Thank you for standing by. This is the conference operator. Welcome to the Pebblebrook Hotel Trust First Quarter Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to Mr. Raymond Martz, CFO. Please go ahead, sir.

Thank you, Karl, and good morning, everyone. And welcome to our first quarter 2020 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2019 and our other SEC filings. And future results could differ materially from those implied by our comments. The forward-looking statements that we make today are effective only as of today May 8, 2020 and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use on our website at pebblebrookhotels.com. Well, the first quarter 2020 has indeed been like no other in the history of the hotel industry. The thoughts of the entire Pebblebrook team are with the families who have lost loved ones to this pandemic, as well as the tremendous thanks and appreciation for all the first responders and healthcare workers on the frontlines. The speed at which this pandemic has impacted the world has been incredible causing cities and states across the United States to effectively shut down through the imposition of sheltered home policies and mandating many businesses to close or significantly curtail their operations. In addition, the federal government decided to close our borders to international travelers and commerce and restrict all other non-essential travel. All of these factors led to a situation where hotel demand rapidly dropped to virtually zero in a matter of just weeks beginning in early March. Our response has been swift and decisive as we reacted to this crisis which changed by the day. Our three immediate strategic priorities were to, first, protect the health and safety of our guests in hotel, of workers. Second, to preserve our financial liquidity during this crisis. And third, to ensure we are well prepared to take advantage of the opportunities that arise in the new hotel operating environment after the recovery begins. The year started well as we were ahead of budget in January and February, yet by late February we were implementing cost reduction programs and by mid-March we commenced temporarily suspending operations in many of our hotels and resorts in response to mandated restrictions and closings required by local and state government officials to help ensure the safety of our guests, workers, and communities. As of today, 46 of our 54 hotels and resorts have temporarily suspended operations. Our remaining eight hotels for various reasons are open and operating with skeleton crews and limited services and amenities. As a result of these actions, first quarter same-property RevPAR declined 25.5% compared to the prior year period with same-property total revenues declining 23.1% to $255.8 million. Same-property hotel EBITDA declined 55.2% to $40.6 million. Of note, March room revenues declined 65.8%. Our ability to reduce hotel level expenses in March was challenging, given how quickly and substantially the operating environment changed, which caused a rapid and dramatic increase in group and transit cancellations in the month. Nevertheless, total hotel expenses before fixed costs were still reduced by 42.7% compared to last year. We also recorded $16 million non-cash write-off for a long-term retention share awards that had just been issued in late February prior to the pandemic, which our executive team and other officers volunteered to forfeit as part of our corporate expense reduction measures. We also generated gains from the sale in early March of the InterContinental Buckhead and Sofitel DC hotels, a GAAP gain of $117 million and a taxable gain of $160 million. The sale of these two properties represents the culmination of two very successful investments and the timing of the sale was obviously very fortuitous, but also a consequence of negotiating a strong and favorable contract. Since the closing of our corporate acquisition in November 2018, we successfully completed sales totaling $1.66 billion of hotels at a 5.6% cap rate as part of our strategic disposition plan. Shifting to our second priority in response to the COVID pandemic, preserving the liquidity of our business, we took numerous actions since the crisis became apparent. In addition to instituting drastic expense reductions throughout our portfolio, we also quickly suspended operations at the vast majority of our hotels and resorts, which significantly reduced operating losses. This included furloughing the majority of our hotel level workers and reducing the number of employees at our hotels to skeleton crews while also ensuring the security and safety of our hotel associates and our properties. Our hotel asset managers also worked closely with our hotel teams and management companies to aggressively reduce our non-payroll expenses across the portfolio. We believe our management teams were reacting so quickly and decisively in a challenging environment. This, of course, mitigates our monthly cash burn during this crisis. As a result of these swift and decisive actions, we reduced our monthly hotel level operating expenses by more than 75% leaving an estimated average monthly cash burn at our hotel level at approximately $15 million to $18 million or about $1,200 per key per month. And we continue our efforts to further reduce this cash burn. At our corporate level, we estimate monthly cash G&A at approximately $2 million, which reflects a reduction in compensation for every executive officer, member of the board of trustees, and employee of Pebblebrook including Jon who volunteered to forego his salary for the remainder of 2020. We also modified our annual cash bonus program to provide that bonuses earned for 2020, if any, will be paid next year and paid in common shares instead of cash. Also, as previously mentioned, our executive team and officers of the company agreed to voluntarily forfeit long-term retention share awards that were issued in late February. Our combined reductions in corporate G&A totaled approximately $8.5 million for the remainder of the year. As with our hotel level cash burn, we'll continue to look for further reductions in our corporate G&A expenses as appropriate. Finally, our interest expenses and preferred dividend payments total approximately $8 million to $10 million per month. We reduced our normal quarterly common dividend from $0.38 to one penny per share beginning with the first quarter dividend preserving $50 million per quarter in cash totaling $150 million of savings for the year. Combined, given our comprehensive initiatives with the hotel and corporate level, we estimate our average monthly cash burn to be approximately $25 million to $30 million which excludes any capital investments. As relates to our capital investments, we invested approximately $50.1 million into our hotels through the end of the first quarter. We currently expect to invest an additional $75 million to $85 million for the balance of the year mostly to complete our ongoing major redevelopment projects. To further enhance our liquidity, we have elected to defer more than $100 million of major redevelopment projects to 2021 and beyond. We will reevaluate these projects as we gain more clarity on the economic environment and our outlook. Turning to our balance sheet, as of the end of March, we had $746.8 million of cash on hand. This increase from year end last year is primarily a result of drawing down on the remaining availability on our $650 million unsecured credit facility in mid-March to increase our liquidity as well as $331 million of cash proceeds from the sale of the InterContinental Buckhead and Sofitel DC in early March. We believe this provides us with sufficient liquidity over an extended period. However, we will continue to evaluate other sources of liquidity including additional term loans, property level financing, government loan programs or other debt financing. We will also assess additional property sales. The transaction market is largely frozen currently as the debt markets and buyers and sellers recalibrate values. We believe transactions will likely be on hold until at least the second half of this year and will likely favor all cash buyers rather than those who need debt. Regarding our debt, as a reminder, all of our debt is unsecured and we have zero debt maturities until November 2021. As of March 31, our net debt to depreciated book value was just 34% which indicates that we entered this crisis with very low leverage and demonstrates that we don't have a debt problem, but clearly we have a revenue and EBITDA problem as a result of the economic stop in response to governmental efforts to contain the pandemic. Looking at net debt to depreciated book value represents a good proxy for leverage given the lack of demand and lack of revenues in the current hotel operating environment. As relates to our financial covenants under existing unsecured credit facilities and unsecured notes, we are currently in compliance with all of our loan and note agreements. However, given the substantial decline in hotel revenues, we anticipate the need for a waiver of certain covenants beginning with the second quarter ending June 30. As a result, we're in discussions with our bank group and note holders and we expect to finalize this waiver agreement soon and will update you accordingly. Regarding our third priority which is to ensure we are well-prepared for the new hotel operating environment and to take advantage of the opportunities when the recovery begins, I'd like to turn the call over to Jon to discuss our plans and what lies ahead for the hotel industry and Pebblebrook. Jon?

