Raymond Martz - EVP and CFO Jon Bortz - Chairman, President and CEO.

Richard Hightower - ISI Group Shaun Kelly - Bank of America Merrill Lynch Ian Wiseman - Credit Suisse. Bill Crow - Raymond James James Sullivan - Cowen Group Daniel Donlan - Ladenburg Thalmann & Co. Wes Golladay - RBC Capital Markets Lukas Hartwich - Green Street Advisors..

Good day and welcome to the Pebblebrook Hotel Trust’s Fourth Quarter and Year-end Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Ray Martz, CFO. Please go ahead, sir..

Thank you, Lisa. Good morning, everyone and welcome to our Fourth Quarter and Year-End 2014 Earnings Call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, let me remind everyone that many of our comments today are considered forward-looking statements under Federal Securities Laws.

These statements are subject to numerous risk and uncertainties as described in our 10-K for 2014, which we filed last night and our other SEC filings, and could cause future results to differ materially from those expressed in, or implied by our comments.

The forward-looking statements that we make today are effective only as of today February 18th, 2015 and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we used on our website at pebblebrookhotels.com.

Okay, so we are very excited to report, we had another strong quarter and complete another great year for Pebblebrook. The 2014 adjusted EBITDA grew 31.4% or 47.2 million versus the prior year. Our adjusted FFO climbed to 130.1 million or $1.96 per share compared with 91.3 million or $1.47 per share during 2013 representing a 33.3% increase per share.

The strong growth through the year reflects the increased number of high-quality hotels in our growing portfolio and rose the elevated growth rate in the same property EBITDA of our existing hotels which we believe will continue during the next several years.

As we look at our performance for the full-year, our 2014 same property RevPAR was up a robust 9.2% well exceeding the overall industry growth of 8.3%. Our portfolio RevPAR growth was driven by 7.4% increase in ADR and a 1.6% increase in occupancy.

We are very pleased with our portfolio's performance which was delivered despite the negative renovation impact we experienced throughout the portfolio at a number of hotels in our portfolio. Our hotels generated 219.4 million of same property hotel EBITDA for the year with same property hotel EBITDA margins improving 252 basis points to 31.9%.

Total hotel revenue grew 6.8% while total hotel expenses were limited to 2.9% increase. Paid occupied rooms increased by 1.6% and total expenses per occupied room were limited to just 0.6% increase.

The hotels with the highest EBITDA growth rate in 2014 were the 50 NYC, Hotel Zetta, Sir Francis Drake, Hotel Palomar San Francisco, Mondrian Los Angeles and W Boston. Turning now to the specific fourth quarter results, same property RevPAR growth for the total portfolio climbed 7.4% to a $193 which is above our 5% to 6% outlook.

This is largely due to strong demand across all of our market segments including group and transient business and leisure with the specialty group. Continued strength in hotel demand helped to offset the negative impact from several disruptive renovations that commenced in the quarter.

The impact from these renovations, most notably at the W LA, Embassy Suites San Diego, and Radisson Fisherman's Wharf produced RevPAR growth by roughly 190 basis points in the fourth quarter. Overall, transit revenue which makes up about 75% of our total portfolio room revenues was up 6% compared with the prior year with ADR growing 4.9%.

Group revenues which were strong during the quarter increased 11.5% with ADR up 10.9%. Our properties located on the West Coast generated RevPAR growth at 7.6% in the fourth quarter led by our hotels in San Francisco, Portland and Seattle.

However, our West Coast performance was negatively impacted by the renovations at the three properties located on the West Coast. Our properties on the East Coast also generated RevPAR growth of 7.6% in the fourth quarter led by the 50 NYC which was negatively impacted by its renovation last year.

Our hotels Miami and Boston also performed well during the quarter. As a result of these factors, mostly RevPAR of our portfolio increased 10.3% in October, 1.5% in November and 10% in December. Convention calendar weakness on a year-over-year basis in San Francisco and San Diego was a primary factor for November's underperformance in our portfolio.

As a reminder, our Q4 RevPAR in hotel EBITDA results, our same property for our ownership period and include all the hotels we owned as of December 31, except for hotel Palomar Los Angeles Westwood, the Union Station Hotel Nashville and Revere Hotels Boston Common, all which were required during the second half of the fourth quarter.

Our same property numbers do not exclude hotels under renovation unless the hotel is closed during the renovation. RevPAR growth in the quarter was led by Viceroy Miami, Mondrian Los Angeles, Hotel Modera Portland, DoubleTree Bethesda, Hotel Zetta and 50 NYC.

The comparative revenues for the portfolio decreased 3.7% compared to last year as food and beverage expenses declined by 6.8%, underscoring the significant results of retooling and reconcepting efforts are generating. In Q4, F&B departmental profit margins improved by 224 basis points and during 2014 margins were up 258 basis points.

F&B departmental profit improved by $0.5 million and 3.5 million for the year that will understate the total benefit due to increased rental revenue as well as further savings in undistributed costs. This is the favorable trend that we expect to continue into 2015.

When compared to last year, fourth quarter same property total revenues increased 4.5% and fourth quarter same property expense growth was limited to 0.8% resulting in same property EBITDA growth of 13.6% with our EBITDA margin climbing 254 basis points.

