Host Hotels Q2 FFO and Revenues Meet Estimates, Guides Up

Host Hotels & Resorts, Inc. (HST) – the lodging real estate investment trust (:REIT) – disclosed second-quarter 2014 adjusted funds from operations (:FFO) per share of 43 cents, in line with the Zacks Consensus Estimate. However, this came below the year-ago figure by 2 cents.

Despite a rise in comparable hotel RevPAR, the tough comparison on a year-over-year basis is due to gains experienced in the year-ago quarter from land sales, the timing of deals and cost associated with the timeshare unit development in Maui. Nevertheless, Host Hotels increased its 2014 adjusted FFO per share guidance.

Total revenue came in at $1,431 million, which upped 2.3% on a year-over-year basis. This came in line with the Zacks Consensus Estimate.

Quarter in Details

Comparable hotel RevPAR climbed 5.1% year over year to $172.08, primarily driven by continued improvement in average room rates. Average room rates increased 4.1% year over year to $212.37 and occupancy rose 70 basis points (bps) to 81.0% on a year-over-year basis, in comparable hotels. As a result, comparable hotel adjusted operating profit margin upped 60 bps year over year to 29.6%. However, adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) dipped 4.6% to $411 million on a year-over-year basis.

During the quarter, Host Hotels spent $18 million in redevelopment and return on investment (ROI.V) expenditures. The company also expended nearly $71 million in renewal and replacement expenses. Additionally, Host Hotels used up approximately $4 million for capital and operational improvement of the acquired asset.

As of Jun 30, 2014, Host Hotels had cash and cash equivalents of $440 million, up from $392 million at the end of first-quarter 2014. The company has a total debt of $4.0 billion, lower than $4.1 billion at the end of last quarter. Host Hotels has around $778 million of available capacity under its credit facility at the end of second-quarter 2014.

2014 Outlook Increased

Host Hotels raised its 2014 adjusted FFO per share guidance and now projects it to be in the range of $1.44 – $1.47 (prior range being $1.41 – $1.46). The Zacks Consensus Estimate of $1.45 for the same falls within this new range.

Our Take

Although tough year-over-year comparisons affected the second-quarter 2014 FFO of Host Hotels, the strategic portfolio enhancement activities bode well for the company’s long-term growth. Moreover, guidance increase boosts investors’ confidence in the stock. Going forward, we believe that the company’s solid portfolio of upscale hotels across vibrant markets in the world has the potential for significant capital appreciation.

Host Hotels currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the same sector include Ashford Hospitality Trust, Inc. (AHT), FelCor Lodging Trust Incorporated (FCH) and Pebblebrook Hotel Trust (PEB). All three stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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