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Host Hotels & Resorts, Inc. Reports Strong Operating Performance For The Third Quarter

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BETHESDA, Md., Oct. 10, 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 third quarter ended September 7, 2012.

(Logo: http://photos.prnewswire.com/prnh/20060417/HOSTLOGO )

Operating Results
(in millions, except per share and hotel statistics)


Quarter ended


         Year-to-date ended     



September 7,

September 9,

Percent

September 7,

September 9,

Percent


2012

2011

Change

2012

2011

Change

Total revenues

$            1,204

$            1,131

6.5%

$           3,555

$            3,306

7.5%

Comparable hotel revenues*

1,010

947

6.7%

2,999

2,821

6.3%

Comparable hotel RevPAR

142.82

132.75

7.6%

141.34

132.43

6.7%

Net income (loss)

(36)

(35)

(2.9)%

48

(32)

         N/M

Adjusted EBITDA*

241

212

13.7%

764

669

14.2%








Diluted earnings (loss) per share

$              (.05)

$               (.05)

$                .06

$              (.05)

         N/M

NAREIT FFO per diluted share*

.17

.16

6.3%

.64

.58

10.3%

Adjusted FFO per diluted share*

.21

.16

31.3%

.69

.60

15.0%

                     
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 third quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels as comparable hotel RevPAR increased 7.6% and 6.7% and comparable food and beverage revenues increased 4.5% and 5.4% for the third quarter and year-to-date, respectively. In addition, year-to-date 2012 revenues benefited from the results of the ten hotels (nearly 4,000 rooms) that were acquired during 2011 and the acquisition of the Grand Hyatt Washington, D.C. on July 16, 2012. These acquisitions increased revenues by an incremental $61 million year-to-date.

The increase in comparable hotel RevPAR was primarily driven by improvements in average room rates coupled with continued occupancy growth. For the third quarter and year-to-date, average room rates improved 4.7% and 3.9%, respectively, while occupancy improved 2.1 percentage points to 78.4% and 2.0 percentage points to 75.4%, respectively. The improvements in revenues led to strong margin growth as comparable hotel adjusted operating profit margins increased 285 basis points and 170 basis points for the third quarter and year-to-date 2012, respectively.

Investments

  • Redevelopment and Return on Investment Expenditures - The Company invested approximately $24 million and $122 million in the third 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. Three properties where we recently completed extensive redevelopment work, the Atlanta Marriott Perimeter Center, the Chicago Marriott O'Hare and the Sheraton Indianapolis, have performed exceptionally well. On average, RevPAR increased 38% for both the quarter and year-to-date 2012 when compared to the pre-construction period in 2010. Due to the significant capital expenditures affecting nearly every aspect of these properties including, in the case of the Sheraton Indianapolis, the conversion of one hotel tower into apartments, these properties are excluded from our comparable results. The Company expects 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 capital and operational improvement plans designed to maximize profitability and enhance the guest experience. On October 1, 2012, the Company converted the former New York Helmsley Hotel (which was acquired in March 2011) to the Westin New York Grand Central, with the grand opening scheduled later this month. The hotel is only the second Westin-branded property in the city and the conversion included a complete renovation of all 774 guest rooms, the ballroom and meeting space, fitness center, lobby and public areas, as well as the development of a new bar and restaurant. The Company spent approximately $25 million and $89 million on acquisition projects in the third quarter and year-to-date, respectively, and expects to invest between $125 million and $135 million for 2012.

  • Renewal and Replacement Expenditures - The Company invested approximately $66 million and $245 million in renewal and replacement expenditures during the third 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. During the quarter, we completed the renovation of the 834 rooms at the Hyatt Regency Washington and 45,000 square feet of meeting space at the New York Marriott Marquis. The Company expects that renewal and replacement expenditures for 2012 will total approximately $330 million to $340 million. 

