Executives: Greg Costa - Manager of Investor Relations & Finance Neil Shah - President and Chief Operating Officer Jay Shah - Chief Executive Officer Ashish Parikh - Chief Financial

Officer
Analysts: Anthony Powell - Barclays Capital Ryan Meliker - Canaccord Genuity Michael Bellisario - Robert W. Baird & Co. William Crow - Raymond James & Associates Bryan Maher - FBR Capital Markets Chris Woronka - Deutsche Bank

Securities
Operator: Good day and welcome to the Hersha Hospitality Second Quarter 2017 Results Call. As a reminder, ladies and gentlemen, today's call is being recorded. At this time, I would like to turn the call over to Greg Costa, Manager of Investor Relations & Finance.

Please go ahead.

Greg Costa: Thank you, Kathy and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust's second quarter 2017 conference call. Today's call will be based on the second quarter 2017 earnings release which was distributed yesterday afternoon. Prior to proceeding, I’d like to remind everyone that today’s conference may contain forward-looking statements.

These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the Company's actual results, performance or financial position to be materially different from any future results, performance, or financial position. These factors are detailed within the Company's press release as well as within the Company’s filings with the SEC. With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust’s President and Chief Operating Officer.

Neil, you may begin.

Neil Shah: Thank you, Greg and good morning to all of you on today's call. Joining me this morning are Jay Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. Despite a relatively strong economic backdrop marked by full employment, strong corporate earnings growth and low volatility in the capital markets not even a 17-year high in consumer sentiment has been enough for price inflation or ADR growth. In major markets across the U.S.

RevPAR growth did not keep pace with escalating wage growth and rising operating expenses. ADR continues to be constrained by new supply, increased price transparency, increased distribution cost, affected international demand due to the strong dollar and few signs of sustained acceleration in corporate transient or group demand, the same challenges our sectors faced for the last two years. As the rate of RevPAR growth decelerated in early 2015 and across the last eight quarters we've been focused on the two levers we have to create value; our capital allocation decisions and asset management execution. Let's start with capital allocation. The past 24 months have been one of the most productive and transformative periods for our company.

We sold approximately $850 million of mature stabilized hotels while deferring $278 million of taxable gains with $816 million of accretive acquisitions in higher growth markets and higher quality hotels. We continue to execute on our strategy during the second quarter. We were able to finalize our capital recycling program following the disposition of three suburban extended stay hotels for $130.5 million and the acquisition of the Westin Hotel in Philadelphia for $135 million. In addition to refining our portfolios market mix to urban Gateway and coastal destinations our improved portfolio quality focuses our capabilities on hotels with a greater opportunity to drive EBITDA growth in the coming years. We own the Hyatt House hotels for over 10 years and they proved to be very productive investments as the combined EBITDA generated at the three hotels at the time of sale was 60% above prior peak.

We realized $67 million gain on the sale. The Westin provided a rare opportunity to purchase an exceptional hotel at 7.8% trailing cap rate and 11.5 times EBITDA multiple, in a location where we have an immediate operational advantage. The Westin operates at a 38% EBITDA margin higher than many of our urban select service hotels and requires minimal CapEx. It occupies the dominant corporate location in Center City Philadelphia and its emerging innovation district and complements and adds scale to our segmented cluster in Philadelphia, a perfect fit between our Rittenhouse Hotel and the Hampton Inn Convention Center. Our unique strategy of owning and operating leading hotels across segments creates economies of scale and scope and offers a sustainable competitive advantage in our markets.

We choose markets for long run capital appreciation and leverage our operational and informational advantage in these markets to outperform in the meantime. The portfolio we've assembled has several assets still ramping up and significant ROI projects that will take couple of more quarters to shine. But in the meantime we've been able to sustain our outperformance in most of our markets and are encouraged with the initial performance of our recently acquired hotels. Our comparable portfolio delivered 1% RevPAR growth driven by 1.5% increase in ADR to $228.13. If we exclude the challenging South Florida market our comparable portfolio reported 1.9% RevPAR growth to $204.93 for the quarter.

RevPAR growth however did not keep pace with escalating wage growth and rising operating expenses. Hotel EBITDA margins for the comparable portfolio decreased 70 basis points. Let's take a deeper dive into each of our markets starting with Boston. Our Boston portfolio grew RevPAR by 6.5% 200 basis points better than the market. The Courtyard Brookline recorded a 12.4% increase in RevPAR.

