Please standby. Good day, everyone. And welcome to the Pebblebrook Hotel Trust Second Quarter 2013 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Raymond Martz, Chief Financial Officer. You may begin, sir.

Thank you, Lisa. Good morning, everyone. Welcome to our second quarter 2013 earnings call 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 risks and uncertainties as described in our 10-K for 2012 and our other SEC filings that could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements that we made today are effective only as of today July 26, 2013 and we undertake no duty to update them later. You can find our SEC reports in our earnings release, which contained reconciliations of the non-GAAP financial measures we use on our website at pebblebrookhotels.com. Okay. So the good news is we have another solid quarter to talk about. We are very pleased with our second quarter operating performance which slightly exceeded our expectations. Same-Property RevPAR for the total portfolio climbed 6% to $195. This is at the top-end of our outlook for RevPAR growth of 5% to 6%, primarily due to strong business and leisure transient demand and better than expected performance in many of our West Coast properties. In addition, we continue to see steady inbound international demand which benefits many of our hotels given our high concentration of high-quality hotels in many urban getaway locations. Our overall same-property RevPAR gains in the quarter came primarily from growth in rate. Our 6% RevPAR increase was driven by 4.4% increase in ADR, our occupancy increased 1.5% to 86% demonstrating the pricing power in the portfolio and a very higher occupancy levels we’ve already achieved with majority of our markets above higher peak occupancy level. As a reminder, RevPAR…

Thanks Ray. So as Ray said, the second quarter was another terrific quarter for Pebblebrook. We benefited from a solid quarter of industry fundamentals and an ability to drive our performance through the high occupancy levels of our properties and our markets. When we look at the second quarter's overall industry trends, performance continued to be driven by strength in transient travel, both business and leisure. Demand in the U.S. rose a healthy 2.1% in the quarter and with little supply growth at just 0 .8%, industry occupancy grew another 1.3%. This provided a foundation for ADR to grow a healthy 3.6%, resulting in a RevPAR increase of 5% to 13 straight quarterly increase in industry RevPAR of 5% or more. At Pebblebrook, our West Coast property significantly outperformed our properties located along the East Coast. RevPAR at our hotels located in Seattle, Portland, San Francisco, West L.A. and San Diego grew 11% in the quarter with occupancy up 3.3% to 84.8% and ADR climbing a very strong 7.5%. On the East Coast, excluding Affinia 50, our properties in Boston, New York City, Philadelphia, Washington DC, Buckhead and Miami grew RevPAR by 3.2%, with occupancy up 1.3% to an even stronger 89% yet ADR increased just 1.9%. If we look a little more closely at the individual markets and their performance in the quarter, it highlights the ongoing fundamental strength and better psychology of the West Coast cities compared to the East Coast markets. On the West Coast, RevPAR in Seattle’s CBD increased 10.6% in the second quarter. In San Francisco's urban market, RevPAR climbed 17.1%. Hollywood, Beverly Hills market [6.6%], Santa Monica 6.8% and downtown Portland 15.1%. San Diego, the one-weak market on the West coast was up just 1.1%, struggling with less attractive convention calendar in the year…

Thank you, sir. (Operator instruction) We’ll take our first question from Bill Crow with Raymond James.

Hey. Good morning, Jon, Ray, everybody. Jon, could you address, this low what we've seen over the last six to eight weeks and in particular maybe dive a little bit deeper into the Group business, what you're seeing in this as the driver for some of the weakness, you may not necessarily be seeing but we certainly are?

