Host Hotels & Resorts, Inc. (HST) Q3 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the Host Hotels & Resorts Incorporated Third Quarter 2017 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. Gee Lingberg - Host Hotels & Resorts, Inc.: Thanks, Julia. Good morning, everyone. Welcome to the Host Hotels & Resorts third 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 third quarter results, and provide our outlook for 2017. Greg Larson, our Chief Financial Officer, will then provide greater detail on our third 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. Before I begin, I just want to send our thoughts and prayers to those recovering from Hurricanes Harvey, Irma and Maria, and the wild fires in Northern California. While we at Host were fortunate to experience relatively minimal damage from the storms and no damage from the fires, it certainly impacted many in our country and we wish them the best as they continue to rebuild their communities. I also want to recognize the great work of the associates at all of our hotels affected, as well as the work of our corporate team members who were on the ground assisting and getting the properties up and running quickly. In the third quarter, comparable hotel RevPAR declined 1.8%, matching our internal expectations despite the unexpected impact of the hurricanes and Brazil underperforming our very low expectations. As we discussed on our second quarter call, the Jewish holiday shift from October into September negatively impacted the quarter, while Brazil and the storms further decreased comparable hotel RevPAR by 110 basis points and an estimated 45 basis points respectively. I would also note that prior to the storms, we were actually ahead of our forecast through July and August. As we discussed performance for the third quarter and the remainder of the year, it is important to realize that we have kept our hotels in Houston and Florida as comp despite the damage and closures we experienced. The good news and the major takeaway from this quarter is that we did an excellent job managing expenses, which allowed us to perform much better on the margin front than we otherwise would have in a challenging revenue environment. For the quarter, comparable expenses were down approximately $13 million, or over 1.5%, which is remarkable, considering many of our markets are near full employment. We continue to reap benefits on the margin front from the scale and information of our enterprise analytics platform, combined with our diligent asset management team. Further, we are beginning to see early signs of margin improvement from the Marriott-Starwood integration, although we don't expect most of those benefits to take hold until late 2018 and into 2019. Adjusted EBITDA in the third quarter was $317 million, exceeding our internal forecasts and consensus estimates. Third quarter FFO per diluted share was in line with consensus estimates at $0.33 per share. Year-to-date adjusted EBITDA is $1.128 billion and FFO per diluted share is $1.27. As we have maintained all year, we believe the fourth quarter should rebound. As the holiday shift positively impacts October, Brazil and the 2016 Olympics are in the rearview mirror, and the impact of natural disasters abates. This is reflected in our revised guidance of full-year comparable hotel RevPAR growth of 1.15% to 1.35%. Please note that the full year impact of Hurricane Harvey and Irma on RevPAR is 15 basis points, which accounts entirely for the revision of the midpoint of our guidance to 1.25% from 1.375% last quarter. I would also point out that continued strong margin results allowed us to increase our full year comparable hotel EBITDA margin guidance by 5 basis points at the midpoint to flat to up 10 basis points. This implies that we can now achieve breakeven margins for this year at 1.15% RevPAR growth, an improvement versus our prior guidance of breakeven margins at 1.375% RevPAR growth. Part of our confidence on top line performance stems from the fact that the macroeconomic environment and the global economy continue to exhibit strength and appear supportive to industry growth. The key statistics we follow closely, corporate profits and business investment remain significantly above 2016 levels and have historically been strong-leading indicators of future RevPAR growth. In addition, employment remains strong, consumer sentiment is high, industrial production is rebounding, and the stock markets continue to reach all-time highs. An offset to the demand side of the equation is that overall supply and supply in our markets is projected to continue to tick higher, although not much greater than the long-term historical average. Although we have not yet experienced the impact of these positive factors on our corporate business, the third quarter was quite noisy for the reasons I've previously described, and we continue to be cautiously optimistic that the stage is set for economic expansion. To be clear, we have not underwritten the benefit of a tax reform policy passing this year or next, but recognize that could be very positive for the U.S. economy and our business. On the bottom line and as we noted last quarter, we continue to see the benefit of various initiatives focused on productivity and operational efficiency, including time and motion studies conducted by third-party consultants, expansion of brand Green Choice programs, and outsourcing or restructuring of less profitable F&B operations including in-room dining. The success of these initiatives provides a positive backdrop for our margin outlook and bodes well for continued relative outperformance. Given the challenging revenue environment in the quarter, I cannot emphasize enough the incredible job our team did limiting the comparable EBITDA margin decline to 75 basis points. In fact, year-to-date, comparable EBITDA margins remain up 10 basis points. The decline in RevPAR was primarily driven by our group segment, as third quarter group demand was down nearly 7%. As expected, September was impacted by the Jewish holiday shift from October last year to September this year with group demand down over 10% in the month. Looking forward, we have over 98% of our group business on the books for 2017, and as we discussed on our last call, continue to see the booking window extend. We saw evidence of this in the quarter as group revenue booked in the quarter for 2019 and beyond was up. Another positive was that group bookings in the quarter for the quarter were up nearly 5.8% compared to last year. As we look into 2018, group revenues on the books are positive, and in fact, up the same amount as when we were sitting here in 2016 looking into 2017. At this point, we feel our 2018 group business is solid. The decline in group demand in the quarter was offset by increased transient demand, which increased 1.3% and in contract business where demand increased almost 22%. As we have noted before, we have been strategically taking contract business in higher rated markets, such as San Francisco where we anticipated group demand gaps. On the rate side, transient increases are reliant on group demand to allow managers to drive rate. The challenges in our group business this quarter made it more difficult to benefit on the rate side. And as a result, transient average rate declined 2.3%. Overall, transient revenue decreased 1%. However, we continue to be impressed with our transient business demand, particularly leisure which remains strong and continues to be driven by high consumer sentiment, low oil prices and strong employment. 