Welcome to the RLJ Lodging Trust Third Quarter 2016 Earnings Call. At this time all participants are in a listen-only mode. A brief 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 Hilda Delgado, Treasurer and Vice President of Finance. Please go ahead.

Thank you, operator. Welcome to RLJ's third quarter earnings call. On today's call, Ross Bierkan, the company's President and Chief Executive Officer will discuss key highlights for the quarter and Leslie Hale, the company's Chief Operating Officer and Chief Financial Officer will discuss the company's financial and operational results. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night. I will now turn the call over to Ross.

Thank you, Hilda. Good morning everyone and welcome to our 2016 third quarter earnings call. The lodging industry is at an interesting point in time. After almost seven years of strong performance, this year’s RevPAR growth has been tempered by moderating corporate profit, increased global economic uncertainty, and an increase in supply. This quarter industry demand growth of 1.6% was evenly offset by supply growth. While supply is increasing it still remains below the long-term historical average of well below 2009 peak levels of 3.2%. Even in the face of increasing supply, we believe the U.S. lodging industry to remain on track for another year of positive RevPAR growth albeit modest as long as economic growth and business spending don’t further decelerate. Now while demand and supply dynamics are shifting, our seasoned team has years of experience successfully navigating through multiple hotel and economic cycle. And we are prepared to respond to the shift in fundamentals. Our portfolio of scale and broad market diversification provides a strong platform to weather any softness. With respect to our performance during the quarter we had several market post solid RevPAR growth which helped to offset declines in markets like Houston and New York. While our RevPAR this quarter was flat to prior year, excluding the results from Houston and New York our portfolio achieved growth of 1.9%. Our team of knowledgeable asset managers and our best in class operators continue to manage operational cost and grow market share in light of a challenging backdrop. We are very pleased that this quarter we once again increased our market share. Our RevPAR index this quarter increased meaningfully by 170 basis points with 8 of our top 10 markets gaining share year-over-year. As I mentioned we had a number of market perform very well this quarter.…

Thanks Ross. During the third quarter we have integrated from a number of tailwinds in our portfolio however not to the degree we had anticipated which resulted in operating performance that was lighter than what we had expected. While the change in our occupancy was in line with the industry, our gain on rates was more modest relative to the industry. The industry benefitted more than we did from a strong group performance this quarter as we are primarily transient driven. In terms of the transient segment, our revenues was slightly up driven by an increase in room nights for the quarter. In regards to our margins in the third quarter we generated a solid EBITDA margin of 35.5% which continues to be one of the strongest among public lodging REITs. Our asset managers are working tirelessly with our operators to manage expenses while keeping the guest satisfaction high. We were very pleased to see solid margin growth across a number of our markets which is Washington DC, South Florida, and Denver again demonstrating the benefit of a broad based portfolio. This performance partially offset the headwinds with Houston and New York for rate pressures, hampered flow through. While our hotels are already efficient, there are still opportunities to offset margin pressures. Our asset managers are focused on controlling expenses and have a number of expense initiatives underway including clustering staffing and consolidating services where possible. Some of the initiatives that we are implementing such as adjustments to staffing can have a more immediate impact while others such as upgrading equipment to yield energy efficiencies and the renegotiations of energy contracts require a longer lead time. In addition to actively managing direct operational cost we’ve also been aggressively managing our property taxes. This quarter real-estate taxes impacted our margins meaningfully…

Thank you. [Operator Instructions]. Our first question comes from the line Wes Golladay with RBC. Please go ahead with your question.

Hey, yes, good morning everyone. Going back to Houston, I was expecting a little more out of the portfolio, I think you had a 600 basis points of I guess a headwind last year on the renovation at the four hotels. Did it come along your expectations or did you just not get the renovation that you thought?

I am sorry Wes, which market was that?

Houston, sorry. You had four assets under renovation, I believe it was a 600 basis point headwind last year. Were you expecting more of a lift and what I guess sort of sub markets out there, was it broad based weakness or do you see outside of the weakness in the energy corridor, the Galleria, what do you see out there?

