The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. This discussion focuses on our financial condition and results of operations for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . For a discussion and analysis of the year endedDecember 31, 2019 compared to the same period in 2018, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II Item 7 of our Annual Report on Form 10K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 25, 2020 . OverviewHost Inc. operates as a self-managed and self-administered REIT that owns hotels and conducts operations throughHost L.P. , of whichHost Inc. is the sole general partner and of which it holds approximately 99% of its common OP units as ofDecember 31, 2020 . The remainder ofHost L.P.'s common OP units are owned by various unaffiliated limited partners.Host Inc. has the exclusive and complete responsibility forHost L.P.'s day-to-day management and control.Host Inc. is the largest lodging REIT in NAREIT's composite index and one of the largest owners of luxury and upper upscale hotels. As ofFebruary 19, 2021 , we own 80 hotels inthe United States ,Canada andBrazil and have minority ownership interests in an additional 10 hotels through joint ventures inthe United States and inIndia . These hotels are operated primarily under brand names that are among the most respected and widely recognized in the lodging industry. Most of our hotels are located in central business districts of major cities, near airports and in resort/conference destinations. Our customers fall into three broad groups: transient business, group business and contract business, which accounted for approximately 64%, 30%, and 6%, respectively, of our 2020 room sales. By comparison, our 2019 room sales consisted of 61%, 35%, and 4%, respectively, for transient business, group business and contract business. Transient business broadly represents individual business and leisure travelers. Business travelers make up the majority of transient demand at our hotels. Therefore, we will be significantly more affected by trends in business travel than by trends in leisure demand. However, due to the effects of the COVID-19 pandemic, demand during the periodApril 2020 to present has primarily been driven by leisure customers. For a discussion of our customer categories, see "Item 1 Business - Our Customers". COVID-19 Impact and Response. The COVID-19 pandemic has significantly adversely impactedU.S. and global economic activity and has contributed to significant volatility in financial markets beginning in the first quarter of 2020. The adverse economic impact continues as various restrictive measures remain in place in many jurisdictions where we own hotels, including quarantines, restrictions on travel, school closings, limitations on the size of gatherings and/or restrictions on types of business that may continue to operate. As a result, the pandemic continues to negatively impact almost every industry directly or indirectly, including having a severe impact on theU.S. lodging industry generally and our company specifically. The ongoing effects of the pandemic on our operations and future bookings have had, and will continue to have, a material negative impact on our financial results and cash flows, and such negative impact may continue well after restrictive measures imposed by federal, state, local and other governmental authorities to contain the outbreak have been lifted. We have not filed for any relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); however, several of our operators, including Hyatt and Marriott, have filed for the Employee Retention Credit ("ERC") to partially offset the costs of their furloughed hotel employees under Title II of the CARES Act, as discussed below. Benefits received by our operators from the ERC related to employees at our hotels ultimately will benefit us as we bear the expense for the wages and benefits of all persons working at our hotels.
In response to the pandemic, we and our managers, as applicable, have taken the following actions:
• As of
operations at the start of the COVID-19 pandemic. We will maintain
operations or reopen a property when it is anticipated to generate revenue
greater than the incremental costs associated with staying open;
• Average monthly occupancy (which includes the results of hotels with
suspended operations) has increased during the pandemic from 6.9% in April
to 17.3% in December, due primarily to increased demand in drive-to leisure
markets;
• Working with our hotel managers, we implemented portfolio-wide cost
reductions, including significantly reducing staffing levels by furloughing
or severing a substantial portion of the hotel workforce, reduced shared
services fees, suspended food and beverage outlet operations, closed
guestroom floors and meeting space, and temporarily suspended brand
standards. These initiatives have resulted in a reduction of hotel
operating costs across the portfolio by over 50% for the year, excluding
severance, compared to 2019. We expect that certain initiatives, including
modernized brand standards, 33
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streamlined operating departments and accelerated adoption of cost-saving
technologies, may lead to long-term expense reductions over time;
• Paid health benefits of approximately
hotel employees furloughed by our managers and special pay and accrued
million at year-end for similar payments to be made in the first quarter of
2021. A portion of the furlough costs has been offset by ERC of approximately$39 million recorded for the year. We also recorded$65 million during the year for hotel-level severance costs;
• Suspended contributions to our hotels' FF&E escrow accounts and suspended
or deferred non-essential capital projects, which reduced full year 2020
capital expenditures by over
reported in our 2019 Annual Report on Form 10-K;
• Successfully amended the credit agreement governing our
revolving credit facility and two
amendments, the quarterly-tested financial covenants were waived beginning
second quarter of 2022, with certain financial covenants modified through
the third quarter of 2023;
• Accessed the full
facility as a precautionary measure in order to increase our cash position
and preserve financial flexibility in light of continued uncertainty in the
global markets;
• Suspended regular quarterly common cash dividends and stock repurchases
until further notice. All future dividends are subject to approval by the
Board of Directors; and
• Reduced corporate expenses by approximately 16.8% for the year compared to
2019, through reduced travel, compensation and other overhead.
The impact of the COVID-19 pandemic on the company remains fluid, as does our corporate and property-level response, together with the response of our hotel operators. There remains a great deal of uncertainty surrounding the timing for widespread availability of vaccines and, as a result, the duration of the COVID-19 pandemic remains difficult to predict. We, and our hotel managers, may take additional actions in response to future developments.
Understanding Our Performance
Our Revenues and Expenses. Our hotels are operated by third-party managers under long-term agreements, pursuant to which they typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel. We provide operating funds, or working capital, which the managers use to purchase inventory and to pay wages, utilities, property taxes and other hotel-level expenses. We generally receive a cash distribution from our hotel managers each month, which distribution reflects hotel-level sales less property-level operating expenses (excluding depreciation).
Operations from our domestic portfolio account for approximately 99% of our
total revenues and 1% relate to our five hotels in
% of 2020 % of 2019 Revenues Revenues • Rooms revenues. Occupancy and average daily room rate are the major drivers of rooms revenues. The business mix of the hotel (group versus transient and retail 60 % 63 % versus discount business) is a significant driver of room rates. • Food and beverage revenues. Food & beverage revenues consist of revenues from group functions, which may include banquet revenues and audio and visual 26 % 30 % revenues, as well as outlet revenues from the restaurants and lounges at our hotels. • Other revenues. Occupancy, the nature of the hotel (e.g., resort) and its price point are the main drivers of other ancillary revenues, such as attrition and cancellation fees, resort and 14 % 7 % destination fees, parking, golf courses, spas, entertainment and other guest services. This category also includes other rental revenues. 34
-------------------------------------------------------------------------------- Hotel operating expenses represent approximately 97% of our total operating costs and expenses. The following table presents the components of our hotel operating expenses as a percentage of our total operating costs and expenses: % of 2020 % of 2019 Operating Operating Costs and Costs and Expenses Expenses • Rooms expenses. These costs include housekeeping, reservation systems, room supplies, laundry services and front desk costs. Occupancy is the major driver 14 % 19 % of rooms expenses. These costs can increase based on increases in salaries and wages, as well as on the level of service and amenities that are provided. • Food and beverage expenses. These expenses primarily include food, beverage and the associated labor costs and will correlate closely with food and beverage revenues. Group functions with banquet sales and 16 % 24 % audio and visual components generally will have lower overall costs as a percentage of revenues than outlet sales. • Other departmental and support expenses. These expenses include labor and other costs associated with other ancillary revenues, such as parking, golf courses, spas, entertainment and other guest 27 % 28 % services, as well as labor and other costs associated with administrative departments, allocated brand costs, sales and marketing, repairs and minor maintenance and utility costs. • Management fees. Base management fees are computed as a percentage of gross revenues. Incentive management 2 % 5 % fees generally are paid when operating profits exceed certain thresholds. • Other property-level expenses. These expenses consist primarily of real and personal property taxes, ground rent, equipment rent and property insurance. Many of 12 % 8 % these expenses are relatively inflexible and do not necessarily change based on changes in revenues at our hotels. • Depreciation and amortization expense. This is a non-cash expense that changes primarily based on the 26 % 14 % acquisition and disposition of hotels and the amounts of historical capital expenditures. The expense components listed above are based on those presented in our consolidated statements of operations. It also is worth noting that wage and benefit costs are spread among various line items. Taken separately, these costs represent approximately 59% of our rooms, food and beverage, and other departmental and support expenses. Key Performance Indicators. The following key performance indicators commonly are used in the hospitality industry and we believe provide useful information to management and investors in order to compare our performance with the performance of other lodging REITS:
• hotel occupancy is a volume indicator based on the percentage of available
room nights that are sold;
• average daily rate ("ADR") is a price indicator calculated by dividing
rooms revenues by the number of rooms sold; • revenues per available room ("RevPAR") is used to evaluate hotel
operations. RevPAR is defined as the product of the average daily room rate
charged and the average daily occupancy achieved. RevPAR does not include
food and beverage, parking, or other guest service revenues generated by
the hotel. Although RevPAR does not include these ancillary revenues, it is
considered a key indicator of core revenues for many hotels; and
• total revenues per available room ("Total RevPAR") is a summary measure of
hotel results calculated by dividing the sum of rooms, food and beverage
and other ancillary services revenues by room nights available to guests
for the period. It includes ancillary revenues that are not included in the
calculation of RevPAR.
RevPAR changes that are driven by occupancy have different implications on overall revenue levels, as well as incremental operating profit, than do changes that are driven by average room rate. For example, increases in occupancy at a hotel will lead to increases in rooms revenues and ancillary revenues, such as food and beverage revenues, as well as additional incremental costs (including housekeeping services, utilities and room amenity costs). RevPAR increases due to higher room rates, however, will not result in additional room-related costs, except those charged as a percentage of revenues. As a result, changes in RevPAR driven by 35
--------------------------------------------------------------------------------
increases or decreases in average room rates have a greater effect on profitability than do changes in RevPAR caused by occupancy levels.
We also evaluate the performance of our business through certain non-GAAP financial measures. Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit, net income and earnings per share. We provide a more detailed discussion of these non-GAAP financial measures, how management uses such measures to evaluate our financial condition and operating performance and a discussion of certain limitations of such measures in "-Non-GAAP Financial Measures." Our non-GAAP financial measures include:
• NAREIT Funds From Operations ("FFO") and Adjusted FFO per diluted share. We
use NAREIT FFO and Adjusted FFO per diluted share as supplemental measures
of company-wide profitability. NAREIT adopted FFO to promote an
industry-wide measure of REIT operating performance. We also adjust NAREIT
FFO for gains and losses on extinguishment of debt, certain acquisition
costs, litigation gains or losses outside the ordinary course of business
and severance costs outside the ordinary course of business.
•
property-level results before debt service, depreciation and corporate
expenses (as this is a property level measure) and is a supplemental
measure of aggregate property-level profitability. We use
Pro Forma EBITDA and associated margins to evaluate the profitability of
our hotels.
• EBITDA, EBITDAre and Adjusted EBITDAre. Earnings before interest expense,
income taxes, depreciation and amortization ("EBITDA") is a supplemental
measure of our operating performance and facilitates comparisons between us
and other lodging REITs, hotel owners who are not REITs and other
capital-intensive companies. NAREIT adopted EBITDA for real estate
("EBITDAre") in order to promote an industry-wide measure of REIT operating
performance. We also adjust EBITDAre for property insurance gains, certain
acquisition costs, litigation gains or losses outside the ordinary course
of business and severance costs outside the ordinary course of business
("Adjusted EBITDAre").
In discussing our operating results, we typically present RevPAR and certain other financial data on a comparable hotel basis. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between years. For this reason, we are temporarily suspending our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results on a pro forma basis, including the following adjustments: (1) operating results are presented for all consolidated hotels owned as ofDecember 31, 2020 , but do not include the results of operations for properties sold in 2019 or 2020; and (2) operating results for acquisitions in the current and prior year are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results. We also present RevPAR separately for our consolidated domestic and foreign (both on a nominal and constant dollar basis) hotels. We provide RevPAR results in constant currency due to the consolidated hotels that we own inCanada andBrazil and the effect that exchange rates have on our reporting. We use constant currency because we believe it is useful to investors as it provides clarity on how the hotels are performing in their local markets. For all other measures (net income, operating profit, EBITDA, FFO, etc.), our discussion refers to nominal US$, which is consistent with the presentation of our financial statements underU.S. generally accepted accounting principles ("GAAP").
