The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Host Inc. operates as a self-managed and self-administered REIT. Host Inc. is the sole general partner of Host L.P. and holds approximately 99% of its partnership interests. Host L.P. is a limited partnership operating through an umbrella partnership structure. The remaining common OP units are owned by various unaffiliated limited partners.
In this report on Form 10-Q, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “expect,” “may,” “intend,” “predict,” “project,” “plan,” “will,” “estimate” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are based on management’s current expectations and assumptions and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made.
The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions, including those risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2016 and in other filings with the Securities and Exchange Commission (“SEC”). Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material.
Operating Results and Outlook
Operating Results
The following table reflects certain line items from our statement of operations and significant operating statistics (in millions, except per share and hotel statistics):
Historical Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Total revenues
|
|
$
|
1,441
|
|
|
$
|
1,459
|
|
|
|
(1.2
|
)%
|
|
$
|
2,789
|
|
|
$
|
2,798
|
|
|
|
(0.3
|
)%
|
Net income
|
|
|
212
|
|
|
|
351
|
|
|
|
(39.6
|
)%
|
|
|
373
|
|
|
|
535
|
|
|
|
(30.3
|
)%
|
Operating profit
|
|
|
244
|
|
|
|
239
|
|
|
|
2.1
|
%
|
|
|
415
|
|
|
|
390
|
|
|
|
6.4
|
%
|
Operating profit margin under GAAP
|
|
|
16.9
|
%
|
|
|
16.4
|
%
|
|
|
50
|
bps
|
|
|
14.9
|
%
|
|
|
13.9
|
%
|
|
|
100
|
bps
|
Adjusted EBITDA
(1)
|
|
$
|
444
|
|
|
$
|
436
|
|
|
|
1.8
|
%
|
|
$
|
811
|
|
|
$
|
782
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
0.28
|
|
|
|
0.47
|
|
|
|
(40.4
|
)%
|
|
|
0.50
|
|
|
|
0.71
|
|
|
|
(29.6
|
)%
|
NAREIT FFO per diluted share
(1)
|
|
|
0.49
|
|
|
|
0.49
|
|
|
—
|
|
|
|
0.93
|
|
|
|
0.90
|
|
|
|
3.3
|
%
|
Adjusted FFO per diluted share
(1)
|
|
|
0.49
|
|
|
|
0.49
|
|
|
—
|
|
|
|
0.94
|
|
|
|
0.90
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Hotel Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Comparable Hotels
(2)
|
|
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Comparable hotel revenues
(1)
|
|
$
|
1,310
|
|
|
$
|
1,312
|
|
|
|
(0.1
|
)%
|
|
$
|
2,512
|
|
|
$
|
2,478
|
|
|
|
1.4
|
%
|
Comparable hotel EBITDA
(1)
|
|
|
406
|
|
|
|
405
|
|
|
|
0.4
|
%
|
|
|
728
|
|
|
|
707
|
|
|
|
2.9
|
%
|
Comparable hotel EBITDA margin
(1)
|
|
|
31.0
|
%
|
|
|
30.85
|
%
|
|
|
15
|
bps
|
|
|
29.0
|
%
|
|
|
28.55
|
%
|
|
|
45
|
bps
|
Change in comparable hotel RevPAR -
Constant US$
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
Change in comparable hotel RevPAR -
Nominal US$
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
Change in comparable domestic RevPAR
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
Change in comparable international
RevPAR - Constant US$
|
|
|
(3.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
(5.1
|
)%
|
|
|
|
|
|
|
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusted EBITDA, NAREIT FFO and Adjusted FFO per diluted share and comparable hotel operating results (including comparable hotel revenues and comparable hotel EBITDA and margins) are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the SEC. See “Non-GAAP Financial Measures” for more information on these measures, including why we believe that these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.
|
(2)
|
Comparable hotel operating statistics for 2017 and 2016 are based on 89 hotels as of June 30, 2017.
|
Revenue per Available Room (“RevPAR”)
Comparable RevPAR on a constant US$ basis improved 1.7% for the second quarter, driven by a 70 basis point increase in occupancy and a 0.8% increase in average room rate. Year-to-date, comparable RevPAR on a constant US$ basis improved 2.5% as a result of a 70 basis point increase in occupancy and a 1.6% increase in average room rate. Results were mixed across our portfolio for the quarter, as strong performances in our Seattle, Phoenix and Boston markets were partially offset by declines in our Houston, Atlanta, San Francisco and New York markets. Strong transient and contract business for the quarter was partially offset by a decline in group business due to the shift of the Easter holiday into the second quarter and softer attendance at citywide conventions.
On a constant US$ basis, RevPAR at our comparable international properties decreased 3.1% for the second quarter and 5.1% year-to-date primarily due to declines in both rate and occupancy at our properties in Rio de Janeiro due to weakness in the Brazilian economy and difficult comparisons to pre-Olympic activity in the prior year.
21
Rooms
Total room revenue increased 0.8% and 0.4% for the quarter and year-to-date, respectively, reflecting the increase in comparable room revenue of 1.7% and 2.0% for the quarter and year-to-date, respectively, partially offset by the net effect of our 2017 and 2016 acquisitions and dispositions. For the quarter and year-to-date, total room expenses increased 0.9% and remained flat, respectively, reflecting the comparable hotel room expenses increase of 2.4% and 2.2% for the quarter and year-to-date, respectively, partially offset by the net effect of our 2017 and 2016 acquisitions and dispositions.
Food and beverage
For the second quarter and year-to-date, food and beverage revenues decreased 5.2% and 1.1%, respectively, reflecting the results at our comparable hotels as well as a decrease due to the net effect of our 2017 and 2016 acquisitions and dispositions. Comparable food and beverage revenue decreased 4.4% and remained flat for the quarter and year-to-date, respectively, due to a decrease in banquet and audio visual revenues reflecting the decline in group business for the quarter. As a result of the decrease in higher margin banquet and audio visual business, which was replaced with lower margin outlet business, comparable food and beverage profit for the second quarter decreased 5.3%. This decrease partially offset strong first quarter results, leading to a 4.3% increase in comparable food and beverage profit year-to-date.
Operating profit
Operating profit margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) increased 50 basis points, to 16.9%, for the second quarter and 100 basis points, to 14.9%, year-to-date. These operating profit margins are affected significantly by several items, including dispositions, depreciation and corporate expenses. Our comparable hotel EBITDA margins, which exclude these items, increased 15 basis points, to 31.0%, for the second quarter and 45 basis points, to 29.0%, year-to-date. For the quarter, the margin improvement was driven by growth in room revenues. Year-to-date, we continue to see labor productivity improvements at certain of our properties, which are reflective of the time and motion studies we have initiated at some of our largest hotels over the past two years and continue to implement at our medium and smaller-sized hotels. These studies have resulted in hotel managers establishing more accurate labor model standards and improved and expanded forecasting tools, which allow them to more effectively schedule labor based on demand and to minimize excess staffing, thereby reducing costs.
Net income, Adjusted EBITDA and Adjusted FFO per Diluted Share
Net income for the quarter and year-to-date decreased $139 million and $162 million, respectively, due to a decrease in gain on sale of assets of $143 million and $185 million, respectively, partially offset by the improvement in operating profit discussed above. Adjusted EBITDA increased $8 million for the quarter and $29 million year-to-date due to improvement in our comparable hotel EBITDA and strong performance at three of our non-comparable hotels that were under renovation last year, slightly offset by the net effect of our 2017 and 2016 acquisitions and dispositions. These changes led to a decrease in earnings of $0.19, or 40.4%, per diluted share for the quarter and $0.21, or 29.6%, per diluted share year-to-date and no change in Adjusted FFO per diluted share
for the quarter and an increase of $0.04, or 4.4%, for year-to-date.
The trends and transactions described for Host Inc. affected similarly the operating results for Host L.P., as the only significant difference between the Host Inc. and the Host L.P. statements of operations relates to the treatment of income attributable to the third party limited partners of Host L.P.
Outlook
Forecasts for the United States economy continue to be cautiously optimistic for 2017, as employment data continues to strengthen and business investment has modestly improved. However, legislative efforts have stalled, delaying any potential economic stimulus through tax reform, infrastructure spending and regulatory easing. Therefore, the macroeconomic backdrop has been less supportive of industry demand growth than might have been expected at the beginning of the year, particularly as it relates to business travel.
Additionally, supply growth is expected to continue accelerating in the second half of 2017. In particular, markets in which we own a significant number of hotels have experienced above-average supply growth during this cycle, which may continue to impact the ability of our managers to grow room rate in the near-term and also could lead to downward pressure on occupancy.
We expect growth for the second half of 2017; however, we anticipate that the rate of growth will decelerate. This is because of the strong performance in the first half of the year due, in part, to the Presidential inauguration and related activities, as well as a
22
difficult comparison in the second half of the year for our hotels in Brazil due to last year’s Olympics.
As a result of these trends, we estimate that c
omparable RevPAR growth for the full year 2017 will be between
1.0%
and
1.75%
on a constant US$ basis.
The current outlook for the lodging industry is uncertain; therefore, there can be no assurances that any increases in hotel revenues or earnings will continue for any number of reasons, including, but not limited to, slower than anticipated growth in the economy, changes in travel patterns, and international economic and political instability.
Strategic Initiatives
Portfolio
Dispositions.
During the quarter, we sold the Sheraton Memphis Downtown for $67 million. The Hilton Melbourne South Wharf was classified as held-for-sale as of June 30, 2017 and sold on July 28, 2017 for A$230 million ($182 million).
Balance Sheet
During the second quarter, we amended and restated our credit facility, extending the maturity of the revolver portion to May 2021, with two six-month extension options (subject to certain conditions). The $500 million term loan that was due to mature in June 2017 was amended to extend the maturity to May 2021, with one 12-month extension option (subject to certain conditions) and to lower the margin for an all-in interest rate
of 2.3% at June 30, 2017, based on Host L.P.’s unsecured long-term debt rating.
Our second $500
million term loan scheduled to mature in
September 2020 remained unchanged. As of June 30, 2017, we had $775 million of available capacity remaining under the revolver portion of our credit facility.
Capital Investments
Redevelopment and Return on Investment Capital Expenditures.
Redevelopment and return on investment (“ROI”) projects primarily consist of large-scale redevelopment projects designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of our properties, including projects such as the redevelopment of a hotel, the repositioning of a hotel restaurant, the installation of energy efficient systems or the conversion of underutilized space to more profitable uses. Additionally, in conjunction with the acquisition of a property, we prepare capital and operational improvement plans designed to maximize profitability. We deployed approximately $32 million for these projects during the first half of 2017.
We expect that redevelopment and ROI projects for full year 2017 will be approximately $100 million to $110 million.
