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Greetings, and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Conference Call. [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. You may begin.

Thanks, Donna, and good morning, everyone. Welcome to our second quarter 2023 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. And for those of you who track these sorts of things, this is Jon's 100th earnings call, so congrats, Jon. To start, a reminder that comments today are effective for only today, July 28, 2023. Our comments may include forward-looking statements under federal securities laws. Actual results could differ materially from our comments. Please refer to our latest SEC filings for a detailed discussion of potential risk factors and our website for reconciliations of the non-GAAP financial measures referred to during our call. We are pleased to report that our adjusted EBITDA and adjusted FFO both exceeded the top end of our outlook. Operating expense reductions helped to offset lower-than-expected RevPAR growth, while greater-than-expected business interruption proceeds and interest and tax savings provided a further boost to our bottom-line financial results. We continue to see a gradual recovery in business travel as both improving group and transient demand benefited our urban properties. The recovery in San Francisco led the way, with occupancy climbing by over 13 points followed by Washington, D.C. up 11 points, Los Angeles increasing over 9 points, Chicago up 6 points, and Portland increasing almost 3 points. Our urban properties also benefited from recovering leisure travel to the cities with concerts, sporting events and festivals, generating demand loss during the pandemic. A big thank you to Taylor Swift, and we love her, Dead & Company, and Morgan Wallen. And please keep scheduling those big contracts. Recovering business and leisure travel, combined with -- drove our same-property urban RevPAR growth ahead by 5% over last year's second quarter. This helped to offset the moderating room rates and normalizing demand for suite and premium room upgrades we're experiencing from the leisure segment, particularly at our resorts. Same-property total RevPAR posted a slight increase of 0.6%. Room revenue growth was flat, with non-room spending up 2.1%. During the quarter, we experienced some unexpected challenges such as unseasonably cold and wet weather on the West Coast, notably in South California and the Pacific Northwest, which negatively impacted leisure demand as well as slightly more significant than anticipated disruption from our redevelopments. And a negative impact to our West Los Angeles properties due to the writer strike that significantly reduced demand that emanates from the TV and film industries. Nevertheless, occupancy in our portfolio continued to recover as we regained over 300 basis points or a 4.6% improvement in occupancy. And despite an industry-wide softening in leisure demand, we also generated a promising rise in our Q2 weekend occupancy to 79%, a marked improvement from the 75.7% from the prior year. This encouraging trend of improving weekend demand was evident throughout our portfolio, including our resort and urban locations. Our hotels gained market share during the quarter and our TripAdvisor customer rankings are at the highest ever across our portfolio, indicating the desirable nature of our properties and the quality of the service provided by our various operators. These achievements are a testament to the success of our recent property redevelopments, which have made our hotels more attractive to both the leisure and business travelers. Disruptions from the 5 significant active redevelopment projects during the quarter decreased RevPAR by approximately 180 basis points, about 30 basis points more than we originally anticipated. The various issues, including delays in receiving and installing FF&E, that caused these disruptions have primarily impacted Hilton San Diego Gaslamp Quarter and Hotel Solamar. All the projects, except for Hotel Palomar's conversion to Margaritaville Hotel San Diego Gaslamp Quarter have been successfully completed. We anticipate Solamar's transformation to be substantially complete by the middle of August, a slight delay from our original target. Despite these challenges, our same-property EBITDA of $110.7 million was in line with our Q2 outlook range. This was achieved through focused efforts to moderate operating expense increases and some continuing success in reducing property taxes. Furthermore, our energy cost increases were more moderate than in previous quarters, registering an 8.8% increase in Q2 versus the prior year and a decline from the 18.3% increase experienced in Q1. This reflects significant investments and efforts to reduce energy and water usage throughout our portfolio. On the property insurance side, we completed our annual renewal in June. Despite the very difficult market conditions, we were able to limit our property/casualty premium increase to 59%. We view this as a positive outcome given the current challenging nature of the property insurance markets, the fact that we largely maintained our prior coverage levels and terms, and the fact that there are many others out there who have experienced 100% increases or more. Turning to monthly RevPAR growth, April was flat, May rose by 1%, and June ended down 1% compared to the same months in 2022. Our adjusted EBITDA and FFO benefited from business interruption proceeds of $14 million for LaPlaya, exceeding our forecast of $10 million. Lower-than-expected G&A and interest expenses also contributed to our positive variances to our outlook. During Q2, we completed $52.5 million in capital reinvestments across the portfolio, mainly concentrated at our 5 major property redevelopments. And to date, we've invested over $75 million into the portfolio. The major disruptions from these redevelopments are largely behind us as we enter the second half of 2023. We are confident our repositioned properties will significantly increase our market share and cash flow in the upcoming months and years. To detail the operating performance impacts from our 5 major redevelopments to better isolate the performance of the nonimpacted properties, if we look at the portfolio numbers excluding these 5 properties, which is Estancia La Jolla, Solamar, Hilton Gaslamp, Viceroy Santa Monica, and Jekyll Island, RevPAR growth for Q2 would have shown an increase of 1.8% versus the flat RevPAR we reported. Total revenue, we have shown an increase of 2.8% versus the 0.7% we reported, and hotel EBITDA would have been down by 8.7% from last year's versus 12.9% reported, or over $6.5 million of impact to EBITDA in the second quarter and over $11 million year-to-date. We also made substantial progress in the ongoing repair, restoration and reopening of LaPlaya Beach Resort Club in Naples. The 40-room Bay Tower and 70-room Gulf Tower, which houses the resorts' lobby, restaurant and club, are now largely operational, with additional resort amenities being added each month. The 79-room Beach House is also progressing, and we expect the restoration of this building to be substantially complete and reopened by the end of the year. During Q2, despite not offering complete resort experience plus the noise and disruption of ongoing construction, the 110 guest rooms available for sale at the 2 operational towers managed to sustain a 46% occupancy with a $452 average daily rate, an encouraging 19% increase of the average rate over 2019. It's worth mentioning, before the devastation caused by Hurricane Ian, we projected LaPlaya to generate more than $10 million of EBITDA for Q2 versus the $1.9 million loss that it incurred. Our Q3 outlook factors in an additional $10.5 million of BI insurance proceeds related to a portion of Q2 losses. And to date, we've recorded $22.1 million of business interruption through this year's second quarter. As part of our strategic capital reallocation efforts, we completed $97 million of property sales in the quarter, including Hotel Monaco Seattle and Hotel Vintage Seattle, bringing our total asset sales to $232.3 million since the start of the year. All the sales have been urban properties as we have sought to better balance the leisure and business demand segments of our portfolio to maximize our risk-adjusted returns. During the second quarter, we strategically utilized $50 million of the sales proceeds to repurchase our common shares at an average purchase price of $13.97 per share, bringing our common share purchases to $91 million since the beginning of the year. Adding in our purchases from the fourth quarter of 2022 when our efforts began, we have purchased 160.5 million of common shares or 8% of the shares outstanding at the time at a weighted average share price of $14.51 per share. We have purchased $16 million of our preferred equity at a $16 per share amount, a significant 36% discount to its par value of $25. And we estimate that our share repurchases have contributed over $2 per share in additional net asset value. This is based on our updated NAV table, which is available on our website. Turning to our balance sheet and liquidity, we have over $823 million of liquidity, far more than we had before the pandemic. It's comprised of $186 million in cash and $637 million available on our credit facility. Our weighted average cost of debt stands at 4.3% with 78% at fixed interest rates and 91% of our debt is unsecured. Our growing cash balance, the result of our successful property sales combined with our existing liquidity, will be available if needed to address our upcoming debt maturities over the next 12 to 18 months. And with that update, I'd like to turn the call over to Jon. Jon?

