Welcome to the Host Hotels & Resorts Incorporated thirdquarter 2007 earnings conference call. Today's call is being recorded. At thistime, for opening remarks and introductions, I would like to turn the call overto SVP Greg Larson. Please go ahead, sir.

Thank you. Welcome to the Host Hotels & Resorts thirdquarter earnings call. Before we begin, I would like to remind everyone thatmany of the comments made today are considered to be forward-looking statementsunder federal securities laws. As described in our filings with the SEC, thesestatements are subject to numerous risks and uncertainties that could causefuture results to differ from those expressed; and we are not obligated topublicly update or revise these forward-looking statements. Additionally, on today's call we will discuss certainnon-GAAP financial information, such as FFO, adjusted EBITDA, and comparablehotel results. You can find this information, together with the reconciliationsto the most directly comparable GAAP information, in today's earnings press release,in our 8-K filed with the SEC, and on our website at HostHotels.com. This morning Chris Nassetta, our President and CEO, willprovide a brief overview of our third quarter results, and then we'll describeour current operating environment, as well as the company's outlook for theremainder of 2007 and next year. Ed Walter, our CFO, will then provide greaterdetail on our third quarter results, including regional performance and marketperformance. Following their remarks, we will be available to respond to yourquestions. Now here's Chris.

Thanks, Greg and good morning, everyone. We are pleased toreport another quarter of strong results for the company. Unlike the first twoquarters of this year, RevPAR surprised on the upside at 70 basis points higherthan the high end of our guidance, driven by much stronger transient demandthan anticipated. The result was one of the best third quarters in the historyof our company. We feel good about the fourth quarter and 2008, which I'll discussin more details in a few minutes. First, let's talk more specifically about the third quarterresults. Our FFO per diluted share for the third quarter increased 36% to$0.38, which exceeded the consensus estimate by $0.05 a share. Our pro formacomp hotels, which included our current comp hotels plus the hotels we acquiredin the Starwood transaction, had a RevPAR increase in the quarter of 7.2%,driven by a 5.1% increase in average rate and a 1.5 percentage point increasein occupancy. Comparable hotel adjusted operating profit margin growth wasstrong for the quarter, with margins increasing 140 basis points. The adjustedEBITDA of Host Hotels & Resorts, L.P. for the quarter was $292 million, anincrease of more than 15% over the third quarter of 2006. On a year-to-date basis, our pro forma comp RevPAR increased7% as a result of a 5.7% increase in average rate, and a 0.8 percentage pointincrease in occupancy. Comparable hotel-adjusted operating profit marginsincreased 70 basis points. Year-to-date, adjusted EBITDA was $969 million, anincrease of over 19%. For the quarter, comparable food and beverage revenues increasedover 5% with strong flow-through resulting in an increase in departmentalprofit margins of 200 basis points. This strong margin performance is due tocontinued growth in highly profitable F&B areas including banquet andmeeting room rentals. Despite the anticipated softenings in group business forthe quarter, we were able to drive higher-rated banquet business, resulting ina 7.4%…

Thank you, Chris. Let me start by giving you some detail onour pro forma comp hotel RevPAR results. Reflecting the trend in place allyear, our downtown hotels performed the best during the third quarter withRevPAR growth of 8.1%, as we benefited from strong performance in severaldowntown markets such as New York,Philadelphia, and Denver. RevPAR at our suburban hotels increased by 6.3% for thequarter, and our airport hotels increased by 6.2%. Our resort conferencecenters increased by 5.1%, improving significantly from the prior quarter, asoccupancy increased by 2 percentage points as compared to the decline weexperienced in the second quarter. Turning to our regional results, consistent with the firsttwo quarters of the year, our top performing region was the mid-Atlantic, whichexperienced 15.5% RevPAR growth. Our New York Cityproperties performed especially well, with RevPAR growth averaging more than17%, driven by strong leisure transient demand. The Philadelphiamarket also did extremely well, as several major citywide events drove stronggroup demand, and the popular King Tut exhibit created strong leisure demand.These two factors combined to drive RevPAR growth of almost 15%, one ofPhilly's best quarters in recent memory. The combination of the slowerconvention calendar and disruption caused by a comprehensive lobby renovationat our 1,400-room convention hotel will result in weaker performance in Philadelphiain the fourth quarter. The New Yorkmarket should continue to perform well, but growth rates are expected to easeslightly in the fourth quarter as our hotels are already running north of 90%occupancy, forcing RevPAR improvement to occur primarily through rate growth. Our mountain region performed well, with RevPAR increasingby 9.5%, as the Denver market had astrong quarter, driven primarily by solid citywide events with RevPAR growth ofover 13%. As a result of slightly weaker group booking pace, RevPAR growth inthe fourth quarter in both Denverand the region will likely be somewhat slower. Our New…

We'll take our first question from Bill Crow - RaymondJames.

