Hotel Industry Discussion on New Hotel Reporting Standards ...

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PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call EVENT DATE/TIME: JUNE 12, 2014 / 6:00PM GMT

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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call CORPORATE PARTICIPANTS Ray Martz Pebblebrook Hotel Trust - EVP & CFO Cindy Braak Marriott International - SVP Finance, Business Partner Christopher Garland Four Seasons Hotels and Resorts - SVP Operations Finance Gina Tallarico Hyatt Hotels Corporation - Deputy to the CEO Michelle Russo Hotel Asset Value Enhancement - President & CEO

CONFERENCE CALL PARTICIPANTS Mary Pierson Viceroy Hotel Group - Analyst Ruby Huang Starwood Capital Group - Analyst Bob Cosgrove InterContinental Hotels Group - Analyst Chris Bybee Kimpton Hotels - Analyst Tim Lay Boykin Management - Analyst Tina Sampson Loews Hotels - Analyst Mark Biondi Host Hotels & Resorts - Analyst Ben Mirig Kimpton Hotels & Restaurants - Analyst Julie Nam Morgans Hotel Group - Analyst Catherine Driscoll Apple REIT Companies - Analyst Paul Patterson Westin Gaslamp - Analyst Antoine Duncan Highgate Hotels - Analyst Catherine Andrews Concord Hospitality - Analyst

PRESENTATION Operator We want to welcome everyone to the hotel industry leaders' conference call to discuss how to implement the 11th Edition of the Uniform System of Accounts. Today's conference is being recorded. I would like to turn the call over to Mr. Ray Martz, Executive Vice President and Chief Financial Officer for Pebblebrook Hotel Trust. Ray?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Thank you, Tiffany. Good afternoon, everyone. This is Ray Martz. Thank you for joining us today to discuss the implementation process for the 11th Edition of the Uniform System of Accounts for the Lodging Industry. Joining me today is Cindy Braak, Senior Vice President, Finance Business Partner for Marriott International; Christopher Garland, Senior Vice President Operations Finance, Four Seasons Hotels and Resorts; Robert Mandelbaum, Director of Research Information Systems for PKF Hospitality Research; Michelle Russo, President and CEO Hotel Asset Value Enhancement; and Gina Tallarico, Deputy to the CEO of Hyatt Hotels Corporation.

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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call The purpose of our conference call is to discuss the implementation process for the 11th Edition, and provide guidance and suggestions for management companies and owners so that the conversion to the 11th Edition is as seamless as possible. Several of our panelists today have led their companies' efforts to implement the new hotel reporting standards. They will be sharing their best practices and approaches to the implementation process. They will provide some details on the challenges that they experienced throughout the process, as well as many suggestions. As a reminder, today's call is focused on the implementation process for the 11th Edition. For specific questions regarding accounting of 11th Edition, please go to ahlei.org. It allows you to buy the book for the 11th Edition. And this also provides you access to frequently asked questions and the ability to ask questions to our committee. In addition, we have another webinar coming up on June 18. And this webinar will be focused on the specific accounting questions related to the 11th Edition. To attend and sign up for that webinar, please go to ahla.com, under the events page. That's for the June 18 conference call at 2 PM Eastern. We have a lot of ground to cover today. So, to kick things off, I'd like to turn the call over to Cindy Braak from Marriott to tell us how Marriott is implementing the 11th. Cindy?

