Good morning, and welcome to the Host Hotels & Resorts Third 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 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 delivered strong performance during the third quarter turning a number of milestones in the recovery. Total food and beverage in group revenues exceeded 2019 for the first time since the onset of the pandemic and our EBITDA margin was 250 basis points better than 2019. During the third quarter, our adjusted EBITDAre was $328 million and our adjusted FFO per share was $0.38. Our all owned hotel EBITDA of $341 million in the third quarter was 15% above 2019, driven by continued rate strength, elevated out of room revenues and tight expense controls. All owned hotel revenues in the third quarter increased 4.9% over the third quarter of 2019 while all owned hotel operating expenses were up only 1.2%. All owned hotel RevPAR for the third quarter was $192, a 1.4% improvement over the third quarter of 2019. As a reminder, this is now the second consecutive quarter RevPAR has exceeded 2019 levels since the onset of the pandemic. While macroeconomic concerns continued to dominate the headlines, we are not seeing any signs of weakness in our business. When digress to 2008, the banking system is in good shape, levers levels are reasonable and consumers still have $1.7 trillion in excess savings with the majority concentrated in the top income brackets which gives us confidence to recovery in the lodging industry is sustainable. In a poll released by the Global Business Travel Association last month, the majority of companies indicated that they are not limiting travel specifically due to economic concerns and 78% of the participants expect volumes to increase in 2023. Consistent with normal seasonality in shifting business and market mix, we expect fourth quarter nominal RevPAR to be slightly above that over the third quarter…

Thank you, Jim. And good morning, everyone. Building on Jim's comments, I will go into detail on our third quarter operations, full year guidance, and our balance sheet. Starting with topline performance, rate continues to drive the RevPAR upside, especially at our Sunbelt and Hawaii hotels where rate was up more than 25% to the third quarter of 2019. Rates at our urban and downtown hotels surpassed 2019 levels for the first time since the onset of the pandemic with rates 4% above the third quarter of 2019. Turning to business mix. Overall transient revenue was up 2% over the third quarter of 2019, driven by 25% rate growth. Holiday's throughout the quarter and into October continue to recover from an occupancy perspective with Columbus Day achieving the highest holiday occupancy post-pandemic. Urban and downtown holiday occupancy growth outpaced Sunbelt and Hawaiian market with especially strong demand growth in Chicago, New York, and Washington D.C. Business transient revenue was down 22% to the third quarter of 2019 but volume improved 300 basis points over last quarter, driven by our hotels in New York, Washington D.C., Boston, and Seattle. Business transient rooms sold reached a new quarterly high in the recovery and August set the new monthly high water mark with more than a 120,000 rooms sold beating the prior record set in June. In September, the overall business transient rooms sold was slightly ahead of August when comparing to 2019, driven by our urban and downtown hotels and encouragingly business transient rates were up 3.1% to the third quarter of 2019. Looking specifically at recent business transient trends in urban and downtown markets, rooms sold were just 10% below 2019 in September, driven by San Francisco and Denver which exceeded 2019 level while New York was just 3% below 2019.…

[Operator Instructions] Your first question is coming from Neil Malkin from Capital One Securities. Your line is live.

Hi, thank you. Thanks, everyone. Good morning. Jim, my question is related to potential opportunities to put your balance sheet to work over 2023 I guess or the next 12-to-18 months. You cited elevated time-based maturities. Obviously the brands are reinstating PIPs and lot of the debt market dislocation, unattractive terms as well. So, it seems like someone in your position with the balance sheet and you guys having the liquidity would be prime to take advantage of potential distress. Can you just talk about how you see that shaping up, what opportunities could look like next year? Thanks.

