Good day, and welcome to the Host Hotels & Resorts, Incorporated Fourth Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Gee Lingberg, Vice President. Please go ahead, ma'am.

Thank you. Good morning, everyone. Welcome to the Host Hotels & Resorts fourth quarter and full year 2013 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 law. 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, in 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; and Greg Larson, our Chief Financial Officer. This morning, Ed will provide a brief overview of our fourth quarter and full year results and then will describe the current operating environment, as well as the company's outlook for 2014. Greg will then provide greater detail on our fourth quarter performance by markets and our balance sheet. Following their remarks, we will be available to respond to your questions. But before I turn the call over to Ed, and for the last time I'd like to remind everyone that at the beginning of 2013, we adopted calendar quarter reporting period. And to enable investors to better evaluate our performance, we have presented the fourth quarter 2012 RevPAR and certain historical results on a calendar quarter basis we call the 2012 as-adjusted-results. The following discussion of the fourth quarter operating performance will include a comparison between the three months of operations ended December 31. Now, here's Ed.

Thanks, Gee. Good morning, everyone. We are very pleased to report a positive fourth quarter and year for our company. Our results were driven by a combination of strong demand growth, which allowed us to drive rate in both our group and transient segments and excellent cost controls, which led to another year of strong and margin improvement. Additionally we continued to make progress on several important company initiatives, including executing asset sale, completing acquisitions in target markets, and strengthening our industry leading balance sheet. Before we get into the details, let's review our results for the quarter and the year. Comparable revenues increased 6% for the quarter and 4.9% for the full year. RevPAR for our comparable hotel on a constant currency basis increased 6.6% for the quarter and 5.8% for the full year. On a nominal basis comparable RevPAR increased 6.2% for the fourth quarter and 5.6% for the full year. Our comparable domestic portfolio outperformed the industry RevPAR by a strong 140 basis points for the quarter and by 50 basis points for the full year, as our hotels continued to generate meaningful gains in market share. Strong growth in our group business led to increased banquet activity resulting in comparable hotel F&B revenue growth of 6.1% for the quarter. Overall for the year, comparable F&B revenues increased 4%, driven primarily by 4.8% increase in catering activity. This improvement, combined with our strong rate performance, resulted in an increase in comparable hotel adjusted operating profit margin of 130 basis points for the fourth quarter and 100 basis points for the full year. Adjusted EBITDA was $322 million for the quarter and $1.306 billion for the full year that represents a 9.7% increase over the prior year. Our adjusted FFO for diluted share was $0.33 for the fourth…

Thank you, Ed. As you have already noticed we've made some changes to our press release this quarter. In our effort to provide greater clarity on our operations, we have replaced the regional RevPAR results with RevPAR results primarily based on cities. In addition, we added a comparable hotel RevPAR in local currency defined as hotel RevPAR and constant currency. This new presentation will enable investors to evaluate the performance of both our domestic and international hotel without the impact of currency fluctuation, a constant currency methodology as was described in the notes to the financial information in our press release. With that let me begin by counting our impressive fourth quarter results, despite the negative impact with the government shutdown in October, we had our strongest quarterly RevPAR performance of the year. Our comparable domestic portfolio of RevPAR increased 6.5%, which was 140 basis points over the industry performance. And our consolidated international portfolio of RevPAR increased 7.2% in constant currency, resulting in total comparable RevPAR increase of 6.6%. The outstanding results for the fourth quarter were driven by strong performance in our group business. As we have stated in the past, when group business performs, our portfolio outperforms. Moving to our detailed RevPAR results, our West Coast properties once again had very strong results with RevPAR growth of 8.1%, driven primarily by an average rate increase of 5.6%. The San Francisco market grew fourth quarter RevPAR by 14% with all five Bay Area hotels achieving double-digit RevPAR growth. This RevPAR increase was driven almost entirely by 13.7% increase in average rates, which resulted from the continued business mix shift from contract to higher-rated transient in group business. RevPAR at our San Diego hotels grew 10% in the fourth quarter, primarily through occupancy gains of 4.6 percentage points driven…

(Operator Instructions) We'll go first to Joshua Attie of Citi.

