Greetings and welcome to Pebblebrook Hotel Trust Fourth Quarter and Year End Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Raymond Martz, Chief Financial Officer. Sir, you may begin.

Thank you, Sheri, and good morning everyone. Welcome to our fourth quarter and year end 2017 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 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 2017 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 23, 2018, 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. So we have a lot to cover today. So let's first review our 2017 highlights. During 2017, we made great progress completing the last of our major transformative renovation and repositioning projects, which included Hotel Palomar Los Angeles Beverly Hills, Revere Hotel Boston Common and Hotel Zoe Fisherman's Wharf. We also successfully completed $213 million of property dispositions, which involves selling our last hotel in New York and a large parking garage in Boston and then using the cash proceeds to further reduce our leverage as well as repurchase more than $93 million of our common shares. Turning to our 2017 financial results. Our same-property hotel EBITDA was $253.6 million, which exceeded the top end of our fourth quarter outlook by $1.1 million, due primarily to better-than-expected nonrevenue – non-room revenue growth without related expense increases. While our same-property RevPAR declined 2.2% during 2017, our non-room revenue per available room increased a strong 4.4%, resulting in a same-property total revenue per available room rate declining…

Thanks, Ray. 2017 was a bit more of a challenging year than we had hoped for given the healthy economic growth rate going into the year and the improving economic conditions that occurred over the course of the year. Despite the lack of improvement in business travel in 2017, we still managed to beat the top end of our initial outlook from one year ago for AFFO per share and we also managed to achieve adjusted EBITDA in the middle of our range. And we would have been at the upper end of the range that we factored in the EBITDA that was eliminated due to the sales of both Hotel Dumont in New York and the parking garage at Revere Hotel in Boston, which were not assumed to be sold in our initial outlook last year. Industry RevPAR growth ended the year at 3%, 1% above the upper end of our initial range for 2017 and it was significantly aided by substantially increased demand in Texas and South Florida due to the major hurricanes that hit both areas. On a positive note, industry RevPAR also was higher due to lower supplies than we had forecast, primarily a result of construction deliveries being more significantly stretched out than we had anticipated at the beginning of last year. Nevertheless, the urban markets per star underperformed the industry by 140 basis points, which was worse than we initially forecasted and would have been even worse but for the benefits to the cities of Houston and Miami that resulted from increased occupancies in those markets in the aftermath of the hurricane. Our 2017 RevPAR underperformed our initial outlook for the same reasons. However, we weren’t able to take advantage of the increased demand in South Florida due to our Naples' property being closed…

Yes, thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning everyone.

Good morning.

Good morning.

Could you update us on the disposition plan in general? After $676 million in sales, are you still actively looking to sell assets or is it more opportunistic at this point? And has your NAV estimates changes since your last call?

Sure. So as it relates to our disposition plans as part of the strategic plan, we have some minor interest in some selective dispositions within the portfolio. And then we would continue to look favorably upon any very attractive opportunistic interest that we might get for various properties within the portfolio. But at this point, our activity level is reduced as it relates overall to our interest in sales. I would say that we are beginning to look at acquisitions. I don't know whether we’ll be successful this year. I don't know how aggressive we’ll be. I don't anticipate we’ll be particularly aggressive. But we do feel a little bit more comfortable on the acquisition side given the movement of our stock valuation closer to or into our NAV range. And Anthony as it relates to our NAV range, we've gone through our typical quarterly reevaluation. And at this point in time there is no change to the range of between $36.50 and $41 for the NAV of the portfolio.

Got it and there is one more for me. Airbnb announced yesterday that they are more willing to feature a boutique hotel in their [ph] platform and I believe their commissions are significantly lower than traditional OTAs. Would you consider listing some of your hotels in that platform? Or have you talked with them about that?

Well, the answer is sure. We’ll list on most platforms if the terms are attractive and they can deliver business to our hotels, attractive business to our hotels. So we certainly would and we are working to try to understand what their program is, how it works, what technology is required et cetera.

Great, that's it for me. Thank you.

All right, thank you.

