Q2 2024 Pebblebrook Hotel Trust Earnings Call
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Speaker Change: Greetings and welcome to the Pebble Brook Hotel trusts second quarter earnings call.
Operator: Greetings and welcome to the Pebblebrook Hotel Trust second quarter earnings call. At this time, all participants are in a listen-only mode.
Speaker Change: At this time all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you.
Speaker Change: Brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it.
Raymond D. Martz: It is now my pleasure to introduce your host Raymond Martz co President and Chief Financial Officer. Thank you. Please go ahead.
Raymond D. Martz: Thank you Donna.
Raymond D. Martz: Thank you, Donna. Good morning, everyone. Welcome to our second quarter 2024 earnings call webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. Before we begin, please note today's comments are effective only for today, July 25th, 2024, and our comments may include forward-looking statements as defined under federal securities laws, and actual results could differ materially from those discussed today. For a comprehensive analysis of potential risk, please consult our most recent SEC filings and visit our website for additional details and reconciliations of any non-GAAP financial measures we use.
Raymond D. Martz: Good morning, everyone welcome to our second quarter 2024 earnings call and webcast.
Raymond D. Martz: Now let's move on to our second quarter results. We are pleased to share that our second quarter bottom-line financial results well exceeded our outlook. Overall, hotel demand met our expectations, driven by healthy corporate group, business transient, and solid leisure demand across most of our urban markets and resorts. Our newly redeveloped and repositioned properties are also performing well, capturing market share and improving cash flow, in line or exceeding our ramp-up expectations.
Speaker Change: Joining me today is Jon Bortz, our chairman and Chief Executive Officer, and Tom Fischer, Our co President and Chief Investment Officer.
Speaker Change: Before we begin please note today's comments are effective only for today July 22024.
Raymond D. Martz: Our Q2 Rapport increased by 1.7%, and total Rapport rose by 2.5%, both of which were in the middle of our 2Q Outlook range. Operationally, our efficiency and cost-saving initiatives will more than offset deflationary cost and cost pressure. With slightly better than expected property tax reductions, our intense focus on operating efficiencies led to lower year-over-year operating expenses, substantially boosting hotel profitability. As a result, the same property, Hotel Ibida, exceeded the midpoint of our Q2 outlook by a range of $5.2 million and topped the high end of our outlook by $2.7 million.
Raymond D. Martz: Adjusted EBITDA and Adjusted FFO also benefited from higher than expected business interruption proceeds related to La Playa, further enhancing our positive Q2 performance. We exceeded the midpoint of our Q2 outlook for adjusted EBITDA and FFO by $10 million and at the top end by $7.5 million. Adjusted FFO per share performed at our midpoint by $0.08 and exceeded the top of our Q2 outlook by $0.06.
Speaker Change: Our comments May include forward looking statements as defined under federal Securities laws and actual results could differ materially.
Raymond D. Martz: Additionally, we are raising our 2024 full-year outlook for same-property hotel EBITDA, adjusted EBITDA, and FFO, which Jon will elaborate on later in the call. Our urban markets continue to recover, with San Diego catching the biggest wave, bolstered by a robust convention calendar, good weather, and the ramp-up of our recent property redevelopment. Our San Diego properties improved occupancy by 9 percentage points over the second quarter of 2023, rising to 81%. Recently, repositioned properties, Margaritaville Hotel's San Diego Gaslamp Quarter and Hilton's San Diego Gaslamp Quarter propelled our Q2 San Diego RepR growth to an impressive 22.4% Riding this wave of success, Chaminade Resort and Spa in Santa Cruz generated an almost 25% improvement in RepR, while Astancia La Joll This epic performance from many of our coastal California properties inspired this quarter's classic surfing song from the Beach Boys.
Speaker Change: Scott today for a comprehensive analysis of potential risks. Please consult our most recent SEC filings and visit our website for additional details and reconciliations of any non-GAAP financial measures we use now.
Raymond D. Martz: Our other urban markets achieving healthy occupancy gains included Chicago, Boston, and Washington, D.C. Underperforming Urban Markets in 2Q, which impacted our urban recovery, were Portland, LA, and San Francisco. Overall, our urban properties increased occupancy by 2.5% driven by solid growth in corporate group and transient demand along with enhanced leisure bookings through expanded demand channels. We gain more demand through consortia demand channels such as American Express, Capital One, and Costco, as well as both domestic and international wholesale channels, albeit at slightly lower average rates.
Raymond D. Martz: Move on to our second quarter results.
Speaker Change: We are pleased to share that our second quarter bottom line financial results well exceeded our outlook overall hotel demand met our expectations driven by healthy corporate group business transient and solid leisure demand across most of our urban markets and resorts.
Raymond D. Martz: Urban weekday occupancies climbed by approximately 3 percentage points, while weekend occupancy grew by 1.4 percentage points in the second quarter. RAPR at our urban properties increased 2.6%, while total RAPR rose by 3.4%. Turning to our resort properties, we observed encouraging improvements in demand compared to the same quarter last year. Resort occupancy increased by 3.5 percentage points, driven by strong weekday demand growth from both corporate groups and rising weekend occupancy rates from leisure travelers. Weekday occupancy at our resorts improved by 3.2 percentage points, while weekend occupancy grew by 4.6 percentage points in the second quarter. Overall, resort rep power declined by 0.7%, primarily due to a 5.4% decrease in ADR.
Raymond D. Martz: Although ADRs at resorts have continued to normalize, part of this decline is attributable to changes in segmentation. We've observed increased weekday demand from corporate groups, which is lower priced than our average transient rate. Additionally, we've added leisure occupancies from wholesale accounts and other discount channels, while these segments yield lower ADRs. (Inaudible) This contributed to the growth in total REPR at our resort properties, which improved by 0.6%. Despite the moderation of ADRs, our resorts have maintained a significant 30% premium in rates compared to 2019.
Raymond D. Martz: The increase in demand from discount channels indicates that some leisure travelers are becoming more price sensitive and seeking deals and bargains. The shift in customer behavior is one of the reasons we adopted a more cautious top-line outlook for the second half of the year. Regarding our segmentation in Q2, group demand increased by 2.4% over the same period last year, representing approximately 27% of our customer inventory. This growth was primarily driven by a notable 11% rise in corporate group demand compared to the previous year.
Raymond D. Martz: Our newly Redeveloped and repositioned properties are also performing well capturing market share and improving cash flows in line or exceeding our ramp up expectations.
Raymond D. Martz: Our Q2 Revpar increased by one 7% and total Revpar rose by 2.5% both of which were in the middle of our <unk> outlook range.
Raymond D. Martz: Operationally, our efficiency and cost savings initiatives were more than offset inflationary cost the cost pressures were slightly better than expected property tax reductions our intense focus on operating efficiencies led to lower year over year operating expenses substantially boosting hotel profitability.
Raymond D. Martz: As a result, our same property hotel EBITDA exceeded the midpoint of our Q2 outlook by a range of $5 2 million.
Raymond D. Martz: And topped the high end of our outlook by $2 7 million.
Raymond D. Martz: Adjusted EBITDA and adjusted <unk> also benefited benefited from higher than expected.
Raymond D. Martz: This interruption proceeds related to la Playa further enhancing our positive Q2 performance.
Raymond D. Martz: We exceeded the midpoint of our Q2 outlook for adjusted EBITDA, and <unk> by $10 million and at the top end by $7 5 million.
Raymond D. Martz: Adjusted <unk> per share outperformed our midpoint by <unk> <unk> and exceeded the top of our Q2 outlook by <unk> <unk>.
Raymond D. Martz: Additionally, we are raising our 2020 for full year outlook for same property hotel EBITDA, adjusted EBITDA, and <unk>, which John will elaborate on later in the call.
John: Our urban markets continue to recover with San Diego catching the biggest weight bolstered by robust convention calendar, good weather and the ramp up of our recent property Redevelopments.
John: Our San Diego properties improved occupancy by nine percentage points over the second quarter of 2023 rising to 81%.
John: Recently repositioned properties, Margaritaville hotels, San Diego, Gaslamp quarter, and Hilton San Diego Gaslamp quarter propelled our Q2, San Diego Revpar growth to an impressive 22, 4%.
Ryan: Ryan This wave of success Chaminade resort <unk> Spa in Santa Cruz generated almost 25% improvement in Revpar, while stops yellow Hoya hotel spas Revpar increased over 28%. This epic performance for many of our coastal California properties as far as this quarter's classic surfing songs from the Beach Boys.
John: Our other urban markets, achieving healthy occupancy gains included Chicago, Boston, and Washington D C.
John: Underperforming urban markets in <unk>, which impacted our urban recovery, where Portland, La and San Francisco.
John: Overall, our urban properties increased occupancy by two five percentage points driven by solid growth in corporate group and transient demand along with enhanced leisure bookings through expanded demand channels.
John: We gained more demand through consortia demand channels, such as American Express capital wide and Costco as.
John: Well as both domestic and international wholesale channels, albeit at slightly lower average rates.
John: Urban weekday occupancy has climbed by approximately three percentage points, while weekend occupancy grew by one four percentage points in the second quarter.
John: Revpar at our urban properties increased two 6%, while total revpar rose by three 4%.
John: Turning to our resort properties, we observed encouraging permits in demand compared to the same quarter last year.
John: Resort occupancy decreased by three five percentage points driven by strong weekday demand growth from both corporate groups and rising weekend occupancy rate rates from leisure travels travelers.
John: Retail occupancy at our resorts improved by three two percentage points, while weekend occupancy grew by four six percentage points in the second quarter.
John: Overall resort Revpar declined by <unk>, 7%, primarily due to a five 4% decrease in ADR, while the ADR is at a resort that continued to normalize part of this decline is attributable to changes in segmentation.
John: We observed increase weekday demand from corporate groups, which is lower priced than our average transient rates. Additionally, we've added leisure occupancies from wholesale accounts and other discount channels.
John: While these segments yield lower ADR.
John: Paired with the direct booking segments corporate groups and consortia generated healthy levels of out of room spending.
John: This contributed to the growth in total revpar at our resort properties, which improved by <unk>, 6%.
John: Despite the moderation in <unk>, our resorts are maintained a significant 30% premium rates compared to 2019 the.
Speaker Change: The increase in demand from discount channels indicates at Sotheby's of travelers are traveling are becoming more price sensitive and seeking deals and bargains.
Speaker Change: This shift in customer behavior is one of the reasons, we adopt adopted a more cautious top line outlook for the second half of the year.
Speaker Change: Regarding our segmentation in Q2 group demand increased by two 4% over the same period last year, representing approximately 27% of our customer mix. This growth was primarily driven by notable 11% rise in corporate group demand compared to the previous year.
Raymond D. Martz: Overall, group revenues saw a 4% increase. Transit demand also strengthened with a 4.4% uptake over last year, supported by gains from OTAs, consortia, domestic and international wholesale, and airline crew bookings. On a monthly basis, St. Property Ruff Warren experienced a 2.2% decline in April, mainly due to the holiday shift and major conventions moving from April last year to May this year.
John: Overall group revenue saw a 4% increase.
John: Transit demand also strengthened with a four 4% uptick over last year supported by gains from Otas consortia domestic and international wholesale and airline crew bookings.
John: On a monthly basis same property Revpar increased experienced a two 2% decline in April mainly due to the holiday shift of major conventions moving from April last year to me. This year the shifts contributed to a substantial six 9% revpar increase in May and.
Raymond D. Martz: The shift contributed to a substantial 6.9% REPR increase in May. June saw a modest rise of 0.4%, which was softer than we anticipated back in April. Early June was adversely affected by severe weather in southern Florida, leading to increased cancellations and reduced bookings at our Florida Resort. Additionally, the Juneteenth holiday falling on a Wednesday this year, as opposed to Monday last year, negatively impacted both business and leisure demand for the week.
