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Host Hotels & Resorts, Inc. Reports Strong Operating Performance For The Third Quarter

2012-10-10

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Host Hotels The increase in total revenues for the third quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels as comparable hotel RevPAR increased 7.6% and 6.7% and comparable food and beverage revenues increased 4.5% and 5.4% for the third quarter and year-to-date, respectively.

Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust ("REIT"), today announced results of operations for the third quarter ended September 7, 2012.

Operating Results

(in millions, except per share and hotel statistics)

	Quarter ended			Year-to-date ended
	September 7,	September 9,	Percent	September 7,	September 9,	Percent
	2012	2011	Change	2012	2011	Change
Total revenues	$ 1,204	$ 1,131	6.5%	$ 3,555	$ 3,306	7.5%
Comparable hotel revenues*	1,010	947	6.7%	2,999	2,821	6.3%
Comparable hotel RevPAR	142.82	132.75	7.6%	141.34	132.43	6.7%
Net income (loss)	(36)	(35)	(2.9)%	48	(32)	N/M
Adjusted EBITDA*	241	212	13.7%	764	669	14.2%

Diluted earnings (loss) per share	$ (.05)	$ (.05)	—	$ .06	$ (.05)	N/M
NAREIT FFO per diluted share*	.17	.16	6.3%	.64	.58	10.3%
Adjusted FFO per diluted share*	.21	.16	31.3%	.69	.60	15.0%

N/M=Not Meaningful

* NAREIT Funds From Operations ("FFO") per diluted share, Adjusted FFO per diluted share (which excludes debt extinguishment costs and other expenses), Adjusted EBITDA (which is earnings before interest, taxes, depreciation, amortization and other items) and comparable hotel operating results (including comparable hotel revenues and comparable hotel adjusted operating profit margins) are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission ("SEC"). See the discussion included in this press release on why the Company believes these supplemental measures are useful, reconciliations to the applicable GAAP measure and the limitations on their use.

The increase in total revenues for the third quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels as comparable hotel RevPAR increased 7.6% and 6.7% and comparable food and beverage revenues increased 4.5% and 5.4% for the third quarter and year-to-date, respectively. In addition, year-to-date 2012 revenues benefited from the results of the ten hotels (nearly 4,000 rooms) that were acquired during 2011 and the acquisition of the Grand Hyatt Washington, D.C. on July 16, 2012. These acquisitions increased revenues by an incremental $61 million year-to-date.

The increase in comparable hotel RevPAR was primarily driven by improvements in average room rates coupled with continued occupancy growth. For the third quarter and year-to-date, average room rates improved 4.7% and 3.9%, respectively, while occupancy improved 2.1 percentage points to 78.4% and 2.0 percentage points to 75.4%, respectively. The improvements in revenues led to strong margin growth as comparable hotel adjusted operating profit margins increased 285 basis points and 170 basis points for the third quarter and year-to-date 2012, respectively.

Investments

Redevelopment and Return on Investment Expenditures - The Company invested approximately $24 million and $122 million in the third quarter and year-to-date 2012, respectively, in redevelopment and return on investment ("ROI") expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties. Three properties where we recently completed extensive redevelopment work, the Atlanta Marriott Perimeter Center, the Chicago Marriott O'Hare and the Sheraton Indianapolis, have performed exceptionally well. On average, RevPAR increased 38% for both the quarter and year-to-date 2012 when compared to the pre-construction period in 2010. Due to the significant capital expenditures affecting nearly every aspect of these properties including, in the case of the Sheraton Indianapolis, the conversion of one hotel tower into apartments, these properties are excluded from our comparable results. The Company expects investment in ROI expenditures for 2012 will total approximately $165 million to $175 million.
Acquisition Expenditures – In conjunction with the acquisition of a property, the Company prepares capital and operational improvement plans designed to maximize profitability and enhance the guest experience. On October 1, 2012, the Company converted the former New York Helmsley Hotel (which was acquired in March 2011) to the Westin New York Grand Central, with the grand opening scheduled later this month. The hotel is only the second Westin-branded property in the city and the conversion included a complete renovation of all 774 guest rooms, the ballroom and meeting space, fitness center, lobby and public areas, as well as the development of a new bar and restaurant. The Company spent approximately $25 million and $89 million on acquisition projects in the third quarter and year-to-date, respectively, and expects to invest between $125 million and $135 million for 2012.
Renewal and Replacement Expenditures - The Company invested approximately $66 million and $245 million in renewal and replacement expenditures during the third quarter and year-to-date 2012, respectively. These expenditures are designed to ensure that the high-quality standards of both the Company and its operators are maintained. During the quarter, we completed the renovation of the 834 rooms at the Hyatt Regency Washington and 45,000 square feet of meeting space at the New York Marriott Marquis. The Company expects that renewal and replacement expenditures for 2012 will total approximately $330 million to $340 million.

