BETHESDA, Maryland - Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust (REIT), today announced results of operations for the first quarter ended March 25, 2011.
Hotel revenues for owned hotels increased $54million, or 7%, for the quarter compared to the first quarter of 2010. Total revenue increased $80million, or 10%, of which $27million was due to the inclusion of property-level revenues for 53 leased, select-service hotels for which the Company previously recorded rental income. Our 2010 and 2011 acquisitions contributed $21million of revenues in the quarter. See the notes to the consolidated statements of operations for further information.
Net loss was $60million, or $.09 per diluted share, for the first quarter of 2011 compared to a net loss of $84million, or $.13 per diluted share, for the first quarter of 2010.
FFO increased 57% to $77million, or $.11 per diluted share, for the first quarter of 2011 compared to $49million, or $.08 per diluted share, for the first quarter of 2010. The Company's operating results include transactions, such as gains or losses on debt extinguishments, litigation costs and acquisition costs that can significantly affect earnings and FFO per diluted share. The net effect of these items was a decrease to earnings per diluted share and FFO per diluted share of $.01 for both the first quarter of 2011 and 2010.
Adjusted EBITDA, which is Earnings before Interest Expense, Income Taxes, Depreciation, Amortization and other items, increased 14% to $144million for the quarter.
For further detail of the transactions affecting net income, earnings per diluted share, FFO and FFO per diluted share, refer to the notes to the "Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and FFO per Diluted Share."
Adjusted EBITDA, FFO, FFO per diluted share 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 for information regarding these non-GAAP financial measures.
Comparable hotel RevPAR increased 5.4% for the first quarter as a result of the improvement in average room rate of 4.8% combined with a slight increase in occupancy. The first quarter results do not reflect the month of March for the Company's hotels that report results on a calendar basis (approximately 42% of comparable hotels by revenue). On a calendar quarter basis, which includes the March results for these hotels, as well as the final week of March for the Company's Marriott hotels, comparable hotel RevPAR increased 6.9% compared to first quarter of 2010. Two of the Company's larger properties, the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown, were severely disrupted by major renovation projects during the quarter. On a calendar quarter basis, excluding the results of the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown, comparable hotel RevPAR would have increased by an additional 150 basis points.
Despite the improvements in RevPAR, comparable hotel adjusted operating profit margins for the first quarter decreased 10 basis points compared to 2010, largely due to higher payroll taxes, property-level bonuses, and lower attrition and cancellation revenue. These items disproportionately effected the first quarter and collectively reduced margins by approximately 85 basis points. Comparable hotel adjusted operating profit margins for the quarter were further reduced by 60 basis points due to the substantial disruption at the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown.
During the quarter, the Company invested over $1 billion to complete the acquisitions of the New York Helmsley Hotel, the Manchester Grand Hyatt San Diego Hotel and a portfolio of seven hotels in New Zealand. The Company also obtained an $80 million mortgage loan in conjunction with the acquisition in New Zealand.
EUROPEAN JOINT VENTURE
On April 27, 2011, the Company reached an agreement to expand its investment in the European joint venture through the establishment of a new fund (the "Euro Fund Two"). The new fund will have a target size of approximately euro 450 million of new equity and a total investment of approximately euro 1 billion. Each of the current partners in the European joint venture will own a 33.3% limited partner interest in the Euro Fund Two, while an affiliate of the Company will have a 0.1% general partner interest. As part of the expansion, the Company is contributing the Le Meridien Piccadilly to the joint venture for a transfer price of 64 million pounds Sterling. The agreement and the transfer of the Le Meridien Piccadilly is subject to certain regulatory approvals.
RETURN ON INVESTMENT EXPENDITURES
During the first quarter, the Company invested $46million in return on investment (ROI) projects. 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 quarter, these expenditures included approximately $30 million for significant redevelopment projects in progress at the Sheraton New York, the Sheraton Indianapolis and the San Diego Marriott Marquis & Marina. On February 28, 2011, the San Diego Marriott Marquis & Marina became only the fifth hotel in the country to earn the premier Marquis distinction from Marriott, as key elements of its extensive, multi-year renovation project were completed. Significant improvements include an entirely new arrival experience, updated lobby and concierge level, completely remodeled guest rooms and a state-of-the-art-fitness center overlooking a new pool area. The Company expects that its investment in ROI expenditures for 2011 will total approximately $230 million to $250 million.
RENEWAL AND REPLACEMENT EXPENDITURES
The Company also spent approximately $48million in the first quarter for renewal and replacement expenditures designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renovation projects that were completed during the first quarter include 98,700 square feet of meeting space at the Sheraton Boston, 87,500 square feet of meeting space at the Philadelphia Marriott Downtown, 36,000 square feet of meeting space at the Hyatt Regency Washington on Capitol Hill and the renovation of 1,001 rooms at the San Antonio Marriott Rivercenter. The Company expects that renewal and replacement expenditures for 2011 will total approximately $300 million to $325 million.
On March 1, 2011, the Company repaid the CAD129 million ($132 million) mortgage debt on a portfolio of four hotels in Canada. The Company drew CAD100 million ($103 million) from its credit facility in the form of bankers' acceptances with an initial average interest rate of 2.18% to fund a portion of this repayment. As of March 25, 2011 the Company has approximately $154 million of cash and cash equivalents and $438million of available capacity under its credit facility.
On March17, 2011, the Company's board of directors authorized a regular quarterly cash dividend of $0.02 per share on its common stock, an increase of $0.01 per share from the prior quarter. The dividend was paid on April 15, 2011 to stockholders of record on March31, 2011. Based on the current guidance for 2011, the Company intends to declare, subject to approval by the Company's board of directors, an aggregate annual dividend of between $0.10 and $0.15 per share.
The Company anticipates that for 2011:
Comparable hotel RevPAR will increase 6% to 8%;
Operating profit margins under GAAP would increase approximately 210 basis points to 260 basis points; and
Comparable hotel adjusted operating profit margins will increase approximately 100 basis points to 140 basis points.
Based upon these parameters, the Company estimates that its full year 2011 guidance is as follows:
income per diluted share should be approximately $.01 to $.06;
net income should be approximately $8million to $42million;
FFO per diluted share should be approximately $.88 to $.93 (including the effect of a reduction of $.02 due to debt extinguishment costs and pursuit costs for completed acquisitions); and
Adjusted EBITDA should be approximately $1,010million to $1,045million.
See the 2011 Forecast Schedules and Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecasted results. Effective January 1, 2011, the Company modified its definition of Adjusted EBITDA to exclude pursuit costs for completed acquisitions as these costs, which were previously capitalized, are now required to be expensed. See the Notes to Financial Information for more information on this change.