Host Hotels & Resorts Report Full Year and Q4 Results: Q4 RevPAR Up 3.6%, Full Year 3.8%

BETHESDA, Md., Feb. 17, 2016- Host Hotels & Resorts, Inc. (NYSE:HST), (“Host Hotels” or the “Company”), the nation’s largest lodging real estate investment trust (“REIT”), today announced results of operations for the fourth quarter and the year.

“In addition to having a solid quarter, especially from a bottom-line perspective, we undertook a number of initiatives in 2015 to capitalize on value-enhancing opportunities and better position Host Hotels for continued growth and success,” said W. Edward Walter, Chief Executive Officer. “In line with our disciplined approach to actively managing our portfolio and efficiently allocating capital, we sold more than $1 billion of non-core hotels, including hotels sold through joint ventures, returned more than $1.3 billion to stockholders through dividends and our stock repurchase program, invested more than $1 billion in new assets and capital improvements, and repaid or refinanced more than $1.4 billion of debt. Continually improving operational and financial performance and closing the gap between asset value and share price remain our top priorities. We are confident that we are taking the right steps to drive continued growth and value creation.”

(1) NAREIT Funds From Operations (“FFO”) per diluted share, Adjusted FFO per diluted share, Adjusted EBITDA and comparable hotel results are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (“SEC”). See the Notes to Financial Information on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures. 

(2) Net income for 2014 includes a net gain of $69 million, or $.09 of diluted earnings per share for settlement of litigation.

Fourth quarter and full year 2015 results reflect the following:

• Comparable RevPAR on a constant dollar basis improved 3.6% for the quarter, reflecting a 1.7% increase in average room rate and a 140 basis point increase in occupancy to 74%. For the full year, the Company’s comparable RevPAR on a constant dollar basis increased 3.8%, reflecting rate growth of 3.3%, while occupancy improved 40 basis points to 77.4%. Additionally, the implementation of the previously disclosed adoption of the 11^th Edition of the Uniform System of Accounts for the Lodging Industry (“USALI”) negatively impacted RevPAR by approximately 30 basis points in the quarter and 20 basis points in the full year.
   
• Comparable RevPAR at the Company’s domestic properties improved 3.2% for the quarter and 3.8% for the full year. The strongest domestic markets during the quarter were Florida and Los Angeles, where comparable RevPAR increased 11.7% and 9.8%, respectively. The Company’s New York and Houston hotels continued to lag the portfolio with a decrease in comparable RevPAR for the quarter of 2.4% and 1.1%, respectively. For the full year, the Company’s west coast properties led RevPAR growth with strong increases in the San Diego, Los Angeles, Seattle, and San Francisco markets.
   
• On a constant dollar basis, RevPAR at the Company’s comparable international properties increased 15.5% for the fourth quarter due to increases of 39.1% and 10.4% in the Company’s Latin America and Asia-Pacific markets, respectively.  For the full year, RevPAR for the Company’s international properties increased 2.2%, with RevPAR increases in Latin America and Asia-Pacific markets offset by declines in Canada, which were largely associated with renovation activity. 
   
• Comparable food and beverage revenues increased 6.1% for the quarter as a result of improved banquet and audio-visual business, as several large group events experienced increased attendance and additional spend. For the full year, the increase in revenues was 5.2%, reflecting strong second half of the year performance.  The implementation of USALI increased food and beverage performance by approximately 140 and 270 basis points for the quarter and full year, respectively.
   
• Comparable hotel EBITDA margins increased 55 basis points for the quarter and 20 basis points for full year, leading to an increase in Comparable Hotel EBITDA of 5.8% and 4.1%, respectively. The Company’s comparable hotel EBITDA margins were affected by the adoption of USALI, which reduced margins by approximately 3 basis points and 15 basis points for the quarter and full year, respectively. 
   
• Net income was $166 million in the fourth quarter and $571 million for the full year. Net income was affected by the items noted above, as well as by debt extinguishment costs and a gain on litigation settlement. Debt extinguishment costs increased $20 million and $37 million, respectively, for the fourth quarter and full year, compared to the same periods in 2014. The Company also recognized a $69 million litigation settlement gain in its full year 2014 net income.

