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Host Hotels' (HST) Q3 FFO Beats Estimates, Revenues Down Y/Y

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Host Hotels & Resorts, Inc. (HST - Free Report) reported third-quarter 2019 adjusted funds from operations (FFO) of 35 cents per share, outpacing the Zacks Consensus Estimate of 34 cents. However, adjusted FFO per share fell 5.4% from the year-ago tally of 37 cents.

The company generated total revenues of $1.26 billion, surpassing the Zacks Consensus Estimate by 0.3%. However, the top line declined 2.8% year over year.

The dismal year-over-year performance resulted from a decline in comparable RevPAR, on a constant dollar, as well as 0.2% fall in average room rate.

Behind the Headlines

During the quarter, comparable hotel revenues inched up 1.2% year over year to nearly $1.1 billion. Moreover, comparable hotel total RevPAR (on a constant-dollar basis) went up 1.2% year over year to $272.9 million. This upside resulted from improvement in food and beverage revenues as well as growth in other revenues.

For domestic properties, comparable hotel RevPAR (on a nominal-dollar basis) edged down 0.3%, while the same for International properties was up 3.1%.

For the September-end quarter, comparable hotel EBITDA edged down 1.7% to $289 million, while comparable hotel EBITDA margin shrunk 85 basis points (bps) to 26.5%.

Finally, the company exited third-quarter 2019 with around $2 billion of unrestricted cash, not including $1.5 billion of available balance under its credit facility’s revolver and $184 million in the FF&E escrow reserve. In addition, as of Sep 30, 2019, total debt was $4.4 billion, with average maturity of 5.2 years and average interest rate of 4.1%.

Host Hotels repurchased 12.1 million shares, aggregating $200 million in third-quarter 2019. After taking into account the repurchase executed in the quarter, Host Hotels has $600 million of capacity available under its current repurchase program.

Portfolio Activity

During the reported quarter, the company sold eight non-core assets for $565 million.

Capital Investments

During the July-September period, the company witnessed around $152 million in capital expenditures, of which $89 million was return on investment (ROI) capital projects, and $63 million for renewal and replacement projects.

Outlook

Host Hotels has revised its adjusted FFO guidance for full-year 2019 by a cent at the mid-point. The company expects 2019 adjusted FFO per share of $1.75-$1.78, up from the $1.73-$1.78 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $1.76.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of -1% to -0.25%. This reflects an estimated 50 bps 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 impact on earnings caused by these expenditures is compensated.

Additionally, the company projects capital expenditures of $550-$590 million for the year. This comprises $315-$335 million in ROI projects, and $235-$255 million in renewal and replacement projects.

Conclusion

Host Hotel’s efforts to improve its portfolio quality on the back of strategic transactions is a strategic fit. Specifically, during the third quarter, the company sold $862 million of low RevPAR, non-core assets.

Further, the company made progress on the Marriott transformational capital projects during the third quarter. Per management, activity is underway or anticipated to be completed on 13 of the 17 properties by the end this year. When completed, the transformation will position the company well for RevPAR yield index gains and EBITDA growth.

Host Hotels & Resorts, Inc. Price, Consensus and EPS Surprise
 

Host Hotels currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

OUTFRONT Media (OUT - Free Report) reported third-quarter 2019 adjusted FFO per share of 64 cents, missing the Zacks Consensus Estimate of 65 cents. However, the reported figure improved from the prior-year quarter tally of 61 cents.

Mack-Cali Realty Corp’s (CLI - Free Report) third-quarter 2019 core FFO per share of 38 cents missed the Zacks Consensus Estimate by a whisker. The figure also compared unfavorably with the year-ago quarter’s reported tally of 43 cents.

Boston Properties Inc.’s (BXP - Free Report) third-quarter 2019 FFO per share of $1.64 surpassed the Zacks Consensus Estimate of $1.62. Nonetheless, the reported tally remained flat year over year.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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