Host Hotels Acquires London Hotel – Analyst Blog

Host Hotels & Resorts Inc. (HST), the largest lodging real estate investment trust (REIT) in the U.S., has recently acquired Le Meridien Piccadilly, a premium luxury hotel in London, England, for $96.7 million. The purchase price includes the assumption of a $50 million mortgage loan on the property.

The 266-room hotel was owned by Starman Hotels, a joint venture between the affiliates of Starwood Capital Group and Lehman Brothers. Founded in 1991, Starwood Capital Group is a privately-held global investment firm focusing primarily on real estate assets.

During third quarter 2010, Host Hotels also acquired W Union Square, a premium luxury hotel in New York, for an undisclosed amount. The acquisition was made through a joint venture in which Host Hotels had a majority stake. In addition, Host Hotels acquired a 424-room hotel in Chicago with 28,000 square feet of meeting space for approximately $165 million.

Furthermore, in July 2010, a joint venture of the company in Asia reached an agreement to develop seven properties in three major cities in India, namely Bangalore, Chennai and Delhi. The total cost of developing the project spanning 1,750 rooms is expected to be approximately $325 million.

Host Hotels anticipates the gradual revival of the overall economy to have a positive impact on its operating results in 2010, with comparable hotel revenue per available room (RevPAR) expected to increase in the range of 4% to 5.5% for the full year.

Host Hotels had earlier reported second quarter 2010 FFO (funds from operations) of $151 million or 23 cents per share, compared to $68 million or 12 cents per share in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The second quarter FFO marginally beat the Zacks Consensus estimate by a penny.

With strong second quarter results, Host Hotels increased its FFO guidance for 2010 in the range of 66 cents to 70 cents per share, up from its earlier guidance of 58 cents to 65 cents. We maintain our Neutral rating on Host Hotels with a Zacks #2 Rank, which translates into a short-term Buy recommendation.