Value Enhancement Projects

In addition to the investments described above, the Company looks to enhance the value of its portfolio by identifying and executing strategies designed to maximize the highest and best use of all aspects of its properties. On July 30, 2012, the Company leased the retail and signage components of the New York Marriott Marquis Times Square to Vornado Realty Trust ("Vornado"). Vornado will redevelop and expand the existing retail space, including converting the below-grade parking garage into high-end retail space and creating six-story, block front, LED signage spanning over 300 linear feet at an estimated cost of $140 million. As a result of the agreement, the annual base rental income is now well in excess of the previous rental income for the leased space.  Furthermore, once Vornado completes the planned redevelopment, the Company has the potential to realize significant additional incentive rental income. The lease has a 20-year term with options that, upon exercise, would require title to the retail space to be conveyed to Vornado for a sales price based on future cash flows in the year of sale.

Balance Sheet

The Company continued to execute its strategy of extending its debt maturities and lowering its overall cost of debt. Year-to-date, the Company has issued $1.5 billion of debt, with a weighted average interest rate of 3.7%, and used the proceeds, along with available cash, to repay $1.8 billion of debt with a weighted average interest rate of 6.6%. As a result of these transactions, the Company has decreased its weighted average interest rate by approximately 80 basis points, to 5.5%, and lengthened its weighted average debt maturity to 5.4 years.

During the quarter, the Company entered into a $500 million term loan through an amendment to its credit facility. The term loan has a five-year maturity and a floating interest rate of LIBOR plus 180 basis points, approximately 2.0%, based on the Company's leverage level at September 7, 2012. Additionally, the Company issued $450 million of 4¾% Series C senior notes due 2023 at the lowest interest rate for senior notes in the Company's history.  The proceeds from these issuances were used to redeem the remaining $650 million of 6⅜% Series O senior notes due 2015 and $150 million of 6¾% Series Q senior notes due 2016 and for general corporate purposes.

As of September 7, 2012, the Company had $254 million of cash and cash equivalents and $751 million of available capacity under its credit facility.

European Joint Venture

On July 26, 2012, the second fund of the Company's joint venture in Europe ("Euro JV Fund II"), in which the Company holds a 33.4% interest, acquired the 192-room Le Meridien Grand Hotel in Nuremberg, Germany, for approximately €30 million ($37 million). The Company contributed approximately €10 million ($13 million) to the Euro JV Fund II in connection with this acquisition.

Dividend

On September 17, 2012, the Company's board of directors authorized a regular quarterly cash dividend of $.08 per share on its common stock. The dividend is payable on October 15, 2012 to stockholders of record on September 28, 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 6.25% to 7.0%;
  • Total revenues under GAAP would increase 7.2% to 7.7%;
  • Total comparable hotel revenues would increase 5.4% to 6.0%;
  • Operating profit margins under GAAP would increase approximately 160 basis points to 190 basis points; and
  • Comparable hotel adjusted operating profit margins will increase approximately 135 basis points to 150 basis points.

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

  • earnings per diluted share should range from approximately $.15 to $.17;
  • net income should range from $109 million to $126 million;
  • NAREIT FFO per diluted share should be approximately $1.01 to $1.04;
  • Adjusted FFO per diluted share should be approximately $1.06 to $1.09; and
  • Adjusted EBITDA should be approximately $1,155 million to $1,175 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 104 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 14 hotels with approximately 4,400 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 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 Meridien®, The Luxury Collection®, Hyatt®, Fairmont®, Four Seasons®, Hilton®, Swissotel®, 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 October 10, 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 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 1.4% of the partnership interests in Host LP held by outside partners as of September 7, 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.

Condensed Consolidated Balance Sheets (a)

(in millions, except shares and per share amounts)

 


  September 7, 

December 31,


2012

2011


    (unaudited)  


ASSETS




Property and equipment, net

$             11,731

$             11,383

Due from managers

98

37

Advances to and investments in affiliates

227

197

Deferred financing costs, net

57

55

Furniture, fixtures and equipment replacement fund

184

166

Other

456

368

Restricted cash

35

36

Cash and cash equivalents

254

826

            Total assets

$             13,042

$             13,068




LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY




Debt



    Senior notes, including $528 million and $902 million, respectively, net of

        discount, of Exchangeable Senior Debentures

$               3,666

$               4,543

    Credit facility, including the $500 million term loan

749

117

    Mortgage debt

994

1,006

    Other

86

87

            Total debt

5,495

5,753

Accounts payable and accrued expenses

105

175

Other       

341

269

            Total liabilities

5,941

6,197




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

167

158




Host Hotels & Resorts, Inc. stockholders' equity:



    Common stock, par value $.01, 1,050 million shares authorized; 723.0 million

        shares and 705.1 million shares issued and outstanding, respectively

7

7

    Additional paid-in capital

8,008

7,750

    Accumulated other comprehensive income (loss)

9

(1)

    Deficit

(1,126)

(1,079)

            Total equity of Host Hotels & Resorts, Inc. stockholders

6,898

6,677

Non-controlling interests—other consolidated partnerships

36

36

            Total equity

6,934

6,713

            Total liabilities, non-controlling interests and equity

$             13,042

$             13,068

____________


(a) 

Our condensed consolidated balance sheet as of September 7, 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.

Condensed Consolidated Statements of Operations (a)

(unaudited, in millions, except per share amounts)

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Revenues





    Rooms

$              776

$              724

$           2,171

$           2,012

    Food and beverage

295

283

989

925

    Other

68

67

206

195

        Owned hotel revenues

1,139

1,074

3,366

3,132

    Other revenues

65

57

189

174

        Total revenues

1,204

1,131

3,555

3,306

Expenses





    Rooms

216

204

594

555

    Food and beverage

244

234

738

698

    Other departmental and support expenses

305

301

871

841

    Management fees

45

41

135

125

    Other property-level expenses

138

138

405

391

    Depreciation and amortization

160

147

472

435

    Corporate and other expenses

31

12

74

58

        Total operating costs and expenses

1,139

1,077

3,289

3,103

Operating profit

65

54

266

203

Interest income

4

5

11

15

Interest expense (b)

(93)

(87)

(272)

(259)

Net gains on property transactions and other

1

3

3

6

Loss on foreign currency transactions and derivatives

(1)

(2)

(2)

Equity in earnings (losses) of affiliates

(1)

(5)

2

(3)

Income (loss) before income taxes

(25)

(32)

8

(38)

Benefit (provision) for income taxes

(11)

(3)

(10)

9

Loss from continuing operations

(36)

(35)

(2)

(29)

Income (loss) from discontinued operations, net of tax

50

(3)

Net income (loss)

(36)

(35)

48

(32)

Less:  Net (income) loss attributable to non-controlling

   interests

2

2

(2)

Net income (loss) attributable to Host Inc.

$               (34)

$               (33)

$                 46

$               (32)

Basic and diluted earnings (loss) per common 

   share:





    Continuing operations

$               (.05)

$               (.05)

$               (.01)

$               (.04)

    Discontinued operations

.07

(.01)

Basic and diluted earnings (loss) per common share

$               (.05)

$               (.05)

$                .06

$               (.05)

____________

(a) 

Our condensed 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


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Non-cash interest for exchangeable debentures

$                   3

$                   7

$                 12

$                 22

Debt extinguishment costs

14

4

27

8

        Total

$                 17

$                 11

$                 39

$                 30

 

HOST HOTELS & RESORTS, INC.

Earnings (Loss) per Common Share

(unaudited, in millions, except per share amounts)

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Net income (loss)

$               (36)

$               (35)

$                 48

$               (32)

    Net (income) loss attributable to non-controlling

        interests

2

2

(2)

Earnings (loss) attributable to Host Inc

$               (34)

$               (33)

$                 46

$               (32)

Diluted earnings (loss) attributable to Host Inc

$               (34)

$               (33)

$                 46

$               (32)






Basic weighted average shares outstanding

721.3

702.1

715.7

688.4

Diluted weighted average common shares

    outstanding (a)

721.3

702.1

715.7

688.4

Basic and diluted earnings (loss) per common

    share

$               (.05)

$               (.05)

$                .06

$               (.05)

____________

(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)

 


