Host warns Q1 overperformance won’t last through 2017
 
Host warns Q1 overperformance won’t last through 2017
01 MAY 2017 8:26 AM

Host Hotels & Resorts executives said the company enjoyed a stronger-than-expected first quarter, but warned analysts and investors that they expect the rest of 2017 to be more difficult.

BETHESDA, Maryland—Host Hotels & Resorts beat projections for the first quarter of 2017, even after accounting for the boost in performance from the presidential inauguration and the Women’s March in Washington D.C. and the shift of the Easter holiday. But company executives said the Q1 growth numbers are likely to be the strongest they will see the entire year.

During a call with investors and analysts to discuss first-quarter earnings, Host President and CEO James Risoleo said he expects the first and fourth quarters to reflect the strongest performance, while the second and third quarters would likely put a drag on full-year results. The combination of those factors led Host executives to reaffirm their full-year forecast of flat to 2% growth in revenue per available room.

“There does not appear to be compelling evidence of an acceleration of RevPAR above where we initially guided,” Risoleo said. “On our last call, we expressed cautious optimism that (an increase in corporate travel) might occur as a function of pro-growth legislation. As we’re sitting here right now, forecasts for corporate profits are strong, but we don’t expect policy initiatives to provide tailwinds until 2018 at the earliest.”

Q1 performance
Host hotels saw RevPAR increase 3.4% year over year to $171.92 on a constant dollar basis, while adjusted earnings before interest, taxes, depreciation and amortization increased 6.4% to $367 million.

That RevPAR increase was largely driven by a 2.4% increase in average daily rate for the quarter. The company’s U.S. hotels saw even stronger performance, with RevPAR increasing 3.8% for the quarter, fueled by strength in Washington D.C., which saw a RevPAR increase of 20.1%.

San Francisco and New York were the company’s worst performing markets, with RevPAR drops of 6.3% and 3.9%, respectively.

While the company expects growth numbers to dial back through the reminder of the year, Risoleo told analysts he was confident it wouldn’t get so bad that RevPAR could see a decline for the year.

Company officials pointed to portfolio-wide cost-containment measures, particularly in food-and-beverage operations, as a driver for margin growth, which they said they are more confident in following the strong first quarter.

Risoleo and CFO and EVP Gregory Larson said the company saw a dip in group pace during the quarter, but that was largely expected. He added that the company expects to be able to find new business by working with its operators.

Risoleo couldn’t give a definitive answer when an analyst asked him whether he expects his company to be a net seller or buyer through 2017. The company has been active in both acquisitions and dispositions thus far for the year.

“I think we are very cognizant of some of the headwinds the lodging sector is going to face, given supply growth (and a spread in price between buyers and sellers),” Risoleo said.

He said buying properties might not be the only way Host looks to deploy capital.

“If our stock price drops to a level we feel the right decision is to buy back shares, we’ll certainly do that,” Risoleo said.

The company has recently announced two acquisitions: The $214-million purchase of the Don CeSar Beach Resort in St. Pete Beach, Florida, and the W Hollywood for $219-million.

Host officials also announced the sale of Sheraton Memphis Downtown for $67 million and a deal to sell the Hilton Melbourne South Wharf, the company’s last hotel in Australia.

Risoleo said Host has no plans to operate in Australia and New Zealand following that sale.

As of press time, Host’s stock was trading at $17.95 per share, down 4.7% year to date. The Baird/STR Hotel Stock Index was up 21.8% for the same period.

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