Host Hotels & Resorts, Inc.

Good morning and welcome to the Host Hotels and Resorts Third Quarter 2025 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. Please go ahead.

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 gap information in yesterday's earnings press release and 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 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. We continue to outperform our expectations in the third quarter, building on strong operating and financial results in the first half of 2025. In the third quarter, we delivered adjusted EBITDA RE of $319 million, a decrease of 3.3% over last year. and adjusted FFO per share of 35 cents, which is down 2.8% compared to the third quarter of 2024. Year to date, compared to 2024, adjusted EBITDA RE and adjusted FFO per share were up 2.2% and 60 basis points, respectively. The operational results discussed today refer to our 76 hotel comparable portfolio in 2025, which excludes the Alita Ventana Big Sur and the Don Cesar. Additionally, we have removed the Washington Marriott and Metro Center, which was sold in the third quarter and the St. Regis Houston, which was held for sale as of the third quarter and is expected to be sold in the fourth quarter. Comparable hotel total REBPAR improved by 80 basis points compared to the third quarter of 2024, and comparable hotel REBPAR improved by 20 basis points due to better than expected short-term transient demand pickup and higher rates across our portfolio. Comparable hotel EBITDA margin for the quarter declined by 50 basis points year over year to 23.9%. driven by expense increases in wages and benefits. Turning to business mix, rep-hard growth in the third quarter exceeded our expectations at our resort properties, driven by short-term leisure transient demand pickup and rate growth, despite headwinds from transformational renovations, the Jewish holiday shift, and lingering impacts from macroeconomic uncertainty. Transient revenue grew by 2%, driven by double digit growth at our resorts. We saw particularly strong performance in Maui, San Francisco, New York, and Miami. Digging into Maui, the leisure transient demand recovery continued. Maui's 20% rep part growth and 19% trip part growth were driven by a substantial increase in occupancy and strong out of room spending on F&B, golf and spa services. Looking forward, total group revenue pace in Maui is up 13% for 2026, reflecting continued momentum behind the recovery. Turning to business transient, revenue was down 2% in the third quarter, driven by a continued reduction in government room nights. As expected, Group room revenue decreased approximately 5% year over year, driven primarily by planned renovation disruption, the Jewish holiday calendar shift, and reduced short-term group pickup. Our definite group room nights on the books increased to 4 million for 2025. In full year 2025, total group revenue pace is up 1.2% to the same time last year. Ancillary spending by guests remained strong, as evidenced by our 80 basis point total REVPAR growth in the third quarter. F&B revenue was flat, as increases in outlet revenue were offset by decreases in banquet and catering revenue from lower group business volume. We also saw particularly strong growth in other revenue, which was up 7%, including growth in golf and spa. Turning to the Don Cesar, we completed the final phase of reconstruction in the third quarter, reopening two restaurant outlets and the lower level kitchen. During the reconstruction, we rebuilt infrastructure to increase resilience, including elevating critical equipment and systems and incorporating flood barriers. We are continuing to see better than expected near-term transient pickup, higher F&B capture, and increased group bookings, which allowed us to raise our full year EBITDA expectations for the resort to $6 million from $3 million. We collected $5 million of business interruption proceeds for Hurricane Tulane and Milton in the third quarter, which we discussed on our second quarter call, bringing the total business interruption proceeds collected to $24 million this year. While we expect to collect additional business interruption proceeds, the timing and amounts of additional payments are subject to ongoing discussions with our insurance carriers. Turning to capital allocation, in August, we sold the Washington Marriott Metro Center for $177 million, or 12.7 times trailing 12-month EBITDA. As part of the transaction, we provided $114 million of seller financing at a 6.5% interest rate in order to facilitate a 1031 exchange for the buyer in a timely manner. Since 2018, we have disposed of approximately $5.2 billion of hotels at a blended 17.1 times EBITDA multiple, including estimated foregone capital expenditures of $1 billion. which compares favorably to our $4.9 billion of acquisitions over the same period at a blended 13.6 times, even a multiple. Turning to portfolio reinvestment, as of the third quarter, the Hyatt Transformational Capital Program is approximately 65% complete and is tracking on time and under budget. Renovations at the Hyatt Regency Capitol Hill are complete In subsequent to quarter end, we substantially completed the Hyatt Regency Austin. Renovation of the public and meeting spaces at the Grand Hyatt Washington, D.C. has resumed now that the Hyatt Regency Capitol Hill is complete. Renovations are also well underway at the Hyatt Regency