HOST HOTELS & RESORTS, INC.
Consolidated Balance Sheets (a)
(in millions, except shares and per share amounts)
June 13, December 31,
2008 2007
(unaudited)
ASSETS
Property and equipment, net
$10,718 $10,588
Due from managers
134 106
Investments in affiliates
203 194
Deferred financing costs, net
54 51
Furniture, fixtures and equipment replacement
fund 143
122
Other
227 198
Restricted cash
61 65
Cash and cash equivalents
505 488
Total assets
$12,045 $11,812
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt
Senior notes, including $1,090 million
and
$1,088 million, respectively,
net of discount,
of Exchangeable Senior Debentures
$4,116 $4,114
Mortgage debt
1,499 1,423
Credit facility, including the $210
million
term loan
210 -
Other
87 88
Total debt
5,912 5,625
Accounts payable and accrued expenses (b)
84 315
Other
215 215
Total liabilities
6,211 6,155
Interest of minority partners of Host Hotels &
Resorts, L.P.
250 188
Interest of minority partners of other
consolidated partnerships
29 28
Stockholders' equity
Cumulative redeemable preferred stock
(liquidation
preference $100 million) 50
million shares
authorized; 4.0 million shares
issued and
outstanding
97 97
Common stock, par value $.01, 750
million shares
authorized; 518.6 million shares
and 522.6 million
shares issued and outstanding,
respectively
5 5
Additional paid-in capital
5,640 5,673
Accumulated other comprehensive income
49 45
Deficit
(236) (379)
Total stockholders' equity
5,555 5,441
Total liabilities and
stockholders' equity $12,045
$11,812
(a) Our consolidated balance sheet as of June 13, 2008
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.
(b) Amount includes $209 million at year end 2007 for
the accrual of the year end 2007 dividend of $.40 per common share. The
second quarter 2008 dividend of $.20 per common share was not declared
until June 15, 2008, which is after June 13, the end of the second quarter.
HOST HOTELS & RESORTS, INC.
Consolidated Statements of Operations (a)
(unaudited, in millions, except per share amounts)
Quarter ended Year-to-date ended
June 13, June 15, June 13, June 15,
2008 2007 2008
2007
Revenues
Rooms
$856 $839 $1,480
$1,447
Food and beverage
440 427
774 748
Other
92 90
162 159
Total hotel sales
1,388 1,356 2,416
2,354
Rental income
27 25
57 56
Total revenues
1,415 1,381 2,473
2,410
Expenses
Rooms
199 193
356 343
Food and beverage
301 295
544 531
Hotel departmental expenses
325 314
583 563
Management fees
73 71
125 116
Other property-level expenses
96 94
177 175
Depreciation and amortization
131 118
255 233
Corporate and other expenses
14 15
31 37
Gain on insurance settlement (b)
- -
(7) -
Total operating costs
and expenses 1,139 1,100 2,064
1,998
Operating profit
276 281
409 412
Interest income
5 12
9 18
Interest expense
(81) (136) (157)
(230)
Net gains on property transactions
1 1
2 2
Minority interest expense
(10) (5) (19)
(16)
Equity in earnings of affiliates
2 3
2 5
Income before income taxes
193 156
246 191
Provision for income taxes
(14) (11) (7)
(5)
Income from continuing operations
179 145
239 186
Income from discontinued operations (c)
11 4
12 150
Net income
190 149
251 336
Less: Dividends on preferred stock
(2) (2)
(4) (4)
Net income available to common
stockholders
$188 $147 $247
$332
Basic earnings per common share:
Continuing operations
$.34 $.27 $.45
$.35
Discontinued operations
.02 .01
.02 .29
Basic earnings per common
share $.36 $.28
$.47 $.64
Diluted earnings per common share
Continuing operations
$.33 $.26 $.44
$.35
Discontinued operations
.02 .01
.02 .27
Diluted earnings per common
share $.35 $.27
$.46 $.62
(a) Our consolidated statements of operations presented
above have been prepared without audit. Certain information and footnote
disclosures normally included in financial statements presented in accordance
with GAAP have been omitted.
(b) The gain on insurance settlement reflects business
interruption insurance proceeds from damages incurred from Hurricane Katrina
in 2005 and excludes the $2 million of management fees due to the manager
of the hotel for the first quarter of 2008 related to the proceeds.
(c) Reflects the results of operations and gains on sale,
net of the related income tax, for one property held-for-sale at June 13,
2008, one property sold in 2008 and nine properties sold in 2007.
HOST HOTELS & RESORTS, INC.
