Host Hotels & Resorts, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
Business context
Host is a self-managed REIT that owns luxury and upper-upscale hotels, with operations conducted through Host Hotels & Resorts, L.P. At quarter-end, its consolidated portfolio included 77 hotels and approximately 42,084 rooms in the U.S., Brazil and Canada. Host Inc. owns approximately 99% of Host L.P.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | 2022 year to date | 2021 year to date |
|---|---|---|---|---|
| Total revenue | $1,189 | $844 | $3,644 | $1,892 |
| Operating profit (loss) | $148 | ($95) | $597 | ($329) |
| Net income (loss) | $116 | ($120) | $494 | ($334) |
| Net income attributable to Host Inc. | $114 | ($119) | $486 | ($331) |
| Diluted EPS | $0.16 | ($0.17) | $0.68 | ($0.47) |
| Operating profit margin | 12.4% | (11.3%) | 16.4% | (17.4%) |
| Adjusted EBITDAre | $328 | $177 | $1,134 | $290 |
| Adjusted FFO per diluted share | $0.38 | $0.20 | $1.35 | $0.33 |
Adjusted EBITDAre and FFO are non-GAAP measures. All Owned Hotel EBITDA margin was 28.7% in Q3 and 32.7% year to date, compared with 24.9% and 21.1%, respectively, in 2021. All Owned Hotel RevPAR rose 42.0% in Q3 and 81.5% year to date; Total RevPAR rose 48.1% and 90.5%.
At September 30, 2022, total assets were $12.2 billion, total debt was $4.2 billion, and cash and cash equivalents were $883 million. The company also reported $187 million in FF&E reserves and $1.5 billion available under its revolver. Debt had a 4.1% weighted-average interest rate, a 4.8-year weighted-average maturity, and was 76% fixed-rate. There were no significant debt maturities before 2024; only one consolidated hotel was mortgage-encumbered.
Year-to-date operating cash flow was $1.056 billion, compared with $78 million in 2021. Investing activities used $172 million, including $357 million of capital expenditures; financing activities used $759 million, chiefly reflecting $683 million of credit-facility repayments and dividends. Cash, cash equivalents and restricted cash totaled $1.074 billion at period-end.
Changes and material activity
- Revenue grew 40.9% for the quarter and 92.6% year to date versus 2021, supported by leisure demand and a continuing recovery in group and business travel. Room rates exceeded pre-pandemic levels, while occupancy remained below 2019. Third-quarter food and beverage revenue exceeded 2019 levels for the first time since the pandemic began.
- Results benefited from stronger rates and occupancy, cost reductions, and the absence of the $92 million impairment expense recorded in Q3 2021. Operating costs exceeded 2019 levels in Q3 2022 as staffing and operations normalized; management cited 4%–5% expected wage and benefit rate inflation for 2022.
- Year-to-date dispositions generated $233 million of net proceeds. The company issued $413 million of bridge loans to buyers of two sold hotels; these loans are included in notes receivable. It also sold Chicago Marriott Suites Downers Grove for $16 million in Q3 and recorded a $4 million gain.
- After quarter-end, Host acquired the 125-room Four Seasons Resort and Residences Jackson Hole for $315 million. It also invested in a Noble Investment Group joint venture, including issuing approximately 3.2 million OP units valued at $56 million.
- The board increased share-repurchase authorization to $1 billion; no Host Inc. shares were repurchased year to date. A $0.12-per-share quarterly dividend was paid October 17, 2022. Future dividends remain subject to board approval.
Outlook, risks and contingencies
- Management forecast full-year 2022 RevPAR of $193–$195, up 63.7%–65.4% from 2021 and down 3.75%–2.75% from 2019. It estimated Hurricane Ian would reduce full-year RevPAR by about 70 basis points.
- Management described the outlook as highly uncertain, citing inflation, rising interest rates, recession risk, labor and supply-chain constraints, geopolitical uncertainty, COVID-19 variants, and the pace of recovery in group, business transient and international travel. Hotel supply growth was expected to remain below its long-term historical average in 2022.
- Full-year 2022 capital expenditures were expected to total $500–$575 million, including approximately $320–$355 million for return-on-investment projects and $180–$220 million for renewals and replacements.
- Hurricane Ian damaged Florida properties. The Ritz-Carlton, Naples was expected to remain closed through year-end and into 2023; Hyatt Regency Coconut Point was expected to reopen in phases, with its waterpark reopening in Q2 2023. The company was still assessing damage and business interruption losses and could not yet estimate the total loss. It expected insurance to cover damage and near-term business interruption losses above a $15 million deductible, but noted that some losses could be uninsured.
- Management reported compliance with credit-facility covenants at quarter-end. The trailing-twelve-month leverage ratio was 2.4x, versus a then-applicable maximum of 8.0x; fixed-charge coverage was 10.7x. Legal proceedings were described as ordinary-course matters with immaterial accruals and no known loss contingency requiring disclosure.
Investor verification priorities
- Track hotel demand, occupancy, room rates and group/business-travel recovery against the full-year RevPAR outlook, while noting that All Owned Hotel measures are non-GAAP and adjust for acquisitions and dispositions.
- Verify Hurricane Ian repair progress, reopening timelines, insurance recoveries, uninsured losses and effects on 2023 operations.
- Monitor labor-cost inflation, staffing levels, operating margins and the planned capital-expenditure range.
- Review liquidity, floating-rate exposure, covenant headroom and the impact of future acquisitions, dividends, repurchases or debt transactions.
- Assess the Jackson Hole acquisition and Noble joint-venture investment, including their funding, returns and subsequent operating contribution.