The hotel EBITDA percentage growth meters in the fourth quarter were the 50 NYC, Le Meridien, Delfina Santa Monica, Hotel Palomar San Francisco, The Westin Colonnade Coral Gables, Mondrian Los Angeles, and the Sir Francis Drake in San Francisco.

Our EBITDA growth is broad-based as 15 properties grew EBITDA by more than 14% in the quarter compared to the same prior-year period.

Because of the exceptional performance generated by the portfolio within the fourth quarter and the benefits from the select number of acquisitions in the last year, adjusted EBITDA increased 24.7% and adjusted FFO per share climbed 17.9% compared to last year's fourth quarter.

Non-cash G&A expenses were higher in the quarter due to increased accruals relating to our long term performance shares which reflects the better than expected improvement in our hotel EBITDA margins. Now let's shift our focus to our acquisition and capital market activities in the fourth quarter.

At the end of the year, we are certainly very active on the acquisition front, completing four acquisitions, totaling 450.8 million in several high quality hotels with a lot of upside potential.

This included the 157 room Westin Colonnade Coral Gables in Miami for 59.4 million on November 12, and the 254 room hotel Palomar Los Angeles Westwood for 78.7 million on November 20.

Then in December we acquired a 125 room Union Station National Hotel for 52.3 million, followed by the 356 room Revere Hotel Boston Common for 260.4 million which also included an attached 826 space parking garage and in adjacent land parcel.

The three funded acquisitions we successfully completed two equity common offerings, one in September 9, was provided 131.4 million of proceeds and the second on October 30th which raised 146.2 million. We had no ATM usage in the fourth quarter.

In addition to the support we received from the equity capital market, we also increased and extended our unsecured credit facility, upsizing our total loans to 600 million which is now comprises a $300 million unsecured revolving credit facility and a $300 million term loan.

We also extended the credit facility up to 2020 and reduce the overall interest cost on a line of credit and term loan. To put these in perspective, based on our current outstanding balance on our amended line and term loan we will reduce annual interest expenses by $1 million compared with our old line and term loan.

As a result of our capital markets and investment activities during the quarter, at the end of 2014, we have consolidated cash, cash equivalents and restricted cash of 69.3 million plus an additional of 16.7 million non-consolidated cash, cash equivalents and restricted cash from our 49% pro rata interest in the Manhattan collection.

Our balance sheet remains very healthy. At the end of 2014 our debt EBITDA ratio was at 4.2 times, our debt to total growth assets was at a low 32% and our fixed charge coverage ratio increased to 3.0 times.

As of today, we have approximately $240 million of availability on our $300 million credit facility and we have just $50 million in debt maturities which represents just one loan coming due in 2015.

And finally an update on our dividend, as you hopefully noted in our earnings release from last night, due to continued significant increases in the operating performance and cash flow of our portfolio as well as our positive outlook for 2015 we anticipate increasing our quarterly dividend to $0.31 per share.

Assuming approval by our board this would represent an increase of 35% from our current quarterly dividend of $0.23 per share and will be on top of last year's dividend increase of 44%. We expect this increase to commence with our first quarterly dividend which we typically announced in mid-March.

This is consistent with our long-term strategy of providing industry-leading returns to our shareholders including reliable and growing stream of income. And with that good news, I would now like to turn the call over to Jon to provide more insight on the year as well as well as their outlook for 2015.

Jon?.

Thanks Ray. So as Ray said 2014 was another terrific year for Pebblebrook. We completed $627 million of new investments through the acquisition of six high quality hotels located in six different major cities including San Francisco, West L.A., Portland, Boston, Miami and Nashville.

For our portfolio our West Coast hotels, meaning those located in San Diego, West L.A., San Francisco, Portland and Seattle now represents roughly 63% of our forecast of 2015 hotel EBITDA, which should allow us to further benefit from the significantly greater RevPAR growth outlook on the West Coast versus most of the rest of the country.

The stronger East Coast markets of Boston, Buckhead and Miami represent an additional 18% of our forecast of 2015 hotel EBITDA while New York is now forecasted at 10%, D.C, at 4% and Philadelphia at less than 3%. We also grew same property RevPAR a robust 9.2% for the year.

Ahead of the industry's 8.3% growth rate which is the fourth year in a row, our RevPAR growth has handedly outperformed the industry. With same property RevPAR growing 9.2% and with the addition of an average of 34 rooms, room revenues grew 9.8% for the year. Same property total revenues increased 6.8%.

Same property hotel expenses were held to just a 2.9% increase, so the same property hotel EBITDA increased in extremely strong 16.4%. Same property net operating income, which is EBITDA after the assumption of a 4% capital reserve, grew an even stronger 17.9% in 2014.

We mentioned NOI because this is the number typically used in the private markets for valuing properties. With the benefit of the acquisitions made in 2013 and to a lesser extent those made during 2014, adjusted EBITDA for the company increased 31.4% on top of 2013's 31.5% growth.

And with a very well managed balance sheet, adjusted FFO per share for 2014, climbed by 33.3% an acceleration from 2013s 24.9% increase.

