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Park Hotels & Resorts Inc. Reports Fourth Quarter and Full Year 2017 Results

Full Year 2017 Comparable RevPAR was $163.49, an increase of 0.7% on a Pro-forma basis from the same period in 2016; excluding the effect of hurricanes on Key West hotels, Comparable RevPAR increased 0.9% from the same period in 2016

Park Hotels & Resorts Inc. (NYSE: PK) last week announced results for the fourth quarter and full year ended December 31, 2017. Highlights include:

Fourth Quarter 2017 Highlights

Full Year 2017 Highlights

Thomas J. Baltimore, Jr., Chairman, President and Chief Executive Officer, stated, “I’m incredibly proud of our team and our accomplishments in our first year as an independent company. We’ve made great strides in closing the margin gap with our peers, returned nearly $1 billion in cash and stock dividends to stockholders and have made tremendous progress on our capital recycling program through the sale of 12 non-core hotels for gross proceeds of $379 million. We remain encouraged by the most recent economic data and improved business sentiment as we move into 2018, which we believe will translate into stronger operating fundamentals over the next 12 months.”

 

Selected Statistical and Financial Information

(unaudited, dollars in millions, except per share data, Comparable RevPAR and Comparable ADR)

             
    Three Months Ended December 31,   Year Ended December 31,
    2017   2016   Change   2017   2016   Change
Comparable RevPAR(1)(2)   $ 159.50     $ 156.85       1.7 %   $ 163.49     $ 162.30       0.7 %
Comparable Occupancy(1)(2)     78.7 %     78.3 %     0.4 % pts     81.1 %     81.3 %     (0.2 )% pts
Comparable ADR(1)(2)   $ 202.57     $ 200.40       1.1 %   $ 201.56     $ 199.70       0.9 %
                                                 
Net income(3)   $ 61     $ 17     NM(4)     $ 2,631     $ 139     NM(4)  
Net income attributable to stockholders(3)   $ 60     $ 17     NM(4)     $ 2,625     $ 133     NM(4)  
                                                 
Adjusted EBITDA(1)   $ 180     $ 186       (3.2 )%   $ 757     $ 764       (0.9 )%
Comparable Hotel Adjusted EBITDA(1)(2)   $ 175     $ 166       5.4 %   $ 709     $ 702       1.0 %
Comparable Hotel Adjusted EBITDA margin(1)(2)     27.8 %     27.1 %     70 bps     28.1 %     28.3 %     (20 ) bps
Adjusted FFO attributable to stockholders(1)   $ 145     $ 140       3.6 %   $ 596     $ 586       1.7 %
                                                 
Earnings per share – Diluted(3)(5)   $ 0.28     $ 0.09             $ 12.21     $ 0.67          
Adjusted FFO per share – Diluted(1)(5)   $ 0.68     $ 0.72             $ 2.78     $ 2.97          
Weighted average shares outstanding – Diluted     215       198               214       198          

____________________________

(1)   For 2016, amounts are calculated on a Pro-forma basis.
(2)   Excludes unconsolidated joint ventures.
(3)   Includes net deferred tax expense of $9 million and net deferred tax benefit of $2,347 million recognized for the quarter and year ended December 31, 2017, respectively, from the derecognition and remeasurement of deferred tax liabilities associated with Park’s intent to be taxed as a REIT.
(4)   Percentage change is not meaningful.
(5)   For 2016, per share amounts were calculated using the number of shares of common stock outstanding upon the completion of Park’s spin-off from Hilton Worldwide Holdings Inc. Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented; therefore, the sum of the quarterly per share amounts do not equal the per share amounts for the full year.
     

Hurricanes Irma and Maria

Hurricanes Irma and Maria caused damage and disruption at certain of Park’s hotels located in Florida and Puerto Rico in September 2017. The majority of Park’s hotels in Florida sustained minor damage and remained open, while its two hotels in Key West, the Casa Marina, a Waldorf Astoria Resort and The Reach, a Waldorf Astoria Resort, sustained moderate damage and disruption and were closed for several weeks. Additionally, Park’s hotel in Puerto Rico, the Caribe Hilton, sustained significant damage and currently remains closed. Park recognized total casualty losses, net of $16 million for the year ended December 31, 2017, which represent losses up to the amount of its deductibles. Park expects the Caribe Hilton in Puerto Rico to remain closed for almost all of 2018; therefore, the results of operations of that property are presented as non-comparable. Park expects that insurance proceeds, excluding any applicable insurance deductibles, will be sufficient to cover a significant portion of the property damage to the hotels and the near-term loss of business. Park received $2 million of insurance proceeds in the fourth quarter of 2017 and $16 million in January 2018 for both Key West hotels and the Caribe Hilton.

