Funding Thesis: Whereas progress in RevPAR (income per obtainable room) might begin to stagnate from right here, Host Lodges & Resorts might have the potential to thrive beneath an inflationary setting.
Regardless of some volatility within the inventory since, Host Lodges & Resorts is up by simply over 14% since my final article:
Whereas vaccine optimism and border re-openings had allowed for a major rebound in journey demand – it’s possible that progress may begin to plateau from right here as market demand reaches saturation as soon as once more. With that being mentioned, Host Lodges & Resorts could possibly be in a great place within the present macroeconomic setting. As an REIT inventory – the corporate could possibly be in a great place to climate rising inflation by benefiting from rising property values.
The aim of this text is to evaluate the extent to which the corporate can proceed to see a rebound in progress throughout the posh journey market – together with the diploma to which the corporate can thrive beneath an setting of rising inflation.
RevPAR (or income per obtainable room) is likely one of the most vital metrics within the resort business, which is the typical every day room charge multiplied by its occupancy charge. This can be a key measure of profitability, and one which we noticed rise fairly considerably in 2021 as journey demand began to rise as soon as once more.
In fact, such excessive progress figures can’t be sustained indefinitely, as that is merely compensating for the truth that journey demand had fallen to traditionally low ranges in 2020.
On this context, I select to investigate historic information for RevPAR progress to be able to decide the extent to which we might count on additional progress in RevPAR going ahead.
Listed here are the quarterly figures for RevPAR (in fixed US$) from Q1 2018 to Q3 2021:
Whereas RevPAR grew considerably to $129 in the latest quarter, progress nonetheless has potential to succeed in the $175-200 degree if RevPAR has the capability to rise to pre-pandemic ranges as soon as once more.
From Q1 2017 to This autumn 2019, common progress in RevPAR was 0.85% with a regular deviation of 6.99% (on a logarithmic foundation).
To find out a possible progress trajectory going ahead, I made a decision to generate 10,000 Monte Carlo simulations utilizing the above parameters.
Of the ten,000 simulations yielded, 965 confirmed quarterly progress of better than 10%.
On this regard, whereas RevPAR has seen giant progress in proportion phrases – we are able to count on that the legislation of enormous numbers will quickly return progress charges to comparable ranges as seen earlier than the disaster – as journey demand begins to saturate as soon as once more.
Whereas a lot hinges on the trajectory of COVID-19 and the related restrictions, we might even see considerably of an extended climb again to the $175-200 RevPAR vary, notably as inflation considerations might entice potential shoppers to delay luxurious journey for an additional 12 months.
REITs and Inflation
With regards to inflation, REITs are historically regarded as a great hedge towards inflation, as rising property costs improve the worth of the corporate’s portfolio – which additionally permits Host Lodges & Resorts to boost money within the occasion of a slower than anticipated restoration throughout luxurious journey.
For example, when taking a look at Third Quarter 2021 outcomes, we are able to see that whereas the corporate’s money and money equivalents has fallen sharply from 2020, that of Property & tools is up by over 7%.
It could possibly be the case that the drop in money and money equivalents could also be attributable to additional buy of property and tools – it’s unclear as to what quantity of the rise in property and tools is because of appreciation or Host Lodges & Resorts increasing their portfolio.
Nevertheless, for so long as the worth of property and tools continues to rise – I’d not be overly involved a couple of drop in money and money equivalents as the corporate has the power to divest of properties to boost money if wanted.
Furthermore, the corporate has not seen a rise in complete debt through the interval in query – which is encouraging because it signifies that the corporate just isn’t reliant on debt to increase its portfolio.
From this standpoint, I take the view that Host Lodges & Resorts would have the ability to thrive in an inflationary setting, and should even thrive beneath such an setting – as greater property costs will add to the corporate’s portfolio and assist to mitigate the results of a possible slowdown in luxurious journey as soon as once more.
To conclude, Host Lodges & Resorts has seen a major restoration as the posh journey market has picked up once more. Whereas it stays to be seen as as to whether progress may saturate from right here – I take the view that Host Lodges & Resorts ought to have the ability to thrive within the present setting.
Extra disclosure: This text is written on an “as is” foundation and with out guarantee. The content material represents my opinion solely and on no account constitutes skilled funding recommendation. It’s the accountability of the reader to conduct their due diligence and search funding recommendation from a licensed skilled earlier than making any funding selections. The creator disclaims all legal responsibility for any actions taken based mostly on the data contained on this article.