Host Hotels & Resorts, Inc. Reports Operating Results For The Second Quarter And A 33% Increase In Its Third Quarter Dividend

BETHESDA, Md., July 31, 2014 /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 of 2014.

 

Operating Results

(in millions, except per share and hotel statistics)


Quarter ended June 30,

  Percent

Year-to-date ended June 30,

  Percent 


2014

2013

Change

2014

2013

Change 

Total revenues

$           1,431

$           1,399

2.3%

$           2,740

$           2,624

4.4%

Comparable hotel revenues(1)

1,350

1,305

3.4%

2,553

2,431

5.0%

Net income

159

121

31.4%

344

181

90.1%

Adjusted EBITDA(1)

411

431

(4.6)%

719

714

0.7%

Change in comparable hotel

     RevPAR - Constant US$

5.1%



5.9%



Change in comparable hotel

     RevPAR - Nominal US$

4.8%



5.4%










Diluted earnings per share

$                .21

$                .16

31.3%

$                .44

$                .24

83.3%

NAREIT FFO per diluted share(1)

.43

.39

10.3%

.75

.68

10.3%

Adjusted FFO per diluted share(1)

.43

.45

(4.4)%

.76

.73

4.1%

 

(1)   NAREIT Funds From Operations ("FFO") per diluted share, Adjusted FFO per diluted share, Adjusted EBITDA and comparable hotel operating results 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 Notes to Financial Information on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.

For the second quarter of 2014, the growth in comparable hotel RevPAR of 5.1%, on a constant US$ basis, was driven by an increase of 4.1% in average room rates, while average occupancy slightly increased to 81%. Comparable food and beverage revenues increased 0.8% for the quarter. The Company's comparable international hotels experienced a RevPAR increase of 16.2% for the quarter, driven by outstanding performance from its Latin American hotels. The increase in total revenues of 2.3% for the quarter reflects the effect of the timing of hotels acquired and sold during the comparable periods, which decreased total revenues by $25 million for the quarter on a net basis. Year-to-date the increase in comparable RevPAR of 5.9%, on a constant US $ basis, was driven by an increase in average room rates of 4.3% and an improvement in occupancy of 110 basis points.

The increase in net income for the second quarter of 2014 primarily reflects the improvement in operations and a decline in interest expense as a result of the refinancing or repayment of debt since the beginning of 2013. Year-to-date 2014, net income also benefited from $108 million of net gains on property sales.

Comparable hotel adjusted operating profit increased 5.5% for the quarter. However, the comparisons of Adjusted EBITDA and Adjusted FFO per diluted share to prior periods were affected by several recent transactions, including: the second quarter 2013 $21 million gain on sale of four acres of excess land adjacent to the Newport Beach Marriott Resort & Spa, the timing of acquisitions and dispositions, as well as costs (primarily selling expenses) associated with the development of timeshare units in Maui through a joint venture, which is expected to be completed by the end of the year. For the quarter, these transactions negatively affected the comparison of Adjusted EBITDA by $39 million, resulting in an overall decline of $20 million.

Comparable hotel adjusted operating profit increased 8.3% year-to-date, helping to drive a $5 million increase in Adjusted EBITDA. However, the above transactions also negatively affected year-to-date Adjusted EBITDA by $57 million.

Dividend 

The Company's policy is that it generally intends to distribute, over time, 100% of its taxable income, which is primarily dependent on the Company's results of operations, as well as gains and losses on property sales. The Company paid a regular quarterly cash dividend of $0.15 per share on its common stock on July 15, 2014 to stockholders of record on June 30, 2014. On July 31, 2014, the Board of Directors authorized a regular quarterly cash dividend of $0.20 per share on its common stock for the third quarter. The dividend will be paid on October 15, 2014 to stockholders of record on September 30, 2014. The third quarter dividend is a 33% increase over the prior quarter and represents the Company's intended regular quarterly dividend for the next several quarters, subject to Board approval. The Company may also pay a special dividend in the fourth quarter so that its annual distribution equates to its taxable income. While the Company intends to use available cash predominantly for acquisitions or other investments in its portfolio, to the extent that the Company does not identify appropriate investments, it may elect in the future to use available cash for other uses, such as special dividends, which would be in addition to taxable income. Any special dividend would be subject to approval by the Company's Board of Directors.

Capital Expenditures 

The Company continues to pursue opportunities to enhance asset value through select capital improvements, while ensuring that its high standards for product quality are maintained. Year-to-date, the Company has completed renovations of 2,800 guestrooms, over 100,000 square feet of meeting space and 60,000 square feet of public space.

  • Redevelopment And Return On Investment Expenditures ("ROI") - These projects are designed to increase cash flow and to improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties, including projects such as the redevelopment of a hotel, repositioning of a hotel restaurant or the installation of energy efficient systems. The Company invested approximately $18 million and $29 million in the second quarter and year-to-date 2014, respectively, in ROI capital expenditures. Projects completed during the second quarter include the renovation of approximately 10,000 square feet of restaurant and public space at the Denver Marriott West. The Company expects that ROI capital expenditures for 2014 will range from $65 million to $75 million.
  • Capital Expenditures for Recent Acquisitions - In conjunction with the acquisition of a property, the Company prepares capital and operational improvement plans designed to maximize profitability and to enhance the guest experience. The Company invested approximately $4 million and $7 million on these projects during the second quarter and year-to-date 2014, respectively. The Company expects that acquisition capital expenditures will total $25 million to $30 million for 2014.
  • Renewal and Replacement Expenditures - The Company invested approximately $71 million and $147 million in renewal and replacement capital expenditures during the second quarter and year-to-date 2014, respectively. During the quarter, major renewal and replacement projects completed include the renovation of 428 rooms in the south tower of the Sheraton Boston Hotel, along with 2,700 square feet of restaurant and public space. The Company expects that renewal and replacement expenditures for 2014 will total approximately $330 million to $350 million.

Balance Sheet 

During the second quarter of 2014, the Company completed the amendment and restatement of its credit facility, scheduled to mature in 2015, and its term loan, scheduled to mature in 2017, extending the final maturity for both to 2019, including extensions. As with the prior facility, the amended facility includes a revolving credit facility in an aggregate principal amount of up to $1 billion and a $500 million term loan. In addition, the all-in pricing was reduced 30 basis points on revolver borrowings, and 32.5 basis points on the term loan based on its current long-term unsecured debt rating. Therefore, U.S. dollar denominated borrowings today would result in an initial all-in rate of 1.35% and 1.28% on the revolver and term loan, respectively. The Company also redeemed $72 million of industrial revenue bonds with a weighted average interest rate of 7.4% in the second quarter of 2014.

