Q1 2025 Pebblebrook Hotel Trust Earnings Call

So as a reminder.

Following their remarks.

Yes.

Greetings and welcome to the Pebble work Hotel trusts first quarter earnings Conference call.

Unnamed: Greetings and welcome to the Pebblebrook Hotel Trust First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

At this time all participants are in a listen only mode.

Unnamed: A brief question and answer session will follow the formal presentation.

A brief question and answer session will follow the formal presentation.

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Ray Martz: It is now my pleasure to introduce your host, Ray Martz, Co-President and Chief Financial Officer. Thank you, sir. You may begin. Thank you, Christine.

Speaker Change: It is now my pleasure to introduce your host Ray Martz co President and Chief Financial Officer. Thank you Sir you may begin.

Speaker Change: Thank you Christine and good morning, everyone welcome to our first quarter 2025 earnings call.

Ray Martz: And good morning, everyone.

Ray Martz: Welcome to our first quarter 2025 earnings call. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. But before we begin, I'd like to remind everyone that today's comments are effective only for today, May 2, 2025. Our comments may include forward-looking statements, which are subject to risk and uncertainties. Please refer to our SEC filings for a thorough discussion of these risk factors, and visit our website for detailed reconciliations of any non-GAAP financial measures discussed during the call.

Jon Bortz: And me today is Jon Bortz, our chairman and Chief Executive Officer, and Tom Fischer, Our co President and Chief Investment Officer.

Jon Bortz: But before we begin I'd like to remind everyone that today's comments are effective only for today may <unk> 2025. Our comments may include forward looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for a thorough discussion of these risk factors and visit our website for detailed reconciliations of any non-GAAP financial measures discussed during the call.

Ray Martz: Now, let's dive into our first quarter financial results. We're pleased to report that our first quarter 2025 performance exceeded expectations despite growing economic uncertainty and a more challenging operating environment. Strong occupancy gains and elevated ancillary revenue at our resorts, combined with continued ramp-up and market share gains at our recently redeveloped properties, highlighted our performance. Hotels in our previously slower to recover markets also helped drive performance in Q1. The outperformance was driven by a much better than expected success achieving hotel operating efficiencies and cost reduction. Thanks to the outstanding efforts of our hotel teams and our asset managers, we held expense growth well below our outlook and delivered significant improvements in portfolio-wide operating efficiency.

Jon Bortz: Now, let's dive into our first quarter financial results.

Jon Bortz: We're pleased to report that our first quarter 2025 performance exceeded expectations, despite growing economic uncertainty and a more challenging operating environment strong occupancy gains and elevated ancillary revenue at our resorts combined with continued ramp up and market share gains at our recently Redeveloped properties highlighted our performance.

Jon Bortz: Hotels in our previously slower to recover markets also helped drive performance in Q1.

Jon Bortz: The outperformance was driven by a much better than expected success, achieving hotel operating efficiencies and cost reductions.

Jon Bortz: Thanks to the outstanding efforts of our hotel teams and our asset managers, we held expense growth well below our outlook and delivered significant improvements and portfolio wide operating efficiencies.

Ray Martz: As a result, we exceeded the high end of our outlook for same property hotel EBITDA, adjusted EBITDA, and adjusted FFO, even with same property hotel REPAR at the low end of our outlook range and same property total revenues at the midpoint. Same property, Hotel EBITDA, totaled $62.3 million for the quarter, surpassing the midpoint of our ALEC by $4.3 million. Same property hotel EBITDA was negatively affected by an estimated $6.7 million EBITDA headwind from the Los Angeles wildfires and a renovation and brand conversion at Hyatt Center, Delfino, Santa Monica. The impact of the fires in Q1 was slightly less than we had forecasted.

Jon Bortz: As a result, we exceeded the high end of our outlook for same property hotel EBITDA adjusted EBITDA and adjusted <unk>, even with same property hotel Revpar at the low end of our outlook range and same property total revenues at the midpoint.

Jon Bortz: Same property hotel EBITDA totaled $62 3 million for the quarter, surpassing the midpoint of our outlook by $4 3 million.

Jon Bortz: Same property hotel EBITDA was negatively impacted by an estimated $6 $7 million EBITDA headwind from the Los Angeles wildfires, and our renovation and brand conversion at Hyatt centric Delfina Santa Monica.

Jon Bortz: The impact of the fires in Q1 was slightly less than we had forecasted our teams did a great job, reducing operating expenses in response to lower Occupancies and revenues from the buyers.

Ray Martz: Our LA teams did a great job reducing operating expenses in response to lower occupancies and revenues from the fires. Adjusted EBITDA came in at $56.6 million, $4.1 million above our ALEC midpoint. And adjusted FFO was $0.16 per share, $0.05 above our midpoint, reflecting strong operating execution across the portfolio. Turning to the performance of our hotels, same property total rep par rose 2.1% year over year, led by an impressive 8.2% increase at our resorts, where occupancy climbed 4.2 percentage points. Urban Total Repair declined 2.2%, hampered by the disruption caused by the L.A. fires and the Hyatt Center conversion and renovation.

Jon Bortz: Adjusted EBITDA came in at 56 points.

Jon Bortz: $6 6 million $4 1 million above our outlook midpoint and adjusted <unk> was <unk> 16 per share <unk> <unk> above our midpoint, reflecting strong operating execution across the portfolio.

Jon Bortz: Turning to the performance of our hotels same property total Revpar rose two 1% year over year led by an impressive eight 2% increase at our resorts, where occupancy climbed four two percentage points.

Jon Bortz: Urban total Revpar declined two 2% hampered by the disruption caused by the fires and the Hyatt centric conversion and renovation.

Ray Martz: To provide a more accurate reflection of the underlying strength of our portfolio in the first quarter, if we look at the portfolio excluding Los Angeles, same property total rent par increased 6%, same property rent par grew by 4.9%, and urban total rent par rose by 3.9%. In March, we began to experience an uptick in travel cancellations and softening demand from government and government-related segments, as well as from Canadian and other international inbound travel. Overall, March turned out softer than we expected just a month ago.

Jon Bortz: To provide a more accurate reflection of the underlying strength of our portfolio in the first quarter. If we look at the portfolio, excluding Los Angeles same property total Revpar increased 6% same property Revpar grew by four 9%.

Jon Bortz: And urban total Revpar rose by three 9%.

Jon Bortz: In March we began to experience an uptick in travel cancellations and softening demand from government and government related segments as well as from Canadian and other international inbound travel.

Jon Bortz: Overall March turned out softer than we expected just a month ago.

Jon Bortz: Looking at individual markets, Washington, DC delivered a healthy performance posting a 14, 7% revpar increase benefiting from the inauguration related activities in January.

Ray Martz: Looking at individual markets, Washington, D.C. delivered a healthy performance, posting a 14.7% REPR increase, benefiting from the inauguration-related activities in January. San Francisco also performed exceptionally well, with a rapid power-up of 13% thanks to strong business group and transient travel, with further recovery in leisure travel and an improved convention calendar. The nearly 10 percentage point jump in occupancy in San Francisco is especially encouraging considering the Q1 convention calendar was only slightly ahead of last year. With the convention calendar up nearly 70% for the full year, reports for a strong lift in demand throughout the year, especially in the fourth quarter.

Jon Bortz: San Francisco also performed exceptionally well with Revpar up 13%, thanks to strong business group and transient travel with further recovery in leisure travel and an improved convention calendar.

Jon Bortz: Nearly 10 percentage point jump in occupancy in San Francisco is especially encouraging considering the Q1 convention calendar was only slightly ahead of last year.

Jon Bortz: Where the convention calendar up nearly 70% for the full year reports for a strong lift in demand throughout the year, especially in the fourth quarter.

Jon Bortz: This positive momentum in San Francisco is also being supported by the new mayors aggressive focus on crime reduction increasing safety and cleanliness activating the city more effectively treating homelessness in mental health and implementing business friendly policies.

Ray Martz: This positive momentum in San Francisco is also being supported by the new mayor's aggressive focus on crime reduction, increasing safety and cleanliness, activating the city, more effectively treating homelessness and mental health, and implementing business-friendly policies. We're also extremely pleased with the new leadership at SF Travel, which has already been successful in driving stronger convention calendars for 2026 and 2027. Portland achieved solid results as well, with ratepower rising 7.5%, fueled by an 8-point gain in occupancy as the market continues to recover. Chicago delivered another strong showing in its recovery, with REPR growth of 7.1%, and Key West rose 4.7%, driven by both rate and occupancy gains, a positive sign amid broader concerns around consumer spending and softening international travel demand, particularly from Canadian travelers.

Jon Bortz: We're also extremely pleased with the new leadership at SF travel.

Jon Bortz: This has already been successful in driving stronger convention calendars for 2026 and 2027.

Jon Bortz: <unk> achieved solid results as well, where revpar rising seven 5% fueled by an eight point gain in occupancy as the market continues to recover.

Jon Bortz: Chicago delivered another strong showing in its recovery, where revpar growth of seven 1%.

Jon Bortz: In key West Rose four 7% driven by both rate and occupancy gains a positive sign amid broader concerns around consumer spending and softening international travel demand, particularly from Canadian travelers.

Jon Bortz: Looking at our monthly trends January Revpar, Australia started strong up four 2% benefiting from the inauguration in D. C February saw a modest growth at 1% while margin declined three 7% primarily due to the fires and a pullback in government related travel impacting markets around the country.

Ray Martz: Looking at our monthly trends, January RepR started showing up 4.2%, benefiting from the inauguration in D.C., February saw a modest growth at 1%, while March declined 3.7%, primarily due to the L.A. fires and a pullback in government-related travel impacting markets around the country. To give a clear view of the underlying trends across our portfolio, excluding Los Angeles, same property rep part climbed 9.9% in January, 7.5% in February, and declined 0.6% in March.

Jon Bortz: To give a clearer view of the underlying trends across our portfolio, excluding Los Angeles same property Revpar climbed nine 9% in January.

Jon Bortz: Seven 5% in February and declined 6% in March.

Ray Martz: While March was softer than we expected, we saw encouraging signs of demand stabilizing in April, which Jon will cover in more detail. Same property total revenues increased 1% for the quarter, driven by a robust 7.1% increase at our resort. Excluding LA, St. Property Total Revenues rose a strong 4.8%, powered by the positive impact of our extensive portfolio redevelopment program, which included comprehensive property renovations, upgraded amenities, and additional and revitalized event spaces and food and beverage outlets. The top contributors this quarter included our California resorts, La Playa and Naples, and our Key West resorts, all encouraging signs of continued resilience from both business groups and leisure travelers, which we are effectively monitoring for any emergent signs of changes in demand.

Jon Bortz: While March was softer than we expected we saw encouraging signs of demand stabilizing in April which John will cover in more detail.

Same property total revenues increased 1% for the quarter driven by robust seven 1% increase at our resorts.

Jon Bortz: Excluding L. A same property total revenues rose a strong four 8% powered by the positive impact of our extensive portfolio redevelopment program, which included comprehensive property renovations upgraded amenities and additional and revitalize event spaces and food and beverage outlets.

Jon Bortz: The top contributors this quarter included our California resorts apply enabled and our key west resorts all encouraging signs of continued resilience from both business group and leisure travelers, which we are actively monitoring for any emerging signs of changes in demand.

Jon Bortz: Urban toll revenues declined three 3%, but excluding the L. A urban revenue posted a solid two 8% increase.

Ray Martz: Urban total revenues declined 3.3%, but excluding LA, urban revenue posted a solid 2.8% increase. Out-of-room revenues also remained healthy, rising 4.6% overall, driven by a strong 4.8% gain in food and beverage. Excluding Los Angeles, same-property non-room revenues climbed an impressive 6.6%, with food and beverage up 6.5%, reflecting increased spending from both business and leisure travelers, along with continued growth in group-related demand. Speaking of group demand, it remained solid throughout the quarter. Group room nights rose 5.4% year-over-year, contributing 28.2% of room revenue, a 190 basis point increase over last year. This growth underscores the resilience of business group demand, the positive returns of our significant property investment programs, as well as our focus on growing group throughout the portfolio, especially at our resort.