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. We sold one non-core asset during the quarter, the Sheraton Indianapolis Hotel at Keystone Crossing, for $66 million. This was the previously unidentified asset we disclosed on our last call. You will recall that we also closed on the sale of the Hilton Melbourne South Wharf for $184 million in the third quarter, which ended our investment activity in Australia and New Zealand. On a smaller scale, we also sold the land at the Chicago O'Hare Marriott (sic) [Chicago Marriott O'Hare] for approximately $10 million. By carving out this excess land when we sold the property in 2015 and going through the rezoning process ourselves, we were actually able to increase the purchase price of the hotel while harvesting value from a previously unutilized space. On the same topic but on a much larger scale, we are very excited about the pending sale of the Key Bridge Marriott in Arlington, Virginia. We worked very long and hard to acquire the fee simple interest in this property, which is ideally located on the Potomac River overlooking Georgetown in Washington, D.C. The buyer has the property under contract for $190 million including the FF&E reserve at a sub-5% cap rate and with $12 million at risk. The hotel is the oldest in the Marriott system and is in need of significant capital investment. However, the (12: 49) that has potential for residential, office and retail redevelopment. This is a great example of how we are mining the portfolio to opportunistically create and drive real estate value for stockholders. We anticipate that the deal will close by either late 2017 or by the end of the first quarter 2018. Another value-creation initiative we want to provide an update on is at The Phoenician. Recently, we received approval on our planned unit development which provides for the rezoning of the entire resort property. Under our master plan, we intend to sell about 60 acres of land as residential housing. There will be a mix of approximately 338 new single-family homes, townhomes and condominiums and 20 additional resort casinos. We now have begun marketing to interested residential developers and estimate incremental net profits from land sales of approximately $50 million to $65 million. We anticipate receiving those proceeds by mid-2019. I would also note that when we underwrote and purchased the property in 2015, we ascribed no value to residential land development. This is all incremental to our original underwriting, increasing our total 10-year unleveraged return by approximately 100 basis points. Further, we believe that there will be long-term revenue benefits at the resort as future new residents take advantage of our fantastic and transformed facilities, another clear example of entrepreneurial real estate value creation at Host. Our 2017 guidance does not contemplate any additional acquisitions from what we have already disclosed this year. We have begun to see several assets that would fit our target profile come to market this fall. However, we remain disciplined in allocating capital to new investments and continue to deploy our rigorous underwriting requirements, particularly focused on the fact that we could be in the later stages of the cycle. Our industry-leading balance sheet has never been in better shape with leverage at 2.3 times, as determined under our credit facility. As of quarter-end, we had nearly $790 million of cash and over $800 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 or 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. Looking at CapEx for the full year, we expect to spend $270 million to $300 million on renewal and replacement capital expenditures, which includes an additional expected spend of $55 million related to replacements for hurricane damage and $90 million to $100 million on redevelopment and ROI projects. Before I turn things over to Greg Larson, our Chief Financial Officer, I would just like to take a moment to thank him for his leadership and contributions to Host over almost three decades with the company. Greg has enjoyed a long and successful career here, serving in a variety of roles and departments. He had served as an Executive Vice President for the past 10 years and as Chief Financial Officer since 2013. He has had a significant impact in setting and executing numerous strategic initiatives, including Host's achievement of an investment-grade balance sheet. On a personal note, I am deeply grateful to the work he has done this year to help me acclimate into my new role as CEO. He has been a trusted adviser, helping me navigate through my first set of earnings calls, in addition to actively assisting in the day-to-day management of the company. We will certainly miss him and his sense of humor, but take comfort that he has offered to remain as an adviser through July of next year. I also wanted to recognize Michael Bluhm, who will be joining me on our call in February as he is appointed CFO later this month. I am confident that Michael is a great fit for Host and that under his financial and strategic leadership, we will build on our success. Michael most recently served as a Managing Director at Morgan Stanley and he has deep knowledge of our industry. I look forward to benefiting from his perspective on how we can continue capitalizing on our financial strength to drive innovation and agility in an increasingly complex business climate. Finally, I am also pleased that Nate Tyrrell has been promoted to the role of Executive Vice President and Chief Investment Officer. In this role, Nate continues to be responsible for overseeing investments and is also overseeing asset management. Nate's promotion gave us the opportunity to achieve our stated objective, to combine the asset management and investment functions and create value through a more integrated approach to hotel ownership. With the new senior leadership team in place, we are poised to continue executing on our strategy of owning the most geographically diversified portfolio of iconic assets. This strategy continues to drive positive results, as evidenced by our relative operational outperformance to-date. We are better aligned to utilize 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 financial flexibility to create value in numerous ways due to our strong balance sheet. As we look ahead, our new senior team is working together and in the process of prioritizing and aligning the company under new leadership. This includes constantly evaluating, as we always have, different levers we can pull to drive enhanced value for shareholders. Given our strong balance sheet, the quality of our portfolio, and our scale, we are confident that opportunities exist to further bolster what we believe to be an already great real estate company. While we have no major strategic actions to announce at this time, we continue to actively consider value-creation opportunities consistent with our focus on delivering superior returns for Host's shareholders. With that, I will turn the call over to Greg, who will discuss our operating and financial performance in much greater detail. Gregory J. Larson - Host Hotels & Resorts, Inc.: Thank you, Jim. As Jim pointed out, I've spent 24 years at Host, and this will be the 68th earnings call that I have participated in at the company. It is hard to believe how much time has passed and how much Host has changed over that period. I'm very proud to have been associated with Host since its inception, but most of all, I am thankful for having had the opportunity to work with amazing, bright and hard working people during my tenure. We have accomplished a lot together, and I know the team will continue to achieve