Hurricane season left its mark on Host Hotels & Resorts' Don CeSar in St. Pete Beach, Florida, and the resort likely won't begin a phased reopening until late in the first quarter of 2025.
But the leader of the hotel industry's largest real estate investment trust told analysts on the company's third-quarter earnings call that renovation efforts at Host's Ritz-Carlton Naples resort — which had been devastated by Hurricane Ian two years ago — prevented major hurricane damage this time around.
Hurricane Helene and Hurricane Milton caused four of Host's Florida hotels to close temporarily when they struck in late September and early October. Three of those hotels reopened within 10 days, but The Don CeSar in St. Pete Beach, Florida, suffered significant damage from Helene and remains closed to guests. The company estimates The Don CeSar will have a phased reopening beginning late in the first quarter of 2025.
Fortunately, Host's renovation projects at The Ritz-Carlton Naples helped minimize storm damage to the property from Helene and Milton. Damage from Hurricane Ian closed The Ritz-Carlton Naples in September 2022 and the hotel reopened after a major renovation in July 2023.
President and CEO Jim Risoleo described how renovating the Ritz-Carlton Naples to be more resilient to hurricanes involved elevating building equipment and adding more waterproofing to withstand heavy rains and high water levels.
"As a result of these investments, we saw minimal water intrusion inside the resort despite a storm surge comparable to that of Hurricane Ian, and we reopened the resort seven days after commercial power was restored," Risoleo said. "Following the success of these enhanced resiliency measures, we will continue to prioritize these types of investments across our portfolio over the near term."
During the quarter, Host reached a final settlement with its insurance providers for damages and disruption caused by Hurricane Ian, which was valued at $308 million. The REIT received the remaining $29 million of property insurance proceeds in the third quarter.
A more favorable transactions market
Host didn't acquire any new hotels or resorts in the third quarter, but the REIT has been an active buyer throughout 2024.
In early May, Host bought the 215-room 1 Hotel Nashville and 506-room Embassy Suites by Hilton Nashville Downtown for $530 million in an all-cash deal. Later that month, Host said it would acquire the 450-room Ritz-Carlton O‘ahu, Turtle Bay on Oahu's North Shore for approximately $680 million, and closed the deal in July. Over the summer, Host also closed a $265 million deal to purchase the 234-room 1 Hotel Central Park in Manhattan.
For the remainder of the year, Host doesn't have any additional acquisitions planned, Risoleo said.
Hotel investors are coming off the sidelines and are no longer in wait-and-see mode, Risoleo said.
"The fact that we're past the election now will clear one hurdle for a lot of people; they'll be able to wrap their arms around what the economic policies of the new administration are likely to look like over the near term," he said. "The debt capital markets have become much more conducive to transacting, rates have come down, spreads have come in. ... And I think that as we get into next year, you're likely to see private equity get back into the game and come off the bench."
He added hotel deals could happen as soon as the Americas Lodging Investment Summit in Los Angeles in late January, the industry's first major investment conference of the year.
"I'm willing to go out on a limb and say that at ALIS we're likely to to hear about additional transactions coming to market," Risoleo said. "Because I do think that people have waited a long time, and the good news is that the pressure to sell wasn't there, and that's because fundamentally the business is very sound and resilient. Yes, we have our little bumps in the road along the way, but it's not like folks are rushing to exit at any at any price. So I think we'll see an active transaction market next year."
While Host has recently favored off-market transactions, Risoleo said, "if we have to be in a competitive situation, we will, and we'll just see what happens." There's also the possibility that Host will test the waters as a seller as the transaction market heats up.
"We're likely to test the market ourselves with some of our non-core assets to really understand pricing, assets that likely will need heavy [capital expenditure] investments. ... We'll see what pricing comes back at. If pricing is attractive, we'll sell. If it's not, we'll pull back and invest in the assets ourselves. We're hopeful to be able to be a continued net acquirer going forward," Risoleo said.
Host ended the third quarter with total available liquidity of $2.3 billion, which includes $240 million of furniture, fixtures and equipment escrow reserves and $1.5 billion under the revolver portion of its credit facility.
Condo development opportunities among Host's resorts
Host anticipates spending between $50 million and $60 million this year on a 40-unit residential condominium development at its Four Seasons Resort Orlando at Walt Disney World Resort, which it acquired in 2021. Risoleo said Host has been marketing the units since July with formal sales to begin this month. The first phase of the project — a 31-unit midrise tower — is anticipated to be completed around the fourth quarter of 2025, and the remaining nine villas will open in the first half of 2026. The REIT's construction budget for the condo project is between $150 million and $170 million, which Risoleo said hasn't changed.
Risoleo was asked whether condo development would make sense at any of Host's other resorts in its portfolio. Currently, Host is evaluating a 49-acre parcel of land adjacent to The Ritz-Carlton O‘ahu, Turtle Bay to determine if it wants to sell the land for residential development or conduct a similar condo project to the Four Seasons Orlando property.
"One of the really attractive attributes of The Ritz-Carlton Oahu Turtle Bay was a 49-acre parcel of entitled land for residential development that's immediately adjacent to the resort, a significant portion of which is oceanfront property, and you just don't find that type of opportunity in Hawaii," he said.
Host may bring in a joint-venture partner if executives decide to move forward with developing residential units next to the Turtle Bay property, Risoleo said.
"We are still in the planning stages, and we have not taken into consideration any EBITDA upside for the resort, but we believe there is going to be, over time, meaningful EBITDA upside at the Ritz itself, as well as a development profit in that whether or not we sell the land, or we joint-venture the development of those 49 acres, which probably going to be somewhere plus or minus 250 units," he said. "And it's likely going to be Ritz residential units, at least 50% of which will participate in the rental pool, because that's just how ... things happen in Hawaii.
"So it's an exciting, exciting project. It's a fairly large project. That's why we're considering joint-venturing it, or selling the property outright. But suffice it to say that we would expect to make a profit on the sale or development of the land and see meaningful upside to the resort, both from units being in the rental pool and a share of revenues with the owner, as well as ancillary spend at the restaurants, golf and spa."
Third-quarter performance
In the third quarter, Host's revenue was $1.3 billion, up 8.6% over the third quarter of 2023, according to the company's earnings release.
Host's net income during the quarter was $84 million — which was down 25.7% year over year — and adjusted earnings before interest, taxes, depreciation and amortization for real estate was $324 million, down 10.2% from a year ago.
The REIT's portfolio achieved third-quarter comparable revenue per available room of $206.21, which was up just 0.8% year over year. Average daily rate was $287.57, which was up 1% from the third quarter of 2023. Hotel occupancy was 71.7%, mostly flat from the same quarter a year ago.
As of publication time, Host's stock was trading at $18 per share, down 8.6% year to date. The Nasdaq Composite Index was up 30.5% for the same period.