Greetings, and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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, Chief Financial Officer. Thank you, sir. You may begin..

Thank you, Donna. Good morning, everyone. Welcome to our second quarter 2019 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. 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 10-K for 2018 and our other 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 as of today July 26, 2019, and we undertake no duty to update them later.

You can find our SEC reports in our earnings release, which contain reconciliations of non-GAAP financial measures that we use on our Web site at pebblebrookhotels.com. Okay.

For the second quarter 2019, our hotel operating results were largely at the upper end of our expectations and our adjusted EBITDA and our adjusted FFO, both exceeded our outlook.

Our adjusted FFO per share of $0.85 topped our outlook of $0.80 to $0.82 per share, though a large part was due to holding several to-be-sold hotels slightly longer than was assumed in our prior outlook.

In the second quarter, same property RevPAR increased by 1.4%, compared to our outlook of 0% to 2% and same property total RevPAR rose 2%, which was above our outlook is driven by continued healthy growth and non-room revenue, which is up 3.4%.

Our 1.4% RevPAR increase was a result of 1.7% increase in ADR and 30 basis points decline in occupancy as we continue to experiment with pushing rate at expenses on lost occupancy. In total, we are really pleased with our relative performance again in the second quarter.

We outperformed the industry overall and we outperformed most of our markets in our competitive sets. We believe this is due to the uniqueness of our lifestyle hotels and the meaningful investments we made throughout our portfolio. Our best-performing markets in the quarter were Boston, South Florida, San Diego and San Francisco.

Our Boston hotels generated a RevPAR increase of 5.5%, which was above the Boston CBD RevPAR gain of 4.7%. This outperformance was fueled by the Westin Copley, The Liberty and W Boston.

These properties showed incremental improvements during the quarter as we continue to make good progress working through the challenges of the Starwood Marriott sales, revenue management and loyalty program integration. In addition, the Westin Copley is also showing healthy growth as it gain shares as a result of the renovation last year.

Boston continues to be an outperformer this year despite its weaker convention calendar as the underlying economy remains robust as the city's technology, biomedical and education base grow strongly and as companies continue to move the Boston from both the suburbs and other northeastern geographies.

Key West, Naples and Coral Gables, Florida were resilient markets for us as our South Florida properties produced 5.2% RevPAR gain, outpacing the respective competitive sets and market tracks as leisure demand continues to be robust in the South Florida market, which has been the trend all year.

We expect this positive trend in these South Florida markets would carry-on into the second half of 2019.

Our San Diego hotels generated a RevPAR increase of 4.5%, far outpacing the 0.2% increase in the combined San Diego CBD and resort tracks with our four hotels in downtown San Diego outperforming very well in the quarter, and all of them far outpacing the performance of the San Diego CBD.

Finally, our San Francisco hotels produced 3.3% RevPAR increase, which was above the 2% gain posted by the San Francisco urban market track.

However, our properties underperformed our expectations for the quarter as the city experienced weaker than expected weekend demand due to several weekend citywide conventions that were disappointing, as well as softer leisure demand. Our underperforming markets were the ones we expected.

Our Seattle properties experienced a 13.8% RevPAR decline as the new 1,260-room high convention hotel, which opened at the end of 2018, contributed to a 12.7% increase in supplying in the market in the second quarter.

Despite ongoing healthy demand growth of 8.4% in Seattle from a very strong economic base, the strength in Seattle's lodging demand was not able to mainly absorb the significant supply increase, and we expect Seattle to be an underperforming market over the remainder of 2019.

RevPAR at our Washington DC hotels and was down 5.6%, which was worse than the 3.1% decline experienced by the DC CBD as the convention calendar saw over 50,000 fewer nights compared with the prior year, which weren't replaced by the corporate transient or leisure religious transient segments.

Our Chicago hotels experienced a 2.6% RevPAR decline, which was slightly better than the 3.1% decline posted by the Chicago CBD, as Chicago continues to be challenged by its weaker conventions and excess supply growth. And finally, Portland was another tough market for us.

Though much improved from the first quarter as RevPAR at our hotels declined 1.5% compared to the Portland CBD, which was about flat for the prior year quarter. This is another market that is working hard to absorb significance supply growth.

While demand in Portland CBD grew faster in the quarter at 9.1% than the CBD supply growth of 6.6%, supply growth for tickets sold on ADR, particularly existing hotels as new hotels ramp-up by discounting prices. We expect the softness in Portland to continue over the near-term.

Overall for the quarter, transient revenue, which made up about 75% of our total portfolio room revenues, increased 1.6% compared to the prior year. Transient ADR increased by 1.4% in the quarter, driven by steady increases in San Francisco, Philadelphia, Boston and South Florida.

Group revenues decreased 1.2% in the quarter with room nights declining 1.5% and ADR increasing 0.3%. This was primarily due to a weak convention calendar in Washington DC and soft growth demand at our Chicago hotels, which was partly offset by significant increases in group demand at our Boston hotels led by Westin Copley.