Sure Neil, happy to share a little bit of color with you on how we think the market might evolve going forward. You correctly point out that we are in a unique position given the strength of our balance sheet. Being the only investment-grade lodging REIT and finishing this year, based on our guidance to the midpoint, a 2.4 times leverage puts us in a very unique position. I really believe that the fact that we were an all cash buyer gave us a competitive advantage in the Four Season Jackson Hole our acquisition. So, and we're able to move fast, we're able to continue to more talk of our relationships with owners and others in the industry and take that deal down with the closing period of less than 30 days from the time that we find the ROI. So, it puts us in a unique position as we look out into 2023 and '24, there's really a couple of different areas that I think acquisition opportunities may present themselves. And the CMBS market for full service hotel maturities in 2023, there's more than $7 billion. Our CMBS market for hotel maturity, full service hotel maturities in 2024 is over $10 billion. What we're seeing already to our inbound calls from all the hotels who have loans coming due over the next year to two years reaching out on a direct basis to see if we might have any interest in buying their property. Because it's going to be very difficult to refinance your loan apart plus the capital win for the assets that have been started from a PIP perspective. And you're correct in saying that the brands are now starting to reinstate PIPs, I think they were very lenient as well a lot of lenders during the pandemic but and now we're clearly through that period of time and we're seeing a lot of pressure not only in the CMBS market but from the brand company and also from the banks. The banks I think they are going to be taking a bit more of a firmer position and not kick the can down the road as we get into '23 and '24. So, we are delighted to be positioned where we are. We certainly intend to use the balance sheet, we will continue to be very disciplined in our capital allocation decisions and when we underwrite a deal, we underwrite it in a very conservative manner. And I think I mentioned in my remarks that our seven hotel acquisitions that we completed last year had beat our pro forma underwriting by a 100%. And we're excited to carry that all forward and look forward to the opportunities that may present themselves.

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

Hi, thanks. Jim, I was wondering if you could just talk a little bit about this Four Season's acquisition in Jackson Hole on the pricing side. And do you feel like that kind of the level at 13.6 times EBITDA is at a discount where it might have been a couple of years ago or do these kinds of assets just not really see that much fluctuation in pricing in your view. And then, maybe I don’t know if you can comment but and there are another 12 or so hotels that were in the strategic portfolio presumably Daijain [ph] continued some of DeSalvo. And then what's kind of your interest level there?

Sure, Smedes. Let me talk about the process a little bit that brought us the Four Season. They brought three hotels to market. There has been a public announcement regarding the Four Season strain. I don’t believe I'm in a position to really talk about the other asset given that we signed a confidentiality agreement. But suffices to say that we underwrote all three of the properties that were brought to market and we just couldn’t get our arms around pricing for the other two assets. And that’s why we pursue the Four Season Jackson Hole. And with respect to Jackson Hole in particular, this asset typically would trade at a multiple that's 15 times EBITDA or north a bit. And EBITDA is elevated, it's had a really terrific run during the pandemic. It's been discovered by a lot of people and it's a really unique iconic greenery place for hotel, right at the steps away from the gondola at Jackson Hole. Then the metrics that we purchased then onward, 13.6 times and at 6.6 CAP rate on 2022 results. And a couple of things that I think are really relevant when you talk about pricing on this asset are the following. I mentioned that the Jackson Hole airport is undergoing a renovation and expansion, was actually closed for three months this past summer. So, that crimped demand into the resort. Secondly, the property underwent a complete guest room and bathroom renovation which caused significant business disruption. So, as we look at it, we believe that 2022 performance was actually muted. And as that, the hotel renovation and expansion wraps up by the end of this year, we feel that the hotel the resort can get back to historical levels of occupancy. Which is the property is really unique because it is a Four Season resort. It's a Four Seasons property but it's a Four Season's resort that happens to be a ski resort as well with proximity to Grand Teton and Yellowstone National Parks, that's really a unique asset. So, we're delighted to own it. We see some asset management opportunities to create additional value as we typically do when we underwrite a deal. And we'll see where it goes moving forward for us. With respect to the other 12 properties, TBD whether or not or when they bring those assets to market. But again, given our balance sheet and given our relationship and given our performance on this transaction, we think we are really in a strong position to be a buyer of choice to some of these other assets. They got some terrific properties left like the Ritz-Carlton Laguna, Ritz-Carlton Half Moon Bay, they have a number of other Four Season's properties including the Four Season's in Austin, the Four Season's in Palo Alto. And so, I think they're sellers and I think we are given our balance sheet, our strength, our relationship, I think we are the buyer of choice.

