Host Hotels & Resorts Inc (HST) 2008 Q4 法說會逐字稿

Good day and welcome to the Host Hotels & Resorts, Inc. fourth quarter 2008 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Executive Vice President, Mr. Greg Larson. Please go ahead, sir.

Thank you. Welcome to the Host Hotels & Resorts fourth quarter 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 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.

Additionally, on today's call we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA, and comparable hotel results. You can find this information together with the reconciliation to the most directly comparable GAAP information in today's earnings press release, in our 8K filed with the SEC, and on our website at hosthotels.com.

This morning Ed Walter, our President and Chief Executive Officer, will provide a brief overview of our fourth quarter results and then describe the current operating environment as well as the Company's outlook for 2009. Larry Harvey, our Chief Financial Officer, will then provide greater detail in our fourth quarter results, including regional and market performance. Following their remarks, we will be available to respond to your questions. And now, here is Ed.

Thanks, Greg. Good morning, everyone. Since we last spoke in early October, the global economy has deteriorated markedly, which had a material effect on our business. Since the underlying economic and financial problems are continuing into 2009, we expect to face a very difficult operating environment for much of the year; however, we are well positioned to face these challenges and to take advantage of opportunities when the economy eventually improves.

Before we offer some insights about 2009, let me spend a few moments on our 2008 results and trends. Fourth quarter RevPAR for our comparable hotels decreased 9.4%, driven by decline in occupancy of 4.5 percentage points and a decrease in average room rate of 3.3%. For the full year, comparable RevPAR decreased 2.6% as a result of a 2.4 percentage decrease in occupancy which was partially offset by 0.7% increase in average rate. Food and beverage revenues at our comparable hotels decreased 10% for the quarter and 2.9% for the year. Overall, comparable revenues decreased over 9% for the quarter and 2.6% for the year.

Aggressive cost cutting in light of the weak operating environment limited the decline in comparable hotel adjusted operating profit margins to just 290 basis points for the fourth quarter, and 140 basis points for the year, and resulted in adjusted EBITDA for Host LP for $414 million for the quarter and $1.365 billion for the full-year 2008. Our FFO per diluted share for the fourth quarter was $0.53 which exceeded the consensus estimate by $0.06. For the year, FFO per share was $1.74.

During the first three quarters of the year, we experienced the definitive decline of demand as a result of the economic slowdown. Through that period, transient average daily rate weakened as a function of business mix shift rather than as a result of actual rate decline; however, in the fourth quarter, as the credit crisis became even more severe and the economic slowdown intensified significantly, we began to experience absolute declines in average rate in our transient business. For the quarter, transient room nights were down 7% and the average rate was down 6.9%. Our mix of business continued to shift towards lower rated segments as our higher rated corporate and premium segments declined by almost 20% while the discounted segment increased by almost 4%.

More importantly beginning in October, more aggressive price competition led to rate declines of roughly 4.5% in the corporate segment and as customers began to shop for aggressively for lower pricing and increased their use of discount rate channels, we saw a decrease in discount rates of more than 5%. Our resort and luxury hotels were severely impacted during this period as transient rates fell by more than 7%.

Our group business was also heavily impacted by the decline in the economy and accelerating weakness in the financial markets, although not as severely as our transient business. Group room nights were down more than 7% for the fourth quarter, but the average rate actually increased by 2% as we benefited from business that had been booked prior to the downturn. The decline in group room nights is generally attributable to a significant decline in our corporate group segment which fell by more than 17% in the fourth quarter as a result of cancellations, attrition, and reduced short term activity. As you would expect, our large convention hotels performed better, increasing share within their markets and only suffering a RevPAR decline of 7.3%.

Looking at 2009, we expect a turbulent economic environment to continue to impact our business as consumers and companies cut spending. The reduction in consumer spending will impact leisure destinations such as Hawaii, Florida, and business travel in all markets will be reduced by budgetary restrictions. Group demand will continue to decline as companies further cut travel spending, leading to cancellations and reduced attendance at events. The combination of these factors has led to booking pace for 2009 to be down more than 15% from the full year, with the first quarter off by more than 19%. Although the anticipated booking rates remain slightly higher than last year, we are now expecting a material decline in group revenue.

