HOST HOTELS & RESORTS, INC.
Consolidated Balance Sheets (a)
(unaudited, in millions, except share amounts)
June 16, December 31,
2006
2005
ASSETS
Property and equipment, net
$10,328
$7,434
Assets held for sale
-
73
Due from managers
117
41
Investments in affiliates
101
41
Deferred financing costs, net
62
63
Furniture, fixtures and equipment
replacement fund 140
143
Other
202
157
Restricted cash
102
109
Cash and cash equivalents
524
184
Total assets
$11,576
$8,245
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt
Senior notes, including $494 million
and $493 million, respectively,
net
of discount, of Exchangeable
Senior
Debentures
$3,710
$3,050
Mortgage debt
1,918
1,823
Convertible Subordinated Debentures
-
387
Other
88
110
Total debt
5,716
5,370
Accounts payable and accrued expenses
215
165
Other
231
148
Total liabilities
6,162
5,683
Interest of minority partners of Host
Hotels & Resorts, L.P.
188
119
Interest of minority partners of
other consolidated partnerships
28
26
Stockholders' equity
Cumulative redeemable preferred stock
(liquidation preference $100
million
and $250 million, respectively),
50
million shares authorized; 4.0
million shares and 10.0 million
shares issued and outstanding,
respectively
97
241
Common stock, par value $.01, 750
million shares authorized; 520.4
million shares and 361.0 million
shares issued and outstanding,
respectively
5
4
Additional paid-in capital
5,656
3,080
Accumulated other comprehensive
income
21
15
Deficit
(581)
(923)
Total stockholders' equity
5,198
2,417
Total liabilities and stockholders'
equity
$11,576
$8,245
(a) Our consolidated balance sheet
as of June 16, 2006 has been prepared
without audit.
Certain information and footnote disclosures normally
included in
financial statements presented in accordance with GAAP
have been
omitted. The consolidated balance sheets should be read in
conjunction
with the consolidated financial statements and notes
thereto included
in our most recent Annual Report on Form 10-K.
HOST HOTELS & RESORTS, INC.
Consolidated Statements of Operations (a)
(unaudited, in millions, except per share amounts)
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Revenues
Rooms
$737 $572 $1,244 $1,039
Food and beverage
374 298 635
542
Other
75 63 126
113
Total hotel sales
1,186 933 2,005
1,694
Rental income (b)
26 25
55 54
Total revenues
1,212 958 2,060
1,748
Expenses
Rooms
168 132 289
246
Food and beverage
258 212 447
392
Hotel departmental expenses
282 242 493
452
Management fees
58 43
93 75
Other property-level expenses
(b) 85
69 152 133
Depreciation and amortization
107 83 196
164
Corporate and other expenses
21 14
41 28
Total operating costs
and expenses 979 795
1,711 1,490
Operating profit
233 163 349
258
Interest income
9 5
14 12
Interest expense
(107) (114) (198) (223)
Net gains on property transactions
1 74
2 77
Gain on foreign currency and
derivative contracts
- -
- 2
Minority interest expense
(16) (8) (29)
(12)
Equity in earnings (losses) of
affiliates
(6) 3
(5) (1)
Income before income taxes
114 123 133
113
Provision for income taxes
(17) (38) (18)
(38)
Income from continuing operations
97 85 115
75
Income from discontinued
operations(c)
233 6
387 22
Net income
330 91 502
97
Less: Dividends on preferred stock
(4) (7) (10)
(15)
Issuance costs of redeemed preferred
stock (d)
(6) (4) (6)
(4)
Net income available to common
stockholders
$320 $80 $486
$78
Basic earnings per common share:
Continuing operations
$0.18 $0.21 $0.23 $0.16
Discontinued operations
0.47 0.02 0.89
0.06
Basic earnings per common share
$0.65 $0.23 $1.12 $0.22
Diluted earnings per common share:
Continuing operations
$0.17 $0.20 $0.22 $0.16
Discontinued operations
0.45 0.02 0.88
0.06
Diluted earnings per common share
$0.62 $0.22 $1.10 $0.22
(a) Our consolidated statements of
operations presented above have been
prepared without
audit. Certain information and footnote disclosures
normally included
in financial statements presented in accordance with
GAAP have
been omitted. The consolidated statements of operations
should be
read in conjunction with the consolidated financial
statements
and notes thereto included in our most recent Annual Report
on Form 10-K.
(b) Rental income and expense are as
follows:
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Rental income
$8 $7
$19 $18
Full-service
18 18
36 36
Limited service and office buildings
$26 $25 $55
$54
Rental and other expenses (included
in other property level expenses)
$2 $1
$3 $3
Full-service
18 18
37 36
Limited service and office
buildings $20 $19
$40 $39
(c) Reflects the results of operations
and gain (loss) on sale, net of the
related income
tax, for five properties sold in both 2006 and in 2005.
(d) Represents the original issuance
costs associated with the redemption
of the Class
C preferred stock in 2006 and the Class B preferred stock
in 2005.
HOST HOTELS & RESORTS, INC.
Earnings (Loss) per Common Share
(unaudited, in millions, except per share amounts)
Quarter ended Quarter
ended
June 16, 2006 June
17, 2005
Income
Per Income
Per
(loss) Shares Share (loss) Shares
Share
(Numer- (Denomi- Amount (Numer- (Denomi- Amount
ator) nator)
ator) nator)
Net income
$330 492.8 $.67
$91 352.7 $.26
Dividends on preferred
stock
(4) - (.01)
(7) - (.02)
Issuance costs of redeemed
preferred stock (a)
(6) - (.01)
(4) - (.01)
Basic earnings available
to common
stockholders (b)(c)
320 492.8 .65
80 352.7 .23
Assuming distribution of
common shares granted
under the comprehensive
stock plan less shares
assumed purchased at
average market price
- 2.0
- - 2.2
-
Assuming conversion of
minority OP units
issuable
- 2.5 (.01)
- 1.8
-
Assuming conversion of
Exchangeable Senior
Debentures
4 28.1 (.02)
4 27.5 (.01)
Diluted earnings available
to common
stockholders (b)(c)
$324 525.4 $.62
$84 384.2 $.22
Year-to-date ended Year-to-date ended
June 16, 2006 June 17,
2005
Income
Per Income
Per
(loss) Shares Share (loss) Shares
Share
(Numer- (Denomi- Amount (Numer- (Denomi- Amount
ator) nator)
ator) nator)
Net income
$502 435.7 $1.15
$97 352.3 $.28
Dividends on
preferred stock
(10) - (.02)
(15) - (.05)
Issuance costs of
redeemed preferred
stock (a)
(6) - (.01)
(4) - (.01)
Basic earnings available
to common
stockholders (b)(c)
486 435.7 1.12
78 352.3 .22
Assuming distribution
of common shares
granted under the
comprehensive stock
plan less shares assumed
purchased at average
market price
- 2.0 (.01)
- 2.2
-
Assuming conversion of
minority OP units
issuable
- 2.5 (.01)
- -
-
Diluted earnings available
to common
stockholders (b)(c)
$486 440.2 $1.10
$78 354.5 $.22
(a) Represents the original issuance
costs associated with the redemption
of the Company's
Class C preferred stock in 2006 and the Company's
Class B preferred
stock in 2005.
