Good day and welcome to the Host Hotels & Resorts, Incorporated Second Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Gee Lingberg, Vice President. Please go ahead, ma'am. Gee Lingberg - Host Hotels & Resorts, Inc.: Thanks, Jonathan. Good morning, everyone. Welcome to the Host Hotels & Resorts second 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 second quarter results and our outlook for 2018. Michael Bluhm, our Chief Financial Officer, will then provide details on our second quarter performance by markets, discuss margins and the balance sheet. Following their remarks, we will be available to respond to your questions. And now, I'd like to turn the call over to Jim. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you, Gee, and thanks, everyone, for joining us this morning. We are pleased to report a quarter that once again materially exceeded our internal expectations on the top and bottom…

Thank you. Our first question comes from Rich Hightower from Evercore ISI.

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

Thanks for taking the question here. So, I've got one. I'll make it count. With respect to capital allocation, clearly Host is interested in portfolio recycling which entails both buying and selling assets, and you guys have done a fair amount of both recently. My question here is, on the acquisition side, given the fact that private markets are pretty strong, there is liquidity out there looking to be allocated to hotels and a lot of that carries a low cost of capital, how do you sort of thread that needle between being a public vehicle with a certain cost of capital versus the private market for acquisitions which may or may not accommodate that at any given time? James F. Risoleo - Host Hotels & Resorts, Inc.: Sure, Rich. Happy to address your question. So, as we think about our strategy which we have articulated very clearly, it is to continue to build out the iconic and irreplaceable portfolio of hotels which we identified in our supplemental disclosure, the top 40. The top 40 hotels which have a RevPAR of roughly $234 accounted for roughly 62% of our EBITDA last year and generated close – over $900 million in EBITDA. So the portfolio within the portfolio is larger than any other standalone REIT that's in the public marketplace today. So we think about iconic and irreplaceable. We think about having scale and geographic diversity. And the last pillar really is the investment-grade balance sheet. So as we sit back and say, how do we get there, how do we continue to build out iconic and irreplaceable, our view is that there are two ways to do it. If the markets are – depending on where the markets are, you either buy hotels or you sell hotels. And we take a constant read of acquisition opportunities in the marketplace. We take a constant read of where the capital markets are today. And if we see an opportunity to recycle capital out of lower RevPAR hotels with slower growth prospects and in need of CapEx, that's certainly something we would consider to do because it's very consistent with our strategy.

Okay. And maybe one quick follow-up there. I mean, where – what do you think the public markets are telling you to do right now? James F. Risoleo - Host Hotels & Resorts, Inc.: Be prudent allocators of capital, maintain your discipline, and don't be shy about recycling when you see the right opportunities, and don't be shy about buying when you see the right opportunities. And if your stock price...

Got it. James F. Risoleo - Host Hotels & Resorts, Inc.: If your stock price happens to dip and you think your stock is a good buy, we have $500 million authorization and we certainly won't be shy about buying back shares.

Got it. Thank you, Jim. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure.

Thank you. Our next question comes from Anthony Powell with Barclays Capital.

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

Good morning. In New York, there's talk that there could be hotel undersupply over the next few years given strong office space construction and increasing Airbnb regulation. How do you balance the opportunity maybe to continue to monetize the assets in New York at low cap rates versus what seems to be improving long-term outlook in the market? James F. Risoleo - Host Hotels & Resorts, Inc.: Well, Anthony, I think we would agree that that New York generally as a market is always going to be a good hotel market. Clearly, it's the highest RevPAR market in the country. I would tell you that we look asset-by-asset as we always have and we look at how we think our hotel is going to perform over the near to medium term and build out whole value scenarios and we look at alternative usage for every property in the portfolio, including our New York hotels. And as we mentioned in our release, we closed on the W Lex and we have the W Union Square under contract. And as we looked at the right strategy for each of those assets, we took all those factors into consideration. I think for the near term, New York is going to continue to have supply headwinds. We're obviously very in line with what's happening, with leveling the playing field from an Airbnb perspective, but New York is still going to have a lot of supply for the next two or three years, in our opinion, and it's a high-cost market in which to operate. And as I said in my prepared remarks, we're taking steps to reduce our exposure to profitability-challenged hotels, and those are hotels with high expense ratios, high expense flows and expense inflation and hotels that are in the need of CapEx.

Got it. Thank you.

