Good morning, and welcome to the Host Hotels & Resorts Fourth Quarter 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I'd 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 comparable 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 are 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. 2023 was a terrific year for Host on several fronts. First, we delivered strong operational improvements, driven largely by occupancy increases and continued rate growth. Second, we completed the work on the three strategic objectives we established in 2021 and we will continue to realize the benefits of our ongoing efforts well into the future. Third, we returned significant capital to stockholders in the form of dividends and share repurchases, continue to successfully allocate capital through reinvestment in our portfolio and announced an agreement with Hyatt to complete transformational renovations at six properties in our portfolio. Lastly, we maintained an investment grade balance sheet and continue to position Host to capitalize on the significant growth opportunities we see in the lodging space including potential acquisition opportunities. Turning to our results. We finished 2023 above the midpoint of our full year guidance range. We delivered adjusted EBITDAre of $1.629 billion and adjusted FFO per share of $1.92. Comparable hotel total RevPAR grew 8.3% and comparable hotel RevPAR grew 8.1% compared to 2022. Notably, comparable hotel EBITDA margin was 60 basis points ahead of 2019 due in large part to our efforts to redefine the hotel operating model with our managers. During the fourth quarter, we delivered adjusted EBITDAre of $378 million and adjusted FFO per share of $0.44, which includes $26 million of business interruption proceeds from Hurricane Ian. Comparable hotel RevPAR improved 1.5% compared to the fourth quarter of 2022. Our RevPAR performance for the quarter was driven by an increase in both occupancy and rate. Despite an estimated 30 basis point impact from the wildfires in Maui, our fourth quarter comparable hotel EBITDA margin of 28.1% was flat to 2019. This marks the seventh consecutive quarter since…

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our fourth quarter operations full year 2024 guidance and our balance sheet. Starting with business mix, overall transient revenue was down 5% compared to the fourth quarter of 2022, driven by the evolving nature of demand in Maui. We estimate that Maui had a 590 basis point impact to transient revenue, which was evenly split between demand and rate. We were encouraged that transient rate at our resorts grew 2% above last year's tough comparisons despite the demand impact from Maui and renovation disruption. Looking ahead to spring break, transient revenue pace is up for our portfolio compared to the same time last year, driven by occupancy and rate growth at our resorts. Outside of Maui, resort transient revenue pace for spring breakis up 20%. Business transient revenue was up over 7% to the fourth quarter of 2022, driven by both rate and demand growth at our downtown properties. Business transient demand continued its slow and steady recovery. Room nights at our downtown properties were down 15% in the fourth quarter compared to 2019, which is the smallest gap to the 2019post-pandemic. For the full year, business transient demand grew 12% over 2022. In 2024, we expect further demand growth driven by large corporates alongside rate growth in the mid-single-digits. Turning to group. 2023 was the year of group and convention hotel recovery. For the full year, group room revenues increased 21% over last year and room night volume recovered to 95% of 2019 levels. It is worth noting that our group results were positively skewed by disaster and recovery bookings in Maui. Excluding Maui, group room night volume recovered to 94% of 2019 levels. Group room revenue exceeded 2022 by 13% in…

[Operator Instructions] Your first question is coming from Sean Kelly from Bank of America. Your line is live.

Hi. Good morning, everyone. Thanks for taking my question. Jim or Sourav, maybe we could just start off with a little color on the M&A environment. You alluded to it in your prepared remarks a little bit and obviously we know the strength of the balance, but coming out of the ALIS conference, how are conversations going? And maybe you could just lead us a little bit on how you can really tap in using your balance sheet strength to unlock some opportunities that others may not have in front of them at this point in the market.

Sure, Sean. This is Jim. I’m happy to take that question. I think our fortress balance sheet really differentiates Host in the space. Sitting here today at 1.9x leverage with $2.9 billion of liquidity is a testament to the fact that we can do it all as we have shown, and that’s how we intend to approach 2024. We want to be net acquirers. We want to continue to elevate the EBITDA growth profile of the portfolio in 2024 through acquisitions, but also through continued reinvestment in the portfolio as we’ve done over the past few years. You may recall that we acquired $1.6 billion of assets at the beginning of the recovery in 2021, and another $315 million in 2022. And over that time frame, we’ve invested – from 2020 through 2023 we’ve invested over $2.1 billion in our assets. So our 16 properties under the MTCP, as we noted in our prepared remarks, are significantly outperforming our underwriting expectations of 3 to 5 points in yield index. The properties that have stabilized post operations are up to 8 points or up to 10 points, I’m sorry, 8 to 10 points. And we continue to do the same with the HTCP program in 2024 as a start. Now, with respect to the acquisition market, frankly, there just aren’t a lot of properties that are currently listed for sale, certainly not assets that would interest Host. But that’s really not slowing us down at all. We are talking to our competitors in the industry, our friends in the industry and others to try to kick deals loose that are Host type assets. We are leaning on our relationships, we’re leaning on our reputation, on our ability to close deals all cash that really gives us a very meaningful competitive advantage.…

Thank you very much.

