Good morning, and welcome to the Host Hotels & Resorts First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations.

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 and 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. With me on today's call will be Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim.

Thank you, Jaime, and thanks to everyone for joining us this morning. We kicked off the first quarter of 2022 with meaningful outperformance and once again substantially beat all consensus metrics for the quarter. We delivered adjusted EBITDAre of $306 million and adjusted FFO per share of $0.39 during the quarter. All owned hotel pro forma EBITDA of $330 million in the first quarter, was just 18% below 2019, and March pro forma hotel EBITDA came in 8% above 2019 driven by significant rate growth at our resorts. Pro forma total revenues in the first quarter increased 10% sequentially over the fourth quarter, while pro forma hotel level operating expenses grew 5%. The increase in revenues was driven by improvements across rooms, F&B and other departments. Pro forma RevPAR for the first quarter was $167 an 11% improvement from the fourth quarter as rates continue to increase in our Sunbelt markets and hold up at our urban hotels. This is the highest quarterly RevPAR we have seen since the onset of the pandemic, bringing our RevPAR to approximately 18% below first quarter 2019 levels. Our recent acquisitions, dispositions and renovated properties continued to contribute to our performance during the first quarter and notably, we had five hotels with ADRs of over $1,000. Preliminary April RevPAR is expected to be approximately $225 to $230 which is up slightly to our March RevPAR. It is worth pointing out that our preliminary April monthly RevPAR represents the first time that our monthly RevPAR is expected to exceed 2019 levels since the onset of the pandemic. However, consistent with historical monthly trends, we expect to see a pullback in May and June relative to 2019 levels. In addition to Maui and San Diego, we are pleased to see urban markets such as New York,…

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our first quarter top line performance, margins and balance sheet before wrapping up with an update on our dividend. Starting with top line performance. First quarter pro forma RevPAR of $167 was the highest it has been since the onset of the pandemic. The quarter was a table of two months, with March RevPAR of $221 more than double that of January. Improvements in the quarter were driven by leisure travel in Sunbelt markets and Hawaii. These markets achieved a first quarter RevPAR of $251, a 26% increase over the fourth quarter. Our urban markets experienced the brunt of the Omicron impact in the first half of the quarter, but swiftly recovered ending March on a high note. For comparison, March RevPAR at our urban hotels was $132, up nearly 25% to the fourth quarter of 2021. Turning to transient mix. Holidays in the first quarter drove steady sequential growth in both occupancy and transient ADR with President's Day achieving the highest holiday occupancy since 2019, which was driven by are Sunbelt market. Our urban hotel achieved 76% occupancy over Easter, which is nearly double that of the MLK holiday weekend. Holiday occupancy in our urban markets outperformed our Sunbelt markets for the second time since the onset of the pandemic with a rate improvement of 26% over the MLK holiday weekend. Business transient revenue was up 2% in the first quarter with a 4% increase in rate. Despite the impact from Omicron and winter storms in January, business transient room night set a recovery record in March, breaking the 100,000 level, and encouragingly, half of those room nights sold were in urban markets. For comparison, that represents a 28% increase over October…

[Operator Instructions] Our first question is coming from Chris Woronka from Deutsche Bank. Your line is live.

Thanks for all data points. I guess I'll ask the obvious one, which is the 2Q guidance with what you said about April. And I understand there's normally seasonally a drop in May and June. But I think the basic math is suggesting a bigger-than-normal drop, like a double-digit drop versus '19. Can you just give us a little bit of color on how you're thinking about that?

Sure. Chris, we have talked a lot about the Q1 performance and April performance internally at Host. And we just don't think we're going to be able to sustain the level of rate that we achieved in Q1 and in the month of April at our resort properties. The spring break that occurred this year was off the charts. It really was very, very, very strong. And we expect to see some moderation back to the mean. As we see a rotation from spring breakers back into the urban markets group and business transient coming back. So that's the reason why we brought the guidance down for Q2. Strong April, but we expect May and June to moderate. May is definitely going to be lower than April, June may be slightly above May at this point in time.

Your next question is coming from Neil Malkin from Capital One Securities. Your line is live.