Dispositions

In January 2018, Park sold the Hilton Rotterdam for a sales price of approximately $62 million. In February 2018, Park sold 11 hotels, including a portfolio of three Embassy Suites hotels (Embassy Suites by Hilton Kansas City Overland Park, Embassy Suites by Hilton San Rafael Marin County and Embassy Suites by Hilton Atlanta Perimeter Center) for an aggregate sales price of approximately $96 million, a portfolio of seven hotels located in the United Kingdom (Hilton Blackpool, Hilton Belfast, Hilton London Angel Islington, Hilton Edinburgh Grosvenor, Hilton Coylumbridge, Hilton Bath City and Hilton Milton Keynes) for an aggregate sales price of approximately $189 million and the Hilton Durban for a sales price of $33 million. When adjusted for Park’s anticipated capital expenditures of $132 million for the 12 hotels, the proceeds represent a 5.5% capitalization rate on the portfolio’s 2017 net operating income (7.4% excluding capex), or 15.3x the portfolio’s 2017 EBITDA (11.3x excluding capex).

Total Consolidated Comparable Hotels

Comparable RevPAR increased 1.7% for the quarter and 0.7% for the year, on a Pro-forma basis, due to a 0.4% pts increase in occupancy during the quarter, as well as a 1.1% and 0.9% increase in rate, respectively, as compared to the same periods in 2016. Group rooms revenue increased 1.0% for the quarter and 0.6% for the full year and transient rooms revenue increased 1.6% for the quarter and 0.1% for the full year. Highlights across comparable hotels and Park’s markets include:

Top 10 Hotels

RevPAR for Park’s Top 10 Hotels, which accounts for approximately 65% of Hotel Adjusted EBITDA for the year, increased 0.3% for the quarter and declined 0.7% for the year, on a Pro-forma basis, due to decreases in occupancy for both periods and increases and decreases in rate, respectively, as compared to the same periods in 2016. Highlights within the Top 10 Hotels include:

Balance Sheet and Liquidity

Park had the following debt outstanding as of December 31, 2017:

             
(unaudited, dollars in millions)            
Debt   Collateral   Interest Rate(1)     Maturity Date  

As of
December 31,
2017

Fixed Rate Debt                      
Mortgage loan   DoubleTree Hotel Spokane City Center   3.55%     October 2020   $ 12

Commercial mortgage-backed securities loan

  Hilton San Francisco Union Square, Parc 55 San Francisco – a Hilton Hotel   4.11%     November 2023     725

Commercial mortgage-backed securities loan

  Hilton Hawaiian Village Beach Resort   4.20%     November 2026     1,275
Mortgage loan   The Fess Parker Santa Barbara Hotel – a DoubleTree Resort   4.17%     December 2026     165
Total Fixed Rate Debt(2) $ 2,177
                       
Variable Rate Debt                      

Revolving credit facility(3)

  Unsecured   L + 1.50%     December 2021(4)   $
Term loan   Unsecured   L + 1.45%     December 2021     750
Mortgage loan   DoubleTree Hotel Ontario Airport   L + 2.25%     May 2022(4)     30
Total Variable Rate Debt $ 780

____________________________

(1)   The weighted average interest rate of Park’s total debt outstanding is 3.9%. The weighted average interest rate of Park’s fixed rate debt outstanding is 4.2%.
(2)   Excludes $16 million of capital lease obligations.
(3)   $1 billion available.
(4)   Assumes the exercise of all extensions that are exercisable solely at Park’s option.
     

In December 2017, Park repaid in full its $55 million unsecured notes, which had an interest rate of 7.5%. Total cash and cash equivalents were $379 million as of December 31, 2017, including $15 million of restricted cash.

Capital Investments

Park invested $181 million in 2017 on capital improvements at its hotels, including $134 million on improvements made to guest rooms, lobbies and other guest-facing areas. Key projects include:

Dividends

Park declared a fourth quarter 2017 cash dividend of $0.55 per share to stockholders of record as of December 29, 2017. The fourth quarter 2017 cash dividend was paid on January 16, 2018.

On February 23, 2018, Park declared a first quarter 2018 cash dividend of $0.43 per share to be paid on April 16, 2018 to stockholders of record as of March 30, 2018. All future dividends are subject to approval by Park’s Board of Directors.

