Good day and welcome to the Host Hotels and Resorts Incorporated First Quarter Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Executive Vice President, Mr. Greg Larson. Please go ahead sir.

Well, thank you. Welcome to the Host Hotels and Resorts First Quarter Earnings Call. Before we begin, I'd like to remind everyone that many of the comments made today are considered to be forward-looking statements under Federal Securities Laws. 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. Additionally, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA, and comparable hotel results. You can find this information together with reconciliations to 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, Ed Walter, our President and Chief Executive officer will provide a brief overview of our first quarter results and then we'll describe the current operating environment as well as the company's outlook for 2010. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our first quarter results, including regional and market performance. Following their remarks, we will be available to respond to your questions. And now, here is Ed.

Thanks, Greg. Good morning, everyone. After a challenging year in 2009, we are pleased to report that our first quarter operating results and trends were significantly better than we expected. As I will discuss in more detail, we experienced significant increases in transient demand and very encouraging trends on the group side of our business. While we still face challenges rebuilding our average rates, our recent operating results have returned positive on the top line and suggest that the industry is reaching an inflection point. Turning to our results, first quarter RevPAR for our comparable hotels decreased by 2.3% driven by a decrease in average room rate of 8.7%, which was offset by an increase in occupancy of 4.3 percentage points. For the quarter our average rate was at $167 and our average occupancy was 65.5%. Our top line results improved on a relative basis each month of the quarter and turned positive in March. As you may remember, due to the timing of our reporting period, our first quarter does not include the operating results for a significant portion of our portfolio for the month of March. Adjusting our results to reflect the inclusion of all of our assets for the calendar quarter would result in a RevPAR decline of only 1%. Food and beverage revenues at our comparable hotels decreased 3.7% for the quarter and total revenues fell by 3.9%. While our managers continue to strive to control cost, the combination of increased occupancy, continued pressure on average rate, and a meaningful reduction in attrition and cancellation fee resulted in a decrease in comparable hotel-adjusted operating profit margin of 275 basis points for the quarter. First quarter adjusted EBITDA for Host was a $126 million. FFO per diluted share for the quarter was $0.08, which included a reduction…

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Looking at the portfolio, based on property types, our airport hotels performed the best during the quarter with a RevPAR decline of 0.9% as the hotels benefited from the poor weather in the Northeast that led to numerous flight cancellations and layovers. RevPAR for our urban hotels increased 1.7%, while RevPAR at suburban and resort conference hotels fell 2.4% and 4.8% respectively. Before I address individual market performance, I wanted to mention that half of our top 20 markets had positive RevPAR for the quarter. Our top performing market was Philadelphia with a RevPAR increase of 12.3%. Strong transient, city-wide, and group business contributed to an occupancy increase of nearly nine percentage points, and an ADR decline of 2.8%. For the second quarter, we expect the Philadelphia market to underperform the portfolio due to lower levels of both transient and group demand. As expected the Miami/Fort Lauderdale market performed very well with a RevPAR increase of 10.3%. Occupancy was up 6.4 percentage points, and the rate was up 1.7%. Yes, that's right; I said rate was up in the market. The outperformance was driven by growth in transient and group business generated by the Super Bowl and Pro Bowl as well as the impact of the late 2009 ballroom addition at the Harbor Beach Marriott Resort and Spa. We expect that Miami/Fort Lauderdale market to have a weaker second quarter, but still have positive RevPAR. The San Antonio market also performed very well with a RevPAR increase of 7.3%. A strong city-wide calendar drove an increase in compression days leading to an increase in occupancy of 5.4 percentage points and limiting the rate decline to only 0.8%. We expect San Antonio to have…

(Operator Instructions). We'll take our first question from Bill Crow with Raymond James.

A couple of questions. Ed, given the revision of the guidance, should we interpret that may be the dividend will come back a little bit quicker, and what is your thought on the dividend?

