Host Hotels Sells Stake In European JV, Sheds Global Exposure

Host Hotels & Resorts, Inc. (NYSE:HST) recently announced the closing of the sale of its 33% stake in the European joint venture (JV) to its partners. The move comes as part of the company’s efforts to shed its portfolio of assets situated outside the nation and rather focus on the U.S. market where the company enjoys scale and competitive advantage.

Particularly, Host Hotels’ stakes gross asset value is around €700 million and after accounting for fund level debt, net proceeds to the company will amount to €435 million. Part of the proceeds will be used by the company to pay back about €207 million draw on the credit facility.

In fact, Host Hotels undertakes a strategic capital-recycling program to improve its portfolio quality and strengthen the company’s position over vibrant markets. Earlier this year, Host Hotels completed the acquisition of 301-room Andaz Maui at Wailea Resort, 668-room Grand Hyatt San Francisco and 454-room Hyatt Regency Coconut Point Resort and Spa for $1 billion.

Furthermore, Host Hotels made efforts to enhance its portfolio quality through strategic dispositions, aiming at lowering the company’s international and New York exposure. With these proceeds, the company has flexibility to add properties to its portfolio, invest in existing assets or go for share repurchases.

Additionally, during the Jul-Sep quarter, the company expended around $119 million on capital expenditures — $48 million was return on investment (ROI) capital projects, and $71 million for renewal and replacement projects. Also, the company projects capital expenditures of $475-$520 million for the year. This comprises $195-$220 million in ROI projects, and $280-$300 million in renewal and replacement projects. Such investments are likely to help the company improve its portfolio quality and bolster revenues over the long term.

Moreover, the latest move would bolster the company’s balance sheet and drive its capability to make strategic investments and at the same lower its exposure to international assets with the company now set to reap less than 2% of its EBITDA from hotels outside the nation with only two hotels in Canada and three hotels in Brazil.

However, elevated supply in some of the company’s key markets is expected to affect its pricing power. Moreover, dilutive impact on earnings from sale of assets and hike in interest rate adds to its woes.

Host Hotels currently has a Zacks Rank #3 (Hold). The company’s shares have depreciated 13.7% in the past month, which is wider than its industry’s decline of 5.8%.

Stocks to Consider

Better-ranked stocks from the real-estate space include Lamar Advertising Company (NASDAQ:LAMR) , PS Business Parks, Inc. (NYSE:PSB) and Outfront Media Inc. (NYSE:OUT) . Each of these stocks carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lamar’s FFO per share estimates for 2018 has been revised marginally upward to $5.42 in the last 60 days.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved 0.9% north to $6.45 in the past two months.

Outfront Media’s FFO per share estimates for the current year has been revised 2% upward to $2.09 in two months’ time.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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