In terms of monthly RevPAR growth, April was flat, May increased 2.9% and June was up 1.3%. Our hotels generated $160.6 million of same property hotel EBITDA for the quarter, which was $4 million above the top-end of our outlook and $5.5 million above the midpoint.

This is primarily due to properties assumed to be transacted in Q2, but are still owned by us at the end of the quarter and thus, being included in same property hotel results when we originally excluded from them. This contributed $4 million to the same property hotel EBITDA.

So removing this impact, which will still be the top-end of our second quarter same property hotel EBITDA outlook. Moving down to income statement, adjusted EBITDA was $151.6 million, which was $1.6 million above the upper end of our Q2 outlook range.

This was a result of holding properties being sold slightly longer than we assumed in our outlook, which contributed $1 million of additional hotel EBITDA versus our same quarter outlook. In addition, savings and corporate G&A expenses and other items are up $0.6 million.

Adjusted FFO was $111.6 million or $0.85 per share, which exceeded the upper end of our guidance by $0.03 per share. This resulted from the hotel EBITDA beat and G&A savings, which together improved FFO by $0.01 per share versus our outlook. In addition, lower than forecasted interest expenses add another $0.02 per share to our adjusted FFO.

Although, our debt balance is higher than our original outlook due to holding several to-be-sold hotels slightly longer than assumed in our outlook, we'd assume interest rate increases in the quarter, which obviously didn't occur.

We also swapped additional floating rate debt or fixed rates in the quarter, which generated savings to interest expenses that we did not forecast. These interest expense savings should carry forward for the balance of 2019. Moving now to our strategic disposition plan.

We closed on the sale of Onyx Hotel, Boston for $58.3 million during the second quarter, compared to our second quarter outlook that assumed closing of $250 million of total assets in the quarter.

Over the week, we completed $72.9 million sale of Amarano Burbank, and we currently have the Rouge Hotel Washington DC under contract for $42 million, which we expect will transact later in the third quarter.

Assuming the Rouge sale is completed, this will bring our assets sold under the strategic disposition plan total to $1.28 billion with a pricing at 5.54 trailing net income capitalization rate and a 15.5 times EBITDA multiple.

Our revised 2019 outlook assumes an additional $175 million of incremental sales to be announced in 2019, which would bring our targeted 2019 asset sales to $600 million, which is consistent with the forecast we provided to you last quarter.

Despite the heightened uncertainty and risks surrounding global trade tensions and a weakening global economy, we haven't seen any change in buyer sentiment for availability of attractive debt financing.

Also, the anticipated decline in the fed funds rate and thus floating interest rate is incrementally positive for the acquisition market as the cost of debt will be reduced, which should help support healthy property acquisition underwriting evaluations.

Following the completed sale of our Amarano Burbank, our debt-to-EBITDA ratio is forecasted at 4.6 times, which is slightly lower than the 4.7 times at the end of the second quarter. Our estimated net asset value per share range remains at $37.75 to $42.75 with the midpoint of $40.25.

Based on our current share price of $27.37, this implies that we trade at a more than 30% discount to our NAV, while also providing a healthy 5.6% dividend yield. And with that update, I'd now like to turn the call over to Jon..

Thanks, Ray. My focus today will be on three major items; first, what the trends are that we're seeing in the industry; second, I'll provide an update on our strategic disposition plan and our strategic redevelopment plan; and third, I'll discuss the progress with our portfolio-wide initiatives. So let's start with the industry trends.

I would summarize them as follows. Overall, industry demand softened by 50 basis points from the pace of demand growth in the first quarter, primarily due to weakness in transient travel, both business and leisure. Industry demand for room nights grew 1.9% in Q2, below the first quarter's growth rate of 2.4%.

With industry ADR grow just one-tenth of a point higher, industry RevPAR growth decelerated to 1.1% from 1.5% in Q1. Urban and the top 25 markets underperformed the industry with urban RevPAR flat in Q2 and top 25 RevPAR up just 0.2%. Urban and the top 25 markets are underperforming, primarily due to greater supply growth than the overall industry.

In the second quarter, group demand softened further with industry group room-night demand being negatively impacted, primarily by the calendar shift of the Easter Passover holidays moving to April of this year from March of last year.

From our perspective, corporate group demand remained healthy in the second quarter, with strong associated food and beverage and other revenues spend. Because so much of overall group is contracted well in advance, industry-wide group rate has been very positive, increasing 2.1% in the second quarter.

Though, that was down from the first quarter's group rate growth of an even 3%. Industry-wide transient demand on the other hand has been much more positive than group this year, and benefited from the holiday shift in the second quarter. Industry-wide transient demand grew 2.9% in Q2 as compared to Q1's transient demand growth of 0.3%.

Transient rate growth for the industry has been a little more challenging due to the softer overall group base, with transient rate up by an estimated 0.7% in the second quarter, which was not as positive as the first quarter's transient rate growth of 1.2%.

Weekday demand rate growth and RevPAR growth continue to meaningfully outperform weekends, indicating that business travel remains healthy, yet both business travel and leisure travel demand growth rates decelerated in the second quarter compared to the first quarter, particularly in June.

