Greetings, and welcome to the Pebblebrook Hotel Trust's Fourth Quarter and Full Year 2020 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Raymond Martz, Chief Financial Officer for Pebblebrook Hotel Trust. Thank you. You may begin.

Thank you, Melissa, and good morning, everyone. Welcome to our fourth quarter 2020 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. Before we start this morning, we wanted to acknowledge how sad we were to hear of the passing of Arne Sorenson last week. He was an industry leader, a true titan, but more importantly, a great person with high integrity, who we all respected. His passion for hospitality, for his associates and guests were inspiring to all of us. Our thoughts go out to Arne's family and our operating partners at Marriott. The hotel industry lost an icon, and he will be missed. A quick reminder today 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 2020, which we filed last night. Our other SEC filings and future results could differ materially from those implied by our comments. Forward-looking statements that we make today are effective only as of today, February 24, 2021, and we undertake no duty to update them later. Our SEC reports and our earnings release contain reconciliations of the non-GAAP financial measures we use which are available on our website at pebblebrookhotels.com. While 2020 was an unprecedented challenging year for the hotel industry and for Pebblebrook, we took many decisive actions to mitigate the pandemic's impact on our shareholders and stakeholders. These steps will allow us to rebound along with the recovery and take advantage of the significant opportunities we expect will develop in the months and years to come. In mid-March, our decision to immediately suspend operations at most of our hotels when the pandemic first hit, allowed us to reduce our cash burn and preserve precious liquidity when it was unclear how long this pandemic would last. This also facilitated protection and safety of our hotel-level employees and guests. At the corporate level, we slashed expenses across the board, including reductions in salary for all Pebblebrook employees, including Jon, who voluntarily gave up his salary from April through the end of the year. We eliminated our common dividend, preserving another $150 million of liquidity and reduced our capital expenditures by $50 million. We also completed approximately $400 million of property sales at healthy valuations in this difficult environment, including $331 million pre-pandemic. We raised $763 million of capital through convertible notes, a first of its kind ever for lodging REITs, which increased our liquidity by over $300 million, while also paying down $377 million of near-term debt maturities. Our lender group also strongly supported us along the way, agreeing to waive our financial covenants during the pandemic, while also extending out $264 million of debt maturities for late 2022. These collective actions have positioned us in a stronger position today versus when the pandemic started. Today, we have approximately $770 million of liquidity with no loans maturing until 2022. We reduced our monthly cash burn from a range of $25 million to $30 million in May to roughly $20 million during the fourth quarter. We expect this monthly cash burn to continue to decline in the second quarter as we enter spring and travel and hotel demand recover. This, of course, assumes continuous progress on vaccinations and further reductions in cases and hospitalizations. We now have 38 hotels open, which is down one property from our peak in late November, but up one in the last two weeks, and we expect to reopen additional hotels starting in March as demand continues to recover. By the end of the second quarter, we would expect to have the vast majority of our portfolio substantially open, if not all of it. Of course, this depends on the progress in vaccinations and COVID cases in cities reducing travel restrictions. However, we are encouraged by the directional trends on the horizon, which are all pointing up. Turning briefly to our fourth quarter results, same-property total revenue of $74 million was 79.1% below the prior year period, with hotel-level expenses of $93.9 million which were reduced by 62.7% from the prior year fourth quarter and 70.5% before fixed expenses like property taxes and insurance. Our total property-level expense reduction was 79% of the revenue decline and 89% before fixed expenses. This highlights the tireless effort of our operating and asset management teams to reduce expenses significantly given the unprecedented operating environment. Our hotel teams were aggressive and creative in shrinking operating expenses at both the suspended hotels and the open hotels. On a same-property RevPAR basis versus the comparable period in 2019, October was down 78%, and both November and December were down 80%. Preliminary same-property RevPAR results from January were down 83%, primarily due to increased government restrictions in our urban markets, and we expect February to be slightly better in the first quarter to be down 80% to 81% compared to the same period in '19 to slightly worse than the fourth quarter. Total property revenue generated was $31.7 million in October with 37 hotels open, $23.6 million in November with 39 hotels open, and $18.8 million in December with 37 hotels open. Preliminary results in January show a total of $19.4 million in revenues, also with 37 hotels open, and February looks to be up meaningfully from January due to a solid Presidents Day weekend and acceleration in demand that we've seen as a result