filings.toolsCover and table of contents
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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended date September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 001-14625 (Host Hotels & Resorts, Inc.)
0-25087 (Host Hotels & Resorts, L.P.)
HOST HOTELS & RESORTS, INC.
HOST HOTELS & RESORTS, L.P.
(Exact name of registrant as specified in its charter)
| Maryland (Host Hotels & Resorts, Inc.) Delaware (Host Hotels & Resorts, L.P.) (State or Other Jurisdiction of Incorporation or Organization) | 53-0085950 52-2095412 (I.R.S. Employer Identification No.) | |
| 4747 Bethesda Ave**,** Suite 1300 Bethesda**,** Maryland (Address of Principal Executive Offices) | 20814 (Zip Code) |
(240) 744-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of Each Exchange on Which Registered | ||||
| Host Hotels & Resorts, Inc. | Common Stock, $.01 par value | HST | The Nasdaq Stock Market LLC | |||
| Host Hotels & Resorts, L.P. | None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Host Hotels & Resorts, Inc. | Yes ☑ | No ☐ | |||||
| Host Hotels & Resorts, L.P. | Yes ☑ | No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| Host Hotels & Resorts, Inc. | Yes ☑ | No ☐ | |||||
| Host Hotels & Resorts, L.P. | Yes ☑ | No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Host Hotels & Resorts, Inc. | |
| Large accelerated filer ☑ | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company ☐ |
| Emerging growth company ☐ | |
| Host Hotels & Resorts, L.P. | |
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☑ | Smaller reporting company ☐ |
| Emerging growth company ☐ | |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Host Hotels & Resorts, Inc. | Yes ☐ | No ☑ | |||||
| Host Hotels & Resorts, L.P. | Yes ☐ | No ☑ |
As of November 2, 2021, there were 714,035,318 shares of Host Hotels & Resorts, Inc.’s common stock, $.01 par value per share, outstanding.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q of Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. Unless stated otherwise or the context requires otherwise, references to “Host Inc.” mean Host Hotels & Resorts, Inc., a Maryland corporation, and references to “Host L.P.” mean Host Hotels & Resorts, L.P., a Delaware limited partnership, and its consolidated subsidiaries, in cases where it is important to distinguish between Host Inc. and Host L.P. We use the terms “we,” “our” or “the company” to refer to Host Inc. and Host L.P. together, unless the context indicates otherwise.
Host Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”). Host Inc. owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and of which it holds approximately 99% of the partnership interests (“OP units”). The remaining OP units are owned by various unaffiliated limited partners. As the sole general partner of Host L.P., Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control. Management operates Host Inc. and Host L.P. as one enterprise. The management of Host Inc. consists of the same persons who direct the management of Host L.P. As general partner with control of Host L.P., Host Inc. consolidates Host L.P. for financial reporting purposes, and Host Inc. does not have significant assets other than its investment in Host L.P. Therefore, the assets and liabilities of Host Inc. and Host L.P. are substantially the same on their respective condensed consolidated financial statements and the disclosures of Host Inc. and Host L.P. also are substantially similar. For these reasons, we believe that the combination into a single report of the quarterly reports on Form 10-Q of Host Inc. and Host L.P. results in benefits to management and investors.
The substantive difference between Host Inc.’s and Host L.P.’s filings is the fact that Host Inc. is a REIT with public stock, while Host L.P. is a partnership with no publicly traded equity. In the condensed consolidated financial statements, this difference primarily is reflected in the equity (or partners’ capital for Host L.P.) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital for Host L.P.). Apart from the different equity treatment, the condensed consolidated financial statements of Host Inc. and Host L.P. are nearly identical.
This combined Form 10-Q for Host Inc. and Host L.P. includes, for each entity, separate interim financial statements (but combined footnotes), separate reports on disclosure controls and procedures and internal control over financial reporting and separate CEO/CFO certifications. In addition, with respect to any other financial and non-financial disclosure items required by Form 10-Q, any material differences between Host Inc. and Host L.P. are discussed separately herein. For a more detailed discussion of the substantive differences between Host Inc. and Host L.P. and why we believe the combined filing results in benefits to investors, see the discussion in the combined Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Explanatory Note.”
i
HOST HOTELS & RESORTS, INC. AND HOST HOTELS & RESORTS, L.P.
INDEX
PART I. FINANCIAL INFORMATION
ii
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2021 and December 31, 2020
(in millions, except share and per share amounts)
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Property and equipment, net | $ | 10,124 | $ | 9,416 | ||||
| Right-of-use assets | 559 | 597 | ||||||
| Assets held for sale | 280 | — | ||||||
| Due from managers | 58 | 22 | ||||||
| Advances to and investments in affiliates | 62 | 21 | ||||||
| Furniture, fixtures and equipment replacement fund | 138 | 139 | ||||||
| Other | 453 | 360 | ||||||
| Cash and cash equivalents | 1,038 | 2,335 | ||||||
| Total assets | $ | 12,712 | $ | 12,890 | ||||
| LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY | ||||||||
| Debt | ||||||||
| Senior notes | $ | 3,068 | $ | 3,065 | ||||
| Credit facility, including the term loans of $997 | 2,472 | 2,471 | ||||||
| Other debt | 5 | 5 | ||||||
| Total debt | 5,545 | 5,541 | ||||||
| Lease liabilities | 572 | 610 | ||||||
| Accounts payable and accrued expenses | 91 | 71 | ||||||
| Due to managers | 55 | 64 | ||||||
| Liabilities held for sale | 37 | — | ||||||
| Other | 167 | 170 | ||||||
| Total liabilities | 6,467 | 6,456 | ||||||
| Redeemable non-controlling interests - Host Hotels & Resorts, L.P. | 119 | 108 | ||||||
| Host Hotels & Resorts, Inc. stockholders’ equity: | ||||||||
| Common stock, par value $.01, 1,050 million shares authorized, 714.0 million shares and 705.4 million shares issued and outstanding, respectively | 7 | 7 | ||||||
| Additional paid-in capital | 7,700 | 7,568 | ||||||
| Accumulated other comprehensive loss | (75 | ) | (74 | ) | ||||
| Deficit | (1,511 | ) | (1,180 | ) | ||||
| Total equity of Host Hotels & Resorts, Inc. stockholders | 6,121 | 6,321 | ||||||
