Pebblebrook Hotel

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Greetings and welcome to Pebble Brook Hotel Trust first quarter earnings conference call. At this time, all participants are on the listen only mode. A question and answer session will follow the formal presentation. If anyone requires 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. Please go ahead.

Thank you, Donna, and good morning, everyone. Welcome to our first quarter 2026 earnings call. Joining me today is John Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. But before we begin, I'd like to remind everyone that our remarks are as of today, April 29, 2026, and today's comments may include forward-looking statements that are subject to various risks and uncertainties. Please review 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. Now let's jump into the first quarter financial results. We had an exceptional first quarter with results well above the high end of our outlook across key earnings metrics. Same property hotel EBITDA increased 27.6% to $82.2 million, coming in 8.2 million above the high end of our outlook. Adjusted EBITDA was 73.3 million, up 29.5% from last year, and 9.3 million above the high end. Adjusted FFO for diluted share doubled year over year to 32 cents, which was nine cents above the high end of our outlook. So this was a very strong quarter by any measure. Even more important, performance was not narrowly driven. While we had a great setup, the strength was broad across the portfolio, and the performance came from both stronger revenues and superb expense control. At the property level, same property occupancy increased 550 basis points, ADR increased 2.8%, and rep part increased 11.8%, and total revenue increased 10.1%. Same property total expenses increased just 5.6%, driving 327 basis points of hotel EBITDA margin expansion. More than half of the incremental same property revenue flowed through to hotel EBITDA. That reflects the strategic operating initiatives we've been implementing across the portfolio, the benefits from our investments in revenue-generating amenities and venues, and strong execution by our property teams and asset managers. The strength extended across the portfolio, with 32 hotels exceeding revenue forecasts and 34 exceeding GOP forecasts in the quarter. And San Francisco was exceptional. While it benefited from the Super Bowl and a large citywide convention that shifted into the first quarter, all segments, including business and leisure transient, were incredibly strong and continue to recover. Repar increased a robust 44.5%, and hotel EBITDA more than tripled from a year ago, climbing by 11.6 million. Los Angeles also recovered sharply from last year's fire-related disruptions, with Rep Park climbing 31.5% and Occam City growing more than 16 points to 74.6%. The improvement across LA properties was broad-based, helped by a stronger leisure demand, improving entertainment-related group and leisure activity, and the ramp-up of our recently renovated and rebranded Hyatt Centric, Delfino, and Santa Monica. LA's Q1 same-property EBITDA increase recaptured all of the EBITDA loss in the first quarter from last year's fires. While San Francisco and LA were standout markets, they were far from the whole story. Our urban portfolio posted rent-par growth of 14.3%, total rent-par growth of 12.9%, and EBITDA growth of 55.1%. San Diego urban hotels delivered rent-par growth of 8.7%, driven by a 900 basis point jump in occupancy, supported by healthy weekend leisure demand. Chicago also turned in a good quarter, with RepR increasing 5.6%. Washington, D.C. was our most challenged market in Q1, with RepR declining 24.1%, reflecting a very difficult inauguration comparison and continued weakness in government-related travel, though we have seen some recent improvements. Boston was another softer market, with Repar down 3%, reflecting lighter citywide calendar, two major winter storms, and a rooms renovation of Revere Hotel Boston Common. We expect bulk markets to improve in the second quarter, given the better event calendars. Our resorts also had a very strong quarter, with Repar rising 7.5%, total Repar increasing 6.7%, and EBITDA climbing 13.9%. Resort performance was driven by resilient leisure demand, healthy on-property spending, favorable holiday timing, and the continued ramp-up of our redeveloped assets. We also benefited from an earlier-than-normal spring break, which pulled more spring break travel into March from April. Several resorts delivered double-digit repart gains, including Newport Harbor Island Resort, La Playa Beach Resort and Club, Skamania Lodge, Paradise Point Resort and Spa, San Diego Mission Bay Resort, and Estancia La Jolla Hotel and Spa. Overall, first quarter demand was encouraging despite heightened geopolitical tensions and increased uncertainty around travel. Leisure demand remained strong, business transit continued to grow and recover, and group was stable. Consistent with broader travel and spending commentary, visibility has shortened somewhat since late March, but we have not seen any material change in booking trends to date. Premium leisure and business travel have remained healthy to date. Weekday repar increased 9.7% overall and 12% in our urban markets, while weekend repar increased 15% overall. Weekend leisure demand remains healthy, but the improvements in weekday demand is equally important as it reflects the continued recovery in business transient and group travel and creates more meaningful earnings power as urban occupancies rebuild. What also stood out this quarter was the quality of the revenue growth. Out of room revenues, again, grew up nicely, 7.6% overall. Food and beverage revenues increased 7.4%. Outlet revenues were up 10.2%. And banquets and catering revenues increased 4.8%. Guests were not only staying with us in greater numbers, but they were also spending more on property. and that is exactly the kind of revenue mix that supports increased profitability. On the expense side, our strategic operating initiatives, again, delivered this quarter. Total expenses rose by only 5.6%, while total revenues increased 10.2%. Food and beverage revenues rose 7.4%, while food and beverage expenses increased just 3.7%. Sales and marketing expenses, excluding franchise fees, grew only 3.9%. while energy costs actually declined 2.8%. And on a per occupied room basis, total expenses declined 2.8%, and total expenses for fixed costs declined 3.2%, demonstrating the favorable benefits of the operating leverage in our portfolio. We are generating more efficiencies from improved labor, productivity, and technology use, tighter cost controls, and continued benefits from property-level efforts to reduce energy and water consumption. Said more simply, as revenues improve, our portfolio is flowing more of that upside to the bottom line than it did a year or two ago. And a quick point on one-time items, because it is important to put this quarter into the proper context. The Super Bowl contributed about 215 basis points to the same property rep bar, and the recovery in Los Angeles contributed another 285 basis points. Offsetting those benefits, the two winter storms reduced REFAR by about 115 basis points, and the difficult inauguration comparison in Washington, D.C. reduced it by another 105 basis points. Even after adjusting for those items, same property REFAR still grew by roughly 9%, underscoring the overall strength of the quarter. This strong underlying performance translated into higher free cash flow and greater financial flexibility. On the capital side, we invested $11.9 million to our properties during the quarter, including guest room renovations at Chaminade Resort and Spa and Rivera Hotel Boston Common, both of which are now substantially complete. For the full year, we still expect capital investments of $65 to $75 million, which represents a much more normalized run rate and an important tailwind for higher discretionary free cash flow and greater flexibility for debt reduction and share repurchases. We also completed the April 1st rebranding of Mondrian Los Angeles into the Velourian Los Angeles Curator Collection by Hilton. We believe that strategic change has and will create value for the property. Rebranding as an independent franchise hotel within Curio leverages Hilton's distribution platform, pairs it with a strong entrepreneurial style operator in Pivot, and preserves the distinctive character of this iconic hotel. and we made this change at no cost as franchise-related key money funded the changeover. We appreciate the partnership with both Hilton and Pivot during this strategic transition, and we are excited to work together to drive improved performance at this important property in L.A. Moving to our balance sheet, our net debt-to-EBITDA ratio declined to 5.5 times from 5.9 times at the end of last year. We ended the quarter with $204.6 million of cash and restricted cash along with roughly $641 million of capacity on a revolving credit facility. Our weighted average interest rate remained a very attractive 4.1%, with approximately 98% of our debt effectively fixed and 98% unsecured. And since the start of the year, we've repurchased over 400,000 common shares at an average price of $12.11 per share. Higher EBITDA, improved debt metrics, and strong liquidity all moved in the right direction. Stepping back, the first quarter takeaway is clear. Despite heightened macro uncertainty and risk, the quarter demonstrated stronger demand across both urban and resort markets, healthy revenue quality, and disciplined expense control. At the same time, we're not assuming the balance of the year will be as visible as the first quarter. Recent events in the Middle East, higher fuel prices, more for the more, and broader economic uncertainty could pressure travel demand and booking patterns. However, based on our current booking trends and broader travel and spending commentary, the demand environment remains constructive, particularly for premium leisure and business travel. So while we feel really good about the first quarter and the underlying trend line, we remain appropriately cautious on the balance of the year. And with that, I'd like to turn the call over to John for more color in the quarter. The demand trends that we're seeing across the portfolio, the broader industry backdrop, and our outlook for the balance of 2026. John?

