BETHESDA, Md., Nov. 02, 2016 (GLOBE NEWSWIRE) — 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 third quarter of 2016.
“We are pleased with our financial performance during the third quarter, as strong RevPAR growth drove significant comparable hotel profit increases,” said W. Edward Walter, President and Chief Executive Officer. “We have continued our disciplined approach to capital allocation and active portfolio management, which includes realizing profits as we completed our exit from New Zealand, and are now seeing the benefits of our broader strategy reflected in double-digit diluted EPS and Adjusted FFO per share growth year-over-year. We are also excited about the value we are creating through transformational redevelopment projects at several of our hotels, and looking ahead, see additional opportunities to enhance and further unlock the value of our real estate. We remain committed to delivering significant value to stockholders and have returned $802 million through dividends and stock repurchases year-to-date.”
OPERATING RESULTS (in millions, except per share and hotel statistics) Quarter ended September 30, Percent Year-to-date ended September 30, Percent 2016 2015 Change 2016 2015 Change Total revenues $ 1,295 $ 1,283 0.9 % $ 4,093 $ 4,024 1.7 % Comparable hotel revenues (1) 1,184 1,147 3.3 % 3,691 3,581 3.1 % Net income 108 87 24.1 % 643 400 60.8 % Adjusted EBITDA (1) 342 323 5.9 % 1,123 1,066 5.3 % Change in comparable hotel RevPAR: Domestic properties 2.8 % 2.7 % International properties – Constant US$ 29.0 % 14.3 % Total – Constant US$ 3.8 % 3.0 % Diluted earnings per share 0.14 0.11 27.3 % 0.85 0.53 60.4 % NAREIT FFO per diluted share (1) 0.37 0.34 8.8 % 1.28 1.12 14.3 % Adjusted FFO per diluted share (1) 0.37 0.34 8.8 % 1.28 1.15 11.3 % ___________
(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 and other non-GAAP financial measures identified in this press release 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 $21 million for the quarter and $243 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 helped drive GAAP operating profit margin growth of 70 basis points and 90 basis points for the quarter and year-to-date, respectively. Gains on dispositions increased $9 million and $183 million for the quarter and year-to-date, respectively, as a result of the $497 million of dispositions completed thus far in 2016. Net income also includes earnings from the receipt of $12 million in the third quarter for the reimbursement of operating losses at the New Orleans Marriott due to the 2010 Deepwater Horizon oil spill.
- Diluted earnings per share increased by 27.3% and 60.4% for the quarter and year-to-date, respectively, as a result of this activity, along with a reduction in interest expense and the repurchase of 45 million shares over the past 15 months.
- The Company’s total revenues increased 0.9% for the quarter and 1.7% year-to-date. The growth was driven by increases in room revenues, partially offset by lost revenue from hotel dispositions. Total food & beverage revenues declined slightly during the quarter as improvements in outlet revenues were offset by softness in banquet and audio/visual revenues, reversing the trend from the first half of the year.
ADDITIONAL KEY COMPANY METRICS
- Comparable hotel EBITDA improved $22 million, or 7.8%, for the quarter and $61 million, or 6.3%, year-to-date driven by strong comparable hotel EBITDA margin improvement of 110 basis points for the quarter and 90 basis points year-to-date. Group performance drove comparable revenue growth of 3.3% and 3.1% for the quarter and year-to-date, respectively; which, when coupled with productivity improvements at several of the Company’s larger hotels, led to the comparable hotel EBITDA growth. The comparable hotel EBITDA margins exclude the $12 million gain from the business interruption proceeds received due to the oil spill. However, the gain is included in Adjusted EBITDA discussed below.
- The improvement in comparable hotel EBITDA described above led to an increase in Adjusted EBITDA of $19 million for the quarter, and $57 million year-to-date, despite a reduction of $13 million in the quarter and $32 million year-to-date due to lost hotel EBITDA from 2015 and 2016 asset sales.
- Comparable RevPAR on a constant dollar basis improved 3.8% for the quarter due to a 2.2% increase in average room rate and a 120 basis point increase in occupancy to 81.3%. RevPAR growth was driven by increased group business, strong results from our consolidated international properties and the movement of several holidays into the fourth quarter. Year-to-date, comparable RevPAR on a constant dollar basis increased 3.0%, driven by a 1.1% increase in average room rate and a 150 basis point increase in occupancy.
- Comparable RevPAR at the Company’s domestic properties improved 2.8% benefiting from a strong increase in group revenue of 6.0% for the quarter. The San Diego, Hawaii and Washington, D.C. markets outperformed the portfolio during the third quarter, with RevPAR increases of 11.8%, 7.7% and 6.8%, respectively. The Company’s New York and San Francisco properties lagged the portfolio, with decreases for the quarter of 4.0% and 3.4%, respectively. Year-to-date, the Company’s comparable RevPAR for its domestic properties increased 2.7%.
- RevPAR at the Company’s comparable international properties increased 29% in the third quarter and 14.3% year-to-date, on a constant dollar basis, contributing 100 basis points for the quarter and 30 basis points year-to-date to total comparable RevPAR growth. During the quarter, the Company’s Canadian and Brazilian properties had outstanding results with RevPAR increases of 14.8% and 105%, respectively, with the performance in Rio de Janeiro driven by the Olympic and Paralympic Games.
- As a result of the improvements in operating results described above and the Company’s share repurchase program, described below, Adjusted FFO per share increased 8.8% and 11.3% for the quarter and year-to-date, respectively.
SHARE REPURCHASE PROGRAM, DIVIDENDS AND SPECIAL DIVIDENDS
Since January 1, 2016, the Company has distributed $802 million of capital to its stockholders through cash dividend distributions and stock repurchases.
