Host Hotels & Resorts, Inc. (HST) Q2 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, please stand by, we are about to begin. Good day and welcome to the Host Hotels & Resorts, Incorporated Second Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Gee Lingberg, Vice President. Please go ahead, ma'am. Gee Lingberg - Host Hotels & Resorts, Inc.: Thanks, Chris. Good morning, everyone. Welcome to the Host Hotels & Resorts second quarter 2017 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 reconciliation, to the most directly comparable GAAP information, in today's earning's press release, in our 8-K filed with the SEC, and the supplemental financial information on our website at hosthotels.com. This morning, Jim Risoleo, our President and Chief Executive Officer, will provide an overview of our second quarter results, and provide our outlook for 2017. Greg Larson, our Chief Financial Officer, will then provide greater detail on our second quarter performance by markets, discuss margins, and the balance sheet. Following their remarks, we will be available to respond to your questions. And now, I'd like to turn the call over to Jim. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you, Gee. And thanks, everyone, for joining us this morning. We are very pleased to report solid second quarter results, which beat our internal expectations on both the top and bottom line. Once again, we materially out-performed industry upper upscale results by over 100 basis points. As a result of our continued strong performance we are raising the midpoint of our guidance for the year across the board. We now anticipate 2017 comparable hotel RevPAR to range between 1% and 1.75%, which is a 38 basis point increase to the midpoint of our prior guidance. We also had increased the midpoint of our prior margin guidance by 25 basis points, and now forecast corresponding margin change of minus 15 basis points to plus 15 basis points. I continue to be impressed by our ability to drive this type of margin improvement, particularly given this level of RevPAR growth. This is a testament to the scale and information benefits of our portfolio, driven primarily by our new enterprise analytics team. As a result of these adjustments, we now anticipate 2017 adjusted EBITDA to range between $1.46 billion and $1.495 billion. This translates to a $20 million increase to the midpoint of our prior guidance. Similarly, our adjusted FFO per share is now projected to range between $1.64 and $1.68, a $0.02 increase from our prior midpoint. The cadence of the year is playing out as we anticipated, and as we discussed on our first quarter call. As expected, the strength we witnessed in the first quarter was somewhat offset in the second quarter, due to the Easter holiday shift. Looking forward, that same holiday shift dynamic remains, with the Jewish holidays moving back from October to September. This will negatively impact the third quarter, but positively impact the fourth quarter, which we believe will be strong, and second only to our first quarter in terms of RevPAR performance. This is consistent with our prior and current commentary, and is the basis for our forecast. Macro-economic forecasts remain relatively unchanged from the last time we spoke, and appears supportive to overall economic and industry growth. The key statistics we follow closely, corporate profits and business investment, remain significantly above 2016 levels, and have historically been a strong leading indicator of future RevPAR growth. In addition, employment remains strong, consumer sentiment is high, industrial production is rebounding, stock markets are at or near all-time highs, and the recent decline in the U.S. dollar appears to be shifting from a recent headwind to a tailwind, particularly as it relates to increases in international arrivals. We have yet to see the clear impact of these positive factors on our business. However, we continue to be cautiously optimistic that the stage is set for economic expansion. Offsetting that is a general uncertainty with respect to government policy, and economic initiatives, which may be putting a slight damper on corporate outlooks, and business travel. Moving to capital allocation, we continue to selectively prune what we believe to be the most geographically diversified portfolio of iconic and irreplaceable hotels in the sector. As mentioned in our press release, the sale of the Hilton Melbourne South Wharf is imminent. The hotel is expected to be sold for $182 million, and ends our investment activity in Australia and New Zealand. In addition, we remain committed to reducing our exposure to non-core assets requiring higher capital expenditures, and in locations where lower growth is expected, assuming we can pursue asset sales at attractive pricing. As noted in our press release, we have accounted for one additional unidentified disposition in our guidance, which we would categorize as non-core, and which we expect to close late in the third quarter. On the acquisition front, we remain disciplined in allocating capital to new investments. While we have evaluated several investment opportunities, the pricing has not met our rigorous underwriting requirements. Our 2017 guidance does not contemplate any additional acquisitions from what we have already disclosed, this year. However, we will continue to source opportunities and sell assets, where we believe we can add value and enhance NAV per share. Our industry leading balance sheet has never been in better shape, with leverage at 2.4 times, as determined under our credit facility. As of quarter-end, we have nearly $650 million of cash, and over $775 million of capacity under our credit facility. Depending on the economic conditions and opportunities that present themselves, this investment capacity provides us the ability to effectively allocate capital, and drive stockholder value in a number of ways. We can seek to increase earnings through disciplined external growth; judicious capital investment in our portfolio; opportune repurchases of stock under our existing $500 million buyback authorization; and returning capital to stockholders through payment of a special dividend. We believe this flexibility to pursue a variety of outcomes sets Host apart from our peers. One of the places where we have allocated capital, and will continue to do so, is within our existing portfolio. This is evident in the results of our non-comp hotels, where RevPAR for the quarter was up nearly 11%, building on the momentum we witnessed at these assets in the first quarter. While this performance is not reflected in our full year RevPAR guidance, these assets are contributing significantly to our EBITDA, and represent another lever that we can pull in our diversified portfolio to successfully allocate capital. Looking at CapEx for the full year, we expect to spend $275 million to $290 million on renewal and replacement capital expenditures, and $100 million to $110 million on redevelopment and ROI projects. Let me now discuss our results for the quarter. Adjusted EBITDA was $444 million, reflecting an increase of 1.8% and exceeding consensus estimates. Second quarter FFO per diluted share was $0.49, also exceeding consensus estimates. Year-to-date adjusted EBITDA was at $811 million, and FFO per diluted share was $0.94. These results were driven by several factors. While we expected to see some disruption from the Easter holiday shift, Group average rate exceeded our expectations and Transient demand was better than expected. As a result, on a constant currency basis, our comparable RevPAR improved 1.7% in the second quarter to nearly $194, driven by an 80 basis point increase in average room rate. Better than expected demand resulted in occupancy improvement of 70 basis points, to 83.2%. Our domestic comparable properties had RevPAR growth of 1.8%, with a 10 basis point delta between total and domestic comparable RevPAR growth, a result of the tough comp at our properties in Rio de