Thanks, Ray. In our last earnings call just 60 days ago, we laid out the extremely favorable setup we were looking at for 2026. We also provided a robust outlook for our portfolio for Q1, but a cautious outlook for the rest of the year given our experience in 2025 with major policy actions, geopolitical events, and weather events that negatively impacted us in a material way. Our concern about major geopolitical risks proved warranted as the conflict in the Middle East began just 48 hours after our earnings call. To summarize the setup for 2026 that we discussed, We have easy comparisons to a year that was negatively impacted by a number of policy and geopolitical events. We have a favorable macroeconomic environment and a uniquely strong events calendar, particularly in our markets. We have the best holiday calendar we could ever remember. There is very limited supply growth for 2026 and beyond. And we maintained our view that hotel demand would re-correlate to GDP, absent major policy or geopolitical surprises. In our markets, we highlighted that San Francisco's recovery would continue to build. Los Angeles would benefit from easy fire-related comparisons. Washington, D.C. would benefit from easier government-related comparisons past the tough inauguration come. and our recently redeveloped and repositioned properties were likely to continue to ramp. We also believed our upper upscale and luxury positioning would remain outperformers given the continued strength of the more affluent consumer. When we look at how the first quarter played out, that favorable backdrop translated into even better results than we were expecting. I think it's fair to call the first quarter a blowout quarter on both the top line and the bottom line. The setup was accurate, and we delivered with a favorable setup. We haven't seen rev par and total rev par growth at these levels since the third quarter of 2014, excluding one unusually strong pandemic recovery quarter in 2023. And our same property hotel EBITDA growth of 27.6% was even stronger than Q3 2014. At the industry level, Q1 demand growth of 2% clearly began to demonstrate its reconnection with GDP growth, and industry demand would have been even better but for two of the largest winter storms in history that hit in late January and late February. Occupancies increased as demand followed GDP growth, while supply grew just 0.6%. In March, we began to see more compression days, and ADR growth improved to an impressive 3.8%, with a solid 2.4% increase for the quarter. Industry REF PAR and Q1 increased by a much improved 3.8%. Leisure demand was very strong throughout the quarter, aided by the favorable holiday timing around New Year's and the combined Valentine's Day and President's Day weekend. Importantly, that leisure strength didn't just benefit our resorts. Our urban markets, especially San Francisco, Los Angeles, and San Diego, all continued to benefit from the post-pandemic return of leisure demand to the cities. The early Easter and school spring breaks also helped March, though partly at the expense of April performance. We likely also saw some benefit in Southern California and South Florida from traveler ships away from Mexico and from poor snow conditions out west. For Pebble Brook, we saw the same industry benefits in Q1 and more. The event calendar delivered as we captured increased demand from events throughout our portfolio. Our Hollywood, Florida resort benefited from demand from the college football national championship game in Miami, as our property is just 11 miles from the stadium, far closer than most hotels in Miami and Miami Beach. All of our San Francisco hotels achieved very robust results from the Super Bowl and its week of activities and events in February. And our LA hotel saw a lift from the NBA All-Star game and related activities which were also in February. Our hotels in San Diego, Chicago, and Washington DC saw increased demand due to the NCAA men's basketball tournament games in March. Events in Q1 definitely pushed our results higher, maybe even more than we were expecting. As Ray indicated, our redeveloped and repositioned properties all continued to ramp up led by Hyatt Centric Delfina Santa Monica, Skamania Lodge, Newport Harbor Island Resort, La Playa Beach Resort and Club, Estancia La Jolla Hotel and Spa, and Hilton San Diego Gaslamp Quarter. They all gained significant share in the quarter, with more to go for them and many others in the portfolio where we invested so heavily in prior years and we continue to reap the benefits. Business transient continued to recover across the industry and our portfolio during the quarter. We saw even stronger growth in corporate travel in San Francisco and Los Angeles, where both cities are seeing the benefits from return to office policies. Group also grew industry-wide and for Pebble Brook in Q1. We delivered strong group revenue growth primarily driven by a 7.4% increase in group ADR that was aided by the Super Bowl. We had a fantastic quarter all around, but it's highly likely to be our strongest quarter of the year by far. Looking ahead, we remain appropriately cautious given policy and geopolitical risks, particularly the potential impact of the ongoing conflict in the Middle East. Right now, we're mostly concerned with the potential economic slowdown, rising airline ticket prices, cutbacks in airline capacity and routes, and potential jet fuel shortages elsewhere in the world that could weigh on inbound international travel. As Ray indicated, we're not