Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. — Q1 2021 Form 10-Q
Reporting period: Quarter ended March 31, 2021; comparisons are primarily with the quarter ended March 31, 2020. Amounts are in U.S. dollars. Host Inc. is a REIT and owns approximately 99% of Host L.P.; the combined filing reports substantially similar operating and financial results.
Business context
Host owns luxury and upper-upscale hotels. At March 31, 2021, its consolidated portfolio comprised 81 hotels and 46,755 rooms in the United States, Canada, and Brazil. COVID-19 continued to severely disrupt lodging demand; four hotels remained closed at quarter-end, with one additional reopening afterward. Management said 32 of 35 hotels suspended at the pandemic’s outset had reopened by May 4, 2021.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $399 million | $1,052 million | Down 62.1% |
| Operating loss | $166 million | $11 million | Operating margin was (41.6)% versus (1.0)% |
| Net loss | $153 million | $3 million | Host Inc. attributable loss: $152 million; diluted loss per share: $0.22 |
| Interest expense | $42 million | $37 million | Higher primarily due to the revolver balance |
| EBITDAre / Adjusted EBITDAre | $5 million / $3 million | $164 million / $164 million | Non-GAAP measures; Adjusted EBITDAre down 98.2% |
| NAREIT FFO / Adjusted FFO per diluted share | $0.01 / $0.01 | $0.23 / $0.23 | Non-GAAP measures |
| Operating cash flow | $(49) million | $157 million | Negative cash flow reflected hotel operating shortfalls |
| Investing cash flow | $(275) million | $(103) million | Included $189 million of acquisition spending and $93 million of capital expenditures |
| Cash and cash equivalents | $2,008 million | $2,335 million at Dec. 31, 2020 | FF&E replacement fund held an additional $131 million |
| Total debt | $5,540 million | $5,541 million at Dec. 31, 2020 | 3.0% weighted-average interest rate; 4.7-year weighted-average maturity; 55% fixed-rate |
All-owned-hotel pro forma RevPAR declined 58.4% and Total RevPAR declined 61.6% year over year. Average occupancy was 26.6%. RevPAR improved sequentially from $41.68 in January to $84.10 in March. These hotel statistics are pro forma and non-GAAP, and are not directly equivalent to reported GAAP results.
Material changes and capital position
- Rooms revenue fell 58.9% and food-and-beverage revenue fell 76.7%. Management attributed the decline to reduced leisure, business, and group travel, event cancellations, and travel restrictions.
- Property-level operating expenses declined 47.9% year over year, but not enough to offset the revenue decline. Management reported portfolio operating-cost reductions of nearly 60% versus Q1 2019.
- Cash and cash equivalents declined $327 million from year-end. The quarter’s net decrease in cash and restricted cash was $335 million; the comparable 2020 period included a $1.5 billion revolver draw.
- Host acquired the 448-room Hyatt Regency Austin for approximately $161 million in March. After quarter-end, it acquired the Four Seasons Resort Orlando for $610 million and the adjacent Ka’anapali golf courses for $28 million.
- Management reported $12 million of available revolver capacity. The company had substantially utilized its $1.5 billion revolver and was below the senior-note EBITDA-to-interest covenant required to incur additional debt; this was not an event of default but restricted new debt issuance.
Outlook, risks, and unusual items
- Management did not provide a full-year RevPAR forecast, citing uncertainty around vaccination, infection rates and variants, government restrictions, and the timing of corporate and group travel recovery. It expected lodging recovery to lag the broader economy and to vary by market.
- Management forecast 2021 capital expenditures of $375 million to $475 million, including $275 million to $325 million for ROI projects and $100 million to $150 million for renewals and replacements.
- The credit-facility covenant relief period was extended through the required reporting date for Q2 2022, with a subsequent covenant phase-in. The senior-note interest-coverage shortfall remained a separate restriction on incurring additional debt.
- Regular quarterly common dividends and share repurchases were suspended. Credit-facility terms restrict common cash dividends above $0.01 per share during the covenant relief period, subject to stated REIT and tax exceptions. Management said future dividends require board approval.
- Management planned to enter into an at-the-market offering arrangement allowing up to $600 million of common stock sales, but said it was not obligated to issue shares. The filing also disclosed a $1.0 billion authorization to repurchase senior notes; no completion of such repurchases is stated here.
- Other notable items included a $46 million income-tax benefit, primarily related to domestic net operating losses, and approximately $7 million of employee-retention-credit benefits passed through hotel managers. Management said legal accruals were immaterial and it knew of no required disclosure of a reasonably possible material loss contingency.
Most important facts for investors to verify
- Whether the sequential recovery in occupancy and RevPAR continued, and how quickly corporate and group demand returned.
- Cash burn, liquidity after the post-quarter acquisitions, and the company’s remaining access to financing while senior-note covenants restrict additional debt.
- Compliance with amended credit-facility covenants when testing resumes, including the planned phase-in beginning after Q2 2022.
- Actual capital spending versus the $375 million–$475 million 2021 outlook and progress on the Marriott transformational capital program.
- Whether any stock issuance under the proposed $600 million ATM arrangement, debt repurchases, or changes to the suspended dividend policy occurred after the filing.