Good day and welcome to the Host Hotels and Resorts Incorporated Third 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 Executive Vice President Mr. Greg Larson. Please go ahead, sir.

Well thank you. Welcome to the Host Hotels and Resorts third 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 and 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 third quarter results and then we'll describe the current operating environment as well as the company's outlook for the remainder of 2010. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our third quarter results, including regional and market performance. Following the remarks, we will be available to respond to your questions. And now here is Ed.

Thanks, Greg. Good morning, everyone. We are pleased to report another strong quarter with solid RevPAR growth driven for the first time in a while by improvements in average rates and continued transaction activity as we completed great acquisitions in several key target markets. First, let's talk about our third quarter results. Our comparable hotel RevPAR for the third quarter increased 8.8% driven by an increase in our average rate of 4.5% and an increase in occupancy of 2.9 percentage points. Our average rate was $162 and our average occupancy for the quarter was 73.3%. Our properties benefited from strong group demand which drove a 6.2% increase in comparable food and beverage revenues, ancillary revenues, net of cancellation fee increased by just 1.6%. Comparable hotel revenue growth of 6.9% combined with an increase in comparable hotel adjusted operating profit margin of 150 basis points resulted in adjusted EBITDA of $163 million for the third quarter which represented an increase of $24 million from the prior year. FFO per diluted share after a reduction of $0.02 related to debt repayment and acquisition costs was $0.11 for the quarter. On a year-to-date basis comparable hotel RevPAR increased 5.6% and comparable F&B revenues grew just 4.3%. Total year-to-date revenue growth of 3.7% combined with comparable hotel adjusted operating profit margins that declined 20 basis points, resulted in a year-to-date adjusted EBITDA of $539 million and year-to-date FFO per diluted share of $0.42. RevPAR growth in our portfolio has been consistently strong since April of this year. As we have transitioned more fully into a recovery, the composition of that RevPAR growth has turned more favorable as the improvement has been increasingly driven by increases in average rate. We are also continuing to benefit from a shift in business mix towards higher rated segments,…

Thank you Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. When looking at our portfolio based on property types, all of them performed very well for the quarter. Our urban hotels performed the best with a RevPAR increase of 9%. RevPAR for our resort conference hotels increased 8.7%, while RevPAR at our suburban and airport hotels increased 8.6% and 7.8% respectively. The two best performing markets for the quarter were New Orleans and Orlando, where we have one large hotel in each market. New Orleans property had a RevPAR increase of 28.3%, occupancy increased over 12 percentage points and ADR increased 8.3%. The hotel benefited from a significant increase in group room nights and contract business related to the Gulf oil spill clean-up. For the fourth quarter, we expect the property to under perform the rest of the portfolio due to less city-wide business. RevPAR for our Orlando property increased 26.7%, due to an occupancy increase of 14 percentage points and a slight decrease in ADR. Group demand, particularly association business increased significantly. We expect the hotel to under perform the portfolio in the fourth quarter due to lower levels of group business and the start of the rooms' renovation at the hotel. The Chicago market continued to outperform the portfolio with a 14.2% improvement in RevPAR. Although there were too fewer city-wide events in the quarter, occupancy increased three percentage points and ADR improved 9.4% as our hotels benefited from higher levels of in-house group business. A positive shift in the mix of transient business, as well as actual rate increases drove the ADR growth. We expect our Chicago hotels to perform in line with the portfolio in the fourth quarter. Our Boston hotels with a RevPAR increase of 14.5% continue to…

Thank you ladies and gentlemen. The question-and-answer session will be conducted electronically. (Operator Instructions). And our first question will come from Felicia Hendrix with Barclays Capital.

First question is, Marriott on their conference call recently made some comments regarding the ramp of their incentive fees which apparently was lower than many people have been expecting. Just wondering from your perspective as owners of hotels, as owners of Marriott branded hotels, if you could share with us what percentage of your portfolio is still under the owner's priority returns and when do you expect those properties to start paying incentive fees?

Sure. At this point I think as we look out towards the end of year we are expecting that roughly a third of our hotels will be paying incentive management fees. And logically as we continue to move upwards in terms of EBITDA that number will increase.

If you have to think about and I know projections are hard. But if you have to think about through 2011, do you think by the end of 2011, you are, I don't know, two-thirds of the way there?

No. I mean it would be very difficult to speculate on the fly on that particular point because it's so unique to each individual asset. But just remembering back to the pace which we recovered in 2004, '05 and '06, it was a far more moderate transition than that.

And just getting to your special corporate business which is clearly ramping, I am wondering if you could, and I know we are still in the process in the RFP process but if you could give us some thoughts about where you think rates might come out for 2011?