seeing any negative impact on PACE or bookings at this time, but we're closely monitoring all our data as well as travel data and commentary from others in the travel industry, particularly the airlines. Since our last call, our 2026 room revenue pace advantage versus last year has continued to increase. In the year for the year pickup in room revenue improved by $12.5 million over the two months ended March 31st at an improved for every quarter of the year which is very encouraging. As of the end of March, full-year room revenue pace stood $33.5 million ahead of last year, with $21.8 million from Q1L performance and the remaining $11.7 million in quarters two through four. Over 90% of the room revenue pace advantage is in transient revenue, with roughly 20% from higher rates. The $33.5 million advantage, if stable, would put us at a 3.8% increase in room revenue for the year, right in the middle of our increased range of 2.75% to 4.75% for the year. If we pick up more in the year for the year, it will go higher. And if pickup is lower than last year, it will go lower. Recall that last year, With everything that happened, we lost pace advantage as the year progressed and finished down for the year in room revenue. For Q2, total room revenue pace as of the end of March was ahead of last year by $7.5 million. April pickup for April looks like it will be down year over year, but much of that likely reflects pace being so far ahead when we enter the month. We expect April rev par and total rev par to grow in the 3% to 5% range versus last year. May appears to be our weakest month in the quarter, weighed down by the year's most difficult monthly convention comparison in San Diego, along with softer convention calendars in both Boston and San Francisco compared to last year. Finally, I thought I'd provide a few thoughts about this year's World Cup. We've always thought of it as a large collection of college football bowl games. Like the college bowl games, we believe demand for World Cup games will vary dramatically depending on the teams involved, and the impact from each game will vary not only by the out-of-town attendance of the games, but also by everything else that is already going on in the specific market. Most of the 48 teams have based themselves in locations across the U.S., including many markets without games. For example, we have a team at the Nines in Portland, even though there are no games in Portland. I'm sure you've seen the media reports about FIFA dropping large blocks of rooms in many markets. Our understanding is that these blocks were intended mostly for fans who could choose to purchase hotel rooms through FIFA. Obviously, fans are not choosing to purchase hotels through FIFA in a major way and will likely book their rooms individually through normal hotel booking channels. With teams and ticket holders moving around the country, many on extended trips that include non-World Cup destinations, and visas and visa waiver documents required, we expected and continue to expect most of the demand to book very short-term, certainly within the 60-day window, which we're in now. And consistent with that, we are seeing some of that demand book on and around game days in our markets. We've also booked some group demand from teams, sponsors, and FIFA. We're currently contracted for about $1.9 million of room revenue. Over half of this group business is booked in our Boston hotels. We don't have an estimate for the total impact of the World Cup on our overall performance, but we do think it will be positive with most of the benefit coming in terms of higher average rates and increased non-room revenues. Occupancy will be aided by the World Cup, however, It comes at what is already a very busy time of year, with high occupancies in June and July the norm in our World Cup markets. We also remain concerned about the impact of the conflict in the Middle East on airline ticket pricing, airline capacity, jet fuel availability, and especially inbound international travel. As a result, our forecast for the World Cup and Q2 remain conservative. For the full year, similar to the second quarter, we remain appropriately more cautious for all the same reasons. We have reflected the significant Q1 beat in our hotel performance assumptions, but we've left Q2 and the rest of the year unchanged from our prior outlook. As we said last quarter, we're going to take it one month at a time, given the volatile and uncertain environment. but we've got a very strong first quarter done and in the books. So we've increased our current outlook for REVPAR and total REVPAR growth for the year by 75 basis points for each, with our REVPAR growth outlook range now at 2.75% to 4.75%, and our total REVPAR growth outlook range now at 3 to 5%. For 2026, We expect to continue delivering operating efficiencies and keeping property expense growth well controlled as our outlook indicates. The Q1 $10 million Hotel EBITDA beat has been fully passed along into our Hotel EBITDA outlook at the year's midpoint. As a result, we're now forecasting same property EBITDA growth of 5.2% to 8.6% with the midpoint at almost 7%, a healthy increase for the year and a material step-up from our prior outlook. To wrap up, with a terrific first quarter behind us, we remain very excited about the 2026 setup for Pebble Brook. Now, we just need the rest of the year to cooperate and provide a more stable environment. And with that, we'd now be happy to take your questions So, Donna, could you please proceed with the Q&A?

