Host Hotels & Resorts, Inc. (HST) – the lodging real estate investment trust (:REIT) – disclosed third-quarter 2014 adjusted funds from operations (:FFO) per share of 34 cents, exceeding the Zacks Consensus Estimate by 2 cents and the year-ago figure by 9 cents.

Quarterly year-over-year increase of 36.0% in adjusted FFO benefited from the notable rise in comparable Revenue per Available Room (RevPAR) and occupancy as well as overall adjusted earnings before interest, tax, depreciation and amortization (:EBITDA). Impressively, Host Hotels again increased its 2014 adjusted FFO per share guidance.

Total revenue came in at $1,294 million, which rose 6.9% on a year-over-year basis and came above the Zacks Consensus Estimate of $1,276 million.

Quarter in Details

Comparable hotel RevPAR climbed around 8% year over year to $163.99, primarily driven by continued improvement in average room rates. Average room rates increased 6.4% year over year to $205.35 and occupancy rose 120 basis points (bps) to 79.9% on a year-over-year basis, in comparable hotels. As a result, comparable hotel adjusted operating profit margin upped 305 bps year over year to 26.45%. In addition, adjusted EBITDA upped 22.6% to $331 million on a year-over-year basis.

During the quarter, Host Hotels spent $28 million in redevelopment and return on investment (ROI.V) expenditures. The company also expended $71 million in renewal and replacement expenses. Additionally, Host Hotels used up approximately $5 million for capital and operational improvement of the acquired asset.

As of Sep 30, 2014, Host Hotels had cash and cash equivalents of $387 million, as compared to $440 million at the end of second-quarter 2014. The company has a total debt of $4.0 billion, same as the end of the last quarter. Host Hotels has around $788 million of available capacity under its credit facility at the end of third-quarter 2014.

2014 Outlook Increased

Host Hotels raised its 2014 adjusted FFO per share guidance and now projects it to be in the range of $1.47 – $1.49 (prior range being $1.44 – $1.47). The Zacks Consensus Estimate for the same is pegged at $1.46.

Our Viewpoint

After posting in-line results in the prior quarter, Host Hotels bounced back with an earnings surprise of 6.3% this earnings season, which is quite encouraging. The company’s strong operating portfolio performance fueled the third-quarter results. Moreover, guidance increase boosts investors’ confidence in the stock.

Going forward, we believe that the company’s strategic portfolio enhancement activities bode well for its long-term growth. The company has recently been focusing on streamlining the number of markets in which it operates and exploring strategic investment opportunities in gateway cities and urban and resort/conference markets. In relation to that, earlier this month, Host hotels disclosed the buyout of b2 miami downtown hotel and selling of Tampa Marriott Waterside Hotel & Marina (read more: Host Hotels (HST) Enhances Portfolio via 3 Strategic Deals). The company’s such efforts, amid improving U.S. lodging fundamentals, are expected to drive RevPAR growth going forward.

Host Hotels currently carries a Zacks Rank #2 (Buy). Some better-ranked lodging REITs include Strategic Hotels & Resorts, Inc. (BEE), FelCor Lodging Trust Incorporated (FCH) and RLJ Lodging Trust (RLJ). All stocks have the same rank as Host Hotels.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Read the Full Research Report on HST
Read the Full Research Report on FCH
Read the Full Research Report on RLJ
Read the Full Research Report on BEE


Zacks Investment Research