Greetings, and welcome to the Apple Hospitality REIT Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Kelly Clarke, Vice President of Investor Relations. Thank you, Ms. Clarke. You may begin.

Thank you. Good morning, and welcome to Apple Hospitality REIT's second quarter 2016 earnings call on 9th day of August 2016. Today's call will be based on the second quarter 2016 earnings release, which was distributed yesterday afternoon. I would like to remind everyone that today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's 2015 Form 10-K, second quarter 2016 Form 10-Q, and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, certain non-GAAP measures of performance such as EBITDA, adjusted EBITDA, FFO, and modified FFO, will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com This morning, Justin Knight, our President and Chief Executive Officer; Krissy Gathright, our Chief Operating Officer; and Bryan Peery, our Chief Financial Officer, will provide an overview of our results for the second quarter of 2016 and an outlook for the sector and for the Company. Following the overview, we will have a question-and-answer session. It is now my pleasure to turn the call over to Justin.

Thank you, Kelly. Good morning, and welcome to Apple Hospitality REIT's second quarter 2016 earnings call. While general U.S. economic indicators provided a less than stellar backdrop for the hotel industry as a whole during the second quarter, we’re happy to report Comparable Hotels RevPAR grew 5.1%, bringing year-to-date RevPAR growth through June to 4.5%. Comparable Adjusted Hotel EBITDA margin for the same period increased 90 basis points and adjusted EBITDA and modified FFO per share grew 11.6% and 18.2% respectively. With 180 hotels located in more than 80 MSAs across 32 states, our portfolio of hotels is one of the largest, most geographically diverse hotel portfolios in the United States. This broad geographic diversity provides us exposure to a wide variety of demand generators and minimizes the overall impact of volatility within a single market, region, or industry. Our strategy has somewhat insulated our portfolio from supply demand dynamics uniquely impacting gateway markets over the past several quarters. However, we cannot fully mitigate macroeconomic factors that impact U.S. markets broadly. Second quarter GDP growth for the U.S. came in below expectations, and while projections for performance in the remainder of the year remains somewhat mixed, an increasing number of economists haven taken a more conservative views. As has been the case for much of this extended economic recovery, signals vary with consumer spending and job growth both improving, but somewhat offset by declines in corporate profits and spending. Although, we continue to see strength and opportunity in overall domestic travel and remain confident in the fundamentals of our hospitality platform with softer than anticipated RevPAR numbers in July, and the potential for some economic headwinds in the back half of the year, we are tempering our full year RevPAR guidance by 50 basis points. Given the strong operating performance…

Thank you. We are very pleased with our second quarter performance. As Justin mentioned, our comparable RevPAR grew 5.1% with a slight increase in occupancy and an average rate growth of 4.7%. With our geographically diversified portfolio, only seven markets had an EBITDA contribution greater than 3%. Of those, Los Angeles, Nashville, and Dallas were our strongest performers. Even after the Porter Ranch gas leak business left the market in May, RevPAR growth at our Los Angeles area hotels remained solid. Our San Diego and Seattle hotels had modest growth impacted somewhat by new supply. Although demand outlook for San Diego is improved in the third quarter with stronger group base. Of note, our Phoenix and Tucson, Arizona markets continued to outperform with fast growing economies featuring diverse business and leisure demand generators. With over 80 different MSAs in our portfolio, performance has varied widely. For some perspective, 78% of our hotels had positive RevPAR growth with 42% achieving RevPAR growth greater than 5%. 22% of our hotels experienced RevPAR decline with just 8% declining more than 5%. Our outperforming markets had benefited from healthy demand in the following industries; Internet retail, home goods, various technology sectors, healthcare, insurance, aviation, entertainment, and government contractors among others. As per segmentation trends in the quarter, our negotiated account room night mix decreased 130 basis points to 22%, as our management teams have been successful on shifting business to the highest rated retail segment in the majority of markets. Although, our retail rate growth was modest at 1%, our hotels were able to drive solid rate growth overall by increasing the retail room night mix 230 basis points to one-third of our total room nights, consistent with the year-to-date trend. Group room nights remained stable at 15% of our mix. Although it's difficult…

