Host Hotels & Resorts Results

Host Hotels & Resorts, Inc. Full Year 2014 Revenues Increase 3.6%

The improvement in the Company's comparable hotel revenues were offset by the greater level of dispositions than acquisitions, leading to a slight decrease in total revenues for the quarter. The effect of these transactions reduced total revenues, on a net basis, by $35 million for the quarter and $87 million year-to-date.

Host Hotels

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 the year.

Fourth quarter and full year 2014 results reflect the following:

  • Comparable hotel RevPAR on a constant dollar basis improved 3.2% for the quarter driven by rate growth of 4.1%, partially offset by a decrease in occupancy of 0.6 percentage points. For the full year, comparable hotel RevPAR increased 5.7%.
  • The Company's strongest markets during the quarter were San Francisco and Hawaii, where comparable RevPAR increased 11.8% and 14.9% respectively. For the full year, San Francisco was the strongest market in the Company's domestic portfolio, with a comparable RevPAR growth of 15.2% as the market continues to benefit from strength in demand from both group and transient customers.
  • During the fourth quarter, the Company's New York and Washington D.C. markets continued to lag the portfolio with comparable RevPAR growth of 0.1% and 2.5% respectively, reflecting increased supply in both markets, as well as renovation activity in Washington, D.C.;
  • The increase in comparable hotel revenues of 2.1% and 4.9% for the quarter and full year, respectively, reflects the improvements in comparable RevPAR, described above, as well as the Company's food and beverage ("F&B") and other revenue results. At the Company's comparable hotels, F&B revenues increased 0.4% for the quarter and 3.8% year-to-date. For the quarter, F&B revenues were affected by weaker group demand due to difficult year-over-year comparisons related, in part, to changes in the holiday schedule, mid-term elections and renovations at several of our meeting rooms and ballrooms.
  • The improvement in the Company's comparable hotel revenues were offset by the greater level of dispositions than acquisitions, leading to a slight decrease in total revenues for the quarter. The effect of these transactions reduced total revenues, on a net basis, by $35 million for the quarter and $87 million year-to-date.
  • Comparable hotel EBITDA margins increased 15 basis points for the fourth quarter and 120 basis points for full year 2014, which drove the increase in comparable hotel EBITDA of 2.6% and 9.8%, respectively. The improvements in comparable hotel EBITDA margin reflect the growth in revenues, described above, as well as overall declines in several expenses at the Company's comparable hotels, including incentive management fees (which reflect the renegotiation of fee arrangements at three properties) and property insurance;
  • Adjusted EBITDA increased $29 million in the quarter and $96 million full year 2014. In the fourth quarter, construction of the 131-unit Hyatt Ka'anapali Beach, A Hyatt Residence Club, in which the Company holds a 67% non-controlling interest, was completed and opened to timeshare owners. As a result, the Company was able to recognize gains of approximately $14 million in the fourth quarter, which includes the Company's portion of the sale of timeshare units, net of costs, including gains that had been deferred in prior periods. For the full year 2014, the Company has recognized earnings of $7 million related to its ownership interest in the timeshare;
  • Adjusted FFO per diluted share increased 21.2% to $0.40 per share for the fourth quarter and 14.5% to $1.50 for full year 2014; and
  • Net income improved $132 million to $258 million for the fourth quarter, and $422 million to $747 million for full year 2014.

Net income was also impacted by the following:

  • Interest expense declined $10 million for the quarter and $90 million year-to-date due to a reduction in the overall debt balance and weighted average interest rate, combined with a decline in debt extinguishment costs compared to prior year; and
  • The increase in gains on asset sales and litigation settlements for both the quarter and full year.

Operating Results 

(in millions, except per share and hotel statistics) 

Quarter ended December 31,

Percent

Year ended December 31,

Percent

2014

2013

Change

2014

2013

Change

Total revenues

$               1,320

$               1,331

(0.8)%

$               5,354

$               5,166

3.6%

Comparable hotel revenues(1)

1,242

1,217

2.1%

4,973

4,740

4.9%

Net income

258

126

104.8%

747

325

129.8%

Adjusted EBITDA(1)

351

322

9.0%

1,402

1,306

7.4%

Change in comparable hotel RevPAR:

     Domestic properties

3.2%

5.4%

     International properties -

          Constant US$

3.2%

10.2%

     Total - Constant US$

3.2%

5.7%

Diluted earnings per share

$                    .33

$                    .16

106.3%

$                    .96

$                    .42

128.6%

NAREIT FFO per diluted share(1)

.40

.33

21.2%

1.57

1.26

24.6%

Adjusted FFO per diluted share(1)

.40

.33

21.2%

1.50

1.31

14.5%

___________

(1)   NAREIT Funds From Operations ("FFO") per diluted share, Adjusted FFO per diluted share and Adjusted EBITDA are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission ("SEC"). Beginning December 31, 2014, the Company is presenting comparable hotel EBITDA, which is also a non-GAAP financial measure. Comparable hotel EBITDA is calculated in the same manner as the previously presented comparable hotel adjusted operating profit. The purpose of the change is to conform to industry naming standards for this metric. See the Notes to Financial Information on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.

