HOST HOTELS & RESORTS, INC. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report.Host Inc. operates as a self-managed and self-administered REIT.Host Inc. is the sole general partner ofHost L.P. and holds approximately 99% of its partnership interests.Host L.P. is a limited partnership operating through an umbrella partnership structure. The remaining common OP units are owned by various unaffiliated limited partners.
Forward-Looking Statements
In this report on Form 10-Q, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "expect," "may," "intend," "predict," "project," "plan," "will," "estimate" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are based on management's current expectations and assumptions and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made.
The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
• the duration and scope of the COVID-19 pandemic and its short and
longer-term impact on the demand for travel, transient and group business,
and levels of consumer confidence; actions governments, businesses and
individuals take in response to the pandemic, including limiting or
banning travel; the ability of our hotel managers to operate hotels in a
way that facilitate social distancing, implement enhanced cleaning
protocols and other COVID-19 mitigation practices; the impact of the
pandemic and actions taken in response to the pandemic on global andregional economies, travel, and economic activity, including the duration
and magnitude of its impact on unemployment rates, business investment and
consumer discretionary spending; the pace of recovery as the COVID-19
pandemic subsides; general economic uncertainty in
own hotels and the potential for low levels of economic growth in these
markets; and the effects on hotel operations of steps we and our hotel
managers take to reduce operating costs in response to the COVID-19
pandemic;
• the effect on lodging demand of (i) changes in national and local economic
and business conditions, including concerns about the pace of U.S.
economic growth, global economic prospects, consumer confidence and the
value of the U.S. dollar, and (ii) factors that may shape publicperception of travel to a particular location such as natural disasters,
weather, changes in the international political climate, and the
occurrence or potential occurrence of terrorist attacks, all of which will
affect occupancy rates at our hotels and the demand for hotel products and
services;
• the impact of geopolitical developments outside
the pace of economic growth in
withdrawal from the
credit markets generally, global travel and lodging demand within the
United States ;
• risks that
COVID-19 pandemic and travel bans will suppress international travel to
• volatility in global financial and credit markets, in particular because
of the COVID-19 pandemic, and the impact of budget deficits and potential
spending and similar austerity measures, which could materially adversely
affect
availability, borrowing costs, and lodging demand;
• operating risks associated with the hotel business, including the effect
of labor stoppages or strikes, increasing operating or labor costs or
changes in workplace rules that affect labor costs and risks relating to
the response to the COVID-19 pandemic such as increased costs relating to
severance and furloughed hotel employees as a result of measures taken by
our hotel managers in response to the COVID-19 pandemic;
• the effect of rating agency downgrades of our debt securities on the cost
and availability of new debt financings;
• the reduction in our operating flexibility and the limitation on our
ability to incur debt, pay dividends and make distributions resulting from
restrictive covenants in our debt agreements, including the waivers we
obtained under our credit facility as a result of not meeting the original
covenant thresholds that would have otherwise been required and other
risks associated with the amount of our indebtedness or related to
restrictive covenants in our debt agreements, including the risk that a
default could occur as a result of the decline in operations due to the
COVID-19 pandemic;
19
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• our ability to maintain our hotels in a first-class manner, including
meeting capital expenditures requirements, and the effect of renovations,
including temporary closures, on our hotel occupancy and financial
results;
• the ability of our hotels to compete effectively against other lodging
businesses in the highly competitive markets in which we operate in terms
of access, location, quality of accommodations and room rate structures;
• our ability to acquire or develop additional hotels and the risk that
potential acquisitions or developments may not perform in accordance with
our expectations;
• the ability to complete hotel renovations on schedule and under budget and
the potential for increased costs and construction delays due to
government restrictions on non-essential activities and shortages of
supplies as a result of supply chain disruptions due to the COVID-19
pandemic;
• relationships with property managers and joint venture partners and our
ability to realize the expected benefits of our joint ventures and other
strategic relationships;
• risks associated with a single manager, Marriott International, managing a
significant portion of our hotels;
• changes in the desirability of the geographic regions of the hotels in our
portfolio or in the travel patterns of hotel customers;
• the ability of third-party internet and other travel intermediaries to
attract and retain customers;
• our ability to recover fully under our existing insurance policies for
terrorist acts and our ability to maintain adequate or full replacement
cost "all-risk" property insurance policies on our hotels on commercially
reasonable terms;
• the effect of a data breach or significant disruption of hotel operator
information technology networks as a result of cyber attacks;
• the effects of tax legislative action and other changes in laws and
regulations, or the interpretation thereof, including the need for
compliance with new environmental and safety requirements;
• the ability of
be established by Host Inc. to continue to satisfy complex rules in order
to qualify as REITs for federal income tax purposes and Host Inc.'s andentities to be acquired or established by us, to operate effectively
within the limitations imposed by these rules; and
• risks associated with our ability to execute our dividend policy,
including factors such as the need to preserve cash and financialflexibility in response to the COVID-19 pandemic, investment activity,
operating results and the economic outlook, any or all of which may
influence the decision of our board of directors as to whether to pay
future dividends at levels previously disclosed or to use available cash
to pay special dividends.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events, or otherwise. Achievement
of future results is subject to risks, uncertainties and potentially inaccurate
assumptions, including those risk factors discussed in our Annual Report on Form
10-K for the year ended December 31, 2020 and in other filings with the
Securities and Exchange Commission ("SEC"). Although we believe that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that we will attain these
expectations or that any deviations will not be material.
Operating Results and Outlook
COVID-19 Response
The COVID-19 pandemic has significantly adversely impactedU.S. and global economic activity and has contributed to significant volatility in financial markets beginning in the first quarter of 2020. While certain restrictions put in place at the beginning of the pandemic have been eased, various restrictive measures remain in place in many jurisdictions where we own hotels, including quarantines, restrictions on travel, school closings, limitations on the size of gatherings and/or restrictions on types of business that may continue to operate. As a result, the pandemic continues to negatively impact almost every industry directly or indirectly, including having a severe impact on theU.S. lodging industry generally and our company specifically. The ongoing effects of the pandemic on our operations and future bookings have had, and will continue to have, a material negative impact on our financial results and cash flows, and such negative impact may continue well after restrictive measures imposed by federal, state, local and other governmental authorities to contain the outbreak have been lifted. We have not filed for any relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) or the American Rescue Plan Act; however, several of our operators, including Hyatt and Marriott, have filed for the Employee Retention Credit 20 -------------------------------------------------------------------------------- ("ERC") to partially offset the costs of their furloughed hotel employees under Title II of the CARES Act, as discussed below. Benefits received by our operators from the ERC related to employees at our properties ultimately benefit us as we bear the expense for the wages and benefits of all persons working at our hotels. Benefit costs for furloughed employees during the second and third quarter of 2021 are not expected to have a significant impact on results as they will be eligible to be reimbursed through the American Rescue Plan Act.
In response to the pandemic, we and our managers, as applicable, have taken the following actions:
• As of
operations at the start of the COVID-19 pandemic. Remaining hotels with
suspended operations include The Westin Chicago River North , Sheraton
Boston Hotel , and ibis Rio de Janeiro Parque Olimpico. We will maintain
operations or reopen a property when it is anticipated to generaterevenue greater than the incremental costs associated with staying open;
• Average monthly occupancy (which includes the results of hotels with
suspended operations) has increased during the quarter from 19.6% in
January to 34.1% in March, as the accelerated vaccination rate in the
U.S. has led to improving leisure demand;
• Working with our hotel managers, we implemented portfolio-wide cost
reductions, including significantly reducing staffing levels byfurloughing or severing a substantial portion of the hotel workforce,
reducing shared services fees, suspending food and beverage outlet
operations, closing guestroom floors and meeting space, and temporarily
suspending brand standards. These initiatives have resulted in a
reduction of hotel operating costs across the portfolio by nearly 60% in
the first quarter of 2021, compared to 2019. We expect that certaininitiatives, including modernized brand standards, streamlined operating
departments and accelerated adoption of cost-saving technologies, may
lead to long-term expense reductions. However, we expect hotel operating
costs to increase more in line with total revenues as hotels transition
from their contingency level operational plans to increasing staffing
levels and controllable spending. Additionally, reintroduction of
marketing, maintenance and other support costs are expected to increase
other departmental and support expenses as the recovery is expected to
continue to gain momentum;
• Paid health benefits of approximately
that were accrued in the fourth quarter of 2020, for hotel employees
furloughed by our managers. A portion of the furlough costs has been
offset in the first quarter by the ERC of approximately $7 million
granted to our managers;
• Suspended contributions to our hotels' FF&E escrow accounts and
suspended or deferred non-essential capital projects;
• Further amended the credit agreement governing our $1.5 billion
revolving credit facility and two $500 million term loans. Under the
amendments, the quarterly-tested financial covenants were waived
beginning
date for the second quarter of 2022, with certain financial covenants
modified through the third quarter of 2023;
• Accessed the full
facility in 2020 as a precautionary measure in order to increase our
cash position and preserve financial flexibility in light of continued
uncertainty in the global markets;
• Suspended regular quarterly common cash dividends and stock repurchases
until further notice. All future dividends are subject to approval by
the Board of Directors; and
• Reduced corporate expenses in 2020 by approximately 17%, compared to
2019, through reduced travel, compensation and other overhead.
