Host Hotels & Resorts, Inc. Reports Strong Performance for the Fourth Quarter and Full Year 2010
BETHESDA, Md., Feb. 15, 2011 - 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 $313.5 million.
Fourth Quarter and Full Year Results
— Hotel revenues for our owned hotels increased $116 million, or 9%, for
the quarter and $201 million, or 5%, for full year 2010. Total revenue
increased $168 million, or 13%, for the fourth quarter and $293 million,
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 $6 million, or $.01 per diluted share, for the quarter
compared to a net loss of $72 million, or $.12 per diluted share, for
the fourth quarter of 2009. For full year 2010, the net loss was $132
million, or $.21 per diluted share, compared to a net loss of $258
million, 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 $177 million, 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 $452
million, 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 $286
million for the quarter and 3% to $824 million for full year 2010. Costs
associated with successful acquisitions, which are now required to be
expensed, decreased Adjusted EBITDA by $6 million and $10 million for
the quarter and full year 2010, respectively. For 2009, litigation costs
decreased Adjusted EBITDA by $41 million 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 $313.5 million. 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 $80 million 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 $114 million 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 $195 million 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 $250 million 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 July 1, 2013. In conjunction with the extension, the Company
fixed the interest rate on the loan at 4.75% and repaid $54 million of
the $300 million in principal.
As of December 31, 2010, the Company had over $1.1 billion of cash and cash equivalents and $542 million of available capacity under its credit facility.
Dividend
On January 18, 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 $190 million 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 $19 million to $54 million;
— 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 $1,000 million to $1,035
million.
Source: Host Hotels & Resorts
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