Thanks, Ray. These are without question unprecedented times. Along with many other industries, the hotel industry has never before experienced an event that has effectively eliminated almost all segments of travel and hotel demand around the world at the same time. And since this crisis is a result of a pandemic, it's unclear how long the impact will last, how much damage it will cause to the economy both now and in the future and what impact it will have over the long term on travel, human behavior and the lodging business. As a result of this uncertainty, as Ray indicated, it's best to focus our efforts on protecting the business under the assumption that the negative impact will last for a significant period of time. So plan for the worst and hope for and do everything we can to achieve the best. As we plan for the remainder of 2020, we start with the knowledge that the recovery will be dictated by the virus and the world's ability to mitigate it. So predictions are obviously difficult. Based upon what we understand, we believe it's reasonable to expect a significant disruption to most of the demand segments for the better part of this year. But we currently expect that the second quarter will be the worst quarter with April being the worst month and the third and fourth quarters providing a slow but positive improvement. Beyond that level of detail, no one can really know or predict how this is going to play out. But again, the good news is it should get better from here. Leisure transient should be the first to recover, then business transient, then small group, then larger group and citywides. We believe group, particularly larger group, will be the hardest hit and most of it is not likely to return anytime this year without an effective health solution. We've counseled teams to assume that none of the group on the books will materialize and they should plan and staff accordingly. It's uncertain when government restrictions on gatherings will moderate but most state and local governments have already indicated that large gatherings are likely to require significant health advances before being allowed. And even if they are allowed it's unclear how willing individuals will be to congregate in large groups without substantial physical distancing and other requirements like masks and testing. We also expect companies to be very cautious with travel likely limiting travel by their employees to truly essential travel only thereby eliminating much of the demand from business. So we really can't count on the corporate transient business that was previously on the books and may still be on the books to actually show up. Corporations were the first to impose severe travel restrictions and we expect they will be last to reduce or eliminate them. Outside of major corporate travel, we would, however, expect a healthier recovery from some small businesses, service providers, vendors, consultants and others where travel is more critical to their businesses. In addition, international travel is likely to be fairly minimal for the rest of the year given not only governmental restrictions but anxiety on the part of travelers to not only get on a plane but to go far from home in an uncertain world. With domestic leisure travel as the one segment likely to return and hopefully in a material way we expect resorts to be the biggest beneficiaries, particularly drive-through resorts. For Pebblebrook, drive-through resorts represent about 20% of about our historical EBITDA and leisure travel represents over 80% of the historical demand at our resorts. As a result, we look at our hotels that have suspended operations. We expect our resorts to be some of the first properties we reopen. In fact, we're looking at reopening our first resort late this month with others likely to follow over the next month or two as states open up and demand returns. Fortunately, all of our resorts are on large pieces of land with significant space for guests to spread out and feel safe such as Skamania Lodge outside of Portland which sits on almost 200 acres, Chaminade Resort in Santa Cruz on 300 acres, Paradise Point on 44 acres in San Diego and similar large pieces of property at San Diego Mission Bay Resort, L'Auberge Del Mar, Southernmost Resort in Key West, LaPlaya Beach Resort & Club in Naples and The Marker Key West waterfront resort. While we expect leisure to lead the recovery we also expect its recovery to be relatively modest as well due to both health risks and economic issues. Unfortunately, we shouldn't forget that many leisure demand generators are on hold right now including sporting events, festivals, concerts, marathons, entertainment parks, and other similar attractions and most cities have closed all of their cultural and tourist facilities though we expect these to reopen over the next few months. And older travelers can be expected to be more cautious about travel. Positively, some of these leisure headwinds will be offset by Americans who will not go aboard for their vacations and instead vacation here in the U.S. We expect to reopen our properties one at a time based upon demand and only when they can be operated in a manner that at a minimum results in us losing less money than if they were to remain closed. Because we expect demand to recover slowly, unfortunately we will have no choice but to bring our hotel associates back slowly as well. 2020 is likely to be challenging all the way through unless we have an effective healthcare breakthrough. Hotel operations will certainly be different as we move forward post-lockdown. We'll have enhanced cleaning protocols to protect our hotel associates as well as guests. With an industry-wide certification, we're working on through the AHLA with the cooperation of every major brand in the U.S. The cost of these additional protocols is likely to be covered by reductions in services and amenities, including the likely elimination of in-room housekeeping during a guest's stay. We should expect there will be significantly more cross training, job sharing, and shifts worked by managers particularly until occupancies rebound to more normal levels. Food and beverage when it does return is likely to be materially simplified with more preparation and less cooking, which will help reduce costs. There will be a number of positives longer-term that we can expect will come out of this