Host Hotels & Resorts : Third Quarter 2023 Earnings Call Transcript

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EDITED TRANSCRIPT

HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

EVENT DATE/TIME: NOVEMBER 02, 2023 / 3:00PM GMT

OVERVIEW:

Company Summary

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Jaime N. Marcus Host Hotels & Resorts, Inc. - SVP of IR

James F. Risoleo Host Hotels & Resorts, Inc. - President, CEO & Director

Sourav Ghosh Host Hotels & Resorts, Inc. - Executive VP & CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Anthony Franklin Powell Barclays Bank PLC, Research Division - Research Analyst

Aryeh Klein BMO Capital Markets Equity Research - United States Real Estate Analyst

Chris Jon Woronka Deutsche Bank AG, Research Division - Research Analyst

Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

Duane Thomas Pfennigwerth Evercore ISI Institutional Equities, Research Division - Senior MD

Jay Bradley Kornreich Wedbush Securities Inc., Research Division - Analyst

Meredith Jane Prichard Jensen HSBC, Research Division - Senior Analyst of Consumer

Michael Joseph Bellisario Robert W. Baird & Co. Incorporated, Research Division - Director and Senior Research Analyst Smedes Rose Citigroup Inc., Research Division - Director & Senior Analyst

Tyler Anton Batory Oppenheimer & Co. Inc., Research Division - Research Analyst

William Andrew Crow Raymond James & Associates, Inc., Research Division - Analyst

P R E S E N T A T I O N

Operator

Good morning, and welcome to the Host Hotels & Resorts Third Quarter 2023 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations.

Jaime N. Marcus - Host Hotels & Resorts, Inc. - SVP of IR

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 laws 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.

In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel level results. You can find this information, together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release, in our 8-K filed with the SEC and the supplemental financial information on our website at hosthotels.com.

With me on today's call are Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President and Chief Financial Officer.

With that, I would like to turn the call over to Jim.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Thank you, Jaime, and thanks to everyone for joining us this morning. Before we turn to the quarter, I want to take a moment to acknowledge the devastating wildfires that occurred on the island of Maui this past August. All of us at Host were deeply saddened by the loss of life and heartbreaking impact on local communities. As the largest hotel real estate owner on Maui for over 20 years, Host has long shared a connection to the island and helping to support the community through this difficult time is important to our company.

We are proud to have aided recovery and rebuilding efforts, donating more than $250,000 to emergency response and relief organizations as well as providing direct financial assistance and relief to our hotels employees. We also provided food and shelter to these employees, their families and emergency response teams. The strength and resilience of the Maui community inspires us, and we are committed to supporting them as the recovery continues.

Now let's move to our results for the quarter. Please note that the results presented on today's call represent the comparable hotel portfolio, which includes all 3 Maui resorts and continues to exclude the Ritz-Carlton, Naples and Hyatt Regency Coconut Point. When applicable, we will provide estimated impacts from Maui to certain results to provide a more comprehensive view of business trends in the quarter.

During the third quarter, we delivered a comparable hotel RevPAR improvement of 1.8% compared to the third quarter of 2022. Our RevPAR performance for the quarter was driven by an occupancy increase of 150 basis points, led by our convention hotels in downtown locations. Overall, Maui had less of an impact on our results than we initially expected as we were able to replace high-rated transient business with recovery and relief group business, which impacted our demand mix this quarter.

We delivered adjusted EBITDAre of $361 million, which includes $54 million of business interruption proceeds from Hurricane Ian and delivered adjusted FFO per share of $0.41, beating consensus on both metrics. Third quarter comparable hotel EBITDA margin of 26.6% exceeded 2019 by 10 basis points, and this marks the sixth consecutive quarter since the onset of the pandemic that we have achieved, TRevPAR, RevPAR, comparable hotel EBITDA and margins ahead of 2019 levels.

Comparable hotel RevPAR for October is expected to be approximately $229, a 2.4% improvement over 2022. We estimate that the Maui wildfires impacted third quarter comparable hotel RevPAR by 60 basis points, comparable hotel TRevPAR by 120 basis points and comparable hotel EBITDA by $4.5 million. Our risk management team is continuing to engage with our insurers about potential business interruption coverage and the timing and amounts of any potential proceeds are not yet known.