The impact of the COVID-19 pandemic on the company remains fluid, as does our
corporate and property-level response, together with the response of our hotel
operators. While vaccine deployment has accelerated during the quarter, there
remains a great deal of uncertainty surrounding the trends and duration of the
COVID-19 pandemic and we are monitoring developments on an ongoing basis. We,
and our hotel managers, may take additional actions in response to future
developments.
21
--------------------------------------------------------------------------------Operating Results
The following table reflects certain line items from our statements of operations and significant operating statistics (in millions, except per share and hotel statistics):
Historical Income Statement Data:
Quarter ended March 31,
2021 2020 Change
Total revenues $ 399 $ 1,052 (62.1 )%
Net loss (153 ) (3 ) (5000.0 )%
Operating loss (166 ) (11 ) (1409.1 )%
Operating loss margin under GAAP (41.6 )% (1.0 )% (4,060 bps)
EBITDAre (1) $ 5 $ 164 (97.0 )%
Adjusted EBITDAre (1) 3 164 (98.2 )%
Diluted loss per common share (0.22 ) - N/M
NAREIT FFO per diluted share (1) 0.01 0.23 (95.7 )%
Adjusted FFO per diluted share (1) 0.01 0.23 (95.7 )%
All Owned Hotel Data (2):
Quarter ended March 31,
2021 2020 Change
All owned hotel revenues (pro forma)
(1) $ 401 $ 1,053 (61.9 )%
All owned hotel EBITDA (pro forma) (1) 21 180 (88.3 )%
All owned hotel EBITDA margin (pro
forma) (1) 5.2 % 17.1 % (1,190 bps)
Change in all owned hotel Total RevPAR
- Constant US$ (61.6 )%
Change in all owned hotel RevPAR -
Constant US$ (58.4 )%
Change in all owned hotel RevPAR -
Nominal US$ (58.4 )%
Change in domestic RevPAR (58.0 )%
Change in international RevPAR -
Constant US$ (83.7 )%
___________
(1) EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO
per diluted share and all owned hotel operating results (including hotel
revenues and hotel EBITDA and margins) are non-GAAP financial measures within
the meaning of the rules of the
more information on these measures, including why we believe these
supplemental measures are useful, reconciliations to the most directly
comparable GAAP measure, and the limitations on the use of these supplemental
measures.
(2) Due to the COVID-19 pandemic and its effects on operations, we are
temporarily presenting hotel operating results on an
forma basis. Thus, operating results are presented for all consolidated
hotels owned as of
operations for hotels sold through the reporting date. Additionally,
operating results for acquisitions as of
full calendar years, which include results for periods prior to our
ownership.
Operations
Total revenues declined $653 million , or 62.1%, for the first quarter due to the
COVID-19 pandemic, as we experienced a sharp decline in group, business and
leisure travel beginning in mid-March 2020 . An overall decline in travel, as
well as the postponement or cancellation of conventions and conferences, music
and arts festivals, sporting events and other large public gatherings and
on-going travel restrictions, have significantly reduced demand at our hotels.
All owned hotel RevPAR and Total RevPAR on a constant US$ basis for the quarter
declined 58.4% and 61.6%, respectively, as occupancy and food and beverage
revenues experienced significant declines.
All owned hotel Total RevPAR in our Miami, Florida Gulf Coast and Jacksonville
markets declined the least during the quarter, with decreases of 5.6%, 24.6% and
25.8%, respectively, due in part to strong leisure demand during Spring break
and the Easter holiday. Our hotels in San Francisco /San Jose and New York , our
two largest markets by room count, experienced declines of 90.7% and 85.2%,
respectively, as government restrictions remain in place in both markets. All
owned hotel Total RevPAR in our Phoenix and Maui /Oahu markets declined 39.4% and
52.6%, respectively, as both markets experienced strong leisure transient
demand, while group activity remained limited. The largest all owned hotel Total
RevPAR declines occurred in our Boston market, with a decline of 91.4%, as
operations remain suspended at the Sheraton Boston Hotel .
While revenues continue to significantly underperform pre-pandemic levels, operating trends were positive in the first quarter of 2021, as vaccine distribution was implemented and certain jurisdictions loosened COVID-19 restrictions, with RevPAR increasing
22
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from $41.68 in January to $84.10 in March. In particular, properties in Florida ,
Texas , Arizona and Hawaii significantly outperformed the fourth quarter of 2020.
At the same time, hotel-level operating costs increased just 15% from the fourth
quarter, primarily reflecting the change in wages and benefits, as hiring did
not keep pace with the improvement in operations at these resort destinations.
The lag in hiring is due primarily to the unanticipated pace of the sequential
growth in occupancy, particularly in March of 2021, which did not provide our
managers sufficient time to adjust staffing levels commensurate with the
increase in demand. We anticipate that hotel-level operating costs in future
quarters will increase at a higher rate as our hotel managers adjust back to
more normalized levels of operations.
As a result of the COVID-19 pandemic beginning
• net loss increased
• diluted loss per share for the quarter increased
• Adjusted EBITDAre decreased$161 million for the first quarter; and • Adjusted FFO per diluted share decreased$0.22 for the first quarter.
Outlook
The COVID-19 pandemic has severely impacted macroeconomic and industry expectations for 2021. While economic growth and business investment are expected to accelerate meaningfully in 2021 compared to 2020, supported by recent stimulus, low interest rates, and vaccine distribution, government-imposed restrictions across theU.S. remain. Although daily reported cases of the virus have declined from the January surge, many regions continue to grapple with elevated rates of infection, which has resulted in continued jobless claims and slower economic activity in the first part of the year. While forecasts for 2021 remain uncertain, Blue Chip Economic Indicators consensus currently estimates an increase in real GDP of 6.3% for the year, while business investment is anticipated to increase 7.8%. Though analysts believe the unemployment rate peaked in 2020, it is anticipated to remain elevated in 2021, with an expected average of 5.4% for the year. The range of potential outcomes on the economy and the lodging industry specifically is exceptionally wide, reflecting both the unprecedented nature of the pandemic and varying analyst assumptions surrounding infection rates, new virus variants and the impact of vaccine deployments. Hotel supply growth is anticipated to remain below the long-term historical average in 2021, as social distancing measures and supply chain challenges resulted in project delays across theU.S. The pandemic's outsized impact on our industry has resulted in a breakdown of the relationship between increased business investment and RevPAR growth. RevPAR recovery to pre-pandemic levels is anticipated to lag that of the broaderU.S. economy, despite lower supply growth. Luxury and upper upscale hotels in topU.S. markets, where a majority of our hotels are located, have been most heavily affected by the pandemic, due in part to the sharp decline in air travel, particularly from international arrivals, and the slower recovery of corporate and group demand. While we have seen improving trends, we anticipate that these factors will persist in 2021. As a result of the significant uncertainties related to the impact of vaccine deployment, the path to herd immunity and broader macroeconomic trends in 2021, we anticipate that the industry outlook will continue to be weighed down by the slow return of corporate and group travel, as businesses likely will remain cautious. While investor optimism has grown in the early part of 2021 as analysts focus on pent-up leisure demand, existing corporate policies are expected to continue to constrain nonessential business transient and group travel until the country approaches herd immunity. As vaccination rates continue to accelerate across theU.S. , we are optimistic about continued RevPAR improvements. However, the timing and trajectory of the recovery is difficult to forecast due to different opening standards across many jurisdictions, a wide range of customer responses to vaccines and the virus, seasonal shifts in the mix of business and leisure demand, as well as a condensed booking window for hotel rooms. Therefore, we cannot provide a full year forecast for RevPAR at this time. We believe that recovery within the lodging industry is highly dependent on the strength of the economy, consumer confidence and, especially with respect to corporate and group travel, the timing of vaccine deployment. Accordingly, we believe that the impact of the recovery on specific markets and industries will be uneven.
