Good day, and welcome to the Braemar Hotels & Resorts’ Second Quarter 2018 Conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Joe Calabrese with the Financial Relation Board. Please go ahead..

Good morning, everyone, and welcome to today’s call to review results for Braemar Hotels & Resorts for the second quarter 2018 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer.

The results as well as notice of the accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon in the Press Release that has been covered by the financial media.

At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such Forward-Looking Statements are subject to numerous assumptions, uncertainties and known or unknown risks which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the Company’s filings with the Securities and Exchange Commission.

The Forward-Looking Statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the Company’s earnings release and accompanying tables and schedules, which have been filed on Form 8-K with the SEC on August 1, 2018, and may also be accessed at the Company’s website at www.bhrreit.com.

Each listener is encouraged to review those reconciliations provided in the earnings release, together with all other information provided in the release. I will now turn the call over to Richard Stockton. Please go ahead, sir..

Good morning. Thank you for joining us. In January of last year we announced a revised strategy with a focus of investing in the luxury hotel segment. We took concrete steps to realign our portfolio to the strategy since that time including selling two properties, announcing agreement of up brand two properties and acquiring three others.

Empirical evidence shows that the luxury segment has the greatest RevPAR growth over the long-term, which can translate into superior shareholder returns. Bolstered by strong consumer confidence, trends and a healthy macro economic outlook.

This thesis is proving true, with the luxury segment meaningfully outperforming the overall industry during both the first and second quarters of 2018. According to Smith Travel Research, in the first quarter luxury segment RevPAR was up 6.6%, while in the second quarter luxury segment posted 4.9% RevPAR growth versus 4% growth for all hotels.

SCR and other industry forecasters expect this trend to continue through the remainder of 2018 and into 2019. By clearly aligning our platform with this segment, we believe Braemar is well-positioned to capitalize on these trends and continue to outperform our lead peers.

For the quarter, comparable RevPAR excluding hotels under renovation grew by 4.5% while overall comparable RevPAR declined 1.1%. Much of this decline for the portfolio overall is explained by the negative RevPAR performance of the Ritz-Carlton St. Thomas which is under significant rehabilitation this year following hurricane Irma.

We reported adjusted EBITDA ROE of $38.3 million versus $33.7 million in the prior year quarter reflecting 14% growth and an AFFO per share of $0.56 versus $0.50 in the prior year quarter, reflecting 12% growth. Our overall portfolio TTM RevPAR of $223 continues to be the highest in the lodging REIT sector.

During the quarter, we continue to actively manage our insurance recoveries related to the covered events last fall, namely hurricane Irma and the northern California wildfires. As we discussed we have comprehensive insurance in place for all of our hotels.

And we continue to work closely with our insurers to both seek recoveries and physical damage to our hotel as well as to minimize the impact to our properties P&L through business interruption insurance claims, which totaled $8.7 million during the quarter.

While the recovery of business interruption proceeds should be complete at our Yountville properties as those properties have returned to normal operations. We will expect these recoveries to continue for some time at the Ritz-Carlton St. Thomas at least through our planned reopening in October 2019.

Business interruption proceeds recorded during the quarter included $3.3 million to the Tampa Renaissance for lost profits related to the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010. We have been working on this dispute for several years and it finally concluded with settlement in second quarter.

Consistent with our portfolio of realignment strategy, during the second quarter, we completed the sale of the 293 room Renaissance Tampa international Plaza Hotel in Tampa, Florida, for $68 million.

We also continue to be on-track with our autograph collection convergence at both the Courtyard Philadelphia downtown quarter and Courtyard San Francisco downtown which are expected to be completed in June and December 2019, respectively.

We have also continue to make progress on our reinvestment strategy as during the quarter we completed the acquisition of the 256 room Ritz-Carlton Sarasota for $171 million. This high quality luxury resort property is located in a popular growing downtown market on the Florida of Gulf Coast with RevPAR of $284 in 2017 and strong cash flow.

The acquisition will increase our overall portfolio RevPAR and is expected to yield attractive returns for the portfolio. Initial EBITDA yield at 7.8% and we expect it to stabilize at 9.5%.

Our underwriting took a new count some initial softness in room night demand as the market absorbs some of new supply, but our down side is protected by $5.5 million GOP holdback guarantee for three years. Despite RevPAR being down for the hotel this quarter due to identified cost savings.