The RevPAR guidance of 5% to 6% is similar to what you did in 2013, and consensus expectations are for GDP to accelerate this year. Plus the government shutdown in October, it seems like it was a one-time negative event. How did you think about these things when you formulated guidance? And I mean, I don't mean to split hairs, but why did you decide not to make the high-end 7%, which would've implied some acceleration?

You know, John, it's a good question and we certainly would agree with all of the positive points that you raised, which is certainly, it feels like a lot of the basic fundamentals of the economy are better this year and a lot of the disruption that we felt in 2013 from whether it was the sequester or the shutdown, well it would certainly appear at this point we're not going to see that reoccur in 2014. I think what you're generally seeing here is that as we move later into the cycle, which is we feel good about the year. We're probably trying to be may be a hair on the conservative side. But I certainly agree with all the positive points that you raised and we'll sort of see how the year plays out and hopefully that allows to be more optimistic later in the year.

And one more question -- your guidance assumes other hotel revenue growth of 3% to 4% versus the RevPAR growth of 5% to 6%. And you mentioned group business is getting better. And in the fourth quarter, you saw that GAAP narrow where hotel revenue increased at the same rate as RevPAR. I know it's only one quarter, but do you not expect that trend to continue, or is there just not enough visibility at this point to factor it into guidance?

I think what we have seen throughout this entire recovery is that other revenue line has wagged even with food and beverage line. So whereas I talked about food and beverage revenues being up roughly 10% to '07, we're up may be more in 15% to 20% range in the other revenue area. So we've been hopeful that that will start to accelerate in the improvement in group activity will help that because a chunk of that relates to spas and golf, and a lot of times those revenues are driven by enhanced group travel. But generally it's been lagging as we've watched this recovery progress and so we've assumed that would continue to be a bit more modest. But again as we sort of, we commented and my comment even on the food and beverage side, these things have been difficult to forecast and we've been pleasantly surprised in a couple of quarters. But certainly there exist the opportunity to be pleasantly surprised on that front too.

We'll go next to Andrew Didora of Bank of America.

And Ed, certainly appreciate your commentary on the comparison to prior peak. Just wanted to ask a question with regards to if F&B revenues relative to prior peak. When you look at them on an occupied room night basis, how far off are they? And I guess when you think about next peak this cycle, what impediments do you see in terms of reaching prior peak on an F&B basis? And I guess do you think you can exceed those at some point later on this time around?

I guess since occupancy -- I don't have that number clearly in my head but just thinking through the fact if we're off about 10% in revenues and we are up slightly in terms of occupied room nights, then I would suggest we're probably off slightly more than 10% in F&B activity per room night just sort of working through the math. I would say -- I would expect that over the next few years we should certainly close that 10% gap. Some of that's going to be tied to how, what ultimately happens on the group side. We have been I think collectively as an industry a little disappointed with the recovery in group. We are certainly feeling better about it in looking at 2014. And so I think that gives us an opportunity to do better on that side. But also note that well I don't know that this effort is yet significant in the context of looking it getting back to 2007 revenues. We are where we can looking to outsource restaurants to third parties. And so when that happens our profits go up but our revenue growth goes down because we no longer in some of those cases report the revenues. So that may be a bit of a drag as we look to get back to that overall revenue number, but it will certainly help on the profit side.

Great, that's helpful, Ed. And then Greg, you obviously have done a lot of work around the balance sheet over the last few years. And with your leverage coming down pretty close to your goal, how should we think about your balance sheet capacity going forward? Will we see more acquisitions, some buybacks, or do you kind of want to maintain those levels through the cycle peak?

Yes, as we talked about in the past our ultimate goal though has been to push down to three times leverage and you can tell that subsequent, if you look at those transactions that we completed subsequent to the quarter end you should assume that we're fairly close to our goal. And so I think going forward, we would like to keep it three times leverage or may be a tab below. So I think when we look out into the future it's really going to depend on the opportunities. We see acquisitions, we're certainly -- we certainly have cash to pay for some of those acquisitions. Obviously if we continue to sell hotels which we think we will do we will have those proceeds through by assets as well. And so when I think about 2014 it's really going to depend on the level of acquisitions and the level of disposition on what exactly happens to our balance sheet. But I think the ultimate goal for us is to keep at this three times leverage as we go forward.

