Q1 2020 Earnings Call

May 8, 2020

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Thank you for standing by.

Operator 2: Thank you for standing by. This is the conference operator. Welcome to the Pebblebrook Hotel Trust Q1 Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Raymond Martz, CFO. Please go ahead, sir.

Operator: Thank you for standing by. This is the conference operator. Welcome to the Pebblebrook Hotel Trust Q1 Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Raymond Martz, CFO. Please go ahead, sir.

This is the conference operator.

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As a reminder, open dispenser and listen only mode and the conference being recorded after presentation there'll be an opportunity to ask questions. You're trying to <unk> are done one on your telephone keypad.

You need assistance during the conference call you may signal and operator depressing start Andrew.

Now like to spend the conference over to Mr. Raymond March Yeah, Oh. Please go ahead Sir.

Thank you cards in the morning, everyone. Welcome to our first quarter 2020 earnings call webcast. Dirty me today is John boards, or chairman and Chief Executive Officer.

Raymond Martz: Thank you, Carl, and good morning, everyone. Welcome to our Q1 2020 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. 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 2019 and our other SEC filings, and future results could differ materially from those implied by our comments. Forward-looking statements that we make today are effective only as of today, 8 May 2020, and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use, on our website at pebblebrookhotels.com.

But before we start quick reminder, that many of our comments today you considered forward looking statements under federal Securities laws any statements are subject to numerous risk I'm starting to use as described or 10, K. for 2019, and our other S.U.C. filings and future is always good different maturity from does imply by our comments forward looking statements that were made today are effective only has.

They may 8th 2020, and we're a new take no duty to update them. Later you can find your S.B.C. reports in earnings release, which contain reconciliation and then I got punished measures we use on our website at Pebblebrook hotels Dot com.

Well the first quarter 2020 is indeed, then like no other in the history of the hotel industry. That's all through the entire Pebblebrook team or with the families were lost loved ones to this pandemic as well the tremendous thanks and appreciation for all their first responders and health care workers on the front lines.

Raymond Martz: While Q1 2020 has indeed been like no other in the history of the hotel industry, the thoughts of the entire Pebblebrook team are with the families who have lost loved ones to this pandemic, as well as the tremendous thanks and appreciation for all the first responders and healthcare workers on the front lines. The speed at which this pandemic has impacted the world has been incredible, causing cities and states across the United States to effectively shut down through the imposition of shelter at home policies and mandating many businesses to close or significantly curtail their operations. In addition, the federal government decided to close our borders to international travelers and commerce and restrict all other non-essential travel. All of these factors led to a situation where hotel demand rapidly dropped to virtually zero in a matter of just weeks, beginning in early March.

The speed of which this pandemic has impacted the world has been incredible, causing cities and states across the United States to effectively shut down through the imposition of sheltered home policies and mandating many businesses to close or significantly curtail their operations.

In addition, the federal government decided or close our borders to international travelers and commerce restrict all other not essential travel.

All of these factors that to a situation where hotel demand rapidly dropped universally zero in a matter of just weeks beginning in early March.

Our response has been sweat indecisive as we reacted to this crisis, which changed by the day are three immediate strategic properties, where the first protect the health and safety of our gas and hotel level workers second to preserve our financial liquidity during this crisis.

Raymond Martz: Our response has been swift and decisive as we reacted to this crisis which changed by the day. Our three immediate strategic priorities were to, first, protect the health and safety of our guests and hotel level workers. Second, to preserve our financial liquidity during this crisis. Third, to ensure we are well prepared to take advantage of the opportunities that arise in the new hotel operating environment after the recovery begins. The year started well as we were ahead of budget in January and February. Yet by late February, we were implementing cost reduction programs, and by mid-March, we commenced temporarily suspending operations at many of our hotels and resorts in response to mandated restrictions and closings required by local and state government officials to help ensure the safety of our guests, workers, and communities.

Third does sure we are well prepared to take advantage of the opportunities that arise in the new hotel operating environment. After the recovery begins.

Do you started well as we were ahead a budget in January and February Yeah by late February we we're implementing cost reduction programs and by mid March we commenced temporarily suspended operations and many of our hotels and resorts in response to mandate of restrictions and closing required by local and state government officials the help ensure the state.

If you have our guest workers and communities.

As of today 46 over 54 hotels and resorts have temporarily suspended operations.

Raymond Martz: As of today, 46 of our 54 hotels and resorts have temporarily suspended operations. Our remaining eight hotels, for various reasons, are open and operating with skeleton crews and limited services and amenities. As a result of these actions, Q1 same-property RevPAR declined 25.5% compared to the prior year period, with same-property total revenues declining 23.1% to $255.8 million. Same property hotel EBITDA declined 55.2% to $40.6 million. Of note, March room revenues declined 65.8%. Our ability to reduce hotel level expenses in March was challenging, given how quickly and substantially the operating environment changed, which caused a rapid and dramatic increase in group and transient cancellations in the month. Nevertheless, total hotel expenses before fixed costs were still reduced by 42.7% compared to last year.

<unk> eight hotels for various reasons are open and operating with Scouting cruise unlimited services and amenities.

As a result of these actions first quarter same property wrapped par declined 25.5% compared to the prior year period, which same property total revenues declining 23.1% to 255.8 million.

Same property hotel eat it out the Clyde, 55.2% for 40.6 million of no March revenues decline, 65.8%.

<unk> reduce hotel level expenses in March <unk> was challenging, giving how quickly as substantially the operating environment change, which caused a rapid and dramatic increase in group and transient cancellations in the month.

Nevertheless, total hadow expensive before fixed costs are still reduced by 42.7% compared to last year.

Are adjusted EBITDA was 35.9 billion and are adjusted ever thought per share. It was 13 cents.

Raymond Martz: Our adjusted EBITDA was $35.9 million, and our adjusted FFO per share was $0.13. This reflects the impact of the decline in hotel demand and subsequent suspensions of hotel operations. In addition, we incurred approximately $5 million of one-time charges relating to the furloughing of hotel level employees, which included future hotel health care benefits and other payroll costs that were recorded in March per GAAP. We also recorded a $16 million non-cash write-off for our long-term retention share awards that had just been issued in late February prior to the pandemic, which our executive team and other officers volunteered to forfeit as part of our corporate expense reduction measures. Imagine that, a $16 million corporate write-off as a result of the forfeiture of restricted shares, which is a benefit for the company. You gotta love GAAP.

This reflects the impact of the decline in hotels demand and subsequent suspensions of hotel operations.

In addition, we incurred approximately $5 million at one time charges relating to their furloughing of hotel level employees, which included future Hotel health care benefits in another pair will cost never recorded in March per gap.

We also recorded a 16 million dollar noncash right off for a long term protection share words that adjust been issued in late February prior to the pandemic, which are executive teen and other officers volunteered the fourth that as part of our corporate expense reduction measures imagine that is 16 million dollar corporate right off as a result of the forfeiture.

Restricted shares which is a benefit for the company you Gotta Love gap.

We also generate against going to sell in early March of Intercontinental Buck had and so but tell D.C. hotels I got gain of 117 million and a taxable gain of 169. This l. These two properties represented the common combination of two very successful invest investments and the timing other see I was obviously very for two.

Raymond Martz: We also generated gains from the sale in early March of the InterContinental Buckhead and Sofitel DC hotels, a GAAP gain of $117 million and a taxable gain of $160 million. The sale of these two properties represent the culmination of two very successful investments, and the timing of the sale was obviously very fortuitous, but also a consequence of negotiating a strong and favorable contract. Since the closing of our corporate acquisition in November 2018, we successfully completed sales totaling $1.66 billion of hotels at a 5.6% cap rate as part of our strategic disposition plan. Shifting to our second priority in response to the COVID pandemic, preserving the liquidity of our business, we took numerous actions since the crisis became apparent.

Yes, but also a consequence of negotiating a strong and favorable contract.

Since the closing of our corporate acquisition in November 2018, we successfully completed sales totally $1.66 billion hotels.

At a 5.6% cap rape as part of our strategic disposition plan.

Shifting to our second priority in response to the cover the pandemic preserving the liquidity of our business. We took numerous actions since a crisis became apparent.

In addition to instituting drastic expats reductions throughout our portfolio. We also quickly suspended operations at the vast majority of our hotels and resorts, which significantly reduce operating losses.

Raymond Martz: In addition to instituting drastic expense reductions throughout our portfolio, we also quickly suspended operations at the vast majority of our hotels and resorts, which significantly reduced operating losses, including furloughing the majority of our hotel level workers and reducing number of employees at our hotels to skeleton crews, while also ensuring the security and safety of our hotel associates and our properties. Our hotel asset managers also work closely with our hotel teams and management companies to aggressively reduce our non-payroll expenses across the portfolio. We thank our management teams for reacting so quickly and decisively in a challenging environment. This, of course, mitigates our monthly cash burn during this crisis.

That's including Furloughing, the majority of our hotel level workers and reducing the number of employees that are hotels. The skeleton cruise well also insuring that security and safety of or hotel associates and our problems.

Our hotel asset managers also worked closely where hotel teams in management companies to aggressively reduce our non payroll expenses across a portfolio. We think are management teams were reacting so quickly and decisively in a challenging environment.

Of course mitigates our monthly cash burned during this crisis.

As a result of these Swiss that's ripped indecisive actions, we reduced our must be hotel level operating expenses by more than 75% remaining an estimated average might be cash burn at our hotel level. Other at approximately 15 to 18 million or about 1200 per key per month.

Raymond Martz: As a result of these swift and decisive actions, we reduced our monthly hotel level operating expenses by more than 75%, leaving an estimated average monthly cash burn at our hotel level of approximately $15 to 18 million or about $1,200 per key per month. We continue our efforts to further reduce this cash burn. At our corporate level, we estimate monthly cash G&A at approximately $2 million, which reflects a reduction in compensation for every executive officer, member of the board of trustees, and employee at Pebblebrook, including Jon, who volunteered to forego his salary for the remainder of 2020. We also modified our annual cash bonus program to provide that bonuses earned for 2020, if any, will be paid next year and paid in common shares instead of in cash.

And we continue our efforts are further reduce this cash burn.

[noise] at our corporate level, we estimate must be cast G.N.A. at approximately $2 million, which reflects a reduction in compensation for every executive officer member of the board of trustees and employ pebblebrook, including John volunteer to forgo his salary for the remainder of 2020.

We also modified or into a cash bonus program to provide their bonuses earned for 2020, if any will be paid next year and paid in common shares instead of in cash.

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Also has previously imagine into our executive team <unk> officers of the company agree to voluntarily forfeit long-term retention share words, there were issues and late February are combined reductions in corporate G.N.A. total approximately 8.5 million for the remainder of the year.

Raymond Martz: Also, as previously mentioned, our executive team and officers of the company agreed to voluntarily forfeit long-term retention share awards that were issued in late February. Our combined reductions in corporate G&A total approximately $8.5 million for the remainder of the year. As with our hotel level cash burn, we'll continue to look for further reductions in our corporate G&A expenses as appropriate. Finally, our interest expenses and preferred dividend payments total approximately $8 to 10 million per month. We reduced our normal quarterly common dividend from $0.38 to $0.01 per share, beginning with the Q1 dividend, preserving $50 million per quarter in cash, totaling $150 million of savings for the year.

As with our hotel available cash burn will continue to look for further reductions in our corporate j. expenses as appropriate.

Finally, our interests expenses I prefer dividend payments total approximate eight to 10 million per month, we reduced our normal quarterly common dividend from 38 cents to one penny per share beginning with the first quarter, Devin preserving $50 million per quarter in cash totaling $150 million of savings for the year.

Combine giving our comprehensive initiatives at the hotel and corporate level, we estimate or average multicast burns to be approximately $25 million to $30 million, which excludes any capital investments.

Raymond Martz: Combined, given our comprehensive initiatives at the hotel and corporate level, we estimate our average monthly cash burn to be approximately $25 to 30 million, which excludes any capital investments. As it relates to our capital investments, we have invested approximately $50.1 million into our hotels through the end of Q1. We currently expect to invest an additional $75 to 85 million over the balance of the year, mostly to complete our ongoing major redevelopment projects. To further enhance our liquidity, we've elected to defer more than $100 million of major redevelopment projects to 2021 and beyond. We will reevaluate these projects as we gain more clarity on the economic environment in our outlook. Turning to our balance sheet, as of the end of March, we had $746.8 million of cash on hand.

As a beliefs or a capital investments, we invested approximately 50.1 million into our hotels through the end of the first quarter. We currently expect to invest in addition on a 75 to 85 million or the balance of the year, mostly to complete our ongoing major redevelopment projects.

Further enhance our liquidity, we've elected to defer more than $100 million a major redevelopment projects to 2021 and beyond we were <unk> reevaluate these projects as would gain more clarity on the economic environment inner outlook.

Turning to our balance sheet as at the end of March we have 746.8 million of cash on hand. This increase from your and last year is primarily a result of drawing down on the remaining the ability on our 650 million dollar unsecured credit facility in the mid March to increase our liquid liquidity as well as a $331 million of cash proceeds.

Raymond Martz: This increase from year-end last year is primarily a result of drawing down on the remaining availability on our $650 million unsecured credit facility in mid-March to increase our liquidity, as well as the $331 million of cash proceeds from the sales of InterContinental Buckhead and Sofitel DC in early March. We believe this provides us with sufficient liquidity over an extended period. However, we will continue to evaluate other sources of liquidity, including additional term loans, property-level financing, government loan programs, or other debt financings. We will also assess additional property sales. The transaction market is largely frozen currently as the debt markets and buyers and sellers recalibrate values. We believe transactions will likely be on hold until at least H2 of this year and will likely favor all-cash buyers rather than those who need debt.