John: June saw a modest <unk>, 4%, which was softer than we anticipated back in April.
John: Early June was adversely affected by severe weather in southern Florida, leading to increased cancellations and reduced bookings at our Florida resorts. Additionally.
John: Additionally, the June 10th holiday falling on a Wednesday this year as opposed to Monday last year negatively impacted both business and leisure demand for the week.
John: Two properties not included in our same property Hotel EBITDA Newport Harbor Island resort in La Playa Naples delivered financial results a positive financial results for the quarter Newport Harbor, which opened in late April is being well received by guests and exceeded our expectations generating $1 $6 million in EBITDA.
Raymond D. Martz: Two properties not included in our same property hotel EBITDA, Newport Harbor Island Resort and La Playa in Naples, delivered positive financial results for the quarter. Newport Harbor, which opened in late April, is being well received by guests and exceeded our expectations, generating $1.6 million in EBITDA. La Playa's performance was in line with expectations, producing $7 million of EBITDA. Additionally, La Playa has generated $15.3 million of EBITDA year-to-date, compared to a loss of $3.7 million over the same period last year.
John: The highest performance was inline with expectations producing $7 million of EBITDA encouragingly apply it generated $15 3 million of EBITDA year to date compared to a loss of $3 7 million over the same period last year.
Raymond D. Martz: Due to the resort's positive momentum, we expect La Playa to contribute $24 million in EBITDA for the year, an increase of $2 million from our prior outlay. Additionally, we are increasing our 2024 B.I. Estimate for La Playa by $3 million due to the better than expected progress with our insurance. These improved results have been incorporated into our increased 2024 outlook. Our focus efficiency and cost reduction initiatives across all operating departments significantly bolstered our positive same property EBITDA results.
John: Due to the resorts deposit momentum, we expect <unk> to contribute $24 million of EBITDA for the year, an increase of $2 million from our prior outlook.
John: Additionally, we are increasing our 2024 D I estimate from our Playa by $3 million due to the better than expected progress with our insurance claim.
John: These improved results have incorporated our increased 2020 for outlook.
Speaker Change: Our focus efficiency and cost reduction initiatives across all operating departments significantly both bolstered our positive same property EBITDA results. These efforts led to a hotel EBITDA margin of 31, 5% in Q2.
Raymond D. Martz: These efforts led to a hotel even margin of 31.5% in Q2, a 180 basis point improvement from the prior year. This departmental expense increased by just 2%, and undistributed expenses rose by only 2.9% despite an almost 13% increase in energy costs.
Speaker Change: 180 basis point improvement from the prior year quarter.
John: This departmental expenses increased by just 2% and undistributed expenses rose by only two 9% despite an almost 13% increase in energy costs.
Raymond D. Martz: Gross Operating Profit before fixed expenses rose by 3%, and on a per-occupant basis, total operating expenses declined by 3.8%, and calculated before fixed expenses, they declined by 1.5%. This demonstrates our ongoing successful efforts to combat inflationary pressures through efficiency enhancements, as we highlighted last quarter. We put all of our operating processes and expenditures under a microscope, benchmarking every line item throughout the portfolio.
John: Gross operating profit before fixed expenses rose by 3%.
John: And on a per occupied room basis total operating expenses declined by three 8% and calculated before fixed expenses they declined by one 5%.
John: This demonstrates our ongoing successful efforts to combat inflationary pressures through efficiency enhancements as we highlighted last quarter.
John: We put all of our operating processes and expenses and expenditures under a microscope benchmarking every line item throughout the portfolio. These strategies are part of a broader initiative to offset above inflationary cost increases in wages benefits energy and insurance across our portfolio.
Raymond D. Martz: These strategies are part of a broader initiative to offset above inflationary cost increases in wages, benefits, energy, and insurance across our portfolio. And speaking of insurance, we achieved a favorable outcome for our recent property and casualty insurance renewal completed on June 1st. Overall, premiums will increase by about 5% compared to our expiring program.
John: And speaking of insurance.
John: Achieved a favorable outcome with our recent property and casualty insurance renewal completed on June one.
John: Overall premiums will increase by about 5% compared to our expiring program.
Raymond D. Martz: Notably, our insurance rates declined by approximately 1%, indicating improvements in the overall insurance market. We increased our insurable values by about 6% to reflect our estimates of higher replacement costs, and we've maintained the same overall total insurance coverage with no significant changes in premiums or other business terms. Turning to our $520 million strategic reinvestment program, we completed several major capital investments this quarter. The $50 million transformation of Newport Harbor Island Resort into a premier New England luxury destination was completed and fully launched on Memorial Day weekend, partially after opening at the end of April.
John: Notably our insurance rates declined by approximately 1%, indicating improvements in the overall insurance market we.
John: We increased our insured book value by about 6% to reflect reflect our estimates of higher replacement costs.
John: And we've maintained the same overall total insurance coverage with no significant changes in premiums or other business terms.
Speaker Change: Turning to our $520 million strategic reinvestment program, we completed several major capital investments this quarter to $50 million transformation of Newport Harbor Island resort instrument premiere, New England luxury destination was completed and fully launched on Memorial day weekend.
John: After opening at the end of April and the <unk> lawyers Hotel, it's filed $26 million multi phased redevelopment, which completed in mid April receiving excellent reviews from existing customers and attracting new demand.
Raymond D. Martz: And Estancia La Jolla Hotel and Spa's $26 million multi-phase redevelopment was completed in mid-April, receiving excellent reviews from existing customers and attracting new demand. And finally, at Skamania Lodge, we finished a $20 million first phase redevelopment, introducing eight new alternative lodging combinations, including two cabins, a three-bedroom villa, and five unique glamping units, all of which are booking up well over the We are excited to have a completely refreshed and redeveloped portfolio moving forward, and we expect these properties to continue to gain market share and drive cash and cash returns over the coming years.
John: And finally at Skamania Lodge, we finished the $20 million first phase redevelopment, introducing a new alternative lodging combinations, including two cabinets, a three bedroom villa and five unique glamping units all of which are booking up well over the busy summer period.
Speaker Change: We are excited to have a completely refreshed and redeveloped portfolio moving forward and we expect these properties to continue to gain market share and drive cash on cash returns over the coming years.
Speaker Change: In our earnings release last night, we announced the upcoming conversion of Le Meridien Delfina, Santa Monica and two Hyatt centric Delfina, Santa Monica scheduled for mid September of this year, the property of <unk> and approximately $16 million refresh with the majority of cost offset by key money provided by Hyatt.
Raymond D. Martz: In our earnings release last night, we announced the upcoming conversion of La Meridien Delfina Santa Monica into Hyatt Centric Delfina Santa Monica, scheduled for mid-September of this year. The property will undergo an approximately $16 million refresh, with the majority of costs offset by key money provided by Hyatt. The refresh, which primarily involves soft goods and FFD replacements, will commence in the fourth quarter of this year, and we expect it to be completed in the second quarter of 2025. The hotel will continue to be managed by Highgate, who also manages our Viceroy Santa Monica property in the same market, so we don't anticipate any notable disruptions from the flag change or renovation.
John: To refresh, which primarily involved soft goods and <unk> knee replacements will commence in the fourth quarter of this year and we expected to be completed in the second quarter of 2025.
John: The hotel will continue to be managed by high Gate, who also manages our viceroy Santa Monica property in the same market. So we don't anticipate any notable disruptions from the flag change or renovation.
Raymond D. Martz: We are very excited about this flag change, and we will only have the only high-brand family property in the highly desirable Santa Monica Marina del Rey market, compared to the seven competitors we currently have within the Marriott brand. And overall, we remain on track to invest $85 to $90 million in CapEx for the year, net of the high-key money. Regarding our balance sheet, we remained in good shape with overall $110 million of cash on June 30th and no significant debt maturities until October 2025, thanks to the successful refinancing earlier this year.
John: We are very excited about this flag change and we will only have only high brand family property in the highly desirable Santa Monica Marina del Rey market compared to the seven competitors. We currently have within the Marriott brand family.
John: And overall, we remain on track to invest $85 million to $90 million in Capex for the year net of the high key money.
John: Regarding our balance sheet, we remain in good shape with overall $110 million of cash at June 30th.
John: No significant debt maturities until October 2025, thanks to the successful refinancing earlier this year.
Raymond D. Martz: The weighted average cost of our debt is now an attractive 4.4%, with 75% currently at fixed rates, and 71% of our debt is unsecured. For that comprehensive update, I'd like to turn the call over to Jon. Thanks, Ray.
John: The weighted average cost of our debt is not an attractive four 4% with 75% currently at fixed rates and 71% of our debt is unsecured.
John: For that comprehensive update I'd like to turn the call over to John John.
John: Thanks, Greg.
John John: As Ray indicated we're very pleased with our overall performance in the second quarter we.
Jon E. Bortz: As Ray indicated, we're very pleased with our overall performance in the second quarter. We successfully implemented many operating efficiencies across our portfolio, driving better than forecast and substantially improved year-over-year bottom line results. Our top-line revenue growth was in the middle of our Outlook range, yet we exceeded the midpoint of our Outlook for St. Property Hotel EBITDA by $5.2 million and adjusted EBITDA and FFO by $10 million. These operating efficiencies are not one-time cost reductions.
John: We successfully implemented many operating efficiencies across our portfolio driving better than forecast and substantially improved year over year bottom line results.
Speaker Change: Our topline revenue growth was in the middle of our outlook range, Yes, we exceeded the midpoint of our outlook for same property hotel EBITDA by $5 $2 million and adjusted EBITDA and <unk> by $10 million.
Speaker Change: These operating efficiencies are not one time cost reductions that are ongoing and should help mitigate future inflationary cost pressures.
Jon E. Bortz: They're ongoing and should help mitigate future inflationary cost pressures. When we look at the industry results overall in the second quarter, while we're encouraged by overall industry demand turning positive for the quarter, we're increasingly concerned about gradually slowing ADR growth and a slowing economy. The Fed continues to keep its foot on the brake, and it's clearly showing up in weakening employment growth, increasing unemployment, and slowing consumer spending.
John: When we look at the industry results overall in the second quarter. While we are encouraged by overall industry demand turning positive for the quarter were increasingly concerned about gradually slowing ADR growth and a slowing economy.
John: The fed continues to keep its foot on the brake and it's clearly showing up in weakening employment growth increasing unemployment.
John: Slowing consumer spending increasingly.
Jon E. Bortz: Increasingly restrictive interest rates and a more cost-conscious consumer. As a result, we're a little more cautious about REVPAR growth for the second half of this year, particularly ADR growth. As Ray indicated, business travel continues to recover, both group and transit. Leisure demand remains healthy, and we certainly saw substantial increases in our portfolio, but leisure demand across the industry remained generally flat. Weekday pricing edged higher in our urban portfolio, while our weekend pricing at both our urban hotels and resorts suffered as we added occupancy at lower rates and as the leisure customer became more price conscious.
John: Increasingly restrictive interest rates and a more cost conscious consumer.
John: As a result, we're a little more cautious about revpar growth for the second half of this year.
John: Particularly ADR growth.
John: As Ray indicated business travel continues to recover both group and transient.
Ray: Leisure demand remains healthy.
Ray: And we certainly saw substantial increases in our portfolio, but leisure demand across the industry remained generally flat.
Ray: Weekday pricing edged higher and our urban portfolio, while our weekend pricing at both our urban hotels and resorts suffered as we added occupancy at lower rates and as the leisure customer has become more price conscious.