great things. Host is a terrific company, and I know the future is bright. I wish Jim, Michael and all of our associates the best and we'll be rooting for all of them. With that, let's discuss the quarter. We are pleased with the continued outperformance at our hotels in Phoenix this quarter. RevPAR at our properties grew 9.2% beating the STR upper-upscale market by 830 basis points. A primary driver of the strength was strong corporate group demand at our Westin Kierland, which helped produce group revenue growth at 15% this quarter. Once again, our hotels in Seattle exceeded our expectations and the rest of the portfolio with a 6.6% RevPAR increase, which was 700 basis points above the STR upper-upscale market result of minus 0.4%. These impressive results were driven by both occupancy and average rate increases of 2.7 percentage points and 3.5% respectively. Our Seattle hotels benefited from strong transient, retail and special corporate demand, as well as the renovation of the W Seattle last year. Based on the anticipated and well-documented closure of the Moscone Convention Center, our managers at our hotels in San Francisco strategically targeted in-house group and high-rated contract business. This strategy proved successful, yet again, as our hotels exceeded our internal forecast and outperformed the STR upper upscale market results by 320 basis points with a RevPAR increase of 4.3%. Our strategy increased in-house groups by 26% and boosted banquet and catering revenues by almost 25%. However, we do not expect the short-term strategy to continue through the fourth quarter. Once the expansion project at the convention center is completed 2018, we expect citywide to return to San Francisco and the business to positively follow suit in a meaningful way in 2019. Our hotels in Denver continued to outpace the portfolio with a RevPAR growth of 4.1%, primarily driven by strong in-house group business. The RevPAR increase exceeded the STR upper upscale results by 220 basis points. Hawaii RevPAR grew 2.7% besting the STR upper upscale market results by 160 basis points. Strong group business as well as the Hyatt Maui ballroom renovation last year drove the increase this quarter. In addition, resorts destination, such as Hawaii, benefited from stronger leisure business from weather-impacted markets in the Caribbean. Keep in mind that our hotels in Hawaii are benefiting from the anemic supply growth on the island and the low national supply growth of resort properties overall. Shifting gears to some of our more challenged markets. RevPAR at our hotels in Florida declined 8.7% mainly driven by Hurricane Irma. Six of eight comparable hotels in Florida were closed due to mandatory evacuation and loss of commercial power. As Jim mentioned, our teams did an excellent job of getting our properties back online quickly. Those properties have been restored to substantially full capacity. We currently have about 320 rooms out of service, most of which are at the Biscayne Bay Marriott. Prior to the hurricane, our properties in Florida performed better in July and August than we had anticipated at the end of the second quarter. In Atlanta, RevPAR decreased 5.7% in the third quarter and underperformed the STR upper upscale market results due to the renovations at the Marriott Midtown Suites (sic) [Marriott Suites Midtown], The Ritz-Carlton, Buckhead, and the JW Buckhead properties. In addition, several large citywide events did not repeat in August, which affected overall demand in the Buckhead sub-market. RevPAR at our Chicago properties declined 4.1% this quarter, but outperformed the STR upper upscale market results by 220 basis points. Occupancy increased 1.5 percentage points offset by an average rate decrease of 5.7%. The decline in rate stemmed from softer-than-expected transient demand and a poor citywide calendar, requiring hotels to provide more discounted rates in order to drive occupancy. Looking ahead to the fourth quarter, we expect Boston, Atlanta, Denver, and Phoenix to outperform our portfolio. Conversely, we anticipate Houston, San Diego, San Francisco and Latin America to underperform. Moving to international operations. Our consolidated international hotels' third quarter RevPAR decreased 31% in constant currency. As expected, this was a direct result of the 2016 Summer Olympics in Brazil which provided for difficult comps at our Brazilian hotels. RevPAR at our three hotels in Brazil declined 70% in constant currency and negatively impacted third quarter total comparable RevPAR by 110 basis points. The European joint venture portfolio continued to show signs of recovery and is benefiting from accelerating economic growth across the continent. Many of the countries where we own assets such as Belgium, France, Germany, and the Netherlands have increased GDP forecast since our last call. RevPAR for the 10 hotels in the portfolio improved 3.2% with occupancy growth of 3.1 percentage points and a slight decrease in average rate. This performance was driven by strong transient and group business at several properties. For the full year, we expect that RevPAR growth at these hotels will continue to outpace our comparable hotel results. We remain impressed by the exceptional job of our managers and asset managers in bringing more profit to the bottom line. With a RevPAR decline of 1.8%, our margins only declined 75 basis points this quarter. On a year-to-date basis, we have increased margins by 10 basis points on a RevPAR increase of 1%. These are remarkable results in an environment with low unemployment and rising labor costs. As we noted last quarter, we continue to see the benefit of various initiatives focused on productivity and operational efficiency including, one, productivity gains 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 benefit into at least next year. Two, continued expansion of programs like Marriott's Green Choice, which allows customers to forego housekeeping service in exchange for loyalty points and the implementation of room technology solutions at many of our hotels, which facilitates more efficient deployment of housekeeping labor. And, three, our operational initiatives such as outsourcing low-profit food and beverage operations, including continued efforts to restructure in-room dining operation. We now have 26 hotels in our portfolio with some form of modified or completely eliminated in-room dining in favor of packaged-food pickup or delivery. Other smaller targeted initiatives consist of reviewing maintenance and service contracts or food procurement practices. 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. In October, we paid a regular third-quarter cash dividend of $0.20 per share which represents an annual yield of 4.1% on our current stock price. We continue to operate from a position of financial strength and flexibility and believe we have one of the strongest balance sheets in the lodging REIT and overall REIT space. Importantly, this key competitive and strategic advantage enhances our ability to sustain the dividend throughout lodging cycle, while also allowing us to invest when accretive opportunities arise to either buy asset, buy back stock or reinvest in high yielding value-add projects. We ended the third quarter with approximately $789 million of cash and $807 million of available capacity remaining under a revolver portion of our credit facility. Today, our leverage ratio is 2.3 times as calculated under the terms of our credit facility. Overall, we are pleased with our strong results, particularly with the improving profitability 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.

