Greetings and welcome to the Pebblebrook Hotel Trust Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. It is now my pleasure to introduce your host, Raymond Martz, Chief Financial Officer.

Thank you, everyone. Welcome to our fourth quarter 2021 earnings call webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a 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 their 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 23rd, 2022, and we undertake no duty to update them later. We'll discuss non-GAAP financial measures during today's call. We provide reconciliations of these non-GAAP financial measures on our website at pebblebrookhotels.com. While 2021 was another challenging year for the hotel industry and Pebblebrook, we made significant progress on a road to recovery. We thank our hotel teams and operating partners for their hard work, sacrifices, and creativity over the last two years. Our portfolio continues to benefit from their tremendous efforts as we enter the recovery and growth phase following the pandemic. For 2021, our same-property hotel revenues increased by over $280 million or 65% versus 2020, with hotel EBITDA at a positive $132.1 million. This marked a tremendous improvement from 2020 when our hotel EBITDA was negative $27.5 million. Our adjusted EBITDA finished at $88.3 million compared with negative $69.7 million in 2020, again, considerable progress from a year ago. And while we still have much work ahead, we believe we have considerable upside to come. Adjusted FFO per share ended 2021 at a negative $0.32. A substantial improvement from 2020, at negative $1.46 per share. During the second half of 2021, we generated positive Adjusted FFO of $0.22 per share, indicating a trajectory of rapid improvement in growth that started this past summer. On the investment side, we are very active. We completed over $270 million of asset sales, comprising two hotels in San Francisco and one in Manhattan. We invested these proceeds into $492 million of acquisitions across four leisure-focused resorts with significant upside opportunities. We're excited about the many operating, re-merchandising, and redevelopment opportunities at all four of these properties. On the capital side, we raised more than $740 million in 2021, increasing our liquidity and acquisition capacity. We replaced $250 million of preferred equity with less expensive preferreds, saving $1.8 million in preferred dividends. Additionally, we extended over $1 billion of debt maturities, further enhancing our liquidity and eliminating any significant debt maturities until late 2023. At year-end 2021, we had $730 million of liquidity, including $92 million of cash on hand and no drawings on our $650 million unsecured credit facility. Turning briefly to our fourth-quarter results, same-property total revenues reached $245.4 million, down 29% from the comparable period in 2019, marking our best quarter versus 2019 since the pandemic. This strength was driven by robust demand at our resorts and improvements in business travel, both group and transient. Total revenues at our resorts climbed to a level 11% higher than 2019 fourth quarter, primarily due to dramatically higher room rates, which increased by 43% compared to 2019. Our urban hotels continued to show improvement, with same-property revenues down 44% in the fourth quarter versus 2019, the best performance since the pandemic. The trends we saw in December were particularly encouraging despite the negative impacts of Omicron. Same-property total revenues in December were down just 18% compared with December 2019, the best monthly performance since the pandemic, with same-property ADR up 20% and same-property hotel EBITDA down just 9% compared to December 2019. ADR for our urban hotels recovered by the end of December 2021, surpassing December 2019 by 1.9%. Our monthly same-property ADR exceeded the comparable month in 2019 for four of the last six months in 2021, despite the disruption caused by the Delta and Omicron variants. This highlights the increased ability of our portfolio to surpass 2019 ADR throughout 2022, earlier than we initially believed possible. We are increasingly confident we will reach 2019 hotel EBITDA levels later in 2022. These trends are encouraging; however, improved expectations assume no additional significant waves of the pandemic. The ADR gains in Q4 compared with Q4 2019 were impressive. Our properties such as Del Mar saw an increase of 70%, or $273, and others like Marker Key West saw an increase of 53%, or $179. Southernmost Key West was up 48%, or $177, and LaPlaya Beach Resort Naples was up 38%, or $143. Each of these resorts have been renovated recently. At our new acquisitions, ADR was up 42%, or $110 at Margaritaville Hollywood Beach Resort, and up more than 36%, or $77 at Jekyll Island Club. Customer feedback has improved at our properties, indicating an enhanced price-to-value relationship. Since the start of 2021, our portfolio-wide Tripadvisor rankings have improved by an average of eight spots, demonstrating that