BETHESDA, Md., July 31, 2014 -- Host Hotels & Resorts, Inc. (NYSE: HST), the nation's largest lodging real estate investment trust ("REIT"), today announced results of operations for the second quarter of 2014.
(1) NAREIT Funds From Operations ("FFO") per diluted share, Adjusted FFO per diluted share, Adjusted EBITDA and comparable hotel operating results are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission ("SEC"). See the Notes to Financial Information on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.
For the second quarter of 2014, the growth in comparable hotel RevPAR of 5.1%, on a constant US$ basis, was driven by an increase of 4.1% in average room rates, while average occupancy slightly increased to 81%. Comparable food and beverage revenues increased 0.8% for the quarter. The Company's comparable international hotels experienced a RevPAR increase of 16.2% for the quarter, driven by outstanding performance from its Latin American hotels. The increase in total revenues of 2.3% for the quarter reflects the effect of the timing of hotels acquired and sold during the comparable periods, which decreased total revenues by $25 million for the quarter on a net basis. Year-to-date the increase in comparable RevPAR of 5.9%, on a constant US $ basis, was driven by an increase in average room rates of 4.3% and an improvement in occupancy of 110 basis points.
The increase in net income for the second quarter of 2014 primarily reflects the improvement in operations and a decline in interest expense as a result of the refinancing or repayment of debt since the beginning of 2013. Year-to-date 2014, net income also benefited from $108 million of net gains on property sales.
Comparable hotel adjusted operating profit increased 5.5% for the quarter. However, the comparisons of Adjusted EBITDA and Adjusted FFO per diluted share to prior periods were affected by several recent transactions, including: the second quarter 2013 $21 million gain on sale of four acres of excess land adjacent to the Newport Beach Marriott Resort & Spa, the timing of acquisitions and dispositions, as well as costs (primarily selling expenses) associated with the development of timeshare units in Maui through a joint venture, which is expected to be completed by the end of the year. For the quarter, these transactions negatively affected the comparison of Adjusted EBITDA by $39 million, resulting in an overall decline of $20 million.
Comparable hotel adjusted operating profit increased 8.3% year-to-date, helping to drive a $5 million increase in Adjusted EBITDA. However, the above transactions also negatively affected year-to-date Adjusted EBITDA by $57 million.
The Company's policy is that it generally intends to distribute, over time, 100% of its taxable income, which is primarily dependent on the Company's results of operations, as well as gains and losses on property sales. The Company paid a regular quarterly cash dividend of $0.15 per share on its common stock on July 15, 2014 to stockholders of record on June 30, 2014. On July 31, 2014, the Board of Directors authorized a regular quarterly cash dividend of $0.20 per share on its common stock for the third quarter. The dividend will be paid on October 15, 2014 to stockholders of record on September 30, 2014. The third quarter dividend is a 33% increase over the prior quarter and represents the Company's intended regular quarterly dividend for the next several quarters, subject to Board approval. The Company may also pay a special dividend in the fourth quarter so that its annual distribution equates to its taxable income. While the Company intends to use available cash predominantly for acquisitions or other investments in its portfolio, to the extent that the Company does not identify appropriate investments, it may elect in the future to use available cash for other uses, such as special dividends, which would be in addition to taxable income. Any special dividend would be subject to approval by the Company's Board of Directors.
The Company continues to pursue opportunities to enhance asset value through select capital improvements, while ensuring that its high standards for product quality are maintained. Year-to-date, the Company has completed renovations of 2,800 guestrooms, over 100,000 square feet of meeting space and 60,000 square feet of public space.
RedevelopmentAnd ReturnOn Investment Expenditures ("ROI") - These projects are designed to increase cash flow and to improve profitability by capitalizing on changing market conditions and the favorable locations of the Company's properties, including projects such as the redevelopment of a hotel, repositioning of a hotel restaurant or the installation of energy efficient systems. The Company invested approximately $18 million and $29 million in the second quarter and year-to-date 2014, respectively, in ROI capital expenditures. Projects completed during the second quarter include the renovation of approximately 10,000 square feet of restaurant and public space at the Denver Marriott West. The Company expects that ROI capital expenditures for 2014 will range from $65 million to $75 million.
Capital Expendituresfor Recent Acquisitions - In conjunction with the acquisition of a property, the Company prepares capital and operational improvement plans designed to maximize profitability and to enhance the guest experience. The Company invested approximately $4 million and $7 million on these projects during the second quarter and year-to-date 2014, respectively. The Company expects that acquisition capital expenditures will total $25 million to $30 million for 2014.
Renewaland Replacement Expenditures - The Company invested approximately $71 million and $147 million in renewal and replacement capital expenditures during the second quarter and year-to-date 2014, respectively. During the quarter, major renewal and replacement projects completed include the renovation of 428 rooms in the south tower of the Sheraton Boston Hotel, along with 2,700 square feet of restaurant and public space. The Company expects that renewal and replacement expenditures for 2014 will total approximately $330 million to $350 million.
During the second quarter of 2014, the Company completed the amendment and restatement of its credit facility, scheduled to mature in 2015, and its term loan, scheduled to mature in 2017, extending the final maturity for both to 2019, including extensions. As with the prior facility, the amended facility includes a revolving credit facility in an aggregate principal amount of up to $1 billion and a $500 million term loan. In addition, the all-in pricing was reduced 30 basis points on revolver borrowings, and 32.5 basis points on the term loan based on its current long-term unsecured debt rating. Therefore, U.S. dollar denominated borrowings today would result in an initial all-in rate of 1.35% and 1.28% on the revolver and term loan, respectively. The Company also redeemed $72 million of industrial revenue bonds with a weighted average interest rate of 7.4% in the second quarter of 2014.
The Company has approximately $440 million of cash and cash equivalents and $778 million of available capacity under its credit facility. As of June 30, 2014, the Company's total debt was $4.0 billion, with an average maturity of 5.7 years and an average interest rate of 4.8%, including nearly 79% with a fixed rate of interest.
European Joint Venture
The European joint venture's comparable hotel RevPAR on a constant euro basis increased approximately 0.6% and 1.5% for the second quarter and year-to-date 2014, respectively. The comparable RevPAR results were primarily driven by an increase in transient revenues. Additionally, on July 3, 2014, the joint venture refinanced the €69 million mortgage loan secured by three properties in Brussels, reducing the outstanding principal amount to €47.8 million and extending the maturity to 2019. Interest on the loan is a combination of fixed and floating with an initial all-in rate of 2.0%.
The Company anticipates that its 2014 operating results will increase as follows:
Based upon these parameters, the Company estimates that its 2014 guidance is as follows (in millions, except per share amounts):
See the 2014 Forecast Schedules and the Notes to Financial Information for other assumptions used in the forecasts and items that may affect forecast results.
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Host Hotels & Resorts, Inc. is an S&P 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The Company currently owns 99 properties in the United States and 15 properties internationally, totaling approximately 60,000 rooms. The Company also holds non-controlling interests in five joint ventures, including one in Europe that owns 19 hotels with approximately 6,400 rooms and one in Asia that has interests in three hotels in Australia and India. Guided by a disciplined approach to capital allocation and aggressive asset management, the Company partners with premium brands such as Marriott®, Ritz-Carlton®, Westin®, Sheraton®, W®, St. Regis®, Le Méridien®, The Luxury Collection®, Hyatt®, Fairmont®, Four Seasons®, Hilton®, Swissôtel®, ibis®, Pullman®, and Novotel® in the operation of properties in over 50 major markets worldwide. For additional information, please visit the Company's website at www.hosthotels.com.
Contact: Gregory J. Larson, Chief Financial Officer