Good day, and welcome to the Host Hotels & Resorts Incorporated Fourth Quarter and Full-Year 2018 Earnings Conference. 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.

Thanks, Evony. Good morning, everyone. Welcome to the Host Hotels & Resorts fourth quarter 2018 earnings call. Before we begin, I would 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 filing 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 reconciliation 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 fourth quarter and full-year results, our 2018 achievements, including the acquisition of the One Hotel South Beach and conclude with our capital allocation strategy and outlook for 2019. Michael Bluhm, our Chief Financial Officer, will then provide commentary on our fourth quarter and full-year performance, including markets, margins, balance sheet and our guidance for 2019. Following their remarks, we will be available to respond to your questions. And now, I would like to turn the call over to Jim.

Thank you, Gee, and thanks to everyone for joining us this morning. We are pleased to report another quarter that exceeded our internal expectations on both the top and bottom line and beat consensus estimates for adjusted EBITDAre and adjusted FFO per diluted share. We finished the year strong with fourth quarter comparable constant dollar RevPAR growth of 2.3% and an increase in comparable hotel EBITDA margin of 45 basis points. Adjusted EBITDAre was $372 million for the quarter and adjusted FFO per diluted share was $0.43, beating consensus estimates by $8 million and $0.02, respectively. 2018 was a solid year for Host with comparable RevPAR growing 2% and gross margin growing an impressive 60 basis points. This resulted in a 3.4% EBITDAre expansion to $1.562 billion and a 4.7% increase in adjusted FFO per share to $1.77. We had a consistent beat and raise year with margins, EBITDAre and FFO, all coming in well ahead of the top-end of our initial guidance provided last February. We beat the midpoint of our original RevPAR guidance by 50 basis points, margins by 80 basis points, EBITDAre by $62 million or 4% and adjusted FFO per share by $0.12 or 7.3%. These strong results continue to underscore the advantages 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 form the foundation of Host, the premier lodging REIT. As noted in our press release, 2018 was an incredibly active and successful year across several fronts. In addition to achieving industry-leading margin improvements, we advanced our long-term strategic vision and executed on several important initiatives that we believe better position our irreplaceable portfolio to continue outperforming the industry…

Thank you, Jim. Good morning, everyone. Building on Jim's comments, all of us at Host are pleased with our beat-and-raise performance in 2018 and a strong finish to the year. Through active portfolio management over the last 12 months, we've ensured that the Company is stronger than ever and well positioned for continued profitable growth. With that, let's discuss the details of our results. Our comparable RevPAR for the fourth quarter on a constant currency basis increased 2.3%, driven by a 2% increase in average rate and a 20 basis point increase in occupancy. Stronger than expected group business enabled us to compress business and grow RevPAR predominantly by average rate. We expanded our comparable hotel EBITDA margins by 45 basis points in the quarter, due to a combination of our internal initiatives and the continued benefits accruing to us from the Marriott-Starwood merger. These results led to adjusted EBITDAre of $372 million and adjusted FFO per share of $0.43, which exceeded both our internal and consensus estimates. For the full-year, comparable RevPAR on a constant currency basis increased 2% with an impressive margin expansion of 60 basis points. Adjusted EBITDAre increased 3.4% to $1.562 billion and adjusted FFO per share increased by 4.7% to $1.77. Turning to the segments of our business, while some transient room nights were displaced by group, the holiday calendar was less favorable for transient business travel. Group demand exceeded our expectations as revenues grew 5.6% in the quarter, driven by volume growth of 2.9% and a 2.6% increase in average rate. October and December saw significant group room nights with corporate and other group revenues growing 4.8% and 14%, respectively in the quarter. Finally, our asset managers and enterprise analytics team in collaboration with our managers, continued to drive comparable hotel EBITDA margin growth…

[Operator Instructions] And we will take our first question from Anthony Powell with Barclays. Please go ahead.

Hi, good morning, everyone. You made it pretty clear that you are not focused on large scale portfolio deals right now. How many more deals like the 1 South Beach are out there? What kind of pipeline do you have for acquisitions and how confident are you in your ability to deploy that $2 billion to $2.5 billion of capacity over the next couple of years?

