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| HST > SEC Filings for HST > Form 10-Q on 16-Oct-2009 | All Recent SEC Filings |
16-Oct-2009
Quarterly Report
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. Host Hotels & Resorts, Inc. is a Maryland corporation and operates as a self-managed and self-administered real estate investment trust, or REIT. Host Hotels & Resorts, Inc. owns properties and conducts operations through Host Hotels & Resorts, L.P., a Delaware limited partnership of which Host Hotels & Resorts, Inc. is the sole general partner and in which it holds approximately 98% of the partnership interests as of September 11, 2009. In this report, we use the terms "we" or "our" to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term "Host" to specifically refer to Host Hotels & Resorts, Inc. and the terms "operating partnership" or "Host LP" to refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host and Host LP.
Forward-Looking Statements
In this report on Form 10-Q, we make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "expect," "may," "intend," "predict," "project," "plan," "will," "estimate" and other similar terms and phrases. Forward-looking statements are based on management's current expectations and assumptions and are not guarantees of future performance that involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks and uncertainties include those risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2008 and in other filings with the Securities and Exchange Commission (SEC). Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release updates to any forward-looking statement contained in this report to conform the statement to actual results or changes in our expectations.
Outlook
We currently own 112 hotel properties, which operate primarily in the luxury and upper upscale hotel sectors. For a general overview of our business and a discussion of our reporting periods, see our most recent Annual Report on Form 10-K.
The current economic outlook remains unpredictable both in the United States and internationally. While the operating results for our properties were slightly better than expected in the third quarter, we expect trends affecting overall lodging demand to continue to be weak for the remainder of 2009 and at least into the first half of 2010. We do not anticipate an increase in lodging demand until several economic indicators, particularly U.S. GDP, business investment, employment, corporate profits and consumer spending, experience sustained quarter-over-quarter growth. In addition, we expect that luxury hotels will continue to underperform other property types in the near term as consumers continue to stay at less expensive alternatives. As a result of the current economy and the slowly recovering credit market, increases in lodging supply will likely slow significantly over the next few years. This may be particularly relevant for the markets and lodging sectors in which we compete due to the long-term planning and high level of investment associated with these properties.
As we described above, we expect the economic fundamentals will continue to negatively affect the group and transient demand segments for the remainder of 2009 and in 2010. We believe occupancy, currently near historical lows, will begin to improve, but we expect continued pressure on the average room rate until demand increases significantly. In addition, we expect that reduced travel and concerns over corporate expenditures will continue to diminish booking activity and reduce attendance at group events, resulting in lower banquet, food and beverage and other revenues. Similarly, the reduction in corporate travel budgets will continue to negatively affect transient business travel. We have experienced some slowing of the negative trends in recent periods. While our group booking pace is still below 2008 levels, we have noticed an increase in short-term bookings as the year has progressed. However, it remains difficult to accurately forecast group demand . In addition, meeting planners are taking advantage of historically high room availability, which has resulted in a shift in pricing power and lower average room rates.
The general economic trends discussed above make it difficult to predict our future operating results. We may experience further declines in hotel revenues or earnings at our properties for any number of reasons, including, but not limited to, greater than anticipated weakness in the economy, changes in travel patterns and the continued impact of the trends identified above.
Results of Operations
The following table reflects certain line items from our statements of
operations and other significant operating statistics (in millions, except
operating statistics and percentages):
Quarter ended
September 11, September 5, % Increase
2009 2008 (Decrease)
Revenues:
Total hotel sales $ 890 $ 1,117 (20.3 )%
Operating costs and expenses:
Property-level costs (1) 903 1,007 (10.3 )
Corporate and other expenses 19 14 35.7
Operating profit (loss) (10 ) 118 N/M (4)
Interest expense 95 90 5.6
Loss attributable to non-controlling
interests 3 - N/M
Income from discontinued operations 11 18 (38.9 )
Net income (loss) attributable to
common stockholders (55 ) 47 N/M
All hotel operating statistics (2):
RevPAR $ 108.49 $ 137.75 (21.2 )%
Average room rate $ 154.90 $ 184.53 (16.1 )%
Average occupancy 70.0 % 74.7 % (4.7 ) pts.
Comparable hotel operating
statistics (3):
RevPAR $ 108.85 $ 138.34 (21.3 )%
Average room rate $ 155.00 $ 184.96 (16.2 )%
Average occupancy 70.2 % 74.8 % (4.6 ) pts.