Summary of 2020 Operating Results
The following table reflects certain line items from our audited consolidated statements of operations and the significant operating statistics for the two years endedDecember 31, 2020 (in millions, except per share and hotel statistics):
Historical Income Statement Data:
2020 2019 Change Total revenues$ 1,620 $ 5,469 (70.4 )% Net income (loss) (741 ) 932 N/M Operating profit (loss) (953 ) 799 N/M Operating profit (loss) margin under GAAP (58.8 )% 14.6 % N/M EBITDAre (1)$ (233 ) $ 1,538 N/M Adjusted EBITDAre (1)$ (168 ) $ 1,534 N/M Diluted earnings (loss) per share$ (1.04 ) $ 1.26
N/M
NAREIT FFO per diluted share (1) (.31 ) 1.70
N/M
Adjusted FFO per diluted share (1) (.17 ) 1.78 N/M 36
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AllOwned Hotel Data : 2020 Owned Hotels (1) 2020 2019 Change All owned hotel revenues (pro forma) (1)$ 1,604 $ 5,190 (69.1 )% All owned hotel EBITDA (pro forma) (1) (137 ) 1,493
N/M
All owned hotel EBITDA margin (pro forma) (8.5 )% 28.8 %
N/M
Change in all owned hotel (pro forma) Total RevPAR - Constant US$ (69.4 )% Change in all owned hotel (pro forma) RevPAR - ConstantUS$ (2) (70.3 )% Change in all owned hotel (pro forma) RevPAR - NominalUS$ (2) (70.3 )% ___________
(1) EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO
per diluted share and all owned hotel operating results (including hotel
revenues and hotel EBITDA and margins) are non-GAAP financial measures within
the meaning of the rules of the
definition of Adjusted EBITDAre and Adjusted NAREIT FFO to exclude
non-ordinary course severance costs, and remove these severance costs from
property level operating results, which we believe provides useful
supplemental information that is beneficial to an investor's understanding of
our ongoing operating performance. Furlough costs, which are viewed as a
replacement to wages, will continue to be included in these metrics.
Including these severance costs, our Adjusted EBITDAre and Adjusted NAREIT
FFO would have been
costs, our
"Non-GAAP Financial Measures" for more information on these measures, including why we believe these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures. N/M = Not meaningful. Revenues Total revenues declined$3,849 million , or 70.4%, compared to 2019, due to the COVID-19 pandemic, as we experienced a sharp decline in group, business and leisure travel beginning inmid-March 2020 . An overall decline in travel as well as the postponement or cancellation of conventions and conferences, music and arts festivals, sporting events and other large public gatherings and on-going travel restrictions have significantly reduced demand at our hotels. All owned hotel pro forma RevPAR decreased 70.3% compared to 2019, on a constant US$ basis, due to a 5,260 basis point decline in occupancy to 26.0%. All owned hotel pro forma Total RevPAR decreased 69.4% for the year as food and beverage revenues also experienced significant declines due to the decline in occupancy. (see "Statement of Operations Results and Trends"). Following RevPAR increases in January andFebruary 2020 across the majority of the portfolio, we experienced unprecedented occupancy declines in the second quarter, followed by modest sequential improvements in the third and fourth quarters. The incremental quarterly improvement in the second half of the year was driven by increased demand in drive-to leisure markets. As a result, all owned hotel Total RevPAR in ourFlorida Gulf Coast ,Jacksonville andMiami markets declined the least during the year, with decreases of 40.6%, 46.1% and 46.6%, respectively, due primarily to short-term leisure demand in the second half of the year. All owned hotel Total RevPAR at ourPhoenix properties declined 51.1% during the year, also benefiting from leisure business, which led to strong golf revenues at two of our properties in that market, while all owned hotel Total RevPAR at ourMaui /Oahu properties declined 69.6%, with operations suspended for three of our hotels through the third quarter followed by hotel reopenings and loosening travel restrictions in the fourth quarter. Our hotels inSan Francisco /San Jose andNew York , our two largest markets by room count, experienced declines in all owned hotel Total RevPAR of 74.5% and 80.3%, respectively, due to suspension of operations for a portion of the year at several of these hotels. The largest all owned hotel Total RevPAR declines occurred in ourBoston andChicago markets, with decreases of 84.8% and 82.7%, respectively, as operations remain suspended at theSheraton Boston Hotel and theWestin Chicago River North .
Operating Profit
Operating profit margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) declined in 2020 to (58.8)% due to the decline in operations from the COVID-19 pandemic. Operating profit margins under GAAP also are affected significantly by several items, including dispositions, depreciation expense and corporate expenses. Our all owned hotel pro forma EBITDA margins, which exclude these items, declined to (8.5)% for the year. 37 --------------------------------------------------------------------------------
Net Income, Adjusted EBITDAre and Adjusted FFO per Diluted Share
Net income forHost Inc. decreased$1,673 million in 2020 to a loss of$741 million primarily due to the decline in operations from the COVID-19 pandemic, as well as a$132 million decrease in other gains/(losses), consisting primarily of lower gain on sale of assets in 2020 as compared to 2019. These results led to a diluted loss per common share forHost Inc. of$1.04 . Adjusted EBITDAre, which excludes, among other items, gain on sale of assets, impairment expense and severance expense, decreased to$(168) million for the year, while Adjusted FFO per diluted share, which excludes gain on sale of assets and other real estate transactions, including depreciation, impairment and severance, decreased to$(0.17) in 2020. The trends and transactions described above forHost Inc. affected similarly the operating results forHost L.P. , as the only significant difference between theHost Inc. andHost L.P. statements of operations relates to the treatment of income attributable to the unaffiliated limited partners ofHost L.P.
2021 Outlook
The COVID-19 pandemic has severely impacted macroeconomic and industry expectations for 2021. While economic growth and business investment are expected to accelerate meaningfully in 2021, supported by further stimulus, low interest rates, and vaccine distribution, government-imposed restrictions across theU.S. remain. Many regions continue to grapple with the early 2021 surge in outbreaks and new variants of the virus, which has resulted in elevated jobless claims and slower economic activity in the first part of the year. While forecasts for 2021 remain uncertain, Blue Chip Economic Indicators consensus currently estimates an increase in real GDP of 4.9% for the year, while business investment is anticipated to increase 6.8%. Though analysts believe the unemployment rate peaked in 2020, it is anticipated to remain elevated into 2021, with an expected average of 5.8% for the year. The range of potential outcomes on the economy and the lodging industry specifically is exceptionally wide, reflecting both the unprecedented nature of the pandemic and varying analyst assumptions surrounding infection rates, new virus variants and the timing of vaccine deployments. Hotel supply growth is anticipated to remain below the long-term historical average in 2021, as social distancing measures and supply chain challenges resulted in project delays across theU.S. A large percentage ofU.S. hotels closed temporarily in 2020, and while many have begun to reopen, we anticipate that the number of permanent hotel closures will be higher than historical averages. The pandemic's outsized impact on our industry has resulted in a breakdown of the relationship between increased business investment and RevPAR growth. RevPAR recovery is anticipated to lag that of the broaderU.S. economy, despite lower supply growth. Luxury and upper upscale hotels in top markets, where a majority of our hotels are located, have been most heavily affected by the pandemic, due in part to the sharp decline in air travel, particularly from international arrivals, and the slower recovery of corporate and group demand. While we have seen slightly improving trends, we anticipate that these factors will persist in 2021. As a result of the significant uncertainties related to the timing of vaccine deployment, further government stimulus and related policy, and resulting broader macroeconomic trends in 2021, we anticipate that the industry outlook will continue to be weighed down by the slow return of corporate and group travel, as businesses likely will remain cautious. While investor optimism has grown in the early part of 2021 as analysts focus on the potential for significant pent-up leisure demand, existing corporate policies are expected to continue to constrain nonessential business transient and group travel until the country approaches herd immunity. Given the unprecedented and unpredictable nature of the pandemic and its effect on our industry, we are not able to provide a full year forecast for RevPAR at this time. We believe that recovery within the lodging industry is highly dependent on the strength of the economy, consumer confidence and, especially with respect to corporate and group travel, the timing of vaccine deployment. Accordingly, we believe the recovery in 2021 likely will be gradual and that the impact on specific markets and industries will be uneven. As noted above, the current outlook for the lodging industry remains highly uncertain. There can be no assurances as to the timing for a recovery in lodging demand for any number of reasons, including, but not limited to, slower than anticipated return of group and business travel. For more information on the risks that can affect our future results, see Part 1 Item 1A. "Risk Factors."
Strategic Initiatives
For 2021, we intend to continue our disciplined approach to capital allocation in order to strengthen our portfolio and to deliver stockholder value through multiple levers, which may include, over time, acquiring hotels or investing in our portfolio. We intend to take advantage of our strong capital position and overall scale to acquire upper-upscale and luxury properties, through single asset or portfolio acquisitions, that we believe have sustainable competitive advantages to drive long-term value to the extent favorable pricing opportunities arise as a result of the pandemic. At the same time, we will opportunistically sell hotels when market conditions permit, including the pursuit of exiting theBrazil andCanada markets in order to focus on our domestic portfolio. We also continue to critically analyze our portfolio to seek to take advantage of the inherent value of our real estate for its highest and best use. 38
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Dispositions. We completed the sale of the
Financing transactions. Senior Notes. OnAugust 20, 2020 , we completed an underwritten public offering of$600 million aggregate principal amount of 3.5% Series I senior notes and onSeptember 3, 2020 , we completed the issuance of an additional$150 million aggregate principal amount of Series I senior notes, for total proceeds of approximately$733 million , net of discounts, underwriting fees and expenses. The Series I senior Notes have been designated as green bonds, as an amount equal to the net proceeds will be allocated to eligible green projects. A portion of the proceeds were used inAugust 2020 to repay approximately 81% of the outstanding 4.75% Series C senior notes due 2023 for$390 million , including$26 million of prepayment costs. Additionally, the remaining$86 million of Series C senior notes were redeemed inDecember 2020 for$94 million , including a premium of approximately$8 million . This eliminated the final series of senior notes issued before we attained an investment grade rating, and therefore any covenants or restrictions under our non-investment grade senior notes indentures no longer are applicable. Credit Facility. During the year, we had a net draw of$1,483 million under the revolver portion of our credit facility. Additionally, inJune 2020 andFebruary 2021 , we amended the terms of our credit facility, under which the quarterly-tested financial maintenance covenants were waived beginningJuly 1, 2020 until the required financial statement reporting date for the second quarter of 2022. Following the covenant waiver period, certain financial maintenance covenants are modified through the third quarter of 2023. We believe that our ability to maintain an investment grade balance sheet and well-laddered maturity schedule is an important factor in our investment strategy. Through our transactions in 2020, we were able to lower our weighted average interest rate to 3.0% atDecember 31, 2020 , compared to 3.8% atDecember 31, 2019 , and extended our weighted average debt maturity to 5.0 years. We have a debt balance of$5.5 billion and no significant debt maturities until 2023.
For a detailed discussion, see "-Liquidity and Capital Resources." For a detailed discussion of our significant debt activities, see Part II Item 8 "Financial Statements and Supplementary Data - Note 5. Debt" in the Notes to Consolidated Financial Statements.