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that 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 the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow up. Again, that is star one to register a question at this time. Today's first question is coming from Cooper Clark of Wells Fargo. Please go ahead.

Cooper Clark Great. Thanks for taking the question and appreciate some of the conservatism baked into the 2Q through 4Q guide as you balance the calendar event with an uncertain macro. I was just hoping you could remind us about the historical impact of higher oil prices on travel demand for your portfolio and maybe certain assets either on the drive-to or fly-to markets where you see greater impact. And then curious when you may expect to see some of the negative impact from higher oil prices as it relates to room night demand if we do see higher oil prices for longer.

Sure. Thanks, Cooper. So historically for our portfolio, Gas prices, significant increases in gas prices have not had an impact. And, you know, that's a big part of that has to do with the fact that our resorts in particular are all in drive-to markets. And, of course, many of our markets also have other forms of transportation access like trains on the East Coast in particular, and even trains on the West Coast. But it's really airline ticket prices where there's a clear connection between demand ultimately and people's ability to fly. Now, again, it has more of an impact on middle income and lower and less of an impact on the upper end. So, you know, it's hard to forecast exactly what the impact's going to be. There's certainly, according to the airlines, been a lot of business booked ahead of ticket prices going up. We've seen, so far, we've seen increases anywhere from 10 to 20% to, you know, we've seen much bigger increases for international travel, particularly international travel originating from from Europe and Asia. So it's hard to tell how much of an impact that will have on international inbound, but that is what we most worry about. The resorts are also drive-to, and so if people do trade down from flying to driving, which is something we've seen to some extent in the past, the domestically located resorts tend to benefit a little bit more, and the ones available by airline flights tend to be impacted a little bit more.

Great, thank you. And then just switching over to the expense side, curious if you could take us through some of the building blocks on the expense guidance for the full year and where you're expecting to see growth come in for wages and benefits, insurance, and utilities.

