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Why is it Wise to Hold Host Hotels (HST) Stock in Your Portfolio?

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With a recovery in leisure demand in certain drive-to leisure markets and the Sunbelt region, Host Hotels & Resorts Inc. (HST - Free Report) is witnessing a gradual improvement in occupancy and revenue per available room (RevPAR). However, amid constrained business transient demand and delayed return to offices, recovery in the core business transient might be gloomy.

The relaxation of regulations related to the pandemic and acceleration in vaccine distribution, hotel reopenings and favorable holiday travel trends have enabled Host Hotels to resume operations on a considerable basis. As of Aug 3, the company had 83 of 84 hotels open. In the second quarter, it witnessed an increase in RevPAR. It expects RevPAR to continue increasing sequentially throughout the year.

The hotel REIT also continues its capital allocations to improve portfolio quality and strengthen its position in the United States, where it has a greater scale and competitive advantage. The company is broadening its focus on acquisitions to include urban markets beyond the top 20 ones in search of higher portfolio EBITDA and revenues. As part of the strategy, from the beginning of the year through Aug 3, 2021, it acquired four hotels and land for $1.1 billion.

Moreover, Host Hotels has prioritized such projects in markets, which are anticipated to recover faster like leisure and drive-to destinations. Such investments in renovations will improve its portfolio quality and position the renovated properties well to capture additional revenues during the economic recovery.

The company exited the second quarter with cash and cash equivalents of $1.5 billion. With a decent balance sheet position, the company is well-poised to withstand the current dismal environment triggered by travel disruptions and bank on growth opportunities. Also, the trend in estimate revisions for 2021 FFO per share indicates a favorable outlook for the company as it rose 53.6% over the past month.

While RevPAR is sequentially improving, backed by hotel reopenings, it remains significantly below the 2019 levels as the pandemic continues to limit demand. Group room booking pace also remains slow. Further, recovery in the demand for core business transient is likely to be choppy in the ongoing year due to delayed return to offices.

The spike in online short-term rentals, including as a flexible option for apartment buildings, has elevated the supply in the lodging industry and increased competition in certain markets.

Shares of this Zacks Rank #3 (Hold) company have gained 3.4% over the past six months compared with the industry’s growth of 22.1%.

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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs