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What's in the Offing for Host Hotels' (HST) Q3 Earnings?

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Host Hotels & Resorts, Inc. (HST - Free Report) is slated to report third-quarter 2020 earnings on Nov 4, after market close. The company’s quarterly results are expected to reflect declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Bethesda, MD-based lodging real estate investment trust (REIT) reported negative adjusted FFO per share of 26 cents, meeting the Zacks Consensus Estimate. However, the company reported adjusted FFO per share of 53 cents in the prior-year quarter.Results reflected an adverse impact of the coronavirus pandemic, which significantly hurt lodging demand, as travel restrictions and mandatory stay-at-home orders to curb the virus spread continued in the June-end quarter.

Over the preceding four quarters, the company surpassed estimates on two occasions and missed in one and met in another, the average negative surprise being 2.3%. The graph below depicts this surprise history:

Host Hotels Resorts, Inc. Price and EPS Surprise


Host Hotels  Resorts, Inc. Price and EPS Surprise

Host Hotels Resorts, Inc. price-eps-surprise | Host Hotels Resorts, Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors to Consider

As lockdown policies were relaxed during the third quarter, Host Hotels witnessed green shoots of recovery in occupancy and revenue per available room (“RevPAR”), backed by hotel reopening. The company reopened a total of 19 hotels in July and August.

In fact, total portfolio RevPAR grew at a monthly rate of 10.4% and 33.7% in July and August to $22.9 and $30.7, respectively. Similarly, average occupancy advanced 220 basis points (bps) and 600 bps, month over month to 12.9% and 18.9%, respectively, in July and August.

While such a rebound is encouraging, its occupancy and RevPAR are expected to have remained below pandemic levels. In fact, total RevPAR declined 87.5% and 82.1% year over year in July and August, respectively.

Accordingly, the Zacks Consensus Estimate for third-quarter average daily rate (“ADR”) and RevPAR is pegged at $189 and $66, indicating a year-over-year decline of 14.5% and 63.3%, respectively.

These are anticipated to have marred the company’s revenues in the quarter. In fact, the Zacks Consensus Estimate for Host Hotels’ third-quarter revenues is presently pinned at $260.4 million, suggesting a 79.4% year-over-year decline.

Additionally, limited leisure and business travel as well as reduction in event bookings, which are typically demand-drivers, are likely to have continued to severely dampen Host Hotel’s third-quarter performance. Moreover, given the uncertainty surrounding the end of the pandemic and its vaccine, there is a dearth of future bookings for events.

Amid these concerns, Host Hotels expects to witness a continued increase in group cancellations in the second half of 2020, with total canceled group revenues of $1 billion as of Jul 30. This is expected to have affected its operating performance and cash flow in the quarter under review.

Markedly, the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments. However, during the economic downturn, these segments bear the brunt as unfavorable macroeconomic conditions drive customers to shift to lower-priced brands over the company’s premium ones. In fact, significant occupancy erosion at its luxury and upper-upscale properties resulted in high RevPAR declines.

Additionally, the company faced a competitive landscape with numerous other lodging properties being reopened. This hindered average room rate for the company in July and August, which declined to $177.76 and $162.50 from $193.67 in June.

Lastly, the Zacks Consensus Estimate for third-quarter FFO per share has been revised marginally downward in a week’s time to negative 21 cents, indicating bearish analyst sentiments. The figure suggests a year-over-year plunge of 160%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Host Hotels this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Host Hotels currently carries a Zacks Rank #5 (Strong Sell) and has an Earnings ESP of +6.16%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:

Lexington Realty Trust (LXP - Free Report) , set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

National Storage Affiliates Trust (NSA - Free Report) , slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +1.94% and a Zacks Rank of 3 at present.

Ventas, Inc. (VTR - Free Report) , slated to release third-quarter earnings on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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