It is worth noting that our pace for the remainder of the year was better than the first quarter trend, especially for the second and third quarters. Although given the weakness in short-term booking pace, it would not be surprising if our full year group pace declined further in the next few months. On a slightly positive note, we have seen some group business moves from luxury hotels in high-profile markets such as Las Vegas to our large urban convention hotels. Our past experience shows that these large group hotels tend out-perform during periods of economic decline. In 2008 we invested $695 million in our capital expenditure program in our hotels. Approximately $321 million was spent on return on investment and repositioning projects.

As we said last quarter, we expect our level of capital spending to decline materially in 2009, and guide you to a full-year amount of approximately $340 million to $360 million. The majority of our spending will be dedicated to projects that are already in process such as completing meeting space additions to several hotels, including the Swiss Hotel in Chicago and our Washington Marriott at Metro Center, both of which will be completed during the first half of this year. Given the $1.8 billion investment we made in our portfolio over the last three years, we are very comfortable with the physical condition of our property and are confident in competitive positions versus the market.

During the fourth quarter, we repurchased $100 million of our 3.25 exchangeable senior debentures for approximately $81.5 million, giving us an attractive yield of nearly 19% on our investment ,and at the same time improving our liquidity by eliminating debt in a meaningful discount. These efforts proved to be an effective way to take advantage of the dislocation in the hedge fund industry instigated by redemption requests. On the domestic front, yesterday we sold the Hyatt Regency Boston hotel for total proceeds of approximately $113 million. We will continue to work on additional asset sales this year, with the focus on selling assets that are not part of our long-term core portfolio but are attractive to the few buyers that are active in the market today. Given the current state of the credit markets which continue to post significant challenges for buyers needing financing, it is difficult to predict the likelihood or timing of future dispositions.

On the investment front, in both domestic and international markets, we are seeing few transactions today that might satisfy our return and quality requirements; however, as the year unfolds, we would expect to see deal flow improve as the combination of looming debt maturities and depressed operating results create more motivated sellers. We intend to be opportunistic as market conditions evolve and, frankly, are optimistic about the future prospects in this arena.

Now let me turn to our outlook for 2009. As all of you know, the recessionary economic environment expected for this year, which translates into declining GDP, employment, business investment, corporate profits and consumer spending will negatively impact the demand for lodging in both the corporate and leisure components of our business. Unfortunately, new supply in 2009 were only moderately above the historical average level. It is also occurring at a point in time when lodging demand is contracting. RevPAR results for the first six weeks of 2009 have taken another big step down and are running at roughly 20% behind last year's levels.

Given the volatile economic environment, visibility is very limited, making it incredibly difficult to predict how our operations will play out for the year. And since this economic forecast suggests that the economy will strengthen somewhat in the second half of the year, at year-over-year comparable baseline does get easier, especially in the fourth quarter. But at this point, there are few favorable indicators relating to our business.

With all this in mind, we thought the most helpful insights we could provide with you respect to 2009 was a sense of how we thought our assets and company would perform, given a broad range of RevPAR performance. Accordingly, we will generally anticipate that if comparable RevPAR were to decline 12% for the year, and our cost containment efforts continue at their current pace, comparable hotel adjusted operating profit margins would decline approximately 500 basis points, leading to adjusted EBITDA of Host LP of roughly $930 million. Achieving this level of performance will likely require that the economy exhibit some strengthening in the second half of the year. If the current weakness persists and we simply get the benefit of the weaker second half comps, then full-year RevPAR for 2009 could decline 16%. This would suggest a comparable adjusted margin decline of roughly 580 points and full-year adjusted EBITDA for Host LP of $850 million.

Based on these assumptions, we anticipate that our FFO per diluted share for the year would range from $0.79 per share in the 16% scenario, to $0.91 per share in the 12% case. Keep in mind that the FFO range is approximately $0.04 per share lower due to the new 2009 accounting rules on convertible debt that we referenced in the past and Larry will talk about in a few minutes.

