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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 001-14625 (Host Hotels & Resorts, Inc.)

0-25087 (Host Hotels & Resorts, L.P.)

 

HOST HOTELS & RESORTS, INC.

HOST HOTELS & RESORTS, L.P.

(Exact name of registrant as specified in its charter)

 

 

Maryland (Host Hotels & Resorts, Inc.)

Delaware (Host Hotels & Resorts, L.P.)

(State or Other Jurisdiction of

Incorporation or Organization)

 

53-008595

52-2095412

(I.R.S. Employer

Identification No.)

 

 

 

6903 Rockledge Drive, Suite 1500

Bethesda, Maryland

(Address of Principal Executive Offices)

 

20817

(Zip Code)

(240) 744-1000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Host Hotels & Resorts, Inc.

 

Yes  þ

  

    

 

No  ¨

  

Host Hotels & Resorts, L.P.

 

Yes  þ

  

    

 

No  ¨

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Host Hotels & Resorts, Inc.

 

Yes  þ

  

    

 

No  ¨

  

Host Hotels & Resorts, L.P.

 

Yes  þ

  

    

 

No  ¨

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Host Hotels & Resorts, Inc.

 

Large accelerated filer    þ

Accelerated filer    ¨

Non-accelerated filer (Do not check if a smaller reporting company)    ¨

Smaller reporting company    ¨

 

 

Host Hotels & Resorts, L.P.

 

Large accelerated filer    ¨

Accelerated filer    ¨

Non-accelerated filer (Do not check if a smaller reporting company)    þ

Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Host Hotels & Resorts, Inc.

 

Yes  ¨

  

    

 

No  þ

  

Host Hotels & Resorts, L.P.

 

Yes  ¨

  

    

 

No  þ

  

As of April 29, 2015 there were 757,674,729 shares of Host Hotels & Resorts, Inc.’s common stock, $.01 par value per share, outstanding.

 

 

 


 

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q of Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. Unless stated otherwise or the context requires otherwise, references to “Host Inc.” mean Host Hotels & Resorts, Inc., a Maryland corporation, and references to “Host L.P.” mean Host Hotels & Resorts, L.P., a Delaware limited partnership, and its consolidated subsidiaries, in cases where it is important to distinguish between Host Inc. and Host L.P. We use the terms “we” or “our” or “the company” to refer to Host Inc. and Host L.P. together, unless the context indicates otherwise.

Host Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”). Host Inc. owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and of which it holds approximately 99% of the partnership interests (“OP units”). The remaining OP units are owned by various unaffiliated limited partners. As the sole general partner of Host L.P., Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control. Management operates Host Inc. and Host L.P. as one enterprise. The management of Host Inc. consists of the same persons who direct the management of Host L.P. As general partner with control of Host L.P., Host Inc. consolidates Host L.P. for financial reporting purposes, and Host Inc. does not have significant assets other than its investment in Host L.P. Therefore, the assets and liabilities of Host Inc. and Host L.P. are substantially the same on their respective condensed consolidated financial statements and the disclosures of Host Inc. and Host L.P. also are substantially similar. For these reasons, we believe that the combination into a single report of the quarterly reports on Form 10-Q of Host Inc. and Host L.P. results in benefits to management and investors.

The substantive difference between Host Inc.’s and Host L.P.’s filings is the fact that Host Inc. is a REIT with public stock, while Host L.P. is a partnership with no publicly traded equity. In the condensed consolidated financial statements, this difference primarily is reflected in the equity (or partners’ capital for Host L.P.) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital for Host L.P.). Apart from the different equity treatment, the condensed consolidated financial statements of Host Inc. and Host L.P. nearly are identical.

This combined Form 10-Q for Host Inc. and Host L.P. includes, for each entity, separate interim financial statements (but combined footnotes), separate reports on disclosure controls and procedures and internal control over financial reporting and separate CEO/CFO certifications. In addition, with respect to any other financial and non-financial disclosure items required by Form 10-Q, any material differences between Host Inc. and Host L.P. are discussed separately herein. For a more detailed discussion of the substantive differences between Host Inc. and Host L.P. and why we believe the combined filing results in benefits to investors, see the discussion in the combined Annual Report on Form 10-K for the year ended December 31, 2014 under the heading “Explanatory Note.”