Cindy Braak - Marriott International - SVP Finance, Business Partner Thanks, Ray. At Marriott, implementation of the changes brought about with the 11th Edition really started back as far as March 2011. That was when AHLA and HAMA and HFTP and PKF and STR -- they all sent out surveys to multiple Marriott employees to determine if there was a need to update the 10th Edition. So, at that time, my team took a lead role in identifying and interviewing all of the key stakeholders across the Company to make sure we highlighted all of our concerns, and that we provided a consistent consolidated view. And then, as a result, I believe the 11th Edition does a really great job of addressing our concerns, especially the need to really globalize the book, given its expanded use outside the US. Stakeholders involved are a really broad range of disciplines: accounting policy, asset management, development, feasibility, financial planning and analysis, financial reporting, internal audit, IT, legal, marketing, operations finance, operations rooms, F&B, revenue management and sales. That's a mouthful. Then in late October 2013, I leveraged the presentation that was used to start communicating the 11th Edition changes at the HFTP conference. And I shared it with the team at Marriott that are responsible for our global finance policies and procedures. We met in early November, and we started to create a document to capture all the changes that would impact Marriott. Then, by early 2015, a comprehensive plan had been developed, and we broke it down into four phases. The first phase is what we call plan and analyze. That was pretty much December through May. The second phase was build and test. That's May through November. Third phase is deploy. So, that's September through January. And then fourth and final: monitoring support. So, that starts in January 2015, when all the changes are implemented, through the end of the first quarter. I'm not going to go through all of the details of our work plan, but as you can imagine, impact analysis, communication plan, creating test environments, updating our feeder systems, revising reports, and on and on. So, by January of 2014, finance meetings had started in earnest on a bi-weekly basis working through the detailed work plan. Meetings with key stakeholders outside of finance, particularly IT and revenue management -- those also got started. Marriott's approach to implementing the 11th Edition is to make as many changes as possible, no matter how small. An example would be: walked guest expense is now guest relocation expense. That's the new account description. But at the same time, we want to effectively manage these changes and not take on more than we believe we can successfully execute against. So, given the highly integrated nature of Marriott systems, implementing the volume of changes from the 11th Edition requires significant effort across multiple groups. 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2014 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call The changes the way we looked at them fall into five major categories. The first category: changes to revenue or expense account descriptions, which I mentioned just earlier; lots of those. Second: changes to revenue or expense classification. Third: new revenue or expense accounts. Fourth: department name or financial statement caption changes. And then, fifth, some accounting clarifications. Now, for 2015 budgeting, we evaluated the pros and cons of what we saw as being two approaches. One, the budget -- budget using the 10th Edition, and then restate in January 2015 along with the budget spread; or two, budget using the 11th Edition and provide a bridge document. So, while that first approach enables some easy year-on-year comparison, we thought that would create some issues at the back end in terms of timing and then maybe some final numbers that would change. Therefore, Marriott plans to update the budget model to incorporate the 11th Edition adopted changes. We will then also look to create a high-level summary bridge document that we would then present to our owners to detail the impact of the 11th Edition changes to the 2015 budget. 2014: There will be no restatement of 2014 data in the ledger for the 11th Edition changes. Marriott will develop and implement a reporting tool to bridge between the 2015 reporting under the 11th Edition and the 2014 reporting under the current reporting methodology. In effect, the tools should restate 2014 to be consistent with the 11th Edition adopted revisions. Now, fortunately, Marriott already migrated to the use of customers versus covers two years ago, so we can certainly appreciate the significant change effort this is going to require in F&B for others. The introduction of new revenue segmentation reporting is relatively consistent with our current reporting, albeit not on the face of the rooms department and P&L. Now, the one significant change which Marriott plans to defer until 2016 is the new information and telecommunication systems department. Additionally, there are some elements of the room segmentation reporting and the summary operating statement for which we won't be 100% compliant. However, similar to the new ITS department, we are planning for full implementation in 2016. Communications to our owners are well underway, leveraging our owner relations teams. And then, finally, every hotel has been provided instructions for purchasing the book, and is expected to have it in hand and working on that implementation, which we are very excited about.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Thanks, Cindy. It was great detail on Marriott's approach to the implementation process. Now lets move to Chris Garland with Four Seasons to learn how they are implementing the 11th Edition. Chris?

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance Great, Ray. Thanks very much. At Four Seasons, we began the process in earnest back in January. We really started by preparing an internal document that we call the USALI adoption guide. And in that document, we highlighted the changes in the 11th Edition that impacted how we are currently reporting. We included a list of new accounts that would need to be added to the general ledger and a list of those accounts that would also be deleted. Finally, we created a comparative P&L statement showing the current P&L in 10th Edition presentation in contrast to the 11th Edition. When the 10th Edition was issued, we created our financial statements in 10th Edition format, and then supplemented them with subschedules that we found useful to our internal reporting. We also included a comparison of those subschedules to the new version. The adoption guide was circulated to the various disciplines within our corporate office, including revenue management, marketing, rooms, data analytics, food and beverage, financial reporting, IT, and residential operations and residential accounting. My team met with the decision makers from each of those functions, both to ensure that they understood the changes and to get an understanding of the work that lay ahead for them.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call The three areas that came up as being of most significant change were revenue management and marketing, food and beverage, and financial reporting. The revenue management and marketing team reviewed the new segmentation sections of the USALI, and matched up those categories that didn't change, and then created the new segment structure. We took the opportunity here to realign the market codes they use, which involved getting input from field leaders in marketing in each of the regions in which we operate around the world. They then created an implementation team to guide and drive the changes. Significant time and cost is needed to reprogram the revenue management history, and tie segments back to historical data to ensure its predictive capabilities continue to work. This team is also coordinating the changes in our property management system, ORS, and our business intelligence software. This was also an opportunity for the rooms and residential teams to true-up their market codes for conforming. For us, there's been a couple of significant changes in food and beverage. The 11th Edition removes any discretion on the coding of soft drinks, which the 10th Edition impractically allowed to be either food or beverage depending on the outlet it was sold in. Four Seasons has historically coded soft drinks as beverage revenue, but will now have to change that to food. This was a simple remapping of the GL. However, it requires a menu change in each of our POS systems to capture it correctly. A bigger change in food and beverage is the replacement of cover with customer, which Cindy alluded to a few minutes ago. We have only ever tracked food covers and food average check, so our customer counts will be higher than our cover counts. If we did not change the way we report average check, it would be lower than the historical numbers due to the increased customer count applied to the same food revenue. We have, therefore, determined that we will now be reporting an average check, inclusive of both food and beverage. In addition to that -- this customer versus cover analysis -- our forecasting and budgeting software uses drivers based on covers to determine revenue and waiver costs. For the 2015 budget, we're calculating factors to apply to our historical data to effectively convert the driver from cover to customer. This work is being done at the individual hotels, as those factors are going to be different by location. The third area of major change that we ran into is in financial reporting. The team that created our Hyperion-based budgeting, forecasting and reporting system is working on the chart of account changes and rewriting a full set of reports for the 11th Edition format, with the supplemental subschedules that we use internally included in that task. Although reporting in the 11th Edition is not required until January 2015, this team has to have their reports set and web forms ready for issuance with the budget instructions in August. This will give you some indication of where we stand on budgeting for 2015. It's fully our intention to have a compliant budget for 2015, so we don't have to go back and restate the budget once we've started producing actuals in 2015. The tricky part will be restating or reclassifying our 2014 numbers, so the budget readers have some indication of the impact of the changes. We're working through this exercise now, and believe there's a certain amount of mapping we can automate. However, there will be some that each hotel will need to do manually. Our first instinct is to only restate the summary page. However, we know that we have to go through the full detail to determine the restatement, and, therefore, we've not settled on the final solution to this. Any restatement we will do will be done in Essbase Excel for informational purposes, and will not be done in the hotel ledgers. It was clear to us early on that there would be a lot of costs involved in achieving compliance, particularly with respect to the reprogramming and software systems, the most complex of which were revenue management, as previously mentioned, but also business intelligence and the Hyperion budgeting forecast. We also identified communications in the field as critical to prepare them for the budget season that will be more difficult than usual. I personally have presented the change to every Director of Finance in our Company at regional meetings held in Asia, the US, and the Middle East. In addition, we hired a University accounting student as a summer intern who is preparing educational materials and working on mapping under the guidance of our operations finance group. Finally, we've purchased a hard copy of the 11th Edition for every hotel and every team that's working on the implementation. Hotels will also be allowed, at their option, to purchase the digital version. I hope that gives you a good indication of what we're doing. And with that, I'd like to turn the call back to Ray.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Thanks, Chris. So, we've heard from Cindy at Marriott and Chris from Four Seasons. Now let's turn to Gina at Hyatt to discuss how they are approaching the implementation process, which is a little different. Gina?