As noted above, the current outlook for the lodging industry remains highly uncertain. There can be no assurances as to the extent and timing for a recovery in lodging demand for any number of reasons, including, but not limited to, slower than anticipated return of group and business travel.
Strategic Initiatives
23
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Balance Sheet. On February 9, 2021 , we amended our credit facility to extend the
covenant waiver period through the first quarter of 2022 as well as to further
modify the covenant levels required after the waiver period ends and to provide
additional flexibility with regard to acquisitions, asset sales, capital
expenditures and mandatory prepayment without any changes to the existing
pricing grid. As of March 31, 2021 , we had $2.0 billion of cash and cash
equivalents.
Acquisitions. In March 2021 , we acquired the fee-simple interest in the 448-room
Hyatt Regency Austin in Austin, Texas for approximately $161 million in cash.
Subsequent to quarter end, we also purchased the 444-room Four Seasons Resort
Orlando at Walt Disney World® Resort for a total purchase price of $610 million
and the Royal Ka'anapali and Ka'anapali Kai golf courses, adjacent to our Hyatt
Regency Maui hotel, for $28 million .
Capital Projects. We are utilizing the low occupancy environment to accelerate certain projects and minimize future disruption.
During the first quarter of 2021, we spent approximately$61 million on ROI capital projects and$32 million on renewal and replacement projects. For full year 2021, we expect total capital expenditures of$375 million to$475 million . This total amount consists of ROI projects of approximately$275 million to$325 million and renewal and replacement expenditures of$100 million to$150 million . ROI projects include approximately$110 million to$140 million for the Marriott transformational capital program discussed below.
In
We have made substantial progress on the Marriott transformational capital program, which began in 2018 and is expected to be substantially complete by 2022, and now includes 16 of our properties after the sale of theNewport Beach Marriott Hotel & Spa . We believe this program will position these hotels to be more competitive in their respective markets and will enhance long-term performance through increases in RevPAR and market yield index. We agreed to invest amounts in excess of the FF&E reserves required under our management agreements and, in exchange, Marriott has provided additional priority returns on the agreed upon investments and operating profit guarantees of up to$83 million , before reductions for incentive management fees, to offset expected business disruption. Over 70% of the total estimated costs of the transformational capital program have been spent as ofMarch 31, 2021 , and we expect to complete approximately 85% of the program by the end of the year. Of the 16 hotels included in the program, we have completed projects at theCoronado Island Marriott Resort & Spa ,New York Marriott Downtown ,San Francisco Marriott Marquis , andSanta Clara Marriott in 2019 and projects at theMinneapolis Marriott City Center ,San Antonio Marriott Rivercenter andJW Marriott Atlanta Buckhead in 2020. In 2021, we completed the project atThe Ritz-Carlton Amelia Island and we expect to substantially complete projects at three additional hotels:New York Marriott Marquis ,Houston Medical Center Marriott andOrlando World Center Marriott . 24 --------------------------------------------------------------------------------
Results of Operations
The following table reflects certain line items from our statements of operations (in millions, except percentages):
Quarter ended March 31,
2021 2020 Change
Total revenues $ 399 $ 1,052 (62.1 )%
Operating costs and expenses:
Property-level costs (1) 541 1,038 (47.9 )
Corporate and other expenses 24 25 (4.0 )
Operating loss (166 ) (11 ) (1,409.1 )
Interest expense 42 37 13.5
Other losses (1 ) (2 ) 50.0
Benefit for income taxes 46 37 24.3
Host Inc.:
Net loss attributable to
non-controlling interests (1 ) - N/M
Net loss attributable to Host Inc. (152 ) (3 ) (4,966.7 )
Host L.P.:
Net loss attributable to
non-controlling interests - - -
Net loss attributable to Host L.P. (153 ) (3 ) (5,000.0 )
___________
(1) Amount represents total operating costs and expenses from our unaudited
condensed consolidated statements of operations, less corporate and other
expenses.
N/M=Not meaningful.
Statement of Operations Results and Trends
The COVID-19 pandemic began to significantly impact hotel operations beginning in March of 2020, which resulted in a significant decline in RevPAR in the first quarter of 2021 compared to 2020. However, RevPAR has increased sequentially each month during the first quarter of 2021, from$41.68 in January to$84.10 in March. There can be no assurances that the month-over-month increases in RevPAR will continue.Hotel Sales Overview
The following table presents total revenues in accordance with GAAP and includes all consolidated hotels (in millions, except percentages):
Quarter ended March 31,
2021 2020 Change
Revenues:
Rooms $ 257 $ 626 (58.9 )%
Food and beverage 77 330 (76.7 )
Other 65 96 (32.3 )
Total revenues $ 399 $ 1,052 (62.1 )
The significant decline in revenues was due predominantly to the impact of the
COVID-19 pandemic, as January and February of 2020 had positive operations and
declines began in the middle of March of 2020 with impacts as follows:
Rooms. Total rooms revenues decreased
Food and beverage. Total food and beverage ("F&B") revenues decreased
Other revenues. Total other revenues decreased
25
--------------------------------------------------------------------------------Property-level Operating Expenses
The following table presents property-level operating expenses in accordance
with GAAP and includes all consolidated hotels (in millions, except
percentages):
Quarter ended March 31,
2021 2020 Change
Expenses:
Rooms $ 65 $ 187 (65.2 )%
Food and beverage 62 245 (74.7 )
Other departmental and support expenses 160 319 (49.8 )
Management fees 11 30 (63.3 )
Other property-level expenses 78 93 (16.1 )
Depreciation and amortization 165 164 0.6
Total property-level operating expenses
(47.9 )
Our operating costs and expenses, which have both fixed and variable components, are affected by several factors. Rooms expenses are affected mainly by occupancy, which drives costs related to items such as housekeeping, reservation systems, room supplies, laundry services and front desk costs. Food and beverage expenses correlate closely with food and beverage revenues and are affected by occupancy and the mix of business between banquet and audio-visual and outlet sales. However, the most significant expense for the rooms, food and beverage, and other departmental and support expenses is wages and employee benefits, which comprise approximately 53% of these expenses. Due to a significant decline in operations and implementation of portfolio-wide cost reductions in response to the COVID-19 pandemic, our managers reduced wages and benefits expense by over 60% during the first quarter compared to the first quarter of 2019. Included in these amounts in the first quarter of 2021 is a reduction of approximately$7 million related to the ERC recorded by our managers, the benefit of which was passed on to us. Other property-level expenses consist of property taxes, the amounts and structure of which are highly dependent on local jurisdiction taxing authorities, and property and general liability insurance, all of which do not necessarily increase or decrease based on similar changes in revenues at our hotels. The decline in expenses for rooms, food and beverage, other departmental and support, and management fees predominantly are due to the impact of the COVID-19 pandemic. As a result, expenses declined as follows:
Rooms. Rooms expenses declined
Food and beverage. F&B expenses decreased
Other departmental and support expenses. Other departmental and support expenses
decreased
Management fees. Base management fees, which generally are calculated as a percentage of total revenues, decreased$19 million , or 62.8%, for the first quarter. Incentive management fees, which generally are based on the amount of operating profit at each hotel after we receive a priority return on our investment, were flat for the quarter. Other property-level expenses. These expenses generally do not vary significantly based on occupancy and include expenses such as property taxes and insurance. Other property level expenses decreased$15 million , or 16.1%, for the quarter primarily due to a decrease in rent on a portion of our ground leases that are based on a percentage of sales. Other property-level expenses also were partially offset by operating profit guarantees received from Marriott under the transformational capital program.
Other Income and Expense
Corporate and other expenses. The following table details our corporate and other expenses for the quarter (in millions):
Quarter ended March 31,
2021 2020
General and administrative costs $ 20 $ 22
Non-cash stock-based compensation expense 4 3
Total $ 24 $ 25
26
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Interest expense. Interest expense increased for the quarter primarily due to
the higher outstanding balance on the revolver portion of the credit facility.
The following table details our interest expense for the quarter (in millions):
Quarter ended March 31,
2021 2020
Cash interest expense(1) $ 40 $ 35
Non-cash interest expense 2 2
Total interest expense $ 42 $ 37
___________
(1) Including the change in accrued interest, total cash interest paid was
respectively.