Thank you. Our next question comes from Michael Bellisario with Baird. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Good morning, everyone. James F. Risoleo - Host Hotels & Resorts, Inc.: Good morning, Michael. Michael J. Bellisario - Robert W. Baird & Co., Inc.: I just wanted to stick to the topic of CapEx. I guess maybe you think out to 2019, how are rising costs, both labor and materials, kind of affecting your thinking? And does it change timing of any projects that you have in the hopper and kind of how does it move up and down or how do assets move up and down on the potential sell list as you think about CapEx needs? Michael D. Bluhm - Host Hotels & Resorts, Inc.: Well, CapEx is obviously one factor that we look at, Michael, when we evaluate what we think a hotel is worth to us. We are early into the budgeting process for our comprehensive 2019 capital plan. We'll have some meetings in September to really drill down, and as we do every year, look at hotel by hotel project by project and make some determinations on if owner-funded CapEx is required, is there a value play and are we willing to invest in the asset. So obviously, we have a full in-house capability with our design and construction group, and we're very current on trends in both labor and materials cost. And when we sit down, we will have all those facts and figures in front of us. Michael J. Bellisario - Robert W. Baird & Co., Inc.: Understood. And then, as you think about acquisitions and what you're underwriting, does that change any – your thought process on maybe redevelopment or deeper repositioning opportunities for the potential deals you might – may or may not be looking at today? James F. Risoleo - Host Hotels & Resorts, Inc.: I think that when it comes to acquisition underwriting, it's the same process. And, of course, if we feel that as part of our underwriting that the CapEx needs of any particular potential acquisition or any value enhancement project that we might undertake are such that we will not be able to underwrite to our return hurdles then that will change our point of view about moving forward. Michael J. Bellisario - Robert W. Baird & Co., Inc.: That's all from me. Thank you.

Thank you. Our next question comes from Smedes Rose with Citi.

Hi. Thanks. I wanted to ask you... James F. Risoleo - Host Hotels & Resorts, Inc.: Hi, Smedes.

Hi. When you look at some of your larger hotels in the portfolio, is there an opportunity or would you take the approach to kind of incrementally group up that others seem to be having some success on? You mentioned some hotels are like more profit-challenged. Would that be a strategy at some of your hotels? James F. Risoleo - Host Hotels & Resorts, Inc.: I think, we developed – Smedes, we developed a optimal revenue strategy for every property in the portfolio. And those strategies are revisited on a daily basis quite frankly. So, as I mentioned, we have 95% of our group on the books. And we saw a nice pickup in corporate group, which is frankly more profitable given the higher total spend with food and beverage and AV revenues. So I think there's a balance. And clearly at some hotels, it makes sense to take more group, depending on what's happening in a particular market in a particular year. In other hotels, you want to take less group because you feel that you can drive corporate group, which is short-term bookings and higher-rated transient business into the property. So we have always had the strategy of optimal group transient mix. It's nothing new for us. It's something we've been doing for years, and we're right at about 40% group now, and it's going to vary by hotel and by market.

Okay. And then I just wanted to ask you. You mentioned the tax rebate for the Marriott Marquis in New York. Was that related to just an appeal or something else? And then as you look at your margin expectations going forward, are there any tax rebates expected in those numbers? James F. Risoleo - Host Hotels & Resorts, Inc.: It's not related to an appeal, it was an inducement; an inducement to redevelop. As you may recall, we in partnership with Vornado, redeveloped a retail parcel there, and we had some help from the city. We also got some help from the city on the Westin Grand Central. There will be minor tax ICAP rebates in the second half of the year, but it's nothing material or worth talking about. Michael D. Bluhm - Host Hotels & Resorts, Inc.: On the margin side, Smedes, right, as we mentioned on the call, we had a – the property tax rebate had a 40 basis point impact to our margins. That's the same amount for the year-to-date. For the full year, the ICAP margin impact will be 17 basis points.

Okay. Thank you. James F. Risoleo - Host Hotels & Resorts, Inc.: You're welcome.

