Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S., reported fourth quarter 2010 FFO (funds from operations) of $187 million or 26 cents per share, compared to $113 million or 18 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. The fourth quarter 2010 reported FFO marginally missed the Zacks Consensus Estimate by a penny.

The fourth quarter 2010 reported FFO included certain non-recurring items, excluding which FFO during the quarter was 28 cents per share. For full year 2010, Host Hotels reported FFO of $465 million or 68 cents per share compared to $303 million or 51 cents per share in the previous year. The reported FFO for full year 2010 missed the Zacks Consensus Estimate of 70 cents. Recurring FFO for fiscal 2010 was 75 cents per share.

Total revenues increased to $1.5 billion during the reported quarter from $1.3 billion in the year-ago quarter. Total quarterly revenues were in line with the Zacks Consensus Estimate. For full year 2010, the company reported total revenues of $4.4 billion compared to $4.1 billion in 2009. Fiscal 2010 revenues were also in line with the Zacks Consensus Estimate.

Comparable hotel revenue per available room (RevPAR) increased 6.2% during fourth quarter 2010 driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily due to a 2.8% increase in average room rate along with a 2.2% improvement in occupancy. For full year 2010, comparable hotel RevPAR increased 5.8%, due to a 3.8% improvement in occupancy and a 0.1% increase in average room rate.

Comparable hotel adjusted operating margins increased 110 bps and 20 bps during the quarter and full fiscal 2010, respectively. During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 25% to $286 million. For full year 2010, adjusted EBITDA increased 3% to $824 million.

During the quarter, the company acquired 7 hotels in New Zealand for $143 million. Host Hotels purchased 6 hotels from the affiliates of Tourism Asset Holdings Ltd. – the largest owner of hotels in Australia and New Zealand, while the remaining hotel was acquired from an affiliate of Accor – the world’s leading hotel manager and market leader in Europe. The properties with over 1,200 rooms are spread across Auckland, Christchurch, Queenstown and Wellington.

Subsequent to the quarter-end, the company acquired New York Helmsley Hotel for $313.5 million. The 775-room upscale hotel is strategically located in the heart of midtown Manhattan in close proximity to the various tourist spots such as the Grand Central Station, the United Nations Headquarters, the Midtown Tunnel and the Chrysler Building.

New York Helmsley Hotel will be initially managed by Starwood Hotels & Resorts Worldwide Inc. (HOT), one of the leading hotel and leisure companies in the world, as an unbranded hotel. Later in 2012, the hotel would be rechristened as a Westin brand after undergoing significant renovations. Subsequent to the quarter-end, Host Hotels also acquired the 1,625-room Manchester Grand Hyatt San Diego Hotel for $570 million.

During fiscal 2010, the company completed $114 million worth of repositioning expenditures to improve operating performance and profitability and enhance customer satisfaction. In 2010, Host Hotels also incurred approximately $195 million worth of renewal and replacement expenditures to ensure the high-quality standards of its portfolio. The strategic moves were aimed to capitalize on changing market conditions and favorable locations of the properties.

During the quarter, the company issued 15.1 million common shares at an average price of $16.52 each, raising net proceeds of approximately $247.5 million. At year-end 2010, Host Hotels had over $1.1 billion of cash and cash equivalents and about $542 million available under its revolving credit facility. Total debt of the company by the end of fourth quarter 2010 was $5.5 billion compared to $5.8 billion in the year-earlier quarter.

Host Hotels anticipates 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 $290 million to $310 million as repositioning expenditures. The company currently expects FFO for full year 2011 in the range of 87 cents to 92 cents per share.

We maintain our ‘Neutral’ rating on Host Hotels for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

 
STARWOOD HOTELS (HOT): Free Stock Analysis Report
 
HOST HOTEL&RSRT (HST): Free Stock Analysis Report
 
Zacks Investment Research