Officials with Host Hotels & Resorts discussed cost-saving strategies and a recovery led by drive-to leisure business on the company’s first-quarter earnings call.
BETHESDA, Maryland—Host Hotels & Resorts has put several cash-saving measures in place to make it through prolonged business disruption from the COVID-19 pandemic, President and CEO James Risoleo said on the company’s first-quarter earnings call.
The real estate investment trust made the decision on 6 May to suspend operations at 35 of its hotels, accounting for 43% of the company’s total room count, Risoleo said. Host has furloughed 80% of its workforce, according to an earnings release.
“We work with our operators to determine whether to suspend operations at a hotel based on the property's ability to generate revenues that are greater than the incremental cost associated with remaining open,” he said. “If a hotel is expected to achieve this incremental threshold, it remains open. Our preference is to leave a hotel open as long as it is financially justifiable to do so, because we believe an operational property is better positioned to capture demand when it begins to recover.”
Host has found operational efficiencies at hotels in Washington, D.C., New York, San Diego and Los Angeles to cut costs, he said.
“For example, we have gained operational efficiencies in Washington D.C., with the leadership of the JW Marriott overseeing the Washington Marriott* Metro Center and the Westin Georgetown,” he said. “The same has been achieved in New York and other markets. Demand consolidation is benefiting our hotels in Los Angeles, San Antonio and San Diego, where we are able to consolidate demand into one property in each of those markets.”
Host has 45 hotels that are still open, but operations at those hotels have been scaled down significantly, Risoleo said. Guestroom floors and meeting spaces have been closed at these properties and food-and-beverage operations suspended.
“Due to timing, we expect to see the full benefit of these operating expense reductions in April, when total hotel operating expenses are expected to be 70% to 75% lower than our initial forecast from February,” he said.
At the corporate level, Risoleo said Host plans to cut capital expenditures by $100 million to $125 million and cut corporate expenses by 10% to 15%.
The company also plans to suspend its second-quarter dividend or cut it to a penny per share, “which has a reduction of approximately $140 million compared to our prior 20 cents per share quarterly dividends,” he said.
These cash-saving initiatives would position Host to end the year with $1.65 billion in cash in a worst-case scenario where all hotels are closed, Risoleo said. This would leave the company with “ample liquidity to support operations as the economy recovers,” he said.
Loss in group and transient business
As of 4 May, the REIT has lost $1.3 billion in expected 2020 revenues, Risoleo said.
“This represents approximately $630 million of total group revenues known to date and $660 million of total transient revenues forecasted for the first half of the year,” he said. “Approximately 90% of our total group revenue cancellations have been for the first half of the year, with over 60% in the second quarter alone.”
Less than 3% of the 10% of total group revenue cancellations expected in the second half of the year are forecasted for the fourth quarter, he added.
The near-term pace for group and transient travel remains uncertain until people feel safe traveling again, Risoleo said.
The company has collected $32 million in cancellation fees to date with $10 million of those recognized in the first quarter, he said.
Host “expects the recovery to be led by drive-to leisure destinations as observed in China and several other parts of Asia that are several weeks ahead of the United States,” Risoleo said.
“The recovery thus far has been led by domestic leisure stays in drive-to destinations. With renovations recently completed, in construction or planned within the next 12 months, over 70% of our portfolio and our strongest drive-to leisure markets will be fully refreshed, specifically, our hotels in Phoenix, San Diego, Orange County, San Antonio and Florida, which represent over 13,000 keys, or nearly 30% of our total portfolio, are very well-positioned to capture a recovery in drive-to leisure demand,” he said.
Revenue per available room declined 23.3% and occupancy decreased 17% in the first quarter, Brian Macnamara, SVP, principal financial officer and corporate controller at Host, said on the call.
The company decided not to provide 2020 guidance due to the uncertainty amid COVID-19, according to its earnings release.
As of press time, Host’s stock was trading at $11.01 a share, down 40.6% year to date. The Baird/STR Hotel Stock Index was down 42.3% for the same period.
*Correction, 11 May 2020: This article was updated with the correct name of the Washington Marriott Metro Center.