The Company has approximately $440 million of cash and cash equivalents and $778 million of available capacity under its credit facility. As of June 30, 2014, the Company's total debt was $4.0 billion, with an average maturity of 5.7 years and an average interest rate of 4.8%, including nearly 79% with a fixed rate of interest.

European Joint Venture

The European joint venture's comparable hotel RevPAR on a constant euro basis increased approximately 0.6% and 1.5% for the second quarter and year-to-date 2014, respectively. The comparable RevPAR results were primarily driven by an increase in transient revenues. Additionally, on July 3, 2014, the joint venture refinanced the €69 million mortgage loan secured by three properties in Brussels, reducing the outstanding principal amount to €47.8 million and extending the maturity to 2019. Interest on the loan is a combination of fixed and floating with an initial all-in rate of 2.0%.

2014 Outlook

The Company anticipates that its 2014 operating results will increase as follows:


Full Year 2014


      Low-end     

of range

      High-end    

of range

Total comparable hotel RevPAR - Constant US$

5.75%

6.25%

Comparable hotel RevPAR for domestic properties

5.5%

6.0%

Comparable hotel RevPAR for international properties - Constant US$

9.5%

10.5%




Total revenues under GAAP

3.8%

4.3%

Total comparable hotel revenues

5.3%

5.8%

Operating profit margin under GAAP

             190 bps

             230 bps

Comparable hotel adjusted operating profit margins

             100 bps

             130 bps

Based upon these parameters, the Company estimates that its 2014 guidance is as follows (in millions, except per share amounts):


Full Year 2014


      Low-end     

of range

      High-end    

 of range

Earnings per diluted share

$                    .67

$                    .70

Net income

515

538

NAREIT FFO per diluted share

1.44

1.46

Adjusted FFO per diluted share

1.44

1.47

Adjusted EBITDA

1,380

1,405

See the 2014 Forecast Schedules and the Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecast 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 99 properties in the United States and 15 properties internationally, totaling approximately 60,000 rooms. The Company also holds non-controlling interests in five joint ventures, including one in Europe that owns 19 hotels with approximately 6,400 rooms and one in Asia that has interests in three hotels in Australia and India. 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 assumptions 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: changes in national and local economic and business conditions that will affect occupancy rates at our hotels and the demand for hotel products and services; the impact of geopolitical developments outside the U.S. on lodging demand; volatility in global financial and credit markets; operating risks associated with the hotel business; risks and limitations in our operating flexibility associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; risks associated with our relationships with property managers and joint venture partners; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; the effects of hotel renovations on our hotel occupancy and financial results; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; risks associated with our ability to complete acquisitions and dispositions and develop new properties and the risks that acquisitions and new developments may not perform in accordance with our expectations; our ability to continue to satisfy complex rules in order for us to remain a REIT for federal income tax purposes; risks associated with our ability to effectuate our dividend policy, including factors such as operating results and the economic outlook influencing our board's decision whether to pay further dividends at levels previously disclosed or to used available cash to make special dividends; 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 31, 2014, 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 Inc.," 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 Inc. and Host LP, the primary difference is approximately 1% of the partnership interests in Host LP held by outside partners as of June 30, 2014, 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.

HOST HOTELS & RESORTS, INC.

Condensed Consolidated Balance Sheets (1)

(in millions, except shares and per share amounts)





      June 30,     

December 31,


2014

2013


    (unaudited)  





ASSETS




Property and equipment, net

$             10,749

$             10,995

Due from managers

129

52

Advances to and investments in affiliates

416

415

Deferred financing costs, net

39

42

Furniture, fixtures and equipment replacement fund

171

173

Other

238

244

Restricted cash

33

32

Cash and cash equivalents

440

861

Total assets

$             12,215

$             12,814




LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY

Debt



Senior notes, including $378 million and $371 million, respectively, net of discount, of Exchangeable Senior Debentures

$               2,876

$               3,018

Credit facility, including the $500 million term loan

722

946

Mortgage debt

419

709

Other

13

86

Total debt

4,030

4,759

Accounts payable and accrued expenses

202

214

Other

388

389

Total liabilities

4,620

5,362




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

211

190




Host Hotels & Resorts, Inc. stockholders' equity:



Common stock, par value $.01, 1,050 million shares authorized, 755.6 million shares and 754.8 million shares issued and outstanding, respectively

8

8

Additional paid-in capital

8,485

8,492

Accumulated other comprehensive income (loss)

3

(9)

Deficit

(1,148)

(1,263)

Total equity of Host Hotels & Resorts, Inc. stockholders

7,348

7,228

Non-controlling interests—other consolidated partnerships

36

34

Total equity

7,384

7,262

Total liabilities, non-controlling interests and equity

$             12,215

$             12,814

                     

(1)   Our consolidated balance sheets as of June 30, 2014 have 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.

Condensed Consolidated Statements of Operations (1) 

(unaudited, in millions, except per share amounts)



    Quarter ended June 30,   

Year-to-date ended June 30,


2014

2013

2014

2013

Revenues





Rooms

$             921

$             891

$          1,729

$          1,654

Food and beverage

415

418

820

787

Other

95

90

191

183

Total revenues

1,431

1,399

2,740

2,624

Expenses





Rooms

234

227

460

442

Food and beverage

285

286

569

558

Other departmental and support expenses

320

316

635

623

Management fees

66

65

116

111

Other property-level expenses

98

92

195

187

Depreciation and amortization

174

171

346

345

Corporate and other expenses

29

37

63

63

Gain on insurance settlements

(3)

Total operating costs and expenses

1,206

1,194

2,381

2,329

Operating profit

225

205

359

295

Interest income

1

1

2

2

Interest expense (2)

(55)

(103)

(113)

(179)

Gain on sale of assets (3)

21

111

32

Gain (loss) on foreign currency transactions and derivatives

(1)

1

(1)

3

Equity in earnings (losses) of affiliates

4

6

(3)

4

Income before income taxes

174

131

355

157

Provision for income taxes

(15)

(15)

(11)

(7)

Income from continuing operations

159

116

344

150

Income from discontinued operations, net of tax

5

31

Net income

159

121

344

181

Less: Net income attributable to non-controlling interests

(4)

(2)

(10)

(6)

Net income attributable to Host Inc

$             155

$             119

$             334

$             175

Basic and diluted earnings per common share:





Continuing operations

$               .21

$               .15

$               .44

$               .20

Discontinued operations

.01

.04

Basic and diluted earnings per common share

$               .21

$               .16

$               .44

$               .24

                     

(1)   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.

