HOST MARRIOTT CORPORATION Reconciliation of Net Income (Loss)
Available to Common Stockholders to Funds From Operations per
Diluted Share (unaudited, in millions, except per share amounts)
Quarter ended Quarter ended December 31, 2005 December 31, 2004 Per
Per Income Share Income Share (Loss) Shares Amount (Loss) Shares
Amount Net income available to common stockholders $68 353.8 $.19
$52 350.2 $.15 Adjustments: Gains on dispositions, net of taxes (7)
- (.02) (32) - (.09) Amortization of deferred gains and other
property transactions, net of taxes (2) - - (3) - (.01)
Depreciation and amortization 117 - .33 113 - .32 Partnership
adjustments 2 - - 8 - .02 FFO of minority partners of Host LP (a)
(10) - (.02) (8) - (.02) Adjustments for dilutive securities:
Assuming distribution of common shares granted under the
comprehensive stock plan less shares assumed purchased at average
market price - 2.4 (.01) - 2.9 - Assuming conversion of
Exchangeable Senior Debentures 6 28.1 (.02) 6 27.4 (.01) Assuming
conversion of Convertible Subordinated Debentures 10 30.7 (.01) 10
30.9 (.01) FFO per diluted share (b) (c) $184 415.0 $.44 $146 411.4
$.35 Year ended Year ended December 31, 2005 December 31, 2004 Per
Per Income Share Income Share (Loss) Shares Amount (Loss) Shares
Amount Net income (loss) available to common stockholders $135
353.0 $.38 $(41) 337.2 $(.12) Adjustments: Gains on dispositions,
net of taxes (60) - (.17) (52) - (.16) Amortization of deferred
gains and other property transactions, net of taxes (8) - (.02)
(11) - (.03) Depreciation and amortization 371 - 1.05 364 - 1.08
Partnership adjustments 10 - .03 21 - .06 FFO of minority partners
of Host LP (a) (24) - (.07) (18) - (.05) Adjustments for dilutive
securities: Assuming distribution of common shares granted under
the comprehensive stock plan less shares assumed purchased at
average market price - 2.5 (.01) - 3.0 (.01) Assuming conversion of
Exchangeable Senior Debentures 19 28.1 (.04) 15 21.7 - Assuming
conversion of Convertible Subordinated Debentures 32 30.9 - - - -
FFO per diluted share (b) (c) $475 414.5 $1.15 $278 361.9 $.77 (a)
Represents FFO attributable to the minority interests in Host LP.
(b) 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, those 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. (c) 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, Funds
from Operations per Diluted Share and Adjusted EBITDA. HOST
MARRIOTT CORPORATION 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, 2005 December 31, 2004 Net Income Net
Income (Loss) FFO (Loss) FFO Gain on hotel dispositions, net of
taxes $7 $- $32 $- Minority interest expense (c) - - (2) - Total $7
$- $30 $- Per diluted share $.02 $- $.08 $- Year ended Year ended
December 31, 2005 December 31, 2004 Net Income Net Income (Loss)
FFO (Loss) FFO Senior notes redemptions and debt prepayments (a)
$(34) $(34) $(59) $(59) Preferred stock redemptions (b) (4) (4) (6)
(6) Gain on CBM Joint Venture LLC sale, net of taxes (d) 41 - - -
Gain on hotel dispositions, net of taxes 19 - 52 - Minority
interest income (expense) (c) (1) 2 1 4 Total $21 $(36) $(12) $(61)
Per diluted share $.06 $(.08) $(.04) $(.17) (a) Represents call
premiums and the acceleration of original issue discounts and
deferred financing costs, 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 during certain periods presented. (b)
Represents the original issuance costs for preferred stock, which
were required to be charged against net income (loss) available to
common stockholders in conjunction with the redemption of the Class
B preferred stock in the second quarter of 2005 and the Class A
preferred stock in the third quarter of 2004. The adjustment in
2004 also includes the incremental dividends from the date of
issuance of the Class E preferred stock to the date of redemption
of the Class A preferred stock. (c) Represents the portion of the
significant transactions attributable to minority partners in Host
LP. (d) Represents the gain, net of tax, on the sale of 85% of our
interest in CBM Joint Venture LLC. HOST MARRIOTT CORPORATION
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
(unaudited, in millions) Quarter ended Year ended December 31,
December 31, 2005 2004 2005 2004 Net income (loss) $74 $61 $166 $-
Interest expense 126 127 443 483 Depreciation and amortization 117
110 368 349 Income taxes (a) 1 (8) 24 (10) Discontinued operations
(b) 1 4 6 18 EBITDA 319 294 1,007 840 (Gains) losses on