of progress on the health side and loosening of restrictions that have begun to occur in most cities and states. For the fourth quarter, same-property hotel EBITDA was negative $19.9 million compared with a positive $101.4 million from the prior year period. However, it marks a significant improvement from the second quarter of 2020 when EBITDA was negative $40.8 million, while about in line with the third quarter of 2020, when it was negative $19.3 million. By a month, same-property hotel EBITDA was negative $2.8 million in October, negative $8.2 million in November, and negative $9 million in December. We estimate January same-property hotel EBITDA to be negative $11.4 million, while February should improve by $2 million or more compared with January. Our resorts have been the consistent bright spot in the portfolio regardless of season, they generated a positive $7.3 million of hotel EBITDA in the quarter. This resulted from an occupancy of 40% and an average daily rate of $302, which is more than $38 and a 14.8% increase over the prior year period. Results were negatively impacted by the tightening of travel restrictions in California impacting four of our resorts in November and December. As a reminder, leisure transient portfolio-wide has historically accounted for about 40% of our demand with corporate transient at 35% and group at 25%. Our adjusted EBITDA was negative $27.4 million in the fourth quarter compared with a positive $100.1 million in the prior year period. Adjusted FFO per share declined to a negative $0.50 per share compared to a positive $0.54 per share in the prior year period. Shifting to our capital improvements, during 2020, we invested $125 million into our portfolio, completing major renovations on a number of our hotels and resorts. In 2021, we anticipate investing $70 million to $75 million in the portfolio, which Jon will speak about later. Shifting to upcoming asset dispositions, on February 3, we announced that we executed a contract to sell the Sir Francis Drake Hotel in San Francisco. We expect this sale to generate approximately $157.6 million of proceeds when it closes in the second quarter. We decided to sell this hotel because we have sold a significant number of assets outside of San Francisco and this allows us to reduce our otherwise increased concentration in this market while we can reallocate the capital elsewhere to upcoming opportunities and absorb the sizable taxable gain that the Drake sale is generating with operating losses in 2020 and 2021. As a reminder, when we acquired this hotel in June 2010 for $90 million, it was our second telework investment, and we bought it at a 3 cap. This hotel has been very successful for us, a great investment for us. Assuming the sale closes early in the next quarter, you'll have delivered a 12% unlevered IRR in our almost 11-year ownership period. We expect the sale to generate a $60 million to $65 million taxable gain, which will be absorbed by operating losses to the extent we decide not to utilize the 1031 exchange for the proceeds into a new investment later this year. Turning to our balance sheet and liquidity, we've been very active. We successfully completed a $500 million 6-year convertible notes offering with a 1.75% coupon in mid-December. These notes begin to convert to common equity at $25.47 per share, which is up 35% from the common share price at the time. We also purchased a cost spread up 75% to $33.02 per share to offset dilution from the expected future notes conversion. In early February, with our notes trading at a premium, we decided to reopen the offering and raised an additional $263.8 million proceeds on the same terms as our initial offering in December, but we sold a note at a 5.5% premium to face value. Proceeds from these offerings were used to pay off $377 million of near-term debt maturities while also increasing our liquidity by $310 million. The combined economic interest rate on the $750 million convertible notes is just under 2.9%. We view this as very favorable pricing with fewer restrictions and other capital alternatives in the market. The notes are unsecured, and there are no covenants. Yes, we fully expect our common shares to trade above the $25.47 conversion price leading up to the conversion date in just under 6 years, which will allow us to settle these notes when payable with equity rather than cash. So effectively, we view this as a forward equity raise at a significant premium to our current share price with dilution protection up to $33.02. Last week, we also announced that we finalized our amendment to our debt agreements with our lending partners. We extended our financial covenant waiver period out to 2022 with softened covenants into 2023. We also gained increased flexibility to make up to $500 million of new acquisitions and reinvest up to $500 million into new acquisitions from the sales of current assets, including the Drake, the previously sold Union Station Nashville, and monetized leases. We also negotiated the ability to retain a larger portion of any new debt, equity, or preferred equity raises, which would further strengthen our liquidity. As part of this extension, two of our banks agreed to extend their November 2021 debt maturities of $21 million to November 2022, which allows us to preserve this liquidity until next year. We now have no meaningful debt maturities until late 2022. Overall, we're very proud of the execution of our entire team and very appreciative of the collaboration and support of our hotel operating partners and our banks. With that, I would now like to turn the call over to Jon. Jon?

