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Greetings and welcome to the Pebblebrook Hotel Trust First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you. Please go ahead.

Thank you, Donna, and good morning everyone. Welcome to our first quarter 2023 earnings call and webcast. Joining me today are Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher our Chief Investment Officer and Co-President. But before we start, a quick reminder 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 SEC filings and Future results could differ materially from those implied by our comments today. Forward-looking statements that we make today are effective only today, April 27, 2023, and we undertake no duty to update them later. We will discuss non-GAAP financial measures on today's call, and we provide reconciliations of these non-GAAP financial measures on our website, at pebblebrookhotels.com. Our financial results exceeded our outlook for the first quarter. Adjusted EBITDA finished at $60.8 million increasing 30.9% from a year ago. Adjusted FFO was at $22.4 million with adjusted FFO per share of $0.18, a 67.3% improvement, and represented very significant progress from a year ago and a great start to the year, especially in many of our urban markets. We're pleased with our financial results despite cancellations and disruption from numerous winter storms, excessive rain, coming from areas rivers, and flooding that negatively impacted demand in many of our hotels and resorts during the quarter and knocked out approximately 80 guestrooms in Los Angeles when most of them not to back into service until mid to late May. Our year-over-year revenue EBITDA and FFO would have been higher if not for the remediation and restoration of LaPlaya from Hurricane Ian and the disruption caused by the five significant redevelopments and repositioning taking place in the quarter. These two issues negatively impacted adjusted EBITDA and FFO by approximately $11 million, or about $0.09 per share. On the revenue side, same property RevPAR increased 18.5% and non-revenue increased 34.4% exceeding the top end of our outlook, highlighting the robust out of room spend we continue to experience. Our overall comp increased 23.7% at the high end of our Q1 outlook. The markets showing the most robust year-over-year growth in San Francisco, Washington DC, Portland, Seattle, and Chicago. Our San Francisco hotels generated at 117.5% increase same property RevPAR driven by occupancy rising to 46% versus 26% the prior year. Our San Francisco Hotel has generated $3.5 million of EBITDA versus negative $2.4 million of EBITDA in Q1 '22 and outstanding $6 million improvement from last year. San Francisco benefited from several city by groups that performed well, including JP Morgan Healthcare in January, and Game Developers Conference March as well as improved corporate transit and leisure demand city. Obviously, despite this significant improvement Francisco, still has a long way to reach full recovery. A Washington DC hotel also exhibited strong improvement during the quarter over the prior year from same property RevPAR 126.6% as occupancy increased 53% up from 27% the previous year, and ADR rose at 13%. Do you see a benefit from increased group business group transient convention demand as well as slowly improving international demand? The administration's recent announcement encouraging federal workers to return to the office, if successful, would further bolster Hotel and Restaurant demand in the market. Do you see shaping up to have a solid second quarter? Our two key license reports continue to perform well, that typically year-over-year comparisons due to the quarter last year in Florida is one of the few states fully open for business during the concert. Four time in Florida year-on-year challenges were primarily focused on key west as well as your extended Naples, which was probably still impacted by a negative perception of the market following Hurricane Ian. Margaritaville increased RevPAR by 5% of and occupancy up 4% with ADR up 1% and food and beverage revenues climbing by 14%. As group recovered in transit demand remain healthy. Margaritaville continues to outperform its Fort Lauderdale competitors and our expectations. Key West was our weakest market from a quarterly growth perspective apart declined 16.6% primarily did ADR being down 15.5% and occupancy down 130 basis points. We expected a pullback in Key West, the ADR still up more than 37% versus the comparable period in 2019 with RevPAR, up 22.1%. We expect that overall demand these markets will return in 2019 with ADR premiums remaining very significant to pre-pandemic price levels. Also detailed last night earnings release, we've made substantial progress and repairing, restoring, and reopening the plan. We will be able to open the beatdown rooms in Q1, the Gulf tower partially opened in April. The overall resort is operating with limited services and amenities. But this is positive progress. Other hotels and a high-rise apartment and condo buildings along the beach remain completely shuttered. In March we rent 19% occupancy, and in April we expect to achieve 24%, 25% occupancy as public areas and services return. We expect this to improve the year. We're currently forecasting the beach house to be restored and reopened by the end of the year. Rebuilding inside of that beach house which is in progress, it's quite the process. As we saw last week when we toured our board meeting [indiscernible]. Our insurance carriers have recruited approximately $8.1 million in business interruption income during the first quarter, slightly more than we assumed in our outlook. This initial Cloudinary amount related to last business for the fourth quarter of 2022 and it does not represent the full amount of BI we expect to receive for Q4 of last year. Our Q2 outlook assumes we will receive approval from our insurance carriers for an additional 10 million BI, which we the initial preliminary amount for last business for the first quarter of this year. Historically, the seasonally strongest quarter Philippi. Before the hurricane, we expect a little higher to generate approximately 14 billion of EBITDA for Q1 '23. Our BI has been reflected in adjusted EBITDA and FFO but not hotel EBITDA. It should be noted by our investors in their respective model. Today, we received approximately $35 million from our insurance providers to complete the necessary remediation, repair, and BI work. As looked at the second quarter, we haven't experienced any noticeable increase in cancellations or attrition related to concerns with a macroeconomic environment. Generally speaking, the cancellations and negative surprises we've experienced so far in 2023 have been weather related not economic. April same property RevPAR is expected to be flat to down versus the prior year period, negatively impacted by the five redevelopments and repositioning was out of order rooms peeking in April and the storm later rooms out of service in RevPAR as well. Our Q2 outlook same property RevPAR increases to 1% to 4% and this outlook incorporated the disruption from these ongoing redevelopments which we estimate will negatively impact Q2 same property RevPAR by approximately 150 basis points, total revenues by approximately $7.5 million and adjusted EBITDA by approximately $5.5 million. Our portfolio continues to narrow the gap to 2019 same property revenues and EBITDA. After adjusting out the impact of the pie and our renovations, same property EBITDA versus 2019 has improved from down 21% in the fourth quarter of '22 to down 8.3% in Q1 and based on the midpoint of our Q2 outlook down just 8.8%. We have some one-time expenses related to the cleanup and remediation of our hotels in LA that were affected by the storms in Q1 plus increased energy and property insurance costs, which unfortunately are likely to persist for the balance of the year. Our revenues continue to improve as well as our property EBITDA despite some of these operational challenges. Shifting to our capital improvement plan, we completely approximately $26 million of investments during the quarter. The majority of these dollars represent investments in five significant redevelopments and repositioning which John will discuss later. We continue to target investing $145 million to $155 million into the portfolio during 2023. On the investment side, we are very active. We sold three properties in the quarter, one in Portland, a retail parcel on Michigan Avenue, Chicago, a hotel in Coral Gables generating $135.3 million of proceeds. As we highlighted in last night's earnings release, we also expect to see the contracts to sell the Monaco Seattle for $63.3 million and -- Seattle for $33.7 million to our third parties. We expect both sales to be completed later in the second quarter, subject to normal closing conditions. The net proceeds from our asset sales are being held as cash intervened used to reduce our net debt and for prior and potential additional share repurchases. Since we reported in late February, we have repurchased an additional 3 million common shares, comprising $42 million of capital at an average share price of $13.96. Since October last year when we commenced repurchases, we have utilized $124.6 million of capital to repurchase 8.5 million common shares or over 6% of the then existing common shares outstanding at an average share price of $14.64, representing a more than 50% discount to the midpoint of our NAV range. These common shares repurchase increased our NAV by roughly $1 per share. As we sell additional properties, we will evaluate how the best utilized proceeds including reducing debt and or additional common and preferred share repurchases, depending on our outlook on the economy and how our performance progresses. If we use the some portion of future proceeds to repurchase our securities, we will do so only while reducing our net debt on a no worse than a leverage neutral basis. On that positive note, I'd like to turn the call over to Jon. Jon?