Despite the wildfires on Maui, which we expect will impact our full year RevPAR guidance by 50 basis points, we maintained the midpoint of our previous full year expected comparable hotel RevPAR growth at 8% and tightened our full year RevPAR growth guidance range to 7.25% to 8.75%. At the midpoint of our guidance, full year 2023 comparable hotel EBITDA is forecasted to be 8.5% above 2019, with comparable hotel RevPAR growth 5.6% greater than 2019.

As we look at the current macro picture, we continue to be optimistic about the state of travel for several reasons. First, group business continues to improve. During the quarter, we booked 245,000 group rooms through 2023, and total group revenue pace is now 6.7% ahead of the same time 2019, up from 4.2% as of the second quarter. Even without the recovery and relief groups on Maui, total group revenue would have been above both 2022 and 2019. The group booking window continues to extend, and we are pleased with the base we have on the books for next year.

Second, business transient demand continued its gradual improvement during the third quarter. Business transient revenue was up approximately 9% to 2022 and demand improved 5% compared to the third quarter of 2022. Overall, business transient revenue is down approximately 16% compared to 2019, with room nights down approximately 20%.

Room nights have gradually improved throughout the year. In January, we were down nearly 23% to 2019. And in September, we were down just 17% to 2019. We see the continued evolution of business travel as a tailwind in the future.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

Third, leisure rates at our resorts remain well above 2019 levels despite continued moderation in the third quarter as expected. For context, transient rates at our resorts were 56% above 2019 in the third quarter which is particularly impressive when considering that this excludes the benefit from our 2 newly renovated noncomparable hotels in Florida and includes the impact from our 3 resorts on Maui.

Fourth, we expect international demand to be a positive trend going forward. International inbound air traffic increased to 88% of 2019 levels in September, up from 80% in June. At the same time, international outbound air traffic increased to 118% of 2019 levels after hovering near 108% since January, which indicates that consumers continue to prioritize travel. As evidenced by recent booking volume trends for U.S. airlines, the international imbalance is likely to revert to 2019 levels over time.

Most importantly, we are not seeing evidence of a weakened consumer at our hotels. Food and beverage outlet revenues remained both above 2022 and 2019, driven by resorts and non-resorts alike, which is encouraging given that occupancy still lags 2019 levels. Golf and spa revenues also remained significantly ahead of pre-pandemic levels. Taken together, we believe this indicates the consumer's continued desire and ability to spend on experiences at our hotels.

Moving to our reconstruction efforts following Hurricane Ian. The newly transformed Ritz-Carlton, Naples, has been very well received since its reopening in July and we are optimistic that the resort is set up to exceed our underwriting expectations. Transient rates were 75% above 2019 for the second half of this year, driven by the increased suite mix in the new Vanderbilt Tower.

Looking forward to festive season, club-level room night booking pace is up more than 25% over the same time in 2019 with an ADR premium of almost $900 and suite bookings are pacing up 125% with a more than $1,300 rate increase over 2019. We are proud of the well-deserved attention that Ritz-Carlton, Naples, is receiving, including regaining the coveted AAA 5-diamond designation, and we look forward to seeing the results it delivers in the years to come.

In terms of insurance proceeds related to Hurricane Ian, to date, we have received $208 million of the expected potential insurance recovery of approximately $310 million for covered costs. During the third quarter, we received $54 million of business interruption proceeds, and we expect to receive an additional $26 million of business interruption proceeds in the fourth quarter.

Turning to group. Revenue exceeded 2022 by 10% in the third quarter, marking the fifth consecutive quarter, group revenue exceeded 2019. Definite group room nights on the books for 2023 increased to 4 million in the third quarter, which represents approximately 110% of comparable full year 2022 actual Group room nights, up from 103% as of the second quarter. For full year 2023, total group revenue pace is up approximately 20% to the same time last year and up 6.7% to the same time 2019, in part due to recovery and relief groups on Maui. Group rate on the books is up 7% at the same time last year, a 40 basis point increase since the second quarter.

