Host Hotels Reports Mixed Results

Host Hotels (HST - Analyst Report) reported third quarter 2011 FFO (funds from operations) of $112 million or 16 cents per share, compared with $75 million or 11 cents in the year-earlier quarter. Funds from operations, 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 third quarter 2011 FFO missed the Zacks Consensus Estimate by a penny.
 
Total revenue increased to $1,142 million during the reported quarter from $1,003 million in the year-ago quarter. The reported revenues exceeded the Zacks Consensus Estimate by $10 million.
 
Comparable hotel revenue per available room (RevPAR) jumped 6.4% during the reported quarter, driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily attributable to higher average room rates and a 1.9% rise in occupancy.
 
Comparable hotel adjusted operating margins in the reported quarter increased 110 basis points (bps). During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 27.7% to $212 million.
 
During the third quarter of 2011, the company purchased the remaining interest in Tiburon Golf Ventures, L.P. for $11 million. The company previously held a 49% limited partnership interest.
 
During the quarter, the company invested $32 million in return on investment (ROI) projects, which are expected to increase the company’s profitability amidst the changing market conditions.
 
During the quarter, the company's European joint venture's second fund (the Euro JV Fund II), where the company owns a 33.4% interest, completed the acquisition of the 396-room Pullman Bercy in Paris for approximately €96 million.
 
In the third quarter of 2011, Host Hotels incurred renewal and replacement expenditures of approximately $63 million to ensure the standards of its portfolio.
 
During the quarter, Host Hotels commenced extensive room renovations at JW Marriott, Desert Springs Resort & Spa and the renovation of 40,000 square feet of ballroom and meeting space at New Orleans Marriott.

At the end of the reported quarter, Host Hotels had over $524 million of cash and cash equivalents and about $481 million available under its credit facility. Additionally, the company exercised its option to extend the maturity date of its credit facility to September 2012. Total debt of the company at the end of third quarter 2011 was $5.5 billion.

Host Hotels anticipates the gradual revival of the overall economy to boost its operating results in 2011, with comparable hotel RevPAR expected to increase in the range of 6.25% to 6.75% for the full year. For fiscal 2011, Host Hotels expects to incur approximately $300 million to $320 million as renewal and replacement expenditures and $220 million-$240 million as ROI expenditures. The company currently expects FFO for full-year 2011 in the range of 86 cents to 88 cents per share.

Host Hotels currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, La Salle Hotel Properties (LHO - Snapshot Report) also holds a Zacks #3 Rank.

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