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Here's Why Host Hotels (HST) is an Apt Portfolio Choice Now

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Host Hotels & Resorts Inc.’s (HST - Free Report) solid portfolio of luxury and upper-upscale hotels in the United States and abroad is well-poised to benefit from the ongoing recovery in the lodging industry. Also, the company’s strategic acquisitions and capital-recycling efforts bode well.

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

Driven by the increase in leisure travel in Sunbelt markets, the company’s all-owned-hotel revenue per available room (RevPAR) during second-quarter 2022 almost doubled to $219.3 million sequentially. It was also the first time since the onset of the pandemic that the company’s quarterly RevPAR exceeded the 2019 levels. HST’s value-enhancement initiatives are likely to support the long-term growth in its RevPAR.

Also, over the past years, HST has made significant acquisitions of high-quality properties. Its total value of acquisitions for 2021 aggregated $1.6 billion. 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. These buyouts aid the company in achieving higher earnings before interest, taxes, depreciation and amortization (EBITDA) and revenues.

HST has been making concerted efforts to dispose of non-strategic assets that have maximized their value through its capital-recycling program. It redeploys the proceeds to acquire or invest in premium properties in markets that are anticipated to recover faster, like leisure and drive-to destinations. From the beginning of 2021 to Aug 4, 2022, total dispositions aggregated $1.4 billion at 17.8 times EBITDA multiple.

HST maintains a healthy balance sheet with no material debt maturities until January 2024. As of Jun 30, 2022, the company had $2.4 billion in 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 bullish on this Zacks Rank #2 (Buy) 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 6.1% in the past month to $1.73.

Shares of HST have gained 2.3% compared with the industry’s growth of 1.6% in the past six months. 

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However, Host Hotels faces stiff competition from other owners and investors in upper upscale and luxury full-service hotels, including other lodging REITs. Moreover, the supply in the lodging industry has increased due to a spike in online short-term rentals.

Although the urban markets witnessed a sequential improvement in group demand during second-quarter 2022, the recovery of the transient business and group travel is likely to be tepid in the near term due to a delayed return to the office and a slow return to conferences. Also, any further disruptions in the economy could prolong the ongoing recovery of the lodging industry.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Prologis (PLD - Free Report) , Public Storage (PSA - Free Report) and Extra Space Storage (EXR - Free Report) .

The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved marginally upward in the past month to $5.17. PLD currently holds a Zacks Rank of 2.

The Zacks Consensus Estimate for Public Storage’s current-year FFO per share has marginally moved northward in the past week to $15.62. PSA carries a Zacks Rank #2 at present.

The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised 1.2% over the past week to $8.40. EXR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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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