Thank you.

Thank you. Your next question is coming from Sean Kelly from Bank of America. Your line is live.

Hi, good morning everyone. Jim as well just trying to kind of gauge the sequential pattern in the recovery here. We're seeing a little bit more bifurcation across the space a little bit just as we get into the more mature phase of the recovery and the bounce back incorporating group. So, and you're going to go boil down your outlook for the fourth quarter, are just overall trends we think about leisure in a group and BT. Are they a little bit better for you sequentially in 4Q relative to 3Q and if so what's kind of driving that give us a little bit of color on what you're able to see out over the next couple of months?

I'll start off by saying like when you look at our fourth quarter guidance, even once you take out the negative impact of Ian, we actually raised the guidance RevPAR by 25 bips and this was to the midpoint, obviously and adjusted EBITDA by $7.5 million. So obviously, when you look at sort of our expectations for fourth quarter, we continue to be optimistic in terms of all segments of demand. From a BT perspective, there has been sequential improvement month-over-month and when you look at specifically September, for urban downtown hotels, BT was down just 10%, which is really encouraging in San Francisco and Denver, as we've been showing on the prepared remarks was actually above ‘19 levels in New York was just shy of 3% to ‘19. So these are rates are holding strong. The holiday season is looking really good. Thanksgiving is pacing really well with total revenue is actually up 5% with rates up close to 40%. The same holds true for Christmas rates are up 40%. The only thing on the group side for Q4 to keep in mind when you think about absolute room nights is a couple of things. A) Is the Jewish holidays, both Jewish holidays, fell in September in '19 whereas that was split for 2022 one fell in September one in October? So that's going to obviously have a negative impact for Q4. And so as the midterm elections, which is also going to have somewhat of a negative impact in terms of absolute room nights, but rate is pacing ahead. We've picked up meaningful amount of group room nights for not only in the quarter for the quarter for Q3 but booked about 129,000 room nights for Q4 which is 10%, above 2019. So all in all, still very positive trajectory, have confidence and hence we raised our overall guidance, despite the impact of Ian.

Thank you very much for that. And then just as a follow up sort of just going layer deeper, you talked about the sort of the BT magnitude improving and getting close in a number of markets. Any thoughts or any color you can provide on sort of large corporate activity relative to small we are getting into negotiated rate season. And I believe that that's going to be, I think Marriott talked about it earlier today, being up double digits but just can you give us a little bit of color on just how they're behaving? Are you seeing small and medium and some of your channel partners delivering more demand in small and medium channels? And then large corporates are just how people are acting on the ground a little bit.

Sure. Through the course of the year, actually we have been seeing more uptake off large corporate groups coming in started off with more small medium size, and we saw a decent pickup of large. What we are overall AI in terms of just tailwind for next year. The big piece, which is still remaining is sort of the large associations, and citywide business. And frankly, with the large associations, they all have a governing board, which needs to determine which city they'll hold their events at which hotels they will pick. Though a lot of the decisions are going to be made effectively over the next two months. So we expect booking activity on those large associations do need to pick up in the first quarter of '23. But overall, through the course of the year, we've actually seen an uptick in more larger groups as to what we saw in the beginning of the year, which was more small, medium sized groups. And frankly, the rate is holding, rates for next year. That's up over 6% what we have on the books for our definite group of nights that we have in the box. And on special corporate negotiations, that really is still in progress. And we had said earlier and so at the management companies we expect to end up in sort of the high single digits once it's all said and done.

Thank you very much.

Thank you. Your next question is coming from Duane Pfennigwerth from Evercore. Your line is live.

Hey, thank you. I'm wondering if you could just provide some perspective on how you evaluate capital allocation. What is the process or the metrics you use to balance? How do we think about incremental share repurchase for versus investing in your own existing properties versus opportunistic asset purchases?

