Good day and welcome to the Pebblebrook Hotel Trust Third Quarter 2013 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Raymond Martz, Chief Financial Officer. You may begin.

Thank you, Devona. Good morning, everyone. Welcome to our third quarter 2013 earnings call webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start let me remind everyone that many of our comments today are considered forward-looking statements under Federal Securities Laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2012 and our other SEC filings and could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements that we made today are effective only as of today October 25, 2013 and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contained reconciliations of the non-GAAP financial measures that we use on our website at pebblebrookhotels.com. Okay so the good news is we have another solid quarter to talk about, so let's get started. Same property RevPAR for the portfolio climbed 6.2% to $202. This exceeded our outlook for RevPAR growth of 5% to 6% primarily due to strong transient and group demand and better than expected performance at many of our West Coast properties which have been consistent throughout this year. This was offset by weaker performance in DC and the negative impact at Viceroy Miami from out of order rooms due to repair that John will discuss in more detail later. Our overall same-property RevPAR gains in the quarter came exclusively from growth in rates. Our 6.2% RevPAR increase is driven by a 6.3% increase in ADR, our occupancy decreased 0.1% to 86.8% demonstrating pricing power in the portfolio and the very high occupancy levels we have already achieved with the majority of our markets above prior peak occupancy levels. As a reminder RevPAR and hotel EBITDA…

Thanks, Ray. As Ray discussed the third quarter was another terrific quarter for Pebblebrook despite some fiscal and economic headwinds and both forecasted and non-forecasted disruption in the quarter. A solid quarter of industry fundamentals and high occupancy levels at our properties and in our markets allowed us to drive healthy increases in average daily rates, which represented all of our RevPAR growth in the quarter. When we look at the third quarter's overall industry trends, performance continued to be driven by strength in transient travel, both business and leisure. While group demand across the industry continued to be weak and negatively impacted by federal government travel cut backs and the beginning of the government shutdown. Overall demand in the U.S. rose a healthy 2.1% in the quarter, the same rate of growth as in the second quarter. Supply growth in the U.S. continued to be constrained at just 0.7%, down very slightly from the 0.8% in Q2, certainly very encouraging. As a result of demand growth that continues to exceed supply growth occupancy for the industry increased 1.4%. and ADR grew a healthy 4%, up from Q2’s 3.6%. The result was a RevPAR increase of 5.5%, an acceleration from the second quarter's 5% RevPAR growth and the 14 straight quarterly increased in industry RevPAR of 5% or more. According to Smith Travel group continue to significantly underperform transient, with group RevPAR up just 1.6% in the third quarter, while transient carried the industry with RevPAR increasing a strong 7.9%. At Pebblebrook our West Coast properties again significantly outperformed our properties located along the East Coast. RevPAR at our hotels located in Seattle, Portland, San Francisco, L.A. and San Diego climbed 11.5% on a combined basis in the quarter with occupancy up 1.5% to 89% and ADR climbing a very…

Thank you. (Operator Instructions) And we will take our first question from Andrew Didora with Bank of America.

Hey, good morning John, good morning Ray. Certainly appreciate some of the color that you gave on the East Coast versus West Coast markets and I think your recent deal activity shows what you think about continued growth out on the West Coast. But I was curious do you see any other markets out there that you think might have some similar characteristics, emerging that would attract you to them. I know when you first brought Pebblebrook public there were a few other target markets that you were considering and I was just wondering if I -- kind of your thoughts have changed you would go after?

Not really Andrew, I mean if anything obviously since our IPO we've significantly reduced the number of our target markets and really removed the markets that we believe were cyclical markets to those that had economic barriers to entry back at the beginning of the cycle. And so if anything I'd expect probably our viewpoint to continue to narrow about our target markets as we become, probably more continuing to be more successful in markets that have higher barriers to entry and supply that’s coming later in the cycle than those where supply has come or is coming here earlier in the cycle.

Got it and then I guess switching to a market where you have been a little bit of worried about the supply growth in New York and just wondering and as you are finishing up the expansion at Affinia 50 seems like you could have a good built-in pipeline here with the Manhattan Collection. Is there any willingness on your part to maybe eventually try to buy out Denihan and consolidate those properties or is the supply growth in New York too much of a risk right now.

