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Host Hotels & Resorts, Inc. Reports Results for the Second Quarter of 2012

BETHESDA, Md., July 17, 2012 /PRNewswire/ -- Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust ("REIT"), today announced results of operations for the second quarter ended June 15, 2012.   













Operating Results




(in millions, except per share and hotel statistics)


Quarter ended


Year-to-date ended



June 15,

 2012

June 17,

 2011

Percent

Change

June 15,

 2012

June 17,

 2011

Percent

Change

Total revenues 

$  1,368

$  1,284

6.5%

$     2,351

$     2,176

8.0%

Comparable hotel revenues* 

1,212

1,145

5.8%

2,087

1,969

6.0%

Comparable hotel RevPAR 

151.47

142.79

6.1%

139.86

131.85

6.1%

Net income 

83

64

29.7%

83

4

N/M

Adjusted EBITDA* 

348

313

11.2%

523

457

14.4%








Diluted earnings per share 

$       .11

$       .09

22.2%

$       .11

$           -

N/M

NAREIT FFO per diluted share* 

.32

.30

6.7%

.47

.42

11.9%

Adjusted FFO per diluted share* 

.34

.31

9.7%

.49

.43

14.0%










N/M=Not Meaningful






*

NAREIT Funds From Operations ("FFO") per diluted share, Adjusted FFO per diluted share (which excludes debt extinguishment costs and other expenses), Adjusted EBITDA (which is earnings before interest, taxes, depreciation, amortization and other items) and comparable hotel operating results (including comparable hotel revenues and comparable hotel adjusted operating profit margins) are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission ("SEC"). See the discussion included in this press release on why the Company believes these supplemental measures are useful, reconciliations to the applicable GAAP measure and the limitations on their use.


The increase in total revenues for the second quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels due to improvements in comparable hotel RevPAR of 6.1% for both the second quarter and year-to-date and improvements in comparable food and beverage revenues of 5.7% and 5.8% for the second quarter and year-to-date, respectively. In addition, the improvement in operating results for year-to-date 2012 includes operations for the ten hotels (nearly 4,000 rooms) acquired in the first half of 2011, which increased revenues by an incremental $56 million. If the Company reported its results on a calendar quarter basis, then comparable hotel RevPAR would have increased 6.8% for the second quarter 2012 compared to 2011.

The increase in comparable hotel RevPAR was primarily driven by improvements in average room rates coupled with continued occupancy growth. For the quarter and year-to-date, average room rates improved 3.7% and 3.3%, respectively, while occupancy improved 1.7 percentage points to 77.6% and 1.9 percentage points to 73.7%, respectively. The improvements in revenues led to strong margin growth as comparable hotel adjusted operating profit margins increased 120 basis points and 110 basis points for the second quarter and year-to-date 2012, respectively. 

INVESTMENTS

  • REDEVELOPMENT AND RETURN ON INVESTMENT EXPENDITURES - The Company invested approximately $50 million and $98 million in the second quarter and year-to-date 2012, respectively, in redevelopment and return on investment ("ROI") expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties. During the second quarter, the Company completed the rooms renovation phase of the redevelopment at the 1,778-room Sheraton New York Hotel & Towers and the conversion of one tower at the Sheraton Indianapolis into apartments, which it has already begun leasing. The Company expects that its investment in ROI expenditures for 2012 will total approximately $165 million to $175 million.
  • ACQUISITION EXPENDITURES – In conjunction with the acquisition of a property, the Company prepares a capital improvement plan designed to enhance profitability. The Company spent approximately $50 million and $64 million on acquisition projects in the second quarter and year-to-date, respectively, and expects to invest between $115 million and $125 million for 2012.
  • RENEWAL AND REPLACEMENT EXPENDITURES - The Company invested approximately $79 million and $179 million in renewal and replacement expenditures during the second quarter and year-to-date 2012, respectively. These expenditures are designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renewal and replacement projects completed during the second quarter included 1,100 rooms at the Boston Marriott Copley Place, 891 rooms at the Westin Seattle and over 30,000 square feet of meeting and public space at the Swissôtel Chicago. The Company expects that renewal and replacement expenditures for 2012 will total approximately $310 million to $330 million. 

ACQUISITIONS

On July 16, 2012, the Company acquired the 888-room Grand Hyatt Washington, D.C. for approximately $400 million. The Grand Hyatt includes over 43,000 square feet of meeting space and is centrally located in the nation's capital, with easy access to historic monuments, museums and the convention center. The acquisition has been funded with available cash and a draw under the revolver portion of the Company's credit facility. The Company intends to repay a portion of the revolver draw, as well as other debt, with proceeds from a five-year term loan currently under negotiation. The Company has received commitments from a number of banks and expects to raise approximately $400 million with a current floating interest rate of LIBOR plus 180 basis points (or approximately a 2.1% all-in interest rate). The Company expects the term loan to close by the end of July, subject to customary closing conditions.   

BALANCE SHEET

During the quarter, the Company continued to actively pursue its strategy of extending its debt maturities and lowering its overall cost of debt. On June 7, 2012 the Company entered into a $100 million mortgage loan secured by the Hyatt Regency Reston and due in 2016, with an additional one-year extension at the Company's option, subject to meeting certain financial covenants. The loan bears interest at a rate of 1-month LIBOR plus 310 basis points (3.34% at June 15, 2012). Using these proceeds and proceeds from $650 million of senior notes issued last year and in the first quarter for a weighted average interest rate of 5.3% and available cash, the Company repaid or redeemed approximately $1 billion of debt during the quarter, with an average GAAP interest rate of 6.8%.

After taking into consideration the acquisition of the Grand Hyatt and the related revolver and expected term loan financing and use of proceeds to repay approximately $400 million of debt, the Company would have approximately $760 million of availability under its credit facility, approximately $150 million of cash and cash equivalents and total debt of approximately $5.3 billion.

During the second quarter of 2012, the Company issued approximately 3.1 million shares of common stock at an average price of $15.75 per share, for net proceeds of approximately $48 million. These sales were made in "at-the-market" offerings pursuant to April 2012 Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Scotiabank, which had an initial aggregate offering price of $400 million. There is approximately $350 million of issuance capacity remaining under the agreements.

DIVIDEND

On June 18, 2012, the Company's board of directors authorized a regular quarterly cash dividend of $.07 per share on its common stock. The dividend was paid on July 16, 2012 to stockholders of record on June 29, 2012. The amount of any future dividend is dependent on the Company's taxable income and will be determined by the Company's Board of Directors.

