Award for Excellence and Inspiration & Keynote Address - Thomas J. Baltimore, Jr.

I asked him not to make me... I asked him not to. I didn't know what he was going to say, and I said, don't have me up here as a sap knowing that those subject matters are always pretty emotional for me. First, I want to thank Joyce as one of the sponsors of the luncheon. I want to thank the Hunter family, Bob, Lee, Teague, the incredible organization that they built. They've been role models and leaders and an inspiration to all of us. So thank you. Thank you for this honor. Not sure that I'm worthy, but I certainly will do my best to honor it as I move forward. I also want to thank my dear friend Mitt. And I say to Mitt often that we're sort of brothers from different mothers, but the truth of the story is if you go back 20 years ago when I was at Hilton pre-Sarbanes-Oxley, and we were in the process of trying to launch RLJ, the late Steve Bollenbach and Matt Hart allowed me to keep my day job and work nights and weekends to launch a business. Only in America would that be possible. Harder today given governance issues, but certainly possible then. We were bidding on seven hotels that Hilton was selling as part of the Promise Hotel acquisition. They inherited about 15 hotels that they wanted to franchise and manage but not own. Turns out that Mitt and his young organization at the time, they were the cover bid. So I was competing against Mitt in that context. We laugh about it now. Mitt and I both have enjoyed incredible good fortune. We've done many transactions together over the years. And Mitt, I love you, I appreciate you, and thank you for that warm introduction. I was moved and was not expecting those comments, so I'm grateful for you. I also want to acknowledge my lovely bride Hilary and my daughter Hannah. Our 16 year old is in there. She's beginning the college tour process, so hence the reason that they're here in Atlanta. I know they're looking at two things. They're saying, one, they don't believe all that's been said today, and then secondly, my daughter's already made the observation that we have nowhere in our home to put this picture. So I don't know where you're going to put it. I look at that and say that's only a face there that perhaps my late mother and my wife and my younger days could perhaps appreciate. But I would not be standing here if I didn't have this incredible partner. And Hillary, I took a lot of risk, and she never doubted me. She never blinked. She never had any fear. I think having that kind of partner is so important in success. So I thank God for you, and I appreciate all that you've done. You're an extraordinary wife, great mother, and great partner. To my princess Hannah, I don't know what you're going to run. You run the house, but you're definitely going to run something one day. I have no doubt. And I know your brother is going to make us proud as well. I do want to say that by honoring me, you honor my late parents. You honor, I think, the beauty of this incredible industry that we find ourselves in. My story is uniquely an American story, like so many of you in this room and so many others. It's the reason I love this business and I have such passion for listening to those personal stories and how people have overcome and what they've done. So I don't think there's any industry better than the lodging and the hospitality industry and all the related fields. I talk about if you take Hilton and Marriott, well, and Choice and Hyatt and IHG, they're all fierce competitors, but there's a respect and affection that occurs. Think about Coke and Pepsi. They're just there. You'll never see people sort of merge the same way we do in this industry. So love this industry. Thank you so much for the award. I'm going to put this somewhere where at least I can look at it from time to time and say I'm not sure my family will, but at least I will. I'll look at it. So thank you.

