Executives: Peter Majeski - Manager of IR & Finance Jay Shah - CEO Neil Shah - President & COO Ashish Parikh -

CFO
Analysts: Ryan Meliker - Canaccord Genuity Shaun Kelley - Bank of America Bill Crow - Raymond James Chris Woronka - Deutsche Bank Anthony Powell - Barclays Bryan Maher - FBR &

Company
Operator: Good day. And welcome to the Hersha Hospitality Trust Full Year and Fourth Quarter 2016 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 Pete Majeski. Please go ahead Sir.

Peter Majeski: Thank you, Emilia and good morning to everyone joining us today. Welcome to Hersha Hospitality Trust full year and fourth quarter 2016 on this the 23 February, 2017. Today's call will be based on the full year and fourth quarter 2006 earnings release which was distributed yesterday. 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 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 Shah, Hersha Hospitality Trust’s President and Chief Operating Officer. Neil, you may begin.

Neil Shah: Thank you, Pete.

Good morning and welcome to all of you for joining us on today's call. With me this morning are Jay Shah, our Chief Executive Officer, and Ashish Parikh, our Chief Financial Officer. Despite the industry booking more hotel rooms in 2016 than any other year in history, 2016 was characterized by consistently decelerating RevPAR growth. Weak corporate profits reduced business transient demand, urban markets saw increasing supply, the U.S. dollar remained elevated and November's polarizing presidential election created general uncertainty among businesses and corporate travelers.

We are clearly encouraged by improved sentiment postelection, but we remain focused on finding and creating value without the presumption of re-accelerating fundamentals in the short-term. So, despite a challenging operating environment, 2016 was a transformational year for Hersha. We executed several value creating transaction, positioned the portfolio for higher growth and capitalized on dislocation in our common stock, while taking advantage of robust preferred equity and unsecured debt market. We completed over $1 billion of hotel transaction, materially reducing our exposure to Manhattan and capitalized on the strong bid for stabilized non-core suburban property. We generated over $438.8 million of net proceeds from these 10 dispositions and redeployed sales proceeds into five accretive investments in Boston Seaport, Washington DC CBD, as well as in Silicon Valley and Santa Monica.

Thus, far in 2017, we've sustained our momentum. In January, we liquidated our Mystic Partners JV. We closed on the sale of two Suburban Washington DC hotels for $62 million, utilizing sales proceeds and deferring our taxable gain to acquire the Ritz-Carlton in Coconut Grove at a very attractive basis. We also entered the vibrant Seattle market through the acquisition of the exceptionally located Pan Pacific Hotel for $79 million. We believe our ability to successfully execute complex transactions, sell stabilize and lower growth hotel and prudently allocate capital to upgrade portfolio quality, creates significant value and distinguishes Hersha amongst peers.

We are nimble and differentiated with high-quality purpose built hotel in dynamic markets into tune with traveler's taste and preference where we can bring to bear operating leverage in our unique approach to driving value. I will toil down on fourth quarter performance in our six markets to start before spending some extra time on acquisitions and capital allocation strategy before I hand it off to Ash to walk you through our 2017 guidance. Our Washington DC portfolio was our best-performing market in the fourth quarter, delivering 6.4% RevPAR growth and $6.3 million of hotel EBITDA or 17% of our consolidated EBITDA. Across the last several years, we've strategically assembled a truly unique portfolio of branded and independent hotels across the upscale to luxury segment in Washington's most dynamic locations. On Capitol Hill, Downtown by the convention center in the West End and in Georgetown.

We expected to capitalize on DC's rebound after several years of weaker performance. Washington DC delivered and was one of the strongest performing markets for us in 2016 with strength continuing into 2017. Despite concerns, demand was suffered during the inauguration given the current political divide. Washington DC's CBD hotels sold more rooms on Inauguration Day in 2017 than any other Inauguration Day on record. Our DC hotel cluster was no exception during the inauguration period with occupancies exceeding 90% and an ADR of $432 across the portfolio, performing in line with our expectation.

Looking ahead, we expect Washington DC to be one of the country's best markets in 2017 as a result of a robust convention calendar, combined with increased legislation and lobbying on Capitol Hill, typical from a change in administration. In addition to the market's tailwind, our portfolio will benefit from a renovation of the St. Gregory, the ramp of the Hilton Garden in M-Street and the ongoing reengineering of the Ritz Carlton Georgetown. Our West Coast portfolio reported 4.8% RevPAR growth and $8.7 million of hotel EBITDA during the fourth quarter, contributed 21% of our consolidated EBITDA during the period. Our West Coast cluster sustained robust performance throughout the year as a result of strong demand fundamental and limited new supply.

Our Sanctuary Beach Resort reported 4.9% RevPAR growth in the fourth quarter, benefiting from proactive revenue management and improved in-room amenities and service delivery that has enhanced the guest experience of this unique coastal retreat. Moving south, our Courtyard LA Westside tallied 8.4% RevPAR growth in the fourth quarter and contributed $2.1 million in hotel EBITDA aided by the hotel's superior location as well as demand emanating from the Silicon Beach, media and technology corridor. Our conviction in the West Coast lodging fundamentals led us to make two more investments in California during the fourth quarter. We acquired the 145-room Marriott Courtyard in Sunnyvale for $75 million in October, fully deploying the remaining cash proceeds from our New York City sale. The hotel's superior location in the heart of Sunnyvale at the corner of El Camino Real and Matilda, combined with its exceptional quality, positions the hotel to be a market leader for years to come.

In December, we also acquired the 77-room Ambrose hotel in Santa Monica, one of the highest barrier to entry markets in the United States. The Ambrose occupies a highly desirable location within Santa Monica and is proximate to the highest concentration of technology, advertising, media and entertainment firms on LA's west side. The acquisition responded with 1031 exchange proceeds from the company's sale of two residents then in Suburban Boston, which closed in November. Our West Coast portfolio delivered 6.6% RevPAR growth for us in 2016. Looking into 2017, comps will be difficult and recent weather patterns remind us that anything can happen.

However, our superior location and focused business plans should continue to generate significant growth for the West Coast portfolio. In Manhattan, we are pleased to see improved performance and are optimistic that the market is turning the corner after several sluggish years. Our seven-hotel Manhattan cluster reported 1.2% RevPAR growth in the fourth quarter, driven by 1.7% ADR growth and robust 94% occupancy. We outperformed the market's RevPAR by 70 basis points in the fourth quarter. The 10th out of the previous 12 quarters our portfolio has outperformed the wider Manhattan market.

