Host Hotels & Resorts Inc. (HST) reported second quarter 2011 FFO (funds from operations) of $210 million or 30 cents per share, compared with $151 million or 23 cents 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 in the quarter stood at 31 cents per share, compared with 23 cents in the year-ago quarter. The second quarter 2011 recurring FFO also surpassed the Zacks Consensus Estimate by two cents.
Total revenues increased to $1,296 million during the reported quarter from $1,112 million in the year-ago quarter. The reported revenues exceeded the Zacks Consensus Estimate by $ 21 million.
Comparable hotel revenue per available room (RevPAR) increased 6.7% during the second quarter of 2011, driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily attributable to higher average room rates and a 1.1% improvement in occupancy.
Comparable hotel adjusted operating margins in the second quarter increased 115 basis points (bps). During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 25% to $313 million.
During the quarter, the company invested $48 million to acquire a 75% voting interest in an entity that owns the 364-room Hilton Melbourne South Wharf. The company assumed a mortgage loan worth $86 million in connection with the acquisition.
During the quarter, the company invested $75 million in projects, which are expected to increase the company’s profitability per the changing market conditions.
The company recently entered into an agreement to acquire the 396-room Pullman Bercy in Paris for approximately € 96 million. Additionally, the company also intends to acquire the 888-room Grand Hyatt Washington.D.C for $442 million.
In the second quarter of 2011, Host Hotels incurred renewal and replacement expenditures of approximately $71 million to ensure the standards of its portfolio. The strategic move was aimed to capitalize on changing market conditions and favorable location of the properties.
During the quarter, Host Hotels completed the first phase of its redevelopment project at the 1756-room Sheraton New York Hotel & Towers and renovated 21,000 square feet of meeting space at the St. Regis Hotel, Houston. Additionally, the company renovated 991 rooms and the meeting place at the New York Marriott Marquis and restored 1200 rooms in the main tower of the Philadelphia Marriott Downtown.
During the second quarter of 2011, the company issued approximately 11 million shares of its common stock at an average price of $17.29 per share and generated net proceeds of approximately $189 million. At the end of the reported quarter, Host Hotels had over $634 million of cash and cash equivalents and about $479 million available under its credit facility. Total debt of the company at the end of second quarter 2011 was $5.6 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 7.5%. For fiscal 2011, Host Hotels expects to incur renewal and replacement expenditures in the range of $320 million to $345 million and ROI expenditures between $220 million and $240 million. The company currently expects FFO in the range of 87 cents to 91 cents per share for fiscal 2011.
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) also retains a Zacks #3 Rank.
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