Q3 2025 Pebblebrook Hotel Trust Earnings Call

Brief question and answer session will follow the formal presentation.

But someone else, but not for me.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

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

Jon Bortz: On the technology front, we continue to pilot AI-enabled tools aimed at improving hiring, retention, service delivery, cleanliness, and overall productivity across our portfolio. The pace of AI and robotics innovation is accelerating rapidly, and we're working closely with QRator to identify and implement the most impactful solutions. We expect the hotel operating model to look quite different in a few years from now, and we intend to stay ahead of that curve. We've also begun implementing some of the new technologies aimed at reducing energy and water usage, and we're investing in new systems, including solar and HVAC upgrades, where the ROI is compelling. Now, shifting to the fourth quarter, we remain cautious on Q4 given the macroeconomic outlook and the ongoing uncertainty related to the government shutdown, tariff policy, governmental efforts to reduce government spending, and the ultimate impact of these policies on the economy.

Alright, Thank you Christine and good morning, everyone welcome to our third quarter 2025 earnings call joining.

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Joining me today is Jon Bortz, our chairman and Chief Executive Officer.

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Tom Fischer, our co president and Chief investment Officer.

Before we start I'll remind everyone that our remarks.

As of today November six 2025, and our comments may include forward looking statements that are subject to various risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today.

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Now, let's jump into the quarter.

We're pleased to report that our third quarter performance was in line with our outlook in a challenging quarter shaped by heightened geopolitical and macro economic uncertainty as well as an unfavorable holiday calendar shift, we again delivered solid operating results and industry leading cost controls.

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This execution sets us up well for 2026, given the robust convention and major event calendars across our markets.

Same property hotel EBITDA totaled $105 4 million in line with our mid point, while adjusted EBITDA came in at $99 2 million exceeding our midpoint by $2 2 million.

Jon Bortz: While it's becoming increasingly clear where the level of most travel tariffs are likely to settle, particularly with the most recent events in Asia, we believe both businesses and consumers remain more cautious until there's more clarity on the details of these agreements and until the shutdown ends. Economists agree, as they continue to forecast slower growth in the near term. Specifically, the government shutdown, now in its sixth week, is clearly hurting travel. Government travel and travel to visit with the government is down all over the country, and it's obviously much more pronounced in Washington, D.C. Many business and leisure travelers are becoming more hesitant about air travel while the shutdown persists. Unfortunately, we've seen a notable increase in government and government-related cancellations everywhere, and we've experienced slower pickup in many markets around the country, especially in D.C., and to a lesser extent in San Diego.

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Together these results reflect the resilience of our operating model, our relentless focus on driving operating efficiencies.

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Our disciplined cost management.

On the ground performance was led by our properties in San Francisco and Chicago.

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Alongside strong contributions from several of our recently Redeveloped resorts, including Newport Harbor Island Resort and Jekyll Island Club resort.

Turning to portfolio trends same property occupancy increased nearly 190 basis points, while ADR declined five 4%, resulting in a three 1% decline in Revpar and a one 5% drop in same property total revpar.

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If you exclude Los Angeles, and Washington D C. Our two most challenged markets in the quarter.

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Total revpar actually was up <unk>, 6%.

The decline in ADR was primarily driven by competitive pricing in D. C. MLA stemming from disruptions related to the ice activity and the National Guard deployments.

Jon Bortz: This negative impact is now showing up in the STR numbers for the industry. RevPAR growth, which was primed for a very positive October, is now trending closer to slightly negative for the month. Our preliminary October results were more favorable. Total RevPAR increased approximately 4%. This illustrates the benefits of our high-quality properties, and the added and enhanced venues, event spaces, and amenities throughout our portfolio. Our concern, of course, for the rest of the quarter is that air travel is likely to be impacted at increasing levels as the shutdown lengthens, and then the recovery may be more gradual once the shutdown ends. DOT's announcement last night of a 10% reduction of flights beginning Friday won't help demand unless it leads to a quicker resolution of the shutdown. As a result, it's difficult to forecast the rest of Q4.

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We also saw more demand coming through lower priced booking channels offsetting softer group attendance and government travel, even though occupancy increase in six of our seven urban markets and across nearly all of our resorts.

Greetings and welcome to Pebblebrook Hotel trust third quarter earnings conference call.

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

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

San Francisco was once again the standout.

Revpar rose eight 3% in Q3 on a 690 basis point jump in occupancy driving EBITDA higher by 10, 9%.

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As a reminder, this conference is being recorded.

Growth was broad based with increases fueled by an active convention calendar and a continued recovery in both business travel and leisure demand.

It is now my pleasure to introduce your host. Raymond Martz, co-president and Chief Financial Officer. Thank you sir. You may begin.

Results would have been even stronger but for the massive dream for citywide convention shifting into October from September the previous year.

All right. Thank you. Christine and good morning, everyone. Welcome to our third quarter 2025 earnings call.

Importantly, positive momentum continues in San Francisco with a very strong fourth quarter well underway.

Joining me today is John Bartz, our chairman and chief executive officer and Tom, Fischer. Our co-president and chief investment officer.

San Francisco has gone from a laggard to a leader led by the AI Revolution, which.

Which is headquartered in the city and by San Francisco is tremendous progress in becoming a cleaner safer and more vibrant city.

Jon Bortz: Our current outlook assumes the shutdown will end soon. As of 1 October 2024, our revenue pace for Q4 was ahead of last year by 2.1% or $2.6 million. This represents an improvement from 90 days ago. With the government shutdown lasting the entire month of October and already a week in November, the positive pace for Q4 has likely been negatively impacted. We do not yet have data on that, and we will not for a few more days. Our Q4 outlook assumes same property RevPAR will range between minus 1.25% to up 2%, with total RevPAR between a negative 1.25% and a positive 2.7%. On the cost side, due to the benefits of our strategic efficiency and productivity efforts, we expect total hotel expenses to grow just 0.8% at the midpoint. That means expenses per occupied room should decline again in Q4. As we look ahead to 2026.

Chicago also posted another solid quarter with Revpar, increasing two 3% unhealthy leisure events, such as concerts and sports.

But before we start, I'd like to remind everyone that our remarks are effective. As of today, November 6th 2025 our comments. May include 4 looking statements, that are subject to various risk and concerns. Please refer to our entity filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-gaap Financial measures mentioned today.

Now, let's jump into the quarter.

Proving weekday corporate travel and stronger weekend leisure.

These positive results were achieved despite chicago facing an extremely difficult comp to last year, where the city hosted the Democratic National Convention in August.

We're pleased to report there are third quarter performance within line with our Outlook in a challenging quarter shaped by heightened geopolitical and macroeconomic concern d, as well as an unfavorable holiday calendar shift. We again delivered the solid operating results, in industry-leading cost controls.

Both San Francisco, and Chicago continue to pace well through year end and into 2026, which reflects a one of the many reasons, we're more constructive on next year.

This execution sets us up well for 2026, given the robust convention and major event calendars across our markets.

Our resort portfolio also remained resilient with total revpar, increasing by 7% led by exceptional growth at Newport Harbor Island resort, where revpar jumped 29% and total revpar surge an impressive 35, 9%.

Same property, Hotel ibida. Total width 105.4 million in line with our midpoint while adjusted even out came in at 9.2 million exceeding our midpoint by 2.2 million.

Adjusted FFO per share was $1.00, three cents above our midpoint.

Its pre renovation performance in 2023.

Together, these results reflect the resilience of our operating model. Our relentless focus is on driving operating efficiencies.

Jekyll Island club resort generated 8% Revpar increase with total revpar growing over 11%.

And our discipline cost management.

On the ground performance was led by our properties in San Francisco and Chicago.

La <unk> La Jolla, as Revpar rose five 7%.

These properties illustrate the power of our redevelopment program, which is driving market share gains and growing profitability as these properties climb towards stabilization.

Jon Bortz: We remain cautiously optimistic due to our belief that fundamentals provide a favorable setup for next year. We believe macroeconomic uncertainty will fade. Hotel demand is likely to normalize with GDP growth, and we know new supply will remain at historically low levels. I know there are many professional prognosticators who are currently forecasting limited RevPAR growth for 2026. There are several significant pluses for next year, both for the industry and specifically for our portfolio. Let's start with prospects for favorable demand growth in 2026, and a return to the positive correlation between GDP growth and hotel industry demand growth. I know some skeptics out there believe there's no longer a correlation, but we don't fall into that camp.

Alongside strong contributions from several of our recently. Redeveloped Resorts, including Newport Harbor Island Resort and Jackal Island Club covers Resort.

Across our urban markets performance was more mixed.

Urban toll of Revpar declined two 7% as strength in San Francisco, and Chicago was offset by ongoing weakness in Los Angeles, and Washington D. C and a later year over year convention calendars in Boston and San Diego.

During the portfolio Trends, same property up occupancy increased, nearly 190 basis points, while ADR declined 5.4%, resulting in a 3.1% decline in revpar, and at 1.5%, drop in same property. Total rep are

If you exclude Los Angeles and Washington. DC are 2. Most challenged markets in the quarter.

Total rep are actually was up 6%.

Washington D. C was our softest market, where revpar down 16, 4% due to reduced government or government related travel demand and lower tourism activity we.

The decline in ADR was primarily driven by competitive pricing in DC nla.

Stemming from disruptions related to the ice activity and the National Guard deployments.

We expect these challenges to persist throughout much of Q4, given the federal government shutdown. However, the stuff in D. C should improve significantly in 2026 were more normalized federal travel a favorable convention calendar and numerous America $2 50 events.

We also saw more demand coming through lower price booking channels, offsetting softer group attendance and government travel, even so occupancy increased in 6 of our 7 Urban markets and across nearly all of our resorts.

San Francisco is once again the standout

In Los Angeles, Revpar declined 10, 4% driven entirely by rate.

Jon Bortz: As the monkey sang, I'm a believer, we strongly believe that our industry has experienced a unique set of factors that have temporarily disrupted the correlation, and as these factors fade or disappear, demand growth should resume its positive historical connection to GDP growth. Listen to these numbers for annual hotel room night demand growth beginning back in 2010. 2010, 7.2%, coming out of the Great Financial Recession. 2011, 4.6%, still recovering from the GFC. 2012, 2.8%. 2013, 1.5%. 2014, 3.9%. 2015, 2.4%. 2016, 1.6%. 2017, 2.2%. 2018, 2.2%. 2019, 1.5%. Pretty consistent and healthy demand growth for every year in the economic cycle. I'm going to skip 2020 to 2022, which were pandemic-impacted with huge negative and then positive volatility. For 2023, demand growth was 1%, with continuing normalization from the pandemic growth blip in 2022. 2024, 0.6%, with the first three quarters of normalization.

Great greater price competition and emerge from the negative impact of the devastating fires earlier in the year and the pressures did not decline in Q3 as the ice raids and National Guard deployments and created a perception of disruption and safety concerns driving continued rate pressure.

Repar, Rose 8.3% in Q3 on a 690 basis point jump in occupancy, driving ibida, Higher by 10.9%.

growth was broad-based with increases fuel by an active convention, calendar, and a continued recovery in both business travel, and Leisure demand,

Conditions are stabilizing as the political environment caused an entertainment production gradually improves so we expect L. A to only be a minor headwind in the fourth quarter.

Results would have been even stronger but for the massive Dream Force Citywide convention shifting into October from September of the previous year.

Boston and San Diego experienced year over year declines attributed to lighter commit that's why it's calendar and the city as well as softer group attendance. San Diego has also been negatively impacted all year by the significant cutback in federal government travel.

Importantly, positive, momentum continues in San Francisco, with a very strong, fourth quarter, well underway.

No doubt. San Francisco has gone from a lagard to a leader.

That by the AI Revolution.

Which is headquartered in the city and by San Francisco's, tremendous progress in becoming a cleaner safer and more vibrant City.

It said both markets continue to exhibit steady underlying trends in leisure and business travel.

On a monthly basis July same property total revpar decreased one 1%.

Chicago also posted another solid quarter with occupancy rates increasing 2.3% due to healthy leisure events, such as concerts and sports, which improved weekday corporate travel and strengthened weekend leisure.

August was essentially flat.

In September fell three 3% with the midweek timing of the Jewish holidays being a major headwind for September as expected.

Achieved, despite Chicago facing an extremely difficult comp. The last year, when the city hosted the Democratic National Convention in August

On the revenue side same property revenues grew one 7% supported by stronger events space utilization elevated food and beverage performance and the benefit of upgraded amenities across our redeveloped properties.

Both San Francisco and Chicago continue to Pace well through year end and into 2026.

Which reflects one of the many reasons we're more constructive on next year.

Transient demand strains about three 8% in Q3 as the booking window remains shorter aided by growth in our wholesale and consortia channels.

Our Resort portfolio also remained resilient with total rep bar increasing by 7%. Led by the exceptional growth at Newport Harbor Island Resort.

Where rep Park, John 29%.

Group occupancy declined by 2% primarily due to a later than expected attendance at health care education and government attended were related events. This trend is consistent with our national data STR has been publishing which we also highlighted last quarter.

Jon Bortz: For 2025 year-to-date through September, it was negative 0.2%. With massive disruptions from government cutbacks, material declines, and international inbound travel due to nationalistic rhetoric, and significant economic uncertainty due to arguably the most significant policy uncertainty in the past 50 years, could there be more material disruptions in the future? Of course, there could be. However, we believe it's more likely that much of this uncertainty dissipates, and the business and investment-friendly legislation passed a few months ago, combined with the benefits of significant deregulation, will finally begin to kick in in a very favorable way and provide a nice tailwind for the macroeconomic environment in 2026. The supply picture continues to provide a fundamental tailwind for the industry and for us in our markets. There is very little supply being added in the industry, and new construction starts continue to run lower than deliveries.

And total rep bar, Surge and impressive 35.9% versus its pre- renovation performance in 2023.

Jackal Island Club Resort generated an 8% repair increase, with total rep park growing over 11%.

Lossia La Hoya's Rapar rose 5.7%.

The operating expense side execution remained excellent.

Same property hotel expenses before fixed costs rose just <unk>, 4% year over year.

these properties illustrate the power of our Redevelopment program which is driving market, share gains and growing profitability as these properties climb towards stabilization

And on a per occupied room basis expenses declined about 2%.

Across our Urban markets performance was more mixed.

That's another quarter of exceptional operating discipline by our hotel teams and asset managers, creating efficiencies and lowering operating costs.

Turning until apply enables Florida or whether resiliency improvements are just a week or two away for being substantially complete.

Urban to our rep part of the client 2.7% as strength in San Francisco. And Chicago was offset by August and weakness in Los Angeles and Washington DC. And the later year-over-year convention calendars in Boston and San Diego.

We expect <unk> to generate approximately $36 6 million in adjusted EBITDA This year, including both hotel EBITDA to be income.

Washington, DC was our softest Market where ref par down 16.4% due to reduced government and government related travel demand and lower tourism activity.

This compares to $42 8 million in 2024, which benefited from elevated Ti collections following hurricane.

On the catalyst side, we invested $14 2 million in the quarter and remain on track to invest $65 million to $75 million this year, reflecting.

