On Apr 3, 2013, we reiterated our long-term recommendation on
Host Hotels & Resorts Inc.
), a lodging real estate investment trust (REIT) at Neutral. The
move reflects the company's better-than-expected fourth-quarter
results, dividend hike as well as continued benefits from its
strategic acquisitions and joint venture (JV) deals.
Yet, its concentration of properties in the upscale segments
increases its risk profile while continuous acquisitions involve
significant upfront operating expenses, which drag down margins
till these stabilize.
Host Hotels reported fourth-quarter 2012 adjusted FFO (funds from
operations) per share of 40 cents, beating the Zacks Consensus
Estimate by 3 cents. The results came on the back of strong
performance by the company's operating properties.
Over the last 30 days, the Zacks Consensus Estimate for full-year
2013 remained unchanged at $1.25 per share while the Zacks
Consensus Estimate for full year 2014 marginally fell by 1 cent
to $1.41 per share. In addition, Host Hotels has now delivered
positive earnings surprises in the past four quarters with an
average beat of 5.96%. Hence, Host Hotels now has a Zacks Rank #3
Host Hotels has high-quality lodging assets in geographically
diverse locations. Over the years, the company has executed a
focused and disciplined long-term strategic plan to acquire
premier lodging assets in hard-to-replicate areas, which have the
potential for significant capital appreciation. Also, it conducts
selective capital improvements and expansions to improve
Host Hotels has a strong balance sheet, which provides it with
financial flexibility to aim for high-yielding acquisitions, high
ROI (return on investments) capital projects, steady dividend
payouts and share buybacks. In Feb 2013, Host Hotels announced a
dividend hike of 11% from the earlier dividend.
However, its concentration of properties in the upscale segments
expose it to the risks of lower demand during the economic
downturn, as in such periods, customers prefer lower priced
brands over Host Hotels' premium ones. Moreover, continuous
acquisitions involve significant upfront operating expenses,
which drag down margins till they stabilize.
Other Stocks to Consider
REITs that are currently performing well include
Federal Realty Investment Trust
Brandywine Realty Trust
Cousins Properties Incorporated
), all carrying a Zacks Rank #2 (Buy).
FFO, a widely used metric to gauge the performance of REITs,
is obtained after adding depreciation and amortization and other
non-cash expenses to net income.
BRANDYWINE RT (BDN): Free Stock Analysis
COUSIN PROP INC (CUZ): Free Stock Analysis
FED RLTY INV (FRT): Free Stock Analysis
HOST HOTEL&RSRT (HST): Free Stock Analysis
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