Thank you, Mr. Larson. We'll go first to Anthony Powell with Barclays.

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

Good morning. The Key Bridge sale and The Phoenician opportunity involve some residential redevelopment opportunities. Do you have any more of these opportunities throughout your portfolio particularly in cities like New York? James F. Risoleo - Host Hotels & Resorts, Inc.: Yes. Good question, Anthony. We're looking at options for a number of our New York hotels. I wouldn't say that we're to the point where we're comfortable discussing anything today, and we continue to look at opportunities throughout the portfolio to develop excess land, to convert as we did years ago at the Newport Beach Marriott. We took excess tennis courts out of inventory, and sold that piece of dirt to a local residential developer who put a condo tower there. So, we have a number of initiatives that we're working on today, but the short answer is nothing that I would be comfortable discussing because we're not far enough along.

All right. Got it. And, Greg, thanks a lot for all your help over the years. You've been one of the most helpful executives that I've dealt with. So, good luck in the future. Gregory J. Larson - Host Hotels & Resorts, Inc.: Well, thanks a lot.

All right.

We'll go next to Shaun Kelley with Bank of America.

Hey, good morning, and, yeah, Greg, let me offer my congratulations too. So, Jim, in the prepared remarks, you did mention weighted average supply growth being sort of one of the kind of issues that continues to remain out there for the industry. Could you just talk about how you're thinking about weighted average supply growth in Host's markets for stacking up for 2018? And do you see any signs of kind of a crest or peak out in either 2018 or 2019 especially in maybe a handful of markets like New York? James F. Risoleo - Host Hotels & Resorts, Inc.: I think that, in general, Shaun, we see supply peaking in 2019. And our sense today is that supply will pick up in 2018 and probably level out in 2019, and then we should start to see a decline. Generally, what's happened over the last six months or so is that the lending environment has gotten much more difficult for developers to build new hotels. Obviously, that's something we'd like to see, and we're seeing projects being delayed and projects being put on the shelf. So, I think we'll be right around industry averages, maybe a tick more.

And anything in particular driving those delays that you could elaborate on? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, I think, generally, it's the fact that lenders have clamped down on their underwriting standards. The capital markets are flush with cash today which obviously impacts other pieces of our business. But based on conversations we've had with lenders and talking to folks in the brokerage community and developers and operating partners that we work with, it's just not as easy today to go out and get a construction loan.

Thank you very much.

We'll go next to Rich Hightower with Evercore ISI.

Hi, good morning, guys. James F. Risoleo - Host Hotels & Resorts, Inc.: Morning, Rich.

If I've got one question, I'm going to try to make it count here. So there's been a lot of chatter surrounding Host recently on the topic of various strategic alternatives, levered share repurchases, programmatic asset sales. There's obviously a lot of levers available, and I certainly appreciate that you guys can't talk about things that haven't been announced. But can you talk about what the current limitations are with respect to an investment-grade rating, with respect to commitment to the dividend throughout the cycle, just how do you guys think about that box that you might be in as we contemplate these other alternatives? Gregory J. Larson - Host Hotels & Resorts, Inc.: Rich, I think that we have consistently said that we intend to maintain our investment-grade rating. And that means that – well, in addition to that, we said that at this point in the cycle, as I mentioned in my prepared remarks, we may be in the late stages of the cycle, we may not, but we're taking a cautious approach today to capital deployment and taking that into consideration in our underwriting criteria. But we have stated that we would be comfortable taking leverage to 2.5x to 3x.And I don't think that's changed by any means. Does that provide a limitation to us? I don't think that it does. Candidly, I think that we are cognizant of the scale, the depth, the breadth of what we have in this company and are looking for ways to create shareholder value over the long term, but we're going to keep the balance sheet in mind, and we're going to keep the dividend in mind as well. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah, I mean, I agree with Jim. I mean I think Host is in a great position today with leverage at 2.3x and nearly $800 million of cash. I think there's a lot of flexibility to do all the things we mentioned, whether it's buying back stock, reinvesting in our assets, or buying assets. It's still clearly being investment grade. It's still clearly being in a position in a downturn to maintain our dividend.

