Good day, and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Call. Today's conference is being recorded. At this time, I’d like to turn the conference over to Ray Martz. Please go ahead, sir.

Thank you, Eric. Good morning, everyone. Welcome to our second quarter 2015 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 2014 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 make today are effective only as of today, July 24, 2015, and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contains reconciliations of the non-GAAP financial measures we use on our Web site at pebblebrookhotels.com. Okay. So we have another good quarter to tell you about and a lot to update you on since we last spoke. Let’s get started. Our second quarter performance was noteworthy, especially our same-property EBITDA growth and overall progress on best practice implementation which was -- which limited expense growth and led to a very healthy margin increase, all which exceeded our expectations. This help to offset the more than modest RevPAR growth, which is below our expectation. Same-property RevPAR for the total portfolio climbed 3.8%, to $217. This was below our outlook for RevPAR growth of 4% to 6%. Our ADR growth was healthy, a 4.8% as we’re able to drive rates in many of our recently positioned and renovated properties by remixing our customer base, while sacrificing some occupancy in the process, which declined 0.9% during the quarter. Later in our call, Jon will provide additional color on the progress we made repositioning several recently acquired or renovated hotels. This overall…

Thanks, Ray. So as Ray said, the second quarter was another great quarter for both the lodging industry and for Pebblebrook. When we look at the second quarter's overall industry trends, strong performance was driven by both transient and group demand, with transient having a slight edge in demand and group having a slight edge in ADR growth for the first time this cycle. Industry data show that April was robust for group, but May and June were softer. We don't think this is necessarily a trend as the commons coming out of the brands show a fairly broad and deep perspective on industry-wide performance continue to indicate that they believe group will be strong in the second half of the year. Overall, transient travel, both leisure and business, remained healthy in the second quarter. The weekday travel in May was soft. In fact, May overall was weaker than expected, so June certainly bounced back with industry RevPAR growth of 7.2%. Total U.S demand growth was not as strong as in Q1, likely due to slightly softer group demand particularly in the quarter for the quarter and moderating growth in international travel due to a strong dollar. Industry demand grew 2.7%, a very healthy level by historical standards. So that was down from the first quarter’s 4.2% growth rate, but well within our beginning of year forecast of 2% to 3% demand growth for the entire year. With industry ADR increasing a healthy 4.8%, RevPAR for the industry climbed 6.5% in the second quarter of the year, slightly weaker than what we had been expecting going into the quarter, again primarily due to weaker performance in May. As a result of the first quarter's results, and our visibility into the rest of the year, we remain extremely comfortable with our…

Thank you. [Operator Instructions] And we'll take our first question from Rich Hightower with Evercore.

Hey guys, good morning.

Good morning.

Thanks for all the detail. I think that was very helpful. So you guys have said a couple of times that the second-half in New York looks better than the first half and given that it is such a transient market with short booking windows, what data points do you think you can point to in your bookings or what else you're seeing on the market that really gives you confidence in making that prediction?

Yes. Two things, Rich. One is we’re looking at the ongoing trends in the market and in the numbers as reported by Smith Travel. We are also looking at the pace of our bookings and our booking pace which was significantly more negative in the first half of the year than it is in the second half of the year. So we have seen an uptick in the pace of bookings. They are stronger months seasonally and so new supply becomes less important as an impact in the stronger months than it is when everybody is fighting for not enough demand to fill their hotels in the seasonally slow periods of time.

Okay. Thanks, John. And then a question on the, I guess, the renaming and repositioning in Coral Gables, did you guys consider other options from making that hotel part of Starwood’s Tribute collection? If you had other choices with other brands, I forget the specifics there, but just what led you to decide on that branding specifically?

