Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S., reported second quarter 2010 FFO (funds from operations) of $151 million or 23 cents per share, compared to $68 million or 12 cents per share in the year-earlier quarter. 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. The second quarter FFO marginally beat the Zacks Consensus estimate by a penny.
Total revenue increased 6% during the quarter to $1.1 billion compared to the year-earlier quarter. Comparable hotel revenue per available room (RevPAR) increased 8.1% during the quarter driven by a rise in occupancy, partially offset by a fall in average daily rates. The increase in RevPAR was primarily due to an 8.1% increase in transient demand along with a 2.8% improvement in average room rate, the first such growth rate witnessed since second quarter 2008.
However, comparable hotel adjusted operating margins during the quarter remained flat as incremental attrition and cancellation fees dipped 100 basis points compared to the same period in 2009. During the quarter, Host Hotels reported an adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) of $250 million compared to $256 million in the year-ago period.
Total capital expenditures during the quarter were $50 million, which included return on investment (ROI) and repositioning projects of approximately $10 million. For fiscal 2010, Host Hotels expects total capital expenditures in the range of $300 million to $320 million.
As of June 18, 2010, Host Hotels had cash and cash equivalents of over $1.2 billion and about $600 million available under its revolving credit facility, compared to over $1.3 billion of cash and cash equivalents and $600 million availability under its revolving credit facility in second quarter 2009. Total debt of the company by the end of second quarter 2010 was $5.4 billion, compared to $6.1 billion in the year-earlier quarter.
Subsequent to the end of the quarter, the company acquired W Union Square, a premium luxury hotel in New York, for an undisclosed amount. The acquisition was made through a joint venture in which Host Hotels had a majority stake. Host Hotels also acquired a 424-room hotel in Chicago with 28,000 square feet of meeting space for approximately $165 million.
Furthermore, in July 2010, a joint venture of the company in Asia reached an agreement to develop seven properties in three major cities in India, namely Bangalore, Chennai and Delhi. The total cost of developing the project spanning 1,750 rooms is expected to be approximately $325 million.
Host Hotels anticipates the gradual revival of the overall economy to positively affect its operating results in 2010, with comparable hotel RevPAR expected to increase in the range of 4% to 5.5% for the full year. With positive results during the quarter, Host Hotels increased its FFO guidance for 2010 in the range of 66 cents to 70 cents per share, up from its earlier guidance of 58 cents to 65 cents.
We maintain our Neutral rating on Host Hotels with Zacks #2 Rank, which translates into a short-term Buy recommendation.
Read the full analyst report on “HST”
Zacks Investment Research
