Host Hotels & Resorts, Inc. Raises Full Year Forecast After Reporting Strong Results for the First Quarter 2018
05/02/2018
“During the quarter, we were thrilled to close on the previously announced acquisition of the iconic three-hotel Hyatt portfolio,” continued Mr. Risoleo. “These assets, which are in markets with expected high growth, immediately improve the value of the Company, and exemplify our ability to capitalize on our scale and investment grade balance sheet. Execution of our internal and external growth opportunities continue to create value for stockholders and enhance the world’s premier lodging REIT.”
Operating Results
(unaudited, in millions, except per share and hotel statistics)
Quarter ended March 31, |
Percent | ||||||||
2018 | 2017 | Change | |||||||
Total revenues | $ | 1,346 | $ | 1,348 | (0.1 | )% | |||
Comparable hotel revenues (1) | 1,271 | 1,253 | 1.5 | % | |||||
Net income | 256 | 161 | 59.0 | % | |||||
EBITDAre (1)(2) | 370 | 369 | 0.3 | % | |||||
Adjusted EBITDAre (1)(2) | 370 | 370 | — | ||||||
Change in comparable hotel RevPAR: | |||||||||
Domestic properties | 1.6 | % | |||||||
International properties - Constant US$ |
9.3 | % | |||||||
Total - Constant US$ | 1.7 | % | |||||||
Diluted earnings per share | 0.34 | 0.21 | 61.9 | % | |||||
NAREIT FFO and Adjusted FFO per diluted share (1) | 0.43 | 0.44 | (2.3 | )% | |||||
Additional detail on the Company’s results, including data for 22 domestic markets and top 40 hotels by RevPAR, is available in the First Quarter 2018 Supplemental Financial Information available on the Company’s website at www.hosthotels.com.
(1) | NAREIT Funds From Operations (“FFO”) per diluted share, Adjusted FFO per diluted share, EBITDAre, Adjusted EBITDAre and comparable hotel results are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (“SEC”). See the Notes to Financial Information on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures. | ||
(2) | Effective December 31, 2017, the Company presents EBITDAre, reported in accordance with NAREIT guidelines, and Adjusted EBITDAre as supplemental measures of performance. Prior year results have been restated to conform with the current year presentation. Under the new presentation, all of the EBITDA of consolidated partnerships is included, including the non-controlling partners’ share, which has increased the previously reported first quarter 2017 Adjusted EBITDA by $3 million. See the Notes to Financial Information for more information on this change. | ||
Key Highlights
Strategy
- On
March 29, 2018 , the Company completed the previously announced acquisition of the 301-room Andaz Maui atWailea Resort , 668-room Grand Hyatt San Francisco, and 454-roomHyatt Regency Coconut Point Resort and Spa for$1 billion . These assets are fee-simple and located in what the Company believes are some of the top growth markets in the U.S., includingMaui andSan Francisco , which are benefitting from strong lodging demand and limited supply growth. The hotels will continue to be managed by Hyatt pursuant to long-term management agreements.
Operating Performance
GAAP Metrics
- Total revenues decreased 0.1% for quarter, as improvements in operations were offset primarily by a net decrease of
$15 million due to the effect of the disposition of five hotels in 2017 and early 2018, as well as taking into account the operations for two hotels acquired in 2017.
- GAAP operating profit margin was unchanged from the prior year.
- Net income increased $95 million to $256 million for the first quarter, due to the increase in gain on sale of assets.
- Diluted earnings per share increased 61.9% for the quarter as a result of the increases to net income.
Other Metrics
- Comparable RevPAR on a constant dollar basis improved 1.7%, driven by a 170 basis point increase in occupancy, which was partially offset by a 0.6% decrease in average room rate. Comparable hotel revenues increased 1.5% for the quarter.
- Comparable hotel EBITDA increased $13 million, or 3.7%, for the quarter.
- Comparable hotel EBITDA margin improved 60 basis points for quarter. The increase reflects continued improvement in operating efficiencies, higher ancillary revenues and a tax rebate at one property that positively affected margins by 28 basis points.
- Adjusted EBITDAre was flat for the quarter as improvements at the Company’s comparable hotels were offset by a net decrease of
$5 million due to the effects of property dispositions and acquisitions completed in 2017 and early 2018.
- Adjusted FFO per diluted share decreased 2.3% for the quarter, primarily reflecting an increase in interest expense and additional tax expense.
Capital Allocation
During the first quarter, the Company spent approximately
For 2018, the Company continues to anticipate capital expenditures of
Dividends and Return of Capital
The Company paid a regular quarterly cash dividend of
Balance Sheet
“The efficient execution of the
At March 31, 2018, the Company had approximately $323 million of unrestricted cash and
2018 Outlook
The Company anticipates that its 2018 operating results as compared to the prior year will change in the following range:
Previous Full Year 2018 Guidance |
Current Full Year 2018 Guidance |
Change in Full Year 2018 Guidance to the Mid-Point |
||||
Total comparable hotel RevPAR - Constant US$ (1) | 0.5% to 2.5% | 1.5% to 2.5% | 50 bps | |||
Total revenues under GAAP | 0.6% to 2.5% | 2.0% to 3.0% | 95 bps | |||
Operating profit margin under GAAP | (50 bps) to 50 bps | 0 bps to 60 bps | 30 bps | |||
Comparable hotel EBITDA margins (2) | (60 bps) to 20 bps | (10 bps) to 30 bps | 30 bps |
__________
(1) | Forecast comparable hotel results include 86 hotels that are assumed will be classified as comparable as of December 31, 2018. See the 2018 Forecast Schedules for a listing of hotels excluded from the full year 2018 comparable hotel set. | ||
(2) | At the 2.0% midpoint of the RevPAR guidance, the comparable hotel EBITDA margin would be 10 basis points higher compared to the previous guidance. |
Based upon the above parameters, the Company estimates its 2018 guidance as follows:
Previous Full Year 2018 Guidance |
Current Full Year 2018 Guidance |
Change in Full Year 2018 Guidance to the Mid-Point |
|||||
Net income (in millions) | $547 to $616 | $617 to $657 | $55.5 | ||||
Adjusted EBITDAre (in millions) | $1,465 to $1,535 | $1,505 to $1,545 | $25 | ||||
Earnings per diluted share | $.73 to $.82 | $.82 to $.88 | $.08 | ||||
NAREIT FFO per diluted share | $1.60 to $1.70 | $1.67 to $1.73 | $.05 | ||||
Adjusted FFO per diluted share | $1.60 to $1.70 | $1.67 to $1.73 | $.05 | ||||
See the 2018 Forecast Schedules and the Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecast results.