(2)   Interest expense includes the following items:


      Quarter ended June 30,     

  Year-to-date ended June 30, 


2014

2013

2014

2013

Non-cash interest for exchangeable senior debentures

$                  4

$                  4

$                  8

$                  7

Debt extinguishment costs

2

33

4

33

Total

$                  6

$                37

$                12

$                40

(3)   Effective January 1, 2014, we adopted a new accounting standard for reporting discontinued operations. Under this standard, the disposal of a hotel, or group of hotels, is required to be reported in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. Under the new standard, we are not permitted to restate prior year results, so the results of operations of hotels sold in 2013 will continue to be reported in discontinued operations. 



HOST HOTELS & RESORTS, INC.

Earnings per Common Share

(unaudited, in millions, except per share amounts)





    Quarter ended June 30,   

Year-to-date ended June 30,


2014

2013

2014

2013

Net income

$             159

$             121

$             344

$             181

Less: Net income attributable to non-controlling interests

(4)

(2)

(10)

(6)

Net income attributable to Host Inc

155

119

334

175

Diluted income attributable to Host Inc

$             155

$             119

$             334

$             175






Basic weighted average shares outstanding

755.4

745.2

755.1

736.8

Assuming weighted average shares for conversion of exchangeable senior debentures

4.9

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

.5

.7

.5

.7

Diluted weighted average shares outstanding(1)

755.9

745.9

755.6

742.4

Basic and diluted earnings per common share

$              .21

$              .16

$              .44

$              .24

                     

(1)   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.


Hotel Operating Data for Consolidated Hotels(1)




Comparable Hotels by Market in Constant US$








    As of June 30, 2014   

        Quarter ended June 30, 2014       

        Quarter ended June 30, 2013       






Average



Average


   Percent  


     No. of   

     No. of   

  Average 

Occupancy


 Average

Occupancy


Change in

Market(2)          

Properties

   Rooms   

Room Rate

Percentage

  RevPAR  

Room Rate

Percentage

   RevPAR  

 RevPAR  

Boston

5

3,432

$      233.05

86.2%

$      200.93

$      215.13

86.7%

$      186.47

7.8%

New York

9

7,224

290.98

92.1

267.95

283.11

89.7

253.94

5.5

Philadelphia

2

776

223.54

82.8

185.17

223.85

85.0

190.21

(2.7)

Washington, D.C

12

6,016

211.20

86.0

181.59

219.23

84.8

185.98

(2.4)

Atlanta

6

2,280

169.06

74.0

125.06

168.53

74.6

125.66

(0.5)

Florida

7

3,230

207.29

81.3

168.53

195.91

75.8

148.51

13.5

Chicago

7

2,857

200.06

83.2

166.40

204.68

82.8

169.48

(1.8)

Denver

3

1,363

154.27

69.6

107.44

147.40

67.8

99.93

7.5

Houston

4

1,706

203.46

75.3

153.24

193.60

77.6

150.30

2.0

Phoenix

4

1,522

187.92

73.5

138.03

179.50

70.3

126.13

9.4

Seattle

3

1,774

186.77

81.2

151.63

171.62

80.6

138.33

9.6

San Francisco

5

3,701

219.61

85.0

186.74

197.54

84.1

166.17

12.4

Los Angeles

8

3,228

173.19

83.8

145.11

161.80

84.3

136.45

6.3

San Diego

5

4,691

194.74

81.5

158.80

185.38

81.1

150.39

5.6

Hawaii

2

1,256

353.24

77.5

273.89

334.04

79.7

266.15

2.9

Other

13

7,929

160.65

71.6

115.04

157.31

72.4

113.94

1.0

Domestic

95

52,985

213.10

81.6

173.90

205.76

80.9

166.46

4.5











Asia-Pacific

7

1,378

$      149.26

79.0%

$      117.99

$      146.68

78.0%

$      114.43

3.1%

Canada

3

1,219

186.61

71.0

132.48

175.17

71.4

125.03

6.0

Latin America

4

1,075

297.46

66.7

198.37

225.73

62.6

141.38

40.3

International

14

3,672

200.64

72.8

146.09

176.19

71.4

125.74

16.2

All Markets - Constant US$

109

56,657

212.37

81.0

172.08

204.05

80.3

163.80

5.1











All Owned Hotels in Constant US$(3)









    As of June 30, 2014   

        Quarter ended June 30, 2014       

        Quarter ended June 30, 2013       






 Average



Average


   Percent  


No. of

No. of

 Average

Occupancy


Average

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR 

RevPAR

Comparable Hotels

109

56,657

$      212.37

81.0%

$      172.08

$      204.05

80.3%

$      163.80

5.1%

Non-comparable Hotels (Pro Forma)

5

3,172

202.70

75.8

153.56

206.14

67.0

138.18

11.1

All Hotels

114

59,829

211.89

80.7

171.10

204.13

79.6

162.50

5.3











Comparable Hotels in Nominal US$









As of June 30, 2014

Quarter ended June 30, 2014

Quarter ended June 30, 2013






Average 



Average 


Percent  

International

No. of   

No. of

Average 

Occupancy


Average 

Occupancy


Change in

    Market          

Properties

Rooms

Room Rate

Percentage

RevPAR 

Room Rate

Percentage

RevPAR

RevPAR

Asia-Pacific

7

1,378

$      149.26

79.0%

$      117.99

$      147.88

78.0%

$      115.36

2.3%

Canada

3

1,219

186.61

71.0

132.48

186.61

71.4

133.19

(0.5)

Latin America

4

1,075

297.46

66.7

198.37

245.84

62.6

153.97

28.8

International

14

3,672

200.64

72.8

146.09

185.58

71.4

132.44

10.3

Domestic

95

52,985

213.10

81.6

173.90

205.76

80.9

166.46

4.5

All Markets

109

56,657

212.37

81.0

172.08

204.59

80.3

164.23

4.8











Comparable Hotels by Type in Nominal US$








As of June 30, 2014

Quarter ended June 30, 2014

Quarter ended June 30, 2013






Average



Average


Percent


No. of

No. of

Average

Occupancy


Average

Occupancy


Change in

Property Type(2)

Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR 

Urban

57

35,243

$      231.08

83.1%

$      191.91

$      224.16

82.4%

$      184.66

3.9%

Suburban

29

10,206

162.15

75.9

123.11

154.59

74.8

115.64

6.5

Resort

11

5,570

253.46

74.2

188.02

240.05

73.2

175.69

7.0

Airport

12

5,638

143.29

84.4

120.89

134.56

84.0

113.04

6.9

All Types

109

56,657

212.37

81.0

172.08

204.59

80.3

164.23

4.8













 




