Why Is Host Hotels & Resorts (HST) Down 2.5% Since its Last Earnings Report?

A month has gone by since the last earnings report for Host Hotels & Resorts, Inc. HST. Shares have lost about 2.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is HST due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Host Hotels' Q4 FFO Beats Estimates, Revenues Grow Y/Y

Host Hotels & Resorts reported fourth-quarter 2017 adjusted FFO of 42 cents per share, which outpaced the Zacks Consensus Estimate of 39 cents. The adjusted FFO per share also climbed 2.4% from the year-ago quarter tally of 41 cents.

Results reflect margin improvement through better productivity. The company also announced that it has signed an agreement to acquire three Hyatt-managed hotels.

The company posted total revenues of $1.34 billion which grew 0.5% year over year but narrowly missed the Zacks Consensus Estimate of $1.35 billion.

For full-year 2017, the company delivered adjusted FFO per share of $1.69, unchanged from the previous year. However, revenues edged down 0.8% year over year to around $5.4 billion, as a result of revenue loss from the sale of 14 hotels in 2016 and 2017. Also, Hurricanes Harvey and Irma adversely affected total revenues in the year.

Acquisitions and Dispositions

Host Hotels is on track with its strategic capital-recycling efforts. Following the year end, Host Hotels completed the sale of the Key Bridge Marriott for $190 million. Further, the company is under contract to sell the W New York for $190 million. The sale is likely to close in second-quarter 2018.

On the other hand, three Hyatt assets are placed under contract for acquisition. These include the 301-room Andaz Maui, 668-room Grand Hyatt San Francisco, and 454-room Hyatt Regency Coconut Point. The assets, positioned in markets with solid revenue per available room (RevPAR) growth, have gone through substantial renovations. Expected to close by the end of the current quarter, the company will fund this transaction through a mixture of cash and drawing on the revolver part of its credit facility.

Quarter in Details

During the reported quarter, comparable hotel revenues increased 2.3% year over year to $1.2 billion. Comparable hotel RevPAR (on a constant dollar basis) was up 2.2% year over year, driven by a 0.3% increase in average room rate and 140 basis points (bps) expansion in occupancy to 76.6%. At its domestic properties, comparable hotel RevPAR increased 2.1%, and climbed 7.3% at its international properties, on a constant-dollar basis.

For the fourth quarter, comparable hotel EBITDA margin advanced 10 bps.

Finally, the company exited 2017 with around $ 913 million of unrestricted cash and $822 million of available capacity remaining under the revolver part of its credit facility. In addition, as of Dec 31, 2017, total debt was $4.0 billion, having an average maturity of 5.1 years and an average interest rate of 4.0%. Notably, it did not buy back any shares in 2017. It has $500 million of capacity available under its current repurchase program.

Capital Investments

During 2017, the company expended around $277 million on capital expenditures — $72 million was ROI capital projects, and $205 million for renewal and replacement projects.

Outlook

Host Hotels expects 2018 adjusted FFO per share in the range of $1.60-$1.70.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 0.5-2.5%. Moreover, the company expects capital expenditures of $475-$550 million for the year. This comprises $185-$220 million in ROI projects, and $290-$330 million in renewal and replacement projects.

Dividend Update

On Feb 21, the company’s board approved a regular quarterly cash dividend of 20 cents per share on its common stock. The dividend will be paid on Apr 16 to stockholders of record as of Mar 29, 2018.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower.

Host Hotels & Resorts, Inc. Price and Consensus

Host Hotels & Resorts, Inc. Price and Consensus | Host Hotels & Resorts, Inc. Quote

VGM Scores

At this time, HST has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions indicates a downward shift. Notably, HST has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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