Our next question is from Michael Bellisario with Robert W. Baird and Company. Please proceed with your question.

Good morning everyone.

Good morning.

Hi, Mike.

Could you maybe provide a little bit more detail about what you're doing on the non-rooms revenue side? And how we should think about maybe the lift or at least the incremental lift in 2018 versus 2017? And how much more you have there to push?

Sure, so as you know, we've spent many years now reconstructing in many cases food and beverage at pretty much throughout the portfolio. In some cases, we've leased restaurants out in other cases we've rebuilt our restaurants, revised their concepts, focused on more profitable business related to beverage instead of food as well as events instead of sit down dining. We’ve tried to create unique spaces and flexible spaces that allow us to not only drive higher food and beverage revenue, but drives higher room rental within our portfolio, which has been a material driver from both a revenue perspective and a profitability perspective in our food and beverage operations. And you're seeing that in last year’s and particularly last – in the fourth quarter’s numbers. In addition to as it relates to groups in many cases redoing our meeting spaces in ways that are both more flexible as well as more unique in terms of the design and the atmosphere, trying to make them differentiated from a typical meeting room and a standard hotel. So we have success in both of those areas. That's helping drive the increases both in our profitability and in our revenue – non-room revenue base and you can see that in our numbers. For 2018, I think the range for non-room revenues that goes along with our RevPAR outlook is something like 0.2% at the low-end to 3.9% at the high-end.

That’s helpful. Thanks. And then just one follow-up on the acquisition comment you made. I know it’s still early days, but kind of what would you be targeting and – are repositioning is still a focus for you guys? Is it really just kind of the same thing you had been doing earlier in the cycle?

Yeah I wouldn’t say there is any change in strategy at all. I think the strategies worked. We’ve created a lot of value for our shareholders. There are going to be a fewer opportunities we believe today than there were years ago of properties that have been lacking in capital improvement investments. And so there maybe fewer opportunities for turnaround, but in terms of high quality assets that fit our criteria in our major coastal cities and the occasional resort market would continue to be attractive from our perspective, and they don’t trade that much, so you need to be prepared to move regardless at the end of the day.

That’s helpful. Thanks.

Our next question is from Bill Crow with Raymond James. Please proceed with your question.

Hey, good morning guys. Jon, I’ve got a couple of questions, but I want to go back to the acquisition disposition opportunities. I think maybe some of the unintended consequences of going – shrinking the portfolio and deleveraging has shown up this week. And I am jus curious how that impacts your decision-making process and your portfolio? And whether this might discourage you from doing value-add or very low year one cap rate acquisitions?

Sure. Good question, Bill. So there's an art to running a company and a science, and we look at and try to balance all of the issues related to leverage, cash flow, returns, dividends through our market allocations and diversification, through the timing of when we do our projects, through our strategic plan that we put in place, which contemplated what would happen with the size of a company, what would happen with cash flow would happen with cash flow, would it have any impact on the dividend, what did it mean in terms of how the importance of buying your stock back factored in to balancing your cash flow per share. We take all of those things into account, and those would be taken into account on every acquisition that we make and our plan for acquisitions as well as the type of assets that we invest in and the timing for redevelopments of those if we're buying projects that would benefit from a redevelopment. So I think we've done a very good job over the years in both directions, Bill. And hopefully, that shows in the strength and flexibility of our balance sheet, the performance of our assets, the coverage of our dividend, all of those things. And we were very thoughtful about how we approach all of our major decisions over the course of many, many years.

That's helpful, Jon. I think we're entering a seasonal period where business travel typically picks up. And I'm just wondering, you've pointed out some green shoots out there. But how important are the next four or five weeks in your determination whether these are actually taking root or may be misleading us early in the year?

Sure. Yes I mean, we think of trends. If we're sort of trying to conclude is something a trend versus anecdotal or inconsistent evidence, it really takes probably three to four months of consistent activity for us to come to a conclusion that this is a trend. There've been a lot of false starts over the last couple of years. And there's a bias today, including ours, yours and everyone else associated with the industry, to try to find those green shoots and announce the trends. And we've been very cautious about that because while we hope for things to improve, we certainly don't want to communicate to you that our hope is reality. And so I'd say we've got at least a couple of more months, Bill. But you're totally right. We're pulling into a fairly strong period beginning in, I would say, maybe mid-March through the end of May where we should get a pretty good idea over that period whether these are trends or not.