crisis. Let's talk about future supply first. We should expect new starts to quickly fall to a trickle because frankly who in their right mind would provide financing for a new hotel at this time given the massive uncertainty that exists. We also think some of the hotels under construction will stop permanently due to financing backing out. As we know, construction has been stopped or slowed in many markets for various reasons. But what will deliver in the next couple of years will deliver later and in smaller numbers than previously estimated. In addition, in markets that were challenging even before the pandemic, like New York and Chicago, we expect to see many hotels and rooms fail to reopen with, perhaps, many of them likely converted to affordable housing or homeless facilities as a higher and better use. And we don't expect much in the way of new hotel starts for the next three to five years given how long it's likely to take for positive economics for hotels to return. Operations will likely become more efficient as has historically occurred in prior black swan-type events. Expect some services and amenities to be reduced or eliminated with changes in areas such as restaurants, in-room dining, and banquets and catering. High touch will become low touch or even no touch. Technology will replace the hours worked in some cases. Expect more cross training and job sharing. More fixed costs will become variable costs. And we expect real estate tax assessments to decline. And while tax rates are likely to increase, we still think it's likely the combination results in declines for hotels, in particular over the next few years. This crisis has also instantly relieved labor pressures. In just one month we've gone from an industry with a significant lack of labor to an industry with an overabundance of labor. We should expect labor to become more flexible, wage rate increases will abate and unions should become more flexible on work rules and other matters. This industry will need all the help it can get to reopen and recover. Leverage will surely shift to a better balance between employers and employees. And we think it's likely there will be less financial pressure from new requirements imposed on the industry from governments, particularly local and state governments. Many of our private sector competitors are likely to lack the capital to maintain their hotels in years to come widening the advantage we already have. We expect hotel conditions will rule with the customer base as they have in prior recessions and in the early years of prior cyclical recoveries following significantly harmful events. We also expect our lifestyle hotels to outperform in the recovery because of their experiential focus for customers looking for something that lowers the stress and anxiety that will now likely be associated with travel. We also think they'll outperform because of their more personalized nature of the services we're able to provide to our guests and because of the attractiveness of our typically smaller size footprints and smaller public areas which should allow our customers to feel safer in our properties. Our smaller size lifestyle hotels including our properties with major lifestyle brands like Luxury Collection and W are generally more attractive to transient customers particularly leisure and they historically have needed less group to be successful. Our independent lifestyle hotels are also able to operate more efficiently than major brand hotels and they can move faster to adapt to new customer preferences. They're more flexible in their operations and they support lower fixed and variable costs in a low occupancy environment which is what we expect for at least the rest of this year. We also expect there to be significant opportunities over the next few years to acquire properties in distress due to a likely prevalence of cash strapped and over-levered owners and many properties that go back to lenders. Our team has been through two prior crisis-driven opportunistic periods including the creation of Pebblebrook in late 2009 following the tail end of the Great Recession. Following that crisis, we were able to fairly, quickly and aggressively assemble a very unique portfolio of high quality hotels and resorts at very attractive prices that also had substantial upside opportunities. Given our ability to operate our properties more efficiently than the vast majority of buyers and our unique strength in redevelopments and transformations, we believe we'll have a significant advantage as opportunities arise over the next few years. To create long-term value for Pebblebrook and without taking away from our current efforts to protect the company, we also continue to put time and effort into advancing our branding opportunities. This is an opportunity we believe is unique to us because of a large number of independent lifestyle hotels that we own and control. We expect to roll out our completed Unofficial Z Collection website later this quarter. This will allow us for the first time to connect our soon to be seven Unofficial Z Collection hotels in the eyes of our guests. This should provide some help to these properties in their recovery. We also continue to aggressively pursue the creation of a broader independent lifestyle hotel and resort collection by seeding it with our 31 completely independent hotels and resorts. We will provide more updates as these efforts progress, but we're convinced there is a long-term value creation opportunity here that should commence sometime this year. Finally, it's safe to say we all find ourselves in uncharted territory with an almost complete lack of clarity about the future. We're confident given our senior management team's experience successfully navigating prior crises including following 9/11 and the Great Recession that we have the reputation, foresight, creativity, work ethic, track record, and an incredible team combined with strong liquidity and a fantastic portfolio to not only grind through the current challenge, but thrive during the recovery and next up cycle. We greatly appreciate your confidence in us and we look forward to once again proving our ability to create value with our unique portfolio, our experience, our team and our creative approach to the business. With that, we'd be happy to move on to questions. Operator, you may proceed with the Q&A.