From the sales or Intercon, Buckhead and sober tell D.C. in early March.

We believe this provides us with sufficient liquidity over an extended period. However, we will continue to devour evaluate other sources of liquidity, including additional a term loans.

Pretty level financing <unk> programs or other deputy antics.

We will also assess additional property sales.

<unk> the actual market is largely frozen currently as a debt markets and buyers and sellers recalibrate values.

We believe transactions will likely be on hold until at least the second half of this year intellect be favor all cash buyers rather than those who need that.

Regarding our debt as a reminder, abra debt is unsecured and we have zero debt maturities until November 2021, as a march 31st our net debt to depreciate a book value was just 34% which indicates that we after this crisis with very little average and demonstrates that we don't have a dead problem. They're clearly we have a revenue and even a problem as.

Raymond Martz: Regarding our debt, as a reminder, all of our debt is unsecured, and we have zero debt maturities until November 2021. As of March 31, our net debt to depreciated book value was just 34%, which indicates that we entered this crisis with very low leverage and demonstrates that we don't have a debt problem, but clearly, we have a revenue and EBITDA problem as a result of the economic stop in response to governmental efforts to contain the pandemic. Looking at net debt to depreciated book value represents a good proxy for leverage given the lack of demand and lack of revenues in the current hotel operating environment. As it relates to our financial covenants under existing unsecured credit facilities and unsecured notes, we are currently in compliance with all of our loan and note agreements.

Result of the academic stop in response to governmental efforts contain the pandemic.

Looking at net debt to appreciate a book value represents a good proxy for leverage given the lack of demand a lack of revenues current hotel operating environment.

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As relates to our financial covenants under existing unsecured crevices cities and Unsecure notes. We are currently in compliance with all of our loan and node agreements. However, given the substantial decline hotel revenues, we anticipate the need for a waiver up certain covenants beginning with the second quarter ending June 30th as a result, we're in discussions with her bank group and note.

Raymond Martz: However, given the substantial decline in hotel revenues, we anticipate the need for a waiver of certain covenants beginning with Q2 ending June 30. As a result, we're in discussions with our bank group and note holders, and we expect to finalize this waiver agreement soon, and we'll update you accordingly. Regarding our third priority, which is to ensure we are well prepared for the new hotel operating environment and to take advantage of the opportunities when the recovery begins, I'd like to turn the call over to Jon Bortz to discuss our plans and what lies ahead for the hotel industry and Pebblebrook. Jon?

Others, and we expect to finalize this waiver agreements soon we'll update you accordingly.

Regarding a third priority, which the is to ensure we are well prepare for the new hotel opera environment and to take advantage of the opportunities when the recovery begins I like to turn the cover the John discuss our plans and what lies ahead for the hotel industry and Pebblebrook John.

Thanks, right [noise].

Jon Bortz: Thanks, Ray. These are, without question, unprecedented times. Along with many other industries, the hotel industry has never before experienced an event that has effectively eliminated almost all segments of travel and hotel demand around the world at the same time. Since this crisis is a result of a pandemic, it's unclear how long the impact will last, how much damage it will cause to the economy, both now and in the future, and what impact it will have over the long term on travel, human behavior, and the lodging business. As a result of this uncertainty, as Ray indicated, it's best to focus our efforts on protecting the business under the assumption that the negative impact will last for a significant period of time. Plan for the worst and hope for and do everything we can to achieve the best.

These are without question unprecedented times.

Along with many other industries the hotel industry has never before experiencing event.

That has a effectively eliminated almost all segments of travel and hotel demand around the world at the same time.

And since this crisis as a result of a pandemic.

Unclear how long the impact will last how much damage. It will it will cause to the economy, both now and in the future and what impact it will have over the long term on travel human behavior and the lodging business.

As a result of this uncertainty as Ray indicated.

It's best to focus our efforts on protecting the business under the assumption that the negative impact will last for a significant period of time.

So plan for the worst and hope for and do everything we can to achieve the best.

As we plan for the remainder of 2020.

Jon Bortz: As we plan for the remainder of 2020, we start with the knowledge that the recovery will be dictated by the virus and the world's ability to mitigate it, so predictions are obviously difficult. Based upon what we understand, we believe it's reasonable to expect a significant disruption to most of the demand segments for the better part of this year. We currently expect that Q2 will be the worst quarter, with April being the worst month, and Q3 and Q4 providing a slow but positive improvement. Beyond that level of detail, no one can really know or predict how this is going to play out. Again, the good news is it should get better from here. Leisure transient should be the first to recover, then business transient, then small group, then larger group, and citywides.

We start with the knowledge that the recovery will be dictated by the virus and the world's ability to mitigate it so predictions are obviously difficult.

Based upon what we understand we believe it's reasonable to expect a significant disruption to most of the demands segments for the better part of this year.

But we currently expect that the second quarter will be the worst quarter.

With April being the worst month.

And the third and fourth quarter is providing a slow but positive improvement.

[noise] beyond that level of detail no one can really know or predict how this is going to play out.

But again the good news as it should get better from here.

Leisure <unk> should be the first to recover.

Then business transient.

Then small group.

Then larger group and Citywides.

We believe group, particularly larger group will be the hardest hit.

Jon Bortz: We believe group, particularly larger group, will be the hardest hit, and most of it is not likely to return any time this year without an effective health solution. We've counseled our property teams to assume that none of the group on the books will materialize, and they should plan and staff accordingly. It's uncertain when government restrictions on gatherings will moderate, but most state and local governments have already indicated that large gatherings are likely to require significant health advances before being allowed. Even if they are allowed, it's unclear how willing individuals will be to congregate in large groups without substantial physical distancing and other requirements like masks and testing. We also expect companies to be very cautious with travel, likely limiting travel by their employees to truly essential travel only, thereby eliminating much of the demand from business.

And most of it is not likely to return anytime this year without an effective health solution.

We've council to our property teams to assume that none of the group on the Bucks will materialize and they should plan and staff accordingly.

It's uncertain one government restrictions on gatherings, while moderate.

But but most state and local governments have already indicated that large gatherings are likely to require significant health advances before being allowed.

And even if they are loud, it's unclear unclear how willing individuals will be to congregate enlarge groups without substantial physical distancing and other requirements like masks and testing.

We also expect companies to be very cautious with travel.

<unk>, eliminating travel by their employees to truly essential travel only.

Thereby eliminating much of the demand from business.

So we really can't count on the corporate tranche in business that was previously on the books.

Jon Bortz: We really can't count on the corporate transient business that was previously on the books and may still perhaps be on the books to actually show up. Corporations were the first to impose severe travel restrictions, and we expect they will be the last to reduce or eliminate them. Outside of major corporate travel, we would, however, expect a healthier recovery from some small businesses, service providers, vendors, consultants, and others where travel is more critical to their businesses. In addition, international travel is likely to be fairly minimal for the rest of the year, given not only governmental restrictions, but anxiety on the part of travelers to not only get on a plane, but to go far from home in an uncertain world.

May still perhaps beyond the bucks to actually show up.

[noise] corporations, where the first to impose severe travel restrictions.

And we expect they we'd like they will be the last reduce or eliminate them.

Outside of major corporate travel, we would however expect a healthier recovery from some small businesses service providers vendors.

Consultants and others or travel is more critical to their businesses.

In addition international travel is likely to be fairly minimal for the rest of the year given not only governmental restrictions.

But anxiety on the part of travelers to not only get on a plane.

But to go far from home and then on certain world.

With domestic leisure travel as the one segment likely to return and hopefully in a material way, we expect resorts to be the biggest beneficially beneficiaries, particularly drive to resorts.

Jon Bortz: With domestic leisure travel as the one segment likely to return, and hopefully in a material way, we expect resorts to be the biggest beneficiaries, particularly drive-to resorts. For Pebblebrook, drive-to resorts represent about 20% of our historical EBITDA, and leisure travel represents over 80% of the historical demand at our resorts. As a result, we look at our hotels that have suspended operations. We expect our resorts to be some of the first properties we reopen. In fact, we're looking at reopening our first resort late this month, with others likely to follow over the next month or 2 as states open up and demand returns.

For Pebblebrook.

Drive to resorts represent about 20 per cent of our historical even <unk>.

And leisure travel represents over 80% of the historical demand at our resorts.

As a result, we look at our hotels that I've suspended operations.

We expect our resorts to be some of the first properties we reopen.

In fact, we're looking at reopening our first resort late this month with others likely to follow over the next month or two.

States open up and demand returns.

Fortunately all of our resorts are a large pieces of land.

Jon Bortz: Fortunately, all of our resorts are on large pieces of land with significant space for guests to spread out and feel safe, such as Skamania Lodge outside of Portland, which sits on almost 200 acres, Chaminade Resort in Santa Cruz on 300 acres, Paradise Point on 44 acres in San Diego, and similar large pieces of property at San Diego Mission Bay Resort, L'Auberge Del Mar, Southernmost Beach Resort in Key West, LaPlaya Beach & Golf Resort in Naples, and The Marker Key West Harbor Resort. While we expect leisure to lead the recovery, we also expect its recovery to be relatively modest as well due to both health risks and economic issues.

With significant space for guests to spread out and feel safe.

Such a skamania lodge outside of Portland, which sits on almost 200 acres <unk>.

<unk> resort in Santa Cruz on 300 acres.

Paradise point on 44 acres in San Diego.

And similar large pieces of property at San Diego Mission Bay Resort low bears del Mar Southern most resort in key West Laplaya Beach resort and club in Naples.

And the marker key west waterfront resort.

While we expect leisure to lead the recovery.

We also expects its recovery recovery to be relatively modest as well.

Both health health risks and economic issues.

Unfortunately, we shouldn't forget that many leisure demand generators are on hold right now.

Jon Bortz: Unfortunately, we shouldn't forget that many leisure demand generators are on hold right now, including sporting events, festivals, concerts, marathons, entertainment parks, and other similar attractions, and most cities have closed all of their cultural and tourist facilities, though we expect these to reopen over the next few months. Older travelers can be expected to be more cautious about travel. Positively, some of these leisure headwinds will be offset by Americans who will not go abroad for their vacations and instead vacation here in the US. We expect to reopen our properties one at a time based upon demand and only when they can be operated in a manner that, at a minimum, results in us losing less money than if they were to remain closed. Because we expect demand to recover slowly, unfortunately, we will have no choice but to bring our hotel associates back slowly as well.

Floating sporting events festivals concerts marathons entertainment parks and other similar attractions and most cities of clothes all of their cultural and tourist facilities that we expect these to reopen over the next few months.

And older travelers can be expected to be more cautious about travel.

[noise] positively some of these leisure headwinds will be offset by Americans, who will not go abroad for their vacations and instead vacation here in the U.S.

We expect to reopen our properties one at a time based upon demand.

And only when they can be operated in a manner that at a minimum results in us losing less money than if they were to remain close.

Because we expect demand to recover slowly.

Unfortunately, we will have no choice, but to bring our hotel associates back slowly as well.

2020 is likely to be challenging all the way through unless we have an effective healthcare breakthrough.

Jon Bortz: 2020 is likely to be challenging all the way through unless we have an effective healthcare breakthrough. Hotel operations will certainly be different as we move forward post-lockdown. We'll have enhanced cleaning protocols to protect our hotel associates as well as guests. With an industry-wide certification we're working on through the AHLA with the cooperation of every major brand in the US. The cost of these additional protocols is likely to be covered by reductions in services and amenities, including the likely elimination of in-room housekeeping during a guest's stay. We should expect there will be significantly more cross-training, job sharing, and shifts worked by managers, particularly until occupancies rebound to more normal levels. Food and beverage, when it does return, is likely to be materially simplified with more preparation and less cooking, which will help reduce costs.

Hotel operations will certainly be different.

As we move forward posts locked out.

We'll have enhance cleaning protocols to protect our hotel associates as well as guess.

Within industry wide certification, we're working on through the H.L.A.

With the cooperation of every major brand in the U.S.

The cost of these additional protocols is likely to be covered by reductions in services and amenities, including the likely elimination of in room housekeeping during a guess stay.

We should expect there will be significantly more cross training job sharing and shift work by managers, particularly until arguments sees rebound to more normal levels.

Food and beverage when it does return is likely to be materially simplified.

With more preparation and less cooking.

Which will help reduce costs.

There will be a number of positives longer term that we can expect will come out of this crisis.

Jon Bortz: There will be a number of positives longer term that we can expect will come out of this crisis. Let's talk about future supply first. We should expect new starts to quickly fall to a trickle because frankly, who in their right mind would provide financing for a new hotel at this time, given the massive uncertainty that exists? We also think some of the hotels under construction will stop permanently due to financing that backs out. As we know, construction has been stopped or slowed in many markets for various reasons.

Let's talk about future supply first.

We should expect new starts to quickly fall through a trickle.

Because frankly, who in their right mine would provide financing for a new hotel at this time, given the massive uncertainty that exists.

We also things some of the hotels under construction.

We'll stop permanently due to financing that backs out.

As we know construction has been stopped or slowed in many markets for various reasons.

But what will deliver in the next couple of years will deliver later and in smaller numbers than previously estimated.

Jon Bortz: What we'll deliver in the next couple of years will deliver later and in smaller numbers than previously estimated. In addition, in markets that were challenging even before the pandemic, like New York and Chicago, we expect to see many hotels and rooms fail to reopen, with perhaps many of them likely converted to affordable housing or homeless facilities as a higher and better use. We don't expect much in the way of new hotel starts for the next 3 to 5 years, given how long it's likely to take for positive economics for hotels to return. Operations will likely become more efficient as has historically occurred in prior black swan type events. Expect some services and amenities to be reduced or eliminated, with changes in areas such as restaurants, in-room dining, and banquets and catering.

In addition in markets that were challenging even before the pandemic like New York and Chicago, We expect to see many hotels in rooms fail to reopen.

With perhaps many of them likely converted to affordable housing or homeless facilities as a higher and better use.

And we don't expect much in a way of new help a hotel starts for the next three to five years, given how long it's likely to take for positive economics for hotels to return.

Operations will likely become more efficient.

<unk> has has historically occurred in <unk> in prior black Swan type events.

Expect some services and amenities to be reduced or eliminated wood changes in areas such as restaurants in room dining and banquets in catering.

Hi, touch will become low touch.

Jon Bortz: High touch will become low touch or even no touch. Technology will replace hours worked in some cases. Expect more cross-training and job sharing. More fixed costs will become variable costs. We expect real estate tax assessments to decline. While tax rates are likely to increase, we still think it's likely the combination results in declines for hotels, in particular, over the next few years. This crisis has also instantly relieved labor pressures. In just one month, we've gone from an industry with a significant lack of labor to an industry with an overabundance of labor. We should expect labor to become more flexible, wage rate increases will abate, and unions should become more flexible on work rules and other matters. This industry will need all the help it can get to reopen and recover.

Or even know touch.

Technology will replace the hours worked in some cases.

Back more cross training and job sharing.

More fixed costs will become variable costs.

And we expect real estate tax assessments to decline.

And while tax rates are likely to increase we still think it's likely the combination results in declines for hotels in particular over the next few years.

This crisis has also instantly relieved labor pressures.

In just one month, we've gone from an industry with a significant lack of labor.

To an industry with an over abundance of labor.

We should expect labor to become more flexible.

Wage rate increase as well a bait.

And unions should become more flexible on work roles and other matters.

This industry will need all the help it can get to reopen and recover.

Leverage will surely shift.

Jon Bortz: Leverage will surely shift to a better balance between employers and employees, and we think it's likely there will be less financial pressure from new requirements imposed on the industry from governments, particularly local and state governments. For Pebblebrook, we would expect our hotels to outperform their markets in the recovery years, similar to what they did last year and early this year before the pandemic struck. Our hotels are in better condition on average than our competitors in our markets. 40 out of 54 of our properties have undergone major renovations, redevelopments, or transformations in just the last 5 years. 9 in just the past few months, including those being completed as we speak, and 10 more in 2018. This will be a big advantage over the next few years.

Do a better balanced between employers and employees.

And we think it's likely there will be less financial pressure from new requirements imposed on the industry from governments, particularly local and state governments.

For Pebblebrook, we would expect our hotels to outperform their markets in the recovery years.

Similar to what they did last year and early this year before the pandemic struck.

Are hotels are in better condition on average than our competitors in our markets.

40 out of 54 of our properties have undergone major renovations redevelopment r. transformations in just the last five years nine in just the past few months, including those being completed as we speak and 10 more in 2018.

This will be a big advantage over the next few years.

Many of our private sector competitors are likely to lack the capital to maintain their hotels in years to calm widening the advantage we already have.

Jon Bortz: Many of our private sector competitors are likely to lack the capital to maintain their hotels in years to come, widening the advantage we already have. We expect hotel conditions will rule with the customer base as they have in prior recessions and in the early years of prior cyclical recoveries following significantly harmful events. We also expect our lifestyle hotels to outperform in the recovery because of their experiential focus for customers looking for something that lowers the stress and anxiety that will now likely be associated with travel. We also think they'll outperform because of their more personalized nature of the services we're able to provide to our guests and because of the attractiveness of our typically smaller-sized footprints and smaller public areas, which should allow our customers to feel safer in our properties.

We expect hotel conditions will rule with the customer base as they have in prior recessions and in the early years of prior cyclical recoveries following significantly harmful events.

We also expect our lifestyle hotels to outperform in the recovery because of their experience will focus for customers looking for something that lowers the stress and anxiety that will now likely be associated with travel.

We also think they'll outperform because of their more personalized nature of the services were able to provide to our gas and because of the attractiveness of our typically smaller size footprints and smaller public areas, which should allow our customers to feel safer in our properties.

Are smaller size lifestyle hotels.

Jon Bortz: Our smaller-sized lifestyle hotels, including our properties with major lifestyle brands like Luxury Collection and W, are generally more attractive to transient customers, particularly leisure, and they historically have needed less group to be successful. Our independent lifestyle hotels are also able to operate more efficiently than major brand hotels, and they can move faster to adapt to new customer preferences. They're more flexible in their operations, and they support lower fixed and variable costs in a low occupancy environment, which is what we expect for at least the rest of this year. We also expect there to be significant opportunities over the next few years to acquire properties in distress due to a likely prevalence of cash-strapped and over-levered owners and many properties that go back to lenders.

Including our properties with major lifestyle brands like luxury collection N.W. are generally more attractive to transcend customers, particularly leisure and they historically have needed less group to be successful.

Are independent lifestyle hotels are also able to operate more efficiently than major brand hotels, and they can move faster to adapt to new customer preferences.

They're more flexible in their operations and they sport lower fixed and variable costs and allow occupancy environment, which is what we expect for at least the rest of this year.

We also expect there to be significant opportunities over the next few years.

To acquire properties in distress.

Due to a likely prevalence of cash strapped in overlevered owners and many properties that go back to lenders.

Our team has been through two prior crisis driven opportunistic periods.

Jon Bortz: Our team has been through two prior crisis-driven opportunistic periods, including the creation of Pebblebrook in late 2009 following the tail end of the Great Recession. Following that crisis, we were able to fairly quickly and aggressively assemble a very unique portfolio of high-quality hotels and resorts at very attractive prices that also had substantial upside opportunities. Given our ability to operate our properties more efficiently than the vast majority of buyers, and our unique strength in redevelopments and transformations, we believe we'll have a significant advantage as opportunities arise over the next few years.

Including the creation of Pebblebrook in late 2009, following the tail end of the great recession.

Following that crisis, we were able to fairly quickly and aggressively assemble a very unique portfolio of high quality hotels and resorts at very attractive prices that also had substantial upside opportunities.

Given our ability to operate our properties more efficiently than the vast majority of buyers and our unique strengthen read developments and transformations.

We believe will have a significant advantage as opportunities arise over the next few years.

[noise] to create long term value for Pebblebrook.

Jon Bortz: To create long-term value for Pebblebrook, and without taking away from our current efforts to protect the company, we also continue to put time and effort into advancing our branding opportunities. This is an opportunity we believe is unique to us because of the large number of independent lifestyle hotels that we own and control. We expect to roll out our completed Unofficial Z Collection website later this quarter. This will allow us, for the first time, to connect our soon-to-be 7 Unofficial Z Collection hotels in the eyes of our guests. This should provide some help to these properties in their recovery. We also continue to aggressively pursue the creation of a broader independent lifestyle hotel and resort collection by seeding it with our 31 completely independent hotels and resorts. We'll provide more updates as these efforts progress.

And without taking away from our current efforts to protect the company.

We also continue to put time and effort into advancing our branding opportunities.

This is an opportunity we believe is unique to us because of a large number of independent lifestyle hotels that we own and control.

We expect to roll out are completed on officials. The collection website later this quarter.

This will allow us for the first time.

Act are soon to be seven unofficially collection hotels in the eyes of our guess.

This should provide some help to these properties in their recovery.

We also continue to aggressively pursue the creation of a broader independent lifestyle hotel and resort collection by seating at with our 31 completely independent hotels and resorts.

Will provide more updates as these efforts progress.

But work invent there's a long-term value creation opportunity here at should commence sometime this year.

Jon Bortz: We're convinced there's a long-term value creation opportunity here that should commence sometime this year. Finally, it's safe to say we all find ourselves in uncharted territory with an almost complete lack of clarity about the future. We're confident, given our senior management team's experience successfully navigating prior crises, including following 9/11 and the Great Recession, that we have the reputation, foresight, creativity, work ethic, track record, and an incredible team, combined with strong liquidity and a fantastic portfolio to not only grind through the current challenge, but thrive during the recovery and next upcycle. We greatly appreciate your confidence in us, and we look forward to once again proving our ability to create value with our unique portfolio, our experience, our team, and our creative approach to the business. With that, we'd be happy to move on to questions. Operator, you may proceed with the Q&A.

[noise] finally, it's safe to say, we all find ourselves in uncharted territory.

With an almost complete lack of clarity about the future.

We're confident given our senior management teams experience successfully navigating prior crises in.

Including following 911 and the great recession.

That we have the reputation for site creativity work ethic.

Track record and an incredible team.

Combined with strong liquidity and a fantastic portfolio.

To not only grind through the current challenge, but thrived during the recovery and next up cycle.

We greatly appreciate your confidence in us and we look forward to once again, proving our ability to create value with our unique portfolio our experience.

Our team and our creative approach to the business.

With that.

We'd be happy to move on to questions.

Operator, you May proceed with the <unk>.

Thank you.

Operator 2: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Rich Hightower from Evercore. Please go ahead.

Operator: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Rich Hightower from Evercore. Please go ahead.

A little now begin to question answer session.

Trying to question you you May Crestar, then one on your telephone keypad.

You will hear it so and acknowledging your request.

If you're using a speaker phone these pick up your hands. It before I think any keys. We draw. Your question. Please press are then too.

The first question comes from Rich High tower from Evercore. These go ahead.

Hey, good morning, guys.

Rich Hightower: Hey, Good morning, guys.

<unk>.

Raymond Martz: Hey, Rich.

Raymond Martz: Morning, Rich.

Jon Bortz: Morning, Rich.

Raymond Martz: Thank you for all of the commentary and the detail in there. I thought that was very helpful. There's a lot of angles to pursue here, but I'll just kick it off with this one. Jon Bortz, you've made much, I think, over the past several years, in terms of the advantages of a predominantly independent managed model versus the branded hotels.

Thank you for all of a the the commentary in the detail in there I thought that was I thought that was very helpful. So there's a lot a lot of angles to pursue here, but I'll I'll just I'll just kick it off with this inserts a Jon you you've made much I think over the past several years in terms of the advantages of an end to predominantly independent managed model.

Rich Hightower: Thank you for all of the commentary and the detail in there. I thought that was very helpful. There's a lot of angles to pursue here, but I'll just kick it off with this one. Jon Bortz, you've made much, I think, over the past several years, in terms of the advantages of a predominantly independent managed model versus the branded hotels.

Versus the branded.

<unk> and I guess, you know given that everybody is sorta starting from scratch at this point and and the brands themselves or or acknowledging the need to fundamentally change the operating model in many other ways. You've described <unk>. What do you think that relative advantage of an independent management focus will be over a <unk>.

Rich Hightower: I guess, you know, given that everybody is sort of starting from scratch at this point, and the brands themselves are acknowledging the need to fundamentally change the operating model in many of the ways you've described, you know, what do you think that relative advantage of an independent management focus will be over a branded hotel coming out of this downturn? Any differences?

Handed hotel.

Coming out of the coming out of this downturn any differences.

Well I I think <unk> quite a few I'm I mentioned, a few and a script I mean I think there's there's more flexibility there's there's more ability to be creative in independent hotels. It's it's it's less expensive to operate an independent hotel than a brand.

Jon Bortz: Well, I think quite a few. I mentioned a few in the script. I mean, I think there's more flexibility, there's more ability to be creative in independent hotels. It's less expensive to operate an independent hotel than a brand. While, you know, I know the brands will be working on lowering their expenses, I'm not sure that means lowering the percentages against revenues that are charged. I would hope they would be looking hard at that and understand the need for that, but I'm not confident that they'll be able to do that given the fairly dramatic decline in revenues that they will face and that they are facing as well. I think independence, I mean, it's interesting.

And while you know I know the brands will be working on on lowering their expenses I'm not sure that means lowering the percentages.

Against revenues that.

Are charged I I would hope they would be looking hard of that and understand the need for that but I'm I'm not confident that there'll be able to do that given that fairly dramatic decline in revenues that that they will face and that they are facing as well. So I think independence I mean, it's interesting first of all.

Jon Bortz: First of all, it's pretty hard to view the world and say, you know, group is gonna come back before transient. I think the independent hotels are far better suited to attract transient. They always have been for many of the reasons I mentioned and also because they're smaller in size. I think people will feel safer in smaller properties with fewer people around, frankly, at the end of the day. I think there's a lot more opportunities. I think the brands will take time to rebuild their organizations. You know, it's interesting. I mean, we have 19 different operators. I think six are major brands. The major brands have laid off huge numbers of people.

It's pretty hard to to view the world and say you know group group is going to come back before transient.

And I think the independent hotels are are far better suited.

<unk> to attract transient they always have been for for many of the reasons I mentioned.

And and also because they're smaller in size I think people will feel safer in smaller properties with fewer people around frankly at at the end of the day so.

<unk> I think there's a lot of a lot more opportunities I think the brands well take time to rebuild their organizations you know it's interesting I mean, we have 19 different operators.

I think six six our major our our major brands.

The major brands have laid off huge numbers of people are independent properties I think to us to to for every operator, they've not laid anybody off.

Jon Bortz: Our independent properties, I think, for every operator, they've not laid anybody off. In terms of their corporate offices, and their regional people, there's a lot more staffing, there's a lot more focus, interesting, from the independent side. You would think it would have been the other way around. That's not the case. A lot of our operators, the small operators, also qualify for the PPP loans for their companies, whereas obviously the big companies do not.

So in terms of their corporate offices, uh-huh and their regional people. So.

There's a lot more staffing there's a lot more focus interesting from the independent side, you would think it would've been the other way around but but but that's not the case and a lot of our operators. The small operators also qualify for the P.P.P.

Loans for their companies, where whereas obviously the the big companies do not.

Mhm, Okay I appreciate that and then.

Rich Hightower: Mm-hmm. Okay. I appreciate that. Maybe just with respect to the forthcoming covenant waiver on the credit facility and unsecured debt, are there any special carve-outs that you can negotiate for purposes of acquisitions? You know, you mentioned potential distress and opportunities in that area for Pebblebrook, you know, not today, but, you know, certainly over the next few years. How do you kinda get around the mechanics there, given some of the limitations that would come with waivers?

Maybe just with respect to the the forthcoming covenant waiver on the credit facility and Unsecure debt are there any special Carveouts that you can negotiate for purposes of acquisitions, you know you mentioned.

Potential distress and opportunities in that area for Pebblebrook, you know not not today, but you know certainly over the next few years, how do you how do you kind of get around the mechanics, there given some of the limitations that would come with waivers.

Yeah, I mean, the first of all comes from having a you know 22 in my case in some cases 40 year relationship with most of the major banks in our.

Jon Bortz: Yeah, I mean, first of all, it comes from having, you know, 20- to, in my case, some cases, 40-year relationship with, most of the major banks in our line and in our term loans. I think those banks have been involved in the creation of Pebblebrook. They were involved in the transaction in terms of the acquisition of LaSalle. I think, because of our reputation and our track record, I think our bank group will be very supportive of our opportunities to take advantage of the recovery, regrow the company, and drive value for the shareholders. I think we're gonna be aligned with the bank group.

<unk> in our in our line in in in our term loans and I think.

Those banks have been involved in the creation of Pebblebrook. They were involved in the in the transaction in in terms of the acquisition.

Of Lasalle and I think.

We're because of our reputation and our track record.

I think are bankrupt will be very supportive of our opportunities to take advantage of the recovery regrow the company and and a dry value for the shareholder. So I I think we're going to be aligned with the bank or.

And and and so that'll be part of the disk the discussions that we have now but it also be part of the discussions over the next year and in fact, we've already started some of those discussions with various members of our bank or.

Jon Bortz: That'll be part of the discussions that we have now, but it'll also be part of the discussions over the next year. In fact, we've already started some of those discussions with various members of our bank group.

<unk> should be clear, we decided that our strategy is to you know get through earnings but focus on our covenant waivers now in May and June because it's we viewed as a a better operating environment versus trying to push something through in April, which which we could add but we just stopped for the timing in in perspective were we thought.

Raymond Martz: Yeah. Rich, to be clear, we decided that our strategy is to you know get through earnings, but focus on our covenant waivers now in May and June, because it's we view it as a better operating environment versus trying to push something through in April, which we could have, but we just thought for the timing and perspective, we thought the environment would be better now going forward. We have full confidence we'll work through those waivers. We have term sheets in hand and working through that, and we'll get the best deal for the company that we can in the near term.

I remember, we better now going forward. So we we are full confidence while at work through those waivers we have term sheets in hand, and working through that and we'll get the best deal for the company that we can in the near term.

Great. Thank you guys.

Rich Hightower: Great. Thank you, guys.

<unk>.

Jon Bortz: Thanks, Rich.

The next question comes from meal Balkan Some capital one security we go ahead.

Operator 2: The next question comes from Neil Malkin from Capital One Securities. Please go ahead.

Operator: The next question comes from Neil Malkin from Capital One Securities. Please go ahead.

Hey, gentlemen.

Neil Malkin: Hey, gentlemen. Thanks for all the color. Great color as always. Appreciate your insights. You know, first question, you talked about, I think last call, doing a lot of pre-bookings or forward bookings on your websites to kind of gauge what demand could potentially look like or when it will come back. Based on what you've seen so far, what does it look like, you know, at least for the leisure customer. I know it's kinda hard to discern business versus leisure sometimes. What does it look like, or when do you start to see a pickup in at least planned return to hotels?

Thanks for all the color Green color is always appreciate your insight.

You know first question you talked about I think last call doing a lot of pre bookings or forward bookings on your website kind of age what demand potentially look like or when it will come back based on what you've seen so far what what does it look like you know at least for the.

The leisure customer I know, it's kinda hard to discern business versus leisure, sometimes but what is it look like or when you start to see.

Pick up and at least planned returned to hotels.

Yeah Oh.

Jon Bortz: Yes. It's a good question. The answer isn't a great one for the industry, and I think this is the difference between looking at numbers and understanding what's going on in the world, and what human behavior's gonna be, and corporate policies, and governmental policies, as we've seen this all play out. Look, this is the first time any of us have gone through a pandemic. What little leisure bookings we're seeing are very short term. I mean, we have one resort open. When they opened up Florida, we saw a meaningful increase in bookings. Now, what does meaningful mean?

Yeah, It's a good question.

It it the the answer is in our great one for the industry and and I think this is.

This is sort of the difference between looking at the numbers.

And understanding what's going on in the world and what human behavior is going to be corporate policies and and and governmental policies as as we've seen this all play outlook. This is the first time any of us have gone through a pandemic and and so what.

What little leisure bookings, we're seeing are very short term I mean, we have one resort open when they opened up Florida, we saw a meaningful increase in bookings now what is meaningful be mean, it means we've gone from running on average five or 7% occupancy in nature.

Jon Bortz: It means we've gone from running on average 5% or 7% occupancy in Naples at a beautiful resort on the beach to, I think this weekend will be our biggest weekend. You know, looks like we're gonna run 30% with almost all of those bookings in the week for the week. We are beginning to see a few bookings into June, but for that property. But I mean, we're talking onesies and twosies. Through the rest of the portfolio, probably our most number of bookings are in Key West for June and beyond. The challenge is we don't know when they're gonna open Key West. Right now it's restricted governmentally. They're not allowing anyone onto the Keys who doesn't live there or work there, I guess.

<unk> beautiful resort on the beach to I think this week will be our biggest <unk>. This weekend be our biggest weekend.

Looks like we're gonna run, 30% with almost all of those bookings in a week for the week.

We are beginning to see a few bookings into June.

But for that property been I mean, we're talking <unk>.

Through the rest of the portfolio.

Probably are are most number of bookings are in key west for June and beyond.

The challenge is we don't know when they're going to open key west right now, it's restricted governmentally, they're not <unk>, allowing anyone onto the keys.

Who doesn't live there or or work there I guess and.

Jon Bortz: With checkpoints on the one highway that comes into the Keys. We still have a quarter of a million group rooms on the books for H2 of the year, Neil. I doubt much if any of that actually materializes. We're seeing all of our groups cancel on a rolling basis. By and large, there's no hurry for them to cancel. In fact, there's a disincentive to cancel ahead of time because if there's a force majeure event, meaning a government restriction they cannot meet, then they don't have to pay any cancellation by and large. They have a better contractual outcome than if they cancel now in advance, when we don't know what the restrictions are gonna be later in the year.

With checkpoints on the one highway that that comes into the keys.

We still have a quarter of a million group rooms on the Bucks for the second half of the year Neil.

I doubt much if any of that actually Materialises I I don't.

We're seeing the we're seeing all of our groups cancel on a rolling basis by and large there's no hurry for them to cancel in fact, there's a disincentive to cancel I had a time.

Because if there's a forced mature event, meaning a government restriction. They cannot meet then they don't have to pay any cancellation by and large they have a better contractual outcome and if they cancel now in advance.

When we don't know what the restrictions are gonna be later in the year, but.

Jon Bortz: We frankly, and this is again, I mentioned this in my comments, I mean, we can look at what's on the books, and we can be really positive and say, "Hey, our group bookings in the H2 are only down 12% from the year before." Or we can look at it logically and pragmatically and say, "Yeah, but they're all canceling, and what corporation is gonna change their policy and allow people to go to group meetings? We're group meetings. We're just not optimistic that's gonna happen, certainly in the near future. Maybe by the end of the year, the last two months, it's possible." I gotta tell you know, I'll give you an example. We do a lot of weddings through our portfolio because we have a lot of unique properties.

But we frankly and this is again I mentioned this in my comments I mean, we can look at what's on the Bucks and we can be really positive and say hey, our group bookings in the second half of the year only down 12% from the year before or we can look at it logically and pragmatically and say.

Yeah, but they're all canceling and.

What corporation is going to change their policy.

And allow people to go to groups were were group meetings, where we're just not optimistic that's gonna happen.

Certainly in the near future maybe by the end of the year the last two months.

It's possible but.

I'm going to tell yet you know I'll give you. An example, we do a lot of weddings through our portfolio because we have a lot of unique properties. We have a lot of outdoor venues, we have a lot of good weather <unk>.

Jon Bortz: We have a lot of outdoor venues. We have a lot of good weather. All of the brides are moving their weddings to next year because they don't look at having a wedding, even if they can gather, you know, 6 feet apart with masks as being the sort of romantic thing that they've always dreamed about. Now maybe some people will move ahead because they wanna get married, and it'll be something to remember always. I would tell you the vast majority of brides are moving their weddings to next year, and we're cramming in two years' worth of weddings in what may be the back 8 months of next year.

All of the brides are moving their weddings to next year, because they don't look.

That having a look at having a wedding even if they can gather.

You know six feet apart with masks as being the sorta romantic thing that they've always dreamed about.

Now maybe some people move ahead, because they want to get married.

But and and it'll be something to remember a always but but I I would tell you. The vast majority of of brides are moving or weddings to next year and we're cramming in two years worth of weddings in what may be the back eight eight months of next year.

So you know we're trying to differentiate between.

Jon Bortz: You know, we're trying to differentiate between the numbers, which I think are very misleading, and the reality of what we think is likely going to happen based upon all of these things we've already seen.

The numbers, which I think are very misleading.

And and and the reality of what we think is likely going to happen based upon all of these things we've already seen.

[noise] Oh, great. Thank you for that I, just as a follow up to one of the things you said about you're you're a reluctance to view a group that it's still on the books for the back half of the year as a legitimate.

Neil Malkin: Great. Thank you for that. I just as a follow-up to one of the things you said about your reluctance to view a group that is still on the books for the back half of the year as legitimate. You know, someone else reported that they had seen, you know, like 12% or more of the people who'd canceled in, you know, March, in Q2, already rebook for the back half of this year. I guess, how would you know, I guess, rebut that or what's your, you know, view on that? 'Cause it's a little bit, you know, opposed to your view that, you know, group's gonna take longer to come back.

You know some someone else reported a they they'd seen you know like 12 or more per cent of the people who'd cancelled in you know March in the second quarter already rebook for the back half of this year I guess, how how would you you know I guess <unk> data or or what your you know.

You on that because it's a little bit you know opposed to your view that you know group's going to take longer to to come back.

So I I mean, hey look I hope, we have I I hope they do come back Neil I mean, I you know, but we we have to run our business on pragmatism and and we want to staff appropriately we want to incur costs appropriately based upon what we think is is going to happen and so.

Jon Bortz: I mean, look, I hope they do come back, Neil. I mean, you know, but we have to run our business on pragmatism, and we wanna staff appropriately. We wanna incur costs appropriately based upon what we think is gonna happen. We've had plenty of groups that have moved in our properties from March, April, May, and June to the H2. First of all, the meeting planners don't have anything else to do. Second of all, there's probably contractual benefit. They don't incur a cancellation fee if they move to later in the year. We're accommodating them because why not? We, you know, that'd be great if they come at the end of the day. Look, time will play out.

We've had plenty of groups that have moved in our properties from March and April and May and June to the back half of the year first of all the meeting planners don't have anything else to do.

<unk>, there's probably like contractual benefit they don't incur a cancellation fee if they move to later in the year and we're accommodating them because why not we you know that'd be great. If they come at the end of the day, but look <unk> timeout play out I mean think.

About your own company, what what's what's capital one going to do what what have they done about group meetings I mean their companies already who said, they're not going to have a group meeting until the middle of next year I think that's a little premature.

Jon Bortz: I mean, think about your own company. What is Capital One gonna do? What have they done about group meetings? I mean, there are companies already who've said they're not gonna have a group meeting until the middle of next year. I think that's a little premature myself. The corporate ethos is to protect their employees. You think about when we've talked to corporate accounts, and we've talked to you all who work for some of the biggest companies, and the biggest travelers, and the biggest meeters in the country. You don't even know when in the fall they're gonna say it's okay to come back to the office, let alone take a trip. We think most of this business becomes virtual or it gets rebooked ultimately for next year. I hope we're wrong, Neil.

Myself, but.

The the the corporate ethos is to protect their employees.

And you think about when we've talked to corporate accounts and we talked to you all who are who worked for some of the biggest companies and the biggest travelers and the biggest meters in the country.

You don't even know when in the fall, they're going to say, it's okay to come back to the office.

Let alone take a trip and so.

We think most of this business becomes virtual or it gets rebuffed ultimately for next year I Hope, we're wrong meal I I hope I hope they all condom Everything's wonderful everybody meets nobody gets sick and and everything is back to normal <unk> I just don't believe it.

Jon Bortz: I hope they all come, everything's wonderful, everybody meets, nobody gets sick, and everything is back to normal. I just don't believe it.

Yeah, No I don't believe definitely been an unlikely.

Neil Malkin: Yeah, no.

Jon Bortz: Don't believe it's likely. Again, it could happen. None of us have been through this before, but that's our best guess.

I don't believe it's likely again it could happen none of us have been through this before but.

Jon Bortz: Don't believe it's likely. Again, it could happen. None of us have been through this before, but that's our best guess.

That's our becka yeah.

Neil Malkin: Yeah. All right. Then just the last one from me. I know it's early still, but, you know, could you give any general color on, you know, the 31 independent hotels in that you guys have that, you know, excluding the Z Collection you talked about ceding that? You know, could you just spitball or talk high level on potential outcomes or monetization, but that would also still comply with the REIT rules?

Alright, and then just last month for me.

I know, it's early still but you know could you give any general color on you know the 31 independent hotels.

