Host Hotels & Resorts, Inc. (HST) Q4 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the Host Hotels & Resorts Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] At this time, for opening remarks and introduction, 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 & Resorts Fourth 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 reconciliation 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 fourth quarter results and then will describe the current operating environment, as well as the company's outlook for 2011. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our fourth 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. Thinking back to our and the industry's outlook on 2010 last February, it is hard not to be pleased with how this year played out. We were able to accomplish some exciting transactions during the year. And while the economy presented challenges, especially in the first half of the year, we were happy to see that the lodging recovery happened faster and stronger than we originally expected. However, before I get into the detail of our 2010 operating results, I'd like to highlight several of our accomplishments for the year. We closed approximately $500 million in acquisitions by purchasing the W New York Union Square, Westin Chicago River North, the Meridien Piccadilly in London and the JW Marriott Hotel Rio de Janeiro, and announced acquisitions in New York, New Zealand and San Diego totaling more than an incremental $1 billion. History has demonstrated that early cycle acquisitions tend to add the best value, and we are acting on that premise. In addition to the investments I just noted, we also reached an agreement to develop seven hotels in three major cities in India through our Asia joint venture. We also purchased the junior tranches with a par value of approximately $64 million of a mortgage loan secured by a 1,900-room portfolio of hotels in Europe. The notes were purchased at a meaningful discount. The underlying assets are performing above expectations. For the year, we invested a total of $114 million in return on investment capital projects, including the development of a new 26,000 square foot ballroom and outdoor venue space with the Westin Kierland Resort & Spa, new meeting space at the Miami Biscayne Bay Marriott and new restaurants at the Hyatt Maui, Harbor Beach Marriott, Westin LAX and Tysons Ritz-Carlton Hotel. We continue to find construction pricing attractive, and expect these investments to yield returns substantially in excess of our cost to capital. We also continue to focus on strengthening our balance sheet. On that front, the combination of over $400 million of equity issuance to fund our investment program, the repayment of several debt instruments and preferred stock and the successful placement of $500 million of senior notes bearing interest at 6% reduced our average interest rates by 0.04% to 6.2% and increased our coverage ratio by more than 15%. Now let's review the results for the quarter and the year. Fourth quarter RevPAR for our comparable hotels increased 6.2%, driven by an increase in average room rate of 2.8% and an increase in occupancy of 2.2 percentage points. For the full year, comparable RevPAR increased 5.8% to $120 as a result of a 3.8 percentage point increase in occupancy and a slight increase in average rates. Our average rate for the year for our comparable hotels was $171 per night. Our average occupancy was 70%. Food and beverage revenues in our comparable hotels increased 4.8% for the quarter, primarily because banquet revenues increased over 7% as groups upgraded their catering spends. For the year, food and beverage revenues increased 4.5%. Comparable hotel-adjusted operating profit margins increased 110 basis points for the fourth quarter and 20 basis points for the year, resulting in adjusted EBITDA of $286 million for the quarter and $824 million for the full year. Our FFO per diluted share was $0.26 for the fourth quarter and $0.68 for the full year. FFO per diluted share was negatively impacted by $0.02 for the quarter and $0.06 for the full year by debt extinguishments and acquisition costs associated with the successful transactions. Since our guidance in October did not foresee these costs in the fourth quarter, adjusting for these items indicate that our FFO results exceeded the high end of our guidance. Consistent with the trends we've been seeing all year, we continue to benefit from positive demand growth in the fourth quarter as our number of rooms sold increased by more than 3%. More importantly, for the second quarter in a row, we recorded an overall increase in average rate driven by both the shift to higher-rated Transient business segments and actual rate increases. Similar to what we experienced in the third quarter, our transient revenue growth of 6.3% was driven by a nearly 5% increase in transient rate, as transient room nights, which now exceed 2007 levels, increased slightly more than 1%. The improvement in ADR was driven by the Premium and Corporate segments, where rate increased by almost 7%. When combined with the demand increase of 6%, these segments saw a revenue increase of more than 13%. For the year, the Premium and Corporate segments saw a balanced combination of demand in rate growth leading to an 11% revenue improvement. Demand in our Special Corporate segment was significantly up for the year, leading to strong revenue growth of 27%. Reflecting our operators' efforts to shift business out of lower-rated segments, our discount room nights declined by more than 3% and revenues in this category fell slightly. This trend accelerated in the second half of the year as our operating environment improves. While our full year transient demand matches 2007 levels, ADR is still more than 16% below the prior peak, indicating a meaningful opportunity for additional rate growth in 2011 and beyond. Turning to our Group business. Consistent with our comments last quarter, our group room nights were up more than 6% as increases in our Corporate and other segments more than offset the slight decline in Association business. Average rate was slightly better than the fourth quarter of last year, resulting in an overall group revenue increase of 6.2%. We experienced a demand increase of over 11% in our higher-rated Corporate Group business and a rate increase of more than 3%. Recovery in the Luxury segment continues to gain momentum as our Luxury Group room nights were up more than 15%. For the full year, our group bookings were up almost 7% and rate was down 3%, although ADR did increase in the second half of the year. Compared to 2007, our group room revenues are still down by 19%, and our Corporate room nights are down by 1/3. We would expect to close both of these gaps over the next few years. Looking at 2011, we would expect that revenue growth will be driven by a combination of both occupancy and rate increases. It is worth noting that despite the nearly four-point increase in occupancy we experienced this year, we are still four points below our prior stabilized occupancy level of 74%, so we expect to see increases in occupancy in both our Group and Transient segments. However, reflecting the trends we have enjoyed over the last six months, we would expect to see a meaningful portion of our RevPAR growth would be generated from ADR growth due to both actual pricing increases and segment shifts. Our booking activity in the fourth quarter was exceptionally strong, and we started the year in a far