Looking ahead to 2024, we have 2.6 million definite group room nights on the books, a 15% increase since the second quarter. Total group revenue pace is up 13% at the same time last year, driven fairly evenly by room nights and rate. We are encouraged by the ongoing strength of group as evidenced by increasing pace, lengthening booking windows and improving citywide calendars.

Moving to portfolio reinvestment. We are excited to announce that we reached an agreement with Hyatt to complete transformational reinvestment capital projects at 6 properties in our portfolio. The properties include the Grand Hyatt Atlanta; the Grand Hyatt Washington, D.C.; the Grand Hyatt San Diego; the Hyatt Regency Austin; the Hyatt Regency Capitol Hill; and the Hyatt Regency Reston. Building on the success of the Marriott transformational capital program, we believe these portfolio investments will position the targeted hotels to compete better in their respective markets while enhancing long-term performance.

Hyatt has agreed to provide us with priority returns on these investments. Additionally, Hyatt will provide $40 million in operating profit guarantees as protection for the anticipated disruption associated with the incremental investment. Our total investment is expected to be approximately $550 million to $600 million, 2/3 of which we were planning to invest as part of our capital plan over the next few years. We expect to invest between $125 million and $200 million per year over the next 3 to 4 years on this program. We are targeting stabilized annual cash-on-cash returns in the low double digits on our incremental investment through a combination of enhanced owners' priority returns and RevPAR index share gains.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

Turning to our capital expenditure guidance for 2023, we tightened the range to $615 million to $695 million, which includes approximately $200 million to $230 million of investment for redevelopment, repositioning and ROI projects, and $150 million to $175 million for hurricane restoration work. Major capital expenditure projects included the December completion of a transformational renovation at the Fairmont Kea Lani as well as the start of construction at the Phoenician Canyon Suites Villas and the luxury condominium development at Four Seasons Resort Orlando at Walt Disney World Resort.

Lastly, we are well underway with the repositioning renovation of the Hilton Singer Island which is expected to be complete in the first quarter of 2024, and we are working with Hilton to top brand the hotel as a Curio Collection Resort. We are targeting a stabilized cash-on-cash return in the mid-teens on our repositioning investment.

As we have said many times before, our exceptional balance sheet puts us in a position to execute on multiple fronts, which is what you saw us do during the third quarter. We continued to reinvest in our portfolio and we believe our comprehensive renovations will enhance the EBITDA growth of our portfolio well into the future. We announced an exciting transformational capital program with Hyatt, repurchased approximately $100 million of stock and return capital to shareholders through a 20% increase in our quarterly dividend. We continue to be optimistic about the state of travel, and we believe Host is very well positioned to outperform in the current economic environment.

With that, I will turn the call over to Sourav.

Sourav Ghosh - Host Hotels & Resorts, Inc. - Executive VP & CFO

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our third quarter operations, our updated 2023 guidance, our balance sheet and our dividend.

Starting with business mix, we estimate that Maui impacted overall transient revenue by 450 basis points, which skewed the comparison this quarter, resulting in transient revenue down 330 basis points to the third quarter of 2022. We were encouraged that transient rates at resorts remained 56% higher than 2019 despite the impact from Maui and the renovation at the 1 Hotel South Beach, which contributed to the decline over last year.

As expected, during the third quarter, we continued to see a normalization in transient rates at resorts compared to 2022. Business transient revenue was approximately 9% above the third quarter of 2022. Business transient rooms sold remain approximately 20% below 2019 levels but it's worth noting that New York, San Francisco and Denver, 3 of our largest business transient markets were within 10% of 2019 room nights in the third quarter. Looking at top business transient customers, large consulting and audit firms continue to drive the biggest share of business travel room nights, but they're also the largest contributor to room night decline compared to 2019. Encouragingly, during the third quarter, large technology companies showed room night growth compared to 2019.