Thanks, Ray. I thought I'd share some color about what we've been seeing in the industry and within our portfolio. In the second quarter, total industry demand for hotel rooms clearly flattened out. With weekdays as a good indicator of business travels' recovery continuing to improve, albeit at a more gradual pace, while the industry's weekend demand for rooms was down year-over-year in every month in the quarter, continuing a trend that began in March. We believe these slowing demand trends do not indicate an impact from macroeconomic issues or concerns, but rather, primarily reflect 2 major factors. First, we believe leisure travelers are now much more comfortable than last year with traveling abroad, especially to Europe, as well as cruising again, with cruise ships reportedly sailing at full capacity. We believe this represents the same sort of revenge travel that benefited the domestic hotel business last year. Second, we believe that the comparisons to last year's second quarter were more difficult because we're comparing to numbers that significantly benefited from Omicron related re-bookings from the first quarter, thereby somewhat overstating the true underlying demand recovery in the second quarter of last year. While the revenge travel factor for outbound international travel and cruising will likely continue to impact this year's demand levels, we believe it's more likely to normalize late this year and next year. As it relates to the difficult comparison to last year's Omicron induced additional demand, we believe we're now mostly past that impact. We believe an easier comparison may already be beginning to show up in July with the most recent numbers STR reported showing occupancy for the industry ahead of last July month to date. If that trend holds for the entire month, it would be improved from last quarter when occupancy was down year-over-year in every month. Fortunately, supply is expected to continue to be benign, creating a strong positive tailwind for the industry for the rest of this year and for many years to come. In the second quarter, industry supply growth was just 0.3%, and we don't expect it to materially increase for quite some time. In fact, we don't see industry supply growth returning to even the 1% level until 2027 or later, given the challenges with the cost and availability of construction financing and the high cost of construction, particularly as compared to potential development yields and hotel values for existing properties. For Pebblebrook, Business Group continued to recover in the second quarter with group room nights up 2.7%, ADR ahead by 4.7%, and total group revenue up 7.5%, so well ahead of last year's second quarter. Transient revenue year-over-year was down 2.3%, while room nights still increased substantially with a lower average rate causing the decline in transient revenue. The ADR decline in transient rates occurred primarily at our resorts and was generally due to what we have called less splurge, which means fewer premium rooms such as suites and view rooms being sold, and those rooms that are sold achieve lower rates overall compared to last year's prices, which benefited from very strong domestic demand and a relatively price insensitive consumer. The decline in ADR at our resorts was also caused by group weekday occupancy gains at lower rates than transient, which is typical to our resorts and some occupancy gains made through lower rated channels such as wholesale or international. Year-to-date, our resort rates have declined by 10.4% or $45.30. Yet they remain at a very robust 40.4% premium to the first half of 2019 or a premium of $111.89. Doing the math, our resort ADR premium has regressed about 29% or so, but it's still slightly better than the 1/3 regression from peak rates we were expecting as demand normalized. We remain encouraged that our resort rates will ultimately grow from these much higher rates we've achieved in our resort portfolio since 2019. And some of this ADR and RevPAR gain is a direct result of competitive share gains due to the very significant strategic capital investments we've made over the last several years to reposition our resorts higher in their respective markets with more share gains to come. In fact, our total portfolio managed to gain RevPAR share in Q2, in this case 66 basis points, even with the approximate 180-basis point negative impact on our portfolio's RevPAR performance due to the 5 redevelopments in the quarter. As we look at the third quarter, we've not yet observed any meaningful increase in cancellations or attrition. This would be one of the first indicators of a slowdown in demand as a result of broader macroeconomic issues or concerns, and so far, so good. We're currently forecasting that occupancy for our portfolio in the third quarter will continue to increase over last year by as much as 2 to 3 occupancy points, but it's likely to do so at a similar decline in average rate as occurred in Q2 for all the reasons previously discussed. Total revenue pace for the third quarter is ahead of same time last year by 5.9%, with combined group and transient room nights ahead by 7.9% and ADR off by 1.9%. We believe this revenue pace advantage is likely to shrink over the course of the quarter as some transient and group have likely booked further out, potentially having less to book on a shorter-term basis. Our bookings in the quarter for the quarter in the second quarter were less than the prior year, but we're hoping some of this was due to the strong bookings out of Q1 into Q2 that took place last year as Omicron wound down in last year's first half. Fourth quarter pace on the books has been and continues to exhibit the strongest quarterly year-over-year growth. And should the economy continue to hold up, Q4 should be our strongest growth quarter of the year compared to last year outside of the first quarter with the easy Omicron comps last year. Currently, for the fourth quarter, our total revenue pace is ahead of same time last year by 35%, with room nights ahead by over 25% and ADR up by almost 8%. Bolstering our optimism for the fourth quarter are very strong year-over-year convention calendars across a number of our cities with standout pace growth in San Francisco, San Diego, Boston and Washington, D.C. Our group revenue pace for Q4 is ahead of same time last year by over 42%. It's critical to remember, however, that these positive pace figures are indicators. They're not guarantees of realized business. Of course, it's better when they're up, and up by a lot is better than up by a little. In terms of July same-property RevPAR, we anticipate a slight dip of about 1% to 2% compared to the prior year, with all of it due to rate as occupancy in July is on pace to be up by around 4 points versus last year. Recent booking activity in July, the peak summer