better position than 2010, as group bookings through the first three quarters of the year were up by more than 3.5% versus a decline of roughly 6% last year. More importantly, our average rate per existing group bookings exceeds 2010 in every quarter. We expect we will see booking pace to improve as the year progresses and that activity in the higher-rated categories will increase. On the investment front, as we announced this morning, we signed an agreement to purchase the 1,625-room Manchester Grand Hyatt San Diego Hotel for $570 million. The hotel has a premier waterfront location and is close to the city's central business district and Convention Center. The hotel is the premier meeting platform in the market, providing approximately 125,000 square feet of meeting space, including a 34,000 square foot finished exhibit hall and a 30,000 square foot ballroom. With its location adjacent to our San Diego Mariott Marina Hotel, we expect to see revenue and expense synergies from both of these hotels. In January, we announced that we have signed an agreement to purchase the 775-room New York Helmsley Hotel for approximately $313 million. The property will be managed by Starwood initially as an unbranded hotel. As part of a comprehensive renovation costing approximately $65 million, the guest rooms and guest baths will be completely renovated, a few rooms will be added to the inventory and the meeting space will be upgraded. When the renovations are complete in early to mid-2012, the property will be branded as the Westin. This will only be the second Westin in Manhattan, and we believe that the hotel will benefit greatly from both the brand change and from becoming part of the Starwood system. While the hotel will benefit from Starwood's management and reservation system as an unbranded hotel, the EBITDA generated from this hotel in 2011 prior to its conversion will likely be in the $5 million to $6 million range, as results will be negatively impacted during the renovation process. Once the renovations are complete and the hotel is converted to the Westin brand, we expect to see EBITDA results in the low- to mid-$30 million range for the first full year of operations as a branded hotel. This past quarter, we also finalized our purchase agreement for seven hotels in New Zealand with over 1,200 rooms at a price of $145 million. The hotels are located in the country's main commercial and tourist centers and will be operated by Accor Hotels, one of the largest operators in New Zealand. This is our first acquisition in New Zealand, and we expect the transaction to close in the very near term. As you know, attractive acquisition opportunities increased in the second half of 2010, and we expect 2011 will continue to be an active environment. Given the strength of our balance sheet, we believe we are in a great position to take advantage of investment opportunities as they arise. In the U.S. and Europe, our goal is to acquire assets at a discount to replacement cost while achieving investment yields in excess of our cost of capital. We have a strong pipeline of acquisition opportunities and expect that we will purchase additional hotels during 2011. With that being said, recognizing the unpredictability of the timing of completing acquisitions, our guidance today does not assume any additional acquisitions beyond those we announced. In 2011, we expect to spend approximately $290 million to $310 million on ROI and repositioning investments. Some of this year's projects are a continuation of works started in 2010, including the San Diego Marriott Hotel & Marina, where we are renovating all the guest rooms, the pool and fitness center and developing an expanded new meeting space and exhibit hall platform. At the Sheraton New York Hotel & Towers, we are continuing construction efforts that we started in December, which include major mechanical AC/HC upgrades, as well as a comprehensive room renovation. This project will be done in two stages with a final completion date of mid-2012. We are also completely renovating and repositioning three hotels, the Chicago O'Hare Marriott, the Sheraton Indianapolis and the Atlanta Perimeter Marriott. In each instance, we are completing comprehensive room renovations, materially reconstructing the lobby and food and beverage outlets and reducing the room count with the goal of generating significant improvement in operating results. In the case of the Sheraton, we expect to convert a tower of rooms to rental apartments. And in the case of the Atlanta Perimeter Marriott, the room count reduction is necessitated by a condemnation proceeding which generated more than $11 million and which will be deployed to fund the material part of the renovation. In terms of maintenance capital expenditures, we spent $195 million in 2010 and expect to spend $260 million to $280 million in 2011. 2011 plan includes room renovation at the New York Marriott Marquis, the Philadelphia Marriott and JW Desert Springs Marriott, as well as meeting space renovations at the Hyatt Washington, Sheraton Boston, New York Marquis and New Orleans Marriott. While the disposition market has improved, we are seeing challenges for buyers obtaining debt, especially in the secondary and tertiary markets, as lenders are more apt to focus on lending in primary market. While we are actively reviewing our portfolio for likely sale candidates, we expect the volume of our asset builds to be light in 2011. However, we will be monitoring the pricing of transactions in the market and hope to accelerate our dispositions later in the year. At this point, our guidance does not assume any dispositions. Now let me elaborate on our outlook for 2011. In general, economic indicators present a favorable picture for 2011, especially compared to where we were a year ago. Business investment, a key indicator for our industry, is expected to increase 9% this year, and GDP growth is expected to be over 3% both in 2011 and 2012. These factors, combined with some improvement in employment, bode well for lodging demand. As managers more actively focus on increasing rate and shifting business mix away from the lower-rated segments to higher-rated group and transient demand, RevPAR growth will be increasingly driven by rate growth, which better drops to the bottom line. With all this in mind, we're expecting comparable hotel RevPAR to increase 6% to 8% for the year, with adjusted margins increasing 100 to 140 basis points. This operating forecast, combined with our recent acquisition activity, will result in adjusted EBIT of $1 billion to $1.035 billion and FFO per share of $0.87 to $0.92. Turning to our dividends. We are forecasting our first quarter common dividend to be $0.02 per share. As our operations continue to improve, we expect to modestly increase the common dividend through the year with the expectation of a full year common dividend of $0.10 to $0.15 per share. I am pleased to say that the lodging recovery is continuing to progress well. We remain in the early stages at this point and believe this positive cycle will continue to gain momentum. The business travelers are returning in greater numbers and supply over the next couple of years will be at historically low level and well below demand growth. The combination of strong demand and low supplies should lead to a solid and sustained recovery. Thank you, and now let me turn the call over to Larry Harvey, our Chief Financial Officer, who will discuss our operating and financial performance in more detail.