I think the fact that you are seeing our business recover faster, ultimately does mean that the dividend will recover more quickly, but we didn't have enough taxable income to support the dividend that we have talked about paying on the last call, that $0.01 a quarter. I think, while it's always a little hard to tell where taxable income is going to come out especially when you start to take asset sales into account. I don't want to envision that even if we were at the high end of the guidance that we have provided that we would necessarily need to increase the dividend because of the need to distribute taxable income.

On the debt purchase, you did that on balance sheet, why not in the joint venture?

That may ultimately go into joint venture. This is one of the situations where we needed to move relatively quickly to consummate the purchase, and so at least initially that's on balance sheet but depending upon how the transaction evolves it may end up in the joint venture.

And is that loan currently performing, can you tell us that?

It is currently performing.

And then finally I know it's a little bit sensitive, but any backlash or any other challenges at the Naples Ritz?

Relative to the potential litigation that's been filed there, the short answer is that we are trying to get a better understanding of exactly what happened at the hotel. We're obviously fairly concerned with the allegations that have been raised by the employee and I'm working closely Rick to get a real, but true understanding of the details there?

But no big cancellations or anything like that?

Not that I am aware of.

We will now move on to Will Marks with JMP Securities.

I had a question on New York, and you gave the RevPAR growth figure, and said that it sounded like you are pleased, but it seemed like it was well below the market, now I only have general market stats, but are we seeing any kind of acceleration in the second quarter?

Yes. In fact, New York at least our Marriott hotels had a strong period four. So we are definitely seeing acceleration there. As I said in my comments, we expect a very strong second quarter overall, mainly due to a really strong corporate (niche) and special corporate transient business.

One of the things that I would point out that I know has been causing some, I guess, just some questions around our results this quarter is to remind folks is that as I said in my comments, all of our non-Marriott hotel, so that is Starwood, Hyatt, Ritz-Carlton, Four Seasons are all on a monthly reporting system, and for Host just because it's the way we time our quarters, we don't capture the March results for any of those monthly hotels in our numbers. New York, my recollection in general for New York is that it did better sequentially through the first quarter. We are missing the March results from both the W on Lexington Avenue as well as the big Sheraton, near Times Square. So my guess is that those results were added in. I don't know that number off the top of my head, but my guess is those results were added in, you'll see a little bit better performance in New York in the first quarter.

Right. It did seem like March was a huge month in New York, and I know it's true. February is more consistent with the broader industry, or at least not as much into relative out performance. Okay, that's all for me thank you.

We'll now move on to David Loeb with Baird.

I know you don't want to say much about Dearborn or too much about the European strategy, but I've a couple of questions. Can you give us any color on price of Dearborn and will you, once that closes, if you can't now?

We certainly, David, at the point in time that the transaction closes. Well, as we have always done, give you some insight into what the price is. I would tell you that it is a relatively, no, in fact, relatively is not the fair word. It's a low priced. But it is reflective of the fact that the asset, as I mentioned in my comments, is losing money this year. It lost money last year. I think it might have been right on the margin in 2008 in terms of whether it made or lost money. So, unfortunately, we've been facing some big challenges in that market, not surprisingly given the challenges that the auto industry has faced. We have postponed a fair amount of CapEx of that hotel because we've been trying to sort out the right resolution for it. While there isn't I think an effective way to invest a certain amount of capital dollars in the hotel, we've concluded that it would be better off being selling the hotel at this point than pursuing that path. So, it's going to be a pretty low number and with any luck the transaction closes in the next 60 days, and then we'll be happy to tell everybody about it.

And on the European debt purchase, can you talk a little bit about what your strategy is or what kind of return hurdles you are looking for? Is this loan to own or are you hoping to outperform that kind of thing?