I know the group booking pace for next year has beenaccelerating. Has the number of cancellations also been accelerating for nextyear so that net-net, you're still above? If that's the case, what sort of groupsare canceling?

I think the answer is no. We haven't seen any unusualpattern in cancellations in the fourth quarter, frankly, or for '08. There's notypical type of cancellation. Obviously, we periodically have cancellations,but it's really more of a random event than any kind of systemic issue. So thebooking pace, when we think about revenue pace being up 10% year over year,which is obviously better than where we were a quarter ago, I think it shouldbe viewed as we view it, which is a very good signal of strong group businessfor 2008.

Your next question comes from Steve Kent - Goldman Sachs.

It sounds like the transient customer base is showingstrength. When you look out into Q4 and into 2008, are you starting to allocatemore and more towards that customer base and pulling back on group? I didn'tknow how actively you were managing that. The second question is just on corporate expense, it lookedlike it came in a little bit light again. Can you talk about what kind ofinitiatives you have there and what we should be thinking about over the nextcouple of quarters?

On the first question, group mix, no, we are very activelyhaving dialogue with all of our operators on this issue. I would say year overyear on the margin, obviously, it depends on the strategy for each hotel, butif you aggregate all the hotels together on the margin, we're a little bitheavier in group. That is really not because we think transient is going to beweak, but we're still of the belief that many of the hotels that have a littlebit heavier group base allows us to measure the transient business that muchmore aggressively and that the bottom line result will be better. I think if you look at the year when we finish the year nextyear, it won't be radically different from a mix point of view between groupand transient, but it will be marginally a little bit more group in aggregate. As I said, there are exceptions to that. Clearly in New York, recognizing that's the strongest market in thecountry, it's going the other way. We have a very active strategy of modestlyreducing the group base in our New Yorkhotels, because we have experienced incredibly strong transient growth and weexpect to have that continue. Whether it continues at the pace that it has isunclear. We think it will continue to be strong and on the margin we thinkhaving a little bit lighter group representation in that market will lead us toa better result next year. On the corporate G&A, there are a number of items thatare impacting that year over year. The two biggest are last year in the firsttwo or three quarters in the year, we had a number of what I would describe asunique expenses related to the Starwood transaction and the financing relatedto that transaction, which are obviously not repeating themselves, so that isreducing the G&A. Another significant component of it is stock compensation.Just based on the formulas that are used, based on where the stock price istoday and an expectation of what the management restricted stock program is,honestly, it's just lower based on overall performance of the stock and you'reseeing that reflected in the year-to-date results. My guess is, of coursedepending on where the stock is, you'll see some continued benefit, as painfulas that might be to some of us, in the fourth quarter.

There's no catch-up, Chris, though in the fourth quarter onthat part. Because that's the one we were thinking about, is the stock part.It's not like you are shifting some cash compensation?

No, it's ratably done. The impact in the fourth quarterwould be driven more by where the stock price goes than anything.

Your next question comes from Harry Curtis – JP Morgan.

Chris, you talked about the group pace for next year lookingup in the neighborhood of 10%. Can you talk about where that's coming from?Does it lean more towards renovations? Is it more citywide? Is it just generalexpectations for economic strength? Is it superior management? What do youattribute to?

All of the above. Harry, I think it's just that we're seeinghonestly very good strength, generally, in the group business. We're obviouslylooking at a situation where you've had pretty good demand growth and it'srequired, I think for a lot of the groups, that they book a little bit furtherin advance, because there's not as much availability. So I think it's been the general strength of the economy,the general strength in the corporate and association side of the business, andthen benefited somewhat by the fact that the booking window is getting longer,people have to think about booking business a little bit further out in time inorder to make sure they can get their meetings in. But it's no one specificarea. Frankly, we're seeing it generally strengthen throughout all ourcategories.