Thanks, Ray. I'd like to provide some color on the demand trends we have been seeing, where our growth is coming from, our booking trends and pace for Q2 and the rest of this year, and I'll discuss the cost pressures we are experiencing. First, the demand trends. It's been just two months since we last reported our yearend earnings and trends, and we provided a mid-quarter update last month with performance through February, and March hasn't been any different. We haven't seen any changes in overall demand trends in our industry in the last 60 days. Business travel continues to recover both group and transient, demand related to conventions is getting back to normal, international inbound travel continues to improve with Europe closing in on pre-pandemic levels, and Asia at the early stages of its recovery with a long way to go. Leisure travel remains healthy, though with less exuberance than last year, when splurging on suites and upgrades was higher than historical norms. With the continuing recovery in business travel, our urban properties have benefited the most. Our urban market occupancy climbed over 10 points or 22.1% versus an Omicron impacted first quarter last year and ADR increased a strong 8.7%, bringing same property RevPAR for our urban hotels to an increase of 32.8%. Non-room revenue growth was even higher at 53.1% with increased prices and group demand that comes with more non-room spend driving this higher level of growth. Yet with leisure and international in the early stages of recovery in the cities, and business travel with a ways to go. We have significant occupancy and total revenue opportunities. As our urban market occupancy was still over 19 occupancy points, or 25% below the 2019 level. Some of this will be recovered after the three urban redevelopments are completed later in the second quarter. But most of it will be recovered as business leisure and international travel normalize at higher levels. The cities that lead to first quarter recovery, as Ray indicated, included San Francisco, Washington DC, Chicago, Portland, and Seattle. We saw continuing improvement in San Diego, Boston, and Los Angeles. Our West LA properties we're up against a tough comp in Q1 with Super Bowl in February last year. And LA also experienced uniquely heavy and continuous rains throughout the quarter, which negatively impacted leisure travel. Yet we still grew RevPAR by 14.9%. Due to the continuing recovery in business travel, particularly entertainment that helped drive a 15 point or 28% increase in occupancy in the quarter. We're still 10 points or 12.5% below 2019 occupancy. In San Diego, the first quarter was very strong in the market, benefiting from a robust convention calendar, though it too was negatively impacted by the never-ending heavy rains. We had two of our four downtown properties under redevelopment, Hilton Gaslamp and Solamar. As a result of this disruption, the Hilton lost almost 9 points of occupancy or 17%, while Solamar lost 7.8 points of occupancy or 14%. Comparatively and as indicative of the market strength, our Western Gaslamp grew occupancy by 12 points, or 17%. And our Embassy Suites grew occupancy by 19.6 points, or 33%. The Western Gaslamp climbed all the way back to 2019 is level two due to its higher group segmentation. With overall ADR 22% higher than 2019 and the embassy is still nine and a half points or 11% below nineteen's occupancy, but with a rate of 10% higher. San Diego is our best-performing urban market, and it has an even better convention calendar next year. Our resorts perform well in the quarter, despite the year-over-year softness and right in Key West, and the continuous heavy rains have negatively impacted all six of our West Coast resorts. On the same property basis, which excludes the LaPlaya, our resorts gained 6.6 points of occupancy or 12.1% growth while ADR declined by 11.7% resulting in RevPAR, down 1.1% year-over-year. As expected, the occupancy gains were driven by the recovery in group demand and some lower rated trends in segments. The ADR decline resulted from the decline in Key West and the return to demand from some lower rated channels. While group rate throughout increased at a healthy rate. Our Q1 2023 same property ADR for our resorts remained at $126 premium or 44% higher than Q1 2019. Our non-room revenue and our resorts also grew substantially in the quarter of 19.2%. This was primarily a result of price increases we've taken and the recovery of group that drives substantially higher non-room revenue spend versus transient. Turning to our pays for Q2 and the rest of the year, it looks pretty good. In Q2 on a year-over-year basis, room nights on the books at the end of March were up 5.7% group rate was up 6.1% and group revenues were up 12.1%. Total revenue pace for Q2 versus last year, including group and transient was up 4.9% with rate representing 2.1% growth. For the entire rest of the year, including Q2 through Q4, group room nice paces ahead of last year by a strong 10.3%. Group ADR is up by 8.7% and group revenue paces ahead by 20%. Factoring in group and transient and looking at the total pace for the remainder of the year, total room nights are up by 8%, ADR is ahead by 3.9% and total revenues are up by 12.2%. Q2 year-over-year total room revenue pace is the weakest of the year. It improves in Q3 and then further in Q4. This is encouraging considering the current concerns about an economic slowdown or recession later this year, which we certainly do not yet see in our pace for the rest of the year. However, we should all remember that in the hotel business, it's good until it's not meaning it can turn very quickly and business on the books can cancel as well. Outside of the positive demand trends, we're experiencing a challenging cost environment. While we believe the rate of growth in wages and benefits is normalizing this year, and generally following inflation, we've significantly restaffed our property teams over the last six months. And so total staffing costs versus last year have been and will remain a challenge through September. In addition, as food and beverage and other services volumes like spa services recover, significant marginal expenses also recover. At this time, we're also experiencing significant increases in costs related to energy, water, and property insurance. Despite these expense pressures, we believe that after we lap last year's restaffing success later this year, we'll have significant operating leverage in the business to drive higher margins and higher EBITDA. In addition, and also on the positive side, he had further success in one