Earnings per Common Share
(unaudited, in millions, except per share amounts)
Quarter ended Quarter
ended
June 13, 2008 June
15, 2007
Per
Per
Share
Share
Income Shares Amount Income Shares Amount
Net income
$190 520.5 $.36 $149
522.1 $.29
Dividends on preferred stock
(2) - -
(2) - (.01)
Basic earnings available to
common stockholders (a)(b)
188 520.5 .36
147 522.1 .28
Assuming distribution of
common shares granted under
the comprehensive stock
plan less shares assumed
purchased at average market
price
- .3 -
- .7 -
Assuming conversion of
minority OP units issuable
- - -
- 1.2 -
Assuming conversion of 2004
Exchangeable Senior
Debentures
4 30.9 (.01)
4 29.0 (.01)
Diluted earnings available to
common stockholders (a)(b) $192
551.7 $.35 $151 553.0
$.27
Year-to-date ended Year-to-date ended
June 13, 2008
June 15, 2007
Per
Per
Share
Share
Income Shares Amount Income Shares Amount
Net income
$251 521.5 $.48 $336
521.8 $.65
Dividends on preferred
stock
(4) - (.01)
(4) - (.01)
Basic earnings available to
common stockholders (a)(b)
247 521.5 .47
332 521.8 .64
Assuming distribution of
common shares granted under
the comprehensive stock
plan less shares assumed
purchased at average market
price
- .3 -
- .8 -
Assuming conversion of
minority OP units issuable
- - -
- 1.2 -
Assuming conversion of 2004
Exchangeable Senior
Debentures
9 30.9 (.01)
9 29.0 (.02)
Diluted earnings available to
common stockholders (a)(b) $256
552.7 $.46 $341 552.8
$.62
(a) 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, exchangeable 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.
(b) Our results for both periods presented were significantly
affected by certain transactions. For further detail see "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 13, 2008 Quarter ended June 13, 2008
Average
No. of No. of Average
Occupancy
Properties Rooms Daily Rate Percentages RevPAR
Pacific
27 15,936 $206.12
76.5% $157.60
Mid-Atlantic
11 8,684 265.87
81.9 217.73
North Central
14 6,175 158.64
70.7 112.15
Florida
9 5,676 236.85
78.3 185.51
DC Metro
13 5,666 214.09
83.8 179.31
New England
11 5,663 185.14
77.5 143.52
South Central
8 4,358 172.07
71.8 123.62
Mountain
8 3,372 182.61
69.8 127.49
Atlanta
7 2,589 196.56
70.5 138.66
International
7 2,471 181.20
74.0 134.00
All Regions
115 60,590 207.62
76.5 158.91
Quarter ended June 15, 2007
Average
Percent
Average Occupancy
Change in
Daily Rate Percentages RevPAR
RevPAR
Pacific
$204.17 76.8%
$156.89 0.5%
Mid-Atlantic
254.96 85.3
217.38 0.2
North Central
154.80 72.1
111.65 0.4
Florida
231.75 76.7
177.77 4.4
DC Metro
206.99 85.1
176.05 1.8
New England
177.62 76.3
135.45 6.0
South Central
167.42 74.3
124.44 (0.7)
Mountain
183.00 70.1
128.26 (0.6)
Atlanta
204.27 71.9
146.88 (5.6)
International
154.69 70.9
109.69 22.2
All Regions
202.34 77.2
156.28 1.7
As of June 13, 2008 Year-to-date
ended
June 13, 2008
Average
No. of No. of Average
Occupancy
Properties Rooms Daily Rate Percentages RevPAR
Pacific
27 15,936 $206.10
74.7% $154.01
Mid-Atlantic
11 8,684 253.22
78.1 197.72
North Central
14 6,175 149.20
63.1 94.21
Florida
9 5,676 242.60
79.7 193.29
DC Metro
13 5,666 208.75
74.4 155.40
New England
11 5,663 174.42
70.1 122.25
South Central
8 4,358 169.81
71.8 121.89
Mountain
8 3,372 192.74
67.4 129.99
Atlanta
7 2,589 195.77
70.0 136.98
International
7 2,471 172.90
71.9 124.29
All Regions
115 60,590 204.57
73.1 149.59
Year-to-date ended June 15, 2007
Average
Percent
Average Occupancy
Change in
Daily Rate Percentages RevPAR
RevPAR
Pacific
$203.13 74.8%
$151.96 1.4%
Mid-Atlantic
241.06 80.6
194.39 1.7
North Central
145.50 67.4
98.10 (4.0)
Florida
239.45 76.4
183.01 5.6
DC Metro
202.59 77.6
157.28 (1.2)
New England
166.22 68.6
114.06 7.2
South Central
164.25 75.1
123.28 (1.1)
Mountain
187.75 69.2
129.94 -
Atlanta
198.26 70.8
140.34 (2.4)
International
149.15 68.0
101.35 22.6
All Regions
198.22 74.0
146.72 2.0
HOST HOTELS & RESORTS, INC.
