Upscale purchases help Host Marriott to 42% profit leap Revenues per room rose 11 percent

March 06, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Host Marriott Corp.'s earnings surged 42 percent in 1996, fueled by the strength of its upscale hotel acquisitions and continued gains in the lodging industry.

The Bethesda-based hotel owner's earnings before interest expense, taxes and noncash charges of $442 million for the year represents the latest evidence that its strategy of focusing on so-called full-service hotels is paying off.

"We acquired, or purchased controlling interests in, 23 hotels with an aggregate value of approximately $1.5 billion and completed the divestiture of our limited-service properties," said Terence C. Golden, the company's president and chief executive officer.

In all, Host Marriott now owns 83 upscale and luxury hotels valued at $5.2 billion.

Notwithstanding the acquisitions, Host Marriott attributed its gains to a 19 percent growth in earnings on an 11 percent gain in revenues per available room, a key measure of a lodging property's financial viability.

For the three months ended Jan. 3, Host Marriott reported earnings before interest expense, taxes and noncash charges of $159 million, a 61 percent increase over the comparable period a year earlier.

Revenues blossomed as well, up 51 percent for the year to $732 million, and up 62 percent for the quarter, to $268 million.

Also last year, Host Marriott strengthened its balance sheet by raising $1 billion through the sale of preferred stock, clipped corporate expense as a percentage of revenues to 28 percent and slightly increased its ability to cover interest expenses. Host Marriott now owes $2.6 billion in debt. The company also bolstered its management team in 1996 and installed new computer systems.

But Host Marriott's skyrocketing growth may be waning, as the lodging industry reaches the end of a projected seven-year growth cycle. Coopers & Lybrand LLP predicts that U.S. hotel occupancy rates will decline this year -- the first time since 1991 -- and continue to go down through 1999. The accounting firm notes, however, that both profit levels and revenue available per room should experience "dramatic increases," on average.

If occupancy does slide, it could significantly impact Host Marriott's plan to purchase $1 billion worth of new hotels in 1997 or future earnings derived from those acquisitions.

Host Marriott, for the moment at least, appears undaunted.

"We expect to continue to add high quality, full-service hotels to our portfolio at attractive returns throughout 1997," Golden said.

Pub Date: 3/06/97

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