Host Hotels & Resorts, Inc. (HST) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Host Hotels & Resorts, Incorporated First Quarter 2018 Earnings Call. As a reminder, today's conference is being recorded. And at this time, I'd like to turn the floor over to Ms. Gee Lingberg, Vice President. Please go ahead, ma'am. Gee Lingberg - Host Hotels & Resorts, Inc.: Thanks, Greg. Good morning, everyone. Welcome to the Host Hotels & Resorts first quarter 2018 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 EBITDAre 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 an overview of our first quarter results and our outlook for 2018. Michael Bluhm, our Chief Financial Officer, will then provide details on our first quarter performance by markets, discuss margins, and the balance sheet. Following their remarks, we will be available to respond to your questions. And now, I'd like to turn the call over to Jim. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you, Gee, and thanks everyone for joining us this morning. We are pleased to report a quarter that materially exceeded our internal expectations on the top and bottom line and beat consensus estimates for adjusted EBITDAre and adjusted FFO per diluted share. Based on this performance, we are raising our full year guidance for RevPAR, adjusted EBITDAre and adjusted FFO per share. For the full year, we have increased the midpoint of our comparable RevPAR guidance 50 basis points to 2%, increased the midpoint of adjusted EBITDAre by $25 million to $1.525 billion, and increased the midpoint of adjusted FFO per share by $0.05 to $1.70. These results continue to demonstrate the benefits of our geographically-diversified portfolio of iconic and irreplaceable hotels, our unprecedented scale and platform to drive internal and external growth, and the power and flexibility of our investment-grade balance sheet. Together, these key pillars formed the foundation of Host, the premier lodging REIT. As mentioned in our press release, we closed on the previously-discussed three-hotel portfolio of iconic Hyatt properties on March 29. Recycling out of low RevPAR, low growth, and high CapEx assets into these high RevPAR, high growth, and low CapEx hotels at roughly the same cap rate with an outstanding use of capital and instantly upgraded the overall portfolio. Although still early in our ownership, the Hyatt portfolio is performing above our initial underwriting. Keep in mind, this is before we begin implementing many of the value enhancement initiatives we identified in our underwriting. We are encouraged by early results and look forward to enhancing performance and value at these fantastic properties. Looking forward, we are maintaining our disciplined approach to capital allocation and are not including any additional purchases in our revised full-year guidance. We anticipate closing on the previously-announced sale of the W New York this month for $190 million. Please note that we have included one additional asset sale in our revised guidance for 2018. This sale will result in the expected loss of $6 million of EBITDA. As it relates to investing in our portfolio, we spent approximately $115 million on CapEx in the first quarter, which is consistent with our plan to spend between $475 million to $550 million this year on total CapEx. The most notable repositioning projects include the completion at The Phoenician and the start of a comprehensive renovation at the San Francisco Marriott Marquis, in addition to significant facade and other work occurring at The Ritz-Carlton, Naples Beach Resort. As I mentioned, our first quarter exceeded expectations on both the top and bottom line, particularly given the difficult comparison of 3.8% domestic RevPAR growth in quarter one 2017, which benefited from the inauguration and Women's March in Washington, D.C. These results are a testament to Host's scale and platform, particularly our asset management and enterprise analytics teams. While Michael will describe the quarter in greater detail, here are some of the highlights. While we expected to see some impact from the Passover holiday shift from April to March, and the earlier timing of the Easter holiday, transient demand significantly exceeded our expectations to the upside. As a result, on a constant currency basis, comparable hotel RevPAR improved 1.7% in the first quarter to $177, driven by a 170 basis point increase in occupancy, partially offset by a 60 basis point decrease in average rate. For the quarter, occupancy for our comparable hotel properties was 77.6%, the highest first quarter occupancy for the company in more than 15 years. This translated into adjusted EBITDAre of $370 million for the quarter and adjusted FFO per share of $0.43; both were significantly above consensus estimates. Transient demand increased 5.2% in the quarter, some of which was due to the holiday shift, but materially higher than we anticipated. Although average rate was relatively flat, this consistent demand throughout the first quarter resulted in transient revenues increasing 5.2%. As mentioned on our last call, we begin to see signs that business travel was picking up in the fourth quarter of 2017. This positive trend accelerated in the first quarter, and we estimate that both business travel revenue for the comparable portfolio grew over 6.5%. This growth occurred in most markets and was driven largely by the consulting, technology, and pharma sectors. While it is a bit early to predict where this trend is going for the remainder of 2018, we are optimistic that business travel will continue to strengthen over the course of the year and we will be monitoring this segment closely. As we anticipated, our group business was impacted by difficult comparisons in Washington, D.C. and Houston, which benefited from the Super Bowl last year. In addition, the earlier timing of the Passover and Easter holidays impacted group demand, as these holidays are typically weaker for group demand and stronger on the transient side. For the quarter, group revenue decreased 3.5% due to these events and holiday shifts. We expect group business to rebound in the second quarter as these calendar items abate. As we look to the remainder of the year, our group booking pace is strong, with group revenues up 4.5%. The fourth quarter of this year looks to be the strongest quarter with group revenue 6.5% ahead of last year. Overall, our group revenue pace is up approximately 2.2% to where we were at the same time last year. With approximately 85% of our group revenues on the books for 2018 and occupancies at all-time highs, we continue to see the booking window extend. As was the story in 2017, we continue to do a great job improving profitability at our properties and driving comparable EBITDA margin growth. In the first quarter, comparable EBITDA margins grew 60 basis points. We received a one-time tax rebate at the Westin Grand Central in New York, which positively impacted margins by 28 basis points. The balance of the margin lift was a result of increased productivity, strict cost controls, continued utility reductions as a result