ADR was up 6.3%, while occupancy rose 505 basis points to 92% supported by an increase in transient and group demand. The Boston portfolio continues to benefit from the ramp at the Envoy which registered RevPAR growth of 7.7%, as we worked closely with our operator to implement and execute a more rate driven strategy leveraging the strong and growing corporate transient demand within the submarket as companies relocate and grow in Boston's dynamic innovation district. We bought the Envoy about one year ago today and are encouraged by our progress in service delivery, revenue management and in driving profitability from the relaunch of the Rooftop Bar and Outlook Restaurant. Boston has a strong convention calendar and citywide activity for the second half of 2017 and the outlook remained strong. Our West Coast portfolio consists of eight hotels from Seattle to San Diego and reported RevPAR growth of 3.4% driven by 5.5% ADR increase to $232.91 and the largest EBITDA margin growth during the period at 130 basis points contributing $9.8 million to our comparable EBITDA.

We saw continued success from our newly acquired Ambrose hotel Santa Monica which grew RevPAR by 14.4%. The Ambrose was able to outperform in the second quarter as we implemented our new sales and revenue management strategies targeting additional LNR accounts midweek. The compression from local corporate accounts allowed us to yield a higher-rated leisure transient guest and increased our market share within the competitive set according to our business plan for this acquisition. We are also gaining momentum with the Hotel Milo in Santa Barbara where RevPAR increased 10.9% driven by changes in our revenue management strategy. In northern California the Courtyard Sunnyvale which we acquired last fall recorded 5.2% RevPAR growth to $206.08 and 320 basis points of margin growth.

Our outlook for Silicon Valley remained solid through the fourth quarter. For the second quarter our Courtyard Los Angeles Westside faced a difficult 17.7% comp to last year's second quarter primarily driven by market compressions in the Porter Ranch gas leak. Despite this challenging comp, the hotel managed to limit its RevPAR loss to 1% during the second quarter and the hotel increased ADR by 2.7% while gaining 6.7% of market share primarily through group bookings. The Silicon Beach submarket on the west side of Los Angeles will continue to offer very strong supply and demand fundamentals for the foreseeable future. Our West Coast portfolio reported gross operating profitability and hotel EBITDA margins of 51.1% and 40.9% respectively.

In the second quarter hotel EBITDA margins excluding the Sanctuary Beach Resort which is undergoing a complete restaurant renovation increased 200 basis points to 41.2% as a result of strong flow-through of 111.8%. HT's Philadelphia portfolio achieved RevPAR growth of 3% outperforming the Philadelphia market and the competitive sets. We achieved strong flow-through at each of our hotels in the market improving margins by 100 basis points. The third quarter will have very difficult comps due to Democratic National Convention held last July with moon nights into August. The pace is strong for the fourth quarter however and the 2018 and 2019 convention calendar in particular are more robust than previous years.

In Washington DC the transient markets saw lack of momentum related to the Easter and Passover holidays in conjunction with spring snowfalls discouraging cherry blossom travelers. Our portfolio reported in line results across most of the cluster delivering positive RevPAR at our Capitol Hill Hotel up 2.7%, the Hampton Inn Mass Avenue up 2.5% and the Hilton Garden Inn, M-Street up 1.1%. however, difficult comps at the Ritz Carlton, Georgetown which had a large Middle Eastern delegation at over $1000 ADR in the second quarter of 2016 that did not repeat, led to a 12.6% decline in RevPAR and led to our underperformance in the DC portfolio. Despite this difficult comparison we are pleased to see that the hotel, the Ritz-Carlton Georgetown still recorded an ADR of $531.24 and quarterly RevPAR of $456.23 for the quarter. Separately the St.

Gregory saw EBITDA margin growth of 6.1% in the second quarter following 134.7% flow-through as the hotel benefited from the recent renovations of the lobby and restaurant while increasing group bookings during the period. The St. Gregory was acquired 24 months ago at the very start of our recycling campaign and we are encouraged by our progress in executing our business plan there. Our seven high quality Manhattan properties registered 1.5% RevPAR growth to $247 during the period outperforming the Manhattan market by 190 basis points and has outperformed the Manhattan market in 12 of the previous 14 quarters as a result of a young, well located and purpose built hotel cluster in tune with travelers taste and preferences. But as we've discussed in the past, without meaningful ADR growth it is hard to avoid margin erosion in the face of increased labor costs as a result of the increase in minimum wage rates.