Comparable Hotel Operating Data
(unaudited)
Comparable Hotels by Property Type (a)
As of June 13, 2008 Quarter ended June 13, 2008
Average
No. of No. of Average Occupancy
Properties Rooms Daily Rate Percentages RevPAR
Urban
55 32,989 $220.48
78.3% $172.65
Suburban
32 12,311 161.83
69.1 111.81
Resort/Convention
13 8,082 274.55
78.5 215.40
Airport
15 7,208 140.59
78.9 110.94
All Types
115 60,590 207.62
76.5 158.91
Quarter ended June 15, 2007
Average
Percent
Average Occupancy
Change in
Daily Rate Percentages RevPAR
RevPAR
Urban
$212.39 79.9%
$169.75 1.7%
Suburban
158.38 69.8
110.52 1.2
Resort/Convention
275.92 76.6
211.23 2.0
Airport
139.29 78.3
109.03 1.8
All Types
202.34 77.2
156.28 1.7
As of June 13, 2008 Year-to-date
ended
June 13, 2008
Average
No. of No. of Average Occupancy
Properties Rooms Daily Rate Percentages RevPAR
Urban
55 32,989 $213.78
74.5% $159.30
Suburban
32 12,311 162.28
65.7 106.68
Resort/Convention
13 8,082 279.07
77.4 216.04
Airport
15 7,208 142.11
74.7 106.14
All Types
115 60,590 204.57
73.1 149.59
Year-to-date ended June 15, 2007
Average
Percent
Average Occupancy
Change in
Daily Rate Percentages RevPAR
RevPAR
Urban
$205.35 76.3%
$156.64 1.7%
Suburban
157.44 67.2
105.73 0.9
Resort/Convention
278.99 74.7
208.39 3.7
Airport
139.78 74.8
104.54 1.5
All Types
198.22 74.0
146.72 2.0
(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 13, June 15, June 13, June 15,
2008 2007 2008
2007
Number of hotels
115 115 115
115
Number of rooms
60,590 60,590 60,590 60,590
Percent change in comparable
hotel RevPAR
1.7% -
2.0% -
Operating profit margin under GAAP (b) 19.5%
20.3% 16.5% 17.1%
Comparable hotel adjusted operating
profit margin (b)
30.1% 30.3% 28.0%
28.3%
Food and beverage profit margin under
GAAP (b)
31.6% 30.9% 29.7%
29.0%
Comparable food and beverage adjusted
profit margin (b)
31.7% 31.1% 29.9%
29.3%
Comparable hotel sales
Room
$841 $827 $1,463 $1,431
Food and beverage (c)
436 425 772
748
Other
93 92
165 163
Comparable hotel sales
(d) 1,370
1,344 2,400 2,342
Comparable hotel expenses
Room
195 189 350
338
Food and beverage (e)
298 293 541
529
Other
49 49
87 87
Management fees, ground rent and
other costs
415 406 750
725
Comparable hotel expenses
(f) 957
937 1,728 1,679
Comparable hotel adjusted operating
profit
413 407 672
663
Non-comparable hotel results, net (g)
9 8
17 20
Office buildings and select service
properties, net (h)
(1) (1) (1)
(1)
Depreciation and amortization
(131) (118) (255)
(233)
Corporate and other expenses
(14) (15) (31)
(37)
Gain on insurance settlement
- -
7 -
Operating profit
$276 $281 $409
$412
(a) See the notes to the financial information for discussion
of non-GAAP measures, reporting periods and comparable hotel results.
(b) Operating profit margins are calculated by dividing
the applicable operating profit by the related revenue amount. GAAP margins
are calculated using amounts presented in the consolidated statement of
operations. Comparable margins are calculated using amounts presented in
the above table.