You guys have that you know excluding the D. collection, you talked about seeing that you know can you just didn't bother talk high level on potential outcomes are monetization, but that would also still comply with the <unk> rules.

Yeah, I I can't I, I can't and won't at this time, but I hope to be able to do that in the next quarter or two.

Jon Bortz: Yeah, I can't. I can't and won't at this time, but I hope to be able to do that in the next quarter or two.

Okay. Thank you guys very much the color.

Neil Malkin: Okay. Thank you guys very much for the color.

[noise] things deal.

Jon Bortz: Thanks, Neil.

Next question.

Operator 2: Next question.

Operator: Next question. The next question comes from Smedes Rose from Citi. Please go ahead.

The next question sounds from Smedes Rose from City. Please go ahead.

Operator 2: The next question comes from Smedes Rose from Citi. Please go ahead.

Hi, Thanks, I just ask you you mentioned.

Smedes Rose: Hi. Thanks. I wanted to just ask you mentioned on the labor side that I guess the cost per cleaning a room likely go up, but that you probably don't have labor or you don't have cleaning services during a guest stay. Do you think brands are considering that as well, or were you talking more about for your independent properties?

The the labor site that I guess the costs <unk> cleaning a room likely go up that that you probably don't have the labor or you don't have.

Cleaning services during a guess day do you think brands are considering that as well or were you talking more about for your for your independent properties.

No I I think that's going to be the industry standard we we've talked to a bunch of the brands based upon the conversations we've had already that is what they're planning.

Jon Bortz: No, I think that's gonna be the industry standard. We've talked to a bunch of the brands, based upon the conversations we've had already. That is what they're planning.

Okay.

Smedes Rose: Okay. My other question-

I mean and think about it just for a second Smedes I mean, I I don't think most customers want someone in their room during their stay and and so I mean, you've already seen held in the program. They came out with where they're going to put a little seal on the room.

Jon Bortz: If you think about it just for a second, Smedes. I don't think most customers want someone in their room during their stay. You've already seen Hilton, the program they came out with, where they're gonna put a little seal on the room, that shows that the room's been cleaned and no one's been in there since. I think that actually is what the customer will want for the most part, not everyone. I think the vast majority of people. I think it will never come back, not without an additional cost.

That shows that the rooms been claim that no one's been in there since I I think that actually is is what the customer <unk> well one for the most part not not everyone, but I think the vast majority of people and and I think it will never come back.

<unk> not without an additional cost.

I guess I was wondering about it because I know there's been some.

Smedes Rose: I guess I was wondering about it because I know there's been some, you know, used to kind of be able to get extra points in sort of the green programs and there was kind of pushback, I think more from the organized labor side on some of those programs. I'm just wondering how that's gonna play out. I know it's probably less impactful for you maybe versus some of the larger group hotels that have more organized labor, but I guess sort of, I mean, do you think they're being flexible?

You know use to code to be able to get extra points and sort of the green programs and they were kind of pushed back I think more from the organized labor side on some of those programs and I just wondering how that's gonna clay out I know, it's probably less.

Actual for you maybe versus some of the larger group hotels that more organized labor, but I guess sort of I.

I mean do you.

<unk> <unk> <unk> <unk> <unk> <unk> I think they'll have to be they they have been I mean, it it's not been restricted.

Jon Bortz: I mean, I think they'll have to be. They have been, I mean, it's not been restricted by and large by the contracts other than for a lengthier stay. I think the important thing is that cleaning labor counts are probably gonna be very similar to ultimately be similar on a productivity basis because there'll be additional cleaning that's required. We'll be reallocating people from rooms to public areas, as an example, and probably a longer period of time to some extent to clean rooms between guests versus what it's been historically because of the additional protocol.

By and large by the contracts other than for Lengthier stay.

But I I think the important thing is is that cleaning labor.

Balance are probably going to be very similar to ultimately be similar on productivity basis.

Because there'll be additional cleaning that's required so we'll be reallocating people from rooms to public areas as an example, and and probably a longer period of time to some extent to clean rooms between guess versus what it's been historically because of the the additional protocol.

<unk>, so I don't I don't know that it means fewer people, but I I do think it means people will be in different places when it comes to cleaning.

Jon Bortz: I don't know that it means fewer people, but I do think it means people will be in different places when it comes to cleaning.

Okay. Thank you you also mentioned that kind of like your your your resort properties, probably opened on the sooner side do you have a sense of typing around other properties in the portfolio got of how they they having on reopening.

Smedes Rose: Okay. Thank you. You also just mentioned it sounds like your resort properties probably opened on the sooner side. Do you have a sense of timing around other properties in the portfolio yet of how they made this timing around reopening?

Now we really don't we are taking reservations I would say through most of our portfolio beginning I think in most cases June maybe a few cases not until July outside of the resort properties and we'll see what the demand is and and.

Jon Bortz: No, we really don't. We are taking reservations, I would say, through most of our portfolio beginning, I think in most cases, June, maybe a few cases, not until July, outside of the resort properties. We'll see what the demand is, and the booking levels. I think, you know, our view is, we're not gonna open based upon anticipation because we wanna see the real demand. The last thing we wanna do is open up and lose more money than we're losing when we're closed. It's gonna need to be confirmed by real demand and we just don't know when that's gonna come back, particularly in the major metropolitan markets.

The booking levels I think.

You know our view as we're not going to we're not going to open based upon anticipation.

Because we want to see the real the real demand.

The the last thing we want to do is open up and lose more money than we are losing them are closed and so.

It's going to need to be confirmed by rail demand and and we just don't know when that's going to come back.

<unk>, particularly in the in the in a major metropolitan markets.

Okay. Thank you.

Smedes Rose: Okay, thank you.

<unk>.

Jon Bortz: Thanks, Smedes.

Raymond Martz: Thanks, Smedes.

The next question sounds from every client from B.M.O. capital markets. Please go ahead.

Operator 2: The next question comes from Aryeh Klein from BMO Capital Markets. Please go ahead.

Operator: The next question comes from Aryeh Klein from BMO Capital Markets. Please go ahead.

Thanks.

Aryeh Klein: Thanks. You know, maybe just following up on that last question. How do you think about the cost of reopening the hotels and then, you know, balancing the risk of perhaps COVID coming back in H2, even if the demand is there potentially?

Ari Klein: Thanks. You know, maybe just following up on that last question. How do you think about the cost of reopening the hotels and then, you know, balancing the risk of perhaps COVID coming back in H2, even if the demand is there potentially?

<unk>, maybe just following up on on that last question, how how do you think about the costs of reopening hotels, and then yeah balancing the risk of perhaps Kobe coming back in the second half the year, even if the demand is their potentially.

Yeah, I mean, we're [laughter].

Jon Bortz: Yeah, I mean, we're not talking about a tsunami wave of demand coming back. We think demand comes back pretty gradually and occupancies come back off a very low level. I mean, our sort of break even of not being worse on average is in the mid to upper single digits of occupancy. Some as high as the low to mid-teens, depending upon size and whether it's union or not, of the property and some as low as mid-single digits. When we reopen, there's not gonna be much difference in staffing between reopening and being closed in those cases. We'll bring back people in onesies and twosies. Again, we're gonna be careful.

First we're not talking about a tsunami wave of demand coming back. We we think demand comes back pretty gradually and occupancy come back off of very low level. I mean are are sort of break even of of not being worse on the averages in the mid to upper single digits of occupancy.

Some as high as the low to mid teens, depending upon.

Size, and whether it's union or not of the property and some as low as mid single digits.

And when we reopen first <unk>, there's not going to be much difference in staffing between reopening and and and being closed in those cases.

We'll bring back people on Mondays and Tuesdays.

And again, we're going to be careful we're going to bring a salesperson back when there's enough demand for them to have to to have things to do all day long that are legitimate and and so if if there isn't that level of demand and we're not already over.

Jon Bortz: We're gonna bring a salesperson back when there's enough demand for them to have things to do all day long that are legitimate. If there isn't that level of demand and we're not already overworking the few people that we have, then we're not gonna bring them back. We're gonna be very cautious about it, Aryeh, and I think that's the way to avoid, you know, a second wave of the virus and some kind of reversion in behavior.

Working the few people that we have <unk>, then we're not going to we're not going to bring them back so.

We're going to be very cautious about it already and and I think that's the way to avoid you know a second wave of the virus and some kind of reversion in in in behavior.

[noise] and then on the unofficially branding strategy and it seems like you're moving had with it what was there any thoughts and maybe plus spelling some of that I give in a given everything that's going on.

Aryeh Klein: All right. Then on the unofficial rebranding strategy, it seems like you're moving ahead with it. Was there any thought to maybe postpone some of that, given everything that's going on?

Ari Klein: All right. Then on the unofficial rebranding strategy, it seems like you're moving ahead with it. Was there any thought to maybe postpone some of that, given everything that's going on?

Yeah, I mean, we of course, we we talked about it we.

Jon Bortz: Yeah, I mean, of course we talked about it. We actually think there's a nice window coming up of an ability to get a lot of press and visibility because the news in a lot of these, you know, travel magazines and journals is fairly limited. The ability to get featured or have stories written and get exposure, we think is probably the highest opportunity window that, you know, that we're gonna have. All right. Thank you. The next question comes from Shaun Kelley from Bank of America. Please go ahead.

We actually I think there's a nice window coming up of of an ability to get a lot of of press and visibility because the the news in a lot of these.

You know travel magazines and journals is is fairly limited.

And so the the ability to get featured or have stories, written and and get exposure. We think it's probably that it's probably the highest opportunity window that you know that that we're gonna have.

Ari Klein: All right. Thank you.

I. Thank you.

The next question comes from Sean Kelly I'm Bank of America. Each go ahead.

Operator: The next question comes from Shaun Kelley from Bank of America. Please go ahead.

Hi, good morning, everyone.

Shaun Kelley: Hi, good morning, everyone. Jon, I think you gave some great sort of overviews about, you know, the kind of the strategy and some of the things you guys are looking at, you know, here, including the movement on the Unofficial Z Collection. I'm curious, just maybe bigger picture, you know, a lot of the business model for Pebblebrook and a lot of this goes way back. I think if we think about, even, you know, the predecessor company, you know, in your time at LaSalle, was predicated on urban, you know, market outperformance. You know, what you're able to do with some of these independent hotels in, you know, these urban markets is pretty, you know, has always been, you know, very core to your strategy.

John I think you give some great sorta over views about you know the Canada strategy and some of the things you guys are looking at you know here, including the yeah. The movement on the unofficial Z. collection and I'm curious just me bigger picture you know a lot of the business model for.

<unk> cause way back I think if we think about even you know the predecessor company you know at least in your time, how was predicated on urban yeah market out performance and you know what you're able to do with some of these independent hotels in you know these urban markets is pretty you know he's always been yeah very courtier strategy.

My question is you know like as we think about the implications of the virus here on in some of the cities, where we're operating conditions like New York had already gotten very very very difficult on prior to the virus you know <unk> do you rethink the urban mix and all the portfolio do you start to lean on at all more towards.

Shaun Kelley: My question is, you know, like, as we think about the implications of the virus here in some of the cities where operating conditions like New York had already gotten very, very, very difficult prior to the virus, you know, do you rethink the urban mix at all, the portfolio? Do you start to lean at all more towards whether it's resorts or you know, other areas where you might have you know, more flexibility? Maybe it's to other markets or Sun Belt where you know, some of the rules and labor restrictions aren't as high. Just help us think about how the portfolio looks in the new norm if you know, you could make some of these bigger changes.

Whether it's resorts or you know other areas, where you might have yeah more flexibility maybe it to to to other markets are Sun belt, where you know some of the rules and labor restrictions on his high just <unk> help us think about how the portfolio looks in the new norm. If if you know you could make some of these 70 snicker changed we appreciate I think a lot of time.

Shaun Kelley: We appreciate it'll take a lot of time, but just how are you thinking about the portfolio, you know, 3 to 5 years from today?

Just how are you thinking about the portfolio you know three to five years from today.

Yeah. That's a good question I I love to tie it we spend a ton of time thinking about this but we we've been a little bit more in defensive mode. So so far but I think you know what what we've already demonstrated you know over the last few years is.

Jon Bortz: Yeah, it's a good question. I'd love to tell you we've spent a ton of time thinking about this, but we've been a little bit more in defensive mode so far. I think, you know, what we've already demonstrated, you know, over the last few years is, you know, the markets where it's been difficult to operate in, we either sold out of those markets or we didn't buy into them. You know, two examples being New York, which we've sold out of now twice, once before and after the acquisition of LaSalle, and then we never bought anything in Chicago, but we got a couple of properties through the LaSalle acquisition that we'll ultimately dispose of.

No the markets, where it's been difficult to to operate in we either sold out of those markets are we didn't buy into them and you know two two examples being New York and <unk>, which we sold out of now twice.

Once before and after the acquisition of Lasalle and then we never bought anything in Chicago, but but we got a couple of properties through the Sal acquisition that will will ultimately dispose of.

And and so I I do think we will adapt and evolve <unk> a lot of the capital we've been putting into the portfolio in the last year.

Jon Bortz: I do think we will adapt and evolve with a lot of the capital we've been putting into the portfolio in the last year, and is happening this year, is in the resort portfolio where we do think there's significant opportunity, particularly because we think resorts are evolving from being more traditional, almost more passive, you know, lay on the beach, take a spa, play golf, to more active type of resorts like what we've done up at Skamania in Portland. I certainly think we'll be on the lookout for more resorts. I think they come with more risk in other ways, Shaun. I mean, there are more, there's more fixed costs, there's more land at these properties. You're living off of fewer segments.

And and is happening this year is in the resort portfolio, where we do think there's significant opportunity, particularly because we think resorts are evolving from being more traditional almost more passive you know lay on the beach take a spa play golf.