dispositions (a) (6) (33) (89) (53) Amortization of deferred gains
(2) (7) (9) (17) Impairment of assets held for sale - 1 - 1
Consolidated partnership adjustments: Minority interest expense 4 6
16 4 Distributions to minority partners (1) (1) (4) (6) Equity
investment adjustments: Equity in losses of affiliates - 4 1 16
Distributions received from equity investments - 4 2 6 Adjusted
EBITDA of Host LP 314 268 924 791 Distributions to minority
interest partners of Host LP (2) (1) (6) (1) Adjusted EBITDA of
Host Marriott $312 $267 $918 $790 (a) Income taxes and gains on
dispositions include $28 million and $69 million, respectively, for
full year 2005 due to the sale of 85% of our interest in CBM Joint
Venture LLC. (b) Reflects the interest expense, depreciation and
amortization and income taxes included in discontinued operations.
HOST MARRIOTT, L.P. Consolidated Statements of Operations (a)
(unaudited, in millions, except per unit amounts) Quarter ended
Year ended December 31, December 31, 2005 2004 2005 2004 Revenues
Rooms $753 $675 $2,341 $2,114 Food and beverage 407 380 1,180 1,121
Other 77 71 249 232 Total hotel sales 1,237 1,126 3,770 3,467
Rental income 35 32 111 106 Other income - 1 - 1 Total revenues
1,272 1,159 3,881 3,574 Expenses Rooms 180 164 566 526 Food and
beverage 293 278 877 842 Hotel departmental expenses 332 309 1,032
965 Management fees 60 46 170 141 Other property-level expenses 88
86 291 290 Depreciation and amortization 117 110 368 349 Corporate
and other expenses 22 24 67 67 Gain on Insurance Settlement (9) (3)
(9) (3) Total operating costs and expenses 1,083 1,014 3,362 3,177
Operating profit 189 145 519 397 Interest income 4 3 21 11 Interest
expense (126) (128) (444) (484) Net gains on property transactions
3 7 80 17 Gain (loss) on foreign currency and derivative contracts
1 (4) 2 (6) Minority interest expense (1) (1) (7) (4) Equity in
losses of affiliates - (4) (1) (16) Income (loss) before income
taxes 70 18 170 (85) Benefit (provision) for income taxes (2) 8
(25) 10 Income (loss) from continuing operations 68 26 145 (75)
Income from discontinued operations (b) 8 39 28 74 Net income
(loss) 76 65 173 (1) Less: Distributions on preferred units (6) (9)
(27) (37) Issuance costs of redeemed preferred units - - (4) (4)
Net income (loss) available to common unitholders $70 $56 $142
$(42) Basic and diluted earnings (loss) per common unit: Continuing
operations $.17 $.05 $.31 $(.32) Discontinued operations .02 .10
.07 .20 Basic and diluted earnings (loss) per common unit $.19 $.15
$.38 $(.12) (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
approximately 5% of the partnership interests in Host LP held by
outside partners as of February 22, 2006, which is reflected as
minority interest in our consolidated balance sheets and minority
interest expense in our consolidated statements of operations. The
consolidated statements of operations should be read in conjunction
with the consolidated financial statements and notes thereto
included in our most recent Annual Report on Form 10-K. (b)
Reflects the results of operations and gain (loss) on sale, net of
the related income tax, for five properties sold in 2005, two
properties classified as held for sale as of December 31, 2005 and
nine properties sold in 2004. HOST MARRIOTT, L.P. Reconciliation of
Net Income (Loss) to EBITDA and Adjusted EBITDA for Host Marriott,
L.P. (unaudited, in millions) Quarter ended Year ended December 31,
December 31, 2005 2004 2005 2004 Net income (loss) $76 $65 $173
$(1) Interest expense 126 128 444 484 Depreciation and amortization
117 110 368 349 Income taxes (a) 2 (8) 25 (10) Discontinued
operations (b) 1 4 6 18 EBITDA 322 299 1,016 840 Gains on
dispositions (a) (6) (33) (89) (53) Amortization of deferred gains
(2) (7) (9) (17) Impairment of assets held for sale - 1 - 1
Consolidated partnership adjustments: Minority interest expense 1 1
7 4 Distributions to minority partners (1) (1) (4) (6) Equity
investment adjustments: Equity in losses of affiliates - 4 1 16
Distributions received from equity investments - 4 2 6 Adjusted
EBITDA of Host LP $314 $268 $924 $791 (a) Income taxes and gains on
dispositions include $28 million and $69 million, respectively, for
2005 due to the sale of 85% of our interest in CBM Joint Venture
LLC. (b) Reflects the interest expense, depreciation and
amortization and income taxes included in discontinued operations.