About Host Hotels & Resorts
Host Hotels &
Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements include forecast results and are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “plan,” “predict,” “project,” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: changes in national and local economic and business conditions and other factors such as natural disasters, pandemics and weather that will affect occupancy rates at our hotels and the demand for hotel products and services; the impact of geopolitical developments outside the U.S. on lodging demand; volatility in global financial and credit markets; operating risks associated with the hotel business; risks and limitations in our operating flexibility associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; risks associated with our relationships with property managers and joint venture partners; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; the effects of hotel renovations on our hotel occupancy and financial results; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; risks associated with our ability to complete acquisitions and dispositions and develop new properties and the risks that acquisitions and new developments may not perform in accordance with our expectations; our ability to continue to satisfy complex rules in order for us to remain a REIT for federal income tax purposes; risks associated with our ability to effectuate our dividend policy, including factors such as operating results and the economic outlook influencing our board’s decision whether to pay further dividends at levels previously disclosed or to use available cash to make special dividends; and other risks and uncertainties associated with our business described in the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the
* | 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. | ||
An attachment accompanying this release is available at http://resource.globenewswire.com/Resource/Download/d8142a4e-40fd-4b90-85a5-694c5bfdb780
*** Tables to Follow ***
Host Hotels &
HOST HOTELS & RESORTS, INC.
Condensed Consolidated Balance Sheets
(unaudited, in millions, except shares and per share amounts)
March 31, 2018 | December 31, 2017 | |||||||
ASSETS | ||||||||
Property and equipment, net | $ | 10,650 | $ | 9,692 | ||||
Assets held for sale | 181 | 250 | ||||||
Due from managers | 146 | 79 | ||||||
Advances to and investments in affiliates | 342 | 327 | ||||||
Furniture, fixtures and equipment replacement fund | 196 | 195 | ||||||
Other | 226 | 237 | ||||||
Cash and cash equivalents | 323 | 913 | ||||||
Total assets | $ | 12,064 | $ | 11,693 | ||||
LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY | ||||||||
Debt (1) | ||||||||
Senior notes | $ | 2,779 | $ | 2,778 | ||||
Credit facility, including the term loans of $997 million and $996 million, respectively |
1,481 | 1,170 | ||||||
Other debt | 6 | 6 | ||||||
Total debt | 4,266 | 3,954 | ||||||
Accounts payable and accrued expenses | 233 | 283 | ||||||
Other | 281 | 287 | ||||||
Total liabilities | 4,780 | 4,524 | ||||||
Non-controlling interests - Host Hotels & Resorts, L.P. | 156 | 167 | ||||||
Host Hotels & Resorts, Inc. stockholders’ equity: | ||||||||
Common stock, par value $.01, 1,050 million shares authorized, 739.5 million shares and 739.1 million shares issued and outstanding, respectively |
7 | 7 | ||||||
Additional paid-in capital | 8,109 | 8,097 | ||||||
Accumulated other comprehensive loss | (55 | ) | (60 | ) | ||||
Deficit | (962 | ) | (1,071 | ) | ||||
Total equity of Host Hotels & Resorts, Inc. stockholders | 7,099 | 6,973 | ||||||
Non-controlling interests—other consolidated partnerships | 29 | 29 | ||||||
Total equity | 7,128 | 7,002 | ||||||
Total liabilities, non-controlling interests and equity | $ | 12,064 | $ | 11,693 | ||||
___________ |
(1) Please see our First Quarter 2018 Supplemental Financial Information for more detail on our debt balances.
Condensed Consolidated Statements of Operations
(unaudited, in millions, except per share amounts)
Quarter ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenues | ||||||||
Rooms | $ | 844 | $ | 843 | ||||
Food and beverage | 413 | 422 | ||||||
Other | 89 | 83 | ||||||
Total revenues | 1,346 | 1,348 | ||||||
Expenses | ||||||||
Rooms | 224 | 219 | ||||||
Food and beverage | 278 | 277 | ||||||
Other departmental and support expenses | 315 | 319 | ||||||
Management fees | 54 | 56 | ||||||
Other property-level expenses | 98 | 100 | ||||||
Depreciation and amortization | 178 | 180 | ||||||
Corporate and other expenses(1) | 28 | 29 | ||||||
Gain on insurance and business interruption settlements | — | (3 | ) | |||||
Total operating costs and expenses | 1,175 | 1,177 | ||||||
Operating profit | 171 | 171 | ||||||
Interest income | 3 | 1 | ||||||
Interest expense | (44 | ) | (39 | ) | ||||
Gain on sale of assets | 120 | 17 | ||||||
Loss on foreign currency transactions and derivatives | — | (2 | ) | |||||
Equity in earnings of affiliates | 10 | 7 | ||||||
Income before income taxes | 260 | 155 | ||||||
Benefit (provision) for income taxes | (4 | ) | 6 | |||||
Net income | 256 | 161 | ||||||
Less: Net income attributable to non-controlling interests | (3 | ) | (3 | ) | ||||
Net income attributable to Host Inc. | $ | 253 | $ | 158 | ||||
Basic and diluted earnings per common share | $ | .34 | $ | .21 |
___________
(1) Corporate and other expenses include the following items:
Quarter ended March 31, | |||||||
2018 | 2017 | ||||||
General and administrative costs | $ | 25 | $ | 25 | |||
