Summary
- Host Hotels & Resorts has seen encouraging revenue growth.
- At the same time, the total debt to total assets ratio has been decreasing.
- I take a long-term bullish view on Host Hotels & Resorts.
Investment Thesis: I take a long-term bullish view on Host Hotels & Resorts due to continued revenue growth and a reduction in total debt relative to total assets.
In a previous article back in September, I made the argument that Host Hotels & Resorts ( HST ) could see further upside on the basis of an encouraging RevPAR rebound. Specifically, I argued that should we continue to see RevPAR growth across the portfolio through the winter months, then we could see further upside in the stock.
Since my last article, Host Hotels & Resorts is up by nearly 15%:
However, it is notable that the stock still remains below the highs of $20-22 as seen in May. The purpose of this article is to assess whether Host Hotels & Resorts could appreciate back to this range - particularly taking recent quarterly results into consideration.
Performance
In my previous article, I argued that one advantage of Host Hotels & Resorts heading into the winter months is its ability to sustain high RevPAR across locations with a high average room rate - thus indicating that customers do not demonstrate significant price sensitivity across this segment of the portfolio.
As a case in point, we can see that performance for Maui/Oahu in 2021 and 2022 significantly exceeded levels seen in 2019 - with this also being true for Q4 2021 and Q1 2022 (autumn and winter seasons respectively).
Figures sourced from historical Host Hotels & Resorts quarterly financial reports. Heatmap generated by author using Python's seaborn library.
When looking at Q3 2022 operating results for Host Hotels & Resorts, we can see that total RevPAR for Maui/Oahu came in at $643.06, which is slightly higher than the $635.28 as seen for Q3 2021.
Host Hotels & Resorts: Third Quarter 2022 Results
What is also notable is that the average room rate of Maui/Oahu for September 2022 was $565.30 while it came in at $567.20 for June 2022 . While total RevPAR saw a decline from $697.72 in June to $643.06 in September - this drop is more likely to be in line with seasonal demand and customers have not shown significant price sensitivity across this segment of the portfolio overall.
Host Hotels & Resorts: Second Quarter 2022 Results
From a balance sheet standpoint, Host Hotels & Resorts has seen an increase in its cash to total debt ratio as well as a reduction in the total debt to total assets ratio - which is encouraging.
Dec 2021 | Sep 2022 | |
Cash and cash equivalents | 807 | 883 |
Total debt | 4,891 | 4,214 |
Total assets | 12,352 | 12,167 |
Cash to total debt ratio | 16.50% | 20.95% |
Total debt to total assets ratio | 39.60% | 34.63% |
Source: Source: Figures sourced from Q3 2022 Host Hotels & Resorts Financial Results. Figures provided in millions USD except ratios. Cash to total debt ratio and total debt to total assets ratio calculated by author.
I had previously remarked that for as long as RevPAR growth continues to remain strong - investors might be willing to tolerate some growth in debt or a lower cash to total debt ratio.
However, the fact that these ratios have been moving in the right direction is quite encouraging. This is particularly so given that overall revenues have seen a strong increase since last year - and are near 2019 levels once again:
Host Hotels & Resorts: Third Quarter 2022 Results
Looking Forward
Host Hotels & Resorts has shown a significant propensity to continue increasing RevPAR and overall revenue in spite of inflationary pressures.
Going forward, I expect that the company should remain in a good position to continue increasing RevPAR. While macroeconomic pressures may still remain in 2023 - Host Hotels & Resorts is ideally placed to raise revenue across locations with a high average room rate and where customers have not shown significant price sensitivity.
One potential risk for Host Hotels & Resorts at this time is the impact of rising interest rates on debt. While an REIT can benefit from rising interest rates due to growth in real estate prices over strong economic periods - higher rates can also increase the cost of debt - which may be of concern to investors.
With that being said, the fact that total debt to total assets has been decreasing this year is an encouraging sign, and Host Hotels & Resorts could still stand to thrive in spite of rising rates.
Conclusion
To conclude, Host Hotels & Resorts has shown resilient performance in a challenging macroeconomic environment. For this reason, I take a long-term bullish view on the stock.
For further details see:
Host Hotels & Resorts: I Take A Long-Term Bullish View