And Jon finally from me, what stood out – one of the things that stood out in your prepared remarks was the comments about the manager switch in San Francisco and putting Viceroy and how much that asset outperformed the market. I'm just wondering, was there something different that they really did? Do they have different mentality toward rate? Did they – and not only that, is there more opportunities, are there more opportunities out there to change the management for outperformance at other hotels?

Yes I think in the case of Hotel Zelos, which we brought in multiple operators following the changes that we made in 2015, I think what Viceroy brings to the table and which is where they've been effective are really a couple of things. First of all, they're very creative. They work very collaboratively with us, coming up with ways to create a story, position a property, make a property relevant and active in order to create an environment that's unique for our customers and get the word out, both on a direct sale basis as well as through public relations and social media. And I think they're very good at that, and they've been very successful with that at both Hotel Zetta and Hotel Zeppelin with us. And so I think that's part of it, Bill. I think the other part is because of the fact that we have two similar properties, albeit with different stories and slightly different positioning from a rate perspective, we really have a package of three hotels within blocks of each other, very close to both Union Square and the Convention Center that they sell together. They revenue manage together. And it's not about cost savings, and there are a few of those. They're relatively small and not a driving factor, but it's really about how the properties are sold and their ability to be even more effective with three versus two. So as it relates to other places to do that. So we did just make a change, January 1, in Portland at Hotel Madeira where we brought Sage hospitality in. Sage manages the Nines for us in Portland as well as Union Station Nashville where they've done similar things, in those cases, under collection brands, in one case, the luxury collection in Portland and in the case of Union Station, the Autograph Collection. But we've really approached those the same way as our independent hotels, just – we just have higher costs because of the brand. But it really is about the creativity of the story, the unique experience, the design, the activities. And so with Hotel Madeira, we hope to take advantage of their efforts at the Nines, the ability to sell both properties together on a local basis and activate the property creatively in the same way that we weren't able to do it before.

Alright, thanks Jon. I’ve already picked my outfit for [indiscernible] awards. So I’m excited.

Take care Bill.

Alright.

Our next question is Jim Sullivan with BTIG. Please proceed with your questions.

Good morning. Thank you. Jon just want to make sure I understand the commentary about being, I guess, a little more comfortable at the upper end of the guidance range that you had provided. And one of your peers earlier this week indicated that January 2018 had exceeded their November budgets pretty materially, and I just wonder if you saw the same or not. And if you could just clarify, I may have missed it because you may have referred to it, but what is it that's driving your increased comfort level at the upper end of the range?

Yes so, first of all just to clarify, my comments about the comfort on the upper end of the range were for the industry. It wasn't necessarily for our own numbers. I think our numbers are – because I think the industry will continue to get some benefit from the hurricanes that took place. And unfortunately, we're not – we don't see a lot of benefit from that, particularly without any properties in Texas or Houston. But as it relates to your other question, which was just remind me a second?

Sure the January…

Okay, January, yes so no, we did not see that kind of improvement over budgets. It's a funny process, but I would tell you in general, budgets tend to be light early in the year. So properties get off to a good start, and it's not uncommon for property teams to try to push budgets that are incredibly light in the first quarter for that reason and then back and load a budget later in the year. I'm not commenting on whether that's the case for one of our peers. I wouldn't want to conclude that. I have no idea. But I know in our experience in dealing with this over 20 years, that's not unusual, and we try to eliminate that bias in our own in our own budgets because we really hate looking at budgets that are back-end loaded. And so we think our budgets are fairly unbiased from quarter-to-quarter, and we haven't seen – while I've identified a few things we've seen, it hasn't had a material impact just yet on the numbers that we've been seeing.