Thanks, Ray. So I thought I'd focus on what we're currently seeing in our business and how we think this year and 2022 are likely to play out now that it seems we have perhaps a more predictable path. It's a path with quite a bit of uncertainty. None of us has ever been through a pandemic, so experience aside, the big variables are, of course, the progress we make against the virus and how governments, individuals, and businesses behave as the health issues recede. Certainly, we are very encouraged by the reduction in daily cases, hospitalizations, and deaths, which are likely a result of the success of mitigation efforts across the country, the increasing pace of vaccinations, and the significant number of people who have already had the virus, presumably generating a level of immunity. Like last year, this year's recovery starts with the leisure traveler, which is the primary demand segment currently traveling and the segment that is likely to increase as the year progresses as people get vaccinated, as government restrictions ease, and as more and more people feel safe and comfortable traveling. In fact, we've already been seeing the leisure recovery pick up since the beginning of the year when it was at its low point. Not only has occupancy been picking up in February, but overall bookings have consistently increased each week so far this year. For us, demand has consistently increased in all of our markets as government restrictions have begun to ease and more individuals feel safe and comfortable traveling. For example, revenue per day in February is averaging about 55% higher than in January. Based upon our estimate for the month, given what we've already achieved so far. While the nominal numbers are still very low, the improvement in transient demand and occupancy is noticeable. Overall, our total transient bookings have increased week over week, just about every week this year. We're also encouraged that we're starting to see forward transient bookings pick up as well. As the leisure customer starts to book vacations and leisure trips further out than they've been doing so far during the pandemic. For example, our two resorts in Key West and our luxury resort in Naples have seen such strong bookings in the last month or so, that all three are now ahead in transient bookings for the rest of the year, and two of them are now ahead for the entire year. As restrictions in other parts of the country recede, assuming progress against the virus continues, we would expect our other markets and properties to see similar activity and improvement with leisure travel recovering and so much pent-up demand from leisure customers. This will particularly be the case at our four West Coast drive-to resorts in California, our resort in the Pacific Northwest, and our West Coast cities that attract significant leisure travel, especially San Diego and Los Angeles. We also believe, as we enter the spring and the weather warms, our leisure-focused properties in the rest of our cities, including Seattle, Portland, San Francisco, Boston, Philadelphia, and Chicago, will experience significant demand from leisure travelers as they've already begun to do. When we think about the rest of the year, we expect a leisure customer to remain domestic, and many of them will remain local or regional. We expect rooms at our resorts to be in short supply during prime vacation season, with rates in general above 2019 rates. Our California resorts achieved higher transient rates last summer versus 2019, and our Florida properties are all running ahead of 2019 transient rates with LaPlaya and Naples, as an example, achieving average transient rates $100 to $200 higher than in 2019. Some of the significant improvement at LaPlaya represents the benefits from the dramatic renovation we did at the property a couple of years ago. But some of it is due to the pricing power of high-quality resort properties. Average rates are also benefiting from leisure customers purchasing or buying up to suites and higher-priced view rooms more often than in the past. Many of our leisure-focused urban hotels are benefiting from this trend as well. During September and October, we saw the beginnings of a modest recovery in business travel. However, with the rise in the virus's spread, increased government restrictions, and the arrival of winter transient business travel slowed. We've seen a little bit of business travel in a few areas: TV and movie production in L.A., consultants, and IT-related project travelers in various markets, including Boston, and some healthcare and government travel as well, but it all remains very modest. We don't expect to see any significant pickup in business transient travel until the second half of the year. We think it will be led by travel from small and medium-sized businesses, especially private businesses. We believe major corporate demand will be the last of business transient to pick up, and we believe it will be heavily influenced by the virus first but then dependent upon when those corporations return to the office. We have hosted some groups at our properties, but it's primarily related to social events like weddings, sports teams, and media-related to sporting events and government. In the fourth quarter, group accounted for 4% of our total room revenues. This 4% does not include the university student business at both the W Boston and Westin Copley. Bookings and rebookings of weddings into the second half of 2021 and 2022 have been very strong, and we're seeing rebookings of group into the second half of 2021 and all of 2022 as well. We're very encouraged about how well group is shaping up for 2022 at this point. We've begun to look at our group pace again. While the 2022 pace is significantly behind the same time last year for 2021, in fact, it's down 21% in room nights. Activity has begun to pick up as meeting planners become more confident there's more clarity and optimism on success against the virus, and a lot of business from 2020 and 2021 is being rebooked into 2022. Equally encouraging is that rate is holding as well. Our group rate for 2022 is currently ahead by 1.4% compared to pre-pandemic same time last year for 2021, and for 2022, it's ahead by over 5% compared to the same time 2018 for 2019, which was our last normal pre-pandemic year. When we look at 2021, we're definitely much more cautious about group and trying to forecast when businesses will move forward and meet in-person again. Our group pace for the second half of 2021 is down around 32%, with ADR slightly positive, which, of course, is very encouraging. Group rates have generally held up or been rolled forward from previous bookings. Some have even increased if they've been moved from a seasonally lower-rated time of year to a seasonally stronger time of year. We certainly hope group will begin to pick up as the year moves along, and progress continues against the virus. However, we're concerned that businesses will be more cautious about meeting this year, particularly in the third quarter or before Labor Day. We continue to expect that most major citywides and large groups scheduled for this year will either be canceled or postponed as we move closer to the book to meeting dates. If they are held, they'll arrive with substantially lower attendance. If