Good day, and welcome to the Host Hotels & Resorts, Inc. First Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Gee Lingberg, Vice President of Investor Relations. Please go ahead.

Thanks, Tim. Good morning, everyone. Welcome to the Host Hotels & 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. As described in our filings with the SEC, 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. In addition, 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. With me on the call today is Ed Walter, our President and Chief Executive Officer; Larry Harvey, our Chief Financial Officer; and Greg Larson, Executive Vice President, Corporate Strategy. This morning, Ed will provide a brief overview of our first quarter results and then will describe the current operating environment, as well as the company's outlook for 2013. Larry 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. But before I turn the call over to Ed for his prepared remarks, I'd like to remind everyone that, with the beginning of this year, we adopted calendar quarter reporting periods compared to 2012 where we reported based on the fiscal quarters that had been used by Marriott International. Accordingly, our revenues, net income, adjusted EBITDA, diluted earnings per share and NAREIT and adjusted FFO per diluted share quarterly results for 2013 are not comparable to the historical quarterly results for 2012 due to the change in periods. To enable investors to better evaluate our performance, we have presented 2012 RevPAR and certain historical results on a calendar quarter basis we call the 2012 as-adjusted-results. The 2012 as-adjusted first quarter results include an adjustment to add the operations for March 24, 2012 through March 31, 2012, for our Marriott-managed hotels, and an adjustment to add the March operations for our hotels managed by Ritz-Carlton, Hyatt, Starwood and other managers who report on a calendar basis, as our historical first quarter results only included January and February operations for these properties. The following discussion of operating performance will include a comparison between the 3 months of operations ended March 31 for both years. And now, I'd like to turn the call over to Ed.

Thanks, Gee, and good morning, everyone. And before I get started, let me apologize in advance for the state of my voice. The allergy season in D.C. has been particularly bad for me this week. It probably wasn't the best idea I had to attend my son's lacrosse game last night, but it was a good one to have seen. I assure you, I feel much better than I sound and more importantly, I feel much better about our business than I sound. So with that, we are pleased to report that 2013 is off to a strong start with another quarter of outstanding results for the company. Although the timing of the Easter and Passover holidays presented difficult comparisons for the month of March, overall strong rate growth, coupled with margin growth that was better than expected, led to earnings results that exceeded consensus estimates. Consistent with our commentary on the year-end call in February, we continue to feel good about the fundamentals of our business and our outlook for the remainder of the year, which I will discuss in more detail in a few minutes. First, let's review our results for the quarter. First quarter RevPAR for our comparable hotels increased 5.1%, driven primarily by an increase in our average rate of 4%, coupled with an occupancy improvement of 0.7 percentage points, to over 72%. The calendar challenges led to a slight reduction in comparable food and beverage revenues, while other revenues jumped 5.6%, which resulted in overall revenue growth of 2.6%. These year-over-year revenue growth percentages would be roughly 100 basis points higher if 2012 had not been a leap year. Excellent cost-containment measures, combined with strong rate growth, led to solid margin expansion, as comparable hotel adjusted operating profit margins increased 85 basis points. Adjusted EBITDA…

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Our top-performing market for the quarter was San Antonio with RevPAR growth of 16.6%. Occupancy improved 4 percentage points and ADR improved over 10%, as the group mix shifted to higher-rated association and corporate business. We expect San Antonio to have a weaker second quarter and then perform better in the second half of the year, due to strong citywide bookings. RevPAR for our Boston hotels increased 14.2%, driven by a 7 percentage-point increase in occupancy and an improvement in ADR of over 2%. The outperformance was driven by in-house group demand, which created compression to drive rate. We expect our Boston hotels to have a good second quarter, due to solid in-house group bookings. The marathon bombs and subsequent manhunt in Boston had a small negative impact on our hotels in the second quarter. Our Miami/Fort Lauderdale hotels also performed well, with RevPAR up 12.8%, as ADR increased nearly 15% and occupancy declined 1.5 percentage points. Strength in both group and transient bookings allowed our hotels to drive rate. We expect our Miami/Fort Lauderdale hotels to perform in line with the portfolio in the second quarter. RevPARs for our New York hotels increased 12.1%. ADR improved slightly, but occupancy increased more than 8 percentage points. Demand in New York was very strong. One component of that demand is overseas arrivals. At this point, approximately 1/3 of the overseas arrivals into the U.S. go to New York City, which is 20 percentage points better than Los Angeles, the second highest market with 13%. With renovations last year at the Sheraton New York, the New York Marriott Marquis and the W Union Square, our first quarter results in 2013 benefited from the favorable comparisons.…