Okay. And then in terms of San Francisco. I think you had provided some specific information regarding nights and compression nights in 2019 back in, I think, the last quarter of last year. I don't know if that's been updated. I don't know if there's any more information you can share with us on an updated outlook.

Sure. I can. So on the books, this is from SF Travel. So on the books for 2019, right now are 1,211,000 rooms. That is up 478,000 from 2018's $733,000 number. That's a 65% increase from 2018 to 2019. In compression nights, on the books right now – and these do move around some, Jim. So they're up another four in the last month. They're at 87, which I think is – I think we were at 81 last quarter when we talked about it. And that's up over 100% from the 41 for 2018.

Okay. And in terms of compression nights and total rooms, the prior peak in San Francisco was some, I want to say 20%, 25% less than that.

So on the numbers I have through 2015, the highest year was 2016 in room nights, which was 936,000. And for compression nights, was 58 in 2015.

Okay, very good. Also in San Francisco, in your release, you referred to some additional renovation at the Hotel Zelos, if that's the right way to say that.

Zelos, yes. Like you, like you.

Absolutely thank you. Can you confirm that a timing for the renovation project? When do you expect that to be finished?

Yes it’s likely to be late in the year when it would be finished.

Okay. And then on the Zephyr Walk, you had referred in your prepared comments I think the $4.5 million of EBITDA upon completion, and I think you indicated being fully leased. Just two questions with that. When on a quarterly basis do you expect to hit that? And what is the level of preleasing there currently?

Yes. So we've leased about half of the space that we've turned over or that had the expirations over the course of the last 12 months. Our hope is that we will have the rest of the space that's left, which is a little under 10,000 feet and at most, represents six, seven small spaces. And of course, there could be some combined spaces, but you can obviously, see they're relatively small spaces. And I think the average rent for the remaining spaces are between $150 and $200 a foot on a gross basis with the tenants paying full [indiscernible] in taxes on top of that. So we would expect and hope to have this space fully leased by the end of this year and then get to stabilization sometime, hopefully in the first half of 2019 as the tenants all move in and start paying rent.

Okay. And Okay. And I believe you referred before, Jon, to the potential for selling that retail space if you separate the lease agreements, the lease agreements, the underlying ground leases. Is that still the plan?

Yes I mean, that's the plan. We still are a long way from completing that plan and dealing with the ground lessor. And if we don't work anything out with them, they will end up keeping it obviously. But we do continue to believe, Jim, that we're not the best owner of that space. We're not going to optimize it. Retail is not our expertise, and getting into the hands of others who are specialists in urban retail, in particular, would benefit both the property as well as the ground lessor.

Okay, great. Okay thanks Jon.

Sure. Thanks Jim.

Our next question is from Wes Golladay with RBC Capital Markets. Please proceed.

Good morning guys. Just looking at some of the urban under performance, especially in some of these gateway cities, how much would you attribute to call it supply versus the actual weaker international demand?

Well, that's a toughie, Wes. I mean, I would tend to say that the vast majority of it is still – is going to be the supply issues in the market. I think the international demand could add 50 basis points or something of demand in a particular market. But – and so I think that supply issues, particularly when you start – you see markets with 5% or 6% or more of supply in a given year, going to have a much bigger impact than a 50 basis points or a 75 basis point impact from international travel.

Okay. And then in your presentation on the website, you guys have a slide that shows $20 million of stabilized EBITDA or a potential to capture additional $20 million of EBITDA upon stabilization of your assets. How much of that is embedded in the 2018 guidance?

We're going to have to get back to you on that. We haven't done all those – we haven’t updated the investor presentation yet. But as it relates to the properties – I mean, I can give you one piece of it. But as it relates to the properties that we redeveloped last year, there's about $5.2 million of increased EBITDA from those. And as I mentioned in my script, another $1 million from the properties from the year before. So those would represent $6.2 million that would be embedded in our outlook. As it relates to the other pieces, we'd have to get back to you once we update the investor presentation.

Okay. Maybe the point of asking the question. Is it typically – you have year, probably two-year to three-year stabilization of these renovations. Is it when you get the bulk of it? Is it typically year two or year three? I imagine you have a little bit of a slower ramp in year one.

