57
Cash and cash equivalents...................................................... 83 108
-------- --------
$ 1,308 $ 1,285
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Senior Notes................................................................... $ 600 $ 600
Notes secured by real estate assets............................................ 97 98
Other notes.................................................................... 34 34
-------- --------
Total debt................................................................ 731 732
Deferred income taxes.......................................................... 73 71
Other liabilities.............................................................. 91 72
-------- --------
Total liabilities......................................................... 895 875
-------- --------
Shareholder's equity
Common stock, 100 shares issued and outstanding, no par value............. -- --
Additional paid-in capital................................................ 412 412
Retained earnings (deficit)............................................... 1 (2)
-------- --------
Total shareholder's equity ........................................... 413 410
-------- --------
$ 1,308 $ 1,285
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended March 28, 1997 and March 22, 1996
(unaudited, in millions)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
REVENUES
Hotels......................................................................$ 65 $ 46
Equity in earnings of affiliate............................................. 2 1
--------- --------
67 47
--------- --------
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees
of $10 million and $6 million in 1997 and 1996, respectively)............. 37 26
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 30 21
Corporate expenses.............................................................. (2) (2)
Interest expense................................................................ (16) (15)
Interest income................................................................. 4 4
--------- --------
INCOME BEFORE INCOME TAXES...................................................... 16 8
Provision for income taxes...................................................... (6) (3)
--------- --------
NET INCOME......................................................................$ 10 $ 5
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Weeks Ended March 28, 1997 and March 22, 1996
(unaudited, in millions)
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................$ 10 $ 5
Adjustments to reconcile to cash from operations:
Depreciation and amortization................................................ 12 11
Income taxes................................................................. 6 3
Changes in operating accounts................................................ 8 10
Other........................................................................ (1) (1)
-------- --------
Cash provided by operations............................................... 35 28
-------- --------
INVESTING ACTIVITIES
Proceeds from sales of assets................................................... -- 88
Less noncash proceeds........................................................ -- (9)
-------- --------
Cash received from sales of assets ............................................. -- 79
Acquisitions.................................................................... (57) (18)
Capital expenditures............................................................ (9) (11)
Other .......................................................................... 14 (26)
-------- --------
Cash provided by (used in) investing activities........................... (52) 24
-------- --------
FINANCING ACTIVITIES
Dividend to Parent.............................................................. (7) --
Repayment of debt............................................................... (1) (1)
-------- --------
Cash used in financing activities......................................... (8) (1)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................$ (25) $ 51
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<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 January 3, 1997.
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 March 28, 1997 and January 3, 1997
and the results of operations and cash flows for the twelve weeks ended
March 28, 1997 and March 22, 1996. 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 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 1997 and 1996 consists
of:
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------
March 28, March 22,
1997 1996
--------- ---------
(in millions)
<S> <C> <C>
Sales
Rooms...........................................................$ 111 $ 86
Food & Beverage................................................. 40 28
Other........................................................... 11 9
------ ------
Total Hotel Sales............................................ 162 123
------ ------
Department Costs
Rooms........................................................... 25 20
Food & Beverage................................................. 30 23
Other........................................................... 6 4
------ ------
Total Department Costs....................................... 61 47
------ ------
Department Profit................................................. 101 76
Other Deductions.................................................. 36 30
------ ------
House Profit.................................................$ 65 $ 46
====== ======
</TABLE>
-6-
<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 $1.5 million and $1.3 million for the twelve weeks ended
March 28, 1997 and March 22, 1996, respectively.
The partnership's summarized operating results are as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
---------------------
March 28, March 22,
1997 1996
--------- ---------
(in millions)
<S> <C> <C>
Revenues....................................................... $ 5.0 $ 4.1
Operating profit............................................... 2.8 2.4
Net income..................................................... 2.1 1.8
</TABLE>
4. The Company acquired the 306-room Ritz-Carlton Hotel Marina del Rey for $57
million in the first quarter of 1997.
5. The Company paid a $7 million dividend to Host Marriott during the first
quarter of 1997 as permitted under the senior notes indenture.
6. On May 12, 1997, the Company commenced a consent solicitation (the "Consent
Solicitation") for the amendment of certain provisions of its senior notes
indenture. The Consent Solicitation, if successful, would facilitate, among
other things, the merger of HMC Acquisition Properties, Inc.