of our markets, significantly reducing some prior year property assessments. As a result, we achieved a significant property tax reduction that was true up in Q1. We expect to have further success in this market and other markets on prior-year assessments in the coming years. These reductions and true ups in likely over accrued property taxes will help reduce costs increases related to some of these other expense categories. In the transaction market, as Ray indicated, we have had great success selling numerous properties over the last 18 months. We have two additional properties both in Seattle, under contract with buyers who have completed due diligence and have hard money deposits at risk. Assuming these two property sales close, sales to date will total over $230 million. Of course, sales are not done until they are done, regardless of the contracts. High-quality and well-located properties like we own continue to be highly desirable to the buying community. And as a result, we are bringing additional properties to market. While the transaction market for hotels and frankly most property types continues to be challenging because of the debt markets, and they have probably been made more difficult because of the recent events surrounding several smaller regional banks, we will continue to work smartly by seeking out buyers who can overcome these debt market challenges. Finally, I wanted to update you on this year's major redevelopment and repositioning projects. We completed the first phase, the final -- sorry, the final phase of the redevelopment of Viceroy Santa Monica, earlier this month. Following the renovation of the public areas two years ago, we now have a lifestyle property at the luxury level in Santa Monica that is highly attractive to both business and leisure travelers. We believe we are now in a great position to drive a $30 to $50 higher rate in a market that is seeing some shrinking supply and improving demand. By the end of next month, we expect to be substantially complete with the renovation and transformation of our Hilton Gaslamp Hotel, and in San Diego into a higher-end lifestyle hotel with a dramatically improved and larger indoor-outdoor bar restaurant, expanded and improved event venues, and a whole new vibe. This property probably has the best location in downtown San Diego and it benefits for being the closest hotel to the entrance to the convention center, as well as the main entrance to the Gaslamp District. This repositioning coupled with the property's premier location should allow us to drive $25 to $35 of higher ADR and substantially higher non-room revenue and achieve a 10% or better annual cash return on our investment. In July, we expect to complete the redevelopment and transition of Hotel Solamar into the Margaritaville Hotel Gaslamp district just two blocks from our Hilton. We are incredibly excited about this project and we expect to drive significantly higher rates and dramatically higher food, beverage, and non-room revenues at this property at Margaritaville. Between the rate share gains and increased total revenues, we expect to deliver a stabilized annual return substantially above our typical 10% cash yield on investment. At Estancia La Jolla, a resort we acquired in late 2021, we expect to complete in June the first phase of our two-phase repositioning of this property as a luxury resort that will be more appealing to both leisure travelers as well as its already heavy social and business group and corporate transient customers from the surrounding La Jolla area including its large and growing life sciences hub. This phase involves a complete renovation of the guestrooms, including bathrooms, and an expansion and upgrading of the many outdoor event venues at this expansive resort. We'll commence the second phase of this redevelopment and repositioning starting late this year. This second phase includes the renovation of the main ballroom meeting space, restaurants, lobby, and coffee shop. And it involves expanding and upgrading the entire pool complex, including adding high-end Cabanas, a new pool bar, and creating a new event venue as part of the pool complex. Finally, we're in the process of completing a major upgrading of Jekyll Island Club resort, which includes a comprehensive guestroom renovation of all of the historic buildings, including the main building and the three large cottages. It also includes complete public area and meeting space renovations and upgrades. Expansion of both pool complexes, including the addition of high-end cabanas for rent, we locating expanding the property's retail store, and upgrades to the property’s numerous outdoor venues. We believe repositioning this grand and unique historic resort as a luxury regional resort will deliver upon stabilization, a very attractive double-digit cash yield on our total investment. In addition to these current projects, we expect to commence the complete redevelopment and upgrading of Newport Harbor Island Resort late this year. This represents the last major redevelopment project in our strategic plan involving LaSalle portfolio and the properties we purchased in the last two years. In addition, as you know, we've completed over 24 major repositioning and redevelopment projects throughout our portfolio during the last several years. These projects are gaining share as the demand returns, and we expect to achieve very attractive cash yields at these properties upon stabilization. Significant progress has already been made at Chaminade Resort, Mission Bay Resort Western Gaslamp Embassy, Suites San Diego Downtown Skamania Lodge, one Hotel San Francisco, W. Boston, The Marker Key West, and L'Auberge Del Mar. All of these projects also involve creating and expanding indoor and outdoor event spaces, re-concepting and upgrading Restaurant and Bar outlets, and generally merchandising all indoor and outdoor spaces to drive significantly greater out-of-room revenues and EBITDA. We're confident that with a dramatic reshaping of our portfolio during the last several years through dispositions and acquisitions, combined with these many major projects. We're now in a great position to organically grow our top-line and bottom-line beyond the industry's growth in the years ahead. As we achieve the payoff of the very significant dollar investment and hard work that's gone into the dramatic improvement and repositioning of the properties we acquired in the LaSalle transaction and those resort properties we acquired in the last two years. That completes our prepared remarks. We now be happy to take your questions. Donna, you may proceed with Q&A.