[Operator Instructions] We'll take our first question from Joshua Attie with Citi.

Same-store growth was up 5.1%, and -- but the total portfolio is up 6.6%. Can you talk about some of the properties in the non-comp pool that drove that upside? And do you expect a gap of that magnitude between comp and non-comp RevPAR to persist through the remainder of the year?

Certainly, Josh. Let me try to clarify a couple of things here, though. The 6.6% change in RevPAR that Josh is referencing is a comparison of what was our RevPAR for all of our properties in the first quarter of last year compared to what is our RevPAR for -- in the first quarter of 2013 for everything that we own today. So part of what's captured in that difference, and the RevPAR in 2013 is 6.6% higher than what it was before, a big part of what's captured in there compared to our 5.1% RevPAR growth in the first quarter is the strong performance of a number of the hotels that we have invested capital in and have -- and consequently have significantly improved our operations, as well as some of the hotels that we've purchased, which are not part of our comp set, which are performing well. All of those hotels -- that subgroup that I just described, had RevPAR growth above 27% in the first quarter. The other piece, though, of the -- of that calculation that we need to remember, is that the comp set in 2012 is slightly different, or the overall number of hotels we owned in 2012 is different from what we owned in 2013. So for instance, what's in the 2012 number is the Atlanta Marquis, what's in the 2013 number is the Grand Hyatt in D.C. So there's 2 factors that are applied there. But the bottom line point, Josh, that you've identified, which is that the broader portfolio is growing a bit faster than what our comparable portfolio is growing, is true.

And do you expect that gap of 100, 150 basis points to persist for the rest of the year?

I can't sit here and say that I've exactly looked at it. But the reality is that, other than to the extent that those numbers are affected by sales or acquisitions, which would change that relationship a little bit, the reality is it should generally continue at that level.

Okay. And if I could follow up, Ed, with one more question on equity. You issued $100 million through the ATM in the quarter and that's on top of $270 million that you issued last year. And I understand you're working toward a leverage target of 3x and that those aren't very big numbers in the context of your market cap, but they do add up over time. And at the same time, asset sales seem like they may accelerate, it could be a source of capital for you. Can you just explain the rationale for the equity issuance, and also is there an acquisition pipeline where you might be able to put some of that money to work in the near-term?

As I highlighted in my comments, we do -- we are looking at a couple of things where we feel relatively confident we may -- we'll have a closing in the second quarter on a transaction. And so I would -- I guess I would describe the equity raise in March as pre-funding the capital required to complete that acquisition. I would also agree with you that we are intending on seeing sales accelerate over the course of this year, and in general, would like to fund most of our acquisitions out of the proceeds of asset sales.

Moving on, we'll take our next question from Andrew Didora from Bank of America.

I just wanted to kind of follow up on Josh's question with regards to the equity issuance and as it relates to the acquisition environment. I mean, I guess from what we've been seeing out there in terms of transactions, there hasn't been a whole lot of quality out there, to this point in time, that would probably be very accretive to your portfolio. It seems like you're probably seeing something else in terms of your pipeline. But I guess with your stock implying you guys trading around $290 [ph] per key, does it ever make sense to maybe buying back stock at these levels rather than issuing?

