hst-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

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

For the quarterly period ended March 31, 2019

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)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Host Hotels & Resorts, Inc.

 

Common Stock, $.01 par value

 

HST

 

New York Stock Exchange

Host Hotels & Resorts, L.P.

 

None

 

None

 

None

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  

  

    

 

No  

  

Host Hotels & Resorts, L.P.

 

Yes  

  

    

 

No  

  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Host Hotels & Resorts, Inc.

 

Yes  

  

    

 

No  

  

Host Hotels & Resorts, L.P.

 

Yes  

  

    

 

No  

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

 

Host Hotels & Resorts, Inc.

 

Large accelerated filer    

Accelerated filer    

Non-accelerated filer    

Smaller reporting company    

Emerging growth company    

 

 

 

Host Hotels & Resorts, L.P.

 

Large accelerated filer    

Accelerated filer    

Non-accelerated filer    

Smaller reporting company    

Emerging growth company    

 

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.    

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  

  

Host Hotels & Resorts, L.P.

 

Yes  

  

    

 

No  

  

As of May 1, 2019 there were 740,893,637 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, 2018 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, 2019 (unaudited) and December 31, 2018

1

 

 

 

 

 

  

Condensed Consolidated Statements of Operations (unaudited) -
Quarter ended March 31, 2019 and 2018

2

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
Quarter ended March 31, 2019 and 2018

3

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) -
Quarter ended March 31, 2019 and 2018

4

 

 

 

 

 

  

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

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets -
March 31, 2019 (unaudited) and December 31, 2018

6

 

 

 

 

 

  

Condensed Consolidated Statements of Operations (unaudited) -
Quarter ended March 31, 2019 and 2018

7

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) -
Quarter ended March 31, 2019 and 2018

8

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (unaudited) -
Quarter ended March 31, 2019 and 2018

9

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (unaudited)

11

 

 

 

 

Item 2.

  

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

21

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

 

Item 4.

  

Controls and Procedures

40

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

41

 

 

 

 

Item 6.

  

Exhibits

42

 

 

 

ii


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2019 and December 31, 2018

(in millions, except share and per share amounts)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

Property and equipment, net

 

$

10,296

 

 

$

9,760

 

Right-of-use assets

 

 

616

 

 

 

 

Assets held for sale

 

 

31

 

 

 

281

 

Due from managers

 

 

145

 

 

 

71

 

Advances to and investments in affiliates

 

 

54

 

 

 

48

 

Furniture, fixtures and equipment replacement fund

 

 

191

 

 

 

213

 

Other

 

 

162

 

 

 

175

 

Cash and cash equivalents

 

 

1,082

 

 

 

1,542

 

Total assets

 

$

12,577

 

 

$

12,090

 

 

 

 

 

 

 

 

 

 

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY

 

Debt

 

 

 

 

 

 

 

 

Senior notes

 

$

2,783

 

 

$

2,782

 

Credit facility, including term loans of $998

 

 

1,051

 

 

 

1,049

 

Other debt

 

 

28

 

 

 

6

 

Total debt

 

 

3,862

 

 

 

3,837

 

Lease liabilities

 

 

625

 

 

 

 

Accounts payable and accrued expenses

 

 

240

 

 

 

293

 

Other

 

 

183

 

 

 

266

 

Total liabilities

 

 

4,910

 

 

 

4,396

 

 

 

 

 

 

 

 

 

 

Redeemable non-controlling interests - Host Hotels & Resorts, L.P.

 

 

147

 

 

 

128

 

 

 

 

 

 

 

 

 

 

Host Hotels & Resorts, Inc. stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $.01, 1,050 million shares authorized, 740.9 million shares and 740.4 million shares issued and outstanding, respectively

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

8,138

 

 

 

8,156

 

Accumulated other comprehensive loss

 

 

(59

)

 

 

(59

)

Deficit

 

 

(573

)

 

 

(610

)

Total equity of Host Hotels & Resorts, Inc. stockholders

 

 

7,513

 

 

 

7,494

 

Non-redeemable non-controlling interests—other consolidated partnerships

 

 

7

 

 

 

72

 

Total equity

 

 

7,520

 

 

 

7,566

 

Total liabilities, non-controlling interests and equity

 

$

12,577

 

 

$

12,090

 

See notes to condensed consolidated financial statements.