Anthony, I'm glad you picked up on the fact that we're not interested in large scale portfolio of acquisitions. With respect to the pipeline, there are always transactions, there are always opportunities that present themselves, there are opportunities that we go after - that aren't on the market. So we will continue to look for assets that fit our profile. We will be disciplined in our underwriting criteria and we will be opportunistic in investing going forward. So it's very difficult to talk hypothetically about any deal. But we have a number of assets that are in the pipeline that we're evaluating today and we'll just see if any of those pencil out. I can tell you with respect to the 1 South Beach, we've been working on that deal for two years. So we are very patient and we wait for the right opportunities to come to us.

We'll take our next question from Michael Bellisario with Baird. Please go ahead.

Good morning, everyone. Just wanted to focus on the South Beach deal. Could you maybe give us your view on that market or the Miami market broadly, your outlook and then kind of your underwriting assumptions for that asset in 2019 and 2020, because it looks like you're not assuming much growth there?

Yes, couple things about South Beach, Michael. It's the second best performing - over the last 20 years, second best performing RevPAR market in the country, only following the Florida Keys; Key West in particular in the surrounding islands. So we are very bullish on the Miami Beach market. It's really, you know, there are multiple demand drivers that drive business into that market. For the 1 Hotel in particular, it's a mix of high-rated leisure business and high-rated corporate group. The segmentation is roughly 75% leisure, 25% group. It's a terrific hotel and we would expect the market to continue to exhibit growth. You're right; we were conservative in our underwriting. I pointed out, what the hotel did last year, $45.8 million in EBITDA and we're roughly, call it $46.7 million this year. We were thoughtful about trends. We want to make certain that we put a budget out there that we're very comfortable with and that is achievable if not beatable and we're excited about some other things that are happening in that market. In late 2019, the Convention Center will reopen, which we think is going to serve to drive additional demand into the South Beach market, into our hotel in particular. We're also have underwritten, but haven't included it in our numbers, going to be developing a beach club at the hotel. We have a fantastic beach there. I think it's the best beach on South Beach hands down, 600 foot of white sand beach. So we think putting the beach club there will enhance topline revenues. And additionally, we will go into the property as we do on all of our assets and look for additional ways to enhance topline revenues and to bring efficiencies to the bottom line. Lastly, I would just add that the Super Bowl is being held in Miami in 2020, so we feel confident about how 2020 is going to perform as well. So we have been conservative. We think that's the right way to approach the business today.

Moving next to Smedes Rose with Citi. Please go ahead.

Hi, thanks. I just wanted to ask also on the 1 Hotel, you mentioned that you'd been negotiating for the last two years and I'm just wondering if you could just talk about a little more about the origins of the deal and were there other bidders at the table and it seems like a fairly favorable multiple for such a large luxury asset. I'd just be interested in hearing a little more color on the background, how you were able to get it?

Sure, Smedes. I wouldn't say negotiating for two years, I would say we started our quest of the project two years ago and there were other players that were interested in the hotel, high net worth individuals, family offices, offshore interest primarily from the Middle East. At the end of the day, we distinguish ourselves above and beyond everyone else. And we're delighted to be associated with this hotel and with the 1 brand. So we bring an institutional pedigree to the property and to the 1 brand going forward. So that's all I can say. I cannot give you dynamic on other bidders and their views of the world. I can only talk about how we view it.

Next we'll move to Bill Crow with Raymond James. Please go ahead.

Good morning, Jim. Two part on RevPAR growth, like ex the renovation disruption, you said 1.45% midpoint for this year, should we be happy with that? I mean, it feels like that's pretty conservative to start the year and maybe that's the case, but the second part is, if you could just talk about how the renovations will progress through 2020? And is it going to be a greater impact or lesser impact as we think about next year?

So I think you should be happy with the - call it a midpoint of 1.5% out of the box and that's how I would look at it. As I mentioned, we had a great year last year. We saw 2.3% RevPAR growth in the quarter. We actually saw a pickup in group in the fourth quarter that gives us confidence. As we do our bottom up budgeting process on a property by property basis, this is where we're comfortable giving initial guidance. So I think you should be comfortable with it. I think you should be really comfortable with our margin assumptions and our margin performance. So with respect to - your second question with respect to the big deal in 2020, was that it, Bill?

Yes.

Hang on one second; I'll get the data on that. We don't have it on hand, but my recollection Bill is, it's similar spend to 2019. So think about the RevPAR disruption in around the same way for 2020.

