Host Hotels & Resorts, Inc.HST disclosed third-quarter 2015 adjusted funds from operations ("FFO") per share of 34 cents, exceeding the Zacks Consensus Estimate of 32 cents but remaining unchanged from the year-ago figure. Results reflect improvements in average room rate and occupancy. The company has also announced an additional $500 million share repurchase authorization.
Total revenue of $1.287 billion marginally missed the Zacks Consensus Estimate of $1.297 billion and declined from the year-ago number of $1.294 billion. Though results benefited from revenue growth at comparable properties, it was partly marred by the disposition of assets and disruption due to redevelopment projects for non-comparable properties.
Quarter in Details
Comparable hotel Revenue per Available Room (RevPAR) (on a constant dollar basis) climbed 2.8% year over year, primarily fueled by 2.3% growth in average room rates and a 30 basis point increase in occupancy to 80.3%.
However, comparable RevPAR increased 7.9% from the prior-year period. Notably, a weak leisure business and international travel in August offset better-than-expected performances in July and September.
At its domestic properties, comparable RevPAR increased 2.8%, mainly driven by the Boston, Los Angeles, Seattle, and San Francisco markets. However, RevPAR decreased at Washington D.C. hotels due to a decline in convention activity and at its Houston properties for continued weakness in the energy market. RevPAR at the company's comparable international properties increased 2.2% on a constant dollar basis.
During the quarter, the company invested around $74 million on redevelopment, ROI and acquisition capital expenditures. The company also spent approximately $77 million in renewal and replacement expenses.
Finally, the company exited third-quarter 2015 with $265 million of cash and cash equivalents against $684 million at the prior-year end.
Share Repurchase Update
Year to date, Host Hotels has repurchased 21.7 million shares at an average price of $18.45 for a total of around $400 million. Moreover, during the third quarter and through early October, the company bought back 15.2 million shares at an average price of $17.76, worth a total of $269 million.
Further, on Oct 28, Host Hotels authorized an additional $500 million share repurchase program. With around $100 million remaining under the repurchase program disclosed in Apr 2015, the company presently has $600 million of repurchase capacity.
For 2015, Host Hotels expects its adjusted FFO per share between $1.50 and $1.52, backed by comparable hotel RevPAR (constant U.S. dollar basis) growth of 4-4.5%. The Zacks Consensus Estimate of $1.51 lies within the company's projected range.
Host Hotels is currently focused on strategic asset repositioning and rebranding initiatives. The company has also commenced the execution of its exit strategy from the Asia-Pacific market.
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 while a strong U.S. dollar and an anticipated hike in interest rate would add to its woes.
Host Hotels currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Highwoods Properties Inc. HIW , Public Storage PSA and PS Business Parks Inc. PSB . All these stocks carry 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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