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Here's Why Host Hotels (HST) is an Apt Portfolio Pick for Now
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Host Hotels & Resorts Inc. (HST - Free Report) boasts a portfolio of luxury and upper-upscale hotels located across lucrative markets in the United States and abroad. The improved group and business transient demand for the company’s well-located properties in markets with strong demand drivers positions it well for growth. Also, aggressive capital-recycling efforts and a healthy balance sheet augur well.
Over the past three months, shares of this Bethesda, MD-based lodging real estate investment trust (REIT) have gained 8.2% against the industry's decline of 3.1%. Given the strength in its fundamentals, there seems to be additional room for growth of this stock.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share has been raised 1.6% over the past month to $1.92.
Image Source: Zacks Investment Research
Factors That Make Host Hotels a Solid Pick
Healthy Operating Performance: Host Hotels has a strong Sunbelt exposure and presence in the U.S. markets. Its properties are advantageously located in central business districts of major cities with proximity to airports and resort/conference destinations.
The improvement in group and business transient travel demand has aided occupancy and revenue per available (RevPAR) growth at the company’s properties over the past few quarters. It is expected to witness a stable operating environment in 2024 on the back of continuous improvement in group business, a gradual recovery in business transient and steady demand for leisure activities.
In 2023, comparable hotel RevPAR increased 8.1% from the 2022 levels. Given the healthy demand for Host Hotels properties in strategic locations, it is well-poised to ride the growth curve in the near term.
For 2024, management expects comparable hotel RevPAR growth to be between 2.5% and 5.5%.
Capital-Recycling Efforts: Through its capital-recycling program, the company has made concerted efforts to dispose of non-strategic assets that have lower growth potential or properties with significant capital expenditure requirements. It has redeployed the proceeds to acquire or invest in better-yielding assets, highlighting its prudent capital-management practices.
Per the company’s February 2024 Investor Presentation, from 2021 through the end of the fourth quarter of 2023, total dispositions amounted to $1.53 billion, which is 17.5 times the EBITDA multiple. Its acquisitions during this period amounted to $1.87 billion, which is 13.1 times the EBITDA multiple.
Capital Expenditure: Host Hotels undertakes strategic capital deployments to improve its portfolio quality and strengthen its position in the United States, where it has a greater scale and competitive advantage. In 2023, the company incurred $646 million in capital expenditure. For 2024, HST expects to incur capital expenditure in the range of $500-$605 million.
Notably, the REIT reached an agreement with Hyatt in 2023 to complete transformational reinvestment capital projects at six properties in its portfolio, intended to position the targeted hotels to compete better in their respective markets and enhance long-term performance. Of the total investment of $550-$600 million, it expects to invest nearly $125-$200 million per year between 2024 to 2027 on this program. Such efforts seem encouraging.
Balance Sheet & Cash Flow Strength: Host Hotels maintains a healthy balance sheet. It exited the fourth quarter of 2023 with $2.9 billion of total available liquidity. Moreover, it is the only company with an investment-grade rating among lodging REITs. It enjoys investment-grade ratings of Baa3 from Moody’s, BBB- from S&P Global and BBB from Fitch, rendering access to the debt market at favorable costs. Hence, with ample financial flexibility, this REIT is well-positioned to carry on with its growth opportunities.
HST’s current cash flow growth is projected at 10.64% compared with -3.51% growth estimated for the industry.
Moreover, its trailing 12-month return on equity is 10.82%, well ahead of the industry’s average of 2.99%. This indicates that the company is more efficient in using shareholders’ funds than its peers.
Dividends: Solid dividend payouts are the biggest attraction for REIT investors and Host Hotels remained committed to that. After a brief suspension of its dividend payments during the pandemic, the company reinstated its dividend payment and resorted to regular dividend hikes. In December 2023, it announced an 11% hike in its dividend payout, bringing it on par with the pre-pandemic level of 20 cents per share. This reaffirms shareholders’ confidence in this lodging REIT.
Hence, with rebounding operating trends, a lower dividend payout ratio compared with the industry and a healthy financial position, we expect the latest dividend hike to be sustainable over the long run.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share has moved 3.5% upward in the past month to $4.38.
The consensus estimate for LAMR’s ongoing year’s FFO per share has increased marginally over the past month to $7.74.
