Good day and welcome to the Pebblebrook Hotel Trust Fourth Quarter and Year End 2012 Earnings Call. Today’s conference is being recorded. At this time I would like to turn the conference over to the Chief Financial Officer, Ray Martz. Please go ahead sir.

Thanks Ray and good morning. So, as Ray said, we had a dynamite third year as a public company. In 2012, we made $275 million of new investments through the acquisition of five hotels all of them on the West Coast. Four of them four diamond quality hotels and four different gateways cities including San Francisco, West LA, Portland, and Seattle. And the fifth was the Hotel Milano in San Francisco which soft open last night as the renamed to hotel Zetta following our complete renovation and repositioning of our property as a very cool four diamond boutique hotel. Including the Zetta’s renovation, we invested almost $60 million on the portfolio during the year completing significant renovations at Argonaut, San Francisco; Westin Gaslamp in San Diego; Monica, Seattle; Mondrian, LA; Sheraton Delfina and the second phase of Affinia Manhattan’s renovation. And thanks to our trusting and supportive investment community we were able to raise $215 million of equity to support our efforts. We’re extremely pleased with the portfolio that we’ve been able to assemble not just because of a high quality of the assets and not just because of the attractive pricing and not just because of their traffic locations in major gateways cities but because the portfolio has so much operational upside that we believe will continue to drive outsized the growth for the next several years. And importantly, we generally didn’t underwrite or pay for this upside potential at the time of the acquisitions. The portfolio has already begun to benefit from the vast array of best practices and operational efficiencies that we have been able to put in place as evidenced by the 263 basis point increase in 2012 portfolio EBITDA margin; on top of 2011, 318 basis point improvement. In the fourth quarter, as expected EBITDA…

(Operator Instructions). And we will take our first question from David Loeb with Baird

Jon on that last theme, can you talk a little bit more about the margin outlook. I wanted to make sure that I heard you right about the impact of the Affinia 50 margin and how much more room do you think you have in terms of asset management initiatives to improve margins going forward?

Yes, you heard correctly that the Affinia 50 has between 60 and 70 basis point impact on our margins with, I think, what it’s something like a 30% or 35% negative impact on RevPAR growth at the hotel. So, we do have a lower overall revenue growth this year than last year partly because of the impact from Affinia 50 and partly because our outlook for the industry is a little bit more modest than what our outlook was for last year. However, I don’t think that's a change in the second derivative; I think right now we'd expect to see an acceleration in both our RevPAR growth and a significant acceleration in our EBITDA margin growth in 2014, given the fact that we have very little major renovation work planned for next year with the existing portfolio and given that the portfolio will benefit from the opposite of the negative impact from the Affinia 50. It will both be completely renovated as well as we will benefit from having an additional 41 keys at the hotel. So, we think there is a lot more upside in the portfolio; I think if we compare our existing margins with sales existing margins for 2012. I think we are looking at somewhere between 500 and 600 basis points of differential, so we still think that there is at least several 100 basis points of margin improvement in the portfolio and we are really just beginning to see the benefit for the properties that were renovated in 2011 and those that were acquired in 2011 and 2012, so a lot of upside from margin growth over the next three years.

What’s your view on how long the acquisition window will stay open?

A lot of it depends upon what we see in the development market obviously being impacted by both continuing improvement and whatever the pace of the improvement in bottom lines in the industry, so a lot of it has to do with how much closure we get to the economics warranting new development in most of the markets. We think in most markets we’re still always away although we all know that doesn’t necessarily guarantees that new development won’t happen and of course we’re seeing that in markets like Chicago and Nashville and Austin today and perhaps even in some in New York in terms of it not necessarily making good economic sense. But some of it has to do with obviously the capital markets and we all know there is a lot of capital available globally with the Fed providing its QE infinity program and that hasn’t generally made its way into the construction lending environment for hotels but it is only a matter of time. Now, the good news is as we look at supply for our markets today in the urban markets, David if you don’t have a shovel in ground today, you’re not delivering probably until 2015 at the earliest. And so as we worked our way through the year with actually fairly reasonably visibility of what we expect will start later year, its look like a pretty a benign environment through 2015 for most of the major markets and that would exclude the ones I mentioned as well as New York. So, we take a lot of positive thoughts from that and so from an acquisition perspective, I think we’ve got probably at least another 12 to 24 months maybe 18 months where we think it will continue to be a pretty attractive overall as we look at being able to buy meaningful discounts to replacement cost.

We will go next to James Milam with Sandler O'Neill.

Jon, I just wanted to follow up, just kind of a bigger picture on your discussion about group business, and I guess I am curious if you would give us your comments on how you think about the group’s cycle right now and whether, obviously corporate profits are high but some of that is expense control, so how do you think the group cycle; do you think that there is a secular shift in the way groups are spending their money, or do you think that it’s just a longer cycle and has profitability and employment, and everything else improves, that will recover back to what it has been historically?