Capital Projects. We continue to pursue opportunities to enhance asset value through select capital improvements, including projects that are designed to increase the eco-efficiency of our hotels, incorporate elements of sustainable design and replace aging equipment and systems with more efficient technology. During 2020, we spent approximately$499 million on capital expenditures, of which$343 million represented return on investment ("ROI") capital expenditures and$156 million represented renewal and replacement projects. In collaboration with Marriott, we initiated a transformational capital program in 2018 on an initial 17 properties, now 16 properties following the sale of theNewport Beach Marriott Hotel & Spa , that is expected to occur over a four-year period. We believe these investments will make these hotels more competitive in their respective markets and will enhance long-term performance through increases in RevPAR and market yield index. To accelerate this process, we agreed to invest amounts in excess of the FF&E reserves required under our management agreements, or approximately an average of$175 million per year, which amounts are included in the forecast range of 2021 capital expenditures reflected below. In exchange, Marriott has provided additional priority returns on the agreed upon investments and operating profit guarantees of$83 million , before reductions for incentive management fees, over the four years to offset expected business disruption. Of the 16 properties included in the program, we substantially completed the projects at theCoronado Island Marriott Resort & Spa ,New York Marriott Downtown ,San Francisco Marriott Marquis , andSanta Clara Marriott in 2019 and projects at theMinneapolis Marriott City Center ,San Antonio Marriott Rivercenter andJW Marriott Atlanta Buckhead in 2020. Work is underway at seven other properties. Approximately 65% of the total estimated costs of the transformational capital program have been spent as ofDecember 31, 2020 and, in 2021, we expect to substantially complete four additional properties, including:The Ritz-Carlton Amelia Island ,New York Marriott Marquis ,Houston Medical Center Marriott andOrlando World Center Marriott .
In 2021, we also have several projects scheduled to be completed or initiated that seek to add value to our existing portfolio over time. These include:
•
hotel branded as an AC by Marriott. The hotel was substantially completed in 2020 and opened inJanuary 2021 ;
• Additional villas at the Andaz Maui at
construction of 19 additional two-bedroom, luxury villas at the Andaz
2021; 39
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• Expansion atThe Ritz-Carlton Naples Golf Resort - development and construction of a 1.5-acre water park is underway and is expected to be completed in the second quarter of 2021; • Expansions at theOrlando World Center Marriott - development and
construction of a 2.3-acre waterpark and a 60,000 gross square-foot
meeting space expansion is underway and is expected to be completed in
the first half of 2022; and
• The
renovation that will increase the number of suites at the property are
scheduled to begin in the second quarter of 2021, paired with the redevelopment of public and meeting space, including the addition of a new pool and cabanas to begin in 2022, with all projects expected to be completed in the fourth quarter of 2022. For 2021, we expect to make capital expenditures of$375 million to$475 million , including approximately$110 million to$140 million for the Marriott transformational capital program discussed above, which is expected to be nearly 85% complete by year-end 2021. We received approximately$19 million in operating profit guarantees in 2020 from Marriott and expect to receive approximately$16 million in 2021. The total expected capital spend consists of$275 million to$325 million of ROI projects and$100 million to$150 million of renewal and replacement projects. We have established key milestones to review major projects prior to implementation, with the ability to reduce 2021 capital expenditures by approximately$150 million , if required, to conserve cash. Share Repurchases and Dividends. OnAugust 5, 2019 ,Host Inc.'s Board of Directors authorized an increase in its share repurchase program from$500 million to$1 billion . In the first quarter of 2020, we repurchased 8.9 million common shares at an average price of$16.49 per share, exclusive of commissions, for a total of$147 million , prior to suspending our repurchases in response to the COVID-19 pandemic. AtDecember 31, 2020 , we had$371 million available for repurchase under the program. Repurchases are currently restricted under the terms of our credit facility amendment. During 2020,Host Inc.'s Board of Directors declared a dividend of$0.20 per share in the first quarter, with respect toHost Inc.'s common stock. Accordingly,Host L.P. made distributions of$0.2042988 per unit with respect to its common OP units for 2020. As part of its response to COVID-19 and in order to preserve cash and future financial flexibility, Host suspended its regular quarterly common cash dividend commencing with the second quarter dividend that would have been paid inJuly 2020 . There can be no assurances as to when dividends will be restored but, based on the terms of the credit facility amendments, we are restricted to paying a quarterly common cash dividend of$0.01 per share or higher amounts to the extent necessary to allowHost Inc. to maintain REIT status or to avoid corporate income or excise taxes, until after the covenant waiver period expires following the second quarter of 2022. The amount of any future dividends will be based on our policy of distributing, over time, 100% of our taxable income and will be determined byHost Inc.'s Board of Directors. However, while the dividend is suspended to preserve cash and liquidity, we believe that we have sufficient liquidity and access to the capital markets in order to fund our capital expenditures programs and to take advantage of investment opportunities. 40 --------------------------------------------------------------------------------
Results of Operations
The following table reflects certain line items from our audited consolidated statements of operations for the two years endedDecember 31, 2020 (in millions, except percentages): 2020 2019 Change Total revenues$ 1,620 $ 5,469 (70.4 )% Operating costs and expenses: Property-level costs (1) 2,484 4,568 (45.6 ) Corporate and other expenses 89 107 (16.8 ) Gain on insurance and business interruption settlements - 5 N/M Operating profit (loss) (953 ) 799 N/M Interest expense 194 222 (12.6 ) Other gains/(losses) 208 340 (38.8 ) Benefit (provision) for income taxes 220 (30 )
N/M
Host Inc. : Net income (loss) attributable to non-controlling interests (9 ) 12
N/M
Net income (loss) attributable to Host Inc. (732 ) 920
N/M
Host L.P. : Net income (loss) attributable to non-controlling interests (1 ) 2
N/M
Net income (loss) attributable to Host L.P. (740 ) 930 N/M ___________
(1) Amounts represent total operating costs and expenses from our consolidated
statements of operations, less corporate and other expenses and the gain on
insurance and business interruption settlements.
N/M = Not meaningful
Statement of Operations Results and Trends
The following table presents revenues in accordance with GAAP for the two years
ended
2020 2019 Change Revenues: Rooms$ 976 $ 3,431 (71.6 )% Food and beverage 426 1,647 (74.1 ) Other 218 391 (44.2 ) Total revenues$ 1,620 $ 5,469 (70.4 )
The significant decline in revenues was due predominantly to the impact of the COVID-19 pandemic, which began to significantly impact hotel operations beginning in March of 2020. After a significant decline in revenues in the second quarter, revenues gradually improved through subsequent quarters, although they remained well below historical levels. Our 2020 revenues on a quarterly basis were as follows:
2020 First Second Third Fourth Quarter Quarter Quarter Quarter Revenues:$ 1,052 $ 103 $ 198 $ 267 Rooms. Total rooms revenues decreased$2,455 million , or 71.6%, in 2020. Rooms revenues in 2019 include$196 million of revenues for hotels sold in 2020 and 2019. Food and beverage. Total F&B revenues decreased$1,221 million , or 74.1%, in 2020. F&B revenues in 2019 include$77 million of revenues for hotels sold in 2020 and 2019. Other revenues. Total other revenues decreased$173 million , or 44.2%, in 2019. Attrition and cancelation fees increased$3 million compared to 2019. Other revenues in 2019 include$26 million of revenues for hotels sold in 2020 and 2019. 41
--------------------------------------------------------------------------------
Property-level Operating Expenses
The following table presents consolidated property-level operating expenses in accordance with GAAP for the two years endedDecember 31, 2020 (in millions, except percentages): 2020 2019 Change Expenses: Rooms$ 362 $ 873 (58.5 )% Food and beverage 420 1,120 (62.5 )
Other departmental and support expenses 686 1,295 (47.0 ) Management fees
39 239 (83.7 ) Other property-level expenses 312 365 (14.5 ) Depreciation and amortization 665 676 (1.6 )
Total property-level operating expenses
Our operating costs and expenses, which consist of both fixed and variable components, are affected by several factors. Rooms expenses are affected mainly by occupancy, which drives costs related to items such as housekeeping, reservation systems, room supplies, laundry services and front desk costs. Food and beverage expenses correlate closely with food and beverage revenues and are affected by occupancy and the mix of business between banquet and audio-visual and outlet sales. However, the most significant expense for the rooms, food and beverage, and other departmental and support expenses is wages and employee benefits, which comprise approximately 59% of these expenses in any year. During 2020, these expenses declined 54% compared to 2019, excluding the severance expense discussed below. Included in these amounts in 2020 is$125 million for benefits to hotel employees who were furloughed by our managers and special pay, partially offset by approximately$39 million related to the ERC recorded by our managers. We also recorded$65 million of severance costs in 2020, which has been excluded from the wage and benefit discussions below. Other property-level expenses consist of property taxes, which are highly dependent on local taxing authorities, and property and general liability insurance, and do not necessarily change based on changes in revenues at our hotels. The decline in expenses for rooms, food and beverage, other departmental and support, and management fees predominantly are due to the impact of the COVID-19 pandemic, as follows: Rooms. Rooms expenses decreased$511 million , or 58.5%, during 2020. Wages and benefits represented approximately 71% of our 2020 rooms expenses and 66% of our 2019 rooms expenses. Food and beverage. F&B expenses decreased$700 million , or 62.5%, in 2020. Wages and benefits represented approximately 74% of our 2020 F&B expenses and 70% of our 2019 F&B expenses. Other departmental and support expenses. Other departmental and support expenses decreased$609 million , or 47.0%, in 2020. Wages and benefits represented approximately 44% of our 2020 other departmental and support expenses and 41% of our 2019 other departmental and support expenses. Management fees. Total management fees decreased$200 million , or 83.7%, in 2020. Base management fees, which generally are calculated as a percentage of total revenues, decreased$119 million , or 72.1%, compared to 2019. Incentive management fees, which generally are based on the amount of operating profit at each hotel after we receive a priority return on our investment, decreased$91 million , as we did not pay incentive management fees during 2020. Other property-level expenses. These expenses generally do not vary significantly based on occupancy and include expenses such as property taxes and insurance. Other property-level expenses decreased$53 million , or 14.5%, in 2020, primarily due to a decrease in rent on a portion of our ground leases that are based on a percentage of sales. Other property-level expenses were partially offset by the receipt of operating profit guarantees from Marriott under the transformational capital program in both 2020 and 2019. Depreciation and amortization. Depreciation and amortization expense decreased$11 million , or 1.6%, to$665 million in 2020, due to impairment expense that was recorded in 2019. 42
--------------------------------------------------------------------------------
Other Income and Expenses
Corporate and other expenses. Corporate and other expenses include the following items (in millions): Year ended December 31, 2020 2019 General and administrative costs$ 72 $ 92 Non-cash stock-based compensation expense 17 15 Total$ 89 $ 107 General and administrative costs primarily consist of wages and benefits, travel, corporate insurance, legal fees, audit fees, building rent and systems costs. In 2020, corporate and other expenses declined by approximately 17% compared to 2019, as a result of reduced compensation, travel and other overhead. In 2019, corporate and other expenses include costs associated with a significant transformation of our corporate information systems platform, the implementation of which was completed in the second quarter of 2019.
Gain on insurance and business interruption settlements. In 2019, we received
Interest income. Interest income decreased
Interest expense. Interest expense decreased$28 million , or 12.6%, in 2020 as compared to 2019, reflecting the benefits from refinancing activities in 2019 and 2020 as well as a decline in floating interest rates, which was partially offset by increased principal balances outstanding due to the credit facility draw. Interest expense for 2020 also reflects less prepayment premiums on the repayment of the Series C senior notes compared to the prepayment premiums paid in 2019 on the Series Z and Series B senior notes. The following table presents certain components of interest expense (in millions): Year ended December 31, 2020 2019 Cash interest expense(1)$ 150 $ 159 Cash incremental interest expense (1)(2) - 1 Non-cash interest expense 8 6 Cash debt extinguishment costs(1) 35 50 Non-cash debt extinguishment costs 1 6 Total interest expense$ 194 $ 222 ___________
(1) Total cash interest expense paid was
and 2019, respectively, which includes an increase (decrease) due to the
change in accrued interest of
respectively.
(2) Incremental interest expense reflects the cash interest expense for
refinanced debt subsequent to the issuance of the new financing and prior to
the repayment of the refinanced debt.