Supply increased 4.9% in 2016 but was met with 5.5% demand growth. However, supply growth is finally decelerating with very few if any new hotel construction deals able to obtain financing. The closure of the Waldorf Astoria on March 01 for at least two years will have a meaningful positive impact on our Hilton Garden Inn Midtown East. The closure also has a significant impact on new supply trends for New York broadly. In 2017 we expect only 2.9% new supply growth in Manhattan.

We are also encouraged by legislative initiatives to remove illegal listings on home sharing sites with a focus on eliminating commercial landmark, which will result in meaningful changes in the shadow supply. While we expect many submarket in Manhattan to remain challenged, we are confident, our young well-located purpose built New York hotels can outperform, leveraging the strong and multifaceted demand characteristics of the Manhattan market. November and December were the best months we've been in New York in several years with 7.3% and 5.5% growth. January and February were also growing by 2% to 3%. Our Boston portfolio, which faced a 4% comp to last year's fourth quarter, reported a 2.5% RevPAR decline as new supply outweighed flat demand.

As we look ahead, we've a number of tailwind that will drive performance in Boston during 2017. The city has a strong convention calendar with three additional citywide and a 23% increase in conventional-related room nights. In addition, our Courtyard Brookline, one of the portfolio's biggest producers was under extensive renovations during the first few months of 2015 and should benefit from easier comps. And finally, the newly built Envoy, which we acquired in July continues to ramp and benefit from the tremendous growth within the up and coming Seaport and sub market, highlighted by a growing number of corporate demand generators such as GE, Vertex Pharmaceuticals as well as the city's tourist attractions, which are within walking distance to this exceptionally well located hotel. Boston and Washington will compete with the West Coast for our highest growth cluster in 2017.

In South Florida, our portfolio's fourth quarter results reflected a perfect storm. The closure of the Miami Beach Convention Center, new supply, the strong dollar's effect on international demand, economic and political turmoil in Latin America and of course persistent Zika concerns. While the Zika Travel Advisory has been lifted and media attention has subsided, large group hotels continue to suffer as corporate meeting planners are hesitant to send their employees to Miami. During the fourth quarter, our South Florida portfolio reported a 10.7% RevPAR decline, primarily driven by occupancy, reflective of the market's lack of compression. We expect Miami to be our most challenged market in 2017 and are working closely with our operators on cost containment and aggressive revenue management strategies to preserve our cluster's EBITDA.

We continue to have conviction with regards to longer-term fundamentals in Miami and feel very good about our cost basis and sub market mix in the region. Miami and South Florida will recover and then continue its high growth trajectory in the medium-term. To prepare for that future and utilize this low period productively, we're planning a repositioning of the Cadillac Miami Beach, transitioning the hotel from a Courtyard to an autograph collection hotel. We’ve terminated the current restaurant lease at the hotel and plan to bring in a new restaurant and bar more aligned to the resort's prime location and high quality position. We also plan to renovate the rooms and corridors in the older Cadillac tower.

The reposition beachfront hotel will allow us to drive higher rates and total profits while driving long-term asset value. Let’s turn to acquisitions and strategy. On Tuesday, we entered Seattle with the acquisition of the 153-room Pan Pacific Hotel for $79 million. The fee interest hotel was purchased unencumbered of brand and management and we plan to relaunch the hotel as an independent this summer. As we've discussed with investors in the past, we've studied the Seattle market for many years.

Much of the existing hotel inventory is old, tired and not built to today's taste and preference. Much of the new hotel supply is in inferior location as hotel developers have been priced out of key locations by office and residential developers. We are pleased to enter the market with this prominently located hotel built by Paul Allen and Vulcan in 2006, the Pan Pacific is the anchor of the impressive development within Seattle, South Lake union submarket. The hotel remains within walking distance to leisure demand generators like the Space Needle and The Museum of Pop Culture and is convenient to the Convention Center, Downtown and pipe plays, but is literally across the street from Amazon's global headquarters and prominently located of amidst Facebook, Google, Expedia, Microsoft, the Bill & Melinda Gates Foundation, The Hutchinson Cancer Center and the University of Washington School of Medicine. It is an exceptional location and one of the highest quality hotels in the Seattle market place.

We believe there is significant rate, occupancy and margin improvement at the hotel without significant capital expenditures. We will rebrand and reposition the Pan Pacific as an independent hotel within the company's IT portfolio. We will leverage our e-commerce, sales and general management expertise to establish this hotel as one of the leading hotels in Seattle. We began investing in independent hotels 10 years ago. We began in markets where we had proven operating expertise with branded hotels and a clear operational advantage.

Our first, the Duane Street hotel in Tribeca opened in 2007. As we developed a demonstrable advantage operating independent, we added independent hotels in Brooklyn, Capitol Hill in Washington, The Boxer in Boston than Santa Barbara, Key West, the St. Gregory in Dupont, Monterey and Santa Monica. Today our nine hotels pure independent portfolio not counting the Rittenhouse or the Autograph, generates RevPAR of $209 and an EBITDA margin of 40%, $32.60 higher RevPAR and 630 basis points higher margin than the remainder of the portfolio. Earlier this month, we acquired the Ritz-Carlton in Coconut Grove for $36 million or $313,000 per key, utilizing proceeds from the recent sale of the Residence Inn Greenbelt as part of a tax-deferred like-kind exchange.

We are pleased to acquire this asset at a meaningful discount to replacement cost, capitalizing on recent dislocation in the Miami lodging market. Coconut Grove is a unique submarket in Miami, conveniently located between Brickell and Coral Gables on Biscayne Bay. Its history, activated waterfront and vibrant walkable neighborhood is attracting high quality luxury residential, retail and office development, transforming the blocks around rads. We know the Coconut Grove submarket very well. We have owned and operated the residents in Coconut Grove across the street from the rads for the last four years.