| Non-redeemable non-controlling interests—other consolidated partnerships | 5 | 5 | ||||||
| Total equity | 6,126 | 6,326 | ||||||
| Total liabilities, non-controlling interests and equity | $ | 12,712 | $ | 12,890 | ||||
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter and Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions, except per share amounts)
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | ||||||||||||||||
| Rooms | $ | 557 | $ | 126 | $ | 1,237 | $ | 813 | ||||||||
| Food and beverage | 191 | 31 | 405 | 372 | ||||||||||||
| Other | 96 | 41 | 250 | 168 | ||||||||||||
| Total revenues | 844 | 198 | 1,892 | 1,353 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Rooms | 150 | 69 | 324 | 299 | ||||||||||||
| Food and beverage | 146 | 72 | 313 | 356 | ||||||||||||
| Other departmental and support expenses | 252 | 109 | 621 | 541 | ||||||||||||
| Management fees | 27 | 5 | 59 | 33 | ||||||||||||
| Other property-level expenses | 82 | 77 | 239 | 240 | ||||||||||||
| Depreciation and amortization | 263 | 166 | 597 | 498 | ||||||||||||
| Corporate and other expenses | 24 | 18 | 73 | 68 | ||||||||||||
| Gain on insurance and business interruption settlements | (5 | ) | — | (5 | ) | — | ||||||||||
| Total operating costs and expenses | 939 | 516 | 2,221 | 2,035 | ||||||||||||
| OPERATING LOSS | (95 | ) | (318 | ) | (329 | ) | (682 | ) | ||||||||
| Interest income | 1 | — | 2 | 7 | ||||||||||||
| Interest expense | (43 | ) | (66 | ) | (128 | ) | (143 | ) | ||||||||
| Other gains | 2 | — | 4 | 13 | ||||||||||||
| Equity in earnings (losses) of affiliates | 2 | (5 | ) | 36 | (26 | ) | ||||||||||
| LOSS BEFORE INCOME TAXES | (133 | ) | (389 | ) | (415 | ) | (831 | ) | ||||||||
| Benefit for income taxes | 13 | 73 | 81 | 156 | ||||||||||||
| NET LOSS | (120 | ) | (316 | ) | (334 | ) | (675 | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | 1 | 3 | 3 | 7 | ||||||||||||
| NET LOSS ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC. | $ | (119 | ) | $ | (313 | ) | $ | (331 | ) | $ | (668 | ) | ||||
| Basic loss per common share | $ | (.17 | ) | $ | (.44 | ) | $ | (.47 | ) | $ | (.95 | ) | ||||
| Diluted loss per common share | $ | (.17 | ) | $ | (.44 | ) | $ | (.47 | ) | $ | (.95 | ) |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Quarter and Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions)
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET LOSS | $ | (120 | ) | $ | (316 | ) | $ | (334 | ) | $ | (675 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
| Foreign currency translation and other comprehensive income of unconsolidated affiliates | (5 | ) | (5 | ) | (1 | ) | (24 | ) | ||||||||
| Change in fair value of derivative instruments | 1 | — | — | 1 | ||||||||||||
| OTHER COMPREHENSIVE LOSS, NET OF TAX | (4 | ) | (5 | ) | (1 | ) | (23 | ) | ||||||||
| COMPREHENSIVE LOSS | (124 | ) | (321 | ) | (335 | ) | (698 | ) | ||||||||
| Less: Comprehensive loss attributable to non-controlling interests | 1 | 3 | 3 | 7 | ||||||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC. | $ | (123 | ) | $ | (318 | ) | $ | (332 | ) | $ | (691 | ) |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions)
| Year-to-date ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (334 | ) | $ | (675 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operations: | ||||||||
| Depreciation and amortization | 597 | 498 | ||||||
| Amortization of finance costs, discounts and premiums, net | 7 | 6 | ||||||
| Loss on extinguishment of debt | — | 28 | ||||||
| Stock compensation expense | 13 | 11 | ||||||
| Other gains | (4 | ) | (13 | ) | ||||
| Equity in (earnings) losses of affiliates | (36 | ) | 26 | |||||
| Change in due from/to managers | (78 | ) | 130 | |||||
| Distributions from investments in affiliates | 4 | — | ||||||
| Changes in other assets | (99 | ) | (161 | ) | ||||
| Changes in other liabilities | 8 | (14 | ) | |||||
| Net cash provided by (used in) operating activities | 78 | (164 | ) | |||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sales of assets, net | 8 | 11 | ||||||
| Proceeds from loan receivable | 9 | 28 | ||||||
| Advances to and investments in affiliates | (9 | ) | (4 | ) | ||||
| Acquisitions | (1,217 | ) | — | |||||
| Capital expenditures: | ||||||||
| Renewals and replacements | (92 | ) | (122 | ) | ||||
| Return on investment | (201 | ) | (262 | ) | ||||
| Net cash used in investing activities | (1,502 | ) | (349 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Financing costs | (3 | ) | (11 | ) | ||||
| Issuances of debt | — | 740 | ||||||
| Draws on credit facility | — | 2,245 | ||||||
| Repayment of credit facility | — | (750 | ) | |||||
| Repurchase/redemption of senior notes | — | (364 | ) | |||||
| Redemption of preferred equity units of Host LP | — | (22 | ) | |||||
| Debt extinguishment costs | — | (27 | ) | |||||
| Issuance of common stock | 138 | — | ||||||
| Common stock repurchase | — | (147 | ) | |||||
| Dividends on common stock | — | (320 | ) | |||||
| Distributions and payments to non-controlling interests | — | (3 | ) | |||||
| Other financing activities | (8 | ) | (4 | ) | ||||
| Net cash provided by financing activities | 127 | 1,337 | ||||||
| Effects of exchange rate changes on cash held | — | (6 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (1,297 | ) | 818 | |||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 2,476 | 1,750 | ||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 1,179 | $ | 2,568 |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Year-to-date ended September 30, 2021 and 2020
(unaudited)
Supplemental disclosure of cash flow information (in millions):
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet to the amount shown in the statements of cash flows:
| September 30, 2021 | September 30, 2020 | |||||||
| Cash and cash equivalents | $ | 1,038 | $ | 2,430 | ||||
| Restricted cash (included in other assets) | 3 | — | ||||||
| Cash included in furniture, fixtures and equipment replacement fund | 138 | 138 | ||||||
| Total cash and cash equivalents and restricted cash shown in the statements of cash flows | $ | 1,179 | $ | 2,568 |
The following table presents cash paid for the following:
| Year-to-date ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Total interest paid | $ | 115 | $ | 126 | ||||
| Income taxes paid (refunds received) | $ | (3 | ) | $ | 2 |
Supplemental schedule of noncash investing and financing activities:
In 2021, non-cash consideration for the acquisition of the Four Seasons Resort Orlando at Walt Disney World® Resort included the assumption of hotel-level liabilities of approximately $24 million, consisting primarily of advance deposits received from guests for future stays that were retained by the seller.