It's hard now because then they want me to sort of talk. And I have learned over the years what I want to do today is just talk a little bit about the journey of sort of where I am today and what we're doing, where the industry is, some observations, some thoughts for your consideration. I promise I won't keep you long. About three years ago, after 17 years at RLJ, we had had a magical ride. I am so proud of the fact that I had the original core group of eight people who had been with me for 12 to 17 years and no turnover. That is a hard thing to achieve. And I think when you find men and women where you've got alignment of interest and you've got shared values and you're working your tails off together, we had a magical run. Private company, three private equity funds took it public, had a team of men and women that were prepared to take over. My dear friend Krishna said, calls me and says, Hilton's going to split. Now we want you to run and to spin out the real estate company. It was the one thing that I really found too compelling to pass up. Literally, I took off, my last day was on a Friday, and I started at Hilton that following Monday. There's tremendous risk in that because I went from something that was comfortable to something that was uncomfortable, something that I was co-founder and lead for so long to going back into an office and really an uncomfortable setting, but with the promise of an opportunity to maybe build another team and to build something exciting. And it's been an incredible journey now three years. The argument as to why is really simple. Not dissimilar to what Marriott did with Host of 25 years ago, going capital light, which obviously the industry and investors want a pure play company. So no surprise there. Today we stand with 52 hotels, $9 billion in enterprise value, and we're actually the 25th largest REIT out of about 200 REITs across all the asset types. To build that, when you think about the fact that we started with nothing, we didn't have a name, we never had a board, we didn't have office space, I had a designated CFO, and to build all of that in six months and then launch a company, it's been an incredible journey and a lot of fun as well. If you look at the lodging REIT landscape today, there are 15 companies plus or minus. Many capable, talented men and women run these companies. We happen to be the second largest today, and we've got bold and aggressive plans like many of our peers. So we respect them all, we look forward to competing with them on a day-to-day basis as we seek to grow. We've had a really good run. We've exceeded expectations. Part of it's again having a team of men and women focused and disciplined. There's a whole bunch of accolades there and sector-leading RevPAR growth. Our returns have been significant, north of 37% since the IPO. We've been fortunate to have many of our peers and we've had a number of internal growth initiatives that we've been really focused on. We've also been recycling capital and focused on ROI projects and spending time trying to improve margins and growing up this large portfolio. We thought those were really core initiatives for us. So it's been fun as we've been working through that process. We had a really nice print in 2018. As you're building a team and to get early success and to have that team together, it's so important to have people aligned, have them focused, and have them moving in the right direction. Pleased to say that we're moving in that direction right now. I tell the team that we're judged every day as a public hotel REIT, and the first two years are good. We can't rest on our laurels. We've had strong performance, and that can change quickly if you underperform and you make bad decisions. I find in the REIT landscape, whether you're private equity or public, there are really three guiding principles. The first is operational excellence. No different than the men and women in this room. As you manage your own business, it's really important that you take care of the guests, you drive the top line, you get great flow-through, you have the margins. All of those things are so important for us. Second is to be a prudent capital allocator. Because we've got to distribute all of our capital, all of our profits through dividends—at least 90% to retain our REIT status. We choose to distribute 100%. You've got to go back into the equity markets to continue raising capital for growth, so investors have to believe that you're a good capital allocator. Third, which is different in the REIT landscape than perhaps private equity and some of the high net worth families, is we can't really lever up. Having a low leverage balance sheet becomes terribly important for our success. Investors prefer that we be low-levered given the volatility in the business. I do miss being able to lever up 70, 75% as we could in the private equity days, but that's just one of the differences in that business model versus ours.

We're all getting questions today about the economic cycle and where we are. My crystal ball is no better than anyone else's, but I do want to share some of my thoughts. We're in the tenth year of this cycle. If you think historically, based on the research that I've done, the trough is about 11 years. Trough to peak is about seven years. The normal business cycle is really about seven years, and we're in an elongated period in part because we had a relatively slow and modest recovery coming out of the Great Recession. But as a result of what we've seen with tax reform and deregulation, I really think there's more running room in this cycle. I know there are some who believe that perhaps there's going to be a recession this year or next year. I'm not one who believes that. There are some who also believe that we're in a secular bull market and we're midstream, in the tenth year of a 20-year run. Not sure I believe that either. But I do think that there are a few more years remaining in this cycle. Supply is beginning to peak. Demand continues to outpace. The other thing which I found really interesting: if you look back, we've only had six recessions in the last 50 years, but we've only had five years of negative RevPAR. Those aren't going to surprise anyone when you think about it: the S&L crisis, those negative years of negative RevPAR are obviously 9/11 and then the Great Recession. So I think even if we have a recession, hopefully it's a relatively shallow or modest recession here as we move forward. I do think we're in a period where rates are going to be lower for longer, and that provides a really interesting backdrop for us. You're seeing that even today. The ten-year T-bill is about 2.5%. None of us could have predicted that given where it was six months ago or even eight months ago. Also, when you look at the Fed now taking a more dovish view, they're doing that in part because some believe perhaps we're going to get a slowdown. I think GDP is still tracking to probably 2.5%, probably next year keeping in that 2% range as well, which still can provide a real tailwind as we move forward in this cycle. I think there are some interesting indicators out there. One that we track pretty carefully is non-residential fixed investment spending, high correlation with RevPAR. It was 7% last year, decelerating slightly to about 4% this year. Unemployment rate continues to remain underneath 4%. Inflation obviously somewhat muted. There's still slack in the labor market from an income and wage perspective. Corporate profits, that'll be the one I think will be really interesting to watch over the next few quarters. 