Hedgeye - HST Q2 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow

Q2 2014 CONSENSUS ESTIMATES

MANAGEMENT GUIDANCE

FY 2014:

QUESTIONS FOR MANAGEMENT

CapEx - total value of growth vs. maintenance capex programs? ROI on renovations from last 2 years?
Views on:
- Washington DC, New York, Chicago
- California: San Diego, Los Angeles, vs. San Francisco?
- Urban vs. Suburban vs. Resort/Conference
Does the company want to achieve a debt rating upgrade from BBB to BBB+ or A- ?
What is the Company's dividend strategy/pay out policy?
How much current cash is trapped overseas? How do you plan to utilize this overseas cash?
Visibility into and expectation for F&B operations during Q3 and Q4?
When the lodging cycle turns for the worse, where will we see the slowdown first?

RECENT MANAGEMENT COMMENTARY

Overall

Hotel demand continues to grow, particularly in group business, thus pushing rates across all segments
Demand growth throughout the U.S. should continue to be strong
International travel continues to demonstrate robust growth
Expect that RevPAR will continue to be driven, primarily by rate growth which should lead to solid rooms flow-through.
28% of full-year EBITDA will be earned in Q2

Group

Corporate demand was up by more than 10% as well as solid demand improvement throughout the quarter.
Solid group trends suggest that banquet activity will continue to be strong other than in Q2, leading to improved F&B growth and profitability, which increases margins
Expect group demand to remain strong throughout the remainder of the year
Q2 group activity will be lower, primarily because of the year-over-year Easter holiday shift
Booking pace for 2014 continues to be quite strong as revenues are up 5.5% compared to last year
Group revenue is still 10.0% below prior peak levels
Group revenues booked in Q4 for 2014 and 2015 exceeded the prior-year’s strong pace
Roughly 85% of our full-year expected group bookings on the books
Room night bookings in Q1 for the remainder of the year exceeded last year’s pace by more than 4%, with bookings for the month after April up nearly 10%

Transient

Strong demand in higher-rated retail and corporate business, which increased more than 6.5%

Peak

Occupancy in the portfolio is ahead of our 2007 peak, suggesting hotels should be able to drive rate growth over the next several quarters
F&B revenues are still roughly 10% behind 2007 level
For the full year, F&B is still looking to be 5% to 6% behind prior peak levels
Margins are still 300 bps below peak and profitability 15.0% on a non-inflation adjusted basis

Asset Sales

Marketing additional assets but sale multiples could be in the low double digits as substantial capex is needed for several properties

Other

Equity issuance this year should be minimal in the absence of significant acquisition opportunities and HST is approaching its leverage target of 3x.
At March 31, 2014 approximately $392 million of cash and cash equivalents and $782 million of available capacity under its credit facility.

CapEx (for 2014)

Redevelopment & ROI capital expenditures for 2014 will range from $70 million to $80 million.
Recent acquisitions capital expenditures will total $30 million to $35 million.
Renewal and replacement expenditures for 2014 will total approximately $320 million to $340 million

Market Trends

Expect the West Coast properties to continue to outperform - especially, San Francisco, Seattle, Phoenix, and Hawaii.
San Francisco: continue to outperform the portfolio.
San Diego: strong results were due to the completion of the rooms’ renovation at the Manchester Grand Hyatt and the San Diego Marriott Mission Valley Hotels. The solid group base at these hotels allowed the managers to drive transient ADR