Sure. Well, Bill, I think, the low seems terribly familiar with the low that we had experienced last year from July through maybe November. Whether it’s based upon the political activities early in the year, the fiscal headwinds, it’s -- in total it's hard to say. But it just continues to reflect I think the bumpy recovery that we continue experience in the economy, particularly as we’ve seen economic growth in the first half and particularly here in the second quarter to be pretty week. I think its being probably more impacted by Group than it is by transient travel. And I think the Group at least in our view likely reflects three negative impacts this year. One of which is and I think we've spoken about it since late last year. We have a weaker overall convention calendar in the U.S. in 2013, compared to ‘12 particularly in a lot of the major markets. So I think that that provides a certain difficulty from a comparison perspective. The second negative impact is government. Government has instituted lots of new rules about how they have -- how they allow meetings, how meetings get approved and who has to approve them and there are significant reductions in overall spending for meetings as a result of cut backs in overall government spending across the Board and as a result of sequestration. So we’re seeing, we believe likely a significant cut or reduction in government meetings in the D.C. market. We think anecdotally it's about 50% and probably a bit less than that on a national basis. And the third, I think negative impact on Group is this sort of low in or slowdown in growth in both corporate profits in the first half of this year, as well as the growth -- slowdown in the growth of corporate revenues. And so we think that’s restraining some -- some Group’s spending on the part of the corporations and continue -- and we continue to see restrain on the part of corporations as it relates to high spend incentive travel meetings and sort of [royal rock] culture meetings and we’ve stated previously, we don’t think that’s really going to change until we see more competition for people in those key industries such as the financial industries.

And with all those headwinds, I think you said second half Group bookings are up 5 plus percent in your portfolio, I think in your prepared remarks. What is that trend been doing, have you seen more cancellations than additions or is that is there upside in that 5% number or where do you think that goes?

My guess is it might go down some, Bill, we’ve seen probably slightly weaker shorter term bookings. Certainly in the second quarter we did than what we’ve seen previously, particularly beginning in May and June. So I think it might go down a little bit from the numbers that were at, particularly on the occupancy side and you can see by the strength in our transient numbers that, that’s clearly making up for the overall numbers. So we still feel pretty good about the second half of the year and I think, perhaps others are -- others who have a broader reach in the industry. We can probably give you a little more guidance on the overall outlook because I think we have. With such a small portfolio, particularly small number of sort of Group focused houses, I don’t think we’re particularly representative of the industry.

Yeah. Fair enough. One final question for me, this 4.2% increase in operating expenses, I think contributed 20 basis points to the rise in property taxes from California? Is that sort of 4% number a good way to think about next year or are you staring to think about healthcare cost or other issues that might bump it up from there?

Yeah. It’s a good question. I think, we -- our view is we think of sort of core expense growth at around 3% and that’s probably higher -- made up of a higher percentage in labor and benefits and a lower percentage in other. Now those expenses will go up or down based upon what happens with overall revenues obviously, particularly growth in non-room revenues and of course, growth in occupancies. Now for us, outside of the renovated properties and probably Zetta in the portfolio, there is not a whole lot of occupancy growth that we’re really driving towards in the rest of the portfolio and you can see that with the 86% that we ran in the quarter for the overall portfolio and I think we had 21 out of -- we’re looking at 21 out of 26 properties in excess of 80% for the year. So I think most of the increase is going to come from rates and other revenues, but there's still lots of cost that come along with that and so we think flow is going to continue to be for those somewhere in the 60% to 70% for ADR and clearly for food and beverage and other, the flow tends to be far less than that because food and beverage is often volume and not the price increases.

Okay. Thanks for the color.

Our next question comes from Ian Weissman with ISI Group.

Yes. Good morning. Just quick question on deals, I mean there’s been a lot of concern in the marketplace, management teams have been getting questions about backup and cap rates, given what the 10 years done, what -- you guys are very active on the deal side, maybe you could just talk a little bit about what you're seeing in cap rates and underwriting, and whether or not investors are changing assumptions at this point?