In connection with the sale of a parcel of land adjacent to The Phoenician hotel in 2020, we received as consideration a note receivable for $9 million. The proceeds received in 2020 from the sale are net of this note receivable. The note receivable was collected in January 2021.
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2021 and December 31, 2020
(in millions)
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Property and equipment, net | $ | 10,124 | $ | 9,416 | ||||
| Right-of-use assets | 559 | 597 | ||||||
| Assets held for sale | 280 | — | ||||||
| Due from managers | 58 | 22 | ||||||
| Advances to and investments in affiliates | 62 | 21 | ||||||
| Furniture, fixtures and equipment replacement fund | 138 | 139 | ||||||
| Other | 453 | 360 | ||||||
| Cash and cash equivalents | 1,038 | 2,335 | ||||||
| Total assets | $ | 12,712 | $ | 12,890 | ||||
| LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL | ||||||||
| Debt | ||||||||
| Senior notes | $ | 3,068 | $ | 3,065 | ||||
| Credit facility, including the term loans of $997 | 2,472 | 2,471 | ||||||
| Other debt | 5 | 5 | ||||||
| Total debt | 5,545 | 5,541 | ||||||
| Lease liabilities | 572 | 610 | ||||||
| Accounts payable and accrued expenses | 91 | 71 | ||||||
| Due to managers | 55 | 64 | ||||||
| Liabilities held for sale | 37 | — | ||||||
| Other | 167 | 170 | ||||||
| Total liabilities | 6,467 | 6,456 | ||||||
| Limited partnership interests of third parties | 119 | 108 | ||||||
| Host Hotels & Resorts, L.P. capital: | ||||||||
| General partner | 1 | 1 | ||||||
| Limited partner | 6,195 | 6,394 | ||||||
| Accumulated other comprehensive loss | (75 | ) | (74 | ) | ||||
| Total Host Hotels & Resorts, L.P. capital | 6,121 | 6,321 | ||||||
| Non-controlling interests—consolidated partnerships | 5 | 5 | ||||||
| Total capital | 6,126 | 6,326 | ||||||
| Total liabilities, limited partnership interests of third parties and capital | $ | 12,712 | $ | 12,890 |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSO****LIDATED STATEMENTS OF OPERATIONS
Quarter and Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions, except per unit amounts)
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | ||||||||||||||||
| Rooms | $ | 557 | $ | 126 | $ | 1,237 | $ | 813 | ||||||||
| Food and beverage | 191 | 31 | 405 | 372 | ||||||||||||
| Other | 96 | 41 | 250 | 168 | ||||||||||||
| Total revenues | 844 | 198 | 1,892 | 1,353 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Rooms | 150 | 69 | 324 | 299 | ||||||||||||
| Food and beverage | 146 | 72 | 313 | 356 | ||||||||||||
| Other departmental and support expenses | 252 | 109 | 621 | 541 | ||||||||||||
| Management fees | 27 | 5 | 59 | 33 | ||||||||||||
| Other property-level expenses | 82 | 77 | 239 | 240 | ||||||||||||
| Depreciation and amortization | 263 | 166 | 597 | 498 | ||||||||||||
| Corporate and other expenses | 24 | 18 | 73 | 68 | ||||||||||||
| Gain on insurance and business interruption settlements | (5 | ) | — | (5 | ) | — | ||||||||||
| Total operating costs and expenses | 939 | 516 | 2,221 | 2,035 | ||||||||||||
| OPERATING LOSS | (95 | ) | (318 | ) | (329 | ) | (682 | ) | ||||||||
| Interest income | 1 | — | 2 | 7 | ||||||||||||
| Interest expense | (43 | ) | (66 | ) | (128 | ) | (143 | ) | ||||||||
| Other gains | 2 | — | 4 | 13 | ||||||||||||
| Equity in earnings (losses) of affiliates | 2 | (5 | ) | 36 | (26 | ) | ||||||||||
| LOSS BEFORE INCOME TAXES | (133 | ) | (389 | ) | (415 | ) | (831 | ) | ||||||||
| Benefit for income taxes | 13 | 73 | 81 | 156 | ||||||||||||
| NET LOSS | (120 | ) | (316 | ) | (334 | ) | (675 | ) | ||||||||
| Less: Net income attributable to non-controlling interests | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
| NET LOSS ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P. | $ | (121 | ) | $ | (317 | ) | $ | (335 | ) | $ | (675 | ) | ||||
| Basic loss per common unit | $ | (.17 | ) | $ | (.45 | ) | $ | (.48 | ) | $ | (.97 | ) | ||||
| Diluted loss per common unit | $ | (.17 | ) | $ | (.45 | ) | $ | (.48 | ) | $ | (.97 | ) |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Quarter and Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions)
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET LOSS | $ | (120 | ) | $ | (316 | ) | $ | (334 | ) | $ | (675 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
| Foreign currency translation and other comprehensive income of unconsolidated affiliates | (5 | ) | (5 | ) | (1 | ) | (24 | ) | ||||||||
| Change in fair value of derivative instruments | 1 | — | — | 1 | ||||||||||||
| OTHER COMPREHENSIVE LOSS, NET OF TAX | (4 | ) | (5 | ) | (1 | ) | (23 | ) | ||||||||
| COMPREHENSIVE LOSS | (124 | ) | (321 | ) | (335 | ) | (698 | ) | ||||||||
| Less: Comprehensive income attributable to non-controlling interests | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P. | $ | (125 | ) | $ | (322 | ) | $ | (336 | ) | $ | (698 | ) |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year-to-date ended September 30, 2021 and 2020
(unaudited, in millions)
| Year-to-date ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (334 | ) | $ | (675 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operations: | ||||||||
| Depreciation and amortization | 597 | 498 | ||||||
| Amortization of finance costs, discounts and premiums, net | 7 | 6 | ||||||
| Loss on extinguishment of debt | — | 28 | ||||||
| Stock compensation expense | 13 | 11 | ||||||
| Other gains | (4 | ) | (13 | ) | ||||
| Equity in (earnings) losses of affiliates | (36 | ) | 26 | |||||
| Change in due from/to managers | (78 | ) | 130 | |||||
| Distributions from investments in affiliates | 4 | — | ||||||
| Changes in other assets | (99 | ) | (161 | ) | ||||
| Changes in other liabilities | 8 | (14 | ) | |||||
| Net cash provided by (used in) operating activities | 78 | (164 | ) | |||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sales of assets, net | 8 | 11 | ||||||
| Proceeds from loan receivable | 9 | 28 | ||||||
| Advances to and investments in affiliates | (9 | ) | (4 | ) | ||||