travel month, has been encouraging, particularly for short-term leisure. Our Q3 outlook projects same-property RevPAR compared with the prior year quarter to be in the range of minus 2% to up 1%, but it's still likely to be ahead of 2019. We expect gains in occupancy versus last year, slightly offset by declines in ADR. Our forecast incorporates the last of the disruption from the redevelopment of Solamar being converted into Margaritaville Hotel Gaslamp Quarter, San Diego, which is slated for substantial completion and reflagging in mid-August. Additionally, we factored in our best estimates concerning the potential negative impact of the ongoing writers and actors strikes in Los Angeles which we estimate to be as much as $1 million in revenues and $500,000 in EBITDA. Of course, we have no special insight into when these strikes might be resolved. Currently, we understand the 2 sides are not meeting. On the expense side, growth over last year should continue to come down in the second half, including in the third quarter, but the biggest year-over-year growth rate decline in expenses should come in the fourth quarter as a lot of positions at our hotels were filled from September through yearend, getting to more normalized levels that would be able to service the higher occupancies being achieved this year. As Ray indicated, we've made progress in our energy costs, and we continue to successfully reduce property tax assessments and property taxes. The challenge as it relates to property taxes is that the process for achieving reductions involves local and state governments. It could be a very long process, and sometimes litigation is required to achieve a fair assessment. As a result, the timing for settlements or results from litigation are unknown and very difficult to forecast. However, we believe that we'll continue to have further success over time in a number of our markets, particularly in our cities. This will reduce our real estate tax obligations and lower our costs in the future, including true-ups for prior years accrued and paid based on inflated values. The biggest headwind today in cost is coming as a result of increased premiums for our property and casualty insurance with our new policy beginning June 1 this year and running through the end of May next year. The 59% increase in our premium that Ray mentioned represents a $9.3 million annual increase in our cost. Moving to our redevelopments, disruption for this year is mostly behind us. We expect about $1 million of EBITDA impact in Q3 with the majority coming from completing the conversion of Solamar to Margaritaville in downtown San Diego. We just toured the property last week and it's looking fantastic, and we're very excited about a cut over to the Margaritaville brand that is currently slated for August 15. We also toured Hilton Gaslamp, which we visited at the beginning of Comic-Con, and the property was sold out, jammed with customer event activations, and had well-paying advertising wraps covering the exterior walls. The hotel now looks like a brand-new high-end lifestyle-focused Hilton. We should be able to gain significant share at both of these superbly located properties fairly quickly given the overall strength of the Downtown San Diego market. We also toured the Estancia La Jolla Resort, and in fact, had our Board meeting there last week, and it too has all new rooms and event lawns and is already having quick success recovering from its renovation and repositioning. The property team was proud to report that occupancy is on track to hit the upper 80s this month, and the resort should also achieve an all-time record in ADR and total revenues for July. Hats off to the Estancia team for doing such a great job ramping back up so quickly. Viceroy Santa Monica is $19.5 million 2-phase redevelopment and Jekyll's approximate $21 million redevelopment were also substantially completed in the second quarter, and we're also very encouraged by the very positive customer reaction to both of these repositionings. With the completion of these projects, we're just about finished with the strategic redevelopment program within the portfolio that came out of the opportunistic acquisition of LaSalle and the several opportunistic resort acquisitions we've made in the last 2 years. We just have the redevelopment and repositioning of Newport Harbor Island Resort and the second and last phase of the Estancia La Jolla project remaining. Both are expected to commence midway through this year's fourth quarter and be complete in the first half of the second quarter of next year. The impact from these projects on operating performance should be small, with Estancia expected to have some minor impact due to the redevelopment of the lobby, coffee shop, pool, and main ballroom. And we expect no material impact from Newport Harbor, given the property typically has negative EBITDA every month from November through March, and we're likely to close the property during the redevelopment due to the scale and comprehensive nature of the project and the low demand levels during the redevelopment period. As a result, we'd expect our financial results to be clean of any material redevelopment disruption over the next couple of years, while at the same time, we'd expect to be gaining share in our markets, given the recent repositioning of so many of our properties and the very strong overall physical condition of our portfolio. We'll have the added benefit of customers comparing our high-quality properties, which are in excellent condition, with others in our markets that continue to be starved of capital due to years of a challenging operating environment and today's very difficult debt capital markets. While we currently operate in a fairly uncertain economic environment, particularly in the near future, our fundamentals are very strong. We effectively have a newly redeveloped, repositioned, and remerchandised portfolio that should outperform its competition. We're in markets that still have significant upside recovering from the negative impact from the pandemic and will be in a highly supply-constrained environment for years to come. And we have a management team with tons of experience that is laser-focused on creating value for our shareholders through reallocating capital to the most attractive opportunities. Currently, creating shareholder value involves selling properties at today's market prices and using a significant portion of those proceeds to repurchase our common and preferred shares at very significant discounts to their current or par values. And then using the remaining portion to reduce our debt on a leverage-neutral or better basis. With that, I'd now like to turn the call back to our Operator so we can proceed with the question-and-answer portion of our call. Donna, you may proceed with the Q&A.