(c) The reconciliation of total food and beverage sales
per the consolidated statements of operations to the comparable food and
beverage sales is as follows:
Quarter ended Year-to-date ended
June 13, June 15, June 13, June 15,
2008 2007 2008
2007
Food and beverage sales per the
consolidated statements of operations
$440 $427 $774
$748
Non-comparable food and beverage sales
(11) (9) (25)
(20)
Food and beverage sales for the property
for which we record rental income
7 7
16 16
Adjustment for food and beverage sales
for comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
7 4
Comparable food and beverage sales
$436 $425 $772
$748
(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 13, June 15, June 13, June 15,
2008 2007 2008
2007
Revenues per the consolidated
statements of operations
$1,415 $1,381 $2,473 $2,410
Non-comparable hotel sales
(40) (33) (83)
(72)
Hotel sales for the property for
which we record rental income, net
14 14
27 27
Rental income for office buildings
and select service hotels
(19) (18) (38)
(37)
Adjustment for hotel sales for
comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
21 14
Comparable hotel sales
$1,370 $1,344 $2,400 $2,342
(e) The reconciliation of total food and beverage expenses
per the consolidated statements of operations to the comparable food and
beverage expenses is as follows:
Quarter ended Year-to-date ended
June 13, June 15, June 13, June 15,
2008 2007 2008
2007
Food and beverage expenses per the
consolidated statements of operations
$301 $295 $544
$531
Non-comparable food and beverage
expense
(8) (6) (18)
(14)
Food and beverage expenses for the
property for which we record rental
income
5 4
10 9
Adjustment for food and beverage expenses
for comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
5 3
Comparable food and beverage expenses
$298 $293 $541
$529
(f) The reconciliation of operating costs per the consolidated
statements of operations to the comparable hotel expenses is as follows:
Quarter ended Year-to-date ended
June 13, June 15, June 13, June 15,
2008 2007 2008
2007
Operating costs and expenses per
the consolidated statements of
operations
$1,139 $1,100 $2,064 $1,998
Non-comparable hotel expenses
(30) (24) (61)
(50)
Hotel expenses for the property
for which we record rental income
13 13
28 29
Rent expense for office buildings
and select service hotels
(20) (19) (39)
(38)
Adjustment for hotel expenses for
comparable hotels to reflect
Marriott's fiscal year for
Marriott-managed hotels
- -
15 10
Depreciation and amortization
(131) (118) (255)
(233)
Corporate and other expenses
(14) (15) (31)
(37)
Gain on insurance settlement
- -
7 -
Comparable hotel expenses
$957 $937 $1,728
$1,679
(g) 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.
(h) Represents rental income less rental expense for select
service properties and office buildings.
HOST HOTELS & RESORTS, INC.
Other Financial and Operating Data
(unaudited, in millions, except per share amounts)
June 13, December 31,
2008 2007
Equity
Common shares outstanding
518.6 522.6
Common shares and minority
held common OP
Units outstanding
542.3 540.9
Preferred OP Units outstanding
.02 .02
Class E Preferred shares
outstanding
4.0 4.0
Security pricing
Common (a)
$15.55 $17.04
Class E Preferred (a)
$24.80 $25.05
3-1/4% Exchangeable Senior
Debentures (b) $1,073.75 $1,153.19
2-5/8% Exchangeable Senior
Debentures (b) $855.00
$855.44
Dividends declared per share for calendar year
Common (c)
$.40 $1.00
Class E Preferred (c)
$1.11 $2.22
Debt
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
347 347
Series O senior notes, with a rate of 6-3/8% due
March 2015
650 650
Series Q senior notes, with a rate of 6-3/4% due
June 2016
800 800
Series S senior notes, with a rate of 6-7/8% due
November 2014
497 497
$500 million Exchangeable Senior Debentures, with
a rate of 3-1/4% due April 2024
497 496
$600 million Exchangeable Senior Debentures, with
a rate of 2-5/8% due April 2027
593 592
Senior notes, with rate of 10.0% due May 2012
7 7
Total senior notes
4,116 4,114
Mortgage debt (non-recourse) secured by $2.2 billion
of real estate assets, with an average interest
rate of 6.3% and 6.6% at June 13, 2008 and
December 31, 2007, respectively, maturing
through
December 2023
1,499 1,423
Credit facility (d)
210 -
Other
87 88
Total debt (e)(f)
$5,912 $5,625
Percentage of fixed rate debt
91.4% 100%
Weighted average interest rate
5.9% 6.0%
Weighted average debt maturity
5.2 years 5.7 years
Quarter ended Year-to-date
ended
June 13, June 15, June 13,
June 15,
2008 2007
2008 2007
Hotel Operating Statistics
for All Properties (g)
Average daily rate
$205.10 $199.50 $201.99
$194.93
Average occupancy
76.2% 76.4%
73.0% 73.5%
RevPAR
$156.20 $152.49 $147.46
$143.33
(a) Share prices are the closing price as reported by
the New York Stock Exchange.
(b) Amount reflects market price of a single $1,000 debenture
as quoted by Bloomberg L.P.
(c) On June 16, 2008, the Company declared a second quarter
common dividend of $0.20 per share and a second quarter preferred dividend
of $0.5546875 per share for its Class E cumulative redeemable preferred
stock.
(d) During the second quarter, the Company entered into
a $210 million term loan, which is an expansion of the Company's existing
$600 million credit facility. The term loan was completed in two phases,
with $165 million closing in April 2008 (as previously announced) and an
additional $45 million, with the same terms, closing in May 2008. The term
loan has a maturity date of September 9, 2011 which the Company can extend
for one year, subject to certain conditions. The term loan is prepayable
without penalty after October 2009 and may be repaid prior to that date
for a fee. The term loan bears interest at LIBOR plus 175 basis points,
with a LIBOR floor of 2.25%. The proceeds from the term loan were used
to repay the $100 million draw under the Credit Facility and for general
corporate purposes. As a result of this transaction, the Company has $600
million available under the revolver feature of the Credit Facility.
