Host Hotels Earnings: Revenue and EBITDA Growth Exceed Expectations, Leading to 2023 Guidance Raise

First-quarter results for no-moat Host Hotels & Resorts HST were better than we anticipated, giving us confidence in our $23 fair value estimate. Occupancy improved to 68.4%, which is up from 54.4% in the first quarter of 2022, but it is still below the 76.3% level reported in the first quarter of 2019. Average daily rate improved 4.2% year over year and is up 19.8% compared with the first quarter of 2019. As a result, revenue per available room was up 31.1% in the first quarter, slightly ahead of our 28.6% estimate. Hotel EBITDA margins improved to 32.6% from 30.3% a year ago, leading to hotel EBITDA growth of 44.1%, well ahead of our estimate. Host reported adjusted funds from operations in the first quarter of $0.55 per share, 14 cents better than our $0.41 estimate and 16 cents higher than the $0.39 figure reported in the first quarter of 2022.

Management stated that the revPAR performance in the first quarter was 4% better than the high end of its own outlook for the quarter, which led it to raise its full-year 2023 guidance. RevPAR is now expected to range between 7.5% and 10.5%, which is up from the prior range of 2.0%-8.0%, and is now closer to our estimate of 11.0% growth for the year. Similarly, the strong AFFO reported in the quarter led management to raise AFFO guidance to a new range of $1.84-$1.95 from the prior range of $1.60-$1.83, which puts our updated estimate of $1.91 near the new midpoint of $1.895. We are pleased that management’s outlook for the second half of 2023 is significantly more positive after the first quarter and is now more in line with the estimates we have built into our model.

Host Hotels announced that it repurchased 3.2 million shares at an average price of $15.65 during the quarter for a total of $50 million. Given the significant discount at which we believe Host Hotels is currently trading, we would like to see it utilize more of the remaining $923 million share repurchase capacity it has available.