The significant decline in revenues was due predominately to the impact of the COVID-19 pandemic, as well as the following:
Other revenues. Total other revenues decreased $4 million, or 4.0%, for the quarter. The net effect of our Property Transactions was a decrease in other revenues of $7 million, or 6.9%, for the quarter, while an increase in attrition and cancellation fees of $10 million in the month of March due to the COVID-19 pandemic was partially offset by a decline in other ancillary revenues.
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 and expenses will differ. Our wages and benefits expenses account for approximately 59% 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.
The decline in expenses for rooms, food and beverage, other departmental and support, and management fees are predominately due to the impact of the COVID-19 pandemic, as well as the following:
Rooms. Rooms expenses declined $30 million, or 13.8%, for the quarter. The net effect of our Property Transactions decreased rooms expenses by $14 million, or 6.3%, for the quarter.
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 increased $1 million, or 1.1%, for the quarter. The expenses were partially offset by operating profit guarantees received from Marriott under the transformational capital program of $2 million and $6 million in the first quarter of 2020 and 2019, respectively. The net effect of our Property Transactions decreased other property-level expenses by $5 million, or 6.0%, for the quarter.
Depreciation and amortization. Depreciation and amortization expense decreased $6 million, or 3.5%, for the quarter due to the sale of 14 properties in 2019.
Interest expense. Interest expense decreased for the quarter due to the refinancing of senior notes in 2019. The following table details our interest expense for the quarter (in millions):
Benefit (provision) for income taxes. We lease substantially all 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, with regard to which we record an income tax provision or benefit. For the quarter, we recorded an income tax benefit of $37 million due to the net operating loss incurred by our TRS. As a result of legislation enacted by the CARES Act, such net operating loss may be carried back up to five years in order to procure a refund of federal corporate income taxes previously paid.
To facilitate a quarter-to-quarter comparison of our operations, we typically present certain operating statistics for the periods included in this presentation on a comparable hotel basis. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between periods. For this reason, we are revising our presentation to instead present pro forma hotel operating results for all hotels. See “Hotel Operating Statistics” for a complete description of our methodology. We also discuss our Hotel RevPAR results by geographic location and mix of business (i.e. transient, group, or contract).
The following tables set forth performance information for our hotels by geographic location as of March 31, 2020 and 2019, respectively:
All Owned Hotels (pro forma) by Location in Constant US$
|
As of March 31, 2020
|
|
|
Quarter ended March 31, 2020
|
|
|
Quarter ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
Location