Renewal and Replacement Capital Expenditures.
These expenditures are designed to ensure that our standards for product quality are maintained and to enhance the overall competitiveness of our properties in the marketplace. We deployed $111 million on renewal and replacement capital expenditures during the first half of 2017. During the second quarter, we completed the renovation of 740 rooms at The Westin Los Angeles Airport and the final phase of the rooms renovation at the Toronto Marriott Downtown Eaton Centre Hotel. We expect that our investment in renewal and replacement expenditures in full year 2017 will total approximately $275 million to $290 million.
23
Results of Operations
The following table reflects certain line items from our statements of operations (in millions, except percentages):
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Total revenues
|
|
$
|
1,441
|
|
|
$
|
1,459
|
|
|
|
(1.2
|
)%
|
|
$
|
2,789
|
|
|
$
|
2,798
|
|
|
|
(0.3
|
)%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-level costs
(1)
|
|
|
1,173
|
|
|
|
1,193
|
|
|
|
(1.7
|
)
|
|
|
2,324
|
|
|
|
2,357
|
|
|
|
(1.4
|
)
|
Corporate and other expenses
|
|
|
26
|
|
|
|
27
|
|
|
|
(3.7
|
)
|
|
|
55
|
|
|
|
54
|
|
|
|
1.9
|
|
Gain on insurance and business
interruption settlements
|
|
|
2
|
|
|
|
—
|
|
|
N/M
|
|
|
|
5
|
|
|
|
3
|
|
|
|
66.7
|
|
Operating profit
|
|
|
244
|
|
|
|
239
|
|
|
|
2.1
|
|
|
|
415
|
|
|
|
390
|
|
|
|
6.4
|
|
Interest expense
|
|
|
43
|
|
|
|
39
|
|
|
|
10.3
|
|
|
|
82
|
|
|
|
78
|
|
|
|
5.1
|
|
Gain on sale of assets
|
|
|
29
|
|
|
|
172
|
|
|
|
(83.1
|
)
|
|
|
46
|
|
|
|
231
|
|
|
|
(80.1
|
)
|
Provision for income taxes
|
|
|
27
|
|
|
|
32
|
|
|
|
(15.6
|
)
|
|
|
21
|
|
|
|
23
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Host Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
|
2
|
|
|
|
4
|
|
|
|
(50.0
|
)
|
|
|
5
|
|
|
|
6
|
|
|
|
(16.7
|
)
|
Net income attributable to Host Inc.
|
|
|
210
|
|
|
|
347
|
|
|
|
(39.5
|
)
|
|
|
368
|
|
|
|
529
|
|
|
|
(30.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Host L.P.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to non-
controlling interests
|
|
|
—
|
|
|
|
(1
|
)
|
|
N/M
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
N/M
|
|
Net income attributable to Host L.P.
|
|
|
212
|
|
|
|
352
|
|
|
|
(39.8
|
)
|
|
|
372
|
|
|
|
536
|
|
|
|
(30.6
|
)
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount represents total operating costs and expenses from our unaudited condensed consolidated statements of operations, less corporate and other expenses and gain on insurance and business interruption settlements.
|
N/M=Not meaningful.
Statement of Operations Results and Trends
For the second quarter and year-to-date 2017, the results of hotels acquired or sold during the comparable periods (collectively, our “Recent Acquisitions and Dispositions”) impacted our year-over-year comparisons. Comparisons of our operations were affected by the acquisition of two hotels during the first quarter 2017: the W Hollywood acquired in March 2017 and The Don CeSar and Beach House Suites complex acquired in February 2017. Dispositions include the sale of two hotels in 2017 and ten hotels in 2016. The table below presents the effects on earnings from our Recent Acquisitions and Dispositions (in millions, increase (decrease)):
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Dispositions
|
|
|
1
|
|
|
|
54
|
|
|
|
(53
|
)
|
|
|
12
|
|
|
|
129
|
|
|
|
(117
|
)
|
Total revenues
|
|
$
|
30
|
|
|
$
|
54
|
|
|
$
|
(24
|
)
|
|
$
|
53
|
|
|
$
|
129
|
|
|
$
|
(76
|
)
|
Net income (excluding gain on sale):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Dispositions
|
|
|
1
|
|
|
|
7
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
18
|
|
|
|
(16
|
)
|
Net income (excluding gain on sale):
|
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
18
|
|
|
$
|
(5
|
)
|
24
Hotel Sales Overvie
w
The following table presents total revenues in accordance with GAAP and includes both comparable and non-comparable hotels (in millions, except percentages):
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$
|
940
|
|
|
$
|
933
|
|
|
|
0.8
|
%
|
|
$
|
1,783
|
|
|
$
|
1,776
|
|
|
|
0.4
|
%
|
Food and beverage
|
|
|
416
|
|
|
|
439
|
|
|
|
(5.2
|
)
|
|
|
838
|
|
|
|
847
|
|
|
|
(1.1
|
)
|
Other
|
|
|
85
|
|
|
|
87
|
|
|
|
(2.3
|
)
|
|
|
168
|
|
|
|
175
|
|
|
|
(4.0
|
)
|
Total revenues
|
|
$
|
1,441
|
|
|
$
|
1,459
|
|
|
|
(1.2
|
)
|
|
$
|
2,789
|
|
|
$
|
2,798
|
|
|
|
(0.3
|
)
|
Rooms
. Total rooms revenues increased 0.8% and 0.4% for the quarter and year-to-date, respectively. For our comparable hotels, rooms revenues increased 1.7% and 2.0% for the quarter and year-to-date, respectively, due to an increase in both occupancy and rate. The net effects of our Recent Acquisitions and Dispositions reduced rooms revenues by $15 million for the quarter and $44 million for the year-to-date.
Food and beverage
. Total food and beverage (“F&B”) revenues decreased 5.2% for the quarter and 1.1% year-to-date. Consistent with the decline in group business due to the shift in the Easter holiday, the results reflect a decrease in banquet and audio visual revenues, partially offset by an increase in restaurant and outlet revenues, which led to a decrease in comparable F&B revenues of 4.4% for the quarter. Year-to-date, comparable F&B revenues remained flat. The net effect of our Recent Acquisitions and Dispositions reduced F&B revenues by $7 million for the quarter and $25 million for the year-to-date.
Other revenues.
Total other revenues decreased 2.3% for the quarter and 4.0% year-to-date, primarily due to the net effect of our Recent Acquisitions and Dispositions, which reduced other revenue by $2 million for the quarter and $7 million year-to-date. At our comparable hotels, other revenues increased 1.9% for the quarter and 1.4% year-to-date.
Property-level Operating Expenses
The following table presents property-level operating expenses in accordance with GAAP and includes both comparable and non-comparable hotels (in millions, except percentages):
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$
|
230
|
|
|
$
|
228
|
|
|
|
0.9
|
%
|
|
$
|
449
|
|
|
$
|
449
|
|
|
|
0.0
|
%
|
Food and beverage
|
|
|
275
|
|
|
|
289
|
|
|
|
(4.8
|
)
|
|
|
552
|
|
|
|
573
|
|
|
|
(3.7
|
)
|
Other departmental and
support expenses
|
|
|
324
|
|
|
|
332
|
|
|
|
(2.4
|
)
|
|
|
643
|
|
|
|
660
|
|
|
|
(2.6
|
)
|
Management fees
|
|
|
69
|
|
|
|
66
|
|
|
|
4.5
|
|
|
|
125
|
|
|
|
123
|
|
|
|
1.6
|
|
Other property-level
expenses
|
|
|
97
|
|
|
|
100
|
|
|
|
(3.0
|
)
|
|
|
197
|
|
|
|
193
|
|
|
|
2.1
|
|
Depreciation and
amortization
|
|
|
178
|
|
|
|
178
|
|
|
|
—
|
|
|
|
358
|
|
|
|
359
|
|
|
|
(0.3
|
)
|
Total property-level
operating expenses
|
|
$
|
1,173
|
|
|
$
|
1,193
|
|
|
|
(1.7
|
)
|
|
$
|
2,324
|
|
|
$
|
2,357
|
|
|
|
(1.4
|
)
|
Our operating costs and expenses, which have both fixed and variable components, are affected by changes in occupancy, inflation, and revenues (which affect management fees), though the effect on specific costs will differ. Our wages and benefits account for approximately 57% of the operating expenses at our hotels (excluding depreciation). Other property-level expenses consist of property taxes, the amounts and structure of which are highly dependent on local jurisdiction taxing authorities, and property and general liability insurance, all of which do not necessarily increase or decrease based on similar changes in revenues at our hotels.
Rooms.
Rooms expenses increased 0.9% for the second quarter and were flat for year-to-date 2017, respectively, which reflects the net decrease of $4 million and $11 million for the quarter and year to date, respectively, from our Recent Acquisitions and
25
Dispositions. Rooms expenses at our comparable hotels increased 2.4% and 2.2% for the quarter and year-to-date, respectively, due to increases in wages per oc
cupied room, laundry and linen expenses.
Food and beverage
. F&B expenses decreased 4.8% for the quarter and 3.7% year-to-date. The net effect of our Recent Acquisitions and Dispositions reduced F&B expense by $6 million and $18 million for the quarter and year-to-date, respectively. For our comparable hotels, F&B expenses decreased 3.9% for the quarter and 2.1% year-to-date, consistent with the decline in comparable F&B revenues.
Other departmental and support expenses
. Other departmental and support expenses decreased $8 million for the second quarter and $17 million year-to-date, primarily due to a decrease of $10 million for the quarter and $25 million year-to-date from the net effect of our Recent Acquisitions and Dispositions. On a comparable hotel basis, other departmental and support expenses were essentially flat for the quarter and year-to-date.
Management fees
. Base management fees, which generally are calculated as a percentage of total revenues, decreased $1 million in the second quarter and $2 million year-to-date due to the decrease in revenues in both periods. Incentive management fees are generally based on the level of operating profit at each property after we receive a priority return on our investment. The fees increased $1 million for the second quarter and $3 million year-to-date, primarily reflecting improved operations in our Washington D.C. market.
Other property-level expenses.
These expenses generally do not vary significantly based on occupancy and include expenses such as property taxes and insurance. Other property level expenses decreased $3 million for the second quarter and increased $4 million year-to-date. Other property-level expenses at our comparable hotels increased 1.2% for the quarter and 4.1% year-to-date, primarily due to increases in property taxes and ground rent, partially offset by decreases in insurance expense. The net effect of our Recent Acquisitions and Dispositions reduced other property-level expenses by $2 million for the quarter and $5 million year-to-date.
Other Income and Expense
Corporate and other expenses.
