Q3 2024 Host Hotels & Resorts Inc Earnings Call
The
The
Speaker Change: Good morning and welcome to the Host Hotels and Resorts third quarter 2024 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Jamie Marcus, Senior Vice President of Investor Relations.
Jamie Marcus: Thank you and good morning everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements.
Speaker Change: In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA RE, and comparable hotel-level results.
Speaker Change: You can find this information, together with reconciliations to the most directly comparable GAP information, in yesterday's earnings press release.
Speaker Change: in our 8K filed with the FCC and in the supplemental financial information on our website at hosthotels.com.
Speaker Change: With me on today's call are Jim Risoleo, President and Chief Executive Officer, and Sourav Ghosh, Executive Vice President and Chief Financial Officer.
Speaker Change: With that, I would like to turn the call over to Jim.
Jim Risoleo: Thank you, Jamie, and thanks to everyone for joining us this morning.
Jim Risoleo: Before we turn to the quarter, I want to take a moment to acknowledge the devastating effects of Hurricanes Helene and Milton, which made landfall in late September and early October.
Speaker Change: We were deeply saddened to see the loss of life and damage the hurricanes brought. And while many of our hotels were impacted, we are very fortunate that the employees at our properties remained safe throughout the storms.
Speaker Change: In response to the urgent needs of those impacted, we partnered with the American Red Cross, World Central Kitchen, Team Rubicon, Community Foundation Tampa Bay, and Feeding Tampa Bay to deliver vital disaster relief support.
Speaker Change: The most significant damage occurred at the Don Cesar, which remains closed to guests.
Speaker Change: We are still evaluating the remediation and disruption impacts of the storms and we currently expect a phased reopening of the Don Cesar beginning towards the end of the first quarter of 2025.
Speaker Change: Please note that the Don Cesar is still included in our comparable hotel results in the third quarter, but it has been removed from our comparable hotel set in our full year guidance.
Speaker Change: It is worth noting that our resilience investments at the Ritz-Carlton Naples paid off during both hurricanes.
As a reminder, during the remediation following Hurricane Ian,
Speaker Change: We opportunistically enhance the resiliency of the property by elevating critical equipment, improving dry flood proofing measures, and accelerating future building envelope waterproofing replacements.
Speaker Change: 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.
Speaker Change: Following the success of these enhanced resiliency measures, we will continue to prioritize these types of investments across our portfolio over the near term.
Speaker Change: For additional details on our resiliency investments, please see our 2024 Corporate Responsibility Report, which details our CR program and strategy, our ESG initiatives, and our industry-leading accomplishments.
Speaker Change: It can be found on the corporate responsibility section of our website at hosthotels.com
Speaker Change: Turning to our results in the third quarter, we delivered adjusted EBITDA RE of $324 million and adjusted FFO per share of $0.36.
Speaker Change: As a reminder, in the third quarter of last year, our adjusted EBITDA RE benefited from $54 million of business interruption insurance proceeds.
Speaker Change: which led to a 10% decrease in our adjusted EBITRE this quarter. Excluding the business interruption proceeds, our adjusted EBITRE would have been up over 5% and adjusted FFO per share would have been up 9%.
Speaker Change: We delivered a year-over-year comparable hotel total REVPAR improvement of 3.1%, underscoring the continued strength of out-of-room revenue while comparable hotel REVPAR was up 80 basis points.
Speaker Change: As a reminder, the operational results discussed today refer to our comparable hotel portfolio for the third quarter, which excludes the Ritz-Carlton Naples and Alita Ventana Big Sur.
Speaker Change: Our third quarter comparable hotel Red Park came in slightly better than we expected, despite weather impacts from the hurricanes in Florida during the last week of the quarter.
Speaker Change: While Maui is recovering, the year-over-year decline in red part for Maui had an actual drag of 170 basis points in the third quarter.
Speaker Change: As we have discussed over the past few quarters, this understates the true impacts of the wildfires.
Speaker Change: As we would have expected Maui to contribute 20 basis points to portfolio red part growth in the third quarter,
Speaker Change: giving the transformational renovation at Fairmont Key Lining in 2023 and the expected lift for 2024.
Speaker Change: As a result, the total estimated impact of the wildfires on third-quarter red par is approximately 190 basis points.
Speaker Change: Following the anniversary of the tragic wildfires, we supported our managers, local tourism authorities, and government officials in promoting the return of visitors to Maui.
Speaker Change: Our three hotels launched the Ho'okipa marketing campaign. Ho'okipa means the spirit of hospitality in Hawaiian.
Speaker Change: The marketing efforts included social media and TV ads, digital displays, an email campaign, and videos from each of our resorts that aired in Southern California during the month of September.
Speaker Change: Additionally, the governor of Hawaii, the mayor of Maui, and the head of the Hawaii Lodging and Tourism Association.
Speaker Change: met with longtime supporters of Hawaii, the Los Angeles Rams, and key travel partners across the greater Los Angeles market to communicate the importance of tourism for Maui's economic recovery.
Speaker Change: The Rams have supported Hawaii over the years. And part of the governor's trip was aimed at formalizing the relationship between the two going forward.