We believe this deceleration is primarily a result of greater uncertainty in the world due to significant trade disputes and disruption and overall slowdown in global growth, and a slowdown in U.S. GDP growth, as evidenced by today's release.

At the margin, we believe businesses are being a little more cautious with travel, other spending and investment decision. We expect these weaker trends to continue in the third quarter or at least until the trade disputes are resolved in a positive fashion, or GDP otherwise re-accelerates.

We're not currently anticipating recession anytime soon as we believe GDP growth will continue at modest levels, employment growth continues in a positive direction, the consumer is in great financial shape, monetary policy is turning more supportive and corporate profits remain strong, albeit with a significantly slower rate of growth this year.

For Pebblebrook, as indicated earlier in the year, the third quarter was already shaping up as our slowest quarter, primarily due to softer convention calendars, including in San Francisco and that continues to be the case.

Similar to the industry trends, we've also experienced deceleration in both leisure and business travel growth rates throughout our portfolio. And to react to that, we've lowered our RevPAR range for the year by 50 basis points at the midpoint with the primary negative impact in the third quarter.

Our fourth quarter continues to look positive as our group pace has strengthened even more than our transient pace has softened. Both continue to be very positive with total revenue pace up by 14.2% as of the end of June with room nights up over 9% and ADR up 4.5%.

Now, I'd like to turn to an update on our strategic disposition plan, as well as our strategic redevelopment plan.

As Ray mentioned earlier, since our corporate acquisition at the end of November, we will have completed dispositions of $1.28 billion of properties, assuming the Rouge sale closes, and completed those sales at very attractive pricing, of which all but $30 million comes from the acquired portfolio.

Pretty tremendous execution, I think, in a very short period of time. We expect to sell an additional $175 million of properties in 2019, and we continue to look at potential sales of between $350 million and $400 million next year.

Given the strength of the sales market and the attractive pricing we've experienced and the fact that we are currently trading at a very large discount to net asset value, we're evaluating potential of selling additional properties later this year and into next year. Turning to our strategic redevelopment plan.

As you've seen with our various announcements, we continue to make great progress with operator and brand changes and visiting our redevelopment throughout the acquired portfolio.

As a reminder, the point of this comprehensive plan is to maximize the opportunities that we believe exist with the prime real estate and large number properties we acquired late last year, just as we've done with just about every hotel acquired by Pebblebrook in our first nine years of existence.

This unique value-creating opportunity is very large and very exciting, and our team is totally energized to take advantage of it.

So to update in the second quarter, we successfully transitioned seven properties to new operators, including Paradise Point Resort & Spa, Skamania Lodge, L'Auberge Dell Mar, the marker San Francisco, Villa Florence Union Square from San Francisco, The Donovan in Washington DC and Mason & Rook, also in DC.

These transitions have gone very well, and operating and financial disruptions overall have been very modest and in line with our estimates. Based on current plans, the bulk of our operator changes are complete with a small number to be announced in upcoming quarters.

We've also announced some exciting brand and concept changes throughout the portfolio. These include hotel Colonnade Coral Gables, moving from the Tribute Collection to the Autograph Collection within the Marriott family of upper upscale brands.

Hotel Madera in Portland, which became the sixth hotel in our proprietary unofficial Z Collection, following its just completed renovation; Mason & Rook, which upon completion of some major physical enhancements of the property will become Viceroy Hotel Washington DC in 2020, part of the luxury Viceroy Hotel Lifestyle Series; The Donovan, which will be transformed next spring into the next member of the unofficial Z Collection, following a complete renovation this winter.

Our latest announcement involving the transformation of Paradise Point Resort in San Diego's, Mission Bay into a Margaritaville Island resort following an estimated $35 million redevelopment next year.

The plan and scope of the Margaritaville renovation is not finalized yet, and they're subject to review and approval process with the City of San Diego, the California Coastal Commission and other governmental entities.

So we don't expect to be substantially complete with our renovations until late next year, at which time the resort will be re-flagged. We're currently completing our plan for Villa Florence in San Francisco, and we'll renovate and significantly upgrade the hotel next year.

And upon completion of what will be a completely new design direction from existing hotel, we will rename and re-launch the hotel. It will not be a Z Hotel, however. As it relates to brand and concept changes, the ones I just described represent the bulk of our changes.

But there will be some additional ones that we expect to announce in the next few quarters. In addition to these operator changes and brand and concept changes, we have a number of other major renovation and redevelopment projects planned within the portfolio, especially the acquired hotels, including Chaminade Resort & Spa.

The first phase of which will occur this winter with the complete renovation of the arrival experience in all interior public areas, meeting space, restaurant and bar and all outdoor venue spaces.

In phase two, which we are currently planning, we're looking to utilizing some of the currently unused 300 acres of the property by adding many of the recreational amenities we successfully added at Skamania, such as zip lines and aerial adventure park and axe throwing, as well as unique experiences, including tree houses, outdoor pavilions and other meeting and entertainment venues.

There is huge upside at Chaminade given the vast unused acreage, the uniqueness of the hotel and the prime location of the property so close to Silicon Valley.

