0000928385-01-501304.txt : 20011018
0000928385-01-501304.hdr.sgml : 20011018
ACCESSION NUMBER: 0000928385-01-501304
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010615
FILED AS OF DATE: 20010730
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HOST MARRIOTT CORP/
CENTRAL INDEX KEY: 0001070750
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 530085950
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14625
FILM NUMBER: 1692986
BUSINESS ADDRESS:
STREET 1: 10400 FERNWOOD ROAD DEPT 907
CITY: BETHESDA
STATE: MD
ZIP: 20817
BUSINESS PHONE: 3013809000
MAIL ADDRESS:
STREET 1: HOST MARRIOTT CORP
STREET 2: 10400 FERNWOOD ROAD DEPT 907 RM 507
CITY: BETHESDA
STATE: MD
ZIP: 20817-1109
FORMER COMPANY:
FORMER CONFORMED NAME: HMC MERGER CORP
DATE OF NAME CHANGE: 19980921
10-Q
1
d10q.txt
FORM 10-Q
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 15, 2001 Commission File No. 001-14625
HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Maryland 53-0085950
------------------------
(State of Incorporation) (I.R.S. Employer
----------------
Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Shares outstanding
Class at July 27, 2001
---------------------- -----------------
Common Stock, $0.01 par value 262,445,910
Purchase share rights for Series A Junior Participating Preferred Stock, $0.01 par value --
Class A Cumulative Redeemable Preferred Stock, $0.01 par value 4,160,000
Class B Cumulative Redeemable Preferred Stock, $0.01 par value 4,000,000
Class C Cumulative Redeemable Preferred Stock, $0.01 par value 5,980,000
================================================================================
INDEX
-----
Page No.
--------
Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets-
June 15, 2001 and December 31, 2000...........................3
Condensed Consolidated Statements of Operations-
Twelve Weeks and Twenty-four Weeks Ended
June 15, 2001 and June 16, 2000...............................4
Condensed Consolidated Statements of Cash Flows-
Twenty-four Weeks Ended June 15, 2001 and June 16, 2000.......6
Notes to Condensed Consolidated Financial Statements.............7
Management's Discussion and Analysis of Results of
Operations and Financial Condition...........................14
Quantitative and Qualitative Disclosures about Market Risk......24
PART II. OTHER INFORMATION AND SIGNATURE.................................25
-2-
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 15, December 31,
2001 2000
------------ ------------
(unaudited)
ASSETS
------
Property and equipment, net ....................................................... $ 7,206 $ 7,110
Notes and other receivables (including amounts due from affiliates of
$9 million and $164 million, respectively) ..................................... 56 211
Due from Manager .................................................................. 171 --
Rent receivable ................................................................... 8 65
Investments in affiliates ......................................................... 145 128
Other assets ...................................................................... 437 444
Restricted cash ................................................................... 130 125
Cash and cash equivalents ......................................................... 217 313
------- -------
$ 8,370 $ 8,396
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Senior notes ................................................................... $ 2,790 $ 2,790
Mortgage debt .................................................................. 2,313 2,275
Other .......................................................................... 257 257
------- -------
5,360 5,322
Accounts payable and accrued expenses ............................................. 181 381
Other liabilities ................................................................. 370 312
------- -------
Total liabilities ............................................................ 5,911 6,015
------- -------
Minority interest ................................................................. 254 485
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary whose sole assets are the convertible
subordinated debentures due 2026 ("Convertible Preferred Securities") .......... 475 475
Shareholders' equity
Cumulative redeemable preferred stock (liquidation preference $354 million),
50 million shares authorized; 14.2 million shares issued and outstanding ....... 339 196
Common stock, 750 million shares authorized; 262.3 million shares and
221.3 million shares issued and outstanding, respectively ...................... 3 2
Additional paid-in capital ........................................................ 2,057 1,824
Accumulated other comprehensive loss .............................................. 1 (1)
Retained deficit .................................................................. (670) (600)
------- -------
Total shareholders' equity ................................................... 1,730 1,421
------- -------
$ 8,370 $ 8,396
======= =======
See Notes to Condensed Consolidated Statements
-3-
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended June 15, 2001 and June 16, 2000
(unaudited, in millions, except per share amounts)
2001 2000
------ ------
REVENUES
Hotel sales
Rooms .......................................... $ 589 $ --
Food and beverage .............................. 295 --
Other .......................................... 73 --
----- ------
Total hotel sales ........................... 957 --
Rental income .................................... 31 186
----- ------
Total revenues .............................. 988 186
----- ------
OPERATING COSTS AND EXPENSES
Hotel operating expenses
Rooms .......................................... 135 --
Food and beverage .............................. 208 --
Hotel departmental costs and deductions ........ 232 --
Management fees and other ...................... 54 --
Other property-level expenses .................. 67 63
Depreciation and amortization .................. 102 75
----- ------
Total hotel operating costs and expenses .... 798 138
Corporate expenses ............................. 9 10
Lease repurchase expense ....................... 5 --
Other expenses ................................. 6 6
----- ------
OPERATING PROFIT ..................................... 170 32
Minority interest (expense) benefit .............. (11) 11
Interest income .................................. 12 8
Interest expense ................................. (104) (97)
Net gains on property transactions ............... -- 2
Equity in earnings of affiliates ................. 2 3
Dividends on Convertible Preferred Securities .... (8) (7)
----- ------
INCOME (LOSS) BEFORE INCOME TAXES .................... 61 (48)
Provision for income taxes ........................... (12) (2)
----- ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .............. 49 (50)
Extraordinary loss ................................... -- (3)
----- ------
NET INCOME (LOSS) .................................... $ 49 $ (53)
===== ======
Less: Dividends on Preferred Stock ................... (9) (5)
----- ------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ... $ 40 $ (58)
===== ======
BASIC EARNINGS (LOSS) PER COMMON SHARE ............... $ .17 $(0.26)
===== ======
DILUTED EARNINGS (LOSS) PER COMMON SHARE ............. $ .16 $(0.26)
===== ======
See Notes to Condensed Consolidated Statements
-4-
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four Weeks Ended June 15, 2001 and June 16, 2000
(unaudited, in millions, except per share amounts)
2001 2000
------- --------
REVENUES
Hotel sales
Rooms ........................................................................ $ 1,110 $ --
Food and beverage ............................................................ 548 --
Other ........................................................................ 137 --
------- -------
Total hotel sales ......................................................... 1,795 --
Rental income .................................................................. 62 361
------- -------
Total revenues ............................................................ 1,857 361
------- -------
OPERATING COSTS AND EXPENSES
Hotel operating expenses
Rooms ........................................................................ 256 --
Food and beverage ............................................................ 399 --
Hotel departmental costs and deductions ...................................... 440 --
Management fees and other .................................................... 106 --
Other property-level expenses ................................................ 128 122
Depreciation and amortization ................................................ 179 149
------- -------
Total hotel operating costs and expenses .................................. 1,508 271
Corporate expenses ........................................................... 17 20
Lease repurchase expense ..................................................... 5 --
Other expenses ............................................................... 8 12
------- -------
OPERATING PROFIT ................................................................... 319 58
Minority interest (expense) benefit ............................................ (26) 22
Interest income ................................................................ 20 17
Interest expense ............................................................... (207) (193)
Net gains on property transactions ............................................. 1 3
Equity in earnings of affiliates ............................................... 4 3
Dividends on Convertible Preferred Securities .................................. (15) (14)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES .................................................. 96 (104)
Provision for income taxes ......................................................... (15) (3)
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ............................................ 81 (107)
Extraordinary loss ................................................................. -- (3)
------- -------
$ 81 $ (110)
======= =======
Less: Dividends on Preferred Stock ................................................. (14) (10)
Add: Gain on repurchase of Convertible Preferred Securities, net of income tax
expense of $1 million ....................................................... -- 4
------- -------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ................................. $ 67 $ (116)
======= =======
BASIC EARNINGS (LOSS) PER COMMON SHARE ............................................. $ .28 $ (0.53)
======= =======
DILUTED EARNINGS (LOSS) PER COMMON SHARE ........................................... $ .28 $ (0.53)
======= =======
See Notes to Condensed Consolidated Statements
-5-
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four Weeks Ended June 15, 2001 and June 16, 2000
(unaudited, in millions)
2001 2000
------ ------
OPERATING ACTIVITIES
Net income (loss) from operations before extraordinary item ........... $ 81 $(107)
Adjustments to reconcile to cash from operations:
Depreciation and amortization ..................................... 179 149
Income taxes ...................................................... (11) (20)
Deferred contingent rental income ................................. 15 291
Net gains on property transactions ................................ (1) (3)
Equity in earnings of affiliates .................................. (4) (3)
Purchase of Crestline leases ...................................... (204) --
Changes in other operating accounts ............................... 9 (40)
Other ............................................................. (15) (46)
----- -----
Cash provided by operations .................................. 49 221
----- -----
INVESTING ACTIVITIES
Acquisitions .......................................................... (2) (40)
Capital expenditures:
Capital expenditures for renewals and replacements ................ (102) (106)
New investment capital expenditures ............................... (30) (59)
Other investments ................................................. (12) (20)
Note receivable collections, net ...................................... 10 3
----- -----
Cash used in investing activities ............................ (136) (222)
----- -----
FINANCING ACTIVITIES
Issuances of debt, net ................................................ 121 290
Scheduled principal repayments ........................................ (23) (18)
Debt prepayments ...................................................... (115) (245)
Issuances of common stock ............................................. 2 2
Issuances of cumulative redeemable preferred stock, net ............... 144 --
Repurchases of common stock ........................................... -- (44)
Dividends ............................................................. (130) (102)
Repurchases of Convertible Preferred Securities ....................... -- (15)
Repurchases and redemptions of OP Units ............................... -- (3)
Other ................................................................. (8) 14
----- -----
Cash used in financing activities ............................ (9) (121)
----- -----
DECREASE IN CASH AND CASH EQUIVALENTS ................................. $ (96) $(122)
===== =====
Supplemental schedule of noncash investing and financing activities:
During the twenty-four weeks ended June 15, 2001 and June 16, 2000,
respectively, approximately 41,433,000 shares and 264,000 shares of common stock
were issued upon the conversion of outside OP Units valued at $540.8 million and
$2.5 million, respectively.
See Notes to Condensed Consolidated Statements
-6-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Host Marriott Corporation ("Host REIT" or the "Company"), a Maryland
corporation operating through an umbrella partnership structure, is
primarily the owner of hotel properties. Host REIT operates as a
self-managed and self-administered real estate investment trust ("REIT")
with its operations conducted through an operating partnership, Host
Marriott, L.P. (the "Operating Partnership" or "Host LP"), and its
subsidiaries. Host REIT has elected, effective January 1, 1999, to be
treated as a REIT for federal income tax purposes, and is the sole general
partner of the Operating Partnership. As of June 15, 2001, Host REIT owned
approximately 92% of the Operating Partnership.