We're very pleased and proud of our performance in 2014 and our share holders were rewarded by the market with a total return including dividends of 51.9%, outperforming the Bloomberg Hotel REIT index at 32.5% and the Morgan Stanley REIT index which delivered 30.5%. Our returns also beat the Dow, S&P500and the Russell 2000, which returned just 4.9%.

When we look at last year's overall industry trends performance was again driven by strength in transient travel, both business and leisure as well as strong growth in international inbound travel, the majority of which has been positively impacting our major gateway cities.

Group travel finally improved substantially in 2014 with industry group demand increasing a healthy 4.4%. The group ADR growth improved just 2.9%. Well not as strong as transient growth, it was a vast improvement from 2013s disappointing performance.

Travel in the upscale and midscale categories was also strong for the first time in 2014 as the economic recovery broadened out beyond the socioeconomically.

We also believed demand growth was aided by a new secular trend of a higher proportion of discretionary spend being allocated to collecting experiences often involving travel instead of buying and collecting more stuff. Overall, industry demand grew 4.5% in 2014. Well above demand growth in 2012 and 2013.

With the industry supply growth again restrained in 2014, at just 0.9%., industry occupancy rose 3.6% representing 43% of industry RevPAR growth.

At Pebblebrook At Pebblebrook occupancy climbed 1.6% to a robust 85%, but at such a high level we naturally focused on growing ADR which increased 7.4% representing 80% of our RevPAR growth and also helping with our overall flow through to the bottom line as ADR growth is more profitable than occupancy growth.

Our West Coast markets continued to outperform our East Coast market generally better economies, psychology and underlying operating fundamentals. RevPAR of our West Coast hotels clients 10.9%, while our East Coast hotels increased a still healthy ask .5%.

These trends including the West Coast to East Coast differential to continue in 2015 as New York, DC and Philadelphia are forecasted to again underperform the industry. And San Francisco, Seattle, Portland, West LA and San Diego are all likely to outperform yet.

Our performance in 2015 will be negatively impacted in a relatively minor way by renovations at a number of our properties.

They include our comprehensive renovation and repositioning of Vintage Portland, which we closed in January and which is scheduled to reopen by April; the comprehensive renovation at the W LA with public areas that we just reopened last week and rooms to be completed by April including the addition of 39 key.

Our new leased restaurant at the W STK which is currently under construction should also open in Q2. The renovation at lobby and atrium at Embassy Suites San Diego downtown is just about to complete.

And the comprehensive renovation and repositioning at the Radisson Fisherman's Wharf which is well underway will substantially impact performance through its completion and also the conversion to hotel Zephyr in the latter part of the second quarter.

With renovation of all our rooms in DoubleTree Bethesda is also having a negative impact on Q1 results.

We believe all of this negative impacts we estimate that about 100 basis points for the year and 300 basis points in Q1 is factored into our outlook for Q1 and the full-year With the upcoming renovations later in 2015 at Prescott in San Francisco Westin Coral Gables, and National Union Station, we continue to fill our pipeline with properties that will help us deliver outsized growth in RevPAR, EBITDA and value in 2016 and beyond.

Projects completed in 2013 especially the renovations at 50 NYC, Manhattan NYC, Hotel Zetta, Sir Francis Drake, and Sofitel Philadelphia as well as those in 2014 including Vintage Seattle and Palomar San Francisco provided the further ramp-up in performance that we expect from other previously renovated properties including Westin Gaslamp, Le Méridien Santa Monica and Mondrian LA.

We look at 2014, the benefits of our renovation and asset management efforts are clearly visible on the performance at many of our properties. Here are just a few examples. In 2014 at Hotel Zetta, RevPAR increased 30.6% over 2013, well ahead of underwriting.

EBITDA at Zetta is forecasted to reach $6.3 million to $6.7 million in 2015, just the second full year of operations, which would represent an EBITDA yield of between 14.2% and 15%, are likely value in the ballpark of $900,000 per key, more than double our total investment in the property.

Sir Francis Drake delivered a RevPAR increase of 18.7% in 2014 with EBITDA increasing 47.8% to $15 million, or an EBITDA yield of over 14% on our total investment including all cost of renovation. We believe the property will be valued today by the market in more than 2.5 times our total investment.

Hotel Modera with no physical improvements, but with a very successful collaboration on strategies, tactics and best practices, with our new operator OLS, drove RevPAR higher by 18.6% in 2014, with ADR up 15.4% and EBITDA higher by 24.6%, achieving an 11.6% EBITDA yield in our first full year of ownership.

We would expect the investment market to value Modera at more than 75% above our investment. And we don't believe that Zetta, the Drake or Modera, just as a few examples, have reached stabilization and positioning and performance just yet.

Other RevPAR growth leaders in 2014 included Viceroy Miami at 15.5%, Le Meridian Santa Monica at 14.1%, Mondrian LA at 14%, the Nines and the Argonaut at 12.3%, Monaco Seattle at 11.5% and the W Boston at 10.9%. 16 of our hotel exceeded the industry's 8.3% RevPAR growth in 2014.

Now I would like to take a few minutes discussing the opportunities we see at our 2014 acquisitions. These six properties offer a variety of opportunities to improve performance and drive significant growth in top and bottom lines. First off, they are all located in markets with very strong existing operating fundamentals and prospects.