Comparable Hotels by Market in Constant US$









As of June 30, 2014

Year-to-date ended June 30, 2014

Year-to-date ended June 30, 2013






Average



Average


Percent


No. of

No. of

Average 

Occupancy


Average 

Occupancy


Change in

Market(2)          

Properties

Rooms

Room Rate

Percentage

RevPAR 

Room Rate

Percentage

RevPAR 

RevPAR 

Boston

5

3,432

$208.34

73.6%

$      153.44

$      192.71

76.6%

$      147.60

4.0%

New York

9

7,224

270.60

84.9

229.63

259.71

84.2

218.73

5.0

Philadelphia

2

776

208.44

80.7

168.26

213.18

74.1

157.89

6.6

Washington, D.C

12

6,016

208.75

77.8

162.47

215.58

76.5

164.82

(1.4)

Atlanta

6

2,280

170.34

74.4

126.70

165.34

73.4

121.33

4.4

Florida

7

3,230

226.68

83.5

189.36

218.49

80.0

174.74

8.4

Chicago

7

2,857

176.25

71.5

125.93

181.46

70.9

128.70

(2.2)

Denver

3

1,363

150.22

65.9

98.93

142.58

61.6

87.89

12.6

Houston

4

1,706

197.35

77.6

153.11

184.38

80.0

147.43

3.9

Phoenix

4

1,522

218.07

78.0

170.13

208.90

74.7

155.95

9.1

Seattle

3

1,774

175.83

76.7

134.79

162.07

73.4

118.96

13.3

San Francisco

5

3,701

217.41

81.3

176.82

192.13

77.9

149.75

18.1

Los Angeles

8

3,228

172.12

82.5

141.97

160.61

82.3

132.19

7.4

San Diego

5

4,691

195.41

81.0

158.24

185.35

77.3

143.28

10.4

Hawaii

2

1,256

378.79

82.0

310.44

353.91

84.5

299.05

3.8

Other

13

7,929

163.71

70.0

114.61

161.13

70.4

113.36

1.1

Domestic

95

52,985

208.66

77.8

162.34

200.80

76.7

153.94

5.5











Asia-Pacific

7

1,378

$      154.19

82.2%

$      126.81

$      148.67

80.7%

$      119.93

5.7%

Canada

3

1,219

178.87

66.5

119.00

169.31

67.9

114.89

3.6

Latin America

4

1,075

272.99

67.9

185.28

218.41

65.0

141.87

30.6

International

14

3,672

193.70

72.9

141.21

173.37

71.9

124.64

13.3

All Markets -Constant US$

109

56,657

207.74

77.5

160.96

199.12

76.4

152.03

5.9











All Owned Hotels in Constant US$(3)









As of June 30, 2014

Year-to-date ended June 30, 2014

Year-to-date ended June 30, 2013






Average 



Average 


Percent


No. of

No. of

Average

Occupancy


Average 

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Comparable Hotels

109

56,657

$      207.74

77.5%

$      160.96

$      199.12

76.4%

$      152.03

5.9%

Non-comparable Hotels (Pro Forma)

5

3,172

227.45

78.3

178.16

228.56

71.2

162.65

9.5

All Hotels

114

59,829

208.80

77.5

161.87

200.51

76.1

152.57

6.1











Comparable Hotels in Nominal US$









As of June 30, 2014

Year-to-date ended June 30, 2014

Year-to-date ended June 30, 2013






Average 



Average 


   Percent  

International

No. of   

No. of

Average 

Occupancy


Average 

Occupancy


Change in

Market 

Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Asia-Pacific

7

1,378

$      154.19

82.2%

$      126.81

$      154.37

80.7%

$      124.53

1.8%

Canada

3

1,219

178.87

66.5

119.00

182.55

67.9

123.87

(3.9)

Latin America

4

1,075

272.99

67.9

185.28

243.80

65.0

158.37

17.0

International

14

3,672

193.70

72.9

141.21

186.58

71.9

134.13

5.3

Domestic

95

52,985

208.66

77.8

162.34

200.80

76.7

153.94

5.5

All Markets

109

56,657

207.74

77.5

160.96

199.93

76.4

152.65

5.4











Comparable Hotels by Type in Nominal US$








As of June 30, 2014

Year-to-date ended June 30, 2014

Year-to-date ended June 30, 2013






Average 



Average 


   Percent  


No. of

No. of

Average 

Occupancy


Average 

Occupancy


Change in

Property Type(2)

Properties

Rooms

Room Rate

Percentage

RevPAR  

Room Rate

Percentage

RevPAR 

RevPAR 

Urban

57

35,243

$      220.62

78.4%

$      172.86

$      213.42

77.5%

$      165.48

4.5%

Suburban

29

10,206

163.70

71.6

117.21

155.59

70.5

109.74

6.8

Resort

11

5,570

270.81

78.2

211.82

258.02

77.0

198.66

6.6

Airport

12

5,638

140.90

81.9

115.42

132.64

78.8

104.59

10.4

All Types

109

56,657

207.74

77.5

160.96

199.93

76.4

152.65

5.4













                                                                  


(1)    See the Notes to Financial Information for a discussion of comparable hotel operating statistics and constant US$ presentation. Nominal US$ results include the effect of currency fluctuations, consistent with our financial statement presentation.

(2)    See the Notes to Financial Information for a description of these markets and property types.

(3)    Operating statistics presented are for all consolidated properties owned as of June 30, 2014 and do not include the results of operations for properties sold in 2014 or 2013. Operations for the two hotels acquired in 2014 and 2013 are presented on a pro forma basis, assuming they were owned as of January 1, 2013. See the Notes to Financial Information for further information on these pro forma statistics and the limitations on their use.

HOST HOTELS & RESORTS, INC.