Jon Bortz: Out of room revenues also remained healthy rising four 6% overall driven by a strong four 8% gain in food and beverage.

Jon Bortz: Excluding Los Angeles same property non room revenues climbed an impressive six 6% with food and beverage up six 5%, reflecting increased spending from both business and leisure travelers along with continued growth in group related demand.

Speaking of group demand remained solid throughout the quarter group room nights rose five 4% year over year contributing 28, 2% of room revenue, a 190 basis point increase over last year.

Jon Bortz: This growth underscores the resilience our business group demand.

Jon Bortz: Deposit returns of our significant property investment programs as well as our focus on growing group throughout the portfolio, especially at our resorts.

Ray Martz: Jon will share more details and group trends in his remarks. On the cost side, our relentless focus on creating operational efficiencies combined with our disciplined approach to controlling costs paid off again this quarter. Same property hotel expenses rose only 3.7% year-over-year, significantly below the low end of our expense growth outlook, despite revenue growth at the midpoint of our outlook, and despite the front-end loaded wage and benefit increases we saw and discussed in our last call.

Jon Bortz: John will share more details on group trends in his remarks.

Jon Bortz: On the cost side, our relentless focus on creating operational efficiencies combined with our disciplined approach to controlling costs paid off again this quarter.

Same property hotel expenses rose only three 7% year over year significantly below the low end of our expense growth outlook. Despite revenue growth at the midpoint of our outlook and despite the despite the front end loaded wage and benefit increases we saw and discussed in our last call.

Jon Bortz: Turning to apply enables the resorts delivered a standout quarter continuing its strong recovery following hurricane Hurricane Julien and Knowlton total Revpar surged, 22%, while total hotel EBIT declined nearly 30% year over year, surpassing 2019 levels by more than 26%.

Ray Martz: Turning to La Playa in Naples, the resort delivered a standout quarter, continuing its strong recovery following Hurricanes Helene and Milton. Total RFR surged 22%, while hotel EBIT declined nearly 30% year-over-year, surpassing 2019's levels by more than 26%. We recorded $4.3 million in business interruption income for the quarter, exceeding our alloc by $300,000. We now expect to receive an additional $4.2 million throughout the rest of the year, raising our total BEI forecast by $2.5 million to $8.5 million for 2025, as compared to the $6 million we were previously forecasting. As a reminder, BI income is not included in our same property reporting results, but it is included in adjusted EBITDA and FFO.

We recorded $4 3 million in business interruption income for the quarter exceeding our outlook by 300000.

Jon Bortz: We now expect to receive an additional $4 2 million throughout the rest of the year raising our B I told me I forecast by $2 5 million to.

Jon Bortz: To $8 5 million for 2025 as compared to the $6 million, we were previously forecasting.

Jon Bortz: As a reminder, <unk> income is not included in our same property reporting results, but it is included in adjusted EBITDA and <unk>.

Jon Bortz: Thanks for the comprehensive rebuilding efforts post hurricane in the applied demonstrated significant resilience following.

Ray Martz: Thanks to the comprehensive rebuilding efforts post-Hurricane Ian, PLY demonstrated significant resilience following Hurricanes Helene and Milton, with damage more limited, a faster restoration timeline, and a more rapid bounce-back in operations. Additional physical improvements planned for later this year will further enhance the resort's long-term durability and reduce the impact of future storms. La Plata remains truly beloved by both guests and the local community, and its outstanding recovery is a testament to the strength, dedication, and perseverance of our hotel operating team, for which we are deeply grateful and thankful.

Jon Bortz: Hurricane to lean in with.

Jon Bortz: With damage more limited and faster restoration timeline and a more rapid bounce back in operations.

Jon Bortz: Additional physical improvements planned for later this year will further enhance the resorts long term durability and reduce the impact of future storms.

Jon Bortz: The <unk> remains truly beloved by both guests and the local community and its outstanding recovery is a testament to the strength dedication and perseverance of our hotel operating teams for which we are deeply grateful and thankful.

Jon Bortz: During the quarter, we also invested $16 7 million in capital projects, including the substantial completion of the $50 million renovation.

Ray Martz: During the quarter, we also invested $16.7 million in capital projects, including the substantial completion of the $15 million renovation of high eccentric Delfino Santa Monica. Our full-year capital plan remains unchanged, with expected investments between $65 and $75 million. and our balance sheet remains strong with $218 million in cash and more than $640 million of available capacity on our unsecured revolver. For context, that's about $325 million more liquidity than we had at year-end 2019. In addition, nearly all of our debt is unsecured, with only two property-level loans, and we have no significant maturities until December 2026, giving us significant flexibility in an uncertain environment.

Jon Bortz: Of Hyatt centric Delfina Santa Monica.

Jon Bortz: Our full year capital plan remains unchanged with expected investments between 65 and $75 million.

Jon Bortz: And our balance sheet remains strong with $218 million in cash and more than $640 million of available capacity on our unsecured revolver.

Jon Bortz: For context, that's about $325 million more liquidity than we had at year end 2019.

Jon Bortz: In addition, nearly all of our debt is unsecured with only two property level loans and we have no significant maturities until December 2026, giving us significant flexibility in an uncertain environment. We also continue to generate and retain significant free cash flow.

Ray Martz: We also continue to generate and retain significant free cash flow.

Jon Bortz: And with that, I'd like to turn the call over to Jon for a deeper dive into our wholesale operations, industry trends, and our expectations for the rest of the year. Jon. Thanks, Ray. As Ray indicated, the underlying performance in our portfolio was strong in January and February, but it softened in March. In January and February, it seemed clear to us that overall industry demand had realigned with GDP and overall economic growth, a trend that began in October last year. In addition, business trains and travel continue to recover as more companies push employees back to the office.

Speaker Change: And with that I'd like to turn the call over to John for a deeper dive into our hotel operations industry trends and our expectations for the rest of the year just.

John: Thanks, Greg.

John: As Ray indicated the underlying performance in our portfolio was strong in January and February but it has softened in March.

John: In January and February it seems clear to us that overall industry demand had realigned with GDP and overall economic growth a.

John: A trend that began in October last year.

John: In addition business transient travel continues to recover as more companies pushed employees back to the office.

Jon Bortz: Leisure demand in our portfolio was healthy during the quarter, showing growth in weekend demand at our resorts and at our urban properties, and group remained resilient throughout our portfolio. The softening in demand we saw in March appeared to be highly correlated to the doge activities driving federal government layoffs, a spending freeze, and elimination of non-essential government travel, along with a negative reaction by Canadians. We experienced some government-group and government-related conference cancellations. with most of it occurring outside of D.C. We also saw a very significant slowdown in government transient bookings nationwide. We estimate that government and government-related group and transient travel make up about 3-5% of total demand in our portfolio and throughout the industry.

John: Leisure demand in our portfolio was healthy during the quarter showing growth in weekend demand at our resorts and at our urban properties and group remained resilient throughout our portfolio.

John: The softening in demand we saw in March.

John: <unk> to be highly correlated to the doge activities driving federal government layoffs.

John: Spending freeze and elimination of nonessential government travel along with a negative reaction by Canadians.

John: We experienced some government group and government related conference cancellations.

John: With most of it occurring outside of D C.

John: We also saw a very significant slowdown in government transient bookings nationwide.

John: We estimate that government and government related group and transient travel make up about 3% to 5% of total demand in our portfolio and throughout the industry.

Jon Bortz: So, while the overall impact is marginal... it still likely created a 1% to 2% drag on demand. It was this softening that pulled our Rev-PAR results down to the bottom of our Allop range. It was healthy out-of-room spending that kept us in the middle of the total REF PAR range. Non-room revenues accounted for over 38% of total revenues in Q1, an increase from just under 37% a year ago. Our efforts to grow non-room revenues and profits through our transformational redevelopments continue to bear fruit.

John: So while the overall impact is marginal.

John: Still likely created a 1% to 2% drag on demand.

It was this softening that pulled our revpar results down to the bottom of our outlook range.

John: It was healthy out of room spending that kept us in the middle of the total Revpar range.

John: Non room revenues accounted for over 38% of total revenues in Q1, an increase from just under 37% a year ago.

John: Our efforts to grow non room revenues and profits through our transformational redevelopments continue to bear fruit.

John: Los Angeles had an especially tough quarter as expected.

Jon Bortz: Los Angeles had an especially tough quarter, as expected. The fires and the aftermath significantly reduced demand from both leisure and business travelers, group and transient. Displaced homeowners and first responders provided only a very brief lift during the week of the fires and only a minor benefit thereafter. Rev Par for our nine West Los Angeles properties declined 23.4% in Q1, with occupancy down 18% and rate down 6.5%. While the Hyatt-centric renovation contributed modestly to the negative impact, the vast majority was directly related to the fire. All nine of our L.A. properties had negative REF PAR and they represented seven of our eight worst performing properties in the quarter.

John: Fires and the aftermath significantly reduced demand from both leisure and business travelers group and transient.

John: Displaced homeowners and first responders provided only a very brief lift during the week of the fires.

John: And only a minor benefit thereafter.

John: Revpar for our nine West Los Angeles properties declined 23, 4% in Q1 with.

John: With occupancy down, 18% and rate down six 5%.

John: While the Hyatt centric renovation contributed modestly to the negative impact the vast majority was directly related to the fires.

John: All nine of our La properties had negative revpar and they represented seven of our eight worst performing properties in the quarter.

Jon Bortz: EBITDA for our LA properties declined by $5.7 million or 72.6% compared to last year. A very challenging quarter and quite a drag on the entire portfolio. yet not quite as bad as we were forecast. Business and leisure travelers to L.A. have been gradually returning as we've moved further away from the fires and the initial misperceptions about widespread damage to L.A. and its amenities and visitor attractions. We're still forecasting a negative EBITDA impact in the second quarter, but the good news is we now expect it to be around $1.5 million, or about $1 million less severe than we forecasted 60 days ago.

John: EBITDA for our la properties declined by $5 7 million or <unk> 72, 6% compared to last year.

John: A very challenging quarter and quite a drag on the entire portfolio.

John: Yeah, not quite as bad as we were forecasting.

John: Business and leisure travelers to L. A have been gradually returning as we move further away from the fires and the initial misperceptions about widespread damage to L. A and its amenities and visitor attractions.

John: We're still forecasting a negative EBITDA impact in the second quarter.

John: But the good news is we now expect it to be around $1 $5 million or about $1 million less severe than we forecast at 60 days ago.

Jon Bortz: However, we do expect some lingering price competition through the summer that could modestly pressure results in the third quarter.

John: However, we do expect some lingering price competition through the summer that could modestly pressure results in the third quarter.

Jon Bortz: Outside of L.A., portfolio performance was strong in the quarter. Thirteen properties achieved double-digit REV PAR growth led by many of our recently redeveloped properties, including Viceroy, D.C., Estancia, La Jolla, La Berge Del Mar, Harbor Court in San Francisco, Chaminade Resort and Spa, and One Hotel San Francisco, which just continues to gain share. We continue to be watchful of signs that would indicate a further slowdown in demand. So far, we haven't seen an increase in group cancellations or attrition outside of government or government-related groups and government transients. We also haven't seen a pullback in out-of-room spending.

John: Outside of L. A portfolio performance performance was strong in the quarter.

John: 13 properties achieved double digit revpar growth led by many of our recently Redeveloped properties, including Viceroy DC Stasio La Jolla, Hello Bears del Mar Harbor Court in San Francisco, Shaman odd resort and Spa and one hotel.

John: San Francisco, which just continues to gain share.

John: We continue to be watchful of signs that would indicate a further slowdown in demand.

John: So far we haven't seen an increase in group cancellations or attrition outside of government or government related groups and government transient.

John: We also haven't seen a pullback in out of room spending.

Jon Bortz: nor have we seen any increased caution among groups that are actively meeting. However, we have begun to see a few concerning signs, including a slowdown in group leads for the second half of the year. A longer lag in contract execution. And more caution among some meeting planners in committing to future events, particularly in the second half of the year. Given today's high level of economic uncertainty, there's every reason to remain cautious about the second half. Unless there's a quick resolution to the current trade dispute. It's not unreasonable to expect further economic slowing, which could pressure demand for meetings and hotel rooms. Well, 60 days ago, we weren't forecasting a reversal of the outbound-inbound international travel imbalance.