Yeah I don't think the supply growth would influence our decision to own a greater percentage of the joint venture than what we own today. What would influence is that we certainly don't have any rights to buy them out and we don't expect them as a multi generational owner to look to sell their interest in the joint venture. So I think as we mentioned when we bought the joint venture that we were -- we fully expected that our ownership would remain exactly where it was at the time of acquisition and that we didn’t expect it to go up at all.

Got it, and then just one, last one from me. The group revenue numbers that you put up in 3Q as well as kind of the pace numbers for ’14 seem pretty strong to us. Why you think group was so much better, I guess first in 3Q than transient and then just in terms of kind of the industry do you think some of the issues that we saw in the first half of the year on group are getting less bad as we are now in the back half of the year heading into ’14?

Yeah, I think our performance from a group perspective in the third quarter was very specific to our portfolio. I mean we have some properties in our portfolio that strategically have been focused on ramping up following renovations, including Westin Gaslamp, the InterCon in Buckhead and the Affinia, Manhattan so really three of our largest properties and those that have a very heavy group focus and we are looking to have an even heavier group focus in order to maximize overall RevPAR growth and in particular ADR growth. So when you look at the industry statistics for 2013 which is really a much better way to judge where group is, for ’13 we certainly haven’t seen any improvement at all across the overall industry and in fact perhaps it’s certainly has been negatively impacted by the government cutbacks and certainly reductions in overall group meetings being undertaken by the federal government. We are encouraged about next year’s numbers, maybe not as much by our own numbers which again I think are probably more specific to our portfolio but through what we have heard consistently from many of our peers and some of the brands about their overall pace for ’14 which is a much broader set of data than anything we could possibly provide. I think the other positive about group for next year, as I mentioned in my comments is in a lot of the markets of the major cities next year have improved pace and have expectations for improved overall convention business for next year compared to this year and again it just has to do with this peculiar rotation that goes on and so that is very encouraging as opposed to this year where we said at the beginning of the year that the convention business overall in the industry and in many of the major cities was going to be off in 2013 and unfortunately that in fact has been the case.

That’s great. Thanks a lot for the color. I appreciate it.

Sure.

And next we’ll go to David Loeb with Baird. David Loeb - Robert W. Baird & Co.: Good morning, good morning Jon, definitely enjoyed the sound. Can you talk a little bit about where you guys are in the acquisition phase, the cycle and how much longer you think the hotel cycle itself is likely to continue?

Yeah I think as it relates to the overall underlying operating cycle we talked about it in more detail at our investor day in September and it really comes down to what happens with really two cycles, right? One is the macro cycle. We’re economically sensitive and so whenever the next downturn takes place economically, we are going to be impacted by that. But for the fiscal shenanigans here in DC, our expectation is, but for that or any event that might take place that could throw the overall economy into recession again, we really think the economic cycle is going to be stretched because the recovery has been relatively weak and very modest. So from the overall economic cycle we think that has quite a long way to go and from the micro cycle which is the supply and demand from an industry perspective and in our markets, we also think that's stretched out is indicated by what is a very low growth and supply at this point and continuing challenges and difficulties on the part of developers to get large amount of capital for new construction. So while the supply growth and the construction pipeline is increasing and we focus much more on what's under construction than what's in the pipeline because the pipeline is always huge. We are very encouraged by what we're seeing in the reduction in our outlook for supply growth for next year is particular positive from our view point. So we think that micro cycle is getting stretched out, obviously the even greater micro cycle David is related to each individual market and clearly we're seeing supply as well publicized in different markets to a much greater extent than in other markets and that's because of our focus over the last two years already on markets where the supply growth is coming much later in the cycle. So we're pretty encouraged about that. We think the overall cycle will be stretched out, we think the micro cycle is being stretched out and so for now we continue to be active in pursuing assets. As you are aware everything we brought since July of '11 has been on the West Coast and I think that represents our micro bias if you will and perhaps even some macro bias economically. And how long it will last I mean we talked about it being perhaps through at least our ability to compete, at least through sometime next year but we have to see how everything plays out and as we indicated supply is coming a little later than what we've been forecasting. So we continue to be encouraged about the opportunities in the market, but we continue to focus on assets where we can make a big difference from an operating standpoint and/or physical standpoint. David Loeb - Robert W. Baird & Co.: Great. Can I ask one more?

