Host Hotels and Resorts Reports Q4 Results In Line With Expectations, Though 2023 Guidance Disappoints

Host Hotels and Resorts HST reported fourth-quarter earnings that were in line with our expectations, leading us to reaffirm our $24 fair value estimate for the no-moat company. Occupancy improved to 65.7% in the fourth quarter compared with 57.0% in the fourth quarter of 2021, though that is still below the 75.5% occupancy level reported in the fourth quarter of 2019. The average daily rate was up 11.7% year over year and 15.6% relative to the fourth quarter of 2019. As a result, revenue per available room increased 28.7% year over year, which is relatively in line with our estimate of 32.7% growth, and is now 0.6% higher than the fourth quarter of 2019. Hotel EBITDA margins also improved 110 basis points year over year to 29.5%, leading to hotel EBITDA growth of 36.3% that was relatively in line with our estimate of 34.8% growth. Host reported adjusted funds from operations of $0.44 per share in the fourth quarter that matched our estimate and was 51.7% higher than the $0.29 per share figure the company reported in the fourth quarter of 2021.

We think management might be overly conservative with its 2023 guidance. While management anticipates revPAR growth of 24% to 27% in the first quarter, it worries that economic headwinds will slow growth to a low-single-digit decline on the low end to a low-single-digit increase on the high end for the remaining three quarters. As a result, it only expects revPAR growth of 2.0% to 8.0% in 2023, well below our estimate of 15.3% growth. While we also expect expense growth will outpace revenue growth, management’s outlook for hotel EBITDA margins to decline 360 basis points to 210 basis points is worse than our view of margins falling 110 basis points. While we would lower our 2023 outlook for Host if the economy starts to materially slow in the second half, we don’t think this materially alters our long-term views on the hotel industry or our fair value estimate for Host.