Executives: Bennett Thomas - Senior Vice President of Finance and Sustainability Neil Shah - President and COO Ashish Parikh - CFO Jay Shah -

CEO
Analysts: Anthony Powell - Barclays Michael Bellisario - Robert W. Baird Brian Myer - FBO Capital Markets Chris Woronka - Deutsche Bank William Crow - Raymond

James
Operator: Good day ladies and gentlemen, and welcome to the Hersha Hospitality Trust, Q3 2017 Conference Call and Webcast. As a reminder, ladies and gentlemen, today’s call is being recorded. At this time, I would like to turn conference over to Bennett Thomas, Senior Vice President of Finance and Sustainability. Please go ahead sir.

Bennett Thomas: Thank you, Keith and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust, third quarter 2017 conference call. Today’s call will be based on the third quarter 2017 earnings release, which was distributed yesterday evening. Prior to proceeding, I’d like to remind everyone that today’s conference call 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 positions to be materially different from any future results, performance or financial positions.

These factors are detailed within the company’s press release, as well as within the company’s filing with the SEC. With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospital Trust’s President and Chief Operating Officer.

Neil Shah: Thank you, Bennett.

And good morning to all of you on today’s call. Joining me this morning are J. H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. The operating environment was challenging in the third quarter, with notable market wide headwinds including the holiday shift from October to September, limited activity on Capitol Hill and Philadelphia facing a difficult comp with the DNC in Q3, 2016.

All of these items kept a cap on RevPAR growth for the quarter was then exacerbated by significant disruption to our South Florida portfolio by Hurricane Irma. Strength and leisure demand at many of our hotels was unable to offset the lack luster business trends in activity in late August and September. And as we’ve discussed in prior quarters, wage and property tax growth and erodes margins without at least 2% to 3% top-line growth, so was a tough quarter. But as we will discuss, we do not believe this is a trend just a very stormy quarter. Let’s begin with Hurricane Irma’s impact on our South Florida portfolio.

Mandated evacuations were put in place as of September 6th, leading to closures of each of our six hotels in the region. The Winter Haven, the Blue Moon and the Residence Inn and Ritz-Carlton in Coconut Grove reopened and began accepting reservations by September 25th. Although four of our six properties resumed operations within about three week, near-term performance has been materially impacted by the closure of our two largest hotels in South Florida, the Cadillac in Miami Beach and the Parrot Key Resort in Key West. Prior to Hurricane Irma Hersha had commenced a major redevelopment project at the Cadillac Hotel and Beach Club transforming the property from a courtyard into an autograph collection hotel. The $25 million renovation will update the guest rooms, lobby and meeting spaces as well as bringing a new farm to table concept restaurant.

Due to storm related damage at the property, and the expanded scope of restoration and renovation, we have decided to now keep this property close through the transformation. We expect to relaunch the Cadillac Hotel and Beach Club toward the end of the first quarter of 2018. In Key West, the Parrot Key Hotel and Resort experienced limited structural damage as a result of Hurricane Irma. However water penetration in many guest rooms requires extensive remediation, which will take the property offline for the majority of the fourth quarter. We are considering accelerating more meaningful renovations originally forecasted for 2019 if we do not see strength in Key West in the first quarter.

Currently our hotels in Coconut Grove are experiencing some uptick in occupancy related to the ongoing recovery, but the Miami Beach sub market remains week six weeks after the storm as leisure travelers haven’t returned in force. We have great convictions in South Florida’s longer term fundamentals and feel very good about our locations and hotels not to mention our cost basis. The current dislocation in South Florida allows us to focus on meaningful capital projects at the Cadillac, Parrot Key and the Ritz-Carlton and position our portfolio for growth in 2018. As Miami benefits from the opening of the Convention Center, a weaker U.S dollar for international travel and recovery in business and social groups that avoided Miami due to Zika in 2017. In addition South Florida may prove an attractive alternative to the resort destinations in Puerto Rico, the U.S.

Virgin Islands and other areas of the Caribbean that will be offline for several years. Shifting now to our portfolio and sub-market performance. During the third quarter our comparable portfolio delivered 2% RevPAR decline, if we exclude the Philadelphia market which hosted the Democratic National Convention in third quarter 2016, our comparable portfolio reported 70 basis points of RevPAR growth to $217.14 during the quarter. RevPAR growth however did not keep pace with escalating wage growth and rising operating expenses as hotel EBITDA margins for the comparable portfolio decreased 240 basis points. A combination of the South Florida and the Philadelphia cluster had over 100 basis point impact on our portfolio wide margins for the quarter.

