On Dec 4, 2013, we reaffirmed our long-term Neutral recommendation on lodging real estate investment trust (:REIT), Host Hotels & Resorts Inc. (HST). This was based on the company’s diversified premium hotels’ portfolio, dividend hike and encouraging fundamentals in the West Coast. Yet, headwinds in the East Coast and concerns over rising interest rates restrain us from becoming extremely positive on the stock.
Why the Reiteration?
Early in November, Host Hotels disclosed third-quarter 2013 adjusted FFO per share of 25 cents, missing the Zacks Consensus Estimate by a penny on higher expenses. However, this exceeded the year-ago figure of 23 cents by 8.7%.
Results were driven by increase in comparable hotel RevPAR (Revenue per Available Room) that reflected improved average room rates and occupancy growth. Further, during the third quarter, Host Hotels announced a 9.1% sequential hike in its quarterly cash dividend rate.
Despite the earnings miss, we believe that its solid portfolio gives the company sufficient scope for growth in the quarters ahead. The West Coast market remains attractive with strong lodging demand and lower supply. Outlook for 2014 also remains positive with projected boost in business investments and growth rate in international travel. Also, strategic portfolio restructuring activities bode well for its long-term growth and the dividend hike boosts investors’ confidence.
Though supply in the West Coast is low, an expected rise in supply in the East Coast in the upcoming year may drag the recovery of the market. Particularly, it is anticipated that the New York market will face high levels of supply while the overall market in Washington DC will continue to encounter headwinds in 2014. Also, rising interest rates, which leads to an increase in interest cost on new debt, remains a concern.
Over the last 7 days, the Zacks Consensus Estimate for both 2013 and 2014 remained stable at $1.30 and $1.45 per share, respectively. Hence, the stock currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Host Hotels currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the REIT sector include Getty Realty Corp. (GTY), National Health Investors Inc. (NHI) and Sabra Health Care REIT, Inc. (SBRA). All these stocks carry a Zacks Rank #1 (Strong Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
Read the Full Research Report on NHI
Read the Full Research Report on GTY
Read the Full Research Report on SBRA
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