UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2018
OR
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☐ |
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) |
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53-008595 52-2095412 (I.R.S. Employer Identification No.) |
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6903 Rockledge Drive, Suite 1500 Bethesda, Maryland (Address of Principal Executive Offices) |
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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.
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Host Hotels & Resorts, Inc. |
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Yes ☑ |
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No ☐ |
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Host Hotels & Resorts, L.P. |
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Yes ☑ |
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No ☐ |
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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).
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Host Hotels & Resorts, Inc. |
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Yes ☑ |
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No ☐ |
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Host Hotels & Resorts, L.P. |
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Yes ☑ |
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No ☐ |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Host Hotels & Resorts, Inc. |
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Large accelerated filer ☑ |
Accelerated filer ☐ |
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Non-accelerated filer (Do not check if a smaller reporting company) ☐ |
Smaller reporting company ☐ |
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Emerging growth company ☐ |
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Host Hotels & Resorts, L.P. |
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer (Do not check if a smaller reporting company) ☑ |
Smaller reporting company ☐ |
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Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Host Hotels & Resorts, Inc. |
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Yes ☐ |
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No ☑ |
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Host Hotels & Resorts, L.P. |
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Yes ☐ |
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No ☑ |
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As of May 1, 2018 there were 741,336,886 shares of Host Hotels & Resorts, Inc.’s common stock, $.01 par value per share, outstanding.
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, 2017 under the heading “Explanatory Note.”
i
HOST HOTELS & RESORTS, INC. AND HOST HOTELS & RESORTS, L.P.
INDEX
PART I. FINANCIAL INFORMATION
ii
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2018 and December 31, 2017
(in millions, except share and per share amounts)
|
|
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March 31, 2018 |
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December 31, 2017 |
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(unaudited) |
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ASSETS |
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|||||||
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Property and equipment, net |
|
$ |
10,650 |
|
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$ |
9,692 |
|
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Assets held for sale |
|
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181 |
|
|
|
250 |
|
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Due from managers |
|
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146 |
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79 |
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Advances to and investments in affiliates |
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342 |
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|
|
327 |
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Furniture, fixtures and equipment replacement fund |
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|
196 |
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195 |
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Other |
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226 |
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|
|
237 |
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Cash and cash equivalents |
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323 |
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|
913 |
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Total assets |
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$ |
12,064 |
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$ |
11,693 |
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|
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|
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|
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LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY |
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|||||||
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Debt |
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|
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|
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|
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Senior notes |
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$ |
2,779 |
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$ |
2,778 |
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Credit facility, including term loans of $997 million and $996 million, respectively |
|
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1,481 |
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|
|
1,170 |
|
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Other debt |
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6 |
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6 |
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Total debt |
|
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4,266 |
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3,954 |
|
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Accounts payable and accrued expenses |
|
|
233 |
|
|
|
283 |
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Other |
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|
281 |
|
|
|
287 |
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Total liabilities |
|
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4,780 |
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4,524 |
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Non-controlling interests - Host Hotels & Resorts, L.P. |
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156 |
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167 |
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Host Hotels & Resorts, Inc. stockholders’ equity: |
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Common stock, par value $.01, 1,050 million shares authorized, 739.5 million shares and 739.1 million shares issued and outstanding, respectively |
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7 |
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7 |
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Additional paid-in capital |
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8,109 |
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8,097 |
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Accumulated other comprehensive loss |
|
|
(55 |
) |
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(60 |
) |
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Deficit |
|
|
(962 |
) |
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(1,071 |
) |
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Total equity of Host Hotels & Resorts, Inc. stockholders |
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7,099 |
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6,973 |
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Non-controlling interests—other consolidated partnerships |
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29 |
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29 |
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Total equity |
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7,128 |
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7,002 |
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Total liabilities, non-controlling interests and equity |
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$ |
12,064 |
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$ |
11,693 |
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See notes to condensed consolidated financial statements.