Ash will focus on margins in his comments. But for now let’s take a deeper dive into our markets starting on the West Coast. Our West Coast portfolio consist of eight hotels from Seattle to Santiago and reported RevPAR growth of 2.3%, driven by a 3.9% ADR increase to $247.12 and contributed $11 million to our comparable EBITDA. Our West Coast portfolio reported GOP and hotel EBITDA margins of 51.6% and 40.7% respectively in the third quarter. In the third quarter GOP margins excluding the Sanctuary Beach Resort, which underwent a complete restaurant and event space renovation increased 130 basis points to 53.2% as a result of strong flow through of 191%.

Our recently acquired hotels delivered strong growth, in Santa Monica we saw continued success at the recently acquired Ambrose Hotel, which grew RevPAR by 4.3%. During the quarter the Ambrose was able to leverage mid-week LNR business and weekend summer leisure demand, while also implementing a strategic focus on the business traveler, corporate groups which were strong in the third quarter will remain a key focus of growth for the Ambrose along with driving occupancy over the weekend. In Seattle, 2.1% RevPAR growth for the third quarter was primarily driven by an ADR increase of 8.6%. Occupancy for the quarter fell 570 basis points as demand was hampered by the July 4th holiday falling on a Tuesday, which negatively impacted performance additionally a flagship Microsoft event was moved from Seattle to Vegas in 2017. But we've achieved significant ADR growth since acquiring the Pan Pacific, growing 10.9% and 8.6% respectively in the second and third quarters of this year.

This has been achieved by remixing our business mix or segmentation strategically shifting mix, while maintaining LNR relationships in the market. The LNR base allows us to yield into higher rated bar in consortium [ph] segment. The Pan Pacific's ADR rank increased from 3 out of 6 to 2 out of 6 in the third quarter year-over-year. And the RevPAR ranking moved to 1 out of 6 in our comp set. Since taking ownership, HT has also redesigned labor model to achieve year-over-year savings and continues to see significant margin expansion opportunities as the hotel stabilizes in our portfolio.

Year-to-date the Pan Pacific has seen 13.3% EBITDA margin growth and 16% RevPAR growth, nearly 550 basis points above the comp set. Despite strong performance at several of our hotels, we experienced weakness in business trends in demand at several of our courtyard hotels in Sunnyvale, Las Angeles and San Diego. Similar to our other business oriented hotels, and other markets, late August and September underperformed our expectations. We believe the calendar shift and perhaps that showing effect on travel during the natural disasters drove this softness. October performance to-date is quite encouraging in each of these hotels and gives us more confidence for the fourth quarter and for 2018 for our West Coast portfolio.

In the third quarter, we also repositioned the Sanctuary Beach Hotel’s, bar and restaurant with the launch of Salt Wood Kitchen and Oysterette. The hotel's newly developed restaurant and event spaces anchor the property as a seaside farmhouse for the Monroe Bay area. Salt Wood offers corporate accounts in Silicon Valley and San Francisco a mid-week co-storey [ph] tree and further enhances its destination wedding market. The renovation is complete, but some unforeseen delays in construction led to more displacement than expected in the third quarter. Our seven high quality Manhattan properties registered a 1.7% RevPAR growth to $243 during the period, outperforming the Manhattan market by 280 basis points.

Our portfolio has outperformed the Manhattan market in 13 of the previous 15 quarters as a result of a young well located and purpose built hotel cluster and our dynamic revenue management strategy. However, as we've discussed in the past, without meaningful ADR growth that is hard to avoid margin erosion in the face of increased labor costs, as a result of the increase in minimum wage rates. While the overall operating environment in New York remains challenging, demand continues to meet new supply coming into the market. And demand for the city is on the rise, with forecasted growth in demand in 2017 of 5.7% and 7% in 2018. We are forecasting supply growth of less than 3% for 2017 and 2018.

As demand begins to overshadow supply, we are confident our portfolio can continue to deliver exceptional occupancy, 96% this quarter, while finally being able to drive rate. Trailing 12 month ADR is 13% below the 2008 prior peak. We believe 2018 will be the first of many years of ADR growth in New York City. Our Boston portfolio continues to benefit from the ramp at our recently acquired Envoy Hotel, which registered RevPAR growth of 7% as Group demand for the third quarter was substantial with the addition of two citywide conventions over the period. We continue to implement a more proactive e-commerce strategy to take advantage of Boston's fastest growing district, which contain such demand generators as GE, Vertex Pharmaceuticals and Amazon.

We remain encouraged by our progress in service delivery, revenue management and in driving profitability from the relaunch of the Rooftop Bar and Outlook Restaurant. The strong performance at the Envoy was needed to offset significant weakness in corporate travel at the Boxster [ph], The Brooklyn Courtyard and the Express Cambridge. Boston will benefit from seven citywide conventions in the fourth quarter and will return to being one of our highest growth markets but was flat for the third quarter. In Washington DC the third quarter was weighed down by a lack of lobbing activity on Capitol Hill. As Congress was not in session for a majority of September this year versus 2016.

