Host Hotels & Resorts, Inc. Reports Slight Increase of 0.6% in Revenues for First Quarter 2015

Comparable RevPAR on a constant dollar basis improved 3.8% for the quarter, driven by rate growth of 4.8%, partially offset by a decrease in occupancy of 0.7 percentage points.

Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust, last week announced results of operations for the first quarter of 2015.

First quarter 2015 results reflect the following:

• Comparable RevPAR on a constant dollar basis improved 3.8% for the quarter, driven by rate growth of 4.8%, partially offset by a decrease in occupancy of 0.7 percentage points. The Company's comparable operating results were significantly affected by disruption related to the renovation of guest rooms and public spaces. For the 85 hotels with no renovation disruption in either of the first quarter of 2014 and 2015, RevPAR increased 5.5% on a constant dollar basis.
• The Boston market had very strong RevPAR growth of 20.5% for the quarter, benefiting from improvements in group demand in 2015 and less disruption as a result of the completion of significant renovations in 2014. Consistent with recent trends, the west coast markets had strong operating results, especially San Francisco where RevPAR increased 15.4%. Driven by strong group and transient demand, this market experienced a 10.3% improvement in rates with occupancy levels in excess of 81%.
• During the first quarter, the Company's New York and Washington, D.C. markets continued to lag the portfolio. In New York several factors contributed to softer demand and overall pricing weakness, including a reduction in city-wide events, particularly the Super Bowl in the first quarter of 2014, and a series of winter storms, as well as increased supply. In Washington, D.C., results were negatively affected by significant room renovations at several of the Company's largest properties, including the Grand Hyatt Washington, JW Marriott Washington, D.C. and Hyatt Regency Reston.
• Total revenues increased 0.6% for the quarter, reflecting revenue growth of 3.0% at the Company's comparable properties, partially offset by disposition activity that exceeded acquisitions over the past twelve months that reduced total revenues by $23 million for the quarter.
• The Company's comparable room revenue increased 3.0% for the quarter, reflecting a 3.8% increase in comparable RevPAR on a constant dollar basis, partially offset by currency translation effects for our international properties. Comparable results were affected by international properties, which had a RevPAR increase of 1.3% in constant dollars. Excluding the Calgary Marriott Downtown from the international results, which experienced a RevPAR decrease of 42% during the quarter due to renovations, the Company's international properties had a RevPAR increase of 6.0% in constant dollars.
• Adjusted EBITDA increased $13 million in the quarter reflecting improvements in the operating results of the Company's portfolio. In the first quarter, Adjusted EBITDA was negatively affected by hotel dispositions and currency fluctuations. The net effect of dispositions and acquisitions is estimated to have decreased net income by $4 million and Adjusted EBITDA by $6 million, while the effect of currency fluctuations is estimated to have decreased Adjusted EBITDA by $4 million, with no impact to net income.
• Comparable hotel EBITDA increased 5.0% for the quarter, resulting in an increase in comparable hotel EBITDA margin of 50 basis points compared to the first quarter 2014.
• Adjusted FFO per diluted share increased 6.1% to $0.35 per share for the quarter.
• Net income decreased $81 million to $104 million for the quarter, as the increase in operations was offset by a decrease in gains on asset sales of $108 million.

Share Repurchase Program

As the Company has achieved its long term balance sheet objectives and expects to continue to generate cash from operations and proceeds from asset sales, its Board of Directors has authorized a program to repurchase up to $500 million of common stock. The common stock may be purchased in the open market or through private transactions from time to time over the next 18 months depending upon market conditions. The level of purchases will also depend upon operating results, funds generated by sales activity, dividends that may be required by those sales, and investment options that may be available, including reinvesting in the portfolio or acquiring new hotels, as well as maintaining the Company's strong leverage position. The plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at its discretion.

Rebranding and Franchise Opportunities

The Company continued to make significant progress on its strategic initiative to evaluate and opportunistically adjust the operator, brand and contract terms of each of its hotels. This may include new relationships with independent operators that may be an improved fit for smaller or unique properties. 

• During the second quarter the Company completed an agreement to convert The Ritz-Carlton, Phoenix to an independent hotel to be operated by Destination Hotels. The property will close in July 2015 for extensive renovation work and will reopen early in 2016 as part of the Autograph Collection, a diverse collection of high-personality independent hotels worldwide.
• The Company will close its Four Seasons Philadelphia property in June 2015 in order to expedite renovation and rebranding efforts to convert this property to a contemporary, independent luxury hotel to be operated by Sage Hospitality. The Company anticipates reopening this property by the end of the year.

