Host Hotels & Resorts, Inc. (HST), a real estate investment trust (:REIT), reported first quarter 2013 adjusted FFO (funds from operations) per share of 28 cents, beating both the Zacks Consensus Estimate and the year-ago FFO per share by 4 cents. The company has also raised its outlook for 2013.
Quarterly results benefited from a 5.1% rise in comparable hotel RevPAR (revenue per available room) and solid performances at its luxury and resort and conference center properties.
Including certain items, FFO in the reported quarter was $218 million or 29 cents per share compared with $173 million or 24 cents.
Notably, Host Hotels shifted to calendar quarter reporting periods, instead of the fiscal quarter reporting period that it followed earlier. As a result, the company has adjusted the 2012 fiscal figures on a calendar-quarter basis.
Beneath the Headlines
During the quarter, total revenue increased 31.8% to $1,255 million from $952 million in the year-ago quarter. The reported revenues substantially beat the Zacks Consensus Estimate of $1,166 million. Total owned hotel revenues climbed up 4.6% year over year to $1,238 million.
The increases revenues were driven by solid performance of its comparable properties along with additional revenues of $21 million from the Grand Hyatt Washington acquired in July 2012.
During the first quarter, comparable hotel RevPAR climbed 5.1% to $142.87 from $135.98, primarily driven by a rise in average room rates. Average room rates increased 4.0% to $197.57 from $189.94 in the prior-year quarter. On the other hand, occupancy rose 70 bps (basis points) to 72.3% from 71.6% in the year-ago period.
Driven by considerable rise in revenues, comparable hotel adjusted operating profit margin increased 85 bps to 23.4% from 22.55% in the year-ago period. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) surged 10.1% to $283 million from $257 million in the prior-year quarter.
During the reported quarter, Host Hotels invested around $21 million in redevelopment and return on investment (ROI) expenditures. Further, the company anticipates ROI investments of around $90 million – $100 million in 2013.
Host Hotels invested nearly $87 million in renewal and replacement expenses during the first quarter and projects renewal and replacement expenditures to total around $270 million – $290 million in 2013.
Moreover, during the first quarter, Host Hotels used up approximately $15 million on properties purchased in the past 2 years. The company expects to invest $40 million – $50 million in 2013.
As of Mar 31, 2013, Host Hotels had cash and cash equivalents of $1,075 million, compared with $417 million as of the prior-quarter end.
However, the company has made a number of transactions during the quarter and subsequently as well, which are aimed at reducing interest expenses, extending its debt maturities and loan repayment so as to strengthen its balance sheet. Following such transactions, the company will have around $380 million of cash and cash equivalents, $692 million of available capacity under its credit facility and about $4.8 billion of debt.
On Apr 15, 2013, Host Hotels paid a regular quarterly cash dividend of 10 cents per share on its common stock to stockholders of record on Mar 28, 2013.
For 2013, Host Hotels has raised its outlook and now expects its adjusted FFO per share in the range of $1.25 – $1.33, up from the prior range of $1.19 – $1.27 per share. The updated guidance is backed by expectations of an increase in comparable hotel RevPAR to 5.0% to 7.0% and comparable hotel adjusted operating profit margins to move up approximately 60 bps to 120 basis points.
We are encouraged with the decent results of Host Hotels in the first quarter, which were aided by a rise in room rates. The company also continues to benefit from its strategic acquisitions and joint venture deals. Going forward, the company’s luxury and upper upscale hotels across hard-to-replicate areas have the potential for significant capital appreciation.
Yet, its concentration of properties in the upscale segments expose it to the risk of lower demand during the economic downturn, as in such periods, customers prefer lower priced brands over the Host Hotels’ premium ones. Moreover, continuous acquisitions involve significant upfront operating expenses, which drag down margins till these stabilize.
Host Hotels currently carries a Zacks Rank #3 (Hold). Other REITs that are performing better and are worth a look include Simon Property Group Inc. (SPG), Acadia Realty Trust (AKR) and CubeSmart (CUBE), all carrying 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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