So, Wes we did see -- we did expect obviously more than this. Our downtown properties just for example, they were up 15%. But our Galleria of properties didn’t benefit from the tailwind that we thought they were going to get. And so we didn’t get the benefit of that tailwind from those two properties. But downtown did produce and then the rest of the market was generally soft to give any incremental supply.

Okay, and then you know, we heard in some of the other conference call especially multifamily, they are talking about the Houston market, cap rates actually falling, people aren’t paying attention so much to the NOI, they are trading on a per door basis in multifamily. I try and look at RLJ's portfolio out there I am pretty sure their market described being a -- probably a high single-digit cash flow multiple to those hotels which should probably translates into a very low value per key. I am just trying to get a sense of how much of the 410 million middle of the road run rate for EBITDA is coming from Houston, is it around 4%, 5%?

Actually the Houston market for us is about 5% of our EBITDA and I agree sort of with the take of what is going on in multifamily. We have a lot more confidence in that market and in our asset pool there than the, I guess, the multiple that is being ascribed under our public structure to those assets. At the same time we have had some increase from outside investors that is sort of a validator of the value and frankly the mood right now in Houston is a little bit predatory. And so we are not looking to liquidate assets in Houston. It’s been such a good market for us historically. For four years we had a CAGR of 11% ADR growth and 17% EBITDA growth leading all the way up until just 2014. And the market itself is healthy. Unemployment is at 6% or below, housing prices have held up. As you mentioned in multifamily multiples are contracting. There is a lot of belief out there in the fourth largest city in the country that it’s a diverse and off economy that it will come through this. Schlumberger attracted some attention to themselves a couple of weeks ago in their earnings call when they call a bit of a bottom in the oil and gas context and we are no experts on that. We are glad to see it but we do know there was a lag on the way down. There will be a lag on the way back up but if demand has dropped that’s a good thing. But we’re still going to have to get through a little bit of a new supply overhang here in Houston, so the fourth quarter will continue to be soft but we still think those tailwinds will be in place for us at least as a downtown asset. And in the fourth quarter we’ve got a SpringHill Suite that comes online in the fourth quarter. That’s in the same footprint as our Residence Inn and Courtyard in the Humble Oil Tower in Downtown and it should provide a little bit of extra RevPAR growth for us within the Houston market for us statistically as it ramps up.

Yes, I wouldn’t by any means suggesting to sell Houston. I was trying to take a look at the company maybe not so much on the cash flow multiple for certain of your markets like probably New York and both Houston will probably be two markets, I see that in my screen better or probably we this value if you did a EV to EBITDA versus the sum of the parts on those and it could set the -- you have a lot of disruptions throughout the portfolio, it seems like the -- and just maybe why would you not be buying the stock back aggressively at these levels when you could be having a miss mark into the value of the stock, the equity value?

Wes we’ve stated that we want to match fund. We obviously had the portfolio that Ross alluded to that we’re tracking. We were generally optimistic and had that traded. You might have seen the asset but the reality of it is that we want to stay committed to match funding buybacks with dispositions from a recycling perspective. As we receive cash we’ll evaluate the situation at the time. We’ll look at the volatility in our stock, we’ll look at the general business environment as it continues to be and with the help of our balance sheet make those decisions. But we’re going to stay disciplined to match funding.

Okay, thanks a lot.

Our next question comes from the line of Ryan Meliker with Canaccord Genuity. Please go ahead with your questions.

Hey, good morning guys. I just wanted to ask, you know, I know you are not here to give guidance for 2017 and it’s not what I am looking for but I think it might be helpful for us to kind of think about how you are thinking about your individual markets and how we should think about 2017 growth going forward. Obviously RevPAR growth is relatively muted this year. It seems like supply is picking up next year not to mention some challenges with the gas leak comp in the first quarter, the Super Bowl impact in San Francisco, the Moscone Center renovation which may have an impact on some of your Northern California assets. How are you guys thinking about your market as we had in the 2017 and assuming economic growth doesn’t accelerate which obviously is a big assumption, hopefully it will, do you think RevPAR growth is going to be flat to this year better or worse based on what you are seeing out there across your markets?

