Thinking of Buying Host Hotels? Here Are The Properties And Tenants You'd Be Adding To Your Portfolio

When an investor decides to buy a real estate investment trust (REIT), they are buying both that real estate company and the large block of tenants or brands occupying the REIT’s portfolio.

Before you decide to buy a REIT, it pays to consider the history and solvency of its largest tenants. Ask yourself these questions: Are there any tenants who are facing bankruptcy or reducing their size? Are the tenants of high-grade quality? Are the tenants diversified, not only geographically, but also by each tenant accounting for a small percentage of the total tenant portfolio?

Take a look at one well-known hotel REIT, and consider the questions raised above in evaluating its merits:

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Host Hotels and Resorts Inc. HST is a Bethesda, Maryland-based hotel REIT that calls itself “the world’s largest lodging REIT.” It’s an S&P 500 company that owns and operates 42,214 rooms in 78 hotels, including 20 of the largest markets across the U.S. and another five hotels in Canada and Brazil. It was formed in 1993 and has a market capitalization of $12.63 billion.

Most of Host Hotels’ properties are upscale and luxury hotels in central business districts that are located near airports. These hotels generally include amenities such as restaurants and lounges, swimming pools, exercise facilities and gift shops. Of its 78 hotels, 28 contain more than 500 rooms. The U.S. locations are below:

The average age of Host Hotels and Resorts properties is 35 years. The geographic diversity of Host Hotels and Resorts’ properties, as shown above, is an advantage, especially if certain areas hold up better than others during a recession.

Host Hotels and Resorts’ portfolio includes several well-known names. Its tenant brands are:

Marriott International Inc. MAR is also based in Bethesda and owns and operates Marriott hotels, along with names such as The Ritz-Carlton, Sheraton, Westin, Four Points, St. Regis and others. The Marriott company was founded in 1927, and its hotels have been around since the 1950s. Today it includes 30 sub-brands and 8,000 properties across 139 countries.

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Marriott International has a $53.55 billion market cap and a dividend yield of 0.92%.

Hyatt Hotels Corp. H, also known as Hyatt Hotels & Resorts, is a Chicago-based company that began in 1957 and grew to include international hotels and resorts by 1969. It owns 26 distinct brands in over 1,100 hotels around the world. The majority of its brands are upscale and luxury hotels.

Accor S.A. (AC.PA) is a multinational company based in France that owns, manages and franchises hotels, resorts and vacation properties. Accor was founded in 1967 and is now the largest hospitality company in Europe and the sixth-largest hospitality company in the world. It has 5,300 locations in 110 countries. Accor and Marriott are the two largest hotel companies in the Middle East.

Accor owns several brands of its own, including Banyan Tree, Sofitel Legend, Fairmont, Novotel, Emblems and others. In 2021, Accor took in 2.2 billion euros. Its portfolio of 40 brands ranges from economy to luxury and premium brands.

Hilton Hotels Corp. HLT, also known as Hilton Worldwide Holdings Inc. is a Tysons Corner, Virginia-based multinational hospitality company that manages and franchises hotels throughout the world.

In 1919, Conrad Hilton purchased a hotel in Cisco, Texas, called The Mobley. Over the next few years, Hilton branched out to purchase other Texas hotels, and after changing the name to Hilton Hotels, expanded across the U.S.

Today the Hilton Hotel portfolio includes 19 sub-brands with 7,165 total properties in 123 countries and territories. Some of its brands include Waldorf Astoria, Conrad Hotels & Resorts and Canopy by Hilton.

Hilton Hotels' stock has a market cap of $39.4 billion.

These are well-known hotels and resorts, enjoyed by hundreds of thousands of travelers each year. But having too many eggs in one basket is always a problem for a company, and so the enormous percentage of revenue derived from The Marriott brand alone could potentially become a problem for Host Hotels and Resorts.

While it’s not likely that such a long-standing company that’s as financially solid as Marriott would go out of business, it’s possible that a negative social, environmental or political event could tarnish its reputation, creating vacancies and putting a dent into Host Hotels and Resorts’ revenue. Investors may remember the food poisoning outbreaks at Chipotle between 2016 and 2018 and what they did to the share price of that stock as consumers stayed away in droves.

Having only four hotel chains in its portfolio and deriving 88% of its revenue from such a small number considerably enhances the risk for Host Hotels and Resorts. None of these hotels seems to be at risk of bankruptcy or financial difficulties at the moment. Travel has increased across the globe as the pandemic has abated, and the hotel REIT subsector has done tremendously well year-to-date.

Host Hotel and Resorts’ fourth-quarter earnings were reported on Feb. 15. Funds from operations (FFO) of $0.44 beat the consensus estimate by $0.02, and revenue of $1.26 billion was $10 million better than the Street’s view. More importantly, the FFO was 51% better than FFO of $0.29 in the fourth quarter of 2021, and revenue was a 26.55% increase over revenue of $998 million in the fourth quarter of 2021. Revenue per available room (RevPAR) also increased from $237.98 in the fourth quarter of 2021 to $325.33.

But if increasing interest rates bring about a hard recession, those positive RevPAR numbers could easily change. Companies typically reduce their travel expenses to save money, and consumers put off vacations if the economy deteriorates.

Investors may also be wondering why Host Hotels and Resorts pays such a stingy quarterly dividend of $0.12 per share. The annual dividend yields 2.83%, fairly low for a REIT. The present payout ratio is only 26.9%. By contrast, Apple Hospitality REIT Inc. APLE pays a 5.8% dividend yield.

Host Hotels and Resorts is still playing catch-up from when it suspended its $0.20 dividend after March 2020. It reinstate it in March 2022 but only at a paltry $0.03. But Host Hotels and Resorts also paid a special dividend of $0.20 in December, in addition to its regular $0.12 quarterly dividend payment.

The picture appears to be mixed for Host Hotels and Resorts. While it has solid brands and improving metrics, the headwinds of recession and its reliance on a small number of brands for most of its revenue could ultimately lead to a decline in Host Hotels and Regions earnings, translating into a declining share price.

From a technical viewpoint, the recent share price collapse below the 200-day moving average is also a negative. Investors may want to use caution on Host Hotels and Resorts.

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