we make more rapid and exhaustive progress against the virus, this sentiment could change rapidly, and we believe that's why many groups are waiting until closer to their dates before making their decisions. Strategically, we'll be pursuing leisure very aggressively for this year, with the idea that leisure travel is likely to be very strong later this year, and much of this group that's on the books will probably not materialize. And if it does materialize, we'll be in a great position to take advantage of it. In addition, we've been bringing sales resources back this year at our properties as leads and bookings have begun to pick up, so we can take advantage of the upcoming recovery in group business whenever it begins. We're focused strategically on 2022 being a very strong recovery year overall, and for group being strong as well due to what we believe is a great deal of pent-up demand and also all of the meetings being rebooked from 2020 and 2021. This means we do not expect significant rate discounting in 2022. Again, this is with the obvious caveat that we get to relatively normal behavior by the end of this year, and it remains relatively normal next year. We believe we're in a great position to take advantage of this recovery in 2022. Our hotels and resorts are in great condition. We've completed major renovations and transformations at well over half of our properties over just the last few years, 28 of our properties, in fact, and they have significant share to continue to be gained as the recovery takes hold, and we compete against many properties that will have been and will continue to be starved of capital. In 2020 alone, we completed redevelopments and major renovations at Westin Gaslamp Quarter, San Diego; Embassy Suites San Diego Downtown, San Diego Mission Bay Resort and its conversion from a Hilton, LaPark Suite hotel in West Hollywood, Viceroy Santa Monica, Chaminade Resort in Santa Cruz, Marker Key West Harbor Resort, Viceroy, Washington, D.C. and its conversion from Kimpton, Mason & Rook and Hotel Zena, Washington, D.C. an Unofficial Z Collection hotel and its conversion from Kimpton Donovan Hotel. We also completed a number of additional upgrades in the portfolio in 2020, including a brand-new Westin Copley, renovated public areas, meeting space and corridors at the Liberty, a luxury collection hotel in Boston. All new bathrooms, including tub to shower conversions at Hyatt Boston Harbor and a completely new lobby and bar at Harbor Court in San Francisco. We're also redeveloping L'Auberge resort in Del Mar, California as we speak. It's our highest ADR property in the portfolio. It achieved a $403 average rate in 2019. The redevelopment focus for L'Auberge is to dramatically improve and expand the revenue-generating public areas, meeting and event areas, and restaurant and bar activities at the resort. Not only do we expect to achieve a significant increase in ADR, but we expect to dramatically increase other revenues at the property as meetings, events, and gatherings return. All of the improvements should be completed next quarter. This resort is a true icon in Del Mar as it sits in the center of this high-end beach town and has done so for 3 decades now. We're also moving forward with a complete renovation of all of the Southernmost resort's rooms, including guest room bathrooms. This very special and popular resort is made up of numerous different buildings with different sized rooms renovated at different times with different designs over the years. The most recent room renovations were completed 10 to 12 years ago. So we're forecasting a $20 to $30 improvement in rate at this 262-room resort. That is our third highest ADR property at over $377 for the last 2 years. This rate improvement should deliver a 10% or greater cash yield at stabilization on our $15 million investment. The construction work will start in July during the seasonally slow summer and is forecasted to be completed in the fourth quarter before prime season begins. Additional upgrades in our portfolio that we've been moving forward with include upgrades to the lobby, rooms, and rooftop pool at both Montrose and Chamberlain in West Hollywood, which are both all-suite hotels. A renovation of and a transformation of grafted on Sunset in West Hollywood, which we're going to rebrand as an Unofficial Z Collection hotel upon completion late this year or early next year. Also, a complete redevelopment of the golf course and backyard at Skamania Lodge, in the Columbia River Gorge, which will add a spectacular 9-hole short course and an 18-hole putting course to our zip lines, aerial venture park, and ax-throwing venues as we continue the transformation of this conference resort into an experiential adventure resort. Finally, we'll be adding a second and larger pool bar and other amenities and activities at Chaminade Resort as soon as we receive approvals from the county, transforming this resort into an attractive luxury leisure destination just 45 minutes from Silicon Valley. As it relates to the remaining projects we deferred due to the pandemic, we're continuing to complete plans and permitting, and we'll pull the trigger on these projects when we have more clarity on the recovery and progress against the virus. All of these completed redevelopments and transformations, and all of the upcoming projects and improvements will provide significant upside for our portfolio over the next few years as the recovery takes hold and rolls forward. Importantly, the vast majority of the dollars for these projects have already been invested. As a result of all of these projects and the fantastic condition of our overall portfolio, we would expect our hotels to outperform their specific markets. Similar to what they did over the years, we were building Pebblebrook in the last cycle's recovery. As we look at the silver lining of potential upside from this crisis, we expect there will be significant opportunities over the next few years to acquire properties in distress due to a large number of cash-strapped and over-levered owners, and many properties that will go back to lenders. As you know, our team has been through two prior crisis-driven opportunistic periods, including one that resulted in the creation of Pebblebrook in late 2009 during the tail end of the Great Recession. Following that crisis, we were able, with our conviction to fairly quickly and aggressively assemble a 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, the additional cost benefits from the additional economies of scale from Curator, our unique strength in redevelopments and transformations, as well as with independent or small brand lifestyle hotels, our vast number of operator relationships and our high-profile and positive reputation in the industry, we believe we'll have significant competitive advantages as opportunities arise over the next few years. We continue to be confident that our team's experience, reputation, foresight, creativity, work ethic, and track record combined with our strong corporate liquidity and a fantastic portfolio will allow us to not only grind through the current challenges but thrive during the recovery in this next up cycle. With that, we'd now like to move on to your questions. So Melissa, you may proceed with the Q&A.