Transient demand notably from the government was significantly lower leading to a year-over-year decline in occupancy and rates. However early signs point to growth rebounding in the fourth quarter, notably with Congress in session during November compare to their absence last year due to the presidential election. In addition citywide convention pace is stronger for the fourth quarter compared to 2016. HT’s Philadelphia portfolio faced a very tough comparable, with Philadelphia hosting the democratic national convention during the third quarter of 2016. Despite this difficult comparison we are pleased to see that visitation remains strong during the quarter without Philadelphia Westin and Hampton Inn convention center posting greater than 80% occupancy.

RevPAR was down across the cluster by over 18% due to significantly lower ADR without the group compression. Future pace is strong and we expect solid growth year-over-year for the fourth quarter with the return of the army navy game to the city beginning in December. The 2018 and 2019 convention calendars are more robust than previous year and we continue to be very pleased with our recent purchase of the Philadelphia Westin and its immigration with the Rittenhouse and the Hampton Inn in this great city. A few comments on capital allocation before turning it over to Ash, faced with the decelerating growth environment in the lodging sector since 2015, we began a transformative recycling of our portfolio. We sold older mature hotel and reinvested gains in higher quality hotels in higher growth market with a greater opportunity to drive EBITDA growth in the coming years.

This process is complete and will pay big dividend in even a moderate growth environment. Across the last several years, we've also repurchased nearly 20% of our shares outstanding. We are opportunistic in our approach. This quarter we were able to repurchased $4.7 million of stock at an average price of $17.93. We consider opportunities to purchase our existing portfolio at a 20% to 30 discount to private market values very attractive.

With balanced buybacks with ROI oriented investment in our existing portfolio. This year we've been very focused on several meaningful capital projects that position the portfolio for significant growth in 2018 and 2019. In addition to the transformation of the Cadillac our new restaurants, bars and event spaces at a Hyatt Union Square, the Sanctuary Beach Resort, the St. Gregory and Washington DC and the Ritz-Carlton Coconut Grove will lead to meaningful EBITDA growth in 2018 and 2019. We believe we are very well positioned to outperform in our submarkets and remain nimble and our approach to property and portfolio strategy.

We continue to witness strong U.S. and global economic growth, increasing corporate profits and investments, full employment and the strong leisure demand. And as we look into 2018, there are several reasons to be bullish about corporate travel, a weakening dollar for international travel and improving supply and demand fundamentals in many of our market. So, despite a stormy quarter and a challenging year overall we remain confident in EBITDA growth profile and the value of the portfolio we have assembled. With that let me turn it over to Ash for a deeper drive into margins and the balance sheet before we open it up to questions.

Ashish Parikh: Great, thank you Neil and good morning. My comments will focus primarily on our EBITDA margin, CapEx expense, recent refinancings and our updated guidance for full year 2017. Our comparable portfolio realized overall occupancy of 87.2% during the third quarter. Our highest occupancy quarter of the year. The third quarter however also our highest leisure mix quarter and only the month of September has any meaningful business transient activity.

Neil highlighted the numerous onetime items in calendar shift and our comparable portfolio realized 240 basis points of margin loss largely due to these nonrecurring events. The Philadelphia and South Florida clusters recognized EBITDA margin losses of 740 and 960 basis points respectively, which significantly impacted our portfolio wide margins. Excluding these two markets we saw margins deteriorate 130 basis points, which was primarily the effect of one-time property reassessment, filing the acquisition of our Courtyard Sunnyvale and Ambrose in Santa Monica. In addition to higher wage expense due to increases in the minimum wage. We have an continue work closely with our operating partners to implement expense controls and revenue management strategies as we face the combination of tepid RevPAR growth and increasing wage pressure across all of our markets.

Our franchise model and close relationship with our primary operator allows us to quickly realign our staffing model and restructure our personnel across various departments including sales, revenue management, accounting and engineering to maximize the benefits of our clustering strategy. As the lodging industry continues further along in this cycle, we view our ability to react quickly to market conditions and cost pressures essential to drive EBITDA growth at our assets. Shifting over to capital expenditures, we spend approximately $10.9 million in CapEx and development projects during the third quarter, our largest project during the period was at the Cadillac Miami Beach where we began transitioning the hotel from a Courtyard into an autograph collection hotel. As previously disclosed we will keep the hotel fully close to devote our focus on this renovation. We continue to anticipate spending between $50 million to $52 million in CapEx and ROI projects in 2017 and our hurdle rate for these ROI projects are in the mid to high teens, which is in line with our historical returns on these type of investment.

