Host Hotels & Resorts, Inc (HST)

Q3 2010 Earnings Call

October 13, 2010 10:00 am ET

Executives

Greg Larson - SVP, IR

Ed Walter - President & CEO

Larry Harvey - EVP & CFO

Analysts

Felicia Hendrix - Barclays Capital

Joe Greff - JPMorgan

Smedes Rose - KBW

Ryan Meliker - Morgan Stanley

Jeff Donnelly - Wells Fargo Securities

Presentation

Operator

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Previous Statements by HST
» Host Hotels & Resorts Inc. Q2 2010 Earnings Call Transcript
» Host Hotels & Resorts Inc. Q1 2010 Earnings Call Transcript
» Host Hotels & Resorts, Inc. Q4 2009 Earnings Call Transcript

Good day and welcome to the Host Hotels and Resorts Incorporated Third 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 Executive Vice President Mr. Greg Larson. Please go ahead, sir.

Greg Larson

Well thank you. Welcome to the Host Hotels and Resorts third 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 and 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 third quarter results and then we'll describe the current operating environment as well as the company's outlook for the remainder of 2010. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our third quarter results, including regional and market performance. Following the remarks, we will be available to respond to your questions. And now here is Ed.

Ed Walter

Thanks, Greg. Good morning, everyone. We are pleased to report another strong quarter with solid RevPAR growth driven for the first time in a while by improvements in average rates and continued transaction activity as we completed great acquisitions in several key target markets.

First, let's talk about our third quarter results. Our comparable hotel RevPAR for the third quarter increased 8.8% driven by an increase in our average rate of 4.5% and an increase in occupancy of 2.9 percentage points. Our average rate was $162 and our average occupancy for the quarter was 73.3%. Our properties benefited from strong group demand which drove a 6.2% increase in comparable food and beverage revenues, ancillary revenues, net of cancellation fee increased by just 1.6%. Comparable hotel revenue growth of 6.9% combined with an increase in comparable hotel adjusted operating profit margin of 150 basis points resulted in adjusted EBITDA of $163 million for the third quarter which represented an increase of $24 million from the prior year.

FFO per diluted share after a reduction of $0.02 related to debt repayment and acquisition costs was $0.11 for the quarter.

On a year-to-date basis comparable hotel RevPAR increased 5.6% and comparable F&B revenues grew just 4.3%. Total year-to-date revenue growth of 3.7% combined with comparable hotel adjusted operating profit margins that declined 20 basis points, resulted in a year-to-date adjusted EBITDA of $539 million and year-to-date FFO per diluted share of $0.42.

RevPAR growth in our portfolio has been consistently strong since April of this year. As we have transitioned more fully into a recovery, the composition of that RevPAR growth has turned more favorable as the improvement has been increasingly driven by increases in average rate. We are also continuing to benefit from a shift in business mix towards higher rated segments, and these improving demand trends allow us to be less reliant on just booking discounted business.

While these trends were apparent in both our group and transient businesses during the third quarter the actual beneficial impact differed. On the transient front our 8.6% revenue improvement was primarily driven by an increase in transient rate of nearly 7% led by an 11% average rate increase in our premium corporate business. Our overall transient demand growth of nearly 2% was generated primarily by an increase of 34% in special corporate business, which more than offset a 7% reduction in discount room night.

We would expect to see additional strengthening on the rate side as our business mix continues to shift more towards the higher rated segment, and as the impact of last year's special corporate rate which were determined during the weak environment diminished and are replaced by higher price contracts.

On the group side the strengthening demand trend we have been enjoying all year carried into the third quarter as group revenues improved by more than 9%. The bulk of this improvement was caused by an almost 8% increase in room night although we still benefited from a 1.3% increase in average rate, which was our first average rate increase in the group sector since the fourth quarter of 2008.

The demand growth was led by association businesses which grew by more than 11% and our luxury corporate segment which increased by 27%. While we benefited from demand growth in all segments; the lowest increase was in the discount segment. Adjusted with the pattern we have been experiencing this year our booking cycle continues to be very short-term. Bookings in the quarter, for the quarter exceeded last year's strong pay and well above levels we experienced in 2007.

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