Greetings and welcome to the Pebblebrook Hotel Trust Fourth Quarter and Year-end 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. It is now my please to introduce your host Mr. Raymond Martz, Chief Financial Officer for Pebblebrook. Thank you sir, you may begin.

Thank you, Dana. Good morning, everyone, and welcome to our fourth quarter and year-end 2016 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder that many of our statements 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 2016 and our other SEC filings, and future results could differ materially from those implied by our comments. Forward-looking statements that we make today are effective only as of today, February 24, 2017, and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use on our website at pebblebrookhotels.com. The same property operating results that we will provide on this morning's call are based on the hotels we owned during 2016. For the details of which hotels are excluded due to the sale of hotel or was close for renovation, please consult the financial schedules included in last night's release. Same property RevPAR, same property hotel EBITDA and same property hotel EBITDA margins which is what we'll speak to you today are based on the combination of our wholly owned property information, as well as our 49% pro rata interest in our Manhattan Collection joint venture, which we exited in October. You will note that in the press release we issued yesterday we break out our wholly owned hotels separately and did not provide the combined year-to-date operating performance, with our previous Manhattan Collection joint venture. This is due to the SEC's recent pronouncement about pro rata reporting, which does not allowed combined pro rata reporting data. Unfortunately this is the last quarter that we…

Thanks, Ray. Well 2016 was an interesting year to say the least and I'm not even talking about politics. Despite a weaker fundamental environment than we initially expected and provided in our initial outlook a year ago. Our operating and financial performance for pretty much all of our metrics landed within the ranges that we initially provided. Starting with GDP growth, which preliminary fell within our 1.5% to 2% growth range. Industry RevPAR growth for 2016 of 3.2% was at the low end of our 3% to 5% range. The urban RevPAR increase of 2.1% was in the middle of the 1% to 3% range. And our same property RevPAR growth of 2.4% was towards the lower end of our initial outlook range of 2% to 4%. Our same property EBITDA growth rate of 3% for the year fell within our initial outlook range of 1.9% to 6%. And our same property EBITDA margin manage declined 32 basis points within the 25 to 75 basis points growth range we initially provided. We managed the whole same property expense growth to 1.6% even with a 2.1% increase in the number of occupied rooms, pretty incredible. As a result adjusted EBITDA fell within our original range after counting for reduced hotel EBITDA due to our hotel sales during the year. And our AFFO per share of $2.78 ended in the upper half of our initial outlook of $2.67 to $2.84. Despite the dilutive impact of our dispositions on EBITDA and AFFO, which were not included in our initial outlook. Overall for the year business travel both group and transient was weaker than we originally expected. International travel into the U.S., which likely declined due to the strong dollar and weak global economy also weighed on industry results as well as our results.…

Thank you. [Operator Instructions] Our first question is coming from Anthony Powell of Barclays. Please proceed with your questions.

Hi, good morning everyone. You mentioned some of the challenges that you continue to see with the corporate travel and corporate transient, seems like leisure travel was decent for you in the fourth quarter and so far this year. What’s your outlook for that business and how do you think efforts like a direct booking and everything have helped that segment?

So I think just in general Anthony leisure has been healthy last year and we expect it to continue to be healthy this year. Clearly consumers in good financial shape, they’re generally mostly pretty well employed and we are seeing improving wage growth for the consumers. So with that and the continuing secular change of people wanting to create experiences and collect experiences versus things we think the leisure segment will continue to be one of the positives in 2017. As it relates to the direct booking programs of the brands, I think the jury is still out on the financial benefit of that to the ownership community. It is working in terms of at least from the early numbers we have seen, it is increasing the number of direct bookings, but we’re also sacrificing some rate to do that. For customers who would have otherwise booked at full non-discounted rates. So while the brands are definitely taking back some share, we continue to see - we’ll continue to wait and see whether that’s - it actually at the end of the day works out financially.

Got it. And on asset sales and proceeds, you mentioned you’re still looking to sell in New York and in other markets are you still looking to buyback shares this year? What’s your parameter for buying back shares, it sounds like you not really in the market for acquisitions like some of your peers. If you can comment on proceeds that’ll be great.

Sure, so to the extent there are additional sales, we feel very comfortable with where our debt-to-EBITDA and our fix charge coverage ratios are there they are very, very healthy. And so we would feel comfortable using additional proceeds to buy our shares. Particularly given the fairly wide discount we believe exist between the NAV as the properties we own and the implied value of those properties through the value of our stock. If - but at any point in time we’re always going to be evaluating the environment, the economy and that differential to see if that’s the best use of capital at that time.

