Greetings, and welcome to Apple Hospitality REIT Fourth Quarter and Full Year 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Kelly Clarke. Please go ahead.

Thank you, and good morning. We welcome you to Apple Hospitality REIT’s fourth quarter and full year 2018 earnings call on this, the 26th day of February 2018. Today’s call will be based on the fourth quarter and full year 2018 earnings release, which was distributed yesterday afternoon. As a reminder, today’s call will contain forward-looking statements, as defined by Federal Securities Laws including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance, or achievements of Apple Hospitality to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality’s 2018 Form 10-K and other filings with the SEC. Any forward-looking statements that Apple Hospitality makes speaks only as of today, and the company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, certain non-GAAP measures of performance such as EBITDA, EBITDAre, adjusted EBITDA, adjusted EBITDAre, FFO, and modified FFO will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer; Krissy Gathright, our Chief Operating Officer; and Bryan Peery, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2018 and an outlook for the sector and for the company. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Thank you, Kelly. Good morning and thank you for joining us today. As we begin 2019, the macroeconomic backdrop continues to be relatively strong with healthy GDP growth, low unemployment, rising corporate profits and high levels of consumer confidence despite some political uncertainty in the U.S. and abroad. Although, the hotel industry experienced only modest growth during 2018 fundamentals are stable and we remain optimistic the 2019 will be another year of steady performance for Apple Hospitality REIT. Our performance during the fourth quarter of 2017 related to hurricane recovery and restoration efforts in Houston and parts of Florida created difficult year-over-year comps for us, which were exacerbated by the margin impact of the 2018 Hurricanes Florence and Michael and wrapping new supply in many of our markets. For our portfolio comparable hotels RevPAR declined 0.8% during the fourth quarter and 0.2% for the year. Adjusted EBITDA grew approximately 2% for the quarter and the full year. Through continued strategic mix management and effective cost control measures, we were able to achieve comparable hotels adjusted hotel EBITDA margin of 35% for the quarter and 37% for the full year. Well, within guidance provided at the onset of 2018 and above the revised guidance, above the revised guidance despite revenue challenges. We are incredibly proud of both our asset management and on-site management teams, especially during this period of moderate to top-line growth with continued wage and expense pressures. We anticipate, we will continue to see moderate demand growth in 2019 with property level performance challenged by new supply and continued expense growth overall, including increases in labor costs driven primarily by a competitive labor market. From a capital allocation standpoint, we returned $380 million to shareholders in 2018 and over $1.2 billion since listing through dividends and share buybacks. While…

Thank you. As Justin mentioned, the fourth quarter 2018 was challenging from a comparison standpoint, due to elevated hurricane related demand in late 2017. During the quarter, we also experienced a net positive impact from demand associated with the 2018 hurricanes and to a lesser extent the Boston area gas explosions. RevPAR excluding the markets affected by these events was 130 basis points higher for the quarter and 20 basis points higher for the year. In 2019, we estimate that the headwind from hurricanes Harvey and Irma, should materially subside by mid-year. Elevated demand from Hurricane Florence will boost first quarter results. But along with the fourth quarter benefit from the Boston area gas explosions, will create a headwind in the fourth quarter and benefits of Hurricane Michael recovery business in Panama City should continue throughout the year, leading to an expectation for a slightly more favorable comparison in 2019. While the impact of the government shutdown is difficult to quantify, it weighed on January results. Our January comparable RevPAR declined almost 1%. Aided impart by a more favorable super bowl comparison and Valentine's Day shifting one day for, February results have improved with RevPAR increasing in the 2% range through the first full three weeks of the month. Market performance continues to vary across our geographically diversified portfolio. Many of our Sun Belt markets are benefiting from increased population growth due to their warmer climate, strong job growth and relative affordability. Our east south-central region RevPAR grew 4% in the quarter with several Alabama markets benefiting from multi-year manufacturing and government projects. Our Phoenix and Tucson markets continue to perform well with a solid outlook in 2019 including additional benefit from the ramp of our Downtown Phoenix Hampton Inn and Suites, which opened in May 2018. Our Pacific region…