I guess, I'd like to say, David, there, I want to be careful about what we say because we've agreed to certain confidentiality provisions in our acquisition agreement, but what I would tell you is we would certainly expect, if we're generally looking for return, say in the plus or minus 10.5% to 11% range on an unleveraged acquisition. We adjust our return expectations when we pursue a leveraged opportunity. Where we've invested in this asset and given the underlying leverage compared to what we think the value is, we're comfortable that just as a dead investment, we will likely exceed those leverage return targets. The strategy for what happens with the investment will in part be based upon how the economy improves, obviously in Europe, and as it relates to these individual assets. We would be very comfortable if this just continues to be a performing loan and that we get paid off in due course which based on the terms of loan documents would generally come due no later than about 2.5 years from where we are right now. On the other hand, we obviously are very comfortable being an investor in Europe, and if property's performance does not improve enough for us to be paid-off, we would be comfortable being an owner.

I know you've answered part of this with Bill, but would you be comfortable owning hotels on balance sheet in Europe or if you end up in an ownership position for these hotels, would those more than likely go into the joint venture?

I think, the answer to that is more than likely wholly owned are assets that when we would be acquiring would ultimately end up in the European joint venture. We would be comfortable investing directly in Europe, but I think generally we have found that we like the joint venture structure that we have put together to operate over there. We've been very comfortable with the prospective on investment of our partners and we'd like to see that relationship continue. So, in general, I would expect that our European efforts will happen in the joint venture. But, there may be individual transactions that happen outside of that structure.

And can I ask one more, sorry to ask so many. Can you just comment a little bit on the single asset acquisition market, and the portfolio market, and if in the single asset market you think this is a better time to be a seller, and might there be more? I know, you've done a couple, there might be more.

The market is evolving on the asset acquisition side. What I would break, what we are seeing out, and again as I've mentioned in my comment. It's still not a flood of opportunities, although our pipeline is clearly larger than it was just even 65, 70 days ago. I'd say that the opportunities, they're sort of splitting into two camps. There is one group of opportunities that are happening because pricing has been recovering. And I think, you're seeing fairly low cap rates and fairly high EBITDA multiples, reflecting both the outlook for the future as well as the fact that we're in trough EBITDA level. But with the recovery in pricing, you are seeing certain sellers who face debt maturities in the near term, who are thinking that perhaps it's worthwhile testing the market to see if there is an opportunity to sell an asset today, and at least recover some of their initial investment. I think, there's another group of seller, again, a relatively small group, but there's another group of sellers who are evaluating their business now or maybe more confident about investing in their own business, but might be looking to liquidate certain of the assets that they have in order to then reuse such proceeds in a different direction within their individual business. I sort of described that a little bit as a strategic seller, because that type of a seller is really doing this because of strategic aspect of their business as opposed because they necessarily think that this going to get the maximum price for asset. I suspect that we will see more activity in both of these camps as we work our way through the year, but as you could tell by the volume of transaction activity that's been reported, and in each instance the volume is still relatively light, but we are relatively encouraged by at least the trend that we're seeing there and the number of conversations that we're having.

And portfolios?

Well, there's been more activity on the single asset side than on the portfolio side. We're fortunate with our scale that we can look at portfolio deals, but to-date with the exception of some debt opportunities, similarly to the one that we move forward within Europe, we really haven't seen a lot on the acquisition side of that portfolio.

We'll now take our next question from Joe Greff with JPMorgan.

Most of my questions have been asked and answered. Just Edward with respect to your 2010 outlook, if you were to look at it on a quarterly basis, yeah I know you don't break out, but just broadly when do you see rate recovering to exhibit some year-over-year growth and I guess when would you see comparable operating profit margins start to showing some year-over-year increases?

Well, that's probably the trickiest question that we're trying to contemplate right now. What I would say to you is, as you well know, is that the recovery in rate is going to happen on a market-by-market basis, and some of the markets that Larry talked about, but I think we've got a chance to seeing some rate growth relatively quickly would include some of the big East Coast markets like Boston, New York and DC. I think, New Orleans surprisingly, its having a pretty good year and we expect to see some rate growth there. Miami in part because of the burst around Super Bowl, but I also think in general we are seeing some strength in that market. So that's another market where we think it's likely that we'll see some rate growth in the relatively near term. Portfolio-wide, I would bet that it's probably at best the second half of the year, certainly within the realm of the guidance that we provided. We're really not anticipating that it happens until the end of the year. And I think it is a little touch and go on whether or not we actually get the true rate growth for a full quarter by the end of the year. It's probably at the high end of our guidance as a shot at that. On the margin front, I think, our estimate is that we're looking at a 50 basis point decline, tied to a 4% overall full year RevPAR growth rate. Again my guess is that because margin growth is going to be tied to both overall level of RevPAR increase, as well as to some degree whether that's happening because of rate or because of occupancy, if there is an opportunity for positive margins, it's certainly near the end of the year.

