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Bullish commentary, all things considered. Q4 RevPAR expected to accelerate over Q2/Q3.  We still like lodging.


  • "Comparable hotel RevPAR increased 6.4% for the third quarter, as a result of the improvement of average room rate of 3.7%, combined with an increase in occupancy of 1.9 percentage points to 75.8%... Comparable hotel adjusted operating profit margins increased 110 basis points and 80 basis points for the third quarter and year-to-date 2011, respectively." 
  • Euro JV completed the acquisition of 396 room Pullman Bercy in Paris for Euro 96MM on September 30th and will fund Euro 9MM of renovations at the property. Accor will continue to operate the hotel.
  • On 8/30 HST purchased the remaining 51% interest in Tiburon Golf Ventures which owns the golf club surrounding the Ritz Naples Golf Resort for $11MM
  • Capex in the Q: $32MM in ROI projects (NY Marriott Marquis was completed) and $63MM of renewal and replacement capex
  • Used proceeds from the issuance of $500MM 5 7/8% Series W Sr. notes to repurchase $105MM face of 2 5/8% 2007 Debentures for $106MM which were puttable to HST in April 2012 and likely to get put back based on HST's stock price
  • Guidance was lowered due to a delay in the anticipated closing of the Grand Hyatt Washington DC acquisition which they company assumed would close in September and is now forecasted to close on December 14th. Previously issued guidance included $9MM of EBITDA in 4Q11 from the Grand Hyatt DC.  Should the acquisiton not close, HST will forfeit its $15MM deposit, negatively impacting FFO by $0.01, Adjusted EBITDA by $15MM and net income by $8MM.
  • FY2011 Outlook:
    • Comp RevPAR: 6.25-6.75% vs. 6-8% previously
    • Operating profit margins: +170-190bps vs. 210-260bps previously
    • Comp hotel adjusted operating margins: +80-90bps vs. 100-140bps previously
    • FFO: $0.86-$0.88 vs. $0.88 - $0.93
    • Adjusted EBITDA of $1,015-1,025MM vs. ($5-25MM lower than previous guidance)
    • FY Capex: $220-240MM for ROI projects and $300-320MM in renewal and replacement projects


  • Current RevPAR levels are just slightly shy of (1.3%) of peak 2007 level.  Irene caused a 60bps hit to the quarter as their downtown NYC hotel was evacuated and Washington conferences were cancelled.
  • Business mix trends were favorable this quarter. Transient demand and rate were the primary drivers of growth.  Retail rooms were down slightly but special corporate was up 5.3%. Transient revenues grew more than 7%.
  • 15% increase in demand in higher rated corporate business as discount business declined 6% - resulting in a 4% increase in group business in the quarter
  • Outlook for 4Q remains quite positive.  4Q booking pace is up 2% and revenues up 5%. Transient up 6% so far. Do expect that 4Q RevPAR growth will be in-line or slightly better than the last 2 quarters.
  • Fundamentals for their business continue to be attractive:
    • 0.5% supply growth in 2012.  Occupancy should continue to grow even if GDP is very modest at higher rates
    • Recently issued government per diem rates increased 5% on average
    • Special corporate rates should also be higher
    • They should continue to benefit from mix-shift and rate increases
  • RevPAR in Paris has increased 18% YTD and expect it to perform well going forward
  • Determined that extended the closing date of the Grand Hyatt DC made sense in light of the continued global turmoil.  Still believe that the hotel is a good asset in a great location. Unlikely that any other acquisitions would close before year end.  They are marketing a few assets for sale but those are likely to close in 1Q12.
  • They were very pleased with operating results in the quarter despite global turmoil.  They feel like only risk is reflected in the group's stock movement.  Their equity price suggests a price per key of just $200k- or just 50% of replacement costs
  • Phoenix - 24.4% RevPAR growth.  Strong group demand - occupancy improvement of 20%. ADR growth of 8%. Expect outstanding 4Q.
  • Miami/Ft Lauderdale: 20.6%, Occupancy increased 12% & ADR increased 2%. Renovations helped.  Expect great 4Q.
  • Florida region was impacted by significant renovations elsewhere
  • 17% RevPAR growth in San Fran - ADR improved due to better mix. Expected to perform well in 4Q.
  • Houston: +12.6%, Occupancy over 6% and ADR growth over 2%. Expect strong 4Q.
  • Hawaii: +6.8% Occupancy +5.8%. Expect to outperform in 4Q.  More air capacity helping.
  • Chicago: +6.7%, ADR +2%.  Good 4Q due to strong group bookings.
  • NY: +6.7%, ADR+8% - would have been better ex Irene -expect excellent 4Q
  • DC: +2%.  Expect DC to perform better next quarter.
  • Boston: -4% affected by lack of group demand.  Group demand expected to be weak in 4Q.
  • New Orleans: -10% RevPAR due to difficult comps - occupancy declined 12%; ADR increased 6%.  Expect rough 4Q due to new opening of Hyatt and difficult comps from last year's oil spill clean up effort
  • Euro JV: +5.2% REVPAR.. 3 hotels were impacted by meeting space renovations. Excluding Sheraton Roma - REVPAR would have been up 8%
  • Unallocated costs increased 3% - due to variables expense growth. Utility increased 3.6%, insuirance grew significantly as property insurance poilicies were renewed.
  • Expect 4Q margin performance similar to YTD but better F&B flowthrough, and higher rate contribution but expect higher property taxes (refunds received last year) and higher unallocated costs
  • Prior guidance included $9MM of total EBITDA from the Grand Hyatt acquisition - however, if the deal doesn't close, then EBITDA would be $15MM lower in 2011.  Reason for the mismatch is due to transfer tax payment of $7MM which didn't get paid this quarter.