SHARE REPURCHASE PROGRAM AND DIVIDENDS

“During the fourth quarter, we continued to implement our plan to take advantage of the arbitrage between public and private market valuations, and repurchased 19.6 million shares for a total purchase price of $325 million,” said Gregory J. Larson, Executive Vice President and Chief Financial Officer. For the full year, the Company repurchased 38.3 million shares of common stock for a total purchase price of approximately $675 million. The Company currently has $325 million of repurchase capacity under its share repurchase program authorized by the Board of Directors in October 2015. The common stock may be purchased in the open market or through private transactions, from time to time, through December 31, 2016 depending upon market conditions. The plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at its discretion.

The Company’s dividend policy is that it generally intends to distribute, over time, 100% of its taxable income, which is dependent primarily on the Company’s results of operations, as well as the tax gains and losses from property sales. The Company paid a regular quarterly cash dividend of $0.20 per share on its common stock on January 15, 2016 to stockholders of record as of December 31, 2015. On February 16, 2016, the Board of Directors authorized a regular quarterly cash dividend of $0.20 per share on its common stock, which equates to a 5.4% annualized yield based on the Company’s current stock price. The dividend will be paid on April 15, 2016, to stockholders of record on March 31, 2016. The Company is committed to sustaining a meaningful dividend, subject to approval by the Company’s Board of Directors.

CAPITAL ALLOCATION

Acquisition opportunities were limited by continued low interest rates, which increased competition and drove premium pricing for high-quality properties in the Company’s major markets or asset types. During 2015, the Company acquired The Phoenician, a 643-room Luxury Collection resort in Scottsdale, Arizona for $400 million and, during the fourth quarter, the long-term ground lease associated with the Marriott Minneapolis for $34 million. Conversely, this environment has helped the Company successfully execute on its strategic plan of reallocating capital out of markets where it expects lower growth or higher capital expenditure requirements. Proceeds from these sales have been utilized as a source of funds for the Company’s stock repurchase program, capital expenditure programs, and other corporate initiatives. Subsequent to year-end, the Company sold two non-core assets, the 139-room Novotel Wellington, New Zealand and the 350-room San Diego Marriott Mission Valley for a total sales price of approximately $98 million and recorded a total gain of $56 million. The following table is a summary of our completed and pending disposition activity (in US$, in millions):

(1) Owned by the Company's joint venture in Europe. Net proceeds are based on the Company's ownership percentage.
(2) Owned by the Company's joint venture in Asia. Net proceeds are based on the Company's ownership percentage.
(3) Represents three hotels currently under contract that are subject to various closing conditions.  There can be no assurances that these properties will be sold within this time period or at the sales prices indicated.

The net impact on the Company’s forecast as a result of the 2016 sales discussed above, including three properties under contract, is a decrease to net income (excluding gain on sale) and Adjusted EBITDA of $8 million and $14 million, respectively.

REDEVELOPMENT, RETURN ON INVESTMENT (“ROI”) AND ACQUISITION CAPITAL PROJECTS

The Company invested approximately $100 million and $275 million in the fourth quarter and full year, respectively, on redevelopment, ROI and acquisition capital expenditures. Projects opened during the fourth quarter include the complete repositionings of the Houston Airport Marriott at George Bush Intercontinental, The Logan, Philadelphia, Curio – A Collection by Hilton, and The Camby Hotel, Phoenix, part of Marriott’s Autograph Collection. During January 2016, the Company also opened the completely repositioned and rebranded Axiom Hotel, San Francisco, which had been closed since January, 2015. The Company’s forecast reflects an increase to both net income and Adjusted EBITDA of approximately $32 million to $34 million compared to 2015 as a result of the completion of these four projects.

For 2016, the Company expects to invest approximately $180 million to $195 million in redevelopment projects, ROI, and acquisition capital expenditures or a decline of approximately $88 million from 2015. These projects, which will result in the hotels being classified as non­-comparable in 2016, include:

• The Phoenician – In conjunction with the recent acquisition, the Company intends to complete a comprehensive two year renovation. The first phase includes the renovation of all guestrooms during summer 2016, while the renovation of public space, spa, and restaurants is scheduled for 2017.
   