Non-cash stock-based compensation expense | 3 | 3 | |||||
Litigation accruals and acquisition costs, net | — | 1 | |||||
Total | $ | 28 | $ | 29 | |||
Earnings per Common Share
(unaudited, in millions, except per share amounts)
Quarter ended March 31, |
||||||||
2018 | 2017 | |||||||
Net income | $ | 256 | $ | 161 | ||||
Less: Net income attributable to non-controlling interests | (3 | ) | (3 | ) | ||||
Net income attributable to Host Inc. | $ | 253 | $ | 158 | ||||
Basic weighted average shares outstanding | 739.2 | 738.0 | ||||||
Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market |
.4 | .2 | ||||||
Diluted weighted average shares outstanding (1) | 739.6 | 738.2 | ||||||
Basic and diluted earnings per common share | $ | .34 | $ | .21 |
___________
(1) | Dilutive securities may include shares granted under comprehensive stock plans, preferred operating partnership units (“OP Units”) held by minority partners and other non-controlling interests that have the option to convert their limited partnership interests to common OP Units. No effect is shown for any securities that were anti-dilutive for the period. | ||
Comparable Hotels by Location in Constant US$ (sorted by RevPAR)
As of March 31, 2018 | Quarter ended March 31, 2018 | Quarter ended March 31, 2017 | |||||||||||||||||||||||||||||||||||||||
Location | No. of Properties |
No. of Rooms |
Average Room Rate |
Average Occupancy Percentage |
RevPAR | Average Room Rate |
Average Occupancy Percentage |
RevPAR | Percent Change in RevPAR |
||||||||||||||||||||||||||||||||
Florida Gulf Coast | 3 | 1,043 | $ | 523.78 | 87.7 | % | $ | 459.45 | $ | 481.12 | 85.6 | % | $ | 411.83 | 11.6 | % | |||||||||||||||||||||||||
Maui/Oahu | 3 | 1,682 | 396.73 | 91.4 | 362.47 | 366.03 | 90.2 | 330.33 | 9.7 | ||||||||||||||||||||||||||||||||
Jacksonville | 1 | 446 | 355.15 | 71.3 | 253.14 | 342.40 | 72.2 | 247.34 | 2.3 | ||||||||||||||||||||||||||||||||
Phoenix | 4 | 1,518 | 271.16 | 87.0 | 235.99 | 270.27 | 81.2 | 219.44 | 7.5 | ||||||||||||||||||||||||||||||||
San Francisco/San Jose | 6 | 3,853 | 252.70 | 84.3 | 212.91 | 261.96 | 77.2 | 202.32 | 5.2 | ||||||||||||||||||||||||||||||||
New York | 6 | 6,000 | 252.37 | 78.5 | 198.16 | 240.49 | 78.5 | 188.71 | 5.0 | ||||||||||||||||||||||||||||||||
Los Angeles | 3 | 1,421 | 213.58 | 89.8 | 191.81 | 215.65 | 87.0 | 187.53 | 2.3 | ||||||||||||||||||||||||||||||||
San Diego | 4 | 4,341 | 231.83 | 81.9 | 189.78 | 239.40 | 81.6 | 195.36 | (2.9 | ) | |||||||||||||||||||||||||||||||
Miami | 2 | 843 | 207.22 | 88.5 | 183.36 | 203.40 | 87.2 | 177.33 | 3.4 | ||||||||||||||||||||||||||||||||
Washington, D.C. (CBD) | 5 | 3,238 | 250.33 | 71.8 | 179.63 | 286.75 | 75.9 | 217.54 | (17.4 | ) | |||||||||||||||||||||||||||||||
Orlando | 1 | 2,004 | 210.77 | 81.6 | 172.05 | 206.17 | 76.5 | 157.77 | 9.1 | ||||||||||||||||||||||||||||||||
New Orleans | 1 | 1,333 | 197.38 | 82.7 | 163.21 | 203.25 | 78.0 | 158.63 | 2.9 | ||||||||||||||||||||||||||||||||
Philadelphia | 2 | 810 | 192.13 | 83.5 | 160.48 | 180.44 | 76.7 | 138.34 | 16.0 | ||||||||||||||||||||||||||||||||
Seattle | 2 | 1,315 | 201.47 | 75.1 | 151.30 | 199.58 | 76.9 | 153.51 | (1.4 | ) | |||||||||||||||||||||||||||||||
Atlanta | 5 | 1,936 | 192.08 | 78.7 | 151.15 | 199.03 | 78.8 | 156.76 | (3.6 | ) | |||||||||||||||||||||||||||||||
San Antonio | 2 | 1,513 | 198.26 | 75.7 | 150.18 | 198.42 | 81.4 | 161.56 | (7.0 | ) | |||||||||||||||||||||||||||||||
Orange County | 4 | 1,429 | 192.00 | 76.3 | 146.53 | 194.93 | 77.7 | 151.36 | (3.2 | ) | |||||||||||||||||||||||||||||||
Houston | 4 | 1,716 | 178.84 | 76.5 | 136.75 | 192.37 | 78.2 | 150.38 | (9.1 | ) | |||||||||||||||||||||||||||||||
Northern Virginia | 5 | 1,919 | 186.56 | 71.7 | 133.83 | 188.33 | 69.3 | 130.46 | 2.6 | ||||||||||||||||||||||||||||||||
Boston | 4 | 3,185 | 183.76 | 70.7 | 129.97 | 186.34 | 68.8 | 128.12 | 1.4 | ||||||||||||||||||||||||||||||||
Denver | 3 | 1,340 | 152.93 | 67.5 | 103.26 | 159.63 | 63.4 | 101.19 | 2.0 | ||||||||||||||||||||||||||||||||
Chicago | 6 | 2,392 | 148.46 | 67.2 | 99.80 | 147.79 | 63.4 | 93.73 | 6.5 | ||||||||||||||||||||||||||||||||
Other | 8 | 3,596 | 176.71 | 72.2 | 127.59 | 174.72 | 69.8 | 121.96 | 4.6 | ||||||||||||||||||||||||||||||||
Domestic | 84 | 48,873 | 229.66 | 78.1 | 179.32 | 230.55 | 76.6 | 176.56 | 1.6 | ||||||||||||||||||||||||||||||||
International | 6 | 1,811 | 173.98 | 64.3 | 111.85 | 183.32 | 55.8 | 102.31 | 9.3 | ||||||||||||||||||||||||||||||||
All Locations - Constant US$ |
90 | 50,684 | 228.01 | 77.6 | 176.91 | 229.31 | 75.8 | 173.91 | 1.7 | ||||||||||||||||||||||||||||||||
All Owned Hotels in Constant US$ (2)
As of March 31, 2018 | Quarter ended March 31, 2018 | Quarter ended March 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||
No. of Properties |
No. of Rooms |
Average Room Rate |
Average Occupancy Percentage |
RevPAR | Average Room Rate |
Average Occupancy Percentage |
RevPAR | Percent Change in RevPAR |
||||||||||||||||||||||||||||||||||||||||||||
Comparable Hotels | 90 | 50,684 | $ | 228.01 | 77.6 | % | $ | 176.91 | $ | 229.31 | 75.8 | % | $ | 173.91 | 1.7 | % | ||||||||||||||||||||||||||||||||||||
Non-comparable Hotels (Pro forma) | 6 | 2,714 | 387.00 | 83.2 | 322.07 | 365.59 | 85.0 | 310.67 | 3.7 | |||||||||||||||||||||||||||||||||||||||||||
All Hotels | 96 | 53,398 | 236.64 | 77.9 | 184.29 | 237.02 | 76.3 | 180.85 | 1.9 | |||||||||||||||||||||||||||||||||||||||||||
Comparable Hotels in Nominal US$
As of March 31, 2018 | Quarter ended March 31, 2018 | Quarter ended March 31, 2017 | ||||||||||||||||||||||||||||||||||
No. of Properties |