James, I think on a U.S. industry basis, I think that it’s really a cyclical impact that we've been seeing and it really relates to, we believe slower growth in employment. We think a lot of groups, whether it’s the RARA meetings, the cultural meetings, the incentive travel; we think those don’t pick up until there is significant competition for people. I think companies are pretty smart with the way they spent their dollars. Those meetings are generally necessary when they are worried about losing their people and until that happens, I think companies save the money; as you have said, companies are pretty good at cost control. And I think those kinds of meetings often fall in the category of discretionary meetings until there is a human resources benefit. I do think there is probably a little bit of a secular change at least for this cycle and perhaps the utilization of resorts on a group basis, at least on the part of some, certainly a large enough percentage of overall corporate users and governmental users to have a sort of material and noticeable impact on the recovery in group at resort property. So our view on resorts right now is, they are just not likely in this cycle to recover a group to the same level that they were at previously. And that’s probably why our bias has been more towards the urban markets and the urban hotels even though resorts particularly drive-to resorts have been within our target type of assets.

Okay, thanks. That’s helpful. And then just a quick one, I think you guys were gave some pretty good color on the margin growth be a little slower in '13 versus '14, but could you just talk about some of the, obviously insurance was good in 2012 but maybe insurance and tax outlook for '13 and maybe within the '14 to the extent that you have any visibility that far out.

Personal property insurance, right now with the visibility we have is maybe some expectations in 2013, it remains to be seen what the impact from super storm Sandy will have on the market and what carries in or not. We would think something in the mid-single digit to high single digit would probably be a reasonable expectation growth rate, with a reminder that, as we acquire our make new acquisitions, many of the acquisitions we fold in into the Pebblebrook insurance program, we typically have pretty good savings there, versus what the prior folks are paying. So right now it's really that mid to high single digit number's probably a reasonable expectation for 2013 for property insurance. Beyond that it's hard to say, we don't want to speculate. And that happens really kind of mid to early spring we started that process where most of our portfolio and the Manhattan collection's on a different cycle, but on the property taxes…

The P&C for the bulk of the portfolio is on a June cycle and the Manhattan collection I think is September.

Yes, later in the year in the third quarter. And our property taxes, well now that California is, because we're largely mandated by that, based on the purchase price and it's really city by city, we look at those increases, now cities are being more aggressive on those increases because they need to fund their budgets and it's easy to tax their commercial owners and we evaluate each on a case by case basis, and we regularly contest all these increases if we believe it's directly above market. And so that for the year, whereas the property insurance and insurance side is kind of mid to upper single digits, property taxes for the year, should, you're looking at the 9-11% increase, for a year-to-year basis.

And keep in mind a lot of that has to do with the fact that we bought a number of California properties last year and we're seeing the automatic increases in those in the portfolio.

We go next to Wes Golladay with RBC Capital Markets.

Going back in the quarter group bookings, are you seeing any of the markets where this behavior has to change. We've heard that some of the west coast hotel operators were allocating more rooms to leisure and some of the groups were having a hard time booking rooms.

Yes, I think on the West Coast we're likely to see some change in behavior but I would say we haven't seen it yet and you know part of that is the first quarter particularly in market like San Francisco, it tends to be a softer quarter so there is still plenty of availability in hotels in San Francisco in the quarter. Some of that also might be rooms only business, you know what you do or don’t take from the convention authority and of course that would probably lead to a better advanced booking because most of that gets booked well ahead of the time.

Okay, and now turning to your acquisition pipeline, what are you guys seeing there as far as the type of deal I mean you guys had some nice deals with the Zetta and Sir Francis Drake where you nearly doubled the yield within two years. Have you seeing any more opportunities like that, or is it going to be more core?

Our focus continues to be buying properties that need to be fixed where there is a significant opportunity to create value either through significant change in operations or because the property has been a star for a physical perspective and need capital in order to alleviate the sort of downward competitive spiral that they are suffering from. So, we continue to be more highly focused on those and I suspect while the embassy suites, I would say even with the $7 million we've allocated or underwritten towards improvements, a bunch of that certainly is differed capital maintenance, the real opportunity there is that change in the way the property is being operated both at the top line and the bottom line and we think there is very significant margin opportunity at that property. So we'll continue to focus on the more substantial turnarounds, hopefully it doesn’t mean buying stuff at two cap, like what the Sir Francis Drake was, when we originally bought it because I think the markets have recovered for over the last three years, but I wouldn’t be surprised to see us buy an asset that has a sort of sub-six or lower cap rate because the property is in dire need of capital and probably a change in management or flag.

Now we will go next to Rich Hightower with ISI Group.

A couple of questions, one broad and one a little more specific, I think this is a follow up to one of Wes' questions but depending on the company during this earning season, you’ve had different answers as far as what the effect on demand is going to be related to the upcoming sequestering Washington and so forth and I am wondering in your portfolio is there a difference between that effect on the West Coast versus the East Coast given different demand drivers for those markets and any other softness that you’re seeing perhaps?

