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Here's Why You Should Hold on to Host Hotels (HST) Stock

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Host Hotels & Resorts Inc. (HST - Free Report) , one of the leading lodging real estate investment trusts (REITs), is well-poised to benefit from strategic acquisitions and value-enhancement initiatives. However, a slow recovery in its core business transient segment and dividend payouts below pre-pandemic levels are key concerns.

HST’s portfolio primarily comprises upscale hotels across the top 22 lucrative U.S. markets, with a strong presence in the Sunbelt region. These properties are well-positioned in markets with strong demand drivers like central business districts of main cities, close to airports and in resort/conference destinations. With the hotel industry reviving, Host Hotel is likely to benefit from the ongoing surge in demand.

Driven by increasing leisure travel in Sunbelt markets, the company witnessed a sequential improvement of 11% in revenue per available room (RevPAR) during first-quarter 2022. Management expects RevPAR in the range of $195-$205 million for the second quarter, implying a sequential improvement. Also, value-enhancement initiatives are likely to support long-term growth in its RevPAR.

The company, to improve portfolio quality and strengthen its presence in the United States, carries out various strategic capital allocations. For 2022, management expects capital expenditure in the $500-$600 million range.

Also, it has made significant acquisitions of high-quality properties over the past years. This January, HST acquired a 49% ownership interest in a joint venture with Noble Investment Group, a private hospitality asset manager focusing on upscale select-service and extended-stay properties.

Also, HST has been undertaking the disposal of non-strategic assets that have lower growth potential or properties with significant capital expenditure requirements. Subsequent to the first quarter-end, the company sold the Sheraton New York Times Square Hotel for $373 million and YVE Hotel Miami for $50 million.

HST maintains a healthy balance sheet with no material debt maturities until January 2024. As of Mar 31, 2022, HST had $1.9 billion as total available liquidity. Moreover, it is the only company with an investment-grade rating among lodging REITs. This financial flexibility will aid capital deployment for long-term growth opportunities and facilitate redevelopment activities.

Analysts seem to be bullish on the stock. The estimate revisions trend in the past month for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company as it has increased 18% in the past month.

However, as the hotel industry is cyclical in nature, a looming concern regarding economic downturns in the company’s markets could hurt revenues. Unfavorable macroeconomic conditions could shift the consumer base to lower-priced brands over HST’s premium ones.

In March 2020, the company announced a dividend cut as a result of its pandemic hit operations and halted the same thereafter. While Host Hotels reinstated the dividends payouts this February, the amount remains way below the pre-pandemic level of 25 cents.

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

Shares of HST have gained 1.6% compared with a 4.6% decline of the industry in the past three months.

At present, HST carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis (PLD - Free Report) , Extra Storage Space (EXR - Free Report) and OUTFRONT Media (OUT - Free Report) .

The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved 1.4% upward in the past month to $5.15. PLD presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Extra Storage Space’s ongoing year’s FFO per share has been raised 1.1% over the past month to $8.01. EXR carries a Zacks Rank #2, currently.

The Zacks Consensus Estimate for OUTFRONT Media’s current-year FFO per share has moved 7.7% northward in the past month to $2.09. OUT carries a Zacks Rank of 2 at present.

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.