Hi Ryan, first of all it's too early to tell and you probably expected me to say that. Things are really volatile out there and when we try to look at things like our transient pace and our group pace they don’t seem to hold up in the quarter for the quarter. And in addition to that based on our business mix our booking windows are shorter than some of our peers which we are accustomed to but it does cut down our visibility in 2017 a little bit. So we’ll be huddling with our operators over the next few weeks and the preliminary budgets will start pouring in. But you gave me some examples to chew on and just really quickly, the Porter Ranch gas leak, we’ve got six assets in Southern Cal and the only one that benefitted from that was our Hilton Garden Inn in Hollywood Heights and that was just in the first half of the year. So we don’t think that will be a material comp to overcome. The Super Bowl in Northern California will be a little difficult for those assets. We still expect to be net positive in Northern California because the Moscone Center won't hit us as much as it may some of our peers because our only asset in the CBD is our new Courtyard which just becomes comp here in the fourth quarter. So it is still ramping and we are expecting double-digit RevPAR growth out of it in Q4 and that tailwind should continue into next year. On the balance, our Northern California assets are pretty geographically diverse Silicon Valley, San Jose. There is some supply but in San Jose but the corporate growth there is amazing too. The other thing that helped the Super Bowl is we are trading Super Bowl locations. We have got ten assets in Houston and Super Bowl is going to be in Houston in February. So I guess the main point is that we have got such a large geographical diverse portfolio that in any given year there is going to be markets that pickup, the ones that have gone through a little bit of cyclical downturn. We don’t think in terms of national averages, we think about a cluster of a number of different markets and that is the beauty of the diversity is they support each other in up cycle event and in softening cycle like this.

No, that is helpful, that makes sense. And just out of curiosity since you touched on the fact that Houston is going to host the Super Bowl in February, any thoughts on whether you think the Super Bowl will have more or less of an impact on Houston than we typically see, kind of a weird dichotomy. Houston is type of market where I would expect it to have a bigger impact than a market like San Francisco but at the same time given all the softness in Houston I wonder whether there is really going to be that much pricing power, any thoughts?

At the risk of talking my own book up, I think we will have a bigger impact in Houston because it is going to be more concentrated. It was really spread out in San Francisco between Santa Clara and San Fran they have moved a lot of the activity to the CBD. Of course the game was in Santa Clara, the people weren’t quite sure where to stay and admittedly there was probably a little bit of an B&B factor in there too. Houston is going to be much more concentrated. I think the CBD and the Galleria area are really going to prosper and so we are looking forward to it.

Alright, thanks, that is helpful. And then just one last question, so I am just going to throw this out there, obviously it is not your view but assuming that RevPAR growth stays relatively constant at this flattish level that you are guys are seeing this year for next year, what would you -- I mean are there more costs to cut, do you think you can maintain margins or do you think margins would erode again by another 50 to 100 basis points kind of like what you are seeing this year?

Yeah it is good question. I guess I would like to point out that we are starting from the beautiful [indiscernible] above 36% and it is a reflection of both the nature of the assets that we have chosen to make the center point of our strategy and excellent asset management, attentive asset management. And so it is pretty down right now but that isn’t to say that there weren’t opportunities here. Now we want to be careful about impacting guest services because this isn’t an apocalyptic situation. This isn’t 2009 where people are fighting, owners are fighting for solvency and you do what you have to do. This is a law and to impact guest service to a greater degree might send you down a rabbit hole, losing market share and all that. But there are things that could be done. There are cost efficiencies, there are staffing models views, there is vendor renegotiations and lastly I guess we have had some successes in a lot of areas if you want to sort of touch on those.