 

 

 

1


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2019 and 2018

(unaudited, in millions, except per share amounts)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

Rooms

 

$

857

 

 

$

844

 

Food and beverage

 

 

433

 

 

 

413

 

Other

 

 

100

 

 

 

89

 

Total revenues

 

 

1,390

 

 

 

1,346

 

EXPENSES

 

 

 

 

 

 

 

 

Rooms

 

 

217

 

 

 

224

 

Food and beverage

 

 

285

 

 

 

278

 

Other departmental and support expenses

 

 

327

 

 

 

315

 

Management fees

 

 

54

 

 

 

54

 

Other property-level expenses

 

 

92

 

 

 

98

 

Depreciation and amortization

 

 

170

 

 

 

178

 

Corporate and other expenses

 

 

29

 

 

 

28

 

Total operating costs and expenses

 

 

1,174

 

 

 

1,175

 

OPERATING PROFIT

 

 

216

 

 

 

171

 

Interest income

 

 

8

 

 

 

3

 

Interest expense

 

 

(43

)

 

 

(44

)

Gain on sale of assets

 

 

5

 

 

 

120

 

Equity in earnings of affiliates

 

 

5

 

 

 

10

 

INCOME BEFORE INCOME TAXES

 

 

191

 

 

 

260

 

Provision for income taxes

 

 

(2

)

 

 

(4

)

NET INCOME

 

 

189

 

 

 

256

 

Less: Net income attributable to non-controlling interests

 

 

(3

)

 

 

(3

)

NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.

 

$

186

 

 

$

253

 

Basic earnings per common share

 

$

.25

 

 

$

.34

 

Diluted earnings per common share

 

$

.25

 

 

$

.34

 

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, 2019 and 2018

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

NET INCOME

 

$

189

 

 

$

256

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

Foreign currency translation and other comprehensive income of unconsolidated affiliates

 

 

 

 

 

6

 

Change in fair value of derivative instruments

 

 

 

 

 

(1

)

OTHER COMPREHENSIVE INCOME, NET OF TAX

 

 

 

 

 

5

 

COMPREHENSIVE INCOME

 

 

189

 

 

 

261

 

Less: Comprehensive income attributable to non-controlling interests

 

 

(3

)

 

 

(3

)

COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.

 

$

186

 

 

$

258

 

See notes to condensed consolidated financial statements.

 

 

 

3


 

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2019 and 2018

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

189

 

 

$

256

 

Adjustments to reconcile to cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

170

 

 

 

178

 

Amortization of finance costs, discounts and premiums, net

 

 

2

 

 

 

2

 

Stock compensation expense

 

 

4

 

 

 

3

 

Gain on sale of assets

 

 

(5

)

 

 

(120

)

Equity in earnings of affiliates

 

 

(5

)

 

 

(10

)

Change in due from managers

 

 

(76

)

 

 

(63

)

Distributions from investments in affiliates

 

 

 

 

 

4

 

Changes in other assets

 

 

17

 

 

 

7

 

Changes in other liabilities

 

 

(89

)

 

 

(9

)

Net cash provided by operating activities

 

 

207

 

 

 

248

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from sales of assets, net

 

 

276

 

 

 

181

 

Advances to and investments in affiliates

 

 

(1

)

 

 

(3

)

Acquisitions

 

 

(593

)

 

 

(1,019

)

Capital expenditures:

 

 

 

 

 

 

 

 

Renewals and replacements

 

 

(58

)

 

 

(86

)

Return on investment

 

 

(52

)

 

 

(29

)

Property insurance proceeds

 