Sure, Cooper. Yeah, so our four-year outlook implies expense growth in the 2.4% to 3.8% range. And so on the labor side, which is our largest cost, that's low single digits. We're in the 3% to 5% range, depending on the market, but because of the wage increases. But in many cases, we're having You know, FTE is actually in line or declined year over year, despite the increase in occupancy. So we're finding a lot of efficiencies there, which we continue to pursue. We talked about this quarter. In areas like insurance, as well as, for example, property insurance, it's a very favorable property insurance market for owners this year, given a lack of storms last year. that impacted the U.S., as well as a lot of capacity on that side from insurance. So it's likely to be pressing, pushing down premiums pretty significantly this year. So our renewal isn't until June 1. So on our July call, we'll have an update there. But we would expect, you know, property insurance costs to be declining on a year-over-year basis relative to last year. And outside of that, you know, we're doing what we can on energy initiatives, Eric, because given what's going on right now with, Middle East, we expect a little more pressure there. But overall, we feel really good about our expense growth that we provided and the fact that we've been able to find new ways to do things creatively and limit this expense growth versus what others are experiencing in the industry.

Great. Thank you.

Thank you. Our next question is coming from Smith Rose of Citi. Please go ahead.

Hi. Thanks. I was just interested to hear a little bit more about your decision to rebrand what was, I think, the Mondrian to Valorian and join the Hilton system. Could you just maybe talk about how you weighed what I assume would be maybe higher costs to be in the Hilton system versus the system you were in and sort of how you, some of the things that helped you make that decision?

Sure. So, and Ray jumped in, but I think strategically, As we've seen sort of the L.A. market and the West L.A. market and the Sunset Strip sub-market sort of evolve over time, there's been a lot of luxury product that's been added into that market. And what we found over time is Mondrian and Weill and Icon, particularly when it was created and really over, you know, up to maybe five years ago, think was sort of the dominant player in the market. And as other luxury products come in, I think what we found is the system, the Accor Ennismore system was just not delivering to the property at the level that one of the domestic major brands could deliver at. And so Given the positioning of Curio, we felt like tucking under the luxury in terms of their brands was sort of the right positioning for the property. It is a luxury product. I'd say the service levels are more lifestyle than maybe you would consider being luxury. And so we really thought it was a much better positioning with a much more powerful brand. and a more entrepreneurial and lifestyle-oriented operator who is really comfortable with the major collection brands like Curio. And then as it relates to cost, the costs of the Curio program are actually less expensive than the costs of the Curio arrangement, or maybe better said, the combined cost cost between the operator and the franchise in total is lower than the cost of where we were with a core Ennismore as both the brand and the operator. So a little different than some of our other properties is the way the costs lay down.

Okay, thank you. We've been through a number of transitions in the past with switching brands. going from one brand to another or going to independent or vice versa. And just, you know, a positive call out to the Hilton team. They've been fantastic to work with. The transition has been very smooth so far. Hilton's been really additive in the process. And with Davidson, we have them and five other properties they manage for us. We have a very good familiarity with their team. So they've done a very good job for us. look forward to in July when we have a full quarter under our belt here to report on the results that we're producing. I realize, of course, the first quarter or so is usually bumpy when you ever go from one system to another, but we like the direction we've had so far since April 1st.

And maybe one other thing to add is the Hilton distribution in that market is little to none. So We felt like it was really good positioning with Hilton.

Okay. That's interesting. Thanks. And then I wanted to ask you just coming into the year, you had provided some guidance around what you thought La Playa could do. How did the first quarter go? And is that property still kind of on track with what you had initially expected?

Yeah. The first quarter for La Playa went well. we're on track to be in that $28 to $30 million range compared to $24 million last year. And I'd say also as well as the first quarter went, it's not stabilized yet as we went into the quarter with softer group than we would normally have given all the disruption we had with construction last year. It's tough to sell group into that environment. So, so far so good. We've also sold I think we've already sold 45 or so additional memberships there at the club at well over $100,000 apiece. Those are nonrefundable, and that continues to grow the revenue at the property as well.

Great. Thank you. I appreciate it.

Thank you. Our next question is coming from Gregory Miller of Truist Securities. Please go ahead.

Thanks. Good morning. I'd like to start off with a question on 2027. I promise to not ask you too much on a guidance perspective, but hopefully one of the more straightforward questions on 2027 relates to the Super Bowl change moving from the San Francisco Bay Area down to Los Angeles. And I'm curious, just your general perspective so far, do you consider an LA Super Bowl exposure superior or inferior to your San Francisco exposure as we think about the implications to 1Q next year?

Good question, Greg. I think the Super Bowl in LA will be obviously an extremely major benefit to the market, particularly in February. But L.A. is a much larger market than San Francisco or even the combined nature of San Francisco and San Jose. And so when we look at where the pricing already is and where it's likely to be for Super Bowl, not likely to be at the same levels as San Francisco. It'll still be super. as the name implies, but it won't quite have the same benefit that we had in San Francisco.

Greg, you're breaking up a little bit. Greg, it's hard to hear. It's not at all. I'll pass it over.