Jim, a question for you kind of on the same line. But in terms of maybe just leisure resorts or probably more so the other urban or group hotels. Can you just talk about what out of room total spending looks like? I mean, at least from our expectations, it's continued to just be really strong. And I know that people you've, I think, alluded to, even though rates may not be sustainable at some of these resorts, the other side of the revenue equation should pick up as group and various other core travel segments come back. So can you just talk about what you're seeing there the total out of room? And how to think about that maybe as we go forward in terms of out-of-room spending on a per occupied level?

Sure. At our 16 resorts in the first quarter, Neil, we had outlet revenue per available room of $180 which is clearly a high watermark for our portfolio. And I would say probably industry-wide, it's a high watermark. As we look at how that revenue in the aggregate, it was just 7% below quarter one of 2019. And that's all driven by resorts at this point in time. I think our resort performance was plus 40% on a pro forma basis to quarter one of 2019. The same -- and Sourav touched on this in his prepared remarks, the same with respect to banquets at our hotels that are driven by group. I mean that bank was for plus $24 million to quarter four, the per group room night, the bank with dollars exceeded 2019 by 7%. So what we're seeing on corporate, and it's mostly driven by corporate group at this point in time. And what we're seeing is the groups that are signing up are being cautious regarding what commitments they're making on a spend basis, both from a rooms perspective and out of room spend. Given what happened with Omicron in January and February and the attendant attrition and cancellation fees. But when they arrive at the hotels, they're spending a lot more money than they contracted for, which makes it a little bit difficult to forecast going forward. That's one of the reasons why we're not comfortable talking about the second half of the year by talking about the second quarter at this point in time. Does that answer your question?

Yes. I think so. I mean I'm just curious -- again, I understand like the decline in RevPAR, but I mean you do expect just to be clear, especially given your guidance in terms of bookings or room nights for -- on the group side. The out of room or the non-room related revenue were trend to continue its upward tax, correct?

Absolutely. So I only touched on outlet revenue and banquet revenues. I mean we have seen a very strong upward trajectory on golf revenues and on small revenues, parking is relatively flat and we expect that to pick up as people get back on the road and start traveling again. We see no downturn whatsoever in golf or small revenues. The one area that -- it did have an impact on our first quarter performance were attrition and cancellation fees of $26 million, and that's relative to $13 million that we collected in Q1 of 2019. So I wouldn't expect to see that level of cancellation and attrition fees going forward. But the other out-of-room spend should continue to grow.

Your next question is coming from Smedes Rose from Citi. Your line is live.

I just wanted to ask, Sourav, as you think about, I guess, margin going forward, you noted that margins came very close to pre-pandemic levels and RevPAR is still quite a bit below. As RevPAR continues to improve, even if it's somewhat seasonal and more choppy going forward. How do you think about the flow-through of incremental RevPAR gains. And would it be fair to assume that they might be more occupancy driven at this point versus rate driven? Or how are you thinking about that?

I would say take a look at sort of how we performed in 2019 on a quarterly basis. And given that we have come back much quicker than expected in terms of just getting back to normal seasonality. And that's obviously what's impacting our Q2 guidance. When you look at margin performance, it would be very similar to what we saw in back in 2019. The only thing I would say is, obviously, when you are growing revenues, rooms revenue is more driven by a rate that will flow through better. So in other words, you can expect sort of Q2 margins, no different from -- sort of fourth quarter of '19, where it's slightly better than the first quarter. But then if you look at the third quarter of 2019, there is a marked difference in what happens in margins just because rate drops. Back in '19, if I remember correctly, rate dropped close to like 10%, and there was a margin drop of about 600 basis points. So similar in terms of seasonality is what we would expect. So you would still expect sequential top line growth relative to '19, but you will see the apps tribute, revenue numbers sort of follow the same patterns as we saw back in 2019.

And can I just ask you one quick question. You mentioned 3 million group life on the books for '23 that looks like somewhere between maybe 18 points to 19 points of occupancy at this point. Where would you be now a pre-pandemic going into the following year in terms of sort of points of occupancy on the books.

No. What I would say is where we were pre-pandemic is about 3.9 million group room nights at the same time.

Okay.

But what's important to keep in mind here is it's -- we are talking about the full year, right? So Q1 obviously was impacted because of Omicron. The way to think about it is more the remainder of the year. The remainder of the year, we have 2.3 million group room nights. So that's Q2 through Q4. At the same time back in 2019 for the remainder of the year, we had 2.7 million group room nights. Does that make sense? So obviously, the [Indiscernible]

You were talking about for '23. You're talking about for the [Indiscernible] for room nights.

