HOST HOTELS & RESORTS, INC. The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and related notes included
elsewhere in this report.
Forward-Looking Statements
In this quarterly report on Form 10-Q, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "expect," "may," "intend," "predict," "project," "plan," "will," "estimate" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are based on management's current expectations and assumptions and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made.
The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•
the effect on lodging demand of (i) changes in national and local economic and
business conditions, including concerns about
•
the impact of geopolitical developments outside
•
volatility in global financial and credit markets, including volatility caused
by recent failures of several financial institutions and liquidity concerns at
other financial institutions, which could materially adversely affect
•
pending and future
•
operating risks associated with the hotel business, including the effect of labor stoppages or strikes, increasing operating or labor costs, including increased labor costs in the current inflationary environment, the ability of our managers to adequately staff our hotels as a result of shortages in labor, severance and furlough payments to hotel employees or changes in workplace rules that affect labor costs, and risks relating to the continued response to the COVID-19 pandemic by our hotel managers, such as increased hotel costs for cleaning protocols;
•
the effect of rating agency downgrades of our debt securities or on the cost and availability of new debt financings;
•
the reduction in our operating flexibility and the limitation on our ability to incur debt, pay dividends and make distributions resulting from restrictive covenants in our debt agreements and other risks associated with the amount of our indebtedness or related to restrictive covenants in our debt agreements, including the risk that a default could occur;
•
our ability to maintain our hotels in a first-class manner, including meeting capital expenditures requirements, and the effect of renovations, including temporary closures, on our hotel occupancy and financial results;
•
the ability of our hotels to compete effectively against other lodging businesses in the highly competitive markets in which we operate in areas such as access, location, quality of accommodations and room rate structures;
•
our ability to acquire or develop additional hotels and the risk that potential acquisitions or developments may not perform in accordance with our expectations;
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•
the ability to complete hotel renovations on schedule and on, or under, budget and the potential for increased costs and construction delays due to shortages of supplies as a result of supply chain disruptions;
•
relationships with property managers and joint venture partners and our ability to realize the expected benefits of our joint ventures and other strategic relationships;
•
risks associated with a single manager, Marriott International, managing a significant percentage of our hotels;
•
changes in the desirability of the geographic regions of the hotels in our portfolio or in the travel patterns of hotel customers;
•
the ability of third-party internet and other travel intermediaries to attract and retain customers;
•
our ability to recover fully under our existing insurance policies for terrorist acts and natural disasters and our ability to maintain adequate or full replacement cost "all-risk" property insurance policies on our hotels on commercially reasonable terms;
•
the effect of a data breach or significant disruption of hotel operator information technology networks as a result of cyber- attacks;
•
the effects of tax legislative action and other changes in laws and regulations, or the interpretation thereof, including the need for compliance with new environmental and safety requirements;
•
the ability of
•
risks associated with our ability to execute our dividend policy, including factors such as investment activity, operating results and the economic outlook, any or all of which may influence the decision of our board of directors as to whether to pay future dividends at levels previously disclosed or to use available cash to pay special dividends.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events, or otherwise. Achievement
of future results is subject to risks, uncertainties and potentially inaccurate
assumptions, including those risk factors discussed in our Annual Report on Form
10-K for the year ended
Operating Results and Outlook
Operating Results
The following table reflects certain line items from our unaudited condensed consolidated statements of operations and significant operating statistics (in millions, except per share and hotel statistics):
Historical Income Statement Data:
Quarter ended March 31,
2023 2022 Change
Total revenues $ 1,381 $ 1,074 28.6 %
Net income 291 118 146.6 %
Operating profit 248 122 103.3 %
Operating profit margin under GAAP 18.0 % 11.4 % 660 bps
EBITDAre and Adjusted EBITDAre ?¹?
0.40 0.16 150.0 %
NAREIT FFO per diluted share?¹? 0.54 0.39 38.5 %
Adjusted FFO per diluted share?¹? 0.55 0.39 41.0 %
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Quarter ended March 31,
2023 2022 Change
Comparable hotel revenues ?¹?
439 305 43.9 %
Comparable hotel EBITDA margin ?¹? 32.5 % 30.3 % 220 bps
Comparable hotel Total RevPAR ?¹?
