HST Host Hotels and Resorts Inc

BETHESDA, Md., Feb. 21 /PRNewswire-FirstCall/ -- Host Hotels & Resorts, Inc. (NYSE:HST), the nation's largest lodging real estate investment trust, today announced its results of operations for the fourth quarter and for the year ended December 31, 2006. (Logo: http://www.newscom.com/cgi-bin/prnh/20060417/HOSTLOGO ) -- Total revenue increased 41%, to $1,734 million, for the fourth quarter and nearly 30%, to $4,888 million, for full year 2006, which includes $366 million and $762 million of revenues for the fourth quarter and full year 2006, respectively, for the Starwood portfolio acquired in April 2006. Excluding the revenues from the Starwood portfolio, revenues increased 11.2% and 9.6% for the fourth quarter and full year, respectively. -- Net income increased $122 million to $196 million for the fourth quarter and $572 million to $738 million for full year 2006. Earnings per diluted share increased $.17 to $.36 for the fourth quarter and $1.10 to $1.48 for full year 2006. Net income includes a net gain of $8 million, or $.01 per diluted share, for the fourth quarter, and $355 million, or $.73 per diluted share, for the full year from the following: gains on asset dispositions, costs associated with the refinancing of senior notes and the redemption of preferred stock and non-recurring costs associated with the Starwood acquisition. By comparison, for fourth quarter and full year 2005, net income included a net gain of $7 million, or $.02 per diluted share, and $21 million, or $.06 per diluted share, respectively, associated with similar transactions in 2005. For further detail, refer to the "Schedule of Significant Transactions Affecting Earnings per Share and Funds From Operations per Diluted Share" attached to this earnings release. -- Funds from Operations (FFO) per diluted share increased nearly 32%, to $.58, for the fourth quarter and 33%, to $1.53, for full year 2006. FFO per diluted share was reduced by $.03 and $.09 for the fourth quarter and full year 2006, respectively, due to costs associated with refinancing of senior notes, the redemption of preferred stock and non- recurring costs associated with the Starwood acquisition. By comparison, FFO per diluted share was reduced by $.08 for full year 2005 due to costs associated with similar transactions in 2005. The Company also announced the following results for Host Hotels & Resorts, L.P. through which it conducts all of its operations and holds 96.5% of the partnership interests: -- Net income increased $128 million to $204 million for the fourth quarter and $596 million to $769 million for full year 2006. Net income of Host LP was also affected by certain transactions-See "Schedule of Significant Transactions Affecting Earnings per Share and Funds From Operations Per Diluted Share." -- Adjusted EBITDA, which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items, increased 50%, to $471 million, for the fourth quarter and nearly 39%, to $1,283 million, for full year 2006 primarily due to growth in EBITDA from the Company's comparable hotel portfolio and EBITDA generated by the Starwood portfolio. Adjusted EBITDA, FFO per diluted share and comparable hotel adjusted operating profit margins (discussed below) are non-GAAP (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 for information regarding these non-GAAP financial measures. Operating Results Comparable hotel RevPAR for the fourth quarter of 2006 increased 8.1% and comparable hotel adjusted operating profit margins increased 2.1 percentage points. The fourth quarter increases were driven by a 9.5% increase in average room rate, while occupancy declined 0.9 percentage points. Full year 2006 comparable hotel RevPAR increased 8.5% and comparable hotel adjusted operating profit margins increased 2.1 percentage points. The full year 2006 increases were comprised of a 9.2% increase in average room rate and a slight decrease in occupancy. Comparable hotel adjusted operating profit margins were positively affected by the Company's food and beverage operations, which represent approximately 32% of the Company's revenues. Food and beverage revenue at the Company's comparable hotels increased 6.0% and 6.6% for the fourth quarter and full year 2006, respectively, with food and beverage margins increasing 2.3 percentage points and 2.1 percentage points for the fourth quarter and full year 2006, respectively. For the 27 Starwood hotels, which are not included in our comparable hotel results, RevPAR increased 11.5% and 10.9% for the fourth quarter and full year 2006, respectively. Christopher J. Nassetta, president and chief executive officer, stated, "We are very pleased with our operating results in 2006 and expect to continue to benefit in 2007 from strong industry fundamentals." Balance Sheet The Company's balance sheet has significantly improved over the past three years from the strong growth in operations, debt repayment and refinancing efforts and the equity issued to acquire the Starwood portfolio. As a result, the Company has the best interest coverage and debt to equity leverage ratios in its history, which leaves it well-positioned for future growth. During the fourth quarter, the Company redeemed its $450 million 9 1/2% Series I senior notes and its $242 million of 9 1/4% Series G senior notes through the issuance of $500 million of 6 7/8% Series R senior notes due 2014, a draw of $250 million from the Company's credit facility and available cash. As of December 31, 2006, the Company had approximately $364 million of cash and cash equivalents, approximately $133 million of which was utilized in January to pay the fourth quarter common and preferred dividends. During February 2007, the Company refinanced the 8.58% mortgage debt on the Harbor Beach Marriott Resort and Spa with a non-amortizing, $134 million mortgage that bears interest at a rate of 5.55% and matures in 2014. Asset Dispositions During January 2007, the Company sold four non-core properties (the Sheraton Milwaukee Brookfield Hotel, the Sheraton Providence Airport Hotel, the Capitol Hill Suites and the Marriott Mountain Shadows Resort & Golf Club) for approximately $119 million. A portion of the proceeds from the asset sales were used to repay $75 million of the outstanding balance on the Company's credit facility. The Company currently has $400 million of availability under its credit facility. 