So it’s usually three to four years. And I would say year one, we'd like to get back what we lost, what we disrupted. And then year two, we'd like to get more than half of the gain. And sometimes, it works, depends on when we completed a project during a year. But as an example with the ones that were done in 2016, we got more than we were expecting in 2017 back. But for the properties the year before, we got less than we thought we'd get back in the first year. So it really does vary. But I mean, in general, it's along the lines of what I just mentioned.

Okay, thank you guys.

Thanks Wes.

Our next question is from Dory Heston with Wells Fargo. Please proceed.

Hey guys.

Hey Dory.

Can you talk about your branded versus independent market share over the last few years? And how you see that trending going forward?

Sure. Yes when we look at the last couple of years, I would say in 2016, our branded properties and our independent properties performed pretty equally. We have to take out the properties impacted by major renovation in either the prior year or the existing year. But in 2016, pretty similar performance. In 2017 actually, when we look at how our branded properties did against the markets they're in versus our independents, our independents actually did better. We had I think eight of our ten branded properties underperformed their urban markets and our independent properties again nonrenovated impacted. I think only six of thirteen underperform. So a greater majority outperformed when only a minority of our branded properties underperformed. And I would tell you for across my 20 years of doing both, and for us, it's pretty close to fifty-fifty between major brand and independent and may be our branded increased if we wanted to put Kimpton into the "collection brand" of major brand at this point. But I think at the top line, they performed pretty consistent across the markets from year-to-year. Some years, one does better. Some years, others do better. It isn’t generally because one's a brand and the other's independent. It just has more to do with what the dynamics are in that market and what's going on with our team, frankly, which is the most critical factor. So we haven't seen any change over the course of 20 years of brands getting stronger and independents getting weaker or frankly, the other way around despite the fact that the customers' preferences have been moving more towards independent or unique experiences and away from the brands as loyalty has lessened, particularly with the younger generations.

Oaky, thank you.

Our next question is from Shaun Kelley with Bank of America. Please proceed.

Hi good morning guys. I apologize if this has already been asked a little bit. I've been sort of jumping back and forth on something. But I'm just kind of curious overall. This is really the kind of second or third year in a row we've seen urban and kind of independents generally lack the broader RevPAR indexes. And you guys I think strategically are – you're directly positioned there, but on the flip side, you keep coming up with pretty amazing ways to trying to outperform to the extent at all possible. So I'm just kind of interested with your high-level strategic view of the portfolio positioned the way you want it to be. Is there anything you consider adjusting kind of further or bigger picture as you kind of move or look out the next couple of years given this consistent under performance we've seen? Just kind of how are you thinking about that from a large kind of big-picture perspective?

If you think about this cycle, which has been a little bit reversed from prior cycles, urban significantly outperformed in the first half of the cycle. And as business travel came back in particular and the suburban markets underperformed in the first part, and that kind of got reversed. And the dynamics of that are a little different just go round than prior cycles. We don't think it's a secular change. We think it's more unique to this particular cycle and some events that are taking place, the dollar and our administration being one of them, where we gained very significant international inbound travel through 2014, which benefited the urban markets, all part of the global secular trend that the international, the major cities are going to benefit more so from that secular trend than suburban secondary or secondary markets. So we think that still continues to work to the benefit of the urban markets. The second thing is supply came earlier in the urban markets for a number of complicated reasons. Again, none of which we necessarily think are secular changes, but a little bit more unique to this particular cycle. And then you think about the re-urbanization of America, people moving back into the cities, traffic being a problem, major transportation benefiting the major cities, the development of cultural activities more completely in most of the major cities where the convention centers are in the major cities. And the – over the long term, the more limited ability to build and the higher cost to build. We think those all continue to benefit the major city markets. We're never going outperform in every year, but yet your question is one that we've – we asked ourselves over the last few years, has there been a structural change that works to the detriment of the major cities and to the benefit of the other markets? And we don't think so, Shaun. And I also think it's the strategy of being urban – being in the urban markets continues to validate itself through the liquidity of the urban markets and the maintenance or increase in values of those markets over the long term as compared to suburban or secondary markets. It's just – there's always a much bigger buyer pool. There are more strategic buyers in those markets. There's more buyers around the globe for the major markets, and values just hold up much better over the long term in urban markets than they do in secondary or suburban markets.

