HOST HOTELS & RESORTS, INC. Notes to Financial Information
Reporting Periods for Statement of Operations The results we report
in our consolidated statements of operations are based on results
of our hotels reported to us by our hotel managers. Our hotel
managers use different reporting periods. Marriott International,
Inc., or Marriott, the manager of the majority of our properties,
uses a fiscal year ending on the Friday closest to December 31 and
reports twelve weeks of operations for the first three quarters and
sixteen or seventeen weeks for the fourth quarter of the year for
its Marriott-managed hotels. In contrast, other managers of our
hotels, such as Starwood and Hyatt, report results on a monthly
basis. Additionally, Host, as a REIT, is required by tax laws to
report results on a calendar year. As a result, we elected to adopt
the reporting periods used by Marriott except that our fiscal year
always ends on December 31 to comply with REIT rules. Our first
three quarters of operations end on the same day as Marriott but
our fourth quarter ends on December 31 and our full year results,
as reported in our consolidated statement of operations, always
includes the same number of days as the calendar year. Two
consequences of the reporting cycle we have adopted are: (1)
quarterly start dates will usually differ between years, except for
the first quarter which always commences on January 1, and (2) our
first and fourth quarters of operations and year-to-date operations
may not include the same number of days as reflected in prior
years. For example, the second quarter of 2007 ended on June 15,
and the second quarter of 2006 ended on June 16, though both
quarters reflect twelve weeks of operations. In contrast, the June
15, 2007 year-to-date operations included 166 days of operations,
while the June 16, 2006 year-to-date operations included 167 days
of operations. While the reporting calendar we adopted is more
closely aligned with the reporting calendar used by the manager of
a majority of our properties, one final consequence of our calendar
is that we are unable to report the month of operations that ends
after our fiscal quarter-end until the following quarter because
our hotel managers using a monthly reporting period do not make
mid- month results available to us. Hence, the month of operation
that ends after our fiscal quarter-end is included in our quarterly
results of operations in the following quarter for those hotel
managers (covering approximately 40% of our hotels). As a result,
our quarterly results of operations include results from hotel
managers reporting results on a monthly basis as follows: first
quarter (January, February), second quarter (March to May), third
quarter (June to August) and fourth quarter (September to
December). While this does not affect full-year results, it does
affect the reporting of quarterly results. Reporting Periods for
Hotel Operating Statistics and Comparable Hotel Results In contrast
to the reporting periods for our consolidated statement of
operations, our hotel operating statistics (i.e., RevPAR, average
daily rate and average occupancy) and our comparable hotel results
are always reported based on the reporting cycle used by Marriott
for our Marriott-managed hotels. This facilitates year-to-year
comparisons, as each reporting period will be comprised of the same
number of days of operations as in the prior year (except in the
case of fourth quarters comprised of seventeen weeks (such as
fiscal year 2002) versus sixteen weeks). This means, however, that
the reporting periods we use for hotel operating statistics and our
comparable hotels results may differ slightly from the reporting
periods used for our statements of operations for the first and
fourth quarters and the full year. Results from hotel managers
reporting on a monthly basis are included in our operating
statistics and comparable hotels results consistent with their
reporting in our consolidated statement of operations herein: --
Hotel results for the second quarter of 2007 reflect 12 weeks of
operations for the period from March 24, 2007 to June 15, 2007 for
our Marriott-managed hotels and results from March 1, 2007 to May
31, 2007 for operations of all other hotels which report results on
a monthly basis. -- Hotel results for the second quarter of 2006
reflect 12 weeks of operations for the period from March 25, 2006
to June 16, 2006 for our Marriott-managed hotels and results from
March 1, 2006 to May 31, 2006 for operations of all other hotels
which report results on a monthly basis. -- Hotel results for
year-to-date 2007 reflect 24 weeks for the period from December 30,
2006 to June 15, 2007 for our Marriott-managed hotels and results
from January 1, 2007 to May 31, 2007 for operations of all other
hotels which report results on a monthly basis. -- Hotel results
for year-to-date 2006 reflect 24 weeks for the period from December
