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Host Hotels' (HST) Q2 FFO & Revenues Lag Estimates, View Down

Zacks Equity Research

Host Hotels & Resorts, Inc. HST reported second-quarter 2019 adjusted funds from operations (FFO) of 53 cents per share, which lagged the Zacks Consensus Estimate of 54 cents. Adjusted FFO per share also edged down 1.9% from the year-ago tally of 54 cents.

The company generated total revenues of around $1.48 billion, which declined 2.3% year over year. Further, the revenue figure narrowly missed the Zacks Consensus Estimate of $1.5 billion.

Although the company witnessed an increase in average room rate, a decline in occupancy restrained the company from posting stellar results. In addition, the Marriott transformational capital program dampened the company’s RevPAR performance. Amid this, the company decreased its 2019 outlook.

Behind the Headlines

During the quarter, comparable hotel revenues remained flat year over year to roughly $1.2 billion. However, comparable hotel RevPAR (on a constant-dollar basis) edged down 1.5% year over year. This was due to a 140-basis point contraction in occupancy, partly offset by a 0.3% increase in average room rate. The RevPAR decline reflects the unfavorable impact of the Marriott transformational capital program.

For domestic properties, comparable hotel RevPAR was down 1.6%, while the same for International properties was up 5.8%.

For the June-end quarter, comparable hotel EBITDA shrunk 0.6%, while comparable hotel EBITDA margin descended 20 basis points.

Finally, the company exited second-quarter 2019 with around $1.1 billion of unrestricted cash, not including $203 million in the FF&E escrow reserve. In addition, as of Jun 30, 2019, total debt was $3.9 billion, with average maturity of 3.7 years and average interest rate of 4.3%.

Host Hotels repurchased 10.9 million shares, aggregating $200 million in second-quarter 2019. Additionally, on Aug 5, 2019, its board of directors doubled the company’s share-buyback program to $1 billion. After taking into account the repurchase executed in the June-end quarter, Host Hotels has $800 million of capacity available under its current repurchase program.

Portfolio Activity

During the reported quarter, the company sold three non-core assets — Newport Beach Marriott Bayview, The Westin Mission Hills Golf Resort & Spa and leasehold interest in the Washington Dulles Airport — for $118 million.

Capital Investments

During the June-end quarter, the company witnessed around $130 million in capital expenditures, of which $70 million was return on investment (ROI) capital projects, and $60 million for renewal and replacement projects.

Outlook

Host Hotels trimmed its guidance for full-year 2019 by 5 cents at the mid-point. The company expects 2019 adjusted FFO per share of $1.73-$1.78, down from the $1.76-$1.84 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $1.81.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of -1% to 0%. This reflects an estimated 50 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 impact on earnings caused by these expenditures is compensated.

Additionally, the company projects capital expenditures of $550-$610 million for the year. This comprises $315-$345 million in ROI projects, and $235-$265 million in renewal and replacement projects.

In Conclusion

Host Hotel’s second-quarter performance was disappointing. Notably, the Marriott transformational capital program continues to depress the company’s performance. This led to the company trimming its guidance for the ongoing year.

Specifically, amid active market for transactions, Host Hotels executed its strategy to dispose low RevPAR, non-core assets. With the sale of three assets during the April-June quarter, the company’s year-to-date asset sales aggregated $570 million. While these dispositions will enhance Host Hotel’s portfolio quality, it is anticipated to affect 2019 Adjusted EBITDAre by $21 million and adjusted FFO per share to the tune of 3 cents.

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

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

Host Hotels & Resorts, Inc. price-consensus-eps-surprise-chart | Host Hotels & Resorts, Inc. Quote

Host Hotels currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Cousins Properties Incorporated CUZ reported second-quarter FFO per share (before TIER transaction costs) of 71 cents, missing the Zacks Consensus Estimate by a whisker. Nonetheless, the figure came in higher than the prior-year quarter’s reported tally of 60 cents.

SL Green Realty Corp. SLG delivered second-quarter 2019 FFO of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The tally includes promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. Results also compared favorably with the year-ago quarter’s $1.69.

Crown Castle International Corp. CCI posted second-quarter adjusted AFFO per share of $1.48, up from the prior-year figure of $1.31. Furthermore, the reported figure outpaced the Zacks Consensus Estimate of $1.43.

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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