Yahoo Finance Is It Wise to Retain Host Hotels (HST) Stock in Your Portfolio?
Host Hotels & Resorts Inc. HST, which has a portfolio of luxury and upper-upscale hotels in top U.S. Markets and the Sunbelt region, is poised to benefit from the strong demand drivers in these markets. However, macroeconomic uncertainty and the elevated interest rate environment remain concerns.
What’s Aiding Host Hotels?
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, thus driving demand. In the second half of 2024, the company is expected to witness a stable operating environment due to the continuous improvement in the group business and a gradual recovery in business transient. We expect comparable revenue per available room (RevPAR) to exhibit year-over-year growth of 1.6% in 2024.
Host Hotels undertakes 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. Moreover, the company’s transformational capital program with Hyatt is expected to provide a competitive edge in those markets and enhance long-term performance through an increase in RevPAR.
For 2024, management expects total capital expenditures within $500-$605 million, consisting of return on investment (ROI) projects within $225-$280 million, renewal and replacement expenditures of $250-$300 million and $25 million for the final restoration work for the damage caused by Hurricane Ian. The ROI projects include approximately $125 million to $150 million for the Hyatt transformational capital program.
Host Hotels has a healthy balance sheet and has been undertaking steps to fortify its balance sheet. It is the only company with an investment-grade rating among lodging REITs. As of Mar 31, 2024, the company had $1.7 billion in total available liquidity. Continued cost-containment and prudent expense-management efforts have helped HST preserve liquidity. Therefore, Host Hotels has ample financial flexibility for deploying capital for long-term growth opportunities while carrying out redevelopment initiatives.
Solid dividend payouts are the biggest attraction for REIT investors, and Host Hotels remained committed to that. Encouragingly, Host Hotels has increased its dividend seven times in the last five years and has a 40% payout ratio. Hence, with rebounding operating trends, a lower dividend payout ratio compared with the industry, a healthy financial position and our projected year-over-year rise of 3.9% in 2024 adjusted funds from operations (AFFO) per share, we expect the latest dividend hike to be sustainable in the upcoming period.
Shares of this Zacks Rank #3 (Hold) company have rallied 8% over the past year, outperforming the industry's growth of 0.6%. Analysts seem bullish on HST, with the Zacks Consensus Estimate for 2024 funds from operations (FFO) per share being revised a cent upward over the past month to $2.01.
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What’s Hurting Host Hotels?
Given the geopolitical tensions worldwide, interest rate cut delay, fluctuating oil prices and the ambiguity surrounding upcoming presidential elections in the United States and other countries, a slowdown in economic growth is anticipated in the upcoming quarters.
However, the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, and the hotel industry is cyclical in nature and heavily dependent on the overall health of the economies in which it operates. Particularly, during economic downturns, these segments bear the brunt as unfavorable macroeconomic conditions compel customers to reduce discretionary spending and choose lower-priced brands over the company’s premium ones.
A high interest rate environment is a concern for Host Hotels. Elevated rates imply high borrowing costs, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total consolidated debt as of Mar 31, 2024 was approximately $4.51 billion. Moreover, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising LAMR and Americold Realty Trust, Inc. COLD, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.03 indicates a 7.5% increase year over year.
The Zacks Consensus Estimate for Americold’s 2024 FFO per share is pegged at $1.44, which suggests 13.4% year-over-year growth.
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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