So, Greg, you're breaking up, so it's hard to hear. You can't make out your question. You can reply.

I apologize. Okay. Why don't you dial back in, and we'll add you back to the queue for the next question. So, Donna, can you go to the next one over to Ari?

Certainly. Our next question is coming from Ari Klein of CMO Capital Markets. Please go ahead.

Thanks, and good morning. I was hoping maybe you can unpack a little bit more about the World Cup and how it's setting up for you. I understand that you're not incorporating potential off-site, but is there any risk that if the World Cup does sizzle, it could ultimately emerge as a headwind if it's also disruptive to other travel into those markets?

It's possible it could be a headwind. I think that's highly unlikely. I don't think it'll be a headwind for our portfolio because we didn't hold rooms off the market for any of the FIFA blocks that we had. And we certainly haven't deterred other business coming into the market. And I think, again, unlike, I don't know, maybe Super Bowl or an inauguration or some monstrous event, None of these events are that large that they're deterring normal business coming into the market. And the gains are all over the place, and they're generally not back-to-back in the market. There's gaps. So I don't really think that's going to be the case. The other thing we've seen is the normal business is booked in it. There are markets like L.A. where we have a huge number of concerts in June and July. sort of mixed in through World Cup, which we think will be big demand generators in that market as well. So I tend to think I have a hard time seeing World Cup turning out to be a headwind for certainly not for us and not for the industry.

That's helpful. And then maybe just it would be great to get your updated views on San Francisco. Obviously, a really strong start to the year. Some special events certainly helped there. But I think EBITDA in 2025 was still quite a bit below 2019. I think it was 62%. Just curious how you think about that recovery moving forward and some of the tailwinds that you see as sustainable there.

Yeah, I mean... I mean, San Francisco is crazy right now in terms of the boom recovery that's going on in that market, and it's impacting all segments, whether it's business transient, business group, in-house group, leisure coming back into the market that have stayed away during the pandemic and even many of the post-pandemic years. It's really just starting to recover in the last year. And the convention calendar will continue to get better over the course of the next three to five years. So the city's on a roll. It's got good governmental policies. It's got good leadership in place. You see it in the other real estate categories, the very strong, in fact, record office leasing going on in the market, the return to office that have been mandated. AI obviously being headquartered there. Robotics, so many robotics companies are moving into the market. Robotics is being headquartered in San Francisco and the Bay Area. And so we certainly can see, I mean, I'll give you an example this year. I think we're probably looking at rev par growth, again, aided by Super Bowl, I think by about four points for the year. But we think you know, rep part growth is, you know, certainly going to be between 12% and 15% for the year unless some, you know, major macro event has an impact. And at that level of growth, I mean, we expect to see the bottom line up 40% or more over last year. And you're right about being in the 60s, I think 62% or 65%. You know, if you take that 62 and say we're going to be up 40%, you know, we're going to be down still 40% compared to 19 levels. But we think that with everything going on in San Francisco, and we're just starting to get pricing power back in the market as occupancies have been recovering, which are, by the way, still well below where we were in 19, we think there's no doubt you could see double-digit power growth over the next three to five years in that market, assuming a reasonable macro environment. So we're pretty high on the market right now, and it looks a lot like it did back in the 2010 to, 15, 16 period of time when it really exploded.

Yeah, Ari, as a part of reference, you know, for 2026, our San Francisco hotel's occupancies should be somewhere in the 74, 76% range. We'll see where we end at. But that was at 87% in 2019. And that's not to say we're going to get back and the season has the same occupancy level, but it shows that San Francisco is truly a multi-year growth story, and we're just in the early innings of that.

And pricing is still well down. from 19. And that's just nominal pricing. That's not inflation-adjusted pricing. So I think there's huge opportunity in that market. And let's not forget, there isn't going to be any supply in that market for at least the next five years and arguably probably five to 10 years.

Appreciate the color. Thanks.

Thank you. Our next question is coming from Gregory Miller of Truist. Please go ahead.

Hi. Can you hear me better this time? Much better. Much better. Okay. Hopefully I make it through my question. Appreciate it. I'm not sure if Ari asked about AI and bookings, but I thought I'd give it a shot. I'm curious where you're at today in terms of your independent hotels showing up on the LLMs. Are you seeing any meaningful traction either from leisure travelers that find your hotels that might not have heard of your hotels otherwise, or from Booking's impact itself.

Thanks. Sure. And Greg, we've been very active in this area, which we think we're encouraged by where it could go to the level of the playing field with AI agents going directly to the hotels and looking to book directly and search directly versus going through either some of the OTAs or the traditional brands. So we've been very active with that. All of our hotels are on a system which we've audited out and where it gets the maximum visibility through the agents. So there's hidden pages out there that all of our independent hotels we've added that are now readable through that. So we've done a portfolio-wide partnership that our corporate vice president of revenue management is a is overseeing, so we're all working on that and monitoring those results. So we're on that side, we're excited, and it also retools, changing around some of our websites, and what's great on the independent side, we have a lot more flexibility around doing that. And in addition to that, we're also looking at other tools and productivity at the property level. We just came to an agreement with Canary AI, which is a multi-module tool which handles calls and reservations and handles guest requests. So we're really excited about that. So again, with independent hotels, we can do a lot of this flexibility and wrap the time, given how quickly the technology is. So we're excited about where it's going, and we're looking forward to as we make more progress.

