Technology

Host Hotels' (HST) Q1 FFO Beats Estimates, Raises Guidance

Host Hotels & Resorts, Inc. HST reported first-quarter 2019 adjusted funds from operations (FFO) of 48 cents per share, which outpaced the Zacks Consensus Estimate of 45 cents. Adjusted FFO per share also increased 11.6% from the year-ago tally of 43 cents.

The company generated total revenues of around $1.39 billion, which increased 3.3% year over year. However, the revenue figure narrowly missed the Zacks Consensus Estimate of $1.4 billion.

Results reflect increase in average room rate. However, the Marriott transformational capital program and the government shutdown dampened the company’s RevPAR performance. Nevertheless, Host Hotels raised its 2019 guidance.

Behind the Headlines

During the quarter under review, comparable hotel revenues inched up 0.2% year over year to roughly $1.2 billion. However, comparable hotel RevPAR (on a constant-dollar basis) edged down 1.0% year over year. This was due to a 180 basis point decrease in occupancy, partly offset by a 1.3% increase in average room rate. The RevPAR decline reflects the Marriott transformational capital program and the government shutdown primarily affecting Washington, D.C. and San Diego.

For domestic properties, comparable hotel RevPAR was down 1.2%, while the same for International properties climbed 11.4%.

For the March-end quarter, comparable hotel EBITDA increased 1.9%. Comparable hotel EBITDA margin advanced 50 bps.

Finally, the company exited first-quarter 2019 with around $1.08 billion of unrestricted cash, not including $191 million in the FF&E escrow reserve, and $944 million of available capacity under the revolver part of its credit facility. In addition, as of Mar 31, 2019, total debt was $3.9 billion, with average maturity of 3.9 years and average interest rate of 4.3%. Notably, the company has no debt maturities until 2020.

Host Hotels did not buy back any shares in the first quarter of 2019. It has $500 million of capacity available under its current repurchase program. Additionally, earlier, the company had 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. In the first quarter, no shares were issued under this agreement.

Portfolio Activity

During the reported quarter, the company acquired the 1 Hotel South Beach for $610 million and sold The Westin New York Grand Central for $302 million, including around $20 million of FF&E funds.

Capital Investments

During the January-March quarter, the company witnessed around $110 million in capital expenditures, of which $52 million was return on investment (ROI) capital projects, and $58 million for renewal and replacement projects.

Outlook

Host Hotels has raised its guidance for full-year 2019 by 3 cents at the mid-point. The company expects 2019 adjusted FFO per share of $1.76-$1.84, up from $1.72-$1.81 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $1.77.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 0-2%. This reflects an estimated 45 basis points of disruption impact due to the incremental capital expenditures associated with the Marriott transformational capital program. However, with operating profit guarantees provided by Marriott, the effect on earnings caused by these expenditures is compensated.

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 continues to actively improve its portfolio composition that emphasizes lowering its international exposure and increasing focus on strategic U.S. markets. Further, a diversified portfolio of iconic properties in key cities, an unmatched scale and platform and strong balance sheet, position the company to perform well over the long term. Host Hotels is also witnessing broad productivity gain that is aiding its profitability. However, elevated supply in some of the company’s key markets might affect its pricing power.

Host Hotels currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Host Hotels & Resorts, Inc. Price, Consensus and EPS Surprise
 

Host Hotels & Resorts, Inc. Price, Consensus and EPS Surprise | Host Hotels & Resorts, Inc. Quote

We, now, look forward to the earnings releases of other REITs like Omega Healthcare Investors, Inc. OHI, Senior Housing Properties Trust SNH and Plymouth Industrial REIT, Inc. PLYM, which are slated to report their quarterly numbers next week.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.