Gina Tallarico - Hyatt Hotels Corporation - Deputy to the CEO Thanks, Ray. Hyatt began planning for the 11th Edition implementation in January 2014, with most of the work commencing in early February. To begin the implementation planning process, we compiled a list of changes required, including new accounts, affiliated accounts, account name and mapping changes. Policy and operational changes were also documented. The complete list of changes were discussed at an 11th Edition conference call that was held with key stakeholders within the Organization, including regional finance teams, revenue management, IT, hotel policy and procedures, sales, rooms, and financial planning and analysis. We requested that each of these meeting attendees provide feedback regarding the changes, including the impact to their areas, and any foreseeable challenges with implementation. Following the initial kick-off discussion and review of the feedback we received, we constructed a detailed project plan for implementation, which included assigning each required change to a specific owner and creating a time line of execution for each component. The detailed project plan also included a communication plan to all effective parties, including our colleagues in the hotels, our regional offices, shared service centers, as well as third-party owners and franchisees. Given the highly integrated nature of Hyatt systems, implementing the volume of changes from the 11th Edition requires significant effort. While compiling the project time line, it became evident that system components and personnel resources required to implement the 11th Edition will not be available to make changes prior to the 2015 budget process due to other projects affecting the financial reporting systems currently under way at Hyatt. Therefore, it was decided that hotels will budget in the 10th Edition format, which will enable easy year-over-year comparisons. Hotels will be provided with a reporting tool, similar to Marriott, which will present summary budget information in the 11th Edition format. So, it will be a mapping tool, if you will. It's important to note that not all items in the budget will be able to be restated in the 11th Edition format, including such items as the room segmentation and management and non-management payroll reporting for certain geographic regions. Once the 11th Edition changes are implemented in January, all of the mapping changes will be completed. And going forward, the 2015 budget will correlate to the 2015 actual data, with only a few exceptions. With respect to 2014 history, where general ledger accounts are redirected into new reporting formats, the history will naturally follow. For new GL accounts, there will not be comparable history. We believe that, in all significant cases, it will be relatively comparative year over year. The two most significant changes to Hyatt are the room segmentation changes and the payroll changes. With regards to the room segmentation change, we reviewed the new room segmentation requirements with our revenue management system team to determine the scope of work to be done. All of the transient and group transaction codes in our PMS system will be updated to reflect these newly defined categories. And we will implement these as standard global transaction codes to make the data more conducive for global and regional analysis. Once the numbering was decided upon, revenue management system teams have coordinated with the PMS vendor to develop scripts necessary for implementation, as they will be deployed centrally in certain geographic areas. The deployment of our PMS systems will be beta tested later this summer, with all hotels to follow in the fall. This is the component of the 11th Edition changes that will take the longest time from design to implementation, particularly for our hotels that have stand-alone PMS systems, and will have to update those systems themselves.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call The other significant change which has a large impact on our international property is the management and non-management payroll breakout. With more than 80 payroll systems used in our international hotels, with varying degrees of functionality and automation, these changes will be required to be completed at the hotel level and cannot be deployed centrally. A listing of changes will be provided to hotels, who will work with their local payroll vendors and prepare their systems for updated reporting as of January 1. To facilitate all of these changes, the regional finance teams will be responsible for delivering training at regional meetings to the Directors of Finance. Leveraging a train-the-trainer approach, the Directors of Finance from each hotel will then return to their hotel and deliver these changes to the rest of the accounting staff and leadership team in order to ensure that all colleagues within the hotel understand the impact. The regional finance teams will support the overall implementation and ensure that their hotels are in compliance in January. All relevant 11th Edition content, including communications, training materials and FAQs, will be available on our intranet for quick reference for the field. And with that, I'd like to turn it back to Ray.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Thanks, Gina. So, we've heard how several of the large brands and management companies are implementing the 11th. I'd like to shift the focus and spend a minute talking of how Pebblebrook, as an owner, is approaching the implementation process. We are suggesting to our management companies to budget in the 10th Edition format, and then remap the financial statements to the 11th Edition when budgets are approved in late December or early January. This is similar to the approach that Gina detailed in her review of Hyatt's implementation process. The reason for this approach is: We believe it will be easier to benchmark and have comparable financial statements to review as part of the budgeting process. However, even though we are recommending that our managers budget in the 10th, we are asking them to add the new additional detailed line items required in the 11th Edition as part of the 2015 budget submissions, so that we can have more comparable financial results as we get into 2015. For example, as Cindy, Chris, and Gina have noted in their discussion, the 11th requires much greater detailed reporting relating to labor reporting, information and telecommunications systems, and cluster services. We are asking our managers to budget these detailed line items for 2015. When the 2015 budgets are finalized, we will then remap these line items, so that they are in accordance with the 11th on our systems. We're asking each of our management companies to clearly communicate any line items that they add in their chart of accounts, so that we can map it properly with our master chart of accounts here at Pebblebrook. This is an important step for us because we have 12 different management companies that operate for our hotels, and each one has its own unique chart of accounts and reporting processes. We're not necessarily asking our managers to reclassify revenue or expense items for 2014. But to the extent there are revenues or expense items in 2014 that we have the detail, we would like to have these items remapped after the 2015 budgets, so they are approved in accordance with the 11th Edition, and will have, therefore, comparable monthly financial statements. What we have learned thus far with the implementation process is communication is critical at the hotel and ownership level, and detailed planning is essential. In addition, since we are a public company, any changes in financial reporting will have implications with our SEC reports. As a result, we also recommend that public owners include their auditors early in the implementation process to avoid any surprises. With that, I'd like to turn the call back over to Tiffany to open up the lines for questions. Tiffany?