Turning to our dividend, we expect that the amount of the dividend to be approximately $0.30 to $0.35 per common share in 2009 as a result of carryover income, 2009 taxable income and gain on asset sales. We plan to declare the dividend early in our fourth quarter and it will be paid before the end of 2009. We should note that we fully appreciate the debate and various perspectives over the relative benefits of stock versus cash dividends, and consequently will delay the decision whether this dividend will be paid entirely in cash or if we will take advantage of the IRS ruling which would allow us to pay up to 90% of the dividend in the form of stocks until later in the year. Our ultimate decision on this issue will be driven by the operating and capital environment at the end of the year, as well as our outlook for 2010.

Given the trend we have described and the current economic outlook, it should be no surprise that we expect 2009 to be a very challenging year. Our strategy for confronting this challenge will continue to be focused on several key themes. We will continue to emphasize maintaining a high level of liquidity and proactively address and extend debt maturities.

Our current cash resources more than cover our near-term maturity, and we are broadly evaluating the market for the best forms of debt to deal with out years. Our very strong, flexible balance sheet represents a tremendous competitive advantage which we intend to exploit, but we will actually position ourselves conservatively until the economy begins to recover. We understand that after avoiding events caused by maturing debt, our most important decisions relate to allocating capital. We have an outstanding portfolio of irreplaceable assets that have been recently renovated which are located in top markets and which will be able to compete successfully for business, even in a difficult environment. Because of the investments we have made, we can afford to reduce our near-term capital expenditures, but we will not avoid any expenditures that may be required to preserve our hotels.

Our asset sales program is very targeted with the goal of selling only those assets that do not fit our longer term plan at prices we believe are attractive in the current environment. As we look to acquiring assets in the future, we will be seeking high-quality hotels located in the markets we expect will outperform in the next recovery. I should note one final item. The market is significantly undervaluing our portfolio. Based on our stock price last night, our portfolio is valued at less than 125,000 per key, which is what I am told it costs to construct a new suburban Courtyard or Hilton Garden Inn. Given that we estimate that the average replacement cost of our assets ranges from 340 to 360 per key, this value represents the largest discount replacement value in our history.

After we get through this current debacle, the laws of supply and demand will still apply, and hotel construction should be negligible until RevPAR and operating profits have increased meaningfully. We will ultimately see the benefits of that improvement in our valuation levels. Thank you.

And now let me turn the call over to Larry Harvey, our Chief Financial Officer, who will discuss our operating and financial performance in more detail.