Transition to our balance sheet now where we ended the third quarter with $57.5 million in cash on hand, we made significant progress strengthening our balance sheet and extending out the duration of our debt. During the quarter we closed on a new $475 million senior unsecured credit facility that is expandable to $875 million. The facility consist of $250 million senior unsecured revolving line of credit and a $225 million senior unsecured term loan. The company utilized the term loan to refinance existing indebtedness of approximately $210.5 million on the previous credit facility and for general corporate purposes. We also refinanced our property level debt on the Courtyard Los Angeles during the quarter.

Following the refinancing, 68% of the company’s consolidated debt is fixed, while total consolidated debt had a weighted average interest rate of approximately 3.78%. In addition we have extended out the weighted average life for maturity on our debt to 4.4 years and have no significant debt maturities until 2020. We continue to target debt to EBITDA in the range of 4 to 5 times and remain very comfortable with our leverage target given our portfolios growth trajectory cash flow profile and coverage metrics. Lastly let me discuss our updated guidance for the year. We have updated our guidance and -- we have adjusted our guidance following the significant disruption to our South Florida portfolio and the anticipated closure of the Cadillac and Parrot Key hotels for the remainder of 2017.

We continue to forecast that our South Florida portfolio will recognize EBITDA deterioration of $7 million in 2017 from our pre Irma expectation. Although we encountered a difficult operating environment in the third quarter we are encouraged by our fourth quarter results to-date. For the month of October we are seeing strong growth in the majority of our core markets including the West Coast, Boston, Washington DC and Philadelphia where we are seeing mid to high single-digit growth and comparable portfolio RevPAR growth approaching the mid-single-digits for the month. We are raising our overall view of RevPAR growth to 1% to 2% while lowering EBITDA margin expectations to 125 to 175 basis points of deterioration due to disruption in South Florida. Margins excluding South Florida are still expected to be in the range of flat to down 100 basis points.

We are however decreasing our FFO per share guidance to be between $2.06 and $2.15 per share and adjusted EBITDA between $162 million and $166 million to account for the weakness in the third quarter, as well as loss of EBITDA in South Florida. So that concludes my portion of the call. Operator we can now proceed to Q&A where Jay, Neil and I are happy to address any questions that you may have.

Operator: Thank you. [Operator Instructions].

We will take our first question from Anthony Powell with Barclays.

Anthony Powell: Hi, good morning guys. Given some of the RevPAR challenges you have seen and have you focusing on growing some of your non-room revenues like food and beverage I know you renovated some of your restaurants in your portfolio, can you do a bit more of that across the portfolio over the next couple of years?

Neil Shah: Anthony, this is Neil. Yes, we did launch a couple of efforts, about four efforts on the restaurant and bar side this year. There are couple of more opportunities that we are exploring and planning for next year as well.

So, we do think that there is particularly in our independent hotels and in our -- even in our branded lifestyle hotels there is real opportunity to drive more EBITDA from these A+ locations. We have in some cases the opportunity to create little bit of street front at retail at one of our leading properties in Boston. We have the opportunity and plans in motion for a new restaurant in the Ritz-Carlton in George Town. And so there is opportunities in 2019 as well, but we are with or in 2018 as well but we feel very good about the four that we embarked on this year and are starting to deliver real profits and it’s a different margin profile than the room side of the business. But whole dollar profits we are looking to food, beverage and the kind of pop-up events that we are hosting at a lot of our properties to drive increment EBITDA.

Anthony Powell: Thanks. And you mentioned the supply outlook in New York and how expect it to moderate over the next couple of years can you just go over your overall supply outlook for your portfolio overall over next few years and do you expect supply to increase or decrease?

Neil Shah: In New York, we see a clear kind of deceleration in supply growth we are at less than 3% supply growth in 2017 and 2018 in New York. This is coming off of years of 5% and 6% supply growth. So, New York, which is a meaningful market for us significant deceleration in supply growth in the coming of couple of years. In several of our other markets we’re in between kind of 2.5% and 3.5% supply growth.

There are some outliers like Seattle where we are seeing an elevated level of supply growth again fortunately met by tremendous demand growth. But we are -- we look at supply in most of our markets to be relatively stable relative to 2017. So in that 2.5% and 3.5% level.

Anthony Powell: Got it, that’s it from me. Thank you.

Operator: We will take our next question from Michael Bellisario with Baird.

Michael Bellisario: Good morning Guys. You mention the potential Parrot Key renovation early next year. As you guys look at potentially doing that what are the key indicators that you are going to look at to decide whether or not to go forward with that project? And then what might the scope of that project be in the first half of the year?

Neil Shah: Michael, we did sustain a lot of damage from water penetration at the hotel. The hotel is water front and we had significant storm surges and flooding in the first floor guest rooms.