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

Hi. Thank you. I was wondering if you could just talk a little bit more about on the group booking side. It sounds like part of your improvements you’re seeing are driven by kind of large citywide conventions and the return of maybe sort of association business. But could you talk about maybe just what you’re seeing, just more on the corporate side, larger meetings, smaller meetings, more frequent meetings, just any kind of detail around that would be interesting.

Sure, Smedes. We’re doing really well on the corporate group business and that remains strong. So while association is certainly coming back in quite a few markets, particularly with citywide coming back for 2024 in a meaningful way, the 2024 citywide room night pace is around 90% of 2019 actuals, and quite a few cities are pacing ahead. But corporate group continues to be strong and what’s also important to note is their spend on banquet and catering continues to be strong. So the catering contribution at our hotels has not declined year-over-year and we are keeping pace both from a demand perspective as well as from a rate perspective. Right now, our group pace from an ADR standpoint is around 4% and we are pacing ahead to last year by 3.4% in terms of room nights, and on a total revenue basis, it’s 10% that we are pacing ahead year-over-year. So, pretty meaningful. The markets which are driving this for our portfolio, specifically the $3.1 million group room nights that we have on the books for 2024, they include San Diego, Orlando, D.C., San Francisco and San Antonio. Those markets make up just over 50% of the $3.1 million that’s already on the books. In terms of citywide pace, what’s pacing well is also San Diego, D.C., but also Seattle, New Orleans and Miami.

Thank you. Appreciate that.

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

Great. Thanks. Just circling back to your comments on potential acquisitions. I guess, I’m surprised, just given the maturities, CMBS maturities, some of which were pushed back in 2023 into 2024, that maybe there’s not more kind of for sale in the first half of 2024. So I guess what is your sense of kind of what’s happening with those maturities? And then also just curious what your current thoughts are on the type of assets, location, if there’s been any change in terms of what Host would be looking for? Thanks.

Sure, Robin. We track all the CMBS maturities, the CMBS loans outstanding and the maturities. This year there’s about $26 billion of full service loans that will be maturing. And I know that earlier in the pandemic there was a lot of talk of distress. Frankly, we haven’t seen it materialize, certainly not on assets or markets that would interest us. We’ll continue to track it. There may be pressure as we get later into the year because one of the things that other hotel owners are going to have to deal with sooner or later is reinvesting in their portfolio. And as you know, as I mentioned earlier in my response, we have invested significant capital in our portfolio. So we’re in a really great place to continue to gain yield index and continue to outperform going forward. So I think it’s still TBD on distressed but we're certainly not counting on that. We're making it happen on our own by trying to capitalize on our relationships, our reputation and our balance sheet to be net acquirers this year. The types of assets and the types of markets, it's really – there is nothing that's perspective per se, that's off the list. But we are always going to be thoughtful about maintaining geographic diversification, which has served us well. I think notwithstanding the tragedy in Maui, the geographic diversification of our portfolio still allowed us to achieve 8.1% RevPAR growth in 2023, notwithstanding a 50 basis point impact from the Maui wildfires. So we'll continue to look at assets where we can add value through our strong asset management and enterprise analytics capabilities, assets where we see ROI opportunities that haven't been completed by the current owner and new markets, we'll continue to look for resorts. We'll also continue to start looking at urban markets today because we've seen some good solid performance out of the urban market. So I think recovery is on the way. We feel good about the macro picture. There is visibility from an underwriting perspective. And let's all keep our fingers crossed at the soft landing that seems to be the consensus to say does come through.

Great, very helpful. Thank you.

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

Thanks. Good morning. Maybe for Sourav, a question about the kind of the tail of two halfs of the year and RevPAR growth in the low single-digits in the first half and then accelerating up to I guess, what, 5%, 6%, 7% in the second half of the year to hit your numbers. Can you kind of compartmentalize how much tailwind you get from Maui? How much you get from renovation disruption? Perhaps Coconut Point is providing a lift given the challenges in that market last year. What can you tell us to give us kind of confidence in that outsized growth in the second half of the year?

