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Key Factors Why Host Hotels (HST) Stock Jumped 17.8% QTD

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Shares of Host Hotels & Resorts Inc. (HST - Free Report) have gained 17.8% in the quarter-to-date period, outperforming the industry’s rally of 6.9%.

This Bethesda, MD-based lodging real estate investment trust (REIT) reported robust second-quarter results earlier this month. The adjusted funds from operations (FFO) per share of 58 cents surpassed the Zacks Consensus Estimate of 49 cents and increased from the prior-year quarter’s 12 cents.

HST’s quarterly results reflected better-than-anticipated top-line growth, mainly driven by leisure travel with strong rates at resort properties. Moreover, the urban markets witnessed an increase in group demand sequentially. The company also doubled its quarterly dividend.

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On a year-to-date basis, shares of HST have gained 6.2% against the industry’s decline of 14.9%. Let us look at the factors behind this surge in the stock price.

The lodging industry is presently witnessing a rebound in traffic owing to the widespread vaccination drives and relaxations in the pandemic-related regulations. As a result, the demand for Host Hotels’ luxury and upper-upscale hotels in markets with strong demand drivers, like central business districts of main cities, close to airports and in resort/conference destinations, has once again revived.

Host Hotels has a strong presence in the Sunbelt region, where leisure travel continued to improve, leading to strong rates at resort properties. The company’s all-owned-hotel revenue per available room (RevPAR) during second-quarter 2022 almost doubled to $219.3 million year over year and rose 31.4% sequentially. It was also the first time since the onset of the pandemic that the company’s quarterly RevPAR exceeded the 2019 levels.
With the lodging industry resuming operations and improving industry demand-supply fundamentals, HST is likely to witness healthy operating performance in the upcoming quarters.

In addition, Host Hotels’ trailing 12-month return on equity (ROE) highlights its growth potential. Its ROE is 8.86% compared with the industry’s average of 3.60%. This reflects that the company reinvests more efficiently compared with the industry. Also, HST’s solid balance-sheet strength will aid capital deployment for long-term growth opportunities and facilitate redevelopment activities.

HST has been making concerted efforts to dispose of non-strategic assets that have lower growth potential or properties with significant capital expenditure requirements 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.

Furthermore, 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 six months ended Jun 30, 2022, it incurred $240 million of capital expenditure. For 2022, management expects to incur capital expenditure in the range of $500-$575 million.

Analysts too 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.

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.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Prologis (PLD - Free Report) , Extra Space Storage (EXR - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) .

The Zacks Consensus Estimate for Prologis’ current-year FFO per share has marginally moved northward in the past two months to $5.17. PLD 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 1.6% over the past week to $8.46. EXR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 4.2% upward in the past month to $1.49. XHR currently holds 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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