[Operator Instructions] Our first question comes from the line of Rich Hightower with Evercore ISI.

So a couple of questions. Jon, I wanted to get your opinion on San Francisco, kind of where we sit today and even going forward. And just maybe the longer-term outlook given heightened political risk in that market and looking from other real estate lenses, what seems to be a pretty steady stream of corporate relocations away from the Bay Area. Just what -- how do we measure the sort of moving parts there?

Yes. I think it's a fundamental analysis. I think we start with the key advantages that San Francisco has that aren't going to go away: the proximity to Asia, the political gateway aspect of the city, the incredible strength of the underlying economy with its amazing cluster of companies that are focused on the high-growth industries in our country, and the creative industries that are impacting all of our businesses in the country. I think the weather and the overall attractiveness of the city are also beneficial. The venture capital that continues to have a heavy influence on the growth and creation of new businesses in San Francisco is another point. What we were seeing pre-pandemic and what we continue to see is an evolution in our country that involves creative industries and venture capital expanding beyond the core creative markets like San Francisco and Boston into other markets. We expected that to happen, and the pandemic probably accelerated some of that. However, our view on San Francisco continues to be positive. The educational institutions are not going to go away. The venture capital is not going to go away. I think the city, because there are plenty of companies that would like a more business-friendly government, are more than apt to announce when they expand beyond San Francisco. But in most cases, it doesn't mean they're abandoning the market; in most cases, they're expanding. What you don't read about is the huge growth of companies that get created in San Francisco. We are very aware of it. There continues to be huge growth by many of the big players like Google, Facebook, and Apple in the market as an example. There’s also a huge increase in the creation of new businesses that continue to grow. Therefore, I think we're still strong believers in the market. Supply is extremely difficult to add in the city. We will see some reduction in supply, and we have already through the sale of some hotels that will be used for affordable housing. We expect to see some more of that in the marketplace. Yet, it’s probably the most protected city in the United States from new supply growth. Overall, we still have a very positive view on San Francisco. As noted by our comments about the sale of the Drake, we'd like to come down to the level that we were at before we sold all these properties outside of San Francisco in terms of our concentration. We will continue to work with others, both the government and other businesses to help the city solve its issues. However, San Francisco is not alone in its issues related to homelessness, crime, and other matters. So whether it’s San Francisco, the quirkiness of Portland and the issues there, or other cities like Seattle, Downtown LA, Downtown San Diego, Austin, and New York, you can go through a long list of cities that have issues, and San Francisco is definitely towards the top of that list.

Okay. Appreciate all the color there, Jon. One more, if I may. Just in terms of the balance sheet, given the success of the convertible issuances last quarter and, I guess, earlier this year. And some of the added flexibility in the credit facility, how big of a priority today versus, say, 90 days ago would be sourcing alternate equity capital, joint venture capital, or something along those lines? So how important is that where we sit today?

Yes. I don't think it's really changed where we are with sourcing alternative capital to take advantage of some of the opportunities in this recovery. I do think there's no change in our view of sourcing equity at these value levels. Of course, the convertible bonds are a low-cost way to have raised equity for the company with its conversion down the road over the next 6 years. As we look at how we take advantage of the opportunities, there will be initially two different ways. One is from the sale of the Drake and Union Station Nashville and the monetization of any other potential sales over the course of this year. We'll certainly be reallocating that capital into opportunities that we think will be highly attractive in this next recovery cycle. Right now, we do continue to pursue an off-balance sheet strategy, again, for the early part of the cycle with third-party equity capital that can dramatically multiply the capital we'll be investing.

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

I just wanted to follow up on that a little bit regarding the covenants that you just mentioned, which gave you some incremental flexibility there. So do the sales of the Drake proceeds go into the $500 million that you're allowed to sort of put towards recycled capital? And is that earmarked for anything beyond just debt reduction?

Yes. So Smedes, yes, any proceeds from the Drake and sales we've had in this summer, so Union Station in Nashville as well as the antenna leases. So all that capital goes into that kind of $500 million reinvestment basket that if we choose and find opportunities to invest, we can do so freely within our balance sheet.

Yes. So those dollars are not marked for debt. They're not marked for debt reduction.

Our next question comes from the line of Shaun Kelley with Bank of America.

I just wanted to get your thoughts on how we should think about flow-throughs from revenue improvement on the way back out of the cycle. Jon, in some of your comments, specifically about rate, this recovery is shaping up a little differently than what we've seen in the past. I just wanted to kind of get your thoughts on this. I mean, historically, we've seen that until occupancy probably gets up towards 70%, we don't tend to see the big acceleration in flow-throughs because, obviously, it needs to be more rate driven. But I’m curious, do you think that equation will be different? And then, more importantly, how do you think about that equation for Pebblebrook, given some of the cost measures that you've taken?