2012 OUTLOOK

The Company anticipates that for 2012:

  • Comparable hotel RevPAR will increase 5.5% to 7.0%;
  • Total revenues under GAAP would increase 6.3% to 7.8%;
  • Total comparable hotel revenues would increase 5.0% to 6.6%;
  • Operating profit margins under GAAP would increase approximately 130 basis points to 190 basis points; and
  • Comparable hotel adjusted operating profit margins will increase approximately 90 basis points to 130 basis points.

Based upon these parameters, the Company estimates that its full year 2012 guidance is as follows: 

  • earnings per diluted share should range from approximately $.14 to $.19;
  • net income should range from $104 million to $140 million;
  • NAREIT FFO per diluted share should be approximately $1.00 to $1.05;
  • Adjusted FFO per diluted share should be approximately $1.04 to $1.09; and
  • Adjusted EBITDA should be approximately $1,135 million to $1,170 million.

See the 2012 Forecast Schedules and Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecasted results.

ABOUT HOST HOTELS & RESORTS

Host Hotels & Resorts, Inc. is an S&P 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 105 properties in the United States and 16 properties internationally totaling approximately 65,000 rooms. The Company also holds non-controlling interests in a joint venture in Europe that owns 13 hotels with approximately 4,200 rooms and a joint venture in Asia that owns one hotel with approximately 300 rooms in Australia and a minority interest in seven hotels with approximately 1,750 rooms in India, two of which recently opened in Bangalore and five that are in various stages of development in two cities. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott®, Ritz-Carlton®, Westin®, Sheraton®, W®, St. Regis®, Le Méridien®, The Luxury Collection®, Hyatt®, Fairmont®, Four Seasons®, Hilton®, Swissôtel®, ibis®, Pullman®, and Novotel®* in the operation of properties in over 50 major markets worldwide. For additional information, please visit the Company's website at www.hosthotels.com.

Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements include forecast results and are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, including references to assumption and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to:  national and local economic and business conditions, including the effect on travel of potential terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; our ability to complete acquisitions and dispositions; our ability to complete the term loan on the basis of commitments currently received, which is subject to various closing conditions, including the accuracy of representations and warranties; the risk that the Company's board of directors will determine to pay dividends at a rate different than currently anticipated and our ability to continue to satisfy complex rules in order for us to remain a REIT for federal income tax purposes and other risks and uncertainties associated with our business described in the Company's annual report on Form 10‑K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of July 17, 2012, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

*  This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.

*** Tables to Follow ***


Host Hotels & Resorts, Inc., herein referred to as "we" or "Host," is a self-managed and self-administered real estate investment trust ("REIT") that owns hotel properties. We conduct our operations as an umbrella partnership REIT through an operating partnership, Host Hotels & Resorts, L.P. ("Host LP"), of which we are the sole general partner. When distinguishing between Host and Host LP, the primary difference is approximately 1.4% of the partnership interests in Host LP held by outside partners as of June 15, 2012, which is non-controlling interests in Host LP in our consolidated balance sheets and is included in net income attributable to non-controlling interests in our consolidated statements of operations. Readers are encouraged to find further detail regarding our organizational structure in our annual report on Form 10‑K.

For information on our reporting periods and non-GAAP financial measures (including Adjusted EBITDA, NAREIT and Adjusted FFO per diluted share and comparable hotel adjusted operating profit margin) which we believe is useful to investors, see the Notes to the Financial Information included in this release.   






HOST HOTELS & RESORTS, INC.

Consolidated Balance Sheets (a)

(in millions, except shares and per share amounts)









June 15,

December 31, 




2012

2011




(unaudited)


ASSETS

Property and equipment, net 

$  11,347

$   11,383

Assets held for sale 

5

-

Due from managers 

77

37

Advances to and investments in affiliates 

211

197

Deferred financing costs, net 

54

55

Furniture, fixtures and equipment replacement fund 

169

166

Other 

380

368

Restricted cash 

28

36

Cash and cash equivalents 

465

826

Total assets 

$  12,736

$   13,068




LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY







Debt



Senior notes, including $525 million and $902 million, respectively, net of discount, of Exchangeable Senior Debentures 

$   4,012

$    4,543

Credit facility 

138

117

Mortgage debt 

990

1,006

Other 

86

87

Total debt 

5,226

5,753

Accounts payable and accrued expenses 

95

175

Other  

278

269

Total liabilities  

5,599

6,197




Non-controlling interests-Host Hotels & Resorts, L.P. 

160

158




Host Hotels & Resorts, Inc. stockholders' equity:



  Common stock, par value $.01, 1,050 million shares authorized; 720.9 million

   shares and 705.1 million shares issued and outstanding, respectively 

7

7

  Additional paid-in capital 

7,983

7,750

  Accumulated other comprehensive loss 

(7)

(1)

  Deficit 

(1,042)

(1,079)

    Total equity of Host Hotels & Resorts, Inc. stockholders 

6,941

6,677

Non-controlling interests-other consolidated partnerships 

36

36

    Total equity 

6,977

6,713

    Total liabilities, non-controlling interests and equity 

$  12,736

$   13,068





(a) Our consolidated balance sheet as of June 15, 2012 has been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. 



 

 









HOST HOTELS & RESORTS, INC.

Consolidated Statements of Operations (a)

(unaudited, in millions, except per share amounts)











Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 




2012

2011

2012

2011

Revenues





Rooms 

$  823

$  773

$ 1,395

$ 1,288

Food and beverage 

400

376

693

643

Other 

80

74

139

128

Owned hotel revenues 

1,303

1,223

2,227

2,059

Other revenues 

65

61

124

117

Total revenues 

1,368

1,284

2,351

2,176

Expenses 





Rooms 

214

203

379

351

Food and beverage 

279

265

494

464

Other departmental and support expenses 

316

306

566

541

Management fees 

56

52

90

84

Other property-level expenses 

143

136

267

253

Depreciation and amortization 

159

148

311

287

Corporate and other expenses 

21

22

43

47

Total operating costs and expenses 

1,188

1,132

2,150

2,027

Operating profit 

180

152

201

149

Interest income 

3

5

7

9

Interest expense (b) 

(94)

(89)

(180)

(171)

Net gains on property transactions and other 

1

2

2

3

Gain (loss) on foreign currency transactions and derivatives 

-

1

(1)

2

Equity in earnings of affiliates 

5

4

3

2

Income (loss) before income taxes 

95

75

32

(6)

Benefit (provision) for income taxes 

(12)

(8)

1

13

Income from continuing operations 

83

67

33

7

Income (loss) from discontinued operations, net of tax  

-

(3)

50

(3)

Net income 

83

64

83

4

Less: Net income attributable to non-controlling interests 

(1)

(2)

(3)

(2)

Net income available to common stockholders 

$82

$   62

$    80

$     2

Basic and diluted earnings (loss) per common share:





Continuing operations 

$  .11

$  .10

$   .04

$   .01

Discontinued operations 

-

(.01)

.07

(.01)

Basic and diluted earnings per common share 

$  .11

$  .09

$   .11

$       -








(a)  Our consolidated statements of operations presented above have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.