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Year-to-date ended
September 11, September 5, % Increase
2009 2008 (Decrease)
Revenues:
Total hotel sales $ 2,763 $ 3,479 (20.6 )%
Operating costs and expenses:
Property-level costs (1) 2,724 2,998 (9.1 )
Corporate and other expenses 51 45 13.3
Gain on insurance settlement - 7 N/M
Operating profit 64 522 (87.7 )
Interest expense 264 262 0.8
(Income) loss attributable to non-controlling
interests 5 (18 ) N/M
Income (loss) from discontinued operations (3 ) 36 N/M
Net income (loss) attributable to common
stockholders (182 ) 285 N/M
All hotel operating statistics (2):
RevPAR $ 112.09 $ 144.07 (22.2 )%
Average room rate $ 169.40 $ 195.80 (13.5 )%
Average occupancy 66.2 % 73.6 % (7.4 ) pts.
Comparable hotel operating statistics (3):
RevPAR $ 112.73 $ 145.05 (22.3 )%
Average room rate $ 169.81 $ 196.76 (13.7 )%
Average occupancy 66.4 % 73.7 % (7.3 ) pts.
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(1) Amount represents total operating costs and expenses per our condensed consolidated statements of operations less corporate expenses and gains on insurance settlement.
(2) Operating statistics are for all properties as of September 11, 2009 and September 5, 2008 and include the results of operations for hotels we have sold prior to their disposition.
(3) Comparable hotel operating statistics for September 11, 2009 and September 5, 2008 are based on 112 comparable hotels as of September 11, 2009.
(4) N/M=Not Meaningful.
2009 Compared to 2008
Hotel Sales Overview
Quarter ended Year-to-date ended
September 11, September 5, % Increase September 11, September 5, % Increase
2009 2008 (Decrease) 2009 2008 (Decrease)
(in millions) (in millions)
Revenues
Rooms $ 579 $ 736 (21.3 )% $ 1,707 $ 2,179 (21.7 )%
Food and beverage 242 304 (20.4 ) 831 1,062 (21.8 )
Other 69 77 (10.4 ) 225 238 (5.5 )
Total hotel sales $ 890 $ 1,117 (20.3 ) $ 2,763 $ 3,479 (20.6 )
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Hotel sales declined 20.3% and 20.6% for the quarter and year-to-date, respectively, reflecting continued weakness in the lodging industry. Revenues for properties sold or classified as held for sale in 2009 or 2008 have been reclassified as discontinued operations. See "Discontinued Operations" below.
We discuss operating results for our hotels on a comparable basis. Comparable hotels are those properties that we have owned for the entirety of the reporting periods being compared. Comparable hotels do not include the results of properties acquired or sold, or that incurred significant property damage and business interruption or large scale capital improvements during these periods. As of September 11, 2009, 112 hotels have been classified as comparable hotels. See "Comparable Hotel Operating Statistics" for a complete description of our comparable
hotels. We discuss our operating results by property type (i.e. urban, suburban, resort/conference or airport), geographic region and mix of business (i.e. transient, group or contract).
Comparable hotel sales decreased 20.3% to approximately $901 million for the quarter and decreased 21.5% to approximately $2.8 billion year-to-date compared to last year. The revenue decline reflects the decrease in occupancy of 4.6 percentage points for the quarter and 7.3 percentage points year-to-date and a decrease in average room rates of 16.2% for the quarter and 13.7% year-to-date.
Food and beverage revenues for our comparable hotels decreased 20.3% for the quarter and 22.6% year-to-date compared to last year. The decrease in the quarter reflects a decline in both banquet and restaurant outlet revenues. Other revenues for our comparable hotels, which primarily represent spa, golf, parking, internet connectivity and attrition fees, decreased 10.9% for the quarter and 8.4% year-to-date.
