Earnings Preview: Host Hotels

Host Hotels & Resorts Inc. ( HST - Analyst Report ) ), a real estate investment trust (REIT), is scheduled to report second quarter 2012 earnings results on July 17, 2012. The current Zacks Consensus Estimate for the quarter is 33 cents , representing a year-over-year growth of 9.8%.

First Quarter Recap

Host Hotels reported first quarter 2012 FFO (funds from operations) of $101 million or 14 cents per share compared with $77 million or 11 cents per share in the year-earlier quarter. Reported FFO per share beat the Zacks Consensus Estimate by a penny. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Total revenue increased to $985 million during the reported quarter from $893 million in the year-ago quarter. The increase in revenue was driven by a strong performance of the company-owned hotels including the ten hotels acquired in 2011.

Comparable hotel revenue per available room (RevPAR) jumped 6.1% in the reported quarter. The increase in RevPAR was primarily attributable to a 2.9% rise in average room rates and a 2.1% rise in occupancy.

Agreement of Analysts

In the last 7 days, none of the analysts have revised their earningsestimate for fiscal 2012 and fiscal 2013. This signifies that the analysts are cautious about both the short- and long-term earnings prospect of the company.

Magnitude of Estimate Revisions

For full-year 2012, the company expects adjusted FFO in the range of $1.01 to $1.08 per share. The Zacks Consensus Estimates for 2012 have remained constant over the last 7 days at $1.06 per share, which is at the higher end of the company's guidance. For 2013, the Zacks Consensus Estimates have also remained steady over the last 7 days at $1.25 per share.

Our Recommendation

Host Hotels is the largest lodging REIT with high-quality lodging assets in geographically diverse locations. Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high quality lodging assets, which have the potential for significant capital appreciation. This provides significant upside potential for the company.

Host Hotels maximizes the value of its existing portfolio through aggressive asset management, and works diligently with the managers of its hotels to reduce operating costs and increase revenues, and conducts selective capital improvements and expansions designed to improve operations.

However, the acquisition spree of Host Hotels involves significant upfront operating expenses with limited near-term profitability. New hotels usually take time to generate revenues, and will continue to drag margins till they get established.

Host Hotels currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, LaSalle Hotel Properties ( LHO - Snapshot Report ) also holds a Zacks #3 Rank