Jon Bortz: Given that it takes three to four years to deliver new high-rise urban or resort properties from the first shovel in the ground, the runway for recovery and improvement is long. Whenever we get to the runway, which we hope is next year, the other significant tailwind for 2026 is that the holiday calendar next year is meaningfully more favorable than 2025. For example, for all you sweethearts out there, take note. Valentine's Day falls on a Saturday next year versus a Friday this year. Sorry, the gang here's cracking me up. It also falls over the President's Day weekend, creating the potential for a much stronger leisure weekend with less midweek disruption. Juneteenth shifts to a Friday from a Thursday, reducing the negative impact on weekday business travel from the holiday.

We expect these challenges to persist throughout much of Q4, given the federal government shutdown. However, the setup in D.C. should improve significantly in 2026, with more normalized federal travel, a favorable convention calendar, and numerous America250 events.

Reflecting a return to a normalized capital investment pace. Following our now completed multiyear redevelopment program.

in Los Angeles rep, part of the client 10.4% driven entirely by rate,

This lower run rate supports higher discretionary free cash flow and gives us more balance sheet flexibility.

We also entered into an agreement to sell one of our hotels for $72 million with a buyer having provided a nonrefundable deposit under the contract.

Great greater group price competition, emerged from the negative impact of the devastating fires, earlier in the year. And the pressures did not decline in Q3 as the ice raids and National Guard. Deployments created a perception of this eruption and safety. Concerns driving continued. Rate pressure.

Consistent with our purchase agreement, we can't disclose the specific hotel or a buyer at this time.

The property has been classified as held for sale and we expect the transaction to close in the fourth quarter subject to customary closing conditions.

Conditions are stabilizing as the political environment calls and entertainment production gradually improves. So we expect LA to only be a minor headwind in the fourth quarter.

That said there is no assurance that a sale will be completed on these terms of prototypes.

Boston and San Diego experienced year-over-year, the clients attributed to later, commit con convention wide calendars in the city as well as softer group attendance.

Potential disposition is not reflected in our fourth quarter, our full year outlook.

San Diego has also been negatively impacted all year by the significant cutback in federal government travel.

Shifting to our balance sheet, we remain extremely pleased with the successful $400 million offering of 165% convertible notes we completed in September.

That said, both markets, continue to exhibit steady, underlying Trends, and Leisure and business travel.

Jon Bortz: July 4th moves to a Saturday from a Friday, creating the perfect weekend for all the America 250 celebrations. The Jewish holidays in the fall occur either over a weekend or a Monday, thank God, causing less of a negative impact on business travel for those two weeks. Halloween falls on a Saturday next year versus a Friday this year. That's a definite treat for less midweek disruption. Christmas provides a nice gift by moving closer to the weekend, creating a more favorable long weekend for holiday leisure travel. New Year's Eve also moves closer to a weekend, creating a better pattern for leisure travel to celebrate the year-end. The hotel industry will also benefit from a uniquely active major events calendar next year. Numerous cities will be boosted from the World Cup being hosted in the US, and from many activities surrounding America's 250th anniversary celebration.

We use these proceeds to retire $400 million of our 175% convertible notes due 2026, and a 2% discount to par, leaving a very manageable 350 million outstanding.

on a monthly basis, July same property, total rep bar decreased 1.1%,

August was essentially flat.

And September fell 3.3% with the midweek timing of the Jewish holidays. Being a major headwind for September as expected.

We also concurrently repurchased $50 million worth of common shares during the quarter at a significant discount to NAV.

Other Revenue side, same property out of revenues, grew 1.7%.

Which is accretive to <unk> and NAV per share.

We ended Q3 with $232 million of cash and we expect to generate over $100 million in free cash flow by the end of 2026 or.

supported by stronger event, space utilization, elevated food, and beverage performance, and their benefit of upgraded, amenities across our redeveloped properties,

Our plan is straightforward use cash on hand, and free cash flow to take out the remaining convertible notes maturing in December 2026.

Transit demand strained by 3.8% in Q3 as a booking window. Remains shorter aided by growth in our wholesale and conser channels.

All told it was another quarter of disciplined execution amid a choppy and uncertain demand backdrop.

And with that I'll hand, it over to John to provide more details on the third quarter our outlook for Q4 and a look ahead to 2026 done thanks, Greg.

Group aimants, you do, Climb by 2%, primarily due to later than expected attendance at Healthcare, education and government attended, or related events.

This trend is consistent with the national data STR has been publishing, which we also highlighted last quarter.

When we look at the industry's performance the third quarter looked a lot like the second only a bit softer.

The operating expense side. Execution remained, excellent.

Jon Bortz: For Pebblebrook, we expect to benefit from all these tailwinds, as well as a few of our own. Based on what we know today, we believe we'll outperform the industry next year. Our redeveloped properties, which are still ramping up, will contribute to this outperformance. Several of our urban markets, including San Francisco, Portland, and Chicago, are primed to continue their recoveries. LA comps will be much easier due to the negative impact from the fires and other safety-related disruptions. DC, too, has easy comps for next year, along with a stronger convention calendar. On top of that, we expect to see significant incremental demand from a multitude of major events across our portfolio: 28 World Cup matches across our markets, featuring eight matches in LA, seven matches each in Boston and Miami, and six in San Francisco, as well as NCAA Men's Basketball tournament rounds in four of our markets.

Demand was slightly down year over year and that caused renewed pricing competition, which led to a lack of ADR growth.

Same property Hotel expenses before fixed costs Rose is 4% year-over-year and on a per occupied room basis expenses. Decline about 2%,

Group demand was most pressure.

It was lower in all three months due to reduced government travel weaker international participation at conventions in conferences.

That's another quarter of exceptional operative discipline by our hotel teams and asset managers creating efficiencies and lowering operating costs.

And some increasing attrition.

According to apply enables Florida or whether resiliency improvements or just a week or 2 away from being substantially complete.

Transient demand, including leisure held up better.

It remained positive versus last year.

That mix favored weekends over weekdays for the broader industry and for pebble broth.

We expect to apply to generate approximately 36.6 million in adjusted ibida this year, including both hotel ibida and bi income.

In terms of industry performance by price point or scale.

This compares to 42.8 million in 2024, which benefited from elevated bi-collections following Hurricane Ian.

There remains a sharp divide between the upper and lower ends of the market.

Premium hotels and resorts continue to perform better.

While the bottom half seeing much more weakness as cost conscious consumers pulled back on their discretionary spending.

Redevelopment program.

In Q3, we faced the same fundamental challenges as the industry.

This lower run rate, supports higher, discretionary, free cash flow and gives us more balance sheet flexibility.

But the localized disruptions in la and Washington, DC drove our third quarter performance below the industry average.

Jon Bortz: The 250th US Anniversary celebrations in DC, Boston, and likely other cities. The Super Bowl in San Francisco, the NBA All-Star game in Los Angeles, and the College Football National Championship game in Miami. While most of these major events have yet to put many rooms on the books for next year, except for the Super Bowl in San Francisco, our group and total revenue pace for next year are currently favorable. As of 1 October 2026, group room nights were up 4.1%. ADR is ahead by almost 3%, and group revenues are up over 7%, or $7.6 million over 2025. Total revenue pace, including both group and transient, is up by 6.1%, or $9 million ahead of the same time last year. While none of this guarantees a great year, the setup for 2026 is very positive. We've got a favorable pace. We have easy comps in LA.

We also entered into an agreement to sell 1 of our hotels, for 72 million with a buyer having provided a non-refundable deposit under the contract.

To put that disruptive impact into perspective.

Consistent with a purchase agreement. We can't disclose a specific hotel or buyer at this time.

La and DC represented roughly $7 million of the seven $9 million year over year decline in same property hotel EBITDA.

The property has been classified as held for sale, and we expect the transaction to close in the fourth quarter, subject to customary closing conditions.

That said there's no insurance at the sale, will be completed on these terms order time.

Throughout our portfolio, we continue to see a recovery in business transient travel.

The potential. This position is not reflected in our fourth quarter or full year outlook.

Like the industry group room nights and group revenues were slightly negative in the quarter versus last year.

While business and leisure transient demand continued to improve.

Shifting to our balance sheet, we remain extremely pleased with the successful, 400 million offering of 1.625%, convertible notes. We completed in September,

Due to the resiliency of leisure demand.

Weekend Occupancies were up all across our portfolio urban and resort demonstrating the continued appeal of our high quality properties, especially for leisure and social group customers.

we use these proceeds to retire, 400 million of our 1.75%. Convertible notes, due to 2026 and a 2% discount to part leaving a very manageable. 350 million outstanding

Weekday occupancy also grew due to the continuing recovery in business transient travel.

We also could currently repurchase $50 million worth of comment shares. During the quarter at a significant discount to nav which is a credit of the ffo and nav per share.

And our teams focus on replacing group and government shortfalls and rebuilding overall occupancies through discounted wholesale and consortia channels.

Jon Bortz: DC should settle down. San Francisco is recovering very strongly. We've got significant upside from our numerous redevelopments. The holiday calendar is meaningfully more favorable next year. The uniquely strong calendar of events will materially benefit our markets. Business uncertainty is likely to significantly dissipate as tariff policy is resolved and as business investment ramps substantially through AI and reshoring. As a result, we're optimistic about a positive trajectory for next year. By executing on our strategic plan, driving revenue, maximizing efficiencies, and growing free cash flow, we're creating the foundation for strong, durable, long-term value creation. We have a solid balance sheet, a redeveloped portfolio, and a very favorable multi-year supply setup, which positions us well to take advantage of a growing economy. We just need the macro to finally fall into place without major disruptions. That wraps up our prepared remarks.

We added Q3 with 232 million of cash and we expect to generate over 100 million in free, cash flow by the end of 2026.

I'd also like to briefly highlight the performance at our Redeveloped properties.

Our plan is straightforward, use cash on hand and free cash flow to take out the remaining convertible notes. Maturing in December 2026.

Because it's a key part of our improved performance in 'twenty five and it should provide a similar boost in 2026.

All told it was another quarter of discipline execution, amid a choppy and uncertain demand backdrop.

We praise the terrific performance of Newport Harbor Island resort last quarter and.

And it deserves that praise again this quarter.

In Q3, Newport led the way in our portfolio delivering 11 $8 million of EBITDA in its most important seasonal quarter.

And with that, I'll hand over to John provide more details on the third quarter, our outlook for Q4 and a look ahead. The 2026 done. Thanks Ray.

When we look at the industry's performance, the third quarter looked a lot like the second only a bit softer.

Up to $9 million year over year on a 21, 6% total revenue increase and strong flow through.

Demand was slightly down year-over-year and that caused renewed pricing competition which led to a lack of ADR growth.

Group demand was most pressure.

That's exactly the ramp we expected from the comprehensive $50 million transformation completed last spring.

It was lower in all 3 months due to reduced government travel.

Weaker international participation at conventions and conferences.

That is a higher quality overall resort experience with more compelling venues delivering increased event capacity and a richer food and beverage mix.

And some increasing attrition.

Transit demand including Leisure held up better.

It remained positive versus last year.

All together driving higher <unk> and higher out of room spend.

That mix favored weekends over weekdays for the broader industry. And for Pebblebrook,

Jon Bortz: Christine, we're ready to open it up for Q&A.

For the full year, we now expect Newport to generate almost $17 million of EBITDA.

in terms of Industry performance, by price point or scale,

Raymond Martz: Thank you. 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 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. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Gregory Miller with Truist. Please proceed with your question.

that remains a sharp divide between the upper and lower ends of the market.

Ahead of the $13 $6 million at acquisition.

And much higher than our forecast just 90 days ago.

Premium hotels and resorts. Continue to perform better.

We're very excited about <unk> future hats off to the resorts operating team.

while the bottom half seeing much more weakness as cost-conscious consumers, pull back on their discretionary spending,

And 2025, and just our first full year of post redevelopment operations. So we believe the resort is well positioned to generate even stronger performance over the next few years as it continues its ramp and it benefits from increased exposure to group and leisure demand.

In Q3, we Face the same fundamental challenges as the industry.

But the localized disruptions in LA and Washington, DC, drove our third quarter performance below the industry average.

To put that disruptive impact into perspective.

And Newport is just one example of the benefits of our strategic redevelopment program.

Our comprehensively upgraded and transformed hotels and resorts across our portfolio are gaining share and growing cash flow with more runway ahead.

Jon Bortz: Thank you. Good morning, Jon, Ray, and Tom. First off, it's a very detailed and helpful area on 2026. I'd like to ask about San Francisco lodging performance given some encouraging trends as of late. I could ask several questions about how you see the market today, but I'll start with a few items in particular. Looking at STR, CoStar data, there has been some encouraging room rate growth, especially during major convention citywides. Obviously, there are many potential citywide sellout days ahead in the next couple of quarters. I'm curious what you're seeing in terms of the level of confidence from hoteliers in the market to push room rates during high-occupancy nights and any implications to your properties. Thanks.

LA and DC represented roughly 7 million dollars of the 7.9 million year-over-year decline in same property Hotel ibitta

Throughout our portfolio. We continue to see a recovery in business, Transit travel.

This includes among others estancia, La Jolla, Chaminade resort <unk> Spa in Santa Cruz.

Like the Industry Group room nights and group revenues were slightly negative in the quarter versus last year.

Hotel Zena and Viceroy in D C. One hotel San Francisco Hilton Gaslamp Margaritaville gas lamp.

While business and Leisure tangent, demand continued to improve.

Due to the resiliency of leisure demand.

<unk> del Mar and Jekyll Island Club resort.

Weakened occupancies were up all across our portfolio, Urban and Resort.

These properties are demonstrating the benefits of the transformative nature of our redevelopment program through sustained market share gains higher out of room spend and higher profitability.

Demonstrating that continue to peel of our high-quality properties, as special for leisure and social group customers.

weekday occupancy, also grew due to the continuing recovery in business Transit travel

Operationally our teams again did the hard things well in the quarter.

And our teams focus on replacing group and government. Shortfalls.

Found efficiencies and controlled costs.

Gregory Miller: Yeah, Greg. Thanks for the focus on San Francisco. Obviously, it's an important market for us. It's not been a good market for many years, but this year, it's really cranking on all cylinders at this point. I think your question about rate is really where the market's heading, which is there's a big opportunity that I think has begun to already be capitalized on to push rate, not just over the citywide dates where compression clearly occurs, but much more so on weekdays and certain weekends when there are major events in the city. As it relates to weekdays, I think what we're seeing is regular Monday, Tuesday, Wednesday nights without a citywide are still selling out. That increase, very significant increase in demand, is allowing our teams to push rate and do it with increasing confidence. I think as

Same property total expenses were limited to just 0.7% growth.

And rebuilding overall occupancies through discounted wholesale and consortia channels.

On a per occupied room basis costs declined.

I'd also like to briefly highlight the performance at our redeveloped properties.

That's a direct result of our team's relentless focus.

On improving every aspect of our operating cost structure.

Because it's a key part of our improved performance in 25 and it should provide a similar boost in 2026.

Through our strategic productivity and efficiency program.

We praised the terrific performance of Newport, Harbor Island Resort last quarter.

On the technology front, we continue to pilot AI enabled tools aimed at improving hiring retention service delivery cleanliness and overall productivity across our portfolio.

