Host Hotels & Resorts, Inc. (HST) – the lodging real estate investment trust (:REIT) – disclosed fourth-quarter 2013 adjusted funds from operations (:FFO) per share of 33 cents, exceeding the Zacks Consensus Estimate by 2 cents and the year-ago figure by 3 cents.
Quarterly year-over-year increase of 10% in adjusted FFO was benefited from the significant rise in total owned hotels revenues and comparable hotel Revenue Per Available Room (RevPAR). Prompted by its results, Host Hotels declared a 7.7% sequential increase in its quarterly dividend.
Also, including certain non-recurring items, FFO was 33 cents per share, up from 29 cents in the prior-year quarter.
Total revenue came in at $1,331 million, which increased 3.2% on year over year basis. This also surpassed the Zacks Consensus Estimate of $1,291 million.
For full-year 2013, Host Hotels reported adjusted FFO per share of $1.31 on revenues of $5,166 million. Results were substantially higher than the prior-year adjusted FFO per share of $1.10 on revenues of $5,059 million. Additionally, reported FFO for 2013 was $1.26 per share, up from $1.04 per share in 2012.
Notably, on Jan 1, 2013, Host Hotels shifted to calendar quarter reporting periods, instead of the fiscal quarter reporting period that it followed earlier. Consequently, the company adjusted the 2012 fiscal figures on a calendar-quarter basis.
Total owned hotel revenue climbed 7.5% year over year to $1,318 million, driven by the impressive performance of its comparable properties.
During the reported quarter, comparable hotel RevPAR climbed 6.6% year over year to $150.03, primarily driven by continued improvement in average room rates and occupancy. Average room rates increased 4.4% year over year to $205.44 and occupancy rose 140 basis points (bps) to 73.0% on a year-over-year basis, in the comparable hotels.
On the other hand, comparable hotel adjusted operating profit margin upped 130 bps year over year at 25.6% and adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) rose 2.5% to $322 million on a year-over-year basis.
Portfolio Restructuring Activity in Q4
During the quarter, Host Hotels spent $26 million in redevelopment and return on investment (:ROI) expenditures. The company also expended nearly $64 million in renewal and replacement expenses. Additionally, Host Hotels used up approximately $7 million for capital and operational improvement of the acquired asset.
In the quarter under review, Host Hotels paid $19.9 million as a final incremental amount for the buyout of the fee simple interest in the land at the New York Marriott Marquis Times Square. Also, the company attributed $25 million, paid in accordance with the ground lease terms, towards the land acquisition.
Moreover, Host Hotels divested the Four Seasons Hotel Atlanta (including the furniture, fixtures and equipment replacement fund) for $63 million and garnered a profit of about $11 million from it. Additionally, the company offloaded the Dallas/Addison Marriott Quorum by the Galleria (including the furniture, fixtures and equipment replacement fund) for $56 million and reaped a profit of around $15 million from the sale.
As of Dec 31, 2013, Host Hotels had cash and cash equivalents of $861 million, up from $417 million at the prior-year end.
On Feb 18, 2014, the board of directors of Host Hotels authorized a quarterly cash dividend of 14 cents per share. This depicts a 7.7% increase over the last dividend payment of 13 cents. The dividend is payable on Apr 15, 2014 to shareholders of record on Mar 31.
Host Hotels provided guidance for 2014 adjusted FFO per share in the range of $1.40–$1.44. The Zacks Consensus Estimate of $1.43 for the same lies within this guidance.
We are encouraged with the impressive quarterly results at Host Hotels. We believe that given its solid portfolio of luxury and upper upscale hotels, the company is poised to deliver better results in the quarters ahead too. Notably, the strategic portfolio restructuring activities bode well for Host Hotels’ long-term growth.
Also, the dividend hike for the 13th consecutive time boosts investors’ confidence in the stock and thus seems promising. Going forward, we believe that the company’s properties across hard-to-replicate areas have the potential for significant capital appreciation.
Host Hotels currently carries a Zacks Rank #3 (Hold). However, better-ranked REIT-Equity Trust – Other stocks include Liberty Property Trust (LRY), Public Storage (PSA) and PS Business Parks Inc. (PSB). All these 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.