(b)  Interest expense includes the following items:  











Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 




2012

2011

2012

2011






Non-cash interest for exchangeable debentures 

$    4

$    7

$     9

$    15

Debt extinguishment costs 

14

5

14

5

Total 

$   18

$   12

$    23

$    20








  

 








HOST HOTELS & RESORTS, INC.

Earnings per Common Share

(unaudited, in millions, except per share amounts)











Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 




2012

2011

2012

2011

Net income 

$   83

$   64

$    83

$     4

Net income attributable to non-controlling interests 

(1)

(2)

(3)

(2)

Earnings available to common stockholders 

82

62

80

2

Assuming conversion of exchangeable senior debentures 

1

-

-

-

Diluted earnings available to common stockholders 

$   83

$   62

$    80

$     2






Basic weighted average shares outstanding 

718.1

685.7

712.8

681.5

Assuming weighted average shares for conversion of exchangeable senior debentures 

11.6

-

-

-

Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market price 

0.9

1.4

1.0

1.5

Diluted weighted average common shares outstanding (a) 

730.6

687.1

713.8

683.0

Basic and diluted earnings per common share 

$  .11

$  .09

$   .11

$     -








(a)  Dilutive securities may include shares granted under comprehensive stock plans, preferred operating partnership units ("OP Units") held by minority partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP Units. No effect is shown for any securities that were anti-dilutive for the period. 









 

  













HOST HOTELS & RESORTS, INC.

Comparable Hotel Operating Data (a) 

(unaudited)







As of June 15, 2012

  Quarter ended June 15, 2012 

  Quarter ended June 17, 2011 


Region

No. of

Properties

No. of

Rooms

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Percent

Change in

RevPAR

Pacific 

25

13,896

$  181.60

79.0%

$  143.38

$172.07

77.1%

$132.67

8.1%

Mid-Atlantic 

11

8,624

253.61

83.0

210.43

243.69

79.9

194.64

8.1

South Central 

9

5,695

161.30

73.2

118.08

160.12

70.2

112.47

5.0

Florida 

9

5,680

210.89

78.0

164.57

202.98

77.0

156.36

5.3

D.C. Metro 

12

5,416

210.65

83.1

175.11

212.78

82.4

175.42

(0.2)

North Central 

11

4,782

160.63

75.0

120.40

152.42

74.8

113.99

5.6

New England 

7

3,924

193.81

77.5

150.18

180.18

75.9

136.76

9.8

Atlanta 

7

3,846

158.79

70.6

112.12

156.58

66.1

103.55

8.3

Mountain 

7

2,889

177.10

71.2

126.02

168.95

70.6

119.24

5.7

Canada 

4

1,643

168.21

68.6

115.45

171.73

72.3

124.21

(7.1)

Latin America 

4

1,075

233.40

75.2

175.60

221.19

73.9

163.54

7.4

All Regions 

106

57,470

195.32

77.6

151.47

188.34

75.8

142.79

6.1














As of June 15, 2012

  Year-to-date ended June 15, 2012 

  Year-to-date ended June 17, 2011 


Region

No. of

Properties

No. of

Rooms

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Percent

Change in

RevPAR

Pacific 

25

13,896

$  182.55

76.4%

$  139.38

$173.98

74.2%

$129.04

8.0%

Mid-Atlantic 

11

8,624

235.16

77.3

181.68

228.05

73.1

166.72

9.0

South Central 

9

5,695

157.55

74.1

116.71

156.68

71.6

112.17

4.1

Florida 

9

5,680

215.21

78.3

168.60

205.04

78.2

160.31

5.2

D.C. Metro 

12

5,416

202.54

73.5

148.77

204.84

73.8

151.24

(1.6)

North Central 

11

4,782

149.16

68.9

102.76

141.65

66.9

94.80

8.4

New England 

7

3,924

178.18

67.4

120.00

168.07

65.4

109.99

9.1

Atlanta 

7

3,846

160.08

69.7

111.54

157.66

66.3

104.55

6.7

Mountain 

7

2,889

178.19

68.4

121.92

173.66

67.6

117.37

3.9

Canada 

4

1,643

167.95

65.9

110.65

168.47

68.0

114.48

(3.3)

Latin America 

4

1,075

234.40

71.9

168.58

215.41

70.3

151.52

11.3

All Regions 

106

57,470

189.67

73.7

139.86

183.55

71.8

131.85

6.1






































As of June 15, 2012

  Quarter ended June 15, 2012 

 Quarter ended June 17, 2011 


Property Type

No. of

Properties

No. of

Rooms

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Percent

Change in

RevPAR 

Urban 

53

33,223

$  207.71

79.1%

$  164.25

$200.57

77.3%

$154.96

6.0%

Suburban 

28

10,572

153.11

71.6

109.57

148.15

70.3

104.18

5.2

Resort/Conference

13

8,083

243.07

76.6

186.11

234.26

74.5

174.46

6.7

Airport 

12

5,592

126.33

81.1

102.50

120.34

79.5

95.61

7.2

All Types 

106

57,470

195.32

77.6

151.47

188.34

75.8

142.79

6.1














As of June 15, 2012

  Year-to-date ended June 15, 2012 

 Year-to-date ended June 17, 2011 


Property Type

No. of

Properties

No. of

Rooms

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Percent

Change in

RevPAR 

Urban 

53

33,223

$  199.31

74.2%

$  147.82

$193.44

72.0%

$139.31

6.1%

Suburban 

28

10,572

151.23

68.9

104.27

147.17

67.3

99.01

5.3

Resort/Conference

13

8,083

243.15

75.5

183.65

233.63

73.9

172.69

6.3

Airport 

12

5,592

126.85

77.8

98.65

121.23

76.4

92.64

6.5

All Types 

106

57,470

189.67

73.7

139.86

183.55

71.8

131.85

6.1













(a) See the Notes to Financial Information for a discussion of reporting periods and comparable hotel results. 

