of sustainability investments and an increase in ancillary revenues. I should point out that we had made over $170 million in sustainable investments since 2015 and are achieving combined annual saving yield in excess of 14% on those investments. We also received numerous awards and recognitions in this area, including the 2017 NAREIT Leader in the Light award. We are committed to sustainable business practices and happy to be recognized for our achievements. Our asset management and enterprise analytics groups continue to be focused on driving cash flow to the bottom line. A 32 basis point improvement in margin on comparable hotel revenue growth of 1.5% is a testament to their efforts. To further enhance our analytic capabilities, we entered into an agreement with IBM Research, to leverage IBM's artificial intelligence expertise. This will allow us to improve our predictive capabilities by extracting insights from both structured and unstructured information. This is another example of taking advantage of our scale and access to information to develop leading-edge technologies and processes to drive long-term investment returns. This combination of better-than-expected first quarter results and increased macroeconomic optimism is driving the across-the-board raise to our full-year guidance. The global economy continues to exhibit strength and appears supportive of industry growth. The economic indicators we closely follow, corporate profits and nonresidential fixed investments continue to remain strong. As mentioned earlier, the pickup in business transient travel is positive and gives us further reason to be optimistic. Leisure demand continues to be strong, given record levels of consumer confidence. We also began to see some improvements in international travel to the U.S. in the first quarter. Although, this is a smaller part of our overall business, improved international visitation should bode well for demand in some of our major gateway markets. As a result, we are raising the midpoint of our comparable RevPAR growth guidance by 50 basis points to 2% on a revised range of 1.5% to 2.5%. This is predicated on our continued belief that the first quarter will be the weakest quarter of the year and that the second half of the year should be stronger than the first. The support for this outlook is the visibility provided by solid group pace for the remaining three quarters of 2018. Correspondingly, we are anticipating comparable EBITDA margins of minus 10 to plus 30 basis points based on our revised RevPAR range. At the new midpoint of 2% RevPAR growth, we expect EBITDA margin growth of 10 basis points, an increase of 10 basis points from our prior guidance. 2018 adjusted EBITDAre has been raised by $25 million at the midpoint to $1.525 billion on a revised range of $1.505 billion to $1.545 billion. I would point out that this increase would have been higher by $6 million if we had not included the expected loss related to the unidentified disposition that I discussed earlier. Therefore, the $25 million full-year increase in EBITDAre includes our $17 million first quarter beat versus consensus estimates, an additional $14 million increase over the balance of the year less the expected loss of $6 million from the unidentified disposition. We are increasing 2018 adjusted FFO per share by $0.05 at the midpoint to $1.70 on a revised range of $1.67 to $1.73. We are anticipating continued improvement for the remainder of the year relative to our budgets, which were completed in December 2017. In closing, we are pleased with our beat-and-raise quarter, as it continues to demonstrate the attributes of our premier lodging REIT. A diversified portfolio of irreplaceable assets, our unmatched scale and platform, and our investment-grade balance sheet positions us well to continue to outperform our peers in the near, medium, and long term. With that, I will turn the call over to Michael, who will discuss our operating performance and our balance sheet in much greater detail. Michael D. Bluhm - Host Hotels & Resorts, Inc.: Thank you, Jim. Good morning everyone. As Jim mentioned, we had an outstanding first quarter with impressive beats to our internal top and bottom line results as well as consensus estimates, enabling us to increase guidance meaningfully for the full year. Comparable RevPAR increased 1.7% driven by an occupancy increase of 170 basis points, and comparable EBITDA margins expanded by 60 basis points. Before getting into some of the details of our corporate performance, let me provide some operational results in our top markets for the quarter. Our best-performing domestic markets this quarter were Philadelphia, the Florida Gulf Coast, Maui, and Oahu. RevPAR increases range from 10% to 16% in these markets, generally benefiting from strong transient business exhibited by the double-digit transient revenue increases in these markets that range from 11% to over 26%. Our hotels in Philadelphia significantly outperformed our portfolio this quarter with RevPAR growth of 16%, exceeding Smith Travel Research upper-upscale results by 190 basis points. Our hotels benefited from the post-renovation ramp at The Logan Hotel, the NFL Playoffs, and the parade that resulted from winning the Super Bowl. Group and transient revenues increased 7% and 17%, respectively, and the hotels grew average rate by 6.5%. The RevPAR growth at our Florida Gulf Coast hotels exceeded our expectations with an impressive increase of 11.6% in a market where the STR upper-upscale results decreased by 30 basis points. Our iconic and irreplaceable hotels, such as The Ritz-Carlton in Naples, benefited from demand generated by the rooms out of service in the Caribbean and the Florida Keys because of hurricanes last year. Our hotels had a strong average rate growth of 9%. It's worth noting that the transient average daily rate at our Ritz-Carlton resort in Naples is over $1,000 for the quarter, an increase of over 10% last year. In Maui and Oahu, our iconic hotels, including our top RevPAR asset, the Fairmont Kea Lani in Wailea, grew RevPAR 9.7% in the quarter and exceeded the STR upper-upscale results by 680 basis points. The growth was driven by an 8.4% improvement in average rate and 110 basis point increase in occupancy. Our hotels in this market experienced both strong transient and group business, which improved 10.7% and 5.6%, respectively. Demand continues to be strong for our Hawaiian assets, providing our managers the ability to grow rate at our hotels. I would also point out that even though they are non-comp, two of the three Hyatt assets we recently acquired were in Maui and the Florida Gulf Coast, two of the top performing markets this quarter. Host, not unlike the overall industry, experienced challenges in the quarter in Washington, D.C., Houston, and San Antonio. While RevPAR at our hotels declined from 7% to 17.4%, these results outperformed our expectations and the hotels in Houston and San Antonio markets experienced better than expected transient demand. RevPAR at our hotels in Washington, D.C. declined 17.4% this quarter, with a 400 basis