Just a follow-up on that one. So you say your NAV is 36 to 40, so would you be comfortable buying basically stock at any value below 36?

I think it depends on the environment Anthony. The level of the discount that would need to exist for us to buy the shares really depend upon where we are in the cycle. What we think is going on in the underlying economy et cetera. So you would expect naturally to balance risk and return and what those expectations are for each. And so we will take that into account in executing on the repurchase program based upon where the stock is at that time and where we are from an economy and a cycle perspective.

Great, that’s it for me. Thank you.

Thank you. Our next question is coming from Shaun Kelly of Bank of America. Please proceed with your question.

Hey guys, good morning and thanks for all the detail and puts and takes in the guidance. So, Jon just wanted to think about I guess your general view on leverage at this point. You’ve done pretty good job on the disposition side bringing in some proceeds at attractive multiples. Is there a number you want to bring that down to, to be I guess in your mind cycle appropriate? And kind of where do you think that level would be both including and excluding preferreds if you would?

Yes, so we look at debt-to-EBITDA without preferreds because the preferreds are equity. And for that ratio our comfort level today is sub-4 which is where we are. But we also have to look at our fixed charge coverage ratio that obviously takes into account the obligations on the preferred. And that at an extremely comfortable 3.6 times or 3.8 times, 3.6 times level today. So we are very comfortable with both ratios and feel like we have some room there.

Great. And I guess sort of to build on a couple of Anthony’s questions, I mean you guys have always been kind of like willing to go into slightly different places on the acquisition front, if you see opportunities out there. And I guess my question is, is the best place to invest right now in the four portfolio. And that’s why we kind of continue to see the incremental capital dollars flood there relative to what you might be seeing out there in maybe even some unique places like you have done in I am just thinking of Florida, LaPlaya is an example of something a little bit different. But we have got other guys who are talking about non-top 10 or 20 cities or resort opportunities are you seeing any attraction out there, would you rather just invest in the portfolio given risk reward?

Yeah. I mean given risk reward, if we’re going to invest dollars in hotels, we're going to do it in the stock, which is again we believe trading at north, well north about 20% discount to NAV. So I don't know why we’d be out in the market buying assets at market, when we can buy assets we know more that we know have continuing growth opportunities within the portfolio. And do it at a very significant discount to what we can buy any asset on the market forum. And frankly it helps explain the disposition strategy as well. It's to take advantage of those values.

Very clear, thanks guys.

Thank you. Our next question is coming from Rich Hightower of Evercore. Please proceed with your question.

Hey, good morning guys.

Good morning.

Hey, Rich.

Jon, I’ve got sort of a big picture question here, so as you think back across your career and you think, you sort of stack up the different factors out there in the world today. Can you think of a - I mean is there a parallel time in memory where you’ve reasonably high levels of optimism, strong economic data and then at the same time no real follow through on the lodging demand side. I mean is there a playbook that we should think about employing as we think about forecasting and as you think about forecast?

Well, we've had - we've always had periods where we can see economic growth and it doesn’t translate into travel for another two or three, sometimes even four quarters. I mean historically, we're mostly a lagging indicator. And in some recoveries early on like obviously following 9/11 and that recession and then following ‘08. We were actually perhaps a leading indicator at the time because businesses and people got back travelling to a little bit more normal than where they were in the underlying downturns. So I don't think it's that unique from that perspective. And clearly when we've had - I think what's more unusual Rich is the five or six quarters in a row with negative profits for business. And having that come in the middle of an economic cycle, when employment growth continues to be strong and interest rates continue to be low. So I think that's the more unique aspect. I think then perhaps delay if we ultimately see it in increased travel from improved economic environment other than just the stock market, I think is not that unusual.

Okay, that's helpful color. Then my second question is just touching upon the final potential New York City asset sale. So can you just give us your comments on what the landscape is right now in terms of the number of other competing property through sale the depths of capital sources available and then also pricing?

Well, I think New York is certainly a more unique place than some of the other - than many other markets. There may be a couple of other cities that have some similarities like San Francisco and LA where there is very strong interest from multiple sources including international and foreign capital, domestic private equity. There continues to be good activity in New York. I can’t tell you that we have a firm count on what the inventory of assets for sale is and I think there is probably some assets on the market, there have been other rumored that aren’t on the market, or if they are it's not an active marketing effort. I think what we’ve focused on is what's the market for what we own and I think that market continues to be attractive we have a unique asset with very large rooms, a lot of square footage that also has a residential zoning. So that's another alternative for that property in addition to it being a hotel. And again we would expect that at some point during this year we'll have some success in transacting that asset.