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Looking at the portfolio based on property types, our airport hotels performed the best during the fourth quarter with RevPAR down 7.9%. RevPAR for our downtown hotels fell 8.8%. While RevPAR of suburban hotels decreased by 9.2%. Our resort conference hotel RevPAR decreased 12.8% as our two hotels in Maui continue to struggle due to reduced air-lift and overall weak demand. When you exclude the two Hawaii hotels from the resort conference property type, the RevPAR for the fourth quarter declined only 7.2%. For the full year, our urban and airport hotels performed the best with RevPAR declining by 2.2%. RevPAR for our suburban hotels decreased 2.9%. And our resort conference hotels decreased 4.3%. Turning to our regional results, the South central region performed exceptionally well with RevPAR growth of 7.2% as our Houston property benefited from strong group demand generated by hurricane Ike recovery efforts and renovations in the fourth quarter of 2007. Our San Antonio properties also performed well as group business was strong and the property benefited from renovations in the fourth quarter of 2007 as well. Our D.C. Metro region RevPAR declined only 4.2% as group business held up better than in other markets, although there was lower transient demand in the suburbs. We expect the downtown D.C. hotels to have a strong first quarter 2009 given the transition with the new administration. RevPAR for the mid-Atlantic region decreased 8.5%. Our New York properties experienced a RevPAR decline of 8.9% as average daily rates fell approximately 4.7% and group demand declined. In addition, business and leisure transient demand fell. As we expected, the Philadelphia market outperformed in the fourth quarter on a relative basis as RevPAR decreased only 4% due to better group business. RevPAR dropped 10% for the Florida region, driven by declines throughout the state with the exception of the Harbor Beach Marriott where RevPAR actually increased over 8%. Our Ritz-Carlton properties were particularly affected by lower transient demand and group cancellation. Results for the quarter were impacted by rooms renovations at three hotels in the fourth quarter of this year. Overall, RevPAR for our Pacific region declined 11.8% for the quarter; however, results varied by market. The San Francisco and Orange County markets outperformed on a relative basis as RevPAR decreased only 5.8% and 7%, respectively, due to better group activity. RevPAR for Hawaiian properties fell 25.4%, because of lower leisure and group demand as well as less airline lift into Maui. Atlanta had another weak quarter with RevPAR declining 14.4% due to lower overall group demand and higher group attrition rates, which lead hotels to seek lower rated segments in order to generate occupancy. Business and leisure transient business was also down. As we anticipated at the New England region with a RevPAR decrease of 16.7% had a challenging quarter due to fewer city-wides, group attrition and cancellation and softer leisure demand. Given the strength of the first half of 2008 in New England and Boston in particular, we expect this region to struggle in the first half of 2009. For the full year, International has been our best region with RevPAR growth of 7.3% in U.S. dollars or 4.5% in constant U.S. dollars, followed by the central region where RevPAR growth was 1%. The Atlanta region where RevPAR declined 7.7% and the North Central region where RevPAR fell 6.5% has been our weakest performers. The AIG effect has had a significant impact on our business. RevPAR for our luxury hotels was down 5.3% through the end of the third quarter and the RevPAR decline accelerated in the fourth quarter, falling 16.1%. Excluding our luxury hotels, our RevPAR decreased 8.2% for the quarter and 1.6% for the full year. Our European joint venture had a weak quarter with RevPAR calculated in constant Euros declining by 13.6%. Similar to our experience with the domestic portfolio, the decline in operations accelerated as the quarter progressed. Our properties in London and Venice underperformed due to renovations and weak transient demand, while our three properties in Brussels and the Sheraton Warsaw outperformed. For the full year, RevPAR calculated in constant Euros down 5%. The Brussels property, the Sheraton Warsaw and the Westin Palace Madrid all finished the year with positive RevPAR, while the London and Venice properties underperformed for the full year as well. For the fourth quarter, comparable adjusted operating profit margins decreased by 290 basis points. Our efforts to control costs through the implementation of contingency plans at each of our properties helped to constrain the margin deterioration. While we were able to reduce total cost by more than 5%, the decrease was not strong enough to offset the decline in RevPAR and the 10% decline in food and beverage revenues. The decline in food and beverage revenues was due to lower group volume combined with much more conservative customer spending patterns and the implementation of certain contingency plans that resulted in closing certain outlets and reducing restaurant hours of operation. Although utility costs increased by approximately 3% for the quarter, the remaining unallocated cost decreased by over 3%, reflecting the impact of the cost-cutting measures. Real estate taxes increased by 7.2%. And property insurance cost decreased by more than 25%. Incentive management fees fell 40%. For the year, our comparable adjusted operating profit margin decreased by 140 basis points. Wage and benefits were effectively essentially flat for the full year. Unallocated costs, excluding utilities which increased 5.2%, were up only 1%. Property taxes increased 7.6%. And property insurance declined 20%. For the year, incentive management fees fell nearly 22%. Our managers have been actively cutting discretionary spending, including training, employee relation costs and amenity packages. They have been proactive in continuing to implement cost-saving measures. Additional savings were realized by reducing staffing levels and combining positions and by closing restaurant outlets or modifying their operating hours. We also expect some benefit as our asset managers and operators further refine and implement cost-reducing contingency plans, given the extent of our RevPAR decline. These measures would include the further implementation of the closing of floors or sections of floors to improve productivity and energy conservation during valley periods and the redeployment of the sales force to business segments that are less volatile in tough economic times such as AAA, Government and E-channel business. These programs are frequently modified to reflect the changing economic environment in the overall level of business. Looking forward to 2009, we expect that wage and benefit cost will decrease by approximately 2% and that unallocated costs will decrease by 2% to 3%. We believe that utility costs should increase a little over 1% and property insurance will decrease slightly for the year, and property taxes will increase 7%. Incentive management fees are expected to decrease over 50%. As a result, we expect comparable hotel adjusted profit margins to decrease 500 basis points at the low end of the RevPAR range, and decrease 580 basis points at high end of the range. We finished the quarter with $508 million in cash and subsequent to quarter end, our cash balance increased approximately $113 million with the proceeds from the sale of the Hyatt Regency Boston. Our current cash balance of over $600 million and our $400 million of remaining available capacity under the credit facility, give us more than ample capacity to fund our business plan for 2009 and 2010. We continue to remain higher than historical cash levels because of the uncertainties in the credit markets, and we will continue to do so until the credit markets stabilize and the timing of economic recovery is more clear. One last item. A new accounting pronouncement related to the treatment of our exchangeable senior debentures is effective January 1, 2009. As we have previously disclosed, starting with the first quarter of 2009, we will be required to separately account for the debt and equity components of security. At issuance, the debt is recorded at its fair value, which is calculated based on the nonconvertible interest rate at the date of issuance which range from 6.5% to 6.8%. The discount which equals the value of the equity component is amortized as an increase to interest expense over the expected life of the debt. On January 1, our debt balance would decrease by approximately $85 million, as this amount represents the remaining unamortized discount. There is no effect on our cash interest expense, but interest expense will increase by approximately $30 million, resulting in a decrease to our 2009 FFO of approximately $0.04 per share. This completes our prepared remarks. We are now interested in answering any questions you may have.