(b) Basic earnings per common share
is computed by dividing net income
available
to common stockholders by the weighted average number of
shares of
common stock outstanding. Diluted earnings per common share
is computed
by dividing net income available to common stockholders as
adjusted for
potentially dilutive securities, by the weighted average
number of
shares of common stock outstanding plus potentially dilutive
securities.
Dilutive securities may include shares granted under
comprehensive
stock plans, preferred OP Units held by minority
partners,
convertible debt securities and other minority interests
that have
the option to convert their limited partnership interests to
common OP
Units. No effect is shown for any securities that are anti-
dilutive.
(c) Our results for certain periods
presented were significantly affected
by certain
transactions, which are detailed in the table entitled,
"Schedule
of Significant Transactions Affecting Earnings per Share and
Funds From
Operations per Diluted Share."
HOST HOTELS & RESORTS, INC.
Comparable Hotel Operating Data
(unaudited)
Comparable Hotels by Region (a)
As of June 16, 2006 Quarter ended June
16, 2006
Average Average
No. of No. of
Daily Occupancy RevPAR
Properties Rooms
Rate Percentages
Pacific
21 11,485
$203.38 76.1%
$154.73
Florida
10 6,448
212.47 75.5
160.44
Mid-Atlantic
8 5,865
225.27 82.3
185.39
DC Metro
13 5,335
192.50 81.7
157.20
North Central
13 5,130
149.35 75.3
112.50
South Central
7 4,126
149.95 73.4
110.07
Atlanta
8 3,069
193.10 74.3
143.48
New England
6 3,032
177.97 83.0
147.74
Mountain
6 2,210
138.79 65.3
90.63
International
5 1,953
154.33 75.3
116.23
All Regions
97 48,653
189.37 76.8
145.52
Quarter ended June 17, 2005
Percent
Average
Change
Average Occupancy
in
Daily Rate Percentages RevPAR
RevPAR
Pacific
$190.57 78.0%
$148.62 4.1%
Florida
195.04 74.5
145.26 10.5
Mid-Atlantic
203.08 83.6
169.74 9.2
DC Metro
176.71 84.3
148.91 5.6
North Central
138.82 70.5
97.82 15.0
South Central
137.55 77.7
106.81 3.1
Atlanta
171.74 68.6
117.86 21.7
New England
161.94 72.3
117.09 26.2
Mountain
124.32 64.3
79.91 13.4
International
133.48 73.1
97.63 19.1
All Regions
173.94 76.2
132.62 9.7
As of June 16, 2006 Year-to-date ended June
16, 2006
Average Average
No. of No. of
Daily Occupancy
Properties Rooms
Rate Percentages RevPAR
Pacific
21 11,485
$200.20 74.9%
$149.93
Florida
10 6,448
217.17 76.6
166.34
Mid-Atlantic
8 5,865
215.34 77.7
167.22
DC Metro
13 5,335
187.86 73.1
137.38
North Central
13 5,130
139.78 70.3
98.30
South Central
7 4,126
146.53 74.7
109.45
Atlanta
8 3,069
188.64 73.5
138.75
New England
6 3,032
163.60 74.0
121.02
Mountain
6 2,210
147.50 64.3
94.81
International
5 1,953
148.51 71.9
106.78
All Regions
97 48,653
185.36 74.0
137.22
Year-to-date ended June 17, 2005
Percent
Average Average
Change
Daily Occupancy
in
Rate Percentages
RevPAR RevPAR
Pacific
$185.51 76.3%
$141.59 5.9%
Florida
200.49 77.6
155.61 6.9
Mid-Atlantic
194.59 78.6
152.92 9.3
DC Metro
174.42 78.0
136.08 1.0
North Central
130.86 64.0
83.81 17.3
South Central
135.75 75.9
103.06 6.2
Atlanta
169.57 68.7
116.42 19.2
New England
151.22 66.0
99.87 21.2
Mountain
134.27 63.5
85.29 11.2
International
129.74 71.1
92.25 15.8
All Regions
171.13 73.7
126.20 8.7
Comparable Hotels by Property Type (a)
As of June 16, 2006 Quarter
ended June 16, 2006
Average Average
No. of No. of
Daily Occupancy
Properties Rooms
Rate Percentages RevPAR
Urban
40 23,124
$198.86 80.4%
$159.81
Suburban
30 11,363
147.04 70.1
103.13
Airport
16 7,328
135.60 75.2
101.91
Resort/Convention 11
6,838 272.70
77.8 212.19
All Types
97 48,653
189.37 76.8
145.52
Quarter ended June 17, 2005
Percent
Average
Change
Average Occupancy
in
Daily Rate Percentages RevPAR
RevPAR
Urban
$182.54 79.9%
$145.89 9.5%
Suburban
135.88 69.3
94.19 9.5
Airport
122.47 76.4
93.58 8.9
Resort/Convention
254.71 75.2
191.43 10.8
All Types
173.94 76.2
132.62 9.7
As of June 16, 2006 Year-to-date ended
June 16, 2006
Average Average
No. of No. of
Daily Occupancy
Properties Rooms
Rate Percentages RevPAR
Urban
40 23,124
$192.83 76.7%
$147.86
Suburban
30 11,363
145.88 67.7
98.76
Airport
16 7,328
136.05 73.5
100.06
Resort/Convention 11
6,838 271.08
76.2 206.48
All Types
97 48,653
185.36 74.0
137.22
Year-to-date ended June 17, 2005
Percent
Average
Change
Average Occupancy
in
Daily Rate Percentages RevPAR
RevPAR
Urban
$178.06 76.3%
$135.90 8.8%
Suburban
133.83 66.8
89.43 10.4
Airport
123.25 74.7
92.12 8.6
Resort/Convention
254.55 75.6
192.34 7.4
All Types
171.13 73.7
126.20 8.7
(a) See the notes to financial information
for a discussion of reporting
periods and
comparable hotel results.