The Work Incentives Improvement Act of 1999 ("REIT Modernization Act")
amended the tax laws to permit REITs, effective January 1, 2001, to lease
hotels to a subsidiary that qualifies as a taxable REIT subsidiary ("TRS").
Accordingly, a wholly owned subsidiary of Host LP, which has elected to be
treated as a TRS for federal income tax purposes, acquired certain
subsidiaries (the "Crestline Lessee Entities") of Crestline Capital
Corporation ("Crestline") owning the leasehold interests with respect to
116 of the Company's full-service hotels effective January 1, 2001. As a
result of the acquisition, the TRS replaced Crestline as the lessee under
the applicable leases, and the Company's operating results reflect
property-level revenues and expenses rather than rental income from lessees
with respect to those 116 full-service properties.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of
the Company and its subsidiaries have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. The Company
believes the disclosures made are adequate to make the information
presented not misleading. However, the unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 2000.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of June 15, 2001,
the results of its operations for the twelve and twenty-four weeks ended
June 15, 2001, and June 16, 2000, and cash flows for the twenty-four weeks
ended June 15, 2001, and June 16, 2000. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Certain reclassifications were made to the prior year financial statements
to conform to the current presentation.
The Company consolidates entities in which it owns a controlling financial
interest (generally when it owns over 50% of the voting shares of another
company) and consolidates partnership investments when it owns a general
partnership interest unless minority shareholders or other partners
participate in or have the right to block management decisions.
As previously discussed, the Company, through its wholly owned TRS,
acquired the Crestline Lessee Entities with respect to 116 of the Company's
full-service properties effective January 1,
-7-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2001. As a result of this transaction, the Company no longer leases the
properties to a third party, and therefore, will not have any rental income
with respect to the 116 properties. Therefore, the Company's consolidated
results of operations with respect to those 116 properties reflect, from
the effective date of the transaction, property-level revenues and expenses
rather than rental income from lessees and, therefore, are not comparable
to 2000 results.
Subsequent to the end of the quarter, the Company will begin recording the
property level results for four additional properties whose reults were
previously included in rental income. The Company acquired the lessees
owning the leasehold interest in four hotels, effectively terminating the
leases for financial reporting purposes for these properties. Rental income
for these four hotels was $12 million and $23 million for the twelve and
twenty-four weeks ended June 15, 2001. See footnote 12 for a detailed
discussion of the acquisitions. As a result, beginning with the third
quarter the Company will report property level results for a total of 123
properties, which includes properties acquired in the acquisition of the
non-controlled subsidiaries discussed in footnote 6.
The rent due under the remaining leases is the greater of base rent or
percentage rent, as defined. Percentage rent applicable to room, food and
beverage and other types of hotel revenue varies by lease and is calculated
by multiplying fixed percentages by the total amounts of such revenues over
specified threshold amounts. The Company recognizes percentage rent when
all contingencies have been met, that is, when annual thresholds for
percentage rent have been met or exceeded. Percentage rent received
pursuant to the leases but not recognized is included on the balance sheet
as deferred rent. Contingent rental revenue of $8 million and $168 million,
respectively, for the twelve weeks ended June 15, 2001 and June 16, 2000,
and $15 million and $291 million, respectively, for the twenty-four weeks
ended June 15, 2001 and June 16, 2000, have been deferred. Revenue from
operations of the Company's hotels not leased to third parties is
recognized when the services are provided.
3. Earnings Per Share
Basic earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of shares
of common stock outstanding. Diluted earnings per share is computed by
dividing net income available to common shareholders as adjusted for
potentially dilutive securities, by the weighted average number of shares
of common stock outstanding plus other potentially dilutive securities.
Dilutive securities may include shares granted under comprehensive stock
plans and the Convertible Preferred Securities. Dilutive securities may
also include those common and preferred Operating Partnership Units ("OP
Units") issuable or outstanding that are held by minority partners which
are assumed to be converted. No effect is shown for securities if they are
anti-dilutive.
-8-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Twelve Weeks Ended
------------------------------------------------------------------------------
June 15, 2001 June 16, 2000
--------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- --------------------------------------
Net income (loss) ................................. $ 49 241.0 $ .20 $ (53) 220.1 $ (.24)
Dividends on preferred stock ..................... (9) -- (.03) (5) -- (.02)
----- ------ ------- ----- ------ ------
Basic income (loss) available to common
shareholders per share ........................... 40 241.0 .17 (58) 220.1 (.26)
Assuming distribution of common shares
granted under the comprehensive stock
plan, less shares assumed purchased at
average market price ........................... -- 3.8 -- -- -- --
Assuming conversion of minority OP Units
outstanding .................................... 7 43.4 -- (16) 63.5 --
Assuming conversion of minority OP Units
issuable ....................................... 1 9.3 (.01) -- -- --
Assuming conversion of preferred
OP Units ....................................... -- -- -- -- .6 --
----- ------ ------- ----- ------ ------
Diluted income (loss) per share ................... $ 48 297.5 $ .16 $ (74) 284.2 $ (.26)
===== ====== ======= ===== ====== ======
Twenty-four Weeks Ended
------------------------------------------------------------------------------
June 15, 2001 June 16, 2000
--------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- --------------------------------------
Net income (loss) ................................. $ 81 235.1 $ .34 $(110) 220.7 $ (.50)
Dividends on preferred stock ..................... (14) -- (.06) (10) -- (.05)
Gain on repurchase of Convertible
Preferred Securities ........................... -- -- -- 4 -- .02
----- ------ ------- ----- ------ ------
Basic income (loss) available to common
shareholders per share ........................... 67 235.1 .28 (116) 220.7 (.53)
Assuming distribution of common shares
granted under the comprehensive stock
plan, less shares assumed purchased at
average market price ........................... -- 4.2 -- -- -- --
Assuming conversion of minority OP Units
outstanding .................................... 14 49.5 -- (34) 63.7 --
Assuming conversion of preferred
OP Units ....................................... -- -- -- -- .6 --
----- ------ ------- ----- ------ ------
Diluted income (loss) per share ................... $ 81 288.8 $ .28 $(150) 285.0 $ (.53)
===== ====== ======= ===== ====== ======
4. OP Unit Conversions
On May 29, May 7 and February 7, 2001, Blackstone and affiliates
("Blackstone") converted 18.2 million, 10.0 million and 12.5 million OP
Units, respectively, to common shares and immediately sold them to an
underwriter for sale on the open market. These units were obtained in
connection with the purchase of the Blackstone luxury hotel portfolio in
1998. As a result of this transaction, Blackstone now owns approximately 1%
of the outstanding OP Units of the Operating Partnership, and the Company
increased its ownership in the Operating Partnership to approximately 92%
of the outstanding OP Units. The Company received no proceeds as a result
of these transactions.
-9-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Debt and Equity Issuances and Refinancing
During the first quarter of 2001, the Company borrowed $115 million under
the revolver portion of the Bank Credit Facility to partially fund the
acquisition of the Crestline Lessee Entities and for general corporate
purposes. The Company repaid the $115 million outstanding balance under the
revolver portion of the Bank Credit Facility during the second quarter of
2001.
On March 27, 2001, we sold approximately 6.0 million shares of 10% Class C
preferred stock ("Class C Preferred Stock") with a $0.01 par value for net
proceeds of $144 million. Holders of the Class C Preferred Stock are
entitled to receive cumulative cash dividends at a rate of 10% per annum of
the $25 per share liquidation preference. Dividends are payable quarterly
in arrears commencing April 15, 2001, on which date a pro rata dividend of
$0.03 per share was distributed. Beginning March 27, 2006, we have the
option to redeem the Class C Preferred Stock for $25.00 per share, plus
accrued and unpaid dividends to the date of redemption.
During the third quarter of 2001, the Company borrowed $60 million under
the revolver portion of the term loan to fund the purchase of minority
interests in seven hotels. As of June 28, 2001, $150 million is outstanding
under the term loan portion of the Bank Credit Facility, and the available
capacity under the revolver is $565 million.
6. Acquisitions and Developments
Effective March 24, 2001, the Company purchased the 5% voting interests in
each of Rockledge Hotel Properties, Inc. ("Rockledge") and Fernwood Hotel
Assets, Inc. ("Fernwood") that were previously held by the Host Marriott
Statutory Employee/Charitable Trust for approximately $2 million. Prior to
this acquisition, the Company held a 95% non-voting interest. As a result
of this acquisition, the Company holds 100% of the voting and non-voting
interests in Rockledge and Fernwood, and its consolidated results of
operations will reflect the revenues and expenses generated by the two
taxable corporations, and its consolidated balance sheets will include the
various assets. The assets consist of three additional full service hotels;
the St. Louis Marriott Pavilion Downtown in St. Louis, Missouri, and the JW
Marriott Hotel Mexico City and Mexico City Airport Marriott Hotel, both
located in Mexico City, Mexico. The Company's acquisition, including
certain joint venture interests, held by the two taxable corporations,
totaled approximately $356 million in assets and $262 million in
liabilities, including $54 million of third party debt ($26 million of
which matures in 2001) as of March 24, 2001.
On April 1, 2001, a 50,000 square foot spa at The Ritz-Carlton, Naples was
placed in service at an approximate development cost of $23 million.
During the second quarter, the carrying value of three properties was
adjusted to reflect a change of status from held for use to held for sale
assets and is recorded in property and equipment. Accordingly, the Company
recorded a $13 million charge to depreciation based on a signed purchase
and sale agreement to reflect the net realizable value of the assets. For
these assets, the related revenue for the twenty-four weeks ended June 15,
2001, and June 16, 2000 was $19.9 million and $2.2 million, respectively
and the related expense was $30.7 million and $3.5 million, respectively.
The carrying value of the assets was $53.8 million as of June 15, 2001.
7. Dividends and Distributions Payable
On June 18, 2001, the Board of Directors declared quarterly cash dividends
of $.26 and $.625 per share of common stock and preferred stock,
respectively. The second quarter dividends were paid on July 13, 2001 to
shareholders of record on June 29, 2001.
8. Geographic Information
As of June 15, 2001, the Company's foreign operations consisted of four
hotel properties located in Canada and two properties located in Mexico.
There were no intercompany sales between the properties and the Company.
The following table presents revenues for each of the geographical
-10-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
areas in which the Company owns hotels (in millions). As a result of the
acquisition of the Crestline Lessee Entities, effective January 1, 2001 the
Company's consolidated results of operations for the twelve and twenty-
four weeks ended June 15, 2001 primarily represent property level revenues
and expenses, whereas the results for the twelve and twenty-four weeks
ended June 16, 2000 primarily represent rental income.