Acquisitions, Dispositions & Development

The Company's investment activity is consistent with its strategic objective to narrow the number of markets in which it owns properties, focusing on gateway cities and resort/conference markets. In addition, the Company is establishing a deeper foothold in those markets by expanding its investments to include upscale properties that may be operated by an independent manager or without a major brand affiliation. The Company was able to take advantage of strengthening investor demand in secondary or tertiary markets by reducing exposure to assets that are not part of this long-term strategy. In the fourth quarter, the Company sold the Tampa Marriott Waterside Hotel & Marina, Greensboro-High Point Marriott Airport and the Dayton Marriott for a total sales price of $239 million. For the full year, the Company acquired two hotels for $133 million and sold five hotels for a total sales price of $519 million.

In the fourth quarter, the Company opened the 149-room Novotel and 256-room ibis Rio de Janeiro Parque Olimpico in Barra da Tijuca, both managed by Accor. The hotels are located near the 2016 Olympic Village, with access to shopping centers such as Barra Shopping and Metropolitano Barra. The Company's total investment in the development project was R$139 million ($65 million).

The Company's guidance includes the anticipated disposition of one property in the first quarter. The net effect of the 2014 acquisition/disposition activity, and the anticipated disposition included in the Company's guidance, are expected to reduce year-over-year comparisons for revenues by approximately $80 million, net income (excluding gains on sale) by $5 million and Adjusted EBITDA by $20 million for 2015.  

Value Enhancement Projects

In addition to acquiring new assets, the Company is focused on creating and mining value from its existing portfolio through a variety of avenues to achieve the highest and best use for its properties. These projects include the development of timeshare, office space or condominiums on excess land, redevelopment or expansion of existing retail space, and the purchase or extension of existing ground leases. During 2014 these projects included:

  • The Hyatt Ka'anapali Beach – The Company contributed a combination of excess land and cash for a 67% interest in a joint venture for the development of the 131-unit Hyatt Ka'anapali Beach, a Hyatt Residence Club, adjacent to its Hyatt Regency Maui Resort & Spa. Completed in December 2014, the Company will benefit from the sale and financing of timeshare units, as well as synergies created with its existing hotel.
  • New York Marriott Marquis – During the fourth quarter, in conjunction with the redevelopment and lease of the retail space to Vornado Realty Trust, the new 25,000 square foot, eight-story high digital billboard was activated at the New York Marriott Marquis, providing a stunning new marquee to this landmark hotel. The redevelopment and leasing of the entire retail space is expected to be completed by late 2015.
  • Ground leases – During the year, the Company extended the ground lease at the Atlanta Marriott Suites Midtown by 30 years to 2104 and obtained flexibility with respect to lease provisions that govern the brand, operator and sub-lease rights in return for a marginal increase in minimum rent. Additionally, in February 2015, the Company completed the purchase of the ground lease at the Sheraton Indianapolis Hotel at Keystone Crossing, along with two out-parcels, for $4.6 million.  

Redevelopment, Return on Investment ("ROI") and Acquisition Capital Projects

The Company invested approximately $43 million and $112 million in the fourth quarter and full year 2014, respectively, on redevelopment projects and ROI capital expenditures. During the quarter, the Company activated the steam-to-gas conversion at the Sheraton New York Times Square, where the hotel (rather than the local utility) operates on its own boiler plant. The project is expected to result in cost savings and decrease the hotel's carbon emissions.