Alright great. Thanks John.

Thank you. Our next question is coming from Wes Golladay of RBC Capital Markets. Please proceed with your question.

Hey good morning guys. Looking at the portfolio all the work you've done on the past few years. How should we look at it maybe for the 2018-2019 period? How much unstabilized EBITDA do you have and what is the timeline to capture that? And then on the CapEx side how will that trend for the next few years?

So I mean just from the three most recent years '15, '16 and '17 there is another $15 million of EBITDA in ramp up from those assets. I think in '18 we'll continue to gain share with some properties from previous renovations. I think we've said in a slower environment it can take a longer to gain that share whereas in a highly active and positive environment it can be done more quickly. When we did Zetta it happened more quickly, but we are in a very strong environment both nationally and locally in San Francisco. I think the other rebound is the $5 million, $5.5 million of lost EBITDA or a declining EBITDA in San Francisco this year, which we do think of as similar. The market is going to get back to not just the level of convention demand that existed before, but it's going to get back to a higher level because of the expansion and the renovation. And so we do expect to recapture all of that over the course of '18, '19 and perhaps even it taking until 2020. But that's a pretty hard time period to predict at this point.

Okay, thanks a lot.

Thank you. Our next question is coming from Bill Crow of Raymond James. Please proceed with your questions.

Hey, good morning guys. Jon I have a few questions, so hopefully make it quick here. Your NAV estimate of $36 to $40, is that down from $38 to $40? Or did I just missed that last quarter?

No, you're correct, that's down from a year ago, yes.

And is that just general valuations that have declined in the markets or…

Yes I think it's a reflection of the way a couple of markets are getting valued right. One of those being San Francisco with the expectation for '17 to be a really challenging year in the market. It's kind of dulled some of the interest in the market at this point. People want to kind of wait around and say what the damage is if you will in '17. So I think that's a good part of it in terms of the overall. We haven't really seen much of a change in how the rest of the portfolio would get valued.

Okay, thanks that’s helpful. The Z brand or Z names in San Francisco, is there any real value, consumer value are you gaining the attraction or is it just kind a fun way to think about your portfolio?

So I think it's a fun way to think about the portfolio. I think it has no downside and only has upside. There is some connection between the assets in the market today. Three of them are marketed by the same operator Viceroy the three of the four around Union Square. And I think all of our properties in the market cooperate and share business. And so the sort of similar attitude that exists within those Z properties I think ultimately will have some consumer value. But we're not out here saying there is a brand there that's not the case and not what we're trying to do there. We just think it's fun and it has some upside, but no downside.

Great. Two more Jon we look - spend a time looking at the cost inflation of construction and usually that’s focused a new builds, but when it goes through these big renovation projects what sort of inflation are you seeing? And how difficult is the decision making process becoming?

So, in a number of markets I would say between 2011 and 2016 or ‘17 we’ve seen a doubling of those cost.

And does that I mean it’s going to make it tougher to pencil out to go ahead and do that, is that fair?

Well we’ve certainly seen increasing in ADRs in a lot of those markets over that period of time. So, a good bit of that is able to get absorbed in the underwriting and some of it has been impact on ultimately what you decide to do at your property and what you can afford I mean it’s amazing what we did for $10 million at the Drake, which would cost we believe more than $20 million today. So, yes it can have an impact on redevelopments when you do them, what you do. But if you do we’ve always found that the ones that we’ve been thoughtful about doing have generally delivered pretty high returns. And I think if you look at the numbers that I talked about in the call a 14% EBITDA yield with assets that trade at a 7% or 7.5% EBITDA yield. You still have to start pretty healthy returns on those projects.

Thanks. And then finally from me Jon, you reference I think the reduced regulations as part of the mantra coming out of DC. Could you be specific as to anything that might be out there that would be helpful to the hotel industry as oppose to gas and drive demand anything on the other side of table that would be a direct benefit from deregulation?

So, one of the things folks are talking about is rolling back the overtime exempt rule that more than doubled the threshold for being exempt versus being an hourly. And then calculating overtime based on that that's certainly one rule that would have benefit for the industry. There are things that would happen with healthcare that if they truly did bring down the cost of healthcare or changed some of the obligations, which ultimately gave us some cost benefit obviously that. We’re a big employer that would have a positive impact overall in with our portfolio. So those are a couple of things that come to mind Bill.

