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Host Hotels (HST) to Report Q1 Earnings: What's in Store?

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Host Hotels & Resorts, Inc. (HST - Free Report) is slated to report first-quarter 2020 earnings on May 7, after market close. The company’s quarterly results will likely display declines in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this Bethesda, MD-based lodging real estate investment trust (REIT) reported a positive surprise of 2.50% with respect to FFO per share. Results reflected improvement in revenues on a comparable hotel basis. However, the net effect of acquisitions and dispositions partly offset the positives.

Over the preceding four quarters, the company surpassed estimates on three occasions and missed in the other, the average positive beat being 2.57%. 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

The coronavirus pandemic continues to wreak havoc, hitting the travel, airline, lodging and tourism, and event industries hard. Meetings and conferences have been called off, and travel restrictions imposed in places affected by this health crisis. As a result, business travelers are grounded, while leisure travelers are scared to go on an outing.

Particularly, the month of March was characterized by a significant decrease in demand and occupancy, and this trend is expected to continue in the near term. In fact, per a report from CBRE Group, in the first quarter, hotel demand was down 14.2% nationally, and specifically 41.2% in March, while supply growth remained at 2%.

National occupancy was down 15.9% year over year to 51.8% in the first quarter and particularly plunged to 39.4% in March. Average daily rate (ADR) slid 4% and revenue per available room (RevPAR) fell 19.3%, year on year, marking the sharpest drop since the peak of the Great Recession in second-quarter 2009. The decrease in occupancy has been the largest for the luxury and upper upscale hotels, and the least for economy and mid-scale hotels, per the CBRE report.

Host Hotels too has not been spared and withdrew its outlook for the ongoing year in March. The company confirmed that as of Mar 9, its total revenues, net income and adjusted EBITDAre suffered damages of roughly $97 million, $48 million and $48 million, respectively. This, however, excluded the collection of approximately $16 million from cancellation fees.

Bulk of the adverse impact on total revenues was due to the group-business cancellations. Particularly, activities in California were affected mainly due to group-business cancellations. California markets accounted for nearly 58% of the group-business cancellations.

However, prior to this pandemic, Host Hotels made efforts to enhance its portfolio quality by recycling capital out of low RevPAR assets to the high RevPAR ones. The company has refocused its local presence through an accretive capital-recycling strategy, while reducing exposure to troubled assets. Furthermore, the company rolled out value-enhancement initiatives. However, near-term dilutive impact from asset dispositions and elevated supply are concerns.

The Zacks Consensus Estimate for Host Hotels’ first-quarter revenues is presently pinned at $1.05 billion, suggesting a 24.5% decrease year over year. Revenues from room are estimated to be $786 million, suggesting a decline of 8.3% year on year, while revenues from food and beverage are projected at $405 million, indicating a 6.5% decrease during the same time frame.

Moreover, the estimate revision trends reflect an unfavorable outlook. In a month’s time, the Zacks Consensus Estimate of FFO per share moved 20.6% downward to 27 cents. The figure calls for a year-over-year decline of 43.8%.

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 -8.49%.

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 positive surprise this quarter:

Life Storage, Inc. , slated to release first-quarter earnings on May 7, has an Earnings ESP of +0.36% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Americold Realty Trust (COLD - Free Report) , scheduled to announce earnings results on May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

VEREIT, Inc. , set to report quarterly numbers on May 20, has an Earnings ESP of +5.15% and carries a Zacks Rank of 3 currently.

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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