point decline in occupancy and a 13% decline in average rate. As is well known at this point, city-wide events last year, such as the inauguration and the Women's March in Washington, D.C. provided for difficult year-over-year comparisons at our hotels this quarter. In Houston, while RevPAR decreased 9%, the results exceeded our expectations due to stronger than expected transient demand. It was encouraging to see transient demand growth of 3.4% this quarter. However, our hotels were impacted by the decline in group revenues as our hotels posted high-rate Super Bowl groups last year. Interestingly, excluding Washington, D.C. and Houston, comparable RevPAR for our portfolio for the quarter would have been up 3.8%. Our hotels in San Antonio experienced a RevPAR decline of 7% in the first quarter as weaker city-wide contributed to the declining group business. However, based on the improved group bookings through the remainder of the year for San Antonio, we expect these hotels in this market to outperform the portfolio as a whole for the rest of the year. Looking at our forecast for the full year, we expect Miami, Philadelphia, and San Antonio to outperform our portfolio. Conversely, we anticipate Washington, D.C., Houston, and Atlanta to underperform. Moving to our profitability and margin performance, we remain impressed by the exceptional job of our property and asset managers in bringing more profit to the bottom line. Adjusted EBITDAre exceeded our internal estimates at $370 million this quarter, which was $17 million or 5% above consensus estimates. In addition, adjusted FFO per share exceeded our internal estimates at $0.43 and was $0.03 or 7.5% above consensus estimates this quarter. As Jim noted, comparable hotel margins were up 60 basis points in the first quarter with 28 basis points of that a result of a one-time tax rebate in New York at the Westin Grand Central. This rebate was an exchange for the investments we made to reposition the property. However, removing that one-time item, margins were still up 32 basis points on comparable hotel revenue of 1.5%, which is remarkable. We saw continued productivity improvements as room productivity improved 1.4% in the quarter. A primary driver of those results came from Marriott's Green Choice initiative which, we believe, still has room to improve going forward. We also witnessed the increased F&B productivity improvement as an additional eight hotels restructured their room service programs. Finally, we saw continued savings from our time and motion studies, although the year-over-year benefit was less impactful on the overall portfolio because we're moving the studies to our small- and medium-sized hotels. Additionally, undistributed operating expenses remained well below inflation at only 50 basis points, aiding margin improvement throughout the quarter. For instance, utility expenses remain low, increasing only 30 basis points for the quarter. This result was partially due to the benefits from our continued efforts to implement energy ROI-saving projects. Other departmental revenue was also a contributor to margin outperformance this quarter as we saw a pickup in high margin ancillary revenues and cancellation fees. Cancellation fees were up primarily from group cancellations at only five properties, but we also witnessed increases in transient cancellation. With attrition flat in the quarter, this speaks positively to the overall customer demand and also indicates continued customer adoption of the longer cancellation windows our managers have been implementing across the portfolio. Speaking of booking trends, travel agent commissions declined in the quarter, providing 10 basis points in the margin benefit. Notably, during the first quarter, we saw direct bookings grow more than OTAs since Marriott introduced its book direct initiative in early 2016. This is an encouraging trend at the end, demonstrates that customer habits are evolving, which is great as the customer acquisition costs are materially lower than what people book through Marriott.com. Moving to our dividend, in April, we paid a regular first quarter cash dividend of $0.20 per share, which represents a yield of approximately 4% on our current stock price. In addition, this represents a payout ratio of 47% on our adjusted AFFO per share. We did not repurchase any shares in 2018 but have $500 million of capacity available under the current repurchase program, and used as one of the tools in our toolkit to create enhanced shareholder value at the appropriate point in time. Moving to the balance sheet, we continue to operate from a position of financial strength and flexibility as we are the only lodging REIT with an investment-grade balance sheet. The advantage of our strong balance sheet was clearly demonstrated in the efficient execution of our $1 billion acquisition of the Hyatt portfolio. As you'll recall, there was a tremendous increase in stock market volatility around the time we went under contract on that acquisition, which we believe hindered potential buyers. Host's liquidity and investment-grade balance sheet was a key differentiator of our ability to perform, thus, enabling us to secure that iconic portfolio of assets from Hyatt. At March 31, 2018, we had cash of $323 million and $511 million of available capacity remaining under the revolver portion of our credit facility. Total debt was $4.3 billion with an average maturity of 4.8 years and a weighted average interest rate of 3.9%. In addition, we have no debt maturity until 2020. Our leverage ratio is approximately 2.7 times as calculated under the terms of our credit facility. We intend to use the net proceeds from the W New York sale and the newly-announced, unidentified asset sale to repay outstanding amounts under our credit facility or for general corporate purposes. We have the only investment-grade balance sheet in the lodging REIT space, which we are committed to maintain as it is a prominent differentiator to our peers and provides flexibility to take advantage of value-creation opportunities throughout the cycle. Lastly, as you model and forecast out the remainder of 2018, please keep in mind that we generally earn 29% to 30% of our total adjusted EBITDA in the second quarter. Overall, we are pleased with our strong operating results, which enabled us to increase our guidance across the board for the year. Furthermore, we are excited to close on the $1 billion acquisition of three Hyatt hotels and plug them into our industry-leading enterprise analytics and asset management platform. Overall, our performance continues to demonstrate that owning a portfolio of iconic, irreplaceable, and geographically diversified hotels, having the scale and platform to drive value, combined with a powerful investment-grade balance sheet is a strong strategic position to deliver significant value to our stockholders over the long term. This concludes our prepared remarks. We are now interested in answering any questions you may have. To be sure we have time to address questions from as many of you as possible, please limit yourself to one question.