And it deserves that praise. Again this quarter,

Away in our portfolio, delivering 11.8 million of ibida. In its most important seasonal quarter.

The pace of AI and robotics innovation is accelerating rapidly.

And we're working closely with curator to identify and implement the most impactful solutions.

Up 2.9 Million, year-over-year on a 21.6%, total revenue, increase and strong flow through.

We expect the hotel operating model to look quite different than a few years from now and we intend to stay ahead of that curve.

That's exactly the ramp we expected from the comprehensive fifty million dollar transformation completed last spring.

We've also begun implementing some of the new technologies aimed at reducing energy and water usage and.

That's a higher quality. Overall, Resort experience with more compelling, venues delivering increased event capacity, and a richer food and beverage mix.

And we're investing in new systems, including solar and HVAC upgrades, where the ROI is compelling.

Gregory Miller: That permeates through the market, I think. We'll continue to see that. I mean, we have a lot of rate growth to recover from 2019. I think we've started to see it, but I think that'll be a much bigger part of where we go next year, in addition to obviously being able to take advantage of both Super Bowl, which of course will drive significantly higher rates, as well as World Cup, which will not only drive rates, but, even more importantly, drive significant occupancy growth in the market.

All together, driving higher ADRs and higher out of the room. Guests spent.

Now shifting to the fourth quarter.

We remain cautious on Q4, given the macroeconomic outlook and the ongoing uncertainty related to the government shutdown tariff policy governmental efforts to reduce government spending.

For the full year. We now expect Newport to generate almost 17 million dollars of ibida.

Ahead of the 13.6%.

And much higher than our forecast just 90 days ago.

And the ultimate impact of these policies on the economy.

We're very excited about newport's future hats off to the Resort's operating team.

While it's becoming increasingly clear where the level of most travels tariffs sorry are likely to settle.

And 2025 is just our first full year of post Redevelopment operations.

Tom Fisher: Greg, also just about your question of momentum building in 2026, the convention center, the room nights on the books for 2026, it's made a lot of really good progress since the start of the year. Thanks to SF Travelers doing a great job and the new leadership there. Just to give you an example, they booked over 100,000 room nights. 100,000 room nights have gone definite for 2026 since the start of the year. That's about a 20% increase. We started the year with 2026 convention demand looking like it would be down to 2025. It's actually now up in a pretty short amount of time. It shows the positive momentum there. The number of sellout nights we had, what, 44 days in 2025 that we had over. We're deeming as kind of sellout nights, that's projected to increase in 2026.

Particularly with the most recent events in Asia, we believe both businesses and consumers remain more cautious until there's more clarity on the details of these agreements and until the shutdown ends.

So we believe the resort is well positioned to generate even stronger performance over the next few years. As it continues, its ramp, and it benefits from increased exposure to group and Leisure demand.

Economists agree as they continue to forecast slower growth in the near term.

And Newport is just 1. Example of the benefits of our strategic Redevelopment program.

Specifically the government shutdown now in its sixth week is clearly hurting travel.

Our comprehensively upgraded and transformed hotels and resorts across our portfolio.

Are gaining share and growing cash flow.

With more Runway ahead.

Government travel and travel to visit with the government is down all over the country and it's obviously much more pronounced in Washington D C.

This includes among others, a stanza, La Jolla Shaman Resort and Spa in Santa Cruz.

Hotel Zena and Viceroy in DC.

Many business and leisure travelers are becoming more hesitant about air travel while the shutdown persists.

1 Hotel, San Francisco.

Hilton Gas Lamp Margaritaville, gas lamp.

Tom Fisher: To John's point, we have more opportunities there for hopefully some rate compression opportunities.

Unfortunately, we've seen a notable increase in government and government related cancellations everywhere.

The Bear's delmare and Jaco Island Club resort.

Michael Bellisario: I think one of the things that's kind of unique about San Francisco, obviously, you've got a big factor in that AI and much of technology and biomedical is headquartered there. A lot of the conventions and citywides that occur in San Francisco are corporate-led. As a result of that, corporate tends to book much more short-term than the bigger associations do. Bringing in that major corporate-sponsored events like Microsoft Ignite, which is occurring here in November, where they just canceled out of two other markets for 2026 and 2027 and have signed up to be here in San Francisco, we're really encouraged about the positive momentum there.

And we've experienced slower pickup in many markets around the country, especially in DC and to a lesser extent in San Diego.

These properties are demonstrating the benefits of the transformative nature of our Redevelopment program.

Through sustained market, share, gains higher out of room, spend and higher profitability.

This negative impact is now showing up in the STR numbers for the industry.

Revpar growth, which was prime for a very positive October.

Operationally, our teams again, did the hard things? Well, in the quarter,

They found efficiencies and controlled costs.

It is now trending closer to slightly negative for the month.

Same property. Total expenses were limited to just 0.7% growth.

Our preliminary October results were more favorable.

On a per occupied room basis cost declined.

Total revpar increased approximately 4%.

That's a direct result of our team's Relentless Focus.

This illustrates the benefits of our high quality properties.

On improving every aspect of our operating cost structure.

And the added an enhanced venues event spaces and amenities throughout our portfolio.

Through our strategic productivity and efficiency program.

Our concern of course for the rest of the quarter is that air travel is likely to be impacted at increasing levels as the shutdown lengthens and then the recovery may be more gradual once the shutdown ends.

Jon Bortz: Thanks. It's all very helpful. Maybe switch gears on a different demand segment in San Francisco. We get a lot of investor questions that relate to transit and corporate, and specifically how the AI industry is impacting demand at this point or maybe the next couple of months. As I'm curious if you could provide a little more context in terms of what you're seeing as of late, and perhaps your expectations for the fourth quarter.

On the technology front, we continue to pile. It AI enabled tools aimed at improving hiring retention Service delivery cleanliness.

And overall productivity across our portfolio.

Dot's announcement last night of a 10% reduction of flights beginning Friday.

The pace of AI and robotics innovation is accelerating rapidly.

While help demand unless it leads to a quicker resolution of the shutdown.

And we're working closely with curator to identify and implement the most impactful solutions.

As a result, it's difficult to forecast the rest of Q4.

We expect the hotel operating model to look quite different in a few years from now.

And we intend to stay ahead of that curve.

Michael Bellisario: Sure. Well, I mean, what we've been seeing, and increasingly over the course of the year, are more and more companies that we've never heard of. They're booking not just transient business, they're booking in-house group, they're booking recruiting people coming in looking for jobs, they're booking training in our hotels in the marketplace. Some of these have grown to the point where they have their own conferences, like Snowflake, which I guess didn't exist. I don't know. At least certainly people didn't know about three or four years ago. It's definitely having an impact on those Monday, Tuesday, and Wednesdays that I talked about within the market. It's extremely encouraging. They're also coming in, they're taking a lot of office space. Obviously, people have read the stories about these companies growing, and they're taking space.

But our current outlook assumes the shutdown will end soon.

As of October one our revenue pace for Q4.

We've also begun implementing, some of the new technologies aimed at reducing energy and water usage.

Ahead of last year by two 1% or $2 $6 million.

And we're investing in new systems, including solar and HVAC upgrades where the ROI is compelling.

This represents an improvement from 90 days ago.

now shifting to the fourth quarter,

With the government shutdown lasting the entire month of October and already a week in November.

The positive pace for Q4 has likely been negatively impacted.

we remain cautious on Q4 given the macroeconomic Outlook and the ongoing uncertainty related to the government shutdown tariff, policy governmental efforts to reduce government spending

But we don't yet have data on that and we won't for a few more days.

and the ultimate impact of these policies on the economy.

Our Q4 outlook assumes same property Revpar will range between minus 1.25% to up 2% with total revpar between a negative 1.25% and a positive two 7%.

While it's becoming increasingly clear where the level of most travels tariffs, sorry are likely to settle.

Particularly with the most recent events in Asia.

We believe both businesses and consumers remain more cautious.

On the cost side due to the benefits of our strategic efficiency and productivity efforts.

Until there's more clarity on the details of these agreements and until the shutdown ends.

We expect total hotel expenses to grow just 0.8% at the midpoint.

Economists agree, as they continue to forecast, slower growth in the near term.

That means expenses per occupied room should decline again in Q4.

Michael Bellisario: Quickly after they take space because they're growing so fast. The other thing we've seen is a significant number of IPOs of companies based in San Francisco over the last six months. That's capital flowing into the industry that's being used for growth. That growth involves, to a great extent, high-caliber people being hired.

As we look ahead to 2026.

Specifically the government shutdown. Now, in its sixth week is clearly hurting travel

We remain cautiously optimistic due to our belief that fundamentals provide a favorable setup for next year.

Government travel and travel, to visit with the government is down all over the country.

We believe macro economic uncertainty will fade.

And it's obviously much more pronounced in Washington DC.

Hotel demand is likely to normalize with GDP growth and we know new supply will remain at historically low levels.

Travelers are becoming more hesitant about air travel.

While the shutdown persists.

Jon Bortz: I'll leave it there. Thank you, Jon.

I know there are many professional prognosticators, who are currently forecasting limited revpar growth for 2020.

Raymond Martz: Our next question comes from a line of Cooper Clark with Wells Fargo. Please proceed with your question.

Unfortunately, we've seen a notable increase in government and government related, cancellations everywhere.

Cooper Clark: Great. Thanks for taking the question. You continue to make really strong progress on the expense side. Could you provide color on how much of that is a result of reduced headcount? Is it fair to assume we see labor costs moderate into 2026?

Yeah.

But there are several significant pluses for next year, both for the industry and specifically for our portfolio.

And we've experienced slower pickup in many markets around the country, especially in DC and to a lesser extent in San Diego.

This negative impact is now showing up in the Str numbers for the industry.

Let's start with prospects for favorable demand growth in 2026, and a return to the positive correlation between GDP growth and hotel industry demand growth.

Rep Park growth, which was primed for a very positive October.

Michael Bellisario: Yeah, I mean, I think I've been in the business since the early '90s. Through every cycle, we reduce the headcount of our hotels. Our people become more efficient, more productive, and that's continuing. There's additional tools that people can use. We're better at scheduling through utilization of these tools. We're making fewer mistakes when it comes to scheduling. We're using third-party services less as a result of more efficient scheduling, as examples. We think that will continue. That's our relentless focus. Yes, I think the wage side, because of the front-end loading of a lot of these city labor contracts, we think that next year the wage rate growth will be less than it was this year, albeit a little of that will be offset by probably healthcare costs that are going to grow at a higher cost.

Is now trending closer to slightly negative for the month.

I know some skeptics out there believe there is no longer a correlation.

Our preliminary October results were more favorable.

But we don't fall into that camp.

Total revpar increased approximately 4%.

As the monkey, saying I'm a believer we.

This illustrates the benefits of our high-quality properties.

We strongly believe that our industry has experienced a unique set of factors that are temporarily disrupted the correlation and as these factors fade or disappear.

And the added and enhanced venues, event spaces, and amenities throughout our portfolio.

Manned growth should resume its positive historical connection to GDP growth.

Listen to these numbers for annual hotel room night demand growth beginning back in 2010.

Our concern. Of course, for the rest of the quarter is that air travel is likely to be impacted at increasing levels. As the shutdown lengthens

And then the recovery may be more gradual, once the shutdown ends.

2010, seven 2%.

Dot's announcement last night of a 10% reduction of flights. Beginning Friday,

Coming out of the great financial recession.

2011, four 6% still recovering from the GSE.

Won't help the man unless it leads to a quicker resolution of the shutdown.

2012% to 8% 2013, one 5% to.

As a result it's difficult to forecast, the rest of Q4.

But our current Outlook assumes the shutdown will end soon.

2014, three 9%, 2015% to 4% 16, one 6%.

As of October 1st, our Revenue pays for Q4 was ahead of last year by 2.1% or 2.6 million.

Michael Bellisario: A higher rate than they did this year. Overall, it should be lower in terms of the growth rate of those wages and benefits combined. Our focus is on everything that we do in our hotels. It's on how are we more efficient utilizing energy. There are new tools, better ways to operate our hotels, to use less power, to use less water. It's good for the planet, it's good for the bottom line financially at the end of the day. It's what our customers want, it's more consistent with their values. It's focused on insurance. How do we lower insurance? How do we reduce accidents? Some of that is operating best practices, some of that involves physical improvements and changes to our properties. How do we increase resiliency from weather so we have less downtime and less damage? It's infrastructure improvements, roofing, window sealing, new windows, sealants.

17, two 2%.

This represents an improvement from 90 days ago.

18, two 2% in 2019, one 5%.

Pretty consistent and healthy demand growth for every year in the economic cycle.

With the government shutdown lasting, the entire month of October and already a week in November.

The positive pace for Q4 has likely been negatively impacted.

I'm going to skip 'twenty to 'twenty, two which were pandemic impacted with huge negative and then positive volatility.

But we don't yet have data on that and we won't for a few more days.

So for 'twenty three demand growth was 1% with continuing normalization from the pandemic growth blip in 'twenty two.

Our Q4 Outlook assumes same property revpar will range between minus 1 and a quarter percent.

To up 2%.

2024, 6% with the first three quarters of normalization.

With total rep power between a negative 1 and a quarter percent and a positive 2.7%.

And for 2025 year to date through September it was negative 0.2% with massive disruptions from government cutbacks material declines in international inbound travel due to nationalistic rhetoric and.

On the call side, due to the benefits of our strategic efficiency and productivity efforts.

we expect total how to expenses to grow, just 0.8% at the midpoint

That means expenses per occupied room should decline again in Q4.

And significant economic uncertainty due to arguably the most significant policy uncertainty in the past 50 years.

As we look ahead to 2026.

We remain cautiously optimistic.

Could there be more material disruptions in the future.

Due to our belief that fundamentals provide a favorable setup for next year.

Of course, there could be.

We Believe macro and economic uncertainty will fade.

However, we believe it's more likely that much of this uncertainty dissipates.

Michael Bellisario: It's all sorts of things through the portfolio. It's how do we reduce credit card commissions, how do we encourage people to pay by ACH, all of that is a focus. It's really every line item that we have on our income statements. It's going to be a significant focus as far as the eye can see, particularly as we get new tools that are AI-enabled or boosted. Robotics become a more important factor, and as the quality of that service becomes better, in fact, in many cases, likely better than what a human can provide ultimately. Certainly more knowledge individually. We're very encouraged about where the opportunities are to lower costs as we move forward and improve the quality of work for our employees.

Hotel. Demand is likely to normalize with GDP growth.

And the business and investment friendly legislation passed a few months ago.

And we know new Supply will remain at historically low levels.

Combined with the benefits of significant deregulation.

We will finally begin to kick in in a very favorable way and provide a nice tailwind for the macroeconomic environment in 2026.

I know there are many professional prognosticators who are currently forecasting limited RevPAR growth for 2026.

And the supply picture continues to provide a fundamental tailwind for the industry.

But there are several significant pluses for next year, both for the industry and specifically for our portfolio.

And for us in our markets there is very little supply being added in the industry.

Let's start with prospects for favorable, demand growth in 2026.

And new construction starts continue to run lower than deliveries.

And a return to the positive correlation between GDP growth and hotel industry demand growth.