Janeiro, which benefited from pre-Olympic activity last year. Comparable hotel revenues were luckily flat for the quarter, and up 1.4% so far this year. I am pleased to report that comparable EBITDA margin grew 15 basis points in the second quarter, and 45 basis points year-to-date. Greg will elaborate on where that margin improvement is specifically coming from. Starting with our Transient segment, the Easter and Passover holiday shift into April, coupled with spring break travel, boosted Leisure demand for the month by 3.5%. May and June demand grew a combined 1.3% for an overall quarterly demand increase of 2%. Transient rate for the quarter increased 1%, driven by a nearly 2% rate increase in the month of May. Our strong book of Group business allowed us to drive Transient rates. Overall, the favorable demand and rate results led to a 3.1% increase in Transient revenue for the quarter. We continue to be impressed with our Transient business, particularly Leisure, which remains strong and buoyed by high customer sentiment, lower oil prices, and strong employment. As expected, our Group results for the quarter were also impacted by the holiday shift, as Group revenue decreased 2.7% for the second quarter, notably impacted by demand declining more than 8% in the month of April. Specifically, a result of the holiday shift from March into April. While we expect Group to continue to be impacted in the third quarter as a result of the Jewish holiday shift, these strands have been incorporated into the revised guidance we presented this morning. Let me spend a few minutes discussing our Group outlook. We have over 90% of our Group revenues on the books for 2017, and continue to see the Group booking window extend. With nearly all of our Group business on the books, combined with record occupancies at our properties, and Transient demand strength, there isn't that much additional capacity remaining for groups to book for 2017. This means that groups are looking out to 2018 and beyond, which is a great trend that helps our managers shore up their business, shrink the hotel, and drive future Transient pricing. In fact, we were encouraged by strong booking activity for 2019 and beyond during the quarter. Combined with solid 2018 Group revenue pace, our outlook for Group business remains positive. One additional item I'd like to address is a question which has been raised regarding a decelerating second half for our business. Please keep in mind that two one-time events, both in the first quarter and the third quarter, caused a little noise when looking at our guidance. As you know, in January we benefited from the Inauguration and the Women's March. Business we were thrilled to have, but which skewed first half results higher. As we look to the second half, it is important to remember that we expect to be impacted by the difficult comps in Brazil, due to last year's Olympics in the third quarter. When you smooth out those two events, our forecast does account for a slight deceleration in the second half, but not nearly as much as the forecast would suggest. Looking at the remainder of the year, we remain cautiously optimistic and confident in the raised guidance we put out last evening, and would describe our outlook as, steady as she goes. Before I turn things over to Greg, I would sum up by saying, that our geographically diversified portfolio of iconic assets continues to drive positive results, as illustrated by our performance and our upward revision to 2017 guidance. We continue our strategy of utilizing our portfolio scale and access to information to identify and generate opportunities, both internally and externally, that we expect to produce strong returns for our investors. Finally, we continue to benefit from our disciplined capital allocation decisions, and maintain the flexibility to create value in numerous ways, due to our strong balance sheet. With that, I will turn the call over to Greg Larson, our Chief Financial Officer, who will discuss our operating and financial performance in much greater detail. Gregory J. Larson - Host Hotels & Resorts, Inc.: Thank you, Jim. We continue to be pleased with our RevPAR and EBITDA margin growth, as our results exceeded our expectations again this quarter, allowing us to raise both our RevPAR and margin guidance. Now, I will provide an overview of some of the markets. Our hotels in Seattle outperformed our expectation in the rest of the portfolio, with an 18.7% RevPAR increase, which was over a 1,000 basis points above the STR upper-upscale market results of 8.1%. The impressive results were driven by both occupancy and average rate increases of 5.2 percentage point, and 11.8%, respectively. Our Seattle hotels benefited from a strong city-wide calendar, displacement from a competitor's room renovation, and tailwinds resulting from the W Seattle renovations last year. Strong Transient Retail and Special Corporate business, coupled with solid Group business, helped our managers drive Transient ADR, which was up 14.1%. We continue to witness strength in Phoenix, where RevPAR at our hotels grew 11.8% in the quarter, driven by a 6.6 percentage point increase in occupancy, and a 2.1% growth in average rate, more than tripling the STR upper-upscale market results of 3.6%. This was the result of the combination of strong Transient and Group business during this quarter. Specifically, Transient revenues increased 17%, while Group revenues grew 5.2%. In addition, the continual ramp-up of the strategic 2015 redevelopment and franchising of The Camby Hotel benefited our Phoenix results in the first half of this year. Despite the excessive lack of city-wides this quarter, our hotels in Denver grew RevPAR a significant 8.8%, driven primarily by a 7.6 percentage point increase in occupancy, mainly from Transient demand, which increased almost 23%. The RevPAR increase exceeded the STR upper-upscale results by 520 basis points. In addition, our managers strategically targeted short-term Group business, which enabled the hotels to increase Food and Beverage revenues by almost 15% in the quarter. Our Boston properties also amazingly outperformed our portfolio this quarter, with RevPAR growth of 8%, 380 basis points in excess of the STR upper-upscale results for the market, and better than we had we'd have anticipated. Occupancy increased 3.2 percentage points, and average rate grew 4.1%. Two additional city-wides helped to compress the city and drive incremental ADR growth. Once again, Transient revenues were strong, with a 16.7% increase. We expect continued strength in Boston, as several companies are moving into the area or expanding. Although much of this activity is in the Seaport district, we do anticipate the overall market will benefit. Hawaii RevPARs were 5.7%, beating STR upper-upscale market results by 110 basis points. Resorts destinations, such as Hawaii, benefited from stronger Leisure business, related to the Easter holiday shift. Average rate for the overall market at our hotels was up 7.3%, which was offset slightly by an occupancy decline of 1.4 percentage points. However, our resorts in Maui were even stronger, and saw a 15% increase in Transient average rates, as they benefited from pricing strategies that replaced lower rated Group business, with higher rated Leisure customers. The Maui properties are also benefiting from the anemic supply growth on the island, and the low national supply growth at resort properties overall. Shifting gears to some of more challenged markets, RevPAR at our hotels in Houston declined 12.7% mainly driven by challenges in the Group segment. These included two fewer city-wides this year, and lower than expected attendance at one large event in Houston this quarter. Our hotels in Houston will likely continue to under-perform the portfolio, as additional supply continue to negatively impact the market, especially on the weekend. However, it remains worth noting that Houston represents only 2% of our total EBITDA. In Atlanta, the RevPAR