("Acquisitions"), a wholly-owned indirect subsidiary of Host Marriott,
which owns 17 full-service hotel properties, with and into the Company (the
"Merger") and the ability of the Company after the Merger to acquire,
through certain subsidiaries, additional properties subject to non-recourse
indebtedness and less than majority controlling interests in corporations,
partnerships and other entities holding attractive properties. In
connection with the Merger, Host Marriott will make a capital contribution
of $50 million to the Company.
The Consent Solicitation is conditioned upon the approval by at least 66
2/3% of the Company's senior notes holders and the completion of a similar
consent solicitation being currently conducted by Acquisitions. As part of
the Consent Solicitation, the Company will make a payment of $1,500,000
which will be allocated pro rata by the Company to each registered senior
notes holder who consents to the proposed amendments prior to the execution
of a supplemental indenture adopting the proposed amendments.
The Consent Solicitation will expire at 5:00 p.m., New York City time on
May 23, 1997, unless extended by the Company.
7. 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, which was acquired by the Company in late December 1995, and HMH
HPT Residence Inn, Inc., the lessee of the Residence Inn properties. At
March 28, 1997, 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 March 28, 1997 and January 3, 1997 and
the results of operations and cash flows for the twelve weeks ended March
28, 1997 and March 22, 1996 of the parent, the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries.
- 7 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Balance Sheets
(in millions)
March 28, 1997
--------------
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Property and equipment, net................................... $ 535 $ 317 $ 139 $ 991
Note receivable from affiliate................................ -- 140 -- 140
Investment in affiliate....................................... 19 -- -- 19
Other assets.................................................. 25 26 24 75
Cash and cash equivalents..................................... 83 -- -- 83
------- ------- ------- -------
Total assets............................................... $ 662 $ 483 $ 163 $ 1,308
======= ======= ======= =======
Debt.......................................................... $ 637 $ 19 $ 75 $ 731
Deferred income taxes......................................... 24 48 1 73
Other liabilities............................................. 49 19 23 91
------- ------- ------- -------
Total liabilities.......................................... 710 86 99 895
Owner's equity (deficit)...................................... (48) 397 64 413
------- ------- ------- -------
Total liabilities and owner's equity....................... $ 662 $ 483 $ 163 $ 1,308
======= ======= ======= =======
January 3, 1997
---------------
Property and equipment, net................................... $ 488 $ 316 $ 140 $ 944
Note receivable from affiliate................................ -- 140 -- 140
Investment in affiliate....................................... 17 -- -- 17
Other assets.................................................. 31 21 24 76
Cash and cash equivalents..................................... 108 -- -- 108
------- ------- ------- -------
Total assets............................................... $ 644 $ 477 $ 164 $ 1,285
======= ======= ======= =======
Debt.......................................................... $ 638 $ 19 $ 75 $ 732
Deferred income taxes......................................... 23 47 1 71
Other liabilities............................................. 33 15 24 72
------- ------- ------- -------
Total liabilities.......................................... 694 81 100 875
Owner's equity (deficit)...................................... (50) 396 64 410
------- ------- ------- -------
Total liabilities and owner's equity....................... $ 644 $ 477 $ 164 $ 1,285
======= ======= ======= =======
</TABLE>
- 8 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statements of Operations
(in millions)
Twelve Weeks Ended March 28, 1997
---------------------------------
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES...................................................... $ 34 $ 21 $ 12 $ 67
OPERATING COSTS AND EXPENSES.................................. 17 10 10 37
------- ------- ------- -------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 17 11 2 30
Corporate expenses............................................ -- (1) (1) (2)
Interest expense.............................................. (14) (1) (1) (16)
Interest income............................................... 1 3 -- 4
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES............................. 4 12 -- 16
Provision for income taxes.................................... (2) (4) -- (6)
------- ------- ------- -------
NET INCOME (LOSS)............................................. $ 2 $ 8 $ -- $ 10
======= ======= ======= =======
Twelve Weeks Ended March 22, 1996
---------------------------------
REVENUES .................................................... $ 29 $ 16 $ 2 $ 47