At Viceroy, Santa Monica, we intend to completely renovate all of the ground-floor interior and exterior spaces, including the port to share, lobby, restaurant and bar, outdoor venue and pool area and all meeting space, in order to reinvigorate this iconic luxury property in Santa Monica, and drive substantially higher run rates and other revenues.

In Key West, the marker will undergo a major upgrade to the rooms, lobby, pool, bar and restaurant and will be adding suites to the property in order to substantially increase average rates at this very unique resort with a prime location in Key West.

Following completion of the current renovation this quarter at Hilton, San Diego resort, which has included a full rooms and meeting space renovation, we plan to undertake a second phase to substantially upgrade the parts of the property not covered by the first phase renovation.

We will be dramatically improving the arrival experience, lobby, restaurants and bar, pool area, as well as creating multiple new meeting and event venues around this vast bayside property. We hope to undertake this work this winter and complete it next spring.

These comprehensive improvements should help to drive a significantly higher average rate, as well as substantially greater food and beverage and other revenues at the resort. This winter we'll also be undertaking a complete renovation of Le Parc in West Hollywood.

This modernization and exciting new fashion-forward design should drive greater appeal to our entertainment industry client base that loves this all suite hotel, and should also allow us to drive meaningfully higher average rates.

In addition to these major redevelopments and transformations, as previously disclosed, this winter we'll also be fully renovating the rooms, bar, restaurant and lobby of the Westin Gaslamp in San Diego, as well as completely renovating all of the rooms, which of course are all suites, at our embassy suites in Downtown, San Diego.

Both of these hotels should benefit materially from these major renovation projects. And as you know, earlier this year, we completed the renovations of W Boston, Sofitel Philadelphia, Mondrian Los Angeles, Skamania Lodge and the Hotel Zags, and we're already seeing significant benefits from these major improvements.

These properties should deliver significant revenue and EBITDA increases over the next three to four years. And as we discussed last quarter, there are significant number of additional projects that we'll be planning and executing next year and into 2021.

With the vast majority of the investment dollars being self-financed from the free operating cash flow we generate each year that can be used for these types of projects, other ROI investments and our regular capital maintenance needs.

We look forward to sharing with you the details of these additional projects as we firm up our plans and complete our operator and brand changes.

All of these recent, current and future projects will provide very attractive returns on our investment dollars over the next three to five years, drive significant improvement in operating performance, and consequently create very substantial value for our shareholders.

Speaking of redevelopments and renovations, our properties renovated last year continue to ramp up nicely so far in 2019.

The 11 projects completed last year include the second phase of the redevelopment upgrading of LaPlaya; a complete rooms renovation at Hotel Zelos, room's renovation at Sir Francis Drake; the second and last phase of renovation and conversion of Hotel Modera The Hotel Zags Portland; the full redevelopment and transformation of the Serrano in San Francisco into Hotel Spero; the rooms renovations at Westin Copley and Paradise Point; and the complete renovations of Chamberlain, West Hollywood, Montrose West Hollywood, Harbor Ct., San Francisco and the Heathman hotel, Portland.

In the second quarter, EBITDA was up another $2.6 million combined at these 11 properties on top of the first quarter's $7.1 million increase versus last year.

And this is even with an increase in real estate taxes of roughly $1.4 million in the first half at the five California hotels acquired last year due to automatic reassessments from proposition 13. These renovated and redeveloped properties continue to be on track to achieve an improvement of $13 million in EBITDA for the year.

Last, I'd like to provide an update on our portfolio-wide initiatives. We've spoken previously about the opportunity to drive significant value-creating reductions in expenses within our portfolio as a result of our larger size, as well as driving additional revenue growth through portfolio-wide initiatives.

Our team of people that are focused on this program has been doing a fantastic job so far. And as of this third quarter, based on our successful efforts to-date, we believe we're now achieving savings at an annualized rate of over $5 million.

As previously communicated, our target for annual ongoing savings is $10 million, and we feel we're well on our way towards achieving that objective by the end of next year. And we can see some of these benefits already in our second quarter results.

Total expenses before fixed costs, meaning before taxes, insurance, ground rent and other costs not controllable at the property level, increased to 2.4%, a pretty great results considering we're probably in a 3% to 4% wage and benefit increase world right now.

Due to what we expect to be an increasing level of success with our portfolio-wide initiatives and implementation of joint best practices, as well as savings from clustering or podding certain leadership and staff positions between properties with the same operator in the same market, we feel very good about our ongoing ability to offset wage and benefit increases through efficiencies, just as we're doing this year and what we've done year-after-year.

Continuous and relentless improvement that's what we're all about. And with that, I'd like to turn the call over to the operator to begin the Q&A part of our call. Donna, you may proceed..

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions]. Our first question is coming from Anthony Powell of Barclays. Please go ahead..

Just a question on San Francisco, you mentioned that some of the weekend conventions were a bit softer than you hoped for.

Can you provide some more detail on that? Do you think some of the higher prices may be scared some customers away, and how are you changing your strategy there?.