First, we’re not seeing any softness. So, there’s been no impact from all of that to do about sequester. We believed begin to see back last year in August running through October hesitation on the part of businesses to travel as much or meet as much due to the uncertainty surrounding the entire fiscal cliff but with the solution related to the biggest piece of that that would have an impact on this year being the tax agreement that was made. We think in general, whatever happens with either the sequester or the alternative reductions in spending our tax increases that might take effect in ’13 to be pretty modest which is what economist are forecasting. Now, it will have a different impact by market clearly and one would expect naturally that the impact in DC would be more material given both the heavy concentration of government agencies and government in the overall market both including downtown as well as the suburban markets but also because of the heavy concentration of those that do business with the government, particularly the defense industry that is slated for some meaningful reductions. So, we think the biggest impact if there is one, on a national basis is likely to be more limited to the DC market and frankly we don’t expect to see much impact anywhere else in the U.S.

So, maybe you’re not seeing as much in terms of group demand for instance in other markets beyond DC, that’s what it sounds like?

We’re not seeing any impact anywhere yet from this more recent uncertainty.

And then second question more specifically, it looks like, if I look at your pro forma hotel results for the fourth quarter, it looks like management fees ticked up about 14% from 4Q ’11 to 4Q ’12, was that something related to incentive fees or is there anything else that’s that maybe brought that number up more than some other expenses?

Yes. The biggest impact actually we have insignificant incentive fees in the whole portfolio so it’s not incentive fees. It has to do with a few of our properties that had a ramp-up in management fees that we negotiated when we put new management agreements in place which was generally justified by the displacement and negative impact the properties were going to be going through as we did major renovations of them, so that's really what it relates to.

(Operator Instructions) We will go next to Lukas Hartwich with Green Street Advisors.

Jon can you talk about some of the things you’ve done to drive the $40 million of efficiencies, you said in the press release?

Sure, boy, it’s a long list and I'd also direct you; I think we still have our investor presentation up, that we did a little over a year ago in New York which has a lot of detail in it Lukas, and has a number of case studies. But the modifications have to do with labor efficiencies; they have to do with the housekeeping programs, they have to do with green programs, they have to do with Energy Capital Investments, within the portfolio, they have to do with behind things that were renting where in many cases there is a one year pay back. So it has to do with insurance as Ray said; a lot of efficiencies by bringing even the major operators and their insurance over to our program where not only do we get savings but we actually have better coverage and better written policies. So if you break that almost $14 million down by category, they fall into little over $4 million in energy savings on an annual basis, F&B about 3.5 million has to do with a lot of purchasing programs, a lot of this is fundamental blocking and tackling, control programs, procedures, using staffing and labor efficiency models, rooms about 1.4 million, insurance about a little over 700,000 and then sort of a general category of other which is a little over $4 million, so it really is a very extensive detail oriented operational involvement and work with our operators that involve the implementation of our best practices and of course our best practices come from our operators, so that’s generally what they would involve.

(Operator Instructions). We’ll go to Bill Crow with Raymond James.

On the acquisition on the Embassy Suites little bit of a twist for you, I know you started the company with a goal of looking at limited service, select service sort of assets, do you anticipate adding more of these I know you’re an opportunistic buyer but is that something because of maybe the deals in the market, the price in the market maybe look more toward hotel such as that?

I don’t really think of it is a change in strategy at all, it’s an urban hotel you made comparison to select service and hopefully the audience understands that Embassy Suite is a full service.

It’s a full service but it’s a room (inaudible) it’s not a heavy restaurant sort of property it’s a little different than what you typically have been buying.

Well, it’s certainly doesn’t have the independent or unique design flare that are other hotels have. It does have a full service three meal a day restaurant in it that appeals to both the local clientele and neighborhood clientele as well as the convention years as well as our existing hotel guest, but I would say that hotel does extremely well as a value proposition and maybe that’s where people might disconnect it with the rest of the hotels in our portfolio sort of the why it’s successful. But its success nevertheless has to do with the fact that it’s in an urban market that has incredible appeal as a leisure and convention destination, it has a great location in that market and we think there is a tremendous upside in margins and in top line at the property. And really the interesting thing about it Bill is, while the other hotels in fact all of the hotels in inset would be categorized by Smith Travel as a higher brand. It beats all of them in RevPAR and beats all but one of them in ADR.

I mean it is a category killer, Embassy suites are great, is that something you are going to look for going forward, or just continue your opportunistic pursuit of hotels.

I don’t think it’s something we haven’t been looking for. It’s just the first Embassy Suites that we have thought. As an example we pursue the Embassy Suites in Philadelphia that will sail by. We love the brand, you describe it appropriately as a category killer and because of that it’s able to compete at a higher level than maybe what you might argue the physical product looks like; on the other hand it is all suites and none of those properties in the market are.

We have no questions in queue this time, (Operator Instructions). And gentlemen we have no other questions. I would like to turn the call back to you for any additional or closing comments.

Thanks Matt, thank you all for participating. I know we are going to see a lot of you over the next month at various conferences and so we look forward to further discussion then, and we look forward to our first update on 2013 when we have our earnings call in late April. Thanks very much again.

And again that does conclude today’s call. Thank you for your participation. Have a good day.