Host Hotels & Resorts, Inc. ( HST Quick Quote HST - Free Report) has secured an amendment to its credit agreement for its $1.5-billion revolving credit facility, which is currently fully drawn, and two $500-million term loans.
The amendment allows certain financial waivers to prevent any violation of covenants and will help the company to preserves liquidity amid the COVID-19 outbreak-led setback to withstand any prolonged business disruption.
In fact, waivers of the existing quarterly-tested financial covenants have been granted through a relief period starting Jul 1, 2020, to second-quarter 2021. Moreover, Host Hotels may opt for terminating the covenant relief period.
The company has been allowed to finance encumbered or unencumbered buyouts of up to $1.5 billion through existing liquidity, provided it maintains the minimum liquidity of $500 million.
Moreover, during the relief period, the hotel REIT may fund capital expenditure of up to $500 million in return on investment (ROI) projects and complete other capital expenditure like emergency repairs, life safety repairs or maintenance repairs in ordinary course of business. Notably, the company earlier projected capital expenditure of $290-$340 million in ROI projects for 2020.
However, it has agreed to an increase in the LIBOR floor of 15 basis points (bps) for term of the revolving credit facility and term loans. Moreover, interest rate has been increased by 40 bps in the credit ratings-based interest rate grid for the relief period. Management expects this increase in interest rate to flare up the company’s total interest expenses by $0.8 million per month.
Moreover, during this period, Host Hotels is prohibited from executing any dividend and distribution payments (other than payments necessary to maintain its REIT status), share buybacks, asset dispositions, and investments and borrowing additional debt (subject to various exceptions).
To further ease compliance post the relief period through first-quarter 2022, EBITDA calculation has been modified.
Moreover, the company has to maintain the maturity date of the credit facility and term loans. The revolving credit facility and one of the term loans have an initial maturity date of January 2024 that can be extended to January 2025 through options. The second term loan has the final maturity date of January 2025.
Notably, Host Hotels continues to enjoy unencumbered status on all its 80 consolidated assets. Further, it maintains the flexibility to dispose assets related to like kind exchanges of up to $750 million and other asset sales of up to $350 million before requiring any mandatory prepayment obligations under the credit facility.
Per management, a strong balance sheet, ample liquidity and history of disciplined capital allocation have likely aided the company to secure favorable waiver terms.
In fact, the amendment enhances its flexibility and allows Host Hotels to pursue investment opportunities. However, increase in interest expenses is concerning.
Moreover, shares of this Zacks Rank #3 (Hold) company have slumped 40.8% over the past year compared with the
industry’s decline of 8.3%.
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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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