Host Hotels Stays Neutral - Analyst Blog

We maintain our 'Neutral' rating on Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S.

Host Hotels is one of the largest owners of luxury and upper-upscale hotels, primarily operated under premium brands, such as Marriott, Westin, Sheraton, Ritz-Carlton, Hyatt, W, Four Seasons, and St. Regi. Based in Bethesda, Maryland, Host Hotels owns properties and conducts operations through Host Hotels & Resorts. L.P., which is a limited partnership, where Host Hotels & Resorts Inc. is the sole general partner, and holds approximately 98.0% of the partnership interests.

Host Hotels owns high quality lodging assets in geographically diverse locations. The company currently has 104 properties in the U.S. and 9 international properties totaling approximately 62,000 rooms, and also holds a non-controlling interest in a joint venture that owns 11 hotels in Europe with approximately 3,500 rooms and another joint venture in Asia that is developing 7 properties in India with approximately 1,750 rooms. Most of the properties of the company are located in difficult to duplicate downtown and resort locations.

Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high quality lodging assets in hard-to-replicate areas which have the potential for significant capital appreciation. Host Hotels maximizes the value of its existing portfolio through aggressive asset management, and works diligently with the managers of its hotels to reduce operating costs and increase revenues, and conducts selective capital improvements and expansions designed to improve operations. In addition, the bulk of its properties is operated under some of the most recognized brand names in the hospitality industry. This improves the profitability of the company and strengthens its leading position in the market.

However, the continuous acquisition spree of Host Hotels involves significant upfront operating expenses with limited near-term profitability. New hotels usually take time to generate revenues, and will continue to drag down margins till they get established. The hotel industry is also cyclical in nature, and is heavily dependent on the overall health of the U.S. economy, as well as room supply and demand. Unfavorable macroeconomic conditions has compelled customers to cut back on discretionary spending and prefer lower priced brands over premium ones. Consequently, demand for Host Hotels has reduced comparatively, and the company is under severe stress to maintain profitability.

We presently have a Zacks #3 Rank for Host Hotels, which translates into a short-term ‘Hold' rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. However, we have a Zacks #1 Rank (‘Strong Buy') for MPG Office Trust, Inc. (MPG), one of the peers of Host Hotels.

 
HOST HOTEL&RSRT (HST): Free Stock Analysis Report
 
MPG OFFICE TRST (MPG): Free Stock Analysis Report
 
Zacks Investment Research