Host Hotels & Resorts Inc.'s CEO emphatically declared the company uninterested in buying a large property portfolio at a time when Anbang Insurance Group Co. Ltd. is reportedly considering the sale of a multibillion-dollar collection of luxury assets.
On an earnings conference call, President and CEO Jim Risoleo said the company has $1.2 billion of cash on hand and intends to maintain a leverage ratio of 3x or less, meaning Host has total investment capacity of $2 billion to $2.5 billion.
"We do not intend to move higher than our targeted leverage range, nor do we intend to invest beyond that capacity," Risoleo said. "As there has been recent speculation about Host, I want to be clear that while we are always open to opportunistically looking at value-enhancing assets, we are not focusing on pursuing large-scale portfolio acquisitions at this time."
Anbang, a Chinese insurer that made a string of high-profile acquisitions in recent years but has more recently been divesting assets, was reported in November 2018 to have hired Bank of America Corp. as an adviser to sell a portfolio that Anbang acquired from Blackstone Group LP in 2016.
The portfolio, which belonged to the publicly traded real estate investment trust Strategic Hotels & Resorts Inc. before Blackstone took that company private, comprises more than a dozen luxury properties including the Essex House Hotel in New York City, the Westin St. Francis in San Francisco and the Loews Santa Monica Beach Hotel in Santa Monica, Calif. Anbang paid $6.5 billion to acquire the properties.
Rather than compete for such a large portfolio, Risoleo said Host prefers to make "small, targeted, add-on acquisitions," such as its approximately $610 million purchase of the 1 Hotel South Beach, in Miami, or to upgrade its existing properties or buy back stock.
Risoleo said the company has "a number of assets" in its acquisition pipeline, adding, "There are always opportunities that present themselves. There are opportunities that we go after that aren't on the market. So we will continue to look for assets that fit our profile. We will be disciplined in our underwriting criteria, and we will be opportunistic in investing going forward."
Host purchased three hotels from Hyatt in 2018 for about $1 billion.
In response to a question about whether Host's thinking about a large portfolio acquisition has changed, CFO Michael Bluhm said the company is mindful of the state of the hotel cycle and intends to be conservative about "underwriting into this type of environment."
Earlier in the call, Risoleo said hotel operating fundamentals remain stable and positive, but noted that the current cycle has lasted 10 years, and said key indicators such as corporate profits, consumer confidence and nonresidential fixed investment are down slightly year over year.
The company expects leisure travel to grow at a slower pace in 2019 and is anticipating a modest slowdown in U.S. GDP, with the near-term benefits of the 2017 tax cut fading, Risoleo said, adding that the government shutdown gave the lodging industry a slower start to the year than expected.