In the third quarter the shift of the Jewish holidays to September and overlap with the UN General Assembly will constrain growth in Manhattan. While the overall operating environment in New York remains challenging demand continues to be robust enough to offset new supply coming into the market and the supply outlook is significantly lower in 2017 to 2018 relative to prior years. In South Florida our portfolio reported a 5.6% RevPAR decline as a result of the market's well-known headwinds. The Cadillac was up 0.8% in RevPAR, but the Winter Haven and Blue Moon on Miami Beach, the Ritz-Carlton and Residence Inn in Coconut Grove and the Parrot Key Resort in Key West were all negative for the quarter. The combination of the Miami Beach Convention Center closure and ongoing Zika related fears among meeting planners and domestic leisure travelers has been very difficult in Miami this year.

New supply, the strong dollar and choppy international travel trends have weighed on the market for nearly two years in Miami and the Key West. We do expect market conditions to improve as we progress through the year aided by easier comps during the back half of 2017 and into 2018 with a highly anticipated convention calendar in 2019 and beyond. We continue to work diligently with our operators on cost containment and responsive revenue management strategies to preserve our clusters EBITDA in the meantime. We have a lot of conviction in South Florida's longer term fundamentals and feel very good about our locations and hotels, not to mention our cost basis. To prepare for the market's eventual recovery and leverage this slow period, we've undertaken several major ROI projects in Miami.

In the third quarter we will begin the transition of the Cadillac Courtyard Miami Beach from a courtyard to an autograph collection hotel. Later in the year we will begin renovations at the Ritz-Carlton Coconut Grove to introduce a restaurant operator and launch a destination bar. Both the projects will be disrupted to cash flow through the first quarter of 2018, but will offer high teens IRRs on our incremental investment and significantly increase the EBITDA per key that these assets will generate over the long-term. While we are relentless in driving profits for the quarter, as asset managers we are also keenly focused on positioning our hotels for the eventual recovery in these most challenged markets as allocators of capital. With that, I will turn the call over to Ash, who can dig a bit deeper into margins and the balance sheet.

Ashish Parikh: Great, thank you Neil and good morning. My comments will focus primarily on our comparable portfolio of EBITDA margins, along with revenue management strategies and asset management initiatives that we've implemented to maximize our operating results in this environment. I’ll finish with our updated guidance and some of the moving parts that have affected our outlook for the remainder of the year. During the second quarter, we reported comparable hotel EBITDA margins of 38.3%, a decline of 70 basis points. However, if we exclude the Hyatt Union Square and Sanctuary Beach Resort, it has continued to report disproportionate margin deterioration due to renovations and a shift from the third-party lease model to a management model, our comparable EBITDA margins increased 10 basis points in the second quarter.

Margin performance was quite disparate in our portfolio as our West Coast and Philadelphia properties recorded margin growth in excess of a 100 basis points. While markets including Boston, New York and the South Florida cluster faced downward pressure from increase in minimum wage rates and corresponding increases in our in-house and outsourced labor costs. Further exacerbating the problem in New York, is that across our entire portfolio of 10 hotels, we were able to drive occupancy to 94.6%, an increase of almost 200 basis points while ADR was relatively flat as a result of increases in supply- delivery in the market. Our flexible operating model and the alignment that we have with our operators has allowed us to implement several new initiatives to eliminate margin loss in the slow RevPAR growth environment. We have worked with our operators to realign our staffing model and to restructure our personnel across various departments including sales, revenue management, accounting and engineering, to maximize the benefits of our clustering strategy.

Lastly, we continue to look for ways to renegotiate and lock in rates for outsourced laundry, parking and other third-party service providers and have negotiated favorable long-term contracts in all of these areas to help mitigate cost increases across the portfolio. From a revenue management perspective, we were able to reduce our travel agent commissions despite selling more rooms than the previous quarter in 2016 by shifting our mix of business. We took on more LNR, governmental and small-group business and were less reliant on lower commissionable airline and consortium [ph] business. Along those lines we have instructed our revenue management teams to closely evaluate, forward pace international travel and non-repeating city wise further up in the booking window to best understand where to strategically place growth. This initiative has helped to reduce commission expenses by avoiding the use of high cost online channels to fill rooms during periods of slack demand.