As of September 7, 2012

   Quarter ended September 7, 2012  

   Quarter ended September 9, 2011  






Average



Average


Percent


No. of

No. of

Average

Occupancy


Average

Occupancy


Change in

Region

Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Pacific

25

13,896

$      184.53

83.7%

$      154.42

$      172.83

82.3%

$      142.23

8.6%

Mid-Atlantic

11

8,634

234.91

86.5

203.22

230.63

82.4

190.05

6.9

South Central

9

5,695

132.64

71.0

94.22

132.65

66.0

87.59

7.6

Florida

8

3,680

176.19

71.3

125.57

156.67

67.3

105.44

19.1

D.C. Metro

12

5,416

177.00

76.5

135.34

174.81

77.9

136.13

(0.6)

North Central

11

4,782

163.06

80.6

131.34

157.96

80.6

127.32

3.2

New England

6

3,672

191.36

86.6

165.81

170.55

84.3

143.77

15.3

Atlanta

7

3,846

154.04

67.6

104.17

151.93

65.7

99.80

4.4

Mountain

7

2,885

129.88

64.7

84.03

129.30

63.8

82.45

1.9

Canada

4

1,643

167.12

69.6

116.36

166.70

66.2

110.40

5.4

Latin America

4

1,075

230.02

69.5

159.96

197.66

66.3

130.97

22.1

      All Regions

104

55,224

182.06

78.4

142.82

173.92

76.3

132.75

7.6












As of September 7, 2012

Year-to-date ended September 7, 2012

Year-to-date ended September 9, 2011






Average



Average


Percent


No. of

No. of

Average

Occupancy


Average

Occupancy


Change in

Region

Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Pacific

25

13,896

$      183.29

79.0%

$      144.72

$      173.54

77.1%

$      133.73

8.2%

Mid-Atlantic

11

8,634

235.07

80.5

189.24

229.03

76.4

174.92

8.2

South Central

9

5,695

149.43

73.1

109.17

149.05

69.7

103.93

5.0

Florida

8

3,680

218.13

76.7

167.24

201.05

75.7

152.23

9.9

D.C. Metro

12

5,416

193.39

74.5

144.08

193.97

75.2

145.95

(1.3)

North Central

11

4,782

154.63

73.0

112.95

148.19

71.8

106.42

6.1

New England

6

3,672

185.79

74.8

139.05

170.96

72.8

124.41

11.8

Atlanta

7

3,846

158.00

69.0

108.95

155.66

66.1

102.88

5.9

Mountain

7

2,885

161.67

67.1

108.48

158.47

66.2

104.95

3.4

Canada

4

1,643

167.66

67.2

112.61

167.87

67.4

113.08

(0.4)

Latin America

4

1,075

232.78

71.0

165.33

208.94

68.8

143.74

15.0

      All Regions

104

55,224

187.48

75.4

141.34

180.41

73.4

132.43

6.7












As of September 7, 2012

Quarter ended September 7, 2012

Quarter ended September 9, 2011






Average



Average


Percent


No. of

No. of

Average

Occupancy


Average

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Property Type










Urban

53

33,228

$     195.05

81.1%

$     158.17

$      186.91

79.1%

$      147.76

7.0%

Suburban

27

10,321

149.26

74.3

110.90

143.34

72.7

104.18

6.5

Resort/Conference  

12

6,083

221.47

67.2

148.89

206.83

65.0

134.42

10.8

Airport

12

5,592

123.55

82.7

102.22

117.13

79.3

92.91

10.0

    All Types

104

55,224

182.06

78.4

142.82

173.92

76.3

132.75

7.6












As of September 7, 2012

Year-to-date ended September 7, 2012

Year-to-date ended September 9, 2011






Average



Average


Percent


No. of

No. of

Average

Occupancy


Average

Occupancy


Change in


Properties

Rooms

Room Rate

Percentage

RevPAR

Room Rate

Percentage

RevPAR

RevPAR

Property Type










Urban

53

33,228

$     197.72

76.6%

$      151.47

$      190.99

74.5%

$      142.30

6.4%

Suburban

27

10,321

150.96

71.0

107.20

146.19

69.4

101.40

5.7

Resort/Conference  

12

6,083

252.54

72.4

182.82

238.72

70.5

168.41

8.6

Airport

12

5,592

125.67

79.5

99.88

119.78

77.4

92.73

7.7

    All Types

104

55,224

187.48

75.4

141.34

180.41

73.4

132.43

6.7

____________

(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


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Average room rate

$         180.52

$         171.84

$         185.76

$         178.24

Average occupancy

77.5%

75.9%

74.9%

72.9%

RevPAR  

$         139.97

$         130.43

$         139.13

$         129.94

____________

(a)  

