Host Hotels & Resorts, Inc. (NYSE:HST) , the nation’s largest lodging real estate investment trust (REIT), today announced its results of operations for the fourth quarter and for the full year ended December 31, 2009.
—Total revenue decreased 16.8% to $1,331 million for the fourth quarter
of 2009 compared to the same period in 2008 and decreased 19.1% to
$4,158 million for full year 2009 compared to the full year 2008.
—Net loss was $72 million for the fourth quarter of 2009 compared
to net income of $111 million for the fourth quarter of 2008. For the
full year 2009, net loss was $258 million compared to net income
of $414 million for the full year 2008. Loss per diluted share was
$.12 for the fourth quarter of 2009 compared to earnings per
diluted share of $.18 in 2008. For the full year 2009, loss per
diluted share was $.45 compared to earnings per diluted share
of $.72 for the full year 2008.
Operating results for 2009 were affected by non-cash
impairment charges in the first half of 2009 and a fourth quarter
accrual for a potential litigation loss, partially offset by gains
associated with hotel dispositions and debt extinguishments.
The net effect of these items was a decrease in earnings of
$39 million, or $.07 per diluted share for the fourth quarter of
2009 and a decrease in earnings of $131 million, or $.23 per
diluted share, for full year 2009. Operating results for full year
2008 include net gains on dispositions of $22 million, or $.04
per diluted share. No similar transactions occurred in the fourth
quarter of 2008.
—Funds from Operations (FFO) per diluted share was $.18 for
the fourth quarter of 2009 compared to $.52 for the fourth quarter
of 2008. For full year 2009, FFO per diluted share was $.51
compared to $1.71 for full year 2008. The net effect of the above
transactions affecting operating results also decreased FFO per
diluted share by $.06 and $.28 for the fourth quarter and full year
2009, respectively. FFO per diluted share was not affected by
similar transactions in 2008.
—Earnings and FFO per diluted share for all periods presented
also include non-cash interest expense related to the Company’s
exchangeable debentures in accordance with accounting
requirements adopted on January 1, 2009. The increase to interest
expense was $8 million and $9 million in the fourth quarter of 2009
and 2008, respectively, and $27 million and $30 million for the
full year 2009 and 2008, respectively.
—Adjusted EBITDA, which is Earnings before Interest Expense,
Income Taxes, Depreciation, Amortization and other items, was $229
million for the fourth quarter 2009 compared to $414 million for the
fourth quarter 2008. For full year 2009, adjusted EBITDA was
$798 million compared to $1365 million for 2008. Adjusted EBITDA
for the fourth quarter and full year 2009 has been decreased by
approximately $41 million due to the fourth quarter accrual of a
potential litigation loss.
For further detail of the transactions affecting net income, earnings per diluted share and FFO per diluted share, refer to the notes to the “Reconciliation of Net Income to EBITDA, Adjusted EBITDA and FFO per Diluted Share.”
Adjusted EBITDA, FFO per diluted share and comparable hotel adjusted operating profit margins (discussed below) are non-GAAP (generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (SEC). See the discussion included in this press release for information regarding these non-GAAP financial measures.
Comparable hotel RevPAR decreased 14.6% and 19.9% for the fourth quarter and full year 2009 compared to 2008. Comparable hotel adjusted operating profit margins decreased 430 basis points and 520 basis points for the fourth quarter and full year 2009, respectively. For further detail, see “Notes to the Financial Information.”
As of December 31, 2009, the Company had over $1.6 billion of cash and cash equivalents and $600 million of available capacity under its credit facility. During the fourth quarter, the Company issued $400 million of 2.5% Exchangeable Senior Debentures due 2029 and received net proceeds of approximately $391 million, which it used in the first quarter of 2010, along with available cash, to redeem the remaining $346 million of the 7% Series M senior notes and repay the $124 million mortgage on the Atlanta Marriott Marquis. As a result of these two transactions, the Company reduced its outstanding debt by $470 million to approximately $5.4 billion and currently has approximately $1.2 billion of available cash and cash equivalents.
Beginning in August of 2009, the Company initiated a continuous equity offering program under which it may sell up to $400 million in shares of common stock in at-the-market transactions over time. The Company issued approximately 15 million shares of common stock for net proceeds of $157 million in the fourth quarter at an average net price per share of approximately $10.49. Since the inception of the program, the Company has issued nearly 28 million shares for net proceeds of over $287 million at an average net price per share of approximately $10.27.
Capital expenditures totaled approximately $85 million and $340 million for the fourth quarter and full year 2009, respectively. Return on investment (ROI) and repositioning projects accounted for approximately $35 million and $176 million for the fourth quarter and full year 2009, respectively, of these expenditures. The Company expects to spend approximately $270 million to $300 million in capital expenditures in 2010.
Beginning with the first quarter of 2010, the Company intends to reinstate the payment of a quarterly dividend on its common stock and to pay a $.01 per share dividend in the first quarter. The Company paid a special common dividend of $.25 per share on December 18, 2009 to stockholders of record as of November 6, 2009, of which approximately 10% was paid with cash and approximately 90% was paid with shares of Host common stock. Based on stockholder elections and the cash requirement, the special dividend consisted of approximately $15.6 million of cash and approximately 13.4 million shares of common stock valued at a per share price of approximately $10.46. The Company intends to continue paying the cash dividend on its preferred stock.
On February 8, 2010, the Company received an adverse jury verdict in a trial in the 166th Judicial District Court of Bexar County, Texas involving the sale of land encumbered by a ground lease for the San Antonio Marriott Rivercenter hotel. The jury found that the Company intentionally interfered with the attempted sale by Keystone-Texas Property Holding Corporation of the land under the San Antonio Marriott Rivercenter and slandered title to the property. The jury awarded damages that range from $42 million to $56 million, including statutory interest, as well as exemplary damages on the latter claim. The verdict is not yet final and is subject to post-trial motions. Based on the range of possible outcomes, the Company accrued an additional potential litigation loss of approximately $41 million in the fourth quarter consistent with generally accepted accounting principles. The Company believes that a number of legal rulings decided by the trial court were in error and had an adverse effect on the jury’s verdict. The Company intends to vigorously pursue these issues in post trial motions and, if necessary, on appeal.
While it appears that the economy has started to recover, we believe that several factors, including uncertainty in the strength and sustainability of the economic recovery and continued high unemployment, will continue to negatively affect lodging industry fundamentals in 2010. Additionally, the uncertainty in the economic climate and its effect on business and leisure travel, combined with shorter booking lead times, continue to inhibit the Company’s ability to predict future operating results. However, assuming a decrease in comparable hotel RevPAR in the range of 0% to 5% for 2010, the Company would anticipate that 2010 operating profit margins under GAAP would range from an increase of 100 basis points to a decrease of 170 basis points and its comparable hotel adjusted operating profit margins would decrease approximately 175 basis points to 350 basis points. Based upon these parameters, the Company estimates the following would occur:
— loss per diluted share should be approximately $.32 to $.49;
— net loss should be approximately $207 million to $315 million;
— FFO per diluted share should be approximately $.57 to $.41 (which has
been reduced by $.01 per share for debt prepayment costs for the
Series M senior notes repaid in early 2010); and
— Adjusted EBITDA should be approximately $750 million to $635 million.