Host Hotels & Resorts, Inc.

Good morning and welcome to the host hotels and resorts fourth quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Jamie Marcus, Senior Vice President of Investor Relations.

Thank you and good morning everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. On today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDA RE, and hotel-level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release, in our 8K filed with the SEC, and in the supplemental financial information on our website at hosthotels.com. With me on today's call are Jim Rosalia, President and Chief Executive Officer, and Saurav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim.

Thank you, Jamie, and thanks to everyone for joining us this morning. We ended the year with strong operating improvements across our portfolio driven by continued rate strength. For the full year 2022, we delivered adjusted EBITDA RE of $1,498,000,000, all-owned hotel EBITDA of $1,573,000,000, and all-owned hotel REVPAR of $196, which helped us achieve the high end of our full year 2022 guidance range. During the fourth quarter, we delivered adjusted EBITDA RE of $364 million and adjusted FFO per share of 44 cents. Our all-owned hotel EBITDA of $373 million in the fourth quarter was 5% above 2019, driven by rate strength, out-of-room revenues, and expense efficiencies resulting from operating improvements. All-owned hotel RevPar for the fourth quarter was approximately $197, a 60 basis point improvement over the fourth quarter of 2019. As a reminder, fourth quarter operations were impacted by Hurricane Ian, yet RevPar, all-owned hotel EBITDA, and EBITDA margins still exceeded 2019 levels for the third consecutive quarter since the onset of the pandemic. All owned hotel revenues in the fourth quarter were up 1.1% over the fourth quarter of 2019, while all owned hotel operating expenses were down 40 basis points. In addition to delivering strong operating improvements over the course of 2022, we continued to be recognized as a global leader in corporate responsibility. While we work toward achieving our 2025 environmental and social targets, we introduced our 2050 vision of becoming a net positive company, which is detailed in our 2022 corporate responsibility report. We now have a total of 10 LEED certified properties, including three LEED gold hotels, plus our corporate headquarters. In addition, we were named to the Dow Jones Sustainability Index World, which recognizes global sustainability leaders across all industries, for the fourth consecutive year, and we were included in the DJSI North America for the sixth consecutive year. Additionally, we were once again included among the world's most sustainable companies in S&P's Global Sustainability Yearbook, and name one of America's most responsible companies by Newsweek. Subsequent to quarter end, we amended and restated our existing $2.5 billion credit facility to further enhance the strength and flexibility of our balance sheet. The agreement reflects no increase in pricing and incorporates our industry-leading commitment to ESG by adding incentives linked to portfolio sustainability initiatives including green building certifications and renewable energy consumption. On the capital allocation front, during the fourth quarter, we repurchased 1.7 billion shares at an average price of $15.93 per share through our common share repurchase program, bringing our total repurchases for the quarter to $27 million. We have approximately $973 million of remaining capacity under the repurchase program. While macroeconomic headwinds continue to dominate the headlines, we remain optimistic about the state of travel for several reasons. First, although leisure rates are moderating, they remain well above 2019 levels. For context, Transient rates at our resorts were 52% above 2019 in the fourth quarter, compared to 64% in the third quarter. Second, in the fourth quarter, we booked 400,000 group rooms for 2023, and total group revenue pace is down only 70 basis points to the same time, 2019. Third, while business transient demand has been uneven, Revenue driven by this segment improved 440 basis points compared to 2019 on a quarterly sequential basis. Small and medium sized businesses are driving the business transient recovery, and they represent a larger share of our corporate demand today. According to American Express Global Business Travel, transactions by this segment reached 80% of pre-pandemic levels in the third quarter. Our recent acquisitions continue to contribute to our performance and are substantially ahead of our underwriting expectations. Based on full year 2022 results, EBITDA from the seven hotels we acquired in 2021 put us at the bottom end of our targeted range of 10 to 12 times EBITDA, well ahead of our planned stabilization period. Looking back on our transaction activity since 2018, We have acquired $3.5 billion of assets at a 13.7 times EBITDA multiple and disposed of $4.9 billion of assets at a 17 times EBITDA multiple, including $954 million of estimated foregone capital expenditures. It is worth noting that this quarter we moved the 2017 comparison of our all-owned hotel results from 2019 to 2022. as our 2022 results reflect more normalized operations. Comparing all owned hotel 2022 results for our current portfolio to 2017, we have increased the REVPAR by assets by 9%, the TREVPAR by 15%, the EBITDA per key by 31%, and avoided considerable business disruption associated with capital projects. Moving back to fourth quarter operations and starting with a hurricane update, we estimate that Hurricane Ian impacted our fourth quarter red part growth by 220 basis points, our adjusted EBITDA RE by $15 