The following table details our corporate and other expenses for the quarter and year-to-date (in millions):
|
|
Quarter ended June 30,
|
|
|
Year-to-date ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
General and administrative costs
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
49
|
|
|
$
|
48
|
|
Non-cash stock-based compensation expense
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
6
|
|
Litigation accruals and acquisition costs, net
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Total
|
|
$
|
26
|
|
|
$
|
27
|
|
|
$
|
55
|
|
|
$
|
54
|
|
Interest expense.
Interest expense increased due to the issuance of the Series G senior notes in the first quarter 2017. The following table details our interest expense for the quarter and year-to-date (in millions):
|
|
Quarter ended June 30,
|
|
|
Year-to-date ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cash interest expense
(1)
|
|
$
|
41
|
|
|
$
|
38
|
|
|
$
|
79
|
|
|
$
|
75
|
|
Non-cash interest expense
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Total interest expense
|
|
$
|
43
|
|
|
$
|
39
|
|
|
$
|
82
|
|
|
$
|
78
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Including the change in accrued interest, total cash interest paid was $72 million and $68 million for year-to-date 2017 and 2016, respectively.
|
Gain on sale of assets.
During the second quarter and year-to-date 2017, we recognized a gain on sale of assets of $29 million and $46 million, respectively, due primarily to the sale of one hotel in each of the second quarter and the first quarter. We recognized a gain on sale of assets of $172 million and $231 million, respectively, during the second quarter and year-to-date 2016, respectively, due to the sale of five hotels during the second quarter and three during the first quarter.
Equity in earnings of affiliates
. The year-to-date increase in equity in earnings of affiliates primarily reflects improved hotel operations at the Euro JV.
Provision for income taxes.
We lease substantially all of our properties to consolidated subsidiaries designated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes. The difference between hotel-level operating cash flow and the aggregate rent paid to Host L.P. by the TRS represents its taxable income or loss, on which we record an income tax provision or benefit. The
26
decrease in the income tax pr
ovision recorded in the second quarter and year-to-date 2017 compared to the same periods in 2016 primarily relates to an increase in domestic corporate income taxes on hotel operations in 2017 offset by a $9 million Chilean capital gain tax on the sale of
our two properties in Chile that was recorded in the second quarter of 2016.
Comparable Hotel RevPAR Overview
We discuss operating results for our hotels on a comparable basis. Comparable hotels are those properties that we have consolidated for the entirety of the reporting periods being compared. Comparable hotels do not include the results of hotels acquired or sold, that incurred significant property damage or business interruption, or have undergone large scale capital projects during these periods. As of June 30, 2017, 89 of our 96 owned hotels are classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels. We also discuss our comparable RevPAR results by geographic market and mix of business (i.e. transient, group, or contract).
Comparable Hotel RevPAR by Geographic Market
The following tables set forth performance information for our comparable hotels by geographic market as of June 30, 2017 and 2016, respectively:
Comparable Hotels by Market in Constant US$ (by RevPAR)
|
|
As of June 30, 2017
|
|
|
Quarter ended June 30, 2017
|
|
|
Quarter ended June 30, 2016
|
|
|
|
|
|
Market
|
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
Hawaii
|
|
|
3
|
|
|
|
1,682
|
|
|
$
|
328.85
|
|
|
|
89.9
|
%
|
|
$
|
295.61
|
|
|
$
|
306.58
|
|
|
|
91.3
|
%
|
|
$
|
279.80
|
|
|
|
5.7
|
%
|
New York
|
|
|
8
|
|
|
|
6,961
|
|
|
|
282.83
|
|
|
|
90.8
|
|
|
|
256.92
|
|
|
|
286.61
|
|
|
|
89.8
|
|
|
|
257.49
|
|
|
|
(0.2
|
)
|
Boston
|
|
|
4
|
|
|
|
3,185
|
|
|
|
267.82
|
|
|
|
89.9
|
|
|
|
240.86
|
|
|
|
257.23
|
|
|
|
86.7
|
|
|
|
223.10
|
|
|
|
8.0
|
|
Seattle
|
|
|
2
|
|
|
|
1,315
|
|
|
|
251.37
|
|
|
|
89.7
|
|
|
|
225.39
|
|
|
|
224.86
|
|
|
|
84.4
|
|
|
|
189.84
|
|
|
|
18.7
|
|
San Francisco
|
|
|
4
|
|
|
|
2,912
|
|
|
|
249.76
|
|
|
|
86.8
|
|
|
|
216.71
|
|
|
|
256.22
|
|
|
|
87.0
|
|
|
|
222.92
|
|
|
|
(2.8
|
)
|
Washington, D.C.
|
|
|
12
|
|
|
|
6,024
|
|
|
|
239.35
|
|
|
|
86.9
|
|
|
|
208.00
|
|
|
|
235.21
|
|
|
|
86.9
|
|
|
|
204.51
|
|
|
|
1.7
|
|
Chicago
|
|
|
6
|
|
|
|
2,392
|
|
|
|
224.95
|
|
|
|
86.6
|
|
|
|
194.82
|
|
|
|
224.61
|
|
|
|
84.8
|
|
|
|
190.52
|
|
|
|
2.3
|
|
San Diego
|
|
|
3
|
|
|
|
2,981
|
|
|
|
215.56
|
|
|
|
84.9
|
|
|
|
182.94
|
|
|
|
212.54
|
|
|
|
85.3
|
|
|
|
181.33
|
|
|
|
0.9
|
|
Florida
|
|
|
8
|
|
|
|
4,559
|
|
|
|
227.44
|
|
|
|
76.9
|
|
|
|
175.00
|
|
|
|
221.10
|
|
|
|
75.9
|
|
|
|
167.90
|
|
|
|
4.2
|
|
Los Angeles
|
|
|
7
|
|
|
|
2,843
|
|
|
|
203.41
|
|
|
|
85.1
|
|
|
|
173.20
|
|
|
|
199.62
|
|
|
|
84.2
|
|
|
|
168.10
|
|
|
|
3.0
|
|
Denver
|
|
|
2
|
|
|
|
735
|
|
|
|
184.50
|
|
|
|
85.8
|
|
|
|
158.28
|
|
|
|
185.98
|
|
|
|
78.2
|
|
|
|
145.42
|
|
|
|
8.8
|
|
Atlanta
|
|
|
5
|
|
|
|
1,939
|
|
|
|
189.62
|
|
|
|
79.7
|
|
|
|
151.06
|
|
|
|
191.43
|
|
|
|
81.4
|
|
|
|
155.73
|
|
|
|
(3.0
|
)
|
Phoenix
|
|
|
4
|
|
|
|
1,518
|
|
|
|
199.70
|
|
|
|
75.6
|
|
|
|
150.89
|
|
|
|
195.68
|
|
|
|
69.0
|
|
|
|
135.00
|
|
|
|
11.8
|
|
Houston
|
|
|
4
|
|
|
|
1,716
|
|
|
|
175.95
|
|
|
|
71.1
|
|
|
|
125.16
|
|
|
|
190.41
|
|
|
|
75.3
|
|
|
|
143.44
|
|
|
|
(12.7
|
)
|
Other
|
|
|
10
|
|
|
|
6,179
|
|
|
|
182.60
|
|
|
|
76.1
|
|
|
|
138.89
|
|
|
|
186.67
|
|
|
|
76.0
|
|
|
|
141.95
|
|
|
|
(2.2
|
)
|
Domestic
|
|
|
82
|
|
|
|
46,941
|
|
|
|
234.59
|
|
|
|
84.0
|
|
|
|
196.97
|
|
|
|
232.54
|
|
|
|
83.2
|
|
|
|
193.46
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific
|
|
|
1
|
|
|
|
384
|
|
|
$
|
186.41
|
|
|
|
89.5
|
%
|
|
$
|
166.81
|
|
|
$
|
192.00
|
|
|
|
89.0
|
%
|
|
$
|
170.88
|
|
|
|
(2.4
|
)%
|
Canada
|
|
|
2
|
|
|
|
849
|
|
|
|
179.52
|
|
|
|
65.6
|
|
|
|
117.75
|
|
|
|
164.78
|
|
|
|
64.1
|
|
|
|
105.63
|
|
|
|
11.5
|
|
Latin America
|
|
|
4
|
|
|
|
963
|
|
|
|
175.49
|
|
|
|
60.3
|
|
|
|
105.74
|
|
|
|
191.36
|
|
|
|
64.7
|
|
|
|
123.79
|
|
|
|
(14.6
|
)
|
International
|
|
|
7
|
|
|
|
2,196
|
|
|
|
179.59
|
|
|
|
67.5
|
|
|
|
121.31
|
|
|
|
181.99
|
|
|
|
68.8
|
|
|
|
125.25
|
|
|
|
(3.1
|
)
|
All Markets -
Constant US$
|
|
|
89
|
|
|
|
49,137
|
|
|
|
232.59
|
|
|
|
83.2
|
|
|
|
193.57
|
|
|
|
230.64
|
|
|
|
82.5
|
|
|
|
190.39
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Hotels in Nominal US$
|
|
|
|
As of June 30, 2017
|
|
|
Quarter ended June 30, 2017
|
|
|
Quarter ended June 30, 2016
|
|
|
|
|
|
|
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
Asia-Pacific
|
|
|
1
|
|
|
|
384
|
|
|
$
|
186.41
|
|
|
|
89.5
|
%
|
|
$
|
166.81
|
|
|
$
|
190.69
|
|
|
|
89.0
|
%
|
|
$
|
169.72
|
|
|
|
(1.7
|
)%
|
Canada
|
|
|
2
|
|
|
|
849
|
|
|
|
179.52
|
|
|
|
65.6
|
|
|
|
117.75
|
|
|
|
171.79
|
|
|
|
64.1
|
|
|
|
110.12
|
|
|
|
6.9
|
|
Latin America
|
|
|
4
|
|
|
|
963
|
|
|
|
175.49
|
|
|
|
60.3
|
|
|
|
105.74
|
|
|
|
185.97
|
|
|
|
64.7
|
|
|
|
120.30
|
|
|
|
(12.1
|
)
|
International
|
|
|
7
|
|
|
|
2,196
|
|
|
|
179.59
|
|
|
|
67.5
|
|
|
|
121.31
|
|
|
|
181.99
|
|
|
|
68.8
|
|
|
|
125.25
|
|
|
|
(3.1
|
)
|
Domestic
|
|
|
82
|
|
|
|
46,941
|
|
|
|
234.59
|
|
|
|
84.0
|
|
|
|
196.97
|
|
|
|
232.54
|
|
|
|
83.2
|
|
|
|
193.46
|
|
|
|
1.8
|
|
All Markets
|
|
|
89
|
|
|
|
49,137
|
|
|
|
232.59
|
|
|
|
83.2
|
|
|
|
193.57
|
|
|
|
230.64
|
|
|
|
82.5
|
|
|
|
190.39
|
|
|
|
1.7
|
|
27
Comparable Hotels by Market in Constant US$ (by RevPAR)
|
|
As of June 30, 2017
|
|
|
Year-to-date ended June 30, 2017
|
|
|
Year-to-date ended June 30, 2016
|
|
|
|
|
|
Market
|
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
Hawaii
|
|
|
3
|
|
|
|
1,682
|
|
|
$
|
347.37
|
|
|
|
90.1
|
%
|
|
$
|
312.88
|
|
|
$
|
331.22
|
|
|
|
90.9
|
%
|
|
$
|
301.22
|
|
|
|
3.9
|
%
|
New York
|
|
|
8
|
|
|
|
6,961
|
|
|
|
258.82
|
|
|
|
84.4
|
|
|
|
218.46
|
|
|
|
262.20
|
|
|
|
84.7
|
|
|
|
222.17
|
|
|
|
(1.7
|
)
|
San Francisco
|
|
|
4
|
|
|
|
2,912
|
|
|
|
262.86
|
|
|
|
82.2
|
|
|
|
215.99
|
|
|
|
270.86
|
|
|
|
83.6
|
|
|
|
226.32
|
|
|
|
(4.6
|
)
|
Florida
|
|
|
8
|
|
|
|
4,559
|
|
|
|
257.48
|
|
|
|
78.8
|
|
|
|
202.88
|
|
|
|
251.99
|
|
|
|
79.3
|
|
|
|
199.95
|
|
|
|
1.5
|
|
Washington, D.C.