Hotel Operating Data – European Joint Venture


European Joint Venture Hotels







As of June 30, 2014

Quarter ended June 30, 2014 

Quarter ended June 30, 2013






Average 



Average 


   Percent  


No. of

No. of

  Average 

Occupancy


  Average 

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR 

Room Rate

Percentage

RevPAR

RevPAR

Total comparable – in Constant Euros (1)    

18

5,962

€      189.89

85.3%

€      161.92

€      191.22

84.2%

€      161.00

0.6%

Total comparable – in Nominal Euros (1)

18

5,962

189.89

85.3

161.92

190.24

84.2

160.17

1.1

All Hotels (Pro Forma) – in Constant Euros (2)

19

6,427

189.89

85.0

161.46

190.62

84.0

160.14

0.8












 


As of June 30, 2014

Year-to-date ended June 30, 2014

Year-to-date ended June 30, 2013






Average 



Average 


   Percent  


No. of

No. of

  Average 

Occupancy


Average 

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR  

Room Rate

Percentage

RevPAR 

RevPAR

Total comparable – in Constant Euros (1)

18

5,962

€      177.41

76.6%

€      135.89

€      178.68

75.0%

€      133.93

1.5%

Total comparable – in Nominal Euros (1)

18

5,962

177.41

76.6

135.89

177.89

75.0

133.34

1.9

All Hotels (Pro Forma) – in Constant Euros (2)

19

6,427

177.13

76.4

135.32

178.03

74.7

132.90

1.8












                     

(1)    Total comparable statistics include the operating performance for the 18 properties in the joint venture with comparable results (determined on the same basis as our consolidated comparable hotel portfolio). The total comparable statistics exclude the Sheraton Stockholm Hotel, which was acquired in 2013 as the joint venture did not own the hotel for the entirety of 2013. See Notes to Financial Information for a discussion of the constant Euro and nominal Euro presentation.

(2)    Operating statistics presented are for all properties owned by the joint venture as of June 30, 2014 and do not include the results of operations for one property sold in 2013. Operations for the Sheraton Stockholm hotel are presented on a pro forma basis, assuming it was owned as of January 1, 2013. See Notes to Financial Information for further information on these pro forma statistics and limitations on their use.

HOST HOTELS & RESORTS, INC.

Comparable Hotel Operating Data

Schedule of Comparable Hotel Results (1)

(unaudited, in millions, except per share amounts)





Quarter ended June 30,

Year-to-date ended June 30,


2014

2013

2014

2013


Number of hotels

109

109

109

109


Number of rooms

56,657

56,657

56,657

56,657


Percent change in comparable hotel RevPAR - Constant US$

5.1%

5.9%


Percent change in comparable hotel RevPAR - Nominal US$

4.8%

5.4%


Operating profit margin(2)

15.7%

14.7%

13.1%

11.2%


Comparable hotel adjusted operating profit margin(2)

29.6%

29.0%

27.0%

26.2%


Comparable hotel revenues






Room

$             888

$             847

$          1,651

$          1,566


Food and beverage(3)

389

386

759

724


Other

73

72

143

141


Comparable hotel revenues(4)

1,350

1,305

2,553

2,431


Comparable hotel expenses






Room

225

215

440

417


Food and beverage(5)

268

265

532

515


Other

36

36

71

71


Management fees, ground rent and other costs

421

410

821

792


Comparable hotel expenses(6)

950

926

1,864

1,795


Comparable hotel adjusted operating profit

400

379

689

636


Non-comparable hotel results, net(7)

28

34

79

67


Depreciation and amortization

(174)

(171)

(346)

(345)


Corporate and other expenses

(29)

(37)

(63)

(63)


Operating profit

$             225

$             205

$             359

$             295


                     

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

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

(3)    The reconciliation of total food and beverage sales per the consolidated statements of operations to the comparable food and beverage sales is as follows:


Quarter ended June 30,

Year-to-date ended June 30, 


2014

2013

2014

2013

Food and beverage sales per the consolidated statements of operations

$              415

$              418

$              820

$              787

Non-comparable hotel food and beverage sales

(36)

(40)

(82)

(82)

Food and beverage sales for the property for which we record rental income

10

8

21

19

Comparable food and beverage sales

$              389

$              386

$              759

$              724

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


Quarter ended June 30,

Year-to-date ended June 30,


2014

2013

2014

2013

Revenues per the consolidated statements of operations

$           1,431

$           1,399

$           2,740

$           2,624

Non-comparable hotel revenues

(95)

(107)

(217)

(220)

Hotel revenues for which we record rental income, net

14

13

30

27

Comparable hotel revenues

$           1,350

$           1,305

$           2,553

$           2,431

 

(5)   The reconciliation of total food and beverage expenses per the consolidated statements of operations to the comparable food and beverage expenses is as follows:


Quarter ended June 30,

Year-to-date ended June 30, 


2014

2013

2014

2013

Food and beverage expenses per the consolidated statements of operations

$              285

$              286

$              569

$              558

Non-comparable hotel food and beverage expenses

(23)

(26)

(49)

(54)

Food and beverage expenses for the property for which we record rental income

6

5

12

11

Comparable food and beverage expenses

$              268

$              265

$              532

$              515

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


Quarter ended June 30,

Year-to-date ended June 30,


2014

2013

2014

2013

Operating costs and expenses per the consolidated statements of operations

$           1,206

$           1,194

$           2,381

$           2,329

Non-comparable hotel expenses

(67)

(73)

(138)

(153)

Hotel expenses for which we record rental income

14

13

30

27

Depreciation and amortization

(174)

(171)

(346)

(345)

Corporate and other expenses

(29)

(37)

(63)

(63)

Comparable hotel expenses

$              950

$              926

$           1,864

$           1,795

(7)    Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels and sold hotels whose operations are included in our consolidated statements of operations as continuing operations, (ii) gains on property insurance settlements and (iii) the results of our office buildings.

HOST HOTELS & RESORTS, INC.
Other Financial Data

(unaudited, in millions, except per share amounts)





June 30,

2014

December 31,

2013        

Equity






Common shares outstanding

755.6

754.8

Common shares outstanding assuming conversion of OP Units(1)

765.2

764.5

Preferred OP Units outstanding

.02

.02







Security pricing






Common stock(2)

$               22.01

$               19.44

2½% Exchangeable Senior Debentures(3)

$            1,702.5

$            1,507.7











Quarter

Year-to-date





ended

ended





June 30,

June 30,

Dividends declared per common share





2014

$                    .15

$                    .29

2013

.11

.21







Debt






Senior debt

Rate


Maturity date

June 30,

2014

December 31,

2013

Series Q

            6¾%


             6/2016

$                      —

$                   150

Series V

6%


           11/2020

500

500

Series X

            5⅞%


             6/2019

498

497

Series Z

6%


           10/2021

300

300

Series B

            5¼%


             3/2022

350

350

Series C

            4¾%


             3/2023

450

450

Series D

            3¾%


           10/2023

400

400

Exchangeable senior debentures (4)

           2½%


           10/2029

378

371

Credit facility term loan

1.3%


             6/2017

500

500

Credit facility revolver(5)

1.6%


             6/2018

222

446





3,598

3,964







Mortgage debt and other






Mortgage debt (non-recourse)

   3.3-6.3%


2/2016-1/2024

419

709

Other

7.1%


             9/2015

13

86

Total debt (6)(7)




$               4,030

$               4,759

Percentage of fixed rate debt




79%

71%

Weighted average interest rate




4.8%

4.7%

Weighted average debt maturity




           5.7 years

           5.3 years

Forecast cash interest(8)




$                   193


                     

(1)    Each OP Unit is redeemable for cash or, at our option, for 1.021494 common shares of Host Inc. At June 30, 2014 and December 31, 2013, there were 9.4 million and 9.5 million common OP Units, respectively, held by non-controlling interests.

