HST should beat and raise guidance. Blah, blah, blah. What’s your macro forecast?
We expect Host to report 2Q FFO and EBITDA of $0.26 and $262MM, respectively. Not surprisingly, we are ahead of the Street for the quarter. Like everyone else, our estimates for 2010 are ahead of company guidance and we expect HST to take up their guidance range when they report next Wednesday.
Yesterday, we wrote a HOT preview and gave our thoughts on lodging stocks. Sorry to be repetitive but we are reprinting that paragraph since it applies to HST as well. After all, why recreate the wheel on a great piece of prose? Well, maybe not great but hopefully clear enough.
Now more than ever, the macro environment will drive revenues and lodging profits, and investors’ views of the future macro environment will drive stock prices. Current RevPAR trends are strong but the reported quarterly results and weekly RevPAR numbers just give investors a glimpse into the rear view of the mirror. We find it amusing listening to the sell-side repeatedly asking questions on 2011 trends and beyond. Face it, there is very limited visibility in this space and hotels only have pricing power when occupancies exceed 70%. Lodging trends have historically been lagging indicators, since what’s on the books today was booked at some point in the past. If sentiment changes or things begin to deteriorate, future bookings are impacted, and by the time the numbers show a slowing trend, it would be already too late. No matter what these companies report, how they trade depends on people’s outlook. The issue today is that investors’ collective view of the future is dimming and comps get much tougher in 2H 2010.
Of particular interest for HST will be the cost side of the equation. Flow through is the reason why investors pay a premium for REITs and real estate owners early in the lodging cycle. HST’s hefty multiple also implies that investors believe that they can get back to peak margins of 25-26% over the next few years. After 7 quarters of declining direct expenses, we think that 2Q2010 will mark the first quarter of absolute increases in property level expenses. 2Q2010 should also be the first quarter where we see an increase in CostPAR, as HST laps 4 quarters of declining CostPAR.
Detail:
Total revenue of $1,105MM; $26MM of which comes from rental income
- 8.6% increase in RevPAR (1% increase in ADR and 7.5% increase in occupancy).
- $658MM of room revenues, up 4.7% YoY.
- F&B up 4% YoY.
- Other revenues of $85MM, down 2% YoY.
Property level EBITDA of $269MM, with margins up 70bps
- CostPAR flat YoY, with total room expenses up 3.4%.
- F&B margins flat YoY.
- 2% YoY increase in hotel departmental expenses and other property level expenses. In 2Q09, hotel departmental expenses decreased 17% YoY (1Q09 only decreased 7.4% YoY).
Other stuff:
- Rent expense: $19MM.
- Corporate expense: $18MM.
- D&A: $137MM.
- Interest expense: $83MM.