The hotel industry's largest public real estate investment trust concluded a strong third quarter by acquiring an asset that executives believe could lead its portfolio for years to come.
Executives at Bethesda, Maryland-based Host Hotels & Resorts announced this week that the REIT had acquired the 125-room Four Seasons Resort & Residences in Jackson Hole, Wyoming, for $315 million in an all-cash deal.
After signing a letter of intent to purchase the property, Host was able to close the deal in less than 30 days, said Host President and CEO Jim Risoleo.
"I really believe the fact that we were an all-cash buyer gave us a competitive advantage in the Four Seasons Jackson Hole acquisition," Risoleo said.
Risoleo added that the Four Seasons Jackson Hole is poised to be among Host's top three properties in its portfolio.
"A property of that nature is not going to come to market on a regular basis," he said. "I really feel that if we hadn't acquired that asset, it was likely to be acquired by somebody who would likely never sell that hotel."
The resort was one of 15 Strategic Hotels & Resorts properties that Blackstone sold to China-based Anbang Insurance Group in 2016 for $5.5 billion. In 2020, the Chinese government dissolved Anbang to curtail foreign investment outside of China and formed Dajia Insurance Group to administer the former Anbang's assets.
When pressed for details on how Host's latest deal came together, Risoleo said the sellers brought three hotels from the Strategic Hotels & Resorts portfolio to market: the Four Seasons Jackson Hole, the Four Seasons Resort Scottsdale at Troon North and a third property Risoleo said he couldn't disclose due to a confidentiality agreement. On Tuesday, Braemar Hotels & Resorts entered into a definitive agreement to purchase the 210-room Four Seasons Scottsdale property for $267.8 million.
"Suffice it to say, we underwrote all three of the properties that were brought to market and we just couldn't get our arms around pricing for the other two assets, and that's why we pursued the Four Seasons Jackson Hole," he said.
The remainder of the Strategic Hotels & Resorts portfolio also holds some interesting properties that Host could be interested in, Risoleo said. He specifically cited the Ritz-Carlton Laguna Niguel in Dana Point, California; the Ritz-Carlton Half Moon Bay south of San Francisco; the Four Seasons Hotel Austin in Texas; and the Four Seasons Hotel Silicon Valley at East Palo Alto.
"With respect to the other 12 properties, it's TBD whether or not or when they bring those assets to market," Risoleo said. "But again, given our balance sheet, and given our relationships and given our performance on this transaction, we think we are really in a strong position to be a buyer of choice for some of these other assets."
State of the Transactions Market
Host ended the third quarter with total available liquidity of $2.6 billion, including furniture, fixtures and equipment escrow reserves of $187 million and a $1.5 billion revolver on its credit facility.
When asked about the potential for additional acquisitions in the next year, Risoleo said Host has already received multiple calls from potential sellers facing distress on their properties.
"The CMBS market for full-service hotel maturities in 2023 is north of $7 billion, and the CMBS market for full-service hotel maturities in 2024 is over $10 billion," he said. "What we're seeing already are inbound calls from owners of hotels who have loans coming due over the next year to two years reaching out on a direct basis to see if we might have any interest in buying their property, because it's going to be difficult to refinance your loan at par plus put capital in for the assets that have been starred from a [brand property-improvement plan] perspective."
Risoleo added that the brands are less likely to be lenient with hotel owners on pushing off property-improvement plans much longer, and lenders aren't likely to be flexible any longer either.
"I think [the brands] were very lenient, as were a lot of lenders during the pandemic, but we're clearly through that period of time," Risoleo said. "And we're seeing a lot of pressure not only in the CMBS market, but from the brand companies and also from the banks. The banks are going to be taking a bit more of a firmer position and not kick the can down the road as we get into '23 and '24."
Impact of Hurricane Ian
At the end of the quarter, Hurricane Ian was a major disruption to two of Host's Florida properties — the Ritz-Carlton Naples and the Hyatt Regency Coconut Point Resort & Spa — both of which were still closed as of Thursday's earnings call. Risoleo said the Hyatt Regency Coconut Point was about a week or two from being able to reopen, but the Ritz-Carlton Naples would remain closed through the end of this year and even into 2023.
"We're looking at various stages of reopening options [for the Ritz-Carlton Naples], and when we have more information we will certainly share that with everyone," he said. "Coconut Point is going to be back in business in the next week or so. The only part of that property that is still in a state of disrepair is the water park really, which we hope to have back online by April.
"It's very unfortunate that this happens, but it's the business that we're in, and we're very well-prepared to manage through the process and to move business to our other resorts that didn't suffer any damage."
Outlook for Future Quarters
Host Hotels & Resorts expects full-year 2022 revenue per available room between $193 and $195, a range which is between 3.75% and 2.75% behind full-year 2019 RevPAR. The REIT also anticipates 2022 net income between $617 million and $645 million, and full-year adjusted earnings before interest, taxes, depreciation and amortization between $1.47 billion and $1.5 billion.
While the company didn't give any guidance for 2023, Risoleo said his team hasn't seen any evidence of any big drop-off in demand.
"At this point in time, we're not seeing any signs of weakness in any of our segments: leisure, group and business transient," Risoleo said. "That's not only for the balance of this year but as we look out into 2023. Of course we don't have budgets yet for 2023 and we're not giving guidance for 2023 at this point in time, but we feel that we're really set up quite well to continue to outperform as we move into 2023."
He added that Host would take action if macroeconomic headwinds really ramped up.
"If we started to see business transient fall off, or we started to see a real impact in the job markets, we started to see corporate groups not booking or canceling, we would become more defensive. ... Having been through slowdowns or downturns in the past, we keep a keen eye on business demand generators, and if we see things starting to turn south, then we'll get a little more conservative and defensive," Risoleo said.
Third-Quarter Performance
During the quarter, Host Hotels & Resorts reported revenue of $1.2 billion, up 40.9% over the third quarter of 2021, but down 5.8% from the third quarter of 2019, according to its earnings release. Net income was $116 million, and adjusted EBITDA for real estate was $328 million.
The company's portfolio reported third-quarter RevPAR of $192.06, which was up 1.4% from the same quarter in 2019. Average daily rate was $275.73, which was 15.8% higher than the third quarter of 2019. Hotel occupancy was 69.7%, down 12.3% from the same quarter in 2019.
As of press time, Host's stock was trading at $17.32 per share, down 0.4% year to date. The Nasdaq Composite Index was down 33.4% for the same period.