• Hyatt Regency San Francisco Airport – The renovation commenced in November 2015 and is expected to be completed in the third quarter of 2016. The project includes all of the guestrooms and bathrooms, meeting space, the repositioning of the atrium into a new restaurant and lounge and conversion of the existing restaurant and sports bar to approximately 15,000 square feet of additional meeting space.  
   
• Denver Marriott Tech Center – The extensive project started in November 2015 and is expected to be completed in the fourth quarter of 2016. The project includes renovation of guestrooms and bathrooms, conversion of 64 rooms to 41 suites, conversion of the concierge lounge into three meeting rooms, and the repositioning of the public space and food and beverage areas.
   
• Marriott Marquis San Diego Marina – The Company is approximately 75% through construction of the $106 million all-new two-level exhibition hall. Upon completion, the hotel will provide approximately 280,000 square feet of expanded and modernized conference and meeting space that will include two 36,000 square-foot ballrooms, each capable of accommodating up to 3,700 guests. The project, which is scheduled to be completed this summer, will include customizable space with state-of-the-art meeting amenities such as a 12-screen video wall system, offering the highest level of videography, sound, and production capabilities.

RENEWAL AND REPLACEMENT EXPENDITURES

The Company invested approximately $91 million and $388 million in the fourth quarter and full year, respectively, in renewal and replacement capital expenditures. For 2016, the Company expects to invest between $310 million to $325 million, a decrease of over $60 million, or approximately 18%. Significant projects completed during the fourth quarter include the renovation of 295 rooms at The Ritz-Carlton Golf Resort, Naples, the restaurant at The Ritz-Carlton, Amelia Island and the 3030 Ocean Restaurant & Bar at the Fort Lauderdale Marriott Harbor Beach Resort & Spa.

For 2016, renewal and replacement capital expenditures include room renovations at The Ritz-Carlton, Tysons Corner, Fort Lauderdale Marriott Harbor Beach Resort & Spa, and W Seattle and the renovation of the ballroom and event lawn at the Hyatt Regency Maui Resort and Spa.

EUROPEAN JOINT VENTURE

The European joint venture’s comparable hotel RevPAR, on a constant euro basis (which excludes the eight hotels sold in October) increased approximately 1.7% and 4.2% for the fourth quarter and full year, respectively, and was significantly impacted by the November terrorist attacks in Paris. The increase in comparable hotel RevPAR resulted in a total revenue increase of 1.0% and 2.5% for the fourth quarter and full year, respectively, at the European joint venture’s comparable properties on a constant euro basis.

BALANCE SHEET

The Company believes that its strong balance sheet is a key competitive advantage that affords it a low cost of capital and the necessary financial flexibility to take advantage of opportunities throughout the lodging cycle. The Company’s long term unsecured debt currently maintains an investment grade rating. At December 31, 2015, the Company had approximately $239 million of cash, $702 million of available capacity under its revolving credit facility, and $4.0 billion of debt. Additionally, the five hotels either sold or under contract noted in the table on page 3 are expected to generate a total sales price of $215 million, which is not included in the year-end balances.

On December 29, 2015, the Company drew the remaining $200 million available under its 2015 Term Loan facility. During the year, the Company repaid or refinanced $1.4 billion of debt with a weighted average interest rate of 5.0% with proceeds from the issuance of $1.5 billion of debt with a weighted average interest rate of 3.1%. As a result of these transactions, the Company decreased its weighted average interest rate by 110 basis points to 3.7%, lowered its annualized interest expense by $24 million to $165 million, and extended its weighted average debt maturity by 0.8 years to 6.0 years, with no significant maturities until 2019, assuming the Company exercises the extensions on its credit facility.

Tables associated with this release are accessible via the PDF or by visiting:

http://ir.hosthotels.com/phoenix.zhtml?c=60734&p=irol-newsArticle_print&ID=2139869