Thank you. Our next question comes from Thomas Allen with Morgan Stanley. Thomas G. Allen - Morgan Stanley & Co. LLC: Just following up on the last question. Were those tax rebates included in guidance before, or that helped, guys, I think, you still would have raised even if it's new. James F. Risoleo - Host Hotels & Resorts, Inc.: I'm sorry, Tom. Can you ask that question one more time? Thomas G. Allen - Morgan Stanley & Co. LLC: Yeah. So you said you raised your full year guidance by $20 million, right? Were the tax – was the Marriott Marquis New York tax rebate in your prior guidance or was it not in your prior guidance? And I imply that it helped you by $5 million to $6 million. Is that fair? Michael D. Bluhm - Host Hotels & Resorts, Inc.: Thomas, it was not in our guidance and your assessment is fairly accurate. Thomas G. Allen - Morgan Stanley & Co. LLC: Okay. So you still would have raised, but by not as much. And then on the W New York sales, you highlighted earlier on that you sold them at a 1.3 cap rate. Obviously that's a very impressive cap rate for a sale. One would assume the buyers have or don't want the 1% cap rate. Can you just talk about what you expect they'll do? And did you look at other options for those properties and kind of how is your thought process around the eventual sale? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure, Thomas. Yes, we did look at other options for the properties. We go back to – let me take you back to 2006 for a moment, because we've been involved in New York for a long time, and in 2006, just to give you a sense of how we think about New York City, we own the Drake Hotel at 57th and Park, and we saw an opportunity to increase the FAR available to that hotel through purchasing air rights from adjacent property owners, really on 56th Street. And we assembled incremental FAR and we're able to deliver the hotel free and clear of the management contract, it was exquisitely timed, and recognized significant value. We sold the hotel for $440 million. And I think that was somewhere in the mid-20s from an EBITDA multiple perspective back then. I can say that by way of background to let you know that we look at all options that are available to us on every asset, and we are keenly familiar with New York and the current legislative landscape and what you can do and what you can't do. And that's all been taken into consideration. And we were very comfortable and very happy with the pricing we achieved. Thomas G. Allen - Morgan Stanley & Co. LLC: Great. Thank you.

Thank you. Our next question comes from Chris Woronka with Deutsche Bank.

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

I was hoping we could – morning. I was hoping we could drill down a little bit on some of the components of margins and just kind of conceptually. I know there's been some help with food and beverage strength, and I know there's been some help on some of the resort fees and other fees, and some of the green programs that might help on housekeeping costs. And then there's obviously core inflation working against you. Can you kind of bucket that, whether you want to look at it for the quarter or the full year? What are some of the pluses and minuses, and how sustainable do you think some of them are going forward? Michael D. Bluhm - Host Hotels & Resorts, Inc.: Sure. So, a couple of things. So, first – so why don't we talk about the margins, the 90 basis points of which rate 40 basis points was attributable to property tax rebate taking us down to 50 basis point of sort of operational improvement. Of that, it was a mixture – it really was a very broad mixture of things, both top line and bottom line. In particular, we saw super strong F&B revenues, particularly banquet A&B, driven by over 15% corporate group business in the quarter. We also had – we talked about earlier, 80% of our ADR growth this quarter – or 80% of our RevPAR growth this quarter, driven by ADR, which as you know, just drives more profitability to the bottom line. We had a fair amount of an increase in utility revenues which are high profit, and our managers continue to try to find ways to continue to find those higher-profit opportunities in ancillary revenues. But then, when you go down to departmental expenses as well, we saw a fair amount of efficiencies coming out in those departments as well as on distributor operating expenses. So when I sort of think about where we were finding savings and opportunities, it really was very broad, both top and bottom line. James F. Risoleo - Host Hotels & Resorts, Inc.: And then the one thing I would also throw in there on the food and beverage, we saw improvements in productivity and we saw improvements in food cost. And with the outsize spend in beverage being driven by corporate group and improvements on the flow-through that really helps our margin performance.

Okay. Very good. Thanks.

Thank you. Our next question comes from Shaun Kelley with Bank of America.

Hey, guys. Good morning. Just to follow up on that, on the margin question, maybe to package it a little differently though, obviously, you guys called out some of the very favorable initiatives that Marriott's kind of merger is delivering for you guys now that that's complete. Would you have any ability to break that piece out separately and say, okay, look, when we kind of look at Marriott's initiatives, they're contributing this much versus our core operating efficiencies and some of the mix shift things you just mentioned are contributing, why? So just kind of internal versus external a little bit. James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah. I think it's a little challenging, Shaun, to break it down with respect to what Marriott is doing. I will tell you that as we think about what Veenie (44:46) has said, that they continue to see margin improvements, they continue to work hard for the owners to reduce costs and expenses that we should see continued benefits from the various initiatives at Marriott. Whether it's reduced OTA commissions, we'll start seeing a benefit when the rewards programs are merged together with lower charge-out ratios on the expense side as we get our Starwood legacy hotels fully integrated into Avendra. We'll see lower procurement costs. We're seeing lower workers' comp costs on Marriott legacy properties as a result of Marriott implementing Starwood workers' compensation policies. So think about it in 2019 that maybe that's worth 50 basis points. Michael D. Bluhm - Host Hotels & Resorts, Inc.: And we're still expecting now a fair amount of expectation around revenue synergies driven by the sales force integration, loyalty program integration among others, so.