We do not anticipate needing to draw on our GOP guarantee for 2018.

In conjunction with this acquisition, we also closed on the acquisition of a 22 acre plot of vacant land adjacent to the golf course for $9.7 million that is currently entitled for residential development, we continue to work through financial feasibility analysis related to our options for to this land parcel.

Concurrent with the completion of this acquisition, we finance the hotel with the $100 million non-recourse mortgage loan, additionally during the quarter, we refinanced to mortgage loans with existing balances totaling approximately $358 million with a new $435 million loan, Deric will give more detail of both of these financing in a moment.

We believe we made great progress in the first half of this year in advancing our strategy and we have seen that reflected in our strong total shareholder return performance through the first half of the year.

Year-to-date through the end of the second quarter, our total shareholder return was 21% versus 12.7% for our peers an outperformance of 8.3 percentage points. Going forward, our team will continue to focus on enhancing shareholder value, by delivering solid operational performance and continuing to execute all aspects of our business plan.

We will also continue to work on increasing investor awareness of our story through our focus, investor relations. I will now turn the call over to Deric..

Thanks Richard. During the quarter as Richard mentioned, we recognized $8.7 million of business interruption income, which is reflected in the other hotel revenue line of our income statement. For the Ritz-Carlton in St. Thomas the insurance recoveries related to the month of March through May and totaled approximately $5.2 million.

For the Bardessono and Hotel Yountville, is entrant recoveries related to the month of January through March and included approximately $172,000 for the Bardessono and $19,000 for the Hotel Yountville.

We also recognized $3.3 million for the Tampa Renaissance for lost profits related to the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010. While we expect the business interruption proceeds to continue for some time, at the Ritz-Carlton St. Thomas, we expect minimal to no further recoveries at the other three properties.

For the quarter, we reported net income attributable to common stockholders, of $9.8 million or $0.29 per diluted share and we reported AFFO per diluted share of $0.56, compared with $0.50 for the same quarter last year. Adjusted EBITDA ROE for the quarter was $38.3 million, which reflected a 14% growth rate over the prior year.

At quarter’s end, we had total assets of $1.6 billion. We had $994 million of mortgage debt of which $47 million related to our joint venture partner share of the debt on The Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined debt at a blended average interest rate of 4.6% and is entirely floating-rate.

All of our floating-rate debt has interest rate caps in place. As of the end of the second quarter, we had approximately 45% net debt to growth assets and our trailing 12 month fixed charge coverage ratio was approximately 2.1 times. Our next hard debt maturity is not until March of 2020.

We also ended the quarter, with net working capital of $205 million. As of June 30, 2018 our portfolio consisted of 12 hotels with 3,314 net rooms. Our share count currently stands at 37.6 million fully diluted shares outstanding, which is comprised of 32.5 million shares of common stock and 5.1 million OP units.

In our financial results, we included approximately 6.6 million shares and our fully diluted share count associated with our Series B convertible preferred stock. With regards to the dividends, the Board of Directors declared a second quarter 2018 cash dividend of $0.16 per share, or $0.64 per diluted share on an annualized basis.

This equates to an annual yield of approximately 6.2% based on the yesterday’s closing price one of the highest in the lodging REIT space. On the capital markets front, as Richard indicated, during the quarter we closed on a $100 million mortgage loan to finance the acquisition of the Ritz-Carlton Sarasota.

This loan is a five year term and provides for a floating interest rate of LIBOR plus 2.65%. Additionally, we refinanced two mortgage loans with existing outstanding balances totaling approximately $358 million.

The previous mortgage loan that were refinanced with the Morgan Stanley Pool and the Chicago Sofitel loans with final maturity date of February 2024 and March 2019, respectively. The new loans totaled $435 million and has a two-year initial term with five one-year extension options subject to the satisfaction of certain conditions.

The loan is interest-only and provide for floating interest rate of LIBOR plus 2.16%. Because we structure this financing as an agented CMBS transaction, we believe we achieved the lowest spread than we otherwise would have on the principal loan.

We continue to see very attractive debt financing markets for high quality hotels such as ours and we will continue to assess our portfolio for additional refinancing opportunities to capitalize on these favorable trends.

This concludes our financial review; I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter..

Thank you, Deric. As Richard mentioned comparable RevPAR for our portfolio declined by 1.1%, however for all the hotels not under renovation during the second quarter comparable RevPAR grew by 4.5%.