The answer is we don't really know why people don't come. Perhaps the associations that had these conferences overestimated the number of people that were going to come to begin with. These were new conferences to San Francisco and so the history in the market. There is no comparison.

In other words, we can't look at and say, oh my god, they're down this year from where they were the year before. So, I don't know that was pricing at all in the marketplace. It's certainly possible. These associations are paid for by generally individuals. There are medical associations, so doctors and other researchers and such.

And so it certainly may be that the same consciousness we've seen in leisure transient and business transient, it's pretty much the same business at the end of the day. Just happens to be coming for one specific purpose related to group.

So as it relates to strategy change, I mean, we continue to be focused on building weekend base in the market, and that really doesn't change based upon the weak performance of some of these medical conferences. Obviously, we'll hard at any of the other ones this year. And I know our teams have dramatically washed down those groups on their books.

So they don't presume that business is going to show up..

And just on the additional asset sales that you may peruse later this year.

Does that mean that you could be looking at buybacks later this year if you pursue that option?.

Certainly does..

Thank you. Our next question is coming from Smedes Rose of Citigroup. Please go ahead..

I just wanted to ask you, you mentioned that there is still a lot of strong buyer interest and no changes, I guess in their expectations. And given that environment and some, what looks like weakness on the RevPAR front.

Would you consider pulling forward asset sales that you may have been thinking about last year, and maybe trying to get them done sooner rather than later?.

Not really, Smedes. The sales that we had been looking at and still are looking at for next year, I think we've indicated previously that there's some work that we need to do at these properties before we can put them on the market.

And so, we've been moving forward and making great progress on those efforts, but we're still on the same path we were on before. And frankly, I really don't think -- I mean, the kind of softness you're seeing in economy, which is mirrored in our industry and probably many other industries today.

Unless you think there's a recession, I don't know why it changes your view of value. At the end of the day, I think the stock market is a good example about. The market certainly in this environment with lower rates and lower short-term rates coming doesn't seem to think companies in general are worthless.

And so we don't believe and we haven't seen any evidence of any change in perspective on the part of buyers as it relates to any of the softness that we've seen in RevPAR..

And then sorry if you answered this, but the call went silent first a couple there, but I just wondering on your decision to convert to Margaritaville.

Just interested maybe in a little more detail of why you with that and how do the fees work, I guess to pay the Margaritaville, because you have a third-party -- a different manager as well in that company?.

That's right. So the Margaritaville arrangement is a license arrangement for use of the name, and the names for any of the venues at the property. And it is managed by a different group, but Davidson who manages other properties for us and actually manages other properties that are Margaritaville hotels, and so really a perfect group of three now.

Why did we end up with Margaritaville? After an incredible amount of the original skepticism after the idea was brought to us last year and a great effort of both the Margaritaville and the Davidson folks to educate us on the value of Margaritaville, the huge national and even international customer base that the brand has throughout the restaurants, as well as their resorts, their merchandise, their alcohol sales, their radio station, they have a pretty broad reach into a customer base that we think is the customer base in San Diego and in Mission Bay.

And so, we've really thought it was a perfect fit. The numbers that we've seen and that they've provided to us give us a lot of confidence that the way to maximize the upside opportunity of this property is through Margaritaville and not through other brands who are remaining as an independent as the property has been for decades.

And so for us, it seems at the end of the day a pretty good fit. It's a spectacular property. As you know, it's very unique. But the customer base that does come to San Diego and Mission Bay is not the same customer base that goes to Laguna Miguel or Santa Barbara, or Delmar. And so, we think it's a good fit.

They drive a tremendous amount through the projects that they have of food and beverage and other revenues. People tend to stay on the property much longer and use the venues more so than any other brand or in fact any of the independents that we have. So that was really the rationale behind it in.

And I would reiterate we had an incredible amount of skepticism when we heard the idea initially. And maybe that's because we're not parrot heads here, but we really didn't understand the brand and its success today..

Thank you. Our next question is coming from Rich Hightower with Evercore ISI. Please go ahead..

I had a quick question on some of the mechanics in the guidance. So if my arithmetic is correct and you can correct me if it's not, it implies maybe about a one and three quarter RevPAR growth rate in the fourth quarter at the midpoint. And Jon, you made comments about the fourth quarter group is obviously contributing to that.

Is that -- and maybe a better way to ask it is.

What would that number have been as of 90 days ago just given some of the changes in transient we've seen since that time?.

Well, Rich, firstly your question on the fourth quarter. Well, it implies what your third quarter assumption is to get the fourth quarter. But based upon the range we provided of flat to down 2% in Q3 that imply fourth quarter of up 1% to 3%..

I was using the midpoints.

So, what would that have been as of 90 days ago, roughly speaking?.

I don't think we have taken down our second quarter at all, I mean, our fourth quarter at all based upon what we've seen, perhaps at the margin a little bit, Rich. But most of the decline really came, is coming from the third quarter, which was our weakest quarter from a pace perspective all year.

And third quarter actually got worse based on the bookings in Q2 for Q3, while actually Q4 got better based upon the bookings in Q2. And actually both quarters got better on a group pace basis.