Twelve Weeks Ended Twenty-four Weeks Ended
-------------------------------- --------------------------------
June 15, 2001 June 16, 2000 June 15, 2001 June 16, 2000
------------- ------------- ------------- -------------
United States........................ $ 956 $ 184 $ 1,810 $ 356
International........................ 32 2 47 5
------------- ------------- ------------- -------------
Total............................ $ 988 $ 186 $ 1,857 $ 361
============= ============= ============= =============
9. Comprehensive Income
The Company's other comprehensive income consists of unrealized gains and
losses on foreign currency translation adjustments and the right to receive
cash from Host Marriott Services Corporation subsequent to the exercise of
the options held by certain former and current employees of Marriott
International, pursuant to the distribution agreement between the Company
and Host Marriott Services Corporation. For the twelve weeks and
twenty-four weeks ended June 15, 2001, the comprehensive income totaled $54
million and $83 million, respectively. The comprehensive loss was $51
million and $109 million for the twelve and twenty-four weeks ended June
16, 2000, respectively. As of June 15, 2001, the Company's accumulated
other comprehensive income was $1 million compared to an accumulated other
comprehensive loss of $1 million as of December 31, 2000.
10. Summarized Lease Pool Financial Statements
During 2000, almost all the properties of the Company and its subsidiaries
were leased to subsidiaries of Crestline. In conjunction with these leases,
Crestline and certain of its subsidiaries entered into limited guarantees
of the lease obligations of each lessee. The full-service hotel leases were
grouped into four lease pools, with Crestline's guarantee limited to the
greater of 10% of the aggregate rent payable for the preceding year or 10%
of the aggregate rent payable under all leases in the respective pool.
Additionally, the lessee's obligation under each lease agreement was
guaranteed by all other lessees in the respective lease pool. As a result,
the Company believed that the operating results of each full-service lease
pool may have been material to the Company's financial statements for the
year ended December 31, 2000.
Effective January 1, 2001, a wholly owned TRS of Host LP replaced Crestline
as the lessee with respect to 116 of the Company's full-service hotels, and
the third party credit concentration ceased to exist.
Financial information of Crestline may be found in its quarterly and annual
filings with the Securities and Exchange Commission. Further information
regarding these leases and Crestline's limited guarantees may be found in
the Company's annual report on Form 10-K for the fiscal year ended December
31, 2000. The results of operations and summarized balance sheet data of
the lease pools in which the Company's hotels were organized during 2000
are as follows (in millions):
-11-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Twelve Weeks Ended June 16, 2000
--------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Hotel Sales
Rooms..................................... $ 152 $ 170 $ 147 $ 159 $ 628
Food and beverage......................... 69 87 72 91 319
Other..................................... 16 17 24 22 79
------- ------- ------- ------- -------
Total hotel sales.................... 237 274 243 272 1,026
Operating Costs and Expenses
Rooms..................................... 35 39 34 34 142
Food and beverage......................... 52 61 51 62 226
Other..................................... 59 58 59 61 237
Management fees........................... 13 20 12 20 65
Lease expense............................. 75 91 83 92 341
Corporate and Interest Expenses........... -- -- -- 1 1
------- ------- ------- ------- -------
Total operating expenses............. 234 269 239 270 1,012
------- ------- ------- ------- -------
Operating Profit............................... 3 5 4 2 14
Income taxes.............................. (1) (2) (2) (1) (6)
------- ------- ------- ------- -------
Net Income........................... $ 2 $ 3 $ 2 $ 1 $ 8
======= ======= ======= ======= =======
Twenty-four Weeks Ended June 16, 2000
-------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Hotel Sales
Rooms..................................... $ 281 $ 313 $ 272 $ 292 $ 1,158
Food and beverage......................... 128 153 132 166 579
Other..................................... 30 30 43 41 144
------- ------- ------- ------- -------
Total hotel sales.................... 439 496 447 499 1,881
Operating Costs and Expenses
Rooms..................................... 66 76 62 63 267
Food and beverage......................... 96 111 95 113 415
Other..................................... 111 109 109 113 442
Management fees........................... 22 35 22 38 117
Lease expense............................. 137 157 152 167 613
Corporate and Interest Expenses........... 1 1 -- 1 3
------- ------- ------- ------- -------
Total operating expenses............. 433 489 440 495 1,857
------- ------- ------- ------- -------
Operating Profit............................... 6 7 7 4 24
Income taxes.............................. (2) (3) (3) (2) (10)
------- ------- ------- ------- -------
Net Income........................... $ 4 $ 4 $ 4 $ 2 $ 14
======= ======= ======= ======= =======
As of December 31, 2000
-----------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
Assets......................................... $ 37 $ 37 $ 40 $ 44 $ 158
Liabilities.................................... 37 37 40 42 156
Equity......................................... -- -- -- 2 2
11. Subsequent Events
On June 16, 2001, the Company consummated an agreement with Crestline
Capital Corporation for the acquisition of their lease agreement with
respect to San Diego Marriott Hotel and Marina (the "San Diego Hotel"). The
purchase price was $4.4 million, including legal and professional fees.
Under the terms of the transaction, a wholly owned TRS of the Company
acquired the lease by purchasing the lessee entity, effectively terminating
the lease for financial reporting purposes. As a result of the acquisition,
the Company's consolidated results of operations beginning June 16, 2001
-12-
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
will represent property-level hotel revenues and expenses rather than
rental income from the lessee for the San Diego Hotel. This presentation
will be consistent with the 116 properties whose lease agreements were
effectively terminated for financial reporting purposes in the same manner
on January 1, 2001.
On June 28, 2001, the Company consummated an agreement to purchase
substantially all of the minority limited partnership interests held by
Wyndham International, Inc. and affiliates ("Wyndham") with respect to
seven full service hotels for $60 million. In addition, the lessee entities
were acquired by a wholly owned TRS of the Company, effectively terminating
the leases for financial reporting purposes.
-13-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward-looking Statements
Certain matters discussed herein are forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. We identify forward-looking statements in this quarterly
report on Form 10-Q by using words or phrases such as "believe," "expect," "may
be," "intend," "predict," "project," "plan," "objective," "will be," "should,"
"estimate," or "anticipate," or the negative thereof or other variations thereof
or comparable terminology. All forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
transactions, results, performance or achievements to be materially different
from any future transactions, results, performance or achievements expressed or
implied by such forward-looking statements. Although we believe the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, we can give no assurance that we will attain these expectations or
that any deviations will not be material. Except as otherwise required by the
federal securities laws, we disclaim any obligations or undertaking to publicly
release any updates or revisions to any forward-looking statement contained in
this quarterly report on Form 10-Q to reflect any change in our expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
Results of Operations
During 2000, our revenues primarily represented rental income from Crestline and
other third-party lessees. As a result of the previously discussed acquisition
of the Crestline lessees by our TRS, beginning in 2001, our consolidated results
of operations primarily reflect hotel-level revenues and operating costs and
expenses. In order to provide a clearer understanding and comparability of our
results of operations, in addition to our discussion of the historical results
we have also presented unaudited pro forma condensed consolidated statements of
operations for the twelve and twenty-four weeks ended June 16, 2000, adjusted to
reflect the acquisition of the Crestline lessee entities as if it occurred on
January 1, 2000, and a discussion of the results thereof compared to our
historical results for the twelve and twenty-four weeks ended June 15, 2001,
beginning on page 16.
2001 Compared to 2000 (Historical)
Revenues. Revenues increased $802 million for the twelve weeks ended June 15,
2001 when compared to the twelve weeks ended June 16, 2000, and increased $1,496
million for the twenty-four weeks ended June 15, 2001, when compared to the
twenty-four weeks ended June 15, 2000. As discussed above, our revenues and
operating profit are not comparable to 2000, due to the acquisition of the
Crestline Lessee Entities by our TRS.
The table below presents gross hotel sales for the twelve weeks ended and the
twenty-four weeks ended June 15, 2001 and June 16, 2000. For 2000, gross hotel
sales were used as the basis for calculating rental income. The data is
presented in order to facilitate an investor's understanding and comparative
analysis of the operations of our properties.
-14-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------------------- --------------------------------
June 15, 2001 June 16, 2000 June 15, 2001 June 16, 2000
------------- ------------- ------------- -------------
(in millions) (in millions)
Hotel sales
Rooms............................... $ 686 $ 710 $ 1,310 $ 1,323
Food and beverage................... 314 330 590 604
Other............................... 81 82 154 153
--------------- --------------- --------------- ---------------
Total hotel sales................ $ 1,081 $ 1,122 $ 2,054 $ 2,080
=============== =============== =============== ===============
The $26 million decrease in hotel sales for the twenty-four weeks ended June 15,
2001 reflects the decrease in REVPAR for our comparable properties of 3.2% to
$120.77, partially offset by incremental revenues provided by the 500-room
expansion at Orlando Marriott, which was placed in service in June 2000, and the
inclusion of three hotels in total hotel sales as a result of the consolidation
of Rockledge and Fernwood as of March 24, 2001.
Comparable REVPAR for the second quarter of 2001 decreased by 6.1% to $121.81
compared to the same quarter in 2000 due to the recent slowdown in the economy.
The decrease is mainly attributable to a decrease in occupancy of 6.1 percentage
points during the quarter. As a result of decreased hotel sales, our hotel
managers have implemented cost cutting measures and revenue enhancement programs
at the property level in order to stabilize house profit. These measures include
increasing labor efficiency particularly at the managerial level and in the food
and beverage area at the hotels, reducing discretionary expenses in rooms, food
and beverage, and repairs and maintenance and reducing energy consumption. As a
result, operating profit margins were down only .9 and 1.5 percentage points for
the quarter and year-to-date, respectively, in spite of the significant REVPAR
decline, reflecting a significant improvement from the first quarter.
Rental income decreased $155 million, or 83%, to $31 million for the second
quarter of 2001 versus the first quarter of 2000, reflecting the purchase of 116
of the Crestline lease entities by our wholly owned TRS effective January 1,
2001. As discussed in Note 2 to the condensed consolidated financial statements,
percentage rental revenues from third-party lessees of $15 million and $291
million for the twenty-four weeks ended June 15, 2001 and June 16, 2000,
respectively, were deferred on the balance sheet as deferred rent. For the
second quarter of 2001 and 2000, $8 million and $168 million of rental income
was deferred. Percentage rent will be recognized as income only as specified
hotel sales thresholds are achieved.
Depreciation and Amortization. Depreciation and amortization increased $27
million or 36% for the second quarter of 2001 versus the second quarter of 2000
and increased $30 million, or 20% year-to-date, primarily reflecting an increase
in depreciable assets. The increase in depreciation expense reflects the
consolidation of three hotels and other equipment as a result of the purchase of
the voting interest in Rockledge and Fernwood as discussed in Note 6. The
transaction caused an increase in depreciable assets of $206 million.
