Article Summary:

Host Hotels & Resorts set a narrow RevPAR-growth guidance range for 2020, which President and CEO James Risoleo attributed to less business-transient on the books. The company also plans to spend more on labor in certain U.S. markets seeking wage parity.

Primary Category: Earnings Recaps

Secondary Categories: Americas, Development, News, Ownership

BETHESDA, Maryland—Host Hotels & Resorts foresees a shortage of business-transient guests for 2020, and as a result has provided a narrower guidance range for full-year revenue-per-available-room growth.

On a call to report fourth-quarter and full-year 2019 earnings with analysts, executives said the real estate investment trust projects total comparable hotel RevPAR growth for full-year 2020 to be flat to up 1%.

Host has a favorable citywide convention calendar set for 2020, with group business “weighted more heavily toward the first half of the year than the second half of the year,” President and CEO James Risoleo said, noting that gives the REIT “comfort and visibility” in its RevPAR guidance range.

However, “muted expectations for business-transient travel” raise macro uncertainties, he said.

“We see prolonged macro uncertainty continuing to negatively impact expectations for U.S. nonresidential fixed investment, which has slowed materially from 6.4% in 2018 to 2.1% in 2019, and is now expected to grow just by 70 basis points in 2020,” he said. “RevPAR is highly correlated with this metric, which is being impacted by trade and political uncertainty in an election year as well as coronavirus.”

An analyst on the earnings call pointed out that some other brands have been more positive about a pickup in business-transient travel in 2020. Risoleo said he doesn’t see it.

“We’re just not seeing enough business-transient,” he said. “I wish I could tell you that we were, but we’re just not.”

Supply growth also factored into the REIT’s tight RevPAR guidance range, Risoleo said.

“Supply is continuing to grow this year with a 2.3% increase expected across all scales on a net basis,” he said.

Asked by analysts if Host is worried about supply from soft brands, Risoleo said any “supply is bad.”

“I don’t care what kind of supply it is … it’s clearly going to have some impact on you,” he said, adding that he’s glad Host’s portfolio is diversified. “We don’t have any more than 10% of our (earnings before interest, taxes, depreciation and amortization) coming out of any one market.”

He added that Host is “in constant dialogue with (the brands) regarding impact of new development projects.”

Labor costs
Host expects “an above inflationary growth in hotel-level operating expenses, primarily due to wages and benefits increases, to result in lower operating margins” in 2020, according to the company’s earnings release.

Risoleo said this increase is due to wage parity in markets such as Houston and Orange County, California. The company expects to see a 5% increase in wages and benefits in 2020, he said.

“As we roll wage increases out, bring our associates at the hotels to parity, we’ll see more normalized wage increases going forward,” he said.

Risoleo added the company is not seeing an increase in labor costs due to an increase in turnover. “It’s solely a result of wage parity in certain markets,” he said.

“We benefit from the labor practices of two world-class operators who run most of our hotels, Marriott and Hyatt. They have very good retention rates, (and) they are very attractive organizations for people to work at,” he said.

Risoleo said the rate of wage and benefit growth is expected to peak in 2020, and Host is “working with operators to adopt productivity-enhancing technology that will decrease operating costs over the long term.”

Fourth-quarter and full-year 2019 results
Comparable hotel RevPAR decreased 0.1% on a constant dollar basis during the fourth quarter, according to Host’s earnings release. This was due to a decline in average daily rate.

RevPAR declined 0.6% for the full year due to an 80-basis-point drop in occupancy, which was partially offset by a 0.3% increase in ADR.

As of press time, Host’s stock was trading at $17.18 a share, down 7.4% year to date. The Baird/STR Hotel Stock Index was down 2.8% for the same period.

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Headline: Supply, business-transient raise red flags for Host

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Article Time: 9:05:00 AM

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