4% still, with some deceleration, but still positive. As we look across all the pundits, they're still saying 2 to 2.5% RevPAR growth. C Corp seeing 1 to 3%. REITs tend to be a little more aggressive than that. A lot of that will depend on your geographic makeup. If you've got a huge distribution in San Francisco, given what's happening there, you've got a great tailwind. We happen to be well positioned there and in markets where there's limited supply growth: Hawaii, San Francisco, even Orlando. Obviously there are so many hotel rooms and every brand, it's known demand, and it's hard to add more supply, but even that, demand continues to grow in that market among others. New York's an interesting market because it sort of missed this cycle, particularly given the 38-40% increase in supply. I wouldn't bet against New York long-term. I think New York is going to be a strong performer as we move forward. Consumer confidence and personal balance sheets are still solid and improving, with consumer confidence at an 18-year high. I think that's a nice tailwind as we move forward. With that backdrop, I think we're solid for 2019. I think 2020 looks good. Some believe we might have a slight pullback in 2021. We'll see. This also assumes we don't have any kind of geopolitical issue or trade war. We'll have to see how those things unfold over the next months and years. I found these little cartoons which my team at Park helped me with. We thought these were interesting and appropriate. The bears have been calling the top for some time. 'We're at the top, this is the top,' and that's been going on now for several years. You see the bull just sort of laughing, saying, 'Yeah, just the bears, of course they're way off.' Given that impression that conditions are still favorable in the market, the cartoon on the right is even more telling when you think about the bear with his head down, sighing, saying, 'Yeah, it just keeps going and going.' I think there's some truth to that as we enter the 10th year of this cycle. This outlook is encouraging as we move forward.

I am a big believer in brands. Part of that is given the fact that I worked for three of the Marriott companies, I worked for Hilton twice. I want to take a moment and think about these extraordinary men, giants in our industry and brand champions. Can't have this discussion without looking at Conrad Hilton or Bill Marriott and looking at the incredible work that they've done. The Pritzker family. Personally, Steve Bollenbach, as I mentioned earlier, sometimes people forget that Steve not only worked at Holiday Corp and worked for Trump at one time and bailed him out of issues early in his career, but Steve also was the CFO at Marriott and he was the architect of the split. He then joined Hilton and he was instrumental in the Promus acquisition, creating that brand segmentation. Also instrumental as part of that process in reuniting Hilton with Hilton International and creating that foundation. Chris, Steve passed last year and I got the nicest note and phone call from him in my pursuit of Park, offering his assistance and anything that he could do. I am indebted with gratitude to Steve. Those of you that knew Steve, he wasn't always the most dynamic speaker, he wasn't always patient with us mortals, but he was an extraordinary man and very generous to the men and women that worked with him. John Gray and his extraordinary team at Blackstone, who we all know in 2007 buying Hilton and then what happened after that. Chris had the foresight, and I know Chris will be here tomorrow. Chris is a true rock star and a real gentleman. Seeing the success that Chris and his extraordinary team had at Hilton and what they've done, and then Arne Sorenson, obviously another giant in our industry. People forget that Arne was a litigator. How often do you see a litigator then become CFO, president, and now CEO? So another extraordinary leader. And of course Barry Sternlicht. Barry, the last year's honoree, another rock star. Interesting about the Heavenly Bed and what he did with W and now with the 1 Hotel, always been an innovator, someone who has really transformed the industry. I look at this list and like all of you, I know that we want to celebrate, but also stand here and tell you my hope and my prayer is that we have a woman on that list soon enough. It's long overdue, and I'm hoping that we can continue to improve and push and make sure that we do better as an industry, particularly on the matters of gender diversity. I share that and I mean it sincerely. One of the things I've done, this slide I've used for almost 20 years now. My thesis has always been that brands matter. Many of the brands represented here today, brand segmentation, global sales, worldwide reservation systems, the RevPAR premiums that we as investors and managers and owners think about. When you think about Hilton and Marriott, I'll just isolate those because I know those stats. Marriott now with 120 million members in their loyalty program, Hilton with 85 million. The opportunity with big data as we're moving forward in the industry and the importance of that is amazing. Now 50 to 60% of that contribution coming through those loyalty programs. The ability to understand through engagement, through benchmarking, understanding brand preference becomes critically important as we look to the next generation in this beloved industry of ours. But I would also say, and I'm looking at my dear friend Bill Fortier right now as I say this, growth is a risk. It's something we've got. Brands like to plant flags, developers like to build hotels. Occasionally we get a recession. But I think the beauty of this industry and I think we're at a really good balance today is that the value proposition is dependent on a healthy owner community. We have to always maintain that balance. We've got great push and pull today, but collectively I think it's something we've got to continue to manage as we move forward. I have no complaints other than caution and observations as we move forward.