John: Nor have we seen any increased caution among groups that are actively meeting.

John: However, we have begun to see a few concerning signs, including a slowdown in group leads for the second half of the year.

John: Longer lag and contract execution.

John: And more caution among some meeting planners and committing to future events, particularly in the second half of the year.

John: Given today's high level of economic uncertainty. There's every reason to remain cautious about the second half.

John: Unless theres a quick resolution to the current trade disputes.

John: Not unreasonable to expect further economic slowing.

John: Which could pressure demand for meetings and hotel rooms.

John: While 60 days ago, we weren't forecasting a reversal of the outbound inbound international travel an imbalance.

Jon Bortz: We also weren't forecasting it would get worse. Unfortunately, U.S. government-provided statistics show that the unfavorable balance worsened in March as outbound travel continued to grow while inbound international travel declined by 10% compared to last year. a reversal from the monthly improvement in international inbound travelers that has consistently occurred since the end of the pandemic. Given the anger and dissatisfaction around the world with the U.S. government's proposed tariff and trade policies, it's reasonable to assume some continuing negative impact to inbound international travel this year, but perhaps not as bad as the initial reaction in March. When we look at our group and total revenue pace for the rest of the year, we continue to be ahead of last year for the second and fourth quarters.

John: We also werent for crest forecasting it would get worse.

John: Unfortunately U S government provided statistics show that the unfavorable balance worsened in March as outbound travel continued to grow while inbound international travel declined by 10% compared to last year.

John: A reversal from the mouse from the monthly improvement in international inbound travelers that has consistently occurred since the end of the pandemic.

John: Given the anger and dissatisfaction around the world with the U S government's proposed tariff and trade policies.

John: It's reasonable to assume some continuing negative impact to inbound international travel this year.

John: But perhaps not as bad as the initial reaction in March.

John: When we look at our group in total revenue pace for the rest of the year. We continue to be ahead of last year for the second and fourth quarters, but.

Jon Bortz: but our revenue pace for Q3 is now flat. Specifically, group pays for the balance of the year is ahead 0.3% in rooms, 2.5% in ADR, and 2.8% in group revenue. Total pace for the balance of the year, in other words, group and transient combined, is ahead by 5.1% in room nights. down by 0.8% in rate and up by 4.3% in revenue. Our nominal revenue pace on the books for the balance of the year declined by $3.7 million since last quarter, though it was largely due to L.A. We were expecting our nominal revenue pace to increase over the course of the year, but unfortunately, that was not the case during the first quarter.

John: But our revenue pace for Q3 is now flat.

John: Specifically group pace for the balance of the year is it has 0.3% and rose two 5% in ADR and two 8% in group revenue.

John: Total pace for the balance of the year in other words group and transient combined is ahead by five 1% in room nights.

John: Down by 8% and rate and up by four 3% in revenue.

John: Our nominal revenue pace on the books for the balance of the year declined by $3 $7 million since last quarter.

John: So it was largely due to L. A.

John: We were expecting our nominal revenue pace to increase over the course of the year.

John: But unfortunately that was not the case during the first quarter.

Jon Bortz: We believe this reflects greater caution on the part of industry customers. and as a reason to be more cautious about the second half of the year. Ray mentioned that we saw some stabilization of the softening in April. I'm not sure that applies to the industry, but for our portfolio, we had a good setup for April with a very strong convention calendar in San Francisco. Continuing Healthy Demand Recovery in Portland and Chicago. a good Boston and a much less bad Los Angeles. Our preliminary numbers for April REVPAR point to an approximate 3.5% gain over last year, with that growth number being closer to 5.7% without Los Angeles.

John: We believe this reflects greater caution on the part of the industry customers.

John: And as a reason to be more cautious about the second half of the year.

John: Yes.

John: Ray mentioned that we saw some stabilization of the softening in April.

John: I'm not sure that applies to the industry, but for our portfolio. We had a good set up for April with a very strong convention calendar in San Francisco.

John: <unk> healthy demand recovering in Portland and Chicago.

Good Boston and a much less bad Los Angeles.

John: Our preliminary numbers for April revpar quite to an approximate 3.5% gain over last year.

John: With that growth number being closer to five 7% without Los Angeles.

John: These favorable preliminary results were achieved despite the negative holiday shift.

Jon Bortz: These favorable preliminary results were achieved despite the negative holiday shift. and continue to show the upside from both our redeveloped portfolio and markets like San Francisco, Portland, and Chicago, which are now outperforming due to a slower recovery in prior years. So with April's numbers, Q2 is off to a good start.

John: And continue to show the upside from both our Redeveloped portfolio in markets like San Francisco, Portland, and Chicago, which are now outperforming due to a slower recovery in prior years.

John: So with April's numbers Q2 is off to a good start.

Jon Bortz: However, May and June don't look as favorable at this time.

John: However.

John: May and June don't look as favorable at this time.

John: Before I move to our revised outlook I wanted to provide a little more perspective on our intense and as Ray described our team's relentless focus on creating ongoing operating efficiencies within our portfolio.

Jon Bortz: Before I move to our revised outlook, I wanted to provide a little more perspective on our intense, and as Ray described, our team's relentless focus on creating ongoing operating efficiencies within our portfolio. These efforts primarily accounted for the Hotel Eva Dubby in Q1. This effort is all-inclusive. Every major and minor expense category is under the microscope. Within our portfolio and at every one of our hotels and resorts, our teams are subjecting every expense item to scrutiny, utilizing our extensive proprietary best practices database. an excruciatingly detailed benchmarking effort. and a mentality and approach that every expense item can be reduced through these widespread efficiency efforts.

John: These efforts primarily accounted for the hotel EBITDA beat in Q1.

John: This effort is all inclusive.

John: Every major and minor expense category is under the microscope.

Within our portfolio and in every one of our hotels and resorts. Our teams are subjecting every expense item to scrutiny utilizing our extensive proprietary best practices database and.

John: An excruciatingly detailed benchmarking effort.

John: And the mentality and approach that every expense item can be reduced through these widespread efficiency efforts.

John: Working collaboratively with our operators and our teams are Rebidding, all third party product and service contracts.

Jon Bortz: Working collaboratively with our operators, our teams are rebidding all third-party product and service contracts. We're reducing or eliminating expenses where returns are insufficient. We're improving labor management with new technologies to organize staff and schedule our property associates most efficiently. We're maximizing our procurement processes. We're exhaustively challenging real estate tax assessments. We're implementing physical and operational improvements. to reduce risks related to hotel associate and guest accidents. We're investing in energy efficiency and property resiliency projects to reduce energy and utility costs. And we're making significant investments in physical improvements to mitigate future losses from hurricanes, atmospheric rivers, fires, and other natural disasters.

John: We're reducing or eliminating expenses where returns are insufficient.

John: We're improving labor management with new technologies to organize staff and schedule our property associates most efficiently.

John: We're maximizing our procurement processes.

John: Our exhaustively challenging real estate tax assessments.

John: We're implementing physical and operational improvements to reduce risks related to hotel associates and guests to accidents.

John: We're investing in energy efficiency and property resiliency projects to reduce energy and utility costs and.

John: And we're making significant investments in physical improvements to mitigate future losses from Hurricanes atmospheric rivers fires and other natural disasters.

Jon Bortz: We're auditing and revising property operating procedures to reduce energy and utility consumption. We're clustering more operating teams where possible to reduce costs. We're leaving no stone unturned. The success of these initiatives clearly showed in our first quarter performance. Our teams deserve a tremendous amount of credit for the results they've delivered so far. We applaud them for their thoughtful and relentless efforts, which continue.

John: We're auditing and revising property operating procedures to reduce energy and utility consumption.

John: We're clustering more operating teams where possible to reduce cost.

John: We're leaving no stone unturned.

John: The success of these initiatives clearly showed in our first quarter performance.

John: Our teams deserve a tremendous amount of credit for the results they've delivered so far we applaud them for their thoughtful and relentless efforts, which continue.

Jon Bortz: Now, let me move on to our outlook. As we indicated in our press release, we're slightly reducing the top end of our full year outlook while lowering and widening the low end of our revenue, EBITDA, and FFO assumptions. These adjustments shouldn't come as a surprise. These changes are in response to broad-based expectations for continued economic slowdown. driven by the sharp rise in uncertainty created over the past 60 days stemming from changes in government policy proposals, activities, and rhetoric. Key economic indicators, including consumer confidence, business confidence, and investment and spending forecasts, have all substantially declined in the last few months.

John: Now, let me move onto our outlook.

John: As we indicated in our press release, we are slightly reducing the top end of our full year outlook, while lowering and widening the low end of our revenue EBITDA and <unk> assumptions.

John: These adjustments shouldnt come as a surprise these.

John: These changes are in response to broad based expectations for continued economic slowdown.

John: Driven by the sharp rise in uncertainty created over the past 60 days stemming from changes in government policy proposals activities and rhetoric.

John: Key economic indicators, including consumer confidence business confidence and investment in spending forecasts have all substantially declined in the last few months.

Jon Bortz: Whether actual spending follows these declines remains to be seen. Our expectation is that our operating results for the first half of the year are likely to be within the outlook range we provided 60 days ago, with Q1 beating and Q2 likely achieving towards the lower end, but on a combined basis, achieving somewhere in the middle of our original guidance. It's the second half of the year that we're lowering in response to the mounting uncertainty regarding the economy and increased expectations for a slowdown. along with reduced government and international inbound demand and early indications of a lack of pickup in bookings for the second half of the year, particularly the third quarter.

John: Whether actual spending follows these declines remains to be seen.

John: Our.

Activation.

John: Is that our operating results for the first half of the year are likely to be within the outlook range. We provided 60 days ago.

John: With Q1, beating in Q2 likely achieving towards the lower end, but on a combined basis, achieving somewhere in the middle of our original guidance.

John: It's the second half of the year that we're lowering in response to the mounting uncertainty regarding the economy and increased expectations for a slowdown.

Along with reduced government and international inbound demand.

John: And early indications of a lack of pickup in bookings for the second half of the year, particularly the third quarter.

Jon Bortz: Our updated outlook demonstrates a cautious approach to navigating what we expect to be a tougher economic environment, especially the second half of 2025, given the increased uncertainty. Our experience gained in prior cycles suggests that heightened uncertainty around major economic policies often leads to a pause or a reduction in spending and investment, including for travel. The midpoint of our revised guidance for the year continues to reflect our expectation of the most likely outcome. If trade policy issues are favorably resolved in the next couple of months, We believe the economy could rebound quickly, putting the upper end of our range well within reach.

John: Our updated outlook demonstrates a cautious approach to navigating what we expect to be a tougher economic environment, especially the second half of 'twenty five given the increased uncertainty.

John: Our experience gained in prior cycles suggests that heightened uncertainty around major economic policies, often leads to a pause or a reduction in spending and investment including for travel.

John: The midpoint of our revised guidance for the year continues to reflect our expectation of the most likely outcome.

John: If trade policy issues are favorably resolved in the next couple of months, we believe the economy could rebound quickly putting the upper end of our range well within reach.

Jon Bortz: The good news is there's no current financial crisis or problematic structural issue at this time. The economy entered this year in a very strong position with full employment, accelerating corporate profits, and the consumer in good financial shape. Reaching the bottom of our outlook range, on the other hand, would likely require a more meaningful slowdown and maybe even a mild recession. That downside case implies that same property REVPAR would have to be at the low end of our range for Q2, then decline an average of 3% year-over-year in the second half. We hope this level of detail helps to reframe the range of possible outcomes as we move through the year.

John: The good news is there's no current financial crisis or problematic structural issue at this time.

John: The economy entered this year in a very strong position with full employment Act.

John: <unk> corporate profits and the consumer in good financial shape.

John: Reaching the bottom of our outlook range on the other hand.

John: Would likely require a much more meaningful slowdown and maybe even a mild recession.