decrease of 3% in the second quarter was driven by a reduction in occupancy of 1.7 percentage points, and a drop of almost 1% in average rate. Both Transient and Group business were negatively impacted by the Easter holiday shift, and renovations at the Ritz-Carlton Buckhead hotel. In San Francisco, RevPAR declined 2.8% in the second quarter, largely due to the anticipated, and well-documented, closure of the Moscone Convention Center. However, our hotels outperformed the STR upper-upscale market results by 280 basis points. Going forward, we anticipate hotels in San Francisco will continue to struggle as the Moscone Convention Center is scheduled to be completely closed in the third quarter, negatively impacting all hotels in the Bay area. However, keep in mind, that once the expansion project at the convention center is completed in 2018, we expect city-wides to return to San Francisco, and business to positively follow through in a meaningful way in 2019. For our Domestic hotels in the second half of the year, we expect Phoenix, Los Angeles, Boston, and Hawaii to out-perform the portfolio, and Houston, New York, San Diego, and Denver to under-perform the portfolio. Moving to International operations. Our consolidated International hotels second quarter RevPAR decreased 3.1% in constant currency. As expected, the story of these two countries continues. Out-performance in Canada, and under-performance in Brazil. RevPAR in our hotels in Canada grew 11.5%, but was offset by a RevPAR decline of 14.6% at our Latin America hotels. Specifically, the business leading up to the Olympics in Rio last year provided for difficult comp at our Brazilian hotels. We expect these difficult comps to continue into the summer, and estimate that it will impact our total portfolio RevPAR results by 100 basis points in the third quarter. Another bright international note is the performance of the hotels in our European joint venture, which showed encouraging signs of improvement in the quarter. The portfolio continued to show signs of recovery, and is benefiting from accelerating economic growth across the continent. Many other countries where we own assets, such as Belgium, France, Germany, and Spain have increased GDP forecasts since our last call. RevPAR for the 10 hotels in the portfolio improved 8.2% in constant euros, with occupancy growth of 4.3 percentage points, and average rate increase of 2.7%. This performance was driven by strong Transient and Group business at several properties. For the full year, we expect RevPAR growth at these hotels will continue to out-pace our comparable historic result. We remain impressed by the efforts of our managers, and asset managers, as they continue to do a phenomenal job in bringing more profit to the bottom line. We increased margins by 15 basis points with a RevPAR increase of 1.7%. And on a year-to-date basis, we have increased margins by 45 basis points, on a RevPAR increase of 2.5%. These are impressive results in an environment with rising labor costs. Broadly speaking, our margin out performance can be broken down into three categories. First, we attribute about half of the performance to productivity gains. As we described on previous calls, a large portion of the productivity improvement is related to time and motion studies conducted by third party consultants at our hotels. We still have a portion of the portfolio where we have yet to complete such studies, so we anticipate continued benefits from this until at least next year. We are also pursuing other initiatives to drive productivity improvement. These include continued expansion of Marriott's Green Choice program, which allows customers to forego housekeeping service in exchange for loyalty points. We have also implemented a room technology solution at many of our hotels, which facilitates more efficient deployment of housekeeping labor. Our operational initiatives are also delivering out-performance. One example includes recently outsourcing four Starbucks operations. These were high revenue, but low profit operations, so converting them to rental income stream benefits overall margin. We have also continued efforts to restructure in-room dining operations. We now have 26 hotels in our portfolio with some form of modified, or completely eliminated in-room dining, in favor of packaged food, pick-up, or delivery. Other smaller targeted initiatives consist of reviewing maintenance and service contracts, or food procurement practices. Finally, further out-performance was achieved from plus inflationary growth in operating expenses not allocated to specific departments, such as administrative and general expenses, sales and marketing, and utilities. Higher purchasing card rebates, and savings in training, recruitment, and travel helped reduce A&G expenses. Savings in sales expense, through more targeted media and e-commerce spending, and reduced Group concessions held down sales and marketing expenses. We also continue to benefit from ROI projects, such as high-efficiency central plant equipment replacement, LED lighting retrofit, and solar panel installations, which drove continued savings in utilities. Going forward, we continue to execute on productivity improvements through our time and motion studies at our medium and small hotels. We also expect to garner cost savings from the Marriott-Starwood merger through lower OTA commissions, and better procurement costs, both of which should continue to drive future margin improvement. With the benefits of two quarters behind us, and with these productivity savings in mind, we have increased the midpoint of our margin guidance by 25 basis points this quarter, and 40 basis points since our initial guidance in February. In July, we paid a regular first quarter dividend of $0.20 per share, which represents a yield of 4.5% on our current stock price. We continue to operate from a position of financial strength and flexibility, and believe we have one of the best balance sheets in the lodging REIT and overall, REIT space. Importantly, these key competitive and strategic advantage enhances our ability to sustain the dividend throughout the lodging cycle, while also allowing us to invest when accretive opportunities arise to either buy assets, buyback stock or reinvest in high-yielding value-add projects. During the quarter, we meaningfully extended the maturity of our revolver, and one of our two term loans, and lowered the interest rate margin on the term loan. This transaction demonstrates our ability to take advantage of our strong investment grade balance sheet, and our financial flexibility to opportunistically manage our maturity schedule, while remaining within our target leverage range. As Jim mentioned, we ended the second quarter with approximately $644 million of cash, and $775 million of available capacities remaining under the revolver portion of our credit facility. Today, our leverage ratio is 2.4 times, as calculated under the terms of our credit facility. As Jim noted in his remarks, we are excited to have reached the first half in an even better position than we anticipated. We have therefore increased the midpoint of our RevPAR and margin guidance for the year. Finally, I'm going to urge you to keep the impact of the holiday shift and the tough comps related to the Olympics in Brazil last year in mind, as third quarter results are anticipated to be weaker than the first half of the year, with a rebound expected in the fourth quarter. Looking specifically to the third quarter, we expect 21% of our total EBITDA for 2017 will be generated in the current quarter. Overall, we are pleased with our strong results today, particularly with the improving possibility of our assets in what continues to be a competitive market, and lower growth environment. This concludes our prepared remarks. We are now interested in answering any questions you may have. To ensure we have time to address questions from as many of you as possible, please limit yourself to one question.