Other gains/(losses). The following table presents the gains recognized on the sale of assets and other (in millions):
Year ended
2020
2019
Newport Beach Marriott Hotel & Spa $ 148 $ - Land adjacent to The Phoenician 59 -Atlanta Marriott Suites Midtown ,Costa Mesa Marriott ,Scottsdale Marriott at McDowell Mountains, and Scottsdale Marriott Old Town - 151 The Westin Indianapolis - 33 Courtyard Chicago Downtown/River North and Residence Inn Arlington Pentagon City - 98The Westin Mission Hills andNewport Beach Marriott Bayview - 60 Maui Timeshare land (1) - 1 Other 1 (3 ) $ 208 $ 340 ___________
(1) Represents amortization of the previously deferred gain related to the land
contributed to the Maui JV. 43
-------------------------------------------------------------------------------- Equity in earnings (losses) of affiliates. In 2020, we recorded a loss of$30 million related to our unconsolidated investments. This included a$14 million loss for our share of an inventory impairment expense recorded by ourMaui timeshare joint venture, in addition to operating losses incurred by our investments. In 2019, we recorded earnings of$14 million from our unconsolidated investments. Benefit (provision) for income taxes. We lease substantially all our properties to consolidated subsidiaries designated as TRS forU.S. federal income tax purposes. Taxable income or loss generated/incurred by the TRS primarily represents hotel-level operations and the aggregate rent paid toHost L.P. by the TRS, on which we record an income tax provision or benefit. In 2020, we recorded an income tax benefit of$220 million due primarily to the domestic net operating loss incurred by our TRS. As a result of legislation enacted by the CARES Act, such domestic net operating loss may be carried back up to five years in order to procure a refund ofU.S. federal corporate income taxes previously paid. Any domestic net operating loss incurred by our TRS not carried back pursuant to these rules may be carried forward indefinitely, subject to an annual limit on the use thereof of 80% of annual taxable income. We expect to generate additional net operating losses from our TRS in 2021 and we will evaluate whether or not to record an income tax benefit for all or a portion of such net operating loss at that time. The 2019 income tax provision of$30 million primarily related to hotel operations at our TRS. See also Part II Item 8. "Financial Statements and Supplementary Data - Note 7. Income Taxes" for a discussion of our income taxes.
To facilitate a year-over-year comparison of our operations, we typically present certain operating statistics for the periods included in this presentation on a comparable hotel basis. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between periods. For this reason, we are revising our presentation to instead present pro forma hotel operating results for all hotels. See "AllOwned Hotel Operating Statistics " for a complete description of our methodology. We also discuss ourHotel RevPAR results by geographic location and mix of business (i.e., transient, group, or contract). 44 --------------------------------------------------------------------------------
2020 Compared to 2019
The following table sets forth performance information for our hotels by
geographic location as of
All
As ofDecember 31, 2020 Year endedDecember 31, 2020 Year endedDecember 31, 2019 Average Average Percent Percent No. of No. of Average Occupancy Average Occupancy Change in Change in Location Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR Total RevPAR RevPAR Total RevPARJacksonville 1 446$ 403.32 39.3 %$ 158.58 $ 330.97 $ 372.94 73.5 %$ 274.07 $ 613.80 (42.1 )% (46.1 )%Florida Gulf Coast 5 1,842 368.26 39.8 146.62 285.67 334.73 72.0 241.11 480.60 (39.2 ) (40.6 )Miami 3 1,276 378.62 35.2 133.26 219.18 325.16 79.8 259.54 410.81 (48.7 ) (46.6 )Maui /Oahu 4 1,987 403.12 28.8 115.91 167.60 409.40 88.1 360.59 552.08 (67.9 ) (69.6 )Phoenix 3 1,654 313.05 32.9 102.99 233.16 292.50 71.9 210.32 476.62 (51.0 ) (51.1 )Los Angeles 4 1,726 202.96 31.7 64.32 91.72 228.14 86.5 197.26 294.81 (67.4 ) (68.9 )Atlanta 4 1,682 163.91 34.5 56.47 85.31 190.59 79.8 152.11 241.34 (62.9 ) (64.7 )San Francisco /San Jose 7 4,528 249.28 22.4 55.76 79.82 274.62 81.6 224.18 312.49 (75.1 ) (74.5 )New Orleans 1 1,333 164.70 33.3 54.89 76.95 187.65 79.0 148.30 216.97 (63.0 ) (64.5 )Philadelphia 2 810 154.46 34.9 53.85 81.81 217.01 85.7 185.91 305.37 (71.0 ) (73.2 )San Diego 3 3,288 218.59 24.4 53.40 102.63 249.41 79.4 198.02 360.49 (73.0 ) (71.5 )New York 3 4,261 187.28 27.1 50.75 71.03 286.36 84.8 242.96 359.92 (79.1 ) (80.3 )Houston 4 1,716 138.61 36.2 50.19 73.46 177.93 72.0 128.14 185.48 (60.8 ) (60.4 )Orange County 1 393 166.55 28.0 46.63 67.52 185.86 79.3 147.41 228.57 (68.4 ) (70.5 )Northern Virginia 3 1,252 179.08 25.8 46.29 73.95 208.94 70.9 148.19 255.14 (68.8 ) (71.0 )Washington, D.C. (CBD) 5 3,238 216.26 18.2 39.30 55.93 245.82 81.5 200.27 288.52 (80.4 ) (80.6 )Orlando 1 2,004 203.28 17.2 35.00 90.81 184.12 67.9 125.02 302.71 (72.0 ) (70.0 )Denver 3 1,340 140.24 23.9 33.49 48.55 173.47 72.9 126.48 190.45 (73.5 ) (74.5 )Seattle 2 1,315 187.91 16.7 31.38 44.67 225.12 82.4 185.50 250.12 (83.1 ) (82.1 )San Antonio 2 1,512 159.16 19.0 30.27 45.28 185.33 69.7 129.14 189.71 (76.6 ) (76.1 )Chicago 4 1,816 130.47 22.1 28.78 38.48 207.67 76.2 158.19 222.83 (81.8 ) (82.7 )Boston 3 2,715 168.75 16.0 27.08 40.90 237.24 81.7 193.83 268.74 (86.0 ) (84.8 ) Other 6 2,509 140.44 28.7 40.34 54.71 171.63 77.7 133.40 191.70 (69.8 ) (71.5 ) Domestic 74 44,643 222.76 26.1 58.25 95.61 247.88 78.9 195.54 311.66 (70.2 ) (69.3 ) International 5 1,499 116.26 21.4 24.91 36.65 141.34 70.9 100.17 149.77 (75.1 ) (75.5 ) All Locations - Constant US$ 79 46,142 219.91 26.0 57.17 93.70 244.77 78.6 192.45 306.40 (70.3 ) (69.4 ) All Owned Hotels (pro forma) in Nominal US$ As ofDecember 31, 2020 Year endedDecember 31, 2020 Year endedDecember 31, 2019 Average Average Percent Percent No. of No. of Average Occupancy Average Occupancy Change in Change in
Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR
Total RevPAR RevPAR Total RevPAR International 5 1,499$ 116.26 21.4 %$ 24.91 $ 36.65 $ 153.01 70.9 %$ 108.44 $ 160.74 (77.0 )% (77.2 )% Domestic 74 44,643 222.76 26.1 58.25 95.61 247.88 78.9 195.54 311.66 (70.2 ) (69.3 ) All Locations 79 46,142 219.91 26.0 57.17 93.70 245.11 78.6 192.72 306.75 (70.3 ) (69.5 )
(1) For a discussion of constant US$ and nominal US$ presentation, see "-All
Owned Hotel Operating Statistics ." 45
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The majority of our customers fall into three broad categories: transient, group
and contract business. The information below is derived from business mix
results from the 79 hotels owned as of
The following are the results of our consolidated portfolio transient, group and contract business: Year ended December 31, 2020 Transient business Group business Contract business Room nights (in thousands) 2,694 1,353 347
Percentage change in room nights
vs. same period in 2019 (65.4 )% (71.9 )% (47.0 )% Room Revenues (in millions) $ 615 $ 294 $ 57
Percentage change in revenues
vs. same period in 2019 (68.9 )% (74.1 )% (56.3 )%
Liquidity and Capital Resources
Liquidity and Capital Resources ofHost Inc. andHost L.P. The liquidity and capital resources ofHost Inc. andHost L.P. are derived primarily from the activities ofHost L.P. , which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of hotels.Host Inc. is a REIT and its only significant asset is the ownership of general and limited partner interests ofHost L.P. ; therefore, its financing and investing activities are conducted throughHost L.P. , except for the issuance of its common and preferred stock. Proceeds from common and preferred stock issuances byHost Inc. are contributed toHost L.P. in exchange for common and preferred OP units. Additionally, funds used byHost Inc. to pay dividends or to repurchase its stock are provided byHost L.P. Therefore, while we have noted those areas in which it is important to distinguish betweenHost Inc. andHost L.P. , we have not included a separate discussion of liquidity and capital resources as the discussion below applies to bothHost Inc. andHost L.P. Overview. We look to maintain a capital structure and liquidity profile with an appropriate balance of cash, debt and equity to provide financial flexibility given the inherent volatility of the lodging industry. We believe this strategy has resulted in a better cost of debt capital, allowing us to complete opportunistic investments and acquisitions and it positions us to manage potential declines in operations throughout the lodging cycle. We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of assets that are encumbered by mortgage debt. Currently, none of our consolidated hotels are encumbered by mortgage debt. Over the past several years leading up to the COVID-19 pandemic, we had decreased our leverage as measured by our net debt-to-EBITDA ratio and reduced our debt service obligations, leading to an increase in our fixed charge coverage ratio. As a result, the company was well positioned at the onset of the COVID-19 pandemic with sufficient liquidity and financial flexibility to withstand the severe slowdown inU.S. economic activity and lodging demand brought on by the pandemic. We were able to take further steps in 2020 to bolster our liquidity position as outlined below. Under the current challenging operating environment posed by the COVID-19 pandemic, we have taken steps to preserve liquidity by drawing on our credit facility, working with our hotel operators to reduce operating costs at the hotel, reducing corporate level expenses, suspending our quarterly dividend and stock repurchases and deferring certain capital expenditures projects to future years. These actions contributed to lowering our cash used in operating activities each quarter following the beginning of the pandemic. We intend to use available cash in the near term predominantly to fund negative operations at our hotels, corporate expenses and reduced levels of capital expenditures. However, we also are well positioned to execute acquisitions to the extent favorable pricing opportunities arise. 46 -------------------------------------------------------------------------------- Despite the challenges caused by the COVID-19 pandemic and economic crisis, we believe that we have sufficient liquidity to withstand the current decline in operating cash flow and to fund our capital expenditures programs. We may access equity markets if favorable conditions exist in order to enhance our liquidity and to fund cash needs, including to fund acquisitions or other investment opportunities generated by the COVID-19 pandemic. The following summarizes the change in cash flows from 2019 to 2020 for significant items that affected our cash balance and reflects our actions to preserve financial liquidity: 2020 2019
Change
Total cash and cash equivalents and restricted cash shown on the statements of cash flows$ 2,476 $ 1,750
Operating activities Net cash provided by (used in) operating activities (307 ) 1,250 (1,557 ) Investing activities Capital expenditures (499 ) (558 ) 59 Financing activities Net draws (repayments) on credit facility revolver 1,483 (56 )
1,539
Issuances of senior notes 740 645
95
Repurchase/redemption of senior notes, including extinguishment costs (485 ) (700 )
215
Host Inc. : Common stock repurchases and dividends on common stock (467 ) (1,105 )
638
Host L.P. : Repurchases of common OP units and distributions on common OP units (470 ) (1,112 )
642