Yes. Thanks, Shaun. I do think it's going to be materially different this time from a recovery standpoint. One, as you highlight, we don't think there's going to be much rate discounting. Certainly, what we've seen on corporate accounts is that the vast majority of those have rolled over from '19 to '20 without changes, '20 to '21, and we expect '21 to '22 to be a similar situation. From my comments on rate on our group pace, we're not seeing discounting at all on group in the future. If you come by with a big group today at a city property, you can negotiate a good deal—there’s tons of capacity. But I think on flow-throughs, as we look at the recovery, we're building back our teams very slowly. Because of the way we've changed how we do business, the things that we no longer are purchasing, and we don't expect we will be buying, the use of technology, and the cross-training, we believe the flow-throughs are going to be pretty good in this recovery. I think it will be more attractive and likely much quicker than prior cycles.

And then you alluded to this just a moment ago, but the other question I had was on citywide versus in-house group. I think you said overall for Pebblebrook, roughly 20% of the portfolio is, I guess, probably more appropriately was group. As that bounces back, how much for Pebblebrook of that '20 is citywide compression, especially San Francisco being a key market for that versus what you're able to deliver in-house? I'm thinking that probably the in-house stuff, and I think we talked yesterday a little bit about weddings, the wedding business being really attractive, for instance, the in-house stuff may bounce back, but the citywide compression may be a little bit further delayed just given how it might be different city by city.

Yes. I think if there's any pricing pressure, it will be in some of the higher-priced conventions in some of the markets. Depending on the approach they take and how much sympathy they have for an industry that's been devastated in this pandemic. I think in our portfolio, we don't have hard numbers on hand, but we don't track it that closely between citywide convention business and other group. It wouldn't surprise me if it was about one-third in total. Keep in mind, our resorts generally don't have any citywide business. So, all the group they do, 100% of it will be in-house group. Many of our smaller properties that don’t have much meeting space will be either doing group that doesn't need meeting space or they'll be doing citywide business. So, it's probably a greater percentage in the smaller properties, and it’s zero in the big properties. So it's probably about one-third, give or take 5% or 10%.

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

Two questions for me. First, just on your underlying assumptions for your hotel-level breakeven expectation for the midpoint of the year. Can you just give us some high-level thoughts on what you're assuming to get there?

Yes. If we go back to the fall and we look at where we were, our open hotels in October, for example, generated a couple of million-dollar positive EBITDA at a 38% occupancy and a rate that was down about 30% from 2019. So we think breakeven for the portfolio is probably around the 35% occupancy level at similar impacted ADR, which would relate to about a 70%, maybe 73% range for RevPAR declines from 2019. We want to keep using '19 as the base because that's the last normal year; '20 isn't really going to give us a much comparative perspective. We think it's in that range for the hotel portfolio. For corporately, we think it's in the 50% to 53% range in terms of RevPAR to get to breakeven on a corporate basis. That probably will mean something between 50% and 55% occupancy across the portfolio.

As you think about the timing on that, we think the hotel breakeven is really as we get to midyear. So as we get to late second quarter into the third—during summertime—as the demand improves. Given the trends right now, that's what we would generally expect. For the corporate side, that will be the second half of the year, the back half as we end the third quarter.

To be clear, Mike, that's just our base case viewpoint, assuming things continue to get better from a health perspective because the business is going to follow the virus. If we get a resurgence of any kind, if we get big bumps along the way—we’ve seen this three times already, where the virus has had a resurgence, and we've had to lower our viewpoint for the coming months. So it comes with that huge qualification.

Understood. And then second question for me, more on the topic of NAV kind of a conceptual perspective here. Can you maybe give us a sense of how you're thinking about and what you've heard from people that you're talking to on the asset sale front? Just discounts to pre-COVID pricing and maybe break that up into your Naples and maybe your San Diego resorts in 1 bucket and then Chicago and Boston in the other? And then secondarily, the path that you're thinking about or the trajectory to get back to what you think, or maybe what others think, is a stabilized value?

Yes. That’s a short question that would otherwise come with a really long answer, but I'll try to shorten it. We don't know. There's not enough activity yet in the markets to know what the market is for any specific type of asset. I think the higher quality assets, if you had a resort out there, it could trade for no discount to pre-pandemic to 10%—I don't know. I think our properties in Naples and the Keys would probably be towards the higher side given the progress they continue to make and the capital that's been invested in those assets that didn’t achieve all of the improvement based upon the capital. As you move away from quality and move away from the most attractive institutional markets, you're going to see lower discounts. Clearly, one of the challenges is that there's a limited amount of pretty expensive debt out there in the market, and that's going to impact values as well. We think there will be a dislocation in the credit markets for some time given the CMBS market doesn’t work very well for properties that have no or little EBITDA. So it's going to take time. Obviously, values will get back to where we were before operating results do because people buy based upon the future. We will be at the beginning of a cycle, and as you’ve seen historically, certainly, values are higher and cap rates would typically be lower in the early part of the cycle.

Our next question comes from the line of Bill Crow with Raymond James.

Jon, on Hyatt's recent call, they spent a decent amount of time talking about the future of groups and talking about hybrid meetings. I'm curious if the concept of hybrid meetings might permanently reduce the number of compression nights that we see.

