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Host Hotels (HST) Down 1.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Host Hotels (HST - Free Report) . Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Host Hotels due for a breakout? 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 Q3 FFO & Revenues, Revises Outlook

Host Hotels reported third-quarter 2018 adjusted FFO of 37 cents per share, which outpaced the Zacks Consensus Estimate of 35 cents. Adjusted FFO per share also increased 12.1% from the year-ago tally of 33 cents.

The company generated total revenues of around $1.3 billion, which surpassed the Zacks Consensus Estimate of $1.28 billion, and increased 3.6% year over year.

Results reflect improvements in food and beverage sales, as well as operations of the three hotel Hyatt portfolio acquired in 2018. These were partly muted by the disposition of eight hotels in 2017 and 2018. The company also experienced broad productivity gains that aided profitability.

Behind the Headlines

During the quarter under review, comparable hotel revenues increased 2.8% year over year to around $1.1 billion. Comparable hotel RevPAR (on a constant dollar basis) was up 1.6% year over year, aided by a 1.5% increase in average room rate and an expansion of 10 basis points (bps) in occupancy. For domestic properties, comparable hotel RevPAR was up 1.4%, while the same for International properties climbed 10.8%.

For the Sep-end quarter, comparable hotel EBITDA increased 4.6%. Comparable hotel EBITDA margin advanced 50 bps.

Finally, the company exited third-quarter 2018 with around $1.27 billion of unrestricted cash, not including $205 million in the FF&E escrow reserve, and $702 million of available capacity under the revolver part of its credit facility. In addition, as of Sep 30, 2018, total debt was $4.1 billion, having an average maturity of 4.3 years and an average interest rate of 4.1%. Notably, the company has no debt maturities until 2020.

Host Hotels did not buy back any shares in 2018. It has $500 million of capacity available under its current repurchase program. Additionally, earlier 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 this year, no shares have been issued under this agreement.

Portfolio Activity

Notably, during the reported quarter, Host Hotels made efforts to enhance its portfolio quality through strategic dispositions, aiming at lowering the company’s international and New York exposure. It sold the JW Marriott Hotel Mexico City and reached a deal to sell its interest in the European joint venture to its present partners. Further, in New York, the company accomplished the sale of the W New York – Union Square, as well as placed the Westin New York Grand Central hotel under contract for $300 million, including FF&E funds. Also, the company sold the retail space at the New York Marriott Marquis to Vornado Realty Trust, for $442 million.

The asset sales that have already closed, as well as those that the company expects to complete, aggregate around $1.2 billion. With these proceeds, the company has flexibility to add properties to its portfolio, invest in existing assets or go for share repurchases.

Capital Investments

During the Jul-Sep quarter, the company expended around $119 million on capital expenditures — $48 million was ROI capital projects, and $71 million for renewal and replacement projects.

Outlook

Host Hotels has revised its outlook for full-year 2018. The company now expects 2018 adjusted FFO per share of $1.74-$1.76, denoting a 1.5-cent increase at the mid-point from the earlier guidance of $1.71-$1.76.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 1.9-2.1%, reflecting a contraction of 12.5 bps at the mid-point. Additionally, the company projects capital expenditures of $475-$520 million for the year. This comprises $195-$220 million in ROI projects, and $280-$300 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.

VGM Scores

At this time, Host Hotels has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

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.




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