[Operator Instructions] Today's first question is coming from Dori Kesten of Wells Fargo.

Can you give us a sense of to what extent strong convention calendars for you have translated into outsized rate growth over time? Just to give us, I don't know, some guide on how we should be thinking of Q4's potential?

Yes. I mean, I don't know -- I don't have any math for you at this point, but the 2 things I'd note is our convention rates in general tend to run higher than our average rates. And then when there's compression in the market, if it's a medium to large size compression -- convention, depending on the market, we tend to be able to drive significant additional premiums on our transient side as well over that period of time. The numbers can run, at least for those days, often can run I'd say 30% to 50% higher than a more typical day. And certainly a big convention, depending upon how much of the group block we've taken versus filling with business outside of the group block, it could be as much as 50% to 100% premium on those days. It should be a much better factor in Q4. And to the point of your question, I do think there'll be less pressure on average in the portfolio in the fourth quarter on rate because of the better convention calendar in the quarter.

What's a good -- what's the run rate for a fully renovated portfolio?

Run rate in terms of…

In terms of CapEx.

Oh, in terms of CapEx? Probably looking at something more like $50 million to $60 million.

And Dori, our CapEx over the next couple of years should be a little bit lower than a typical run rate. Because, as Jon indicated and we detailed in the press release, the amount of capital we've invested in the portfolio has been pretty significant. The normal maintenance CapEx will be lower at least over the near term.

Okay. And then just on the recent renovations, how should we think of the ramp up over the next few years from maybe an EBITDA yield perspective?

Yes. I mean our -- it really depends on the market and how quickly we can adjust pricing. It usually takes on average of about 3 years, maybe 4 if markets are slower, to go from pre-renovation numbers to numbers that we are shooting to average about a 10% cash yield on the renovation dollars, the redevelopment dollars in particular. The pace varies by market. Some markets, we can do it quicker because we're not held back by group rates that are on the books for future years. A good example would be Estancia where we don't do convention-related business and most of our group books within 12 months of arrival. We can increase rates more quickly in a market like, in a property like that, then we can say in downtown San Diego, where we've locked in convention rates in many cases for 2 or 3 years. Now, some of those markets we'll be able to get adjustments by going back to the convention authority and the client to get increases because of the investments made in the properties, but that isn't always the case. It's generally 3 to 4 years. And I mean, frankly, the easiest way to think about it is pretty much evenly over that period of time.

The next question is coming from Smedes Rose of Citi.

I just wanted to ask you a little bit more on sort of how you're thinking about margins going forward? It sounds like the pace of cost increases is maybe easing, but concurrently, it seems like RevPAR is sort of flattish, but you're shifting with higher occupancy and lower rate. That seems like that would kind of weigh on margin a little bit as well. I was just wondering if you could maybe -- if there's any sort of back of the envelope thoughts on that kind of shift. If occupancy goes up and rate goes down, what does that do to margin?

Well, I think we've seen what that does on margins as we brought our staffing levels up to full staffing towards the end of last year. And you've seen what that's done to margins over the first couple of quarters here, and we'll see more margin degradation on a year-over-year basis. In Q3, although it ought to be lower than the impact in Q2 because we started restaffing in really September of last year is when we started to have a lot of success at our properties filling those open positions. I think over time, it's obviously that would be a terrible long-term trend if that were to occur. We don't think that's necessarily the case. We think the resorts are really moving back to a more normalized level. And the good news is, as indicated by my numbers that I provided, I think we're stabilizing, we're likely to stabilize here at a far higher level, maybe 60% to 70% higher than where we were in '19 with rates. And the second thing we need to come back, which will help, is volume. Partly why the occupancy flow is better, it doesn't flow as well as rate, but it's going to flow well here as we're fully staffed outside of the marginal cost of adding temporary folks for banquets and catering. I do think as we get towards the fourth quarter, you'll see margin degradation shrink significantly. And as we move into next year, I think our cost basis will more normalize on a year-over-year basis. And we'll see what happens with rates next year. That will depend on the macro environment. And of course, that will depend upon what's going on from an overall demand perspective. But I think we feel good about demand continuing to recover next year, particularly in the urban markets. We think the outbound international demand that's on a sort of revenge travel basis as well as some cruising, we think that reverts back to being, some of that, being domestic. And that should help next year from a demand perspective. And then we have a lot of international inbound that's not yet fully recovered, and we think that will continue to recover next year. All of that should allow us to grow occupancies next year and volume. With group coming back more right now, our pace for '24 is in good shape. We're up over 11%, almost 12% in group room nights for next year. And it's that volume that we need that will flow well to the bottom line. Because we're not at a normalized pace, we really need that volume to come back to get to the higher levels to support the sort of level of fixed staff that we have at our properties.

And Smedes, to add to that, I think there's a tendency to look at the current quarter's margins and assume that's a new run rate. And I think what you have to really carve out is, because of all the renovations we had in the quarter, that created a lot of disruption. Not just on RevPAR, but also in food and beverage. When you look at Solamar, Estancia and Hilton Gaslamp during the renovations this quarter, you really can't have group meetings when you have the hotel under construction, or it's very difficult. That also causes impact. I wouldn't draw conclusions about for example food and beverage margins in Q2, and is that a new run rate. There is a lot of noise in there, as Jon indicated. As we stabilize and have our normal mix, and we're still about 13% down, occupancy points down to '19, as we gain those demand segments, that will also help margins given the fixed cost nature of a lot of our properties.

Jon, could I just ask you just -- you mentioned that weekday business urban continues to pick up I think driven by business transient, but you did note that it was at a more gradual rate, which is something that we also see kind of in the numbers looking across the second quarter sort of nationwide and it's something we hear from other companies. And I'm just wondering, is there anything in particular that you would attribute to slightly slower recovery in business transient relative to initial expectations? Or do you think it's just going to take longer? Or do you think some of it's gone away? Maybe just your thoughts there.

No, I think it's probably all of the above. And by the way, my comment about the slowdown in the rate of business recovery related to the industry more so than us. I mean our urban market weekday occupancy was up 5.2% over last year. We continue to see -- we picked up over 5 points of occupancy. It's really a 7.6% growth on a percentage basis. Obviously, the cities, and particularly some of the cities we're in, have been slower to recover that business travel. It is coming back. I don't think we know where it's going to end up yet with all the different factors. Businesses are still changing their in-office requirements. We've seen no requirement to be in the office to go to 3 days, to go to 4 days. Some have gone to 5 days. We've seen announcements of companies, particularly on the West Coast, that went to none and are now leasing office space and bringing people back at least 3 days a week. I think it's a little early to figure out where we end up. We're just really past the point where I think people feel normal again in traveling. I mean you still see masks here and there, but I think in general, people are forgetting the pandemic, and that leads back to normal travel. I think perhaps we've lost some of it permanently, perhaps it gets replaced by what we call hybrid travel, others have called bleisure. We definitely continue to see that. One of the trends we've seen is there is -- business is a little slower to book business around holidays as people are probably taking longer holidays and have more flexibility because they're not back at the office yet. I don't know how it's all going to end up, but if you look over the last 100 years, business travel generally follows GDP. And we think that connection, we'll recover back to that connection again.