Sure. So when we bought the hotel, the existing honor was actually looking at rebranding it and affiliating with a different brand family. And the way we deal with our operators, the way we look at our relationships, we generally won't do that. So what we did when we bought it is we went to Starwood and we said look, we’re going to look at two choice here because we think Westin while it’s a wonderful flag for what we want to do with the hotel in terms of substantial repositioning up, we think it's a limiting factor. And so we're either going to make it independent which we are very comfortable with or will allow you the opportunity to convince this that there is an up brand within the Starwood family that would allow us to achieve the kinds of ADR and EBITDA targets that we're forecasting. But we won't hit you against another brand, that's just not our approach to our relationship. And so what we consider was going independent and at the end of the day we came to the conclusion that it would be better for us to bring in Tribute, maintain the property within the Starwood system, yet be able to have all the flexibility that wanted and that we would typically have as an independent hotel.

Great, thanks. And then finally one quick one for Ray, given the number of 2016 maturities that are upcoming, any initial read on what you might be able to do there?

No, we are evaluating couple of options either looking at the CMBS market, additional bank loans, term loans or other. So we’re going through that process now. We can begin to start prepaying some of that debt actually in the fourth quarter. So we want to be in position of that, but right now that’s a great debt market. Even though there has been a little more volatility in the world over the last couple of months, we think there is a ton of debt capital as we feel really good about it. And we will also look at opportunities here to have some longer term debt. So the loans we’ve done this past quarter or two have been 5 to 7 year range, We will look at something -- call it a 10 year range or so, range or so to help extended maturities.

Okay. Thanks, guys.

Thanks, Rich.

We will go next to Anthony Powell with Barclays.

Hi. Good morning, guys.

Hey, Anthony.

Good morning.

So it seems like across your portfolio as you try to increase ADR that you’re seeing occupancy declined a bit more than you thought. What do you attribute that trend to? Is it price sensitivity or something else going on?

No, actually -- it really we’re having the drops in occupancy that we’re talking about. They really relate to properties that have either been renovated and repositioned and so what happens when we do that and we raise our pricing and we change our mix, we loose customers more quickly than we gain customers. And the new customers we’ve to go out and get. You can’t just raise prices and expect the same economic base of customers to pay significantly higher ADRs. So it's a natural consequence of these transformational redevelopments and these fairly dramatic repositioning that go on with in our portfolio. We don't think and we haven’t really been seeing, I mean, outside of New York where pricing has been a challenge and occupancy certainly hasn't been. We really don't see any pricing pressure in terms of general market pushed back within the portfolio. So really it is property specific and it totally has to do with the need to go out and get new customers willing to pay higher rates and that just takes more time than customers who see raise rates going away.

Got it. Okay. And just on the margin increases, it been pretty impressive. Do you think there is sustainable in future years, especially in food and beverage and will you be able to just keep finding opportunities also in the portfolio?

Yes, we think we still have a lot of opportunity within the portfolio, particularly on the food and beverage side through both re-concepting and basically outsourcing through third-party leases. As customer -- the customer desires change; we simplify a lot of our outlets within our facilities. We modify and simplify room service or eliminated it or change it. We think there is a lot of opportunities on the food and beverage side. There are a ton of opportunities on the energy-saving side as we buy properties. There are significant opportunities for management and staffing efficiencies as we buy our hotels and I will give you an example. I mean, we just bought LaPlaya two months ago, and we’ve already identified almost $700,000 of expense reductions and that's just in the first two months and that's not really touching the food and beverage outlets or the club at the facility. So there is lots of opportunities when we buy assets particularly from owners who are not actively involved from an asset management perspective or who aren’t particularly sophisticated on that side. The other thing I would say and just to point out for everybody's benefit, the success we had in the quarter and that we expect for the rest of the year and on an ongoing basis, these are improvements in the run rate. These are not cost controls. We are not pulling the range and saying hey we need to do better this quarter. What we are doing is here making improvements in the efficiencies of these hotels. And so some of the projects take longer. They require capital investments. If we are going to lease spaces out, it can take years before we can find a new tenant, get a lease signed, get them to build out their space and get it open and then you got a year to annualize those benefits. So there is still significant -- significantly larger number of opportunities within the portfolio.

Right. Great. Thank you.

Thanks, Anthony.

The next question is from Bill Crow with Raymond James.

