Host Hotels & Resorts, Inc. reports strong performance for the Fourth Quarter and Full Year 2010
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Host Hotels & Resorts, Inc. reports strong performance for the Fourth Quarter and Full Year 2010
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2011-02-16
Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the fourth quarter and full year ended December 31, 2010.
Highlights
Comparable hotel RevPAR increased 6.2% for the quarter and 5.8% for full year 2010.
The Company recently entered into an agreement to acquire the 1,625-room Manchester Grand Hyatt San Diego Hotel for $570 million and, subsequent to year end, the Company entered into an agreement to acquire the 775-room New York Helmsley Hotel for $313.5million.
Fourth Quarter and Full Year Results
Hotel revenues for our owned hotels increased $116million, or 9%, for the quarter and $201million, or 5%, for full year 2010. Total revenue increased $168million, or 13%, for the fourth quarter and $293million, or 7%, for full year 2010. Approximately 31% of the total revenue increase for the quarter and full year was due to the inclusion of property-level revenues for 71 leased, select-service hotels for which the Company previously recorded rental income due to the termination of two subleases in July 2010. See the notes to the consolidated statements of operations for further information.
Net loss was $6million, or $.01 per diluted share, for the quarter compared to a net loss of $72million, or $.12 per diluted share, for the fourth quarter of 2009. For full year 2010, the net loss was $132million, or $.21 per diluted share, compared to a net loss of $258million, or $.45 per diluted share, for full year 2009.
The Company's operating results include transactions such as gains or losses on debt extinguishments, impairment charges, litigation costs, gains on dispositions and acquisition costs that can significantly affect earnings, FFO per diluted share and Adjusted EBITDA. The net effect of these items was a decrease to earnings per diluted share of $.02 and $.06 for the quarter and full year 2010, respectively, and a decrease of $.07 and $.23 in earnings per diluted share for the quarter and full year 2009, respectively.
FFO increased 57% to $177million, or $.26 per diluted share, for the quarter. The net effect of the transactions noted above decreased FFO per diluted share by $.02 and $.06 for the fourth quarter of 2010 and 2009, respectively. For full year 2010, FFO increased 48% to $452million, and FFO per diluted share increased 33% to $.68 per diluted share. The net effect of the above transactions decreased FFO per diluted share by $.06 and $.28 for full year 2010 and 2009, respectively.
Adjusted EBITDA, which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items increased 25% to $286million for the quarter and 3% to $824million for full year 2010. Costs associated with successful acquisitions, which are now required to be expensed, decreased Adjusted EBITDA by $6million and $10million for the quarter and full year 2010, respectively. For 2009, litigation costs decreased Adjusted EBITDA by $41million for both the quarter and full year.
For further detail of the transactions affecting net income, earnings per diluted share and FFO per diluted share, refer to the notes to the "Reconciliation of Net Income to EBITDA, Adjusted EBITDA and FFO per Diluted Share." Adjusted EBITDA, FFO, FFO per diluted share and comparable hotel adjusted operating profit margins (discussed below) are non-GAAP (generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (SEC). See the discussion included in this press release for information regarding these non-GAAP financial measures.
Operating Results
Comparable hotel RevPAR increased 6.2% in the fourth quarter as a result of the improvement in average room rate of 2.8% combined with an increase in occupancy of 2.2 percentage points. For full year 2010, comparable hotel RevPAR increased 5.8%, primarily as a result of the improvement in occupancy of 3.8 percentage points, along with an increase in average room rate of 0.1%. Comparable hotel adjusted operating profit margins for the quarter increased 110 basis points. For full year 2010, comparable hotel operating profit margins increased 20 basis points.
Acquisitions
Subsequent to year end, the Company entered into an agreement to acquire the 775-room New York Helmsley Hotel in March 2011 for $313.5million. The hotel is located in the heart of midtown Manhattan, and benefits from its oversized guest rooms and close proximity to Grand Central Station, the United Nations Headquarters, the Midtown Tunnel and the Chrysler Building. After our acquisition, the property will be operated by Starwood and, upon the completion of renovations to rooms and meeting spaces, will be converted to the Westin brand in 2012.
The Company also entered into an agreement to acquire the entity that owns the 1,625-room Manchester Grand Hyatt San Diego Hotel, and certain related rights, for $570 million. The hotel has a premier waterfront location adjacent to the city's Convention Center, central business district, three miles from the San Diego International Airport and within walking distance of Seaport Village, the Gaslamp Quarter and Petco Park. The hotel has approximately 125,000 net square feet of meeting space, including a 34,000 square foot finished exhibit hall, additional ballrooms of 30,000 and 25,000 net square feet, a junior ballroom of 10,000 net square feet, and 41 breakout rooms. The hotel also has a 10,000 square foot spa and six food and beverage outlets. The transaction will be comprised of a combination of cash, including the repayment of existing loans, and the issuance by the Company of common and preferred operating partnership units. The transaction is expected to close in March 2011, and is subject to various closing conditions, including approval by the San Diego Unified Port District.
The Company also expects to complete the acquisition of a portfolio of seven midscale and upscale hotels in New Zealand in February for approximately $145 million, including $80million of mortgage debt. The properties are located in cities that represent New Zealand's main commercial, political and tourist centers: Auckland, Queenstown, Christchurch and Wellington. The hotels will be operated by Accor under the ibis and Novotel brands.
Repositioning and Return on Investment Expenditures
During 2010, the Company completed $114million of repositioning and return on investment (ROI) expenditures. These projects are designed to improve operating performance, as well as to take advantage of changing market conditions and favorable locations of the Company's properties to enhance customer experience and profitability. For 2010, repositioning and ROI expenditures included the following projects:
San Diego Marriott Hotel & Marina - an extensive, multi-year $190 million project to reposition and renovate the hotel including all 1,360 guest rooms, the pool and fitness center, as well as the expansion and development of new meeting space and an exhibit hall;
Westin Kierland Resort & Spa - the development of a new 21,500 square foot ballroom and 4,500 square foot outdoor venue space; and
Miami Marriott Biscayne Bay - the renovation of the lobby and development of a three-meal restaurant, as well as the conversion of underutilized restaurant space into 3,900 square feet of meeting space.
Renewal and Replacement Expenditures
The Company also invested approximately $195million in 2010 in renewal and replacement expenditures designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renovation projects that were underway during the fourth quarter include: 450 rooms at the Fairmont Kea Lani, 98,700 square feet of meeting space at the Sheraton Boston, 87,500 square feet of meeting space at the Philadelphia Marriott Downtown, 1,001 rooms at the San Antonio Marriott Rivercenter and 36,000 square feet of meeting space at the Hyatt Regency Washington on Capitol Hill.
Balance Sheet
During the fourth quarter, the Company continued to execute on its strategic goal of strengthening its balance sheet by reducing leverage and balancing debt maturities through the following transactions:
Issuance of $500 million of 6% Series U senior notes maturing in 2020 and using a portion of the proceeds to redeem $250million of 7 1/8% Series K senior notes due 2013;
Issuance of 15.1 million shares of common stock at an average price of $16.52 for net proceeds of approximately $247.5 million. These sales were made in "at-the-market" offerings pursuant to a Sales Agency Financing Agreement with BNY Mellon Capital Markets, LLC. There is approximately $100 million of capacity remaining under the agreement;
Defeasance of the $115 million mortgage loan assumed in conjunction with the acquisition of the W Union Square, New York;
Repayment of the $71 million mortgage loan on the JW Marriott, Desert Springs; and,
Extension of the mortgage on the Orlando World Center Marriott by two years to July1, 2013. In conjunction with the extension, the Company fixed the interest rate on the loan at 4.75% and repaid $54million of the $300million in principal.
As of December31, 2010, the Company had over $1.1billion of cash and cash equivalents and $542million of available capacity under its credit facility.