 

 

 

 

1

 

Net cash used in investing activities

 

 

(428

)

 

 

(955

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Draws on credit facility

 

 

 

 

 

310

 

Dividends on common stock

 

 

(186

)

 

 

(185

)

Distributions and payments to non-controlling interests

 

 

(70

)

 

 

(2

)

Other financing activities

 

 

(5

)

 

 

(4

)

Net cash provided by (used in) financing activities

 

 

(261

)

 

 

119

 

Effects of exchange rate changes on cash held

 

 

 

 

 

(1

)

DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(482

)

 

 

(589

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING

     OF PERIOD

 

 

1,756

 

 

 

1,109

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

1,274

 

 

$

520

 

 

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, 2019 and 2018

(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, 2019

 

 

 

 

March 31, 2018

 

Cash and cash equivalents

 

$

1,082

 

 

 

 

$

323

 

Restricted cash (included in other assets)

 

 

1

 

 

 

 

 

1

 

Cash included in furniture, fixtures and equipment replacement fund

 

 

191

 

 

 

 

 

196

 

Total cash and cash equivalents and restricted cash shown in the statements of cash flows

 

$

1,274

 

 

 

 

$

520

 

 The following table presents cash paid during the quarter for the following: 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

Total interest paid

 

$

39

 

 

$

38

 

Income taxes paid

 

$

66

 

 

$

1

 

See notes to condensed consolidated financial statements.

 

 

 

5


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2019 and December 31, 2018

(in millions)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

Property and equipment, net

 

$

10,296

 

 

$

9,760

 

Right-of-use assets

 

 

616

 

 

 

 

Assets held for sale

 

 

31

 

 

 

281

 

Due from managers

 

 

145

 

 

 

71

 

Advances to and investments in affiliates

 

 

54

 

 

 

48

 

Furniture, fixtures and equipment replacement fund

 

 

191

 

 

 

213

 

Other

 

 

162

 

 

 

175

 

Cash and cash equivalents

 

 

1,082

 

 

 

1,542

 

Total assets

 

$

12,577

 

 

$

12,090

 

 

 

 

 

 

 

 

 

 

LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL

 

Debt

 

 

 

 

 

 

 

 

Senior notes

 

$

2,783

 

 

$

2,782

 

Credit facility, including term loans of $998

 

 

1,051

 

 

 

1,049

 

Other

 

 

28

 

 

 

6

 

Total debt

 

 

3,862

 

 

 

3,837

 

Lease liabilities

 

 

625

 

 

 

 

Accounts payable and accrued expenses

 

 

240

 

 

 

293

 

Other

 

 

183

 

 

 

266

 

Total liabilities

 

 

4,910

 

 

 

4,396

 

 

 

 

 

 

 

 

 

 

Limited partnership interests of third parties

 

 

147

 

 

 

128

 

 

 

 

 

 

 

 

 

 

Host Hotels & Resorts, L.P. capital:

 

 

 

 

 

 

 

 

General partner

 

 

1

 

 

 

1

 

Limited partner

 

 

7,571

 

 

 

7,552

 

Accumulated other comprehensive loss

 

 

(59

)

 

 

(59

)

Total Host Hotels & Resorts, L.P. capital

 

 

7,513

 

 

 

7,494

 

Non-controlling interests—consolidated partnerships

 

 

7

 

 

 

72

 

Total capital

 

 

7,520

 

 

 

7,566

 

Total liabilities, limited partnership interest of third parties and capital

 

$

12,577

 

 

$

12,090

 

See notes to condensed consolidated financial statements.

