Host Hotels & Resorts Announces Joint Venture with Noble to Purchase Select Service Assets


Host Hotels & Resorts had a year 2021 in terms of acquisitions and, to continue this momentum of growth, kicked off 2022 by announcing a new partnership to diversify its portfolio.

As part of its fourth quarter earnings report, the Bethesda, Maryland-based hotel real estate investment trust announced that it has formed a joint venture with Atlanta-based Noble Investment Group, a management company and development of hotel assets.

In January, Host acquired a 49% stake in Noble’s asset management platform with an investment of $90.7 million, Host Chairman and CEO Jim Risoleo said at a press conference. a conference call with market analysts. Host has the option to increase its share in the platform by another 26% to 51%.

Host has also committed $150 million to Noble’s upcoming investment fund, and Risoleo added that the partnership will bring an expected net profit of “$7-10 million per year over the next three years.”

Historically, Host and Noble have targeted different types of hotels. Hospitality occupations in full-service hotels; properties with a large number of bedrooms or event space; boutiques, soft brand properties; or resorts in markets with high barriers to entry. Noble, meanwhile, has typically acquired and developed branded, upscale and select-service hotels, as well as properties in the extended-stay segment at the lower end of the price point.

On Thursday’s call, Risoleo praised Noble’s “multi-cycle track record” and investment experience as the driving force behind the joint venture.

“By capitalizing on Noble’s deep expertise, we will have the ability to incubate and invest in future adjacent hosting strategies, creating additional avenues for long-term strategic value creation,” he said. -he declares. “These strategies include real estate technology solutions, development and alternative accommodation.”

Risoleo said the deal will provide “chain-wide diversification.”

“Noble’s expertise in select-service and extended-stay hotels will preserve our focus on investing in high-end and luxury hotels and resorts,” he said, adding later. that Host wanted to “play in a select service without it becoming a distraction”.

“Investing in the Noble platform gives us the ability to develop a sustainable fee stream over time that is not subject to the cyclicality of the hosting industry, its commitment fees, asset management, its development costs,” Risoleo said. “This gives us the opportunity to deploy more capital into the select service space without…it becoming a distraction for Host’s management team. [Noble CEO] Mit Shah and his team have been in business since 1993. They have invested over $5 billion and they have a very strong balance sheet.”

The partnership met all the criteria Host executives look for in a good investment, Risoleo said.

“Having the opportunity to participate in development projects in an off-balance sheet structure is also something that was very appealing to us,” he said. “It’s not something we’ve always wanted to do on our balance sheet. It’s not conducive to the REIT model.”

During the quarter, Host purchased the 173-room Alida Hotel in Savannah, Georgia for $103 million. The hotel is part of Marriott International’s Tribute portfolio. Host also acquired the 319-room Van Zandt Hotel in Austin, Texas for $246 million. During 2021, Host acquired seven hotels and two golf courses, spending a total of $1.6 billion.

The REIT was also active as a seller during the fourth quarter, offloading the W Hollywood for approximately $197 million. Host also sold a portfolio of five hotels including Westfields Marriott Washington Dulles, San Ramon Marriott, Westin Buckhead Atlanta, Westin Los Angeles Airport and Whitley Hotel in Atlanta for a combined $551 million.

To start 2022, Host sold the Sheraton Boston for $233 million, including a $163 million bridge loan to hotel buyers Värde Partners and Hawkins Way Capital.

Risoleo said no market is out of the question for Host in terms of hotel acquisitions.

“We don’t have a red line on any market in the United States today, or on any type of property,” he said. “However, we haven’t seen a lot of opportunity in the major markets to date. … The nation’s demographics are such that we will continue to deploy capital into the Sunbelt markets for many reasons. Just the business inflows, the influx of people, the favorable operating environment, the low cost structure, it makes these markets attractive for us.”

He added that Host will continue to buy and hold assets where new supply is low, such as resorts and large full-service conference hotels.

“If you look at supply statistics, the lowest level of new supply in the country is in the resort market,” he said. “The second lowest tier of new supply is in big box hotels, many of which are owned by us. We are very comfortable in both of these areas. As opportunities arise, we will assess them certainly. There just hasn’t been all that the market is interested in to date.”

Concerns over the omicron variant of COVID-19 have also suppressed deal talk to start the year. Typically, hoteliers and investors are eager to discuss deals at Americas Accommodation Investment Summit — which was held in late January — but Risoleo said this year such talks were rarer.

“I expect to see more properties come to market in the second half,” he said. “But at this point, there just aren’t a lot of assets that we’re interested in. … The seven assets we bought last year, five of them we bought off the market, so we’re We will continue to have conversations with owners of hotels we are interested in.”

Amid widespread labor challenges, Risoleo said Host’s hotels added about 1,000 positions in the fourth quarter, but the company’s portfolio still has room to hire.

On the [third quarter] call, we reported that staffing levels were 94% of our target. Typically, they’re about 97% working,” he said. “They never reach parity, they are never 100%. With the increase in business volume in the fourth quarter, even though we added 1,000 positions, we are still around 94%.

“But I can tell you based on conversations we’ve had with our managers, there’s a degree of confidence that vacancies can be filled as things open up as the variant will pass behind us – as children return to in-person school across the country, and the various forms of stimulus run out, which many of them already have.”

Sourav Ghosh, chief financial officer and executive vice president of Host, said the company has refined its staffing structures at most of its hotels, opting for a permanent reduction of 25% to 30% of management staff.

“We’re pretty confident that if you have a position added there will be an associated return,” Ghosh said.

Brand standards are also relaxing, which will lead to lower costs for owners, he said.

“The room we’re still testing right now is in housekeeping and we’ll have an answer on that in the middle of this year, but we’re definitely not going back to where we were in 2019,” he said. . “It’s really about giving more options and flexibility to the customer, while ensuring that there is the level of customer satisfaction needed for the respective brands.”

According to its publication of resultsHost ended the fourth quarter with net income of $323 million, compared to a net loss of $66 million in the fourth quarter of 2020. Host’s net loss for the year 2021 was $11 million.

Host reported adjusted earnings before interest, taxes, depreciation and amortization for real estate of $247 million in the fourth quarter and $542 million for the full year 2021.

System-wide, host occupancy was 57.2% in the fourth quarter, compared to 76.1% in the fourth quarter of 2019. The average daily rate was $259.63 during the quarter, up 0.9% from the same quarter in 2019. Revenue per available room in the fourth quarter of 2021 was $148.46, down 24.2% from the same period.

Host’s portfolio occupancy for the year 2021 was 45.8%, compared to 78.6% in 2019. ADR was $247.50 in 2021, down 2.5% from 2019 RevPAR for the year 2021 was $113.40, down 43.2% from 2019.

At press time, shares of Host were trading at $19.30 per share, up 9.3% year-to-date. The Nasdaq Composite Index fell 13.4% for the same period.

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