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Total RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Total RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
|
Percent
Change in
Total RevPAR
|
|
Maui/Oahu
|
|
4
|
|
|
|
1,983
|
|
|
$
|
469.81
|
|
|
|
74.5
|
%
|
|
$
|
350.05
|
|
|
$
|
513.46
|
|
|
$
|
437.66
|
|
|
|
89.0
|
%
|
|
$
|
389.36
|
|
|
$
|
584.39
|
|
|
|
(10.1
|
)%
|
|
|
(12.1
|
)%
|
Miami
|
|
3
|
|
|
|
1,276
|
|
|
|
443.30
|
|
|
|
70.9
|
|
|
|
314.11
|
|
|
|
498.35
|
|
|
|
408.86
|
|
|
|
85.9
|
|
|
|
351.13
|
|
|
|
522.30
|
|
|
|
(10.5
|
)
|
|
|
(4.6
|
)
|
Florida Gulf Coast
|
|
5
|
|
|
|
1,841
|
|
|
|
430.81
|
|
|
|
70.8
|
|
|
|
305.01
|
|
|
|
619.05
|
|
|
|
439.30
|
|
|
|
83.1
|
|
|
|
364.98
|
|
|
|
702.94
|
|
|
|
(16.4
|
)
|
|
|
(11.9
|
)
|
Phoenix
|
|
3
|
|
|
|
1,654
|
|
|
|
369.52
|
|
|
|
67.1
|
|
|
|
248.11
|
|
|
|
552.93
|
|
|
|
373.48
|
|
|
|
82.7
|
|
|
|
308.80
|
|
|
|
644.54
|
|
|
|
(19.7
|
)
|
|
|
(14.2
|
)
|
Jacksonville
|
|
1
|
|
|
|
446
|
|
|
|
363.41
|
|
|
|
57.0
|
|
|
|
207.28
|
|
|
|
466.16
|
|
|
|
367.78
|
|
|
|
78.6
|
|
|
|
289.04
|
|
|
|
690.11
|
|
|
|
(28.3
|
)
|
|
|
(32.5
|
)
|
San Francisco/San Jose
|
|
7
|
|
|
|
4,528
|
|
|
|
295.37
|
|
|
|
59.3
|
|
|
|
175.08
|
|
|
|
254.37
|
|
|
|
305.80
|
|
|
|
77.3
|
|
|
|
236.51
|
|
|
|
330.84
|
|
|
|
(26.0
|
)
|
|
|
(23.1
|
)
|
San Diego
|
|
3
|
|
|
|
3,288
|
|
|
|
244.32
|
|
|
|
61.2
|
|
|
|
149.44
|
|
|
|
291.18
|
|
|
|
252.91
|
|
|
|
76.9
|
|
|
|
194.59
|
|
|
|
349.55
|
|
|
|
(23.2
|
)
|
|
|
(16.7
|
)
|
Los Angeles
|
|
4
|
|
|
|
1,726
|
|
|
|
217.17
|
|
|
|
68.7
|
|
|
|
149.12
|
|
|
|
221.85
|
|
|
|
223.86
|
|
|
|
86.5
|
|
|
|
193.59
|
|
|
|
289.21
|
|
|
|
(23.0
|
)
|
|
|
(23.3
|
)
|
New Orleans
|
|
1
|
|
|
|
1,333
|
|
|
|
202.36
|
|
|
|
65.3
|
|
|
|
132.09
|
|
|
|
197.80
|
|
|
|
209.79
|
|
|
|
81.6
|
|
|
|
171.18
|
|
|
|
249.87
|
|
|
|
(22.8
|
)
|
|
|
(20.8
|
)
|
Washington, D.C. (CBD)
|
|
5
|
|
|
|
3,238
|
|
|
|
230.32
|
|
|
|
54.0
|
|
|
|
124.28
|
|
|
|
183.71
|
|
|
|
247.89
|
|
|
|
73.3
|
|
|
|
181.79
|
|
|
|
257.64
|
|
|
|
(31.6
|
)
|
|
|
(28.7
|
)
|
New York
|
|
3
|
|
|
|
4,261
|
|
|
|
220.61
|
|
|
|
56.1
|
|
|
|
123.75
|
|
|
|
197.15
|
|
|
|
236.38
|
|
|
|
72.0
|
|
|
|
170.27
|
|
|
|
267.69
|
|
|
|
(27.3
|
)
|
|
|
(26.4
|
)
|
Orlando
|
|
1
|
|
|
|
2,004
|
|
|
|
215.31
|
|
|
|
57.1
|
|
|
|
123.02
|
|
|
|
288.47
|
|
|
|
208.20
|
|
|
|
79.0
|
|
|
|
164.41
|
|
|
|
385.22
|
|
|
|
(25.2
|
)
|
|
|
(25.1
|
)
|
Atlanta
|
|
4
|
|
|
|
1,682
|
|
|
|
192.55
|
|
|
|
63.1
|
|
|
|
121.49
|
|
|
|
196.11
|
|
|
|
227.57
|
|
|
|
76.7
|
|
|
|
174.60
|
|
|
|
272.88
|
|
|
|
(30.4
|
)
|
|
|
(28.1
|
)
|
Orange County
|
|
2
|
|
|
|
925
|
|
|
|
197.46
|
|
|
|
58.4
|
|
|
|
115.30
|
|
|
|
202.33
|
|
|
|
201.08
|
|
|
|
79.0
|
|
|
|
158.85
|
|
|
|
269.03
|
|
|
|
(27.4
|
)
|
|
|
(24.8
|
)
|
Philadelphia
|
|
2
|
|
|
|
810
|
|
|
|
173.70
|
|
|
|
62.8
|
|
|
|
109.04
|
|
|
|
180.62
|
|
|
|
190.16
|
|
|
|
78.1
|
|
|
|
148.48
|
|
|
|
242.24
|
|
|
|
(26.6
|
)
|
|
|
(25.4
|
)
|
Northern Virginia
|
|
3
|
|
|
|
1,252
|
|
|
|
206.66
|
|
|
|
52.7
|
|
|
|
108.90
|
|
|
|
180.68
|
|
|
|
210.16
|
|
|
|
65.7
|
|
|
|
138.09
|
|
|
|
239.65
|
|
|
|
(21.1
|
)
|
|
|
(24.6
|
)
|
Houston
|
|
4
|
|
|
|
1,716
|
|
|
|
175.23
|
|
|
|
61.3
|
|
|
|
107.38
|
|
|
|
162.63
|
|
|
|
182.60
|
|
|
|
75.8
|
