Host Hotels & Resorts Inc. (HST, Financial) is a premiere lodging real estate company. It is a Standard & Poor's 500 and Fortune 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. The company currently owns properties in the U.S. and properties internationally totaling approximately 59,000 rooms. The company also holds noncontrolling interests in five joint ventures, including one in Europe that owns hotels with approximately 6,500 rooms and one in Asia that has interests in hotels in Australia and India.
The company recently announced strong fourth quarter results. Host Hotels & Resorts had a solid fourth quarter with a strong bottom line. It underwent a number of initiatives in 2015 to capitalize on value-enhancing opportunities and better position Host Hotels for continued growth and success.
Strong fourth quarter
Comparable RevPAR (Revenue Per Available Room) on a constant dollar basis improved 3.6% for the quarter, reflecting a 1.7% increase in average room rate and a 140 basis point increase in occupancy to 74%. For the full year, the company’s comparable RevPAR on a constant dollar basis increased 3.8%, reflecting rate growth of 3.3%, while occupancy improved 40 basis points to 77.4%.
Comparable RevPAR at the company’s domestic properties improved 3.2% for the quarter and 3.8% for the full year. The strongest domestic markets during the quarter were Florida and Los Angeles, where comparable RevPAR increased 11.7% and 9.8%. The company’s New York and Houston hotels continued to lag the portfolio with a decrease in comparable RevPAR for the quarter of 2.4% and 1.1%. For the full year, the company’s West Coast properties led RevPAR growth with strong increases in the San Diego, Los Angeles, Seattle and San Francisco markets.
On a constant dollar basis, RevPAR at the company’s comparable international properties increased 15.5% for the fourth quarter due to increases of 39.1% and 10.4% in the company’s Latin America and Asia-Pacific markets. For the full year, RevPAR for the company’s international properties increased 2.2%, with RevPAR increases in Latin America and Asia-Pacific markets offset by declines in Canada, which were largely associated with renovation activity.
Comparable food and beverage revenues increased 6.1% for the quarter as a result of improved banquet and audio-visual business, as several large group events experienced increased attendance and additional spending. For the full year, the increase in revenues was 5.2%, reflecting strong second half of the year performance. The implementation of USALI increased food and beverage performance by approximately 140 and 270 basis points for the quarter and full year.
Comparable hotel EBITDA margins increased 55 basis points for the quarter and 20 basis points for the full year, leading to an increase in comparable hotel EBITDA of 5.8% and 4.1%. The company’s comparable hotel EBITDA margins were affected by the adoption of USALI, which reduced margins by approximately three basis points and 15 basis points for the quarter and full year.
Net income was $166 million in the fourth quarter and $571 million for the full year. Net income was affected by the items noted above, as well as by debt extinguishment costs and a gain in litigation settlement. Debt extinguishment costs increased $20 million and $37 million for the fourth quarter and full year compared to the same periods in 2014. The company also recognized a $69 million litigation settlement gain in its full year 2014 net income.
At Dec. 31, 2015, the company had approximately $239 million of cash, $702 million of available capacity under its revolving credit facility and $4 billion of debt.
Share repurchases
During the fourth quarter, the company repurchased 19.6 million shares for a total purchase price of $325 million. For the full year, the company repurchased 38.3 million shares of common stock for a total purchase price of approximately $675 million.
Dividends
The company’s dividend policy is that it generally intends to distribute, over time, 100% of its taxable income, which is dependent primarily on the company’s results of operations, as well as the tax gains and losses from property sales. The company paid a regular quarterly cash dividend of 20 cents per share on its common stock on Jan. 15 to stockholders of record as of Dec. 31, 2015. On Feb. 16, the board of directors authorized a regular quarterly cash dividend of 20 cents per share on its common stock, which equates to a 5.4% annualized yield based on the company’s current stock price. The dividend will be paid on April 15 to stockholders of record on March 31.
(Source: Company’s website)
Positive attributes of the quarter
- Disciplined management of portfolio.
- Efficient allocation of capital.
- It returned more than $1.3 billion to stockholders through dividends and the stock repurchase program.
- It invested more than $1 billion in new assets and capital improvements.
- Repaid or refinanced more than $1.4 billion of debt.
- Continual improvement of operational and financial performance.
Expectations for 2016
The company expects the following:
- Earnings per diluted share to be around 80 cents to 84 cents.
- Net income to be around $612 to $641.
- Adjusted EBITDA to be around $1,450 to $1,480.
On a concluding note
The company has evolved considerably in terms of corporate structure as well as the nature and quality of its real estate holdings. Over the next several years, it continued to acquire full service hotels while it moved away from the limited service and food and beverage operations. The company’s growth and accomplishments have resulted from its disciplined approach to acquiring luxury and upscale hotels in difficult to replace locations. This approach has allowed Host Hotels & Resorts to become the nation's premiere owner of lodging real estate and will remain the foundation of the company's efforts to continue to upgrade and diversify its real estate portfolio.
This company is going to create shareholder returns. Investors should consider adding this company.
Disclosure: I do not hold any position in the stock.