Great. Thanks again, Greg. Thanks, Greg.

Thank you. Our next question is coming from Rich Hightower of Barclays. Please go ahead.

Good morning, guys. Obviously covered a lot of ground this morning, but I wanted to dig in a little bit more to the idea that, you know, I appreciate the level of caution that's sort of embedded in the guidance for the rest of the year. But you talked about booking window visibility, maybe narrowing a little bit. And so I would assume that that applies to the 2Q outlook as well. And so my question is, you know, how much of the 2Q as we sit here at the end of April is really baked at this point. How confident are you in that particular part of the outlook and how does that inform sort of the rest of the year as well?

Yeah, Rich, I think as it relates to Q2, I think we feel fine about our Q2 outlook with April just about done and some reasonable visibility into May. But again, we continue to be cautious because of how quickly trends can change, and particularly with the conflict continuing on. And I think the ultimate fallout that we're definitely going to see how much it impacts travel, that's beyond down. And so I think we're... We learned a lesson last year. Look, we went into the year so positive. We had great pace. A lot of stuff happened last year that had, I don't know, you could call it self-inflicted, I guess. Certainly came from governmental policies, for the most part, and government-driven geopolitical issues. And so that... sort of ruined the entire year over the course of the year. And so we're just going to maintain this approach of we're going to take it a month at a time. If there's no fallout from the conflict and there's no other major geopolitical events and policies that impact travel and the economy like happened last year, the numbers are going to be a lot higher than our outlook. And so that's the way we've approached the year. We just think with, this is not a political statement, but it's a factual one. With this administration, there's just a lot of stuff that keeps coming up or being created that causes disruption. And last year, a lot of that disruption impacted travel. So we're going to remain cautious. We've built cautiousness in. And we'll take it a month at a time.

Okay. That makes sense. Maybe just to dig in on LA specifically for a second. And I appreciate you guys have tried to maybe, you know, strip out all of the one-timers that impacted the first quarter and even into next year to some extent. But if we think about the underlying economy in LA, you know, it's obviously still recovering from the depths of COVID, like a lot of places on the West Coast, but maybe not as far along as the Bay Area might be. So what are you seeing in terms of the industry drivers, you know, the types of companies that are booking business travel, you know, the type of leisure demand, you know, is it more local? Is it from outside the region? Just what's really going on on the ground in LA as we think about the health and growth in that market going forward?

Yeah, so, you know, I think there's, you know, a couple of major drivers in that market, obviously the entertainment industry, you know, at the broadest level. So you're talking about TVs, movies, commercials, you're talking about TikTok, you're talking about Instagram, you're talking about the music industry. I think, you know, these mini dramas that are being created that are renting studios, now in the market, even for brief periods of time. I think there's this transformation going on in the industry. And so I think what we've seen so far this year is we've seen improvement of demand coming from the entertainment sector, both TV and film and commercials and other. And then we've seen an increase in the music industry coming through. And one of the things that happens in L.A., and we're not just talking about concerts that actually happen in L.A., but a lot of the music groups come to L.A. to use the facilities, the studio facilities, the entertainment event facilities, to practice for two or three weeks before they go out on the road on tour. And as we see more and more groups touring, more and more venues being created for music around the country, you know, that industry is on a very strong, growth path, which is helping the market. The fashion industry is another demand generator. That's improving at this point in time. We're definitely seeing demand from the fashion side. And then you see a lot of this internet, venture capital, startup firms, businesses that are being created in LA. You know, it's nowhere near the level of VC capital coming into L.A. that's coming into San Francisco. But, you know, it's probably in the top five in the country. We're pretty close to that. So we are seeing industries being created. You're also a little further south of L.A., just down in El Segundo. You have the defense industry that's seeing a resurgence and the space industry as well related to it. So all of that is good right now for the industry. We need to change the politics and the policies in the market, similar to what happened in San Francisco. I think to really get more business confidence and more businesses being willing to grow or relocate into the market instead of relocating out of the market. But I like to think that the next election cycle will be more positive. And we certainly have been involved with and have seen a lot of business groups who've gotten to the point that businesses got to in San Francisco and said, we've had it. And so you combine that with all these other spaces along with the sports industry, which is booming in L.A. Look, you've had SoFi created. You've had where the Clippers play, a new event center being created. The old ones get renovated. So there's There's definitely strong availability and growth on the sporting side as well. And obviously, you see that with them attracting the Super Bowl back again to LA next year.