I don't know that I could add much more than what Barney would have speculated on the call last week. You can rest assure that we are wholeheartedly supporting the efforts of our operators to obtain meaningful increases from our special corporate customers. I think we are probably still a little early in those negotiations to have a clear read. Certainly some of the contracts that has been negotiated are coming in at the high single-digits, some times better. But, I think it's still up in the air and see how strong they ultimately end up. One thing is for sure that was, where there has been a drag on our numbers this year, it should certainly start to contribute to average rate increases next year.

All right, okay. And final question, on your last call you were indicating you would start looking at dispositions probably more likely next year or the year after. I am just wondering are there any particular geographic regions or brands that no longer fit with your overall strategy.

Certainly there would be no particular brand that we would be trying to sell from. I think we are very comfortable with all of the brand partners that we have. In terms of regions I think broadly speaking we are probably more focused on the coast with the exception of Chicago and less focused on the interior of the country. And so some of those would be the sorts of locations that we would be more likely to sell; but having said that I think what you are going to find is that next year we'll have some level of acquisitions, we hope. A lot of that's going to be dependent upon both the performance of the assets that we are looking to sell meaning, have they started to come back closer to their peak operating levels. So that we will feel comfortable that we are getting good pricing and we don't need to sell assets right now from a liquidity perspective. Selling assets is more about reaping value where we think we've created as much as we can and then it's also a part of just over time repositioning the portfolio, that bulk of the portfolio is located at higher growth market.

And our next question will come from Joe Greff with JPMorgan.

Ed, you talked about I guess caution with respect to food and beverage and catering revenues associated with the group stuff. Is that specific to just a handful of markets, I know Marriott referenced that last week as well and then when you look at your 2011 group pace, the first three quarters of next year that data point that you referenced, are you seeing any improvements on the non-room revenue side? Thanks. JPMorgan: Ed, you talked about I guess caution with respect to food and beverage and catering revenues associated with the group stuff. Is that specific to just a handful of markets, I know Marriott referenced that last week as well and then when you look at your 2011 group pace, the first three quarters of next year that data point that you referenced, are you seeing any improvements on the non-room revenue side? Thanks.

With respect to which markets we are seeing the greater effect, I sense that we had and looking through our numbers that there wasn't a market difference. I think what you are just seeing is the good news that the customers are meeting again, groups are coming back to properties and the events are happening. I think what we've found over the course of the summer and as we looked out into the fourth quarter, is that they were probably being a bit more cautious about what they spent on food and beverage specifically on break that seemed to be areas we talked to the operator where we were feeling the most impact. Its just coffee and water and soda instead of more elaborate food displayed and that affected the group's spending is per customer is down just a little bit and I wouldn't want to describe this as any kind of a sea change from our perspective but it was. We were expecting a little bit more in the third quarter and as we look out to the fourth quarter we realized that we should probably moderate our expectations there. The other thing that kind of happened on that side that I referred to in my comments that I think is a little tied into the ancillary revenue of this issue is that on the ancillary revenue side we're not seeing quite as much spending in spas and golf as we might have anticipated. You know with the strong increase in occupancy that we've had, we would have normally expected those revenues to trend up a little bit more aggressively. Now if you look at where we ended up, I think we're probably up about 4% increase in occupancy, yet our ancillary revenues were only up about 1%. Again…

And next we'll hear from Smedes Rose with KBW.

When you are looking at your acquisitions, is there more sort of opportunity on the domestic side or the international side? I guess I have been a little surprised by the amount of the internationally you are looking at and on that I think Marriott was the owner of the Rio hotel. I am just curious had you looked at that property before and things just came together to make it a purchase opportunity now versus in past years?

With respect to the JW in Rio de Janeiro we had looked at that asset over the last couple of years. There were some title challenges with that asset that needed to be resolved before Marriott could execute a sale transaction and so once those were resolved it was possible for the two of us to negotiate but it was something that we had been interested in really as far back as two years ago. I think its somewhat coincidence or opportunistic in terms of the timing that we've had that of the first four properties we've bought, two of them have been located outside the US and two were located inside the US. I still suspect that on general, the majority of the acquisitions that we complete will be domestic. It's just that we have active in these other markets; we have been working in these other places for a while. We felt comfortable with the opportunities when they presented themselves and so we acted on them but by and large there are pipeline still has more assets that we're looking at that are domestic in nature than those that are international.

And then can you just comment on if the cost pressure I guess building for next year for the employees at the property level. I mean do you have a sense of how much that needs to go up the next year?