QUESTIONS AND ANSWERS Operator (Operator Instructions)


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call Mary Pierson, Viceroy.

Mary Pierson - Viceroy Hotel Group - Analyst Hi, Ray. You're not surprised I was the first one to ask a question. Hello, everybody. Hello Michelle, long time no talk to. Can you guys talk a little bit about -- I don't know who would have worked on this, but in terms of the recognition of expense regarding owner splits in rental management programs, what if any discussion was held? And where are we heading with respect to that? Obviously we treat it as cash distribution and don't see it as an accounting expense for purposes of calculating gross profit. But I'd just like to hear from you guys what discussion, if any, was held. And, by the way, I'm really excited about the concept -- and I was just sending my team an e-mail -- I like the concept of continuing to budget in the 10th -- because for us we haven't been working on this since February -- while simultaneously working on the mapping roll up. So, that's great genius, Hyatt, thank you.

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance It's Chris Garland from Four Seasons. We talked about this at great length in the committee meetings and determined that what in reality is happening is you are renting from that owner the real estate that you're using as a hotel room. And, therefore, you record the gross revenue as hotel revenue and the distribution to the owner, whether it be a fixed amount or a percentage amount, as a rent expense in the rent line.

Mary Pierson - Viceroy Hotel Group - Analyst Okay. That's different, obviously, than what's been done historically, because it wasn't clear, as you know, in the 10th. I haven't had a chance to -I've had it close to me but haven't had a chance to spin through it. Is that clearly spelled out, Chris, in the 11th?

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance I think it doesn't go into detail on how we came to that assumption. It does spell out, I think, in the three different categories that are available where you would put the payment to the owner.

Mary Pierson - Viceroy Hotel Group - Analyst Okay, very helpful.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO And, Mary, just to add to that, what we, as a basis for a lot of these determinations of revenue and expense recognition trued off of gross versus net. We went through a couple different examples, depending on the relationship with the vacation or rental or condo unit holder. So, we provided that detail in the book to review. We're not going through those details on this call. But another area we talked about were expenses, recoverable expenses. An example is when an owner is responsible for, say, some of the rooms charges, depending on how that is, rather than having a contra expense account in rooms we actually moved a lot of those expenses below the line to clearly not really disturb the expenses. That's a recurring theme, especially you have these CAM recoverable charges. That was treated below as recoverable because CAM is actually recovery revenue not an offset to expenses. That's another clarification we expand upon in the book.