The consensus mark for SLG’s current-year FFO per share has moved 2.8% northward over the past month to $5.88.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Here's Why Host Hotels (HST) is an Apt Portfolio Pick for Now
Host Hotels & Resorts Inc. (HST - Free Report) boasts a portfolio of luxury and upper-upscale hotels located across lucrative markets in the United States and abroad. The improved group and business transient demand for the company’s well-located properties in markets with strong demand drivers positions it well for growth. Also, aggressive capital-recycling efforts and a healthy balance sheet augur well.
Over the past three months, shares of this Bethesda, MD-based lodging real estate investment trust (REIT) have gained 8.2% against the industry's decline of 3.1%. Given the strength in its fundamentals, there seems to be additional room for growth of this stock.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share has been raised 1.6% over the past month to $1.92.
Image Source: Zacks Investment Research
Factors That Make Host Hotels a Solid Pick
Healthy Operating Performance: Host Hotels has a strong Sunbelt exposure and presence in the U.S. markets. Its properties are advantageously located in central business districts of major cities with proximity to airports and resort/conference destinations.
The improvement in group and business transient travel demand has aided occupancy and revenue per available (RevPAR) growth at the company’s properties over the past few quarters. It is expected to witness a stable operating environment in 2024 on the back of continuous improvement in group business, a gradual recovery in business transient and steady demand for leisure activities.
In 2023, comparable hotel RevPAR increased 8.1% from the 2022 levels. Given the healthy demand for Host Hotels properties in strategic locations, it is well-poised to ride the growth curve in the near term.
For 2024, management expects comparable hotel RevPAR growth to be between 2.5% and 5.5%.
Capital-Recycling Efforts: Through its capital-recycling program, the company has made concerted efforts to dispose of non-strategic assets that have lower growth potential or properties with significant capital expenditure requirements. It has redeployed the proceeds to acquire or invest in better-yielding assets, highlighting its prudent capital-management practices.
Per the company’s February 2024 Investor Presentation, from 2021 through the end of the fourth quarter of 2023, total dispositions amounted to $1.53 billion, which is 17.5 times the EBITDA multiple. Its acquisitions during this period amounted to $1.87 billion, which is 13.1 times the EBITDA multiple.
Capital Expenditure: Host Hotels undertakes strategic capital deployments to improve its portfolio quality and strengthen its position in the United States, where it has a greater scale and competitive advantage. In 2023, the company incurred $646 million in capital expenditure. For 2024, HST expects to incur capital expenditure in the range of $500-$605 million.
Notably, the REIT reached an agreement with Hyatt in 2023 to complete transformational reinvestment capital projects at six properties in its portfolio, intended to position the targeted hotels to compete better in their respective markets and enhance long-term performance. Of the total investment of $550-$600 million, it expects to invest nearly $125-$200 million per year between 2024 to 2027 on this program. Such efforts seem encouraging.
Balance Sheet & Cash Flow Strength: Host Hotels maintains a healthy balance sheet. It exited the fourth quarter of 2023 with $2.9 billion of total available liquidity. Moreover, it is the only company with an investment-grade rating among lodging REITs. It enjoys investment-grade ratings of Baa3 from Moody’s, BBB- from S&P Global and BBB from Fitch, rendering access to the debt market at favorable costs. Hence, with ample financial flexibility, this REIT is well-positioned to carry on with its growth opportunities.
HST’s current cash flow growth is projected at 10.64% compared with -3.51% growth estimated for the industry.
Moreover, its trailing 12-month return on equity is 10.82%, well ahead of the industry’s average of 2.99%. This indicates that the company is more efficient in using shareholders’ funds than its peers.
Dividends: Solid dividend payouts are the biggest attraction for REIT investors and Host Hotels remained committed to that. After a brief suspension of its dividend payments during the pandemic, the company reinstated its dividend payment and resorted to regular dividend hikes. In December 2023, it announced an 11% hike in its dividend payout, bringing it on par with the pre-pandemic level of 20 cents per share. This reaffirms shareholders’ confidence in this lodging REIT.
Encouragingly, Host Hotels has increased its dividend eight times in the last five years. Check out Host Hotels & Resorts’ dividend history here.
Hence, with rebounding operating trends, a lower dividend payout ratio compared with the industry and a healthy financial position, we expect the latest dividend hike to be sustainable over the long run.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Iron Mountain (IRM - Free Report) , Lamar Advertising (LAMR - Free Report) and SL Green Realty (SLG - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share has moved 3.5% upward in the past month to $4.38.
The consensus estimate for LAMR’s ongoing year’s FFO per share has increased marginally over the past month to $7.74.
The consensus mark for SLG’s current-year FFO per share has moved 2.8% northward over the past month to $5.88.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.