Okay, guys. Appreciate that color. Thanks.

We'll go next to Stephen Grambling with Goldman Sachs. Stephen Grambling - Goldman Sachs & Co. LLC: I'm going to go ahead and follow up on that one. So you mentioned buying back stock, reinvesting in assets or buying assets. Given your views on the cycle, would you rank any of those as a priority relative to the others? James F. Risoleo - Host Hotels & Resorts, Inc.: It's tough to rank anything in a vacuum, Steve. It really is dependent upon how a particular acquisition opportunity would stack up from an accretion perspective relative to buying back stock, which we will evaluate any potential acquisition opportunity against the stock buyback opportunity concurrently as we're evaluating it. So I can't sit here today and say that one is going to take precedence over another. Stephen Grambling - Goldman Sachs & Co. LLC: Fair enough. I'll jump back in the queue. Thanks.

We'll go next to Thomas Allen with Morgan Stanley. Thomas G. Allen - Morgan Stanley & Co. LLC: Hey. Thank you for the group color around 2018, but any chance you could just give us more thoughts around kind of how you're thinking about 2018 RevPAR guidance? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah, Thomas, it's a little early in the year for us to be talking about 2018 RevPAR guidance. We are in the budget process with our operators. We don't have budgets. So there's really not a lot of color I can add. Thomas G. Allen - Morgan Stanley & Co. LLC: Okay. Gregory J. Larson - Host Hotels & Resorts, Inc.: I can answer that, Jim. Yeah, I mean obviously there are some other wildcards out there as well, right. Are we going to get a tax cut at some point later this year, early next year? And we continue to look at the economic stats. So, as you know, Thomas, what we like to do is give our guidance on our next call, which will be in February. Thomas G. Allen - Morgan Stanley & Co. LLC: All right. I thought it was worth a shot. Can I just ask another question then? I think the market – I mean, you're not alone in highlighting how the hurricanes are having a negative impact on RevPAR. I think investors and we simply thought that there was going to be a bit of a tailwind from people displaced. Can you just talk about kind of the gives and takes there? I mean, could the hurricanes be a positive surprise in the fourth quarter? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, the properties that we own are truly in both markets. They're upper upscale luxury hotels. They're not the type of assets that would generally benefit from teams that are coming in to rebuild the local markets that have been battered as a result of the hurricanes. So generally, I don't see that piece of business benefiting us. However, I will tell you that we're already starting to – and none of this is baked in our numbers, by the way. We're already starting to hear some tangential news that people want to come to Florida this winter and end of fourth quarter, people who might have been going to the Caribbean or Puerto Rico in particular, St. Thomas, some of the other islands that got devastated. So I'm going to be cautiously optimistic and say that we have our fingers crossed that we should see a pickup in our Florida properties as a result of Irma and Maria. Gregory J. Larson - Host Hotels & Resorts, Inc.: Yeah. The other thing I would add, Tom, here, I'll give you some 2018 guidance for you since you're so persistent. Look, I think the good news for Host is that we have kept all of these hotels that were impacted in our comp set. And so in looking, I think the good news is, obviously, we were impacted this quarter. I think we will have some impact in fourth quarter, but all those hotels we have easy comps in 2018. Thomas G. Allen - Morgan Stanley & Co. LLC: Way to look at it positively. Greg, thanks for all your help over the years. Gregory J. Larson - Host Hotels & Resorts, Inc.: I did. That was just a byproduct of our decision not to take them out of comps.

