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Here's What Makes Host Hotels (HST) an Apt Portfolio Choice

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Host Hotels & Resorts’ (HST - Free Report) well-located properties in markets with strong demand drivers like central business districts of main cities, close to airports and resort/conference destinations make it a suitable choice for your portfolio. It also enjoys a strong presence in the Sunbelt region and the top 22 U.S. markets.

In light of the effective vaccine roll-outs and improving demand-supply fundamentals, the lodging industry is presently experiencing a rebound in traffic. This enables the hotel real estate investment trust (REIT) to witness an improvement in occupancy and revenue per available room (RevPAR).

Analysts seem bullish on this Zacks Rank #1 (Strong Buy) stock. The Zacks Consensus Estimate for 2022 funds from operations (FFO) per share has increased 5.1% over the past month, indicating a favorable outlook for the company. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of HST have lost 11.9% in the past year, narrower than its industry's decline of 20.6%. Given its progress on fundamentals and upward estimate revisions, the stock is likely to keep performing well in the quarters ahead, and hence the dip offers a good entry point.

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Factors Aiding Host Hotels

Healthy Operating Performance: Leisure travel in the Sunbelt markets has increased, with urban hotels displaying improvements in demand. This is mainly attributed to the first-quarter 2022 RevPAR sequential improvement of 11%, and the momentum is likely to continue in the current quarter. Also, management expects sustained strength in leisure businesses and the transient and group businesses to continue recovering in the urban markets as companies start opening up.

During the quarter, all owned-hotel pro-forma earnings before interest, taxes, depreciation and amortization (EBITDA) were $330 million, surging from $49 million reported a year ago. On a year-over-year basis, the average occupancy percentage increased to 54.6% from 28.5%, while the average room rate improved to $305.6 from $253.9, marking a 20.4% rise.

With the lodging industry resuming operations and improving industry demand-supply fundamentals, HST is likely to witness healthy operating performance in the upcoming period.

FFO Growth: Over the past three to five years, HST has witnessed poor FFO per share growth compared with the industry due to the health crisis. However, with the travel demand reviving, the company has a substantial upside potential for growth. The FFO per share is expected to significantly increase for 2022 compared with the industry’s average of 9.69%.

Acquisitions & Development: The company is focused on enhancing the quality of its portfolio and has made significant acquisitions of high-quality properties over the past years with long-term growth prospects. To achieve a higher portfolio EBITDA and revenues, HST has broadened its acquisition focus to include urban markets beyond the top 25 ones.

During the fourth quarter of 2021, the company completed two acquisitions, The Alida, Savannah and Hotel Van Zandt in Austin, TX, thereby driving its total value of acquisitions for 2021 to $1.6 billion. In January 2022, the company also acquired a 49% ownership interest in a joint venture with Noble Investment Group, a private hospitality asset manager with a focus on upscale select-service and extended-stay properties. These buyouts aim to elevate the EBITDA growth profile of the company’s portfolio.

Capital Expenditure: Host Hotels engages in strategic capital allocations to improve its portfolio quality and strengthen its position in the United States, where it has a greater scale and competitive advantage. During the first quarter of 2022, Host Hotels incurred around $122 million of capital expenditure. Of this, $83 million was return on investment capital projects spend and $39 million was renewal and replacement project expenditure. For 2022, the company expects capital expenditure in the $500-$600 million range.

Balance Sheet Strength: Host Hotels is focused on maintaining a healthy balance sheet position and undertakes appropriate steps to strengthen its position further. It is also the only company with an investment-grade rating among lodging REITs. As of Mar 31, 2022, the company had $1.9 billion in total available liquidity. Currently, HST has no material debt maturities until January 2024. As of May 4, 2022, the company enjoyed investment-grade ratings of Baa3 from Moody’s and BBB- from both Fitch and S&P Global, providing easy access to debt at favorable costs. With solid balance sheet strength, the company is well-poised to capitalize on long-term growth opportunities while carrying out redevelopment initiatives.

Other Stocks to Consider

Some other top-ranked stocks in the REIT sector are Rexford Industrial Realty (REXR - Free Report) , OUTFRONT Media (OUT - Free Report) and Cedar Realty Trust .

The Zacks Consensus Estimate for Rexford Industrial Realty’s current-year FFO per share has moved 1% northward in the past two months to $1.93. REXR carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 7.7% over the past two months to $2.09. OUT carries a Zacks Rank #1, currently.

The Zacks Consensus Estimate for Cedar Realty Trust’s 2022 FFO per share has moved 3.6% upward in the past month to $2.59. CDR presently carries a Zacks Rank of 2.

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.

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