Given that it takes three to four years to deliver new high rise urban or resort properties from the first shovel in the ground.

I know some Skeptics out there. Believe there's no longer a correlation.

But we don't fall into that camp.

As the Monkees sang, I'm a Believer.

The runway for recovery and improvement as long whenever we get to the runway.

We help us next year.

We strongly believe that our industry has experienced a unique set of factors that have temporarily disrupted the correlation.

The other significant tailwind for 2026 is that the holiday calendar next year is meaningfully more favorable in 2025.

And as these factors fade or disappear, demand growth should resume its positive historical connection to GDP growth.

Michael Bellisario: We deal with some of the shortages that are occurring and that we think will occur as a lot of our workforce ages and is not being replaced by others willing to do the same jobs.

For example for all use sweethearts out there take note Val.

Valentines day falls on a Saturday next year versus a Friday this year.

Listen to these numbers for annual hotel room night, demand growth beginning back in 2010.

2010, 7.2%.

Cooper Clark: Okay. That's really helpful. Thank you. Shifting to LA, appreciate some of the more positive commentary on LA into the fourth quarter. Could you just talk about how we should think about LA into 2026, given what should be softer comps, but some continued challenges on the demand and labor side of things? I guess said differently, do you expect LA to continue to drag on results from a RevPAR and EBITDA perspective over the next 12 months relative to the rest of your portfolio?

Okay.

Coming out of the great financial recession.

Okay.

The <unk> crack at Neal and it also falls over the Presidents' day weekend, creating the potential for a much stronger leisure weekend with less midweek disruption.

2011 4.6%.

Still recovering from the GFC.

2012 2.8%.

2013 1.5%.

June teens shifts to a Friday from a Thursday, reducing the negative impact on a weekday business travel on weekday business travel from the holiday.

2014 3.9%.

2015, 2.4%.

16 1.6%

July 4th moves to a Saturday from a Friday, creating the perfect weekend for all of the America $2 50 celebrations.

Michael Bellisario: Yeah, Cooper. Well, we think actually it'll be one of our better performers next year because of the easy comps, the recovery that we are seeing, sort of renormalizing back in the market. Then the discussion and data that we're getting related to the future ramping of TV and movie production in the state, based upon the approvals of those that are going before the film commission that's providing these grants. From what we see, the big ramp-up of that, there's a small increase that we should see, probably not here in the fourth quarter, but in the first quarter of next year, but then a bigger ramp in the second quarter because there's a six-month requirement that once the application's been approved, they start production in the market. The doubling, more than doubling of the credits that the state is providing for production in California.

17 2.2%.

18 2.2% and 2019 1.5%.

The Jewish holidays in the fall occurred either over a weekend or a monday, thank god, causing less of a negative impact on business travel for those two weeks.

Pretty consistent and healthy demand growth for every year in the economic cycle.

Halloween falls on a Saturday next year versus a Friday this year.

I'm going to skip 20 to 22, which were pandemic impacted with huge negative and then positive volatility.

Thats, a definite treat for less midweek disruption.

So for 23, demand growth was 1%.

Christmas provides a nice gift by moving closer to the weekend.

With continuing normalization from the pandemic growth blip in 2022.

Creating a more favorable long weekend for holiday leisure travel.

New year's Eve also moves closer to a weekend, creating a better pattern for leisure travel leisure travel to celebrate the year end.

2024 6% with the first 3 quarters of normalization.

and for 2025 years to date through September, it was -0.2

The hotel industry will also benefit from a uniquely active major events calendar next year.

With massive disruptions from government. Cutbacks material, declines in international inbound. Travel due to nationalistic rhetoric.

<unk> cities will be boosted from the World Cup being hosted in the U S and for many activities surrounding Americas 250, <unk> anniversary celebration.

And significant economic uncertainty due, to arguably the most significant policy uncertainty in the past 50 years.

For <unk>, we expect to benefit from all of these tailwind as well as a few of our own.

Could there be more material disruptions in the future?

Michael Bellisario: Is really kicking in by the middle of next year. Look, presuming we don't have any major events, we don't have political issues going on that disrupt the perception of safety, quality of life, or the beauty of the visit. We think LA will be a big tailwind for us in the portfolio next year.

Of course, there could be

Based on what we know today, we believe we will outperform the industry next year.

However, we believe it's more likely that much of this uncertainty dissipates.

Our redeveloped properties, which are still ramping up will contribute to this outperformance.

And the business and investment-friendly legislation passed a few months ago.

Combined with the benefits of significant deregulation.

Several of our urban markets, including San Francisco, Portland, and Chicago are prime to continue their recoveries.

La comps will be much easier due to the negative impact from the fires and other safety related disruptions.

Will finally begin to kick in in a very favorable way and provide a nice Tailwind for the macroeconomic environment in 2026.

Cooper Clark: Great. Thank you. Appreciate the color.

And the supply picture continues to provide a fundamental Tailwind for the industry.

Michael Bellisario: Thanks, Cooper.

and for us in our markets,

D C. Two has easy comps for next year, along with a stronger convention calendar.

Raymond Martz: Our next question comes from a line of Smedes Rose with Citi. Please proceed with your question.

there is very little Supply being added in the industry.

On top of that we expect to see significant incremental demand from a multitude of major events across our portfolio.

And new construction starts continue to run lower than deliveries.

Smedes Rose: Hi. Thank you. Appreciate all your detail about talking about next year. I wanted to just ask you a little bit about, maybe you have an asset held for sale. Just kind of what are you seeing overall in the transaction market in terms of just, I guess, overall pricing? Where are you, I guess, going forward in terms of trying to execute on potential asset sales, assuming there's kind of a constructive transaction market?

28 World Cup matches across our markets.

Given that it takes 3 to 4 years to deliver new high-rise, urban, or resort properties from the first shovel in the ground.

Featuring eight matches in La <unk>.

The runway for recovery and Improvement is long.

Seven matches, each in Boston, and Miami and six in San Francisco.

whenever we get to the runway,

which we hope is next year.

NCAA men's basketball tournament rounds in four of our markets.

The 250 <unk> anniversary.

The other significant Tailwind for 2026? Is that the holiday calendar? Next year is meaningfully more favorable than 2025.

<unk> anniversary celebrations in D C, Boston and likely other cities.

For example.

Chris Darling: Hey, Smedes. It's Tom. Thanks for the question. I think just as a general backdrop, the transaction market's kind of been gyrating between risk-on and risk-off all year. The one constant throughout the year, however, has been the debt markets. The debt markets have been improving, they're getting more competitive, there's more availability, there's better pricing, and in some instances, it's actually becoming an alternative to a sale for many sellers from that perspective. I think on the equity side, again, it's kind of more risk-on, risk-off. I think with the government shutdown, with the kind of flat to negative operating performance that you see in the weekly and monthly STRs, I think STR reports, we're just kind of at a pause right now until there's a little more macro clarity.

For all you sweethearts out there, take note.

The Super Bowl in San Francisco, the NBA, All star game in Los Angeles.

Valentine's Day falls on a Saturday. Next year versus a Friday this year.

In the college football National Championship game in Miami.

Sorry.

While most of these major events have yet to put many rooms on the books for next year.

<unk> for the Super Bowl in San Francisco or.

Our group and total revenue pace for next year are currently favorable.

The gang here's cracking me up and it also falls over the President's Day weekend creating the potential for a much stronger Leisure weekend with less midweek disruption.

As of October one 2026 group room nights were up four 1%.

ADR is ahead by almost 3% and group revenues are up over 7% or $7 $6 million over 2025.

Juneteenth shifts to a Friday from a Thursday, reducing the negative impact, on a weekday business travel on weekday business. Travel from the holiday

July 4th moves to a Saturday from a Friday.

Creating the perfect weekend for all the America 2550 celebrations.

Total revenue pace, including both group and transient is up by six 1% or $9 million ahead of the same time last year.

Chris Darling: What I would say to you is over the course of the last 60, 90 days, we've seen, I think, a real pent-up demand by investors. You've seen some larger transactions take place, you've seen a return of some of the bigger private equity names, you've seen some of the owner-operators. I think my sense here is that they're all just waiting for that catalyst. I think if you listen to what Jon had indicated in our call about 2026, once things turn, there's better visibility. I think there's going to be a lot of pent-up demand for transactions moving forward. I think the risk-off situation right now is nobody really wants negative leverage, and they're focused on smaller deals, and those will continue. Until there's some clarity, I think we're going to be a little bit of a pause here.

So while none of us guarantees a great year the setup for 2026 is very positive.

The Jewish holidays in the fall occur. Either over a weekend or a Monday. Thank God causing less of a negative impact on business travel for those 2 weeks.

We've got a favorable pace, we have easy comps in la <unk>.

Halloween falls on a Saturday. Next year versus a Friday. Use this year that's a definite treat for Less midweek disruption.

<unk> should settle down.

San Francisco is recovering very strongly.

Christmas provides a nice gift by moving closer to the weekend.

We've got significant upside from our numerous redevelopments the.

Creating a more favorable long weekend for holiday leisure travel.

The holiday calendar is meaningfully more favorable next year.

And New Year's Eve also moves closer to a weekend.

The uniquely strong calendar of events will materially benefit our markets.

Creating a better pattern for leisure travel leisure travel to celebrate the year end.

And business uncertainty is likely to significantly dissipate as.

The hotel industry will also benefit from a uniquely active, major events calendar next year.

As tariff policy is resolved and as business investment ramps substantially through AI and re shoring.

Numerous cities will be boosted from the World Cup being hosted in the US.

and for many activities surrounding America's 250th, anniversary celebration,

As a result, we are optimistic about a positive trajectory for next year by.

Michael Bellisario: I think from a strategy perspective, our focus continues to be to sell assets and use that capital to take advantage of the public-private arbitrage opportunity, to buy our stock back, pay down debt, remain leverage neutral, or slightly reduce leverage over time. I think from the disposition perspective, there have been new entrants into the market. There's certainly a lot more high-net-worth individuals out there looking at lodging where they might not have previously, because I think folks see the potential upside opportunity and the ability to take advantage of what are historically pretty low per-key values, particularly as it relates to what has been continuously increasing, which is the replacement cost of hotels. I think we're encouraged, but I think what we need, and we've continued to need, and we've talked about this before, is we need operations to turn positive.

By executing on our strategic plan.

For Pebblebrook, we expect to benefit from all these tailwinds, as well as a few of our own.

Driving revenue maximizing efficiencies and growing free cash flow.

Based on what we know today, we believe will outperform the industry next year.

We're creating the foundation for strong durable long term value creation.

Our redeveloped properties, which are still ramping up, will contribute to this outperformance

We have a solid balance sheet, a redeveloped portfolio and a very favorable multiyear supply setup, which positions us well to take advantage of a growing economy.

Several several of our Urban markets including San Francisco Portland and Chicago.

Our Prime to continue their recoveries.

We just need the macro to finally fall into place without major disruptions.

La comps will be much easier due to the negative impact from the fires and other safety related. Disruptions

That wraps up our prepared remarks, Christine we're ready to open it up for Q&A.

dc2 has easy comps for next year, along with a stronger convention calendar.

Thank you.

We will now be conducting a question and answer session.

We ask that all callers limit themselves to one question and one follow up.

On top of that, we expect to see significant incremental demand from a multitude of major events across our portfolio.

28 World Cup matches across our markets.

If you have additional questions you may re queue and those will be addressed time permitting.

Featuring 8 matches in LA.

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

San Francisco.

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NCAA Men's Basketball Tournament rounds in 4 of our markets.

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Michael Bellisario: It's hard for a buyer to buy into a market that's declining. They need to see things go up. Everybody's well aware of the long runway of limited supply growth, which will allow for both occupancy and rate to grow, arguably faster than inflation, which is what it's done historically. It's got to turn. I think that's.

The 250th un us anniversary celebrations in DC Boston and likely other cities.

The Super Bowl in San Francisco, the NBA All-Star Game in Los Angeles.

Thank you. Our first question comes from the line of Gregory Miller with Truest. Please proceed with your question.

And the college football national championship game in Miami.

Thank you good morning, John and Tom.

First of all.

Very detailed and helpful around 2026.

While most of these major events have yet to put many rooms on the books for next year, except for the Super Bowl in San Francisco.

I'd like to ask about San Francisco lodging performance, given some encouraging trends as of late.

Our group and total revenue pays for next year are currently favorable.

Smedes Rose: Okay.

Michael Bellisario: Where we're going. Hopefully, we have fewer of these macro disruptions next year.

Asked several questions about how you see the market today.

As of October 1st 2026 group room nights were up 4.1%?

But I'll start with a few items in particular looks.

ADR is ahead by almost 3%.

Smedes Rose: That's helpful. I just want to, you mentioned that you continue to see, which we hear generally across the space, a real discrepancy between higher-end leisure customers and then lower-end. Just within your portfolio, what are a couple of examples, I guess, of sort of higher-end resorts where you saw solid, maybe RevPAR gains year over year, and maybe a couple where they were weaker, just given the composition of the customers that go to those properties?

Looking at historic Costar data there has been some encouraging room rate growth, especially during major convention citywide.

And group revenues are up over 7% or 7.6 million over 2025.

Yeah.

And obviously there are many potential citywide sellout days ahead in the next couple of quarters.

Total revenue pays including both group and transient is up by 6.1% or 9 million dollars. Ahead of the same time last year.

Im curious what youre seeing in terms of the level of confidence from the hoteliers in the market.

So while none of this guarantees a great year, the setup for 2026 is very positive.

To push room rates during high occupancy nights and any implications to your properties.

We've got a favorable Pace. We have easy comps in LA

DC should settle down.

Thanks.

Yes, Greg.

San Francisco is recovering very strongly.

Jon Bortz: Smedes, well, there's a couple of other moving parts. I mean, if you take Newport Harbor as an example, which caters to people who are from Boston and New York, we have a very strong leisure component there, and also very strong corporate demand. Our demand has been tremendous there, as we cited during the call. The RevPAR up a double-digit, 30-plus when you look at those levels year over year. Those are examples where we're also benefiting from the redevelopment side there, but that's where we continue to have less price sensitivity. When you get to some of the markets, maybe in some markets, say, like in South Florida for Key West, there's a little more price sensitivity. We've adjusted our revenue management strategies accordingly, so we actually did okay there. Like anything, we're opening up channels to look at other sort of.

So thanks for the focus on San Francisco, obviously, it's an important market for us.

We've got significant upside from our numerous redevelopments.

It's not been a good market for many years, but this year.

The holiday calendar is meaningfully more. Favorable, next year.

It's really cranking on all cylinders at this point and I think your question about rate.

The uniquely strong calendar of events will materially benefit our markets.

It is really where the markets heading which is there's a big opportunity that I think has begun to.

Already be capitalized on to push rate not just over the citywide dates.

And business uncertainty is likely to significantly dissipate as tariff policy is resolved and as business investment, ramps substantially through Ai and reassuring.

We're compression clearly occurs.

As a result, we're optimistic about a positive trajectory for next year.

But much more so on weekdays.

By executing on our strategic plan.

And certain weekends when there are major events in the city, but as it relates to week days I think what we're seeing is regular Monday Tuesday, Wednesday nights with out of citywide are still selling out and that increase very significant increase in demand is allowing our.