OPERATING COSTS AND EXPENSES.................................. 17 7 2 26
-------- -------- ------- -------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST............................................... 12 9 -- 21
Corporate expenses............................................ (1) (1) -- (2)
Interest expense.............................................. (13) (1) (1) (15)
Interest income............................................... 1 3 -- 4
-------- -------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES............................. (1) 10 (1) 8
Provision for income taxes.................................... 1 (4) -- (3)
-------- -------- ------- -------
NET INCOME (LOSS)............................................. $ -- $ 6 $ (1) $ 5
======== ======== ======= =======
</TABLE>
- 9 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Condensed Consolidating Statement of Cash Flows
(in millions)
Twelve Weeks Ended March 28, 1997
---------------------------------
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS................................... $ 23 $ 11 $ 1 $ 35
------- ------- ------- -------
INVESTING ACTIVITIES
Acquisitions............................................... (57) -- -- (57)
Capital expenditures....................................... (4) (4) (1) (9)
Other...................................................... 14 -- -- 14
------- ------- ------- -------
Cash used in investing activities....................... (47) (4) (1) (52)
------- ------- ------- -------
FINANCING ACTIVITIES
Repayment of debt.......................................... (1) -- -- (1)
Dividends.................................................. 7 (7) -- --
Dividend to Parent......................................... (7) -- -- (7)
------- ------- ------- -------
Cash used in financing activities....................... (1) (7) -- (8)
------- ------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS......................... $ (25) $ -- $ -- $ (25)
======= ======= ======= =======
Twelve Weeks Ended March 22, 1996
---------------------------------
CASH PROVIDED BY OPERATIONS................................... $ 20 $ 8 $ -- $ 28
-------- -------- ------- -------
INVESTING ACTIVITIES
Cash received from sales of assets, net.................... 79 -- -- 79
Acquisitions............................................... (18) -- -- (18)
Capital expenditures....................................... (4) (7) -- (11)
Other ..................................................... (25) (1) -- (26)
-------- -------- ------- -------
Cash provided by (used in) investing activities......... 32 (8) -- 24
-------- -------- ------- -------
FINANCING ACTIVITIES
Repayment of debt.......................................... (1) -- -- (1)
-------- -------- ------- -------
Cash used in financing activities....................... (1) -- -- (1)
-------- -------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 51 $ -- $ -- $ 51
======== ======== ======= ========
</TABLE>
- 10 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Company to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although the Company believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Company's filings
with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
Revenues. Revenues consist of house profit from the Company's hotel properties
and equity in earnings of an affiliate. The Company's first quarter 1997
revenues of $67 million represented a $20 million, or 43%, increase from the
first quarter of 1996. 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 1996 and 1997;
. the 1996 sale and leaseback of 18 of the Company's Residence Inn
properties; and
. the sale of 16 of the Company's Courtyard properties during 1996.
Hotel revenues increased $19 million, or 41%, to $65 million in the first
quarter of 1997. The 1997 hotel revenue increases reflect the addition of eight
full-service hotel properties in 1996 and 1997 and overall improved lodging
results, partially offset by 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 first quarter revenues for nearly all of the Company's full-service
hotels were improved or comparable to first quarter of 1996 results. Improved
results were driven by strong increases in REVPAR of nearly 19% for comparable
units for the first quarter. The Company's 1997 first quarter results were
substantially impacted by the exclusion of the New Year's holiday from the 1997
results due to the timing of the Company's fiscal year-end and the milder winter
weather in 1997. Hotel sales increased $39 million, or 32%, to $162 million for
the quarter, reflecting REVPAR increases for comparable units and the increase
in full-service properties during 1996 and 1997. On a comparable basis, average
room rates increased 13%, while average occupancy increased nearly four
percentage points. Results for the quarter were further enhanced by an increase
in the house profit margin of four percentage points 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 Company's extended-stay Residence Inn properties, reported a 6% increase in
REVPAR for the 1997 first quarter, due primarily to an increase in average room
rates of 10%, while average occupancy decreased three percentage points. 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.