For 2015, the Company anticipates completing several large-scale redevelopment projects which entail the closure of hotels and meeting spaces and include re-branding and franchising opportunities. The Company expects that redevelopment and ROI expenditures for 2015 will range from $245 million to $260 million.  These projects include:

  • The Axiom Hotel, San FranciscoIn conjunction with a substantial $33 million renovation, the recently acquired Powell Hotel, located in the heart of downtown San Francisco, was closed on January 2, 2015 and will be converted to a new independent identity and renamed the Axiom Hotel. It is expected to re-open in late 2015.   
  • Philadelphia Luxury Hotel – The Company recently announced that it will close the Four Seasons Philadelphia in June 2015 as part of a project to convert the property to a contemporary, independent luxury hotel operated by Sage Hospitality. The $28 million renovation will include extensive improvements to the ballroom, meeting space and spa and fitness center, while introducing a new roof-top lounge, high-end coffee bar and an exciting restaurant concept, the Urban Farmer.  The hotel is expected to re-open late in 2015.
  • Marriott Marquis San Diego MarinaIn December 2014, the demolition of the existing conference center commenced in order to begin construction of the $106 million Marriott Marquis San Diego Marina Exhibit Hall, which, upon completion, will provide 180,000 square feet of expanded and modernized space for conferences and events.
  • Sheraton Santiago Hotel & Convention Center – The Company intends to complete an extensive guestroom renovation that involves the reconfiguration of bathrooms, all new case goods and an expansion of the current room count from 379 to 384. The renovation will require a temporary closure of a significant portion of the guestrooms simultaneously on multiple floors due to the building tower structure.

Upon commencement of the above projects, as well as one additional hotel renovation and rebranding project that the Company expects to announce later this year, the properties described above will be excluded from its comparable set due to the closures and large-scale displacement required during construction. The Company's guidance includes the effect of the displacement described above, which is anticipated to reduce year-over-year comparisons for revenues by approximately $60 million, and both net income and adjusted EBITDA by $25 million, on a net basis, for 2015.  

Renewal and Replacement Expenditures - The Company invested approximately $106 million and $324 million in renewal and replacement capital expenditures during the fourth quarter and full year 2014, respectively. During the fourth quarter, major renewal and replacement projects in progress include guestrooms at the New Orleans Marriott, the Westin Chicago River North, the JW Marriott Houston, Calgary Marriott Downtown, San Antonio Marriott Riverwalk and JW Marriott Washington D.C. For the year, approximately 50% of the renewal and replacement expenditures related to rooms, banquet halls and other common areas, which generally cause the most disruption to operations, were completed in the fourth quarter.

For 2015, the Company expects that overall renewal and replacement expenditures will total $330 million to $350 million. In addition to completing the projects started in the fourth quarter as noted above, these expenditures will include the renovation of guestrooms at The Ritz-Carlton, Marina del Rey, the W Seattle, and the Coronado Island Marriott Resort and Spa, and ballroom and meeting space renovations at the Santa Clara Marriott and the Manhattan Beach Marriott.  

Balance Sheet 

As of December 31, 2014, the Company had approximately $684 million of cash and cash equivalents and $796 million of available capacity under its credit facility. As of December 31, 2014, total debt was $4.0 billion, with an average maturity of 5.2 years and an average interest rate of 4.8%, including nearly 80% with a fixed rate of interest.

European Joint Venture

The European joint venture's comparable hotel RevPAR on a constant euro basis increased approximately 2.9% for the fourth quarter and 2.5% for full year 2014. The comparable RevPAR results were driven by strength in transient business, leading to occupancy increases of 0.1 percentage points and 1.0 percentage points for the quarter and full year, respectively, and rate growth of 2.8% and 1.2%, respectively. Additionally, food and beverage revenues at the European joint venture comparable properties decreased 0.8% for the quarter and increased approximately 5.1% for the full year.

Dividend

The Company's policy is that it generally intends to distribute, over time, 100% of its taxable income, which is dependent primarily on the Company's results of operations, as well as tax gains and losses from property sales. The Company paid a regular quarterly cash dividend of $0.20 per share and a special cash dividend of $0.06 per share on its common stock on January 15, 2015 to stockholders of record on December 31, 2014. The total dividend for 2014 was $0.75 per share, which represented a 63% increase over 2013. On February 17, 2015, the Board of Directors authorized a regular quarterly cash dividend of $0.20 per share on its common stock. The dividend will be paid on April 15, 2015 to shareholders of record on March 31, 2015. Any future dividend is subject to approval by the Company's Board of Directors.

2015 Outlook 

The Company expects a solid year of growth in its U.S. portfolio in 2015. Similar to the trends experienced in 2014, RevPAR growth is expected to be driven by strength in several of the Company's west coast markets, while growth in the New York and Washington, D.C.markets continue to be hindered by the recent new supply. The Company expects that results at its international properties will be in line with its overall portfolio, with the exception of Brazil due to difficult year-over-year comparisons resulting from the World Cup in 2014. However, due to the effects of currency translation, the relative strength in the U.S. dollar is expected to reduce the Company's growth in revenue by approximately $30 million, net income by $5 million and Adjusted EBITDA by $17 million. 

