Host Marriott Narrows Loss

The hotel REIT company benefits from the cyclical recovery in the sector.
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Updated from 2:43 p.m. EDT

Host Marriott's

(HMT)

third-quarter loss narrowed, meeting Wall Street estimates, as occupancies and room rates increased in another sign the cyclical travel industry recovery is chugging along.

The nation's largest lodging real estate investment trust recorded a net loss of $47 million, or 17 cents a share, an improvement over the $88 million, or 35 cents a share, it lost a year before.

Funds from operations, or FFO, which measures the cash flow generated by the company and is closely watched by Wall Street, came in at 6 cents a share, up from 3 cents a share a year ago. Excluding charges, Host Marriott's FFO was 11 cents a share, in line with the average analyst estimate.

Shares of the REIT reversed early losses and were up 17 cents, or 1.2%, to $14.65.

Revenue came in at $810 million, up 11% from $727 million a year ago, and more than the $798.4 million expected by analysts. Revenue per available room for comparable hotels, a key metric of industry performance, increased 7.9% year over year, driven by a 4.1% increase in the average daily room rate and a 2.6 percentage point increase in occupancies.

"We had a strong quarter, with very strong revpar growth and solid margin improvement,"said Christopher Nassetta, president and chief operating officer. "For the first time since late 2000, we saw meaningful rate growth and we expect the momentum achieved thus far in 2004 to continue to build in the fourth quarter and into next year."

In a conference call, Nassetta said the lodging industry is at the beginning of a "strong, sustained" recovery, adding that the company's hotels were successful in increasing room rates in the higher-priced premium and corporate segments.

Hurricanes affected hotels in Florida and Louisiana, with costs from property damage totaling between $2 million to $3 million, after insurance payments, the CEO said. Total loss of business from hurricanes would dent FFO by 1 cent to 2 cents a share, with the majority of that impact in the fourth quarter, he added.

Looking ahead, the company said it expects revpar for all of 2004 to increase between 6.0% and 7.0%. Based upon that forecast, Host Marriott predicts its full-year loss per diluted share will be between $62 million to $47 million, or 26 cents to 31 cents a share. Full-year FFO will likely be 67 cents to 72 cents a share. Excluding charges, the company said full-year FFO will come in between 86 cents a share and 91 cents a share, compared to the consensus estimate for 92 cents a share. Both forecasts do not include 2 cents a share for a change in accounting principles.

Host Marriott said it is not yet ready to provide "formal" guidance for 2005, but added that revpar could rise 5.0% to 7.0% next year.

Bear Stearns analyst Mark Abramson said Host Marriott's 7.9% revpar growth in the quarter was in line with previous guidance, though shy of his 8.4% estimate. "This is a modest slowdown from the increase of 8.8% in the second quarter, reflecting tougher comparables in the third quarter and not unexpected," he said.

The analyst noted Host Marriott "modestly" increased its full-year 2004 revpar expectations to between 6% and 7% from previous guidance of 5.5% to 7%. He reiterated his "outperform" rating on the stock based in part on what he said was a strong third quarter "at this late stage of the cyclical recovery." (Bear Stearns does business and seeks to do business with Host Marriott.)

When it reported second-quarter results, Host Marriott said it planned to pay a dividend between 4 cents and 6 cents a share in the fourth quarter and reinstate its quarterly dividend program in fiscal 2005.

The REIT owns or holds controlling interests in more than 110 hotels operating under a variety of brands, including Marriott, Ritz-Carlton, Hyatt, Four Seasons, Fairmont, Hilton and Westin.

Marriott International

(MAR) - Get Report

last week kicked off the industry's third-quarter earnings season with a solid performance, meeting Wall Street expectations for adjusted earnings of 55 cents a share and logging healthy revpar gains.

Industry leader

Starwood Hotels & Resorts

(HOT)

reports results next Thursday.

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