Our portfolio’s comparable RevPAR growth led to market share gains of two percentage points and 1.7 percentage points relative to both our hotel’s competitive steps and sudden changed sales respectively. Hotel EBITDA flow-through was strong at 142% driven by the business interruption income we reported during the quarter.

Despite 3.9% decline in total hotel revenue, hotel EBITDA increased by $2 million or 5.3% with margins increasing by almost 300 basis points. In addition year-to-date hotel EBITDA flow through was robust at 125%. Each are following earlier this year on April 1, positively impacted April results.

in addition corporate transit demand remain strong, with growth accelerating during the second quarter. This quarter's best-performing assets in terms of comparable RevPAR was the Courtyard San Francisco downtown. The hotel completed the initial phase of its guest room renovation early in the second quarter on April 15th.

The guest room renovation represent the first major milestone in our project to rebrand this property as an autograph collection hotel.

In order to rebrand as an autograph, we plan on going back into the guestrooms to do construction, primarily modifications to the bathrooms from September to December 2018, followed by smaller installations in 2019 that will not cause displacement.

So far year-to-date guest satisfaction scores have more than tripled relative to last year due in large part we believe to the superior room product we now offer.

Coupled with a favorable comparison related to the Moscone Center closing last year, these new rooms have configured into the hotel growing comparable RevPAR by 27.2% this RevPAR growth was comprised of great growth of 13.6% and occupancy growth of 11.9%.

This robust RevPAR growth resulted in the properties increasing market share relative to both competitive set, and the upscale and above San Francisco [central] (Ph) market by 17.3 and 18.1 percentage points, respectively.

Year-to-date comparable RevPAR increase by 11.4%, representing increase relative to its competitors and the upscale and above San Francisco central market of 10.3 percentage points and 7.5 percentage points respectively. The strong performance of the hotel by doing incentive management fees increasing by $719,000 during the second quarter.

Despite incentive management fee increasing, hotel EBITDA margins still increased by 286 basis points, resulting in a 1.1 million or 39.8% increase in hotel EBITDA.

Among completion in the fourth quarter of 2019, the rebranding will have added three additional keys, a neighborhood centric restaurant concept, an open and live and public space and an entirely new building envelope.

The continued strong results fuel our excitement regarding the future conversion of this hotel to the autograph collection and we have yet to see the full impact of the Moscone Center reopening which is on-track for December 2018.

In addition to the outstanding performance of the Courtyard San Francisco Downtown, I wanted to briefly mention that another top performing at Courtyard Philadelphia Downtown Group comparable RevPAR by 7.3% during the second quarter with 5.1% occupancy growth and 2.1% rate growth.

This RevPAR growth represents 5.7 and 5.1 percentage point increases in RevPAR relative to the property’s competitive set and the upscale in about Philadelphia market, respectively. Group in contract room nights increase 1400 and 900 room nights, respectively relative to last year helping to drive 92.1% occupancy during the second quarter.

The hotel revenue increased 10%, resulting in hotel EBITDA growth of 9.6%. The second quarter results are the continuation of a strong start to 2018 for the Courtyard Philadelphia Downtown.

Year-to-date comparable RevPAR has grown 13.8% representing increases in share relative to the upscale and above Philadelphia market and upscale change in the Philadelphia CBD of 7.9 percentage points, and 6.5 percentage points respectively. Hotel EBITDA flow through was 58% with hotel EBITDA increasing by 1.4 million or 24.5%.

Similar to the Courtyard San Francisco Downtown the continued strong performance of our Courtyard Philadelphia Downtown has us excited for a future as an autograph collection hotel. One item to note during the quarter was the performance of the Ritz-Carlton St.

Thomas which continued to experience the aftermath of the impacts from hurricanes Irma and Maria posting a 56.3% comparable RevPAR decline during the second quarter. Through our business interruption insurance, we were able to report $5.2 million for the second quarter.

Our risk management group and the [indiscernible] management team is a true differentiator when it comes to peers in the industry and the work and expertise continue to be highlighted through the Ritz-Carlton St. Thomas recovery process.

Our teams are working diligently on the remodeling including recent visits by the senior team to assess the model rooms, they have been built and finalized the selected materials and furnishings.

Additionally non-recovery related lease or gas are already returning to the property and is again available on the Marriott central reservation system as the non branded St. Thomas Great Bay resort with limited room stock.