Uniform System of Accounts for the Lodging Industry 

The Company's operators have adopted an updated version of the Uniform System of Accounts for the Lodging Industry ("USALI") in 2015, which reclassifies certain revenue and expense items. The 2014 results will not be restated for the changes, which will affect year-over-year comparisons for individual income statement line items. Overall, the implementation of USALI is expected to lower the Company's RevPAR growth by approximately 10 basis points, while food and beverage revenue growth is expected to increase by an additional 250 basis points (primarily reflecting new reporting for service charges). Additionally, these changes are expected to reduce the Company's comparable hotel EBITDA margin growth by 20 basis points. These changes will not affect the Company's forecast net income, comparable hotel EBITDA, or Adjusted EBITDA.

The Company anticipates that its 2015 operating results will increase as follows: 

Full Year 2015

Low-end

of range

High-end

of range

Total comparable hotel RevPAR - Constant US$

4.5%

5.5%

Comparable hotel RevPAR for domestic properties

4.75%

5.75%

Comparable hotel RevPAR for international properties - Constant US$

0.0%

2.0%

Total revenues under GAAP

1.5%

2.7%

Total comparable hotel revenues

4.1%

5.4%

Operating profit margin under GAAP

(90 bps)

(50 bps)

Comparable hotel EBITDA margins

20 bps

50 bps

Based upon the above parameters, the Company estimates its 2015 guidance as follows (in millions, except per share amounts): 

Full Year 2015

Low-end

of range

High-end

of range

Earnings per diluted share

$

.62

$

.65

Net income

477

506

NAREIT FFO per diluted share

1.52

1.55

Adjusted FFO per diluted share

1.52

1.55

Adjusted EBITDA

1,420

1,450

See the 2015 Forecast Schedules and the Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecast results.

 

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 97 properties in the United States and 17 properties internationally totaling approximately 59,000 rooms. The Company also holds non-controlling interests in five joint ventures, including one in Europe that owns 19 hotels with approximately 6,500 rooms and one in Asia that has interests in four hotels in Australia and India. 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®, Hilton®, Swissotel®, ibis®, Pullman®, and Novotel® as well as independent brands in the operation of properties in over 50 major markets worldwide. 

HOST HOTELS & RESORTS, INC. 

Consolidated Balance Sheets (1)

(in millions, except shares and per share amounts)

December 31, 2014

December 31, 2013

(unaudited)

ASSETS

Property and equipment, net

$

10,575

$

10,995

Due from managers

70

52

Advances to and investments in affiliates

433

415

Deferred financing costs, net

35

42

Furniture, fixtures and equipment replacement fund

129

173

Other

281

244

Restricted cash

32

Cash and cash equivalents

684

861

Total assets

$

12,207

$

12,814

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY

Debt

Senior notes, including $386 million and $371 million, respectively,

     net of discount, of Exchangeable Senior Debentures

$

2,884

$

3,018

Credit facility, including the $500 million term loan

704

946

Mortgage debt

404

709

Other

86

Total debt

3,992

4,759

Accounts payable and accrued expenses

298

214

Other

324

389

Total liabilities

4,614

5,362

Non-controlling interests - Host Hotels & Resorts, L.P

225

190

Host Hotels & Resorts, Inc. stockholders' equity:

Common stock, par value $.01, 1,050 million shares authorized,

     755.8 million shares and 754.8 million shares issued and outstanding,

     respectively

8

8

Additional paid-in capital

8,476

8,492

Accumulated other comprehensive loss

(50)

(9)

Deficit

(1,098)

(1,263)

Total equity of Host Hotels & Resorts, Inc. stockholders

7,336

7,228

Non-controlling interests—other consolidated partnerships

32

34

Total equity

7,368

7,262

Total liabilities, non-controlling interests and equity

$

12,207

$

12,814

___________

(1)   Our consolidated balance sheets as of December 31, 2014 have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.                                

