Host Hotels & Resorts, Inc.

Good morning and welcome to the Host Hotels and Resorts Second 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.

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 second quarter, we delivered adjusted EBITDA RE of $476 million and adjusted FFO per share of 57 cents, which includes business interruption proceeds of $21 million for the Maui wildfires and $9 million for Hurricane Ian. Adjusted EBITDA RE grew 6.7% over the second quarter of last year and was up slightly, excluding business interruption proceeds. 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 was up 10 basis points. As a reminder, Our second quarter operational results discussed today refer to our comparable hotel portfolio, which excludes the Ritz-Carlton Naples and Alila Ventana Big Sur. Turning to quarterly results, second quarter comparable hotel repar faced headwinds from a slower than anticipated recovery in Maui and a continued shift in leisure demand to international destinations without a corresponding increase in international inbound demand. The year-over-year decline in Maui REBPAR had an actual drag of 250 basis points on our second quarter portfolio REBPAR. As discussed last quarter, this understates the true impact of the wildfires, as we would have expected Maui to contribute 90 basis points to portfolio REBPAR growth in the second quarter, given the renovation disruption at Fairmont Key Lani in 2023 in the expected lift for 2024. As a result, the total estimated impact of the wildfires on second quarter red part is 340 basis points. The lodging recovery in Maui has been slower than anticipated due to several factors. First, recovery and relief room demand has diminished without a commensurate level of leisure demand to offset the decline. Second, As a result of softer demand, airline capacity is still impacted. In July, total airline seats to the island were down 16% year over year. However, this has improved from down 19% in June and down 26% last September. And lastly, there remains a perception from would-be visitors that Maui is not ready to welcome guests back to the islands. Our properties are collaborating with local tourism authorities and government officials to create a clear, well-supported marketing campaign that will launch this fall after the anniversary of the tragic fires. These state and local efforts are in addition to sales and marketing efforts by our managers. We are hopeful that this will be a turning point in the recovery trajectory, and consumers will once again feel comfortable returning to Maui. Turning to business mix, group room revenue was up approximately 8% in the second quarter, driven by rate growth alongside demand growth. Our properties booked 315,000 group room nights in the year for the year, bringing our definite group room nights on the books for 2024 to 4 million rooms with total group revenue pace up 6% compared to the same time last year. Business transient revenue grew 4%. driven fairly evenly by demand and rate growth. Domestic leisure demand moderated as consumers opted for international destinations in Europe, Asia, and the Caribbean. Despite the volume decline, transient rates at our comparable resorts were up 51% compared to 2019, including our three Maui resorts, underscoring the financial health of the affluent consumer. We believe the international travel imbalance remains a key driver of lower leisure demand in our properties. In fact, U.S. international outbound travel has grown from 110% of pre-pandemic levels in the second quarter of last year to 119% in the second quarter of this year. At the same time, U.S. international inbound travel remains below pre-pandemic levels at 88%. as a strong dollar, weaker global economic growth, and visa delays continued to present headwinds to the inbound recovery. Encouragingly, guests at our properties continued to spend during their stays. Food and beverage revenue drove total red part growth in the second quarter, led by banquets and catering, as well as improvement in outlet revenue on a per occupied room basis. Other revenue was down slightly due to the expected moderation of attrition and cancellation fees, but spa and golf revenues continued growing outside of Maui. As we highlighted last quarter, nearly 40% of our total revenue in 2023 came from food and beverage and other revenue, and our 2024 guidance assumes a similar proportion. We continue to believe that total rep part presents a more holistic picture of our underlying business as our portfolio has shifted toward more complex higher-end properties which benefit from substantial out-of-room spend. Turning to capital allocation, yesterday we announced the acquisition of the fee-simple interest in the 234-room One Hotel Central Park for approximately $265 million in cash. The acquisition price represents an 11.1 times EBITDA multiple or a cap rate of approximately 8.1% on 2024 estimated results. The property is expected to rank among our top 10 assets based on estimated pool year 2024 results. with an expected rep par of $545, trep par of $735, and EBITDA per key of over $100,000, further improving the quality of our portfolio. The LEED certified luxury property opened in 2015. It has 25 suites and a recently added five-key penthouse that offers large terraces and unparalleled views of Central Park, as well as a presidential suite. The lobby level features jams, a three-meal restaurant and bar affiliated with James Beard Award