Thank you. Now it's time for our question and answer session. ( Operator Instructions ) Our first question will come from David Loeb with Baird.

Hi, guys. Larry, that was very helpful about the the bonds and actually answered two of my three questions. We are still -- we are assuming that amortization in your interest and we are still coming up a bit short. Can you talk a little bit about what your LIBOR assumptions are and what else might be affecting your interest balances?

You mean as it relates to our projection for 2009?

Yes, exactly.

I would imagine our LIBOR assumption is probably -- it's before a curve, so it's probably in .5% to 1%, but it's no higher than that.

Okay. There was something else wrong with what we are doing. Is there anything else in interest that is unusual?

You are short of our number? Are you counting the $30 million in?

Yes, we are counting the $30 million and we're still coming up short of your number.

I guess I would say, David, why don't you circle back with us off line and we'll see if we can help you figure it out.

As long as there is nothing big in there, then that's fine. We will figure it out and we'll be happy to circle back. But the $30 million clearly is a big entry and that's what we've got. So happy to do that. Thank you.

Our next question comes from Nap Overton with Morgan Keegan.

Yes, good morning. A couple of things how much of the 3.25% exchangeable notes remain outstanding?

There is $400 million of that issue that remains outstanding today.

Okay. And in addition, that is puttable to the company in 2010, correct?

That's correct.

In addition to that, what other debt maturities, what are total 2010 debt maturities?

That is the only debt that comes due in 2010.

Okay. All right. And then which -- I believe you own two Hyatt Regencies in Boston. Which one of them -- which one of those was the sale property?

The one we that sold was the one that was located in downtown Boston. We still own the one that is located in Cambridge.

Okay. Would you be able to share with us anything -- to give us a perspective on the valuation for that sale, in terms of EBITDA the property generated last year?

We sold the property to a private buyer who asked that -- one of the requirements of the sale was that we provide very limited disclosure with respect to it. Maybe a couple of metrics that I can give you, though, is first off, the property has 495 rooms. So the sales price represented $227,000 a key. And the other thing I would broadly say is that everyone should feel comfortable that in looking at the multiple we sold it for based on our expectations for 2009 for the asset, it was sold at a premium to our current EBITDA multiples.

Okay. Thank you very much, that's it.

Our next question will come from Celeste Brown of Morgan Stanley.

Hi, guys, good morning.

Good morning.

Two questions. First , just to clarify in your dividend, hopefully they won't be worse, but if things are worse than what you are currently expecting, could the dividend payment go below the $0.30 to $0.35 for the fourth quarter?