The second floor guest rooms also were impacted by water penetration through the balconies and terraces. And so there on the first floor we have already embarked on kind of restoration and remediation and renovations of that floor rooms all of our first floor rooms. The second floor rooms we can approach more tactically, it’s not a wholesale kind of ripping out of everything there absolutely required, but we are still in process of judging each room on that second floor of our hotel to see what is absolute required versus what would be nice to have. And there’s not a kind of clear indicator, but it’s kind of how much there are hotels open on Key West and to see how airlift continues to develop across the next couple of quarters and to see much real kind of leisure demand there is in the market. There has been a couple of big events in Key West last weekend and coming up this weekend, there is visitation but currently it’s significantly less than prior years.

The hotels that are open and operating are primarily serving first responders in the like. We think the Key West will recover, this is a highly unique and highly sought after destination across the U.S. and for international travelers, and is the closest way to be in the Caribbean, without being in the Caribbean. So, we think it has some benefits from that. But I think that Key West is small market a 100% leisure kind of market and so it could take three to six months to really recover.

It’s just a little too early to tell Michael how far we will go, but we’re likely to do more work than we would have otherwise on other parts of the resort in the first quarter of the year.

Michael Bellisario: And then in terms of the cost of that, how much of that could be recouped through the business interruption insurance proceeds? Or that be additional out of pockets spend for you?

Neil Shah: We think a significant amount would be recouped and that is a driver just as much of as the weakness in that submarket right now in leading us to explore this acceleration of the project.

Michael Bellisario: Understood. And certainly back to acquisitions and disposition, you mentioned briefly but anything incremental going forward, are those kind of on a back burner now. Is that how you’re thinking about it with all the renovation and rebuilding work that’s going on within your portfolio or is it just you’re not seeing a lot of opportunities in the market right now and that’s why there is more of a pause?

Neil Shah: Yes, we’re not seeing great opportunities out in the marketplace.

We remain active in the transaction market in terms of underwriting opportunities and looking at things particularly in our existing markets more in adjacent markets. But we haven’t seen anything that compelling as of yet. A lot of our acquisitions across the last two to three years were the redeployment of the gains from significant sales. As we look forward across the coming year, we’re not expecting nearly the level of sales activity, which is one driver for making new investments for us in new acquisition. There are a handful of hotels, there is small hotels with not a lot of significant EBITDA generation, but kind of our extended stay hotels in suburban Washington DC, and a limited service hotel in outside of New York City that we’re exploring for sale, and we could have some sales in the coming quarter or two.

We may be interested to redeploy the gains and proceeds from that in an additional acquisition if there is compelling opportunities in the marketplace. Right now, we don’t have anything to share on either disposition or acquisition.

Michael Bellisario: Got it. And then last one for me, just on New York City, maybe can you characterize your revenue management strategy and then how sensitive are you being, and is that leading to all the market share gain that you guys have realized over the last few quarters?

Neil Shah: Yes, we’re being defensive to a certain degree. Never know whether you could call a defense or offense, but it’s just, it’s being dynamic and being highly responsive, we had a quarter earlier this year where our strategy didn’t pay off as well.

This quarter, it’s working very well we did go with more of an occupancy driven strategy, we grouped up, we took more government business than we have in years, and found that was the way that create real growth in the marketplace in the third quarter. Our hotels are exceptional too in New York, these are newly built hotels in prime corners in the best submarket in Manhattan. So having category killing brands, purposed build hotels and having the advantage of our cluster management there is real economies of scale, scope and a real information advantage we have in revenue management in operating our hotels and being able to outperform.

Michael Bellisario: That’s helpful. Thank you.

Operator: We will take our next question from Brian Myer with FBO Capital Markets.

Brian Myer: Good morning, guys. Just a couple of quick questions on the labor side, aside from minimum wage increases, can you can quantify what you’re seeing kind of across your portfolio? And are you seeing any actual worker shortages?

Ashish Parikh: Hey Brian, this is Ashish. We are seeing just higher labor accretion and the need to pay higher wages because whether it’s housekeeping, front desk or any other position there is effectively a shortage in most of these markets for that type of labor. So, putting additional cost pressure on the hotel in addition to minimum wage is the tight level market which is seemingly getting tighter with some of the governmental policies that are in place as well.

It’s hard to quantify exactly like how much more we are paying for that, but there are hotels in the portfolio where we have increased wage rate due to the high level of accretion and difficulty in finding labor.

Brian Myer: And then on detail on Zika down in South Florida, I mean, with the hurricane and all that’s going on down there is that just becoming an increasing non-event or is there some still lingering impact on from Zika?