Jon E. Bortz: In our portfolio, we expect further year-over-year occupancy growth in the third quarter, as well as continued pressure on our average rates. As a result of this continuing leakage in ADR, which earlier this year we had thought would reverse and turn positive in the second half of the year, we're lowering our REVPAR outlook to 1.25% to 2.25% for the year, with all growth stemming from increased occupancy. Despite this adjustment, we still expect healthy growth in total revenues, driven by strong out-of-room spend from increased occupancy and the benefits of our significant re-merchandising efforts across our redeveloped portfolio.
Ray: In our portfolio, we expect further year over year occupancy growth in the third quarter as well as continued pressure on our average rates.
Ray: As a result of this continuing leakage in ADR.
Ray: Which earlier this year, we had thought would reverse and turn positive in the second half of the year, we're lowering our revpar outlook to 1.25% to 2.25% for the year with all growth stemming from increased occupancy.
Ray: Despite this adjustment we still expect healthy growth in total revenues driven by strong out of room spend from increased occupancy and the benefits of our significant re merchandising efforts across our redeveloped portfolio.
Ray: Additionally, our successful efforts to create operating efficiencies.
Jon E. Bortz: Additionally, our successful efforts to create operating efficiencies, achieve Real Estate Tax Reduction, and manage a lower increase in property and casualty insurance allow us to increase our 2024 outlook for Hotel EBITDA, Adjusted EBITDA, and Adjusted FFO and AFFO per share. We're not forecasting any additional material reductions or credits in real estate taxes for the remainder of the year.
Ray: Achieve real estate tax reductions and manage a lower increase in property and casualty insurance.
Ray: Low us to increase our 2020 for outlook for hotel EBITDA, adjusted EBITDA and adjusted <unk> per share.
Ray: We're not forecasting any additional material reductions or credits in real estate taxes.
Ray: For the remainder of the year. However, we do continue to expect substantial additional prior and current year reductions over the next several years. We just don't know when these efforts will deliver these benefits given the uncertain timing of the governmental process.
Jon E. Bortz: However, we do continue to expect substantial additional prior and current year reductions over the next several years. We just don't know when these efforts will deliver these benefits, given the uncertain timing of the governmental process. For Q3, we're forecasting RevPart growth in the range of 1.25% to 3.25%, driven entirely by occupancy growth. We're forecasting total revenues to rise by 1.7% to 3.8% and total expenses to increase by 3.9% to 4.9%. Our urban properties are expected to lead this REVPAR growth.
Ray: For Q3, we're forecasting revpar growth in the range of 1.25% to 3.25% driven entirely by occupancy growth.
Speaker Change: Were forecasting total revenues to rise by one 7% to three 8% and total expenses to increase by three 9% to four 9%.
Ray: Our urban properties are expected to lead this revpar growth.
Jon E. Bortz: Although San Francisco will be a drag due to a challenging convention calendar compared to last year, and Los Angeles seems to be recovering more slowly from last year's strikes than anticipated, our properties in San Diego, Boston, and Washington, D.C. should again lead our urban market performance, with strong growth expected in Chicago with a robust convention calendar for the quarter and the Democratic National Convention in August. Our resorts should see flat to modest growth in Q3.
Ray: Although San Francisco will be a drag due to a challenging convention calendar compared to last year.
Ray: In Los Angeles seems to be recovering more slowly from last year's strikes than anticipated.
Ray: Our properties in San Diego, Boston, and Washington D. C should again lead our urban market performance with strong growth expected in Chicago with a robust convention calendar for the quarter and the Democratic National Convention in August.
Ray: Our resorts should see flat to modest growth in Q3.
Ray: Yeah.
Ray: Our recently Redeveloped properties, including Margaritaville, San Diego Gaslamp quarter.
Jon E. Bortz: Our recently redeveloped properties, including Margaritaville, San Diego, Gaslamp Quarter, Hilton San Diego Gaslamp Quarter, Estancia La Jolla Hotel and Spa, Jekyll Island Club Resort, Newport Harbor Island Resort, and Chaminade Resort and Spa, should all help drive our performance in the third quarter. We expect July to be our weakest month in the quarter; however, August should benefit from an early Labor Day with the holiday weekend starting in August Both August and September should be good months, with September benefiting from the early Labor Day, which will have less impact on business travel in September and the Jewish holidays falling entirely in October.
Ray: Hilton San Diego Gaslamp quarter, Estancia, La Joya Hotel and Spa Jekyll Island Club Resort, Newport Harbor Island resort and Shaman <unk> resort and Spa should all help drive our performance in the third quarter.
Ray: We expect July to be our weakest month in the quarter. However August should benefit from an early labor day with the holiday weekend starting in August.
Ray: Both August and September should be good months with September benefiting from the early labor day, which will have less impact on business travel in September and the Jewish holidays falling entirely in October.
Ray: Our total pays for Q3 supports our positive outlook.
Jon E. Bortz: Our total pace for Q3 supports our positive outlook. Total group and transient revenue pace is ahead by 6%, driven by a healthy 8.3% increase in room nights compared to the same time last year, although this is offset by a 2.1% decline in ADR. Group Demand is leading the quarter's pace advantage, with group room nights up by 12.4%, ADR ahead by 2.8 percent, and Group Revenues pacing a strong 15.6% over the same time last year.
Ray: Total group and transient revenue pace is ahead by 6%.
Ray: Driven by a healthy eight 3% increase in room nights compared to the same time last year.
Ray: Although this was offset by a two 1% decline in ADR.
Ray: Group demand is leading the quarter's pace advantage.
Ray: With group room nights up by 12, 4%.
Ray: ADR ahead by two 8%.
Ray: And group revenues pacing, a strong 15, 6% over same time last year.
Ray: Transient revenue pace is up by just one 1%.
Jon E. Bortz: Transient revenue pace is up by just 1.1%, with room nights increasing by 5.9% but ADR lower by 4.6%, in formulating our Q3 REF PAR Outlook. We expect that in the quarter for the quarter, the pickup will be lower than last year, given the ongoing normalization of the booking window to pre-pandemic timing. We're particularly encouraged about our Pace for 2025. Group room nights are ahead by 4.6% compared with the same time last year, with ADR 3.5% higher and group revenues increasing by 8.3%.
Ray: With room nights, increasing by five 9%.
Ray: But ADR lower by four 6%.
Ray: In formulating our Q3 Revpar outlook.
Ray: We expect that in the quarter for the quarter pickup.
Ray: Will be lower than last year, given the ongoing normalization of the booking window to pre pandemic timing.
Ray: We're particularly encouraged about our pace for 2025.
Ray: Group room nights are ahead by four 6% compared with the same time last year with ADR up three 5% higher and group revenues increasing by eight 3%.
Ray: Q1 is currently showing by far the strongest quarterly pace advantage.
Jon E. Bortz: Q1 is currently showing by far the strongest quarterly pace advantage. Our recently redeveloped properties should help drive growth in 2025 as they continue to gain market share and ramp up. Additionally, our urban market should also continue to recover, and we expect Portland, San Francisco, and Los Angeles, three underperforming urban markets in 2024, to provide a positive tailwind in 2025. Our healthy group pace advantage for 2025 is partly due to favorable convention calendars again next year in most of our markets, as well as strong in-house group business at many of our larger group properties, such as Weston-Copley, Paradise Point Resort, and Margaritaville Hollywood Beach Resort. Our many redeveloped properties should also provide a strong boost to our performance next year.
Ray: Our recently Redeveloped properties should help drive growth in 2025, as they continue to gain market share and ramp up.
Ray: Additionally, our urban markets should also continue to recover and.
Ray: And we expect Portland, San Francisco and Los Angeles are three underperforming urban markets in 2024 to provide a positive tailwind in 2025.
Ray: Our healthy group pace advantage for 2025 is partly due to favorable convention calendars again next year in most of our markets as well as strong in house group business and many of our larger group properties, such as Westin Copley Paradise point resort.
Ray: And Margaret redevelop Hollywood Beach resort.
Ray: Our many redeveloped property should also provide a strong boost to our performance next year.
Ray: Coupled with a favorable economic environment and little new supply for many years and our urban and resort markets. We're very optimistic that a soft landing engineered by the fed if successful will lead to a very positive year for our industry and our company next year.
Jon E. Bortz: Coupled with a favorable economic environment and little new supply for many years in our urban and resort markets, we're very optimistic that a soft landing engineered by the Fed, if successful, will lead to a very positive year for our industry and our company next year. It certainly feels like we're on the brink of commencing a very positive upcycle for our industry and for Pebblebrook. And people continue to want to spend on experiences and have fun.
Ray: Certainly feels like we're on the brink of commencing a very positive up cycle for our industry and for Pavel broke.
Ray: And people continue to want to spend on experiences and having fun. So Pavel broke is well positioned.
Jon E. Bortz: So Pebblebrook is well positioned to continue to take advantage of that favorable secular trend. And that completes our prepared remarks. Operator, you may proceed with the Q&A. Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.
Ray: To continue to take advantage of that favorable secular trend.
Speaker Change: So that completes our prepared remarks, operator, you may proceed with the Q&A.
Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
Operator: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. We do ask that you please limit yourself to one question to allow as many analysts as possible the opportunity today. Again, that is Star 1 to register. Today's first question is from Dori Kesten of Wells Fargo.
Speaker Change: Formation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like to remove your question from the queue from participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: We do ask that you. Please limit yourself to one question to allow as many analysts as possible the opportunity for today, but again that is star one to register a question.
Speaker Change: Today's first question is coming from Dori Kesten of Wells Fargo. Please go ahead.
Operator: Please go ahead. Thanks. In your reduction for 2024 REF car growth, can you can you dig into if certain markets drove an outsized amount of that reduction or if it was more of a high-level cut for greater price sensitivity of the leisure guests and potential flowing in just general? Yeah, I mean, I think it's the reductions of demand. It's really not demand, but it's really the resulting reductions in ADR as we sort of regrow our distribution channels back to where we were pre-pandemic.
Dori Lynn Kesten: Thanks, Good morning.
Dori Lynn Kesten: In your reduction for 2020 for Revpar growth can you can you dig into a certain markets drove an outsized amount of that reduction or if it was more of a high level.
Speaker Change: For greater price sensitivity on the leisure guests and potential slowing in just general demand.
Speaker Change: Yes, I mean I think.
Speaker Change: It's.
Speaker Change: The reductions of demand.
Speaker Change: It's really not demand, but it's really the resulting reductions in ADR as we sort of re grow our distribution channels back to where we were pre pandemic.
Operator: But the biggest impacts are falling on weekends, and they're falling in some of the underperforming markets like Portland and San Francisco and L.A., and to a lesser extent in the resort market. Okay. Thank you. Thank you. The next question is coming from Floris Van Dijkum of Compass Point. Please go ahead.
Dori Lynn Kesten: But the biggest impacts.
Dori Lynn Kesten: Are falling on weekends and they're falling in.
Dori Lynn Kesten: Some of the.
Dori Lynn Kesten: Underperforming markets, like Portland, and San Francisco and L. A.
Dori Lynn Kesten: And to a lesser extent in the resort markets.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. The next question is coming from Floris Van <unk> of Compass point. Please go ahead.
Speaker Change: Hi, Thanks for taking my question guys.
Floris Gerbrand Hendrik Van Dijkum: Thanks for taking my question, guys. I had a, uh..., question on but I know everybody tends to focus on RevPAR, but... You've provided a presentation that talks about some of the upside in EBITDA. I think you talk about $108 million of hotel EBITDA upside, and a big chunk of that is your urban. Maybe, Jon, if you could give us a little bit of, you know, in your opinion? I know that, you know, there's a three to four year time horizon with that. But what are the elements that need to happen, in your view, to get the urban EBITDA to increase significantly? And is it return to office?