Hotel Operating Statistics for All Properties (a)







Quarter ended

Year-to-date ended







June 15,

June 17,

June 15,

June 17,









2012

2011

2012

2011





Average room rate 

$  194.37

$  186.20

$  188.77

$  182.01





Average occupancy 

77.1%

75.3%

73.5%

71.2%





RevPAR  

$  149.80

$  140.28

$  138.67

$  129.67

















(a)  The operating statistics reflect all consolidated properties as of June 15, 2012 and June 17, 2011, respectively, and include the results of operations of properties sold or transferred during the year through the date of their disposition.

  

  








HOST HOTELS & RESORTS, INC.

Comparable Hotel Operating Data

Schedule of Comparable Hotel Results (a)

(unaudited, in millions, except hotel statistics)







Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 


2012

2011

2012

2011

Number of hotels 

106

106

106

106

Number of rooms 

57,470

57,470

57,470

57,470

Percent change in comparable hotel RevPAR 

6.1%

-

6.1%

-

Operating profit margin under GAAP (b) 

13.2%

11.8%

8.5%

6.8%

Comparable hotel adjusted operating profit margin (b)   

27.3%

26.1%

24.5%

23.4%

Comparable hotel revenues





Room    

$  760

$  715

$ 1,298

$ 1,220

Food and beverage       

379

359

662

625

Other   

73

71

127

124

Comparable hotel revenues (c)   

1,212

1,145

2,087

1,969

Comparable hotel expenses 





Room    

195

187

348

331

Food and beverage       

263

252

470

449

Other   

40

40

71

70

Management fees, ground rent and other costs    

383

367

686

658

Comparable hotel expenses (d)   

881

846

1,575

1,508

Comparable hotel adjusted operating profit      

331

299

512

461

Non-comparable hotel results, net (e)   

27

24

46

29

Income (loss) from hotels leased from HPT       

2

(1)

(3)

(7)

Depreciation and amortization   

(159)

(148)

(311)

(287)

Corporate and other expenses    

(21)

(22)

(43)

(47)

Operating profit        

$  180

$  152

$   201

$   149








(a)  See the Notes to the Financial Information for discussion of non-GAAP measures, reporting periods and comparable hotel results.

(b)  Operating profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP margins are calculated using amounts presented in the consolidated statements of operations. Comparable margins are calculated using amounts presented in the above table.  

(c)  The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel revenues is as follows:









Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 


2012

2011

2012

2011

Revenues per the consolidated statements of operations 

$1,368

$1,284

$ 2,351

$ 2,176

Non-comparable hotel revenues 

(114)

(102)

(190)

(140)

Hotel sales for comparable hotels classified as held-for-sale 

2

2

4

4

Hotel revenues for which we record rental income, net 

12

13

26

26

Revenues for hotels leased from HPT 

(56)

(52)

(104)

(97)

        Comparable hotel revenues 

$1,212

$1,145

$ 2,087

$ 1,969








(d)  The reconciliation of operating costs per the consolidated statements of operations to the comparable hotel expenses is as follows: 









Quarter ended

Year-to-date ended




June 15, 

June 17, 

June 15, 

June 17, 




2012

2011

2012

2011

Operating costs and expenses per the consolidated statements of operations 

$1,188

$1,132

$ 2,150

$ 2,027

Non-comparable hotel expenses 

(87)

(78)

(144)

(111)

Hotel expenses for comparable hotels classified as held-for-sale 

2

2

4

4

Hotel expenses for which we record rental income 

12

13

26

26

Expense for hotels leased from HPT 

(54)

(53)

(107)

(104)

Depreciation and amortization 

(159)

(148)

(311)

(287)

Corporate and other expenses 

(21)

(22)

(43)

(47)

Comparable hotel expenses 

$  881

$  846

$ 1,575

$ 1,508








(e)  Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels whose operations are included in our consolidated statements of operations as continuing operations, (ii) gains on insurance settlements, (iii) the results of our office buildings and (iv) the difference between the number of days of operations reflected in the comparable hotel results and the number of days of operations reflected in the consolidated statements of operations.





 









HOST HOTELS & RESORTS, INC.

Other Financial Data

(unaudited, in millions, except per share amounts)














June 15,


December 31,






2012


2011









Equity






Common shares outstanding 

720.9


705.1

Common shares outstanding assuming conversion of non-controlling interest OP Units (a) 

731.2


715.8

Preferred OP Units outstanding 

.02


.02









Security pricing






Common (b) 

$  15.58


$    14.77

3 1/4% Exchangeable Senior Debentures (c) 

$1,101.6


$  1,084.0

2 5/8% Exchangeable Senior Debentures (c) 

N/M


$  1,002.6

2 1/2% Exchangeable Senior Debentures (c) 

$1,291.8


$  1,242.6









Dividends declared per share for calendar year




Common



$    .13


$      .14









Debt











June 15,


December 31,

Senior notes 

Rate 

Maturity date

2012


2011

Series O 

6 3/8%

3/2015

$650


$      650

Series Q 

6 3/4%

6/2016

800


800

Series S

6 7/8%

11/2014

-


498

Series T 

9%

5/2017

390


390

Series V 

6%

11/2020

500


500

Series X

5 7/8%

6/2019

497


496

Series Z (d)

6%

10/2021

300


300

Series A

5 1/4%

3/2022

350


-

Exchangeable senior debentures 

3 1/4%

4/2024

175


175

Exchangeable senior debentures

2 5/8%

4/2027

2


385

Exchangeable senior debentures (e) 

2 1/2%

10/2029

348


342

Senior notes 

10%

5/2012

-


7

Credit facility (f) 

3.4%

11/2015

138


117






4,150


4,660

Mortgage debt and other






Mortgage debt (non-recourse)

3.3-8.5%

7/2013-12/2023

990


1,006

Other

7.0-7.8%

10/2014-12/2017

86


87

Total debt (g)(h)



$  5,226


$    5,753









Percentage of fixed rate debt 



89%


90%

Weighted average interest rate 



6.1%


6.3%

Weighted average debt maturity 



4.9 years


4.4 years









(a)  Each OP Unit is redeemable for cash or, at the option of the Company, for 1.021494 common shares of Host. At June 15, 2012 and December 31, 2011, there were 10.0 million and 10.5 million common OP Units, respectively, held by non-controlling interests.

(b)  Share prices are the closing price as reported by the New York Stock Exchange. 

(c) Amount reflects market price of a single $1,000 debenture as quoted by Bloomberg L.P.

(d) The 6% Series Y senior notes were exchanged for 6% Series Z senior notes in June 2012.

(e) At June 15, 2012, the principal balance outstanding of the 2 1/2% Exchangeable Senior Debentures due 2029 is $400 million. The discount related to these debentures is amortized through October 2015.

