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Can Leisure Travel Fuel Host Hotels' (HST) Q1 Earnings?

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Host Hotels & Resorts, Inc. HST is slated to report first-quarter and 2021 earnings on May 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) posted better-than-expected results, with negative adjusted FFO per share of 2 cents, better than the Zacks Consensus Estimate of negative 21 cents. However, results were affected by a year-over-year decline in travel amid the coronavirus pandemic. In fact, revenue per available room (RevPAR) witnessed a significant decline.

Over the preceding four quarters, the company surpassed estimates on two occasions, missed in one and met in another, the average beat being 30.8%. 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 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 rollout of vaccination and the revival of leisure travel demand have led to the recovery of hotel occupancy. Amid this, hotel REITs, which were devastated in the early stages of the coronavirus pandemic, have seen a significant price rally in the first quarter. Moreover, the relaxation of social-distancing norms and the reopening of cities have enabled hotel operators to restart operations.

As for Host Hotels, 76 of the company’s 80 hotels were open as of Feb 18. This along with a recovery in the leisure demand in specific drive-to leisure markets and Sunbelt regions has enabled the hotel REIT to witness a gradual improvement in occupancy and RevPAR. RevPAR (for all owned hotels) was $58.27 as of February end, rising from $39.10 as of the end of December 2020.

Also, 20 of its hotels (24% of rooms) achieved a break-even or positive hotel-level operating profit in fourth-quarter 2020. These hotels, with positive hotel-level operating profit, are likely to have bolstered revenues in the quarter under review.

Host Hotels’ portfolio of luxury properties has a strong Sunbelt exposure and presence in 22 top US markets. Presence in the strong markets is likely to have supported the hotel REIT’s recovery in the first quarter. Moreover, the company’s large property sizes are anticipated to have propelled its hotels to capture the budding demand, while adhering to social-distancing mandates.

In fact, year-over-year occupancy and ADR declines improved in February, backed by leisure demand at luxury resorts.

The company is likely to have preserved its liquidity, with expense-control measures, including reductions in annual hotel level expenses, driving efficiencies by cross-utilizing management functions and reducing the fixed component of above-property charges.

However, amid the virtualized work environment, the recovery in the transient business demand has not been promising. In fact, since business travelers make up the majority of transient demand at the company’s hotels, its results will be significantly more affected by trends in business travel than the ones in leisure demand.

Hence, we believe that the performance of Host Hotels’ urban and business-focused hotels has likely continued to have been gloomy as these markets have been acutely impacted by the pandemic. In fact, its performance is expected to have been impacted by markets facing especially tough near-term challenges such as San Francisco, New York and Boston.

In fact, as of Feb 19, group room booking pace for the first half of 2021 was down 84% year over year. Hence, despite encouraging green shoots of recovery in the leisure demand, choppiness in corporate and group demand is likely to have resulted in a year-over-year decline in FFO and revenues.

In fact, the Zacks Consensus Estimate for Host Hotels’ first-quarter revenues is presently pegged at $313 million, suggesting a 70.3% year-over-year decline.

Lastly, there has been a lack of any solid catalyst that could instill optimism prior to the first-quarter earnings release. The Zacks Consensus Estimate for quarterly FFO per share has been unchanged at negative 15 cents over the past month. It also suggests a 165.2% year-over-year decline.

Here is what our quantitative model predicts:

Host Hotels has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO 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 +8.68%.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks That Warrant a Look

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

Summit Hotel Properties, Inc. INN, set to report quarterly numbers on May 4, currently has an Earnings ESP of +8.57% and a Zacks Rank of 3.

Healthcare Trust of America, Inc. HTA, slated to release earnings figures on May 6, has an Earnings ESP of +0.33% and a Zacks Rank of 3 at present.

National Storage Affiliates Trust NSA, slated to release earnings figures on May 4, has an Earnings ESP of +1.84% and 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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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report

Summit Hotel Properties, Inc. (INN) : Free Stock Analysis Report

Healthcare Trust of America, Inc. (HTA) : Free Stock Analysis Report

National Storage Affiliates Trust (NSA) : Free Stock Analysis Report

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