Host Hotels & Resorts Inc. Q1 2010 Earnings Call Transcript

Host Hotels & Resorts Inc. Q1 2010 Earnings Call Transcript
By Seeking Alpha ,

Host Hotels & Resorts Inc. (HST)

Q1 2010 Earnings Call

April 28, 2010 10:00 am ET

Executives

Greg Larson - EVP, Corporate Strategy and Fund Management

W. Edward Walter - President and CEO

Larry Harvey - EVP and CFO

Analysts

Bill Crow - Raymond James

Will Marks - JMP Securities

David Loeb - Baird

Joe Greff - JPMorgan

Chris Woronka - Deutsche Bank

Jeffrey Donnelly - Wells Fargo

Ryan Meliker - Morgan Stanley

Josh Attie - Citigroup

Smedes Rose - Keefe, Bruyette & Woods

Presentation

Operator

Compare to:
Previous Statements by HST
» Host Hotels & Resorts, Inc. Q4 2009 Earnings Call Transcript
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» Host Hotels and Resorts Inc. Q2 2009 Earnings Call Transcript

Good day and welcome to the Host Hotels and Resorts Incorporated First Quarter Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Executive Vice President, Mr. Greg Larson. Please go ahead sir.

Greg Larson

Well, thank you. Welcome to the Host Hotels and Resorts First Quarter Earnings Call. Before we begin, I'd like to remind everyone that many of the comments made today are considered to be forward-looking statements under Federal Securities Laws. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements.

Additionally, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA, and comparable hotel results. You can find this information together with reconciliations to the most directly comparable GAAP information in today's earnings press release, in our 8-K filed with the SEC, and on our website at hosthotels.com. This morning, Ed Walter, our President and Chief Executive officer will provide a brief overview of our first quarter results and then we'll describe the current operating environment as well as the company's outlook for 2010. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our first quarter results, including regional and market performance. Following their remarks, we will be available to respond to your questions. And now, here is Ed.

W. Edward Walter

Thanks, Greg. Good morning, everyone. After a challenging year in 2009, we are pleased to report that our first quarter operating results and trends were significantly better than we expected. As I will discuss in more detail, we experienced significant increases in transient demand and very encouraging trends on the group side of our business. While we still face challenges rebuilding our average rates, our recent operating results have returned positive on the top line and suggest that the industry is reaching an inflection point.

Turning to our results, first quarter RevPAR for our comparable hotels decreased by 2.3% driven by a decrease in average room rate of 8.7%, which was offset by an increase in occupancy of 4.3 percentage points. For the quarter our average rate was at $167 and our average occupancy was 65.5%. Our top line results improved on a relative basis each month of the quarter and turned positive in March. As you may remember, due to the timing of our reporting period, our first quarter does not include the operating results for a significant portion of our portfolio for the month of March.

Adjusting our results to reflect the inclusion of all of our assets for the calendar quarter would result in a RevPAR decline of only 1%. Food and beverage revenues at our comparable hotels decreased 3.7% for the quarter and total revenues fell by 3.9%. While our managers continue to strive to control cost, the combination of increased occupancy, continued pressure on average rate, and a meaningful reduction in attrition and cancellation fee resulted in a decrease in comparable hotel-adjusted operating profit margin of 275 basis points for the quarter.

First quarter adjusted EBITDA for Host was a $126 million. FFO per diluted share for the quarter was $0.08, which included a reduction of $0.01 as a result of cost associated with the prepayment of debt and an accrual related to the potential San Antonio litigation loss. Overall, we are very pleased that our adjusted EBITDA and FFO per share diluted results materially exceeded our expectation.

Turning to our business mix for the quarter, the demand trends that developed over the second half of 2009 accelerated in the first quarter of 2010 positively impacting our business mix on a wider scale. For the third straight quarter, we experienced year-over-year growth in our transient business with an overall increase in transient room nights of more than 12%. More importantly this increase in demand was led by our special corporate business where room nights increased more than 28% and our premium and corporate segments where room nights increased for the first time in nine quarters at a rate of nearly 9%.

Special corporate demand growth was especially strong in our luxury properties, which experienced a demand increase in that segment of more than 50%. While average rates in both of these corporate segments were still down by roughly 8%, these are solid indicators of improvements in corporate travel, which is required for the industry to commence a true recovery. Overall, the positive shift in business mix in the transient segment for the first time since the summer of 2008 held the decline in the overall average rates to 7.7%, which led to a transient revenue increase of 3.6%.

On the group side, frankly, we were pleasantly surprised by the pace of our short-term bookings during the quarter. At the beginning of the year, we faced a 4% shortfall in the first quarter taking into account the record cancellations we experienced in the early months of 2009 and roughly a 6% shortfall for the entire year. At the end of the quarter, group demand improved by 0.5% for the quarter and our full-year bookings are now trending ahead of the prior year's pace.

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