Turning to group. Group room revenues were 10% above the third quarter of 2022 driven by a rate increase of 8%. It is worth noting that these results were skewed higher by the recovery and relief groups at our Maui Resorts, which positively impacted group room revenue. In-the-quarter-for-the-quarter group room night bookings were up 49% compared to last year and 85% compared to 2019, with growth driven by New York, Phoenix and San Francisco as our convention hotels continued to focus on building a strong in-house group base. Maui also contributed to the strong in-the-quarter-for-the-quarter bookings, but results would still have been up meaningfully, excluding its contribution. We are encouraged by the continued recovery of international arrivals to San Francisco, which stood at 87% of 2019 levels in the third quarter up from 76% in the first quarter, driven by increased airlift from Asia.

With respect to group mix, corporate group room revenue was up 8% in the third quarter, driven by 7% rate growth. Association Group revenue was down 11% in the third quarter compared to last year, led by a decline in room nights as the citywide recovery remains uneven.

Social, Military, Educational, Religious and Fraternal or SMERF Group revenue was up 39% in the third quarter, driven by recovery and relief room nights on Maui, which are designated in the SMERF category. Excluding Maui, room night growth in this category would still have been up over 7%, led by our hotels in New York and Washington, D.C.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

Looking ahead, our 2024 total group revenue pace is 13% ahead of the same time last year, and we continue to be encouraged by the citywide booking pace in markets such as Seattle, New Orleans and San Diego, all of which have citywide group room nights meaningfully ahead of the same time last year.

Shifting gears to margin performance. Our third quarter comparable hotel EBITDA margin came in at 26.6% which is 10 basis points above the third quarter of 2019. Total comparable expenses grew 5.5% over 2019, while total comparable revenues were up 5.6%. As we have said many times before, we are encouraged that comparable hotel EBITDA margin remains above 2019 despite elevated expense inflation over the past 4 years and occupancy still 8 points below 2019.

As Jim mentioned, despite the impact of the wildfires in Maui, we maintained the midpoint of our previous full year expected comparable hotel RevPAR growth at 8% and tightened our full year RevPAR growth guidance range to 7.25% to 8.75%. Our guidance range continues to contemplate varying degrees of moderating growth in the fourth quarter. We would expect year-over-year comparable hotel RevPAR percentage changes in the fourth quarter to be down low single digits at the bottom end to up low single digits at the top end with the range driven primarily by the evolving nature of demand on Maui.

We expect fourth quarter operational results to roughly follow 2019 quarterly seasonal trends as provided on Page 17 of our supplemental financial information, which at the midpoint of our guidance implies slightly positive fourth quarter RevPAR growth. At the midpoint, we would expect full year adjusted EBITDAre of $1.620 billion. Please note that our adjusted EBITDAre guidance includes $54 million of business interruption proceeds, which we received in the third quarter and an additional $26 million, which we expect to collect in the fourth quarter, all of which is related to Hurricane Ian.

Excluding the impacts of business interruption, our revised full year comparable hotel EBITDA midpoint only declined $8 million versus the second quarter despite a full year estimated impact of $25 million from Maui. It is important to remember that although business interruption proceeds are onetime in nature, we expect the Ritz-Carlton, Naples and Hyatt Regency Coconut Point to contribute a full year of EBITDA in 2024. As a reminder, comparable hotel EBITDA and comparable hotel EBITDA margin are not affected by operational results or business interruption proceeds related to these 2 resorts as they are considered noncomparable at this time.

Shifting to margins. As we have discussed over the past few quarters, year-over-year, we expect comparable hotel EBITDA margins to be down 210 basis points at the low end of our guidance to down 170 basis points at the high end due to stable staffing levels at our hotels, higher utility and insurance expenses and lower attrition and cancellation fees. For these reasons, we do not believe 2022 represents a stabilized comparison for margins.

Relative to 2019, which we believe is a more representative year for margin comparison, we expect margins this year to be up 20 basis points at the low end of our guidance to up 60 points at the high end. This margin expansion is despite impacts from Maui. Occupancy still meaningfully below 2019 levels, moderating attrition and cancellation revenues and expense inflation.

Turning to our balance sheet and liquidity position. The $163 million loan to the buyer of the Sheraton Boston was repaid in full during the third quarter. Our weighted average maturity is 4.5 years at a weighted average interest rate of 4.6%. We have a balanced maturity schedule with our next maturity of $400 million coming due in April 2024. We ended the third quarter at 2.1x leverage, and we have $2.6 billion of total available liquidity, which includes $218 million of FF&E reserves and full availability of our $1.5 billion credit facility.