As we have described in the past, sort of the process that we go through as we sell assets and then determine what to do with those proceeds, one of the things that we would always look at is whether it made sense to buy back our stock. I guess what I would say is that, so far, as we've gone through that process, we've concluded that it either made sense to reinvest in our portfolio in the form of some of these redevelopments and ROI investments we've made, or it has -- we felt comfortable in redeploying that capital into acquisitions. Certainly, as we progressed through the cycle and we inevitably reach the point where we're a bigger seller than we are a buyer, then at that point in time, we'll again continue to look at whether it makes sense in buying back our stock [indiscernible] at the same time the leverage targets that we've described to you all that we'd like to obtain.

Understood. And do you plan when that -- when you close on some of these acquisitions, do you plan on putting additional debt on to help fund those acquisitions, or is this going to be purely equity?

I would say we're at the point now where we feel pretty good about where we -- we feel good about the length of the cycle. And so generally -- and we feel good about the progress that we've already made in terms of improving our balance sheet. So the reality is, as we look at incremental acquisitions, we're thinking of funding those sort of on a pro rata basis in terms of debt and equity, consistent with where the company is currently capitalized. Now you're not going to likely see that in the context of, "Oh well, we put a secured loan on an asset right after we bought it," because that's just not how we do things. But when we think more broadly about our financing plan for the year, we would be envisioning if our acquisition activity heated up, and to the extent that it exceeded our asset sales activity, that we would fund that through a combination of debt and equity.

Moving on, we'll take our next question from Thomas Allen, Morgan Stanley.

Just on the operating environment, you talked last quarter about how good you felt around group bookings for later this year. This quarter, you and others seem to maybe be a little bit more cautious. What do you think has changed in the market that's flowing in the year bookings? Maybe I'm just coming from a Wall Street view, but the equity markets keep on going up, job numbers keep on beating expectations, kind of why are groups holding off bookings?

I think you've accurately summarized what a number of us have seen over the past quarter. And I don't know that there is a perfect explanation for it. I mean, I would say we still feel pretty good about group. We feel, as we talked about in our comments, especially the second and fourth quarters of this year look very, very strong from a group perspective. And just as importantly, when I look out to 2014, we had a very nice jump in terms of room nights and revenues that were booked for 2014. So the longer term seems to be fairly positive. But having said that, there was a little bit of weakness during the first quarter relative to overall bookings. I think some of that is probably tied in with the weakness in government bookings. I think we did -- I think all of our operators and most of our larger properties saw some reduction in government bookings over the course, or more than some, something in the 40% range in terms of government bookings during the quarter. So I think that contributed to part of it. I also think that, while you're right about unemployment is -- or employment is improving, unemployment is declining and certainly, today's report seems to be a positive one, the reality is, compared to where we've been in other cycles, we are way behind in terms of reducing the unemployment rate. So I just looked the other day and realized that, back in '04 and '05, which was when we were starting to approach -- really rebuild our whole group pipeline and our group business, we were looking at an unemployment rate that was more in the 5% to 5.5%, not the 7.5% and above that we're facing right now. So while the data that connects employment and group business is not as tight a correlation as some of the others we've seen in the industry, I've still generally found that group, especially corporate group, accelerates when you start to see more employment growth, and today's report, in some ways, gave me some -- even more of a sense of optimism about what we might see over the latter half of the year.

Moving on, we'll take our next question from Joe Greff from JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: I have a question for you on your updated EBITDA guidance. It's up $25 million from where you were a quarter ago. And then obviously, what you accurately described, 1Q adjusted EBITDA nicely beat consensus, and now you're including a $21 million gain here in April. Can you reconcile all those pieces and whether or not 1Q was more in line and then 2Q really is unchanged, adjusted for this gain or are you saying to us, maybe 2Q through 4Q, from an EBITDA perspective, is slightly below where you were a few months ago?

I'd say that -- I mean, first off, if you look at the guidance change that we've made, I'd say that the bulk of the lift in the EBITDA guidance is related to the recognition of the gain associated with the sale of the property in Newport Beach. But however, there is some improvement there that's tied to the fact that we feel more confident about where margins are going to come out for the year. I would not read our -- read anything more into that guidance other than the fact that we continue to feel fairly good about the whole year. We probably -- I'm trying to get a handle on the first quarter. It was maybe a little bit more challenging, given the changes in the calendar that we have faced, and we did do better than we had expected, and so as a result, I continue to feel very good about how the year is going to play out. I don't have any less of a sense of optimism regarding the last 3 quarters of the year than I did in February.