Thank you. We will now begin the question and answer session. The first question comes from Rich Hightower from Evercore. Please go ahead.

Thank you for all of the commentary and the detail in there. I thought that was very helpful. So there's a lot of angles to pursue here, but I'll just kick it off with this. And so, Jon, you've made much I think over the past several years in terms of the advantages of an independent managed model versus the branded hotels. And I guess given that everybody is sort of starting from scratch at this point and the brands themselves are acknowledging the need to fundamentally change the operating model in many of the ways that you've described, what do you think that relative advantage of an independent management focus will be over a branded hotel coming out of the -- coming out of this downturn? Any differences?

Well, I think quite a few. I mentioned a few in the script. I mean I think there's more flexibility, there's more ability to be creative in independent hotels. It's less expensive to operate an independent hotel than a brand. And while I know the brands will be working on lowering their expenses, I'm not sure that means lowering the percentages against revenues that are charged. I would hope they would be looking hard at that and understand the need for that, but I'm not confident that they'll be able to do that given the fairly dramatic decline in revenues that they will face and that they are facing as well. So I think independents -- I mean it's interesting first of all, it's pretty hard to view the world and say group is going to come back before transient. And I think the independent hotels are far better suited to attract transient. They always have been for many of the reasons I mentioned.

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

Yes. I mean first of all it comes from having a 20 to in my case in some cases 40-year relationship with most of the major banks in our line and in our term loans. And I think those banks have been involved in the creation of Pebblebrook, they were involved in the transaction in terms of the acquisition of LaSalle. And I think we're -- because of our reputation and our track record, I think our banker will be very supportive of our opportunities to take advantage of the recovery, regrow the company, and drive value for the shareholders. So I think we're going to be aligned with the bank group. And so that'll be part of the discussions that we have now, but it'll also be part of the discussions over the next year and, in fact, we've already started some of those discussions with various members of our bank group.

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

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

Hey, gentlemen, thanks for all the color. Great color, as always. Appreciate your insight. First question, you talked about, I think last call, doing a lot of pre-bookings or forward bookings on your website to kind of gauge what demand would potentially look like or when it will come back. Based on what you've seen so far, what does it look like at least for the leisure customer -- I know it's kind of hard to just discern business plus leisure sometimes, but what does it look like or when do you start to see a pickup and at least planned return to hotels?

Through the rest of the portfolio, probably our most number of bookings are in Key West for June and beyond. The challenge is we don't know when they're going to open Key West. Right now it's restricted governmentally. They're not allowing anyone onto the Keys who doesn't live there or work there, I guess, and with checkpoints on one highway that comes into the Keys. We still have a quarter of a million group rooms on the books for the second half of the year, Neil. I doubt much, if any, of that actually materializes. I don't -- we're seeing all of our groups cancel on a rolling basis. By and large, there's no hurry for them to cancel, in fact there's a disincentive to cancel ahead of time because if there's a force majeure event, meaning, a government restriction they cannot meet then they don't have to pay any cancellation by and large, they have a better contractual outcome than if they cancel now in advance when we don't know what the restrictions are going to be later in the year. But we frankly -- and this is -- again, I mentioned this in my comments. I mean we can look at what's on the books and we can be really positive and say, hey, our group bookings in the second half of the year are only down 12% from the year before or we can look at it logically and pragmatically and say, yeah, but they're all canceling and what corporation is going to change their policy and allow people to go to groups or group meetings. We're just not optimistic that's going to happen certainly in the near future, maybe by the end of the year, the last two months it's possible.

Great. Thank you for that. Just as a follow-up to one of the things you said about. Your reluctance to view groups that are still on the books for the back half of the year as legitimate. Someone else reported that they had seen like 12% or more percent of the people who cancelled in March and the second quarter already rebooked for the back half of this year. I guess, how would you rebut that or what's your view on that because it's a little bit opposed to your view that group is going to take longer than it to come back?