And we'll go first to Barclays with Anthony Powell.

Hi. Good morning, everyone. James F. Risoleo - Host Hotels & Resorts, Inc.: Good morning. Gregory J. Larson - Host Hotels & Resorts, Inc.: Good morning, Anthony.

Morning. You mentioned the strength of Leisure demand several times in your prepared remarks. Looking back, have you seen prior examples where Leisure out-performed business transient for an extended period of time? And how long do you think this dichotomy could last? James F. Risoleo - Host Hotels & Resorts, Inc.: It's a good question, Anthony. I think that we're very, very pleased with the book of business we're seeing from the leisure traveler. So long as consumer confidence remains strong, and unemployment remains low, and people feel good about their wallet and their balance sheet, we expect to see the leisure traveler continuing to spend money. We see no slowdown. If anything, we're seeing acceleration. So, we like nothing better than to see the business traveler return and put us in a better position to yield rates in an even more aggressive manner at the hotel.

Got it. Thanks. And as a follow-up, I think in the past you said Leisure made up about 30% of your overall room night mix. Has that mix changed in recent years? James F. Risoleo - Host Hotels & Resorts, Inc.: No. It's about the same.

All right. Great. That's it from me. Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure. Great. Thank you.

Next we'll go to Shaun Kelley of Bank of America.

Hi. Good morning. Thanks for taking my question. Greg, you mentioned some detail around the margins, and I think in the last part of the prepared remarks that you kind of see some benefits on the – from the Marriott-Starwood merger and integration. Do you think both in the performance that we saw this quarter, and possibly then on the RevPAR side, you're seeing any of that benefit sort of real time? Or do you think more of the opportunity from the merger is slated to come in the months and years ahead? Gregory J. Larson - Host Hotels & Resorts, Inc.: Yes. I think – look, we're benefiting, obviously, from quite a few of the things I mentioned this year, the time motion study, the energy ROI project, the Green Choice program, et cetera, but I think the benefit that will accrue to us from the Starwood-Marriott merger, really that's going to happen later. Either late this year, or really into 2018 and 2019 as well.

Got it. And I guess, as we think about sort of the broader overall mix, and we look at the portfolio, it feels like this quarter we saw a demonstrable out-performance in some of the kind of non-top five or top ten cities. You know places like Denver, Phoenix, I guess even Seattle, as we head forward, A, do you think that pattern is likely to continue? And B, what's your plans for how you view your portfolio right now in terms of – I think over time, people probably try to prune and get out of some of those, the kind of – let's call it, non-top 10 markets, what's Host view towards those top 10 or 15 markets versus your overall diversification? James F. Risoleo - Host Hotels & Resorts, Inc.: Shaun, that's a really good question. I think that we are very comfortable with the geographic diversity that we have in the portfolio today. I've mentioned in the past that we're very open-minded to looking beyond the top 10 to 12 markets that we had invested in, and in fact, while the Phoenician in and of itself is non-comp right now because of a renovation plan that we have ongoing, that asset is in Phoenix, that is a good example of the type of property that we'll be looking for, a large asset with scale, and an asset where we can add a lot of value. So I don't think that you will see us exiting those markets for the sake of exiting them. I think I'd go back to the comments that I made earlier. If we have a non-core hotel that is situated in a market that's under – that is likely to under-perform the rest of the portfolio over time, and is in need of a lot of capital outside of the reserve, those are the types of assets that we'll continue to prune.

