On Sep 06, 2013, we reaffirmed our long-term Neutral
recommendation on lodging real estate investment trust (REIT),
Host Hotels & Resorts Inc.
). This was based on the company's diversified premium hotels'
portfolio, strategic capital recycling program and continued
dividend hike. However, the rising interest rates and capital
market volatility remain our concerns. Also, Host Hotels'
concentration in the upscale segments exposes it to risks of
lower demand in times of economic slump.
Why the Reiteration?
Aided by significant comparable properties' performance, Host
Hotels reported second-quarter 2013 adjusted funds from
operations (FFO) per share of 45 cents, exceeding the year-ago
figure by 36.4% and the Zacks Consensus Estimate by 7.1%.
Including certain non-recurring items, FFO was 39 cents per
share, up 25.8% year over year.
Buoyed by its strategic capital recycling efforts, in June,
Host Hotels, which has upscale and luxury lodging assets in
geographically diverse locations across the world, hiked its
dividend payout for the 10
consecutive quarter since Mar 2011. The new dividend stands at 11
cents per share, reflecting a sequential hike of 10%. Notably,
the dividend payout facilitates Host Hotels' long-term strategy
to provide attractive risk-adjusted returns to its
Moreover, Host Hotels has a strong balance sheet and ample
liquidity, which provide it adequate financial flexibility to aim
for high-yielding acquisitions and capital projects. Going
forward, we believe that with the company's premier lodging
assets in vibrant markets around the world, Host Hotels remains
well poised to generate significant growth in capital.
However, rising interest rates, which results in an increase
in interest cost on new debt, remains a concern. Higher interest
rates will restrict Host Hotels' ability to refinance existing
debt and fund portfolio restructuring activities.
Moreover, the concentration of Host Hotels' assets in
upper-upscale segments - which had been the weakest performing
segments during the economic downturn - remains a drag as
unfavorable macroeconomic conditions compel customers to reduce
their discretionary spending and choose lower priced brands over
the company's premium ones.
Over the last 30 days, the Zacks Consensus Estimate for both
2013 and 2014 remained stable at $1.30 and $1.45 per share,
respectively. The stock currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-performing REITs that are worth a look include
Hospitality Properties Trust
RLJ Lodging Trust
Highwoods Properties Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the
performance of REITs is derived by adding depreciation,
amortization and other non-cash expenses to net income.
HIGHWOODS PPTYS (HIW): Free Stock Analysis
HOSPITALITY PRP (HPT): Free Stock Analysis
HOST HOTEL&RSRT (HST): Free Stock Analysis
RLJ LODGING TR (RLJ): Free Stock Analysis
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