Despite not having any immediate acquisitions in the works, Host Hotels & Resorts is prepared to pounce once sellers' prices come down a little bit more.
In November, Host acquired the 125-room Four Seasons Resort & Residences in Jackson Hole, Wyoming, in an all-cash transaction for $315 million. Asked about the hotel real estate investment trust's appetite for more acquisitions this year, President and CEO Jim Risoleo said the Bethesda, Maryland-based company is patiently awaiting better conditions in the transactions market.
"There are a number of properties in the market right now that we are evaluating. I would just say that the bid-ask spread hasn't come to the middle yet," Risoleo said Thursday during an earnings conference call. "For the near term ... I’m talking about the next 60 to 90 days ... [we're] not anticipating acquiring any assets, but that could change."
If the right asset comes to market, Host is ready to move quickly, Risoleo said.
"I'll just point out that the Four Seasons Jackson Hole [acquisition] was roughly a 30-day process for us, which puts us in in a really strong position because we are the only player out there that can can really do a meaningful transaction all-cash," he said.
Host executives are also mindful of the opportunities to acquire distressed hotel assets throughout the year, Risoleo said, noting he anticipates several commercial mortgage-backed securities loans will mature this year and next year.
"We will see if certain owners are in a position where they're going to have to sell the asset, just given the current interest rate environment relative to where the environment was when they put their current debt financing in place, and the fact that their asset is likely to need significant [capital expenditure spending] because they haven't been able to invest over the course of the pandemic," he said. "And I think you can see us as the year evolves — assuming distress presents itself — investing across markets that are different than markets that we invested in 2021 and 2022."
Hurricane Ian's Drag on 2023
Host is still feeling the impact of Hurricane Ian, which devastated Florida's west coast at the end of September. The storm significantly damaged two of Host's resorts in the area: the Hyatt Regency Coconut Point Resort and Spa in Bonita Springs, Florida; and The Ritz-Carlton, Naples in Naples, Florida.
The Hyatt Regency Coconut Point partially reopened on Nov. 7, but the remaining renovation work on its pool facilities isn't scheduled to be completed until June. The Ritz-Carlton, Naples, meanwhile, is still closed, but Host hopes to begin a phased reopening this summer.
"Reconstruction at The Ritz-Carlton will enhance the resilience of the property by elevating critical equipment, introducing dry flood-proofing measures and replacing major equipment with more efficient machinery," Risoleo said. "In addition, while the hotel is closed, we are avoiding future disruption by executing planned capital projects that would have otherwise impacted operations."
Host's preliminary estimates show the total property damage and remediation costs from Hurricane Ian across all of the REIT's Florida properties range between $200 million and $220 million, Risoleo said. Host is insured for $325 million per named windstorm with a $15 million deductible, resulting in about $310 million the company should recoup through insurance.
"Based on our current reopening plans for The Ritz-Carlton Naples, we believe our insurance coverage is sufficient to cover substantially all the property damage as well as a near-term loss of business," Risoleo said. "Thus far this year, we have received approximately $50 million of insurance proceeds related to our claims."
Despite the insurance payments helping in the short term, Hurricane Ian cost Host $39 million in revenue in 2022, including $33 million in the fourth quarter. In 2023, Host is anticipating about a $71 million gap in earnings before interest, taxes, depreciation and amortization from those properties damaged by the storm, but Risoleo said that gap should be limited to this year.
"I do want to point out that $71 million is a significant amount of EBITDA that is going to impact one year. It's just this year, because we're very excited about the performance of The Ritz-Carlton for full-year 2024," he said. "The property will be completely transformed and a new tower will be open. We've added 24 rooms and materially increased the suite count of that asset and made a number of other enhancements."
Group Demand Continues To Recover
In 2022, Host's portfolio sold 3.8 million group room nights, which Risoleo said represents about 84% of group room nights sold pre-pandemic in 2019. Total group revenue in 2022 was just 11% behind 2019.
An encouraging sign for 2023 is Host's hotels already have 2.9 million definite group room nights on the books, which puts group demand at about 80% of what Host's portfolio achieved in 2022.
"We are very encouraged by the large group base we have on the books, particularly given short-term booking trends," Risoleo said.
Asked if cutting rates to chase occupancy would yield more revenue, Risoleo said that revenue strategy isn't being considered.
"It's easy to buy occupancy in certain markets at certain hotels," he said. "We don't think that's the right revenue management strategy. ... We continue to see occupancy evolve, but we're going to continue to hold rate at high levels and continue to increase rates. We're encouraged in particular by the group rate that we've been able to achieve that's locked in with definite [group room nights] on the books."
Fourth-Quarter and Full-Year Performance
During the fourth quarter, Host Hotels & Resorts reported revenue of $1.3 billion, up 26.6% over the fourth quarter of 2021, but down 5.3% from the fourth quarter of 2019, according to its earnings release. For the full year, Host's revenue reached $4.9 billion, which was a 69.8% improvement over 2021 but 10.3% behind 2019.
Host's full-year net income was $643 million, and adjusted EBITDA for real estate was $1.5 billion.
The company's portfolio achieved fourth-quarter RevPAR of $196.82, which was up 0.6% from the same quarter in 2019. Average daily rate was $299.58, which was 15.6% higher than the fourth quarter of 2019. Hotel occupancy was 65.7%, down 13% from the same quarter in 2019. For the full year, Host's RevPAR was $196.33, up 63.2% from 2021 but down 2.8% from 2019.
As of press time, Host's stock was trading at $17.40 per share, up 8.38% year to date. The Nasdaq Composite Index was up 13.87% for the same period.