Host Hotels Beats on FFO & Revs; Ups View

Zacks

Host Hotels & Resorts, Inc. (HST) – the lodging real estate investment trust (:REIT) – disclosed first-quarter 2014 adjusted funds from operations (:FFO) per share of 33 cents, exceeding the Zacks Consensus Estimate by 3 cents and the year-ago figure by a nickel.

Quarterly year-over-year increase of 17.9% in adjusted FFO benefited from the notable rise in Revenue Per Available Room (RevPAR) and food and beverage operations, in the comparable hotels.

Also, including certain non-recurring items, FFO was 32 cents per share, up from 29 cents in the prior-year quarter. Encouragingly, Host Hotels increased its 2014 FFO per share guidance range.

Total revenue came in at $1,309 million, which jumped 6.9% on a year-over-year basis. This also surpassed the  Zacks Consensus Estimate of $1,268 million.

Quarterly in Details

Comparable hotel RevPAR climbed 6.8% year over year to $149.71, primarily driven by continued improvement in average room rates and occupancy. Average room rates increased 4.7% year over year to $202.61 and occupancy rose 150 basis points (bps) to 73.9% on a year-over-year basis, in the comparable hotels.  

As a result, comparable hotel adjusted operating profit margin upped 120 bps year over year to 24.0% and adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) rose 8.8% to $308 million on a year-over-year basis.

Additionally, Host Hotel’s European joint venture's comparable hotel RevPAR upped 2.8% year over year to €109.57 (in constant Euros), mainly aided by year-over-year occupancy gains of 220 bps to $67.8%.

During the quarter, Host Hotels spent $11 million in redevelopment and return on investment (ROI.V) expenditures. The company also expended nearly $76 million in renewal and replacement expenses. Additionally, Host Hotels used up approximately $3 million for capital and operational improvement of the acquired asset.

Liquidity

As of Mar 31, 2014, Host Hotels had cash and cash equivalents of $392 million, compared to $861 million at the end of 2013. The company has a total debt of $4.1 billion, as against $4.8 billion at the end of last year. Host Hotels has around $782 million of available capacity under its credit facility at the end of first-quarter 2014.

2014 Outlook Increased

Host Hotels raised its 2014 adjusted FFO per share guidance and now projects it to be in the range of $1.41 – $1.46 (prior range being $1.40–$1.44). The Zacks Consensus Estimate of $1.44 for the same falls within this range.

Our Take

Host Hotels came up with impressive results yet again owing to its strong operating portfolio performance. Also, the strategic portfolio enhancement activities bode well for Host Hotels’ long-term growth. Moreover, guidance increase boosts investors’ confidence in the stock. Going forward, we believe that the company’s solid portfolio of upscale hotels across vibrant markets in the world have the potential for significant capital appreciation.

Host Hotels currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Strategic Hotels & Resorts, Inc. (BEE), LaSalle Hotel Properties (LHO) and Pebblebrook Hotel Trust (PEB). All three stocks carry a Zacks Rank #2 (Buy).

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.

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