| Acquisitions | (1,217 | ) | — | |||||
| Capital expenditures: | ||||||||
| Renewals and replacements | (92 | ) | (122 | ) | ||||
| Return on investment | (201 | ) | (262 | ) | ||||
| Net cash used in investing activities | (1,502 | ) | (349 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Financing costs | (3 | ) | (11 | ) | ||||
| Issuances of debt | — | 740 | ||||||
| Draws on credit facility | — | 2,245 | ||||||
| Repayment of credit facility | — | (750 | ) | |||||
| Repurchase/redemption of senior notes | — | (364 | ) | |||||
| Redemption of preferred OP units | — | (22 | ) | |||||
| Debt extinguishment costs | — | (27 | ) | |||||
| Issuance of common OP units | 138 | — | ||||||
| Repurchase of common OP units | — | (147 | ) | |||||
| Distributions on common OP units | — | (323 | ) | |||||
| Other financing activities | (8 | ) | (4 | ) | ||||
| Net cash provided by financing activities | 127 | 1,337 | ||||||
| Effects of exchange rate changes on cash held | — | (6 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (1,297 | ) | 818 | |||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 2,476 | 1,750 | ||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 1,179 | $ | 2,568 |
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Year-to-date ended September 30, 2021 and 2020
(unaudited)
Supplemental disclosure of cash flow information (in millions):
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet to the amount shown in the statements of cash flows:
| September 30, 2021 | September 30, 2020 | |||||||
| Cash and cash equivalents | $ | 1,038 | $ | 2,430 | ||||
| Restricted cash (included in other assets) | 3 | — | ||||||
| Cash included in furniture, fixtures and equipment replacement fund | 138 | 138 | ||||||
| Total cash and cash equivalents and restricted cash shown in the statements of cash flows | $ | 1,179 | $ | 2,568 |
The following table presents cash paid for the following:
| Year-to-date ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Total interest paid | $ | 115 | $ | 126 | ||||
| Income taxes paid (refunds received) | $ | (3 | ) | $ | 2 |
Supplemental schedule of noncash investing and financing activities:
In 2021, non-cash consideration for the acquisition of the Four Seasons Resort Orlando at Walt Disney World® Resort included the assumption of hotel-level liabilities of approximately $24 million, consisting primarily of advance deposits received from guests for future stays that were retained by the seller.
In connection with the sale of a parcel of land adjacent to The Phoenician hotel in 2020, we received as consideration a note receivable for $9 million. The proceeds received in 2020 from the sale are net of this note receivable. The note receivable was collected in January 2021.
See notes to condensed consolidated financial statements.
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Organization |
Description of Business
Host Hotels & Resorts, Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”), with its operations conducted solely through Host Hotels & Resorts, L.P. and its subsidiaries. Host Hotels & Resorts, L.P., a Delaware limited partnership, operates through an umbrella partnership structure, with Host Hotels & Resorts, Inc., a Maryland corporation, as its sole general partner. In the notes to these unaudited condensed consolidated financial statements, we use the terms “we” or “our” to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term “Host Inc.” specifically to refer to Host Hotels & Resorts, Inc. and the term “Host L.P.” specifically to refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host Inc. and Host L.P. As of September 30, 2021, Host Inc. holds approximately 99% of Host L.P.’s partnership interests.
Liquidity and Management’s Plans
The COVID-19 pandemic has had a significant adverse impact on U.S. and global economic activity and has contributed to significant volatility in financial markets beginning in the first quarter of 2020. While many of the restrictive measures put in place in jurisdictions where we own hotels have been lifted, the COVID-19 pandemic continues to negatively impact the U.S. lodging industry generally and our company specifically.
At the start of the pandemic, we suspended operations at 35 hotels. As of September 30, 2021, all hotels that previously suspended operations have resumed operations and are currently open. While the U.S. economic recovery has accelerated and hotel operations have improved during each quarter of the year, the pandemic continues to have a material negative impact on our financial results and cash flows. In 2020, we drew down $1.5 billion on the revolver portion of our credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility. We are continuing to take measures to maintain our liquidity, including operating expense reductions and the suspension of dividends and common stock repurchases. We also have reached agreements with our hotel managers to temporarily suspend furniture, fixture and equipment (“FF&E”) replacement fund contributions for our hotels and to defer certain hotel initiatives and brand standards.
Consolidated Portfolio
As of September 30, 2021, our consolidated portfolio, primarily consisting of luxury and upper upscale hotels, is located in the following countries:
| Hotels | ||||
| United States | 80 | |||
| Brazil | 3 | |||
| Canada | 2 | |||
| Total | 85 |
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
| 2. | Summary of Significant Accounting Policies |
We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10–K for the year ended December 31, 2020.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of September 30, 2021, and the results of our operations for the quarter and year-to-date periods ended September 30, 2021 and 2020, respectively, and cash flows for the year-to-date periods ended September 30, 2021 and 2020, respectively. Interim results are not necessarily indicative of full year performance because of the effect of seasonal variations as well as the impact from the COVID-19 pandemic.
