MAR - Morgan Stanley upgrades Sunstone Hotel downgrades Host Hotels

2023-06-27 10:41:19 ET

Morgan Stanley on Tuesday upgraded Sunstone Hotel Investors ( NYSE: SHO ) to Equal-weight from Underweight, given lower competitive supply and leverage.

"SHO ranks as the most favorable on our lodging REIT framework," said analyst Stephen Grambling. "SHO shows the least competitive supply and second-lowest leverage among the group."

Host Hotels & Resorts ( NASDAQ: HST ) was cut to Underweight from Equal-weight, given weaker risk-reward due to "higher relative competitive supply vs. peers, softening demand in key markets (e.g., Miami), and relative outperformance leaving valuation less compelling," said Grambling.

Price target for SHO was raised to $10 from $9 (4.1% potential upside to last close). PT for HST was cut to $15.50 from $19 (5.7% potential downside to last close).

Morgan Stanley's lodging REIT framework includes Hyatt ( H ) [$136 PT], Hilton ( HLT ) [$163 PT], Marriott ( MAR ) [$208 PT], Wyndham ( WH ) [$80 PT], Pebblebrook Hotel ( PEB ) [$12 PT], Xenia Hotels ( XHR ) [$11 PT], and Choice Hotels ( CHH ) [$127 PT].

Ratings maintained for H, HLT, MAR and WH at Overweight; PEB and XHR at Underweight; CH at Equal-weight.

Morgan Stanley's Q2 revPAR tracker points to below consensus trends in North America, but international trends are above. "Some weakness is simply normalizing seasonality after reallocation from Omicron last year," said Grambling. "That said, we're watching deteriorating resort markets closely"

More on hotel REITs

• Sunstone Hotel Investors: I Sleep Well At Night With The 7.5% Preferred Shares
• Host Hotels: Continued Recovery Post-Pandemic, Stable Dividends
• Hotel REIT Preferred Stocks: Buy Chatham Lodging, Sell Hersha Hospitality

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