Host Prepares for Investment Opportunities

BETHESDA, MD—On its second quarter results call, Host Hotels & Resorts Inc., the nation’s largest lodging REIT, said that it is preparing $1.5 billion in liquidity to “capitalize on value-enhancing investment opportunities.”

“With respect to potential acquisitions, from a capital allocation perspective, we have the flexibility to invest in up to $1.5 billion of acquisitions with existing liquidity, subject to maintaining $500 million of liquidity,” said James F. Risoleo, president/CEO. “I will make a few comments with respect to that: No.1, there aren’t many opportunities in the marketplace today. We expect to see investment opportunities in the latter part of this year and into next year as special servicers and other lenders resolve issues with their borrowers. In some instances, properties are going to come to market. In other instances, properties are going to be recapped. But it is the same thought process with respect to buying hotels at this point in time. We have to be comfortable that we are going to have the right amount of liquidity to ride through the crisis.”

Portfolio Highlights:

  • As of July 30, 2020, the company reopened 19 of the 35 hotels that had suspended operations as of May 6, 2020.
  • The company improved average occupancy by 380 basis points, from 6.9% in April to 10.7% in June 2020.
  • The company improved average room rate by more than 50%, from $129 in April to $194 in June 2020.

Update on COVID-19 Response
In response to the COVID-19 pandemic, the company and its hotel operators have prioritized preserving financial liquidity and ensuring that its hotels are well positioned for recovery. Actions by the company in support of these priorities include the following:

Preserving financial liquidity:

Hotel Operations

  • Reduced portfolio-wide hotel operating costs by approximately 70% in the second quarter compared to the prior year by suspending operations at certain hotels, furloughs of hotel employees and scaling back operations
  • Reduced hotel labor costs significantly due to the furlough of up to 80% of hotel employees who received healthcare benefits and special pay of $45 million in the second quarter. The company accrued $35 million of these second-quarter costs in the first quarter and $32 million of these third-quarter costs in the second quarter.

Balance Sheet, Capital Allocation and Expense Management

  • Amended the credit agreement governing the $1.5 billion revolving credit facility and two $500 million term loans in June 2020, while preserving the company’s flexibility in making acquisitions and raising capital, subject to certain restrictions. Suspended the quarterly dividend and stock repurchases.
  • Continue to expect reductions in corporate expenses for the full year of 10-15% compared to the prior year. Corporate expenses in the second quarter were unchanged from the prior year due to timing of certain expenses.

Positioning for recovery:

  • Continued to take advantage of reduced demand to complete Marriott transformational capital program and other ROI projects. The company believes the renovations will position these hotels to capture additional revenue during a potential economic recovery.
  • Continued to review operating costs at varying levels of occupancy with a focus on modernizing brand standards, streamlining operating departments and accelerating the adoption of cost-saving technology.

The impact of the COVID-19 pandemic on the company remains fluid and a great deal of uncertainty surrounding the trends and duration of the COVID-19 pandemic remains. The company, as well as its hotel managers, are monitoring developments on an ongoing basis and may take additional actions in response to future developments to reduce the impact to the company’s stakeholders.