Thanks very much.

And we'll go next to Rich Hightower from Evercore.

Hey. Good morning, guys. James F. Risoleo - Host Hotels & Resorts, Inc.: Good morning, Rich.

So let's – I want to break down the back half guidance a little bit. So it really does sound like Brazil, combined with the holiday shifts, were throwing a wrench into the third quarter, certainly vis-à-vis the fourth quarter if not the first half, as well. I'm just trying to get a sense of – and I appreciate the color you guys give on the contribution of EBITDA, relative to the full year, and so we can sort of back into some numbers that way. But what is the breakdown between RevPAR and margins in the third quarter versus the fourth quarter, if you don't mind? And if we go negative, how negative could it be in the third quarter? Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, Rich. This is Greg. Hey, look, I clearly agree with almost everything you just said there. Clearly we are, as we mentioned in Jim's comments, impacted in a positive way because of the Inauguration and the Women's March in the first half of the year, and my comments – as I mentioned in my comments, Brazil, even though we only own two small hotels and the JW down in Brazil, those three hotels will impact our RevPAR by 100 basis points just in the third quarter. So there is some noise, as we've all talked about. I think the other thing I would add that sort of impacts first half, second half, is we have two hotels that just became comped this year, the Camby hotel and the Logan hotel, and those two hotels are really ramping up in a meaningful way this year. Clearly had strong RevPAR growth year-to-date. Those hotels are going to perform more in line with our portfolio on the second half of the year. So that's one additional item that sort of skews first half, versus second half. But, Rich, as you know, we don't give third quarter guidance here, I do try to help you out by telling you how much EBITDA, but look, I think, when I look at the shift of the Jewish holiday, and think about, you know, 100 basis point impact from Brazil, we should think that clearly, for us, I think RevPAR is going to be negative in the third quarter. And then as Jim mentioned, it rebounds in a strong manner in the fourth quarter.

Okay. That's very helpful, Greg. Thanks. And then just one quick question on some of the quarterly results from 2Q. As I kind of look at Host's performance versus the STR MSA tracks that most of us get on a weekly basis, you did out-perform in several of those markets. I'm curious though, if you take markets like San Francisco, D.C., maybe Boston as well, how your CBD assets did relative to maybe some of the suburban assets in those markets? Just given some of the particulars last quarter? James F. Risoleo - Host Hotels & Resorts, Inc.: Hey, Rich. You know San Francisco might be the best example of what you just described. In total, all right our RevPAR declined 2.8% compared to the STR data, which is down 5%, 6%, obviously great out-performance. But when you look at our big hotels, the Moscone Center, it was down about 2.8%, so similar performance as some of our more, I guess, suburban properties around San Francisco. Yeah, I think, the one thing that really helped us in San Francisco is that our revenue manager, our asset managers, and our manager, we identify this quarter and this year as being, obviously it was going to be a weak year in San Francisco. And so because of that, they really focused on booking in-house Group business, which really, I think, helped us in the quarter. They also booked some, what I would say, high rated contract business, which also helps us out in the quarter. So with the benefit of hindsight, sitting here today, I think that was a great strategy and really helped our results. In fact, frankly, if you look at, sort of the branded hotels in the area around the San Francisco, Moscone property, frankly, most of those hotels were down double-digits in RevPAR. James F. Risoleo - Host Hotels & Resorts, Inc.: And Rich, I'll give you just a little bit of color on Washington, D.C., looking at suburban versus CBD hotels. So we continue to be very focused on driving performance at every property in the portfolio, and a good example of that, I think, is the Westfield's Marriott, which is not in the central core of Washington, D.C., but we had strong in-house Group performance in that property in particular. And our RevPAR for that hotel exceeded our previous forecast, as once we had the Group on the books, we were able to yield a stronger Transient business in the property, as well. <: That's great color, guys. Thank you.

Up next, we turn to Thomas Allen from Morgan Stanley. Thomas G. Allen - Morgan Stanley & Co. LLC: Hey. Good morning. So just on the EBITDA revisions, or the 2017 guidance revisions, how much of – so what would have been the – what's the impact from the additional property sale that you're assuming? And I'm assuming that's not the Melbourne sale that you had already anticipated last earnings, right? James F. Risoleo - Host Hotels & Resorts, Inc.: That's correct, Thomas. The undisclosed disposition that we referenced in the press release and our remarks, will have an effect – a negative effect of about $2.5 million, roughly, for the balance of the year. Gregory J. Larson - Host Hotels & Resorts, Inc.: Which is in our guidance. James F. Risoleo - Host Hotels & Resorts, Inc.: Yes. Of course it's in our guidance. And so the $20 million would have been closer to $23 million. Thomas G. Allen - Morgan Stanley & Co. LLC: Perfect. And then I think there's been some concern in the market, just that if you looked at the STR data, June RevPAR decelerated from May despite it should have gotten the benefit from the July 4 shift. Did you feel like there was any kind of change in demand trends in June versus the prior quarter – or prior months and quarters? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: No, we did not, Thomas. Actually, we had a pretty good June. I'm not going to give you specific RevPAR numbers, but we're really comfortable with how June performed. Thomas G. Allen - Morgan Stanley & Co. LLC: I guess July, also? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah, July, and look, obviously we're still in July, but so far July has been pretty decent as well, compared to our internal forecast. Thomas G. Allen - Morgan Stanley & Co. LLC: All right. Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: Thanks.