2007 Outlook The Company expects comparable hotel RevPAR to increase approximately 6.5% to 8.5% for the full year 2007 and at the lower end of this range for the first quarter. For full year 2007, the Company also expects its operating profit margins under GAAP to remain relatively unchanged and its comparable hotel adjusted operating profit margins to increase approximately 100 basis points to 125 basis points. Based upon this guidance, the Company estimates that full year 2007 guidance for Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. would be as follows: Host Hotels & Resorts, Inc. -- earnings per diluted share should be approximately $.26 to $.27 for the first quarter and $1.05 to $1.13 for the full year; -- net income should be approximately $138 million to $145 million for the first quarter and $573 million to $619 million for the full year; and -- FFO per diluted share should be approximately $.27 to $.28 for the first quarter and $1.80 to $1.88 for the full year. Host Hotels & Resorts, L.P. -- net income should be approximately $143 million to $150 million for the first quarter and $593 million to $641 million for the full year; and -- Adjusted EBITDA should be approximately $1,450 million to $1,490 million. About Host Hotels & Resorts Host Hotels & Resorts, Inc. is the largest lodging real estate investment trust and one of the largest owners of luxury and upper upscale hotels. As of February 21, 2007, the Company owns 124 properties with approximately 66,000 rooms, and also holds a minority interest in a joint venture that owns seven hotels in Europe with approximately 2,700 rooms. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott(R), Ritz-Carlton(R), Westin(R), Sheraton(R), W(R), St. Regis(R), The Luxury Collection(R), Hyatt(R), Fairmont(R), Four Seasons(R), Hilton(R) and Swissotel(R)* in the operation of properties in over 50 major markets worldwide. For additional information, please visit the Company's website at http://www.hosthotels.com/. Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, including references to assumption and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward- looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the potential for terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; our ability to complete pending acquisitions and dispositions; and our ability to continue to satisfy complex rules in order for us to qualify as a Real Estate Investment Trust for federal income tax purposes and other risks and uncertainties associated with our business described in the Company's filings with the SEC. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of February 20, 2007, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. * This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release. Host Hotels & Resorts, Inc., herein referred to as "we" or "Host," is a self-managed and self-administered real estate investment trust (REIT). We own properties and conduct our operations through an umbrella partnership REIT (UPREIT) structure, in which substantially all of our properties and assets are held by Host Hotels & Resorts, L.P., or Host LP, of which we are the sole general partner. For each share of our common stock, Host LP has issued to us one unit of operating partnership interest, or OP Unit. When distinguishing between Host and Host LP, the primary difference is approximately 3.5% of the partnership interests in Host LP held by outside partners as of February 20, 2007, which is reflected as minority interest in our consolidated balance sheets and minority interest expense in our consolidated statements of operations. Readers are encouraged to find further detail regarding our organizational structure in our annual report on Form 10-K. For information on our reporting periods and non-GAAP financial measures (including Adjusted EBITDA, FFO per diluted share and comparable hotel adjusted operating profit margin) which we believe is useful to investors, see the Notes to the Financial Information included in this release. HOST HOTELS & RESORTS, INC. Consolidated Balance Sheets (a) (unaudited, in millions, except share amounts) December 31, 2006 2005 ASSETS Property and equipment, net $10,584 $7,434 Assets held for sale 96 73 Due from managers 51 41 Investments in affiliates 160 41 Deferred financing costs, net 60 63 Furniture, fixtures and equipment replacement fund 100 90 Other 199 157 Restricted cash 194 162 Cash and cash equivalents 364 184 Total assets $11,808 $8,245 LIABILITIES AND STOCKHOLDERS' EQUITY Debt Senior notes, including $495 million and $493 million, respectively, net of discount, of Exchangeable Senior Debentures $3,526 $3,050 Mortgage debt 2,014 1,823 Credit Facility 250 20 Convertible Subordinated Debentures -- 387 Other 88 90 Total debt 5,878 5,370 Accounts payable and accrued expenses 243 165 Other 252 148 Total liabilities 6,373 5,683 Interest of minority partners of Host Hotels & Resorts, L.P. 185 119 Interest of minority partners of other consolidated partnerships 28 26 Stockholders' equity Cumulative redeemable preferred stock (liquidation preference $100 million and $250 million, respectively), 50 million shares authorized; 4.0 million shares and 10.0 million shares issued and outstanding, respectively 97 241 Common stock, par value $.01, 750 million shares authorized; 521.1 million shares and 361.0 million shares issued and outstanding, respectively 5 4 Additional paid-in capital 5,680 3,080 Accumulated other comprehensive income 25 15 Deficit (585) (923) Total stockholders' equity 5,222 2,417 Total liabilities and stockholders' equity $11,808 $8,245 (a) Our consolidated balance sheet as of December 31, 2006 