  • Group rates for 2012 so far is up about 1%
  • Deal market? They are trying to assess that right now. Sellers have yet to drop their prices. Cost of financing has increased a bit so buyers are probably looking to pay a little less. Seeing a little less purchase activity from other REITs given where equity prices are. Expect pace in 2H11 will fall short of expectations.  However, there is still an active market out there.
  • 4Q bookings are up 2% - same as commentary from last quarter
    • Net net bookings for 4Q are better than where they were earlier this year. As they have worked their way through the year they have seen continued improvement for 4Q. Last 60 days they booked more business for 4Q than they booked around the same time last year.
  • Lost some group activities on the East Coast due to Irene. Big group in Philly cancelled. Had to shut down in NY for the entire weekend.  Expected DC strong bookings for the opening of the MLK memorial.  
  • Property level forecasts are stronger than the guidance they are giving for 4Q
  • Why was corporate expense so low?
    • Significant part of their comp is tied to restricted comp - so they will earn less of that stock comp and with the stock comp being a lot lower so is the comp amount
  • Need 7% RevPAR growth (SS) to hit their FY 11' guidance
  • Generally would view a stock buyback as an attractive use of capital here. However, they like to use proceeds from asset sales to repurchase stock
  • 2012 group booking trends?
    • Room nights were up 4% and rate so far is up 1%
  • Acquisition RevPAR was up 14% - so they would have had 7.1% RevPAR for those assets. Excluding Irene they would be up 7.7%.
  • Why aren't they more aggressive today buying back stock if they are so confident?
    • If everything plays out things will be good next year but there are some real risks (macro) that things can get a lot worse. Thinks its prudent to be conservative for now.
    • Don't want to lever up today.  There are a lot of advantages to a lower cost of capital for them.
  • Not comfortable issuing stock at current prices therefore, they walked away from the St. Regis deal
  • Think that in the long run its better to be overweighted to Group since over the long term Group is more resilient than transient. However, in this year transient is clearly better than group.  The opportunity for 2012 is really on the group side for them.  For group - they are still 9% below peak levels.
  • Thinks that the opportunity on the transient side is more on the rate side for 2012 vs. occupancy - as occupancy is already very strong
  • Think that it's still fairly early to know how negotiated rate will play out.  Clearly, occupancy levels are higher and there is a higher level of group activity on the books.  So it puts them in a better negotiating position.
  • If event risk doesn't occur, they feel like they could accomplish the rate range that MAR layed out
  • In the event of the economy heading south, how much cost cutting is left?
    • If it's in the form of reduced demand - they can reduce costs (i.e. variable costs) but at current occupancy levels, it's a lot harder - they already made those cuts
    • Occupancy went from 66% to 72% - so they have had to add head count in line with that increase but they are still well below prior peak levels
  • Lower ADR growth this quarter is likely due to a stronger leisure mix in the summer quarter vs. inability to push rate - so less of a mix shift benefit as they have seen in other quarters
  • Not sure that across the board cap rates have really moved up that much in top gateway cities - however, it's possible that they have increased about 50bps in some markets related to higher cost of funding and therefore needing a lower purchase price to meet hurdle ROI rates
  • They are at 55% of their total room nights for 2012 (on the books) however that isn't too far off of where they would normally be - for group nights. By end of year, they would expect 70% of their group nights to be booked for '12
  • EBITDA impact from Irene - $4.5-5,0MM