Our next question comes from Michael Bellisario with Robert W. Baird. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Good morning, guys. James F. Risoleo - Host Hotels & Resorts, Inc.: Hey, Michael. Michael J. Bellisario - Robert W. Baird & Co., Inc.: First question just on acquisitions. Jim, how far off do you think you are on pricing? And then maybe from your seat with your investment history and acquisitions history, are you seeing others underwriting differently than you are? Or do you think it's just simply a cost of capital difference that you guys have versus your competitors out there today? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, I don't think it's necessarily a cost of capital difference, Michael. I think that as we're looking at investment opportunities today, I think, first and foremost, we don't think it's time to be a buyer of any commodity type of asset, so we are focused at this point in the cycle, on unique hotels that I would categorize as iconic and would fall into that section of the assets that we own today. We are taking into consideration the growth environment that we're operating in as we're underwriting hotels, and as we've talked before, we take into account a full 10 year capital plan, and look to solve for an un-leveraged IRR on a 10 year basis that is at least 100 basis points in excess of our cost of capital, if not higher, depending on the facts and circumstances of the particular deal. So we have not – I wouldn't say that we're wildly off underwriting expectations, pricing the expectations of buyers today, but I would say that given the attractiveness of the debt markets, and the availability of debt capital, both from a pricing perspective and proceeds perspective, there has to be a real reason for an owner of an asset to want to sell today. So they become indifferent to a refinancing unless they can really achieve a valuation that excites them. And I think that is what's happening in the markets today. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Got it. And then just one other question on Group. Can you maybe provide some metrics on the in-the-quarter bookings for all future periods? Did you see that pace tick up or down in the second quarter? Gregory J. Larson - Host Hotels & Resorts, Inc.: Well, it depends on how you define all future periods. When we look from bookings sort of in the quarter, or for this year, but for 2018, 2019, and beyond, the bookings were actually stronger. Bookings in the year, for the year, as we expected, and as we talked about last quarter, were as expected, a little bit weaker. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I would – I would – you know, 2018 specifically, Michael, we are ahead of Group pace in 2018, relative to where we were this time last year for 2017. So we feel pretty good about what's happening with Group in 2018, as we look at the numbers today. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Very helpful. Thank you.

Our next question comes from Ryan Meliker of Canaccord Genuity.

Hey, Jim, I guess just one for you. You've now been in the big seat for six months, obviously been with the company a lot longer, but I'm just wondering if there's anything that you've learned over the past six months that's surprised you, or has caused you to rethink some ideas you had coming into the seat? James F. Risoleo - Host Hotels & Resorts, Inc.: Boy, I'd say, if anything, Ryan, I've come to appreciate better what a great company Host is. When I sit back and look at the attributes of Host Hotels & Resorts, and I look at the geographically diverse portfolio that we have, which I think is unmatched by anyone else in the industry, the scale that we have, the access to information, and the ability to utilize that information to be effective on asset management, and effective on the acquisition side, and then the balance sheet that we have never been in better shape. I'm really excited about where we sit, and I think that the results that we had for this quarter, and the fact that we were able to beat consensus and raise estimates is a testament to everything that I just referred to in many ways. So, no surprises. Excitement, and looking at ways to move the company forward as we think about where we are in the cycle, and what the next leg might be.

Okay. Thanks. I appreciate it, Jim. And then as we think about going forward, as we move through the cycle, and what the next leg may be, coupled with the balance sheet that you just mentioned that's obviously in great position, where do you see Host, you know, call it five years from now? Is Host going to be a lot bigger? Are you going to continue to prune – prune the portfolio and one-off transactions, similar to what you've been doing this year? Do you see M&A on the horizon? How are you thinking about the portfolio on a go forward basis? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, you know, it's difficult to answer that question in a vacuum because it's so dependent upon what happens in the economy, and whether or not we see a re-acceleration of economic growth depending on what comes out of Washington, and general economic trends. So the thought that I have is, I want to make certain that Host is the best performing REIT in the space. And the actions we take will be with an eye towards increasing our performance, increasing our margin performance, and out-performing as we look to the future.

Okay. Thanks.

And from Deutsche Bank, we'll go next to Chris Woronka.

Hey. Good morning, guys. James F. Risoleo - Host Hotels & Resorts, Inc.: Morning, Chris.

Morning. I wanted to ask you about your Hyatt Hotels. I think you have about nine of them, and I know they're going through kind of a contract re-negotiation of sorts with a couple of the OTAs. What are – do you – is there any embedded – do you think there's – that's going to create any kind of friction for you temporarily in the third quarter? And I think they've sent the owners some communications about their plans, but I mean, do you see that as a potential source of surprise for you? James F. Risoleo - Host Hotels & Resorts, Inc.: You know, Chris, I'm going to be careful with how I answer this question, because we've been in close communication with Hyatt, and as you might imagine, we are among the many owners in the industry that advocate for lower distribution costs. And I feel that over time Hyatt's strategy will achieve this result for us, and really that's about all I want to say on this subject.

