Host Marriott receives $370 million for 9/11 losses

Settlement of N.Y. claims was better than expected

December 04, 2003|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Host Marriott Corp. of Bethesda has received a $370 million insurance payout for its destroyed World Trade Center hotel and another site damaged by the terrorist attacks two years ago, it announced yesterday.

It's a significantly higher settlement than analysts were expecting and comes at a good time for the company, which is struggling with the same occupancy woes that have dampened the lodging industry since the Sept. 11 attacks. The company declined to identify the insurer.

Host Marriott used $65 million of the settlement to pay off its debt on the New York World Trade Center Marriott - allowing it to opt out of the ground lease at the site, which would have lasted until 2094. The lease cost the company $1 million annually and was scheduled to bump up to $1.5 million next year.

But the company will continue to have a say in the site's future. It paid $1 million to the Port Authority of New York and New Jersey, the landowner, for the right of first offer on hotel development at the site over the next 20 years.

The insurance payment - which the company received Tuesday night - included money for the nearby New York Marriott Financial Center hotel, repaired and reopened after the Sept. 11 attacks.

"With the remaining proceeds we think we're going to pay down additional debt or acquire hotels - or do a little bit of both," said Greg Larson, the company's senior vice president for investor relations. "I think it puts us in a great position."

Bill Crow, a lodging analyst with the investment firm Raymond James & Associates of St. Petersburg, Fla., said Host Marriott's strategy for the future of the World Trade Center site seems sound.

"This thing would have been tied up for years and years waiting to build ... given the memorial planning and the uncertainty surrounding the area," he said. "This way they get cash on their books, they have the right to redevelop if they want to - certainly they don't have to. It's just a great scenario for the company."

Host Marriott, a real estate investment trust, said the payment will cut its 2003 losses by 70 cents to 3 to 8 cents a share and allow it to offer a fourth-quarter dividend on its preferred stock. Officials said in October that a dividend was unlikely in part because the company was suffering from falling room rates and occupancy.

Host Marriott expects that the settlement will increase its funds from operations for the year about 50 cents a share, ranging from $1.01 to $1.05.

Company and port authority officials said yesterday that the deal is good for both sides. The hotel land sits in the World Trade Center complex's planned memorial district.

"This allows the Port Authority to pursue its goal of redeveloping the World Trade Center site in accordance with the master plan and assists us in our goal of enhancing our balance sheet and overall financial flexibility," said Christopher J. Nassetta, president and chief executive officer of Host Marriott, in a statement yesterday.

Crow said the insurance payment was about $85 million more than he expected, and his projection was higher than many analysts' calculations.

"Most people were looking in the $200 [million] to $250 million range," he said. "To get $370 [million] is certainly a very attractive price. That really brings their cash and their balance sheet up to about $800 million, a significant war chest."

The New York-based Insurance Information Institute expects that insurers will eventually pay out as much as $40.2 billion for Sept. 11 losses. So far, settled claims have totaled $20 billion to $30 billion, said P.J. Crowley, vice president of the institute.

"One of the ironies here: You still have court cases that are active involving the original attack on the World Trade Center towers in 1993," he said.

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