We'll go next to Joe Greff of JPMorgan.

I may have missed some of your comments, but, Ed, it sounded like you didn't spend too much time talking about the acquisition market. Can you give us your views on that? It certainly sounds like you're a little bit more of a net seller than a net acquirer. And then with respect to your group-based commentary, I think implicit from your comments is that pricing was up about 2.5%, if you can just confirm that? Thanks.

Yes, I think last -- I'm going to do those questions in reverse order. I think last year our pricing was up just a hair over that. I think if you look for the full year we were -- our rate was probably up right around 2.7%, 2.8% so I think you're generally right there. As we look at this year we're sort of, we're hoping that we'll see some stronger growth in that but we're probably in that same range right now. If you look at the acquisition markets, I think generally we've seen, we saw some -- we're seeing increased activity in the second half of '13. We were I'd say that's driven by a combination of capital continuing to be attracted to the sector because of a perception that we would share which is that the cycle has room to run. That capital is just not just an equity capital I think we've been finding that while debt terms are nowhere near what they were during the 2006/2007 timeframe you are seeing leverage being extended at higher levels and at attractive rates. And so I think that's helping to improve the acquisition market at least from a seller's perspective. We expect to continue to be active in the sales market this year and I'd like to have a reasonable level of activity there as we continue to try to reposition the portfolio about selling what we view as slightly slower growing assets out of the company. I'd like us to be a net acquirer this year. So I think from a -- the way we're looking at the world we'd like to be more the -- buy more than we sell. But it ultimately comes down to pricing and opportunity and if we find that we can hit the number on the sales side and we can't get to the number on the acquisition side then that may mean we end up being a net seller.

We'll go next to Ryan Meliker of MLV & Co. Ryan Meliker - MLV & Company: A couple of questions. First of all, Ed, did I hear you correctly that you valued the retail component of the Powell at $42 million?

That’s correct. Ryan Meliker - MLV & Company: Correct me if I'm wrong, but that's about $5000 a square foot for the retail component. What gives you confidence that the value of the retail is so high?

I think the best thing I have is that this building was originally marketed to retail buyers, not necessarily to the hotel world. And as we went through our process, we wanted to really understand the value of the retail in terms of just making certain that we were comfortable with the price we were paying. We have already received unsolicited offers from more than that valuation since we've acquired the hotel. So no guarantee that they will close, but based on the market commentary we have this is apparently one of the four top locations in the country and it's a very special space from their perspective, they've renewed their lease, they're going to invest a significant amount of capital in the space. They couldn't be happier with their location and my sense is they're fairly happy with us buying the building. But well, I agree with you, that's a big number and we look pretty carefully at that the reality is there appears to be pretty good market support for it. Ryan Meliker - MLV & Company: Can you give us any indication what the rental payments with Sephora are or what the cap rate was on the retail component given that big number?

Yes, I guess what I would tell you is that we can't disclose the -- we have agreed not to disclose any of the actual pricing there. But I would tell you that it's mid-single-digit cap rate. Ryan Meliker - MLV & Company: And then the second question -- and you gave some good color on how you're looking at the dividend right now. By my calculations, it sounds like around 1Q you're going to be close to that target three times leverage level. You're going to have over $500 million in cash probably still available on the balance sheet. What is the plan for that cash? And are there more assets that you're looking to dispose of drop them into the cycle? And if you do, what will be the plan for that cash, obviously, in excess of the required dividend from capital gains, et cetera?

I think our answer to that is probably consistent with what we've said in the past, which is that we would as we continue to sell assets the first thing we will look at is what is the opportunity to reinvest that capital that will be either be in new acquisitions, it will be in ROI investments in our existing portfolio. I think you're right it will be given where we've been -- well things we've been accomplishing on the leverage side there is less likelihood that it would be deployed to pay down debt, although remember when you're selling assets there is something that you're trying -- you do need to maintain leverage their it's not -- there's a little bit of adjustment that's required there. And I think beyond that you look at what's the smartest thing from a shareholder perspective. So that could be a bigger dividend in a lot of cases, because we will be selling at gains, there will be a need to increase the dividend, because there will be taxable income associated with that sale. And obviously depending upon what the stock price is buying back stock is another option. So I think we'll ultimately look as we have in the past because as we generate those proceeds from sales and recognize sort of what amount of that is available to us that's outside of a dividend or a required debt pay down, we will look to see what's the best use of that capital and then used to do that.

