Thinking about buying host hotels? Here are the properties and tenants you would add 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, that make up the REIT’s portfolio.

Before deciding to buy a REIT, it pays to consider the history and solvency of its largest tenants. Ask yourself the following questions: Are there tenants who are facing bankruptcy or are downsizing? Are the tenants of good quality? Are the tenants diversified, not just geographically, but with each tenant representing a small percentage of the total tenant portfolio?

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

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host hotels and Resorts Inc. (NASDAQ: HST) is a Bethesda, Maryland-based hotel REIT that bills itself as the “World’s Largest Hotel REIT.” It is an S&P 500 company that owns and operates 42,214 rooms in 78 hotels, including 20 of the largest markets in the United States and an additional five hotels in Canada and Brazil. It was founded in 1993 and has a market capitalization of $12.63 billion.

Most of Host Hotels’ hotels are upscale and luxury hotels in central business districts that are close to airports. These hotels generally include amenities such as restaurants and lounges, swimming pools, gyms, and gift shops. Of the 78 hotels, 28 have more than 500 rooms. The US locations are below:

The average age of the Host Hotels and Resorts is 35 years. The geographic diversity of host hotel and resort properties, as shown above, is an advantage, particularly when certain areas hold up better than others during a recession.

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

The story goes on

Marriott International Inc. (NASDAQ: MAR), also based in Bethesda, 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 in 139 countries.

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

Hyatt Hotels Corp. (NYSE: H), also known as Hyatt Hotels & Resorts, is a Chicago-based company that was founded in 1957 and grew into international hotels and resorts by 1969. It owns 26 different brands in over 1,100 hotels around the world. The majority of its brands are upscale and luxury hotels.

Accor SA (AC.PA) is a France-based multinational company that owns, manages and franchises hotels, resorts and vacation properties. Founded in 1967, Accor 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. The portfolio of 40 brands ranges from economy to luxury and premium brands.

Hilton Hotels Corp. (NYSE: HLT), also known as Hilton Worldwide Holdings Inc., is a multinational hospitality company headquartered in Tysons Corner, Virginia, that manages and franchises hotels around the world.

In 1919, Conrad Hilton bought a hotel called The Mobley in Cisco, Texas. Over the next several years, Hilton expanded purchasing more hotels in Texas and, after changing its name, expanded to Hilton Hotels in the United States

Today, the Hilton Hotels portfolio includes 19 sub-brands with a total of 7,165 hotels in 123 countries and territories. Some of its brands are 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 that are visited by hundreds of thousands of travelers every year. But having too many eggs in one basket is always a problem for a business, and so the huge percentage of revenue that comes from the Marriott brand alone could potentially become a problem for host hotels and resorts.

While it’s unlikely that such a long-standing company, and as financially sound as Marriott, would go out of business, it’s possible that a negative social, environmental, or political event could tarnish its reputation, create vacancies, and dent host hotels and Resorts leaves ‘ revenue. Investors may remember the food-poisoning outbreaks at Chipotle between 2016 and 2018, and what they did to that stock’s share price when consumers stayed away in droves.

Having only four hotel chains in its portfolio and generating 88% of its revenue from such a small number significantly increases the risk for Host Hotels and Resorts. None of these hotels appear to be at risk of bankruptcy or financial difficulties at this time. Travel has picked up globally as the pandemic subsides, and the hotel REIT sub-sector has performed tremendously year-to-date.

Host Hotel and Resorts fourth quarter results were reported on February 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 had expected. More importantly, fourth-quarter 2021 FFO was 51% better than FFO of $0.29 and revenue increased 26.55% from fourth-quarter 2021 revenue of $998 million. Revenue per available room (RevPAR) also increased to $325.33 from $237.98 in the fourth quarter of 2021.

But if rising rates lead to a hard recession, those positive RevPAR numbers could change slightly. Businesses typically cut travel expenses to save money, and consumers postpone vacations when the economy deteriorates.

Investors may also be wondering why Host Hotels and Resorts pays such a slim quarterly dividend of $0.12 per share. The annual dividend yield is 2.83%, which is pretty low for a REIT. The current payout ratio is just 26.9%. In contrast, Apple Hospitality REIT Inc. (NYSE: APLE) pays a dividend yield of 5.8%.

Host Hotels and Resorts is still catching up after suspending its $0.20 dividend after March 2020. It reintroduced them in March 2022, but only for a measly $0.03. But Host Hotels and Resorts paid a special dividend of $0.20 in December in addition to its regular quarterly dividend payment of $0.12.

When it comes to host hotels and resorts, the picture appears to be mixed. Although the company has solid brands and improving metrics, recession headwinds and reliance for most of its revenue on a small number of brands could ultimately cause Host Hotels and Regions’ earnings to decline, resulting in a falling share price would knock down.

From a technical perspective, the recent plunge in the stock price below the 200-day moving average is also negative. Investors should exercise caution with host hotels and resorts.

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This article Thinking of Buying Guest Hotels? Here are the properties and tenants you would add to your portfolio originally appeared on Benzinga.com

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