HOST HOTELS & RESORTS, INC.
Comparable Hotel Operating Data
Schedule of Comparable Hotel Results (a)
(unaudited, in millions, except hotel statistics)
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Number of hotels
97 97
97 97
Number of rooms
48,653 48,653 48,653 48,653
Percent change in Comparable Hotel
RevPAR
9.7% -
8.7% -
Operating profit margin under GAAP
(b) 19.2% 17.0% 16.9%
14.8%
Comparable hotel adjusted operating
profit margin (c)
29.7% 27.6% 28.2%
25.9%
Comparable hotel sales
Room
$608 $554 $1,094 $1,007
Food and beverage
315 293 572
531
Other
65 65
117 115
Comparable hotel sales
(d)
988 912 1,783
1,653
Comparable hotel expenses
Room
138 128 254
238
Food and beverage
216 208 400
384
Other
37 39
68 71
Management fees, ground rent
and other
costs
304 285 559
532
Comparable hotel
expenses (e)
695 660 1,281
1,225
Comparable hotel adjusted operating
profit
293 252 502
428
Non-comparable hotel results, net
(f) 68
8 85
22
Office buildings and limited service
properties, net (g)
- -
(1) -
Depreciation and amortization
(107) (83) (196)
(164)
Corporate and other expenses
(21) (14) (41)
(28)
Operating profit
$233 $163 $349
$258
(a) See the notes to the financial
information for discussion of non-GAAP
measures,
reporting periods and comparable hotel results.
(b) Operating profit margin under GAAP
is calculated as the operating
profit divided
by the total revenues per the consolidated statements
of operations.
(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 total revenues
per the consolidated statements
of operations
to the comparable hotel sales is as follows:
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Revenues per the consolidated
statements of operations
$1,212 $958 $2,060
$1,748
Non-comparable hotel sales
(220) (40) (274)
(83)
Hotel sales for the property for
which we record rental income,
net 14
12 26
24
Rental income for office buildings
and limited service hotels
(18) (18) (36)
(36)
Adjustment for hotel sales for
comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
7 -
Comparable hotel sales
$988 $912 $1,783
$1,653
(e) The reconciliation of operating
costs per the consolidated statements
of operations
to the comparable hotel expenses is as follows
(in millions):
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Operating costs and expenses per
the consolidated statements
of
operations
$979 $795 $1,711
$1,490
Non-comparable hotel expenses
(152) (33) (190)
(64)
Hotel expenses for the property
for which we record rental income
14 13
29 27
Rent expense for office buildings
and limited service hotels
(18) (18) (37)
(36)
Adjustment for hotel expenses for
comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
5 -
Depreciation and amortization
(107) (83) (196)
(164)
Corporate and other expenses
(21) (14) (41)
(28)
Comparable hotel expenses
$695 $660 $1,281
$1,225
(f) Non-comparable hotel results, net,
includes the following items:
(i) the results
of operations of our non-comparable hotels whose
operations
are included in our consolidated statement of operations as
continuing
operations and (ii) 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.
(g) Represents rental income less rental
expense for limited service
properties
and office buildings.
HOST HOTELS & RESORTS, INC.
Other Financial and Operating Data
(unaudited, in millions, except per share amounts)
June 16, December 31,
2006
2005
Equity
Common shares outstanding
520.4
361.0
Common shares and minority held
common OP Units outstanding
539.5
380.8
Preferred OP Units outstanding
.02
.02
Class C Preferred shares outstanding
(a) -
6.0
Class E Preferred shares outstanding
4.0
4.0
Security pricing (per share price)
Common (b)
$21.27
$18.95
Class C Preferred (a) (b)
$-
$25.25
Class E Preferred (b)
$27.30
$26.75
Convertible Preferred Securities
(c)
$-
$61.02
Exchangeable Senior Debentures
(d) $1,267.83
$1,163.70
Dividends declared per share
for calendar year
Common (e)
$.31
$.41
Class B Preferred (f)
$-
$.87
Class C Preferred (a)
$.86
$2.50
Class E Preferred (e)
$1.11
$2.22
Debt
Series B senior notes, with a rate
of 7-7/8%
due August 2008 (g)
$-
$136
Series G senior notes, with a rate
of 9-1/4%
due October 2007 (h)
234
236
Series I senior notes, with a rate
of 9-1/2% due January 2007 (i)
448
451
Series K senior notes, with a rate
of 7-1/8% due November 2013
725
725
Series M senior notes, with a rate
of 7% due August 2012
346
346
Series O senior notes, with a rate
of 6-3/8% due March 2015
650
650
Series P senior notes, with a rate
of 6-3/4% due June 1, 2016
800
-
Exchangeable Senior Debentures, with
a rate of 3.25% due April 2024
494
493
Senior notes, with an average rate
of 9.7%, maturing through May
2012
13
13
Total senior notes
3,710
3,050
Mortgage debt (non-recourse) secured
by $3.0 billion of real estate
assets, with an average interest
rate of 7.7% and 7.8% at June
16,
2006 and December 31, 2005,
respectively, maturing through
December 2023 (j)
1,918
1,823
Credit facility (k)
-
20
Convertible Subordinated Debentures,
with a rate of 6-3/4% due December
2026 (c)
-
387
Other
88
90
Total debt
$5,716
$5,370
Percentage of fixed rate debt
86%
85%
Weighted average interest rate
7.2%
7.2%
Weighted average debt maturity
5.8 years 6.4 years
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Hotel Operating Statistics for All
Full Service Properties (l)
Average daily rate
$186.66 $172.03 $183.49 $169.17
Average occupancy
76.3% 75.5% 73.8%
73.3%
RevPAR
$142.51 $129.95 $135.42 $123.96
(a) On May 19, 2006, the Company redeemed,
at par, all of the shares of
its 10% Class
C Cumulative Redeemable Preferred stock for
approximately
$151 million, including accrued dividends.