Pursuant to two other luxury hotels the Ritz-Carlton in Georgetown and the Rittenhouse in Philadelphia, both were purchased with a very similar investment thesis to Coconut Grove, off market transaction on a hotel end market we know very well pricing well below replacement cost and real estate value, relatively small transaction size and clear asset management and capital improvement opportunities to drive EBITDA growth. [indiscernible] is relatively agnostic to start chain scale segment. On the other hand, we care deeply about markets and real estate fundamentals. We assembled concentrated geographic clusters in markets and locations that grow at a faster rate over the long-term due to barriers to new entrants, a multiplicity of demand generators, and real estate appreciation and liquidity. We focus on the best markets in the country, but not as capital allocators alone.

We build competitive advantage in our markets by clustering hotel, sharing information for revenue management, leveraging shared overhead and functions and operations and sales and most importantly, developing conviction and a pipeline in emerging or key sub markets at a local operator. We build economies of scale and scope with our concentrated geographic clusters and truly specialized portfolio. We try to break the compromise between free cash flow yield and EBITDA growth in our portfolio strategy. We focus on high-margin transient oriented hotels that cater to business and leisure travel with hotels built and program for the taste and preferences of today's traveler, both branded and independent. The branded hotels offer yield, but less margin growth, while the independent and luxury hotel offer more growth, but often begin as operations that need to be fixed for yield.

We love the margin profile of select service hotels, but independent and luxury hotels can offer significant growth opportunity in narrower field of buyers and often more significant real estate appreciation, all important drivers of net asset value. Today independent luxury hotels make up about 25% of our EBITDA and independent luxury hotels, clearly trade at meaningful premium with higher expected residual value, particularly late in the cycle we believe it is more prudent to invest in truly differentiated hotel real estate with value add opportunities and more commoditized hotel. Last year at this time, we discussed our plans to sell many of our older lower growth stabilized hotels across 2016. At the time, we discussed using proceeds from the sale to achieve several objectives to acquire hotels in higher growth markets and upgrade the portfolio. Shelter taxable gains from the disposition to return capital to shareholders through stock buybacks or a special dividend and to increase financial flexibility in a time of decelerating fundamental.

During 2016 and to date in 2017, we’ve sold 13 hotels for $640 million. We acquired seven high quality hotels for nearly $500 million. We deferred approximately $200 million of taxable gain while meaningfully upgrading our portfolio diversification and growth profile. The West Coast is now our largest market and our increased positions in Washington D.C. and Boston will lead to significant outperformance in the coming years.

Towards the end of the year, we also distributed a $0.20 per share special dividend. Our portfolio generates a significant amount of free cash and we will continue to maintain a conservative payout ratio on our annual. Although it provides ample cushion for a significant downturn until our stock price approaches NAV, we are unlikely to raise our common dividend. We raised our dividend by 17% towards the end of 2014. Since then our stock price has traded as substantial discount to NAV and we've chosen to return capital to shareholders with our stock buyback program.

Our Board is also supportive of future special dividend as well. Across 2016, we repurchased $52 million of our common shares representing 6.2% of the float at an average price of $18.75. Across the last two years, we've opportunistically bought back nearly 20% of our float. While we do not have a rigid target in terms of when we repurchase shares, during 2016 we were typically active when shares traded at greater than a 25% to 30% discount to NAV. Moving forward, we will continue to see capital recycling opportunities from the sale of stabilized assets with approximately $100 million to $150 million of potential sale candidates in the portfolio, primarily for additional leverage reduction.

As you know, all of us at Hersha are significant and growing shareholders trust and we are confident that we can create value despite this uncertain operating environment with sound capital allocation, compelling acquisition and outperformance on the ground. Now let me turn the call over to Ashish to discuss our financial performance, increasing financial flexibility and in particular walk through our guidance for 2017.

Ashish Parikh: Great, thanks Neil and good morning. Most of the participants on the call today have followed Hersha's progress over the past few years and as Neil detailed, 2016 and the early part of 2017 has been one of the most productive periods in the company's history. With this much activity, however there are a lot of moving parts and therefore I will focus the majority of my comments on our 2017 guidance and the drivers of our portfolio's performance for this year.

Our 2015 disposition activity resulted in over $438 million in net proceeds and $187 million in taxable gains. This activity along with the issuance of $292.5 million of attractive preferred equity at a record low 6.5% coupon allowed us acquire $381 million of assets, pay down $65.1 million of debt and resulted in a record cash balance of the $186 million at year end, in addition to maintaining full capacity on our $250 million credit line. During the fourth quarter and to date in 2017, we've also restated property level debt at eight properties totaling $132.3 million completing our efforts to refinance the 2006 and 2007 vintage 10-year CMBS loan. In the past, few years, we've refinanced the majority of our secured property level debt with only 10% of our outstanding debt now consisting of CMBS loans. We have transitioned to a much more flexible unsecured debt model and have reduced our weighted average cost of debt by over 40% in the past three years.

The elimination of the aforementioned debt also provides us additional flexibility to sell assets without debt incumbencies and allows us to continue our capital recycling effort. The combination of our efforts has resulted in a balance sheet that is in great shape with less than 5% of our consolidated debt maturing in 2017 and 2018 and interest coverage and fixed charge coverage ratio that approximately four times and three times respectively. We continue to target our debt to EBITDA ratio to remain between four and five times and remain very comfortable with our leverage targets in relation to our cash flow and coverage metric. In terms of capital expenditures, the full year 2016 period we spent approximately $33 million in consolidated CapEx and development fund debt. In addition, we spent approximately $2.4 million to reconfigure and renovate the lobby and create a new restaurant at the St.

Gregory. Through DG which is managed by Philadelphia's [indiscernible] Hospitality Group open to rave reviews in November and has been a welcome addition not only for guests at the St. Gregory, but also for those who live and work in Washington DC's west end and DuPont circle. At the Rittenhouse, we invested $1.9 million in the buildout of the leased F&B space now occupied by Star and managed by LDV Hospitality, a premier New York City-based hospitality group for 28 high end food and beverage establishment globally. In October 2016, [indiscernible] Philadelphia opened in the space formerly occupied by Smith & Wollensky at the Rittenhouse, brings a dining experience in line with the luxury hotel, guest profile and more in tune with current preferences.