217.77 166.12 31.1 %
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(1)
EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO per
diluted share and comparable hotel operating results (including hotel revenues
and hotel EBITDA and margins) are non-GAAP financial measures within the meaning
of the rules of the
Operations
Total revenues increased
Comparable hotel Total RevPAR for all markets exceeded first quarter 2022
levels. The recovery at our city-center properties led the portfolio, as
comparable hotel Total RevPAR in our
Our first quarter 2023 results improved when compared to 2022 as follows:
•
Net income increased
•
Diluted earnings per share increased
•
Adjusted EBITDAre increased
•
Adjusted FFO per diluted share increased
For the first quarter of 2023, operating profit margin under GAAP was 18.0% and comparable hotel EBITDA margin was 32.5%, an improvement of 660 basis points and 220 basis points, respectively, benefiting from improvements in rates and occupancy, compared to first quarter of 2022. Margins also benefited from more favorable comparisons to the first quarter of 2022, when hotel operators were still ramping up operations, in addition to improvements in food and beverage profits due to strong group contribution, and continued elevated levels of attrition and cancelation fees.
Outlook
We have continued to experience a significant improvement in revenues and earnings through the first quarter of 2023 and, to date, we have not experienced signs of a weakening in the overall lodging industry. However, current macroeconomic headwinds and concerns surrounding the potential for an economic slowdown have created a great deal of uncertainty surrounding operating results for the remainder of 2023. Further improvement in operations will be dependent on the broader macroeconomic environment, which will affect our ability to maintain high-rated business in our resort markets, as well as the continued improvement of group, business transient and international inbound travel. Accordingly, we believe that operations in specific markets and asset types will continue to be uneven.
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Blue Chip Economic Indicators consensus currently estimates an increase in real
Hotel supply growth is anticipated to remain below the long-term historical
average in 2023. Supply chain challenges have resulted in project delays across
the
Based on the trends noted and an improved outlook for the remainder of the year, we expect comparable hotel RevPAR growth for the full year 2023 will be between 7.5% and 10.5%. We note that performance in the first quarter of 2022 was negatively impacted by the Omicron variant, resulting in easier comparisons for the first quarter of 2023. We expect performance in the second half of the year will be heavily influenced by the overall macroeconomic environment. Additionally, margins are expected to decline in comparison to 2022 driven by closer to stable staffing levels, higher wages, insurance and utility expenses, lower attrition and cancelation fees, and occupancy below 2019 levels.
As noted above, the current outlook for the lodging industry remains highly uncertain; therefore, there can be no assurances as to the continued recovery in lodging demand for any number of reasons, including, but not limited to, slower than anticipated return of group and business travel or deteriorating macroeconomic conditions.
Strategic Initiatives
Dispositions. During the first quarter, we sold The Camby, Autograph Collection
for
Capital Projects. During the first quarter of 2023, we spent approximately
We are nearing completion on the Marriott transformational capital program,
which began in 2018. We believe this program will position these hotels to be
more competitive in their respective markets and will enhance long-term
performance through increases in RevPAR and market yield index. We agreed to
invest amounts in excess of the furniture fixture and equipment ("FF&E")
reserves required under our management agreements and, in exchange, Marriott has
provided additional priority returns on the agreed upon investments and
operating profit guarantees of
Approximately 98% of the total estimated costs of the program have been spent as
of
For full year 2023, we expect total capital expenditures of
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work for the damage caused by Hurricane Ian of
Results of Operations
The following table reflects certain line items from our unaudited condensed consolidated statements of operations (in millions, except percentages):
Quarter ended March 31,
2023 2022 Change
Total revenues $ 1,381 $ 1,074 28.6 %
Operating costs and expenses:
Property-level costs ?¹? 1,102 929 18.6
Corporate and other expenses 31 23 34.8
Operating profit 248 122 103.3
Interest expense 49 36 36.1
Other gains 69 13 430.8
Benefit for income taxes 2 16 (87.5 )
Host Inc.:
Net income attributable to
non-controlling interests 4 2 100.0
Net income attributable to Host Inc. 287 116 147.4
Host L.P.:
Net income attributable to
non-controlling interests - 1 (100.0 )
Net income attributable to Host L.P. 291 117 148.7
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(1) Amount represents total operating costs and expenses from our unaudited condensed consolidated statements of operations, less corporate and other expenses.
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