HOST MARRIOTT CORPORATION Reconciliation of Net Income Available to
Common Stockholders to Funds From Operations per Diluted Share for
First Quarter 2006 Forecasts (a) (unaudited, in millions, except
per share amounts) Low-end of Range First Quarter 2006 Forecast
Income Per Share (Loss) Shares Amount Forecast net income available
to common stockholders $373 377.6 $.99 Adjustments: Depreciation
and amortization 85 - .22 Gain on dispositions, net of taxes (383)
- (1.01) Partnership adjustments 20 - .05 FFO of minority partners
of Host LP (b) (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 28.2 (.01) FFO per diluted share $94 407.8 $.23
High-end of Range First Quarter 2006 Forecast Income Per Share
(Loss) Shares Amount Forecast net income available to common
stockholders $380 377.6 $1.01 Adjustments: Depreciation and
amortization 85 - .22 Gain on dispositions, net of taxes (383) -
(1.01) Partnership adjustments 20 - .05 FFO of minority partners of
Host LP (b) (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 28.2 (.01) FFO per diluted share $101 407.8 $.25 See
the notes following the table reconciling net income to EBITDA and
Adjusted EBITDA for assumptions relating to the full year 2006
forecasts. HOST MARRIOTT CORPORATION Reconciliation of Net Income
Available to Common Stockholders to Funds From Operations per
Diluted Share for Full Year 2006 Forecasts (a) (unaudited, in
millions, except per share amounts) Low-end of Range Full Year 2006
Forecast Income Per Share (Loss) Shares Amount Forecast net income
available to common stockholders $700 485.5 $1.44 Adjustments:
Depreciation and amortization 450 - .93 Gain on dispositions, net
of taxes (429) - (.88) Partnership adjustments 32 - .07 FFO of
minority partners of Host LP (b) (28) - (.06) Adjustment for
dilutive securities: Assuming distribution of common shares granted
under the comprehensive stock plan less shares assumed purchased at
average market price - 2.4 (.01) Assuming conversion of
Exchangeable Senior Debentures 19 28.9 (.05) FFO per diluted share
$744 516.8 $1.44 High-end of Range Full Year 2006 Forecast Income
Per Share (Loss) Shares Amount Forecast net income available to
common stockholders $750 485.5 $1.54 Adjustments: Depreciation and
amortization 450 - .93 Gain on dispositions, net of taxes (429) -
(.88) Partnership adjustments 34 - .07 FFO of minority partners of
Host LP (b) (30) - (.06) Adjustment for dilutive securities:
Assuming distribution of common shares granted under the
comprehensive stock plan less shares assumed purchased at average
market price - 2.4 (.01) Assuming conversion of Exchangeable Senior
Debentures 19 28.9 (.05) FFO per diluted share $794 516.8 $1.54 See
the notes following the table reconciling net income to EBITDA and
Adjusted EBITDA for the full year 2005 forecasts. HOST MARRIOTT
CORPORATION Reconciliation of Net Income to EBITDA and Adjusted
EBITDA for Full Year 2006 Forecasts (a) (unaudited, in millions)
Full Year 2005 Low-end High-end of Range of Range Net income $724
$774 Interest expense 436 436 Depreciation and amortization 451 451
Income taxes 14 8 EBITDA 1,625 1,669 Gains on dispositions (429)
(429) Consolidated partnership adjustments: Minority interest
expense 41 42 Distributions to minority partners (5) (5) Equity
investment adjustments: Equity in earnings of affiliates (2) (2)
Distributions received from equity investments 5 5 Adjusted EBITDA
of Host LP 1,235 1,280 Distributions to minority interest partners
of Host LP (10) (10) Adjusted EBITDA of Host Marriott $1,225 $1,270
(a) The first quarter and full year 2006 forecasts were based on
the following assumptions: - Comparable hotel RevPAR will increase
7% to 10% for the full year and 7% to 9.0% for the first quarter
for the low and high ends of the forecasted range, respectively. -
Comparable hotel adjusted operating profit margins will increase
140 basis points and 175 basis points for the full year for the low
and high ends of the forecasted range, respectively. -
Approximately $980 million of hotels and other assets will be sold
during 2006. - In addition to the Starwood portfolio acquisition,
approximately $250 million of acquisitions will be made during
2006. The acquisition of 38 hotels from Starwood will close in
early April. The Company intends to enter into a joint venture for