Value Enhancement Projects

In addition to the investments described above, the Company looks to enhance the value of its portfolio by identifying and executing strategies designed to maximize the highest and best use of all aspects of its properties. On July 30, 2012, the Company leased the retail and signage components of the New York Marriott Marquis Times Square to Vornado Realty Trust ("Vornado"). Vornado will redevelop and expand the existing retail space, including converting the below-grade parking garage into high-end retail space and creating six-story, block front, LED signage spanning over 300 linear feet at an estimated cost of $140 million. As a result of the agreement, the annual base rental income is now well in excess of the previous rental income for the leased space. Furthermore, once Vornado completes the planned redevelopment, the Company has the potential to realize significant additional incentive rental income. The lease has a 20-year term with options that, upon exercise, would require title to the retail space to be conveyed to Vornado for a sales price based on future cash flows in the year of sale.

Balance Sheet

The Company continued to execute its strategy of extending its debt maturities and lowering its overall cost of debt. Year-to-date, the Company has issued $1.5 billion of debt, with a weighted average interest rate of 3.7%, and used the proceeds, along with available cash, to repay $1.8 billion of debt with a weighted average interest rate of 6.6%. As a result of these transactions, the Company has decreased its weighted average interest rate by approximately 80 basis points, to 5.5%, and lengthened its weighted average debt maturity to 5.4 years.

During the quarter, the Company entered into a $500 million term loan through an amendment to its credit facility. The term loan has a five-year maturity and a floating interest rate of LIBOR plus 180 basis points, approximately 2.0%, based on the Company's leverage level at September 7, 2012. Additionally, the Company issued $450 million of 4¾% Series C senior notes due 2023 at the lowest interest rate for senior notes in the Company's history. The proceeds from these issuances were used to redeem the remaining $650 million of 6?% Series O senior notes due 2015 and $150 million of 6¾% Series Q senior notes due 2016 and for general corporate purposes.

As of September 7, 2012, the Company had $254 million of cash and cash equivalents and $751 million of available capacity under its credit facility.

European Joint Venture

On July 26, 2012, the second fund of the Company's joint venture in Europe ("Euro JV Fund II"), in which the Company holds a 33.4% interest, acquired the 192-room Le Meridien Grand Hotel in Nuremberg, Germany, for approximately €30 million ($37 million). The Company contributed approximately €10 million ($13 million) to the Euro JV Fund II in connection with this acquisition.

Dividend

On September 17, 2012, the Company's board of directors authorized a regular quarterly cash dividend of $.08 per share on its common stock. The dividend is payable on October 15, 2012 to stockholders of record on September 28, 2012. The amount of any future dividend is dependent on the Company's taxable income and will be determined by the Company's Board of Directors.

2012 Outlook

The Company anticipates that for 2012:

Comparable hotel RevPAR will increase 6.25% to 7.0%;
Total revenues under GAAP would increase 7.2% to 7.7%;
Total comparable hotel revenues would increase 5.4% to 6.0%;
Operating profit margins under GAAP would increase approximately 160 basis points to 190 basis points; and
Comparable hotel adjusted operating profit margins will increase approximately 135 basis points to 150 basis points.

Based upon these parameters, the Company estimates that its 2012 guidance is as follows:

earnings per diluted share should range from approximately $.15 to $.17;
net income should range from $109 million to $126 million;
NAREIT FFO per diluted share should be approximately $1.01 to $1.04;
Adjusted FFO per diluted share should be approximately $1.06 to $1.09; and
Adjusted EBITDA should be approximately $1,155 million to $1,175 million.

See the 2012 Forecast Schedules and Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecasted results.

About Host Hotels & Resorts

Host Hotels & Resorts, Inc. is an S&P 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 104 properties in the United States and 16 properties internationally totaling approximately 65,000 rooms. The Company also holds non-controlling interests in a joint venture in Europe that owns 14 hotels with approximately 4,400 rooms and a joint venture in Asia that owns one hotel with approximately 300 rooms in Australia and a minority interest in seven hotels with approximately 1,750 rooms in India, two in Bangalore and five that are in various stages of development in two cities. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott^®, Ritz-Carlton^®,Westin^®, Sheraton^®, W^®, St. Regis^®, Le Meridien^®, The Luxury Collection^®, Hyatt^®, Fairmont^®, Four Seasons^®, Hilton^®, Swissotel^®, ibis^®, Pullman^®, and Novotel^®* in the operation of properties in over 50 major markets worldwide.