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Our top-performing market for the fourth quarter was Atlanta, with a RevPAR increase of 22.5%. Strong citywide and transient business contributed to an occupancy increase of over nine percentage points. The incremental demand and related compression led to a 5% improvement in ADR. We expect RevPAR in Atlanta to underperform our portfolio in 2011, even with an overall improvement in group, business and special corporate pricing, as well as a positive mix shift. As expected, our San Diego hotels had a great quarter, with a RevPAR increase of 16.8%, driven by an occupancy improvement of over nine percentage points, as both transient and group demand improved significantly and ADR increased slightly. For 2011, we expect our San Diego hotels to outperform the portfolio due to overall improvement in transient and group demand and ADR growth. The Chicago market continued to perform well with a 12.1% improvement in RevPAR. Although citywide events were flat to last year, the timing of the events in 2010 and good business transient demand facilitated a strong RevPAR growth. Occupancy increased over four percentage points and ADR improved over 5%, as our hotels benefited from a positive shift in our Transient mix of business. We expect the Chicago market to outperform the portfolio in 2011 due to strong group and transient demand, as well as a further positive shift in mix, which will increase ADR. Our San Francisco hotels had another excellent quarter with a RevPAR increase of 11.5%, as ADR increased over 7% and occupancy increased nearly three percentage points. Both group and transient demand were strong, allowing the hotels to yield rate. We expect the San Francisco market to perform in line with our portfolio in 2011 through improvements in citywide and corporate group demand and ADR gains due to the related compression. Our San Antonio hotels had a very good quarter with RevPAR increasing 9.8%, as rate increased over 5% and occupancy improved 2.5 percentage points. The outperformance was due to strong citywide and corporate group demand. We were expecting even better performance, but the San Antonio Marriott Rivercenter was undergoing a rooms renovation that was more disruptive than anticipated. We expect our San Antonio hotels to outperform the portfolio in 2011 because of improvements in overall demand. RevPAR at our Hawaiian hotels increased 5.2%, which was well below our expectation as the renovations at two of our hotels affected operating results, particularly at the Fairmont Kea Lani. Occupancy improved more than nine percentage points, however, ADR fell 9%. The bulk of the demand increase was in Discount, Transient and Group business. Airline capacity continues to increase, and we expect Hawaii to be one of our top-performing markets in 2011 due to improvements in both group and transient demand, which should also drive some pricing power. RevPAR for our Boston hotels only increased 2.3% due to a significant decrease in citywide demand and the renovation of meeting space at the Sheraton Boston. Occupancy declined nearly two percentage points, while rate increased almost 5%. Our Boston hotels are expected to underperform the portfolio in 2011 due to less citywide demand. Our Phoenix hotels have struggled since 2007. Fourth quarter RevPAR increased only slightly due to the construction of a new ballroom at the Westin Kierland which was completed in early January. However, we expect our Phoenix hotels to turn the corner in 2011 and outperform our portfolio. Both group and transient demand are expected to increase significantly. Lastly, our two worst markets for the fourth quarter were Philadelphia and Orlando. Philadelphia's RevPAR fell 7.2% primarily due to a decrease in citywide events and a disruption from the renovation of the ballroom and rooms at the Philadelphia Downtown Marriott. Citywide demand for 2011 is strong and improvement in ADR is expected, but the renovation will limit available capacity, and as a result, the hotel will underperform the portfolio. RevPAR for the Orlando World Center Marriott fell 2.1% in the quarter primarily due to displacement from the rooms renovation and a difficult comparison to the fourth quarter of 2009, when the hotel significantly outperformed the portfolio due to higher levels of group demand. That hotel is expected to slightly underperform the portfolio in 2011. For the year, our top three markets were Boston, with a RevPAR increase of 11.6%; New Orleans, with a RevPAR improvement of 11.2%; and New York, with a RevPAR increase of 9.5%. The Phoenix market, where RevPAR declined 3.9% and the Tampa market, with a decrease of 1.6%, were our weakest performers. For our European