Benefit (provision) for income taxes. We lease substantially all our properties
to consolidated subsidiaries designated as taxable REIT subsidiaries ("TRS") for
federal income tax purposes. Taxable income or loss generated/incurred by the
TRS primarily represents hotel-level operations and the aggregate rent paid to
Host L.P. by the TRS, on which we record an income tax provision or benefit. For
the quarter, we recorded an income tax benefit of $46 million due primarily to
the domestic net operating loss incurred by our TRS. Any domestic net operating
loss incurred by our TRS in 2021 may be carried forward indefinitely, its use
being subject to a limit of 80% of annual taxable income. Our TRS is expected to
generate additional net operating losses in 2021 and we will evaluate whether or
not to record an income tax benefit for all or a portion of such net operating
loss in future quarters.
Hotel RevPAR Overview
To facilitate a quarter-to-quarter comparison of our operations, we typically
present certain operating statistics for the periods included in this
presentation on a comparable hotel basis. However, due to the COVID-19 pandemic
and its effects on operations, there is little comparability between periods.
For this reason, we are revising our presentation to instead present pro forma
hotel operating results for all hotels. See "All Owned Hotel Pro Forma Hotel
Operating Statistics and Results" for a complete description of our methodology.
We also discuss our Hotel RevPAR results by geographic location and mix of
business (i.e., transient, group, or contract).
27
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The following tables set forth performance information for our hotels by
geographic location as of
All Owned Hotels (pro forma) by Location in Constant US$
As of March 31, 2021 Quarter ended March 31, 2021 Quarter ended March 31, 2020
Average Average Percent Percent
No. of No. of Average Occupancy Average Occupancy Change in Change in
Location Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage
RevPAR Total RevPAR RevPAR Total RevPAR
Miami 3 1,276 $ 556.36 55.6 % $ 309.29 $ 470.45 $ 443.30 70.9 % $ 314.11 $ 498.35 (1.5 )% (5.6 )%
Florida Gulf Coast 5 1,842 521.91 52.8 275.67 489.52 430.81 70.8 305.01 649.38 (9.6 ) (24.6 )
Phoenix 4 1,819 355.31 49.9 177.15 335.19 369.52 67.1 248.11 552.93 (28.6 ) (39.4 )
Jacksonville 1 446 484.86 35.5 171.97 345.82 363.41 57.0 207.28 466.16 (17.0 ) (25.8 )
Maui /Oahu 4 1,987 404.89 40.0 162.15 243.26 469.81 74.5 350.05 513.46 (53.7 ) (52.6 )
Washington, D.C.
(CBD) 5 3,238 152.00 49.3 74.98 78.49 230.32 54.0 124.28 183.71 (39.7 ) (57.3 )
Houston 4 1,716 125.89 50.9 64.05 86.95 175.23 61.3 107.38 162.63 (40.4 ) (46.5 )
Atlanta 4 1,682 155.54 37.7 58.57 75.06 192.55 63.1 121.49 196.11 (51.8 ) (61.7 )
Philadelphia 2 810 135.04 36.9 49.89 70.10 173.70 62.8 109.04 180.62 (54.2 ) (61.2 )
Northern Virginia 3 1,252 150.57 29.5 44.45 63.28 206.66 52.7 108.90 180.68 (59.2 ) (65.0 )
San Antonio /Austin 3 1,960 128.07 31.5 40.35 57.23 196.60 47.7 93.85 157.07 (57.0 ) (63.6 )
Los Angeles /Orange
County 5 2,119 158.07 24.3 38.41 50.27 213.01 67.4 143.52 215.71 (73.2 ) (76.7 )
San Diego 3 3,288 156.29 17.1 26.69 48.42 244.32 61.2 149.44 291.18 (82.1 ) (83.4 )
New York 3 4,261 142.98 15.9 22.78 29.16 220.61 56.1 123.75 197.15 (81.6 ) (85.2 )
Orlando 1 2,004 151.40 13.2 19.95 52.40 215.31 57.1 123.02 288.47 (83.8 ) (81.8 )
Denver 3 1,340 112.49 17.2 19.34 23.70 161.52 50.1 80.92 125.09 (76.1 ) (81.1 )
Chicago 4 1,816 115.21 16.2 18.62 22.77 142.48 47.5 67.69 95.61 (72.5 ) (76.2 )
San Francisco /San
Jose 7 4,528 136.44 13.3 18.10 23.78 295.37 59.3 175.08 254.37 (89.7 ) (90.7 )
New Orleans 1 1,333 107.71 13.3 14.30 27.41 202.36 65.3 132.09 197.80 (89.2 ) (86.1 )
Seattle 2 1,315 149.63 7.2 10.84 14.53 193.42 54.0 104.51 149.34 (89.6 ) (90.3 )
Boston 3 2,715 117.71 8.0 9.40 12.14 177.13 53.0 93.85 141.90 (90.0 ) (91.4 )
Other 6 2,509 135.81 27.2 36.96 47.96 166.44 57.3 95.36 134.38 (61.2 ) (64.3 )
Domestic 76 45,256 233.01 27.1 63.08 97.61 253.75 59.1 150.09 252.30 (58.0 ) (61.3 )
International 5 1,499 89.36 13.0 11.62 15.46 133.47 53.3 71.18 104.05 (83.7 ) (85.1 )
All Locations -
Constant US$ 81 46,755 230.76 26.6 61.43 94.98 250.26 59.0 147.56 247.53 (58.4 ) (61.6 )
All Owned Hotels (pro forma) in Nominal US$
As of March 31, 2021 Quarter ended March 31, 2021 Quarter ended March 31, 2020
Average Average Percent Percent
No. of No. of Average Occupancy Average Occupancy Change in Change in
Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage
RevPAR Total RevPAR RevPAR Total RevPAR
International 5 1,499 $ 89.36 13.0 % $ 11.62 $ 15.46 $ 138.21 53.3 % $ 73.70 $ 106.43 (84.2 )% (85.5 )%
Domestic 76 45,256 233.01 27.1 63.08 97.61 253.75 59.1 150.09 252.30 (58.0 ) (61.3 )
All Locations 81 46,755 230.76 26.6 61.43 94.98 250.40 59.0 147.64 247.61 (58.4 ) (61.6 )
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The following tables set forth performance information for our hotels by geographic location as ofMarch 31, 2021 and 2019, respectively, to provide a comparison of hotel statistics in the current quarter to pre-pandemic levels: All Owned Hotels (pro forma) by Location in Constant US$ As of March 31, 2021 Quarter ended March 31, 2021 Quarter ended March 31, 2019 Average Average Percent Percent No. of No. of Average Occupancy Average Occupancy Change in Change in Location Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR Total RevPAR RevPAR Total RevPARMiami 3 1,276 $ 556.36 55.6 %$ 309.29 $ 470.45$ 408.86 85.9 %$ 351.13 $ 522.30 (11.9 )% (9.9 )%Florida Gulf Coast 5 1,842 521.91 52.8 275.67 489.52 439.30 83.1 364.98 729.85 (24.5 ) (32.9 )Phoenix 4 1,819 355.31 49.9 177.15 335.19 373.48 82.7 308.80 644.54 (42.6 ) (48.0 )Jacksonville 1 446 484.86 35.5 171.97 345.82 367.78 78.6 289.04 690.11 (40.5 ) (49.9 )Maui /Oahu 4 1,987 404.89 40.0 162.15 243.26 437.66 89.0 389.36 584.39 (58.4 ) (58.4 )Washington, D.C. (CBD) 5 3,238 152.00 49.3 74.98 78.49 247.89 73.3 181.79 257.64 (58.8 ) (69.5 )Houston 4 1,716 125.89 50.9 64.05 86.95 182.60 75.8 138.36 201.04 (53.7 ) (56.8 )Atlanta 4 1,682 155.54 37.7 58.57 75.06 227.57 76.7 174.60 272.88 (66.5 ) (72.5 )Philadelphia 2 810 135.04 36.9 49.89 70.10 190.16 78.1 148.48 242.24 (66.4 ) (71.1 )Northern Virginia 3 1,252 150.57 29.5 44.45 63.28 210.16 65.7 138.09 239.65 (67.8 ) (73.6 )San Antonio /Austin 3 1,960 128.07 31.5 40.35 57.23 208.03 79.2 164.69 260.10 (75.5 ) (78.0 )Los Angeles /Orange County 5 2,119 158.07 24.3 38.41 50.27 219.94 84.5 185.95 279.42 (79.3 ) (82.0 )San Diego 3 3,288 156.29 17.1 26.69 48.42 252.91 76.9 194.59 349.55 (86.3 ) (86.1 )New York 3 4,261 142.98 15.9 22.78 29.16 236.38 72.0 170.27 267.69 (86.6 ) (89.1 )Orlando 1 2,004 151.40 13.2 19.95 52.40 208.20 79.0 164.41 385.22 (87.9 ) (86.4 )Denver 3 1,340 112.49 17.2 19.34 23.70 161.82 64.7 104.75 158.27 (81.5 ) (85.0 )Chicago 4 1,816 115.21 16.2 18.62 22.77 148.27 60.4 89.50 128.94 (79.2 ) (82.3 )San Francisco /San Jose 7 4,528 136.44 13.3 18.10 23.78 305.80 77.3 236.51 330.84 (92.3 ) (92.8 )New Orleans 1 1,333 107.71 13.3 14.30 27.41 209.79 81.6 171.18 249.87 (91.6 ) (89.0 )Seattle 2 1,315 149.63 7.2 10.84 14.53 194.12 77.4 150.15 203.91 (92.8 ) (92.9 )Boston 3 2,715 117.71 8.0 9.40 12.14 190.33 69.4 132.03 196.44 (92.9 ) (93.8 ) Other 6 2,509 135.81 27.2 36.96 47.96 168.26 73.1 122.94 175.07 (69.9 ) (72.6 ) Domestic 76 45,256 233.01 27.1 63.08 97.61 257.13 76.2 195.88 318.78 (67.8 ) (69.4 ) International 5 1,499 89.36 13.0 11.62 15.46 134.63 67.6 91.07 132.89 (87.2 ) (88.4 ) All Locations - Constant US$ 81 46,755 230.76 26.6 61.43 94.98 253.61 75.9 192.51 312.80 (68.1 ) (69.6 ) All Owned Hotels (pro forma) in Nominal US$ As of March 31, 2021 Quarter ended March 31, 2021 Quarter ended March 31, 2019 Average Average Percent Percent No. of No. of Average Occupancy Average Occupancy Change in Change in Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR Total RevPAR RevPAR Total RevPAR International 5 1,499 $ 89.36 13.0 %$ 11.62 $ 15.46$ 143.88 67.6 %$ 97.32 $ 140.81 (88.1 )% (89.0 )% Domestic 76 45,256 233.01 27.1 63.08 97.61 257.13 76.2 195.88 318.78 (67.8 ) (69.4 ) All Locations 81 46,755 230.76 26.6 61.43 94.98 253.88 75.9 192.71 313.05 (68.1 ) (69.7 ) Hotel Business Mix Our customers fall into three broad categories: transient, group, and contract business, which accounted for approximately 61%, 35%, and 4%, respectively, of our full year 2019 room sales. The information below is derived from business mix data for the 81 hotels that we owned as ofMarch 31, 2021 . For additional detail on our business mix, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10K.
The following are the results of our consolidated portfolio transient, group and contract business:
Quarter ended March 31, 2021 Quarter ended March 31, 2020
Transient Contract Transient Contract
business Group business business business Group business business
Room nights (in
thousands) 767 264 89 1,406 949 147
Percentage change
in room nights vs.
same period in
2019 (56.4 )% (79.2 )% (43.0 )%
Room Revenues (in
millions) $ 205 $ 41 $ 13 $ 358 $ 238 $ 30
