Host Hotels Earnings: Revenues Slightly Fall Due to Lower Cancelation Fees and Maui Wildfires

Third-quarter results for no-moat Host Hotels and Resorts HST were relatively in line with our expectations, leading us to reaffirm our $23 fair value estimate. Occupancy increased 150 basis points to 71.8% in the third quarter, though it is still below the 80.0% level reported in the third quarter of 2019. Meanwhile, the average daily rate fell 0.4% year over year but is up 16.3% over the same period in 2019. As a result, revenue per available room grew 1.8% year over year, in line with our estimate of 2.1% growth, and is up 4.4% over the third quarter of 2019. However, food and beverage revenue fell 3.4% and other hotel revenue fell 7.9% in the quarter, leading to same-store revenues falling 0.5%. Same-store operating expenses still rose 2.7%, leading to hotel EBITDA margins falling 280 basis points to 26.6% and hotel EBITDA falling 10.2% year over year, worse than our estimate of a 6.0% decline. Host did report adjusted funds from operations of $0.41 per share in the quarter, better than our $0.36 estimate. However, that includes $54 million, or $0.08 per share, of business interruption proceeds from lost operations caused by Hurricane Ian in September 2022.

We note that some of Host’s revenue declines can be explained. First, much of the other hotel revenue decline came because of lower cancelation fees compared with 2022. That means demand is stabilizing, so combined with rising occupancy, we believe that is a sign that the hotel industry recovery remains in place despite lower revenue growth. Additionally, management stated that the company lost approximately $7 million in hotel EBITDA because Host provided housing for employees and emergency response teams in Maui following the August wildfires. The Hyatt Regency Maui did not reopen to guests until Nov. 1, so the company anticipates another $23 million EBITDA loss in the fourth quarter. Still, these losses are temporary, and we don’t believe there are any long-term negative effects from the wildfires on demand.