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Host Hotels (HST) Q2 FFO in Line, Curbs RevPAR '16 Outlook

Zacks Equity Research
Updated

Host Hotels & Resorts, Inc.’s HST came out with second-quarter 2016 adjusted funds from operations ("FFO") of 49 cents per share, in line with the Zacks Consensus Estimate. However, the adjusted FFO per share figure was up 6.5% from the year-ago tally of 46 cents.

Though productivity and efficiency improved across the portfolio, results reflect lower-than-expected revenue performance.

The company posted total revenues of $1.46 billion, which marginally missed the Zacks Consensus Estimate of $1.47 billion but exceeded the year-ago number of $1.44 billion.

Quarter in Details

Comparable hotel revenue per available room or “RevPAR” (on a constant dollar basis) climbed 2.0% year over year, driven by a slight uptick in average room rate and 120 basis point increase in occupancy to 82.4%.

At its domestic properties, comparable RevPAR increased 2.0%, mainly driven by the performance in Los Angeles and Washington, D.C. markets. However, RevPAR fell at the New York and Florida properties. RevPAR at the company’s comparable international properties were up 2.3% on a constant-dollar basis. Further, the company’s food and beverage (F&B) revenues grew 4.5% for the quarter, bolstered by solid growth in banquet and audio visual revenues.

During the quarter, the company invested around $68 million for redevelopment, return on investment (ROI) and acquisition-related capital expenditure. It also spent approximately $67 million on renewal and replacement.

During second quarter, Host Hotels disposed of five non-core assets for $345 million. On the other hand, the company acquired the ground leases for the Key Bridge Marriott for $54 million. Located along the Potomac River with a view of the Washington, D.C. cityscape and national monuments, this buyout offers solid scope to the company for value enhancement and redevelopment options.

Finally, the company exited second-quarter 2016 with around $266 million of cash and $739 million of available capacity under its revolving credit facility. Moreover, as of Jun 30, 2016, total debt was $3.7 billion, having an average maturity of 5.6 years and an average interest rate of 3.7%.

Share Repurchase Update

Host Hotels repurchased 5.2 million shares at an average price of $15.39 for the quarter. Year to date, the company has bought back 10.3 million shares at an average price of $15.73, for a total of around $162 million. Presently, the company has $162 million of repurchase capacity left under its share-repurchase authorization.

Outlook

For 2016, Host Hotels anticipates its adjusted FFO per share in a range of $1.63–$1.67, backed by comparable hotel RevPAR (constant U.S. dollar basis) growth of 2–3%. The company has notably lowered its projected range for RevPAR growth for comparable properties by 100 basis points on account of uncertain economic outlook. The guided FFO per share range is below the Zacks Consensus Estimate of $1.68.

In Conclusion

Going forward, we believe that a solid portfolio of upscale hotels across lucrative markets, strategic capital-recycling program and a healthy 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 also add to its woes.  

HOST HOTEL&RSRT Price, Consensus and EPS Surprise

HOST HOTEL&RSRT Price, Consensus and EPS Surprise | HOST HOTEL&RSRT Quote

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Host Hotels currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Boston Properties Inc. BXP, Mack-Cali Realty Corp. CLI and RLJ Lodging Trust RLJ. Each of these stocks carries 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. All EPS numbers presented in this write up represent FFO per share.

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