And first from Barclays, we'll hear from Anthony Powell.

Hi. Good morning, everyone. James F. Risoleo - Host Hotels & Resorts, Inc.: Morning, Anthony. Michael D. Bluhm - Host Hotels & Resorts, Inc.: Morning.

Morning. Could you talk about your capital allocation priorities for the rest of the year? Are you seeing attractive acquisition opportunities in the market? And given the increase in merger activity in the space in recent years, are public company acquisitions a more realistic possibility for you right now? James F. Risoleo - Host Hotels & Resorts, Inc.: That's a multiple-part question, Anthony. Let me break it down a little bit for you as I answer it. First of all, I would tell you that we're not seeing a large amount of individual or portfolio acquisition opportunities that fit our profile. And when I say fit our profile, I'm not only talking about the nature of the asset, but I'm talking about the disciplined way in which we underwrite these potential investment opportunities. So, that's one of the reasons why we didn't include any additional acquisitions in our guidance for the balance of the year. Of course, we're still looking at opportunities as they present themselves, and we're trying to get out ahead of the pack and bring to bear the attributes of the company and our scale and our access to information, and the fact that we do have an investment-grade balance sheet as opportunities present themselves. On the M&A front, I would say that, as I've said in the past, we are very open-minded and we evaluate all opportunities to enhance NAV, and we'll continue to think about our strategy in that context going forward.

Great. Thank you.

Next question will come from Chris Woronka with Deutsche Bank.

