UPDATE 4-Host Hotels sees signs of improved demand

Wed Oct 14, 2009 12:07pm EDT

* Sees 2009 FFO between 46 cents and 51 cents

* Q3 FFO 11 cents vs. 8 cents average estimate

* Q3 revenue down 20 percent at $912 million

* Shares up nearly 5 percent (Recasts; adds share movement, comments from conference call, background, byline)

By Deepa Seetharaman

NEW YORK, Oct 14 (Reuters) - A nearly 10 percent drop in costs and higher-than-expected revenue helped Host Hotels & Resorts (HST.N) post third-quarter results that surpassed expectations, and its shares rose nearly 5 percent.

The owner of 112 luxury and upscale hotels also said on Wednesday that there were signs of improved demand for hotel rooms.

"While overall demand continues to be weak compared to pre-downturn levels... we did see several positive trends develop this quarter," said Chief Executive Edward Walter during a conference call with analysts.

One positive trend was that corporate demand fell just 10 percent, the lowest decline in the past five quarters, Walter said. The number of transient room nights sold was flat from a year earlier, marking the first time in seven quarters this measure did not show a significant decline.

Host reported funds from operations (FFO) of 11 cents per share, down from 31 cents a year earlier. Analysts on average had expected 8 cents, according to Thomson Reuters I/B/E/S.

FFO removes the profit-reducing effect of depreciation, a noncash accounting item. FFO is a common performance measure for real estate investment trusts (REITs).

Host swung to a net loss of $58 million, or 9 cents per share, compared with a profit of $47 million a year earlier. Analysts had forecast a 14-cent loss.

Revenue fell 20 percent to $912 million, beating analysts' estimates of slightly below $893 million, said Host, which owns hotels run by operators that include Marriott International MAR.N and Starwood Hotels & Resorts (HOT.N).

Revenue per available room, a standard gauge of health in the hotel industry, fell 21.3 percent for the quarter.

Host shares were up 56 cents to $11.84 in noon trading on the New York Stock Exchange, near a session high of $11.86.

DISTRESSED ACQUISITIONS POSSIBLE

Some $30 billion in hotel debt backed by commercial mortgage-backed securities matures through 2012. As owners scramble to meet their payments, they may seek to sell hotels.

Walter said this may offer Host the chance to buy assets "that meet our pricing and quality requirements."

"There still are a lot of properties that are over-levered that are ultimately going to make their way to the market," Walter said.

Not all possible sellers will be distressed, Walter said. Host, for example, sold four hotels during the quarter for about $90 million and recorded a $9 million gain from the sales.

A decline in business travel has hurt upscale and luxury hotels in the past year, forcing operators to lower room rates. This in turn has hurt margins for hotel owners and forced them to cut costs and slow development.

Host said its capital expenditures in the third quarter fell nearly 60 percent to $63 million.

The Bethesda-based company expects its revpar to fall between 20 percent and 22 percent for 2009, a slightly narrower range than the 20-23 percent range previously reported.

Host forecast FFO of 46 cents to 51 cents a share for the year, while analysts forecast, on average, 50 cents per share.

The lodging REIT also said it expected full-year EBITDA of $760 million to $800 million, while analysts expected about $800 million. (Reporting by Deepa Seetharaman; Editing by Lisa Von Ahn, Maureen Bavdek, Tim Dobbyn)

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