Host Hotels & Resorts, Inc. Reports Results for the Second Quarter of 2011
Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the second quarter ended June 17, 2011.
Highlights
The Company's operating results include transactions, such as losses on debt extinguishments, litigation costs, acquisition costs and non-cash impairment charges that can affect earnings and FFO per diluted share. The net effect of these items was a decrease to earnings per diluted share of $.01 for the second quarter of 2011 and 2010, and $.02 for year-to-date 2011 and 2010.
OPERATING RESULTS
Comparable hotel RevPAR increased 6.7% for the second quarter, as a result of the improvement of average room rate of 5.0%, combined with an increase in occupancy of 1.1 percentage points. For year-to-date 2011, comparable hotel RevPAR increased 6.1%, with the majority of the increase driven by rate improvement. Comparable hotel adjusted operating profit margins increased 115 basis points and 65 basis points for the second quarter and year-to-date 2011, respectively. During the quarter, eleven of the Company's comparable hotels were undergoing significant renovation projects, including two of the Company's larger properties, the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown.
ACQUISITIONS
As previously announced, on April 29, 2011, the Company invested AUD45 million ($48 million) to acquire a 75% common voting interest and a preferred interest in the entity that owns the 364-room Hilton Melbourne South Wharf. The Company assumed an existing AUD80 million ($86 million) mortgage loan in connection with the acquisition.
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 with easy access to historic monuments and the convention center. The transaction is expected to be completed in September and is subject to customary closing conditions.
EUROPEAN JOINT VENTURE
On June 27, 2011, the Company signed an amendment to the partnership agreement to expand its investment in the European joint venture through the establishment of a new fund (the "Euro JV Fund II"). The new fund has a target size of euro 450 million of new equity and a target investment of approximately euro 1 billion after taking into account leverage. Each of the current partners in the European joint venture owns a 33.3% limited partner interest in the Euro JV Fund II, while an affiliate of the Company owns a 0.1% general partner interest. On June 28, 2011, as part of the expansion, the Company transferred the Le Meridien Piccadilly to the Euro JV Fund II for a transfer price of 64 million pounds Sterling, including the assumption of the 32 million pounds mortgage loan. Cash received in the transfer was used to repay 25 million pounds ($41 million) outstanding under the Company's credit facility.
On July 6, 2011, the Euro JV Fund II reached an agreement to acquire the 396-room Pullman Bercy in Paris for approximately euro 96 million. With a strong location in Paris' growing business district of Bercy, the hotel provides a first-class meeting platform with 19,400 square feet of meeting space. The Euro JV Fund II has agreed to invest an additional euro 9 million for the renovation of the rooms and public space at the hotel and Accor will continue to operate the hotel under the Pullman brand. The transaction is subject to a waiver by the city of Paris of its right to purchase the hotel, as well as other customary closing conditions, and is expected to close in September.
RETURN ON INVESTMENT EXPENDITURES
The Company invested $75 million and $121 million in return on investment (ROI) projects during the second quarter and year-to-date of 2011, respectively. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties. Major ROI projects substantially completed during the second quarter include: the first phase of our re-development project at the 1,756-room Sheraton New York Hotel & Towers and the expansion and renovation of 21,000 square feet of meeting space at the St. Regis Hotel, Houston. The Company expects that its investment in ROI expenditures for 2011 will total approximately $220 million to $240 million.
RENEWAL AND REPLACEMENT EXPENDITURES
The Company also spent approximately $71 million and $119 million in the second quarter and year-to-date of 2011, respectively, for renewal and replacement expenditures designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renewal and replacement projects substantially completed during the second quarter include phase one of the renovation at the New York Marriott Marquis, which included 991 of its guest rooms, and the renovation of the meeting space and the 1,200 rooms in the main tower of the Philadelphia Marriott Downtown. The Company expects that renewal and replacement expenditures for 2011 will total approximately $320 million to $345 million.
BALANCE SHEET
During the second quarter of 2011, the Company issued approximately 11 million shares of common stock at an average price of $17.29 per share, for net proceeds of approximately $189 million. These sales were made in "at-the-market" offerings pursuant to an April 2011 Sales Agency Financing Agreement with BNY Mellon Capital Markets, LLC, which had an initial aggregate offering price of $400 million. There is approximately $209 million of issuance capacity remaining under the agreement.
On May 11, 2011 and May 25, 2011, the Company issued $425 million and $75 million, respectively, of 5 7/8% Series W senior notes maturing in 2019, for net proceeds of $489 million. Proceeds from the Series W senior notes were used to redeem the remaining $250 million 7 1/8% Series K senior notes due November of 2013 and to repay $50 million outstanding under the credit facility.
On May 27, 2011, the Company gave notice of its intent to redeem $150 million of the outstanding $325 million 3.25% Exchangeable Senior Debentures. Subsequent to the end of the second quarter, holders of approximately $134 million of the debentures elected to exchange their debentures for shares of the Company's common stock totaling approximately 8.8 million shares, rather than receive the cash redemption proceeds, while the remaining $16 million of debentures were redeemed for cash.
As of June 17, 2011, the Company had approximately $634 million of cash and cash equivalents. Subsequent to the contribution of the Le Meridien Piccadilly to the Euro JV Fund II, and the partial redemption of the 3.25% Exchangeable Senior Debentures, the Company has total debt outstanding of $5.6 billion and approximately $479 million of available capacity under its credit facility.
DIVIDEND
On June 15, 2011, the Company's board of directors authorized a regular quarterly cash dividend of $0.03 per share on its common stock. The dividend was paid on July 15, 2011 to stockholders of record on June 30, 2011. Based on the current guidance for 2011, the Company intends to declare, subject to approval by the Company's board of directors, an aggregate annual dividend for 2011 of between $0.14 and $0.15 per share.
2011 OUTLOOK
The Company anticipates that for 2011:
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 106 properties in the United States and 16 international properties totaling approximately 65,000 rooms. The Company also holds non-controlling interests in a joint venture in Europe that owns 12 hotels with approximately 3,800 rooms and a joint venture in India that is developing seven hotels in three cities with approximately 1,800 rooms. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott®, Ritz-Carlton®, Westin®, Sheraton®, W®, St. Regis®, Le Meridien®, The Luxury Collection®, Hyatt®, Fairmont®, Four Seasons®, Hilton®, Swissotel®, ibis®, Pullman® and Novotel®* in the operation of properties in over 50 major markets worldwide.
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