Historically, our consolidated CapEx spend has been one of the lowest in the sector. One of the hallmarks of our young purpose built, rooms focused hotels is they require minimal capital investment, thereby maximizing our ability to generate free cash flow and drive IRRs. During 2017, we plan to invest capital and undertake larger ROI projects to enhance asset quality, drive rate growth and provide an outsized increase in the residual value of the asset. We've focused our ROI projects in markets that are experiencing short-term challenges as well as in markets where we can enjoy better returns on invested capital versus acquisition opportunities that exist in those markets today. As a result, we expect to spend between $48 million to $52 million in CapEx and ROI projects in 2017.

The majority of our ROI projects will take place in Miami given the market's current dislocation. At the Cadillac Courtyard Miami Beach, we'll invest approximately $12 million to transition the hotel from a courtyard to an autograph collection hotel. Bring in a new F&B tenant in line with the Autograph collection brand and renovate the rooms and corridors in the older Cadillac Tower. We anticipate our investment in the repositioning of this truly irreplaceable asset, which sits on an entire oceanfront block was generating an IRI exceeding 20%. As Neil already discussed, we also plan to invest capital in the Ritz-Carlton and Coconut Grove to improve guest touch points, update the restaurant and bar concepts and to enhance the guest carrying slot adding three additional guest rooms by converting unutilized space.

In addition, we expect to spend approximately $3.75 million and $1.4 million respectively for the restaurant build-out. Transitioning now to our 2017 forecast, we presented our detailed 2017 guidance in the earnings release published yesterday. This guidance which is based on the company’s current view of operating and economic fundamentals, includes the completed sale of the two Suburban Washington DC hotels in January and the expected sale of three Westcoast Hyatt houses in July, which combined will result in an EBITDA loss of approximately $10.5 million. Guidance also built in the liquidation of the Mystic Joint Venture, which resulted in unconsolidated JV EBITDA loss of approximately $8 million, but only a net loss of $2.5 million as we now own the Mystic Marriott outright and will consolidate the operations of this hotel. Our guidance also builds in the recently announced acquisitions of the Ritz-Carlton Coconut Grove and the Pan Pacific hotel in Seattle that are forecasted to add approximately $4.5 million to $5 million of EBITDA and incremental contributions from our 2016 acquisition of between $13 million and $13.5 million along with a loss of EBITDA from our 2006 disposition of approximately $9 million.

Our guidance does not build in any additional acquisition, dispositions or capital market activities for 2017. I won't repeat all the guidance figures, but a few of the highlights include comparable portfolio RevPAR growth of 0% to 2%, FFO per diluted share of between $2.08 and $2.31 per share. EBITDA is expected to be in the range of $162 million to $172 million while approximately 10% of our EBITDA and FFO will be generated from our unconsolidated joint ventures. While our margins have benefited from pricing power across our Hyatt and few markets, aggressive asset management and minimal renovation disruption over the last two years, we do face increasing wage pressure across our markets as a result of minimum wage increases in addition to ROI driven FACO investment, which will negatively impact margins throughout 2017. From an EBITDA margin perspective, we're forecasting margins to be flat down 100 basis points for the year.

In addition to the margin loss at the Courtyard, Cadillac Beach and the Ritz-Carlton Coconut Grove, we're forecasting significant margin loss at the Century Beach Resort, where we've reprogrammed debt amenities, closed the restaurant for renovation and are in the process of replacing the operator, as well as the heightened square, where we've also replaced the tenant and are in the process of re-concepting the F&B program. Excluding these four prosperities, our comparable portfolio of margin forecast would improve to flat to up 50 basis points for the year. Through the execution of HT's portfolio recycling strategies, company's EBITDA contribution is more diversified in 2017. The progress less reliant on our New York properties and 24% of consolidated EBITDA in fiscal year 2017 in West Coast is expected to be our top EBITDA contributor for the first time, with New York City our second largest EBITDA contributor at 23%. Washington DC, South Florida and Boston are expected to contribute 17%, 12% and 11% of EBITDA in 2017 respectively while Philadelphia is budgeted to contribute 7% of EBITDA in 2017.

So, that includes my formal remarks. We can now proceed to Q&A where Jay, Neil and I are happy to address any question that you may have. Operator?

Operator: Thank you. [Operator Instructions] And we'll take our first question from Ryan Meliker from Canaccord Genuity. Sir, your line is open.

Please go ahead.

Ryan Meliker: Good morning, guys. I just wanted to dig in a little bit more on margin Ashish. You guys obviously run in pretty high margins at 35% with RevPAR that's not growing so much similar to this year again next year based on your guidance. Is there any -- are there costs that can be cut.

How are you guys thinking about kind of where that breakeven margin level is? I know you guys guided to margins being flat to down 100 basis points, which seem to be relatively in line with what came out this year with margins close to flat on RevPAR growth towards the high end of that range for next year. So, I just wanted to get an understanding of really where things need to be to keep margins flat and if maybe there's some legal room in that guidance?

Ashish Parikh: Yes, no absolutely. So, Ryan as I mentioned in my remarks, when you take out just four properties, the Cadillac [Century] our margin profile would improve to somewhere between flat to up 50 basis points. So, we put a lot of cost containment strategies in place already estimating a low single digit type of RevPAR growth. I think as we circle through the renovation and re-concepting of F&B, we're really looking at a margin profile that this year get better by 50 basis points almost every quarter.

We may see a little bit of a dip in the third quarter with the majority of renovation in Cadillac but as we shuffle through these comps and as we stabilize in South Florida, we are very confident that with the completion of the ROI project even 2% to 3% RevPAR growth can drive margin for us.

Ryan Meliker: Okay. That's helpful. And then second question I had pertains a little bit to New York, which I know you guys have been moving more and more away from New York City. I'm just curious if you had any thoughts on the bill that's on the [Blosios] desk associated with I guess making new development select service hotels in M zones going through a formal city approval process that will lead to unionization.

It seems to me that might curtail supply growth in the out-years. I'm wondering if you had any thoughts on that? And then along the same lines does this mean that Unite here and unions are moving more aggressively into select service hotels across New York City and is that something we should be mindful of?

Jay Shah: Ryan, I think if it were to be signed and passed, it would absolutely lead to an even more significant decrease in the supply outlook for New York. I think just overall Manhattan performance across the last couple of years and the hesitancy of construction lenders that issue new construction loans in New York has reduced the pipeline very significantly but I do believe that some kind of regulatory help would be appreciated at least by our portfolio and by us. In New York that kind of restrictions on new limited service hotel supply has been done in certain submarket in Tribeca that past I think was about three years ago. So, a handful of communities have done it and [creative to spend] across New York is possible.

