Host Hotels Acquires in Europe

Host Hotels & Resorts, Inc. (HST - Analyst Report), the largest lodging real estate investment trust (REIT), has recently acquired five hotels in Europe through a joint venture in which it holds a 33.4% ownership interest. The properties were purchased from Whitehall Real Estate Funds, an affiliate of The Goldman Sachs Group, Inc. (GS - Analyst Report), for an aggregate price of about €440 million.

The acquired portfolio includes the 757-room Paris Marriott Rive Gauche Hotel & Conference Center, the 402-room Renaissance Amsterdam Hotel, the 327-room Renaissance Paris La Defense Hotel, the 150-room Courtyard Paris La Defense West - Colombes, and the 97-room Renaissance Paris Vendome Hotel. The transaction was partially funded by a non-recourse mortgage loan worth €250 million.

With the deal, Host Hotels has strengthened its presence in three key submarkets in Paris, France, and in the city center of Amsterdam, The Netherlands. The acquisition is expected to be accretive in the near future and offer significant long-term growth opportunities to the company. With high barriers to entry, Paris arguably has some of the strongest market fundamentals in Europe and has historically recorded a healthy growth in RevPAR (revenue per available room). On the other hand, Amsterdam has also consistently ranked among the highest RevPAR markets in Europe and is one of the leading commercial hubs in the region.

Based in Bethesda, Maryland, 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, W, Four Seasons, and St. Regis.

The company 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. At the same time, Host Hotels conducts selective capital improvement and expansions designed to improve operations.

Host Hotels has a strong balance sheet which provides the financial flexibility to aim for high-yielding acquisitions, high ROI (return on investments) capital projects, steady dividend payouts, and share buybacks. The company anticipates the gradual revival of the overall economy to boost its operating results in 2012, with comparable hotel RevPAR expected to increase in the range of 6.25% to 7.0% for the full year.

However, 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. If this trend reoccurs in future, the bottom line of the company is likely to be affected, reducing its operating margins.

We maintain our Neutral recommendation on Host Hotels, which presently has a Zacks #3 Rank that translates into a short-term Hold rating.