Thanks, Krissy, and good morning. As both Justin and Krissy highlighted, we believe our results for the second quarter and year have been very positive. With solid RevPAR growth, we've been able to increase adjusted EBITDA to $100.5 million and $179.1 million, an increase of almost 12% for the quarter and over 11% year-to-date from last year. Modified FFO per share grew to $0.52 for the second quarter and $0.91 year-to-date, representing growth of 18% for the second quarter and 17% year-to-date. At the end of June, the company had approximately $1 billion of outstanding debt with a current combined weighted average interest rate of 3.5% for the remainder of revenue year. Excluding debt issuance cost and fair value adjustments on acquired debt, our debt is comprised of $400 million in property level debt and $631 million outstanding on our $1.1 billion of unsecured credit facilities. Our outstanding debt, net of cash on hand is approximately 3 times trailing 12-month adjusted EBITDA and 23% of enterprise value at the end of the quarter. Although we intend to continue to utilize traditional long-term mortgage debt as a means of diversifying our capital structure, reducing a portion of this component provides us an opportunity to improve pricing and flexibility. With this in mind, we continued to reduce our secured mortgage debt during the first six months of the year by repaying eight mortgage loans totaling $82 million with an average interest rate of 5.3%. We anticipate extinguishing another 10 secured loans with an average rate of approximately 6% by the end of the year. During the second quarter, the company paid distributions of $0.30 per share. Our board of directors has authorized a regular monthly cash distribution of $0.10 per common share. The annualized $1.20 per common share represents a 6% yield…

Thank you. [Operator Instructions] Our first question comes from the line of Ryan Meliker from Canaccord Genuity. Please proceed with your question.

Hey, good morning, guys. I just had one here just trying to understand how you guys are thinking about. I guess a little more color on guidance, obviously as you mentioned you don't have a lot of visibility, your booking window has even narrowed. Given that dynamic and the fact that the big brands not to mention all of the other REITs cut guidance on the top line, more than you guys did at 50 basis points. What gives you confidence that you're going to be able to maintain that 3% to 5% RevPAR growth? I know the first half has been pretty strong. And then your market seem to be holding up better than most, but just any color on what gives you guys confidence that you're not going to see the fall off that the brands in the C-Corp’s and lot of other REITs are expecting in the back half of the year.

Hi, good morning, Ryan. Good question. Generally speaking our guidance is in line with our performance relative to industry year-to-date. And so I'm not confident that we're seeing anything different from what the brands are seeing. We have a very large diversified portfolio which is somewhat representative of the industry as a whole, but not perfectly and because of the differences in our portfolio, we see opportunities continue to perform relative to the industry as we have through the first half. Because we only give annual guidance, we benefit on an annual basis from the outperformance we have already achieved year-to-date as well.

That’s helpful. And I guess as a follow-up then when you think about your outperformance year-to-date, what do you think is driving that; is it your markets, is it your diversification, is it your select service exposure, is it the fact that you're a little bit more transient oriented, we've heard a lot of negative surrounding corporate transient, are you guys seeing those types of impacts. Help us understand how you guys are outperforming. So we can get a better understanding of how you guys will continue to outperform.

Ryan, it's a great question. So far this year I think that our diversification has been one of the keys. Also as you look at our performance in these suburban markets have still been outperforming the urban markets. And for the first part of the year continuing into the second quarter, we were still able to mix manage and the retail demand was strong enough so that we were able to focus on driving that highest rated -- driving more business to the highest rated retail. As we enter this summer months, which are traditionally less business travel focused. We did see the trends change a little bit, so when we were looking at our position on the book. We had less occupancy going on and less occupancy on the books going into the month. But we have seen a decent pick up so far in retail and the group as we moved throughout the month. August, we do just to give you a little bit further color. August, we continue to see that consistent pattern where we’ve entered the month with less room nights on the books. But our property forecasts are for the pickup in the month, for the month and August looks better than July. September is actually the strongest and September is a more of a business travel oriented month. And we're actually seeing our position on the books being ahead of last year and with that our focus with our asset management teams is to shift back to what we were doing in the first part of the year and focus on really driving rate. And as I mentioned I think our operators have gotten a little bit nervous as they’ve seen less occupancy on the books and they are opening up discounts a little sooner than they really need to in some of these strong markets. So our asset management teams are working with our operators to make sure that they're not overreacting and maximizing rates as much as they can because part of our strength from the first part of the year has really been our ability to drive that rate and maintain occupancy as much as possible.

