Host Hotels & Resorts, Inc. (HST) Q4 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the Host Hotels & Resorts, Incorporated Fourth Quarter and Full Year 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. Gee Lingberg - Host Hotels & Resorts, Inc.: Thanks, Emma. Good morning, everyone. Welcome to the Host Hotels & Resorts fourth 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 reconciliations to the most directly-comparable GAAP information, in today's earnings 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 his remarks on our 2017 achievements, our fourth quarter results, the pending acquisition of the three Hyatt properties and conclude with our outlook for 2018. Michael Bluhm, our Chief Financial Officer, will then provide commentary on the expanded disclosures, our fourth quarter performance including markets, margins, balance sheet and our guidance for 2018. 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. It's been a busy and exciting start to 2018, but I'd be remiss not to mention all that we achieved in 2017 as an organization. In addition to three spectacular hotels we are under contract to acquire and which I will speak about in a moment, we bought the iconic Don CeSar resort and the irreplaceable W Hollywood, while recycling capital out of low growth markets and high CapEx spend assets. We completed our Australian exit with the sale of the Hilton Melbourne and opportunistically sold the Key Bridge Marriott for a very low cap rate, even before considering the significant capital the asset required. We made great progress on addressing our New York strategy, culminating in the announcement of the W New York sale, which we intend to close sometime in the second quarter. We made tremendous progress on creating value in our portfolio, most notably at The Phoenician, where we filed a new PUD enabling us to sell land zoned for residential unit development, which should net us an incremental $50 million to $60 million in profit in 2019 and beyond. And on the operations side, we drove very strong margin outperformance, despite a low RevPAR environment and an economy running at full employment, partially a result of the new enterprise analytics platform we established early last year. Organizationally, we have a new senior team that is firing on all cylinders and better aligned under the streamlining of asset management and investments that we completed late last year. Last, but not least, we have listened to the investment community's call for greater transparency into our operations. You will note our enhanced supplemental and additional disclosure, which I will let Michael address in greater detail, but which helps illustrate the value of what we believe to be the best hotel portfolio in the public lodging space; all-in-all, a terrific year that we are looking to build upon. With that, let me give you some color on the quarter and full year 2017 results. As anticipated, operations bounced back nicely in the fourth quarter, generating the second strongest results of the year and beating internal and consensus expectations on the bottom line. Comparable RevPAR growth for the quarter on a constant dollar basis was 2.2%, driven by 140 basis points increase in occupancy and an increase in average rate of 30 basis points. The primary drivers of these results were strong transient performance, particularly on the leisure side, and better than expected group business in October. We always anticipated the Jewish holiday shift to positively impact October, but were pleased to see group revenues up nearly 5% in the month. As a result, our managers were able to push transient pricing to yield the second best RevPAR month of the year behind January, which benefited from the inauguration and Women's March. We were also pleased to see some pick up in the business transient customer during the quarter, as that segment grew nearly 5%. Although some of this was simply a result of the holiday shift and one quarter does not make a trend, it was an encouraging sign to see business travel up, and we will continue to monitor this customer closely as we move through 2018. As was the story during all of 2017, we did another fantastic job driving margins in the quarter through increased productivity and strict cost controls. Comparable EBITDA margins grew 10 basis points in the fourth quarter, resulting in adjustable EBITDAre of $375 million, an increase of 6.8% from the prior year. Let me remind you that this is on total revenue growth of only 50 basis points. For the full year, comparable RevPAR growth on a constant dollar basis increased 1.3% to approximately $180, the company's highest full year RevPAR in its history. Adjusted EBITDAre was $1.510 billion and adjusted FFO per share was a $1.69, both significantly exceeding consensus estimates; really a strong finish to a solid year. Moving to capital allocation and our initial outlook for 2018, I would like to spend some time discussing the strategic transactions we announced yesterday. As you have heard me say before, our strategy is to own the most geographically-diverse portfolio of iconic and irreplaceable hotels in the U.S., utilizing our scale and investment grade balance sheet to grow externally through smart acquisitions and organically through operational improvement. With our pending acquisition of three fantastic Hyatt properties, we are executing on the external growth part of our strategy to begin the year. We are under contract to purchase a $1 billion portfolio consisting of: two resort properties, the 301-room Andaz Maui and 454-room Hyatt Regency Coconut Point; and one large City Center hotel, the 668-room Grand Hyatt San Francisco in the heart of the city. We anticipate the deal will close in the first quarter, although it is possible it may fall to early in the second quarter. These hotels are exactly the type of assets we have been targeting. Resort and large city center properties, segments where the supply outlook for the next several years is anemic. They're also in markets where we believe the near-term growth is significantly stronger than our broader portfolio and the country as a whole. We believe Maui and San Francisco will be two of the fastest growing markets in the country over the next few years. Maui is benefiting from improved air lift and continued strong leisure demand, while San Francisco will continue to improve from the combination of continued tech and business demand as well as the completed expansion of the Moscone Center. Additionally, we continue to be bullish on the West Coast of Florida, where Hyatt Regency Coconut Point is