The Host Hotels & Resorts Second Quarter 2023 Earnings Conference Call was opened by Jaime Marcus, Senior Vice President of Investor Relations. Jim Risoleo, President and Chief Executive Officer, then discussed the second quarter's performance, which included a comparable hotel RevPAR improvement of 2.7%, adjusted EBITDAre of $446 million, and adjusted FFO per share of $0.53.

Marriott reported 9% higher EBITDA margins compared to 2019, and RevPAR and TRevPAR growth for the quarter. They tightened their full year RevPAR growth guidance range to 7-9%, with a midpoint of 8%. Group business continues to improve, with over 310,000 group rooms booked for 2023, and total group revenue pace 4.2% ahead of 2019. Business transient demand is also gradually improving.

In the second quarter of 2022, rates were up 10% compared to 2019 and demand improved by 6%. Leisure rates at resorts remain well above 2019 levels, and international demand is expected to be a tailwind going forward. Consumer spending is strong, with food and beverage spend up 6% and other revenue up across the board. Golf and spa revenue remain robust, and five resorts had transient rates of $1,000 or more.

The top three resorts were recent acquisitions, indicative of the company's successful capital allocation strategy. The Hyatt Regency Coconut Point recently completed its final phase of restoration work. The Ritz-Carlton Naples was completely transformed, with expanded guest rooms, a reimagined lobby and lobby bar, and the addition of a new 74 key tower. The reconstruction efforts also enhanced the property's resiliency by elevating critical equipment and improving flood-proofing measures. The transformation of the Ritz-Carlton Naples has been well received, and the resort is expected to exceed expectations with the expanded suite inventory and new club level facilities.

The new lobby champagne bar at the iconic resort has become a popular destination for both guests and locals. The resort has received $113 million of the expected $310 million in insurance proceeds related to Hurricane Ian. Group revenue exceeded 2019 by 4% and definite group room nights for 2023 are up 103% from 2022. Group rate for 2023 is up 7% from last year, and total group revenue pace is up 19%. The Marriott Transformational Capital Program, which began in 2018, included renovations at 16 assets and finished under budget.

Host has implemented an expansion of its reinvestment strategy, including 8 assets with required near-term CapEx, of which 7 have completed and stabilized. These renovations have enabled the company to capture an average RevPAR index share gain of 8.8 points. Their 2023 capital expenditure guidance range is $625 million to $725 million, and they will continue to be strategic in their approach to driving EBITDA growth. They believe they are well-positioned to outperform in the current macroeconomic environment.

Transient revenue was up 80 basis points in the second quarter of 2022, despite a slight decrease in demand. Business transient revenue was 16% above the second quarter of 2022, driven by a 10% rate increase and 6% increase in demand, while group room revenue was 4% above the second quarter of 2022, driven by rate growth. Corporate group room revenue was up 9%, while Association Group's revenue was down 3%. The majority of business transient demand came from small and medium-sized businesses.

Social, military, educational, villages, and fraternal or Smart Group revenue increased by 3% in the second quarter, driven by 2.5% rate growth. The EBITDA margin was 40 basis points higher than the same time in 2019, but lower than the high watermark of 2022. The full-year RevPAR growth range has been tightened to 7-9%, with the midpoint being 100 basis points lower than the original guidance. This is mainly due to second quarter results, and the outlook for the second half of the year being flat to low single digits.

The company's 2023 full year adjusted EBITDAre guidance includes an expected $17 million contribution from two hotels that were impacted by Hurricane Ian, and does not include any expected business interruption proceeds from the hurricane. Year-over-year, the company expects comparable hotel EBITDA margins to be down 210 basis points at the low end of their guidance to down 170 basis points at the high end due to stable staffing levels, higher utility and insurance expenses, and lower attrition and cancellation fees. The biggest margin differential year-over-year is expected to be in the second quarter, with a narrowing margin spread in the second half of the year.

Marriott International expects margins to increase this year despite the past 4 years of lagging occupancy and inflation pressures. Marriott has a strong balance sheet and liquidity position and recently achieved a milestone in their renewable energy goal. They paid a quarterly cash dividend of $0.15 per share and remain optimistic on the future of the business and travel overall.

Jim Risoleo states that pre-pandemic, 10% of the room nights were from international inbound and that this has dropped to 7.8% in quarter 2 of 2022. He also mentions that visa wait times and lack of direct flights from China are causing impediments to international inbound in West Coast markets. He is optimistic that these issues will be resolved and international travel will return, boosting the performance of the industry.

Jim Risoleo and Sourav Ghosh discussed the timing of business interruption reimbursement payments. They noted that they have collected $113 million in related to restoration and physical damage repair and have a $130 million receivable outstanding. Ghosh added that it is difficult to predict the exact timing of the payments, though they expect it to be a meaningful amount. Risoleo clarified that the question was about the assumptions for the second half of the year, and Klein asked when they started to see the weakness in the second quarter.