John: That downside case implies the same property revpar would have to be at the low end of our range for Q2, then decline in average of 3% year over year in the second half.

We hope this level of detail helps to per frame the range of possible outcomes.

John: As we move through the year.

John: To wrap up.

Jon Bortz: To wrap up. We believe strongly that our intense focus on generating operating efficiencies, our disciplined commitment to driving revenue every which way we can, our team's deep cyclical experience, and the benefits from the substantial investments we've made to upgrade and transform the vast majority of our portfolio. put us in a great position to outperform and drive long-term value. We're generating substantial free cash flow, and if conditions should deteriorate further, we certainly have the flexibility, the liquidity, and the experience to adapt quickly.

John: We believe strongly that our intense focus on generating operating efficiencies.

John: Our disciplined commitment to driving revenue every which way we can.

John: Our teams deep cyclical experience.

John: And the benefits from the substantial investments we've made to upgrade and transform the vast majority of our portfolio.

John: Put us in a great position to outperform and drive long term value.

John: We're generating substantial free cash flow.

John: And if conditions should deteriorate further we certainly have the flexibility the liquidity and the experience to adapt quickly.

Christine: So that completes our remarks today, we'd now be happy to take your questions. So Christine you May proceed with the Q&A.

Ray Martz: So that completes our remarks today.

Unnamed: We'd now be happy to take your questions. So Christine, you may proceed with the Q&A. Thank you.

John: Thank you.

Unnamed: We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed time permitting. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. 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 your handset before pressing the star keys.

Christine: We will now be conducting a question and answer session.

Christine: Ask that all callers limit themselves to one question and one follow up if you have additional questions you may re queue and those questions will be addressed time permitting.

Christine: If you would like to ask a question. Please press star one on your telephone keypad.

Christine: A confirmation tone will indicate your line is in the question queue.

Christine: You May press Star two if you would like to remove your question from the queue.

Christine: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Unnamed: One moment please while we poll for questions.

Jay Kornreich: Thank you. Our first question comes from the line of Jay Kornreich with Wedbush. Please proceed with your question. Hi, thanks. Good morning. I guess just starting off as you commented that the first half of the year outlook largely stayed intact after a strong first quarter with the downward revision coming mostly in the second half.

Speaker Change: Thank you. Our first question comes from the line of Jay Kornreich with Wedbush. Please proceed with your question.

Jay Kornreich: Hi, Thanks, Good morning, I guess, just starting off as you commented that the first half of the year outlook largely stayed intact. After a strong first quarter with the downward revision coming mostly in the second half.

Jon Bortz: So I know you made some comments on this, but can you just further dive into, is the second half impact something you're already seeing in the bookings that slowed down as you commented in the group demand, or is it mostly really just related to the potential impact should a mild recession occur? Yeah, it's really related to two things. First, mostly related to the potential for pullback in demand from all the segments in response to an economic slowdown if it should occur. It also is, of course, some response, as we mentioned about Q2 being at the lower end of our original expectations.

Speaker Change: So I know you made some comments on this pad.

Jay Kornreich: Can you just further dive into the second half impact something you're already seeing in the bookings.

Jay Kornreich: That slowdown as you commented in the group demand or is it mostly really just related to the potential impacts should a mild recession occur.

Jay Kornreich: Yeah, it's really.

Jay Kornreich: It's related to two things first mostly related to.

Jay Kornreich: The potential for a pullback in demand from from all the segments.

Jay Kornreich: In response to.

And economic slowdown it if it should occur.

Jay Kornreich: It also is of course, some response as as our as we mentioned about Q2 being at the lower end of our original expectations.

Jon Bortz: It is in response to reduced government travel, government-related travel. and less international inbound travel overall. And while those are small segments, again, one or two points off of the demand at the end of the day is really where we thought the full year would be in terms of being up one or two points of demand.

Jay Kornreich: It is in response to reduced government travel government related travel.

Jay Kornreich: And and less international inbound travel overall and while those are small segments again, one or two points off of off of the demand at the end of the day is really where we thought the full year would be in terms of being up one or two points of demand. So so that's really.

Jon Bortz: So that's really part of it, but for the second half, it really is all about the potential for downturn based upon this increased uncertainty that we're seeing in the economy and with government policy. All right, thank you. And then just maybe as one follow up, just, you know, looking at the business trends in customer, which in the first quarter and had some positive upside. Are you already seeing corporates being more hesitant in spending and travel, and that's potentially a big leg that could come down? Or so far, is that segment so far trending positively? and could hold up maybe better than what you're already seeing in some of the government and international pullback.

Jay Kornreich: Part of it but for the second half it really is all about the potential for <unk>.

Jay Kornreich: Downturn based upon this increased uncertainty that we're seeing in the economy and with government policies.

Speaker Change: Alright. Thank you and then just maybe as one follow up just you know looking.

Jay Kornreich: Looking at the business trends and customer which.

Jay Kornreich: In the first quarter you had some positive upside are you already seeing corporates being more hesitant in spending and travel and that's you know potentially a big lag that could come down or so far.

Jay Kornreich: Is that segment, so far trending positively and.

Jay Kornreich: And could hold up maybe better than what you're already seeing in some of the government and international pullback.

Jon Bortz: Yeah, so so far, we're not seeing a downturn in BT. I think it certainly varies by industry group. You know, we have some groups like financial banking technology that are up there's there's some other industries that that that are down So, but in total, I would tell you that we haven't seen a decline in BT really in any of our markets around the country. And so, so far it's holding up.

Jay Kornreich: Yeah. So so far we're not seeing a downturn in BT I think it certainly varies by industry group you know we have some groups like financial banking technology that are up there is there is some other industries that.

Jay Kornreich: That are down.

Jay Kornreich: So.

But in total I would tell you that we haven't seen a decline in BT really in any of our markets.

Jay Kornreich: Around the country.

Jay Kornreich:

Jay Kornreich: And so so far it's holding up now if you read first quarter transcripts.

Jon Bortz: Now, if you read first quarter transcripts of, you know, Fortune 500 companies, and I guess you can use AI today to look for the word travel, I think you're going to find, you know, numerous comments from companies saying, you know, given all this uncertainty, we're looking at reducing costs, being more efficient, including travel, or discretionary travel, or they might call it non-essential travel, although I don't, I think all travel is essential. But, but So it shouldn't be surprising if it does decline over the course of the year until we see a turnaround in the uncertainty side of the policies.

Jay Kornreich: Fortune 500 companies.

Jay Kornreich: And I guess you can use AI today to two to look for the word travel.

Jay Kornreich: I think youre going to find numerous comments from companies, saying given all of this uncertainty we are looking at reducing costs being more efficient.

Jay Kornreich: Including travel.

Jay Kornreich: Our discretionary travel or they might call. It nonessential travel, although I don't I think all travels essential but but.

Jay Kornreich: So it shouldn't be surprising if it does decline over the course of the year until we see a turnaround in and the uncertainty side of the policies.

Jon Bortz: But so far, we haven't seen anything. Okay, understood. Thank you.

Jay Kornreich: But so far we haven't seen anything.

Jay Kornreich: <unk>.

Jay Kornreich: Okay understood. Thank you.

Jay Kornreich: Yeah.

Smedes Rose: Our next question comes from line of Smedes Rose with Citi. Please proceed with your question. Hi, thanks. I just wanted to ask you on the tariff stuff, besides just sort of the broader weakening of the macro economy, is there anything kind of hotel specific that you would expect to see costs go up either on the food side or kind of hard goods? I'm just not really familiar with kind of where all that stuff comes from. Would you expect that to have some sort of negative impact?

Speaker Change: Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Smedes Rose: Hi, Thanks.

Smedes Rose: Wanted to ask you on the tariff stuff, besides just sort of the broader weakening of the.

Smedes Rose: Macro economy is there anything kind of hotel specific that you would expect to see costs go up either on the food side or.

Smedes Rose: Hard goods I'm, just not really familiar with kind of where all of that stuff comes from.

Smedes Rose: Would you expect that to have some sort of negative impact.

Smedes Rose: Yeah. So there's no doubt it's going to have an impact on on new construction on.

Jon Bortz: Yeah, so there's no doubt it's going to have an impact on new construction, on renovation projects. Most FF&E is made outside of the country. Almost all lighting, electrical, is made outside of the country, outside of the U.S. So, we certainly would expect some impacts in those categories. There are consumables, you know, operating supplies and things, some of which come from outside of the country. Interestingly, from what we understand from Avendra, who we use at most of our hotels, a lot of the sustainable operating supplies are not made in the U.S., they're made outside of the U.S.

Smedes Rose: On renovation projects.

Smedes Rose: Most F F a need.

Smedes Rose: Is made outside of the country.

Almost all lighting electrical.

Smedes Rose: Is made outside of the country outside of the U S.

Smedes Rose: So we certainly would expect some impacts.

Smedes Rose: In those categories there are consumables operating.

Smedes Rose: Operating supplies and things some of which come from outside of the country Interestingly.

Smedes Rose: From what we understand from a vendor who we use it most of our hotels.

Smedes Rose: A lot of the sustainable operating supplies are not made in the U S. They're made outside of the U S. So so we would expect some kind of impact from them again, all depending upon what happens with these tariffs.

Jon Bortz: So, we would expect some kind of impact from them, again, all depending upon what happens with these tariffs and how much of that flows through to price increases or flows through to shortages or supply chain issues. So, we haven't seen anything yet, anything material yet, but it's early, right? I mean, this was all just announced less than 30 days ago.

Smedes Rose: And how much of that flows through the price increases or flows through to shortages or supply chain issues. So we haven't seen anything yet anything material yet.

But it's early right I mean, this was all just announced less than 30 days ago.

Jon Bortz: And to me, and also, we don't just sit there and take it. So, for example, some of the food that we're importing, those costs go up for the tariffs or whatever it is. Our teams look at different menu items, or how do we price things differently or do things differently? So, when we have these actions coming in, they adjust, they're very nimble, and as we saw the first quarter, they've done a great job adjusting in a very short period of time.

Smedes Rose: It's amazing Okay, we're not going we don't just sit there and take out. So for example, some of the food that we're importing those costs go up the tariffs or whatever it is our teams look at different menu items or how do we price things differently or do things differently. So when we when we add these actions coming in they adjust their very nimble and as we saw the first quarter has done a great job adjusting in a very short.

Smedes Rose: At a time.

Jon Bortz: Okay, and then I just wanted to ask you mentioned government or government adjacent demand at kind of three to 5%. For your portfolio, is that concentrated in any particular market or is that? could have spread evenly across your hotel. Well, it spread all over the country. I guess that the heavier concentrations would be in Washington, D.C. and in San Diego. Now, San Diego tends to be dominated more by defense and military, which, from what we understand, is less impacted overall. But a lot of the sort of government-related has to do with health care, NIH sponsorship or university research.

Speaker Change: Okay, and then I just wanted to ask you you mentioned government or government adjacent demand is kind of three to five per cent for your portfolio is that concentrated in any particular market or is that pretty spread evenly across your hotels.

Smedes Rose: Well, it's spread all over the country.

Smedes Rose: Yes that.

Speaker Change: The heavier concentrations would be.

Speaker Change: In Washington, D C and in San Diego.

Speaker Change: Now San Diego tends to be dominated more by defense and military which.

Speaker Change: From what we understand is less impacted overall, but a.

Speaker Change: A lot of the sort of government related has to do with healthcare NIH sponsorship our University research.

Jon Bortz: Sponsorship, and that tends to be all over the country, not in any particular market, particularly when they have conferences and group meetings. Okay, thank you. Thank you.

Speaker Change: Sponsorship and and and that tends to be all over the country and not in any particular market, particularly when they have conferences and group meetings.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of floors and Jacob with Compass point. Please proceed with your question.

Floris Dijkum: Our next question comes from the line of Floris Van Dijkum with Compass Point. Please proceed with your question. Hey, good morning, guys. Jon, maybe if you could comment on the transaction markets and also your ability to, you know, given that the share price weakness, you bought back a little bit of stock.

Speaker Change: Hey, good morning, guys.

Speaker Change: John maybe if you could comment on the.