Permanent roof work is underway and guestroom building work is expected to start in September 2018 with the expectation for renovation completions in October 2019 when it will be reopened as the Ritz-Carlton St. Thomas Marriott central reservation system.

As we continue to conduct insurance funded work and book business interruption claim proceeds we are also able to successfully obtain benefits from Marriott including favorable owners priority treatment on our capital expenditures, and other operational and capital benefits. In addition to the ongoing recovery at the Ritz-Carlton St.

Thomas, I’m happy to say that we reported $190,000 and business interruption income to wrap up our Napa Valley wildfire claim for Bardessono and Hotel Yountville. Sticking with our Napa Valley properties, we are beginning to realize revenue and expense synergies we underwrote one year ago when we acquired Hotel Yountville.

Second quarter comparable RevPAR for the hotel grew 5.9% representing increases of 13.5% percentage points, and 7.1 percentage points relative to its competitive set and independent Napa Valley hotels respectively. Hotel EBITDA further grew with 96% and hotel EBITDA increased by $225,000 or 14.5%.

As Richard mentioned we are excited to welcome the high quality Ritz-Carlton Sarasota into our portfolio which we acquired on April 4th. Sarasota is a high growth market and the Ritz-Carlton which is comprised of the resort beach club and golf club is the only luxury chain scale hotel in the market.

With no luxury change scale hotels in the market pipeline, we see long-term growth potential; however in the near-term a sizeable amount of upper upscale supply have recently entered the market or is in planning or under construction.

While the near-term supply growth will certainly affect RevPAR, we expected its impact incorporated it into our underwriting and pricing in the hotel. Beyond the expect to supply growth impact may experience historically high rainfall in conjunction with tropical storm Alberto over Memorial Day weekend.

As expected comparable RevPAR decline during the second quarter coming in at negative 8.5%. However EBITDA flow through was strong at 78%.

The hotel was able to drive profitability in a number of ways during the second quarter by increasing golf revenues, by implementing programs to realize utility savings, by reducing administrative costs as well as by increasing resort fee to $5 at the beginning of June. We are also developing plan to increase gold membership and add additional room.

In addition, we are pleased to announce the completion of the Sofitel Chicago Magnificent Mile. $13.9 million guestrooms and corridor renovation on May 1. All guest room soft goods select case goods 55inch TV, locally inspired art work and new automated window coverings were included in the renovation.

Despite only realizing the benefits of the renovation for a portion of second quarter, totals hotel revenue grew 3.3% and hotel EBITDA flow through was strong at 107%, hotel EBITDA increased 362,000 or 11.3%, we are excited for continued strong performance going forward with the new rooms products. I will now turn to capital investment.

During 2018, we will continue to invest in our portfolio demand competitiveness. In total we estimate spending approximately $65 million to $85 million in capital expenditures during the year.

This will predominantly be comprised of the strategic acceleration of capital project, to limit displacement, specifically at a quarter at San Francisco while the Moscone center remains under renovation as well as 0.4 additional many of the enhancements at the Ritz-Carlton St. Thomas, while the resort in under renovation.

Additionally this include work related to the Courtyard San Francisco and Courtyard Philadelphia conversion to mange autograph collection.

Additionally, we have identified highly creative of opportunities to add additional keys within our portfolio, specifically we will be adding seven additional rooms in the Park Hyatt Beaver Creek and a three key Presidential villa at Bardessono Hotel. This concludes our prepared remarks and we will now open the call to your questions..

[Operator Instructions] We will take our first question from Bryan Maher with B. Riley FBR..

Hey guys this is actually Matt on for Brian.

Just looking at the key west assets, what was the drop on occupancy primarily attributable to?.

Well the market has been a little slow to recover still from the hurricane and so we have a decline in some of the small wedding group business, some we can business as well.

As well as, I mentioned on the call or in the prepared remarks, the impact to Ritz-Carlton Sarasota from the tropical storm that was at the end of May, that impact in key west as well. So during the summer time there is lot of drive to business and so there was quite bit of cancellations over more than we can..

Okay great and then turning to the 22 acre plot that you guys acquired during the quarter. What has been considered as the long-term plan there, or is there anything that you can share with us about what you guys are considering..

Yes, when we acquired that plot, it was in the final stages of being entitled for a residential development that would include approximately 100 condominiums. What we are in the process of figuring out now is the financial feasibility of that plan, but then also looking at other plans that would generally have a residential component to it.