Sure. David Loeb - Robert W. Baird & Co.: Where do you think the outlook is for increasing group rates. It doesn't seem like that rate increase is all that strong. When do you think that starts to improve?

Well I think it's going to be gradual, I mean I think it's going to it continue to improve as underlying occupancies continue to improve. I mean there are more compression days due to the higher occupancies. We have seen significant group rate growth on the West Coast. We expect to see it again next year. So again I think group rates are bifurcated just like the East Coast, West Coast overall rates and performance are bifurcated. We do think as we see further employment growth and as we began to see the unemployment rates come down and as we began to see more competition for professional service providers in particular we believe we'll see increased demand growth through the rah-rah, culture meetings, training meetings and incentive travel that historically picks up and is historically correlated to competition for people. And we haven't really seen much pickup in that yet and where we are seeing pickup in corporate group has been offset by reductions in federal group and so we haven't seen improvement overall. So I think we believe that next year will be better from a group perspective and we think that should translate into some modest improvements in group rates but again much more so on the West Coast than on the East Coast. David Loeb - Robert W. Baird & Co.: Okay. Great, thank you.

And we’ll go next to Ian Weissman with ISI Group.

Yes, good morning. Most of my questions have been answered but just in terms of as you are looking at deals in the market place given that REITs are probably trading that one of the lowest employed cap rates they have in the last two years, are you -- may if you could talk about sort of who is out there looking most aggressively, are you competing now more with the refund deals would you say?

Yeah I think what we’ve seen over the last six months is an increase in the amount of leverage that’s available to private equity and a willingness to use that particularly because the cost of mezzanine debt and the higher tranches of debt has come down significantly even though we’ve seen some increase in the interest rates on the base portion of debt that gets underwritten and provided. So we’ve begun to see more competition in the major cities of high quality properties from private equity. Acquisitions by North was a good example related to the London or their Waldorf and Naples down in Florida. We’ve also seen more competition from the public non-traded REITs like Carey Watermark or Inland American who are seeing significant ramp ups in capital that they are raising and a rotation on their part into investing that capital not only in the hotels but into full service four diamond equivalent hotels. And so I think we mentioned at our investor day, where we used to see most of our competition come from our peers and we still certainly see that. We have added competition from both private equity and the public non-traded REITs all of which has been expected as we’ve talked about previously, where we are happy to kind of cede the ground to folks in the middle or later part of the cycle where our focus has been accumulating assets, high quality in the major markets in the early part of the cycle. So our hit rates probably gone, our success rates probably gone for the assets we pursue and pursue aggressively it's probably gone from a 50% hit rate down to a 20% or a 25% hit rate.

Given the change that you’ve seen in the leverage the private equity has taking on would you say I mean private early cycle was focused a lot more on limited service secondary markets, higher yield. Given the change in leverage are you seeing, would you then say private equity is more aggressive for high quality luxury branded product today then you’ve seen before?

Yeah I’d say no doubt about that and I think part of it is they’ve driven pricing up so significantly on the limited service or select service side and the gap has narrowed and the much higher growth rates on full service, particularly urban properties is so much higher than select service that it makes sense to refocus or pivot to the full service properties.

Right, okay, thank you very much.

And we’ll take our next question from Wes Golladay with RBC Capital Markets.

Hey, good morning guys. Looking at that 7.3% increase in ADR and the holding on portfolio, is that driven by mix shift or you guys raising prices across the segments?