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Mary Pierson - Viceroy Hotel Group - Analyst That's great, thank you/. And may I just ask one follow-on question which does not have to do with this topic? Smith Travel Research, in terms of understanding revenue treatment, et cetera, in sifting through what we've done -- sorry, in reviewing what you sent over previously, and skimming the books, I feel confident that Viceroy has been very compliant with respect to appropriate reporting of ADR. But I'm assuming that they are going to buy in and adopt and enforce the revenue treatment that we're all going to be held to for ADR in the 11th.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Yes, that's the intent. In fact, we met with [Travel] today just to coordinate the communication of that to other operators and owners out there. Because, clearly, depending on how resort fees are treated, how some of these group rebates are also treated, will have an impact on revenue. So, that's something that we encourage all managers to be compliant with on January 1 because clearly it will have an impact to the RevPAR performance and what companies report.

Mary Pierson - Viceroy Hotel Group - Analyst Thank you.

Operator Ruby Huang with Starwood Capital Group.

Ruby Huang - Starwood Capital Group - Analyst Hello, Ray. Long time no see. I wanted to have you clarify a little bit regarding how we're treating above property owners-related expenses. In the information that was sent over, it appears it's going to show up as a non-operating income, non-operating expense. How does that change from how it was handled before?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO I'm sorry, you broke up at the very beginning about the owner expense, you said?

Ruby Huang - Starwood Capital Group - Analyst Exactly. I had a question regarding where above property owner-related expenses were posted. So, while I was waiting I saw that it is now listed as an other expense under non-operating expense. Is that right?

Cindy Braak - Marriott International - SVP Finance, Business Partner I think to the extent that the books that are kept by the hotel include owner-related expenses -- rent or audit fees -- then we do have that section now called non-operating income and expense. So, that will capture, to the extent it was recorded at the hotel level, would capture those in that section.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call Ruby Huang - Starwood Capital Group - Analyst And that's still under fixed expenses; correct? So, that's not a change from previous version?

Gina Tallarico - Hyatt Hotels Corporation - Deputy to the CEO Generally, yes. The names of the category was changed from fixed expenses to non-operating income and expense. It is still above NOI, whose name changed to EBITDA. But generally, you can still think about it the same way that you have.

Ruby Huang - Starwood Capital Group - Analyst Okay, thank you.

Operator Bob Cosgrove with InterContinental Hotels Group.

Bob Cosgrove - InterContinental Hotels Group - Analyst Good afternoon, everyone. I'd like to ask each of you, who was the designated as the PMO for your company to facilitate this project?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO I think it's the three people -- well, as it relates to the management companies it's the three panelists that were on the call. And that's why we have them here because we thought they offered really the firsthand experience with all of the challenges of the implementation process.

Gina Tallarico - Hyatt Hotels Corporation - Deputy to the CEO Speaking from Hyatt's perspective we also designated an internal project manager full time and one part time person to assist. And then we're leveraging our IT team heavily from a project management perspective.

Bob Cosgrove - InterContinental Hotels Group - Analyst Now, was that person in a global capacity or were they in just Americas region capacity? How did you handle that?

Gina Tallarico - Hyatt Hotels Corporation - Deputy to the CEO They are in a global -- all three of them come from global functions. And the person who is full time comes from our accounting reporting team.

Bob Cosgrove - InterContinental Hotels Group - Analyst Okay, thank you.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call Operator Chris Bybee with Kimpton Hotels.

Chris Bybee - Kimpton Hotels - Analyst Hello. I just had a -- it's not necessarily a question but more of a comment on future editions. It sounds like, for those of us that aren't on the committee, we're left with a very short turnaround time to get this implemented for January 1. But that the committee members have been working on this for their companies for quite some time. In the future, can we share that information with the rest of the hospitality community so we can get a better jump on this?

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance It's Chris Garland from Four Seasons. We discussed that in our committee meeting today, realizing that for those that are just hearing about it now, it is a very short time frame. And made note that for future editions we need to get the word out sooner on implementation dates. The initial industry communication was done by HFTP back in November. And, so, anybody who attended the HFTP Controllers Conference had a head start, as well. But as we know, not everybody attends that, particularly international companies.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO And, Chris, we acknowledge it as, it's certainly late, as being spring now, with seven months until implementation. But the benefit of having the perspective of Hyatt, Four Seasons and Marriott is, along the way, they did make a lot of mistakes and what we're getting now is the benefit and why we thought it would be good to have this call here, is to go through and learn their best practices and how they are approaching it. So that's why, particularly with budget season commencing in the next 30 to 45 days, we thought it would be timely to at least discuss different methods to approach that.

Operator Tim Lay with Boykin Management.

Tim Lay - Boykin Management - Analyst Hi, good afternoon, everyone. My question is relating to -- and I don't know, I didn't see anything in the documents I've received that addresses it -- is the treatment of the dotcoms or wholesalers or whatever we tend to call them in the industry, and the reporting of the rooms revenue, whether at gross or the net that we get paid, or so forth. And I didn't know if that was addressed at all in this upcoming edition.