No. of Rooms |
Average Room Rate |
Average Occupancy Percentage |
RevPAR | Average Room Rate |
Average Occupancy Percentage |
RevPAR | Percent Change in RevPAR |
||||||||||||||||||||||||||||
International | 6 | 1,811 | $ | 173.98 | 64.3 | % | $ | 111.85 | $ | 176.90 | 55.8 | % | $ | 98.73 | 13.3 | % | ||||||||||||||||||||
Domestic | 84 | 48,873 | 229.66 | 78.1 | 179.32 | 230.55 | 76.6 | 176.56 | 1.6 | |||||||||||||||||||||||||||
All Locations | 90 | 50,684 | 228.01 | 77.6 | 176.91 | 229.14 | 75.8 | 173.78 | 1.8 | |||||||||||||||||||||||||||
(1) | See the Notes to Financial Information for a discussion of comparable hotel operating statistics and constant US$ presentation. Nominal US$ results include the effect of currency fluctuations, consistent with our financial statement presentation. CBD of a location refers to the central business district. | ||
(2) | Operating statistics are presented for all consolidated properties owned as of March 31, 2018 and do not include the results of operations for properties sold in 2018 or 2017. Additionally, all owned hotel operating statistics include hotels that we did not own for the entirety of the periods presented and properties that are undergoing large-scale capital projects during the periods presented and, therefore, are not considered comparable hotel information upon which we usually evaluate our performance. Specifically, comparable RevPAR is calculated as room revenues divided by the available room nights, which will rarely vary on a year-over-year basis. Conversely, the available room nights included in the non-comparable RevPAR statistic will vary widely based on the timing of hotel closings, the scope of a capital project, or the development of a new property. See the Notes to Financial Information – Comparable Hotel Operating Statistics for further information on these pro forma statistics and the limitations on their use. | ||
|
HOST HOTELS & RESORTS, INC.
Schedule of Comparable
(unaudited, in millions, except hotel statistics)
Quarter ended March 31, | ||||||||
2018 | 2017 | |||||||
Number of hotels | 90 | 90 | ||||||
Number of rooms | 50,684 | 50,684 | ||||||
Change in comparable hotel RevPAR - | ||||||||
Constant US$ | 1.7 | % | — | |||||
Nominal US$ | 1.8 | % | — | |||||
Operating profit margin (2) | 12.7 | % | 12.7 | % | ||||
Comparable hotel EBITDA margin (2) | 27.6 | % | 27.0 | % | ||||
Food and beverage profit margin (2) | 32.7 | % | 34.4 | % | ||||
Comparable hotel food and beverage profit margin (2) | 32.6 | % | 33.8 | % | ||||
Net income | $ | 256 | $ | 161 | ||||
Depreciation and amortization | 178 | 180 | ||||||
Interest expense | 44 | 39 | ||||||
Provision (benefit) for income taxes | 4 | (6 | ) | |||||
Gain on sale of property and corporate level income/expense |
(105 | ) | 6 | |||||
Non-comparable hotel results, net (3) | (26 | ) | (42 | ) | ||||
Comparable hotel EBITDA | $ | 351 | $ | 338 | ||||
Quarter ended March 31, 2018 | Quarter ended March 31, 2017 | |||||||||||||||||||||||||||||||
Adjustments | Adjustments | |||||||||||||||||||||||||||||||
GAAP Results |
Non- comparable hotel results, net (3) |
Depreciation and corporate level items |
Comparable Hotel Results |
GAAP Results |
Non- comparable hotel results, net (3) |
Depreciation and corporate level items |
Comparable Hotel Results |
|||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Room | $ | 844 | $ | (37 | ) | $ | — | $ | 807 | $ | 843 | $ | (50 | ) | $ | — | $ | 793 | ||||||||||||||
Food and beverage | 413 | (27 | ) | — | 386 | 422 | (31 | ) | — | 391 | ||||||||||||||||||||||
Other | 89 | (11 | ) | — | 78 | 83 | (14 | ) | — | 69 | ||||||||||||||||||||||
Total revenues | 1,346 | (75 | ) | — | 1,271 | 1,348 | (95 | ) | — | 1,253 | ||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||
Room | 224 | (8 | ) | — | 216 | 219 | (10 | ) | — | 209 | ||||||||||||||||||||||
Food and beverage | 278 | (18 | ) | — | 260 | 277 | (18 | ) | — | 259 | ||||||||||||||||||||||
Other | 467 | (23 | ) | — | 444 | 475 | (28 | ) | — | 447 | ||||||||||||||||||||||
Depreciation and amortization | 178 | — | (178 | ) | — | 180 | — | (180 | ) | — | ||||||||||||||||||||||
Corporate and other expenses | 28 | — | (28 | ) | — | 29 | — | (29 | ) | — | ||||||||||||||||||||||
Gain on insurance and business interruption settlements |
— | — | — | — | (3 | ) | 3 | — | — | |||||||||||||||||||||||
Total expenses | 1,175 | (49 | ) | (206 | ) | 920 | 1,177 | (53 | ) | (209 | ) | 915 | ||||||||||||||||||||
Operating Profit - Comparable Hotel EBITDA |
$ | 171 | $ | (26 | ) | $ | 206 | $ | 351 | $ | 171 | $ | (42 | ) | $ | 209 | $ | 338 | ||||||||||||||
___________ |
(1) | See the Notes to Financial Information for a discussion of non-GAAP measures and the calculation of comparable hotel results. For additional information on comparable hotel EBITDA by location, see the First Quarter 2018 Supplemental Financial Information posted on our website. | ||
(2) | Profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP profit margins are calculated using amounts presented in the condensed consolidated statements of operations. Comparable hotel margins are calculated using amounts presented in the above tables. | ||
(3) | Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels and sold hotels, which operations are included in our condensed consolidated statements of operations as continuing operations, (ii) gains on insurance settlements and business interruption proceeds, and (iii) the results of our office spaces and other non-hotel income. | ||
HOST HOTELS & RESORTS, INC.