As a follow-up, can you talk about the hotels that have beenin renovation that have hurt your occupancy this year, and what does that looklike next year? What I'm getting to with this question is, when do you thinkthat from a renovation point of view, you're really going to be firing on allcylinders?

That's a great question, because I mentioned in our lastcall that we were going to have the largest CapEx program in our history thisyear, which is true. You heard Ed describe some of the numbers. What I alsosaid in the last call, and I'm not sure people necessarily heard me, was thatwhile we thought it might taper off a bit next year, we were going to haveactually a very large program next year as well as a follow-on to some of thethings we've started this year as well as other projects, particularly ROIrepositioning projects that we thought had merit and where we were gettinggreat yields. While it might be a little lighter, honestly, it was goingto be not much lighter and fairly comparable to this year. I'm not sure thatpeople picked up on that as much as we'd liked them to have. In terms of disruption, to answer your question, in '08versus '07, we think it's going to be generally comparable, given that theprogram is going to be generally comparable and it's really '09 and beyond wherethe program, in terms of our expectations right now, drops off more materiallyand where you start to see the benefit of that as a result of less dislocationand disruption.

Your next question comes from Joe Greff - Bear Stearns.

Chris, just following up on that last comment, and I knowyou didn't provide '08 CapEx forecast, should we be looking at '08 capitalinvestment, capital spend as similar to '07 then, or should it come down alittle bit?

I think it probably is going to be comparable. As you'veseen over the last couple of quarters, the numbers come down a little bit, justbecause as quickly as we try and do these things, inevitably some of them takelonger. So over the last couple of quarters, the number for '07 has come down alittle bit. We're looking at 6 to 625 now. I think best I know right now andwe're finishing that process, I would say the safe number would be comparableto that, maybe slightly less. Obviously, when we speak with you next, we'll give you abetter feel for that. It's in the range of where we are this year and then in'09, the expectation is it would drop off pretty materially.

You mentioned earlier, that included in your preliminary orinitial stab at '08 that margin improvement would be less in '08 than you didin '07. When you look at '08 and you try to stress RevPAR growth to marginimprovement, what kind of RevPAR growth gives you a push on margins? Is it3.5%, 4%?

3.5% to 4%. The reason, obviously, we haven't gone throughthe property-by-property budget process yet. I should say, it's being workedon, but we haven't finished it or rolled it up. That's why we can't really giveyou a refined sense of where we think we are going to be, but obviously if youjust do the simple math and take a midpoint of the range, for example, whatwe've said next year and compare it to this year, just the arithmetic wouldsuggest margins have to be lower. But to answer the question, specifically, yes I think thenumber you threw out is fair. 3.5% to 4%, I think we would be at a push.

One final question and I'll get off. When you look at the 5%to 7% growth for next year, what would that number be without renovationdisruption?

It's hard to say and I hate to try and pick a number. Ithink what I said on the last call is that we were probably 1 to 2 points ofdisruption this year and given that the program's comparable, it's probably notunrealistic to assume that the impact would be comparable.

Your next question comes from William Truelove - UBS.

My question was also about margins for next year. Marriottrecently, one of your largest operators, suggested they were almost running outof things in terms of cost savings, so it was more just down to pricing. Areyour other operators suggesting a similar kind of environment for margins orcost-saving potential for next year as well?

One of the benefits that we have with all of our operatorsis given the size of our portfolio and the breadth of different operators andbrands that we work with, I think we have an opportunity to benchmark everybodyagainst each other and try and continue to push people to find ways to be moreefficient. So I don't think there's ever an end to it. Honestly, I think ifwe're doing our job right, there are always going to be things that we can findwith them to become more efficient. Having said that, clearly with Marriott we together had amajor push over the last two or three years to gain some efficiencies in thehotels. Some of the big gains that we saw from Marriott in the last couple ofyears, we can't keep repeating. We expect to get margin growth, but it is morethe arithmetic of revenue growth as compared to a typical expense growth.That's not to say in individual hotels there won't be many, many opportunitiesto continue to benchmark and find efficiencies. But I think it is true. I do agree with Marriott, some ofthe really sizable gains where we've seen last year particularly, probablyhonestly 50 plus basis points and maybe 50 to 75 basis points in margin gainout of our portfolio with them as a result of our joint efforts on gaininggreater efficiencies, you're not going to see those kind of gains. But on themargins, if we're asset managing properly, we would hope we could always findadditional things to do in individual properties, and obviously in some of theother portfolios we have, there are other initiatives like the initiatives thatwe had with Marriott over the last years that we're working on, always with theobjective of getting a little bit better margin growth than the arithmeticwould suggest. But in the end, when you look at it across the entireportfolio, while there are these opportunities, they're not as great as theopportunities have been because we've had pretty darn good success over thelast couple of years.