joint venture, RevPAR calculated in constant euros increased 13.1% for the quarter, as eight of the 11 hotels had double-digit RevPAR increases. For the year, RevPAR calculated in constant euros increased 8.5%. We expect the European joint venture portfolio will have RevPAR growth of 5% to 7% for 2011. For the quarter, adjusted operating profit margins for our comparable hotels increased 110 basis points, which were reduced by 50 basis points for incremental property-level bonus expense. Rooms flow-through was strong for the quarter at nearly 76% due to benefits from the ADR increase and productivity improvements, which resulted in a relatively low 1.2% increase in wages and benefits on a per occupied room basis. Food and beverage flow-through was excellent at over 53% and much better than expected due to an increase in higher-margin banquet and audiovisual revenues, good cost control and improvements in productivity. Unallocated cost increased 4.7% for the quarter. This increase was primarily driven by expenses that are variable with revenues including credit card commissions, reward programs and cluster and shared service allocations. Utility cost increased only 1.4%, and property taxes declined 8.4%. Looking forward to 2011, we expect the RevPAR increase to be driven more by rate growth in occupancy. The additional rate growth should lead the strong room flow-through, even with growth in wage and benefit cost above inflation. We expect some increasing group demand, as well as higher-quality groups, which should help to drive growth in banquet and audiovisual revenues and solid F&B flow-through. We expect unallocated cost to increase more than inflation, particularly for utilities, which we expect higher growth due to increase in rates and volume and as well in sales and marketing cost. We also expect property taxes to rise in excess of inflation. As a result, we expect comparable hotel-adjusted operating profit margins to increase 100 basis points at the low end of the RevPAR range and increase 140 basis points at the high end of the range. During the quarter, we raised approximately $248 million under our continuous equity offering program to fund future acquisitions. We also issued $500 million of senior notes that bear interest at 6% and have a 10-year maturity. These notes have the lowest coupon of any bond we have ever issued. We used some of the bond proceeds to redeem $250 million of our 7 1/8% Series K senior notes. During the quarter, we repaid the $150 million mortgage on the W Union Square, the $71 million mortgage on the JW Marriott Desert Springs and $54 million of the $300 million mortgage on the Orlando World Center Marriott, which allowed us to extend the maturity date by two years to July of 2013. Of our 113 consolidated hotels, 102 of them do not have mortgage debt. At this point, we have only one maturity in 2011, the $129 million mortgage loan on our four Canadian hotels. Our credit facility matures in September of this year, but we have the right to extend the facility to September of 2012 as long as our leverage level is below 6.75x, a standard we are more than comfortable that we will achieve. We ended the quarter with over $1.1 billion in cash and cash equivalents. After closing on all of the acquisitions that Ed detailed, we will have an excess of $200 million in cash and $542 million of available capacity on our credit facility. I wanted to mention two more items prior to starting the question-and-answer session. The first is the change to our income taxes for 2011. Due to the significance of the downturn, our tax for REIT subsidiary incurred a substantial book loss primarily due to negative lease leakage, which resulted in our recording a $32 million tax benefit in 2010. The anticipated significant improvement in operating results should lead to a substantial improvement in lease leakage and as a result, we are projecting a tax provision for 2011. This translates into roughly $0.04 per share reduction in FFO for 2011. Finally, starting in 2011, we are modifying our definition of adjusted EBITDA to no longer deduct acquisition cost for successful transactions. Prior to January 1, 2009, the accounting rules allowed companies to capitalize such costs and depreciate them over the life of the asset. Under the current accounting rules, these costs must be expensed as incurred. We believe that these costs should not be deducted from adjusted EBITDA, because it would not reflect the ongoing performance of our portfolio. For 2010, we incurred $10 million of successful acquisition costs that decreased our adjusted EBITDA to arrive at the $824 million number. This completes our prepared remarks. We are now interested in answering any questions you may have.

