Host Hotels & Resorts, Inc.

Good morning and welcome to the Host Hotels and Resorts First Quarter 2024 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. You may begin.

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. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDA RE, and comparable 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 files with the SEC, and in the supplemental financial information on our website at hosthotels.com. With me on today's call are Jim Rizzolio, 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. In the first quarter, we delivered adjusted EBITRE of $483 million and adjusted FFO per share of 60 cents, which includes $10 million of business interruption proceeds from Hurricane Ian. Excluding the business interruption proceeds, our adjusted EBITRE was 7% above the first quarter of 2023, and our adjusted FFO per share was 8% above last year. We delivered a year-over-year comparable hotel total REBPAR improvement of 50 basis points, underscoring the continued strength of out-of-room revenue, while comparable hotel REBPAR declined 1.2%. First quarter red par faced headwinds from tough year-over-year comparisons, particularly in Maui. The year-over-year decline in Maui red par had an actual drag of 170 basis points on our first quarter portfolio red par. However, this understates the true impact of the wildfires, as we would have expected Maui to contribute 140 basis points to portfolio red par growth in the first quarter given the renovation disruption at Fairmont Keelanee in 2023. As a result, the total estimated impact of the wildfires on first quarter RepPAR is 310 basis points. RepPAR was also impacted by unseasonable weather in Florida, Arizona, and California and unanticipated renovation delays at the Singer Oceanfront Resort. Despite these headwinds, our first quarter comparable hotel EBITDA margin of 31.2% was 30 basis points above 2019. As a reminder, our first quarter operational results discussed today refer to our comparable hotel portfolio, which excludes the Ritz-Carlton Naples in 2024. In addition, while Lila Ventana Big Sur is included in our first quarter results, it is currently closed, and it has been removed from our comparable hotel set for the remainder of the year after a portion of Highway 1 collapsed in late March. At this time, we expect the resort to reopen towards the end of the second quarter. During the first quarter, our portfolio results continued to be impacted by the evolving nature of demand on Maui. Our risk management team has reached an agreement with our insurance carriers, and we are now including between $18 million and $22 million of business interruption proceeds related to the Maui wildfires in our full year 2024 guidance. Turning to business mix, it is worth noting that this quarter we are referring to revenue growth for our business mix segments as revenue per available room as a result of the leap year. Group revenue per available room grew 4% in the first quarter, driven by room nights. Our properties booked over 500,000 group room nights in the year for the year, bringing our definite group room nights on the books for 2024 to 3.6 million, with total group revenue pace up 7% compared to the same time last year. In the first quarter, business transient revenue per available room grew 5%. driven by both rate and room nights, and leisure remained steady, with transient rates at our comparable resorts up 52% compared to 2019, including our three Maui resorts. Briefly touching on out-of-room spend, food and beverage revenue per available room grew 2% in the first quarter compared to last year, driven by an all-time high banquet and catering contribution. Other revenue per available room grew 6%, driven by elevated attrition and cancellation fees. It is worth noting that nearly 40% of our total revenue in 2023 came from food and beverage and other revenue, and our 2024 guidance assumes a similar proportion. Since 2017, non-room revenue has steadily grown. as our portfolio has shifted toward more complex higher-end properties, which benefit from substantial out-of-room spend from both guests and non-guests. In fact, there may be instances that the property teams at our hotels strategically forego incremental room rate as they focus on the total revenue picture. The Ritz-Carlton Naples is a clear example of the positive impact of out-of-room spending. In the first quarter, the resort achieved repar of $900, which is only half of its $1,700 total repar. As a result of our meaningful expansion and transformational renovation, transit rates in the quarter were up 40% compared to 2019, driven by club-level rooms and food and beverage revenue grew 38% driven by outlets. In March, the resort posted its best revenue month ever, aided by Eastern Weeks Red Park, which was 45% above the competitive set. In addition, the resort was recently named the Travel and Leisure's It List, and we are proud to say that it truly is firing on all cylinders. Turning to capital allocation, yesterday we announced the acquisition of the fee-simple interest in a two-hotel complex comprising the 215-room One Hotel Nashville and the 506-room Embassy Suites by Hilton, Nashville downtown, for approximately $530 million in cash. The acquisition price represents a 12.6 times EBITDA multiple, or a cap rate of approximately 7.4% on 2024 estimated results. The properties are each expected to rank among our top 25 assets, based on estimated full-year 2024 results, with an expected combined REBPAR of $275, TREBPAR of $435, and EBITDA