Great thanks Jon. And then kind of the second part of this is, as I alluded to, Pebblebrook has done a good job of putting in things like different features to drive the kind of nontraditional revenue side of the kind of the hotel model. Where are you add? I mean, we saw a big spread again this quarter. Where are you at in some of those initiatives? And can we – what kind of uplift or kind of continued momentum can we see on that as we move through 2018?

Yes. I mean, we expect some really favorable momentum for 2018 in our non-room revenues, whether it's food and beverage or room rentals or AV. Our activities related to customer amenity packages, additional fees within the hotels related to early check in, late check out, pet fees. I mean, I could go through a long laundry list of things that we have been rolling out within our hotels. And in some cases, being consistent, and in other cases, being a leader on some things, a thoughtful and careful leader, but not afraid to be a leader as well. And then I think there are some other things coming down the pike as we continued to look every year at how do we make room service or food and beverage or other operations more profitable and more successful? And I think there's still a lot to do there, frankly. And customer tastes and desires are changing. And because of the kind of portfolio and how closely we work with our operators, I think we are – we've been pretty successful and should continue to be pretty successful in being able to pivot pretty quickly to take advantage of those opportunities.

Thank you very much.

Thanks Shaun.

Our next question is from Stephen Grambling with Goldman Sachs.

Hey thank. Just a few quick follow-ups to earlier questions. I guess, first, if you do get the reacceleration in corporate demand hope for over the next three to four months, how would that impact your capital allocation priorities and potential pursuit of acquisitions versus dispositions, assuming you kept trading your NAV?

So I mean, it'll affect our underwriting. I don't think it will affect our – we're open to making acquisitions at this point. So I don't think it changes our strategic approach or direction, but it would change our underwriting and perhaps, it would make us more competitive. It depends on how other people change as well. But historically, when we get conviction about something, and that might help with conviction, we have the ability to use our cost of capital advantage to be more successful on our pursuits.

Great then second follow-up. As brands direct bookings appear to be gaining steam and consolidations potentially improve, system fund charge-backs, is there a point where the economics associated with brand hotels actually does become more compelling to you all?

Well, they'd have to bring down the costs significantly for the vast majority of our independent properties. I mean, that's the challenge has been that the economics don't work at the bottom line. We don't find that the brands deliver higher RevPAR than our independent hotels. They do make it easier I think than the hotels that we have. Our hotels are harder. We need specific expertise when it comes to independent hotels. We actually need salespeople as opposed to order takers, and so it would make it easier. But we look at this on a regular basis within the portfolio. And as you can imagine, the brands are calling on us all the time because we have a large number of independent properties that could easily help them in growing their collection brands. We just haven't generally found it to work or for it to be at all compelling. And we do have collection brands. We have two in the – we have three in the portfolio. I mean, we have a luxury collection in Portland at the Nines. We have Autograph at Union Station in Nashville. It was – they were both branded when we bought them. And we have Tribute in Coral Gables that we developed with Starwood as a brand, the creation of it and where it was at Weston. So we could easily make that an independent property, perhaps make more money, but we kept it a tribute and made it a tribute because of the relationship that we had and our ability to both help them and maybe create something unique at our hotels. So we'll keep looking at it every year on a regular basis. And if these guys really drive down costs significantly, I mean, this is – we're not talking about 10 or 20 basis points. We're talking about hundreds of basis points in reductions that they'd have to get to in order to make it work. Doesn't mean they can't get there. But if they get there, we'll be signing up.

That’s super helpful color. One last one that maybe I missed, but what are your expectations for wage inflation both in 2018 and even looking into 2019, if you do you have any insight on regulatory changes to market level? Thanks.

