Host Hotels (HST) Q2 FFO Misses Estimates, Revenues Beat
Host Hotels & Resorts, Inc.HST reported second-quarter 2020 loss in terms of adjusted funds from operations (FFO) per share of 26 cents, meeting the Zacks Consensus Estimate. Notably, the company reported adjusted FFO per share of 53 cents in the prior-year quarter.
It generated total revenues of $103 million, surpassing the Zacks Consensus Estimate of 102 million. The top line, however, declined 93.1% year over year.
Results reflect an adverse impact of the coronavirus pandemic, which has significantly hurt lodging demand, as governments imposed travel restrictions and mandatory stay-at-home orders to curb the virus spread in the June-end quarter.
Behind the Headlines
During the second quarter, all owned hotel RevPAR (on a constant-dollar basis) fell 93% year over year to $14.31. Second-quarter EBITDA was negative $160 million. The company reported EBITDA of $446 million in the prior-year quarter.
Demand during the June-end quarter was primarily driven by drive-to and resort destinations. As of the second-quarter end, room revenues from the transient business were $37 million, indicating a year-over-year plunge of 92.8%. Room revenues from group and contract businesses declined 94.3% and 83.3% year over year, to $18 million and $6 million, respectively.
Moreover, room nights for its transient, group and contract business declined 90%, 90% and 74.1%, respectively, from the prior-year quarter. Notably, the company’s transient, group and contract businesses accounted for roughly 61%, 35%, and 4%, respectively, of its 2019 room sales.
Balance Sheet Position
Host Hotels exited the second quarter with a cash balance of $1.6 billion and FF&E escrow reserves of $154 million and $750 million of capacity available under its credit revolver. As of the same date, its debt balance amounted to $4.5 billion. The company has no significant maturities until 2023.
Moreover, it secured waivers for the quarterly-tested financial covenants in its credit facility, starting Jul 1, 2020, through the second quarter of 2021.
During the January-June period, the company invested around $300 million in capital expenditure. Of this, $206 million was return on investment (ROI) capital projects spend, and $94 million was renewal and replacement project expenditure.
Remarkably, for 2020, the company now guided capital expenditure spending of $475-$520 million, as compared with $450-$525 million mentioned earlier.
Key capital projects in those assets and markets, which are expected to recover faster, have been prioritized like leisure and drive-to destinations as well as the previously-announced major ROI projects.
Significant declines in room revenues across all three businesses impacted Host Hotel’s results. As of Jul 30, hotel operations remained suspended at 16 hotels.
Nonetheless, the company opened 19 of the 35 hotels that suspended operations as of May 6. This likely drove average occupancy and room rate for its hotels. In fact, average occupancy improved 380 basis points from 6.9% in April to 10.7% in June 2020. Moreover, the average room rate rose more than 50% from $129 to $194 during the same period, which is encouraging.
Host Hotels currently carries a Zacks Rank #4 (Sell).
Host Hotels Resorts, Inc. Price, Consensus and EPS Surprise
We now look forward to the earnings releases of other REITs like Healthcare Trust of America, Inc. HTA, National Storage Affiliates Trust NSA and Iron Mountain Incorporated IRM. All three companies are scheduled to release quarterly numbers on Aug 6.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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