W. Edward Walter, CEO of Host Hotels & Resorts (NYSE: HST), joined REIT.com for a CEO Spotlight video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.
Walter outlined the lodging REIT’s international strategy, noting that Host started to invest outside North America in 2006 when it acquired a portfolio of hotels from Starwood Hotels & Resorts Worldwide, Inc. under brand names that included Westin, Sheraton, W, St. Regis and The Luxury Collection.
Since that time, Host has expanded into Brazil, Australia and New Zealand, Walter noted. He explained that international investments probably represent about 15 percent of the overall properties that Host “has some level of control over.” However, international properties’ contribution to the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) is slightly less than 10 percent.
“Going forward, as long as appropriate opportunities present themselves, I’d like to see that grow,” Walter said. “But I don’t believe it will grow significantly. I think it will grow modestly. We’re probably in that 10 percent to 12 percent range in the next couple of years.”
Walter also discussed the keys to Host’s trajectory of long-term earnings growth. He noted that Host’s entire asset management department is focused on generating revenue growth and expense savings in order to generate net operating income growth.
“That’s certainly the core that drives earnings growth,” he said.
Another key to growth is Host’s focus on investing in assets that are accretive to earnings, Walter said. In addition, Walter pointed out that refinancing debt at lower rates has enabled Host to accelerate earnings growth.
Turning to the prospect of higher interest rates, Walter explained that about 80 percent of the company’s debt is fixed-rate and does not come due until 2019.
“Near-term consequences of higher rates are not significant for us,” Walter said. Meanwhile, higher rates that are driven by better economic activity bode well for the lodging business overall, he added.