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    Host Hotels & Resorts Inc (HST)

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    Business Description

    Host Hotels & Resorts, Inc. is a self-managed and self-administered real estate investment trust (REIT) that specializes in owning a large portfolio of luxury and upper-upscale hotels . Operating as an umbrella partnership REIT through Host Hotels & Resorts, L.P., the company is the sole general partner and owns 76 properties in the United States and five internationally, totaling approximately 43,400 rooms . The company's revenue streams are primarily derived from room sales, food and beverage services, and other hotel-related services . Host Hotels & Resorts partners with premium brands such as Marriott, Ritz-Carlton, and Hilton, among others, to offer iconic and irreplaceable assets in prime locations .

    1. Room Sales - Generates revenue through the sale of hotel rooms to transient, group, and contract customers, accounting for the majority of the company's income.
    2. Food and Beverage Services - Provides dining and catering services within its hotel properties, contributing significantly to the company's revenue.
    3. Other Hotel-Related Services - Offers additional services such as spa, parking, and other amenities to enhance guest experiences and drive supplementary income.

    Q3 2024 Summary

    Initial Price$17.89July 1, 2024
    Final Price$17.55October 1, 2024
    Price Change$-0.34
    % Change-1.90%

    What went well

    • Host Hotels has a strong balance sheet with low leverage at 2.7x, providing significant dry powder for investments and acquisitions. The company aims to be a continued net acquirer, capitalizing on its ability to move quickly without the need for financing.
    • Positive outlook for group bookings in 2025, with 2.8 million group room nights already on the books, group revenue up 5%, and group rates up 3.5%. Key markets like San Francisco (group bookings up 40%), New York, San Antonio, Orlando, and DC are showing strong performance.
    • Transformational renovations are yielding strong results, with an average RevPAR index share gain of over 7 points, exceeding the targeted gain of 3 to 5 points. This indicates a significant return on investment and provides meaningful tailwinds for the portfolio.

    What went wrong

    • Significant EBITDA loss from the Maui wildfires, amounting to $75 to $80 million, with uncertainty about recovery in 2025.
    • Occupancy rates remain below pre-pandemic levels, with year-to-date occupancy at 72% compared to 79% in 2019, due to slow return to office and business travel.
    • Natural disasters like Hurricanes Helene and Milton have caused property closures, including The Don CeSar, which remains closed with a phased reopening expected in late Q1 2025, impacting revenues.

    Q&A Summary

    1. Underlying EBITDA Expectations
      Q: Is the underlying EBITDA still around $1.75 billion, including Maui recovery?
      A: Yes, the underlying EBITDA is still $1.75 billion, which includes $75 million to $80 million expected from Maui recovery. This figure adjusts for acquisitions and insurance proceeds.

    2. Maui Wildfire Impact and Recovery
      Q: What is the expected EBITDA impact from Maui this year and recovery timeline?
      A: This year's EBITDA from Maui, excluding business interruption proceeds, is expected to be $97 million, with a missing EBITDA of $75 million to $80 million due to the wildfires. Group business recovery in Maui is expected to take longer, potentially into 2025 and 2026, while transient demand is improving for holidays.

    3. Capital Allocation Priorities
      Q: How are you prioritizing capital allocation among ROI projects, acquisitions, and buybacks?
      A: We focus on investing in our existing portfolio through ROI projects like the Hyatt Transformational Capital Program. We also remain opportunistic with stock buybacks, having repurchased 3.5 million shares for $57 million last quarter. With leverage at 2.7x, we have significant dry powder to allocate across these opportunities.

    4. Group Business Outlook for 2025
      Q: How is the group booking pace for 2025, and are you adjusting group mix?
      A: Group booking pace is strong for 2025, with 2.8 million group room nights on the books, and total group revenue up 5% with rates up 3.5%. We're optimizing group mix on an asset-by-asset basis but expect it to remain consistent overall. Citywide events in markets like San Francisco are contributing positively.

    5. Leisure Transient Demand and Rates
      Q: How are leisure transient rates trending, and what's the expectation for 2025?
      A: Leisure transient ADRs are holding strong, up 50% over Q3 2019 for ten consecutive quarters. Year-over-year rates are relatively flat to slightly down but have normalized at elevated levels. We expect leisure rates and demand to stabilize into 2025 without degradation, supported by consumer strength.

    6. Labor Market Conditions
      Q: What is your perspective on the current labor market and staffing levels?
      A: We are optimistic about the labor market, with staffing at optimal levels. Our management companies, Marriott and Hyatt, are employers of choice, attracting talent in hospitality. We do not foresee labor issues impacting us in 2025 and beyond.

    7. Impact of Alternative Accommodations on Occupancy
      Q: Is shadow supply like Airbnb affecting your occupancy levels?
      A: No, the occupancy gap is not due to shadow supply or new hotel supply. We believe we have 8 to 9 points of occupancy to recapture as business transient travel returns, especially with companies mandating return to office. This is seen as a tailwind for our portfolio.

    8. Orlando Condo Development and Densification Opportunities
      Q: Can you provide details on the Orlando condo development budget and returns?
      A: The Orlando condo development has a construction budget of $150 million to $170 million, targeting mid- to high-teens cash-on-cash returns. Construction began mid-July, with sales expected to start in mid-November. We are exploring similar densification opportunities within our portfolio.

    9. San Francisco Market Outlook
      Q: How is the San Francisco market performing, especially regarding group business?
      A: Group room nights in San Francisco are pacing up 40% year-over-year, with approximately 220,000 group room nights on the books, up nearly 30%. While still below 2019 levels, we are encouraged by this progress and expect positive momentum into 2025 and events like the World Cup and Super Bowl in 2026.