(e) In accordance with GAAP, total debt includes the debt
of entities that we consolidate, but do not own 100% of the interests,
and excludes the debt of entities that we do not consolidate, but have
a minority ownership interest and record our investment therein under the
equity method of accounting. As of June 13, 2008, our minority partners'
share of consolidated debt is $68.3 million and our share of debt in unconsolidated
investments is $391.4 million.
(f) Total debt as of June 13, 2008 and December 31, 2007
includes net discounts of $12 million and $13 million, respectively.
(g) The operating statistics reflect all consolidated
properties as of June 13, 2008 and June 15, 2007, respectively. The operating
statistics include the results of operations for nine properties sold as
of June 15, 2008 prior to their disposition.
HOST HOTELS & RESORTS, INC.
Reconciliation of Net
Income Available to Common Stockholders
to Funds From Operations per Common Share
(unaudited, in millions, except per share amounts)
Quarter ended June 13, 2008 Quarter ended June 15, 2007
Per Share
Per Share
Income Shares Amount Income
Shares Amount
Net income available
to common
stockholders
$188 520.5 $.36
$147 522.1 $.28
Adjustments:
Gains on dispositions,
net of taxes
(10) -
(.02) 2
- -
Amortization of
deferred gains and
other property
transactions, net of
taxes
(1) -
- (1)
- -
Depreciation and
amortization
130 -
.25 117
- .23
Partnership
adjustments
12 -
.02 6
- .01
FFO of minority
partners of Host
LP (a)
(14) -
(.03) (9)
- (.02)
Adjustments for
dilutive securities:
Assuming distribution
of common shares
granted under the
comprehensive stock
plan less shares
assumed purchased at
average market price
- .3
- -
.7 -
Assuming conversion of
2004 Exchangeable
Senior Debentures
4 30.9 (.02)
4 29.0 (.02)
FFO per diluted
share (b)(c)
$309 551.7 $.56
$266 551.8 $.48
Year-to-date ended Year-to-date
ended
June 13, 2008
June 15, 2007
Per Share
Per Share
Income Shares Amount Income
Shares Amount
Net income available
to common
stockholders
$247 521.5 $.47
$332 521.8 $.64
Adjustments:
Gains on dispositions,
net of taxes
(10) -
(.02) (139) -
(.27)
Amortization of
deferred gains and
other property
transactions, net of
taxes
(2) -
- (2)
- -
Depreciation and
amortization
254 -
.49 234
- .45
Partnership
adjustments
16 -
.03 13
- .02
FFO of minority
partners of Host
LP (a)
(21) -
(.04) (15)
- (.03)
Adjustments for
dilutive securities:
Assuming distribution
of common shares
granted under the
comprehensive stock
plan less shares
assumed purchased at
average market price
- .3
- -
.8 -
Assuming conversion of
2004 Exchangeable
Senior Debentures
9 30.9 (.04)
9 29.0 (.03)
FFO per diluted
share (b)(c)
$493 552.7 $.89
$432 551.6 $.78
(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, exchangeable 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 was significantly affected by
certain transactions. For further detail see "Schedule of Significant Transactions
Affecting Earnings per Diluted 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 13, 2008 June 15, 2007
Net Income Net Income
(Loss) FFO (Loss)
FFO
Senior notes redemptions and debt
prepayments (a)
$- $-
$(46) $(46)
Gain/(loss) on hotel dispositions,
net of taxes
10 -
(2) -
Assuming conversion of minority OP
Units issuable
- -
- (1)
Minority interest income
(expense) (b)
- -
2 2
Total (c)
$10 $-
$(46) $(45)
Diluted shares
551.7 -
553.0 553.0
Per diluted share
$.02 $- $(.08)
$(.08)
Year-to-date ended Year-to-date ended
June 13, 2008 June 15, 2007
Net Income Net Income
(Loss) FFO (Loss)
FFO
Senior notes redemptions and debt
prepayments (a)
$- $-
$(46) $(46)
Gain on hotel dispositions, net
of taxes
10 -
139 -
Minority interest income
(expense) (b)
- -
(3) 2
Total (c)
$10 $-
$90 $(44)
Diluted shares
552.7 -
552.8 551.6
Per diluted share
$.02 $-
$.16 $(.08)
(a) 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 the periods presented.
(b) Represents the portion of the significant transactions
attributable to minority partners in Host LP.
