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Host Hotels & Resorts, Inc. – ‘8-K’ for 2/26/03 – EX-20

On:  Wednesday, 2/26/03, at 2:19pm ET   ·   For:  2/26/03   ·   Accession #:  928385-3-411   ·   File #:  1-14625

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/26/03  Host Hotels & Resorts, Inc.       8-K:9       2/26/03    2:730K                                   Donnelley R R & S… 09/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                      HTML     13K 
 2: EX-20       Other Document or Statement to Security Holders     HTML    565K 

HOST MARRIOTT REPORTS 2002 FUNDS FROM OPERATIONS OF $1.11 PER DILUTED SHARE

BETHESDA, MD; February 26, 2003 – Host Marriott Corporation (NYSE: HMT), the nation’s largest lodging real estate investment trust (REIT), today announced results of operations for the fourth quarter and for the year ended December 31, 2002. The full year results continued to reflect the difficult operating environment as the economy remains weak and business and leisure travel were below historic levels. Full year and fourth quarter results include the following:

Operating Results

Comparable RevPAR for the fourth quarter increased 10.6% while operating profit margins were up slightly over the fourth quarter of 2001. The Company’s fourth quarter RevPAR increase was the result of a significant occupancy increase of 6.4 percentage points and a slight increase in average room rate to $142.46. Full year 2002, comparable RevPAR declined 5.1% (comprised of a 5.9% decline in average room rate, that was partially offset by an occupancy increase of just under one percentage point), while margins declined less than two percentage points. The Company’s urban, resort and convention hotels, which contributed 69% of the 2002 hotel EBITDA for our comparable hotels, continue to outperform the overall portfolio with a full year RevPAR decline of 1.9%. For the quarter, these hotels generated RevPAR growth of 14.9% over the prior year.

Christopher J. Nassetta, president and chief executive officer, stated, “We were pleased to finish a demanding year with good fourth quarter results. Throughout the year, our hotels demonstrated the ability to offset declines in corporate travel with additional group business, leading to a slight increase in occupancy for the year. Once occupancies further improve, we would expect that our properties will be able to reverse recent declines in average rate, allowing us to increase revenues and benefit from increased operating efficiencies.”

Balance Sheet

At December 31, 2002, the Company had $361 million in cash on hand and $300 million of availability under its credit facility. Consistent with the goal of de-leveraging, in January 2003 the Company sold the Ontario Airport Marriott for total

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consideration of approximately $26 million, a portion of which was subsequently used to repay $17 million of mortgage debt.

W. Edward Walter, executive vice president and chief financial officer, stated, “Consistent with our financial strategy for the last 18 months, we will continue to maintain high cash reserves, which combined with limited debt maturities over the next two years, maximizes our financial flexibility in this challenging operating environment and positions us to be able to take advantage of opportunities that arise in the future. We expect to pursue additional asset sales during 2003, the proceeds of which will be utilized to either retire debt or reinvest in our portfolio.”

2003 Outlook

The Company believes RevPAR for full year 2003 will be flat to down modestly, with margins declining one to two percentage points. This guidance assumes that operations will continue to deteriorate in the near term as a result of the threat of imminent war in the Middle East. Based upon this guidance the Company estimates the following:

Based upon the current outlook, the Company expects that it is unlikely that it will pay a meaningful dividend on its common stock for 2003.

Mr. Nassetta noted, “The combination of a weak economy, the potential for war in Iraq and threats of terrorism create a difficult climate for the hotel industry to launch a recovery. We are well prepared to deal with the near term uncertainties, and expect to take full advantage of the recovery once the long term strength inherent in lodging industry fundamentals begins to take effect.”

Host Marriott is a Fortune 500 lodging real estate company that currently owns or holds controlling interests in 122 upscale and luxury hotel properties primarily operated under premium brands, such as Marriott, Ritz-Carlton, Hyatt, Four Seasons, Swissôtel and Hilton. For further information, please visit the Company’s website at www.hostmarriott.com.