In addition, we repurchased 6.3 million shares at an average price of $15.90 per share, bringing our total repurchases for the quarter to $100 million. Year-to-date, we have repurchased 9.5 million shares at an average price of $15.82, bringing our total repurchases for the year to $150 million. We have approximately $823 million of remaining capacity under our repurchase program, and we will continue to be opportunistic when executing share repurchases.

We paid a quarterly cash dividend of $0.18 per share, an increase of $0.03 or 20% over our second quarter dividend. Though we expect to maintain our quarterly dividend at a sustainable level, taking into consideration potential macroeconomic factors, all future dividends are subject to approval by the company's Board of Directors.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

We remain optimistic on the future of our business and travel overall. We believe our portfolio, our balance sheet and our team are well positioned to continue outperforming. As we have shown, Host can do it all and we will continue to be strategic in the current macroeconomic environment.

With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to 1 question.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions)

Our first question is coming from Aryeh Klein with BMO.

Aryeh Klein - BMO Capital Markets Equity Research - United States Real Estate Analyst

Maybe just on the group bookings pace. It's up 13% for next year. Curious what you're seeing from the in-the-quarter-for-the-quarter bookings, and do you think that bookings pace for next year ultimately narrows as maybe booking windows extend? And then if you could just touch on which markets looks strongest and weakest for next year from a group standpoint?

Sourav Ghosh - Host Hotels & Resorts, Inc. - Executive VP & CFO

Sure. So we saw meaningful in-the-quarter-for-the-quarter bookings for the third quarter. That trend seems to be pretty consistent. We actually picked up 85% more relative to '19 in Q3 in-the-quarter-for-the-quarter. When we looked at the 245,000 group room nights that Jim spoke to that we picked up in Q3, for Q3 and Q4, about 46% of that was a pickup for Q3 and about 54% of that was about a pickup for Q4.

Going into next year, as the booking window extends, we do expect that to moderate somewhat just because there wouldn't be any capacity left, frankly, at the hotels. So to put that into perspective, our in-the-quarter-for-the-quarter booking window extended by about 10 days which effectively was -- it was 80 days before, and it's like 90 days now. And then all future arrivals that extended by 15 days. So we're definitely seeing that extend for --in-the-year-for-the-year as well as for future years. So you will see that moderation into next year.

As it relates to markets that we expect will do well for next year, we're certainly seeing strength to our portfolio as meaningfully as San Diego, Orlando and D.C. Overall, citywide pace for 2024 is strong in Seattle, Boston, New Orleans and Miami as well. What's interesting is right now, when you look at 2024, the city-wide room night pace is actually 90% of 2019 actuals, which is up from 83%, which we saw at the end of Q2.

Operator

Our next question is coming from Michael Bellisario with Baird.

Michael Joseph Bellisario - Robert W. Baird & Co. Incorporated, Research Division - Director and Senior Research Analyst

Just on the Hyatt Capital program for those 6 hotels, maybe just on average, but when were they all last renovated? What's the current RevPAR penetration index and then do you expect to get the same 3- to 5-point lift that you had underwrote for the Marriott program?

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Yes, Mike. We'll be happy to gather that information specifically and share it with you. But suffice it to say that we and Hyatt both believe that these properties were in need of a transformational comprehensive renovation. We were going to undertake work at all 6 of these hotels. About 2/3 of the work that we agreed to with Hyatt in return for the enhanced owner priorities and the $40 million guarantee to support disruption. So we see returns in the low teens as we saw with the Marriott transformational capital program, and that will be driven by the enhanced owner priority as well as yield index gains.

So I think that we have a very high degree of comfort given the performance of the assets in the Marriott program, just to refresh your recollection, that was 16 properties. They're not all stabilized yet due to where we are, but due to certain properties and certain competitive sets like New York, in particular, having been closed for a longer time than our property. But the assets that we have seen have delivered -- truly outsized yield index gains. We had underwritten 3 to 5 points, and we're meaningfully above that. So we're excited to be able to partner with Hyatt as their largest owner. And really looking forward to getting on with this program, which we will complete over the next 3 to 4 years.