Speaker Change: I had a.
Speaker Change: I guess a question on <unk>.
Speaker Change: EBITDA I know everybody tends to focus on on Revpar.
Speaker Change: But <unk>.
Speaker Change: <unk> provided.
Speaker Change: The presentation that talks about some of the upside in EBITDA I think you talk about $108 million of hotel EBITDA upside big.
Speaker Change: A big chunk of that is your urban maybe John if you could give us a little bit of.
Speaker Change: In Europe opinion, I know that.
Speaker Change: Three to four year time horizon with that but.
Speaker Change: What what what are the elements that need to happen.
Speaker Change: In your view to get.
Jon E. Bortz: Is it greater travel demand? Is it, you know, what are the key things that you're looking at that's going to give you that comfort to get to that, you know, that big delta, particularly in your urban EBITDA contribution? Sure. So, a meaningful part of that upside in EBITDA comes from the returns on the investments we made in the portfolio in terms of redevelopments, upscaling properties to the luxury level from the upper upscale, adding outlets and other revenue-generating components, amenities, etc., and we're pretty confident in the ability to drive those cash-on-cash returns based upon our experience. Not only over our time at Pebblebrook but the 12 years at LaSalle where we implemented a similar strategy.
John John: The urban EBITDA to.
Speaker Change: To increase significantly and is it return to office is it what are the is it greater travel demands is it.
Speaker Change: What are the what are the key things that you're looking at that's going to give you that comfort to get to that.
Speaker Change: The Big Delta.
Speaker Change: Your urban.
Dori Lynn Kesten: And your EBITDA contribution.
Speaker Change: Sure so.
Speaker Change: Part a meaningful part of that.
Speaker Change: Upside in EBITDA comes from the the returns on the investments we made.
Speaker Change: In the portfolio.
Speaker Change: In terms of Redevelopments upscaling properties too.
Speaker Change: To the luxury level from upper upscale adding outlets and other revenue generating.
Speaker Change: Components amenities et cetera, and we're pretty confident in the ability to drive those cash on cash returns.
Speaker Change: Based upon our experience.
Speaker Change: Not only over our time at pebble broke but.
Speaker Change: The 12 years at Lasalle, where we did the similar.
Speaker Change: A similar strategy.
Jon E. Bortz: As it relates to the cities, I think, I think it's clear that there are cities that created issues or had issues created during the pandemic and other cities that didn't. You can take a look at positive performing cities like Boston, for example, which has a lot of similar underlying economic strength as San Francisco. It's got a strong education system.
Speaker Change: As it relates to the cities.
Speaker Change: I think.
Speaker Change: I think it's clear that there are cities that created issues or had issues created during the pandemic and other cities that didn't you can look at.
Speaker Change: Take a look at the positive performing cities like Boston as an example, which has a lot of similar underlying economic.
Speaker Change: Strength as San Francisco, It's got a strong education system, It's got a strong venture capital and.
Jon E. Bortz: It's got a strong venture capital and sort of creation culture and a willingness to fail. It's got strong technology and biomedical in the markets, but it didn't suffer a sort of quality of life degradation that occurred in a market like San Francisco. And so a lot of that was policy-driven; some of that is, I suppose, weather. Weather's a little more difficult in Boston year-round than it is in San Francisco
Speaker Change: Sort of creation culture, and a willingness to fail.
Scott: It's Scott.
Speaker Change: <unk> technology and biomedical.
Speaker Change: In the markets.
Speaker Change: But it didn't suffer sort of quality of life.
Speaker Change: Degradation that occurred in a market like San Francisco and so.
Speaker Change: A lot of that was policy.
Speaker Change: Driven some of that is.
Speaker Change: I suppose a weather weather is a little more difficult in Boston year round, then it is in San Francisco.
Speaker Change: Cisco.
Speaker Change: <unk>.
Speaker Change: Some of it has to do with governmental policies and as those reverse and as these as these markets as the cities.
Jon E. Bortz: Some of it has to do with governmental policies. And as those reverse and as these markets, as these cities recover in terms of... And not only the actual quality of life in the city but the perception of it, which often takes longer than the reality, we're confident that these great cities like San Francisco and Los Angeles are going to recover as strong markets like other cities that haven't been as impacted. All of these cities suffer from the same approach to hybrid work as an example, but it tends to get... It's a little bit of a vicious circle, right?
Speaker Change: Recover in terms of.
Speaker Change: And not only the actual quality of life in the city, but the perception of it which often takes longer than the actual we're confident that these great cities like San Francisco.
Speaker Change: And Los Angeles are going to recover.
Speaker Change: As strong markets like other cities that haven't been as impacted all of these cities suffer from the same.
Speaker Change: <unk> two two hybrid work as an example, but it tends to get.
Speaker Change: <unk>.
Speaker Change: It's a little bit of a vicious circle right people don't want to come into the office because they don't like the environment around the office, but part of the reason the environment around the office as bad as because people aren't coming into the office and going out and using the amenities so were.
Jon E. Bortz: People don't want to come into the office because they don't like the environment around the office. But part of the reason the environment around the office is bad is because people aren't coming into the office and going out and using the amenities. So we're. As we read the headlines about companies, we continue to see this trend of going back to the office, more and more companies, including technology companies, demanding and requiring that their people come back at least three days a week, if not four or five.
Speaker Change: As we read the headlines about companies we continue to see this trend of.
Speaker Change: Back to the office more and more companies, including technology companies demanding and requiring that there are people come back at least three days a week, if not four or five and I think that trend continues and is going to is going to continue until we get to.
Jon E. Bortz: And I think that trend continues and is going to continue until we get to, you know, a more stable level about what the sort of new work life is. But there are other components to the demand recovery in these cities that have been negatively impacted by some of these issues and other issues. So, some of it is impacted by international inbound and the fact that that is slower to recover. Markets on the West Coast are being impacted more by the slow to recover Chinese inbound travel.
Speaker Change: A.
Speaker Change: A more stable level about what the sort of new work life is but there's other components to the demand recovery in the cities.
Speaker Change: That have been negatively impacted.
Speaker Change: By some of these issues and other issues so.
Speaker Change: Some of it is impacted by international inbound and the fact that that is slower to recover.
Speaker Change: Markets on the West coast are being impacted more by the slow to recover Chinese inbound travel.
Jon E. Bortz: That is really other issues, probably mainly political. You look at leisure travel, which still has a ways to go in recovering in these urban markets, whereas in a market like Boston, leisure travel is already recovered because it didn't have the same issues. You know, we look around at the good and the bad, and we see trends that, assuming these cities improve themselves and fix their issues, that they're going to recover. And we don't see them. There were these, you know, prognostications of doom loops and things like that.
Speaker Change: That is really other issues.
Speaker Change: Probably mainly political.
Speaker Change: And and.
Speaker Change: You look at leisure travel.
Speaker Change: Which still has a ways to go in recovering.
Speaker Change: In these urban markets, whereas a market like Boston leisure travel has already recovered.
Speaker Change: Because it didn't have the same issue so.
Speaker Change: We look around of good and bad and and we see trends that assuming these cities.
Speaker Change: Improve themselves and fix their issues.
Speaker Change: That theyre going to recover and we don't see them there were these.
Speaker Change: Prognostications of Doom Lopes and things like that.
Speaker Change: We don't think any of these cities on the West coast are going to suffer from a doom loop as some described but they are slower to recover and.
Jon E. Bortz: We don't think any of these cities on the West Coast are going to suffer from a doom loop as some have described, but they are slower to recover. And I think we've tried to take that into account, but it's hard to forecast. So we're confident the cities will come back. You can look through history, and cities have gone through difficult times. And we had riots in the 60s and 70s, and people said the cities were doomed, and they recovered.
Speaker Change: And I think we've tried to take that into account, but it's hard to forecast. So we're confident the cities will come back you can look through history and cities have gone through difficult times, and we had riots in the sixties and seventies and people said the cities, we're doomed and they recovered in.
Jon E. Bortz: And there's a reason for that; they offer an incredible level of amenities in one place, whether it's culture, whether it's sporting events, whether it's music, whether it's food, whether it's architecture, whether it's shopping, whatever it might be. We think those amenities will all continue to recover, and people will continue to go back to the cities. Thanks, John. Thank you. The next question is coming from Aryeh Klein of BMO Capital Markets. Please go ahead. Thank you, and good morning.
Speaker Change: There is a reason for it is they offer.
Speaker Change: An incredible level of amenities in one place whether its cultural whether it's <unk>.
Speaker Change: Sporting events, whether it's music, whether it's food.
Speaker Change: Whether it's architecture.
Speaker Change: Whether it's shopping or whatever it might be we think those amenities will all continue to recover.
Speaker Change: And people will continue to go back to the cities.
Sean: Thanks, Sean.
Speaker Change: Thank you. The next question is coming from Ari Klein of BMO capital markets. Please go ahead.
Aryeh Klein: Thank you Anne and good morning.
Aryeh Klein: Maybe going back to the consumer, when did you begin to see hiring? become more price conscious, and what is your level of concern about that business? Hold that. And then, in addition, out of room spend has been strong, but is that something that Yeah, so, we talked about this a little bit on the call three months ago, and we said, you know, we've seen it. It's very evident in the lower, and we're concerned that it's not unusual for this to ultimately bleed into the upper upscale and luxury segments. And that's what we saw to some extent in the third quarter And so that's when it started, Aryeh.
Aryeh Klein: Maybe going back to the consumer when did you begin to see high hiring consumers become more price conscious and what is your level of concern that that businesses begin to pull back and then.
Speaker Change: In addition out of room spend has been strong but is that something that could again, often with a more cost conscious customer.
Speaker Change: Yes so.
Speaker Change: We talked about this a little bit on the call.
Speaker Change: Three months ago, and we said we've seen it it's very it's very evident in the lower and we're concerned that it's not unusual for this to bleed.
Speaker Change: Ultimately bleed into the upper upscale and luxury segments.
Ari: And that's what we've seen to some extent in the third quarter in and so that's when it started ari.
Jon E. Bortz: Where it goes from here, I mean, you know, I listened to Robert Isom from American Airlines on TV this morning. They're seeing, he made comments about the same thing about a more price-conscious domestic customer. And it seems fairly prevalent in other industries as well. So, you know, sometimes we look at these things and we say, okay, it's not happening here yet, but it's happening elsewhere. We should expect it to happen again here.
Ari: Where it goes from here I mean.
Speaker Change: I listened to.
Speaker Change: Robert Isom from American Airlines on TV. This morning, they're seeing he made comments about the same thing about.
Speaker Change: Our more price conscious domestic customer and.
Ari: It seems fairly prevalent in other industries as well so.
Ari: Sometimes we look at these things and we say, okay, it's not happening here, yet, but it is happening elsewhere, we should expect it to happen here and.
Jon E. Bortz: And that's what we're seeing. And to your question about out of room spend, I think, as it relates to the leisure customer, it wouldn't surprise us at all if we saw some softness. You know, the one area we've heard from our properties is that liquor sales are down compared to last year at a number of our properties. And our intuition tells us that that's related to exactly the question that you're asking, which is, I mean, for most people, liquor is discretionary.
Ari: That's what we're seeing and to your question about out of room spend.
Ari: As it relates to the leisure customer Wouldnt surprise us at all if if we see some softness.
Speaker Change: The one area we've heard from our properties is that liquor sales are down.
Ari: Compared to last year.
Ari: At a number of our properties and our.
Ari: Our intuition tells us that that's related to exactly the question that you're asking which is.
