Host Marriott earnings up 25% in third quarter

Stock buyback, decreases in interest expenses lead to profit jump

Hotel industry

October 20, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Host Marriott Corp., fueled by a stock buyback and decreases in interest expenses, reported yesterday that its third-quarter earnings jumped 25 percent from the third quarter last year.

The Bethesda-based hotel owner also attributed its funds from operations of 35 cents per share in the quarter that ended Sept. 10 over pro forma earnings in the comparable three-month period last year to increases in revenue per available room (REVPAR) and incremental earnings from hotel acquisitions.

"Our focus during the quarter was on carefully using our capital to improve returns to our shareholders," said Terence C. Golden, Host Marriott's president and chief executive officer.

To that end, the real estate investment trust has invested $8 million to buy back its stock from the open market, and another $100 million worth of purchases are planned over the next six months.

Host Marriott's common stock closed yesterday at $9.0625, up 6.25 cents per share.

The stock purchases are being funded through asset sales, including a $122 million deal to sell the Ritz-Carlton Boston that Host Marriott announced yesterday.

Host Marriott's earnings before interest expense, income taxes, depreciation and amortization and other noncash items (EBITDA) from continuing operations were $212 million in the 1999 third quarter, a 45 percent increase.

The company calculated its third quarter 1998 figures on a pro forma basis because it converted to a REIT at the end of that year.

The REIT's REVPAR rose 2.8 percent in the quarter, slightly below projected industry statistics for the quarter that ended Sept. 30, and down from the 3.6 percent bump in the same figure in the company's second quarter.

REVPAR, EBITDA and funds from operations, defined as net income excluding gains or losses from the sale of properties or debt restructuring plus depreciation, are standard measures of the fi- nancial well-being of hotel-owning REITs.

Recent acquisitions also played a role in Host Marriott's results.

In 1998, the company bought 16 hotels carrying the Ritz-Carlton, Four Seasons, Grand Hyatt, Hyatt Regency and Swissotel brands.

"They had a pretty strong quarter," said Marielle Jan de Beur, a Legg Mason Wood Walker Inc. lodging industry analyst. "They beat the street's estimate by a penny a share, which was somewhat related to a decrease in interest expense."

Golden said that as a result of recent refinancings, the interest rate on 94 percent of its debt obligations are fixed at below-market rates with virtually no debt coming due within the next two years.

In all, Host Marriott controls 123 upscale and luxury hotel properties valued about $7.2 billion.

At the end of the third quarter, its average occupancy rate was 81.4 percent.

Pub Date: 10/20/99

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