BETHESDA, Md., July 19 - Host Hotels & Resorts,
Inc. (NYSE: HST), the nation's largest lodging real estate investment trust
(REIT), today announced its results of operations for the second quarter
ended June 16, 2006. The Company conducts its operations through Host
Hotels & Resorts, L.P., of which it is the sole general partner and holds
96% of the partnership interests. Second quarter results for Host Hotels &
Resorts, Inc. include the following:
* Total revenue increased $254 million, or 26.5%, to $1.2 billion for the
second quarter and $312 million, or 17.8%, to $2.1 billion for
year-to-date 2006, which includes $154 million of revenues for the
Starwood portfolio for both periods.
* Net income increased $239 million to $330 million for the second
quarter and $405 million to $502 million for year-to-date 2006.
Earnings per diluted share increased $.40 to $.62 and $.88 to $1.10 for
the second quarter and year-to-date 2006, respectively.
Net income includes $199 million, or $.38 per diluted share, and
$345 million, or $.78 per diluted share, for the second quarter and
year-to-date 2006, respectively, from the following: gains on hotel
dispositions, costs associated with the refinancing of senior notes and
the redemption of preferred stock and non-recurring costs of the
Starwood acquisition. By comparison, for the second quarter and
year-to-date 2005, net income included a net gain of $17 million, or
$.04 per diluted share, and a net gain of $15 million, or $.04 per
diluted share, respectively, associated with similar transactions in
2005. For further detail, refer to the "Schedule of Significant
Transactions Affecting Earnings per Share and Funds From Operations per
Diluted Share" attached to this press release.
* Funds from Operations (FFO) per diluted share increased 25.8% to $.39
for the second quarter and 31.4% to $.67 for year-to-date 2006. FFO per
diluted share was reduced by $.04 for the second quarter and $.05 for
year-to-date 2006 due to costs associated with refinancing the
Company's senior notes and the redemption of its preferred stock and
non-recurring costs associated with the Starwood acquisition. By
comparison, FFO per diluted share was reduced by $.06 and $.09 for the
second quarter and year-to-date 2005, respectively, due to costs
associated with similar transactions in 2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20060417/HOSTLOGO )
The Company also announced the following second quarter results for
Host Hotels & Resorts, L.P.:
* Net income increased $247 million to $343 million for the second
quarter and $422 million to $524 million for year-to-date 2006. Net
income of Host LP was also affected by certain transactions -- See
"Schedule of Significant Transactions Affecting Earnings per Share and
Funds From Operations Per Diluted Share."
* Adjusted EBITDA, which is Earnings before Interest Expense, Income
Taxes, Depreciation, Amortization and other items, increased 34.5% to
$347 million for the second quarter and 24.2% to $559 million for
year-to-date 2006.
Adjusted EBITDA, FFO per diluted share and comparable hotel adjusted
operating profit margins (discussed below) are non-GAAP (generally accepted
accounting principles) financial measures within the meaning of the rules
of the Securities and Exchange Commission (SEC). See the discussion
included in this press release for information regarding these non-GAAP
financial measures.
OPERATING RESULTS
Comparable hotel RevPAR for the second quarter of 2006 increased 9.7%
and comparable hotel adjusted operating profit margins increased 2.1
percentage points when compared to the second quarter of 2005. The second
quarter increases were driven by an 8.9% increase in average room rate and
an increase in occupancy of 0.6 percentage points. Year-to-date 2006
comparable hotel RevPAR increased 8.7% (comprised of an 8.3% increase in
average room rate and an increase in occupancy of 0.3 percentage points),
while comparable hotel adjusted operating profit margins increased 2.3
percentage points when compared to year-to-date 2005. Comparable hotel
adjusted operating profit margins were positively affected by the Company's
food and beverage operations, which represent approximately 30% of the
Company's revenues. Due to the continued shift toward higher-rated group
business and additional catering business, food and beverage revenue growth
at the Company's comparable hotels was 7.7% and 7.6% for the second quarter
and year-to-date 2006, respectively, with food and beverage margins
increasing significantly for both periods.
For the 27 recently acquired Starwood hotels that the Company
consolidates, which are not included in our comparable hotel results,
RevPAR increased 13% for the second quarter when compared to the same
period in 2005, assuming that the Company owned the hotels for the entire
quarter.
Christopher J. Nassetta, president and chief executive officer, stated,
"We significantly exceeded the high-end of our expectations and analysts'
consensus estimates by posting another quarter of strong RevPAR and margin
growth."
STARWOOD ACQUISITION
On April 10, 2006, the Company acquired 25 domestic hotels and three
foreign hotels from Starwood Hotels & Resorts Worldwide, Inc., or Starwood,
for total consideration of approximately $3.1 billion. In connection with
the Starwood acquisition, the Company entered into a joint venture in
Europe on March 24, 2006. The aggregate size of the joint venture is
approximately $640 million, including total capital contributions of
approximately $227 million, of which approximately $72 million was
contributed by the Company in the form of cash and through the contribution
of the Sheraton Warsaw Hotel & Towers on May 2, 2006, which was acquired
from Starwood on April 10, 2006. The European joint venture acquired four
hotels from Starwood on May 3, 2006 and one hotel on June 13, 2006. On July
5, 2006, the Company and Starwood agreed that Starwood will retain
ownership of the two Fijian hotels that were under contract as part of the
original portfolio of 38 hotels to be acquired by the Company. The purchase
price of these assets totaled $129 million, including $31 million of debt.
The cash designated for the acquisition of the Fijian assets will be used
for general corporate purposes.