Yeah, right and just to give you a frame of reference our asset management team has done a great job of controlling our operating cost this year. I mean our cost was only up about -- averaging about 1.6% for the year just to give you a frame of reference. But as Ross mentioned the team has been really active in terms of staffing, whether it is clustering or having managers work the shifts. We do see contract laborer working overtime, we are really sort of focused on that. Some of the other areas as I mentioned are pretty much on the energy side. We have seen an improvement on energy this year and navigated about 6% and we expect to see more next year as the energy products kick in. Our insurance premiums went down about 10% to 12% last year, we are looking at another 10% to 14% next year. And we continue to cluster services as Ross mentioned, in terms of renegotiating contracts and we are seeing some benefits there in terms of bringing for example carpet cleaning in-house as opposed to outsourcing it. So our operators are running a tight ship and continue to look for ways to control the expenses and we’re pretty optimistic in our ability to continue to flex.

Got you, so from all that commentary it sounds like cost controls will continue to be kind of a positive or arguably a tailwind relative to what we might normally expect in kind of this slow growth environment, is that a fair assessment?

I’ll tell you what, we don’t want to -- we always like to exceed expectations and I can tell you that year-to-date in a very flat environment we restricted expense growth to about 1.6% excluding property taxes which is sort of a moving target because we’re always in the process of appealing those and there is timing factors and the benefits of those kicking in. So 1.6% is pretty good. Can we get it lower than that perhaps that’s certainly the goal but from a starting point of north of 36% margins we think at the end of the day we’re going to continue to produce EBITDA margins here that are best in class for the space. Really top tier and we are generating a ton of cash here and we’ll continue to do so.

Great, that’s a great color and that’s all from me. Thanks for the time guys.

Thank you. Our next question comes from the line of Jeff Donnelly with Wells Fargo. Please go ahead with your questions.

Good morning and if I can maybe continue that question on controlling cost, how do you both think about the ability to sustain margin control cost how were you to refer it and the potential for your select service assets versus your compact full service assets that will be rolling in 2017. Do you think one of those segments more than the other is going to be proved more resilient, I am just curious what your thoughts are?

Well, from a resilience standpoint, from a top line standpoint, and maybe I should approach it from there. We’re gaining share in a flat environment, we gain a 170 basis points of share in the third quarter and that’s helpful. And this is an asset class that first of all the brands that we’re aligned with its difficult for them to distinguish themselves when every hotel is full in a market. But when the tide recedes a little bit consumer preference begins to emerge and our brand Marriot Hills and Hyatt gain share. Secondly, this asset class tends to gain share in a soft environment as well because it becomes a little bit of a value proposition for travelers both corporate travelers who are looking for their expense account to look right and leisure travelers who are voting with their wallet as to where to stay. Ironically it’s not always the case that we’re charging lower rates than our full service comps because frankly with smaller inventories, room inventories per hotel we don’t have to layer in as much base business, take as much OGA business. And so call it the rate integrity at the hotel is stronger and we end up running RevPAR's that are similar to or greater than our full service cousins. As far as actually cutting cost in addition to the measures that Leslie mentioned, it’s possible that our compact full service hotels might have a few more services that would give us optionality to look at including more sizable food and beverage departments. But for the most part, the full service hotels that we’ve acquired are already -- remain as well because we admire that operating model. But we still expect -- we still expect we will have to be able to cut cost within our portfolio.

That’s the question I ultimately had, the select service already runs pretty lean to start but so don’t many compact full service hotels but they do have some more -- are getting more cost to cut and latter group so, I wasn’t sure how you saw that. Leslie I don’t know if you have this handy but just you gave us obviously the same store EBITDA margins for the quarter, do you have that figure excluding the Houston assets I am just curious if Houston was at a more of a drag on your portfolio this quarter just wondering when it might look like away from that one market?

Margins wise Jeff excluding Houston and Europe we would have improved by a 100 basis points.