located, which should benefit in the near-term from displacement from the Caribbean and strong group and leisure demand. These three properties are nothing short of spectacular. In addition to supportive market fundamentals, we believe there are several initiatives we can implement to enhance value, once these properties are plugged into our enterprise analytics and asset management platform. These will include time and motion studies, food and beverage re-concepting and benchmarking with other Host assets in the respective markets. As many of you know, we currently own major Hyatt properties in both Maui and San Francisco, which will provide for collaboration and centralization opportunities. Further, we own iconic non-Hyatt-branded properties in all three markets, such as the Fairmont Kea Lani in Maui, the Marriott Marquis in San Francisco, and The Don CeSar and Ritz-Carlton Naples in West Florida. Using our data platforms to benchmark these existing properties against this Hyatt portfolio should prove to be beneficial, not unlike the success we have had in San Diego between our Marriott Marquis and Manchester Grand Hyatt. We also like the quality of this portfolio. These are modern hotels that have been invested heavily in by Hyatt, are in exceptional condition and require comparatively little CapEx in the near term. Further, with a combined 2018 RevPAR of nearly $290, we believe these assets will be able to live within the FF&E reserve much more comfortably than the assets we have been disposing of over the past 12 months, limiting our out-of-pocket investment throughout the life of the assets. Speaking of Hyatt, I can't overstate the importance of our relationship with them. We currently own eight Hyatt managed properties and two Hyatt franchised hotels. I am confident that our strong relationship, combined with our ability to move quickly to evaluate the deal, complete our due diligence pre-signing, provide a competitive bid and close quickly with a high degree of certainty, were all factors in their decision to award us this opportunity. We are excited to continue to build upon what is already a very strong relationship with Hyatt and value their expertise as a first-class operator. Looking closer at quality, these assets immediately will rank in our top 40 hotels ranked by RevPAR, with the Andaz Maui ranking in our top three. More importantly, the EBITDA per key generated from the portfolio is over 40% greater than the average of our portfolio. From a pricing standpoint, we are paying approximately $700,000 per room or approximately 17 times 2018 EBITDA and a 5% cap rate. As I stated earlier, we expect significant growth out of this portfolio over the near-term. Given the quality of these assets, the relatively low CapEx in the near-term required and the substantial growth outlook, we believe this is an excellent investment of our capital. On the disposition front, we also announced we are under contract to sell the W New York Lexington for $190 million. The buyer has a $13 million deposit at risk and the transaction is anticipated to close early in the second quarter. This sale is another example of Host executing on a strategic initiative, which was to reduce our exposure to New York. This hotel has been a particularly poor performer and requires substantial CapEx. Our ability to acquire the right to terminate the management agreement at this property was paramount in completing the sale. As anticipated, on January 9, we closed on the sale of the Key Bridge Marriott for $190 million. Again, this was a terrific opportunistic sale at a really attractive cap rate. We intend to like-kind exchange both properties with the Hyatt portfolio acquisition, which also ensures we retain the ability to reinvest the substantial gain that would be generated. The cap rate on the nearly $900 million in assets we have sold since January of 2017, including the W New York, is just north of 5%. Both sales included hotels in lower growth markets with higher CapEx requirements and an average RevPAR of approximately $140. Needless to say, we are pleased with our ability to recycle capital out of lower quality assets and into a high quality portfolio of scale with a strong growth profile. Shifting to our outlook for 2018, we continue to remain cautiously optimistic, with the midpoint of our comparable RevPAR growth guidance improving 20 basis points from 2017 to 1.5% on a range of 50 basis points to 2.5%. This slight acceleration is based on what we are seeing in the macroeconomic environment, as the global economy continues to exhibit strength and appears supportive to industry growth. What we discussed for nearly all of 2017, namely improving corporate profits, business investment, consumer sentiment amidst a low unemployment backdrop, all remain in place for 2018 and bode well for demand. The offset to the demand side of the equation is that overall supply and supply in our markets continues to tick higher, although not much greater than the long-term historical average. Looking out further, we expect to see supply moderating in 2019. We also gained some confidence, as January results came in nearly 300 basis points higher than our property forecasts, which were completed in November. That, combined with some life in the business transient customer in the fourth quarter of 2017, certainly gives us some hope for 2018, although it is too early to call breakout just yet. And while we are also hopeful tax reform will prompt corporations to increase their travel spend this year, we have not included the benefit of the Tax Cuts and Jobs Act in our outlook. As I said, we are cautiously optimistic, but realize it is only February and we have a long way to go in 2018. Group revenue pace sits about where it was the same time last year, up 2%, with approximately 80% of our group on the books. We feel group is solid and where we anticipated it to be. Our properties are running at record level occupancies and we continue to see the group booking window extend. As far as the cadence of performance in 2018, we anticipate the second half of the year being stronger than the first half. The first quarter will be our weakest, as a result of tough comps due to last year's inauguration and Women's March in D.C. and Easter weekend starting on March 30 this year. On the bottom line, our team continues to do a great job driving margin performance. And this is reflected in our 2018 comparable EBITDA margin guidance of negative 60 basis points at the low end and plus 20 basis points at the high end. Although we did a spectacular job on margins in 2017, that will be difficult