|
|
|
12
|
|
|
|
6,024
|
|
|
|
239.79
|
|
|
|
79.9
|
|
|
|
191.67
|
|
|
|
222.39
|
|
|
|
78.8
|
|
|
|
175.16
|
|
|
|
9.4
|
|
Seattle
|
|
|
2
|
|
|
|
1,315
|
|
|
|
227.60
|
|
|
|
83.3
|
|
|
|
189.65
|
|
|
|
207.14
|
|
|
|
77.3
|
|
|
|
160.04
|
|
|
|
18.5
|
|
Phoenix
|
|
|
4
|
|
|
|
1,518
|
|
|
|
236.06
|
|
|
|
78.4
|
|
|
|
184.97
|
|
|
|
239.66
|
|
|
|
73.7
|
|
|
|
176.61
|
|
|
|
4.7
|
|
Boston
|
|
|
4
|
|
|
|
3,185
|
|
|
|
232.73
|
|
|
|
79.4
|
|
|
|
184.80
|
|
|
|
225.61
|
|
|
|
77.9
|
|
|
|
175.80
|
|
|
|
5.1
|
|
San Diego
|
|
|
3
|
|
|
|
2,981
|
|
|
|
221.74
|
|
|
|
83.1
|
|
|
|
184.32
|
|
|
|
208.91
|
|
|
|
83.3
|
|
|
|
174.11
|
|
|
|
5.9
|
|
Los Angeles
|
|
|
7
|
|
|
|
2,843
|
|
|
|
204.59
|
|
|
|
83.7
|
|
|
|
171.29
|
|
|
|
201.18
|
|
|
|
83.3
|
|
|
|
167.69
|
|
|
|
2.1
|
|
Atlanta
|
|
|
5
|
|
|
|
1,939
|
|
|
|
194.27
|
|
|
|
79.2
|
|
|
|
153.89
|
|
|
|
193.70
|
|
|
|
78.9
|
|
|
|
152.83
|
|
|
|
0.7
|
|
Chicago
|
|
|
6
|
|
|
|
2,392
|
|
|
|
192.54
|
|
|
|
75.1
|
|
|
|
144.56
|
|
|
|
192.82
|
|
|
|
72.8
|
|
|
|
140.32
|
|
|
|
3.0
|
|
Denver
|
|
|
2
|
|
|
|
735
|
|
|
|
176.39
|
|
|
|
78.9
|
|
|
|
139.13
|
|
|
|
176.50
|
|
|
|
71.2
|
|
|
|
125.69
|
|
|
|
10.7
|
|
Houston
|
|
|
4
|
|
|
|
1,716
|
|
|
|
184.50
|
|
|
|
74.6
|
|
|
|
137.70
|
|
|
|
189.23
|
|
|
|
76.6
|
|
|
|
144.99
|
|
|
|
(5.0
|
)
|
Other
|
|
|
10
|
|
|
|
6,179
|
|
|
|
183.95
|
|
|
|
74.9
|
|
|
|
137.78
|
|
|
|
183.76
|
|
|
|
72.6
|
|
|
|
133.48
|
|
|
|
3.2
|
|
Domestic
|
|
|
82
|
|
|
|
46,941
|
|
|
|
232.06
|
|
|
|
80.3
|
|
|
|
186.29
|
|
|
|
228.24
|
|
|
|
79.4
|
|
|
|
181.32
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific
|
|
|
1
|
|
|
|
384
|
|
|
$
|
205.69
|
|
|
|
90.2
|
%
|
|
$
|
185.43
|
|
|
$
|
209.82
|
|
|
|
89.0
|
%
|
|
$
|
186.84
|
|
|
|
(0.8
|
)%
|
Latin America
|
|
|
4
|
|
|
|
963
|
|
|
|
183.43
|
|
|
|
59.5
|
|
|
|
109.18
|
|
|
|
198.04
|
|
|
|
65.7
|
|
|
|
130.17
|
|
|
|
(16.1
|
)
|
Canada
|
|
|
2
|
|
|
|
849
|
|
|
|
170.08
|
|
|
|
59.1
|
|
|
|
100.43
|
|
|
|
161.53
|
|
|
|
57.4
|
|
|
|
92.74
|
|
|
|
8.3
|
|
International
|
|
|
7
|
|
|
|
2,196
|
|
|
|
184.30
|
|
|
|
64.8
|
|
|
|
119.49
|
|
|
|
188.78
|
|
|
|
66.7
|
|
|
|
125.94
|
|
|
|
(5.1
|
)
|
All Markets -
Constant US$
|
|
|
89
|
|
|
|
49,137
|
|
|
|
230.31
|
|
|
|
79.6
|
|
|
|
183.29
|
|
|
|
226.74
|
|
|
|
78.9
|
|
|
|
178.83
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Hotels in Nominal US$
|
|
|
|
As of June 30, 2017
|
|
|
Year-to-date ended June 30, 2017
|
|
|
Year-to-date ended June 30, 2016
|
|
|
|
|
|
|
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
Asia-Pacific
|
|
|
1
|
|
|
|
384
|
|
|
$
|
205.69
|
|
|
|
90.2
|
%
|
|
$
|
185.43
|
|
|
$
|
203.72
|
|
|
|
89.0
|
%
|
|
$
|
181.41
|
|
|
|
2.2
|
%
|
Latin America
|
|
|
4
|
|
|
|
963
|
|
|
|
183.43
|
|
|
|
59.5
|
|
|
|
109.18
|
|
|
|
188.38
|
|
|
|
65.7
|
|
|
|
123.82
|
|
|
|
(11.8
|
)
|
Canada
|
|
|
2
|
|
|
|
849
|
|
|
|
170.08
|
|
|
|
59.1
|
|
|
|
100.43
|
|
|
|
163.04
|
|
|
|
57.4
|
|
|
|
93.60
|
|
|
|
7.3
|
|
International
|
|
|
7
|
|
|
|
2,196
|
|
|
|
184.30
|
|
|
|
64.8
|
|
|
|
119.49
|
|
|
|
183.67
|
|
|
|
66.7
|
|
|
|
122.53
|
|
|
|
(2.5
|
)
|
Domestic
|
|
|
82
|
|
|
|
46,941
|
|
|
|
232.06
|
|
|
|
80.3
|
|
|
|
186.29
|
|
|
|
228.24
|
|
|
|
79.4
|
|
|
|
181.32
|
|
|
|
2.7
|
|
All Markets
|
|
|
89
|
|
|
|
49,137
|
|
|
|
230.31
|
|
|
|
79.6
|
|
|
|
183.29
|
|
|
|
226.54
|
|
|
|
78.9
|
|
|
|
178.67
|
|
|
|
2.6
|
|
Our top performing domestic markets for the quarter were Seattle and Phoenix, with RevPAR growth of 18.7% and 11.8%, respectively. In Seattle, RevPAR was positively affected by the completed rooms renovation and lack of business disruption at the W Seattle, while our Phoenix market benefited from operations improvements following the rebranding and renovation work at The Camby Hotel.
In addition, our Boston and Denver markets outperformed the portfolio. Our Denver hotels benefited from strong transient volume, which led to an increase in occupancy of 760 basis points. The RevPAR improvement at our Boston properties was due to two additional city-wide groups.
In the southern and central U.S., our Florida properties outperformed the portfolio with a RevPAR increase of 4.2%, while our Houston properties underperformed the portfolio. The improvement in Florida was due to a double digit increase in RevPAR at The Ritz-Carlton, Naples, while Houston experienced a decrease in city-wide events. Atlanta underperformed the market due to an occupancy decline of 170 basis points, largely due to the Easter holiday shift, and renovations at the Ritz-Carlton, Buckhead.
On the west coast, our Los Angeles and Hawaii markets outperformed the portfolio. Our Los Angeles market benefited from a 19% increase in RevPAR at The Ritz-Carlton, Marina del Rey due to an increase in occupancy of 12.2 percentage points. In Hawaii, strong leisure travel resulted in rate growth of 7.3%, which led to an increase in RevPAR of 5.7%. The RevPAR decline at our San Francisco hotels was due to the ongoing construction at the Moscone Convention Center, while our San Diego market underperformed due to soft group bookings from weak city wide groups.
28
On the east coast, our New York properties underperformed while our Washington, D.C. properties were in-line with the portfolio. In New York, RevPAR declined due to a decrease in transient volume of
4.8%. In Washington, D.C., RevPAR growth was due to strong city wide events, which led to a rate increase of 1.8%.
On a constant dollar basis, our international markets experienced a decline in RevPAR of 3.1% for the quarter, primarily due to declines in both rate and occupancy at our properties in Rio de Janeiro. This decline was due to increases in supply, coupled with the weakened Brazilian economy and difficult comparisons to the prior year pre-Olympics activity.
Hotels Sales by Business Mix
The majority of our customers fall into three broad categories: transient, group, and contract business. The information below is derived from business mix data for 89 of our hotels for which business mix data is available from our managers. For further detail on our business mix, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10‑K.