No. I am talking about '22.

Your next question is coming from Bill Crow from Raymond James. Your line is live.

Jim, just to put a little finer point on the whole sequential discussion. How much of this change in RevPAR is mix driven more group on the books for June, for example, than there was in the first quarter, so more mix, more business transient group? Or how much of it is just travel demand in some of those Sunbelt markets that caused all the compression and the pricing is just being more dispersed to New York and Boston and Chicago.

I think it's a combination of all of the above, though. Clearly, I don't want to give the impression that our 16 resorts in those five properties that had over $1,000 in ADR for the quarter are going to fall off the face of the earth, they're not. I mean the demand is still there. We're still seeing it. But I think as we get past -- we got past April, we're going to get -- as we get into June, we have some seasonality issues associated with the resorts. As an example, the 1 Hotel South Beach in Miami, the Ritz-Carlton in Naples, Four Seasons, Orlando, just natural seasonality, we think, will may temper some of the demand at those properties. And then we are seeing group and business transient come back, which is going to clearly result in a RevPAR that in the aggregate is lower than what we saw in the first quarter and in the month of April. So we're delighted to have the business, make no mistake about it. We're very excited to see group in BT come back as strong as they have been coming brack and having the resort portfolio that we do and having put $1.6 billion to work last year with assets that have really meaningfully outperformed our expectations. In our minds, served as a good bridge to get us to the point where business transient and group recovers. So it's a combination of all of the above.

If I could just ask a follow-up on kind of the health of the consumer. I'm curious whether you're seeing points redemptions picking up? And if so, is that -- does that represent some pushback on these rates at the resorts or maybe a concession that the inflation is starting to eat away at the consumers' wallet?

Now I'll let Sourav get into it, but the short answer is no. We have looked at redemption numbers, and we don't think that, that is having an impact at all at this point in time. In fact, or as an example, for Alila Ventana, we're delighted that, that hotel is part of the world of Hyatt because that's the redemption numbers at that property really go a long way to allowing us to drive outsized RevPAR just given the small number of rooms that are there. And when we can really revenue managed the last -- down to the last room. That is how our redemption rate is set. So it's been very positive for us. And Sourav, I don't know you want to add a little bit of color on what we're seeing.

Sure. Net-net, it's actually incremental for us because if you think about sort of where we are getting those redemption room nights. They're primarily in the resort destinations, which has very high occupancy and majority of our hotels in our portfolio are high redemption hotels, and we actually get a higher reimbursement rate at those hotels. And obviously, at a higher occupancy thresholds, it ends up being incremental in terms of revenue that's being driven by those redemption of room nights.

Your next question is coming from David Katz from Jefferies. Your line is live.

I wanted to you've talked quite a bit about the strength of the balance sheet. And I think the presumption is that there would be other properties out there that would be viable targets in the next 12 months. And I'm just wondering if we can expand that view a little bit whether there are portfolios or even whether corporate M&A would even be within or outside the boundaries

We are constantly evaluating investment opportunities, David. And I think what has happened, at least through our lens, as we view the world today. As other hotel owners have seen the cadence of the recovery, we're seeing one of two things happening. Pricing expectations for a number of the properties that have been in the market early in this year have been beyond our reach. We just have not been able to pencil the underwriting to make sense. Other assets that we would like to buy, and that's because everyone is expecting a strong recovery, which, obviously, our first quarter results and our April numbers are validating as we move into 2022 and beyond. Other assets that are that we might want to acquire just aren't available for sale right now as owners sit and wait until cash flow recovers. So we are very well positioned. There's no question about it. We have $2 billion of available liquidity today as the year progresses that liquidity position will grow. And it puts us in a very strong position as we get later into this year and opportunities become available to really pivot and again be the buyer of choice as we were last year and take deals on all cash and not have to worry about the state of the debt capital markets today, which have gotten a little bit choppy, less loan to proceed -- less loan-to-value proceeds, higher interest rates, given the commentary and actions that the Fed has taken. And I think that patients is warranted at this point in time. We clearly are going to use the balance sheet -- beyond the light is that we were able to do what we did last year and get ahead of the curve and put $1.6 million of work early in the cycle. So I think everything is on the table, but it's very difficult to speculate on what might become available that meets our underwriting criteria.