Redevelopment, Return On Investment ("ROI") and Acquisition Capital Projects

The Company invested approximately $45 million in the first quarter on redevelopment, ROI and acquisition capital expenditures. Projects completed during the first quarter include the conversion of a restaurant to 4,800 square feet of meeting space at the Hilton Melbourne South Wharf and the conversion of underutilized space at the Hyatt Regency Maui Resort & Spa into 6,300 square feet of meeting space.

For 2015, the Company anticipates completing several large-scale redevelopment projects which entail the closure of hotels and meeting spaces. The Company expects that redevelopment projects, ROI, and acquisition capital expenditures for 2015 will range from $270 million to $285 million.  

Renewal and Replacement Expenditures

The Company invested approximately $125 million in renewal and replacement capital expenditures during the first quarter 2015, an increase of approximately 65% over the first quarter of 2014 and approximately 35% of the forecast expenditures for the year. During the quarter, major projects in process included rooms renovations at the Calgary Marriott Downtown, JW Marriott Washington, D.C., JW Marriott Houston, San Antonio Marriott Riverwalk, Westin South Coast Plaza Costa Mesa and the Westin Chicago River North, as well as lobby and meeting space renovations at the Grand Hyatt Washington, the Westin Seattle and Boston Marriott Copley Place. For 2015, the Company expects that overall renewal and replacement expenditures will total $335 million to $355 million.

Disposition      

In the first quarter, the Company was able to take advantage of strengthening investor demand in secondary/tertiary markets with the sale of the Delta Meadowvale Hotel & Conference Centre, Toronto, for total proceeds of C$42 million ($33 million), including the FF&E fund.

Balance Sheet

As of March 31, 2015, the Company had approximately $485 million of cash and cash equivalents and $815 million of available capacity under its credit facility. As of March 31, 2015, total debt was $4.0 billion, with an average maturity of five years and an average interest rate of 4.8%, including nearly 80% with a fixed rate of interest.

European Joint Venture

The European joint venture's comparable hotel RevPAR on a constant euro basis increased approximately 4.2% for the first quarter 2015. The comparable RevPAR results were driven by strength in transient business, leading to occupancy increases of 1.2 percentage points for the quarter and rate growth of 2.3%. The increase in comparable hotel RevPAR was partially offset by a decrease of 0.8% in comparable food and beverage revenues, which resulted in a total revenue increase of 2.7% at the European joint venture's comparable properties.

Dividend

The Company's 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 tax gains and losses from property sales. The Company paid a regular quarterly cash dividend of $.20 per share on its common stock on April 15, 2015 to stockholders of record on March 31, 2015. Any future dividend is subject to approval by the Company's Board of Directors.

2015 Outlook 

The Company expects a solid year of growth in its U.S. portfolio in 2015. Similar to the trends experienced in 2014, RevPAR growth is expected to be driven by strength in several of the Company's west coast markets, while growth in the New York and Washington, D.C.markets continue to be hindered by the recent new supply and renovation activity, respectively. Additionally, the operating results will be affected by the level of acquisitions and dispositions, renovation disruption and the expected continued strength of the US dollar on international operations. 

The Company anticipates that its 2015 operating results will change as follows: 

Based upon the above parameters, the Company estimates its 2015 guidance as follows (in millions, except per share amounts): 

See the 2015 Forecast Schedules and the Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecast results.

About Host Hotels & Resorts

Host Hotels & Resorts, Inc. is an S&P 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 97 properties in the United States and 16 properties internationally totaling approximately 59,000 rooms. The Company also holds non-controlling interests in five joint ventures, including one in Europe that owns 19 hotels with approximately 6,500 rooms and one in Asia that has interests in four hotels in Australia and India. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott^®, Ritz-Carlton^®, Westin^®, Sheraton^®, W^®, St. Regis^®, Le Meridien^®, The Luxury Collection^®, Hyatt^®, Fairmont^®, Hilton^®, Swissotel^®, ibis^®, Pullman^®, and Novotel^® as well as independent brands in the operation of properties in over 50 major markets worldwide. 

Host Hotels & Resorts, Inc., herein referred to as "we" or "Host Inc.," is a self-managed and self-administered real estate investment trust ("REIT") that owns hotel properties. We conduct our operations as an umbrella partnership REIT through an operating partnership, Host Hotels & Resorts, L.P. ("Host LP"), of which we are the sole general partner. When distinguishing between Host Inc. and Host LP, the primary difference is approximately 1% of the partnership interests in Host LP held by outside partners as of March 31, 2015, which is non-controlling interests in Host LP in our consolidated balance sheets and is included in net income attributable to non-controlling interests in our consolidated statements of operations. Readers are encouraged to find further detail regarding our organizational structure in our annual report on Form 10-K.