Got you. So that’s helpful. So it sounds Kelly, it sounds like in general that you guys are holding on to pretty strong corporate transient demand. I’m not seeing the falloff in that dynamic that we've heard from some of your peers and to the same front you're actually having some success driving rate. You think any of that has to do with your select service orientation and the fact that you guys are at mid tier price point that is a nice trade down from some of the higher end properties.

Our product definitely has broad consumer review and that continues to be the case. And I wouldn't – just to clarify, I wouldn't classify that corporate demand is being strong, it is still soft and soft and we continue to see that it is soft and it is softening a little bit more and more markets than it has in the first part of the year. But when we're in this stronger business travel months there's still additional business travel demand to choose from into mix manage. So when we’ve entered into the summer months, there's a little bit less of that. But yes, we do feel that we are in the right product. We do feel that in looking across all of our markets. There are still many markets that are performing very well and the markets that aren’t performing well clearly oil and gas is not performing. There are – Austin is the market that we continue to watch. We had a great year last year in the second and third quarter in Austin. And we actually I think we’re up 12%, 13% in the second quarter and close to 18% in the third quarter last year, because we had some strong FEMA business and we had some strong FEMA business and good corporate base. Now this year, that FEMA business, we don't have that in house and there is some softening the corporate -- the business transient side as we see, absorb from additional new supply as well. Hopefully that answers your question, yes.

Yes. And it’s really tended to be…

Right.

…industry specific, so it’s easy to draw broad conclusions.

Right.

But what we've seen and Clarke highlighted is that there are a number of industries that continue to produce strong demand. And our markets that are more heavily dependent on this industry perform very well. And there's been some imbalance in business transient demand with certain industries, more negatively impacted than others.

Great. That’s really helpful color. Thanks, guys.

Our next question comes from the line of David Loeb with Baird. Please proceed with your question.

And Justin, Krissy, sorry to, beat a dead horse but just to follow up on Ryan’s question. I guess I'm particularly – I guess concern is too strong word, but little confused. I get that your operators are opening the discount channels a littler earlier than you need, but what gives you the confidence that you'll be able to actually have ADR led RevPAR in this slower transient environment in the second half.

Part goes back to have my comments on September as we enter back in to the stronger business travel months we’re already seeing the position on the books improve stronger demand in retail rates, stronger rates on the book. From a macro standpoint, we’ll have to see in terms of what happens with GDP and the general economy, but we are seeing improved trends as we look into September.

Okay. And how about October, do the Jewish holiday shifts have much of an impact on your smaller market, urban and suburban assets.

Much less of an impact on -- there has been some impact, but much lesser impact on our smaller markets, suburban assets. And just to give you a little bit of perspective when we go into the months and typically right now is the beginning of August. For example, we have approximately with our product 40% of our occupancy on the book. When you look out 30 days out, then we have a 20% of our occupancy on the books. And another 30 days out, that’s 10% of occupancy in our books. So when we're forecasting, we’re forecasting over the next 90 days with less reliant each 30 days that you go out. And so we were looking at trends in terms of position on the books, we rated, our revenue management systems -- those are being used constantly tweaked and looked at because, the booking window has shortened. So the revenue management systems need to look, they always look at history from the previous year, but they need to be tweaked off to understand that the transient pickup has become, the booking window has become shorter. So our visibility is the next 90-day customer layering and overall macro assumptions as we know it.

Okay that’s makes a lot of sense. Justin, I know you can’t answer much about this given and Apple Ten shareholder vote coming up. But could you comment a little bit about your thoughts about further industry consolidation and what your appetite would be to – look to acquire additional single assets or portfolios.