Three of the partnerships in which we own an interest are considered variable interest entities (VIEs) as the general partner maintains control over the decisions that most significantly impact such partnerships. These VIEs include the operating partnership, Host L.P., which is consolidated by Host Inc., of which Host Inc. is the sole general partner and holds approximately 99% of its partnership interests; the consolidated partnership that owns the Houston Airport Marriott at George Bush Intercontinental; and the unconsolidated partnership that owns the Philadelphia Marriott Downtown. Host Inc.’s sole significant asset is its investment in Host L.P. and, consequently, substantially all of Host Inc.’s assets and liabilities consists of the assets and liabilities of Host L.P. All of Host Inc.’s debt is an obligation of Host L.P. and may be repaid only with assets of Host L.P.
Reclassifications
Certain prior year financial statement amounts have been reclassified to conform with the current year presentation.
| 3. | Earnings (Loss) Per Common Share (Unit) |
Basic earnings (loss) per common share (unit) is computed by dividing net income (loss) attributable to common stockholders (unitholders) by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding. Diluted earnings (loss) per common share (unit) is computed by dividing net income (loss) attributable to common stockholders (unitholders), as adjusted for potentially dilutive securities, by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding plus other potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans or the Host L.P. common units distributed to Host Inc. to support such shares granted, and other non-controlling interests that have the option to convert their limited partner interests to Host L.P. common units. No effect is shown for any securities that are anti-dilutive. We have 7.1 million Host L.P. common units, which are convertible into 7.3 million Host Inc. common shares, that are not included in
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Host Inc.’s calculation of earnings (loss) per share as their effect is not dilutive. The calculation of Host Inc. basic and diluted earnings (loss) per common share is shown below (in millions, except per share amounts):
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | (120 | ) | $ | (316 | ) | $ | (334 | ) | $ | (675 | ) | ||||
| Less: Net loss attributable to non-controlling interests | 1 | 3 | 3 | 7 | ||||||||||||
| Net loss attributable to Host Inc. | $ | (119 | ) | $ | (313 | ) | $ | (331 | ) | $ | (668 | ) | ||||
| Basic weighted average shares outstanding | 713.9 | 705.2 | 709.0 | 706.1 | ||||||||||||
| Diluted weighted average shares outstanding | 713.9 | 705.2 | 709.0 | 706.1 | ||||||||||||
| Basic loss per common share | $ | (.17 | ) | $ | (.44 | ) | $ | (.47 | ) | $ | (.95 | ) | ||||
| Diluted loss per common share | $ | (.17 | ) | $ | (.44 | ) | $ | (.47 | ) | $ | (.95 | ) | ||||
The calculation of Host L.P. basic and diluted earnings (loss) per unit is shown below (in millions, except per unit amounts):
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | (120 | ) | $ | (316 | ) | $ | (334 | ) | $ | (675 | ) | ||||
| Less: Net income attributable to non-controlling interests | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
| Net loss attributable to Host L.P. | $ | (121 | ) | $ | (317 | ) | $ | (335 | ) | $ | (675 | ) | ||||
| Basic weighted average units outstanding | 706.0 | 697.6 | 701.3 | 698.6 | ||||||||||||
| Diluted weighted average units outstanding | 706.0 | 697.6 | 701.3 | 698.6 | ||||||||||||
| Basic loss per common unit | $ | (.17 | ) | $ | (.45 | ) | $ | (.48 | ) | $ | (.97 | ) | ||||
| Diluted loss per common unit | $ | (.17 | ) | $ | (.45 | ) | $ | (.48 | ) | $ | (.97 | ) | ||||
| 4. | Revenue |
Substantially all our operating results represent revenues and expenses generated by hotel-level operations. Payments are due from customers when services are provided to them. Due to the short-term nature of our contracts and the almost concurrent receipt of payment, we have no material unearned revenue at quarter end. We collect sales, use, occupancy and similar taxes from our customers, which we present on a net basis (excluded from revenues) on our statements of operations.
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Disaggregation of Revenues. While we do not consider the following presentation of revenues by location to consist of reportable segments, we have disaggregated hotel revenues by market location. Our revenues also are presented by country in Note 11 – Geographic Information.
By Location. The following table presents hotel revenues for each of the geographic locations in our consolidated hotel portfolio (in millions):
| Quarter ended September 30, | Year-to-date ended September 30, | |||||||||||||||
| Location | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Maui/Oahu | $ | 118 | $ | 4 | $ | 260 | $ | 98 | ||||||||
| Florida Gulf Coast | 49 | 33 | 215 | 160 | ||||||||||||
| Phoenix | 54 | 17 | 171 | 108 | ||||||||||||
| Miami | 40 | 12 | 152 | 77 | ||||||||||||
| San Diego | 85 | 16 | 140 | 108 | ||||||||||||
| Orlando | 52 | 2 | 97 | 58 | ||||||||||||
| New York | 51 | 9 | 87 | 102 | ||||||||||||
| Los Angeles/Orange County | 42 | 16 | 81 | 75 | ||||||||||||
| San Francisco/San Jose | 44 | 12 | 80 | 124 | ||||||||||||
| Washington, D.C. (Central Business District) | 29 | 4 | 72 | 61 | ||||||||||||
| Jacksonville | 29 | 16 | 72 | 44 | ||||||||||||
| Houston | 21 | 7 | 53 | 36 | ||||||||||||
| San Antonio/Austin | 27 | 3 | 53 | 21 | ||||||||||||
| Atlanta | 22 | 9 | 51 | 42 | ||||||||||||
| Boston | 29 | 2 | 42 | 38 | ||||||||||||
| Chicago | 25 | 4 | 38 | 22 | ||||||||||||
| Northern Virginia | 18 | 5 | 37 | 27 | ||||||||||||
| Philadelphia | 17 | 6 | 33 | 20 | ||||||||||||
| Denver | 17 | 4 | 29 | 21 | ||||||||||||
| New Orleans | 11 | 5 | 24 | 29 | ||||||||||||
| Seattle | 16 | 2 | 23 | 20 | ||||||||||||
| Other | 39 | 8 | 68 | 44 | ||||||||||||
| Domestic | 835 | 196 | 1,878 | 1,335 | ||||||||||||
| International | 9 | 2 | 14 | 18 | ||||||||||||
| Total | $ | 844 | $ | 198 | $ | 1,892 | $ | 1,353 |
| 5. | Property and Equipment |
Property and equipment consists of the following (in millions):
| September 30, 2021 | December 31, 2020 | |||||||
| Land and land improvements | $ | 2,297 | $ | 2,033 | ||||
| Buildings and leasehold improvements | 14,084 | 13,609 | ||||||
| Furniture and equipment | 2,441 | 2,471 | ||||||
| Construction in progress | 235 | 166 | ||||||
| 19,057 | 18,279 | |||||||
| Less accumulated depreciation and amortization | (8,933 | ) | (8,863 | ) | ||||
| $ | 10,124 | $ | 9,416 |
n
| 6. | Debt |
Senior Notes. As of September 30, 2021, we have met the minimum financial covenant levels under our senior notes indentures, which reinstates our ability to incur additional debt so long as we maintain these covenant levels and subject to the provisions of our credit facility and senior notes indentures.