So, it really is all focused on transient, which is very consistent with what we we've seen in the industry data and what we've heard after talking to a number of the major brands..

And then my second one here, maybe to turn the recession question on its head here. Given the volume of redevelopments and CapEx spend that's coming down the pike over the next year or two. If we were to enter into a full-blown recession in the next 12 months, and I realized that these projects can't exactly turn on a dime.

But could you potentially accelerate some of those plans versus what's currently in the pipeline, or how would you think about that?.

Well, we certainly could accelerate projects that we currently have planned out into the winter of 2020, or end of the summer of 2021. We could pull those forward. I don't know that that overall would be the right decision even in that environment that you're talking about. But it really depends upon what kind of recession it is.

There's some people who say we had a recession in '15 and '16, a mini recession and maybe that's what we're having right now, I don't know. But everybody has a different definition of what it means. But we would relook at everything and determine what the right thing to do was.

And yes, we do have flexibility on a number of these projects to either pull them forward or push them back..

Thank you. Our next question is coming from Bill Crow of Raymond James. Please go ahead. .

Jon, we're ready to enter the special corporate and negotiations this fall, corporate confidence is at low levels.

Just curious how is your view towards 2020 evolving?.

I suspect it'll -- I mean, we really haven't started. I guess there's starting to be some RFPs. And actually, there are some are RFPs on fiscal years. There are some of the large corporations that are on July 1 to June 30, and we've just gone through those, finalizing them over the last 60 days.

And I'd say that the results of those, if that's any indication of the ones to come was pretty similar to what was going into this past year.

What we are seeing on average 2% to 3% increase is in average rates higher in markets like in San Francisco, or even Boston and lower in some of the softer markets where there is more new supply and new competition.

So I don't a really think it's been a move much from those numbers for this upcoming winter based upon what we've seen in the mid year RFPs that we have just accomplished..

And on the repurchase topic, Jon.

Is this dependent upon more asset sales at this point? Or if you had enough confidence in the execution, could you maybe do repurchases sooner given the valuation today?.

Well, we certainly -- I mean, it all depends upon -- I mean, our first objective is to bring our leverage down to our target range in the low 4s.

And so whether the asset actually close or we have confidence that they will close, because the buyers have significant dollars at risk, yes, that would all be taken into account and when we move forward with any the stock buyback program. We do already have the program in place. So it's not something we have to announce at this point..

And then just finally from me, you gave a lot of high praise to Margaritaville.

Any other assets within your portfolio that you think could benefit from switching to that brand?.

Potentially, Bill. I mean, it's a pretty specific customer market, I think. And so now anything we do would need to be the right fit for that. But I do think it's an up-and-coming lifestyle brand. I think they are growing rapidly, which frankly in some regards, is always a concern, want to make sure they are focused on us.

And we think they are, because we are their first West Coast property. And of course, I think they look at our property and think it's the quintessential prime Margaritaville, if you will. You know the property, it's a chill place, incredible landscaping acreage, et cetera.

So I mean, we will be evaluating some additional properties, we already are throughout the portfolio for changes and certainly Margaritaville could be a possibility as are many other things -- any other brands, or our own proprietary brand that we're looking at..

Thank you. Our next question is coming from Neil Malkin from Capital One Securities. Please go ahead..

So since April, you've had 10 operator or brand changes announced or completed. I'm just wondering if that podding concepts where you are leveraging property management and fixed costs.

Is there a lot more that to do I guess relative to your expectations when you first acquired LaSalle more to do than you thought? And do you think you can be ahead of your $10 million in synergies you talked about when you made the transaction?.

So Neil, interestingly, the savings from the parting are not part of the $10 million estimate. We think there is another $2 million to $3 million in the podding.

We think right now we are looking at eight pods, potential pods of two properties each and we probably successfully implemented three of those and we're in the process of executing on the remainder of them. So, we've really not gotten to those savings yet in terms of those benefiting our numbers. So that's to come.

And I would guess that those would be completely in place by the end of the year and we'd see those annualized savings benefit us next year primarily..

In terms of your guidance, seems like the comp in 2Q was the hardest you are going to see, but I think RevPAR at 4.8% last year 2Q, looks like 3Q, 4Q have easier comps for you, you have strong San Francisco in the fourth quarter and you have the tailwind from merger integrations and labor strikes last year layering on top that easier said.

Do you think your guide is a little bit too cautious in the back half of the year?.

I think our guide, as it has been, is very reasonable given what we're seeing. And so, the June performance was a little disturbing as March was earlier in the year, and then we had an okay April and a good May, and then June declined. So, I think given the uncertainties we're seeing in the economy the slowdown in economic activity.

Business investment as you've seen is very, very soft. And corporate confidence or CEO confidence is very cautious. So, I think we need to see some resolutions before we see a pickup in activity in travel and the industry. And I would think our outlook is based upon what we're seeing, not in the anticipation of things getting worse..

And then last one from me, at Chaminade you talk about the things you can do to improve the other non-room revenue performance. Have you guys at all thought about putting in RV pads? It's a very popular demographic, they're very cheap to put in, the returns are super strong.