the six European assets in which the Company expects to retain
approximately 25% of the equity interests. - Approximately $600
million of debt and perpetual preferred stock will be refinanced,
and approximately $170 million will be repaid. Charges, net of the
minority interest benefit, totaling approximately $7 million, or
approximately $.01 of FFO per diluted share, related to costs
associated with the debt and perpetual preferred stock repayments
will be incurred for the full year. - Fully diluted weighted
average shares will be 516.8 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 2006. 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
assumption and forecasts include the following: - the level of
RevPAR and margin growth may change insignificantly; - 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) Represents FFO attributable to the
minority interests in Host LP. HOST MARRIOTT CORPORATION Schedule
of Comparable Hotel Adjusted Operating Profit Margin for Full Year
2006 Forecasts (a) (unaudited, in millions, except hotel
statistics) Full Year 2006 Forecast Low-end High-end of range of
range Percent change in Comparable Hotel RevPAR 7.0% 10.0%
Operating profit margin under GAAP (b) 15.5% 16.1% Comparable hotel
adjusted operating profit margin (c) 26.1% 26.4% Comparable hotel
sales Room $2,404 $2,471 Other 1,440 1,481 Comparable hotel sales
(d) 3,844 3,952 Comparable hotel expenses Rooms and other
departmental costs 1,569 1,622 Management fees, ground rent and
other costs 1,272 1,285 Comparable hotel expenses (e) 2,841 2,907
Comparable hotel adjusted operating profit 1,003 1,045
Non-comparable hotel results, net 281 284 Office buildings and
limited service properties, net 6 6 Depreciation and amortization
(451) (451) Corporate and other expenses (71) (71) Operating profit
$768 $813 (a) Forecasted comparable hotel results include
assumptions on the number of hotels that will be included in our
comparable hotel set in 2006. We have assumed that 97 hotels will
be classified as comparable as of December 31, 2006, reflecting
identified dispositions through the second quarter of 2006. No
assurances can be made as to the hotels that will be in the
comparable hotel set for 2006. Also, see the notes following the
table reconciling net income to EBITDA and Adjusted EBITDA for
assumptions relating to the full year 2006 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. We forecasted an
increase in margins of 140 to 175 basis points over the comparable
adjusted operating profit margin of 24.7%. (d) The reconciliation
of forecast total revenues to the forecast comparable hotel sales
is as follows (in millions): Full Year 2006 Low-end High-end of
range of range Revenues $4,946 $5,061 Non-comparable hotel sales
(1,065) (1,072) Hotel sales for the property for which we record
rental income, net 50 50 Rental income for office buildings and
limited service hotels (87) (87) Comparable hotel sales $3,844
$3,952 (e) The reconciliation of forecast operating costs and
expenses to the comparable hotel expenses is as follows (in
millions): Full Year 2006 Low-end High-end of range of range
Operating costs and expenses $4,178 $4,248 Non-comparable hotel
expenses (784) (788) Hotel expenses for the property for which we
record rental income 50 50 Rent expense for office buildings and
limited service hotels (81) (81) Depreciation and amortization
(451) (451) Corporate and other expenses (71) (71) Comparable hotel
expenses $2,841 $2,907 HOST MARRIOTT, L.P. Reconciliation of Net
Income to EBITDA and Adjusted EBITDA for Full Year 2006 Forecasts
for Host Marriott, L.P. (a) (unaudited, in millions) Full Year 2006
Low-end High-end of range of range Net income $757 $808 Interest
expense 436 436 Depreciation and amortization 451 451 Income taxes
14 8 EBITDA 1,658 1,703 Gains on dispositions (429) (429)
Consolidated partnership adjustments: Minority interest expense 8 8
Distributions to minority partners (5) (5) Equity investment
adjustments: Equity in earnings of affiliates (2) (2) Distributions
received from equity investments 5 5 Adjusted EBITDA of Host LP
$1,235 $1,280 (a) The amounts shown in these reconciliations are
based on management's estimate of operations for 2006. 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
Marriott Corporation. HOST MARRIOTT CORPORATION Notes to Financial