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

Good morning. I wanted to ask about some of the changes that have come into play recently with some of the cancellation policies. I guess both Marriott and Hilton and – do you think those are beginning to have a more sustainable positive impact on rate growth and revenue management, given that the booking window has continued to extend out? James F. Risoleo - Host Hotels & Resorts, Inc.: We're very pleased with the implementation of the new cancellation policies. We have seen a, clearly, have seen a difference in booking patterns at the hotels. And most importantly, we're delighted that our property managers are enforcing the policies. We saw an uptick in cancellation fees in quarter one. It wasn't across the portfolio, it really dealt with the groups at five different hotels. But to be able to collect cancellation fees from groups, that is really something new. And we're also seeing it happen with the transient customer as well.

Great. Very good. Thanks, Jim.

Next from BTIG, we'll hear from Jim Sullivan.

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

Jim, I wonder if you could comment about New York. The results were pretty decent in the quarter. And kind of two-part question here. What's your outlook for the balance of the year in that market? And secondly, in connection with that, do you have any read on international inward bound traffic trends, either in the quarter or currently? James F. Risoleo - Host Hotels & Resorts, Inc.: A couple questions. All right. With respect to international inbound, we did see a pickup on international inbound. And in conversations we've had with Marriott International, they've seen a pickup of about 13%. So, our total of our book of business, and it's spread across various gateway markets, New York being one of them, we generate about 10% of our business from international travel. So, we expect that that will help us not only in New York but in some of the other gateway markets where we operate, such as San Francisco, Miami, Los Angeles, and Seattle as well. With respect to New York, Jim, I think our take on the city is, yes, we did see a pickup in the first quarter. We saw a nice bump in demand. We did see business travel return to our New York markets. However, there is still a lot of supply coming online this year and a lot of supply coming online next year. So, I would not anticipate seeing a material acceleration in performance in New York in 2018.

Okay. Great. Thanks.

Next question comes from Rich Hightower with Evercore.

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

Thanks for taking the question here. So, I just want to go back to one of the prepared comments on the pickup in business transient during the quarter and the balance for the rest of the year. So it seems like demand is getting unambiguously stronger, but pricing was a little soft. Is that just sort of a timing issue? There's usually a lag between demand and pricing power, and if that's the case, is there any sort of ADR pickup in transient demand folded in the guidance at this point? James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. Rich, I had a little bit of a difficult time hearing you. I think your question was related to the pickup in business demand in – if I could paraphrase it, tell me if I'm on the right track here. When is rate going to fall off?

Yeah. That's generally correct. And then, how much of that is baked in the guidance as well? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, we have seen in the first quarter business transient demand pick up in really across the board but mainly in a handful of markets. We saw business demand pick up in Chicago, New York, San Francisco, Denver, and San Diego. And with respect to the rate, we continue to look at corporate profits, and we continue to look at the business investment number, or non-fixed residential investment number, which is strong and has been increasing over the last several years. That's a pretty good indicator from our perspective of what's going to happen with the business traveler. So in the first quarter in particular, while business demand room nights was up, as I mentioned, our group pace was down predominantly as a result of the holiday shifts, as a result of Easter and Passover shifting, and group business going down. So, we were not in a position in Q1 to really drive rate and yield the business traveler. We are hopeful that that will change over the course of the year.

Okay. Thanks for that, Jim. Would you say that any such pickup is reflected in guidance at this point? James F. Risoleo - Host Hotels & Resorts, Inc.: No, it's not, Rich. As I mentioned, we're optimistic but – and we're going to be tracking business travel very closely over the balance of the year, but while I'd like to say that one quarter makes a trend, we're not ready to predict that just yet.

All right. Great. Thanks for that, Jim.

Moving on, we have Michael Bellisario from Baird. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Good morning, everyone. James F. Risoleo - Host Hotels & Resorts, Inc.: Hey, Mike. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Just want to go back to the first question on capital allocation. Maybe can you share your thoughts on the assets and portfolios that you have seen transact? And then maybe how has that changed the way you think about monetizing more of your assets or maybe selling some of the lower-tier properties within your portfolio? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, of course, we track every deal in the market even if it's not an asset that we may be interested in acquiring. So, we're getting a fairly good sense of what's happening on the acquisition side, the bid-ask between buyers and sellers and the debt capital markets are strong. So, as we sit back and think about what does that mean to us, I'll start with a premise that we're very comfortable with the portfolio that we have today. That said, we would certainly be opportunistic sellers if we could achieve pricing on an asset or group of assets that exceeds our hold value. We look at every hotel at least on an annual basis, if not, more frequently to draw a point of view of what that asset is worth to us. And if we see the pendulum swinging in a way that we may be able to meaningfully beat those hold values, then of course, we would take advantage of that opportunity. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Thank you.

Next from Citi, we have Smedes Rose.

Hi. Thanks. You mentioned in your opening remarks that the trends in the leisure markets were strong in the first quarter, and some of it, I think, was related to displacement from markets being out of service. I mean, when you talk to the operators, do you have a sense of how much of the incremental demand is that versus just continued strong trends from organic leisure growth? And I guess what I'm kind of wondering is, are we setting up for just sort of a really tough comp as those other markets come back online? James F. Risoleo - Host Hotels & Resorts, Inc.: Smedes, I don't think we're setting ourselves up for a tough comp as other markets come online. Are the markets you're referring to the Caribbean and the Florida Keys in particular?