    Guidance Changes

    Annual guidance for FY 2024:

    • Comparable Hotel Total RevPAR Growth: Approximately 1% (no prior guidance)
    • Comparable Hotel RevPAR: Flat vs 2023 (no change from -1% to +1% )
    • Comparable Hotel EBITDA Margin: Approximately 29%, 90 bps below 2023 (no change from down 110 to 60 bps )
    • Adjusted EBITDAre: $1.630 billion (lowered from $1.645 billion )
    • Capital Expenditure Guidance: $485 million to $580 million (lowered from $500 million to $600 million )
    • Residential Condo Development: $50 million to $60 million (no change from $50 million to $60 million )
    • Operating Guarantees: $9 million (no prior guidance)

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    James F. RisoleoPresident and Chief Executive OfficerJanuary 2017James F. Risoleo became the President and CEO in January 2017. He joined the company in 1996 and has held various senior positions, including Executive Vice President and Chief Investment Officer .
    Sourav GhoshExecutive Vice President, Chief Financial OfficerSeptember 1, 2020Sourav Ghosh was promoted to CFO on September 1, 2020. He has been with the company for over 10 years, indicating significant experience within the organization .
    Nathan S. TyrrellExecutive Vice President, Chief Investment OfficerN/ANathan S. Tyrrell serves as the Executive Vice President and CIO. He has been with the company since at least 2021, as indicated by his compensation details for that year .
    Julie P. AslaksenExecutive Vice President, General Counsel and SecretaryNovember 2019Julie P. Aslaksen joined as Executive Vice President, General Counsel, and Secretary in November 2019 .
    Michael E. LentzExecutive Vice President, Development, Design & ConstructionN/AMichael E. Lentz serves as the Executive Vice President, Development, Design & Construction. Specific details about his start date or a comprehensive biography are not provided in the documents .

    Questions to Ask Management

    1. Given that your occupancy rates are still approximately 8 to 9 points below 2019 levels and you attribute this gap to the slow return to office workers, what specific strategies are you implementing to accelerate business transient demand, and how confident are you that occupancy will recover in the near term?
    2. You mentioned plans to test the market by selling non-core assets that require heavy CapEx investments while also aiming to be a net acquirer; how do you reconcile selling properties that may have future value with the strategy of acquiring new assets in what could become a more competitive transaction market?
    3. Regarding the 40-unit residential condo development at the Four Seasons Resort Orlando, can you elaborate on the risks associated with your underwritten sales proceeds relative to the $150 million to $170 million development budget, and what contingencies are in place if sales do not meet expectations?
    4. With leisure rates remaining relatively flat or slightly down year-over-year and considering potential economic headwinds, how do you plan to drive rate growth in the leisure segment for 2025 amid concerns about consumer strength and spending?
    5. The Maui wildfires have resulted in an estimated EBITDA gap of $75 million to $80 million for next year; what specific measures are you taking to mitigate this impact, and how will it affect your capital allocation priorities, including investments, acquisitions, and stock buybacks?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateAugust 3, 2022
    End Date/DurationN/A
    Total additional amount$1 billion
    Remaining authorization amount$685 million
    DetailsPart of capital allocation strategy to maximize financial flexibility and take advantage of market conditions

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EBITDAre: Expected to be $1.630 billion, a $15 million decrease due to hurricanes in Florida .
      2. Comparable Hotel Total RevPAR Growth: Approximately 1% .
      3. Comparable Hotel RevPAR: Expected to be flat compared to 2023 .
      4. Comparable Hotel EBITDA Margin: Approximately 29%, 90 basis points below 2023 .
      5. Capital Expenditure Guidance: $485 million to $580 million .
      6. Operating Guarantees: $9 million expected .
      7. Residential Condo Development: $50 million to $60 million expected .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Comparable Hotel RevPAR Growth: Between negative 1% and positive 1% .
      2. Comparable Hotel EBITDA Margins: Down 110 to 60 basis points .
      3. Adjusted EBITDAre: $1.645 billion, a $25 million decrease .
      4. Impact of Maui Wildfires: $75 million to $80 million impact .
      5. Contribution from Acquisitions: $22 million .
      6. Capital Expenditure Guidance: $500 million to $600 million .
      7. Residential Condo Development: $50 million to $60 million .
      8. Leverage and Liquidity: Leverage ratio 2.7x, liquidity $1.4 billion .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EBITDAre: $1.670 billion, a $35 million increase .
      2. Comparable Hotel RevPAR Growth: Between 2% and 4% .
      3. Comparable Hotel EBITDA Margins: Down 80 to 30 basis points .
      4. Comparable Hotel Total RevPAR Growth: 3.7% .
      5. Impact of Maui Wildfires: 90 basis points impact on TRevPAR .
      6. Business Interruption Proceeds: $8 million from Hurricane Ian, $20 million from Maui .
      7. Contribution from Specific Properties: Various contributions totaling $97 million .
      8. Capital Expenditure Guidance: $500 million to $605 million .
      9. Dividend: $0.20 per share .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Comparable Hotel RevPAR Growth: Between 2.5% and 5.5% .
      2. Comparable Hotel EBITDA Margins: Down 120 to 40 basis points .
      3. RevPAR Growth Cadence: Low single digits in H1, mid-single digits in H2 .
      4. January 2024 Comparable Hotel RevPAR: Approximately $187 .
      5. Full Year 2024 Adjusted EBITDAre Midpoint: $1.635 billion .
      6. Wage Rate Increase: Approximately 5% .
      7. Capital Expenditure Guidance: $500 million to $605 million .
      8. Impact from Maui: 100 basis points impact on RevPAR .