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

Jon, one for you, and then I'll turn to Ray for a second. But on the cap rates that you used in your NAV calculation, I was intrigued by the cap rates in the 2s I think in San Francisco and then what I thought were low cap rates in Portland and Washington, D.C. And I get it, there's not much NOI, and I also remember some, to put in rates terms, what, 45 or so conference calls ago when you were buying in San Francis, the low 2s. My question I guess is, if you didn't have a desire to pay down debt, if you didn't have a desire to buy back stock, would you be buying assets at 2 cap rate in San Francisco today?

A couple of things. Obviously, the cap rates are a result of a much more analytical decision a buyer makes as to why they buy a property and what kind of total returns that they're looking for. Just like we do, right? We look at 5-year cash flows. We look at 5-year IRRs. We look at price per key. We look at comparison to replacement cost. There are a lot of different things you look at in a market when you're underwriting. We don't use cap rates to determine decisions in the markets nor do we think buyers frankly use cap rates. They do look at yields overall and the growth in yields over time and those changes. But unlike maybe some other property types, cap rate is not a methodology for determining value. To your question about -- so to your question about would we be buying in some of those markets, one of the things I think has become more challenging in the public markets is the public market shareholder has become far more short-term oriented than they were when we started Pebblebrook. I think they're less willing to look at long-term potential value creation within the asset portfolio than they were 13 years ago when we started the company. I think it becomes harder for a public company like us in our space to buy in markets where there's a lack of yield. And therefore, I don't know that we would as a company be buying there. I think if I had the opportunity personally, which I unfortunately do not, so just keep that in mind, but if it were me personally with a long-term horizon for my investment returns, I think it's a great time to be buying in these markets. I think they're incredibly cheap. The discounts to replacement cost, which is an indicator of when supply can be economically justified in a market, I think that discount is much bigger than it was back in 2010 and '11 when we started buying. I think it's a great time. If you have the right time horizon, you can live with expensive debt in the near term with low yields. And so personally, I'd be buying, or if somebody had a long horizon, I think it's a great time. But I think for us as a public company, it's more challenging.

Yes. I appreciate that insight, Jon. 2 quickies, I hope. Ray, I'd like to get your thoughts on BI. Third quarter was higher than we would have guessed from, in your guidance at least, from a seasonal perspective. And then so I'm wondering what the fourth quarter looks like, if you can give us an idea, and then what would be kind of thought to be left over for next year? And then the second quick question, hopefully is, you're wrapping up this massive strategic repositioning program, but you are kind of 7 years, almost 7 years into it. I'm wondering if we're going to start to see a new cycle begin? Or do we actually have an extended period of time with no renovation disruptions?

Well, first, on the BI, that's a result of the progress we make with our insurance carriers. We submit what we believe the hotel would have done without any sort of a storm, and we have to negotiate with our carriers. That's a result of that. It's hard to really say the exact number we'll get in future quarters here. In second quarter we…

It also depends upon how much we lost. I mean we've been losing money at LaPlaya while it's open, and we lost more money in the quarter as an example than we thought.

Yes. It's a handful of factors that we go through. Ultimately, for example, in the second quarter, we were able to negotiate and agree to a higher amount of $14 million versus the $10 million we were expecting. That's not to think we're going to do the same in the third quarter, but we'll see our progress there. Fourth quarter, I would think it would be a lower number because these tend to be a quarter in arrears. What we booked for the second quarter here, $14 million, that's a result of the first quarter and so forth. And typically, at LaPlaya, it's seasonally weaker in the third quarter, the summer months. Down in Southern Florida, August, September tends to be pretty hot down there with hurricane risk, so that will be less BI number there. I wouldn't assume much for the fourth quarter. If it is, it's in the single millions kind of range-ish area. And then as we think about 2024, that will depend on the ramp-up of LaPlaya. As we noted, we think the hotel, the resort will be substantially completed by the end of this year. There will be a ramp-up component. It doesn't get all the way back to prior levels right when we start in the quarter. There may be some trailing BI we'll be able to get as a result of that. That will be less than we expected. We expected this year LaPlaya to be generating in the neighborhood of about $35 million of EBITDA, and that's the number we're targeting on the BI side. And how it trails off in 2024, it depends on the recovery and bounce back of LaPlaya. And then second question on the renovation area for the 7-year cycle or whatever that is, we look at each asset asset-by-asset with our asset management team and look at the capital there. Fortunately, when we look back at the renovations and redevelopments we do, we tend to do a very good job. These are not just cursory sort of refreshes in the guestrooms. These are really substantial renovation, good quality FF&E goods and those items that tend to do last longer, and with forward-thinking design. I wouldn't necessarily think that if a property wasn't renovated in 7 years, we'd have to go through another major redevelopment project here. As Jon indicated, we do think for the next couple of years here, we're going to have very little any sort of disruption from any renovation activity. Here and there, we may do a refresh, but not really many redevelopment projects to be worried about as we think about '24 and beyond.

And Bill, in that regard, I think everything we buy for our hotels is custom made. We're not buying from IKEA. We're not buying from the sort of standard low-cost manufacturers. And we also don't let our properties sit for 7 years or 10 years or 12 years either. We're always -- we're constantly refreshing. We're recovering sofas, we're replacing them, we're buying new pillows. But these things don't have a material impact. I mean even what we're doing, we're doing a meeting space refresh at the W Boston this summer. It doesn't really have a whole lot of impact on the performance of the property and it's primarily a soft goods refresh. It's not out of service very long. If you think about our portfolio, it's not -- we're not doing a renovation when we do these projects. We're almost completely rebuilding it in many cases, at least on the interiors and often doing behind the wall work as well. But all of that regular capital maintenance is an ongoing effort on our part.

The next question is coming from Duane Pfennigwerth of Evercore ISI.

Just to follow up on Bill's question on BI, when you think about kind of Naples and LaPlaya in its entirety and kind of the timing of BI that may fall into 2024 and the recovery of that property, how should we think about growth, EBITDA growth, inclusive of BI, inclusive of operations, kind of '24 over '23?

