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Host Hotels (HST) Acquires W Hollywood for $219 Million

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Host Hotels & Resorts, Inc. (HST - Free Report) declared the acquisition of W Hollywood for $219 million. The purchase comes as a strategic fit given that it boosts the lodging REIT’s portfolio with a high-quality asset in a rapidly growing sub-market in Los Angeles. This market contributes just 5% of the company’s total hotel EBITDA.

The 305-room W Hollywood, which opened in 2010, is situated on the Hollywood Boulevard, and includes 10,800 square feet of high-quality retail space and seven prominent supergraphic billboard signs. Also, the property is completely unencumbered by brand and management upon sale commencing in 2021.

Further, the property is likely to witness strong demand with the adjoining area serving as the center for the flourishing creative community and entertainment related companies. There are solid business and transient demand generators. In fact, the hotel “ranks in the top-five in both RevPAR and EBITDA per key” in the company’s portfolio, according to James F. Risoleo, president and chief executive officer. This makes it a significant acquisition for Host Hotels.

Apart from the W Hollywood buyout, Host Hotels also acquired the Don CeSar and Beach House Suites complex in St. Pete Beach, FL, for $214 million in February. The purchase is a strategic fit for long-term growth.

Last month, Host Hotels also came up with a better-than expected performance for fourth-quarter 2016, reporting adjusted funds from operations ("FFO") of 41 cents per share that exceeded the Zacks Consensus Estimate of 38 cents. Also, adjusted FFO per share was up 5.1% from the year-ago tally of 39 cents. Results reflect growth in comparable hotel revenues and improvement in productivity at many of the company’s hotels. (Read more: Host Hotels Beats on Q4 FFO, Productivity Improves)

We expect the company’s robust portfolio of upscale hotels across lucrative markets, strategic capital-recycling program and a healthy balance sheet to drive growth. However, above-average supply growth, specifically in the company’s key markets, remains a major concern. Moreover, any hike in interest rate can add to its woes.  

Currently, Host Hotels carries a Zacks Rank #3 (Hold). Shares of Host Hotels outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past six months. Over this time frame, Host Hotels logged in a return of 11.9% against 2.2% decline of the industry.



Stocks to Consider

Better-ranked stocks in the REIT space include Ashford Hospitality Prime, Inc. , CoreSite Realty Corporation (COR - Free Report) and W. P. Carey Inc. (WPC - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 30 days, Ashford Hospitality Prime’s funds from operations (FFO) per share estimates for full-year 2017 climbed 5.8% to $1.81.

CoreSite Realty currently has a long-term growth rate of 19.1%.

W. P. Carey is a steady performer, having beaten the Zacks Consensus Estimate in each of the four trailing quarters, with an average beat of 12.38%.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, 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.

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