So, look, I hope we have a -- I hope they do come back, Neil. I mean -- but we have to run our business on pragmatism and we want to staff appropriately, we want to incur costs appropriately based upon what we think is going to happen. And so we've had plenty of groups that have moved in our properties from March and April and May and June to the back half of the year. First of all, the meeting planners don't have anything else to do. Second of all, there's probably a contractual benefit they don't incur a cancellation fee if they move to later in the year, and we're accommodating them because why not, we -- that'll be great if they come at the end of the day. But look, time will play out. I mean think about your own company, what's Capital One going to do? What have they done about group meetings? There are companies already who said they're not going to have a group meeting until the middle of next year. I think that's a little premature, myself, but the corporate ethos is to protect their employees. And you think about when we've talked to corporate accounts and we talk to you-all, who work for some of the biggest companies and the biggest travelers and the biggest meters in the country, you don't even know when in the fall they're going to say it's okay to come back to the office, let alone take a trip. And so we think that most of this business becomes virtual or it gets rebooked ultimately for next year. I hope we're wrong, Neil. I hope they all come, everything's wonderful, everybody meets, nobody gets sick and everything is back to normal. I just don't believe it.

Yeah. No, I think --

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

Yeah. All right. And then just last one for me. I know it's early still, but could you give any general color on the 31 independent hotels that you guys have that -- excluding the Z Collection you talked about, seating that, could you just spitball or talk high level on potential outcomes or monetization but that would also still comply with the REIT rules?

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

Thanks, Neil. Next question.

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

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

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

I guess I was wondering about it because I know there's been some used to be able to get extra points and sort of the green programs and there was kind of pushback I think more from the organized labor side on some of those programs, and I'm just wondering how that's going to play out? I know it's probably less impactful for you maybe versus some of the larger group hotels that have more organized labor, but I guess sort of -- I mean do you think they're being thoughtful or not --

I think they'll have to be. They have been. I mean it's not been restricted by and large by the contracts other than for a lengthier stay. But I think the important thing is that cleaning labor counts are probably going to be very similar to -- ultimately be similar on a productivity basis because there'll be additional cleaning that's required. So we'll be reallocating people from rooms to public areas, as an example, and probably a longer period of time to some extent to clean rooms between guests versus what it's been historically because of the additional protocol. So I don't know that it means fewer people, but I do think it means people will be in different places when it comes to cleaning.

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

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

The next question comes from Ari Klein from BMO Capital Markets. Please go ahead.

Thanks. Maybe just following up on that last question. How do you think about the costs of reopening hotels and then balancing the risk of, perhaps, COVID coming back in the second half of the year even if the demand is there potentially?

Yes. I mean we're -- first, we're not talking about a tsunami wave of demand coming back. We think demand comes back pretty gradually and occupancies come back off a very low level. Our sort of breakeven of not being worse on average is in the mid-to upper-single-digits of occupancy, some as high as the low-to-mid teens depending upon size and whether it's union or not of the property and some as low as mid-single-digits. And when we reopen, first, there's not going to be much difference in staffing between reopening and being closed in those cases, we'll bring back people in one Zs and two Zs.

All right. And then on the Unofficial Z branding strategy, it seems like you're moving ahead with it. Was there any thought to maybe postpone some of that given everything that's going on?

Yes. I mean we -- of course we talked about it. We actually think there's a nice window coming up of an ability to get a lot of press and visibility because the news in a lot of these travel magazines and journals is fairly limited. And so the ability to get featured or have stories written and get exposure, we think it's probably the highest opportunity window that we're going to have.

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

Hi. Good morning, everyone. Jon, I think you gave some great overviews about kind of strategy and some of the things you guys are looking at here including the movement on the Unofficial Z Collection. And I'm curious, just maybe bigger picture. A lot of the business model for Pebblebrook -- and a lot of this goes way back, I think if we think about even the predecessor company your time at LaSalle was predicated on urban market outperformance and what you're able to do with some of these independent hotels in these urban markets is pretty -- has always been very core of your strategy. And my question is, like, as we think about the implications of the virus here, and some of the cities where we're operating conditions like New York had already gotten very, very, very difficult prior to the virus, do you rethink the urban mix at all, the portfolio, do you start to lean at all more towards whether it's resorts or other areas where you might have more flexibility maybe as to other markets or Sunbelt where some of the rules and labor restrictions aren't as high? Just help us think about how the portfolio looks in the new norm, if you could make some of these bigger changes? We appreciate it'll take a lot of time. But just how are you thinking about the portfolio three to five years from today?

Yes. It's a good question. I'd love to tell you we spent a ton of time thinking about this, but we've been a little bit more in defensive mode so far. But I think what we've already demonstrated over the last few years is, the markets where it's been difficult to operate in we either sold it out of those markets or we didn't buy into them too. And, two examples being New York which we've sold out now twice once before and after the acquisition of LaSalle. And then we never bought anything in Chicago but we got a couple of properties through the LaSalle acquisition that we'll ultimately dispose of. And so I do think we will adapt and evolve with a lot of the capital we've been putting into the portfolio in the last year and is happening this year is in the resort portfolio where we do think there's significant opportunity particularly because we think resorts are evolving from being more traditional, almost more passive lay on the beach, take a spa, play golf to more active type of resorts like what we've done up at Skamania in Portland. So I certainly think we will be on the lookout for more resorts. I think they come with more risk in other ways, Shaun. I mean there are more -- there's more fixed costs. There's more land at these properties. You're living off of fewer segments. There's generally no citywides that you participate in and there's generally very little corporate transient that you participate in, so you're living off leisure and you're living off of a group. And so in some ways there's less risk if you could think of that coming out of this in resorts and in some ways it would continue to have more risk because of the fact that you have fewer segments ultimately to rely on. But we'll be re-evaluating that over time. I don't think we expect to give up on cities. I think there's a lot of reasons why people like to go to major cities in particular. But, look, it's something that we'll be looking at very carefully and trying to understand how corporations react, how people react and, ultimately, we'll make changes in our capital allocation strategy as appropriate.