[Operator Instructions] Our first question today will come from Felicia Hendrix with Barclays Capital.

Just on your guidance, I'm just wondering on your RevPAR guidance, you talked in the prepared remarks about renovations and reconditionings having an effect on the results in 2010. Wondering if you're RevPAR guidance assumes future impacts from renovations and repositioning? And if it does, is there any way to quantify it for us how that is affecting RevPAR?

I guess let's start by answering the question whether our guidance has taken into account the renovation work that we have going on this year. And the short answer is we have. We certainly think we've -- it's always tricky to try to calculate exactly what the disruption from these sorts of projects is going to be. And frankly, we were a little surprised by the level of disruption that we experienced in the fourth quarter and we feel like that probably cut our RevPAR growth in Q4 of 2010 by 1 to 1.5. As we think about it more though in the context of 2011, we've done the best job that we could to anticipate what the impact would be. I think that some of the spending is a little bit more concentrated this year in some of our larger hotels, but we hopefully have it occurring during times of the year where it would be less impactful.

So assumption is less than that 1 to 1.5 you saw in 2010?

I guess what I'd say is it may end up being as impactful in terms of it being a point versus impact in 2011. But we've recognized that as the guidance that we've given.

And then just -- there's always a difference between your comparable and your companywide RevPAR growth for obvious reasons, but the delta this quarter was a lot bigger than it's been in the past and I'm assuming that has to do with how the new properties added in 2010 are performing relative to the rest of your portfolio. I'm just wondering if that's the case, if you could touch on that and perhaps give us some idea of what properties are mainly driving that difference?

I think the answer is that the properties that we bought this year, the four properties that we've acquired, are generally operating at higher RevPAR levels than the overall portfolio. So that's the reason why you're seeing the difference in the number. They are just propelling our average RevPAR for the portfolio higher.

So it's all four of them. I just didn't know if there was a few other...

Yes, I think all four of them are contributing to that.

And my final question is just on the San Diego Hyatt. Once the acquisition is completed, I was wondering if you could quantify for us your CapEx plan there?

I'd say we're still in the process of developing that. One of the -- the original tower in the hotel, which was built in 1992, is in need of a significant renovation. I think what we're looking at doing there is doing both the rooms and probably renovating the bathroom. The other tower, which was completed in 2003, is not surprisingly in much better physical condition, and so I don't think we need to do anywhere near as comprehensive a renovation in that particular tower. But yes, we would expect, and our analysis on the deal assumes that we'll have to spend some amounts incremental to the amount that would be in the FF and e-reserve. But it's certainly nowhere near like the type of plan that we have for the Helmsley, where we really intend to reinvent the hotel as part of the conversion to the Westin brand.

Our next question will come from Shaun Kelly with Bank of America.

Just wanted to, I guess, maybe sticking with the Manchester for a second. You gave us some -- a very helpful sense on maybe the underwriting for the Helmsley. Could you give us like a similar sense for the Manchester? Maybe what it did in peak or kind of what you think that could contribute going forward? [ p id="1515726" name="W. Edward Walter" /> I guess what I would probably say as it relates to the Hyatt is that generally we've been able to complete that acquisition at this pricing sort of in line with the deals that we did in 2010, which is right around the 14 EBITDA multiple based on 2010 numbers. This hotel, like many others, did fall meaningfully from its peak operating history in 2006 and 2007. I think that we're below a 10 multiple if you go back to peak EBITDA in terms of our acquisition price.

And on the Helmsley, since you didn't give that perspective, Ed, kind of just thoughts on where that is, like how far off-peak that hotel is?

Shaun, to be honest, as it relates to the Helmsley, it's just not a meaningful comparison, because the hotel during the last cycle was really not run as effectively as it has been in the past. And so I think that's -- part of the reason why we threw out the number that we threw out in my comments is that it really -- to get a better indication of what we think is the potential of the hotel, you really do need to look forward under a new management and under a more powerful brand as opposed to backwards under the Helmsley brand.