Sure. So the first piece, I'll talk about the first half, the reason that is low single-digits is because of the tough comps that we have, particularly given the Q1 performance in 2023. And remember, 2022 Q1 was impacted by Omicron. So we had a meaningful amount of growth in the first quarter of 2023. And the first half, leisure did extremely well, as you might recall. So just tougher comps in the first half, that's why the low single-digits. On the second half, what's really giving us confidence are two things: One, specifically is the group booking pace for the second half, both particularly for Q3 as well as Q4, when you look at overall second half, our pace is really strong. We have confidence in that pace number and the second piece is really the tailwind from four hotels that had a meaningful impact last year from renovation in the second half, second half of 2023. Those four hotels really being the one hotel South Beach, Fairmont Kea Lani, the Biscayne Bay Marriott and the Hilton Singer Island, which is a complete redevelopment project. So that's really what's going to help drive that tailwind into the second half at group booking pace and the tailwind from those four renovation properties. There are other factors as well, but those are probably the two largest most impactful factors driving the mid single-digits in the second half.

Great, thanks for the color.

Thank you. Your next question is coming from Michael Bellisario from Baird. Your line is live.

Thanks. Good morning, everyone. You want to stick to your outlook. Do you have an industry RevPAR forecast that you're thinking about? And then specific to your outlook, what are you assuming for the mix of rate and occupancy in 2024? And how does that affect your expense outlook and how you're thinking about cost per occupied room? Thanks.

Sure. So the way we think of the industry forecast is – and if you look at SCR, it's effectively at around 4%. But remember, our midpoint number is getting impacted 100 basis points as a result of the impact from Maui. So in other words, that would be 100 basis points more if it wasn't for Maui. That also, keep in mind, the weighting of our portfolio is different when you look at sort of the different markets that we have waiting in. So it's not on two apples-to-apples comparison when you are looking at our comparable RevPAR growth versus what the third parties put out there. So that's one thing to keep in mind as well. So overall, please, particularly given the capital investments that we have made, which Jim talked about and the lift that we are getting from the MTCP projects as well as the eight other projects that we invested in and the RevPAR index gain translating into EBITDA growth as well. In terms of total expense growth for this year at the midpoint, we are effectively at 5.8% total expense growth on that midpoint of 4% for the total portfolio. And sorry, the other question you asked was just split between occ and rates on that 2% and that's pretty evenly split between the two.

Got it, thank you.

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

Thanks. So on the group pace, I think you said up 13%. How are you thinking about closing group bookings in the quarter for the quarter over the balance of the year? Assume closing group would moderate as the booking curve continues to normalize. And then relatedly, are you leaning on group any differently than you did pre-pandemic given changes in underlying seasonality? So for example, given changes in business trends, is there more of an effort to lean on group to fill in off-peak periods?

I'll start with the second part of your question. First, it's really an asset-by-asset revenue management decision in terms of what is available and where we can maximize yield. And we're looking always at the total revenue piece of it. It's not just the room night piece because obviously, the banquet and catering that groups provide makes a meaningful difference. So I wouldn't necessarily say there is a different way that we are – or the managers are approaching revenue management. Obviously, the goal is to fill the hotels with the highest not only rated business, but the highest business that's going to provide you the highest total revenue and ultimately, total EBITDA for the hotel. When you think about sort of the cadence of group for the balance of the year, we already have 3.1 million group room nights on the books. We expect for the year based on the midpoint to be above in terms of total group room nights for the year relative to 2023. And we do not just given how well we've been pacing, obviously, in the year for the year, pickup is going to be lower. And in the month for the month and in the quarter for the quarter is going to be lower than what we have seen previously just because the lead times have expanded not only for just in the year for the year but also into future years. But we feel very confident with the ongoing sort of the short-term pickup to make that gap up, particularly given sort of the need dates that have been filled for the year, both in the first half as well as the second half.

Okay, appreciate the thoughts.

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

Hey, good morning, guys. Appreciate all the details so far. Just had a question as to how you're thinking about cadence of transient through the year, especially as we get into summer Q3. Remember last year we had a little, I guess, surprise where more international outbound and we didn't get the corresponding numbers inbound. How are you kind of internally modeling summer transient this year? Thanks.