Well, just the Caribbean in general. Post-hurricane, there's a lot of rooms out of service, and there's been a lot of negative headlines around Mexico. And I'm just wondering if you're saying – if we're just moving people from those places to your resorts, which is great, but I'm just wondering how sustainable is that? James F. Risoleo - Host Hotels & Resorts, Inc.: I think that, as we think about transient revenues in the first quarter, roughly – our rough breakdown is – if you think about our segmentation at the top line, we're roughly 40% group, 55% transient, 5% contract. Of the transient base, about 40% of that is leisure and about 50% is business, and about 10% is government. So, if you break it down from that perspective, we saw a pickup in leisure business, and we saw a pickup in business transient traveler really across the board. I mean, the markets that drove leisure for us in the quarter, in addition to the Florida Gulf Coast, were Maui, Phoenix, and Orlando. And as I mentioned before, the markets that really drove business for us were Chicago, New York, San Francisco, Denver, and San Diego. I think this really points out, Smedes, to the nature of the assets we own and the broad geographic diversification of the portfolio that we have. So, we fill in where we can and we drive business in all the markets.

Okay. I appreciate that color. I just wanted to ask you, so could you maybe just talk a little bit about group trending specifically in 2019 and particularly in San Francisco, and maybe any thoughts – are there any change in strategy with the Hyatt that you acquired there in terms of group versus transient of that property or any kind of thoughts you can provide there? James F. Risoleo - Host Hotels & Resorts, Inc.: Sure. Well, as we all know, 2018 – coming into the latter part of 2018, and 2019, and 2020, San Francisco is forecasted to have some very good growth. And we're excited to participate in that growth as we go forward. The Hyatt is roughly a 20% group house, 80% transient, 20% group. And I can tell you that, as we underwrote that transaction, we had a clear view into group bookings for 2018 and 2019, and we're very comfortable with the forecasted RevPAR performance for that hotel going forward. The same with the Marquis, we took a look at that asset and made a decision that – just given the scale that we have and our ability to effectively manage complex renovations and think about displacement at that hotel, that it made sense to get the bulk of the work done this year, all the public space done this year, most of the rooms done this year, and modest rooms out of service going forward, so that we can also participate in a pickup in group business in 2019 at that hotel.

Great. Okay. Thank you.

Next question will come from Thomas Allen with Morgan Stanley. Thomas G. Allen - Morgan Stanley & Co. LLC: Hey. Good morning. Couple of questions on current trends. Can you give us any commentary around either quarter-to-date or April RevPAR? And then, you may have given this, I didn't hear, but what would 1Q RevPAR been ex the holiday adjustments – the holiday? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Thomas, I am not sure that I have the data to tell you what Q1 would have been ex the holiday. The only thing I will point to, again, which I think is impressive is if you were to exclude Houston and Washington, D.C. from our results, our Q1 RevPAR would have been 3.8%, which I think is really strong performance. I mean, it is really strong performance and we're very proud of the ability of our managers and asset managers and enterprise analytics to drive that number going forward. With respect to April, we don't have April results in yet. We have most of them in, but given that we have a couple of days left in the quarter to report, I'm not comfortable giving you a hard number, but I will tell you April was in line with our expectations, maybe a little stronger. Thomas G. Allen - Morgan Stanley & Co. LLC: Okay. Thanks. And then... James F. Risoleo - Host Hotels & Resorts, Inc.: A little stronger than our expectations. Thomas G. Allen - Morgan Stanley & Co. LLC: A little stronger. Okay. Perfect. And then just a follow-up, the UNITE HERE, the union put out a report about some of your peers talking about how they were entering to negotiations this summer after five years – after having not done so in five years. Where are you in terms of labor negotiations for major properties? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, we don't sit at the table with UNITE HERE or any of the other unions, but we do collaborate with our management companies with respect to the positions that we feel are most appropriate as conversations are had with representatives of the labor unions. And negotiations and conversations have begun in the Boston marketplace and in Los Angeles. So, our best guess of what that looks like is baked into our guidance for the year. Thomas G. Allen - Morgan Stanley & Co. LLC: Helpful. Thank you.

Next from UBS, we have Robin Farley.