|
|
|
138.36
|
|
|
|
201.04
|
|
|
|
(22.4
|
)
|
|
|
(19.1
|
)
|
Seattle
|
|
2
|
|
|
|
1,315
|
|
|
|
193.42
|
|
|
|
54.0
|
|
|
|
104.51
|
|
|
|
149.34
|
|
|
|
194.12
|
|
|
|
77.4
|
|
|
|
150.15
|
|
|
|
203.91
|
|
|
|
(30.4
|
)
|
|
|
(26.8
|
)
|
Boston
|
|
3
|
|
|
|
2,715
|
|
|
|
177.13
|
|
|
|
53.0
|
|
|
|
93.85
|
|
|
|
141.90
|
|
|
|
190.33
|
|
|
|
69.4
|
|
|
|
132.03
|
|
|
|
196.44
|
|
|
|
(28.9
|
)
|
|
|
(27.8
|
)
|
Denver
|
|
3
|
|
|
|
1,340
|
|
|
|
161.52
|
|
|
|
50.1
|
|
|
|
80.92
|
|
|
|
125.09
|
|
|
|
161.82
|
|
|
|
64.7
|
|
|
|
104.75
|
|
|
|
158.27
|
|
|
|
(22.7
|
)
|
|
|
(21.0
|
)
|
San Antonio
|
|
2
|
|
|
|
1,512
|
|
|
|
186.32
|
|
|
|
43.0
|
|
|
|
80.16
|
|
|
|
122.14
|
|
|
|
196.01
|
|
|
|
77.4
|
|
|
|
151.75
|
|
|
|
229.98
|
|
|
|
(47.2
|
)
|
|
|
(46.9
|
)
|
Chicago
|
|
4
|
|
|
|
1,816
|
|
|
|
142.48
|
|
|
|
47.5
|
|
|
|
67.69
|
|
|
|
95.61
|
|
|
|
148.27
|
|
|
|
60.4
|
|
|
|
89.50
|
|
|
|
128.94
|
|
|
|
(24.4
|
)
|
|
|
(25.8
|
)
|
Other
|
|
6
|
|
|
|
2,509
|
|
|
|
166.44
|
|
|
|
57.3
|
|
|
|
95.36
|
|
|
|
134.38
|
|
|
|
168.26
|
|
|
|
73.1
|
|
|
|
122.94
|
|
|
|
175.07
|
|
|
|
(22.4
|
)
|
|
|
(23.2
|
)
|
Domestic
|
|
75
|
|
|
|
45,170
|
|
|
|
253.53
|
|
|
|
59.1
|
|
|
|
149.75
|
|
|
|
250.37
|
|
|
|
256.56
|
|
|
|
76.2
|
|
|
|
195.38
|
|
|
|
316.95
|
|
|
|
(23.4
|
)
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
5
|
|
|
|
1,499
|
|
|
|
138.21
|
|
|
|
53.3
|
|
|
|
73.70
|
|
|
|
106.43
|
|
|
|
134.63
|
|
|
|
67.6
|
|
|
|
91.07
|
|
|
|
132.89
|
|
|
|
(19.1
|
)
|
|
|
(19.9
|
)
|
All Locations -
Constant US$
|
|
80
|
|
|
|
46,669
|
|
|
|
250.18
|
|
|
|
58.9
|
|
|
|
147.31
|
|
|
|
245.75
|
|
|
|
253.07
|
|
|
|
75.9
|
|
|
|
192.03
|
|
|
|
311.04
|
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Owned Hotels (pro forma) in Nominal US$
|
|
|
As of March 31, 2020
|
|
|
Quarter ended March 31, 2020
|
|
|
Quarter ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
No. of
Properties
|
|
|
No. of
Rooms
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Total RevPAR
|
|
|
Average
Room Rate
|
|
|
Average
Occupancy
Percentage
|
|
|
RevPAR
|
|
|
Total RevPAR
|
|
|
Percent
Change in
RevPAR
|
|
|
Percent
Change in
Total RevPAR
|
|
International
|
|
5
|
|
|
|
1,499
|
|
|
$
|
138.21
|
|
|
|
53.3
|
%
|
|
$
|
73.70
|
|
|
$
|
106.43
|
|
|
$
|
143.88
|
|
|
|
67.6
|
%
|
|
$
|
97.32
|
|
|
$
|
140.81
|
|
|
|
(24.3
|
)%
|
|
|
(24.4
|
)%
|
Domestic
|
|
75
|
|
|
|
45,170
|
|
|
|
253.53
|
|
|
|
59.1
|
|
|
|
149.75
|
|
|
|
250.37
|
|
|
|
256.56
|
|
|
|
76.2
|
|
|
|
195.38
|
|
|
|
316.95
|
|
|
|
(23.4
|
)
|
|
|
(21.0
|
)
|
All Locations
|
|
80
|
|
|
|
46,669
|
|
|
|
250.18
|
|
|
|
58.9
|
|
|
|
147.31
|
|
|
|
245.75
|
|
|
|
253.34
|
|
|
|
75.9
|
|
|
|
192.23
|
|
|
|
311.30
|
|
|
|
(23.4
|
)
|
|
|
(21.1
|
)
|
28
Hotel 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 the 80 hotels owned as of March 31, 2020. For additional 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 quarter, transient and group revenue declined 21.7% and 24.9%, respectively, due to the unprecedented declines in travel beginning in March 2020. Corporate group revenues were down 21%, driven by substantial cancellations and reduced booking activity, while association business declined 31.5% for the quarter. Contract revenues decreased 8.8% for the quarter.