to replicate in an operating environment with this level of employment. Having said that, we still have levers to pull internally through our enterprise analytics team, in addition to continued benefits we anticipate from the Marriott, Starwood integration. We would hope for breakeven margin performance around RevPAR growth of approximately 2%. Our 2018 guidance does not assume any acquisitions or dispositions, other than those I have discussed this morning, although we are continuing to work on several transactions that would fit our strategy. I would also point out that per our stated strategy of ultimately focusing solely on the U.S., we are exploring the sale of our international assets, including our interests in our European joint venture. While there is nothing to report at this time, it is an area we will be investigating throughout the course of the year. On the CapEx side, we anticipate spending between $475 million to $550 million this year, which is much closer to our historical average. Part of the increase from our 2017 spend of $277 million is a result of projects being pushed from late 2017 into 2018. In addition, we are undertaking a transformative repositioning at the San Francisco Marriott Marquis in the second half of the year, which is responsible for the majority of the $114 million we announced in our press release. This will be a complete reimagining of the hotel that we decided to bring forward from its previously-scheduled renovation date in 2020 in order to complete work ahead of what we expect will be a very strong market in 2019 and beyond. Any disruption related to the higher level of capital spend has been captured in the guidance we have provided today. With that, I will turn the call over to Michael who will discuss our operating performance and guidance as well as the recent changes we have made to our disclosure in much greater detail. Michael D. Bluhm - Host Hotels & Resorts, Inc.: Thank you, Jim. Before we begin, I just wanted to say what a privilege it is to have joined Host and this team. We have some of the most talented and dedicated individuals in the space, and I'd particularly like to say thank you to those who helped me prepare for my first earnings call as Chief Financial Officer. With that, and before we review quarterly and full year performance, you'll notice that we have made some material changes to our disclosure, particularly as it relates to our financial supplement. Some of these changes were made simply to make it easier for you to find the information we had previously provided by putting it into one simple document. However, others were a significant step to providing more information and greater transparency into our operations in order to help the investment community better recognize and value the quality of this irreplaceable portfolio of world class hotels. To that end, we've incorporated new and expanded disclosure, including key performance metrics for our top 40 consolidated hotels, ranked by RevPAR, including: RevPAR; total RevPAR; and full year EBITDA for 2017. This top 40 represents over 60% of the company's total EBITDA, has a 2017 RevPAR of approximately $230, total RevPAR of nearly $350 and an EBITDA per key of $35,000, exemplifying a portfolio of hotels that we believe is the highest quality amongst our peers. We've also expanded the comparable hotels by locations, which you've seen previously, from 16 locations to 23 in our press release and financial supplement. This change was made to give you better insight into our submarkets, particularly as it relates to Florida, Manhattan, and CityCenterDC. We've included the same property detail for these markets as is provided for our top 40 assets. Finally, we have provided more detail about our financial obligations, including additional credit metrics and a summary of our ground leases. You can easily download this information from our website, by scrolling down to the black box at the bottom of every page of our website at HostHotels.com. Now, let me begin with a discussion of Host's financial performance by providing a discussion of the factors that led to our adjusted EBITDA outperformance as compared to the midpoint of our third quarter guidance. While comparable operations were approximately $3 million better than anticipated, there were three areas that provided the remaining outperformance. First, effective December 31, 2017, we adopted the new NAREIT guideline on EBITDAre and now have included the full EBITDA related to our consolidated partnerships, which increased our full year adjusted EBITDA by $10 million. And for the quarter, that would be $3 million. Second, certain one-time sources of income related to business interruption proceeds and gain on sale of the Chicago land benefited the full year adjusted EBITDAre by another $10 million. And third, the remaining increase of $11 million resulted mostly from a decrease in corporate expenses and accruals and favorable foreign exchange rates, offset by a slight decline in non-comparable operations. I will now expand on our quarterly and full year performance. As Jim mentioned, we were pleased with our fourth quarter results, driven by our strong leisure transient demand and better than expected group performance in October. Our leisure revenues increased 7% in the quarter and group revenues in October improved 5%, outperforming our expectations. For the full year, the performance was primarily driven by a 5% increase in leisure demand and a 16% increase in contract demand, as our managers strategically took on high-rated contract business in specific markets with new supply or softening demand concerns, such as San Francisco, New York, Orange County and Boston. For reference, the ADR in our contract business was over $200 in 2017. Our best performing domestic markets this quarter were Philadelphia, Jacksonville, San Antonio, Orlando, and New Orleans. RevPAR increases ranged from 7% to almost 16% from these markets. Generally, these markets benefited from strong group business from additional citywides in the quarter. The strength in group business led to double-digit food and beverage revenues growth ranging from 11% to 39% in these markets, except for San Antonio. In addition, the hotels in these markets, with the exception of Orlando, exceeded comparable STR upper-upscale market results by 150 to 550 basis points. Our more challenged markets were Miami, San Diego, Chicago, Washington D.C. and New York. RevPAR ranged from 0.1% to a decline of around 17% in Miami, where our Biscayne Bay Marriott suffered hurricane damage and approximately 230 rooms were