Good morning and welcome to the Host Hotels & Resorts Second Quarter 2021 Earnings Conference Call. Today’s call is being recorded. At this time, I’d like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations. Jamie, please go ahead.

Thank you, and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today’s call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDAre and hotel-level results. You can find this information, together with reconciliations to the most directly comparable GAAP information in yesterday’s earnings press release and our 8-K filed with the SEC and in the supplemental financial information on our website at hosthotels.com. Participating in today’s call with me will be Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President, Chief Financial Officer and Treasurer. And now, I’d like to turn the call over to Jim.

Thank you, Jamie, and thanks to everyone for joining us this morning. As the saying goes, the trend is your friend, and that has certainly been the case for Host in the broader lodging sector since the first quarter. While we are paying close attention to the delta variant and the potential impacts to our business, we are very pleased with the performance of our portfolio. We are seeing increased demand across all business segments as market restrictions lift and the lodging recovery gains momentum. TSA passengers group trends have accelerated since Memorial Day and are currently about 80% of 2019 levels compared to 60% in April. Leisure demand remains resilient in group and business transient volumes continue to trend in the right direction. We significantly outperformed expectations and meaningfully beat consensus estimates on all metrics in the second quarter. Our RevPAR increased 55% over the first quarter. We delivered positive adjusted EBITDAre of $110 million, pro forma hotel EBITDA of $126 million and adjusted FFO per share of $0.12. Each of these metrics saw meaningful sequential increases over the first quarter. For the second quarter, pro forma revenues increased 54% over the first quarter, while hotel-level operating expenses grew by only 32%. The increase in revenues was driven by stronger than anticipated demand, continued expense savings for redefining the operating model and slower than expected hiring in Sunbelt market. These factors led to a 400% increase in pro forma hotel EBITDA in the second quarter versus the first quarter. We are continuing to see green shoots across all aspects of our business as the lodging recovery gains momentum. As a result, we are pleased to announced that as of August 1, all of our properties are open and operating with the exception of our latest acquisition, the former Hotel…

Thank you. The next question is coming from Chris Darling from Green Street. Your line is now live.

Thanks. Good morning, everyone. Piggyback – piggybacking off Bill’s earlier question, is it safe to say that the international portfolio doesn’t fit the longer-term strategy of the company? And if so, could you maybe discuss the level of investor appetite there might be for those hotels?

Chris, if you look at the international exposure, I don’t have the exact EBITDA percentage contribution coming out of Brazil in 2018. I don’t know, Sourav or anyone else other team can dig that up. We have three hotels in Brazil, the biggest one being the JW Marriott in Rio and Copacabana beach, and then two small core properties, which would consider “international assets”. Those are the only two international assets we have. The other two are based in Canada. One is a Marriott in Calgary and the other is the Marriott in Toronto at Eaton Centre. So I don’t paint one all those assets with one brush. I think at some point in time, we will sell the assets in Brazil. Brazil has faced a lot of challenges today, but if you look at it in the context of EBITDA contribution and investment relative to the Host enterprise value, it’s really quite frankly, diminimous.

Thank you. Next question today is coming from Ari Klein from BMO Capital Markets. Your line is now live.

Thank you. Just following up on the business trend in question. As far that recovery is concerned, you’re obviously seeing momentum. But how dependent is that recovery on a business travel on the return to office? We’ll obviously see some companies push out a little bit. Can they be independent of one another? And has your thinking changed in any way just that pace of recovery in September, October?

Yes, absolutely. I think they certainly can be independent of one another. And frankly, we’re seeing that right now where a lot of the offices they haven’t opened yet, but the folks are actually traveling on business already, whether it’s BT or attending conferences. So we’re certainly seeing that. We are no exception at Host as well. Our offices are opening post Labor Day officially, but we have all been already on the road and going out to conferences. And that’s true of a lot of the financial services companies out there. So I do think there are sort of, not tied to each other and then certainly, we expect that BT momentum to continue. The other thing I’ll point out is a lot of companies out on – a lot of this large accounts, they don’t need the high level approval anymore from their department head or their CEO in some to travel that has been lifted. So travel has become much easier for a lot of these are the top accounts and we are certainly seeing that in the numbers as well. And a lot of these have not actually opened up their offices.

Thank you. Next question is coming from Rich Hightower from Evercore ISI. Your line is now live.

Good morning, guys. Thanks for that question. We’ve covered a lot of ground already, but I want to circle back to the ATM issuance question and the question around NAV. And I’m not obviously looking for Host’s estimate of its NAV, but more of a question on methodology and how you think about cost of equity in an environment where stock prices are volatile, EBITDA and NOI are obviously not anywhere near back to a stabilized level. So how should we think about it? I mean, is it a function of Street NAVs? Is it a function of a longer-term IRR analysis internally? Is it a private market assessment of what every asset in the portfolio would trade for? How do we think about methodology given the moving parts right now?