There is precedent in other cities in cities like Boston, it is very -- in order to get your construction permits, you have to go from a card-check agreement and so it's been done in other markets, but it does lead to very significant new barriers to entry in a particular market. We're not counting on it today, but it is possible. In terms of whether the union is getting more focused on limited service hotels, I think that it comes down to employee counted individual hotels that they've seen is there are a lot of like service hotels with few employee count have been opened around Manhattan. And they are just unable to organize a small units like that. So, they need regulatory help to be able to do so.

But I don't think it marks any kind of exchange otherwise. Does that make sense?

Ryan Meliker: No that makes sense. That does and that's really helpful color. I guess the only pushback I would have or at least as for your thoughts is one of the things that we keep hearing for the high supply growth in New York is that the highest and best use for a lot of these mid-block assets that may be 40-feet wide is a select service hotel and the numbers continue to pencil out for them just given the dynamic that there are no other alternatives and they can run, they can draft under the full-service pricing, which makes them pencil out. So, construction lending is still around, though certainly not as aggressive or as attractive as what we had seen a couple years back.

But I would imagine that a bill like this would change that pretty dramatically.

Jay Shah: Absolutely.

Ryan Meliker: All right, great. Well, that's it for me. I appreciate all the insights.

Jay Shah: Thanks, Ryan.

Operator: We'll take our next question from Shaun Kelley from Bank of America. Your line is open.

Shaun Kelley: Hey, good morning guys. I was just wondering if maybe we could talk through the strategic plan behind the Pan Pacific.

I know you mentioned in the release I think the plan here is to move to an independent hotel, but you maybe could talk a little bit about that and then Seattle as new market entry for you guys?

Jay Shah: As we mentioned -- I'll get it started Shaun, but as you mentioned, we've been looking at Seattle for a long time. It's a market that is very similar in profile to many of our other existing markets in terms of having a very strong establishment corporate business base that isn’t reliant on one or two companies, but lots of them. And all their associated supply chains underneath them from a corporate standpoint as well as being a very strong leisure demand market and international gateway market and so, it's been a market that's been of interest and interesting to us for some time. We just had a hard time finding the right market entry point. What we've seen in the market has been generally older hotels that either required a lot of capital or we're truly -- just you couldn't make them high-margin.

You couldn’t make them more alignment base taste and preference. And so, on one hand you saw older aging hotels and then on the other hand we were seeing new construction hotels and we're spending time with developers in the marketplace to look at opportunities, but Seattle has just gotten to be such an expensive market for land because residential and office is going through tremendous growth. Office in particular I think it's 46 million square feet in the market and there's 6 million or 7 million square feet under construction today of new Class A office. So really significant and already kind of pre-tenant space with a lot of these technology firms. So, it's been hard for hotel developers to get the right corners in town and so they are on the peripheries of some of these projects and we just didn't feel like that was the right way to enter the market.

We didn't think we'd be able to execute on our skill set of revenue managing and having a premium kind of location with which we can drive higher rate through that, higher flow through and through that, high EBITDA per key, which is the key metric that we look at when we're looking at our portfolio. So, this asset was -- it's a really high quality hotel. Vulcan did a beautiful job with this mixed-use development. That hotel is really prominent and just overlooking to South Lake Union neighborhood. The hotel has been managed and branded by Pan Pacific hotels.

Pan Pacific this is their only hotel in United States. They had two in -- one in Whistler, they have one in Whistler and one in Vancouver, but primarily it's an Asian brand. It didn't have a loyal following or any kind of real drop for customers in the U.S. And from a managerial standpoint they just didn't have the organization to really drive result in a hotel. And to where we will be taking over management in the coming month and going independent with the hotel, very similar to the rest of our independent hotel; this is a hotel that we believe we can manage to drive significantly higher rate growth while still maintaining a very attractive margin profile.

And we're going to be able to do it without any kind of significant capital expenditures to the hotels in very good condition. Yes, so that's kind of our plan on it. Shaun did that address the precise question?

Shaun Kelley: Yes, that's helpful. And then I guess my other question and I'm going to apologize anything that was sort of back and forth during the prepared remarks with another call this morning. But did you or can you just speak a little bit about the fact that we are seeing on New York stabilize a little bit.

It seems like Q4 was positive. Obviously, it looks like started at a January is the same. So just like to any -- you guys are closer to that market than almost anyone. So just any better reasoning then on easy comp that why New York might be strengthening a little bit? And what I know traditionally in January specifically it tends to be actually a very soft period where guys irrationally promote and makes mistakes?

Jay Shah: Yes, New York is it remains tough market and where you get really -- there are hard ones victories, but we've had some victories there recently. November and December were very strong month for New York City.

They are the strongest couple of months that we've had in nearly two years. In Manhattan, mid-single-digit growth we were able to show on our New York portfolio. January, February started off pretty well as well. You know it's not nearly as strong as November and December, but I think that might be because of the lack of compression and what we always see in the first quarter it's hard to push rate even when demand is there. So, I mentioned in the prepared remarks that we've seen about 2% to 3% growth in January and February.

We're not ready to say yet they were out of the wood, but the clear -- we've been looking at the supply pipeline for a long time and this is the year that we see a meaningful deceleration in new supply. And so, that more so than comp is the biggest driver of performance we believe in Manhattan, after several years of 5% growth we dropped to in 2017 to about around 3% growth. Still growth on supply but when the market is averaged about 5% to 6% demand growth across this last several years we think that's really good news and should give other operators some conviction in pushing rates a little bit further. New York is getting better and it decelerating supply that allowing us to enjoy all the demand that continues to build the New York. All of you or many of you are based from New York so you know what's happening there.

But we lose sight with all these massive projects and increasing density not only in Downtown and Hudson Yard and all the infrastructural improvement. In New York, you lose sight of some of the other things like on the E side and I'd almost forgotten, it was of the Cornell University program and that's getting close to opening. I remember when that was announced that there's just been so much other activity there that you lose sight of some really big significant demand generators that are still coming into New York.

Shaun Kelley: Perfect. I really appreciate the guys.

Thanks a lot.

Operator: And we'll take our next question from Bill Crow from Raymond James. Your line is open. Please go ahead.