(f) The interest rate shown is the weighted average rate of the outstanding credit facility at June 15, 2012, all of which is drawn in foreign currencies.

(g) In accordance with GAAP, total debt includes the debt of entities that we consolidate, but of which we do not own 100%, and excludes the debt of entities that we do not consolidate, but of which we have a non-controlling ownership interest and record our investment therein under the equity method of accounting. As of June 15, 2012, our non-controlling partners' share of consolidated debt is $67 million and our share of debt in unconsolidated investments is $317 million.

(h) Total debt as of June 15, 2012 and December 31, 2011 includes net discounts of $53 million and $63 million, respectively. 


 

 

HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to

EBITDA and Adjusted EBITDA

(unaudited, in millions)











Quarter ended

Year-to-date ended




June 15,

June 17,

June 15,

June 17,




2012

2011

2012

2011

Net income

$ 83

$ 64

$ 83

$ 4

Interest expense

94

89

180

171

Depreciation and amortization

159

148

311

287

Income taxes

12

8

(1)

(13)

Discontinued operations (a)

-

1

1

4

EBITDA

348

310

574

453

Gain on dispositions (b)

-

-

(48)

-

Acquisition costs

-

1

-

4

Non-cash impairment charges

-

3

-

3

Amortization of deferred gains

(1)

(2)

(2)

(3)

Equity investment adjustments:





Equity in earnings of affiliates

(5)

(4)

(3)

(2)

Pro rata Adjusted EBITDA of equity investments

10

9

12

11

Consolidated partnership adjustments:





Pro rata Adjusted EBITDA attributable to non-controlling partners in other consolidated partnerships

(4)

(4)

(10)

(9)

Adjusted EBITDA

$ 348

$ 313

$ 523

$ 457








(a) Reflects the interest expense, depreciation and amortization and incomes taxes included in discontinued operations.

(b) Reflects the gain recorded on the sale of the San Francisco Airport Marriott in the first quarter 2012.















Reconciliation of Net Income Available to Common Stockholders to

NAREIT and Adjusted Funds from Operations per Diluted Share

(unaudited, in millions, except per share amounts)











Quarter ended

Year-to-date ended




June 15,

June 17,

June 15,

June 17,




2012

2011

2012

2011

Net income

$ 83

$ 64

$ 83

$ 4

Less: Net income attributable to non-controlling interests

(1)

(2)

(3)

(2)

Net income available to common stockholders

82

62

80

2

Adjustments:





Gain on dispositions, net of taxes

-

-

(48)

-

Amortization of deferred gains and other property transactions, net of taxes

(1)

(2)

(2)

(3)

Depreciation and amortization

158

149

311

290

Non-cash impairment charges

-

3

-

3

Partnership adjustments

4

4

5

3

FFO of non-controlling interests of Host LP

(4)

(3)

(5)

(5)

NAREIT Funds From Operations

239

213

341

290

Adjustments to NAREIT FFO:





Loss on debt extinguishments (a)

14

5

14

5

Acquisition costs

1

1

1

4

Adjusted FFO

$ 254

$ 219

$ 356

$ 299






Adjustments for dilutive securities (b):





Assuming conversion of Exchangeable Senior Debentures

$ 7

$ 8

$ 14

$ 16

Diluted NAREIT FFO

$ 246

$ 221

$ 355

$ 306

Diluted Adjusted FFO

$ 261

$ 227

$ 370

$ 315






Diluted weighted average shares outstanding - EPS

730.6

687.1

713.8

683.0

Assuming conversion of Exchangeable Senior Debentures

28.8

49.7

40.3

49.6

Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO

759.4

736.8

754.1

732.6

NAREIT FFO per diluted share (b)

$ .32

$ .30

$ .47

$ .42

Adjusted FFO per diluted share (b)

$ .34

$ .31

$ .49

$ .43








(a) Represents costs primarily associated with the redemption of the Series S senior notes in 2012 and the Series K senior notes in 2011.

(b) Earnings/loss per diluted share and NAREIT FFO and Adjusted FFO per diluted share are adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for securities if they are anti-dilutive.

 

 


HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to EBITDA, Adjusted EBITDA and

NAREIT and Adjusted Funds From Operations per Diluted Share

for Full Year 2012 Forecasts (a)

(unaudited, in millions, except per share amounts)









Full Year 2012




Low-end

High-end




of range

of range

Net income

$ 104

$ 140

Interest expense

364

364

Depreciation and amortization

684

684

Income taxes

19

18

Discontinued operations

(2)

(2)

EBITDA

1,169

1,204

Gain on dispositions

(48)

(48)

Acquisition costs

7

7

Amortization of deferred gains

(4)

(4)

Equity investment adjustments:



Equity in earnings of affiliates

(7)

(7)

Pro rata Adjusted EBITDA of equity investments

33

33

Consolidated partnership adjustments:



Pro rata Adjusted EBITDA attributable to non-controlling partners in other consolidated partnerships

(15)

(15)

Adjusted EBITDA

$1,135

$1,170














Full Year 2012 Forecast




Low-end

High-end


of range

of range

Net income

$ 104

$ 140

Less: Net income attributable to non-controlling interests

(3)

(4)

Net income available to common stockholders

101

136

Adjustments:



Gain on dispositions

(48)

(48)

Depreciation and amortization

682

682

Amortization of deferred gains

(4)

(4)

Partnership adjustments

10

10

FFO of non-controlling interests of Host LP

(10)

(10)

NAREIT FFO

731

766

Adjustments:



Acquisition costs

9

9

Loss on debt extinguishments

22

22

Adjusted FFO

762

797

Adjustment for dilutive securities:



Assuming conversion of Exchangeable Senior Debentures

31

31

Diluted Adjusted FFO

$ 793

$ 828




Weighted average diluted shares - EPS

718.3

718.3

Weighted average diluted shares - NAREIT and Adjusted FFO (b)

759.0

759.0

Earnings per diluted share

$ .14

$ .19

NAREIT FFO per diluted share

$ 1.00

$ 1.05

Adjusted FFO per diluted share

$ 1.04

$ 1.09






(a) The forecasts were based on the below assumptions:

-- Comparable hotel RevPAR will increase 5.5% to 7.0% for the low and high ends of the forecasted

range, respectively.

-- Comparable hotel adjusted operating profit margins will increase 90 basis points to 130 basis points

for the low and high ends of the forecasted range, respectively.

-- Interest expense includes approximately $31 million related to non-cash interest expense for

exchangeable senior debentures, amortization of original issue discounts and deferred financing fees.

