Hilton (HLT) reported second-quarter earnings Friday morning before the open. It was the last of the trio of hotels to report that some refer to as “HHH” or “Triple H.”
Here’s my state of the union for hotel stocks that focuses on Triple H and also Marriott (MAR). By the end you’ll know exactly who I’m backing in the hotel space — and why.
Hotel Stocks Earnings
Looking at the results of HHH below, it’s safe to say all three hotel operators were happy about their results in the second quarter — Hilton’s numbers being the best of the bunch. Its CEO said this about the quarter,
“We had another great quarter, led by a 6.7 percent increase in system-wide RevPAR [revenue per available room], and as a result, we are increasing our Adjusted EBITDA and EPS Outlook for the year.”
Hilton now expects adjusted EBITDA of at least $2.4 billion in 2014, which will help reduce debt by as much as $1 billion. It finished the quarter with 106,000 rooms under construction at 542 hotels around the world — 18% of all the new rooms under construction in the hotel industry.
|Host Hotels & Resorts (HST)||5.1%||-4.6%||0.07%|
|Hyatt Hotels (H)||6.1%||+9.0%||1.5%|
|Hilton Worldwide (HLT)||6.7%||+10.3%||2.0%|
Clearly, Hilton is bringing its A game. Since going public on Dec. 11, 2013, at $20 per share, HLT stock has gained 21%, more than double the 9.6% gain by the SPDR S&P 500 (SPY). While Blackstone (BX), Hilton’s majority owner, sold 103.5 million shares in a secondary offering at the end of June, it still owns 66% of the company. Blackstone CEO Stephen Schwarzman says it will be a Hilton shareholder “for many years to come.”
Can you blame him? With Hilton’s business running at full-tilt, it’s time for Blackstone to prime the profit pump. This stock could easily double in the next 52 weeks. That’s an additional $13 billion in profit for his investors. Not bad for an investment that looked pretty bleak around 2010.
OK, so you’ve got the hint that I like Hilton. But what about the other two?
First, let’s start with Host Hotels & Resorts (HST). It’s a real estate company that invests in hotels around the globe that are operated by top hotel brands such as Hyatt, Hilton and its former parent, Marriott. So, a fourth number comes into play — funds from operations, commonly known in the real estate biz as FFO. In Q2 its adjusted FFO per diluted share was 43 cents, two cents lower than in the same period last year. In line with the Zacks consensus estimate, the company raised its FFO-per-share guidance for 2014 to between $1.44 and $1.47, an indication it’s confident heading into the second half of the year.
Although Hyatt’s Q2 performance wasn’t quite as good as Hilton’s there’s really nothing to complain about. The numbers are all positive. CEO Mark Hoplamazian believes its best days are still ahead of it; it’s hard to argue when its average daily rate (ADR) and occupancy (up 1.5% to 77% in Q2) continue to increase on a year-over-year basis. With the economy getting stronger its U.S. and Americas business will continue to drive its overall business.
Marriott reported on Tuesday. RevPAR, Adjusted EBITDA and Occupancy increased 5.8%, 10.0% and 1.6% respectively. (The hotel space is starting to sound like a broken record.) CEO Arne Sorenson said this in its Q2 release,
“We are bullish on the remainder of 2014. The strong RevPAR growth in the second quarter combined with very good group bookings for the third-quarter give us the confidence to increase our full-year 2014 North America and worldwide RevPAR growth guidance to 5 to 7%.”
With Marriott on course to return as much as $1.6 billion to shareholders in 2014 and even more likely in 2015, you can’t count MAR stock out. (And on a personal note I stayed at a Marriott in Gaithersburg, Md., this past week when I was visiting the InvestorPlace offices. I couldn’t find anything wrong with it; they must be doing a few things right.)
Hotel Stocks to Buy
Well, lo and behold, Marriott is the best performer year-to-date, up 32% through July 31. But can it keep it going?
On a valuation basis using enterprise value as a multiple of EBITDA, HLT is the most expensive with a multiple of 20.4. However, it clearly has the best comps of the four.
HST’s numbers are good but I’m looking for the best hotel operator to invest in and not the best hotel owner — so it’s out.
Finally, Hyatt’s adjusted EBITDA as a percentage of total revenue is only slightly less than Hilton’s (20.0% compared to 24.4%) yet its EV/EBITDA multiple of 15.8 is 23% less.
You could buy any of H, HLT, HST or MAR and over the next 12 months and probably make money. For my money, however, I have to go with Hyatt because it provides the best margin of safety.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.