Okay. Thanks, Jon. That's it for me.

Thanks, Bill.

[Operator Instructions] Our next question is coming from Jim Sullivan of BTIG. Please proceed with your question.

Thank you. Good morning, Jon. Just a follow on to Bill’s question about cost. Obviously the company has done a great job over the last couple of years on expanding the EBITDA margin and of course you’re providing for a pretty significant pullback here in 2017. And I wonder if you could just kind of refresh us in terms of where you are in the - there has been a series of initiatives you have done over the last several years with acquired assets in terms of expanding margins. So just give us an update us to whether there is some scope for more initiatives here or efforts that there is more to be obtained. And then contras that with the size of the pullback you are seeing here. And if you could maybe highlight a few of the major expense categories be it real estate taxes, insurance or labor cost that going to contribute to this pullback in the margins in ‘17?

Sure, so let me take the latter one first and then I can talk about what our - specifically what we are doing within the portfolio to mitigate the cost increases. So clearly the biggest increases that we face today are wages and benefit increases. Wages in general, within our portfolio are probably up 3% not counting specific increases, which would particularly impact tipped employees with new living wage or minimum wage ordinances in a number of our cities, particularly the West Coast cities. That get to offset a couple of different ways, one other expenses are generally not going up as fast. So whether it's utilities, whether it's insurance, whether it's office supplies, whether it's landscaping, whatever it might be many of those items are not being as influenced by wage growth and benefit growth as the direct labor costs are. The second thing is within our portfolio there is about a 30 basis point impact from the $2.5 million in Hotel Zephyr, a $1 million of lost retail income while we have some vacancies. And $1.5 million increase in our ground rent as we go from a base rent to a percentage rent for the property. So that impacts about 30 basis points alone. The other piece within the portfolio that's inflating this year is that we got some benefit last year from high rated events, whether it be the Super Bowl or it was the DNC or it was the Porter Ranch business, all of it was very high rated compared to what business it's being replaced with this year. And so the flow was actually fairly high and negative on that lost revenue from a comparative perspective. As it relates to the opportunity within the portfolio, I mean it continues to be a very significant portion…

Okay, thanks for that. And then second question from me, in talking about supply growth, you talked about the completion of supply being of new product being reduced because of the inability of some of these developers to get the labor they need to complete the project. Have you seen much in terms of projects actually being abandoned or is it simply a case as we think about the pipeline that it simply going to be stretched out a little bit and deferred a little bit rather than actually coming down in a way that would make you more optimistic about the supply-demand balance.

Alright, we haven’t seen projects that have gotten underway that have bought their construction contracts. We haven’t seen those deferred or abandoned, but what we are seeing is increasingly folks are having a hard time making the numbers work. Because the cost have gone up so dramatically, not just on the construction side, but as a result of the projects taking longer your carry cost your soft costs, all gets stretched out and increased. And as we’ve talked, we’ve seen more stringent requirements from construction lenders. Although I would tell you that the number of rooms under construction continues to increase and at this point in time we would say that the industry may not peak until ‘19 in terms of the industry supply. Although we think the urban markets actually will likely peak in 2018.

Okay, perfect. Thanks Jon.

Thank you. Our next question is coming from Michael Bellisario of Baird. Please proceed with your question.

Good morning, guys. Thanks for taking my question. Just wanted to clarify one thing on the $36 to $40 per share NAV, does that include any deduction for capitalizing your G&A cost at the corporate level, or is it simply just your estimate of the real estate value?

That’s the estimate of the real estate value.

Got it, okay. And then kind of on that same topic…

As I am pretty sure that real estate value can be sold without us.

Right, fair enough. And then just kind of on the same topic on the disposition fronts. Are you seeing deals take longer to complete and how would you characterize the bid out spread today versus maybe one or two quarters ago and what you’re seen in the marketplace?

Yes, I mean I think it’s about the same as it was one or two quarters ago. Perhaps there is a few more buyers out there based upon this renewed enthusiasm about the business environment and upcoming economy. It has been taking longer to do deals in general, there are more busted deals that we hear about. Where folks are go into the second or the third buyers in situations. And clearly if you’re dealing with the foreign capital those deals tend to take much longer they don’t move anywhere near as quickly and as confidently as domestic buyers do.

Thanks, that’s helpful.

Sure.

Thank you. At this time, I’d like to turn the floor back over to management for any additional or closing comments.

Well, thank you very much operator, thank you all for participating and we look forward to updating you and actually what will be just another 60 days. Thank you.