Yes. Well, that's a nice crystal ball there. Fortunately, we went through this before with other properties and the rebuild. We have seen that Naples tends to rebound somewhat quicker than some other markets like say Key West as an example. We expect LaPlaya to bounce back quicker. But there are a lot of factors. I think net-net, I think maybe the more conservative way to think is that the overall EBITDA contributed by LaPlaya inclusive of BI would be less in '24 than it is in '23 because we're getting the full-fledged number, and there will be a ramp-up area there. But as we get forward and we get closer to the completion there and ultimately resolving with our insurance carriers what we're able to negotiate here, we'll be able to provide better color on that as we start the year. But there certainly will be a ramp up, and there's always unintended consequences. You start up a property, your chiller doesn't work quite that you thought would. There's a lot of things that will be these tail items that we'll be dealing with much like we did when we were dealing with Ian 5 years ago.

And then just a distribution question. Can you talk a little bit about how you build awareness for the upgrades and the renovated hotels? Particularly for your independent hotels, how does this education process happen for customers? Any new thoughts on distribution for your operators?

Sure. It's a pretty comprehensive -- typically, we'd sit down, our asset managers sit down with our operating team, their corporate marketing staff as well, put together the playbook for reintroducing a redeveloped property. Sometimes it's renamed. Sometimes it's reflagged or flag removed. Sometimes it's the same name, but just an upgraded product. And it's comprehensive. It's marketing, it's PR, it's direct sales effort, it's using digital media. It's offering promotions upfront to get people to come and do a trial of the new product. We'll be conducting tours. We've had probably hundreds of tours for a group at Margaritaville in Downtown San Diego at this point already. And we'll share renderings, which are photo quality renderings, etc. It's a very comprehensive effort to get the word out. There's usually opening events, though we're not big believers in the big opening party necessarily versus having 10 events that involve bringing salespeople, both on the group and the transient side and the corporate side, to the property. It's pretty comprehensive. We'll spend significant dollars, certainly hundreds of thousands of dollars. And if it's a big property and a big project, just like in Naples, we'll -- like we did last time, we'll spend hundreds of millions -- hundreds of thousands of dollars extra on sales and marketing activities down at LaPlaya because it's been closed for effectively over a year, and we need to get it back in people's minds to come back down again. A pretty comprehensive plan put together with our operators that's been successful in the past.

The next question is coming from Floris Van Dijkum of Compass Point.

I have I guess 2 questions. If you could touch on the balance sheet a little bit, Ray, you've been -- you're building up $175 million net cash cushion. You talked about some of the -- you don't have any near-term maturities, but longer-term maturity, your debt is fairly short. The weighted average maturity is I think just over 2 years. Do you see a comprehensive refinancing of that? And where would you -- maybe talk a little bit about the cost of where you think you would borrow today. Obviously, people, investors were a little scared when Blackstone refinanced, put a lot of debt on Hotel Dell, but had to borrow at 9.5% or somewhere in that neighborhood. And Piedmont, an office company, I know you're not office, but recently did a 5-year note at 9.25%. Maybe if you can touch on where you think you would be able to tap unsecured borrowings at today?

Sure. Well, a couple of things. One, as it relates to our balance sheet, you're right, we have over $180 million of cash on our balance sheet. And fortunately, we have very minimal maturities this year. We have some term loans maturing in '24. Actually, our weighted average maturity is actually closer to 3 years not 2. But as we think about it, you should assume that the additional cash that we're building up here we'll be using to address some of these '24 maturities as well as having conversations with our bank groups with some of the term loans, with paying down some and perhaps maybe extending a portion of that out. It's a part of the overall plan that we have been thinking about actively, and we do it in concert with how we deploy our capital for stock buybacks and what we hold back for debt. And also note, we have ongoing conversations with all of our banks all the time. These are all done in a very good manner, and these are relationships that we've had for a long time. You should expect that we are planning and addressing those actively as we think about 2024. As it relates to new sort of debt, so first of all, right now, our spreads on our line is about 220. We have a completely unused credit facility that we can borrow at 220 over that's relatively low. New debt, if we originate a property sort of loan, if that's your question, somewhere it looks like the markets right now are somewhere SOFR plus 3.75 to 4.50 is probably the range of a lot of debt we're hearing. It obviously depends a lot on the market. If you're in a kind of resort sort of location or asset generating good cash flow, the spreads might be lower. If you're in an asset that's a little more, the market is more challenged, that spread probably could be wider. I can't speak to what Blackstone did or didn't, but something that's recently 5 to 4.25, even 4.50 over, is probably a like level for new borrowings. We'll look at that as we address overall our debt maturities, and we have a property loan maturing next May at Margaritaville, that asset is highly financeable and will garner a lot of interest. We'll look at our options there. Vis-a-vis as well, what's happening with our balance sheet and our growing cash reserves.

And maybe my follow-up, if you can touch on the San Diego market in particular, you've got a number of renovations that have just finished. You have I guess the Margaritaville is still yet to be completed. But maybe touch on the outlook for that market. And I note that peak EBITDA for those assets was I believe $37 million. You did -- you're on track right now at $29 million. Is this a market that can generate $50 million of EBITDA in your view? And maybe talk a little bit about the convention calendar going forward as well.

Sure. I would say San Diego is, at least for the near term, the strongest market we see in our portfolio. And we have all 4 of our downtown properties, come August here, will have had major redevelopments. The Westin, an $18 million project, the Embassy Suites, a similar number for a smaller property. These 2 projects in the mid-20s millions, they've all been repositioned higher in the market. The convention calendar -- when you look at Q2 numbers that we report for San Diego, keep in mind it involves 2 properties downtown and Estancia that were all dramatically impacted in the quarter. It was actually a good quarter for the nonrenovated properties. Convention calendar is very good for the second half of the year. It's very strong in the fourth quarter, and it's going to make an all-time new record in 2024 based upon what they have on the books. It's huge actually, even compared to this year which was I think, pretty close to the all-time record. And there's no new supply in the marketplace. And the weather I guess continues to be pretty favorable. And if it's getting hotter in other places, it only helps drive leisure into that marketplace. Really, really attractive market. Why we've made such a large investment there. And we do think there's an opportunity for dramatic improvement in EBITDA over the next few years.

And Floris, just to put that perspective on the convention center side, for 2023 the market is projected to generate about 800,000 convention center room nights. In '24, that increases to 930,000. And even in '25, it's another strong year, it's 850,000, which will be one of the best years. These are as good as the previous best year back in 2016. Certainly, the next 2 years in San Diego look very good. And why we're encouraged and why we're glad we invested the capital in those assets in San Diego, which should benefit from the strength in that market.

