A month has gone by since the last earnings report for Host Hotels (HST - Free Report) . Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Host Hotels due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Host Hotels Beats on Q2 FFO and Revenues, Raises View
Host Hotels & Resorts reported second-quarter 2018 adjusted FFO of 54 cents per share, which outpaced the Zacks Consensus Estimate of 51 cents. Adjusted FFO per share also increased 10.2% from the year-ago tally of 49 cents.
The company’s Q2 performance was driven by growth in room rate, rising occupancy level, solid food and beverage profitability, better ancillary revenues and improvement in margin.
The company generated total revenues of around $1.52 billion, which surpassed the Zacks Consensus Estimate of $1.49 billion, and increased 5.3% year over year. The robust performance was aided by improvements in revenue per available room (RevPAR), food and beverage sales, and ancillary revenues, as well as the benefit of the three hotels acquired in 2018. However, these positives were partly offset by the disposition of six hotels in 2017 and 2018.
Notably, during the reported quarter, Host Hotels completed the sale of the W New York on Lexington Avenue, for $190 million. This helped the company lower its exposure in the New York market. Moreover, it placed the W New York–Union Square under contract for $171 million. This transaction is likely to close in the ongoing quarter. Further, the company placed a third asset under contract for sale, which is likely to close later this year.
Behind the Headlines
During the quarter under review, comparable hotel revenues increased 3.7% year over year to nearly $1.36 billion. Comparable hotel RevPAR (on a constant dollar basis) was up 2.8% year over year, aided by a 2.2% increase in average room rate and a 50 basis points (bps) expansion in occupancy. For domestic properties, comparable hotel RevPAR was up 2.5%, while the same for International properties climbed 14 %.
For the June-end quarter, comparable hotel EBITDA increased 6.7%. Comparable hotel EBITDA margin advanced 90 bps, reflecting improvements in comparable revenues and a second-quarter tax rebate at one property.
Finally, the company exited second-quarter 2018 with around $646 million of unrestricted cash and $551 million of available capacity under the revolver part of its credit facility. In addition, as of Jun 30, 2018, total debt was $4.2 billion, having an average maturity of 4.5 years and an average interest rate of 4.0%. Notably, the company has no debt maturities until 2020. Moreover, following the quarter end, $150 million was repaid by the company under the revolver part of its credit facility and therefore, it now has $701 million of available capacity.
Host Hotels did not buy back any shares in 2018. It has $500 million of capacity available under its current repurchase program. Additionally, on May 25, 2018, the company entered into a distribution agreement through which it may issue and sell shares of common stock having a total offering price of up to $500 million from time to time. So far, no shares have been issued under this agreement.
During the April-June quarter, the company expended around $86 million on capital expenditures — $29 million was ROI capital projects, and $57 million for renewal and replacement projects.
Host Hotels has raised its outlook for full-year 2018. The company now expects 2018 adjusted FFO per share of $1.71-$1.76, denoting a 35-cent increase at the mid-point from the earlier guidance of $1.67-$1.73.
The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 1.75-2.5%, reflecting rise of 12.5 bps at the mid-point. Also, the company projects 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Host Hotels has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Host Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.