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Will Social Distancing Shape Host Hotels' (HST) Q2 Earnings?

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Zacks Equity Research
·5 min read
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Host Hotels & Resorts, Inc. HST is slated to report second-quarter 2020 earnings on Jul 30, 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 a surprise of 14.8% with respect to adjusted FFO per share. Results were impacted by the coronavirus pandemic, which significantly hurt lodging demand as governments started imposing travel restrictions and mandatory stay-at-home orders to curb the spread in late March.

Over the preceding four quarters, the company surpassed estimates on two occasions and missed in the other two, the average negative surprise being 2.81%. 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

According to quarterly hotel performance data released by STR, the coronavirus pandemic and the resultant social distancing protocols continued to wreak havoc in the U.S hotel industry by reducing travel demand during the second quarter. Severe reductions in occupancy, average daily rate (ADR) and revenue per available room (RevPAR), characterized the April-June period, making it the worst quarter recorded by the U.S. hotel industry.

On a year-over-year basis, occupancy slipped 2.1% to 33.5%, ADR declined 37.1% to $83.59 and RevPAR plunged 69.9% to $27.98 in the second quarter.

As for Host Hotels, low business transient and group travel are expected to have made earnings low for the to-be-reported quarter. In fact, Host Hotels continued to witness an increase in group cancellations leading to total canceled group revenues of $888 million as of Jun 25. This is anticipated to get reflected in the company’s room revenues that are estimated to be $112 million for the second quarter. It suggests a significant decline from the prior-year quarter’s reported figure of $931 million.

Moreover, the Zacks Consensus Estimate of second-quarter ADR and RevPAR is pegged at $200 and $38.14, indicating year-over-year declines of 14.9% and 80.2%, respectively. Moreover, average occupancy is expected to decline to 19.02% from 82% in the prior-year quarter.

These are anticipated to have impacted the company’s revenues in the quarter. In fact, the Zacks Consensus Estimate for Host Hotels’ second-quarter revenues is presently pinned at $121.1 million, suggesting a 91.8% year-over-year decline.

Further, the estimate revision trends reflect an unfavorable outlook. In a month’s time, the Zacks Consensus Estimate of FFO per share moved downward to negative 25 cents. The figure suggests a year-over-year decline of 147.2%.

Nonetheless, as regulations related to the pandemic eases and several states lifting stay-at-home mandates, Host Hotels seems to get back to some semblance of normalcy with several hotel reopening. In fact, as of Jun 29, it opened 51 hotels (63% of room count). This is expected to have driven a gradual increment in occupancy and ADR during the quarter.

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 #4 (Sell) and has an Earnings ESP of 17%.

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:

STAG Industrial Inc. STAG, set to report quarterly numbers on Jul 28, currently has an Earnings ESP of +1.80% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Iron Mountain Incorporated IRM, slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.

SBA Communications Corporation SBAC, set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +4.48% and a Zacks Rank of 3.

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

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