Dividend
On January18, 2011, the Company paid a fourth quarter dividend of $0.01 per share on its common stock. The Company's policy on common dividends is generally to distribute, over time, 100% of its taxable income. Based on the current guidance for 2011, the Company intends to declare, subject to approval by the Company's board of directors, a quarterly dividend of $0.02 per share in the first quarter, and expects to declare an aggregate dividend in 2011 of between $0.10 and $0.15 per share.
Expected Acquisitions, Investments and Operating Performance for 2011
The discussion below assumes the Company will complete the acquisitions of the New York Helmsley Hotel, the Manchester Grand Hyatt San Diego and the New Zealand portfolio of seven hotels. While the Company is actively pursuing several other transactions, no further acquisitions or dispositions are assumed for 2011.
The Company expects that its investment in ROI and repositioning expenditures for 2011 will total approximately $290 million to $310 million, including $190million of projects at the following properties:
Sheraton New York Hotel & Towers - the complete renovation of all 1,756 rooms, as well as major mechanical upgrades to the heating and cooling system;
Atlanta Marriott Perimeter Center - complete repositioning of the hotel including rooms renovation, lobby enhancements, mechanical systems upgrades, parking garage and exterior enhancements;
Chicago Marriott O'Hare - complete repositioning of the hotel including rooms renovation, new meeting space and the creation of a new great room, food and beverage platform and lobby;
San Diego Marriott Hotel & Marina - continuation of the extensive renovation and repositioning project begun in 2010; and,
Sheraton Indianapolis - renovation of rooms, lobby, fitness center, bar and restaurant, as well as the conversion of an existing tower into 129 managed apartments.
The Company anticipates its operating performance for 2011 will be within the following ranges:
Comparable hotel RevPAR will increase 6% to 8%;
Operating profit margins under GAAP will increase approximately 220 basis points to 280 basis points; and
Comparable hotel adjusted operating profit margins will increase approximately 100 basis points to 140 basis points.
Outlook 2011
Based upon the estimates and expectations noted above, the Company's full year 2011 guidance is as follows:
earnings per diluted share should be approximately $.02 to $.07;
net income should be approximately $19million to $54million;
FFO per diluted share should be approximately $.87 to $.92 (including the effect of a reduction of $.01 due to debt extinguishment costs and pursuit costs for completed acquisitions); and
Adjusted EBITDA should be approximately $1,000million to $1,035million.
See the 2011 Forecast Schedules and Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecasted results. Effective January 1, 2011, the Company has modified its definition of Adjusted EBITDA to exclude pursuit costs for completed acquisitions as these costs are now required to be expensed. Prior to 2009, such costs were capitalized and depreciated over the life of the acquisitions. See the Notes to Financial Information for more information on this change.
About Host Hotels & Resorts
Host Hotels & Resorts, Inc. is an S&P 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 104 properties in the United States and nine international properties totaling approximately 62,000 rooms, and also holds a non-controlling interest in a joint venture that owns 11 hotels in Europe with approximately 3,500 rooms. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott(R), Ritz-Carlton(R), Westin(R), Sheraton(R), W(R), St. Regis(R), Le Meridien(R), The Luxury Collection(R), Hyatt(R), Fairmont(R), Four Seasons(R), Hilton(R) and Swissotel(R)* in the operation of properties in over 50 major markets worldwide. For additional information, please visit the Company's website at http://www.hosthotels.com/.
Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements include forecast results and are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, including references to assumption and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the effect on travel of potential terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; our ability to complete acquisitions and dispositions; and our ability to continue to satisfy complex rules in order for us to remain a REIT for federal income tax purposes and other risks and uncertainties associated with our business described in the Company's annual report on Form 10K and quarterly reports on Form 10-Q filed with the SEC. The completion of the acquisition of the New York Helmsley Hotel, the Manchester Grand Hyatt San Diego and the New Zealand portfolio are subject to numerous closing conditions and there can be no assurances that the transactions will be completed. These closing conditions include, but are not limited to: the accuracy of the representations and warranties and compliance with covenants, the absence of material events or conditions, other customary closing conditions and, for the Manchester Grand Hyatt, approval by the San Diego Unified Port District. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of February15, 2011, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
*This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.
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