06/04/2020 | by
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Host Hotels to Emerge with Stronger Operating Model Post-Crisis

James Risoleo, president and CEO of Host Hotels & Resorts, Inc. (NYSE: HST), participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (held June 2-4).

Host “definitely can and will” emerge with a stronger operating model after the crisis, Risoleo stated.

“Our operators have never faced such a precipitous decline in business volume, and this is really forcing a reimaging of property level operating models to an even greater extent than past downturns,” Risoleo said.

Hotel brands, meanwhile, are completely supportive of working with ownership to think about how hotels should be run as the economy opens up, he added.

Risoleo said Host is rethinking minimum staffing at all levels of the hotel, “to determine what is truly required to keep a property open.” The expectation is to emerge with a flatter organization, and increased cross-functionality, he noted. For example, Host expects to do something that it has long advocated—moving to a single, cross-functional guest service agent.

The crisis will also accelerate the adoption of technology, Risoleo said. Host has already been focusing with the brands on implementing a mobile key platform and acceptance will likely grow, he noted.

Meanwhile, Host is also looking at above-property, brand-allocated costs, Risoleo explained. “There needs to be a complete reassessment of all costs that are allocated to the properties,” he said.

Risoleo pointed out that Host’s hotel teams have implemented extreme cost containment measures, with staffing levels reduced by as much as 85% through furloughs and temporary layoffs. With the exception of spending on safety and maintenance of assets, “most operating expenses have been turned off,” Risoleo said.

Risoleo also said Host expects the leisure travel segment to be the first to improve, particularly for drive-to leisure destinations. About 30% of Host’s portfolio rooms are in leisure drive-to destinations, he noted.

“Leisure, drive-to is really leading the way. We think business transient will follow and group will be last. We think it’s going to take a vaccine or strong therapeutic to really see those two segments come back” because of their dependence on air travel, Risoleo said.

Looking more broadly across the lodging sector, Risoleo anticipates “a fair amount of distress among different hotels” given the leverage levels that some were operating at coming into the crisis.

For its part, Host entered 2020 with the lowest leverage in its history, Risoleo said. “We’re very confident that we’re going to be able to persevere through the crisis and that we should be in a position to be opportunistic when properties do come to market. I think it’s going to take some time for that to happen,” he added.