 

 

HOST HOTELS & RESORTS, INC

Consolidated Statement of Operations (1)

(unaudited, in millions, except per share amounts)

Quarter ended December 31,

Year ended December 31,

2014

2013

2014

2013

Revenues

Rooms

$

839

$

838

$

3,452

$

3,317

Food and beverage

396

407

1,546

1,503

Other

85

86

356

346

  Total revenues

1,320

1,331

5,354

5,166

Expenses

Rooms

228

226

924

894

Food and beverage

280

288

1,109

1,095

Other departmental and support expenses

315

317

1,264

1,249

Management fees

56

60

227

222

Other property-level expenses

97

92

386

376

Depreciation and amortization

177

178

701

697

Corporate and other expenses(2)

18

32

43

121

Gain on insurance settlements

(10)

  Total operating costs and expenses

1,171

1,193

4,644

4,654

Operating profit

149

138

710

512

Interest income

1

1

4

4

Interest expense (3)

(50)

(60)

(214)

(304)

Gain on sale of assets(4)

124

1

236

33

Gain (loss) on foreign currency transactions and derivatives

1

1

(1)

3

Equity in earnings (losses) of affiliates

30

(20)

26

(17)

Income before income taxes

255

61

761

231

Benefit (provision) for income taxes

3

(2)

(14)

(21)

Income from continuing operations

258

59

747

210

Income from discontinued operations, net of tax

67

115

Net income

258

126

747

325

Less: Net income attributable to non-controlling interests

(4)

(3)

(15)

(8)

Net income attributable to Host Inc

$

254

$

123

$

732

$

317

Basic earnings per common share:

Continuing operations

$

.34

$

.07

$

.97

$

.27

Discontinued operations

.09

.16

Basic earnings per common share

$

.34

$

.16

$

.97

$

.43

Diluted earnings per common share:

Continuing operations

$

.33

$

.07

$

.96

$

.27

Discontinued operations

.09

.15

Diluted earnings per common share

$

.33

$

.16

$

.96

$

.42

(1)   Our consolidated statements of operations presented above have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.   

(2)   Corporate and other expenses include the following items:

Quarter ended December 31,

Year ended December 31,

2014

2013

2014

2013

General and administrative costs

$

17

$

20

$

82

$

87

Non-cash stock-based compensation expense

8

6

22

18

Litigation (recoveries)/accruals and acquisition costs,

     net (a)

(7)

6

(61)

16

       Total

$

18

$

32

$

43

$

121

___________

(a)     Includes litigation (recoveries)/accruals in 2014 and 2013, including the previously disclosed reversal of the $69 million loss contingency related to the successful litigation related to the ground lease for San Antonio Marriott Rivercenter in the third quarter of 2014.  

(3)   Interest expense includes the following items:

Quarter ended December 31,

Year ended December 31,

2014

2013

2014

2013

Non-cash interest for exchangeable debentures

$

4

$

4

$

16

$

15

Debt extinguishment costs

4

36

Total

$

4

$

4

$

20

$

51

(4)   Effective January 1, 2014, we adopted a new accounting standard for reporting discontinued operations. Under this standard, the disposal of a hotel, or group of hotels, is required to be reported in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. Under the new standard, we are not permitted to restate prior year results, so the results of operations of hotels sold in 2013 will continue to be reported in discontinued operations.  

 

 

Earnings per Common Share

(unaudited, in millions, except per share amounts)

Quarter ended December 31,

Year ended December 31,

2014

2013

2014

2013

Net income

$

258

$

126

$

747

$

325

Less: Net income attributable to non-controlling interests

(4)

(3)

(15)

(8)

Net income attributable to Host Inc

254

123

732

317

Assuming conversion of exchangeable senior debentures

7

27

Diluted income attributable to Host Inc

$

261

$

123

$

759

$

317

Basic weighted average shares outstanding

755.7

754.7

755.4

744.4

Assuming weighted average shares for conversion of

     exchangeable senior debentures

30.8

30.3

2.4

Assuming distribution of common shares granted under

     the comprehensive stock plans, less shares assumed

     purchased at market

1.1

.9

1.1

1.1

Diluted weighted average shares outstanding(1)

787.6

755.6

786.8

747.9

Basic earnings per common share

$

.34

$

.16

$

.97

$

.43

Diluted earnings per common share

$

.33

$

.16

$

.96

$

.42

___________

(1)   Dilutive securities may include shares granted under comprehensive stock plans, preferred operating partnership units ("OP Units") held by minority partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP Units. No effect is shown for any securities that were anti-dilutive for the period.  

 

 

HOST HOTELS & RESORTS, INC

Hotel Operating Data for Consolidated Hotels(1)

Comparable Hotels by Market in Constant US$

As of December 31, 2014

Quarter ended December 31, 2014

Quarter ended December 31, 2013

Market (2)

No. of

Properties

No. of

Rooms

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Average

Room Rate

Average

Occupancy

Percentage

RevPAR

Percent

Change in

RevPAR

Boston

5

3,432

$

219.13

72.0

%

<



Logos, product and company names mentioned are the property of their respective owners.