Host Hotels' (HST) Q4 FFO Beats Estimates, Revenues Up Y/Y

Host Hotels & Resorts, Inc. (NYSE:HST) reported fourth-quarter 2018 adjusted funds from operations (FFO) of 43 cents per share, which outpaced the Zacks Consensus Estimate of 41 cents. Adjusted FFO per share also increased from the year-ago tally of 42 cents.

The company generated total revenues of around $1.36 billion, which missed the Zacks Consensus Estimate of $1.37 billion, however inched up 1.3% year over year.

Results reflect improvements in room, as well as food and beverage revenues. The company also witnessed broad productivity gains that aided profitability. It announced the purchase of fee simple interest in 1 Hotel South Beach for $610 million.

For full-year 2018, adjusted FFO per share came in at $1.77, surpassing the Zacks Consensus Estimate of $1.75. The figure also improved 4.7% year over year. Revenues for full-year 2018 improved 2.5% year over year to $5.52 billion. However, the reported figure missed the Zacks Consensus Estimate of $5.53 billion.

Behind the Headlines

During the quarter under review, comparable hotel revenues were up 1.9% year over year to roughly $1.1 billion. Comparable hotel RevPAR (on a constant-dollar basis) was up 2.3% year over year, aided by a 2% increase in average room rate and an expansion of 20 basis points (bps) in occupancy. For domestic properties, comparable hotel RevPAR was up 2.3%, while the same for International properties climbed 3.2%.

For the Dec-end quarter, comparable hotel EBITDA increased 3.7%. Comparable hotel EBITDA margin advanced 45 bps.

Finally, the company exited fourth-quarter 2018 with around $1.54 billion of unrestricted cash, not including $213 million in the FF&E escrow reserve, and $945 million of available capacity under the revolver part of its credit facility. In addition, as of Dec 31, 2018, total debt was $3.8 billion, with average maturity of 4.2 years and average interest rate of 4.4%. Notably, the company has no debt maturities until 2020.

Host Hotels did not buy back any shares in 2018. It has $500 million of capacity available under its current repurchase program. Additionally, earlier the company entered into a distribution agreement through which it might issue and sell shares of common stock, having a total offering price of up to $500 million from time to time. So far this year, no shares have been issued under this agreement.

Portfolio Activity

Notably, during the reported quarter, Host Hotels made efforts to enhance its portfolio quality through strategic dispositions, aimed at lowering the company’s international and New York exposure. It completed the sale of the 33% stake in its European joint venture to the company’s present partners, for $496 million. Further, this January, the company closed the sale of the Westin New York Grand Central, for $302 million, including FF&E funds.

In 2018, it completed more than $2.2 billion in asset sale. With these proceeds, the company has flexibility to add properties to its portfolio, invest in existing assets or go for share repurchases.

Capital Investments

During the Oct-Dec quarter, the company expended around $154 million on capital expenditures, of which $94 million was return on investment (ROI) capital projects, and $60 million for renewal and replacement projects.

Outlook

Host Hotels has provided its outlook for full-year 2019. The company expects 2019 adjusted FFO per share of $1.72-$1.81. The Zacks Consensus Estimate for the same is currently pegged at $1.71.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 0-2%. Additionally, the company projects capital expenditures of $550-$625 million for the year. This comprises $315-$350 million in ROI projects, and $235-$275 million in renewal and replacement projects.

In Conclusion

Host Hotels’ better-than-expected performance in the fourth quarter is encouraging. Furthermore, the acquisition of interest in 1 Hotel South Beach is in line with the company’s efforts to strengthen its portfolio. In fact, the luxury resortis strategically located in the South Beach area of Miami Beach. It received an elaborate $300-million renovation in 2015 and has 160,000 square feet of flexible meeting space.

However, near-term dilutive impact from asset dispositions cannot be bypassed.

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.

Host Hotels & Resorts, Inc. Price and EPS Surprise

Performance of Other REITs

Ventas, Inc. (NYSE:VTR) reported fourth-quarter 2018 normalized FFO of 96 cents, beating the Zacks Consensus Estimate of 95 cents. However, the figure came in lower than the year-ago tally of $1.03.

Alexandria Real Estate Equities, Inc. (NYSE:ARE) recorded fourth-quarter 2018 adjusted FFO of $1.68 per share, missing the Zacks Consensus Estimate by a whisker.

Welltower Inc. (NYSE:WELL) posted normalized FFO per share of $1.01 for fourth-quarter 2018, which missed the Zacks Consensus Estimate of $1.03. Moreover, the figure compares unfavorably with the year-ago tally of $1.02.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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