[Operator Instructions]. Today's first question is coming from Smedes Rose with Citi. Please go ahead.

Hi, thanks. Jon, I was wondering if you could just talk a little bit more about some of the cost pressures, you mentioned on the wage side, and maybe just kind of on the sort of hourly kind of, I guess, relatively lower-skilled workers versus more on the managerial side. At the hotel level, are you seeing similar pressures across the board? And it's sort of in line with inflationary? So, what is that around? Like maybe a 5% increase for the year? Or maybe just a little more detail there?

Yeah, so generally, I think, when we look at cost pressures, I don't think the biggest cost pressures are the growth in wages and benefits at this point, I think they're running, they'll run this year in probably 4% to 5% range, and will vary throughout the portfolio by market. It's pretty similar for the managers and up within the portfolio. So, the increase in costs from wages and benefits is really due to the restaffing within the portfolio. Filling a lot of open positions, getting trying to get off contract, third-party contractors, who are providing people. And to be able to accommodate, frankly, the occupancy growth that we believed, and continue to believe that we'll be able to achieve this year and going forward. So, it's not really about the rate of growth in wages or benefits. It's about the increase in volume from staffing up.

And then just I'm sure it's still a relatively small piece of your overall expenses. But could you just kind of quantify what you're seeing on the insurance side in terms of the percent increases that you're having to pay?

Yes, Smedes. We're in all of our negotiation process with our renewal with our insurance carriers, which is June one. So, it's going to be a tough market. I think we can be touched on this last quarter, because of all the storms that's occurred throughout the country, as well as inflationary costs. This is going to probably be the second most difficult renewal since Katrina. So, costs are going to go up significantly. We certainly don't want to negotiate against ourselves, but it is going to be a headwind, we're going to do our best to evaluate the different areas and how do we frame up some parts of insurance in the stack and maybe take some higher deductibles and other adjustments to work through them, but it is going to be a headwind for us for the year.

And Smedes, in terms of sort of what we’ve experienced prior to the renewal, more of it really comes down to the fact that we've had a lot of smaller weather-related events within the portfolio. Whether it's the huge freeze we had in the Northeast that led to a lot of pipe breaks and damage from water, or the heavy rains out on the West Coast that had inflicted some significant damage on four of our LA properties, and rooms within those properties. They're not big in and of themselves each but each one hits the deductible and that adds up over the course of six weeks.

But that's me just put in for perspective, overall insurance costs are about 1.5% of our total expenses there. And the property and casualty side is about 75% of that, so it's about $17 million a year is the number.

Great. All right. Thank you, guys.

Thank you. The next question is coming from Shaun Kelley of Bank of America. Please go ahead.

Hey, good morning, everyone. Jon, Ray, maybe to kind of follow-up where I think SMEs was going there. If we put all these pressures together, I think when we rewind of how we thought things would evolve post-pandemic. I think we oftentimes talked about framing things in terms of margin improvement like efficiencies learned or earned during the pandemic about what was able to be done on the staffing side. Fast forward to today and the narrative has shifted to a lot around the cost landscape, multiple years of inflation pressure, and some of the things you just talked about. So, should we be thinking really in terms of how much margins are a little bit lower than 2019? Is that too aggressive or too concerning to worry about, or how would you help us kind of like update the framework from let's call it, two years ago where we were talking about on a stabilized basis, things being maybe 100 basis to 200 basis points better on a margin basis than where they were? Should we be thinking about 100 basis to 200 basis points possibly worse than where we were, all other things equal? Maybe if you could just help us level set that, I think you will be really helpful.