Percentage change
in revenues vs.
same period in
2019 (55.3 )% (87.0 )% (62.1 )%
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Liquidity and Capital Resources
Liquidity and Capital Resources ofHost Inc. andHost L.P. The liquidity and capital resources ofHost Inc. andHost L.P. are derived primarily from the activities ofHost L.P. , which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of hotels.Host Inc. is a REIT and its only significant asset is the ownership of general and limited partner interests ofHost L.P. ; therefore, its financing and investing activities are conducted throughHost L.P. , except for the issuance of its common and preferred stock. Proceeds from common and preferred stock issuances byHost Inc. are contributed toHost L.P. in exchange for common and preferred OP units. Additionally, funds used byHost Inc. to pay dividends or to repurchase its stock are provided byHost L.P. Therefore, while we have noted those areas in which it is important to distinguish betweenHost Inc. andHost L.P. , we have not included a separate discussion of liquidity and capital resources as the discussion below applies to bothHost Inc. andHost L.P. Overview. We look to maintain a capital structure and liquidity profile with an appropriate balance of cash, debt, and equity to provide financial flexibility given the inherent volatility of the lodging industry. We believe this strategy has resulted in a lower cost of debt capital, allowing us to complete opportunistic investments and acquisitions and it positions us to manage potential declines in operations throughout the lodging cycle. We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of hotels that are encumbered by mortgage debt. Currently, none of our consolidated hotels are encumbered by mortgage debt. Over the past several years leading up to the COVID-19 pandemic, we had decreased our leverage as measured by our net debt-to-EBITDA ratio and reduced our debt service obligations, leading to an increase in our fixed charge coverage ratio. As a result, we were well positioned at the onset of the COVID-19 pandemic with sufficient liquidity and financial flexibility to withstand the severe slowdown inU.S. economic activity and lodging demand brought on by the pandemic. As the magnitude of the financial impact of the COVID-19 pandemic and its duration are uncertain, we believe these actions will provide us with financial flexibility until economic restrictions related to the pandemic are lifted and lodging demand recovers. Under the current challenging operating environment posed by the COVID-19 pandemic, we have taken steps to preserve liquidity by working with our hotel operators to reduce operating costs at our hotels, closely monitoring our capital expenditures levels, and suspending our quarterly dividend and stock repurchases. We believe that we have sufficient liquidity to withstand the current negative operating cash flow and to fund our capital expenditures programs. We intend to use available cash in the near term predominantly to fund negative operations at certain of our hotels, corporate expenses, capital expenditures and hotel acquisitions. We used$771 million of cash to fund the recent acquisitions of theHyatt Regency Austin in the first quarter of 2021 and the Four Seasons Resort Orlando at Walt Disney World® Resort subsequent to quarter end. We remain well positioned to execute additional acquisitions to the extent favorable pricing opportunities arise. We may access equity markets if favorable conditions exist in order to enhance our liquidity and to fund cash needs, including to fund acquisitions or other investment opportunities generated by the COVID-19 pandemic. We intend to enter into a distribution agreement by whichHost Inc. may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to$600 million . The shares would be offered and sold through sales agents in transactions that are deemed to be "at the market" offerings at then-current market prices. We are not obligated to issue any shares and may do so when we believe conditions are advantageous and there is a compelling use of proceeds, including to fund future potential acquisitions. Cash Requirements. We use cash for acquisitions, capital expenditures, debt payments, operating costs, and corporate and other expenses, as well as for dividends and distributions to stockholders and OP unitholders and stock and OP unit repurchases. We have no debt maturities until 2023. As a REIT,Host Inc. is required to distribute to its stockholders at least 90% of its taxable income, excluding net capital gain, on an annual basis. As part of our COVID-19 response, our regular quarterly common cash dividend is currently suspended and we are restricted from repurchasing stock or OP Units under the terms of our credit facility amendments. Capital Resources. As ofMarch 31, 2021 , we had$2,008 million of cash and cash equivalents and$131 million in our FF&E escrow reserve. We have substantially utilized the$1.5 billion revolver under our credit facility. We depend primarily on external sources of capital to finance future growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility, including our ability to incur debt, pay dividends, make distributions and make investments, is contingent on our ability to maintain compliance with the financial covenants of our credit facility and senior notes, which include, among other things, the allowable amounts of leverage, interest coverage and fixed charges. Following the amendments to our credit facility agreement, the quarterly-tested financial covenants were waived beginningJuly 1, 2020 until the required financial statement reporting date for the second quarter of 2022. However, we currently are below the interest coverage ratio required under our senior notes indentures to incur additional debt and, while not an event of default, we will be unable to incur additional debt while we remain below the required covenant level. 30 -------------------------------------------------------------------------------- Given the total amount of our debt and our maturity schedule, we may continue to redeem or repurchase senior notes from time to time, taking advantage of favorable market conditions. InFebruary 2021 ,Host Inc.'s Board of Directors authorized repurchases of up to$1.0 billion of senior notes other than in accordance with their respective terms, of which the entire amount remains available under this authority. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer, or through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any retirement before the maturity date will affect earnings and NAREIT FFO per diluted share as a result of the payment of any applicable call premiums and the accelerated expensing of previously deferred and capitalized financing costs. Accordingly, considering our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws and the requirements under our credit facility and senior notes, be considering, or be in discussions with respect to, the repurchase or issuance of exchangeable debentures and/or senior notes or the repurchase or sale of our common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously. While we currently have$371 million available under our share repurchase program, additional repurchases are currently restricted under the terms of the credit facility amendments. There were no share repurchases during the first quarter of 2021 and we do not anticipate additional repurchases in 2021. We continue to explore potential acquisitions and dispositions. We anticipate that any such future acquisitions will be funded primarily by proceeds from sales of hotels, but also potentially from equity offerings ofHost Inc. , issuances of OP units byHost L.P. , or available cash. Given the nature of these transactions, we can make no assurances that we will be successful in acquiring any one or more hotels that we may review, bid on or negotiate to purchase or that we will be successful in disposing of any one or more of our hotels. We may acquire additional hotels or dispose of hotels through various structures, including transactions involving single assets, portfolios, joint ventures, acquisitions of the securities or assets of other REITs or distributions of hotels to our stockholders. Sources and Uses of Cash. Our sources of cash generally include cash from operations, proceeds from debt and equity issuances, and proceeds from hotel sales. Uses of cash include acquisitions, capital expenditures, operating costs, debt repayments, and repurchases of shares and distributions to equity holders. We do not anticipate significant cash from operations in 2021, and we are restricted from issuing debt under the covenants of our senior notes indenture. However, we have significant available cash and also have access to stock issuances and property dispositions as alternative sources of cash. Cash Provided by/Used in Operating Activities. In the first quarter of 2021, net cash used in operating activities was$49 million compared to cash provided of$157 million for the first quarter of 2020. Cash used in operating activities during the first quarter of 2021 primarily was to fund operating shortfalls at certain of our hotels; however, it represented a continuing trend of improvement each quarter since the second quarter of 2020. Cash used in operating activities in the fourth quarter of 2020 was$143 million , with the first quarter 2021 improvement driven by improved operations at our hotels compared to the fourth quarter of 2020. Cash Used in Investing Activities. Net cash used in investing activities was$275 million during the first quarter of 2021 compared to$103 million for the first quarter of 2020. Cash used in investing activities during the first quarter of 2021 primarily was due to$93 million of capital expenditures compared to$131 million in the first quarter of 2020 and the acquisition of one hotel. Cash provided by investing activities in the first quarter of 2021 and 2020 included proceeds from the repayment of a loan receivable associated with the sale of property in the prior year. The following table summarizes significant acquisitions that have been completed as ofMay 4, 2021 : Transaction Date Description of Transaction Investment Acquisitions