Hi, Good morning, Jon. Couple of topics this morning. It seems to me we have a little bit of a crisis in confidence surrounding the cycle in particular the opaqueness surrounding the, The Kimpton, The InterContinental situation doesn’t help. Specifically on Pebblebrook, it’s hard to remember a time when the renovation ramp, the disruption, the up-scaling et cetera conspired to drive such a vast change to your outlook. In other words, your past successes in handicapping how these things would play out and achieving or at least exceeding the expectations has made for high expectations. And so, now when we get the shortfall or the downward revision, I think it becomes amplified. So, do you start to -- second guess underwriting on some recent acquisitions or does the ever increasing importance of online reviews, and you alluded to that, make your second guess the impact, and a sustained impact of renovations and disruptions. Does that change your view and value creation, and how you underwrite that over the long-term?

Yes. Good question, Bill. The answer is a pretty simple, no. Nothing changes. And I want to highlight, we can focus as a company on top line if we want. But what we’re focused on is delivering growth in the bottom line and sustainable growth in the bottom line because that’s what leads to value creation. So, people shouldn’t get overly hung up on or over enthusiasm as we underwrite growth coming out of renovations. We’re not perfect. We make mistakes. Sometimes we’ve underestimated how quickly something would ramp as was the case with Hotel Zetta, with Monaco Seattle, with the Minneapolis Grand as examples. And here is a good example in the second quarter where we made a mistake in the other direction and it shows up in the top line numbers in those properties in particular. And it shows up in the other four properties that we’re trying to reposition just from an ADR perspective. And as indicated by the numbers that we provided, the bottom line numbers both individually and for the company are still superb. And I would hope people, what people are focused on is delivering the double digit same property EBITDA growth throughout the portfolio and a key part of that value creation, that ability to grow those numbers so substantially has to do with repositioning these hotels within their markets. I would tell you by in large, over in getting to stabilization almost all of these projects have performed well in excess ultimately in what we underwrote. So the returns on the capital that we’re investing have been quite large and evidenced by the ability to continue to maintain this growth rate that we’ve had with not only double digit same store EBITDA growth pretty consistently over the last four and half to five years, but also to drive that growth in cash flow per share and FFO per share and the cash flow per share ability to pay the dividend which is also been growing substantially. So from our perspective Bill, as we size up these projects, well we have been wrong and they haven’t always turned out to be in line and meet our expectations more often than not they’ve actually exceeded them and created more value than what we underwrote to justify the investment.

Okay. That’s helpful, Jon. The other topic I think I’d probably speak for everybody in saying that we appreciate that you reaffirm the 6% to 7% industry outlook for the year. Last quarterly call you indicated in response to a question that you could imagine that a scenario where RevPAR growth accelerates for the industry in 2016 in other words the second derivative kind of reverses. I’m wondering if how the last quarter and your outlook for the balance of the year has changed that at all for the industry.

Well, in the case of Pebblebrook, it’s making it easier for us to do that, because certainly the comparisons on a RevPAR basis get easier, again the focus is top line. And I think as I mentioned in our remarks, particularly as it relates to these properties where we’re driving ADR up but we’re loosing more occupancy than we thought. As the teams become successful and active and in a couple of cases we had to completely change the teams which does slow down the process and was a factor in Q2 results and results for the second half of the year, the lowering of the top line. They will pick up a lot of momentum and there will become a point where we’re not loosing excess occupancy. In fact we might not be loosing occupancy at all while still driving those rates higher and that’s ultimately what we hope to achieve if we’re right about where these properties should have been positioned but for other factors in their prior lives. So I think on an overall industry basis I think the comments I made about the convention markets in general they all seem to be much more positive next year than they were this year and it think that boards well for an ability in the industry to drive RevPAR higher. And I think you’re beginning to see and it’s inching up but you’re beginning to see more consistent ADR growth numbers in the 5s now for the industry where they were more consistently in the 4s and we think that’s going to continue Bill and we think there’s an opportunity potentially for that, those increases to accelerate into 2016. Again we’re not forecasting that right now, we’re not forecasting anything for ’16. But we think its more likely than not that actually certainly ADRs will be significantly higher next year but also RevPAR higher. I mean construction deliveries continue to come in more slowly than what we’ve been forecasting. And so, we think the increase for next year, we’re going to get to a lower level next year on average than what we thought six months ago in terms of our outlook for supply growth in ’16 just as our supply outlook for ’15 is probably more likely to be at the low end of our range that we provided at the beginning of the year than at the middle or higher end of the range.

