Results

Host looks to ‘opportunistic investments’

Host Hotels & Resorts said that it remained focused on “opportunistic investments” as it continued to address the pandemic.

The company said that, although demand was driven by leisure, it was seeing “small but steady business transient volumes”.

Jim Risoleo, president & CEO, told analysts that demand for business transient remained “minimal, but has improved. A variety of industries are driving demand, including healthcare, consulting, technology, and financial and business services.

“Both group and business transient demand is being driven by smaller organisations, rather than by the large corporate accounts. We continue to believe that business travel will recover in line with the broader economic recovery because of the ROI it generates for businesses.”

Looking at the leisure market, the CEO said: “If lines between work, school and home remain blurred, our operators have created new offerings to appeal to consumers looking to escape but not via being at home.

“Hyatt introduced the Work From Hyatt package and Marriott launched the Work Anywhere with Marriott Bonvoy package. The packages facilitate working productively from a hotel for the day, a short stay, or an extended resort vacation, another example of our operators innovating to access all potential sources of demand.”

Looking at transactions, Host said that it had sold a 532-room Newport Beach Marriott Hotel & Spa for $216m, exceeding its pre-Covid internal hold value for the asset.

On the buy side, Risoleo said: “A record 26% of CMBS hotel loans were in special servicing in September 2020 compared with 1.9% in December 2019. And 70% of hotel loans are either in special servicing or on special servicing watchlist according to TREPP Research. Delinquency rates are expected to move higher as forbearance agreements start to roll-off. Additionally, some hotel owners who were hoping for a speedy recovery may not be able to sustain the cash outflows required to service their indebtedness and may decide to throw in the towel.

“So although we don't see high quality assets trading at this time, we continue to focus on opportunities where we can leverage our competitive advantages, such as deep owner, broker and operator relationships, and our ability to do large transactions.”

The Reit said that it had achieved break-even or positive hotel-level operating profit at 22% of its hotels in September. It saw revpar for the third quarter fall by 84.1% year-on-year. Adjusted Ebitdare was $(111)m, with revenues down 84.3% to $198m.

Risoleo said: “As we enter the ninth month of the pandemic with daily Covid-19 case counts in the US near all-time highs, we continue to believe that the demand recovery will remain gradual and choppy before the widespread availability of effective Covid-19 vaccines and therapeutics. Therefore, our key near-term priorities remain: number one, working with our operators to continue to access all potential sources of demand; number two, minimising expenses and reducing hotel cash burn; and number three, maximising liquidity.”

The group said that it expected to end the year with approximately $2.4bn to $2.5bn of total available liquidity, including cash and FF&E reserves, with no debt maturities until 2023.

Risoleo said that: “In general, rate doesn't appear to be driving occupancy to the extent it normally would in a downturn. Customers are more sensitive to cleanliness and sanitisation standards than to room rates. We therefore remain hopeful that rate degradation will be less severe than in prior downturns and that branded hotels will benefit from having stringent cleanliness standards to help gain customer trust and strong loyalty programs to help drive demand.”

Commenting on the relationship with the brands, CFO Sourav Ghosh said: “Marriott has actually restructured and reduced above property shared services, for sales and marketing, revenue management and IT and are right now working towards reductions of their programme Shared Services fees for the following year.

“For this year, Hyatt has also reduced the fixed component of their above property IT costs by 15% and chain marketing fees by as much as 50%. And moving forward, they're really committed to making their fees more variable, so that the cost is actually tied to exactly what you were talking about the value proposition to the owner.”

 

Insight: Throwing in the towel, eh? This is the kind of comment which is likely to make all those sitting up high on their walls of money perk up although, as the Reit noted, this is not coming in the form of delicious whole hotels, but creeping in on the debt side. And there are no end of players who would be very happy doing just that, including Host itself.

So hope as bonus season approaches. Hope also for the brands, which have been taking something of a kicking of late, as owners turn to the OTAs for help filling beds and start to wonder what that sign over the door really means. For Host, it means a drop in costs.

For the brands? Dropping costs may keep owners sweet, but it’s not going to do much for the bottom line.