During its 4Q21 earnings call on Wednesday, Host Hotels & Resorts announced that it had acquired a 49% stake in long-time respected hotel investor Noble Investment Group, a private equity group that focuses on high-end hotel assets of selected services and extended stays. Seen as a strong diversification strategy for Host, the two companies are expected to collaborate and leverage their respective platforms/expertise in asset management, renovation and investment opportunities.
Host paid $35 million in cash and issued $56 million in operating partnership units, and it expects to earn $7 million to $10 million in annual recurring fees.
RW Baird analyst Michael Bellisario wrote that they expect Host to invest LP dollars in future Noble-sponsored funds. “We like the transaction/partnership – not a mover initially, but we believe it will be a creative and unique way for Host to differentiate itself from its peers and provide new avenues for growth over time with capital partners who have a relatively fixed cost of equity,” he said.
At Truist Securities, analyst Patrick Scholes, added: “Our starting point is that the joint venture allows Host to invest indirectly in the types of hotels that perform better than most of its city portfolio – priced hotels. We believe Noble has a long track record of success as a private entity in its space and see the relationship as a nice diversification of EBITDA, even though it likely contributes relatively little to HST revenue.
Scholes also said that based on conversations with Host, he expects Noble to seek to move into “adjacent hospitality spaces,” which again adds further revenue diversification for Host without taking away its REIT status. “Additionally, as a leader in real estate hospitality, we believe Noble can offer Host additional learnings and investment ideas that can benefit Host’s legacy portfolio,” Scholes said.
James Risoleo, Chairman and CEO of Host, said they view the investment in Noble as a further opportunity to elevate the EBITDA growth profile of their portfolio by enabling investments in serviced hotels selected and extended stay, as well as new development offerings. “We remain optimistic about the future of travel and are focused on continuing to improve the quality, revenue and profitability metrics of our iconic and irreplaceable portfolio,” he added.
For 4Q21, Host earnings beat The Street based on revenue and margin outperformance. Total revenue of US$998 million (vs. 2019) was -25%; RevPAR was -24.2% over the quarter and -13% in December; adjusted FFO/share was $0.29; adjusted EBITDA was US$242 million; and the hotel’s EBITDA was US$265 million.
The comparable constant RevPAR was +249.2% year-over-year at $148.46. The previous quarters were US$129.14 and US$99.86.
During the quarter, Host also made two additional acquisitions, buying The Alida, Savannah, Georgia, and the Van Zandt Hotel in Austin, Texas, bringing the total value of its acquisitions for 2021 to US$1.6 billion. . Additionally, during the quarter and subsequent to year-end, it disposed of seven hotels for nearly US$1 billion.
“We ended 2021 on a high note as we continue to see strong sequential operational improvements across our portfolio,” Risoleo said. “During the fourth quarter, RevPAR was approximately $148, representing a 13% increase over the prior quarter. Although the new variant has created additional uncertainty for the accommodation industry, it has not dampened the recovery, which continues to be focused in Sunbelt markets, particularly our resorts Our urban markets have also seen strong sequential improvements, driven by transient business customers, where overnight stays improved in the last quarter compared to 2019.”
Host also announced that it will pay a quarterly cash dividend of $0.03/share with the intention of increasing the payout sequentially as cash flow improves.
Bellisario wrote, “Not only does recent deal activity improve performance metrics, but Host’s wallet also has the most operational advantage among its peers, in our view, given its full-service focus and recent capital investments and return on investment projects that have been completed.