Okay. Fair enough. Also, I want to ask you on the – I know on the non-comparable hotel guidance, I think that is up $9 million or so at the midpoint versus prior. I guess the question is kind of, how much visibility do you have on that? And then, looking out to next year, maybe, Greg, can you explain to us how the comps suddenly change next year? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. So, I mean, Chris, as you mentioned, I mean, obviously we've been very pleased with our non-comp and our comp results so far this year. In fact, if you look at year-to-date, our non-comp is up north of 13% in RevPAR growth. So I would expect when I look at the non-comp assets that are in the group, Denver Tech, the Hyatt in San Francisco, which is actually up over 20% in the quarter in RevPAR, you know the Marriott Marquis in San Diego, Axiom, and our two new acquisitions, The Don and W; I would expect all those hotels to continue to have decent results in the second half of this year. As far as which assets will fall out? I think, the Marriott Marquis, I think becomes comp next year. But – and I know the Axiom becomes comp next year. Beyond that, really what we always try to do is have a full year sort of what we would consider normalized results, before we put it into comp. So, it's hard for me, sitting her today, knowing fairly exactly what will be non-comp next year.

Okay. Very good. Thanks, guys.

Up next, we'll go to Smedes Rose of Citigroup.

Hi. Thank you. I just wanted to ask you how you're thinking about your position in New York? We've just sort of heard anecdotally that buyers are perhaps more interested in the market now, given that the pace of new supply is likely to start declining. Do you think that's accurate? And maybe, just in terms of the overall portfolio re-positioning, are you interested in selling a property or more here? James F. Risoleo - Host Hotels & Resorts, Inc.: Smedes, I think you are starting to see some interest in New York. There's a lot of noise in background here. The city has undertaken an initiative with respect to Midtown East rezoning, which will likely be approved and signed into law in – later in August through September of this year. I think that that could potentially open up opportunities for re-purposing of certain hotels today to office/residential. So, we – as you know, we have a number of properties in Midtown, we're looking at a number of the assets. We've had conversations with different prospective purchasers. I would not say today that we're close to a deal, but it is something that's at the top of our list.

Thank you. That was it.

Our next question comes from Patrick Scholes, SunTrust.

Hi. Good morning. My question is on your expectations for the fourth quarter. Certainly you know October has a very easy Group comp, but what do you think about the strength or weakness of Group business in November and December? Thank you. Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, Patrick. As you probably already know, since you're a specialist on forecasting future RevPAR, you know November...

That's not bad. (52:28). Gregory J. Larson - Host Hotels & Resorts, Inc.: You know, I think November, surprisingly, even though it's a difficult time, November looks pretty decent right now. And, as Jim said in his prepared remarks, we expect a real rebound in the fourth quarter. Now having said that, we think it's probably, it's a decent quarter, but it's probably our second best quarter of the year.

Now, let me – let me – let me quiz you a little bit more here. I completely agree with you on November. This is interesting because a year ago, November, sort of a surprised to the upside. November, I would say, is one of the harder back half comps. Why do you think November looks decent for groups? And, I relate that to, when I go back and look at Smith Travel results around the election, it doesn't look like there is a terrible easy comp. I mean, group was up 15% or 17% the week after the election. I mean, what do you think might me going on for another good November here? Gregory J. Larson - Host Hotels & Resorts, Inc.: I mean, Pat, it's a great question. If you remember, you know, November of last year was really the first year that we, and I think the industry in total, actually we all feed our internal forecast after experiencing about a year, a year and a half of always sort of coming up short on internal forecast, November was a very strong month. December was a strong month, and obviously for us, the first quarter and strong quarter were both strong months, and first quarter is strong quarter, and second quarter is strong as well. So, it's a good question. Look, all I know, I don't know if I have a specific answer, but what I can tell when I look at our group booking pace in the second quarter, especially in November and December, looks real decent sitting here today.

Okay. Thank you for the comment.

Our next question comes from Bill Crow of Raymond James. William A. Crow - Raymond James & Associates, Inc.: Good morning, guys. Gregory J. Larson - Host Hotels & Resorts, Inc.: Good morning. James F. Risoleo - Host Hotels & Resorts, Inc.: Good morning, Bill. William A. Crow - Raymond James & Associates, Inc.: First question is going back to something you said earlier about the potential savings from Starwood Marriott merger. I'm just curious, you referenced slower OTA commissions. What is the average commission, OTA commission you're paying today, and if we had to take a guess, how many basis points could we see that decline over the next year or two years? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah, Bill, I think, that, you know, when we look at our sort of Starwood legacy hotels and look at the contract that they had versus Marriott. You know, I think, once those contracts are fully negotiated, you know, my guess is, we save a point or two points, which is, you know, obviously material. I mean, the other – so the – but the other thing that we're hoping for obviously, Marriott as a larger company going forward, I mean, I'm speculating now, but I'm hoping as a bigger company, they have more leverage in the future on negotiations as well. William A. Crow - Raymond James & Associates, Inc.: Okay. And then, the follow-up was on Europe, just with the weaker dollar here in the back half of the year. I'm just curious whether that has had an impact on your forecast for the balance of the year and whether you are contemplating now that you've kind of cleaned up Australia, whether you looked at Europe as a potential area for capital recycling? James F. Risoleo - Host Hotels & Resorts, Inc.: Great question, Bill. I would say with respect to inbound international travel, it's probably neutral to up a bit. We are happy from our perspective to see the dollar weaken a bit because we do think we'll see more inbound travelers. With respect to Europe generally, as you know, Europe contributes roughly 2.5% of our EBITDA on an annual basis, and we are invested through a joint venture with two really terrific partners, the Government of Singapore, and APG, and it's been a great relationship. We've been in the Euro JV since 2006. That said, we are evaluating the way forward in Europe, and a couple things can cause one to stop and think, well, cost of capital in Europe is – appears to be much more aggressive than it is in the U.S. So, frankly, it makes it more difficult for us to compete. And we start with that premise, and we'll take it from there. William A. Crow - Raymond James & Associates, Inc.: All right. That's it from me. Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: Thanks, Bill.

