Host Hotels (HST) Beats Q1 FFO Estimates: Will Stock Gain?

Host Hotels & Resorts, Inc. HST disclosed first-quarter 2016 adjusted funds from operations (“FFO”) per share of 41 cents, exceeding the Zacks Consensus Estimate of 38 cents and improving 17.1% from the prior-year quarter figure of 35 cents.

Results reflect an increase in comparable revenue per available room (RevPAR) backed by an uptick in average room rate and occupancy.

Total revenues of $1.34 billion marginally missed the Zacks Consensus Estimate of $1.36 billion but exceeded the year-ago number of $1.30 billion.

Quarter in Details

Comparable hotel RevPAR (on a constant dollar basis) climbed 3.6% year over year, driven by 0.7% growth in average room rate and 210 basis point increase in occupancy to 75.5%.

At its domestic properties, comparable RevPAR increased 3.4%, mainly driven by the performance in San Francisco and Los Angeles markets. However, RevPAR decreased at the Boston and Denver properties. RevPAR at the company’s comparable international properties increased 9.6% on a constant dollar basis.

During the quarter, the company invested around $73 million for redevelopment, ROI and acquisition-related capital expenditure. The company also spent approximately $94 million on renewal and replacement.

Finally, the company exited first-quarter 2016 with around $234 million of cash and total debt of $4.0 billion, with an average maturity of 5.6 years and an average interest rate of 3.6%.

Share Repurchase Update

Year to date, Host Hotels has repurchased 5.1 million shares at an average price of $16.08 that totals about $81 million. Presently, the company has $242 million of repurchase capacity left under its Oct 2015 share repurchase authorization.

Outlook

For 2016, Host Hotels expects adjusted FFO per share in the range of $1.65–$1.69, backed by comparable hotel RevPAR (constant U.S. dollar basis) growth of 3–4%. The Zacks Consensus Estimate of $1.68 lies within the company’s projected range.

In Conclusion

Going forward, we believe that a solid portfolio of upscale hotels across lucrative markets, strategic capital recycling program and improved balance sheet would place the company well for growth. However, asset dispositions would lead to near-term earnings dilution and any hike in interest rate can add to its woes.

Host Hotels currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Extra Space Storage Inc. EXR, LTC Properties Inc. LTC and Public Storage PSA. Each of these stocks carries a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.

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