Thus far, the sales and marketing efforts are paying off.
Speaker Change: Thanksgiving and festive revenue pace for our three Maori resorts is up over 35% and over 65% respectively compared to the same time last year. We are encouraged that Maui is beginning to show improvements on its road to recovery.
Speaker Change: Moving on to business mix, group room night revenue was up 1% in the third quarter, driven by rates as group room nights were flat due to the recovery and relief rooms in Maui that were booked in the third quarter of 2023.
Speaker Change: Our properties booked 212,000 group room nights in the year for the year.
Speaker Change: bringing our definite group room nights on the books for 2024 to 4.2 million rooms with total group revenue pace of approximately 5% compared to the same time last year.
Speaker Change: Business transit revenue grew 5% in the third quarter. A strong rate growth was driven by market and customer mix shifts.
Speaker Change: Turning to leisure, the unfavorable international demand imbalance held steady in the third quarter.
Speaker Change: Transient room nights sold at our comparable resource were up 4% in the third quarter driven by Maui.
Speaker Change: In addition, leisure rates remained resilient during the third quarter. Framing rates at our comparable resource were up approximately 50% compared to 2019, which is in line with recent quarters, continuing to underscore the financial health of the affluent consumer.
Speaker Change: Out-of-room spending trends this quarter also continue to demonstrate the strength of group and affluent consumers.
Speaker Change: Comparable hotel total REBPAR grew over 3% in the third quarter, which represents the largest spread to REBPAR growth in six quarters.
Speaker Change: As a reminder, in 2023, nearly 40% of our total revenue came from food and beverage and other revenue, and our 2024 guidance assumes a similar proportion.
Speaker Change: We continue to believe that Total Repar represents a more holistic picture of our underlying business as our portfolio continues to benefit from substantial out-of-room spend.
Turning to capital allocation.
Speaker Change: During the quarter, we repurchased 3.5 million shares of stock at an average price of $16.33 per share through our Common Share Repurchase Program, bringing our total repurchases for the quarter to $57 million.
It's 2022.
Speaker Change: We have repurchased $315 million of stock at an average repurchase price of $16.27 per share. And we have $685 million of remaining capacity under our share repurchase program.
Speaker Change: Looking back on our transaction activity this year, we acquired 1.5 billion dollars of iconic and irreplaceable real estate and a blended 13.6 times even and multiple based on estimated 2024 results.
Speaker Change: Thus far, the One Hotel Nashville and the Embassy Suites by Hilton Nashville downtown, the One Hotel Central Park, and the Ritz-Carlton Oahu Turtle Bay are performing in line with our underwriting expectations.
Speaker Change: The brand and management transition at the Ritz-Carlton Oahu Turtle Bay is going well and we expect continued growth as awareness of the rebranded resort spreads.
Speaker Change: Turning to Portfolio Reinvestment, our updated 2024 Capital Expenditure Guidance Range is $485 to $580 million.
Speaker Change: which includes approximately $225 to $255 million of investment for redevelopment, repositioning, and ROI projects.
Speaker Change: $225-$275 million for renewal and replacement projects and $35-$50 million for property damage reconstruction.
Speaker Change: Included in the ROI project is the Hyatt Transformational Capital Program, which is on track and slightly under budget so far.
Speaker Change: We received $2 million of operating guarantees in the third quarter to offset business disruptions related to the HIA Transformational Capital Program, and we expect to receive an additional $3 million this year.
bringing the total operating guarantees to $9 million in 2024.
Speaker Change: In addition to the capital expenditure range, this year we expect to spend $50 to $60 million on the 40-unit residential condo development at our Four Seasons Resort Orlando at Walt Disney World Resort.
Speaker Change: More broadly, we have completed 24 transformational renovations since 2018, which we believe provide meaningful tailwinds for our portfolio.
Speaker Change: Of the 15 hotels that have stabilized post-renovation operations to date, the average REBPAR index share gain is over 7 points, which is well in excess of our targeted gain of 3 to 5 points.
Speaker Change: Wrapping up, we continue to believe that HOST is well positioned due to our investment-grade balance sheet, our geographically diversified portfolio, and our continued reinvestment in our assets.
Speaker Change: As we have shown, we are able to access many capital allocation levers to create shareholder value, and we will remain opportunistic going forward.
Speaker Change: With that, I will now turn the call over to Sourav to discuss additional operational detail in our revised 2024 Outlook.
Sourav Ghosh: Thank you, Jim. And good morning, everyone. Building on Jim's comments, I will go into detail on our third quarter operations, updated 2024 guidance, and our balance sheet.
Speaker Change: Starting with total revenue trends, total REVPAR growth continues to meaningfully outpace REVPAR growth as both groups and transient guests maintain elevated levels of out-of-room spending.
Speaker Change: Comparable hotel food and beverage revenue grew 6% in the third quarter driven by banquet and catering. In fact, banquet and catering revenue achieved the strongest third quarter in host history with contribution per group room night up 13% year-over-year.
Speaker Change: Transient guests showed continued willingness to spend as well, with spa revenues up 5% and resort outlet revenue per occupied room up 3%.