Ryan, I think the good news is right when you look at the cash balance of $310 million, you add in sort of the cash flow that's going to be generated by operation and then you add in some of the assets that you can sell that we can acquire a significant chunk of assets this year and not need to issue equity.

We'll go next to Harry Curtis of Nomura.

Hello?

Hello. Hi, Harry.

Well, hey, sorry, I must have been on mute. Ed, going back to your answer to the first question, you commented that you were being conservative perhaps because we were later in the cycle. As far as it comes to buying assets, I guess the question is when is the wrong time to buy assets? And the reason I'm curious is that when I look at host stock versus some of the C Corps, the stock is underperformed. And I'm wondering if it's underperformed because you're really not returning as much cash to the shareholder as you might be.

I can't say Harry that I have necessarily looked at, I think at that particular question related to the C Corps. As I have looked at how we have compared to the rest of the hotel REITs, I mean one of the things we consistently noticed is that we've been doing a better job at generating FFO growth, and Greg spoke to that at the same time that we've been seeking to accomplish our goals on the balance sheet side, which we think in the long-term were very beneficial for the company. And I think our dividend is growing, it went up a lot from '12 to '13, and the fact that we have announced another increase and it will continue to growth at a relatively sizable rate, we were probably running, I guess at this current level just right around 3% in terms of the yield and I don't see any reason as the cycle progresses that we won't continue to see the dividend grow. So to the extent that that's been one of the issues, we're going to be feeding into the solution, because I would be expecting our dividend to continue to grow.

Then back to the first question or first part of the question, is there a point in time when you and your Board feel a bit more defensive about making acquisitions, given where you guys feel we are in the cycle?

Yes, I think there is and I think we sort of saw this, it happened in the last cycle, although this case it is probably a little bit different. I mean at the point in time, we've been pretty disciplined about what we thought. I -- in some way wished we had been able to acquire more in the last four years but we've been pretty thoughtful and careful about making certain investment. When we make an investment it's actually going to accomplish the recurrent goals that we have as opposed to just seeking to add size because obviously we already have a pretty good size. So when we find that the market starts to get to be too pricy for us to hit our return target, which are generally going to be 100 to -- regular asset a 100 basis points to 150 basis points over our cost of capital then we tend to naturally back away from acquiring assets. When we're looking at that -- looking and trying to establish what the return is going to be from an investment we're also going to be taking into account where we're in this cycle and more particularly, where that individual market is in the cycle. So as you start to get to the point where supply is increasing and you begin to get concerned that that's going to exceed demand growth in a particular market that will naturally make us more cautious in our underwriting, which I think often times will have the effect of making us less competitive since others may not do that. And we're -- as I think was part of my prepared remarks, right now we don't see that situation existing in any market other than New York where supply seems to be growing even at the -- New York is the only market that's got a high level of supply. Just about everywhere else, especially in the markets that we're looking at and especially in the price point where we tend to compete and tend to acquire, we feel very good about the overall supply demand equation. So I think there is a point down the road just as in every cycle and is in every real estate cycle we will find that supply will start to exceed demand and that all end up, we'll have to be thoughtful about that in our underwriting and I suspect that if that happens you will see that we will just not be buying anything.

We'll go next to Nikhil Bhalla of FBR & Company. Nikhil Bhalla - FBR & Company: Ed, you talked about dispositions this year. Should we assume that a level of dispositions in 2014 mirror very closely to 2013, or do you have sort of a higher target? Any color you can provide there?

