Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. — Q1 2023 10-Q
Business context and reporting period. The combined filing covers the three months ended March 31, 2023; financial results are unaudited and compared with Q1 2022. Host Inc. is a REIT that conducts its hotel ownership business through Host L.P. The portfolio comprised 77 primarily luxury and upper-upscale hotels, including 75 comparable hotels used for comparable operating statistics.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $1.381 billion | $1.074 billion | +28.6% |
| Operating profit / GAAP operating margin | $248 million / 18.0% | $122 million / 11.4% | +103.3% / +660 bps |
| Net income | $291 million | $118 million | +146.6% |
| Net income attributable to Host Inc. / diluted EPS | $287 million / $0.40 | $116 million / $0.16 | +147.4% / +150.0% |
| Adjusted EBITDAre | $444 million | $306 million | +45.1% |
| NAREIT FFO / Adjusted FFO per diluted share | $0.54 / $0.55 | $0.39 / $0.39 | +38.5% / +41.0% |
| Comparable hotel RevPAR / Total RevPAR | $217.77 / $365.93 | $166.12 / $273.06 | +31.1% / +34.0% |
| Comparable hotel EBITDA margin | 32.5% | 30.3% | +220 bps |
| Operating cash flow | $308 million | $261 million | +$47 million |
Amounts are in U.S. dollars. Adjusted EBITDAre, FFO, and comparable hotel metrics are non-GAAP measures; the filing provides reconciliations and cautions against using them as substitutes for GAAP results.
At March 31, 2023, total assets were $12.225 billion and total debt was $4.208 billion, versus $4.215 billion at year-end 2022. Debt had a 4.5% weighted-average interest rate and five-year weighted-average maturity; 76% was fixed-rate. Cash and cash equivalents were $563 million, FF&E replacement reserves were $203 million, and revolving-credit availability was $1.5 billion. Cash, cash equivalents, and restricted cash totaled $770 million for cash-flow reporting purposes. The company reported covenant compliance, with a 2.2x leverage ratio against a 7.25x maximum and 9.0x fixed-charge coverage against a 1.25x minimum.
Material changes and operating performance
- Revenue growth reflected stronger leisure demand and continued recovery in group and business-transient travel. Rooms revenue rose 25.2%, while food-and-beverage revenue rose 45.1% year over year.
- Comparable hotel RevPAR growth reflected both rate and occupancy gains. New York, Washington, D.C., and San Francisco/San Jose posted particularly strong Total RevPAR growth, though San Francisco remained below 2019 levels. Florida and Hawaii growth was more modest.
- Operating expenses rose 18.6%, less than revenue growth; however, wages and employee benefits within rooms, food-and-beverage, and other departmental/support costs increased 33%. Management cited increased staffing and expects wage and benefit rate inflation of about 5% in 2023.
- Interest expense increased to $49 million from $36 million, primarily due to higher rates on floating-rate debt. Interest paid was $40 million versus $28 million.
- Net income included a $69 million gain on the sale of The Camby, Autograph Collection. The hotel sold for $110 million, including a $72 million seller-financed loan; the loan is included in notes receivable.
- Operating cash flow was $308 million; investing activities used $105 million and financing activities used $308 million. Financing outflows included $228 million of Host Inc. dividends and $50 million of share repurchases. The company repurchased 3.2 million shares at an average $15.65 per share; $923 million remained under the repurchase authorization.
Outlook, commentary, and risks
- Management forecast full-year 2023 comparable hotel RevPAR growth of 7.5%–10.5%. This is an operating outlook, not earnings guidance. Management said the lodging outlook remained highly uncertain and results could vary by market and asset type.
- Management expected margins to decline versus 2022 because of more normalized staffing, higher wages, insurance and utility costs, lower attrition and cancellation fees, and occupancy below 2019 levels. The second half of the year was expected to be particularly sensitive to macroeconomic conditions.
- Full-year capital expenditures were projected at $600 million–$725 million: approximately $250 million–$300 million for return-on-investment projects, $250 million–$300 million for renewals and replacements, and $100 million–$125 million for Hurricane Ian restoration.
- Hurricane Ian damaged Florida properties. The Ritz-Carlton, Naples remained closed, with reopening targeted for July 2023; the Hyatt Regency Coconut Point was open, with its waterpark targeted to reopen mid-June. The company estimated approximately $105 million of written-off property value and remediation costs and recorded an insurance receivable, reduced to $50 million after $55 million of proceeds received by quarter-end. It received an additional $43 million after quarter-end. Management said coverage should cover substantially all remediation and reconstruction costs and near-term lost business if planned reopening dates are met, but business-interruption coverage may prove insufficient.
- Principal risks cited include recession or weaker lodging demand, inflation and labor constraints, higher borrowing costs and credit-market disruption, debt-covenant restrictions, competition, renovation delays and costs, dependence on third-party hotel managers, natural disasters and insurance recovery, cybersecurity, and REIT qualification requirements. No material legal loss contingency was identified.
- The company declared a regular quarterly dividend of $0.12 per share, paid April 17, 2023. Future dividends remain subject to board approval.
Important facts for investors to verify
- Whether RevPAR growth and demand from group, business-transient, and international travelers support the 7.5%–10.5% full-year outlook, especially as the 2022 first-quarter comparison was affected by Omicron.
- Progress on reopening the Ian-affected properties, total restoration costs, timing and amount of insurance recoveries, and any further business interruption.
- Whether labor, insurance, utility, and other operating-cost increases cause the anticipated margin decline, and how staffing and occupancy trends develop.
- Debt and liquidity exposure to floating rates, refinancing conditions, covenant headroom, and the balance between capital spending, dividends, acquisitions, and repurchases.
- The contribution of the Camby sale gain to reported earnings and the credit quality, terms, and collection of the $72 million seller-financed loan.