And I think it's -- the city and the market went through some challenges when the football team moved up to L.A. basically. But you look at where they've gone since, they just got awarded an MLS franchise for soccer. The women's soccer team has broken records compared to other teams around the country in attendance. They're attracting lots of concerts and sporting events into that market. And we all know that the life sciences side of the economic base continues to grow dramatically. And San Diego is one of the strongest in that market. In fact, the interesting thing about Downtown is, one of the opportunities it has, unlike other markets is, it's never had much corporate activity other than some defense contractors and the Navy. And potentially Homeland Security being so close to the border. But it has a significant amount of construction downtown that's geared to life science and lab space. And if in fact they're successful leasing that, it could have a dramatic impact on the demand levels downtown. Really exciting market, and I appreciate you asking about it.

If I can ask or maybe just briefly follow up, how will your repositioned Margaritaville Gaslamp cater to some of that convention? Is that -- it's not a typical convention hotel. Do you think that's going to benefit from the compression? Or will people actually -- will you get group into that hotel as well in your view?

We'll get group into that hotel. We have some great event space that's been dramatically improved from what it was as the Solamar. And as you know, Margaritaville is a strong attraction for that lifestyle vibe that people love, whether they're convention goers or they're leisure customers. We think it will benefit from both segments in a material way.

The next question is coming from Aryeh Klein of BMO Capital Markets.

Maybe just following up on San Francisco market, maybe a little bit less exciting than San Diego. You took your cap rate assumptions higher in the latest NAV, still quite a bit of exposure to the market and some of your peers have largely thrown in the towel there. And it looks like the conference calendar next year is more challenged. Where do you think the market goes from here? And it seems like you do have long-term optimism, what kind of underlines that?

Yes. I mean, we could get into a lengthy discussion about what the underlying demand factors are and the economic factors. I don't want to take too much time. I mean, you have one of the strongest economic bases in the country in San Francisco and the Bay Area. You have -- it's one of the largest and strongest life sciences market. It's obviously by far the biggest venture capital market. There's more businesses created in San Francisco than pretty much the entire rest of the country. It's the center of AI, which of course, has tremendous potential growth that folks are talking about. We've already seen some of that growth as those companies raise capital, they hire people, they need offices. We're also seeing some relocation of businesses from outside of San Francisco into San Francisco to take advantage of low office rates and sublease rates. San Francisco is one of those cities that because of the educational cluster there, the technology cluster, the culture of it's okay to fail and start over, all of that is such a big factor. And then I would tell you that politics have already had a significant move to the center and a recognition that we have to address these issues, these basic issues of safety and life sciences. And I think the media is about 9 months behind the reality on the ground. I think it's, frankly, it's a safer, cleaner place than it was in '19. And I think that will continue to improve. We continue to believe in San Francisco in the long term, but we have reduced our concentration there, which had gotten into the mid-20s, which we thought was too high.

Thanks. And then maybe just reflecting on the hold music, can you give us some color on what kind of benefit you saw from the Swift effect during the quarter and any way you can quantify the impact?

Well, it's interesting in Chicago I think. I mean, you probably saw the media reports, but Chicago had its highest RevPAR day I think ever the weekend that she was there. And it's not just her. I mean the Dead -- we had one of the strongest weekends since pre-pandemic in San Francisco when the Dead gave their supposed final concerts ever, the inevitable final tour that is never final. And we look at L.A., Taylor Swift has 6 dates in the first 10 days of August at the SoFi and we've already seen significant pickup as a result of that. And we have all kinds of promotions at our properties related to Taylor Swift as well. It's pretty meaningful in these markets. It's a big demand driver. When I remember a few years ago, pre-pandemic, Garth Brooks did 5 shows in a row in San Diego, sold out Petco 5 nights in a row, and we sold out our hotels 5 nights in a row at premium rates. It's material when these big-name entertainers come into the markets.

Aryeh, when you think about Taylor Swift, just a visionary, she's a rolling Super Bowl. She goes in and she helps the market across. That's partly why musically it was a nod to her, and it's been great, so a big needle mover to us for sure.

The next question is coming from Mike Bellisario of Baird.

First question, I wanted to come back to the margin topic from earlier. Kind of big picture, high level, is there a sort of a normalized run rate for expenses that you're thinking about or that we should be thinking about, whether it's for your markets, your portfolio as we look out to '24 and '25?

I wish it was that easy, Mike, but when -- we're not in a normalized operating environment yet, and we're moving closer to it. I think we're at normalized staffing levels, but for marginal staffing related to marginal occupancy recovery that we expect to see here. But I don't think that translates into any kind of stabilized margins at this point. There's a lot of volume we need back that will flow really well once we get that volume back. Whether that's on the room side or it's on the F&B side, particularly from recovery of groups. Unfortunately, we don't have what you're looking for. Therefore, we can't give it to you.

But Mike, in general, we touched on this in our call, we are seeing more moderating expenses. The wage rates are, the growth rates, are coming down versus where they were last year. So that's actually less of a headwind going forward. And then other, the supply cost with food and beverage, those input costs are also moderating versus where they were last year. Those should be improving factors in the margins there. Now headwinds that we'll have for the next 12 months are property taxes that we talked about, that increase is $9.3 million a year, that's 50 basis points or so of margins. Hopefully, that stabilizes at some point in time. And energy has also been somewhat of a headwind that's moderating. There's different inputs. You have to look at labor differently than you have to look at some of these other costs like energy and property insurance. And what should be a positive deflationary factor is some of the property tax reductions that we're successful on achieving and hopefully we'll have more to report on in the coming quarters.

Mike, the thing I would suggest, and frankly, we've always suggested this, but just as a reminder, we don't forecast margins. Margins are a result of forecasting revenues and expenses. It's a lot easier to say we think expenses are going to be 4% or 5% or 3% growth on a year-over-year basis, depending upon volume levels than it is to forecast margins for each category. Certainly, in building your models, we'd suggest you frankly use an expense escalator and a revenue escalator as opposed to trying to solve -- start with margins.

Thanks for that, figured I'd ask. And then just switching gears quickly, just on the transaction front, maybe over the last 90 days, what's changed? And are you seeing any buyer interest get better or worse in any particular markets where you're looking to sell hotels?