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 hotels. 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. This strategy has resulted in a lower overall cost of capital for us, allowing us to complete opportunistic investments and acquisitions and positions 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. As the magnitude of the financial impact of the COVID-19 pandemic is uncertain, we believe these actions will provide us with financial flexibility until economic restrictions related to the pandemic are lifted and lodging demand begins to recover.
Under the current challenging operating environment posed by the COVID-19 pandemic and the slowdown in U.S. economic activity and lodging demand, we have taken steps to preserve liquidity by reducing expected capital expenditures, reducing dividends, suspending stock repurchases and have worked with our hotel operators to reduce hotel operating expenses. We intend to use available cash in the near term predominantly to fund negative operations at our hotels.
Despite the challenges caused by the current COVID-19 pandemic and economic crisis, we believe that we have sufficient liquidity and access to capital markets to withstand the current decline in operating cash flow and fund our capital expenditures programs. We may continue to access capital markets if favorable conditions exist in order to enhance our liquidity, refinance senior notes and to fund cash needs. We also may seek acquisitions or other investment opportunities generated by the COVID-19 crises.
Cash Requirements. We use cash for acquisitions, capital expenditures, 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 least 90% of its taxable income, excluding net capital gain, on an annual basis. On April 15, 2020, we paid a dividend of $0.20 per share on Host Inc.’s common stock, which dividend totaled approximately $141 million.
Capital Resources. As of March 31, 2020, we had $2,796 million of cash and cash equivalents and $165 million in our FF&E escrow reserve. In March 2020, we drew down the full $1.5 billion of available capacity under the revolver portion of our credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility. We have no material debt maturities until 2023. 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, to make distributions and to 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. We are currently in compliance with all our debt covenants as of the end of the first quarter of 2020. However, due to the current and expected level of operations, we believe that it is probable we will breach certain of our credit facility covenants based on third quarter of 2020 results. Therefore, we are currently in
29
discussions with the lenders under our credit facility to seek a waiver from these covenants. See “Liquidity and Capital Resources—Financial Covenants” for more information.
If, at any time, we determine that market conditions are favorable, after considering 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 from time to time, taking advantage of favorable market conditions. In July 2019, Host Inc.’s Board of Directors authorized repurchases of up to $1.0 billion of senior notes other than in accordance with their respective 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 accelerated expensing of previously deferred and capitalized 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 that 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, considering 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, on August 5, 2019, Host Inc.’s Board of Directors authorized an increase in its common stock share repurchase program to $1 billion from the $500 million which was previously authorized. 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 through trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The program 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. The number of shares purchased will depend upon operating results, funds generated by hotel sales activity, dividends that may be required by those sales and investment options that may be available, including reinvesting in the portfolio or acquiring new hotels, as well as maintaining our strong leverage position. During the first quarter we repurchased 8.9 million shares at an average price of $16.49 per share, exclusive of commissions, for a total purchase price of approximately $147 million. At March 31, 2020, we have $371 million available for repurchase under the program. We do not anticipate additional repurchases in 2020.
Sources and Uses of Cash. Our sources of cash generally include cash from operations, proceeds from debt and equity issuances, and proceeds from hotel sales. Uses of cash include acquisitions, capital expenditures, operating costs, debt repayments, and repurchases of and distributions to equity holders.
Cash Provided by Operations. Net cash provided by operations decreased $50 million to $157 million for the first quarter of 2020 compared to the same period of 2019 due primarily to the decline in operations at our properties due to the COVID-19 pandemic and funding to our properties for continued operations.
Cash Used in Investing Activities. Net cash used in investing activities was $103 million during the first quarter of 2020 compared to $428 million for the first quarter of 2019. Cash used in investing activities during the first quarter of 2020 was primarily due to $131 million of capital expenditures for the first quarter of 2020 compared to $110 million in the first quarter of 2019, while the first quarter of 2019 also included the acquisition of one hotel. Cash provided by investing activities in the first quarter of 2020 consisted of $28 million of proceeds from a loan receivable associated with the sale of a property in 2019, while the first quarter of 2019 included the disposition of one hotel.
Cash Provided by/Used in Financing Activities. In the first quarter of 2020, net cash provided by financing activities was $1,166 million compared to cash used of $261 million for the first quarter of 2019. Cash provided by financing activities in the first quarter of 2020 consisted of the $1.5 billion draw on the credit facility. Cash used in the first quarters of 2020 and 2019 primarily consisted of dividend payments and distributions.