Ashish Parikh: No, that is a non-event that this stage, Zika did not reappear this summer or early fall pre-hurricane. And so there have been no occurrences and the hurricane and everything else that’s happen since has probably put a lot of distance in kind of time and kind of noise between the current crises and the last crises. But we don’t believe that there is any significant Zika impact left in the marketplace it had such a significant impact on both corporate group travel, financial services and alike and on social group business weddings in the like. As you will remember the fourth quarter and the first quarter, the fourth quarter of 2016 and the first quarter of 2017 were off in the double-digits close to 20% in some submarkets that will provide an easier comp for Miami in 2018.

Brian Myer: And then just lastly, so you are converting the Cadillac Courtyard to an autograph and you have some other independent hotels in the portfolio. How do you think about or analyze the prospect of converting any of your other independence to one of the soft brands?

Jay Shah: This is Jay, I think with the Cadillac there I think the conversion was not necessarily from an independent to a soft brand we were hard brand courtyard there the analysis suggest that with the ADR increases that we will able to manage through a conversion the additional F&B and bank [ph] and catering revenues we will be able to generate there, but it made a lot of sense we kind a take an IRR approach to any capital that we spend. And in that case I think when you consider even without taking up the term loan value of the hotel significantly but just putting it within even like the midpoint or the lower point of the range of full service hotels, I think we decided there that just the additional yield and cash flow that we’ll be able to get justified the -- the IRR justified the capital investment. Now, I think taking independent hotel and converting it to a soft brand I think that analysis would kind of take into account how many rooms the hotel has, the supply and demand fundamentals of the marketplace and there you would judge whether or not the soft brand franchise, royalties, marketing fees would justify the additional demand that you'd be able to drive. I think normally all of our independent hotels to-date we've been very specific in where we do independent hotels and what we kind of run that execution and they’re in high demand markets.

So most of our independent hotels I don't think are necessarily great candidates for a conversion to a soft brand. But it's almost a case-by-case basis. But those are some of the elements that we think about when we're considering repositioning the hotel.

Brian Myer: Okay, thanks. That's helpful.

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

Chris Woronka: Hey, good morning guys. Wanted to revisit the Manhattan for just a second if we could. You mentioned you've shifted revenue management strategies few times this year. And the question is really on the wage front and margins.

As you look forward, is there -- come a point where if Manhattan does not return to rate growth, it starts to become a much more significant drag on your margins?

Jay Shah: I think when it comes to Manhattan, Chris. This is Jay. Manhattan when you take a look at Manhattan’s demand dynamics like when you look at 2017 where it's been challenging operating environment, you got a 5.7% demand growth. So and in 2018 we're expecting to be north of 6%. So despite all of the supply there is just a matter -- there is an element of absorbing supply.

When you're in a market that has the kind of the demand growth that Manhattan does, I think you got to hold tight and you kind of determine your strategy based on where things are at that moment in time. As Neil mentioned, we have actually grouped up and have more of an occupancy driven strategy today. Because there is no rate really to be had. Like until the new supply that's coming in this current year and the year before is absorbed. And you can start driving rate again which we expect will happen in '18 and '19.

And you kind have the and you go with the heads and beds for the time being. Because without that, you'll have no growth at all. I think with not having the occupancy strategy right now is not going to yield more rate. It's not, when you have this much supply coming in and everybody is kind of starting with introductory rates, et cetera, et cetera, you are going to have a hard time driving that incremental ADR that creates the flow through that leads to margin growth. So I think as we look out into '18 and '19, we're starting to see supply moderate.

And even if supply growth doesn't go to zero or get below 2% in a market like New York where you've got 4% to 6% demand growth you still should be able to make some hay in the coming years and that's what we are staying very focused on. But the revenue management strategy is something that we take a look at that on a weekly basis. And it kind of measure demand trends against attraction you're getting on rate. So I feel pretty confident in New York, we've been there for a really long time. As you know our basis is very good there, so we're doing quite well from a return on an asset standpoint.

But I think the rate when it comes back is going to be pretty strong just based on the demand profiles for the city. It's one of the strongest demand growth markets in the entire country still despite the supply.

Chris Woronka: Great. And then on South Florida, there is obviously a lot of moving pieces there for you guys and for everyone else that’s been operating there. But the question is kind of -- is there anything you can point to if you look out to next year pluses and minuses.

Is there any kind of firm advance bookings or groups that make you feel confident that that market can actually come back? I know the comp is easy, but sometimes the comp gets easier. So is there anything firm you can point to?

Jay Shah: With our portfolio, we're not that group heavier way of a portfolio. So we're not going to be able to point anything in our portfolio that give us that confidence. But it's more anecdotal it seeing more group events at some of the bigger box hotels around Miami Beach that will help compress some of the other hotels in the marketplace. It’s the easier comps were a function of a significant crisis with Zika and some of the other kind of metric you can look at there is less new supply in Miami Beach than in prior years.

