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Host Hotels & Resorts Inc. (HST - Analyst Report), the largest lodging real estate investment trust (REIT), is scheduled to report its fiscal 2011 second quarter earnings on July 20. The current Zacks Consensus Estimate for the second quarter is 29 cents per share, representing a year-over-year increase of 26.6%.

First Quarter Recap

Host Hotels reported first quarter 2011 recurring FFO (fund from operations) of 12 cents per share, which was in line with the Zacks Consensus Estimate. 'Fund From Operations' is a widely used metric to gauge the performance of REITs and is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Total revenues increased to $903 million during the reported quarter from $823 million in the year-ago quarter. The reported revenues were below the Zacks Consensus Estimate of $933 million. Comparable hotel revenue per available room (RevPAR) increased 5.4% during the first quarter 2011, driven by a rise in occupancy and average daily rates. The increase in RevPAR was primarily due to a rise in the average room rate along with a 4.8% improvement in occupancy.

Comparable hotel adjusted operating margins for the first quarter decreased 10 bps due to high taxes, property-level bonuses and cancellation revenue. Operating margins were further reduced by 60 basis points due to business disruption at the Sheraton New York Hotel & Towers and the Philadelphia Marriott Downtown hotel. During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 14% to $144 million.

Agreement of Analysts

In the last 7 days, earnings estimate for the second quarter was raised by 1out of the 18 analysts covering the stock, while none revised it downwards. For fiscal 2011, only 1 out of 19 analysts covering the stock has raised the earnings estimate in the last 7 days, while none decreased the same. This demonstrates that the analysts are mostly neutral about the future outlook of the company in general, although it is slightly skewed in the positive direction.

Magnitude of Estimate Revisions

Earnings estimates have remained stagnant for the last 7 days for the second quarter and full fiscal 2011 at 29 cents and 93 cents per share, respectively, meaning that analysts were overtly cautious about the performance of the company.  

Neutral on Host Hotels

We currently have a Neutral recommendation on Host Hotels, which presently has a Zacks #3 Rank, translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for La Salle Hotel Properties (LHO - Snapshot Report), one of the competitors of Host Hotels.

Host Hotels is one of the largest owners of luxury and upper-upscale hotels, primarily operated under premium brands, such as Marriott, Westin, Sheraton, Ritz-Carlton, Hyatt, Four Seasons, and St. Regi. Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high quality lodging assets in hard-to-replicate areas in geographically diverse locations, which have the potential for significant capital appreciation.

However, the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, which had been the weakest performing segments during the economic downturn. While the outlook for these markets has improved, the pace of the improvement remains quite uneven and unsteady. Consequently, we remain skeptical about the long-term earnings potential of the company.

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