Speaker Change: Overall, transient room revenue was up slightly compared to the third quarter of 2023, driven by the recovery in Maui, as well as strong rate and occupancy growth in San Diego, New Orleans, and Houston.
Speaker Change: From a visa perspective, we are encouraged that Maui is beginning to show improvements.
Speaker Change: While rest power in Maui was down 19% in the third quarter, total rest power was down only 10% as out-of-room spending trends returned with the traditional group and leisure guests coming back to the island.
Speaker Change: Looking at holiday progression, Maui is expected to shift from lagging to leading our portfolio. In the third quarter, Maui represented a drag to portfolio results for both the July 4th and Labor Day weekends.
Speaker Change: Looking forward, and as Jim alluded to earlier, Maui is driving holiday performance in the fourth quarter.
Speaker Change: Fransian's revenue pace for the total portfolio is up 2% for Thanksgiving week compared to the same time last year and FFPSA's period is up 20%.
Speaker Change: Business Transient Revenue was 5% above the third quarter of 2023 driven by rate stress.
Speaker Change: Overall, business transient demand was down 2% driven by fewer government room nights.
Speaker Change: Encouragingly, demand from consulting firms increased this quarter, narrowing its gap to pre-pandemic levels.
Speaker Change: Turning to Groups, Revenue grew 1% in the third quarter driven by rate growth and strong pickup in New Orleans, New York, and Boston.
Speaker Change: As a reminder, group business faced tough comparisons this quarter due to the recovery and relief rooms booked in Maui last year.
Speaker Change: We estimate that Maui negatively impacted third quarter group revenue growth by 570 basis points.
Speaker Change: For Full Year 2024, we have approximately 4.2 million definite group room nights on the books, keeping us ahead of same time last year.
Speaker Change: Group rate on the books is up 3% and total group revenue pace is up 5% over the same time last year, bolstered by banquet and catering spend.
Speaker Change: Looking ahead, our 2025 total group revenue pace is nearly 5% ahead of the same time last year, driven by both rate and room nights.
Speaker Change: We continue to be encouraged by the citywide booking pace in San Francisco, San Antonio, Seattle, Nashville, and New Orleans, all of which have citywide group room night pace up meaningfully compared to the same time last year.
Speaker Change: It is also worth noting that San Francisco's citywide room nights are pacing up 40 percent.
Speaker Change: Shifting gears to margins, third quarter comparable hotel EBITDA margin of 25.3% was 130 basis points below last year.
The decline was driven by increases in wages and benefits.
Speaker Change: Additionally, we estimate a 110 basis point impact from Maui and the Hurricane Ian business interruption proceeds we received for comparable hotels last year.
Speaker Change: Turning to our revised outlook for 2024, despite the impact of hurricanes Colleen and Milton, we maintained our previous full-year comparable hotel guidance growth midpoints.
Speaker Change: As a result, we anticipate comparable hotel total RefPAR growth of approximately 1% and comparable hotel RefPAR to be approximately flat compared to 2023.
Speaker Change: Our guidance assumes a continued recovery in Maui and steady demand trends in the fourth quarter.
Speaker Change: We estimate the Maui wildfires will impact full-year comparable hotel total REV PAR by 180 basis points and REV PAR by 220 basis points.
Speaker Change: Excluding business interruption proceeds received earlier this year, we expect full-year adjusted EBITDA RE to be impacted by approximately $75 million relative to our pre-fire estimate.
Speaker Change: We expect a comparable hotel EBITDA margin of approximately 29%, which is 90 basis points below 2023.
Speaker Change: We estimate a 30 basis point impact to full year comparable hotel EBITDA margin for Maui relative to our pre-fire estimate.
Speaker Change: A 40 basis point impact from insurance and property taxes and a 110 basis point impact from wages and benefit rate increases, which is partially offset by a 90 basis point benefit from operational improvements.
Speaker Change: A revised 2024 Full Year Adjusted EBITDA RE Guidance is expected to be $1,630,000, a $15 million or approximately 1% decrease over the prior midpoint as a result of the hurricanes in Florida.
Speaker Change: Off the $15 million, we estimate that $2 million occurred in the third quarter and $13 million will occur in the fourth quarter.
Speaker Change: Our adjusted EBITDA RE estimate includes approximately $57 million from operations at the Ritz Carlton Naples, a decline of $5 million compared to our prior guidance, and $24 million for operations at the Don Cesar, a decline of $9 million compared to our prior guidance.
Speaker Change: In addition, it includes $11 million from operations at Oliva Ventana Big Sur.
Speaker Change: As a reminder, the Ritz-Carlton Maples, Olila Ventana Big Sur, and the Don Cesar are excluded from our comparable hotel guidance for full year 2024.
Speaker Change: Turning to our balance sheet and liquidity position in the third quarter, we completed the issuance of $700 million of Series L senior notes at 5.5%.
Speaker Change: The proceeds were used in part to repay the outstanding revolver portion of our credit facility.
Speaker Change: Our weighted average maturity is 5.5 years at a weighted average interest rate of 4.8%.
Speaker Change: Our quarter end leverage ratio was 2.7 times, and we currently have $2.3 billion in total available liquidity, which includes $240 million on SS&E reserves and $1.5 billion of availability on our credit facility.
