Earnings Scorecard: Host Hotels

Oct.20.11 | About: Host Hotels (HST)

Host Hotels & Resorts Inc. (NYSE:HST) reported third quarter 2011 FFO (funds from operations) of $112 million or 16 cents per share compared with $75 million or 11 cents per share in the year-earlier quarter.The third quarter 2011 FFO missed the Zacks Consensus Estimate by a penny.

Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

We cover below the results of the recent earnings announcement, as well as the subsequent analysts’ estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.

Third Quarter Review

Total revenue increased to $1,142 million during the reported quarter from $1,003 million in the year-ago quarter. Reported revenue exceeded the Zacks Consensus Estimate by $10 million.

Comparable hotel revenue per available room (RevPAR) jumped 6.4% during the reported quarter, due to higher occupancy (up 1.9%) and average daily rates.

Comparable hotel adjusted operating margins in the reported quarter expanded 110 basis points (bps). During the quarter, adjusted EBITDA (Earnings before Interest Expense, Income Taxes, Depreciation and Amortization) increased 27.7% to $212 million.

Read our full coverage on this earnings report:Host Hotels Reports Mixed Results

Earnings Estimate Revisions - Overview

The company’s earnings estimates for fiscal 2011 have moved in both directions since the earnings release, implying that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.

Agreement of Estimate Revisions

In the last 7 days, 2 out of 18 analysts covering the stock increased their earnings estimates for the upcoming quarter and 1 out of 17 analysts increased the same for fiscal 2011. In the last 7 days, 11 out of 18 analysts covering the stock trimmed their earnings estimates for the upcoming quarter and 15 out of 17 analysts decreased the same for fiscal 2011.This indicates a negative directional movement for fiscal earnings.

Magnitude of Estimate Revisions

Earnings estimates for the upcoming quarter have decreased from 33 cents to 31 cents in the last 7 days and from 91 cents to 88 cents for fiscal 2011, which indicates that despite the gradual improvement in fundamentals it remain challenged by the broader economic trends.

Moving Forward

Host Hotels is the largest lodging REIT with high quality lodging assets in geographically diverse locations. 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, which have the potential for significant capital appreciation. This provides significant upside potential for the company.

Host Hotels maximizes the value of its existing portfolio through aggressive asset management, and works diligently with the managers of its hotels to reduce operating costs and increase revenues, and conducts selective capital improvements and expansions designed to improve operations.

However, the acquisition spree of Host Hotels involves significant upfront operating expenses with limited near-term profitability. New hotels usually take time to generate revenue, and will continue to drag margins till they get established.

Host Hotels currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, LaSalle Hotel Properties (NYSE:LHO) also holds a Zacks #3 Rank.