Host Hotels & Resorts, Inc. — Q3 2009 Form 10-Q
Reporting period: Quarter ended September 11, 2009; year-to-date covers 36 weeks. Comparative periods ended September 5, 2008. Unless stated otherwise, amounts are in millions. Results are unaudited.
Business context and performance
Host is a REIT that owned 112 primarily luxury and upper-upscale hotels. Comparable hotel statistics cover those 112 properties. The filing notes hotel managers use differing reporting calendars, so reported periods do not align uniformly with calendar quarters.
| Metric | Q3 2009 | Q3 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Total revenue | $912 | $1,139 | $2,839 | $3,558 |
| Hotel sales | $890 | $1,117 | $2,763 | $3,479 |
| Operating profit (loss) | ($10) | $118 | $64 | $522 |
| Net income (loss) attributable to Host | ($55) | $47 | ($182) | $285 |
| Net income (loss) available to common stockholders | ($57) | $45 | ($188) | $279 |
| Diluted EPS | ($0.09) | $0.09 | ($0.33) | $0.53 |
| Cash provided by operations | Not presented by quarter | $370 | $715 |
- Comparable RevPAR fell 21.3% in Q3 and 22.3% YTD. Q3 comparable average room rate declined 16.2% and occupancy decreased 4.6 percentage points to 70.2%.
- Comparable hotel adjusted operating profit was $147 versus $262 in Q3 and $589 versus $949 YTD. This non-GAAP measure is not equivalent to consolidated operating profit.
- Q3 total hotel sales declined 20.3%; total operating costs and expenses declined less, by 9.7%, contributing to the operating loss. YTD depreciation and amortization rose to $478 from $377, including impairment charges.
Balance sheet, liquidity and financing
- At September 11, 2009, cash and equivalents were $1,019, up from $508 at year-end 2008. Total debt was $5,539, down from $5,876; total assets were $12,067 and total equity was $6,073.
- YTD operating cash flow was $370, investing activities used $35, and financing activities provided $176; cash increased $511. Investing cash use included $255 of capital expenditures, offset in part by asset-sale proceeds and affiliate capital returns.
- The company reported $600 of available revolving credit capacity and no outstanding credit-facility borrowings. Management stated liquidity and capital-market access were sufficient for near-term maturities and capital spending.
- Debt had a 6.7% weighted-average interest rate and 4.6-year weighted-average maturity; 90% was fixed-rate. There were no further 2009 maturities, but holders could put $325 of 2004 exchangeable debentures to the company in April 2010.
- YTD capital raising included common equity, debt, mortgage financing and hotel sales. The company issued 75.75 million shares for $480 in April and approximately 13 million shares under an at-the-market program for about $130 net proceeds; approximately $22 of the latter proceeds arrived after quarter-end. The ATM program authorized up to $400 in aggregate offerings.
- Debt actions included repayment of the credit-facility term loan, repayment of the $175 San Diego Marriott mortgage at maturity, prepayment of the $135 Westin Kierland mortgage, and repurchases of exchangeable debentures. The company issued $400 face amount of 9% senior notes in May.
Changes, outlook and notable items
- Management said hotel results were slightly better than expected in Q3, but expected weak lodging demand through the rest of 2009 and at least the first half of 2010. It anticipated continued pressure on room rates, group and transient demand, corporate travel, banquet and food-and-beverage revenues; recovery was tied to sustained improvement in economic indicators. No numerical earnings or RevPAR guidance was provided.
- Management observed some slowing in negative trends and more short-term bookings, but said group booking pace remained below 2008 and forecasting group demand was difficult. Luxury hotels were expected to underperform other property types near term.
- YTD noncash impairment charges totaled $131: $97 for hotel properties, including $31 classified in discontinued operations, and $34 for a European joint-venture investment. No property or European JV impairment was recorded in Q3.
- Five hotels were disposed of during 2009; Q3 included four hotel sales with approximately $90 net proceeds and a reported $9 aggregate gain net of tax. The remaining 3.6% interest in CBM JV was sold for about $13, with a $5 net-of-tax gain; Q3 results also included a $12 tax benefit from reversing a deferred tax liability.
- The European joint venture had €724 of mortgage debt. Management warned declines in its operations could lead to covenant defaults, cash sweeps or non-payment defaults on certain loans in late 2009 or 2010. The loans were non-recourse to Host; certain loans were cross-collateralized.
- The company declared a $0.25 common dividend payable in December, approximately 90% in Host common stock and 10% in cash, subject to shareholder elections. It said the regular quarterly common dividend remained suspended and there was no current plan to reinstate it. A preferred dividend of $0.5546875 per share was paid in October.
- Keystone sought $30–$40 in damages in litigation involving the San Antonio Marriott Rivercenter ground lease; a trial could begin as early as January 2010. Host said it was vigorously defending the matter and did not expect a material adverse effect, while noting outcomes were uncertain.
- Management reported compliance with credit-facility and senior-note financial covenants. Credit-facility headroom included leverage of 4.8x against a 7.25x maximum and fixed-charge coverage of 1.9x against a 1.05x minimum for 2009.
Key facts for investors to verify
- Whether hotel demand, RevPAR, occupancy and room-rate trends improved or deteriorated after the reporting date, especially for group and corporate business.
- Ability to address the April 2010 put right on $325 of 2004 debentures and maintain covenant headroom under continued operating weakness.
- Actual proceeds and dilution from further ATM share sales, and the cash-versus-stock outcome of the declared common dividend.
- Subsequent impairment, liquidity or lender developments at the European joint venture, including potential effects of cross-collateralized loans.
- How much reported loss reflects noncash impairment, debenture discount amortization, asset-sale gains and the CBM-related tax benefit; reconcile GAAP results with non-GAAP FFO.