Reference no: EM133677700

Explain key components of the Host Hotels and Resorts CEO letter found in the beginning of the report and the company's overall philosophy and direction.

What threats/risks has Host Hotels and Resorts identified to its performance and future growth?
What strategies/tactics are Host Hotels and Resorts employing in response to the changingglobal marketplace?
Letter is included below.

TO OUR STOCKHOLDERS

JAMES F. RISOLEO President, Chief Executive Oicer and Director RICHARD E. MARRIOTT

Chairman of the Board Over the course of 2022,

WE DELIVERED STRONG OPERATIONAL IMPROVEMENTS, driven by continued rate strength across our portfolio, which helped us achieve the high end of our full year 2022 guidance range. We successfully allocated capital through acquisitions, dispositions, and reinvestment in our portfolio. In addition, we made progress on our three key strategic objectives, maintained a strong investment grade balance sheet, and returned value to our stockholders.

As the lodging recovery progressed this year, our hotels grew occupancy from down 30 percentage points in January, as compared to 2019 levels, to down only 12 percentage points in December, with rate exceeding 2019 by double digits for the entirety of 2022. Strong leisure demand continued to drive the recovery at our resorts, and our urban markets also saw significant RevPAR improvements during the year. In the fourth quarter, net income and operating profit margin exceeded 2019 while our RevPAR, All Owned Hotel EBITDA, and EBITDA margins all exceeded 2019 levels for the third consecutive quarter, despite operations being impacted by Hurricane Ian.

In addition to delivering strong operating improvements, we were once again RECOGNIZED AS A GLOBAL LEADER IN CORPORATE RESPONSIBILITY in 2022. While we work toward achieving our 2025 environmental and social targets, we introduced our 2050 vision of becoming a net positive company, which is detailed in our 2022 Corporate Responsibility report. We now have a total of 10 LEED[1]certified properties, including 3 LEED Gold hotels, plus our corporate headquarters. In addition, we were named to the Dow Jones Sustainability Index (DJSI) World, which recognizes global sustainability leaders across all industries, for the fourth consecutive year, and we were included in the DJSI North America for the sixth consecutive year. Additionally, we were once again included among the world's most sustainable companies in S&P's Global Sustainability Yearbook and named one of America's Most Responsible Companies by Newsweek.

 

We continued to MAKE PROGRESS ON OUR THREE KEY STRATEGIC OBJECTIVES, which are aimed at elevating the EBITDA growth profile of our portfolio. Our objectives include redefining the hotel operating model with our managers, gaining RevPAR index share at hotels through compre[1]hensive renovations, and strategically allocating capital to development return on investment projects. As it relates to our efforts to redefine the hotel operating model, we have achieved the bulk of the $100 to $1501 million of expense savings associated with this objective, and we believe the high end of the range is achievable once we get back to 2019 business volumes.

 

We successfully allocated capital through ACQUISITIONS, DISPOSITIONS, AND REINVESTMENT IN OUR PORTFOLIO. In 2022, we acquired the Four Seasons Resort and Residences Jackson Hole for $315 million. We also disposed of four hotels totaling $672 million. Over the past few years, we have been in the unique position of being able to deploy significant capital into our assets with the goal of achieving RevPAR index share gains. In 2022, our capital expenditures totaled $504 million, and we completed approximately 96% of the Marriott Transformational Capital Program. We believe these reinvestments will position our portfolio to outperform as we head further into the lodging recovery.

Looking back on our transaction activity since 2018, we invested $3.5 billion in early-cycle acquisitions and dis[1]posed of approximately $4.9 billion of assets, which would have otherwise required significant capital expenditure investment. Since 2017 we have dramatically improved the quality of our portfolio, increasing the Total RevPAR of our assets by 15%, based on 2022 All Owned Hotel results.

We also reinstated and doubled our quarterly dividend two times over the course of 2022, bringing the total divi[1]dends declared for the year to $0.53 per common share, RETURNING $380 MILLION IN VALUE TO STOCKHOLDERS. As part of our capital allocation eorts this year, we repurchased 1.7 million shares at an average price of $15.93 per share through our common share repurchase program, bringing our total repurchases for the year to $27 million. We have approximately $973 million of remaining capacity under the repurchase program.

In January 2023, WE AMENDED AND RESTATED OUR EXISTING $2.5 BILLION CREDIT FACILITY to further enhance the strength and flexibility of our balance sheet. The agreement reflects no increase in pricing and incorporates our industry-leading commitment to ESG by adding incentives linked to portfolio sustainability initiatives, including green building certifications and renewable energy consumption.

Over the past year, elevated inflation, rising interest rates, and fears of a slowdown weighed on the global equity markets. Despite the macroeconomic uncertainty, Host Hotels & Resorts, Inc. was the best performing lodging real estate investment trust (REIT) amongst other full-service lodging REITs in 2022 with a (4.6%) total stockholder return (TSR). Additionally, the Company has outperformed its peers from a cumulative TSR perspective on a 1-, 3- and 5-year basis, as measured by the TSR of the NAREIT Lodging & Resorts Index.

To conclude, we are very optimistic about the future of travel. Leisure rates remain well above 2019 levels, and as of mid-February, total group revenue pace for 2023 is down only slightly to the same-time in 2019 and business transient demand continues to improve. We are extremely proud of the results we achieved in 2022, and we are confident that the quality of our portfolio, our ability to reinvest in our assets, and our strong balance sheet leave us very well-positioned to create significant long-term value for our stockholders.