Your next question comes from Bill Crow - Raymond James.

Chris, it looks like you guys are building up a little bitof a war chest here with selling more assets than you buy. You've got a bigcash balance and low leverage level. Does this imply anything on your outlooktowards cap rates going forward? Do you think the opportunities are going to bebetter in '08 for either one-off or entity sort of acquisitions?

That's a terrific question. Given what's going on in thecapital markets, particularly on the debt side, we certainly would hope thatover the next 12 to 24 months there may be some opportunities on the M&Aside. I don't think, Bill, that in the short-term we see any really terrificopportunities because those kind of adjustments in the marketplace, frankly,take some time to matriculate through. They don't happen overnight, they don'thappen over a quarter, they happen over a number of quarters. So I wouldn't say we're building a war chest because wethink it's going to be a buying bonanza, by any means. I would think there maybe more opportunities that would meet our criteria in terms of yields over thenext 12 to 24 months than there have been over the last 12 to 20 months. Fromour point of view, I think what we're trying to do with our balance sheet isjust be really prudent given what's going on in the world in terms of where thecapital markets are. Frankly, as we've always said, to make sure that we have alot of flexibility to be able to take advantage of whatever opportunities comeour way. That opportunity may come in the form of M&A. It obviously morerecently has come in the form of investing in our existing portfolio. It alsomay come in the form of buying our own assets, effectively buying back ourstock and having the strength in our balance sheet as we do and the liquiditythat we do, frankly it just gives us all the weapons in the arsenal that wewant to be able to respond to whatever's going on in the environment, to beable to create a significant leap forward in value for the company, in any ofthose categories. All of those categories, I think, are fair game and thedecisions will be made on the basis of where we think we can ultimately,intelligently create the most value.

Chris, you talked about how the debt market might trim thesupply growth expectations going forward. Any markets, as you look out to 2008where new supply growth is going to be a problem, that we should be aware oftoday?

None that are unusual that come to mind. You have some ofthese big assets that are really driving the upper end supply numbers, so whenyou think about it, you've got the Hilton in San Diego,you've got the Gaylord here in D.C., and you've got Orlandothat's getting some pretty big initiatives to supply. So I would say, thosedrive a lot of the numbers so whenever those are delivering, I think youultimately have some impact. The good news is, in most of those markets you have verystrong demand and I think the markets can absorb them. Other than the four or fivebig box additions, I don't really see any markets that come to mind that haveunusually significant supply additions that are going to be impacted by '08. In terms of what's going on in the capital markets,obviously the capital markets are coming back a bit and spreads have come in alittle bit and there's a little bit more availability than there was a monthago even, if things continue to stabilize. Having said that, capital for new development of any sort,in particular hotels, is not really very available, if available at all, in themarket today. So certainly anything that's under construction, my expectation,our expectation is will be completed and delivered. But anything that's in theplanning stages or the predevelopment or preconstruction phases, if they can'tget debt financing, I think a lot of those potential new developments are goingto be canceled, more likely be termed postponed, but in some cases canceled,which is not going to probably impact '08 as much as '09 and '10. But the '08 numbers in terms of supply additions, obviously,'07 is below 1%, '08 is at the high end, a bit above 1%. What we've seen inthese numbers is a little bit of ramp up, at least in theory, in '09 and '10.Our expectation, which I think is most definitely supported by what's going onin the debt markets, would suggest that those '09 and '10 numbers are seriouslyat risk; at risk in a good way meaning that the likelihood is you'll seemeaningfully less supply, because if it's not in the ground right now, it's aheck of a lot harder to get it financed.

Your next question comes from [Ricky Pehret] - KBCFinancial.