winner Jonathan Waxman. The second floor offers 2,000 square feet of contiguous and flexible meeting space, as well as a naturally lit fitness center and a business center. The one hotel, Central Park, will further diversify our presence in New York City. which is one of the top red-par markets in the country. It will also provide hosts with exposure to the luxury guests in Upper Manhattan, the top red-par sub-market in the city. We also completed the previously announced acquisition of the 450-room Ritz-Carlton Oahu Turtle Bay yesterday. The resort is located on the north shore of Oahu, Hawaii, and includes a 49-acre land parcel entitled for development. The $630 million resort acquisition price is net of key money and represents a 16.3 times EBITDA multiple or a cap rate of approximately 5.3% on 2024 estimated results. Based on preliminary 2025 underwriting and the conversion to a Ritz-Carlton, the acquisition price represents an approximate 13.5 times EBITDA multiple or or a cap rate of approximately 6.7%. We expect this resort to stabilize between approximately 10 to 12 times EBITDA in the 2027 to 2029 timeframe. Due to the timing of the acquisitions, the One Hotel Central Park and the Ritz-Carlton Oahu Turtle Bay are not yet included in our comparable hotel guidance metrics. They will be included starting in the third quarter. These two acquisitions are expected to generate $22 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 in 2024, we have acquired $1.5 billion of iconic and irreplaceable real estate at a blended 13.6 times EBITDA multiple. based on estimated 2024 results, which represents over $100 million of estimated full-year EBITDA that we expect to grow as the assets stabilize. In May of 2023, we laid out a path to $2 billion of EBITDA at our investor day. With these acquisitions, we are halfway toward our target of $3 billion of acquisitions at a lower blended EBITDA multiple than we assumed at that time. Since 2018, we have acquired $4.9 billion of assets at a 13.6 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 allowed us to grow our 2023 adjusted EBITDA RE by 6% above 2019 levels. adjusted EBITDA RE per key by 18% and NAE RE FFO per share by 13%. It is what we believe will allow our portfolio to outperform over the long term. After adjusting for post-quarter transactions, we have $1.4 billion of total available liquidity and net leverage of 2.7 times. During the quarter, we also repurchased 2.8 million shares of stock at an average price of $17.81 per share through our common share repurchase program, bringing our total repurchases for the quarter to $50 million. Since 2022, we have repurchased $258 million of stock at an average repurchase price of $16.26 per share. Turning to portfolio reinvestment, Our 2024 capital expenditure guidance range is $500 to $600 million, which reflects approximately $220 to $260 million of investment for redevelopment, repositioning, and ROI projects. Included in the ROI projects is the Hyatt Transformational Capital Program, which is on track and slightly under budget thus far. We received $2 million of operating guarantees in the second quarter to offset business disruptions related to the Hyatt Transformational Capital Program, and we expect to benefit from an additional $5 million this year, bringing the total operating guarantees to $9 million in 2024. In addition to the capital expenditure range, this year we expect to spend $50 to $60 million on the 40-unit residential condo development at our Four Seasons Resort Orlando at Walt Disney World Resort. The development is well underway and marketing efforts began in July. We anticipate the formal sales launch to begin in the fourth quarter. More broadly, we have completed 24 transformational renovations since 2018, which we believe provide meaningful tailwinds for our portfolio. Of the 14 hotels that have stabilized post-renovation operations to date, the average Red Par Index share gain is 7 points, which is well in excess of our targeted gain of 3 to 5 points. Earlier this week, we released our 2024 Corporate Responsibility Report, which details our CR program and strategy, our ESG initiatives, and our industry-leading accomplishments. Additionally, the report provides an update on our performance and progress towards our 2030 environmental and social targets, which are mapped to our aspirational vision of becoming net positive by 2050. The CR report can be found on the corporate responsibility section of our website at hosthotels.com. Wrapping up, we believe HOST is well positioned to continue to outperform. We remain optimistic about the state of travel today, despite the softer than expected recovery in Maui and moderating domestic leisure transient demands. While we would certainly prefer to see more leisure demand in the U.S. versus abroad, it is encouraging to see consumers continue to prioritize spending on travel and experiences. The pendulum will eventually swing back to domestic destinations, and when it does, We believe Host is well positioned to benefit due to our geographically diversified, iconic, and irreplaceable portfolio, as well as the recent reinvestments we have made and continue to make in our properties. Host is uniquely positioned, and as we have demonstrated, we are able to access many capital allocation levers to create shareholder value. With that, I will now turn the call over to Saurav to discuss additional operational detail and our revised 2024 outlook.