Host Hotels & Resorts, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data. Host Inc. is a REIT that conducts operations through Host Hotels & Resorts, L.P.; the combined filing reports substantially similar financial results.
Business context and performance
Host owned 82 hotels with 47,222 rooms at June 30, primarily luxury and upper-upscale properties in the U.S., Brazil, and Canada. Results remained affected by COVID-19, but leisure-led demand improved sharply from the exceptionally weak Q2 2020 comparison. The company noted that Q2 2021 results remained below pre-pandemic levels.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $649 | $103 | $1,048 | $1,155 |
| Operating loss | $(68) | $(353) | $(234) | $(364) |
| Net loss attributable to Host Inc. | $(60) | $(352) | $(212) | $(355) |
| Diluted loss per share | $(0.09) | $(0.50) | $(0.30) | $(0.50) |
| Operating loss margin | (10.5)% | (342.7)% | (22.3)% | (31.5)% |
| Adjusted EBITDAre (non-GAAP) | $110 | $(189) | $113 | $(25) |
| NAREIT FFO per diluted share (non-GAAP) | $0.12 | $(0.26) | $0.13 | $(0.03) |
Q2 revenue rose 530.1% year over year, while first-half revenue declined 9.3%. Q2 all-owned hotel RevPAR increased 607.0% year over year but was down 0.3% for the first half versus 2020; first-half Total RevPAR was down 8.8%. These comparisons reflect the pandemic disruption to the 2020 period. Against Q2 2019, portfolio RevPAR was down 52.0% and Total RevPAR down 54.4%.
Cash flow: First-half operating cash use was $40, versus $15 used in the prior-year period. Management said Q2 operating cash flow was positive as hotel operations improved. Investing cash use was $974, including $801 for acquisitions and $180 in capital expenditures. Financing provided $127, principally from $138 in net proceeds from common-stock issuance. Cash and cash equivalents were $1,450 at quarter-end, plus $139 in FF&E reserves; cash, cash equivalents, and restricted cash totaled $1,591.
Debt and liquidity: Total debt was $5,542, essentially unchanged from year-end 2020. Debt had a 3.0% weighted-average interest rate, 4.5-year weighted-average maturity, and 55% fixed-rate share; no consolidated hotels were mortgage-encumbered. The revolver had only $12 of available capacity. The company reported $1,450 of cash and had no debt maturities until 2023.
Material changes, transactions, and capital allocation
- Q2 acquisitions included the 444-room Four Seasons Resort Orlando for $610 and adjacent Ka’anapali golf courses for $28. The first-half acquisition total was approximately $1.064 billion, including Hyatt Regency Austin.
- After quarter-end, Host acquired Baker’s Cay Resort Key Largo for $200 and a Houston luxury hotel formerly operated as Hotel Alessandra for $65.
- Host issued approximately 7.8 million shares through its at-the-market program in Q2 at an average $17.99 per share, generating approximately $138 net proceeds. The $600 program had $460 of capacity remaining at June 30.
- Regular common dividends and share repurchases remained suspended; credit-facility amendments restrict dividends above $0.01 per share during the covenant relief period, subject to stated exceptions. Repurchases were restricted.
- First-half capital expenditures were $180. Management estimated full-year 2021 capital expenditures of $400–$475, including $275–$325 for return-on-investment projects and $125–$150 for renewals and replacements.
Outlook, risks, and contingencies
Management did not provide a full-year RevPAR forecast, citing uncertainty around COVID-19 variants, vaccination progress, economic trends, and travel demand. It anticipated sequential RevPAR growth through the remainder of 2021, while cautioning that recovery could be uneven and corporate and group travel could return slowly. Leisure-oriented Florida, Arizona, and Hawaii properties were performing comparatively well; major urban markets remained weak.
- COVID-19 continued to materially pressure results and cash flows. All 35 hotels initially suspended at the start of the pandemic had reopened by August 2, 2021; one remained closed at June 30 and reopened after quarter-end.
- Hotel operating costs were approximately 46% below 2019 levels in Q2, but management expected costs to rise as staffing and operations normalize. Hiring challenges and wage pressure were identified as risks.
- Host was below the senior-note indenture’s 1.5x EBITDA-to-interest coverage threshold (reported actual ratio: (0.5)x). This was not an event of default, but the company could not incur additional debt while below the requirement.
- Credit-facility financial maintenance covenants were waived through the reporting date for Q2 2022, with modified requirements thereafter. Liquidity and flexibility remain subject to debt covenants, and the company reported only $12 of revolver capacity.
- Management cited operating, labor, travel-demand, financing, renovation, acquisition, insurance, cyber, regulatory, tax, and REIT-qualification risks. It recorded immaterial accruals for ordinary-course legal matters and did not identify a reasonably possible material loss contingency requiring disclosure.
- Hotel managers applied for employee retention credits; related benefits passed through to Host were approximately $3 in Q2 and $10 year to date. Host itself reported it had not filed for relief under the CARES Act or American Rescue Plan Act.
Investor verification checklist
- Track occupancy, RevPAR, and the pace of recovery in urban, group, and business-travel markets versus leisure destinations and 2019 levels.
- Confirm operating cash-flow improvement, cash balances, acquisition spending, and the funding plan for the $400–$475 full-year capital program.
- Monitor the senior-note interest-coverage restriction, revolver availability, and the timetable and terms for covenant relief ending after Q2 2022.
- Assess the effect of staffing constraints, wage inflation, and normalized hotel costs on margins as revenues recover.
- Verify subsequent-acquisition performance, remaining ATM issuance capacity, and conditions for any dividend resumption or share repurchases.
- Interpret Adjusted EBITDAre, FFO, and pro forma hotel statistics as non-GAAP or supplemental measures; reconcile them to GAAP results and note that pro forma figures include periods before Host owned acquired hotels.