We don't have a hard target and it wouldn't surprise me if we didn't end up in the sort of a level that we've been over the last couple of years. I think we've sold a little over about a $1.1 billion in '12 and '13 so that's an average of 550 a year. So that type of a number is not -- would certainly make sense from our perspective but it would be early right now to kind of commit to any particular number and a lot of that has been -- is all predicated on pricing, just as we try to be disciplined about what we buy, we're also fairly disciplined about what we sell. Nikhil Bhalla - FBR & Company: Sure thing. One follow-up question on RevPAR guidance that you've given here. When you think about quarters, do you suspect 1Q may be is at the low-end of that guidance range? If you could give us some color about the cadence of RevPAR growth this year, that would be very helpful.

We actually -- certainly at the beginning of this year, we were actually looking that Q1 as being one of the stronger quarters of the year. And I think that's despite the fact that we knew we wouldn't get the benefit of inauguration activity in Washington, we were looking at both the benefits of the Super Bowl in New York as well as the fact that in the last week of March we would have a normal week from our perspective from group activity compared to an Easter week that we had last year. We've obviously had a spare amount of weather especially in the Northeast and to some degree in the Southeast and so I think that's tampered our expectations a bit. Having said that though, and this is without knowing exactly how bad last week was but knowing that it wasn't great we still would expect that the first quarter would actually be as -- would -- if we were ranking the quarters we would still expect that to be at the high-end of the range that we talked about for the full year.

We'll go next to Ian Weissman of ISI Group.

Most of my questions have been answered, but just a quick question as it relates to deals. Jon Gray recently said that he has seen better opportunities in Europe than he has in the United States. I know you guys are active over there, and you've commented in the past about opportunities. I think you noted that the bid ask spread was built pretty wide in Europe. May be you could just comment about what the landscape looks like in Europe today given their recovery versus United States.

Ian it's a great question because that is one of the places where we hope to be more active this year. Last year we purchased the one hotel in Stockholm. But as we look at Europe, while recovery there is still slow and certainly not progressing at the same pace that we hope to benefit from in United States in 2014, we do have a sense that the continent turned the corner and consequently in our discussions with our partners we are first need to finish investing the second fund that we had created, which I think has about a little over 100 million in euros of capital to invest. But I think we're open to the notion of potentially doing a fund three years certainly or potentially investing on our own if necessary to try to do, have more activity in Europe. We see opportunity there. We do not see as much competition. We've never seen as much competition on the asset management side and consequently we think there's an opportunity to invest there.

Would you include London in that, I mean when you think about Europe and opportunities, is London part of that focus?

We would like to buy more in London, but if I were to broadly characterize Europe and say that it is, there's not a lot of competition. I'd unfortunately need to leave London out of that characterization. London has seen some pretty aggressive pricing and we have looked at a couple of these transactions that have been on the market and have really not gotten comfortable paying the prices that we see there. So we would -- probably -- we actually, the more we get -- the more we study the Nordics, the more interested we've gotten there. We're certainly still interested investing in Germany and we may even likely look at some smaller opportunities in Spain only because we're seeing some signs that some of the markets in Spain are recovering and it may make sense to be set back into those markets.

And finally -- if I missed this I apologize. But in your comments, you seem pretty bullish on New York City, which is counter to what everyone is saying in light of the supply, which you even talked about. Super Bowl I know was not great; it's not a big group market. So what are some of the core drivers of your optimism as it relates to New York City?

Ian, this is Greg. We mentioned that we, yes we think New York will perform sort of better than the average of our portfolio. I mean part of that is because of the strong results from the Super Bowl. Part of it is, I agree with your comment on city wise but we do have some strong group activity for our hotels especially in 2014 already on the books. And then, as you know, the last couple of years we fully renovated all, most of our New York properties. And so they're all in great condition and I think ready to outperform New York in general just like they did in the fourth quarter.

Ian, I'd add to that as Greg's point about the construction is that our Sheraton had its meeting space out of service for the first quarter of last year, and the W on Lexington was going through a pretty invasive HVAC renovation for the first five months -- five or six months of 2013. So we are getting the benefit there of overlapping a weaker time period.

We'll go next to Chris Woronka of Deutsche Bank.