So that has some benefit. The convention center is going to reopen towards the end of this year, the convention counter gets very busy in 2019, but end of 2018 they have some bookings on the book. So as you get toward the end of the year you can probably find good data on group, but in the next couple of quarters it is a little bit more anecdotal.

Neil Shah: And Chris if it’s helpful, I can just share some supply demand stats like on Miami in 2017 the market had supply growth of about 4.8%. And we had demand growth of 4.3%, so you had sort of a negative supply demand delta.

But in 2018 supply growth is expected to moderate to 3.4% but demand growth is going to be about 6.1% when you take an consensus average on outlooks for the market. So you have got a positive delta there of 2.7%. So I think Miami despite the fact that the convention center will just be ramping up and I think as we look deeper into 2018 in Miami I think will get some good pricing traction there, demand is strong, occupancy remained very strong throughout this entire period.

Chris Woronka: Okay very good, appreciate all the color. Thanks guys.

Operator: We’ll go next to Bill Crow with Raymond James.
William Crow : Hey, good morning folks. I want to touch on the labor topic in a couple of questions. In Key West it seem like more damage was done in some of the other keys besides Key West and a lot of damage was done to work force housing, to use a term way we use around here. And I am just curious what the prospects are for labor coming back in sufficient quantities to be able to staff your hotels.

Neil Shah: Bill that is a concern, we have been in touch with all of our team members at our hotel and there is I’d say 30% or a third of them are still outside of the market today and staying elsewhere with friends and family or just relocated temporarily. And so that is a concern as we get closer to reopening the hotel, that said there is a lot of activity right now restoration activity going on. So you are probably at the worst point of it today like where you see all of the traction debris from the all of the cleanup of all of these homes and work force housing apartments that’s being done on the sides of the roads. But the work is being done quickly, there is a lot of resources at the State of Florida and FEMA have put to it. And so we do think that by the first quarter of next year there will be accommodations available and there is going to be hotels that will probably play in that market as well as you will remember back after post Sandy in New York City a lot of the hotels did provide dislocated kind of folks in New York with hotel offerings and the government paid something close to a per DM on them.

And so I think you will see that a bit as well, but it is something that we’re concerned about and is on our mind, but we don’t have great clarity on it at this moment. William Crow : Okay. Sticking with labor and other cost increases. What sort of RevPAR do you need in New York to offset the expense growth you anticipate next year?

Ashish Parikh: Hey Bill, this is Ashish. I think we continue to look at RevPAR growth being between 2% and 3% to really breakeven on margins to offset.

William Crow : Even in New York, in New York specifically.

Ashish Parikh: Yes.
William Crow : Okay. And then finally you talked about the flexibility of being able to shift workers from one role to the other and that is great ability you guys have, but that is also -- that would be threatened I guess by any unionization. I am just wonder if you could give us an update on any efforts you note here is making to become a bigger force with your portfolio.

Jay Shah: Bill, this is Jay. We haven’t had any -- I don’t know that we have heard or seen or detected any unionization activity, I think as we’ve mentioned before in Manhattan particularly we are fortunate we have got a lot of hotel that don’t have broad food and beverage and B&C, banquet and catering work which is I think really that sort of a playground for collective bargaining. That being said I will tell you, we are generally owners that have non-union operations but we do have a handful of unit operations. And what we do have we have been able to negotiate pretty attractive terms in terms of cross utilization of associates in other work roles minimum like put the minimum period is on shifts rather than being 8 hours or being 4 hours. And some of these work rules that’s really where the vulnerability has got a lot of hotels, but having had that experience not that collective bargaining wouldn’t something you avoid and we don’t think we needed with our associates, we generally take pretty good care of them.

I think the culture of the properties is very strong and we have good leaders there. But if we were to come down to these are certain things that you have to really be on the lookout for when you are entering into these collective bargaining agreements. I think, a lot of times we are doing things of a collective bargaining agreement almost as a commoditized way that it is really the union or non-union, but I think even in a union environment I think you can make some -- you can have very specific provisions that help address the needs of the union at that point and that of the hotel owner. But again this is not to say anything other than the fact that we are familiar with collective bargaining, but we are very fortunate that we haven’t had to deal with it much. William Crow : That’s all from me.

Thank you.

Neil Shah: Bill, I would just mention our wage growth is part of the strategy we have always been pay and benefits very similar to the union in the markets that we operate in. And so you see our wage growth increasing across the last year or two and we feel that that’s what keep in the end of the day our employees and team members very happy to work directly with an owner that’s providing them with similar compensation without any other fees being deducted from it. William Crow : Great, appreciate the color. Thank you.

Operator: We will take our next question from Anthony Powell with Barclays.

Anthony Powell: Hi, just is one more from me. You mentioned that some of your courtyards underperformed your expectations in the quarter was that just due to the markets services rather being weak or are there anything else going out there brand and do you also give us review of your brands and running brands underperforming or outperforming relative to your expectations right now?

