in hotel occupancy levels and ADR, and below historical average growth in lodging supply. These positive lodging fundamentals moderated over the last couple years however. In 2016, the rate of lodging demand growth (1.7%, as reported by STR) decreased as compared to the several years prior while the rate of lodging supply growth (1.6%, as reported by STR) approached historical average levels. In 2017, lodging demand rebounded by increasing 2.7% while lodging supply increased by 1.8%, resulting in industry-wide RevPAR increasing by 3.0%, as reported by STR. Several industry prognosticators, including STR, expect similar levels of RevPAR growth over the next few years as that experienced by the industry in 2017.

We continue to believe our hotel portfolio is well positioned for future performance and long-term real estate value appreciation as a result of our focus on high-quality hotels located in major U.S. lodging markets. However, recognizing that the industry is now entering the ninth year of the current lodging and economic cycle, we expect limited, if any, acquisition activity for the remainder of the lodging cycle and we may increasingly evaluate opportunities to dispose of hotels that we believe have maximized their values.

# Business Strategy

Our goal is to deliver strong total returns to our shareholders in the form of the appreciation of our assets and our ability to return funds to our shareholders in the form of dividends. We intend to pursue the following strategies to achieve this goal:

Identify and pursue value-added investments at our hotels. We employ value-added strategies designed to improve the operating performance and value of our hotels. We have focused a significant portion of our efforts on identifying and pursuing investments to promote the competitive positioning and operations of our hotels, and we intend to continue our aggressive efforts in this regard. Examples include the approximate \$7 million renovation and repositioning of the Hotel Adagio San Francisco in 2012, enabling the hotel to become part of the Marriott Autograph Collection; the approximate\$5 million we spent in 2012 to create 35 additional guestrooms on the top two, previously vacant, floors of the W Chicago –City Center; and in 2014, the completion of three major investments, including the approximate \$37 million comprehensive renovation at our W Chicago – Lakeshore, the approximate \$25 million comprehensive renovation of our former W New Orleans to re-brand the hotel as the Le Meridien New Orleans, and the approximate \$8 million comprehensive renovation of our former Holiday Inn New York City Midtown – 31st Street to re-brand the hotel as the Hyatt Herald Square New York.

Optimize the branding and management of our hotels. We regularly evaluate opportunities to re-brand certain hotels by determining which brands are available in the market, seeking to quantify the potential improvement in revenue generation and profitability that a hotel might experience under a new brand. We analyze these opportunities by reviewing the revenue data of the local competitive set of hotels that are branded most similarly to the proposed new brand for the hotel, which data we obtain from a third party, STR. Based on this data, we project the expected revenue for the hotel with the new brand and use hotel industry standards for profit margins, and our own operating history, to calculate potential profits. We then compare the potential profits to the expected capital costs to bring the hotel into compliance with the standards of the proposed new brand to calculate a return on investment, which we use to determine whether it is in our shareholders’ interests to undertake the re-branding project. Examples of our deployment of this strategy can be found in the repositioning of the previously independent Hotel Adagio San Francisco to become part of the Marriott Autograph Collection in 2013, and the conversions of our former W New Orleans to the Le Meridien brand and our former Holiday Inn New York City Midtown – 31st Street to the Hyatt brand in 2014. Likewise, we continually evaluate the performance of the third parties managing each of our hotels and evaluate whether a hotel might perform better under different managerial control. In this regard, we review the operating performance of the hotel and compare that with its local competitive set and industry standards, as well as our experience in our dealings with the 10 management companies currently operating our hotels. In accordance with this strategy, we replaced the management company operating our two hotels located in New York in October 2016 and the brand management company operating our hotel located in Denver in December 2017. We will continue to pursue a change in a hotel’s management company when we determine the benefits of a change outweigh the costs.

Selectively expand our hotel portfolio through new investments. We may continue our efforts to grow our business by acquiring additional hotels that meet our qualitative and quantitative investment criteria, which may change depending upon our assessment of, among other things, our cost of capital, liquidity, and expectations regarding future lodging industry fundamentals and macroeconomic conditions. We have and will continue to focus our efforts on upper-upscale hotels operating under national franchise brands located in the top 25 U.S. Metropolitan Statistical Areas, in close proximity to major market demand generators that are attractive to business travelers. Our team may continue to target acquisitions that we believe would strengthen the overall quality of our hotel portfolio and further diversify the portfolio by market, customer type and brand. While we anticipate that we would continue to focus on acquiring hotels that are proven leaders in market share, setting the rates in the market and providing superior meeting space, services or amenities, and in good physical