Additionally, a $13 million impairment charge was recorded in depreciation
expense during the second quarter due to the reclassification of certain fixed
assets of the Company from held for use to held for sale. It is also the result
of $379 million in capital expenditures in 2000 and $144 million in capital
expenditures in the first and second quarter of 2001 including the completion of
the 500-room addition at the Orlando World Center Marriott.
Hotel Operating Costs and Expenses. As discussed above, 2001 hotel revenues and
operating costs are not comparable with 2000. During 2000, Crestline, as the
lessee, paid specified direct property-level costs including management fees,
which reduced the net rent payment to us under the terms of the leases.
-15-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During 2001, these costs are borne by us and are included in our condensed
consolidated results of operations.
Corporate Expenses. Corporate expenses decreased $1 million for the second
quarter of 2001 and $3 million year-to-date from prior year levels due
primarily to cost control efforts.
Minority Interest Expense (Benefit). For the twelve weeks and twenty-four weeks
ended June 15, 2001 and June 16, 2000, respectively, we recognized minority
interest expense (benefit) of $11 million and $26 million, and $(11) million and
$(22) million, respectively. The variance is due in part to the decrease in the
minority ownership of the Operating Partnership from 23% in the second quarter
of 2000 to 8% in the second quarter of 2001, and reflects the OP Unitholders'
share in our results of operations. Assuming the Blackstone OP units had been
converted at January 1, 2001, the year-to-date 2001 minority interest expense
would have been $20 million or a decrease of $6 million.
Interest Expense. Interest expense increased 7% to $104 million in the second
quarter of 2001 and increased 7% to $207 million year-to-date, primarily due to
the issuance in October of 2000 of $250 million of 91/4% Series F Senior Notes,
which was primarily used to fund the purchase of the Crestline lessee Entities
and for general corporate purposes.
Net Income (Loss). Our net income was $49 million for the second quarter of 2001
compared to a net loss of $53 million for the second quarter of 2000. Our
year-to-date income was $81 million compared to a net loss of $110 million in
for the same period in 2000. The increases in net income primarily reflect the
acquisition of the Crestline lease entities effective January 1, 2001, thereby
eliminating amounts paid to Crestline as lessee for 116 of our properties and
the effect of the deferral of contingent rent, which was approximately $168
million and $291 million for the second quarter and year-to-date 2000.
Net Income (Loss) Available to Common Shareholders. The net income available to
common shareholders was $40 million for the second quarter of 2001 and $67
million year-to-date, an increase of $98 million and $183 million over the same
periods in 2000, respectively. The increase primarily reflects the previously
discussed $102 million increase in quarterly results and the $191 million
increase year-to-date. These results were partially offset by the $4 million
gain on the repurchase of the Convertible Preferred Securities recorded during
the first quarter of 2000.
2001 (Historical) Compared to 2000 (Pro Forma)
Because of the significant changes to our corporate structure as a result of our
acquisition of the Crestline Lessee Entities effective January 1, 2001,
management believes that a discussion of our 2001 historical results of
operations compared to our 2000 pro forma results of operations is meaningful
and relevant to an investor's understanding of our present and future
operations. The unaudited pro forma results of operations for the twelve weeks
and twenty-four weeks ended June 16, 2000 set forth below are based on the
unaudited condensed consolidated statements of operations for the twelve weeks
and twenty-four weeks ended June 16, 2000 and are only adjusted to reflect the
acquisition of the Crestline lessee entities as if the transaction occurred at
the beginning of 2000. The following pro forma results do not include
adjustments for any transactions other than the Crestline lease repurchase and
are not presented in accordance with Article 11 of SEC Regulation S-X.
As a result of the Crestline acquisition, effective January 1, 2001, we lease
116 (subsequent to quarter end) of our full-service hotels to our TRS. Our 2001
consolidated operations primarily represent property-level revenues and expenses
rather than rental income from Crestline. In addition, the net
-16-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
income applicable to the TRS is subject to federal and state income taxes. The
pro forma adjustments to reflect the acquisition of the Crestline lessee
entities are as follows:
. record hotel-level revenues and expenses and reduce historical rental
income with respect to the 116 properties (The effect of the
additional eight leases acquired subsequent to quarter end would not
result in a material change to these amounts.);
. reduce historical interest income for amounts related to the working
capital note with Crestline;
. reduce historical equity in earnings of affiliates for interest earned
at our non-controlled subsidiary on the related FF&E loans with
Crestline;
. record interest expense related to the additional borrowings from the
9 1/4% Series F senior notes to fund the $207 million cash payment;
. record the minority interest effect related to the outside ownership
in the operating partnership; and
. record the tax provision attributable to the income of the TRS at an
effective tax rate of 39.5%.
The unaudited pro forma financial information does not purport to represent what
our results of operations or financial condition would actually have been if the
transaction had in fact occurred at the beginning of 2000, or to project our
results of operations or financial condition for any future period. The
unaudited pro forma financial information is based upon available information
and upon assumptions and estimates that we believe are reasonable under the
circumstances. The following unaudited pro forma financial information should be
read in conjunction with our audited financial statements contained in our
annual report on Form 10-K for the year ended December 31, 2000.
-17-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
UNAUDITED STATEMENTS OF OPERATIONS
For the Twelve Weeks Ended June 15, 2001 (Historical)
and June 16, 2000 (Pro Forma)
(in millions, except per share amounts)
Historical Pro Forma
------------- -------------
June 15, 2001 June 16, 2000
------------- -------------
(unaudited)
REVENUES
Hotel sales
Rooms ....................................................... $ 589 $ 605
Food and beverage ........................................... 295 308
Other ....................................................... 73 73
------- -------
Total hotel sales ................................... 957 986
Rental income ............................................... 31 30
------- -------
Total revenues ...................................... 988 1,016
------- -------
OPERATING COSTS AND EXPENSES
Hotel operating expenses
Rooms ....................................................... 135 138
Food and beverage ........................................... 208 218
Hotel departmental costs and deductions ..................... 232 229
Management fees and other ................................... 54 62
Other property-level expenses ............................... 67 63
Depreciation and amortization ............................... 102 75
------- -------
Total hotel operating costs and expenses ............ 798 785
Corporate expenses .......................................... 9 10
Lease repurchase expense .................................... 5 --
Other ....................................................... 6 6
------- -------
OPERATING PROFIT ............................................ 170 215
Minority interest expense ................................... (11) (27)
Interest income ............................................. 12 7
Interest expense ............................................ (104) (102)
Net gains on property transactions .......................... -- 2
Equity in earnings of affiliates ............................ 2 3
Dividends on Convertible Preferred Securities ............... (8) (7)
------- -------
INCOME BEFORE INCOME TAXES .................................. 61 91
Provision for income taxes .................................. (12) (10)
------- -------
INCOME BEFORE EXTRAORDINARY ITEM ............................ 49 81
------- -------
Less: Dividends on preferred stock ......................... (9) (5)
------- -------
INCOME BEFORE EXTRAORDINARY ITEM AVAILABLE TO COMMON
SHAREHOLDERS ............................................. $ 40 $ 76
======= =======
Basic income before extraordinary items per common share .... $ .17 $ .35
======= =======
-18-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
UNAUDITED STATEMENTS OF OPERATIONS
For the Twenty-four Weeks Ended June 15, 2001 (Historical)
and June 16, 2000 (Pro Forma)
(in millions, except per share amounts)
Historical Pro Forma
------------- -------------
June 15, 2001 June 16, 2000
------------- -------------
(unaudited)
REVENUES
Hotel sales
Rooms ............................................................... $ 1,110 $ 1,117
Food and beverage ................................................... 548 558
Other ............................................................... 137 137
------- -------
Total hotel sales ........................................... 1,795 1,812
Rental income ....................................................... 62 63
------- -------
Total revenues .............................................. 1,857 1,875
------- -------
OPERATING COSTS AND EXPENSES
Hotel operating expenses
Rooms ............................................................... 256 259
Food and beverage ................................................... 399 401
Hotel departmental costs and deductions ............................. 440 429
Management fees and other ........................................... 106 113
Other property-level expenses ....................................... 128 122
Depreciation and amortization ....................................... 179 149
------- -------
Total hotel operating costs and expenses .................... 1,508 1,473
Corporate expenses .................................................. 17 20
Lease repurchase expense ............................................ 5 --
Other ............................................................... 8 12
------- -------
OPERATING PROFIT .................................................... 319 370
Minority interest expense ........................................... (26) (43)
Interest income ..................................................... 20 15
Interest expense .................................................... (207) (203)
Net gains on property transactions .................................. 1 3
Equity in earnings of affiliates .................................... 4 3
Dividends on Convertible Preferred Securities ....................... (15) (14)
INCOME BEFORE INCOME TAXES .......................................... 96 131
Provision for income taxes .......................................... (15) (15)
------- -------
INCOME BEFORE EXTRAORDINARY ITEM .................................... 81 116
------- -------
Less: Dividends on preferred stock ................................. (14) (10)
Add: Gain on repurchase of Convertible Preferred Securities ........ -- 4
------- -------
INCOME BEFORE EXTRAORDINARY ITEM AVAILABLE TO COMMON
SHAREHOLDERS ..................................................... $ 67 $ 110
======= =======
Basic income before extraordinary items per common share ............ $ .28 $ .51
======= =======
-19-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues. Revenues decreased $28 million, or 3%, to $988 million for the second
quarter of 2001 from $1,016 million for the second quarter of 2000. Year-to-date
revenues decreased $18 million, or 1% to $1,857 million. Hotel sales, which
include room sales, food and beverage sales, and other ancillary sales such as
telephone sales, decreased $29 million, or 3%, to $957 million for the second
quarter of 2001 and $17 million, or 1%, to $1,795 million year-to-date,
reflecting primarily a decrease in REVPAR for our comparable properties of 6.1%
to 121.81. This decrease in REVPAR was partially offset by the incremental
revenues provided by the Tampa Waterside Marriott, which opened in February of
2000, the 500-room expansion at the Orlando World Center Marriott, which was
placed in service in June 2000, and the operations of the St. Louis Marriott
Pavilion Downtown, JW Marriott Hotel, Mexico City, and the Mexico City Airport
Marriott Hotel which were consolidated as of March 24, 2001.
Hotel Operating Costs and Expenses. Hotel operating costs and expenses
principally consist of property-level operating costs, management fees, real and
personal property taxes, ground, building and equipment rent, insurance,
depreciation, and certain other costs. Hotel operating costs and expenses
increased $13 million, or 2% to $798 million for the second quarter of 2001
compared to second quarter 2000 and year-to-date 2001 costs increased $35
million or 2% to $1,508 million from the same period in 2000, primarily due to a
$27 million and $30 million increase in depreciation expense for second quarter
and year-to-date 2001. The increase in depreciation expense was partially offset
by a decrease in property-level costs and management fees and other of $14
million for the second quarter of 2001 in part reflecting cost-cutting measures
implemented at the property level by our managers during the second quarter.