Sure. I think what we're seeing in the market in general is the opposite of what perhaps the theory of higher interest rates would cause or at least what you’d think it would cause. We’ve seen, we’re driven as much or more by the supply of capital in the industry than we more -- we are with interest rates and particularly in a business and we’re a business that has very strong fundamental growth inheriting it for at least the next few years and so it’s not a fixed income stream that folks are buying which maybe interest rates would have a bigger impact on. So we've actually seen an increase in the amount of competition for deals. We’ve seen greater aggressiveness in the gateway markets from both REITs and private equity. We're seeing even more aggressiveness in properties that have brand or management available as operators or brands hook up with private equity, where there is more capital available and where there is higher leverage available in the debt market, even with what is, I guess, a temporary shutdown or slowdown in the CMBS markets due to the treasury volatility. So we’ve seen cap rates in the gateway markets, particularly the West Coast markets, probably declined by upwards of a 100 basis points in the last 90 days, and in many cases that’s dropping cap rates below 6 -- well below 6. We’ve seen some deals go for sub-5 in some of those markets. And for us it means that we’re going to remain disciplined to achieve the returns that we feel comfortable with, that adds value for the firm and because we already have particularly a heavy representation on the West Coast, we don’t feel any strategic need to add properties and EBITDA on markets that we might otherwise be underrepresented. So, I think, the overall markets and maybe in some of it is a capital coming from other sectors. We’ve seen some interesting players in New York where I would describe them as core institutional investment funds or groups, which don’t historically invest in lodging, have come in to lodging and made investments, and honestly that always scares me when we see core players come into the space because often times they’re late.

That’s helpful. And finally, last question, you gave very good detail on specific markets comparing the East Coast and the West Coast. I imagine that East Coast continues to suffer because in part supply issues to I imagine it’s a bit government related? But if you think about without giving I guess guidance for next year, do you think that that trend can reverse itself next year or would you say that the West Coast will continue to help perform longer-term because of maybe supply is the bigger driver, but do you think that trend can continue next year?

I do, I think it will continue for next year. I think our view is that next year the economies will likely continue to be a little bit better on the West Coast than the East Coast. There's very little to no supply in the West Coast markets arriving next year or the year after. And I think we’ll continue to face supply issues in New York and we have a supply issue in DC for next year with the new convention hotel opening in April or at least forecasted to open in April. I think some of that will be offset by the fact that we have some better convention calendars on the East Coast in Boston, in particular, in DC as well in Atlanta as well. So that headwinds will be somewhat offset by a better group and convention market.

Just given that you talked -- mentioned before about the compression in cap rates in the lodging sector and given some of your concerns that you are addressing, could you see Pebblebrook selling assets over the next 12 months to reposition the portfolio?

Yeah. I don't -- there is this -- we kind of look at things in sort of a buy/hold sell period and forecast out each year we go through an analysis in comparing. I guess, I would describe it as a little like getting an offer you can't refuse to the extent it gets meaningfully out of whack compared to the growth rates and the opportunity particularly for properties where we are fixing operations and physical attributes of the properties that will lead to much higher growth which a buyer might not necessarily pay for. I’d say we’re probably more likely in a whole period particularly more of our perpetual markets and we will look more closely next year at some of the non-perpetual market -- properties and we will be focused on both what values are and what cap rates are doing there and also what supply looks like in the underlying economic environment in each of the individual markets. So we will take a case-by-case review of our assets and it's certainly possible that we might sell particularly some of our non-perpetual assets next year.

Okay. Thanks so much.

Our next question comes from Andrew Didora with Bank of America.

Hi. Good morning, Jon. Good morning, Ray. A little bit of follow up to earlier question on the transaction market. Jon, you -- in the past year's comments it seems like you have been a little bit -- been factoring a bit more risk into some of your underwriting whether it is coming from your increased supply in the New York or maybe some weaker group compression. When you think about how your underwriting properties now or have you started to factor in any sort of recession in your five-year models yet, and I guess, have you changed your cap rate assumptions on your current underwriting much given those future rate expectations?