Thanks Kristian and good morning. Summarizing some of our results for the quarter and year. Total revenue was $295 million an increase of 2% from the fourth quarter of 2017. For the year total revenue was $1.3 billion an increase of 30% from 2017. Adjusted EBITDA was $95 million in the fourth quarter and $449 million for the full year of 2018, both an increase of 2% from the same periods in 2017. Modified FFO per share was $0.36 per share flat compared to the fourth quarter of 2018 and we were down 1% to $1.72 per share for the full year compared to 2017. Consistent with our normal annual spend, we invested $71 million in capital expenditures in 2018, we anticipate spending $80 million to $90 million in capital expenditures in 2019 but slight increase due to a planned renovation at one of our 3 full service hotels and completing anticipated property improvement plans related to two of our 2018 acquisitions. We finished the year with $1.4 billion in outstanding debt was a weighted average maturity of approximately 5.2 years at an average rate of 3.7%. The availability under our credit facilities totaled $231 million at the end of the year. Almost 75% of our debt was effectively fixed rate with the weighted average rate of 4% at an average remaining term of 4.4 years. Kristian just been touched on it, but in addition to the revenue disruption, we did experience additional cost in the quarter related to hurricane Michael. some of our hotels in hurricane's pass have main storms insurance deductibles due to their location. As a result, we incurred approximately $900,000 in the fourth quarter to remediate and repair the affected hotels, which represented 30 basis points of the 50-basis points margin decline in the quarter. We…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Hi. Good morning, guys. This is Kiso [ph] calling for Austin Wurschmidt. With respect to the portfolio disposition, you mentioned the 9 assets under contract will still be stood at similar multiple as 75 cap rates. And I'm curious, if you are still actively marketing the remaining 7 assets that were in your original 60 assets portfolio?

Good morning and thanks for joining us. Yes, that is correct. We were able to refine the 9 assets that are similar multiple to the initial deal. And we continue to explore opportunities for other assets within our portfolio, including the balance of that portfolio.

Okay, awesome. And then also one more question. With the stocks of $16. How much buyback capacity do you have relative to your leverage targets? And would you consider buying back stock prior to the closing of the portfolio sale in February?

Good question. So, from a capacity standpoint, we have more than enough capacity. We have $360 million approximately available under our share repurchase authorization, and we have roughly $200 million immediately available on a line of credit. Our expectation would be that future share repurchases would be funded with proceeds from disposition in an effort to preserve our balance sheet. That said, should we encounter a situation like we did in the fourth quarter, where there is a massive displacement. We have a flexibility to act near-term using our balance sheet and then to pay down the debt with proceeds from sale at up point at some point in the future.

All right. Awesome. Thank you.

Thank you.

Our next question comes from Anthony Powell with Barclays. Please go ahead.

Hi good morning everyone. Another question on disposition. So, what caused the original buyer to reduce their commitment. And have you seen other buyers come in with interest in this space especially given the thickness between public and private market evaluations.

So, I highlighted in our last call that this particular buyer like many of the buyers that we've interact with responded to reverse increase was relatively new to the space. And this transaction for this particular buyer with the larger transaction and the buyer had done in the past. We've resized the portfolio to be a better fit for the buyer and this buyer's capacity with the intention that upon successfully completing this transaction we might pursue additional transactions with them in the future. The makeup of the subset of the portfolio is fairly similar to the broader portfolio. The average age of the portfolio that we currently have under contracts 14 years we have RevPAR for that portfolio approaching $75. The remaining assets to the assets that we're pulled are slightly younger about a year younger and have about $10 more in RevPAR. But otherwise, relatively similar in terms of geographic distribution. As I highlighted and response to your earlier question, we continue to explore opportunities for the remaining assets as we look at opportunities with other assets in our portfolio as well.

Thanks. And last year there was a big hope or expectation I guess that you would see timings and expect to start in this space decline given higher interest rate cost and higher labor cost. Did you see that the spend you expected? And are you seeing a bit more of a pickup in those metrics this year as connecting cost I guess come back in line.

It's a good question. We haven't seen a material change at least beneficial change in terms of the cost structure for these deals. We continue as you know to underwrite for our own purposes the number of development deals and have seen construction cost driven by labor and the cost of raw materials and land continue to go up. So, we haven't seen that major change there. The most notable pattern that we've recognized as we've looked at this quarter-to-quarter and year-over-year is that there is a meaningful -- between pipeline and anticipated deliveries and what we actually are seeing delivering in our market. And so that could be a 100 to 200 basis points variance. And what we are finding is that it's taking longer for projects to get completed even once they're in the ground. We've experienced this first hand with our Home 2 project in Florida. And have seen it with other projects in markets where we anticipate a project will come online long before it actually ends up getting delivered. And that's the most consistent trend. As we highlighted in our remarks, we continue to anticipate that, and the dynamics driven modestly by continued cost increases and the slow growth within the overall economy will overtime produce fewer new hotels. But right now, there is a meaningful pipeline and it's taking longer for those deals to be delivered. And as a result, we think there will be continuing supply coming online for the next 12 to 18 months before we begin to see a noticeable decline.

Got it. And maybe one more for me, I mean Hyatt is assuming sort of it's -- operating at higher place. And I believe they're resulted in some of RevPAR volatility that was -- at the fourth quarter. What's your view on that process and how does that impact your view of the brand going forward?

So, Andy sorry I’ll just start it are you talking about the high place or Jacksonville performance for the fourth quarter?

Just the Hyatt place serve with branded general I believe exchanged some of their food offerings.