Rooms, food and beverage, and hotel departmental costs and deductions were 60%
and 59% of hotel sales for the second quarters of 2001 and 2000, respectively,
and 61% and 60% for the second quarter year-to-date for 2001 and 2000,
respectively, reflecting the decrease in hotel sales and the corresponding
decrease in property-level expenses in the second quarter.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, our operating profit decreased $45 million, or 21%, to
$170 million in the second quarter of 2001. Year-to-date 2001, the operating
profit decreased $51 million, or 14% to $319 million compared to 2000. Operating
profit was approximately 17% and 21% of total revenues for the second quarters
of 2001 and 2000, respectively, and 17% and 20% for the second quarter
year-to-date for 2001 and 2000, respectively.
Minority Interest. Minority interest expense decreased $16 million and $17
million to $11 million and $26 million for the second quarter and year-to-date
of 2001, respectively, due to the decrease in the minority ownership of the
Operating Partnership from 27% as of June 16, 2000 to 8% as of June 16, 2001,
and the $43 million decrease in net income available to common shareholders year
to date.
Income Tax Provision. In addition to state and foreign taxes applicable to the
Operating Partnership and us, the TRS is subject to federal and state income
taxes. The income tax provision increased $2 million to $12 million for the
second quarter of 2001, due to increased income earned by the TRS during the
second quarter of 2001. The income tax provision was $15 million for both 2001
and 2000 year-to-date.
Income Before Extraordinary Item Available to Common Shareholders. Income Before
Extraordinary Item Available to Common Shareholders decreased $36 million to $40
million for the second quarter of 2001 and decreased $43 million to $67 million
year-to-date. Basic income per common share was $.17 and $.35 for the second
quarters of 2001 and 2000, respectively, and $.28 and $.51 for the second
quarters year-to-date of 2001 and 2000, respectively.
-20-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FFO and EBITDA
--------------
We consider Comparative Funds From Operations ("Comparative FFO"), which
consists of Funds From Operations, as defined by the National Association of
Real Estate Investment Trusts, adjusted for significant non-recurring items
detailed in the chart below, and our consolidated earnings before interest
expense, income taxes, depreciation, amortization and other non-cash items
(including contingent rent) ("EBITDA") to be indicative measures of our
operating performance due to the significance of our long-lived assets.
Comparative FFO and EBITDA are also useful in measuring our ability to service
debt, fund capital expenditures and expand our business. Furthermore, management
believes that Comparative FFO and EBITDA are meaningful disclosures that will
help shareholders and the investment community to better understand our
financial performance, including comparing our performance to other real estate
investment trusts. However, Comparative FFO and EBITDA as presented may not be
comparable to amounts calculated by other companies. This information should not
be considered as an alternative to net income, operating profit, cash from
operations, or any other operating or liquidity performance measure prescribed
by accounting principles generally accepted in the United States. Cash
expenditures for various long-term assets, interest expense (for EBITDA purposes
only) and income taxes have been, and will be incurred which are not reflected
in the EBITDA and Comparative FFO presentations.
Comparative FFO available to common shareholders increased $9 million, or 6.8%,
to $142 million for the second quarter of 2001 over the second quarter of 2000,
and increased $18 million or 8%, to $243 million year-to-date. The following is
a reconciliation of the income (loss) from operations before extraordinary items
to Comparative FFO (in millions):
Twelve Weeks Ended Twenty-four Weeks Ended
-------------------------- -----------------------
June 15, 2001 June 16, 2000 June 15, 2001 June 16, 2000
------------- ------------- ------------- -------------
Funds from Operations
Income (loss) from operations before extraordinary
items................................................ $ 49 $ (50) $ 81 $ (107)
Depreciation and amortization........................... 100 74 176 146
Other real estate activities............................ 1 (1) 1 (1)
Partnership adjustments................................. 16 (14) 32 (28)
------------ ------------ ------------ ------------
Funds from operations of Host LP........................... 166 9 290 10
Effect on funds from operations of SAB 101.............. 8 168 15 291
Loss on repurchase of leases............................ 5 -- 5 --
Taxes on lease repurchase............................... (2) -- (2) --
------------ ------------ ------------ ------------
Comparative funds from operations of Host LP............... 177 177 308 301
Dividends on preferred stock............................ (9) (5) (14) (10)
------------ ------------ ------------ ------------
Comparative funds from operations of Host LP
available to common unitholders......................... 168 172 294 291
Comparative funds from operations of minority partners
of Host LP........................................... (26) (39) (51) (66)
------------ ------------ ------------ ------------
Comparative funds from operations available to
common shareholders of Host REIT........................ $ 142 $ 133 $ 243 $ 225
============ ============ ============ ============
We are the sole general partner in the Operating Partnership and as of June 15,
2001 and June 16, 2000 held approximately 92% and 77%, respectively, of the
outstanding OP Units. The $26 million and $39 million, and $51 million and $66
million, deducted for the twelve weeks and twenty-four weeks ended June 15, 2001
and June 16, 2000, respectively, represent the Comparative FFO attributable to
the interests in the Operating Partnership held by those minority partners. OP
Units owned by holders other than us are redeemable at the option of the holder,
generally commencing one year after the issuance of
-21-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
their OP Units. Upon redemption of an OP Unit, the holder would receive from the
Operating Partnership cash in an amount equal to the market value of one share
of our common stock, or at our option, a share of our common stock.
EBITDA increased $23 million, or 9%, to $291 million in the second quarter of
2001, and increased $26 million, or 5%, to $512 million, year-to-date over the
comparable periods in 2000. Hotel EBITDA was $291 million and $120 million for
the second quarters of 2001 and 2000, which does not include deferred rental
income of $8 million and $168 million, respectively, and $526 million and $233
million year-to-date, which does not include deferred rental income of $15
million and $291 million, respectively. As previously discussed, 2001 Hotel
EBITDA primarily reflects the revenues and expenses generated by the hotels
whereas 2000 Hotel EBITDA primarily reflects rental income from lessees.
The following schedule presents our EBITDA as well as a reconciliation of EBITDA
to the income (loss) from operations before extraordinary items (in millions):
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------------- --------------------------
June 15, 2001 June 16, 2000 June 15, 2001 June 16, 2000
------------- ------------- ------------- -------------
EBITDA
Hotels................................................ $ 291 $ 120 $ 526 $ 233
Office buildings and other investments................ 9 2 9 3
Interest income....................................... 12 8 20 17
Corporate and other expenses.......................... (16) (16) (28) (31)
Effect on revenue of SAB 101.......................... 8 168 15 291
------------ ------------ ------------ ------------
EBITDA of Host LP......................................... 304 282 542 513
Distributions to minority interest partners of Host LP (13) (14) (30) (27)
------------ ------------ ------------ ------------
EBITDA of Host REIT....................................... $ 291 $ 268 $ 512 $ 486
============ ============ ============ ============
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------------- -----------------------
June 15, 2001 June 16, 2000 June 15, 2001 June 16, 2000
------------- ------------- ------------- -------------
EBITDA of Host REIT....................................... $ 291 $ 268 $ 512 $ 486
Effect on revenue of SAB 101.............................. (8) (168) (15) (291)
Interest expense.......................................... (104) (97) (207) (193)
Dividends on Convertible Preferred Securities............. (8) (7) (15) (14)
Depreciation and amortization............................. (102) (75) (179) (149)
Minority interest (expense) benefit....................... (11) 11 (26) 22
Income taxes.............................................. (12) (2) (15) (3)
Distributions to minority interest partners of Host LP.... 13 14 30 27
Lease repurchase expense.................................. (5) -- (5) --
Other non-cash charges, net............................... (5) 6 1 8
------------ ------------ ------------ ------------
Income (loss) from operations before extraordinary
items............................................... $ 49 $ (50) $ 81 $ (107)
============ ============ ============ ============
Distributions to minority holders of OP Units were $13 million and $14 million,
respectively, for the twelve weeks ended June 15, 2001 and June 16, 2000, and
$30 million and $27 million for the twenty-four weeks ended June 15, 2001 and
June 16, 2000. These OP Units are convertible into cash or our common stock at
our option. First quarter distributions of $0.26 and $0.21 per common unit,
respectively, were paid on April 13, 2001 and April 14, 2000, respectively.
Second quarter distributions of $.26 and $.21 were declared on June 18, 2001 and
June 21, 2000, and subsequently paid July 13, 2001 and July 14, 2000.
-22-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our interest coverage, defined as EBITDA divided by cash interest expense, was
2.7 times for both the 2001 and 2000 twenty-four week periods, respectively, and
2.6 times for full year 2000. The ratio of earnings to fixed charges was 1.5 to
1.0 in the second quarter of 2001 versus a deficiency of earnings to fixed
charges of $123 million for the second quarter of 2000, which was primarily due
to the deferral of contingent rental revenue of $291 million. We reported a
ratio of earnings to fixed charges of 1.2 to 1.0 for the full year 2000.
Cash Flows and Financial Condition
We reported a decrease in cash and cash equivalents of $96 million during the
twenty-four weeks ended June 15, 2001 compared to a decrease of $122 million
during the twenty-four weeks ended June 16, 2000. Cash from operations was $49
million through the second quarter of 2001 and $221 million through the second
quarter of 2000. The $172 million decrease in cash from operations primarily
relates to the cash used to purchase the Crestline Lessee Entities. Excluding
the lease purchases, operating cash flow from operations would have been $253
million, or an increase of 14% over 2000.
Cash used in investing activities was $136 million and $222 million for the
second quarter of 2001 and 2000, respectively. Cash used in investing activities
for the second quarter includes capital expenditures and other investments of
$144 million and $185 million for 2001 and 2000, respectively, mostly related to
renewal and replacements on existing properties and new development projects.
Property and equipment balances include $115 million and $135 million for
construction in progress as of June 15, 2001 and December 31, 2000,
respectively. The balance as of June 15, 2001 primarily relates to the
development of the Ritz-Carlton, Naples Golf Resort and various other expansion
and development projects. On April 1, 2001, the 50,000 square foot world-class
spa at The Ritz-Carlton, Naples was placed in service at an approximate
development cost of $23 million.
Cash used in financing activities was $9 million through the second quarter of
2001 and $121 million through the second quarter of 2000. 2001 Cash from
financing activities through the second quarter of 2001 includes $121 million of
debt issuances and $144 million from the issuance of cumulative redeemable
preferred stock. Cash was used in financing primarily for the payment of $130
million in dividends and the repayment and prepayment of $138 million in debt.
