Host Hotels CEO Has a Suite Outlook, Despite Sequester
While hotel operators are fretting the impact of sequestration, the CEO of Host Hotels and Resorts — which owns many of the inns the big chains operate — says the recovery from a few brutal years is looking strong.
"The reality is that while we all would have liked to see stronger GDP growth over the last few years, the benefit ... is that new construction is still very low in the sector. It's still at levels that are less than 50 percent the long-term average," Ed Walter told CNBC's Squawk on the Street.
The result has been an opportunity to invest more in current assets, and Walter says Host, the country's largest real estate investment trust, has sunk more than $1 billion into existing hotels in the past two years alone. Under current conditions, he said, "it makes sense to buy new assets or invest in our existing assets."
"Until we see new supply accelerate above the long-term averages, which are slightly above 2 percent a year, I think the cycle's going to be extended," he said.
On Thursday Host reported a 9 percent fourth-quarter revenue increase to $1.75 billion and a 27 percent jump in funds from operations to $308 million, exceeding analyst expectations. Higher room rates and improving occupancy were credited.
Marriott CEO Arne Sorenson, after an earnings report that also beat predictions, on Wednesday told CNBC that the looming threat of sequestration — the automatic government spending cuts that will take effect March 1 if no deal is cut — was the sole reason for a darkened outlook. "We know it will not be good for our business," he said.
(Read more: 5 Reasons Not to Worry About the Dreaded Sequester)
Walter said he too is concerned about the fiscal drama playing out in Washington, but noted that "the first six weeks of this year have been very strong. Revenue per available room growth ... was up over 9 percent. And we look at our group bookings for the last three quarters of the year, our group revenues are projected to be up 8 percent."
Host, which has 103 properties in the U.S. and 15 more abroad, saw fourth quarter per-room revenue jump more than 17 percent in Los Angeles and Seattle as well as double-digit growth in Hawaii and San Francisco, and Walter credits a West Coast comeback.
"I think you've got a combination of the economy in California recovering ... and international travel," he said. "There are a lot of travelers coming in from Japan, China and India, and a lot of those are coming to the West Coast."
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