Bill? Are you still there?

Yes.

I think for hybrid meetings, I think they will dramatically increase revenue for the folks who are offering the meetings. Hybrid meetings will change the nature of meetings in terms of the panels, the speeches, the product introductions in ways probably we can't even imagine right now. However, I don't really think they will have overall attendee numbers since folks who've already done hybrid meetings have found that it doesn't work very well for those who are not in attendance. There may be some cases where companies might say, 'You're not going to go; you can get whatever value you get out of that convention by doing it on a virtual basis.' But we all know that there's so much that goes on at a conference that has nothing to do with the agenda. We bring younger people and those in lower positions to conferences because it’s a way for them to grow personally, to learn more about the business, to develop relationships that they wouldn't otherwise develop and that they can't develop on a virtual basis. So I don't foresee much of an impact in total on attendance and compression for our industry. In fact, we think group meetings are likely to increase after the pandemic on a more permanent basis as workforces are more distributed and have a need to get together more often, which they won't be doing in the office.

Okay. Jon, you've had some pretty high popping ADR numbers last summer, this summer, or this winter, et cetera. I’m thinking as demand mix broadens, should we expect ADR numbers to actually go down sequentially?

Yes. They might go down some at certain properties, and they may go up at others. It really depends upon what's been lost and what returns. The resort markets might see some reduction as some of the lower-rated business comes back. I don't think it will be initially because I believe the leisure demand, particularly at the high end, is going to be pretty overwhelming for the next 12 to 18 months. But I think in the urban markets, what was lost was all of the higher-rated business. So as some of that business begins to come back in the second half of the year and into next year, I think we regain ADR in those city markets and maybe give up some in the resort markets. But I'm not so sure that's next year.

Our next question comes from the line of Anthony Powell with Barclays.

Just want to dig into 2022 a bit more. You mentioned a few times that you don't expect discounting, particularly in group in 2022. How should we think about group volumes in 2022? You have pent-up demand and more people booking into 2022, but they also have maybe more hybrid meetings—maybe some may hesitate for some citywide. Could volumes in '22 be similar to '18 or '19? Or is that too much to ask for the industry?

I think it’s possible, Anthony. I think there’s a lot of pent-up demand. When you think about businesses, folks we talk to have a desperate need to get their groups together. They haven't been together for a year now and haven't seen people, in many cases, for a year, and haven't met new employees in their organization. While I think there will be conventions and large meetings that may have lower attendance because of the hybrid nature initially, I think they'll be replaced likely by other meetings from all this pent-up demand and business that will have rebooked from 2020 to 2021. I feel optimistic about how 2022 could play out, especially if we get back to normal, and that remains true next year.

Got it. I guess on that point, do you think, I guess, improved group mix and strong leisure can, at least in 2022, offset any theoretical structural decline in business transient travel for that year?

Yes. I think it certainly can. I believe leisure travel will also be much stronger than probably normal in 2022. Again, with the same monster qualification about health. But we also aren't believers in any structural impact to business travel. Business travel will continue to follow GDP, and where it may be lost in one area will get picked up in others. It’s easy to see changes in what we know, but it's always harder to understand the positive things that we haven’t experienced before. We believe in general that business travel will continue to follow GDP, and that there isn't any kind of structural impact or secular impact.

Right. So it's safe to say you seem like you're more bullish than, I guess, the consensus that we will get back to prior peak RevPAR in 2024. You seem to be more positive than that. Is that a fair takeaway?

I think there's a healthy possibility that we could get back quicker.

Our next question comes from the line of Aryeh Klein with BMO Capital Markets.

Maybe just on the margin side, given all the things you've done on the cost side, upon a return to a normalized environment, how are you thinking about the margins longer-term relative to where they were pre-pandemic?

I think the way we've been evaluating it, Aryeh, there's probably somewhere between 100 and 200 basis points of benefit. All else equal, if we were back in 2019 and operating our hotels the way we're operating them now and the way we anticipate operating them in the future. However, we must keep in mind that there are variables that will impact first time—some costs just may rise over time on a per-unit basis and offset some of that perhaps. In general, we're optimistic as this happens in every cycle, we've achieved savings on an operating basis, greater efficiencies, pretty much every year. Our properties are operated with fewer people per dollar of revenue than the year before. We think that will continue. We think it offers a healthy level of improvement, and that should help in terms of the recovery of values quickly as well.

And maybe as a follow-up, you have a lot of hotels in San Francisco, so maybe this isn't quite as impactful, but what would be the impact from the higher minimum wage on expenses for you?

It's pretty small. We already have a $15 minimum wage in many of our locations. In many cases, the cities are already well above that. For example, our housekeepers make $26 to $26 an hour plus in San Francisco. I don't think we have a huge impact since the states or cities have implemented it without a tip credit or a lower minimum wage for tipped employees. For most, this will have a small impact of about $100,000 to $200,000 on average per property in markets where we haven’t experienced that.