Bill Crow: Good morning, folks.

Neil. Help us understand how bad some quarters going to be this year? I mean I don't think you quantify the number, but given your positive remarks on your other markets, it's going to be sharply negative, right?

Neil Shah: That's right. I don’t think we mentioned this in our remarks, but if we were to take out Miami from our fourth quarter results that would have been meaningfully higher because we were down about 10% in a year, and if we were to take it out of our 2017 outlook it could have as much as 200 basis point impact on our range. So, it's very significant. We're growing in every other market in our portfolio, but South Florida is tough.

I think that the market could get a little bit worse before it gets better and this is something we've been mentioning really for about a year. Zika just put a nail on the coffin, but the supply outlook and the convention center being closed was already in everyone's mind at the beginning of 2016. But Zika is really been something that was unexpected. The market is going to be tough. We're going to start to laugh at least Zika comp beginning in the summer.

It was kind of June, July when the Zika hit in Wynwood and a little later when it hit the beach. And unfortunately, it was timed right into the fourth and first quarter where there is significant impact and meeting planners at the Fontainebleau and the Loews are still thinking they're having a really tough time right now. But the comps will get a little easier at least the Zika kind of comps will get a little easier as the year goes on. And so I think that we'll start to look for some sense of recovery in the Miami market towards the end of the year. But it's a dislocated market and obviously it's going to create issues for some owners.

It's going to make lenders very concerned about the marketplace, and sometimes it's going to create opportunity for us. But we're still very cautious about the market there. It's going to be at least six to 12 months of tougher times there. And as I mentioned in remarks we're trying to use that time productively. In Coconut Grove at the Residence Inn or at the Parrot Key and Key West, where we have less of a Zika impact.

There is just some general softness in South Florida, but there we can really focus on asset management, win some market share, drive some -- control some costs and drive some higher profit. In Miami Beach our two, the Blue Moon and the Winter Haven have been performing very well despite kind of the marketplace. But there's some opportunities there around the edges of how we can boost EBITDA bit here and there. And the Cadillac which is our largest contributor in South Florida we're going to use this slow period to renovate the hotels. It doesn't seem like that long ago, but it was about five years ago when we acquired the Cadillac and then we built the new tower at the Cadillac.

We opened the new tower about two years ago, two, two and half years ago. The new towers in beautiful shape and is that a four-star standard for sure. We have great resort amenities. We have two pools and we have a full block on the beach in the widest part of kind of Mid-Beach which is a really prime location. We're going to have to do a renovation of the older tower for our Courtyard franchise agreement.

When we look at the kind of cost of doing that which was going to include some bathroom work and as well as the guestrooms, and we considered where the market was today we thought we would go a little deeper than that and really reposition the hotel and take it back to its roots as the Cadillac hotel. And we'll affiliate with autograph and still continue to participate with brand which I think is important on Miami Beach. But we're going to try to use this slow period productively.

Bill Crow: Right. That's helpful.

My other question this morning is I think since we last talked, you guys have sold some additional select service assets. You've gone deeper into luxury and lifestyle product, is there any reason to and I'm just thinking about how you used to explain your company to investors five or 10 years ago, it's so different today. And as I think about doing the same in a few years, is there any reason to expect you to own any select service assets three or four, five years from now other than maybe that unconsolidated New York assets and you see yourself buying any more select service branded hotels?

Ashish Parikh: Absolutely and I'm glad you asked the question. I tried to address the bit in the prepared remarks, but it's important to underscore it here. We really do like branded hotels.

We like branded and independent hotels, we look to them for different contributions to our portfolio. But if you just look to our last five or six acquisitions we made, that we bought the Courtyard Sunnyvale just two months ago. We bought the Hilton garden Inn on M-Street just a year ago. We bought the TownePlace Suites in Sunnyvale just 12 or 14 months ago. And they were the larger assets that we bought actually in terms of just total dollar size and total investment.

So, the urban select service branded product is something that we will absolutely continue to acquire and continue to have a best in class capability and we're finding with changing taste and preferences among consumers and business travelers that matter. And the opportunity we're finding as we get more and more local and more and more expert in our six markets is that we can drive even higher profit per key and absolute profit for our portfolio by also investing in independent and luxury hotels. I ran through the metrics on our independent hotels. They are higher margin and meaningfully higher RevPAR than the remainder of our portfolio. Our luxury hotels are obviously even higher RevPAR that have pretty low margin and that's where we're going to fix with those.

And so this allows us to have meaningful EBITDA growth as well as continuing to have a very attractive margin and yield profile as we balance the portfolio. Today we're about 25% independent and luxury and 75% primarily kind of urban select service. I think across the next several years you could see that balance a little bit more where it 60% urban select service and 40% independent than luxury. But we don't have a set goal or set target. We're trying to create the most value we can from great hotel real estate in our existing market.

Bill Crow: Great. I appreciate the color. Thank you.

Operator: And we'll go to our next question from Chris Woronka from Deutsche Bank. Your line is open.

Please go ahead.

Chris Woronka: Good morning, guys. Thanks for all the color so far as well. I wanted to go a little bit deeper on the South Florida question just asked your perspective as to whether you think there's anything more secular going on down there. I mean we've seen I think Fort Lauderdale is arguably coming up little bit more competitive with Miami.

I also think there's more focus on branded product down there and you guys are going in that direction and a lot of other people are two. And also, the other part of the question is do you think some of the FX impacts that you've seen last year and this year. Do you think some of that could stick around for a while, how do you tackle all those issues?

Jay Shah: On the FX side our expectation is that that's going to stick around for a while. The shock of it is passing for a lot of country to travel to the Miami. So, that like the one-time shock is now couple years in the rear-view mirror, so there's new normal set and something that we can build off of, but we do expect there to be in a foreign exchange issues.

That said in Miami you continue to see more and more airlift being added to Miami from other countries in Europe and Asia. And so, we think that that's going to continue to grow. International demand in Miami continues to grow actually on even the last month basis. It's just a matter of how much they're spending when they're here that's been of concern. So, on the international side, it will continue to be a growth market for international travel but at a much slower pace than years ago, because of the strong dollar.