For the second quarter, our revenue growth was driven by an improvement in transient revenue of 3.1%, with an increase in room nights sold of 2.0% and average rate of 1.0%. The shift in the Easter holiday resulted in a boost in spring break leisure travel, leading to strong transient volume during the quarter. Conversely, group revenues declined by 2.7% due to the Easter holiday shift and softer attendance at citywide conventions. Overall, contract business, which represents approximately 6% of our revenues, was the strongest performing, with a 19.5% increase in revenue due to a 19.4% increase in room nights, driven by additional airline crews at hotels in markets where new supply or demand concerns warranted negotiating multi-year contracts at favorable rates.
Year-to-date, which is not impacted by the shift in the Easter holiday, our revenue growth was driven by a group revenue increase of 2.3%, while transient revenue grew by just 0.3%. The group revenue increase was driven by a 7.1% increase in other group, which includes social, military, education, religious, fraternal and youth and amateur sports teams, as well as a 3.5% revenue increase in association group.
Liquidity and Capital Resources
Liquidity and Capital Resources of Host Inc. and Host L.P.
The liquidity and capital resources of Host Inc. and Host L.P. are derived primarily from the activities of Host L.P., which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of properties. Host Inc. is a REIT and its only significant asset is the ownership of partnership interests of Host L.P.; therefore, its financing and investing activities are conducted through Host L.P., except for the issuance of its common and preferred stock. Proceeds from stock issuances by Host Inc. are contributed to Host L.P. in exchange for OP units. Additionally, funds used by Host Inc. to pay dividends or to repurchase its stock are provided by Host L.P. Therefore, while we have noted those areas in which it is important to distinguish between Host Inc. and Host L.P., we have not included a separate discussion of liquidity and capital resources as the discussion below applies to both Host Inc. and Host L.P.
Overview.
We look to maintain a capital structure and liquidity profile with an appropriate balance of cash, debt, and equity in order to provide financial flexibility given the inherent volatility of the lodging industry.
We believe this strategy will result in a lower overall cost of capital, allow us to complete opportunistic investments and acquisitions and will position us to manage potential declines in operations throughout the lodging cycle. Over the past several years, we have decreased our leverage as measured by our net debt-to-EBITDA ratio and reduced our debt service obligations, leading to an increase in our fixed charge coverage ratio.
We intend to use available cash predominantly for acquisitions or other investments in our portfolio. If we are unable to find appropriate investment opportunities, we will consider other uses, such as a return of capital through dividends or common stock repurchases, the amounts of which will be determined by our operations and other market factors. Significant factors we review to determine the amount and timing of common stock repurchases include our current stock price compared to our determination of the underlying value of our assets, current and forecast operating results and the completion of hotel sales.
We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of assets that are encumbered by mortgage debt. Currently, only one of our consolidated hotels is encumbered by mortgage debt. We have access to multiple types of financing, as approximately 98% of our debt consists of senior notes and borrowings under our credit facility, none of which are collateralized by specific hotels. We believe that we have sufficient liquidity and access to the capital markets in order to take advantage of opportunities to enhance our portfolio, withstand declines in operating cash flow, pay near-term debt maturities, and fund our capital expenditures programs. We may continue to access the capital markets if favorable conditions exist in order to further enhance our liquidity and to fund cash needs.
29
Cash Requirements.
We use cash for acquisitions, capital expendit
ures, debt payments, operating costs, and corporate and other expenses, as well as for dividends and distributions to stockholders and OP unitholders and stock and OP unit repurchases. As a REIT, Host Inc. is required to distribute to its stockholders at l
east 90% of its taxable income, excluding net capital gain, on an annual basis. On July 17, 2017, we paid a dividend of $0.20 per share on Host Inc.’s common stock, which totaled approximately $148 million.
Capital Resources.
As of June 30, 2017, we had $644 million of cash and cash equivalents. We depend primarily on external sources of capital to finance growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility (including our ability to incur debt, make distributions and make investments) is contingent on our ability to maintain compliance with the financial covenants of such indebtedness, which include, among other things, the allowable amounts of leverage, interest coverage and fixed charges.
If, at any time, we determine that market conditions are favorable, after taking into account our liquidity requirements, we may cause Host L.P. to issue senior notes or debentures exchangeable for shares of Host Inc. common stock. Given the total amount of our debt and our maturity schedule, we will continue to redeem or refinance senior notes and mortgage debt from time to time, taking advantage of favorable market conditions. In February 2017, Host Inc.’s Board of Directors authorized repurchases of up to $250 million of senior notes and mortgage debt other than in accordance with its terms, of which the entire amount remains available under this authority. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any refinancing or retirement before the maturity date will affect earnings and NAREIT FFO per diluted share as a result of the payment of any applicable call premiums and the acceleration of previously deferred financing costs. In addition, while we intend to use any available cash predominantly for acquisitions or other investments in our hotel portfolio, to the extent we do not identify appropriate investments, we may elect in the future to use available cash for other purposes, including share repurchases, subject to market conditions. Accordingly, in light of our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws, be considering, or be in discussions with respect to the repurchase or issuance of exchangeable debentures and/or senior notes or the repurchase or sale of common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously.
Additionally, in February 2017, Host Inc.’s Board of Directors authorized a new program to repurchase up to $500 million of Host Inc. common stock. The common stock may be purchased from time to time depending upon market conditions, and may be purchased in the open market or through private transactions or by other means, including principal transactions with various financial institutions, like accelerated share repurchases, forwards, options and similar transactions and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. We have not repurchased any shares under this program.
Sources and Uses of Cash.
Our sources of cash include cash from operations, proceeds from debt and equity issuances, and proceeds from asset sales. Uses of cash include acquisitions, investments in our joint ventures, capital expenditures, operating costs, debt repayments, and repurchases and distributions to equity holders.
Cash Provided by Operations.
Our cash provided by operations increased $1 million to $612 million for the year-to-date ended June 30, 2017 compared to the same period of 2016, as the improvement in operations was partially offset by an increase in interest expense and a decrease in distributions from investments in affiliates.
Cash Used in Investing Activities.
Net cash used in investing activities was $380 million during the first half of 2017 compared to net cash provided by investing activities of $90 million for the first half of 2016. Cash used in investing activities primarily consisted of capital expenditures on our existing portfolio and the acquisition of The Don CeSar, W Hollywood and the
Miami Marriott Biscayne Bay ground lease
in 2017. Cash used for renewal and replacement capital expenditures for the first half of 2017 and 2016 was $111 million and $162 million, respectively, while cash used for capital expenditures invested in ROI/redevelopment projects and acquisition capital expenditures during the same period was $32 million and $146 million, respectively. This use of cash was partially offset by cash provided by investing activities, primarily consisting of proceeds from the sale of two hotels in 2017 and eight hotels in 2016.
30
The following tables summarize signifi
cant acquisitions and dispositions that have been completed as of July 28, 2017 (in millions):
Transaction Date
|
|
Description of Transaction
|
|
|
|
|
Investment
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
March
|
2017
|
|
Acquisition of the Miami Marriott Biscayne Bay ground lease
|
|
|
|
|
$
|
(38
|
)
|
March
|
2017
|
|
Acquisition of the W Hollywood
|
|
|
|
|
|
(219
|
)
|
February
|
2017
|
|
Acquisition of The Don CeSar and Beach House Suites complex
|
|
|
|
|
|
(214
|
)
|
|
|
|
Total acquisitions
|
|
|
|
|
$
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
Transaction Date
|
|
Description of Transaction
|
|
Net Proceeds
(1)
|
|
Sales Price
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
|
July
|
2017
|
|
Disposition of the Hilton Melbourne South Wharf
(2)
|
|
$
|
181
|
|
$
|
182
|
|
April
|
2017
|
|
Disposition of Sheraton Memphis Downtown
|
|
|
66
|
|
|
67
|
|
January
|
2017
|
|
Disposition of JW Marriott Desert Springs Resort & Spa
|
|
|
160
|
|
|
172
|
|
|
|
|
Total dispositions
|
|
$
|
407
|
|
|
|
|
___________
|
|
|
|
|
|
|
|
|
|
(1)
|
Proceeds are net of transfer taxes, other sales costs and FF&E replacement funds deposited directly to the property or hotel manager by the purchaser.
|
(2)
|
Amount represents the full sales price including portion attributable to the 25% non-controlling partner.
|
Cash Provided by (Used in) Financing Activities.
In the first half of 2017, net cash provided by financing activities was $55 million compared to net cash used of $627 million for the first half of 2016. Cash used in financing activities in 2017 primarily consisted of dividend payments, while 2016 also included the repayment of mortgage debt and the repurchase of Host Inc. common stock. Cash provided by financing activities in 2017 included the issuance of the Series G senior notes.
The following tables summarize significant issuances, net of deferred financing costs and issuance
discounts, or repayments of debt, including premiums, that have
been completed
through
July 28, 2017
(in millions
):
Transaction Date
|
|
|
Description of Transaction
|
|
Net Proceeds
|
|
Debt Issuances
|
|
|
|
|
|
|
|
March
|
2017
|
|
Proceeds from the issuance of $400 million 3.875% Series G senior notes
|
|
$
|
395
|
|
|
|
|
Total issuances
|
|
$
|
395
|
|
|
|
|
|
|
Transaction
|
|
Transaction Date
|
|
|
Description of Transaction
|
|
Amount
|
|
Debt Repayments
|
|
|
|
|
|
|
|
July
|
2017
|
|
Repayment of A$86 mortgage loan on the Hilton Melbourne South Wharf
(1)
|
|
$
|
(69
|
)
|
|
|
|
Total cash repayments
|
|
$
|
(69
|
)
|
___________
|
|
|
|
|
|
|
|
(1)
|
Amount represents the full repayment, including portion attributable to the 25% non-controlling partner.
|
The following table summarizes significant equity transactions that have been completed through July 28, 2017 (in millions):
|
|
|
|
|
Transaction
|
|
Transaction Date
|
|
|
Description of Transaction
|
|
Amount
|
|
Equity of Host Inc.
|
|
|
|
|
|
|
|
January - July
|
2017
|
|
Dividend payments
(1)(2)
|
|
$
|
(480
|
)
|
|
|
|
Cash payments on equity transactions
|
|
$
|
(480
|
)
|
___________
|
|
|
|
|
|
|
|
(1)
|
In connection with the dividends, Host L.P. made distributions of $486 million to its common OP unit holders.
|
(2)
|
Includes the cash payment for the fourth quarter 2016 dividend that was paid in January 2017.
|
31
Debt
As of June 30, 2017, our total debt was $4.0 billion, with an average interest rate of 3.9% and an average maturity of 5.5 years. Additionally, 68% of our debt has a fixed rate of interest and 95 of our hotels, representing 99% of our revenues, are unencumbered by mortgage debt.