Yes, sure. Well, the cost -- 100 to 200 basis points that we have talked about previously in cost reductions to the operating model have been taken. So, operating more efficiently using more technology, operating with fewer people, that's actually occurred, Shaun. So, we have taken those costs out of the model, which tells you, it would be worse today, had that not been the case. So, we don't think of a world of margins. We think of a world of profits. We look at expenses and we forecast expense growth as opposed to forecasting margins in our portfolios. And margins get impacted by a dramatic increase in non-room revenues. As an example, as we increase the percentage of our revenues to non-room categories with the re-merchandising and redevelopments that we are doing within the portfolio, that will actually lower our margins, but it will increase our profit per key. So, we are focused on operating as efficiently as we can. To think about your sort of general comment, I'd say, expenses go up over time and the macro environment has an impact obviously on profitability, both revenue growth and expense growth. So, I don't -- we don't really think about it the way, you were describing it. We think about it as, how do we make the operating more efficient and then how do we mitigate macro and micro pressures on costs that go up and down. Ray talked about insurance. It's going to be a tough year. There were probably four years in a row probably seven years ago where we went down 10% to 15% a year in our premium. So, these things go up and down, energy does too. We have seen oil and natural gas go up. Natural gas has come down. If it stays there will be re contracting at lower rates again, and that'll bring energy back down again. But all these things move around. So, I can't really comment on it from a margin perspective, I can just tell you that we took 100 to 200 basis points of costs out of the operating models permanently. But there's growth in other areas. We continue to believe that as we get through whatever this macroeconomic thing is a slowdown or recession, whatever it is, that as we ramp back up at peak in the next cycle, particularly with supply being so restrained for probably three to five years, that will peak again, at higher margins as an industry than we did in the last cycle. That would be my sort of broader forecast.

And then maybe one sort of on a couple of either markets or asset specific. But you obviously called out some of the rate normalization in Key West. And I think that's certainly not the first we've heard of that. Can you just maybe think help us think about some of these kinds of other resort markets, you've acquired into on the East, typically, off the Coast of Georgia, maybe a market like Newport? Are you seeing similar pressures to a different magnitude appreciate there's some renovations and a property specific stuff going on? But just broadly, what is the consumer behavior in some of those assets that, I think we're really big pandemic winners?

We're not seeing pricing pressures in those markets. Were there's some impact from a change in behavior, it would really come from I would say, a general reduction in demand of premium suites and premium rooms, from the high levels that we got to last year, and some even the year before. As people splurged on themselves after being inside for a year or two. So that's pretty general across the board. It's interesting, it's a little different than what the airlines are seeing, in terms of them talking about the premium customer. But it is consistent with the high demand we continue to see at our high-end resorts, in terms of the number of overall luxury customers. So, we're not seeing pricing pressure really elsewhere. But we are seeing some slightly fewer number of premium rooms at higher rates. We're also driving more group at our resort properties. So that's a different segmentation. And our group rates, by and large at our resorts are actually lower than our transit rates. Not surprisingly, right? And so, they come with other revenue and other profitability. But they also come generally at lower rates than the leisure transient rates in those markets. So that's the biggest impact on our rates and the trends that we're seeing on the leisure side. Even Key West is a good example the demand is held up in Key West. But we've swapped out some high-spending customers perhaps for some more normal, lower rated customers. That's impacting the market.

Understood. Thank you very much.

The next question is coming from Bill Crow of Raymond James. Please go ahead.

Good morning. On the expense side of things, is it time yet to start thinking about slowing down the new hire process or maybe even reversing a little bit of it just given the uncertainty in the macro? And what appears to be maybe a slowing consumer?

Yeah, I mean, I think that's what we're doing right now. Where if a position becomes available, we may or may not fill it. I think that really is more at the manager level, then it would be at the hourly level, the hourly level gets just dictated by volume. And, of course, many of those people, may or may not get hours every week, particularly when it comes to food and beverage, and banquet and catering. They probably work multiple properties and they work, when there's business. So, the general answer is yes. We are at the property level, talking with our operators about continuing to be more cautious about adding additional staff from here. Until we actually see greater volumes, further greater volumes. And as we get a clearer picture of what the macro is going to look like and what its impact is going to be on our industry.

One more follow-up question. You probably have more insight on this topic than the others in the space. So, directed to you. But the writers, I guess writer’s guild is threatening to go on strike and in Los Angeles, and the last time that happened was in 2007. And I'm just wondering how you assess that the disruption to that market, your assets in particular, which tend to rely on entertainment fairly heavily?

Yeah, it's really going to depend upon whether if they do strike Bill, whether it's short, or it's long. The short strikes three weeks, four weeks, two weeks, I mean, we've seen these in the past, they tend to get settled pretty quickly. And historically, at least, and they have very little impact on the market. And I think that, compared to history, the content, obviously, development volume has morphed in so many different directions. And a music, of course, is not impacted. And some other forms of entertainment. Most production that's going on today, and probably is going to go on over the next three to six months is already written. So as likely doesn't have much impact in the short-term. That's why I said it really depends upon if they do strike how long it's going to be. And then we're just going to have to see how it plays out.

The next question is coming Floris Van Dijkum with Compass Point. Please go ahead.

Thanks, for taking my question, guys. I guess I have a question regarding the recent asset sales in Seattle. Kudos obviously if you get those over the line, it helps fund your -- essentially almost all of your redevelopment pipeline. But could we expect more urban sales perhaps markets that are -- that have got some political issues like Portland? And then maybe talk about because your mix of urban versus resort has changed at the margin, you are now slightly more heavy towards resort at 40%. I think you were at 35% before. And how do you see that trending forward?

This is Tom. Thank you for the question. I think as it relates to as it relates to the locations and that type of thing, we don't necessarily indicate what we're going to do. But I think it's a safe assumption that, we will continue to look at some of our urban markets. I mean, we are risk adjusted return investors. And so, when we look at some of the friction cost and some of the other things that are going on, from an earnings perspective and or political perspective, that certainly influences where we are going to look to sell. But could it be in markets that you suggested? Potentially. But I think the overall transaction market right now, you've got to be careful in terms of what you are looking because if you want to actually sell something. You have got to look at what's marketable. And I think certainly looking at assets that are smaller that offer upside to maybe investors that have a strategic investment thesis, those are the types of buyers that we are looking for.

And does that mean that we have heard people talk about assets less than $100 million or much more liquid. Is that what you are seeing in the market as well? And obviously, you own a pretty nice asset in Portland, that's might be just over that in terms of total value, but does that make it easily transactable?