Next we'll go to Jeff Donnelly with Wells Fargo. Please go ahead.

Good morning, guys. Can you just give us an update on where the Hyatt three-pack and Don CeSar acquisitions finished in 2018 versus your original underwriting? I'm just curious what drove any variances there, whether it's sort of market, or just taking share, or losing share or just how your margin is sorted out?

Hang on, Jeff. Let's see - I don't have the numbers for 2018 in front of me. But I can reiterate that on our 2019 budget for the three Hyatts, we expect to finish 70 basis points up, which equates to a 14% improvement in NOI. And I am happy to get the numbers for you on the Don and performance in 2018. I know that Don has performed really well in 2018. We're well ahead of budget on that of our pro forma and I don't want to quote numbers because I don't have it in front of me, but I know we performed really strong and we had said when we bought the hotel that we anticipated turning that, I think it was 6.5% cap rate into an 8%. And last I looked and I would know we were ahead of our projections. But we'll get you the specific numbers.

We'll take our next question from Rich Hightower with Evercore ISI. Please go ahead.

Hey, good morning, guys. Just want to follow-up on the earlier - what sounds like a categorical statement about not pursuing a very high profile portfolio that's potentially in the market here pretty soon. If I'm accurate in sort of describing it this way, or asking the question this way, has anything changed in terms of your thinking about that particular transaction? Is it partially a function of the fact that you did a $600 million deal recently and you just kind of running up against capacity constraints financially or did something change philosophically or with respect to feedback from investors or just a little more color on that would be helpful?

Well, Rich, I think we're not going to comment on hypothetical deals that may or may not be in the market. What I will tell you is that we're going to be opportunistic. And we're going to continue to pursue assets like the Hyatt three pack and like the 1. It's nothing more complicated than that. We'll be opportunistic on the acquisition side and we will be opportunistic as we think about selling hotels. It's a same thing. Nothing is in guidance or additional acquisitions or additional sales, because we don't have anything to talk about. And when we have something to talk about, we'll be glad to share that with you.

And I think just Rich to add on to that. I think we continue to be incredibly happy with our scale. We're not going to grow for growth sake. As you can see with the 1 Hotel, we can absolutely execute upon our strategic vision and the upgrading of the portfolio through other means, and certainly as we sort of think about where we are in the current environment and being thoughtful about how conservatism and underwriting into this type of environment. I think all this has to sort of play into how we think about acquisitions at any degree of scale, frankly. And of course, again, and I guess one final point will be, right, we want to be incredibly prudent with our balance sheet. Again, at this part of the cycle, I think it's paramount that we're doing that.

Our next question will come from Chris Woronka with Deutsche Bank. Please go ahead.

Hey, good morning, guys. Had another question on the 1 Hotel and that's - can you maybe give us a little general sense or flavor on the structure of the management contract and does that involve kind of a franchise fee to the 1 brand? And along those lines, are you willing to consider other assets from that brand as it expands?

The 1 Hotel is going to be - it's not a franchise fee, it's a management agreement. And it is a market negotiated management agreement with the manager that we're very comfortable with. The answer with respect to, are we willing to consider other hotels in that brand. Again, it depends on pricing. It depends on the opportunity, but I will tell you that Barry Sternlicht has been very successful in the past, creating brands, think W. This is an incredible LEED-certified, mission-driven luxury lifestyle brand, it's inspired by nature, it fits right in with how we think about sustainability and some of the awards we received, the Leader in the Light award from NAREIT and things we've done around corporate responsibility and sustainability. You may know that there are current hotels in Manhattan and Brooklyn, as well as the 1 in South Beach and there are hotels that are expected to open and he has them under control in West Hollywood, Cabo San Lucas, Kauai, Sunnyvale and we would certainly look at most of those with our focus on U.S. centric investments today probably wouldn't be looking Cabo and they have one in the works in Sanya. So it's a real brand and it's going to grow and we're excited about it.

Next we'll take a question from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, Stephen.

Hey, how are you?

Good. Hey, Stephen, let me just respond in a little more detail to Bill Crow's question about the MI transformational capital plan because we pulled the number up. Our spend in 2019 though anticipated to be $225 million, in 2020 it's anticipated to be $207 million, so slightly less. Sorry, Stephen.

No, that's helpful too. I guess one more hotel follow-up on the 1 Hotel. Could you give a little more background on the history of the 1 Hotel on the brand change as it relates to the fundamentals of the property?