31, 2005 to June 16, 2006 for our Marriott-managed hotels and
results from January 1, 2006 to May 31, 2006 for operations of all
other hotels which report results on a monthly basis. Comparable
Hotel and Comparable Hotel plus the Starwood Portfolio Operating
Statistics We present certain operating statistics (i.e., RevPAR,
average daily rate and average occupancy) and operating results
(revenues, expenses, adjusted operating profit and adjusted
operating profit margin) for the periods included in this report on
a comparable hotel basis. We define our comparable hotels as
properties (i) that are owned or leased by us and the operations of
which are included in our consolidated results, whether as
continuing operations or discontinued operations, for the entirety
of the reporting periods being compared, and (ii) that have not
sustained substantial property damage or business interruption or
undergone large-scale capital projects during the reporting periods
being compared. Of the 121 hotels that we owned as of June 15,
2007, 94 hotels have been classified as comparable hotels. The
operating results of the following hotels that we owned as of June
15, 2007 are excluded from comparable hotel results for these
periods: -- 24 consolidated hotels that we acquired from Starwood
on April 10, 2006; -- The Westin Kierland Resort & Spa
(acquired in September 2006); -- Atlanta Marriott Marquis (major
renovation started in August 2005); and -- New Orleans Marriott
(property damage and business interruption from Hurricane Katrina
in August 2005). The operating results of the 14 hotels we disposed
of in 2007 and 2006 are also not included in comparable hotel
results for the periods presented herein. Moreover, because these
statistics and operating results are for our hotel properties, they
exclude results for our non-hotel properties and other real estate
investments. In addition to comparable hotel RevPAR, we also have
presented comparable hotel plus the Starwood portfolio RevPAR. This
represents our comparable hotels (described above) plus the 24
hotels acquired from Starwood on April 10, 2006 that we own as of
June 15, 2007. Accordingly, we have included the results of the
Starwood portfolio for periods prior to our ownership in 2006 in
the determination of the comparable hotel plus Starwood portfolio
RevPAR. As properties managed by Starwood report results on a
monthly basis, the second quarter RevPAR reflects the results of
these hotels from March 1 through May 31 consistent with our
treatment of reporting periods discussed previously. Given the
significance of the Starwood portfolio to our operating results, we
believe this supplemental presentation provides useful information
to investors. Non-GAAP Financial Measures Included in this press
release are certain "non-GAAP financial measures," which are
measures of our historical or future financial performance that are
not calculated and presented in accordance with GAAP, within the
meaning of applicable SEC rules. They are as follows: (i) FFO per
diluted share of Host, (ii) EBITDA of Host LP, (iii) Adjusted
EBITDA of Host LP and (iv) Comparable Hotel Operating Results of
Host. The following discussion defines these terms and presents why
we believe they are useful supplemental measures of our
performance. FFO per Diluted Share We present FFO per diluted share
as a non-GAAP measure of our performance in addition to our
earnings per share (calculated in accordance with GAAP). We
calculate FFO per diluted share for a given operating period as our
FFO (defined as set forth below) for such period divided by the
number of fully diluted shares outstanding during such period. The
National Association of Real Estate Investment Trusts (NAREIT)
defines FFO as net income (calculated in accordance with GAAP)
excluding gains (losses) from sales of real estate, the cumulative
effect of changes in accounting principles, real estate-related
depreciation and amortization and adjustments for unconsolidated
partnerships and joint ventures. We present FFO on a per share
basis after making adjustments for the effects of dilutive
securities and the payment of preferred stock dividends, in
accordance with NAREIT guidelines. We believe that FFO per diluted
share is a useful supplemental measure of our operating performance
and that the presentation of FFO per diluted share, when combined
with the primary GAAP presentation of earnings per share, provides
beneficial information to investors. By excluding the effect of
real estate depreciation, amortization and gains and losses from
sales of real estate, all of which are based on historical cost
accounting and which may be of lesser significance in evaluating
current performance, we believe such measures can facilitate
comparisons of operating performance between periods and with other
REITs, even though FFO per diluted share does not represent an
amount that accrues directly to holders of our common stock.
Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably
over time. As noted by NAREIT in its April 2002 "White Paper on
Funds From Operations," since real estate values have historically
risen or fallen with market conditions, many industry investors
have considered presentation of operating results for real estate
companies that use historical cost accounting to be insufficient by
themselves. For these reasons, NAREIT adopted the definition of FFO
in order to promote an industry-wide measure of REIT operating
performance. EBITDA Earnings before Interest Expense, Income Taxes,
Depreciation and Amortization (EBITDA) is a commonly used measure
of performance in many industries. Management believes EBITDA
provides useful information to investors regarding our results of
operations because it helps us and our investors evaluate the
ongoing operating performance of our properties and facilitates
comparisons between us and other lodging REITs, hotel owners who
are not REITs and other capital-intensive companies. Management
uses EBITDA to evaluate property-level results and as one measure
in determining the value of acquisitions and dispositions and, like
FFO per diluted share, it is widely used by management in the
annual budget process. Adjusted EBITDA As of July 16, 2007, Host
owns approximately 97% of the partnership interest of Host LP and
is its sole general partner. We conduct all of our operations
through Host LP, and Host LP is the obligor on our senior notes and
on our credit facility. Historically, management has adjusted
EBITDA when evaluating our performance because we believe that the
exclusion of certain additional recurring and non-recurring items
described below provides useful supplemental information to
investors regarding our ongoing operating performance and that the
presentation of Adjusted EBITDA, when combined with the primary
GAAP presentation of net income, is beneficial to an investor's
complete understanding of our operating performance. In addition,
the Adjusted EBITDA of Host LP is presented because we believe it
is a relevant measure in calculating certain credit ratios, since
Host LP is the owner of all of our hotels and is the obligor on our
debt noted above. We adjust EBITDA for the following items, which
may occur in any period, and refer to this measure as Adjusted
EBITDA: -- Gains and Losses on Dispositions - We exclude the effect
of gains and losses recorded on the disposition of assets in our
consolidated statement of operations because we believe that
including them in EBITDA is not consistent with reflecting the
ongoing performance of our remaining assets. In addition, material
gains or losses from the depreciated value of the disposed assets
could be less important to investors given that the depreciated
asset often does not reflect the market value of real estate assets
(as noted above for FFO). -- Consolidated Partnership Adjustments -
We exclude the minority interest in the income or loss of our
consolidated partnerships as presented in our consolidated
statement of operations because we believe that including these
amounts in EBITDA does not reflect the effect of the minority
interest position on our performance because these amounts include
our minority partners' pro-rata portion of depreciation,
amortization and interest expense. However, we believe that the
cash distributions paid to minority partners are a more relevant
measure of the effect of our minority partners' interest on our
performance, and we have deducted these cash distributions from
Adjusted EBITDA. -- Equity Investment Adjustments - We exclude the
equity in earnings (losses) of unconsolidated investments in
partnerships and joint ventures as presented in our consolidated
statement of operations because our percentage interest in the
earnings (losses) does not reflect the impact of our minority
interest position on our performance and these amounts include our
pro-rata portion of depreciation, amortization and interest
expense. However, we believe that cash distributions we receive are
a more relevant measure of the performance of our investment and,
therefore, we include the cash distributed to us from these
investments in the calculation of Adjusted EBITDA. -- Cumulative
effect of a change in accounting principle - Infrequently, the
Financial Accounting Standards Board (FASB) promulgates new
accounting standards that require the consolidated statement of
operations to reflect the cumulative effect of a change in
accounting principle. We exclude these one-time adjustments because
they do not reflect our actual performance for that period. --
Impairment Losses - We exclude the effect of impairment losses
recorded because we believe that including them in EBITDA is not
consistent with reflecting the ongoing performance of our remaining
assets. In addition, we believe that impairment charges are similar
to gains (losses) on dispositions and depreciation expense, both of
which are also excluded from EBITDA. Limitations on the Use of FFO
per Diluted Share, EBITDA and Adjusted EBITDA We calculate FFO per
diluted share in accordance with standards established by NAREIT,
which may not be comparable to measures calculated by other
companies who do not use the NAREIT definition of FFO or calculate
FFO per diluted share in accordance with NAREIT guidance. In
addition, although FFO per diluted share is a useful measure when