Ari: I mean for most people liquor is discretionary.
Jon E. Bortz: And they can trade down as well from, you know, high-end liquors to lower-end liquors or mid-scale liquors, and they can do the same with beer and wine. So that's likely what we're seeing. It's just not material for us to be spending a lot of time focused on.
Speaker Change: And and.
Ari: And they can trade down as well from <unk>.
Ari: High end <unk> to lower end liquors are midscale liquors and they can do the same with beer and wine so.
Ari: So that's a likely what we're seeing it's just it's just not material.
Ari: For us to be spending a lot of time focused on it.
Speaker Change: Got it and then just on the business side of things is there a level of concern that you began to see some weakening in that segment.
Jon E. Bortz: Got it. And then just on the business side of things, is there a level of concern that's beginning to spread in that segment? Well, there's always concern about that when you're seeing a slowing in the economy. It, you know, businesses, it's not unusual for businesses to respond and begin to limit travel. We have, again, not seen that yet.
Speaker Change: Well, there's always concern about that when youre seeing a slowing in the economy.
Speaker Change: It businesses, it's not unusual for businesses to respond in and begin to limit travel. We again, we've not seen that yet we look very closely at that we monitor that we talk to our property teams and our sales teams about what feedback they're getting for.
Jon E. Bortz: We look very closely at that. We monitor it. We talk to our property teams and our sales teams about what feedback they're getting from their corporate accounts. We're looking at the volume of our corporate accounts, which continues to increase at this point as it recovers from the pandemic. We're not seeing any increase at all in attrition and cancellation across the portfolio.
Ari: Their corporate accounts, we're looking at the volume of our corporate accounts, which continues to increase.
Ari: At this point.
Ari: As it recovers from the pandemic.
Ari: We're not seeing any increase at all in attrition and cancellation.
Ari: Across the portfolio and so at this point in time, we don't we haven't seen anything on the corporate side or the business side either in group are in transit, which actually are going in the opposite direction.
Jon E. Bortz: And so at this point in time, we don't, we haven't seen anything on the corporate side or the business side, either in group or in transit, which is actually going in the opposite direction. They're continuing to improve, but it wouldn't surprise us if they slowed down.
Ari: So far they're continuing to improve.
Ari: But it wouldn't surprise us if it slowed down.
Speaker Change: Got it thank you.
Duane <unk>: Thank you. The next question is coming from Duane <unk> of Evercore ISI. Please go ahead.
Duane Thomas Pfennigwerth: Thank you. Thank you. The next question is coming from Duane Pfennigwerth of Evercore ISI. Please go ahead.
Speaker Change: Okay.
Jon E. Bortz: Hey, thanks, appreciate the time. Just from super high level from a repositioning and renovation perspective, what would you view as Pebblebrook's key growth drivers into next year? Well, I mean, the key drivers are clearly the redevelopments that we've done, whether it's, Newport Harbor Island Resort, it's Estancia, it's Jekyll Island Club Resort, it's the Margaritaville in San Diego downtown, it's the Hilton Gaslamp, they're all ramping well, they're picking up new demand, they're gaining share, they're improving their pricing, they're burning through lower group rates were on the books as they put higher rated group on the books with the higher quality product.
Duane: Hey, Thanks, I appreciate the time.
Duane <unk>: Just for <unk> level from a repositioning and renovation perspective, what would you view as.
Duane <unk>: Hello books key growth drivers into next year.
Duane: Well.
Speaker Change: The key drivers are clearly the redevelopments that we've done whether it's.
Speaker Change: Newport Harbor Island resort, it's Stan.
Speaker Change: It's Jekyll Island club resort.
Speaker Change: It's the Margaritaville in San Diego downtown.
Speaker Change: It's the Hilton Gaslamp, they're all ramping well.
Speaker Change: They are picking up new demand they are gaining share.
Speaker Change: They're improving their pricing.
Speaker Change: They're burning through lower group rates were on the books as they put higher rated group on the books with the higher quality product.
Jon E. Bortz: And that would apply to many of our more recently renovated properties like Chaminade, like One Hotel San Francisco, even the Westin and Embassy Suites in downtown San Diego that were completely renovated and repositioned back in 2019 and 2020. So I think that's the most reliable driver.
Speaker Change: And that would apply to many of our more recently renovated properties like <unk> like one hotel San Francisco.
Speaker Change: Even the Westin and embassy suites in downtown San Diego.
Speaker Change: That were completely.
Speaker Change: Renovated.
Speaker Change: And reposition back in 2019.
Speaker Change: Into 2020, so I think thats the most reliable driver.
Speaker Change: We will gain share regardless of the economic environment.
Jon E. Bortz: We'll gain share regardless of the economic environment. We can gain more share, and we can grow to more stabilized returns if it's good times and demand is growing, and it'll take longer if demand growth is slower or if we have an economic downturn. So that's the main driver.
Speaker Change: We can gain more share and and we can go.
Speaker Change: Grow to more stabilized returns if if it's good times and demand is growing and it will take longer.
Speaker Change: If if demand growth is slower or if we have an economic downturn. So that's the main driver. We continue to have a big opportunity as I mentioned in the three underperforming markets. This year, San Francisco, Portland and L. A.
Jon E. Bortz: We continue to have a big opportunity, as I mentioned, in the three underperforming markets this year, San Francisco, Portland, and LA, as production comes back to LA, which, we continue to hear encouraging things about as the last strike that was the last contract for the production workers was resolved in LA. And then Portland, we think, has hit bottom, but most of the decline we've seen this year has been rate because of very competitive pricing on the part of properties below And Duane, also just to add to that, which we don't normally think about redevelopment in this bucket, but La Playa in Naples, that's coming on strong.
Speaker Change: As production comes back in L, a which we.
Speaker Change: We continue to hear encouraging things about it as the last strike that was the last contract for the production workers was resolved in L. A and then Portland, we think has hit bottom but.
Speaker Change: Most of the decline we've seen this year has been right.
Speaker Change: Because of very competitive pricing on the part of properties below our luxury collection nines in that market because demand is not growing.
Speaker Change: And Duane also just adding to that which we don't normally think about redevelopment bucket, but the pie in April is that that's coming on strong that should be it serve as a tailwind in 'twenty five from a hotel EBIT perspective, as we noted we were ramping up the forecast this year and next year, we'll have a full season there.
Jon E. Bortz: That should serve as a tailwind in 2025 from a hotel EBITDA perspective. As we noted, we're ramping up the forecast this year, and next year should have a full season there, so that should be another hotel tailwind.
Speaker Change: So that should be another hotel a tailwind now the impact may be a headwind because presumably we're not going to have as much beyond 25, but it's only from the hotel operational side.
Jon E. Bortz: Now, the BI, in fact, may be a headwind because presumably we're not going to have as much BI in 2025, but certainly from a hotel operational side, La Playa should be another headwind in addition to our redevelopment properties. Thanks, and if I could ask a follow-up question, just on the channel commentary, and maybe we're making too much of it, but I thought your comments about, like, new travel consortia were kind of interesting. What are these new channels that you're utilizing, and how do the economics compare to a traditional OTA?
Speaker Change: <unk> should be another headwind in addition to our redevelopment properties.
Speaker Change: Thanks, and if I could ask a follow up just on the channel commentary and maybe we're making too much of it but I thought your comments about like new travel consortia, where we're kind of interesting.
Speaker Change: What are these new channels that you're utilizing in and how do the economics compare to a traditional otas. Thanks, thanks for taking the questions.
Speaker Change: Sure. So so a couple of the channels as an example, our capital one has started.
Jon E. Bortz: Thanks for taking the question. Sure. A couple of the channels, as an example, are Capital One has started its own hotel and travel business, like American Express, and Costco has done the same. Obviously, Costco has a huge membership base.
Speaker Change: They're owned hotel and travel business like American Express.
Speaker Change: And Costco has done the same obviously Costco has a huge membership base.
Speaker Change: Capital one has a huge card base and they're taking advantage of their loyalty and we find it attractive because we find that the the cost and the pricing is more attractive than the otas. So so if anything these are a disintermediation.
Jon E. Bortz: Capital One has a huge card base, and they're taking advantage of their loyalty. And we find it attractive because we find that the cost and the pricing are more attractive than the OTAs. So, if anything, these are a disintermediation to the OTAs and, frankly, providing a nice relief of competition to what is a monopoly or an oligopoly by the two OTA companies. And then, Duane, also, when you look at the consumer for Amex and Capital One, the card users, they also skew to a high-level average income of those users, so they can spend Well, apparently, that's the case with Costco, too, because if you buy one package there, it's a lot bigger and more expensive than anywhere else.
Speaker Change: To the Otas and frankly, providing a nice relief of competition to what are what is that.
Speaker Change: Monopoly or an oligopoly by the two.
Speaker Change: By the two OTA companies.
Speaker Change: And then also when you look at the <unk>.
Speaker Change: The consumer for Amex and capital lending card card users. They also skew to a higher level average income of those users, but also they can spend a lot more in the property too. So it's a good contributor to come on.
Speaker Change: Evidently thats the case with Costco too so.
Speaker Change: If you buy one package there, it's a lot bigger and more expensive than anywhere else.
Speaker Change: Thanks, guys.
Speaker Change: Thank you. The next question is coming from Bill Crow of Raymond James. Please go ahead.
Bill Crow: Thank you. The next question is coming from Bill Crow of Raymond James. Please go ahead.
Bill Crow: Good morning, guys. I appreciate the time. Ray, if I could start with you,
Bill Crow: Good morning, guys.
Bill Crow: The time Ray if I could start with you.
Bill Crow: If you go back to your guidance three months ago and compare it to new guidance today, if you could just... attribute the change, the delta relative to three items, lower property taxes, hire BI, and the favorable variance on property insurance renewal rates versus what you had previously anticipated in guidance. You don't have to do them individually, but if you could group them into threes and tell us how much that impacted the change in the guy. Sure. Well, versus three months ago. So property taxes are easy.
Bill Crow: If you go back to your guidance three months ago and compared to the new guidance today, if you could just.
Ray: Attribute the chain niche delta relative to three items lower property taxes.
Speaker Change: Yeah.
Ray: The favorable variance in property insurance renewal rates versus what you had previously anticipated in guidance.
Speaker Change #103: You don't have to do it individually but.
Speaker Change #100: If you could bucket the three of them and tell us how much that impacted the change in the guidance.
Speaker Change #104: Sure well versus three months ago. So property taxes are easy we are expecting some they came in about $1 million higher so that was a little bit better for the the guidance switch and then the BPI ultimately is about $3 million higher as well.
Raymond D. Martz: We were expecting some, but they came in about a million dollars higher. So that was a little bit better for the guidance switch. And then the BI ultimately is about $3 million higher as well. So it's four million between the two items there. And then on the property insurance, you know, we'll get, you know, a few hundred thousand dollars a month in savings versus what we were expecting before. We weren't anticipating a, you know, a 5% overall increase. It was in the mid-teens, a little bit higher.
Ray: So it's 4 million between the two items there.
Speaker Change #101: And Ed on the property insurance.
Ray: <unk>.
Ed: A few hundred thousand dollars a month in savings versus what were expecting before.
Ed: We werent anticipating a 5% overall increase there was a kind of mid teens, a little bit higher.
Raymond D. Martz: So overall, a little bit better. So that accounts for some of it. And then the other half of the guidance change is the operation efficiencies that we've built in. And that was, you know, close to, you know, three and a half to four million dollars.
Ray: So overall little bit better so that accounts for some of it.
Ray: And then the other half of that guidance change is the operation.
Ray: The efficiencies that we've done we've built in that was.