Great, guys. That's perfect. Jim, you mentioned the 50 basis points in 2019. Is that incremental or that will be sort of all-in, including some gains that are being recognized this year? Appreciate that a lot of things you said are still on the comm. So maybe more of it's next year, but is that like incremental or sort of – or total all-in? James F. Risoleo - Host Hotels & Resorts, Inc.: I would think about it as being all-in, Shaun.

Okay. No, thanks for the clarification. Thank you very much, guys.

Thank you. Our next question comes from David Katz with Jefferies.

Hi. Good morning, guys. This is Khoa Ngo on for David. If I can just jump back on to the capital allocation topic, there's clearly a big event going on in this space among your competitors. I'm just trying to get your thoughts on your decision-making process around company level versus the asset level. That would be great. James F. Risoleo - Host Hotels & Resorts, Inc.: I'll answer the question first by saying, David (sic) [Khoa] (47:06), you never say never. However, our strategy has been clearly enunciated that we are focused on iconic and irreplaceable hotels and with scale and broad geographic diversification and investment grade balance sheet. So, when we look at individual assets versus portfolios versus other companies, our first screen is iconic and irreplaceable hotels, and that's how we think about it.

Great. Thank you.

Thank you. Our next question comes from Stephen Grambling with Goldman Sachs. Stephen Grambling - Goldman Sachs & Co. LLC: Hey. Maybe a follow-up on that one. Thanks for taking the question. As you look at the non-top 40 hotels, how would you characterize the typical potential buyer of those types of assets? How demand from that group may be evolving and how you would generally expect sales of those assets as you compare one-offs versus the portfolio? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure. I think the buyer can come from different places. The buyer could be another REIT. The buyer could be a private equity firm, or the buyer frankly could be a sovereign. And we stay in close touch with everyone and keep a close view into the capital markets and what that financing might be available and what the cost of that financing might be and level of proceeds, and all that informs our decision as to what course of action we might take. Stephen Grambling - Goldman Sachs & Co. LLC: And then maybe one unrelated follow-up and maybe I missed this in the beginning of the call, but I guess what are you seeing when you referenced the forward-booking strength, are you seeing any deviations across markets or cities? And any kind of color you can provide there as you look into the back half of 2018 and even 2019? Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: We're really not seeing any deviation. As you know, some markets – performance flips market-to-market, but all-in-all, we're not seeing any deviation. Stephen Grambling - Goldman Sachs & Co. LLC: Great. Thanks so much.

Thank you. Our next question comes from Bill Crow with Raymond James. Bill A. Crow - Raymond James & Associates, Inc.: Hey. Good morning. Jim... James F. Risoleo - Host Hotels & Resorts, Inc.: Hey, Bill. Bill A. Crow - Raymond James & Associates, Inc.: There are published reports that you are marketing $1.2 billion worth of assets; and a) curious on that front and where you are in that process; and b) as you think about if those reports are accurate, the use of proceeds would either be to build a war chest for transactions that may be on the market or coming to market and I think we can all kind of identify a strategic in a couple of other things that are out there. Or it's maybe to take quicker action on shifting the portfolio makeup kind of in response to some of the Street's requests through the years. I'm just wondering how you're thinking about what you would do if you in fact are selling that portfolio. James F. Risoleo - Host Hotels & Resorts, Inc.: Well, Bill, you know that we don't comment on published reports. We only talk about press releases that we might issue. But if you think about what I said earlier with respect to our desire to really build out the portfolio of iconic and irreplaceable assets and if iconic and irreplaceable assets are not available or if it would make economic sense and be accretive to shareholders to buy back stock or reinvest in our portfolio, those are always all levers that we have to create shareholder value. But to answer your question a little more directly, there are two ways that we can build out the iconic and irreplaceable portfolio. We can do it, number one, by buying those…

Thank you. Our next question comes from Robin Farley with UBS.

Hi. Great. Thanks. I wondered if you could give a little bit of color. I think you mentioned the increase in group in 2018, I don't know if I heard 2019. And then I'm also just wondering how that pace of future group for 2019 changed during the quarter. Others have suggested that some of the improvements in GDP haven't necessarily translated into better demand yet. I'm just curious for your take on that. Thanks. James F. Risoleo - Host Hotels & Resorts, Inc.: Sure, Robin. Group booking pace in the quarter for all future periods is up 22%, and group booking pace in the quarter for 2019 is up 10%.