 

 

 

i


 

HOST HOTELS & RESORTS, INC. AND HOST HOTELS & RESORTS, L.P.

INDEX

PART I. FINANCIAL INFORMATION

 

 

  

 

Page No.

Item 1.

  

Financial Statements for Host Hotels & Resorts, Inc.:

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets -
March 31, 2015 (unaudited) and December 31, 2014

1

 

 

 

 

 

  

Condensed Consolidated Statements of Operations (unaudited) -
Quarter ended March 31, 2015 and 2014

2

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
Quarter ended March 31, 2015 and 2014

3

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) -
Quarter ended March 31, 2015 and 2014

4

 

 

 

 

 

  

Financial Statements for Host Hotels & Resorts, L.P.:

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets -
March 31, 2015 (unaudited) and December 31, 2014

6

 

 

 

 

 

  

Condensed Consolidated Statements of Operations (unaudited) -
Quarter ended March 31, 2015 and 2014

7

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
Quarter ended March 31, 2015 and 2014

8

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) -
Quarter ended March 31, 2015 and 2014

9

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (unaudited)

11

 

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

42

 

 

 

 

Item 4.

  

Controls and Procedures

43

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

 

Item 6.

  

Exhibits

45

 

 

 

ii


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2015 and December 31, 2014

(in millions, except share and per share amounts)

 

 

 

March 31,

2015

 

 

December 31,

2014

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

Property and equipment, net

 

$

10,495

 

 

$

10,575

 

Due from managers

 

 

149

 

 

 

70

 

Advances to and investments in affiliates

 

 

387

 

 

 

433

 

Deferred financing costs, net

 

 

33

 

 

 

35

 

Furniture, fixtures and equipment replacement fund

 

 

169

 

 

 

129

 

Other

 

 

292

 

 

 

281

 

Cash and cash equivalents

 

 

485

 

 

 

684

 

Total assets

 

$

12,010

 

 

$

12,207

 

 

 

 

 

 

 

 

 

 

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

 

 

 

Debt

 

 

 

 

 

 

 

 

Senior notes, including $390 million and $386 million, respectively,

     net of discount, of Exchangeable Senior Debentures

 

$

2,888

 

 

$

2,884

 

Credit facility, including the $500 million term loan

 

 

685

 

 

 

704

 

Mortgage debt

 

 

395

 

 

 

404

 

Total debt

 

 

3,968

 

 

 

3,992

 

Accounts payable and accrued expenses

 

 

224

 

 

 

298

 

Other

 

 

304

 

 

 

324

 

Total liabilities

 

 

4,496

 

 

 

4,614

 

 

 

 

 

 

 

 

 

 

Non-controlling interests - Host Hotels & Resorts, L.P.

 

 

191

 

 

 

225

 

 

 

 

 

 

 

 

 

 

Host Hotels & Resorts, Inc. stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $.01, 1,050 million shares authorized, 756.3

      million shares and 755.8 million shares issued and outstanding,

      respectively

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

8,519

 

 

 

8,476

 

Accumulated other comprehensive loss

 

 

(87

)

 

 

(50

)

Deficit

 

 

(1,151

)

 

 

(1,098

)

Total equity of Host Hotels & Resorts, Inc. stockholders

 

 

7,289

 

 

 

7,336

 

Non-controlling interests—other consolidated partnerships

 

 

34

 

 

 

32

 

Total equity

 

 

7,323

 

 

 

7,368

 

Total liabilities, non-controlling interests and equity

 

$

12,010

 

 

$

12,207

 

 

See notes to condensed consolidated statements.

 

 

 

1


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2015 and 2014

(unaudited, in millions, except per share amounts)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

REVENUES

 

 

 

 

 

 

 

 

Rooms

 

$

818

 

 

$

808

 

Food and beverage

 

 

403

 

 

 

405

 

Other

 

 

96

 

 

 

96

 

Total revenues

 

 

1,317

 

 

 

1,309

 

EXPENSES

 

 

 

 

 

 

 

 

Rooms

 

 

220

 

 

 

226

 

Food and beverage

 

 

283

 

 

 

284

 

Other departmental and support expenses

 

 

321

 

 

 

315

 

Management fees

 

 

52

 

 

 

50

 

Other property-level expenses

 

 

98

 

 

