Host Hotels (HST) Q3 FFO Beats, Rate & Occupancy Improve

Host Hotels & Resorts, Inc.’s (NYSE:HST) came out with third-quarter 2016 adjusted funds from operations ("FFO") of 37 cents per share, beating the Zacks Consensus Estimate of 36 cents. Adjusted FFO per share figure was up 8.8% from the year-ago tally of 34 cents.

Results reflect growth in comparable hotel revenue per available room (“RevPAR”) and improvement in productivity at many of its larger hotels.

The company posted total revenues of $1.3 billion, which beat the Zacks Consensus Estimate of $1.29 billion. It compared favorably with the year-ago number of $1.28 billion.

Quarter in Details

Comparable hotel RevPAR (on a constant dollar basis) was up 3.8% year over year, driven by a 2.2% increase in average room rate and 120 basis point expansion in occupancy to 81.3%. Results highlight increased group business, solid results from its consolidated international properties as well as a shift in the holiday calendar.

At its domestic properties, comparable RevPAR increased 2.8% and was backed by a solid increase in group revenue. The markets that outperformed the portfolio were San Diego, Hawaii and Washington, D.C. However, RevPAR declined at the New York and San Francisco properties.

RevPAR at the company’s comparable international properties were up 29% on a constant-dollar basis. Results included strong performance of the company’s Canadian and Brazilian properties. Particularly, performance in Rio de Janeiro was driven by the Olympic and Paralympic Games.

During the quarter under review, the company invested around $46 million for redevelopment, return on investment (ROI) and acquisition-related capital expenditure. It also spent approximately $57 million on renewal and replacement. During the reported quarter, Host Hotels disposed its final two properties in New Zealand, for $31 million and realized a gain of $10 million.

Finally, the company exited third-quarter 2016 with around $340 million of cash. Moreover, as of Sep 30, 2016, total debt was $3.8 billion, having an average maturity of 5.3 years and an average interest rate of 3.7%.

Share Repurchase Update

Host Hotels repurchased 2.8 million shares at an average price of $16.04 for the quarter. Year to date, the company has bought back 13.1 million shares at an average price of $15.79, for a total of around $206 million. Presently, the company has $117 million of repurchase capacity left under its share-repurchase authorization.

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Outlook

For 2016, Host Hotels projects its adjusted FFO per share in the range of $1.64–$1.66, backed by comparable hotel revenue per available room (RevPAR) (constant U.S. dollar basis) growth of 2.0–2.5%. The Zacks Consensus Estimate for the same is currently pegged at $1.66.

In Conclusion

Going forward, we believe that a solid portfolio of upscale hotels across lucrative markets, strategic capital-recycling program and a healthy balance sheet have the capability to place the company well for growth. However, the company anticipates that its capacity to grow RevPAR in the fourth quarter will be substantially affected by a slowdown in business travel, the election cycle and the timing of the holiday calendar. Moreover, any hike in interest rate can also add to its woes.

Host Hotels currently has a Zacks Rank #4 (Sell).