April 2021 Acquisition of Four Seasons Resort Orlando at
Walt Disney World® Resort $ (610 )
April 2021 Acquisition of Ka'anapali Golf Courses (28 )
March 2021 Acquisition of Hyatt Regency Austin (161 )
Total acquisitions $ (799 )
Cash Provided by/Used in Financing Activities. In the first quarter of 2021, net
cash used in financing activities was $11 million compared to cash provided of
$1,166 million in the first quarter of 2020. In 2020, cash provided by financing
activities in the first quarter included the $1.5 billion draw on the credit
facility, while cash used in the first quarter included stock repurchases and
dividend payments and distributions, prior to their suspension later in 2020.
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Debt
As of
Financial Covenants
Credit Facility Covenants. Our credit facility contains certain important financial covenants concerning allowable leverage, unsecured interest coverage, and required fixed charge coverage. Total debt used in the calculation of our ratio of consolidated total debt to consolidated EBITDA (our "Leverage Ratio") is based on a "net debt" concept, under which cash and cash equivalents in excess of$100 million are deducted from our total debt balance for purposes of measuring compliance. OnJune 26, 2020 andFebruary 9, 2021 , we entered into amendments to the existing senior unsecured bank credit facility withBank of America, N.A ., as administrative agent, (collectively, the "Amendments"). The Amendments suspend requirements to comply with all existing financial maintenance covenants under the credit facility for the period which began onJuly 1, 2020 and ending on the required financial statement reporting date for the second quarter of 2022 (such period, the "Covenant Relief Period"). The existing financial maintenance covenants are reinstated for the quarter endingJune 30, 2022 , except that after the reinstatement instead of using the prior four calendar quarters' results in the calculations, only results for the second quarter of 2022 and thereafter are used during a phase in period. In addition, for the second quarter of 2022, the only financial covenant that shall be required to be satisfied shall be a minimum fixed charge coverage ratio of 1.00:1.00 as of the end of such quarter. For the fiscal quarters ending after the Covenant Relief Period (i.e., afterJune 30, 2022 ), the financial covenant requirements set forth in the credit facility before the Amendments shall apply, except that the maximum leverage ratio requirement will be amended to be (a) 8.50:1:00 as at the end of the first and second fiscal quarters ending after the Covenant Relief Period, (b) 8.00:1.00 as at the end of the third and fourth fiscal quarters ending after the Covenant Relief Period, (c) 7.50:1:00 as at the end of the fifth fiscal quarter ending after the Covenant Relief Period and (d) 7.25:1.00 at all times thereafter. The Amendments permit us to terminate the Covenant Relief Period at any time, subject to demonstrating satisfaction of the financial maintenance covenants that otherwise would apply for the quarter endingJune 30, 2022 . AtMarch 31, 2021 , the following table summarizes the results of the financial tests required by the credit facility, for informational purposes only, as the covenants currently are not in effect under the Amendment: Covenant Requirement Actual Ratio for all years Leverage ratio (10.1 x) Maximum ratio of 7.25x Fixed charge coverage ratio (2.5 x) Minimum ratio of 1.25x Unsecured interest coverage ratio (1) (1.8 x) Minimum ratio of 1.75x ___________
(1) If, at any time, our leverage ratio exceeds 7.0x, our minimum unsecured
interest coverage ratio will be reduced to 1.5x.
Senior Notes Indenture Covenants
The following table summarizes the results of the financial tests required by the indentures for our senior notes and our actual credit ratios as ofMarch 31, 2021 : Actual Ratio Covenant Requirement Unencumbered assets tests 383 % Minimum ratio of 150% Total indebtedness to total assets 26 % Maximum ratio of
65%
Secured indebtedness to total assets 0 % Maximum ratio of
40%
EBITDA-to-interest coverage ratio (2.2 x) Minimum ratio of
1.5x
We are in compliance with certain of the financial ratios applicable to our senior notes as ofMarch 31, 2021 , but we are below the 1.5x requirement for the EBITDA-to-interest coverage ratio as of the end of the first quarter of 2021 and, as a result, while not an event of default, we will not be able to incur additional debt while the ratio remains below this requirement. For additional details on our credit facility and senior notes, including the terms of the Amendments, see our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 32
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Dividend Policy
Host Inc. is required to distribute at least 90% of its annual taxable income, excluding net capital gains, to its stockholders in order to maintain its qualification as a REIT. Funds used byHost Inc. to pay dividends on its common stock are provided by distributions fromHost L.P. As ofMarch 31, 2021 ,Host Inc. is the owner of approximately 99% of theHost L.P. common OP units. The remaining common OP units are owned by unaffiliated limited partners.Each Host L.P. OP unit may be redeemed for cash or, at the election ofHost Inc. ,Host Inc. common stock based on the conversion ratio. The conversion ratio is 1.021494 shares ofHost Inc. common stock for eachHost L.P. common OP unit. Under the credit facility, as amended, all redemptions must be made withHost Inc. common stock untilHost L.P.'s leverage ratio is below 7.25x. Investors should consider the non-controlling interests in theHost L.P. common OP units when analyzing dividend payments byHost Inc. to its stockholders, as theseHost L.P. common OP unitholders share, on a pro rata basis, in cash distributed byHost L.P. to all of its common OP unitholders. For example, ifHost Inc. paid a$1 per share dividend on its common stock, it would be based on the payment of a$1.021494 per common OP unit distribution byHost L.P. toHost Inc. , as well as to the other unaffiliatedHost L.P. common OP unitholders.Host Inc.'s policy on common dividends generally is to distribute, over time, 100% of its taxable income, which primarily is dependent onHost Inc.'s results of operations, as well as tax gains and losses on hotel sales. As part of our response to the COVID-19 pandemic and in order to preserve cash and future financial flexibility, we have suspended our regular quarterly common cash dividend. All future dividends are subject to Board approval. In addition, in connection with the amendments to the credit facility, we agreed to substantial limitations on our ability to pay common cash dividends during the Covenant Relief Period.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that we believe are reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
All
To facilitate a quarter-to-quarter comparison of our operations, we typically present certain operating statistics (i.e., Total RevPAR, RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in this presentation on a comparable hotel basis in order to enable our investors to better evaluate our operating performance (discussed in "Hotel Property Level Operating Results " below). However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between periods. For this reason, we temporarily are suspending our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results on a pro forma basis, including the following adjustments: (1) operating results are presented for all consolidated hotels owned as ofMarch 31, 2021 , but do not include the results of operations for properties sold through the reporting date; and (2) operating results for acquisitions as ofMarch 31, 2021 are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results.