 

97

 

Depreciation and amortization

 

 

175

 

 

 

172

 

Corporate and other expenses

 

 

24

 

 

 

34

 

Gain on insurance settlements

 

 

 

 

 

(3

)

Total operating costs and expenses

 

 

1,173

 

 

 

1,175

 

OPERATING PROFIT

 

 

144

 

 

 

134

 

Interest income

 

 

1

 

 

 

1

 

Interest expense

 

 

(51

)

 

 

(58

)

Gain on sale of assets

 

 

4

 

 

 

112

 

Loss on foreign currency transactions and derivatives

 

 

(1

)

 

 

 

Equity in losses of affiliates

 

 

(2

)

 

 

(8

)

INCOME BEFORE INCOME TAXES

 

 

95

 

 

 

181

 

Benefit for income taxes

 

 

9

 

 

 

4

 

NET INCOME

 

 

104

 

 

 

185

 

Less: Net income attributable to non-controlling interests

 

 

(6

)

 

 

(6

)

NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.

 

$

98

 

 

$

179

 

Basic earnings per common share

 

$

.13

 

 

$

.24

 

Diluted earnings per common share

 

$

.13

 

 

$

.24

 

 

See notes to condensed consolidated statements.

 

 

2


 

 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Quarter ended March 31, 2015 and 2014

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

NET INCOME

 

$

104

 

 

$

185

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

Foreign currency translation and other comprehensive
income (loss) of unconsolidated affiliates

 

 

(47

)

 

 

7

 

Change in fair value of derivative instruments

 

 

15

 

 

 

 

Amounts reclassified from other comprehensive income (loss)

 

 

(5

)

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

(37

)

 

 

7

 

COMPREHENSIVE INCOME

 

 

67

 

 

 

192

 

Less: Comprehensive income attributable to non-controlling interests

 

 

(6

)

 

 

(6

)

COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS &
RESORTS, INC.

 

$

61

 

 

$

186

 

 

See notes to condensed consolidated statements.

 

 

 

3


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2015 and 2014

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

104

 

 

$

185

 

Adjustments to reconcile to cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

175

 

 

 

172

 

Amortization of finance costs, discounts and premiums, net

 

 

6

 

 

 

6

 

Non-cash loss on extinguishment of debt

 

 

 

 

 

1

 

Stock compensation expense

 

 

5

 

 

 

4

 

Deferred income taxes

 

 

(13

)

 

 

(11

)

Gain on sale of assets

 

 

(4

)

 

 

(112

)

Loss on foreign currency transactions and derivatives

 

 

1

 

 

 

 

Equity in losses of affiliates

 

 

2

 

 

 

8

 

Change in due from managers

 

 

(75

)

 

 

(58

)

Distributions from equity investments

 

 

4

 

 

 

 

Changes in other assets

 

 

13

 

 

 

(6

)

Changes in other liabilities

 

 

(45

)

 

 

(18

)

Cash provided by operating activities

 

 

173

 

 

 

171

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from sales of assets, net

 

 

33

 

 

 

274

 

Return of investment

 

 

 

 

 

25

 

Acquisitions

 

 

 

 

 

(73

)

Advances to and investments in affiliates

 

 

 

 

 

(14

)

Capital expenditures:

 

 

 

 

 

 

 

 

Renewals and replacements

 

 

(125

)

 

 

(76

)

Redevelopment and acquisition-related investments

 

 

(45

)

 

 

(14

)

Change in furniture, fixtures and equipment ("FF&E") replacement fund

 

 

(30

)

 

 

12

 

Cash provided by (used in) investing activities

 

 

(167

)

 

 

134

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of credit facility

 

 

 

 

 

(225

)

Repurchase/redemption of senior notes

 

 

 

 

 

(150

)

Mortgage debt and other prepayments and scheduled maturities

 

 

 

 

 

(301

)

Issuance of common stock

 

 

1

 

 

 

1

 

Dividends on common stock

 

 

(197

)

 

 

(98

)

Distributions to non-controlling interests

 

 

(2

)

 

 

(1

)

Change in restricted cash for financing activities

 

 

 

 

 

(1

)

Cash used in financing activities

 

 

(198

)

 

 

(775

)

Effects of exchange rate changes on cash held

 

 

(7

)

 

 

1

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(199

)

 

 

(469

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

684

 

 

 

861

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

485

 

 

$

392

 

 

See notes to condensed consolidated statements

 

 

 

4


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2015 and 2014

(unaudited)

Supplemental disclosure of cash flow information (in millions)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

Interest paid - periodic interest expense

 

$

44

 

 

$

48

 

Interest paid - debt extinguishments

 

 

 

 

 

2

 

Total interest paid

 

$

44

 

 

$

50

 

Income taxes paid

 

$

1

 

 

$

8

 

 

See notes to condensed consolidated statements.