I do have a couple of comments I want to make. I'd like to see a ceasefire of the arms race. I was on an NYU panel in 2006 and I made the comment as we were going to flat-screen TVs. We were at 27 inch or 32 inch, and then suddenly we were at 45, 50, 60, 70, and it never seems to end. I don't think the size of the TV drives customer preference. I've been saying it for a long time. But I'm not sure there's a difference much between 36 and 55. But I do think these are issues that we've got to be talking about. Linens are soft enough in my humble opinion. I think we've got to really begin thinking about technology and big data and how we can proritize and understand those customer preferences, those behaviors, how we engage as we move forward. Communication, I think we've got wonderful communication between the stakeholders today. We've got to continue to do that and work incredibly hard on that. If I have a pet peeve and one thing that keeps me up late at night, it's really the need to drive down customer acquisition cost. That's the one area as an industry we've got to continue to work on. The OTAs are doing a better job, but I think we've got to continue to figure out ways to drive that direct relationship. I do think those loyalty programs are going to be an incredibly important vehicle and tool available to us as we move forward. There are neat brands that I think are on the horizon: Graduate, Virgin Hotels, Viceroy, Ace Hotel. All of these and there are others that are being incubated. It's interesting as we think through, they appeal to travelers. There's an authenticity we can't ignore. I think this will continue and I think it's positive as we look at customer preferences and those needs as we move forward. So those can't be ignored. They are threats to those more dominant brands and those that have got the establishment. I think it's exciting, fresh, and good. Graduate in particular, I think it's a very clever concept. I think about it and say, 'God, why didn't somebody think of that before?' Industry disruptors, we all talk about this. I've talked about technology and the sharing economy. I think we're making a lot of progress on getting a level playing field with Airbnb. I welcome the competition. I know many of you share that. I just want a level playing field. I don't want illegal hotels. I know Chip Rogers and his team at American Hotel and Lodging Association, and many of the men and women in this room, are playing a role. We've just got to make sure that we have that level playing field as we move forward. Sustainability becomes increasingly important. As a public company, we continue to get more and more inquiries from investors, from analysts about ESG—environmental, social, and governance. These issues are not going away. The other side of sustainability, we also have the sensitivity on the workforce. As we think about going green, what does it mean? Does it shorten their hours? Does it make us more efficient? Do we still have the opportunity to retrain those that may be displaced as part of that process? I think the same thing goes for technology. As we look at the front desk, ultimately it will be affected by it. There's no doubt about that. At some point we're going to see AI and robotics affect our business more and more. These are all important as we all want to improve our margins, but there's also the other side of the equation we've certainly got to be sensitive to. Lifestyle brands, we've talked about it. I don't think that's going to end. If anything, I think that's going to continue. These brand extensions will continue as we move forward.

A little fun slide that we put together. I don't know about the rest of you, but I sure do miss those days we could charge for Wi-Fi. It was a pretty good little profit center there. Telephones and revenues from in-room movies and all those things look good. I'm glad that the same day cancellation policy is largely gone. Glad to see that. As we look at what is today, free Wi-Fi is almost like water. So we know we've got to provide that. We do have 48 to 72-hour cancellation. I think that's a good thing. We're one of the few industries that was sort of given a free option on our inventory, and I'm glad to see that we're making a lot of progress there. The repricing software and transparency with pricing is a real issue, particularly given the fact that we've got so much data and so much information available. It's certainly something that we're going to have to watch as we move forward. Then you got to ask yourself, I love these unique brands, how many brands are too many? The market ultimately will speak, but as we all know, there's a cost to maintaining a brand. What could be doorDash for room service? Are we going to have the hotel partner with ride-sharing companies instead of maintaining shuttles? All of these things are going to be on the table as we move forward. As we think about streaming, I don't know if there's some application of it today, but I think that's only going to accelerate in the months and years ahead. This is a fun slide for me. We all worry over the future of the industry and what's going to happen. From my standpoint, we've survived home-sharing, we've survived conference calls, we survived the jet age where you can leave in the morning and get home to your families in the evening, we've survived videoconferencing, we're surviving the OTAs. Global travel is only going to continue to accelerate. I also think the need to meet, to collaborate in safe environments like this where you can meet with men and women and conduct your business, is never going to go away. I'm so grateful for the Hunter family and the Hunter team and all the incredible work that they're doing. I remember coming to this conference 10 years ago, 20 years ago, and to see how it's grown. The need for this is terribly important and will never go away. That's a fundamental core tenet of our business that makes our business so special and so exciting as we move forward.

