Headwinds from Maui, leisure travel guides Host lower

BETHESDA, Maryland — Host Hotels & Resorts reduced its full-year guidance on Thursday as part of its second-quarter earnings. The company cited slower-than-expected demand at its properties in Maui and a slowdown in leisure travel demand.

Jim Risoleo, CEO of the Bethesda, Maryland-based REIT, the largest in the U.S., said the year-over-year decline in Maui RevPAR (which suffered devastating wildfires a year ago and continues its recovery) had an actual drag of 250 basis points on Host’s second quarter portfolio RevPAR.

Jim Risoleo

“This understates the true impact of the wildfires, as we would have expected Maui to contribute 90 basis points to portfolio RevPAR growth in the second quarter… As a result, the total estimated impact of the wildfires on second-quarter RevPAR is 340 basis points,” he said.

Risoleo said the lodging recovery in Maui has been slower for several reasons: firstly because recovery and relief room demand diminished without commensurate level of demand to offset the decline (he mentioned going from well over 200 rooms that the Red Cross and FEMA were renting in the first quarter to 13 rooms that were being rented in Q2 and a lack of corresponding pickup of guests for those now-open rooms); secondly, airline capacity to the island has lowered as a result of the softer demand as total airline seats to Maui in July were down 16% year over year; and lastly, Risoleo said there’s a “perception from would-be visitors that Maui is not ready to welcome guests back to the islands.” He said marketing efforts are underway from local and government officials and individual properties to combat that perception.

While group room revenue was up approximately 8% for the quarter, Risoleo said domestic leisure demand has moderated as consumers have opted for international destinations like Europe, Asia and the Caribbean.

Host made several high-profile acquisitions in the second quarter, including the $265 million acquisition of the 234-key 1 Hotel Central Park in New York and the $650 million acquisition of the 450-key Turtle Bay resort in O’ahu, Hawaii (which was recently rebranded to a Ritz-Carlton).

Risoleo said these were both one-of-a-kind assets. “Real estate is not a short-term business, and we look to acquire assets that are going to grow and keep it up over time,” he said.

He said Host has long been focused on the value of luxury hotel assets from a long-term perspective. “This is something that we started exploring in 2017,” Risoleo said.

He said luxury RevPAR CAGRs (for assets with $500+ RevPAR) have meaningfully outperformed upper upscale and other segments. Risoleo noted that from 2018 to 2023, luxury CAGR increased by 4.7% versus upper upscale at 1.3%.

We’re very comfortable with how our consumers are behaving... We think what happened this quarter was that the high-end leisure travelers went abroad... We believe this is a moment in time and the pendulum will swing back.

Jim Risoleo

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“We expect that we’ll continue to be able to drive this type of performance from the acquisitions we made, which will lead to elevated EBITDA and growth and elevated free cash flow,” he said.

When asked about weakening leisure demand and whether this is a longer-term trend, he mentioned the dichotomy of higher and lower-end customers that has come up a lot lately in the hotel space. “There’s a bifurcation today between the high-end consumer, who is still going strong… and the low-end consumer, and you’re seeing that in the earnings reports that are being printed this quarter. There’s differentiation.”

But Risoleo said he doesn’t see a massive shift for Host’s customers. “We’re very comfortable with how our consumers are behaving,” he said. “We think what happened this quarter was that the high-end leisure travelers went abroad... We believe this is a moment in time and the pendulum will swing back.”

Second-quarter highlights

• Host also made several adjustments to its full-year guidance: comparable hotel total RevPAR $344-351, while comparable hotel RevPAR was $208-213, operating profit margin under GAAP to $5.619-5.725 million, operating profit margin under GAAP to 15.3-16% and comparable hotel EBITDA margin to 29.1-29.6%.
• Comparable hotel Total RevPAR was $368.25 for the second quarter of 2024 (up 0.5% YOY) because of improvements in food & beverage revenues driven by group business.
• GAAP net income was $242 million for Q2 (up 13.13% YOY) because of gains on insurance settlements that significantly drove the improvements in net income and operating profit margins.
• Comparable hotel EBITDA was $461 million for Q2 (flat YOY), driven by increased wages and higher insurance expenses.
• Adjusted EBITDAre was $476 million for Q2 (up 6.7% YOY) driven by operations of recently acquired hotels in Nashville and the reopening of The Ritz-Carlton, Naples after repairs from Hurricane Ian were completed. 
• In the second quarter, Host completed a previously announced acquisition of the fee simple interest in the 215-key 1 Hotel Nashville and 506-key Embassy Suites by Hilton Nashville Downtown for $530 million.
• Through Q2, Host has $12.8 billion in assets, a debt balance of $4.9 billion and total available liquidity of approximately $1.4 billion.
• Host repurchased 2.8 million shares of common stock in the quarter and paid a cash dividend of $0.20 per share on July 15.

What analysts said

Analyst Michael Bellisario from R.W. Baird said his view of the earnings was incrementally negative, with the guidance cut being larger than expected.

Private, experienced hotel investors at the NYU Hospitality conference in June expressed very mixed views about buying into NYC today. Some told us point blank that NYC was a seller’s market and that any buyers were chasing a hot market.

Truist Securities

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“The guidance cut — while we viewed as directionally expected — was greater than anticipated,” he said. “Same-store EBITDA was reduced by ~4% as Maui remains weak and transient travel remains sluggish (as leisure travelers continue to vacation abroad).”

Analysts Truist Securities said Host was a slight beat on gains on insurance settlements ($56 million) because income from operations was light ($21 million below expectations). “2024 guidance was lowered materially even without consideration to the 1 Hotel Central Park acquisition. The net-net/apples-apples, full-year guide is being reduced by $47M from the prior. Host called out a slower than expected recovery from Maui wildfires and moderating transient leisure demand driven primarily by elevated international U.S. outbound without a commensurate increase in international inbound (the latter is a trend we have discussed for months).”

While Truist sees considerable upside opportunity from Host’s Turtle Bay acquisition, it sees more risk with the 1 Hotel Central Park purchase. “Private, experienced hotel investors at the NYU Hospitality conference in June expressed very mixed views about buying into NYC today. Some told us point blank that NYC was a seller’s market and that any buyers were chasing a hot market… In our view, the longer-term downside risk from supply growth still exists even if not evident in a one-to-three-year window.”