Cindy Braak - Marriott International - SVP Finance, Business Partner Obviously -- this is Cindy Braak from Marriott -- we did actually add the name OTA -- online travel agencies -- to the room section. I don't believe we did anything -- we didn't change any language in there about revenue recognition to talk about with OTA. You book the room at whatever rate you're paying. I don't think that there is anything specific.

Michelle Russo - Hotel Asset Value Enhancement - President & CEO It's GAAP. And GAAP says it's revenue you collect. So it's not -- you're not going to add the commission that you never received.


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Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Yes, it's ultimately, as Michelle and Cindy mentioned, it's going to follow the gross versus net treatment of revenue. Ultimately there's not one catch-all for the OTAs. I think it's a look to your specific agreement with that OTA, because different managers and operators will have different relationships. So, you have to look at that provider, what they're doing, is the hotel acting as an account or principal in that transaction, and then follow the recording on that. I think the one area we added was on the commissions on the credit cards, as well. We addressed that given the new model by Expedia which we go into good detail. A lot of this is on the book version which is available on the website at Ahlei.org -- without sounding like a commercial -- and is in great detail. We had a very balanced committee with the 11th edition to be thinking about owner and operator issues. So, hopefully we incorporated that. An din this call we wanted to hopefully address the mechanics of how to actually get everything put into place in the implementation process. But thank you for your question.

Tim Lay - Boykin Management - Analyst Thank you.

Operator Tina Sampson, Loews Hotels.

Tina Sampson - Loews Hotels - Analyst Hi, everyone. Just a follow-up question on the ADR issue with resort fees. Just for a point of clarification, obviously the 11th edition is very clear that that is miscellaneous income. But there's a mention in the rooms revenue section about surcharges and service charges. And it says that non-discretionary charges, automatically added to a customer's account in respect of a service or use of an amenity, stays in other rooms revenue. And I was just wondering if someone could give me a specific example of what that looks like compared to what a resort fee looks like.

Cindy Braak - Marriott International - SVP Finance, Business Partner Tina this is Cindy. How are you? It's nice to hear your voice.

Tina Sampson - Loews Hotels - Analyst Congratulations on the book.

Cindy Braak - Marriott International - SVP Finance, Business Partner Thank you very much. Appreciate that. We're very excited about it. One of the reasons, first and foremost, to even add the language around room service charges is because that's quite common outside the US. There is this component that they call a service charge that is mandatory, that they add to their folios. And, quite honestly, commonly then that gets paid out in full or in part to their employees. Resort fee obviously does not get paid out to the employees and it's not related to the rooms. The language in the book I think today might be a little confusing. I know, I think from seeing some of your questions you were concerned that you might find some individuals looking at resort fees and say -- can I just call a resort fee a room service charge.


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Tina Sampson - Loews Hotels - Analyst Exactly.

Cindy Braak - Marriott International - SVP Finance, Business Partner And I understand that. Again, we're adding that because the absence of not having room service charges created a lot of issues for anybody outside the US. And we are trying to make this book more global. At the same time, we're trying to be very specific about where resort charges are so I think that's very clear. If people are looking to try to start naming resort fees, room service charges, I think that's something that we'll have to address separately. But to me, if you're not paying it out and it's not something that's mandatory, it's not being part of the room and it's not related to the room, and it's called a resort fee, then we know where that goes now. Does that make sense?

Tina Sampson - Loews Hotels - Analyst Yes, thank you for the clarification. And I think on hindsight maybe if language had been added in the rooms department section about the paying out of that service charge to employees, it might have made it clear. I'm just concerned that for anyone who doesn't have international experience, goes down the mindset of exactly what you described of trying to just rename a resort fee to continue to include it in ADR.

Cindy Braak - Marriott International - SVP Finance, Business Partner And that's good feedback. As we are getting frequently asked questions we will be posting things like that. So we'll definitely take this one and add some language around that.

Operator Mark Biondi with Host Hotels & Resorts.

Mark Biondi - Host Hotels & Resorts - Analyst Hi, good afternoon everyone. I had a question related to the creation of the guest communications department as well as the information and telecommunication system department, and how the costs of those items are supposed to be allocated between those departments. I'm just wondering from a practical perspective, if it's for Internet, let's say, the hotel pays an invoice to their Internet Service Provider. How do you break that down between the guest piece and what's used by the hotel?

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance It's Chris Garland. Just to start, we recognize the technology is growing exponentially as an expense in hotels. And generally speaking was in a one-line item in the AG department. So we created the new ITS department to recognize those expenses are going to continue to grow and it's better to break them out and have a better handle on where the money is going, to what disciplines and to what systems. With respect to the telephone, what used to be the telecom department in other departments will now go into minor operated. And what you'll put in there is strictly the revenue you get from guests for telephone and Internet services and the cost of sales specifically tied to that revenue.