Driving Revenue maximizing efficiencies and growing free cash flow.

We're creating the foundation for strong durable. Long-term value creation.

Jon Bortz: Customer bases and doing our best there. I think overall, the quality level of our hotels are so higher, we're a little more insulated versus if you start going down the quality spectrum, and you're seeing the STR numbers much more than at our resorts.

We have a solid balance sheet, a redeveloped portfolio, and a very favorable multi-year Supply setup.

Teams.

Which positions us well to take advantage of a growing economy.

To push rate.

And do it with increasing confidence and I think as.

We just need the macro to finally fall into place without major disruptions.

That permeates through the market I think we'll continue to see that I mean, we have a lot of rate growth to recover from 2019, and I think we've started to see it but I think that'll be a much bigger part of where we go next year. In addition to obviously being able to take advantage of both.

Michael Bellisario: I think a couple of other examples would be LaPlaya in Naples and Inn on Fifth in Naples. Both luxury properties. Fair bit of insensitivity to pricing by our customers down there. La Valencia Del Mar in Del Mar out in California would be another example of a property at much higher average rates, relatively small property where the customers, again, are relatively insensitive to pricing, but very sensitive to us providing them good service. Those would be a couple of other examples.

That wraps up our prepared, remarks, Christine, we're ready to open it up for Q&A.

Thank you. We will now be conducting a question and answer session.

We ask that all callers limit themselves to 1 question and 1 follow-up.

Super Bowl, which of course will drive significantly higher rates as well as World Cup, which will not only drive rates, but.

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Significant occupancy growth in the market.

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And Greg also.

Now your question of momentum building in 'twenty six.

The Convention center the room nights on the books for 2006.

Smedes Rose: Great, thanks. Appreciate it.

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<unk> made a lot of really good progress since the start of the year SF travel is doing a great job with the new leadership there.

Raymond Martz: Our next question comes from a line of Duane Fenningworth with Evercore ISI. Please proceed with your question.

Just give you example, they booked over 100000 room nights of 100000 metric definitely after 26 since the start of the year. So that's about a 20% increase so we started the year with 26 convention demand looking like it would be down 25, it's actually now up.

Thank you. Our first question comes from the line of Gregory Miller with truist, please receive with your questions.

Duane Pfennigwerth: Hey, thanks. Jon, on government shutdown impacts, given your time in DC, any perspective on how quickly this activity can spool back up? If I think about this year, we already absorbed the DOGE impacts earlier in the year. I assume you had won some of that back, but maybe not all of that back, and now we have the shutdown. I don't know if you covered it in your extensive 2026 event navigation, which was very helpful. Have you sized the impact from the government sector this year in totality, and how big of a tailwind could it be next year?

Uh, thank you, uh, good morning, John Ray, and Tom. Um first off it's a very detailed and helpful area on 2026.

Pretty short amount of time, so it shows the positive momentum there.

The net number of sellout nights, we had 44 days and 25 that we had over.

Redeem it is kind of a stock that is projected to increase in 2006. So to John's point, we have more opportunities there will be some rate compression opportunities and I think one of the things. That's that's kind of unique about San Francisco, obviously, you've got a big factor in that AI and much of technology and biomedical is is headquartered there.

Um, I like to ask about uh, San Francisco, lodging performance, given some encouraging Trends as of late. Uh, I could ask several questions about how you see the market today, uh, but I'll start with a few items, in particular, uh, looking at Star co-star data. Uh, there has been some encouraging room rate growth, especially

During major convention Citywide.

Michael Bellisario: Yeah. It's funny. These things are a little harder to estimate. I mean, we can look at where government is, and it's probably been down about 1/3 to 40% of what it was the year before. That probably represents in total about a point to two points of total demand for our portfolio, and probably fairly similar for the overall industry, although probably more heavily weighted at the lower to middle end. Generally speaking, the shutdown's a different matter because it's impacting way more than just government travel. It's impacting people who have discretionary travel, which is what most travel is at the end of the day. It's more about people who get anxious about flying. It's more about people who don't want to put up or take the risk of cancellations.

But a lot of the conventions and citywide that occur in San Francisco, our corporate led and as a result of that.

And obviously, there are many potential city-wide sellout days ahead in the next couple of quarters. I'm curious about what you're seeing in terms of the level of confidence from hoteliers in the market.

To push room rates during High occupancy nights, and any implications to your properties. Thanks.

Corporate tends to book much more short term.

Yeah, Greg. Um,

Then the bigger associations do so.

So, thanks for the focus on San Francisco. Obviously, it's an important market for us and

And that major corporate sponsored events like Microsoft Ignite, which is occurring here in November.

Um, it's not been a good market, uh, for many years, but this year, um,

Were they just canceled out of two other markets for 2026 and 27.

It's really cranking on all cylinders at this point and I think your question about rate.

We have signed up to be here in San Francisco. So we're really encouraged about the positive momentum there.

Thanks, Thats all very helpful.

Maybe to switch gears on a different demand segments in San Francisco, we get a lot of investor questions that relate to.

Trends in corporate and specifically how the industry is impacting demand at this point, but maybe next couple of months.

Michael Bellisario: Big delays that they're concerned about and that the media will be keen to report about. It's a hard thing to measure, but it's material, as is the continuing imbalance of domestic outbound and international inbound. I mean, you've got one that's at 120% of 2019 levels, and you have inbound in the 80% of 2019 levels. That could reverse, but it's going to take it sort of creating a different perception on the part of our government's desire to welcome people into the country. Frankly, we're not seeing that yet, although we hope to see that certainly for World Cup next year, which is something that's really important to the president and the administration.

And so I'm curious if you could provide lower context in terms of what youre seeing as of late and perhaps your expectations for the fourth quarter.

Sure well I mean, well.

While we have been seeing an increasingly over the course of the year are more and more companies that we've never heard of.

And there they are booking not just transient business theyre booking in house group. They are booking recruiting people coming in looking for jobs there.

They are booking training and our hotels.

In the marketplace and some of these have grown to the point, where they have their own conferences light like snowflake, which I guess it didn't exist I don't know at least certainly people didn't know about three or four years ago.

Work impression clearly occurs but much more so on weekdays. Um, and certain weekends when there are major events in the city. But as it relates to weekdays, I think what we're seeing is regular Monday Tuesday, Wednesday nights, without a Citywide are still selling out. And that increase very significant increase in demand is allowing our teams uh, to push rate, uh, and do it with increasing confidence. And I think as uh, that permeates through the market, I think we'll continue to see that. I mean, we have a lot of rate growth to recover from 2019 and and I think we've started to see it, but I think that'll be a much bigger part of where we go next year, in addition to obviously being able to take advantage of both, um, Super Bowl, which, of course, will drive significantly, higher rates, as well as World Cup.

So it's definitely having an impact on those Tuesday, This Monday, Tuesday, and Wednesday that I talked about.

Which uh, will not only drive rates but uh, even more importantly Drive, uh, significant occupancy growth in the market.

Duane Pfennigwerth: Thanks. Just relatedly, I'll ask you the same question I asked host. Given the assumption that we have a no-storm fall and we're not rebuilding this fall on the Gulf Coast, what does that allow you to do in thinking more about 2026? Thank you.

Within the market and and so it's it's extremely encouraging theyre also coming in they are taking a lot of.

Office space, obviously people have read the stories.

About these companies growing in <unk> and <unk>.

Michael Bellisario: I think the first thing it allows us to do is sell a property that's not been damaged. One of the things we were hearing from clients in Naples, as an example, is, gosh, you've had all these storms in the last few years. We've had to move our meetings to other markets or other properties. Is this going to ever end, or is this the new pattern? Having a year where there's no impact, I think, is helpful from a sales perspective. Certainly easier to sell when you don't have that. It's easier to sell when you have a property that's primed and in great condition, which is not what we had last year in terms of selling for this year. I think it bodes well for, again, LaPlaya to ramp from $25 million of EBITDA this year to maybe closer to $30 million.

And and, and Greg also just about your question of momentum building in in 26, uh, the convention center. Um, the room nights on the books for 26. Uh, it's made a lot of a really good progress, you know, since the start of the Year, things as of child was doing a great job with the new leadership there. Uh, just give you an example. They they booked over a 100,000 room nights or 100,000 room nights.

And they are taking space.

Quickly after they take space because they are growing so fast the other thing we've seen is a significant number of ipos of companies based in San Francisco over the last six months and again thats capital flowing into the industry, that's being used for growth and that growth.

It involves to a great extent hi.

High caliber people being hired.

Okay I'll leave it there thank you John.

Yeah.

Our next question comes from the line of Cooper Clark with Wells Fargo. Please proceed with your question.

Great. Thanks for taking the question you continue to make really strong progress on the expense side could you provide color on how much of that is a result of reduced head count and is it fair to assume we see labor costs moderate into 'twenty six.

Yes, I mean I think.

Michael Bellisario: Next year on its way to hopefully getting back to that $35 or $36 million level of where it was heading in 2022.

I have been in the business since the early nineties.

Have gone a definite for 26 since the start of the year. So that's about a 20% increase. So we started the year with 26, convention demand, looking like, it would be down to 25. It's actually now up, um, in a quick pretty short amount of time. So it shows the the positive momentum there, and, um, you know, the number of sellout nights. We had what 44 days and and, um, and 25 that we had over this redeeming, it's kind of stuck at night. That's projected to increase in 26. So, John's point we have more opportunities there for hope some great compression opportunities. And I think 1 of the things that's, that's kind of unique about San Francisco. Obviously you've got a big factor in that Ai and, and much of technology and biomedical is is headquartered there. But a lot of the conventions and Citywide that occur in San Francisco are corporate-led. And as a result of that, um, corporate tends to book much more short term uh than the bigger associations do so bringing

<unk>.

Through every cycle.

We reduced the head count of.

Duane Pfennigwerth: Thank you.

Of our hotels are people become more efficient more productive and thats continuing.

Michael Bellisario: Thank you.

Raymond Martz: Our next question comes from a line of Michael Bellisario with Baird. Please proceed with your question.

There is additional tools so that people can use we're better at at.

Jon Bortz: Thanks. Good morning, everyone.

In that major corporate sponsored events like Microsoft ignite, which is our current here in November, um, where they just canceled out of 2, other markets, for 20, 26, and 27, and have signed up to be here in San Francisco. So we're really encouraged about the positive momentum there.

Smedes Rose: Hey, Mike.

At scheduling through utilization of these tools, we're making fewer mistakes when it comes to scheduling.

Jon Bortz: John, you mentioned attrition or increased attrition during the quarter. Could you dig in there a little bit more? What markets, what segments did you see that in? Presumably, that's continued into the fourth quarter. Just any added color on short-term booking trends would be helpful. Thank you.

We are using third party services less.

As a result of more efficient scheduling.

As examples.

Michael Bellisario: Yeah, I mean, it varied through the portfolio and markets, but it was much more visibly related to government and government-related. You do not always know what is government-related until the customer declares it. In a lot of cases, it involves education. A lot of these conferences are supported by grants or the departments are supported by grants, which they are not getting. They are frozen or they do not expect to get, as you know, with the disruption going on with the universities. A lot of it is related to those sectors. We are not really seeing it in technology. We are not really seeing it in medical, biomedical. We do see it some in other conventions where the attendance is lower and it relates to associations where the people are paying their own way, and you get some of that.

So we think that will continue that's our relentless focus and yes, I think the wage side because of the front end loading of a lot of these city.

I think it's all very helpful. Um, maybe switch gears on a different demand segment in San Francisco. We get a lot of investor questions that relate to uh, trans and corporate and specifically how the AI industry is impacting demand at this point or maybe in the next couple of months.

As I'm curious, if you could, um, provide a little more context in terms of what you're seeing as of late and and perhaps your expectations for the fourth quarter.

Labor contracts.

We think that next year, the wage rate growth will be less than it was this year, albeit a little of that will be offset by probably healthcare costs that are going to be that are going to grow at a higher cost.

Sure. Well I I mean

well we've been seeing and and increasingly over the course of the year are more and more companies that we've never heard of.

A higher rate than they did this year.

But.

But overall it should be lower in terms of the growth rate of of those wages.

And benefits combined.

But our focus is on everything that we do in our hotels.

It's on how are we more efficient utilizing energy.

There's new tools.

There is.

Um, and they're they're booking not just transient business, they're booking in-house group, they're booking recruiting uh, people coming in looking for jobs. Um, they're booking training in our hotels, um, in the marketplace and uh some of these have grown to the point where they they have their own conferences like like snowflake which I guess didn't exist. I don't know. At least certainly people didn't know about, you know, 3 or 4 years ago.

There's better ways to operate our hotels to use.

Less power to use less water. It's good for the planet. It's good for the bottom line financially at the end of the day.

Michael Bellisario: You get some of that 3%, 4%, 5% falloff in attendance that results from that. It's not something that, I mean, interestingly, I think, still on a year-over-year basis, our attrition payments were less this year than they were last year for Q3. It's certainly not at a high level yet, but it's more clearly impacting those groups that are somehow related to government.

It's what our customers want.

More consistent with their with their values.

It's focused on insurance, how do we lower insurance, how do we reduce accidents.

Some of that is operating best practices some of that involves physical improvements and changes to our properties.

How do we increase resiliency from weather so we.

Jon Bortz: Yeah. Michael, we're not highly concerned with the attrition cancellation. It's not heading in a really bad direction, but it's certainly something we do monitor, because it does go quarter to quarter. That's usually maybe an early canary in the coal mine, so to speak, if companies are feeling differently about their spending. Nothing materially that we're concerned about, but we continue to monitor it.

We had less downtime and less damage.

Infrastructure improvements roofing.

Windows ceiling new windows.

<unk>, it's all sorts of things through.

So it's definitely having an impact on those Tuesday, those Monday, Tuesday, and Wednesdays that I talked about, um, within the market. And and so, um, it's it's extremely encouraging. They're also coming in, they're taking a lot of, uh, office space. Obviously people have read the stories, uh, about, um, these companies uh, growing and and um and they're taking space, you know, quickly after they take space because they're growing so fast. The other thing we've seen is significant number of IPOs of companies uh based in San Francisco over the last 6 months. And again, that's capital flowing into the industry that's being used for growth and that growth in in in in involves to a great extent, you know, High Caliber people being higher.

The portfolio.

I'll I'll leave it there. Uh, thank you John.

How do we reduce credit card commissions, how do we encourage people to pay by ACTH.

Michael Bellisario: Very helpful. Thank you.

All of that.

Is our focus it's really every line item that we have.

Our next question comes from the line of Cooper, Clarke with Wells Fargo, please proceed with your question.

Raymond Martz: Our next question comes from a line of Jay Kornridge with Cantor Fitzgerald. Please proceed with your question.

On on our income statements and.

It's going to be a significant focus as far as the eye can see particularly as we get new tools.

Jay Kornreich: Hey, good afternoon. Thank you. Just wanted to follow up on the leisure transit side of the portfolio. The recently renovated resorts have all been performing quite well. Just curious, how would you characterize kind of the overall leisure customer and its price sensitivity these days? As you look out towards next year on the same store part of the portfolio, do you feel like there's more upside from that leisure customer improving or more from the urban side of the portfolio?