Full Year 2018 Outlook

Park expects the full year 2018 operating results to be as follows:

     
(unaudited, dollars in millions, except per share amounts)    
     
    2018 Outlook
    as of March 1, 2018
Metric   Low   High
Comparable RevPAR Growth     0.0 %       2.0 %  
                     
Net income   $ 232       $ 266    
Net income attributable to stockholders   $ 227       $ 260    
Diluted earnings per share(1)   $ 1.05       $ 1.20    
                     
Adjusted EBITDA   $ 705       $ 745    
Comparable Hotel Adjusted EBITDA margin change     (80 ) bps     20   bps
Adjusted FFO per share – Diluted (1)   $ 2.59       $ 2.75    

____________________________

(1)   Per share amounts are calculated based on unrounded numbers.
     

Full year 2018 guidance is based in part on the following assumptions:

Supplemental Disclosures

In conjunction with this release, Park has furnished a financial supplement with additional disclosures on its website. Visit www.pkhotelsandresorts.com for more information. Park has no obligation to update any of the information provided to conform to actual results or changes in Park’s portfolio, capital structure or future expectations.

Annual Stockholders Meeting

Park will host its 2018 Annual Stockholders Meeting on Friday, April 27, 2018 at 11:30 am ET at 1775 Tysons Boulevard, Tysons, Virginia. Park’s Board of Directors has established the close of business on March 15, 2018 as the record date for determining those stockholders that are entitled to vote at the 2018 Annual Stockholders Meeting.

About Park

Park is a leading lodging REIT with a diverse portfolio of hotels and resorts with significant underlying real estate value. Park’s portfolio consists of 55 premium-branded hotels and resorts with over 32,000 rooms located in prime United States and international markets with high barriers to entry.

 
PARK HOTELS & RESORTS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
             
    December 31,   December 31,
    2017   2016
ASSETS                
Property and equipment, net   $ 8,311     $ 8,541  
Assets held for sale, net     37        
Investments in affiliates     84       81  
Goodwill     606       604  
Intangibles, net     41       44  
Cash and cash equivalents     364       337  
Restricted cash     15       13  
Accounts receivable, net     125       130  
Prepaid expenses     48       58  
Other assets     83       26  
TOTAL ASSETS   $ 9,714     $ 9,834  
LIABILITIES AND EQUITY                
Liabilities                
Debt   $ 2,961     $ 3,012  
Accounts payable and accrued expenses     215       167  
Due to hotel manager     141       91  
Due to Hilton Grand Vacations     138       210  
Deferred income tax liabilities     65       2,437  
Other liabilities     232       94  
Total liabilities     3,752       6,011  
Stockholders’ Equity                

Common stock, par value $0.01 per share, 6,000,000,000 shares authorized, 214,873,778 shares issued and 214,845,244 shares outstanding as of December 31, 2017

    2        
Additional paid-in capital     3,825        
Retained earnings     2,229        
Accumulated other comprehensive loss     (45 )     (67 )
Net Parent investment           3,939  
Total stockholders’ equity     6,011       3,872  
Noncontrolling interests     (49 )     (49 )
Total equity     5,962       3,823  
TOTAL LIABILITIES AND EQUITY   $ 9,714     $ 9,834  
                 
 
PARK HOTELS & RESORTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions, except share and per share data)
             
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Revenues                                
Rooms   $ 433     $ 434     $ 1,794     $ 1,795  
Food and beverage     187       183       739       719  
Ancillary hotel     49       47       194       190  
Other     17       6       64       23  
Total revenues     686       670       2,791       2,727  
                                 
Operating expenses                                
Rooms     115       114       466       464  
Food and beverage     128       128       511       503  
Other departmental and support     164       167       671       665  
Other property-level     43       46       187       181  
Management and franchise fees     34       18       141       91  
Casualty and impairment loss, net     26             26       15  
Depreciation and amortization     71       80       288       300  
Corporate general and administrative     23       26       68       71  
Other     18       4       63       19  
Total expenses     622       583       2,421       2,309  
                                 
Gain on sale of assets, net     1             1       1  
                                 
Operating income     65       87       371       419  
                                 
Interest income           1       2       2  
Interest expense     (31 )     (40 )     (124 )     (181 )
Equity in earnings from investments in affiliates     22       (13 )     40       3  
Gain (loss) on foreign currency transactions           3       (4 )     3  
Other gain (loss), net     3       (18 )           (25 )
                                 
Income before income taxes     59       20       285       221  
Income tax benefit (expense)     2       (3 )     2,346       (82 )
                                 
