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Should You Hold Host Hotels (HST) Stock in Your Portfolio?


Host Hotels & Resorts, Inc. HST is expected to gain from its portfolio of upscale hotels across markets with solid potential. Further, its productivity-improvement efforts are anticipated to drive performance over the long term.

Demand is likely to rise amid improving corporate profits, business investment, consumer sentiment and low unemployment level. Particularly, group business demand is likely to be decent in the rest of the year with solid group booking pace.

The company has a strategic capital-recycling program to improve its portfolio quality and strengthen its position in major markets. During first-quarter 2018, Host Hotels completed the acquisition of the 301-room Andaz Maui at Wailea Resort, 668-room Grand Hyatt San Francisco and 454-room Hyatt Regency Coconut Point Resort and Spa for $1 billion.

Meanwhile, the company has been monetizing a considerable part of real estate in Washington DC and lowering its exposure in New York. Moreover, the company might be considering the shedding of a huge portfolio of non-core hotels, per news on Bloomberg. Although the properties that are expected to be sold have not been finalized, the value of the same in aggregate is likely to cross $2 billion, per the report.

In addition, the company continues to expect capital expenditures of $475-$550 million for the year. This comprises $185-$220 million in return on investment (ROI) projects, and $290-$330 million in renewal and replacement projects. Such investments are likely to help the company enhance its portfolio quality and bolster revenues as well.

Host Hotels has a decent balance sheet and ample liquidity. The company exited first-quarter 2018 with around $323 million of unrestricted cash and $511 million of available capacity remaining under the revolver part of its credit facility. Notably, the company has no debt maturities until 2020. This provides the company with ample scope for deploying capital for long-term growth opportunities and at the same time carrying out redevelopment activities.

Furthermore, in the past three months, shares of Host Hotels have gained 15.8%, outperforming its industry’s rally of 9.9%. The estimate revision trend for current-year funds from operations (FFO) per share is also decent.

However, supply has ramped up in recent times. In fact, supply growth is expected to remain elevated in 2018 as well as 2019, particularly in markets where the company has exposure. The higher supply in some of the company’s key markets might affect its pricing power.

Further, hike in interest rates can pose a challenge for Host Hotels. Essentially, rising rates imply higher borrowing cost for the company that would affect its ability to purchase or develop real estate. Moreover, REIT stock yields become less attractive when treasury yields rise.

Host Hotels currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A few better-ranked stocks from the real estate space are Duke Realty Corporation DRE, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB.

Duke Realty’s Zacks Consensus Estimate for 2018 FFO per share increased 2.4% to $1.30 in the last 90 days.

Lamar’s current-year FFO per share estimates moved up 1.1% in the last 60 days to $5.40.

PS Business Parks’ FFO per share estimates for 2018 moved 1.4% north to $6.37 in 60 days’ 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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