The Company is committed to maintaining a meaningful dividend, subject to approval by the Company’s Board of Directors. The Company paid a regular quarterly cash dividend of $0.20 per share on its common stock on October 17, 2016 to stockholders of record as of September 30, 2016. The Company currently anticipates declaring a $0.25 dividend in the fourth quarter, which includes a special dividend of $0.05. All future dividends, including any special dividends, are subject to approval by the Company’s Board of Directors.
The Company repurchased 2.8 million shares at an average price of $16.04 for the quarter and 13.1 million shares at an average price of $15.79 year-to-date, for a total year-to-date purchase of approximately $206 million. The Company has $117 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.
CAPITAL ALLOCATION
The Company continued to strategically dispose of non-core assets in markets where it expects lower growth or higher capital expenditure requirements. Proceeds from the sales of these assets have been utilized for the stock repurchase program, capital expenditures, and other corporate initiatives to enhance stockholder value. During the third quarter, the Company disposed of its final two properties in New Zealand for $31 million and recognized a gain of $10 million. For the 10 properties disposed of in 2016, the combined average 2015 RevPAR was $109 compared to the Company’s year-to-date 2016 comparable RevPAR of $179. The following table is a summary of completed dispositions activity for 2016 (in US$ millions):
Sales Price Mortgage Debt Repayment Net Sales Price First Quarter Sales (three hotels) $ 121 $ 20 $ 101 Second Quarter Sales (five hotels) 345 — 345 Third Quarter Sales Novotel Christchurch Cathedral Square 19 10 9 ibis Christchurch 12 7 5 Total Sales $ 497 $ 37 $ 460
The 2016 full year guidance includes net income (excluding gains on sale) of $10 million and Adjusted EBITDA of $13 million that were earned by the hotels that have been sold during the year.
HOTEL MANAGEMENT OPPORTUNITIES
The Company continues to pursue opportunities to appropriately align each hotel with the best operator and brand to optimize operating performance within its specific market, in addition to improving brand flexibility at its properties. Currently, the Company has 13 consolidated properties managed by independent operators or subject to franchise agreements and an additional 16 agreements that have termination rights that, subject to certain conditions, can provide additional flexibility to the management agreement(1). During the third quarter, the Company renegotiated an additional management agreement resulting in a reduction in the overall management fee and added the ability to franchise the property at any time.
BALANCE SHEET
The Company’s strong balance sheet is a key competitive advantage that provides flexibility to take advantage of investment opportunities throughout the lodging cycle. An important component of this strategy is the Company’s investment-grade rating on its long-term unsecured debt, which along with its credit facility revolver and term loans, represents 98% of the Company’s outstanding borrowings. During the quarter, the Company drew down $50 million on the revolver portion of its credit facility.
At September 30, 2016, the Company had approximately $340 million of cash. Interest expense decreased $8 million for the quarter and $51 million year-to-date, reflecting a reduction in weighted average interest rates compared to prior year, as well as a reduction in debt extinguishment costs of $21 million year-to-date. As of September 30, 2016, total debt was $3.8 billion, with an average maturity of 5.3 years and an average interest rate of 3.7%. Subsequent to quarter end, the Company had net draws of $60 million on the revolver portion of its credit facility and currently has $628 million of available capacity remaining thereunder.
REDEVELOPMENT, RETURN ON INVESTMENT (“ROI”) AND ACQUISITION CAPITAL PROJECTS
The Company invested approximately $46 million and $187 million in the third quarter and year-to-date 2016, respectively, on redevelopment, ROI and acquisition capital expenditures. For full-year 2016, the Company expects to invest a total of approximately $200 million to $215 million in redevelopment projects, ROI, and acquisition capital expenditures.
Some of the Company’s current ROI projects include:
- The renovation and conversion of a restaurant into an additional 15,000 square feet of meeting space at the Hyatt Regency San Francisco Airport, representing the final aspect of an extensive, multi-faceted redevelopment at the hotel.
- The renovation of the Denver Marriott Tech Center, including newly designed guestrooms, additional meeting and public space, and a new concept restaurant. The project includes sustainability features such as LED lighting in guestrooms and public spaces, new energy-efficient HVAC units in guestrooms and high efficiency domestic hot water and boiler plant upgrades. The first phase has already been completed and the final phase is expected to be completed by the end of 2016.
- The significant renovation project at the Phoenician, expected to be completed over a two year period. The initial phase includes a redesign of the guest rooms and canyon suites and update to the façade and is expected to be completed during the fourth quarter of 2016. The second phase is expected to be completed in 2017 and includes a complete redesign and renovation of the main building public areas, pools and recreation areas, a restaurant and newly constructed spa and fitness building.
Additional information regarding the Company’s capital projects can be found at www.hosthotels.com.
RENEWAL AND REPLACEMENT EXPENDITURES
The Company invested approximately $57 million and $218 million in the third quarter and year-to-date 2016, respectively, in renewal and replacement capital expenditures. For 2016, the Company expects to invest a total of $300 million to $310 million in renewal and replacement capital expenditures.
EUROPEAN JOINT VENTURE
The European joint venture’s comparable hotel RevPAR on a constant euro basis declined approximately 2.6% and 2.3% for the third quarter and year-to-date 2016, respectively. The decrease in comparable hotel RevPAR was a result of slow economic growth and uncertain political climate that reduced demand, particularly at the joint venture’s properties in Brussels and Paris where operations have yet to return to the levels seen prior to the terrorist attacks in those cities.
To view full financial release and corresponding tables please click the PDF icon or visit: http://ir.hosthotels.com/phoenix.zhtml?c=60734&p=irol-newsArticle&ID=2218358