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

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

(4)    At June 30, 2014, the principal balance outstanding of the 2½% Exchangeable Senior Debentures due 2029 is $400 million. The discount related to these debentures is amortized through October 15, 2015, the first date at which holders can require us to repurchase the debentures for cash.

(5)    The interest rate shown is the weighted average rate of the outstanding credit facility at June 30, 2014.       

(6)    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 30, 2014, our non-controlling partners' share of consolidated debt is $94 million and our share of debt in unconsolidated investments is $556 million.  

(7)    Total debt as of June 30, 2014 and December 31, 2013 includes net discounts of $24 million and $31 million, respectively.      

(8)    Reflects forecast cash interest expense based on existing debt as of the balance sheet date. The following chart reconciles forecast cash interest to the forecast full year 2014 interest expense. See footnote (a) to the Reconciliation of Net Income to EBITDA, Adjusted EBITDA and NAREIT and Adjusted Funds From Operations per Diluted Shares for 2014 Forecasts for full year forecast assumptions.   

Forecast interest expense full year 2014

$                   219

Non-cash interest for exchangeable senior debentures

(16)

Amortization of deferred financing costs

(9)

Non-cash debt extinguishment costs

(2)

Change in accrued interest

1

Forecast cash interest full year 2014

$                   193

 


HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to

EBITDA and Adjusted EBITDA (1)

(unaudited, in millions, except per share amounts)



Quarter ended June 30,

Year-to-date ended June 30,


2014

2013

2014

2013

Net income (2)

$             159

$             121

$             344

$             181

Interest expense

55

103

113

179

Depreciation and amortization

174

171

346

345

Income taxes

15

15

11

7

Discontinued operations(3)

4

11

EBITDA (2)

403

414

814

723

Gain on dispositions(4)

(111)

(19)

Acquisition costs

1

2

1

Recognition of deferred gain on land condemnation(5)

(11)

Litigation loss(6)

8

8

Equity investment adjustments:





Equity in (earnings) losses of affiliates

(4)

(6)

3

(4)

Pro rata Adjusted EBITDA of equity investments

19

18

26

26

Consolidated partnership adjustments:





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

(7)

(4)

(15)

(10)

Adjusted EBITDA (2)

$             411

$             431

$             719

$             714

                     

(1)    See the Notes to Financial Information for discussion of non-GAAP measures.            

(2)    EBITDA and Adjusted EBITDA include a gain of $21 million for the second quarter and year-to-date ended June 30, 2013 for the sale of excess land adjacent to our Newport Beach Marriott Hotel & Spa.

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

(4)    Reflects the sale of an 89% controlling interest in one hotel in 2014 and the sale of one hotel during the first quarter of both 2014 and 2013.

(5)    During the first quarter of 2013, we recognized a previously deferred gain of approximately $11 million related to the eminent domain claim by the State of Georgia for 2.9 acres of land at the Atlanta Marriott Perimeter Center for highway expansion, for which we received cash proceeds in 2007. We have included the gain in NAREIT FFO per diluted share, which is consistent with the treatment of gains recognized on the disposition of undepreciated assets. However, due to the significant passage of time since we received the proceeds, we have excluded the gain from Adjusted FFO per diluted share and Adjusted EBITDA for the year.

(6)    Effective April 1, 2013, we modified the definition of Adjusted EBITDA to exclude gains or losses associated with litigation outside the ordinary course of business, which is consistent with the definition of Adjusted FFO that we adopted effective January 1, 2011. See Notes to Financial Information for further discussion. The $8 million accrual for the quarter and year-to-date ended June 30, 2013 relates to the San Antonio Marriott Rivercenter litigation. See forecast assumptions in 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 2014 Forecasts" for further discussion. 


HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to NAREIT and

Adjusted Funds From Operations per Diluted Share (1)

(unaudited, in millions, except per share amounts)





Quarter ended June 30,

Year-to-date ended June 30,


2014

2013

2014

2013

Net income(2)

$             159

$             121

$             344

$             181

Less: Net income attributable to non-controlling interests

(4)

(2)

(10)

(6)

Net income attributable to Host Inc

155

119

334

175

Adjustments:





Gain on dispositions, net of taxes(4)

(108)

(19)

Depreciation and amortization

173

174

344

350

Equity investment adjustments:





Equity in (earnings) losses of affiliates

(4)

(6)

3

(4)

Pro rata FFO of equity investments

12

14

13

19

Consolidated partnership adjustments:





FFO adjustment for non-controlling partnerships

(2)

(2)

(4)

(3)

FFO adjustments for non-controlling interests of Host L.P

(2)

(2)

(3)

(4)

NAREIT FFO(2)

332

297

579

514

Adjustments to NAREIT FFO:





Loss on debt extinguishment

2

37

4

37

Acquisition costs

1

2

1

Recognition of deferred gain on land condemnation (5)

(11)

Litigation loss(6)

8

8

Loss attributable to non-controlling interests

(1)

Adjusted FFO(2)

$             334

$             342

$             585

$             549






For calculation on a per share basis:










Adjustments for dilutive securities(3):





Assuming conversion of Exchangeable Senior Debentures

$                  7

$                  6

$               13

$               13

Diluted NAREIT FFO

$              339

$             303

$             592

$             527

Diluted Adjusted FFO

$              341

$             348

$             598

$             562






Diluted weighted average shares outstanding-EPS

755.9

745.9

755.6

742.4

Assuming conversion of Exchangeable Senior Debentures

30.3

29.5

30.1

29.3

Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO

786.2

775.4

785.7

771.7

NAREIT FFO per diluted share

$            0.43

$            0.39

$            0.75

$            0.68

Adjusted FFO per diluted share

$            0.43

$            0.45

$            0.76

$            0.73

                     

(1)    See the Notes to Financial Information for discussion of non-GAAP measures.       