Sure. So the way we're thinking of transient, I mean, we obviously expect it to be moderating for the summer. We just had an extremely strong summer last year. And to your point, I mean, U.S. outbound for the year was 117% above 2019 level and inbound was effectively at 90% of 2019. For what it's worth, right now, the U.S. travel is projecting that inbound number is going to be more at 98% for 2024 relative to 2019, which is a good stat. We do expect an impact on a year-over-year basis, therefore the low-single digits guidance for the first half of the year. But what I will say is our fourth quarter ended with our transient ADR for our resorts still up 58% to 2019. And what we are seeing in terms of spring break, and I think that's like most visibility we have because you won't really get into summer visibility until you get to the end of Q1. Spring break is pacing up 20% in revenues and rate is pacing above 7%, and that's specifically for our resort, excluding Maui. So we feel very good, which effectively is saying that none of these particularly the transient resort ADR is still going to be above 50% of 2019 level. So that's really encouraging. Not enough visibility into the summer yet, but spring break is very encouraging.

Thanks, guys.

Thank you. Your next question is coming from Stephen Grambling from Morgan Stanley. Your line is live.

Obviously, we can kind of look at the total dollar amounts, but there's been some changes in construction costs and otherwise. I'm just curious how you're thinking about the ROI on those projects. And if you can give any other color comparing and contrasting the two. Thanks.

Hey, Stephen, it's Jim. The first part of your question, we didn't hear, it cut out. So would you mind repeating it?

Just asking to compare and contrast the Hyatt Transformation versus the Marriott transformation programs.

From what perspective?

how you're thinking about the return on investment, how these which – how the hotels might compare and contrast. There's a reason why we should be assuming that these should be kind of the same uplift. Or could there be a difference when we think about looking at the two?

No, I think as you're looking at the HTCP program, it's modeled after the Marriott program. We have received enhanced owner priorities on all of our dollars that we're investing, which is meaningful because in many of the hotels we didn't have owners’ priority for one reason or another, either it burned off over time or it just didn't exist. So that's a big plus. Hyatt is also providing $40 million in operating profit guarantees to cover off anticipated disruption. And as we noted in our comments, we expect to collect $9 million in operating profit guarantees this year that will cover the anticipated disruption associated with the Hyatt renovations. And I think the cadence is, the assumptions are the same. The assumptions are the same. Let's hope the results are the same, because the results out of the MTCP blew away our assumptions. But we're looking at low-teens cash on cash returns, say low-double digit to low-teens cash on cash returns, which is the same way we underwrote the MTCP program. And frankly, the other eight assets that have received transformational renovations.

And just one follow-up on that, was that primarily through RevPAR index premium or was there also a component, any way to break that down with F&B uplift or other revenue uplifts?

It's both. And I think we can talk, let’s –– I'm going to let Sourav talk a little bit about the F&B uplift because we have seen a meaningful uplift in F&B revenues throughout the portfolio. I think we have a little audio problem here. Hang on.

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

Thanks, and good morning. So I guess within the 4% RevPAR growth outlook, what are your expectations for leisure performance? And are you seeing any kind of noticeable difference in the consumer behavior at the ultra high end resorts versus leisure at your other properties? And then maybe if you just talk to what you're seeing in Maui from a future bookings perspective. Thanks.

Sourav, are you back on audio? No, he's not. Sourav, he is having some audio issue.

I'm back on. I'm back on.

There you go. Okay.

I'm back on. Can you repeat the question?

I'll start, Aryeh with respect to what are we seeing from the leisure consumer, our leisure transient traveler is generally the affluent consumer in the country. We are seeing no slowdown in spend. We're really not seeing a backing off in a meaningful way in ADR and out-of-room spend in banquet in outlets is still strong. This goes back to Stephen's question. The investment that we made in a lot of our properties and the transformational properties has resulted in a significant pickup in outlet spend throughout the portfolio. So leisure is from our perspective, it's still trending very strong. And I think that goes back to the commentary around spring break where our revenue pace is up 20% year-over-year for spring break, and we're very pleased with that.

Thanks. And just on Maui, what you're seeing from a future booking standpoint that gives you kind of confidence in the recovery in the second half of the year?

