• Host’s latest European deal axed

The Host Hotels deal to buy six hotels from Whitehall through its European joint venture appears to have collapsed.

The company's CEO Ed Walter said that the contract for the Eu565m transaction has been terminated and that it is unlikely it would close on the deal.

The news was revealed during a conference call with analyst this week for the company's final quarter's results. Walter said he was unable to discuss it further due to confidentiality clauses.

The original deal was for six Marriott branded properties with a total of 1,954 rooms across three countries. The biggest property involved was the 757-room Paris Marriott Rive Gauche, the conference hotel bought by Marriott from Accor in March 2006.

The other five hotels comprise the Renaissance in Amsterdam, the Renaissance Paris Hotel La Defense, the Renaissance Paris Vendome, the Courtyard in Duesseldorf and the Courtyard Paris Defense West – Colombes.

This latter property was the prototype for the new-look Courtyard for Europe developed by Marriott and opened in September 2006.

Whitehall Funds, the Goldman Sachs property investment vehicle, bought the properties in the middle of 2006 from Marriott International.

Meanwhile, Host said that the European JV had suffered a 13.6% decline in revpar in constant Euros in the fourth quarter, down 5% for the year.

Overall, final quarter revpar was down 9.4%, with average rate down 3.3% and occupancy down 4.5 points. Although rate had deteriorated throughout the year as a result of changing business mix, absolute rate declines only kicked in during the final quarter.

The AIG effect – the cancellation by corporate guests through fear of being seen to spend money inappropriately – meant Host's corporate group segment saw room nights fall by 17% in the fourth quarter.

Luxury hotels have been hardest hit by the AIG effect with third quarter revpar down 5.3% but accelerating dramatically to a 16.1% drop in the final quarter. (The AIG effect is so-called because of the meeting held by senior executives from that company at the St Regis in Laguna just days after receiving an $85bn bailout from the US government. Huge media opprobrium was poured onto those 70 executives for spending a reported $440,000 and it was a topic in the Presidential race.)

Booking pace in 2009 is down 15% for the full year with the first quarter off by 19%. Walter added: "It would not be surprising if our full group pace declined further over the next few months."

If the current weakness persists, Walter said Host expects revpar to decline by 16% for the full year 2009 even with the weaker comparable figures in the second half.

If the economy strengthens in the second half, then a revpar drop for the full year of 12% was possible.

Much of the downside, and then some, is already in the share price of Host. Walter pointed out that the portfolio is valued at $125,000 per key, roughly the cost to build a new Courtyard or Garden Inn. The average replacement cost for Host's urban upscale hotels is around $350,000 per key.

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