San Francisco, Portland, West LA, Boston and Nashville, all have market occupancies at 80% or higher, and Miami is closing in on 80%. Several of our properties offer significant repositioning opportunities from redevelopment and renovations in addition to new strategies. Let's start with the most extensive, the Prescott.

We are currently in the process of completing our property visioning exercise. Along with initial designs and layouts and view the opportunity here, just like the one at the property that became Hotel Zetta. We intend to basically got Hotel Prescott, redo it completely, and reposition it up from its current competitive set.

Based on preliminary plans at the Prescott which will be renamed upon completion next spring, we also believe we can add around 30 or 31 keys, an increase of 20% in the key count. We expect our capital investment to total in the $35 million range or roughly $180,000 to $185,000 per key. So these numbers are still very preliminary.

We are currently planning to close the hotel in November and reopen it by the second quarter of 2016. We also plan to reposition higher both the Coral Gables and Union Station National properties beginning later this year. Our intent is to position both properties at the top of their respective markets.

Both will involve the renovations Nashville focused on bringing the room product up to the same level as the incredible architecture and public spaces there. And in Coral Gables we plan to comprehensively renovate the entire property to also bring it up to the quality of its grand historic public spaces.

The renovation in Coral Gables should commence in late summer and be completely in the year and the National renovation is currently planned to commence by year-end with completion in late Q1 next year.

And finally both the Revere Hotel Boston Common and Palomar Westwood offer significant opportunities to reposition these properties higher through fairly dramatic changes in mix and pricing.

There may be some bumps in moving both of these properties significantly higher in ADR while we were out some lower rated customers and segments and shift to finding new customers willing to pay for the very significant value of the respective properties.

But we believe the value creation opportunities at both properties justify any near-term underperformance we may suffer and we believe any negative impact is already built-in to our outlook for 2015.

We also believe there are significant best practice opportunities at these two properties and in fact all six of the 2014 acquisitions, in some renovation and upgrade opportunities as both of Revere and Palomar as well.

So these are more likely 2016-2017 project, as we better understand and learn these businesses over the next years or so before we decide exactly how you want to improve and reposition them. Now let’s turn to our outlook for 2015. As you know, we released our outlook last month and it remains unchanged. For 2015, we are forecasting that overall U.S.

industry demand will increase between 2.5% and 3% with supply likely between 1.3% and 1.5% which again is well below the long-term average growth rate in industry supply. We believe ADR is likely to grow between 4.5% and 5.5%. As a result, we are forecasting overall U.S.

RevPAR grow of 6% to 7% in 2015 and we expect the strong underlying industry fundamentals to continue through at least 2016 based upon what we can see at this point. Please also note that our forecast assumes U.S. GDP increases between 2.5% and 3% this year.

For Pebblebrook, we expect to outperform the industry again in 2015, this time by approximately 50 basis points but we expect our same property RevPAR to increase between 6.5% and 7.5%.

Negative impact to the higher growth built into our outlook include significant renovation displacement and Embassy Suites and WLA in Q1, Rads and Fisherman's Wharf in both Q1 and Q2, similar impact in Q3 and Q4 at our Coral Gables property and some more minor impact in Q4 from what will be primarily room renovations at the Nines Monaco DC, and Union Station Nashville.

We also built in some lower RevPAR growth rate at the newly acquired River and Palomar Westwood as we seek to reposition those properties at much higher average daily rates.

Based upon this level of projected RevPAR grow for our portfolio, we are forecasting same property EBITDA to increase between 8% and 10.7% with our same property EBITDA margin increasing between a 100 and 150 basis points.

With the benefit of our 2014 acquisitions performing for all of 2015, adjusted EBITDA forecasted to increase between 26.5% and 30% and adjusted FFO per share is forecasted to increase between 22.4% and 27.6% with the midpoint right at 25% and we are forecasting that 2015 will be another year of very strong growth in earnings and cash flow on the same property in per-share basis.

Our outlook for 2015 does not assume any acquisitions. However, for the right opportunities we hope to again be active in 2015.

Today, we feel particularly well situated to continue to take advantage of the strong, underlying operating fundamentals of the business as well as amplify them through our renovation, repositioning and asset management efforts.

This should allow us to continue to significantly outperform and deliver strong growth on both the top-line and the bottom-line for the next several years. In other words, sweet dreams for our investors as our song suggests. We now be happy to answer whatever questions you may have.

Thank you, operator?.

Thank you. [Operator Instructions]. We will go first to Rich Hightower of Evercore ISI..

Good morning, guys..

Morning..

Hi Rich..

Very nice results. Congrats on the year. So, I guess we covered a lot of ground in the prepared comments but I have got a couple of questions here. So my first question is on Manhattan.

I know that obviously guidance is unchanged but results have been pretty steadily deteriorating according to the weekly STR data in New York recently and I know a lot of that a tough Super Bowl comp, but what is your look for that market in general, and has anything changed in Manhattan specifically since you issued guidance back in January?.

Rich, our view on Manhattan has not changed for the last 30 days, the last 90 days, the last 180 days. I think we will continue to see supply and moderate slightly from last year we think supply growth which was up in mid-to-upper five last year in Manhattan and will likely be up in the mid-to-high four this year.