The following table summarizes significant debt issuances, net of deferred financing costs, that were completed as of May 5, 2020 (in millions):
Transaction Date
|
|
|
Description of Transaction
|
|
Net Proceeds
|
|
Debt Issuances
|
|
|
|
|
|
|
|
March
|
2020
|
|
Draw on the revolver portion of credit facility
|
|
$
|
1,500
|
|
|
|
|
Total issuances
|
|
$
|
1,500
|
|
30
The following table summarizes significant equity transactions that have been completed through May 5, 2020 (in millions):
|
|
|
|
|
Transaction
|
|
Transaction Date
|
|
|
Description of Transaction
|
|
Amount
|
|
Equity of Host Inc.
|
|
|
|
|
|
|
|
January - April
|
2020
|
|
Dividend payments (1)(2)
|
|
$
|
(320
|
)
|
January - March
|
2020
|
|
Repurchase of 8.9 million shares of Host Inc. common stock
|
|
|
(147
|
)
|
|
|
|
Cash payments on equity transactions
|
|
$
|
(467
|
)
|
___________
|
|
|
|
|
|
|
|
(1)
|
In connection with the dividend payments, Host L.P. made distributions of $323 million to its common OP unit holders.
|
(2)
|
Includes the fourth quarter 2019 dividend that was paid in January 2020.
|
Debt
As of March 31, 2020, our total debt was $5.3 billion, with a weighted average interest rate of 3.1% and a weighted average maturity of 4.8 years. Additionally, 53% of our debt has a fixed rate of interest and none of our consolidated hotels are encumbered by mortgage debt.
Financial Covenants
Credit Facility Covenants. Our credit facility contains certain important financial covenants concerning allowable leverage, unsecured interest coverage, and required fixed charge coverage. 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 March 31, 2020:
|
|
Actual Ratio
|
|
|
Covenant Requirement
for all years
|
Leverage ratio
|
|
|
2.0
|
x
|
|
Maximum ratio of 7.25x
|
Fixed charge coverage ratio
|
|
|
4.6
|
x
|
|
Minimum ratio of 1.25x
|
Unsecured interest coverage ratio (1)
|
|
|
6.8
|
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.
|
We currently are in compliance with all our financial covenants under the credit facility and expect to remain so through the second quarter of 2020. However, due to the current level of operations, we believe that it is probable we will breach certain of these financial covenants based on third quarter of 2020 results. Therefore, we are currently in discussions with the lenders under our credit facility to seek a waiver from these covenants. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other lender protections. If we are not able to obtain a waiver and an event of default were to occur, this could lead to the potential acceleration of amounts due under the credit facility as well as our senior notes. Notwithstanding our belief that we will be successful in obtaining a waiver under the credit facility, we continue to have ample access to other sources of liquidity including $2.5 billion of available cash as of April 30, 2020, and access to capital markets to sell equity or debt securities, or we could choose to raise cash by selling hotel properties, although there can be no assurances we would be successful on terms favorable to us. Management’s primary mitigation plan to avoid a default under its credit facility is to obtain a waiver from its creditors. There can be no assurance that we will be able to obtain a waiver in a timely manner, or on acceptable terms, if at all. The failure to obtain a waiver, or otherwise repay the debt, could lead to an event of default which would have a material adverse effect on our financial condition.
31
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, Series G and Series H 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, Series G and Series H senior notes and our actual credit ratios as of March 31, 2020:
|
|
Actual Ratio
|
|
|
Covenant Requirement
|
Unencumbered assets tests
|
|
|
404
|
%
|
|
Minimum ratio of 150%
|
Total indebtedness to total assets
|
|
|
25
|
%
|
|
Maximum ratio of 65%
|
Secured indebtedness to total assets
|
|
|
0
|
%
|
|
Maximum ratio of 40%
|
EBITDA-to-interest coverage ratio
|
|
|
6.6
|
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 our Series C senior notes, our only remaining senior notes issued before we attained an investment grade rating) 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 Series C senior notes as of March 31, 2020 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
|
|
|
404
|
%
|
|
Minimum ratio of 125%
|
Total indebtedness to total assets
|
|
|
25
|
%
|
|
Maximum ratio of 65%
|
Secured indebtedness to total assets
|
|
|
0
|
%
|
|
Maximum ratio of 45%
|
EBITDA-to-interest coverage ratio
|
|
|
6.6
|
x
|
|
Minimum ratio of 2.0x
|
___________
|
|
|
|
|
|
|
*
|
Because of differences in the calculation methodology between our Series D, Series E, Series F, Series G and Series H senior notes and our Series C senior notes, our actual ratios as reported can be slightly different.
|
For additional details on our credit facility and senior notes, see our Annual Report on Form 10-K for the year ended December 31, 2019.
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. Funds used by Host Inc. to pay dividends on its common stock are provided by distributions from Host L.P. As of March 31, 2020, Host Inc. is the owner of approximately 99% of the Host L.P. common OP units. The remaining common OP units are owned by unaffiliated 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 consider the non-controlling interest in the Host L.P. common OP units when analyzing 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 unaffiliated 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 primarily is dependent on Host Inc.’s results of operations, as well as tax gains and losses on property sales. Host Inc. paid a regular quarterly cash dividend of $0.20 per share on its common stock on April 15, 2020 to stockholders of record on March 31, 2020. As part of our response to COVID-19 and in order to preserve cash and future financial flexibility, we intend to suspend or to only pay a nominal dividend going forward. All future dividends are subject to Board approval.