Operator

Our next question is coming from Bill Crow with Raymond James.

William Andrew Crow - Raymond James & Associates, Inc., Research Division - Analyst

Point of clarification, Sourav, is it fair to say you still have about $40 million in potential BI recoveries that could occur next year, right, $250 million through the third quarter plus some in the fourth? And then the gap to $310 million, is that the right way to think about it?

Sourav Ghosh - Host Hotels & Resorts, Inc. - Executive VP & CFO

Yes, we still plan to get to the $310 million. We're working with our insurers right now. There will be an allocation between BI and property. So far, what the letter we have got from our insurers is that we will be -- they're okay with the $80 million of BI. That's why we have $26 million of BI in our forecast. We are still working with the insurers to collect on the balance, don't know what that number exactly is going to be. It won't be all of the remaining to get to the $310 million, but certainly, more than the $80 million. So we do expect some BI next year that amount. We are still working with our insurers as to what that is going to be.

William Andrew Crow - Raymond James & Associates, Inc., Research Division - Analyst

All right. And then my question really is, I hear you on the comparison of the margins versus 2019 instead of 2022. In a few months, we're going to be talking about '24 versus '23. And I'm thinking the question I've been asking a number of the REITs is what sort of top line growth that we'll make our own decision about what that is. But how much do you need before you could get flat EBITDA margins next year? Is it a 4% number?

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Bill, that's the question, it's really difficult to answer given where we are with respect to the budgeting process. What I can share with you at this time is we would anticipate wage growth next year in the 4% to 5% range, where insurance costs are going to come in, they're certainly baked through next June because that the renewal is year-to-year, and it renews June 1 of every year or July 1 of every year, I guess, through June 30. So question mark will be what happens in insurance renewal, and there are a lot of variables that can impact that. And as we get granular on each hotel budget, we will look for opportunities to continue to enhance improvements in productivity and utilize technology as we have been doing.

So we will do everything possible to command and control expenses going forward. But I do think it's important that we kind of level set the stage as to what is our true base of EBITDA going into next year. And I would like to just share a couple of numbers with you because I don't want people

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

to think that the $80 million of business interruption that we received this year is a onetime event. It's really not a onetime event from the perspective

that the Ritz-Carlton, Naples and the Hyatt Regency Coconut Point are going to be back online full time next year. So...

Sourav Ghosh - Host Hotels & Resorts, Inc. - Executive VP & CFO

Yes, just to expand on that, Bill. I think the way to think about it first to level at the base. So before we even get into the growth of EBITDA for next year. When you think about the midpoint of our guidance at 16, 20 right now, that already has a $30 million negative impact from Maui which was made up of $25 million from the hotels and then $5 million from the timeshare. So let's assume for a second that we still have about a similar impact into next year as Maui recovers.

And then you think about that $80 million of BI that proceeds for this year, which Jim mentioned, that effectively majority of that we would have received as EBITDA from the Ritz-Carlton Naples and the Hyatt Coconut Point if it was not for Hurricane Ian. So that is EBITDA we would be receiving for next year. So in other words, if you think about it, the base before any growth is starting off at $1.6 billion plus, if that makes sense.

And then, of course, as Jim mentioned, in terms of expenses and everything else, we are working through, and we have many initiatives that we are working on. So while there will be inflationary expense pressures, we fully anticipate to mitigate those pressures with productivity enhancements and various initiatives that we have going on at the hotels. And we will provide you with next year guidance as we typically do in February -- in the February call.

Operator

Our next question is coming from Duane Pfennigwerth with Evercore ISI.

Duane Thomas Pfennigwerth - Evercore ISI Institutional Equities, Research Division - Senior MD

I thought that was a good question by Bill and response by you. So I'll just ask another Hawaii question. Maybe could you just play back the recovery, why things were a little bit better than you anticipated in the third quarter? And then maybe just since the delta on the fourth quarter guidance is really about Hawaii. It sounds like what would get you to the high end? What would get you to the low end in terms of what needs to happen?