And then I guess the last thing is just kind of on the balance sheet. I think you've pretty much got with $100 million or so left on the ATM program at this point, but you issued a lot during the quarter. You also mentioned that part of the funding for the Manchester would be, I think, through equity. So is the intention to I guess renew the ATM program, is that going to continue to be a source of funding for you guys? And then was the equity issued in the fourth quarter what you're going to use to fund the Manchester? Or is there a kind of incremental equity that you plan on issuing to finish that deal?

Well, I guess what I'd say is, first off, I don't think we're going to start a precedent right now necessarily detailing our entire sources and uses for the company on an earnings call. But I guess Larry made some comments relative to what our cash position would be after acquiring the three different properties. Until after we've acquired the assets in New Zealand, the Helmsley and the San Diego Hyatt, we will still have more than $200 million left of the cash that we started the quarter with, as well as we'll have pretty full access to our credit facility. As we look down the road, I think you should assume that we're going to be consistent with what we've said in the past, which is that we're going to continue to look to fund a significant portion of our acquisitions through the issuance of equity. And I'm not going to have us get pinned down necessarily in how we're going to go about doing that, but we have found that the continuous equity offering plan has been a very cost efficient way to do that. The actual amount of equity that we might issue and the actual amount of debt that we will issue will obviously be dependent on just how active our pipeline will become.

We'll now hear from Ryan Meliker with Morgan Stanley.

Just a couple of quick questions regarding some of the acquisitions. The Manchester Grand, obviously, was a property that's been depressed and was rumored to be acquired by some other hotel companies, one of them was a fellow REIT. I was wondering if you could give some color on how that process went through. It seems we're six months past where it seems like that probably was ready to be acquired, if anything changed in terms of your underwriting or your views on the property, et cetera. Also, on the Westin and Helmsley, if you can give some color on whether you're getting any key money from Starwood, that might be helpful with regards to that renovation. And then the New Zealand portfolio, is that a portfolio that's likely to go into your JV with GIC or are you planning to keep it all to yourselves? And then lastly, and Ed talked about upscale hotels being a larger component of acquisitions going forward. Obviously, everything to date that you've announced has really been full service with the exception of some of the things outside the U.S. Do you think the upscale properties that you're talking about potentially acquiring are going to be domestic or international or a combination of the two? And are there any portfolios that you're looking at currently?

I have to admit, you weren't coming through as clearly as I would have liked, so I'm not certain that I caught all of that. I guess, the first thing as it relates to San Diego Hyatt, it relates to the color around the transaction there. We have probably looked at this hotel off and on for probably the last three or four years. The price that we've ended up acquiring it for is the lowest price that I think we've ever evaluated the hotel, certainly the lowest price that we've seen in the last several years. And certainly there were others that have made progress on transactions, but ultimately did not close. I think that there was a pretty active -- despite the size of the transaction, I think it was intriguing that there were a fair amount of people that were interested in buying the hotel, because I think they, like us, recognized that it was a great asset and a great location in a great market. We see San Diego as one of the great markets of the country going forward. I think they also recognized that at this price, you're probably buying it at more than the 20% discount to what it would cost to replace the asset. So I think there, we were ultimately very happy with the acquisition that we were able to complete. I will tell you that if you watched what happen with the hotel over the course of the year, we did find that while the San Diego market, like several others, had a little bit of a blip in the summer, especially beginning part of the summer and perhaps at one point had fallen short of some of its initial projections and initial hopes, the reality is that the asset rallied strongly over the course of the fourth quarter. And so we were pleasantly surprised to see the numbers for the full year coming in better than we what we had originally looked at when we first started to look at the asset. As it relates to our focus on types of assets, I think generally the way we look at the world is that we're probably looking primarily at upper upscale assets and luxury assets in Europe and in the U.S. We're also interested in upper upscale assets in some of the Asian markets, but we see a greater opportunity, in general, to look at more mid-market products in the broad Asia Pacific region, which is one of the reasons why you're seeing our New Zealand acquisition be primarily focused in sort of the upscale and mid-scale price points. In general, we feel that the bulk of the demand growth that we're going to see throughout Asia will probably be more in those price points than necessarily in the higher price points. And as a result, that's one of the reasons why the New Zealand acquisition is targeted in the way that it is. I think you did ask as it relates to the New Zealand acquisition whether or not that was going to be in the JV or whether that was going to be a consolidated asset, and this will be a consolidated asset for us. This is not going into the JV.

The one other thing I was wondering about, I don't know if you can disclose it or not, but if you can give any indications whether Starwood gave you any key money for the renovation for the Westin and the Helmsley, and if so, how much?