Information Reporting Periods for Statement of Operations The
results we report in our consolidated statements of operations are
based on results of our hotels reported to us by our hotel
managers. Our hotel managers use different reporting periods.
Marriott International, Inc., or Marriott International, the
manager of the majority of our properties, uses a fiscal year
ending on the Friday closest to December 31 and reports twelve
weeks of operations for the first three quarters and sixteen or
seventeen weeks for the fourth quarter of the year for its
Marriott-managed hotels. In contrast, other managers of our hotels,
such as Hyatt, report results on a monthly basis. Additionally,
Host, as a REIT, is required by tax laws to report results on a
calendar year. As a result, we elected to adopt the reporting
periods used by Marriott International except that our fiscal year
always ends on December 31 to comply with REIT rules. Our first
three quarters of operations end on the same day as Marriott
International but our fourth quarter ends on December 31 and our
full year results, as reported in our statement of operations,
always includes the same number of days as the calendar year. Two
consequences of the reporting cycle we have adopted are: (1)
quarterly start dates will usually differ between years, except for
the first quarter which always commences on January 1, and (2) our
first and fourth quarters of operations and year-to-date operations
may not include the same number of days as reflected in prior
years. For example, the third quarter of 2005 ended on September 9,
and the third quarter of 2004 ended on September 10, though both
quarters reflect 84 days of operations. In contrast, fourth quarter
results for 2005 reflect 113 days of operations, while our fourth
quarter results for 2004 reflected 112 days of operations. While
the reporting calendar we adopted is more closely aligned with the
reporting calendar used by the manager of a majority of our
properties, one final consequence of our calendar is we are unable
to report the month of operations that ends after our fiscal
quarter-end until the following quarter because our hotel managers
using a monthly reporting period do not make mid- month results
available to us. Hence, the month of operation that ends after our
fiscal quarter-end is included in our quarterly results of
operations in the following quarter for those hotel managers
(covering approximately one- fourth of our full-service hotels). As
a result, our quarterly results of operations include results from
hotel managers reporting results on a monthly basis as follows:
first quarter (January, February), second quarter (March to May),
third quarter (June to August) and fourth quarter (September to
December). While this does not affect full-year results, it does
affect the reporting of quarterly results. Reporting Periods for
Hotel Operating Statistics and Comparable Hotel Results In contrast
to the reporting periods for our consolidated statement of
operations, our hotel operating statistics (i.e., RevPAR, average
daily rate and average occupancy) and our comparable hotel results
are always reported based on the reporting cycle used by Marriott
International for our Marriott- managed hotels. This facilitates
year-to-year comparisons, as each reporting period will be
comprised of the same number of days of operations as in the prior
year (except in the case of fourth quarters comprised of seventeen
weeks (such as fiscal year 2002) versus sixteen weeks). This means,
however, that the reporting periods we use for hotel operating
statistics and our comparable hotels results may differ slightly
from the reporting periods used for our statements of operations
for the first and fourth quarters and the full year. Results from
hotel managers reporting on a monthly basis are included in our
operating statistics and comparable hotels results consistent with
their reporting in our consolidated statement of operations herein:
- Hotel results for the fourth quarter of 2005 reflect 112 days of
operations for the period from September 10, 2005 to December 30,
2005 for our Marriott-managed hotels and results from September 1,
2005 to December 31, 2005 for operations of all other hotels which
report results on a monthly basis. - Hotel results for the fourth