As we perceive through the year we will continue to undertake new initiatives to drive our industry leading margins within a challenging operating environment. Shifting over to capital expenditures, we spent approximately $11.4 million in consolidated CapEx and development projects during the second quarter. Our largest project during the period was at the Cadillac Courtyard Miami Beach where we have started transitioning the hotel from the Courtyard to an Autograph Collection hotel. In addition, we also made significant progress in the restaurant space at the Sanctuary Beach Resort and are anticipating a September opening for the fully renovated restaurant concept to be called Southwood [ph]. We continue to anticipate spending between $50 million to $52 million in CapEx in ROI projects in 2017 with the majority taking place in Miami.

Moving now to our balance sheet where we ended the second quarter with $59.6 million in cash on hand following the closing of the suburban West Coast portfolio and the acquisition of the Westin. During the quarter we also entered into several interest rate swaps to lock in our financing costs for a larger portion of our unsecured term debt. On a pro forma basis for the new swap we forecast that approximately 70% of our debt will be fixed-rate debt by the end of the third quarter. Let me finish off with our updated guidance. We are pleased with our portfolio’s performance thus far in 2017 which has been within the range forecast at the beginning of the year.

Our collection of high quality transient hotels clustered across six high demand markets has benefited from strong results on the West Coast in Washington DC and in Boston and continues to outperform in the more challenging New York market. However, the third quarter will prove to be challenging due to several factors. Most notably we have difficult comps from last year with the Democratic National Convention and very strong non-repeating group business in August in Philadelphia. Our newly acquired Westin was purchased on June 29, and will be a comparable asset for us for the entire third quarter further contributing to difficult comps. We will also experience renovation disruption at the Cadillac and are facing the shift of the Jewish holidays from October to September of this year.

The fourth quarter fundamentals however, are pointing towards a stronger transient and group pays and are displaying more favorable trends in the majority of our core markets including Boston, Washington DC, Philadelphia and New York. Our guidance also builds a non-performance related expenses such as in accruals on our taxable REIT subsidiary income which is a non-cash expense as a result of our ability to utilize net operating loss carry forwards in the TRS. And lastly, we are building on our projecting EBITDA and FFO contribution from the Westin Philadelphia acquisition for both the third and fourth quarters of 2017. Our overall view on RevPAR growth and margin performance remains unchanged at 0 to 2% growth and flat 200 basis points of margin deterioration respectively, but we are increasing our FFO per share guidance to be between $2.25 and $2.38 per share and adjusted EBITDA between $171 million and $177 million. So that concludes my portion of the call.

Jay, Neil, and I are happy to address any questions that you may have. Operator?

Operator: Thank you. [Operator Instructions] And we’ll take our first question from Anthony Powell with Barclays.

Anthony Powell: Hi, good morning guys.

Neil Shah: Good morning.

Anthony Powell: Thank you for all the detail in the prepared remarks. I had question on margin growth in the West Coast and in Philadelphia, it was obviously stronger than the portfolio, do you anticipate some of the challenges you are seeing in New York may be point to those markets eventually?

Neil Shah: So, on the West Coast itself we have already seen increases in minimum wage and other costs. So, we don’t anticipate being surprised because we are experiencing that. It’s a differential in the West Coast as we have been able to push RevPAR above 3% in most of our properties, so it is allowing us to drive our margins. In Philadelphia similarly we had about 3% RevPAR growth in the quarter and had 100 basis points of margin growth at the Rittenhouse and in our Hampton Inn in Philadelphia we showed very strong growth at 320 basis points of margin growth at that asset.

So we do anticipate potentially that Philadelphia eventually starts increasing the minimum wage rate, but I think it’s really a function of where the market and our strategies allow us to drive RevPAR above that 2% to 3% level we can definitely show margin growth.

