Following the completion of a $1-billion acquisition of three U.S. Hyatt properties during the first quarter, Host Hotels & Resorts raised its 2018 full-year outlook.
BETHESDA, Maryland—After closing a deal to acquire three Hyatt Hotels Corporation properties in the first quarter, Host Hotels & Resorts has no further acquisitions planned for 2018, according to President and CEO Jim Risoleo.
In February, the real estate investment trust announced its full-year 2017 earnings and on the same day confirmed an agreement to acquire the 301-room Andaz Maui at Wailea Resort, the 668-room Grand Hyatt San Francisco and the 454-room Hyatt Regency Coconut Point Resort and Spa on Florida’s Gulf Coast for a combined $1 billion. Host finalized the deal on 29 March, according to a Q1 2018 earnings release issued Wednesday.
“We’re not seeing a large amount of individual or portfolio acquisition opportunities that fit our profile, and when I say fit our profile, I’m not only talking about the nature of the asset, but I’m talking about the disciplined way we underwrite these potential investment opportunities,” Risoleo said Thursday during a conference call with analysts. “That’s one of the reasons why we didn’t include any additional acquisitions in our guidance for the balance of the year.”
Although the assets on the market haven’t piqued Host’s interests, Risoleo said the company is waiting for the right deal, whether that’s as a buyer or a seller.
“We track every deal on the market even if it’s not an asset that we may be interested in acquiring,” he said. “We’re getting a fairly good sense of what’s happening on the acquisitions side, the bid-ask (gap) between buyers and sellers, and the debt capital markets are strong. … We’re very comfortable with the portfolio we have today. That said, we would certainly be opportunistic sellers if we could achieve pricing on an asset or a group of assets that exceeds our hold value.”
In January, Host sold the Key Bridge Marriott for $190 million. For the remainder of 2018, the company plans to close on the sale of the W New York—also for $190 million—during the second quarter and has one other “unspecified” disposition planned by the end of the year.
Risoleo was asked if Host would consider any significant merger or acquisition opportunity in light of Pebblebrook Hotel Trust’s pursuit of LaSalle Hotel Properties.
“On the M&A front, I would say as we have said in the past that we are very open-minded and will evaluate all opportunities to enhance (net asset value), and we’ll continue to think about our strategy in that context going forward,” he said.
During the first quarter, Host reported total revenue was $1.3 billion, down just 0.1% year over year. Net income increased 59% to $256 million and comparable hotel earnings before interest, taxes, depreciation and amortization rose 3.7% to $13 million. Across its portfolio, Host saw occupancy increase 2.4% to 77.6%, average daily rate decrease 0.6% to $228.01 and RevPAR increase 1.7% to $176.91.
Host also raised its 2018 full-year RevPAR guidance from 0.5% to 2.5% growth to between 1.5% and 2.5% growth. Risoleo added he expects Host’s first quarter to be its weakest “and that the second half of the year should be stronger than the first.”
“This combination of better-than-expected first-quarter results and increased macroeconomic optimism is driving the across-the-board raise to our full-year guidance,” Risoleo said. “The global economy continues to exhibit strength and appears supportive of industry growth.”
As of press time, Host’s stock was trading at $19.43 per share, down 2.6% year to date. The Baird/STR Hotel Stock Index was down 3.3% over the same period.
Host’s hotels in Philadelphia, Florida’s Gulf Coast, and Hawaiian markets Maui and Oahu were the highest performers in the first quarter, according to EVP and CFO Michael Bluhm. In Philadelphia, group revenue increased 7% and transient revenue increased 17%, which raised RevPAR for Host’s hotels during the quarter by 16%. Bluhm noted the completed renovations at The Logan and the Eagles’ postseason run, Super Bowl victory and championship parade spurred the market’s Q1 growth.
On Florida’s Gulf Coast, Host properties reported RevPAR increased 11.6% during Q1, which Bluhm said was due to room supply still offline in the Florida Keys and Caribbean from the hurricanes in 2017. Host’s hotels in Maui and Oahu saw a 9.7% RevPAR increase during the first quarter, with both transient (+10.7%) and group (+5.6%) demand up.
“Demand continues to be strong for our Hawaiian assets, providing our management the ability to grow rate at our hotels,” Bluhm said. “I would also point out that even though they are non-comp, two of the three Hyatt assets we recently acquired were in Maui and Florida’s Gulf Coast, two of the top-performing markets this quarter.”
Host’s weak markets during the quarter reflected industrywide trends, Bluhm said. The company’s assets in Washington, D.C., showed a 17.4% RevPAR decline due to a tough comparison with the presidential inauguration and the Women’s March. In Houston, Host reported RevPAR decreased 9%, but Bluhm said he was encouraged by 3.4% transient demand growth in the face of year-over-year group declines as the city hosted the Super Bowl in 2017.
“Excluding Washington, D.C., and Houston, comparable revenue for our portfolio for the quarter would have been up 3.8%,” Bluhm said.
Risoleo said Host properties have seen positive impacts from both Marriott and Hilton changing their cancellation policies.
“We have seen a difference in booking patterns at the hotels, and most importantly, we're delighted that our property managers are enforcing the policies,” he said. “We saw an uptick in cancellation fees in quarter one. It wasn't across the portfolio … but to be able to collect cancellation fees from groups, that is really something new. And we're also seeing it happen with the transient customer as well.”