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Host's Earnings Not So Inviting

In the Wall Street world of "bigger is better," Host Hotels & Resorts (NYSE: HST  ) is a brokerage-house favorite. With a nearly $8 billion market cap, the company formerly known as Host Marriott is by far the largest hotel real estate investment trust (REIT), and seventeen out of its 18 stock analysts recommend its shares. But after reviewing the company's first-quarter earnings report, investors pursuing the hotel REIT space may be better served by looking elsewhere.

Host reported 8.8% growth in revenue per available room (the primary hotel-industry operating metric, otherwise known as RevPAR) during the first calendar quarter. That's a solid increase, but it falls short of the first-quarter RevPAR increases already posted by fellow REIT LaSalle Hotel Properties (NYSE: LHO  ) , which delivered 13.7% growth, and non-REIT hotel operator/franchisor Marriott (NYSE: MAR  ) , which posted 11.7% systemwide growth in its North American properties.

Host's size can work as a stabilizing influence, with its results spread over a large portfolio of hotels. On the flip side, it can be difficult to generate external growth that is substantial enough to move the needle. Host did recently make a very large acquisition, picking up 28 hotels from Starwood Hotels & Resorts (NYSE: HOT  ) for roughly $3.1 billion. Transactions of that magnitude don't present themselves very often, though; the company needs to excel at generating internal growth through improving operations at its hotel properties.

And while Host's first-quarter operating results were certainly impressive, they weren't spectacular. That may seem like a high bar to set, but the shares already trade at a premium to the peer group, and Host's dividend yield of 2.7% is the lowest among dividend-paying REITs in the hotel sector.

Host's strong earnings report should reassure current long-term stockholders that the company is operating well and steadily. For investors looking to open a position in the hotel REIT sector, however, other options appear to offer more attractive valuations and greater growth prospects.

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Fool contributor Sean P. Smith is a freelance writer living in St. Louis. He does not own shares of any company mentioned in this article.

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