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Host Hotels (HST) Down 6.1% 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 6.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Host Hotels' Q1 FFO Beats Estimates, Raises Guidance

Host Hotels reported first-quarter 2019 adjusted FFO of 48 cents per share, which outpaced the Zacks Consensus Estimate of 45 cents. Adjusted FFO per share also increased 11.6% from the year-ago tally of 43 cents.

The company generated total revenues of around $1.39 billion, which increased 3.3% year over year. However, the revenue figure narrowly missed the Zacks Consensus Estimate of $1.4 billion.

Results reflect increase in average room rate. However, the Marriott transformational capital program and the government shutdown dampened the company’s RevPAR performance. Nevertheless, Host Hotels raised its 2019 guidance.

Behind the Headlines

During the quarter under review, comparable hotel revenues inched up 0.2% year over year to roughly $1.2 billion. However, comparable hotel RevPAR (on a constant-dollar basis) edged down 1.0% year over year. This was due to a 180 basis point decrease in occupancy, partly offset by a 1.3% increase in average room rate. The RevPAR decline reflects the Marriott transformational capital program and the government shutdown primarily affecting Washington, D.C. and San Diego.

For domestic properties, comparable hotel RevPAR was down 1.2%, while the same for International properties climbed 11.4%.

For the March-end quarter, comparable hotel EBITDA increased 1.9%. Comparable hotel EBITDA margin advanced 50 bps.

Finally, the company exited first-quarter 2019 with around $1.08 billion of unrestricted cash, not including $191 million in the FF&E escrow reserve, and $944 million of available capacity under the revolver part of its credit facility. In addition, as of Mar 31, 2019, total debt was $3.9 billion, with average maturity of 3.9 years and average interest rate of 4.3%. Notably, the company has no debt maturities until 2020.

Host Hotels did not buy back any shares in the first quarter of 2019. It has $500 million of capacity available under its current repurchase program. Additionally, earlier, the company had entered into a distribution agreement through which it might issue and sell shares of common stock, having a total offering price of up to $500 million from time to time. In the first quarter, no shares were issued under this agreement.

Portfolio Activity

During the reported quarter, the company acquired the 1 Hotel South Beach for $610 million and sold The Westin New York Grand Central for $302 million, including around $20 million of FF&E funds.

Capital Investments

During the January-March quarter, the company witnessed around $110 million in capital expenditures, of which $52 million was ROI capital projects, and $58 million for renewal and replacement projects.

Outlook

Host Hotels has raised its guidance for full-year 2019 by 3 cents at the mid-point. The company expects 2019 adjusted FFO per share of $1.76-$1.84, up from $1.72-$1.81 guided earlier.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 0-2%. This reflects an estimated 45 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 effect on earnings caused by these expenditures is compensated.

Additionally, the company projects capital expenditures of $550-$625 million for the year. This comprises $315-$350 million in ROI projects, and $235-$275 million in renewal and replacement projects.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Host Hotels has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Host Hotels has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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