The Host Hotels & Resorts First Quarter 2024 Earnings Conference Call began with Senior Vice President of Investor Relations, Jaime Marcus, introducing President and CEO Jim Risoleo and Executive Vice President and CFO Sourav Ghosh. Risoleo reported a strong first quarter with adjusted EBITDAre of $483 million and adjusted FFO per share of $0.60, including business interruption proceeds from Hurricane Ian. Excluding the proceeds, adjusted EBITDAre was 7% higher than the previous year and adjusted FFO per share was 8% higher. The company also saw a 50 basis point improvement in out-of-room revenue, despite a 1.2% decline in comparable hotel RevPAR.

The first quarter of 2024 faced challenges in RevPAR due to tough year-over-year comparisons and the impact of wildfires in Maui. The estimated impact of the wildfires on RevPAR was 310 basis points. Unseasonable weather and renovation delays also affected RevPAR. Despite these challenges, the comparable hotel EBITDA margin was slightly above 2019. The Ritz-Carlton, Naples and Alila Ventana Big Sur were excluded from the comparable hotel portfolio. The agreement with insurance carriers will result in $18-22 million in business interruption proceeds for the Maui wildfires. Group revenue per available room grew by 4% due to an increase in room nights.

In the first quarter, our properties booked over 500,000 group room nights, bringing our total group revenue pace up 7% compared to last year. Business transient revenue grew 5%, leisure remained steady, and out-of-room spend saw growth in food and beverage and other categories. Non-room revenue has steadily grown since 2017, with some properties strategically focusing on total revenue rather than just room rate. The Ritz-Carlton, Naples is a prime example of the positive impact of out-of-room spending, with a total RevPAR of $1,700, half of which comes from food and beverage revenue. The resort recently achieved its best revenue month ever and was named to Travel and Leisure's It List.

Yesterday, the company announced the acquisition of a 2-hotel complex in Nashville for $530 million in cash. The properties are expected to be among the top 25 assets in the company's portfolio, with a combined RevPAR of $275 and EBITDA per key of $58,550. The complex is located in a prime area near popular attractions and has a mix of 721 oversized rooms and 7 food and beverage outlets. The Nashville hotel market has shown strong growth and the convention center has a record of attracting large events.

The new Nissan Stadium and the growing airport in Nashville are expected to bring in more demand for hotels in the city. While there is still expected supply growth, the 1 Hotel Nashville and Embassy Suites by Hilton Nashville Downtown are unique and will likely stabilize at a high EBITDA in the next few years. These two properties are not yet included in the company's guidance metrics, but are expected to generate $29 million in adjusted EBITDA. The company has been actively acquiring and disposing of assets, with a focus on those with high EBITDA multiples.

Host has been able to increase their adjusted EBITDAre and dividend, and they have $1.7 billion in available liquidity and a net leverage of 2.3x. They will continue to use their size and relationships to find more acquisition opportunities. They are also investing in renovation and redevelopment projects, with 24 completed since 2018. These projects have led to an average RevPAR index share gain of 8.5 points, exceeding their targeted gain of 3 to 5 points. Overall, Host is well positioned to continue outperforming other full-service lodging REITs, and they are encouraged by the supply picture for their markets and chain scales.

In the first quarter of 2023, Host's EBITDA growth was driven by improving international demand, increased business transient demand, and a strong transactions market. They have a diverse portfolio, a solid balance sheet, and a commitment to reinvesting in their properties. Sourav then provided more detail on their first quarter operations, updated 2024 guidance, and their balance sheet. Despite challenges such as renovation delays and unseasonable weather, leisure rates remained strong and Gulf revenue continued to grow. Looking ahead to the second quarter, bookings for Memorial Day weekend are up compared to last year and there are strong bookings in certain cities for the July 4 holiday.

In the first quarter of 2024, business transient revenue per available room increased by 5% due to an increase in rate and room nights. Group revenue per available room also increased by 4%, with group room night volume reaching 96% of pre-pandemic levels. Margins declined due to increased expenses, but the company's comparable hotel EBITDA margin increased by 30 basis points compared to 2019. The company expects demand to remain steady and low supply growth for the rest of 2024.

For the year, the company expects improvements in group business and a gradual recovery in business transient, but softer demand in short-term leisure transient. They anticipate 2-4% RevPAR growth and a decrease in EBITDA margins, but still an increase compared to 2019. The Maui wildfires will have an impact on RevPAR and EBITDA margins, as well as property taxes and insurance. RevPAR growth is expected to be flat to low single digits in the first half of the year.

The company expects mid-single-digit growth in comparable hotel RevPAR for the second half of the year due to strong group bookings and less renovation disruption. Their revised 2024 adjusted EBITDAre is $1.670 billion, including contributions from business interruption proceeds and operations at The Ritz-Carlton, Naples and Alila Ventana Big Sur. Their weighted average maturity is 4.3 years with a weighted average interest rate of 4.7%, and they have $1.7 billion in total available liquidity. The leverage ratio is 2.3x and they have $1.3 billion available on their credit facility. Moody's upgraded their issuer outlook to positive and they paid a quarterly dividend of $0.20 per share.

