Hotel Business caught up with Jim Risoleo, president/CEO/director, Host Hotels & Resorts Inc., to discuss the year that was, the year ahead and the state of his REIT.
—Gregg Wallis
There were a lot of questions coming into 2022 about what the travel industry would look like. What are your thoughts on the year that was?
2022 was a transition year for the lodging industry and a great year for Host. Following prolonged impacts of the pandemic, we are encouraged by emerging travel trends that indicate a strong positive inflection is underway. Our solid results for the third quarter were due in part to the improving environment as we set a number of recovery milestones and continued to exceed pre-pandemic levels across an increasing number of metrics.
The recovery was particularly evident in year-to-date holiday bookings for 2022, as we achieved our highest holiday occupancy post-pandemic for Presidents’ Day, Memorial Day and Columbus Day. The late-year holiday season is also looking favorable for our company, with rates up approximately 40% for Thanksgiving and Christmas, and rates for New Year’s Eve already up over 200% in New York as of early November. Across the U.S., our properties in Hawaii and the Sun Belt continue to be growth drivers, and our urban and downtown properties are seeing solid bookings, with rates in the third quarter surpassing 2019 levels for the first time since the onset of the pandemic and holiday occupancy growth outpacing Sun Belt and Hawaiian markets.
With this improving backdrop, we are staying sharply focused on executing our three strategic objectives: redefining our hotel operating model, gaining market share through comprehensive renovations and strategically allocating capital to development ROI projects.
Are you focusing more on buying existing properties or are you building new ones? Why?
As is always the case, we are constantly evaluating the capital allocation opportunities available to us. We’ve been an active buyer and seller since 2021, and we continue to evaluate both internal and external investment opportunities.
While we do pursue select ground-up development projects, Host typically focuses on developing our existing properties, where we have a long and successful track record. Recent development projects include the Andaz Maui at Wailea Resort villas; group meeting space at the Orlando World Center Marriott; a new guestroom tower at The Ritz-Carlton, Naples; and villas at The Canyon Suites at The Phoenician, A Luxury Collection Resort, in Scottsdale.
Host is a disciplined and successful acquirer; our recent acquisitions are surpassing our underwriting expectations and contributing to the company’s outperformance. Host’s fortress balance sheet and ability to be a cash buyer in the current environment are important competitive advantages, allowing us to be the buyer-of-choice and to opportunistically pursue value-enhancing growth opportunities.
Our recent acquisitions of two iconic and irreplaceable properties show these advantages in action. The Four Seasons Resort and Residences Jackson Hole, which we acquired in November, is expected to be one of Host’s top-three assets, and the Four Seasons Resort Orlando at Walt Disney World Resort is already one of our top-performing properties after we acquired it in 2021.
At the same time, our comprehensive renovation strategy has proven successful with RevPAR index share gains at the JW Marriott Atlanta Buckhead, our New York Marriott Downtown and The Ritz-Carlton, Amelia Island all far exceeding our targeted ranges.
We also have a long history of creatively extracting value from our existing investments and recycling capital into EBITDA-generating offensive additions that target low-to-mid teens cash-on-cash returns, establishing a full-circle thesis for long-term value creation.
In terms of buying versus renovating or developing, the decision comes down to where we see the best returns and opportunities for EBITDA growth.
Are there any sectors your company is focusing on?
We continue to focus on domestic, high-end, full-service hotels and resorts with diverse demand drivers. The strength of our portfolio is due in large part to its geographic diversity, with no market accounting for more than 10% of total EBITDA. Our top priority is to enhance our EBITDA growth profile, and our external capital deployment will continue to center around advancing this objective.
Host is in a great position to continue as an opportunistic and competitive buyer-of-choice in the current environment. We have a fortress balance sheet and the flexibility to pursue accretive growth while continuing to maintain a prudent approach to capital allocation, which has underpinned our success to date. We are always evaluating the industry landscape and will continue to execute when we see opportunities to elevate the EBITDA growth profile of our portfolio.
With all of the uncertainty heading into 2023, how are you preparing for the year?
Looking ahead to 2023, we remain confident in the sustainability of the travel industry recovery. Our strong balance sheet is a unique advantage. Host is the only investment-grade lodging REIT. Coupled with our disciplined approach and focused strategy, we are confident that we are well positioned to continue outperforming. We have worked with our managers to redefine the operating model, meaningfully reinvesting in our assets and maintained a strong balance sheet, which puts Host in a position to outperform.
Bigger picture, we are not seeing any signs of weakness in our business, despite the fact that macroeconomic concerns continue to dominate the headlines. The banking system is in good shape, leverage levels are reasonable, leisure rates remain strong and consumer sentiment remains solid. All these factors give us confidence that the recovery in the lodging industry is sustainable over the long-term.
We have strong conviction that our company’s outperformance will continue, and we intend to be highly strategic as we position the business for long-term value creation.