Reconciliation of Net Income to
EBITDA, EBITDAre and Adjusted EBITDAre (1)
(unaudited, in millions)
Quarter ended March 31, | ||||||||
2018 | 2017 | |||||||
Net income (2) | $ | 256 | $ | 161 | ||||
Interest expense | 44 | 39 | ||||||
Depreciation and amortization | 170 | 180 | ||||||
Income taxes | 4 | (6 | ) | |||||
EBITDA (2) | 474 | 374 | ||||||
Gain on dispositions (3) | (119 | ) | (15 | ) | ||||
Non-cash impairment loss | 8 | — | ||||||
Equity investment adjustments: | ||||||||
Equity in earnings of Euro JV (5) | (2 | ) | — | |||||
Equity in earnings of affiliates other than Euro JV | (8 | ) | (7 | ) | ||||
Pro rata EBITDAre of Euro JV (5) | 7 | 6 | ||||||
Pro rata EBITDAre of equity investments other than Euro JV | 10 | 11 | ||||||
EBITDAre (2)(6) | 370 | 369 | ||||||
Adjustments to EBITDAre: | ||||||||
Acquisition costs (4) | — | 1 | ||||||
Adjusted EBITDAre (2)(6) | $ | 370 | $ | 370 | ||||
___________ |
(1) | See the Notes to Financial Information for discussion of non-GAAP measures. | ||
(2) | Net Income, EBITDA, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO include a gain of $1 million for the quarter ended March 31, 2017, for the sale of the portion of land attributable to individual units sold by the Maui timeshare joint venture. | ||
(3) | Reflects the sale of one hotel in each of 2018 and 2017. | ||
(4) | Effective January 1, 2018 we adopted Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. As a result, the recent Hyatt portfolio acquisition was considered an asset acquisition and the related $17 million of acquisition costs were capitalized. | ||
(5) | Represents our share of earnings and pro rata EBITDAre from our European Joint Venture (“Euro JV”) in which we hold an approximate one-third non-controlling interest. | ||
(6) | Effective December 31, 2017, we present EBITDAre, reported in accordance with NAREIT guidelines, and Adjusted EBITDAre as supplemental measures of our performance. Prior year results have been updated to conform with the current year presentation. Under the new presentation, all of the EBITDA of consolidated partnerships is included, including the non-controlling partners' share, which has increased the previously reported first quarter 2017 Adjusted EBITDA by $3 million. See the Notes to Financial Information for more information on this change. | ||
HOST HOTELS & RESORTS, INC.
Reconciliation of Net Income to NAREIT and
Adjusted Funds From Operations per Diluted Share (1)
(unaudited, in millions, except per share amounts)
Quarter ended March 31, | ||||||||
2018 | 2017 | |||||||
Net income (2) | $ | 256 | $ | 161 | ||||
Less: Net income attributable to non-controlling interests | (3 | ) | (3 | ) | ||||
Net income attributable to Host Inc. | 253 | 158 | ||||||
Adjustments: | ||||||||
Gain on dispositions (3) | (119 | ) | (15 | ) | ||||
Depreciation and amortization | 169 | 179 | ||||||
Non-cash impairment loss | 8 | — | ||||||
Equity investment adjustments: | ||||||||
Equity in earnings of affiliates | (10 | ) | (7 | ) | ||||
Pro rata FFO of equity investments | 16 | 13 | ||||||
Consolidated partnership adjustments: | ||||||||
FFO adjustment for non-controlling partnerships | — | (1 | ) | |||||
FFO adjustments for non-controlling interests of Host L.P. | (1 | ) | (1 | ) | ||||
NAREIT FFO (2) | 316 | 326 | ||||||
Adjustments to NAREIT FFO: | ||||||||
Acquisition costs (4) | — | 1 | ||||||
Adjusted FFO (2) | $ | 316 | $ | 327 | ||||
For calculation on a per share basis (5): | ||||||||
Diluted weighted average shares outstanding - EPS, NAREIT FFO and Adjusted FFO |
739.6 | 738.2 | ||||||
NAREIT FFO and Adjusted FFO per diluted share | $ | .43 | $ | .44 | ||||
___________ |
(1 - 4) | Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA, EBITDAre and Adjusted EBITDAre. | |||
(5) | Earnings per diluted share and NAREIT FFO and Adjusted FFO per diluted share are adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for securities if they are anti-dilutive. | |||
HOST HOTELS & RESORTS, INC.