1
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended March 31, 2018 and 2017
(unaudited, in millions, except per share amounts)
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Quarter ended March 31, |
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2018 |
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2017 |
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REVENUES |
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Rooms |
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$ |
844 |
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$ |
843 |
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Food and beverage |
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413 |
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|
422 |
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Other |
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|
89 |
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83 |
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Total revenues |
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1,346 |
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1,348 |
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EXPENSES |
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Rooms |
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224 |
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219 |
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Food and beverage |
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278 |
|
|
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277 |
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Other departmental and support expenses |
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315 |
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319 |
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Management fees |
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54 |
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56 |
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Other property-level expenses |
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98 |
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100 |
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Depreciation and amortization |
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178 |
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180 |
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Corporate and other expenses |
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28 |
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29 |
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Gain on insurance and business interruption settlements |
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— |
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(3 |
) |
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Total operating costs and expenses |
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1,175 |
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1,177 |
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OPERATING PROFIT |
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171 |
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171 |
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Interest income |
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3 |
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1 |
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Interest expense |
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(44 |
) |
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(39 |
) |
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Gain on sale of assets |
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120 |
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17 |
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Loss on foreign currency transactions and derivatives |
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— |
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(2 |
) |
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Equity in earnings of affiliates |
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10 |
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7 |
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INCOME BEFORE INCOME TAXES |
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260 |
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|
|
155 |
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Benefit (provision) for income taxes |
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(4 |
) |
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6 |
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NET INCOME |
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256 |
|
|
|
161 |
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Less: Net income attributable to non-controlling interests |
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(3 |
) |
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(3 |
) |
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NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC. |
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$ |
253 |
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$ |
158 |
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Basic earnings per common share |
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$ |
.34 |
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$ |
.21 |
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Diluted earnings per common share |
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$ |
.34 |
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$ |
.21 |
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See notes to condensed consolidated financial statements.
2
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Quarter ended March 31, 2018 and 2017
(unaudited, in millions)
|
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Quarter ended March 31, |
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2018 |
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2017 |
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NET INCOME |
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$ |
256 |
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$ |
161 |
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
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|
|
|
|
|
|
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Foreign currency translation and other comprehensive income of unconsolidated affiliates |
|
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6 |
|
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7 |
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Change in fair value of derivative instruments |
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(1 |
) |
|
|
(1 |
) |
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Amounts reclassified from other comprehensive income (loss) |
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|
— |
|
|
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(1 |
) |
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OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
|
5 |
|
|
|
5 |
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COMPREHENSIVE INCOME |
|
|
261 |
|
|
|
166 |
|
|
Less: Comprehensive income attributable to non-controlling interests |
|
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(3 |
) |
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(2 |
) |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC. |
|
$ |
258 |
|
|
$ |
164 |
|
See notes to condensed consolidated financial statements.
3
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter ended March 31, 2018 and 2017
(unaudited, in millions)
|
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Quarter ended March 31, |
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|||||
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2018 |
|
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2017 |
|
||
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
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Net income |
|
$ |
256 |
|
|
$ |
161 |
|
|
Adjustments to reconcile to cash provided by operations: |
|
|
|
|
|
|
|
|
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Depreciation and amortization |
|
|
178 |
|
|
|
180 |
|
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Amortization of finance costs, discounts and premiums, net |
|
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2 |
|
|
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1 |
|
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Stock compensation expense |
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|
3 |
|
|
|
3 |
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Deferred income taxes |
|
|
— |
|
|
|
(6 |
) |
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Gain on sale of assets |
|
|
(120 |
) |
|
|
(17 |
) |
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Loss on foreign currency transactions and derivatives |
|
|
— |
|
|
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2 |
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Equity in earnings of affiliates |
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(10 |
) |
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|
(7 |
) |
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Change in due from managers |
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|
(63 |
) |
|
|
(74 |
) |
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Distributions from investments in affiliates |
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4 |
|
|
|
— |
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Changes in other assets |
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|
7 |
|
|
|
(12 |
) |
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Changes in other liabilities |
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(9 |
) |
|
|
(19 |
) |
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Net cash provided by operating activities |
|
|
248 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
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INVESTING ACTIVITIES |
|
|
|
|
|
|
|
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Proceeds from sales of assets, net |
|
|
181 |
|
|
|
160 |
|
|
Return of investments in affiliates |
|
|
— |
|
|
|
3 |
|
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Advances to and investments in affiliates |
|
|
(3 |
) |
|
|
— |
|
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Acquisitions |
|
|
(1,019 |
) |
|
|
(467 |
) |
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Capital expenditures: |
|
|
|
|
|
|
|
|
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Renewals and replacements |
|
|
(86 |
) |
|
|
(64 |
) |
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Return on investment |
|
|
(29 |
) |
|
|
(16 |
) |
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Property insurance proceeds |
|
|
1 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(955 |
) |
|
|
(384 |
) |
|
|
|
|
|
|
|
|
|
|
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FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
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Financing costs |
|
|
— |
|
|
|
(3 |
) |
|
Issuances of debt |
|
|
— |
|
|
|
398 |
|
|
Draws on credit facility |
|
|
310 |
|
|
|
340 |
|
|
Repayment of credit facility |
|
|
— |
|
|
|
(340 |
) |
|
Dividends on common stock |
|
|
(185 |
) |
|
|
(185 |
) |
|
Other financing activities |
|
|
(6 |
) |
|
|
(2 |
) |
|
Net cash provided by financing activities |
|
|
119 |
|
|
|
208 |
|
|
Effects of exchange rate changes on cash held |
|
|
(1 |
) |
|
|
4 |
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(589 |
) |
|
|
40 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD |
|
|
1,109 |
|
|
|
544 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD |
|
$ |
520 |
|
|
$ |
584 |
|
See notes to condensed consolidated financial statements.