Thanks, Ray. And then as a follow up but on the some of the comments around the brand side a little bit. Can you just give us your thoughts on how this operating environment, so let's look at kind of the movement from April on impacts kind of how you're thinking about or how you think your portfolio is going to work through some of the distribution channels, are you going to lean -- where you're going to lean a little bit more, do you go to the OTA partners a little bit more just because that's where the leisure is or just how are you going to think, how are the -- so there's -- how is that channel shift going to play out both kind of in a normal cycle because obviously it's that, but obviously in this one it's going to be even more pronounced. So just where do you lean and where gives you the best bang for your buck right now?

Yes. I mean you know it's interesting. I mean we're going to go where the customer is and obviously the first customer return is leisure. On the other hand, we do need to continue to book group for next year and this year if someone wants to group to book it, but it's got to be legitimate at the end of the day and -- but interestingly, Shaun, I mean we -- there is a bit of a misconception sometimes that we're just a non-branded portfolio, I mean half of our EBITDA comes from major brands, the major brand companies. Half of our EBITDA. So -- and we do have a lot of smaller properties but we have some big properties too. We have two -- we have an 800-room property, 750-room big meeting property, we got a couple of 450, 420-room properties that do a lot of group. We have a resort that's 460 rooms that does a ton of group of business. And so the nice thing is we get to see all sides of every issue, and I think one of the things we commented on is we just think because leisure comes back first that our resorts are the ones that are our best able to take advantage of that. We do think leisure to urban markets unfortunately is going to be slower to come back partly because that's where a lot of the hotspots are, and partly because until the amenity base is reopened, I'm not sure what, why would you go to San Francisco today? Everything's closed. There's nothing to do as a tourist other than look at the environment, it's still a pretty city. Some might argue it's even a prettier city today without the people. I don't know. But I do think we'll see where the customer is shopping and we'll follow them and the nice thing is where we're experimenting now with on the digital side, I mean it's very inexpensive because there's not a lot of people paying for marketing and ads on either any of the digital sites or Google or the OTAs or wherever. So we'll see what's most effective and that's where our dollars and our efforts and focus will go.

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

Very good morning. Jon, maybe we'll role play a little bit. I'll play the 50 percent of your EBITDA that comes from the brands and you can represent the independent urban hotels. And the reason I say that is the big gating factor here for travel over the intermediate term seems like it's going to be cleanliness. And if I'm a brand and you've already seen four or five or six of them roll out these formal programs with partners and brand names and all this, it seems to me that when travel starts to pick up they're going to go out and they're going to do TV commercials and radio and all sorts of advertising that show that they're the cleanest, safest. And they have the technology investment, the digital key bypassing the front desk. So it's different than trying to come back from 9/11, it's different than trying to come back from 2009. How is that -- how are we not set up to see urban independent hotels really struggle in this recovery?

Because I don't think that'll be the driving factor with the whole customer base. I mean if you think about a lot of the folks who go to independent hotels particularly on the leisure side, it's younger people. Frankly, I'm not sure most of those people feel like they're even at risk and they're still looking for unique experiences and they're traveling on a discretionary basis. So you might be talking about my generation which still predominantly goes to brands anyway. I don't think -- I just don't think the brands drive are going to drive disproportionately the customer base who's even looking for cleanliness because it isn't just about cleanliness, it's about safety. It's about exposure. It's about how many people are you going to be exposed to. How many people are going to be in line? How uncomfortable do you feel at a big hotel? I mean we think our big hotels will open last partly because they're more group focused and partly because their transient customers are not likely to want to go to a big hotel versus going to a little hotel. Now, look this is a -- this is our viewpoint. Again, we see -- we have some of all. We'll see what happens. Just it's a great marketing pitch and this is what these guys do with these major programs, but it doesn't convince everybody. We're not trying to get 100 percent of the customer base out there. We're trying to get in our independent lifestyle hotels that little 3% to 5% of the population that wants to go to those properties and I would posit to you that that'll be a greater percentage than normal of the people who are choosing to travel over the next year.

Yes. Okay. That makes sense. That's good response. What about the technology side of things, Jon, as you've redone your hotels, reworked your hotels and electronic keys bypassing the front desk, things like that, is that, those are what the younger consumers I think are doing today; is that fair?