On May 31, 2017, Host L.P. entered into an amendment and restatement (the “Restatement”) of its existing senior unsecured bank credit facility dated as of September 10, 2015 with Bank of America, N.A., as administrative agent and certain other agents and lenders (the “Existing Credit Agreement”), for the purpose of replacing and refinancing (1) its existing $1 billion revolving credit facility tranche that was scheduled to mature in June 2018 (excluding any available extension option) with a new revolving credit facility tranche in the same committed amount (the “Revolver”) and (2) its existing $500 million term loan facility tranche that would have matured in June 2017 (excluding any available extension option) with a new term loan facility tranche in the same principal amount (the “New Term Facility”). The Restatement does not refinance the existing separate $500 million term loan facility tranche scheduled to mature in September 2020 (the “2020 Term Facility”), which remains outstanding. The Restatement provides, among other things, for:
|
•
|
an interest rate on all borrowings based on LIBOR or a base rate plus a margin that varies according to Host L.P.’s unsecured long-term debt rating, with such rate being (1) in the case of Revolver borrowings, either LIBOR plus a margin ranging from 82.5 to 155 basis points or a base rate plus a margin ranging from zero to 55 basis points and (2) in the case of the New Term Facility borrowings and 2020 Term Facility borrowings (which remains unchanged from the Existing Credit Agreement), either LIBOR plus a margin ranging from 90 to 175 basis points or a base rate plus a margin ranging from zero to 75 basis points;
|
|
•
|
in the case of the Revolver, a facility fee payable on the total amount of the Revolver commitment at a rate ranging from 12.5 to 30 basis points, with the actual rate determined according to Host L.P.’s unsecured long-term debt rating;
|
|
•
|
a maturity date of (1) in the case of the Revolver, May 31, 2021, which date may be extended by up to a year by the exercise of up to two 6-month extension options, each of which is subject to certain conditions, including the payment of an extension fee and (2) in the case of the New Term Facility, May 31, 2021, which date may be extended up to a year by the exercise of one 1-year extension option, which is subject to certain conditions, including the payment of an extension fee. The maturity date of the 2020 Term Facility under the Existing Credit Agreement remains unchanged, with a scheduled maturity date in September 2020;
|
|
•
|
a foreign currency subfacility for Canadian dollars, Australian dollars, Euros, British pounds sterling and, if available to the lenders, Mexican pesos of up to the foreign currency equivalent of $500 million, subject to a lower amount in the case of Mexican pesos borrowings;
|
|
•
|
an option for Host L.P. to add in the future $500 million of commitments which may be used for additional revolving credit facility borrowings and/or term loans, subject to obtaining additional loan commitments and the satisfaction of certain conditions specified in the Restatement;
|
|
•
|
a subfacility of up to $100 million for swingline borrowings and a subfacility of up to $100 million for issuances of letters of credit;
|
|
•
|
no required scheduled amortization payments prior to the maturity date of the Revolver, the New Term Facility or the 2020 Term Facility, as applicable; and
|
|
•
|
financial covenants that are the same as under the Existing Credit Agreement.
|
Borrowings under the Restatement may be used for working capital and other general corporate purposes, including for the consummation of acquisitions. As of June 30, 2017, Host L.P. had approximately CAD 106.9 million, EUR 77.2 million, GBP 11.7 million and AUD 50 million (for a total of approximately $224 million) outstanding under the Revolver, $500 million outstanding under the New Term Facility and $500 million outstanding under the 2020 Term Facility.
In addition, the Restatement removed the requirement for Host L.P., under certain circumstances as provided in the Existing Credit Agreement, to provide subsidiary guarantees and pledges of equity interests if its leverage ratio were to exceed 6:1. The Restatement imposes restrictions on customary matters that also were restricted in the Existing Credit Agreement. As with the Existing Credit Agreement, certain covenants are less restrictive at any time that our leverage ratio is below 6:1. In particular, at any time that our leverage ratio is below 6:1, the covenants in respect of dividends and other restricted payments are not applicable, and acquisition and investment transactions generally are permitted without limitation so long as, after giving effect to any such transaction, we are in compliance with the financial covenants under the Restatement. The Restatement also includes financial covenant tests applicable to the incurrence of debt that generally are consistent with the limitations applicable under the senior notes indentures for our investment grade senior notes. The Restatement also includes usual and customary events of default for facilities of
32
this nature, and provides that, upon occurrence and continuation of an event of default, payment of all amou
nts payable under the credit facilities may be accelerated, and the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the credit facilities auto
matically will become due and payable and the lenders’ commitments automatically will terminate.
Financial Covenants
Credit Facility Covenants.
Our credit facility contains certain important financial covenants concerning allowable leverage, unsecured interest coverage, and required fixed charge coverage. There were no changes to these financial covenants in connection with the amendment and restatement of the credit facility. Total debt used in the calculation of our leverage ratio is based on a “net debt” concept, under which cash and cash equivalents in excess of $100 million are deducted from our total debt balance for purposes of measuring compliance. To the extent that no amounts are outstanding under the credit facility, breaching these covenants is not an event of default thereunder.
We are in compliance with all of our financial covenants under the credit facility. The following table summarizes the results of the financial tests required by the credit facility as of June 30, 2017:
|
|
Actual Ratio
|
|
|
Covenant Requirement
for all years
|
Leverage ratio
|
|
|
2.4
|
x
|
|
Maximum ratio of 7.25x
|
Fixed charge coverage ratio
|
|
|
7.1
|
x
|
|
Minimum ratio of 1.25x
|
Unsecured interest coverage ratio
(1)
|
|
|
9.9
|
x
|
|
Minimum ratio of 1.75x
|
___________
|
|
|
|
|
|
|
(1)
|
If, at any time, our leverage ratio exceeds 7.0x, our minimum unsecured interest coverage ratio will be reduced to 1.5x.
|
Senior Notes Indenture Covenants
Covenants for Senior Notes Issued After We Attained an Investment Grade Rating
We are in compliance with all of the financial covenants applicable to our Series D, Series E, Series F and Series G senior notes. The following table summarizes the results of the financial tests required by the senior notes indentures for our Series D, Series E, Series F and Series G senior notes and our actual credit ratios as of June 30, 2017:
|
|
Actual Ratio
|
|
|
Covenant Requirement
|
Unencumbered assets tests
|
|
|
486
|
%
|
|
Minimum ratio of 150%
|
Total indebtedness to total assets
|
|
|
20
|
%
|
|
Maximum ratio of 65%
|
Secured indebtedness to total assets
|
|
<1
|
%
|
|
Maximum ratio of 40%
|
EBITDA-to-interest coverage ratio
|
|
|
9.3
|
x
|
|
Minimum ratio of 1.5x
|
Covenants for Senior Notes Issued Before We Attained an Investment Grade Rating
The terms of our senior notes that were issued before we attained an investment grade rating contained provisions providing that many of the restrictive covenants in the senior notes indenture would not apply should Host L.P. attain an investment grade rating. Accordingly, because our senior notes currently are rated investment grade by both Moody’s and Standard & Poor’s, the covenants in our senior notes indenture (for all series prior to the Series D senior notes) that previously limited our ability to incur indebtedness or pay dividends no longer are applicable. Even if we were to lose the investment grade rating, however, we would be in compliance with all of our financial covenants under the senior notes indenture. The following table summarizes the actual credit ratios for our existing senior notes (other than the Series D, Series E, Series F and Series G senior notes) as of June 30, 2017 and the covenant requirements contained in the senior notes indenture that would be applicable at such times as our existing senior notes no longer are rated investment grade by either Moody’s or Standard & Poor’s:
|
|
Actual Ratio*
|
|
|
Covenant Requirement
|
Unencumbered assets tests
|
|
|
492
|
%
|
|
Minimum ratio of 125%
|
Total indebtedness to total assets
|
|
|
21
|
%
|
|
Maximum ratio of 65%
|
Secured indebtedness to total assets
|
|
<1
|
%
|
|
Maximum ratio of 45%
|
EBITDA-to-interest coverage ratio
|
|
|
9.3
|
x
|
|
Minimum ratio of 2.0x
|
___________
|
|
|
|
|
|
|
33
*
|
Because of differences in the calculation methodology between our Series D, Series E, Series F and Series G senior notes and our other senior notes with respect to covenant ratios, our actual ratios for the two sets of senior notes are slightly different.
|
For further detail on our credit facility and senior notes, see our Annual Report on Form 10-K for the year ended December 31, 2016.
Dividend Policy
Host Inc. is required to distribute at least 90% of its annual taxable income, excluding net capital gain, to its stockholders in order to maintain its qualification as a REIT, including taxable income recognized for federal income tax purposes but with regard to which we do not receive cash. Funds used by Host Inc. to pay dividends on its common stock are provided through distributions from Host L.P. As of June 30, 2017, Host Inc. is the owner of approximately 99% of the Host L.P. common OP units. The remaining common OP units are held by third party limited partners. Each Host L.P. OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock based on the conversion ratio. The conversion ratio is 1.021494 shares of Host Inc. common stock for each Host L.P. OP unit.
Investors should take into account the non-controlling interest in the Host L.P. common OP units when analyzing common dividend payments by Host Inc. to its stockholders, as these common OP unitholders share, on a pro rata basis, in cash distributed by Host L.P. to all of its common OP unitholders. For example, if Host Inc. paid a $1 per share dividend on its common stock, it would be based on the payment of a $1.021494 per common OP unit distribution by Host L.P. to Host Inc., as well as to the other Host L.P. common OP unitholders.
Host Inc.’s policy on common dividends generally is to distribute, over time, 100% of its taxable income, which is dependent primarily on Host Inc.’s results of operations, as well as gains and losses on property sales. Host Inc. paid a regular quarterly cash dividend of $0.20 per share on its common stock on July 17, 2017 to stockholders of record on June 30, 2017. All future dividends are subject to approval by Host Inc.’s Board of Directors. While Host Inc. intends to use available cash predominantly for acquisitions or other investments in its portfolio, to the extent that we do not identify appropriate investments, we may decide in the future to use available cash for other items, such as common stock repurchases or increased dividends, the amount of which dividends could be in excess of taxable income.
