Host Hotels & Resorts Inc (HST) (Q1 2024) Earnings Call Transcript Highlights: Strategic Acquisitions and Financial … – GuruFocus.com

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Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Host Hotels & Resorts Inc reported a 7% increase in adjusted EBITDAre and an 8% increase in adjusted FFO per share compared to the first quarter of 2023, excluding business interruption proceeds.
  • The company achieved a year-over-year comparable hotel total RevPAR improvement of 50 basis points, highlighting the strength of out-of-room revenue.
  • Host Hotels & Resorts Inc successfully managed a significant acquisition, purchasing the fee simple interest in a 2-hotel complex in Nashville for approximately $530 million, expected to rank among their top 25 assets based on 2024 estimates.
  • The company has maintained a strong liquidity position with $1.7 billion total available and a low net leverage of 2.3x, enhancing its capacity for future acquisitions.
  • Host Hotels & Resorts Inc has completed several transformational renovations since 2018, with stabilized hotels showing an average RevPAR index share gain of 8.5 points, significantly above the targeted gain.

Negative Points

  • Comparable hotel RevPAR declined by 1.2% in the first quarter, facing headwinds from tough year-over-year comparisons, particularly in Maui due to the impact of wildfires.
  • Unseasonable weather in Florida, Arizona, and California, along with unanticipated renovation delays at the Singer Oceanfront Resort, negatively impacted first quarter RevPAR.
  • The closure of Alila Ventana Big Sur due to a highway collapse and its removal from the comparable hotel set for the remainder of the year could affect overall performance metrics.
  • The company faces ongoing challenges in Maui with evolving demand and reduced air capacity, which may continue to impact performance in the region.
  • Host Hotels & Resorts Inc’s first quarter operations saw a decline in overall transient revenue per available room by 6% compared to the first quarter of 2023, driven by tough comparisons and other factors affecting transient RevPAR.

Q & A Highlights

Q: Jim, could you walk us through the timeline for the Nashville deal, how your cost of capital and view of value evolved, especially given how much the capital markets have moved in the last 3 to 6 months? And how you’re thinking about the continued ramp-up of these properties, given that they’re both less than 2 years old?
A: James F. Risoleo – Host Hotels & Resorts, Inc. – President, CEO & Director: Nashville is a market we’ve been interested in for years. We initially reached out during the construction phase of the 1 Hotel and Embassy Suites but were unable to participate in development. We monitored the properties through 2023 to ensure performance before proceeding. Our cost of capital is fluid and adjusted over time. In 2023, the asset had a RevPAR of $257 and EBITDA of $37.7 million. We expect a RevPAR of $275 and EBITDA of $42.2 million this year. Nashville’s market dynamics, including significant expansions and corporate relocations, make it a promising market. We anticipate continued strong performance and are confident in the strategic placement and potential of these properties.

Q: Jim, Sourav, could you dig in on what you’re seeing on the leisure transient softness mentioned earlier? Any examples or insights on when this shift started and if it’s continuing?
A: Sourav Ghosh – Host Hotels & Resorts, Inc. – Executive VP & CFO: The softness in leisure transient demand began in March, likely influenced by poor weather in Q1. Rates remain strong, with Q1 rates 52% above 2019 levels. April trends are flat, slightly above 1% excluding Maui. The second half of the year looks strong, especially for group bookings, with significant room night pickups and a total revenue pace close to 9% for the second half. This gives us confidence in our performance for the remainder of the year.

Q: How are you thinking about future M&A, especially in markets like Nashville where you’ve just completed a significant acquisition? Are there other similar markets you’re interested in?
A: James F. Risoleo – Host Hotels & Resorts, Inc. – President, CEO & Director: We continue to explore M&A opportunities, leveraging our strong relationships rather than waiting for marketed opportunities. Our financial position allows us to pursue acquisitions without needing to access debt markets immediately. We aim to elevate our EBITDA growth profile and are on track to reach our target of $2 billion in EBITDA. We’re actively engaging with partners and expect to capitalize on acquisition opportunities throughout the year.

Q: Can you provide more details on the evolution of demand in Maui and how it’s affecting your operations and expectations?
A: James F. Risoleo – Host Hotels & Resorts, Inc. – President, CEO & Director: Demand in Maui is evolving post-wildfire, with significant displacement impacting hotel occupancy. Efforts are underway to market the island’s attractions effectively and increase air capacity, which is currently down by 19% compared to Q1 2019. We are closely monitoring the situation and working with local authorities and organizations to support recovery and promote tourism to the island.

Q: Regarding the increase in revenue from cancellation and attrition fees, is this expected to be a new normal, or is it more of a one-time increase?
A: Sourav Ghosh – Host Hotels & Resorts, Inc. – Executive VP & CFO: The increase in attrition and cancellation fees is higher than expected, but it’s not clear if this will be the new normal. Our management teams are effectively enforcing contracts, which has contributed to higher revenues in this area. We will continue to monitor this trend and adjust our expectations accordingly.

Q: Could you discuss the deal market dynamics, especially in terms of asset availability and pricing expectations from sellers?
A: James F. Risoleo – Host Hotels & Resorts, Inc. – President, CEO & Director: The deal market is constrained primarily by the high cost of debt, which affects both buyers’ ability to meet return thresholds and sellers’ pricing expectations. We are in a unique position to capitalize on opportunities due to our strong liquidity and low leverage, allowing us to pursue acquisitions without immediate reliance on debt markets. We anticipate potential opportunities as some owners may need to sell due to fund lifecycle constraints or lack of capital for necessary investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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