To to more active type of resorts like what we've done up at skamania in Portland, So I, certainly think will be on the lookout for for for more resorts I think they come with more risk in other ways, Sean I mean.

<unk>, there's more fixed costs, there's more land at these properties, you're you're living off of fewer segments.

You know, there's they're generally know citywides that you participate in and there's generally very little corporate <unk>. That's you participate in so you're living off leisure and and you're living off of of of group and and so.

Jon Bortz: You know, there's generally no citywides that you participate in, and there's generally very little corporate transient that you participate in, so you're living off leisure, and you're living off of group. So, you know, in some ways there's less risk, you could think of that coming out of this in resorts, and in some ways it would continue to have more risk because of the fact that you have fewer segments ultimately to rely on. We'll be reevaluating that over time. I don't think we expect to give up on cities. I think there's a lot of reasons why people like to go to major cities in particular.

You know in some ways, there's less risk. If you you could think of that coming out of this in resorts in in some ways. It would continue to have more risk because of the fact that you have fewer segments.

Ultimately to rely on but.

We'll be reevaluating that over time I don't think we expect to give up on cities.

I I think there's a lot of reasons why people like to go to major cities in particular, but but look that's it's something that that will be we'll be looking at very carefully and and trying to understand how corporations react how people react.

Jon Bortz: Look, it's something that we'll be looking at very carefully and ultimately you know we'll make changes in our capital allocation strategy as appropriate.

And and ultimately <unk> you know, we'll make changes in our capital allocation strategy has as appropriate.

<unk>. Thanks, and then it is a follow up but on a on the some of the comments around the the brand side a little bit on key just give us your your thoughts on how this operating environment. So let's look at you know kind of the the the movement from April on impacts you know kind of how you're thinking about or how you think you're.

Shaun Kelley: Thanks for that. As a follow-up, but on some of the comments around the brand side a little bit, can you just give us your thoughts on how this operating environment, so let's look at, you know, kind of the movement from April on, impacts, you know, kind of how you're thinking about or how you think your portfolio is gonna work through some of the distribution channels. Are you gonna, where are you gonna lean a little bit more? You know, do you go to the OTA partners a little bit more, just because that's where the leisure is?

Portfolio is going to work through some of the distribution channels or you can only where are you going to lead a little bit more you know do you go to the O.T.A. partners a little bit more just because that's where the leisure is or you know just how are you gonna think Howard <unk> How's that channel shaft kind of play out both kind of in a normal cycle, because obviously, it's not but I've been obviously.

Shaun Kelley: you know, just how is that channel shift gonna play out, both kind of in a normal cycle, 'cause obviously it's that, but obviously in this one it's gonna be even more pronounced. Just where do you lean and where gives you the best bang for your buck right now?

This one it's gonna be even more pronounced to just where do you lean and and <unk>, where it gives you the best Bang for your Buck right now.

Yeah. I mean, you you know it's interesting I mean, we're going to go where the customer is and obviously the the the first customer will return is.

Jon Bortz: Yeah, I mean, you know, it's interesting. I mean, we're gonna go where the customer is, and obviously the first customer return is leisure. On the other hand, we do need to continue to book group for next year, and this year if someone wants to group to book it, but it's gotta be legitimate at the end of the day. You know, interestingly, Sean, I mean, there is a bit of a misconception sometimes that we're, you know, we're just non-branded portfolio. I mean, half of our EBITDA comes from major brands. The major brand companies, half of our EBITDA. And we do have a lot of smaller properties, but we have some big properties too.

Is leisure on the other hand, we do need to continue to book group for next year and this year, if someone wants to group, but to bucket, but it it's gotta be it it's got to be legitimate at at the end of the day and and but you know interestingly, Sean I mean, we <unk> <unk>.

<unk> there is a bit of a misconception sometimes that were.

You know, we're just nonbranded portfolio I mean half of our even dot comes from major brands.

The major brand companies half of our <unk>, So and and we do have a lot of smaller properties, but we have some big properties to we have to.

Jon Bortz: We have two, you know, we have an 800-room property, 750-room, big meeting property. We got a couple of 450, 420-room, you know, properties that do a lot of group. We have a resort that's 460 rooms that does a ton of group business. The nice thing is we get to see all sides of every issue. I think one of the things we commented on is we just think because leisure comes back first, that our resorts are the ones that are best able to take advantage of that.

You know we have an 800 room property 750 room Big Big meeting property. We got a couple of 450 420 room, you know properties that do a lot of group we have a resort that's 460 rooms that does a ton of group of business.

And so <unk>. The nice thing is we get to see all sides of of every issue and I think one of the things. We commented on as we just thing because leisure comes back first that are resorts are the ones that are our best able to take advantage of that we do think leisure to urban markets. Unfortunately.

Jon Bortz: We do think leisure to urban markets, unfortunately, is gonna be slower to come back, partly because that's where a lot of the hotspots are, and partly because until the amenity base is reopened, I'm not sure what. Why would you go to San Francisco today? Everything's closed. There's nothing to do as a tourist, other than the look at the environment. It's still a pretty city. Some might argue it's an even prettier city today without the people. I don't know. I do think we'll see where the customer's shopping, and we'll follow them.

Is gonna be slower to come back, partly because that's where a lot of the hot spots are and and partly because until the amenity base.

Is reopened I I'm not sure what.

Why would you go to San Francisco today, Everything's closed there, there's there's nothing to do as a tourist other than other than the <unk> look at the environment, It's still pretty city. Some might argue it's even prettier city today without the people [laughter] I don't know, but [noise].

But I I do think well.

We'll see where the customer shopping and will follow them and you know the nice thing is where where experimenting now with on a digital side I mean, it's very in in inexpensive because there's there's not a lotta people paying for marketing and adds on on either any of the digital sites or Google or.

Jon Bortz: You know, the nice thing is where we're experimenting now with on the digital side. I mean, it's very inexpensive because there's not a lot of people paying for marketing and ads on any of the digital sites or Google or the OTAs or wherever. We'll see what's most effective, and that's where our dollars and our efforts are, and focus will go.

The O.T.A.S or or wherever so <unk>, we'll see what's most effective and that's where all our dollars in our efforts and focus will go.

Thank you very much.

Shaun Kelley: Thank you very much.

Yeah Shaun <unk>.

Raymond Martz: Thanks, Shaun.

Jon Bortz: Thanks, Shaun.

The next question comes from Bill Crow Raymond James. Please go ahead.

Operator 2: The next question comes from William Crow from Raymond James. Please go ahead.

Operator: The next question comes from William Crow from Raymond James. Please go ahead.

Good morning.

William Crow: Hey, good morning. Jon, maybe we'll role-play a little bit. I'll play the 50% of your EBITDA that comes from the brands, and you can represent the independent urban hotels. The reason I say that is, the big gating factor here for travel over the intermediate term seems like it's going to be cleanliness. If I'm a brand and you've already seen four or five or six of them roll out these formal programs with partners and brand names and all this, it seems to me that when travel starts to pick up, they're going to go out, and they're going to do TV commercials and radio and all sorts of advertising to show that they're the cleanest, safest. They have the technology investment, you know, the digital key, bypassing the front desk.

Bill Crow: Hey, good morning. Jon, maybe we'll role-play a little bit. I'll play the 50% of your EBITDA that comes from the brands, and you can represent the independent urban hotels. The reason I say that is, the big gating factor here for travel over the intermediate term seems like it's going to be cleanliness. If I'm a brand and you've already seen four or five or six of them roll out these formal programs with partners and brand names and all this, it seems to me that when travel starts to pick up, they're going to go out, and they're going to do TV commercials and radio and all sorts of advertising to show that they're the cleanest, safest. They have the technology investment, you know, the digital key, bypassing the front desk.

<unk>.

Role play a little bit I'll play the 50 per cent of your you, but that comes from the branch and you can.

You can represent the independent urban hotels and and.

And the reason I say that is.

<unk> <unk> factor here for travel over though.

Terms seems like it's going to be cleanliness, and and if I'm a brand and you've already seen four or five or six roll out these formal programs with partners and brand names and all this.

It seems to me that one travels church to pick up they're going to go out and they're going to do T.V. commercials, and radio and all sorts advertising to show that they're the cleanest safest.

And they have the technology investment.

Digital key bypassing the front desk.

So it's different than trying to come back from 911, it's different than trying to come back from 2009.

William Crow: It's different than trying to come back from 9/11. It's different than trying to come back from 2009. How are we not set up to see urban independent hotels really struggle in this recovery?

Bill Crow: It's different than trying to come back from 9/11. It's different than trying to come back from 2009. How are we not set up to see urban independent hotels really struggle in this recovery?

How is that how are we not shut up to see.

Urban independent hotels.

Struggle in this recovery.

[laughter], because because I I don't think that'll be the driving factor.

Jon Bortz: Because I don't think that'll be the driving factor with the whole customer base. I mean, if you think about a lot of the folks who go to independent hotels, particularly on the leisure side, it's younger people. Frankly, I'm not sure most of those people feel like they're even at risk. They're still looking for unique experiences, and they're traveling on a discretionary basis. You might be talking about my generation, which still predominantly goes to brands anyway. I don't think the brands are gonna drive disproportionately the customer base who's even looking for cleanliness, because it isn't just about cleanliness, it's about safety. It's about exposure. It's about how many people are you gonna be exposed to?

<unk> with all the whole customer base I mean.

If you think about a lot of the folks who go to independent hotels.

Particularly I'm a laser side.

Younger people.

Frankly, I'm not sure most of those people feel like they're even at risk and they're still looking for unique experiences and they're they're traveling on a discretionary basis. So you might be talking about.

My generation, which still predominantly goes to brands anyway, I don't think.

I, just don't think the brands drive.

Are are gonna drive disproportionately the customer base who's even looking for cleanliness because it isn't just about cleanliness. It's about safety. It's about exposure. It's about how many people are you going to be exposed to how many people are going to be in line.

Jon Bortz: How many people are gonna be in line? How uncomfortable do you feel at a big hotel? I mean, we think our big hotels will open last, partly because they're more group-focused, and partly because their transient customer is not likely to wanna go to a big hotel versus going to a little hotel. Now, look, this is our viewpoint. Again, we see, we have some of all. We'll see what happens. Just, it's a great marketing pitch, and this is what these guys do with these major programs, but it doesn't convince everybody. We're not trying to get 100% of the customer base out there. We're trying to get in our independent lifestyle hotels, that little 3% to 5% of the population that wants to go to those properties.

How uncomfortable do you feel at a big Hotel I mean, we think are big hotels will open last partly because they're more group focus and partly because they're transient customer.

It is not likely to want to go to a big hotel versus going to a little hotel now look. This is this is our viewpoint again, we see we have some of all we'll see what happens just it's a great marketing pitch.

And this is what these guys do with these major programs, but it doesn't convince everybody. We're not trying to get 100% of the customer base out there were trying to get in a in our independent lifestyle hotels that little 3% to 5% of the population that wants to go to those properties.

And I would positive you.

Jon Bortz: I would posit to you that that'll be a greater percentage than normal of the people who are choosing to travel over the next year.

That'll be a greater percentage than normal of the people who are choosing to travel over the next year.

Yeah.

William Crow: Yeah. Okay. That makes sense. It's a good response. What about the technology side of things, Jon? As you've redone your hotels, reworked your hotels and you know, electronic keys, bypassing the front desk, things like that. Is that what the younger consumers, I think, are doing today? Is that fair?

Bill Crow: Yeah. Okay. That makes sense. It's a good response. What about the technology side of things, Jon? As you've redone your hotels, reworked your hotels and you know, electronic keys, bypassing the front desk, things like that. Is that what the younger consumers, I think, are doing today? Is that fair?

<unk>.

It's good response, what about the technology side of things John It as you've.

Re done your hotels reworked your hotels.

You know electronic keys, bypassing the front desk things like that is it those are the what the younger consumers. I think are are are doing today.

Is that is that fair.

I you know it's interesting I mean again, we have major brands I don't know that any of our properties have mobile key yet. It's it's a program they were hoping to really roll out in size. Later this year I think that's going to be deferred because of lack of capital I.

Jon Bortz: You know, it's interesting. I mean, again, we have major brands. I don't know that any of our properties have mobile key yet. It's a program they were hoping to really roll out in size later this year. I think that's gonna be deferred because of lack of capital. I think in our case, we actually may roll it out through the whole portfolio this year. It's something we're looking at right now and evaluating and getting bids on. It's not a major for us. It wouldn't be a major investment, and we don't think it's a major cost on an ongoing basis. The interesting thing about it, Bill, is you're still gonna need to stop at the front desk because you gotta show ID.

In our case, we actually may roll it out through the whole portfolio. This year, it's something we're we're looking at right now and and evaluating and and getting bids on it's it's not a major for us it wouldn't be a major investment and we don't think it's it's a major cost on on an ongoing basis, but but the interesting thing about it.

Well as you still you're still going to need to stop at the front desk because you got a show I.D., we have to verify that the the the the credit card that we have it is you because there's so much fraud that that goes on a particularly in the mobile key category I think we do have one.

Jon Bortz: We have to verify that the credit card that we have it is you because there's so much fraud that goes on, particularly in the mobile key category. Oh, I think we do have one, at least one property, the Embassy, that has mobile key, and we have had credit issues, fraud issues with that. I do think over time, that'll become much more prevalent, but I think it's gonna take a while. I do think it's what customers will want, and I think what we're doing right now is we've constructed a check-in process where it is no touch, and it's limited time.

At least one property the embassy that has mobile key and and we did have a and we have had credit issues.

Fraud issues with that so I do think over time.