(b) Share prices are the closing price
as reported by the New York Stock
Exchange.
In conjunction with the acquisition of the Starwood
Portfolio,
the Company issued approximately 133.5 million shares of
common stock
on April 10, 2006.
(c) Effective February 10, 2006, the
Company exercised its right to cause
the conversion
rights of its Convertible Subordinated Debentures (and
corresponding
Convertible Preferred Securities) to expire. Prior to
this date,
a substantial majority of holders of the Convertible
Subordinated
Debentures exercised their right to convert their
debentures
into the Company's common stock. The remaining $2 million
of Convertible
Subordinated Debentures were redeemed for cash on
April 5, 2006.
As a result, between December 2005 through
February 10,
2006, the Company issued 30.8 million shares of its
common stock
to converting holders. Market price for December 31,
2005 is as
quoted by Bloomberg L.P. Amount reflects the price of a
single $50
security.
(d) Market price as quoted by Bloomberg
L.P. Amount reflects the price of
a single $1,000
debenture, which is exchangeable for common stock upon
the occurrence
of certain events.
(e) On June 15, 2006, the Company declared
a second quarter common
dividend of
$.17 per share and a cash dividend of $.5546875 per share
for its Class
E preferred stock.
(f) On May 20, 2005, the Company redeemed,
at par, all four million shares
of its 10%
Class B Cumulative Redeemable Preferred stock for
approximately
$101 million, including accrued dividends.
(g) The Company used a portion of the
proceeds from the issuance of
$800 million
of 6-3/4% Series P senior notes on April 4, 2006 to
redeem the
remaining 7-7/8% Series B senior notes on May 15, 2006.
(h) Includes the fair value of interest
rate swap agreements of
$(8) million
and $(6) million as of June 16, 2006 and December 31,
2005, respectively.
(i) Includes the fair value of an interest
rate swap agreement of
$(2) million
and $1 million as of June 16, 2006 and December 31, 2005,
respectively.
(j) On June 1, 2006, the Company repaid
the $84 million mortgage on the
Boston Marriott
Copley Place. In connection with the Starwood
acquisition
on April 10, 2006, the Company assumed approximately
$77 million
of mortgage debt, which had a fair value of $86 million.
(k) The outstanding balance on the
Company's credit facility of
$20 million
as of December 31, 2005 was repaid on January 13, 2006.
Currently,
the Company has $575 million of available capacity under
its credit
facility.
(l) The operating statistics reflect
all consolidated properties as of
June 16, 2006
and June 17, 2005, respectively. The operating
statistics
include the results of operations for five properties sold
in 2006 and
five properties sold in 2005 prior to their disposition.
HOST HOTELS & RESORTS, INC.
Reconciliation of Net Income
(Loss) Available to Common Stockholders
to Funds From Operations per Diluted Share
(unaudited, in millions, except per share amounts)
Quarter ended Quarter ended
June 16, 2006 June 17, 2005
Per
Per
Income Share Income
Share
(Loss) Shares Amount (Loss) Shares Amount
Net income available to common
stockholders
$320 492.8 $.65 $80 352.7
$.23
Adjustments:
Gains on dispositions,
net of taxes
(232) - (.47) (41)
- (.12)
Amortization of deferred gains
and
other property transactions,
net of taxes
(1) - -
(2) - -
Depreciation and amortization
106 - .21
86 - .24
Partnership adjustments
14 - .03
3 - .01
FFO of minority partners of
Host LP (a)
(8) - (.02) (7)
- (.02)
Adjustments for dilutive securities:
Assuming distribution of common
shares granted under the
comprehensive stock plan less
shares assumed purchased at
average
market price
- 2.0 -
- 2.2 -
Assuming conversion of Exchangeable
Senior Debentures
4 28.1 (.01) 4
27.5 (.02)
Assuming conversion of Convertible
Subordinated Debentures
- - -
7 30.9 (.01)
FFO per diluted share (b) (c)
$203 522.9 $.39 $130 413.3 $.31
Year-to-date ended Year-to-date ended
June 16, 2006 June 17, 2005
Income Share Income
Share
(Loss) Shares Amount (Loss) Shares Amount
Net income available to common
stockholders
$486 435.7 $1.12 $78 352.3 $.22
Adjustments:
Gains on dispositions,
net of taxes
(385) - (.89) (54)
- (.15)
Amortization of deferred gains
and
other property transactions,
net of taxes
(2) - -
(4) - (.01)
Depreciation and amortization
195 - .44 169
- .48
Partnership adjustments
22 - .06
8 - .02
FFO of minority partners of
Host LP (a)
(13) - (.03) (11)
- (.03)
Adjustments for dilutive
securities:
Assuming distribution of common
shares granted under the
comprehensive stock plan less
shares assumed purchased at
average market price
- 2.0 (.01) -
2.2 -
Assuming conversion of Exchangeable
Senior Debentures
9 28.1 (.02) 9 27.5
(.02)
Assuming conversion of Convertible
Subordinated Debentures
2 4.1 -
15 30.9 -
FFO per diluted share (b) (c)
$314 469.9 $.67 $210 412.9 $.51
(a) Represents FFO attributable to
the minority interests in Host LP.
(b) FFO per diluted share in accordance
with NAREIT is adjusted for the
effects of
dilutive securities. Dilutive securities may include shares
granted under
comprehensive stock plans, preferred OP Units held by
minority partners,
convertible debt securities and other minority
interests
that have the option to convert their limited partnership
interest to
common OP Units. No effect is shown for securities if
they are anti-dilutive.
(c) FFO per diluted share for certain
periods presented was significantly
affected by
certain transactions, which are detailed in the table
entitled,
"Schedule of Significant Transactions Affecting Earnings per
Share and
Funds from Operations per Diluted Share."
HOST HOTELS & RESORTS, INC.
