A top, highly paid Morgan Stanley banker leaves his lucrative job to become the CFO of Host Hotels (HST).
If you’re an investor looking for ideas, you might want to understand his rationale, because it overlaps with a very compelling investment thesis. Of course, that’s our humble opinion. But he’s probably not taking the job for the salary or even bonus.
I met with the CEO and CFO last night at their Meet & Greet. I came away thinking that the new CFO probably sees a lot of upside opportunity in his new stock option package. He understands the space very well and knows that, like many other sectors, the largest, most diversified company with high quality assets and the lowest leverage, should not trade at a discount to the group and to historical trading ranges.
In other words, Houston has had a problem - but there’s a pathway to value creation that the CFO/CEO have likely already decided to pursue.
Operationally, HST has delivered this year, both on RevPAR and margin outperformance. But historical capital allocation policy and management uncertainty has dampened the multiple. The sell side is leading the skepticism as there are few buy ratings while the hedge fund community contributes with few Page 1 shareholders but a fair number of shorts (7% short interest).
Yes, the hedge fund trade is still long the C-Corps and short the REITs. But when you’re shorting the hotel REITs, you’re really shorting HST as the largest and most liquid of the group.
So what does the new CFO see as the new components to the strategy of value creation? Generally, it’s in the area of capital allocation (buying back stock is likely part of it but not all of it), messaging, and maybe something corporate. No specifics were given, obviously, but we’ll be coming back to you in the coming days with our thoughts.