Speaker Change: In October, we paid a quarterly cash dividend of $0.20 per share, demonstrating our commitment to returning capital to stockholders.
Speaker Change: As always, future dividends are subject to approval by the company's Board of Directors.
Speaker Change: To conclude, we are pleased with the performance of our portfolio and we are encouraged by steady business mix trends heading into 2025. We will continue to opportunistically allocate capital as we seek to elevate the EBITDA growth profile of our portfolio and increase shareholder value.
With that, we would be happy to take your questions.
Speaker Change: To ensure we have time to address as many questions as possible, please limit yourselves to one question.
Speaker Change: If you would like to ask a question at this time, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. One moment please for your first question.
Speaker Change: Your first question comes from the line of Stephen Grambling with Morgan Stanley. Your line is open.
Speaker Change: Hey, thanks for taking the question. I guess I'd like to touch base on the transaction market. You obviously were active this year with acquisitions. I'm curious how you're thinking about how the market might be evolving now and whether you'd be more likely to be a buyer or seller, you know, at this point if you're seeing any change in terms of who's actually an active participant either from people putting up assets for sale or people coming to you looking for assets for sale. Thanks.
Joe Stephen
You know, I would say that
Until the last 90 days or so
Speaker Change: Really both buyers and sellers have been on the sidelines. The bid-ask spread has just been too great and everyone was in a wait-and-see mode.
Speaker Change: Wayne Simo for a couple of different reasons. I think the, you know, the fact that we're past the election now
Speaker Change: 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.
Speaker Change: The debt capital markets have become much more conducive to transacting. Rates have come down, spreads have come in.
You know, SASB financing is available.
And I think that as we get into next year...
Speaker Change: You're likely to see private equity get back into the game and come off the bench. There have been some additional transactions out there that we have evaluated. Nothing has risen, has beat the bar for us.
Speaker Change: We're absolutely delighted that we were able to complete the three deals, four hotels and three transactions that we did earlier this year. Our balance sheet is a differentiator and it will continue to be a differentiator for us.
Speaker Change: I think that we would have more competition today if those assets were brought to the market. Clearly there would be because they're all attractive properties, they're all unique, they're all in great locations and one-of-a-kind assets.
Speaker Change: You know, that said, you know, relationships and reputation matter, and we'll always, I think, continue to differentiate hosts as we go forward.
Speaker Change: So, our ability to move quickly with no need for financing is always a differentiator for us.
I expected over the course of the
Speaker Change: Not the balance of this year so much, but next year probably, you know I know you hold me to this if it doesn't come true, but I'm willing to go out on a limb and say that at Alice we're likely to to hear about additional transactions coming to market because I do think that people
You know, have waited a long time.
Speaker Change: 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.
Speaker Change: to exit at any price. So I think we'll see an active transaction market next year. And from a host perspective.
Speaker Change: We're likely to test the market ourselves with some of our non-core assets.
Speaker Change: to really understand pricing, assets that likely will need heavy CapEx investments that we just don't see. Good hotels, but not a long-term fit for the portfolio given the direction that we have.
Speaker Change: moved in over the last 7 or 8 years in terms of the types of assets we own and really with our focus being on free cash flow generation as a differentiator going forward.
Speaker Change: We're likely to test the market. 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.
Speaker Change: We'll be hopeful to be able to be a continued net acquirer going forward. I mean, we sit here at 2.7 times leverage today. We have a lot of dry powder.
Speaker Change: And, you know, it will either be, well, it will always be continuing to invest in our portfolio. You know, Sourav, I think, mentioned in his comments that we've seen a seven point yield index gain on average.
Speaker Change: from the investments we've made. We bought back $57 million of stock last quarter and we bought a billion and a half dollars of assets this year.
Speaker Change: We prefer to do it on a one-off basis and not be in a competitive situation but if we have to be in a competitive situation we will and We'll just see what happens
Speaker Change: Great. Maybe one unrelated follow-up for Sourav. I know we've talked about this on prior calls, and maybe I missed this in your remarks, but I guess...
Speaker Change: Are we still thinking about the underlying EBITDA? There's a lot of moving parts with the different acquisitions. There's the Don Cesaro issues and insurance and you know proceeds. Is the underlying EBITDA a build off of still kind of at 1.75 billion and I guess within that
Speaker Change: Does that have to include what level of recovery in Maui and how would you generally think about Maui kind of building back. Thanks.
Speaker Change: Sure. Yes, even it's still the billion 750 and I'll build it from the billion 630s you have.
all the different moving pieces.
Speaker Change: So starting off with the midpoint of our current guidance of the Billion 630, you would take out
Speaker Change: $40 million of BI for this year, so 19 of it, Ian, that was 10 in Q1, 9 in Q2, and then 21 BI that we received for the Maui wildfires, so that's the 40.
Speaker Change: that you would deduct, then you would add about $49 million or so.
for Turtle Bay and One Hotel Central Park.
I don't know the 13th
for Nashville.
and then the 75 to 80 million Maui, which I'll...
Speaker Change: get into a little bit more in terms of how we are thinking about recovery.