Schedule of Significant
Transactions Affecting Earnings per Share
and Funds From Operations per Diluted Share
(unaudited, in millions, except per share amounts)
Quarter ended Quarter ended
June 16, 2006 June 17, 2005
Net Income Net Income
(Loss) FFO (Loss)
FFO
Non-recurring Starwood acquisition
costs (a)
$(13) $(13)
$- $-
Senior notes redemptions and debt
prepayments (b)
(4) (4)
(20) (20)
Preferred stock redemptions (c)
(8) (8)
(4) (4)
Gain on CBM Joint Venture LLC sale
(d) -
- 42
-
Gain on hotel dispositions,
net of taxes
232 -
- -
Assuming conversion of minority OP
Units issuable
- (1)
- -
Minority interest income (expense)
(e) (8) 1
(1) 1
Total (f)
$199 $(25)
$17 $(23)
Diluted shares
525.4 525.4 384.2
413.3
Per diluted share
$.38 $(.04) $.04
$(.06)
Year-to-date ended Year-to-date ended
June 16, 2006 June 17, 2005
Net Income Net Income
(Loss) FFO (Loss)
FFO
Non-recurring Starwood acquisition
costs (a)
$(13) $(13)
$- $-
Senior notes redemptions and debt
prepayments (b)
(4) (4)
(34) (34)
Preferred stock redemptions (c)
(8) (8)
(4) (4)
Gain on CBM Joint Venture LLC sale
(d) -
- 42
-
Gain on hotel dispositions,
net of taxes
385 -
12 -
Minority interest income (expense)
(e) (15) 1
(1) 2
Total (f)
$345 $(24)
$15 $(36)
Diluted shares
440.2 469.9 354.5
412.9
Per diluted share
$.78 $(.05) $.04
$(.09)
(a) Represents non-recurring costs
incurred in conjunction with the
acquisition
of the Starwood portfolio that are required to be expensed
under GAAP,
including start-up costs, bridge loan fees and expenses
and the Company's
portion of a foreign currency hedge loss by the
European joint
venture as the venture hedged a portion of its initial
investment
for the acquisition of its six European hotels.
(b) Represents call premiums and the
acceleration of original issue
discounts
and deferred financing costs, as well as incremental
interest during
the call or prepayment notice period, included in
interest expense
in the consolidated statements of operations. We
recognized
these costs in conjunction with the prepayment or
refinancing
of senior notes and mortgages during certain periods
presented.
(c) Represents the original issuance
costs and the incremental dividends
during the
redemption notice period associated with the redemption of
the Class
C preferred stock in 2006 and the Class B preferred stock in
2005.
(d) Represents the gain, net of tax,
on the sale of 85% of our interest in
CBM Joint
Venture LLC.
(e) Represents the portion of the significant
transactions attributable to
minority partners
in Host LP.
(f) Net income of Host LP was also
affected by the transactions discussed
above, with
the exception of the minority interest income (expense)
item discussed
in footnote (e). Accordingly, the total adjustments on
the net income
of Host LP were approximately $207 million and
$18 million
for the second quarter of 2006 and 2005, respectively, and
approximately
$360 million and $16 million for year-to-date 2006 and
year-to-date
2005, respectively.
HOST HOTELS & RESORTS, L.P.
Consolidated Statements of Operations (a)
(unaudited, in millions, except per unit amounts)
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Revenues
Rooms
$737 $572 $1,244
$1,039
Food and beverage
374 298 635
542
Other
75 63
126 113
Total hotel sales
1,186 933 2,005
1,694
Rental income
26 25
55 54
Total revenues
1,212 958 2,060
1,748
Expenses
Rooms
168 132 289
246
Food and beverage
258 212 447
392
Hotel departmental expenses
282 242 493
452
Management fees
58 43
93 75
Other property-level expenses
85 69
152 133
Depreciation and amortization
107 83
196 164
Corporate and other expenses
21 14
41 28
Total operating costs
and expenses 979
795 1,711 1,490
Operating profit
233 163 349
258
Interest income
9 5
14 12
Interest expense
(107) (115) (198)
(224)
Net gains on property transactions
1 74
2 77
Gain on foreign currency and
derivative contracts
- -
- 2
Minority interest expense
(3) (2) (7)
(6)
Equity in earnings (losses) of
affiliates
(6) 3
(5) (1)
Income before income taxes
127 128 155
118
Provision for income taxes
(17) (38) (18)
(38)
Income from continuing operations
110 90
137 80
Income from discontinued operations
(b)
233 6
387 22
Net income
343 96
524 102
Less: Distributions on preferred
units
(4) (7) (10)
(15)
Issuance costs of redeemed
preferred
units (c)
(6) (4) (6)
(4)
Net income available to common
unitholders
$333 $85 $508
$83
Basic earnings per common unit:
Continuing operations
$.19 $.21 $.27
$.16
Discontinued operations
.46 .02 .85
.06
Basic earnings per common unit
$.65 $.23 $1.12
$.22
Diluted earnings per common unit:
Continuing operations
$.19 $.21 $.26
$.16
Discontinued operations
.43 .01 .85
.06
Diluted earnings per common unit
$.62 $.22 $1.11
$.22
(a) Our consolidated statements of
operations presented above have been
prepared without
audit. Certain information and footnote disclosures
normally included
in financial statements presented in accordance with
GAAP have
been omitted. When distinguishing between Host and Host LP,
the primary
difference is the partnership interests in Host LP held by
outside partners,
which is reflected as minority interest in our
consolidated
balance sheets and minority interest expense in our
consolidated
statements of operations. The consolidated statements of
operations
should be read in conjunction with the consolidated
financial
statements and notes thereto included in our most recent
Annual Report
on Form 10-K.
(b) Reflects the results of operations
and gain (loss) on sale, net of the
related income
tax, for five properties sold in both 2006 and in 2005.
(c) Represents the original issuance
costs associated with the redemption
of the Class
C preferred units in 2006 and the Class B preferred units
in 2005.
HOST HOTELS & RESORTS, L.P.
Reconciliation of Net Income (Loss) to EBITDA and
Adjusted EBITDA
(unaudited, in millions)
Quarter ended Year-to-date ended
June 16, June 17, June 16, June 17,
2006 2005 2006
2005
Net income
$343 $96 $524
$102
Interest expense
107 115 198
224
Depreciation and amortization
107 83
196 164
Income taxes
17 38
18 38
Discontinued operations (a)
2 3
2 6
EBITDA
576 335 938
534
Gains on dispositions
(234) (70) (387)
(83)
Amortization of deferred gains
(1) (3) (2)
(6)
Consolidated partnership adjustments:
Minority interest expense
3 2
7 6
Distributions to minority
partners (4) (3)
(4) (3)
Equity investment adjustments:
Equity in (earnings) losses
of
affiliates
6 (3)
5 1
Distributions received
from
equity investments
1 -
2 1
Adjusted EBITDA of Host LP
$347 $258 $559
$450
(a) Reflects the interest expense,
depreciation and amortization and
income taxes
included in discontinued operations.