And if I can follow up briefly. Just with respect to the kinds of markets where you would or wouldn't be, there's an argument, right, we've that we see where companies are buying more Sunbelt oriented. I wonder if there isn't a contrarian view where some markets that may be under some pressure or duress today or underperforming today might be some places to hunt for value. I just wonder what your thoughts are on that.

Let me start by saying that we don't have a red line through any market. And it really is dependent upon our view of value and likely performance going forward. So I agree with you that I think the puck is still going to the Sunbelt markets. I don't think that's going to change. And resorts, in particular, for a number of reasons. Number one is most -- very, very low levels of supply in those markets -- in the resort markets in general. But if opportunities present themselves in some of the markets that are at the bottom of the recovery list, and we thought that they were priced fairly and that we could add value and that the investment would serve to elevate the EBITDA growth profile of the portfolio, which is what we're really focused on doing. We would certainly be prepared to transact.

Your next question is coming from Aryeh Klein from BMO. Your line is live.

Just following up on the resort rates. Clearly, it seems like there's some seasonality at play over the next few months. But as you look further ahead and comps begin to get much tougher kind of in the second half of the year and I guess, the beginning of next year. Are you expecting rates to actually decline a bit?

It's Sourav. So I think while rates will temper and a lot will be just natural business mix and market mix of shifting of demand to different markets as opposed to the strength of the leisure rate in those specific markets. So we will -- we still expect and just based on the demand that we are seeing into the next quarter and even the second half of the year, we are of the belief that the leisure rates are still going to hold pretty strong. And probably, frankly, well into next year, there's still a lot of pent-up demand. And once international borders really open up to the U.S., we think there is a meaningful amount of demand that's going to help sort of sustain those rates. Obviously, very difficult to tell to what magnitude it will be tempered as sort of the market mix takes place, but we still feel pretty strong about the leisure rates going through the rest of this year and into next year.

[Indiscernible] from Anthony Powell from Barclays. Your line is live.

Sorry to keep focusing on this leisure performance in May and June, but I kind of wanted to ask another question on that. So we've seen strong pricing and demand on holiday weekends there. Your two weekends coming up at Memorial Day and also June 1, just checking some of your properties on both of those weekends. They seem to be asking for very high pricing. So what are you seeing in the booking window for those two specific weekends? And are you seeing any, I guess, incremental weakness or softness or price resistance as you approach those time periods?

Specifically for Memorial Day, and this is, again, going back to sort of still the short-term lead time, we are seeing a key pace of 12% above 2019 levels. So still holding very strong for holidays. Sunbelt markets are pushing rates really nicely with rates on the books, up 44% versus the same time in 2019. But overall, still very strong performance for the upcoming holidays.

And what about June themes?

I don't specifically have June themes numbers Andy, but we can certainly get back to you.

So I guess you're not really seeing, I guess, an upcoming week holiday weekends, any kind of, I guess, relative price softening versus what you saw in April or even presence today, is that fair?

That's fair. We're not seeing any softening.

Your next question is coming from J.J. Kornreich from SMBC. Your line is live.

It's Jay. But I am a follow-up to a previous question. With the strong recovery in business transient urban demand, it was interesting to see your Boston and New York as dispositions. So kind of just curious how you think about your asset allocation plan and we may shift back to preserving your urban footprint, which is recovering versus maybe disposing in those markets and focusing more on the outperforming Sunbelt and resort assets.

Sure, Jay. Those two assets were -- they each had a unique set of circumstances surrounding them that drove us to dispose of the properties in Boston. And let me say before I get into the specifics about each of these two assets, we still have a healthy presence in both markets. In Boston, we have the Boston Copley Marriott, which is part of the Marriott transformational capital program. We're in the midst of a complete renovation of that asset. So clearly, we are committed to the Boston market. But the Sheraton, given its location in the Back Bay and the size of the hotel and the plans on the part of the State of Massachusetts to sell the Hein Center, which the hotel was very dependent upon for groups. It doesn't have an adequate meeting space platform to service groups. And the group business in Boston now has moved to the main convention center, the hotel needed a lot of capital significant amount of deferred CapEx at that property. It just made a lot more sense for us to dispose of that asset and similarly with the Sheraton in New York. We have the time -- the New York Marry Marquis in Times Square and the Financial Center Marriott in Downtown New York. Both are in incredible shape. They were both part of the Marriott transformational capital program. The assets are well primed to really outperform as the recovery continues at pace, whereas the Sheraton, again, an older hotel and need a substantial CapEx. So in that -- the Sheraton was forecasted to lose $15 million at the EBITDA line in 2022. So I think those two dispositions will go a long way to allowing us to elevate the EBITDA growth profile of the company. Taking the capital from those sales and investing that capital either in our existing portfolio through ROI projects or making additional acquisitions going forward as part of our capital allocation strategy.