quarter of 2004 reflect 112 days of operations for the period from
September 11, 2004 to December 31, 2004 for our Marriott-managed
hotels and results from September 1, 2004 to December 31, 2004 for
operations of all other hotels which report results on a monthly
basis. - Hotel results for full year 2005 reflect 364 days of
operations for the period from January 1, 2005 to December 30, 2005
for our Marriott- managed hotels and 365 days of operations for the
period from January 1, 2005 to December 31, 2005 for operations of
all other hotels which report results on a monthly basis. - Hotel
results for full year 2004 reflect 364 days of operations for the
period from January 3, 2004 to December 31, 2004 for our Marriott-
managed hotels and 366 days of operations for the period from
January 1, 2004 to December 31, 2004 for operations of all other
hotels which report results on a monthly basis. Comparable Hotel
Operating Statistics We present certain operating statistics (i.e.,
RevPAR, average daily rate and average occupancy) and operating
results (revenues, expenses, adjusted operating profit and adjusted
operating profit margin) for the periods included in this report on
a comparable hotel basis. We define our comparable hotels as
full-service properties (i) that are owned or leased by us and the
operations of which are included in our consolidated results,
whether as continuing operations or discontinued operations, for
the entirety of the reporting periods being compared, and (ii) that
have not sustained substantial property damage or business
interruption or undergone large-scale capital projects during the
reporting periods being compared. Of the 107 full-service hotels
that we owned as of December 31, 2005, 98 hotels have been
classified as comparable hotels. The operating results of the
following nine hotels that we owned as of December 31, 2005 are
excluded from comparable hotel results for these periods: - the
Memphis Marriott (construction of a 200-room expansion started in
2003 and completed in 2004); - the Embassy Suites Chicago
Downtown-Lakefront Hotel (acquired in April 2004); - the Fairmont
Kea Lani Maui (acquired in July 2004); - the Newport Beach Marriott
Hotel (major renovation started in July 2004); - the Mountain
Shadows Resort (temporarily closed in September 2004); - the
Scottsdale Marriott at McDowell Mountains (acquired in September
2004); - the Atlanta Marriott Marquis (major renovation started in
August 2005); - the New Orleans Marriott (property damage and
business interruption from Hurricane Katrina in August 2005); and -
the Hyatt Regency, Washington, D.C. (acquired in September 2005).
In addition, the operating results of the 14 hotels we disposed of
in 2005 and 2004 are also not included in comparable hotel results
for the periods presented herein. Moreover, because these
statistics and operating results are for our full-service hotel
properties, they exclude results for our non-hotel properties and
leased limited-service hotels. Non-GAAP Financial Measures Included
in this press release are 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 SEC rules. They are as
follows: (i) FFO per diluted share, (ii) EBITDA of both Host and
Host LP, (iii) Adjusted EBITDA of both Host and Host LP and (iv)
Comparable Hotel Operating Results. The following discussion
defines these terms and presents why we believe they are useful
supplemental measures of our performance. FFO per Diluted Share We
present FFO per diluted share as a non-GAAP measure of our
performance in addition to our earnings per share (calculated in
accordance with GAAP). We calculate FFO per diluted share for a
given operating period as our FFO (defined as set forth below) for
such period divided by the number of fully diluted shares
outstanding during such period. The National Association of Real
Estate Investment Trusts (NAREIT) defines FFO as net income
(calculated in accordance with GAAP) excluding gains (losses) from
sales of real estate, the cumulative effect of changes in
accounting principles, real estate-related depreciation and
amortization and adjustments for unconsolidated partnerships and
joint ventures. We present FFO on a per share basis after making
adjustments for the effects of dilutive securities and the payment
of preferred stock dividends, in accordance with NAREIT guidelines.
