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Debt (Tables)
12 Months Ended
Dec. 31, 2011
Debt

Debt consists of the following (in millions):

 

     As of December 31,  
     2011      2010  

Series K senior notes, with a rate of 7 1/8% due November 2013

   $ —         $ 250   

Series O senior notes, with a rate of 6 3/8% due March 2015

     650         650   

Series Q senior notes, with a rate of 6 3/4% due June 2016

     800         800   

Series S senior notes, with a rate of 6 7/8% due November 2014

     498         498   

Series T senior notes, with a rate of 9% due May 2017

     390         388   

Series V senior notes, with a rate of 6% due November 2020

     500         500   

Series W senior notes, with a rate of 5 7/8% due June 2019

     496         —     

Series Y senior notes, with a rate of 6% due October 2021

     300         —     

2004 Exchangeable Senior Debentures, with a rate of 3 1/4% due April 2024

     175         325   

2007 Exchangeable Senior Debentures, with a rate of 2 5/8% due April 2027

     385         502   

2009 Exchangeable Senior Debentures, with a rate of 2 1/2% due October 2029

     342         329   

Senior notes, with rate of 10.0% due May 2012

     7         7   
  

 

 

    

 

 

 

Total senior notes

     4,543         4,249   

Credit facility

     117         58   

Mortgage debt (non-recourse) secured by $1.0 billion and $1.1 billion of real estate assets, with an average interest rate of 5.0% and 4.7% at December 31, 2011 and 2010, maturing through December 2023 (1)

     1,006         1,025   

Other

     87         145   
  

 

 

    

 

 

 

Total debt

   $ 5,753       $ 5,477   
  

 

 

    

 

 

 

 

(1) The amount of the assets stated above securing mortgage debt represents the book value of real estate assets, net of accumulated depreciation. These amounts do not represent the current fair value of the assets.
Outstanding Debentures

The following chart details our outstanding Debentures:

 

     As of December 31, 2011  
     Maturity
date
     Next put
option
date
     Redemption
date
     Outstanding
principal
amount
     Current exchange
rate for  each
$1,000 of principal
     Current
equivalent
exchange price
     Exchangeable
share
equivalents
 
                          (in millions)      (in shares)             (in shares)  

2009 Debentures

     10/15/2029         10/15/2015         10/20/2015       $ 400         71.9264       $ 13.90         28.8 million   

2007 Debentures

     4/15/2027         4/15/2012         4/20/2012         388         32.0239       $ 31.23         12.4 million   

2004 Debentures

     4/15/2024         4/15/2014         4/19/2009         175         65.5744       $ 15.25         11.5 million   
           

 

 

          

Total

            $ 963            
           

 

 

          
Initial Allocations Between Debt and Equity Components of the Debenture

The following chart details the initial allocations between the debt and equity components of the Debentures, net of the original issue discounts, based on the effective interest rate at the time of issuance, as well as the debt balances (in millions):

 

                          As of December 31, 2011  
     Initial
Face Amount
     Initial
Debt Value
     Initial
Equity Value
     Face Amount
Outstanding
     Debt Carrying
Value
     Unamortized
Discount
 

2009 Debentures

   $ 400       $ 316       $ 82       $ 400       $ 342       $ 58   

2007 Debentures

     600         502         89         388         385         3   

2004 Debentures

     500         413         76         175         175         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,500       $ 1,231       $ 247       $ 963       $ 902       $ 61   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Interest Expense for the Debentures

Interest expense recorded for the Debentures consists of the following (in millions):

 

     Year ended December 31,  
     2011      2010      2009  

Contractual interest expense (cash)

   $ 31       $ 34       $ 26   

Non-cash interest expense due to discount amortization

     31         32         27   
  

 

 

    

 

 

    

 

 

 

Total interest expense

   $ 62       $ 66       $ 53   
  

 

 

    

 

 

    

 

 

 
Mortgage Debt Issuances and Repayments

We had the following mortgage debt issuances and repayments since January 2010. Interest for our mortgage debt is payable on a monthly basis:

 

Transaction Date

  

Property

   Rate     Maturity
Date
     Amount  
                       (in millions)  

