The past year has been a brutal one for Host Hotels & Resorts (NYSE: HST), with the hospitality REIT reporting abysmal numbers: Its RevPAR plummeted 62.1% year over year in the first quarter of 2021 while its EBITDAre cratered 97%. The primary culprit is the impact the pandemic has had on travel and hotel stays.
However, while the past year has been challenging for the country's largest lodging REIT, that doesn't necessarily mean it's in trouble. Here's why.
Bad but getting better
On the one hand, Host Hotels & Resorts reported abysmal Q1 2021 results compared to a year ago when the COVID-19 outbreak started taking hold, forcing governments to restrict travel. On the other hand, they've improved significantly since the pandemic's darkest days in the U.S. The wide availability of vaccines has driven down case counts, giving people the confidence to travel once again and boosting hotel demand.
As a result, in the company's Q1 2021 report, Host Hotels & Resorts CEO James Risoleo stated: "We significantly exceeded our expectations in the first quarter and returned to profitability at the hotel level for the first time since the onset of the pandemic. As a result, for the quarter, while we recorded a GAAP net loss, we delivered positive Adjusted EBITDAre."
The company reported positive hotel EBITDA, driven by sequential improvements in RevPAR and its operations. During Q1 2021, 30 hotels, representing 30% of the hospitality REIT's rooms, operated at or above breakeven -- that's a definite improvement from 20 locations and 24% of its rooms in Q4 2020.
"Overall, we are pleased to end the first quarter following the most challenging year in lodging history feeling optimistic about the recovery in travel and excited about our relative strength at the beginning of the new lodging cycle," stated Risoleo in the earnings press release.
Taking advantage of opportunities to benefit from the recovery
Another sign that Host Hotels & Resorts isn't in trouble is that it has a solid financial profile, enabling it to take advantage of the opportunity to enhance its position while the lodging industry recovers. The company ended 2020 with $2.5 billion of liquidity, giving it the flexibility to invest in high-quality properties as opportunities present themselves -- and they've begun to emerge in early 2021.
The hotel REIT acquired the 448-room Hyatt Regency Austin for $161 million during Q1 2021. Afterward, the company bought the 444-room Four Seasons Resort Orlando at Walt Disney World Resort for $610 million early in Q2 2021.
Risoleo noted that the Four Seasons Resort "is a truly iconic and irreplaceable property that is well-positioned to benefit from significant demand as the pandemic subsides and the 18-month celebration of Walt Disney World's 50th anniversary begins in October."
The company also acquired the Royal Ka'anapali and Ka'anapali Kai Golf Courses for $28 million in Q2 2021, which should benefit the adjacent Hyatt Regency Maui Resort & Spa and provide additional opportunities to enhance value in the future.
Most recently, Host Hotels & Resorts completed more villas at the Andaz Maui at Wailea Resort, and it didn't take long for word to get out. The REIT has already booked 45% of the 19 two-bedroom luxury villas' available occupancy at an average room rate of $1,700 for the rest of the year. That leaves it with plenty of additional upside potential via incremental, demand-driven occupancy increases.
What's more, the hotel REIT still has ample liquidity to continue making investments to enhance its ability to benefit from the lodging recovery. As a result, it's actively evaluating opportunities to deploy additional capital into new hospitality-related investments.
The REIT's troubles seem to be subsiding
There's no doubt that the last year was a brutal period for Host Hotels & Resorts. However, the REIT was able to navigate the rough waters, thanks to its strong financial profile, and is emerging from the downturn even stronger. And the company has already started capitalizing on opportunities to make investments that will enhance its portfolio and ability to benefit from the recovery. Thus, Host Hotels & Resorts' troubles seem to be in the rearview mirror, and better days appear to be just up the road.