Sure, Duane. We are in a unique position to have the balance sheet that allows us to allocate capital in a number of different areas. If we look at the potential acquisition of an asset, like the Four Seasons, Jackson Hole, property of that nature is not going to come to market on a regular basis. I really feel that if we hadn't acquired that asset, it was likely to be acquired by somebody who would likely never sell that hotel. So capital allocation decisions are made based on elevating the EBITDA gross profile of portfolio, returning capital to shareholders when we think that's appropriate. And at a moment in time. This asset was available now and that's why we elected to make the acquisition. So we are going to continue to be prudent in our capital allocation decisions. We're going to look at what we think is the best use of our funds. As you know, we have been very forthright in investing in our portfolio from 2020 through 2022 we have deployed $1.5 billion of capital in our existing assets. We will have fully reposition 24 properties, 16 in the Marriott transformational capital program plus an additional eight that are really outperforming our expectations and creating long term shareholder value, which is really our overriding objective. As we think about capital allocation, the RevPAR gains that we are seeing are generally approaching double digit if not higher, and that puts us in a position to outperform the competition. And we think that is a really smart use of capital going forward. That's not to say if we don't see opportunities down the road to continue to use our balance sheet that we won't be in the market buying back shares. So as I said, on the second quarter call, we think this is a time to be patient to see what comes down the road. And as we can see today, there's a lot of dislocation occurring, given the Fed meeting yesterday, and what's happening with the Pound versus the U.S. dollar. So we're all in a very good position going forward. We like even a multiple on the Four Seasons, Jackson Hole as well at 13.6 times for a luxury resort that we feel is going to outperform going forward. And we'll bring that into a stabilized EBITDA multiple of 11 to 13 times over the next several years. So that's how we think about it. And there's, it's not, we don't put peanut butter in a piece of toast when we're thinking about how we're going to deploy capital. But we look at all the opportunities that are available for us.

I appreciate those thoughts, Jim. And if I could just ask a follow up on Florida. Not the first time we've seen storm activity or hurricane activity. Can you talk about maybe holiday bookings or the strength of peak leisure bookings in Florida ex the Gulf Coast and are you seeing perhaps any benefit in properties ex-southwest Florida, from this disruption?

Well, we actually were in a position to move some business from the Ritz Carlton, Naples, to our Four Seasons Resort Orlando, right after the hurricane hit, we moved a very sizable wedding group to that property. The Ritz Carlton Golf Lodge, which was not affected by Ian, has been running full out. Groups that we had at the beach resort that we moved over there. So that property is really picked up business. Maybe Sourav can perhaps get into a little bit of detail around what we're seeing for the holidays because it's very strong across the board. And the Naples property is going to remain closed through the balance of this year to 2023 and we're looking at various stage reopening options. When we have more information we will certainly share that with everyone. Coconut Point is going to be back in business in the next week or so. And the only part of that property that is still in a state of disrepair is the Waterpark, really, which we hope to have back on by April. So it's very unfortunate that this happens. But it's the business that we're in, and we're very well prepared to manage through the process, and to move business to our other resorts that didn't suffer any damage. With that I will let Sourav talk a little bit about holiday bookings.

Yes. There is definitely compression that's happening in the overall Florida market, not specifically in any specific market within Florida. But just overall, we're seeing that compression offer. What I will say is the business equal, what we're seeing is room nights certainly have picked up in the last couple of weeks. But what's so interesting is the rates have really gone through the roof, relative to '19. Like I mentioned, our overall portfolio, that rate is north of 40%. We are seeing similar trends upload as well.

Thank you.

Thank you.

Your next question is coming from Chris Woronka from Deutsche Bank. Your line is live.

Hey, guys, good morning. Thanks for all the details so far. We talked a lot about the impressive run rate growth rate that we're continuing to see. Haven't heard as much about kind of the ancillary pricing on some of the group business, like the catering and things like that. And where I'm going with it is I'm trying to kind of triangulate looking ahead. You've made a lot of progress on margins, across the hotels, but next year, as we get a heavier group mix, versus this year, do you think you have moved margins and prices up enough on the some of the ancillary group stuff to kind of offset the impact of cleaning more rooms as occupancy presumably goes higher next year?