 

 

 

5


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2015 and December 31, 2014

(in millions)

 

 

 

March 31,

2015

 

 

December 31,

2014

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

Property and equipment, net

 

$

10,495

 

 

$

10,575

 

Due from managers

 

 

149

 

 

 

70

 

Advances to and investments in affiliates

 

 

387

 

 

 

433

 

Deferred financing costs, net

 

 

33

 

 

 

35

 

Furniture, fixtures and equipment replacement fund

 

 

169

 

 

 

129

 

Other

 

 

292

 

 

 

281

 

Cash and cash equivalents

 

 

485

 

 

 

684

 

Total assets

 

$

12,010

 

 

$

12,207

 

 

 

 

 

 

 

 

 

 

LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL

 

Debt

 

 

 

 

 

 

 

 

Senior notes, including $390 million and $386 million, respectively,

     net of discount, of Exchangeable Senior Debentures

 

$

2,888

 

 

$

2,884

 

Credit facility, including the $500 million term loan

 

 

685

 

 

 

704

 

Mortgage debt

 

 

395

 

 

 

404

 

Total debt

 

 

3,968

 

 

 

3,992

 

Accounts payable and accrued expenses

 

 

224

 

 

 

298

 

Other

 

 

304

 

 

 

324

 

Total liabilities

 

 

4,496

 

 

 

4,614

 

 

 

 

 

 

 

 

 

 

Limited partnership interests of third parties

 

 

191

 

 

 

225

 

 

 

 

 

 

 

 

 

 

Host Hotels & Resorts, L.P. capital:

 

 

 

 

 

 

 

 

General partner

 

 

1

 

 

 

1

 

Limited partner

 

 

7,375

 

 

 

7,385

 

Accumulated other comprehensive loss

 

 

(87

)

 

 

(50

)

Total Host Hotels & Resorts, L.P. capital

 

 

7,289

 

 

 

7,336

 

Non-controlling interests—consolidated partnerships

 

 

34

 

 

 

32

 

Total capital

 

 

7,323

 

 

 

7,368

 

Total liabilities, limited partnership interest of third parties and

     capital

 

$

12,010

 

 

$

12,207

 

See notes to condensed consolidated statements.

 

 

 

6


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2015 and 2014

(unaudited, in millions, except per unit amounts)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

REVENUES

 

 

 

 

 

 

 

 

Rooms

 

$

818

 

 

$

808

 

Food and beverage

 

 

403

 

 

 

405

 

Other

 

 

96

 

 

 

96

 

Total revenues

 

 

1,317

 

 

 

1,309

 

EXPENSES

 

 

 

 

 

 

 

 

Rooms

 

 

220

 

 

 

226

 

Food and beverage

 

 

283

 

 

 

284

 

Other departmental and support expenses

 

 

321

 

 

 

315

 

Management fees

 

 

52

 

 

 

50

 

Other property-level expenses

 

 

98

 

 

 

97

 

Depreciation and amortization

 

 

175

 

 

 

172

 

Corporate and other expenses

 

 

24

 

 

 

34

 

Gain on insurance settlements

 

 

 

 

 

(3

)

Total operating costs and expenses

 

 

1,173

 

 

 

1,175

 

OPERATING PROFIT

 

 

144

 

 

 

134

 

Interest income

 

 

1

 

 

 

1

 

Interest expense

 

 

(51

)

 

 

(58

)

Gain on sale of assets

 

 

4

 

 

 

112

 

Loss on foreign currency transactions and derivatives

 

 

(1

)

 

 

 

Equity in losses of affiliates

 

 

(2

)

 

 

(8

)

INCOME BEFORE INCOME TAXES

 

 

95

 

 

 

181

 

Benefit for income taxes

 

 

9

 

 

 

4

 

NET INCOME

 

 

104

 

 

 

185

 

Less: Net income attributable to non-controlling interests

 

 

(5

)

 

 

(4

)

NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.