In terms of we talked a bit about Zika, but the convention center is probably something that was -- it was something that was very kind of frontend center for us in early 2016, but might have been a little bit overlooked by the rest of the market, how much of an impact the closure of the convention center would have. It's been closed. It's expected to open towards the end of this year or the early part of next year, but there is some uncertainty around that and that is not having that convention center operating has been a very significant issue for Miami. I think much more so than other markets that travelers can go to and the like, like Fort Lauderdale. Miami, long-term, we continue to believe is going to be one of the highest growth markets not only in the U.S.

but in the world. It is a market that's still going through -- it's a gateway market, but it’s only today going through it's kind of densification process. The amount of infrastructural spending in rail across Miami and connecting Miami up to Palm Beach and Orlando has been something that's been also kind of overlooked across last few months when there's been so many other kind of headwind. We forget that the bright rail that train connecting Orlando Palm Beach and Miami is going to open towards the end of this year, which will be a significant draw for a couple kind of overnight visitors from other parts of Florida. And we continue to see more and more companies moving to Miami and so the corporate base continues to grow.

That's a function not only of favorable taxes for a lot of principles, but also, they are an attractive and lower cost of living than many other markets in the country and so it benefits from that kind of general migration of talent and capital. So, we feel very strongly about Miami in midterm, not even the long-term just in the midterm, but we’re going to go through a rocky year in the market play. In 2018, we’ll have a Convention Center reopened. Hopefully we will have -- we won't have any kind of Zika-related issues and for us we'll have a portfolio poised to outperform post-renovation.

Chris Woronka: Great.

I appreciate all the color. And just second question would be kind of on the capital allocation front. You've done a lot of asset recycling lately and I don't think you've have been -- you have been somewhat active on share repurchase, but obviously at lower prices than where the stock is. So, going forward, how do you kind of balance, further acquisitions with price where you might be even more active buying back stock kind of relative to your targeted leverage?

Jay Shah: It's interesting, we're always interested in buying back our stock if it’s very opportunistically priced, but we're also mindful of our leverage level and maintaining financial flexibility and so we've kind of -- we use a pretty high hurdle for buying back stock where we're saying it needs to be at 25% to 30% discount to our NAV in our view of value for the portfolio. And we will we -- the Board reauthorized an additional $100 million buyback towards the end of last year and will continue to be active if the pricing is that opportunistic.

We look at acquisition as an opportunity to not only kind of pivot to higher growth assets and the like, but also in some ways a way to address our leverage metric because it is a debt to EBITDA metric. And when you're selling a lot of hotels like we do, you do need to replace the EBITDA and so we can leverage less, but we don't look at acquisitions as being mutually exclusive not only with stock buybacks, but also not mutually exclusive with pending and being mindful of our leverage levels.

Chris Woronka: Okay. That's helpful.

Jay Shah: Does that make sense?

Chris Woronka: Yes.

Thanks guys.

Operator: And we'll take our next question from Anthony Powell from Barclays. Your line is open. Please go ahead.

Anthony Powell: Hi, good morning guys.

We keep reading and travel magazines and the press about just reduced attention from international travelers to visit the U.S. or Visa issues and a variety of sediment issues, if you could remind us how much of your visits. Is international markets are the most leverage international travel with quarters and just comment on that overall, it will be very helpful.

Jay Shah: Sure. The two markets that we continue to rely on international travelers, New York and Miami, New York we did see a decrease in international travel last year.

It accounts for about 12% of our revenue base in our finance property and in Miami as Neil mentioned, it’s about 20% of our revenue base and we actually saw an increase in international travel. So, its comes from different parts of the world as you -- as an increased air lift and we saw more travel coming from places like the Netherlands last year and less for Brazil and Venezuela and Argentina because of the disruptions down there. We generally saw reduced amount of travel from the U.K. because of the impact of Brexit and FX, but as we stabilized in New York we are actually trying to shift away from some of the lower rated international channel as well.

Anthony Powell: Got it.

So, you don't really anticipate any type of negative consequence of sediment issues due to travel bans and what not? Are you seeing that in any business currently?

Jay Shah: We haven’t seen it currently. There has certainly been press about it and some reports about it, but from on the ground it’s a little too early to say that there has definitely been an impact.

Anthony Powell: Okay. That's it for me. Thank you.

Operator: And we’ll take our next question from Bryan Maher from FBR & Company. Your line is open. Please go ahead.

Bryan Maher: Yes, good morning. So, of course you know that President Trump is going to use your statistics on the inauguration room demand for a upcoming tweak.

Jay Shah: You got it Bryan.

Bryan Maher: Biggest inauguration room demand ever. Couple of quick questions Seattle, so do you consider Seattle to be kind of a burgeoning seventh cluster or would you consider that new property to be kind be part of the West Coast cluster.

Jay Shah: We consider as part of the West Coast cluster. We will probably be more likely to look at other opportunities in Seattle, but today our view is that we already have some of the cluster efficiencies because our operator HHM has a portfolio in the market and so we're getting some of the benefits of our cluster efficiencies and it's a significant asset in terms of scale and scope that we don't need to build a cluster around it and for the time being we'll consider it one of our West Coast markets.

Bryan Maher: Okay. Thanks for that. And then South Florida, look I want to beat the dead horse there. You've talked quite a bit about it and your optimism long-term for that market, but in light of the fact that there may be further owners down there looking to exit that market while you think it's a long-term positive, would you be willing to go even deeper into that market? I say that on the back of you just buying another hotel there in Coconut Grove?

Jay Shah: Yes, I think Coconut Grove was exceptional in some ways. It was just a deep, deep discount to replacement cost and market value and it was a submarket that has it's own kind of secular shifts and demand that were very attractive to us and it's a market that has significant barriers to new entrants, highly restrictive zoning and a very tight community in the grove.

And so, that was an exceptional opportunity and with a small opportunity as a $36 million asset and acquisition. We are spending time and getting to know owners and developers and lenders that might run into issues over time and we do think that it's a market that we are interested in growing our footprint in, but we generally like to time our market entry a little closer to the turn of a market. We've done it well in New York. We've done it well in Washington DC more recently. And in Miami I think we're going to be patient and take a badge of opportunities as they come.

We're not in a huge rush to do so because we are aware and very clear that it's going to be a tough marketplace for the next couple of quarters, but we are spending time and we think that in the future, in the coming years, we'll be able to secure a lot of great properties through some of the relationships we're making today.

