Host Marriott 2004 Annual Report - Host Hotels & Resorts, Inc

TO OUR STOCKHOLDERS
CHRISTOPHER J. NASSETTA
President and Chief Executive Officer
RICHARD E. MARRIOTT
Chairman of the Board
Host Marriott
had an outstanding year in 2004,
achieving record growth
that strengthened our position
as the nation’s premier
owner of lodging real estate.
Host Marriott had an outstanding year in 2004, achieving record growth that
strengthened our position as the nation’s premier owner of lodging real estate. We
see abundant opportunities to enhance and expand our portfolio in the near term
as lodging fundamentals continue to create a favorable environment for a powerful
and sustained recovery. While we look forward to still stronger operating results in
the coming years, we accomplished a number of important objectives in 2004:
• we acquired over $500 million of new properties and added two new brands
to our portfolio;
• we sold 13 of our non-core hotels (including four properties in January 2005)
for total proceeds of approximately $380 million;
• we issued $300 million of common stock, which was deployed to fund our
2004 acquisitions;
• we refinanced or repaid approximately $1.2 billion of debt, reducing annual
interest payments by over $50 million and extending our debt maturities;
• we amended our credit facility to increase the capacity and create more
flexible terms;
• we made significant progress in repositioning and value enhancement
opportunities at several of our largest hotels; and
• we reinstated our common dividend, helping to provide our stockholders with an
exceptional return of over 40 percent on their Host Marriott investment in 2004.
We believe these achievements exemplify the focused and disciplined approach
to our business that has made the company the nation’s premier owner of lodging
real estate.
From an operations perspective, 2004 was a break-through year. The U.S.
economy expanded at a rate of 4.4 percent, business investments and profits were
higher, and air travel returned to pre-2001 levels, resulting in the highest RevPAR
growth since 1997. Comparable hotel room revenue per available room, or
RevPAR, increased 7.3 percent from 2003, with average room rates up 2.9 percent
and an increase in occupancy of 2.9 percentage points. Funds from
Operations (FFO) per diluted share was $.77 for 2004 compared to $.99 for
2003, and our diluted loss per share was $.12 compared to $.07 in 2003. Our
financial results were significantly affected by several transactions, including
charges associated with debt prepayments and refinancing in both years and the
significant gain from the insurance settlement for the New York Marriott World
Trade Center hotel in 2003. In 2004, these transactions negatively affected FFO
per diluted share and loss per diluted share by $.17 and $.18, respectively, while
in 2003, these transactions positively affected FFO per diluted share and earnings
per share by $.34 and $.54, respectively.
The lodging industry recovery is in the early stages of what should be several
years of strong and sustained growth. Host Marriott’s best-in-class lodging portfolio
provides an excellent opportunity to take advantage of a sustained recovery in
lodging fundamentals. We will continue our aggressive portfolio management and
remain disciplined in our approach to capital allocation to generate superior performance
in the years to come.
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HOST MARRIOTT 2004