Anthony Powell: Got it, thanks. And at Westin at Philadelphia I think you mentioned that you know the convention calendar looks positive for the next couple of years, it’s a bit different from what we've heard from others. So if you could kind of just go over your view of Philadelphia in terms of citywide, leisure demand, corporate transient demand over the next few years that will be great?

Neil Shah: I can get it started Anthony. In Philadelphia, you know 2017 is the big scary year where the DNC doesn’t repeat.

In 2018 we get back to kind of 2016-2017 levels in convention calendar and the number of citywide at I think 2016-2017 and from 2019 that we get up to 20 citywides which we haven’t had in Philadelphia in several years. And so, the convention calendar is tough particularly in the third quarter, but we see it recovering relatively quickly. We haven’t had 20 citywide events in Philadelphia in nearly a decade and so that's where we are all very focused on that 2019 demand bump. Just for the sake of - I have the data in front of me, in 2016 we had 17 citywide and 2017 we had 15 citywide. In 2018 we are expecting 16 and in 2019, 20 with significant growth in the number of attendees expected at each of these conventions.

So, we feel good about the convention calendar. We feel very good about Philadelphia’s continued kind of emergence as a major leisure destination for not only domestic travelers but international travelers. Philadelphia is one of the markets around the country that continues to have very significant increases in international demand and international visitation. As you may know, that Philadelphia was named the first U.S. UNESCO World Heritage Site and has really added a lot of attractions for leisure travelers around the arch and around history.

I think it’s the corporate demand side of Philadelphia that I think has changed even more significantly across the last five to seven years. You know Philadelphia has always been eds and meds kind of city with great healthcare and universities in Philadelphia and we've always had less major corporate demand generators downtown than some of the other northeastern CBDs. Comcast has increased their commitment to Center City, Philadelphia and they are building the Comcast Innovation Tower right now blocks away from our site from our hotel and that’s leading to not only a lot of additional Comcast team members, NBCUniversal and then all of the kind of clusters that serve them. University City is also going through a major resurgence and the relocation of some other headquarter spaces as well as some of the venture capital and life sciences companies that have been in the suburbs of Philadelphia are now moving into this north and west side of Philadelphia where the Westin is particularly well-positioned. So, we feel very good about the leisure demand side, the corporate demand side and the convention calendar in Philadelphia.

I think the big concern around Philadelphia is the new supply that is expected across the coming years. Philadelphia has been blessed for the last three or five years with very little new supply and that will change in the coming years. We have 171 rooms aloft that will open and a 200-room Four Seasons and the Cambria Suites, those three hotels will open across the next 12 to 18 months. And then there is a larger W [indiscernible] project that is by our consultant reports is expected to open in 2018. I think there is some risk of that pushing into 2019 or beyond because it’s just not moving very quickly, but that’s the bigger concern with Philadelphia is the new supply.

We feel like coming in with such a strong growing in yield and having our cluster efficiencies and economies to bring to bear to increase that cash flow in the coming years and then we will have a year or two to kind of absorb that new supply. So, we have an underwritten significant topline growth of this asset, but we do see great opportunities to change the market mix and reduce OTA commissions which we think are way out of line at the hotel and get the efficiencies in cluster kind of economics around our portfolio in Philadelphia. So, we are feeling very good about that transaction.

Anthony Powell: Got it, thank you.

Operator: We’ll take our next question from Ryan Meliker with Canaccord Genuity.

Ryan Meliker: Hey, good morning guys. I had a couple of things over and to touch on. First of all, you know congratulations on closing on the Hyatt House transactions and Westin and when you guys put out the press release last week surrounding those transactions, you highlighted that you completed your capital recycling program. Does that mean that we shouldn’t see acquisitions or dispositions from you guys in the near-term and you are going to kind of let the portfolio prove itself out over the next couple of years?

Neil Shah: Yes, Ryan I think that’s the right message to take from it. We have been very busy across the last two years, recycling capital, focusing dispositions around assets that required - kind of had higher CapEx profiles or were in the markets that were taking more supply or assets that just kind of reached the ceiling in their marketplaces and we recycled into higher growth opportunities where we can add more value in the coming years.

And we are very much looking forward to allowing this new portfolio that we have assembled to ramp-up, stabilize and mature.

