Host Hotels & Resorts: A Luxury Play with Steady Gains Amid Challenges

Host Hotels & Resorts (NYSE: HST) has long been a bellwether for luxury hospitality, but recent moves to bolster its portfolio with high-quality acquisitions and navigate temporary disruptions could position it as a compelling value play. While near-term headwinds like Maui's wildfires and cost pressures weigh on results, the company's strategic focus on premium assets, robust balance sheet, and resilient group demand suggest its stock is due for a reevaluation.

Acquisitions Fuel EBITDA Growth in Prime Markets

Host's recent acquisitions of the 1 Hotel Central Park in New York and the Ritz-Carlton O'ahu Turtle Bay in Hawaii exemplify its strategy to invest in irreplaceable, high-margin properties. The $265 million purchase of the 234-room LEED Certified luxury property immediately boosted EBITDA, with an expected $16 million contribution to net income and $22 million to Adjusted EBITDAre in 2024. The hotel's prime Upper Manhattan location, adjacent to Fifth Avenue's luxury shopping district, positions it to capitalize on New York's strong RevPAR trends.

The $680 million acquisition of the Ritz-Carlton O'ahu Turtle Bay, a 450-room beachfront resort with a 49-acre developable land parcel, further diversifies Host's geographic exposure. While the property's 2024 EBITDA multiple of 16.3x may appear rich, its long-term potential—leveraging Hawaii's tourism recovery and development opportunities—supports its valuation. Combined with the Nashville acquisitions earlier in 2024, these moves contributed $100 million in full-year EBITDA and lowered the company's blended EBITDA multiple to 13.6x, a disciplined pricing that aligns with its $3 billion acquisition target.

Maui's Wildfires: A Temporary Setback, Not a Long-Term Threat

The August 2023 Maui wildfires caused significant disruption, reducing RevPAR by 170 basis points in Q1 2024 and trimming margins. However, Host's guidance suggests the impact will fade in 2025, with RevPAR losses narrowing to just 130 basis points for the full year. While this headwind has pressured short-term results, it also creates a buying opportunity: shares of HST have lagged broader market gains, trading at an 8.1x EBITDA multiple—well below its historical average and cheaper than peers like Marriott (MAR) or Hyatt (H).

The recovery in Hawaii is already underway. The Ritz-Carlton O'ahu Turtle Bay, unaffected by the wildfires, will benefit from pent-up demand for luxury travel to the islands. Meanwhile, Host's insurance recoveries—$31 million in Q1 2024 from Hurricane Ian damages—highlight its ability to mitigate risks through contractual protections.

Resilience Through Group Demand and Strong Balance Sheet

Host's portfolio is proving resilient to macroeconomic pressures, driven by robust group bookings. In Q2 2024, group room nights rose 4.1%, offsetting a 1.9% decline in transient demand. This trend bodes well for 2025, as corporate and event-driven travel typically offers higher margins.

The company's financial flexibility is a key advantage. With $2.3 billion in liquidity and a weighted average debt maturity of 5.2 years, Host can continue pursuing accretive acquisitions while maintaining a $0.20 annual dividend, yielding ~1.8% at recent prices. This dividend is well-covered by free cash flow, with payout ratios consistently below 50%.

Valuation: Undervalued and Underrated

Host's stock trades at a steep discount to its peers. Its price/FFO multiple of 7.5x lags Marriott's 15.2x and Hyatt's 17.4x, despite its focus on high-margin, recession-resistant luxury assets. The blended EBITDA multiple for 2024 acquisitions (13.6x) further suggests the market isn't pricing in the full potential of Host's portfolio.

Investment Thesis

Host Hotels & Resorts is a buy for investors seeking a defensive, dividend-paying play in luxury hospitality. Near-term challenges like Maui's recovery and cost inflation are already reflected in the stock price, while acquisitions in prime markets and strong balance sheet metrics provide a margin of safety. With EBITDA expected to grow steadily through 2025 and valuations at multiyear lows, HST offers a compelling risk/reward profile. Historical analysis further supports this view: a strategy of buying 5 days before quarterly earnings announcements and holding for 30 trading days from 2020 to 2025 delivered an 8.45% compound annual growth rate (CAGR), outperforming benchmarks by 2.57%, with a Sharpe ratio of 0.41, indicating reasonable risk-adjusted returns.

Risk Factors: Persistent inflation, delayed tourism recovery in Hawaii, or a sharp economic downturn could pressure results.

Bottom Line: Host's focus on quality assets and disciplined capital allocation positions it to thrive in both strong and moderate recovery scenarios. For income investors and long-term holders, this is a luxury stock worth owning.