Host Hotels & Resorts, Inc.’s HST senior unsecured debt rating has been upgraded by Moody's Investors Service to Baa2 from Baa3. These bonds are obligations of Host Hotels & Resorts, L.P. – the company’s limited partnership unit.
This apart, the senior unsecured debt and senior unsecured shelf ratings of Host Hotels & Resorts, L.P. were raised to Baa2 and (P)Baa2, respectively, from Baa3 and (P)Baa3. The rating outlook was changed to stable from positive.
The rating upgrade underscores the company’s solid credit metrics, together with low leverage and high fixed-charge coverage. This is expected to offer the company a cushion at times of cyclical lows in the lodging sector. The rating agency also acknowledged the company’s effort to adhere to a conservative balance sheet and prudent financial policy.
However, according to the rating agency, occupancy levels have peaked and new supply is reaching certain submarkets, indicating that the sector might have reached the later stages of the cycle. Therefore, any uptick in revenue per available room (RevPAR) in the next 12 to 18 months for Host Hotels is expected to come on rate increases, but that might be a tough task amid the current submarket environment.
In our opinion, the rating upgrade comes as a positive for Host Hotels, enhancing its creditworthiness in the market, and is likely to boost investors’ confidence in the stock. In fact, approximately $2.9 billion of securities are affected. Usually, rating upgrade gives companies an opportunity to enjoy reduced costs on its debts and a better access to capital.
Going forward, we believe that this lodging real estate investment trust’s (“REIT”) solid portfolio of upscale hotels, across vibrant markets in the world, has the necessary potential for significant capital appreciation. While worries in the East Coast market continues, the West Coast market remains attractive and is expected to drive RevPAR growth in 2015.
Host Hotels currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Ashford Hospitality Trust, Inc. AHT, Hospitality Properties Trust HPT and Summit Hotel Properties, Inc. INN. All these stocks hold a Zacks Rank #2 (Buy).
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