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call Now, if you don't have separate administration Internet and guest internet it's going to be difficult to make that allocation. It's going to be, I think, have to be a judgment call on the part of hotel. But the admin Internet costs should be the ITS department and the guest revenue-producing Internet would be in this minor operated department for telecom.

Mark Biondi - Host Hotels & Resorts - Analyst Okay. So, there's no clear guidance on how to allocate the cost of sales versus the administrative costs?

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance No, there's not because that's going to be different depending on every hotel's different contract with their Internet provider.

Mark Biondi - Host Hotels & Resorts - Analyst Got it. Okay, thank you.

Operator (Operator Instructions) [Ben Mirig] with Kimpton Hotels & Restaurants.

Ben Mirig - Kimpton Hotels & Restaurants - Analyst Hi, Ray. As you were talking about your guys' recommendation for the budgeting, but asking that some of those additional lines be included in the budget, how are you expecting that cluster services is handled as far as a place to put all shared costs, or just the shared costs that wouldn't fall into one of the other lines within the department?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO I think one thing we want to make sure is, when we discuss, when we do add a line item, one that's clearly communicated to us, so we know, we think maybe a best practice would be in the budgeting process to add the line item there. And then we want to have as much detail as possible on the cluster services because that's part of, as Chris just marked, on the ITS expenses with all the MIS and computer charges. Previously that was just one or two line items in the P&L, and now it's a bunch so it's easy for benchmarking and so on. And cluster services, we wanted to have those broken out to the extent they can be. I know sometimes there's some managers that like to put everything in cluster service. We encourage against that. But we'll have to take each on a case-by-case basis. But as it relates to the Kimpton, we should certainly discuss that about your thoughts and our thoughts, as well, to make it so it's seamless, because the harder things are going to benchmark into 2014, if you move that around on the income statement -- which we're sensitive to. Did that answer your question, Ben?

Ben Mirig - Kimpton Hotels & Restaurants - Analyst Yes, I think so.


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Operator Julie Nam with Morgans Hotel Group.

Julie Nam - Morgans Hotel Group - Analyst Hi, everyone. My question is regarding the telecommunication department again. So, if the Internet is offered complimentary, then does the Internet access costs still go to the guest communication on minor operated department or should that go to information and telecommunication systems?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO It goes to the information and telecommunication systems. What we're trying to do is match revenue to expense in the telecom department. So, when there's no revenue for the Internet, then the entire cost would be the in the new ITS department.

Julie Nam - Morgans Hotel Group - Analyst Okay, thank you.

Operator Catherine Driscoll with Apple REIT Companies.

Catherine Driscoll - Apple REIT Companies - Analyst Hi, sorry. I dialed in just a couple minutes late because I had trouble finding the new number. So, this question is for Marriott because I missed the beginning piece of how you all said you were handling it. Did I understand correctly that you all are not going to restate 2014 at all so your financials in 2015 will just have the new map information for budget at 2015 moving forward?

Cindy Braak - Marriott International - SVP Finance, Business Partner No. This is Cindy. No. What we plan to do is we will budget the 2015 in the 11th edition, and we will have the actuals in the 11th edition, and then we will provide a bridge tool that the hotels will use in 2015 to take the 2014 and probably on a summary level restate them in the 11th edition.

Catherine Driscoll - Apple REIT Companies - Analyst Okay. So your year-over-year comparison on the 2015 financials will have the bridge remapped to 2014 information?

Cindy Braak - Marriott International - SVP Finance, Business Partner It's a bridge tool. We're still working through exactly what that's going to look like, so I don't want to make you think it's going to be all the way down to the detail. But we will have something that's going to help to be able to do that comparability.

Catherine Driscoll - Apple REIT Companies - Analyst Okay, thank you. 15 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2014 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

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Operator Paul Patterson with Westin Gaslamp.

Paul Patterson - Westin Gaslamp - Analyst Hello, Ray, how are you? My question is to the panel. Is anybody on the panel implementing any change related to the 11th edition prior to January 1, 2015? And is there any reason to do any changes prior to that time?

Gina Tallarico - Hyatt Hotels Corporation - Deputy to the CEO Yes. This is Gina from Hyatt. We are actually doing a lot of the PMS changes prior to going live but you won't see that reflected in the reporting until 2015. But from a timing perspective there's a lot of changes that need to be made in the PMS system, so those can actually be done ahead of time before deploying the changes in the live system.

Christopher Garland - Four Seasons Hotels and Resorts - SVP Operations Finance Paul, it's Chris at Four Seasons. We're doing virtually the same thing. We're going to make some changes in our software programs that won't change any of our reporting in 2014 but we'll just flip a switch January 1 and the new stuff will kick in.

Cindy Braak - Marriott International - SVP Finance, Business Partner Marriott is the same way. Obviously we've built a test environment taking all of these changes. So, we're testing the new changes to make sure that they are working but you won't actually see them flowing through until the 2015 actuals. Well -- and in the budget documents, as well.

Chris Bybee - Kimpton Hotels - Analyst And, really, my question was for the actuals, understanding systems are kept, needs to happen behind the scenes well ahead of time. But thank you, I appreciate that.