We think demand will likely continue to absorb that.

We do have a very difficult comparison in January and February to last year when we had the Super Bowl in New York which while we are still a disappointment for the year compared to other Super Bowls, it was still very good for January in New York and there was also a major citywide in Manhattan in January and HVAC citywide.

So that had very positive results last year on January which don't repeat this year.

So we think Manhattan is still going to underperform, no different than we thought last year and we think it’s likely in the low-to-mid single digit in terms of RevPAR growth for the year, and that’s even with first two months, I think January was down likely in the 15% range in the city and February is likely to be down somewhere in the 5% to 10% range and then March should be up in a very fairly healthy way.

So we haven't seen a change in demand patterns and we continue to see very healthy international demand growth in the market and I don't think we should get misdirected if you will buy the comparison in the last couple of weeks, which involve some difficult performance comparisons..

That’s a helpful color. Then second question, this one is for Ray. I know you mentioned in the prepared comment so you only got one maturity coming up for the remainder of 2015.

But if you look at 2015, ’16, ’17 maturities, I think on a accumulative basis that still over half of the total debt stack today and so, just hypothetically if the downturn were to hit tomorrow where do you see these debt maturities in terms of the properties debt yield and loan-to-value ratios and just want to get a sense of how conservative you guys see the balance sheet today..

Sure. That’s a great question. The great news is environment and things that are all for business. So there is definitely a lot of interest from a very broad range of lenders and CMBS provides us well for the land on the debt side so certainly we are in a great position today from that side.

On the other side, over half of our hotels are incumbent, to be a plenty of opportunities there [indiscernible] 2016 and 2017 we are that side and then on our credit facility which we can upsize another $300 million on the credit line itself with capacity there, if for any reasons the debt market has gone out of whack for any period but our thought is as we plan through our maturities in next several years, you should anticipate that as we refinance or think about financing this year, we will look at some opportunities for seven year or longer debt whether that’s on the term loan basis or CMBS or combination of all that.

That allows to spend out the maturities and then as we get into fourth quarter and we prepare for the refinancing, we will do a similar term loans or CMBS or other and our preference would be in the longer term side so help to establish with debt maturities..

Okay, great. Thanks Ray and then just one more quick if I may, I heard from one of your competitor properties in the West LA market that the West Coast port negotiation delays might impact some of the renovation process, in the area now you have got a lot of properties under the knife this year.

So do you see that impacting your ability to bring these projects in on time, on budget, and so forth or there be risk on that front?.

Good question. There has been impact from the port. We have actually passed that information along to the chamber, the industry and the administration. There tends to be this belief that somehow this only impacts retail and agriculture and it really impacts and also lot of the economy.

So we are having trouble getting some FF&E out of the port on either off the ships or actually off the land after its being unloaded.

In some cases, and this I think applies only to the Radisson Property right now is -- we've been accumulating furniture that we would otherwise have liquidated out of the property when we renovate storing it and then as necessary bringing pieces of that back to fill in where we haven't yet received FF&E.

So it’s not slowing it down in terms of schedule. It will likely, ultimately change the quality of the room that is finished. These are generally minor things like mirrors and some lights and vanities. However, it does make a difference and being able to present the fully completed product, the way we want to present it.

So hopefully that gets resolved, we don’t anticipate finishing the whole project as we mentioned until May. As it relates to our other projects, I don't think there's any impact at the W in LA where we have already finished the public areas and I think 95% of the FF&E is already in place and the rooms I think we have all of the furniture.

So it’s being completed and the Embassy Suites is done with some very minor work to be completed this week and there we have everything.

So at this point, we don't really think it is going to have an impact on schedule, it likely will cost us additional dollars at the Radisson that could be anywhere from a few hundred thousand dollars to five or six hundred thousand dollars, depending upon how many times we have to go back in put in old pieces of equipment, light fixtures, vanities, mirrors, et cetera and then take them out and put them back in, all with union labor upon completion.

So that’s the only impact we see at this point..

Okay. Thanks Jon, I appreciate the color..

We will go next to Shaun Kelly of Bank of America Merrill Lynch..

Good morning Jon. Good morning Ray. I just wanted to ask few things quickly again I think you guys gave great overview in your prepared remarks.

So the first question would be, may be put you on the spot a little bit, if you have to pick one market that you said would be – you think is going to be the biggest outperformer in 2015, curious if you could dig in a little bit on the West Coast and tell me where you think the most – you are the most positive for the coming year and then the second would be on just as a follow-up.

Obviously, the acquisition environment remains compelling, you got a lot in 4Q, curious about where they sort of demand cycle puts you as it relates to disposition a little bit, so if you could just talk about, may be helpful..

The first question Shaun we could make out, I mean in terms of what market might outperform it might -- if I have to pick one I would say Portland. Demand continues to be very strong there. The market moved above 80% occupancy. It had a great January.

It looks already to have a great – it looks like it going to have a great year overall and the market seems to be doing a very good job, pushing rates, from what historically has been relatively lower levels as the market and then and we couldn't quite make out your second question because you were breaking up a little bit..

I am sorry, yes let me try again.