HOST HOTELS & RESORTS, INC.
Reconciliation of
Net Income Available to Common Stockholders to
Funds From Operations per Diluted Share for Third Quarter
2006 Forecasts (a)
(unaudited, in millions, except per share amounts)
Low-end of Range
Third Quarter 2006 Forecast
Income
Per Share
(Loss) Shares Amount
Forecast net income available to
common stockholders
$31 520.6
$.06
Adjustments:
Depreciation and amortization
117 -
.22
Gain on dispositions, net of
taxes (6)
- (.01)
Partnership adjustments
3 -
.01
FFO of minority partners of
Host LP (b) (5)
- (.01)
Adjustment for dilutive securities:
Assuming distribution of common
shares
granted under the comprehensive
stock
plan less shares assumed
purchased at
average market price
- 2.0
-
Assuming conversion of Exchangeable
Senior Debentures
4 28.5
(.01)
FFO per diluted share
$144 551.1
$.26
High-end of Range
Third Quarter 2006 Forecast
Income
Per Share
(Loss) Shares Amount
Forecast net income available to
common stockholders
$37 520.6
$.07
Adjustments:
Depreciation and amortization
117 -
.22
Gain on dispositions, net of
taxes (6)
- (.01)
Partnership adjustments
3 -
.01
FFO of minority partners of
Host LP (b) (5)
- (.01)
Adjustment for dilutive securities:
Assuming distribution of common
shares
granted under the comprehensive
stock
plan less shares assumed
purchased at
average market price
- 2
-
Assuming conversion of Exchangeable
Senior Debentures
4 28.5
(.01)
FFO per diluted share
$150 551.1
$.27
See the notes below for assumptions
relating to the 2006 forecasts.
HOST HOTELS & RESORTS, INC.
Reconciliation of
Net Income Available to Common Stockholders to
Funds From Operations per Diluted Share
for Full Year 2006 Forecasts (a)
(unaudited, in millions, except per share amounts)
Low-end of Range
Full Year 2006 Forecast
Income
Per Share
(Loss) Shares
Amount
Forecast net income available to
common stockholders
$722 482.0
$1.50
Adjustments:
Depreciation and amortization
469 -
.97
Gain on dispositions, net of
taxes (452)
- (.94)
Partnership adjustments
36 -
.08
FFO of minority partners of
Host LP (b) (29)
- (.06)
Adjustment for dilutive securities:
Assuming distribution of common
shares
granted under the comprehensive
stock
plan less shares assumed
purchased at
average market price
- 2.0
(.01)
Assuming conversion of Exchangeable
Senior Debentures
19 29.1
(.05)
Assuming conversion of Convertible
Subordinated Debentures
2 1.9
-
FFO per diluted share
$767 515.0
$1.49
High-end of Range
Full Year 2006 Forecast
Income
Per Share
(Loss) Shares
Amount
Forecast net income available to
common stockholders
$754 482.0
$1.57
Adjustments:
Depreciation and amortization
469 -
.97
Gain on dispositions, net of
taxes (452)
- (.94)
Partnership adjustments
37 -
.08
FFO of minority partners of
Host LP (b) (31)
- (.07)
Adjustment for dilutive securities:
Assuming distribution of common
shares
granted under the comprehensive
stock
plan less shares assumed
purchased at
average market price
- 2.0
(.01)
Assuming conversion of Exchangeable
Senior Debentures
19 29.1
(.05)
Assuming conversion of Convertible
Subordinated Debentures
2 1.9
-
FFO per diluted share
$798 515.0
$1.55
(a) The third quarter and full year
2006 forecasts were based on the
following
assumptions (the comparable hotel guidance listed below does
not include
the Starwood portfolio):
* Comparable
hotel RevPAR will increase 9% to 10% for the third
quarter and 8.5% to 10% for the full year for the low and high
ends of the forecasted range, respectively.
* Comparable
hotel adjusted operating profit margins will increase 160
basis points and 200 basis points for the full year for the low and
high ends of the forecasted range, respectively.
* RevPAR growth
for the Starwood portfolio will be modestly higher
than the RevPAR for the Company's comparable hotels for full year
2006.
* Approximately
$925 million of hotels and other assets will be sold
during 2006, including approximately $675 million of hotels already
sold.
* The Westin
Kierland Resort & Spa will be acquired in the third
quarter.
* Approximately
$736 million of debt and perpetual preferred stock has
been, or will be, refinanced and approximately $173 million of debt
has been or will be repaid. Charges, net of the minority interest
benefit, totaling approximately $1 million (minimal FFO per diluted
share effect) and $30 million ($.06 of FFO per diluted share)
related to costs associated with the debt and perpetual preferred
stock repayments and non-recurring costs related to the Starwood
acquisition will be incurred for the third quarter and full year
2006, respectively.
* Fully diluted
weighted average shares for FFO per diluted share will
be 551.1 million and 515.0 million and for earnings per diluted
share will be 522.6 million and 484.0 million for the third quarter
and full year, respectively.
The amounts shown in these forecasts are based on these
and other assumptions, as well as management's estimate of operations for
2006. These forecasts are forward-looking and are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause actual transactions, 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 be materially different. Risks that may affect
these assumption and forecasts include the following:
* the
level of RevPAR and margin growth may change significantly;
* 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
(losses) on dispositions;
* the
level of capital expenditures may change significantly, which
will directly affect the level of depreciation expense and net
income; and
* other
risks and uncertainties associated with our business
described herein and in the Company's filings with the SEC.
(b) Represents FFO attributable to
the minority interests in Host LP.
HOST HOTELS & RESORTS, INC.
Schedule of
Comparable Hotel Adjusted Operating Profit Margin
for Full Year 2006 Forecasts (a)
(unaudited, in millions, except hotel statistics)
Full Year 2006 Forecast
Low-end High-end
of range of range
Percent change in Comparable Hotel
RevPAR 8.5%
10.0%
Operating profit margin under GAAP
(b) 15.4%
15.9%
Comparable hotel adjusted operating
profit margin (c)
26.3%
26.7%
Comparable hotel sales
Room
$2,390
$2,424
Other
1,453
1,473
Comparable hotel sales
(d)
3,843
3,897
Comparable hotel expenses
Rooms and other departmental
costs
1,584
1,601
Management fees, ground rent
and other costs 1,248
1,256
Comparable hotel expenses
(e)
2,832
2,857
Comparable hotel adjusted operating
profit 1,011
1,040
Non-comparable hotel results, net
292
298
Office buildings and limited service
properties, net
7
7
Depreciation and amortization
(471)
(471)
Corporate and other expenses
(82)
(82)
Operating profit
$757
$792
(a) Forecasted comparable hotel results
include assumptions on the number
of hotels
that will be included in our comparable hotel set in 2006.
