Host had solid rate growth over all business segments due to strong group demand. This growth has expanded the company's margins. As a result, it is raising its guidance for the year.
Corporate group demand increased by 20 percent in Q3, resulting in a 6 percent increase in group room nights. Because group demand was the primary factor in the strong Q3 results, the best performing hotels were large ones in major cities and resorts. Average group rates increased almost 3.5 percent and group revenues increased nearly 10 percent. Host expects to see group demand continue to be strong, although it may be somewhat lower in Q4 due to fewer room blocks available.
Rates for luxury hotels increased by 6 percent in Q3.
Host is a 33 percent owner of a joint venture which purchased its first hotel in Germany in Q3. The purchase was the Le Méridien Grand Hotel in Nuremberg, Germany, for $37 million.
Host is marketing several properties and expects sales of $300 to $400 million. It hopes to complete the sales by the end of the year, but some might not be complete until 2013. Host expects to be active in both buying and selling in 2013. The bulk of its new investments will be in the United States. Although it is looking in Europe and does not have a lot of competition there, it is cautious in making any purchases there. It is also considering purchases in Brazil and Asia.
Host has also been trying to enhance value to several existing properties to increase revenue. For example, in August, it leased retail and signage space at the New York Marriott Marquis to Vornado Realty Trust, which intends to expand the existing retail space and part of the underground parking to a high end retail space. It is also adding a 6 store LED sign. Host has already raised the rent and expects to increase it more when the improvements are finished. Another example of property enhancements is the negotiation of a possible joint venture with Hyatt Residential Group to develop a 131-unit timeshare on its excess land at the Hyatt Regency in Maui. Finally, at the Newport Beach Marriott Hotel and Spa, Host is selling excess land to a homebuilder, which will develop luxury condominiums.
The grand opening of the new Westin New York Grand Central will occur on October 12. This is a conversion of the Hemsley Hotel, which cost $80 million to convert. The Westin New York Grand Central will be only the second Westin in Manhattan. Host acknowledges there is a lot of supply in New York, but feels the problem will slowly abate.
Looking forward, September has been weaker than Q3 due to the timing of the Jewish holidays, and Host does not view the weakness as evidence of a slowdown. It expects comparable RevPAR to be stronger for the second half of 2012 than the first half since demand has increased and its pricing power has improved. Host expects to enter 2013 with an occupancy level higher than 2007. It expects higher RevPAR rates in 2013 due to low supply (a near record low of .5 percent), higher group rates, and high single-digit growth in international travel.
Financials.
Comparable revenue per available room (RevPAR) for Q3 increased by 7.6 percent. The average rate increased by 4.7 percent and occupancy increased by 2.1 percent. Occupancy for Q3 was 78.4 percent, the second straight quarter in which occupancy exceeded the peak in 2007. Host's average rate was $182 and its RevPAR was $143. Hotel food and beverage revenue increased by 4.5 percent.
Host saw good RevPAR growth in Philadelphia, Tampa (for the Republican convention), Boston, San Francisco, Miami/Fort Lauderdale, Los Angeles, Hawaii, and New York. RevPAR rates underperformed in Chicago and Washington D.C. In its European joint venture, RevPAR increased by 4.1 percent in constant currency. Travel to the Eurozone from other countries continues to be strong.
Host anticipates hotel RevPAR for full fiscal year 2012 will increase between 6.25 and 7 percent.
Operating margins increased by 285 basis points and adjusted EBITDA increased by 14 percent. Host anticipates a margin increase of 135 to 150 basis points for full year 2012. Margins will likely be lower in Q4 due to higher taxes and insurance costs that are due in Q4.
Adjusted FFO per diluted share was $0.21, an increase of 31 percent. Host anticipates full year FFO to be between $1.06 and $1.09 per share.
In Q4, Host plans to extent the maturities on its debt and reduce the overall cost of its debt. It has reduced its weighted average interest rate by 80 basis points since the beginning of the year. It has extended its average debt maturity by one year. The average debt maturity is now 5.4 years.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/916631-host-hotels-resorts-management-discusses-q3-2012-results-earnings-call-transcript
Copyright 2012 Jaygo's Earnings Conference Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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