On the – great. I know you highlighted already some of the reasons that margins were up even though rate was down, and I guess my question is how sustainable is that when we look after your guidance for this year, when we look to next year, in terms of maintaining that? James F. Risoleo - Host Hotels & Resorts, Inc.: Robin, we – there were a number of factors that drove margin performance in the first quarter. Clearly, we had ancillary income increases in a number of different areas that tracked increased demand. And as I mentioned, we had the one-time tax rebate at Westin Grand Central, which contributed 28 basis points. But that said, we were able to increase our full-year EBITDA margin guidance by 10 basis points. So, we saw improvements in rooms productivity. We saw improvements in food and beverage productivity. We saw a decline in food procurement cost. We continue to see benefits from Marriott's implementation of Make a Green Choice, which was a Starwood legacy program that is really helping us. I think we saw the Make a Green Choice program accelerate about 3.4% in the quarter. We think there's a lot more room to go with that initiative going forward. We saw improvements in procurement cost on the Starwood legacy hotels as they get plugged into Avendra going forward. And there are a number of other things that we're excited about in connection with the Starwood integration into Marriott as we go forward. And we think that we'll continue to find ways to improve margin performance both on the Marriott legacy hotels as well as the Starwood legacy hotels. Another example is that Marriott is implementing Starwood's best practices on worker compensation at our Marriott legacy hotels, which is also helping us reduce cost. And then again, we have time and motion studies available to us on the balance of the portfolio, the medium and smaller hotels. We certainly wouldn't expect to see the same level of benefits as a result of those time and motion studies that we saw on the bigger box hotels. But we will continue to see productivity improvements and cost savings along those lines. I just want to leave you with one thought, we're never done. So, we're always looking for the next opportunity to increase productivity and to reduce cost as we look at our assets going forward.

And then just as a follow-up, when we think about the sort of idea that RevPAR has to be up 2% to 3% in order to see margin growth, do you think that will be different in 2019? In other words, given the initiatives you just laid out for us, is that kind of benchmark lower than for 2019? James F. Risoleo - Host Hotels & Resorts, Inc.: I would tell you that our forecast would have flat margins at 2% RevPAR growth. I don't see any reason to move off of that at this point. I mean, this year, we're going to increase margins 10 basis points to 2%. So, I think a good bet is if you have 2% and flat margins, that should be achievable.

Okay. Great. Thank you.

Next, we'll hear from Jeff Donnelly with Wells Fargo.

Good morning, guys. Maybe kind of a two-parter. First was, just Marriott recently put through a plan to reduce third-party commission rates. So, I'm just curious, how much of your business came through that third-party channel, and maybe how that has affected your group pace in 2018 or 2019? And maybe just as a follow up, what is it about the opportunity with IBM that led you to approach them, and what specifically do you hope to improve? I'm just curious how, I guess, Watson is differentiated from the service the brands provide you. James F. Risoleo - Host Hotels & Resorts, Inc.: Let me answer the first question – second question first, Jeff, because we're really excited about our newfound relationship with IBM Research. The world is moving to artificial intelligence and predictive capabilities. And while we all, everyone in our space has access to a lot of structured data, we have access to new supply, we have access to historical RevPAR, we have access to projected RevPAR, which doesn't always turn out to be what the forecasts are. We had several meetings with the researchers at IBM to look at ways that we can predict RevPAR, which I think is something a bit different and it would be much more quantitative than is available to anyone today. They were willing to enter into this arrangement with us, given our scale and access to information. So we can look at various markets across the country and look at unstructured data in addition to structured data, such as what's happening in, pick a city, X, Y, Z city, what's happening in terms of businesses moving to those cities. What's happening with respect to the municipality's support of the growth in industry and jobs? What's happening in higher education, in housing? And that data is out there, but it's pretty difficult to go into any particular market, particularly when we operate across the country and corral it and say, okay, this is where we should be allocating capital in 2019, 2020, 2021. So we're hopeful that our relationship with Watson is going to give us that extra analytic capability to really look a little bit into the future, to understand trends that today are not so easy to predict. So your question regarding the Marriott's negotiation with the travel agent, the group travel agent commissions, most of our business – I shouldn't say most – but I'd say 60% of our group business is obtained through third-party intermediaries. That business has been growing over the years. We feel very strongly that decreasing the commissions will benefit the owners over the long term. We saw a little bit of an increase in booking activity in March. As I'm sure you're aware, the way the program works with Marriott is the Big Four, the four biggest intermediaries, are maintaining their 10% commission through the balance of this year. Effective January of next year, it will be reduced to 7%. The balance of the group intermediaries saw that change occur as of April 1. So, we saw a bit of a pull forward in some business, but as we sat around and talked about it yesterday, the order of magnitude of the business that we saw pull forward relative to our absolute level of group bookings, frankly, was immaterial.

Yeah. Thanks, guys.

