BETHESDA, Md., April 29, 2016 — 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 of 2016.
“We are pleased with our first quarter operations, as solid demand growth and significantly less disruption from renovation led to solid comparable hotel RevPAR growth of 3.6%, exceeding the U.S. upper-upscale and luxury hotel average by 170 basis points,” said W. Edward Walter, President and Chief Executive Officer. “We remain committed to our long-term goal of returning value to our stockholders through consistently strong dividends and stock repurchases. We continue to make significant progress toward our asset sale goals and expect continued improvement in our operational and financial performance throughout the remainder of the year.”
Operating Results(1) (in millions, except per share and hotel statistics) Quarter ended March 31, Percent 2016 2015 Change Total revenues $ 1,339 $ 1,302 2.8 % Comparable hotel revenues (2) 1,211 1,172 3.2 % Net income 184 99 85.9 % Adjusted EBITDA (2) 345 321 7.5 % Change in comparable hotel RevPAR: Domestic properties 3.4 % International properties – Constant US$ 9.6 % Total – Constant US$ 3.6 % Diluted earnings per share $ .24 $ .13 84.6 % NAREIT FFO and Adjusted FFO per diluted share (2) .41 .35 17.1 % ___________
(1) During the quarter, the Company adopted a new accounting pronouncement regarding consolidation, and, as a result, deconsolidated the partnership which owns the Fort Lauderdale Marriott Harbor Beach Resort & Spa and restated prior periods to reflect the new treatment. (2) 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.
First quarter 2016 results reflect the following:
- Comparable RevPAR on a constant dollar basis improved 3.6% for the quarter, driven by a 0.7% increase in average room rate and a 210 basis point increase in occupancy to 75.5%. The occupancy improvements were driven by a 5% increase in transient demand, based on average rooms sold per night. Group revenues were essentially flat during the quarter, as improvements during January and February were offset by weaker group demand in March due in part to the shift of the Easter holiday into the first quarter in 2016.
- Comparable RevPAR at the Company’s domestic properties improved 3.4% for the quarter. The strongest domestic markets in the first quarter were the San Francisco and Los Angeles markets, with RevPAR increases of 12.5% and 12.2%, respectively. The Company’s Boston and Denver properties lagged the portfolio with decreases in comparable hotel RevPAR for the quarter of 1.9% and 2.8%, respectively.
- On a constant dollar basis, RevPAR at the Company’s comparable international properties increased 9.6% for the quarter predominately due to an increase of 22.1% at the Company’s Latin American hotels, reflecting the stabilization in occupancy at the ibis and Novotel Rio de Janeiro Parque Olimpico properties, which opened in the fourth quarter of 2014, and increased travel related to the upcoming Olympic Games in Rio de Janeiro.
- The Company experienced a 1% increase in comparable food and beverage revenue for the quarter, which combined with well controlled labor and other costs, led to strong growth in food and beverage margins.
- Comparable hotel EBITDA margins increased 90 basis points for the quarter, leading to an increase in Comparable Hotel EBITDA of 6.8%. The improvements in margins were driven by an 11.3% decrease in utility costs at comparable hotels, reflecting mild winter weather, favorable gas and electric prices as well as the impact of the Company’s energy conservation projects. For the Company’s New York properties, where it recently completed steam-to-gas conversions for the New York Marriott Marquis and Sheraton New York, utility costs decreased 25%. Productivity improvements for the rooms and F&B departments accounted for the remainder of the margin improvements.
- NAREIT and Adjusted FFO per diluted share improved 17%, as improvements in operations, coupled with benefits from the Company’s recent share repurchases and lower interest expense due to refinancing efforts in 2015, led to a $.06 improvement on a per share basis.
- Net income increased $85 million to $184 million in the first quarter. Along with the improvement in operations discussed above, net income was affected by an increase in gain on sale of assets of $55 million in the first quarter.
