BETHESDA, Maryland—Host Hotels & Resorts is strategically targeting soft-brand and independent opportunities as part of its focus to shift its portfolio mix, President and CEO Ed Walter said Thursday during the company’s third-quarter earnings conference call.
On 6 October, the real estate investment trust announced the acquisition of the 242-room B2 Miami Downtown hotel for $57.5 million. Host also entered into a management agreement with Destination Hotels & Resorts to relaunch the hotel under a new independent identity in late 2014, Walter said.
“(The acquisition) provides us with increased exposure to the growing urban boutique segment,” he said, adding that Host is exploring conversions to independent properties or soft brands for three hotels the company owns.
Additionally, the company acquired the 151-room Powell Hotel in San Francisco during the first quarter. Host plans to spend $22 million in an extensive redevelopment of the boutique hotel, which is slated to begin in late 2014, according to the San Francisco Business Times.
The push to broaden Host’s portfolio is a result of the company’s strategic focus to narrow the number of markets it is exposed to, and then penetrate those markets more deeply, Walter said.
“In many of those markets we already own some of the bigger convention hotels, so it’s a natural progress to look for other opportunities,” he said.
The company hopes to complete more acquisitions that are ripe for soft branding, but it’s not the easiest market to buy in, Walter added.
Group aids overall performance
The REIT’s strong performance during the third quarter was driven by increased rate and demand growth, especially in the group business sector, Walter said.
Revenue-per-available-room growth of 8%, on a constant-dollar basis, was driven primarily by a 6.4% increase in average daily rate. Occupancy grew 1.1 percentage points to 79.9% during the quarter. Additionally, RevPAR for the full portfolio owned as of 30 September increased 9.2% on a pro forma basis.
Group revenues improved by more than 10.5%, Walter said, adding this significant increase limited transient occupancy slightly, but helped hotels to push rates. The calendar shift related to the Jewish holiday helped increase September revenues by almost 10%, he said.
“We saw strong demand in all of our group segments, especially association, which saw a 14% increase during the quarter,” he added. Demand increased 3% for corporate group business.
Group revenues for hotels in the western part of the United States increased 11.4%, with Seattle, San Francisco, Denver and Los Angeles being the primary drivers, said CFO Gregory Larson.
“Solid group business created compression that allowed our managers to shift the mix with premium business,” Larson said.
Hotels in the southern region of the U.S. also saw strong group business demand, particularly Atlanta where hotels saw food-and-beverage revenues increase by more than 8%, Larson said.
As of press time, Host’s stock has grown 19.5% year to date. By comparison, the R.W. Baird/STR Hotel Stock Index has grown 19.1% year to date.
Market metrics
Latin America hotels were the best-performing properties during the quarter as a result of the 2014 FIFA World Cup held in Brazil held from 12 June through 13 July, Larson said.
However, he doesn’t expect the stellar performance to continue during the fourth quarter and into 2015. Additionally, Larson touched on performance in some key U.S. markets for the company.
“Hawaii and San Diego underperformed when compared to our full portfolio,” Larson said. Two possible hurricanes in August and higher airline prices were the primary cause of Hawaii’s performance lag.
“Hotels in Hawaii are strategically replacing group rooms with higher transient business,” Larson said, adding that the fourth quarter should improve.
Host’s New York City properties also underperformed the portfolio, Larson added. “Hotels in New York continue to be impacted by select-service supply inhibiting rate growth. They will continue to underperform the portfolio.”
While Houston is typically a strong market for the REIT, hotel performance softened during the third quarter due to quieter business at the JW Marriott Houston and the Houston Airport Marriott at George Bush Intercontinental. Both hotels were undergoing renovations during the quarter.
Europe portfolio
On 30 September, Host’s European joint venture, in which the company holds a 33.4% interest, acquired a 90% interest in the entity that owns the 394-room Grand Hotel Esplanade in Berlin. The hotel was acquired for €81 million ($102 million), according to a news release.
“The acquisition further diversifies the joint-venture European portfolio,” Walter said. The company also is looking to reduce the size of its portfolio in Europe.
Subsequent to quarter end, on 16 October, the JV sold the Sheraton Skyline Hotel & Conference Center in the United Kingdom for £33 million ($53 million).
One analyst asked about the company’s outlook for Europe. Larson said the continent has been difficult to predict because of its economic recovery, but year to date the portfolio has seen 3.5% RevPAR growth.
“I like to think next year we’ll reach that level, but it’ll be interesting to see what develops as we go through the budgeting process,” he added.