European Joint Venture
At June 30, 2017, hotel investments by the Euro JV total approximately €1.5 billion, with €0.7 billion of mortgage debt. All of the mortgage debt of the Euro JV is non-recourse to us and our partners and a default thereunder does not trigger a default under any of our debt. Our investment, total partners’ funding, and debt outstanding as of June 30, 2017 are as follows:
|
|
Host's Net Investment
|
|
|
Total Partner Funding
|
|
|
% of Total Commitment
|
|
|
Debt balance
|
|
|
Host's Portion of Non-Recourse Debt
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
|
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Euro JV Fund I
|
|
€
|
122
|
|
|
€
|
463
|
|
|
|
67
|
%
|
(1)
|
€
|
305
|
|
|
€
|
98
|
|
Euro JV Fund II
|
|
|
91
|
|
|
|
301
|
|
|
|
67
|
%
|
|
|
394
|
|
|
|
132
|
|
|
|
€
|
213
|
|
|
€
|
764
|
|
|
|
|
|
|
€
|
699
|
|
|
€
|
230
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The remaining commitment for Fund I is limited to investments in the current portfolio of hotels, including capital expenditures and debt repayments.
|
The following table sets forth operating statistics for the 10 Euro JV hotels as of June 30, 2017 and 2016, all of which are comparable:
|
|
Comparable Euro JV Hotels in Constant Euros
(1)
|
|
|
|
Quarter ended June 30,
|
|
|
|
|
|
|
Year-to-date ended June 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Average room rate
|
|
€
|
234.49
|
|
|
€
|
228.36
|
|
|
|
2.7
|
%
|
|
€
|
215.26
|
|
|
€
|
211.32
|
|
|
|
1.9
|
%
|
Average occupancy
|
|
|
84.6
|
%
|
|
|
80.3
|
%
|
|
|
430
|
bps
|
|
|
76.5
|
%
|
|
|
72.0
|
%
|
|
|
450
|
bps
|
RevPAR
|
|
€
|
198.43
|
|
|
€
|
183.47
|
|
|
|
8.2
|
%
|
|
€
|
164.65
|
|
|
€
|
152.05
|
|
|
|
8.3
|
%
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The presentation above includes the operating performance for 10 hotels consisting of 3,902 rooms. See “-Comparable Hotel Operating Statistics.”
|
34
The Euro JV’s comparable hotel RevPAR increased approximately 8.2% and 8.3% on a constant euro basis for the second quarter and year-to-date, respectively. The improvement was the result of
a substantial increase in
occupancy, coupled with improvement in room rate.
On May 12, 2017, the Euro JV distributed €18 million to its partners, of which we received approximately €6 million ($6 million). In the first half of 2016, the Euro JV had distributed €33 million to its partners of which we received approximately €11 million ($12 million).
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. For a detailed discussion of the new accounting standards, see “Note 2. Summary of Significant Accounting Policies” in this quarterly report.
Comparable Hotel Operating Statistics
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 in order to enable our investors to better evaluate our operating performance.
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 defined further 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 February of 2017. The hotel will not be included in our comparable hotel set until January 1, 2019. Hotels that we sell are excluded from the comparable hotel set once the transaction has closed. Similarly, hotels are excluded from our comparable hotel set from the date that they sustain substantial property damage or business interruption or commence a large-scale capital project. In each case, these hotels are returned to the comparable hotel set when the operations of the hotel have been included in our consolidated results for one full calendar year after completion of the repair of the property damage or cessation of the business interruption, or the completion of large-scale capital projects, as applicable.
Of the 96 hotels that we owned on June 30, 2017, 89 have been classified as comparable hotels. The operating results of the following hotels that we owned as of June 30, 2017 are excluded from comparable hotel results for these periods:
|
•
|
The Denver Marriott Tech Center, removed in the first quarter of 2016 (business disruption due to extensive renovations, including conversion of 64 rooms to 41 suites, conversion of the concierge lounge into three meeting rooms, and the repositioning of the public space and food and beverage areas);
|
|
•
|
The Hyatt Regency San Francisco Airport, removed in the first quarter of 2016 (business disruption due to extensive renovations, including all guestrooms and bathrooms, meeting space, the repositioning of the atrium into a new restaurant and lounge, and conversion of the existing restaurant to additional meeting space);
|
35
|
•
|
Marriott Marquis San Diego Marina, removed in the first quarter of 2015 (business interruption due to the demolition of the existing conference center and co
nstruction of the new exhibit hall);
|
|
•
|
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);
|
|
•
|
Axiom Hotel (acquired as the Powell Hotel in January 2014, then closed during 2015 for extensive renovations and reopened in January 2016);
|
|
•
|
The Don CeSar and Beach House Suites complex (acquired February 2017); and
|
|
•
|
W Hollywood (acquired March 2017).
|
The operating results of 12 hotels disposed of in 2017 and 2016 are not included in comparable hotel results for the periods presented herein.
CONSTANT US$, NOMINAL US$ AND CONSTANT EUROS
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 of 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. We believe that this presentation is useful to investors as it provides clarity with respect to the growth in RevPAR in the local currency of the hotel consistent with the manner in which we would evaluate our domestic portfolio. However, the estimated effect of changes in foreign currency has been reflected in the actual and forecast results of net income, EBITDA, earnings per diluted share and Adjusted FFO per diluted share. Nominal US$ results include the effect of currency fluctuations, consistent with our financial statement presentation.
We present RevPAR results for our joint venture in Europe in constant Euros using the same methodology as used for the constant US$ presentation.
Non-GAAP Financial Measures
We use 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. These measures include the following:
|
•
|
Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA, as a measure of performance for Host Inc. and Host L.P.,
|
|
•
|
Funds From Operations (“FFO”) and FFO per diluted share, both calculated in accordance with National Association of Real Estate Investment Trusts (“NAREIT”) guidelines and with certain adjustments from those guidelines, as a measure of performance for Host Inc., and
|
|
•
|
Comparable hotel operating results, as a measure of performance for Host Inc. and Host L.P.
|
The following discussion defines these measures and presents why we believe they are useful supplemental measures of our performance.
Set forth below for each such non-GAAP financial measure is a reconciliation of the measure with the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable thereto. We also have included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” in our Annual Report on Form 10-K for the year ended December 31, 2016, further explanations of the adjustments being made, a statement disclosing the reasons why we believe the presentation of each of the non-GAAP financial measures provide useful information to investors regarding our financial condition and results of operations, the additional purposes for which we use the non-GAAP financial measures and limitations on their use.
EBITDA and Adjusted 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
36
operations because it helps us and our inve
stors evaluate the ongoing operating performance of our properties after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA faci
litates 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 disposit
ions and, like FFO and Adjusted FFO per diluted share, it is widely used by management in the annual budget process and for compensation programs.
Adjusted EBITDA
Historically, management has adjusted EBITDA 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 and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income (loss), is beneficial to an investor’s complete understanding of our operating performance. Adjusted EBITDA also is a relevant measure in calculating certain credit ratios. We adjust EBITDA for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA:
|
•
|
Real Estate Transactions
– We exclude the effect of gains and losses, including the amortization of deferred gains, recorded on the disposition or acquisition of depreciable assets and property insurance gains in our consolidated statement of operations because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses from the depreciated value of the disposed assets could be less important to investors given that the depreciated asset book value often does not reflect its market value (as noted below for FFO).
|
|
•
|
Equity Investment Adjustments
– We exclude the equity in earnings (losses) of unconsolidated investments in partnerships and joint ventures as presented in our consolidated statement of operations because it includes our pro rata portion of depreciation, amortization and interest expense, which are excluded from EBITDA. We include our pro rata share of the Adjusted EBITDA of our equity investments as we believe this more accurately reflects the performance of our investments. The pro rata Adjusted EBITDA of equity investments is defined as the EBITDA of our equity investments, adjusted for any gains or losses on property transactions, multiplied by our percentage ownership in the partnership or joint venture.
|
|
•
|
Consolidated Partnership Adjustments
– We deduct the non-controlling partners’ pro rata share of the Adjusted EBITDA of our consolidated partnerships as this reflects the non-controlling owners’ interest in the EBITDA of our consolidated partnerships. The pro rata Adjusted EBITDA of non-controlling partners is defined as the EBITDA of our consolidated partnerships, adjusted for any gains or losses on property transactions, multiplied by the non-controlling partners’ percentage ownership in the partnership or joint venture.
|
|
•
|
Cumulative Effect of a Change in Accounting Principle
– Infrequently, the Financial Accounting Standards Board (“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 expense recorded because we believe that including it in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, we believe that impairment expense, which is based on historical cost book values, is similar to gains (losses) on dispositions and depreciation expense, both of which also are excluded from EBITDA.
|
|
•
|
Acquisition Costs
– Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.
|
|
•
|
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, which is consistent with our definition of Adjusted FFO. We believe that including these items is not consistent with our ongoing operating performance.
|
In unusual circumstances, we also may adjust EBITDA for gains or losses that management believes are not representative of our current operating performance. The last such adjustment was in 2013.
37
The following table provides a reconciliation of the differences between EBITDA and Adjusted EBITDA and net income, the financial measure calculated and presented in accordance with GAAP that we consider the most directly comparable:
Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Host Inc. and Host L.P.
(in millions)
|
|
Quarter ended June 30,
|
|
|
Year-to-date ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income
(1)
|
|
$
|
212
|
|
|
$
|
351
|
|
|
$
|
373
|
|
|
$
|
535
|
|
Interest expense
|
|
|
43
|
|
|
|
39
|
|
|
|
82
|
|
|
|
78
|
|
Depreciation and amortization
|
|
|
178
|
|
|
|
178
|
|
|
|
358
|
|
|
|
359
|
|
Income taxes
|
|
|
27
|
|
|
|
32
|
|
|
|
21
|
|
|
|
23
|
|
EBITDA
(1)
|
|
|
460
|
|
|
|
600
|
|
|
|
834
|
|
|
|
995
|
|
Gain on dispositions
(2)
|
|
|
(28
|
)
|
|
|
(172
|
)
|
|
|
(43
|
)
|
|
|
(230
|
)
|
Gain on property insurance settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Equity investment adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
|
|
(11
|
)
|
Pro rata Adjusted EBITDA of equity investments
|
|
|
22
|
|
|
|
20
|
|
|
|
39
|
|
|
|
35
|
|
Consolidated partnership adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro rata Adjusted EBITDA attributable to non-
controlling partners in other consolidated
partnerships
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Adjusted EBITDA
(1)
|
|
$
|
444
|
|
|
$
|
436
|
|
|
$
|
811
|
|
|
$
|
782
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net Income, EBITDA, Adjusted EBITDA, NAREIT FFO and Adjusted FFO include a gain of $1 million for each of the year-to-date periods ended June 30, 2017 and 2016 for the sale of the portion of land attributable to individual units sold by the Maui timeshare joint venture.
|
(2)
|
Reflects the sale of two hotels in 2017 and eight hotels in 2016.
|
FFO Measures
We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings (loss) 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 (loss) (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, 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 also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our annual budget process, and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:
|
•
|
Gains and Losses on the Extinguishment of Debt
– We exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of the write-off of deferred financing costs from 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 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.
|
38
|
•
|
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 operati
ng performance.
|
In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that management believes are not representative of our current operating performance. The last such adjustment was in 2013.
