Yahoo Finance Here's Why Host Hotels (HST) is an Apt Portfolio Pick for Now
Host Hotels & Resorts Inc.’s HST has a portfolio of luxury and upper-upscale hotels in the United States and abroad. With the lodging industry rebounding, HST’s well-located properties in markets with strong demand drivers, like central business districts of main cities, close to airports and in resort/conference destinations, are likely to benefit.
Earlier this month, this Bethesda, MD-based lodging real estate investment trust (REIT) reported first-quarter adjusted funds from operations (AFFO) per share of 55 cents, beating the Zacks Consensus Estimate of 48 cents and our estimate of 44 cents. The figure jumped a whopping 41% from the prior-year quarter’s 39 cents.
Its quarterly results reflected better-than-anticipated revenues, aided by continued strong leisure demand and growth in city center markets.
Management also raised its 2023 outlook for AFFO per share. It now expects the same to lie in the range of $1.84-$1.95, up from the prior expectation of $1.60-$1.83.
Analysts, too, seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for 2023 FFO per share has increased 2.2% over the past week, indicating a favorable outlook for the company.
Shares of HST have lost 3.6% in the past three months, narrower than its industry's decline of 8.5%. Given its progress on fundamentals and upward estimate revisions, the stock is likely to keep performing well in the quarters ahead, and hence the dip offers a good entry point.
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Factors Aiding Host Hotels
Healthy Operating Performance: Host Hotels has been experiencing healthy operating performance owing to the continued recovery in leisure travel demand, particularly in the Sunbelt markets and Hawaii region, where the company has a strong presence. Also, healthy demand from small and medium-sized businesses, representing a large share of the company’s corporate demand, has aided business transient recovery.
In the first quarter of 2023, HST’s comparable revenue per available room (RevPAR) was $217.77, climbing 31.1% from the year-ago quarter’s $166.12. The figure also improved 7.4% from the first-quarter 2019 tally. Comparable EBITDA came in at $439 million, climbing 43.9% from $305 million reported a year ago.
With improving industry demand-supply fundamentals, HST is likely to witness healthy operating performance in the upcoming period.
Strategic Acquisitions: The company is focused on enhancing the quality of its portfolio and has made significant acquisitions of high-quality properties over the past years with long-term growth prospects. Additionally, to achieve a higher portfolio EBITDA and revenues, HST has broadened its acquisition focus to include urban markets beyond the top 25 ones.
In November 2022, the company acquired the Four Seasons Resort and Residences Jackson Hole for $315 million in cash. The buyout of the 125-room luxury resort, located in Jackson Hole, WY, aims to elevate the EBITDA growth profile of the company’s portfolio.
Capital Recycling Efforts: Host Hotels’ capital recycling efforts are encouraging. Over the years, HST has been disposing of its non-strategic assets that have maximized their value and utilizing the proceeds for acquiring or investing in premium properties in markets that are anticipated to recover faster.
Per its May 2023 Investor Presentation, from 2021 to the beginning of 2023 through May 4, 2023, total dispositions amounted to approximately $1.5 billion, which is 17.5 times the EBITDA multiple. During the same period, acquisitions totaled $1.9 billion, representing EBITDA multiple of 13.1 times.
Capital Expenditure: Host Hotels engages in 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. In the first quarter of 2023, Host Hotels incurred around $146 million in capital expenditure and in 2022, the same aggregated $504 million. For 2023, the company expects capital expenditure in the range of $600-$725 million.
Balance Sheet & Cash Flow Strength: HST maintains a healthy balance sheet with no material debt maturities until April 2024. As of Mar 31, 2023, the company had $2.3 billion in 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 and BBB- from both Fitch and S&P Global, providing easy access to debt at favorable costs. This financial flexibility will aid capital deployment for long-term growth opportunities and facilitate redevelopment activities.
HST’s current cash flow growth is projected at 71.75% compared with 8.77% growth estimated for the industry. In addition, its trailing 12-month return on equity (ROE) is 11.83% compared with the industry’s average of 3.50%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are VICI Properties VICI, Iron Mountain IRM and Stag Industrial STAG, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $2.13.
The Zacks Consensus Estimate for Iron Mountain’s 2023 FFO per share is pegged at $3.96.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share is pegged at $2.25.
Note: Anything related to earnings presented in this write-up represents 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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