Speaker Change: The transaction markets and also your ability to you know.

Speaker Change: Given that the share price weakness you bought back a little bit of stock I can investors expect more of these.

Tom Fisher: Can investors expect more of these share repurchases going forward?

Speaker Change: Share repurchases going forward.

Speaker Change: Yeah, Hi, Floris. This is Tom in terms of the transaction market I think just given some of the comments we made in terms of the uncertainty into the second half of the year I think.

Tom Fisher: Yeah, Floris, this is Tom. In terms of the transaction market, I think just given some of the comments we made in terms of the uncertainty into the second half of the year, I think the sentiment is turned from risk on to risk off. Nobody really wants to kind of go to investment committee today and say we've got this until there's a little more clarity in terms of where operating fundamentals are going to be. So I think it's still a functioning market. I'm just not sure how constructive it is currently. But I think for the most part, people are gonna be more in the wait and see mode.

Speaker Change: The sentiment had turned from risk on to risk off.

Speaker Change: Nobody really wants to kind of go to investment committee today and say we've got this until there's a little more clarity in terms of where operating fundamentals are going to be so I think it's still a functioning market I'm just not sure how constructive constructive it is.

Speaker Change: Currently, but I think for the most part people are going to be more in the wait and see mode.

Tom Fisher: And if we can get resolution to this in the course of the next 30, 60, 90 days, I think we'll see a pretty active pickup during the latter half of the year. And then Floris, in your question on the buybacks, we'll evaluate the macro, how the conditions are and uses of the capital. And as we were, we did buy back some shares in the first quarter, but we'll evaluate what's going on in the macro. Even with the revised outlook, our free capital is well over $100 million a year, and that's after CapEx. We don't have any need to have to pay a dividend, we have a lot of flexibility, and we're building greater cash reserves.

Speaker Change: And if we can get resolution to this in the course of the next 30 60 90 day I think we will see a pretty active pick up Joanna.

Joanna: Latter half of the year.

Speaker Change: And employers and your question on the buybacks will evaluate.

Joanna: The macro housing conditions are.

Joanna: And uses of the capital and as we were we were we did buy back some shares in the first quarter.

Joanna: But we'll evaluate what's going on the macro we even with the revised outlook.

Joanna: Our free cash flow is well over $100 million a year and that's after capex.

Joanna: We don't have any meeting at the payout of dividends, we have lot of flexibility and we're building a greater cash reserves now some of that is to address the.

Tom Fisher: Now, some of that is to address the convertible notes that mature at the end of next year, but with the free cash flow and all that, it allows us to be a little more flexible. So we'll evaluate what's happened in the macro and make those decisions, but we don't commit to any sort of numbers at this time.

Joanna: Convertible.

Joanna: Notes that mature at the end of next year.

Joanna: But with the free cash flow all of that will allows us to be more flexible to evaluate what's happening in the macro and make these decisions, but we don't make we.

Joanna: We don't commit to any sort of numbers at this time.

Joanna: Yes.

Ray Martz: Thanks, Ray.

Ray Martz: Thanks Ray.

Speaker Change: Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed with your question.

Sean Kelley: Our next question comes from the line of Sean Kelley with Bank of America. Please proceed with your question. Hi, good morning, everyone. Thanks for taking my question. Two for me, first of all, you kind of already talked about some of the D.C. exposure, I think, to Smedes' question. But, you know, Jon, could you just give us a little bit of thought of sort of the Washington, D.C. submarket? Obviously, the hotel industry kind of revolves around this. And so far, in just pure reported RevPAR terms, we haven't seen the step function that correlates with the sort of types of numbers we've heard.

Hi, good morning, everyone and thanks for taking my question.

Speaker Change: Q2 for me first of all you're kind of already talked about some of the D. C exposure I think Smedes question John.

Speaker Change: Could you just give us a little bit of thought of sort of the Washington D. C. Submarket, obviously, the hotel industry kind of revolves around this and so far in just pure reported Revpar terms, we haven't seen the step function that correlates with the sort of paycheck numbers. We've heard again youre not the only wanted to call out a step function in government demand is it really.

Jon Bortz: Again, you're not the only one to call out a step function in government demand as it relates to the broader travel industry. I know a couple of the airlines have the same. So can you help us square that, just like what's supporting D.C. right now? And, you know, is this sort of just a delayed thing? And, you know, just a little bit more color on kind of how that market's doing all right. But we are seeing this kind of big step function down in government demand. Yeah, sure.

Speaker Change: Chad.

Speaker Change: The broader travel industry I know a couple of the airlines have the same show cubic square that just like what's supporting D. C. Right now and is this sort of a just a delayed thing.

Speaker Change: Just a little bit more color on kind of how that market's doing all right, but we are seeing this kind of big step function down.

Speaker Change: Government demand.

Speaker Change: Yeah sure so.

Jon Bortz: So I wish I could bring clarity to what's going on in Washington, DC. But I'm not trained for that. In terms of the lodging market, there's a lot of cross currents, Sean. There's some positives, and we had quite a few positives going into the year. We had a change of administration, which is typically positive for demand in the market. We have the first year of a new president's term, which tends to be a very active legislative year, which is positive for travel, typically in the market. You also compare against next year, later in the year, where there's no election, which tends to be a very positive comparison for the year.

Speaker Change: Boy I wish I could bring clarity to what's going on in Washington D C.

Speaker Change: But.

Speaker Change: I'm not trained for that.

Speaker Change: And in terms of the lodging market.

Speaker Change: There's a lot of cross currents Sean.

Speaker Change: There are some positives and we had a quite a few positives going into the year. We had a change of administration, which is typically positive for demand in the market.

Speaker Change: We have the first year of a new president term, which tends to be very active legislative year, which is positive for travel typically in the market.

Speaker Change: You will also compare against next year later in the year, where theres no election.

Speaker Change: Which tends to be a very positive comparison.

Jon Bortz: We have the federal government workers, those who haven't been fired or laid off or in limbo who've been ordered and have gone back to the office. We see that here in D.C. in traffic being almost back to normal or back to where it was sort of pre-pandemic in the marketplace. We have a lot more congressional days on the calendar this year than we had last year. That, of course, brings a lot of weekday demand into the market. We expect there to be more protests. There's a lot of political cross-currents, obviously. That's good for the market.

Speaker Change: For the year, we have the.

Speaker Change: The federal government workers.

Speaker Change: Who havent been fired or laid off are in limbo who've been ordered and to have gone back to the office and we see that here in D C and traffic.

Speaker Change: Being.

Speaker Change: Almost back to normal or back to where it was sort of pre pandemic in the marketplace.

Speaker Change:

Speaker Change: We have a lot more congressional days on the calendar this.

Speaker Change: This year than we had last year that that of course brings a lot of weekday demand into the market.

Speaker Change: We expect there to be more protests theres a lot of political cross currents obviously.

Speaker Change: That's good for the market.

Jon Bortz: And we have a decent convention calendar this year until the fourth quarter, where it's softer, but we have the benefit of the no election, which would offset it. It's like the first quarter. We actually had a soft convention calendar in the first quarter, but the inauguration and activities around that in the new government offset that in the first quarter. And then I guess the last thing is we have a lot of people from governments around the country coming to Washington. And there's all these trade agreements to be negotiated. That's bringing people here. There's a lot of people here coming to me with the president and the new administration from around the world.

Speaker Change: And we.

Speaker Change: We we have a decent convention calendar this year until the fourth quarter, where it is softer, but we have the benefit of the no election, which would offset it it's like the first quarter, we actually laid out a soft convention calendar in the first quarter, but the inauguration and an active.

Speaker Change: <unk> around that and the new government.

Speaker Change: Offset that in the first quarter so.

Speaker Change: And then I guess the last thing is.

Speaker Change: We have a lot of people from governments around the country coming to Washington.

Speaker Change:

Speaker Change: And there's all these trade agreements to be negotiated that's bringing people here theres a lot of people here coming.

Speaker Change: To me with with the President and the New administration, so from around the world and so there is a whole bunch of positive crosscurrents in.

Jon Bortz: And so there's a whole bunch of positive cross-currents in addition to the negative impact from freezing government travel, eliminating quote non-essential travel, or a lot of government related cancellations. So hopefully that's helpful in explaining sort of the positive side of things that are happening here in addition to the negative things that we read a lot about.

Speaker Change: In addition to the negative impact from freezing government travel eliminating quote nonessential travel or government a lot of government related cancellation so that.

Speaker Change: That hopefully that's helpful in explaining sort of the positive side of things that are happening here.

Speaker Change: In addition to the negative things that that we read a lot about.

Jon Bortz: Yeah, that's super helpful.

Speaker Change: That's true.

Jon Bortz: And then just as a short follow-up, you know, kind of curious on the, and I'm not meaning to split hairs here, but just since we're all living by every sort of incremental data point right now, the April commentary sounded great. You said May and June a little bit softer. Easter's thrown a wrench into like a lot of the way that I think we are trying to look at, you know, comps and modeling and everything. And so it's been real hard to read the underlying trend. So what do you kind of chalk that change up to?

Speaker Change: Helpful and then just.

Short follow up kind of curious on that.

Speaker Change: Meaning to split hairs here, but just since we're all living by every sort of incremental data point right now.

Speaker Change: April commentary sounded great.

Speaker Change: May and June a little bit softer Easter has thrown a wrench into like a lot of the way that I think we are trying to look at comps in modeling and everything and so it's been really hard to read the underlying trends. So what do you kind of chalk.

Jon Bortz: Maybe if you could, a sense of the magnitude of deceleration that you're seeing, that'd be helpful. Yeah, I mean, it's not a deceleration, it has more to do, again, with the setup of the way the conventions work. So I'll give you an example in San Francisco, RSA, which is the big computer security, cybersecurity citywide that happens there every year, last year was in May, it moved to the last four days of April this year. So San Francisco gets a huge lift in April, great setup, but May gets challenged. Now May actually has a decent year-over-year calendar, but it's not as healthy as this large citywide, it's a few sort of small to medium-sized citywide.

Speaker Change: Maybe if you could.

Speaker Change: The magnitude of deceleration that you're saying that would be helpful. Thanks.

Speaker Change: Yeah, I mean, it's it's it's not a deceleration it has more to do again with with the setup of the way the conventions work.

Speaker Change: So so I'll give you an example in San Francisco.

Speaker Change: RSA, which is the big computer security cyber security.

Speaker Change: Citywide that happens there every year last.

Speaker Change: Last year was in May it moved to the last four days of April this year, So San Francisco gets a huge lift in April great setup, and and but May gets challenged now may actually has a decent year over year calendar, but it's not it's.

Speaker Change: Not as healthy as of this large citywide it's a few sort of small to medium sized citywide so.

Jon Bortz: So that's an example, the setup, the way the conventions fall year-over-year, those things have an impact on this sort of month-to-month comparison, and that has an impact on the pace that we look at, where our May pace is a little bit softer, our June pace gets a little bit tougher, and that's a good example of a setup between now and then. So it's not something we're seeing in trends, again, it has more to do in particular with our portfolio setup, the markets we're in, and the individual properties that we're in. Thanks so much. Great song today.

Speaker Change: So that's an example, the set up the way the conventions fall year over year.

Those things have an impact.

Speaker Change: On this sort of month to month comparison, and and then we and that has an impact on the pace that we look at.

Speaker Change: There are may pace is a little bit softer or June pace gets a little better again.

Speaker Change: In the portfolio, we'll see if that holds up.

Speaker Change: <unk> now and then so it's not something we're seeing in trends at <unk>.

Speaker Change: Again, it has more to do in particular with our portfolio is set up and the markets. We're in and in the individual properties that were in.

Speaker Change: Thanks, so much great job today.

Unnamed: Yeah, thank you.

Speaker Change: Yep. Thank you.

Speaker Change: Our next question comes from the line of Duane <unk> with Evercore. Please proceed with your question.

Duane Pfennigwerth: Our next question comes from the line of Duane Pfennigwerth with Evercore. Please proceed with your question. Hey, thanks. Sorry, we're juggling multiple calls today.

