Weak corporate demand slows Host’s growth
Weak corporate demand slows Host’s growth
01 AUGUST 2016 8:24 AM

Host Hotels & Resorts is the latest hotel company to scale back its full-year guidance amid weak growth for corporate transient demand.

BETHESDA, Maryland—Officials with Host Hotels & Resorts said their company, like many others in the industry, have suffered somewhat due to lagging corporate transient demand.

President and CEO W. Edward Walter said the weakness in corporate travel pushed down overall transient revenues 1%.

“The transient segment fell meaningfully short of expectations,” Walter said, noting that international business travel has been hit particularly hard.

Walter said slow growth on the corporate side will lead to more focus on lower-rate leisure travel.

“We’re assuming weakness in corporate demand will push us more toward price-sensitive segments of leisure business,” he said.

Reduced guidance
Like many hotel companies, Host officials reduced its full-year guidance.

The publicly traded real estate investment trust expected comparable hotel revenue per available room to grow 3% to 4% for the year, but officials have scaled those expectations back to 2% to 3%.

Walter said his company expects weak corporate transient demand as the larger U.S. economy continues to struggle with slow gross-domestic-product growth.

“Until that changes, we assume that corporate travel will probably still be there, but growth from that side will not be as strong as it has been in the past,” he said.

He said economic dynamics have to shift in order to break this trend.

“It will take an improvement in corporate investment,” Walter said. “Corporate travel reacts quickly, both down and up.”

Dispositions outlook
Walter said a combination of a weaker pool of buyers and the fact that the company has fewer properties dragging down the company’s long-term growth potential than a few years ago are slowing asset dispositions.

“We started to look at commencing a sale program three or four years ago,” Walter said. “And since then, we’ve sold the bulk of what we felt we needed to for either quality reasons, capital reasons or likely to underperform the rest of the portfolio. There are probably a couple more we’d like to sell because we view them as distractors in the long run, but not that many.”

In the quarter, the company completed the sale of five noncore hotels for a total of $345 million.

Walter said the company is seeing different things from different kinds of buyers in the current marketplace.

“International buyers are looking for long-term storage of value,” he said. “In our conversations, they trend toward higher-quality assets. And financial buyers are using more leverage than we use. … They’re more focused on cash flow. And try to rely less on growth in the value of the asset.”

Key metrics
Comparable RevPAR grew 2% for the quarter on a constant-dollar basis, while adjusted earnings before interest, taxes, depreciation and amortization grew 3.3% to $436 million for the quarter. The company saw total revenue increase 1.4% to $1.5 billion, while net income jumped 64% to $351 million.

Host’s stock is currently trading at $17.74, which is an increase of 15.65% year to date. The Baird/STR Hotel Stock Index is trading at $3,319.86, up 7% for the same period.

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