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Credit Facility. As of September 30, 2021, we have $12 million of available capacity under the revolver portion of our credit facility. On June 26, 2020 and February 9, 2021, we entered into amendments to the existing senior unsecured bank credit facility with Bank 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 on July 1, 2020 and ending on the required financial statement reporting date for the second quarter of 2022 (such period, the “Covenant Relief Period”). Subsequent to quarter end, we terminated the Covenant Relief Period prior to its expiration, as we met the minimum fixed charge coverage ratio required for our first phase-in quarterly test period.
| 7. | Equity of Host Inc. and Capital of Host L.P. |
| Equity of Host Inc. |
The components of the Equity of Host Inc. are as follows (in millions):
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings / (Deficit) | Non-redeemable, non-controlling interests | Total equity | Redeemable, non-controlling interests | |||||||||||||||
| Balance, December 31, 2020 | $ | 7 | $ | 7,568 | $ | (74 | ) | $ | (1,180 | ) | $ | 5 | $ | 6,326 | $ | 108 | |||||
| Net loss | — | — | — | (331 | ) | — | (331 | ) | (3 | ) | |||||||||||
| Issuance of common stock for comprehensive stock plans, net | — | 8 | — | — | — | 8 | — | ||||||||||||||
| Common stock issuances | — | 138 | — | — | — | 138 | — | ||||||||||||||
| Changes in ownership and other | — | (14 | ) | — | — | — | (14 | ) | 14 | ||||||||||||
| Other comprehensive loss | — | — | (1 | ) | — | — | (1 | ) | — | ||||||||||||
| Balance, September 30, 2021 | $ | 7 | $ | 7,700 | $ | (75 | ) | $ | (1,511 | ) | $ | 5 | $ | 6,126 | $ | 119 |
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings / (Deficit) | Non-redeemable, non-controlling interests | Total equity | Redeemable, non-controlling interests | |||||||||||||||
| Balance, June 30, 2021 | $ | 7 | $ | 7,688 | $ | (71 | ) | $ | (1,392 | ) | $ | 5 | $ | 6,237 | $ | 125 | |||||
| Net loss | — | — | — | (119 | ) | — | (119 | ) | (1 | ) | |||||||||||
| Issuance of common stock for comprehensive stock plans, net | — | 6 | — | — | — | 6 | — | ||||||||||||||
| Common stock issuances | — | — | — | — | — | — | — | ||||||||||||||
| Changes in ownership and other | — | 6 | — | — | — | 6 | (5 | ) | |||||||||||||
| Other comprehensive loss | — | — | (4 | ) | — | — | (4 | ) | — | ||||||||||||
| Balance, September 30, 2021 | $ | 7 | $ | 7,700 | $ | (75 | ) | $ | (1,511 | ) | $ | 5 | $ | 6,126 | $ | 119 |
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings / (Deficit) | Non-redeemable, non-controlling interests | Total equity | Redeemable, non-controlling interests | |||||||||||||||
| Balance, December 31, 2019 | $ | 7 | $ | 7,675 | $ | (56 | ) | $ | (307 | ) | $ | 6 | $ | 7,325 | $ | 142 | |||||
| Net loss | — | — | — | (668 | ) | — | (668 | ) | (7 | ) | |||||||||||
| Issuance of common stock for comprehensive stock plans, net | — | 7 | — | — | — | 7 | — | ||||||||||||||
| Repurchase of common stock | — | (147 | ) | — | — | — | (147 | ) | — | ||||||||||||
| Dividends declared on common stock | — | — | — | (141 | ) | — | (141 | ) | — | ||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | (2 | ) | |||||||||||||
| Changes in ownership and other | — | 54 | — | 1 | (1 | ) | 54 | (53 | ) | ||||||||||||
| Other comprehensive loss | — | — | (23 | ) | — | — | (23 | ) | — | ||||||||||||
| Balance, September 30, 2020 | $ | 7 | $ | 7,589 | $ | (79 | ) | $ | (1,115 | ) | $ | 5 | $ | 6,407 | $ | 80 |
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings / (Deficit) | Non-redeemable, non-controlling interests | Total equity | Redeemable, non-controlling interests | |||||||||||||||
| Balance, June 30, 2020 | $ | 7 | $ | 7,586 | $ | (74 | ) | $ | (802 | ) | $ | 5 | $ | 6,722 | $ | 81 | |||||
| Net loss | — | — | — | (313 | ) | — | (313 | ) | (3 | ) | |||||||||||
| Issuance of common stock for comprehensive stock plans, net | — | 6 | — | — | — | 6 | — | ||||||||||||||
| Changes in ownership and other | — | (3 | ) | — | — | — | (3 | ) | 2 | ||||||||||||
| Other comprehensive loss | — | — | (5 | ) | — | — | (5 | ) | — | ||||||||||||
| Balance, September 30, 2020 | $ | 7 | $ | 7,589 | $ | (79 | ) | $ | (1,115 | ) | $ | 5 | $ | 6,407 | $ | 80 |
Capital of Host L.P.
