REIT earnings: Host, Hersha, Park, Ashford, RLJ and more

Results were mixed among U.S. REITs reporting second earnings this week. Here’s a summary of results from some of the bigger names.

Host misses consensus. Citing slower transient pick-up in San Francisco and Seattle as well as softer occupancy across the resort portfolio, Host Hotels & Resorts in 2Q23 earnings missed Street adjusted EBITDA expectations by 3% to 4% – the first earnings miss since 2020. Full-year guidance is being reduced by ~2% and the implied 2H23 RevPAR outlook looks like flat to low-single-digit growth. Host reported RevPAR at +2.7% (ADR +2.4%; occupancy +0.3%) versus guidance of 4% to 6%. Total revenues were +3.9%, again below Street expectations. Hotel EBITDA was $449 million or -8.4% YOY (margins -435 bps). Host noted that the 2Q23 earnings shortfall was due to. R.W. Baird analyst Michael Bellisario wrote that management remained bullish on the 2H23 and 2024 group outlooks; July RevPAR growth of +2.5% was ahead of expectations. He said updated 2H23 guidance reflects a more conservative top-line outlook and plus/minus normal flow through to the bottom-line from decremental occupancy.

“Host delivered comparable hotel RevPAR growth of 2.7% over the second quarter of 2022, which is noteworthy given the challenging comparison of the prior year,” said Host President and CEO James Risoleo. “Our results were driven by improvements in the group business segment and continued rate strength across the portfolio, despite some moderation at our resort properties. Overall, transient demand was affected by headwinds in San Francisco and Seattle and elevated international outbound travel without a corresponding increase in international inbound travel, which led to RevPAR results below our second quarter guidance range. At the same time, comparable hotel Total RevPAR grew 3.8%, which is evidence of the continued strength of out-of-room spend.”

Hersha hopes for new tailwinds. Hersha Hospitality Trust 2Q23 earnings came in short of expectations but near-term fundamentals steady as renovation headwinds are about to turn into tailwinds. Hersha's 2Q23 adjusted EBITDA missed Street forecasts by ~3%, but the company's 3Q23 guidance brackets expectations, wrote R.W. Baird’s Michael Bellisario. Hersha 2Q23 RevPAR was +3.6% (ADR +1.9%; occupancy +1.6%) and somewhat below Street estimates. Hersha is guiding to 3Q23 RevPAR growth of 1% to 6% and ~flat EBITDA margins y/y. July RevPAR growth was 5.1%. Hersha's urban markets are recovering with Manhattan up almost 20%. Hersha is marketing several assets for sale and said it is getting favorable interest and pricing for assets in Miami and New York City.

“We were pleased to see the strong recovery in our core urban markets during the quarter that allowed us to achieve double digit RevPAR growth for this segment of our overall portfolio,” said Hersha CEO Neil Shah. “Outperformance in our New York, Boston and Washington, D.C., markets allowed us to offset some of the retracement in domestic leisure travel seen in our resort markets and the wider lodging industry. Despite this normalization at our resort properties, we are significantly outperforming pre-COVID levels and view this year as a new base for growth moving forward. In July, our resort RevPAR further stabilized, while our urban markets continued to outperform and exceeded prior year performance by 12%. We are confident that the stabilizing operating environment in our resorts, coupled with the ongoing dynamics in our urban markets will drive outsized growth in our portfolio.”

Groups, Hawaii aid Park’s results. Park Hotels & Resorts reported mixed results in 2Q23 with some tailwinds from larger group business and leisure business in Hawaii where RevPAR increased nearly 11% compared to the second quarter of 2022. Adjusted EBITDA of $187 million was above consensus estimates of $186 million. Park Hotels & Resorts reported $714 million in revenue, representing a year-over- increase of 2.7%. EPS of $0.60 for the same period compares to $0.66 a year ago. Occupancy came in below expectations at 74.4%, while rooms revenue came in at $442 million (+2.1% YOY) – again below estimates. Comparable RevPAR of $191 (+5.3% YOY) beat consensus estimates but excluded the struggling Hilton San Francisco Union Square and Parc 55. Inclusive of those hotels, portfolio RevPAR was $183 and also +5.3% y/y growth. RevPAR guidance was +7% to 11% YOY. Chairman and CEO Thomas Baltimore highlighted a 14% increase in comparable RevPAR across the urban portfolio driven by the New York Hilton Midtown where RevPAR increased over 26% and at Chicago and Washington D.C. hotels where RevPAR increased 23%. Comparable group revenues returned to 92% of 2019 levels, and forward bookings continue to increase, with 2024 comparable group revenue pace up 21% compared to the same time last year.