Absolutely. I think let me start off by saying that banquet and catering business has been very strong for the third quarter, we were up 6% in 2019 on absolute basis and when you look at it on a per room night basis, we were up 8.7%. So clearly, the folks that are coming into our hotels, the groups that are coming in are spending significantly more. And what's been great is when you look at the food cost and the beverage costs across our portfolio, it is actually better than what it was in 2019. So certainly our managers along closely work with asset managers as well are adjusting menu pricing on a real time basis to really adjust for any inflationary pressures. So overall, that's how we've been able to, as I mentioned in my prepared remarks, how we've been able to really drive margin performance across all departments. And we feel very confident that the measures that we have in place and the long term initiatives that we have worked through over the past 12 to 18 months are sustainable. And we definitely are looking at margin expansion going into next year relative to '19.

Yes, thanks Sourav. Just a quick, quick follow up on that if I can, when you talk about some of the group revenues, are you talking more on pricing increases? Or is there a way to kind of look at is the take rate or attachment similar or higher than it was on 2019 as well?

It's both. Take rate definitely is higher. Groups are definitely spending more than they did. And pricing has adjusted as well. But I would say it's not just a function of pricing. Certainly we are seeing groups asking for more. And frankly, buying more premium shelf menu items as well as premium sort of shell bar options as well. That's what they're what they're picking. So it's both.

Great. Thanks very much.

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

Thanks. You've made ultra-high end properties a clear focus, and there are certainly plenty of concerns around the macro and luxury hasn't historically done well in a recession. Is there any nuance within high end luxury resorts that suggested behaves differently than the rest of luxury?

Luxury resorts have consistently outperformed. Our ultra-luxury resorts already have consistently outperformed, luxury and every other property type over time. So as an example, as we looked at the Four Seasons Resort Jackson Hole, looking at the performance of that property from 2014 to 2019, it had a 5.8% RevPAR CAGR. The ultra-luxury resort generally had a RevPAR CAGR during that same timeframe of 4.3%. So clearly, ultra-luxury outperforms and this asset in particular outperforms the ultra-luxury set. So as we evaluated back in 2018, the one hotel [indiscernible] when we first really dug into how ultra-luxury performs and how it’s performed over time and we look back as far as 1992 today at different timeframes to see how these assets hold up during downturns, during recessions. The other thing I would point out, as we sit today is the $1.7 trillion of excess savings that's still in the system, 80% of that are in that savings amount, it's in the upper income brackets. So we're certainly not seeing any pullback on ultra-luxury performance and I expect that going forward, it's going to hold up very well if we were to suffer any sort of slowdown. One of the assets that we acquired last year, which is the Four Seasons Resort Orlando, at Walt Disney World, we bought that asset I think it was a 16.8 times EBITDA multiple on 2019 performance. It's going to finish this year, eight times EBITDA multiple on our purchase price. So I think as this further testament to how ultra-luxury is performing, the same thing has happened with the Alila Ventana that's going to finish the year at eight times EBITDA and not seeing any slowdown in booking trends, zero resistance to ADR growth.

Thanks. And then just Sourav can you just talk to the remaining 30% of redefining the operating model and maybe the timing around that?

Sure. That's sort of still evolving like I'd mentioned on previous calls, a part of it is just evolving brand standards. And we continue to work with our managers to identify brand standards that we can completely eliminate or modify. Some of it just frankly, just takes a little more time. And especially as business comes back to normalcy and you have more of the frequent guests coming back to the hotels, you just have a better sample set to make those determinations as to what brand standards make sense on a stabilized perspective. The other piece, which will take a little more time, we are have a lot of proof of concepts and pilots going on our hotels is just looking at various technology that can drive productivity improvements, just overall efficiencies of the hotel, whether it's incremental revenue or whether it's just reducing expenses, all kinds of different sort of technologies that we can leverage. Frankly, that's sort of your test hardware, there are things to it, and you do multiple pilots and see what works best, and then you sort of roll it up across the portfolio. So I would say you're looking at probably next 12 to 18 months for some of this and in some cases, some technologies are probably 20 months out before we can really roll it out across a portfolio.