Ryan Meliker: Okay, thanks Neil. And then to the second kind of follow up to that, so given that dynamic you know it looks like you guys are at leverage level somewhere between 6.5 and 7 times on net debt EBITDA depending on obviously what EBITDA you guys are using. It sounds like you guys are comfortable in that range, you know especially this late in the cycle, I just want to make sure that we are understanding that correctly?

Ashish Parikh: Hey, Ryan. Where we are looking at right now is we’ve had a lot of ins and outs obviously on the EBITDA side.

When we look at it from just to not give 2018 guidance, but we are really looking at a net debt to EBITDA probably closer to the mid 5s range for next year with the goal being closer to we want to get to that 4.5 to 5 times in the next 18 to 24 months and ultimately sort of closer to the 4 times. I think that has been our stated goal. We've had a lot of moving parts. We don’t look at our portfolio and say you know we need to be at 2 times. We think between 4 and 5 times for the cash generation that we can provide with the type of assets and the market that we own is the right level of debt for our portfolio.

Ryan Meliker: Okay, that’s helpful. And then I assume you guys are expecting to get there largely through cash flow generation?

Ashish Parikh: Yes, primarily through just you know increases in EBITDA and with either we utilize the cash, do pay down some debt the excess cash or potentially buy an asset or two to increase the EBITDA size. But as Neil mentioned, we certainly don’t have a very active pipeline right now, it’s really about growing the EBITDA portion of that equation.

Ryan Meliker: That’s helpful and then as we think about. Yes go ahead.

Neil Shah: Ryan, I was just going to add that you know the free cash flow profile of this portfolio that we've assembled is quite impressive. This year we are using a lot of our free cash flow for reinvesting in our properties and into these ROI projects. In previous years we’ve used a lot of our free cash flow to buyback stock. As we look into 2018 and 2019 when our CapEx needs to go back to kind of stabilized levels of $15 million to $20 million that leads $50 million, $60 million of free cash flow that we have to pay down debt or to have dry powder.

Ryan Meliker: Thank you.

You read my mind. My next question was going to be whether CapEx was going to stay elevated next year for ROI projects that were coming, but it doesn’t sound like it. So it’s helpful. Great, that’s it from me. I will jump back in the queue if anything else, thanks guys.

Operator: [Operator Instructions] We’ll take our next question from Michael Bellisario with Baird.

Michael Bellisario: Good morning everyone.

Neil Shah: Good morning, Michael.

Michael Bellisario: I know you guys do have some assets that I think you might just sell eventually may be a few non-core hotels or so, kind of following up on Ryan’s question, are those really more opportunistic sales, if and when those occur kind of how do you think about selling those potential assets in over 12 to 18 months relative to the capital recycling that you have done over the last year and half to two years?

Neil Shah: Yes Michael, just it will be, we are always in the marketplace and we are always willing to hear offers and we are sometimes kind of approaching the market on individual assets and so there is, it is possible that we will have couple of sales in the coming 12 months, but it’s not something that we view as necessary for CapEx profile or for kind of local market dynamics, but we are opportunistic. If we get the price that we were looking for on the Mystic Hotel & Spa or the Chester Holiday Inn Express, or the Sheraton Wilmington its possible, but in order of magnitude it’s much less than $100 million of transactions and not a lot of EBITDA.

So, moving forward it will be opportunistic sales for this portfolio.

Michael Bellisario: Understood and then just may be on those three examples that you used, is there any capital gains, pressure that you would say if you were to sell them and have to redeploy those into acquisitions or is the basis there much higher than what you sold?

Jay Shah: Hey Michael, yes we would have gains on a few of those assets, especially Mystic which we had a carryover basis from the Mystic Joint Venture. I think that from a scope standpoint we've completely deferred all of our current capital gains. So depending on whether those sales happen in 2017 or in 2018 there is a potential to either pay out a little bit of a special or if we deferred the gain into 2018 depending on the timing of the closing we may not need to do anything but none of those would warrant sort of the large stemmed [ph] at $175 million gains or the Hyatt House transactions where we had $67 million in gains and the order of magnitude is probably closer to $25 million to $35 million.

Michael Bellisario: Got it.

Understood and then one last one on the Westin and can you quantify the potential OTA stating I think you mentioned 38% EBITDA margins in your prepared remarks and then, what other operational efficiencies and upside do you see as we think about it Hersha is known as is an efficient manager of hotels, so what's left for you to pull?