“We made the difficult, but necessary, decision to cease making payments toward the $725 million non-recourse CMBS loan secured by our two Hilton San Francisco Hotels, a first step towards removing the hotels from our portfolio, which we believe is in the best interest of shareholders as it will meaningfully reduce our exposure to the city and strengthen our balance sheet considerably,” Baltimore said. “We remain laser-focused on creating long-term value for our shareholders, and with over $1.7 billion of liquidity, we are better positioned to execute on our strategic initiatives, including reshaping our portfolio, investing in strategic ROI projects and opportunistically repurchasing stock and/or acquiring assets.”

Deleveraging key for Ashford. Ashford Hospitality Trust reported mixed results for 2Q23 with a net loss of $30.3 million. Comparable RevPAR increased 6.7% YOY to $144.25 on a 3.8% increase in comparable ADR and a 2.8% increase in comparable occupancy. Deleveraging efforts remain front and center as it announced the sale of WorldQuest Resort condo-hotel in Orlando resort for $14.8 million ($187,000/key). This was Ashford's only asset without property-specific debt – all proceeds will be used to repay the Oaktree term loan. Ashford acquired the hotel (96 units at the time) in March 2011 for $12 million and sold 17 condo units during its ownership. Ashford raised $28 million of preferred equity during the quarter (gross of fees), which was up from $11 million in 1Q23. In July, the company raised another ~$10 million. Analyst Michael Bellisario wrote that management said paying off the corporate-level financing is a top priority and that additional asset sales (four properties currently are being marketed for sale) could help accelerate the process and right-sizing of the balance sheet.

Ashford noted that proactively choosing not to extend three loan pools (19 assets) improves its balance sheet by lowering leverage and materially improves future cash flows. The combination of the paydowns and the removal of the debt will lower the company's debt by approximately $700 million. “We’re encouraged that the vast majority of our hotels are now out of their cash traps,” said Ashford President and CEO Rob Hays. “Looking ahead, our portfolio remains well positioned to outperform and, from a capital structure and balance sheet perspective, we will continue to focus on paying off our corporate financing and raising capital through our non-traded preferred stock."

Sunstone reports. Sunstone Hotel Investors 2Q23 earnings showed net income of $43.1 million as compared to $37.7 million for the same period last year. Comparable RevPAR increased 3.6% to $245.91. ADR was $319.36 and occupancy was 77%. RevPAR at the company’s urban and group hotels increased 10.7%. Adjusted EBITDAre, excluding noncontrolling interest increased 15% to $85.1 million. Adjusted EBITDA was 5% to 6% ahead of Street estimates. Adjusted FFO attributable to common stockholders per diluted share increased 10% to $0.33. The Sunstone Board of Directors has increased its quarterly common dividend to $0.07 per share.

“During the quarter, our portfolio generated profitability that was above the high-end of our guidance ranges despite a moderation in leisure travel, which contributed to softer revenue growth,” said CEO Brian Giglia. “Our group hotels continue to benefit from steady demand trends and healthy ancillary spend. We remain encouraged by the ongoing recovery in our urban markets, particularly San Francisco, which was once again our highest RevPAR growth market and continues to demonstrate steady growth as the market recovers.”

Sunstone showed weaker leisure/resort performance with Oceans Edge -16%, Four Seasons Napa Valley was -11% and Montage Healdsburg in California was -5%. Four Seasons occupancy ran at just 49.6%. Four Seasons EBITDA margin was 15.1%, the lowest in the entire portfolio.

RevPAR guidance of -1% to +2% is below consensus of +3.4%.

RLJ's favorable position. RLJ Lodging Trust reported 2Q23 earnings that showed portfolio Comparable RevPAR of $152.89; an increase of 4.5% from last year. In 2Q23, comparable RevPAR was 96.4% of 2Q19; ADR was 106.5%.

“We were pleased with our second quarter results as our portfolio once again achieved RevPAR growth ahead of the industry,” commented President and CEO Leslie Hale. “We are also demonstrating or ability to execute on the optionality of our strong balance sheet by repurchasing our shares, increasing our quarterly dividend by 25% and deploying capital towards our current year conversions.”

RLJ reported adjusted EBITDA of $113.8 million, slightly above consensus of $113.2 million. Guidance was $112 million to $121 million. Comparable Hotel EBITDA was in line at $122.8 million and guidance ranges from $121 million to $130 million.

2Q effectively in-line to the June commentary of EBITDA being towards the low-end of the original guidance. 

“RevPAR was a miss... a common theme this quarter,” wrote Truist Securities C. Patrick Scholes. “That said, RLJ is and should be one of the better relative RevPAR performers today given a lower exposure to resorts and higher exposure to the lagging recovery chain scales of upscale and upper upscale and lagging location type of big city urban.”

Scholes continued, “While we remain cautious on elements of the urban occupancy recovery story that have not fully recovered – especially higher-rated business transient and some international inbound demand – at least for now the new supply growth environment looks more accommodating which should lead to fundamental real estate supply-demand economics working in RLJ’s favor.”

Apple bullish on deals. Apple Hospitality REIT reported 2Q23 earnings that beat the Street on stronger top-line performance. It showed comparable RevPAR improved by more than 5%, ADR increased by approximately 5% and occupancy was up nearly 1% YOY.  With portfolio occupancy still below pre-pandemic levels RevPAR was up 7% relative to second quarter 2019, its highest quarterly comparable RevPAR growth since the onset of the pandemic.

The company achieved comparable adjusted EBITDA of approximately $142 million, a 2% improvement over second quarter 2022. Comparable adjusted EBITDA margin was approximately 39%, down 160 bps to second quarter 2022.

On June 30, the Apple Hospitality acquired the Courtyard by Marriott Cleveland University Circle for a gross purchase price of $31 million. The company currently has two additional hotels under contract for purchase for an anticipated combined gross purchase price of approximately $175 million.

CEO Justin Knight said, “We are pleased to have acquired the Courtyard Cleveland University Circle during the quarter and continue to underwrite numerous potential opportunities. The transaction market, while still relatively quiet, seems to be opening up, and we anticipate deal volume will increase as the year progresses.”

“Apple’s 2Q23 results topped consensus expectations, and adjusted EBITDA matched our estimate; hotel-level performance was ~$3 million better than our model due to stronger top-line growth during the quarter, while higher G&A (cash and stock) almost entirely offset the better-than-expected hotel EBITDA result versus our forecast,” wrote R.W. Baird’s Michael Bellisario. “Positively, and especially relative to Hotel REIT peers this earnings season, Apple's full-year RevPAR growth and Hotel EBITDA guidance ranges are increasing modestly; higher G&A is the offset to Adjusted EBITDA.”

Urban delivers for DiamondRock. DiamondRock Hospitality reported for 2Q23 $291.25 million in revenue, representing a year-over-year increase of 3.5%. EPS of $0.32 for the same period compares to $0.23 a year ago. Net income was $39.1 million and earnings per diluted share was $0.17.

Comparable RevPAR was $226.41, a 0.5% increase over 2022 and a 8% increase over 2019. Comparable adjusted EBITDA was $93.6 million, a 9.7% decrease over 2022 and a 3.5% increase over 2019. Comparable adjusted EBITDA margin was 32.36%, a 381 basis point decrease over 2022 and a 178 basis point decrease over 2019.

“The DiamondRock portfolio delivered a new record for comparable revenues in the quarter even as it made major investments into its portfolio to secure future performance” said President and CEO Mark Brugger. “Our urban portfolio delivered strong total revenue growth of 7.1% with solid performance from group, but the rate of improvement in business transient demand appears to be moderating.”

He said competition from international destinations and cruise lines led its smaller portfolio of resorts to rebalance to a ‘new normal’ with total revenues declining 8.3%. “However, revenues from our resorts remained 33.1% ahead of the comparable period in 2019 as destination resorts remain the biggest winner from an acceleration in the secular demand for leisure travel.”