 

 

 

6


 

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2019 and 2018

(unaudited, in millions, except per unit amounts)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

Rooms

 

$

857

 

 

$

844

 

Food and beverage

 

 

433

 

 

 

413

 

Other

 

 

100

 

 

 

89

 

Total revenues

 

 

1,390

 

 

 

1,346

 

EXPENSES

 

 

 

 

 

 

 

 

Rooms

 

 

217

 

 

 

224

 

Food and beverage

 

 

285

 

 

 

278

 

Other departmental and support expenses

 

 

327

 

 

 

315

 

Management fees

 

 

54

 

 

 

54

 

Other property-level expenses

 

 

92

 

 

 

98

 

Depreciation and amortization

 

 

170

 

 

 

178

 

Corporate and other expenses

 

 

29

 

 

 

28

 

Total operating costs and expenses

 

 

1,174

 

 

 

1,175

 

OPERATING PROFIT

 

 

216

 

 

 

171

 

Interest income

 

 

8

 

 

 

3

 

Interest expense

 

 

(43

)

 

 

(44

)

Gain on sale of assets

 

 

5

 

 

 

120

 

Equity in earnings of affiliates

 

 

5

 

 

 

10

 

INCOME BEFORE INCOME TAXES

 

 

191

 

 

 

260

 

Provision for income taxes

 

 

(2

)

 

 

(4

)

NET INCOME

 

 

189

 

 

 

256

 

Less: Net income attributable to non-controlling interests

 

 

(1

)

 

 

 

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

 

$

188

 

 

$

256

 

Basic earnings per common unit

 

$

.26

 

 

$

.35

 

Diluted earnings per common unit

 

$

.26

 

 

$

.35

 

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, 2019 and 2018

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

NET INCOME

 

$

189

 

 

$

256

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

Foreign currency translation and other comprehensive income of unconsolidated affiliates

 

 

 

 

 

6

 

Change in fair value of derivative instruments

 

 

 

 

 

(1

)

OTHER COMPREHENSIVE INCOME, NET OF TAX

 

 

 

 

 

5

 

COMPREHENSIVE INCOME

 

 

189

 

 

 

261

 

Less: Comprehensive income attributable to non-controlling interests

 

 

(1

)

 

 

 

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

 

$

188

 

 

$

261

 

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, 2019 and 2018

(unaudited, in millions)

 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

189

 

 

$

256

 

Adjustments to reconcile to cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

170

 

 

 

178

 

Amortization of finance costs, discounts and premiums, net

 

 

2

 

 

 

2

 

Stock compensation expense

 

 

4

 

 

 

3

 

Gain on sale of assets

 

 

(5

)

 

 

(120

)

Equity in earnings of affiliates

 

 

(5

)

 

 

(10

)

Change in due from managers

 

 

(76

)

 

 

(63

)

Distributions from investments in affiliates

 

 

 

 

 

4

 

Changes in other assets

 

 

17

 

 

 

7

 

Changes in other liabilities

 

 

(89

)

 

 

(9

)

Net cash provided by operating activities

 

 

207

 

 

 

248

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from sales of assets, net

 

 

276

 

 

 

181

 

Advances to and investments in affiliates

 

 

(1

)

 

 

(3

)

Acquisitions

 

 

(593

)

 

 

(1,019

)

Capital expenditures:

 

 

 

 

 

 

 

 

Renewals and replacements

 

 

(58

)

 

 

(86

)

Return on investment

 

 

(52

)

 

 

(29

)

Property insurance proceeds

 

 

 

 

 

1

 

Net cash used in investing activities

 

 

(428

)

 

 

(955

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Draws on credit facility

 

 

 

 

 

310

 

Distributions on common OP units

 

 

(188

)

 

 

(187

)

Distributions and payments to non-controlling interests

 

 

(68

)

 

 

 

Other financing activities

 

 

(5

)

 

 

(4

)

Net cash provided by (used in) financing activities

 

 

(261

)

 

 

119

 

Effects of exchange rate changes on cash held

 

 

 

 

 

(1

)

DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(482

)

 

 

(589

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING

     OF PERIOD

 

 

1,756

 

 

 

1,109

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

1,274

 

 

$

520

 

 

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, 2019 and 2018

(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, 2019

 

 

 

 

March 31, 2018

 

