Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% | The 9% growth is driven by improved group business and higher average daily rates, partially offset by softer demand in select markets. Increased outbound travel in certain regions was not fully matched by inbound trends. |
Operating Income | -14% | Despite higher revenues, increased labor costs and insurance expenses weighed on margins. Also, incremental costs tied to reopening properties and property enhancements contributed to lower income. |
Net Income | -26% | Elevated expenses and lower gains from insurance settlements this period reduced net income. Higher interest costs and a slower recovery at certain resort locations also impacted overall profitability. |
D&A | +13% | Recent acquisitions and capital improvements raised the depreciable asset base. The reopening of properties post-renovation or weather-related closures also contributed to higher depreciation. |
Interest Expense | +23% | Rising interest rates on floating debt and increased borrowings led to higher interest costs. This reflects a broader trend of tightening monetary conditions. |
Share Repurchases | Over 5600% | The significant increase (from $1 million to $57 million) aligns with Host Hotels’ strategy to return capital to shareholders, leveraging strong liquidity and reduced near-term acquisition opportunities. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Comparable Hotel RevPAR Growth | FY 2024 | -1% to +1% | Flat | no change |
Comparable Hotel Total RevPAR Growth | FY 2024 | 1.2% (midpoint) | 1% | lowered |
Comparable Hotel EBITDA Margin | FY 2024 | 29.3% | 29% | lowered |
Adjusted EBITDAre | FY 2024 | $1.645B | $1.63B | lowered |
Capital Expenditure Guidance | FY 2024 | $500M–$600M | $485M–$580M | lowered |
Residential Condo Development | FY 2024 | $50M–$60M | $50M–$60M | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Group Booking Pace & Business | Consistently strong across Q2, Q1, and Q4 2023 with increasing group nights and solid rate growth. | Strong 2025 group bookings (2.8M room nights, group revenue up 5%) and optimism about citywide events. Emphasis on San Francisco, D.C., and Orlando. | Consistently emphasized; remains a key growth driver, with continued optimism in multiple markets. |
Maui Wildfires & Natural Disasters | Recurring disruptions in Q2, Q1, and Q4 2023 (Maui & hurricanes) harming RevPAR and EBITDA, but partially offset by business interruption proceeds. | Wildfires and hurricanes reduced full-year RevPAR by an estimated 180–220 bps and adjusted EBITDAre by $75M; The Don CeSar closure also impacted near-term performance. | Ongoing challenge; short-term drag but potential long-term recovery upside once restoration is complete. |
Wage & Benefit Cost Inflation | Persistently noted in Q2, Q1, and Q4 2023 as a 100–110 bps drag on margins. | Labor cost increases drove a 130 bps margin decline YOY; wages and benefits remain a top expense pressure. | Continued margin headwind; no sign of abating. |
Recovery in Key Markets | Varied updates in Q2, Q1, and Q4 2023: slower Maui bounce-back, San Francisco challenges, decent Orlando/Phoenix performance, and solid group pace in D.C.. | San Francisco seeing group pace gains; Maui transient improving but group slower; Orlando and D.C. remain strong; Phoenix not specifically mentioned. | Regionally mixed; Maui still lagging, but overall constructive signs. |
Financial Flexibility | Reiterated in Q2, Q1, and Q4 2023 with ample liquidity and ongoing buybacks/acquisitions. | Low leverage of 2.7x with capacity to reach 3.0–3.25x; focus on share buybacks, ROI projects, and potential future acquisitions. | Consistently strong; enables multiple capital allocation strategies. |
Major Renovations & Redevelopments | Q2, Q1, and Q4 2023 updates on large-scale renovations driving RevPAR index gains but creating near-term impacts. | Continuing Hyatt Transformational Capital Program, minor disruptions; The Don CeSar reopening slated for late Q1 2025. | Ongoing investments; short-term drag with long-term revenue benefits. |
Acquisitions of High-End Properties | Discussed in Q2 and Q1 2024 calls as part of luxury portfolio strategy, including 1 Hotel Nashville. | Ritz-Carlton O’ahu (Turtle Bay) and Nashville hotels performing in line with expectations; potential long-term upside from residential options. | Strategic focus on premium assets, enhancing EBITDA and long-term growth. |
Leisure Transient Demand | Q2 and Q1 2024 detail a shift to international destinations and a moderation in domestic leisure, but affluent traveler segment remains strong. | Rates 50% above 2019; transient volumes steady. Outbound international travel remains high, inbound to U.S. lags. Maui leisure transient picking up faster than group. | Stable but evolving; still robust among affluent consumers despite global travel shifts. |
Property Taxes & Insurance Costs | Generally noted in Q2, Q1, and Q4 2023 as a 40–50 bps drag on margins. | Increases contributed 40 bps to margin pressure, adding to wage inflation headwinds. | Rising burden; continues to erode margins alongside labor. |
Guidance Updates (RevPAR & EBITDAre) | Prior quarters showed multiple downward revisions due to Maui wildfires, leisure moderation, and slower group pickup. | Full-year RevPAR flat to +1%, adjusted EBITDAre cut $15M from hurricanes in Florida; cautious optimism but watchful of external factors. | Moderated outlook; remains subject to disaster recoveries and market conditions. |
Out-of-Room Spending | Continues to be resilient in Q2, Q1, and Q4 2023; strong ADR and healthy ancillary revenue. | F&B revenue +6%, banquet & catering at record highs, spa +5%, and golf stable—all supported by affluent spend. | Consistent strength; high-margin driver bolstered by affluent clientele. |
Reduced Mention of Capital Programs | Mentioned across Q2, Q1, and Q4 2023 as on track, slightly under budget, with operating guarantees offsetting disruption. | Hyatt Transformational Capital Program and ROI investments are still discussed; no indication of programs being dropped. | Maintained emphasis; remains a strategic priority with no significant reduction in disclosures. |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.
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