Our next question comes from Jeff Donnelly of Wells Fargo.

Good morning, guys. Just first I want to ask a follow-up on Moscone. The Group booking contribution from Moscone is just marginally better in 2018 than it was in 2017, so I'm just curious, I know it's early, but is it your sense that San Francisco could commence a recovery in RevPAR as early as next year? Or is your sense that 2018 could be more of another year of, call it, transition, before we really get into that period of 2019 and 2020, where the Moscone bookings are quite strong? James F. Risoleo - Host Hotels & Resorts, Inc.: Jeff, I would – I would agree with the latter comment that you made. I think that as we look at city-wide events in San Francisco for 2018, it is not as strong as 2017 or 2016. We really start to see Group room nights come back on the books in 2019. 2019 is the year when we're likely to see performance levels in total Group room nights of 2016.

That's helpful. And then – and then, just another question on the expense growth. I mean, it's been pretty low this year. Can you maybe talk about how much longevity you feel there is to holding expense growth low? Is that going to be isolated to 2017, and pretty persistent to 2018, if you think RevPAR, you know, kind of remains around this 1% to 2% level? And I guess, maybe a second part to that. We had estimated some of the synergies that you guys might face from the Marriott Starwood combination to ultimately approach call it 50 basis points to 100 basis points cumulative on margins over the next few years. Do you think that's a reasonable estimate of the tailwind you could get from Marriott Starwood? James F. Risoleo - Host Hotels & Resorts, Inc.: Jeff, to answer your first question is it sustainable? We're working really hard at making it sustainable. As we mentioned, we have completed time and motion studies at a number of the hotels in the portfolio. We're continuing to roll those studies out throughout the portfolio to improve productivity and improve margin on a regular basis. So Greg also mentioned that when he talked about other avenues that we're taking along with our managers to enhance productivity like how you schedule housekeeping rooms and the Green Choice. I mean, we're looking for continuous and working with our managers to find new initiatives that's going to allow us to be more productive in our hotels and keep costs down. Answering your question regarding the impact of the Marriott Starwood merger going forward, I don't think that your assumption is unreasonable at all. Over the next two years to three years as the companies are fully integrated we will likely see benefits top line as well once the rewards programs are fully integrated, hopefully by the end of 2018. So when I look at margin performance I think it's difficult in many ways to separate margin performance from RevPAR performance. So all in all we feel really good about what's happening with the Marriott Starwood integration and the fact that the Marriott is managing 81% of our rooms.

Great. Thanks, guys.

From UBS we turn next to Robin Farley.

Great. Thanks. Two questions. One is just looking at your change in RevPAR guidance for the year it mostly has sort of gone up by the amount of the beat in the second quarter just at the midpoint. So how should we think about – is your outlook for the second half pretty much the same as what you thought it was a quarter or so ago? Is that the best way to think about that? And then I have another question. Thanks. Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, Robin. This is Greg. Yeah, I think that you're generally right that our increase in – if you look at the midpoint of our RevPAR guidance increasing nearly 38 basis points, it's primarily because of the success that we've had in the both the first and second quarter beating our internal forecast. And I think we pretty much sitting here today have a similar outlook for the second half of the year.

Okay. That's helpful. Thank you. And then just in the opening comments, Jim, you'd mentioned that you've like looked at some opportunities that didn't meet your IRR standards, and can you give us a sense of just what type – were they portfolios, or individual property similar to the Don and the W acquisitions you've made, where they just sort of individual properties, and is it that there were other bidders that, you know, had a lower cost of capital or something? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, I'm not certain that – Robin, I don't think I said that the other bidders had a lower cost of capital. I think, we're very comfortable with our cost of capital, and that puts us in a position to compete, to create accretive value over time, and we underwrite for that perspective. So, they were not portfolios, they were single asset deals, and we spent a lot of time in one in particular, we were very close on it, and frankly, as I mentioned earlier in a response to, I think, a question that Michael raised, when a buyer can go out and borrow at very attractive rates – I'm sorry, in order to go out and borrow very attractive rates or high proceeds levels, yes, they change their mind. And they decide they want to own the asset, I think for many of the same reasons that we continue to be cautiously optimistic about where we're going.

Okay. Great. Thank you.

This concludes today's question and answer session. At this time, I'd like to turn the conference back over to Mr. Risoleo for closing remarks. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, thank you for joining us on the call today. As I said earlier, we are pleased with our solid results, earnings fee, and 2017 guidance range across the board. We look forward to providing you with more insight into the remainder of 2017 on our third quarter call this fall. Have a great day, and enjoy the rest of your summer.

And this does conclude today's presentation. Thank you all for your participation. You may now disconnect.