HOST HOTELS & RESORTS, INC. Condensed Consolidated Balance Sheets (a) (in millions, except shares and per share amounts)
	September 7,	December 31,
	2012	2011
	(unaudited)
ASSETS

Property and equipment, net	$ 11,731	$ 11,383
Due from managers	98	37
Advances to and investments in affiliates	227	197
Deferred financing costs, net	57	55
Furniture, fixtures and equipment replacement fund	184	166
Other	456	368
Restricted cash	35	36
Cash and cash equivalents	254	826
Total assets	$ 13,042	$ 13,068

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY

Debt
Senior notes, including $528 million and $902 million, respectively, net of discount, of Exchangeable Senior Debentures	$ 3,666	$ 4,543
Credit facility, including the $500 million term loan	749	117
Mortgage debt	994	1,006
Other	86	87
Total debt	5,495	5,753
Accounts payable and accrued expenses	105	175
Other	341	269
Total liabilities	5,941	6,197

Non-controlling interests—Host Hotels & Resorts, L.P	167	158

Host Hotels & Resorts, Inc. stockholders' equity:
Common stock, par value $.01, 1,050 million shares authorized; 723.0 million shares and 705.1 million shares issued and outstanding, respectively	7	7
Additional paid-in capital	8,008	7,750
Accumulated other comprehensive income (loss)	9	(1)
Deficit	(1,126)	(1,079)
Total equity of Host Hotels & Resorts, Inc. stockholders	6,898	6,677
Non-controlling interests—other consolidated partnerships	36	36
Total equity	6,934	6,713
Total liabilities, non-controlling interests and equity	$ 13,042	$ 13,068

____________
(a)	Our condensed consolidated balance sheet as of September 7, 2012 has been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.

HOST HOTELS & RESORTS, INC. Condensed Consolidated Statements of Operations (a) (unaudited, in millions, except per share amounts)
	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Revenues
Rooms	$ 776	$ 724	$ 2,171	$ 2,012
Food and beverage	295	283	989	925
Other	68	67	206	195
Owned hotel revenues	1,139	1,074	3,366	3,132
Other revenues	65	57	189	174
Total revenues	1,204	1,131	3,555	3,306
Expenses
Rooms	216	204	594	555
Food and beverage	244	234	738	698
Other departmental and support expenses	305	301	871	841
Management fees	45	41	135	125
Other property-level expenses	138	138	405	391
Depreciation and amortization	160	147	472	435
Corporate and other expenses	31	12	74	58
Total operating costs and expenses	1,139	1,077	3,289	3,103
Operating profit	65	54	266	203
Interest income	4	5	11	15
Interest expense (b)	(93)	(87)	(272)	(259)
Net gains on property transactions and other	1	3	3	6
Loss on foreign currency transactions and derivatives	(1)	(2)	(2)	—
Equity in earnings (losses) of affiliates	(1)	(5)	2	(3)
Income (loss) before income taxes	(25)	(32)	8	(38)
Benefit (provision) for income taxes	(11)	(3)	(10)	9
Loss from continuing operations	(36)	(35)	(2)	(29)
Income (loss) from discontinued operations, net of tax	—	—	50	(3)
Net income (loss)	(36)	(35)	48	(32)
Less: Net (income) loss attributable to non-controlling interests	2	2	(2)	—
Net income (loss) attributable to Host Inc.	$ (34)	$ (33)	$ 46	$ (32)
Basic and diluted earnings (loss) per common share:
Continuing operations	$ (.05)	$ (.05)	$ (.01)	$ (.04)
Discontinued operations	—	—	.07	(.01)
Basic and diluted earnings (loss) per common share	$ (.05)	$ (.05)	$ .06	$ (.05)

____________
(a)	Our condensed consolidated statements of operations presented above have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.
(b)	Interest expense includes the following items:

	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Non-cash interest for exchangeable debentures	$ 3	$ 7	$ 12	$ 22
Debt extinguishment costs	14	4	27	8
Total	$ 17	$ 11	$ 39	$ 30

HOST HOTELS & RESORTS, INC. Earnings (Loss) per Common Share (unaudited, in millions, except per share amounts)
	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Net income (loss)	$ (36)	$ (35)	$ 48	$ (32)
Net (income) loss attributable to non-controlling interests	2	2	(2)	—
Earnings (loss) attributable to Host Inc	$ (34)	$ (33)	$ 46	$ (32)
Diluted earnings (loss) attributable to Host Inc	$ (34)	$ (33)	$ 46	$ (32)

Basic weighted average shares outstanding	721.3	702.1	715.7	688.4
Diluted weighted average common shares outstanding (a)	721.3	702.1	715.7	688.4
Basic and diluted earnings (loss) per common share	$ (.05)	$ (.05)	$ .06	$ (.05)

____________
(a)	Dilutive securities may include shares granted under comprehensive stock plans, preferred operating partnership units ("OP Units") held by minority partners, exchangeable debt securities 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 were anti-dilutive for the period.

