Host Hotels & Resorts and the FTSE All-World Index: Assessing the Ripple Effects on REIT Valuations and Institutional Ownership

The recent speculation surrounding Host Hotels & Resorts' potential removal from the FTSE All-World Index has sparked renewed interest in how index exclusions affect Real Estate Investment Trusts (REITs). While no official confirmation of the company's exclusion exists as of September 2025Host Hotels & Resorts Inc, HST:NSQ summary - FT.com^[1], academic and industry analyses suggest that such an event—should it occur—could have significant implications for REIT valuations and institutional ownership patterns. This article examines the broader dynamics at play, drawing on empirical research and Host Hotels' specific challenges.

The Case of Host Hotels & Resorts: Underperformance and Structural Vulnerabilities

Host Hotels & Resorts, a lodging REIT, has underperformed major indices like the Dow Jones Industrial Average, with its stock declining 7.8% over the past 52 weeks compared to the Dow's 15.8% gainIs Host Hotels & Resorts Stock Underperforming the Dow?^[2]. This underperformance, coupled with a 15% year-over-year rise in interest expenses and reduced adjusted funds from operations (AFFO), has raised concerns about its market positionHost Hotels & Resorts (HST) Q2 2025 Earnings & Financial …^[3]. Natural disasters, including wildfires in Maui, have further strained its recovery trajectoryIs Host Hotels & Resorts Stock Underperforming the Dow?^[2]. While the FTSE All-World Index rebalancing in 2024–2025 focused on adding Indian companies like ITC HotelsFTSE Index Rebalancing: 14 Indian Companies Added, …^[4], Host Hotels' struggles align with criteria that could trigger exclusion—namely, weak returns and market capitalization contraction.

Index Exclusions and REIT Valuations: Academic Insights

Research on index exclusions reveals asymmetric impacts on stock prices, with exclusions often causing sharper declines than inclusions drive gainsThe impact of institutional ownership and valuation on stock price around SET50 index inclusion and exclusion^[5]. For REITs, which rely heavily on institutional capital and liquidity, such exclusions can exacerbate valuation pressures. A study on the SET50 index found that excluded stocks experienced pronounced price drops, attributed to reduced visibility and investor confidenceThe impact of institutional ownership and valuation on stock price around SET50 index inclusion and exclusion^[5]. Similarly, Host Hotels' institutional ownership—held by 98.52% of shares by entities like Vanguard and BlackRock—could face divestment pressures if excluded, given the passive nature of many index-tracking fundsHost Hotels & Resorts (HST) Institutional Ownership 2025^[6].

Governance quality further complicates this dynamic. REITs in countries with stringent regulatory frameworks and strong governance systems tend to command higher valuationsGlobal REIT regulations and valuation^[7]. Host Hotels, however, operates in a sector prone to operational volatility, with AFFO declines and natural disaster risks creating information asymmetry that could amplify post-exclusion sell-offsIs Host Hotels & Resorts Stock Underperforming the Dow?^[2].

Institutional Ownership: A Double-Edged Sword

Institutional ownership patterns underscore the fragility of Host Hotels' capital structure. While the company's top holders—Vanguard, BlackRock, and State Street—have maintained long-term stakes, recent reductions by entities like Norges Bank (down 24.03%) signal cautionHost Hotels & Resorts (HST) Institutional Ownership 2025^[6]. Academic studies show that institutional ownership post-acquisition often correlates with improved performance, but this effect hinges on governance quality and market conditionsInstitutional ownership and REIT acquisitions^[8]. If Host Hotels were excluded from the FTSE All-World Index, its institutional base might shrink further, particularly among passive investors, reducing its access to capital and increasing cost of debtThe impact of institutional ownership and valuation on stock price around SET50 index inclusion and exclusion^[5].

Broader Implications for the REIT Sector

The hypothetical exclusion of Host Hotels highlights systemic vulnerabilities in the REIT sector. J.P. Morgan Research notes that REIT earnings growth remains stable at 3% in 2025 but faces headwinds from interest rates and sector-specific risks like tariffsInside REITs: Will Growth Ramp Up? | J.P. Morgan Research^[9]. For REITs with weaker fundamentals, index exclusions could accelerate capital flight, particularly in markets where governance frameworks are less robustGlobal REIT regulations and valuation^[7]. Conversely, strong performers like ITC Hotels—recently upgraded in the FTSE All-World Index—may attract inflows, illustrating the index's role as a barometer of institutional confidenceFTSE Index Rebalancing: 14 Indian Companies Added, …^[4].

Conclusion: Governance, Liquidity, and the Path Forward

While Host Hotels & Resorts has not been officially removed from the FTSE All-World Index, its case underscores the interplay between index dynamics, REIT valuations, and institutional behavior. Academic evidence suggests that exclusions can trigger liquidity crunches and valuation declines, particularly for REITs with structural vulnerabilitiesThe impact of institutional ownership and valuation on stock price around SET50 index inclusion and exclusion^[5]Global REIT regulations and valuation^[7]. For Host Hotels, strategic initiatives like $200 million in property upgrades and selective acquisitions may mitigate these risksHost Hotels & Resorts (HST) Q2 2025 Earnings & Financial …^[3], but long-term success will depend on stabilizing AFFO and demonstrating resilience to external shocks. Investors and analysts must remain vigilant, as the FTSE's rebalancing decisions increasingly shape capital flows in the REIT sector.