Constant US$ and Nominal US$
Operating results denominated in foreign currencies are translated using the
prevailing exchange rates on the date of the transaction, or monthly based on
the weighted average exchange rate for the period. For comparative purposes, we
also present the RevPAR results for the prior year assuming the results of our
foreign operations were translated using the same exchange rates that were
effective for the comparable periods in the current year, thereby eliminating
the effect of currency fluctuation for the year-over-year comparisons. We
believe this presentation is useful to investors as it provides clarity with
respect to the change in RevPAR in the local currency of the hotel consistent
with the manner in which we would evaluate our domestic portfolio. However, the
estimated effect of changes in foreign currency has been reflected in the
results of net income (loss), EBITDA, Adjusted EBITDAre, diluted earnings (loss)
per common share and Adjusted FFO per diluted share. Nominal US$ results include
the effect of currency fluctuations, consistent with our financial statement
presentation.
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Non-GAAP Financial Measures
We use certain "non-GAAP financial measures," which are measures of our
historical or future financial performance that are not calculated and presented
in accordance with GAAP, within the meaning of applicable
• Earnings Before Interest Expense, Income Taxes, Depreciation and
Amortization ("EBITDA"), Earnings Before Interest Expense, Income
Taxes, Depreciation and Amortization for real estate("EBITDAre") and
Adjusted EBITDAre, as a measure of performance for Host Inc. and Host
L.P. ,
• Funds From Operations ("FFO") and FFO per diluted share, both
calculated in accordance with National Association of Real Estate
Investment Trusts ("NAREIT") guidelines and with certainadjustments
from those guidelines, as a measure of performance for Host Inc. , and
• All Owned Hotel Pro Forma operating statistics and results, as a
measure of performance for Host Inc. and Host L.P. The following discussion defines these measures and presents why we believe they are useful supplemental measures of our performance.
Set forth below for each such non-GAAP financial measure is a reconciliation of the measure with the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable thereto. We also have included in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 further explanations of the adjustments being made, a statement disclosing the reasons why we believe the presentation of each of the non-GAAP financial measures provide useful information to investors regarding our financial condition and results of operations, the additional purposes for which we use the non-GAAP financial measures and limitations on their use.
EBITDA, EBITDAre and Adjusted EBITDAre
EBITDA
EBITDA is a commonly used measure of performance in many industries. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners that are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO and Adjusted FFO per diluted share, it is widely used by management in the annual budget process and for our compensation programs.
EBITDAre and Adjusted EBITDAre
We present EBITDAre in accordance with NAREIT guidelines, as defined in itsSeptember 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate," to provide an additional performance measure to facilitate the evaluation and comparison of our results with other REITs. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) excluding interest expense, income tax, depreciation and amortization, gains or losses on disposition of depreciated property (including gains or losses on change of control), impairment expense of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and adjustments to reflect the entity's pro rata share of EBITDAre of unconsolidated affiliates. We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor's understanding of our operating performance. Adjusted EBITDAre also is similar to the measure used to calculate certain credit ratios for our credit facility and senior notes. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:
? Property Insurance Gains - We exclude the effect of property insurance gains
reflected in our consolidated statements of operations because we believe
that including them in Adjusted EBITDAre is not consistent with reflecting
the ongoing performance of our assets. In addition, property insurance gains
could be less important to investors given that the depreciated
34
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asset book value written off in connection with the calculation of the
property insurance gain often does not reflect the market value of real
estate assets.
? Acquisition Costs - Under GAAP, costs associated with completed property
acquisitions that are considered business combinations are expensed in the
year incurred. We exclude the effect of these costs because we believe they
are not reflective of the ongoing performance of the Company.
? Litigation Gains and Losses - We exclude the effect of gains or lossesassociated with litigation recorded under GAAP that we consider outside the
ordinary course of business. We believe that including these items is not
consistent with our ongoing operating performance.
? Severance Expense - In certain circumstances, we will add back hotel-level
severance expenses when we do not believe that such expenses are reflective
of the ongoing operation of our properties. Situations that would result in a
severance add-back include, but are not limited to, (i) costs incurred as
part of a broad-based reconfiguration of the operating model with the
specific hotel operator for a portfolio of hotels and (ii) costs incurred at
a specific hotel due to a broad-based and significant reconfiguration of a
hotel and/or its workforce. We do not add back corporate-level severance
costs or severance costs at an individual hotel that we consider to be
incurred in the normal course of business.
In unusual circumstances, we also may adjust EBITDAre for gains or losses that
management believes are not representative of the Company's current operating
performance. The last adjustment of this nature was a 2013 exclusion of a gain
from an eminent domain claim.
The following table provides a reconciliation of EBITDA, EBITDAre, and Adjusted
EBITDAre to net income (loss), the financial measure calculated and presented in
accordance with GAAP that we consider the most directly comparable:
Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre
for Host Inc. and Host L.P.
(in millions)
Quarter ended March 31,
2021 2020
Net loss $ (153 ) $ (3 )
Interest expense 42 37
Depreciation and amortization 165 164
Income taxes (46 ) (37 )
EBITDA 8 161
Loss on dispositions - 1
Equity investment adjustments:
Equity in earnings of affiliates (9 ) (4 )
Pro rata EBITDAre of equity investments(1) 6 6
EBITDAre 5
164
Adjustments to EBITDAre: Severance expense (reversal) at hotel properties (2 ) - Adjusted EBITDAre $ 3$ 164 ___________
(1) Unrealized gains of our unconsolidated investments are not recognized in our
EBITDAre, Adjusted EBITDAre, NAREIT FFO or Adjusted FFO until they have been
realized by the unconsolidated partnership.
FFO Measures
We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period, in accordance with NAREIT guidelines. EffectiveJanuary 1, 2019 , we adopted NAREIT's definition of FFO included in NAREIT's Funds From Operations White Paper - 2018 Restatement. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment expense of certain real estate assets and investments and adjustments for consolidated partially-owned entities and unconsolidated affiliates. Adjustments for consolidated 35 --------------------------------------------------------------------------------
partially-owned entities and unconsolidated affiliates are calculated to reflect our pro rata share of the FFO of those entities on the same basis.
We also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our annual budget process and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of diluted earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor's understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:
• Gains and Losses on the Extinguishment of Debt - We exclude the effect
of finance charges and premiums associated with the extinguishment of
debt, including the acceleration of the write-off of deferred
financing costs from the original issuance of the debt being redeemed
or retired and incremental interest expense incurred during the
refinancing period. We also exclude the gains on debtrepurchases and
the original issuance costs associated with the retirement of
preferred stock. We believe that these items are not reflective of our
ongoing finance costs.
• Acquisition Costs - Under GAAP, costs associated with completed
property acquisitions that are considered business combinations are
expensed in the year incurred. We exclude the effect of these costs
because we believe they are not reflective of the ongoingperformance
of the Company.
• Litigation Gains and Losses - We exclude the effect of gains or losses
associated with litigation recorded under GAAP that we consider
outside the ordinary course of business. We believe that including
these items is not consistent with our ongoing operating performance.
• Severance Expense - In certain circumstances, we will add back
hotel-level severance expenses when we do not believe that such
expenses are reflective of the ongoing operation of ourproperties.
Situations that would result in a severance add-back include, but are
not limited to, (i) costs incurred as part of a broad-based
reconfiguration of the operating model with the specific hotel
operator for a portfolio of hotels and (ii) costs incurred at a
specific hotel due to a broad-based and significantreconfiguration of
a hotel and/or its workforce. We do not add back corporate-level
severance costs or severance costs at an individual hotel that we
consider to be incurred in the normal course of business.