Great. Thanks for taking the question, you can continue to make really strong progress on the expense side. Could you provide color on how much of that is a result of reduced headcount and is it fair to assume we see labor cost moderate into 26?

That our AI enabled or boosted.

Robotics become a more important factor.

yeah, I, I mean, I think, uh, I mean, I've been in the business since the early 90s and

And as the quality of that service becomes better in fact in many cases likely better than what a human can provide ultimately so certainly more knowledge individually. So we're very encouraged about where the opportunities are to lower costs as we move forward.

Through every cycle. Um, we reduce the headcount

Michael Bellisario: Well, interestingly, I mean, the leisure customer impacts our urban properties to a meaningful extent. I mean, our cities are, in many cases, very heavily tourist destinations. When I think about when we think about next year, I would say a couple of things. First of all, some of the few cities like DC, as an example, and LA, leisure has been meaningfully impacted this year. We should see a recovery next year. I mean, the government shuts down, the Smithsonian's closed, museums are closed here in town. There's not a lot to see here. If you were a leisure guest, if you're a group coming from a high school or a middle school somewhere coming to spend their three, four, five days in DC, they're not coming right now because there's nothing to do.

Improve.

The quality of work for our employees.

And deal with some of the shortages that are occurring in that we think will occur as a lot of our workforce ages and is not being replaced by others willing to do the same jobs.

Okay. That's really helpful. Thank you and then shifting to la I. Appreciate some of the more positive commentary on L. A end of the fourth quarter could you just talk about how we should think about L. A in the 2026, given which should be softer comps, but some continued challenges on the demand and labor side of things I guess.

of our hotels, our people become more efficient, more productive, and that's continuing. Um, you know, there's additional tools that people can use where, um, better at at, um, at scheduling through utilization of these tools, we're making fewer mistakes. When it comes to scheduling, um, we're using third-party services less, uh, as a result of more efficient scheduling as a as examples. Um, so we think that will continue that's our Relentless focus. And yes, I think the wage side because of the front end, loading of a lot of these City, uh, labor contracts. Um, we think that next year, the wage rate growth will be less.

Differently do you expect <unk> to continue to drag on results from our Revpar and EBITDA perspective over the next 12 months relative to the rest of your portfolio.

Yes Cooper.

We think actually it will be one of our better performers next year because of the easy comps the recovery that we are seeing.

Michael Bellisario: That's definitely something that should be a tailwind unless government's going to be shut down next year. I think from a leisure perspective, as the economy improves and leisure customers feel better about their jobs, I think leisure will continue to improve. I mean, I think it's lost on people that if you—we were trying to highlight this—if you look at the weekends in the third quarter, they were up year over year in occupancy and demand. The leisure customer has been resilient, but they have become more price sensitive. As you work your way down the price spectrum, the customers at those properties are more and more price sensitive. You're seeing it in the differing rate declines that STR reports every week and every month.

Than it was this year. Albeit. A little of that will be offset by probably health care costs that are going to be that are going to grow at a higher costs, a higher rate than they did this year. But um, but overall it should be lower in terms of the growth rate of of those wages, um, and benefits combined.

Sort of re normalizing back in the market and then the.

The discussion and data that we're getting related to the future ramping of TV and movie production.

In the state.

Just upon the approvals of those.

That are going before the film.

Commission, that's providing these grants.

From what we see the big ramp up of that.

Small increase that we should see probably not here in the fourth quarter, but in the first quarter of next year.

But then a bigger ramp in the second quarter, because theres a theres a six month requirement that once the applications have been approved that they start production in the market so that that doubling more than doubling of the of the credits that the state is providing for production in California.

Jon Bortz: Jay, I think where we also counter our portfolio is a little different is all the redevelopment that we've completed over the last couple of years, that's paying huge dividends. That's fighting through maybe some of the weaknesses that could be some of these consumers. If you look at our projects that we completed in 2023 and 2024, we've gained over 700 basis points of penetration over a year over year. That's a really good direction there, which helps counter maybe some weaknesses you may have in individual consumers.

Is really kicking in.

But but our focus is on everything that we do in our hotels. It's, it's on how how Are we more efficient utilizing energy? Um, there's new tools, um, there's, um, there's better ways to operate our hotels, um, to use, um, uh, less power to use less water, it's good for the planet. It's good for the bottom line, uh, financially. At the end of the day, um, it's what our customers want. It's it's more consistent with their, um, with their values. Um, it's it's focused on insurance. How do we lower Insurance? How do we reduce accidents? Um, uh, some of that is operating, uh, best practices. Some of that involves physical improvements and changes to our properties. Um, how do we increase resiliency from weather? So we, uh, we had less downtime and less damage its infrastructure, Improvements roofing, um, Windows ceiling new windows. Um,

um,

By the middle of next year. So look presuming, we don't have any major events, we don't have political issues going on that.

That just dropped.

Perception of safety or quality of life for the beauty of the visit.

We think <unk> be a big tailwind for us in the portfolio next year.

Jay Kornreich: Got it. Thank you. I'll hold it there.

a sealant. It's it's all sorts of things through uh, the portfolio. It's how do we reduce credit card commissions, how do we encourage people to pay by AC? Um, all all of that. Um, is a focus. It's really every line item that we have uh on on our income statements. And uh it's going to be a significant Focus.

Raymond Martz: Our next question comes from a line of Ari Klein with BMO Capital Markets. Please proceed with your question.

Great. Thank you I appreciate the color.

As far as the eye can see. Particularly as we, we get new tools.

Thanks Cooper.

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

Ari Klein: Thanks. Jon, I appreciate all the color on the disconnect between demand and GDP growth. I was hoping you can touch more on why you think that disconnect has happened and what gives you the confidence that it resolves. I guess alongside that, do you think that the growth in AI investments where building data centers does not provide all that much benefit to lodging demand has distorted the relationship between the two, and just that maybe the underbelly of the economy is not all that healthy and that cannot continue into next year? Thanks.

Hi, Thank you I appreciate all your detail about talking about next year, but I wanted to just ask you a little bit about.

Maybe.

Do you have an asset held for sale.

Just kind of what are you seeing Oklahoma transaction market.

In terms of just I guess, a real pricing and.

Where are you I guess going forward in terms of.

I'm trying to execute on potential asset sales.

Assuming there's kind of a constructive transaction market.

Michael Bellisario: Sure. Well, I think the disconnect has a lot to do with some of these major policy disruptions. It has to do with sort of the normalization following the pandemic. I mean, we had a big demand recovery. We had customers back in 2022, as an example, that had no pricing sensitivity whatsoever. You remember those comments we made about people buying up for suites, and that was the first product that went in our property, and nobody really cared what anything cost because we could not even meet all the demand that was there. We did not have the staff to service it. That had to normalize. I think the other thing that has had a negative impact on that correlation is this international domestic imbalance, which is really large.

Hey, Smedes its Tom Thanks for the question. So I think just as a general backdrop the market transaction market has kind of been gyrating between risk on and risk off all year. The one constant throughout the year. However has been the debt markets.

From that are AI enabled or boosted um, robotics become a more important factor, um, and and as the quality of that service becomes better, in fact, in many cases, likely better than what a human can fra provide. Ultimately. So, um, certainly more knowledge. Um, individually. So we're, we're very encouraged about where the opportunities are at a lower cost as we move forward, um, improve. Um, the the the quality of work for our employees. Um and deal with some of the shortages that are occurring in that we think will our as a lot of our Workforce ages and is not being replaced by others willing. To do the same jobs.

The debt markets have been improving or getting more competitive theres more more availability there is better pricing and in some instances, it's actually becoming an alternative to a sale for many sellers from that perspective, because I think on the equity side again, it's kind of more risk on risk off I think would be with.

Okay, that's really helpful. Thank you. And then shifting to La, appreciate some of the more positive commentary on La into the fourth quarter. Could you just talk about how we should think about La into 2026 given? Which should be softer comps, but some continued challenges on the demand and labor side of things. I guess set differently. Do you expect LA to continue to drag on results from a revpar and ebida perspective over the next 12 months relative to the rest of your portfolio?

The government shutdown would be kind of flat to negative operating performance that you see in the weekly and monthly stars.

Yeah, Cooper. We well we we think actually it'll be 1 of our better performers next year because of the easy comps the recovery that we are seeing

Star reports or just kind of at a pause right now until there is a little more macro clarity, but I would say to you is over the course of the last 60 90 days, we've seen I think a real pent up demand.

Michael Bellisario: Keep in mind, an individual who goes abroad or comes here is usually spending—I mean, I think here the average is somewhere between 10 days and 2 weeks. Abroad, I think it's a little more like 7 to 10 days of the outbound. That differential has gotten really, really wide post-pandemic, and it's not recovered. I think that's a big part of it too. Ari, I don't think it has anything to do with data centers, and the GDP really isn't as good because you have to—these things, it's about direct and indirect, right? There's a lot of money being invested. Where is it ultimately going? Ultimately, it's going to go to people, businesses, corporate profits, wages, benefits, and bonuses. Ultimately, it gets around to enhance the economy.

Investors have seen some larger transactions take place you've seen a return of some of the bigger private equity names you've seen some of the owner operators. So I think there.

My sense here is that Theres, just their office waiting for that catalyst and I. Thank you.

And to what John had indicated in our call about 2026.

I think once once things turn and there's better visibility I think theres going to be a lot of pent up demand for transactions moving forward I think the risk off situation right now is nobody really wants negative leverage.

Discussion and data that we're getting related to the the future, ramping of uh TV and movie production uh, in the state. Um, based upon the approvals of those, um, that are going before the film, uh, commission that's providing these grants um from what we see, the big ramp up of that. Um, there's a small increase that we should see probably not here in the fourth quarter, but in the first quarter of next year, um but then a bigger ramp in the second quarter because there's a there's a 6-month.

And they are focused on smaller deals and those will continue.

Until there's some clarity.

I think we're going to be a little bit of a pause here and I think from a strategy perspective, our focus continues to be.

Michael Bellisario: It doesn't really matter all that much what it gets invested into unless it's a—I don't know. It would have to be something that went out of business really rapidly. I do think all that capital—I mean, it's not just data centers. You've got a lot of manufacturing reshoring. You have to have materials for that. You've got to ship that stuff. You've got to put it into place. You have to hire a lot of workers to do it. You have to rent a lot of equipment to build those things. You've got to build a lot of new electricity and buy all the equipment. I mean, it goes on and on and on. You still have the vast majority of the chips money that hasn't gone out the door yet. You have a lot of the infrastructure bill money.

To sell.

Assets and use that capital to take advantage of the public private arbitrage opportunity.

To buy our stock back pay down debt remain leverage neutral or or or.

Slightly reduce leverage over time.

But I think from from the disposition perspective, there have been new entrants into the market. There is certainly a lot more high net worth individuals out there looking at lodging, where they might not have previously.

Requirement that once the application's been approved that, uh, they start production in the market so that the doubling more than doubling of the, of the credits that the state is providing for production in California. Um, uh, is really kicking in, uh, by the middle of next year. So look, presuming, we don't have any major events. We don't have political issues going on that, uh, that disrupt, uh, the perception of safety or quality of life, or the beauty of the visit, um, uh, we think La will be a big Tailwind, uh, for us in the portfolio next year.

Great, thank you. Appreciate the caller.

Thanks Cooper.

Our next question comes from the line of smees rose with City, please receive with your question.

Because I think folks see the potential upside opportunity.

And the ability to take advantage of what are historically pretty low.

Per key values, particularly as it relates to what has been continuously increasing which is the replacement cost of.

Michael Bellisario: I mean, you can just go online and ask how much of that money's gone out the door. The majority of it still has not gone out the door for infrastructure, but it's been authorized. A lot of these disruptions, hopefully, international, begins to normalize over time. It's not in our thoughts for 2026. You noticed we didn't mention that reversing. I mean, the dollar, when it retreated in the first half of the year, has recovered a lot of that retreat. That's not good for international inbound, then it hurts outbound. I think that's in the pocket. It's something that will ultimately normalize, but I wouldn't count on it for next year unless we see a reversal in the dollar and some of this other rhetoric that's caused people to go elsewhere.

<unk> of hotels, so I think we're encouraged but I think what we need and we've continued to need and we've talked about this before is we need operations to turn positive.

Hi. Thank you. I appreciate all your detail about talking about next year, but I wanted to just ask you a little bit about, um, uh, maybe, I mean, you have an asset held for sale. Um, it's just kind of what do you think of all the transaction market? Um, in terms of just, you know, I guess rural pricing and, um, you know, where are you, I guess, going forward in terms of, you know, um, trying to execute on potential asset sales.

Assuming there's kind of a constructive transaction Market.

It's hard for a buyer to buy into a market.

That's declining.

They need to see things go up everybody is well aware of the long runway of a lot of limited supply growth, which will allow for both occupancy and rate to grow arguably faster than inflation, which is what it's done historically.

But it's got a turn.

So I think thats.

Where we're going and hopefully.

Hopefully, we have fewer and fewer of these macro disruptions next year.

Ari Klein: Thanks for that. Maybe just a quick follow-up. For the World Cup for next year, any early thoughts on the magnitude or the potential tailwind that that can add to RevPAR for next year?

Okay. That's helpful. And then I was just wondering you mentioned that you continue to see which we hear generally across the states will discrepancy between higher and leisure customers.

And as me, it's Tom uh, thanks for the question. So I think just as a general backdrop, you know, the mark the transaction Mark, it's kind of been gyrating between risk on and risk off all year, the 1 constant throughout the year. However, has been the debt markets, you know, the debt markets have been improving. They they're getting more competitive. There's more uh, more availability. There's better pricing and in some instances, it's actually becoming an alternative to a sale for many sellers, uh, from that perspective because I think on the equity side again, it's kind of more risk on risk off. I think would be would be government shutdown, would be kind of flat to negative operating performance. You know, that you see in the weekly and monthly Stars

And then.

Michael Bellisario: Yeah. I mean, I think that some of the brands or prognosticators have suggested it's maybe 30 or 40 basis points of improvement in RevPAR next year. I tend to think it's probably a little more than that for our portfolio, given the number of matches that we have. The challenge is, I mean, we've done a lot of research on it with our teams. If you go to the last World Cup, 70% of the business was booked within 30 days of the matches. What gets booked ahead of time, and we have started to see some of it, is some of the group that is regardless of what team is playing and where they're playing. We would expect it to be very last minute. We haven't announced the teams yet. There are some, obviously, that have already qualified, but still the majority have not.

Lower end.

Just within your portfolio what are couple of examples or I guess, it's sort of higher end resorts, where you saw.

Solid revpar gains.

Year over year, and give you a couple of where they were weaker.

Just given the composition of the customers that go to those properties.

Smedes.

I think, uh, star reports, we're just kind of at a pause right now until there's a little more macro clarity. But what I would say to you is that over the course of the last 60 to 90 days, we've seen, I think, a real pent-up demand by investors. You've seen some larger transactions take place; you've seen a return of, you know, some of the bigger private equity names. You've seen some of the owner-operators. So I think they're...

There's a couple of other moving parts, maybe take Newport Harbor as an example.