Thank you, Jon and Ray. I appreciate the time.

Thanks, Bill.

We’ll go next to Shaun Kelley with Bank of America Merrill Lynch.

Hi. Good morning, Guys. First of all thank you for all the color. I think there are a lot more generalists listening in this call than typically do. So, I think you’ve been pretty clear on the overall RevPAR outlook, Jon. But I did want to dig into the sort of pushing price phenomenon at some of the hotels. Typically what we see as kind of outsider analyst is, if you get late cycle you tend to push more price and possibly kind of by choice start to sacrifice some occupancy. But for the more generalist audience that I think is on this call, could you just comment a little bit about, if that’s actually what you think you’re doing or if this is more hotel specific for Pebblebrook because really what you’re doing is changing out management teams and in the near-term there’s some disruption related to some of those more operationally geared changes?

Yes. So, it’s really both -- its really both going on at different places. Each business and each market are obviously different and there’s more pricing opportunities in certain markets than there are in others. And obviously the start comparisons would be to take San Francisco, Portland or Seattle and look at double digit ADR increases versus New York at little to know ADR increases. And that all comes from competition pricing power and demand that’s willing to pay more and needs to pay more in order to get into the market and do the business that they need to do or enjoy the leisure activities that they desire. And so within our portfolio both things are happening. I mean if you think about, if folks think about our portfolio overall, last year we ran 85% occupancy for the year versus an industry at 64%. Now our markets all are much stronger. So the major cities are running anywhere from the mid 70s or upper 70s into the low to mid 80s, and New York in the upper 80s in the market. So the focus has to be on ADR growth, because there isn’t much more occupancy growth in many of those markets and at many of those properties. And so, there is a strategy there and we’re constantly testing rates and experimenting rates and experimenting with changes and customer mix, and some of them work and some of them don’t. And some of them were successful with pushing customers away and that was a strategy but we’re less successful on a short-term basis in getting new customers back, and Shaun as you indicated and I mentioned earlier sometimes its because you don’t have the right team, they’re not being effective or you have transitions going on in your team, and these are businesses and they need people to run them and they need people to sell the rooms and be effective in the market place. So, both of those things are going on within the portfolio. Many of them are specifically strategic, that are specific to the properties and some of them are driven by the market opportunity overall where ADR growth is the only thing, is the only opportunity there which, by the way is better than occupancy growth because as we all know there is less expense, marginal expenses tied to ADR growth than there is to occupancy growth.

I appreciate all the detail. Second question would be, you talked about sort of a gap between West Coast and East Coast. And I think you were pretty clear that some of that was, because of what it was performing at your hotels this quarter in terms of that gap narrowing a little bit more than it maybe has been in the last few quarters. My question is a little bit more strategic, but you guys have portfolio that SKU the West Coast. You’ve been pretty aggressive in some more unique markets like Seattle and Portland. Are you still more bullish on the West Coast broadly than the East Coast or do you think that’s starting to balance out a little bit with what you’re seeing in DC and Philly?

So I think our operational outlook would be that things are going to remain stronger on the West Coast. There is less supply, its coming later. And so, and the local economies continue to be stronger out in the vast majority of those West Coast markets. The improvement in DC for the quarter was very encouraging but yet you’re not going to, we’re not going to like -- you’re not going to like what happens in the third quarter. So the convention calendar is very weak in the third quarter in DC as opposed to a very stronger convention calendar in Q2. And so, we’re not over the hump yet. I think we’ve certainly come off the bottom in DC and there’s an opportunity next year for the market to be better and maybe get to being an equal performer from an industry perspective. Government travel is improving, government demand is improving. The DC market overall is much healthier than it was a year. There’s a lot more employment growth going on now than there was a year ago. But I don’t think we’re quite there yet. I think the third quarter in particular is going to be a struggle. Philly, I would say is better than DC. It currently has very little new supply. It’s not really going to seen much until late ’17 or 2018. There’s pretty healthy leisure growth and then we begin to see some convention growth in ’17 and ’18 which is a reflection of the city having solved the labor problem that really put a damper on bookings for 2014, ’15 and ’16. So, we are seeing good growth in Philly. It will be aided by the Family Convention and the Pope visit in September, and then next year it will benefit from the Democratic National Convention as well. So a couple of events that will add a little extra juice to the market which we think could push it up to being a market performer compared to the industry.