It's interesting. I mean again, we have major brands. I don't know that any of our properties have mobile key yet, it's a program they were hoping to really roll out in size later this year. I think that's going to be deferred because of lack of capital. I think in our case, we actually may roll it out through the whole portfolio this year; it's something where we're looking at right now and evaluating and getting bids on. It's not a major for us, it wouldn't be a major investment and we don't think it's a major cost on an ongoing basis. But the interesting thing about it, Bill, is you still -- you're still going to need to stop at the front desk because you've got to show ID. We have to verify that the credit card that we have is you because there's so much fraud that goes on particularly in the mobile key category. Oh, I think we do have one -- at least one property, The Embassy, that has mobile key in and we did have -- and we have had credit issues, fraud issues with that. So I do think over time that will become much more prevalent, but I think it's going to take a while. I do think it's what customers will want, and I think what we're doing right now as we've constructed a check-in process where it is no touch and it's limited time.

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

Hey. Good morning, guys. Can you touch it upon how the cost structure is for your small independent hotels versus your overall portfolio?

Yes. So you -- do you mean cost structure now when they're suspended, what they were before or what we think --

Yes.

Yes. So it will always -- it also will vary on if you have a ground lease or those sort of charges, but we have some of our --

No, no. I mean but just suspend, yes, yes.

Yes. So the cost per room and cash burn. But some of our independent hotels, non-brand unaffiliated can operate with $500 to $700 per room per key. And then it ranges from --

Per month. Then the larger hotels is brand-related, can -- it's going to be over $1,200 a room. So there's a wide variety, but certainly we, our independent hotels have done a really good job, particularly some of the hotels in the West Coast there and several others have operated in at $500 or $600 a room. They're doing a good job adjusting the operating expenses.

Okay. And then you mentioned about supply coming down the next few years. Is that in relation to competitive supply or just overall supply? And then would you expect even bigger contraction in shadow supply from the likes of Airbnb and such?

Yes. I mean, well, all of the above. I mean I think we're going to see a significant number of hotels around the country that don't reopen, may never reopen. A lot of properties that go back to lenders, who in many cases really don't even want to take them back. I think in urban markets because of the higher fixed costs and what will continue to be probably a desire for higher taxes or need for higher taxes in some of these cities, I think you'll see -- I mean we think there could be tens of thousands of rooms in New York that don't ever reopen as hotels. And we think they'll be particularly older product in some of these markets including branded product in some of these markets, particularly older branded product that may not reopen as hotel as the highest and best use on a go forward basis.

So the next question comes from Michael Bellisario from Baird. Please go ahead.

Just one for me. Kind of circling back to the opportunities that you mentioned that are going to come from the crisis. I think the question is when do you switch from defense to offense? And then what are you keying off of to make that decision eventually?

Yes. I mean we're -- as we indicated, we're already starting to plan and have discussions about the offensive side. I think those will ratchet up over the next few months. I don't expect any activity. And frankly, not sure there'll be any opportunity over the next three, four months, but I think we start to see the lenders build up their REO departments, which have shrunk to almost nothing, after 10 years of an up cycle. And I think we start to see properties come back in the next four to six months. And on that -- I mean keep in mind this is so different than the other cycles where it took a lot longer and frankly not a lot of opportunity came out of the special servicers. Here, the properties are losing money even before debt service and they have to get funded. So the transfers in these cases are probably going to happen a lot quicker with a lot less fighting going on on the part of the borrower because of an inability to actually fund losses even before the debt service numbers. So we want to be prepared for that. And that's where we'll be putting some time and effort over the next few months.

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

Thank you. Good morning, guys. Jon, just have another question on the brand commentary that you've been making throughout this call. And historically, you've always looked at contractual flexibility as providing -- justifying a lower cap rate when you're buying or selling a hotel and arguably the sales that you guys completed over the last year-and-a-half kind of indicate that independent -- smaller independent hotels are seemingly sold at lower cap rates. And so the ability to terminate management contracts, that flexibility certainly has a value. And I just wonder, as you think through the cycle that we're going through and about to go through over the coming quarters here, the limitation not being able to cut costs in the environment we're in when the major branded hotels argues for, perhaps, another variable that should be taken into account. In terms of the cap rate, well people think about cap rates for hotels. And I'm just curious whether you think going forward this is likely to become a factor?

Yes. I would say it's likely to become a factor from this perspective. Jim, I think there are -- look, people are not going to say it, but I think there are folks who have seen what has happened to their costs, how much carry there continues to be, how some decisions have been made arguably for the benefit of the brand and not for the benefit of the owner and are less thrilled with their brand relationship. And so along the lines of your question, I do think there are going to be people looking at other opportunities, including even more -- in more cases trying to move further away from brand managed versus franchised where they control the relationship with the employee and not have a brand company control that relationship. So I think you'll see that as well, Jim, in addition to people re-evaluating, particularly at smaller properties, whether they want to continue with a brand or not. I mean a lot of owners were already upset about the dilution in the customer base from the expansion and the number of brands being developed in a lot of the major markets. And I think, that issue's probably gone by the wayside for the next four or five years. It shall return. And so -- I mean we'll see how it all plays out. Again, we have all kinds. We have brand-managed, we have brand-franchised managed by franchisees, and we have independent and small brand. And we have seen the fact that it's more expensive to maintain these branded properties in status here and in a recovery it will be more expensive. And so people will evaluate that as they make their decisions on a go-forward basis for their own businesses.