We believe that FFO per diluted share is a useful supplemental
measure of our operating performance and that the presentation of
FFO per diluted share, when combined with the primary GAAP
presentation of earnings per share, provides beneficial information
to investors. By excluding the effect of real estate depreciation,
amortization and gains and losses from sales of real estate, all of
which are based on historical cost accounting and which may be of
lesser significance in evaluating current performance, we believe
such measures can facilitate comparisons of operating performance
between periods and with other REITs, even though FFO per diluted
share does not represent an amount that accrues directly to holders
of our common stock. Historical cost accounting for real estate
assets implicitly assumes that the value of real estate assets
diminishes predictably over time. As noted by NAREIT in its April
2002 "White Paper on Funds From Operations," since real estate
values have historically risen or fallen with market conditions,
many industry investors have considered presentation of operating
results for real estate companies that use historical cost
accounting to be insufficient by themselves. For these reasons,
NAREIT adopted the definition of FFO in order to promote an
industry-wide measure of REIT operating performance. EBITDA
Earnings before Interest Expense, Income Taxes, Depreciation and
Amortization (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 and facilitates comparisons
between us and other lodging REITs, hotel owners who 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 per
diluted share, it is widely used by management in the annual budget
process. We present Adjusted EBITDA of Host and Adjusted EBITDA of
Host LP. The difference between these two presentations is equal to
the amount of distributions to OP Unitholders other than Host.
Adjusted EBITDA Historically, management has adjusted EBITDA when
evaluating our performance because we believe that the exclusion of
certain additional recurring and non-recurring items described
below provides useful supplemental information to investors
regarding our ongoing operating performance and that the
presentation of Adjusted EBITDA, when combined with the primary
GAAP presentation of net income, is beneficial to an investor's
complete understanding of our operating performance. We adjust
EBITDA for the following items, which may occur in any period, and
refer to this measure as Adjusted EBITDA: - Gains and Losses on
Dispositions - We exclude the effect of gains and losses recorded
on the disposition of assets in our consolidated statement of
operations because we believe that including them in EBITDA is not
consistent with reflecting the ongoing performance of our remaining
assets. In addition, material gains or losses from the depreciated
value of the disposed assets could be less important to investors
given that the depreciated asset often does not reflect the market
value of real estate assets (as noted above for FFO). -
Consolidated Partnership Adjustments - We exclude the minority
interest in the income or loss of our consolidated partnerships as
presented in our consolidated statement of operations because we
believe that including these amounts in EBITDA does not reflect the
effect of the minority interest position on our performance because
these amounts include our minority partners' pro-rata portion of
depreciation, amortization and interest expense. However, we
believe that the cash distributions paid to minority partners are a
more relevant measure of the effect of our minority partners'
interest on our performance, and we have deducted these cash
distributions from Adjusted EBITDA. - Equity Investment Adjustments
- We exclude the equity in earnings (losses) of unconsolidated
investments in partnerships and joint ventures as presented in our
consolidated statement of operations because our percentage
interest in the earnings (losses) does not reflect the impact of
our minority interest position on our performance and these amounts
include our pro-rata portion of depreciation, amortization and
interest expense. However, we believe that cash distributions we
receive are a more relevant measure of the performance of our
investment and, therefore, we include the cash distributed to us
from these investments in the calculation of Adjusted EBITDA. -
Cumulative effect of a change in accounting principle -
Infrequently, the Financial Accounting Standards Board (FASB)
promulgates new accounting standards that require the consolidated
statement of operations to reflect the cumulative effect of a
change in accounting principle. We exclude these one-time
adjustments because they do not reflect our actual performance for
that period. - Impairment Losses - We exclude the effect of
impairment losses recorded because we believe that including them
in EBITDA is not consistent with reflecting the ongoing performance
of our remaining assets. In addition, we believe that impairment
charges are similar to gains (losses) on dispositions and
depreciation expense, both of which are also excluded from EBITDA.