Perfect. My last question which is pretty simple is, do you think New York City can be positive in the third quarter?

I think it can be. I think its going to be close. I think it will be flat to -- our guess would be flat to up to for Manhattan and we’re certainly seeing some encouraging signs in the market. The other thing I would say is we’ve -- we did our update of our supply outlook for New York. It’s in improved since a year ago. We’re starting to see starts happen more slowly despite the fact that there is a ton of hotels that people would like to develop. It seems like financing is getting a little more difficult and then deliveries are clearly taking much longer even than the extended periods that we thought construction would take. And by the way we’re seeing that in other markets as well. There is a labor shortage, particularly skilled labor. We’re seeing 5% to 10% increases in development costs on an annual basis right now in the major cities. And so, in New York we’re looking at -- this year now, I think our forecast was in the 4s last we talked, we now think it will be well down into the 3s maybe as low 3%, and we think next year is likely to be in the same range maybe 3%, 3.5% in terms of delivery. So that’s definitely better than what we thought a year ago. Some of the things that were supposedly under construction were just demolition of buildings and clearing of sites, but construction hasn’t started yet on those even though some of them are going into the Smith Travel numbers for start. So, we walk every site, we take pictures, we contacted developers, they all lie of course, so we do our own assumptions about deliveries and schedules. But I would say that it’s a little bit more encouraging than it was a year ago.

Great. Thank you for all the color and for the detailed call.

Sure.

Thank you, Shaun.

The next question is from David Loeb with Baird.

Most of the topics have been pretty well covered, but Jon, just to continue a little on New York, can you just give a look into next year. How do you see that market performing on easier comparisons in the first half for example or for the full year, and then similarly San Francisco as you look out over the next couple of years particularly with the Moscone expansion project going on. Do you see any softening in demand there?

So in New York, it’s a tough one to forecast. My gut tells me its, it will be a little bit better than this year. Now a part of it is going to depend upon what happens with the dollar and international exchange and if we can get a re-up lift of capturing greater share of the global growth in travel. Our sense is because of a lower level of supply growth that, there’s an opportunity to see a little more pricing power again in the stronger part of the season, but not so much in the first four months of the year. And even though the comparisons are easy, we still worry about competitive pricing and the behavioral changes resulting from these loyalty programs that drive -- are driving the operators and owners to achieve 95% occupancy levels. And so there have been a lot of discussions with the brands on that because it is an issue in New York and some of the other high occupancy and high rate markets like DC, San Francisco, West LA, Seattle, Portland. We do see this as an issue and we think they’re all going to change. Now it may not all happen next year, it might roll into 2017. But we’re being led to believe that, there’ll be changes in the programs that can eliminate this motivation to lower pricing to drive occupancies up to 95%. And I think that will help pricing power in the market place. As it relates to San Francisco, we have a better convention calendar next year. The Moscone Center has done a really good job from a relationship standpoint with the conventions, and so, next year actually looks to be better and not impacted by the expansion and renovation. We see a little bit of trouble in the spring of ’17 and we just heard from the convention authority for completion purposes to stay on schedule to trying to move around five conventions and to create a, basically an empty, a vacancy period of about I forgot what it was maybe six or eight weeks in the spring. And they will need to relocate one convention out of San Francisco. So, I don’t know what the pace is for ’17, maybe ’17 will be more like this year, David, but I think ’16 is going to be better.

Okay, great. Thank you.

We’ll go next to Wes Golladay with RBC Capital Markets.