So, two things, one is, we haven't changed the way we underwrite in general. We analyze the macro environment, the micro market and then the individual property and base our underwriting based upon all of those factors. Two, we’ve wanted to underwrite conservatively with cushion and because we screw up from time to time and things don't exactly turn out the way we think that they are going to turn out in any of those three pieces, the macro, the micro or the individual property, sometimes they take longer to achieve our objectives as well. So, we haven't changed our desire to have a cushion. We have not dealt in a recession yet and as soon as we, do you can expect that, that will just place us out of the market immediately. And then as it relates to cap rates, we’ve been utilizing cap rates anywhere from 7% to 7.5% on the back end. And so I think just as we don’t use marginal cost to capital to underwrite we use long-term cost of capital. We also use what we believe would be, more middle or late cycle cap rates. Although I would tell you that at least in the last two cycles that I have experienced, we never did see cap rates rise later in the cycle as in theory they should as both growth rates decline. And you are much closer to any cyclical downturn and two, interest rates typically go up. So, from our view point we feel comfortable that what we were underwriting is still appropriate for what we are underwriting today and that will lead to, whether or not we win deals and can achieve the spread on our cost -- our long-term cost to capital that will add value for the shareholders.

That's helpful, Jon. I guess, it is kind of why I asked the question because your deal activity has taken a bit of a pause lately. So I didn't know if you were kind of underwriting any -- change your underwriting assumptions at all relative to the next buyer out there. But just in terms of the reason for the pause in your deal activity, is it because of the comp -- the more competition that you were referring to earlier or you are just not seeing the types of assets in the markets that you are targeting like you have seen in the past?

No, I think the volume of opportunities in the market is similar to what it was in the second half of last year. So there is a reasonable number of properties we have a interest in, in the gateway markets. I would say our success rate has declined on particularly competitive transactions due to the competition and the way others are underwriting. And look we don't -- the interesting thing about our space is, what our view of the future is in a market or for an asset maybe very different than somebody else. And so we may be wrong, they may very well be more accurate and it may turn out that we were too conservative and maybe we should have been willing to pay more on transactions, only time will tell. The one thing we can look at with the way we underwrite compared to what’s going in the markets as we can look at how are things occurring with the assets we have already bought compared to what we have underwritten. And while we’ve been exceeding what we have underwritten it, it’s not by a monstrous margin. And so as a result of that we feel good that we’re being appropriately conservative. Our stance at least by our underwriting and again, similar approach, we think we’ve seen unlevered IRRs drop into the loan lines for gateway properties. And given the environment in where we are in the cycle and the fact that cost of capital is likely, at least marginal cost to capital is likely to have risen for other folks. We think that is pretty aggressive and generally unattractive from our viewpoint.

Thank you. That's helpful. One final one from me, kind of changing gears a little bit, just on the Delfina asset, maybe give us a little bit of background on how you came about to choose the Le Méridien brand over any other brand or even an independent brand. Did Starwood offer anything to you here in order to stay within their brand family?

Sure. So when we bought that asset, if you recall what we said was the franchise agreement was going to be up in the fall of 2013 and so later this fall. And we would analyze a multitude of scenarios from keeping it at Sheraton to rebranding it to making it independent. And what we told you is exactly the same conversation we had with Starwood. And so as really over the last 12 months as we finished the renovation there, as we've been able to see how the property performs in the market, where it’s successful, where there's opportunity. We really came down to two scenarios that we looked at, that we analyzed in great detail and compared. And one of those was making it independent which were small brand which obviously we feel comfortable with and two, upbranding it with Starwood. I think we came to the conclusion that that property in that market as a Sheraton is just leaving too much on the table from an opportunity perspective and upsize perspective. And so, we ended up comparing Méridien, which we ultimately selected to independent and I would tell you that it was a very, very difficult decision. The numbers are very, very close. Their benefits of both, there are risks of both and where we ended up was with Méridien. And we did not analyze other brands and in fact that was a discussion we had with Starwood that based upon the relationship we had, we really didn't want to pit them against other brands. We just feel like our relationship with our existing brands and operators in our existing situation is too important to us. And so they were either going to win it as Méridien or they were going to lose it as an independent and so we ended up with Méridien. In terms of in terms of the arrangement that we negotiated, we had alternatives. So you can come to your own conclusions about what that means, but we feel very good about the overall transaction and any opportunity to really take advantage of what we think there is a lot of upside in a very strong market where our rate is $80 to $100 lower than properties a couple of blocks away, obviously closer to the Beach, which making Méridien doesn't get us any closer to the Beach. But I think it does provide in the market a view of an upper upscale brand versus the view of an upscale brand which Sheraton represent.