I think the operators are still sorting that issue out but I don't believe that we're necessarily looking at anything that would be beyond what you think, usually the Employment Cost Index has a tendency to trend a half or so points above the CPI. I would suspect that if you look into 2011, you will probably find that wage increases will trend slightly above inflation kind of consistent with the long-term average. We are not getting the sense that there is going to be any major movement to sort of which I think is where your question is ultimately focused, is there is going to be a movement to try to catch up on some of the lower wage increases that might have happened over the last couple of years and so far we are not hearing that. And as we've talked a little bit, one of the things that might help offset some of those changes over the course of the year plus as Larry had talked about several times in his comments that we had some pressure in the broad salary and wage area because those bonus expense kind of coming back into our P&L as the properties perform much better than anticipated, certainly much better than last year. We still have bonus expense for next year but as you think about year-over-year changes, that bonus expense should not be significant in the year-over-year context as it was in 2010.

And next we'll hear from Ryan Meliker with Morgan Stanley.

Good morning guys, I just had two quick questions. First one on your 2010 RevPAR guidance and I guess the implied guidance for 4Q, looks like it's got about a 5.5% to 9% range for 4Q coming in at 8.8% in 3Q. Is there anything you are seeing that leads you to believe that RevPAR growth might moderate, is it the renovations you are working on, there is something going that would lead us to believe the things are getting worse in 4Q as opposed to getting better?

No, I wouldn't read into our number, any sense that things are getting weaker. I think that the comp gets slightly more difficult in Q4. But I think that the one thing we did comment on as Larry went through the different markets is that we do have some renovations happening at some of our larger hotels that are going to hit in November and December of this year. Now the reason those renovations are targeted for that time of year is traditionally business demand levels and volume levels are lower. So we hope that there will be the less disruption, but in terms of thinking through what was going to likely happen in the quarter we were thinking that we should at least provide for some room for conservatism in case the impact turned out to be greater than we expected. Clearly we've had a lot of questions and meetings and sort of I think there's in the industry about the potential impact of some of the slowing that we saw in the economy during really the late spring and during the early summer and whether that's going to have any impact on our operations. And clearly that's something that we have been focused on. Now the short answer on that is that we have continued to see very good demand. September is based on preliminary results was up 9.5%. So September for us meaning, September for our monthly hotels including 2010 for our Marriott International hotels. So that's favorable compared to where we are for the third quarter. Booking pace continues to follow the same pattern of being about in line a quarter out and then getting very strong during that quarter proceeding the actual quarter that happens and then bookings in the quarter continue to be good.…

And then one other question on rooms operating margins, obviously you guys did a great job this quarter with an 80% flow through on the rooms department. I think last quarter you mentioned that, typically towards the peak of the disparity between the rate growth and occupancy growth you get to plus or minus 80% flow through, yet you really do that at only about 50% split between rate growth and occupancy growth. If I were going to assume maybe rate growth is up 80% of RevPAR growth in 2011, is it realistic to believe we could exceed that 80% flow through or do you think 80% sort of peaks at, costs will start to go up a little bit more?

I think you could have been there certainly within individual quarters you could do better than the 80% but, A, a little bit more is probably in the context of the full year. I don't know that I'd be more aggressive than that.

And next we will hear from Jeff Donnelly with Wells Fargo

Ed, if I can just build on Smedes' earlier question about the valuation proposition between domestic and foreign properties, just given the debate about that long-term health of the U.S. economy and what might be entailed I mean get us back on the upward trend. Do you think it might better served, placing more dollars outside the U.S. in future years?

Jeff, it's a really good question and it's one of the things that we have thought a lot about as we've gone through our different strategic planning exercises. Certainly as you look around the world and focus on market flag, Brazil, India, China, you certainly see a lot better economic growth to what we are projecting to see in the U.S. and we know that economic growth ultimately translates into hotel demand growth. And that's the most fundamental reason why we felt it was important to explore our opportunities internationally. Today, international probably when you total up the amount of investments that we have in our portfolio in international markets, it's roughly in the 7% to 8%. That's counting in U.S., just our share of the JV and not the total magnitude of the assets that are there. But as we look into the future, if we continue to feel that we can invest successfully in those markets, every country is a little bit different and every market is a little bit different. So as we continue to prove to ourselves that we can successfully invest outside the US, I think for the very reason you suggest that we would feel comfortable in having that percentage increase in efforts to try to give us broader exposure to markets that are going to grow better than where the US is going to grow.

You know just looking here at the US, I am curious how concerned are you that maybe some of the current prices that we see on transactions are being somewhat influenced by the low rate environment that exists out there and maybe a rising rate environment in future years. Could you asset appreciation potential because certainly most assets prices aren't top as much as the cash flow certainly would bear out?