Cash Requirements. We use cash for acquisitions, capital expenditures, debt payments, operating costs, and corporate and other expenses, as well as for dividends and distributions to stockholders andHost L.P. limited partners and stock and OP unit repurchases. Our primary sources of cash include cash from operations, proceeds from the sale of assets, borrowings under our credit facility and debt and equity issuances. Our cash obligations include the minimum lease payments on our ground leases, which in 2021 are approximately$32 million . For a summary of our obligations under our ground leases, see Exhibit 99.1 to this Annual Report. Our ground lease payments are the longest time horizon obligations and currently run up to 91 years, while other operating obligations are generally short term in nature. We have no significant debt maturities until 2023. In addition to the liabilities on our consolidated balance sheet, under our capital expenditures program, we have budgeted to spend$375 million to$475 million in 2021, but have the ability to reduce this spend by approximately$150 million if required to conserve cash. Commitments for capital expenditures generally run less than two years for the life of the project. As a REIT,Host Inc. is required to pay dividends to its stockholders in an amount equal to at least 90% of its taxable income, excluding net capital gain, on an annual basis. As part of our COVID-19 response, our regular quarterly common cash dividend currently is suspended and we are restricted from repurchasing stock or OP Units under the terms of our credit facility amendment as discussed below. See also Part II Item 8. "Financial Statements and Supplementary Data - Note 17. Legal Proceedings, Guarantees and Contingencies" for a discussion of obligations under contingent liabilities or guarantees. Capital Resources. As ofDecember 31, 2020 , we had$2,335 million of cash and cash equivalents, and$139 million in our FF&E escrow reserve. We have substantially utilized the$1.5 billion revolver under our credit facility to increase our liquidity in response to the COVID-19 pandemic. In the near term, we expect to fund our above cash requirements, including our capital expenditures program, debt payments, operating and corporate costs, primarily with our existing cash reserves due to the negative operating cash from operations as a result of the COVID-19 pandemic. Based on our cash balance atDecember 31, 2020 and our expected cash obligations, we believe we will have sufficient liquidity to meet our near-term obligations, even if our hotel operations remain at current negative operating levels. We depend primarily on external sources of capital to finance future growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility (including our ability to incur debt, pay dividends, make distributions and make investments) is contingent on our ability to maintain compliance with the financial covenants of our credit facility and senior notes, which include, among other things, the allowable amounts of leverage, interest coverage and fixed charges. Following the amendments of our credit facility agreement discussed below, the quarterly-tested financial covenants were waived beginningJuly 1, 2020 until the required financial statement reporting date for the second quarter of 2022. However, we currently are below the interest coverage ratio required under our senior notes indentures to incur additional debt and, while not an event of default, we will be unable to incur additional debt while we remain below the required covenant level. 47
-------------------------------------------------------------------------------- Given the total amount of our debt and our maturity schedule, we may continue to redeem or repurchase senior notes from time to time, taking advantage of favorable market conditions. InFebruary 2021 ,Host Inc.'s Board of Directors authorized repurchases of up to$1.0 billion of senior notes other than in accordance with their respective terms, of which the entire amount remains available under this authority. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any retirement before the maturity date will affect earnings and NAREIT FFO per diluted share as a result of the payment of any applicable call premiums and the accelerated expensing of previously deferred and capitalized financing costs. Accordingly, considering our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws and the requirements of our credit facility and senior notes, be considering, or be in discussions with respect to, the repurchase or issuance of exchangeable debentures and/or senior notes or the repurchase or sale of our common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously. InFebruary 2017 ,Host Inc.'s Board of Directors authorized a program to repurchase up to$500 million ofHost Inc. common stock, and onAugust 5, 2019 , authorized an increase in the program to$1 billion . The common stock may be purchased from time to time depending upon market conditions and may be purchased in the open market or through private transactions or by other means, including principal transactions with various financial institutions, like accelerated share repurchases, forwards, options, and similar transactions and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. Under the terms of our credit facility amendment in 2020, we currently are restricted from repurchasing stock. We continue to explore potential acquisitions and dispositions. We anticipate that any such future acquisitions will be funded primarily by proceeds from sales of hotels, but also potentially from equity offerings ofHost Inc. , issuances of OP units byHost L.P. , or available cash. Given the nature of these transactions, we can make no assurances that we will be successful in acquiring any one or more hotels that we may review, bid on or negotiate to purchase or that we will be successful in disposing of any one or more of our hotels. We may acquire additional hotels or dispose of hotels through various structures, including transactions involving single assets, portfolios, joint ventures, acquisitions of the securities or assets of other REITs or distributions of hotels to our stockholders. Sources and Uses of Cash. In 2020, our primary sources of cash included proceeds from the issuance of debt, draws on our credit facility revolver and dispositions. Our primary uses of cash during the year consisted of capital expenditures, operating costs, debt repayments, repurchases of common stock and distributions to equity holders. We do not anticipate significant cash from operations in 2021 and we are restricted from issuing debt under the covenants of our senior notes indenture. However, we have significant available cash and also have access to stock issuances and property dispositions as alternative sources of cash. Primary uses of cash are expected to include continued funding of operating shortfalls at our properties, interest and other corporate expenses and capital expenditures. Subject to market conditions, other uses of cash may include property acquisitions or other investments. Cash Provided by/Used in Operations. Our net cash used in operations for 2020 was$307 million compared to cash provided by operations in 2019 of$1,250 million due primarily to the decline in operations at our properties due to the COVID-19 pandemic and the need to fund operating shortfalls at our properties. In the first quarter of 2020, our portfolio provided cash from operations due to positive operating results in January and February. However, beginning with the second quarter, we experienced significant cash outflows from operating activities which continued through the second half of the year. However, net cash used in operations did decrease in each sequential quarter as a result of reducing operating costs at our hotels and the slightly improving levels of operations. The following presents the net cash provided by (used in) operating activities for each quarter in 2020: 2020 First Second Third Fourth Quarter Quarter Quarter Quarter Net cash provided by (used in) operating activities$ 157 $ (172 ) $
(149 )
Cash Provided by/Used in Investing Activities. Approximately$195 million of cash was used in investing activities during 2020 compared to$58 million provided in 2019. In addition to the acquisition and disposition activity detailed in the charts below, we spent approximately$499 million on capital expenditures in 2020, compared to$558 million in 2019. These amounts include certain internal costs and interest expense associated with our capital expenditures projects that have been capitalized in accordance with GAAP. These capitalized costs were$12 million ,$12 million and$11 million for 2020, 2019, and 2018, respectively. 48
-------------------------------------------------------------------------------- The following tables summarize significant acquisitions, dispositions and return of investments in affiliates fromJanuary 1, 2019 throughFebruary 19, 2021 (in millions): Transaction Date Description of Transaction Investment(1) Acquisitions February 2019 Acquisition of 1 Hotel South Beach $ (610 ) Total acquisitions $ (610 ) ___________
(1) Effective
2018-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. As a result, the acquisition above was considered an asset
acquisition and we capitalized
costs are not included in the above chart.
Net Proceeds Transaction Date Description of Transaction (1) Sales Price Dispositions/Return of Investment November 2020 Disposition of Newport Beach Marriott Hotel & Spa$ 202 $ 216 June and October 2020 Disposition of land adjacent to the Phoenician hotel (2) 72 83 January 2020 Proceeds from loan issued to Chicago Marriott Suites O'Hare purchaser(3) 28 - October 2019 Disposition of Sheraton San Diego Hotel & Marina and Hyatt Regency Cambridge 296 297 August 2019 Disposition of Atlanta Marriott Suites Midtown, Costa Mesa Marriott, Scottsdale Marriott at McDowell Mountains, and Scottsdale Marriott Old Town 247 256 August 2019 Disposition of The Westin Indianapolis 116 120 August 2019 Disposition of Chicago Marriott Suites O'Hare(3) 7 39 July 2019 Disposition of Courtyard Chicago Downtown/River North and Residence Inn Arlington Pentagon City 141 150 June 2019 Disposition of Washington Dulles Airport Marriott 9 11 April and June 2019 Disposition of The Westin Mission Hills and Newport Beach Marriott Bayview 100 107 January 2019 Disposition of The Westin New York Grand Central 276 302 Total$ 1,494 ___________
(1) Proceeds are net of transfer taxes, other sales costs and FF&E replacement
funds deposited directly to the property or hotel manager by the purchaser.
(2) In connection with the sale of a parcel of land adjacent to The Phoenician
hotel, we extended a
proceeds shown are net of the bridge loan. The loan was repaid in January
2021.
(3) In connection with the sale of the
extended a
shown are net of the bridge loan. The loan was repaid in
Cash Provided by/Used in Financing Activities. Net cash provided by financing activities was$1,231 million for 2020, as compared to net cash used in financing activities of$1,315 million in 2019. Cash provided by financing activities in 2020 primarily consisted of the issuance of$750 million of 3.5% Series I senior notes and a draw on the credit facility, while 2019 included the issuance of$650 million of senior notes. Cash used in financing activities in 2020 included the repayment of the Series C senior notes, with a portion of the proceeds from the issuance of the Series I senior notes, and the redemption of preferred OP units and cash used in 2019 included the repayment of senior notes. While cash used in 2020 and 2019 both included stock repurchases and dividend payments, payments in 2020 for these items were$638 million lower compared to 2019, as we suspended dividends and repurchases in response to the COVID-19 pandemic.
