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Host Hotels & Resorts, Inc. Reports Results for the Second Quarter of 2012

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Published on 18/07/12 - Updated on 17/03/22

Host Hotels & Resorts, Inc., the nation's largest lodging real estate investment trust, announced yesterday results of operations for the second quarter ended June 15, 2012.

The increase in total revenues for the second quarter and year-to-date 2012 reflect the improved performance of the Company's owned hotels due to improvements in comparable hotel RevPAR of 6.1% for both the second quarter and year-to-date and improvements in comparable food and beverage revenues of 5.7% and 5.8% for the second quarter and year-to-date, respectively. In addition, the improvement in operating results for year-to-date 2012 includes operations for the ten hotels (nearly 4,000 rooms) acquired in the first half of 2011, which increased revenues by an incremental $56 million. If the Company reported its results on a calendar quarter basis, then comparable hotel RevPAR would have increased 6.8% for the second quarter 2012 compared to 2011.The increase in comparable hotel RevPAR was primarily driven by improvements in average room rates coupled with continued occupancy growth. For the quarter and year-to-date, average room rates improved 3.7% and 3.3%, respectively, while occupancy improved 1.7 percentage points to 77.6% and 1.9 percentage points to 73.7%, respectively. The improvements in revenues led to strong margin growth as comparable hotel adjusted operating profit margins increased 120 basis points and 110 basis points for the second quarter and year-to-date 2012, respectively.INVESTMENTS - REDEVELOPMENT AND RETURN ON INVESTMENT EXPENDITURES - The Company invested approximately $50 million and $98 million in the second quarter and year-to-date 2012, respectively, in redevelopment and return on investment ("ROI") expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties. During the second quarter, the Company completed the rooms renovation phase of the redevelopment at the 1,778-room Sheraton New York Hotel & Towers and the conversion of one tower at the Sheraton Indianapolis into apartments, which it has already begun leasing. The Company expects that its investment in ROI expenditures for 2012 will total approximately $165 million to $175 million.- ACQUISITION EXPENDITURES – In conjunction with the acquisition of a property, the Company prepares a capital improvement plan designed to enhance profitability. The Company spent approximately $50 million and $64 million on acquisition projects in the second quarter and year-to-date, respectively, and expects to invest between $115 million and $125 million for 2012.- RENEWAL AND REPLACEMENT EXPENDITURES - The Company invested approximately $79 million and $179 million in renewal and replacement expenditures during the second quarter and year-to-date 2012, respectively. These expenditures are designed to ensure that the high-quality standards of both the Company and its operators are maintained. Major renewal and replacement projects completed during the second quarter included 1,100 rooms at the Boston Marriott Copley Place, 891 rooms at the Westin Seattle and over 30,000 square feet of meeting and public space at the Swissôtel Chicago. The Company expects that renewal and replacement expenditures for 2012 will total approximately $310 million to $330 million.ACQUISITIONSOn July 16, 2012, the Company acquired the 888-room Grand Hyatt Washington, D.C. for approximately $400 million. The Grand Hyatt includes over 43,000 square feet of meeting space and is centrally located in the nation's capital, with easy access to historic monuments, museums and the convention center. The acquisition has been funded with available cash and a draw under the revolver portion of the Company's credit facility. The Company intends to repay a portion of the revolver draw, as well as other debt, with proceeds from a five-year term loan currently under negotiation. The Company has received commitments from a number of banks and expects to raise approximately $400 million with a current floating interest rate of LIBOR plus 180 basis points (or approximately a 2.1% all-in interest rate). The Company expects the term loan to close by the end of July, subject to customary closing conditions.BALANCE SHEETDuring the quarter, the Company continued to actively pursue its strategy of extending its debt maturities and lowering its overall cost of debt. On June 7, 2012 the Company entered into a $100 million mortgage loan secured by the Hyatt Regency Reston and due in 2016, with an additional one-year extension at the Company's option, subject to meeting certain financial covenants. The loan bears interest at a rate of 1-month LIBOR plus 310 basis points (3.34% at June 15, 2012). Using these proceeds and proceeds from $650 million of senior notes issued last year and in the first quarter for a weighted average interest rate of 5.3% and available cash, the Company repaid or redeemed approximately $1 billion of debt during the quarter, with an average GAAP interest rate of 6.8%.After taking into consideration the acquisition of the Grand Hyatt and the related revolver and expected term loan financing and use of proceeds to repay approximately $400 million of debt, the Company would have approximately $760 million of availability under its credit facility, approximately $150 million of cash and cash equivalents and total debt of approximately $5.3 billion.During the second quarter of 2012, the Company issued approximately 3.1 million shares of common stock at an average price of $15.75 per share, for net proceeds of approximately $48 million. These sales were made in "at-the-market" offerings pursuant to April 2012 Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC and Scotiabank, which had an initial aggregate offering price of $400 million. There is approximately $350 million of issuance capacity remaining under the agreements.2012 OUTLOOKThe Company anticipates that for 2012:- Comparable hotel RevPAR will increase 5.5% to 7.0%;- Total revenues under GAAP would increase 6.3% to 7.8%;- Total comparable hotel revenues would increase 5.0% to 6.6%;- Operating profit margins under GAAP would increase approximately 130 basis points to 190 basis points; and- Comparable hotel adjusted operating profit margins will increase approximately 90 basis points to 130 basis points.Based upon these parameters, the Company estimates that its full year 2012 guidance is as follows:- net income should range from $104 million to $140 million;- Adjusted EBITDA should be approximately $1,135 million to $1,170 million.

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