Okay. That’s great. All from me. Thank you.

We’ll take our next question from Jeff Donnelly with Wells Fargo Securities.

Good morning, guys. Ray, I got to say though until now I never realized that Bryan Adam song was really an anthem for our shareholder family corporate postures. So thank you for that. Actually, Jon, like to stick on the Sheraton Delfina. I’m just curious, do you expect much disruption from that conversion and I know often times when we see upbranding you see increase in rate, what is that going to do to expense load in margin by going more upscale with that hotel?

Yeah. I think, there are, we are going to spend some dollars obviously to make a conversion. The good news is, it’s not that much considering, we just spent $9 million renovating the property with the idea that was going to, it would continue to be an upper upscale quality property with high design and high style, probably a bit inconsistent to some extent with what Sheraton represent as a brand. And that’s part of probably what was limiting some of our upside as a Sheraton. So the cost will be slightly higher. Although, again, we’ve been running it as really a four-diamond quality upper upscale hotel, there really isn’t a material change in cost base and in fact in some cases there are fewer services. We don’t need to have a separate club room for Starwood guests and the costs that go along with that which were an obligation of the Sheraton brand but not of the Méridien brand. From a disruption perspective, Jeff, it should be fairly small as a result of any physical changes what we are doing is primarily signage, artwork, a few changes from an Affinia perspective and then probably the most significant work would relate to making improvements to the bar off the lobby, which is a separate space. And so, I think the disruption would relate more to just the change of flag and the good news is, it’s in the Starwood system. We do do a lot of Starwood loyal guests business at the hotel. We do a lot of corporate. A lot of corporate accounts at the hotel in that Santa Monica market and so we think that business is likely to stay. We may lose some Sheraton core customers but hopefully overtime we’ll replace that with much higher paying Meridian or upper upscale customers.

I think the other bigger benefit is…

We have this wonderful set of meeting space including a ballroom on the top of the hotel with terrific views of Santa Monica and the Pacific Ocean. And I think, unfortunately, the high-end Santa Monica in west end markets, Sheraton just isn't the brand of choice for weddings in Bar Mitzvah/Bat Mitzvah, and so we think the change to Méridien along with the improvements we already made in terms of upgrading the quality of that space should help drive significantly more food and beverage into the hotel.

And you mentioned how the rate stacks up again some of the beachfront hotel, if my memory serves me correct, I think there is only the Starwood products pretty much Westside over in Santa Monica, I think like the W Hollywood, I think is one of the closest hotel. Do you think it’s relevant in terms of how you price off of them. I mean how do you think about where you can ultimately end up?

Yeah. I think one of the considerations in staying in the Starwood system versus -- certainly versus any other system and/or make it independent is exactly what you describe is, they have little to no representation in that market. And obviously they were, it was very important to them to maintain distribution in that marketplace. So it’s a -- was certainly a big factor in the consideration and certainly some of the bigger pluses, particular when you think about a brand like Méridien, which doesn't yet have the recognition in the U.S. perhaps that certainly has brought.

And just maybe switching gears to build on, maybe the prior line of questioning is, I think going back a few years, maybe summer of ‘06 you would call for sort of about peak in the lodging side that ultimately prove timely. If you to look into your crystal ball for this cycle, can you predict when you think you’ll make that same call again, when you are going to start underwriting recessions into your, underwrite -- putting it underwriting performance.