(c) 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 (b). Accordingly, the total adjustments to the
net income of Host LP were approximately $10 million for the second quarter
and year-to-date 2008 and $(48) million and $93 million for the second
quarter and year-to-date 2007, 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 13, June 15, June 13, June 15,
2008 2007 2008
2007
Revenues
Rooms
$856 $839 $1,480
$1,447
Food and beverage
440 427
774 748
Other
92 90
162 159
Total hotel sales
1,388 1,356 2,416
2,354
Rental income
27 25
57 56
Total revenues
1,415 1,381 2,473
2,410
Expenses
Rooms
199 193
356 343
Food and beverage
301 295
544 531
Hotel departmental expenses
325 314
583 563
Management fees
73 71
125 116
Other property-level expenses
96 94
177 175
Depreciation and amortization
131 118
255 233
Corporate and other expenses
14 15
31 37
Gain on insurance settlement
- -
(7) -
Total operating costs
and expenses 1,139 1,100 2,064
1,998
Operating profit
276 281
409 412
Interest income
5 12
9 18
Interest expense
(81) (136) (157)
(230)
Net gains on property transactions
1 1
2 2
Minority interest expense
(1) -
(8) (4)
Equity in earnings of affiliates
2 3
2 5
Income before income taxes
202 161
257 203
Provision for income taxes
(14) (11) (7)
(5)
Income from continuing operations
188 150
250 198
Income from discontinued operations (b)
11 4
12 150
Net income
199 154
262 348
Less: Distributions on preferred units
(2) (2)
(4) (4)
Net income available to common
unitholders
$197 $152 $258
$344
Basic earnings per common unit:
Continuing operations
$.34 $.27 $.45
$.36
Discontinued operations
.02 .01
.02 .28
Basic earnings per common unit
$.36 $.28 $.47
$.64
Diluted earnings per common unit:
Continuing operations
$.33 $.26 $.44
$.36
Discontinued operations
.02 .01
.02 .26
Diluted earnings per common unit
$.35 $.27 $.46
$.62
(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 Host's
consolidated balance sheets and minority interest expense in Host's 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 on sale,
net of the related income tax, for one property held-for-sale at June 13,
2008, one property sold in 2008 and nine properties sold in 2007.
HOST HOTELS & RESORTS, L.P.
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA
(unaudited, in millions)
Quarter ended Year-to-date ended
June 13, June 15, June 13, June 15,
2008 2007 2008
2007
Net income
$199 $154 $262
$348
Interest expense
81 136
157 230
Depreciation and amortization
131 118
255 233
Income taxes
14 11
7 5
Discontinued operations (a)
- -
- 3
EBITDA
425 419
681 819
Gains on dispositions
(10) 2
(10) (139)
Amortization of deferred gains
(1) (1)
(2) (2)
Equity investment adjustments:
Equity in earnings of
affiliates (2)
(3) (2)
(5)
Pro rata EBITDA of equity
investments
11 10
17 15
Consolidated partnership adjustments:
Minority interest expense
1 -
8 4
Pro rata EBITDA of minority
partners (5) (5)
(11) (11)
Adjusted EBITDA of Host LP
$419 $422 $681
$681
(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 2008 Forecasts
(a)
(unaudited, in millions, except per share amounts)
Low-end of Range
Third Quarter 2008 Forecast
Per Share
Income Shares
Amount
Forecast net income available to
common stockholders
$39 518.7
$.07
Adjustments:
Depreciation and amortization
123
- .24
Gain on dispositions, net of taxes
(15)
- (.03)
Partnership adjustments
5
- .01
FFO of minority partners of Host LP
(b) (7)
- (.01)
Adjustment for dilutive securities:
Assuming distribution of common shares
granted under the comprehensive
stock
plan less shares assumed purchased
at
average market price
- .5
-
Assuming conversion of 2004 Exchangeable
Senior Debentures
4 31.2
(.01)
FFO per diluted share
$149 550.4
$.27
High-end of Range
Third Quarter 2008 Forecast
Per Share
Income Shares
Amount
Forecast net income available to
common stockholders
$49 518.7
$.09
Adjustments:
Depreciation and amortization
123
- .24
Gain on dispositions, net of taxes
(15)
- (.03)
Partnership adjustments
5
- .01
FFO of minority partners of Host LP
(b) (7)
- (.01)
Adjustment for dilutive securities:
Assuming distribution of common shares
granted under the comprehensive
stock
plan less shares assumed purchased
at
average market price
- .5
-
Assuming conversion of 2004 Exchangeable
Senior Debentures
4 31.2
(.01)
FFO per diluted share
$159 550.4
$.29
Low-end of Range
Full Year 2008 Forecast
Per Share
Income Shares
Amount
Forecast net income available to
common stockholders
$446 519.2
$.86
Adjustments:
Depreciation and amortization
542
- 1.04
Gain on dispositions, net of taxes
(28)
- (.05)
Partnership adjustments
31
- .06
FFO of minority partners of Host LP
(b) (42)
- (.08)
Adjustment for dilutive securities:
Assuming distribution of common shares
granted under the comprehensive
stock
plan less shares assumed purchased
at
average market price
- .4
-
Assuming conversion of 2004 Exchangeable
Senior Debentures
19 32.2
(.08)
FFO per diluted share
$968 551.8
$1.75
High-end of Range
Full Year 2008 Forecast
Per Share
Income Shares
Amount
Forecast net income available to common
stockholders
$498 519.2
$.96
Adjustments:
Depreciation and amortization
542
- 1.04
Gain on dispositions, net of taxes
(28)
- (.05)
Partnership adjustments
33
- .06
FFO of minority partners of Host LP
(b) (44)
- (.08)
Adjustment for dilutive securities:
Assuming distribution of common shares
granted under the comprehensive
stock
plan less shares assumed purchased
at
average market price
- .4
-
Assuming conversion of 2004 Exchangeable
Senior Debentures
19 32.2
(.08)
FFO per diluted share
$1,020 551.8
$1.85
(a) The third quarter and full year 2008 forecasts were
based on the following assumptions:
-- Comparable hotel RevPAR will decrease between 4% to
2% for the third quarter and will range from a decrease of 1% to an increase
of 1% for the full year for the low and high ends of the forecasted range,
respectively.