-- We expect to spend approximately $165 million to $175 million on ROI/redevelopment capital

expenditures and approximately $115 million to $125 million on acquisition capital expenditures.

-- We expect to spend approximately $310 million to $330 million on renewal and replacement expenditures.

-- Includes the July 16, 2012 acquisition of the Grand Hyatt Washington, D.C. No other

acquisitions are currently included in the forecast.

        --  Includes the disposition of $350 million of properties during the fourth quarter. Due to uncertainty around the
        completion and timing of these transactions, we have not adjusted the forecast for any use of proceeds, gains
        on sale or adjusted the number of comparable properties.

-- Includes the expected disposition of the Hartford Marriott Rocky Hill, which was classified

as held for sale at June 15, 2012.

For a discussion of additional items that may affect forecasted results, see Notes to the Financial Information.

(b) The Adjusted FFO per diluted share includes 41 million shares for the dilution of exchangeable senior debentures.



 

 

HOST HOTELS & RESORTS, INC.

Schedule of Comparable Hotel Adjusted Operating Profit Margin

for Full Year 2012 Forecasts (a)

(unaudited, in millions, except hotel statistics)









Full Year 2012




Low-end

High-end




of range

of range

Operating profit margin under GAAP (b)

7.9%

8.5%

Comparable hotel adjusted operating profit margin (c)

23.4%

23.8%




Comparable hotel sales



Room

$2,838

$2,879

Other

1,593

1,617

Comparable hotel sales (d)

4,431

4,496

Comparable hotel expenses



Rooms and other departmental costs

1,901

1,924

Management fees, ground rent and other costs

1,494

1,502

Comparable hotel expenses (e)

3,395

3,426

Comparable hotel adjusted operating profit

1,036

1,070

Non-comparable hotel results, net

173

175

Loss from hotels leased from HPT

(6)

(6)

Depreciation and amortization

(684)

(684)

Corporate and other expenses

(103)

(103)

Operating profit

$ 416

$ 452






(a) Forecast comparable hotel results include 104 hotels that we have assumed will be classified as comparable as of December 31, 2012. See "Comparable Hotel Operating Statistics" in Notes to Financial Information. No assurances can be made as to the hotels that will be in the comparable hotel set for 2012. Also, see the notes to the "Reconciliation of Net Income to EBITDA, Adjusted EBITDA and NAREIT and Adjusted Funds From Operations per Diluted Share for Full Year 2012 Forecasts" for other forecast assumptions and further discussion of our comparable hotel set.

(b) Operating profit margin under GAAP is calculated as the operating profit divided by the forecast total revenues per the consolidated statements of operations. See (d) below for forecasted revenues.

(c) Comparable hotel adjusted operating profit margin is calculated as the comparable hotel adjusted operating profit divided by the comparable hotel sales per the table above.

(d) The reconciliation of forecast total revenues to the forecast comparable hotel sales is as follows (in millions):









Full Year 2012




Low-end

High-end




of range

of range

Revenues

$5,260

$5,334

Non-comparable hotel revenues

(649)

(658)

Revenues for hotels leased from HPT

(231)

(231)

Hotel revenues for which we record rental income, net

51

51

      Comparable hotel sales

$4,431

$4,496






(e) The reconciliation of forecast operating costs and expenses to the comparable hotel expenses is as follows (in millions):









Full Year 2012




Low-end

High-end




of range

of range

Operating costs and expenses

$4,844

$4,882

Non-comparable hotel and other expenses

(476)

(483)

Expenses for hotels leased from HPT

(237)

(237)

Hotel expenses for which we record rental income

51

51

Depreciation and amortization

(684)

(684)

Corporate and other expenses

(103)

(103)

      Comparable hotel expenses

$3,395

$3,426


 

 

HOST HOTELS & RESORTS, INC.
Notes to Financial Information


FORECASTS

Our forecast of earnings per diluted share, NAREIT and Adjusted FFO per diluted share, EBITDA, Adjusted EBITDA and comparable hotel adjusted operating profit margins are forward-looking statements and are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause actual results and performance to differ materially from those expressed or implied by these forecasts. Although we believe the expectations reflected in the forecasts are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that the results will not be materially different. Risks that may affect these assumptions and forecasts include the following: potential changes in overall economic outlook make it inherently difficult to forecast the level of RevPAR and margin growth; the amount and timing of acquisitions and dispositions of hotel properties is an estimate that can substantially affect financial results, including such items as net income, depreciation and gains on dispositions; the level of capital expenditures may change significantly, which will directly affect the level of depreciation expense and net income; the amount and timing of debt payments may change significantly based on market conditions, which will directly affect the level of interest expense and net income; the amount and timing of transactions involving shares of our common stock may change based on market conditions; and other risks and uncertainties associated with our business described herein and in our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC.

REPORTING PERIODS FOR STATEMENT OF OPERATIONS

The results we report in our consolidated statements of operations are based on results of our hotels reported to us by our hotel managers. Our hotel managers use different reporting periods. Marriott International, Inc. ("Marriott"), the manager of approximately 55% of our properties, uses a fiscal year ending on the Friday closest to December 31 and reports twelve weeks of operations for the first three quarters and sixteen or seventeen weeks for the fourth quarter of the year for its Marriott-managed hotels. In contrast, other managers of our hotels, such as Starwood and Hyatt, report results on a monthly basis. Additionally, Host, as a REIT, is required by tax laws to report results on a calendar year. As a result, we elected to adopt the reporting periods used by Marriott except that our fiscal year always ends on December 31 to comply with REIT rules. Our first three quarters of operations end on the same day as Marriott but our fourth quarter ends on December 31 and our full year results, as reported in our consolidated statement of operations, always includes the same number of days as the calendar year.

Two consequences of the reporting cycle we have adopted are:  (1) quarterly start dates will usually differ between years, except for the first quarter which always commences on January 1, and (2) our first and fourth quarters of operations and year-to-date operations may not include the same number of days as reflected in prior years. For example, the second quarter of 2012 ended on June 15, and the second quarter of 2011 ended on June 17, though both quarters reflect twelve weeks of operations. In contrast, the June 15, 2012 year-to-date operations included 167 days of operations, while the June 17, 2011 year-to-date operations included 168 days of operations.

While the reporting calendar we adopted is more closely aligned with the reporting calendar used by the manager of a majority of our properties, one final consequence of our calendar is we are unable to report the month of operations that ends after our fiscal quarter-end until the following quarter because our hotel managers using a monthly reporting period do not make mid-month results available to us. Hence, the month of operation that ends after our fiscal quarter-end is included in our quarterly results of operations in the following quarter for those hotel managers (covering approximately 45% of our hotels). As a result, our quarterly results of operations include results from hotel managers reporting results on a monthly basis as follows:  first quarter (January, February), second quarter (March to May), third quarter (June to August) and fourth quarter (September to December). While this does not affect full-year results, it does affect the reporting of quarterly results.