In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that
management believes are not representative of our current operating performance.
For example, in 2017, as a result of the reduction of the U.S. federal corporate
income tax rate from 35% to 21% by the Tax Cuts and Jobs Act, we remeasured our
domestic deferred tax assets as of December 31, 2017 and recorded a one-time
adjustment to reduce our deferred tax assets and to increase the provision for
income taxes by approximately $11 million . We do not consider this adjustment to
be reflective of our on-going operating performance and, therefore, we excluded
this item from Adjusted FFO.
36
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The following table provides a reconciliation of the differences between our
non-GAAP financial measures, NAREIT FFO and Adjusted FFO (separately and on a
per diluted share basis), and net income (loss), the financial measure
calculated and presented in accordance with GAAP that we consider most directly
comparable:
Host Inc. Reconciliation of Diluted Loss per Common Share to
NAREIT and Adjusted Funds From Operations per Diluted Share
(in millions, except per share amount)
Quarter ended March 31,
2021 2020
Net loss $ (153 ) $ (3 )
Less: Net loss attributable to non-controlling
interests 1 -
Net loss attributable to Host Inc. (152 ) (3 )
Adjustments:
Loss on dispositions - 1 Depreciation and amortization 165
164
Equity investment adjustments: Equity in earnings of affiliates (9 ) (4 ) Pro rata FFO of equity investments(1) 4 4 Consolidated partnership adjustments: FFO adjustments for non-controlling interests of Host L.P. (2 ) (2 ) NAREIT FFO 6 160 Adjustments to NAREIT FFO: Severance expense (reversal) at hotel properties (2 ) - Adjusted FFO $ 4 $ 160
For calculation on a per share basis:(2)
Diluted weighted average shares outstanding - EPS 705.6
708.1
Assuming issuance of common shares granted under the comprehensive stock plans 0.9
0.4
Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO 706.5
708.5
Diluted loss per common share $ (.22 ) $ - NAREIT FFO per diluted share $ .01 $
.23
Adjusted FFO per diluted share $ .01 $
.23
___________
(1) Refer to the corresponding footnote on the Reconciliation of Net Income to
EBITDA, EBITDAre and Adjusted EBITDAre for
(2) Diluted loss per common share, NAREIT FFO per diluted share and Adjusted FFO
per diluted share are adjusted for the effects of dilutive securities.
Dilutive securities may include shares granted under comprehensive stock
plans, preferred OP units held by non-controlling partners and other
non-controlling interests that have the option to convert their limited
partner interests to common OP units. No effect is shown for securities if
they are anti-dilutive.
We present certain operating results for our hotels, such as hotel revenues, expenses, food and beverage profit, and EBITDA (and the related margins), on a hotel-level pro forma basis as supplemental information for our investors. Our hotel results reflect the operating results of our hotels as discussed in "AllOwned Hotel Pro Forma Operating Statistics and Results" above. We present all owned hotel pro forma EBITDA to help us and our investors evaluate the ongoing operating performance of our hotels after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization expense). Corporate-level costs and expenses also are removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information about the ongoing operating performance of our hotels. All owned hotel pro forma results are presented both by location and for our properties in the aggregate. While severance expense is not uncommon at the individual property level in the normal course of business, we eliminate from our hotel level operating results severance costs related to broad-based and significant property-level reconfiguration that is not considered to be within the normal course of business, as we believe this elimination provides useful supplemental information that is beneficial to an investor's understanding of our ongoing operating performance. We also eliminate depreciation and amortization expense because, even though depreciation and amortization expense are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values historically 37
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have risen or fallen with market conditions, many real estate industry investors
have considered presentation of historical cost accounting for operating results
to be insufficient.
Because of the elimination of corporate-level costs and expenses, gains or
losses on disposition, certain severance expenses and depreciation and
amortization expense, the hotel operating results we present do not represent
our total revenues, expenses, operating profit or net income and should not be
used to evaluate our performance as a whole. Management compensates for these
limitations by separately considering the impact of these excluded items to the
extent they are material to operating decisions or assessments of our operating
performance. Our consolidated statements of operations include such amounts, all
of which should be considered by investors when evaluating our performance.
While management believes that presentation of all owned hotel results is a
supplemental measure that provides useful information in evaluating our ongoing
performance, this measure is not used to allocate resources or to assess the
operating performance of each of our hotels, as these decisions are based on
data for individual hotels and are not based on all owned hotel results in the
aggregate. For these reasons, we believe all owned hotel operating results, when
combined with the presentation of GAAP operating profit, revenues and expenses,
provide useful information to investors and management.
The following tables present certain operating results and statistics for our
hotels for the periods presented herein and a reconciliation of the differences
between all owned hotel pro forma EBITDA, a non-GAAP financial measure, and net
income (loss), the financial measure calculated and presented in accordance with
GAAP that we consider most directly comparable. Similar reconciliations of the
differences between (i) hotel revenues and (ii) our revenues as calculated and
presented in accordance with GAAP (each of which is used in the applicable
margin calculation), and between (iii) hotel expenses and (iv) operating costs
and expenses as calculated and presented in accordance with GAAP, also are
included in the reconciliation:
All Owned Hotel Pro Forma Results for Host Inc. and Host L.P.
(in millions, except hotel statistics)
Quarter ended
March 31,
2021 2020
Number of hotels 81 80
Number of rooms 46,755 46,590
Change in hotel Total RevPAR -
Constant US$ (61.6 )% -
Nominal US$ (61.6 )% -
Change in hotel RevPAR -
Constant US$ (58.4 )% -
Nominal US$ (58.4 )% -
Operating profit (loss) margin (1) (41.6 )% (1.0 )%
All Owned Hotel Pro Forma EBITDA margin
(1) 5.2 % 17.1 %
Food and beverage profit margin (1) 19.5 % 25.8 %
All Owned Hotel Pro Forma food and
beverage profit margin (1) 19.5 % 26.2 %
Net loss $ (153 ) $ (3 )
Depreciation and amortization 165 164
Interest expense 42 37
Benefit for income taxes (46 ) (37 )
Gain on sale of property and corporate
level income/expense 15 17
Severance expense (reversal) at hotel properties (2 )
-
Pro forma adjustments (2) -
2
All Owned Hotel Pro Forma EBITDA $ 21 $ 180
38
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Quarter ended March 31, 2021 Quarter ended March 31, 2020
Adjustments Adjustments
All Owned
Severance at Depreciation and Hotel Pro Depreciation and All Owned Hotel
hotel corporate level Forma corporate level Pro Forma
GAAP Results properties Pro forma adjustments(2) items Results(2) GAAP Results Pro forma adjustments(2) items Results(2)
Revenues
Room $ 257 $ - $ 2 $ - $ 259 $ 626 $ - $ - $ 626
Food and beverage 77 - - - 77 330 2 - 332
Other 65 - - - 65 96 (1 ) - 95
Total revenues 399 - 2 - 401 1,052 1 - 1,053
Expenses
Room 65 1 - - 66 187 - - 187
Food and beverage 62 - - - 62 245 - - 245
Other 249 1 2 - 252 442 (1 ) - 441
Depreciation and
amortization 165 - - (165 ) - 164 - (164 ) -
Corporate and other
expenses 24 - - (24 ) - 25 - (25 ) -
Total expenses 565 2 2 (189 ) 380 1,063 (1 ) (189 ) 873
Operating Profit - All
Owned Hotel Pro Forma
EBITDA(3) $ (166 ) $ (2 ) $ - $ 189 $ 21 $ (11 ) $ 2 $ 189 $ 180
___________
(1) Profit margins are calculated by dividing the applicable operating profit by
the related revenue amount. GAAP profit margins are calculated using amounts
presented in the unaudited condensed consolidated statements of operations.
Hotel margins are calculated using amounts presented in the above tables.
(2) Pro forma adjustments represent the following items: (i) the elimination of
results of operations of our sold hotels, which operations are included in
our unaudited condensed consolidated statements of operations as continuing
operations and (ii) the addition of results for periods prior to our
ownership for hotels acquired as of
Forma results also includes the results of our leased office buildings and
other non-hotel revenue and expense items.
(3)
quarter end. Additionally, the
hotel that opened in
the hotel prior to
of the hotel for periods prior to its opening.
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