Host Hotels Disappoints

Host Hotels & Resorts Inc. (HST - Analyst Report), the largest lodging real estate investment trust (REIT) in the U.S., reported disappointing results for the third quarter of 2009, with year-over-year decrease in revenue and earnings per share.

Total revenue decreased $227 million or 19.9% during the quarter to $912 million compared to the year-earlier quarter. The company also reported a loss of 9 cents per share compared to earnings of 9 cents per share in the year-ago period.

During the quarter, Host Hotels reported FFO (funds from operations) of $66 million or 11 cents per share, compared to $170 million or 31 cents per share in the year-earlier quarter. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The decrease in FFO was primarily due to an increase in non-cash interest expenses and impairment charges.

Comparable hotel revenue per available room (RevPAR) declined 21.3% during the quarter driven by a decrease in occupancy and sharp fall in average daily rates in tune with the reduced consumer discretionary income due to the continued economic downturn in the country. Comparable hotel adjusted operating margins also decreased 685 basis points during the quarter.

At quarter end, Host Hotels had a strong balance sheet with cash and cash equivalents of over $1 billion and about $600 million available under its revolving credit facility. During the quarter, the company significantly reduced its debt and repaid $210 million term-loan outstanding under its credit facility. In addition, Host Hotels also repaid mortgage debt of $135 million and $175 million, collateralized by the Westin Kierland property and San Diego Hotel & Marina, respectively.

Also during the quarter, Host Hotels repurchased $49 million face-amount of its 2.625% Exchangeable Senior Debentures for approximately $42 million. Furthermore, the company initiated a continuous equity offering program during the quarter, under which it issued approximately 13 million common shares for net proceeds of $130 million, and received an additional $22 million subsequent to the end of the quarter.

Host Hotels sold four non-core properties during the quarter for approximately $90 million, realizing a net gain of $9 million. The company also sold its remaining 3.6% limited partner interest in CBM Joint Venture Limited Partnership for $13 million, recording a profit of $5 million, net of tax. The company declared a special dividend of 25 cents per share during the quarter, which would be paid in a combination of cash and stock. 

The company anticipates the economic stress to negatively affect its operating results in the remainder of 2009, with comparable hotel RevPAR expected to decline approximately 20% to 22% for the full year. Host Hotels further anticipates FFO for 2009 to range between 46 cents to 51 cents per share, with adjusted EBITDA of $760 million to $800 million.

Read the full analyst report on HST