11.

Acquisitions

We record the assets acquired, liabilities assumed and non-controlling interests at the estimated fair value on the date of purchase. Acquisition-related costs, such as broker fees, due diligence costs, transfer taxes and legal and accounting fees, are expensed in the period incurred and are not capitalized or applied in determining the fair value of the acquired assets. During the second quarter of 2011, we acquired one hotel property. For the acquisitions described below, we recorded approximately $4 million of acquisition-related expenses year-to-date, $1 million of which were incurred in the second quarter of 2011. These costs are included in corporate and other expenses on the consolidated statement of operations. The purchase price allocations are estimated based on available information, however, we are still in the process of finalizing our accounting for the transactions below:

•

On April 29, 2011, we acquired a 75% common voting interest and a preferred interest in Plenary Holdings No. 4 Pty Ltd, the joint venture that indirectly owns the 364-room Hilton Melbourne South Wharf, Australia. The total transaction value, including the 25% voting interest retained by the previous owners, is AUD 142 million ($152 million) and includes the assumption of an existing AUD 80 million ($86 million) mortgage loan. We drew $50 million on the credit facility to fund the acquisition, which was repaid during the second quarter of 2011. We are entitled to receive a cumulative priority return of 12% based on our initial investment of AUD 45 million ($48 million) plus 75% of the distributable cash after our partner’s subordinated preferred interest.

•

During the first quarter of 2011, we acquired the 775-room New York Helmsley Hotel for $313.5 million, the 1,625-room Manchester Grand Hyatt San Diego for $572 million and a portfolio of seven hotels containing 1,207 rooms in New Zealand for approximately $145 million.

On February 22, 2011, Christchurch, New Zealand experienced an earthquake that resulted in substantial damage to two of the acquired hotels, Hotel Novotel Christchurch Cathedral Square and the Hotel ibis Christchurch. Currently, the hotels remain closed and largely inaccessible, as the New Zealand Ministry of Civil Defense and Emergency Management has restricted access to the area. Based on limited preliminary reviews, the overall structures of our properties remain intact; however, portions of our buildings, particularly the historic portion (39 rooms) of the Novotel property, have experienced significant damage. The properties are expected to remain closed until at least the second quarter of 2012 and potentially longer. We believe we have sufficient coverage under the insurance policy of our property manager for both property and business interruption. We estimate that the economic loss will be capped at approximately $3 million based on the maximum deductible under our insurance policy and have accrued the loss in the second quarter. The city experienced a second significant earthquake on June 13, 2011. While information about additional damage is limited, we do not believe it was significant and have not accrued any additional losses.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in our acquisitions (in millions):


Property and equipment	$	1,164
Restricted cash, FF&E reserves and other assets		19

Total assets		1,183


Mortgage debt		86
Other liabilities		6

Total net assets acquired	$	1,091

Our summarized unaudited consolidated pro forma results of operations, assuming the 2011 acquisitions occurred on January 1, 2010, are as follows (in millions, except per share amounts):


	Quarter ended					Year-to-date ended
	June 17, 2011			June 18, 2010		June 17, 2011			June 18, 2010
Revenues	$	1,311		$	1,174	$	2,255		$	2,032
Income (loss) from continuing operations		69			22		17			(61	)
Net income (loss)		66			22		13			(63	)

Host Inc.:
Net income (loss) available to common shareholders		64			15		11			(72	)
Basic earnings (loss) per common share:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Basic earnings (loss) per common share	$	.09		$	.02	$	.02		$	(.11	)


Diluted earnings (loss) per common share:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Diluted earnings (loss) per common share	$	.09		$	.02	$	.02		$	(.11	)

Host L.P.:
Net income (loss) available to common unitholders		65			15		11			(73	)
Basic earnings (loss) per common unit:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Basic earnings (loss) per common unit	$	.09		$	.02	$	.02		$	(.11	)


Diluted earnings (loss) per common unit:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Diluted earnings (loss) per common unit	$	.09		$	.02	$	.02		$	(.11	)

The above pro forma results of operations exclude $1 million and $4 million of acquisitions costs for the quarter and year-to-date periods ended June 17, 2011, respectively. For the second quarter and year-to-date 2011, we have included approximately $55 million and $56 million of revenues, respectively, and $4 million of net income for each of the periods, respectively, in our consolidated statements of operations related to the operations of our 2011 acquisitions.

On July 14, 2011, the Company reached an agreement to acquire the 888-room Grand Hyatt Washington, D.C. for $442 million, which may include the assumption of a $166 million mortgage loan. The Grand Hyatt, which includes over 43,000 square feet of meeting space, is centrally located in the nation’s capital. The transaction is expected to be completed in September and is subject to customary closing conditions.