Reston and the Manchester Grand Hyatt San Diego, the final property in the Hyatt Transformational Capital Program, which we expect to complete in early 2027. Building on the success of our prior transformational capital programs, we are excited to announce that we have reached a second agreement with Marriott to complete transformational renovations at four properties in our portfolio. The properties include the Ritz-Carlton Marina Del Rey, the Ritz-Carlton Naples Resort at Tiburon, the West St. Carolyn, and the New Orleans Marriott, which is already underway. We believe these reinvestments will position the hotels to outperform competitors in their respective markets while enhancing long-term performance. Marriott has agreed to provide $22 million in operating profit guarantees to cover the anticipated disruption associated with our investment, which is expected to be between $300 and $350 million over the next four years. We are targeting stabilized annual cash-on-cash returns in the mid-teens through a combination of red part index share gains and enhanced owner priority returns. Similar to the first Marriott Transformational Capital Program, we are targeting average red part index share gains of three to five points. We also continue to make progress on value-enhancing development projects, including the new ballroom at the Don Cesar and the Phoenician Canyon Suites Villas, both of which are expected to complete in the fourth quarter of 2025. We also completed the meeting space expansion project at the New York Marriott Marquis and made additional progress on the condo development at the Four Seasons Resort Orlando at Walt Disney World Resort. Construction on the mid-rise condominium building at the Four Seasons Orlando is substantially complete. and we are on track to begin closing on sales this quarter. We now have deposits and purchase agreements for 23 of the 40 units, including eight of the nine villas. In 2025, our capital expenditure guidance range is $605 to $640 million, which includes between $75 million and $80 million for property damage reconstruction. the majority of which we expect to be covered by insurance. Our CapEx guidance also reflects approximately $280 to $295 million of investment for redevelopment, repositioning, and ROI projects. We expect to benefit from approximately $24 million of operating profit guarantees related to the Hyatt Transformational Capital Program in 2025, which will offset the majority of the EBITDA disruption at those properties. We also expect to receive $2 million in operating profit guarantees related to the second Marriott Transformational Capital Program this year. In addition to our capital expenditure investment, we expect to spend $80 to $85 million on the condo development at the Four Seasons Resort Orlando at Walt Disney World Resort in 2025. Looking back at prior transformational renovations and adjusting for the sale of Marriott Metro Center, we completed investments in 23 properties between 2018 and 2023, which are continuing to provide meaningful tailwinds for our portfolio. Of the 20 hotels that have stabilized post-renovation operations to date, the average REBPAR index share gain is over 8.5 points. which is well in excess of our targeted gain of three to five points. In short, the continued reinvestments we make in our properties yield strong returns and drive continued value creation for shareholders. In August, we released our 2025 Corporate Responsibility Report, which details our CR program, our key impact initiatives, and industry-leading accomplishments. The report also provides an update on our performance and progress toward our 2030 CR goals, which are aligned with our long-term vision to create lasting value and drive positive outcomes for all stakeholders. The CR report can be found on the corporate responsibility section of our website at hosthotels.com. Turning to our outlook for the full year. We once again outperformed our expectations in the third quarter. As a result of our strong performance year to date and improved expectations for the fourth quarter, we are increasing our comparable hotel rep par and total rep par guidance estimates to approximately 3% and 3.4% respectively. We are also increasing our adjusted EBITDA RE guidance to $1,730,000,000 representing a $25,000,000 or 1.5% improvement. So Rob will discuss the assumptions behind these updated estimates in more detail. It is worth noting that since we laid out our initial full year 2025 guidance in February, we have increased our REVPAR expectations by 150 basis points and our adjusted EBITDA expectations by $110 million. Wrapping up our third quarter commentary, we are pleased with our operating and financial outperformance this year, which we believe is a direct result of the capital allocation decisions we have made over the last eight years. The bifurcation of the consumer is likely to lead to continued outperformance for upper upscale and luxury hotels. And we believe Host will be a beneficiary given our higher end properties, our size and scale, our diversified business and geographic mix, and our continued reinvestment in our portfolio. With our strong investment grade balance sheet and access to many capital allocation levers, we will continue to use our competitive advantages to create value for our shareholders and position hosts to outperform over the long term. With that, I will now turn the call over to Saurav.