Comparable Hotel Sales by Property Type
The following tables set forth performance information for our comparable hotels by property type as of September 11, 2009 and September 5, 2008:
Comparable Hotels by Property Type (a)
As of September 11, 2009 Quarter ended September 11, 2009 Quarter ended September 5, 2008
Average Average Percent
No. of No. of Average Occupancy Average Occupancy Change in
Properties Rooms Room Rate Percentages RevPAR Room Rate Percentages RevPAR RevPAR
Urban 53 34,481 $ 166.19 75.3 % $ 125.20 $ 200.16 77.8 % $ 155.73 (19.6 )%
Suburban 32 12,121 130.21 62.6 81.56 154.00 70.2 108.17 (24.6 )
Resort/Conference 13 8,082 181.51 58.7 106.50 209.98 67.3 141.32 (24.6 )
Airport 14 6,955 107.88 71.5 77.13 130.89 76.6 100.25 (23.1 )
All Types 112 61,639 155.00 70.2 108.85 184.96 74.8 138.34 (21.3 )
As of September 11, 2009 Year-to-Date ended September 11, 2009 Year-to-Date ended September 5, 2008
Average Average Percent
No. of No. of Average Occupancy Average Occupancy Change in
Properties Rooms Room Rate Percentages RevPAR Room Rate Percentages RevPAR RevPAR
Urban 53 34,481 $ 178.48 69.2 % $ 123.54 $ 206.98 75.5 % $ 156.25 (20.9 )%
Suburban 32 12,121 139.21 59.2 82.37 159.30 67.7 107.87 (23.6 )
Resort/Conference 13 8,082 221.67 63.7 141.28 256.76 73.8 189.58 (25.5 )
Airport 14 6,955 116.70 68.0 79.41 137.11 75.3 103.23 (23.1 )
All Types 112 61,639 169.81 66.4 112.73 196.76 73.7 145.05 (22.3 )
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(a) The reporting period for our comparable operating statistics for the year-to-date periods ended September 11, 2009 and September 5, 2008 is from January 3, 2009 to September 11, 2009 and December 29, 2007 to September 5, 2008, respectively. For further discussion, see "Reporting Periods" in our most recent Annual Report on Form 10-K.
During the third quarter of 2009, RevPAR decreased significantly across all of our hotel property types due to the overall decline in lodging demand. Our urban properties had the strongest quarter relative to other property types with a RevPAR decline of 19.6%. These properties were able to reduce the decline in RevPAR for the quarter relative to other property types as reductions in room rates served to induce occupancy.
Comparable Hotel Sales by Geographic Region
The following tables set forth performance information for our comparable hotels
by geographic region as of September 11, 2009 and September 5, 2008:
As of September 11, 2009 Quarter ended September 11, 2009 Quarter ended September 5, 2008
Average Average Percent
No. of No. of Average Occupancy Average Occupancy Change in
Properties Rooms Room Rate Percentages RevPAR Room Rate Percentages RevPAR RevPAR
Pacific 27 15,943 $ 158.93 75.6 % $ 120.11 $ 193.33 80.9 % $ 156.43 (23.2 )%
Mid-Atlantic 10 8,330 195.30 80.2 156.62 261.70 82.2 215.15 (27.2 )
North Central 14 6,204 129.60 68.8 89.17 153.95 72.7 111.91 (20.3 )
Florida 9 5,677 144.33 58.1 83.84 165.06 67.8 111.95 (25.1 )
DC Metro 12 5,416 164.33 76.7 126.11 175.45 80.4 140.98 (10.5 )
New England 8 4,293 155.79 75.5 117.60 176.16 79.6 140.22 (16.1 )
South Central 9 5,687 128.42 64.1 82.38 142.39 62.7 89.31 (7.8 )
Mountain 8 3,364 118.41 55.0 65.18 136.63 65.6 89.70 (27.3 )
Atlanta 8 4,252 144.45 60.5 87.34 160.60 66.4 106.63 (18.1 )
International 7 2,473 139.39 60.9 84.83 171.67 64.7 111.05 (23.6 )
All Regions 112 61,639 155.00 70.2 108.85 184.96 74.8 138.34 (21.3 )
As of September 11, 2009 Year-to-Date ended September 11, 2009 Year-to-Date ended September 5, 2008
Average Average Percent
No. of No. of Average Occupancy Average Occupancy Change in
Properties Rooms Room Rate Percentages RevPAR Room Rate Percentages RevPAR RevPAR
Pacific 27 15,943 $ 172.35 68.6 % $ 118.24 $ 201.37 76.9 % $ 154.86 (23.7 )%
Mid-Atlantic 10 8,330 203.13 73.9 150.17 258.16 79.9 206.39 (27.2 )
North Central 14 6,204 129.12 60.6 78.24 151.19 66.5 100.48 (22.1 )
Florida 9 5,677 189.56 65.0 123.22 218.67 75.6 165.31 (25.5 )
DC Metro 12 5,416 190.83 75.4 143.89 197.28 76.4 150.75 (4.6 )
New England 8 4,293 159.22 62.1 98.84 177.22 74.0 131.14 (24.6 )
South Central 9 5,687 144.63 64.8 93.72 160.63 68.9 110.60 (15.3 )
Mountain 8 3,364 154.81 56.0 86.67 173.01 66.8 115.57 (25.0 )
Atlanta 8 4,252 152.94 59.9 91.59 170.62 68.4 116.75 (21.5 )
International 7 2,473 138.55 60.9 84.39 172.50 69.3 119.60 (29.4 )
All Regions 112 61,639 169.81 66.4 112.73 196.76 73.7 145.05 (22.3 )
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(a) The reporting period for our comparable operating statistics for the year-to-date periods ended September 11, 2009 and September 5, 2008 is from January 3, 2009 to September 11, 2009 and December 29, 2007 to September 5, 2008, respectively. For further discussion, see "Reporting Periods" in our most recent Annual Report on Form 10-K.