Just curious on dispositions, is now the right time in the cycle to consider those and just your general thoughts on the ability to sale right now?.

Sure.

I think as we've explained in the past, our approach remains unchanged which is this, there is a limited number of properties in the portfolio that are not core, perpetual market investments for us and those properties we watch, we are watching the macro view which we think is being extended out in terms of the economy and the micro view which is what's going on with supply and demand in that particular market obviously with a particular focus on supply growth and so based upon what we are seeing in those markets, supply is coming back, much more slowly in those markets, actually very similarly to the overall industry.

And it's giving a more runway than we would’ve thought when we bought those assets. So, we'll continue to monitor them. Try to pick the right time. We're not going to try to time the top of the markets. In fact we're not even going to get close to doing that.

So, it may be that we sell an asset this year we thought we might sell on last year that didn’t happen and we'll continue to look at that potential opportunity this year as well..

Thank you very much..

We are going to Ian Wiseman of Credit Suisse..

Yes, just a follow up on the prior question. In spite of some fundamental disconnect in New York City we continue to see eye-popping prices paying for New York hotels.

Can you just remind us what your arrangement is or agreement is with your JV partner Denihan and when is the first opportunity to possibly sell a New York asset?.

Sure, if we were to do anything in New York, the first opportunity to start the process is in the summer of next year, 2016. Our rights are that we could bring any individual property, any group of properties or all of the properties, 100% of them to the market for sale..

Okay, helpful. And then just obviously there has been a lot of discussion in the marketplace about the rise in U.S. dollar and the impact on the international travel.

I know we're well ahead of the summer tourist season but any thoughts about your exposure in Miami and New York City and seen any change in international demand?.

Yes. I think overall our view for this year is that we continue to think that international inbound travel or overseas travel if you leave out Canada and Mexico, is again likely to be up somewhere between 3% and 5% for the year, so very healthy levels.

Not as strong as what the first 10 months for the last year which I think overseas inbound travel was up about 7.5%.

We expect an acceleration from actually it’s much higher levels in Asian travel, particularly from China with the change in the visa rules, and with the overall structural improvement going on within visa program, the hospitality being provided at our ports of entry and the efforts made by the administration to ease the ability for people to get visas more easily and more quickly.

So we also see as we monitored what all the airlines are saying, the forecast are for a significantly greater increase and global airline capacity than GDP growth. For this year we expect the airlines to bring people to the United States and fill those seats and to the extent there is pricing flexibility needed there to encourage travel.

We think that's already happening. So, while we don't see fares declining for people leaving the U.S. because demand and supply are in good balance, we do think that there is probably excess supply being added on a global basis for inbound travel.

And that's going to result in lower fares which will help, if not more than offset the change in the dollar particularly for countries that are being impacted by the dollar. So I think Asian travel will be up although we think Japan will continue to be down.

We think Europe will be up slightly, which is really where it has been, where it was this past year, we think Latin America will be up as well though we think Brazil may weaken somewhat. We continue to see a strong growth from other countries in Latin America, particularly Colombia.

And good travel from the Middle East and from Africa despite what's going on in parts of Africa. So we think, international travel is going to be a positive again in 2015. While the dollar has provided somewhat of the headwind, we think it gets more than offset by the secular trends in the structural changes. .

Okay. Thank you. Helpful..

We will go next to Bill Crow of Raymond James..

Good morning guys. My questions were right in line with what was just asked.

So let me try different angle here, any discussions between yourselves in the Denihan about accelerating the opportunity to sell one or more assets given the environment there?.

Well, if there were, we wouldn’t disclose them though. Just as we don’t disclose if we are thinking about selling a particular property or we even put it on the market if there were a transaction to happen we'll let you know when it happens and so we'll just see how things play out.

We haven’t even indicated that we have an interest in selling on a public basis. So, I think it's probably appropriate to move on to another question. .

I can do that.

Jon, do you think you guys will be positioned, do you get enough information to be able to determine if we do start to see weakness in inbound international travel, in other words your management companies, how they are able to communicate that if they start to see it -- say as we get into the summer leisure season?.

Yes. I mean I think they are anecdotally, Bill. I don’t think the data is particularly good. We do look at forward airline bookings into our markets and that data is available. I don’t know how reliable that is at this point, particularly with how short-term a lot of that travel continues to be.

But I think we do have enough data and there is enough different sources at this point that we'll have fairly decent visibility on a change in trend..

Okay and then final from me Jon, it is probably asked last quarter, so I'm guessing there is not much change but any markets that have moved into or out of your kind of perpetual hold markets?.

No, no changes Bill..

Okay. That’s it from me. Thanks..

Thank you..

We will go next to James Sullivan of Cowen Group..

Good morning, guys. Jon, I wonder if you could talk a little bit about the transaction between Kimpton and IHG. Obviously Kimpton is a very important relationship for the company, a company that obviously worked with for sometimes.

And the IHG transaction run to risk I suppose of changing the culture and maybe the pattern of how Kimpton does their business, so I was curious if you could talk a little bit about how you feel about the transaction and what concerns you may have?.

Sure. As you know we have had a very long-term relationship with Kimpton that dates back to 2000s, so 15 years at this point. The company has been very successful over the period of time. We felt like we were fortunate to participate in that. And perhaps even assist in that regard with the success of the company and the brand.