That's an interesting comment. And then a quick question for me on the West Coast versus the East Coast. And you had said in your prepared comments that the first two months of the year you guys were kind of ahead of plan doing relatively well-pleased with the response, particularly at the renovated assets. And here the -- at the end of the quarter of course the West Coast had to perform or had a bigger RevPAR decline. Just curious, to what extent in February -- well, I think we had the ban on Chinese inbound travel early that month or at the end of January, the actual date it went into effect. But I'm curious whether you perceive in any of those markets a reduction in demand because of that? And I'm thinking here going forward, as we think about Chinese inbound travel perhaps being down for a longer period of time, whether that might have more of a negative impact on the West Coast than the East Coast?

Okay. I'm not sure whether which market gets more impacted at this point by all of the things that happened, Jim, were related to international travel. I mean we stop travel from Europe too. And the outbreak in Europe has been greater than the outbreak in China arguably, although obviously we don't have as much trust in those numbers. I think it's -- I think the big question is this, the biggest city in the United States, New York, how are people going to respond to that from a travel perspective both domestic and international. It's been the one hotspot, it's gotten all so much of the publicity around infection and fatalities and how long is it going to take for New York to overcome that negative image? I mean there was a comment earlier, I think, Bill asked about cleanliness. I think it's more about safety, which includes cleanliness, but I think it includes a lot of other variables. And how are people going to feel safe in New York? And when will that change? And so I'd be more worried about frankly New York and the East Coast, which has had a big outbreak versus the West Coast, which actually pretty well-controlled it outside of the nursing facilities in Seattle. I mean the cases in San Francisco have been very minimal. And even LA and San Diego have been on the much, much lower side when it comes to cases and fatalities and publicity, negative publicity at the end of the day. So -- and they generally have better weather. So there are a lot of factors. I think the one you raised, I just think it's one of many. It's hard to come out with a macro answer on one issue out of 20.

And then -- well, so just kind of a follow-up then. So when you look at the relative weakness in Seattle, San Francisco, and San Diego in the quarter, Seattle was obviously one of the first -- I think it's first hotspot, so maybe that was in a flow there. But if you could just add and summarize why you think they were at the bottom of the performance level for the quarter --

Yes. Because San Francisco was the -- that was the first market to declare a state of emergency, it's where the first companies in the Bay Area said that they wanted -- they were not allowing travel other than essential travel, it's where -- they were the first companies who said work from home. And I remember having conversations with people about this specifically and they were saying, West Coast getting hit more because it's closer to China won't have as much of an impact on the East Coast. Look at it now. It was just a timing issue, Jim, and I think if we look at our April numbers, it's zero everywhere. It's at least for our portfolio urban resort even with the eight hotels that we have opened there. There's just no -- there was no leisure. It all got eliminated leisure business group. The only thing left was some crew, some military business, some emergency business hospital workers, that kind of stuff. That -- that's all that's been left in the major markets, in the major resort markets.

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

Thank you. Good morning, gentlemen. I have a question on the -- hey. I have a question on your capital investment and repositioning plans. I've listened to a couple of recent hotel and few webinars that you both have been on and, to my recollection, you addressed the variety of operating design and room amenity changes that you may need to consider today's COVID-19 dynamic. However, you're also in the middle of renovations that won't be completed likely before these health concerns have ameliorated. In that context, how are you weighing moving forward on parts of your renovations that you may perhaps have second thoughts given today's changing consumer behavior trends whether this means for example, changing public area design and flow, figuring out what to do with excess restaurant or lounge space or outlets that simply go away and other sizable CapEx considerations?

Yes. Good question, Greg. We had a lot of those conversations and I think that conclusion we've come to is we don't want to live in a world where you can't ever gather in a group. And so we're going to make a presumption that there is a health solution that comes out in the next year to two years that will allow individuals to return to some level of normalcy when it comes to meeting, drinking, socializing, entertaining, etc. So we're not really changing our design focus and our focus on creating spaces that people want to meet and want to eat in or drink in and want to entertain and what will change is that will change the setups of our public areas for the next -- for whatever the right amount of time is depending upon both the governmental restrictions and really what people feel comfortable with. So we will likely be moving around furniture, we will likely be removing some furniture. We will likely be removing some tables and chairs, but we can also accomplish some of this through the way we see people. It's interesting if you remove every seating area where six people could congregate, then if you're a family of six, you can all sit together. So one I think in many cases people will self-enforce, but if the governments are requiring us to do that where every seat has to be six feet away from any other seat, we'll obviously do that and, but it won't change our design and our approaches in our renovations and our redevelopments.

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

Yes. Good question. We've been having a lot of those conversations and so far our conclusion is it is the same traveler and in fact those three properties which are higher rated properties are achieving very high rates right now in their bookings. So I mean we're averaging $400 to $500 a night in Naples in arguably what is already a shoulder season or just moving into a shoulder season. So -- and our bookings in Key West from a rate perspective have been exactly in line with where they were before the pandemic.

Yes. It's very comforting to hear that, and that's all for me and best of health to you and your teams.

Thanks, Greg. You too.

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

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

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