Operator Antoine Duncan with Highgate Hotels.

Antoine Duncan - Highgate Hotels - Analyst Hello, everyone. This is Antoine Duncan from Highgate. My question is around the change of rent and other income to miscellaneous income. Is rental income supposed to be reclassed to non-operating income?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO No. Basically we changed the name of the department from rental and other income to miscellaneous income because, at the end of the day, it's more miscellaneous than there is rental. But rental income for stores in your hotel or vitrines or anything like that would still continue to go in that miscellaneous income schedule 4.


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Antoine Duncan - Highgate Hotels - Analyst All right, thank you.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Antoine -- sorry, Tiffany, just a follow-up to Antoine's question. There's also a category below the line in non-operating income that would be rental -- things where the operator of the hotel does not get involved. The example was given to the committee that if the owner rents a billboard on the side of the building, the owner owns the agreements and the owner collects the rent. It would go below that line in non-operating income. So, the rentals that go into the miscellaneous income section are those that are managed by the operator of the hotel.

Antoine Duncan - Highgate Hotels - Analyst Okay. The example that I was thinking of was if a hotel rents space to a restaurant, but they're not the operator of that restaurant. There's a restaurant operator and then there's a fee paid to the operator for the rental of the restaurant space. Does that make sense?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO It would depend on how involved the operator was in the rental agreement with the food and beverage operator. If the owner did all of the work and the operator did none, that would go below the line. If the operator manages the relationship and the lease, then that would go into miscellaneous income.

Antoine Duncan - Highgate Hotels - Analyst Okay, thank you. That's clear.

Operator Catherine Andrews with Concord Hospitality.

Catherine Andrews - Concord Hospitality - Analyst Hi. This question is I think for Cindy. We are a franchisee of mostly Marriott Hotels. And I know you have a smoke recovery fee and some pet fees at some of your brands. You hit on this in the other rooms revenue section, but would you consider both those items -- smoke recovery fees and pet fees -- as other rooms revenue or miscellaneous?

Cindy Braak - Marriott International - SVP Finance, Business Partner I believe they'd probably be other rooms revenue.

Catherine Andrews - Concord Hospitality - Analyst Okay. And if I could just ask one more question, as well. Transaction fees that are charged for procurement systems, such as Avendra, Buy Efficient, Birchstreet, those type of systems, where do you suggest coding those transaction fees?


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Cindy Braak - Marriott International - SVP Finance, Business Partner Not the system fee itself, the transactions?

Catherine Andrews - Concord Hospitality - Analyst Yes. For instance, some of those charge transaction fees on the purchases, like a percentage of the purchases and billed on a monthly basis.

Cindy Braak - Marriott International - SVP Finance, Business Partner To be honest I'm not exactly sure but it might be we're just booking that net.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO I think it would be part of the landed cost of the goods you're purchasing.

Catherine Andrews - Concord Hospitality - Analyst Okay. Interesting. Okay, thank you.

Operator (Operator Instructions) Bob Cosgrove with InterContinental Hotels Group.

Bob Cosgrove - InterContinental Hotels Group - Analyst Hello again. Just asking the question -- there's a lot of great information coming out on this call -- is it going to be recorded and available on the website anywhere?

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Yes, this will be recorded. It will be posted on Pebblebrook's website. We're going to distribute it around and hopefully have the HLA post it on their portal. Which, if you log on there to buy the book you have a great set of tools to learn about if you'll ask questions. Again, not to sound like a commercial but we'll have it posted there and make it freely available because, again, we know it's a difficult process. We have been trying to make it as informative as possible for the management companies because we know you have a lot to be thinking about over the next several months.

Bob Cosgrove - InterContinental Hotels Group - Analyst And also on there will be the latest changes too?


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JUNE 12, 2014 / 6:00PM, PEB - Hotel Industry Discussion on New Hotel Reporting Standards Conference Call Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Yes, there will be the questions, it will be the book. You'll see a lot of the questions that people also have and then the suggested responses. And as we have other frequent updates. And there's also a great PowerPoint presentation that contains some of the global changes there.

Bob Cosgrove - InterContinental Hotels Group - Analyst Great, thank you so much.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Sure. And as a reminder, we also encourage folks participating on the call today to also listen to the call on June 18 at 2 PM. Which, again, all the details are available in the AHLA website under the events page. And that call will be focused on a lot of the nitty-gritty, meat-and-potatoes questions that we're having here, as well.

Bob Cosgrove - InterContinental Hotels Group - Analyst Thank you.

Operator There are no other questions at this time.

Ray Martz - Pebblebrook Hotel Trust - EVP & CFO Great. Thank you, Tiffany. And thank you, everyone, for taking the time today to participate on our call. We want to also thank Cindy, Chris, and Gina for their hard work and participation, as well as for Robert and Michelle for making themselves available, as well, as additional resource. We look forward to the implementation process. And as you have questions feel free to contact me or anyone else that are on this call that you know and we'll hopefully get your questions addressed. Goodbye.

Operator That concludes today's conference call. Thank you for your participation.

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