Net income     61       17       2,631       139  
Net income attributable to noncontrolling interests     (1 )           (6 )     (6 )
Net income attributable to stockholders   $ 60     $ 17     $ 2,625     $ 133  
                                 
Earnings per share:                                
Earnings per share – Basic   $ 0.28     $ 0.09     $ 12.38     $ 0.67  
Earnings per share – Diluted   $ 0.28     $ 0.09     $ 12.21     $ 0.67  
                                 
Weighted average shares outstanding – Basic     214       198       211       198  
Weighted average shares outstanding – Diluted     215       198       214       198  
                                 
Dividends declared per common share   $ 0.55     $     $ 1.84     $  
                                 
 
PARK HOTELS & RESORTS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
EBITDA, ADJUSTED EBITDA AND PRO-FORMA ADJUSTED EBITDA
(unaudited, in millions)
             
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Net income   $ 61     $ 17     $ 2,631     $ 139  
Depreciation and amortization expense     71       80       288       300  
Interest income           (1 )     (2 )     (2 )
Interest expense     31       40       124       181  
Income tax (benefit) expense     (2 )     3       (2,346 )     82  

Interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates

    6       5       24       24  
EBITDA     167       144       719       724  
Gain on sales of assets, net     (1 )           (1 )     (1 )
(Gain) loss on foreign currency transactions           (3 )     4       (3 )
Transition costs     4       26       9       26  
Transaction costs     2             2        
Severance costs     1             1        
Share-based compensation expense     4             14        
Casualty and impairment loss, net     24             26       15  

Impairment loss included in equity in earnings from investments in affiliates

          17             17  
Other items(1)     (21 )     16       (17 )     36  
Adjusted EBITDA     180       200       757       814  
Less: Adjusted EBITDA from hotels disposed of                       (1 )
Less: Spin-off adjustments(2)           (14 )           (49 )
Pro-forma Adjusted EBITDA   $ 180     $ 186     $ 757     $ 764  

____________________________

(1)   For 2017, includes $18 million of distributions received from investments in affiliates in excess of the investment balance that were included within Equity in earnings from investments in affiliates in the consolidated statements of comprehensive income. For 2016, includes $19 million of deferred financing costs expensed in connection with the extinguishment of CMBS debt.
(2)   Includes adjustments for incremental fees based on the terms of the post spin-off management agreements and estimated non-income taxes on certain REIT leases.
     
 
PARK HOTELS & RESORTS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
PRO-FORMA COMPARABLE HOTEL ADJUSTED EBITDA AND PRO-FORMA COMPARABLE HOTEL
ADJUSTED EBITDA MARGIN
(unaudited, dollars in millions)
             
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Pro-forma Adjusted EBITDA   $ 180     $ 186     $ 757     $ 764  
Less: Adjusted EBITDA from investments in affiliates     10       10       45       44  
Less: All other(1)     (12 )     (3 )     (46 )     (34 )
Pro-forma Hotel Adjusted EBITDA     182       179       758       754  
Less: Non-comparable hotels     7       13       49       52  
Pro-forma Comparable Hotel Adjusted EBITDA   $ 175     $ 166     $ 709     $ 702  
     
(1)  

Includes EBITDA from Park’s laundry business, services provided to HGV, estimated non-income taxes on certain REIT leases and certain corporate general and administrative expenses.

                                       
                                Three Months Ended   Year Ended
                                December 31,   December 31,
                                2017   2016   2017   2016
Total Revenues                               $ 686     $ 670     $ 2,791     $ 2,727
Less: Other revenues                                 17       6       64       23
Less: Non-comparable hotels(1)                                 38       53       201       225
Pro-forma Comparable Hotel Revenue                               $ 631     $ 611     $ 2,526     $ 2,479
     

(1)

 

Includes revenues from Park’s non-comparable hotels and rental revenues from office space and antenna leases.