Jay Shah: No, not at all Anthony, I mentioned them by name just because they were the most business oriented hotels in our kind of West Coast marketplace. So we had weakness in Sunnyvale in Loss Angeles and in Santiago, because those hotels were very business transient oriented and the weakness that we saw in the late August and early September was something that we saw in a lot of our business oriented hotels, courtyard particularly in urban markets as they kind of category killer for business travelers. And so we felt the pain there, but we are big believers in the courtyard brand and expect them to recover quite well in the fourth quarter even everything we have seen in October from courtyards on the West Coast or even in Boston and other markets is very encouraging for the fourth quarter.

Neil Shah: In terms of our brand mix, we continue to have a pretty balanced portfolio, but we have most of our branded hotels are with Marriot and Hilton. We have some IAG and Hyatt branded assets as well, and we have 20% of the portfolio of EBITDA is generated from purely independent hotels. And that mix is one that we feel very comfortable with, that depends on the location, the size of the asset and the quality and profile of the hotel in the public's mind that leads us to go with various brands or going independent. But we continue to be very pleased with our brand partners.

Anthony Powell: Great, thank you.

Operator: We'll take our next question from Shaun Kelly, Bank of America.

Unidentified Analyst: Hi guys this is George [indiscernible] for Sean thanks for taking my question. I wanted to touch on Washington DC, you mentioned October has been pretty strong, but looking to November and December there has been some commentary on tough comps from lapping business travel around the election last year. So wanted to get your views on the market for the balance of Q4 and into 2018?

Neil Shah: In the fourth quarter, October has been developing well and with some growth in the market. November, we think we're going to benefit from Congress being in session unlike last year.

So if December hope together as we expect, we're expecting it to be a strong quarter in the fourth quarter. As we look into 2018, obviously the first quarter is going to be a significantly tough comp with the inauguration of the prior year, but the outlook for the convention calendar for the remainder of the year and 2018 is also good. And so we're expecting the market to be a moderate growth market for us in 2018.

Unidentified Analyst: Thanks a lot, that's helpful. And just moving to Philadelphia, wondering if you can provide an update just sort of on supply-demand dynamics there, as well as how you have recently acquired Westin is ramping relative to expectation?

Neil Shah: The supply in Philadelphia, it's been kind of a challenging environment in Philadelphia from a RevPAR standpoint.

Very little demand growth, we had supply growth this year of about 5.5%. And the supply numbers for Philadelphia it encompasses beyond Center City. But when you look at Center City it's actually pretty concentrated supply deliveries next year. That being said, I think in Philadelphia we're very fortunate to have invested in assets that are first to fill assets. And so though we don't expect a lot of pricing traction in the market in the coming year.

I think we don't expect that we're going to have the impact of the supply that hotels in the locations are going to have. The Philadelphia Westin is sort of the primary business transient location in the city. It's located in the Liberty Complex, which is a mixed use facility that has adjacency with almost 2 million square feet of office and retail restaurants. And it's in the center of town. And it is sort of the business destination.

The Rittenhouse has its very unique positioning on Rittenhouse Square. And next year we will see the opening of the Four Seasons. In some ways we're actually looking forward to 180 to 200 rooms Four Seasons opening and we hope that it opens next year. It gives us another peer comp at a high rate. Sometimes it's difficult at a luxury property like the Rittenhouse, we exceed our comp set in that city by 30% to 40% when it comes to ADR and it will be helpful to have another strong ADR property in the city.

Their location is pretty good it's not the Rittenhouse location, but certainly a B plus, A minus location. So I think they'll be able to drive very strong rates. Their investments in that hotel at over $1 million a key would suggest that they have to drive pretty strong rates in order to avoid a complete disaster of an investment for that. So I think it's going to be I think they're going to hold rate even if they don't get oak [ph]. So the supply in Philadelphia is concerning.

It happens to be our home market, we know the dynamics here very well. And as I mentioned before we've invested in the A plus locations both the corporate transient and luxury. So we're a little less concerned about the negative impact of supply. That being said, we haven’t underwritten nor do we forecast significant ADR growth here for the coming year. But I think we’re going to be able to hold pretty firm with our positioning where it is today.

Unidentified Analyst: Great. Thanks for taking the questions.

Operator: Ladies and gentlemen, this concludes today’s question-and-answer session. At this time, I’d like to turn the conference back to the company for any additional or closing remarks.

Neil Shah: And I think, that does it.

We’re Jay, Ash and I and Bennett will all be here and available for any follow-up questions that anyone may have. In the meantime, we’ll continue to keep it work and continue to get through this year. Thank you.

Operator: Ladies and gentlemen, this concludes today’s discussion. We appreciate your participation.