Okay, sorry I missed that. And then just maybe one last question, it is just we kind keep hearing that it is increasingly difficult to get assets sold because of wide bid spread between buyers and sellers and it is more restrictive funding environment. Just in your view has there been, I guess two parts, has there been a discernible change in pricing even as recent to last three to six months and as you think forward into 2017, do you think initial yields on deals in the market have they remained stable despite maybe some weakness in EBITDA or do you think we are going to continue to see yields maybe move a little higher as EBITDA softens, I was kind of curious how you think about where asset prices go on transactions as we look forward?

I do think pricing has softened but it is largely as a result of declining performance. I am not sure that the yields that the cap rates or the multiples have changed that much. There is an interesting sort of an inverse thing that takes place where as the NOIs drop that the price per pound begins to get suppressed. And if a buyer knows that they can buy an asset at let's say 150 a key instead of 200 a key they might be inclined to reach a little bit out on the multiple and take a little bit of a rising risk because they know they are getting in at a good basis. So, the price per pound may end up being a little bit of a floor under pricing here but that is going to be particularly true in the stronger urban markets.

Okay, that is helpful, thanks guys.

Thank you and our next question comes from the line of Bill Crow with Raymond James. Please proceed with your questions.

Hey, good morning guys. Ross, with the imminent closure of the Waldorf it seems like maybe there won't be a better time for you guys to think about selling the Doubletree Met over the next couple of years than what might be around the corner, do you have any thoughts on selling that asset?

Thanks Bill, it is interesting, New York obviously is -- has supply issues, fortunately New York doesn’t have demand issues, it has supply issues. It has fairly strong demand market and it is only 8% of the EBIT in our portfolio. Our portfolio is large enough to absorb this sort of part of the cycle with New York and we have been working with our operator there, how he has been doing a great job with us to eliminate non-essential services and tighten up the ship. We have gained market share, so we are feeling good about New York and certainly love the market long-term. That being said, shame on us if we are not opportunistic, if somebody came along at the right price offered us an attractive exit, as it relates to the Doubletree Met. We are excited about the closing of the Waldorf frankly, it has been a drag on the Hilton system for some time. It is 1300 to 1400 rooms, it is 1% of the supply in New York City and it is virtually across the street from us and in the same brand family. And in addition just last night we received information from one of the established brokers in New York that there is a pending zoning change intended to incentivize development in mid time that could pass in 2017, that could add as much as 300,000 square feet of FAR to our hotel. And that is we are not developers but somebody else might be and/or that FAR could be sold to a nearby development. So there is some upside there. And I am sorry, go ahead Bill.

No, go ahead, I am sorry, didn’t mean to interrupt.

Yeah, and so while we are optimistic about the asset, it would be opportunistic, it is not for sale at this time.

Okay, do you have a hard date on the closure of the Waldorf, and what happens to all the big conventions that have been booked there for the next few years?

All of our intel is that it closes in February. And I am sorry, what was the second part of your question.

Just things like NAREIT they have already been booked for future periods, while that will be closed what happens to all those events?

They all go to the Doubletree Metropolitan.

There you go, that is the right answer

We’re certainly going to be chasing them and being within the Hilton family will help but maybe to my regret in this case we have a 763 room hotel there with only 7,000 feet of meeting space and normally we brag about that because it’s such an efficient machine. But it may not position us to pick up a lot of the groups that are going to be displaced from the Waldorf.

And I guess I don’t want to beat a dead horse but it could be a net negative in that the large groups are going to have to go to a different city and that you lose some of the overflow that would have been there.

No, I don’t believe that’s the case. I believe those groups will be retained if not in midtown certainly in New York City and so no, and I think that Hilton manages the Waldorf, they are going to endeavor to retain all of those at Hilton branded hotels which will help us.

Okay and then finally from me following up on Jeff Donnelley’s question on pricing and I may have missed this if you gave it earlier but the portfolio you had on the market that you took off the market where was pricing coming in relative to your expectations, what was the percentage gap between bid and ask?