Next, from Raymond James, we have Bill Crow. Bill A. Crow - Raymond James & Associates, Inc.: Yeah. Good morning. That leads me into my question, which is, see if you can quantify the impact, not only of the 10% to 7% shift, but also in anticipation of Marriott's negotiations with the OTAs later this summer, let's call it, 100 basis points, every 100 basis points of take rate – commission rate goes down, what's the impact to you? I get the sense it's more impactful for Host than it is for many others. James F. Risoleo - Host Hotels & Resorts, Inc.: Bill, you're referring to the OTAs or the tender stuff? Bill A. Crow - Raymond James & Associates, Inc.: Yeah. I think there's two topics, right? The one that was just discussed, which is the big group commissions , if you save 300 basis points on a full-year basis, what does that translate into for you all? And then the second one is the OTAs and the negotiations, what every 100-basis-point reduction in that take rate would mean to you all? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, I don't have the math in front of me, Bill, but I will tell you that we're getting roughly 10% of our business through the OTA channels. We can certainly do the math and get back to you on that number. With respect to the group commissions, we looked at a number of different scenarios before this program was rolled out. We sat down with Marriott and looked at upsides scenarios and downside scenarios. So, without giving a specific number, we feel that there will be benefit to the bottom line as we transition from 10% to 7% going forward. And that's why we were prepared to sign onto the program. Bill A. Crow - Raymond James & Associates, Inc.: Do you have a number for budget for group commissions for 2018 that we get that adjust? James F. Risoleo - Host Hotels & Resorts, Inc.: I don't. Not in front of me anyway. Well, let us look something up and we'll give you a call back. Bill A. Crow - Raymond James & Associates, Inc.: You got it. Appreciate it. That's it for me. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure.

Next, we have Gregory Miller with SunTrust Robinson Humphrey.

Good morning, everyone. I'm on for Patrick. James F. Risoleo - Host Hotels & Resorts, Inc.: Greg.

Morning. I have a couple of questions related to the Hyatt acquisitions. I'm hoping that you could elaborate on the short-term and long-term opportunities with the three hotels and how long do you think it will take until you're at a stabilized level of operating performance? James F. Risoleo - Host Hotels & Resorts, Inc.: Sure. I think whenever we announced the acquisition last quarter, we talked about a stabilized yield somewhere in the mid-6s over the next two to three years. We saw a number of opportunities, and I don't think that's changed, Greg, by the way. If anything, we're very pleased with the performance out of the box of these three assets. We see opportunities at the Andaz Maui to develop a 19-acre parcel of land which we've allocated $15 million to for either for-sale housing or additional units that we can pulled into the hotel that wasn't underwritten when we made the acquisition. We see opportunities in Maui to collaborate with the Kea Lani Palace, which is four hotels up the beach from the Andaz and also collaborate and centralize services with our Hyatt Regency Kāʻanapali which is also on the island. We also – just as a general statement, we will be rolling out time and motion studies at all three hotels as we go forward and looking at ways that we can enhance productivity and drive down cost. In San Francisco, very much the same story. The Grand Hyatt Union Square, we see an opportunity to add some guest rooms to re-concept the food and beverage offerings to save money and make those offerings more efficient. Again, opportunities to collaborate between (56:50) and the Grand Hyatt which were in the same market, and opportunities to collaborate and centralize some services between the Grand Hyatt Union Square and our Hyatt Regency Burlingame. And by the way, with respect to collaborations between the hotels that may be managed by different brands but owned by Host, we've successfully done this in San Diego, where we own the Manchester Grand Hyatt and it sits right next door to the San Diego Marriott Marquis. And with respect to the Hyatt Regency Coconut Point, there are a number of initiatives that we identified in our underwriting that we will be moving forward on such as the possibility, early underwriting stages of building a new spa with a built-in base of business given some of the demographic trends that are occurring in that submarket, and also looking at how that hotel is performing relative to our other properties on the Gulf Coast, which includes three, the Don CeSar, The Ritz-Carlton Beach Resort, The Ritz Carlton Golf Resort, as well as a couple of other properties on the East Coast, The Ritz-Carlton, Amelia Island and the Harbor Beach Marriott. So, we're really excited about the ability to create value with these assets. One of the reasons that we got so excited about acquiring them, they truly are iconic. They're in markets which expect to be the fastest-growing markets in the country going forward. And we're delighted to be able to work with Hyatt. We have a great partnership with them. We now own 10 Hyatt hotels and enjoy the relationship.

Great. Thanks so much. It sounds like there's a lot of tremendous opportunities there. Appreciate it. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure thing.

And ladies and gentlemen, that does conclude our question-and-answer session for the day. I'd like to turn the floor back to Jim Risoleo for any additional or closing remarks. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, everyone, thanks for joining us on the call today. We look forward to discussing second quarter results and how the year is progressing on our next call. Have a great day, everyone. Thank you.

Ladies and gentlemen, once again, that does conclude today's conference. Thank you for your participation. You may now disconnect.