Host Hotels & Resorts, Inc. ( HST ) - a real estate investment trust (REIT) - reported second-quarter 2013 adjusted funds from operations (FFO) per share of 45 cents, beating the Zacks Consensus Estimate by 3 cents. Moreover, this exceeded the year-ago figure of 33 cents by 36.4%.
Quarterly results benefited from strong operating portfolio performance. Including certain non-recurring items, FFO was 39 cents per share, up 25.8% from 31 cents in prior-year quarter.
Total revenue increased 4.8% to $1,420 million year over year but missed the Zacks Consensus Estimate of $1,437 million.
Notably, on Jan 1, 2013, Host Hotels shifted to calendar quarter reporting periods, instead of the fiscal quarter reporting period that it followed earlier. Consequently, the company adjusted the 2012 fiscal figures on a calendar-quarter basis.
Behind the Headlines
Total owned hotel revenue climbed 9.4% year over year to $1,407 million, driven by solid performance of its comparable properties along with additional revenue of $31 million from Grand Hyatt Washington acquired in Jul 2012.
During the reported quarter, comparable hotel RevPAR climbed 6.1% year over year to $162.69, primarily driven by a rise in average room rates and occupancy. Average room rates and occupancy increased 4.5% year over year to $203.79 and occupancy rose 110 basis points (bps) to 79.8% on year-over-year basis.
Driven by impressive growth in revenues, comparable hotel adjusted operating profit margin increased 180 bps year over year to 29.0% and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) surged 23.1% to $431 million on year-over-year basis.
Portfolio Restructuring Activity
During the quarter, Host Hotels bought Hawaii-based premium property, Hyatt Place Waikiki Beach for $138.5 million. The 426-room property was acquired from an affiliate of Chartres Lodging Group, LLC - Kokua Hospitality - and Morgan Stanley Real Estate Fund VII Global of Morgan Stanley ( MS ).
Moreover, the company sold a Marriott International, Inc . ( MAR ) branded property - Ritz-Carlton, San Francisco - for about $161 million.
Furthermore, during the quarter, Host Hotels spent $26 million in redevelopment and return on investment (ROI) expenditures. The company also expended nearly $76 million in renewal and replacement expenses. Additionally, Host Hotels used up approximately $7 million for capital and operational improvement of the acquired asset.
Going forward, in 2013, Host Hotels anticipates ROI investments of around $90-$100 million. The company also projects renewal and replacement expenditures to total around $280-$300 million in 2013. Moreover, Host Hotels expects to shell out $35-$45 million for capital and operational improvement expenses in 2013.
As of Jun 30, 2013, Host Hotels had cash and cash equivalents of $393 million, compared with $1,075 at the prior-quarter end. The company has $798 million of capacity available under its credit facility at the end of the reported quarter.
Moreover, Host Hotels issued 4.8 million common shares in at-the-market offering and generated net proceeds of approximately $87 million during the quarter.
Additionally, the company's European joint venture (JV) refinanced a mortgage loan collateralized by a portfolio of five properties situated in Spain, Italy, the United Kingdom and Poland. The JV also reduced the outstanding principal amount of the loan to €242 million from €337 million.
During the quarter, Host Hotels raised its quarterly cash dividend by 10% sequentially to 11 cents per share from 10 cents. The new dividend was paid on Jul 15 to shareholders of record as of Jun 28, 2013.
For 2013, Host Hotels revised its outlook and now expects its adjusted FFO per share in the range of $1.28 to $1.32 (prior guidance being $1.25-$1.33). The updated guidance is based on expectations of an increase of 5.5% to 6.25% in comparable hotel RevPAR and comparable hotel adjusted operating profit margins in the range of 100 bps-120 bps.
Although the revenues miss is not encouraging, Host Hotels' adjusted FFO beat depicts strong comparable properties' performance and adjusted EBITDA growth. Moreover, strategic portfolio restructuring activities continued to benefit Host Hotels. Going forward, the company's luxury and upper upscale hotels across hard-to-replicate areas have the potential for significant capital appreciation. In addition, the dividend hike boosts investors' confidence in the stock and thus seems promising.
Host Hotels currently carries a Zacks Rank #2 (Buy). Another REIT CubeSmart ( CUBE ) also carries the same Zacks rank as Host Hotels.
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.