Duane: Hey, Thanks, sorry, we are juggling multiple calls today, but how do you think about the covered curve.

Jon Bortz: But how do you think about the recovery curve in LA and what will be the leading indicators for that market to fix itself? Yeah, so, I mean, it's a simple answer. The leading indicators are the bookings and where they're coming from. You know, are they coming from our traditional industry groups and travelers? Is it coming from the entertainment industry? Is there increasing production in TV, film, commercials? Are the music folks continuing to come and coming back where they come and practice for three weeks before they go out on tour in L.A.? Is the fashion industry demand returning?

Speaker Change: In L, a and what will be the leading indicators for that market.

Duane: Fixed itself.

Duane: Yeah, So I mean.

Duane: It's a simple answer the leading indicators of the bookings.

Duane: And and where Theyre coming from.

Duane: Are they coming from our traditional industry.

Duane: Industry groups and travelers is it coming from the entertainment industry is they're increasing production.

Duane: In television film commercials.

Duane: Are the are the music folks continuing to come in coming back where they common practice for three weeks before they go out on tour.

Speaker Change: In L. A is the fashion industry demand returning.

Jon Bortz: Are the companies in Silicon Beach, the tech companies and the entertainment and social platform companies, are they back to their normal travel policies? And so, and what we've heard from them, we talked about this last quarter, was their expectation that by March, April, maybe at the latest, you know, they'd be back to normal travel. And it is what we're seeing. So, the pace of pickup, the interesting thing about L.A., there's not a lot of city-wides, there's certainly not a lot of city-wides downtown to begin with, but there are not many of those that even impact West L.A.

Duane: Are the companies in Silicon Beach, the tech come.

Duane: Companies and in the entertainment and and social platform companies are they back to their normal travel policies and and and so and what we've heard from them. We talked about this last quarter was their expectation that by by March April and May be.

Duane: At the latest.

Duane:

Duane: They'd be back to normal travel and and it is what we are.

Duane: Seeing so the pace of pickup the interesting thing about L. A.

Duane: Theres not a lot of citywide, there's certainly not a lot of citywide.

Duane: <unk> town to begin with but they're not many of those that even impact west L. A.

Jon Bortz: We have a few major events like the Milken Institute event that I think is later this month, or maybe it's in early June, I forget where it is this year, that impacts the West L.A. market because of that volume. But what we've seen, Duane, is we've seen most of that business rebook. And so, it's a very short-term market, but we were in a bit of a hole for Q2 in terms of the starting pace. And so, we're still going to be off in Q2, but each month gets better. The pace of pickup is back to where we were.

Duane: We have a few.

Duane: Major events like the Milken Institute event that I think is later this month.

Duane: Or maybe it's in early June I forget where it is this year.

Duane: That impacts the west la market because of that volume, but what we've seen Duane is we've seen most of that business.

Duane: Reebok and so it's a very short term market.

Duane: But we were in in a bit of a hole for Q2 in terms of the starting pace.

Duane: And so we're still going to be off in Q2, but each month gets better.

The pace of pickup is back to where we were.

Jon Bortz: So, we're really, it's just where we're starting each month that has put us in the negative holes. And that sort of start position, the booking pace, is less bad as each month goes by. So, all of those things are the things that we look at, but really, it's the feedback from our clients and not just the words, but are they booking? And we see it really quickly in that market because it's so short-term.

Duane: So we're really it's really just that where were starting each month that that has put us in a negative halls and that sort of start position our booking pace.

Duane: It is less bad as each month goes by so.

Duane: So all of those things are the things that we look at.

Duane: But really it's the feedback from our clients and not just the words, but are they booking and we see it really quickly in that market because it's so short term.

Jon Bortz: Thanks for that. And then just, I don't know if there's any good way to measure this, but you know, what is drive to demand in your portfolio? And how and how might that be changing just yeah, how do you think about it? What percent of your mix is drive to and and how might that be changing? Thank you Yeah, I mean, I'd love to be able to tell you, we know how to measure it. But we don't ask people how they got there. And we don't have data for that in our markets. I would say, obviously, for the most part, all of our resorts are drive-to.

Duane: Thanks for that and then just.

Duane: Don't know if there's any good way to measure this but you know.

Duane: What is drive to demand.

Duane: In your portfolio.

Duane: And how and how might that be changing just how do you think about it what percent of your mix is drive to and and how might that be changing thank you.

Duane: Yeah, I mean, I'd love to be able to tell you we know how to measure it.

Duane: But but we don't ask people how they got there and we and we don't have data for that.

In our markets I would say obviously are for the most part or all of our resorts are drive to that's that's a conscious effort on our part.

Jon Bortz: That's a conscious effort on our part. Strategically, it's not to say, you know, properties in the Caribbean or in Hawaii or other fly-to destinations aren't attractive. We've just chosen not to be there for different reasons. But all of our properties are drive-to. And even some of the, you know, even some of the major markets like San Diego is a good example. It's a huge drive-to market from L.A., from Arizona, Phoenix, Las Vegas. In the summer times, in particular, when things get really hot in those markets, a lot of folks just drive into San Diego. So we see a lot of leisure business that's drive-to in a market like that.

Duane: Strategically it's not to say.

Duane: You know properties in the Caribbean or or in Hawaii or other fly to destinations.

Duane: Our arent attractive we've just chosen not to be there for different reasons, but all of our properties are drive to and.

Duane: Even some of the you know even some of the major markets like San Diego as is a good example, so a huge drive to market from from La <unk> from from Arizona, Phoenix Las Vegas.

Duane: In the summer times in particular, when things get really hard in those markets.

Duane: A lot of folks just drive into San Diego, So we see a lot of leisure business, that's drive too in a market like that are Santa Cruz.

Jon Bortz: Our Santa Cruz business is almost all drive-to for our Chaminade Resort. Our Skamania property, again, is almost all drive-to. And we do know that from which are the groups that are there, where their offices. It doesn't mean they don't have some people coming from outside of the market, but the business demand generator is usually in or near the market being regional. Newport, Harbor Island Resort in Newport, you know, it's a mix of drive-to and fly-to. Providence is easy to get in and out of or even Boston. But it's a big drive-to market from New York, as you probably know.

Duane: Business is almost all drive to.

Duane: For our Chaminade resort, our skamania property again is almost all drive to and we do know that from.

Duane: Which are the groups that are there.

Duane: Where their offices and it doesn't mean, they don't have some people coming from outside in the market, but the business demand generator is usually in or near the market being regional Newport Harbor Island resort in Newport, you know, it's a mix of drive to and fly.

Duane: To providence's easy to get in and out of or even Boston, but it's a big drive to market from New York.

Duane: As you probably know so.

Duane: So and we do tend to benefit when when folks are making decisions about how they spend their money and do they want to save a little bit, but maybe still take a vacation.

Jon Bortz: And we do tend to benefit when folks are making decisions about how they spend their money and do they want to save a little bit but maybe still take a vacation. The drive-to markets do tend to benefit. Now, again, we tend to be in the upper end of the socioeconomic customer, so they're a little less impacted by downturns typically. But those that are, you know, we get benefits from the fact that they're drive-to. And, Dwayne, this isn't a perfect indicator, but at our resorts in Q1, our parking revenue is up over 10% compared to overall, you know, 7% revenue gain for the quarter.

Duane: The drive to markets do tend to benefit now again, we tend to be in the upper end of the socio economic customer.

Duane: So they're a little less impacted by downturns typically but those that are we get benefits from the fact that their drive to.

Duane: And Duane this isn't a perfect indicator, but at our resorts in Q1, our parking revenue was up over 10%.

Duane: Compared to overall, 7% revenue gain for the quarter now that could be a function of also providing parking agreements and those sort of things, but it does indicate we get both fly to and drive to.

Jon Bortz: Now, that could be a function of also revising parking agreements and those sort of things. But it does indicate we get both fly-to and drive-to. It's encouraging. That's why it's helpful in downturns, the drive-to component, if some people trade down, if they're not flying out to Europe and they're staying domestically.

Duane: Carriage and that's why it is helpful. In downturns the drive to component if some people want to trade down if they're not flying out to Europe and theyre staying domestically.

Unnamed: Thank you.

Duane: Thank you.

Duane: Thank you.

Jamie Feldman: Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question. Great, thank you. I appreciate all the details focused on expenses. Can you just talk more about where you think there's still the most use where you're just in case you do get the pullback on the top line in the back half. expenses can be even more helpful. Yeah, I mean, I think it's pretty comprehensive across the entire expense line item categories as it relates to the efficiency and the cost reductions that come through that. I think when it comes to sort of the hunkering down reaction that our industry loves to call these contingency plans.

Speaker Change: Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

Speaker Change: Great. Thank you I appreciate all the detailed focus on expenses can you just talk more about where you think there is still the most Jews.

Speaker Change: Sure.

Speaker Change: Just in case, you do get to pull back on the top line in the back half.

Speaker Change: Benches can be even more helpful.

Speaker Change: Yeah I mean.

Speaker Change: I think it's pretty comprehensive across the entire expense line item categories as it relates to the efficiency.

Speaker Change: And the cost reductions that come through that I think when it comes to.

Speaker Change: Sort of hunkering down reaction.

Speaker Change: Our industry loves to call. These contingency plans of course.

Jon Bortz: We have level A, B, C, and D at all of our properties. And we always look at them and say, well, the A1s, we should be doing those all the time. It's not a contingency plan, it's a better way to operate the property. And then we start getting into B, C, and D, and where... As we get deeper into it, it tends to be deeper people cuts. It's about how do we get the same amount done with fewer people, you know, basically people working harder and smarter as things get tougher, more cross-training utilization, less staffing of hourlies and having managers pick up ships, which is not a permanent solution, but it's a temporary solution when you have a relatively short six-month, nine-month, a year drop in volumes.

Speaker Change: We have level, a b C and D at all of our at all of our properties.

Speaker Change: And you know, we always look at them and say well the a ones we should be doing those all the time.

Speaker Change: Hum.

Speaker Change: It's not a contingency plan, it's a better way to operate the property.

Speaker Change: And then we start getting into B C and D and where.

Speaker Change: As we get deeper into it it tends to be deeper people cuts.

Speaker Change: It's it's about how do we get the same amount done with fewer people.

Speaker Change: Basically people working harder and smarter.

Speaker Change:

Speaker Change: As.

Speaker Change: As things get tougher.

Speaker Change: More cross more cross training utilization.

Speaker Change: Last less staffing of our lease and having managers pick up ships.

Speaker Change: Which is not a permanent solution.

Speaker Change: But it's a temporary solution when you when you have a relatively short six months nine months.

Speaker Change: Year drop in volumes so.

Jon Bortz: But when things get tougher, the hunker down tends to be more people.

Speaker Change: But but when things get tougher the hunker down tends to be more people.

Speaker Change: Okay. Thank you for that.

Jon Bortz: Okay, thank you for that.

Jon Bortz: And then, you know, as you think about the potential tariff impacts on CapEx, you know, how do you think about maybe changing some of your strategies in terms of areas you wanted to invest, or maybe even more importantly, you know, as you think about the competition or assets you've had your eyes on, you know, do you think this is going to change competitors' appetite to invest and open up more opportunities for you on the investment side? Are we just not there yet? So two things. First of all, in terms of our capital, you know, the good news is, over the last five years, we went through this massive, comprehensive redevelopment within our portfolio of pretty much all of our assets.

Speaker Change: And then you know as you think about the potential tariff impacts on Capex.

Speaker Change: Do you think about maybe changing some of your strategies in terms of.

Speaker Change: Eric do you wanted to invest or maybe even more importantly, you know as you think about the competition or assets you've had your eyes. On you know do you think this is going to change.

Speaker Change: Letters appetite to invest in and open up more opportunities for you on the investment side.

Speaker Change: Or are we just not there yet.

Speaker Change: So so two things first of all in terms of our capital you know the good news is over the last five years, we went through this massive comprehensive redevelopment within our portfolio.

Speaker Change: Pretty much all of our assets and and so outside of the potential conversion of Paradise point to Margaritaville.