4
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Quarter ended March 31, 2018 and 2017
(unaudited)
Supplemental disclosure of cash flow information (in millions):
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet to the amount shown in the statements of cash flows:
|
|
|
March 31, 2018 |
|
|
|
|
March 31, 2017 |
|
||
|
Cash and cash equivalents |
|
$ |
323 |
|
|
|
|
$ |
411 |
|
|
Restricted cash (included in other assets) |
|
|
1 |
|
|
|
|
|
2 |
|
|
Cash included in furniture, fixtures and equipment replacement fund |
|
|
196 |
|
|
|
|
|
171 |
|
|
Total cash and cash equivalents and restricted cash shown in the statements of cash flows |
|
$ |
520 |
|
|
|
|
$ |
584 |
|
The following table presents cash paid during the quarter for the following:
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
Total interest paid |
|
$ |
38 |
|
|
$ |
37 |
|
|
Income taxes paid |
|
$ |
1 |
|
|
$ |
1 |
|
See notes to condensed consolidated financial statements.
5
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2018 and December 31, 2017
(in millions)
|
|
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||
|
|
|
(unaudited) |
|
|
|
|
|
|
|
ASSETS |
|
|||||||
|
Property and equipment, net |
|
$ |
10,650 |
|
|
$ |
9,692 |
|
|
Assets held for sale |
|
|
181 |
|
|
|
250 |
|
|
Due from managers |
|
|
146 |
|
|
|
79 |
|
|
Advances to and investments in affiliates |
|
|
342 |
|
|
|
327 |
|
|
Furniture, fixtures and equipment replacement fund |
|
|
196 |
|
|
|
195 |
|
|
Other |
|
|
226 |
|
|
|
237 |
|
|
Cash and cash equivalents |
|
|
323 |
|
|
|
913 |
|
|
Total assets |
|
$ |
12,064 |
|
|
$ |
11,693 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL |
|
|||||||
|
Debt |
|
|
|
|
|
|
|
|
|
Senior notes |
|
$ |
2,779 |
|
|
$ |
2,778 |
|
|
Credit facility, including term loans of $997 million and $996 million, respectively |
|
|
1,481 |
|
|
|
1,170 |
|
|
Other debt |
|
|
6 |
|
|
|
6 |
|
|
Total debt |
|
|
4,266 |
|
|
|
3,954 |
|
|
Accounts payable and accrued expenses |
|
|
233 |
|
|
|
283 |
|
|
Other |
|
|
281 |
|
|
|
287 |
|
|
Total liabilities |
|
|
4,780 |
|
|
|
4,524 |
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnership interests of third parties |
|
|
156 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
Host Hotels & Resorts, L.P. capital: |
|
|
|
|
|
|
|
|
|
General partner |
|
|
1 |
|
|
|
1 |
|
|
Limited partner |
|
|
7,153 |
|
|
|
7,032 |
|
|
Accumulated other comprehensive loss |
|
|
(55 |
) |
|
|
(60 |
) |
|
Total Host Hotels & Resorts, L.P. capital |
|
|
7,099 |
|
|
|
6,973 |
|
|
Non-controlling interests—consolidated partnerships |
|
|
29 |
|
|
|
29 |
|
|
Total capital |
|
|
7,128 |
|
|
|
7,002 |
|
|
Total liabilities, limited partnership interest of third parties and capital |
|
$ |
12,064 |
|
|
$ |
11,693 |
|
See notes to condensed consolidated financial statements.