Host is strategically managing their balance sheet and liquidity as they move forward in 2024. They believe their portfolio and balance sheet give them a competitive advantage for future growth. The company recently acquired properties in Nashville and has been interested in the market for a long time. They have a successful joint venture in the city and have been following the market closely. The newly acquired properties have performed well in their first year and are expected to continue to do so.

The company made a cautious decision to watch the property and keep the dialogue going due to uncertainty about the macro picture. They also wanted to ensure the property would perform as expected and found that it had a strong RevPAR and EBITDA in 2023. The company believes Nashville is a market of the future with many positive developments, such as a growing convention market and major companies moving in. The asset itself has a prime location across from a large convention center, with a high number of room nights already booked for 2023 and 2024.

The pace in the hotel market in Nashville is positive, with an increase in 24 and 25 over the previous year. However, there is concern about new supply, as many planned projects are facing higher construction costs and difficulty obtaining funding. Some projects, such as a planned Ritz-Carlton, have been cancelled. Select serve hotels may still come online, but full service, upper upscale luxury hotels are unlikely to open for 3-4 years. The company is interested in entering the Nashville market and has been following an asset for a long time. There has been mention of leisure transient softness, but specific examples and market behavior have not been provided.

The speaker discusses the increase in leisure demand and rates in the first quarter of the year. They attribute this to the poor weather and Easter shift, which has affected demand in April. However, rates are still holding strong and the second half of the year is expected to have strong group demand. The total revenue pace for the second half is close to 9%.

Host is not waiting for marketed opportunities for M&A, but is instead focusing on working with long-standing partners and relationships. They have recently acquired properties in Nashville and South Beach through off-market deals and are hopeful for more transactions in the future. There has been some anticipation for a pickup in transaction activity due to lower interest rates, but this has not yet materialized. However, there may be more activity in the second half of the year as some owners may need to sell due to various factors such as loans coming due and the lack of investment in their assets during the pandemic. Host is in a unique position and will take advantage of it.

The speaker discusses the company's ability to complete deals without going to the debt capital markets and their focus on maintaining an investment-grade balance sheet. They also mention their goal to reach $2 billion in EBITDA and address a decline in their EBITDA outlook of $13 million due to a 1 point decrease in RevPAR. The decline is spread out over the year and not isolated to the first quarter.

The speaker explains that they are deducting $13 million from the previous guidance and adding $20 million for the Maui wildfires, $2 million for Naples, and $29 million for Nashville. They also mention a $10 million decrease in EBITDA for Alila Ventana and an $8 million increase for the Ritz, Naples. They clarify that the decline in guidance is mostly due to the first half of the year, but they are confident in the strong performance of the second half. They also mention that the recurring EBITDA for the year should be around $1.670 billion, with $38 million being the long-term run rate after subtracting business interruption costs.

The company is expecting $42.2 million in revenue this year, with $29 million already accounted for and an additional $13 million coming from Nashville. They are also expecting $46 million from Maui, which will bring their total ongoing run rate to $1.7 billion. The Four Seasons Orlando resort has benefited from pent-up international demand and surge spending, but ADR may be lower this year due to construction. Overall, the company is not seeing a significant slowdown in affluent customers.

The CEO of a hotel company discusses the imbalance between international inbound and outbound travel, noting that the strong dollar is keeping international travelers away from the United States. He also mentions a decrease in leisure demand due to weather in certain states, but believes that affluent consumers are still spending money on experiences. The analyst asks if this has changed the CEO's prediction that the inbound outbound balance will correct itself this summer.

The speaker, Jim Risoleo, states that the recovery of the hotel industry may take longer than anticipated. He mentions the long wait times for visas in the US and efforts being made to shorten them. Another question is asked about the seasonality of the Naples Ritz, to which Sourav Ghosh replies that historically, the first quarter represents about 50% of the full year's contribution, with Q2 at 25%, Q3 close to 0, and Q4 at 25%. Finally, Robin Farley asks about the increase in revenue per room in the quarter.

The company's cancellation and attrition revenue has increased by 6%, which is higher than expected. The increase is not a systemic issue and may stabilize at the higher level. The company's managers are doing a better job at collecting these revenues and contracts are tighter. It is difficult to predict if this trend will continue in the following year. The question is raised about the cost of capital for potential asset sales.

Jim Risoleo, CEO of Host Hotels, explains that the main factor limiting a more active deal trading market is the cost of debt, which is preventing private equity firms from underwriting deals at their desired returns. Host, however, is in a competitive advantage because they do not need to rely on debt to close deals. Risoleo also mentions potential opportunities for end-of-fund issues with private equity firms that may arise throughout the year. In response to a question about Hawaii, Risoleo mentions an "evolution of demand" in Maui but does not provide further details.

The speaker, Jim Risoleo, responds to a question about the impact of recent wildfires on Maui's tourism industry. He explains that demand for the island is evolving and there has been a decrease in air capacity. However, efforts are being made to market the island and displaced residents are finding permanent homes. The speaker also mentions the need to promote the beauty and experiences of Maui, even if they are not on the affected west side.

The speaker expresses confidence that once airlines increase capacity, the recovery will begin. The operator then announces the end of the Q&A session and turns the call back to Mr. Risoleo for closing comments. He thanks the participants and looks forward to seeing them at NAREIT in New York. The call is then concluded.

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