Speaker Change: Then you would add a $5 million for Oliva Ventana, and then the $15 million we talked about in terms of hurricane impact.
Speaker Change: You would add to that to get to a grand total of...
Speaker Change: a billion 750. That's what we really consider to be the true run rate when you think about it just at Iberari. As it relates to Maui, as Jim and I sort of got into our prepared remarks,
Speaker Change: We're certainly encouraged by the transient trends and the pickup we are seeing.
Speaker Change: specifically for Thanksgiving as well as for festive effectively around the week of Christmas and New Year's.
Speaker Change: The piece that is going to be a little bit challenging and will take a little bit longer to recover is going to be the group piece.
Speaker Change: Because if you recall, beginning of this year, there certainly wasn't a clear message in Maui in terms of being open for business. Once we lapped over the one-year anniversary of the fire, there's certainly much more clear direction in terms of the island being open for tourism and welcoming guests back.
Speaker Change: The meeting planners didn't really have much of a chance in the beginning of the year.
to really...
book forward.
Speaker Change: So, we didn't see much group booking activity into 2025 and into the future. We expect to see that really pick up beginning next year. So, the group piece of the business, and group for Maui across our hotels,
It's around 20% of revenues as a group.
Speaker Change: But it does build a meaningful base for the hotels, particularly the Hyatt.
Speaker Change: That's going to take a little bit of a while to come back.
Speaker Change: So that's 75 to 80 million. I mean, we don't have any budgets yet, so I can't really give you a number, but what I would say is that trends are encouraging from a transient pickup perspective, and group is going to come back. Certainly, it'll just take a little more time, probably towards the end of next year into 2026.
It's helpful, thanks so much. Sure.
Speaker Change: Next question is from Michael Bellisario with Baird. Your line is open.
Thanks. Good morning.
Thank you.
sort of along the same lines like
Speaker Change: On the moving pieces and all your numbers in the models. Can you maybe just take a step back? What's the clean run rate for the portfolio both top and bottom line that that you think? Everything's performing at today X all the one-timers and then How might that be different or the same as you start thinking about looking out to 2025? Thanks
Just so I'm sure I understand the question, the
Speaker Change: Clean run rate, once you do all the puts and takes, including the acquisitions, taking out the BI, is the $1.75 billion I just walked through. A big component of that $1.75 billion is obviously the $75 to $80 million.
Speaker Change: of Maui, Ibiza, that we are missing. The question really is, for 2025, how much of...
That EBITDA comes back.
For 2025, without getting into...
Speaker Change: Too many details because we obviously don't have budgets right now. I don't really have a good sense in terms of where top line and expenses will come in.
Speaker Change: But what we do know is that group booking pace is looking strong for 2025. We already have 2.8 million group room nights on the books. We picked up about 400,000. Total group revenue is up effectively 5%, and rate, group rate is up about 3.5%. So, we're feeling pretty.
Speaker Change: Good about 2025 from group perspective in terms of what visibility we have specific to Maui Like I said, I think you know group is going to take a little bit of time to get back and unclear at this point in time How much of that 75 to 80 million will really be able to see in Maui?
Speaker Change: Got it. Sorry. I should have been clear. I was sort of referring to the current top line and bottom line growth rates, right? Like are you seeing do you think the underlying? Performance of the portfolio is 3% on the top line 4% expenses all the
Speaker Change: X all the one-time items not really thinking about the absolute numbers more about the growth rates X all the one-time items
For you're saying for 2024 or into 2025?
Speaker Change: Just today, just I think as everyone thinks about is this a 2% RevPAR growth environment, is it 3-4% expenses? What's kind of your...
Speaker Change: view on where the portfolio is performing today and looking out of the 25 X all these one-time items just thinking about in terms of growth rates
Speaker Change: Yeah, if you think in terms of growth rates, I mean, this year would have just in a red part perspective, given how much drag we're seeing from.
Maui would have been closer to a 3%.
Speaker Change: of WebCock growth rate. And in that case, we would have actually seen margin expansion.
These are total expenses.
was up 2.8%.
So,
Speaker Change: Net net for for this year we would have meaningfully outperformed relative to the industry just given the benefit we saw from all the capital investments we put in
to our hotels on the Marriott Transnational Capital Program.
Speaker Change: and as Jim spoke to, you know, the index share game that we saw.
Speaker Change: So, it's sort of unfortunate that we've had the drag in terms of the Maui wildfire. Otherwise, certainly a 3% growth rate in rarefied just for this year, and we would have actually seen about a 10-15 basis points margin expansion.
Helpful, thank you.
Speaker Change: Your next question comes from Smitty's Rose with Citi. Your line is open.
Speaker Change: Hi, thank you. I just wanted to clarify something on Maui. Could you just talk about what you're expecting there this year in terms of Iboga, I guess, excluding the business interruption proceeds? So we just get a sense of like what the, you know, the gap is to the $75 to $80 million you're talking about potentially for next year.
Sure, it's 97 excluding, 97 million excluding the BI proceeds.
Okay, thanks.