Just a quick question, drill down a little bit further on the groups if I could. Did you guys notice a change in kind of some of the booking behaviors in the fourth quarter? It sounds like what we saw in the first half, group didn't really come through quite as strongly as you guys and everyone else thought. Did something change there in the fourth quarter and that's may be giving you the optimism for 2014?

Yes, I'd say fourth quarter was obviously great for us from a standpoint of group room night. As you look at the booking activity during the course of the quarter, it was incredibly inconsistent at least kind of compared to prior year metrics. You had good months, you had lousy months. Net, net overall as I said in my comments when you step back and look at the revenues that we booked in the fourth quarter for 2014 and for 2015, we were up compared to the prior year. So we take some comfort from all that in terms of looking at the direction of group business for 2014.

And then just kind of going in a different direction. Could you guys may be give us an update on where you are in terms of some of the management contracts? And are you seeing any opportunities to -- are any of these things coming up, and may be there's an opportunity where you renegotiate or re-flag? Just an update on the portfolio generally.

Yes, I guess I'd it's probably the most interesting opportunity for us that falls into that bucket is the Four Seasons in Philadelphia. And you may have noticed that Four Seasons have announced that they're going to be part of the development that's tied in with Comcast Communications building -- new building that they're going to create in Downtown Philadelphia and Four Seasons has decided to move to a smaller platform in Philadelphia. But we have certainly enjoyed our association and relationship with Four Seasons. We view this as a very interesting opportunity to take what is really one of the classic hotels in Philadelphia. As the timing happens to be quite good for us and that we're envisioning a significant capital investment in the hotel. We've been planning to reorient the food and beverage at the hotel. And so we have the opportunity to do that and where we will not have to do it at the Four Seasons, but have the opportunity to look at other brands or look at an unbranded hotel, fairly exciting opportunity for us. And I think that's something that we're going to be working on over the course of the year. I'm sure we'll have more to say about that in the second half of this year and sometime early next year.

I think Chris, I'd add also that if you probably know we also have a pool of Marriott property and start with properties that over time we can convert those properties here to franchise or a fully unencumbered and sometimes we can do that either today or we can do it upon sales. So those are also interesting opportunities and then as you sort of hinted to we always just have some contracts coming due or some flexibility on contracts for other reasons. So obviously we look at all of those ground.

Okay, but nothing is really in the guidance, right, related to that?

No, there was nothing that would be impactful to that EBITDA number that flows from that.

We'll go next to Wes Golladay of RBC Capital Markets

I'm just curious about how you see the Marriott Marquis opening in D.C. impacting the second half of the year?

Yes, it's a great question. We assume that it's going to be a negative impact on the second half of the year. I mean, the convention business in D.C. is not slated to start to accelerate in response to the Marquis until '15 and '16. So since as we've watched that hotels progress we not have felt that it would be a long-term benefit to the city but we do not think it's going to be a benefit to us in 2014. Thus it appears as there was a quite not enough confidence in the group segment or the association group segment a few years ago to book an event into D.C. without really being -- them being really confident that the hotel would be finished. And we're not real close to the construction schedule for that and my sense is that it is going to finish generally on time in the middle of the year. And so given that well I'm sure Marriott has actively trying to book business into the hotel. It's going to be competing in a market that is since being left in there than it's normally accustomed to. So it won't be a positive impact. Well we have captured that in the investments we've made in the district and it has always believed that that was the likely result and certainly it is captured in our outlook for Washington for this year and the guidance we discussed before.

And real quick on the -- you mentioned potentially doing a European fund three. And I was just curious what is the fee income you guys generate from funds one and two, approximately?

Greg, do you know that?

Yes, I think we're not supposed to disclose the fees from that. So I don't know that number off the top my head.

At this time I will now to turn the call back over to Mr. Walter for any closing comments.

Well thank you all for joining us on this call today. We appreciate the opportunity to discuss our results and outlook with you. As you may have heard, we are planning an Investor Day for April 10 at our Ritz-Carlton in Tysons Corner, Virginia. We view that as an opportunity for you to learn more and hear more from our executive management team about how we look to create value for our shareholders. Invitations and additional information will be coming out soon. We hope to see you at our Investor Day then. Thank you for your time. I'm sure we'll see you soon.

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