So, once we are completed with that analysis - much better idea as to what is the right way progress that project..

Okay, thanks.

And then last one from me is, can you just give some color around the current acquisition environment and any opportunities that you are currently seeing?.

Sure. We are staying actively involved in assessing the market, I think given where we are capitalize we are at our leverage target at the moment, we are more evaluating and seeing what is out in the market versus actively pursuing opportunities. I would say that it’s something that comes along that is undeniably a great investment opportunity.

We would look at it pretty hard, but at the moment we are just assessing what is out there..

Great. Thanks..

Our next question will come from Michael Bellisario with Baird..

Good morning everyone. Maybe a question for Jeremy on the CapEx side, just kind of high level related to San Francisco, but also just kind of budgeting and the process on CapEx. How much do you guys pre-pay, pre-fund.

As you guys are thinking about projects, how do you mitigate the risk of labor costs going up, labor shortages and then the material cost increases that we have seen just kind of the your view around how you budget and what that risk for certain projects as you evaluate them?.

Yes, that’s a great question.

We have our affiliate private management group that does - has tremendous on experience, decades of experience of renovation work, which as you know is contemplated to be acquired by Ashford and so there is a huge benefit having that strategic relationship, we just have a tremendous amount of construction knowledge and expertise.

To your question whether or not we actually pre-buy asset, I mean that is very rare for us to do and the reason why and is because we go through a full model room process, design process with the brands and but as soon as that process is done we do buy our assets.

I mean, we have great track record of securing the best pricing, we go through all different types of markets to secure that and so we have done a good job of mitigating those costs and I think we have always had really good competitive pricing on our renovations.

With the two autographs what we did is, we built in quite a bit of contingency in the numbers that we shared with the public markets and we have price escalations in our budget.

So there is a tied edge that you are seeing in some labor and some markets, but we have seen very competitive bidding and had a lot of interest in our renovations and so I don’t see a huge risk of those two renovations. One thing I will note is on Philadelphia, we have elected to pull forward a little bit of additional CapEx.

One of the things we negotiated as part of that renovation is that we would not have to do carbon to guestrooms and the corridors with very limited work in the corridors.

And the issue with that is that we would just be back in the rooms a couple of years later which would cause additional displacement and which I was comfortable to do, but we were able to negotiate some favorable treatment on pulling forward that CapEx which creates basically an ROI component on that renovation.

So we will have a little bit of pull forward CapEx, but we haven’t had anything that is really incremental to our capital budgets at this point and I could tell you that I’m very excited about those repositioning, it was one of the thing that I probably work the hardest on and my career with Marriot is to commence them on a plan here.

And everything we are doing from a position standpoint, from a branding standpoint, from a design standpoint, for transitional standpoint of really moving that asset up, both assets up. It is well ahead of my expectation. So we are very excited about it.

And I’m very confident that we are going to get very competitive pricing on the renovations as well as minimize as much as we can the displacement with both hotels..

That’s helpful and then switching gears on the enhance return funding program that trust announced a few weeks ago.

The question is why haven’t you proceed something at our num, something similar and then I guess what would give you over a hump to setup a similar arrangement especially if you are kind of looking at acquisitions, but you need kind of a homerun or triple to get across the finish line to push leverage higher, doesn’t that funding program maybe get you there?.

Yes. It’s a great question and it’s something that we are certainly open to having, we haven’t rolled it out. So as these things go, the process for implementing the program involves establishing independent committees for both entities, for what was already announced the case of [indiscernible].

So that is a little bit of a process, but it is true that that is a very favorable arrangement for the REIT. The market also responded very favorably towards it and it allows the REIT to generate outsize returns on their investments. So it’s something that is worth considering for bringing more as well..

That is all from me. Thank you..

[Operator Instructions] Our next question will come from Chris Woronka with Deutsche Bank..

Hey good morning guys. Want to ask you about the two in Philadelphia and San Francisco the two courtyard conversions.

At what point do you kind of - are you able to begin, I guess selling those whether it's kind of back channel Marriott or front facing to kind of see if that initial responses for the higher rate is in the range that your underwriting?.

We are still working out that full plan with Marriot, but typically it’s a few months before and we will announce that you have full branding and all the upgrades, but we typically wait closer to the opening of the hotel.

