By Michele Lerner

CLOSE UP

Age: 44 Education: Received a B.S. at the McIntire School of Commerce at the University of Virginia and an MBA in finance at the London School of Economics Family: Wife and six daughters Most Recently Read Book: “The Chinese” by Jasper Becker Favorite Recreational Activities: Golf, boating, traveling and cooking Favorite Sports Team: Washington Redskins Favorite Vacation Spot: Hawaii Community Activities: Arlington Free Clinic, The Federal City Council, Literacy Council for Montgomery County and Boy Scouts of Greater New York Professional Activities: Chairman of The Real Estate Roundtable, second vice chair of the National Association of Real Estate Investment Trusts (NAREIT), American Hotel & Lodging Association Industry Real Estate Financing Advisory Council (IREFAC), board director for the CoStar Group and advisory board member of McIntire School of Commerce at the University of Virginia.

If you think you’ve had a busy week at the office, try spending a weekend with the Nassetta family. Christopher Nassetta, Host Hotels & Resorts’ (NYSE: HST) president and CEO since May 2000, is the proud father of six daughters. “I may be the boss at the office, but you can guess who the bosses are at home,” he says.

Nassetta’s energetic leadership clearly benefits both his family and the company. “I love running Host Hotels, but in the end, my greatest joy is spending time with my daughters, and that is how I get re-charged every day,” he says.

Nassetta has taken that charge of energy and poured it into the company. In 2006, Host Hotels leapt into the European market, where the company intends to expand further in 2007. Host Hotels acquired luxury hotels in Italy, Poland, Spain and the United Kingdom in 2006, building on its portfolio of hotels in the United States, Canada, Mexico and Chile. The company also anticipates acquiring other upscale urban and resort properties in Asia.

Nassetta, who is second vice chair of the National Association of Real Estate Investment Trusts (NAREIT), recently sat down with Portfolio to discuss his company’s business strategy and future plans for global expansion.

Portfolio: Host Hotels’ third quarter 2006 report described an impressive 40 percent increase in net income from $450 million to $542 million. Do you expect this growth rate to continue in 2007?

Nassetta: We expect strong growth to continue in 2007, driven by strong fundamentals. Demand is expected to show a strong growth clip with supply still constrained.

Host Hotels will continue to focus on maintaining high quality assets in strong markets to maximize our growth rate over time, which contributed to the company’s success.

Portfolio: In recent years, your business strategy was to acquire upscale hotels in urban, resort and convention locations. Do you expect this strategy to continue in 2007? Are there plans for new development?

Nassetta: Our focus remains on urban, resort and convention properties because that’s where the growth rate is expected to be strongest.

We will continue to divest our suburban and airport properties because we believe the long-term growth rate won’t be as strong in those categories as it will be in the others. The barriers to developing new hotels in suburban and airport locations are lower, so there is more competition in those areas. There’s greater demand and significant barriers-to-entry in urban and more mature resort markets.

Historically, we haven’t participated in ground-up development, and we don’t anticipate any large scale development in the near future because there are not many opportunities that are appealing from a yield perspective when viewed on a risk-adjusted basis. We tend to focus more on acquisitions at a discount to replacement cost.

Portfolio: The transaction with Starwood Hotels & Resorts was a major portfolio acquisition in 2006. How has this affected Host Hotels? Do you anticipate additional acquisitions of this magnitude?

Nassetta: The Starwood transaction was very important for us, with the primary driver simply to create more value per share for the company. Ultimately, this move was accretive to the value of the company in the short and long term and accretive to earnings and our credit.

We would certainly consider other substantial transactions if we think we could add significant value to the company.

Portfolio: Host Hotels owns luxury hotels in Canada, Chile, Italy, Mexico, Poland, Spain and the United Kingdom. Do you anticipate future global expansion? Are there particular countries where you intend to acquire properties in the future?

Nassetta: Prior to our entrance overseas, we had four assets in Canada and one in Mexico City, with the vast majority of our assets in the United States. Now, 8 percent of our assets are abroad.

We’ve been looking at acquisitions in Europe for several years, but recently, many owner-operators in Europe have decided to segregate the real estate from their operational business, similar to the pattern in the United States in the past decade. We saw this as an opportunity to replicate our existing U.S. strategy in Europe. There is potential for a significant volume of transactions as operators sell their properties. In Europe, we plan to maximize available capital, mitigate risk and to have the lowest cost of capital through a joint venture format.

We anticipate expanding into other parts of the world, and our track record gives us an opportunity to do this. Asia is next on our list, so we anticipant a significant amount of research and development in 2007 in order to explore opportunities in this region of the world.

Portfolio: Rising energy costs and the desirability of “building green” impacts every sector of the real estate industry these days. How has Host Hotels compensated for these rising costs?

Nassetta: The hotel industry is clearly one of the larger energy consumers in the real estate industry, so we are trying to be as efficient as we can and to enhance our margins by reducing both cost and demand. On the supply side, we leverage our purchasing power as much as possible and use hedging strategies as appropriate. On the demand side, we have aggressively invested in new technology and energy management systems to lower demand.

We use co-generation plants and water reclamation systems, which recycles water that can be used for laundry or other needs and boost our energy efficiency. We have retrofitted lighting in hotel rooms and common areas by installing fixtures and bulbs that are more energy efficient, and we are exploring other new technologies to mitigate energy use.

Portfolio: The hotel industry faced a challenging business cycle after September 11. What did the company learn about handling market cycles, and what challenges do you anticipate in the next few years for Host Hotels?

Nassetta: The hotel industry was in a very serious decline in 2001, even before September 11. After the events of that day, we faced the most significant decline in the history of the industry. Even though we too were impacted, the company remained in good shape overall.

The down cycle emphasized the need for a strong balance sheet and financial flexibility. We also learned to be creative and innovative in our operating models. As for the next few years, uncertain economic growth in the U.S. and elsewhere always is a challenge.

Portfolio: Are there differences in the needs of business and leisure travelers? Do you anticipate growth for these consumer groups?

Nassetta: The needs of leisure and business travelers differ, but sometimes the distinctions are blurred. Our operating methods and capital investments seek to address the needs of both types of travelers.

For instance, a businessman may attend a convention on a Thursday and Friday and then his family will join him at that same hotel for the weekend. At other times, a hotel will serve business travelers during the week and leisure travelers on the weekend. Each hotel needs to have the broadest appeal possible, which is why technical enhancements, upgraded workout facilities and spas are in so many upscale hotels today.

From our point of view, we expect the greatest growth for the next five to 10 years to be among leisure travelers and groups. This influences the decisions we make about buying, selling and investing in properties.