The operating statistics reflect all consolidated properties as of September 7, 2012 and September 9, 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


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Number of hotels

104

104

104

104

Number of rooms

55,224

55,224

55,224

55,224

Percent change in comparable hotel RevPAR

7.6%

6.7%

Operating profit margin under GAAP (b)

5.4%

4.8%

7.5%

6.1%

Comparable hotel adjusted operating profit margin (b)

22.2%

19.35%

23.6%

21.9%

Comparable hotel revenues





    Room

$                689

$                640

$             1,940

$             1,814

    Food and beverage

260

248

877

832

    Other

61

59

182

175

          Comparable hotel revenues (c)

1,010

947

2,999

2,821

Comparable hotel expenses





    Room

190

179

526

498

    Food and beverage

216

207

659

631

    Other

36

36

103

102

    Management fees, ground rent and other costs

344

342

1,004

973

          Comparable hotel expenses (d)

786

764

2,292

2,204

Comparable hotel adjusted operating profit

224

183

707

617

Non-comparable hotel results, net (e)

30

31

105

86

Income (loss) from hotels leased from HPT

2

(1)

(7)

Depreciation and amortization

(160)

(147)

(472)

(435)

Corporate and other expenses

(31)

(12)

(74)

(58)

Operating profit

$                  65

$                  54

$                266

$                203

____________

(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 condensed consolidated statements of operations. Comparable margins are calculated using amounts presented in the above table.

(c)   

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

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Revenues per the consolidated statements of

    operations

$             1,204

$             1,131

$             3,555

$             3,306

Non-comparable hotel revenues

(147)

(142)

(430)

(371)

Hotel revenues for which we record rental income,

    net

11

11

37

36

Revenues for hotels leased from HPT

(58)

(53)

(163)

(150)

            Comparable hotel revenues

$             1,010

$                947

$             2,999

$             2,821

 

(d) 

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

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Operating costs and expenses per the consolidated

    statements of operations

$             1,139

$             1,077

$             3,289

$             3,103

Non-comparable hotel expenses

(117)

(111)

(325)

(286)

Hotel expenses for which we record rental income

11

11

37

37

Expense for hotels leased from HPT

(56)

(54)

(163)

(157)

Depreciation and amortization

(160)

(147)

(472)

(435)

Corporate and other expenses

(31)

(12)

(74)

(58)

            Comparable hotel expenses

$                786

$                764

$             2,292

$             2,204

 

(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 condensed consolidated statements of operations as continuing operations, (ii) gains on property 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)

 


September 7,

December 31,


2012

2011

Equity



Common shares outstanding

723.0

705.1

Common shares outstanding assuming conversion of non-controlling interest

    OP Units (a)

733.3

715.8

Preferred OP Units outstanding

.02

.02




Security pricing



Common (b)

$               16.30

$               14.77

3 1/4% Exchangeable Senior Debentures (c)

$            1,132.1

$            1,084.0

2 5/8% Exchangeable Senior Debentures (c)

$            1,001.6

$            1,002.6

2 1/2% Exchangeable Senior Debentures (c)

$            1,342.6

$            1,242.6




Dividends declared per share for calendar year



Common

$                    .21

$                    .14






Debt








September 7,

December 31,

Senior debt

Rate

Maturity date

2012

2011

Series O

6 3/8%

3/2015

$                      —

$                   650

Series Q

6 3/4%

6/2016

650

800

Series S

6 7/8%

11/2014

498

Series T

9%

5/2017

391

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 (e)

5 1/4%

3/2022

350

Series C

4 3/4%

3/2023

450

Exchangeable senior debentures (f)