Well, I would say nothing is necessarily easy in today's market is given the challenging capital markets. But I think you hit it on the head in terms of, certainly, I think the threshold that we see today is certainly less than $100 million is much more -- you can transact that much more easily than you can something over $100 million. I think there is a number of investors that we look at and that we have been successful with who can close on a deal all cash or all equity and finance it later or some $100 million. There is relationship lenders that many of these investors have.

Tom, my follow-up question, I guess, and I'll waste on that as well. But maybe if you can touch upon the buyers of the assets in Seattle. And obviously the lending markets are sort of remain gummed up and very difficult right now. Are these all cash buyers willing to accept a much higher spread and cost, and in your view -- and looking to refinance it in two years' time when presumably rates are lower, how did the buyers, what's the mentality of the buyers and based on what you're seeing for your assets?

Yes. I can't necessarily comment just based on confidentiality just as it relates to the characterization of buyers. All I can tell you is, I think for assets like this, there continues to be competitive depth. There is a number of groups that we will look at it that have a reason for being there that are potentially strategic. And that have what I'll say, relationship lenders recognizing that, it is more expensive debt today, but recognize that relationship lenders and how they structured their debt may still fit within their strategic plan.

It may be, because I've heard some stories in San Francisco of the sale recently that of a hotel that's going to be converted. Are you seeing more of that? And does that sort of feed the supply demand dynamics that that should be working in your favor as well, longer term?

we're seeing someone off in some markets. But I wouldn't say that that's predominant, because that has its own challenges. But I think overall, as John indicated before, we think that the supply picture and a number of these urban markets. Looks very promising, certainly over the course of the next three to five years. One, it's going to be very difficult, one from a construction financing perspective, and two, just from a political climate in terms of what can and can't get done in some of these recovering markets.

The next question is coming from Michael Bellisario of Baird. Please go ahead.

Thanks, good morning everyone. Jon, you talked a little bit about your urban markets, but wanted to dig in a little bit more, it looks like things really stepped up in March. Maybe relative to your expectations, was that more volume or price? And then what industries or what urban markets actually drove that upside in the quarter?

I mean, I think in March, it was more volume than it was price. The price growth remains healthy and continues to increase modestly from quarter-to-quarter in the urban markets as they recover, and as the city winds come back, which tend to drive more compression and higher rates. And as the corporate transit comes back in those markets. For us a lot of these markets have, I don't know, I guess you could describe them, as many large tech users in those markets. They're gradually coming back to work. The getting people back for the minimum of three days a week is, I'd say, pretty prevalent now, including in markets like San Francisco and Seattle, and Portland, and a market like Boston. So, I think that's beneficial overall to our business. In those particular markets and we're seeing more BT, we're seeing more group that comes from those industries. But I think the recovery and business travel is pretty broad-based from an industry perspective, just happens to be a tech need is a little heavier weighted in some of our coastal markets.

And then maybe tying that together, just to the topic of urban to the prior question on transactions. As you get through some more of these asset sales, presumably, more urban hotels, maybe help us understand what, what's the ideal had hotel look like? And what's the right size of the portfolio? It could sort of prospectively maybe 12 months out after some more of these hotels gets old?

Part of the reason we're selling is not because, we don't want to be in a particular market. As Tom said, we're risk-adjusted return investors. And so, the concept of selling has more to do with capital reallocation to places where we believe the returns are going to be higher. And so today as indicated by what we've been doing, we've been reallocating some of those proceeds to buy back our stock. And we think that's far more creative on a value basis per share, than reallocating that capital and going out and buying new properties for the portfolio. So that's where our current focus is. I'd say in general, what we've been selling has been the lower quality assets, not at any of our properties are low quality, because we don't have anything below upper upscale, but selling the lower quality properties, where we think the combination of the market and the individual property will have less attractive risk-adjusted returns. And what are alternative use of capital today is, which is buying the rest of the portfolio back at a 50% plus discount on a levered basis, and a 27% discount on a gross basis. And more than half of the gross sales proceeds that we're using, we're using to build cash and have effectively lower net debt.

The next question is coming from Dori Kesten of Wells Fargo. Please go ahead.

Just a follow-up on that, with utilizing sales proceeds to repurchase stock, what would you need to see in the macro environment that would make you shift to retaining more of that cash, effectively holding for that pay down?

I think we would need to see a significant slowdown in the economy that's actually having a negative meaningful negative impact on the operating business. And even then, I would say it would still depend upon what happens to the stock. So again, it's back to risk-adjusted returns. If the stock were to react negatively to that, I guess even more so than it already has from the fear of a downturn, then again, we're going to weigh those two things, in terms of what we do with proceeds. But liquidity, our liquidity is huge. So, we have almost $800 million of liquidity. And so, if things were obviously to turn bad, more severely, we've got plenty of liquidity to deal with that. And we don't really have any material maturities until late next year.

We have more liquidity than we had going in the pre-pandemic example.

Thanks. And you've touched on this a bit in your prepared remarks. What are your expectations for out of room spend as the year progresses and would you expect the outperformance versus room spend to continue?

We do expect the out of room performance to continue to grow at a higher level than RevPAR. And again, it's really coming from two areas. Pricing increases that we've taken to try to mitigate cost increases as well as group, the increasing segmentation of group really getting back to its more normal percentage of the portfolio. And as those group rooms come back, they're coming back with non-room revenue. So, we do think they'll grow faster than RevPAR, and outside of the second quarter, we don't really have any outlook for the rest of the company. So, we don't have a specific outlook we can share on non-room revenue.

Okay. Thanks.