It's much harder in this cycle so far and our sense is, this is going to be, this will continue to be a slower recovery and the economy is likely to, because of that, probably see a longer recovery and so the macro to us seems like it's more likely to be, more similar to the to prior cycles before the prior the two we just experience. So more like the ‘80s and the ‘90s where we saw more like a nine-year economic cycle versus 2000 and into the 2010s where we saw more like six-year economic cycle. That’s the macro and obviously the one thing we learned with 9/11 or the financial crisis is there are events that could shorten that. And those are pretty impossible to predict. The micro side, you know, we certainly bounced off the bottom of supply growth as an industry and it obviously varies by market. But in general, we’re seeing a slow growth in supply coming back into the market. We think it too will be stretched out for some period of time particularly since it really isn't supported in a lot of markets yet by the underlying economics. But we think we’re likely to get to a point of neutrality between demand and supply by 2015, at somewhere around 2% supply growth, 2% demand growth. If the economy is better, ‘15 will end up being a continuing year of occupancy growth but we certainly think ‘14 is going to be strong, ‘15 should be very healthy and ‘16 and beyond really depend upon how the macro plays out and how the capital markets for new construction play out.

How do you think that is it a run your balance sheet from this point and run your acquisitions, do you -- maybe step back from doing the acquisition redevelopment story so that you can allow some of the assets to season and like your debt-to-EBITDA to naturally or organically delever to that point?

Yeah. I mean, I think you’re seeing that Jeff and that our acquisition volume has sort of continued to come down from the early years of Pebblebrook and the earlier years in the cycle. We do tend to get more conservative with our growth outlook and when others don't, we tend to lose deals and we’re good with that. There's -- we'd rather be general buyers in the early part of the cycle, in the first half of the cycle than the second half of the cycle. And so you're seeing the result effectively occur as a result of our view on risk and growth and where we are in the cycle. And I think from a balance sheet perspective, we’ll continue to run the business very conservatively from a debt level and will add the extra juice for the large amount of growth we have already in the portfolio through 2015 with the perpetual preferred that we've layered over top. So we have -- we're sort of playing -- our approach to this strategically is but we’re buying properties that have a lot of growth. We’re not paying for that growth. Assuming we can execute and fix and improve these properties and improve their performance, we’re going to drive very significant growth in top line and bottom line and that will lead to very significant growth in valuations due to the bottom-line improvement. And we want to lever that more than the risk involved in debt through the additional perpetual preferreds. So when you look at us on a debt-to-EBITDA basis, we’re at the low end of our peer group. When you look at us as debt and preferred, we’re in the middle of the peer group may be at the upper end of the -- certainly the more conservative REITs because we have so much value creation in the opportunity, we want that to go to the existing shareholders. And we can do that through the extra leverage from the perpetuals.

On this, maybe one last question, you talked about Group earlier in your comments. And I think the folks at Starwood yesterday were saying the Group -- your corporate demand seemed to be shifting towards smaller meetings, away from some of the big corporate gatherings. Is there an investment case to be made for small group hotels similar to those run by (inaudible). What’s your attitude, I guess, towards acquiring hotels, maybe like those, like the Skamania or the deal you once did in the prior life time at Santa Cruz?

I guess I would generally say that we know we view there to be more risk in properties that have more group in the long-term. And well I don't know that the trend that you just mentioned is a secular trend. Our view is consistent with our view that that a lot of this group won’t come back until later in the cycle and when there's a lot more competition for people and companies need to put on those larger cultural meetings and the higher-paying incentive group travel. So our view is more risk with the big hotels. They are more complicated. They have more food and beverage components, particularly in the urban markets. While the food and beverage is interesting from a revenue perspective. Based upon a lot of the union arrangements in those major markets, you really don't make any money, in fact, you can lose money. You can lose significant money on food and beverage, even banquet business in the major markets. And so we feel like we’re kind of in the sweet spot. There is a price we’ll pay for those assets but we haven't -- we haven't been successful. And the other view at least on the big properties is we have such great diversification within the portfolio. We don't have any single asset that is going to dramatically swing or put at risk the performance of the portfolio. And so we tended to, for risk reasons shy away from some of the larger assets that have been on the market. In terms of small -- small properties with Group, I mean, that sort of where we are in our portfolio.