Ray: Close to $3 million to $4 million. So the data counts were actually the bulk of it the property taxes are just actually a smaller part of the operating savings versus what we expected three months ago.
Raymond D. Martz: So that accounts for actually the bulk of it. The property taxes are just a smaller part of the operating savings versus what we expected three months ago. Yep, perfect. Jon, if I could ask you two quick industry-type big picture questions, I'd appreciate it.
Speaker Change: Yes perfect.
Ray: John if I could ask you.
John John: Two quick industry kind of big picture questions I'd appreciate it.
Bill Crow: Number one, on the leisure traveler pushback on rates, is that, you think, driven by the new total cost disclosures related to the kind of so-called junk fees, maybe kind of a shock value that's gonna take some time to work its way into the consumer psyche? And then the second question is really about supply, which remains new supply, which remains low, but at least two of the third-party data providers are starting to call for a significant, they're seeing a significant ramp in new starts, and I'm just wondering whether your outlook for kind of four or five years of very low supply has changed at all. Sure. So as it relates to the disclosure, the short answer is no.
Speaker Change: Number one.
Speaker Change: As your traveler pushback on rates is that you think driven by the new total cost disclosures related to the so called junk fees, maybe kind of a shock value that's going to take some time to work its way into the consumer psyche and then the second question is really about about supply which which.
Speaker Change: New supply which remains low.
Speaker Change: At least two of the third party data providers are starting to call for a significant.
Speaker Change: In a significant ramp in it.
Speaker Change: New starts.
Speaker Change: And I'm, just wondering whether your outlook for kind of four or five years are very low.
Speaker Change: Whether that's changed at all.
Speaker Change: Sure so as it relates to the disclosure.
Jon E. Bortz: We don't think it has anything to do with that. We think it's the overall economic environment, and we really haven't – we have places where we have that disclosure and places we don't. We haven't seen any difference in consumer behavior.
Speaker Change #105: The short answer is no. We don't think it has anything to do with that and we think it's the overall economic environment and we really haven't we haven't we have places where we have that disclosure in places. We don't we haven't seen any difference in consumer behavior and.
Jon E. Bortz: And again, it's not about – it really isn't about booking per se. It's not like they're looking at it and booking elsewhere. We're doing more promotions to drive that additional occupancy because occupancy at the margin is more price sensitive. So it's things we were doing before. We're just doing more of them now, and we're going through some more of those discount channels that we used prior to the pandemic, which we hadn't used until, you know, the back half of last year and into early this year.
Speaker Change #105: And again, it's not about.
Speaker Change: It really isn't about booking per say its not like theyre looking at it and booking elsewhere.
Speaker Change: We're doing we're doing more promotions to drive that additional occupancy because the occupancy at the margin is more price sensitive so.
Speaker Change: It's things we were doing before we're just doing more of them now and we're going through some more of those discount channels that we used.
Speaker Change: Prior to the pandemic.
Speaker Change: Which we hadn't used until.
Speaker Change: The back half of last year and into early this year.
Jon E. Bortz: I think as it relates to your supply question, first of all, I don't think that the groups are particularly good at forecasting supply growth. I think what supply growth we are seeing is generally smaller select service or extended stay, mid-scale, and down. We're not really seeing anything start in the major cities, and we don't think anything's going to start in the major cities for a number of years to come.
Speaker Change #106: I think as it relates to your supply question.
Speaker Change: First of all I don't think that the groups are particularly good at forecasting supply growth.
Speaker Change: I think.
Speaker Change: What supply growth we are seeing is generally.
Speaker Change: Smaller select service or extended stay mid scale and down.
Speaker Change: We're not really seeing anything start in the major cities and we don't think anything is going to start in the major cities for a number of years to come and given the three years to build 253 years to build at a minimum.
Jon E. Bortz: And given the three years to build, two-and-a-half, three years to build at a minimum, we still feel very comfortable with a four- to five-year period. Same thing for resorts, Bill. They're larger, they're very difficult to get built.
Speaker Change: We still feel very comfortable with our four to five year period.
Bill Crow: Same thing for resorts Bill.
Speaker Change: They are larger they are very difficult to get built the process has only gotten harder.
Jon E. Bortz: The process has only gotten harder and more challenging in the last five to 10 years, and we're not really seeing any starts in that area. Certainly not in any of the major markets like South, like Southern California, like the Keys, as an example. So we still feel good about a very, very limited supply growth over the next few years. And then Bill, we regularly update our investor presentation in our deck, which we updated last night. We take the data about these third parties and we go through and actually verify, is it real, or is it just a lot of this is frankly in the garbage.
Bill Crow: And more challenging in the last.
Bill Crow: Five to 10 years, and we're not really seeing starts in that area is certainly not in <unk>.
Bill Crow: Any of the major markets like South.
Bill Crow: Like Southern California like.
Bill Crow: Like the keys as an example, so.
Bill Crow: We still feel good about a very very limited supply growth over the next few years.
Bill Crow: And then bill we regularly update our investor presentation deck, which we updated last night.
Speaker Change #110: You can take the data about these third parties and we go through and actually verify is it real or is it just a lot of this is the frankly garbage in garbage out.
Raymond D. Martz: But if you look at the supply forecast, we have at least rates that are markets; it's hard to talk about the markets we're not in, but in our markets, the three-year supply growth that we're forecasting right now is at about 50 basis points a year and weighted average. Now that's about a third of where it has been pre-pandemic. So at least we can feel better about those numbers; other markets and whatever some third parties are reporting, we can't verify that, but we feel good about our internal data and the fundamentals going forward here. Thank you both.
Speaker Change #108: But if you look at the supply forecast, we have lease rates to our markets. It's hard to talk about the markets, we're not in but our markets. The three year supply growth that we're forecasting right now is at about 50 basis points a year.
Bill Crow: Weighted average now that's about a third of where it has been pre pandemic.
Bill Crow: We can feel better about those numbers other markets in whatever some third parties reporting can't verify that but we feel good about our internal data and the fundamentals going forward here.
Speaker Change #107: Great. Thank you both.
Bill Crow: Thanks, Bill. Thank you. The next question is coming from Jay Kornreich of Woodbush Securities. Please go ahead.
Bill Crow: Thanks Bill.
Speaker Change: Thank you. The next question is coming from Jay Kornreich of Wedbush Securities. Please go ahead.
Jay Bradley Kornreich: Hi, Thanks, good morning.
Jay Bradley Kornreich: Hi, thanks, good morning. I believe you mentioned that June REV PAR was up only 0.4%, and so I'm wondering what may have slipped in June that caused such a deceleration from May, and if you're seeing that negative trend continue into July, which may be supported by guidance REV PAR. Yeah, so Jay, I mean, keep in mind that we, you know, we have 46 properties in our portfolio, and we don't have hundreds or thousands that either the brands have or that you see in the industry data. Our markets tend to get impacted by specific events. [inaudible] around it.
Jay Bradley Kornreich: I believe you mentioned that June Revpar was up <unk>, 4% and so I'm wondering what may be slipped in June that caused such a deceleration from that and if youre seeing that negative trend continue into July which may be supported guidance Revpar decision.
Speaker Change: Yes, so Jay I mean keep in mind that we have 46 properties in our portfolio and.
Speaker Change #109: We're not we don't have hundreds or thousands.
Jay Bradley Kornreich: That either the.
Jay Bradley Kornreich: The brands have or that.
Jay Bradley Kornreich: That you see in the industry data so.
Raymond D. Martz: Our markets tend to get impacted by specific events.
Speaker Change #109: That go on in that market each month.
Jay Bradley Kornreich: As much or more so than the overall economic events that may be happening. So there was we talked about this on our call in April may.
Jay Bradley Kornreich: May had always set up as a very strong month, an unusually strong month compared to the months.
Jon E. Bortz: So, I wouldn't look at May as any trend there. I think it, particularly for our portfolio, but I think even the industry, it just had a better convention calendar overall around the country. Probably partly because Juneteenth, in the middle of June, which this year fell dead center on a Wednesday, really killed that week overall.
Jay Bradley Kornreich: Around that so I wouldn't look at may as.
Jay Bradley Kornreich: As any trend there I think.
Particularly for our portfolio, but I think even the industry. It just had a better convention calendar overall around the country.
Jay Bradley Kornreich: Probably partly because June teams in the middle of June, which this year fell dead center on a Wednesday really killed that week.
Jon E. Bortz: Overall and so.
Jon E. Bortz: So that was a big part of the difference, but I think in a way, May was maybe more of an anomaly than June. I think we'll continue to see, you know.., you know, between 1 and 2% growth for the industry on average over the rest of the year and as ADR growth kind of slides a little bit gradually, and we don't see a big pickup in demand in the second half of the year, though we do have good months like August and September versus a month like July that we think will be, you know, right now we're running to achieve about a zero to minus one percent REF bar in July, but August and September are significantly positive in low single digits.
Jay Bradley Kornreich: So that was a big part of the the difference, but I think in a way EMEA was maybe more of an anomaly than than than June I think we'll continue to see.
Jay Bradley Kornreich: Now.
Jay Bradley Kornreich: <unk>.
Between one and 2% growth for the industry on average over over the rest of the year and.
Jon E. Bortz: As ADR growth kind of slides a little bit gradually.
Jay Bradley Kornreich: And.
Jon E. Bortz: And we don't see a big we don't see a big pickup.
Jon E. Bortz: And demand in the second half of the year, though we do have good months.
Speaker Change: August and September versus a month like July that we think will be.
Speaker Change: Right now we're running to achieve about a zero to minus 1% Revpar in July but August and September.
Jon E. Bortz: Our significantly positive in low single digits that would bring us up to our our one in a quarter to three and a quarter outlook for <unk>.
Jon E. Bortz: That would bring us up to our one and a quarter to three and a quarter outlook for Q3. For us, months bounce around, and we'll talk separately from the data about the trends, and hopefully, you can glean what's going on from that versus this sort of instability, volatility, and variability of week-to-week and month-to-month data. All right, that's super helpful.
Jon E. Bortz: For Q3 so.
Jon E. Bortz: For us months, a bounce around and I wouldnt.
Jon E. Bortz: We'll talk separately from the data about the trends.
Jon E. Bortz: And hopefully you can glean.
Jon E. Bortz: What's going on from that versus.
Jon E. Bortz: The sort of instability.
Jon E. Bortz: And volatility and variability of weak.
Jon E. Bortz: Week to week and month to month data.
Jon E. Bortz: Alright, that's super helpful. Thank you and then just one more.
Jon E. Bortz: And then just one more, you know, a lot of the commentaries are largely based on the rate slowdown but occupancy holding up relative to your previous expectations. How do you think about that? Does that make you feel like... People still want to travel just at a lower cost, maybe having a lover to support REVPAR versus if it was occupancy which was flipping but ADR holding up, or just how do you think about that dynamic? Yeah, so, I mean, we like ADR more than we like occupancy, but we've got to have both. You can't get ADR growth without occupancy strength.
Jon E. Bortz: One of the commentaries you were just describing is largely based on the rates slowed down but occupancy holding up relative to your previous expectations.
Jon E. Bortz: Do you think about that because that make you feel like.
Jon E. Bortz: People still want to travel with just at a lower cost.
Speaker Change: You maybe have any levers to support revpar versus if it was occupancy which was slipping but are holding up or just how do you think about that dynamic.
Jon E. Bortz: Yes so.
Jon E. Bortz: I mean.
Jon E. Bortz: We like ADR more than we like occupancy, but we got to have both you can't get ADR growth without the occupancy strength. So.
