Morningstar | A stronger company today, Host Hotels is ready to benefit from the remainder of this cycle.
Host Hotels & Resorts has nearly completed a significant repositioning of its business. Prompted by the fallout of the financial crisis, the firm has been on a years-long path to clean up its balance sheet, trade out of noncore assets and markets, and execute on value-add redevelopment opportunities with its in-place assets and new acquisitions. Host’s portfolio now consists of primarily upper upscale and luxury hotels throughout major U.S. lodging markets, with some of the most effective brands and operators in the industry. The firm also exhibits one of the strongest balance sheets among its hotel real estate investment trust peers, giving it added financial flexibility to opportunistically pursue investments, reinvest in its properties, and return capital to investors. After years of below-average supply growth and increasing demand, hotel fundamentals have reached new records.However, Host’s efforts did not come without cost. The company has raised billions in new equity since 2009 to help lower leverage as hotel performance and values substantially recovered, likely diluting potential shareholder returns. And while we appreciate the strengthening of Host’s portfolio through active capital recycling, the firm’s generally conservative acquisition history and foray into international investments might have left money on the table in the robust, albeit competitive, hotel market. Host's shares have underperformed hotel REIT peers', partly due to these allocation decisions. But with longtime Host executive and new CEO James Risoleo taking the helm in 2017, Host may start to take a more determined and expanded approach to acquisitions in new markets as exhibited with recent investment activity. Assuming overall markets remains healthy, we think this shift within its quality-driven strategy will benefit investors. However, a surge of new competitive supply and a continued strong U.S. dollar will probably provide headwinds for near-term operations, investment prospects, and opportunities to rebuild investor confidence.Host Hotels & Resorts operates as a self-managed and self-administered real estate investment trust. The company owns properties and conducts operations through Host Hotels & Resorts, L.P., of which the company is the sole general partner. The company's consolidated lodging portfolio consists of hotels primarily located in United States, and with several of the hotels located outside of United States in Brazil and Canada. In addition, the company owns non-controlling interests in domestic and international joint venture and a timeshare joint venture in Hawaii.
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