Speaker Change: And then I guess one thing you mentioned next year for the group outlook, the group calendars look good, the cross-convention calendars look good. Any thoughts around sort of grouping up, I guess, into 2025 to help sort of lock in?
Speaker Change: you know, demands now and revenues, or would you expect to keep more in line with where you've been historically in terms of the percent of overall group segmentation?
Yeah, I mean, honestly, it is really an asset-by-asset...
Speaker Change: exercise that we go through. And we know for which years, you know, what the optimal group room night is and so that we can maximize the yielding of the transient rates. So it really depends, but overall, I would say the mix is not going to shift meaningfully for the portfolio. We certainly focused on grouping up on
Speaker Change: across the board, wherever it does make sense. And wherever we do have holes, we also like fill in with contract business. So you'll see shifts in contract business over the years. So the yield management is really asset by asset. You know, the encouraging thing is there's...
Pew citywide that are
Speaker Change: certainly pacing very well for next year and specifically for the host markets, I would say, you know, San Francisco being up
Speaker Change: 40% from his standpoint, New York, San Antonio, Orlando, D.C. really makes up more than 40% right now of the group room nights that we already have on the books for 2025. So overall feel really good. And you know, as we see the need.
Speaker Change: For each of these assets and where the holes are, we are going to fill accordingly. Certainly hope that the Strengths Incorporated group continues and the bank loan and catering contribution that comes along with it to really drive total EBITDA.
Okay, thank you. I appreciate it.
Speaker Change: The next question is from David Katz with Jeffries. Your line is open.
Speaker Change: you know, the labor market. I think there's a lot of, you know, potential puts and takes and opportunities that, you know, may or may not occur, you know, given the election outcomes.
Speaker Change: I know it's early, and you've gone out on a limb elsewhere, so I'm not asking that. But any perspectives or thoughts you can share with respect to that, and whether it's a plus, would be great.
Sure, David. You know, generally speaking...
Speaker Change: We are very pleased with the labor picture at our assets. You know, we're not the manager, we're not the employer, but we have two of the very best in the business.
Speaker Change: in Marriott and Hyatt in particular that manage the bulk of our portfolio and they're an employer of choice you know they they are the
Speaker Change: opportunity that people search out if they want to make hospitality a career.
So we're very encouraged going forward, you know, we
Speaker Change: Coming out of the pandemic, we got back to optimal staffing levels fairly quickly, you know, after we redefined and reinvented the operating model.
So, you know, going, looking forward, I...
Speaker Change: We're nothing but optimistic on the labor front. I don't see any issues that are going to present a problem for us as we get into 2025 and beyond.
Speaker Change: And then, thank you. And if I may, I just wanted to follow up on.
kind of leave your transient and maybe get...
Speaker Change: you know, one layer farther down. Is some of the softness that we're discussing more a decision to go or no-go? Or would you classify it more as a pushback on the level of rates and rate growth that were out there? How would we unpack that?
Speaker Change: Well, I think there are a couple different components to the leisure picture.
Speaker Change: Go, no go? I'm not sure that that is, that's really the bottom line David, you know, and I say that because if you look at
Speaker Change: international outbound air capacity versus inbound you know we have seen that
Speaker Change: 120% number has held steady now for the last several quarters, so people are still traveling.
Speaker Change: Leisure Transient ADR in our portfolio. We finished the third quarter with Leisure Transient ADRs up 50% over the third quarter of 2019.
Speaker Change: And that has held for 10 quarters in a row now. So people are still spending money when they get to our properties.
Spa revenues continue to increase. Golf revenues continue to increase.
Speaker Change: So clearly, the affluent consumer is still spending money. We believe that over time, that the...
The pendulum will swing back and...
Speaker Change: Inbound versus international outbound. I think international inbound has held somewhere around 90% of 2019 levels, maybe even a little less than that. A lot of that could have to do with the strong dollar. So we keep our eye on a lot of different things as we're assessing the health of the leisure consumer.
Thank you very much.
Speaker Change: The next question comes from Chris Darling of Green Street. Your line is open.
Thanks, good morning.
Sure.
You know, are you talking about in terms of, uh...
What assumptions we made with respect to
Top line sales
Speaker Change: Yeah, that would be helpful, all relative to your, you know, overall kind of construction budget there. Yeah, so I think the construction budget was, what, $150 to $170 million?
And that really hasn't changed, you know, we
We started in mid-July, the construction of the project.
And we anticipate starting sales later in the...
Speaker Change: this quarter, mid-November, mid to the end of November. We're targeting completion of the mid-rise, that's 31 of the 40 condos, I think in.
Speaker Change: the fourth quarter 2025 and then there are nine villas that will be completed in the first half of 2026. So it's 40 units in total and you know our anticipated
Speaker Change: Returns are going to be in the mid to high teens cash on cash
Speaker Change: So, we will not provide our assumptions with respect to sales per square foot, but we underwrote it to a mid- to high-teens cash-run cash return, and the construction budget is proceeding on time and within budget, so we're fairly confident that we're going to hit those numbers.
Speaker Change: Okay, that's fair enough. And I guess to the second half of my question, any similar opportunities that you might pursue in the near term, you know, elsewhere in the portfolio?
