Host Hotels & Resorts, Inc. (HST - Free Report) priced an offering of additional 3.50% senior notes due 2030, with aggregate principal amount of $150 million. The net proceeds of the offering are anticipated to be $146 million, after the deduction of underwriting discount and other expenses.
Subject to the satisfaction or waiver of customary closing norms, the offering is likely to close on Sep 3.
Markedly, the notes are being issued as additional securities under the company’s existing series of 3.50% senior notes. On Aug 20, 2020, it issued $600 million in aggregate principal amount of the notes.
Host Hotels intends to utilize the net proceeds from the note offering to fund its green projects, including developments and redevelopments of hotels, and revamp of existing hotels that are or are expected to be LEED certified.
Moreover, the company will use funds for improvement and refurbishment projects, including technologies related to energy and water efficiency, and renewable energy. Any remaining proceeds will be allocated to general corporate needs, including the repayment of debt.
The company’s efforts to strengthen its liquidity in these testing times and tap the debt market amid a low interest-rate environment are a strategic fit.
In fact, Host Hotels has a decent balance sheet and has been undertaking steps to preserve liquidity to withstand any market mayhem. The company exited the second quarter with $2.5 billion of liquidity, consisting of $1.6 billion of cash balance $154 million in FF&E escrow reserves, and $750 million of available capacity under its credit revolver. Assuming hotel performance remains at levels similar to the second-quarter 2020 level, this amount of liquidity is sufficient for its operations until mid-2022.
Continued cost-containment and prudent expense-management efforts have also helped to preserve liquidity. Such efforts include the reduction of hotel operating costs, suspension of dividend payments and stock repurchases.
Moreover, in June, Host Hotels received waivers of financial covenants related to its revolving credit facility and term loans to ease compliance through second-quarter 2021. Therefore, the financial flexibility provides the company ample scope for deploying capital for long-term growth opportunities and at the same time, carrying out redevelopment initiatives.
However, the rampant coronavirus outbreak is weakening travel demand. In fact, the restrictions on travel resulted in a sharp decline in group, business and leisure travel. Moreover, delays or cancellation of conventions and conferences, and other large public gatherings, which are typically demand drivers at the company’s hotels, resulted in significant declines in second-quarter revenues and total RevPAR. Additionally, Host Hotels expects to witness a continued increase in group cancellations in the second half of 2020, with total canceled group revenues of $1 billion as of Jul 30.
Moreover, the note offering increases the company’s long-term financial obligation.
Shares of this Zacks Rank #4 (Sell) company have lost 8.5% over the past three months against the industry’s growth of 2.4%.
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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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