The following table summarizes significant issuances, net of deferred financing
costs and issuance discounts, that have been completed from
Transaction Date Description of Transaction Net Proceeds Debt Issuances August - September 2020 Issuance of$750 million 3.5% Series I senior notes $ 733 March - December 2020 Net draw on the revolver portion of the credit facility 1,483 September 2019 Proceeds from the issuance of$650 million 3?% Series H senior notes 640 Total issuances$ 2,856 49
-------------------------------------------------------------------------------- The following table presents significant debt repayments, including prepayment premiums, that have been completed fromJanuary 1, 2019 throughFebruary 19, 2021 (in millions): Transaction Transaction Date Description of Transaction Amount Debt Repayments December 2020 Repayment of$86 million 4.75% Series C senior notes $ (94 ) August 2020 Repayment of$364 million 4.75% Series C senior notes (390 ) July 2020 Redemption of preferred OP units of Host LP (22 ) October 2019 Redemption of$300 million of 6% Series Z senior notes (323 ) October 2019 Redemption of$350 million of 5¼% Series B senior notes (377 ) September 2019 Net repayment on the revolver portion of credit facility (56 ) Total cash repayments$ (1,262 ) Equity/Capital Transactions. The following table summarizes significant equity transactions that have been completed fromJanuary 1, 2019 throughFebruary 19, 2021 (in millions): Transaction Transaction Date Description of Transaction Amount Equity of Host Inc. January - 2020 April Dividend payments (1)$ (320 ) January - 2020 Repurchase of 8.9 million shares of Host Inc. March common stock (147 ) January - 2019 Dividend payment (1) December (623 ) May - 2019 Repurchase of 27.8 million shares of Host Inc. December common stock (482 ) Cash payments on equity transactions$ (1,572 ) ___________
(1) In connection with the dividend payments,
Financial Condition As ofDecember 31, 2020 , our total debt was approximately$5.5 billion , of which 55% carried a fixed rate of interest. Total debt was comprised of the following (in millions): As ofDecember 31, 2020 2019
Series C senior notes, with a rate of 4¾% due
$ - $
447
Series D senior notes, with a rate of 3¾% due
399
398
Series E senior notes, with a rate of 4% dueJune 2025 497
497
Series F senior notes, with a rate of 4½% dueFebruary 2026 397
397
Series G senior notes, with a rate of 3?% due
398
397
Series H senior notes, with a rate of 3?% dueDecember 2029 640
640
Series I senior notes, with a rate of 3½% dueSeptember 2030 734
-
Total senior notes 3,065
2,776
Credit facility revolver(1) 1,474 (8 ) Credit facility term loan due January 2024 498
498
Credit facility term loan dueJanuary 2025 499
499
Other debt, with an average interest rate of 8.8% and
5.6% at
5 29 Total debt$ 5,541 $ 3,794 _________
(1) There were no outstanding credit facility borrowings at
Amount shown represents deferred financing costs related to the credit facility revolver. 50
-------------------------------------------------------------------------------- Aggregate debt maturities atDecember 31, 2020 are as follows (in millions): Senior notes and credit facility Other debt Total 2021 $ - $ - $ - 2022 - - - 2023 400 - 400 2024 2,383 5 2,388 2025 1,000 - 1,000 Thereafter 1,800 - 1,800 5,583 5 5,588 Deferred financing costs (30 ) - (30 ) Unamortized discounts, net (17 ) - (17 ) $ 5,536 $ 5$ 5,541 Senior Notes. OnAugust 20, 2020 , we completed an underwritten public offering of$600 million aggregate principal amount of 3.5% Series I senior notes and onSeptember 3, 2020 , we completed the issuance of an additional$150 million aggregate principal amount of Series I senior notes. The proceeds were used to make a tender offer for our Series C senior notes and to improve our liquidity position in response to the COVID-19 pandemic. The Series I senior notes are not redeemable prior to 90 days before theSeptember 15, 2030 maturity date, except at a price equal to 100% of their principal amount plus a make-whole premium and accrued and unpaid interest to the applicable redemption date. The Series I senior notes have covenants similar to all other series of our outstanding senior notes. The following summary is a description of the material provisions of the indentures governing the various senior notes issued byHost L.P. , to which we refer collectively as the senior notes indenture. We pay interest on each series of our outstanding senior notes semi-annually in arrears at the respective annual rates indicated on the table above. Under the terms of our senior notes indenture, our senior notes are equal in right of payment with all ofHost L.P.'s unsubordinated indebtedness and senior to all subordinated obligations ofHost L.P. Currently there are no guarantees provided to the senior notes, but we have agreed that allHost L.P. subsidiaries which guarantee otherHost L.P. debt must similarly provide guarantees to the senior notes. All of our outstanding senior notes atDecember 31, 2020 were issued after we attained an investment grade rating and have covenants customary for investment grade debt and covenants that are similar to each other series of our senior notes. These covenants are primarily limitations on our ability to incur additional debt. There are no restrictions on our ability to pay dividends. Under the terms of our senior notes,Host L.P.'s ability to incur debt is subject to restrictions and the satisfaction of various conditions, including the achievement of an EBITDA-to-interest coverage ratio of at least 1.5x byHost L.P. As calculated, this ratio excludes from interest expense items such as call premiums and deferred financing charges that are included in interest expense onHost L.P.'s audited consolidated statement of operations. In addition, the calculation is based onHost L.P.'s pro forma results for the four prior fiscal quarters, giving effect to certain transactions, such as acquisitions, dispositions and financings, as if they had occurred at the beginning of the period. Other covenants limitingHost L.P.'s ability to incur debt include maintaining total debt of less than 65% of adjusted total assets (using undepreciated real estate book values), maintaining secured debt of less than 40% of adjusted total assets (using undepreciated real estate book values) and maintaining total unencumbered assets of at least 150% of the aggregate principal amount of outstanding unsecured debt ofHost L.P. and its subsidiaries. So long asHost L.P. maintains the required level of interest coverage and satisfies these and other conditions in the senior notes indenture, it may incur additional debt. The following table summarizes the financial tests contained in the senior notes indenture for our senior notes and our actual credit ratios as ofDecember 31, 2020 : Actual Ratio Covenant Requirement Unencumbered assets test 383 % Minimum ratio of 150% Total indebtedness to total assets 26 % Maximum ratio of
65%
Secured indebtedness to total assets 0 % Maximum ratio of
40%
EBITDA-to-interest coverage ratio (1.2 x) Minimum ratio of 1.5x 51
-------------------------------------------------------------------------------- We are in compliance with certain of the financial ratios applicable to our senior notes as ofDecember 31, 2020 , but we fell below the 1.5x requirement for the EBITDA-to-interest coverage ratio starting as of the end of the third quarter of 2020 and, as a result, while not in default, we will not be able to incur additional debt while the ratio remains below this requirement. We expect to continue to be below the 1.5x interest coverage ratio and hence will be unable to incur additional debt until operations substantially improve from current levels. Credit Facility. OnAugust 1, 2019 , we entered into the fifth amended and restated senior revolving credit and term loan facility, withBank of America, N.A ., as administrative agent,JPMorgan Chase Bank, N.A andWells Fargo Bank, N.A. as co-syndication agents, and certain other agents and lenders. The credit facility allows for revolving borrowings in an aggregate principal amount of up to$1.5 billion (which is substantially fully utilized). The revolver also includes a foreign currency subfacility for Canadian dollars, Australian dollars, Euros, British pounds sterling and, if available to the lenders, Mexican pesos, of up to the foreign currency equivalent of$500 million , subject to a lower amount in the case of Mexican peso borrowings. The credit facility also provides for a term loan facility of$1 billion (which is fully utilized), a subfacility of up to$100 million for swingline borrowings in currencies other thanU.S. dollars and a subfacility of up to$100 million for issuances of letters of credit.Host L.P. also has the option to add in the future$500 million of commitments which may be used for additional revolving credit facility borrowings and/or term loans, subject to obtaining additional loan commitments (which we have not currently obtained) and the satisfaction of certain conditions. The revolving credit facility has an initial scheduled maturity date ofJanuary 11, 2024 , which date may be extended by up to a year by the exercise of up to two 6-month extension options, each of which is subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties. One$500 million term loan tranche has an initial maturity date ofJanuary 11, 2024 , which date may be extended up to a year by the exercise of one 1-year extension option, which is subject to certain conditions, including the payment of an extension fee; and the second$500 million term loan tranche has a maturity date ofJanuary 9, 2025 , which date may not be extended. Neither the revolving credit facility nor the term loans, as applicable, requires any scheduled amortization payments prior to maturity, other than those required during the Covenant Relief Period as set forth below. The term loans are subject to the same terms and conditions as those in the credit facility regarding subsidiary guarantees, operational covenants, financial covenants and events of default (as discussed below). Guarantees. Similar to our senior note indentures, the credit facility requires allHost L.P. subsidiaries which guarantyHost L.P. debt to similarly guarantee obligations under the credit facility. Currently, there are no such guarantees.
Prepayments. Voluntary prepayments of revolver borrowings and term loans under the credit facility are permitted in whole or in part without premium or penalty.
Financial Covenants. The credit facility contains covenants concerning allowable leverage, fixed charge coverage and unsecured interest coverage. We are permitted to make borrowings and maintain amounts outstanding under the credit facility so long as our ratio of consolidated total debt to consolidated EBITDA ("leverage ratio") is not in excess of 7.25x, our unsecured coverage ratio is not less than 1.75x and our fixed charge coverage ratio is not less than 1.25x. Except as set forth below during the Covenant Relief Period, these calculations are performed based on pro forma results for the prior four fiscal quarters, giving effect to transactions such as acquisitions, dispositions and financings as if they had occurred at the beginning of the period. Under the terms of the credit facility, interest expense excludes items such as the gains and losses on the extinguishment of debt, deferred financing charges related to the senior notes or the credit facility, amortization of debt premiums or discounts that were recorded at issuance of a loan in order to establish its fair value and non-cash interest expense, all of which are included in interest expense on our audited consolidated statements of operations. Additionally, total debt used in the calculation of our leverage ratio is based on a "net debt" concept, pursuant to which cash and cash equivalents in excess of$100 million are deducted from our total debt balance. Amendments. OnJune 26, 2020 , we entered into an amendment to the credit facility and onFebruary 9, 2021 , we entered into a second amendment to the credit facility (collectively, the "Amendments"). The Amendments suspend requirements to comply with all existing financial maintenance covenants under the credit facility for the period which began onJuly 1, 2020 and ending on the required financial statement reporting date for the second quarter of 2022 (such period, the "Covenant Relief Period"). The existing financial maintenance covenants are reinstated for the quarter endingJune 30, 2022 , except that after the reinstatement instead of using the prior four calendar quarters' results in the calculations, only results for the second quarter of 2022 and thereafter are used during a phase in period. In addition, for the second quarter of 2022, the only financial covenant that shall be required to be satisfied shall be a minimum fixed charge coverage ratio of 1.00:1.00 as of the end of such quarter. For the fiscal quarters ending after the Covenant Relief Period (i.e., afterJune 30, 2022 ), the financial covenant requirements set forth in the credit facility before the Amendments shall apply, except that the maximum leverage ratio requirement will be amended to be (a) 8.50:1:00 as at the end of the first and second fiscal quarters ending after the Covenant Relief Period, (b) 8.00:1.00 as at the end of the third and fourth fiscal quarters ending after the Covenant Relief Period, (c) 7.50:1:00 as at the end of the fifth fiscal quarter ending after the Covenant Relief 52 -------------------------------------------------------------------------------- Period and (d) 7.25:1.00 at all times thereafter. The Amendments permit us to terminate the Covenant Relief Period at any time, subject to demonstrating satisfaction of the financial maintenance covenants that otherwise would apply for the quarter endingJune 30, 2022 .
The Amendments also provide for, among other things:
• an increase in the interest rate applicable to outstanding borrowings during
the Covenant Relief Period, with the rate being increased by 40 basis points
to the applicable rate across the credit rating-based pricing grid determined according to our unsecured long-term debt rating;
• the addition of a permanent LIBOR floor of 15 basis points applicable to
borrowings under the revolver and the term facilities;
• the addition of a minimum liquidity covenant, which requires a minimum
liquidity level of
end of the Covenant Relief Period (subject to potential increase in the case
of any future acquisitions of hotels, but not to exceed
• during the Covenant Relief Period, additional limitations on acquisitions
which provide that we may make acquisitions including (i) property exchange
transactions governed by Section 1031 of the Internal Revenue Code, (ii)
acquisitions of up to
acquisitions of up to
of up to
may assume debt in acquisitions, if permitted under our senior notes
indenture, provided that the debt to undepreciated real estate assets ratio
shall not exceed 0.35:1.00 calculated on a pro forma basis;
• during the Covenant Relief Period, additional limitations on the ability to
make distributions and repurchases or redemptions, with certain exceptions,
including the ability to make distributions sufficient to allow for the
payment of a quarterly common cash dividend by
or higher amounts to the extent necessary to allow
REIT status or to avoid corporate income or excise taxes, and annual distributions of up to$50 million for any preferred OP units whichHost L.P. may issue;
• during the Covenant Relief Period, additional limitations on debt incurrence
such that we can incur indebtedness only if the incurrence is permitted
under our senior notes indenture;
• limitations on the ability to make stock repurchases or OP unit redemptions
following the Covenant Relief Period if the Leverage Ratio exceeds 7.25:1.00, subject to certain exceptions;
• limitations on the ability to make capital expenditures from the period
beginning on the effective date and ending on
date on which the Covenant Relief Period is terminated); during this period
we can fund all emergency, life safety and ordinary course maintenance
capital expenditures plus$950,000,000 in other capital expenditures, such as return on investment capital expenditures; and • a requirement during the Covenant Relief Period to apply the net cash proceeds in excess of$350,000,000 in the aggregate from asset sales and debt issuances (but not equity issuances) as a mandatory prepayment of
amounts outstanding under the credit facility; the mandatory prepayment
requirements for asset sales and debt issuances are subject to various
exceptions, including, among other things, (1) the net cash proceeds of
asset sales in an amount of up to
exchange transaction governed by Section 1031 of the Internal Revenue Code,
(2) net cash proceeds up to
acquire assets unencumbered by debt, (3) the net cash proceeds of debt
issuances constituting refinancing indebtedness, (4) certain indebtedness
assumed in acquisitions and (5) other indebtedness up to
Following the issuance of the Series I Senior Notes and the sale of the
cash proceeds capacity available to Host, and therefore future excess cash proceeds will be applied in accordance with the repayment terms of the
Amendments unless they fit into one of the exceptions set forth above.
In connection with each Amendment, we paid a consent fee of 7.5 basis points on the amount of each consenting lender's commitments under the revolver and term facilities. 53
--------------------------------------------------------------------------------
At
Covenant Requirement Actual Ratio for all years Leverage ratio (16.9 x) Maximum ratio of 7.25x Fixed charge coverage ratio (1.6 x) Minimum ratio of 1.25x Unsecured interest coverage ratio (1) (0.8 x) Minimum ratio of
1.75x
___________
(1) If at any time our leverage ratio is above 7.0x, our minimum unsecured
interest coverage ratio will be reduced to 1.5x.