out of service for the fourth quarter. All rooms were placed back in service by mid-January. You will recall that we kept this hotel in our comp set, despite the hurricane damage. Hotels in San Diego, Chicago and Washington D.C. were impacted by the large citywides in the quarter, resulting in a lack of compression to drive transient average rates and requiring the hotel to provide more discounts in rates to drive occupancy. It is also worth mentioning that in Washington D.C., the meeting space was under renovation at the Grand Hyatt, and the parking garage restoration at the Hyatt Capitol Hill further impacted group business in the fourth quarter. New York continues to be impacted from new supply and group weakness in the Times Square market as well as weaker international demand, overall contributing to underperformance as compared to our portfolio as a whole. Looking ahead to 2018, we expect Maui/Oahu, Phoenix, Los Angeles, San Francisco and San Diego to outperform our portfolio. Conversely, we anticipate Houston, Seattle, Atlanta, Washington D.C. and New York to underperform the portfolio. Moving to our profitability, we remain impressed by the exceptional job of our property managers and asset managers in bringing more profit to the bottom line. Comp total revenues increased 2% for the quarter. A 10 basis point increase in comparable hotel EBITDA margin is quite impressive. Our full year comparable hotel EBITDA margin improvement of 10 basis points is even more extraordinary, as full year total comparable revenues increased 0.7%. These are remarkable results in an environment with a 12 year low unemployment and rising labor costs. While these results will be difficult to replicate, we will continue to have a keen focus on various productivity and operational efficiency initiatives in 2018. We will continue to execute on productivity improvements through our time and motion studies at our medium and small hotels. Furthermore, we expect to garner cost savings from the Marriott, Starwood merger through lower OTA commissions, better procurement costs, technology integration synergies, lower workers' compensation expense, reduction in charge-out rates from the consolidation of the rewards program and reduced processing fees from the renegotiation of the credit card program, among others. Furthermore, we are encouraged by the strengthening macroeconomic conditions and the passing of the Tax Cuts and Jobs Act that could drive additional demand from the higher-rated business transient customers. Combine this with the all-time high occupancy levels, a potential positive mix shift to the business transient customer could lead to a rate-driven increase in RevPAR, which would bode well for profitability. Having said that, the guidance we have provided today does not contemplate this. Let me discuss dividends for a moment. In January, we paid a regular fourth quarter cash dividend of $0.20 per share and a special cash dividend of $0.05 per share, bringing our total dividend for 2017 to $0.85, which represents a yield of approximately 4.4% on the current stock price. In addition, this represents the payout ratio of approximately 50% on our 2017 adjusted FFO per share. We have announced a first quarter 2018 dividend of $0.20 per share and continue our policy of paying on our taxable income. Let's talk about the balance sheet for a moment. We continue to operate from a position of financial strength and flexibility. I believe we have one of the strongest balance sheets among our peers. We ended the year with about $4 billion of debt with a weighted average interest rate of 4%, a weighted average maturity of five years and no debt maturities until 2020. Approximately 30% of our debt is floating and none of our consolidated hotels are encumbered by mortgage debt. We ended the year with approximately $913 million of cash and $822 million of available capacity remaining under the revolver portion of our credit facility. Today, our leverage ratio is 2.2 times, as calculated under the terms of our credit facility and after taking into effect the proceeds from the sale the Key Bridge Marriott, which we received in early January. We expect to close the Hyatt transaction in late first quarter, early second quarter, as Jim mentioned, which will be funded with cash and a draw on the credit facility revolver. Upon completion of the sale on the W New York hotel in the second quarter, we expect to use the proceeds to pay down a portion of the draw on the credit facility. After taking these transactions into consideration, we expect our leverage ratio to be at the low end of our stated target range of 2.5 times to 3.0 times. Let me take a few minutes to discuss some assumptions included in our 2018 guidance. In addition to the operating metrics provided in our press release and discussed by Jim, included in our guidance are three transactions: one, the acquisitions of the Hyatt portfolio for $1 billion by the end of the first quarter; number two, the sale of the Key Bridge Marriott for $190 million in January; and three, the sale of the W New York hotel for $190 million in the second quarter. No other acquisitions or dispositions have been included in our guidance. These transactions, along with the 2017 disposition and acquisition activity, led to a forecast net acquisition EBITDA increase of approximately $16 million in 2018. We expect this will be offset by an increase in our G&A and incremental disruption from the increased capital expenditures Jim referenced. The G&A increase, a one-time charge of $7 million relates to technology cost associated with the update and move over enterprise analytics platform and systems to the cloud. Furthermore, certain one-time sources of income related to business interruption proceeds and gain on the sale of Chicago land, which benefited 2017 adjusted EBITDA by $10 million, will not repeat in 2018. The combination of all these factors decreases our forecast 2018 adjusted EBITDA from 2017 by $10 million. Lastly, keep in mind that we generally earn 23% to 24% of our total EBITDA in the first quarter. To conclude, we are pleased with our strong operating results and completion of a large acquisition that is consistent with our strategic initiatives and financial discipline. Furthermore, we are delighted to introduce a more fulsome package of disclosure through our enhanced financial supplement. This concludes our prepared remarks. We are now interested in answering any questions you may have. To make sure we have time to address questions from as many of you as possible, please limit yourself to one question. Thank you.