Now one of the things that we have is a benefit that relates to group, we are able to share with them the room in San Francisco which are already mostly done and the vision that we have with Philadelphia.

So from a group perspective, we are going to be doing that now, essentially the benefits of the up branding, but as you know changing demand is generally on average just three weeks out, so it’s something that we kind of wait closer to the actual conversion of hotel.

But we will have a full branding Press Release, PR campaign around it and we have done this in the past with other renovations and it’s been very, very successful for us..

Okay great and then, Jeremy a follow-up for you.

If we look at the portfolio on a whole, should we be thinking directionally less renovation impact next year on the whole or more is it possible to just kind of lessen your thoughts on that?.

Yes I think obviously St.

Thomas is going to be under heavy renovation where we kind of split that out and run that up through our business interruption, but the major renovations are going to be San Francisco and Philadelphia and maybe I should just kind of walk you through just so you know of understand what components of those renovations and how we are facing that.

We have already done the rooms at San Francisco and there are some bathroom work that we need to do as part of that rebranding but it’s very limited bathroom work. So we are going to be in the guestrooms, its currently contemplated through September of this year through December of this year.

But it’s only going to be one four out as what we are looking at a time and the churns are ranging only from five days that rooms will be out to as many as 15 days and that’s only two floors that are 15 days. So most of them are going to be out for five to 10 days.

And so we anticipate pretty quick turns, in the third quarter and forth quarter for San Francisco and then we go into the public space and the public space is going to be pretty impactful as well as the exterior of the hotel, but we plan to phase that and limit as much for the guest experience as possible, we have got good track record to doing it as well we call stealth renovations.

But the good news is that it’s not going to have any displacement for guestrooms, we will have some limited go backs into the guestrooms, but that’s not mainly going to be some pieces of furniture that will have to go back and come back into the guestrooms. So not really taking them out of service. So, San Francisco should have very limited rooms out.

And in Philadelphia, we will have rooms out and that basically will be completed in the second quarter of next year. And so, from a renovation perspective, I would anticipate that we would actually probably be equal to maybe a little bit less next year to what we have this year.

And we have - some favorable comparisons in some of the markets where we have had a lot of natural disasters in [indiscernible] and Key West and even with the lack of snow in Beef Creek..

Okay that’s very helpful. Maybe question for Richard.

You mentioned you are kind of at the leverage target, a, are there any hotels remaining that maybe following to a non-core position, you have gotten rid of most of the ones that you initially identified and the second question is just thing to leverage target is that basically on kind of the current trailing kind of EBITDA number a forward EBITDA number, just because you have so many moving pieces as we look out the leverage kind of naturally decline.

So how do you guys kind of define it?.

Yes so, I will take the second question first. We define our leverage target as 45% net debt to gross assets, and that was the strategy that we announced I guess in January of 2017 and worked to maintain that and so we are right at that target level now.

In terms of are there recycling of capital is your question and are there other non-core assets in the portfolio. At the moment we haven’t identified any others as non-core. I think there would be two reasons we would need something non-core that the RevPAR was significantly lower than the portfolio average and if it was not a luxury asset.

We have some abrupt scale assets that are relatively high RevPAR from being abrupt scale and contributing a significant amount of EBITDA to the Company now namely Marriot, Seattle, Capital Hilton and Hilton Torrey Pines.

So despite them being not technically luxury chain scale, those are assets that we very much have optimism down and are very big contributor to our financial performance. So that is a long way of saying we have not identified any other non-core assets at the moment, and don’t have any plans to sell any the assets in the portfolio at the moment..

Okay. Very good. Thanks guys..

Tyler Batory with Janney Capital Markets has our next question..

Thanks good morning.

So I got few question here for Jeremy, you called strong corporate in the quarter you know any general observation on what you are seeing with leisure travel?.

Yes. I would say that corporate demand was stronger in the quarter than leisure, but we saw growth across all of our segments all of the channels with exception of wholesale and discount, which is great, as well as we had a slight decline in our group for the quarter as well.

But a lot of the group declines were specific to certain properties and in most cases we hope to back fill it with higher-rated transit demand. So I think overall, pretty robust for our portfolio and the weakness we are in the challenge that we would like to see some declines anyway if we have strength in other channels..

Okay great that is helpful and the can you talk about your group pace epically for 2019..

Yes. They are never going to close exclude St. Thomas because there is so much noise with that hotel being under renovation, but group pace is very healthy for a portfolio really starting in Q3 of this year continuing on to Q4. So Q3 of this year was up 4.2%, Q4 is up 14%.