3 1/4%

4/2024

175

175

Exchangeable senior debentures

2 5/8%

4/2027

2

385

Exchangeable senior debentures (g)

2 1/2%

10/2029

351

342

Senior notes

10%

5/2012

7

Credit facility term loan

2.0%

7/2017

500

Credit facility revolver (h)

2.7%

11/2015

249

117




4,415

4,660

Mortgage debt and other





Mortgage debt (non-recourse)

3.3-8.5%

7/2013-12/2023

994

1,006

Other

7.0-7.8%

10/2014-12/2017

86

87

            Total debt (i)(j)



$               5,495

$               5,753






Percentage of fixed rate debt

78%

90%

Weighted average interest rate

5.5%

6.3%

Weighted average debt maturity

5.4 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 Inc. At September 7, 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)  

The 5 1/4% Series A senior notes were exchanged for 5 1/4% Series B senior notes in October 2012.

(f)   

Holders of the 3 1/4% Exchangeable Senior Debentures due 2024 (the "2004 Debentures") can require the Company to repurchase the exchangeable debentures for cash in April 2014.

(g) 

At September 7, 2012, the principal balance outstanding of the 2 1/2% Exchangeable Senior Debentures due 2029 (the "2009 Debentures") is $400 million. The discount related to these debentures is amortized through October 2015, the first date at which holders can require the Company to repurchase the 2009 Debentures for cash.

(h)  

The interest rate shown is the weighted average rate of the outstanding credit facility at September 7, 2012.

(i)    

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 September 7, 2012, our non-controlling partners' share of consolidated debt is $67 million and our share of debt in unconsolidated investments is $321 million.

(j)   

Total debt as of September 7, 2012 and December 31, 2011 includes net discounts of $51 million and $63 million, respectively.

 

HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income (Loss) to

EBITDA and Adjusted EBITDA

(unaudited, in millions)

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Net income (loss)

$               (36)

$               (35)

$                 48

$               (32)

    Interest expense

93

87

272

259

    Depreciation and amortization

160

147

472

435

    Income taxes

11

3

10

(9)

    Discontinued operations (a)

2

4

EBITDA

228

204

802

657

    Gain on dispositions (b)

(48)

    Acquisition costs

6

6

4

    Non-cash impairment charges

3

    Amortization of deferred gains

(1)

(3)

(3)

(6)

    Equity investment adjustments:





        Equity in (earnings) losses of affiliates

1

5

(2)

3

        Pro rata Adjusted EBITDA of equity investments

9

8

21

19

    Consolidated partnership adjustments:





        Pro rata Adjusted EBITDA attributable to non-

            controlling partners in other consolidated

            partnerships

(2)

(2)

(12)

(11)

Adjusted EBITDA

$              241

$              212

$              764

$              669

____________

(a) 

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

(b) 

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

 

HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income (Loss) to

NAREIT and Adjusted Funds From Operations per Diluted Share

(unaudited, in millions, except per share amounts)

 


Quarter ended

Year-to-date ended


September 7,

September 9,

September 7,

September 9,


2012

2011

2012

2011

Net income (loss)

$               (36)

$               (35)

$                 48

$               (32)

   Less:   Net (income) loss attributable to non-controlling

      interests

2

2

(2)

Net income (loss) attributable to Host Inc

(34)

(33)

46

(32)

Adjustments:





   Gain on dispositions, net of taxes

(48)

   Amortization of deferred gains and other property

      transactions, net of taxes

(1)

(3)

(3)

(6)

   Depreciation and amortization

160

149

471

439

   Non-cash impairment charges

3

   Partnership adjustments

3

1

7

4

   FFO of non-controlling interests of Host LP

(2)

(2)

(7)

(6)

NAREIT FFO

126

112

466

402

Adjustments to NAREIT FFO:





   Loss on debt extinguishments (a)

18

5

32

10

   Acquisition costs

6

8

4

   Loss attributable to non-controlling interests (b)

(1)

Adjusted FFO

$              150

$              117

$              505

$              416






For calculation on a per diluted basis:










Adjustments for dilutive securities (c):





   Assuming conversion of Exchangeable Senior

      Debentures

$                   1

$                   1

$                 21

$                   6

NAREIT FFO

$               127

$               113

$               487

$               408






Adjustments for dilutive securities (c):





   Assuming conversion of Exchangeable Senior

      Debentures

$                   7

$                   1

$                 21

$                 23

Adjusted FFO

$               157

$               118

$               526

$               439






Diluted weighted average shares outstanding-EPS

721.3

702.1

715.7

688.4

   Assuming issuance of common shares granted under

      the Comprehensive Stock Plan

1.1

1.5

1.2

1.6

   Assuming conversion of Exchangeable Senior

      Debentures

11.7

11.5

40.4

18.3

Diluted weighted average shares outstanding –

  NAREITFFO

734.1

715.1

757.3

708.3

   Assuming conversion of Exchangeable Senior

      Debentures

28.8

0.6

28.4

Diluted weighted average shares outstanding –

   Adjusted FFO

762.9

715.7

757.3

736.7

NAREIT FFO per diluted share (c)

$                .17

$                .16

$                .64

$                .58

Adjusted FFO per diluted share (c)

$                .21

$                .16

$                .69

$                .60

____________

(a) 

Represents costs primarily associated with the redemption of the Series S, O and Q senior notes in 2012 and the Series K senior notes and 2007 Debentures in 2011.

(b) 

Represents the portion of the adjustments to NAREIT FFO attributable to non-controlling partners in Host LP.

(c)  

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. For the periods presented, NAREIT FFO and Adjusted FFO have been adjusted to reflect the impact on our earnings of treating our outstanding exchangeable debentures as having been exchanged for shares of Host Inc. common stock at the beginning of the period presented.

 

HOST HOTELS & RESORTS, INC.

Reconciliation of Net Income to EBITDA, Adjusted EBITDA and NAREIT and

Adjusted Funds From Operations per Diluted Share for 2012 Forecasts (a)

(unaudited, in millions, except per share amounts)

 


2012


Low-end

High-end


of range

of range

Net income

$                   109

$                   126

    Interest expense

372

372

    Depreciation and amortization

687

687

    Income taxes

20

23

    Discontinued operations

2

2

EBITDA

1,190

1,210

    Gain on dispositions

(48)

(48)

    Acquisition costs

6

6

    Amortization of deferred gains

(5)

(5)

    Equity investment adjustments:



        Equity in earnings of affiliates

(4)

(4)

        Pro rata Adjusted EBITDA of equity investments

32

32

    Consolidated partnership adjustments:



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

            consolidated partnerships

(16)

(16)

Adjusted EBITDA

$               1,155

$               1,175





2012


Low-end

of range

High-end

of range

Net income

$                   109

$                   126

Less:  Net income attributable to non-controlling interests

(3)

(3)

Net income attributable to Host Inc.

106

123

Adjustments:



    Gain on dispositions

(48)

(48)

    Depreciation and amortization

685

685

    Amortization of deferred gains

(5)

(5)

    Partnership adjustments

13

14

    FFO of non-controlling interests of Host LP

(11)

(11)

NAREIT FFO

740

758

Adjustments:



    Acquisition costs

8

8

    Loss on debt extinguishments

32

32

    Loss attributable to non-controlling interests

(1)

(1)

Adjusted FFO

779

797

Adjustment for dilutive securities:



    Assuming conversion of Exchangeable Senior Debentures

31

31

Diluted Adjusted FFO

$                   810

$                   828




Weighted average diluted shares – EPS

718.9

718.9

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

760.6

760.6

Earnings per diluted share

$                    .15

$                    .17

NAREIT FFO per diluted share

$                  1.01

$                  1.04

Adjusted FFO per diluted share

$                  1.06

$                  1.09

____________

(a)  

The forecasts were based on the below assumptions:  

-

   Comparable hotel RevPAR will increase 6.25% to 7.0% for the low and high ends of the forecasted range,

   respectively.