For the third quarter of 2009, comparable hotel RevPAR declined significantly across all of our geographic regions when compared to the third quarter of 2008. Our South Central and DC Metro regions significantly outperformed the remainder of the portfolio, with RevPAR declines of 7.8% and 10.5%, respectively. The South Central region benefited from an increase in RevPAR of .3% at our San Antonio properties, as renovation work completed last year at the San Antonio Marriott Riverwalk, as well as an increase in citywide activity for the third quarter of 2009 helped the year-over-year comparison. For our DC Metro region, the downtown properties continued to benefit from strong government and government-related demand, as well as solid leisure business.
RevPAR in the New England region declined 16.1% for the quarter. City-wide room nights in Boston increased, however, they were at discounted rates. The results for the quarter were also negatively affected by two hotels that were under renovation during the quarter. Our Pacific region had a RevPAR decline of 23.2% for the quarter, however, results varied by market. The Seattle market outperformed the rest of the region as the hotels were able to induce demand through rate reductions. Our San Francisco market had a difficult quarter, particularly when compared to the third quarter of 2008, which had very strong transient and city-wide demand. The decline of 25.1% in our Florida region was driven by significant RevPAR declines at our Orlando World Center Marriott, as the hotel experienced a significant increase in group cancellations.
The Mid-Atlantic region underperformed the portfolio with a RevPAR decline of 27.2%. The decline was driven by a significant decrease in group demand. Transient demand was strong as international leisure business continued to increase throughout the quarter, however, the transient business was at discounted rates.
Hotels Sales by Business Mix. The majority of our customers fall into three broad groups: transient, group and contract business. The information below is derived from business mix data for 105 of our hotels for which business mix data is available from our managers. For further detail on our business mix, see "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our most recent Annual Report on Form 10-K.
In the third quarter of 2009, overall transient RevPAR decreased 20.2% when compared to 2008, reflecting a slight decline in total room nights and a decline in average rate of 20.0%. The decline primarily reflects a shift from the higher-rated premium and corporate business to the price-sensitive transient discount business. Demand in the premium and corporate business declined 12.4%, despite a decline in average rates of 24%, which led to a RevPAR decline of 33.5% in this business. This was slightly offset by the 6.9% growth in room nights from price-sensitive transient discount business during the quarter as customers, particularly leisure travelers, utilized discount programs implemented by our managers and third-party travel websites offering discounted rates.
During the third quarter, group RevPAR declined approximately 24.1% reflecting a decline in total room nights of 15.4% and a decline in average room rates of 10.3%. The decline in room rate was primarily due to corporate group discounts and short-term group rate concessions. The primary driver of the decline in room nights was a significant reduction in corporate group business of 42.9%. In addition to significant reductions in corporate group meetings, this also reflects low attendance at group meetings and groups increasingly renegotiating rates.
Property-level Operating Expenses
Quarter ended Year-to-Date ended
September 11, September 5, % Increase September 11, September 5, % Increase
2009 2008 (Decrease) 2009 2008 (Decrease)
(in millions) (in millions)
Rooms $ 169 $ 186 (9.1 )% $ 470 $ 533 (11.8 )%
Food and beverage 205 249 (17.7 ) 634 781 (18.8 )
Hotel departmental expenses 263 305 (13.8 ) 765 873 (12.4 )
Management fees 33 48 (31.3 ) 106 170 (37.6 )
Other property-level expenses 95 89 6.7 271 264 2.7
Depreciation and amortization 138 130 6.2 478 377 26.8
Total property- level operating
expenses $ 903 $ 1,007 (10.3 ) $ 2,724 $ 2,998 (9.1 )
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The overall decrease in operating expenses is consistent with lower overall demand at our properties. These operating expenses, which are both fixed and . . .
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