Neil Shah: You know Michael, we don't have a lot of detail that we can share right now on some of the specifics around the commission rates that we can save, but there is a segment that’s grown a lot across the last six months at the asset around the OTAs. We think that, that should considering the meeting space kind of the best in class meeting space that this property offers. We think that should go to zero or go very close to zero, but I can’t give you more specifics on that side of it. On the cost side, lot of the kind of the kind of benefits where we can create margin growth is from moving rates than just having more opportunity for flow through at the property. The hotel is very efficiently run.

It has a very small restaurant and a F&B program that’s oriented towards meetings which is and which can be very profitable business. But the room side of the house just hasn't been optimized. We believe that this hotel is just below the luxury level in Philadelphia and it's been priced and sold more like a commodity abrupt scale asset.

Michael Bellisario: That’s helpful. Thank you.

Operator: We’ll take our next question from Bill Crow with Raymond James.

William Crow: Hey, good morning guys. I appreciate you pivoting toward supply in Philly in a way from demand because that's something we hear from clients as we talk to them about your story which is sometimes it seems like you're going to where the puck is as opposed to where the puck is going. In other words you position yourself in some markets whether it's New York or South Florida, buying in Philly, arguably Seattle earlier this year that are facing or have faced supply pressure. So I'm just wondering if you are viewing the markets a little differently, maybe your time horizon is different than others or maybe we just missed something from a supply perspective? And then the same question could be asked about kind of preparing for the end of the cycle and the shift into the luxury and upper upscale at this juncture, so maybe you can just talk about your strategy from that perspective?

Jay Shah: Well, I think the mark of - often the mark of high supply markets is high demand and that's where the supply goes to fill very high demand markets and we have gone into Seattle which is a market that has a lot of supply on the horizon and as we discussed at length in the last couple of calls.

We were focused on a differentiated asset in the marketplace where there was great levers to pull, both on the cost side and on the distribution and sales side of the hotel to drive real EBITDA growth in the coming years in the face of new supply. In Philadelphia it’s a market that we clearly know very well and have some clear operational advantage in and where we're going in with fully eyes wide open about the new supply, but have a going in yield that can give us conviction despite new supply. I think being a little closer to the ground might make us a little less reliant just on kind of consultant data around new supply there's a lot of talk about, I mentioned the three hotels that are opening, but I think there's talk about you know 10 or 12 hotels that are yet to get financing or to make any kind of progress towards construction. So I think some of it is just having local insight criteria knowledge. In terms of getting where the puck is versus where its been, I mean I think that's, I think you should just take a look at our past history.

We're generally early on markets. Sometimes you go in knowing that times are tough. Sometimes when the news is the worst is when pricing opportunities are the best and you can add value with operations in the meantime. I'm not sure if there's anything else I can add there.

Neil Shah: Yes and Bill also know, I think a lot of the feedback you might be getting from clients or people are asking it's really it's about commoditized encumbered assets with long term contracts where it's a lot harder to asset manage.

I think we make a point of really focusing on assets where we have the flexibility to implement strategies that we think are going to bear fruit and that makes a big difference I think. You know we've always been very operationally focused not to say just our peers aren't, but being focused and then having that the ability to be able to implement strategies in that regard sometimes vary based on the structure of the management at the hotels. So I think in this case, I think some one of the earlier questions suggested ATI [ph] is a strong operator and [indiscernible] is a strong asset manager and not denying any of that, here there's and Philadelphia particularly there's much better opportunity for topline that we think was being overlooked and we've got unique advantages in the market with above property level savings and efficiencies and really driving overall sales and marketing and LNRs at the property that other operators might not have.

William Crow: Okay, I appreciate that response. Thank you.

Operator: We’ll take our next question from Bryan Maher with FBR Capital Markets.

Bryan Maher: Good morning guys. Can we drill down a little bit more on your comments on South Florida and kind of the improving backdrop in the second half in 2018? It seemed on your first quarter call that things were getting better in the first half of this year as we moved through the year, but it didn't - we didn't get the sense that, that kind of continued into the second quarter maybe as we would have thought off the first quarter cost, so can you drill that just a little bit more on what you're seeing there?

