Host Hotels & Resorts, Inc. (HST) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Adjusted EBITDAre and FFO Performance: Adjusted EBITDAre reached $476 million, and adjusted FFO per share was $0.57, including significant business interruption proceeds.

• RevPAR and Out-of-Room Revenue Strength: Year-over-year comparable hotel total RevPAR improved by 50 basis points, driven by out-of-room revenue, with comparable hotel RevPAR up by 10 basis points.

• Group and Business Transient Revenue Growth: Group room revenue increased by approximately 8%, and business transient revenue grew by 4%, indicating strong demand and rate growth.

• Luxury Property Acquisitions: Acquired fee simple interest in 1 Hotel Central Park and the Ritz Carlton O'ahu Turtle Bay, enhancing the portfolio's quality and diversification.

• Capital Allocation and Share Repurchase: Repurchased 2.8 million shares at an average price of $17.81 per share, highlighting confidence in the company's value proposition.

Pessimistic Highlights

• Maui RevPAR Decline: The year-over-year decline in Maui RevPAR had a 250 basis point drag on second quarter portfolio RevPAR, with a total estimated impact of 340 basis points due to wildfires.

• Moderating Domestic Leisure Demand: Domestic leisure demand moderated as consumers opted for international destinations, impacting transient rates despite their increase compared to 2019.

• EBITDA Margin Pressure: Second quarter comparable hotel EBITDA margin was slightly below last year, influenced by increases in wages, benefits, and fixed expenses, as well as impacts from Maui.

• Revised 2024 Outlook: The midpoint of 2024 guidance contemplates a slower-than-anticipated recovery from the Maui wildfires and moderating domestic leisure transient demand.

Company Outlook

• 2024 Guidance Adjustment: Full year 2024 guidance adjusted to account for slower recovery in Maui and moderating domestic leisure demand, with comparable hotel RevPAR growth expected between negative 1% and positive 1%.

• Strategic Focus on Luxury and ROI: Continued focus on acquiring luxury properties and investing in ROI projects to enhance portfolio quality and performance.

• Liquidity and Balance Sheet Strength: Maintained strong liquidity and leverage position, with strategic and opportunistic management of balance sheet and liquidity.

Q & A Highlights

• Q: Can you talk about the possibility, prospects, or boundaries around any further acquisitions this year or early next? (David Katz, from Jefferies)

  A: We are very happy with the acquisitions made this year. We are not contemplating additional acquisitions in the near term but will focus on integrating these properties and consider other capital allocation opportunities. (Jim Risoleo)

• Q: What role might incremental dispositions play in your strategy, and are you thinking about testing the market? (Chris Darling, from Green Street)

  A: We have explored disposition pricing recently but decided not to pursue dispositions under current market conditions. We will continue to enhance the portfolio's growth profile as opportunities arise. (Jim Risoleo)

• Q: Can you discuss the longer-term vision for the 1 Hotels in the portfolio? (Chris Woronka, from Deutsche Bank)

  A: We are happy owning 1 Hotels and see great performance from the brand. We have not discussed co-branding but hope to expand our relationship with them going forward. (Jim Risoleo)

• Q: As you put together guidance this quarter, what aspects required more vigorous discussion? (Dori Kesten, from Wells Fargo)

  A: The group booking pace remains strong for the second half, but we derisked the fourth quarter due to election weeks and adjusted for a softer recovery in Maui and leisure transient demand. (Sourav Ghosh)

• Q: Can you help us understand the guests coming to your properties in Maui? Are they different customers than before? (Michael Bellisario, from Baird)

  A: New channels like Costco Travel are being pursued to bring customers back to Maui. We are working with local authorities and hotel owners for a coordinated marketing campaign to sell Maui. (Jim Risoleo)

• Q: Can you clarify the trends in leisure transient for the back half of the year? (Shaun Kelley, from Bank of America)

  A: We applied the trends seen in leisure transient in Q2 for the rest of the year, assuming flat ADR and slightly down occupancy for our resorts overall. (Sourav Ghosh)

• Q: On cost programs, are there cost takeouts that can happen as revenue softens? (Duane Pfennigwerth, from Evercore ISI)

  A: Variable costs move with volume, and there isn't a meaningful lag with these costs. They are managed real-time relative to volume. (Sourav Ghosh)

• Q: Can you share the percentage increase or decrease in leisure in the quarter? (Smedes Rose, from Citi)

  A: Overall resort revenue was slightly down as volumes moderated, but rates held up, being 51% above the second quarter of 2019. (Sourav Ghosh)

• Q: Why does your trend in ancillary revenues look different than what others have reported? (Robin Farley, from UBS)

  A: Our trend is different due to the nature of our assets and customers, who are still spending money. We saw food and beverage outlet revenue per occupied room up and continued growth in spa and golf revenues. (Jim Risoleo)

• Q: What's the first indicator in the lodging space in a weakening economic backdrop? (Bill Crow, from Raymond James)

  A: Weekend leisure at the lower end of the chain scale would be the first indicator. There's a bifurcation between the high-end and low-end consumer. (Jim Risoleo)