They have given us some, but we are currently not disclosing the amount of that key money.

Our next question will come from Joe Greff with JPMorgan. Joseph Greff - JP Morgan Chase & Co: Has your expectation for property-level expenses changed over the last three months? And then my second question, which is totally fairly easy, within your 2011 adjusted EBITDA guidance, how much do you have related to the acquisitions that you've announced you completed?

I don't think we've really seen any expense trends over the last 30, 90 to 120 days that have led us to think differently about expenses than we have in the past. I think Larry gave you a sense in his prepared comments of some of the areas where we thought expenses might trend above inflation. The big focus this year on the whole expense side is going to be trying to minimize expense growth as we work our way through the recovery. And the bulk of that is going to happen by trying to very carefully manage headcount. We want to make certain that when people have started to take on multiple functions or when operators cut the number of managers that they might have had in individual hotels, that we only restore at the level that's required to support additional volume, meaning additional customers and additional room nights, as opposed to just because things got better. So I think generally, we generally see expenses as being in line. There are some places where we're going to run higher than inflation. But overall, I think our margin guidance frankly suggests that we feel like this should be it. We should suffer some of the problems that we had in 2010, where you saw bonus expense coming back in and things like that, where you end up with less production or less benefit out of revenue growth, because expenses are rising faster than they normally would. And then as it relates to the amount of the EBITDA from those other assets, Greg or Larry, do you have a number for that we can give him or can we take it back to him later?

No, we can talk about that. I mean, as you mentioned, Helmsley, you talked about $35 million of EBITDA once it becomes a Westin this year. It's more like $5 million, so we have $5 million in our guidance. Hyatt, we're talking about a number that's around $30 million and then there's some EBITDA from New Zealand, Larry, in that number as well.

Yes, that's roughly $18 million.

We'll now hear from Bill Crow with Raymond James Financial. William Crow - Raymond James & Associates: On the CapEx front, you may have given the number, but what is maintenance CapEx forecast at for 2011? And going along with that, what sort of pressure are you starting to feel, if any, from the brands to renovate assets that may have been put on the sideline over the past couple of years?

Bill, I think on maintenance CapEx, we're looking at that being about, I think it was $260 million to $280 million for this year. I would say that as it relates to pressure from the brand, it is logical that as we work our way back through the recovery, that the brands will be tougher about maintaining brand standards at hotels. I don't foresee that to be a huge issue for us simply because we've continued to maintain our hotels throughout the entire down cycle. And while there will be occasional places where we may find that we need to invest more perhaps because we postponed some investments over the last couple of years, I don't see that as a huge concern for us. William Crow - Raymond James & Associates: And then from an acquisition perspective, perspectively, are you comfortable with $200 million of cash on the balance sheet at this point throughout this kind of down cycle and ultimate recovery? And when we go back to 2001, you had always padded with a little more cash. Are you okay with the level of cash now after these transactions?

Bill, I think the short answer to that question is yes. Liquidity, the part of the reason why we maintained higher amounts of cash before was in part because liquidity has become so uncertain in our industry that you just couldn't have the confidence that you could access the debt market to the extent that you need it to raise capital. And frankly, at some points in time over the course of the downturn, I had some concerns about whether or not -- you just didn't know when it was going to stop falling, and so you couldn't necessarily rely on your credit facility without running the risk of potentially seeing a covenant to fall. Our world right now is a lot different. I mean, the access to capital is quite good, especially for a company like Host. Senior notes market is certainly an easy source of capital for us as we look to access additional debt capital. And our credit facility, as Larry detailed, has another -- we should easily qualify for the extension to take us into 2012. And I think our sense is that while pricing might turn out to be a bit more expensive than the deal we negotiated back in '06 or '07, which where we had inside 100 basis points in terms of our cost of funds on the credit facility, we'll still be able to negotiate a new credit facility going forward. So when you take all of that into play and look at the general significant improvement in the liquidity situation, for us to have $200 million of capital available or $200 million of cash available is more than enough. William Crow - Raymond James & Associates: I think overnight, InterContinental announced their intent to sell the Barclays in Midtown. Is that a sort of asset? It seems very similar to the opportunity with the Helmsley. Is that something that you would take a look at?

Certainly we like New York as a market. And so I could see that that would be an asset we'd at least spend some time on. I would tell you in general that with the acquisitions that we've completed in New York at this point in time, we feel fairly good about our overall level of representation in that market. And certainly, as it relates to the broad submarket that includes the Barclays, we now have the Helmsley and we have the W on Lexington. So I would say that it's something we would take a look at, but not a huge priority.

Our next question comes from Jeffrey Donnelly with Wells Fargo.