And certainly, we've commented on this in most of our calls and are regularly asked about this as we meet investors on the road. And the Apple Ten transaction is unique in that –it preserves and actually increases the size and strength of our balance sheet and because we are already the managers of the portfolio. And the integration of that portfolio with our current portfolio we anticipate to be seamless. And so in terms of our positioning and capacity to pursue other opportunities where – I think exceptionally well-positioned to pursue opportunities that might present themselves. That being said as we continue to explore opportunities in the industry. We've seen consistently and this has been highlighted by a number of our peers in prior calls significant EBITDA spread. So still our expectations continue to be very high, both on individual assets and on larger portfolios and I think as we look forward the largest impediment to us pursuing acquisitions in scale, it is likely that. That being said we continue to have interactions with owners of portfolios and individual assets. We feel opportunities are right for us strategically and where we feel we can -- the transaction will be accretive for our existing shareholders. Right. I’ve highlighted this in past calls. But we're a very large company in our current state following the transaction with Apple Hospitality – Apple REIT Ten will be an even larger Company. We operate extremely, efficiently and don't have a mandate as we see it to grow for growth sake. I think you can anticipate and we will continue to be very strategic as we pursue opportunities, grow and enhance the value of our portfolio overall. Absent those opportunities we’ll continue to manage the portfolio we have to achieve greater efficiency.

Great. Thank you for that.

Thank you.

[Operator Instructions] Our next question comes from the line of Bryan Maher from FBR. Please proceed with your question.

Good morning, guys.

Good morning.

Good morning.

Just to kind of clarify on one of Ryan's 17 questions. And he hit on several of mine but I wouldn’t -- I don’t think it is proper to characterize all other companies as having kind of guidance because two other outperformers that play in your space, HPT and Ashford trust don’t guide. So it’s not fair in my view. But more succinctly, do you get the sense that corporate transient is in any way or at any level kind of trading down to the upscale select service product from the full service urban product.

Overall it’s hard to measure that what we can say is that we have heard anecdotally that there if -- your companies are looking to cut back, they're asking their -- if their employees to look at either narrowing the focus of the number. There are cases with the narrowing the focus of the number of hotels that they are booking in, in which case then we would benefit because we would be in that upscale segment versus the higher dollar upper upscale hotel. But it's too early to say yes that we’ve seen that a measurable amount of that. But anecdotally we have heard that there out there, there are opportunities where that we can be a part of a narrow group of hotels.

And when those companies are kind of guiding their employees to move in a certain direction, do you get the sense that they're asking to trade down a segment or into a different segment or into a branded product versus maybe a boutique hotel or some combination of two of those things.

I've not heard anything about going from a branded to boutique hotels or vice versa. And I think really it is more towards rates that are being charged. And then in some cases as we have spoken about before it really depends on the market because in the some cases, we are higher positioned trade wise in the market than some of the full-service hotels in other markets where the full-service hotels are higher priced, and we're going to be perceived as more of a value play.

And it's important to understand that there's been much made of the growth slowdown and corporate transient. On an absolute basis, there's still a tremendous amount of corporate demand and we haven't seen outside of a few specific industries, massive cutbacks, a massive adjustments to travel planning that we've seen in past cycles. When that happens, we anticipate our portfolio will benefit, because a relative value proposition, the majority of our hotels offer either free or relatively inexpensive breakfast options, some of them offer light dining options in the evening as well. And the value proposition for select service hotels tends to be a better value proposition than other segments. And really before that happens, major trade down, we see something more dramatic in terms of a shift in consumer demand that has yet to really materialize. What we've seen so far in most of our markets [are struggling to offset] energy markets and a few markets that are dependent on financial services. That’s probably where we’ve seen some of the biggest hits is just tampering of demand one or two fewer nights at our hotels, which are mostly 100 to 150 rooms from a particular client and not the major cutbacks that we saw in the last recessionary period, which drove a massive rethinking in terms of business trials.

Hey great, thanks. That's helpful.

There are no further questions in queue. I'd like to hand the call back over to Justin Knight for closing comments.

Thank you for joining us this morning. Overall, we're pleased with our performance of our hotels during the first six months of 2016 and we believe we're well positioned for the remainder of the year. We hope that as you travel with us. You'll take opportunity to stay with us in our hotels and I hope you have a great week.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.