During the first quarter of 2001, the Company borrowed $115 million under the
revolver portion of the Bank Credit Facility to partially fund the acquisition
of the Crestline Lessee Entities as well as for general corporate purposes,
which was fully repaid in the second quarter of 2001. During the third quarter,
we borrowed an additional $60 million to purchase minority interests in various
hotels from Wyndham. As of July 25, 2001, $150 million and $60 million are
outstanding under the term and revolving loan portions of the Bank Credit
Facility, respectively, and the available capacity under the revolver is $565
million.
On June 18, 2001, the Board of Directors declared cash dividends of $.26 per
common share and $.625 per share of Preferred Stock, which were paid on July 13,
2001 to shareholders of record on June 29, 2001.
On March 27, 2001, we sold approximately 6.0 million shares of 10% Class C
preferred stock ("Class C Preferred Stock") with a $0.01 par value for net
proceeds of $144 million. Holders of the Class C Preferred Stock are entitled to
receive cumulative cash dividends at a rate of 10% per annum of the $25 per
share liquidation preference. Dividends are payable quarterly in arrears
commencing April 15, 2001, on which date a pro rata dividend of $0.03 per share
was distributed. Beginning March 27, 2006, we have the option to redeem the
Class C Preferred Stock for $25.00 per share, plus accrued and unpaid dividends
to the date of redemption.
-23-
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Effective January 1, 2001, each of Rockledge Hotel Properties, Inc. and Fernwood
Hotel Assets, Inc. (the "Non-Controlled Subsidiaries") elected to be a TRS and
in April 2001, the Operating Partnership acquired the voting interests in the
Non-Controlled Subsidiaries held by the Host Marriott Statutory
Employee/Charitable Trust for approximately $2 million, which is also permitted
as a result of the REIT Modernization Act. Subsequent to the acquisition, on a
consolidated basis our results of operations will reflect the revenues and
expenses generated by the two taxable corporations, and our consolidated balance
sheets include the various assets, consisting of three additional full- service
properties, one located in St. Louis, Missouri, and two located in Mexico City,
Mexico, as well as certain joint venture interests, held by the two taxable
corporations, which were approximately $356 million of assets and $262 million
of liabilities, including $54 million of third party debt ($26 million of which
matures in 2001), respectively, as of March 23, 2001.
On February 7, 2001, May 7, 2001 and May 29, 2001, Blackstone and affiliates
("Blackstone") converted 12.5 million, 10.0 million and 18.2 million OP Units,
respectively, to common shares and immediately sold them to an underwriter for
sale on the open market. As a result of the transactions, Blackstone now owns
approximately 1% of the outstanding OP Units of the Operating Partnership and we
increased our ownership in the Operating Partnership to 92%. We received no
proceeds as a result of the transactions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our borrowings under the bank credit facility as well as the mortgage on The
Ritz-Carlton, Amelia Island are sensitive to changes in interest rates. The
interest rates on these debt obligations, which were $238 million and $239
million, respectively, at June 15, 2001 and December 31, 2000 are based on
various LIBOR terms plus 200 basis points. The weighted average interest rate
for these financial instruments are 6.7% for the twenty-four weeks ended June
15, 2001 and 8.9% for the year ended December 31, 2000.
-24-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine litigation and administrative proceedings
arising in the ordinary course of business, some of which are expected to be
covered by liability insurance and which collectively are not expected to have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 17, 2001
(b) not applicable
(c)(i) Votes regarding the election of three Directors for a term expiring in
2004 were as follows:
Term expiring in 2004 FOR WITHHELD
--------------------- --- --------
Richard E. Marriot [X] 208,882,241 [_] 1,576,780
R. Theodore Ammon [X] 209,102,471 [_] 1,356,550
Christopher J. Nassetta [X] 209,187,896 [_] 1,271,125
(ii) Votes on a shareholder proposal that the Board of Directors take
the necessary steps to reinstate the election of all directors annually, instead
of the election of staggered classes were as follows:
FOR AGAINST ABSTENTIONS AND
BROKER NONVOTES
63,261,564 121,787,984 1,148,195
(iii) Votes regarding ratification of the appointment of Arthur
Andersen LLP as independent auditors of the Company to serve for the 2001 fiscal
year were as follows:
FOR AGAINST ABSTENTIONS AND
BROKER NONVOTES
209,855,576 270,301 333,144
Item 6. Exhibits and Reports on Form 8-K
(a) the exhibits listed on the accompanying Exhibit Index are filed as part of
this report and such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
. May 3, 2001--Amendment to Exhibit 23.1, the Consent of the Independent
Public Accountants, to Form 10-K filed April 2, 2001.
-25-
. May 8, 2001--Report of the announcement that Host Marriott Corporation
agreed to issue to the Blackstone Entities 10,000,000 shares of its
common stock upon redemption of 10,000,000 units of limited
partnership interest in Host LP, which will in turn be sold to an
Underwriter for delivery on May 8 2001 to be sold to the public.
. June 4, 2001--Report of the announcement that Host Marriott
Corporation agreed to issue to the Blackstone Entities 18,200,000
shares of its common stock upon redemption of 18,200,000 units of
limited partnership interest in Host LP, which will in turn be sold to
an Underwriter for delivery on June 4, 2001 to sold to the public.
-26-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOST MARRIOTT CORPORATION
July 27, 2001 /s/ Donald D. Olinger
------------- ---------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
-27-
EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
-----------------------------------------------------------------------------------------
Exhibit No. Description of Exhibit
-----------------------------------------------------------------------------------------
3 Bylaws, amended effective April 25, 2001
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
EX-3
3
dex3.txt
HMC BYLAWS
Exhibit 3
Amended effective 04/25/01
HOST MARRIOTT CORPORATION
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of Host Marriott
----------------
Corporation (the "Corporation") shall be located at such place or places as the
directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
------------------
offices at such places as the directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
-----
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
--------------
election of directors and the transaction of any business within the powers of
the Corporation shall be held during the month of May of each year, after the
delivery of the annual report referred to in Section 12 of this Article II, at a
convenient location and on proper notice, on a date and at the time set by the
directors, beginning with the year 1999. Failure to hold an annual meeting does
not invalidate the Corporation's existence or affect any otherwise valid acts of
the Corporation.
Section 3. SPECIAL MEETINGS. A special meeting of the stockholders of the
----------------
Corporation may be called by the President or the Board of Directors or by
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation in the manner specified in articles
supplementary filed as part of the charter of the Corporation (the "Charter").
The Secretary of the Corporation shall also call a special meeting of the
stockholders on the written request of stockholders entitled to cast a majority
of all the votes entitled to be cast at the meeting. A special meeting need not
be called to consider any matter which is substantially the same as a matter
voted on at any meeting of the stockholders held during the preceding twelve
months.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
------
meeting of stockholders, the Secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail or by presenting it to such stockholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the stockholder at his post office address as it appears on the records of
the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
---------------
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the stockholders, the
------------
Chairman of the Board, if there is one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there is one, the Chief Executive Officer, if
there is one, the President, the Vice Presidents in their order of rank and
seniority, or a Chairman chosen by the stockholders entitled to cast a majority
of the votes which all stockholders present in person or by proxy are entitled
to cast, shall act as Chairman, and the Secretary, or, in his absence, an
Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
------
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the Charter for the vote
necessary for the adoption of any measure. If, however, such quorum shall not be
present at any meeting of the stockholders, the stockholders entitled to vote at
such meeting, present in person or by proxy, shall have the power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. VOTING. Subject to the rights of the holders of any class or
------
series of stock (other than Common Stock) to elect additional directors under
specified circumstances, a plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. Unless otherwise provided in the Charter, a majority of the votes cast
at a meeting of stockholders duly called and at which a quorum is present shall
be sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required herein or by
statute or by the Charter. Unless otherwise provided in the Charter, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
2
Section 9. PROXIES. A stockholder may cast the votes entitled to be cast
-------
by the shares owned of record by him either in person or by proxy executed in
writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after 11 months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Corporation
-----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner, limited liability company, trustee or member manager thereof,
as the case may be, or a proxy appointed by any of the foregoing individuals,
unless some other person who has been appointed to vote such shares pursuant to
a bylaw or a resolution of the governing board of such corporation or other
entity or agreement of the partners of the partnership presents a certified copy
of such bylaw, resolution or agreement, in which case such person may vote such
shares. Any trustee or other fiduciary may vote shares registered in his name
as such fiduciary, either in person or by proxy.
Shares of the Corporation directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The directors may adopt by resolution a procedure by which a stockholder
may certify in writing to the Corporation that any shares registered in the name
of the stockholder are held for the account of a specified person other than the
stockholder. The resolution shall set forth the class of stockholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Corporation; and any
other provisions with respect to the procedure which the directors consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the stockholder of record of the specified shares in place of the
stockholder who makes the certification.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
----------
the meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or
3
inspectors on the number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
----- -----
Section 12. REPORTS TO STOCKHOLDERS. The directors shall submit to
-----------------------
the stockholders at or before the annual meeting of stockholders a report of the
business and operations of the Corporation during the prior fiscal year,
containing a balance sheet and a statement of income and surplus of the
Corporation, accompanied by the certification of an independent certified public
accountant, and such further information as the directors may determine is
required pursuant to any law or regulation to which the Corporation is subject.
Within the earlier of 20 days after the annual meeting of stockholders or 120
days after the end of the fiscal year of the Corporation, the directors shall
place the annual report on file at the principal office of the Corporation and
with any governmental agencies as may be required by law and as the directors
may deem appropriate.
Section 13. NOMINATIONS AND PROPOSALS BY STOCKHOLDERS
-----------------------------------------
(a) Annual Meetings of Stockholders. (1) Subject to the rights of
-------------------------------
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect directors under specified
circumstances, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (i) pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the directors or (iii) by any
stockholder of the Corporation who was a stockholder of record both at the time
of giving of notice provided for in this Section 13(a) and at the time of the
annual meeting, who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 13(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) (1)
of this Section 13, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for action by stockholders. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day before the date
on which the Corporation first mailed its proxy materials for the prior year's
annual meeting of stockholders. In no event shall the public announcement of a
postponement or adjournment of an annual meeting to a later date or time
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business
4
at the meeting and any material interest in such business of such stockholder
and of the beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made, (x) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (y) the number of each class of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Except as otherwise
provided for or fixed by or pursuant to the provisions of the Charter of the
Corporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who was a stockholder of record both at the time of giving of notice
provided for in this Section 13(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 13(b). Except as otherwise provided for or fixed by or
pursuant to the provisions of the Charter of the Corporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, in addition to the foregoing requirements, for
nominations or other business to be properly brought before a special meeting by
a stockholder, such stockholder's notice containing the information required by
paragraph (a)(2) of this Section 13 must be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the tenth day following the day on which public announcement is first made of
the date of the special meeting. In no event shall the public announcement of a
postponement or adjournment of a special meeting to a later date or time
commence a new time period for the giving of a stockholder's notice as described
above.