- 11 -
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
The Company's operating costs and expenses increased $11 million to $37 million
for the first quarter of 1997 primarily reflecting the addition of eight
full-service properties during 1996 and 1997, increased management fees and
rentals tied to improved operating results and the impact of the lease payments
on the Residence Inn properties which have been sold and leased back. As a
percentage of hotel revenues, hotel operating costs and expenses remained at 57%
of revenues for the first quarter of 1997.
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 $30 million, or 45% of revenues, in the first quarter of 1997 from $21
million, or 45% of revenues, in the first quarter of 1996. Hotel operating
profit increased by $8 million to $28 million, or 43% of hotel revenues, in the
first quarter of 1997 from $20 million, or 43% of hotel revenues, in the first
quarter of 1996. Most of the Company's hotels recorded substantial improvements
in operating results. Several hotels, including the Bethesda Marriott, the
Denver Marriott West, the Houston Airport Marriott, the Marriott World Trade
Center, the Marina Beach Marriott and the Newport Beach Marriott posted
particularly significant improvements in operating profit for the quarter, which
were partially offset by a decrease in the results for the Company's suburban
Atlanta properties due to higher activity in 1996 related to the Summer
Olympics.
Corporate Expenses. Corporate expenses remained unchanged at $2 million for the
first quarter of 1997. As a percentage of revenues, corporate expenses were 3%
of revenues for the first quarter of 1997 and 4% of revenues for the first
quarter of 1996.
Interest Expense. Interest expense increased $1 million to $16 million for the
first quarter of 1997.
Net Income. The Company's net income increased $5 million to $10 million, or 15%
of revenues, for the first quarter of 1997, compared to net income of $5
million, or 11% of revenues, for the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a decrease in cash and cash equivalents of $25 million for
the twelve weeks ended March 28, 1997 compared to an increase of $51 million for
the twelve weeks ended March 22, 1996. This decrease is primarily due to the use
of funds for the acquisition of one full-service property, partially offset by
cash generated from operations. Cash flow provided by operations increased $7
million to $35 million for the twelve weeks ended March 28, 1997.
Cash used in investing activities was $52 million for the twelve weeks ended
March 28, 1997 compared to cash provided by investing activities of $24 million
for the twelve weeks ended March 22, 1996. The first quarter 1997 results
primarily reflect the acquisition of the 306-room Ritz-Carlton Marina del Rey
for $57 million and capital expenditures on existing properties, partially
offset by the use of available escrowed cash provided from the 1996 sale of the
limited-service properties.
Cash used in financing activities increased $7 million to $8 million for the
twelve weeks ended March 28, 1997, compared to cash used in financing activities
of $1 million for the twelve weeks ended March 22, 1996. The first quarter 1997
results reflect the dividend to Host Marriott as permitted under the senior
notes indenture.
-12-
<PAGE>
HMH PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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") increased $10 million, or 30%, to $43 million
for the first quarter of 1997. 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 service debt, fund
capital expenditures and expand its business 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.
Hotel EBITDA increased $9 million, or 28%, to $40 million for the first quarter
of 1997. Full-service EBITDA increased $17 million, or 77%, to $39 million for
the 1997 first quarter. On a comparable basis, full-service EBITDA increased 29%
on a REVPAR increase of 19%.
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended
---------------------
March 28, March 22,
1997 1996
--------- ---------
(in millions)
<S> <C> <C>
EBITDA.......................................................................... $ 43 $ 33
Interest expense................................................................ (16) (15)
Depreciation and amortization................................................... (12) (11)
Income taxes applicable to operations........................................... (6) (3)
Gain (loss) on dispositions of assets and other non-cash charges, net........... 1 1
--------- ---------
Net Income . . . ............................................................ $ 10 $ 5
========= =========
</TABLE>
The Company interest coverage, defined as EBITDA divided by cash interest
expense, for the quarter improved to 2.8 times from 2.3 times for the 1996 first
quarter and 2.2 times for full year 1996. The ratio of earnings to fixed charges
was 1.7 to 1.0 and 1.3 to 1.0 for the twelve weeks ended March 28, 1997 and
March 22, 1996, respectively, and 1.4 to 1.0 for fiscal year 1996.
-13-
<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.
- 14 -
<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.
---------------------------
May 9, 1997 /s/ Donald D. Olinger
- --------------- Donald D. Olinger
Vice President and Corporate Controller
(Principal Accounting Officer)
- 15 -