And then my second question relates to the asset purchases in the European region. It wasn't clear to me in the press release as to whether or not you wouldn't be closing on those in the future. Is that deal off the

Okay. Let's deal with the dividend first. I would say that -- obviously 2009 -- the final results for 2009 could have some effect on that number, but I think it probably -- unless we stray radically from the estimates we provided, we wouldn't expect to fall short of the low end of that range. So not below the $0.30 level.

And then as it relates to the European transaction, I think at this point because of some confidentiality requirements that exist with respect to that transaction, we are really, frankly, not at liberty to say a lot about that today. But what I would say at this point is the contract is terminated, and I would generally view it as unlikely that we would be closing on that transaction.

Okay. Thanks, guys.

Our next question will come from William Truelove from UBS.

Just a couple of questions. First, on the sale of the Hyatt, the $113 million, is that gross proceeds or net proceeds after any debt that was associated with the property?

There was no debt on the property, so that would be net proceeds after transaction costs.

Wonderful. The second question, the San Diego Marriott Marina which has, I believe, some mortgage debt coming due this year. Can you give us an update on that?

That property has $175 million of mortgage debt that comes due in the middle of year. Larry, I think it is a July 1 date. We are in the process right now of having fairly comprehensive discussions with a lender regarding the refinancing of that property. We don't have anything to announce yet, but I would say we continue to make good progress on refinancing that asset.

Okay. My third question is more of an operational kind of question with -- especially at your luxury properties. I am sure as you went into this downturn you had multiple stages, like stage one through stage three of cost cutting. Where are we -- I assume we are on stage three.

Are we now adding stages four and five with the operators, and how willing are they to impact customer service. Because everything that we are hearing is they are trying to do things around the edges. Are they trying -- are they willing to do more up front customer impactful cost cutting things? Thanks .

Bill, I would say that on some assets we have blown past stages one, two, three, four and five. And I've been suggesting to our asset management team, we need to be contemplating six and seven. Some of that is in jest, but some of that is in truth. You know, the process that you go through, while it is nice to be able to describe it in different stages, the reality is is that the worse the operations get at a particular property, the more things that you try to do.

Certainly, as you look at the luxury end of the portfolio, it is getting hit fairly hard. It underperformed in the fourth quarter for the full year last year. It is clearly underperforming in the beginning of this year. There is a whole host of reasons that I think many of you have already highlighted in your various analysis reports. Having met and talked with both Ritz-Carlton and Four Seasons about this, I think they are trying to be as thoughtful as they can about trying to balance the need to maintain their representation for a luxury hotel and at the same time recognize that both of us need the hotel to perform at some level, and that we can't just blindly maintain a service level without recognizing what that means to the bottom line. So I think in the case of those luxury operators that we work with, they are looking for ways to cut.

I think they have shown flexibility with respect to brand standard as the other owners have, and they are being as thoughtful as they can. Clearly, their margin declines are going to be larger than what we would see for the whole portfolio. But I think -- so based on what we have seen and the discussions that we have had, I think that the level of margin decline for that quality of a hotel will probably make sense in light of the RevPAR decline. But it shouldn't be radically worse than what we would be seeing in our other full-service hotels.

That makes a lot of sense. Thanks so much for those answers.

Next, we'll have Bill Crow with Raymond James.

Good morning, guys. A couple of questions here. First of all, Ed, can you talk about your view toward future exchangeable note repurchases and how you weigh that against the common stock at $4.00 a share. And along the same lines, have you considered at all or done any homework on potentially buying back or purchasing in the open market other peers' exchangeable notes or debt?

As it relates to the exchangeable, I think taking advantage of the market in the fourth quarter the way we we were able to, and buying that back at the discount that we were able to achieve was a great transaction. It was an effective use of our cash, the return on it is fairly high. It obviously was helpful to the balance sheet, too. I think that's the sort of opportunity that we will continue to be alert to over the course of the next 12 months as it relates to our existing exchangeables. But it will end up coming down to an assessment as to what the pricing is on that, what's available in that market place and what our cash resources look like.

I think as it relates to buying our stock, I couldn't agree more with your -- what you really are suggesting, which is that our stock is an incredible bargain. But having said that, I'd go back to part of what I said in my prepared comments which is, in general visibility, is pretty ugly right now. And until we have a better feeling for when the recovery is going to start and how strong that recovery is going to be, I think that the most prudent thing for us to do is to really focus on making certain that we have all of our debt maturities covered.