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. Consolidated Statements of Operations (a) (unaudited, in millions, except per share amounts) Quarter ended December 31, Year ended December 31, 2006 2005 2006 2005 Revenues Rooms $1,035 $722 $2,989 $2,257 Food and beverage 553 398 1,479 1,155 Other 104 75 301 243 Total hotel sales 1,692 1,195 4,769 3,655 Rental income (b) 42 35 119 111 Total revenues 1,734 1,230 4,888 3,766 Expenses Rooms 243 172 707 543 Food and beverage 385 286 1,067 854 Hotel departmental expenses 417 321 1,202 1,000 Management fees 86 59 228 166 Other property-level expenses (b) 126 86 367 284 Depreciation and amortization 148 112 459 355 Corporate and other expenses 32 22 94 67 Gain on insurance settlement (13) (9) (13) (9) Total operating costs and expenses 1,424 1,049 4,111 3,260 Operating profit 310 181 777 506 Interest income 11 4 33 21 Interest expense (152) (126) (450) (443) Net gains (losses) on property transactions (2) 3 1 80 Gain on foreign currency and derivative contracts -- 1 -- 2 Minority interest expense (11) (4) (41) (16) Equity in earnings (losses) of affiliates 2 -- (6) (1) Income before income taxes 158 59 314 149 Benefit (provision) for income taxes 9 (1) (5) (24) Income from continuing operations 167 58 309 125 Income from discontinued operations (c) 29 16 429 41 Net income 196 74 738 166 Less: Dividends on preferred stock (2) (6) (14) (27) Issuance costs of redeemed preferred stock (d) -- -- (6) (4) Net income available to common stockholders $194 $68 $718 $135 Basic earnings per common share: Continuing operations $.32 $.15 $.60 $.26 Discontinued operations .05 .04 .89 .12 Basic earnings per common share $.37 $.19 $1.49 $.38 Diluted earnings per common share: Continuing operations $.31 $.15 $.60 $.26 Discontinued operations .05 .04 .88 .12 Diluted earnings per common share $.36 $.19 $1.48 $.38 (a) Our 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) Rental income and expense are as follows: Quarter ended December 31, Year ended December 31, 2006 2005 2006 2005 Rental income Full-service $7 $5 $30 $27 Limited service and office buildings 35 30 89 84 $42 $35 $119 $111 Rental and other expenses (included in other property level expenses) Full-service $2 $2 $8 $7 Limited service and office buildings 26 25 81 79 $28 $27 $89 $86 (c) Reflects the results of operations and gain (loss) on sale, net of the related income tax, for seven properties sold in 2006 and four hotels classified as held for sale as of December 31, 2006 and five properties sold in 2005. (d) Represents the original issuance costs associated with the redemption of the Class C preferred stock in the second quarter of 2006 and the Class B preferred stock in the second quarter of 2005. HOST HOTELS & RESORTS, INC. Earnings per Common Share (unaudited, in millions, except per share amounts) Quarter ended Quarter ended December 31, 2006 December 31, 2005 Per Per Income Share Income Share (loss) Shares Amount (loss) Shares Amount Net income $196 520.9 $.38 $74 353.8 $.21 Dividends on preferred stock (2) - (.01) (6) - (.02) Basic earnings available to common stockholders (a)(b) 194 520.9 .37 68 353.8 .19 Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 - - 2.4 - Assuming conversion of minority OP units issuable - - - - 2.1 - Assuming conversion of Exchangeable Senior Debentures 6 29.0 (.01) - - - Diluted earnings available to common stockholders (a)(b) $200 551.9 $.36 $68 358.3 $.19 Year ended Year ended December 31, 2006 December 31, 2005 Per Per Income Share Income Share (loss) Shares Amount (loss) Shares Amount Net income $738 481.8 $1.53 $166 353.0 $.47 Dividends on preferred stock (14) - (.03) (27) - (.08) Issuance costs of redeemed preferred stock (c) (6) - (.01) (4) - (.01) Basic earnings available to common stockholders (a)(b) 718 481.8 1.49 135 353.0 .38 Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 (.01) - 2.5 - Diluted earnings available to common stockholders (a)(b) $718 483.8 $1.48 $135 355.5 $.38 (a) Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is computed by dividing net income available to common stockholders as adjusted for potentially dilutive securities, by the weighted average number of shares of common stock outstanding plus potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP Units held by minority partners, convertible debt securities and other minority 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. (b) Our results for certain periods presented were significantly affected by certain transactions, which are detailed in the table entitled, "Schedule of Significant Transactions Affecting Earnings per Share and Funds From Operations per Diluted Share." (c) Represents the original issuance costs associated with the redemption of the Company's Class C preferred stock in the second quarter of 2006 and the Company's Class B preferred stock in the second quarter of 2005. HOST HOTELS & RESORTS, INC. Comparable Hotel Operating Data (unaudited) Comparable Hotels by Region (a) As of December 31, 2006 Quarter ended December 31, 2006 No. No. Average Average of of Daily Occupancy Properties Rooms Rate Percentages RevPAR Pacific 21 11,485 $203.18 70.5% $143.32 Florida 10 6,435 183.67 64.3 118.15 Mid-Atlantic 8 5,865 258.25 82.4 212.76 DC Metro 13 5,335 192.45 70.1 134.84 North Central 12 4,906 167.42 70.3 117.71 South Central 7 4,125 150.95 70.2 105.98 Atlanta 7 2,625 192.33 68.9 132.43 New England 6 3,032 174.32 76.4 133.20 Mountain 6 2,210 135.00 64.8 87.45 International 5 1,953 154.70 72.6 112.31 All Regions 95 47,971 191.84 71.1 136.45 Quarter ended December 31, 2005 Percent Average Average Change Daily Occupancy in Rate Percentages RevPAR RevPAR Pacific $185.13 71.8% $132.96 7.8% Florida 167.47 65.8 110.21 7.2 Mid-Atlantic 236.98 79.4 188.20 13.1 DC Metro 180.64 74.5 134.53 .2 North Central 147.25 70.7 104.18 13.0 South Central 132.94 73.8 98.06 8.1 Atlanta 182.70 71.8 131.18 1.0 New England 164.58 75.9 124.98 6.6 Mountain 124.64 60.3 75.15 16.4 International 140.10 72.0 100.87 11.3 All Regions 175.27 72.0 126.21 8.1 As of December 