2019 is up 8% for the year, but its predominantly up Q1 through Q3, because Q1 is up 12%, Q2 is up 9% and Q3 is up 18% and then the fourth quarter is down 8%, part of that is because we have a very strong Q4 of this year, but the good news is that the further out is generally better for us, because we have much more time to address this pace deficits.

But overall, 2019 is very, very healthy and its comprised of the Q1 to Q3..

That is helpful and then last question for me. Can you talk a little bit about Chicago, I’m just kind curious your view on that market long-term, obviously you guys completed that renovation here on May 1st. I mean how much of a lift do you think you could get in the second half of this year and into next year just based of that renovation..

Yes. So I would anticipate this [indiscernible] is going to outperform Q3 and Q4 of this year, we are pretty bullish with tailwind of that renovation, as well as change out with the core management, a lot of the key team members and we are very, very pleased with our Director of Sales and property leadership was General Manager.

So I think that hotel is very well-positioned.

There are some challenges in the market, but some new luxury supply in 2019 as well as the general commencing calendar and so those are things that we are still addressing from a group pace perspective, and so there are some need time periods that we are working through with the hotel, but at least for the balance of this year, I would anticipate it to be a strong performer for us.

Long term, I think it’s a great asset and we are very pleased that as part of the integration that the Fairmont leadership in the U.S. North America has taken over, because they have been a lot more beneficial to the over side of property, we really struggled with just the core corporate leadership which was not as impressive as Fairmont..

Okay, great. That is all from me. Thank you guys..

Our next question will come from [indiscernible] from Edison Investment Research..

Yes. Thank you for taking my questions.

Firstly would you be able to comment a little bit on your property tax and the insurance costs, we have seen some uptick in the second quarter, you really mentioned earlier that [indiscernible] placed some pressure on the property side and you might see some cap insurance cost next year, but just wanted to ask you whether there is any additional points to comment on.

And secondly, would you be able to take us through maybe the prospect of incentive [indiscernible] on some of your properties, is there any let’s say potential impact in the coming quarters for 2019 from this part? Thank you..

This is Jeremy. Okay so property taxes were up 16% in the quarter, but what drove that is not necessarily an increase - a huge increase in property taxes it’s the comparability, because in the second quarter of last year we had some major property tax refunds and adjustments where we have big settlements that ran through the P&L.

And so I think it’s from a comparability statement it’s a little bit out of sync, but it’s something we continue to be pretty aggressive on buyback and we are seeing some escalation in that area.

On insurance, we completed our renewal I gave a range and we are on the high end of that range, so I think that is a 30% to 50% we were actually a little bit higher than 50%.

So I was very disappointed with the renewal pricing that we have for our portfolio, we are actually contemplating maybe even reprising our portfolio now that the market is starting to see a lot more demand given that it’s settled down a little bit from the impacts of all catastrophes last year.

But it was a really, really, really tough renewal process for us, but we are able to increase our coverage in certain areas and so it's something that I would anticipate that overtime our insurance costs will continue to come down.

What you typically see is the industry will have a bad year and the pricing is very difficult in that first year, but it generally comes down in years two and beyond and so I would anticipate that that to be a savings on a go forward basis after we transition out of that renewal period.

Regarding incentive fees, I would anticipate the San Francisco's performance, therefore incentive fees to continue to increase for our portfolio, because they were adversely impacted last year with the renovation that we had and the [sconing] (Ph) center being under renovation as well.

And so the decline and performance of the quarter in San Francisco last year we actually had a big decline in incentive fees where that is coming back as property performs and outperforms.

So one of the things I think is important for the analysts and investors to know is we did negotiate some favorable terms as part of the rebranding on or incentive fees for both quarter at San Francisco and quarter at Philadelphia, but those won’t come into play until after the completion of this renovations and so on a go forward basis long-term I expect it to not be as much of a factor as what it currently is for both of those assets..

Okay. Thank you that is very helpful..

At this time this does concludes our question-and-answer session and I would now like to turn the call back to management for closing remarks..

Thank you all for joining us on our second quarter earnings call. Please be on the lookout or save the save for our Investor Day that we plan to host in New York City in October and we look forward to speaking with you again on our next call. Thank you..

That does conclude our conference for today. Thank you for your participation..