Hi. Good morning, guys. Looking at those four hotels where you’re doing the mix shift. Are you going to modify your strategy or is this just a timing issue?

Just a timing issues, Wes. It really is all about getting out and getting new customers and competing in the market and that just wasn’t being done. And where they were doing it, they were doing it at lower rates. So, we’re continuing down the path. There were some periods of time earlier in the year, some in Q2, some in Q1 where the message of higher ADR was taken literally. And so, we probably gave up too much occupancy unnecessarily. So we pushed out some business that we didn’t really want to push out because the focus was only ADR and so we -- we had detailed discussions about the strategies and tactics to make sure that people understood that, there’s a balance. We still need revenue and so, there’s business that we don’t want, yes. But lets -- lets not push everything to an extreme all at once, because this is going to take us a couple of years in order to rebuild the business and improve the overall pricing.

Okay. Do you think you can re-couple with your initial expectations by the end of this quarter?

I’m not sure that I fully understand the question, but I would tell you that we’ve lowered our expectations for the rest of the year at all six of these properties, and that’s the majority -- the vast majority of the reduction in our RevPAR outlook for the year. So, I guess, the answer would be, no. No, we’re not going to get back to what our expectations were for this year as it relates to any of those six properties.

Yes, I guess I was trying to get at, by I guess the end of this quarter, you had a particular RevPAR or ADR goal, I know there’ll be some timing you’ll miss the RevPAR because of the timing issues. But would you re-couple with your original expectations I mean your mix shift targets I guess is what I was getting at?

Yes, well the answer is, no. We’re not going to hit our mix shift targets by next quarter and again we reflected in our numbers. It’s going to take us a little longer to get where we want to go and again part of that is, the teams and having to change the teams and part of it was overly enthusiastic expectations on our part about how quickly we could accomplish some of our goals.

Okay. And then, just a macro picture, you got another San Francisco hotel in a big West Coast footprint, are you worried about being too much concentration to certain industries such as technology?

Well, it’s a risk. I think as the world evolves here we’re all more exposed to technology and the creative industries, that’s where the job growth in the U.S. and obviously you’re seeing large pockets of that outside of San Francisco in New York, in Seattle, in Portland, in Boston, in San Diego, in Austin, that’s the fact of life. And I think we’re all going to be exposed to a little more volatility within the industries that are on the creative side, because they seem to be so much more tied to capital and capital flows. And we know that those are not consistent through the cycle and we’re going to have to live with that greater volatility. And I think the, if we go back and look at markets where this is occurred more densely like San Francisco and -- its more than compensated for by the barriers to entry in those markets for hotel development and thus we believe that ultimately while we might have some more volatility in a downturn, we’re going to have more value creation and more growth in the long-term.

Okay. Thanks a lot guys.

And we’ll go next to Lukas Hartwich with Green Street Advisors.

Thank you. Good morning, guys.

Hi, Lukas.

Good morning.

I’m just curious. So are you guys looking at changing any of your operators at any of your hotels?

Are we looking at them? We’re always looking. We always look at the effectiveness of our operators, but I know that’s not the question that you’re asking. So the answer to your question is there isn’t anything we can talk about at this time other than our properties in San Francisco continue to be managed by Kimpton.

Okay. Does your guidance reflect any changes in your San Francisco hotels in terms of the operators?

So in general Lukas, when we put together our outlook and our forecast, we do our best to anticipate what we believe is likely to happen in all regards. Clearly by our efforts in Q2 we didn’t do such a good job at the top line in forecasting Q2, so we’re clearly not -- we’re a long way from being perfect and accurate all the time. But our outlook for the second half of the year contemplates as much as -- as well as we can forecast all the things that we believe will happen with the portfolio in the second half of the year.

All right. That’s helpful. And then I’m curious to the 2Q performance in San Francisco I think you said it was 3.7% up in RevPAR. Was that entirely driven by Hotel Zephyr or what's going on in that market?

