Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Host Inc. is a REIT and the approximately 99%-owner and general partner of Host L.P.; the combined filing reports substantially the same operating results for both. The portfolio comprised 80 hotels at quarter-end.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $1.074 billion | $399 million |
| Operating profit (loss) | $122 million | $(166) million |
| Net income (loss) | $118 million | $(153) million |
| Net income (loss) attributable to Host Inc. | $116 million; $0.16 diluted EPS | $(152) million; $(0.22) diluted EPS |
| Operating margin (GAAP) | 11.4% | (41.6)% |
| Net cash from (used in) operating activities | $261 million | $(49) million |
| Capital expenditures | $122 million | $93 million |
- Revenue increased 169.2% year over year. Rooms revenue rose 154.9%, food and beverage revenue 285.7%, and other revenue 87.7%. Management attributed most of the growth to lodging recovery, with 2021 acquisitions contributing $109 million of Q1 2022 revenue.
- All-owned-hotel RevPAR increased 131.0% and Total RevPAR increased 142.7% year over year. Pro forma hotel EBITDA was $330 million versus $49 million, and its margin was 31.4% versus 11.4%. These are non-GAAP measures.
- NAREIT and Adjusted FFO were each $0.39 per diluted share, compared with $0.01 in Q1 2021; these are non-GAAP measures.
- At March 31, total debt was $4.210 billion, down from $4.891 billion at year-end. Weighted-average interest rate was 3.4%, weighted-average maturity 5.3 years, and 76% of debt carried fixed rates. The company repaid $683 million on its revolving credit facility during the quarter.
- Cash and cash equivalents were $266 million, with $163 million in FF&E reserves and $1.5 billion of available revolver capacity. Cash, cash equivalents and restricted cash in the cash-flow statement totaled $430 million, down from $953 million at the start of the quarter, principally reflecting financing outflows.
Material changes and notable transactions
- Recovery strengthened through the quarter: RevPAR rose from $109.28 in January, when Omicron weighed on demand, to $221.08 in March. Q1 portfolio RevPAR remained 18.5% below Q1 2019; results varied substantially by market. Miami, Florida Gulf Coast and Maui/Oahu Total RevPAR exceeded 2019 levels, while San Francisco/San Jose and Washington, D.C. remained well below.
- The Sheraton Boston Hotel was sold for $233 million, including a $163 million bridge loan to the buyer; the company recorded a $12 million gain. The loan initially bears 4.5% interest and is scheduled to mature August 1, 2022, with two possible six-month extensions subject to higher rates.
- After quarter-end, the company sold the Sheraton New York Times Square Hotel for $373 million, including a $250 million bridge loan, and YVE Hotel Miami for $50 million. Both had been classified as held for sale at March 31.
- The company invested $35 million cash and issued approximately $56 million of OP units for a minority interest in Noble Investment Group-related entities. It also committed $150 million to Noble’s next fund and has specified potential rights to increase its ownership.
Outlook, management commentary and risks
- Management provided no full-year RevPAR guidance. It expected Q2 RevPAR of $195–$205, up 76%–85% from Q2 2021 and down 8%–3% from Q2 2019. It anticipated sequential improvement relative to 2019 through the year, but lower RevPAR in the second half than in Q2 due to seasonality and business mix.
- Expected 2022 capital expenditures were $500–$600 million, including $325–$375 million of return-on-investment projects and $175–$225 million of renewals and replacements. Approximately 89% of the estimated cost of the Marriott transformational capital program had been spent by quarter-end.
- Management cited leisure demand and improving group and business travel as positive factors, while noting that recovery remained below pre-pandemic levels and uneven across markets. It identified COVID-19 variants, inflation, energy prices, geopolitical uncertainty, interest rates, supply constraints, labor shortages and the pace of corporate, group and international travel recovery as material uncertainties.
- Wage and benefit cost inflation was expected to be 4%–5% in 2022. Management said labor constraints could prevent staffing from keeping pace with demand; it also expected hotel operating costs to rise as properties move toward more normalized operations.
- Credit-facility covenant ratios were reported with substantial headroom against stated requirements. The filing notes that covenant testing was subject to a post-waiver phase-in period. The company reported no significant debt maturities until 2024.
- Legal proceedings were described as ordinary-course matters, with immaterial accruals and no known contingencies requiring disclosure of a reasonably possible material loss. Management cautioned that outcomes cannot be assured.
Most important facts for investors to verify
- Whether RevPAR, particularly in urban, group-dependent and international markets, continues to recover against 2019 levels and meets the Q2 outlook.
- Whether labor availability and wage inflation affect hotel margins as demand improves and staffing normalizes.
- Repayment, extension terms and credit risk for the $163 million Sheraton Boston buyer loan and the $250 million Sheraton New York buyer loan.
- Execution and returns on the Noble investment, its $150 million fund commitment, and the planned $500–$600 million of 2022 capital expenditures.
- Debt, liquidity and covenant compliance as operations recover, including the impact of dividends and any further asset sales or financing activity.
- Non-GAAP measures, including RevPAR, EBITDAre and FFO, should be assessed alongside GAAP results; the filing explains that these measures have limitations and are not substitutes for GAAP metrics.