That will become much more prevalent but I I think it's gonna take awhile I do think it's what customers will one and I think what we're doing right now as we've constructed a checking process, where it is no charge and it's limited time.

Okay.

William Crow: Okay. All right, Jon, I appreciate your time.

Bill Crow: Okay. All right, Jon, I appreciate your time.

Alright, John appreciate it up.

Alright, Thanks Bell.

Jon Bortz: All right. Thanks, Bill.

The next question comes from last call date from our D. capital markets. These go ahead.

Operator 2: The next question comes from Wes Golladay from RBC Capital Markets. Please go ahead.

Operator: The next question comes from Wes Golladay from RBC Capital Markets. Please go ahead.

The the morning, guys P. touch upon how the cost structure is for your small independent hotels versus your overall portfolio.

Wes Golladay: Hey, good morning, guys. Can you touch upon how the cost structure is for your small independent hotels versus your overall portfolio?

Yeah. So you do you mean cost structure now when they're suspended what they were before what we think.

Jon Bortz: Yeah, do you mean cost structure now when they're suspended? What they were before?

Wes Golladay: Yeah.

Jon Bortz: What's that?

What's that <unk>, well $100 a month or.

Jon Bortz: What's that?

Wes Golladay: Yeah, relative to $1,200 a month or per door.

Wes Golladay: Yeah, relative to $1,200 a month or per door that Ray cited.

That.

Jon Bortz: Oh.

Wes Golladay: that Ray cited.

<unk>.

<unk> Yeah. So this is also a very on if you have a ground we used to those sort of charges, but we have some of our no no I I mean, just <unk> yeah, yeah, yeah. So.

Raymond Martz: Yeah, a lot of this also will vary on if you have a ground lease or those sort of charges, but we have some of our,

Jon Bortz: No, no. I mean, just suspend. Yeah, yeah.

Raymond Martz: Yeah, with the cost per room and the cash burn. Some of our independent hotels, non-brand affiliated, can operate with, you know, $500 to 700 dollars per room per key. And then it ranges from the-

Cost per room in cash burned but.

Some of our independent hotel is non brain affiliated can operate with you know five to $700 per per per key and then it ranges from the per month per month and into larger hotels. It was brand related can only be over $1200 a room. So there's a there's <unk>.

Jon Bortz: Per month.

Raymond Martz: per month. Then the larger hotels, and it's brand related, can certainly be over $1,200 a room. There's a wide variety, but certainly our independent hotels have done a really good job, particularly, you know, some of the hotels on the West Coast there, and some of those have operated $500 to $600 a room. They've done a good job adjusting the operating expenses.

Wide variety, but somebody we are independent hotels than a really good job, particularly you know some of the hotels in west coast, there and similar loads of opera and five or $600 a room, there's been a good job adjusting the operating expenses, yeah. I mean, I <unk> are brands on average if if you if you look at it before.

Jon Bortz: Yeah, I mean, our brands on average, if you look at it before fixed costs that, you know, they have nothing to do with. What would you be at the GOP line? I mean, they would run anywhere from 2 to 3 times the cost as the independent hotels on a per room per month basis.

Fixed costs that you know they they have nothing to do with so what would you be at the at the at the G.O.P. line I mean, there they would run anywhere from two to three times the cost.

As the independent hotels on a per room per month basis.

Okay, and then you you mentioned about supply coming down. The next few years is that in relation to competitive to supply or this overall supply and then would you expect they even bigger confection shadow supply.

Wes Golladay: Okay. You mentioned about supply coming down the next few years. Is that in relation to competitive supply or just overall supply? Would you expect an even bigger contraction in shadow supply from, you know, the likes of Airbnb and such?

The likes of air being being such.

Yeah, I mean, <unk>, we'll all of the above I mean, I I think we're going to see a lot of a significant number of of hotels.

Jon Bortz: Yeah, I mean, well, all of the above. I mean, I think we're gonna see a lot of a significant number of hotels around the country that don't reopen, may never reopen. A lot of properties that go back to lenders who in many cases really don't even wanna take them back. I think in urban markets, because of the higher fixed costs and, you know, what will continue to be probably a desire for higher taxes, or a need for higher taxes in some of these cities. I think you'll see. I mean, we think there could be tens of thousands of rooms in New York that don't ever reopen as hotels.

Around the country that don't reopened may never reopened a lot of properties that go back to lenders, who in many cases really don't even want to take them back.

I think in urban markets because of the higher fixed costs and you know what what will continue to be probably I desire for higher taxes or a need for higher taxes in in some of these some of these cities.

I I think you'll see I mean, we think there could be tens of thousands of rooms in New York.

That don't ever reopened as hotels.

And and we think there'll be a particularly older product in and some of these markets.

Jon Bortz: We think there'll be particularly older product in some of these markets, including branded product, in some of these markets, particularly older branded product that may not reopen as a hotel as the highest and best use on a go-forward basis.

Including branded product in in some of these markets, particularly older branded product that that may not reopen as hotel as a highest and best use on and go for basis.

Okay. Yeah, that's it for me in a good job on the song choice.

Wes Golladay: Okay. That's it for me. Good job on the phone choice.

[laughter], Thanks, West you will compared to keep a sense of humor.

Jon Bortz: Thanks, Wes.

Raymond Martz: You're welcome.

Jon Bortz: Gotta keep a sense of humor.

Yeah.

Wes Golladay: Yeah.

Hey, Mike.

Jon Bortz: Hey, Mike.

So the next question comes from Michael Belly scenario from being please go ahead.

Operator 2: The next question comes from Michael Bellisario from Baird. Please go ahead.

Operator: The next question comes from Michael Bellisario from Baird. Please go ahead.

Good morning, everyone.

Michael Bellisario: Hi, good morning, everyone.

<unk>.

Jon Bortz: Hey, Mike.

Just one for me kinda circling back to the opportunities that you mentioned that are gonna come from the crisis is the question is.

Raymond Martz: Good morning.

Michael Bellisario: Just one for me kind of circling back to the opportunities that you mentioned that are gonna come from the crisis. The question is, when do you switch from defense to offense? What are you keying off of to make that decision eventually?

When do you switch from decent off times and then what are you kidding off others to make that decision eventually.

Yeah, I mean, we're [noise].

Jon Bortz: Yeah, I mean, as we indicated, we're already starting to plan and have discussions about the offensive side. I think those will ratchet up over the next few months. I don't expect any activity, and frankly not sure there'll be any opportunity over the next 3, 4 months. I think we start to see you know, the lenders build up their REO departments, which have you know, shrunk to almost nothing, but after 10 years of an upcycle. I think we start to see properties come back you know, in the next 4 to 6 months. I mean, keep in mind, this is so different than the other cycles where it took a lot longer and frankly, not a lot of opportunity came out of the special servicers.

As we indicated we're we're already starting to plan and have discussions about the offensive side I think those all ratchet up.

Over the next few months I don't expect any activity.

And frankly, not sure they'll be any opportunity over the next three four months, but I I think we start to see you know the lenders build up there are yo departments, which you know shrunk to almost nothing but after 10 years of of an upcycle and.

I think we start to see properties coming back you know in the next four to six months and and on that I mean keep in mind. This is so different than the other cycles, where it took a lot longer and frankly, not a lot of opportunity came out of the special services.

Here the properties are losing money.

Jon Bortz: Here, the properties are losing money, even before debt service, and they have to get funded. The transfers in these cases are probably gonna happen a lot quicker with a lot less fighting going on the part of the borrower because of an inability to actually fund losses even before the debt service numbers. We wanna be prepared for that, and that's where we'll be putting some time and effort over the next few months.

Even before debt service and they have to get funded so the the <unk>. The transfers in these cases are probably going to happen a lot quicker with with a lot less fighting going on on the part of the borrower because of an inability to actually fund.

Losses, even before the the debt service numbers so.

So we want to be prepared for that and and and and that's where we'll be putting some time and effort over the next few months.

That's <unk>. Thank you.

Michael Bellisario: That's helpful. Thank you.

Thanks, Mike.

Jon Bortz: Thanks, Mike.

Raymond Martz: Thanks, Mike.

The next question comes from James Sullivan from D.T.I.G.

Operator 2: The next question comes from James Sullivan from BTIG. Please go ahead.

Operator: The next question comes from James Sullivan from BTIG. Please go ahead.

Go ahead.

Thank you get more to goes.

James Sullivan: Thank you. Good morning, guys. Jon, just another question on the brand commentary that you've been making throughout this call. You know, historically, you've always looked at contractual flexibility as providing or, you know, justifying a lower cap rate when you're buying or selling a hotel. Arguably, the sales that you guys have completed over the last year and a half kind of indicate that independent, smaller independent hotels have seemingly sold at lower cap rates. The ability to terminate management contracts, that flexibility certainly has a value.

Just that's another question on the <unk>, making throughout this call.

Yeah that historically, you you've always looked.

Contractual flexibility is providing <unk>, you know justifying a lower cap or.

Buying or selling a hotel and and arguably the the sales that you guys have complete all over the last year and.

<unk> independent smaller independent, though tells it seemingly sold at lower cabinets.

And so the ability to terminate contracts that flexibility certainly that's of value and I just wonder as you take through the cycle that we're going through and about you know go through over the timing quarters here.

James Sullivan: I just wonder, as you think through the cycle that we're going through and about to, you know, go through over the coming quarters here, the limitation on being able to cut costs in the environment we're in for the major branded hotels argues for perhaps another variable that should be taken into account in terms of the cap rate when people think about cap rates for hotels. I'm just curious whether you think going forward this is likely to become a factor.

The.

The limitation I being what what cut costs.

Yeah.

For the major branded hotels.

Argues for perhaps another another variable that should be taken into account.

In terms of the cap right when people talk about cap rates for hotels and I'm. Just curious whether you think only four with this is likely to become a factor.

Yeah, and I I would say, it's like that are likely to become a factor from this perspective, Jim I think there are.

Jon Bortz: Yeah. I would say it's likely to become a factor from this perspective, Jim. I think there are. You know, look, people aren't gonna say it. I think there are folks who've seen what has happened to their costs, how much carry there continues to be, how some decisions have been made, arguably for the benefit of the brand and not for the benefit of the owner, and are less thrilled with their brand relationship. Along the lines of your question, I do think there are gonna be people looking at other opportunities, including even more, in more cases, trying to move further away from brand managed versus franchised, where they control the relationship with the employee and not have a brand company control that relationship.

You know look people aren't going to say it but I I think there are folks who've seen.

What has happened to their costs how much.

Carry their continues to be.

How some decisions have been made arguably for the benefit of the brand and not for the benefit of the owner.

And are less.

Thrilled with their brand relationship.

And.

So along the lines of your question I I do think they're going to be people looking at.

Other opportunities including.

Even more and more cases trying to move further away from brand managed.

Versus franchised, where they control the relationship with the employee and and not have.

A brand company control that relationship so I think you'll see that as well Jim in in addition to people reevaluating, particularly at smaller properties.

Jon Bortz: I think you'll see that as well, Jim, in addition to people reevaluating, particularly at smaller properties, whether they wanna continue with a brand or not. I mean, a lot of owners were already upset about the dilution in the customer base from the expansion in the number of brands, being developed in a lot of the major markets. I think while that issue's probably gone by the wayside for the next four or five years, it shall return. I mean, we'll see how it all plays out. Again, we have all kinds. We have brand managed, we have brand franchised, managed by franchisees, and we have independent and small brand. We have seen the fact that it's more expensive to maintain these branded properties in stasis here.

Whether they want to continue with a brand or not I mean, <unk> a lot of owners were already upset about the dilution in the customer base from the expansion and the number of brands.

Being developed in a lot of the major markets and I think how that issues probably gone by the wayside for the next four or five years, it shall return and and and so I mean, we'll see how it all plays out again, we have all kinds we have brand man.

We have brand franchised managed by franchisees and we have.

Independent and small brand and we we have seen the fact that it's more expensive to maintain these branded properties in in states is here and and in our recovery it'll be more expensive and.

Jon Bortz: In a recovery, it'll be more expensive, and people will evaluate that as they make their decisions on a go-forward basis for their own businesses.

And so people will evaluate that as the as they make their decisions on go forward basis for their own businesses.

Okay interesting comma.

James Sullivan: Okay, interesting comment. Then a quick question from me on the West Coast versus the East Coast. You had said in your prepared comments that, you know, the first two months of the year, you guys were kind of ahead of plan, doing relatively well, pleased with the response, particularly at the, you know, the renovated assets. You know, here at the, you know, at the end of the quarter, of course, the West Coast underperformed or had a bigger RevPAR decline. I'm just curious to what extent in February, I think we had the ban on Chinese inbound travel, you know, early that month or at the end of January, I think, the actual ban went into effect.

Quick question for me on the West Coast versus the East Coast and you would set in your prepared Poland's. So you know the first two months a year you guys were kind of the head of plant doable relatively well pleased with the response.

You know that renovated assets and you know here at the at the end of the quarter of course, the west coast or or at a bigger report decline I've just curious to what extent, we'll February but I think we all know the ban on Chinese Sinbad travel you don't really.

Month or at the end of January I forget the actual data little too upset.

I'm curious whether you perceive in any of those markets reduction in the band because of that you know I'm thinking here going forward as we think about trying to say about traveled prep school down for a longer period of time, whether that might have more than negative, but but on the west coast than east coast.

James Sullivan: I'm curious whether you perceived, in any of those markets, a reduction in demand because of that. I'm thinking here, going forward, as we think about Chinese inbound travel perhaps being down for a longer period of time, whether that might have more of a negative impact on the West Coast than the East Coast.

[laughter].

I I I'm, not sure whether <unk>, which market gets more impact at at this point by all of the things that happen, Jim <unk> related to international travel I mean, we stop travel from Europe to and and the outbreak in Europe has been greater than the outbreak in China arguably although obviously we don't.