Which caters to people who are from Boston and New York.

my sense here is that there's just they're all just waiting for that Catalyst and I think if you, you know, listen to what John had indicated in our call about 2026,

Mark.

So we had a very strong leisure component there and also a very strong corporate demand our demand has been tremendous there as we cited during the call. The revpar up double digit 30, plus when you look at those levels.

I think, once once things turn and there's better visibility, I think there's going to be a lot of pent-up demand for transactions, moving forward. I think the risk off situation right now is nobody really wants negative Leverage

<unk>.

Year over year. So those are examples wherever that we're also benefiting from the redevelopment side, there, but that's where we continue to have less.

Price sensitivity when you get to some of the markets maybe in some markets like in South Florida.

Michael Bellisario: Not only have they not determined all the teams, but they haven't said where any of the teams are going to be playing. All of that just means it's going to be pretty short term. The other positive is there's 50% more teams this year than there were last year, I mean, in the last World Cup. We've gone from 32 to 48 teams. That's also a big positive for the overall impact. I think it'll be—I think a lot of it's going to happen late first quarter and second quarter, and really the final 30 days before the matches in both June and July. That just means everybody's going to hold out and keep things frozen until then.

Meritor for key West Theres, a little more pricing sensitivity, but we've adjusted our revenue management strategies. Accordingly, So we actually did okay. There.

But again I think we were opening up channels look at other sort of.

Customer basis.

And doing our best there, but I think overall quality level of our hotels are still higher gorilla more insulated versus if you start going down the quality spectrum and you are seeing in STR numbers much more than at our resorts.

Um, uh, and they're focused on smaller deals and those will continue, but I until there's some clarity. Um I think we're going to be a little bit of a pause here and I think from a strategy perspective, you know our Focus continues to be um to sell uh assets and use that Capital to to take advantage of the public private Arbitrage opportunity um to buy our stock back. Um pay down debt, remain leveraged neutral or or or slightly reduce leverage over time. Um but I think from from the disposition perspective, there have been new entrance into the market. There's certainly

I think a couple of other examples would be the playa.

And Naples and on fifth in Naples.

Both both luxury properties.

A fair a fair bit of in sensitivity to pricing by our customers down there.

<unk> del Mar and del Mar out in California would be another example of a property at a much higher average rates relatively small property, where where the customers again are relatively insensitive to to pricing, but very sensitive to us providing them. Good service so that.

Ari Klein: Thanks for the call.

Raymond Martz: Our next question comes from a line of Chris Darling with Green Street. Please proceed with your question.

Jay Kornreich: Hi. Thanks for taking the question. Going back to San Francisco, we've obviously talked about how the market has plenty of momentum behind it. I think, importantly, it seems like investor sentiment has really changed for the positive as well. With that in mind, Jon, curious where your head is at strategically in regards to your remaining exposure there. Do you think now might be the time to consider divesting some of your remaining assets, or does it make more sense in your mind to sort of ride the recovery wave out over the next couple of years?

This would be a couple of other examples.

Continue to need. And we've talked about this before. We need operations to turn positive. It's hard for a buyer to buy into a market.

Great. Thanks, I appreciate it.

That's declining.

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

Hey, thanks.

John on government shutdown impacts given your.

Timon do you see any any perspective on how quickly this activity.

Um, they need to see things go up. Everybody's well aware of the long runway of a lot of limited supply growth, which will allow for both occupancy and rate to grow arguably faster than inflation, which is what it's done historically. But it's got to turn.

Spool back up because if I think about this year, we've already absorbed the doge impacts earlier in the year I assume you had one.

Michael Bellisario: Well, I think from a general perspective, all of our hotels are available for a buyer, particularly strategic buyers, because of the flexibility of our properties. All of our properties in San Francisco can be available without management and brand. Ultimately, there's a lot of flexibility there. I think where we are is it'll depend on pricing. I mean, there's going to be really strong growth. We believe in that strong growth. I mean, we think we have assets that we think will double or triple their yields over the next three years in that market. We believe you could easily see double-digit RevPAR growth for the next three to five years there, given the recovery that's needed in rates, the momentum that's going on with the underlying industries, and growing confidence as occupancy gets rebuilt here in the market. We've got great political leadership there.

Some of that back, but maybe not all of that back in and now we have the shutdown. So.

So I think that's that's where we're going. And and hopefully, um, uh, hopefully we have fewer fewer of these macro uh, disruptions next year.

I don't know if you covered it in your extensive 2026 events navigation, which was very helpful.

Have you sized the impact from the government sector. This this year in totality.

And how big of a tailwind could it be next year.

That that's helpful and then I just wondering you, just you mentioned that you continue to see which we hear generally across the space, a real discrepancy between higher-end Leisure customers. Um and then, you know, um, lower end and just within your portfolio, what, what are a couple of examples? I guess of sort of higher-end resorts where you saw?

Yes.

It's funny. These things are a little harder to estimate I mean, we can look at where government.

And it's it's probably been down about a 3rd% to 40% of what it was the year before.

You know solid maybe web part games um year over year and maybe a couple of where they were weaker just giving the composition of the customers that go to those properties.

That probably represents in total about point to two points of total demand for our portfolio.

And probably fairly similar for the overall industry, although probably more heavily weighted at the lower to middle end.

Generally speaking.

The shutdown is a different matter because it's impacting more way more than just government travel is impacting.

Michael Bellisario: At this point, I think it'll just depend upon pricing whether we would sell in that market or not. It would just have to take into account what we believe the growth levels are going to be.

People, who have discretionary travel which is what most travel is at the end of the day.

So it's more about people, who get anxious about flying.

Ari Klein: All right. Understood. That's it for me. Thanks.

It's more about people don't want to put off or take the risk of cancellations.

Jon Bortz: Thanks, Chris.

Michael Bellisario: Thank you.

Our big delays that they're concerned about and that the media will be key to report about so.

Raymond Martz: Thank you. Mr. Bortz, we have no further questions at this time. I'd like to turn the floor back to you for closing comments.

Michael Bellisario: Thanks, Christine. Thanks, everybody, for participating. Sorry we ran long, we had a lot of thoughts we wanted to convey. We look forward to talking to you in February next year, but I'm sure we'll speak to many of you at Nayreet in Dallas next month. Thank you very much.

It's a hard thing to measure, but it's material as is the continuing imbalance of international.

Uh, well, there's a couple of other moving parts, I mean, you take Newport Harbor as an example. Um, which caters to people who are from Boston and New York. Um, so we have a very strong Leisure component there and also very strong corporate demand. Our demand has been um tremendous there as we cited during the call. The repar up you know the double digit you know, 30 plus and we when you look at those levels um over year over year. So those are examples where we're also benefiting from the Redevelopment side there. But that's where we continue to you know have less price and sensitivity. We need it to some of the markets maybe in some markets say like in South Florida for Key West there's a little more pricing sensitivity but we've adjusted our, you know, Revenue management strategies accordingly. So we actually, you know, did okay there. Um but it's like anything we we're opening up channels to look at other sort of uh uh customer bases and and um and doing our best there. But um I think it it overall the quality level of our hotels.

Domestic outbound and international inbound I mean, you've got one that's.

That's at 120% of.

2019 levels than you have.

Raymond Martz: 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.

Inbound in the eighties.

2019 levels.

That could reverse, but it's going to take it sort of creating a different perception.

So higher, we're a little more insulated versus if you start going down the, the quality spectrum and you're seeing an SDR, number is much more than at our our Resorts. And I, I, I think a couple of other examples would be lelia Inn in Naples and in, on Fifth in Naples, um, both both luxury properties. Um, fair fair bit of insensitivity to pricing, um, by our customers down there, um, low bearish delmare, uh, in

On the part of our government's desire to welcome people into the country and frankly, we're not seeing that yet, although we hope to see that certainly for World Cup next year, which.

Are out in. California would be another example of a, of a property at, you know, much higher, uh, average rates

It's something that's really important to the president and the administration.

Thanks, and then just Relatedly ask you. The same question I asked host give given that the assumption that we have no storm fall in and we're not like rebuilding this fall on the Gulf Coast, what does that allow you to do and thinking more about like 2026. Thank you.

Relatively small property where the customers, again, are relatively insensitive to pricing but very sensitive to us providing them good service. So those would be a couple of other examples.

Great, thanks. Appreciate it.

Our next question comes from Dwayne Pfennigwerth with Evercore ISI. Please proceed with your question.

Hey, thanks. Uh

So I think the first thing it allows us to do is sell a property that's not been damaged.

John on government shutdown. Impacts. Giving your

One of the things we are hearing from clients and Naples as an example is <unk>.

Time in DC. Any any perspective on how quickly this activity uh can spool back up because if I think about this year,

You've had all these storms in the last few years, we've had to move our our meetings to other markets or other properties.

Is this kind of ever and or is that.

The new pattern and having a year, where there is no impact.

I think it is helpful from a sales perspective.

Certainly easier to sell when you don't have that it's easier to sell when you have a property that's primed in great condition.

We already absorbed the Doge impacts earlier in the year. I assume you had 1 some of that back, but maybe not all that back. And and now we have the shutdown. So I I don't know if you, uh, covered it in your extensive 2026 event, uh, navigation. Which was very helpful. Uh, but have you sized the impact, uh, from the government sector? This this year in totality, uh, and how big of a Tailwind could it be, uh, next year,

Which is not what we had last year in terms of selling for this year. So I think it bodes well for again, we'll apply it to ramp from 25 million of EBITDA. This year to maybe closer to $30 million next year on its way to hopefully getting back to that 35.

Yeah, it's it's uh you know it's funny these things are a little harder to estimate. I mean, we can look at where where government uh is and it's it's probably been down about a third to 40% of what it was the year before.

36 year $36 million level.

Of where it was heading into 2022.

Thank you.

Thank you.

Our next question comes from the line of Michael Bellisario with Baird. Please proceed with your question.

Hi, Thanks, good morning, everyone.

Hey, Mike.

John you mentioned attrition or increased attrition during the quarter can you dig in there a little bit more what markets. What segments did you see that and presumably thats continued in the fourth fourth quarter, just any added color on short term booking trends would be helpful. Thank you.

um,

I mean it.

It varied through the portfolio and markets, but it was much more visibly related too.

It's more about people who don't want to put up, or take the risk of cancellations, or big delays that they're concerned about, and that the media will be, you know, keen to report about. So,

Government and government related but you don't always know what's government related until the customer declares it.

And in a lot of cases it involves education.

It's a hard thing to measure but it it's it's material, as is the continuing imbalance of international. Uh, you know, domestic outbound and international inbound. I mean you've got 1 that's

that's at 120% of

A lot of these conferences are supported by grants or the departments are supported by grants, which they are not getting their frozen or they don't expect to get.

2019 levels and you have, you know, inbound in the 80s uh of 2019 levels. Um

As you know with the disruption going on with the universities.

So a lot of it is related to those sectors were not really seeing it in technology, we're not really seeing it in medical biomedical we do see it some in other conventions, where the attendance is lower and it relates to associations, where the people are paying their own way.

That could reverse, but it's going to take it sort of creating a different perception, um, on the part of our government's desire to welcome people into the country. And frankly, we're not seeing that yet, although we hope to see that certainly for the World Cup next year, which, you know, is something that's really important to the president and the administration.

Okay.

And you get you get some of that.

Some of that 345% falloff in attendance that results from that so.

It's not something that.

Interestingly I think.

Thanks, and then just relatedly ask you the same question. I asked host, given that, you know, the assumption that we have a no storm fall and we're not like rebuilding this fall on the Gulf Coast, what does that allow you to do in thinking more about like 2026? Thank you.

Still on a year over year basis, our attrition payments were less this year than they were last year for Q3. So it's certainly not at a high level, yet, but it's more clearly impacting those groups that are somehow related to government.

Yes, Michael we're not we're not highly concerned with nutrition cancellation, it's not heading in a really bad direction, but.

It's certainly something we do monitor.

Because it does go quarter to quarter, because thats <unk>, maybe early Canadian coal mine through speak of covenants.

Covenant companies are feeling differently about their spending.

So nothing materially that we're concerned about what we continue to monitor.

Very helpful. Thank you.

Our next question comes from the line of Jay <unk> with Cantor Fitzgerald. Please proceed with your question.

Hey, good afternoon. Thank you just wanted to follow up on the leisure transient side of the portfolio.

Recently renovated resorts have all been performing quite well, but I'm just curious how would you characterize kind of the overall leisure customer and its price sensitivity of these days and as you look out towards next year on the same store part of the portfolio do you feel like Theres more upside from.

So I I think the first thing it allows us to do is is sell a property that's not been damaged. You know the 1 of the things we were hearing from clients in Naples. As an example is gosh you've you know you've had all these storms in the last few years. We've had to move our you know our meetings to other markets or other properties. Um is this going to ever end or is this the, you know, the new the new pattern and having a year where there's no impact uh I think is helpful from a sales perspective. Um, certainly easier to sell when you don't have that, it's easier to sell when you have a property that's, you know, primed and in great condition. Um, which is not what we had last year in terms of selling for this year. So I think it bod well for again leli at a ramp from 25 million of ebata this year to maybe closer to 30 million next year on its way to hopefully getting back to that.

30335 or 36 year, $36 million level of where it was heading in 2022.

Thank you.

The elite that leisure customer improving or more from the urban side of the portfolio.

Thank you.

Interestingly I mean, the leisure customer impacts our urban properties to a meaningful extent I mean, our cities are.

Our next question comes from the line of Michael Bellisario with Barrett, please proceed with your question.

Thanks. Good morning, everyone.

In many cases very heavily tourist destinations and.

When I when I think about when we think about next year.

Hey Mike, John you mentioned a Trish or increased attrition during the quarter. Could, could you dig in there a little bit more? What markets, what segments did you see that in

I'd say a couple of things first of all.

Some of the few cities like like D. C. As an example.

In L. A leisure has been meaningfully impacted this year, we should see a recovery next year.

The government shuts down the Smithsonian closed museums or closed here in town, there's not a lot to see here.

Presumably, that's continued into the fourth quarter. Just any added color on short-term booking trends would be helpful. Thank you. Yeah, I mean it varies throughout the portfolio in markets, but it was much more visibly related to...

If you were a leisure guest if Europe, if your group coming from.

A high school or Middle school somewhere coming to spend there 345 days in D C. They're not coming right now because.

There is nothing to do so.

So that's definitely something that should be a tailwind unless.

Government is going to be shutdown next year.

Government and government-related matters can be complex, and you don't always know what's related until the customer declares it. In many cases, it involves education. A lot of these conferences are supported by grants, or the departments are supported by grants, which they are not receiving as they are frozen, or they don't expect to receive them. As you know, with the disruption going on with the universities.

And and so I think from a leisure perspective as the economy improves.

And leisure customers feel better about.

Their jobs.

Yeah.

I think leisure will continue to improve.

Think it's lost on people that if you were trying to highlight this if you look at the weekends in the third quarter.

Um, so a lot of it is related to those sectors. We're not really seeing it in technology. We're not really seeing it in medical biomedical. Um, we do see it some in other conventions where the attendance is lower and it relates to associations where the people are paying their own way.

They were up year over year, and occupancy and demand so the leisure customer has been resilient.