Neil Shah: Yes, Bryan the first quarter started off with some encouragement. April was still pretty solid, it just did really decelerated in May and June. And we think it’s as we've mentioned in the prepared remarks it's without the Miami Beach Convention Center open at all there's very little compression in the marketplace and then you add to that the Zika related concerns.

Now we're very fortunate there that Zika has not had any new cases in Miami Beach or in the Miami area this summer. But I think that kind of memories are long among meeting planners and brides and other groups of young travelers. And so that is just continuing to be a major headwind in the market. I think it takes 6 to 12 months perhaps for memories to fade about concerns around Zika and we were hopeful that this summer we could get through without a new occurrence and so far, I'm knocking on wood, so far so good on that side, but I think it will take a little bit longer for that kind of group recovery because of it. The convention center is under construction.

It's a 2018, early 2019 kind of opening for kind of folk center. There will be some partial openings of the center. It's coming together beautifully. It's a real kind of reinvention and truly a kind of one of the best-in-class kind of convention center spaces that they're creating. And so far, there's always been talk about a second or kind of a major convention center hotel right now that is not on the plans, but that will likely come over time, but we will have three to five years when we'll have a brand new convention center and a lot of new convention demand without any additional new supply in the market.

So, we have, we can see some light at the end of the tunnel, but Miami is still going through a very challenging period due to the headwinds that we've mentioned.

Bryan Maher: Thank you.

Operator: We'll take our next question from Chris Woronka with Deutsche Bank.

Chris Woronka: Hey, good morning guys. I want to ask you about New York a little bit if we could maybe drill down.

I know you mentioned you were up 1.5% in Manhattan for the quarter, could you talk maybe about the pacing of that? I know April had a favorable calendar. I think we’ve heard anecdotally May and June were not so good, can you talk about your portfolio in that context?

Ashish Parikh: Yes, absolutely. Chris this is Ashish. So we had a very strong April you're right. For April our RevPAR, Manhattan RevPAR was about 7.4%.

We did get Easter shift which Manhattan benefited from with the strong spring break holidays and leisure activity around Easter. May and June for our Manhattan portfolios, May was negative RevPAR 1.7% and June was effectively flat at 0.4%. Some of it was just compression around sort of graduation week around the NYU Hotel Conference in June. We just didn't see the type of compression we had maybe in previous years. But as I mentioned we had planned for it.

We actually looked at growing the occupancy side of the house. We're looking at July trends in Manhattan so far being slightly positive, being a little bit better than what we had anticipated going into July, but yes still we'll face a fairly soft third quarter due to the holiday shift in September from October, so definitely saw a stronger April than May and June to your question.

Chris Woronka: Sure, that’s helpful and then maybe we can we can shift down to DC for a minute. I know you mentioned you lost kind of a one off special group in the second quarter, but I think overall DC has kind of underperformed generally a lot of our expectations thinking about maybe more transient business in town. What's your kind of outlook for I guess the rest of this year and next year, is it as you thought or is it softer than you thought as well?

Neil Shah: I think the parts of the business that haven't been as strong has been kind of the lobbying kind of part of Washington is a little stifled.

You know we were expecting a lot more kind of congressional activity around some of the kind of announced policy initiatives and things and that hasn't come together and so there is less business travel from that standpoint. Leisure travel we mentioned that there was some bad weather during that the second quarter that was challenging. The convention calendar is okay for DC for the coming years and we do think that we hope that there will be more activity on the Hill and among lobbyists and the administration. So maybe slightly worse than expected at least for the second quarter but our outlook for DC is still pretty strong for the rest of the year and for the coming year too. DC was a market that you know until 2014 has really kind of gone sideways.

In 2015 we started to invest more actively in Washington and we had a very good recovery of that in 2015 and in 2016. As we got into 2017 we were facing some tough comps and for it to be kind of a blowout year we need a little bit more cooperation from the weather and from the administration and Congress.

Chris Woronka: Okay, very good. Thanks guys.

Operator: It looks like there are no further questions at this time.

Neil Shah: Great, well thank you very much for your time. Jay, Ash and I are here in Philadelphia for the rest of the day and look forward to any follow up questions. But again, thank you for your time and we look forward to your follow ups. Thank you.

Operator: That concludes today's call.

Thank you for your participation. You may now disconnect.