Executives at the largest hospitality-focused public real estate investment trust are itching to spend money this year.
Bethesda, Maryland-based Host Hotels & Resorts ended 2023 with $2.9 billion of available liquidity, an amount that President and CEO Jim Risoleo said gives the REIT an advantage in negotiating acquisitions once attractive hotels and resorts hit the 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," Risoleo said. "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, and that really gives us a very meaningful competitive advantage. And we believe this is the year to to get the balance sheet to work."
Ideally, the U.S. Federal Reserve will soon announce the first of several interest rate cuts, Risoleo said, and that will bring sellers out of hibernation.
"It's going to also spark competition for those assets" that will come to market, he said. "Our point of view is we have the balance sheet; we can do it all. We want to get out there and we want to get ahead of the pack. And I hope over the course of the next several months that we're going to be able to tell you that we've been a net acquirer early in 2024."
Asked about the wave of commercial mortgage-backed securities maturing this year and next and whether that will drive hotel sales, Risoleo said the wall of distress hasn't materialized.
"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," Risoleo said. "Frankly, we haven't seen it materialize, certainly not on assets or markets that would interest us. But 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."
Host is interested in acquiring large hotels and resorts with diverse demand drivers in the group, business transient and leisure segments. Risoleo added "bigger is better for us" and that acquiring hotels in urban markets might be on the table again.
What's Next for Maui
Host's resorts on Maui — the Hyatt Regency Maui Resort and Spa, the Andaz Maui at Wailea Resort and the Fairmont Kea Lani — continue to skew the performance of the REIT's portfolio as leisure demand decreased following the wildfires in August. Yet Host's Maui properties have benefited from a steady source of group demand.
Sourav Ghosh, Host's executive vice president and chief financial officer, said 2023 was "the year of group and convention hotel recovery," adding that group room revenue increased 21% year over year and the volume of group room nights sold recovered to 95% of 2019 levels.
"It is worth noting that our group results were positively skewed by disaster and recovery bookings in Maui," he said. "Group room revenue exceeded 2022 by 13% in the fourth quarter, driven by an increase in both rate and room nights, and we estimate roughly half of that growth can be attributed to recovery and relief groups on Maui."
Efforts to rebuild Lahaina are ongoing, and Risoleo said the west side of Maui will take more time to recover.
"In the interim, we have been working with relief agencies, in particular the Red Cross. 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," Risoleo said.
Host is also awaiting a resolution to Hawaii Gov. Josh Green's threat to ban short-term rentals if they aren't opened up as housing for displaced residents. In December, Green said the state needed approximately 3,000 short-term rental units set aside for Maui residents.
"March 1 is a pivotal date in our mind," Risoleo said. "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. ... On the island of Maui, in total there's about 30,000 short-term rentals. It's quite significant and we're tracking it very closely."
Risoleo added he hopes leisure travelers will return sooner to Host's two resorts in the Wailea area: the Andaz Maui at Wailea Resort and the Fairmont Kea Lani. Host concluded 2023 by wrapping up a renovation of the Fairmont Kea Lani's lobby and guestrooms in December.
"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, and Ka'anapali, that will lead the cadence of business pickup," he said.
Full-Year Outlook and Earnings Highlights
In its 2024 outlook, Host Hotels & Resorts forecasts hotel revenue per available room to grow between 2.5% and 5.5% over 2023. The REIT anticipates net income between $708 million and $794 million and adjusted earnings before interest, taxes, depreciation and amortization for real estate between $1.59 billion and $1.68 billion.
For full-year 2023, Host's revenue was $5.3 billion, up 8.2% over 2022, according to the REIT's earnings release.
Host's full-year net income was $752 million — which was up 17% year over year — and adjusted EBITDAre was $1.6 billion, up 8.7% from 2022.
The company's portfolio achieved full-year revenue per available room of $211.71, which was up 8.1% year over year. Average daily rate was $300.66, which was 1.8% above full-year 2022. Hotel occupancy was 70.4%, up 6.2% from 2022.
As of publication time, Host's stock was trading at $20.48 per share, up 5.2% year to date. The Nasdaq Composite Index was up 7% for the same period.