Jon Bortz: I'm not sure which market gets more impacted at this point by all of the things that happened, Jim, related to international travel. I mean, we stopped travel from Europe too. The outbreak in Europe has been greater than the outbreak in China, arguably. Although, obviously we don't have as much trust in those numbers. I think the big question is the biggest city in the United States, New York, you know, how are people gonna respond to that from a travel perspective, both domestic and international. It's been the one hotspot. It's gotten so much of the publicity around infection and fatalities. How long is it gonna take for New York to overcome that negative image?

We we don't have as much trust in in those numbers I think it's I I think the Big question is is this the the biggest city in the United States New York.

You know how are people going to respond to that from a travel prospective both domestic and international it's been the one hotspot. It's gotten all so much of the of the publicity around around infection and fatalities and how long is it gonna take for New York.

To overcome that.

That negative image I mean, there was a comment earlier I think bill I'm asked about cleanliness.

Jon Bortz: I mean, there was a comment earlier. I think Bill asked about cleanliness. I think it's more about safety, which includes cleanliness, but I think it includes a lot of other variables. You know, how are people gonna feel safe in New York? When will that change? I'd be more worried about, frankly, New York and the East Coast, which has had a big outbreak, versus the West Coast, which actually pretty well controlled it, outside of the nursing facilities in Seattle. I mean, the cases in San Francisco have been very minimal. Even LA and San Diego have been on the much lower side when it comes to cases, fatalities, and negative publicity at the end of the day.

I I think it's more about safety, which includes <unk>, but I think it includes a lot of other variables.

You know how are are people going to feel safe in New York.

And and when well that change and so I'd be more worried about frankly, New York and the East Coast, which has had a big outbreak.

Versus the west coast, which actually pretty well controlled it.

Outside of the the nursing facilities in Seattle, I mean, the cases in San Francisco, I've been very minimal and and even the L.A. and San Diego have have been on the much much lower side when it comes to cases and <unk>.

<unk> and publicity a negative publicity at the end of the day, so and that generally a better weather. So they're a lot of factors I I think the one you raise <unk>.

Jon Bortz: They generally have better weather. There are a lot of factors. I think the one you raise, I just think it's one of many. It's hard to come out with a macro answer on one issue out of twenty.

I I just think it's one of many it's it's hard to come out with a macro answer on on on one issue out of 20.

Oh, well just kind of a follow up then so when you look with the relative weakness in Seattle stuff. It's just so San Diego on the corner Seattle was obviously well the first.

James Sullivan: Will, just kind of a follow-up then. When you look at the relative weakness in Seattle, San Francisco, and San Diego in the quarter, Seattle was obviously one of the first, you know, I think it was the first hotspot. Maybe that was what drove that. If you could just kind of summarize why you think they were at the, you know, bottom of the performance level for the-

The first hot spot Oh, so maybe that was my clothes that but if you could just kinda settlers why you think they would.

You know they with the bottom of the performance.

Yeah, because because that San Francisco was the <unk> you know that was the first market to declare a state of emergency it's it's where the <unk>. The first companies in the Bay area said that they why did they <unk> they were not allowing travel other than essential travel I'd swear that they were the first companies who said work for.

Jon Bortz: Yeah. Because the San Francisco was the first market to declare a state of emergency. It's where the first companies in the Bay Area said that they were not allowing travel other than essential travel. It's where they were the first companies who said work from home. I remember having conversations with people about this specifically, and they were saying, "You know, West Coast getting hit more because it's closer to China won't have as much of an impact, you know, on the East Coast." Look at it now. It was just a timing issue, Jim. I think if we look at our April numbers, it's 0 everywhere.

And and I remember, having conversations with people about this specifically and they were saying you know west coast getting hit more because it's closer to China won't have as much of an impact you know on the east coast [laughter] look at it now it you know <unk>. It was just a timing issue Jim.

I think if if we look at our April numbers zero everywhere.

It it at least for our portfolio urban are resort, even with the eight hotels that we have open there. There's just no there was no leisure at it all got eliminated leisure business group.

Jon Bortz: At least for our portfolio, urban or resort, even with the eight hotels that we have open there's just no leisure. There was no leisure. It all got eliminated, leisure business group. The only thing left was some crew, some military business, some emergency business, hospital workers, that kind of stuff. That's all that's been left in the major markets and the major resort markets.

And the only thing left was some crew some some military business some emergency business hospital workers that kind of stuff that that's all that's been left in the major markets and the major resort markets.

Okay. Then it'll fall question for me neat by local quit celebrate industry lobbying groups or associations are able to what extent are there any ongoing discussions about government programs I'd like to watch some support for the industry and you know do you think they'll they'll resulted in school.

James Sullivan: Okay. A final question from me. I know you've been involved with some of the industry lobbying groups or associations. To what extent are there any ongoing discussions about government programs that might provide some support to the industry? And, you know, do you think they'll result in anything meaningful?

Yeah I I think you know we're we're we are continuing to have very significant number of conversations with leadership in the administration as well as in in the house on the Senate.

Jon Bortz: Yeah. I think, you know, we are continuing to have very significant number of conversations with leadership in the administration as well as in the House and the Senate. I think there's a very good understanding that hotels were one of the first industries impacted, gonna be one of the last industries to recover, that the structure also causes issues. You know, I mean, frankly, we had to educate people that Hilton and Marriott and Hyatt don't own a lot of hotels, that they're owned by small businesses, individuals, and institutions. I think we'll continue those efforts.

I think there's a very good understanding that that hotels, where one of the first industries impacted going to be one of the last industries to recover that that the structure also causes issues you know it I mean, frankly, we had to educate people that that Hilton then married.

And I don't own a lot of hotels that they're owned by small businesses and individuals and institutions.

And and so there's been a process.

In our focus was originally on on helping the employees and then the businesses and.

And I think we'll continue those efforts in the in the future stimulus packages I think there's.

Jon Bortz: In the future stimulus packages, I think there's a recognition that travel overall is gonna need to be stimulated, and that that'll take dollars. Then we'll see about whether there's any specific industry support. We're certainly advocating for it. I think our industry's been hit even harder than the oil industry, where there are discussions going on about industry assistance. Look, I'd love to tell you I was optimistic there'll be any specific industry assistance, but I don't know that there's gonna be much that comes for businesses versus just helping the overall travel industry recover from a demand perspective.

There's a recognition that travel overall.

Is going to need to be stimulated and that'll take dollars and and then.

We'll see about whether there's any specific industries support we're certainly advocating for it I I think our industries.

And then hit even harder than the oil industry, where they are discussions going on about industry assistance, but look I I'd love to tie I was optimistic there'll be any specific industry assistance, but I I don't know that it's there's gonna be much that comes for businesses.

Versus just helping the overall travel industry recover from a demand perspective.

Okay, great. Thanks.

James Sullivan: Okay. Great. Thanks.

The next question comes from Gregory No learn from some cross Robinson Humphrey Nice go ahead.

Operator 2: The next question comes from Gregory Miller from SunTrust Robinson Humphrey. Please go ahead.

Operator: The next question comes from Gregory Miller from SunTrust Robinson Humphrey. Please go ahead.

Thank you good morning Gentleman direct question, Hey, I have a question on your capital investment and repositioning plans and I listen to a couple of recent hotel and she webinars that you put that on and so my recollection you address the variety of operating design.

Gregory Miller: Thank you. Good morning, gentlemen.

Jon Bortz: Hey, Greg.

Gregory Miller: I have a question on your capital investment and repositioning plans. I listened to a couple of recent hotel industry webinars that you both have been on. To my recollection, you addressed the variety of operating design and room amenity changes that you may need to consider in today's COVID-19 dynamic. However, you're also in the middle of renovations that will be completed likely before today's health concerns have ameliorated. In that context, how are you weighing moving forward on parts of your renovations that you may perhaps have second thoughts given today's changing consumer behavior trends? Whether this means, for example, changing public area design and flow, figuring out what to do with excess restaurant or lounge space or outlets that simply go away and other sizable CapEx considerations.

<unk>.

And room and many changes that you may need to consider in today's covered 19 dynamic however, you're often in the middle of renovations that will be completely isn't likely before today's health concerns have familiar read it.

In that context, how're you weighing moving forward on parts of your renovations that you may perhaps a second thoughts given say changing it's humor behavior trends, whether this means for example, changing public area design and slow.

Carry out what to do with excess restaurant or lambs space for outlets that simply go away and other sizable cataracts considerations.

Yeah. Good good question, Greg we've had a lot of those conversations and.

Jon Bortz: Yeah, good question, Greg. We've had a lot of those conversations, and I think the conclusion we've come to is we don't wanna live in a world where you can't ever gather in a group. We're gonna make a presumption that there's a health solution that comes out in the next year to two years that will allow individuals to return to some level of normalcy when it comes to meeting, drinking, socializing, entertaining, et cetera. We're not really changing our design focus and our focus on, you know, creating spaces that people wanna meet in, wanna eat in or drink in, and wanna entertain in.

I think that conclusion, we've come to his.

We don't want to live in a world, where you you can't ever gather inner group and so we're going to make a presumption that there's a health solution that comes out in the next.

Year to two years that will allow individuals to return to some level of normalcy when it comes to meeting drinking socializing entertaining et cetera.

So we're not really changing our design a focus in a in our focus on you know, creating spaces that people want and need and want to want to eat in or drink and want to entertain and what will change is that will change the setups of our public areas.

Jon Bortz: What will change is that we'll change the setups of our public areas for the next, you know, for whatever the right amount of time is, depending upon both the governmental restrictions and really what people feel comfortable with. We will likely be moving around furniture. We will likely be removing some furniture. We will likely be removing some tables and chairs. But we can also accomplish some of this through the way we seat people. You know, it's interesting. If you remove every seating area where six people could congregate, then if you're a family of six, you can't all sit together. You know, one, I think in many cases, people will self-enforce.

For the next.

You know for for whatever the right amount of time as depending upon the the both a governmental restrictions and really what people feel comfortable with so we we will likely be moving around furniture, we will likely be removing some furniture, we will likely be removing some tables and chairs.

But but we can also accomplish some of those through the way we see people you know it's interesting if you remove every seating area, where six people could congregate then if you're a family of six you can all sit together so.

You know one I think in many cases people will <unk>, well self and force, but if the government's are requiring us to do that where every seat has to be six feet away from any other seed well, obviously do that and but but it won't change our design.

Jon Bortz: If the governments are requiring us to do that, where every seat has to be six feet away from any other seat, we'll obviously do that. It won't change our design and our approaches in our renovations and our redevelopments.

And our approaches and are.

Renovations and our redevelopment.

Thanks.

Gregory Miller: Thanks. My other question regards to your recent leisure bookings that you discussed in markets such as Naples and Key West, and I'm hoping that you could elaborate on this topic to the extent that you're willing to share. Do you sense that those that are traveling or booking represent the kind of traditional leisure customer that these hotels received before the pandemic? Or is the makeup of the leisure traveler different versus same time last year?

And my other question for Arts, T. or a recent leisure bookings that you discussed in markets, such as Naples, U.S. and I'm, hoping that you could elaborate on this topic the extent it you're willing to share.

Q sense that those that are travelling work booking represent the kind of traditional leisure customer cathy's hotels receives before the pandemic raise the makeup of the leisure travel or different versus the same time last year.

Yeah. Good good question, we've been having a lot of those conversations and so far our conclusion as it is the same traveler and in fact, those three properties, which are higher rated properties are achieving very high rates right now in their bookings.

Jon Bortz: Yeah, good question. We've been having a lot of those conversations, and so far our conclusion is it is the same traveler. In fact, those three properties, which are higher rated properties, are achieving very high rates right now in their bookings. I mean, we're averaging $400 to 500 a night in Naples in arguably what is already a shoulder season or just moving into a shoulder season. Our bookings in Key West from a rate perspective have been exactly in line with where they were before the pandemic. So far we haven't seen a change in either the customer or their willingness to spend for the product that's being delivered, even with, frankly, lower services which all of these properties will have.

So I mean, we we're averaging four to $500 a night in Naples, and arguably what is already a shoulder season or or just moving into a shoulder season, so and our <unk> our bookings in key west at from a ray perspective of Ben <unk>.

Exactly in line with where they were before the pandemic. So.

So so far we haven't seen a change in in the either the customer or their willingness to spend for for for the product and that's being delivered even with frankly lower services, which all of these properties will have.

Yeah, It's it's very comforting to hear that that's all for me and best to talk to you and your T.V.

Gregory Miller: Yeah, it's very comforting to hear that. That's all for me and best of health to you and your teams.

Thanks growing you too.

Jon Bortz: Thanks, Greg. You too.

<unk>. The question answer session I'll now like it's hard to conference Bank overcame you teach onboards for any closing remarks.

Operator 2: This concludes the question and answer session. I would now like to turn the conference back over to Mr. Jon Bortz for any closing remarks.

Operator: This concludes the question and answer session. I would now like to turn the conference back over to Mr. Jon Bortz for any closing remarks.

Well, if there's anyone still there hey, thanks for participating be careful out there stay healthy and stay safe, we wish we wish everybody that for themselves and their families and their friends and we look forward to updating you with with a formal earnings call in.

Jon Bortz: Well, if there's anyone still there, hey, thanks for participating. Be careful out there. Stay healthy and stay safe. We wish everybody that for themselves, their families, and their friends, and we look forward to updating you with a formal earnings call in three months. I'm sure there'll be additional public communications between now and then. Thank you.

Three months and I'm sure they'll be additional public communications between now and then thank you.

<unk>.

This is going to use Denise conference call. You may disconnect Caroline's. Thank you for participating and have a pleasant thing.

Operator 2: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Q1 2020 Earnings Call

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