So we had some weakness down at the wharf, specifically with our Argonaut property which has a stellar performer since we bought it, and it had a RevPAR decline of 0.9%. And we think it was primarily the lack of, what is a fairly minimal group base where we typically run about 18% group at the property and there was a lot more competition from some of the big box folks in the city because the convention calendar was weaker in Q2 and will be in Q3 as well. And so that property was specifically an underperformer. Most of the rest of our properties did pretty well in the quarter.

Okay. That’s helpful. And then lastly, can you just update us your thoughts on acquisitions today?

Sure. Well, we continue to be an active looker in the market place and as you know we made two acquisitions last quarter the Tuscan and LaPlaya. So where we can find and be successful from a pricing perspective assets where we can add significant value that we think are in markets with strong barriers to entry. Where there is a unique physical attribute for that property or where there is a complex situation, we would expect to continue later this year to pursue assets. The other thing, we continue to benefit from again as opposed to competitive situations are when operators come to us with opportunities specifically off market and if those provide all the same opportunity and attributes I just mentioned and the economics work, then we have an interest.

Great. That’s it for me. Thank you.

Thanks, Luke.

Thanks, Luke.

Next question is from Jeffrey Donnelly with Wells Fargo.

Good morning, guys. Maybe just building on Lukas’s question. Jon, can you talk about asset pricing that you’re seeing out there in the market. I think early in the year it felt like a lot of your target markets were kind of at the low 5% cap rate on NOI. But we’ve seen weak valuations pull back and I think that maybe has taken some of the retail of the market. I’m curious if you think that’s had an impact on market pricing as of yet or if you’ve seen the contrary?

I don’t think we enough time yet Jeff to come to any conclusion. Our sense is that the REITs are being replaced by foreign capital in some of those gateway markets in terms of being the driver of values. And so, at this point my guess is there might be some softening in pricing very, very minor from what were pretty aggressive levels over the last 18 months. But I’d say, we don’t have enough information yet. There’s not enough data in our set to come to any conclusion.

Do you think we’re going to be set up for maybe a repeat of what we saw in the mid 2000s where private capital effectively outpaced public equity valuations and it actually kind of created more of an M&A environment?

I think that’s possible particularly because of the amount of capital available on the private side and the level of leverage that’s available. And when you combine that with large amounts of foreign capital looking to be put to work in the U.S. particularly the gateway cities, I think that’s a possibility. I think the one challenge that I heard from private equity groups is that with the companies running at much lower leverage levels in order to be successful and pay and have an offer accepted the premium has to go on a lot more equity, because there’s more equity and less debt in these companies. And so, while the buyers can get to the same leverage levels the overall nominal premium relative to the investment seems to be a headwind perhaps for some of those acquisitions. So I’ll have to wait and see how the two - whether the two offset each other or not.

And just, two last questions. I guess, this was related to Kimpton, but I’ll ask maybe more generally. Is I'm just curious, because trying to think about disruption to the extent whether it's Kimpton or other chains. To the extent you change out the manager or the brand on a hotel, are you able to talk about how much of your revenues typically come through a particular brand, to maybe just remind us of that? Is it sort of 15%, 20%, 30% of your bookings? I know they're not lost permanently. But I guess I' thinking of it as, is that a component of revenues is most at risk of some sort of disruption to the extent there is a change?

Yes, unfortunately the data doesn’t really -- isn’t really helpful because a lot of business gets pushed through, the channel is controlled by the brand, but it’s not representative of business that they’ve actually generated. So, I think our experience tends to be that with the big brands there is anywhere from a 6 to 12 month impact. It’s not huge, and frankly it’s usually offset by cost savings. With the smaller brand and independent hotels, I’d say it’s generally a three, at most six month kind of impact period. And the impact tends to be materially lower just because, what people are seeking out isn’t necessarily a loyalty to a brand per say, but a loyalty to a property, its personality and attitude and the attitude of the service that’s being delivered. And I don’t think that changes an independent or a small brand property when you change the manager. So its always bumpy Jeff, but its not -- we don’t think of it as being hugely or materially bumpy, and it’s relatively a short period of time.

