On Dec 4, 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, dividend hike and encouraging fundamentals in the West
Coast. Yet, headwinds in the East Coast and concerns over rising
interest rates restrain us from becoming extremely positive on
GETTY REALTY CP (GTY): Free Stock Analysis
HOST HOTEL&RSRT (HST): Free Stock Analysis
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SABRA HEALTHCR (SBRA): Free Stock Analysis
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Why the Reiteration?
Early in November, Host Hotels disclosed third-quarter 2013
adjusted FFO per share of 25 cents, missing the Zacks Consensus
Estimate by a penny on higher expenses. However, this exceeded
the year-ago figure of 23 cents by 8.7%.
Results were driven by increase in comparable hotel RevPAR
(Revenue per Available Room) that reflected improved average room
rates and occupancy growth. Further, during the third quarter,
Host Hotels announced a 9.1% sequential hike in its quarterly
cash dividend rate.
Despite the earnings miss, we believe that its solid portfolio
gives the company sufficient scope for growth in the quarters
ahead. The West Coast market remains attractive with strong
lodging demand and lower supply. Outlook for 2014 also remains
positive with projected boost in business investments and growth
rate in international travel. Also, strategic portfolio
restructuring activities bode well for its long-term growth and
the dividend hike boosts investors' confidence.
Though supply in the West Coast is low, an expected rise in
supply in the East Coast in the upcoming year may drag the
recovery of the market. Particularly, it is anticipated that the
New York market will face high levels of supply while the overall
market in Washington DC will continue to encounter headwinds in
2014. Also, rising interest rates, which leads to an increase in
interest cost on new debt, remains a concern.
Over the last 7 days, the Zacks Consensus Estimate for both 2013
and 2014 remained stable at $1.30 and $1.45 per share,
respectively. Hence, the stock currently has a Zacks Rank #3
Other Stocks to Consider
Host Hotels currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the REIT sector include
Getty Realty Corp.
National Health Investors Inc.
Sabra Health Care REIT, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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.