Jon Bortz: And so outside of the potential conversion of Paradise Point to Margaritaville, all of our major projects are done. We don't have any major platform or portfolio-wide programs at this time. The capital that we, I mean, and we just completed really the last of them, which was not originally planned, but the brand change and renovation of what's now the Hyatt Centric in Santa Monica. So we're really done with the need to go out and buy FF&E and do major renovation projects through the portfolio. Most of where we're spending capital relates to infrastructure. Most of that is not impacted by tariffs.

Speaker Change: All of our major projects are done we don't we don't have any major platform our ore portfolio wide programs at this time that the capital that we I mean, and we just completed really the last of them.

Speaker Change: Which was not originally planned but the brand change.

Speaker Change: And and renovation of of what's now the Hyatt centric in Santa Monica.

Speaker Change: So were really done with with the need to go out and buy F F any and do major renovation projects through the portfolio.

Speaker Change: Most of where we're spending capital relates to infrastructure.

Speaker Change: Most of that is not impacted by tariffs it's material.

Jon Bortz: It's material supplied in the U.S. So I don't, we haven't really heard of much impact at all from any of those projects that have moved forward. We do have major equipment sometimes. On occasion, it's made outside of the U.S., but a lot of it is made here in the U.S., so whether that's HVAC equipment. And then we have other ROI projects, many of which relate to sustainability and reducing consumption. Some of that comes from outside of the U.S. LED bulbs and things like that in many cases come from outside the U.S. as do some of those fixtures.

Speaker Change: Material supplied in the U S.

Speaker Change:

Speaker Change: So I don't we haven't really heard of much impact at all from any of those projects that have moved forward. We do have major equipment, sometimes on occasion, it's made outside of the U S. But a lot of it is made here.

Speaker Change: And in the U S. So whether that's HVAC equipment, and then we have other ROI projects, many of which relates to sustainability and reducing consumption.

Speaker Change: Some of that comes from outside of the U S led bulbs and things like that in many cases come from outside the U S.

Speaker Change: As do some of those fixtures, but again, we haven't seen any change in those costs yet.

Jon Bortz: But again, we haven't seen any change in those costs yet. I suppose, Ray, any of the solar projects we've been looking at could get affected based upon these tariffs on solar? It could. Fortunately, for some of those solar projects, we bought ahead of the tariffs, so we have some of that in storage. But yeah, some of those areas could put a crimp on it. But look, I think the bigger picture, look, there's a lot of focus right now on the macro and anxiety around what's happening or not happening with demand. But longer term, this should make replacement costs and construction costs go up, which further pushes the new supply risks down.

Speaker Change: I suppose raye any of the solar projects, we've been looking at could get affected based upon these tariffs on solar.

Speaker Change: Unfortunately, some of those smaller projects. We bought ahead of the tariffs. So we got some of that in storage, but yes. Some of those areas could put a crimp on but look I think the bigger picture. There's look there's a lot of focus right now in the macro and anxiety around whats happening or not happening with demand, but longer term. This should make replacement costs and construction costs go up which further pushes the new.

Speaker Change: Hi.

Jon Bortz: It's already very low. I know most people aren't focused on that right now. But over the next three to five years, it's going to continue to put pressure on new supply growth, which is great on our ownership side. Maybe not so much if you're a developer, if you're a brand, but for our side, that's great in a lot of our markets. And I think to your comment about... You know, do we change the way we're allocating capital and will this create opportunities for acquisition?

Speaker Change: Down its already very low I know most people aren't focused on that right now but over the next three to five years. It is going to continue to put pressure on new supply growth, which is great on the ownership side, maybe not so much of your developed there if you're a brand but there are side, that's great and one of our markets and I think to your ear.

Speaker Change: Your comment about.

Speaker Change: How do we change the way, we're allocating capital and will this create opportunities for acquisition I think you know for now where we're going to put capital.

Jon Bortz: I think, you know, for now, where we're going to put capital is going to relate to buying our stock back because we can buy our existing assets back at a way bigger discount and much greater value creation than anything we could buy on the market today. And there's no tariffs on buybacks. Be careful what you say. You never know. It could change somebody's life. Yeah, exactly. We don't want to give anybody any ideas.

Speaker Change: It is going to relate to buying our stock back because we can buy our existing assets back at a way bigger discount and much much greater value creation than anything we could buy.

Speaker Change: On the market today, and there's no tariffs on buybacks and there's no tariffs on buybacks.

Speaker Change: Okay, I guess, what you say you never know could change.

Speaker Change: Exactly we don't want to give anybody any ideas.

Speaker Change: Shape.

Unnamed: All right, thank you very much.

Speaker Change: Alright, Thank you very much.

Speaker Change: Our next question comes from the line of Gregory Miller with Truest. Please proceed with your question.

Gregory Miller: Our next question comes from the line of Gregory Miller with Truist. Please proceed with your question. Thanks. I'd like to ask a question in a similar context to Duane's question, speaking about your drive-to resorts, what are your current expectations for summer? Maybe specifically for the resorts that have stabilized operations or pretty close to that stabilization, do you expect that you're going to have positive rooms around PAR? Yeah, I'd love to be able to answer that. I think there's just too much uncertainty now, and a lot of our, particularly our leisure business in the summer, Greg, is very short-term booked, particularly at the margin, right?

Gregory Miller: Hi, Thanks, good morning, everyone.

Speaker Change: I'd like to ask a question in a similar context Dwayne question.

Speaker Change: Speaking about your drive to resorts what are your current expectations for summer performance.

Speaker Change: And maybe you specifically for the resorts that have stabilized.

Speaker Change: Stabilized operations are pretty close to that stabilization do you expect that youre going to have positive rooms, revpar year over year. This summer.

Speaker Change: Yeah.

Speaker Change: I'd love to be able to answer that I think we there's just too much uncertainty now and in a lot of a lot of our particularly our leisure business in the summer Greg is very short term booked so, particularly at the margin right. So.

Jon Bortz: So you get a lot of repeat business, and some people plan ahead, but you get a lot of people who decide, spur of the moment, or within a week or two, or a few days of when they want to take a vacation. So it's too early to tell, and most, I mean, the vast majority of our resorts are going to benefit from their redevelopments. We don't really have many that are stable at this point in time in terms of the resort category. Maybe a paradise point at this point, but all the others benefiting from more recent redevelopments.

Speaker Change: So you get a lot of repeat business and people. Some people planning ahead, but you get a lot of people, who who decide a spur of the moment.

Speaker Change: Or within a week or two or a few days of win when they went to take a vacation. So it's too early to tell and and most I mean, the vast majority of our resorts are going to benefit from the Redevelopments. We don't really have many that are stable.

Speaker Change: And at this point in time in terms of the resort category, maybe maybe a paradise point.

Speaker Change: At this point, but all the others benefiting from from more recent redevelopments.

Jon Bortz: So it's just too early to forecast what the summer leisure business is going to look like.

Speaker Change: So it's just too it's just too early to forecast.

Speaker Change: What this summer leisure business is going to look like.

Speaker Change: Okay understood.

Jon Bortz: Maybe just switching to a different topic, you're speaking about potential labor reductions and operating efficiency. Are you afraid of anything that's guest-faced? playing a little bit of a Devil's Advocate. How are you preventing? guest satisfaction scores or your rate positioning not being negatively impacted by your Yeah, so that's a big focus of ours is when we, before we implement things in the portfolio, we're always looking at what impact will this have on the customer experience. And as you know, particularly with our independent hotels, but really all of our properties, including a lot of our major branded properties, which tend to be lifestyle focused, we are focused on the and redevelopments and amenities and reconcepting that we've done.

Speaker Change: Maybe just switching to a different topic you are speaking about.

Speaker Change: Labor reductions and operating efficiency efforts.

Speaker Change: And you can get guest facing and playing a little bit of a Devil's advocate here how are you preventing.

Speaker Change: Guest satisfaction scores or your rate positioning not being negatively impacted by your efforts.

Speaker Change: Yeah. So that's a that's a big focus of ours as well when we before we implement things in the portfolio, where we're always looking at what impact will this have on the customer experience and as you know were.

Speaker Change: Particularly with our independent hotels, but but.

Speaker Change: Really all of our properties, including a lot of our major branded properties, which which tend to be lifestyle focused we are focused on the experience that the customer gets.

Speaker Change: And that's a big part of the transformations and Redevelopments and amenities and re concept thing that we've done. So we don't want to do anything that that the customer cares about their often things that customer doesn't care about doesn't want to pay for.

Jon Bortz: So we don't want to do anything that the customer cares about. There are often things the customer doesn't care about, doesn't want to pay for, that either a brand or maybe things that might have been done in the where the customer's interests and have changed. And then I, and those we would make changes on and be open to making changes on. But most of what we're talking about has to do with efficiency, not changing the service. We're constantly monitoring the customer reviews. Our rankings of customer satisfaction have gone up consistently every year since the pandemic, before the pandemic.

Speaker Change: That that either a brand or maybe things that might have been done in the past where the customers are.

Speaker Change: Interests and have have changed and then.

Speaker Change: And those we would make changes on and be open to making changes on but most of what we're talking about has to do with efficiency not changing the service. We're constantly monitoring the customer reviews, our rankings of customer satisfaction have gone up consistently every year since the.

Speaker Change: Pandemic.

Before the pandemic.

Jon Bortz: That's a high focus of ours as well. So, you know, customers are quick to tell you when they're unhappy. And so if we do something that creates unhappiness, we're going to reverse it pretty quickly, assuming we think it's going to have an impact on business.

Speaker Change: That's a high focus of ours as well so.

Speaker Change: Customers are quick to tell you when they're unhappy.

Speaker Change: And so if if we do something that creates on happiness, we're going to reverse it.

Speaker Change: Quickly, assuming we think its going to have an impact on business.

Jon Bortz: Thank you, John.

Thank you John.

Unnamed: Thank you, Greg.

Speaker Change: Thank you Greg.

Speaker Change: Our next question comes from the line of Ari Klein with BMO capital markets. Please proceed with your question.

Aryeh Klein: Our next question comes from the line of Aryeh Klein with BMO Capital Markets. Please proceed with your question. Thanks, and good morning.

Ari Klein: Thanks, and good morning, John I think you've previously talked a little bit about seeing some price.

Jon Bortz: Jon, I think we previously talked a little bit about seeing some price consciousness on the part of higher end curious if you're if you're seeing that now and how you'd expect that to play out particularly as it relates to maybe rates moving through the rest Yeah, I mean, I mean, clearly, if you look at our portfolio, our gains have primarily been through occupancy, not not as much through rate. I think that's, that that's a result of two things. One is mix, where the occupancy, the additional occupancy is coming from within the portfolio. We've talked about that in previous calls.

Ari Klein: Consciousness on the part of high higher end consumers curious if you're if you're seeing that now and how you would expect that to play out, particularly as it relates to maybe Oh.

Ari Klein: Rates are moving to the rest of the year.

Ari Klein: Yeah, I mean, I I mean, clearly if you look at our portfolio.

Ari Klein: Our gains have primarily been through occupancy not not not as much through rate.

Ari Klein: I think that's that that is a result of two things one is mix, where the occupancies. The additional occupancy is coming from within the portfolio, we've talked about that in previous calls.

Jon Bortz: And then two, yes, sensitivity on the part of the customer. Them, them waiting to buy when things are on sale or discount or special offerings. You know, we try to do value add offerings in most of our properties versus just discounting. But sometimes you we have to do discounting to drive a marginal occupancy. And given the spend that goes on at our properties, you know, we've determined that in almost all cases within our portfolio today. Occupancy is as profitable as rate is within our portfolio because of all the additional spend that that that's been added and that occurs through all the amenities that we've added at our properties.

Ari Klein: And then too.

Ari Klein: <unk> sensitivity on the part of the customer.

Ari Klein: Them them waiting to buy when things are on sale or a discount or special offerings.

Ari Klein: We tried to do value add offerings had most of our properties versus just discounting but.

Ari Klein: Times, you, we have to do discounting to drive a marginal occupancy and given the spend that goes on at our properties.

Ari Klein: Determined that in almost all cases within our portfolio today occupancy is as profitable as rate is within our portfolio because of all the additional.