Great and then I don't know if you have this information guys, but if you were to adjust your first quarter for reporting outside of that, I guess the merit reporting system, what would have been a quarterized EBITDA number for your entire portfolio?

From a standpoint of EBITDA, we haven't calculated that number.

We'll now move on to Chris Woronka with Deutsche Bank.

Ed, if I look at the guidance for the full year now, at the high end of the range stripping out the effect of the cancel and attrition fees, 4% RevPAR, would kind of be flattish to margins maybe plus 20. Does that imply that you kind of need 4% RevPAR growth going forward to get those flat margins?

I think it's a correct assumption as it relates to this year. Going forward, ultimately margin growth look tied to the relationship between revenue growth, which is, of course, more than just RevPAR growth and inflation. So if we continue to see inflation stay at a fairly low level, plus or minus 2%, then I would expect that we would be able to see margin growth in '11 and '12 at the low of 4% RevPAR level. Now I suspect that if the recovery continues that won't be a problem, because we're going to be seeing stronger levels of RevPAR increase than that. But I think you could see margin growth at less than 4%. As we've commented in the past, the transition year when one goes from having been in freefall to starting to see in March, see RevPAR recovery and business recovery is always a tricky year for margins. Well, I would say there is tremendous stride made at all of our properties at taking out cost. There clearly are some costs that came out of our operation that are not sustainable. And so typically in that first, call it, eight to 12 months of RevPAR recovery, some of those costs trickle back in, which usually leads to the first year of positive RevPAR growth having less than impressive margins. But normally, especially, if we're doing our job on the asset management side, once you get passed that initial kind of recovery of some expenses, you get back into a more traditional relationship and as long as RevPAR revenue growth are outpacing inflation, we should see margin growth.

Can you remind us of what maybe the incremental, you said for the first quarter $12 million, incremental cancel attrition fees? Can you kind of tells us what it was for full year '09 maybe relative to, I don't know, '07?

It's $40 million incremental.

$40 million okay.

Over a typical year.

One final one on the asset front. You guys have sold some non-core stuff and I don't think anybody looks too hard at the prices per key or anything on that, but with all those capital that appears to be available, do you think about selling what might not be a non-core asset but may be not trophy asset, but something where you get a pretty substantial price per key just to kind of demonstrate the value that I know you guys think is in the portfolio?

Chris I wouldn't do it necessarily to demonstrate value, but you've raised a good point. Pricing has certainly recovered more quickly than some folks had anticipated, and as operations begin to improve one can get more comfortable with selling some of the assets that we don't expect to be owning in 2014 or 2015 a bit sooner. We are in the process right now of evaluating the portfolio and looking at a number of assets to determine if it is better to sell those assets now and take advantage of fair amount of capital that's not able to be deployed or whether we would be better off waiting for the NOI to recover a bit more and then put those properties on the market. And that's one of the reasons why we made the statements that while we're not putting any more sales or not contemplating specific sales in the context of our guidance, we are intending to market a few properties, and we'll sort of see how that plays out. But what I would say on that is because of the amount of capital we have, we do not need to affect a sale for liquidity reasons. So we will be very, very price sensitive in any of those marketing opportunities. If we're not hitting the numbers that we want, we will not be a seller, because the only reason to do it is the one that you outlined, to take advantage of a strong market and sell some assets that whilst they are non-core for us could clearly be a good acquisition for somebody else.

We'll now move on to Jeffrey Donnelly with Wells Fargo.