million, and our all-owned hotel EBITDA margin by 40 basis points. On a full-year basis, that translates to an all-owned hotel red part impact of 60 basis points, an all-owned hotel EBITDA impact of $18 million, and an all-owned hotel EBITDA margin impact of 10 basis points. As a reminder, the Hyatt Regency Coconut Point opened in November, and we expect to reopen the remaining pool facilities and water park in June. The Ritz-Carlton Naples remains closed, and we are targeting a phased reopening strategy beginning this summer. Reconstruction at the Ritz Carlton will enhance the resilience of the property by elevating critical equipment, introducing dry flood-proofing measures, and replacing major equipment with more efficient machinery. In addition, while the hotel is closed, we are avoiding future disruption by executing planned capital projects that would have otherwise impacted operations. While we are still evaluating the total financial impacts of the storm, We currently estimate the total property damage and remediation costs for all impacted properties in Florida to be between $200 million and $220 million. We are insured for $325 million per name windstorm with a $15 million deductible, resulting in potential insurance recovery of approximately $310 million for covered costs. Based on our current reopening plans for Ritz-Carlton Naples, We believe our insurance coverage is sufficient to cover substantially all the property damage as well as the near-term loss of business. Thus far this year, we have received approximately $50 million of insurance proceeds related to our claims. Continuing with fourth quarter results, transient revenue was up 60 basis points compared to the fourth quarter of 2019. with strong rate increases making up for the volume shortfall resulting from lower business transient demand, flight cancellations during the holidays, cold weather in Florida, and hurricane displacement at High Coconut Point in Ritz-Carlton, Naples. Revenue growth was driven by Orlando, Phoenix, and Hawaii, which offset declines in San Francisco and the Florida Gulf Coast. Our resort properties continue to outperform. with 13% transient rate growth over 2021. In the fourth quarter, we had six resorts with transient rates above $1,000, led by the Four Seasons Jackson Hole at over $2,200 and the Four Seasons Orlando at close to $2,000. Turning to group, this is the second consecutive quarter group revenue exceeded 2019, driven by 10% rate growth. In the fourth quarter, our hotels sold 954,000 group rooms, bringing our total group room nights sold for 2022 to 3.8 million, which represents approximately 84% of 2019 actual group room nights. Total group revenue for 2022 was down just 11% to 2019, as 6% rate growth and banquet contribution helped offset lower demand. For 2023, we currently have 2.9 million definite group room nights on the books, which represents 80% of full year 2022 group room nights. This compares to 71% on the books at the same time last year for 2022, representing a nine point improvement. Group rate on the books for 2023 is up nearly 6% to the same time last year. a 140 basis point increase since the third quarter. In addition, group revenue pace is up approximately 17% to the same time last year. We are very encouraged by the large group base we have on the books, particularly given short-term booking trends. Dorab will discuss more operational detail in our 2023 outlook in a few minutes. In addition to delivering operational improvements, we continue to execute on our three strategic objectives, all of which are aimed at elevating the EBITDA growth profile of our portfolio. As a reminder, our objectives include redefining the hotel operating model with our managers, gaining market share at hotels through comprehensive renovations, and strategically allocating capital to development ROI projects. As it relates to our first strategic objective, it is important to note that we have achieved the bulk of the $100 to $150 million of expense savings associated with redefining the operating model. In order to achieve the high end of the range, we will need to get back to 2019 business volumes. And as of the fourth quarter, occupancy was still 10 points below the fourth quarter of 2019. Turning to portfolio reinvestment. Our 2023 capital expenditure guidance range is $600 to $725 million, which reflects approximately $275 million of investment for redevelopment, repositioning, and ROI projects. The projects include a transformational renovation of the Fairmont Key Lani, the finishing Canyon Suites Villa expansion, and completing construction at the tower expansion, guest room renovation, and lobby transformation at Ritz-Carlton Naples, which was delayed by Hurricane Ian. To date, we have completed 14 out of 16 assets in our Marriott Transformational Capital Program, and we will complete the San Diego Marriott Marquis by the end of this month. The final property, the Washington Marriott and Metro Center, is underway and we expect it to be completed in May. It is worth noting that actual 2022 capital expenditures came in at the low end of our guidance range. As such, the midpoint of our 2023 range is $160 million higher than last year, which is driven by carryover capital and an estimated $100 to $125 million of capital expenditures related to hurricane restoration work, which we expect to be reimbursed by insurance claims. To conclude my remarks, we are extremely proud of the results we achieved in 2022, and we are confident that the quality of our portfolio, our ability to reinvest in our assets, and our fortress balance sheet will allow us to continue our strong performance in 2023. With that, I will now turn the call over to Saurabh.