For Jim Risoleo, president and CEO of Host Hotels & Resorts, Inc. (Nasdaq: HST), leading teams and motivating people to do their best is one of the most rewarding aspects of his job. His efforts don’t go unnoticed either, with the lodging REIT recently named to lists of the best-managed and most responsible companies in the nation.
“We have a terrific group of people at Host, and it continues to manifest itself in our results and our recognition from the outside world,” Risoleo says.
In addition to being included on The Wall Street Journal’s Management Top 250 list of the best-managed companies, and Newsweek’s list of America’s most responsible companies, Host has been named to the Dow Jones Sustainability World Index (DJSI World) for the fourth year in a row and has been included in the DJSI North America for the sixth consecutive year.
To top it off, Risoleo received Nareit’s Industry Leadership Award for 2022 for his significant and lasting contribution to the growth and betterment of the REIT industry. Risoleo served as Nareit’s 2021 chair.
Risoleo has been with Host for 27 years and in the CEO role since 2017. He is confident that regardless of how 2023 plays out, Host is well positioned to continue to build on its capital allocation track record and execute on its three key strategic objectives of redefining the hotel operating model with its managers, gaining market share through comprehensive renovations, and strategically allocating capital to development return on investment (ROI) projects.
Risoleo talked to REIT.com about the importance of giving back, why the REIT model has worked so well for Host, the REIT’s latest acquisition in Jackson Hole, Wyoming, and more.
When you received the Nareit Industry Leadership Award for 2022, your efforts in giving back to the industry were applauded. Why has that been important?
The REIT industry has been really good to me, and I was delighted to serve as chair of Nareit during a very challenging time for the industry as we were all navigating our way through the pandemic.
Being a catalyst for positive impact in the industry and within our community is a priority for Host through our Corporate Responsibility 2050 vision and it’s also something I am personally committed to. I was honored to have a leadership role at Nareit and kick off a couple of really important initiatives—the Nareit Foundation’s Community Giving Initiative in Hawaii, which has given almost $2 million to Hawaiian charities to help create more affordable housing for residents, and Nareit’s Dividends Through Diversity, Equity & Inclusion CEO Council.
To complement industry efforts, we are committed to advancing diversity, equity, inclusion, and belonging (DEIB) at Host through our formal DEIB program and our CEO Action pledge. As part of our corporate responsibility program, with our 2050 vision as a main pillar, we included social targets, and were the first lodging REIT to do so.
Charitable giving is another area where we strive to make a positive social impact and it is something that I value immensely. We have a robust giving program, and we intentionally support the communities where we have offices and own assets through strategic and industry collaborations, sponsorships, financial contributions, emergency relief, and volunteerism.
Why has the REIT model worked so well for Host?
Host converted to a REIT in 1998 after doing extensive analysis on the best structure in which to own upper upscale and luxury hotels. We determined that being a REIT was best because it allows us to both invest in assets and match fund those investments through the issuances of equity and debt.
We are the only investment grade lodging REIT and that gives us a unique advantage when it comes to accessing the debt capital markets. We are also the only lodging REIT in the S&P 500 and that helps give investors the ability to trade our shares very easily, given the liquidity of Host shares.
How would you describe the strength of the recovery in the lodging sector and how is Host positioned for 2023?
What we've seen post pandemic is a shift in consumer behavior away from the purchase of goods to the purchase of experiences. And we've seen that most notably at our resort hotels.
We own 16 resorts today—all of which are truly iconic and irreplaceable properties that are a destination in and of themselves. We have seen outsized growth relative to 2019 in all those assets, particularly in our Hawaii, Arizona, and Florida properties.
We are encouraged by travel trends that emerged in 2022, and we are not seeing a slowdown or signs of weakness in our business. In New York City, we saw average daily rates (ADRs) up over 200% for New Year's Eve at the newly renovated New York Marriott Marquis, which is amazing. So, we're really excited about how the business is evolving and developing.
The Four Seasons Resort and Residences Jackson Hole is a new addition to the Host portfolio. How difficult is it to find iconic hotels like these?
These types of assets don't trade very often, and we were delighted to be able to acquire it in November 2022, as it is truly irreplaceable. It's one of only a handful of luxury ski resorts in the country. More importantly, Jackson Hole is fast developing into a year-round destination, not just a ski resort, because of its proximity to Grand Teton and Yellowstone National Parks. About 97% of the land in the area is owned by the federal government through the National Park system, which will limit new supply in the market.
Our investment grade balance sheet, our relationships, and our reputation allowed us to successfully acquire this property. We moved quickly and were in a position to acquire it on an all-cash basis. From start to finish, the process took 30 days, which is really unheard of.
The owner of this asset owns some other terrific properties, and we believe we're in a very good position to transact should the owner decide that it's time to bring them to market.
Where else is Host partnering with Four Seasons?
In 2021, we purchased another terrific resort, the Four Seasons Resort Orlando at Walt Disney World® Resort. It is the only non-Disney owned property within the gates of Disney World. It has 444 rooms, 55,000 square feet of meeting space and an 18-hole golf course, and six acres of pools and waterparks.
What are some key goals for Host in 2023?
We continue to be focused on successful capital allocation and executing our three key strategic objectives: to redefine the hotel operating model with our managers; to gain market share through comprehensive renovations; and to strategically allocate capital to development ROI projects.
With over $2 billion of total available liquidity, and a fortress balance sheet with a leverage level of 2.4x at the end of 2022, we are very well positioned for 2023 and beyond. We have a strong conviction that our outperformance will continue, and we intend to remain highly strategic as we think about allocating capital for long term value creation within the portfolio.
Looking ahead, how is Host’s portfolio positioned for the future?
One thing that has put us in a terrific position to outperform for 2023 and beyond is the amount of investment that we made in our assets over the last three years. As of the end of 2022, we will have invested $1.5 billion in our portfolio. That equates to approximately $35,000 per key. That is going to put us in a position to gain market share at all of our renovated assets as the competition strives to catch up.
By early 2023, we will have fully repositioned 24 of our assets. And when I say repositioned, I'm referring to a transformational renovation from top to bottom, so that when a guest walks into the hotel they're saying, ”Wow, this place looks incredible. It looks like a new property.“
The feedback we have received from our operators through guest satisfaction surveys and scores, and the pickup in market share has been quite impressive, and frankly beyond our initial expectations.
Is Host prepared for a possible pull-back in discretionary consumer spending?
Our properties are uniquely positioned to serve the very high-end consumer. We feel very confident that leisure demand at our properties will remain strong. We’re seeing very strong booking activity, and we picked up a lot of room nights on the group side of the business in the third quarter of 2022. And business transient continues to come back. Even if there's a slowdown, we are well positioned to continue to grow in 2023.
Any advice for those professionals who haven't experienced the level of market uncertainty that we are seeing now?
Keep a steady hand and be prepared to adapt and change depending on how the various business segments evolve. Keep a keen eye on business demand generators and be disciplined and patient.