our guests appreciate the enhanced quality and experiences from our renovations and the excellent service provided by our hotel staff. In the fourth quarter, our best-performing properties included two of our recent acquisitions: Margaritaville Hollywood Beach Resort, which increased hotel EBITDA by over 225% versus 2019, and Jekyll Island Club, which increased hotel EBITDA by over 145%. Our recently transformed San Diego Mission Bay Resort and the recently renovated L'Auberge Del Mar both more than doubled their EBITDA compared with fourth quarter 2019. Regarding market trends, we continue to see healthy recoveries in Los Angeles, San Diego, Boston, and Philadelphia, while our weaker markets continue to be San Francisco, Washington DC, Seattle, and Chicago. These trends are continuing into 2022. On the operating expense side, despite the cost pressures most businesses are experiencing, we remain encouraged that our new operating models have made our hotels more efficient and profitable as we return to pre-pandemic levels of demand and revenues. Labor challenges have significantly eased, and many of our properties are now well-situated from a staffing perspective. The nature of our properties allows us to offer market-leading wages and benefits, which helps attract high-quality associates. The combination of cross-training, technology, and clustering of our management teams in markets with multiple properties has resulted in significant permanent cost savings. We remain confident that we have eliminated 100 to 200 basis points of expenses at our hotels through operational improvements. Shifting to Q1 2022 operating and demand trends, we estimate that the Omicron variant significantly reduced revenues in January and February due to group cancellations and a material slowdown in new bookings, especially in January and early February. In late December, the JP Morgan Healthcare Conference in San Francisco was canceled, costing our portfolio over $6 million in total revenues. Fortunately, most citywide and group meetings scheduled for Q1 have been rebooked into Q2 or later in 2022 at higher rates, indicating the desire and need among businesses to hold meetings in person. January same-property total RevPAR was down an estimated 43.8% versus January 2019. Although it was a challenging month, we are encouraged about the rapid improvement we're seeing for February and March. We expect same-property total RevPAR for Q1 to be down 30% to 35% compared to 2019, with same-property hotel EBITDA between $25 million and $35 million, and adjusted EBITDA between $14 million and $19 million. We forecast Q1 adjusted FFO per diluted share loss of $0.11 to $0.15, which compares favorably to 2021 Q4 adjusted FFO of negative $0.42 per share. We expect the first quarter to be the only negative FFO quarter for the year, as we anticipate returning to profitability in Q2 and for the remainder of 2022. This is the first time since the pandemic that we feel confident enough to provide a quarterly outlook, reflecting our increased comfort level with near-term operating trends. These assumptions, of course, assume no additional disruptions from the pandemic. Please note that starting in Q1, we will be adding back the amortization of non-cash stock compensation to both our adjusted EBITDA and adjusted FFO results for the current year and for the comparable period last year. We are making this change to align with industry practices. Shifting to our capital improvement program, during 2021, we completed $83.8 million in capital investments and redevelopment projects, which includes six significant renovations and re-merchandising projects representing $53.4 million of our capital investment. Since 2018, we've invested approximately $350 million into redevelopment and transformation projects at 25 different properties. We expect these projects to generate 10% or better returns as demand returns and performance stabilizes over the next two to three years. For 2022, we have $100 million to $120 million of capital investments planned, of which $80 million is allocated for major redevelopments and smaller ROI projects. In 2022, we will have eight significant renovations or redevelopment projects either underway or beginning later this year, including the transformation of Vitale to 1 Hotel San Francisco, Grafton on Sunset to Hotel Ziggy, our next unofficial Z Collection hotel, and Solamar to Margaritaville San Diego Gaslamp District. Major repositioning projects at our newly acquired Jekyll Island Club Resort and Estancia Hotel & Spa in La Jolla will begin later this year, as will long overdue renovations and upgrades of the Hilton Gaslamp Quarter, and the final phase of repositioning at Viceroy Santa Monica. Following any necessary governmental approvals, we plan to transform Paradise Point Resort & Spa into Paradise Point and Margaritaville Island Resort San Diego. We are very excited about these projects and expect they will drive significant EBITDA growth and value creation. With that, I will now turn the call over to Jon.