Um, and you get, you get some of that, you know, you get some of that 345% fall off in attendance, that results to with from that. So,

But they have become more price sensitive and as you work your way down the price spectrum, they get more and more customers that those properties are more and more price sensitive and youre seeing it in and the differing.

Rate declines that STR reports every week and every month.

It, it's not something that um, I mean, interestingly I think still on a year-over-year basis. Our attrition payments were less this year than they were last year for Q3 so it's certainly not at a high level yet, but it's more clearly impacting, those groups that are somehow related to government.

Jay I think where we also counter our portfolios will have different is although redevelopment.

We've completed over the last couple of years is paying huge dividends. So that's fighting through maybe some of them. We can see that could be some of these consumers. If you look at our projects that we completed in 'twenty three 'twenty four he's gained over 700 basis points of penetration.

Yeah, so Michael, we're not, we're not highly concerned with the attrition cancellation. It's not heading in a really bad Direction but it's really something we do monitor. Um, because it does go quarter a quarter because that's usually maybe an early Canary in the coal mine. So speaking, if if companies are feeling differently about their spending, um so nothing materially that we're concerned about but we continue to monitor

Year over year, so that's really a good direction, there, which helps counter maybe some weaknesses you may have an individual consumers.

Very helpful. Thank you.

Our next question comes from line of Jay Cornage with Cantor Fitzgerald. Please proceed with your question.

Got it thank you I'll hold it there.

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

Thanks.

John I appreciate all the color on the disconnect between demand and GDP growth and I was hoping you can touch more on why you think that disconnect that happened.

And what gives you the confidence that way.

And I guess alongside that.

Hey, good afternoon, thank you. I just wanted to follow up on the Leisure transient side of the portfolio. The recently renovated Resorts have all been performing quite well, but, you know, just curious, how would you characterize kind of the overall Leisure customer and it's you know, price sensitivity these days. And as you look out towards next year, on the same store, part of the portfolio, do you feel like there's more upside from, you know, the that Leisure customer improving or more from the urban side of the portfolio?

Think that the growth in AI investment we are building data centers doesn't provide all that much benefit to lagging demand.

Distorted the relationship between the two and just that maybe the underbelly of the economy isn't all that healthy.

Well, you know, interestingly the I mean the Leisure customer. Impacts are Urban properties, too, a meaningful extent. I mean, our cities are

Next year. Thanks.

in many cases very heavily tourist destinations and

Sure.

I think that disconnect.

Has a lot to do with some of these major policy disruptions.

And it has to do with sort of a normalization. Following the pandemic. We had we had a big demand recovery we had.

<unk>.

We had customers back in 'twenty two as an example that had no pricing sensitivity whatsoever.

You remember those comments, we've made about people buying up for suites and that was the first product that wind in our property and nobody really cared what anything costs, because we couldnt, even though we couldnt even meet all the demand that was there we didn't have the staff to service it.

You know, when I, when I think about, when we think about next year, you know, I would say a couple things, first of all, um, some of the, a few cities like, like DC as an example. Um, in La Leisure has been meaningfully impacted this year, we should see a recovery next year. I mean, the, the government shuts down the smithsonian's closed museums are closed here in town. There's, there's, there's not a lot to see here. Um, if you were a Leisure, uh, guests, if you're a, if you're a group coming from, uh, you know, a high school or middle school somewhere coming to spend their 34

That had to normalize and I think the other the other thing Thats had a negative impact on that correlation is this.

Or 5 days in DC. They're, they're not coming right now because there there's nothing to do so. Um, so that's definitely, uh, something that should be a Tailwind unless, um, government is going to be shut down next year. Um,

International domestic imbalance, which is really large.

And keep in mind, an individual who goes abroad or comes here is usually spending I mean I think here. It's the average is somewhere between 10 days two weeks abroad. I think it's a little more like seven to 10 days of the outbound but that that differential has gotten really really wide.

And and so, I think from a Leisure perspective as the economy improves, you know, and Leisure customers feel better about, uh, their jobs, um, I I think Leisure will continue to improve. I mean, I I I think it's lost on people that if you we were trying to highlight this, if you look at the weekends in the third quarter,

Post pandemic and its not recovered and so I think that's a big part of it too.

They were up year-over-year in occupancy and demand, so the Leisure customer has been resilient.

I don't think it has anything to do with data centers in the GDP really isn't as good because.

You have to.

These things, it's about direct and indirect right.

There is a lot of money being invested where is it ultimately going ultimately, it's going to go to people and businesses and corporate profits and wages and benefits and bonuses and and so ultimately it gets around to enhance the economy.

They but they have become more price sensitive, and as you work your way down the price spectrum, they get more and more. The customers at those properties are more and more price sensitive, and you're seeing it in the, in the differing, um, rate declines, that Str reports every week and every month.

And, and jet.

And that it doesn't really matter all that much what it gets invested into unless it.

I don't know, we would have to be something that went out of business really rapidly but.

Dr. Our portfolio is a little. Different is all the Redevelopment uh, that we've completed over the last couple of years. That's paying huge dividends. So that's, you know, fighting through. So maybe some of the weaknesses that could be some of these consumers. If you look at our projects that we completed in 23 and 24, we've gained over 700 basis points of penetration um oh over year over year. So that's a really good direction there.

So I do think all of that capital and it's not just data centers, you've got a lot of manufacturing re shoring.

Which helps counter maybe some weaknesses, you may have an individual consumers.

Got it. Thank you. I'll hold it there.

You have to have materials for that you've got a ship that stuff you've got to put it into place you have to hire a lot of workers to do it you have to run a lot of equipment.

Our next question comes from the line of Ari Kline with BMO Capital Markets. Please proceed with your question.

Build those things you've got to build a lot of new electricity and by all the equipment.

It goes on and on and on and.

You still have the vast majority of the chips money that hasnt gone out the door yet you have a lot of the infrastructure Bill money. I mean, you can just go online and ask how much of that money has gone out the door.

The majority of it still has not gone out the door for infrastructure, but it's been authorized so.

A lot of these disruptions.

Hopefully international.

Thanks uh John appreciate all the color on the disconnect between demand and GDP growth and I was hoping you can touch more on the why you think that disconnect has happened and what gives you the confidence that that resolved that it resolves and I guess alongside that do you think that the growth in AI investment? We're building data centers doesn't provide all that much benefit to lodging demand as distorted, the relationship between the 2 and just that maybe the underbelly of the economy isn't all that healthy and that can continue into next year. Thanks.

Begins to normalize over time, it's not in our thoughts for 2006, you noticed we Didnt mentioned.

Sure. Well, I think the disconnect

Ill.

That reversing.

The dollar when it when it retreated.

First half of the year has recovered a lot of that retreat that's not good.

For <unk> in <unk>.

International inbound that it hurts outbound so I think thats.

That's in the pocket that is something that will ultimately normalized but I wouldn't count on it for next year, unless we see a reversal in the dollar and some of this other rhetoric that's caused people to.

Has a lot to do with some of these major policy disruptions. Uh, and it has to do with sort of the normalization, following the pandemic. I mean, we had we had a big demand recovery. We had, you know, um, we had customers back in 22 as an example that had no pricing sensitivity whatsoever. Um, and you remember those comments we made about people buying up for Suites and that was the first product that went in our property and nobody really cared what anything costs because

To go elsewhere.

Okay. Thanks for that maybe just a quick follow up just for the World Cup for next year any early thoughts.

The magnitude.

The potential tailwind.

Revpar for next year.

Yes, I mean, I think some of the brands are Prognosticators have suggested it's maybe 30 or 40 basis points of improvement in Revpar next year.

I tend to think it's probably a little more than that for our portfolio given the.

The number of matches that we have.

The challenges I mean, we've gotten we've done a lot of research on it with our teams and.

If you go to the last World Cup.

70% of the business was booked within 30 days of the matches.

What gets booked ahead of time and we have started to see some of it is some of the group that is regardless of what team is playing and where they're playing.

So.

So we would expect it to be very last minute.

We haven't announced the teams yet there are some obviously that are that have already qualified but still the majority are not.

Not only have they not determined all the teams.

Haven't said, where any of the teams are going to be playing so.

All of that just means it's going to be pretty short term.

I mean, I think here it's the average is somewhere between 10 days and 2 weeks abroad. I think it's a little more like 7 to 10 days of the outbound, but that that differential has gotten really, really wide post-pandemic. And it's not recovered. And so, I think that's a big part of it too. Um, uh, or I don't think it has anything to do with data centers and the GDP really isn't as good because you you you have to these these things. It's about direct and indirect right? Where there's a lot of money being invested. Where is It, ultimately going? Ultimately, it's going to go to people and businesses and corporate profits and wages and benefits and bonuses. And and so ultimately it gets around to enhance the economy. Uh and that it it doesn't really matter all that much what it gets invested into. Unless it's a, you know, I I don't know. We'd have to be something that went out of business.

But the other positive is 50% more teams this year than there were last year I mean in the last World Cup.

and its really rapidly, but

so I I do think all that capital, I mean, and it's not just data centers, you've got a lot of manufacturing reshoring

We've gone from 32% to 48 teams.

That's also a big positive.

For the for the overall impact so.

I think I think it will be I think a lot of it is going to happen late first quarter and second quarter.

And really the final 30 days before the matches in both June and July.

Um, you have to have materials for that. You've got to ship that stuff. You've got to put it into place. You have to hire a lot of workers to do it. You have to rent a lot of equipment to to build build those things. You've got to build a lot of new electricity and and buy all the equipment. I mean it you know, it goes on and on and on and

And that just means everybody is going to hold out.

And keep things frozen until then.

Thanks for the color.

Our next question comes from the line of Chris styling with Green Street. Please proceed with your question.

You still have the vast majority of the chips, money that hasn't gone out the door yet. You have a lot of the infrastructure, bill money. I mean, you can just go online and ask how much of that money's gone out the door. The majority of it still has not gone out the door for infrastructure but it's been authorized. So

Hi, Thanks for taking the question.

A lot of these disruptions, um, hopefully, uh, International, uh, um,

Going back to San Francisco, We've obviously talked about.

How the market has plenty of momentum behind it I think importantly, it seems like investors sentiment has really changed for the positive as well.

With that in mind, John curious, where your head is that strategically in regards to your remaining exposure. There do you think now might be the time to consider divesting some of your remaining assets or does it make more sense in your mind to sort of ride the wave.

Begins to normalize over time. It's not in our thoughts for 26. You notice, we didn't mention, you know, ah, ah, ah, that reversing, I mean the dollar when it when it retreated, uh, in the first half of the year is recovered. A lot of that Retreat. That's not good. Um, for, for in international inbound, then it hurts outbound. So I think that's

A wave out over the next couple of years.

Well I think from a general perspective, all of our hotels are available for for a buyer.

that's in the pocket that something that will ultimately normalize but I I wouldn't count on it for next year unless we see a reversal on the dollar and some of this other rhetoric that's caused people to

to go elsewhere.

Particularly strategic buyers.

Because of the flexibility of our of our properties all of our properties.

In San Francisco.

Can be available without management and brand so.

Thank thanks for that. Maybe just a quick follow-up just for the World Cup for next year. Any early thoughts on the magnitude or you know the the potential Tailwind that that that can add to to ratify for next year.

So ultimately there is a lot of flexibility there I think where we are.

Is it will depend on pricing.

There is going to be really strong growth, we believe in that strong growth I mean, we think.

We think.

We have assets that we think will double or triple their yields over the next three years in that market and.

We believe you could easily see double digit revpar growth.

Yeah, I mean I think that there some of the brands are prognosticators have suggested it's maybe 30 or 40 basis points of improvement in revpar next year. Um I I tend to think it's probably a little more than that for our portfolio given, um, the number of matches that we have. Um, the challenge is, I mean, we've gone, we we've done a lot of research on it with our teams and if you go to the last World Cup, um,

For the next three to five years, there given that the recovery that's needed in rates the momentum that's going on with the underlying industries.

70% of the business was booked within 30 days of the matches.

And growing confidence as occupancy gets rebuilt cure in the market. So we've got great political leadership there.

This point.

I think it'll just depend upon pricing, whether we would sell in that market or not it would just have to take into account. What we believe the growth levels are going to be.

Um, what gets booked ahead of time and we have started to see some of it, is some of the group that is regardless of what team is playing and where they're playing. Um, so um, so we would expect it to be very last minute. Um, we, we haven't announced the teams yet. There are some obviously that are that have already qualified but they're still, the majority have not

Um, not only have they not determined all the teams.

Alright understood that's it for me thanks.

Thanks, Chris.

Thank you.

But they haven't said, where any of the teams are going to be playing. So all of that, just means it's going to be pretty short term.

Thank you Mr. Bortz, we have no further questions at this time I would like to turn the floor back to you for closing comments.

But the other positive is there's 50%, more teams this year.

Thanks, Christine and thanks, everybody for participating sorry, we ran long we had a lot of a lot of thoughts we wanted to convey we look forward to talking to you.

Than there were last year. I mean, in the last World Cup, um, we've gone from 32 to 418 teams.

In February next year, but I am sure will speak to many of you at NAREIT in Dallas next month. Thank you very much.

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.

That's also a big positive, um, uh, for the, for the overall impact. So, you know, I think it, I think it'll be, I think a lot of it's going to happen, late first quarter and second quarter, um, and and really the final 30 days before the matches in both, June and July.

And, and that just means.

Everybody's going to hold out. Um, and, and keep things, um, Frozen until then.

Thanks to the color.

Our next question comes from the line of Chris darling with Green Street. Please receive with your question.

The market has plenty of momentum behind it. I think importantly, um, it seems like investor sentiment has really changed for the positive as well. Uh with that in mind, John curious where your head is at strategically in regards to your remaining exposure there. Um, do you think now might be the time to consider divesting some of your remaining assets or does it make more sense in your mind to sort of ride the recovery, uh, wave out over the next couple years?

Well, I, I think, from a general perspective, you know, all of our hotels are available for for a buyer. Um, particularly strategic buyers, um, uh, because of the flexibility of our of our properties. You know, all of our properties in, in same in San Francisco. Um, can be available without management and brand. So, um, so ultimately, there's a lot of flexibility there. I think where, where we are, um, is, it'll depend on pricing? I mean, I there's going to be a really strong growth. We, we believe in that strong growth. I mean, we think

We think, um, we have assets that we believe will double or triple their yields over the next three years in that market. And, you know, we believe you could easily see double-digit revenue per available room growth.

You know for the next 3 to 5 years there, given the the recovery that's needed in REITs, the momentum that's going on with the underlying Industries um and growing confidence um as occupancy gets rebuilt here in the market. So we've got great political leadership there at this point.

I think it'll just depend upon pricing, whether we would, uh, sell in that market or not. It would just have to take into account what we believe the growth levels are going to be.

All right, understood. Uh that's it for me. Thanks.

Thanks Chris. Thank you.

Thank you, Mr. BS, we have no further questions at this time. I'd like to turn the floor. Back to you for closing comments.

Thanks Christine, thanks everybody for participating. Uh, sorry we ran long. We had a lot of, a lot of thoughts, we wanted to convey. We look forward to see talking to you uh uh in February next year. But I'm sure we'll speak to many of you at NY uh, in Dallas uh next month. Thank you very much.

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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