Host Hotels Earnings: Hotel Operations Decline as Expense Growth Outpaces Revenue Growth

Host Hotels and Resorts HST reported second-quarter results that were mixed compared with our estimates, though we didn’t see anything in the quarter that would materially change our $23 fair value estimate for the no-moat company. Occupancy increased only 20 basis points year over year to 74.2% in the second quarter. Average daily rate improved 2.4%, leading to revenue per available room growth of just 2.7%, which missed our 8.8% estimate. However, while comparable operating expense growth of 11.3% outpaced revenue growth in the quarter, the reported figure was lower than our estimate of 18.5% operating expense growth. As a result, hotel EBITDA declined 8.8% in the second quarter, slightly better than our estimate of a 14.0% decline. Host reported second-quarter adjusted funds from operations of $0.53 per share, which is $0.05 below the $0.58 figure the company reported in the second quarter of 2022 but in line with our $0.52 estimate.

Management explained that the second quarter dealt with a difficult comparison to 2022 as a surge in coronavirus cases in the first quarter of 2022 caused many leisure travelers to rebook plans in the second quarter. Additionally, management said results were hurt by an increase in outbound international travel without a corresponding increase in inbound international travel. As a result, revPAR results at resort-style properties were down in the quarter. However, group travel continues to pick up, with total revenue from the group segment up 4.2% year over year. Management did lower 2023 revPAR guidance by 100 basis points at the midpoint to a new range of 7.0% to 9.0%, which it says implies low single-digit growth in the second half that is relatively in line with our 4.9% revPAR growth estimate for the second half of the year.