Both. We continue to improve our mix through eliminating the lowest rated business that we have when we can and replacing it with continuing growth in business transient and leisure transient that is less price sensitive. But it's also price increases and we had probably mid single digit corporate transient increases for this year. We are looking at something similar next year, again probably higher in the West Coast markets and lower on the East Coast markets in terms of success with our corporate accounts. And then we continue to improve mix as demand continues to go up and as seen through our eyes in the third quarter there is not much more occupancy we can increase at an awful lot of our properties clearly we can pick up some occupancies from the Viceroy Miami and the Affinia 50. But our focus has been giving up some occupancy for rate and in New York we've had some success doing that perhaps given up more occupancy than we want to get the rates that we’ve gotten but that’s a lot of tweaking in revenue management to take place. Whereas on the West Coast we’ve gotten rate and we haven’t given up any occupancy and so we’re going to continue to push those boundaries and so it is both pricing and choosing not to take certain business and choosing not to have as many discounts and promotions offered on a periodic basis.

Okay, thank you. And looking at your West Coast markets are you seeing an increase in development permitting and pre-planning for some of those more supply constrained markets?

For sure I mean there is definitely, the development community is increasingly active in trying to put projects together. As the performance of these markets continues to improve and ultimately support new development. It takes time and particularly in the West Coast market it can take a long time I mean there was a report about this dramatic change in Santa Monica in terms of new development and the reality is there probably isn’t going to be anything delivered at the earliest until 2016 and that presumes they can get through the process without ultimately having the community groups stretch these things out even further. So we’re seeing activity and the beginning of activity in markets like Seattle where there is an Embassy Suite under construction down by the stadiums and there is probably four or five other projects, many of which are part of major mixed use towers be announced but nothing started yet and we have, I think a select service hotel in Portland under construction, we have one in San Francisco and we have some folks who have discussed potential projects in all of those markets but again not much has started and not much is fully approved and when it does it’s going to take generally anywhere from 18 to 36 months depending upon the size of the project.

Okay, thank you, guys.

Thanks, Wes.

And we’ll go next to Jeff Donnelly with Wells Fargo.

Good morning guys. Jon you touched little bit in your earlier remarks I was just curious the higher rates upon this, have you seen that influence asset pricing in some markets at all in or maybe be buyers step back or assets even sort of be held back from the market at all.

No, we haven’t seen that at all, Jeff. In fact as I mentioned we've probably seen the opposite, we’ve seen more capital with more leverage and on a overall rate basis more traffic. To a developer and to a private equity in funds it’s all about maximizing your levered returns and so it’s really about the leverage and the amount of leverage and far less about the cost of that leverage, which kind of gets washed out in the overall return models. So we’ve actually seen, if anything a decline in cap rates. We talked about it last quarter, talked about it at our Investor Day. We've probably seen a decline of as much as 50 basis points in cap rates in the major cities.

I guess to put it differently the higher rates haven't weighed on lender proceeds at this point.

Not at all, what’s weighing on our lender proceeds is the fact that they have so much money and not enough places to put it and get what they consider a decent yield. And so they’re increasingly more aggressive. Their credit terms are more lenient. There is still a challenge for new construction but for existing properties it's clearly loosened over the last nine to 12 months.

Yeah Jeff in addition to, you see the banks getting more aggressive because they have capital they are trying to deploy it, it has the same effect on the mez so as the same mez capital is right out there, they are trying to compete to find deals, deals are also compressing, so that’s kind of the combined effect of making leverage more attractive and more of it.

And I would say Jeff, we don’t really see it changing without a very dramatic change in interest rates and I don’t think a 100 basis point increase is dramatic at all for the private equity folks and has little to no influence on the public non-traded REITs.

Sometimes lenders kind of have other governors that kick in that maybe limit their aggressiveness. I mean do you find that they are starting to look at metrics like maybe like on a debt on a sort of key basis or things like that might cause them to hit a feeling if you will or you don't make it close to that?

No, don't think we are close to that.

And just then maybe switching gears, historically asset size, the size of an asset like Redbury would have been considered too small, pretty attractive really from a margin perspective, do you think that there are opportunities to look at that assets of that size in other location, this is one that's particularly special?

Well, I think it’s pretty special because of the quality of the asset and the location and the really high barriers to entry in the best selling markets overall. But we’ll continue to look. I mean we've clearly bought assets that are in the 100 room range and we will continue to look for opportunities in those areas in the target markets that we have identified.