A few questions actually on your 2010 RevPAR outlook. Are you able to break out for us the composition of your outlook between occupancy rate and I guess I would call mix shift?

Not as precisely as you would probably like, Jeff. I think that's the tricky part when you're in this sort of a transition, as we clearly saw tremendous occupancy growth in the first quarter and that was unfortunately offset by rate declines. We worked our way through the quarter, though. We probably will be expecting to see the occupancy run at a fairly heavy rate, but the question is going to be how quickly can we eliminate negative rate and move into positive rate. Let me give you a couple of other insights around why we got more optimistic relative to RevPAR for the rest of the year. A big driver for us was what was happening on the transient side. As I mentioned, we were up 12% in overall transient demand. We are practically for the first quarter, at least, back to where we were in 2007, but the biggest key for us was the fact that when you combine corporate and special corporate business, we were up 15% in room nights. Now while we were still down in rate in those segments, the fact is that demand was coming back was pretty key for us, because we had not really seen that happen even in the fourth quarter of last quarter. And hence when that starts to occur, that's a great sign for the fact that the business is going to rebuild. And I think the other piece of it is that as you look at what was happening on the group side, we started out the quarter at a deficit for both the full year and for the quarter. We very quickly closed that deficit in the first quarter and ended up positive in room nights. A lot of that was because on the association events people showed up and in fact we started to run into some situations where more people showed than we had rooms available. And even on the corporate side, we started to find that our booking pace was accelerating beyond what we had expected. So as we look at the activity for the second and third quarter is solid, there is still a little bit of weakness in the fourth quarter, but we're up for the full year in terms of group booking pace now, which we haven't been able to say for quite some time. And I think we felt that because that's such an important component of our business and because when you go back and look at where we were compared to '07, we had really lost the most in terms of group room nights compared to the other segments in our business. The fact that that was beginning to recover led us to look it much more optimistically the rest of the year.

That's great color. I mean, sticking with RevPAR, I'm curious, Marriott obviously had a pretty robust outlook for the U.S. and I think the market expected Starwood, if history proves true, to ratchet their outlook above Marriott. Since both of those brands comprise a majority of your earnings and you arguably own the best hotels on average within their portfolios, I guess why is it that your 2010 RevPAR outlook of 1 to 4 I guess is where it's at because typically your guidance is much tighter in line with someone like Marriott International. Is it I guess I'll call it conservatism for the sake of conservatism or do you think that their expectations for the back half of the year are little more aggressive?

My guess is it's a combination of us being a little bit more conservative and of course recognizing that ultimately it's not just RevPAR, it's EBITDA for us whereas for them they're much more sensitive just as the top line changes, because instead of management fees don't represent anywhere near as big a component of their earnings, as EBITDA does for us. At the end of the day, I think, I'd reiterate what I said the last quarter when there was a little bit of a gap between where we were and where both of them were, which is that there's really no reason given that I would agree with your point that we own some of their best hotels and we typically perform pretty much in line with them. There's no reason in our mind why we would underperform either of them. Obviously we're moving our expectations a fair amount from one quarter to the next, and I think we don't want to necessarily get ahead of ourselves. You should take from our call, we feel very good about what we're seeing in the first quarter. But, we're still in a recovering economy and we want to take note of that.

And just one last question. We've heard some anecdotes that group hotels might be benefiting from recovering attendance. Effectively the group size is (inaudible) larger than the room block that was booked way back in 2008-09 for this year. And that's providing group hotels such as yours with an upside to group rates at the margin from that overflow business. Is there any truth to that reality or that rumor? Are you guys seeing that so far this year?

On an anecdotal basis, we've certainly had situations where more people showed up than we had expected. I think what we are finding though is that the hotels are constantly in touch with the bigger groups to understand what their room nights are going to ultimately come out to be. And what they have been finding is that where a lot of times last year, but we might have expected 800 rooms and by the time we got two weeks out, we're starting to find that 800 was turning into 700 or 750. What we're hearing from our GMs at this point is that holding at 800 it may be coming in higher than that in some cases, the key for us on that is to really understand that and try to build that into our revenue expectations, because as we begin to get more confident that those associations will not only fulfill their full block but actually begin to exceed it, that allows us to begin to do some mix shift by cutting off some of the cheaper channels that we might have available and save rooms either for that higher priced group or simply may certainly save enough rooms in certain markets where we're only selling rooms to that higher priced corporate customer as opposed to that lower priced discount customer.

