Business context and reporting period
Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. Host Inc. is a REIT and owns approximately 99% of Host L.P. The portfolio comprised 77 primarily luxury and upper-upscale hotels; 75 were included in comparable-hotel results.
Financial and operating performance
Amounts are in millions except per-share data and hotel statistics.
- Third quarter: Revenue was $1,214, up 2.1% year over year; operating profit was $157, up 6.1%; net income was $113 versus $116; and diluted EPS was $0.16, unchanged. EBITDAre and Adjusted EBITDAre were each $361, up 10.1%; NAREIT and adjusted FFO were each $0.41 per diluted share, up 7.9%.
- Nine months: Revenue was $3,988, up 9.4%; operating profit was $654, up 9.5%; net income was $618, up 25.1%; diluted EPS was $0.85 versus $0.68. EBITDAre was $1,251, up 9.7%, and Adjusted EBITDAre was $1,251, up 10.3%. Adjusted FFO was $1.48 per diluted share versus $1.35.
- Margins and hotel metrics: Q3 GAAP operating margin was 12.9% versus 12.4%, benefiting from insurance gains. Comparable hotel EBITDA margin fell to 26.6% from 29.4%. Comparable RevPAR rose 1.8% in Q3, while Total RevPAR declined 0.6%; year-to-date comparable RevPAR and Total RevPAR increased 10.4% and 11.0%, respectively.
- Cash flow and liquidity: Year-to-date operating cash flow was $1,134 versus $1,056. Investing activities used $263 and financing activities used $606. Capital expenditures were $472. September 30 cash and equivalents were $916, with $218 in FF&E reserves and $1.5 billion available under the revolver. Cash, equivalents and restricted cash totaled $1,139.
- Debt: Total debt was $4,212, broadly unchanged from year-end 2022. Weighted-average interest rate was 4.6%, weighted-average maturity was 4.5 years, and 76% of debt had fixed rates. The next significant maturity was $400 due in April 2024. The company reported compliance with its financial covenants.
Changes versus the prior comparable period
Q3 revenue growth reflected stronger convention and downtown demand, the Four Seasons Jackson Hole acquisition and the July reopening of The Ritz-Carlton, Naples, partly offset by Maui wildfires and softer resort rates and spending. Q3 comparable hotel EBITDA declined 10.0%, with margin down 280 basis points, as staffing normalized and wages, insurance and utility costs rose. Higher interest rates contributed to increased interest expense: $48 in Q3 versus $40 and $142 year to date versus $113.
Nine-month performance also benefited from easier comparisons with early 2022, when Omicron disrupted travel, and $70 of other gains, primarily related to the sale of The Camby. The company repurchased $150 of shares year to date and paid $420 in common-stock dividends.
Outlook, commentary and risks
- Management forecast full-year 2023 comparable RevPAR growth of 7.25% to 8.75%, while emphasizing uncertainty around economic conditions and lodging demand. It cited ongoing recovery in group, business transient and international inbound travel, but uneven performance by market and moderating resort rates.
- Full-year capital expenditures were expected to total $615–$695, including $200–$230 for ROI projects, $265–$290 for renewals and replacements, and $150–$175 for Hurricane Ian restoration.
- Hurricane Ian-related insurance recovery was estimated at $310 for covered costs, but collection of the full amount was not assured. The company had received $184 by September 30 and an additional $24 after quarter-end; it expected another $26 in Q4, with remaining proceeds expected in 2024. Q3 included a $54 business-interruption gain.
- The Sheraton New York Times Square buyer’s loan matured October 18, 2023. Host entered into a forbearance agreement through November 8 while refraining from exercising remedies.
- Key risks cited include recession and inflation concerns, interest rates and financing availability, labor and operating-cost pressures, geopolitical events, natural disasters including Maui wildfires, insurance recovery, hotel renovations and debt covenant restrictions. Management said it had seen no significant signs of weakening in overall lodging demand but described the outlook as highly uncertain.
Important facts for investors to verify
- Whether full-year comparable RevPAR growth reaches the stated 7.25%–8.75% range, and how Maui and weaker markets affect results.
- Realized Hurricane Ian insurance recoveries and restoration spending versus management’s estimates and timing.
- Repayment or resolution of the matured Sheraton New York Times Square loan under the forbearance arrangement.
- Funding and refinancing plans for the $400 debt maturity in April 2024, alongside interest costs and covenant headroom.
- Whether hotel operating margins recover as demand improves, given labor, insurance and other property-cost inflation.