Very helpful. Thanks, John. Yeah.

Thank you. Our next question is coming from Duane Fenningworth of Evercore ISI. Please go ahead.

Hey, thank you, and great to hear Rich on the call. Maybe just to keep it there, you've talked a bit about the fundamental recovery in L.A. and San Francisco, but can you speak to the dialogue you're having about asset sales? You've probably addressed this before, but what would your optimal footprint in those markets look like versus where your exposure sits today? Okay.

Yeah, I mean, I think we're going to continue to be opportunistic as it relates to the disposition of assets within the portfolio. It shouldn't surprise anyone to see additional sales occur in major cities in the U.S. That's, frankly, where all of our sales have been in the last seven years. But I think Tom can probably speak a little more, too, you know, where the investor sentiment is for those markets as well as sort of in general.

Yeah, Dwayne, I think in general, we've been talking about investor conviction in the muted transaction market over the last two years. The primary reason for that was growth or, you know, more importantly, the lack of growth, which made it hard for investors to underwrite. Seems like we're pivoting and we're transitioning from that, especially given Q1 performance. And when you see markets that have bottomed like San Francisco and you see the growth in 2025 and the continued growth in 2026, you see the growth in LA and some of these markets. What we've always said is capital follows performance. There's also a number of high profile, kind of higher end, upper upscale luxury properties in the market and in the final stage of marketing. And we'll be taking bids here over the course of the next 30 days. which I think will give a lot more clarity in terms of investor sentiment, investor depth, investor conviction, and ultimately investor pricing. So I think certainly by the second quarter call, we'll have a lot more visibility in terms of has the market kind of recovered and are we continuing that momentum? So I think the setup for a functioning transaction market is there. Debt is still very available and is still very aggressive, but it all remains subject to the conflict in the Middle East, which could pause transaction momentum if it's not resolved in the short term. Okay. Appreciate the thoughts. Thank you.

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

Thanks. Good morning, everyone. John, just on the out-of-room spending, want to focus there. Maybe help us understand, what did you see throughout the quarter? What did you see in April as demand surprised to the upside? Any differentiation between group and transient out-of-room spend? And then sort of what is that telling you about the broader health of the traveler and broader consumer spending trends?

Thanks. Sure. So we haven't really seen any change in out-of-room spending. this year or in April. It remains healthy. You know, it's interesting. You read, you know, you look at the consumer surveys and consumer confidence is at its lowest in history, maybe, or very close to it. Yet, what we find is when both groups and leisure are on property, they spend, they want to have a great experience, you know, enjoying the facilities and eating there and spending money on activities or treating themselves with spas or other, you know, unique activities, it continues. And I think a big part of that continues to be, you know, not only the strength of the upper end consumer, but look, the wealth effect, it has to be having an effect, right? The stock market's a all-time highs are very near, and I think that ultimately that's playing through in the comfort people have in spending. So, so far, so good. Mike, we haven't seen any change, and we find that very encouraging.

Got it. That's helpful. And then just one follow-up, just sort of in terms of revenue management, any change in what you are telling your operators to focus on, and is there still an imperative to build occupancy first?

Yeah, I appreciate the question because we are increasingly focusing on taking pricing opportunity where it exists. We've been doing that more so in the resorts where we've seen this sort of robust leisure growth occur and also with events and the better holiday calendar, we're seeing more compression as we expected around those those better holiday periods. So we are pushing price more. We're not doing it to the detriment of occupancy at this point. We're trying to do both because we think the opportunity continues to be there for both as we're nowhere near the level of occupancies that we would prefer to operate at on a stabilized basis. But we are taking price where the opportunity exists, and that opportunity seems to have increased over the course of the last four months.

That's helpful. That's all for me. Thank you. Thanks, Mike.

Thank you. Our next question is coming from Chris Darling of Green Street. Please go ahead.

Hey, thanks. Good morning. What's the latest you can share as it relates to a potential redevelopment of Paradise Point? I think you have all the requisite permit approvals, if I'm correct. So wondering if that's a project that you might consider kicking off sooner than later.

Yeah, so we'd love to, but we're enjoying, we have the California coastal approvals for the plan. Now we have a process to go through with the city to in terms of getting permit approvals for the actual construction. And that's taking anywhere from six to nine months at this point in time. So there's also some additional work we have to do as part of the California coastal approval that relates to some studies on geological displacement as we do the construction. So it's all part of the process, but it continues to be lengthy and certainly longer than we'd like. So I don't really see the project kicking off this year at this point in time, but it's still on the calendar as we move forward.

All right. That's helpful. That's it for me. Thank you.

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

Thank you all for participating. We know you're really busy. We're here in the heart of earnings season, and we look forward to seeing you at some various conferences, and we look forward to seeing you at NAREIT next, and we'll be prepared to give you an update at that time. Thanks again. We look forward to talking with you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.