Host Hotels & Resorts Inc. (HST, Financial), a premiere lodging real estate investment, reported decent third-quarter results.
It reported double-digit diluted EPS. Comparable hotel EBITDA improved during the quarter. It also paid a special dividend during the quarter. There was strong comparable hotel EBITDA margin improvement of 110 basis points for the quarter.
With a geographically diverse portfolio of high-quality assets, it had a rocking 2015 as it returned $1.3 billion of capital in the form of $650 million of dividends and $675 million of stock repurchases.
The company’s portfolio is located in the major markets known to have outperformed when it comes to real RevPAR growth. It has always tried to maintain a flexible capital structure to fuel its growth. Being a Standard & Poor's 500 and Fortune 500 company, it has 89 properties in the U.S. and seven properties internationally in its kitty.
Third-quarter performance
The company’s net income increased by $21 million during the quarter and was $243 million year to date.
Diluted earnings per share increased by 27.3% and 60.4% for the quarter and year to date.
Total revenues increased by 0.9% for the quarter and 1.7% year to date.
Comparable hotel EBITDA improved by $22 million, or 7.8%, for the quarter.
Comparable hotel EBITDA increased by $61 million, or 6.3%, year to date.
Adjusted EBITDA was $19 million during the quarter the quarter and $57 million year to date.
Comparable RevPAR on a constant-dollar basis improved 3.8% for the quarter
RevPAR at the company’s comparable international properties increased 29% in the third quarter and 14.3% year to date on a constant-dollar basis.
It disposed of two properties in New Zealand leading to a gain of $10 million.
The company had around $340 million in cash as of Sept. 30.
Investment in renewal and replacement capital expenditures was $57 million during the third quarter and $218 million year to date.
Redevelopment and acquisition capex was $46 million in the third quarter and $187 million year to date.
(Source: Company’s Web site)
Debts
Total debt stood at $3.8 billion having an average maturity period of 5.3 years and an average interest rate of 3.7%.
Share repurchases
The company repurchased 2.8 million shares at an average price of $16.04 for the quarter and 13.1 million shares at an average price of $15.79 year to date for a total year-to-date purchase of about $206 million.
Dividends
It declared a quarterly cash dividend of 20 cents per share. It plans to distribute 25 cents as dividend in the fourth quarter including a special dividend of 5 cents.
Expectations for 2016
| Â | Range |
| Investment in redevelopment projects, ROI, and acquisition capital expenditures | To be between $200 million and $215 million |
| Renewal and replacement capital expenditures | To be between $300 million and $310 million |
| Operating profit margin under GAAP | To be between 50bps and 70bps |
| Adjusted EBITDA | To be between $1.440 billion and $1.455 billion |
| EPS | To be between 97 cents and 99 cents |
| Net income | To be between $732 million and $746 million |
| Comparable hotel EBITDA margins | To be between 40bps and 55bps |
Focus
- Disciplined capital allocation.
- Active portfolio management.
- Improving brand flexibility.
- Strong asset management.
- Differentiate assets within competitive markets.
- Improving operating performance.
- Digital and e-commerce strategies to reduce cost.
Conclusion
The company is engaged in transformational redevelopment projects at several hotels and has plenty of opportunities in this industry. It has a strong balance sheet that provides a competitive advantage. The hotels come under the most respected brand names in the lodging industry. With favorable locations and diversified brands, this company is all set to grow. It has a broad acceptance among the upper-upscale and luxury segments. Partnering with premium brands including the likes of Westin, Hyatt (H, Financial), Sheraton, Hilton (HLT, Financial) and Novotel, it has its presence felt in around 50 prominent markets across the world.
The company is committed to delivering significant value to its shareholders and expects to strategically execute its plans to drive shareholder value. It is in plans to streamline its focus on the North American and European markets. It is true that the lodging industry is highly volatile, but this company intends to improve earnings growth and return value in the form of share repurchases and dividends. Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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