Thank you. We will take our first question today from Andy (sic) [Anthony]. Powell from Barclays. Please go ahead.

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

Thank you for that correction on the name and congrats on the acquisitions. You mentioned that you're acquiring the assets at a 5% cap rate on 2018 EBITDA, but there's also some good near-term growth prospects in some of those markets. Could you talk about what you think the stabilized cap rate could be on the transactions after a couple years? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. We're looking at somewhere in the mid-6s. We're really bullish on these markets and these assets and, as I mentioned in my prepared comments, our ability to really get into the properties and bring our enterprise analytics platform to the table and our asset management expertise to just take a fresh look at how the hotels are being run. I'll give you a little more color on this, Anthony, but let me back up and just make one thing really crystal clear. These assets are great hotels. And we can talk about the metrics of each individual property in the markets that we're in. But as we sat back and said, okay, we sold $900 million of assets over the course of 2017 at a relatively low cap rate, $140 RevPAR in the aggregate, with high CapEx needs in slow growth markets. And when the opportunity to acquire these three hotels presented itself in the markets that they're in and our familiarity with the markets, we said, wow, this is a really terrific opportunity to effectively recycle capital. And we had the cash on the balance sheet. We have a great relationship with Hyatt. We feel that we could add value to this portfolio on many different levers. One thing that we didn't talk about with respect to the assets that I think is actually quite critical is based on our allocation of value, the cost per key for each hotel. So the Andaz Maui at a cost per key just slightly under $1.3 million, we think is really attractive. I don't know if you know the hotel, Anthony. I would encourage you to take a trip to Maui and go see it. I don't think I have to provide too much encouragement there. But it is a fantastic property and it sits next to the Marriott Wailea, then the Four Seasons, then the Grand Wailea and then our Kea Lani Palace. So one of the things that really gave us an advantage across the entire portfolio is our experience in each of these markets and the fact that we had iconic Hyatt hotels in both markets and have the ability to collaborate and centralize services, in this instance between the Hyatt Ka'anapali, and the Andaz in San Francisco between the Hyatt Burlingame and the Grand Hyatt Union Square. So we are just really excited and delighted to have the opportunity to acquire these assets. They are truly one of a kind, iconic properties in very fast growing markets and markets that we're very familiar with, and they underwrite. That's the other part of the story. I could talk about capital recycling, but as a first step in any acquisition we adhere to our discipline that you've heard me talk about many times over the course of 2017. The first step is to develop a 10-year pro forma taking into account all the CapEx needs that we believe are appropriate in a 10-year plan, and then making realistic assumptions about the near-term performance of these assets, looking at revenue generators and expense savings and building out a pro forma that also is reflective of the cyclicality of the industry that we're in, looking at a reasonable exit cap rate on the back-end and discounting those unlevered cash flows back to target a return over our cost of capital of 100 basis points to 150 basis points. So that's the first screen that we look at on any deal and we looked at it on this deal and it passed muster. I can't say it enough times. We're really delighted. We have a great relationship with Hyatt. They are great to collaborate with and we've always worked with Hyatt in partnership.

Great. Thank you.

Thank you. We will now move to our next question today from Smedes Rose from Citi. Please go ahead.

Hi. Thanks. I wanted to ask you, you mentioned in your guidance, you're including some disruption associated with the Marriott Marquis in San Francisco. Could you quantify that a little bit and kind of maybe talk about the timing of the improvements there in relationship to the Moscone Center coming back online next year? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. Hey, Smedes.