(c) General. (1) Except as otherwise provided for or fixed by or
-------
pursuant to the provisions of the Charter of the Corporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, only such persons who are nominated in accordance with
the procedures set forth in this Section 13 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 13 and, if any proposed
nomination or business is not in compliance with this Section 13, to declare
that such nomination or proposal shall be disregarded.
5
(2) For purposes of this Section 13, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13.
Section 14. INFORMAL ACTION BY STOCKHOLDERS. Subject to the rights of the
-------------------------------
holders of any class or series of stock (other than Common Stock) to elect
additional directors under specified circumstances and notwithstanding the
provisions of Section 13 of this Article II, any action required or permitted to
be taken at a meeting of stockholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by all stockholders
entitled to vote on such matter.
Section 15. VOTING BY BALLOT. Voting on any question or in any election
----------------
at a meeting of stockholders may be viva voce unless the presiding officer shall
---------
order or any stockholder present at such meeting in person or by proxy shall
demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
-----------------------------------------------------
business and affairs of the Corporation shall be managed under the direction of
its Board of Directors. A director shall be an individual at least 21 years of
age who is not under legal disability. In case of failure to elect directors at
an annual meeting of the stockholders, the directors holding over shall continue
to direct the management of the business and affairs of the Corporation until
their successors are elected and qualify.
Section 2. NUMBER. Subject to the rights of the holders of any class or
------
series of stock (other than Common Stock) to elect additional directors under
specified circumstances, at any regular meeting or at any special meeting called
for that purpose, a majority of the entire Board of Directors may establish,
increase or decrease the number of directors, subject to any limitations on the
number of directors set forth in the Charter.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
---------------------------
directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
directors may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the directors may be
----------------
called by or at the request of the Chairman of the Board or the President or by
a majority of the directors then
6
in office. The person or persons authorized to call special meetings of the
directors may fix any place, either within or without the State of Maryland, as
the place for holding any special meeting of the directors called by them.
Section 5. NOTICE. Notice of any special meeting shall be given by
------
written notice delivered personally, telegraphed, facsimile-transmitted or
mailed to each director at his business or residence address. Personally
delivered or telegraphed notices shall be given at least two days prior to the
meeting. Notice by mail shall be given at least five days prior to the meeting.
Telephone or facsimile-transmission notice shall be given at least 24 hours
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by telegram, such notice shall be deemed to be given when the
telegram is delivered to the telegraph company. Telephone notice shall be deemed
given when the director is personally given such notice in a telephone call to
which he is a party. Facsimile-transmission notice shall be deemed given upon
completion of the transmission of the message to the number given to the
Corporation by the director and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the directors need be stated in the
notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
------
quorum for convening any meeting of the directors, provided that, if less than a
-------- ----
majority of such directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Charter or these Bylaws,
the vote of a majority of a particular group of directors is required for
action, a quorum must also include a majority of such group.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
------
present at a meeting at which a quorum is present when such meeting is convened
shall be the action of the directors, unless the concurrence of a greater
proportion is required for such action by applicable statute, the Charter or
these Bylaws.
Section 8. TELEPHONE MEETINGS. The directors may participate in a
------------------
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
----------------------------
permitted to be taken at any meeting of the directors may be taken without a
meeting, if a consent in writing to such action is signed by each director and
such written consent is filed with the minutes of proceedings of the directors.
7
Section 10. VACANCIES. If for any reason any or all of the directors
---------
cease to be directors, such event shall not terminate the Corporation or affect
these Bylaws or the powers of the remaining directors hereunder. Subject to the
rights of holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, any vacancy (including a vacancy created by an increase
in the number of directors) shall be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the directors. Any
individual so elected as director shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualified.
Section 11. COMPENSATION. (a) The directors shall not receive any stated
------------
salary for their services as directors but, by resolution of the directors, may
receive fixed sums per year and/or per meeting and/or per visit to real property
owned or to be acquired by the Corporation and for any service or activity they
perform or engage in as directors. Such fixed sums may be paid either in cash
or in shares of the Corporation. Directors may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the directors
or of any committee thereof; and for their expenses, if any, in connection with
each property visit and any other service or activity performed or engaged in as
directors; but nothing herein contained shall be construed to preclude any
directors from serving the Corporation in any other capacity and receiving
compensation therefor.
(b) The Corporation may lend money to, guarantee an obligation of or
otherwise assist a director or a trustee or director of a direct or indirect
subsidiary of the Corporation; provided, however, that such director or other
person is also an executive officer of the Corporation or of such subsidiary, or
the loan, guarantee or other assistance is in connection with the purchase of
Shares. The loan, guarantee or other assistance may be with or without interest,
unsecured, or secured in any manner that the Board of Directors approves,
including a pledge of shares.
Section 12. REMOVAL OF DIRECTORS. Subject to the rights of holders of
--------------------
one or more classes or series of stock other than Common Stock to elect one or
more directors, any director may be removed only for cause and only by the
affirmative vote of stockholders holding at least two thirds of all the votes
entitled to be cast for the election of directors generally.
Section 13. LOSS OF DEPOSITS. No director shall be liable for any
----------------
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 14. SURETY BONDS. Unless required by law, no director shall be
------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 15. RELIANCE. Each director, officer, employee and agent of the
--------
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to
8
the Corporation by any of its officers or employees or by the advisers,
accountants, appraisers or other experts or consultants selected by the
directors or officers of the Corporation, regardless of whether such counsel or
expert may also be a director.
Section 16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
-----------------------------------------------------------
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation (other than a full-time officer, employee or agent of the
Corporation), in his personal capacity or in a capacity as an affiliate,
employee or agent of any other person, or otherwise, may have business interests
and engage in business activities similar or in addition to those of or relating
to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATION. The directors may appoint
--------------------------------
from among its members an Executive Committee, an Audit Committee and a
Compensation Committee, each composed of at least three directors, and other
committees, each composed of one or more directors, to serve at the pleasure of
the directors; provided, that the membership of the Compensation Committee
--------
shall consist of a majority of Independent Directors and the membership of the
Audit Committee shall consist only of Independent Directors. An individual shall
be deemed to be an "Independent Director" hereunder if such individual is not an
affiliate of the Corporation and is not an employee of the Corporation.
Section 2. POWERS. The directors may delegate to committees appointed
------
under Section 1 of this Article IV any of the powers of the directors, except as
prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
--------
same manner as notice for special meetings of the Board of Directors. One-
third, but not less than two (except for one-member committees), of the members
of any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
of Directors may designate a chairman (or two or more co-chairmen) of any
committee, and such chairman (or any such co-chairman) or any two members of any
committee (except for one-member committees) may fix the time and place of its
meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any such committee, the members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of such absent or disqualified members.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Directors at the next succeeding meeting, and any action by
the committee shall be subject to revision and alteration by the Board of
Directors, provided that no rights of third persons shall be affected by any
such revision or alteration.
9
Section 4. TELEPHONE MEETINGS. Members of a committee of the directors may
------------------
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted
-----------------------------
to be taken at any meeting of a committee of the directors may be taken without
a meeting, if a consent in writing to such action is signed by each member of
the committee and such written consent is filed with the minutes of proceedings
of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
---------
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
Section 7. EMERGENCY. In the event of a state of disaster of sufficient
---------
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the Charter and
these Bylaws, any two or more available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
provisions of this Article IV. In the event of the unavailability, at such
time, of a minimum of two members of the then incumbent Executive Committee, the
available directors shall elect an Executive Committee composed of any two
members of the Board of Directors, whether or not they be officers of the
Corporation, which two members shall constitute the Executive Committee for the
full conduct and management of the affairs of the Corporation in accordance with
the foregoing provisions of this Section 7. This Section 7 shall be subject to
implementation by resolution of the Board of Directors passed from time to time
for that purpose, and any provisions of the Bylaws (other than this Section 7)
and any resolutions which are contrary to the provisions of this Section 7 or to
the provisions of any such implementing resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this Section
7 that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of these
Bylaws.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
------------------
include a President, a Secretary and a Treasurer and may include a Chairman of
the Board, a Vice Chairman of the Board, a Chief Executive Officer, a Chief
Operating Officer, a Chief Financial Officer, a Corporate Counsel, one or more
Vice Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. In addition, the directors may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the directors at
the first meeting of the directors held after each annual meeting of
stockholders. If the election of officers shall not be
10
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualifies or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except President and Vice President may be
held by the same person. In their discretion, the directors may leave unfilled
any office except that of President and Secretary. Election of an officer or
agent shall not of itself create contract rights between the Corporation and
such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation
-----------------------
may be removed at any time by the directors if in their judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the directors, the Chairman of the Board, the President or
the Secretary. Any resignation shall take effect at any time subsequent to the
time specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract rights,
if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
---------
directors for the balance of the term.
Section 4. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The directors may from
---------------------------------------
time to time appoint a Chairman of the Board and a Vice Chairman of the Board.
The Chairman of the Board shall preside over the meetings of the directors and
of the stockholders at which he shall be present and shall in general oversee
all of the business and affairs of the Corporation. In the absence of the
Chairman of the Board, the Vice Chairman of the Board shall preside at such
meetings at which he shall be present. The Chairman and the Vice Chairman of the
Board may execute any deed, mortgage, bond, contract or other instrument, except
in cases where the execution thereof shall be expressly delegated by the
directors or by these Bylaws to an officer or some other agent of the
Corporation or shall be required by law to be otherwise executed. The Chairman
of the Board and the Vice Chairman of the Board shall perform such other duties
as may be assigned to him or them by the directors.
Section 5. CHIEF EXECUTIVE OFFICER. The directors may designate a Chief
-----------------------
Executive Officer from among the elected officers. The Chief Executive Officer
shall have responsibility for implementation of the policies of the Corporation,
as determined by the directors, and for the administration of the business
affairs of the Corporation. In the absence of both the Chairman and Vice
Chairman of the board, the Chief Executive Officer shall preside over the
meetings of the directors and of the stockholders at which he shall be present.
Section 6. CHIEF OPERATING OFFICER. The directors may designate a Chief
-----------------------
Operating Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Chief Executive Officer, the
President or the directors.
11
Section 7. CHIEF FINANCIAL OFFICER. The directors may designate a Chief
-----------------------
Financial Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Chief Executive Officer, the
President or the directors.
Section 8. CORPORATE COUNSEL. The directors may designate a Corporate
-----------------
Counsel from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Chief Executive Officer, the
President or the directors.
