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Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT), is scheduled to report its fiscal 2011 third quarter earnings results before the market opens on October 12. The current Zacks Consensus Estimate for the third quarter is 17 cents per share, representing a year-over-year growth of 50.0%.

Second Quarter Recap

Host Hotels reported second quarter 2011 recurring FFO (fund from operations) of 31 cents per share, which exceeded the Zacks Consensus Estimate by 2 cents. Funds from Operations is a widely used metric to gauge the performance of REITs and is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Total revenues increased to $1.3 billion during the reported quarter from $1.1 billion in the year-ago quarter. Comparable hotel revenue per available room (RevPAR) increased 6.7% during the second quarter of 2011, driven by a rise in occupancy and average daily rates.

Comparable hotel adjusted operating margins in the second quarter increased 115 basis points (bps). During the reported quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 25% to $313 million.

Agreement of Analysts

In the last 7 days, earnings estimate for the third quarter was raised by 1 out of the 18 analysts covering the stock, while none revised it downwards. For fiscal 2011, 1 out of 19 analysts covering the stock has raised the earnings estimate in the last 7 days, while 1 has also decreased the same.

This demonstrates that the analysts are generally circumspect about the outlook of the company, although the earnings expectations are slightly skewed in the positive direction for the current quarter.

Magnitude of Estimate Revisions

Earnings estimates have moved up by a penny in the last 7 days for the third quarter to 17 cents. For fiscal 2011, earnings estimates have remained stagnant at 91 cents per share during the same period, meaning that analysts were overtly cautious about the long-term performance of the company.

Neutral on Host Hotels

We currently have a Neutral recommendation on Host Hotels, which presently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for La Salle Hotel Properties (LHO), one of the competitors of Host Hotels.

Host Hotels is one of the largest owners of luxury and upper-upscale hotels, primarily operated under premium brands, such as Marriott, Westin, Sheraton, Ritz-Carlton, Hyatt, Four Seasons, and St. Regi. Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high-quality lodging assets in hard-to-replicate areas in geographically diverse locations, which have the potential for significant capital appreciation.

However, the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, which had been the weakest performing segments during the economic downturn. While the outlook for these markets has improved, the pace of the improvement remains quite uneven and unsteady. Consequently, we remain skeptical about the long-term earnings potential of the company.

Source: Host Hotels & Resorts: Earnings Preview