I'm wondering if you thought about looking at even more alternative uses for your properties that have larger acreage..

Yes, that's a really a good question. And obviously, the whole RV glamping thing is on the rise. We are looking at RVs, high-end RV Park. We are looking at all different forms of glamping, whether it's yurts, whether it's teepees, whether it's hard surface, treehouses. We have three tree hours in Skamania.

We're in the process of our planning two more, adding to the four that we have. And actually at Skamania, we are looking at closing our golf course, taking back those 150 acres and putting other uses on that property.

One of which would probably more popular version of golf that would be much more profitable, which would be an executive nine-hole short course and then an 18-hole podding course. And we will be looking that at Chaminade as well, which currently doesn't have any golf amenity at all.

So all of those things you're talking about yurts, teepees, RVs, silver clouds, all of those are opportunities. You see them up and down the West Coast in varying degrees where we could be putting those on our properties to dramatically improve revenues, as well as utilization of the properties, food and beverage in other facilities..

Thank you. Our next question is coming from Michael Bellisario of Baird. Please go ahead..

Jon, you mentioned group demand remaining pretty solid at least on the corporate side.

Any change that you've seen in cancellations or attrition from the group that you saw in 2Q, or early 3Q?.

No. We look for that, right, because that's really an indicator of a turning point oftentimes when we see an acceleration in group cancellations or significant attrition.

And outside of those medical conventions, I mentioned earlier, we're really not seeing anything related to an increase in group cancellations or attrition, so all positive on that regard. And as I indicated, at least in our portfolio, we actually had an increase in group pace out of the bookings of the second quarter for the rest of the year..

Thank you. Our next question is coming from Wes Golladay from RBC Capital Markets. Please go ahead..

Can you update us on your time with the supply forecasts for this year and next year? And then maybe can you contrast that with how it's changed throughout the year with all the dispositions? And will it change more with the planned disposition?.

As we noted before, Wes, in terms of -- our supply growth, has continued our estimates of continuing to be higher at the start of the year than it's really translated to currently.

Right now, for 2019, our supply growth is now under 3% and right now in 2020 it's around 3%, and that's the result of projects in 2019 just taking longer, again pushed out to 2020 and then it dips down to under 2% in 2021. Obviously, that's less confidence in that, because that tears out.

And overall, our supply growth for 2019 declined by about 30 basis points versus last quarter. And our second quarter -- and then for 2020, our supply forecast is declined by about 20 basis points as well. So again, supply we think is largely in check. There's a couple of the larger hotels when they get open in these smaller markets like Seattle.

And Portland, they tend to move the supply growth up a lot. But overall, we think supply is pretty well in check given how strong the demand growth has been..

And then looking at the leisure customer, can you further segment that into how the domestic consumer is doing versus the international?.

This one is harder, because on the international side, the data is a little bit spotty. Now, commerce has been coming out with their data much more quickly, which frankly is in response to legislation that got passed that directed them to do that. And so, what we've seen from their numbers, I think through May, is overseas inbound up 2%.

Now that's inconsistent with what we're hearing from the brands who believe, I think they believe or they certainly indicated to us that they think international is down slightly in the first half of the year. So at best I'd say it's probably flattish to slightly up, slightly down, based upon the different data sources that we're hearing from.

So one thing we do know is outbound is up significantly. So Americans are traveling. Growth there is a high percentage, whether it's going to Europe or its going to Asia, or other places around the world. And of course, we'd rather have those people stay in the U.S..

And last one on the disposition front.

Is the street retail largely ready to be sold at your various properties?.

Not quite. We're making progress. As we said, we're working through the creation of condominiums, and for the various our different segments of the property. And so we're not there yet but we're hoping that there will be an opportunity to offer at least some of the portfolio of retail before the end of the year..

And is that the comparable cap rate to where the hotels are selling?.

We think that is the indications of value we're being provided by more expert retail investment brokers. Certainly, we don't know that much about it. It's not our expertise. But based upon what we're being provided, yes, it's in the same ballpark..

Thank you. Our next question is coming from Steven Grambling of Goldman Sachs. Please proceed with your question..

On the willingness to sell additional hotels, maybe I missed this.

But can you give us any sense for how you would think about prioritizing the remaining assets as you think about the different segments you've outlined?.

I mean, we are going to look at -- we have a look at a number of different things. First, from an operating perspective, we're going to look at our short to intermediate term perspective on the market on a particular property is capital required, what do we think the return on that capital is, is it attractive or not.

And then is it strategic from a branding perspective for us in terms of that second opportunity of ultimately trying to see if there's value by creating our own brand or brands with our portfolio. We continue to have a West Coast bias of our long-term viewpoint on value creation versus some of the East Coast markets, and that would impact.

And then we need to look at what the taxable gains are and how much of that capital would be available for either stock buyback, or either additional dividends that we would need to pay out, which we're more than happy to do in selling in asset.

But it certainly wouldn't achieve the objective of taking advantage of an arbitrage as much so between the public and private market values..

