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Despite Outperforming Peers And S&P, JPMorgan Downgrades Host Hotels To Underweight

HST | July 13, 2016

JPMorgan has downgraded Host Hotels and Resorts Inc (NYSE: HST) to Underweight, given its relatively adverse geographic footprint, operating leverage to decelerating demand trends, higher supply growth and predominantly higher exposure to gateway cities.

However, Host Hotel shares have outperformed peers and the S&P materially year-to-date, with total return for shares standing at +15 percent year-to-date as compared to the +5 percent for the S&P and +5 percent for JPMorgan's Lodging REITs.

"Based on recent development pipeline data from STR, we currently expect the top 25 U.S. markets, in the aggregate, to post supply growth of 2.5 percent and 2.3 percent in 2016 and 2017, respectively, which has grown sequentially since late last year," analyst Joseph Greff wrote in a note.

Greff noted that Host Hotels has 85 percent of its footprint in these markets, and 58 percent of its footprint in markets expected to grow over 2 percent in 2016 (same for 2017).

The analyst went on to note that these markets should underperform the broader industry, given higher levels of supply growth, as well as a higher exposure to Airbnb, international visitation and corporate spend.

Host Hotel's exposure to group business is within ~37–40 percent, and the analyst believes commentary around forward group business is likely to damper this earnings season, which would be a potential negative catalyst for the company.

Greff cut his price target to $15 from $16.

Shares of Host Hotels closed Tuesday's regular trading session at $17.16 and were down 4.55 percent shortly after Wednesday's opening bell, dropping the stock to $16.38.

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