                   
          Three Months Ended   Year Ended
          December 31,   December 31,
          2017   2016   2017   2016
Pro-forma Comparable Hotel Revenue         $ 631     $ 611     $ 2,526     $ 2,479  
Pro-forma Comparable Hotel Adjusted EBITDA         $ 175     $ 166     $ 709     $ 702  
Pro-forma Comparable Hotel Adjusted EBITDA margin           27.8 %     27.1 %     28.1 %     28.3 %
                                       
 
PARK HOTELS & RESORTS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
NAREIT FFO, ADJUSTED FFO AND PRO-FORMA ADJUSTED FFO
(unaudited, in millions, except per share data)
             
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Net income attributable to stockholders   $ 60     $ 17     $ 2,625     $ 133  
Depreciation and amortization expense     71       80       288       300  

Depreciation and amortization expense attributable to noncontrolling interests

                (3 )     (3 )
Gain on sale of assets, net     (1 )           (1 )     (1 )
Impairment loss     10             10       15  
Equity investment adjustments:                                

Equity in earnings from investments in affiliates

    (22 )     13       (40 )     (3 )
Pro rata FFO of investments in affiliates     26       6       52       35  
NAREIT FFO attributable to stockholders     144       116       2,931       476  
(Gain) loss on foreign currency transactions           (3 )     4       (3 )
Transition costs     4       15       9       26  
Transaction costs     2             2        
Severance costs     1             1        
Share-based compensation expense     4             14        
Casualty loss, net     14             16        
Other items(1)     (24 )     17       (2,381 )     23  
Adjusted FFO attributable to stockholders     145       145       596       522  
Less: Adjusted FFO from hotels disposed of                       (1 )
Less: Spin-off adjustments(2)           (5 )           65  
Pro-forma Adjusted FFO attributable to stockholders   $ 145     $ 140     $ 596     $ 586  
                                 
NAREIT FFO per share – Diluted(3)   $ 0.67     $ 0.59     $ 13.67     $ 2.41  
Adjusted FFO per share – Diluted(3)(4)   $ 0.68     $ 0.72     $ 2.78     $ 2.97  
Weighted average shares outstanding – Diluted     215       198       214       198  

____________________________

(1)   For 2017, includes $18 million in distributions received from investments in affiliates in December 2017, net of $7 million of income tax expense, an income tax benefit of $25 million associated with the revaluation of our deferred tax assets and liabilities related to the reduction of the corporate tax rate to 21% as a result of the enactment of the Tax Cuts and Jobs Act and net deferred tax expense of $9 million and net deferred tax benefit of $2,347 million recognized for the three months and year ended December 31, 2017, respectively, associated with Park’s intent to be taxed as a REIT. For 2016, includes costs incurred and accelerated amortization of deferred financing fees on extinguished debt. For 2016 and 2015, represents costs incurred and accelerated amortization of deferred financing fees on extinguished debt.
(2)   Includes adjustments for Park’s historical debt and related balances and interest expense to give the net effect to financing transactions that were completed prior to spin-off, incremental fees based on the terms of the post spin-off management agreements, adjustments to income tax expense based on Park’s post spin-off REIT tax structure and estimated non-income taxes on certain REIT leases.
(3)   For 2016, per share amounts were calculated using the number of shares of common stock outstanding upon the completion of the spin-off. Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented; therefore, the sum of the quarterly FFO does not equal the FFO for the full year.
(4)   For 2016, amounts are calculated on a Pro-forma basis.
     
 
PARK HOTELS & RESORTS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
2018 OUTLOOK – EBITDA AND ADJUSTED EBITDA
(unaudited, in millions)
       
    Year Ending
    December 31, 2018
    Low Case   High Case
Net income   $ 232     $ 266  
Depreciation and amortization expense     292       292  
Interest income     (2 )     (2 )
Interest expense     123       125  
Income tax expense     8       12  

Interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates

    29       29  
EBITDA     682       722  
Transition costs     5       5  
Share-based compensation expense     17       17  
Other items     1       1  
Adjusted EBITDA   $ 705     $ 745  
                 
 
PARK HOTELS & RESORTS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
2018 OUTLOOK – NAREIT FFO ATTRIBUTABLE TO STOCKHOLDERS AND
ADJUSTED FFO ATTRIBUTABLE TO STOCKHOLDERS
(unaudited, in millions except per share amounts)

 

     
    Year Ending
    December 31, 2018
    Low Case   High Case
Net income attributable to stockholders   $ 227     $ 260  
Depreciation and amortization expense     288       288  
Equity investment adjustments:                
Equity in earnings from investments in affiliates     (18 )     (18 )
Pro rata FFO of equity investments     39       39  
NAREIT FFO attributable to stockholders     536       569  
Transition costs     5       5  
Share-based compensation expense     17       17  
Other items     1       1  
Adjusted FFO attributable to stockholders   $ 559     $ 592  
Adjusted FFO per share – Diluted(1)   $ 2.59     $ 2.75  
Weighted average diluted shares outstanding     215.5       215.5  

____________________________

(1)   Per share amounts are calculated based on unrounded numbers.
     

