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"While it appears that the economy has started to recover, we believe that several factors, including uncertainty in the strength and sustainability of the economic recovery and continued high unemployment, will continue to negatively affect lodging industry fundamentals in 2010. Additionally, the uncertainty in the economic climate and its effect on business and leisure travel, combined with shorter booking lead times, continue to inhibit the Company's ability to predict future operating results. However, assuming a decrease in comparable hotel RevPAR in the range of 0% to 5% for 2010, FFO per diluted share should be approximately $.57 to $.41 and Adjusted EBITDA should be approximately $750 million to $635 million."

Quick Thoughts on the Quarter

Despite weak revenues, HST 4Q09 Adjusted EBITDA blew away expectations when adjusting for the $41MM accrual of a potential litigation loss.  

As we expected RevPAR came in above the high end of their guidance range, but F&B and other revenues suffered greater declines then we anticipated based on the HOT & MAR’s results which both showed material, sequential improvement in these two categories. 

However, the real surprise was on the cost side.  HST specifically guided to adjusted property level margins suffering their worse decline of the year.

“Looking at the fourth quarter we think comparable hotel adjusted operating profit margins will decline more than we experienced in the rest of the year primarily due to the significant level of fourth quarter 2008 high profit cancellation revenues, the high level of cost contingency measures implemented in the fourth quarter of last year and decline in average rates in 2009. As a result, we expect comparable hotel adjusted profit margin to decrease in a range of 600-640 basis points for full-year 2009.”

We suspected that they were being conservative and therefore assumed that they would beat the street, however, it’s unusual that the guidance on margins would be off by 300+ bps for the coming quarter.   In fact, HST had the lowest margin decline of the year, with Adjusted EBITDA margins only down 490 bps compared to a 790bps decline last quarter.  Expense management was better across every category, (room, F&B, hotel departmental and other property). The magnitude of the margin beat relative to guidance suggests that 2010 guidance is also likely conservative. 


  • F&B declined as a reduction in banquet business in the quarter
  • Overall the favorable trends they experienced in the 3Q accelerated into the 4Q, driven by transient demand
  • Short term bookings continued to improve, albeit at lower rates
  • Transient room nights increased 7% y-o-y in the quarter and were up 1% compared to 2007. Increase in transient occupancy was due to more discounts. Rate continued to be a challenge as the average transient rate declined over 15%. Overall transient RevPAR down 9.9%. Expect transient occupancy up in 2009 but rate may be down
  • Improvement in group activity for the quarter as net group bookings in the quarter were 90% higher than 2009.  Attrition and cancellation rates are reverting to historical norms.  Groups ADR was down 9% but overall RevPAR was down over 20%
  • Group bookings now for 2010 are 5-6% lower than this time last year. However, they expect that short term booking will make up a lot of this gap but rates will be lower on group than transient next year
  • Sold the Doubletree for 9MM in the 4Q09
  • No dispositions are included in guidance although they will market a few assets
  • Very few assets are really coming to market, bulk of activity is occurring with properties encumbered by securitized debt.  They are pursing a few of those opportunities.  Don't expect deal flow to accelerate until late 2010 or 2011.  Fairly confident that they will acquire assets this year, including debt instruments, but none are included in guidance
  • ROI projects was $35MM in quarter
  • Outlook for 2010:
    • Pace of recovery expected to be slow
    • Beginning of this year, rate is trending down 10% y-o-y so far
  • Will be aggressively looking for acquisition opportunities both domestically and internationally
  • New Orleans RevPAR was their strongest quarter - up over 13%
  • Tampa RevPAR only decreased 3% due to some sporting events (ADR declined 11%)
  • DC Metro rates fell 8% (RevPAR down 5.3%)
  • Boston rates fell 10.1%
  • San Fran fell 12.3%, occupancy up 210 bps while rates fell 14%
  • New York RevPAR declined 13.4%, international and domestic travel drew better than expected results
  • Phoenix and Houston were the 2 worst markets. Phoenix continues to suffer from over supply and weak economy.  Houston had difficult comps
  • Miami Ft Lauderdale expected to perform really well (super bowl & renovations)
  • Boston expected to be strong in 2010 due to renovations
  • NYC should also outperform
  • San Fran should perform well (Ball room renovation will negatively impact 1Q2010 but will be a benefit for the rest of the year
  • Phoenix is expected to be an underperformer
  • Hawaii will continue to be challenged due to lack of flights and their hotels will be undergoing room renovations
  • San Diego room renovation will also negatively impact them
  • Expected European JV RevPAR to be +2 to -2% in 2010
  • Profit flowthrough at the room level was better than expected due to more cost cuts and increased productivity
  • Wages and benefits decreased by 10%
  • Utilities down 9.7% due to lower usage and lower rates
  • Unallocated costs down 7.5%
  • Real Estate Taxes down (5%?) and insurance up 1+%
  • For 2010-- expect occupancy to increase, leading to an increase in wage and benefit costs but at a pace less than inflation, and unallocated costs to increase less than inflation. Property taxes to rise in excess of inflation and insurance to increase at inflation. Utilities will increase more than inflation due to colder winter
  • Have $1.2BN of cash and cash equivalents and 99 assets that are unencumbered by debt


  • Property tax increase in 2010?
    • Property taxes dropped in the 4Q09 because they were successful in some of their appeals to municipalities. In 2010 they will continue to appeal tax increases but they can't assume lower taxes unless they win the appeals.
  • Group bookings pace trend throughout the 4Q and into 1Q2010
    • No signs that booking window is lengthening yet
    • Bulk of the business booked in the 30-60 day window
    • When occupancy improves, booking window will lengthen
  • ATM program (their stock issuance program)
    • It's HST's primary method of funding acquisitions and projects
    • They feel good from a balance sheet perspective now
    • Don't expect to be issuing equity at the same pace as last year unless acquisition activity really picks up
    • Don't need a new program right now either
  • Debt investments?
    • Interested in buying securities that would get them mid-teens or higher returns or are a way of getting at the assets through the foreclosure process
  • Why did they issue so much equity when there are no imminent acquisitions
    • Usual acquisition is $100-300MM in size so the amount of capital they raised really isn't that big
  • 37-38% of their mix is Group - so they are more overweight in convention business then MAR & HOT.  So if they underperform it's because of group bookings.  Group is typically 42-43% of their bookings in normal times.
  • Santa Fe, Denver and New York are some of the markets with the most supply growth coming. However, they feel really good about NY being able to absorb that supply.  NY had 90% occupancy in the 4Q.  That's a market that could surprise to the upside in 2010 if there is any pick up in corporate travel
  • Group bookings for 2010- rate looks like they are running about 5% below 2009 level
  • How big is the acquisition pipeline that they are looking at?
    • On the debt side there are more opportunities - more than a few
    • On the fee simple side, just not seeing much
  • Realistically 1 cent quarterly dividend should be all they need to payout in 2010, unless they do dispositions with any capital gains, then they will need a special dividend
  • Secured debt markets have strengthened with 6.5-7.5% rates and 55% LTVs
  • How much of the capex guidance in 2010 is maintenance vs. ROI?
    • 15% of it is ROI producing, rest is maintenance
  • How are Ritz-Carltons performing?
    • Luxury did better than it had done in the first three quarters of the year. As they got to Dec & Jan, they saw that segment outperform the rest of the company due to timing (given how bad last year was). Expecting that luxury will do a little better than the rest of the portfolio. Ritz-Carltons in Florida are expecting positive RevPAR in 2010
    • Not a lot of farther out bookings at their Ritz & FS hotels