OTHER ACQUISITIONS AND DISPOSITIONS
On May 17, 2006, the Company signed a definitive agreement to purchase
The Westin Kierland Resort & Spa in Scottsdale, Arizona, for approximately
$393 million, including the assumption of $135 million of mortgage debt
with an interest rate of approximately 5.08%. The 732-room resort, which
opened in November 2002, is situated on 252 acres of fee simple property,
including approximately five acres of undeveloped land, and includes a
27-hole golf course and a full-service spa. The sale is expected to close
in the third quarter of 2006 subject to customary closing conditions.
BALANCE SHEET
As of June 16, 2006, the Company had $524 million of cash and cash
equivalents, approximately $260 million of which it expects to use to
purchase The Westin Kierland Resort & Spa. The Company also currently has
$575 million of availability under its credit facility.
On April 4, 2006, the Company issued $800 million of 6 3/4% Series P
senior notes due 2016 for net proceeds of approximately $787 million, which
were used to fund a portion of the Starwood acquisition, redeem the
remaining $136 million of 7 7/8% Series B senior notes, redeem all of the
$150 million 10% Class C preferred stock and for other general corporate
purposes. In addition, during the second quarter, the Company repaid the
$84 million mortgage on the Boston Marriott Copley Place.
2006 OUTLOOK
The Company expects comparable hotel RevPAR to increase approximately
9% to 10% for the third quarter and 8.5% to 10% for the full year. For full
year 2006, the Company also expects its operating profit margins under GAAP
to increase approximately 200 basis points to 250 basis points and its
comparable hotel adjusted operating profit margins to increase
approximately 160 basis points to 200 basis points. Based upon this
guidance, the Company estimates that 2006 guidance for Host Hotels &
Resorts, Inc. and Host Hotels & Resorts, L.P. would be as follows:
Host Hotels & Resorts, Inc.
* earnings per diluted share should be approximately $.06 to $.07 for
the third quarter and $1.49 to $1.56 for the full year;
* net income should be approximately $33 million to $39 million for the
third quarter and $742 million to $774 million for the full year;
* FFO per diluted share should be approximately $.26 to $.27 for the
third quarter and $1.49 to $1.55 for the full year (including a charge
of approximately $1 million and $30 million for the third quarter and
full year, respectively, with minimal per diluted share effect for the
third quarter and an approximately $.06 per diluted share effect for
the full year, related to costs associated with debt or perpetual
preferred stock expected to be refinanced or prepaid in 2006 and non-
recurring costs related to the Starwood acquisition); and
* common dividend will continue to show good growth for the remainder of
the year.
Host Hotels & Resorts, L.P.
* net income should be approximately $35 million to $41 million for the
third quarter and $772 million to $804 million for the full year; and
* Adjusted EBITDA should be approximately $1,250 million to $1,285
million for the full year.
About Host Hotels & Resorts
Host Hotels & Resorts, Inc. is a lodging real estate company that
currently owns or holds controlling interests in 129 luxury and upper
upscale hotel properties primarily operated under premium brands such as
Marriott(R), Westin(R), Sheraton(R), Ritz-Carlton(R), Hyatt(R), W(R), Four
Seasons(R), St. Regis(R), The Luxury Collection(R), Fairmont(R), Hilton(R)
and Swissotel(R)*. For further information please visit the Company's
website at http://www.hosthotels.com.
* This press release contains registered trademarks that are the
exclusive property of their respective owners. None of the owners of
these trademarks has any responsibility or liability for any
information contained in this press release.
(Note: This press release contains forward-looking statements within
the meaning of federal securities regulations. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "predict," "project," "will," "continue" and other similar terms
and phrases, including references to assumption and forecasts of future
results. Forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results to differ materially from those
anticipated at the time the forward- looking statements are made. These
risks include, but are not limited to: national and local economic and
business conditions, including the potential for terrorist attacks, that
will affect occupancy rates at our hotels and the demand for hotel products
and services; operating risks associated with the hotel business; risks
associated with the level of our indebtedness and our ability to meet
covenants in our debt agreements; relationships with property managers; our
ability to maintain our properties in a first-class manner, including
meeting capital expenditure requirements; our ability to compete
effectively in areas such as access, location, quality of accommodations
and room rate structures; changes in travel patterns, taxes and government
regulations which influence or determine wages, prices, construction
procedures and costs; our ability to complete pending acquisitions and
dispositions; and our ability to continue to satisfy complex rules in order
for us to qualify as a Real Estate Investment Trust for federal income tax
purposes and other risks and uncertainties associated with our business
described in the Company's filings with the SEC. Although the Company
believes the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that the
expectations will be attained or that any deviation will not be material.
All information in this release is as of July 18, 2006, and the Company
undertakes no obligation to update any forward-looking statement to conform
the statement to actual results or changes in the Company's expectations.)
Host Hotels & Resorts, Inc., herein referred to as "we" or "Host," is a
self-managed and self-administered real estate investment trust (REIT) that
owns hotel properties. We conduct our operations as an umbrella partnership
REIT through an operating partnership, Host Hotels & Resorts, L.P., or Host
LP, of which we are the sole general partner. For each share of our common
stock, Host LP has issued to us one unit of operating partnership interest,
or OP Unit. When distinguishing between Host and Host LP, the primary
difference is approximately 4% of the partnership interests in Host LP held
by outside partners as of July 18, 2006, which is reflected as minority
interest in our consolidated balance sheets and minority interest expense
in our consolidated statements of operations. Readers are encouraged to
find further detail regarding our organizational structure in our annual
report on Form 10-K.
For information on our reporting periods and non-GAAP financial
measures (including Adjusted EBITDA, FFO per diluted share and comparable
hotel adjusted operating profit margin) which we believe is useful to
investors, see the Notes to the Financial Information included in this
release.
HOST HOTELS & RESORTS, INC.
Consolidated Balance Sheets (a)
(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 Res