Thanks, Ray. I'm going to be brief so that we can get to the Q&A. Demand has firmed since the January pullback. Business travel, which took a break in January after a material recovery in the fourth quarter is noticeably improving. Citywide and larger business group meetings are happening. Group lead volume, site tours, and bookings have increased substantially in the last few weeks. Most groups that canceled for January and February have rebooked at higher rates. February is turning out to be much better than we expected just a few weeks ago, particularly in the second half of the month. We expect same-property revenues to be down between 25% and 28% versus 2019. March for us is accelerating in just the last two weeks. Both holiday weekends in February were strong, and Super Bowl in LA contributed an additional $3 million to $4 million, as we achieved around 90% occupancy of our 1786 West LA rooms at a rate of around $800 per night for four nights. Our revenue management teams are doing an excellent job. We're seeing a significant increase in business transient and group travel as Omicron recedes and masking and vaccine mandates are relaxed or eliminated. We believe there is significant pent-up business demand to complement a continuing robust level of leisure demand, and there is currently little to no price sensitivity from either leisure or business customers. We're very optimistic about an accelerating recovery in business travel over the next few months, and we're already seeing it for March and April. There will be limited new supply over the next three to four years in our industry, especially in cities and resort markets. That will offer a great long runway for occupancy and rate growth. Hotel stats are at low levels and will be for at least another year. Rooms under construction are declining, and development costs have climbed dramatically in the last two years. Any large new hotel development, like urban high-rise hotels or resorts, are now taking 36 to 42 months to complete from the ground breaking. Replacement costs have increased by 25% to 35%, with a 20% increase in 2021 alone. Urban and resort land costs have also climbed significantly. Our portfolio's replacement costs have increased to between $700 and $750 per key. When we evaluate performance in our portfolio, our resorts continue to lead the way, particularly those in the Southeast, which are on pace to far exceed their EBITDA in 2019. For Q4, those Southeast resorts exceeded Q4 2019 by $8 million or 61%. All 11 resorts combined are on pace to achieve a trailing 12-month same-property EBITDA by the end of Q1 of approximately $150 million, an increase of $32 million or 27% from 2019. In Q4, combined EBITDA from all 11 resorts exceeded Q4 '19 by $11.2 million or 54%, with ADR up $109 or 43% and RevPAR climbing $37 higher or 20%. We continue to focus on pricing power and the lack of pricing resistance, not just for rooms, but for food and beverage, banquets and catering, parking, resort fees, and service charges. This focus will assist us in returning to 2019 bottom line numbers sooner. July 2021 was the first month we exceeded 2019 rates. Q4 2021 was the first quarter we exceeded 2019 rates. Now we are increasingly confident that 2022 will be the first full year exceeding 2019 rates while regaining occupancy from business travel throughout the year. In Q1, January is estimated to have exceeded 2019 same-property ADR by over $25 and more than 10%. February ADR is projected to exceed 2019 by roughly $50 or 20%, with approximately $16 or seven points of it due to Super Bowl. March seems poised to also exceed 2019 by 10% or more. Our acquisitions have far surpassed our underwriting, with excellent annualized 2021 returns: a 7.2% NOI yield for Margaritaville, an 8% NOI yield for Jekyll Island Club Resort, and 3.4% for Estancia La Jolla. For the trailing 12 months through Q1 this year, we forecast Margaritaville at 8.4%, Jekyll at 8%, and Estancia at 4.6%. This is before any physical improvements but includes the benefits from operating changes we've already implemented with our operators. As Ray noted, we've invested nearly $350 million in transformational redevelopments and major renovations in 24 properties since 2018, and we're observing a substantial increase in performance from these projects. We're already noticing it at our resorts where demand has recovered. Beyond these major projects, we also have smaller ROI projects scattered throughout the portfolio, such as converting the rooftop pool at Revere in Boston into additional event space