And if I could just ask 1 follow-up. As we seen a nice recovery in the business trends in all the urban markets, can you just give us a little perspective on how San Francisco is shaping up? And how you expect that market to perform in the second half of the year?

Yes. Sure. San Francisco is actually shaping up better than we were expecting. The San Francisco -- I'll give you an example. San Francisco Marriott Marquis actually had 1,000 rooms per night midweek last three weeks of March. BT on the books for the last week of April is almost flat to 2019. So overall, pretty good through for San Francisco in terms of BT pickup.

Your next question is coming from Floris Van Dijkum from Compass Point. Your line is live.

If I look at your EBITDA numbers, particularly if I look at your resort markets relative to '19, obviously, the resorts have been really strong. San Francisco has been lagging. DC has been lagging New York is not really that big, but that has also been a troubled market. As you think about the recovery that we're seeing in the urban markets, I mean, in your view, I know the people are talking a little bit about sequential growth here, but you're pretty 83% of your EBITDA -- hotel EBITDA already in the U.S. in the first quarter. Some of your competitors think they can achieve that by the fourth quarter of this year. Are you -- is that your house view of potential? I know you're not giving guidance, but certainly, is that how comfortable are you being able to achieve those kinds of levels by the fourth quarter of this year?

I don't think we're really comfortable talking about the second half of the year. It's very difficult at this point in time to forecast how this recovery is going to continue to unfold. So much of the business is being booked short term, although we are starting to see the booking window extend. As I mentioned, a very valid point, we think is on the corporate group business that we're seeing. The contracts that are being signed are for lower levels of food and beverage spend and smaller numbers of attendees that are then that are showing up. Because they just don't want to be dealing with attrition and cancellation fees if they have to cancel or if they -- if there is another event that as we saw in January and February. So at this point in time, I think we're confident and we feel really good about what we're seeing in terms of group bookings for the balance of this year. We had a nice pickup over Q4, where we had 2.7 million definite on the books at the end of Q1. We had 3 million definite room nights on the books. That compares, I think, to $3.9 million in Q1 of 2019 for 2020. So we continue to close the gap going forward and the same with business transient. It's coming back. We think it's going to continue to evolve as offices open. And we feel good about it, but we're just not in a position to give any guidance for the balance of the year.

I would add, I mean, if there is any indication in terms of what we did in March as presentation of where we see the trends heading. I think we mentioned in our prepared remarks how March was over 100,000 room nights, which is now the high watermark. So if you remember back in 2021, we had -- the last high watermark was at 78,000 room nights in October of '21. So that's a 28% increase. What we can say is we see that trend continuing into April. And as Jim said, since the lead times are short, it's difficult to have visibility on BT well into the second half, but the trends are at least positive. And March ADR for BT was $223, and that's down only 1.6% to 2019.

Your next question is coming from Chris Darling from Green Street. Your line is live.

Just to put a finer point on what you're seeing on BT and group demand. I'm hoping you could just walk through how weekday occupancy specifically is trending relative to '19 and some of your major urban markets.

So for the major urban markets, the weak day occupancy is still lower than what -- where we would like it to be, but it's trending in the right direction. I think that's the important point. From the last time we spoke on the fourth quarter call, there has been like a 4 point to 5 point improvement in midweek occupancies. So that's where sort of we have been focused. Weekend occupancy has obviously improved meaningfully in those urban markets, but that trend continues.

And I don't know if you have the numbers in front of you, but just curious how that might compare to kind of precoded levels.

We are still down, I would say, about sort of high double digits of 18, 20 percentage points in occupancy in those markets.

Thank you. That concludes our Q&A session. I will now hand the conference back to Jim Rosolio, Chief Executive Officer, for closing remarks. Please go ahead.

Thank you, and I would like to thank everyone for joining us on our call today. We appreciate the opportunity to discuss our quarterly results with you. And we all look forward to meeting with many of you in person in the coming weeks and months. We really appreciate your continued support. Have a great day

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.