SHARE REPURCHASE PROGRAM AND DIVIDENDS
Since its year-end 2015 earnings call on February 17, 2016, the Company has distributed $230 million of capital to its stockholders through dividends and stock repurchases. Year-to-date, the Company repurchased 5.1 million shares at an average price of $16.08 for a total purchase price of approximately $81 million. The Company currently has $242 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 paid a regular quarterly cash dividend of $0.20 per share on its common stock on April 15, 2016 to stockholders of record as of March 31, 2016. The Company is committed to sustaining a meaningful dividend, subject to approval by the Company’s Board of Directors.
CAPITAL ALLOCATION
The Company continues to 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. During the first quarter, the Company disposed of three non-core assets: the 200-room ibis Wellington, New Zealand; the 139-room Novotel Wellington, New Zealand; and the 350-room San Diego Marriott Mission Valley. Additionally, the Company has five hotels currently under contract which are expected to be sold in the second quarter, subject to customary closing conditions. For the eight properties disposed of or under contract in 2016, the combined average 2015 RevPAR was $112 compared to the Company’s first quarter 2016 comparable RevPAR of $166. The following table is a summary of our completed and pending disposition activity for 2016 (in US$ in millions):
Sale Price Mortgage Debt Repayment Net Proceeds Year-to-date 2016 Sales Novotel Wellington $ 22 $ 9 $ 13 San Diego Marriott Mission Valley 76 — 76 ibis Wellington 23 11 12 Total Sales $ 121 $ 20 $ 101 Hotels Under Contract (1) $ 340 $ — $ 340 ___________
(1) Represents five hotels currently under contract that are subject to various closing conditions. There can be no assurances that these properties will be sold in the second quarter or at the sales priced indicated.
The net impact on the Company’s forecast as a result of the 2016 sales discussed above, including the five properties under contract, is a decrease to net income (excluding gain on sale) and Adjusted EBITDA of $13 million and $30 million, respectively. This represents an increase of $5 million and $16 million, respectively, from our previous guidance.
BALANCE SHEET
The Company’s strong balance sheet is a key competitive advantage that provides flexibility to take advantage of opportunities throughout the lodging cycle, positioning the Company for external growth. Additionally, the Company’s long term unsecured debt currently maintains an investment grade rating. At March 31, 2016, the Company had approximately $234 million of cash and total debt of $4.0 billion, with an average maturity of 5.6 years and an average interest rate of 3.6%.
Subsequent to quarter end, the Company drew on its credit facility to repay the $100 million mortgage loan secured by the Hyatt Regency Reston hotel.
REDEVELOPMENT, RETURN ON INVESTMENT (“ROI”) AND ACQUISITION CAPITAL PROJECTS
The Company invested approximately $73 million in the first quarter on redevelopment, ROI and acquisition capital expenditures. Spending for the first quarter, which represents approximately 40% of the Company’s anticipated 2016 redevelopment and ROI expenditures, reflects the on-going redevelopment at the Marriott Marquis San Diego Marina, which will be completed in June, Denver Marriott Tech Center and Hyatt Regency San Francisco Airport, as well as the completion of several of the Company’s major 2015 redevelopments.
For 2016, the Company expects to invest approximately $185 million to $200 million in redevelopment projects, ROI, and acquisition capital expenditures or a decline of approximately $83 million from 2015.
RENEWAL AND REPLACEMENT EXPENDITURES
The Company invested approximately $94 million in the first quarter in renewal and replacement capital expenditures. Significant projects completed during the first quarter include the guestrooms at the Ritz-Carlton Marina Del Rey, Coronado Island Marriott Resort & Spa, and the Houston Marriott at the Texas Medical Center; and ballrooms at the Santa Clara Marriott, the Hyatt Regency Reston Marina Del Rey Marriott and the Costa Mesa Marriott.
For 2016, the Company expects to invest between $305 million to $320 million in renewal and replacement capital expenditures, a decrease of approximately $75 million from 2015.
EUROPEAN JOINT VENTURE
The European joint venture’s comparable hotel RevPAR decreased approximately 3.1% on a constant euro basis for the first quarter due to a decrease in occupancy of 410 basis points, as results were negatively affected by the tragic terrorist attacks in Brussels and Paris. On March 31, 2016, the Euro JV made a distribution of €33 million to its partners, of which Host’s share was approximately €11 million ($12 million).
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