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Sure, Duane. Let me start by saying that the -- were it not for Maui, I think our guidance range for the full year would have been tighter than it is. But we have a wide range at this point in time because of some of the uncertainties surrounding how Hawaii is, how Maui is going to recover. The west side of Maui, Ka'anapali, just reopened to tourists on November 1, yesterday. So it's going to take some time to see the cadence of how people are going to come back to the west side. And I do believe it will take some time as well for people to get comfortable rebooking their stays down in the Wailea area where our other 2 resorts are.

We did see a lot of cancellations in the fourth quarter due to some pronouncements that were made by the governor, and we fully support the reconstruction and relief efforts because what happened on Maui is just a terrible, horrible disaster. And we fully support the fact that you've got to take care of the people first, and that's what's happened.

So the reason that our performance in the third quarter was better than we initially anticipated is as a result of recovery. First responders taking rooms at our property as well as providing housing that was subsidized by FEMA for displaced residents. And that really caused a material pick up better than we anticipated. You did see a decline in TRevPAR in the quarter by an amount that was directly attributable to what happened on Maui. I think the out-of-room spend, the TRevPAR spend was impacted by 120 basis points. So we're optimistic for the long-term future of Maui. It's a great place and great place to be, and we will do what we can to support the recovery.

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NOVEMBER 02, 2023 / 3:00PM, HST.OQ - Q3 2023 Host Hotels & Resorts Inc Earnings Call

Duane Thomas Pfennigwerth - Evercore ISI Institutional Equities, Research Division - Senior MD

Thanks, Jim, maybe just to put a finer point on it. The delta in the fourth quarter, the range, is that a function of the duration of first responder in housing or the rate of just sort of organic leisure recovery?

Sourav Ghosh - Host Hotels & Resorts, Inc. - Executive VP & CFO

Yes, it's a little difficult to look at November and December. It really is the disaster recovery business and how that will taper off as the west side of the island opens up, which actually opened up as of yesterday, November 1. So it's -- we're trying to gauge -- the properties are trying to gauge what that demand pickup looks like and how they will replace sort of the regular business with the demand recovery business. So that was driving the delta. What I will say is if it was not for that Maui impact, we put out October numbers at 2.4%. Our fourth quarter numbers would have been slightly higher than the 2.4% if it wasn't for the Maui impact.

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Yes. And point of fact -- just to kind of wrap this up Duane, our anticipated -- the anticipated impact on comparable hotel RevPAR and comparable hotel EBITDA from Maui is 50 basis points off the top line and $25 million for the full year at the bottom line. So in that sense, had Maui not occurred, we would have been talking about a guidance raise on this call because we were able to keep the midpoint at 8%, we would have been talking about an 8.5% guide for this year.

Operator

Our next question is coming from Jay Kornreich with Wedbush.

Jay Bradley Kornreich - Wedbush Securities Inc., Research Division - Analyst

You made some comments on the urban and business transient demand profile accelerating in September getting back to 17% GAP to 2019. So I'm wondering if you can just provide some more color on how much you think that GAP can narrow in 2024? And maybe within that, some of your peers have been diminishing their exposure to San Francisco. Maybe if you could provide some color on how you see your assets in that market trend over the next year or 2?

James F. Risoleo - Host Hotels & Resorts, Inc. - President, CEO & Director

Sure. I'll take the San Francisco piece of it, Jay. And then Sourav can talk a bit about business transient. San Francisco, we think for the long term is a great place to be, particularly given the assets that we own, which we believe are the best located in the market and excellent physical condition. San Francisco Moscone Marriott has been for quite some time now, building a solid base of in-house group business. It's in terrific condition. It was the first asset that we completed as part of the Marriott's transformational capital program, completed in 2019. And the results are paying off relative to the competitive set, it is outpacing, I think, everyone in the set today.

The Grand Hyatt on Union Square also in great physical condition and in a great location. So we are seeing a return of business travel in San Francisco, in particular. In September, San Francisco, and it's one of our top business travel markets, we're down just about 10% in total room nights relative to where we were in 2019. So it's slow and steady. And I think 2024 will be a challenged year for San Francisco from a citywide perspective. But as we get beyond 2024, we're optimistic about how the market is going to evolve.

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