And we had a very good long-term relationship with IHG. So both relationships are positive.

If there had to be a transaction, we are happy it’s with a group that we have a good long term relationship with and who I think based upon conversations, I think understands exactly what you said which is there is a very unique culture, it's very important to the success of Kimpton if you even call it a brand and as opposed to collection of assets.

Their view as we understand it and certainly our perspective is there is nothing broken about it.

And so we’d like to see as little change as possible and that seems to be at least where they are currently in their thinking, probably a better question for them than it is for us from that perspective, but certainly what they have told us is, they don't have plans to make any changes and it continues to be headquartered out of San Francisco.

The people running it are the same people who were running it on an operating basis and they report directly into London and not through Atlanta which is an important distinction I think..

And do you know whether there is any plans that have been clarified or communicated regarding their growth aspirations for Kimpton?.

I mean, I have looked at the public filings, I'm sure like you have for IHG and I haven’t seen anything specific other than in interviews and such they've indicated that they think there is an opportunity to grow it on a global basis and of course that would -- that additional distribution and exposure would certainly be a positive from our view as it relates to the collection..

Okay then, second question from me, kind of following on the question that Bill Crow had.

You bought your first asset in Nashville this year and I'm just wondering if you could chat a little bit about how you feel about some of the regional markets off the coast, maybe there are other markets like Nashville that you're intrigued by where performance has been good and may be the appeal of these downtown markets in some of these regional cities is improving.

Are there any other markets that you're kind of more open to investing and that have some of the similar characteristics?.

We'll let you know after we buy three or four properties and then --.

Terrific. Okay, thanks Jon..

We'll go next to Dan Donlan from Ladenburg Thalmann & Co..

Thank you and good morning. Jon, I was just curious if you could talk a little bit about your urban tracks in the fourth quarter and kind of how that trended in terms of RevPAR growth relative to the MSA.

Do they -- on the margin outperform or what type of clarity can you give us? Because I know the urbans been kind of underperforming the last -- at least in the fourth quarter, but when you take out DC and New York, I think on the full year urban was performing in line with the U.S., so just kind of curious how you're looking at urban now?.

Yes. Our view of urban and its ability to outperform in up periods it hasn’t changed. I don’t have the statistics for Q4 or the full year for our compiled urban markets, but the markets where we're focused in general continue to outperform. But for the markets you mentioned, New York and DC, in particular.

So, we think there continues to be an urbanization moment of residential and businesses moving back into the cities, waiting lifestyles are changing, we think amenities are being added in urban market, we think international inbound travel continues to benefit the urban markets and so we don't see any change in either our viewpoint, our strategy, or our performance that's going on in the markets.

I think it's you point out Dan, I know that Bill Crow put some research out on this in particular. If you take New York and DC out you eliminate the differentials between the industry and the urban markets.

I think that says what we have been seeing in our markets which is the urban markets continue to do extremely well, particularly compared to the Metropolitan markets..

Okay, and then just kind of curious on to supply picture in Portland, it's not in the top 25, so it's not a good data, as you want to pay for it, a lot for it.

So, kind of what's the supply picture look like for Portland over the next two or three years?.

There is nothing under construction in Portland. So the supply picture for the next couple of years looks gray. There have been a few relatively small properties announced from 100 rooms to 300 room curio I think, by Hilton, that are around in the market looking for capital, and who do not yet have it.

So we think deliveries at this point are likely none in '15 and '16 and potentially some point in '17 we might see some minor deliveries.

There's also convention hotel that everyone is well aware of 600 room hotel that Hyatt is committed to do, over across the river next to the convention center which is still on litigation with some local groups and they are yet to start construction.

So we think that construction schedule is likely at least 24 months and may be 30 months there, so at this point we think there isn’t likely a delivery of that hotel in the next three years. .

Okay.

Then just going to the conversion at way from the Radisson, how do you think about the reservation system from Carlson, was that a big driver of demand there or you are just not really concerned at all, just given how strong demand is in San Francisco?.

Yes. And it's really two things. First of all it's not the customer that we expect to have in general upon completion, because we’re positioning this $30 to $50 higher than where it was and is today. So, there is a lot of FITs that comes into that hotel, that’s not delivered by Carlson.

Clearly any major brand reservation system, particularly one that doesn’t have other distribution in the market is going to deliver leisure transient in the market and it does do that.

But the Wharf is running at 85% on an annual basis and the city is running at 85% on an annual basis and there isn't going to be any new supply; none of the Wharf and very limited over the next few years in the city as a whole.

So, we're very comfortable particularly with what we're doing there, driving business in for that hotel, likely we do at the Argonaut down the street and likely do at the Sir Francis Drake which is a bigger hotel without a major brand or flag in any of other independent hotels in the city. .

Okay. Thank you and then I guess just the last one, not sure if this is for Ray or for you.

How should we think about F&B revenues next year? You had a quite a bit of hotels and you assumed kind of the same percentage of room revenues and you get to a pretty big number in F&B, so is there any type of guidance you can kind a give us on may be year-over-year growth or may be the whole year-end portfolio or may be percentage of room revenues or any type of clarity there would be helpful.