As of September 30, 2021, Host Inc. is the owner of approximately 99% of Host L.P.’s common OP units. The remaining common OP units are owned by unaffiliated limited partners. Each common OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock, based on the conversion ratio of 1.021494 shares of Host Inc. common stock for each common OP unit. Under the credit facility, all redemptions must be made with Host Inc. common stock until Host L.P.’s leverage ratio (as calculated under the credit facility) is below 7.25x.
In exchange for any shares issued by Host Inc., Host L.P. will issue common OP units to Host Inc. based on the applicable conversion ratio. Additionally, funds used by Host Inc. to pay dividends on its common stock are provided by distributions from Host L.P.
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The components of the Capital of Host L.P. are as follows (in millions):
| General Partner | Limited Partner | Accumulated Other Comprehensive Income (Loss) | Non-controlling interests | Total capital | Limited partnership interests of third parties | |||||||||||||
| Balance, December 31, 2020 | $ | 1 | $ | 6,394 | $ | (74 | ) | $ | 5 | $ | 6,326 | $ | 108 | |||||
| Net loss | — | (331 | ) | — | — | (331 | ) | (3 | ) | |||||||||
| Issuance of common OP units to Host Inc. for comprehensive stock plans, net | — | 8 | — | — | 8 | — | ||||||||||||
| Common OP unit issuances | — | 138 | — | — | 138 | — | ||||||||||||
| Changes in ownership and other | — | (14 | ) | — | — | (14 | ) | 14 | ||||||||||
| Other comprehensive loss | — | — | (1 | ) | — | (1 | ) | — | ||||||||||
| Balance, September 30, 2021 | $ | 1 | $ | 6,195 | $ | (75 | ) | $ | 5 | $ | 6,126 | $ | 119 |
| General Partner | Limited Partner | Accumulated Other Comprehensive Income (Loss) | Non-controlling interests | Total capital | Limited partnership interests of third parties | |||||||||||||
| Balance, June 30, 2021 | $ | 1 | $ | 6,302 | $ | (71 | ) | $ | 5 | $ | 6,237 | $ | 125 | |||||
| Net loss | — | (119 | ) | — | — | (119 | ) | (1 | ) | |||||||||
| Issuance of common OP units to Host Inc. for comprehensive stock plans, net | — | 6 | — | — | 6 | — | ||||||||||||
| Common OP unit issuances | — | — | — | — | — | — | ||||||||||||
| Changes in ownership and other | — | 6 | — | — | 6 | (5 | ) | |||||||||||
| Other comprehensive loss | — | — | (4 | ) | — | (4 | ) | — | ||||||||||
| Balance, September 30, 2021 | $ | 1 | $ | 6,195 | $ | (75 | ) | $ | 5 | $ | 6,126 | $ | 119 |
| General Partner | Limited Partner | Accumulated Other Comprehensive Income (Loss) | Non-controlling interests | Total capital | Limited partnership interests of third parties | |||||||||||||
| Balance, December 31, 2019 | $ | 1 | $ | 7,374 | $ | (56 | ) | $ | 6 | $ | 7,325 | $ | 142 | |||||
| Net loss | — | (668 | ) | — | — | (668 | ) | (7 | ) | |||||||||
| Issuance of common OP units to Host Inc. for comprehensive stock plans, net | — | 7 | — | — | 7 | — | ||||||||||||
| Repurchase of common OP units | — | (147 | ) | — | — | (147 | ) | — | ||||||||||
| Distributions declared on common OP units | — | (141 | ) | — | — | (141 | ) | (2 | ) | |||||||||
| Changes in ownership and other | — | 55 | — | (1 | ) | 54 | (53 | ) | ||||||||||
| Other comprehensive loss | — | — | (23 | ) | — | (23 | ) | — | ||||||||||
| Balance, September 30, 2020 | $ | 1 | $ | 6,480 | $ | (79 | ) | $ | 5 | $ | 6,407 | $ | 80 |
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
| General Partner | Limited Partner | Accumulated Other Comprehensive Income (Loss) | Non-controlling interests | Total capital | Limited partnership interests of third parties | |||||||||||||
| Balance, June 30, 2020 | $ | 1 | $ | 6,790 | $ | (74 | ) | $ | 5 | $ | 6,722 | $ | 81 | |||||
| Net loss | — | (313 | ) | — | — | (313 | ) | (3 | ) | |||||||||
| Issuance of common OP units to Host Inc. for comprehensive stock plans, net | — | 6 | — | — | 6 | — | ||||||||||||
| Changes in ownership and other | — | (3 | ) | — | — | (3 | ) | 2 | ||||||||||
| Other comprehensive loss | — | — | (5 | ) | — | (5 | ) | — | ||||||||||
| Balance, September 30, 2020 | $ | 1 | $ | 6,480 | $ | (79 | ) | $ | 5 | $ | 6,407 | $ | 80 |
Share Repurchases
As of September 30, 2021, we have $371 million available for repurchase under our common share repurchase program. In accordance with the restrictions in our amended credit facility, there have been no share repurchases year-to-date in 2021.
Issuance of Common Stock
On May 6, 2021, we entered into a distribution agreement with J. P. Morgan Securities LLC, BofA Securities, Inc., BTIG, LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., Truist Securities, Inc. and Wells Fargo Securities, LLC, as sales agents, pursuant to which we may issue and sell, from time to time, shares having an aggregate offering price of up to $600 million. The sales will be made in “at the market” offerings under the SEC rules. We may sell shares of Host Inc. common stock under this program from time to time based on market conditions, although we are not under an obligation to sell any shares. No shares were issued during the third quarter. Year-to-date, we have issued approximately 7.8 million shares under the program at an average price of $17.99 per share, for net proceeds of approximately $138 million. In connection with the common stock issuance by Host Inc., Host L.P. issued 7.6 million common OP units to Host Inc. At September 30, 2021, there was $460 million of remaining capacity under the agreement.
