Factors Setting the Tone for Host Hotels' (HST) Q2 Earnings

Host Hotels & Resorts, Inc. HST is slated to report second-quarter 2019 results after market close on Aug 6. The company’s results are anticipated to reflect year-over-year decline in revenues, while funds from operations (FFO) per share is expected to remain flat.

In the last reported quarter, this Bethesda, MD-based lodging real estate investment trust (REIT) delivered a positive surprise of around 6.67% with respect to FFO per share. Results reflect increase in average room rate. However, the Marriott transformational capital program and the government shutdown dampened the company’s RevPAR performance.

The company has an impressive surprise history. It posted positive surprises in each of the trailing four quarters, the average beat being 5.79%. This is depicted in the graph below:

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 are shaping up for this announcement.

Factors to Consider

Host Hotels has a solid portfolio of luxury and upper upscale resorts and properties situated across central business districts of main cities, and in close proximity to airports. To further strengthen its asset base, the company has undertaken several value-enhancement initiatives. These will likely improve its operating statistics for the quarter.

In fact, the Zacks Consensus Estimate for second-quarter RevPAR is pegged at $205, indicating year-over-year growth of 4%. Further, the Zacks Consensus Estimate for second-quarter average daily rate is pinned at $246, indicating growth of 4.7% year on year.

The company has also undertaken an accretive capital-recycling program to improve its portfolio quality and hotel RevPAR. This entails lowering its international footprint, and using sale proceeds to acquire iconic resorts and new properties with limited near-term capital needs in strategic markets. These efforts will likely favor the company’s upcoming results.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $1.5 billion, indicating a decline of 0.8% from the year-ago reported figure.

However,  the second-quarter earnings season seems to be lackluster for hotel REITs as the sector witnessed its slowest RevPAR growth rate since 2010, per a report by CBRE Group CBRE. In fact, national hotel demand growth rate was 1.9% for the April-June quarter, shrinking 0.5% compared with the prior quarter. Furthermore, supply growth remained at 2%, while occupancy edged down 0.1% year over year. These factors limited RevPAR growth by 1.1%, year on year.

These underlying hotel fundamentals foreshadow Host Hotels’ muted growth during the quarter under review. In fact, the Zacks Consensus Estimate for second-quarter revenues from rooms is pegged at $967 million, suggesting a marginal decline from the year-ago quarter’s tally of $973 million. Additionally, average occupancy rate is expected to remain flat, year over year, at 84%.

Moreover, Host Hotels’ efforts to enhance its portfolio quality through strategic dispositions will likely result in the near-term earnings dilution during the June-end quarter.

Also, there was no solid catalyst during the quarter. Hence, in a month’s time, the Zacks Consensus Estimate of FFO per share remained unrevised at 54 cents. Moreover, the figure is flat year over year.

Earnings Whispers

Here is what our quantitative model predicts:

Host Hotels does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Host Hotels is -2.12%.

Zacks Rank: Host Hotels has a Zacks Rank of 4 (Sell), which decreases the predictive power of ESP.

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:

MGM Growth Properties LLC MGP, scheduled to release earnings on Aug 6, has an Earnings ESP of +0.57% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Jones Lang LaSalle Incorporated JLL, slated to announce second-quarter results on Aug 6, has an Earnings ESP of +3.72% and holds a Zacks Rank of 2, 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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