BETHESDA, Md., July 29, 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 second quarter of 2016.
“Consistent with our disciplined approach to capital allocation and active portfolio management, we completed the sale of five non-core properties for a total of $345 million and repurchased 5.2 million shares at an average price of $15.39,” said W. Edward Walter, President and Chief Executive Officer. “Importantly, we invested a portion of the proceeds to acquire the ground lease under the Key Bridge Marriott, which is located along the Potomac River with dynamic views of the Washington, D.C. cityscape. Notwithstanding variances in top-line performance across markets, we achieved strong margin growth, driven by improvements in productivity and efficiency across the portfolio and by food and beverage operations, resulting in strong EBITDA and FFO growth.”
OPERATING RESULTS (in millions, except per share and hotel statistics) Quarter ended June 30, Percent Year-to-date ended June 30, Percent 2016 2015 Change 2016 2015 Change Total revenues $ 1,459 $ 1,439 1.4 % $ 2,798 $ 2,741 2.1 % Comparable hotel revenues (1) 1,323 1,288 2.7 % 2,513 2,441 2.9 % Net income 351 214 64.0 % 535 313 70.9 % Adjusted EBITDA (1) 436 422 3.3 % 782 743 5.2 % Change in comparable hotel RevPAR: Domestic properties 2.0 % 2.6 % International properties – Constant US$ 2.3 % 5.8 % Total – Constant US$ 2.0 % 2.7 % Diluted earnings per share .47 .28 67.9 % .71 .41 73.2 % NAREIT FFO per diluted share (1) .49 .43 14.0 % .90 .78 15.4 % Adjusted FFO per diluted share (1) .49 .46 6.5 % .90 .81 11.1 %
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(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.
GAAP OPERATING PERFORMANCE
- The Company’s net income increased $137 million for the quarter and $222 million year-to-date, primarily as a result of gains on the sale of non-core assets and operating profit growth. The improvement in RevPAR and food and beverage (“F&B”) revenues helped drive GAAP operating profit margin growth of 100 basis points and 90 basis points for the quarter and year-to-date, respectively. Gains on dispositions increased $119 million and $174 million for the quarter and year-to-date, respectively, as a result of the $466 million of dispositions completed thus far in 2016. The impact of this activity was an increase in diluted earnings per share of 68% and 73% for the quarter and year-to-date, respectively.
KEY COMPANY METRICS
- Adjusted EBITDA increased $14 million, or 3.3%, for the quarter and $39 million, or 5.2%, year-to-date, driven by increases of 5.0% and 5.7%, respectively, in comparable hotel EBITDA. This increase was primarily a result of strong margin improvement, a significant increase in F&B revenues, and comparable RevPAR increases. The growth in Adjusted EBITDA was partially offset by our successful 2016 asset sales which reduced year-to-date growth by 110 basis points.
- Comparable RevPAR on a constant dollar basis improved 2.0% for the quarter, driven by a slight increase in average room rate and a 120 basis point increase in occupancy to 82.4%, the highest occupancy level since 2000. The increase in occupancy was driven by strong group and leisure business; however, an unfavorable business mix shift from higher rated corporate transient demand to lower rated discount business affected average room rates. Year-to-date, comparable RevPAR on a constant dollar basis increased 2.7%, largely driven by a 170 basis point increase in occupancy.
- Comparable RevPAR at the Company’s domestic properties improved 2.0% for the quarter and 2.6% year-to-date. The Los Angeles and Washington, D.C. markets outperformed the portfolio during the second quarter, with RevPAR increases of 9.1% and 5.5%, respectively. The Company’s New York and Florida properties lagged the portfolio, with decreases for the quarter of 4.9% and 2.2%, respectively.
- RevPAR at the Company’s comparable international properties increased 2.3% in the second quarter and 5.8% year-to-date, on a constant dollar basis. The increase was predominantly due to strength at Latin America properties, driven by pre-Olympic test business, and partially offset by the Company’s Canadian properties, which continue to be negatively impacted by the oil markets and renovations.
- The Company’s F&B revenues grew 4.5% for the quarter, which was positively impacted by strong growth in banquet and audio visual revenues of 6.6% in the quarter. Banquet revenues were driven by strong performances in the San Francisco and Boston markets.
- The improvement in RevPAR and F&B revenues helped drive comparable hotel EBITDA margin growth of 65 basis points and 75 basis points for the quarter and year-to-date, respectively. In addition to the strong growth in F&B revenues, operating profit was positively impacted by the successful execution of cost control initiatives at many of our larger resort and convention hotels over the past two years.
- As a result of the improvements in operating results described above, a reduction in interest expense, as well as the repurchase of 42.1 million shares over the past 12 months, Adjusted FFO per share increased 6.5% and 11.1% for the quarter and year-to-date, respectively.
SHARE REPURCHASE PROGRAM AND DIVIDENDS
Since January 1, 2016, the Company has distributed $610 million of capital to its stockholders through dividends and stock repurchases. The Company repurchased 5.2 million shares at an average price of $15.39 for the quarter and 10.3 million shares at an average price of $15.73 year-to-date, for a total year-to-date purchase price of approximately $162 million. The Company has $162 million of remaining authorized repurchase capacity under its share repurchase program. 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 July 15, 2016 to stockholders of record as of June 30, 2016. The Company is committed to sustaining a meaningful dividend, subject to approval by the Company’s Board of Directors.
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