-- Comparable hotel adjusted operating profit margins
will range from a decrease of 125 basis points to 75 basis points for the
full year for the low and high ends of the forecasted range, respectively.
-- We do not anticipate that any acquisitions will be
made during 2008.
-- We expect to have additional hotel dispositions of
approximately $100 million during 2008.
-- We expect to spend approximately $650 million on capital
expenditures in 2008.
-- Fully diluted weighted average shares for FFO per diluted
share and earnings per diluted share will be approximately 550.4 and 551.8
million for the third quarter and the 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
2008. 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 assumptions and forecasts include the following:
-- the level of RevPAR and margin growth or decline 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 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 number of shares of the Company's common stock
repurchased may change based on market conditions; 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 2008 Forecasts (a)
(unaudited, in millions, except hotel statistics)
Full Year 2008
Low-end High-end
of range of range
Operating profit margin under GAAP (b)
14.6% 15.3%
Comparable hotel adjusted operating profit margin
(c) 26.3% 26.8%
Comparable hotel sales
Room
$3,223 $3,288
Other
1,993 2,033
Comparable hotel sales
(d)
5,216 5,321
Comparable hotel expenses
Rooms and other departmental costs
2,174 2,211
Management fees, ground rent and other
costs 1,669
1,683
Comparable hotel expenses
(e)
3,843 3,894
Comparable hotel adjusted operating profit
1,373 1,427
Non-comparable hotel results, net
18 15
Office buildings and select service properties,
net 9
9
Depreciation and amortization
(543) (543)
Corporate and other expenses
(72) (72)
Operating profit
785 836
(a) Forecasted comparable hotel results include assumptions
on the number of hotels that will be included in our comparable hotel set
in 2008. We have assumed that 115 hotels will be classified as comparable
as of December 31, 2008. No assurances can be made as to the hotels that
will be in the comparable hotel set for 2008. 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 2008 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 a decrease
in margins of 125 basis points to 75 basis points under the 2007 comparable
hotel adjusted operating profit margin of 27.55%.
(d) The reconciliation of forecast total revenues to the
forecast comparable hotel sales is as follows (in millions):
Full Year 2008
Low-end High-end
of range of range
Revenues
$5,378 $5,471
Non-comparable hotel sales
(122) (110)
Hotel sales for the property for which we record
rental income, net
53 53
Rental income for office buildings and select
service hotels
(93) (93)
Comparable hotel sales
$5,216 $5,321
(e) The reconciliation of forecast operating costs and
expenses to the comparable hotel expenses is as follows (in millions):
Full Year 2008
Low-end High-end
of range of range
Operating costs and expenses
$4,593 $4,635
Non-comparable hotel expenses
(104) (95)
Hotel expenses for the property for which we
record rental income
53 53
Rent expense for office buildings and select
service hotels
(84) (84)
Depreciation and amortization
(543) (543)
Corporate and other expenses
(72) (72)
Comparable hotel expenses
$3,843 $3,894
HOST HOTELS & RESORTS, L.P. Reconciliation of Net
Income to EBITDA and Adjusted EBITDA for Full Year 2008
Forecasts (a)
(unaudited, in millions)
Full Year 2008
Low-end High-end
of range of range
Net income
$477 $529
Interest expense
356 356
Depreciation and amortization
543 543
Income taxes
2
-
EBITDA
1,378 1,428
Gains on dispositions
(28) (28)
Equity investment adjustments:
Equity in earnings of
affiliates
(10) (10)
Pro rata Adjusted EBITDA
of equity investments 47
47
Consolidated partnership adjustments:
Minority interest expense
6
6
Pro rata Adjusted EBITDA
of minority partners (18)
(18)
Adjusted EBITDA of Host LP
$1,375 $1,425
(a) 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 2008.