Thank you.

Thank you. Your next question is coming from Jay Kornreich from SMBC. Your line is live.

Thank you. Good morning. I just taking the flip side of the acquisition conversation as many companies are looking at the balance sheet and going on the defensive ahead of the possible recession. Given the uncertainty of the microphone, what would you need to see to take a more defensive stance and hold that position in the [indiscernible] more capital to the balance sheet?

Let me start by saying, Jay that at this point in time, we're not seeing any signs of weakness in any of our segments, Leisure group and business transients and that is not only for the balance of this year, but that's as we look out into 2023. Now, of course, we don't have budgets yet for 2023 and we're not giving guidance for 2023 at this point in time, but we feel that we're really set up quite well to continue to perform, outperform as we move into 2023. If we started to see business transit follow up, if we started to see a real impact in the job market, we started to see corporate groups not booking or canceling. We would become more defensive. Now, that said, I think we're in a terrific position sitting here today, at 2.4 times leverage. We truly have a fortress balance sheet. We don't have any maturity in 2024. And the maturity that we have is a $400 million bond issue in 2024 that being investment grade, we're always going to have access to the debt markets granted, it might be a little more expensive than the current pricing, but we're going to be able to do what we need to do. Our entire portfolio with the exception, I think of two assets is fully unencumbered. So having been through slowdowns and downturns in the past, we keep a keen eye on this demand generators. And if we see things starting to turn us out, then we'll get a little more conservative and defensive.

Okay, thanks for the color. And then just as a follow up tangentially, on the topic of raising capital. Are there any other assets you've highlighted that you'd like to either dispose of or markets you'd like to have less exposure to?

Well, we continually look at what actions we can take to elevate the EBITDA growth profile of hosts. And in the context of the Jackson Hole deal that does give us an opportunity to effectuate a reverse like kind exchange, if we can put a portfolio together and get fair value. To do that in this market, it's likely we would have to provide seller financing. And we'd be prepared to do that with the right sponsor, and on the right terms. The assets that we've disposed off, have really gone a long way toward helping us to elevate the EBITDA gross profile of the company, even last year. Just to summarize, between 2018 and 2022, we bought $3.5 billion of assets at a $13.7 times EBITDA multiple. We dispose of $4.9 billion at a 17 times EBITDA multiple and that takes into account close to a billion dollars that avoided CapEx. And it also allowed us to not suffer the attendant business disruption that would occur with that. So that is where we would go -- going forward. If we can get the right pricing, and we have the right sponsor, we are prepared to transact additional asset sales over the next six months to a year and a half or so.

Thanks. That's very helpful. Thanks very much.

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

Hi, good morning, everyone. Thanks for taking my question. Covered a lot of ground but I wondered if you could just circle back and comment on appetite views, perspectives on urban assets and various sort of ranges of cities versus leisure/resort type assets and how you're thinking about those categories?

David, it really comes down to pricing and growth. And if we feel that we can buy an urban asset at the right price and that it's going to perform in a manner that's going to EBITDA gross profile of the company, taking into account capital considerations and renovations and all other items associated with owning a hotel, with buying the hotel, then I would say it in a broad sense, there's really no market that has a red line drawn through it today. We are going to continue to be really thoughtful about geographic diversification and outside of Maui or Oahu and where we have 12% of our EBITDA coming out of both of those markets. There is no one single market in the country where we have more than 10% or even a coming out today in 2022. The two I believe that at 10% are Orlando and San Diego two terrific markets. So as we think about allocating capital, we think it's important that we maintain a very geographically diverse portfolio and that we put capital in places where we're going to be able to generate outsized returns.

Just that simple. Thank you very much.

Thank you. To be respectful of other calls that's all the time we have for today. I will now hand the conference back to Jim Risoleo for closing remarks. Please go ahead.

Well, I'd like to thank everyone for joining us on our call today. We truly appreciate the opportunity to discuss our quarterly results with you. I hope you enjoy the holiday season and I look forward to seeing many of you in Nareit in a few weeks. Thank you for your continued support.

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.