Ari Klein: Spend that debt that's been added and that occurs.

Ari Klein: Through all the amenities that we've added in our properties. So.

Jon Bortz: So so that tends to be the way we're focused on it. And it's not all about just price. But but, yes, there we've been seeing price sensitivity really since twenty two.

Ari Klein: So that tends to be the way we're focused on it and.

Ari Klein: It's not all about just price.

Ari Klein: But yes, there we've been seeing price sensitivity really since 2002.

Jon Bortz: particularly when people decided that they didn't want to pay that extra money for suites or for view rooms and so we're always balancing what those premiums are for those premium rooms. And then maybe just going back to DHC and the Doge Impacts, curious how you think about that market longer term, and if your views there have changed in it anyway. I'm not, I'm not sure I follow that question. Shoot it to me again. On D.C., does what's happening with Doge change your longer-term views on that market and how much exposure? It really doesn't. It's Again, as I mentioned, there are a lot of good things going on in D.C.

Ari Klein: Particularly when.

Ari Klein: People decided that they didn't want us pay that extra money for suites are for view rooms, and so we're always balancing what those premiums are for those premium rooms.

Ari Klein: Thanks, and then maybe just going back to I E.

Ari Klein: Jeff Doge impact just curious how you think about that market longer term and if your views there have changed in any way.

Ari Klein: I'm not I'm not sure I follow that question.

Ari Klein: She was asking me again.

Speaker Change: D C.

Speaker Change: What's happening with does change your longer term views on that market.

Speaker Change: How much exposure you would want to have that.

Speaker Change: It really doesn't.

Speaker Change: It is.

Speaker Change: Again as I mentioned, there are a lot of good things going on in D. C. D. C is a very resilient has been over the decades I've I've lived through.

Jon Bortz: D.C. is very resilient, has been over the decades. I've lived through... You know, many presidents who came in to make cuts and some who were successful and some who were not, and government growth itself hasn't been the driving force behind D.C.'s growth over the last probably 20 years. I mean, the size of the government workforce here hasn't increased over that period of time. It's really all the private industry and, of course, business that does serve government that chooses to try to co-locate in the market, particularly in Northern Virginia or Maryland. So, I don't think our view on DC changes, and I think, you know, this administration has, you know...

Speaker Change: You know many presidents who came in to make cuts in and some who were successful and some who were not and.

Speaker Change: And government growth itself hasn't been the driving force behind <unk> growth over the last.

Speaker Change: Probably 20 years I mean, the size of the government workforce here has in it is it has an increased over that period of time, it's really all of the private industry and then of course business that does serve government there.

Speaker Change: Chooses to try to co locate.

Speaker Change: In the market and particularly in northern Virginia.

Speaker Change: Or or Maryland, So I don't think our view on on on D. C changes and I think you know this administration as you know.

Jon Bortz: Four years left, and we'll move on to the next one, who may have a completely different viewpoint.

Speaker Change: Four years left and I wont move onto the next one who may have a completely different viewpoint.

Speaker Change: Thank you.

Chris Darling: Our next question comes from the line of Chris Darling with Green Street. Please proceed with your question. Thanks. Good morning. Jon, your framing of government and government adjacent exposure earlier in the call was helpful. Can you do the same for international travel? And then what are you seeing in the bookings data for international? How does that kind of compare with sort of the tough outcome in March? And where do you think the portfolio might be more or less at risk going forward? Yeah, I mean, I... Again, I think our industry doesn't do a great job with our own data in terms of where the customer comes from because a lot of times if an international traveler books their business and they do it through a U.S.

Speaker Change: Our next question comes from the line of Chris Darling with Green Street. Please proceed with your question.

Chris Darling: Hey, Thanks, good morning.

Chris Darling: John you're on framing of government and government adjacent exposure earlier in the call was helpful. Can you do the same for international travel and then what are you seeing in the bookings data for international how does that kind of compare with sort of the tough outcome in March and where do you think the portfolio might be more or less at risk going forward.

Chris Darling: Yeah, I mean I I.

Chris Darling: Yeah.

Speaker Change: Again, I think our industry doesn't do a great job with our own data in terms of where the customer comes from because a lot of times, if an international traveler books their business and they do it through a U S travel agent.

Jon Bortz: travel agent, they don't show up as an international inbound. So frankly, we're a little more forced to look at anecdotal information and then look at the the good news at least about the government data is it's a lot more timely than it used to be. It's only about a month behind from a time perspective. It used to be six or nine months. some crazy amount of time. So, I think, you know, there likely was some impact from the Easter shift that hit March hard. We'll see what April looks like and see how much of that reverses.

Chris Darling: They don't show up as a as an international inbound.

Chris Darling: Frankly, we're a little more force to look at anecdotal.

Chris Darling: Information is and then look at the government data when it comes out on a monthly basis.

Chris Darling: The good news at least about the government data, it's a lot more timely than it used to be.

Chris Darling: It's only about a month.

Chris Darling: Behind from a time perspective, it used to be six or nine months or.

Chris Darling: Some crazy amount of time, so I.

Chris Darling: I think.

Chris Darling: They're they're likely with some impact from the Easter shift that hit March hard.

Chris Darling: We'll see what April looked like looks like and see how much of that.

Chris Darling: How much of that reverses.

Jon Bortz: And I think in my comments I mentioned I don't think it's likely to continue at this sort of down 10% that March was on a year-over-year basis, but frankly, we don't know. We're going to have to wait and see. You're talking about human behavior and reaction to You know, government policies and rhetoric and things being said, and so we just have to wait and see. We've heard from some of our conferences that people have had a hard time getting visas to come in for some of these conferences, that it's taking longer. They're not getting their visas or they're getting them a day or two before the conference, which makes it hard for people to plan and commit to traveling.

Chris Darling: Think in my comments.

Chris Darling: I mentioned I think.

Chris Darling: King.

Chris Darling: It's likely to continue at this sort of down 10% that March was.

Chris Darling: On a year over year basis, but but frankly, we don't we don't know we're going to have to wait and see you were talking about human behavior in reaction to.

Chris Darling: You know government policies and rhetoric and.

Chris Darling: Things being said.

Chris Darling: And so.

Chris Darling: We just have to wait and see.

Chris Darling: We've heard from some of our conferences that people have had a hard time getting visas to come in for some of these conferences that it's it's taking longer.

Chris Darling: They're not getting their visas are there, they're getting them a day or two before the conference which.

Chris Darling: Makes it hard for people to plan.

Speaker Change: And commit to traveling.

Jon Bortz: We've been talking to the administration as an industry about trying to speed that up since that's an export, if you will. It's great for people to come to this country and spend money, and we want them to feel welcome to do that, so we're trying to help push to create that environment, but clearly that's not the environment that is the perception right now on the part of travelers. So a lot of uncertainty. You know, the impact is probably more in the urban markets than it would be in our resort markets, and it's... probably the East Coast markets and Florida, that would be the ones most impacted at this point.

Speaker Change: We've been talking to the administration as an industry.

Speaker Change: About trying to.

Speaker Change: Speed that option since such an export if you will it's great for people to come to this country and spend money.

Speaker Change: And we want them to.

Speaker Change: Feel welcome to do that so we're trying to help.

Speaker Change: Push to create that environment, but clearly that's not the environment that is the perception right now.

Speaker Change: On the part of travelers so.

Speaker Change: A lot of uncertainty.

Speaker Change: The impact is probably more in the urban markets then it would be in our resort markets and it's.

Speaker Change: It's.

Speaker Change: Probably.

Speaker Change: The east coast markets, and Florida that would be the ones most impacted at this point a lot of the Asian travel.

Jon Bortz: A lot of the Asian travel has already been slow to recover, doesn't seem to be being impacted by. policies and rhetoric as much as European and Canadian travel. We're not in New York, which is obviously the biggest international market in the United States, and so the rest of our markets tend to be down in the mid-single digits, maybe D.C. in the upper single digits. And Chris, I think it's also important to look at the other side of that ledger is the outbound from the U.S. travelers, which is way above where it was pre-COVID. And with the concerns around the macro and all that, and some people maybe staying close to home and drive to, that could be a benefit of some of this slowdown, where there's more U.S.

Speaker Change: As has already been slow to recover it doesn't seem to be being impacted by.

Speaker Change: The policies and rhetoric as much.

Speaker Change: As European and Canadian travel, we're not in New York, which is obviously the biggest international market in the United States.

Speaker Change: And so the rest of our markets tend to be down in the in the mid single digits.

Speaker Change: Maybe DC in the upper single digits.

Speaker Change: And Chris I think it's also important looking at the other side of that that measure is the.

Speaker Change: Outbound from the U S travelers, which is way above where it was pre COVID-19 and where there are concerns around the macro and all of that and some people may be staying close to home and drive to that could be a benefit of some of the slowdown when there's more U S travelers staying domestically and vacationing here.

Jon Bortz: travelers staying domestically and vacationing here versus going out to Paris for the Olympics and going to Japan and Europe, which we've seen a lot of. So there's other side of the two. I think it's important to look at both sides of the equation when speaking to international demand. And I think that, look, the dollar has softened over and come down over the last month or two. That would normally be helpful to inbound international and would normally be hurtful for outbound. So we'll see what impact the dollar has as well on that imbalance. Yeah, that's all helpful commentary.

Speaker Change: Versus going out to Paris for the Olympics, and go into Japan, and Europe, which we've seen a lot. So there's always guided the two I think it's important to look at both sides of that equation. When we look at when speaking of international demand and I and I think that.

Speaker Change: Look the dollar has softened over and come down over over the last month or two so that wouldn't normally be helpful to inbound international and would normally be hurtful for outbound. So we'll see what impact the dollar has as well on on that on that imbalance.

Speaker Change: <unk>.

Speaker Change: Got it yeah. That's all helpful commentary I appreciate it.

Jon Bortz: Appreciate it.

Jon Bortz: Maybe on just a more positive note real quick, I think I heard you say that Key West enjoyed positive RevPAR growth in the quarter. One of your peers, I think, reported a decline in Key West. Curious, you know, how your performance compared to the market there and maybe, you know, perhaps what you did right or what went right for you. Well, it's really two things. One is we're benefiting from significant investment dollars that we put into the southernmost resort and marker and upgrading both of them. And so we're gaining share in the market, on the market.

Speaker Change: On the just a more positive note real quick I think I heard you say that key west enjoyed positive revpar growth in the quarter. One of your peers I think reported a decline in key West curious you know how your performance compared to the market there and maybe perhaps what you did right or what went right for you.

Speaker Change: Well we.

Speaker Change: It's really two things one is we were.

Speaker Change: We're benefiting from significant investment dollars that we've put into the southernmost resort in end marker and upgrading both of them.

Speaker Change: And so we're gaining share in the market on the market.

Speaker Change: That's that's number one number two is I think from a strategy perspective are we tried to get out in front of what we expect it to be some slowdown.

Jon Bortz: That's number one. Number two is, I think, from a strategy perspective, we tried to get out in front of what we expected to be some slowdown in demand. And so we put more business on the books further out. And that's been helpful. Thank you for the time.

Speaker Change: In demand and so we put more business on the books further out.

And and that's been helpful.

Speaker Change: Got it thank you for a bit of time yep. Thank you.

Chris Darling: Thanks, Chris.

Unnamed: We have reached the end of the question and answer session.

We have reached the end of the question and answer session. Mr. Bortz I'd like to turn the floor back over to you for closing comments.

Ray Martz: Mr. Bortz, I'd like to turn the floor back over to you for closing comments. Thanks everybody. For those who are still there, we appreciate you taking the time. We know it's a busy day with lots of calls. We look forward to updating you in 90 days and hopefully we'll have more clarity at that point in time. In the meantime, I hope you'll have a nice summer and we'll talk to you in late July. Thank you.

Thanks, everybody for those who are still there. We appreciate you taking the time, we know it's a busy day with lots of calls we look forward to updating you in 90 days and hopefully we'll have more clarity at that point in time in the meantime.

Chris Darling: You'll have a nice summer and we'll talk to you.

Chris Darling: In late July thank you.

Unnamed: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Chris Darling: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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