My questions pertain to the disposition program. First, areyou seeing any changes or the timing to realize these dispositions, has it inany way changed from the last quarter? The last part of this question is, areyou seeing any changes in multiples for these dispositions or replacementvalues per key?

That's a great question. We covered dispositions in ourprepared comments, but not in the way that you're asking it. There's noquestion that getting the dispositions done that we're working on is takinglonger and it's harder, largely driven by my earlier comments about where thedebt capital markets are. They're pretty much impossible on new development andthey're very difficult -- getting a little bit easier, but very difficult --even on existing operating assets. So with the types of assets we've beenselling, which are typically airport and suburban assets, which are mainlyconversion from management to franchise, it's not a huge group of people thatwe're really marketing to, to begin with. While a number of them still can get financing from localbanks, they're not really accessing Wall Street in the same way that some ofthe bigger players are; some others can't. So there's no question that thereare buyers out there, but there's no doubt fewer that can get financed than aquarter ago. But as we've said, I did say in our prepared comments, we're stillmaking good progress on a number of those dispositions and we're prettyconfident between now and the first quarter of next year we're going to get 200million to 400 million of those done. They're definitely going to have taken longer than theywould have otherwise, and on the margin for those types of assets, which aretypically, as I described, suburban and airport kind of assets in secondarymarkets, the pricing and the multiples won't be quite as good, for all thereasons you might guess. To the extent that we can't get over our hold values,obviously we don't sell assets. I think the message in our guidance is that while maybe thepricing has been impacted somewhat and it's taking longer, we still think wecan sell those types of assets and the ones we're working on for meaningfullyin excess of our hold values. Interestingly, at the high end of the market, there hasn'tbeen a lot on the market, and obviously we haven't been selling anything at thehigh end of our portfolio, but you haven't really seen much difference inmultiples or cap rates at that end of the market, partly because not much hasbeen transacting, but also partly because there's still, while the debt marketsare a little bit dysfunctional right now, the equity markets are fluid andthere's still a huge amount of equity capital seeking out high quality realestate assets, including high quality lodging assets. So it's a little bit of abifurcation in terms of how you look at the lower end, secondary, tertiary typesof assets versus the high end, with the lower end having felt some impact andthe higher end really, given the demand from the equity side of the business,not having really experienced it.

Your final question comes from Celeste Brown - MorganStanley.

Chris, can you just talk a little bit more about the fourthquarter? I know you and Marriott management sound pretty confident going intonext year, but 3Q is much stronger than expected based on your results, but thefourth quarter numbers seemed to have pulled back a little bit. Is that justbeing conservative given the lack of visibility or is something else going onthere?

No, I think that's part of it. It is what's been going onWall Street and capital markets, it's certainly a little bit more conservatism.But the way I would look at the fourth quarter and suggest you look at it is,it's still strong. We're obviously, in terms of the growth rate we'reprojecting, it's still a very strong rate of growth. We feel very good, still,about the group business. Obviously, transient was fabulous in the thirdquarter and we have an expectation the fourth quarter will be good as well. Netreservation activity certainly suggests that it's tracking nicely. If you look at the fourth quarter, what's really happeningis it's tracking pretty consistently with what we've seen year-to-date. Whyit's a little bit different than our expectation is that built into ourexpectations a quarter or two ago, where it was a little bit of anacceleration, particularly on the group side in the fourth quarter and whatyou're seeing in our current guidance is some conservatism as you described,given what's going on in the world, but we didn't see quite the acceleration thatwe would in the fourth quarter. As a result, we're giving the guidance we'regiving. Interestingly though, as I said, we did see acceleration in'08. So while we didn't see it in the fourth quarter, and the fourth quarter iskind of trending consistent with where we've been the last couple of quarters,we did see nice acceleration into '08.

We have no additional questions. I would like to turn thecall over to Mr. Chris Nassetta for any additional or closing remarks.

Thank you, everybody for joining us today. Obviously, thethird quarter was great. It's nice to have a good upside surprise, both on thetop line and the bottom line. As I described and we described, we feel verygood about where we are, about the fourth quarter, and feel great about '08. Iappreciate you guys spending the time with us today and great questions.Hopefully the information we gave you was useful and we will look forward totalking to you after we finish the year. Take care and have a great week.