We have assumed
that 97 hotels will be classified as comparable as of
December 31,
2006. No assurances can be made as to the hotels that
will be in
the comparable hotel set for 2006. Also, see the notes
following
the table reconciling net income available to common
shareholders
to Funds From Operations per Diluted Share for
assumptions
relating to the full year 2006 forecasts.
(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. We forecasted an increase in margins
of 160 basis
points to 200 basis points over the comparable adjusted
operating
profit margin of 24.7%.
(d) The reconciliation of forecast
total revenues to the forecast
comparable
hotel sales is as follows (in millions):
Full Year 2006
Low-end High-end
of range of range
Revenues
$4,906
$4,965
Non-comparable hotel sales
(1,026) (1,031)
Hotel sales for the property for which
we
record rental income, net
51
51
Rental income for office buildings
and
limited service hotels
(88)
(88)
Comparable hotel sales
$3,843
$3,897
(e) The reconciliation of forecast
operating costs and expenses to the
comparable
hotel expenses is as follows (in millions):
Full Year 2006
Low-end High-end
of range of range
Operating costs and expenses
$4,149
$4,173
Non-comparable hotel expenses
(734)
(733)
Hotel expenses for the property for
which we
record rental income
51
51
Rent expense for office buildings
and
limited service hotels
(81)
(81)
Depreciation and amortization
(471)
(471)
Corporate and other expenses
(82)
(82)
Comparable hotel expenses
$2,832
$2,857
HOST HOTELS & RESORTS, L.P.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
for Full Year 2006 Forecasts (a)
(unaudited, in millions)
Full Year 2006
Low-end High-end
of range of range
Net income
$772
$804
Interest expense
437
437
Depreciation and amortization
471
471
Income taxes
10
13
EBITDA
1,690
1,725
Gains on dispositions
(450)
(450)
Consolidated partnership adjustments:
Minority interest expense
9
9
Distributions to minority
partners (6)
(6)
Equity investment adjustments:
Equity in earnings of
affiliates
4
4
Distributions received
from equity
investments
3
3
Adjusted EBITDA of Host LP
$1,250
$1,285
(a) The amounts shown in these reconciliations
are based on management's
estimate of
operations for 2006. These tables are forward-looking and
as such contain
assumptions by management based on known and unknown
risks, uncertainties
and other factors which may cause the actual
transactions,
results, performance, or achievements to be materially
different
from any future transactions, results, performance or
achievements
expressed or implied by this table. General economic
condition,
competition and governmental actions will affect future
transactions,
results performance and achievements. Although we
believe the
expectations in this reconciliation are based upon
reasonable
assumptions, we can give no assurance that the expectations
will be attained
or that any deviations will not be material. For
purposes of
the full year forecasts, we have utilized the same,
previously
detailed assumptions as those utilized for the full year
forecasts
for Host Hotels & Resorts, Inc.
ADD: /FIRST AND FINAL ADD -- NYW005 -- Host Hotels &
Resorts, Inc. Earnings/
HOST HOTELS & RESORTS, INC.
Notes to Financial Information
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., or Marriott International, the manager of the majority
of our properties, uses a fiscal year ending on the Friday closest to December
31 and reports twelve weeks of operations for the first three quarters
and sixteen or seventeen weeks for the fourth quarter of the year for its
Marriott-managed hotels. In contrast, other managers of our hotels, such
as Starwood and Hyatt, report results on a monthly basis. Additionally,
Host, as a REIT, is required by tax laws to report results on a calendar
year. As a result, we elected to adopt the reporting periods used by Marriott
International 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 International but our fourth quarter ends on December
31 and our full year results, as reported in our statement of operations,
always includes the same number of days as the calendar year.
Two consequences of the reporting cycle we have adopted
are: (1) quarterly start dates will usually differ between years, except
for the first quarter which always commences on January 1, and (2) our
first and fourth quarters of operations and year-to-date operations may
not include the same number of days as reflected in prior years. For example,
the second quarter of 2006 ended on June 16, and the second quarter of
2005 ended on June 17, though both quarters reflect twelve weeks of operations.
In contrast, the June 16, 2006 year-to-date operations included 167 days
of operations, while the June 17, 2005 year-to-date operations included
168 days of operations.
While the reporting calendar we adopted is more closely
aligned with the reporting calendar used by the manager of a majority of
our properties, one final consequence of our calendar is we are unable
to report the month of operations that ends after our fiscal quarter-end
until the following quarter because our hotel managers using a monthly
reporting period do not make mid- month results available to us. Hence,
the month of operation that ends after our fiscal quarter-end is included
in our quarterly results of operations in the following quarter for those
hotel managers (covering approximately 40% of our full-service hotels).
As a result, our quarterly results of operations include results from hotel
managers reporting results on a monthly basis as follows: first quarter
(January, February), second quarter (March to May), third quarter (June
to August) and fourth quarter (September to December). While this does
not affect full-year results, it does affect the reporting of quarterly
results.
Reporting Periods for Hotel Operating Statistics and
Comparable Hotel Results
In contrast to the reporting periods for our consolidated
statement of operations, our hotel operating statistics (i.e., RevPAR,
average daily rate and average occupancy) and our comparable hotel results
are always reported based on the reporting cycle used by Marriott International
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 2002) versus sixteen
weeks). This means, however, that the reporting periods we use for hotel
operating statistics and our comparable hotel results may differ slightly
from the reporting periods used for our statements of operations for the
first and fourth quarters and the full year. Results from hotel managers
reporting on a monthly basis are included in our operating statistics and
comparable hotels results consistent with their reporting in our consolidated
statement of operations herein:
* Hotel results for the second quarter
of 2006 reflect 12 weeks of
operations for the period
from March 25, 2006 to June 16, 2006 for our
Marriott-managed hotels
and results from March 1, 2006 to May 31, 2006
for operations of all
other hotels which report results on a monthly
basis.