We'll now move on to Ryan Meliker with Morgan Stanley.

Just a couple of quick questions. First of all in terms of the RevPAR front and where things are looking right now, can you give us any additional detail on how much your group booking pace moved up in the quarter for the quarter and first quarter, and how it moved from last time we spoke to stay for the full year and both in terms of rooms and rate?

Let's see. We gave some data before. Let me try to approach it a slightly different way. If you look at what was happening on net booking pace in for the first quarter, we generally found that in the first quarter itself our net bookings were up by over a 100% compared to where we were in '09. And those bookings actually exceeded the pace that we had in 2007, which we tend to use as sort of stabilized here by more than 25%. If you look at how it's laid out for the quarter, we started off down about 6% and ended up slightly. So you can see that the fact that we booked so many more rooms in the quarter than we traditionally have done, allowed us to close the gap in a way that we probably wouldn't have in the past. On a full-year basis, you're finding that the bookings are short term. We haven't hit that magic moment that I can tell yet where somebody calls up, wants to do an event in four weeks and finds out that there is no room available at the end. So we haven't quite gotten to that point because of where our occupancy levels were. So you're finding that most of the successes on the booking pace side is relatively short term, which is why our second quarter bookings are up almost over 250% compared to 2009. Now, recognize there weren't a lot of short-term bookings happening at this time last year, but the reality is as even the second quarter bookings when you go back and compare them to 2007 are slightly positive. So we would take that as a good sign too. The net of it is that when we started off the year, being negative in terms of overall room nights, we've closed that gap in a material way and in fact now adjusting those number of nights booked to reflect what we thought were the cancellations that happened last year because I think that gives you a cleaner sense of data. Instead of being down I think 6%, we are now up call it 3% to 4%. So I think that obviously is a pretty good change in a relatively short period of time.

That's a great change and certainly helped some. So that makes sense in terms of bookings. How do rates look looking at today versus the rest of the year compared to last year?

I think you should still assume probably the short term rates that we're booking at are generally lower than the rates that are on the books, but there are some markets where that's beginning to turn.

And can you clarify to what degree lower? Are we talking like 0% to 5% or 5% to 10%, etcetera?

Not in a way that I think would be meaningful.

And then one last question I had was, as you guys are obviously looking at dispositions and looking at acquisitions, what is your general sense in terms of the way you're approaching valuation for potential acquisitions and dispositions and the way some of the competitors that you're going up against for bidding on these properties and looking at them? Seems like cap rates right now are at historically low levels, which make sense given the historically low net income. But I feel like most people aren't looking at valuation on cap rates. So are you focusing on value relative to replacement cost or price is the key. How are you guys generating your numbers and how do you think your competitors are?

The way we are looking at acquisitions fits within the model that we always expressed in terms of how we look at transactions. What we look at, we start with trying to understand what we think based on our projections is an unlevered rate of return from a particular asset. And so in each instance what we're going to do with that is we're going to make certain assumptions about what the performance is going to be this year and that we're going to assess what we think is likely to happen for that particular asset in that market over the next few years. And then I think having kind of calculated in what we think the recovery is, we would probably stabilize it a longer term revenue and EBITDA or NOI growth rates and carry that out to ultimately get to a 10-year discounted cash flow. If you think about how that works, obviously markets that have fallen further but then are expected to rise faster are going to ultimately end up with lower cap rates today but that's just reflecting the particular circumstances of their market. The other major element that we would look at it is the one that you're referencing, which is trying to understand where you are in a discount to replacement cost. I think one of the key factors in employing that in your analysis is that to the extent that you are legitimately analyzing what your replacement cost is, if you're buying at a meaningful discount to replacement cost, well that in and of itself does not tell you that you're necessarily going to have a successful investment. It does give you a sense that it is harder on a relative basis that the discount is larger for a new competitor to come into your market simply because the cost to build that new competitor are probably not going to make sense in the context of the return on the investments until cash flow has appreciated meaningfully. So discount to replacement cost becomes a good gut check for us on whether or not if you're underwriting a very aggressive recovery for an asset that you thought was at replacement cost, you probably have to ask yourself if you're really being fair about the likelihood of new supply in that market. So those would be the two primary things that we would look at. My guess is at the end of the day I think most of our competitors are pretty sophisticated. They would each have their own take, but I suspect that they are looking at it in generally the same way.