Section 9. PRESIDENT. In the absence of the Chairman, the Vice
---------
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the directors and of the stockholders at which he
shall be present. In the absence of a designation of a Chief Executive Officer
by the directors, the President shall be the Chief Executive Officer and shall
be ex officio a member of all committees that may, from time to time, be
constituted by the directors. The President may execute any deed, mortgage,
bond, contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Chief Executive
Officer or the directors from time to time.
Section 10. VICE PRESIDENTS. In the absence of the President or in the
---------------
event of a vacancy in such office, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the President and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President; and shall perform such other duties as from time to time may be
assigned to him by the Chief Executive Officer, the President or the directors.
The directors may designate one or more Vice Presidents as Executive Vice
President, Senior Vice President or as Vice President for particular areas of
responsibility.
Section 11. TREASURER. The Treasurer shall have the custody of the funds
---------
and securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer, the President and the directors, at the
regular meetings of the directors or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
If required by the directors, the Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his
12
death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. SECRETARY. The Secretary shall (a) keep the minutes of the
---------
proceedings of the stockholders, the directors and committees of the directors
in one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the trust records and of the seal of the Corporation;
(d) keep a register of the post office address of each stockholder which shall
be furnished to the Secretary by such stockholder; (e) have general charge of
the share transfer books of the Corporation; and (f) in general perform such
other duties as from time to time may be assigned to him by the Chief Executive
Officer, the President or the directors.
Section 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
----------------------------------------------
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or Treasurer, respectively, or by the
Chief Executive Officer, the President or the directors. The Assistant
Treasurers shall, if required by the directors, give bonds for the faithful
performance of their duties in such sums and with such surety or sureties as
shall be satisfactory to the directors.
Section 14. SALARIES. The salaries and other compensation of the officers
--------
shall be fixed from time to time by the directors and no officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The directors may authorize any officer or agent to
---------
enter into any contract or to execute and deliver any instrument in the name of
and on behalf of the Corporation and such authority may be general or confined
to specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the directors or by an authorized person shall be
valid and binding upon the directors and upon the Corporation when authorized or
ratified by action of the directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
-----------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or agent of the Corporation in
such manner as shall from time to time be determined by the directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the directors may designate.
13
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the
seal, if any, of the Corporation. The signatures may be either manual or
facsimile. Certificates shall be consecutively numbered; and if the Corporation
shall, from time to time, issue several classes or series of shares, each class
or series may have its own number series. A certificate is valid and may be
issued whether or not an officer who signed it is still an officer when it is
issued. Each certificate representing shares which are restricted as to their
transferability or voting powers, which are preferred or limited as to their
dividends or as to their allocable portion of the assets of the Corporation upon
liquidation or which are redeemable at the option of the Corporation, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. In lieu of such
statement or summary, the Corporation may set forth upon the face or back of the
certificate a statement that the Corporation will furnish to any stockholder,
upon request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable and title
---------
thereto and to the shares they represent shall be transferred by delivery
thereof. Upon surrender to the Corporation or the transfer agent of the
Corporation of a share certificate duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of stock of the
Corporation will be subject in all respects to the Charter and all of the terms
and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
-----------------------
directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the directors may, in his
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall
14
require and/or to give bond, with sufficient surety, to the Corporation to
indemnify it against any loss or claim which may arise as a result of the
issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
--------------------------------------------------
directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the directors may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for
the determination of stockholders, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of stockholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the directors, declaring
the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 5. SHARE LEDGER. The Corporation shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The directors may issue
------------------------------------
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other
provision of the Charter or these Bylaws, the directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the directors may provide that for a specified
period securities of the
15
Corporation issued in such unit may be transferred on the books of the
Corporation only in such unit.
Section 7. EXEMPTIONS FROM TITLE 3, SUBTITLE 7 OF THE MARYLAND GENERAL
-----------------------------------------------------------
CORPORATION LAW. The Corporation hereby exempts from the provisions of Title 3,
---------------
Subtitle 7 of the Maryland General Corporation Law (the "MGCL") the acquisition
of voting shares by Marriott International, Inc., a Delaware corporation
(together with its successors and permitted assignees, if any, "Marriott
International"), pursuant to the exercise of its right to acquire up to 20% of
the outstanding Common Stock of the Corporation following the merger of Host
Marriott Corporation, a Delaware corporation, with and into the Corporation, in
accordance with, and subject to the terms and restrictions of, that certain
Distribution Agreement dated September 15, 1993, as amended (the "Distribution
Agreement"). Notwithstanding anything contained in Article XIV of these Bylaws
to the contrary, this Section 7 may not be amended, altered or repealed without
the consent of Marriott International as long as Marriott International has the
right to acquire up to 20% of the outstanding Common Stock of the Corporation in
accordance with, and subject to the terms and restrictions of, the Distribution
Agreement.
Subject to the following, to the extent, if any, solely as the result of
the repurchase from time to time of shares of Common Stock of the Corporation
pursuant to the terms of a stock repurchase program authorized by the
Corporation on September 1, 1999 (the "Stock Repurchase Program"), Southeastern
Asset Management, Inc. ("Southeastern") through accounts over which it exercises
investment discretion, voting authority or both, is deemed to have "acquired"
(for purposes of Title 3, Subtitle 7 of the MGCL) beneficial ownership of an
aggregate number of shares of Common Stock equal to or in excess of 20% of the
outstanding Common Stock of the Corporation, such "acquisitions" are deemed
approved in accordance with Section 3-702(b) of the MGCL. The foregoing approval
shall not apply to any shares acquired by Southeastern (other than shares that
may be deemed to have been "acquired" solely as a result of repurchases of
Common Stock by the Corporation pursuant to the Stock Repurchase Program)
directly or through accounts over which it exercises investment discretion,
voting authority or both, after such time as Southeastern "acquires" beneficial
ownership of an aggregate number of shares of Common Stock equal to or in excess
of 20% of the outstanding Common Stock of the Corporation as a result of
repurchases of Common Stock by the Corporation pursuant to the Stock Repurchase
Program; it being understood that all shares of Common Stock owned by
-- ----- ----------
Southeastern and any accounts over which it exercises investment discretion,
voting authority or both shall at all times continue to be aggregated for
purposes of Title 3, Subtitle 7 of the MGCL. If, after expiration, completion or
termination of the Stock Repurchase Program, Southeastern's beneficial ownership
of Common Stock of the Corporation is reduced to less than 20% of the
outstanding Common Stock of the Corporation, the foregoing approval shall not
apply to any subsequent acquisition of shares of Common Stock that would result
in Southeastern's beneficially owning directly or through accounts over which it
exercises sole or shared voting power, 20% or more of the outstanding Common
Stock of the Corporation following such acquisition; provided, however, that, if
-------- -------
such reduction is a result of dispositions of Common Stock of the Corporation in
the ordinary course of trading for its clients' accounts within a five (5)
consecutive trading day period, the foregoing approval shall continue in effect
to the extent that, within 20 consecutive trading days immediately after such
five (5) day trading period,
16
Southeastern reacquires through accounts over which it exercises investment
discretion, voting authority or both, again in the ordinary course of trading
for its clients' accounts, shares of Common Stock up to the number of shares
owned immediately prior to such five (5) consecutive day period. Nothing herein
is intended to grant, or shall be construed as granting, to Southeastern, any of
its affiliates or any of Southeastern's funds or accounts a waiver from the
ownership limit (or any provision thereof) under the Charter of the Corporation.
ARTICLE VIII
FISCAL YEAR
The directors shall have the power, from time to time, to fix the fiscal
year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the shares
-------------
of stock of the Corporation may be authorized and declared by the directors,
subject to the provisions of law and the Charter. Dividends and other
distributions may be paid in cash, property or shares of the Corporation,
subject to the provisions of law and the Charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
-------------
distributions, there may be set aside out of any funds of the Corporation
available for dividends or other distributions such sum or sums as the directors
may from time to time, in their absolute discretion, think proper as a reserve
fund for contingencies, for equalizing dividends or other distributions, for
repairing or maintaining any property of the Corporation or for such other
purpose as the directors shall determine to be in the best interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE X
INVESTMENT POLICIES
Subject to the provisions of the Charter, the Board of Directors may from
time to time adopt, amend, revise or terminate any policy or policies with
respect to investments by the Corporation as it shall deem appropriate in its
sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The directors may authorize the adoption of a seal by the
----
Corporation. The seal shall have inscribed thereon the name of the Corporation
and the year of its formation. The directors may authorize one or more duplicate
seals and provide for the custody thereof.
17
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required
-------------
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify (a) any director, officer or employee, or
any former director, officer or employee (including among the foregoing, for all
purposes of this Article XII and without limitation, any individual who, while a
director, officer or employee and at the express request of the Corporation,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, employee,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) who has been successful, on the
merits or otherwise, in the defense of a proceeding to which he was made a party
by reason of service in such capacity, against reasonable expenses incurred by
him in connection with the proceeding, and (b) any director, officer or
employee, or any former director, officer or employee, against any claim or
liability to which he may become subject by reason of such status unless it is
established that (i) his act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit in
money, property or services or (iii) in the case of a criminal proceeding, he
had reasonable cause to believe that his act or omission was unlawful. In
addition, the Corporation shall, without requiring a preliminary determination
of the ultimate entitlement to indemnification, pay or reimburse, in advance of
final disposition of a proceeding, reasonable expenses incurred by a director,
officer or employee, or former director, officer or employee, made a party to a
proceeding by reason of such status, provided that, in the case of a director,
officer or employee, the Corporation shall have received (i) a written
affirmation by the director, officer or employee of his good faith belief that
he has met the applicable standard of conduct necessary for indemnification by
the Corporation as authorized by these Bylaws and (ii) a written undertaking by
or on his behalf to repay the amount paid or reimbursed by the Corporation if it
shall ultimately be determined that the applicable standard of conduct was not
met. The Corporation may, with the approval of its directors, provide such
indemnification or payment or reimbursement of expenses to any director, officer
or employee, or any former director, officer or employee, who served a
predecessor of the Corporation. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of the Charter or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Corporation may provide to directors, officers and employees,
or former directors, officers and employees, such other and further
18
indemnification or payment or reimbursement of expenses, as the case may be, to
the fullest extent permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Charter or
Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Neither
the business to be transacted at nor the purpose of any meeting need be set
forth in the waiver of notice, unless specifically required by statute. The
attendance of any person at any meeting shall constitute a waiver of notice of
such meeting, except where such person attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The directors shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws.
ARTICLE XV
MISCELLANEOUS
All references to the Charter shall include any amendments thereto. In
these Bylaws, unless the context otherwise requires, words used in the singular
or in the plural include both the plural and singular and words denoting any
gender include all genders.
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