Right, well initially there was no gap and we were enjoying a healthy due diligence period. But the softening fundamentals moved the buyer a little bit and they didn’t buy into what I was saying to Jeff that at some point the underlying value of the asset forms the floor under the pricing and we’re just trying to apply a multiple to a dwindling NOI within that particular portfolio. And we maintained our discipline, we’ve always been really prudent allocators of capital and we’re under no pressure to sell. We don’t have a balance sheet that needs fixing in any way and we like the assets. They are good assets, $100 RevPAR that generate a lot of cash and when it did gap out to probably a 7% to 10% gap between bid and ask we pulled it. And now we’re sort of rethinking our strategy, taking into account that the appetite seems to have moved away from large highly levered portfolios to singles and pairs. And so we’re rethinking those candidates and others according to that sort of shift in market appetite.

Okay, thanks Ross and Leslie.

Thank you, our next question comes from the line Lukas Hartwich with Green Street Advisors. Please go ahead with your questions.

Thanks and good morning. Hey, in terms of revenue management I am just curious how you guys are thinking about weighing holding rate versus pushing for occupancy?

Yeah, as I said we have been gaining share in this environment, a 170 bps in the third quarter. Occupancy was actually 210 bps and we were down about 40 bps in share and rate. And October showed a similar pattern but it’s not exactly a heads in bed strategy Lukas, it’s more of speaking an optical mix I guess. We started to group up what group space we do have, we started to group up and starting in quarter one our mid week base ordinarily we would keep it pretty low mid week base and wait for the corporate transient to fill it in, in the last two to four weeks. But we have grown our midweek base now with the group with more leisure even midweek. We have been taking more advance purchase discounts to lock in the business. We’ve been booking more extended stay not only at our extend day hotels but at our other hotels which comes at a slightly lower rate but it helps with the shoulder nights and the margins on the business are pretty good. And so what we’re ending up with is some occupancy gain at slight expensive rate but definitely RevPAR share gains. But it’s not just because we’re sort of opening the flood gates to discounting, it’s really just seeking that optimal mix.

It is really helpful and then secondly on the asset sales, can you comment a little bit more on the timing and maybe the magnitude of what you guys are looking to do there?

We’re still working through the 2017 plan now. We actually have an asset, a single asset that is under contract and we’ll probably announce something in the fourth quarter. And our activity in 2017 will look more like that but I don’t have a definite target for you at this time.

That’s it for me. Thank you.

Our next question comes from the line of Shaun Kelley with Bank of America. Please go ahead with your questions.

Hey, good morning guys. Most of my questions have been widely discussed so just one last one would be, could you talk a little bit more about Austin it’s not a market that other guys have much material exposure to. So what’s the supply headwind in that market and what sort of the outlook for 2017, I appreciate you guys already give some color on 4Q?

Yes, thanks Shaun. Love Austin, love it, but supply is here. We’ve had a five year run there going through 2015 of a 10% CAGR in RevPAR growth. Demand has never been a problem there, it’s a dynamic city, it continues to attract people and events and corporations. And in fact demand is up another 4.3% this year year-to-date but supply is up 6.5%. And you throw in fewer city rides in the third quarter and a couple of our hotels particular to our portfolio had tough FEMA comps from some flooding that brought in some FEMA agents last year. And so that’s why we were down to 6.2% in the third quarter. Looking forward I guess in Q4 if you are looking for tailwinds we have an easier comp. We were up only 2.4% in Q4 in 2015 versus 6.6% I guess in Q3. We’ll have a couple of renovation ramps but the new supply needs to be absorbed and its going to continue to be a challenge. So we’re probably going to be down single-digits in Q4 and we think 2017 will look a lot like that. We love our position in Austin and we have the utmost confidence in the market but it is just going to be soft a little bit while we absorb all this new supply. And our hotels in Austin despite all this did gain share in Q3, despite all the headwinds they have mentioned. So our operator is doing a good job but we just have to get through Q4 and a little bit of softness in 2017 while the market absorbs that supply.

