Host Hotels REIT Reports in Line, Counts on Continued Recovery

| About: Host Hotels (HST)

Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S., reported third quarter 2010 FFO (funds from operations) of $75 million or 11 cents per share, compared to $66 million or 11 cents per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The third quarter 2010 reported FFO was in line with the Zacks Consensus Estimate.

The third quarter 2010 reported FFO included certain non-recurring items, excluding which FFO during the quarter was 13 cents per share. Total revenue increased 11.4% during the quarter to $1.0 billion compared to the year-earlier quarter. Total quarterly revenue was well ahead of the Zacks Consensus Estimate of $969 million. Comparable hotel revenue per available room (RevPAR) increased 8.8% during the quarter driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily due to a 4.5% increase in average daily rate along with a 2.9% improvement in occupancy.

Comparable hotel adjusted operating margins during the quarter increased 150 bps, despite a 50 bps decline in revenues due to incremental attrition and cancellation fees compared to the same period in 2009. During the quarter, Host Hotels reported an adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) of $163 million compared to $139 million in the year-ago period.
During the quarter, the company acquired three premium hotels in New York, Chicago, and London for a total of $430 million, including assumed consolidated debt of $166 million. Subsequent to the quarter end, Host Hotels acquired a 245-room JW Marriott Hotel Rio de Janeiro, Brazil, for approximately $48 million.
Total capital expenditures during the quarter were $49 million, which included return on investment (NYSE:ROI) and repositioning projects of approximately $17 million. For fiscal 2010, Host Hotels expects total capital expenditure in the range of $300 million to $320 million.

During the quarter, the company issued 7.4 million common shares at an average price of $14.08 each, raising net proceeds of approximately $103.5 million. As of September 10, 2010, Host Hotels had cash and cash equivalents of $838 million and about $543 million available under its revolving credit facility, compared to over $1.6 billion of cash and cash equivalents and $600 million availability under its revolving credit facility in third quarter 2009. Total debt of the company by the end of third quarter 2010 was $5.4 billion compared to $5.8 billion in the year-earlier quarter.

Host Hotels anticipates the gradual revival of the overall economy to boost its operating results in 2010, with comparable hotel RevPAR expected to increase in the range of 5.5% to 6.5% for the full year. Host Hotels currently expects FFO for full year 2010 in the range of 67 cents to 69 cents per share.

We maintain our Neutral rating on Host Hotels for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term Hold recommendation.