Hi. James F. Risoleo - Host Hotels & Resorts, Inc.: So, as I mentioned in my prepared remarks, we had contemplated renovating Moscone, not renovating, but reinventing and transforming a great asset in a great market in 2020. And then of course we all know what's happening in San Francisco next year. I think the last I looked, there was about 1.6 million group room nights on the books being generated by Moscone. And we balanced and did the analysis of should we renovate this year or should we wait into 2020. We think 2020 is going to be another terrific year in San Francisco. So we made a decision to pull the renovation forward and to put us in a position so that we can participate in the growth in San Francisco with a really truly reinvented hotel, which we believe will allow us to significantly increase our yield index in the property and drive more cash flow to the bottom line. The incremental disruption this year as a result of doing that, which is already included in our guidance, is about $5 million.

Great. All right. Thank you very much.

Thank you. We will now go to our next question from Thomas Allen from Morgan Stanley. Please go ahead. Thomas G. Allen - Morgan Stanley & Co. LLC: Hey, good morning. One of the key changes to your release was the increased disclosures around the top 40 hotels. Can you just talk about that a little bit more and if any hotels you just want to highlight, that'd be helpful? Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: I just think, Thomas, as we talk again, listening to the sell-side and the buy-side, your thirst for greater transparency, greater disclosure, giving you the opportunity to better understand the company and the assets that we have and how they perform, we listened, we heard, we provided. And really, at this point in time, it's nothing more than that. I think that the top 40 provide a really good picture of the quality of this company, the quality of the EBITDA, the valuation of those assets. Take the Kea Lani Palace, which is on Maui, which is the top asset in our portfolio; we didn't provide EBITDA per key, but you can certainly do the math. And if you do the math, you'll see that the Kea Lani Palace is generating $90,000 per key of EBITDA. So, I just don't know how many folks really had a good handle on the performance of these top 40 hotels and we thought it was important to highlight them. Additionally, as Michael mentioned, we also provided seven additional markets to give you a bit more granular look into Florida, as an example, where we have properties on the West Coast. We have properties in Orlando. We have properties on the East Coast. So the various submarkets in Florida, now you're going to be able to have a better gauge on what's coming out of each of those markets and how they're performing. And I think we truly are being very transparent here. I mean, we put a list in of our ground leases, our capital structure, debt statistics, so it's all in one place. You can go find it. You can download the information. And we're happy to answer questions. Thomas G. Allen - Morgan Stanley & Co. LLC: Perfect. I'm sure we'll have a lot. Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: I know you will.

Thank you. We'll go to our next question now from Harry Curtis from Nomura. Please go ahead.

Good morning. A quick question on the $1 billion of investment, is there a much incremental ROIC CapEx that you expect in this portfolio? And related to that, if the answer is no, as you look ahead, do you think that you'll be seeking incremental acquisitions that really don't require the kind of CapEx that, say, The Phoenician has? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. Harry, it's a two part question. So let me answer the first part of your question and then we can talk about the second part. Obviously, as we underwrote this deal and evaluated the transaction, we identified certain ROI opportunities. As an example, at the Andaz Maui, part of the consideration includes an entitled parcel of land at the property to add 19 villa units. Now, we bought the land. It's a dead asset. We're paying real estate taxes on the land. We haven't underwritten the value that we would derive from developing those 19 units. And I think we've got a pretty good track record here, given what we've accomplished at The Phoenician. So we're excited about that one. There are other opportunities at the Andaz. As an example just putting a luau in place, those are real moneymakers. We have that experience up at the Hyatt Ka'anapali. At the Grand San Francisco, we will look at the opportunity to add eight keys to that property. We're looking at the re-concepting of the restaurant and room service. So, yeah, there are opportunities around all these hotels. Those are things that we didn't underwrite in the context of the acquisition. With respect to other assets that are out there that we're evaluating, we're not far enough long at this point on any additional acquisition for me to give you color around capital needs, capital spend, but the one thing I can assure you is that that's all taken into consideration in our underwriting.

Very good. Thanks.

Thank you. We'll now go to our next question from Shaun Kelly from Bank of America. Please go ahead.

Hi, good morning, everyone. Jim or Michael, I think one of your peers yesterday discussed a little bit about possible sale disruptions at some of the Marriott hotels. Is that something you could comment on, just given that you guys have a lot of exposure there and you're probably the best to kind of give us your insights? James F. Risoleo - Host Hotels & Resorts, Inc.: Shaun, are you talking about the integration of the Starwood Hotels into the Marriott platform. Is that....