This press release contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the potential for additional terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; and our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes. For further

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information regarding risks and uncertainties associated with our business, please refer to the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of February 25, 2003 and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

*** Tables to Follow***

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INDEX

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HOST MARRIOTT CORPORATION

Overview

The Company

Host Marriott Corporation is primarily the owner of hotel properties. We operate as a self-managed and self-administered real estate investment trust (REIT). We conduct our operations as an umbrella partnership REIT through an operating partnership, Host Marriott, L.P. (“Host LP”) of which we are the sole general partner. For each share of our common stock, Host LP has issued to us one unit of operating partnership interest, or OP Unit. When distinguishing between Host Marriott and Host LP, the primary difference is the 10% partnership interests of Host LP held by outside partners as of December 31, 2002, which is reflected as minority interest in our balance sheet and minority interest expense in our statement of operations.

Readers are encouraged to find further detail regarding our corporate structure in our annual report on Form 10-K.

Comparative Measures

Included in this press release are non-GAAP financial measures that we use and that we believe are useful to investors: Comparative Funds From Operations Available to Common Stockholders, which we refer to as Comparative FFO, Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA and various hotel operating statistics.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be misleading or uninformative. The National Association of Real Estate Investment Trusts, or NAREIT, adopted the definition of Funds From Operations, or FFO, in order to promote an industry-wide standard measure of REIT operating performance that would not have certain drawbacks associated with net income under accounting principles generally accepted in the United States of America, or GAAP. Management believes that the presentation of Comparative FFO (defined below) provides useful information to investors regarding our financial condition and results of operations because it is a measure of our ability to service debt, fund capital expenditures and expand our business.

However, Comparative FFO and EBITDA as presented may not be comparable to amounts calculated by other companies. This information should not be considered as an alternative to net income, operating profit, cash from operations, or any other operating performance measure prescribed by GAAP. Cash expenditures for various long-term assets, interest expense (for EBITDA purposes only) and other items have been and will be incurred and are not reflected in the EBITDA and Comparative FFO presentations.

Comparative FFO.    NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate and real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Comparative FFO consists of FFO (as defined above) adjusted for significant non-recurring items. We adjust FFO for the tax effect of significant non-recurring items such as the repurchase of the leasehold interests in 2000 and 2001 and tax refunds in 2002. Additionally, we adjust FFO to recognize contingent rental revenue deferred under SAB 101 (defined herein). All of which has been earned on an annual basis. We also adjust FFO to reflect the payment of our preferred dividends as these funds are not available to common shareholders, which is consistent with the calculation of net income available to common shareholders under GAAP.

EBITDA.    Management believes that the presentation of EBITDA provides useful information to investors regarding our financial condition and results of operations because EBITDA is useful for evaluating our capacity to incur and service debt, fund capital expenditures and to expand our business. Specifically, our lenders and rating agencies believe that EBITDA is a better measure of unlevered cash flow that can be isolated by asset and is utilized to determine our ability to service debt. Restrictive covenants in the indenture pursuant to which our senior notes were issued and our credit facility each contain incurrence ratios based on EBITDA. Management also uses EBITDA as one measure in determining the value of acquisitions and dispositions.

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HOST MARRIOTT CORPORATION

Overview

Reporting Periods.    Results of operations for our hotels that are both managed and operated under the Marriott brand name, report results on a 52 or 53-week fiscal year, which ends on the Friday closest to December 31. In 2002, these hotels reported 53 weeks of operations compared to 52 weeks for 2001. Our consolidated financial statements have been adjusted to reflect the results of operations for these properties on a calendar year basis. However, in reporting our hotel operating statistics (average room rates, occupancy, RevPAR and the Schedule of Comparable Property Level Results) the results of the Marriott managed and branded hotels reflect 53 weeks and 17 weeks for the full year and fourth quarter 2002, respectively, compared to 52 weeks and 16 weeks for the full year and fourth quarter 2001, respectively.

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HOST MARRIOTT CORPORATION

Consolidated Balance Sheets (a)

(in millions, except share amounts)

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HOST MARRIOTT CORPORATION

Consolidated Statements of Operations (a)

(in millions, except per share amounts)

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HOST MARRIOTT CORPORATION

Consolidated Statements of Operations (a)

(in millions, except per share amounts)

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HOST MARRIOTT CORPORATION

Reconciliation of Earnings per Share (a)

(in millions, except per share amounts)

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HOST MARRIOTT CORPORATION

Comparative Funds from Operations

(unaudited, in millions, except per share amounts)

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HOST MARRIOTT CORPORATION

Reconciliation of Comparative Funds from Operations per Share (a)

(unaudited, in millions, except per share amounts)

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HOST MARRIOTT CORPORATION

EBITA and Comparative Funds From Operations Reconciliation

(unaudited, in millions)