Speaker Change: Well, you know, one of the really attractive attributes of the Ritz-Carlton O'ahu Toro Bay
was a 49-acre parcel of entitled land for residential development.
Speaker Change: 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, and it's one of the things that really drove us.
to complete the acquisition of Turtle Bay.
Speaker Change: We are still in the planning stages, and we have not taken into consideration
Speaker Change: any even upside for the resort, but we believe there is going to be over time, meaningful even upside at the risk itself as well as a development profit. And that that is whether or not
Speaker Change: Probably going to be somewhere plus or minus 250 units and it's likely going to be rich residential units At least 50% of which will participate in the rental pool because that's just how things
Speaker Change: As a matter of law, that's how things happen in Hawaii.
Speaker Change: It's an exciting exciting project. It's a it's a fairly large project. That's why we're considering joint venturing it or or selling the property outright, but suffice it to say that we
Speaker Change: 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.
Speaker Change: That's the most exciting project we have. We are looking at...
Speaker Change: Potential development, which I can't get into any details at this point in time with you. Potential residential development at another one of our resort properties, but that's in the very early stages. And as it manifests itself, we'll certainly share more details with you down the road.
Okay, I appreciate the time. Thank you.
Speaker Change: The next question comes from Ari Klein with BMO Capital Markets. Your line is open.
Ari Klein: Thanks and good morning. Maybe just going back to Matt and Allie, it looks like you
slightly narrowed the expected rev car headwinds.
Ari Klein: for the year in that market. I'm just curious if that was based on what you're seeing in Q4. And then Sourav, you mentioned groups taking longer to recover in Maui. Can you just provide us where Griffin Transient currently stands from a Delta perspective relative to pre-wildfire?
Sourav Ghosh: If you recall last quarter we had said that the total MAUI impact was about 250 basis points dragged to the overall REF bar. We have revised that to 220 basis points. In other words, it's actually improved by 30 bits and yes you are correct it really is based on what we are seeing in terms of transient pace.
Speaker Change: For Thanksgiving and for the festive period. So if you feel encouraged in terms of where things are heading from a transient perspective, I will say, like, where we are off.
Speaker Change: The piece that is going to take longer to come back is like I mentioned earlier is going to be more the group side versus
The transient and the warp.
Speaker Change: Maui, if I remember correctly, for R3 Hotels, you know, pre-fire.
We did about 100,000 group room nights.
Speaker Change: And while we are pacing okay for 2025, we are still.
Speaker Change: pretty behind double digits in terms of group pace. And that's the piece which you're keeping a close eye on, and hopefully at the beginning of next year, when we start seeing group activity pickup. The transient pace is actually pretty similar to where we were pre-fire, you know, at least for the fourth quarter, which is very encouraging.
Speaker Change: relative to sort of where we were back in before the virus occurred. So group is a piece we're keeping an eye on and hopefully we see that group activity pick up as we get into next year.
Speaker Change: Got it. Thanks for that color. And then, Jim, I'm wondering if maybe you can provide us with a little bit more color on the Ritz-Carlton Wahoo performance and how that's trended post-convergence.
Jim Risoleo: It's trending in line with our performance expectations Ari, you know the transition is
Jim Risoleo: is going well at the present time. It's at the top of the list when anyone's searching for a Ritz-Carlton. It's a very important asset to the Ritz-Carlton brand. It's getting all the attention that
Speaker Change: is certainly Warranted going forward. So, you know, we're excited about it. I mean, we're we're working with Arte Developers who bought an adjacent parcel from Blackstone on
Hey.
Speaker Change: Re-alignment of the golf courses. There are two golf courses there.
Speaker Change: thanks all for joining us on commencement and thank you for your time. There are a few questions that we did not include and so I will give everyone time to
Thanks to the color.
Speaker Change: The next question comes from Chris Wawanka with Deutsche Bank. Your line is open.
Speaker Change: Hey, good morning, guys. Thanks for taking the question. Jim, I wanted to kind of ask, you know, year to date, I think you're running about 72% comparable occupancy. And if I look back to 19, I think it was over 79. And I'm curious, and I know there's nuances and portfolios a little different, but...
Speaker Change: Do you guys see any impact from whether you want to call a shadow supply Airbnb or You know conversely maybe some of these soft brands or even you know kind of these new
Speaker Change: affiliation brands that technically aren't part of your major brands. Just any thought as to whether, because it seems like group and corporate occupancy is, and certainly leisure is pretty much as far back as it's going to get. So is there any thought on where those lost occupancy points are coming from?
Chris, I...
Speaker Change: The short answer is it's not as a result of shadow supply. You know, and it's not as a result of new supply because the new supply picture has never looked better.
Speaker Change: relative to what's being developed today as to other times in the cycle.
Speaker Change: I think what has happened, and we have about 8 to 9 points of occupancy that we can still pick up. And we actually view that as a tailwind to the portfolio, not as a negative bias.
Speaker Change: Return to office is so slow to evolve in several markets, but it's coming back. And I think that is probably one of the biggest...
Speaker Change: dynamic things that changed coming out of the pandemic. The good news is that, you know, Salesforce in San Francisco, they're going back to work. Amazon is going back to work. So a number of other big.