Reconciliation of Net Income to EBITDA, EBITDAre, Adjusted EBITDAre and
NAREIT and Adjusted Funds From Operations per Diluted Share for 2018 Forecasts (1)
(unaudited, in millions, except per share amounts)
Full Year 2018 | |||||||
Low-end of range |
High-end of range |
||||||
Net income | $ | 617 | $ | 657 | |||
Interest expense | 183 | 183 | |||||
Depreciation and amortization | 727 | 727 | |||||
Income taxes | 43 | 43 | |||||
EBITDA | 1,570 | 1,610 | |||||
Gain on dispositions | (119 | ) | (119 | ) | |||
Non-cash impairment loss | 8 | 8 | |||||
Equity investment adjustments: | |||||||
Equity in earnings of Euro JV | (21 | ) | (21 | ) | |||
Equity in earnings of affiliates other than Euro JV | (14 | ) | (14 | ) | |||
Pro rata EBITDAre of Euro JV | 51 | 51 | |||||
Pro rata EBITDAre of equity investments other than Euro JV | 30 | 30 | |||||
EBITDAre | 1,505 | 1,545 | |||||
Adjusted EBITDAre | $ | 1,505 | $ | 1,545 | |||
Full Year 2018 | |||||||
Low-end of range |
High-end of range |
||||||
Net income | $ | 617 | $ | 657 | |||
Less: Net income attributable to non-controlling interests | (7 | ) | (8 | ) | |||
Net income attributable to Host Inc. | 610 | 649 | |||||
Adjustments: | |||||||
Gain on dispositions | (119 | ) | (119 | ) | |||
Depreciation and amortization | 723 | 723 | |||||
Non-cash impairment loss | 8 | 8 | |||||
Equity investment adjustments: | |||||||
Equity in earnings of affiliates | (35 | ) | (35 | ) | |||
Pro rata FFO of equity investments | 61 | 61 | |||||
Consolidated partnership adjustments: | |||||||
FFO adjustment for non-controlling partnerships | (2 | ) | (2 | ) | |||
FFO adjustment for non-controlling interests of Host LP | (7 | ) | (7 | ) | |||
NAREIT FFO | 1,239 | 1,278 | |||||
Adjusted FFO | $ | 1,239 | $ | 1,278 | |||
Weighted average diluted shares - EPS, NAREIT and Adjusted FFO | 740.0 | 740.0 | |||||
Earnings per diluted share | $ | 0.82 | $ | 0.88 | |||
NAREIT FFO per diluted share | $ | 1.67 | $ | 1.73 | |||
Adjusted FFO per diluted share | $ | 1.67 | $ | 1.73 | |||
___________ |
(1) The forecasts are based on the below assumptions:
- Total comparable hotel RevPAR in constant US$ will increase 1.5% to 2.5% for the low and high end of the forecast range, which excludes the effect of changes in foreign currency. However, the effect of estimated changes in foreign currency has been reflected in the forecast of net income, EBITDA, earnings per diluted share and Adjusted FFO per diluted share.
- Comparable hotel EBITDA margins will decrease 10 basis points or increase 30 basis points for the low and high ends of the forecasted RevPAR range, respectively.
- We expect to spend approximately $185 million to $220 million on ROI capital expenditures and approximately $290 million to
$330 million on renewal and replacement capital expenditures. - The above forecast assumes the sale of the
W New York will occur during the second quarter of 2018 and one unspecified sale to occur during 2018. The transactions are subject to customary and other closing conditions which may not be satisfied and there can be no assurances that we will be able to complete the transactions at the prices assumed in the forecast.
For a discussion of additional items that may affect forecasted results, see the Notes to Financial Information.
HOST HOTELS & RESORTS, INC.
Schedule of
for 2018 Forecasts (1)
(unaudited, in millions, except hotel statistics)
Full Year 2018 | ||||||||||||||||
Low-end of range |
High-end of range |
|||||||||||||||
Operating profit margin (2) | 12.5 | % | 13.1 | % | ||||||||||||
Comparable hotel EBITDA margin (3) | 28.3 | % | 28.7 | % | ||||||||||||
Net income | $ | 617 | $ | 657 | ||||||||||||
Depreciation and amortization | 735 | 735 | ||||||||||||||
Interest expense | 183 | 183 | ||||||||||||||
Provision for income taxes | 43 | 43 | ||||||||||||||
Gain on sale of property and corporate level income/expense | (45 | ) | (45 | ) | ||||||||||||
Non-comparable hotel results, net (4) | (193 | ) | (201 | ) | ||||||||||||
Comparable hotel EBITDA | $ | 1,340 | $ | 1,372 | ||||||||||||
Low-end of range | ||||||||||||||||
Adjustments | ||||||||||||||||
GAAP Results |
Non- comparable hotel results, net(4) |
Depreciation and corporate level items |
Comparable Hotel Results |
|||||||||||||
Revenues | ||||||||||||||||
Rooms | $ | 3,538 | $ | (435 | ) | $ | — | $ | 3,103 | |||||||
Food and beverage | 1,598 | (240 | ) | — | 1,358 | |||||||||||
Other | 358 | (80 | ) | — | 278 | |||||||||||
Total revenues | 5,494 | (755 | ) | — | 4,739 | |||||||||||
Expenses | ||||||||||||||||
Hotel expenses | 3,961 | (562 | ) | — | 3,399 | |||||||||||
Depreciation | 735 | — | (735 | ) | — | |||||||||||
Corporate and other expenses | 113 | — | (113 | ) | — | |||||||||||
Total expenses | 4,809 | (562 | ) | (848 | ) | 3,399 | ||||||||||
Operating Profit - Comparable Hotel EBITDA | $ | 685 | $ | (193 | ) | $ | 848 | $ | 1,340 | |||||||
High-end of range | ||||||||||||||||
Adjustments | ||||||||||||||||
GAAP Results |
Non- comparable hotel results, net(4) |
Depreciation and corporate level items |
Comparable Hotel Results |
|||||||||||||
Revenues | ||||||||||||||||
Rooms | $ | 3,573 | $ | (440 | ) | $ | — | $ | 3,133 | |||||||
Food and beverage | 1,614 | (242 | ) | — | 1,372 | |||||||||||
Other | 362 | (81 | ) | — | 281 | |||||||||||
Total revenues | 5,549 | (763 | ) | — | 4,786 | |||||||||||
Expenses | ||||||||||||||||
Hotel expenses | 3,976 | (562 | ) | — | 3,414 | |||||||||||
Depreciation and amortization | 735 | — | (735 | ) | — | |||||||||||
Corporate and other expenses | 113 | — | (113 | ) | — | |||||||||||
Total expenses | 4,824 | (562 | ) | (848 | ) | 3,414 | ||||||||||
Operating Profit - Comparable Hotel EBITDA | $ | 725 | $ | (201 | ) | $ | 848 | $ | 1,372 | |||||||
___________ |
(1) | Forecast comparable hotel results include 86 hotels (of our 96 hotels owned at March 31, 2018) that we have assumed will be classified as comparable as of December 31, 2018. See “Comparable Hotel Operating Statistics” in the Notes to Financial Information. No assurances can be made as to the hotels that will be in the comparable hotel set for 2018. Also, see the notes to the “Reconciliation of Net Income to EBITDA, EBITDAre, Adjusted EBITDAre and NAREIT and Adjusted Funds From Operations per Diluted Share for 2018 Forecasts” for other forecast assumptions and further discussion of transactions affecting our comparable hotel set. | ||
(2) | Operating profit margin under GAAP is calculated as the operating profit divided by the forecast total revenues per the condensed consolidated statements of operations. | ||
(3) | Comparable hotel EBITDA margin is calculated as the comparable hotel EBITDA divided by the comparable hotel sales per the tables above. | ||
