Host Hotels & Resorts, Inc. — 2012 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2012 and combines Host Hotels & Resorts, Inc. (a REIT) and Host Hotels & Resorts, L.P.; substantially all operations and debt reside in the partnership. At year-end the company reported 119 consolidated hotels; its portfolio listing as of February 25, 2013 reflects 118 hotels. The portfolio focuses on luxury and upper-upscale hotels, primarily in urban and resort/conference markets, and hotels are operated by third-party managers.
Financial and operating performance
| Metric | 2012 | 2011 | Change / context |
|---|---|---|---|
| Total revenue | $5.286 billion | $4.924 billion | Up 7.4% |
| Operating profit / GAAP margin | $383 million / 7.2% | $326 million / 6.6% | Profit up 17.5%; margin up 60 bps |
| Net income (loss) | $63 million | $(16) million | 2012 included $50 million income from discontinued operations |
| Diluted EPS | $0.08 | $(0.02) | Host L.P. diluted earnings per unit were $0.09 |
| Adjusted EBITDA | $1.190 billion | $1.018 billion | Up 16.9%; non-GAAP measure |
| NAREIT FFO / adjusted FFO per diluted share | $1.04 / $1.10 | $0.89 / $0.92 | Up 16.9% / 19.6%; non-GAAP measures |
| Comparable hotel RevPAR | $142.48 | $133.87 | Up 6.4%; room rate up 3.6%, occupancy up 2.0 percentage points to 74.5% |
| Cash from operating activities | $782 million | $661 million | Up $121 million |
| Capital expenditures | $638 million | $542 million | Renewals and replacements $366 million; redevelopment/ROI $272 million |
| Cash and cash equivalents | $417 million | $826 million | Year-end cash declined $409 million |
| Total debt | $5.411 billion | $5.753 billion | Down $342 million |
Comparable hotel adjusted operating profit margin increased to 24.0% from 22.6%. The company attributed improvement to higher room rates and occupancy, stronger corporate and group demand, and lower utility costs. GAAP operating profit and comparable hotel results have different scopes; comparable measures exclude certain items and should not be treated as GAAP results.
Fourth quarter. 2012 Q4 revenue was $1.746 billion, operating profit $117 million, continuing-operations income $14 million and net income $15 million. For 2011 Q4, the corresponding reported figures were $1.634 billion, $122 million, $19 million and $16 million. Comparisons are affected by differing reporting calendars: the 2012 Q4 statement period covered 115 days versus 113 days in 2011.
Debt, liquidity and capital allocation
- Year-end debt was $5.411 billion; 78% carried fixed interest rates. Weighted-average interest rate was 5.4% and weighted-average maturity 5.1 years. The credit-facility leverage ratio was 4.2x, within its 7.25x maximum; the company reported compliance with its financial covenants.
- Cash of $417 million plus $737 million of available credit-facility capacity provided approximately $1.154 billion of reported cash and borrowing availability.
- Debt maturities included $278 million in 2013, $642 million in 2014 and $675 million in 2015. The 2014 amount includes $175 million of exchangeable debentures subject to a holder put option.
- In 2012, the company issued approximately $1.5 billion of debt and repaid approximately $1.9 billion, refinancing higher-cost debt and reducing its weighted-average borrowing cost. It also issued 17.5 million common shares through at-the-market offerings for $271 million net proceeds.
- Common dividends declared were $0.30 per share for 2012, up from $0.14 in 2011. In February 2013, the board authorized a $0.10 quarterly dividend.
Material changes, outlook and risks
- Revenue growth reflected improved hotel trading and acquisitions, including the Grand Hyatt Washington; comparable RevPAR rose 6.4%. Total company revenue also included acquired-hotel contributions and other revenue items.
- Net income included a $48 million net gain on hotel dispositions and a $60 million non-cash impairment charge for The Westin Mission Hills Resort & Spa. Debt extinguishment costs were $35 million; the company reported interest expense of $373 million.
- Management forecast 2013 comparable RevPAR growth of 5%–7% and comparable food-and-beverage and other revenue growth of approximately 2%–4%. It expected demand to outpace supply, with RevPAR growth mainly rate-driven, but cited economic uncertainty and slower expected growth in Europe.
- Planned 2013 capital spending was $130–$150 million for redevelopment/ROI projects and approximately $270–$290 million for renewals and replacements. The latter was expected to be about 20% below 2012 spending.
- Litigation: A Texas Supreme Court appeal concerns the San Antonio Marriott Rivercenter ground-lease dispute. The company accrued approximately $58 million; it disclosed maximum exposure of approximately $66 million. The outcome remains uncertain.
- Joint-venture debt: Certain Euro JV loans secured by six hotels had covenant defaults and cash sweeps, with a waiver through the April 2013 maturity while extension discussions continued. Refinancing could require stricter terms and additional partner equity; Host’s stated share of the affected loans was €108 million. These JV borrowings are non-recourse to Host.
- Other risks include lodging-cycle and economic weakness, labor and operating-cost pressures, substantial ongoing renovation needs, reliance on third-party hotel managers, interest-rate and foreign-exchange exposure, potential uninsured property losses, and REIT qualification and distribution requirements. Hurricane Sandy disrupted New York operations; Christchurch earthquake insurance claims remained partly unsettled, with an $11 million receivable reported.
Most important facts for investors to verify
- Reconcile 2012 reported net income with the material disposition gain, impairment, discontinued operations and litigation accrual; review the relevant non-GAAP reconciliations.
- Confirm the status and potential resolution cost of the San Antonio litigation and whether the accrued amount remains adequate.
- Track the Euro JV loan extensions, covenant waivers, cash sweeps and any additional equity funding required from Host.
- Assess refinancing and liquidity against the 2013–2015 maturity schedule, exchangeable-debenture put options, capital spending and dividend commitments.
- Compare actual 2013 RevPAR, revenue and capital expenditure results with management’s stated outlook, accounting for the change to calendar-quarter reporting in 2013.
- Review the filing’s audited financial statements and covenant definitions when assessing leverage; the company’s 4.2x ratio is calculated under credit-agreement terms and is not a general debt-to-EBITDA measure.