HOST HOTELS & RESORTS, INC. Comparable Hotel Operating Data (a)
	As of September 7, 2012		Quarter ended September 7, 2012			Quarter ended September 9, 2011
				Average			Average		Percent
	No. of	No. of	Average	Occupancy		Average	Occupancy		Change in
Region	Properties	Rooms	Room Rate	Percentage	RevPAR	Room Rate	Percentage	RevPAR	RevPAR
Pacific	25	13,896	$ 184.53	83.7%	$ 154.42	$ 172.83	82.3%	$ 142.23	8.6%
Mid-Atlantic	11	8,634	234.91	86.5	203.22	230.63	82.4	190.05	6.9
South Central	9	5,695	132.64	71.0	94.22	132.65	66.0	87.59	7.6
Florida	8	3,680	176.19	71.3	125.57	156.67	67.3	105.44	19.1
D.C. Metro	12	5,416	177.00	76.5	135.34	174.81	77.9	136.13	(0.6)
North Central	11	4,782	163.06	80.6	131.34	157.96	80.6	127.32	3.2
New England	6	3,672	191.36	86.6	165.81	170.55	84.3	143.77	15.3
Atlanta	7	3,846	154.04	67.6	104.17	151.93	65.7	99.80	4.4
Mountain	7	2,885	129.88	64.7	84.03	129.30	63.8	82.45	1.9
Canada	4	1,643	167.12	69.6	116.36	166.70	66.2	110.40	5.4
Latin America	4	1,075	230.02	69.5	159.96	197.66	66.3	130.97	22.1
All Regions	104	55,224	182.06	78.4	142.82	173.92	76.3	132.75	7.6

	As of September 7, 2012		Year-to-date ended September 7, 2012			Year-to-date ended September 9, 2011
				Average			Average		Percent
	No. of	No. of	Average	Occupancy		Average	Occupancy		Change in
Region	Properties	Rooms	Room Rate	Percentage	RevPAR	Room Rate	Percentage	RevPAR	RevPAR
Pacific	25	13,896	$ 183.29	79.0%	$ 144.72	$ 173.54	77.1%	$ 133.73	8.2%
Mid-Atlantic	11	8,634	235.07	80.5	189.24	229.03	76.4	174.92	8.2
South Central	9	5,695	149.43	73.1	109.17	149.05	69.7	103.93	5.0
Florida	8	3,680	218.13	76.7	167.24	201.05	75.7	152.23	9.9
D.C. Metro	12	5,416	193.39	74.5	144.08	193.97	75.2	145.95	(1.3)
North Central	11	4,782	154.63	73.0	112.95	148.19	71.8	106.42	6.1
New England	6	3,672	185.79	74.8	139.05	170.96	72.8	124.41	11.8
Atlanta	7	3,846	158.00	69.0	108.95	155.66	66.1	102.88	5.9
Mountain	7	2,885	161.67	67.1	108.48	158.47	66.2	104.95	3.4
Canada	4	1,643	167.66	67.2	112.61	167.87	67.4	113.08	(0.4)
Latin America	4	1,075	232.78	71.0	165.33	208.94	68.8	143.74	15.0
All Regions	104	55,224	187.48	75.4	141.34	180.41	73.4	132.43	6.7

	As of September 7, 2012		Quarter ended September 7, 2012			Quarter ended September 9, 2011
				Average			Average		Percent
	No. of	No. of	Average	Occupancy		Average	Occupancy		Change in
	Properties	Rooms	Room Rate	Percentage	RevPAR	Room Rate	Percentage	RevPAR	RevPAR
Property Type
Urban	53	33,228	$ 195.05	81.1%	$ 158.17	$ 186.91	79.1%	$ 147.76	7.0%
Suburban	27	10,321	149.26	74.3	110.90	143.34	72.7	104.18	6.5
Resort/Conference	12	6,083	221.47	67.2	148.89	206.83	65.0	134.42	10.8
Airport	12	5,592	123.55	82.7	102.22	117.13	79.3	92.91	10.0
All Types	104	55,224	182.06	78.4	142.82	173.92	76.3	132.75	7.6