REPORTING PERIODS FOR HOTEL OPERATING STATISTICS AND COMPARABLE HOTEL RESULTS

In contrast to the reporting periods for our consolidated statement of operations, our hotel operating statistics (i.e., RevPAR, average daily rate and average occupancy) and our comparable hotel results are always reported based on the reporting cycle used by Marriott for our Marriott-managed hotels. This facilitates year-to-year comparisons, as each reporting period will be comprised of the same number of days of operations as in the prior year (except in the case of fourth quarters comprised of seventeen weeks (such as fiscal year 2008) versus sixteen weeks). This means, however, that the reporting periods we use for hotel operating statistics and our comparable hotels results will typically differ slightly from the reporting periods used for our statements of operations for the first and fourth quarters and the full year. Results from hotel managers reporting on a monthly basis are included in our operating statistics and comparable hotels results consistent with their reporting in our consolidated statement of operations herein: 

  • Hotel results for the second quarter of 2012 reflect 12 weeks of operations for the period from March 24, 2012 to June 15, 2012 for our Marriott-managed hotels and results from March 1, 2012 to May 31, 2012 for operations of all other hotels which report results on a monthly basis.
  • Hotel results for the second quarter of 2011 reflect 12 weeks of operations for the period from March 26, 2011 to June 17, 2011 for our Marriott-managed hotels and results from March 1, 2011 to May 31, 2011 for operations of all other hotels which report results on a monthly basis.
  • Hotel results for year-to-date 2012 reflect 24 weeks of operations for the period from December 31, 2011 to June 15, 2012 for our Marriott-managed hotels and results from January 1, 2012 to May 31, 2012 for operations of all other hotels which report results on a monthly basis.
  • Hotel results for year-to-date 2011 reflect 24 weeks of operations for the period from January 1, 2011 to June 17, 2011 for our Marriott-managed hotels and results from January 1, 2011 to May 31, 2011 for operations of all other hotels which report results on a monthly basis.

COMPARABLE HOTEL OPERATING STATISTICS

To facilitate a year-to-year comparison of our operations, we present certain operating statistics (i.e., RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, adjusted operating profit and associated margins) for the periods included in this report on a comparable hotel basis. Because these statistics and operating results are for our hotel properties, they exclude results for our non-hotel properties and other real estate investments. We define our comparable hotels as properties:

(i) that are owned or leased by us and the operations of which are included in our consolidated results, whether as continuing operations or discontinued operations, for the entirety of the reporting periods being compared; and

(ii) that have not sustained substantial property damage or business interruption (for example, the New Orleans Marriott which was substantially damaged by Hurricane Katrina), or undergone large-scale capital projects (as further defined below) during the reporting periods being compared.

The hotel business is capital-intensive and renovations are a regular part of the business. Generally, hotels under renovation remain comparable hotels. A large scale capital project that would cause a hotel to be excluded from our comparable hotel set is an extensive renovation of several core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if the renovation would cause a hotel to be removed from the comparable hotel set, including unusual or exceptional circumstances such as: a reduction or increase in room count, rebranding, a significant alteration of the business operations, or the closing of the hotel during the renovation.

We do not include an acquired hotel in our comparable hotel set until the operating results for that hotel have been included in our consolidated results for one full calendar year. For example, we acquired the Westin Chicago River North in August of 2010. The hotel was not included in our comparable hotels until January 1, 2012. Hotels that we sell are excluded from the comparable hotel set once the transaction has closed. Similarly, hotels are excluded from our comparable hotel set from the date that they sustain substantial property damage or business interruption or commence a large-scale capital project. In each case, these hotels are returned to the comparable hotel set when the operations of the hotel have been included in our consolidated results for one full calendar year after completion of the repair of the property damage or cessation of the business interruption, or the completion of large-scale capital projects, as applicable.  

Of the 120 hotels that we owned on June 15, 2012, 106 have been classified as comparable hotels. The operating results of the following hotels that we owned as of June 15, 2012 are excluded from comparable hotel results for these periods:

  • Hilton Melbourne South Wharf (acquired in April 2011);
  • New York Helmsley Hotel (acquired in March 2011);
  • Manchester Grand Hyatt San Diego (acquired in March 2011);
  • The portfolio of seven hotels in New Zealand (acquired in February 2011);
  • Atlanta Marriott Perimeter Center (business interruption due to extensive renovations, which included renovation of the guest rooms, lobby, bar and restaurant and the demolition of one tower of the hotel, reducing the room count at the hotel);
  • Chicago Marriott O'Hare (business interruption due to extensive renovations, which included renovating every aspect of the hotel and shutting down over 200 rooms);
  • Sheraton Indianapolis Hotel at Keystone Crossing (business interruption due to extensive renovations, which included the conversion of one tower of the hotel into apartments, reducing the room count, and the renovation of the remaining guest rooms, lobby, bar and meeting space); and
  • San Diego Marriott Marquis & Marina (business interruption due to extensive renovations, which included the renovation of every aspect of the hotel and required the entire hotel to be closed for a period of time).

For the purposes of this forecast, we have assumed that for full year 2012 we will have 104 comparable hotels as, in addition to those listed above, we will also exclude from comparable hotel results (i) the results of the Hartford Marriott Rocky Hill, which was classified as held for sale at June 15, 2012, following its expected disposition and (ii) the results of the Orlando World Center Marriott Resort & Convention Center, as it is expected to experience significant business interruption beginning in the third quarter due to a large-scale capital project, which includes façade restoration, the shutdown of the main pool and a complete restoration and enhancement, including new water slides and activity areas, and new pool dining facilities and the renovation of one tower of guestrooms, meeting space and restaurants.

The operating results of (i) two hotels that we have disposed of in 2012 and 2011, (ii) the Le Méridien Piccadilly, which was transferred to the European joint venture in 2011, and (iii) the 53 Courtyard by Marriott properties leased from HPT, are not included in comparable hotel results for the periods presented herein.

NON-GAAP FINANCIAL MEASURES

Included in this press release are certain "non-GAAP financial measures," which are measures of our historical or future financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. They are as follows: (i) FFO and FFO per diluted share (both NAREIT and Adjusted), (ii) EBITDA, (iii) Adjusted EBITDA and (iv) Comparable Hotel Operating Results. The following discussion defines these terms and presents why we believe they are useful supplemental measures of our performance.