I guess I had heard that the SLS in South Beach is on the market, I am not sure if it's been snapped up but is that sort of asset you guys would look at double down in Miami and maybe deepen your relationship with sbe?

I think our general challenge with South Beach are the ego values that are being built into the values you get to based upon normal financial economics. And so our guess is that we will continue to be challenged to be successful in the South Beach market.

You just need to pick their ego.

Yeah, I haven’t found that to be financially a successful strategy.

And just one last question, I am curious, I guess why weren't the leaks in Miami encountered in initial due diligence, I know you don't open the walls when you buy a property but was it that the actual construction didn't match the original plans is that the issue?

Well, we -- yes, that’s certainly the case and we didn’t have leaks and there wasn’t a record of leaks at the time we bought it. So, I mean I can’t get into too much detail because there will be litigation surrounding obviously what we have encountered and we have to be careful about talking in detail about what we believe the causes are.

Understood. Thank you.

Thank you, Jeff.

And we will go next to Bill Crow with Raymond James & Associates.

Hey, good morning guys. On that same topic Jon are the residential units above your hotel at the Viceroy also being repaired or there is a risk that you could suffer some water damage from above?

No, there are no issues in the condominium units.

Okay, it’s just the hotel, okay. John, you gave us a lot of ingredients to think about for next year with your economic comments, supply, et cetera and better group metrics. You want to go ahead and throw the industry wise RevPAR forecast for next year like Starwood did yesterday?

I don’t think we are ready to do that, Bill. I mean again Starwood has certainly a broader view than we have but we've historically talked about the fact that we think over the next several years prior to supply that exceeds demand which we think isn't going to occur until at least 2016 that a general range of five to seven for the industry is very reasonable to expect. I mean the markets continue to grow occupancy and the only thing constraining rate is psychology, particularly on the East Coast. I mean take DC as a great example. In the last few months it's hit the highest occupancy ever in its history yet there is no pricing power and no rate growth in the market right now and it's clearly being impacted by very bad psychology. And we continue to grow occupancies in so many of the major markets because demand continues to outpace little to no supply growth in those markets. And so for the moment we continue to see very significant pricing power again particularly on the West Coast and if our government can get their act together and get out of the way and stop impacting us every year with these self created crises I think psychology will improve for our corporate users and the public in general and we’ll see more pricing increases being able to be passed through to the customer base.

Given those comments then John would DC provide an opportunity for accretive and may be longer term buyer that could wade out short term psychological damage on rate?

Yeah I certainly think it could, if the pricing reflects what we believe to be probably relatively flat or below average or significant below average growth in RevPAR over the next two and perhaps three years.

Two more quick questions from me. Hawaii Jon I know it's been a subject that’s coming on and we’ve talked about it before. But given your understanding and embracing of the global travels trends is that a market that might reemerge as a target for you?

I don’t think so, it's had a hell of a run in this recovery, prices are arguably above replacement cost at this point in many of the markets there and it's really far from us here in Bethesda. And so I think we’ve been extremely hesitant to pursue assets in Hawaii at this point and I doubt that that’s going to change.

Okay, and then finally Jon you made comments about the increased leverage being available to [PE buyers]. Does this foreshadow that relatively soon and may be next year we’ll start to see another round of M&A in this space?

Well if you are talking about public to private I think that often follows higher leverage and particularly inexpensive leverage being available and it also follows capital flows and capital raising. So some of the PE firms raise significant amounts of capital to invest in real estate and in some cases in particular in hotels they are going to be increasing looking for larger investment opportunities and that certainly could be companies.

Great, that’s it for me, thanks.

(Operator Instructions) And there are currently no further questions I’d like to turn the conference back over to Jon Bortz for any additional or closing remarks.

Thanks Devona and thank you all for taking your time today to participate. We know it's a very busy period. We look forward to seeing you in San Francisco at NAREIT and we thank you all for staying at our -- booking reservations in our properties in San Francisco. And again we look forward to seeing you out there. Thanks.

Thank you this does conclude today’s conference. We appreciate your participation.