Yeah I think right now I would feel comfortable that given the reduction in profitability that at least the markets that we are looking and experienced, I would feel pretty comfortable that even if we ultimately come back to a rising rate environment frankly I hope that we do because it would suggest a healthier economy. I would feel comfortable that the increases in EBITDA that we would expect to benefit from would certainly keep asset pricing well above where it is today. I mean at the end of the day pricing should in most markets move much closer to replacement cost and as I mentioned in our comments we think we are buying at a meaningful discount to replacement cost. The increasing interest rate or the low levels of interest rates, they have had some effect certainly on the ability of people to pay some of the prices that they paid. Where this is not quite as debt driven in acquisition environment right now that's what we saw in the '05, '06 and '07 timeframe. Leverages plays a role in deals but it's not the driver behind deals right now because you just can't get leverage at the same level that you could get before. So none of it is, you will probably see cap rates go up over the next two or three years but I think some of that is going to be reflective of. It will little bit because rates are a little bit higher and it will be because as we start to progress through the growth phase that we all expect to see in these assets '11, '12 and '13 there's usually a little bit of moderation that comes, the anticipated growth rate moderates too.

And since you brought it up, about replacement cost I am sure that your thoughts are on the prospects for development. And I don't mean just full service in the urban markets that maybe more [proudly] in the industry. And I know that the conventional wisdom is development sort of off the table for an extended period of time but the transaction pricing we are seeing in the market today for key basis is pretty close to where it was in 2004 to 2005 when many folks were actually starting construction life cycle I think that Marriott's correct on their 2011 outlook. The industry is going to be getting pretty close to being within striking distance, say by 2012, of sort of peak revenues or nearing on peak profitability, we saw last time and construction costs are arguably lower. I am curious, I mean I know its not today but do you think in the next 12 months we could hear increasing signs of construction activity or do you think that that's still going to be off the table as we look forward.

Certainly, from the standpoint of full service development I think I would be surprised if we saw real progress towards a lot of new development in the next 12 to 24 months. And I still tend to look towards the levels of supply growth that we saw in three, four, five and six as being indicative of what's likely to happen in '11, '12, '13 at least '11, '12 and '13. When I compare the two periods, even assuming we have the same rate of recovery that we had last time which I think is feasible, the reality is as we started a little bit lower, so the gap between value and replacement cost is certainly as great if not greater. The availability of financing in today's environment for new construction is weaker than what we experienced in the early part of the last decade. So while financing conditions are trending in the right direction, I don't see a lot of lenders racing to provide loans for new hotels. And that, that will be necessary in order for construction to really increase. So, I think you're right, the value from the standpoint that values have recovered maybe a bit more quickly than people were projecting. The bulk of the reason behind that is the cash flows are recovering more quickly than people have projected. That will ultimately support new construction, but I think we have got a fair amount of time before that's going to happen. Now, having said that, that's a full service discussion, I think it's even tougher in the luxury market. Luxury sells more, and luxury the last time was subsidized by a lot of condominium construction where the hotel was an amenity to a condo project. That's only going to make sense in markets that have a vibrant condo market, and I don't see that happening in the near term in most of the major markets across the country. We probably will see some limited service construction sooner than we'll see full service construction. Those properties are smaller, they are easier to finance, the numbers have always tended to work sooner with that type of a product. And so I suspect that when we do start to see supply numbers begin to trend upwards instead of continuing to trend downwards, it will be because of additional supply in that segment.

Just one quick final question if I could, I know you haven't given 2011 guidance, but as you think about that next year, what do you think will be the bigger driver of your RevPAR outlook? Is it just incremental demand overall, higher rates or more of a mix shift just between the existing rate category?

Well certainly it will be all of the above. I meant we are encouraged by the fact that while the occupancy rebound this year has been strong as it has been. But at the same time, we're encouraged just last quarter by how strong the rate contribution was. We're probably if you look at how we've done; we are still not quite 50% back. So, if you look at the drop that we had from 73, 74 in occupancy in '07 down to 66 last year. We are working our way back but we're probably at best about half way back on that recovery. So I will still be expecting next year that we would continue to progress back towards our prior peak occupancy levels. But certainly as you work your way through the year next year rate will play an increasing role. And what's interesting is that as you look at what's happened to us this past quarter is that change in business mix has been helpful but we've also been able to get absolute changes in rate within particular segments. And I don't see any reason why that trend won't continue into next year. So to sum that up my guess is by the time we get to the end of next year, we probably would find that rate was a bigger contributor to RevPAR growth than occupancy but both will contribute.

And that does conclude the question-and-answer session. At this time I would like to turn the conference over to Mr. Walter for any closing remarks.

Great. Well, thank you for joining us on the call today. We appreciate the opportunity to discuss our third quarter results and our outlook with you. And we look forward to talking when you following the close in 2010 with more detailed insights into 2011. Have a good remainder of the week.

And that does conclude today's conference. Thank you for your participation.