Sorry, I missed that. Okay. So, in terms of the Hyatt place product the Hyatt place in order to grow to strengthen their loyalty program actually made a change that for those who book directly and that are rolled of Hyatt members they’re able to receive guest or complimentary breakfast before it used to open to everyone. So that should result in two additional benefits, number one is that it should hopefully grow, and we are monitoring that increased loyalty members and increase direct bookings which then reduces distribution cost. And the second impact of that and it can be really upon Hyatt place at this particular moment, we’ve looked to acquire - we look forward to applying more but the second benefit of that is a favorable reduction, a slight reduction from what we’ve seen and talking to our operators so far. But a favorable reduction in complimentary cost as well.

Great. That’s it from me. Thank you.

Thank you. Thanks for turning up.

Our next question comes from Bryan Maher with B. Riley please go ahead.

Yes, good morning.

Good morning, Bryan.

Justin you alluded to in your comments very briefly the potential for portfolio transactions on your part on the acquisition side can you give us a little bit more color as to what the scope and scale or something like that might be?

I appreciate the question really, I was speaking to the likelihood of them happening from our perspective of the disposition side rather than the acquisition side. As we’ve highlighted in direct response to your question is, we’ve highlighted in past calls we continue to underwrite both individual assets and larger portfolios. What we’ve down given the size of our portfolio is to-date we’ve been far mark active efforts doing individual assets which complement our broader portfolio then purchasing larger portfolios given pricing and then disposing of the assets that are who could fit in the friction cost related to those types of transactions have made them less desirable for us. That said, we’ve highlighted over the past several calls the fact that we continue to receive inbound increase from private equity buyers looking for small portfolios of asset that dynamic continues to exist, and we feel reasonably good about the portfolio we currently have under contract and our continued to explore similar opportunities with other potential buyers. That said what we found or have found is that the interest of private equity buyers in our sector is somewhat correlated to the performance of hotel REIT stocks and when we saw the massive trade downs in the fourth quarter across that the public markets that spooked private equity buyers and for a period of time inbound increase declined with some stabilization and continued strength in the debt market. We’re seeing that stabilizing and that on top of the fact that what we’re seeing in the markets in terms of available assets is a significantly greater number of assets similar to the types of assets that we would be looking to sell and or buy. And we think that bodes well for the market finally freeing up after a number of years been relatively quiet.

Thanks for that and maybe a question for Krissy and I really appreciate the details that you gave us on your labor cost. But can you just kind of share with us where your operators are sourcing new labor in such a tight labor market we see across the country?

Absolutely. For a particular portfolio, contract labors still remain a small percentage of our overall payroll dollars. It’s actually less than 10%. In certain markets, we are finding with the hospitality industry having so many open positions that we do need to use contract labor. But for the most part with our individual operators, they're using the traditional online resources, whether it'd be different indeed – different of online sourcing models as well as in many cases they've actually increased the HR resources internally and, in some cases, have hired internal recruiters to go out and source the additional labor. So, then one of the main things that we are making sure that we're doing which is helping with increasing associate retention and ultimately reducing turnover costs is making sure that we're regularly surveying the market to make sure that we're paying competitive wages. And that -- in doing that, we're finding that we're able to fill positions faster and we're also able to increase associated satisfaction.

Thanks. That’s all for me.

Thank you for joining us.

[Operator Instructions] Our next question comes from Michael Bellisario with Robert W. Baird. Please go ahead.

Good morning, everyone.

Good morning.

Just on the one-off acquisition front, can you maybe give us a little bit of background on the St. Paul transaction and how you source that and then also how you're thinking about balancing acquisitions and buybacks with your investment capacity and disposition proceeds today.

Certainly. So the St. Paul acquisition is with always developed by a group that is sold a large number of hotels to us and that currently manages a portion of our existing portfolio with a group we've had a great relationship with historically and a group that built extremely high quality assets which are uniquely positioned in markets to we think have extended longevity and relevance within those markets. The particular deal gets us into a market where we have not had our presence and the location of this particular project, we think is ideal within that market. As we've look at -- the second part of your question was related to share buybacks and the purchase of individual assets. And, as we've stated in the past, we continue to look at both at the same time and pursue the opportunity that the most favorable for us at any given point in time. As I highlighted in my remarks and in response to one of the earlier questions, given current market dynamics and we see as value in maintaining as a strength of our balance sheet the most likely scenario on a go forward basis through this year is that acquisitions and share buybacks would be funded with proceeds from the sale of assets and given our activity last year leading into this year there's even a possibility and given market dynamics the most likely scenario would be that we would be on the margin net sellers of assets in today's environment. That said, I think what the past couple of years have proven is that the situation can be volatile, and we feel we are uniquely positioned to take advantage of opportunities as they present themselves like the opportunity, we saw in our stock in the fourth quarter. And I think we continue to act when we see those opportunities to drive meaningful value for our shareholders.

That's helpful. Thank you.

I would like to turn the call over to Justin Knight, for closing comments.

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This concludes today's conference. Thank you for your participation.