I feel very good about the progress we are making on that front. And I feel very good about the progress we are making in general at finding additional sources of debt and, ultimately, on the fact that at some point, I would like to think we'll see some additional asset sales happen. But all of -- at this stage, to think about buying back your stock in this environment without having a little bit better visibility about the future, I just don't think that would be a prudent step for us to take today.

As it relates to buying -- investing in other companies' converts, if I was going to buy any converts, I would buy ours, because if I were going to buy anybody's stocks I would buy ours. And if I were to invest in any company, I would invest in ours. And so at this stage and, again, until the market were to change in a more positive way than what we are seeing right now, I think our cash will be focused inwardly.

Fair enough. Next question. The sale of the Hyatt in Boston. It was obviously -- it wasn't laden with debt. How did the buyer -- if you can take us inside that -- from that perspective. How did they finance the acquisition?

I don't know if we are completely privy to exactly how they structured their financing of the asset. Our sense is that for part of the transaction that we were privy to was that they bought it all cash. I would assume that they are going to find financing from some other source later. But our sense was that it was a cash purchase.

Then -- thank you. Final question here. As you are dealing with meeting planners on future group bookings, are you getting increased pressure to reduce or eliminate cancellation or attrition fees, penalties based on kind of the current environment, especially from financial services firms?

I think you are starting to see that happen. You are also starting -- some of that is happening on some of the business that is being discussed for 2009 right now, because people will begin to talk about booking an event and then not necessarily wanting to sign up for a significant cancellation fee when they are uncertain as to whether they are going to have it. And I guess what I would say is the reaction to that will vary meaningfully from one hotel to another.

If you are talking about a time period of the year where you are very confident that, based on historical results, that you are going to be able to do business at that time, then you may be reluctant to allow the rooms to be booked or the meeting space to be booked by somebody who is not willing to stand behind the commitment.

On the other hand, if you were talking about somebody who is interested in booking business during a need period where frankly we don't have another great solution for that particular time, say it is a weekend or something like that, then I think you would probably find that the operator would be a bit more flexible in their approach to cancellation fees. It is clearly becoming a topic -- and not dissimilar, frankly, to what we saw back in 2001 or 2002. As the balance of power shifts a little bit in this negotiation from us as a seller to the customer who is the buyer, you tend to see that some of these things start to slide their way a little bit.

All right. I know I said that was my last question, but your answer gave me another -- another thought here, which is, what's going on with 2010 group bookings. Are you seeing cancellations this far in advance or are people just kind of sitting back saying we will see what the economy does?

I don't think, Bill, that we are seeing a trend of cancellations. Certainly not to the degree that -- that we have seen them over the last four or five months related to 2009. What we are generally seeing across the market is a slowness in bookings, and we were talking about that last year is that we weren't -- we were generally finding during the course of the year that we were not booking at the same rate that we had in the prior year, and I think that would also apply to 2010 right now.

Our next question comes from Smedes Rose with KBW.

Smedes, are you there?

It looks like he disconnected. We have Felicia Hendrix from Fleet Capital.

Maybe what happened there, Bill, is that you covered so many questions, people just felt like they were all answered.

We have Joe Greff with JP Morgan now.

Can you guys hear me okay?

Yes, we can hear you, Joe.

Good morning. Most of my topics have been addressed except for one small one. Your CapEx guidance for '09. How much of that is related to maintenance?

I would probably say about half of that is what we would traditionally think of as maintenance Cap Ex. And then the other half by definition would be larger projects. And the completion of the repositioning items that we have started last year.

And at that level, how long could you have that level of maintenance capital before it starts to impact things. Could you be at that level for two or three years?

Yes, I think we can easily be at that level for two to three years. It is one of the points I was trying to make in our comments is that we really -- we really feel good about the money that we invested in our portfolio over the last three years. And, you know, just the comprehensive nature of the work that we did, we have truly positioned our portfolio well, asset by asset in each of the individual markets. So I think we would be able to run at that type of a level without any problem for a couple of years.