...exactly, that was the context. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I mean, we've been working closely with Marriott since the day they announced that they were acquiring Starwood. And there is always a little bit of uncertainty early in the process as the two programs are migrated together. We are very comfortable with the direction that this is taking. And not only are we comfortable with it, we're excited about it. Because when the Starwood legacy hotels that we own are merged into the Marriott sales system, we expect to see increases in revenue, increases in yield index going forward. So we've been on it from day one and it's not a concern to us.

So nothing specific on the sales organizations or anything that's changed in the last couple of months as it relates to trying to combine, whether it group sales efforts or anything else? James F. Risoleo - Host Hotels & Resorts, Inc.: They're putting new leadership in place. I mean, this is actually a question probably better asked to Marriott, but I can tell you that they're putting new leadership in place. They are putting the organization in place. They are putting the final bells and whistles on it and about ready to tie a bow here.

Easy enough. Thank you very much. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure.

Thank you. We'll now move to our next question from Rich Hightower from Evercore.

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

I just want to go back to some of the prepared comments around business transient commentary and I think we've been hearing a pretty consistent message for some time now that even though there's broad-based optimism on the part of corporate entities and CEOs, we're not seeing that show up necessarily in the demand patterns. And I'm curious as to why you think that might be happening. Is it just a function of kind of a choppy calendar for the first part of the year? Is there something else underlying that? I mean, what's Host's broader perspective on why we're not seeing that yet? James F. Risoleo - Host Hotels & Resorts, Inc.: Rich, I think that the statistic that we follow with respect to the business traveler and group business is really business investment. And business investment for 2016 was negative 50 basis points. For 2017, it was 4.6%. For 2018, as of February, the forecast is 5.6%, so it's trending in the right direction. And I think that over the course of 2017, in particular, there was a lot of uncertainty out there regarding whether or not we were going to have a tax bill. There was uncertainty just generally given what was happening in Washington, D.C. I think that now that the tax bill's in place, corporations are still digesting what the bill means to them. But I can tell you that the commentary that we have is people are feeling much better about the economy. They're feeling better about spending money and investing. And when they feel better about investing, that means that they're going to travel, and they're going to come back to our hotels. So in past cycles, we have seen business travel, business transient accelerate when the business investment forecast gets up about 8%. So we're moving in the right direction, and that's why we're cautiously optimistic.

One quick follow-up there, do you think that timing-wise, I mean, maybe after the Easter comp gets out of the way, that we would start to see some of the fruits of what you're talking about really show up in the numbers or we just don't have an idea yet? James F. Risoleo - Host Hotels & Resorts, Inc.: I wish I could tell you yes. If I thought that, Rich, I wouldn't be holding back on you. I'd put it in our guidance. It's just too soon to tell. I think we saw a January that was stronger than we anticipated, based on budgets that were completed in November. We had a 300 basis point swing in January, from minus 1% to plus 2%. And that gives you a high degree of comfort, but I think it's too early to bake an acceleration of RevPAR as a result of the return of the business traveler into our numbers this year. One month doesn't make a trend.

Got it. Thanks, Jim.

Thank you. We'll now go to our next question from Jeff Donnelly from Wells Fargo. Please go ahead.

Good morning, guys, and welcome aboard, Michael. Michael D. Bluhm - Host Hotels & Resorts, Inc.: Thank you.

If I can squeak in maybe a two-parter, just first one was just what details can you share about the key terms of the management agreement with Hyatt for the three-pack that you guys purchased, just curious what you can talk about there? And then, maybe as a second question, I think there's long been a perception that Host has a segment of its portfolio in hotels that may be submarket dominant, but ultimately have lower growth prospects or have capital needs down the road, for example, airport or suburban hotels. Do you see this as a good moment to look at monetizing those sorts of assets or do you feel that they may be providing some earnings stability for the company? James F. Risoleo - Host Hotels & Resorts, Inc.: Jeff, I'll answer your second question first. We have no systematic disposition plan in place for this year. I think that over the course of 2017, you saw us opportunistically sell hotels for a variety of reasons. And this year, of course, we've announced that we're going to sell the W Lex. So we're constantly looking at opportunities to dispose of assets that are in slower growth markets with higher CapEx needs and lower RevPAR assets. Are we sitting here today saying that we're going to package up $2 billion or $3 billion? We're not saying that. And the reason we're not saying it is because we really like what we own today. And we continue to invest in our assets. There's obviously a differential between capital allocation to an asset like The Fairmont Kea Lani or the Hyatt Ka'anapali or the San Francisco Marriott Moscone (sic) [Marquis] relative to a suburban hotel. But there is nothing on the table right now to suggest that we're going to just blow out a bunch of those properties. With respect to the management contract, I would tell you it's a market contract. The terms are proprietary. And really, it's a long-term contract, but beyond that, I really am not in a position to comment on it.

Okay. Thanks, guys.