We'll go next to Michael Bellisario with Baird. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Good morning, gentlemen. James F. Risoleo - Host Hotels & Resorts, Inc.: Good morning, Mike. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Just kind of want to circle back to Rich's question a little bit, maybe ask it slightly differently, but not looking for specifics on the – call it European exit, for example. But what needs to happen or what do you need to see to maybe act on some of these options that you have embedded within your portfolio? Is it something on the macro front or is it a capital markets decision? What's kind of the thing that needs to happen for you to say, 'Okay, it's time to do X, Y or Z?' James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I think what has to happen first and foremost, Mike, is we have to get the new senior teams aligned and integrated, and come together with a plan of how we want to see Host in the future. And Michael is not even on board to-date, so I think it's going to take some time for us to wrap our arms around the new vision and the way forward. Gregory J. Larson - Host Hotels & Resorts, Inc.: Yeah. I think what I would add is, look and I know you guys are talking about maybe some bigger things. But I would add also to Jim's comments that he had in his prepared remarks is that I think the team is doing a great job already, right. If you look at the Key Bridge potential sale later this year or next year, I think that's a fantastic transaction, even the land sale in Chicago and the other asset sale both in Australia and here. So I would say that they're already moving quickly, but you could see further things in 2018. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I'd just add onto The Phoenician, Michael, because we, actually, I think, talked a lot about the potential for residential development at The Phoeniciana couple years ago when I was in Phoenix. And it was an opportunity that we identified as a possibility in our underwriting, but we certainly didn't bake any value into it and underwrote the asset on a standalone basis. So these are the types of opportunities that we are going to continue to look for going forward, places where we can really opportunistically create value out of real estate. Michael J. Bellisario - Robert W. Baird & Co., Inc.: That's helpful. And then just kind of digging into The Phoenician there where you have approval, can you kind of maybe walk us through the steps and the timing on what needs to get rezoned and any potential for an accelerated timeline there maybe? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, I think we always run the risk if there's an appeal of our PUD approval. But it's been through the City of Phoenix – The Phoenician is located in the City of Phoenix. It's been through the Planning Commission. It's been through the City Council. And we've had important communications with all the neighborhood groups that that might have evidenced the concern or had questions about what this was going to mean to them and to their land values. So the resort in it of itself is 319 acres. As I stated in my remarks, we rezoned the entire property. So we put a PUD, a planned unit development on the entire property. It involves relocating the tenants to an activity center, building a new fitness facility, and really shrinking the golf course from 27 holes to 18 holes, and freeing up 60 acres of residential land for development. Our plan – and we've hired a land broker. We had assembled a team early on shortly after we closed on the deal. We have a land broker on retainer who is representing us with residential developers. And our goal is to sell the land to one or more residential developers and let them develop the real estate going forward. We're hopeful that we could see the closings occur by mid-2019. Michael J. Bellisario - Robert W. Baird & Co., Inc.: That's helpful. Thank you.

We'll go next to Smedes Rose with Citi.

Hi. Thanks and, Greg, best of luck to you going forward. Gregory J. Larson - Host Hotels & Resorts, Inc.: Thank you.

I wanted to ask just Jim on the underwriting side. Are you seeing any changes in pricing of hotels just given where we are in the cycle and maybe departure of some buyers that might have been more present, say a year ago or so? Are you seeing anything there? James F. Risoleo - Host Hotels & Resorts, Inc.: A couple observations on the investment side, Smedes. First of all, I would tell you that until very recently, we did not identify product on the market that fit our criteria. I've stated in the past that given where we may be in the cycle, it's not a time to be a buyer of commodity-type hotels. Obviously, we like the resort space. We like big boxes a lot. We're prepared to move beyond the top 10 or 15 markets and look out to the top 25 markets. What we've seen happening over the last 60 days or so is a number of hotels have come to market, some being formally marketed by intermediaries and one or two others that we're working on a direct basis or an off-market basis. Yes. Seller expectations are lofty. That doesn't mean that they're going to transact. We are still seeing a number of situations contrary to the comment I made earlier with respect to the tightness in construction lending, we are starting to see situations and continuing to see situations, I should say, where current owners of hotels, if they can't clear the market at a price that they find attractive, they can refinance a property today at very attractive terms and very attractive proceeds. So there are a handful of deals out there that we're looking at today. I think it's TBD to see where they clear the market. We certainly don't intend to stray from our underwriting. We don't feel that we have a need to stray from our underwriting. We're going to continue to be disciplined. And if we can wrestle a deal down that makes sense for us and creates stockholder value, then we'll pursue it.

Okay. Thank you. I just wanted to ask you as well. As you look at labor costs moving into 2018, are there any particular markets that just sort of stand out in terms of higher costs, either that are being sort of legislated in or there are perhaps union contracts coming due or anything along those lines that we should just be keeping in mind as we think about 2018? Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, Smedes. This is Greg. I think it will depend on the market. I mean, certain markets – Arizona is probably a good example – we are experiencing some tight labor markets in Arizona and some other markets. There will be some union contracts coming due in '18. Obviously, we've experienced some of those pressures this year, but because of the benefits of technology and time/motion studies and other things, we've been able to mitigate some of those cost increases. In fact, as Jim said, during the quarter we were able to decrease our overall comp expenses by $13 million. So, yeah, I think we will have some pressure on labor in 2018, but I think we'll continue to benefit from technology and, obviously, the merger between Marriott and Starwood will also be helpful and gives us some tailwinds to offset that as well.

Great. Okay. Thank you.

We'll go next to Jeff Donnelly with Wells Fargo.

Good morning. And yeah, I'll certainly echo the concern or the comments earlier, Greg, that you'll certainly be missed, but we'll look for you trackside next year. But I'm curious just on earlier question came in about just constraints on your options for maximizing value. I'm just curious, how do you guys think about managing around monetizing low-tax-basis assets like the Key Bridge Marriott because of the need to either recycle that capital or pay a special dividend? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I think, a couple things on Key Bridge in particular, Jeff. It's something that we thought about, obviously, because it is a low-basis asset. It's been in the company from inception, and I think it was the second hotel that Marriott Corp. built many, many years ago. It was built 1959, I believe. So, we do have a very low tax basis in that asset. And as we're thinking about whether or not we have a special dividend as a result of the sale, I think, one of the things we're thinking about today is, is it possible to do a like-kind exchange for that hotel? It's also going to depend on when the deal closes. So, there are a lot of factors here that go into the equation. Obviously, if it closes in 2017, and we don't feel that there is a high probability of executing on a like-kind exchange, then a special dividend is something we'll be thinking about internally and talking about among the management team here. If it closes in 2018, it might have a slightly different color on it.