Issuances/Assumptions

          

November 2011

  

Hilton Melbourne South Wharf (1)

     6.77     11/23/2016       $ 79   

February 2011

  

New Zealand Hotel Portfolio (2)

     5.49     2/18/2016         80   

Repayments/Defeasance/Transfer

          

June 2011

  

Le Méridien Piccadilly (3)

     1.99     1/20/2012         (52

March 2011

  

Four Canadian properties

     5.2     3/1/2011         (132

December 2010

  

Partial repayment of Orlando World Center mortgage (4)

     3.76     12/30/2010         (54

December 2010

  

JW Marriott, Desert Springs

     9.8     12/11/2022         (71

October 2010

  

W New York, Union Square (5)

     6.39     10/11/2011         (119

February 2010

  

Atlanta Marriott Marquis

     7.4     2/11/2023         (124

 

(1) The floating interest rate is equal to the 3-month BBSY plus 230 basis points. In addition, we entered into separate swap agreements that fix 75% of the loan at an all-in rate of 6.7% and cap the remaining 25% at an all-in interest rate of 9.9%. The rate shown reflects the rate in effect at December 31, 2011. In connection with the acquisition of the property in April 2011, we assumed an $86 million mortgage loan. The issuance represents the refinancing of this mortgage loan.
(2) The floating interest rate is equal to the 3-month New Zealand Bank Bill Rate plus 120 basis points plus an additional commitment fee of 120 basis points per annum. In addition, we entered into a swap agreement that fixes 75% of the loan at an all-in rate of 7.15%. The rate shown reflects the rate in effect at December 31, 2011.
(3) This floating rate mortgage is based on LIBOR plus 118 basis points. The rate shown reflects the rate in effect at the time of transfer. In connection with the transfer of Le Méridien Piccadilly to the Euro JV Fund II, we transferred the associated mortgage. The mortgage loan had been assumed at acquisition of the property in June 2010.
(4) On December 17, 2010, we entered into an amendment under the $300 million mortgage loan secured by the Orlando World Center Marriott. As a result of the amendment, we repaid $54 million of the outstanding principal on December 30, 2010 and extended the maturity of the loan to July 1, 2013. We have a fixed annual interest rate of 4.75% on the remaining $246 million outstanding.
(5) The amount shown reflects our recorded book value of the mortgage debt on the date defeasance. We defeased this loan on October 19, 2010, which released us from obligations under the mortgage. In connection with the acquisition of the property in September 2010, we assumed the $115 million mortgage loan.
Aggregate Debt Maturities

Aggregate debt maturities are as follows (in millions):

 

     As of
December 31,
2011
 

2012

   $ 400   

2013

     359   

2014

     1,142   

2015

     1,179   

2016

     965   

Thereafter

     1,769   
  

 

 

 
     5,814   

Unamortized (discounts) premiums, net

     (75

Fair value hedge adjustment

     12   

Capital lease obligations

     2   
  

 

 

 
   $ 5,753   
  

 

 

 
Interest Expense

The following items are included in interest expense (in millions):

 

     Year ended December 31,  
     2011 (1)     2010 (1)     2009 (2)  

Interest expense

   $ 371      $ 384      $ 379   

Amortization of debt premiums/discounts, net (3)

     (32     (34     (31

Amortization of deferred financing costs

     (11     (12     (12

Non-cash gains/(losses) on debt extinguishments

     (4     (1     2   

Change in accrued interest

     (4     10        (11
  

 

 

   

 

 

   

 

 

 

Interest paid (4)

   $ 320      $ 347      $ 327   
  

 

 

   

 

 

   

 

 

 

 

(1) Interest expense and interest paid for 2011 and 2010 includes cash prepayment premiums of approximately $5 million and $20 million, respectively. No significant prepayment premium was paid in 2009.
(2) Interest expense and interest paid for 2009 is net of $7 million received in connection with the 2007 defeasance of $514 million in collateralized mortgage-backed securities.
(3) Primarily represents the amortization of the debt discount on our Debentures, which is non-cash interest expense.
(4) Does not include capitalized interest of $4 million, $3 million and $5 million during 2011, 2010 and 2009, respectively.