Business context and reporting period
Host Hotels & Resorts, Inc. (NYSE/Nasdaq ticker HST) and Host Hotels & Resorts, L.P. filed a combined unaudited Form 10-Q for the quarter and six months ended June 30, 2022. Host Inc. is a REIT and owns approximately 99% of Host L.P.; the two entities’ operating results are substantially the same. The portfolio comprised 78 primarily luxury and upper-upscale hotels with 42,338 rooms across the U.S., Brazil and Canada.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,381 million | $649 million | $2,455 million | $1,048 million |
| Operating profit (loss) | $327 million | $(68) million | $449 million | $(234) million |
| Net income (loss) attributable to Host Inc. | $256 million | $(60) million | $372 million | $(212) million |
| Diluted EPS | $0.36 | $(0.09) | $0.52 | $(0.30) |
| Adjusted EBITDAre (non-GAAP) | $500 million | $110 million | $806 million | $113 million |
| Adjusted FFO per diluted share (non-GAAP) | $0.58 | $0.12 | $0.97 | $0.13 |
- Q2 revenue rose 112.8% year over year; six-month revenue rose 134.3%. Management attributed the recovery to strong resort leisure demand and improving group and business travel. Acquisitions completed in 2021 contributed $90 million to Q2 and $197 million to six-month 2022 revenue.
- All Owned Hotel RevPAR increased 98.2% in Q2 and 111.0% year to date versus 2021; Total RevPAR increased 107.8% and 121.6%, respectively. Q2 All Owned Hotel EBITDA margin was 37.1%, up from 23.0%; GAAP operating margin was 23.7%, versus a 10.5% loss margin.
- The portfolio’s Q2 All Owned Hotel Total RevPAR exceeded Q2 2019 by 2.7%; performance remained uneven. Miami, Orlando and Jacksonville were above 2019, while San Francisco/San Jose, Washington, D.C. and Boston remained below it.
- Operating cash flow was $708 million for the first half, versus cash used of $40 million in 2021. Investing activities used $60 million, versus $974 million in 2021; financing activities used $715 million, including $683 million of credit-facility repayment. Cash, cash equivalents and restricted cash ended the period at $885 million, including $699 million of cash and $179 million in FF&E funds.
- At June 30, total debt was $4.212 billion, down from $4.891 billion at year-end 2021. The weighted-average interest rate was 3.7%, weighted-average maturity was five years, and 76% of debt was fixed-rate. Cash and cash equivalents plus FF&E funds were $878 million; $1.5 billion was available under the revolver. The filing reports no significant debt maturities until 2024.
- Credit-facility covenant tests were in compliance: leverage ratio 2.8x, fixed-charge coverage 10.2x and unsecured-interest coverage 9.6x. Only one consolidated hotel was encumbered by mortgage debt.
Material changes, outlook and management commentary
- The sharp year-over-year improvement reflects lodging recovery from pandemic-era disruption. Leisure demand remained strong, and urban-market recovery accelerated, but management said overall market and asset-type performance remained uneven.
- Management forecast full-year 2022 RevPAR of $191–$195, an increase of 62.5%–65.9% from 2021 and a decrease of 4.5%–2.5% from 2019. It expected RevPAR to be lower in the second half than in Q2 because of seasonality and changing market and business mix. The filing cautions that this outlook is highly uncertain.
- Management cited inflation, high energy prices, recession concerns, geopolitical uncertainty, supply-chain disruption, labor shortages and the possibility of new COVID-19 variants as risks to travel demand and operating results. Wage and benefit rate inflation was expected to be 4%–5% in 2022; staffing continued to lag demand, and hotel costs were expected to rise as operations normalize.
- Full-year 2022 capital expenditures were projected at $500–$575 million, including approximately $320–$355 million for return-on-investment projects and $180–$220 million for renewals and replacements. About 91% of the estimated cost of the Marriott transformational capital program had been spent by June 30; the program was expected to be substantially complete by year-end.
- During the first half, Host sold three hotels for total stated sales prices of $656 million and reported $217 million of net proceeds. It provided buyers bridge loans of $163 million for Sheraton Boston and $250 million for Sheraton New York Times Square; these loans are included in $413 million of notes receivable at quarter-end. The New York loan initially bears 5% interest and has an October 18, 2022 scheduled maturity, with extension options.
- The quarterly dividend was reinstated at $0.06 per share and paid July 15. On August 3, the board authorized a $0.12 per-share dividend and increased the share-repurchase authorization to $1 billion; no Host Inc. shares were repurchased in the first half. Future dividends and repurchases remain subject to board discretion and conditions.
- Management noted that portfolio-wide cost reductions helped margins, while hiring constraints also limited costs. It expects some efficiency initiatives to have lasting benefits, but costs should rise with normalized operations. A $7 million insurance and business-interruption settlement gain was recorded in Q2; six-month results also included a $13 million gain on hotel dispositions.
- The company disclosed ordinary-course legal proceedings and immaterial accruals, and said it was not aware of any matter requiring disclosure of a reasonably possible material loss. Disclosure controls were assessed as effective, with no material internal-control changes reported.
Most important facts for investors to verify
- Track whether the RevPAR forecast of $191–$195 is achieved, particularly as group, business-transient and international travel develop and macroeconomic conditions evolve.
- Assess recovery by market against pre-pandemic levels, especially in Boston, San Francisco/San Jose and Washington, D.C., and distinguish portfolio-wide results from All Owned Hotel non-GAAP measures.
- Monitor wage inflation, hiring and service capacity, and whether operating costs rise faster than revenue as hotels normalize.
- Review liquidity and debt capacity, including revolver availability, covenant compliance, fixed-rate exposure and the timing and terms of bridge-loan repayments.
- Compare planned capital spending and Marriott renovation completion with actual progress, returns and any disruption to hotel operations.
- Confirm the subsequent dividend and repurchase authorization against cash needs, board decisions and the REIT distribution requirement; the filing does not commit the company to a specific level of future repurchases or dividends.
Amounts are in U.S. dollars; financial figures are in millions unless otherwise noted. EBITDAre, Adjusted EBITDAre, FFO, RevPAR and All Owned Hotel statistics include non-GAAP or supplemental measures as identified by the company and should be considered alongside GAAP results.