BETHESDA, MD—Host Hotels & Resorts Inc. reported a 23.3% decline in RevPAR for the first quarter of 2020, but the company said that it is equipped to get through the pandemic.
“Although we couldn’t have anticipated the outbreak of a global pandemic, Host is well-positioned to withstand the magnitude of its impact due to years of prudent capital allocation that emphasized maximizing balance sheet capacity and liquidity toward the end of the cycle,” said James F. Risoleo, president/CEO, Host Hotels & Resorts, in an earnings call. “Today, we not only expect to persevere during this crisis, we fully expect to emerge with a stronger operating model, the highest-quality portfolio in the company’s history and the ability to capitalize on future opportunities to create value for all our stakeholders.”
The company reported that it started the quarter with positive results. “We continue to operate from a position of financial strength and flexibility, with more than $2.5 billion of cash on hand, no near-term debt maturities, and a best-in-class ability to withstand prolonged business disruption,” he said. “Our enterprise analytics and asset management platforms, together with our world-class operators, are navigating this downturn efficiently while strategically focusing on maximizing operational profitability during the recovery. Despite the lack of visibility for near-term lodging demand, we believe that the strength of our investment-grade balance sheet, the quality of our iconic and irreplaceable hotels and the geographic and demand diversity of our revenues will continue to create long-term value for all our stakeholders.”
COVID-19 Response
The company and its hotel operators have taken the following substantial actions to mitigate the operational and financial impact of the COVID-19 pandemic:
Hotel Operations
- Suspended operations at 35 hotels as of May 6, 2020, while continuing to operate the remaining 45 hotels at reduced capacity so long as they generate revenue greater than the incremental costs associated with staying open
- Hotel operators implemented portfolio-wide cost reductions, including furloughing as much as 80% of the hotel’s workforce; reducing shared services fees; suspending food and beverage outlet operations; closing guestroom floors and meeting space; and the temporary suspension of most brand standards
- Expect to reduce portfolio-wide hotel operating costs by approximately 70% to 75% in April, compared to initial forecasts
- Accrued approximately $35 million in the first quarter for benefits that will be provided to hotel employees furloughed by the company’s hotel managers through June 1, 2020
- Rebooked almost 12% of 2020 group revenue that had been canceled as of May 4, with the majority rescheduled for the second half of the year
- Had average occupancy of 29% in March and expect April occupancy of approximately 12% despite mandatory quarantines in many states, due in part to accommodating alternative sources of demand, including from governmental authorities and local organizations seeking temporary accommodations for groups, such as medical personnel, first responders and military personnel
Capital Expenditures
- Suspended contributions to hotels’ FF&E escrow accounts; and suspended or deferred non-essential capital projects, to reduce anticipated full year capital expenditures spending by approximately $100 million to $125 million compared to initial February 2020 forecast, representing approximately 50% of the projects not already completed, in construction or already procured
CARES Act
- Evaluated the benefit of obtaining stimulus relief available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Federal Reserve’s Primary Market Corporate Credit Facility (PMCCF). The company, which bears the expense for the wages and benefits of all persons working at its hotels, understands that its operators are reviewing the opportunity to file for the Employee Retention Credit to partially offset the costs for its furloughed hotel employees under Title II of the CARES Act. The company has not filed for any relief under the CARES Act.
Balance Sheet, Capital Allocation and Expense Management
- Increased liquidity by accessing $1.5 billion under the revolver portion of Host’s credit facility in March 2020 as a precautionary measure in order to increase the company’s cash position and preserve financial flexibility. The company has engaged with its credit facility lenders for flexibility in covenant requirements.
- Anticipates temporarily suspending or paying a nominal dividend until further notice. The first quarter dividend paid in April 2020 totaled approximately $141 million. All future dividends are subject to approval by the company’s Board of Directors.
- Anticipates reducing corporate expenses by 10-15% compared to initial February 2020 forecast through reduced travel, compensation and other overhead
As a result of the above initiatives, the company anticipates that it will significantly reduce its monthly cash expenditures. Even in an extreme downside scenario that assumes all properties are effectively closed through the end of 2020, management would anticipate cash flow losses, including corporate expenses and interest payments to average approximately $120 million to $140 million per month. The only investing and financing activities assumed in this scenario are the reduced level of capital expenditures.
The impact of the COVID-19 pandemic on the company remains fluid, as does the company’s corporate and property-level response, together with the response of its hotel operators. There remains a great deal of uncertainty surrounding the trends and duration of the COVID-19 pandemic and the company is monitoring developments on an ongoing basis. The company, as well as its hotel managers, may take additional actions in response to future developments to continue meeting the needs of the company’s stakeholders.