Okay. Thank you.

We’ll take our next question from David Loeb with Baird.

Good morning. I wanted to just ask a little bit about pricing power and confidence in rate setting. What do you think changes that particularly in the East Coast for the next year?

I think more economic activity and less fiscal noise.

So do you think, the government issue is a big part of that or do you think?

Yeah. I do. I think the noise out of DC, their continuing uncertainty while less compared to what it was. There was a period in the first quarter running well into the second quarter where there was perhaps a lot of hope and excitement about tax reform as an example. And it seems pretty clear to us, based upon the increasing partisanship that's gone on that, the likelihood of anything happening in tax reform, was probably declined dramatically in the last 90 days. I mean, just look at the inability to get something so helpful and so pragmatic done in terms of immigration that’s a nonpartisan issue in general. It’s just amazing. So you know our sense is that you’ve got this fiscal drag for this year and certainly you have some drag from the sequestration impact on the overall budgets that will run through the first four months of next year. It seems to us that as that drag declines, economic activity is likely to pick up. And that should lead to more in corporate investments, more growth and more certainty on the part of the corporate America.

And how do you see Group broadly impacting pricing power?

You know it's interesting David because we really have -- we have properties -- quite a few properties in the portfolio, where -- because our transient rates are so much higher, because the markets are running in such high occupancy that unless Groups are willing to pay the rates that were -- that we’re looking for that we can get from alternative demand, we’ve just not taken it. And so I think, it really varies by market, clearly to the extent we see growth in demand from Group. I think that will have material impact overall on pricing and it will build a base for those who don't have it, that right now are out there competing in the transient markets.

Okay. That's very helpful. One more, Miami, you said the CBD was up 4.3 in the quarter. That seems a little later than what it’s been doing, anything specific you see going on there?

There isn't anything specific. I mean, you have this bumpiness in the economic growth in Latin America, particularly in Brazil where I think their forecast for economic growth have moderated. And I think all of that more modest economic growth in Latin America impacts travel into Miami, in particular. So, while there is still healthy growth, it just moderated a little bit. And as we get into the second quarter and then into the third year, where we run generally lower occupancies, than we do in the first quarter, you just don’t have the same level of pricing power in that market that you have in the first quarter as an example.

Okay. Great. Thanks.

We will take our next question from Wes Golladay with RBC Capital Markets.

Hey. Good morning guys. Looking at the acquisition market we did notice that you guys had a $3 million deposit and I was kind of wondering what you are looking at, will it more of a core acquisition that you are seeing or a value add or maybe a full turn, such as at Zetta?

We are looking at a hotel.

Okay. I guess for modeling purposes, any idea there or …?

We have always said just because of a relationship with sellers and the lack of a 100% certainty on potential acquisitions that in general, our view is we’ll let you know, what it is when we buy it. And we’ll give you all the detail about it when we do buy it. But you should presume it, it continues to be in the markets that we’ve targeted, in the markets that we have been buying and we continue to look for properties that have upside.

Okay. That's helpful. Now you mentioned that you are turning away Groups in some markets, has that expanded beyond San Francisco?

Yeah. I would say, again, it will depend on seasonality wise. So in markets like Seattle or Portland, where the transient rates in season can be significantly higher than Group, that will be -- we are making decisions to trade off our Group for transient in those markets in season. We have been doing it in LA, particularly at the W in Westwood where we have cranked up our overall occupancies because of the strength of the market into the mid-to-upper 80s. And again, the Groups are unwilling to pay what we can get from transient customers. And so our Group is off meaningfully at that property, not that it’s a huge piece to begin with but it’s probably off at least a third potentially a half this year. And it’s all conscious on our part. It's just about taking business and revenue managing in a way that’s going to give us the best performance.

And looking at -- you guys had strong EBITDA growth across the portfolio, are you starting to get near, well you have to pay incentive fees for your hotels?

