Proving luxury resort acquisitions are not being discounted for COVID-19, Host Hotels & Resorts, the largest lodging REIT in the U.S., has acquired the fee simple interest in the 444-room Four Seasons Resort Orlando at Walt Disney World Resort in an off-market deal for approximately US$610 million in cash, or US$1.4 million per key.
The deal represents a 4.7% capitalization rate, 16.8x EBITDA multiple based on 2019 results. In 2019, RevPAR was US$561, Total RevPAR was US$923, EBITDA/key was US$81.5K and net income was US$19M.
C. Patrick Scholes of Truist Securities wrote on Tuesday, “while pent-up leisure demand may lead to very strong performance in 2021 from domestic travelers and 2022 from international demand, we view a 16.8x multiple as possibly dilutive (we could be interpreting incorrectly). That said, given the 1Q EBITDA beat, we think investors will look past the headline sales figures especially as the price per key was largely within media expectations.”
He added, “We believe there may be opportunities for future development at/adjacent to this location although we believe we did not see such opportunity noted in the releases. If true, the actual sale pricing may be somewhat more attractive than what Host noted publicly given incremental EBITDA opportunities.”
Host President and CEO James Risoleo, said, “Four Seasons Resort Orlando at Walt Disney World Resort is a truly iconic and irreplaceable property that is well-positioned to benefit from significant demand as the pandemic subsides and the 18-month celebration of Walt Disney World’s 50th anniversary begins in October,” said “A strong market leader with a 2019 RevPAR Index over 215, this resort is now Host Hotels’ highest-ranked property based on 2019 RevPAR and Total RevPAR, and fifth highest based on EBITDA per key.
“Our ability to execute on this off-market acquisition underscores the benefits of our prudent and disciplined capital allocation approach that emphasized maximizing balance sheet capacity and liquidity toward the end of the cycle. Our strong financial foundation of US$2.5 billion in total available liquidity at year-2020, including FF&E reserves, has enabled us to invest in high-quality properties that we expect to elevate our EBITDA growth profile and create long-term value for our shareholders and other stakeholders.”
In its Q1 earnings report, Host showed a sizable EBITDA beat on revenues and strong room margins.
Overall, EBITDA was US$58 million ahead as demand rebounded strongly in March and labor expenses were controlled. Total revenues of US$399M were well ahead of consensus of US$337M; RevPAR growth (versus 2019) declined 68.1%, which compares to a decline of 79.7% in 4Q20.
Scholes wrote, “Host beat not just on revenues but also on operating margins, at least compared to our expectations. Rooms margin of 74.7% in 1Q21 exceeded 2019A of 74.6%, which we find a remarkable achievement. That said, on 27% occupancy, we assume some managers were running hourly roles, there may have been guest satisfaction issues for some properties on limited staffing, and some guests may have just been happy to get on vacation and were more tolerant of abnormal hotel operating conditions.”