Interest and Fees. We pay interest on revolver borrowings under the credit facility at floating rates equal to LIBOR plus a margin. Outside of the Covenant Relief Period, the margin ranges from 77.5 to 145 basis points (depending onHost L.P.'s unsecured long-term debt rating). The Amendments increased the applicable margin during the Covenant Relief Period by 40 basis points. We also pay a facility fee ranging from 12.5 to 30 basis points, depending on our rating and regardless of usage. Based onHost L.P.'s unsecured long-term debt rating as ofDecember 31, 2020 , we are able to borrow at a rate of LIBOR plus 150 basis points and pay a facility fee of 25 basis points. Outside of the Covenant Relief Period, interest on the term loans consists of floating rates equal to LIBOR plus a margin ranging from 85 to 165 basis points (depending onHost L.P.'s unsecured long-term debt rating). The Amendments also increased the applicable margin during the Covenant Relief Period by 40 basis points. Based onHost L.P.'s long-term debt rating as ofDecember 31, 2020 , our applicable margin on LIBOR loans under both term loans is 165 basis points. Borrowings under our revolver (currently$1.5 billion ) and the$1 billion outstanding in term loans constitute our primary obligations denominated in LIBOR. TheUnited Kingdom's Financial Conduct Authority , which regulates LIBOR, announced that it intends to phase out LIBOR over time. OnNovember 30, 2020 , theU.S. Federal Reserve Board expressed support for a plan to cease publication of the one week and two month LIBOR rates afterDecember 31, 2021 , and the remaining LIBOR rates afterJune 30, 2023 , and encouraged banks to transition away from LIBOR as soon as possible. Accordingly, it is highly likely that the LIBOR rates under our credit facility will be discontinued afterJune 2023 . There currently is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital cannot yet be determined. Our credit facility provides that in the event LIBOR no longer is published, we andBank of America, N.A ., as administrative agent, will amend the credit facility to provide for a comparable successor rate or, in the absence of an amendment, borrowings will be deemed converted to base rate borrowing at the higher of the federal funds rate plus ½ of 1% or the "prime rate" announced byBank of America, N.A . Other Covenants and Events of Default. The credit facility contains restrictive covenants on customary matters. Certain covenants are less restrictive at any time that our leverage ratio is below 6.0x. At any time that our leverage ratio is below 6.0x, and outside of the Covenant Waiver Period, acquisitions, investments, dividends and distributions generally are permitted except where they would result in a breach of the financial covenants, calculated on a pro forma basis. Additionally, the credit facility's restrictions on incurrence of debt incorporate the same financial covenant as set forth in our senior notes indenture. The credit facility also includes usual and customary events of default for facilities of this nature, and provides that, upon the occurrence and continuance of an event of default, payment of all amounts due under the credit facility may be accelerated and the lenders' commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts due under the credit facility automatically will become due and payable and the lenders' commitments automatically will terminate. Mortgage Debt ofUnconsolidated Joint Ventures . We own non-controlling interests in joint ventures that are not consolidated and that are accounted for under the equity method. The portion of the mortgage and other debt of these joint ventures attributable to us, based on our ownership percentage thereof, was$145 million atDecember 31, 2020 . The debt of our unconsolidated joint ventures is non-recourse to us. Distributions/Dividends.Host Inc.'s policy on common dividends generally is to distribute, over time, at least 100% of its taxable income, which primarily is dependent on our results of operations, as well as on tax gains and losses on hotel sales. After paying its regular quarterly common cash dividend of$0.20 per share for the first quarter of 2020,Host Inc. suspended its regular quarterly common cash dividend in order to preserve cash and future financial flexibility in response to the COVID-19 pandemic. Any future dividend will be subject to approval byHost Inc.'s Board of Directors. In addition, in connection with the amendments to the credit facility, we agreed to substantial limitations on our ability to pay common cash dividends during the Covenant Relief Period as discussed above. 54 -------------------------------------------------------------------------------- Funds used byHost Inc. to pay dividends are provided by distributions fromHost L.P. As ofDecember 31, 2020 ,Host Inc. is the owner of approximately 99% ofHost L.P.'s common OP units. The remaining common OP units are owned by various unaffiliated limited partners. Each OP unit may be offered for redemption by the limited partners for cash or, at the election ofHost Inc. ,Host Inc. common stock based on the then current conversion ratio. The current conversion ratio is 1.021494 shares ofHost Inc. common stock for each OP unit. During the Covenant Relief Period, all redemptions must be made withHost Inc. common stock. Investors should consider the 1% non-controlling position ofHost L.P. OP units when analyzing dividend payments byHost Inc. to its stockholders, as these holders of OP units share, on a pro rata basis, in amounts being distributed byHost L.P. to holders of its OP units. For example, ifHost Inc. paid a$1 per share dividend on its common stock, it would be based on the payment of a$1.021494 per common OP unit distribution byHost L.P. toHost Inc. , as well as to the other common OP unitholders. Counterparty Credit Risk. We are subject to counterparty credit risk, which relates to the ability of counterparties to meet their contractual payment obligations or the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We assess the ability of our counterparties to fulfill their obligations to determine the impact, if any, of counterparty bankruptcy or insolvency on our financial condition. We are exposed to credit risk with respect to cash held at various financial institutions and access to our credit facility. We believe our credit exposure in each of these cases is limited, as the credit risk is spread among a diversified group of investment grade financial institutions.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity withU.S. GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments, including those related to the impairment of long-lived assets, on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All our significant accounting policies are disclosed in the notes to our consolidated financial statements. For a detailed discussion of the following critical accounting policies that require us to exercise our business judgment or make significant estimates, see "Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies":
• Asset Acquisitions and Business Combinations; and
• Property and Equipment - Impairment testing.
All
To facilitate a year-over-year comparison of our operations, we typically present certain operating statistics (i.e., Total RevPAR, RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in this annual report on a comparable hotel basis in order to enable our investors to better evaluate our operating performance. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between periods. For this reason, we temporarily are suspending our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results on a pro forma basis, including the following adjustments: (1) operating results are presented for all consolidated hotels owned as ofDecember 31, 2020 , but do not include the results of operations for properties sold in 2019 or through the reporting date; and (2) operating results for acquisitions in the current and prior year are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results.
Constant US$ and Nominal US$
Operating results denominated in foreign currencies are translated using the prevailing exchange rates on the date of the transaction, or monthly based on the weighted average exchange rate for the period. For comparative purposes, we also present the RevPAR results for the prior year assuming the results of our foreign operations were translated using the same exchange rates that were effective for the comparable periods in the current year, thereby eliminating the effect of currency fluctuation for the year-over-year comparisons. We believe that this presentation is useful to investors as it provides clarity with respect to the growth in RevPAR in the local currency of the hotel consistent with the manner in which we would evaluate our domestic portfolio. However, the effect of changes in foreign currency has been reflected in the actual results of net income, EBITDA, Adjusted EBITDAre, earnings per diluted share and Adjusted FFO per diluted share. Nominal US$ results include the effect of currency fluctuations consistent with our financial statement presentation. 55 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
We use certain "non-GAAP financial measures," which are measures of our historical financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicableSEC rules. These measures are as follows: (i) EBITDA, EBITDAre and Adjusted EBITDAre as a measure of performance forHost Inc. andHost L.P. , (ii) Funds From Operations ("FFO") and FFO per diluted share (both NAREIT and Adjusted), as a measure of performance forHost Inc. , and (iii) all owned hotel pro forma operating results, as a measure of performance forHost Inc. andHost L.P. We calculate EBITDAre and NAREIT FFO per diluted share in accordance with standards established by NAREIT, which may not be comparable to measures calculated by other companies that do not use the NAREIT definition of EBITDAre and FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. In addition, although EBITDAre and FFO per diluted share are useful measures when comparing our results to other REITs, they may not be helpful to investors when comparing us to non-REITs. We also calculate Adjusted FFO per diluted share and Adjusted EBITDAre, which measures are not in accordance with NAREIT guidance and may not be comparable to measures calculated by other REITs or 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, EBITDAre, and Adjusted EBITDAre purposes only) severance expense related to significant property-level reconfiguration and other items have been, and will be, made and are not reflected in the EBITDA, EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted 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 statements of operations and consolidated statements of 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, NAREIT FFO per diluted share, Adjusted FFO per diluted share, EBITDA, EBITDAre and Adjusted EBITDAre should not be considered as measures of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions. In addition, NAREIT FFO per diluted share and Adjusted FFO per diluted share do not measure, and should not be used as measures of, amounts that accrue directly to stockholders' benefit. Similarly, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of our equity investments and NAREIT FFO and Adjusted FFO include adjustments for non-controlling partners in consolidated partnerships. Our equity investments consist of interests ranging from 11% to 67% in seven domestic and international partnerships that own a total of 10 hotels and a vacation ownership development. Due to the voting rights of the outside owners, we do not control and, therefore, do not consolidate these entities. The non-controlling partners in consolidated partnerships primarily consist of the approximate 1% interest inHost LP held by unaffiliated limited partners and a 15% interest held by an unaffiliated limited partner in one hotel for which we do control the entity and, therefore, consolidate its operations. These pro rata results for NAREIT FFO and Adjusted FFO per diluted share, EBITDAre and Adjusted EBITDAre are calculated as set forth below. Readers should be cautioned that the pro rata results presented in these measures for consolidated partnerships (for NAREIT FFO and Adjusted FFO per diluted share) and equity investments may not accurately depict the legal and economic consequences of our investments in these entities. The following discussion defines these terms and presents why we believe they are useful measures of our performance.
EBITDA, EBITDAre and Adjusted EBITDAre
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 after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners 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 and Adjusted FFO per diluted share, it is widely used by management in the annual budget process and for compensation programs.
EBITDAre and Adjusted EBITDAre
We present EBITDAre in accordance with NAREIT guidelines, as defined in itsSeptember 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate," to provide an additional performance measure to facilitate the evaluation and comparison of our results with other REITs. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) excluding interest expense, income tax, depreciation and amortization, gains or losses on disposition of depreciated property (including gains or losses on change of control), impairment expense for depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and adjustments to reflect the entity's pro rata share of EBITDAre of unconsolidated affiliates. 56 -------------------------------------------------------------------------------- We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor's understanding of our operating performance. Adjusted EBITDAre also is similar to what is used in calculating certain credit ratios for our credit facility and senior notes. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:
• Property Insurance Gains - We exclude the effect of property insurance gains
reflected in our consolidated statements of operations because we believe
that including them in Adjusted EBITDAre is not consistent with reflecting
the ongoing performance of our assets. In addition, property insurance gains
could be less important to investors given that the depreciated asset book
value written off in connection with the calculation of the property insurance gain often does not reflect the market value of real estate assets.
• Acquisition Costs - Under GAAP, costs associated with completed property
acquisitions that are considered business combinations are expensed in the
year incurred. We exclude the effect of these costs because we believe they
are not reflective of the ongoing performance of the company.
• Litigation Gains and Losses - We exclude the effect of gains or losses
associated with litigation recorded under GAAP that we consider outside the
ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.
• Severance Expense - Effective for 2020, in certain circumstances, we will add
back hotel-level severance expenses when we do not believe that such expenses
are reflective of the ongoing operation of our properties. Situations that
would result in a severance add-back include, but are not limited to: (i)
costs incurred as part of a broad-based reconfiguration of the operating
model with the specific hotel operator for a portfolio of hotels and (ii)
costs incurred at a specific hotel due to a broad-based and significant
reconfiguration of a hotel and/or its workforce. We do not add back
corporate-level severance costs or severance costs at an individual hotel
that we consider to be incurred in the normal course of business.