Well, I'm not certain that we said that there was going to be a recovery in the second half of the year. So we hope that there's a recovery in the second half of the year. But there are a number of things that have to happen on Maui, particularly on the West side, which is where the wildfires were. And the gating issue really is finding shelter for the displaced residents. And March 1 is a pivotal date in our mind. The governor of the state of Hawaii has stated that if the owners of short-term rentals on Maui don't come to terms with allowing their units to be utilized by the displaced residents, then he is considering a ban on short-term rentals. Because I think on the island of Maui, in total, there's about 30,000 short-term rentals. So it's quite significant and we're tracking it very closely. Additionally, cleanup and the plans to rebuild Lahaina town are still in process. So the west side, I think, is going to take some time to come back. In the interim, we have been working with relief agencies, in particular, now the Red Cross, and we have contracted with the Red Cross for 350 rooms at the Hyatt Regency Maui through the end of May. And we're hopeful that that will be extended while the recovery moves forward. The story in Wailea, where we own the Andaz Wailea and the Fairmont Kea Lani is different. Those properties have been, in the case of the Fairmont Kea Lani just completed a transformational renovation. So the asset is in incredible shape, as is the Andaz Wailea, where we completed soft good's rooms redo, as well as the significant bathroom work. So both of those assets are in great shape and we're confident that over time as the consumer begins to understand the differentiation between Wailea, which is a completely different submarket than the west side in Kaanapali, that will see the cadence of business pick up. And I would just say that, as we think about the midpoint of our guidance this year, we've assumed pretty much 100 basis point impact on Maui and that will result in about the same diminution in EBITDA as we experienced last year. But if Maui is better than our anticipation, and it's too soon to really know that, then we think there is some upside and that takes us to the higher end of the EBITDA guide.

Yes, I just want to make sure I explain the EBITDA piece for Maui. To be clear, obviously when you look at sort of the first half, it's going to be impacted by the wildfire. That's about a $25 million to $30 million incremental impact for 2024. So when you think about the total impact for the year, it's close to $50 million that the wildfire impact is actually having as a result of Maui. So just keep that in mind, it's $25 million incremental impact year-over-year, $25 million to $30 million.

Thank you.

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

Morning everybody. Thanks for working me in. I appreciate it. Covered a lot of ground already and I really wanted to just maybe triple click on how we think about the boundaries for deals more. Are fixer uppers in or out of bounds versus things that just need a little more strategic direction. And any thoughts on sort of size would be helpful there as well. And that's it for me.

Well, David, let me take the second part of your question first, because that's an easy one. Bigger is better for us. And we don't turn any attractive opportunity away. But obviously, given our scale and our ability to deploy capital, we focus on larger transactions, we focus on complicated transactions, complicated boxes with diverse demand generators being group business transient and leisure, as well as hotels that have multiple outlets and look for opportunities to not only improve the top line, but to improve the middle part of that P&L through our asset management and enterprise analytics capabilities. We are perfectly open minded to buying an asset that needs to be repositioned from a CapEx perspective, it doesn't concern us at all. We certainly have the ability with our design and construction group in house to do that. But what we really look at is how is this asset going to perform after it is renovated and repositioned, and how is it going to perform relative to the existing portfolio, because our bottom line goal is to put money to work, whether it's within our existing assets or new acquisitions to elevate the EBITDA growth profile of the company. So it's across the board.

Thank you very much.

Thank you. Your next question is coming from Dori Kesten from Wells Fargo. Your line is live.

Thanks. Good morning. How has the spread between your group and transient ADR shifted from 2019 to today? And I guess, how much do your transient rates drive your in the year, for the year group booking pricing.

Sorry, Dori, can you repeat the question for me?

The spread between your group rates and your transient rates. I'm wondering how that's changed from 2019 to today. And then the second piece of it was how much do your transient rates inform your in the year for the year group pricing?

Yes, so its typically so answer the second half first, I'll have to get back to you on the specific delta to 2019 on group and transient, don't have that in front of me. But in terms of the way we think about the yielding, it really is group comes first. So you're developing that group base and you're seeing where that group rate is, and then you're yielding the transient business and depending on where group is coming in, and it's not just a rate piece, you have to remember, it's also we get a meaningful amount of ancillary business with food and beverage and golf and spa and all that. That makes up a pretty meaningful amount for our portfolio. It is looking at total revenue and what that contribution is to total EBITDA. So once a group base is built, then we figure out the properties are looking at, okay, what makes most sense to layer in transient and at what rate. So you're going to yield out the lower rated business and obviously move towards the higher rated business. So it's more the group base that drives it versus just where transient is coming in. I mean, so you're looking at transient pickup, certainly in the short-term, and filling that up. But the pricing is all determined where group sits for majority of your portfolio.

Certainly, there are no further questions in the queue. I'll now hand the conference back to Jim for closing remarks. Please go ahead.

Thank you. And thank you all for joining us today. We appreciate the opportunity to discuss our quarterly results and our guidance for 2024, and we look forward to seeing many of you at conferences in the coming months. Have a great day.

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