Thank you. The next question is coming from Duane Pfennigwerth [ph] of Evercore ISI. Please go ahead. Please go ahead.

Hey, thanks and good morning everyone. This is Peter on for Duane. I think just following up on the previous question. You mentioned weather in the West Coast resorts for 1Q, and maybe some cancellations that resulted because of that weather. Did that impact the out of room revenue that we saw in the quarter, or is there a way to put a number on how much effect that weather had?

Yes. I mean, it did have an impact on non-room revenue because certainly leisure at our resorts has pretty good spend levels. So, it wasn't just rooms that would have been -- that were impacted. It's shocking that people don't go to the beach when it's raining or it's raining hard with 50-mile-an-hour winds. It's is not really a pleasant place to go to, which is a lot of what our certainly Southern California properties are about on the leisure side. And then even as you work your way the coast. We had flooding near Santa Cruz that negatively impacted business along with the heavy rains. And in the Pacific Northwest at Skamania. I think they had a four- or five-week period where it didn't get above like 40 degrees. And so again, negatively impacting the leisure customer there. And we just saw it in the volumes and the bookings. And it was probably more bookings than it was cancellations per se, throughout the portfolio. It's pretty hard to estimate it, in terms of how much it was. But it was enough to be material enough to mention in this call.

That included your song.

Evidenced by our song, yes.

Okay. Thanks for that. And then quickly, you mentioned that wages are up maybe about 4% to 5% year-over-year, given the increase in staffing year-over-year as well. How much do you anticipate hours being up or is there a way to put kind of a volume number into that equation?

Yes. I mean... Look, we are hoping hours are going to go up because that will be a function of occupancy is rising as well. Last year, we finished occupancies in the mid to low 60s, that's still well off where we are in '19, which is the low 80s. So, we are making that climb higher and as result hours will go up and cost will go up because our revenues are going up. But overall, as John indicated earlier, the changes we have made, we still have fewer FTEs at our properties than we had pre-COVID. And that's a function of retooling operations, less hourly, less managers, combined positions, combined management clustering in certain markets. So overall, that's where we feel better about the cost there. But this is all just part of this more segmentations that are open and operating. We have been with some catering from the group side that we really didn't have as much over the last two years now we are having. That adds hours, but also adds ultimately EBITDA on the bottom line.

Thank you.

Thank you. The next question is coming from Gregory Miller of Truist Securities. Please go ahead. Please go ahead.

Thank you. Good morning. I'd like to start off with San Francisco. I'm curious to get your expectations for 2024 for your hotels, given challenge conventions and pace forecasts. And the convention and Visitor's Bureau strategy, that appears to be so much shifting to in house group in business at the large big box hotels due to some weakness at Moscone?

Sure. So, it's pretty hard to indicate what we think 24 is going to look like, because we haven't indicated what the second half of this year is going to look like, Greg, so I can't tell you that more group rooms on the books is better and fewer is worse. So, the fact that they're down a couple of 100,000 room nights next year is going to be more of a challenge for that market. As it recovers, it's not a new strategy. It's typical for them to sell both conventions and short-term group at the convention center. And in the year for the air group, and, frankly, future group in the bigger boxes in the market. And so that's it's not really a new strategy on their part. It's, I think it's part of their marketing, to indicate that they're not sitting on their hands, which they're not the other thing they need to do and we're there's two things happening, Greg. One is there'll be the existing director of SF travel is retiring. There's a search process in place. Hotels in the market, including ownership are actively involved in that process. And along with the members of the board, who are generally GMs of our hotels in the market, I don't mean as Pebblebrook, but owners in the market that will be involved in the selection of that individual, which we think will bring some great passion and energy and knowledge to that market, that'll be helpful. I don't think this strategy about spending time booking big hotels is a bad strategy, it's what's available currently will benefit all the hotels in the market, as it always has in the past. So, we would certainly view them focusing on that, because it is business they can sell today as a positive and where they should be putting their effort. The other area that they need to put more effort into is Moscone was renovated and expanded, in order to open it up to being able to have two or three mid-size or smaller conventions in at the same time, as opposed to I think what was a previous focus? Because it was easy, which was these annual humongous corporate conventions that are really difficult on the city. And drive probably rates that some people find unattractive from a buyer perspective. So that's the other rotation they'll be doing over this year and future years to help drive business in that marketplace.

As my follow-up I apologize I couldn't hear Ray very well in the prepared remarks regarding Naples, but given your recent visit to the market? I'm curious. I know it's sort of a crystal ball but, what you think the tourist appeal of Naples will look like by the start of 2024 the peak season? It will the demand or rate take a few years to fully recover? I'm trying to think about it from the perspective of particular modeling will apply for next year.

Yeah, I think, it's interesting, we were down there. And there's a $20 million beach restoration program underway while we were there, and these monster dump, I guess, their dump trucks, but my I mean, monstrous ones, basically driving back and forth on the beach to replenish the beach. And that's, I think, if I remember correctly about a six-week process for the full beach, they actually already reached our property and basically added two feet of sand to get back to where it was before the storm. And of course, they do this every few years, regardless, because Sam, not surprisingly, goes back out to the golf over time. So, I think the market itself, outside of, first of all, I think today outside of those stretches along directly on the beach, in terms of buildings, looks like normal. All the golf courses are open, all the amenities are open, the beaches open, Vanderbilt beach here, the whole stretch of it, with this replenishment program will be completely replenished, within six weeks, so it'll be better than new from that perspective. And I think, in our case, as we indicated, will be we should be complete with the beach house and fully reopened all of the amenities, rebuilt and reopened to the property. And frankly, a product that's better than what we had going into the storm because of all the rebuilding. Naples itself is sort of an annual retreat for a large number of people who come to the market. And so, the good thing is our experience in the market and we had this five years ago after Irma is that the market bounces back pretty quickly. So, the ramp up, and frankly, the ramp up has already started in the market but I think it'll accelerate next year. And I don't know that it really takes more than 12 months, but we're just going to have to see, the Naples needs to do obviously significant marketing. And I think it's best for them to wait towards the latter part of this year. When everything is back and operating again, the way I was prepared pre-hurricane.