And maybe just one follow-up, if I could. And I know it's early, but Marriott is considering changing its occupancy threshold around rewards redemption to maybe more of a waterfall. I know nothing has been concluded, but as someone who has a good number of Marriott managed hotels, who I think probably operates near those occupancy thresholds, could you talk a little bit about how those affects pricing in your mind and maybe, conceptually, what the opportunity could be if it was modified? James F. Risoleo - Host Hotels & Resorts, Inc.: We're having some conversations with Marriott around the rewards program. I mean, they're doing a lot of work on rewards today. They have to – they want to and they have to harmonize the Starwood rewards program along with Marriott rewards. They are hopeful that they'll get this done by the end of 2018. We have an active seat at the table. We're having conversations. And I think to say anything more than that, I wouldn't be comfortable with that.

Yeah. Thanks, guys.

We'll go next to Joe Greff with JPMorgan.

Good morning, everybody, and similar sentiment to you, Greg. You'll be missed. Gregory J. Larson - Host Hotels & Resorts, Inc.: Thanks, Joe.

When you guys think about the 2018 and I heard your comment, Jim, on the group revenue pace for 2018, would you expect that the group segment to lead or lag relative to business transient leisure? But then when you think about 2018 overall, would you expect your overall portfolio to lead or lag relative to the U.S. industry RevPAR results? James F. Risoleo - Host Hotels & Resorts, Inc.: I think a lot of what happens in 2018, Jeff (sic) [Joe], is going to really be dependent upon the psychology of travelers in general, but of businesses in particular. And if we see a tax bill come out of Washington, D.C. that gets close to doing what is being proposed, i.e., take the corporate tax rate down to 20%, if we see a repatriation of profits that are trapped overseas right now and see a big inflow to the U.S. Treasury that maybe leads to an infrastructure build at some point during 2018, then I think that we feel really good about what that's going to mean for our business. But sitting here today, the only thing I can really tell you is that we're sitting today with the same amount of group business on the books in 2018 as we had in 2017 at the same time in 2016. Gregory J. Larson - Host Hotels & Resorts, Inc.: With the same increases. James F. Risoleo - Host Hotels & Resorts, Inc.: Same increases, yeah. And we have about 67% of our 2018 group business on the books already. So, we feel good about it. Do we want to see the return of the business transient traveler? Absolutely. Do we want to see group bookings pick up? Sure, we do. That can lead us to a billion dollar question. When is this going to happen? If we had that answer, I think we'd all be in a much better place. Gregory J. Larson - Host Hotels & Resorts, Inc.: And we could give guidance. James F. Risoleo - Host Hotels & Resorts, Inc.: And we'd give guidance.

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

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

I want to ask you. Jim, there's been a lot of talk about the Marriott-Starwood merger and some of the benefits that accrue to owners. And I heard your comments, you expect to see those more later next year, 2019, and I think a lot of that is probably on the expense side. I want to ask you if you think there's any top line benefits that are – that either have or going to materialize from that merger? I think that was, part of the – if not spoken, at least part of the implied idea when that happened. And I don't know you guys don't give a specific brand data, but maybe some comments on whether you think there are top line benefits coming out of that as well. James F. Risoleo - Host Hotels & Resorts, Inc.: I think I can answer that with an unequivocal, yes. Marriott's group sales engine, in my opinion and I think the opinion of everyone here at Host, is second to none in the industry. Starwood had a good group sales platform. I think, Marriott's is superior. Marriott is in the process right now of integrating the two organizations. We're working closely with them to understand what that means. Again, not unlike the rewards program, we do have a seat at the table and we are having conversations with them. So, we fully expect that as the two sales organizations are integrated that we should see yield index increase for our Starwood legacy hotels. The Sheraton RevPAR index today is not a fair share. It's 90%plus or minus. So, we see a lot of upside going forward.

Okay. Great. And I also want to pass along best wishes to Greg. And, Greg, I'm sure you'll miss those trips to Fiji, but we'll see you around.

We'll go next to Robin Farley with UBS.

Great. Thanks. Two questions or really just clarifications. I know you're not giving guidance for 2018 RevPAR, but it's one we're sort of expecting a similar increase in U.S. RevPAR or something in that sort of 1% to 2% range for next year. You talked about a lot of the programs targeting expenses. Is it reasonable to think that you could keep margins flat next year, if RevPAR is only up in that 1% range? I know it looks like you will be able to have done that this year, but just wondering how you feel about that, just going into 2018. And then just the other clarification, your commentary on group pace for 2018, having the same increases this time last year did for 2017. Can you just remind us where 2017 group is coming in for the year, what the increase is coming in for 2017 group? Thanks. Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, Robin. This is Greg. So, yeah, this year, I think it's been as we've mentioned an extraordinary year on the cost front and margin front. I mean, if you look at the low end of our guidance, we're going to have breakeven margins and 1.15% RevPAR, and frankly, revenue growth is going to be under 0.5%. So, I think those are remarkable results. I think we still as I've talked and Jim talked about, we still have some things that will help us next year. Again, we still – because we have a lot of these things more complicated hotels, I think, technology is going to continue to help us next year. Certainly, as Jim just mentioned, yes, obviously there's a revenue bump because of the Starwood-Marriott merger, but I think there'll clearly be some expense benefits occurring to us both in 2018 and 2019. So, I think, we're going to do better next year than a typical year. But I guess without giving – getting too specific, I don't think, we'll be – look, this was a record year, right, to have flat margins with 1.15% RevPAR growth, right. I think the breakeven margins growth will be higher than that, but certainly better than an average year.