Adjusted EBITDA of Host LP Host owns approximately 95% of the
partnership interest of Host LP and is its sole general partner. We
conduct all of our operations through Host LP, and Host LP is the
obligor on our senior notes and on our credit facility. The
difference between the Adjusted EBITDA of Host and the Adjusted
EBITDA of Host LP is the distributions to OP Unitholders other than
Host, which are equal on a per unit basis to the dividends paid per
common share by Host. The Adjusted EBITDA of Host LP is presented
in addition to the Adjusted EBITDA of Host because we believe it is
a relevant measure in calculating certain credit ratios, since Host
LP is the owner of all of our hotels and is the obligor on our debt
noted above. Limitations on the Use of FFO per Diluted Share,
EBITDA and Adjusted EBITDA We calculate FFO per diluted share in
accordance with standards established by NAREIT, which may not be
comparable to measures calculated by other companies who do not use
the NAREIT definition of FFO or calculate FFO per diluted share in
accordance with NAREIT guidance. In addition, although FFO per
diluted share is a useful measure when comparing our results to
other REITs, it may not be helpful to investors when comparing us
to non-REITs. EBITDA and Adjusted EBITDA, as presented, may also
not be comparable to measures calculated by other companies. This
information should not be considered as an alternative to net
income, operating profit, cash from operations or any other
operating performance measure calculated in accordance with GAAP.
Cash expenditures for various long-term assets (such as renewal and
replacement capital expenditures), interest expense (for EBITDA and
Adjusted EBITDA purposes only) and other items have been and will
be incurred and are not reflected in the EBITDA, Adjusted EBITDA
and FFO per diluted share presentations. 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 statement of operations and cash flows include
interest expense, capital expenditures, and other excluded items,
all of which should be considered when evaluating our performance,
as well as the usefulness of our non-GAAP financial measures.
Additionally, FFO per diluted share, EBITDA and Adjusted EBITDA
should not be considered as a measure of our liquidity or
indicative of funds available to fund our cash needs, including our
ability to make cash distributions. In addition, FFO per diluted
share does not measure, and should not be used as a measure of,
amounts that accrue directly to stockholders' benefit. Comparable
Hotel Operating Results We present certain operating results for
our full-service hotels, such as hotel revenues, expenses and
adjusted operating profit (and the related margin), on a comparable
hotel, or "same store," basis as supplemental information for
investors. Our comparable hotel results present operating results
for full-service hotels owned during the entirety of the periods
being compared without giving effect to any acquisitions or
dispositions, significant property damage or large scale capital
improvements incurred during these periods. We present these
comparable hotel operating results by eliminating corporate-level
costs and expenses related to our capital structure, as well as
depreciation and amortization. We eliminate corporate- level costs
and expenses to arrive at property-level results because we believe
property-level results provide investors with supplemental
information into the ongoing operating performance of our hotels.
We eliminate depreciation and amortization because, even though
depreciation and amortization 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 have historically risen or fallen with
market conditions, many industry investors have considered
presentation of operating results for real estate companies that
use historical cost accounting to be insufficient by themselves. As
a result of the elimination of corporate-level costs and expenses
and depreciation and amortization, the comparable hotel operating
results we present do not represent our total revenues, expenses,
operating profit or operating profit margin 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. We present these hotel operating results on a
comparable hotel basis because we believe that doing so provides
investors and management with useful information for evaluating the
period-to-period performance of our hotels and facilitates
comparisons with other hotel REITs and hotel owners. In particular,
these measures assist management and investors in distinguishing
whether increases or decreases in revenues and/or expenses are due
to growth or decline of operations at comparable hotels (which
represent the vast majority of our portfolio) or from other
factors, such as the effect of acquisitions or dispositions. While
management believes that presentation of comparable hotel results
is a "same store" 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 these hotels, as these decisions are based
on data for individual hotels and are not based on comparable hotel
results. For these reasons, we believe that comparable hotel
operating results, when combined with the presentation of GAAP
operating profit, revenues and expenses, provide useful information
to investors and management. PRNewswire -- Feb. 23 END FIRST AND
FINAL ADD DATASOURCE: Host Marriott Corporation
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