Bryan Maher: Okay. And then just lastly, looking at what you guys have been doing over the last year or two in particular in your commentary, I can't help to draw some corollaries between where you've moved to and some companies like let's say Pebblebrook and LaSalle both of whom have had some challenges over the past couple of years. Can you give us a view of how you think of yourself as differentiated in the way that you would not end up looking more like those two companies?

Neil Shah: Yes. One area is just balanced.

We discussed kind of our mix of yield and EBITDA growth in our portfolio and kind of the mix of branded and independent hotels. I think that's one clear differentiator, but I think just as important is just is what I mentioned in some of the prepared remarks we're not buying an independent hotel here and another independent hotel there. We're very local in our markets and in those markets if the execution in a particular street corner is better as an independent, we do it as an independent. If it's better as a branded hotel, we would do it as a branded hotel and so I think we have the benefit of having a best-in-class capability in both branded and independent hotel. And unlike most of our peers in the sector, we are operators by tradition and are able to drive value through what we can do on the ground and through these kind of cluster that we've developed in each of these markets.

I think of any of our markets just the mix of and we go from midscale, the luxury in kind of the very best locations of each of those markets and I think that's pretty differentiated from our peers. We've respected and learned a lot from Mike Barnello and from Jon Bortz, but our independent hotels are really different in kind than many of theirs. Our hotels are generally smaller, have less food and beverage revenue and profit, are newly built, so they don't require the kind of capital expenditures that other on trend hotels require and they are service delivery oriented, building brand loyalty because you have a smaller hotel, because you're in A-plus location. So, that we're not as reliant on online travel agent and more opaque channels. We've been able to manage most of our independent hotels that have less than 20% online travel business.

It's pretty exceptional in the role of independent hotels and where we do that because we were able to do that because our hotels are smaller and are in really premium location.

Bryan Maher: Thanks. That's really helpful.

Operator: And we'll take our next question from [indiscernible]. Your line is open.

Please go ahead. UnidentifiedAnalyst: Thanks. Good morning. Some of my questions have been answered but maybe just a follow-up on the OTA. Can you talk a little bit about what you're seeing from OTA room nights both for the entire portfolio and then maybe for New York City specifically, in the fourth quarter?

Jay Shah: Yes generally.

This is Jay. Neil and Ash, both mentioned the capabilities we've developed around revenue management and distribution management and it's something that we work on very hard with our operators. I don't know that we did see any sort of a material change in the role that OTA has played in the sector and contribution to our portfolio. I know when demand wanes a little bit, the OTAs gain power and so I imagine a lot of our markets you are seeing some of the peers taking on a bit more OTA weight. We've kind of stayed true to keeping that OTA mix at or even continuing to drive it down at all of our hotels, certainly at branded hotels, a bit easier by managing distribution that comes through the brand.com.

And so, let's say for instance that our branded hotels, I think our contribution OTA wise somewhere in the mid-teens and we work on our independent hotels to phase out the 23% and we've got many of our independent hotels that are better inside of 20%. And so, that kind of begs the question, how do you do that and can you sustain that? So how do we do that? It's a couple of things. We focused at independent hotels very much on driving original demand through our own e-commerce capabilities on our website. So, that takes a lot of -- a lot of expertise in doing that and we've been able to develop that over the years. At the branded hotels, it's again just kind of staying disciplined.

I think the size of our hotels; the average size of our hotels is probably today between 125 to 175 rooms and I think the inventory size helps as well because you don't need to take on a lot of water to create compression. We don't rely on a lot of group business and so that helps as well, but other than that, I think some of the other things that we drive our operators to do is we would rather invest in direct sales and marketing efforts at the property level and have our operators invest in that at the above property level and though there is a cost involved with that, we feel like we at least at that point own the customer and we own the data and the buying and preferential habits of that customer. And so, that cost, we believe actually turns out to pay dividends, but it's a whole host of things, but I am just trying to give you some color kind of overall, but I think it's just a completely differentiated view of how you distribute your inventory. I think there is a traditional view and we like to believe that we're very thoughtful about it, something we focused on a lot and we just take a different tack. UnidentifiedAnalyst: Okay.

Great. That's very helpful. I appreciate that. And then real quick just on corporate transients, so far, you're in 2017, have you seen any change from any pickup in demand from segment?

Neil Shah: That's virtually nothing to report clearly, nothing to report that would sound clear. We're looking and if we had -- if we had a better -- we had more than anecdotal information, we would be happy to share it, but right now there's nothing that's strong enough to share.

UnidentifiedAnalyst: Okay. That's good. That's all for me. Thank you.

Operator: We'll take our final question from [Michael Lezerio] from Baird.

Your line is open. Please go ahead. UnidentifiedAnalyst: Good morning, guys.

Neil Shah: Hey Michael. UnidentifiedAnalyst: Just one question on dispositions, how much of it, you mentioned $150 million is really targeted just to simply de risk the balance sheet and the portfolio and then how much is to fund more capital recycling activities and then any particular markets that you're focusing the sales efforts on.

Neil Shah: I'll just get started Michael at least on the markets that we would consider recycling. I think this is really kind of second half of 2017 plan, but would be a handful of hotels in New York City. A handful of hotels in couple of suburban hotels that we have left in the portfolio, which will be pretty apparent as you look down the property lest. And so, there's we mentioned a number of $100 million to $150 million of potential sales and we think that that's feasible, but we have baked that into our expectations to our model at this stage, but there are assets that have stabilized in our portfolio that if we can get the right price for the assets, we will trade. What we would use the proceeds from it will depend a bit on how many -- how much in capital gains we have and how much we can shelter with either new acquisitions or through a special dividend, but as I mentioned to someone else's question the debt-to-EBITDA metric includes EBITDA and so you do need to increase your EBITDA when you're selling hotels to a certain extent.

So, I would if I had to guess get we would buy one hotel and we'd do a bit of a special dividend than we do a little bit of buyback and we would also reduce leverage while doing all of that because we would be adding EBITDA. UnidentifiedAnalyst: Thanks. That's helpful.

Operator: And I would like to turn it back over to you Neil for any additional or closing remarks.

Neil Shah: Thank you.

Thank you, everyone for your time and for the thoughtful questions. Jay, Ash and I are here for the rest of the day and look forward to answering any further questions if you may have. Have a great day.

Operator: Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation.

You may now disconnect.