-

   Comparable hotel adjusted operating profit margins will increase 135 basis points to 150 basis points for

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

-

   Interest expense includes approximately $33 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,

   approximately $125 million to $135 million on acquisition expenditures and approximately $330 million to

   $340 million on renewal and replacement expenditures.

-

   We expect to complete the sale of $300 million to $400 million of properties during the fourth quarter.

   However, 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.


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 2012 Forecasts (a)

(unaudited, in millions, except hotel statistics)

 


2012


Low-end

High-end


of range

of range

Operating profit margin under GAAP (b)

8.2%

8.5%

Comparable hotel adjusted operating profit margin (c)

23.85%

24.0%




Comparable hotel sales



    Room

$               2,858

$               2,879

    Other

1,590

1,594

                Comparable hotel sales (d)

4,448

4,473

Comparable hotel expenses



    Rooms and other departmental costs

1,902

1,912

    Management fees, ground rent and other costs

1,485

1,488

                Comparable hotel expenses (e)

3,387

3,400

Comparable hotel adjusted operating profit

1,061

1,073

Non-comparable hotel results, net

171

178

Loss from hotels leased from HPT

(5)

(5)

Depreciation and amortization

(687)

(687)

Corporate and other expenses

(105)

(105)

                Operating profit

$                   435

$                   454

____________

(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 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):

 


2012


Low-end

High-end


of range

of range

Revenues

$               5,300

$               5,333

Non-comparable hotel revenues

(672)

(680)

Revenues for hotels leased from HPT

(231)

(231)

Hotel revenues for which we record rental income, net

51

51

            Comparable hotel sales

$               4,448

$               4,473



(e)  

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

 


2012


Low-end

High-end


of range

of range

Operating costs and expenses

$               4,865

$               4,879

Non-comparable hotel and other expenses

(502)

(503)

Expenses for hotels leased from HPT

(236)

(236)

Hotel expenses for which we record rental income

52

52

Depreciation and amortization

(687)

(687)

Corporate and other expenses

(105)

(105)

            Comparable hotel expenses

$               3,387

$               3,400

 

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 Inc., 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 third quarter of 2012 ended on September 7, and the third quarter of 2011 ended on September 9, though both quarters reflect twelve weeks of operations. In contrast, the September 7, 2012 year-to-date operations included 251 days of operations, while the September 9, 2011 year-to-date operations included 252 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.

Change in Reporting Periods

Marriott has announced that beginning January 1, 2013, it will convert from a 52-53 week fiscal year to a 12-month calendar year. As a result, we will adopt a calendar quarter reporting cycle in the first quarter of 2013. The conversion will allow us to eliminate the quarterly reporting variance discussed above.

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 third quarter of 2012 reflect 12 weeks of operations for the period from June 16, 2012 to September 7, 2012 for our Marriott-managed hotels and results from June 1, 2012 to August 31, 2012 for operations of all other hotels which report results on a monthly basis.

  • Hotel results for the third quarter of 2011 reflect 12 weeks of operations for the period from June 18, 2011 to September 9, 2011 for our Marriott-managed hotels and results from June 1, 2011 to August 31, 2011 for operations of all other hotels which report results on a monthly basis.

  • Hotel results for year-to-date 2012 reflect 36 weeks of operations for the period from December 31, 2011 to September 7, 2012 for our Marriott-managed hotels and results from January 1, 2012 to August 31, 2012 for operations of all other hotels which report results on a monthly basis.

  • Hotel results for year-to-date 2011 reflect 36 weeks of operations for the period from January 1, 2011 to September 9, 2011 for our Marriott-managed hotels and results from January 1, 2011 to August 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, 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 September 7, 2012, 104 have been classified as comparable hotels. The operating results of the following hotels that we owned as of September 7, 2012 are excluded from comparable hotel results for these periods:

  • Grand Hyatt Washington, D.C. (acquired in July 2012);
  • 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);
  • Orlando World Center Marriott Resort & Convention Center (business interruption due to a large-scale capital project, which includes 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);
  • 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).

The operating results of (i) three hotels that we have disposed of in 2012 and 2011, (ii) the Le Meridien 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 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 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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