Host Hotels (HST) Q1 FFO Beats Estimates, Margin Improves

Host Hotels & Resorts, Inc. (NYSE:HST) reported first-quarter 2017 adjusted funds from operations ("FFO") of 44 cents per share, beating the Zacks Consensus Estimate of 39 cents. Adjusted FFO per share was up 7.3% from the year-ago tally of 41 cents.

Results reflect growth in comparable hotel revenues and improvement in margin.

The company posted total revenue of nearly $1.35 billion, which beat the Zacks Consensus Estimate of $1.32 billion. The figure compared favorably with the year-ago number of $1.34 billion. Results were driven by an increase in revenue per available room – RevPAR – at the company’s comparable hotels, and increase in food & beverage revenue revenues due to a favorable shift in the Easter holiday.

Quarter in Details

During the reported quarter, comparable hotel revenues grew 3.1% year over year to $1.2 billion, backed by group performance.

Comparable RevPAR (on a constant dollar basis) was up 3.4% year over year, driven by a 2.4% increase in average room rate and 80 basis point expansion in occupancy to 75.8%.

At its domestic properties, comparable RevPAR increased 3.8% and the Washington D.C. market outperformed the portfolio as a result of the Presidential inauguration and Women’s March. On the other hand, San Francisco and New York properties lagged the portfolio. However, RevPAR at the company’s comparable international properties were down 7.1% on a constant-dollar basis. Results reflect substantial decline at three of the company’s properties in Rio de Janeiro due to the Brazilian economy weakness.

Nevertheless, improvements in RevPAR, and food and beverage revenues aided GAAP operating profit margin growth of 140 basis points for the quarter.

During the quarter under review, the company invested around $16 million for redevelopment, and return on investment (ROI) capital expenditures. It also spent approximately $64 million on renewal and replacement.

Finally, the company exited first-quarter 2017 with around $411 million of unrestricted cash and $784 million of available capacity remaining under the revolver part of its credit facility. Moreover, as of Mar 31, 2017, total debt was $4.0 billion, having an average maturity of 5.1 years and an average interest rate of 3.8%. Notably, the company has not repurchased any shares in 2017.

Outlook

For full-year 2017, Host Hotels expects its adjusted FFO per share in the range of $1.60–$1.68, backed by comparable hotel RevPAR (constant U.S. dollar basis) growth of 0.0–2.0%. The Zacks Consensus Estimate for the same is currently pegged at $1.66.

In Conclusion

We are encouraged with the better-than-expected performance of Host Hotels in the first quarter. The company’s solid portfolio of upscale hotels across lucrative markets, strategic capital-recycling program and a healthy balance sheet bode well for long-term growth. However, supply growth, specifically in the company’s key markets, remains a concern. Moreover, currency fluctuations and rate hike add to its woes.

Host Hotels currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We are now looking forward to the earnings releases of GGP Inc. (NYSE:GGP) , Vornado Realty Trust (NYSE:VNO) and HCP Inc. (NYSE:HCP) all of which are expected to report their quarterly numbers in the next week.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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