NAREIT FFO and NAREIT FFO per Diluted Share

We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period, in accordance with NAREIT guidelines. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding gains and losses from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation, amortization and impairments and adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect our pro rata FFO of those entities on the same basis. 

We believe that NAREIT FFO per diluted share is a useful supplemental measure of our operating performance and that the presentation of NAREIT FFO per diluted share, when combined with the primary GAAP presentation of earnings per share, provides beneficial information to investors. By excluding the effect of real estate depreciation, amortization, impairments and gains and losses from sales of depreciable real estate, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that such measures can facilitate comparisons of operating performance between periods and with other REITs, even though NAREIT FFO per diluted share does not represent an amount that accrues directly to holders of our common stock. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. As noted by NAREIT in its April 2002 "White Paper on Funds From Operations," since real estate values have historically risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, NAREIT adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance. 

Adjusted FFO per Diluted Share

We also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our annual budget process and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor's complete understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:

  • Gains and Losses on the Extinguishment of Debt – We exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs associated with the original issuance of the debt being redeemed or retired. We also exclude the gains on debt repurchases and the original issuance costs associated with the retirement of preferred stock. We believe that these items are not reflective of our ongoing finance costs.
  • Acquisition Costs – Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company.
  • Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.

EBITDA

Earnings before Interest Expense, Income Taxes, Depreciation and Amortization ("EBITDA") is a commonly used measure of performance in many industries. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of the Company's capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO and Adjusted FFO per diluted share, is widely used by management in the annual budget process and for our compensation programs.

Adjusted EBITDA

Historically, management has adjusted EBITDA when evaluating the performance of Host Inc. and Host L.P. because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to an investor's complete understanding of our operating performance. Adjusted EBITDA also is a relevant measure in calculating certain credit ratios. We adjust EBITDA for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA:

  • Real Estate Transactions – We exclude the effect of gains and losses, including the amortization of deferred gains, recorded on the disposition or acquisition of depreciable assets and property insurance gains in our consolidated statement of operations because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses from the depreciated value of the disposed assets could be less important to investors given that the depreciated asset value often does not reflect the market value of real estate assets as noted above.
  • Equity Investment Adjustments – We exclude the equity in earnings (losses) of affiliates as presented in our consolidated statement of operations because it includes our pro rata portion of the depreciation, amortization and interest expense related to such investments, which are excluded from EBITDA. We include our pro rata share of the Adjusted EBITDA of our equity investments as we believe this reflects more accurately the performance of our investments. The pro rata Adjusted EBITDA of equity investments is defined as the EBITDA of our equity investments adjusted for any gains or losses on property transactions multiplied by our percentage ownership in the partnership or joint venture.
  • Consolidated Partnership Adjustments – We deduct the non-controlling partners' pro rata share of Adjusted EBITDA of our consolidated partnerships as this reflects the non-controlling owners' interest in the EBITDA of our consolidated partnerships. The pro rata Adjusted EBITDA of non-controlling partners is defined as the EBITDA of our consolidated partnerships adjusted for any gains or losses on property transactions multiplied by the non-controlling partners' percentage ownership in the partnership or joint venture.
  • Cumulative Effect of a Change in Accounting Principle – Infrequently, the Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments because they do not reflect our actual performance for that period.
  • Impairment Losses – We exclude the effect of impairment losses recorded because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. In addition, we believe that impairment charges, which are based off of historical cost accounting values, are similar to gains and losses on dispositions and depreciation expense, both of which are excluded from EBITDA.
  • Acquisition Costs – Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.

Limitations on the Use of NAREIT FFO per Diluted Share, Adjusted FFO per Diluted Share, EBITDA and Adjusted EBITDA

We calculate NAREIT FFO per diluted share in accordance with standards established by NAREIT, which may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. In addition, although FFO per diluted share is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs. We also calculate Adjusted FFO per diluted share, which is not in accordance with NAREIT guidance and may not be comparable to measures calculated by other REITs. EBITDA and Adjusted EBITDA, as presented, may also not be comparable to measures 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 performance measure calculated in accordance with GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital expenditures), interest expense (for EBITDA and Adjusted EBITDA purposes only) and other items have been and will be incurred and are not reflected in the EBITDA, Adjusted EBITDA, NAREIT FFO per diluted share and Adjusted FFO per diluted share presentations. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statement of operations and cash flows include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. Additionally, NAREIT FFO per diluted share, Adjusted FFO per diluted share, EBITDA and Adjusted EBITDA should not be considered as a measure of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions. In addition, NAREIT FFO per diluted share and Adjusted FFO per diluted share do not measure, and should not be used as a measure of, amounts that accrue directly to stockholders' benefit.

Comparable Hotel Operating Results

We present certain operating results for our hotels, such as hotel revenues, expenses, adjusted operating profit (and the related margin) and food and beverage adjusted profit (and the related margin), on a comparable hotel, or "same store," basis as supplemental information for investors. Our comparable hotel results present operating results for hotels owned during the entirety of the periods being compared without giving effect to any acquisitions or dispositions, significant property damage or large scale capital improvements incurred during these periods. We present these comparable hotel operating results by eliminating corporate-level costs and expenses related to our capital structure, as well as depreciation and amortization. We eliminate corporate-level costs and expenses to arrive at property-level results because we believe property-level results provide investors with supplemental information into the ongoing operating performance of our hotels. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values have historically risen or fallen with market conditions, many real estate industry investors have considered presentation of historical cost accounting for operating results to be insufficient by themselves.

As a result of the elimination of corporate-level costs and expenses and depreciation and amortization, the comparable hotel operating results we present do not represent our total revenues, expenses, operating profit or operating profit margin and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance.

We present these hotel operating results on a comparable hotel basis because we believe that doing so provides investors and management with useful information for evaluating the period-to-period performance of our hotels and facilitates comparisons with other hotel REITs and hotel owners. In particular, these measures assist management and investors in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations at comparable hotels (which represent the vast majority of our portfolio) or from other factors, such as the effect of acquisitions or dispositions. While management believes that presentation of comparable hotel results is a "same store" supplemental measure that provides useful information in evaluating our ongoing performance, this measure is not used to allocate resources or to assess the operating performance of each of these hotels, as these decisions are based on data for individual hotels and are not based on comparable hotel results. For these reasons, we believe that comparable hotel operating results, when combined with the presentation of GAAP operating profit, revenues and expenses, provide useful information to investors and management.

SOURCE Host Hotels & Resorts, Inc.

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