PARK HOTELS & RESORTS INC.
DEFINITIONS

EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin

Earnings before interest expense, taxes and depreciation and amortization (“EBITDA”), presented herein, reflects net income excluding depreciation and amortization, interest income, interest expense, income taxes and interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude:

Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and corporate expenses of the Company’s consolidated hotels, including both comparable and non-comparable hotels but excluding hotels owned by unconsolidated affiliates, and is a key measure of the Company’s profitability. The Company presents Hotel Adjusted EBITDA to help the Company and its investors evaluate the ongoing operating performance of the Company’s consolidated hotels.

Hotel Adjusted EBITDA margin is calculated as Hotel Adjusted EBITDA divided by total hotel revenue.

EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are not recognized terms under United States (“U.S.”) GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, the Company’s definitions of EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.

The Company believes that EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin provide useful information to investors about the Company and its financial condition and results of operations for the following reasons: (I) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are among the measures used by the Company’s management team to make day-to-day operating decisions and evaluate its operating performance between periods and between REITs by removing the effect of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results; and (ii) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in the industry.

EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss) or other methods of analyzing the Company’s operating performance and results as reported under U.S. GAAP.

NAREIT FFO attributable to stockholders, Adjusted FFO attributable to stockholders NAREIT FFO per share – diluted and Adjusted FFO per share – diluted

NAREIT FFO attributable to stockholders and NAREIT FFO per diluted share (defined as set forth below) are presented herein as non-GAAP measures of the Company’s performance. The Company calculates funds from operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), as net income (loss) attributable to stockholders (calculated in accordance with U.S. GAAP), excluding depreciation and amortization, gains or losses on sales of assets, impairment, and the cumulative effect of changes in accounting principles, plus adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect the Company’s pro rata share of the FFO of those entities on the same basis. As noted by NAREIT in its April 2002 “White Paper on Funds From Operations,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, NAREIT adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance. The Company believes NAREIT FFO provides useful information to investors regarding its operating performance and can facilitate comparisons of operating performance between periods and between REITs. The Company’s presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently. The Company calculates NAREIT FFO per diluted share as NAREIT FFO divided by the number of fully diluted shares outstanding during a given operating period.

The Company also presents Adjusted FFO attributable to stockholders and Adjusted FFO per diluted share when evaluating its performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding the Company’s ongoing operating performance. Management historically has made the adjustments detailed below in evaluating its performance and in its annual budget process. Management believes that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of operating performance. The Company adjusts NAREIT FFO attributable to stockholders for the following items, which may occur in any period, and refers to this measure as Adjusted FFO attributable to stockholders:

Occupancy

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy measures the utilization of the Company’s hotels’ available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help management determine achievable Average Daily Rate (“ADR”) levels as demand for rooms increases or decreases.

Average Daily Rate

ADR represents rooms revenue divided by total number of room nights sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the hotel industry, and management uses ADR to assess pricing levels that the Company is able to generate by type of customer, as changes in rates have a more pronounced effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Revenue per Available Room

Revenue per Available Room (“RevPAR”) is calculated by dividing rooms revenue by total number of room nights available to guests for a given period. Management considers RevPAR to be a meaningful indicator of the Company’s performance as it provides a metric correlated to two primary and key factors of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR and ADR are presented on a currency neutral basis (prior periods are reflected using current period exchange rates), unless otherwise noted.

Comparable Hotels

The Company presents certain data for its hotels on a comparable hotel basis as supplemental information for investors. The Company defines its comparable hotels as those that: (i) were active and operating in its system since January 1st of the previous year; and (ii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results are not available. The Company presents comparable hotel results to help the Company and its investors evaluate the ongoing operating performance of its comparable hotels. Of the 58 hotels that are consolidated as of December 31, 2017, 55 hotels have been classified as comparable hotels. Due to the conversion, or planned conversions, of a significant number of rooms at the Hilton Waikoloa Village in 2017 and Embassy Suites Washington DC Georgetown in 2016 to HGV timeshare units, and due to the effects of the hurricane at the Caribe Hilton in Puerto Rico and the expected continued effects from business interruption in 2018, the results from these properties were excluded from comparable hotels. The Company’s comparable hotels as of December 31, 2016 also exclude the DoubleTree Hotel Missoula/Edgewater and the Hilton Templepatrick Hotel & Country Club, as these hotels were not retained by the Company as part of the spin-off from Hilton Worldwide Holdings Inc.

Posted by on March 5, 2018.

Categories: Financial

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