31, 2006 Year ended December 31, 2006 No. No. Average Average of of Daily Occupancy Properties Rooms Rate Percentages RevPAR Pacific 21 11,485 $201.76 74.6% $150.44 Florida 10 6,435 192.58 70.9 136.47 Mid-Atlantic 8 5,865 227.45 79.9 181.76 DC Metro 13 5,335 185.39 71.8 133.10 North Central 12 4,906 152.28 72.2 109.89 South Central 7 4,125 144.72 71.6 103.63 Atlanta 7 2,625 188.61 70.5 132.97 New England 6 3,032 170.11 76.9 130.81 Mountain 6 2,210 132.71 65.5 86.98 International 5 1,953 151.61 72.0 109.21 All Regions 95 47,971 184.77 73.3 135.46 Year ended December 31, 2005 Percent Average Average Change Daily Occupancy in Rate Percentages RevPAR RevPAR Pacific $184.70 76.3% $140.87 6.8% Florida 177.63 71.8 127.57 7.0 Mid-Atlantic 207.20 78.8 163.22 11.4 DC Metro 173.23 76.4 132.41 .5 North Central 138.55 69.0 95.58 15.0 South Central 131.25 74.1 97.25 6.6 Atlanta 171.69 69.4 119.13 11.6 New England 155.57 72.9 113.35 15.4 Mountain 119.89 64.3 77.04 12.9 International 134.18 72.2 96.83 12.8 All Regions 169.23 73.7 124.80 8.5 Comparable Hotels by Property Type (a) As of December 31, 2006 Quarter ended December 31, 2006 No. No. Average Average of of Daily Occupancy Properties Rooms Rate Percentages RevPAR Urban 39 22,680 $212.51 75.4% $160.22 Suburban 29 11,138 147.76 65.8 97.24 Airport 16 7,328 140.52 71.8 100.92 Resort/Convention 11 6,825 243.71 65.0 158.29 All Types 95 47,971 191.84 71.1 136.45 Quarter ended December 31, 2005 Percent Average Average Change Daily Occupancy in Rate Percentages RevPAR RevPAR Urban $193.41 75.4% $145.90 9.8% Suburban 137.69 66.3 91.31 6.5 Airport 126.61 75.6 95.72 5.4 Resort/Convention 225.44 66.2 149.25 6.1 All Types 175.27 72.0 126.21 8.1 As of December 31, 2006 Year ended December 31, 2006 No. No. Average Average of of Daily Occupancy Properties Rooms Rate Percentages RevPAR Urban 39 22,680 $197.20 76.8% $151.43 Suburban 29 11,138 145.94 67.3 98.27 Airport 16 7,328 135.31 73.1 98.85 Resort/Convention 11 6,825 253.31 71.8 181.91 All Types 95 47,971 184.77 73.3 135.46 Year ended December 31, 2005 Percent Average Average Change Daily Occupancy in Rate Percentages RevPAR RevPAR Urban $179.94 76.6% $137.90 9.8% Suburban 134.69 67.7 91.12 7.8 Airport 122.41 75.9 92.89 6.4 Resort/Convention 236.64 71.8 170.00 7.0 All Types 169.23 73.7 124.80 8.5 (a) See the notes to financial information for a discussion of reporting periods and comparable hotel results. HOST HOTELS & RESORTS, INC. Comparable Hotel Operating Data Schedule of Comparable Hotel Results (a) (unaudited, in millions, except hotel statistics) Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Number of hotels 95 95 95 95 Number of rooms 47,971 47,971 47,971 47,971 Percent change in Comparable Hotel RevPAR 8.1% 8.5% Operating profit margin under GAAP (b) 17.9% 14.7% 15.9% 13.4% Comparable hotel adjusted operating profit margin (c) 27.6% 25.5% 26.9% 24.8% Comparable hotel sales Room $748 $692 $2,367 $2,181 Food and beverage 411 388 1,206 1,132 Other 80 75 255 246 Comparable hotel sales (d) 1,239 1,155 3,828 3,559 Comparable hotel expenses Room 173 165 555 524 Food and beverage 284 277 864 835 Other 47 48 150 155 Management fees, ground rent and other costs 393 370 1,228 1,163 Comparable hotel expenses (e) 897 860 2,797 2,677 Comparable hotel adjusted operating profit 342 295 1,031 882 Non-comparable hotel results, net (f) 131 6 286 32 Comparable hotels classified as held for sale, net (2) - (5) - Office buildings and limited service properties, net (g) 9 5 8 5 Depreciation and amortization (148) (112) (459) (355) Corporate and other expenses (32) (22) (94) (67) Gain on insurance settlement for non- comparable hotels 10 9 10 9 Operating profit $310 $181 $777 $506 (a) See the notes to the financial information for discussion of non-GAAP measures, reporting periods and comparable hotel results. (b) Operating profit margin under GAAP is calculated as the operating profit divided by the total revenues per the consolidated statements of operations. (c) Comparable hotel adjusted operating profit margin is calculated as the comparable hotel adjusted operating profit divided by the comparable hotel sales per the table above. (d) The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel sales is as follows (in millions): Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Revenues per the consolidated statements of operations $1,734 $1,230 $4,888 $3,766 Revenues of hotels held for sale 8 - 20 2 Non-comparable hotel sales (470) (53) (1,037) (167) Hotel sales for the property for which we record rental income, net 16 15 53 49 Rental income for office buildings and limited service hotels (35) (30) (89) (84) Adjustment for hotel sales for comparable hotels to reflect Marriott's fiscal year for Marriott-managed hotels (14) (7) (7) (7) Comparable hotel sales $1,239 $1,155 $3,828 $3,559 (e) The reconciliation of operating costs per the consolidated statements of operations to the comparable hotel expenses is as follows (in millions): Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Operating costs and expenses per the consolidated statements of operations $1,424 $1,049 $4,111 $3,260 Operating cost of hotels held for sale 6 - 15 2 Non-comparable hotel expenses (342) (48) (753) (137) Hotel expenses for the property for which we record rental income 15 14 53 49 Rent expense for office buildings and limited service hotels (26) (25) (81) (79) Adjustment for hotel expenses for comparable hotels to reflect Marriott's fiscal year for Marriott-managed hotels (10) (5) (5) (5) Depreciation and amortization (148) (112) (459) (355) Corporate and other expenses (32) (22) (94) (67) Gain on insurance settlement for non-comparable hotels 10 9 10 9 Comparable hotel expenses $897 $860 $2,797 $2,677 (f) 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 consolidated statement of operations as continuing operations and (ii) 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. (g) Represents rental income less rental expense for limited service properties and office buildings. HOST HOTELS & RESORTS, INC. Other