In unusual circumstances, we also may adjust EBITDAre for gains or losses that management believes are not representative of the Company's current operating performance. The last such adjustment of this nature was a 2013 exclusion of a gain from an eminent domain claim. The following table provides a reconciliation of EBITDA, EBITDAre, and Adjusted EBITDAre to net income (loss), the financial measure calculated and presented in accordance with GAAP that we consider the most directly comparable:
Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre
for
(in millions) Year ended December 31, 2020 2019 Net income (loss) (1)$ (741 ) $ 932 Interest expense 194 222 Depreciation and amortization 665 662 Income taxes (220 ) 30 EBITDA (1) (102 ) 1,846 Gain on dispositions (2) (149 ) (334 ) Non-cash impairment expense - 14 Equity investment adjustments: Equity in (earnings) losses of affiliates 30 (14 ) Pro rata EBITDAre of equity investments (12 ) 26 EBITDAre (1) (233 ) 1,538 Adjustments to EBITDAre: Severance at hotel properties (3) 65 - Gain on property insurance settlement - (4 ) Adjusted EBITDAre (1)$ (168 ) $ 1,534 ___________
(1) Net income (loss), EBITDA, EBITDAre, Adjusted EBITDAre, NAREIT FFO and
Adjusted FFO for the year ended
million from the sale of land adjacent to The Phoenician hotel and a loss of
timeshare joint venture, reflected through equity in (earnings) losses of
affiliates.
(2) Reflects the sale of one hotel in 2020 and 14 hotels in 2019.
(3) Including severance costs, our Adjusted EBITDAre and Adjusted FFO would have
been$(233) and$(184) million , respectively, for 2020. 57
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FFO Measures
We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period in accordance with NAREIT guidelines. EffectiveJanuary 1, 2019 , we adopted NAREIT's definition of FFO included in NAREIT's Funds From Operations White Paper - 2018 Restatement. The adoption did not result in a change in the way we calculate NAREIT FFO. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding depreciation and amortization related to certain real estate assets, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment expense of certain real estate assets and investments and adjustments for consolidated partially-owned entities and unconsolidated affiliates. Adjustments for consolidated partially-owned entities and unconsolidated affiliates are calculated to reflect our pro rata share of the FFO of those entities on the same basis. We believe that NAREIT FFO per diluted share is a useful supplemental measure of our operating performance and that the presentation of NAREIT 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, impairment expense and gains and losses from sales of depreciable 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 NAREIT 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 Funds From Operations White Paper - 2018 Restatement, the primary purpose for including FFO as a supplemental measure of operating performance of a REIT is to address the artificial nature of historical cost depreciation and amortization of real estate and real estate-related assets mandated by GAAP. For these reasons, NAREIT adopted the FFO metric in order to promote a uniform industry-wide measure of REIT operating performance. We also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our annual budget process and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor's understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:
• Gains and Losses on the Extinguishment of Debt - We exclude the effect of
finance charges and premiums associated with the extinguishment of debt,
including the acceleration of the write off of deferred financing costs
from the original issuance of the debt being redeemed or retired and
incremental interest expense incurred during the refinancing period. We
also exclude the gains on debt repurchases and the original issuance costs
associated with the retirement of preferred stock. We believe that these
items are not reflective of our ongoing finance costs.
• Acquisition Costs -Under GAAP, costs associated with completed property
acquisitions that are considered business combinations are expensed in the
year incurred. We exclude the effect of these costs because we believe they
are not reflective of the ongoing performance of the company.
• Litigation Gains and Losses - We exclude the effect of gains or losses
associated with litigation recorded under GAAP that we consider outside the
ordinary course of business. We believe that including these items is not
consistent with our ongoing operating performance.
• Severance Expense - Effective for 2020, in certain circumstances, we will
add back hotel-level severance expenses when we do not believe that such
expenses are reflective of the ongoing operation of our properties.
Situations that would result in a severance add back include, but are not
limited to: (i) costs incurred as part of a broad-based reconfiguration of
the operating model with the specific hotel operator for a portfolio of
hotels and (ii) costs incurred at a specific hotel due to a broad-based and
significant reconfiguration of a hotel and/or its workforce. We do not add
back corporate-level severance costs or severance costs at an individual
hotel that we consider to be incurred in the normal course of business.
In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that management believes are not representative of our current operating performance. For example, in 2017, as a result of the reduction of theU.S. federal corporate income tax rate from 35% to 21% by the Tax Cuts and Jobs Act, we remeasured our domestic deferred tax assets as ofDecember 31, 2017 and recorded a one-time adjustment to reduce our deferred tax assets and increase the provision for income taxes by approximately$11 million . We do not consider this adjustment to be reflective of our ongoing operating performance and, therefore, we excluded this item from Adjusted FFO. 58
-------------------------------------------------------------------------------- The following table provides a reconciliation of the differences between our non-GAAP financial measures, NAREIT FFO and Adjusted FFO (separately and on a per diluted share basis), and net income (loss), the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable:Host Inc. Reconciliation of Diluted Earnings (Loss) per Common Share to NAREIT and Adjusted Funds From Operations per Diluted Share (in millions, except per share amount) Year ended December 31, 2020 2019 Net income (loss) (1) $ (741 ) $
932
Less: Net (income) loss attributable to
non-controlling interests 9 (12 ) Net income (loss) attributable to Host Inc. (732 ) 920 Adjustments: Gain on dispositions (2) (149 ) (334 ) Tax on dispositions (3 ) (6 ) Gain on property insurance settlement - (4 ) Depreciation and amortization 663
657
Non-cash impairment expense - 6 Equity investment adjustments: Equity in (earnings) losses of affiliates 30 (14 ) Pro rata FFO of equity investments (21 ) 20 Consolidated partnership adjustments: FFO adjustment for non-controlling partnerships (1 ) - FFO adjustments for non-controlling interests of Host L.P. (6 ) (3 ) NAREIT FFO (1) (219 ) 1,242 Adjustments to NAREIT FFO: Loss on debt extinguishment 36 57 Severance at hotel properties (3) 65 - Loss attributable to non-controlling interests (1 ) (1 ) Adjusted FFO (1) $ (119 ) $
1,298
For calculation on a per share basis (4):
Diluted weighted average shares outstanding - EPS, NAREIT FFO and Adjusted FFO 705.9
731.1
Diluted earnings (loss) per common share $ (1.04 ) $
1.26
NAREIT FFO per diluted share $ (.31 ) $
1.70
Adjusted FFO per diluted share $ (.17 ) $ 1.78 ___________
(1-3) Refer to the corresponding footnote on the Reconciliation of Net Income to
EBITDA, EBITDAre and Adjusted EBITDAre for
(4) Earnings per diluted share and NAREIT FFO and Adjusted FFO per diluted share
are adjusted for the effects of dilutive securities. Dilutive securities may
include shares granted under comprehensive stock plans, preferred OP units
held by non-controlling limited partners, exchangeable debt securities and
other non-controlling interests that have the option to convert their limited
partner interests to common OP units. No effect is shown for securities if they are anti-dilutive. 59
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All
We present certain operating results for our hotels, such as hotel revenues, expenses, food and beverage profit, and EBITDA (and the related margins), on a hotel-level pro forma basis as supplemental information for our investors. Our hotel results reflect the operating results of our hotels as discussed in "AllOwned Hotel Operating Statistics and Results" above. We present all owned hotel EBITDA to help us and our investors evaluate the ongoing operating performance of our hotels after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization expense). Corporate-level costs and expenses also are removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information about the ongoing operating performance of our hotels. All owned hotel results are presented both by location and for our properties in the aggregate. While severance expense is not uncommon at the individual property level in the normal course of business, we eliminate from our hotel level operating results severance costs related to broad-based and significant property-level reconfiguration that is not considered to be within the normal course of business, as we believe this elimination provides useful supplemental information that is beneficial to an investor's understanding of our ongoing operating performance. We also eliminate depreciation and amortization expense because, even though depreciation and amortization expense are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values historically have risen or fallen with market conditions, many real estate industry investors have considered presentation of historical cost accounting for operating results to be insufficient. Because of the elimination of corporate-level costs and expenses, gains or losses on disposition, certain severance expenses and depreciation and amortization expense, the hotel operating results we present do not represent our total revenues, expenses, operating profit or net income and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance. While management believes that presentation of all owned hotel results is a supplemental measure that provides useful information in evaluating our ongoing performance, this measure is not used to allocate resources or to assess the operating performance of each of our hotels, as these decisions are based on data for individual hotels and are not based on all owned hotel results in the aggregate. For these reasons, we believe all owned hotel operating results, when combined with the presentation of GAAP operating profit, revenues and expenses, provide useful information to investors and management. 60 --------------------------------------------------------------------------------
The following table presents certain operating results and statistics for our all owned hotel pro forma results for the periods presented herein:
AllOwned Hotel Pro Forma Results forHost Inc. andHost L.P. (in millions, except hotel statistics) Year ended December 31, 2020 2019 Number of hotels 79 79 Number of rooms 46,142 46,142 Change in hotel Total RevPAR - Constant US$ (69.4 )% - Nominal US$ (69.5 )% - Change in hotel RevPAR - Constant US$ (70.3 )% - Nominal US$ (70.3 )% - Operating profit (loss) margin (1) (58.8 )% 14.6 % All Owned Hotel Pro Forma EBITDA margin (1) (8.5 )% 28.8 % Food and beverage profit margin (1) 1.4 % 32.0 %All Owned Hotel Pro Forma food and beverage profit margin (1) 9.2 % 32.0 % Net income (loss) $ (741 ) $ 932 Depreciation and amortization 665
676
Interest expense 194
222
Provision (benefit) for income taxes (220 )
30
Gain on sale of property and corporate level
income/expense (97 ) (283 ) Severance at hotel properties (2) 65 - Pro forma adjustments (3) (3 ) (84 ) All Owned Hotel Pro Forma EBITDA $ (137 )$ 1,493 Year ended December 31, 2020
Year ended
Adjustments Adjustments Severance at All Owned All Owned hotel Depreciation andHotel Pro Depreciation andHotel Pro properties Pro forma corporate level Forma Results Pro forma corporate level Forma Results GAAP Results (2) adjustments (3) items (3) GAAP Results adjustments (3) items (3) Revenues Room $ 976 $ - $ (10 ) $ - $ 966$ 3,431 $ (184 ) $ -$ 3,247 Food and beverage 426 - (3 ) - 423 1,647 (71 ) - 1,576 Other 218 - (3 ) - 215 391 (24 ) - 367 Total revenues 1,620 - (16 ) - 1,604 5,469 (279 ) - 5,190 Expenses Room 362 (15 ) (3 ) - 344 873 (45 ) - 828 Food and beverage 420 (33 ) (3 ) - 384 1,120 (49 ) - 1,071 Other 1,037 (17 ) (7 ) - 1,013 1,899 (101 ) - 1,798 Depreciation and amortization 665 - - (665 ) - 676 - (676 ) - Corporate and other expenses 89 - - (89 ) - 107 - (107 ) - Gain on insurance and business interruption settlements - - - - - (5 ) - 5 - Total expenses 2,573 (65 ) (13 ) (754 ) 1,741 4,670 (195 ) (778 ) 3,697 Operating Profit - AllOwned Hotel Pro Forma EBITDA$ (953 ) $ 65 $ (3 ) $ 754 $ (137 ) $ 799 $ (84 ) $ 778$ 1,493 ___________
(1) Profit margins are calculated by dividing the applicable operating profit by
the related revenue amount. GAAP operating profit margins are calculated
using amounts presented in the consolidated statements of operations.
Comparable hotel margins are calculated using amounts presented in the above
table.
(2) Including severance costs, our
(3) Pro forma adjustments represent the following items: (i) the elimination of
results of operations of our sold hotels, which operations are included in
our consolidated statements of operations as continuing operations and (ii)
the addition of results for periods prior to our ownership for hotels
acquired during the presented periods. For this presentation, we no longer
adjust for certain items such as the results of our leased office buildings
and other non-hotel revenue and expense items, and they are included in the
AllOwned Hotel Pro Forma results. 61
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