Moving on, we'll take our next question from David Loeb from Baird. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: Can you talk a little bit more about acquisitions? It sounds like you have some specific transactions that are near closing. Can you give us a little color, if not specifically on those, on what regions you think you'll be most active in, what cap rates are like, what's the state of competition for acquisitions these days?

Sure, David. I guess what I would say is we've been pretty clear about what the markets are that we've been most interested in investing. It's generally are the coastal markets, Chicago and Hawaii. And as we're -- I would say right now that the focus for us has -- for this year, is representing -- recognizing the strength that we already have in sort of the Northeast and the Mid-Atlantic, has been to focus more on the West Coast markets with the exception of San Diego. We're certainly looking at some of the markets in Waikiki, not more in Hawaii. So probably more Waikiki, not Maui, given our presence in Maui already. And then on the East Coast, I think the one market that we're very interested in adding more exposure is Miami, because we're certainly underrepresented there. And that is a market that has done quite well, and we think will continue to do quite well. If you -- in terms of thinking about where the market is in terms of pricing and competition, I mean, I think we're -- there continues to be a slow flow of assets to the market. I wouldn't say it's a flood. I would say that that's probably reflective of the fact that people are fairly comfortable that the cycle is going to be extended. And so there is no rush to reap value before the theoretical end of the cycle. So I think that's why we haven't seen maybe as many assets on the market as folks had hoped. But having said that, the brokerage community is probably closer to the overall degree of the flow than we are. And I think they still seem to feel that the transaction activity this year will be pretty comparable to what existed last year. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: In terms of -- well, let me go back to one follow-up and then I'll ask you to come back to the cap rates. In terms of global regions, it sounds like your focus is much more U.S. at this point rather than Europe or Australia or other markets.

Well, I would -- I guess, in part, I should correct my answer a bit. I would say we are still looking to invest globally. We have about EUR 130 million in equity commitment remaining in the European JV and our activity there is generally focused in Northern Europe, with a primary focus in Germany. We are interested in adding more exposure to Brazil, as we continue to like the fundamentals there and generally feel good about where Brazil is headed. And then in Asia, the market that's getting the most focus, it would be Australia. So you had correctly identified that. It's always hard to predict what the mix of activity's going to be. But as I've said in the past, we'd like to grow some of these international businesses. But we still expect that the bulk of our activity will happen in the U.S. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: And any insight into cap rate trends?

It's still affected by the markets, because it depends a little bit on how much the market has recovered vis-à-vis prior peaks, and then what the near-term outlook is. But the sense that we have right now, is that if you're in a leading market, high-tier, either luxury or upper upscale asset, you're probably still in that 5% to 6% range for a cap rate. And then I think if you move to select service, you might drop -- that might increase by about a point.

Moving on, we'll take the next question from Ryan Meliker from MLV & Co. Ryan Meliker - MLV & Co LLC, Research Division: Most of my questions have been answered, but I was hoping you could give a little more color. Ed, in your prepared remarks, you talked about the lengthening of the booking window. I know Marriott talked a little bit yesterday with regards to 2014 group booking pace accelerating. Can you give us some more color on what you're seeing in terms of who's booking further out? Is it association business that's expanding? And what your pace looks like for 2014 right now?

What we're seeing in -- as it relates to who's booking, is it seems to be a combination of both associations who are looking at slightly bigger events. I don't know that they're booking more events, but I think they're booking bigger events, is what we hear. And then I think the other element of it is improved corporate bookings, which is good to see. And so I think that has been what's been driving the improvement. Overall, the -- if you just sort of combine both room night improvements as well as rate improvements, our group bookings for 2014 are up over 6%. Ryan Meliker - MLV & Co LLC, Research Division: Great. That's helpful. And then another question I was hoping you guys can answer for me was, can you give us any update on how the developments in Rio are progressing? And if you're looking to do anything more along those lines? And certainly, I would think you guys might be at a little bit of an advantage relative to some private developers out there, given limited construction financing and your access to the capital markets. It seems to be a little stronger than, I would say, the average private developer. Any color on any -- how those developments are progressing and expansion of that development process?

