Host Hotels & Resorts, Inc. Reports Strong Operating Performance For The Third Quarter

Host Hotels & Resorts, Inc. (NYSE: HST), the nation’s largest lodging real estate investment trust (“REIT”), today announced results of operations for the third quarter ended September 7, 2012.?

Operating Results

(in millions, except per share and hotel statistics)

N/M=Not Meaningful

* NAREIT Funds From Operations (“FFO”) per diluted share, Adjusted FFO per diluted share (which excludes debt extinguishment costs and other expenses), Adjusted EBITDA (which is earnings before interest, taxes, depreciation, amortization and other items) and comparable hotel operating results (including comparable hotel revenues and comparable hotel adjusted operating profit margins) 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 discussion included in this press release on why the Company believes these supplemental measures are useful, reconciliations to the applicable GAAP measure and the limitations on their use.

The increase in total revenues for the third quarter and year-to-date 2012 reflect the improved performance of the Company’s owned hotels as comparable hotel RevPAR increased 7.6% and 6.7% and comparable food and beverage revenues increased 4.5% and 5.4% for the third quarter and year-to-date, respectively. In addition, year-to-date 2012 revenues benefited from the results of the ten hotels (nearly 4,000 rooms) that were acquired during 2011 and the acquisition of the Grand Hyatt Washington, D.C. on July 16, 2012. These acquisitions increased revenues by an incremental $61 million year-to-date.

The increase in comparable hotel RevPAR was primarily driven by improvements in average room rates coupled with continued occupancy growth. For the third quarter and year-to-date, average room rates improved 4.7% and 3.9%, respectively, while occupancy improved 2.1 percentage points to 78.4% and 2.0 percentage points to 75.4%, respectively. The improvements in revenues led to strong margin growth as comparable hotel adjusted operating profit margins increased 285 basis points and 170 basis points for the third quarter and year-to-date 2012, respectively.

Investments

• Redevelopment and Return on Investment Expenditures – The Company invested approximately $24 million and $122 million in the third quarter and year-to-date 2012, respectively, in redevelopment and return on investment (“ROI”) expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company’s properties. Three properties where we recently completed extensive redevelopment work, the Atlanta Marriott Perimeter Center, the Chicago Marriott O’Hare and the Sheraton Indianapolis, have performed exceptionally well. On average, RevPAR increased 38% for both the quarter and year-to-date 2012 when compared to the pre-construction period in 2010. Due to the significant capital expenditures affecting nearly every aspect of these properties including, in the case of the Sheraton Indianapolis, the conversion of one hotel tower into apartments, these properties are excluded from our comparable results. The Company expects investment in ROI expenditures for 2012 will total approximately $165 million to $175 million.
• Acquisition Expenditures ? In conjunction with the acquisition of a property, the Company prepares capital and operational improvement plans designed to maximize profitability and enhance the guest experience. On October 1, 2012, the Company converted the former New York Helmsley Hotel (which was acquired in March 2011) to the Westin New York Grand Central, with the grand opening scheduled later this month. The hotel is only the second Westin-branded property in the city and the conversion included a complete renovation of all 774 guest rooms, the ballroom and meeting space, fitness center, lobby and public areas, as well as the development of a new bar and restaurant. The Company spent approximately $25 million and $89 million on acquisition projects in the third quarter and year-to-date, respectively, and expects to invest between $125 million and $135 million for 2012.
• Renewal and Replacement Expenditures – The Company invested approximately $66 million and $245 million in renewal and replacement expenditures during the third quarter and year-to-date 2012, respectively. These expenditures are designed to ensure that the high-quality standards of both the Company and its operators are maintained. During the quarter, we completed the renovation of the 834 rooms at the Hyatt Regency Washington and 45,000 square feet of meeting space at the New York Marriott Marquis. The Company expects that renewal and replacement expenditures for 2012 will total approximately $330 million to $340 million.

Value Enhancement Projects

In addition to the investments described above, the Company looks to enhance the value of its portfolio by identifying and executing strategies designed to maximize the highest and best use of all aspects of its properties. On July 30, 2012, the Company leased the retail and signage components of the New York Marriott Marquis Times Square to Vornado Realty Trust (“Vornado”). Vornado will redevelop and expand the existing retail space, including converting the below-grade parking garage into high-end retail space and creating six-story, block front, LED signage spanning over 300 linear feet at an estimated cost of $140 million. As a result of the agreement, the annual base rental income is now well in excess of the previous rental income for the leased space. Furthermore, once Vornado completes the planned redevelopment, the Company has the potential to realize significant additional incentive rental income. The lease has a 20-year term with options that, upon exercise, would require title to the retail space to be conveyed to Vornado for a sales price based on future cash flows in the year of sale.

Balance Sheet

The Company continued to execute its strategy of extending its debt maturities and lowering its overall cost of debt. Year-to-date, the Company has issued $1.5 billion of debt, with a weighted average interest rate of 3.7%, and used the proceeds, along with available cash, to repay $1.8 billion of debt with a weighted average interest rate of 6.6%. As a result of these transactions, the Company has decreased its weighted average interest rate by approximately 80 basis points, to 5.5%, and lengthened its weighted average debt maturity to 5.4 years.

During the quarter, the Company entered into a $500 million term loan through an amendment to its credit facility. The term loan has a five-year maturity and a floating interest rate of LIBOR plus 180 basis points, approximately 2.0%, based on the Company’s leverage level at September 7, 2012. Additionally, the Company issued $450 million of 4?% Series C senior notes due 2023 at the lowest interest rate for senior notes in the Company’s history. The proceeds from these issuances were used to redeem the remaining $650 million of 6?% Series O senior notes due 2015 and $150 million of 6?% Series Q senior notes due 2016 and for general corporate purposes.

As of September 7, 2012, the Company had $254 million of cash and cash equivalents and $751 million of available capacity under its credit facility.

European Joint Venture

On July 26, 2012, the second fund of the Company’s joint venture in Europe (“Euro JV Fund II”), in which the Company holds a 33.4% interest, acquired the 192-room Le Meridien Grand Hotel in Nuremberg, Germany, for approximately ?30 million ($37 million). The Company contributed approximately ?10 million ($13 million) to the Euro JV Fund II in connection with this acquisition.

Dividend

On September 17, 2012, the Company’s board of directors authorized a regular quarterly cash dividend of $.08 per share on its common stock. The dividend is payable on October 15, 2012 to stockholders of record on September 28, 2012. The amount of any future dividend is dependent on the Company’s taxable income and will be determined by the Company’s Board of Directors.

2012 Outlook

The Company anticipates that for 2012:

• Comparable hotel RevPAR will increase 6.25% to 7.0%;
• Total revenues under GAAP would increase 7.2% to 7.7%;
• Total comparable hotel revenues would increase 5.4% to 6.0%;
• Operating profit margins under GAAP would increase approximately 160 basis points to 190 basis points; and
• Comparable hotel adjusted operating profit margins will increase approximately 135 basis points to 150 basis points.

Based upon these parameters, the Company estimates that its 2012 guidance is as follows:

• earnings per diluted share should range from approximately $.15 to $.17;
• net income should range from $109 million to $126 million;
• NAREIT FFO per diluted share should be approximately $1.01 to $1.04;
• Adjusted FFO per diluted share should be approximately $1.06 to $1.09; and
• Adjusted EBITDA should be approximately $1,155 million to $1,175 million.

See the 2012 Forecast Schedules and Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecasted results.

Source: Host Hotels and Resorts