32
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 are 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, 2019. For a detailed discussion of the new accounting standards, see “Note 2. Summary of Significant Accounting Policies” in this quarterly report.
All Owned Hotel Operating Statistics
To facilitate a quarter-to-quarter comparison of our operations, we typically present certain operating statistics and operating results for the periods included in this presentation on a comparable hotel basis (discussed in Comparable Hotel Operating Statistics below). However, due to the COVID-19 pandemic and its effects on operations there is little comparability between periods. For this reason we are temporarily suspending our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results on a pro forma basis including the following adjustments: (1) operating results are presented for all consolidated properties owned as of March 31, 2020 but do not include the results of operations for properties sold in 2019; and (2) operating results for acquisitions in the current and prior year are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results.
Comparable Hotel Operating Statistics
The following discusses our typical presentation of comparable hotels; however, this method is not being used in the current presentation. To facilitate a quarter-to-quarter comparison of our operations, we typically present certain operating statistics (i.e., Total RevPAR, 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.
We define our comparable hotels as properties:
|
(i)
|
that are owned or leased by us at the end of the reporting periods being compared; and
|
|
(ii)
|
that have not sustained substantial property damage or business interruption, or undergone large-scale capital projects (as further defined below) during the reporting periods being compared.
|
The hotel business is capital-intensive and renovations are a regular part of the business. Generally, hotels under renovation remain comparable hotels. A large-scale capital project that would cause a hotel to be excluded from our comparable hotel set is an extensive renovation of several core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants, and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if the renovation would cause a hotel to be removed from the comparable hotel set, including unusual or exceptional circumstances such as: a reduction or increase in room count, rebranding, a significant alteration of the business operations, or the closing of the hotel during the renovation.
Historically, we have not included 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 1 Hotel South Beach in February 2019 and therefore it was not included in our comparable hotels for 2019. We are, however, making a change to this policy going forward, which is explained below under “2020 Comparable Hotel Definition Change.”
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.
33
2020 Comparable Hotel Definition Change
Effective January 1, 2020, the Company adjusted its definition of comparable hotels to include recent acquisitions on a pro forma basis assuming they have comparable operating environments. Operating results for acquisitions in the current and prior year will be reflected for full calendar years, to include results for periods prior to Company ownership. Management believes this will provide investors a better understanding of underlying growth trends for the Company’s current portfolio. As a result, the 1 Hotel South Beach would be included in the comparable hotel set for the quarter ended March 31, 2020.
CONSTANT US$ AND NOMINAL US$
Operating results denominated in foreign currencies are translated using the prevailing exchange rates on the date of the transaction, or monthly based on the weighted average exchange rate for the period. For comparative purposes, we also present the RevPAR results for the prior year assuming the results 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, Adjusted EBITDAre, 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.
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”), Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for real estate (“EBITDAre”) and Adjusted EBITDAre, 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
|
|
•
|
All Owned Hotel pro forma 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, 2019 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, EBITDAre and Adjusted EBITDAre
EBITDA
EBITDA is a commonly used measure of performance in many industries. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO and Adjusted FFO per diluted share, it is widely used by management in the annual budget process and for compensation programs.
34
EBITDAre and Adjusted EBITDAre
We present EBITDAre in accordance with NAREIT guidelines, as defined in its September 2017 white paper “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate,” to provide an additional performance measure to facilitate the evaluation and comparison of our results with other REITs. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) excluding interest expense, income tax, depreciation and amortization, gains or losses on disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and adjustments to reflect the entity’s pro rata share of EBITDAre of unconsolidated affiliates.
We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s understanding of our operating performance. Adjusted EBITDAre also is similar to what is used in calculating certain credit ratios for our credit facility and senior notes. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:
|
•
|
Property Insurance Gains – We exclude the effect of property insurance gains reflected in our consolidated statements of operations because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets. In addition, property insurance gains could be less important to investors given that the depreciated asset book value written off in connection with the calculation of the property insurance gain often does not reflect the market value of real estate assets.
|
|
•
|
Acquisition Costs – Under GAAP, costs associated with completed property acquisitions that are considered business combinations are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.
|
|
•
|
Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.
|
In unusual circumstances, we also may adjust EBITDAre for gains or losses that management believes are not representative of the company’s current operating performance. The last such adjustment was a 2013 exclusion of a gain from an eminent domain claim.
The following table provides a reconciliation of EBITDA, EBITDAre, and Adjusted EBITDAre to net income (loss), the financial measure calculated and presented in accordance with GAAP that we consider the most directly comparable:
Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre for Host Inc. and Host L.P.
