As part of its recent Investor Day, hospitality REIT Host Hotels & Resorts President/CEO Jim Risoleo spoke with Hotel Business about the state of the company and its transformation since he took over the leadership position in 2016.
“Since I’ve been CEO, we have really transformed the company,” said Risoleo, who has been with Host Hotels since 1996. “Today we own 77 hotels and have 41,900 rooms. In 2017, we owned 94 hotels and had 52,600 rooms, and that’s part of the story. We’ve done a lot of capital recycling over the last six years. We’ve sold $5 billion of assets at 17x EBITDA, and that includes foregoing CapEx. We bought $3.5 billion dollars at 14x EBITDA. So, it’s very accretive capital recycling, and the proof is in the numbers. Our RevPAR on a comparable basis is up 9% portfolio-wide. Our total RevPAR is up 15%, and our EBITDA per key is up 31%.”
He pointed to the company’s top-40 performing hotels to further illustrate its dramatic transformation. “Our RevPAR is up 16%,” he said. “Our total RevPAR is up 24%, and our EBITDA per key is up 50%. Host is truly a different company today than it was, and a much better company from a free-cash-flow perspective and the ability to generate higher EBITDA per key on the assets that we own.”
Part of the reason that the company is in the state it is in—especially coming out of the pandemic—is that it prepared for a potential downturn in 2019. “We finished [that year]with the best balance sheet in the company’s history,” said Risoleo. “Our leverage was 1.6x debt to EBITDA, the lowest that had ever been. It was an intentional strategy because we believed that we were coming to the end of a lodging cycle.”
Of course, Host didn’t see the pandemic coming. “We had just positioned the company to sit on the sidelines, if you will, to take advantage of opportunities that might present themselves,” he said. “Having that low leverage going into COVID really allowed us to further distinguish ourselves from the other lodging REIT peers.”
The company purchased eight hotels for $1.9 billion during the pandemic, including the Four Seasons Resort Orlando at Walt Disney World Resort. “Those assets have meaningfully exceeded our underwriting expectations,” said Risoleo. “We always look to stabilize a property in the range of 10x to 12x EBITDA. We bought some of those assets at much higher multiples.”
He continued, “As an example, the Four Seasons Resort Walt Disney World, we bought that at a 16.9x multiple on 2019 actual numbers. It ended 2022 at 8x EBITDA. So we have more than doubled the EBITDA on that one asset alone. It has been a real workhorse for us. We’ve had similar success on all the other acquisitions.”
The REIT also invested $1.5 billion toward renovating its assets from 2020 through 2022. “It is about $34,000 per key compared to the lodging peer group of a little over $17,000,” he said. “We took advantage of the pandemic and the business disruption that occurred.”
That investment included an agreement with Marriott to spend $700 million to “completely transform” 16 of Host’s assets, including the New York Marriott Marquis in Times Square. “We were able to accelerate the transformation [of these properties],” said the CEO. “We have been significantly able to increase our market share and our yield index relative to the competitive sets, and that was the whole purpose of the program.”
The company has transformed eight other properties, including The Ritz-Carlton in Naples, FL, which reopened earlier this month. “We have the balance sheet and use it,” he said. “We believe that that’s going to continue to drive our performance going forward.”
Risoleo said that every decision that the company makes—whether buying or selling properties or renovating existing ones—is done with only one goal in mind. “Everything that we do at Host is really driven with the bottom-line goal of elevating the EBITDA growth profile of the company,” he said. “And it’s driven by a solid base of analysis undertaken by our enterprise analytics group, along with our asset management group and design and construction and our investments team, of course.”
At the company’s Investor Day, Risoleo also described what the future looks like for Host Hotels. “We laid out a plan to get to $2 billion of EBITDA, which would be 25% greater than our guidance of EBITDA for this year,” he said. “It really falls into a number of different buckets. The low-hanging fruit is an incremental $71 million of EBITDA once we get the Ritz Naples and Hyatt Regency Coconut Point Resort and Spa firmly back online in 2024 for a full year, then an assumption given our fortress balance sheet that we can go out and acquire $3 billion of assets at a 14x EBITDA multiple and grow that 14x into 12x. So not only the EBITDA from the acquisition but an improved EBITDA growth profile from our new acquisitions. That’s not that big of a stretch if you look at what we were able to do between 2018 and today, but it’s all subject to market conditions and availability of assets to acquire.”