As the legislation lays right now from buying, that does not have a tip credit. A lot could happen between now and then. On the other side, the urban areas are largely well above the minimum wage. So there's really no impact there. Some of the resorts would have some impact in places like Florida, which means some properties with the servers. It clearly impacts markets like Texas in low-cost areas. We've seen that, but we'll do our best to manage around it.

We think a --- we’ve been seeing a much larger impact if it were to pass the way they're suggesting without district rates. A much larger impact on secondary and tertiary markets than it would on our portfolio.

Got it. Just a quick one on reopenings. If you can just update us on the pace there for the remaining closed lines.

Yes. As we said in our comments, we currently have, what, 15 hotels that are currently suspended. Those will come back as the demand recovers. We have plans in place as early as March, and we did reopen one hotel in Chicago two weeks ago. As demand recovers, we’ll be back, and as we said, we should have all of them open by midyear.

Our next question comes from the line of Gregory Miller with Truth Securities.

I wanted to ask a question on Curator. You seem to be growing the employee count fairly quickly in my view. My perspective is that you're preparing for a fairly larger collection of incoming properties. I could be wrong about this. I appreciate you're not providing guidance at this point. However, could you share any high-level thoughts about how you see Curator by year-end 2021? Or do you expect Curator revenues to be meaningful to your earnings by the end of the year?

Yes. On the latter question, the answer is no. We don't think it will have any material impact on our earnings this year. As it relates to the high level, we launched it publicly in November, the week after the election. The response has been huge in the hotel community from interested parties. We had developed a long list of outreach for once we launched, and we've yet to get to that list because we've been working with the folks who've contacted us following the launch. Expect to see Curator have a fairly active press release program with announcements of additional founding members, member hotels, and vendor partners over the course of the entire year. I'd say watch for that activity. We continue to add people to the staff to provide a high level of service to expand the program offerings and to accommodate more member hotels. So you’re correct in your monitoring. We've been adding team members. We have more to do, and we have a lot of work to prove the value proposition for our members. We feel really positive about the response, and we feel positive about the value proposition because we've lived it. The benefits and savings from Curator will be much broader and more extensive than what we could achieve with our 31 property portfolio previously.

And also, Greg, just to be clear, I think I saw your note last night; we didn't add 6 or 7 new employees to Curator. Some of that was current employees that we reallocated to focus on Curator. We allocated them full-time to Curator, and we brought in three new professionals as new employees and we're looking for a couple more. But to clarify, we are monitoring that and we had some capacity there from some of the sales we had in reallocating one of the women who are running it, Jim Barnwell. She was an asset manager, and she's leading Curator. So, that was just a reallocation of existing personnel.

I appreciate that, and apologies for the confusion there, Ray. I want to switch gears on my second question. I enjoy hearing your insight on trends in the industry. I'm curious to get your perspective on the potential for a growing number of affluent people who may end up working remotely full-time after the pandemic is over, and individuals who may lack a full-time residence. There are now emerging VC-funded companies that are targeting this demand. I assume that you have a few hotels that would cater naturally to higher-rated extended stay and may not be core to your business. Are you thinking this customer base may be material? If so, how might you target the segment?

I don't know if it's going to be material. It doesn't mean it's not a demand source, obviously, but I don't know that for some periods of time. If it grows to be material, we can develop a product and services that are geared towards that group. However, I think what it does is it increases travel back to the corporate office, increasing the demand for rooms in markets where those individuals need to travel to because they're not in their home markets. You have a meeting in the home market with your superiors or with a group that you collaborate with. You're not going to book a hotel room because you already live there. However, if you live somewhere else and go back to that meeting, you will need a hotel room. I think that bodes well for those who choose to move further away from their offices because they're only working in their offices one, two, or three days a week. If that’s the case, there’s a reasonable chance they’ll book a room one night a week or two nights a week to avoid long commutes. This goes back to my comments earlier, Greg, and what you raised, certainly as a potential demand source down the road. Still, I believe the bigger demand source will be people who aren't in the office all the time, who maybe move further away that now need to go back to the office and book hotel rooms while they're doing it.

Our next question comes from the line of Floris Van Dicam with Compass Point.

Jon, I just wanted to get your thoughts on the current environment for SPACs. Would this be an option for you to raise capital? Obviously, SPACs did one recently. It could be an option for you to introduce capital for your Z collection or for Curator. Are these things that you actively look at? How interesting is that for you as you think about allocating access to capital?

We've looked at SPACs; it's hard to do in a format where you're trying to accumulate a portfolio versus the need to buy a company. I'm not sure it works for where we see the opportunities on the property side. I think as it relates to Z collection or Curator, I think that SPAC could be an exit at some point down the road, but it seems a little premature today.

Ladies and gentlemen, that concludes our question-and-answer session. I'll now turn the floor back to Mr. Bortz for any final comments.

Thanks, Melissa. Thanks, everybody, for participating. I appreciate you hanging in there for the length of Q&A. We look forward to things continuing to improve. We'll continue our interim updates on the performance of our properties and keep you informed of trends in the next quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.