Well, I think this was the flagship one, or the one in - two in New York, one in Brooklyn, one in Manhattan and this property it was really the brand. I mean, this is how the - this is where the brand was formed and founded. The property had been the Gansevoort hotels and the Gansevoort had been in financial difficulty over the years and a venture led by Starwood Capital brought the property and they invested $300 million in the asset, which is something that I hadn't pointed out. So it's a brand new hotel. It has no near-term CapEx needs and given the high RevPAR of this asset, the ability of this property to support itself through the FF&E reserve is very strong and highly likely. So in addition to upgrading the overall metrics of our portfolio from a RevPAR - total RevPAR EBITDA per key perspective, this goes a long way to enhancing the free cash flow position of Host.

We'll take our next question from David Katz with Jefferies. Please go ahead.

Hi, good morning, everyone, and congrats on a good quarter and your acquisition. I hope you'll humor us and allow me to just beat the horse one more time. But with respect to the perspective large portfolio out there that - I think if we're understanding correctly, it's not formally on the market yet. And so for that reason and that context, there wouldn't be anything to talk about at this stage, but at some point it could hit the market in whole or in part. I just want to be clear about sort of where the line is that you're drawing and is it because something is not in the market yet or available or you're setting some sort of firm boundaries that will be there when it is. And the second part of my question was we're just trying to gauge your appetite for share repurchases, given the liquidity that you have, given the strength of the business and sort of where you are? Thank you.

I'm going to take the first part of this. I'll let Michael talk about share repurchases, David. I think my comments were pretty clear. And I would encourage you to take them literally that we have - investment capacity today of between $2 billion to $2.5 billion at 3x leverage. We intend to stay within that range of $2 billion to $2.5 billion and 3x leverage. That's how we're viewing the world today. Michael, you wanted to discuss?

Sure. I think, look David, I would say as we think about share repurchases, I put that in the context of all capital allocation decisions whether investing organically in our portfolio through capital reinvestment like we're doing with the transformational projects and the Marriott program or where we're looking externally for opportunities like the 1 Hotel, which I think is fantastic in a lot of ways as Jim's pointed out, and I think hit accretion from fairly just about every metric, whether it's earnings, free cash flow and frankly, I'd even argue on NAV, day one. I think as you know, we do have authorization for a buyback and it is a tool that we will look to. But again it's in the context of all other investment opportunities that we think about and how we're looking out to - the sort of the outlook for 2019 and what we think that's going to bring in terms of both acquisition opportunities as well as value enhancement opportunities.

Moving next, we'll go to Jim Sullivan with BTIG. Please go ahead.

Good morning, guys. Just another question on capital allocation if you would, and this really relates to the transformational Marriott program as you've described it the way you're investing some $200 million plus a year. Can you - you have talked about this as the objective in terms of operating results as to take each asset up to number one in its comp set. And I wonder if you could just help us understand how that - what kind of ROE you're projecting that to deliver on the capital investment?

Sure, Jim, because obviously - before we commit any capital, we start with a detailed return on investment analysis and we did that with this deal as well. We believe that the IRR unlevered on the Marriott transformational capital program will be in the low to mid-teens. That's how we've looked at it. We think it's a great use of our capital. The properties are clearly going to gain market share. Marriott in cases that they've already completed can see up to 6 points in yield index growth from really transforming and reinventing our hotel. We weren't even that aggressive when we did our IRR analysis, we assume somewhere between 3 points to 5 points on each asset.

Next we'll go to Patrick Schultz with SunTrust. Please go ahead.

Hi, good morning. When we think about what markets that you'd like to get into, and others that you'd like to get out of certainly Miami getting into, New York getting out, how do you think about that going forward?

Yes. Patrick, we will continue to be focused on markets that have multiple demand generators, that have high barriers to entry with respect to new supply and just good growth fundamentals all lining up from top to bottom whether it's a favorable labor environment to the support of the local or municipal authorities, and again, high barrier to growth is probably top of the list, because new supply is what can get you.

And I think certainly, importantly diversification continued to be paramount to our overall investment strategy. So if we sort of think about different market, we certainly have a keen eye on making sure that we're not overly weighting to certain markets.

Okay, thank you for that. And then secondly, I may have missed it. Did you say what - group pace is shaping up?