Okay. And maybe just one last question. I think as Jon had said earlier, I think there are a lot of generalists on these calls and among them I find there’s also a good deal of concern around the sort of the threat of Airbnb particularly in the absence of information or real data around their success thus far. Are you able to quantify maybe in your opinion whether Airbnb has had a measurable or material impact on your business?

We don’t have any data to do that, what we can tell you anecdotally is where we see the biggest impact is around events particularly either leisure driven events convention events that are where much of your attendees are paying for their lodging. And so if you look at business around Marathons as an example, where we used to have really intense compression and an ability to price that maybe what the customer would describe as sort of gouging rates. I’d say we’ve lost a lot of that ability at this point within the major markets where these events take place. And so, while Comic-Con is great in San Diego and God knows we don’t want that to go anywhere else unless its one of our markets. You don’t have the same marginal pricing capability today because of how much of that demand is getting filled by Airbnb hosts versus it having compressed and even pushed out into the suburban markets and even up to Orange County as an example for Comic-Con to some extent. I think that will change over time Jeff, as the industry becomes regulated. And when there is enforcement of the laws that take place, but that’s still going to take several years. We’re seeing it happen. So particularly again and interestingly in many of the more liberal cities like Santa Monica and West Hollywood have passed bans, complete bans on Airbnb in the market and now it’ll have to figure out as how do they enforce it and where does the money come to enforce that. So, it changing, it’s having an impact in a lot of areas other than just lodging. It’s having an impact on housing availability. It’s having an impact on affordable housing. It’s having an impact on the quality of life in apartment buildings and condominium buildings and some neighborhoods. And so the impact is far broader in a negative way than just the lodging industry. And so, I wouldn’t say that it’s been material on the lodging industry but I would say that anecdotally it’s been noticeable.

That’s helpful. And who wouldn’t want a Comic-Con visitor staying in their house. Well thank you for that. That’s all I have.

Fair.

And our next question is from Howard Bryerman with PENN Capital.

Yes. Thank you, Jon. Actually the previous gentlemen asked the major question. But just kind of maybe as a follow-up to the Airbnb question, there’s somewhat of a domino effect where maybe Airbnb infringes on the economy sector and then the economy sector infringes on the middle sector and so on up the chain. Do you think maybe that’s Airbnb indirectly may be some of the reason why you maybe having difficulty attracting the upper upscale client base. Because maybe the -- what wasn’t your customary competitor is kind of reaching up and maybe grabbing that aspirational customer in the past would have gone to an upper upscale hotel?

Howard, I think the -- there is a very complex dynamic in the hotel industry, and we’re always -- we’re always out there saying, when supply gets added to a market, it doesn’t really matter whether its economy or its luxury. I mean it matters a little bit obviously, but ultimately the market is dynamic and as you indicated, the economy competes with the midscale and midscale competes with the upscale and upscale completes with the upper upscale and own out to luxury. And so, Airbnb is adding supply into the market. It does have an impact. And I would add not all Airbnb product is staying in somebody’s extra bedroom, in fact most of its not. A lot of it is fully vacant apartments, in some cases homes and in some cases very nice homes. So it isn’t just -- they’re not pulling business just from the economy segment. But I would say, we’re not having trouble attracting higher paying customers. Our issue is the time it takes to go out and find those customers and get them into properties where we’re repositioning hotels. I mean we don’t have a problem -- haven’t had a problem with getting significant rate increases at the vast majority of our hotels within our portfolio when the markets are healthy which is the case in most of our markets. Clearly there is a pricing issue overall in the ability to grow rate at much at all in New York. But that’s not the case in the rest of our markets.

Okay. Great. Thank you.

Yes. Thank you.

Thanks, Howard.

It appears there are no further questions at this time. Mr. Martz and Mr. Bortz I’d like to turn the conference back to you for any additional remarks.

Well, thanks everybody for participating. Hopefully today will be better than yesterday and tomorrow or Monday will be better than today, and we’ll continue to focus back on the real fundamentals of the industry and not get lost in some of the noise that goes on at specific companies. Thanks very much. We’ll talk to you next quarter.

This concludes today's call. Thank you for your participation.