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Host: Gains in group business led Q1 success
April 26 2012

Increasingly positive fundamentals have solidified the REIT’s confidence in boosting acquisition activity, President and CEO Ed Walter said.

Highlights
  • On the group side, hotels saw a 4% increase in roomnights sold, including double-digit growth in demand from association meetings.
  • Once meeting planners arrive on property, their purse strings tend to loosen, President and CEO Ed Walter said.
  • Host is confident the second half of 2012 will see a pickup in transaction opportunities because debt is maturing and lenders are no longer willing to extend and pretend.
By Jason Q. Freed
Contributing Editor, Tech Impact Report

BETHESDA, Maryland—Host Hotels & Resorts continues to report “very strong” demand trends at its portfolio of hotels and as a result raised its revenue-per-available-room guidance to between 5% and 7% for the remainder of 2012.

First-quarter success was led by unexpected gains in group business and solidified the real-estate investment trust’s confidence in increasing acquisition activity, President and CEO Ed Walter said.

“Our outlook for 2012 is based on very strong demand trends,” he said. “With new supply in our markets expected to be around 0.5% in 2012, lodging fundamentals will remain strong.”

Group bookings
Walter said performance within
Host’s portfolio—comprising 104 luxury and upper-upscale properties in the United States and 16 outside the U.S.—started 2012 ahead of prior year and grew further.

On the group side, hotels saw a 4% increase in roomnights sold, including double-digit growth in demand from association meetings. Group revenues during the first quarter improved 5.5%.

For the remainder of the year, Host is projecting group demand to be up more than 13% over 2011.

“We booked more room in the quarter for the quarter and more rooms in the quarter for the following quarters,” Walter said.

Similar to recent trends reported by Marriott International, Walter said Host’s smaller hotels in smaller markets are experiencing better year-over-year growth in terms of group business. However, larger hotels in larger markets also are performing well, reporting stronger increases in rate than occupancy.

“Larger hotels are a few points behind on occupancy but are doing better on rate. They’re getting the rate because they’re well-located in markets that are recovering quickly,” Walter said. “Overall revenue performance in both (small markets and large markets) in comparison to prior peaks is in the same position, but they’re getting there differently.”

Larger hotels are reaping the benefits of returning association business, Walter said, noting associations are “thinking of bigger events in attendance for 2013, 2014 and beyond.

“They’re going to hold bigger events and that will clearly benefit the larger hotels,” he said.

Another driver of increased group business could be attributed to Marriott’s slow-but-steady rollout of its Sales Force One program, a companywide decision to move sales functions to a regional sales office rather than keeping the duties at property level.

The rollout was initially met with resistance, but Walter said Marriott has been encouraged by some of the recent trends it has seen.

“If we look at our Marriott hotels, they’ve had a strong surge of booking activity over the past six months,” he said. “While it’s fair to assume that is some of the driver, the state of the economy is the major driver.”
 
Asked about ancillary pricing power, Walter said many of Host’s hotels are starting to see the ability to push banquet pricing, but still are a ways away from driving results. Groups want to hold events, he said, but are operating on a tight budget. “We’re not at the point where we can say, ‘That budget has to go up before we can give you the meeting space,’” he said.

However, once meeting planners arrive on property, their purse strings tend to loosen, Walter said. “That has been a positive for (food-and-beverage) revenues. We’ve been beating month-out projections more than we’ve been falling short,” he said.

Acquisition strategy
Walter is still confident the hospitality industry is in the early part of an upswing and supply growth won’t be exceeding demand growth at least for several years. Because of this, Walter said Host will continue to recycle assets and look for opportunities to invest new capital.

“We would like to be a net buyer” in 2012, he said. “We’re moving quickly to bring selected assets to market as we look to recycle our assets. Our pipeline on the investment side is growing. While we expect to be a net buyer, we intend to remain disciplined.”

While Host is not actively targeting portfolios of assets, Walter said there are a few portfolios “in play right now.”

“It will be interesting to see if the pricing gets to the point where it makes sense,” he said. “There seems to be a bit of a pricing expectation gap between sellers of a mind to sell and where the market is right now.”

He’s confident the second half of 2012 will see a pickup in transaction opportunities because debt is maturing and lenders are no longer willing to extend and pretend.

The REIT is interested in investing in both Asia and Europe, although Walter doesn’t expect to see many assets come to market in Europe unless they’re driven by debt maturity.

“The amount of product on the market in Europe is relatively low,” he said.

Because of a boom in natural resources, Walter said Host is interested in investing further into Australia. The company holds non-controlling interests in a joint venture that owns one 278-room hotel in Australia; Host also is investing in seven hotels in India.

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