Summary
- Host Hotels & Resorts has been priced wrongly by the market, which has neglected its pro-defensive characteristics that differ considerably from the sector peers.
- It it the only investment grade lodging REIT out there.
- Host trades at a 30% discount to its peers and covers its dividends with a 45% payout ratio.
- If Host suffered a 25% decline in EBITDre, it would still be able to maintain its current dividends.
The Thesis
Cooling economy, downgraded growth outlook and increased market volatility are the key factors for reducing exposure to cyclicals and shifting the allocation towards more defensive investments. As a result, the whole lodging REIT sector has suffered a dramatic fall during the past year - Dow Jones US Hotel & Lodging REITs Index (DJUSHL) is down 23%. However, as it usually is the case, the market has thrown the baby out with the bathwater. And the baby here is Host Hotels & Resorts (HST), which has a bulletproof balance sheet and a decent dividend yield of 5% backed by a very conservative payout ratio – must-have characteristics going into recession.
Company overview
Host Hotels & Resorts is an S&P 500 company and is the largest lodging real estate investment trust and one of the largest owners of luxury and upper-upscale hotels. Its strategy is to own a diversified portfolio of high-quality in major urban and resort destinations primarily focused in the U.S.
3 key recent developments
#1. 1-year stock performance
HST`s share price has fallen in tandem with the broader DJUSHL index losing ~1/4 of its market cap. In the same time, Vanguard Real Estate index (VNQ) has gone up 10%. Generally speaking, there are two reasons why VNQ has advanced and one of them is applicable for HST as well.