	As of September 7, 2012		Year-to-date ended September 7, 2012			Year-to-date ended September 9, 2011
				Average			Average		Percent
	No. of	No. of	Average	Occupancy		Average	Occupancy		Change in
	Properties	Rooms	Room Rate	Percentage	RevPAR	Room Rate	Percentage	RevPAR	RevPAR
Property Type
Urban	53	33,228	$ 197.72	76.6%	$ 151.47	$ 190.99	74.5%	$ 142.30	6.4%
Suburban	27	10,321	150.96	71.0	107.20	146.19	69.4	101.40	5.7
Resort/Conference	12	6,083	252.54	72.4	182.82	238.72	70.5	168.41	8.6
Airport	12	5,592	125.67	79.5	99.88	119.78	77.4	92.73	7.7
All Types	104	55,224	187.48	75.4	141.34	180.41	73.4	132.43	6.7

____________
(a)	See the Notes to Financial Information for a discussion of reporting periods and comparable hotel results.

Hotel Operating Statistics for All Properties (a)
	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Average room rate	$ 180.52	$ 171.84	$ 185.76	$ 178.24
Average occupancy	77.5%	75.9%	74.9%	72.9%
RevPAR	$ 139.97	$ 130.43	$ 139.13	$ 129.94

____________
(a)	The operating statistics reflect all consolidated properties as of September 7, 2012 and September 9, 2011, respectively, and include the results of operations of properties sold or transferred during the year through the date of their disposition.

HOST HOTELS & RESORTS, INC. Comparable Hotel Operating Data Schedule of Comparable Hotel Results (a) (unaudited, in millions, except hotel statistics)
	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Number of hotels	104	104	104	104
Number of rooms	55,224	55,224	55,224	55,224
Percent change in comparable hotel RevPAR	7.6%	—	6.7%	—
Operating profit margin under GAAP (b)	5.4%	4.8%	7.5%	6.1%
Comparable hotel adjusted operating profit margin (b)	22.2%	19.35%	23.6%	21.9%
Comparable hotel revenues
Room	$ 689	$ 640	$ 1,940	$ 1,814
Food and beverage	260	248	877	832
Other	61	59	182	175
Comparable hotel revenues (c)	1,010	947	2,999	2,821
Comparable hotel expenses
Room	190	179	526	498
Food and beverage	216	207	659	631
Other	36	36	103	102
Management fees, ground rent and other costs	344	342	1,004	973
Comparable hotel expenses (d)	786	764	2,292	2,204
Comparable hotel adjusted operating profit	224	183	707	617
Non-comparable hotel results, net (e)	30	31	105	86
Income (loss) from hotels leased from HPT	2	(1)	—	(7)
Depreciation and amortization	(160)	(147)	(472)	(435)
Corporate and other expenses	(31)	(12)	(74)	(58)
Operating profit	$ 65	$ 54	$ 266	$ 203

____________
(a)	See the Notes to the Financial Information for discussion of non-GAAP measures, reporting periods and comparable hotel results.
(b)	Operating profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP margins are calculated using amounts presented in the condensed consolidated statements of operations. Comparable margins are calculated using amounts presented in the above table.
(c)	The reconciliation of total revenues per the condensed consolidated statements of operations to the comparable hotel revenues is as follows:

	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Revenues per the consolidated statements of operations	$ 1,204	$ 1,131	$ 3,555	$ 3,306
Non-comparable hotel revenues	(147)	(142)	(430)	(371)
Hotel revenues for which we record rental income, net	11	11	37	36
Revenues for hotels leased from HPT	(58)	(53)	(163)	(150)
Comparable hotel revenues	$ 1,010	$ 947	$ 2,999	$ 2,821

(d)	The reconciliation of operating costs per the condensed consolidated statements of operations to the comparable hotel expenses is as follows:

	Quarter ended		Year-to-date ended
	September 7,	September 9,	September 7,	September 9,
	2012	2011	2012	2011
Operating costs and expenses per the consolidated statements of operations	$ 1,139	$ 1,077	$ 3,289	$ 3,103
Non-comparable hotel expenses	(117)	(111)	(325)	(286)
Hotel expenses for which we record rental income	11	11	37	37
Expense for hotels leased from HPT	(56)	(54)	(163)	(157)
Depreciation and amortization	(160)	(147)	(472)	(435)
Corporate and other expenses	(31)	(12)	(74)	(58)
Comparable hotel expenses	$ 786	$ 764	$ 2,292	$ 2,204

(e)

Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels whose operations are included in our condensed consolidated statements of operations as continuing operations, (ii) gains on property insurance settlements, (iii) the results of our office buildings and (iv) the difference between the number of days of operations reflected in the comparable hotel results and the number of days of operations reflected in the consolidated statements of operations.

HOST HOTELS & RESORT