Business & Finance
Business and Finance
Business and Finance
Tue, February 24, 2009
Mon, February 23, 2009 Fitch Downgrades Host's IDR to 'BB-'; Outlook Negative
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has downgraded the following credit ratings of Host Hotels & Resorts, Inc. (NYSE:HST) and its operating partnership, Host Hotels & Resorts, L.P. (collectively, Host):
Host Hotels & Resorts, Inc.
--Issuer Default Rating (IDR) to 'BB-' from 'BB+';
--$100 million preferred stock to 'B' from 'BB-'.
Host Hotels & Resorts, L.P.
--IDR to 'BB-' from 'BB+';
--$3 billion senior notes to 'BB-' from 'BB+';
--$992 million senior exchangeable debentures to 'BB-' from 'BB+';
--Credit facility ($600 million revolver and $210 million term loan) to 'BB-' from 'BB+'.
The Rating Outlook remains Negative.
The downgrades center on the view that the recession has exacerbated conditions in the lodging sector, causing Host's operating results to weaken materially in the fourth quarter of 2008 and into 2009, well beyond Fitch's expectations when it revised Host's Outlook to Negative on Dec. 5, 2008. In Fitch's view, Host's earnings power will continue to weaken throughout 2009 and Host's credit profile is therefore consistent with a 'BB-' rating.
Host's comparable revenue per available room (RevPAR) declined by 9.4% in fourth quarter-2008 (4Q'08), and is expected to decline by 12% to 16% in 2009. Fitch believes that such anticipated comparable RevPAR declines in 2009 will reduce Host's fixed charge coverage ratio (defined as recurring EBITDA less renewal and replacement capital expenditures divided by total interest incurred and preferred dividends) from 2.7 times (x) in 2008 to below 2.0x, which is more commensurate with a 'BB-' rating.
The rating action takes into account that Host continues to maintain a large portfolio of high-quality unencumbered hotel properties, and Host's unencumbered asset coverage of unsecured debt was 279% as of Dec. 31, 2008. While Host sold an unencumbered asset, the Hyatt Regency Boston, on Feb. 17, 2009 for approximately $113 million, the unencumbered asset pool continues to provide downside protection for bondholders for the rating category.
The 'BB-' rating is supported by Host's adequate liquidity profile. As of Dec. 31, 2008, Host had $508 million in cash on hand and $400 million in availability under its credit facility, collectively exceeding Host's debt maturities in 2009 and 2010. In addition, Host's decision to suspend its quarterly dividend and declare an annual common stock dividend of $0.30 to $0.35 per share in 2009 (compared with $0.65 per share in 2008), along with a 50% reduction in capital expenditure spending in 2009 compared with 2008 levels, will bolster Host's liquidity.
The Negative Outlook reflects that there is extremely limited operating visibility, and Fitch maintains a macro-economic outlook of a deepening severe global recession. Although RevPAR comparisons become easier over the course of the year, Fitch maintains a view that actual 2009 RevPAR declines may be closer to the more pessimistic end of Host's expected range. Reduced consumer spending and declining corporate travel budgets continue to pressure the lodging sector, particularly in areas such as group business travel at luxury hotels and leisure-dependent destinations travel.
The Negative Outlook further reflects Fitch's view that Host's leverage, measured as gross debt-to-recurring EBITDA, which was 4.5x in 2008, could increase to the 6.5x-7.0x range in 2009, which is a weak level for the current IDR. Host's net leverage ratio as defined under its credit facility was 4.1x in 2008, and could also increase in 2009.
The following factors may result in the rating Outlook returning to Stable at the 'BB-' level:
--The recession shows signs of stabilization, resulting in a moderation of expected RevPAR declines;
--Fitch's expectation that Host's gross debt-to-recurring EBITDA ratio will sustain below 6.5x;
--Unencumbered asset coverage sustains above 300%.
The following factors may result in a rating downgrade to 'B+':
--Recessionary conditions result in comparable RevPAR to decrease more than 16%, which is beyond Fitch's expectations;
--Host's fixed charge coverage ratio sustains below 1.5x;
--Unencumbered asset coverage sustains below 250%.
Host is a Bethesda, MD-based lodging REIT that owns 115 properties in the luxury and upper scale hotel segments. Host owns approximately 63,000 rooms and also holds a minority interest in a joint venture that owns 11 hotels in Europe with approximately 3,500 rooms. As of Dec. 31, 2008, Host had approximately $12 billion in total book assets and approximately $5.5 billion in total stockholders' equity.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