* Hotel results for the second quarter
of 2005 reflect 12 weeks of
operations for the period
from March 26, 2005 to June 17, 2005 for our
Marriott-managed hotels
and results from March 1, 2005 to May 31, 2005
for operations of all
other hotels which report results on a monthly
basis.
* Hotel results for year-to-date 2006
reflect 24 weeks for the period from
December 31, 2005 to June
16, 2006 for our Marriott-managed hotels and
results from January 1,
2006 to May 31, 2006 for operations of all other
hotels which report results
on a monthly basis.
* Hotel results for year-to-date 2005
reflect 24 weeks for the period from
January 1, 2005 to June
17, 2005 for our Marriott-managed hotels and
results from January 1,
2005 to May 31, 2005 for operations of all other
hotels which report results
on a monthly basis.
Comparable Hotel Operating Statistics
We present certain operating statistics (i.e., RevPAR,
average daily rate and average occupancy) and operating results (revenues,
expenses, adjusted operating profit and adjusted operating profit margin)
for the periods included in this report on a comparable hotel basis. We
define our comparable hotels as full-service 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 during the reporting periods being compared.
Of the 129 full-service hotels that we owned as of June 16, 2006, 97 hotels
have been classified as comparable hotels. The operating results of the
following hotels that we owned as of June 16, 2006 are excluded from comparable
hotel results for these periods:
* the Newport Beach Marriott Hotel
(major renovation started in July
2004);
* the Mountain Shadows Resort (hotel
to be sold pending completion of
significant contingencies,
which have not been resolved as of June 16,
2006);
* the Atlanta Marriott Marquis (major
renovation started in August 2005);
* the New Orleans Marriott (property
damage and business interruption from
Hurricane Katrina in August
2005);
* the Hyatt Regency, Washington on
Capitol Hill (acquired in September
2005); and
* the 27 consolidated hotels that we
acquired from Starwood on April 10,
2006.
In addition, the operating results of the ten hotels
we disposed of in 2006 and 2005 are also not included in comparable hotel
results for the periods presented herein. Moreover, because these statistics
and operating results are for our full-service hotel properties, they exclude
results for our non-hotel properties and leased limited-service hotels.
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
per diluted share of Host, (ii) EBITDA of Host LP, (iii) Adjusted EBITDA
of Host LP and (iv) Comparable Hotel Operating Results of Host. The following
discussion defines these terms and presents why we believe they are useful
supplemental measures of our performance.
FFO per Diluted Share
We present FFO per diluted share as a non-GAAP measure
of our performance in addition to our earnings per share (calculated in
accordance with GAAP). We calculate FFO per diluted share for a given operating
period as our FFO (defined as set forth below) for such period divided
by the number of fully diluted shares outstanding during such period. The
National Association of Real Estate Investment Trusts (NAREIT) defines
FFO as net income (calculated in accordance with GAAP) excluding gains
(losses) from sales of real estate, the cumulative effect of changes in
accounting principles, real estate-related depreciation and amortization
and adjustments for unconsolidated partnerships and joint ventures. We
present FFO on a per share basis after making adjustments for the effects
of dilutive securities and the payment of preferred stock dividends, in
accordance with NAREIT guidelines.
We believe that FFO per diluted share is a useful supplemental
measure of our operating performance and that the presentation of 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 and gains and losses from
sales of real estate, all of which are based on historical cost accounting
and which may be of lesser significance in evaluating current performance,
we believe such measures can facilitate comparisons of operating performance
between periods and with other REITs, even though 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 definition
of FFO in order to promote an industry-wide measure of REIT 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
and 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 per diluted share,
it is widely used by management in the annual budget process.
Adjusted EBITDA
As of July 18, 2006, Host owns approximately 96% of the
partnership interest of Host LP and is its sole general partner. We conduct
all of our operations through Host LP, and Host LP is the obligor on our
senior notes and on our credit facility. Historically, management has adjusted
EBITDA when evaluating our performance because we believe that the exclusion
of certain additional recurring and non-recurring 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. In
addition, the Adjusted EBITDA of Host LP is presented because we believe
it is a relevant measure in calculating certain credit ratios, since Host
LP is the owner of all of our hotels and is the obligor on our debt noted
above. We adjust EBITDA for the following items, which may occur in any
period, and refer to this measure as Adjusted EBITDA:
* Gains and Losses on Dispositions
- We exclude the effect of gains and
losses recorded on the
disposition of assets in our consolidated
statement of operations
because we believe that including them in EBITDA
is not consistent with
reflecting the ongoing performance of our
remaining 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 often does not reflect the
market value of real estate
assets (as noted above for FFO).
* Consolidated Partnership Adjustments
- We exclude the minority interest
in the income or loss
of our consolidated partnerships as presented in
our consolidated statement
of operations because we believe that
including these amounts
in EBITDA does not reflect the effect of the
minority interest position
on our performance because these amounts
include our minority partners'
pro-rata portion of depreciation,
amortization and interest
expense. However, we believe that the cash
distributions paid to
minority partners are a more relevant measure of
the effect of our minority
partners' interest on our performance, and we
have deducted these cash
distributions from Adjusted EBITDA.
* Equity Investment Adjustments - We
exclude the equity in earnings
(losses) of unconsolidated
investments in partnerships and joint
ventures as presented
in our consolidated statement of operations
because our percentage
interest in the earnings (losses) does not
reflect the impact of
our minority interest position on our performance
and these amounts include
our pro-rata portion of depreciation,
amortization and interest
expense. However, we believe that cash
distributions we receive
are a more relevant measure of the performance
of our investment and,
therefore, we include the cash distributed to us
from these investments
in the calculation of Adjusted EBITDA.
* Cumulative effect of a change in
accounting principle - Infrequently,
the Financial Accounting
Standards Board (FASB) 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 EBITDA is not consistent with
reflecting the ongoing
performance of our remaining assets. In
addition, we believe that
impairment charges are similar to gains
(losses) on dispositions
and depreciation expense, both of which are
also excluded from EBITDA.
Limitations on the Use of FFO per Diluted Share, EBITDA
and Adjusted EBITDA
We calculate 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 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. 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
and 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,
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,
FFO per diluted share does 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 full-service
hotels, such as hotel revenues, expenses and adjusted operating 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 full-service 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 industry investors have considered presentation
of operating results for real estate companies that use historical cost
accounting 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. |
