HST 3Q09 QUICK REVIEW

HST adjusted EBITDA beat consensus but was in-line with our projection.  However, implicit Q4 guidance was lower indicating that RevPAR is not recovering as quickly as we thought and significant cost reductions may be over.  This leads credence to our 2010 call that Street estimates are too high for HST and most of the lodging sector.

3Q09 Review

 

HST beat consensus but missed our revenue estimate by 4% or $32MM and missed our adjusted EBITDA estimate by $1MM

  • RevPAR was 1.8% worse than our estimate
    • Occupancy was 0.9% better while ADR was 3% lower
  • We also didn't account for the disposition of Hanover Marriott until 4Q09, hence our room count was also higher
    • HST sold Hanover Marriott for $27MM or 76k per key to HEI Hotels, which will invest $20MM to renovate the asset
  • Lower RevPAR and earlier closing on the disposition of Hanover Marriott accounted for $15MM lower revenues vs our estimate.  Lower F&B and other revenues accounted for the remaining variance

The revenue miss was offset by better cost management

  • Total operating expenses decreased 14% y-o-y vs our estimate of an 11% reduction.  This compares to a 17% decline in 2Q09 and an 11% decline in 1Q09 y-o-y operating expenses.
    • Cost per occupied room decreased by 3.7% and overall room costs were down 11.5% (vs our estimate of 11%)
    • Hotel departmental expenses decreased 16% (8.5% per occupied room) vs our estimate of a 10% y-o-y decline

Property EBITDA margins came in at 16.2%, 10 bps better than our estimate of 16.1%

Outlook

HST increased the low end of its FY09 guidance

  • Increased the low end of FY09 RevPAR guidance to -22% from -23%
  • Low end of adjusted hotel operating profit margins raised by 10 bps to 640 bps
  • FFO guidance lowered to $0.46 to $0.51 from $0.68 to $0.71 (new guidance includes non-cash charges of $0.25)
  • Increased the low end of Adjusted EBITDA guidance by $60MM to $760MM