Host cuts RevPAR guidance amid economic uncertainty
 
Host cuts RevPAR guidance amid economic uncertainty
07 AUGUST 2019 2:55 PM

On the company’s second-quarter earnings call, Host Hotels & Resorts President and CEO James Risoleo said the company doesn’t see a “near-term catalyst to induce business-transient demand” and reduced its full-year RevPAR guidance as a result.

BETHESDA, Maryland—After experiencing weaker-than-expected results in the first half of the year, Host Hotels & Resorts revised down its full-year 2019 revenue-per-available-room guidance to “reflect a slightly softer operating environment,” President and CEO James Risoleo said on the company’s call to discuss second-quarter earnings with analysts Wednesday.

Year to date, comparable RevPAR on a constant dollar basis decreased 1.2% as a result of a 160 basis point decline in occupancy, which was partially offset by a 0.8% rise in average daily rate, according to the company’s earnings release.

Risoleo said renovations as part of Marriott International’s transformational capital program contributed a 90-basis-point RevPAR decline during the quarter. Other factors that affected RevPAR included “weaker-than-expected transient demand in major markets like New York and supply growth in Seattle,” he said.

“New York and Seattle had a meaningful impact on RevPAR for the quarter,” Risoleo said. “Excluding those two markets, our comparable hotel RevPAR would have increased 20 basis points.”

Host revised its RevPAR guidance range for the full year from 0% to 2% to -1% to 0%.

“Overall, if we look to the second half of the year, and amid the growing uncertainty for a trade deal with China being concluded in the near term, we do not see any near-term catalyst to induce business transient demand,” he said. “As a result, we are revising our full-year guidance to reflect a slightly softer operating environment.”

While the company revised down RevPAR guidance, it increased margin guidance “based on our continued margin outperformance in the second quarter, and our confidence that the increases are sustainable for the remainder of the year,” he said.

“We now expect comparable (earnings before interest, taxes, depreciation and amortization) margin to be down 25 basis points at the low end and up 25 basis points on the high end of our guidance,” Risoleo said.

Previously, the full-year comparable EBITDA margin was expected to be down 25 basis points to up 35 basis points.

As of press time, Host stocks were trading at $16.73 a share, up 0.4% year to date. The Baird/STR Hotel Stock Index was up 11.3% for the same period.

Capital allocation and reinvestment
Year to date, Host has bought back $245 million in common stock and is “opportunistically taking advantage of the current market conditions to divest some of our low RevPAR, high-capital expenditure assets amid a strong capital market environment,” Risoleo said.

As part of that, the company sold three hotels for $118 million: the Newport Beach Marriott Bayview; the Westin Mission Hills Golf Resort & Spa; and the leasehold interest in the Washington Dulles Airport Marriott.

Subsequent to quarter end, Host also sold the Courtyard Chicago Downtown/River North and Residence Inn Arlington Pentagon City for $150 million.

“We continue to focus on enhancing our long-term strategic vision of owning iconic and irreplaceable properties in key markets with strong demand generators and high barriers to entry while divesting low RevPAR, high-capital expenditure assets through active portfolio management, ensuring that the company is well-positioned for continued growth,” he said.

During the quarter, the company repurchased 10.9 million shares of stock for a total of $200 million. On 5 August, “the Board of Directors authorized an increase in its share repurchase program from $500 million to $1 billion, which, after taking into account the second-quarter repurchases, leaves $800 million available for repurchases,” the earnings release states.

In terms of portfolio reinvestment, the company plans to spend between $235 and $265 million “on renewal and replacement capital expenditures,” Risoleo said, and $315 to $345 million on redevelopment in return-on-investment projects during the year.

One ROI project in the works is $225 million related to the Marriott transformational capital program.

“The transformational capital program, which carries through 2021, will position the 17 targeted hotels, which are some of the most notable in our portfolio, as even stronger competitors in their respective markets with the goal of enhancing long-term performance and becoming No. 1 in their competitive sets,” he said.

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