(2)    NAREIT and Adjusted FFO include a gain of $21 million for the second quarter and year-to-date ended June 30, 2013 for the sale of excess land adjacent to our Newport Beach Marriott Hotel & Spa.

(3)    Earnings 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.

(4-6)        Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA and Adjusted EBITDA.

HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to EBITDA, Adjusted EBITDA and

NAREIT and Adjusted Funds From Operations per Diluted Shares for 2014 Forecasts (1)

(unaudited, in millions, except per share amounts)




Full Year 2014


Low-end

of range

High-end

of range

Net income

$                   515

$                   538

Interest expense

219

219

Depreciation and amortization

691

691

Income taxes

24

26

EBITDA

1,449

1,474

Gain on dispositions(2)

(111)

(111)

Acquisition costs

2

2

Equity investment adjustments:



Equity in earnings of affiliates

(9)

(9)

Pro rata Adjusted EBITDA of equity investments

72

72

Consolidated partnership adjustments:



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

(23)

(23)

Adjusted EBITDA

$               1,380

$               1,405





Full Year 2014


Low-end

of range

High-end

of range

Net income

$                   515

$                   538

Less: Net income attributable to non-controlling interests

(11)

(11)

Net income attributable to Host Inc

504

527

Gain on disposition, net of tax (2)

(108)

(108)

Depreciation and amortization

688

688

Equity investment adjustments:



Equity in earnings of affiliates

(9)

(9)

Pro rata FFO of equity investments

43

43

Consolidated partnership adjustments:



FFO adjustment for non-controlling partners in other consolidated partnerships

(8)

(8)

FFO adjustment for non-controlling interests of Host LP

(8)

(8)

NAREIT FFO

1,102

1,125

Loss on debt extinguishments

4

4

Acquisition costs

2

2

Adjusted FFO

1,108

1,131

Adjustment for dilutive securities:



Assuming conversion of Exchangeable Senior Debentures

27

27

Diluted NAREIT FFO

1,129

1,152

Diluted Adjusted FFO

$               1,135

$               1,158




Weighted average diluted shares EPS

755.9

755.9

Weighted average diluted shares NAREIT and Adjusted FFO(3)

786.7

786.7

Earnings per diluted share

$                    .67

$                    .70

NAREIT FFO per diluted share

$                  1.44

$                  1.46

Adjusted FFO per diluted share

$                  1.44

$                  1.47

                                 

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

  • Total comparable hotel RevPAR in constant US$ will increase 5.75% to 6.25% for the low and high end of the forecast range. However, the effect of estimated changes in foreign currency has been reflected in the forecast of net income, EBITDA, earnings per diluted share and Adjusted FFO per diluted share.
  • Comparable hotel adjusted operating profit margins will increase 100 basis points to 130 basis points for the low and high ends of the forecasted range, respectively.
  • Interest expense includes approximately $4 million related to debt extinguishments and $25 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 $90 million to $105 million on ROI/redevelopment and acquisition capital expenditures and approximately $330 million to $350 million on renewal and replacement expenditures. Additionally, we expect to spend approximately $65 million on new development projects in 2014.
  • Our overall operating results, including net income, Adjusted EBITDA and Adjusted FFO per share have been reduced to reflect unspecified dispositions totaling $200 million for the remainder of the year. However, due to uncertainty related to the completion and timing of any potential acquisitions and dispositions, we have not adjusted the forecast for any use of proceeds, gains on sale, acquisition costs or adjusted the number of, or results from, comparable properties for acquisitions or dispositions that have not yet occurred.
  • San Antonio Marriott Rivercenter Litigation (Keystone) – On June 13, 2014, the Texas Supreme Court reversed the court of appeals judgment, the effect of which is that we would no longer be liable for the jury verdict and punitive damages award. However, Keystone has indicated that it will request a rehearing on the Court's decision. We have accrued a loss contingency of approximately $69 million related to this litigation, which includes a court-ordered $25 million escrow reserve for this legal proceeding. If the motion for rehearing is denied, we will reverse the accrual and cancel the escrow reserve bond when the Court concludes the case by issuance of its final mandate. No assurances can be given, however, as to the outcome of the motion for rehearing. For further details on this legal proceeding, see our recent filings with the SEC on Form 10‑Q and Form 10‑K.

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

(2)      Represents the gain on the January 10, 2014 disposition of an 89% interest in the Philadelphia Marriott Downtown.

(3)      The NAREIT and Adjusted FFO per diluted share include 30.8 million shares for the dilution of exchangeable senior debentures.


HOST HOTELS & RESORTS, INC.

Schedule of Comparable Hotel Adjusted Operating Profit Margin

for 2014 Forecasts (1)

(unaudited, in millions, except hotel statistics)



Full Year 2014


Low-end

of range

High-end

of range

Operating profit margin under GAAP(2)

11.8%

12.2%

Comparable hotel adjusted operating profit margin (3)

26.4%

26.7%

Comparable hotel sales



Room

$               3,324

$               3,340

Food and beverage

1,446

1,453

Other

286

287

Comparable hotel sales (4)

5,056

5,080

Comparable hotel expenses



Rooms, food and beverage and other departmental costs

2,075

2,075

Management fees, ground rent and other costs

1,648

1,650

Comparable hotel expenses(5)

3,723

3,725

Comparable hotel adjusted operating profit

1,333

1,355

Non-comparable hotel results, net

109

111

Depreciation and amortization

(691)

(691)

Corporate and other expenses

(116)

(116)

Operating profit

$                   635

$                   659

                     

(1)   Forecast comparable hotel results include 109 hotels that we have assumed will be classified as comparable as of December 31, 2014. See "Comparable Hotel Operating Statistics" in the Notes to Financial Information. No assurances can be made as to the hotels that will be in the comparable hotel set for 2014. 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 2014 Forecasts" for other forecast assumptions and further discussion of our comparable hotel set.                

(2)   Operating profit margin under GAAP is calculated as the operating profit divided by the forecast total revenues per the consolidated statements of operations. See (4) below for forecast revenues.

(3)   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.

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


Low-end

of range

High-end

of range

Revenues

$               5,361

$               5,388

Non-comparable hotel revenues

(360)

(363)

Hotel revenues for which we record rental income, net

55

55

Comparable hotel sales

$               5,056

$               5,080

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



Low-end

of range

High-end

of range

Operating costs and expenses

$               4,726

$               4,729

Non-comparable hotel and other expenses

(251)

(252)

Hotel expenses for which we record rental income

55

55

Depreciation and amortization

(691)

(691)

Corporate and other expenses

(116)

(116)

Comparable hotel expenses

$               3,723

$               3,725

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.