comparing our results to other REITs, it may not be helpful to
investors when comparing us to non-REITs. EBITDA and Adjusted
EBITDA, as presented, may also not be comparable to measures
calculated by other companies. This information should not be
considered as an alternative to net income, operating profit, cash
from operations or any other operating performance measure
calculated in accordance with GAAP. Cash expenditures for various
long-term assets (such as renewal and replacement capital
expenditures), interest expense (for EBITDA and Adjusted EBITDA
purposes only) and other items have been and will be incurred and
are not reflected in the EBITDA, Adjusted EBITDA and FFO per
diluted share presentations. Management compensates for these
limitations by separately considering the impact of these excluded
items to the extent they are material to operating decisions or
assessments of our operating performance. Our consolidated
statement of operations and cash flows include interest expense,
capital expenditures, and other excluded items, all of which should
be considered when evaluating our performance, as well as the
usefulness of our non-GAAP financial measures. Additionally, FFO
per diluted share, EBITDA and Adjusted EBITDA should not be
considered as a measure of our liquidity or indicative of funds
available to fund our cash needs, including our ability to make
cash distributions. In addition, FFO per diluted share does not
measure, and should not be used as a measure of, amounts that
accrue directly to stockholders' benefit. Comparable Hotel
Operating Results We present certain operating results for our
hotels, such as hotel revenues, expenses, adjusted operating profit
(and the related margin) and food and beverage adjusted profit (and
the related margin), on a comparable hotel, or "same store," basis
as supplemental information for investors. Our comparable hotel
results present operating results for hotels owned during the
entirety of the periods being compared without giving effect to any
acquisitions or dispositions, significant property damage or large
scale capital improvements incurred during these periods. We
present these comparable hotel operating results by eliminating
corporate-level costs and expenses related to our capital
structure, as well as depreciation and amortization. We eliminate
corporate-level costs and expenses to arrive at property-level
results because we believe property-level results provide investors
with supplemental information into the ongoing operating
performance of our hotels. We eliminate depreciation and
amortization because, even though depreciation and amortization are
property-level expenses, these non-cash expenses, which are based
on historical cost accounting for real estate assets, implicitly
assume that the value of real estate assets diminishes predictably
over time. As noted earlier, because real estate values have
historically risen or fallen with market conditions, many industry
investors have considered presentation of operating results for
real estate companies that use historical cost accounting to be
insufficient by themselves. As a result of the elimination of
corporate-level costs and expenses and depreciation and
amortization, the comparable hotel operating results we present do
not represent our total revenues, expenses, operating profit or
operating profit margin and should not be used to evaluate our
performance as a whole. Management compensates for these
limitations by separately considering the impact of these excluded
items to the extent they are material to operating decisions or
assessments of our operating performance. Our consolidated
statements of operations include such amounts, all of which should
be considered by investors when evaluating our performance. We
present these hotel operating results on a comparable hotel basis
because we believe that doing so provides investors and management
with useful information for evaluating the period-to-period
performance of our hotels and facilitates comparisons with other
hotel REITs and hotel owners. In particular, these measures assist
management and investors in distinguishing whether increases or
decreases in revenues and/or expenses are due to growth or decline
of operations at comparable hotels (which represent the vast
majority of our portfolio) or from other factors, such as the
effect of acquisitions or dispositions. While management believes
that presentation of comparable hotel results is a "same store"
supplemental measure that provides useful information in evaluating
our ongoing performance, this measure is not used to allocate
resources or to assess the operating performance of each of these
hotels, as these decisions are based on data for individual hotels
and are not based on comparable hotel results. For these reasons,
we believe that comparable hotel operating results, when combined
with the presentation of GAAP operating profit, revenues and
expenses, provide useful information to investors and management.
http://www.newscom.com/cgi-bin/prnh/20060417/HOSTLOGO
http://photoarchive.ap.org/ DATASOURCE: Host Hotels & Resorts,
Inc. CONTACT: Kevin J. Jacobs, Vice President Corporate Finance,
+1-240-744-5212, or Gregory J. Larson, Treasurer, Senior Vice
President Investor Relations, +1-240-744-5120, both of Host Hotels
& Resorts, Inc. Web site: http://www.hosthotels.com/
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