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Host Hotel Q3 Focuses Attention Back to US

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While top line results were impacted by two hurricanes, Host Hotels & Resorts came out strong. That is according to James Risoleo, president and CEO, who said on the firm’s Q3 call that they were encouraged that on a comparable hotel RevPAR increase of 1.6%, its operators were able to increase comparable hotel EBITDA margins by 50 basis points.

“Adjusted EBITDAre increased 7.8% to $344 million and adjusted FFO per diluted share increased 12.1% to $0.37, beating consensus estimates by $18 million and $0.02 respectively. These results continue to demonstrate the benefits of our geographically diversified portfolio of iconic and irreplaceable hotels; our unprecedented scale and platform to drive internal and external growth; and the power and flexibility of our investment-grade balance sheet. Together, these key pillars form the foundation of Host, the premier lodging REIT.”

The company was also very active on the capital recycling front in the quarter. “This strategic activity followed through on two key initiatives we set early on in my tenure as CEO. Reducing our exposure to New York and exiting our international assets to focus our attention back to the U.S. where we have the greatest scale and competitive advantage.”

In the quarter, the company closed on the previously-announced sale of the W Union Square for $171 million. “We also announced that the Westin New York Grand Central is under contract for $300 million, inclusive of the FF&E reserve. The Westin had significant money at risk and we anticipate the sale closing early in 2019,” he said on the call.

“Including the W New York which was sold earlier in the year, by early 2019, we will have sold three assets in New York for a combined EBITDA multiple of 28 times, significantly eliminating our exposure to profitability-challenged hotels in the market.”

New York is a market that continues to face headwinds due to significant supply increases and continued expense inflation, he said. “For reference, since 2007, New York supply has increased by 55% or 43,000 hotel rooms at a compound annual growth rate of over 4%.”

In the quarter, the company also sold the retail, signage and theater condo space at the New York Marriott Marquis for $442 million. In partnership with Vornado, the REIT redeveloped this space beginning in 2012. “The sale was at a very attractive price and is another example of our asset managers identifying, implementing and executing on a real estate value creation opportunity.”

The sale resulted in an EBITDA multiple of 26 times and 19 times on 2018 and 2019 respectively, with substantially all the proceeds used to close out the reverse like-kind exchange structure for the acquisition of the Andaz Maui which the company purchased earlier this year, he explained. “The balance of these proceeds were used to establish a new forward like-kind exchange escrow.”

He added that “Our scale and platform provide us the opportunity to create value from our asset base. And we will continue to identify, evaluate and execute on value enhancement opportunities to drive shareholder value.”

As mentioned earlier, the company is going to focus its investment activity in the U.S. “To that end, we have reached agreement with our two European joint venture partners to sell them our approximate 33% interest in the Euro JV. The gross asset value of our interest is approximately €700 million and equates to an EBITDA multiple of 17 times on 2018 forecasted results,” he said.