(4) | Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels and sold hotels, which operations are included in our condensed consolidated statements of operations as continuing operations, (ii) gains on insurance settlements and business interruption proceeds, and (iii) the results of our office spaces other non-hotel income. The following hotels are considered non-comparable for full-year forecast: | ||
Acquisitions:
- The Don CeSar and Beach House Suites complex (acquired in
February 2017 ) W Hollywood (acquired inMarch 2017 )- Andaz Maui at
Wailea Resort (acquired inMarch 2018 ) - Grand
Hyatt San Francisco (acquired inMarch 2018 ) Hyatt Regency Coconut Point Resort and Spa (acquired inMarch 2018 )
Renovations:
- The Phoenician (business disruption beginning in the second quarter of 2016)
- The Ritz-Carlton,
Naples (business disruption expected beginning in the second quarter of 2018) - San Francisco Marriott Marquis (business disruption expected beginning in the third quarter of 2018)
Dispositions or properties under contract (includes forecast or actual results from
Key Bridge Marriott (soldJanuary 9, 2018 )W New York (expected to close in the second quarter)- Unspecified disposition
HOST HOTELS & RESORTS, INC.
Notes to Financial Information
Forecasts
Our forecast of earnings per diluted share, NAREIT and Adjusted FFO per diluted share, EBITDA, EBITDAre, Adjusted EBITDAre and comparable hotel results are forward-looking statements and are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause actual results and performance to differ materially from those expressed or implied by these forecasts. Although we believe the expectations reflected in the forecasts are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that the results will not be materially different. Risks that may affect these assumptions and forecasts include the following: potential changes in overall economic outlook make it inherently difficult to forecast the level of RevPAR and margin growth; the amount and timing of acquisitions and dispositions of hotel properties is an estimate that can substantially affect financial results, including such items as net income, depreciation and gains on dispositions; the level of capital expenditures may change significantly, which will directly affect the level of depreciation expense and net income; the amount and timing of debt payments may change significantly based on market conditions, which will directly affect the level of interest expense and net income; the amount and timing of transactions involving shares of our common stock may change based on market conditions; and other risks and uncertainties associated with our business described herein and in our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the
To facilitate a quarter-to-quarter comparison of our operations, we present certain operating statistics (i.e., RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in this report on a comparable hotel basis.
Because these statistics and operating results relate only to our hotel properties, they exclude results for our non-hotel properties and other real estate investments. We define our comparable hotels as properties:
(i) that are owned or leased by us and the operations of which are included in our consolidated results for the entirety of the reporting periods being compared; and
(ii) that have not sustained substantial property damage or business interruption, or undergone large-scale capital projects (as further defined below) during the reporting periods being compared.
The hotel business is capital-intensive and renovations are a regular part of the business. Generally, hotels under renovation remain comparable hotels. A large scale capital project that would cause a hotel to be excluded from our comparable hotel set is an extensive renovation of several core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if the renovation would cause a hotel to be removed from the comparable hotel set, including unusual or exceptional circumstances such as: a reduction or increase in room count, rebranding, a significant alteration of the business operations, or the closing of the hotel during the renovation.
We do not include an acquired hotel in our comparable hotel set until the operating results for that hotel have been included in our consolidated results for one full calendar year. For example, we acquired The Don CeSar in
Of the 96 hotels that we owned on March 31, 2018, 90 have been classified as comparable hotels. The operating results of the following hotels that we owned as of March 31, 2018 are excluded from comparable hotel results for these periods:
- The Phoenician (acquired in
June 2015 and, beginning in the second quarter of 2016, business disruption due to extensive renovations, including all guestrooms and suites, a redesign of the lobby and public areas, renovation of pools, recreation areas and a restaurant and a re-configured spa and fitness center);
- The Don CeSar and Beach House Suites complex (acquired in
February 2017 );
W Hollywood (acquired inMarch 2017 );
- Andaz Maui at
Wailea Resort (acquired inMarch 2018 );
- Grand
Hyatt San Francisco (acquired inMarch 2018 ); and
Hyatt Regency Coconut Point Resort and Spa (acquired inMarch 2018 ).
The operating results of five hotels disposed of in 2018 and 2017 are not included in comparable hotel results for the periods presented herein. These operations are also excluded from the hotel operating data for all owned hotels on page 8.
Operating statistics for the non-comparable hotels listed above are included in the hotel operating data for all owned hotels. By definition, the RevPAR results for these properties are not comparable due to the reasons listed above, and, therefore, are not indicative of the overall trends for our portfolio. The operating results for the five hotels acquired in 2017 and 2018 are included in the all owned hotel operating data on a pro forma basis, which includes operating results assuming the hotels were owned as of January 1, 2017 and based on actual results obtained from the manager for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results. All owned hotel operating statistics are provided for completeness and to show the difference between our comparable hotel information (upon which we usually evaluate performance) and all of our hotels, including non-comparable hotels. Also, while they may not be illustrative of trends (as compared to comparable hotel operating statistics), changes in all owned hotel statistics will have an effect on our overall revenues.
