BETHESDA, Maryland--Host Hotels & Resorts, Inc. announced Wednesday results of operations for the first quarter ended March 23.
The increase in total revenues reflects the improved performance of the Company's owned hotels and includes the ten hotels (nearly 4,000 rooms) acquired in 2011, which increased revenues by $43 million for the first quarter of 2012. The improvements in net loss, Adjusted EBITDA (which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items), NAREIT Funds from Operations ("FFO") and Adjusted FFO reflect the improvement in comparable hotel operations and the inclusion of the operations of the Company's 2011 acquisitions for the full quarter in 2012. Net loss for 2012 also includes the $48 million gain recorded on the recent disposition of the San Francisco Airport Marriott.
NAREIT FFO per diluted share, Adjusted FFO per diluted share, Adjusted EBITDA and comparable hotel adjusted operating profit margins (discussed below) are non-GAAP (generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (SEC). See the discussion included in this press release on why the Company believes these supplemental measures are useful, reconciliations to the applicable GAAP measure and the limitations on their use.
Operating Results
The increase in comparable hotel RevPAR of 6.1% in the first quarter reflects the improvement in average room rate of 2.9%, combined with an increase in occupancy of 2.1 percentage points. Comparable hotel revenues also include food and beverage revenue growth of 5.9% for the quarter. The increase in revenues drove improvements in comparable hotel adjusted operating profit margins of 100 basis points for the quarter.
Consistent with the Company's expectations, the completion of the 2011 rooms and meeting space renovations at the Philadelphia Downtown Marriott led to outstanding results in the first quarter, with RevPAR for the hotel up over 50% when compared to the first quarter of 2011. The improved results for this hotel accounted for approximately 80 basis points of the Company's comparable hotel RevPAR growth.
The first quarter results do not reflect the month of March for the Company's hotels that report results on a calendar quarter basis (approximately 45% of the comparable hotels revenue). On a calendar quarter basis, which includes the March results for these hotels, as well as eight additional days of March for the Company's Marriott hotels, comparable hotel RevPAR increased 6.4% compared to the first calendar quarter of 2011.
Investments
Redevelopment and Return on Investment Expenditures - The Company invested approximately $48 million in the first quarter of 2012 in redevelopment and return on investment ("ROI") expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties. During the first quarter, the Company substantially completed the redevelopment of the Chicago Marriott O'Hare, Atlanta Marriott Perimeter Center and 95,000 square feet of meeting space at the San Diego Marriott Marquis & Marina. The Company expects that its investment in ROI expenditures for 2012 will total approximately $150 million to $170 million.
Acquisition Expenditures - In conjunction with the acquisition of a property, the Company prepares a capital improvement plan designed to enhance the profitability of the hotel. Consistent with plans developed for recent acquisitions, during the first quarter of 2012, the Company delivered the first few floors of newly renovated guestrooms at the New York Helmsley and completed the renovation of the 270 rooms at the W New York - Union Square, which was acquired in late 2010. The Company spent approximately $14 million on acquisition projects in the first quarter of 2012 and expects to invest between $100 million and $110 million for 2012.
Renewal and Replacement Expenditures - During the first quarter of 2012, the Company invested approximately $100 million in renewal and replacement expenditures designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renewal and replacement projects completed during the first quarter included the renovation of 743 guestrooms at The Ritz-Carlton, Amelia Island and the Pentagon City Residence Inn and almost 10,500 square feet of meeting space at the W New York. The Company expects that renewal and replacement expenditures for 2012 will total approximately $300 million to $330 million.
Dispositions
On March 23, 2012, the Company sold the 685-room San Francisco Airport Marriott for a sale price of $108 million plus $5 million for the furniture, fixture and equipment replacement fund and recorded a gain of approximately $48 million.
Balance Sheet
On March 22, 2012, the Company issued $350 million of 5 1/4% Series A senior notes maturing in 2022, for net proceeds of $344 million. Subsequent to the end of the first quarter, proceeds from the Series A senior notes and available cash were used to repay the $113 million principal amount outstanding of the 7.5% mortgage secured by the JW Marriott, Washington, D.C., to redeem $250 million of the 6 7/8% Series S senior notes due in 2014 and to repurchase $386 million of the 2.625% Exchangeable Senior Debentures due 2027 at par, pursuant to the put option that was exercised by the holders. In connection with other anticipated refinancing transactions the Company intends to repay the remaining 6 7/8% Series S senior notes. These transactions will result in lowering the Company's debt balance from $6.1 billion at the end of the quarter to $5.2 billion and reducing its cash and cash equivalents to approximately $400 million. The Company also has $859 million of available capacity under its credit facility.
During the first quarter of 2012, the Company issued approximately 11.1 million shares of common stock at an average price of $15.67 per share, for net proceeds of approximately $172 million. These sales were made in "at-the-market" offerings pursuant to an April 2011 Sales Agency Financing Agreement with BNY Mellon Capital Markets, LLC. The first quarter issuances completed the sales under the 2011 agreement, which had a total capacity of $400 million. On April 24, 2012, the Company entered into comparable Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Scotiabank for a new at-the-market equity offering program with a capacity of $400 million.
Asia/Pacific Joint Venture
On March 6, 2012, the joint venture in Asia ("Asia/Pacific JV"), in which the Company holds a 25% interest, acquired the 278-room Citigate Perth in Perth, Australia for A$61 million. In connection with the acquisition, the Company drew A$14.4 million on its credit facility. The Asia/Pacific JV expects to invest approximately A$17 million to upgrade and rebrand the hotel as a Four Points by Sheraton.
Dividend
On March 8, 2012, the Company's board of directors authorized a regular quarterly cash dividend of $0.06 per share on its common stock. The dividend was paid on April 16, 2012 to stockholders of record on March 30, 2012.
2012 Outlook
The Company anticipates that for 2012:
Comparable hotel RevPAR will increase 5% to 7%;
Total revenues under GAAP would increase 5.5% to 7.5%;
Total comparable hotel revenues would increase 4.6% to 6.6%;
Operating profit margins under GAAP would increase approximately 150 basis points to 220 basis points; and
Comparable hotel adjusted operating profit margins will increase approximately 50 basis points to 100 basis points.
Based upon these parameters, the Company estimates that its full year 2012 guidance is as follows:
earnings per diluted share should range from approximately $.14 to $.21;
net income should range from $108 million to $154 million;
NAREIT FFO per diluted share should be approximately $.99 to $1.06;
Adjusted FFO per diluted share should be approximately $1.01 to $1.08; and
Adjusted EBITDA should be approximately $1,120 million to $1,165 million.