Financial and Operating Data (unaudited, in millions, except per share amounts and hotel statistics) December 31, 2006 2005 Equity Common shares outstanding 521.1 361.0 Common shares and minority held common OP Units outstanding 539.9 380.8 Preferred OP Units outstanding .02 .02 Class C Preferred shares outstanding (a) - 6.0 Class E Preferred shares outstanding 4.0 4.0 Security pricing (per share price) Common (b) $24.55 $18.95 Class C Preferred (a) (b) $- $25.25 Class E Preferred (b) $26.59 $26.75 Convertible Preferred Securities (c) $- $61.02 Exchangeable Senior Debentures (d) $1,473.30 $1,163.70 Dividends declared per share for calendar year Common (e) $.76 $.41 Class B Preferred (f) $- $.87 Class C Preferred (a) $.86 $2.50 Class E Preferred (e) $2.22 $2.22 Debt Series B senior notes, with a rate of 7 7/8% due August 2008 (g) $- $136 Series G senior notes, with a rate of 9 1/4% due October 2007 (h) - 236 Series I senior notes, with a rate of 9 1/2% due January 2007 (i) - 451 Series K senior notes, with a rate of 7 1/8% due November 2013 725 725 Series M senior notes, with a rate of 7% due August 2012 347 346 Series O senior notes, with a rate of 6 3/8% due March 2015 650 650 Series Q senior notes, with a rate of 6 3/4% due June 2016 800 - Series R senior notes with a rate of 6 7/8% due November 2014 (j) 496 - Exchangeable Senior Debentures, with a rate of 3.25% due April 2024 495 493 Senior notes, with an average rate of 9.7%, maturing through May 2012 13 13 Total senior notes 3,526 3,050 Mortgage debt (non-recourse) secured by $3.3 billion of real estate assets, with an average interest rate of 7.5% and 7.8% at December 31, 2006 and 2005, respectively, maturing through December 2023 2,014 1,823 Credit Facility (k) 250 20 Convertible Subordinated Debentures, with a rate of 6 3/4% due December 2026 (c) - 387 Other 88 90 Total debt $5,878 $5,370 Percentage of fixed rate debt 94% 85% Weighted average interest rate 6.8% 7.2% Weighted average debt maturity 5.9 years 6.4 years Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Hotel Operating Statistics for All Full-Service Properties (l) Average daily rate $190.33 $174.90 $182.56 $167.64 Average occupancy 70.9% 70.1% 73.1% 72.6% RevPAR $134.97 $122.61 $133.48 $121.66 (a) On May 19, 2006, the Company redeemed, at par, all of the shares of its 10% Class C Cumulative Redeemable Preferred stock for approximately $151 million, including accrued dividends. (b) Share prices are the closing price as reported by the New York Stock Exchange. (c) During the period of December 2005 through February 10, 2006, the Company issued 30.8 million shares of its common stock to converting holders of its Convertible Preferred Securities. The remaining $2 million of securities were redeemed for cash on April 5, 2006. Market price for December 31, 2005 is as quoted by Bloomberg L.P. and reflects the price of a single $50 security. (d) Market price as quoted by Deutsche Bank Securities, Inc. and Bloomberg L.P. as of December 31, 2006 and December 31, 2005, respectively. Amount reflects the price of a single $1,000 debenture, which is exchangeable for common stock upon the occurrence of certain events. (e) On December 12, 2006, the Company declared a fourth quarter common dividend of $.25 per share and a fourth quarter preferred dividend of $.5546875 per share for its Class E preferred stock. (f) On May 20, 2005, the Company redeemed, at par, all four million shares of its 10% Class B Cumulative Redeemable Preferred stock for approximately $101 million, including accrued dividends. (g) The Company redeemed the outstanding 7 7/8% Series B senior notes on May 15, 2006. (h) The Company redeemed the outstanding 9 1/4% Series G senior notes and the related interest rate swap agreements in December 2006. The fair value of the interest rate swap agreements was $(6) million as of December 31, 2005. (i) The Company redeemed the outstanding 9 1/2% Series I senior notes and the related interest rate swap agreement in December 2006. The fair value of the interest rate swap agreement was $1 million as of December 31, 2005. (j) The Series R senior notes were exchanged for Series S senior notes in February 2007. The terms were substantially identical except the new series are registered under the Securities Act of 1933 and are, therefore, freely transferable by the holders. (k) On January 17, 2007, the company repaid $75 million of the $250 million balance on the Company's credit facility that was outstanding at December 31, 2006. Currently, the Company has $400 million of available capacity under its credit facility. (l) The operating statistics reflect all consolidated properties as of December 31, 2006 and 2005, respectively. The operating statistics include the results of operations for seven properties sold in 2006 and five properties sold in 2005 prior to their disposition. HOST HOTELS & RESORTS, INC. Reconciliation of Net Income Available to Common Stockholders to Funds From Operations per Diluted Share (unaudited, in millions, except per share amounts) Quarter ended Quarter ended December 31, 2006 December 31, 2005 Per Per Share Share Income Shares Amount Income Shares Amount Net income available to common stockholders $194 520.9 $.37 $68 353.8 $.19 Adjustments: Gains on dispositions, net of taxes (26) - (.05) (7) - (.02) Amortization of deferred gains and other property transactions, net of taxes 2 - .01 (2) - - Depreciation and amortization 148 - .28 117 - .33 Partnership adjustments 10 - .02 2 - - FFO of minority partners of Host LP (12) - (.02) (10) - (.02) Adjustments for dilutive securities: Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 (.01) - 2.4 (.01) Assuming conversion of Exchangeable Senior Debentures 6 29.0 (.02) 6 28.1 (.02) Assuming conversion of Convertible Subordinated Debentures - - - 10 30.7 (.01) FFO per diluted share (a) (b) $322 551.9 $.58 $184 415.0 $.44 Year ended Year ended December 31, 2006 December 31, 2005 Per Per Share Share Income Shares Amount Income Shares Amount Net income available to common stockholders $718 481.8 $1.49 $135 353.0 $.38 Adjustments: Gains on dispositions, net of taxes (416) - (.87) (60) - (.17) Amortization of deferred gains and other property transactions, net of taxes (1) - - (8) - (.02) Depreciation and amortization 462 - .96 371 - 1.05 Partnership adjustments 34 - .07 10 - .03 FFO of minority partners of Host LP (30) - (.06) (24) - (.07) Adjustments for dilutive securities: Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 (.01) - 2.5 (.01) Assuming conversion of Exchangeable Senior Debentures 19 29.0 (.05) 19 28.1 (.04) Assuming conversion of Convertible Subordinated Debentures 2 1.9 - 32 30.9 - FFO per diluted share (a) (b) $788 514.7 $1.53 $475 414.5 $1.15 (a) FFO per diluted share in accordance with NAREIT is adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP Units held by minority partners, convertible debt securities and other minority interests that have the option to convert their limited partnership interest to common OP Units. No effect is shown for securities if they are anti-dilutive. (b) FFO per diluted share for certain periods presented was significantly affected by certain transactions, which are detailed in the table entitled, "Schedule of Significant Transactions Affecting Earnings per Share and Funds from Operations per Diluted Share." HOST HOTELS & RESORTS, INC. Schedule of Significant Transactions Affecting Earnings per Share and Funds From Operations per Diluted Share (unaudited, in millions, except per share amounts) Quarter ended Quarter ended December 31, 2006 December 31, 2005 Net Income Net Income (Loss) FFO (Loss) FFO Senior notes redemptions and debt prepayments (a) $(18) $(18) $- $- Gain on hotel dispositions, net of taxes 26 - 7 - Minority interest income (expense) (b) - 1 - - Total (c) $8 $(17) $7 $- Per diluted share $.01 $(.03) $.02 $- Year ended Year ended December 31, 2006 December 31, 2005 Net Income Net Income (Loss) FFO (Loss) FFO Non-recurring Starwood acquisition costs (d) $(17) $(17) $- $- Senior notes redemptions and debt prepayments (a) (22) (22) (34) (34) Preferred stock redemptions (e) (8) (8) (4) (4) Gain on CBM Joint Venture LLC sale (f) - - 41 - Gain on hotel dispositions, net of taxes 416 - 19 - Minority interest income (expense) (b) (14) 2 (1) 2 Total (c) $355 $(45) $21 $(36) Per diluted share $.73 $(.09) $.06 $(.08) (a) Represents call premiums, the acceleration of original issue discounts and deferred financing costs, the termination costs of interest rate swaps, as well as incremental interest during the call or prepayment notice period included in interest expense in the consolidated statements of operations. We recognized these costs in conjunction with the prepayment or refinancing of senior notes and mortgages. (b) Represents the portion of the significant transactions attributable to minority partners in Host LP. (c) Net income of Host LP was also affected by the transactions discussed above, with the exception of the minority interest expense item discussed in footnote (b). Accordingly, the total adjustments on the net income of Host LP were approximately $8 million and $7 million for the fourth quarter 2006 and 2005, respectively, and $369 million and $22 million for full year 2006 and 2005, respectively. (d) Represents non-recurring costs incurred in conjunction with the acquisition of the Starwood portfolio that are required to be expensed under GAAP, including start-up costs, bridge loan fees and expenses and the Company's portion of a foreign currency hedge loss by the European joint venture as the venture hedged a portion of its initial investment for the acquisition of six of its European hotels. (e) Represents the original issuance costs and the incremental dividends during the redemption notice period associated with the redemption of the Class C preferred stock in the second quarter of 2006 and the Class B preferred stock in the second quarter of 2005. (f) Represents the gain, net of tax, on the sale of 85% of our interest in CBM Joint Venture LLC. HOST HOTELS & RESORTS, L.P. Consolidated Statements of Operations (a) (unaudited, in millions, except per unit amounts) Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Revenues Rooms $1,035 $722 $2,989 $2,257 Food and beverage 553 398 1,479 1,155 Other 104 75 301 243 Total hotel sales 1,692 1,195 4,769 3,655 Rental income 42 35 119 111 Total revenues 1,734 1,230 4,888 3,766 Expenses Rooms 243 172 707 543 Food and beverage 385 286 1,067 854 Hotel departmental expenses 417 321 1,202 1,000 Management fees 86 59 228 166 Other property-level expenses 126 86 367 284 Depreciation and amortization 148 112 459 355 Corporate and other expenses 32 22 94 67 Gain on insurance settlement (13) (9) (13) (9) Total operating costs and expenses 1,424 1,049 4,111 3,260 Operating profit 310 181 777 506 Interest income 11 4 33 21 Interest expense (152) (126) (450) (444) Net gains (losses) on property transactions (2) 3 1 80 Gain on foreign currency and derivative contracts - 1 - 2 Minority interest expense (3) (1) (10) (7) Equity in earnings (losses) of affiliates 2 - (6) (1) Income before income taxes 166 62 345 157 Benefit (provision) for income taxes 9 (2) (5) (25) Income from continuing operations 175 60 340 132 Income from discontinued operations (b) 29 16 429 41 Net income 204 76 769 173 Less: Distributions on preferred units (2) (6) (14) (27) Issuance costs of redeemed preferred units (c) - - (6) (4) Net income available to common unitholders $202 $70 $749 $142 Basic earnings per common unit: Continuing operations $.32 $.15 $.64 $.27 Discontinued operations .05 .04 .86 .11 Basic earnings per common unit $.37 $.19 $1.50 $.38 Diluted earnings per common unit: Continuing operations $.31 $.15 $.64 $.27 Discontinued operations .05 .04 .85 .11 Diluted earnings per common unit $.36 $.19 $1.49 $.38 (a) Our 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. When distinguishing between Host and Host LP, the primary difference is the partnership interests in Host LP held by outside partners, which is reflected as minority interest in Host's