Thank you.

Next we have Felicia Hendrix with Barclays Capital.

Can you guys hear me now?

Yes, we can.

Fantastic. I was talking to myself before. Okay. So a few basic questions. Just the sensitivity that you gave in place of guidance. Just wondering if things actually deteriorated even further than you anticipate, can we just take the kind of every 1% point of RevPAR to $20 million -- is $20 million EBITDA which is implied by your 12% to 16% sensitivity? Or does it get more accelerated after that?

I would guess that if you were talking about a point or two of additional RevPAR decline that that is probably as good a metric as we can provide right now. There is some point where it becomes difficult to mitigate the margin decline when you begin to have even more excessive RevPAR decline, but I think in the realm of another couple of points or so, I think that that clearly would work.

And it would flow through it as FFO in the same way, correct?

I think if you would just look at what the EBITDA decline would be, then once you do the math on the FFO it should track. There is nothing else in that analysis which is really moving because our interest expense shouldn't really be changing, so it's just EBITDA that is changing in that equation.

Just wanted to double check that. Could you just give us guidance for depreciation and corporate expense for '09?

Hold on one second, we'll pull that out.

On the corporate admin it would be up because -- we have -- in the numbers we have targeted corporate admin up about $10 million, and the bulk of that is from restricted stock in '08. We got very little restricted stock. So we've now -- in our forecast we have it at the targeted level. From the standpoint of depreciation, we got about $600 million this year versus -- hold on a second. It's up slightly, versus $580 million, so about a $20 million difference.

Okay, great, fantastic. Thank you.

Felicia, I would add one thing to Larry's comments there. If you look at the absolute level of our overhead, leaving out the sort of year-over-year issue that you can run into because bonuses and restricted stock are at really historical lows this year for the Company, what you would find is that we actually reduced our admin year-over-year from '08 to '09 by about 10%. And depending upon how we perform, those numbers will be adjusted at the end of the year. But net- net, if you look at what we are actually carrying from an overhead level, it is down compared to last year.

Okay, all right, thank you.

Our last call will come from Smedes Rose with KBW.

Can you hear me?

We can now.

Okay. Great. You have answered almost basically all of our questions, but I was just wondering kind of off of Felicia's question about things being possibly worse or maybe better. Could you just talk a little bit now, I guess, kind of what are your top four or five markets that you are going to get most of your earnings out of. Given that RevPAR has performed -- well, badly across all markets, but some worse than others. You know, what are kind of the key needle movers for you? For this year?

Well, I think if you look at the markets where we have -- that we have the largest ownership in, it typically shows up as Washington D.C. which I think is a market that is going to do well this year. You have Florida broadly defined, which I think we are concerned at least some of those markets will see some softness this year. You have New York, which will be -- I think will be one of the underperforming markets of the year, and I think those are really the big three. I guess Atlanta would be the third, and I think Atlanta is probably -- or the fourth rather. I think Atlanta will be a -- a middle of the pack market.

I think there is a couple of other markets that we think could do a little bit better. We are sort of anticipating some better performance out of San Francisco. We have a fairly sizable presence there. And we are also feeling a bit better about Chicago this year. I think there is a fairly good group calendar in Chicago. We also suffered from some renovation effect last year, and we will have less of that going on this year. So Chicago is one of the markets we are counting on for better performance.

Okay. And then also -- just on your dividend, you mentioned that it reflects capital gains and some carryovers from 2008. So is it fair to say with the guidance you have given, you are really not looking for any taxable income from this year?

We talked a little bit about that earlier, but I would generally say that -- the effects of taxable income -- expected taxable income effect on this year's dividends at the levels we suggested today is relatively minor.

Okay. Thank you.

Great.

That does conclude our Q & A for today. I will turn the call back over to you, Mr. Walter.

Well, thank you, everybody, for joining us for this call today. We appreciated the opportunity to talk about our results for 2008 and also discuss what we see coming at us in 2009. We look forward to giving you an update on how first quarter played out and what our thoughts are going forward in late April. Thanks.

Thank you, ladies and gentlemen. Once again, that does conclude today's conference. We thank you for your participation and have a wonderful day.