Key Reasons to Add Host Hotels (HST) Stock to Your Portfolio
Host Hotels & Resorts Inc.’s HST enjoys a portfolio of luxury and upper-upscale properties located across lucrative markets in the United States and abroad. The recovery in 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.
Shares of this Bethesda, MD-based lodging real estate investment trust (REIT) have gained 25.7% in the year-to-date period compared with the industry's rise of 7.3%.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised 1.1% over the past month.
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What Makes Host Hotels a Solid Pick?
Healthy Operating Performance: 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 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 lately. From the beginning of 2023 through Sep 30, comparable hotel RevPAR increased 10.4% from the 2022 levels. Given the healthy demand for Host Hotels properties in strategic locations, it is likely to witness healthy operating performance in the upcoming period.
For 2023, management expects comparable hotel RevPAR growth to be between 7.25% and 8.75%. We expect the metric to exhibit year-over-year growth of 7.8% this year.
Capital-Recycling Efforts: Over the years, the company 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 better-yielding assets, highlighting its prudent capital-management practices.
It has also 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 $1.53 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 is focused on undertaking 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. From the beginning of 2023 through Sep 30, the company has incurred $472 million of capital expenditure. For 2023, HST expects to incur capital expenditure in the range of $615-$695 million.
Notably, the REIT reached an agreement with Hyatt 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 $500-$600 million, it expects to invest nearly $125-$200 million per year over the next three to four years on this program. Such efforts seem encouraging.
Balance Sheet & Cash Flow Strength: Host Hotels maintains a healthy balance sheet and had $2.6 billion of total available liquidity as of Sep 30, 2023. Moreover, it is the only company with an investment-grade rating among lodging REITs. It enjoys investment-grade ratings of Baa3 from Moody’s and BBB- from both Fitch and S&P Global, rendering access to the debt market at favorable costs. Hence, with ample financial flexibility and no material debt maturities until April 2024, the REIT is well-positioned to carry on with its growth endeavors.
HST’s current cash flow growth is projected at 71.75% compared with 8.07% growth estimated for the industry. In addition, its trailing 12-month return on equity is 11.01% compared with the industry’s average of 3.08%. This reflects 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. This December, 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 robust 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 EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK. While PK sports a Zacks Rank #1 (Strong Buy), EGP and STAG each carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past two months to $7.70.
The consensus estimate for Stag Industrial’s ongoing year’s FFO per share has increased 1.3% over the past two months to $2.28.
The consensus mark for Park Hotels & Resorts’ current-year FFO per share has moved marginally northward over the past month to $1.99.
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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