Okay. Great. Thanks. On the group, where group is coming in for 2017? Gregory J. Larson - Host Hotels & Resorts, Inc.: I'm sorry, Robin, we didn't – I didn't hear you on that.

Oh, sure. The other question was just you mentioned that your 2018 booking pace for group is similar to what 2017 looked like at the same time last year. Can you just remind us where your 2017 group is now coming in for the year now that 98% of that is on the book? Gregory J. Larson - Host Hotels & Resorts, Inc.: Yeah. It's single. It's up over 2%.

Okay. Great. And best wishes with everything. Greg, let me add that to everyone else's. Thanks. Gregory J. Larson - Host Hotels & Resorts, Inc.: Well, thanks, Robin, for that. James F. Risoleo - Host Hotels & Resorts, Inc.: Thanks, Robin.

Well go next to Wes Golladay with RBC Capital.

Hey. Good morning, everyone. Going back to that group outlook for next year, are there any markets that are driving that? I know you invested a lot of money in some of your group hotels, and I wonder if these are just Host specific. And then for D.C., are you seeing any uptick in short-term group as legislative activity looks to pick up? Gregory J. Larson - Host Hotels & Resorts, Inc.: I think, it's too – look, D.C. has been a great market for us. And when we look at sort of the city-wide for 2018 and 2019, D.C. looks quite strong. And my guess is based on what you were just talking about, we could see additional activity in D.C. So, we – clearly, we feel pretty good about D.C. There are other markets for us that that look good. But as we said earlier, we're not giving guidance for 2018 at this point. And our group revenues looks solid on our books today. So, I'm not sure that we're going to get into it too much further at this point.

Okay. Well, congrats, Greg. Gregory J. Larson - Host Hotels & Resorts, Inc.: Hey, thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you.

We'll go next to Bill Crow with Raymond James. Bill A. Crow - Raymond James & Associates, Inc.: Good morning, guys. Greg, let me express my well wishes for your wife who has to deal with you a lot more at home. So, good luck to Piper. Gregory J. Larson - Host Hotels & Resorts, Inc.: (01: 02: 00). Bill A. Crow - Raymond James & Associates, Inc.: I hope you spend a little more time out in wine country. Gregory J. Larson - Host Hotels & Resorts, Inc.: All right. Bill A. Crow - Raymond James & Associates, Inc.: My question is twofold, very quick here. Any update on the COO search? Is it still under way? Or have you rethought that position? And number two, The Ritz-Carlton rebranding in Buckhead, is that something that you approached Marriott on? Or Marriott came to you? And how did that play out? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah, Bill. Happy to give you an update on both of those. With respect to the COO search, we have suspended the search. By marrying up asset management with investments, we think we're accomplishing what we wanted to accomplish, which was integrating the two disciplines to really be completely focused on real estate value creation. We have a strong enterprise analytics team that is mining data for us and providing a competitive edge, as well as strong asset managers as we go forward. So, at present, the management changes are done internally. With respect to The Ritz-Carlton in Buckhead, we're having conversations with Marriott regarding the right way forward for that hotel. The hotel was in need of a material renovation. We looked at some options outside of Ritz, but keeping it within the Marriott family, and landed on The Whitley, a luxury collection hotel, as the best alternative to drive stockholder value. We put HEI in to manage that property. And what we haven't discussed is that we also own The Westin in Buckhead, and HEI is managing The Westin as well. So, we see incremental benefit of complexing and sales, and catering by having one manager manage two properties within the same brand family. Bill A. Crow - Raymond James & Associates, Inc.: Jim, is it fair to assume that there will be a restaurant flag in Buckhead eventually? James F. Risoleo - Host Hotels & Resorts, Inc.: That, I don't know. I've asked that question in the past. And to my knowledge today, there is nothing planned. Bill A. Crow - Raymond James & Associates, Inc.: Great. All right. Thanks, guys. Appreciate it. Gregory J. Larson - Host Hotels & Resorts, Inc.: Thanks, Bill. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure.

And that concludes the question-and-answer session. I would like to turn the conference back over to Mr. Risoleo for closing remarks. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you for joining us on the call today. As I said earlier, we are pleased with our solid results and earnings beat, particularly after weathering the impact of two major storms. I am looking forward to seeing many of you at NAREIT in a couple of weeks and hope you will join us at our informal meet and greet on Monday prior to the conference start. Otherwise, we look forward to discussing 2017 results and our 2018 outlook on our year-end call in February. Have a great day, everyone.

And that concludes today's conference. We thank you for your participation. You may now disconnect.