 

$

99

 

 

$

181

 

Basic earnings per common unit

 

$

.13

 

 

$

.24

 

Diluted earnings per common unit

 

$

.13

 

 

$

.24

 

 

See notes to condensed consolidated statements.

7


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Quarter ended March 31, 2015 and 2014

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

NET INCOME

 

$

104

 

 

$

185

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates

 

 

(47

)

 

 

7

 

Change in fair value of derivative instruments

 

 

15

 

 

 

 

Amounts reclassified from other comprehensive income (loss)

 

 

(5

)

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

(37

)

 

 

7

 

COMPREHENSIVE INCOME

 

 

67

 

 

 

192

 

Less: Comprehensive income attributable to non-controlling interests

 

 

(5

)

 

 

(4

)

COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS &
RESORTS, L.P.

 

$

62

 

 

$

188

 

See notes to condensed consolidated statements.

8


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2015 and 2014

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

104

 

 

$

185

 

Adjustments to reconcile to cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

175

 

 

 

172

 

Amortization of finance costs, discounts and premiums, net

 

 

6

 

 

 

6

 

Non-cash loss on extinguishment of debt

 

 

 

 

 

1

 

Stock compensation expense

 

 

5

 

 

 

4

 

Deferred income taxes

 

 

(13

)

 

 

(11

)

Gain on sale of assets

 

 

(4

)

 

 

(112

)

Loss on foreign currency transactions and derivatives

 

 

1

 

 

 

 

Equity in losses of affiliates

 

 

2

 

 

 

8

 

Change in due from managers

 

 

(75

)

 

 

(58

)

Distributions from equity investments

 

 

4

 

 

 

 

Changes in other assets

 

 

13

 

 

 

(6

)

Changes in other liabilities

 

 

(45

)

 

 

(18

)

Cash provided by operating activities

 

 

173

 

 

 

171

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from sales of assets, net

 

 

33

 

 

 

274

 

Return of investment

 

 

 

 

 

25

 

Acquisitions

 

 

 

 

 

(73

)

Advances to and investments in affiliates

 

 

 

 

 

(14

)

Capital expenditures:

 

 

 

 

 

 

 

 

Renewals and replacements

 

 

(125

)

 

 

(76

)

Redevelopment and acquisition-related investments

 

 

(45

)

 

 

(14

)

Change in furniture, fixtures and equipment ("FF&E") replacement fund

 

 

(30

)

 

 

12

 

Cash provided by (used in) investing activities

 

 

(167

)

 

 

134

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of credit facility

 

 

 

 

 

(225

)

Repurchase/redemption of senior notes

 

 

 

 

 

(150

)

Mortgage debt and other prepayments and scheduled maturities

 

 

 

 

 

(301

)

Issuance of common OP units

 

 

1

 

 

 

1

 

Distributions on common OP units

 

 

(199

)

 

 

(99

)

Change in restricted cash for financing activities

 

 

 

 

 

(1

)

Cash used in financing activities

 

 

(198

)

 

 

(775

)

Effects of exchange rate changes on cash held

 

 

(7

)

 

 

1

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(199

)

 

 

(469

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

684

 

 

 

861

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

485

 

 

$

392

 

 

See notes to condensed consolidated statements

 

 

 

9


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2015 and 2014

(unaudited)

Supplemental disclosure of cash flow information (in millions):

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

Interest paid - periodic interest expense

 

$

44

 

 

$

48

 

Interest paid - debt extinguishments

 

 

 

 

 

2

 

Total interest paid

 

$

44

 

 

$

50

 

Income taxes paid

 

$

1

 

 

$

8

 

 

See notes to condensed consolidated statements.

 

 

10


 

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Organization

Description of Business

Host Hotels & Resorts, Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”), with its operations conducted solely through Host Hotels & Resorts, L.P. and its subsidiaries. Host Hotels & Resorts, L.P., a Delaware limited partnership, operates through an umbrella partnership structure, with Host Hotels & Resorts, Inc., a Maryland corporation, as its sole general partner. In the notes to these condensed consolidated financial statements, we use the terms “we” or “our” to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term “Host Inc.” specifically to refer to Host Hotels & Resorts, Inc. and the term “Host L.P.” specifically to refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host Inc. and Host L.P. As of March 31, 2015, Host Inc. holds approximately 99% of Host L.P.’s OP units.

