Though Host Hotels & Resorts outperformed expectations during the first quarter, executives said they are taking a cautious approach to the rest of the year.
“Demand trends appear to be holding for now, but the potential for deteriorating lodging fundamentals has increased,” said Jim Risoleo, Host president and CEO, during the hotel real estate investment trust’s first-quarter earnings call.
Host is maintaining its hotel revenue per available room outlook range with a slight reduction to its total RevPAR outlook due to the moderating trends in group lead volume, he said.
The previous and current full-year comparable hotel RevPAR guidance ranges from 0.5% to 2.5% growth, according to the company’s earnings release. The comparable hotel TRevPAR was 1% to 3% growth, but it’s now 0.7% to 2.7%, a decrease of 30 basis points.
Host executives looked to prior downturns that had the most severe impact on the hotel industry when preparing its updated outlook, Risoleo said. The company is providing a rule of thumb for the current environment based on how the portfolio is managed today that for every 100-basis-point change in RevPAR, it would expect to see a $32 million to $37 million change in adjusted earnings before interest, taxes, depreciation, amortization and real estate costs.
“In times like this, it is important to remember that Host is well-positioned to weather any environment and continue to thrive as a result of our fortress investment-grade balance sheet, a leverage ratio of 2.8 times, our access to capital, our size and scale, our diversified business and geographic mix and our continued reinvestment in our portfolio,” he said.
Hotel performance
Hotel RevPAR growth during the quarter was better than expected, driven by increases in room rates, Risoleo said. The company saw particularly strong performances in Washington, D.C.; New York City; New Orleans; Los Angeles; and Maui.
Transient RevPAR grew by 6%, driven by resorts as they benefited from a late Easter, he said. Host’s three Maui resorts accounted for almost half of the transient RevPAR growth in the quarter, alongside strong performance in New York and Los Angeles.
Leisure transient demand continued to drive Maui’s resorts during the quarter, he said. Transient rooms sold grew about 70% year over year, and growth in revenue from transient guests more than made up for the decline from a tough group comparison with the year before which had revenue from recovery and relief groups and cancellation revenue.
“Maui's 16% RevPAR growth in the first quarter provided a 70-basis-point benefit to portfolio RevPAR growth,” he said.
Business transient RevPAR grew 2%, driven by rate growth as Host saw a favorable market mix and continued shift from government to corporate-negotiated customers during the quarter, Risoleo said. Group RevPAR for the quarter was up 7% year over year as special events, the Easter holiday shift and strong corporate group bookings in major markets drove group rate growth.
For holidays later this year, transient revenue pace is down slightly for Memorial Day weekend compared to the same time last year, as convention hotels have opted to take more groups on the books that weekend, said Sourav Ghosh, Host's executive vice president and chief financial officer. Outside of convention hotels, transient revenue is pacing up in the mid-single digits, and Maui specifically is pacing up over 30%.
Transient revenue pace for the Fourth of July is also up 4% compared to last year, driven by Maui, he said.
Business transient RevPAR was up 2% compared to the first quarter of 2024, driven by nearly 7% rate growth while volume was down 5%, Ghosh said. Host executives expect business transient revenue to remain flat for the remainder of the year due to the uncertain macroeconomic environment.
Group RevPAR was up 7% year over year, and that includes an estimated 200-basis-point negative impact from Maui as expected, he said. Group room nights were down compared to the first quarter of 2024 due to the recovery and relief group room nights in Maui last year. Group room-night volume for the portfolio excluding Maui was up slightly, driven by broad-based corporate group trends.
For the full year, Host has more than 3.6 million definite group room nights on the books, representing a 12% increase since the fourth quarter. Total group revenue pace is up 3.3% over the same time last year.
Group lead volume has moderated, however, as association and government-related groups paused new bookings due to the economic uncertainty, Ghosh said. Rates continue to hold across the portfolio for bookings made in the first quarter for the rest of the year.
Host continues to see strong citywide booking pace in many key markets, including San Francisco, New Orleans, San Antonio and Nashville, he said.
Deals outlook
“I really don't know what's going to happen,” Risoleo said when asked about acquisition opportunities. “I can only point to what we've done in the past as maybe a prelude to how we think about markets and deploying capital in the future.”
There was a lot of talk all through the pandemic about stress on the markets leading to asset sales that didn’t end up happening, he said. Looking at Host’s portfolio from a fundamental operating perspective, Risoleo said he hopes that translates to what other hotel owners are seeing.
“That the big 'R word' is a thing of the past, and that we see a shift in policy, which is really causing all the uncertainty out there today, and that we have other great things coming out of Washington — the tax bill and the budget bill — in the second half of the year, and that the economy takes off and the uncertainty goes away,” he said.
If that all happens, and that’s dependent upon interest rates, the transaction market may pick up later this year, he said. As of today, however, the general mood is wait-and-see.
Host will continue to be opportunistic with potential deals, and it will continue to invest in its portfolio, Risoleo said. It has seen great results from the 16 Marriott-branded hotels ramping up after their renovations as well as eight other hotels that have undergone transformational renovations.
“We picked up 8.9 points in yield index,” he said. “I mean, that's very significant, and that flows right to the bottom line. We underwrote 3 to 5 points.”
Pricing will depend on the property being considered, and luxury hotels still command high prices, Risoleo said. One of the positive factors affecting deals is the low level of new supply, especially in the luxury and upper-upscale spaces. That will affect the pricing of properties as buyers won’t have to worry about new luxury resorts being built next door.
It’s still too soon to say how this will all play out as the general approach currently is to wait and see how things progress, he said.
“The good news is, operations are still strong, and hotels are cash-flowing,” he said. “This is a self-made policy issue that is creating all the uncertainty, and that can change very quickly — that can change on a dime. So, let’s just sit back and see what happens and run the business the best we can going forward.”
By the numbers
For the first quarter, Host reported revenue of $1.59 billion, an 8.4% year-over-year increase, according to the earnings release. It also reported net income of $251 million, a 7.7% year-over-year decrease. Adjusted EBITDARe amounted to $514 million, a 5.1% year-over-year increase.
As of March 31, Host reported a debt balance of $5.1 billion with a weighted average maturity of five years, a weighted average interest rate of 4.7% and a balanced maturity schedule. Its total available liquidity was approximately $2.2 billion, including furniture, fixtures and equipment escrow reserves of $264 million and $1.5 billion available under the revolve portion of its credit facility. Its total assets are valued at $12.9 billion.
Host expects to invest between $270 million and $315 million back into its own portfolio this year. Within that, it expects to spend between $170 million and $180 million on its Hyatt Transformational Capital Program.
During the first quarter, Host repurchased 6.3 million shares of its common stock at an average price of $15.79 per share for a total of $100 million. It has approximately $585 million remaining capacity under its repurchase program.
As of publication time, Host's stock was trading at $14.53 per share, down 17.1% year to date. The NASDAQ Composite was down 8.3% for the same period.