Host acquires 49% of Noble Investment, reports strong 4Q21

During its 4Q21 earnings call on Wednesday, Host Hotels & Resorts announced it has acquired a 49% interest in long-time, respected hotel investor Noble Investment Group, a private equity group which focuses on upscale select-service and extended-stay hotel assets. Considered a strong diversification strategy for Host, the two firms are expected to collaborate and leverage their respective platforms/expertise on asset management, renovation, and investment opportunities.

Host paid US$35 million in cash and issued US$56 million of operating partnership units, and it expects to earn US$7 million to US$10 million of annual recurring fees.

R.W. Baird analyst Michael Bellisario wrote that they expect Host to invest LP dollars in future Noble-sponsored funds. “We like the transaction/partnership – not a needle-mover initially, but we think it will be a creative and unique way for Host to differentiate itself from peers and to provide new growth avenues over time with capital partners that possess a relatively fixed cost of equity,” he said.

At Truist Securities, analyst Patrick Scholes, added, “Our initial take is the JV allows Host to invest indirectly into the types of hotels that are performing better than much of its urban portfolio – mid-priced hotels. We think Noble has a long-standing track record of success as a private entity in its space and we view the relationship as a nice EBITDA diversification even if likely a relatively minor contributor to HST earnings.”

Noble Investment recently acquired the Holiday Inn Express Savannah Historic District (above) as well as the nearby Hampton Inn Savannah Historic District.

Scholes also said that based on conversations with Host, he expects that Noble is looking to move into “adjacent hospitality spaces,” which adds additional revenue diversification for Host again without taking away from its REIT status. “Further, as a fellow real estate hospitality leader, we think Noble can offer Host additional learnings and investment ideas that can benefit the legacy Host portfolio,” Scholes said.

James Risoleo, president and CEO of Host, said they view the investment in Noble as a new opportunity to elevate the EBITDA growth profile of their portfolio by allowing for investment in select-service and extended-stay hotels, as well as new development deals. “We remain optimistic about the future of travel and we are focused on continuing to improve the quality, revenue, and profitability metrics of our iconic and irreplaceable portfolio,” he added.

For the 4Q21, Host’s earnings beat The Street based on top-line and margin outperformance. Total revenues of US$998 million (versus 2019) were -25%; RevPAR was -24.2% for the quarter and -13% in December; adjusted FFO/share was US$0.29; adjusted EBITDA was US$242 million; and hotel EBITDA was US$265 million.

Comparable constant RevPAR was +249.2% year-over-year at US$148.46. The prior quarters were US$129.14 and US$99.86.

During the quarter, Host also completed two additional acquisitions, buying The Alida, Savannah, Georgia, and the Hotel Van Zandt in Austin, Texas, bringing the total value of its acquisitions for 2021 to US$1.6 billion. In addition, during the quarter and subsequent to year end, it disposed of seven hotels for nearly US$1 billion.

“We finished 2021 on a high note as we continued to see strong sequential operating improvements across our portfolio,” Risoleo said. “During the fourth quarter, RevPAR was approximately US$148, representing a 13% increase over the prior quarter. While the newest variant created additional uncertainty for the lodging industry, it did not dampen the recovery, which continues to be concentrated in Sunbelt markets, particularly at our resorts. Our urban markets also saw strong sequential improvements, driven by business transient customers, where room nights improved over last quarter relative to 2019.”

Host also announced it will give a quarterly cash dividend of US$0.03/share with intent to increase the payout sequentially as cash flows improve.

Bellisario wrote, “Not only is recent transaction activity boosting performance metrics but also Host’s portfolio has the most operational upside among peers, in our opinion, given its full-service focus and the recent capital investments and ROI projects that have been completed.”