Comparable Hotel Operating Statistics

To facilitate a quarter-to-quarter 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 relate only to 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, 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 Hyatt Place Waikiki Beach in May of 2013. The hotel will not be included in our comparable hotels until January 1, 2015. 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 114 hotels that we owned on June 30, 2014, 109 have been classified as comparable hotels. The operating results of the following hotels that we owned as of June 30, 2014 are excluded from comparable hotel results for these periods:

  • Powell Street Hotel (acquired in January 2014);
  • The Ritz-Carlton, Naples, removed in the third quarter of 2013 (business interruption due to closure of the hotel during extensive renovations that were substantially completed in October 2013, which included renovations of 450 rooms, including 35 suites, restaurant, façade and windows);
  • Hyatt Place Waikiki Beach (acquired in May 2013);
  • Novotel Christchurch Cathedral Square in Christchurch, New Zealand (business interruption due to closure of the hotel following an earthquake in February 2011 and the subsequent extensive renovations, which hotel reopened in August 2013);
  • Orlando World Center Marriott, removed in the third quarter of 2012 (business interruption due to extensive renovations that were substantially completed in July 2013, which included façade restoration, the shutdown of the main pool and a complete restoration and enhancement of the hotel, including new water slides and activity areas, new pool, dining facilities and the renovation of one tower of guestrooms, meeting space and restaurants);

The operating results of seven hotels disposed of in 2014 and 2013 are not included in comparable hotel results for the periods presented herein. These operations are also excluded from the hotel operating data for all owned hotels on pages 10 and 11.

Operating statistics for the non-comparable hotels listed above are included in the hotel operating data for all owned hotels. By definition, the RevPAR results for these properties are not comparable due to the reasons listed above, and, therefore, are not indicative of the overall trends for our portfolio. The operating results for the two hotels acquired in 2014 and 2013 are also included in the all owned hotel operating data on a pro forma basis, which includes operating results assuming they were owned as of January 1, 2013 and based on actual results obtained from the managers for periods prior to our ownership. For these two hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results. All owned hotel operating statistics are provided for completeness and to show the difference between our comparable hotel information (upon which we usually evaluate performance) and all of our hotels, including non-comparable hotels. Also, while they may not be illustrative of trends (as compared to comparable hotel operating statistics), changes in all owned hotel statistics will have an effect on our overall revenues. We also present all owned hotel statistics for our joint venture in Europe using the same methodology as our consolidated hotels.

We evaluate the operating performance of our comparable hotels based on both market and property type. These divisions are generally consistent with groupings recognized in the lodging industry.

Our markets consist of the following:

Domestic

  • Boston – Greater Boston Metropolitan area;
  • New York – Greater New York Metropolitan area, including northern New Jersey;
  • Philadelphia – Philadelphia Metropolitan area;
  • Washington, D.C. – Metropolitan area, including the Maryland and Virginia suburbs;
  • Atlanta – Atlanta Metropolitan area;
  • Florida – All Florida locations;
  • Chicago – Chicago Metropolitan area;
  • Denver – Denver Metropolitan area;
  • Houston – Houston Metropolitan area;
  • Phoenix – Phoenix Metropolitan area, including Scottsdale;
  • Seattle – Seattle Metropolitan area;
  • San Francisco – Greater San Francisco Metropolitan area, including San Jose;
  • Los Angeles – Greater Los Angeles area, including Orange County;
  • San Diego – San Diego Metropolitan area;
  • Hawaii – All Hawaii locations;
  • Other – Select cities in California, Indiana, Louisiana, Minnesota, Missouri, North Carolina, Ohio, Tennessee, and Texas;

International

  • Asia-Pacific – Australia and New Zealand;
  • Canada – Toronto and Calgary; and
  • Latin America – Brazil, Chile and Mexico.

Our property types consist of the following:

  • Urban – Hotels located in primary business districts of major cities;
  • Suburban – Hotels located in office parks or smaller secondary markets;
  • Resort – Hotels located in resort destinations such as Arizona, Florida, Hawaii and Southern California; and
  • Airport – Hotels located at or near airports.

Constant US$, Nominal US$ and Constant Euros

Operating results denominated in foreign currencies are translated using the prevailing exchange rates on the date of the transaction, or monthly based on the weighted average exchange rate for the period. For comparative purposes, we also present the RevPAR results for the prior year assuming the results for our foreign operations were translated using the same exchange rates that were effective for the comparable periods in the current year, thereby eliminating the effect of currency fluctuation for the year-over-year comparisons. For the full year forecast results, we use the applicable forward currency curve (as published by Bloomberg L.P.) for each monthly period to estimate forecast foreign operations in US dollars and have restated the prior year RevPAR results using the same forecast exchange rates to estimate year-over-year growth in RevPAR in constant US$. We believe this presentation is useful to investors as it shows growth in RevPAR in the local currency of the hotel consistent with how we would evaluate our domestic portfolio. However, the estimated effect of changes in foreign currency has been reflected in the actual and forecast results of net income, EBITDA, earnings per diluted share and Adjusted FFO per diluted share. Nominal US$ results include the effect of currency fluctuations, consistent with our financial statement presentation.

We also present RevPAR results for our joint venture in Europe in constant Euros using the same methodology as used for the constant US$ presentation.

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 measures 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 share of the 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 the write-off of deferred financing costs associated with the original issuance of the debt being redeemed or retired and incremental interest expense incurred during the refinancing period. 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.

In unusual circumstances, we may also adjust NAREIT FFO for gains or losses that management believes are not representative of the Company's current operating performance. For example, in the first quarter of 2013, management excluded the $11 million gain from the eminent domain claim for land adjacent to the Atlanta Marriott Perimeter Center for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of NAREIT and Adjusted FFO.

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 LP 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 book value of the disposed assets could be less important to investors given that the depreciated asset book 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 expense 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 expense, which is based on historical cost book values, is 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.
  • Litigation Gains and Losses – Effective April 1, 2013, we have excluded the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business, which is consistent with the definition of Adjusted FFO that we adopted effective January 1, 2011. We believe that including these items is not consistent with our ongoing operating performance.

In unusual circumstances, we may also adjust EBITDA for gains or losses that management believes are not representative of the Company's current operating performance. For example, in the first quarter of 2013, management excluded the $11 million gain from the eminent domain claim for land adjacent to the Atlanta Marriott Perimeter Center for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of Adjusted EBITDA.

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 made 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.

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SOURCE Host Hotels & Resorts, Inc.



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