The project that's under construction that's down in the Barra da Tijuca part of Rio de Janeiro, which is not far from where the Olympics will be held, is progressing right on schedule. And so we've been very happy with our -- the developer and construction team on that project, and everything seems to be headed in the right direction. I would tell you that the activity that we're looking at in Brazil right now seems to be more on the existing side than on the new construction side. But we would be open to an additional new development project. It just seems that the current flow right now has been more attractive on the existing side because of a couple of opportunities we're looking at there.

Moving on, we'll take our next one from Ian Weissman from ISI Group.

Can you remind us what percentage of your hotels are currently paying out incentive management fees and how that compares to the peak?

Yes, for this year, based on our forecast, it's roughly, call it 43% of our hotels, will pay incentive fees and then, call it, low to mid 60s at the peak.

Do you anticipate -- I mean, I understand it's a different environment. I mean, what's your expectations about those numbers getting back to peak?

I don't know any reason why we wouldn't get back to those levels. I mean, we're -- as we look at where this is headed, I mean, we feel good about where the industry is going and consequently, I would expect that we would get right up to those levels and depending upon which assets are missing, I don't know why we wouldn't go by it.

So well, so ultimately then, you're saying then, you believe that the pace of rate growth, which has been somewhat muted just because of obviously weak job growth, group business has been sluggish, you anticipate that the rate growth environment is significantly going to accelerate from here. Is that fair to say?

I mean, we had pretty good rate growth this last quarter. So I would say that we still expect to see some occupancy growth. But as we look at our full year, I think you're right that we would expect, over the course of this year, there's certainly a reasonable prospect for higher rate growth than what we had in the first quarter. Trying to predict where that goes beyond 2013 is a little tricky at this point in time, but I think the main point we're trying to make is that we would expect to see -- to continue to see RevPAR growth above inflation in the future, that will allow us to have margin growth above -- margin growth. All of those factors will ultimately lead to higher NOI, higher EBITDA, and that means our partners, the operators can have higher IMF.

Okay. And just finally, on the deals. I mean, there's a lot of focus on which markets you guys might potentially be interested in. Is there a potential shift, or at least growing interest in acquiring limited service or select service brands at this point? Or hotels?

Yes. I don't know that it's a shift in attitude on our part in terms of acquiring and wanting to acquire them. But I would say that there's more than a handful of transactions that we've been in discussions about, that would involve what I would describe as urban select service or in-city, not in suburbs, but in-city select service. We think it's a natural complement to the hotels that we already own. And I think it's a business we feel comfortable we understand. And so, again, I don't think it's going to -- we're not thinking in any way that we're transforming our portfolio in a different direction. But in our target markets, as a complement to the assets we own in those markets, owning some select service would make sense from our perspective.

Moving on, we'll take our next question from Jeff Donnelly from Wells Fargo.

Actually, I'll start with Larry. Larry, just -- I was just curious, in the release you mentioned you had $90 million to $100 million of ROI opportunities, what sort of unleveraged returns, can you remind us, do you expect on that capital? And maybe you can talk about the depth of that reinvestment pipeline beyond 2013?

So looking at those assets, Jeff, I mean, we're getting, call it, mid to high teens on some of those projects. So including our ROIs, energy ROIs, we've got a couple we're working on, particularly in New York City, got a $9 million one there, very good returns. So we -- as from a pipeline, we're constantly looking for those, and as Ed mentioned, we had the meeting space, the restaurant that was converted to meeting space at the Westin Grand Central. So we've been doing them for a long time and we're trying to do a better job of getting it out there, of all the stuff we've been doing. With that, it's adding meeting space when appropriate, getting rid of unprofitable restaurants and converting them into meeting space or other uses. But there's plenty of projects that we're looking out for.