Constant US$ and Nominal US$
Operating results denominated in foreign currencies are translated using the prevailing exchange rates on the date of the transaction, or monthly based on the weighted average exchange rate for the period. For comparative purposes, we also present the RevPAR results for the prior year assuming the results for our foreign operations were translated using the same exchange rates that were effective for the comparable periods in the current year, thereby eliminating the effect of currency fluctuation for the year-over-year comparisons. For the full year forecast results, we use the applicable forward currency curve (as published by
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
NAREIT FFO and NAREIT FFO per Diluted Share
We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period, in accordance with NAREIT guidelines. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding gains and losses from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation, amortization and impairments and adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect our pro rata share of the FFO of those entities on the same basis.
We believe that NAREIT FFO per diluted share is a useful supplemental measure of our operating performance and that the presentation of NAREIT FFO per diluted share, when combined with the primary GAAP presentation of earnings per share, provides beneficial information to investors. By excluding the effect of real estate depreciation, amortization, impairments and gains and losses from sales of depreciable real estate, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that such measures can facilitate comparisons of operating performance between periods and with other REITs, even though NAREIT FFO per diluted share does not represent an amount that accrues directly to holders of our common stock. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. As noted by NAREIT in its
Adjusted FFO per Diluted Share
We also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our annual budget process and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor’s understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:
- Gains and Losses on the Extinguishment of Debt – We exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of the write-off of deferred financing costs associated with the original issuance of the debt being redeemed or retired and incremental interest expense incurred during the refinancing period. We also exclude the gains on debt repurchases and the original issuance costs associated with the retirement of preferred stock. We believe that these items are not reflective of our ongoing finance costs.
- Acquisition Costs – Under GAAP, costs associated with completed property acquisitions that are considered business combinations are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company.
- Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.
In unusual circumstances, we may also adjust NAREIT FFO for gains or losses that management believes are not representative of the Company’s current operating performance. For example, in 2017, as a result of the reduction of corporate income tax rates from 35% to 21% caused by the Tax Cuts and Jobs Act, we remeasured our domestic deferred tax assets as of
EBITDA
Earnings before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”) is a commonly used measure of performance in many industries. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of the Company’s capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO and Adjusted FFO per diluted share, is widely used by management in the annual budget process and for our compensation programs.
EBITDAre and Adjusted EBITDAre
We present EBITDAre in accordance with NAREIT guidelines, as defined in its
We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s understanding of our operating performance. Adjusted EBITDAre also is similar to the measure used to calculate certain credit ratios for our credit facility and senior notes. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:
- Property Insurance Gains – We exclude the effect of property insurance gains reflected in our consolidated statements of operations because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets. In addition, property insurance gains could be less important to investors given that the depreciated asset book value written off in connection with the calculation of the property insurance gain often does not reflect the market value of real estate assets.
- Cumulative Effect of a Change in Accounting Principle – Infrequently, the
Financial Accounting Standards Board promulgates new accounting standards that require the consolidated statements 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.
- Acquisition Costs – Under GAAP, costs associated with completed property acquisitions that are considered business combinations are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company.
- Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.
In unusual circumstances, we also may adjust EBITDAre for gains or losses that management believes are not representative of the Company’s current operating performance. The last such adjustment was a 2013 exclusion of a gain from an eminent domain claim.
In the past, we presented Adjusted EBITDA as a supplemental measure of our performance. That metric is calculated in a similar manner as Adjusted EBITDAre presented here, with the exception of the adjustment for non-controlling partners’ pro rata share of Adjusted EBITDA, which totaled $3 million for the first quarter of 2017. The rationale for including 100% of EBITDAre for consolidated affiliates with non-controlling interests is that the full amount of any debt of these affiliates is reported in our consolidated balance sheet and therefore metrics using total debt to EBITDAre provide a better understanding of the Company’s leverage. This is also consistent with NAREIT’s definition of EBITDAre.
Limitations on the Use of NAREIT FFO per Diluted Share, Adjusted FFO per Diluted Share, EBITDA, EBITDAre and Adjusted EBITDAre
We calculate NAREIT FFO per diluted share in accordance with standards established by NAREIT, which may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. In addition, although FFO per diluted share is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs. We also calculate Adjusted FFO per diluted share, which is not in accordance with NAREIT guidance and may not be comparable to measures calculated by other REITs. EBITDA, EBITDAre and Adjusted EBITDAre, 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, EBITDAre and Adjusted EBITDAre purposes only) and other items have been and will be made and are not reflected in the EBITDA, EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO per diluted share presentations. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statement of operations and cash flows include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. Additionally, NAREIT FFO per diluted share, Adjusted FFO per diluted share, EBITDA, EBITDAre and Adjusted EBITDAre should not be considered as a measure of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions. In addition, NAREIT FFO per diluted share and Adjusted FFO per diluted share do not measure, and should not be used as a measure of, amounts that accrue directly to stockholders’ benefit.
Similarly, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of our equity investments and NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of non-controlling partners in consolidated partnerships. Our equity investments consist of interests ranging from 11% to 67% in seven domestic and international partnerships that own a total of 21 properties and a vacation ownership development. Due to the voting rights of the outside owners, we do not control and, therefore, do not consolidate these entities. The non-controlling partners in consolidated partnerships primarily consist of the approximate 1% interest in
We present certain operating results for our hotels, such as hotel revenues, expenses, food and beverage profit, and EBITDA (and the related margins), 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 comparable hotel EBITDA to help us and our investors evaluate the ongoing operating performance of our comparable properties after removing the impact of the Company’s capital structure (primarily interest expense), and its asset base (primarily depreciation and amortization). Corporate-level costs and expenses are also removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information into the ongoing operating performance of our comparable hotels. Comparable hotel results are presented both by location and for the Company’s comparable properties in the aggregate. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values have historically risen or fallen with market conditions, many real estate industry investors have considered presentation of historical cost accounting for operating results to be insufficient by themselves.
As a result of the elimination of corporate-level costs and expenses and depreciation and amortization, the comparable hotel operating results we present do not represent our total revenues, expenses, operating profit or net income 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.
240.744.5110
240.744.5216
Gee Lingberg, Vice President
240.744.5275