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Host Hotels (HST) Announces Special Dividend: Time to Hold?

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Host Hotels & Resorts HST recently announced a special dividend of 5 cents per share. This is in addition to the fourth-quarter cash dividend of 20 cents per share, reaching the total dividend figure for the year to 85 cents. The dividend will be paid on Jan 15, 2020, to stockholders of record on Dec 31, 2019.

Solid dividend payouts remain the biggest attraction for REIT investors as the U.S. law requires these companies to distribute 90% of the annual taxable income in the form of dividends to shareholders. Moreover, special dividends are usually paid by REITs on capital gains from the sale of assets to avoid paying taxes.

Host Hotels’ diversified portfolio of iconic properties in key cities as well as an unmatched scale and operating platform position it to perform well over the long term. The company undertakes a strategic capital-recycling program to improve portfolio quality and strengthen its position in the United States, where it has a greater scale and competitive advantage. Since 2018, the company has acquired high-quality properties worth $1.6 billion, which have scope for long-term growth.

Additionally, Host Hotels projects capital expenditures of $550-$590 million for 2019. This comprises $315-$335 million in return on investment (ROI) projects, and $235-$255 million in renewal and replacement projects. Such investments are likely to help the company improve its portfolio quality and bolster revenues.

Furthermore, the company is making moves to enhance its portfolio quality through strategic dispositions of properties, aimed at lowering international and New York exposure. Since 2018 through October 2019, the company has completed $3.3 billion in asset sale, marking its exit from low-growth markets.

Particularly, in September, Host Hotels announced that it has completed the previously-announced sale of all six non-core hotels for a combined price of roughly $415 million. The six properties consist of Scottsdale Marriott Suites Old Town, Scottsdale Marriott at McDowell Mountains, The Westin Indianapolis, Costa Mesa Marriott, Atlanta Marriott Suites Midtown and Chicago Marriott Suites O’Hare. The transactions were completed this August.

The lucrative transaction market has likely enabled Host Hotels to opportunistically monetize the low revenue per available room (RevPAR) assets at attractive valuations. Further, since these properties entailed high capital-expenditure needs, the move has reduced the company’s capex requirements.

Host Hotels also has a decent balance sheet and ample liquidity. The company exited third-quarter 2019 with $2 billion of unrestricted cash, not including $1.5 billion of available balance under its credit facility’s revolver, and $184 million in the FF&E escrow reserve.

In addition, as of Sep 30, 2019, the company’s debt had a weighted average maturity of 5.7 years. Also, the company has no significant debt maturities until 2023. Therefore, in addition to disposition proceeds, this provides the company ample scope for deploying capital for long-term growth opportunities and at the same time, carrying out redevelopment initiatives.

However, supply growth in some of its markets is affecting the company’s occupancy rates. Further, amid weaker lodging demand, overall RevPAR growth of Host Hotels’ portfolio is likely to be muted in the near term.

Host Hotels currently carries a Zacks Rank #3 (Hold). In the past three months, shares of this REIT have gained 4.1%, as against its industry’s decline of 4.8%.

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Duke Realty's DRE Zacks Consensus Estimate for the current-year FFO per share moved north to $1.44 in the past two months. This Zacks Rank #2 (Buy) company’s shares have gained 6.4% over the past six months.

Cousins Properties Incorporated’s CUZ Zacks Consensus Estimate for the ongoing-year FFO per share moved 2.1% north to $2.96 over the past two months. Shares of this Zacks Rank #2 company have gained 2.6% in six months’ time.

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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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
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