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Host Hotels & Resorts Inc. (HST - Analyst Report) reported second quarter 2012 FFO (funds from operations) of $246 million or 32 cents per share compared with $221 million or 30 cents per share in the year-earlier quarter.  

Reported FFO missed the Zacks Consensus Estimate by a penny. 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.

Adjusted FFO in the reported quarter was $261 million or 34 cents per share versus $227 million or 31 cents per share in the year-ago period.

Total revenue increased 6.5% year over year to $1,368 million from $1,284 million and exceeded the Zacks Consensus Estimate of $1,363 million. The increase in revenue was driven by solid performance of the company's owned hotelsand improvements in comparable food and beverage revenues.

Comparable hotel revenue per available room (RevPAR) jumped 6.1% to $151.47, driven by a rise in occupancy and average daily rates. Average room rates increased 3.7% to $194.37 during the quarter, while occupancy rose 1.7% to 77.6%.

Comparable hotel adjusted operating margin increased 120 basis points (bps) during the quarter. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased 11.2% to $348 million.

During the second quarter of 2012, the company completed the renovation of the 1,778-room Sheraton New York Hotel & Towers and the conversion of one tower at the Sheraton Indianapolis into apartments.

The company also acquired the 888-room Grand Hyatt Washington, D.C. for approximately $400 million. The hotel includes over 43,000 square feet of meeting space and is strategically located with easy access to historic monuments, museums and the convention center.

During the quarter, the company invested $50 million on redevelopment and return on investment (ROI) projects, which are expected to enhance the company’s profitability amid the challenging market conditions. Further, Host Hotels incurred renewal and replacement expenditures of approximately $79 million to ensure the standards of its portfolio. Additionally, the company spent $50 million in acquisitions projects during the reported quarter to improve their profitability.

During the reported quarter, the company issued approximately 3.1 million shares at an average price of $15.75 per share totaling $48 million. 

Additionally, the company entered into a $100 million mortgage loan secured by the Hyatt Regency Reston scheduled to mature in 2016 with a one-year extension option. The loan carries interest at a rate of 1-month LIBOR plus 310 basis points.  The company utilized the proceeds from the equity offer to repay debts of approximately $1 billion during the reported quarter.

At the end of the second quarter, Host Hotels had over $150 million in cash and cash equivalents and about $760 million available under its credit facility. Total debt of the company stood at $5.3 billion.

Host Hotels anticipates the gradual revival of the overall economy to boost its operating results in 2012, with comparable hotel RevPAR expected to increase in the range of 5.5% to 7.0% for the full year.

For fiscal 2012, Host Hotels expects to incur approximately $310 million to $330 million in renewal and replacement expenditures; $165 million-$175 million in ROI expenditure; and $115 million-$125 million in acquisition expenditures. The company currently expects adjusted FFO for 2012 in the range of $1.04 to $1.09 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) holds a Zacks #3 Rank.

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