Host Hotels & Resorts, Inc. — Q3 2021 Form 10-Q
Business context and period. The combined filing covers Host Hotels & Resorts, Inc. and its operating partnership, Host Hotels & Resorts, L.P., for the quarter and nine months ended September 30, 2021. Host is a hotel-owning REIT; its portfolio included 85 hotels at quarter-end. Hotel operations continued to recover from COVID-19 disruptions, but results remained materially affected by the pandemic. All amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $844 | $198 | $1,892 | $1,353 |
| Operating loss | $(95) | $(318) | $(329) | $(682) |
| Net loss attributable to Host Inc. | $(119) | $(313) | $(331) | $(668) |
| Diluted loss per share | $(0.17) | $(0.44) | $(0.47) | $(0.95) |
| Adjusted EBITDAre (non-GAAP) | $177 | $(111) | $290 | $(136) |
| Adjusted FFO per diluted share (non-GAAP) | $0.20 | $(0.11) | $0.33 | $(0.14) |
Q3 GAAP operating loss margin improved to (11.3)% from (160.6)%; pro forma all-owned-hotel EBITDA margin was 23.0%, versus (44.5)%. These comparisons are against exceptionally weak pandemic-affected 2020 results. Against Q3 2019, all-owned-hotel RevPAR was down 31.3% and Total RevPAR was down 32.3% on a constant-dollar basis.
- Hotel trends: Q3 all-owned-hotel RevPAR rose 307.3% year over year and Total RevPAR rose 288.5%; year-to-date increases were 51.5% and 38.7%, respectively. Q3 occupancy was 55.6%, and average room rate was $232.40. Leisure-led resort markets performed relatively well; urban markets, including New York and San Francisco/San Jose, remained substantially below 2019 levels.
- Cash flow: Nine-month operating cash flow was $78, versus cash used of $164 in 2020. Investing used $1,502, including $1,217 for acquisitions and $293 of capital expenditures. Financing provided $127, including $138 net proceeds from common-stock issuance. Cash and cash equivalents were $1,038 at quarter-end; cash, restricted cash, and FF&E replacement-fund cash totaled $1,179 for cash-flow reporting.
- Balance sheet and debt: Total assets were $12,712; total debt was $5,545, compared with $5,541 at year-end 2020. Debt had a 3.0% weighted-average interest rate and 4.2-year weighted-average maturity; 55% was fixed-rate. No consolidated hotels were encumbered by mortgage debt. The company reported $12 of available revolver capacity at September 30.
Material changes and significant items
- All 35 hotels whose operations had been suspended during the pandemic had reopened by September 30, 2021. Management said operating trends improved through the first three quarters, while pandemic effects continued to weigh on results and cash flows.
- During Q3, Host acquired Baker’s Cay Resort Key Largo for $200, a Houston hotel for $65, and Alila Ventana Big Sur for $150. Year-to-date, it acquired five hotels and two golf courses, using approximately $1.2 billion of cash.
- After quarter-end, Host sold five hotels for $551, including approximately $11 for FF&E replacement funds. The company anticipated recording an approximately $300 gain in Q4; this was an estimate, not a Q3 result.
- Host recorded $92 of Q3 property impairment expense, included in depreciation and amortization. The impaired properties’ post-write-down fair value was $393.
- Host issued approximately 7.8 million shares year-to-date through its at-the-market program for approximately $138 net proceeds; no shares were issued under the program in Q3. Common dividends and share repurchases remained suspended/restricted at quarter-end.
Outlook, risks, and contingencies
- Management expected RevPAR growth for the remainder of 2021 but provided no full-year RevPAR forecast, citing uncertainty around COVID-19 variants, vaccination, corporate and group travel, booking patterns, labor, and broader economic conditions. Recovery was expected to be uneven by market.
- Management forecast 2021 capital expenditures of $410–$465, including $285–$320 for return-on-investment projects and $125–$145 for renewals and replacements. The Marriott transformational capital program was expected to be substantially complete by the end of 2022.
- Management said hotel-level costs would rise as staffing and operations normalize. Labor shortages and wage inflation could pressure costs; Q3 portfolio-wide hotel operating costs were approximately 30% below 2019 levels.
- After quarter-end, Host terminated its credit-facility covenant relief period early after meeting the required phase-in fixed-charge coverage test. At September 30, informational trailing-twelve-month covenant ratios included leverage of 16.6x against the normal maximum of 7.25x and fixed-charge coverage of 1.0x against the normal minimum of 1.25x; those tests were not then in effect under the relief amendments. Phase-in requirements applied following early termination. Management also noted limited debt-raising flexibility because senior-note EBITDA-to-interest coverage was 1.7x versus a 1.5x minimum.
- Legal proceedings were described as ordinary-course matters, with immaterial accruals and no known reasonably possible unfavorable outcome requiring loss-contingency disclosure. Management identified COVID-19, demand recovery, labor costs, debt covenants and financing, hotel competition, renovations, insurance, and REIT qualification among principal risks.
Important facts for investors to verify
- Whether RevPAR and group/business travel recovery continued after Q3, particularly in large urban markets, and how results compare with 2019 rather than pandemic-depressed 2020.
- Current cash, revolver availability, debt and covenant compliance following early termination of covenant relief, including the effect of phase-in tests.
- Completion and realized proceeds of the five-hotel sale and whether the anticipated approximately $300 gain was recorded in Q4.
- Actual capital spending, acquisition funding, and progress on the Marriott renovation program relative to management’s stated plans.
- Whether dividends and repurchases remain suspended or restricted, and the potential dilution and deployment of remaining capacity under the $600 at-the-market equity program.