And then you mentioned your broader outlook is based on what you're seeing in the market now. Your guidance is based on from what you're seeing in the market now, and you aren't expecting recession. As you think about cost control and communicating with your managers.

Are they bettening down the hatches at this point as it relates to cost containment? Or what are the triggers that would drive that approach?.

We certainly aren't at, what I would describe as what you just defined bend down the hatches arbitrary across the board cuts. We're not doing any of that are at this point in time.

Right now, we're doing what we normally do where if there's top line softness, let's look with a finer set of glasses at where we can be more efficient or make some cuts, or defer expenses though.

Frankly, we don't want to defer anything that impact long-term value, quality of the experience for the guests, the value proposition at the end of the day, because that's the savings that will ultimately get offset by reductions in revenue at the end of the day. So, no.

We are not -- we are definitely not looking at what we did back in '08, '09 or what we did back in '01..

Thank you. Our next question is coming from Gregory Miller of SunTrust Robinson Humphrey. Please go ahead..

First question, given that you have a number of leisure markets in their portfolio.

How are you interpreting relatively better leisure trends in say South Florida versus some of your more challenged markets? Are some of attractive destinations pulling up better than markets where you have more client demand?.

That's a good question. We haven't looked at it that way that's a reasonable way to look at it, and something that often happens in a slowdown where your drive to benefit.

I do think part of the South Florida benefit that we've been seeing continues to be the recovery from after those hurricanes, both in the one that hit in Naples, which is impacting our Naples property and those in Key West, where I think Key West is continuing to recover to it's getting closer the demand level it was at prior to the hurricane.

And so, I don't think its representative of a broader trend necessarily as much as its representative of some local market recovery from impacts from prior events. And I think if you talk to folks in Miami, or Miami Beach, you'd probably hear that they're not seeing that as much as we're seeing in Key West and Naples.

And probably because they didn't have the negative impact in that market that we saw in the two others..

One other question just on Moscone Center. We've heard that Moscone has started to attract new annual conventions that booked for the first time in 2019 and perhaps now annually, going forward as a consequence of the renovated and expanded center.

I'm curious if you're hearing this as well? And if so, is this a potential material benefit to pace as we look out to 2020?.

Well, we're definitely seeing that. I mean, the expanded center has attracted significantly more and newer conventions. I don't know -- certainly, it's a mix. Perhaps some of those are annuals. But a number of those are newer rotational conventions that come every three year, four years, because they rotate regionally at the end of the day.

But there's no doubt that Moscone is running at a much higher pace. We believe that will be on an ongoing basis. Bookings for next year, as an example, are now up over a million room nights. And recall maybe two quarters ago, we were down in the low to mid 9s. So, they do continue to make progress. It's very encouraging.

It will drive more consistent long-term demand. And you do actually raised an interesting comment that is true to San Francisco versus other markets. I believe San Francisco has more annual repeat conventions than any other market in the United States.

And that does reduce risk and it does reduce uncertainty that happens through these rotations and certainly, volatility from the ups and downs. So, I think that expansion and renovation has been received extremely well, and have led to more conventions some of them annual and many rotational that drive more demand on a regular basis annually.

And '21 right now looks to be up from 20 based upon pace..

Greg, right now, 2021 has over 940,000 room nights, and that's two years out. So that's running at a better booking pace than 2020 is. And so several years ahead of us in terms of on the convention side..

Thank you. We are showing time for one additional question today. Our last question will be coming from Lukas Hartwich of Green Street Advisors. Please go ahead..

This is David on for Lukas. Just sticking with San Francisco again not to put words in your mouth. But it sounds like you're pretty optimistic on San Francisco for the next few years.

Would it be fair to say that's going to be a top-performing market across your portfolio?.

Well, I certainly think it will be one of our better performing ones next year. I do think -- I mean what we've stated and I think right now we believe is with the slight reduction in room nights next year, we think San Francisco is likely to be more of a average performer versus a much stronger performance next year.

But then we think it recovers in 2021 with growth off of '20 to being an outperformer again. Particularly as the underlying demand base of technology based, or medical based, or even leisure based business, continues to drive forward in the city. So -- and a little to no supply in that market, as far as the eye can see..

And then just one more quick one on the renovation projects, the two in San Diego. It looks like the renovation costs went up last quarter.

Was there a market specific issue there or was it something else?.

We added some scope at the Westin that relates to a more complete renovation and redevelopment of the restaurant and bar, adding a lot more seats, adding outdoor areas, adding private dining that we didn't have in the plan before. And as it relates to the Embassy Suites, we added a little bit of bathroom scope of there.

And then both properties were subject to some additional costs related to some new ADA guidelines in San Diego that we have to add to the scope..

Thank you. At this time, I'd like to turn the floor back over to Mr. Bortz for closing comments..

Thanks very much, Donna. Thank you all for participating. Sorry for the lengthy call but hopefully, you found it worthwhile spending the time with us. And we look forward to seeing you over the course of the quarter and updating you again in another 90 days. Have a nice summer. Thanks..

Ladies and gentleman, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day..