Speaker Change: mandating that their employees get back to the office and I
Speaker Change: We believe that over time, as business transient travel continues to evolve, and it has been evolving on a quarter-over-quarter basis,
Speaker Change: So we should pick up some of that occupancy gap relative to where we were in 2019.
Okay, appreciate the thoughts. Thanks, Jim.
Speaker Change: The next question comes from the line of Robin Farley with UBS. Your line is open.
Speaker Change: Great, thank you. Um, can you give a little more clarity around leisure rates in the quarter on a year-over-year basis and then kind of your expectation for 2025 in terms of what the leisure traveler, you know, kind of outside of Maui, but just sort of broadly you know, leisure rate may look like next year and also what it was in Q3 year-over-year. Thanks.
On a year-over-year basis, Robin, it's relatively flat in...
Speaker Change: A lot of the market to slightly down, because you may recall that there were certain quarters last year, which was meaningfully above the 50% to 2019. It seems to pretty much normalized around the approximate 50% over 19. So, for the most part, pretty flat from a demand perspective.
Speaker Change: That's been the case as well, again, pretty much flat throughout the year, every single quarter that we look at. Actually, I believe it was down 3% year-over-year from a demand perspective in Q1, but then actually that demand improved as we went through. So, again, close to flat, but not very far from.
Speaker Change: and the Flattened Boards perspective from an EOB standpoint. Going into 2025, just given the consumer strength we have seen, and given that there is hopefully more clarity around sort of macro, the overall macroeconomic outlook.
We believe that there is...
that Belize has formed a new baseline.
So effectively, that's where we have settled down.
Speaker Change: and given the growth expectations for next year from a GDP standpoint, from a business investment standpoint, and just overall macro outlook.
Speaker Change: And as Jim mentioned earlier, we expect that imbalance that currently does exist with international inbound and outbound to at some point sort of revert to mean. That should definitely help leisure overall stabilize and we don't expect any degradation in terms of rate or demand.
Speaker Change: Okay, great. Thank you. And then just a quick clarification. When you were talking about the 1.75 billion dollar run rate,
Speaker Change: Were you including, and I know that was like excluding business interruption from MAUI, were you including this theoretical like if you recovered 75 to 80 million in MAUI in that 1.75 I'm sorry, I just didn't catch you You were sort of giving a lot of puts and takes and what in that 1.75 billion that includes what kind of recovery in MAUI Thanks. Yeah, that did assume the 75 to 80. That was effectively the long-term run rate So it wasn't necessarily the 1.25
Speaker Change: Okay, great. That's what I wanted to clarify. In other words, based on your other comments, it would seem like you're saying that's not where you'd be in 25. So I just, that's what I wanted to clarify. Thank you. Thanks. That's correct. Yep.
Speaker Change: Thanks. The next question comes from Dwayne Fenningworth with Evercore ISI. Your line is open.
Speaker Change: Hey, good morning. Just on San Francisco, if I heard you correctly, any times of year or specific citywide events that stick out? I think you said room-night pacing is up 40%, and I wonder if there's any more underlying detail you have on that.
Speaker Change: Sure, that's effectively for overall citywide waste pacing over the year, specifically in terms of room nights for us. We already for San Francisco have
Speaker Change: Approximately 220,000 group room nights on the books, which is about
Speaker Change: close to 30% up year-over-year from a PACE perspective. It's still, you know, obviously far from where we were back in 2019, but nonetheless, good progress. And we really encourage, by the way, it's a PACE English 25. And you recall, you know, 2026 is World Cup and Super Bowl in San Francisco. So again, good things to come for San Fran.
Speaker Change: You touched on this in prior questions, but on capital allocation, if we think about
Speaker Change: ROI projects, additional acquisitions or buyback, just given your experience this year, you know, are you leaning in, you know, in any more of a direction, any of those three buckets going forward, just given your experience this year?
Speaker Change: Well, Duane, I think that, you know, it goes without saying that...
Speaker Change: The easiest opportunities to underwrite, with the greatest degree of certainty, are those that are in our existing portfolio. So, we are well into the HIA Transformational Capital Program.
We look forward to
for continuing to...
Invest in those assets
Speaker Change: and complete that program in the near term next year. ROI projects, we're always looking for places to go.
Speaker Change: to continue to put money in our existing portfolio as well. Stock buybacks, you know, 3.5 million shares, $57 million this last quarter. We will continue to be opportunistic on buying back stock.
Speaker Change: You know, acquisitions, of course, if they make sense for us, and we're sitting here at 2.7 times leverage today, you know, we can, we can take our leverage up to somewhere.
Speaker Change: to three, three-and-a-quarter times comfortably, so we have a lot of significant amount of dry potter to allocate capital across all those various opportunities.
Thanks Jim.
Speaker Change: This concludes the question and answer session. I will turn the call to Jim for closing remarks.
Jim Risoleo: Well, thank you again for joining us today. We always appreciate the opportunity to discuss our quarterly results with you, and we look forward to seeing many of you in Las Vegas in the coming weeks and at other conferences over the course of the year.
Have a great day.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.