Host Hotels & Resorts Earnings Call Nuggets: Non-Comp Pool and Equity Issuance
Host Hotels & Resorts (NYSE:HST) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Joshua Attie – Citi: Same-store growth was up 5.1, but the total portfolio was up 6.6. Can you talk about some of the properties in the non-comp pool that drove that upside and do you expect a gap of that magnitude between comp and non-comp RevPAR to persist through the remainder of the year?
W. Edward Walter – President and CEO: Certainly, Josh. Let me try to clarify a couple of things here though. The 6.6% change in RevPAR, that (Josh) is referencing is a comparison of what was our RevPAR for all of our properties in the first quarter of last year compared to what is our RevPAR in the first quarter of 2013 for everything that we own today. So, part of what’s captured in that difference and the RevPAR in 2013 is 6.6% higher than what it was before, a big part of what’s captured in there compared to our 5.1% RevPAR growth in the first quarter is the strong performance of a number of the hotels that we have invested capital in and as we consequently have significantly improved their operation as well as some of the hotels that we purchased, which are not part of our concept, which are performing well. So, all of those hotels – so that subgroup that I just described had RevPAR growth above 27% in the first quarter. The other piece though of that calculation that we need to remember is that the (comp set) in 2012 is slightly different – the overall number of hotels we owned in 2012 is different from what we owned in 2013. So, for instance, what’s in the 2012 number is the Atlanta Marquis, what’s in the 2013 number is the Grand Hyatt in D.C. So, there is two factors that are applying there. At the bottom line point, Josh, as you’ve identified which is at the broader portfolio is growing a bit faster than what our comparable portfolio is growing is true.
Joshua Attie – Citi: Do you expect that gap of 100 basis points, 150 basis points to persist sort of the rest of the year?
W. Edward Walter – President and CEO: I can’t sit here and say that I have exactly looked at it, but the reality is that other than to the extent that those numbers are affected by sales or acquisitions which would change that relationship a little bit. The reality is it should generally continue at that level.
Joshua Attie – Citi: If I kind of follow-up that with one more question on equity. You issued $100 million through the ATM in the quarter and that’s on top of $270 million that you issued last year. I understand you are working towards a leverage target of three times in that those aren’t very big numbers in the context of your market cap, but they do add up over time. And at the same time, asset sales seem like they accelerated it could be a source of capital for you. Can you just explain the rationale for the equity issuance and also is there an acquisition pipeline where you might be able to put some of that money to work in the near-term.
Larry K. Harvey – EVP and CFO: As I highlighted in my comments we are looking at couple of things where we feel relatively confident, we’ll have a closing in the second quarter on transactions, and so I guess I would describe the equity rates in March as prefunding the capital required to complete that acquisition. I would also agree with you that we are intending on seeing sales accelerate over the course of this year. In general, we’d like to fund most of our acquisitions out of the proceeds of asset sales.
Andrew Didora – Bank of America Merrill Lynch: Just wanted to follow-up on Joshua’s question with regards to the equity issuance and as it relates to the acquisition environment. I guess from what we’ve been seeing out there in terms of transactions, there hasn’t been a whole lot of quality out there to this point in time that would probably be very accretive to your portfolio. It seems like you’re probably seeing something else in terms of your pipeline. But I guess with your stock implying you guys trading around (2.90 per key), does it ever make sense to maybe buying back stock at these levels rather than issuing?
W. Edward Walter – President and CEO: No, as we’ve described in the past that for the process that we go through as we sell assets and then determine what to do with those proceeds, one of the things that we would always look at is whether it made sense to buyback our stock. I guess what I would say is that so far with regard to that process we’ve concluded that it either made sense to reinvest in our portfolio in the form of some of these redevelopments and ROI investments we’ve made or it has – we felt comfortable in redeploying that capital into acquisitions. Certainly as we progress through the cycle and we inevitably reached the point where we are a bigger seller than we are a buyer then at that point in time we’ll again continue to look at whether it makes sense to buying back our stock (indiscernible) same time, leverage targets that we’ve described to you all that we’d like to obtain…
Andrew Didora – Bank of America Merrill Lynch: Do you plan when you close on some of these acquisitions do you plan in putting additional data on to help fund those acquisitions or is this going to be purely equity?
W. Edward Walter – President and CEO: I would say we are at the point now where we feel pretty good about where we – we feel good about the length of the cycle and so generally – and we feel good about the progress that we’ve already made in terms of improving our balance sheet. So, the reality is as we look at incremental acquisitions we are thinking of funding those sort of on a pro rata basis in terms of debt and equity consistent with where the Company is currently capitalized. Now, you are not going to likely see that in the context of although we put a secured loan on an asset right after we bought it because that’s just not how we do things. Only think more broadly about our financing plan for the year, we would be envisioning if our acquisition activity heated up and to the extent that it exceeded our asset sale activity that we would fund that through a combination of debt and equity.