Yes, Mike, I don't think much has changed. I mean, I think you read about it in the press in terms of all property types with transaction volume being down, largely as a result of the availability of the debt or lower proceeds, high-cost debt. I would say that it remains challenging. I would say that certainly the deals that are getting done, it's high cash flowing deals that are either resorts or select service. I would say maybe the one pivot that we're seeing, and I think Jon mentioned it earlier, is that in some of these longer to recover markets, people are becoming a little more yield focused. It's impacting in terms of their potential pricing because their pro forma and their underwriting is taking that much longer to get to peak, which is obviously impacting pricing. But I would say that there still remains a lot of investor interest. I think they're just trying to pick what is their level of conviction to move into a market.

The next question is coming from Gregory Miller of Truist Securities.

I'd also like to ask about 2024 for Southern Florida for the upcoming winter 2024 season and perhaps reflecting your commentary on revenge leisure travel normalizing. How are room rates trending next winter in markets like Key West and Hollywood Beach relative to 1Q 2023? How impactful do you expect your winter 2024 rates to be given a theoretical normalization of revenge leisure travel?

Yes, thanks. Tough question. I don't think we have the first quarter numbers handy in terms of what's on the books in the Florida market. There's not -- first of all, there's not a lot on the books this far out in those markets. I think there's an opportunity to normalize and we still have demand to recover, occupancy to recover in those markets, particularly down in Key West which had that up and down kind of swing. We're still running lower occupancies. But in the second half of this year, it looks like we're getting a little bit closer to more normalized demand if you trace it back to '19. I can't -- I don't have anything to give you yet. I mean we can go through the data offline and have a conversation about what those rates look like, but I wouldn't read a whole lot into them just yet given the low amount of business that's on the books.

Yes. And it would also be inaccurate to read too much into if we have 1,000 more room nights booked this time versus last time last year. It's not as much as what happens really closer in because we're outside of the booking window really.

Thanks, that's understandable. For my follow-up question, I tried to ask for some clarity on what's going on in San Francisco on a group side relative to the pace figures that you noted in your release and the 2024 numbers you mentioned in response to Smedes' question. How is your San Francisco group revenue pace looking for 2H'23 and for 2024?

Yes. It's up significantly for the second half of this year, not surprisingly, given the convention calendar there. As well as our properties, particularly the one which is ramping up in that market and only opened in June of last year, is doing extremely well on group despite the more limited amount of meeting space that we have. I think we're running around 25% group mix at the one. And of course, we're doing it at high rates. We're in pretty good shape in the second half. We'll see a nice continuing recovery in occupancies in San Francisco in the second half. And I think as I said, the second half comparisons to '22 are much better than the first half comparisons, yet we still recovered 13 points of occupancy in the first half of the year. And that does not include the one because it wasn't open last year. As it relates to '24, the convention calendar is up in the first half. And I don't know the bookings offhand for that market. We can look them up and get back to you. But I presume that our group bookings are going to track the convention calendar ultimately in that market. And just keep in mind that a lot of our properties may not participate in the conventions because of their small size, but they'll get in conjunction with group. Occasionally, we even sell out properties like

Our final question today is coming from Anthony Powell of Barclays.

Just a question on international travel. I think you said that you expect the revenge nature of that to I guess recede next year. How do we know that? I mean we know the airlines are adding more capacity to go to international markets. International markets are obviously appealing. They can be a bit cheaper in terms of just food and beverage and whatnot. I'm curious what your view of international destination travel versus domestic will be going forward.

I think it's a lot of anecdotal evidence, and it's also -- I think if we look at our experience with -- I'll use this defined term revenge travel again, in other segments for other reasons. I think we see the same thing happen. I think when you look at outbound, it's fully recovered, and in fact, over the historical norm, particularly to Europe. And again, we think that normalizes. There's a lot of people who had trips canceled, Ray is one of them sitting here at the table, but I have a lot of friends and others who had trips canceled because of the pandemic who took them this year. And they don't go every year. I do think on an outbound basis, we'll see that normalize next year. I think it's rational to think that. And I think it's also gotten a lot more expensive to travel abroad. As we know, the international ticket prices are way up from where they were. And on the other side of it, we're starting to see a decline in the domestic ticket prices here in the U.S. Some of that will have an impact and I think we feel pretty comfortable that that's likely to happen.

And Anthony…

And by the way, I think capacity growth is important because inbound travel to the U.S. still has a long way to go to recover. It's not like global international travel is necessarily going to decline. It's just going to go in different directions.

And Anthony, actually the other side of your question is, we had strong outbound U.S. travel to international markets, which we think will more kind of normalize the next year, with less going out. What we haven't really experienced, a big benefit here in the U.S., is inbound international. I mean Europe travel is up versus where it was last year, but it's still well below pre-pandemic levels. And the Asian traveler is very, very weak. That really hasn't largely come into the U.S. That should be a tailwind that we should see at some point in time. I mean who knows, when China opens up and they start coming back here, but certainly from what we're hearing about, the Japanese and Korean travelers in the Pacific there, we should see some more benefit as we get into '24 and beyond, which we haven't seen so far to date.

That was my next question actually. What are the remaining I guess gating factors to international inbound travel? Are these requirements any kind of border issues that can be eased by the government or are there other ways to get that international inbound travel back to prior levels?

Yes. The industry and U.S. travel have been working with the government. Remember, we went through this once before with the Obama administration to staff back up and reduce the wait time for visas into the U.S. That's one item that needs to be improved. And we're told they expect to make some progress, though they need to get more money allocated in the budget for staffing levels. The second thing is there's an issue with China/U.S. travel because of the Ukrainian, the Russian war on Ukraine and the fact that U.S. airlines can't fly a route that goes over Russia, which is a shorter route, while the Asian carriers can. There's a dispute about effectively it being subsidized because it's lower cost to go the shorter route, and that's unresolved as well. That's a diplomatic solution, not just an economic solution. There are a couple of those things that are important to get resolved. But generally, we think just like Americans decided finally when they felt comfortable after they've done their catch up with their families to go abroad, we think we'll see that continue to help international recover. And by the way, it is recovering every month compared to '19. We think that will continue. Thanks, Anthony. Hey, Anthony, you'll be remembered as the last question in my 100th public earnings call. Put that award up on your wall. And to everyone else, thank you very much for your questions and your participation. We appreciate you hanging in here so we could answer everybody's questions and their follow-up questions, and we look forward to updating you through the course of the quarter as well as after the end of the quarter in October. Have a great rest of the summer.