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Analyst Blog

On Jun 21, 2013, we reiterated our long-term recommendation on lodging real estate investment trust (REIT) – Host Hotels & Resorts Inc. (HST - Analyst Report) – at Neutral. The decision is based on the strong performance of the company’s core properties in first-quarter 2013 and its concerted efforts toward increasing shareholders’ wealth through dividend hike.

However, Host Hotels’ concentration of properties in the upscale segments exposes it to risks of lower demand during economic downturns.

Why Neutral?

Host Hotels reported another robust quarterly result, with first-quarter 2013 adjusted FFO per share of 28 cents, beating both the Zacks Consensus Estimate and the year-ago figure by 4 cents. Quarterly results benefited from a 5.1% rise in comparable hotel RevPAR and solid performances at its luxury and resort, and conference center properties. Consequently, the company has raised its outlook for 2013.

Moreover, Host Hotels has a strong balance sheet that provides it financial flexibility to aim for high-yielding acquisitions and high ROI capital projects. In addition, recently the company hiked its dividend payout by 10%, reflecting the 10th consecutive quarter of dividend increases since March 2011. Notably, a steady dividend payout facilitates the long-term strategy of Host Hotels to provide attractive risk-adjusted returns to its stockholders.

However, Host Hotels’ properties are mainly concentrated in the luxury and upper-upscale segments, which had been the weakest performing segments during the economic downturn. This remains a drag as unfavorable macroeconomic conditions compel customers to reduce their discretionary spending and choose lower priced brands over the company’s premium ones.

Following the release of first-quarter 2013 results, over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at $1.30 per share. On the other hand, for 2014, it moved north by 2.8% to $1.46 per share. Thus, the stock now carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Better performing lodging REITs that are worth a look include Sunstone Hotel Investors Inc. (SHO - Snapshot Report) – with a Zacks Rank #1 (Strong Buy) as well as LaSalle Hotel Properties (LHO - Snapshot Report) and Chesapeake Lodging Trust (CHSP - Snapshot Report) – with a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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