And then in terms of any thoughts on how changes in macro improving the GDP has affected demand in your view or not affected, as the case may be? James F. Risoleo - Host Hotels & Resorts, Inc.: I'll point to the outsized performance we had at corporate group in the second quarter. It was up almost 15%, and we saw strong spend with food and beverage, and AB revenues. And we are hopeful we're going to continue to see that trend continue over the balance of the year. We may not get a full 15% for the rest of the year, but we still anticipate corporate group to be up. And we also are hopeful that we're going to see corporate group continue to come back to our hotels in 2019.

Okay. All right. Great. Thank you.

Thank you. Our next question comes from Jared Shojaian with Wolfe Research.

Hey. Good morning, everyone. Thanks for taking my question. Two-part question for me. I mean, can you talk about what you're seeing with international inbound demand right now and whether you've seen any impact from the stronger dollar? And then just to follow-up on that last question, as I think about the demand environment, everything we're seeing whether it's record occupancies, 4% GDP, tax reform, et cetera, historically you'd think you'd see a little bit more than 2% RevPAR growth right now. So, maybe you can talk a little bit about what you think is limiting that upside right now and some of this group booking pace has been building, if going forward into next year and beyond, you could start to see some acceleration from there? James F. Risoleo - Host Hotels & Resorts, Inc.: Sure, Jared. We'll talk about international inbound demand first. We saw about a 13% pickup in the first quarter, and we saw an incremental 5% pickup in the second quarter. And the inbound demand was really very broad-based in Q2. International accounts were roughly 10% of our business and it's obviously on the coast where it's most impactful, so it's a tale of different markets as everything is in the hotel business. San Francisco, Seattle, Los Angeles, a lot of that inbound demand is coming from Asia and New York, Boston, and Florida, it's coming from Europe and Mexico, Middle East, so we're really seeing it across the board. That was one question. Can you repeat the second question?

Yeah. It was really sort of a follow-up to Robin's question and just the demand environment overall seems pretty strong right now with.... James F. Risoleo - Host Hotels & Resorts, Inc.: Yeah.

Whether... James F. Risoleo - Host Hotels & Resorts, Inc.: Well, we finished this quarter with 84% occupancy in our hotels. We have not seen that occupancy since 2000. And going into the balance of the year, the hotels continue to remain full. 95% of our group is on the books for this year. Where we have opportunities to yield out lower rated business and increase rate, we are doing that. We see the leisure traveler as being particularly strong. No signs of any weakness on that front. We're encouraged that corporate group is coming back. We're encouraged that the business traveler has returned. And I am confident that over time, assuming that those trends hold, which we have every reason to believe that they will, that we will be able to increase rates. Michael J. Bellisario - Robert W. Baird & Co., Inc.: And I'll just add to that. Now, remember this quarter was interesting because you look at sort of what the attribution of RevPAR growth was last quarter – in the past couple of quarters compared to this quarter where you had 80% of your RevPAR growth driven by rate. We're certainly seeing our ability to start pushing ADR.

Great. Thank you very much.

Thank you. Our next question comes from Wes Golladay with RBC Capital Markets.

Hello everyone. Can you go provide an update on the retail and signage at the Marriott Marquis? How much if at all is this helping other revenue growth this year? And then talk about the inducements at that property, is this a one-time event? Should we back it out for next year? James F. Risoleo - Host Hotels & Resorts, Inc.: The retail is virtually completely leased as is the signage. I think we have one space left. The ICAP will be around, but it will be – it will be around for a number of years, but it's going to be in lesser amounts.

Okay. And then... James F. Risoleo - Host Hotels & Resorts, Inc.: It...

Go ahead, continue. Okay. So for that leasing, I mean, how much of that rent is – or I guess the lease payment, is that increased? If I recall correctly, that has various step-ups. Will you start to get – I imagine just a higher lease based on, I forget the formula but maybe a percentage of the lease rent at the property or can you give a quick update reminder how that works? James F. Risoleo - Host Hotels & Resorts, Inc.: Hey, you might – well, why don't we take this one offline. There's a lot of detail behind it and probably best to view that separately.

Okay. James F. Risoleo - Host Hotels & Resorts, Inc.: Thank you.

Thank you. Ladies and gentlemen, at this time, I would like to turn the conference over to Mr. Jim Risoleo for closing remarks. James F. Risoleo - Host Hotels & Resorts, Inc.: Thanks, everyone, for joining us on the call today. We look forward to discussing third quarter results and how the year is progressing on our next call. Everyone, please enjoy the rest of your summer.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.