consolidated balance sheets and minority interest expense in Host's consolidated statements of operations. (b) Reflects the results of operations and gain (loss) on sale, net of the related income tax, for seven properties sold in 2006, four hotels classified as held-for-sale as of December 31, 2006 and five properties sold in 2005. (c) Represents the original issuance costs associated with the redemption of the Class C preferred units in the second quarter of 2006 and the Class B preferred units in the second quarter of 2005. HOST HOTELS & RESORTS, L.P. Reconciliation of Net Income to EBITDA and Adjusted EBITDA (unaudited, in millions) Quarter ended Year ended December 31, December 31, 2006 2005 2006 2005 Net income $204 $76 $769 $173 Interest expense 152 126 450 444 Depreciation and amortization 148 112 459 355 Income taxes (9) 2 5 25 Discontinued operations (a) 1 6 7 19 EBITDA 496 322 1,690 1,016 Gains on dispositions (26) (6) (418) (89) Amortization of deferred gains 2 (2) (1) (9) Consolidated partnership adjustments: Minority interest expense 3 1 10 7 Distributions to minority partners (3) (1) (7) (4) Equity investment adjustments: Equity in (earnings) losses of affiliates (2) - 6 1 Distributions received from equity investments 1 - 3 2 Adjusted EBITDA of Host LP $471 $314 $1,283 $924 (a) Reflects the interest expense, depreciation and amortization and income taxes included in discontinued operations. HOST HOTELS & RESORTS, INC. Reconciliation of Net Income Available to Common Stockholders to Funds From Operations per Diluted Share for First Quarter 2007 Forecasts (a) (unaudited, in millions, except per share amounts) Low-end of Range First Quarter 2007 Forecast Per Share Income Shares Amount Forecast net income available to common stockholders (b) $136 521.8 $.26 Adjustments: Depreciation and amortization 132 - .25 Gain on dispositions, net of taxes (127) - (.24) Partnership adjustments 8 - .02 FFO of minority partners of Host LP (5) - (.01) Adjustment for dilutive securities: Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 - Assuming conversion of Exchangeable Senior Debentures 4 29.0 (.01) FFO per diluted share $148 552.8 $.27 High-end of Range First Quarter 2007 Forecast Per Share Income Shares Amount Forecast net income available to common stockholders (b) $143 521.8 $.27 Adjustments: Depreciation and amortization 132 - .25 Gain on dispositions, net of taxes (127) - (.24) Partnership adjustments 8 - .02 FFO of minority partners of Host LP (5) - (.01) Adjustment for dilutive securities: Assuming distribution of common share granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 - Assuming conversion of Exchangeable Senior Debentures 4 29.0 (.01) FFO per diluted share $155 552.8 $.28 HOST HOTELS & RESORTS, INC. Reconciliation of Net Income Available to Common Stockholders to Funds From Operations per Diluted Share for Full Year 2007 Forecasts (a) (unaudited, in millions, except per share amounts) Low-end of Range Full Year 2007 Forecast Per Share Income Shares Amount Forecast net income available to common stockholders (b) $564 522.4 $1.08 Adjustments: Depreciation and amortization 573 - 1.10 Gain on dispositions, net of taxes (157) - (.30) Partnership adjustments 34 - .06 FFO of minority partners of Host LP (34) - (.06) Adjustment for dilutive securities: Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 (.01) Assuming conversion of Exchangeable Senior Debentures 19 30.1 (.07) FFO per diluted share $999 554.5 $1.80 High-end of Range Full Year 2007 Forecast Per Share Income Shares Amount Forecast net income available to common stockholders (b) $610 522.4 $1.17 Adjustments: Depreciation and amortization 573 - 1.10 Gain on dispositions, net of taxes (157) - (.30) Partnership adjustments 36 - .07 FFO of minority partners of Host LP (36) - (.07) Adjustment for dilutive securities: Assuming distribution of common shares granted under the comprehensive stock plan less shares assumed purchased at average market price - 2.0 (.01) Assuming conversion of Exchangeable Senior Debentures 19 30.1 (.08) FFO per diluted share $1,045 554.5 $1.88 (a) The first quarter and full year 2007 forecasts were based on the following assumptions: -- Comparable hotel RevPAR will increase 6.5% to 8.5% for the full year for the low and high ends of the forecasted range, respectively, and at the lower end of this range for the first quarter. -- Comparable hotel adjusted operating profit margins will increase 100 basis points and 125 basis points for the full year for the low and high ends of the forecasted range, respectively. -- Approximately $400 million of acquisitions will be made during 2007. -- We expect to have incremental dispositions of approximately $400 million of hotels beyond the $120 million of hotels already sold in the first quarter of 2007. -- We expect to spend approximately $640 million on capital expenditures during 2007, including approximately $310 million for maintenance capital expenditures. The remainder of the expenditures will be for return on investment/repositioning projects. -- Fully diluted weighted average shares for both FFO per diluted share and earnings per diluted share will be 554.5 million for the full year. The amounts shown in these forecasts are based on these and other assumptions, as well as management's estimate of operations for 2007. These forecasts are forward-looking and are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause actual transactions, results and performance to differ materially from those expressed or implied by these forecasts. Although we believe the expectations reflected in the forecasts are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that the results will be materially different. Risks that may affect these assumptions and forecasts include the following: -- the level of RevPAR and margin growth may change significantly; -- the amount and timing of acquisitions and dispositions of hotel properties is an estimate that can substantially affect financial results, including such items as net