All right. Just put differently, do you think it's -- that's a good run rate, maybe for periods beyond 2013?

That's a tricky question. I think that if you just look at what we would typically expect to see in the portfolio, sort of exclusive of larger projects, it probably doesn't run quite that high. I think it's probably -- I think my guess is it's 2/3 of that. Now having said that, there is a project that we've been working on for a fair amount of time, that we've talked about in the past, which is a new ballroom out at the San Diego Marriott & Marina Hotel, which would sit between our Hyatt and our Marriott. And so that project, in and of itself, is probably in the $90 million to $100 million range. So when one of those comes along, it's going to change that equation pretty radically. But I would totally agree with Larry. Between the opportunity for energy ROIs and then just looking for opportunities to improve the portfolio in different ways, we never seem to have a shortage of these types of projects.

And maybe switching gears. Larry, can you talk about the market for financing, in particularly large hotel assets? There's been a few instances in the last year, where either there have been assets in the market or even just competitors I know, who own hotels that might be $500 million to $1 billion in value. And I think there's always a question mark out there as to whether, is Host the logical buyer, or who is the buyer for those? Because the question is how do you find the financing, once you talk about mortgages north of say, $300 million? Do you have any sort of experience or color there, and maybe how underwriting terms differ from a, I guess I'd call it a more typical single-asset financing?

Well, Jeff, I mean, you have to just go back a little bit, the CMBS market has improved significantly this year, but if you go back to where it was in the '05 to '07 peak, it was -- the CMBS market was a $200 million -- $200 billion a year in new issuance. This year the run rate is much higher. I think the prediction for this year is, call it, $80 billion to $100 billion, and last year it was, call it, low 50s. So there has been an improvement in that market. CMBS would be the perfect market for someone to go out and finance on the hotel side, and there have been a couple of one-off larger hotels, CMBS deals done. But if you had a $200 million, $150 million to $200 million hotel, what they would do is typically just drop it into one of those securitizations. So that market has improved significantly. And we would expect that to continue.

And then -- and maybe just a question or 2 for Ed. Can you just talk about where you see hotel values today, relative to replacement cost? There just seems to be more anecdotes of either buildings getting converted into hotel uses or hotels being built, and I'm curious if you think there's some instances out there where city -- pricing in certain cities is maybe converging with where replacement cost is.

Yes, it's -- I would say, as I think across the transactions that we've been looking at, in most instances, you're finding, certainly on the full-service side, I think you're still seeing that assets are trading at a discount to replacement cost. That discount is smaller in certain markets, where the recovery has been quicker. I think some of the West Coast markets, like San Francisco, might fall into that area. But I think you're still -- you're not seeing a lot of full-service upper upscale construction even being discussed. And I think that's a sort of confirmation of the fact that values have not yet risen to a point where they exceed the cost to construct. I think, as we typically see in our business, the select service side is a bit more efficient, runs higher margins and probably, ultimately, is always -- you always find the numbers make sense there more quickly. And so I do think, in some of these hotter markets, you're starting to see a point where new construction numbers can make some sense. Doesn't mean assets aren't necessarily still trading at below replacement cost today, but it would also mean that there is -- the newer projects that are being built, they're new, they're current, they're taking advantage of the trends in the industry. And so they may be able to convince themselves that there's a little bit better yield on cost there than what you might see on an acquisition. So the market, I think was -- we're not seeing a lot of supply anywhere other than in New York. New York would obviously be a prime example of what I just described, with all the construction that's going on there. But I think, as you would expect, as the cycle matures, you're seeing -- you're slowly seeing that begin to build a bit.

And I'll depart with maybe an easy one for Larry. Any estimates of what the financial impact of the Affordable Care Act might be?