What's that, Patrick? You cut out.

I'm sorry, didn't hear you.

I'm sorry. I didn't hear your question.

Okay. I'm sorry if I missed it, did you say how your 2019 group pace is shaping up?

Yes, I did. Its total group revenue pace is up 1.4%.

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

Hi, good morning, everyone. I know you're keeping it tight, so my main question was one to the Analyst Day in South Beach, but I don't know if you're going to comment there. So instead maybe you guys could just give us a little bit of color on, I think we noticed towards the end of the year there was a lot of stock market volatility, obviously, there is also a big strategic change here in terms of sort of your discussion plan around the portfolio deal. But you didn't actually buy any stock in the fourth quarter and I'm kind of curious just big picture, how the stock buybacks fit into the broader strategy here as it relates to kind of what you're seeing out there and deployment of that capital relative to kind of what you can do with your own stock?

Yes, Shaun, we think about deploying capital, obviously, we've talked about it before, but just let me hit the highlights real quick for you. Due to buying assets like the 1, investing in our portfolio like the transformational capital program or buying back stock, right. But it all starts with sources and uses of cash. And as we sat here at the end of the year, we did not buyback any stock. We knew what we had in the works from an acquisition perspective. We knew that we had The Westin Grand Central under contract, but we had no assurance that that deal was going to close. So that's not to say that we won't be buyers of our stock in the future. We did not buy it now, because we wanted to be thoughtful about the balance sheet and where we were going. Michael has anything to add to that.

No, I think that's a good point, I mean as I think we all know, we sat here on Wednesday - or sat here in December of last year and the market was pretty volatile, and certainly volatile in one direction. And so as we were sort of looking at things like cash flow, cash that we had coming in throughout the dispositions, acquisitions we were making there was in time where we just need to be incredibly thoughtful about balance sheet preservation.

Moving next to Thomas Allen with Morgan Stanley. Please go ahead.

Hey, good morning. So about a year-ago, you talked about selling land at The Phoenician, where are you in that process? Thanks.

It's a process, Thomas. We are moving forward. We have the entitlement. We're moving through the plotting with the City of Phoenix. We continue to be optimistic that that's going to happen, but I don't have anything to discuss right now because we don't have a deal done.

And next we'll go to Robin Farley with UBS.

Thanks, two questions. One is, you've talked about opportunities looking at the existing portfolio. Are there other things with other Marriott properties that are not part of the agreement you've done already? Or if not, are there other operators that have kind of expressed interest in something similar after seeing that Marriott deal or is that really a very unique sort of one-off kind of arrangement? And then I was just going to ask a clarification on group business, you mentioned the pace being up like 1.4%, last quarter you talked about fewer citywide events in 2019. So is it just the pace coming in, but you're still expecting maybe to be down in 2019? Or has your view on the group outlook changed? Thanks.

Robin, let me answer the group question first. Yes, I mean, we do have some issues, as you and anyone that owns hotels in Boston, in particular, with a reduction in citywide so this year. That 1.4% number takes that all into account and consideration. So we don't expect to see slippage in the 1.4% number. If anything, and this is not baked into our forecast for the year, we really liked the way we're positioned this year and in those markets where we might have targeted holes, we believe that given the corporate group that we saw in the fourth quarter and over the course of 2018, that gives us some terrific opportunities to the upside. I might also add that after the third quarter call or on the third quarter call I said, our total group revenue pace was flat. And now, it's up 1.4%. So we feel good about that. And with respect to additional transformational capital projects, there's only so much we can push through the system at any one point in time. And I will just tell you, nobody but Host could do what we're doing. And I applaud our design and construction team, and our asset managers, and others in the organization to manage this process. We will work with our operators, both with Marriott on additional transformational opportunities as well as Hyatt on assets that we feel may need to be repositioned, but we're going to be thoughtful, cautious and judicious as we move forward on the process.

And ladies and gentlemen, this does conclude today's question-and-answer session. Mr. Risoleo, I would like to turn the conference back over to you for any additional or closing remarks.

Well, thank you, everyone for joining us on the call today. We really appreciate the opportunity to discuss our fourth quarter results and our 2019 outlook with you. We look forward to talking with you in a few months to discuss our first quarter results as well as providing you with more insight into how 2019 is progressing. Have a great day.

This does conclude today's conference. Thank you for your participation. You may now disconnect.