Host Hotels & Resorts had an active 2021 in terms of acquisitions, and to continue that growth momentum, kicked off 2022 by announcing a new partnership to diversify its portfolio.

As part of its fourth quarter earnings report, the Bethesda, Maryland-based hotel real estate investment trust announced it has formed a joint venture with Atlanta-based Noble Investment Group, a hotel asset management and development company.

In January, Host acquired a 49% stake in Noble's asset management platform with a $90.7 million investment, Host President and CEO Jim Risoleo said during a conference call with market analysts. Host has the option to increase its share in the platform by an additional 26% to 51%.

Host has also committed $150 million to Noble's next investment fund, and Risoleo added the partnership brings a net expected earnings of "$7 million to $10 million annually over the next three years."

Historically, Host and Noble have targeted different hotel types. Host trades in full-service hotels; properties with large room counts or event space; boutique, soft-branded properties; or resorts in markets with high barriers to entry. Noble, meanwhile, typically has acquired and developed branded, upscale, select-service hotels, as well as properties in the extended-stay segment at the lower end of the pricing tier.

On Thursday's call, Risoleo praised Noble's "multi-cycle track record" and investment experience as the impetus for the joint venture.

"By capitalizing on Noble's deep expertise, we will have the ability to incubate and invest in future lodging-adjacent strategies, thereby creating additional paths for long-term strategic value creation," he said. "Those strategies include property technology solutions, development and alternative lodging."

Risoleo said the deal will provide "chain-scale diversification."

"Noble's expertise with select-service and extended-stay hotels will preserve our focus on investing in upper-upscale and luxury hotels and resorts," he said, later adding that Host wants to "play in select service without it becoming a distraction."

"Investing in the Noble platform gives us the ability over time to grow a sustainable fee stream that is not subject to the cyclicality of the lodging industry, its commitment fees, its asset management fees, its development fees," Risoleo said. "It gives us an opportunity to further deploy capital into the select-service space without ... it becoming a distraction for the management team at Host. [Noble CEO] Mit Shah and his team have been in business since 1993. They've invested over $5 billion, and they have a very strong track record."

The partnership met all of the criteria Host executives look for in a good investment, Risoleo said.

"Having the ability to participate in development projects in an off-balance-sheet structure is also something that was very attractive to us," he said. "That's not something we ever wanted to do on our balance sheet. It's not conducive to the REIT model."

During the quarter, Host bought the 173-room Alida Hotel, Savannah, in Georgia, for $103 million. The hotel is part of Marriott International's Tribute Portfolio. Host also acquired the 319-room Hotel Van Zandt in Austin, Texas, for $246 million. Over the course of 2021, Host acquired seven hotels and two golf courses, spending a combined $1.6 billion.

The REIT was also active as a seller during the fourth quarter, unloading the W Hollywood for approximately $197 million. Host also sold a five-hotel portfolio that included Westfields Marriott Washington Dulles, San Ramon Marriott, The Westin Buckhead Atlanta, The Westin Los Angeles Airport and The Whitley hotel in Atlanta for a combined $551 million.

To start 2022, Host sold the Sheraton Boston for $233 million, including a $163 million bridge loan to the hotel's buyers, Värde Partners and Hawkins Way Capital.

Risoleo said no market is off the table for Host in terms of hotel acquisitions.

"We don't have a red line through any market in the United States today, nor do we have a red line through any property type," he said. "However, we have not seen a lot of opportunities in the major markets to date. ... The demographics of the nation are such that we will continue to deploy capital in Sunbelt markets for a lot of reasons. Just the inflows of business, the inflows of people, the favorable operating environment, the low cost structure, it makes those markets attractive to us."

He added Host will continue to buy and hold assets in which new supply is low, such as resorts and larger full-service conference hotels.

"If you look at the supply statistics, the lowest level of new supply in the nation is in the resort market," he said. "The second-lowest level of new supply is in the big box hotels, many of which we own. We're very comfortable in both of those areas. As opportunities become available, we will certainly evaluate them. There just hasn't been anything in the market that's been of interest to date."

Concerns over the omicron variant of COVID-19 also clamped down on transactions talk to start the year. Typically, hoteliers and investors are eager to discuss deals at the Americas Lodging Investment Summit — held in late January — but Risoleo said this year such discussions were more infrequent.

"I would expect that we'll see more properties come to market in the second half of the year," he said. "But at this point in time, there just aren't that many assets out there that that we're interested in. ... The seven assets we bought last year, five of them we purchased off-market, so we're going to continue to have conversations with owners of hotels that are of interest to us."

Amid widespread labor challenges, Risoleo said Host's hotels added about 1,000 positions in the fourth quarter, but the company's portfolio still has room to hire.

"On the [third quarter] call, we stated that staffing levels were 94% of our goal. Typically, they run about 97%," he said. "They never get to parity, they're never at 100%. With the increase in business volume in the fourth quarter, even though we added 1,000 positions, we still remain in about 94%.

"But I can tell you based on the conversations we've had with our managers, there is a degree of confidence that the open positions are going to be able to be filled as things open up as the variant gets behind us — as children get back to school in person across the country, and the various forms of stimulus burn off, which many of them already have."

Sourav Ghosh, Host's chief financial officer and executive vice president, said the company has refined its staffing structures at most of its hotels, opting to cut 25% to 30% of management staff permanently.

"We are pretty confident that if you have any position added back, there is going to be a return associated with it," Ghosh said.

Brand standards are also relaxing, and that will lead to reduced costs for owners, he said.

"The piece which we're still testing right now is in housekeeping and we will have an answer on that sometime middle of this year, but we're certainly not going back to where we were in 2019," he said. "It's really about providing more optionality and flexibility to the guest, but still making sure there is that guest satisfaction level that's needed for the respective brands."

According to its earnings release, Host ended the fourth quarter with a net income of $323 million, up from a net loss of $66 million in the fourth quarter of 2020. Host's full-year 2021 net loss was $11 million.

Host reported adjusted earnings before interest, taxes, depreciation, amortization for real estate of $247 million in the fourth quarter and $542 million for full-year 2021.

Systemwide, Host's occupancy was 57.2% in the fourth quarter, down from 76.1% in the fourth quarter of 2019. Average daily rate was $259.63 in the quarter, up 0.9% from the same quarter in 2019. Fourth quarter 2021 revenue per available room was $148.46, down 24.2% from the same period.

Host's portfolio occupancy for full-year 2021 was 45.8%, down from 78.6% in 2019. ADR was $247.50 in 2021, down 2.5% from 2019. Full-year 2021 RevPAR was $113.40, down 43.2% from 2019.

As of press time, Host's stock was trading at $19.30 a share, up 9.3% year to date. The Nasdaq Composite Index was down 13.4% for the same period.

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