Jeff, that's a great question. I'm not sure anybody in the government knows. We are working with the brands, and I know Arne came out with something yesterday saying 50 basis points on margins. It's -- we're working with the brands. We're waiting on them to come back to us with better answers. But frankly, I think they're having -- somewhat challenged by the fact there isn't a lot of great information out there, and there's a lot of concerns over it actually getting implemented next year.

Jeff, the one thing to recognize in our case is that, as we've talked with our operators, a huge majority of their folks are already taking advantage of their insurance -- their benefit offerings. So while we would expect to see the requirements to provide insurance will lead to some increase there, it's -- we're not in a situation where we've had very low levels of participation by the associates at the hotels and then would, therefore, expect to see a dramatic change in expenses as a result of the act.

Moving on, we'll take our next question from Robin Farley from UBS.

Yes, 2 questions. First is, your D.C. market RevPAR increases, you're kind of a bit below what the market overall increase was, so I just wonder if you have some color around that? And then, the second question was, since you're seeing through this dichotomy between short-term and long-term group booking trends, just to think about what percent of your group typically is booked in the year for the year versus the year before. I think that a lot of times it maybe like 70% or 75% of your group bookings are booked before the year starts. So just trying to think about, is it only sort of 25% of bookings -- or not only 25%, it's obviously sizable, but kind of what amount of in-the-year, for-the-year business should we think of as being maybe at risk of this sort of short-term slowing?

Well, I'm going to let Larry answer the question about D.C. and then I'll come back and address your question about bookings.

Yes. If you look at the upper D.C. -- if you look at the market for upper up, it was up 4.5%. Our D.C. presence, if you look at our downtown hotels, as I mentioned on the call, we're up 5.3%. So it's really the outside, the downtown area. So some of our suburban hotels, such as the Gaithersburg Washingtonian and a couple of other hotels out towards the Dulles Airport that have really impacted that. So as you get closer into the city, we're a little bit ahead of where the market upper up is.

And as it relates to the group business, as I said in my prepared remarks, we're at the point of the year where we've booked or we have under contract 85% of the room nights that we expect to do for the year. So now the way I would look at that is that you really wouldn't expect more than 15% of that business for the full year to really be at risk. Obviously, there's always a risk of cancellations, which would be included in that 85% number. And as I mentioned earlier, we had seen some cancellations that we thought were sequester-related. But the properties have generally gone back out to their group business on the government side, over the course of the last month, and I think feel relatively confident that we're not going to see more cancellations. So that risk is always there. But the reality is, for our portfolio, the good news is that 85% of the business is on the books and should show up or we should get paid for it.

Is there -- could you quantify, when we think about the sort of 15% of in-the-year, for-the-year that may be at risk, what level of slowing we're seeing there, kind of where that 15% may end up?

I mean, I would -- at this stage, we would generally expect that, for the remainder of the year, we should book about the same -- we should fill in that 15%. In other words, I feel pretty good about, based on the forecast that we've been looking at and the conversations we've had with our operators, we're relatively confident that we're going to finish the year with the amount of group rooms that we expect at this point.

It's just that maybe at slightly lower rates potentially?

No, I don't think we're seeing any real softness on the rate side. I mean, clearly, group business is important to us. But it still only represents about 38%, 39% of our overall business. And so, one of the things that's happening out there right now is that our transient business is so strong that we may end up with less -- I suspect we will finish this year with a little bit less group than what we had expected probably back in January or February. But one of the reasons for that is that transient demand is solid enough that we will not be taking lower-priced group, discount group, when we feel good about the ability to fill in those rooms with better-priced transient. And so -- well, I don't know that, that was much of a factor in the first quarter. As we look out to the rest of the year, and we're in periods of the year where occupancy is a lot stronger, I think that's one other factor that will be affecting our outlook.

Robin, this is Larry. Just one last thing. We did also have the Hyatt Capitol Hill under renovation in the quarter, so that also impacted that difference.

Moving on, we'll take our next question from Jim Sullivan, Cowen Group.