6
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended March 31, 2018 and 2017
(unaudited, in millions, except per unit amounts)
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
REVENUES |
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
844 |
|
|
$ |
843 |
|
|
Food and beverage |
|
|
413 |
|
|
|
422 |
|
|
Other |
|
|
89 |
|
|
|
83 |
|
|
Total revenues |
|
|
1,346 |
|
|
|
1,348 |
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
Rooms |
|
|
224 |
|
|
|
219 |
|
|
Food and beverage |
|
|
278 |
|
|
|
277 |
|
|
Other departmental and support expenses |
|
|
315 |
|
|
|
319 |
|
|
Management fees |
|
|
54 |
|
|
|
56 |
|
|
Other property-level expenses |
|
|
98 |
|
|
|
100 |
|
|
Depreciation and amortization |
|
|
178 |
|
|
|
180 |
|
|
Corporate and other expenses |
|
|
28 |
|
|
|
29 |
|
|
Gain on insurance and business interruption settlements |
|
|
— |
|
|
|
(3 |
) |
|
Total operating costs and expenses |
|
|
1,175 |
|
|
|
1,177 |
|
|
OPERATING PROFIT |
|
|
171 |
|
|
|
171 |
|
|
Interest income |
|
|
3 |
|
|
|
1 |
|
|
Interest expense |
|
|
(44 |
) |
|
|
(39 |
) |
|
Gain on sale of assets |
|
|
120 |
|
|
|
17 |
|
|
Loss on foreign currency transactions and derivatives |
|
|
— |
|
|
|
(2 |
) |
|
Equity in earnings of affiliates |
|
|
10 |
|
|
|
7 |
|
|
INCOME BEFORE INCOME TAXES |
|
|
260 |
|
|
|
155 |
|
|
Benefit (provision) for income taxes |
|
|
(4 |
) |
|
|
6 |
|
|
NET INCOME |
|
|
256 |
|
|
|
161 |
|
|
Less: Net income attributable to non-controlling interests |
|
|
— |
|
|
|
(1 |
) |
|
NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P. |
|
$ |
256 |
|
|
$ |
160 |
|
|
Basic earnings per common unit |
|
$ |
.35 |
|
|
$ |
.22 |
|
|
Diluted earnings per common unit |
|
$ |
.35 |
|
|
$ |
.22 |
|
See notes to condensed consolidated financial statements.
7
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Quarter ended March 31, 2018 and 2017
(unaudited, in millions)
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
NET INCOME |
|
$ |
256 |
|
|
$ |
161 |
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
|
|
|
|
|
Foreign currency translation and other comprehensive income of unconsolidated affiliates |
|
|
6 |
|
|
|
7 |
|
|
Change in fair value of derivative instruments |
|
|
(1 |
) |
|
|
(1 |
) |
|
Amounts reclassified from other comprehensive income (loss) |
|
|
— |
|
|
|
(1 |
) |
|
OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
|
5 |
|
|
|
5 |
|
|
COMPREHENSIVE INCOME |
|
|
261 |
|
|
|
166 |
|
|
Less: Comprehensive income attributable to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P. |
|
$ |
261 |
|
|
$ |
166 |
|
See notes to condensed consolidated financial statements.