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, 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 except that
our fiscal year always ends on December 31 to comply with REIT rules. Our
first three quarters of operations end on the same day as Marriott but
our fourth quarter ends on December 31 and our full year results, as reported
in our consolidated statement of operations, always includes the same number
of days as the calendar year.
Two consequences of the reporting cycle we have adopted
are: (1) quarterly start dates will usually differ between years, except
for the first quarter which always commences on January 1, and (2) our
first and fourth quarters of operations and year-to-date operations may
not include the same number of days as reflected in prior years. For example,
the second quarter of 2008 ended on June 13, and the second quarter of
2007 ended on June 15, though both quarters reflect twelve weeks of operations.
In contrast, the June 13, 2008 year-to-date operations included 165 days
of operations, while the June 15, 2007 year-to-date operations included
166 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 42% of our hotels). As a result,
our quarterly results of operations include results from hotel managers
reporting results on a monthly basis as follows: first quarter (January,
February), second quarter (March to May), third quarter (June to August)
and fourth quarter (September to December). While this does not affect
full-year results, it does affect the reporting of quarterly results.
Reporting Periods for Hotel Operating Statistics and Comparable
Hotel Results
In contrast to the reporting periods for our consolidated
statement of operations, our hotel operating statistics (i.e., RevPAR,
average daily rate and average occupancy) and our comparable hotel results
are always reported based on the reporting cycle used by Marriott for our
Marriott-managed hotels. This facilitates year-to-year comparisons, as
each reporting period will be comprised of the same number of days of operations
as in the prior year (except in the case of fourth quarters comprised of
seventeen weeks (such as fiscal year 2008) versus sixteen weeks). This
means, however, that the reporting periods we use for hotel operating statistics
and our comparable hotels results 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 2008 reflect
12 weeks of operations for the period from March 22, 2008 to June 13, 2008
for our Marriott-managed hotels and results from March 1, 2008 to May 31,
2008 for operations of all other hotels which report results on a monthly
basis.
-- Hotel results for the second quarter of 2007 reflect
12 weeks of operations for the period from March 24, 2007 to June 15, 2007
for our Marriott-managed hotels and results from March 1, 2007 to May 31,
2007 for operations of all other hotels which report results on a monthly
basis.
-- Hotel results for year-to-date 2008 reflect 24 weeks
for the period from December 29, 2007 to June 13, 2008 for our Marriott-managed
hotels and results from January 1, 2008 to May 31, 2008 for operations
of all other hotels which report results on a monthly basis.
-- Hotel results for year-to-date 2007 reflect 24 weeks
for the period from December 30, 2006 to June 15, 2007 for our Marriott-managed
hotels and results from January 1, 2007 to May 31, 2007 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 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 118
hotels that we owned as of June 13, 2008, 115 hotels have been classified
as comparable hotels. The operating results of the following hotels that
we owned as of June 13, 2008 are excluded from comparable hotel results
for these periods:
-- The Sacramento Host Airport Hotel (the Company executed
an agreement with the County of Sacramento related to the expansion of
the Airport, which will result in the closing of the hotel by August 2008);
-- Atlanta Marriott Marquis (a two-year major renovation
that was completed in June 2008); and
-- New Orleans Marriott (property damage and business
interruption from Hurricane Katrina in August 2005).
The operating results of the hotel we disposed of in 2008
and the nine hotels we disposed of in 2007 are also not included in comparable
hotel results for the periods presented herein. Moreover, because these
statistics and operating results are for our hotel properties, they exclude
results for our non-hotel properties and other real estate investments.
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 15, 2008, 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:
-- Real Estate Transactions -- We exclude the effect of
gains and losses, including the amortization of deferred gains, recorded
on the disposition of 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
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).
-- 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 it includes our pro-rata portion of depreciation, amortization
and interest expense. We include our pro rata share of the Adjusted EBITDA
of our equity investments as we believe this more accurately reflects the
performance of our investment. 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 exclude
the minority interest in the income or loss of our consolidated partnerships
as presented in our consolidated statement of operations because it includes
our minority partners' pro-rata portion of depreciation, amortization and
interest expense. We deduct the minority partners' pro rata share of the
Adjusted EBITDA of our consolidated partnerships as we believe this more
accurately reflects the minority owners' interest in our consolidated partnerships.
The pro rata Adjusted EBITDA of minority partners is defined as the EBITDA
of our consolidated partnerships adjusted for any gains or losses on property
transactions multiplied by the minority partners' positions in the partnership
or joint venture.
-- 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 Adjusted 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 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 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. |