Thank you. We'll now go to our next question from Gregory Miller from SunTrust Robinson Humphrey. Please go ahead.

Thanks very much. Good morning, everyone. James F. Risoleo - Host Hotels & Resorts, Inc.: Morning, Greg.

Morning. I'm on the line for Patrick Scholes. Could you elaborate on your views of potentially disposing some of your international assets, particularly in an environment of recent RevPAR strength in some of the regions? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, as we discussed, we sold our assets in New Zealand. We sold the Hilton Melbourne last year, which took us out of both Australia and New Zealand. And there had been another Four Points that we owned in Perth, Australia that we sold a couple of years ago, several years ago. We have three hotels in Brazil, one in Mexico and two in Canada, as well as our interest in our European JV. So from our perspective again, it's we start with the fundamentals. And the fundamental is what do we think asset's worth to us versus what is the market prepared to pay us for it. And that's the screen that we do on every asset, whether it's international or in the U.S. So, of course, if we are looking at the potential exit of an investment in a market where RevPAR is accelerating, we'll take that into consideration when we determine what we think the whole value is of that hotel.

Great. Thanks very much.

Thank you. We'll now move to our next question from Robin Farley from UBS.

Hi, guys, this is actually Raffi on for Robin. Just had two quick questions, first on group, what was the group pace in the quarter for 2018 and 2019? James F. Risoleo - Host Hotels & Resorts, Inc.: I'm sorry, the current group pace for 2018? We have...

In the quarter, yeah. Yeah, for 2018 and 2019. James F. Risoleo - Host Hotels & Resorts, Inc.: I think that group pace has been around 2% in the quarter for 2018. 2019, I don't have that number in front of me. We're really focused on 2018 right now, but it's probably around the same, I would think, at this point.

Okay. And then, the last one is since kind of this overhang of the uncertainty over tax reform has kind of cleared up, what have you kind of seen in the change of behavior from buyers and sellers out there in the transaction market? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, frankly, over the course of 2017, we underwrote a number of transactions that would fit the profile of asset that we would like to own. We obviously weren't able to come to terms with a transaction that underwrote to our requirements. This year, we're hearing that there may be a few more assets of this ilk coming to market. Nothing's in the market right now. I talked recently with an investor who owns some high-end hotels, of course, to gauge this individual's interest as to whether or not they might want to consider talking to us about selling them, and the response was given the interest rate environment that we're in, we just put 15-year financing on the properties and we're really not interested in disposing. So I think that you'll see owners of hotels become sellers of hotels if they have unique reasons to do so. And one of the unique reasons that Hyatt had was that they're going to asset-light. And they announced on their call last quarter, that they intended to sell $1.5 billion of hotels. So there has to be, I think, a particular reason why someone today would decide that it's time to sell when financing markets are still relatively attractive.

All right. That's great. Thank you.

Thank you. We'll now go to our next question from Chris Woronka from Deutsche Bank.

Hey. Good morning, guys, and appreciate the expanded disclosures. Wanted to ask you the Starwood, Marriott question, but from a different angle, which is, we've heard that they are continuing to kind of cull the portfolio and I know that's a lot of Sheratons and maybe few other things. To the extent that you guys maybe have a little bit of visibility into that, what do you think the net impact on you competitively is in terms of where some of those assets end up versus the markets that they might be in where you have overlap? James F. Risoleo - Host Hotels & Resorts, Inc.: When you say cull, Chris, are you talking about Marriott's disposing of the real estate that they acquired in the purchase?

No, more kind of on the Sheraton side. James F. Risoleo - Host Hotels & Resorts, Inc.: Oh, I got it. Yeah. I got it. In terms of pushing Sheratons that have not been properly renovated out of the system.

Yeah, correct. James F. Risoleo - Host Hotels & Resorts, Inc.: Today, we are down to four Sheraton hotels in the U.S. We own: the Sheraton in Boston, on the Back Bay; the Sheraton, New York; the Sheraton in San Diego; and the Sheraton in Parsippany. So from our perspective, I don't think that the culling process in and of itself is going to impact us negatively. Of course, it's going to be much better for us once the Sheraton brand standards are reinvented and pushed out to the system. And I think Marriott is really making great progress on that front. It's going to take them some time to make this happen. But I think they're very dedicated to fixing Sheraton. Starwood had tried a number of times and really couldn't seem to get to the finish line. So we're supportive of it. And anything we can do to improve the performance of our asset and the guest perception of our asset, I think is a plus.

Okay, very good. Thanks, Jim.

Thank you. That will conclude today's question-and-answer session. I would now like to turn the conference back over to Mr. Jim Risoleo, President and CEO. Please go ahead. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you for joining us on the call today. We are very pleased with our 2017 results and excited about the strategic transactions we have announced. We look forward to discussing first quarter results and how the year is progressing on our next call. Have a great day, everyone.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.