I think we’re I would through our portfolio, most of our standard increases were between 2.5% and 3% on a hourly or a salary basis in all our hotels outside of the union mandated the ones by union contract, I would say fall 2.5% to 3% range. There are some additional increases generally for tipped employees where the minimum wages would generally apply and have an effect. Our typical housekeeper in most of our markets is making $5 to $10 over a minimum wage as an example.

Put that.

Plus full benefits including full health care. So it doesn't really have much of an impact there. Clearly, the benefit size is increasing faster than 3%. So you can imagine that without changing staffing levels or finding productivity enhancements or efficiencies, you'd be looking at something probably closer to 3.25% to 3.5%. With productivity improvements and efficiencies, we think that's probably somewhere below 3%. And then as we said earlier, about 2.5% in our midpoint, we'd get down to that through lower expenses in our other costs. For 2019, I'm not sure we see it as all that much different than that. At this point, increasing much beyond and less inflation, because those are already above inflationary increases. Unless inflation went up significantly, I would imagine that our standard increases at the property level would increase.

Great, thanks so much. Best of luck this year.

Thank you Steve.

Thanks Steven.

Our next question is from Lukas Hartwich with Green Street Advisors. Please proceed.

Thank you. Hey guest just a quick one from me, Can you provide any color on why the disposition you had under contract fell through?

Sure. So I think we’ve indicated in the past that we're always open to approaches from buyers if they – for any of our properties if they get to a number that we find attractive and creates value, significant value for the shareholders. And so we had one of those at one of our hotels. It was at an opportunistic sale potentially. It was a buyer with a significant number of hotels in the United States and – but this was a little bit bigger, actually substantially bigger than their typical buy. We knew it was a bit of a flyer. But they were confident that they could put the capital together and get their equity partners to buy in, and they didn't. And so at one point, they had asked for an extension. They paid us $2 million for that extension. And when the time arrived, they still didn’t have the capital available. So we pulled a deal, and we ended our discussions with them.

That’s great. Thank you.

Thanks Lukas.

Our last question is from Anthony Powell [Barclays]. Please proceed.

Hi, just a follow-up on acquisitions. A majority of the REIT deals in recent years have focused on resorts, and you had exposure with LaPlaya. In addition you’ve had some success with Skamania Lodge in recent years. Would you increase your exposure to resorts and experiential hotels over time relative to your kind of core urban business transient properties?

Yes I mean, we’re – while it's not a strategy to increase the percentage, but we're open. We don't have any negative bias per se in terms of weightings within our portfolio of urban versus resort. And – but there's – resorts are tricky. They're harder in general. They're more complicated. There's – the grounds are usually bigger. There's a lot going on at those properties. You're sort of what we like to think of as three-legged demand is typically a two-legged demand. So you have a little less diversification of your demand base. You tend to be – you tend to have a lot of group, and you tend to have a lot of leisure. You tend to have little to no corporate transient, unless it's a resort property in a very near an urban market. So at times like this resorts can do better because they’re heavily dependent on leisure often in 50%, or 60% or 70% of a hotel, and leisure is doing great when corporate transient travel has been soft. But that goes in the other direction for – often for better part of the cycle. So you just have to be careful. They're more complicated. There's more risks. We think you need higher returns because of the higher risks. The capital costs tend to be higher. And then frankly, in general, we think customers are moving away from the more traditional resorts of that have golf courses in traditional spas, and they're frankly, moving more towards adventure resorts or active resorts depending upon how you want to define them. So when we look at resorts, we want to be able to be consistent with that trend and have that flexibility to move with what we think is a secular trend from a consumer perspective.

Alright, that’s it from me. Thanks.

Thanks Anthony.

Ladies and gentlemen we have reached the end of our question-and-answer session, I would like to turn the call back over to Jon for closing remarks.

Thank you, Sheri. And thank you all for participating. We look forward to our update in just two more months. And hopefully there’ll be some good news that comes out of the trend side. Thanks. Take care, bye-bye.

This concludes today’s conference. You many disconnect your lines at this time. And thank you for your participation.