We'll now move on to Josh Attie with Citigroup.

I just have a quick question on the margins, when I look at the high end your guidance of up 4% and margins down 50, and then I strip out the impact of the cancellation fees for the full year, I get 5% to 6% RevPAR growth 2Q to 4Q and call it 75 basis points of margin, adjusted for the cancellation fees. So two questions, one, am I thinking about that the right way? And two, what do you think those margins would be in year two of the recovery on similar RevPAR, adjusting for the fact that you'll have some costs added back this year?

Josh, it might make sense with respect to the assumptions that you're coming up for the second half of this year, I suspect that it may make sense for you to catch up with Greg to go over that event because it's a little hard to capture that on a fly. What I would say with respect to the next year is thinking about 2011 is I'd go back to the comments that I made before that I think that this year's tougher. The speed with which everything recovers this year will probably have to play some role in looking at what happens in margins next year and to the extent that we began to see a stronger recovery and so some of that cost creep that I'm expecting is going to happen, happens this year it probably sets us up for a more normalized year in 2011 with respect to margins. When you step back and look at what would happen in 2011, if you were to have 5% RevPAR growth, I would be very disappointed if we didn't have some margin growth there. I'm not anticipating that inflation's going to be particularly high next year, and so assuming that that plays out that way and that there is a reasonable gap between RevPAR/revenues and inflation, we should be in a situation where we should see some margin growth.

This is Greg. I think your math was right for Q2 to Q4 from a RevPAR perspective. And then as you know, Josh, even though Ed mentioned earlier in this call that rates can turn positive at some point in the second half of this year, when you're looking at the full year result with RevPAR of 1 to 4 most if not all of that is due to an increase in occupancy. And so of course next year when you have a bigger part of the RevPAR increase will be rate, obviously that will be helpful for margins as well.

And we will now take our final question from Smedes Rose with Keefe, Bruyette & Woods. Smedes Rose - Keefe, Bruyette & Woods: I just wanted to ask you a quick question. Your looks like you could issue about 3 million or 4 million more shares on that. Would you expect to exhaust that and reload or do you kind of feel like you're done on that side of the liquidity?

That all depends upon how active we can ultimately be on the acquisition side. We obviously have fair amount of capital right now. As Larry mentioned in his comments, we got a pleasant surprise when the exchangeable that was (inaudible) to us a couple weeks ago wasn't put. So that gives us an extra 325 million of capital that we weren't counting on. So we'll take that into account in deciding what to do with the continuous equity program. At the end of the day, I think folks should assume that we are trying to add additional hotels to our portfolio and that we will ultimately draw on that capital in order to help fund that growth. In the long run, I would expect that we would have another continuous equity program. I think that's a very cost effective way to fund the equity portion of our balance sheet but it's all going to be tied to exactly what level of growth we're having and because if you don't have the growth then you don't necessarily need to issue the incremental equity.

And that does end our question and answer session. I would now like to turn the call back over to Mr. Walter.

Well, thank you very much all for joining us today. We appreciated the opportunity to discuss our first quarter results and our outlook. We look forward to providing you with more insights as to how this interesting year is playing out in mid-July at our second quarter call. Enjoy the rest of your day.

And we would like to thank everyone for their participation and this now concludes today's conference.