Not really, I mean, we have gotten into incentive fees at two properties, actually one; one was just was incentives from the day we bought it with an existing management arrangement and the -- we’ve only one of the properties that we have acquired that have moved into an incentive fee basis and it's because it’s way, way far ahead of underwriting.

Okay. And (inaudible) has one quick question for you guys?

Hey Jon. Your Denihan investments have been pretty significant and as such has a big impact on EBITDA, just a question how do you look at, booking or getting people to come to those hotels, I mean, in New York, it is easy to get occupancy but how do you get people to come or increase brand awareness to kind of boost or get the RevPAR index to its highest level?

It really comes down to hiring the right people who understand how to get business. We have this funny thing in the business, we call these people sales people. And for many of our branded properties, they tend to be order takers as opposed to sales people. So for our small brands, our independent properties, it’s really about PR. It’s really about direct sales. It’s about the internet and getting exposure on the internet which has really leveled the playing field versus the big brands. I mean, the research that a customer can do today, the information they can get not just from our websites but from TripAdvisor or from YELP or from Expedia or any of the sites that people look for third party reviews, customer reviews, customer photos. All of that tends to eliminate uncertainty on the part of the travelling customer and a willingness to if you will, maybe take a risk that’s no longer a risk and go to properties that they are not familiar with, if it’s not branded. So, what we find over time is particularly in the urban markets, people are already coming to those markets. You don't need the brand to attract people into the market. We just need to get the business that’s coming to the market. And we feel, we have been doing this now for 20 years on the independent side and the small brand side and what we find is that, we can be as competitive or more competitive and we could do it at lower costs and that means we make more money per key which means we have more value per key and we have full flexibility to spend our sales and marketing and PR dollars as we wish. We are not stalking corporate programs, we are not stalking things that won't help us. We don't have to do things physically that we don't think is in the best interest of our property or our customers which would otherwise need to fit and be consistent across the brand. So, we feel very comfortable with both. And I think the decision we made in Santa Monica is a good example where we could have gone either way. It was pretty much a wash. I think a little better opportunity with Méridien in the market than independent but we were very comfortable going as an independent property.

And whether it’s a branded property or not branded property, it is ultimately really critical to use the right management team in place to the property. And that’s what we have always focused on in particularly the Manhattan Collection, half the general managers within the six hotels are new general managers that have a done a good prudence and good themes and made some improvements there. So we are going to do a lot of changes. We are very encouraged with the direction but this is all -- crossover hotel, that’s one of the things we always spend a lot of time focused on the management team at the property level.

Okay. Thanks.

We’ll take our next question from Lukas Hartwich with Green Street Advisors.

Thank you. Hey, guys. Jon, Pebblebrook has been around for about four years now. And I am just curious helping to play it out versus your expectations. Is there anything that surprised up along the way?

Yeah. A couple things Lukas, one is, I think we were able to accumulate a larger number of assets of higher quality in overall better locations in major gateway markets than what we’ve saw it and what we’ve told people when we went on our road show for the IPL back in December of ‘09. So, clearly, we’re much more excited about the quality of the portfolio. Second, I think, we were able to find properties with even more opportunity than what we’ve thought both off-market and on-market and with more upside that we could execute on. And so the kind of value creation opportunity is greater than what we thought would be. And then, finally, not something that’s played out differently is, while we underwrite on in unlevered basis and we had a certain view off the debt and preferred capital markets when we went public. Those markets have turned out to be much more attractive than what we thought when we went public. And therefore, we’ve been achieving the unlevered returns that we talked about on the road show were better, but our levered returns are better than that and better than what we thought they would. So, we’re really excited about the way it’s played out and we think there is just great opportunity within the portfolio for several more years.

Great. Thank you.

And there are no further questions. I would like to turn the conference back to our speakers for any additional or closing remarks.

Thanks, Operator, and thank you all for participating, and as our song says we are here for you if you have questions, and so please feel free to give us a call if you have further information you are looking for. Otherwise, we look forward to talking with you and reporting next quarter.

And that concludes today’s presentation. Thank you for your participation.