Host Hotels & Resorts, Inc. (HST - Analyst Report), a real estate investment trust (REIT), reported third quarter 2012 FFO (funds from operations) of $127 million or 17 cents per share compared with $113 million or 16 cents per share in the year-earlier quarter.
Adjusted FFO in the reported quarter was $157 million or 21 cents per share versus $118 million or 16 cents per share in the year-ago period. The third quarter adjusted FFO was in-line with the Zacks Consensus Estimate.
Total revenue increased 6.5% year over year to $1,204 million from $1,131 million in the year-ago quarter. The reported revenue marginally missed the Zacks Consensus Estimate of $1,209 million. The increase in revenue was driven by solid performance of the company's owned hotels and improvements in comparable food and beverage revenues.
Comparable hotel revenue per available room (RevPAR) jumped 7.6% to $142.82, driven by a rise in occupancy and average daily rates. Average room rates increased 4.7% to $182.06, while occupancy rose 2.1% to 78.4%.
Comparable hotel adjusted operating margin increased 285 basis points (bps) during the quarter. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased 13.7% to $241 million.
During the third quarter of 2012, the company invested $24 million on redevelopment and return on investment (ROI) projects, which are expected to enhance the company’s profitability amidst the challenging market conditions.
Also, the company completed the renovation of the 834 rooms at the Hyatt Regency Washington and 45,000 square feet of meeting space at the New York Marriott Marquis. Host Hotels also incurred renewal and replacement expenditures of approximately $66 million to ensure the quality standards of its portfolio
Subsequent to the end of the quarter, the company converted the former New York Helmsley Hotel to the Westin New York Grand Central. This included a complete renovation of all 774 guest rooms, the ballroom and meeting space, fitness center, lobby and public areas. The company spent $25 million on acquisition projects during the reported quarter and expects to invest between $125 million and $135 million for 2012.
In order to maximize its revenues with optimal use of its resources, Host Hotels leased the retail and signage components of the New York Marriott Marquis Times Square to Vornado Realty Trust (VNO - Analyst Report). Vornado Realty will redevelop and expand the existing retail space for $140 million. Post completion, the company expects additional rental income from this deal.
Host Hotels also aimed to reduce its cost of debt and extend its debt maturities to strengthen its balance sheet. Year-to-date, the company has issued $1.5 billion of debt with a weighted average interest rate of 3.7% and has utilized the proceeds to repay $1.8 billion of debt with a weighted average interest rate of 6.6%.
Consequently, the company was able to reduce its weighted average interest rate by approximately 80 basis points to 5.5%, and extended its weighted average debt maturity to 5.4 years.
During the quarter, the company entered into a $500 million term loan. The loan carries interest at a rate of LIBOR plus 180 basis points and has a five year maturity.
At the end of the second quarter, Host Hotels had over $254 million in cash and cash equivalents and about $751 million available under its credit facility. Total debt of the company stood at $5.5 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 6.25% to 7.0% for the full year. For fiscal 2012, Host Hotels expects to incur approximately $330 million to $340 million in renewal and replacement expenditures and $165 million-$175 million in ROI expenditure. The company currently expects adjusted FFO for 2012 in the range of $1.06 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.
Note: 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.