Industry challenges. These aren't surprising. When I'm asked what keeps me up late at night other than customer acquisition cost, it's rising labor cost, property taxes, insurance. None of those are surprising. Municipalities are challenged, they're trying to raise more income through those vehicles. Insurance, we're seeing it particularly given the events that have occurred. Labor given the issues that we're all faced with and rising minimum wage. I don't think on a tight labor market that those issues are going to continue. Hopefully with some of the changes that are being made, we're getting a reset of that as we move forward. This is another issue and it's important that we be talking about it as an industry. It's the issue of getting more women as I talked about earlier in positions of management, on boards, active in our business. Wells Fargo Jeff Donnelly did a report and noted that those that had more women on their boards had outperformance of about 160 basis points in performance. For some reason, lodging REITs were among the lowest. I've got two extraordinary women on my board at Park. McKinsey also came out with a study noting that since 2015, there's been very little progress in improving women's leadership representation. I appeal to all of us. I challenge myself in every search we have to make sure that we've got a broad outreach. I've had the privilege of working with so many talented women, many of whom weren't in our sector. Leslie Hale is an example. She was a Goldman banker, she worked at GE, she'd never been in lodging. But people can get up the learning curve pretty quickly. I've given that opportunity. But to see that we've only got one in five women in the C-suite and one in 25 women of color, I encourage all of us to continue to do more in this area. I always say in the boards and other companies that I'm involved in, if you have women leaders in your company, senior VPs, EVPs, in the C-suite, what happens is the impact that it has on your company because women will want to join to say, 'She's there. She's a great role model. She's somebody that I can aspire to be.' I do think that this is terribly important, and those companies and industries that get this right are going to be far more successful over the long run. So something that I'm pushing in my own company and I encourage all of you as we move forward.

Last but not least, my dear friend Mitt really captured for me three things that I talk about with my own kids: faith, preparation, and perseverance. I find that faith grounds you, it centers you. One of the great lessons and benefits from my late father was a respect and appreciation for all religions. It's something I try to live with in my own life every day. On the issue of preparation, I do still work six days a week. It's my rhythm, it's always been my rhythm, it's not going to change. I actually think my wife and kids kind of like it on Sundays. They sort of say to me sometimes, 'What time are you going to the office?' My feelings aren't hurt anymore by that. I find the phone's not ringing. I can think, I can reflect, I can prepare for the week. That preparation is still terribly important. Then perseverance. In my humble opinion, perseverance is really the secret sauce of life. In every life, a little rain must fall. In every life, even for good people, bad things will happen. The ability to press forward—even my parents and my grandparents, all of whom were born and raised in Virginia in a very mean, difficult time—the beauty of them and their legacy more than anything else is they were never bitter. They were always optimistic. They were always encouraging. I tell my own kids, you've got to push forward. There are going to be periods of difficulty, and you just got to fight through it. Guiding principles for me on the professional side: no man or woman succeeds alone. I say it all the time to my Park team. We've got to be prepared to take calculated risk. A lot of people thought I was crazy three and a half years ago after 17 years of co-founding a company and leaving. But I knew that company was in good hands and that the men and women behind me were prepared to step up. I didn't want to live a life of regret. I had this interesting opportunity and I knew that portfolio. I entered that process with energy and passion, and I haven't looked back. I tell my kids all the time, you've got to get out of your comfort zone. You grow in the dark places. You grow when you're in periods of discomfort. I think that's an important lesson for all of us. I also say to people, we all need a personal board of directors, but they should be men and women different than you. They should have a different point of view to help you think through and evaluate opportunities. If they're all your friends and they look and feel and they're from the same circle, you're not really going to get, in my humble opinion, good feedback to think out of the box and make the pivot for something that perhaps you should change. Last for all of us, I stand here because I had so many mentors. Bill McCarten, who was now the chairman of DiamondRock, a competitor company, who I worked for 25 years ago. Bob Johnson, my longtime partner, and the late Steve Bollenbach. Bill Marriott, I still have notes that Marriott sent me 25 years ago that I carry with me in a special place. So many people gave me a chance. You simply pay it forward. I think it's something our industry does really well. Thank you guys for taking time. Thank you for honoring me and honoring my family as part of that. Also honoring my team at Park, because we're having fun and enjoying the journey. So thank all of you and thanks again.