(in millions)
|
|
Quarter ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
(3
|
)
|
|
$
|
189
|
|
Interest expense
|
|
|
37
|
|
|
|
43
|
|
Depreciation and amortization
|
|
|
164
|
|
|
|
170
|
|
Income taxes
|
|
|
(37
|
)
|
|
|
2
|
|
EBITDA
|
|
|
161
|
|
|
|
404
|
|
(Gain) loss on dispositions (1)
|
|
|
1
|
|
|
|
(2
|
)
|
Equity investment adjustments:
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Pro rata EBITDAre of equity investments
|
|
|
6
|
|
|
|
9
|
|
EBITDAre and Adjusted EBITDAre
|
|
$
|
164
|
|
|
$
|
406
|
|
___________
|
|
|
|
|
|
|
|
|
(1)
|
Reflects the sale of one hotel in 2019.
|
35
FFO Measures
We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period in accordance with NAREIT guidelines. Effective January 1, 2019, we adopted NAREIT’s definition of FFO included in NAREIT’s Funds From Operations White Paper – 2018 Restatement. The adoption did not result in a change in the way we calculate NAREIT FFO. NAREIT defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments and adjustments for consolidated partially-owned entities and unconsolidated affiliates. Adjustments for consolidated partially-owned entities and unconsolidated affiliates 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 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 that are considered business combinations are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.
|
|
•
|
Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.
|
In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that management believes are not representative of our current operating performance. For example, in 2017, as a result of the reduction of corporate income tax rates from 35% to 21% caused by the Tax Cuts and Jobs Act, we remeasured our domestic deferred tax assets as of December 31, 2017 and recorded a one-time adjustment to reduce the deferred tax assets and increase the provision for income taxes by approximately $11 million. We do not consider this adjustment to be reflective of our ongoing operating performance and therefore excluded this item from Adjusted FFO.
36
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 (loss), the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable:
Host Inc. Reconciliation of Diluted Earnings per Common Share to
NAREIT and Adjusted Funds From Operations per Diluted Share
(in millions, except per share amount)
|
|
Quarter ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
(3
|
)
|
|
$
|
189
|
|
Less: Net income attributable to non-controlling interests
|
|
|
—
|
|
|
|
(3
|
)
|
Net income (loss) attributable to Host Inc.
|
|
|
(3
|
)
|
|
|
186
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
(Gain) loss on dispositions (1)
|
|
|
1
|
|
|
|
(2
|
)
|
Depreciation and amortization
|
|
|
164
|
|
|
|
169
|
|
Equity investment adjustments:
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Pro rata FFO of equity investments
|
|
|
4
|
|
|
|
9
|
|
Consolidated partnership adjustments:
|
|
|
|
|
|
|
|
|
FFO adjustment for non-controlling partnerships
|
|
|
—
|
|
|
|
1
|
|
FFO adjustments for non-controlling interests of Host L.P.
|
|
|
(2
|
)
|
|
|
(2
|
)
|
NAREIT FFO and Adjusted FFO
|
|
$
|
160
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
For calculation on a per share basis (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding - EPS
|
|
708.1
|
|
|
|
740.8
|
|
Assuming issuance of common shares granted under
the comprehensive stock plans
|
|
|
0.4
|
|
|
|
—
|
|
Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO
|
|
|
708.5
|
|
|
|
740.8
|
|
Diluted earnings per common share
|
|
$
|
—
|
|
|
$
|
.25
|
|
NAREIT FFO and Adjusted FFO per diluted share
|
|
$
|
.23
|
|
|
$
|
.48
|
|
___________
|
|
|
|
|
|
|
|
|
(1)
|
Refer to the corresponding footnote on the Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre for Host Inc. and Host L.P.
|
(2)
|
Diluted earnings per common share, NAREIT FFO per diluted share and Adjusted FFO per diluted share are adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners and other non-controlling interests that have the option to convert their limited partner interests to common OP units. No effect is shown for securities if they are anti-dilutive.
|
37
Hotel Property Level Operating Results
We present certain operating results for our hotels, such as hotel revenues, expenses, food and beverage profit, and EBITDA (and the related margins), on a hotel-level pro forma basis as supplemental information for our investors. Our hotel results reflect the operating results of our hotels as discussed in All Owned Hotel Operating Statistics above. We present all owned hotel EBITDA to help us and our investors evaluate the ongoing operating performance of our properties after removing the impact of the Company’s capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization expense). Corporate-level costs and expenses also are removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information about the ongoing operating performance of our hotels. All owned hotel results are presented both by location and for the Company’s properties in the aggregate. We eliminate depreciation and amortization expense because, even though depreciation and amortization expense are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values have historically risen or fallen with market conditions, many real estate industry investors have considered presentation of historical cost accounting for operating results to be insufficient.
Because of the elimination of corporate-level costs and expenses, gains or losses on disposition and depreciation and amortization expense, the hotel operating results we present do not represent our total revenues, expenses, operating profit or net income and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance.
While management believes that presentation of all owned hotel results is a 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 all owned hotel results in the aggregate. For these reasons, we believe that all owned hotel operating results, when combined with the presentation of GAAP operating profit, revenues and expenses, provide useful information to investors and management.