We’ll look at multiple metrics, frankly, when we are looking at NAV, it’s not just isolated, whether it’s the cap end model or an ILR, it’s multiple metrics. And as you can appreciate right now, Jim pointed out, when you’re in a volatile environment frankly, it’s really a day-to-day exercise depending on what we think the forecast looks like not only for the balance of the year, but really from a long-term perspective. We always try to take a long-term view to see what makes the most sense to determine what our cost of equity would be. But especially in a volatile environment, it’s very difficult to pinpoint any of the – at any given point in time.

Thank you. The next question is coming from David Katz from Jefferies. Your line is now live.

Hi. Good morning, everyone. Thanks for taking my question. I just wanted to go back to the labor issue, which I know you commented a little bit. And make sure that what I’m hearing is, the notion that labor does become increasingly expensive and it is the strategy to match wrapping up labor with demand or is there some mechanisms for trying to mitigate some of the higher costs that I think have been kind of broadly discussed and recognized. What are the strategies around that?

Yes. The issue around labor is really – it really varies market by market. We have seen the greatest level of staffing challenges in the markets were demand quickly returned such as South Florida, Atlanta, Texas and Phoenix. And we are in constant dialogue with our operators on the hiring process, and they are really keen on dedicating the resources that are necessary to ramp up hiring. We’re seeing a slight increase in applicant flow over the last four weeks or so, four or five weeks. And we pinpoint that to, we believe that that is due to the fact that the supplemental unemployment benefits are have run out or we’ll be running out and about 25 states. And come September 6 as the supplemental unemployment benefit expires across the nation. So hourly labor is tougher to find in the Sunbelt, but the management labor is the challenge in the more Northern markets right now. So as we think about it, we’re not really overly concerned about wage inflation. Sourav can share some numbers on where we are with respect to the $15 wage across our portfolio. This is something we’ve looked at. This is something we think about. And as you can see from what we’ve been able to accomplish to date, we have a keen focus on expense control and cost control. So I’ll turn it over to Sourav to talk a little bit about the wage scale in our hotels.

Yes. For our entire portfolio, as it stands right now over 80% of our portfolio is paying its hourly employees $15 or greater. And I would say it’s about with less than 9% of our portfolio that’s paying $14 or less, so very small portion of our portfolio is actually below $14.

Thank you. The next question is coming from Robin Farley from UBS. Your line is now live.

Great. Thanks. I know you’ve talked a bit already about how you think about asset values, but just kind of circling back to that kind of $2 billion budget for acquisitions, you’ve done some capital market activity to negotiate that. And you are, I guess, $1.1 billion into that. Do you anticipate needing to make changes or do some other capital markets activity to be able to go above that $2 billion? Thanks.

Yes. I think there are a couple pieces to your question, Robin. Number one is, we have the ability under our existing credit waiver agreement to acquire $2 billion of assets subject to our maintaining $600 million of liquidity in the company. That’s point number one. The second piece of it is that we do have some flexibility on asset sales to take that capital and redeploy it into other acquisitions going forward. I think Sourav can correct me here because it’s been a while since we talked about the waiver. But if it’s like kind exchanges, we have a lot of flexibility to do that going forward. And then we have another bucket that just allows us to recycle capital. So we have a lot of flexibility under the existing credit waiver agreement to continue to acquire assets. And if we saw ourselves in a position where there were really truly attractive acquisition opportunities out there, and we needed to get more flexibility, given our longstanding relationship with our bank group, we would have no problem with going back and having a chat with them and getting an amendment to the existing waiver that’s in place today.

Thank you. Our final question today is coming from Michael Bellisario from Baird. Your line is now live.

Thanks. Good morning, everyone. This is kind of a follow-up on that last question for Sourav. Maybe kind of along those same lines, what’s your latest thought on opting out of the covenant relief period early, and then maybe when you think you might be in compliance with your bond covenant, so that you would be able to take on incremental debt at some point?

Yes. I mean, if you recall, we were first expecting that we wouldn’t breakeven until the second half of this year. We’ve obviously broken even much earlier than that. So the expectation assuming the trajectory of the recovery remains same and we see that the positive trends that we have seen thus far for the first half of the year, we will certainly be able to get out of the waiver soon or rather than later. That’s only the expectation. Obviously, we’re not providing guidance, there’s still uncertainty, but if the trajectory goes away, we should be able to get out of it sooner.

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to Jim for any further closing comments.

I’d like to thank everyone for joining us on our call today. We always appreciate opportunity to discuss our quarterly results with you. I look forward to seeing everybody at that NAREIT in November. And as we get back on the road, I look forward to getting some non-deal road shows on the books, in-person meetings, as the economy and the lodging industry continues to open up. So enjoy the rest of the summer, be well and stay healthy. And thank you for your continued support.

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.