Jim Risoleo provided information about the RevPAR impact that was worse than expected in the second quarter and then another 40 basis points in the second half of the year. He mentioned that they looked back at the property level and saw that the forecasted transient pickup had not materialized for the second quarter. He also mentioned that they had received a loan from the Sheraton Boston that had matured, and the borrower was in the process of refinancing them out with a 60-day extension and a 10% principal pay down. The interest rate was also restated from 6.5% to 12%.

Jim Risoleo explains that the ability of a resort owner in Maui to get a hotel refinance with a cash out refi at a high rate is very specific to the sponsor, market, and hotel. The asset in Maui had been on the market for sale multiple times, but when a sale could not be achieved, the owner was able to get the refinance. The resort market is very strong and the asset had strong underlying cash flow and performance.

Sourav Ghosh states that Seattle actually saw an improvement in transient business, but there was an overall anticipation of how much they could pick up in the quarter and month. He notes that this trend shifted at the end of May into June.

Jim Risoleo explains that Seattle is a weaker market, but there are signs of strength moving forward. He attributes this to a short-term transient pickup and reports that BT revenue grew by 5% and total revenue production exceeded their internal forecast. He goes on to discuss the Ritz-Carlton and the $71 million they lost during Hurricane Ian, saying they haven't put the BI in their forecast due to not knowing when they will receive it, but they are hopeful that through 2024 they will be able to close out most of the claim. He states that barring a macroeconomic meltdown, they should be able to recoup the lost EBITDA through 2024.

Sourav Ghosh provides an update on the cost of labor and insurance for the company. He states that the wage rate growth for the year is expected to be around 5%, and that the company has performed well on expenses, resulting in margin expansion relative to 2019. He also mentions that they are expecting to rebuild the $71 million lost this year between two assets by 2024.

Sourav Ghosh reported that the group booking revenue pace for 2024 was ahead of 2019 by 1.5%. He also mentioned that at the end of last year, the revenue pace was down double digits, but had improved to down 4.4% in the first quarter and was now positive. He also mentioned that the insurance expense was expected to go up by 40% year-over-year, equalling $61 million for 2023.

Jim Risoleo explains that the leisure rate in the second quarter of 2022 was 7% lower than the previous quarter, but still 61% higher than the same quarter in 2019. He also notes that the total leisure occupancy decreased by one percentage point, but rates are still at record levels. The unexpected issue was the lack of U.S. consumer desire to travel abroad, which was not anticipated by anyone in the travel industry.

Jim Risoleo of the company discussed the positive performance of the resorts, specifically noting that TRevPAR was up 3.8% and that there was a record outlet spend per occupied room. He also discussed the normalization of international travel, which he hopes will occur by 2024 and be a tailwind for the industry. He concluded by noting that the consumer is still very healthy.

Jim Risoleo and Sourav Ghosh answered a question from Tyler Batory about the leisure industry. Risoleo discussed the importance of revenue management and maintaining rate integrity, noting that occupancy had decreased by 1% in Q2 but rate was still 60% above 2019 levels. Ghosh added commentary on urban leisure.

Jim Risoleo states that the company will continue to look for opportunities to do transformative renovations on hotels. Eight out of the seventeen hotels that underwent the capital transformation program are now fully stabilized and are seeing a 9 point increase in performance. The other hotels are still in the process of stabilization, and the two other hotels not in the original program have also seen an increase in performance.

Jim answered a question regarding how long renovations last, saying that it is usually a seven to eight year cycle. Sourav Ghosh then provided guidance on the second half of the year, saying that they have taken their guidance down by $25 million, with $18 million attributed to the second quarter and $7 million to the second half. They expect low single-digit RevPAR growth for the second half, based on a market-by-market analysis of the short-term pickup market.

Sourav Ghosh explains that the relative drop in margin for the second quarter was due to revenue-driven expenses, and that they have moderated food and beverage revenue. Ghosh also states that they have not yet discussed expectations for corporate negotiated rate for next year, as that discussion will happen on the third quarter call. Dori Kesten then asks what the guidance would look like if the transient pickup was comparable to 2019, to which Ghosh responds that it is difficult to say, as they are up in rate. Kesten then asks about the RevPAR to RevPAR growth spread, to which Ghosh does not respond.

Jim Risoleo thanked everyone for joining the second quarter call and discussed their quarterly results. Sourav Ghosh discussed the food and beverage performance in the second quarter, which was lower than 2019, and noted that the third quarter would be weaker due to fewer groups. However, the fourth quarter should see an improvement due to an increase in catering. Dori Kesten then thanked the operator and Jim Risoleo closed the call, wishing everyone a pleasant summer and looking forward to seeing them in person in the fall.

This summary was generated with AI and may contain some inaccuracies.