The following tables present certain operating results and statistics for our hotels for the periods presented herein and a reconciliation of the differences between all owned hotel pro forma EBITDA, a non-GAAP financial measure, and net income (loss), the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable. Similar reconciliations of the differences between (i) 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) hotel expenses and (iv) operating costs and expenses as calculated and presented in accordance with GAAP, also are included in the reconciliation:
All Owned Hotel Pro Forma Results for Host Inc. and Host L.P.
(in millions, except hotel statistics)
|
|
Quarter ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Number of hotels
|
|
|
80
|
|
|
|
80
|
|
Number of rooms
|
|
|
46,669
|
|
|
|
46,669
|
|
Change in hotel Total RevPAR -
|
|
|
|
|
|
|
|
|
Constant US$
|
|
|
(21.0
|
)%
|
|
|
—
|
|
Nominal US$
|
|
|
(21.1
|
)%
|
|
|
—
|
|
Change in hotel RevPAR -
|
|
|
|
|
|
|
|
|
Constant US$
|
|
|
(23.3
|
)%
|
|
|
—
|
|
Nominal US$
|
|
|
(23.4
|
)%
|
|
|
—
|
|
Operating profit (loss) margin (1)
|
|
|
(1.0
|
)%
|
|
|
15.5
|
%
|
All Owned Hotel Pro Forma EBITDA margin (1)
|
|
|
16.9
|
%
|
|
|
30.4
|
%
|
Food and beverage profit margin (1)
|
|
|
25.8
|
%
|
|
|
34.2
|
%
|
All Owned Hotel Pro Forma food and beverage profit margin (1)
|
|
|
25.8
|
%
|
|
|
34.4
|
%
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3
|
)
|
|
$
|
189
|
|
Depreciation and amortization
|
|
|
164
|
|
|
|
170
|
|
Interest expense
|
|
|
37
|
|
|
|
43
|
|
Provision (benefit) for income taxes
|
|
|
(37
|
)
|
|
|
2
|
|
Gain on sale of property and corporate level
income/expense
|
|
|
17
|
|
|
|
11
|
|
Pro forma adjustments (2)
|
|
|
—
|
|
|
|
(15
|
)
|
All Owned Hotel Pro Forma EBITDA
|
|
$
|
178
|
|
|
$
|
400
|
|
38
|
|
Quarter ended March 31, 2020
|
|
|
Quarter ended March 31, 2019
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
GAAP Results
|
|
|
Depreciation and corporate level items
|
|
|
All Owned Hotel Pro Forma Results (2)
|
|
|
GAAP Results
|
|
|
Pro forma adjustments(2)
|
|
|
Depreciation and corporate level items
|
|
|
All Owned Hotel Pro Forma Results (2)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
$
|
626
|
|
|
$
|
—
|
|
|
$
|
626
|
|
|
$
|
857
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
808
|
|
Food and beverage
|
|
|
330
|
|
|
|
—
|
|
|
|
330
|
|
|
|
433
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
413
|
|
Other
|
|
|
96
|
|
|
|
—
|
|
|
|
96
|
|
|
|
100
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
93
|
|
Total revenues
|
|
|
1,052
|
|
|
|
—
|
|
|
|
1,052
|
|
|
|
1,390
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
1,314
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
|
|
|
187
|
|
|
|
—
|
|
|
|
187
|
|
|
|
217
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
203
|
|
Food and beverage
|
|
|
245
|
|
|
|
—
|
|
|
|
245
|
|
|
|
285
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
271
|
|
Other
|
|
|
442
|
|
|
|
—
|
|
|
|
442
|
|
|
|
473
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
440
|
|
Depreciation and amortization
|
|
|
164
|
|
|
|
(164
|
)
|
|
|
—
|
|
|
|
170
|
|
|
|
—
|
|
|
|
(170
|
)
|
|
|
—
|
|
Corporate and other expenses
|
|
|
25
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
Total expenses
|
|
|
1,063
|
|
|
|
(189
|
)
|
|
|
874
|
|
|
|
1,174
|
|
|
|
(61
|
)
|
|
|
(199
|
)
|
|
|
914
|
|
Operating Profit (Loss) - All Owned Hotel Pro Forma EBITDA
|
|
$
|
(11
|
)
|
|
$
|
189
|
|
|
$
|
178
|
|
|
$
|
216
|
|
|
$
|
(15
|
)
|
|
$
|
199
|
|
|
$
|
400
|
|
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP profit margins are calculated using amounts presented in the condensed consolidated statements of operations. Hotel margins are calculated using amounts presented in the above tables.
|
(2)
|
Pro forma adjustments represent the following items: (i) the elimination of results of operations of our sold hotels, which operations are included in our condensed consolidated statements of operations as continuing operations and (ii) the addition of results for periods prior to our ownership for hotels acquired during the presented periods. For this presentation, we no longer adjust for certain items such as gains on insurance settlements, the results of our leased office buildings and other non-hotel revenue and expense items, and they are included in the All Owned Hotel Pro Forma results.
|