Host Hotels & Resorts (NASDAQ: HST) has a lot to bank on. The largest lodging real estate investment trust (REIT) is also the largest third-party owner of Marriott and Hyatt hotels and its iconic properties include 1 Hotel South Beach in Miami, Andaz Maui at Wailea Resort in Hawaii, and the Manchester Grand Hyatt in San Diego.
Throw in some Ritz-Carltons and other large properties with convention spaces and a major presence in the top 20 U.S. markets -- and a couple prime international locations as well -- and you have a portfolio with 82 hotels and 47,200 rooms that should make it a prime target for real estate investors as well.
There’s just one issue. This is a REIT (real estate investment trust), and a calling card for REITs is income, and Host hasn’t paid a dividend since April 15, 2020, after its business got sucked down into the coronavirus maelstrom.
Cash goes for new properties, not for dividends
After paying at least $0.20 a share every quarter since the third quarter of 2014, Host suspended its dividend in the second quarter last year to preserve cash and liquidity as COVID-19 lockdowns hammered personal and business travel.
The red ink continues. In the first quarter of 2021, Host reported a net loss of $153 million and again declared no dividend. But with vaccine deployment well underway, so is a return to the big hotelier’s properties.
First-quarter pro forma revenues were up 50% from the previous quarter and hotel EBITDA was $21 million, compared with negative $62 million from the fourth quarter of 2020, the first positive performance in that key metric since the onset of the pandemic, President and CEO Jim Risoleo said in Host’s quarterly earnings call on May 5.
That was the result of business returning to its properties, of course. There’s certainly reason for optimism about this blue-chip hotel operator, including its own optimism. So far this year, the company has spent $771 million for two properties: the 448-room Hyatt Regency in Austin and the 444-room Four Seasons Resort Orlando at Walt Disney World, as well as $49 million for a couple golf courses next to its Hyatt Regency Maui Resort and Spa.
That investment in its portfolio and the quality and attractiveness of its properties to the market, and the general recovery in the hospitality business, has helped Host stock recover. Host stock closed on July 2 at $17.25, giving it a market cap of $12.2 billion and a price point 6.86% below its 52-week high of $18.52 reached on May 3 and well off its 52-week low of $10.04 from Sept. 24.
The Millionacres bottom line
REITs are required to pay out 90% of their taxable income as dividends to shareholders. Remember, Host reported a net loss of $153 million in the first quarter.
But, with a portfolio of large properties with marquee names in prime locations, Host is a good litmus test for just how much and how quickly the hospitality industry can recover. It just feels more like a growth stock than an income producer, certainly for now.
Nearly 97% of Host stock is held by institutions, but managers of those big pools of money have different priorities in many cases than individual investors, and if you’re one of the latter primarily interested in REIT income, you might well look elsewhere.