per key of $58,550, further improving the quality of our portfolio. The newly built LEED Silver Complex opened in 2022 and stands directly across from the 2.1 million square foot Music City Convention Center, adjacent to the Bridgestone Arena, which is home of the NHL Nashville Predators, and within a 10-minute drive of Nissan Stadium, the Country Music Hall of Fame Museum, Vanderbilt University, Tennessee State University, and Centennial Park. It sits on 1.2 B-simple acres in Nashville's famed Lower Broadway Entertainment District. The two-hotel complex has a combined 721 oversized rooms that average approximately 500 square feet with a 75% suite mix. The properties offer seven separate food and beverage outlets, including carry-ups rooftop at the one hotel, which provides guests with exclusive views of Music City skyline in an elevated nightlife setting. Other amenities include a spa, two fitness centers, a yoga studio, and 33,000 square feet of shared meeting space. From 2000 to 2023, the Nashville hotel market had a Red Park CAGR of 7.7%, even while absorbing new supply. It is the number two ranked convention destination in the United States, and the convention center has continued to set record attendance numbers by attracting larger events with promising definite bookings in future years. The new Nissan Stadium, home of the NFL Tennessee Titans, is also expected to generate increased demand as the stadium's dome attracts more entertainment and sporting events with year-round activation. In addition, Nashville has the fastest growing airport in the United States, with current passenger traffic 33% above 2019. The recent $1.5 billion airport expansion added six international gates and eight satellite gates. And another $1.5 billion expansion is already underway with expected completion in 2028. While supply growth is expected to continue in Nashville, most projects are in the planning stages and in the select service chain scale. We believe the One Hotel Nashville and the Embassy Suites by Hilton Nashville Downtown are highly differentiated from the future supply due to their central location and diversified product offerings, which provide distinct value propositions to customers and guests. With multiple demand generators and no expected near-term capital expenditure requirements, We believe the combined properties will stabilize at approximately 10 to 12 times EBITDA in the 2026 to 2028 timeframe, driving additional value creation for our portfolio. Due to the timing of the acquisition, the One Hotel Nashville and the Embassy Suites by Hilton Nashville Downtown are not yet included in our comparable hotel guidance metrics, but will be included starting in the second quarter. The acquisition is expected to generate $29 million of adjusted EBITDA for our ownership period, which is included in our adjusted EBITDA RE and FFO guidance for 2024. Looking back on our transaction activity, we have acquired $4 billion of assets since 2018 at a 13.5 times EBITDA multiple, and disposed of $5 billion of assets at a 17 times EBITDA multiple, including $976 million of estimated foregone capital expenditures. This accretive capital recycling has allowed us to grow our adjusted EBITDA RE and dividend in excess of full year 2019 levels as we continue on the path towards $2 billion of adjusted EBITDA RE. As we have demonstrated, we believe Host is well-positioned to continue capitalizing on value-enhancing acquisition opportunities. After adjusting for post-quarter transactions, we have $1.7 billion of total available liquidity and net leverage of 2.3 times, and we will continue using our size, scale, and relationships to uncover more acquisition opportunities. Turning to portfolio reinvestment, our 2024 capital expenditure guidance range remains $500 to $605 million, which reflects approximately $225 to $280 million of investment for redevelopment, repositioning, and ROI projects. During the first quarter, We started the Hyatt Transformational Capital Program renovations at the Grand Hyatt Atlanta and the Grand Hyatt Washington, which we expect to complete in the first half of 2025. We received $2 million of operating guarantees in the first quarter to offset business disruptions related to the Hyatt Transformational Capital Program, and we expect to benefit from an additional $7 million in 2024. More broadly, We have completed 24 transformational renovations since 2018, which we believe provide meaningful tailwinds for our portfolio. Of the 12 hotels that have stabilized post-renovation operations to date, the average Red Par Index share gain is 8.5 points, which is well in excess of our targeted gain of 3 to 5 points. Wrapping up, we believe Host is well-positioned to continue to outperform. Our successful capital allocation strategy has allowed us to deliver 2023 adjusted EBITDA RE and adjusted FFO per share above 2019 levels, outperforming the other full-service lodging REITs. We are encouraged by the supply picture for our markets and chain scales, which remains below historical levels, the improving international demand imbalance, the continued improvement in business transient demand, and increased activity in the transactions market. We believe our EBITDA growth profile, our investment-grade balance sheet, our diversified portfolio, and our continued portfolio reinvestment are key differentiators. As we have demonstrated, hosts can and will continue to do it all. With that, I will now turn the call over to Saurav to discuss additional operational detail in our revised 2024 outlook.