Great, thank you very much and just one other area of the country you guys have a little bit more exposure to sort of kind of the Southeast -– on Florida specifically so, what’s going on in some of those key markets suppose as it relates to supply and sort of the topic which is Zika?

Right, we had a great quarter there and expect to continue to outperform there. Tailwinds from some renovations, our Hilton Cabana assets still ramping up but I guess the headwinds there are new supply and slowed international travel there. Its only about 8.5% of our portfolio but the international is a big factor down there. And the Brazilian travel for us at least has been cut in half and the Canadians are down about 20%. And then there is the Zika thing, we haven’t had any cancellations from Zika nor have we received a lot of inbound about it but -- so our evidence is only anecdotal. It seems like it might be affecting booking pace a little bit around the area. But to the credit of both the press and consumers there seems to be an acceptance that it's isolated to some geographical pockets. And it’s not even approaching wide spread panic, it’s just a source of concern. But again we don’t have concrete evidence of any cancellations. Looking forward I think our biggest headwind is probably going to be new supply it looks like in 2017 it might be around 5% in Miami and around 3% in West Palm Beach. But we like our asset base there, we’re going to continue to enjoy the tailwinds from our renovations in the first half of the year. So we think we’re going to see low single-digit growth there. But the market does have to get through this low in international and it does hopefully have to get some relief in general from the whole Zika buzz.

Great and thanks a lot for that.

Our next question is coming from the line of Anthony Powell with Barclays. Please go ahead with your questions.

Hi, good morning everyone. Sorry if I missed this but what is the supply outlook like in Northern California, we’ve heard from some peers that there seem more supply growth in the next year?

Yes Anthony, there is a little bit of a surge there particularly in San Jose. San Jose could be north of 4% but the demand growth there is fantastic as well. Throughout the rest of Silicon Valley there is a few other hotels opening but what our friends in the development community are telling me is that beyond those they are just not sure about any immediate future because the cost of the doors [ph] becomes so prohibitive. The cost of the labor has well in fact the near availability of the labor is almost nonexistent. Construction debt is gapped out on them and so replacement cost is getting up over 400,000 a key for select service assets. And a number of deals that have been approved aren’t putting shovels in the ground. And then in the debt in the San Fran CBD itself, everybody talks about Moscone but the fact is that the supply growth is still deminimus there. It’s a terribly difficult place to get stuff done and so when Moscone reopens the compression will be fantastic in the second half of 2018. So I would say if you’re looking for supply concerns you probably look to San Jose among all the different areas but again the demand growth there has been sensational too. We’re very optimistic about our assets there.

Got it, and do you think the current environment makes REIT to REIT M&A more or less likely over the next say 12 to 18 months?

That’s a good question. On the one hand fatigue could lead to more conversations right.

Yes, that’s what I was thinking.

Yeah, fatigue could be a factor here and could motivate some Boards and senior teams to at least meet and talk. The headwind I think is that we’ve had multiple compression where it will all sort of come together. There isn’t as much odd between the various parties as it might have been a year or two ago. And so it’s harder for one to pay a premium for the other so then it becomes a merger of equals and you have the social issues. And I guess there is a reason that there is -– somebody I saw somebody quoted saying if you book about fleet mergers is the shortest book in the world. It’s hard to pull off and so I think there will be more conversations and we will be in the middle of them. RLJ has always been vocal about being commercial and about the need for the space to aggregate and scale up and we’ll be in the mix. But I am not sure it’s going to get any easier than it has been historically.

Alright, great, thank you for that.

Thank you. This concludes today’s question-and-answer session, I would like to turn the floor back over to management for closing comments.

Well thank you everyone. We appreciate your participation today and your ongoing support. We will see a number of you maybe later this month and we’ll catch up with the rest of you on our year-end call. So, thanks again.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.