A follow up to the earlier question on the key money. With developments still on the sidelines and the brands seeming more willing and in some cases desperate to find unit growth, I'm curious what changes have you seen in their willingness to provide those incentives or in what form do they typically prefer to give them? Is it key money or will they relax all their terms and conditions?

Yes, Jeff, it depends on the individual operator. The discussion points on these sort of issues start with key money, but they also go to contract terms. That can either be structure of the fees. In some cases, you may look for a ramp up of fees. It obviously can go to where the priority would be above what you might be paying incentive management fees. And then the other issue is the term of the agreement and the ability to terminate that agreement in connection with the sale or convert it to a franchise. So there are a variety of different ways to address the value of the management contract to the value of the management contribution with the deal. I will tell you that while we're always interested in key money, we probably put a greater focus on attractive contract terms, because we tend to view that as a better contributor to overall value in the long run.

And then on the Hyatt, if I could circle back to that, someone else mentioned that other REITs had looked in that transaction as well. And we had heard it was fairly complicated, like there's the ground lease in the Port District and potentially Manchester's involvement. Are you able to share with us any terms of the ground lease or details of the owner's substructure that might make it a little less straightforward of a transaction?

I think that as that deal worked its way through the various twists and turns in the last 12 months, I'm sure that there are a variety of different structures that were being considered by the Manchester Group and by others that they might have been negotiating with. Ours is relatively straightforward from the standpoint that we bought the asset and we own 100% of the asset. There is no residual interest in the property or in the transaction for Manchester. The structure of our consideration does include some level, relatively small level of common and preferred operating partnership units which are a part of just some tax structuring that the Manchester Group is doing, but it doesn't involve any continued ownership of the asset. So it ultimately, in our case, came out as a fairly straightforward transaction.

And I'm curious, now that you own basically every major convention hotel in San Diego except for the new Hilton, I recognize they're different flags. Are there any efficiencies that you guys can gain by running these hotels that are almost nearly adjoining?

We think that there are some opportunities to find efficiencies in owning the Hyatt and the Marriott next to each other. I think some of it -- there are probably scenarios where by soliciting vendors and kind of presenting that opportunity to very efficiently serve two large hotels. I mean, when we put these two hotels together, we're looking at 3,000 rooms. There should be some abilities to attract some better pricing. I think that in some ways where we see the bigger opportunity will come on the revenue side, not dissimilar from what we've been able to work out in Boston, where we own both the Marriott and the Sheraton at the Hyatt Center, that sort of brackets the Hyatt Center. We have found that once you have common ownership, they're still going to run themselves, they're still going to market themselves independently because they're run by different operators. The reality is that putting an umbrella of common ownership over two large great hotels like this will allow them to better coordinate some of their activities. And so I think what we'll get out of that is both we'll have that ability to compete. Again, with 3,000 rooms, we can compete with anybody, including Vegas. So we'll have that ability to compete for business in maybe a more direct manner than we had in the past. And I also think what you just get is a higher level of cooperation between the hotels as they're dealing with an opportunity with a group in either side. There's probably a little bit more of a willingness to share that, recognizing that ultimately that it's a common owner that's going to benefit from it. I think it was one of the unique opportunities that this asset presented to us. Because as I said before, we really like the market and we think we significantly strengthened our position in that market.

I'm curious, how do you think about some of the other domestic asset cultures that you have? I mean, you own some fairly iconic assets in Orlando and Atlanta and even San Antonio. You may have less cluster there, but they don't have the same high barrier qualities as the San Diego and maybe you don't need to own as many of those assets. Do you think that over the next few years, you might look to pare assets in those markets or even nearer term, just given how frothy it is, the demand is for high-quality assets right now?

Certainly, I think some of those markets that you just referenced are markets where we do not feel that we necessarily need to continue to own those assets forever. I mean, we talked a bit about the fact that we're tending to focus our portfolio a bit more on the Coast than in Chicago. Atlanta is a market that we have had a significant representation in for a number of years, and we've generally been trying to reduce our representation there. I probably would put San Antonio in that same category. So the short answer is I think you're right. We're not in a rush to sell those hotels. What we'd be looking to do is to try to time it in a way where we thought we were getting appropriate price and appropriate value for, in each case, assets that are in great physical condition or are well known within their marketplace.

And ladies and gentlemen, that concludes today's question-and-answer session. I'd now like to turn the call back over to Mr. Walter for any closing comments.

Well, thank you, everybody. We appreciate you having on the call to discuss the end of last year and the beginning of 2011. We are optimistic about what this year holds for us. We look forward to speaking with you in our first quarter call at the end of April to update you on how the year is going. Thanks, everybody.

That does conclude today's conference call. We thank you for your participation.