Consolidated Portfolio

As of March 31, 2015, our consolidated portfolio, primarily consisting of luxury and upper upscale hotels, is located in the following countries:

 

 

Hotels

 

United States

 

97

 

Australia

 

1

 

Brazil

 

3

 

Canada

 

2

 

Chile

 

2

 

Mexico

 

1

 

New Zealand

 

7

 

Total

 

113

 

 

International Joint Ventures

We own a non-controlling interest in a joint venture in Europe (“Euro JV”) that owns hotels in two separate funds. We own a 32.1% interest in the first fund (“Euro JV Fund I”) (10 hotels) and a 33.4% interest in the second fund (“Euro JV Fund II”) (9 hotels).

As of March 31, 2015, the Euro JV owned hotels located in the following countries:

 

 

Hotels

 

Belgium

 

3

 

France

 

4

 

Germany

 

2

 

Italy

 

3

 

Poland

 

1

 

Spain

 

2

 

Sweden

 

1

 

The Netherlands

 

2

 

United Kingdom

 

1

 

Total

 

19

 

 

 

In addition, our joint venture in Asia (“Asia/Pacific JV”), in which we own a 25% non-controlling interest, owns one hotel in Australia and a non-controlling interest in an entity that owns three operating hotels and four additional hotels in various stages of development in India.  

 

 

11


HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

2.

Summary of Significant Accounting Policies

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10–K for the year ended December 31, 2014.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In our opinion, the accompanying financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2015, and the results of our operations and cash flows for the quarters ended March 31, 2015 and 2014, respectively. Interim results are not necessarily indicative of full year performance because of the impact of seasonal variations.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform with the current year presentation. In particular, gain on sale of assets, which previously was presented net of tax following income from continuing operations on our statement of operations, has been reclassified to be included in income before income taxes following guidance issued by the SEC upon adoption of ASU 2014-08, Reporting for Discontinued Operations.

New Accounting Standards

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for annual reporting periods beginning after December 15, 2015. Upon adoption of the standard we will reclassify deferred financing costs, net from total assets to be shown net of debt in the liabilities section of our balance sheet. Adoption of this standard will only affect the presentation of our balance sheet.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. The ASU amends the consolidation guidance for variable interest entities (VIEs) and general partners' investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. We are currently evaluating the effect of the ASU on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which affects virtually all aspects of an entity’s revenue recognition.  The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard is effective for annual reporting periods beginning after December 15, 2016, however in April 2015, the FASB proposed to defer the effective date to December 15, 2017. We have not yet completed our assessment of the effect of the new standard on our financial statements, including possible transition alternatives.

 

 

12


HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

3.

Earnings Per Common Share (Unit)

Host Inc. Earnings Per Common Share

Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of Host Inc. common stock outstanding. Diluted earnings per common share is computed by dividing net income attributable to common stockholders, as adjusted for potentially dilutive securities, by the weighted average number of shares of Host Inc. common stock outstanding plus other potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, other non-controlling interests that have the option to convert their limited partnership interests to common OP units and convertible debt securities. No effect is shown for any securities that are anti-dilutive. We have 9.2 million OP units which are convertible into 9.4 million common shares which are not included in Host Inc.’s calculation of earnings per share as their effect is not dilutive. The calculation of basic and diluted earnings per common share is shown below (in millions, except per share amounts):

 

 

 

Quarter ended March 31,

 

 

 

2015

 

 

2014

 

Net income

 

$

104

 

 

$

185

 

Less: Net income attributable to non-controlling interests

 

 

(6

)

 

 

(6

)

Net income attributable to Host Inc.

 

 

98

 

 

 

179

 

Assuming conversion of exchangeable senior debentures

 

 

 

 

 

7

 

Diluted income attributable to Host Inc.

 

$

98

 

 

$

186

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

756.0

 

 

 

754.9

 

Assuming weighted average shares for conversion of exchangeable senior debentures

 

 

 

 

 

29.9

 

Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market

 

 

0.3

 

 

 

0.3