The following table provides a reconciliation of the differences between our non-GAAP financial measures NAREIT FFO and Adjusted FFO (separately and on a per diluted share basis) and net income, the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable:
Host Inc. Reconciliation of Net Income to
NAREIT and Adjusted Funds From Operations per Diluted Share
(in millions, except per share amount)
|
|
Quarter ended June 30,
|
|
|
Year-to-date ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income
(1)
|
|
$
|
212
|
|
|
$
|
351
|
|
|
$
|
373
|
|
|
$
|
535
|
|
Less: Net income attributable to non-controlling
interests
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Net income attributable to Host Inc.
|
|
|
210
|
|
|
|
347
|
|
|
|
368
|
|
|
|
529
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on dispositions
(2)
|
|
|
(28
|
)
|
|
|
(172
|
)
|
|
|
(43
|
)
|
|
|
(230
|
)
|
Tax on dispositions
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
Gain on property insurance settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Depreciation and amortization
|
|
|
177
|
|
|
|
177
|
|
|
|
357
|
|
|
|
357
|
|
Equity investment adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
|
|
(11
|
)
|
Pro rata FFO of equity investments
|
|
|
15
|
|
|
|
16
|
|
|
|
28
|
|
|
|
26
|
|
Consolidated partnership adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO adjustment for non-controlling partnerships
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
FFO adjustments for non-controlling interests of
Host L.P.
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
NAREIT FFO
(1)
|
|
|
363
|
|
|
|
367
|
|
|
|
689
|
|
|
|
675
|
|
Adjustments to NAREIT FFO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Loss on debt extinguishment
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Adjusted FFO
(1)
|
|
$
|
364
|
|
|
$
|
367
|
|
|
$
|
691
|
|
|
$
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For calculation on a per share basis
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding - EPS,
NAREIT FFO and Adjusted FFO
|
|
|
738.8
|
|
|
|
744.3
|
|
|
|
738.5
|
|
|
|
747.1
|
|
NAREIT FFO per diluted share
|
|
$
|
.49
|
|
|
$
|
.49
|
|
|
$
|
.93
|
|
|
$
|
.90
|
|
Adjusted FFO per diluted share
|
|
$
|
.49
|
|
|
$
|
.49
|
|
|
$
|
.94
|
|
|
$
|
.90
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1-2)
|
Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Host Inc. and Host L.P.
|
(3)
|
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, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for securities if they are anti-dilutive.
|
Comparable Hotel Operating Results
We present certain operating results of 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. For an explanation of which properties we consider to be “comparable hotels”, see “Comparable Hotel Operating Statistics” above.
39
The following tables presents certain operating results and statistics for our comparable hotels for the periods presented herein and a reconciliation of the differences between comparable hotel EB
ITDA, a non-GAAP financial measure, and net income, the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable. Similar reconciliations of the differences between (i) comparable hotel revenues and (ii)
our revenues as calculated and presented in accordance with GAAP (each of which is used in the applicable margin calculation), and between (iii) comparable hotel expenses and (iv) operating costs and expenses as calculated and presented in accordance with
GAAP, are also included in the reconciliation:
Comparable Hotel Results for Host Inc. and Host L.P.
(in millions, except hotel statistics)
|
|
Quarter ended June 30,
|
|
|
Year-to-date ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Number of hotels
|
|
|
89
|
|
|
|
89
|
|
|
|
89
|
|
|
|
89
|
|
Number of rooms
|
|
|
49,137
|
|
|
|
49,137
|
|
|
|
49,137
|
|
|
|
49,137
|
|
Change in comparable hotel RevPAR -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant US$
|
|
|
1.7
|
%
|
|
|
—
|
|
|
|
2.5
|
%
|
|
|
—
|
|
Nominal US$
|
|
|
1.7
|
%
|
|
|
—
|
|
|
|
2.6
|
%
|
|
|
—
|
|
Operating profit margin
(1)
|
|
|
16.9
|
%
|
|
|
16.4
|
%
|
|
|
14.9
|
%
|
|
|
13.9
|
%
|
Comparable hotel EBITDA margin
(1)
|
|
|
31.0
|
%
|
|
|
30.85
|
%
|
|
|
29.0
|
%
|
|
|
28.55
|
%
|
Food and beverage profit margin
(1)
|
|
|
33.9
|
%
|
|
|
34.2
|
%
|
|
|
34.1
|
%
|
|
|
32.3
|
%
|
Comparable hotel food and beverage profit margin
(1)
|
|
|
34.2
|
%
|
|
|
34.5
|
%
|
|
|
33.7
|
%
|
|
|
32.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
212
|
|
|
$
|
351
|
|
|
$
|
373
|
|
|
$
|
535
|
|
Depreciation and amortization
|
|
|
178
|
|
|
|
178
|
|
|
|
358
|
|
|
|
359
|
|
Interest expense
|
|
|
43
|
|
|
|
39
|
|
|
|
82
|
|
|
|
78
|
|
Provision for income taxes
|
|
|
27
|
|
|
|
32
|
|
|
|
21
|
|
|
|
23
|
|
Gain on sale of property and corporate level
income/expense
|
|
|
(12
|
)
|
|
|
(156
|
)
|
|
|
(6
|
)
|
|
|
(192
|
)
|
Non-comparable hotel results, net
(2)
|
|
|
(42
|
)
|
|
|
(39
|
)
|
|
|
(100
|
)
|
|
|
(96
|
)
|
Comparable hotel EBITDA
|
|
$
|
406
|
|
|
$
|
405
|
|
|
$
|
728
|
|
|
$
|
707
|
|
|
|
Quarter ended June 30, 2017
|
|
|
Quarter ended June 30, 2016
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
GAAP Results
|
|
|
Non-comparable hotel results, net
(2)
|
|
|
Depreciation and corporate level items
|
|
|
Comparable Hotel Results
|
|
|
GAAP Results
|
|
|
Non-comparable hotel results, net
(2)
|
|
|
Depreciation and corporate level items
|
|
|
Comparable Hotel Results
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
$
|
940
|
|
|
$
|
(74
|
)
|
|
$
|
—
|
|
|
$
|
866
|
|
|
$
|
933
|
|
|
$
|
(81
|
)
|
|
$
|
—
|
|
|
$
|
852
|
|
Food and beverage
|
|
|
416
|
|
|
|
(42
|
)
|
|
|
—
|
|
|
|
374
|
|
|
|
439
|
|
|
|
(48
|
)
|
|
|
—
|
|
|
|
391
|
|
Other
|
|
|
85
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
70
|
|
|
|
87
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
69
|
|
Total revenues
|
|
|
1,441
|
|
|
|
(131
|
)
|
|
|
—
|
|
|
|
1,310
|
|
|
|
1,459
|
|
|
|
(147
|
)
|
|
|
—
|
|
|
|
1,312
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
|
230
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
212
|
|
|
|
228
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
207
|
|
Food and beverage
|
|
|
275
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
|
246
|
|
|
|
289
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
256
|
|
Other
|
|
|
490
|
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
446
|
|
|
|
498
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
444
|
|
Depreciation and amortization
|
|
|
178
|
|
|
|
—
|
|
|
|
(178
|
)
|
|
|
—
|
|
|
|
178
|
|
|
|
—
|
|
|
|
(178
|
)
|
|
|
—
|
|
Corporate and other expenses
|
|
|
26
|
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
—
|
|
Gain on insurance and business
interruption settlements
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total expenses
|
|
|
1,197
|
|
|
|
(89
|
)
|
|
|
(204
|
)
|
|
|
904
|
|
|
|
1,220
|
|
|
|
(108
|
)
|
|
|
(205
|
)
|
|
|
907
|
|
Operating Profit - Comparable
Hotel EBITDA
|
|
$
|
244
|
|
|
$
|
(42
|
)
|
|
$
|
204
|
|
|
$
|
406
|
|
|
$
|
239
|
|
|
$
|
(39
|
)
|
|
$
|
205
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Year-to-date ended June 30, 2017
|
|
|
Year-to-date ended June 30, 2016
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
GAAP Results
|
|
|
Non-comparable hotel results, net
(2)
|
|
|
Depreciation and corporate level items
|
|
|
Comparable Hotel Results
|
|
|
GAAP Results
|
|
|
Non-comparable hotel results, net
(2)
|
|
|
Depreciation and corporate level items
|
|
|
Comparable Hotel Results
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
$
|
1,783
|
|
|
$
|
(152
|
)
|
|
$
|
—
|
|
|
$
|
1,631
|
|
|
$
|
1,776
|
|
|
$
|
(178
|
)
|
|
$
|
—
|
|
|
$
|
1,598
|
|
Food and beverage
|
|
|
838
|
|
|
|
(94
|
)
|
|
|
—
|
|
|
|
744
|
|
|
|
847
|
|
|
|
(102
|
)
|
|
|
—
|
|
|
|
745
|
|
Other
|
|
|
168
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
137
|
|
|
|
175
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
135
|
|
Total revenues
|
|
|
2,789
|
|
|
|
(277
|
)
|
|
|
—
|
|
|
|
2,512
|
|
|
|
2,798
|
|
|
|
(320
|
)
|
|
|
—
|
|
|
|
2,478
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
|
449
|
|
|
|
(35
|
)
|
|
|
—
|
|
|
|
414
|
|
|
|
449
|
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
405
|
|
Food and beverage
|
|
|
552
|
|
|
|
(59
|
)
|
|
|
—
|
|
|
|
493
|
|
|
|
573
|
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
504
|
|
Other
|
|
|
965
|
|
|
|
(88
|
)
|
|
|
—
|
|
|
|
877
|
|
|
|
976
|
|
|
|
(114
|
)
|
|
|
—
|
|
|
|
862
|
|
Depreciation and amortization
|
|
|
358
|
|
|
|
—
|
|
|
|
(358
|
)
|
|
|
—
|
|
|
|
359
|
|
|
|
—
|
|
|
|
(359
|
)
|
|
|
—
|
|
Corporate and other expenses
|
|
|
55
|
|
|
|
—
|
|
|
|
(55
|
)
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
Gain on insurance and business
interruption settlements
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Total expenses
|
|
|
2,374
|
|
|
|
(177
|
)
|
|
|
(413
|
)
|
|
|
1,784
|
|
|
|
2,408
|
|
|
|
(224
|
)
|
|
|
(413
|
)
|
|
|
1,771
|
|
Operating Profit - Comparable
Hotel EBITDA
|
|
$
|
415
|
|
|
$
|
(100
|
)
|
|
$
|
413
|
|
|
$
|
728
|
|
|
$
|
390
|
|
|
$
|
(96
|
)
|
|
$
|
413
|
|
|
$
|
707
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP operating profit margins are calculated using amounts presented in the consolidated statements of operations. Comparable hotel margins are calculated using amounts presented in the above tables.
|
(2)
|
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 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.
|
41