Dividends/Distributions
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 dividends. Additionally, based on the terms of the credit facility amendments, we are restricted from paying a quarterly common cash dividend in excess of $0.01 per share during the Covenant Relief Period, unless a higher amount is required to allow Host Inc. to maintain its REIT status or to avoid the payment of corporate income or excise taxes, until after the covenant waiver period expires. Subsequent to quarter end, we terminated the Covenant Relief Period early, as we met the minimum fixed charge coverage ratio required for our first phase-in quarterly test period.
| 8. | Acquisitions |
During the quarter, we acquired the 200-room Baker's Cay Resort Key Largo, Curio Collection by Hilton, for $200 million, a 223-room luxury downtown Houston hotel for $65 million and the 59-room Alila Ventana Big Sur for $150 million.
| 9. | Dispositions |
Subsequent to quarter end, we sold the Westfields Marriott Washington Dulles, San Ramon Marriott, The Westin Buckhead Atlanta, The Westin Los Angeles Airport and The Whitley for $551 million, including approximately $11 million for the FF&E replacement funds. As of September 30, 2021, these hotels were classified as held for sale. We anticipate recording a gain of approximately $300 million in the fourth quarter.
| 10. | Fair Value Measurements |
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
We did not elect the fair value measurement option for any of our financial liabilities. The fair value of our credit facility is determined based on expected future payments discounted at a risk-adjusted rate. Our senior notes are valued based on quoted market prices. The fair values of financial instruments not included in this table are estimated to be equal to their carrying amounts.
The fair value of certain financial liabilities is shown below (in millions):
| September 30, 2021 | December 31, 2020 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Senior notes (Level 1) | $ | 3,068 | $ | 3,273 | $ | 3,065 | $ | 3,284 | ||||||||
| Credit facility (Level 2) | 2,472 | 2,483 | 2,471 | 2,483 |
We assess our property and equipment, primarily comprised of hotel properties, for impairment when events or changes in circumstances occur that indicate the carrying value may not be recoverable. Due to the impact of the COVID-19 pandemic on our operations, we performed recoverability assessments on all of our hotel properties. Additionally, during the third quarter, due to changes in expected hold periods, the book value for certain property and equipment exceeded its undiscounted future cash flows. Therefore, we recorded impairment expense of $92 million based on third party assessments of values, including broker estimates and purchase offers, which are considered observable inputs other than quoted prices (Level 2) in the GAAP fair value hierarchy. The impairment expense is included in depreciation and amortization on the condensed consolidated statements of operations. The fair value of the impaired property and equipment following the write-down was $393 million.
E
| 11. | Geographic Information |
We consider each of our hotels to be an operating segment, as we allocate resources and assess operating performance based on individual hotels. All of our hotels meet the aggregation criteria for segment reporting and our other real estate investment activities (primarily our retail spaces and office buildings) are immaterial. As such, we report one segment: hotel ownership. Our consolidated foreign operations consist of hotels in two countries as of September 30, 2021. There were no intersegment sales during the periods presented.
The following table presents total revenues and property and equipment, net, for each of the geographical areas in which we operate (in millions):
| Total Revenues | Property and Equipment, net | |||||||||||||||||||||||
| Quarter ended September 30, | Year-to-date ended September 30, | September 30, | December 31, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| United States | $ | 835 | $ | 196 | $ | 1,878 | $ | 1,335 | $ | 10,047 | $ | 9,331 | ||||||||||||
| Brazil | 3 | 1 | 5 | 6 | 31 | 34 | ||||||||||||||||||
| Canada | 6 | 1 | 9 | 12 | 46 | 51 | ||||||||||||||||||
| Total | $ | 844 | $ | 198 | $ | 1,892 | $ | 1,353 | $ | 10,124 | $ | 9,416 |
| 12. | Non-controlling Interests |
Host Inc.’s treatment of the non-controlling interests of Host L.P.: Host Inc. adjusts the amount of the non-controlling interests of Host L.P. each period so that the amount presented equals the greater of their carrying amount based on accumulated historical cost or their redemption value. The historical cost is based on the proportional relationship between the historical cost of equity held by our common stockholders relative to that of the common unitholders of Host L.P. The redemption value is based on the amount of cash or Host Inc. common stock, at our option, that would be paid to the non-controlling interests of Host L.P. if it were terminated. Therefore, the redemption value of the common OP units is equivalent to the number of common shares that would be issued upon conversion of the common OP units held by third parties valued at the market price of Host Inc. common stock at the balance sheet date. One common OP unit may be exchanged for 1.021494 shares of Host Inc. common stock. Redeemable non-controlling interests of Host L.P. are classified in the mezzanine section of our balance sheets as they do not meet the requirements for equity classification because the redemption feature requires the delivery of registered shares. Under the Amendments,
HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
all redemptions must be made with Host Inc. common stock until we are in compliance with the leverage ratio financial test required by the credit facility.
The table below details the historical cost and redemption values for the non-controlling interests:
| September 30, 2021 | December 31, 2020 | |||||||
| Common OP units outstanding (millions) | 7.1 | 7.2 | ||||||
| Market price per Host Inc. common share | $ | 16.33 | $ | 14.63 | ||||
| Shares issuable upon conversion of one common OP unit | 1.021494 | 1.021494 | ||||||
| Redemption value (millions) | $ | 119 | $ | 108 | ||||
| Historical cost (millions) | 63 | 67 | ||||||
| Book value (millions) ⁽¹⁾ | 119 | 108 |
(1) The book value recorded is equal to the greater of redemption value or historical cost.
Other Consolidated Partnerships. We consolidate two majority-owned partnerships that have third-party, non-controlling ownership interests. The third-party limited partner interests are included in non-redeemable non-controlling interests — other consolidated partnerships on the balance sheets and totaled $5 million as of both September 30, 2021 and December 31, 2020.
| 13. | Legal Proceedings |
We are involved in various legal proceedings in the ordinary course of business regarding the operation of our hotels and company matters. To the extent not covered by insurance, these legal proceedings generally fall into the following broad categories: disputes involving hotel-level contracts, employment litigation, compliance with laws such as the Americans with Disabilities Act, tax disputes and other general matters. Under our management agreements, our operators have broad latitude to resolve individual hotel-level claims for amounts generally less than $150,000. However, for matters exceeding such threshold, our operators may not settle claims without our consent.
Based on our analysis of legal proceedings with which we are involved or of which we currently are aware and our experience in resolving similar claims in the past, we have recorded immaterial accruals as of September 30, 2021 related to such claims. We have estimated that, in the aggregate, our losses related to these proceedings will not be material. We are not aware of any matters with a reasonably possible unfavorable outcome for which disclosure of a loss contingency is required. No assurances can be given as to the outcome of any pending legal proceedings.
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations