Host Hotels & Resorts Amends $2.5B Credit Agreement

The Phoenician, A Luxury Collection Resort. Image courtesy of The Phoenician

Host Hotels & Resorts Inc. has just made a significant move that will not only allow for the preservation of liquidity amid prolonged business disruption due to the COVID-19 pandemic, but provide greater flexibility in the pursuit of any investment opportunities as well. The lodging REIT successfully amended its $2.5 billion credit agreement, which involves a $1.5 billion fully drawn revolving credit facility and two $500 million term loans.

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In its July 2020 investor presentation, Host Hotels elaborates on the issue of flexibility for capitalizing on opportunity. “Not to go back to 2019. Rather, to use this crisis to create a structurally better future for hotel owners. We believe Host is the best positioned lodging REIT to deliver that future and to capitalize on opportunistic investments that may arise due to this period of dislocation.”

With regard to enhanced flexibility for investments, the new amendment terms include permission to finance encumbered or unencumbered acquisitions up to $1.5 billion, contingent upon the retention of a minimum of $500 million of liquidity. Additionally, the amendment permits the funding of up to $500 million in ROI capital expenditures during the Covenant Relief Period and the completion of capital expenditures associated with emergency, life safety or ordinary course maintenance repairs.

The amended terms pertaining to liquidity preservation include the waiver of the existing quarterly-tested financial covenants from July 1, 2020 through June 2021, as well as an option for early termination of the Covenant Relief Period. Host was also able to modify the quarterly-tested leverage covenant and EBITDA calculation for the purpose of easing compliance in the first three quarters following the end of the Covenant Relief Period. And with regard to maturity dates, the new terms allow for the maintenance of the initial January 2024 maturity date for the revolving credit facility and one of the term loans with options to extend to January 2025, and the maintenance of the second term loan’s final maturity date of January 2025.

Remaining unencumbered

Finally, as part of the terms of Host’s newly amended credit agreement, the company preserved the fully unsecured status of its 46,669-key portfolio of 80 consolidated assets. The group of luxury and upper-upscale hotels includes The Phoenician, A Luxury Collection Resort, which is a sprawling 545-key property in Scottsdale, Ariz., that the REIT acquired for $400 million in 2015. The 305-key W Hollywood in Los Angeles, acquired in 2017 for $219 million, is also included in the company’s portfolio of consolidated assets.

As of May 7, 35 of Host’s 80 consolidated hotels had suspended operations. “We worked with our operators to determine whether to suspend operations at a hotel based on the property’s ability to generate revenues that are greater than the incremental costs associated with remaining open. If the hotel is expected to achieve this incremental threshold, it remains open,” James Risoleo, president & CEO of Host Hotels & Resorts Inc., said during the company’s first quarter 2020 earnings conference call on May 8. “Our preference is to leave hotels open as long as it is financially justifiable to do so because we believe an operational property is better positioned to capture demand when it begins to recover.”