Host Hotels (HST) Gains 12.6% in 3 Months: Will the Trend Last?
Shares of Host Hotels & Resorts Inc. HST have gained 12.6% in the past three months against the industry’s decline of 0.8%.
The Bethesda, MD-based lodging real estate investment trust (REIT) owns a portfolio of luxury and upper-upscale hotels in the United States and abroad. The recovery in demand for the company’s well-located properties in markets with strong demand drivers has benefited the company lately.
Earlier this month, the Zacks Rank #3 (Hold) company reported adjusted funds from operations (AFFO) per share of 41 cents, outpacing the Zacks Consensus Estimate of 35 cents. The figure increased 7.9% year over year.
Host Hotels also raised its full-year AFFO per share guidance to the range of $1.90-$1.95 from $1.82-$1.89 projected earlier. This suggests a 6-cent increase at the midpoint. The Zacks Consensus Estimate for the metric is pegged at $1.81.
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Let us discuss the factors that supported the uptick and check whether the trend will last.
Host Hotels has a strong Sunbelt exposure and presence in the top 20 U.S. markets. Its properties are advantageously located in central business districts of major cities with close proximity to airports and resort/conference destinations. This is likely to drive the demand for the company’s properties in the upcoming period.
The improvement in group travel demand and business transient travel demand, led by small and medium-sized businesses, have aided occupancy and hotel revenue per available (RevPAR) growth lately.
Notably, in the third quarter, the company reported comparable hotel RevPAR of $201.32, which climbed 1.8% from the year-ago quarter’s $197.76 and 4.4% from the third-quarter 2019 tally of $192.81. The comparable average occupancy percentage was 71.8%, up 150 basis points from the prior-year quarter.
Over the years, HST has made 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 has redeployed the proceeds to acquire or invest in premium properties in markets that are expected to recover faster.
Moreover, it has broadened its acquisition focus to include urban markets beyond the top 25 in search of higher portfolio EBITDA and revenues. Per the company’s November 2023 Investor Presentation, from 2021 through the end of the third quarter of 2023, total dispositions amounted to $1.5 billion, which is 17.5 times the EBITDA multiple. Its acquisitions during this period amounted to $1.9 billion, which is 13.1 times the EBITDA multiple.
Such efforts highlight its prudent capital-management practices and preserve balance sheet strength.
HST’s solid balance sheet position with ample liquidity has enabled it to capitalize on growth opportunities and has facilitated redevelopment activities. As of Sep 30, 2023, the company had $2.6 billion in total available liquidity. Moreover, it is the only company with an investment-grade rating among the lodging REITs, having ratings of Baa3 from Moody’s and BBB- from both Fitch and S&P Global. This renders access to the debt market at favorable costs.
Hence, with no material debt maturities until April 2024 and enough financial flexibility, HST is well-positioned to carry on with its growth endeavors.
The company’s current cash flow growth is projected at 71.75% compared with the 8.10% expected for the industry. Also, a trailing 12-month return on equity of 11.01% compared with the industry’s average of 3.10% reflects HST’s superiority in terms of utilizing shareholders’ funds over its peers.
Solid dividend payouts are a massive enticement for REIT investors, and Host Hotels has remained committed to that. In September 2023, the company rewarded its shareholders with a 20% sequential hike in its third-quarter 2023 cash dividend payment to 18 cents per share from 15 cents paid out earlier. Notably, HST has increased its dividend seven times in the last five years. Such efforts boost investors’ confidence in the stock. Check out Host Hotels & Resorts’ dividend history here.
With rebounding operating trends, a lower dividend payout ratio compared with the industry and a solid financial position, we expect the latest dividend hike to be sustainable over the long run.
Nonetheless, Host Hotels faces stiff competition from other owners and investors in upper upscale and luxury full-service hotels, including other lodging REITs, which may weigh on its prospects.
The prevailing macroeconomic uncertainty is likely to affect the company’s ability to maintain rates in its resort markets and keep up the momentum in the improvement in group, business transient and international inbound travel. A high interest rate environment adds to its concerns.
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.69.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% upward over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
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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