The next question is coming from Ari Klein of BMO Capital Markets. Please go ahead.

Thank you, and good morning. Maybe just following up on the resort rates that were talked a little bit about a little bit earlier. I think you mentioned excellent fire, they were down 11%. How are you thinking about those year-over-year declines, I guess moving forward through the rest of the year? Do we kind of level off in that range? Do you think the decline even?

Yeah, I mean, it's hard to predict at this point. We can look at what we have on the books and it's probably flattish. But my guess is the shorter-term bookings, the resorts are probably going to be at lower rates, as we fill in some of the less desirable dates and days of week. So, I would anticipate, I mean, if I had to guess, I'd say they are probably going to be similar to where they are now. And that's why we have said earlier in the year, we think resort rates will be down, occupancy is up at the resorts and probably bottom-line is flat, and probably would be up. But for the displacement from the big redevelopments, urban rates will be up and will be roughly flat in rate for the year with our big growth in RevPAR coming from occupancy and the big growth in total revenues coming from non-room revenues as well. So that's kind of the broader way we look at we would expect the year to play out. Quarter-to-quarter is really hard to anticipate.

And Ari also, I think it's important to think about and talk about rate. But also, on the occupancy side, somewhere to our prior comments about the return of corporate group and some of that business, that will also benefit the resorts. Our occupancies are still down to where we were in '19. So even though we have a rate premium in the first quarter as an example, our occupancies were about 800 basis points below, where they were in '19. So, we also have the ability to grow there, even though it's perceived that, resorts are hitting all cylinders and they are doing really well, that's from a rate perspective. But from an occupancy, we will gain more and that's more upside as the recovery happens here.

And some of that business that's going to come back like international wholesale. Some of it's going to come back at lower rates, but it's going to fill down periods, off-season business and drive those occupancies and non-room revenues that ultimately still produce more profits.

Thanks. And then just on the renovation headwinds, there is a meaningful impact in the first half of the year. Would you expect that to be somewhat similar in the second half? And then looking out to 2024 kind of as you wrap up a lot of these major projects, would you expect those headwinds to further moderate?

Yes. So, it really is little to no impact in the second half of the year from renovations. We are really done with the impactful parts. The second phase of Estancia is some of the public areas meeting space and the pool area. I mean, it'll have some minor impact on leisure, not having a pull-in service for some period of time. But generally, it's the room rentals that really have the biggest impact on business. And Newport Harbor actually loses money over that 4.5-month period that we are going to do the renovation. So, it may have an impact on revenues. Obviously, those will be lost, but it won't have much impact at all on the bottom line. So, I think we are pretty passed it with the second quarter.

And Ari, other thing to note is we a lot of our heavy lifting on our major redevelopments will be done this year after actually this next couple of quarters here. Next year, the only two projects major ones that we have Apparently, we are evaluating the Newport and then the potential conversion paradise point which is still in process. So, the rest of the portfolio has been either renovated or redeveloped. So that puts us in a good position as we're going to '24 and beyond.

Our final question for today is coming from Anthony Powell of Barclays. Please go ahead.

Hi, good morning. Just maybe one more from me on expense growth and staffing. What assume that we escape a downturn in next year, we have occupancy of 5% You still have to add incremental staff, to your hotels and try to figure out when you would be actually able to leverage your staffing and push margins.

I mean, every point of occupancy is always going to out our release. That always be the case, it does matter where we are, in terms of overall occupancy, it's volume that just has to be dealt with, whether it's housekeeping, or whether it's in the outlets. The more volume you have, the more people you need, et cetera. So, I mean, it's obviously a step function. But you should assume that, if we had five points, more of occupancy, we're going to have more our lease, we probably don't have them in every category. But we're but overall, they'll certainly be some hours at it.

Thanks. And maybe one more if he could just kind of rank yet. He still sorts of the West Coast in terms of desirable markets, you've talked about, in prior times, I like the West Coast, that's changed a bit looks like given your asset sale, so maybe just maybe rewrite or discuss some of the major markets again, and how you're thinking about them from supply-demand recreation on that?

Well, I think most, most markets, not all of them around the country are going to benefit over the next three to five years of having vary limited supply growth, particularly the urban markets. There's a relatively limited supply that gets added to the resort markets, certainly on the in the hotel or resort category, because tends to be fairly restricted from a zoning and approvals perspective. I don't think, first of all, I don't think we ever had a bias to the West Coast. As markets, I think our bias was a risk-adjusted return attracted attractiveness that brought us to a lot of those markets early in the last cycle. And I think that proved to be very successful. And I think we have a list of 35 different risks that we look at in the markets that we're underwriting. And so that's one piece of it, but the return part depends upon what other people are willing to pay. So, it's hard to tell you, we don't have a strategy that says we want to be here. And we no longer want to be here. It really is a set of dynamics that will drive our decision-making both on the as, I said earlier on the disposition side, as well as on future acquisitions.

At this time, I'd like to turn the floor back over to Mr. Bortz for closing comments. Thanks, Donna. Thanks, everybody, for participating. Sorry to keep you so long if you're still there. Hopefully, you found that informative, and we certainly look forward to updating you in 90 days, and obviously, if you have further questions, feel free to give us a call. Thanks very much.