HST Host Hotels and Resorts Inc

Host Hotels & Resorts Inc. (HST) reported first quarter 2011 FFO (funds from operations) of $77 million or 11 cents per share, compared to $49 million or 8 cents per share in the year-earlier quarter.

Fund 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. Recurring FFO for the quarter stood at 12 cents per share compared to 9 cents in the year earlier quarter. The first quarter 2011 recurring FFO was in line with the Zacks Consensus Estimate.

Total revenues increased to $903 million during the reported quarter from $823 million in the year-ago quarter. The reported revenues were below the Zacks Consensus Estimate of $933 million.

Comparable hotel revenue per available room (RevPAR) increased 5.4% during the first quarter 2011, driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily due to an advance in the average room rate along with a 4.8% improvement in occupancy.

Comparable hotel adjusted operating margins for the first quarter decreased 10 bps due to high taxes, property-level bonuses and cancellation revenue. Operating margins were further reduced by 60 basis points due to business disruption at the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown.  During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 14% to $144 million.

During the quarter, the company invested $1 billion to acquire the New York Helmsley Hotel, the Manchester Grand Hyatt San Diego Hotel and a portfolio of seven hotels in New Zealand.

During the quarter, the company invested $46 million in projects. These projects are expected to increase the company’s profitability per the changing market conditions.

In the first quarter of 2011, Host Hotels incurred approximately $48 million worth of renewal and replacement expenditures to ensure the high-quality standards of its portfolio. The strategic move was aimed to capitalize on changing market conditions and favorable locations of the properties. 

During the quarter, Host Hotels completed the renovation of 98,700 square feet of space at the Sheraton Boston along with 87,500 square feet of space at the Philadelphia Marriott Downtown. Additionally the company renovated 1,001 rooms at the San Antonio Marriott Rivercenter coupled with 36,000 square feet of meeting space at Hyatt Regency Washington.

During the quarter, the company repaid $132 million in mortgage debt on a portfolio of four hotels in Canada. At the end of the first quarter of 2011, Host Hotels had over $154 million of cash and cash equivalents and about $438 million available under its revolving credit facility. Total debt of the company by the end of first quarter 2011 was $5.5 billion.

Host Hotels expects 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% to 8% for the full year. For fiscal 2011, Host Hotels expects to incur approximately $300 million to $325 million as renewal and replacement expenditures and $230 million- $250 million as ROI expenditures. The company currently expects FFO for full year 2011 in the range of 88 cents to 93 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) currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating.

 
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