8
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter ended March 31, 2018 and 2017
(unaudited, in millions)
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
256 |
|
|
$ |
161 |
|
|
Adjustments to reconcile to cash provided by operations: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
178 |
|
|
|
180 |
|
|
Amortization of finance costs, discounts and premiums, net |
|
|
2 |
|
|
|
1 |
|
|
Stock compensation expense |
|
|
3 |
|
|
|
3 |
|
|
Deferred income taxes |
|
|
— |
|
|
|
(6 |
) |
|
Gain on sale of assets |
|
|
(120 |
) |
|
|
(17 |
) |
|
Loss on foreign currency transactions and derivatives |
|
|
— |
|
|
|
2 |
|
|
Equity in earnings of affiliates |
|
|
(10 |
) |
|
|
(7 |
) |
|
Change in due from managers |
|
|
(63 |
) |
|
|
(74 |
) |
|
Distributions from investments in affiliates |
|
|
4 |
|
|
|
— |
|
|
Changes in other assets |
|
|
7 |
|
|
|
(12 |
) |
|
Changes in other liabilities |
|
|
(9 |
) |
|
|
(19 |
) |
|
Net cash provided by operating activities |
|
|
248 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets, net |
|
|
181 |
|
|
|
160 |
|
|
Return of investments in affiliates |
|
|
— |
|
|
|
3 |
|
|
Advances to and investments in affiliates |
|
|
(3 |
) |
|
|
— |
|
|
Acquisitions |
|
|
(1,019 |
) |
|
|
(467 |
) |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
Renewals and replacements |
|
|
(86 |
) |
|
|
(64 |
) |
|
Return on investment |
|
|
(29 |
) |
|
|
(16 |
) |
|
Property insurance proceeds |
|
|
1 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(955 |
) |
|
|
(384 |
) |
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Financing costs |
|
|
— |
|
|
|
(3 |
) |
|
Issuances of debt |
|
|
— |
|
|
|
398 |
|
|
Draws on credit facility |
|
|
310 |
|
|
|
340 |
|
|
Repayment of credit facility |
|
|
— |
|
|
|
(340 |
) |
|
Distributions on common OP units |
|
|
(187 |
) |
|
|
(187 |
) |
|
Other financing activities |
|
|
(4 |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
119 |
|
|
|
208 |
|
|
Effects of exchange rate changes on cash held |
|
|
(1 |
) |
|
|
4 |
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(589 |
) |
|
|
40 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD |
|
|
1,109 |
|
|
|
544 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD |
|
$ |
520 |
|
|
$ |
584 |
|
See notes to condensed consolidated financial statements.
9
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Quarter ended March 31, 2018 and 2017
(unaudited)
Supplemental disclosure of cash flow information (in millions):
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet to the amount shown in the statements of cash flows:
|
|
|
March 31, 2018 |
|
|
|
|
March 31, 2017 |
|
||
|
Cash and cash equivalents |
|
$ |
323 |
|
|
|
|
$ |
411 |
|
|
Restricted cash (included in other assets) |
|
|
1 |
|
|
|
|
|
2 |
|
|
Cash included in furniture, fixtures and equipment replacement fund |
|
|
196 |
|
|
|
|
|
171 |
|
|
Total cash and cash equivalents and restricted cash shown in the statements of cash flows |
|
$ |
520 |
|
|
|
|
$ |
584 |
|
The following table presents cash paid during the quarter for the following:
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
Total interest paid |
|
$ |
38 |
|
|
$ |
37 |
|
|
Income taxes paid |
|
$ |
1 |
|
|
$ |
1 |
|
See notes to condensed consolidated financial statements.
10
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 unaudited 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, 2018, Host Inc. holds approximately 99% of Host L.P.’s OP units.
Consolidated Portfolio
As of March 31, 2018, our consolidated portfolio, primarily consisting of luxury and upper upscale hotels, is located in the following countries:
|
|
Hotels |
|
|
|
United States |
|
90 |
|
|
Brazil |
|
3 |
|
|
Canada |
|
2 |
|
|
Mexico |
|
1 |
|
|
Total |
|
96 |
|
Joint Ventures
We own approximately a 33% non-controlling interest in a joint venture in Europe (“Euro JV”) that owns 11 hotels in two separate funds in seven countries. We also own non-controlling interests in an additional six joint ventures that own ten hotels.
Omg
|
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, 2017.
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 unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2018, and the results of our operations and cash flows for the quarters ended March 31, 2018 and 2017, respectively. Interim results are not necessarily indicative of full year performance because of the impact of seasonal variations.
Three of our partnerships are considered variable interest entities (VIEs) as the general partner maintains control over the decisions that most significantly impact the partnerships. This includes the operating partnership, Host L.P., which is consolidated by Host Inc., of which Host Inc. is the sole general partner and holds approximately 99% of its partnership interests; the consolidated partnership that owns the Houston Airport Marriott at George Bush Intercontinental; and the unconsolidated partnership that owns the Philadelphia Marriott Downtown. Host Inc.’s sole
11
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
significant asset is its investment in Host L.P. and, consequently, substantially all of Host Inc.’s assets and liabilities consist of the assets and liabilities of Host L.P. All of Host Inc.’s debt is an obligation of Host L.P. and may be settled only with assets of Host L.P.
Reclassifications
Certain prior year financial statement amounts have been reclassified to conform with the current year presentation.
New Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which affects aspects of accounting for lease agreements. Under the new standard, all leases, including operating leases, will require recognition of the lease assets and lease liabilities by lessees on the balance sheet. However, the effect on the statement of operations and the statement of cash flows largely is unchanged. The standard is effective for fiscal years beginning after December 15, 2018. The current standard requires a modified retrospective approach, with restatement of the periods presented in the year of adoption. The primary impact of the new standard will be to the treatment of our 26 ground leases, which represent approximately 85% of our annual operating lease payments. While we have not completed our analysis, we believe that application of this standard will result in the recording of a right of use asset and the related lease liability of between $400 million and $500 million for the ground leases, although changes in discount rates, ground lease terms or other variables may have a significant effect on this calculation. As noted above, we expect that the adoption of this standard will have minimal impact on our income statement.
Business Combinations. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The standard adopts a two-step approach wherein, if substantially all of the fair value of the gross assets acquired is concentrated in a single (group of similar) identifiable asset(s), then the transaction will be considered an asset purchase. We adopted this standard effective January 1, 2018. As a result of this standard, we anticipate that the majority of our future hotel purchases will be considered asset purchases as opposed to business combinations, although the determination will be made on a transaction-by-transaction basis. This standard was adopted on a prospective basis and, therefore, it did not affect the accounting for any of our previous transactions.
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard sets forth steps to determine the timing and amount of revenue to be recognized to depict the transfer of goods or services in an amount that reflects the consideration that the entity expects in exchange. The FASB also issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which is required to be adopted concurrently, as it provides further guidance on accounting for the derecognition of and partial sales of a non-financial asset. This standard may allow for earlier gain recognition for certain sale transactions pursuant to which we have continuing involvement with the asset. We adopted these standards on January 1, 2018, using a modified retrospective approach with a cumulative effect recognized in our equity balance on the date of adoption and no restatements of prior period amounts. When applying the new standard for the cumulative effect, we elected to apply the new standard only to contracts that were not considered completed as of the date of adoption.
Transition adjustment. As a result of the adoption of this standard, total liabilities at January 1, 2018 were reduced by $4.5 million, and total equity of Host, Inc. stockholders and total Host L.P. capital at January 1, 2018 increased by $4.5 million. This adjustment is related to a previously deferred gain on the sale of the Atlanta Marriott Marquis in 2013 that would have qualified for recognition under the new standard. Our balance sheet as of March 31, 2018 includes $0.4 million retained as a contingent liability for potential environmental liabilities at the Atlanta Marriott Marquis; however, our potential exposure related to the guarantee can be up to $5 million. Adoption did not have an effect on our income statement for the quarters ended March 31, 2018 and 2017.
Policy Disclosure. There has been no significant change to our method of revenue recognition for our primary operations; however, we have updated our accounting policy and disclosures for the revenue recognition standard. See Note 4 for this disclosure.
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) |
Basic earnings per common share (unit) is computed by dividing net income attributable to common stockholders (unitholders) by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding. Diluted earnings per common share (unit) is computed by dividing net income attributable to common stockholders (unitholders), as adjusted for potentially dilutive securities, by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding plus other potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans or the common OP units distributed to Host Inc. to support such shares granted, and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for any securities that are anti-dilutive. We have 8.2 million common OP units which are convertible into 8.4 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 Host Inc. basic and diluted earnings per common share is shown below (in millions, except per share amounts):
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
Net income |
|
$ |
256 |
|
|
$ |
161 |
|
|
Less: Net income attributable to non-controlling interests |
|
|
(3 |
) |
|
|
(3 |
) |
|
Net income attributable to Host Inc. |
|
$ |
253 |
|
|
$ |
158 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
739.2 |
|
|
|
738.0 |
|
|
Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market |
|
|
0.4 |
|
|
|
0.2 |
|
|
Diluted weighted average shares outstanding |
|
|
739.6 |
|
|
|
738.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
.34 |
|
|
$ |
.21 |
|
|
Diluted earnings per common share |
|
$ |
.34 |
|
|
$ |
.21 |
|
|
|
|
|
|
|
|
|
|
|
The calculation of Host L.P. basic and diluted earnings per unit is shown below (in millions, except per unit amounts):
|
|
|
Quarter ended March 31, |
|
|||||
|
|
|
2018< | ||||||