Marriott chain's earnings rise 6.6%

Higher room revenues, cost cutting credited


July 28, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Host Marriott Corp. reported yesterday that its second-quarter earnings climbed 6.6 percent compared with the corresponding period last year, the result of higher revenue from its hotel rooms, acquisitions in 1998, and cost cutting.

The Bethesda hotel owner's funds from operations were 48 cents per share, compared with 45 cents per share a year ago. Host Marriott generated funds from operations of $152 million in the quarter, up 41 percent from the comparable quarter last year.

But that figure is distorted because the company had 33 percent fewer shares outstanding as of June 1998. The real estate investment trust's revenue in the quarter was $341 million.

Funds from operations, defined as net income excluding gains or losses from the sale of properties or debt restructuring, plus depreciation, is a standard measure of the financial well-being of a real estate investment trust.

Host Marriott calculated second-quarter 1998 figures on a pro forma basis because the company converted to a REIT at the end of that year.

The company attributed its earnings increase primarily to a 3.6 percent gain in revenue available per room, to $120.85. By comparison, Host Marriott's peers generated only a 2 percent increase in the quarter in revenue per room, another standard measure of hotel performance.

Host Marriott's funds from operations also belie its performance in other balance sheet categories. Its rental income derived from its 124 properties, for instance, increased 39 percent to $325 million in the quarter that ended June 18.

The company's total sales were nearly as good, up 34 percent to $1.05 billion.

"They had a very good quarter, but there is evidence that [revenue available per room] is starting to slow down," said Sara Grootwassink, an analyst at Johnston, Lemon & Co., in Washington. "But that's true for the entire hotel industry. Still, Host Marriott has kept its average occupancy rate very high, compared to others, and that's a good sign."

Host Marriott's average occupancy rate stands at 81.8 percent, while its peers' occupancy rate remains at slightly less than 80 percent. Host Marriott's performance came without the benefit of new acquisitions, despite $350 million set aside to buy properties at the start of the year.

Pub Date: 7/28/99

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