Cash and cash equivalents

 

$

1,082

 

 

 

 

$

323

 

Restricted cash (included in other assets)

 

 

1

 

 

 

 

 

1

 

Cash included in furniture, fixtures and equipment replacement fund

 

 

191

 

 

 

 

 

196

 

Total cash and cash equivalents and restricted cash shown in the statements of cash flows

 

$

1,274

 

 

 

 

$

520

 

 The following table presents cash paid during the quarter for the following: 

 

 

Quarter ended March 31,

 

 

 

2019

 

 

2018

 

Total interest paid

 

$

39

 

 

$

38

 

Income taxes paid

 

$

66

 

 

$

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)

 

 

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 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, 2019, Host Inc. holds approximately 99% of Host L.P.’s OP units.

Consolidated Portfolio

As of March 31, 2019, our consolidated portfolio, primarily consisting of luxury and upper upscale hotels, is located in the following countries:

 

 

Hotels

 

United States

 

88

 

Brazil

 

3

 

Canada

 

2

 

Total

 

93

 

 

 

 

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, 2018.

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, 2019, and the results of our operations and cash flows for the quarters ended March 31, 2019 and 2018, 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. These VIEs include 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 significant asset is its investment in Host L.P. and, consequently, substantially all of Host Inc.’s assets and liabilities consists 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.

11


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

 

New Accounting Standards

Leases. On January 1, 2019, we adopted Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842), as amended, which affects aspects of accounting for lease agreements. Under the new standard, all leases in which we are the lessee, including operating leases, are recognized as lease assets and lease liabilities on the balance sheet. However, the adoption did not materially affect our statements of operations or statements of cash flows. For lease agreements in which we are the lessor, we have analyzed the impact of the standard and determined that there was no material impact to the recognition, measurement, or presentation of these revenues. Rooms revenues, which constitute the majority of our revenues, are considered short term leases. Additionally, we earn revenues from retail and office leases at our properties, which is included in other revenue. We adopted the standard using the effective date transition method with a cumulative-effect adjustment in the period of adoption. The standard provided several optional practical expedients for use in transition. We elected to use what the Financial Accounting Standards Board (“FASB”) has deemed the “package of practical expedients,” which allowed us not to reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs, and we elected not to reassess previous conclusions about land easements. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for dates and periods prior to January 1, 2019. Upon adoption, we recognized a right of use (“ROU”) asset and a related lease liability of $619 million and $628 million, respectively, with the prior year’s straight-line rent liability of $9 million reducing the ROU asset.

 

 

 

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 partner interests to common OP units. No effect is shown for any securities that are anti-dilutive. We have 7.6 million common OP units, which are convertible into 7.7 million common shares, that 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,

 

 

 

2019

 

 

2018

 

Net income

 

$

189

 

 

$

256

 

Less: Net income attributable to non-controlling interests

 

 

(3

)

 

 

(3

)

Net income attributable to Host Inc.

 

$

186

 

 

$

253

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

740.6

 

 

 

739.2

 

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

 

 

0.2

 

 

 

0.4

 

Diluted weighted average shares outstanding

 

 

740.8

 

 

 

739.6

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

.25

 

 

$

.34

 

Diluted earnings per common share

 

$

.25

 

 

$

.34

 

 

 

 

 

 

 

 

 

 

12


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

 

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,

 

 

 

2019

 

 

2018

 

Net income

 

$

189

 

 

$

256

 

Less: Net income attributable to non-controlling interests

 

 

(1

)

 

 

 

Net income attributable to Host L.P.

 

$

188

 

 

$

256

 

 

 

 

 

 

 

 

 

 

Basic weighted average units outstanding

 

 

732.5

 

 

 

731.9

 

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

 

 

0.2

 

 

 

0.3

 

Diluted weighted average units outstanding

 

 

732.7

 

 

 

732.2

 

 

 

 

 

 

 

 

 

 

Basic earnings per common unit

 

$

.26

 

 

$

.35