Host Marriott's profit rises 35% in 2nd quarter 51 cents a share fashioned amid acquisitions and higher revenue


July 21, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Fueled by continued hotel purchases and higher revenue from those rooms, Host Marriott Corp. reported yesterday that its second-quarter funds from operations rose 35 percent to $115 million.

On a per-share basis, the Bethesda-based lodging company's funds from operations of 51 cents per share marked a 31 percent increase from the same three-month period in 1997. The figure was also above the 50 cents per share analysts expected the company to earn in the quarter, which ended June 19. Revenue rose 49 percent, to $402 million.

"We are very pleased with the strength of our second-quarter operating results," said Terence C. Golden, Host Marriott's president and chief executive officer. "The environment for growth continues to be favorable, particularly in the large urban markets in which the company's hotels principally operate."

Host Marriott's second-quarter results come as it is preparing to strike a deal to restructure its balance sheet, part of a plan to convert to a real estate investment trust early next year.

Under the restructuring plan, Host Marriott intends to issue $1.4 billion in bonds and obtain a $1.25 billion expanded credit line, and redeem $1.55 billion in outstanding debt, said Robert E. Parsons Jr., a Host Marriott executive vice president and its chief financial officer. In all, Host Marriott's balance sheet carries total debt of more than $3.78 billion.

Corporations such as Host Marriott are attempting to take advantage of lower interest rates. This month, 30-year U.S. Treasury bonds carried a 5.57 percent interest rate, the lowest in two decades.

Host Marriott, which owns 101 hotels and 31 senior living facilities valued at more than $6.7 billion, attributed much of its performance to gains by its full-service lodging properties. The upscale and luxury hotels posted a 7.6 percent increase in revenue per available room to $117.90, a key industry gauge of a hotel's financial health.

Hotel purchases this year and last together generated $60 million toward second-quarter earnings before interest, taxes and noncash charges, or 27 percent of the company's total. Host Marriott has invested $2.4 billion to buy new projects this year.

The company also acknowledged that its results were influenced by sales of the New York East Side Marriott and the Napa Valley Marriott in California, dispositions that contributed $50 million before taxes.

Other trends may not bode well for earnings. Host Marriott's average room rate dipped slightly, to $145.73 per night, and average occupancy fell to 81 percent, well above industry averages but down from the 81.5 percent rate it posted during the same period in 1997.

For the first half of 1998, Host Marriott reported its funds from operations rose to $206 million, a 42 percent increase. Revenue in the first half of the year amounted to $747 million, a 43 percent gain.

"The company continues to be on target to achieve analysts' consensus target of $1.81 per share for 1998, representing a 33 percent growth over 1997," Golden said.

Despite the higher earnings, Host Marriott's stock fell 56.25 cents per share yesterday, to close at $18.125.

Pub Date: 7/21/98

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