Jon E. Bortz: Everything always starts with demand, and we're encouraged by demand turning positive in Q2. Hopefully, that holds up in the second half of the year, but again, we are concerned about the macro. As it relates to how we deal with that, part of the way we deal with sensitivity to pricing is to do what we did in the third quarter, which is drive more demand that will drive more total revenues in our properties through some use of other channels through additional discounting and promotions without lowering our base prices but having sales, you know, whether it's a flash sale or it's a weekly sale or whatever it might be.
Speaker Change: Everything always starts with with demand and.
Jon E. Bortz: We're encouraged by the demand turning positive in <unk>.
Jon E. Bortz: In Q2.
Jon E. Bortz: Hopefully that holds up in the second half of the year, but again, where we are concerned about the macro.
Jon E. Bortz: As it relates to how do we deal with that part of the way we deal with with sensitivity to pricing is has to do what we had in the third quarter, which is is drive more demand that will drive more total revenues and our properties.
Jon E. Bortz: Through some use of other channels through.
Jon E. Bortz: Additional discounting and promotions without lowering our base prices, but having sales.
Jon E. Bortz: Whether it's a flash sale or it's a weekly sale or whatever whatever it might be so.
Jon E. Bortz: So we're focused on that. The other thing we're doing as we get a better view of how trends around holidays play out and how these trends move is we are trying to press up rates where we do see this, compression around non-holiday impacted weeks, and try to take advantage of those more than perhaps what we and the industry have done historically. So that's the sort of other way to respond and take advantage of where demand is healthy and drive a little bit more rate growth in those pockets.
Jon E. Bortz: We're focused on that the other thing we're doing as we get a better view of how.
Jon E. Bortz: Trends around holidays play out and how these trends move as we are trying to press up rates, where we do see this compression around non holiday impacted weeks.
Jon E. Bortz: And try to take advantage of those more than perhaps what we and the industry have done historically so that's the that's the sort of other way to respond and take advantage of where demand is healthy.
Jon E. Bortz: And drive a little bit more rate growth in those pockets.
Jamie: Thanks, Jamie.
Jon E. Bortz: And Jay, just to add detail on your first question, in addition to the Juneteenth impact that Jon mentioned, don't forget we had storms in the beginning of June, so that had about a 50 basis point impact on REPAR in June. So if you look at the storms combined with Juneteenth, REPAR in June would have been well over 1%. So just, I want to draw a conclusion about May to June and then, therefore, July is always worse.
John: Just a detail on your first question. In addition to the June 13th impact that John mentioned I don't forget we had storms in beginning of June so that had about a 50 basis point impact on on Revpar in June. So if you look at the storms combined with Juneteenth Revpar in June would have been.
Jon E. Bortz: Well over 1%.
Speaker Change: So I wouldn't draw a conclusion of May to June and then therefore July is always worse I know theres a tendency to do that but just know as John mentioned, there's a lot of noise month to month and a lot of things that could benefit or detracted in any given month.
Jay Bradley Kornreich: I know there's a tendency to do that, but just know, as Jon mentioned, there's a lot of noise month to month, a lot of things that could benefit or detract from any given month. Okay, thank you very much. Thank you. The next question is coming from Smedes Rose of Citibank. Please go ahead.
Smedes Rose: Okay. Thank you very much.
Jay Bradley Kornreich: Thank you. The next question is coming from Smedes Rose of Citi Bank. Please go ahead.
Speaker Change: Hi, this is matti barges entre needs.
Smedes Rose: I just wanted to ask about the Meridian, Santa Monica conversion to Hyatt Marriott can you talk about the process at all.
Speaker Change: Either party willing to provide key money to facilitate the conversion or I guess, the marriott's case keeps the property in the system.
Smedes Rose: Yes, so I mean.
Smedes Rose: Yeah, so we went through a process, but, in this particular case, the reason we chose Hyatt is the lack of competition on the west side of L.A. I mean, it's Hyatt felt, I'm sure you can ask them, but they felt that this would be strongly beneficial to their family of brands to have a property, in fact, a good-sized property, in good condition in the Santa Monica market.
Speaker Change: We went through a process but.
Speaker Change: I think the advantage.
Smedes Rose: In this particular case the reason we chose Hyatt.
Smedes Rose: Is the lack of competition on the west side of L. A I mean, it's it.
Speaker Change: Even goes beyond just.
Smedes Rose: The fact that there are no Hyatt family brand properties of any kind in Santa Monica and Marina del Rey.
Speaker Change: Which is really the competitive market. There Theres also no beach properties, all the way down to <unk>.
Speaker Change: Gosh, it goes pretty far.
Smedes Rose: And going East Theres nothing until.
Smedes Rose: From a Hyatt perspective until you get to two century city. So.
Smedes Rose: It's a very attractive area.
Speaker Change: It's a very difficult market for brands to get into there is little to no new development.
Smedes Rose: Hyatt fell.
Smedes Rose: Felt I'm sure you can ask them, but.
Smedes Rose: They felt that this was this would be strongly beneficial to their their family of brands.
Smedes Rose: Have a property in fact, a good size property.
Smedes Rose: In good condition in the Santa Monica market.
Smedes Rose: And so we entered into an attractive franchise arrangement. We indicated there was key money. We were already doing a refresh. That's why our design plans were, frankly, all completed already, and we were ready to order furniture.
Smedes Rose: And so we entered into an.
Speaker Change: An attractive franchise arrangement.
Smedes Rose: We indicated there was key money.
Smedes Rose: We were already doing a refresh that's why our design plans were.
Smedes Rose: Frankly, all completed.
Smedes Rose: Already and we are ready to order furniture, we just wanted to make sure.
Jon E. Bortz: We just wanted to make sure that Hyatt was okay with it. And in addition to that, there were some things related to the Hyatt-centric brand that they wanted to add, mostly OS&E and some additional refresh in a couple of areas we weren't otherwise focused on. So, very attractive for both players.
Speaker Change: Hi, It was okay with it.
Jon E. Bortz: And.
Jon E. Bortz: And in addition to that there are some things related to the Hyatt centric brand that they wanted to add mostly OS and <unk> and some additional.
Jon E. Bortz: Refresh in.
Jon E. Bortz: A couple of areas, we werent otherwise focused on so.
Jon E. Bortz: Very attractive for both players we think the property will do exceedingly well because of.
Jon E. Bortz: We think the property will do exceedingly well because of Hyatt's strength and also, clearly, the lack of competition in the area. With revenue growth at the upper end of the ranges, mid to upper end, we probably will have positive EBITDA growth. And if we're in the middle to bottom of the range, we're probably going to have negative EBITDA growth. So we've had good success with reducing our expense run rate. We're continuing to focus on that. We do have some real estate tax comparison headwinds in the second half that show our expense growth percentage higher than it otherwise would be on a run rate basis.
Jon E. Bortz: Because of Hyatt strengths and also because <unk>.
Jon E. Bortz: Clearly the lack of competition.
Jon E. Bortz: In the area.
Speaker Change: Great. Thank you.
Mandy: Thanks Mandy.
Speaker Change: Thank you. The next question is coming from Shaun Kelley of Bank of America. Please go ahead.
Speaker Change: Hi, good morning, everybody. Thanks for putting me in here so.
Jon E. Bortz: John I wanted to go back to the EBITDA Bridge Slide seven I think from the slide deck.
Speaker Change: Apologies I joined a bit late if some of this is a bit of a rehash, but just if we just start with the starting point of same store portfolio around $3 50, and then we add.
Jon E. Bortz: This year's anticipated contribution from La Playa and crack this number that's maybe where we were off a little bit I think that's around expected to be around $24 million and.
Speaker Change: And then we look at the total guide for the year, which now the midpoint around 355.
Jon E. Bortz: Yes.
Speaker Change: All up pretty decent headwind on the core portfolio, probably around mid single digit and just kind of wanted to validate as the bridge correct or are there any other moving pieces in that just as we kind of think about the leverage point in the business again get it that Revpar is now only measure to be up one 5%, but as that.
Speaker Change: The right spread if revpar is in this one to two range as it is.
Speaker Change: Is it a mid single digit decline.
Speaker Change: The right core headwind or can we do better than that just based on some of the expense pressures you see in the business.
Speaker Change: Well first of all the other numbers for the pie that's correct for.
Jon E. Bortz: 24, and again, what we believe the stabilized EBITDA for applied is around $35 million, we're not necessarily going to get there and don't assume we're going to get there in 2005.
Jon E. Bortz: But our hotel team and our asset manager are hyper focused on that and we think we will have a good kind.
Jon E. Bortz: The ramp up there.
Speaker Change: And then just.
Speaker Change: Just to be clear the midpoint here.
Jon E. Bortz: Of our guide 375 midpoint.
Speaker Change: That excludes the playa because its non same same property so.
Jon E. Bortz: When we provide that kind of mid point range. That's really the same property data and also includes that doesn't include some quarters for Newport as well, so theres little one court.
Jon E. Bortz: Well, it's kind of noise there.
Jon E. Bortz: But we still.
Jon E. Bortz: We still are confident with the bridge that we're going to get there.
Speaker Change: To put it out we would have a modified if we thought it would come to a differently now maybe theres a little speed bump here with what's going on with the economy is the short term as it went into do we have a harder landing than expected because with the fed is doing or rather not doing will have to see how that goes but as we've seen this quarter here.
Speaker Change: But coming from the redevelopment that was very strong.
Speaker Change: Getting a lot of that back the urban recovery is coming faster in some markets than others.
Speaker Change: So it may take a bit longer as we said before in some of those markets, but that's only the ROI redevelopment and then.
Speaker Change: Clients seem to be moving.
Speaker Change: Probably at a quicker pace than some of the urban recovering some of the markets like Portland, and San Francisco, and La which we talked about earlier in the call you Miss but I think.
Sean: Hey, Sean.
Jon E. Bortz: When you think about the revenue growth in the second half.
Jon E. Bortz: With with revenue growth at the upper end of the ranges mid to upper end.
Jon E. Bortz: Probably have positive EBITDA growth and if we're in the middle to bottom of the range, where we're probably going to have negative EBITDA growth. So.
Jon E. Bortz: We've had good success with reducing our expense run rate, we're continuing to focus on that we do have some real estate tax comparison headwinds in the second half that show our expense growth percentage higher than the than it otherwise is.
Smedes Rose: So hopefully that helps give you a perspective on how the portfolio, the core portfolio outside of La Playa and Newport, is doing. Great Thanks, and Ray, thank you for the clarification. And then my follow-up here, but dovetailing on, Jon, with some of the comments and even your comment earlier about the liquor sales, which is interesting, is one theme for Pebblebrook for a long time, and I think certainly for much of the industry post-COVID has been probably the outperformance of, let's call it, TREVPAR, the total REVPAR, relative to just the RIMS piece.
Jon E. Bortz: On a run rate basis, so hopefully that helps give you a perspective on how the.
Smedes Rose: Portfolio, the core portfolio outside of La Playa Newport is doing.
Smedes Rose: Great. Thanks, and thank you for the clarification and then my follow up here.
Speaker Change: Dovetailing on John with some of the comments and even even your comment earlier about the liquor sales, which is an interesting one.
Smedes Rose: Theme for capital book for a long time, and I think certainly provide to the industry post COVID-19 has been the probably the outperformance of let's call. It trapped par right. The total revpar relative to just the Rams piece.
Smedes Rose: As you make a comment like what you're seeing, again, from a guest behavior standpoint, possibly some trade-down from, let's call it, suites to regular rooms, just that difference in activity, that elasticity from the customer, does that leave you in a spot where TREVPAR could actually be trailing REVPAR? Is that a risk at all? Are there other levers you could pull to offset that?
