We are raising our 2018 affo estimate to 171 per

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* We are raising our 2018 AFFO estimate to $1.71 per share from $1.66 based on 1Q results and guidance that were both stronger than we expected. We are also raising our 2019 estimate to $1.76 from $1.71. Our long-term earnings growth rate forecast is 3%. * The shares are trading at a projected 2018 price/AFFO multiple of 13.0, above both the five-year average of 12.2 and the peer median of 12.0. The dividend yield, based on an annualized payout of $0.80, is about 3.6%, in line with the average yield for REITs under Argus coverage. ANALYSIS INVESTMENT THESIS We are maintaining our HOLD rating on Host Hotels & Resorts Inc. (NYSE: HST) based on valuation and the company’s limited near-term growth prospects. Our estimates assume 1% growth in AFFO for 2018 and just 1%- 2% revenue growth over the next two years. In 2017, Host suffered negative currency effects, RevPAR was muted, hotel supply increased, and business travel slowed. We expect these trends to continue in 2018. In addition, we expect higher interest rates to weigh on the shares, as bond yields may appear more attractive than REIT dividends. On the positive side, the company has a strong balance sheet and has done a good job of selling poorly performing noncore properties and reinvesting in more attractive locations. While the dividend yield is attractive at about 3.6%, we do not expect the dividend to rise meaningfully, if at all, this year. The stock has risen 37% since the November 2016 election, and we see limited further upside in the near term. RECENT DEVELOPMENTS HST shares have outperformed the S&P 500 over the past quarter, rising 19% compared to the market’s 4% gain. The shares have also outperformed over the last year, rising 23% compared to the market’s gain of 14%. We believe that the stock is trading near fair value and do not expect significant appreciation over the next year based on our expectations for limited growth in RevPAR and AFFO. The beta on HST shares is 1.1, compared to an average of 1.0 for hotel REITs. On May 2, Host reported 1Q18 adjusted FFO (AFFO) of $0.43 per share, above our estimate of $0.40 and the consensus forecast of $0.39, but down 2% from 1Q17, due to higher losses on asset sales. AFFO fell 3% to $316 million. Revenue was unchanged from a year earlier at $1.3 billion, which matched both our estimate and the consensus. Comparable RevPAR rose 1.7% to $176.91, driven by higher occupancy, partially offset by a decrease in average room rate. The comparable-hotel adjusted EBITDA margin was 27.6% in 1Q18, up 60 basis points from the prior year. In 2018, management projects a comparable-hotel EBITDA margin of 28.3%-28.7% — compared to a 28.9% margin in 2017. Along with earnings, management raised its full-year guidance range for AFFO per share to $1.67-$1.73 from $1.60-$1.70 due to better 1Q operating results than the company had expected. The $1.70 midpoint beat the prereporting consensus of $1.67. Management also raised the midpoint of its RevPAR growth guidance to 1.5%-2.5% from 0.5%-2.5%, which reflected the strong first quarter and the company’s improved outlook on business and leisure travel for 2018. HST stock rose by as much as 2% following the 1Q18 earnings release, due to FFO results and guidance coming in above analyst estimates.
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