Host Hotels & Resorts, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. The filing covers the quarter ended March 31, 2020, and combines the reports of Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. Host Inc. is a REIT and owns approximately 99% of Host L.P. The company owned 80 hotels with 46,669 rooms across the United States, Brazil, and Canada. Results were severely affected by the COVID-19 pandemic, particularly from mid-March.
Key financial and operating metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $1.052 billion | $1.390 billion |
| Operating profit (loss) | $(11) million | $216 million |
| GAAP operating margin | (1.0)% | 15.5% |
| Net income (loss) | $(3) million | $189 million |
| EBITDAre / Adjusted EBITDAre | $164 million | $406 million |
| NAREIT FFO / Adjusted FFO per diluted share | $0.23 | $0.48 |
| Cash from operations | $157 million | $207 million |
- All-owned hotel RevPAR fell 23.3% and Total RevPAR fell 21.0% on a constant-dollar basis. All-owned hotel EBITDA was $178 million, down 55.5%, and its margin declined to 16.9% from 30.4%.
- At March 31, cash and cash equivalents were $2.796 billion, with another $165 million in the FF&E replacement fund. Total debt was $5.295 billion, up from $3.794 billion at year-end 2019, following a $1.5 billion revolver draw. Debt had a 3.1% weighted-average interest rate and 4.8-year weighted-average maturity; no significant maturities were due until 2023.
- Investing activities used $103 million, including $131 million of capital expenditures, while financing activities provided $1.166 billion. The company paid $179 million in common-stock dividends during the quarter and repurchased $147 million of stock.
Material changes versus the prior comparable period
- Revenue fell 24.3%; room revenue declined 27.0% and food-and-beverage revenue declined 23.8%. Management attributed the deterioration primarily to COVID-19 travel restrictions, cancellations, and reduced business, group, and leisure travel.
- Operating results turned to a loss. Property-level costs declined only 9.3%, less than the revenue decline, reflecting fixed costs and the rapid demand shock. The company recorded approximately $35 million of furloughed-employee benefits in the quarter.
- Cash from operations declined by $50 million. Debt rose substantially after the company drew its full revolver capacity as a precautionary liquidity measure.
Outlook, management commentary, and risks
- As of May 6, 35 hotels had suspended operations; the remaining 45 were operating at reduced capacity where revenue exceeded incremental operating costs. Occupancy was 29% in March and approximately 12% in April.
- Management expected a further steep decline in Q2 results and did not provide a forecast for RevPAR, net income, or EBITDA because the pandemic’s duration and effects were highly uncertain. Management anticipated that corporate and group travel would recover slowly.
- Cost and liquidity actions included staffing reductions and furloughs, reduced hotel operating costs, deferred or suspended projects, suspended FF&E contributions, and a planned temporary suspension or nominal dividend. April hotel operating-cost reductions were expected to be approximately 70%–75% versus initial forecasts. The company expected 2020 capital expenditures of $450 million–$525 million, approximately $100 million–$125 million below its initial forecast.
- The company was in compliance with debt covenants at quarter-end and expected to remain compliant through Q2, but management believed a breach of certain credit-facility covenants was probable based on Q3 results. It was seeking a lender waiver; no assurance was given that a waiver would be obtained on acceptable terms. Failure to obtain a waiver could trigger default and acceleration of credit-facility and senior-note debt.
- The filing states that these circumstances raise substantial doubt about the company’s ability to continue as a going concern over the next twelve months. Management cited available liquidity, capital-market access, and potential hotel sales as alternatives, but noted there was no assurance of favorable financing or sale terms. The company reported $2.5 billion of available cash as of April 30.
- Other risks include prolonged travel weakness, fixed operating costs, restricted access to capital or credit-rating downgrades, and reduced dividends. Legal proceedings were described as routine, with minimal accruals and no identified material loss contingency.
Important facts for investors to verify
- Whether lenders granted covenant relief, its duration and terms, and the company’s covenant position as operating results developed.
- Hotel reopening pace, occupancy and RevPAR trends, and the duration of pandemic-related demand weakness.
- Actual liquidity, operating cash burn, debt balances, and access to capital compared with management’s stated liquidity position.
- Whether planned capital-expenditure reductions and operating-cost actions were achieved without impairing hotel competitiveness or recovery.
- Board decisions on future dividends and any updates to the going-concern disclosure.