Smedes Rose: As you make a comment like what youre seeing again from a guest behavior standpoint, possibly some trade down from let's call it suites to regular rooms.
Speaker Change: Just that different.
Speaker Change: Activity at our elasticities from the customer.
Smedes Rose: Does that leave you in a spot where.
Speaker Change: <unk> par could actually be trailing revpar is that is that a risk at all are there. Other levers you can pull to offset that again you are probably the most creative team we talked to you in terms of kind of thinking about the guest experience holistically in different ways.
Michael Bellisario: Again, you're probably the most creative team we talked to in terms of thinking about the guest experience holistically and different ways, I think, to monetize that, but just how do you think we are in that, let's call it, that non-REVPAR piece of the revenue cycle right now? Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead, and we kind of dropped from using it. And then compared to 2019, you are using these channels more or less the same.
Michael Bellisario: I think to monetize that but just kind of how do you think we are in that let's call it that non revpar.
Michael Bellisario: Of the of the revenue cycle right now.
Michael Bellisario: Yes.
Speaker Change: Look is there is there risk it could be lower I mean.
Speaker Change: Theres always risk I think it is very very low I think for a bunch of reasons I think one is we've raised prices.
Speaker Change: We've added additional charges that drive other revenues.
Speaker Change: There is those are levers that we have pulled in the past they can continue to be pulled on an ongoing basis.
Michael Bellisario: We.
Speaker Change: We re merchandised a lot of our.
Speaker Change: Properties that we've Redeveloped, we've added outlets. We've we just came back from a stance here we have more larger.
Speaker Change: Luxurious cabanas we created.
Speaker Change: Cabana rooms that that surround the pool.
Speaker Change: They generate more revenue we have a lobby bar.
Speaker Change: Indoor and outdoor at Estancia. That's in addition to what we were already there and it's not taking business away from the other outlets.
Speaker Change: And it draws people from the community into the property. These are things we've done we've added.
Speaker Change: Event lines or increase the quality of them to make them more attractive for weddings and business events.
Speaker Change: We're adding rooms in different places.
Speaker Change: It takes skamania, where we've added.
Speaker Change: Two cabins to two bedroom cabins, a three bedroom avila and five luxury glamping units and they run on average two five times the average rate.
Michael Bellisario: <unk>.
Speaker Change: Property sold in the Lodge at Skamania. So there are a lot of things we're doing.
Speaker Change: But I think.
Speaker Change: We're pretty confident and I think our other revenue is growing significantly faster in the second half of the year.
Speaker Change: And then our range for.
Michael Bellisario: For Revpar.
Michael Bellisario: And also Sean you know a big part of that too is it's not just the rate the rates are declining or maybe the leisure consumer being.
Speaker Change: More sensitive but the segment shift also has a big component and we talked about during the call.
Speaker Change: Corporate group demand is up 10% to 12% year over year, that's about 13000 more room nights without corporate group that corporate group generates a lot of banquet and catering business, while they're there in some cases they'll generate almost as much in.
Speaker Change: Beverages, they do in in the room, so that's where it maybe that does offset some of that and thats, a lower rate, but <unk> is higher and if we're losing some of the more price sensitive customers that may be using the otas.
Speaker Change: When we look at overall, what was that customer producing on a profit basis that corporate group is very attractive. So it's also the segmentation shift which is having a change but overall that long term, we think it's helping its encouraging.
Speaker Change: Thank you so much.
Michael Bellisario: Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.
Michael Bellisario: Thanks. Good morning, Thanks for sneaking me in here at the end.
Michael Bellisario: Just want to go back to the channels. One more time can you maybe quantify how much lower are the net rates on these rooms that youre getting.
Michael Bellisario: Are these bookings still all occurring pretty short term and is there any way for you to tell or are these new customers, you're getting or are these existing customers booking through different channels. Thanks.
Michael Bellisario: Hey, Mike just for clarification, what do you mean by net rate.
Operator: Hey, Mike, just for clarification. What do you mean by that, right?
Mike: Just, let me be more broadly though, you talked about price sensitivity. Presumably, you're lowering rate or you're offering a fourth night free, and what is the, how much lower is the night rate that you're getting versus what you maybe thought you were getting or what you were getting last year on these particular bookings? Well, that's all over the place, depending upon what the promotional offering is. You know, we do all sorts of promotions throughout the year. You know, the biggest one we probably do during the year is Black Friday, right after Thanksgiving, where, you know, everybody across the country does sales, and you know, we may do anywhere from 20 to 30% off around the Black Friday sale.
Speaker Change: More broadly, though you talked about price sensitivity.
Speaker Change: Presumably youre lowering rate or you're offering a fourth night free.
Michael Bellisario: What is the how much lower the net rate that you're getting versus what you. Maybe thought you were getting or what you were getting last year on these particular bookings.
Speaker Change: Well, that's all over the place depending upon what the promotional offering is.
Speaker Change: We do all sorts of promotions throughout the year. The biggest one we probably do during the year as Black Friday.
Speaker Change: Right after Thanksgiving.
Speaker Change: Everybody across the country does sales.
Speaker Change: We may do anywhere from 20% to 30% off around our Black Friday sale.
Mike: You know, a typical promotions, probably, in that range, Mike, and obviously to the extent these promotions are generated through the direct channel, it's kind of on a net basis pretty close to or the same as what it would cost through an OTA channel to drive that additional business.
Michael Bellisario: Yeah.
Michael Bellisario: A typical promotions probably in that range Mike.
Michael Bellisario: And obviously to the extent these promotions are generated through the direct channel.
Speaker Change: It's kind of on a net basis pretty close to.
Speaker Change: Or the same as what it would cost through an OTA channel.
Speaker Change: To drive that additional business so.
Mike: So, obviously there's, on a net basis, it's lower than that's what's impacting our ADR, on an average basis, or part of what's doing it.
Speaker Change: Obviously, there is there is on a net basis, it's lower and that's what's impacting our ADR on it.
Speaker Change: On an average basis or part of what's doing it.
Speaker Change: Or are these new customers.
Mike: Are these new customers? For the most part, they are new customers. It doesn't mean existing customers who are on a mailing list who we send offers to don't take advantage of those offers; sometimes it's additional demand from them. I guess sometimes it's a booking we might have had already.
Speaker Change: For the most part they are new customers.
Speaker Change: It doesn't mean existing customers who are on our mailing list to who we send offers to don't take advantage of those offers sometimes it's additional demand from them I guess, sometimes it's it's.
Michael Bellisario: <unk>.
Speaker Change: Our booking we might've had already so we never we never quite know that.
Mike: So, we never, we never quite know that at the end of the day, and, you know, we may have the data on an anecdotal basis, but we don't have anything on an overall portfolio basis.
Speaker Change: At the end of the day and we May have the data on an anecdotal basis, but we don't have any say Ghana.
Speaker Change: On an overall portfolio basis, So I think again part a big part of what we're doing is is going through channels that we use pre pandemic that we kind of dropped from using.
Mike: So, I think, again, a big part of what we're doing is going through channels that we use pre-pandemic that we kind of drop from using because we didn't need it. We could service it for a number of years. And if other segments, more attractive segments, we're continuing to grow in a large, on a large basis, you know, we probably not participate in those segments, like we're doing now, but it makes sense, given, again, the high rates are properties achieved as well as the spend that we get from these customers when they're on property. So, it's a very profitable business.
Speaker Change: Because we didn't need it.
Speaker Change: We Couldnt service it for a number of years.
Michael Bellisario: And.
Speaker Change: If other segments more attractive segments, we're continuing to grow.
Speaker Change: And a large on a large basis, we'd probably not participate in those.
Speaker Change: In those segments like we're doing now, but it makes sense given.
Speaker Change: Again, the high rates our properties.
Speaker Change: <unk> as well as the spend that we get from these customers when they are on property.
Michael Bellisario: So.
Speaker Change: It's very profitable business.
Mike: I understand, and then compared to 2019, you are using these channels more or less at the same.
Michael Bellisario: Understood and then compared to 2019, you are using these channels more or less or the same.
Speaker Change: I'd say, we're probably still not at the same level, we were using them before with the exception of there has been an introduction of a couple of consortia channels that I mentioned capital one.
Mike: I'd say we're probably still not at the same level we were using them before. With the exception of, there has been an introduction of a couple of consortia channels that I mentioned. Capital One, a Chase, even has one now, although we're not using it. Costco, as well, that's new. So, but the consortia channels are very attractive and, frankly, then that is probably higher than what we'd be getting otherwise, through certainly better than anything we get through an OTA channel.
Michael Bellisario: I'd say we're probably still not at the same level we were using them before, with the exception of, there has been the introduction of a couple of consortia channels that I mentioned, Capital One, Chase even has one now, although we're not using it, Costco as well. That's new. But the consortia channels are very attractive, and the net is probably higher than what we'd be getting otherwise through, certainly better than anything we get through an OTA channel.
Michael Bellisario: Chase even has one now.
Michael Bellisario: Although we're not using at Costco.
Michael Bellisario: As well that.
Michael Bellisario: So, but the consortia channels are very attractive and.
Michael Bellisario: Frankly, the net is probably higher than what we'd be getting.
Michael Bellisario: Otherwise through certainly better than anything we get through an OTA channel.
Speaker Change: Helpful. Thank you very much.
Jon E. Bortz: Helpful. Thank you very much. Thank you. That is all the time we have today for questions and answers. I will turn it back over to Mr. Bortz for closing comments. Hey, thanks again for participating again. We look forward to giving you an update again in 90 days. Have a great summer!
Operator: Thank you. That is all the time we have today for questions and answers. I will turn it back over to Mr. Borge for closing comments.
Jon E. Bortz: Thank you that is all the time, we have today for questions and answers I will turn it back over to Mr. Bortz for closing comments.
Jon E. Bortz: Hey, Thanks for thanks for participating again, we look forward to.
Operator: Okay, thanks for participating again.
Operator: We look forward to giving you an update again in 90 days. Have a great summer.
Jon E. Bortz: Giving you an update again in 90 days.
Jon E. Bortz: Have a great summer.
Jon E. Bortz: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for your participation.
Operator: This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Jon E. Bortz: Okay.
Jon E. Bortz: If everybody has.
Jon E. Bortz: David.
Speaker Change: Then everybody be safe.
Jon E. Bortz: California.
Jon E. Bortz: Yes.
Jon E. Bortz: <unk>.
Jon E. Bortz: Sure.
Jon E. Bortz: Yes.
Jon E. Bortz: Okay.
Speaker Change: [music] Debuggee bonding.
Susan: Susan you answered everything.
Jon E. Bortz: Understood.
Jon E. Bortz: Okay.
Jon E. Bortz: Okay.
Speaker Change: You mentioned.
Jon E. Bortz: Okay.
Jon E. Bortz: Okay.
Jon E. Bortz: Okay.
Jon E. Bortz: Okay.
Jon E. Bortz: Thank you.
Jon E. Bortz: Thank you.
Jon E. Bortz: Okay.
Jon E. Bortz: Thank you.
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Jon E. Bortz: Okay.
Sure.
Speaker Change: Third in U S.
Jon E. Bortz: Sure.
Speaker Change: All the plants.
Jon E. Bortz: We're doing a degree.
Speaker Change: We're lacking.
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Speaker Change: Can't wait.
Yes.
Jon E. Bortz: Let me comment.
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Jon E. Bortz: [music].
Jon E. Bortz: Okay.
Operator: We are going to take real soon.
Okay.
Jon E. Bortz: Thank you.
Jon E. Bortz: Thank you.
Okay.
Davidson.
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Hi.
Speaker Change: Another venue.
Yes.
Jon E. Bortz: Okay.