.

I think we can probably give you a range and my sense is, it's probably something -- because of all of the things -- well I'll give you a something on a same property basis. But I think it's probably somewhere in the 2% to 3% for the year..

Yes, 2% to 3% is a fair amount for the run rate for 2015, but just remember we have a couple of moving parts though. One is we have the rental income would be going up.

So when you're looking at as we leased our properties to a third party, the food and beverages operation, moving from in-house to out-house -- so you have to look at the change of food and beverage revenues, but we also have to look at the rental income, like if we are getting rental income on that.

And then you also have -- and the reduction of food and beverage expenses which we expect will continue probably down another half a percentage or a percent and a half in 2015.

And then we also have further savings in the undistributed categories because you are going to have credit card commission go down, management fees, and some cases you will get energy reduction because you have the [indiscernible] so, it's small-small cases, and also all of our food and beverage, we are having savings through different means.

Some of our properties were we're releasing it out to third party operators like the W Westwood and some other properties were re-tooling and re-concepting operations.

So the Palomar with dirty habit and some other changes, so there's a variety of measures we're coming to, so there are many ways we think to solve the food and beverage problem depending on the profit in the market and we'll continue to be accretive in finding means to do that..

We will go next to Wes Golladay of RBC Capital Markets..

What drove the huge increase in your volume this quarter at deals done, was it the volume, was it the win rate, or where these you were looking at for a long time and then lastly how much capacity do you guys have as a team for more acquisitions? I know you guys look at a granular level of each property on an asset basis.

So just wondering how much more capacity you have there?.

Yes Wes, in terms of what drove the higher volume; I would say it was a higher success ratio for us. Overall last year, I think we aggressively pursued 11 deals and we were successful on six. So that was much higher than what we were experiencing which was more in our 20% - 25% at most range.

I think part of it was the complicated nature of some of the deals, again some of them were direct relationship and then some of them had to do with visioning and understanding the upside potential that perhaps other people didn’t see at those particular properties.

As it relates to capacity we have plenty of liquidity between our lines, where we could upsize our line, or we could finance on our balance sheet, or we could borrow from the banks and clearly we've made and executed on successfully equity offerings as appropriate to match capital with acquisitions that we make.

So, we don’t view there being any particular number related to "dry powder" if you will as some people might use that term. .

You know I was actually referring to the management capacity.

I know you guys like to add some management and revision of properties and take a lot of time and resource, so just wondering -- you got quite a few properties now and you just increased the buy a lot and get a lot, nine renovations under the Nines this year, so I was wondering from a management perspective?.

Yes, that’s a good question. In the past year we've added an asset manager. So we have five at this point for the 35 properties. We feel like that’s a good comfortable number right now, particularly with one of those being a joint venture of six hotels.

As it relates to senior management we're all actively involved in the asset management and as it relates to the developments we have them. It's really the visioning exercise that takes the bulk of the time and we have those fairly well spaced out and far ahead.

So things like the Embassy Suites, the W, the Portland, the Vintage property, those are all done. They're just being executed now and we have third party project managers who report to our asset managers who we've worked with for a long time over seeing those projects.

And it relates to the upcoming ones, as we mentioned, we're moving fairly well along the Prescott from a design perspective. We actually have designs already for the Coral Gables property and in a couple of months we'll be moving to some visioning and some design on the Union Station and D.C. properties.

And actually the Nines is pretty far along and its design work are ready. So, we're pretty comfortable with the overall level of volume that we have and our ability as a team get our arms around all of the things we need to generate the outperformance..

We'll go next to Lukas Hartwich of Green Street Advisors..

Hey Jon, as an owner I'm curiously concerned about the continuing consolidation of the OTAs. .

I would say to a very small extent, yes. I would say those that are being consolidated right now are fairly small fliers in the industry that don't do a lot of business and aren't a big factor right now in this space, but if it continues, I'd say sure, it'd be an issue.

What we've been seeing to-date, it takes two big players and we have two big players to bring rates down, to bring commissions down, to bring cost down. And from what we can see Lukas, that is continuing this year. And that's beneficial for all of us owners right now. .

That's helpful.

Lastly can you just provide your group pace for the year?.

Sure. We are up about 3% for the year and let me just pull up the exact numbers. So, for '15 we're down 3% in room nights. We're up 6.1% in ADR and we're up 3% in revenue. Now keep in mind that -- so we're down 20,000 room nights, 19,000 of that relates to the Embassy Suites the W, and the Radisson. So, it all relates to the renovations.

Most of it's transient, actually three-quarters of it is transient and it's mostly in the early months of the year when we can't take the business, we don't have the rooms available. So that's lower than we've typically gone into a year. If you took out those properties we've be a in a much-much higher level.

And so, overall we're very comfortable with where we are from a pace perspective. It's in line with what our outlook is and our expectations for the year. And it's in line with the displacement and the negative impact that we're seeing and we forecasted in our outlook. .

Great. That’s very helpful. Thank you..

Thank you..

At this time we have no further questions..

Thank you, operator. Thanks every one for listening, if you're still there or not on the helping call, and sweet dreams to you. We'll talk to you next quarter..

That does conclude today’s conference. We thank you for your participation..