income, depreciation and gains (losses) on dispositions; -- the level of capital expenditures may change significantly, which will directly affect the level of depreciation expense and net income; and -- other risks and uncertainties associated with our business described herein and in the Company's filings with the SEC. (b) The per share amount reflects basic earnings per share which is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. For the Company's full year 2007 forecast of diluted earnings per share, the weighted average share count must be adjusted to include the effect of potentially dilutive securities, including our Exchangeable Senior Debentures. Accordingly, the full year forecast of diluted earnings per share is $1.05 and $1.13 for the low and high end of the range, respectively. These securities are anti-dilutive for the first quarter forecast and, therefore, no effect is shown. HOST HOTELS & RESORTS, INC. Schedule of Comparable Hotel Adjusted Operating Profit Margin for Full Year 2007 Forecasts (a) (unaudited, in millions, except hotel statistics) Full Year 2007 Forecast Low-end High-end of range of range Percent change in Comparable Hotel RevPAR 6.5% 8.5% Operating profit margin under GAAP (b) 15.7% 16.1% Comparable hotel adjusted operating profit margin (c) 27.9% 28.2% Comparable hotel sales Room $2,567 $2,615 Other 1,554 1,583 Comparable hotel sales (d) 4,121 4,198 Comparable hotel expenses Rooms and other departmental costs 1,660 1,694 Management fees, ground rent and other costs 1,309 1,320 Comparable hotel expenses (e) 2,969 3,014 Comparable hotel adjusted operating profit 1,152 1,184 Non-comparable hotel results, net 347 353 Office buildings and limited service properties, net 7 7 Depreciation and amortization (574) (574) Corporate and other expenses (79) (79) Operating profit $853 $891 (a) Forecasted comparable hotel results include assumptions on the number of hotels that will be included in our comparable hotel set in 2007. We have assumed that 96 hotels will be classified as comparable as of December 31, 2007. No assurances can be made as to the hotels that will be in the comparable hotel set for 2007. Also, see the notes following the table reconciling net income available to common shareholders to Funds From Operations per Diluted Share for assumptions relating to the full year 2007 forecasts. (b) Operating profit margin under GAAP is calculated as the operating profit divided by the forecast total revenues per the consolidated statements of operations. See (d) below for forecasted revenues. (c) Comparable hotel adjusted operating profit margin is calculated as the comparable hotel adjusted operating profit divided by the comparable hotel sales per the table above. For the 96 hotels that we assume will be classified as comparable as of December 31, 2007, we forecasted an increase in margins of 100 basis points to 125 basis points over the comparable adjusted operating profit margin of 26.9% for 2006. The 2006 operating profit margin for these 96 hotels has been reduced by 15 basis points to conform to an accounting change for banquet service charges made in 2007 by one of our managers for certain hotels. Beginning in 2007, banquet service charges that are not paid out to employees will be included in food and beverage revenues instead of reducing salary and wage costs. (d) The reconciliation of forecast total revenues to the forecast comparable hotel sales is as follows (in millions): Full Year 2007 Low-end High-end of range of range Revenues $5,423 $5,524 Non-comparable hotel sales (1,259) (1,284) Hotel sales for the property for which we record rental income, net 52 53 Rental income for office buildings and limited service hotels (95) (95) Comparable hotel sales $4,121 $4,198 (e) The reconciliation of forecast operating costs and expenses to the comparable hotel expenses is as follows (in millions): Full Year 2007 Low-end High-end of range of range Operating costs and expenses $4,570 $4,633 Non-comparable hotel expenses (912) (931) Hotel expenses for the property for which we record rental income 52 53 Rent expense for office buildings and limited service hotels (88) (88) Depreciation and amortization (574) (574) Corporate and other expenses (79) (79) Comparable hotel expenses $2,969 $3,014 HOST HOTELS & RESORTS, L.P. Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Full Year 2007 Forecasts (a) (unaudited, in millions) Full Year 2007 Low-end High-end of range of range Net income $593 $641 Interest expense 409 409 Depreciation and amortization 574 574 Income taxes 20 12 EBITDA 1,596 1,636 Gains on dispositions (157) (157) Consolidated partnership adjustments: Minority interest expense 9 9 Distributions to minority partners (8) (8) Equity investment adjustments: Equity in losses of affiliates 2 2 Distributions received from equity investments 8 8 Adjusted EBITDA of Host LP $1,450 $1,490 (a) The amounts shown in these reconciliations are based on management's estimate of operations for 2007. These tables are forward-looking and as such contain assumptions by management based on known and unknown risks, uncertainties and other factors which may cause the actual transactions, results, performance, or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by this table. General economic condition, competition and governmental actions will affect future transactions, results performance and achievements. Although we believe the expectations in this reconciliation are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviations will not be material. For purposes of the full year forecasts, we have utilized the same, previously detailed assumptions as those utilized for the full year forecasts for Host Hotels & Resorts, Inc. http://www.newscom.com/cgi-bin/prnh/20060417/HOSTLOGO http://photoarchive.ap.org/ DATASOURCE: Host Hotels & Resorts, Inc. CONTACT: Gregory J. Larson, Senior Vice President, +1-240-744-5120, or Kevin J. Jacobs, Vice President, +1-240-744-5212, both of Host Hotels & Resorts, Inc. Web site: http://www.hosthotels.com/

Copyright