BETHESDA, Md. (
Host Hotels & Resorts
swung to a quarterly profit, beat estimates and raised full-year guidance during the second quarter, setting expectations that other lodging real estate investment trusts will surprise to the upside.
"The trends are all up and Host is moving in the right direction," Stifel Nicolaus analyst Rod Petrik told TheStreet.
That bodes well for other lodging players as Host's report doesn't reflect results for the full month of June. After spinning off from
in 1993, Host adopted some unusual accounting practices whereby its second quarter measures just 12 weeks. In other words, half of Host's portfolio, including its Starwood and Marriott properties, "didn't have the full benefit of the month of June which was relatively strong, if only for the fact that last June was so terrible," Petrik said.
Host said Wednesday its quarterly
funds from operations were 23 cents per share, or $151 million, up sharply from year-earlier FFO of 12 cents per share, or $68 million. FFO is a performance figure generally used by REITs to define cash flow from operations. Wall Street analysts had, on average, expected Host to post FFO of 22 cents per share in the period ending June 18.
Host booked profits of $20 million, or 2 cents per share, compared with a loss of $69 million, or 12 cents per share, in the year-earlier period. Revenues in the quarter added 5.7% to $1.11 billion, up from $1.05 billion in the second quarter last year. Analysts had expected the firm to book a loss of a penny per share.
The strengthened performance was attributed to increased occupancy rates and to revenue per available room, or revPAR, which jumped 8.1% thanks to higher prices paid by business travelers.
Host, which owns and operates hotels under the Four Seasons, W and Ritz-Carlton brands, among others, expects recent economic improvements to continue to positively effect the lodging industry. Management raised full-year guidance, saying it now expects to book a net loss between 24 cents and 21 cents per share for 2010, compared with a previously announced forecast for losses in the range of 32 cents to 25 cents per share. The midpoint guidance for FFO was revised upward to 68 cents per share from 61.5 cents. Host said revPar should grow between 4% and 4.5%, up from prior estimates of 1% to 4%.
"I wouldn't be surprised if others in the
lodging REIT subsector also did better in the second quarter," Petrik said, citing Marriott's
in the recent quarter.
Like Host, Marriott said last week it enjoyed the benefit of increased business travel bookings coupled with higher revPAR and daily room rates for the first time in nearly two years. Marriott reported solid earnings as business and leisure travel picked back up in North America
However, Marriott said leisure travel did not pick up as much as business travel, and since the summer season tends to be heavy on vacations, the current quarter would be challenging. While not detracting from Marriott's strong report, it did illuminate weakness in the consumer sector.
Petrik expects other lodging operators to beat analyst estimates and raise profit forecasts in the coming weeks as occupancy strengthens. What he called "the logjam for acquisitions" was also starting to break, and that trend should continue as well, leading to more external growth into 2011 and 2012.
Despite its strengthening position in the lodging sector, investors bid Host shares down 3.5%, or 49 cents, to $13.51, in afternoon trading Wednesday as market watchers reacted to President Obama's signing of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
-- Reported by Miriam Marcus Reimer from New York
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