Ed, just to follow on with this -- the issue on the group business, you talked about 38% to 39% of the total business being group, and where group has been particularly weak, I think in your prepared comments, I think you talked about the government, government-related, some cancellations. And I'm assuming also, because of the flat per diem, that there was probably an attempt on your part that perhaps reduced the government business anyway this year. And I just wonder if you can help us, what percentage of your group would you characterize as government, government-related?

Let see, government business for us, overall, represents about 6% of our room nights. And that would be about split pretty evenly between transient and group. So that would be -- the government group would be less than 10% of our group business. It seems to me, if I do the math quickly in my head, we're probably in the 7%, 8% range.

Okay, very good. And -- but was there also, coming into this year, because of the attempt to improve the mix shift, perhaps, reduce the government business or not?

Definitely. Government, we've talked in the past that government, in general, whether it's on the group side or on the transient side, tends to be a lower-priced business, it tends to be a business that we -- as things get -- as times get better and pricing gets higher, we naturally find that its share of our overall activity declines. The fact that government group and individual travel would be weaker this year is something that we've all -- that everybody in the industry has known for quite some time. So we certainly have been working, as we could, to transition away from that. Some properties are obviously better situated to do that than others. But we expected that business to decline as the recovery progresses and that's what's happening.

Okay, then secondly, there's been a lot of discussion about capital allocation and markets, but -- and really, just to follow on. I know that a few weeks ago that you and your partners increased your capital commitment to the European JV. And in the -- your prepared comments, you talked about weather being a negative in the first quarter. Could you just tell us when you think about the opportunities in Europe, and I know you've identified them as Northern Europe, primarily, but when you think about the business outlook for the balance of this year, on the one hand, and then secondly, whether there is likely to be more products coming into market in Europe because of pressure on capital ratios for some of the owners, I'm just curious as you think about that and the cap rates in Europe versus North America, how you would kind of frame that opportunity vis-à-vis the coastal markets in the U.S.?

I would say that, first of all, you've correctly diagnosed what's driving transaction activity in Europe, which is generally, outside of a few transactions, and I probably put the InterCon in London in this exclusion area, but other than a few transactions that might have been driven by strategic reasons, the bulk of the activity that's happening there seems to be in some way related to debt, maturing debt or too much debt. So that also means that I would expect the volume of activities that we would review and look at in Europe will be lighter than what we've seen in the U.S., because I think we're in a better position right now in the U.S. in terms of overall values. In terms of yields in Europe, they vary considerably by the city and the country. I would say that yields, cap rates and what we would view as a 10-year unlevered IRR, in some of the -- in the major markets, so we're talking, really, London and Paris, are comparable to what you would expect to see in the top cities in the U.S. As you move into Germany, where there's no one dominant market, I would say that those cap rates are higher and the target IRR -- so the achievable 10-year IRR in those markets would be higher than what you would see in the U.S.

Okay, and then finally, for me, there was some discussion about the improving CMBS market here. And as you, again, think about that in connection with your U.S. acquisition/disposition thinking, have you seen cap rate compression between what you would call the, kind of the primary coastal gateway markets that have been your focus on the one hand, cap rate compression between that and, say, the secondary markets, but still important markets -- and I'd facilitate [ph] the Marriott Marquis in Atlanta this quarter -- is it more attractive now on a relative spread basis because financing is strengthening?

Jim, I think that's a good insight, is that as the CMBS market recovers, there should be more financing available to the sort of non-gateway markets. I don't know that there's been enough transaction activity yet and enough price discovery to really establish that, that gap has closed in a material way. But I think that that's a likely outcome over the course of the next 12 to 24 months, because as the financing's available and the interest rates are attractive, capital will start to flow in that direction. Our goal's going to be to try to take advantage of that by being a seller of assets in those markets.

And at this time, that will conclude our question-and-answer session. I'll turn it over to Mr. Walter for any closing or additional remarks.

All right. Well, thank you for joining us for this call today. I again apologize for my voice, but I'm pleased to see that I hung in there all the way through the call. I assure you I'll sound better in July. Look forward to talking to you later in the summer. Have a good weekend, everybody.

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