and adding a resort pool at Chaminade Resort in the Santa Cruz mountains to evolve this former conference center into a more amenity-focused leisure and group destination. Additionally, we're adding a new lease restaurant at Mondrian in West Hollywood, completing the property's recent $19.5 million redevelopment to restore it to its former glory on Sunset Boulevard. We're also undertaking a comprehensive rooms renovation at Viceroy Santa Monica, completing a $115,000 per key or $19.5 million repositioning of the luxury urban resort. We are also adding five keys at Le Méridien Delfina Santa Monica, turning unused storage rooms and offices into guest rooms. Finally, we are working on two major multiyear projects at Skamania Lodge in the Columbia River Gorge and Chaminade Resort in Santa Cruz, both involving master planning of significant unused acreage at former conference centers. We believe we can add several hundred units of alternative lodging, including tree houses, glamping, luxury RV spaces, cabins, and villas, alongside additional outdoor activities. This year, we commence with a $10 million to $12 million investment at Skamania, adding three additional treehouses, five luxury glamping units, a multi-bedroom villa, and an outdoor pavilion to host business and social events adjacent to our popular 18-hole putting course. As you can see, we're feeling optimistic. Let’s move to the Q&A portion of our call.

Thank you. Ladies and gentlemen, the floor is now open for questions. In the interest of time, we do ask that you please limit yourself to one question, with one follow-up. Our first question today is coming from Gregory Miller of Truist.

Thanks. Good morning. I look to start off by asking about San Francisco, as investors remain focused on your exposure there. Jon, I learned yesterday evening that you were with Park Hotels CEO, Tom Baltimore, meeting with city leaders. Could you share your latest views on the hotel market and your portfolio there?

Sure. Hey, thanks, Greg. So yes, Tom Baltimore and I went to San Francisco in mid-December for a meeting arranged by the California Hotel and Lodging Association. We met with the Mayor and the Chief of Police, along with the head of economic development for San Francisco, having a lot of conversations both before and after that. I went into the meeting extremely skeptical, concerned that the Mayor's newly rejuvenated focus was related more to the mass smash-and-grab incidents that took place in Union Square in early December. I was worried they weren't really paying attention to the issues related to deteriorating quality of life on the streets in San Francisco over the last five years. However, I think both Tom and I walked away feeling that there has been a first step in addressing the problem, as the Mayor seems highly focused on fixing San Francisco and turning around the deterioration that has occurred. It's encouraging that she recognized the problem and is now making bold steps, especially since the local population is expressing their frustrations. Two weeks after our meeting, she announced a state of emergency for the Tenderloin District, allowing her to make changes concerning mental health assistance, drug issues, and crime without being hindered by local bureaucratic rules. Shortly after that, she put forth a supplemental budget request for additional police funding, which had been reduced previously. So it appears that she understands the issues, and the Police Chief, who is short-handed, is also becoming more active. I think the political environment is changing, with significant dissatisfaction expressed by the local population driving this change. There are significant budget dollars earmarked for mental health and homelessness. It may take some time to restore the city, but given the underlying economy, with nearly 100 IPOs last year and a significant portion of venture capital directed towards the Bay Area, we believe San Francisco remains a great long-term opportunity—provided they fix their issues, which we're encouraged by as we see these first steps.

It does. I think it was very helpful for all of us to get an update. Switching gears on my follow-up question, I thought I would also ask you about the margin discussion that was in your prepared remarks and related to ADR growth. The significant room rate growth that you have spoken to for several quarters is clearly materializing. However, I sensed from the prepared remarks that the 100 to 200 basis point margin gains above pre-pandemic levels appear to be driven more by operating savings, not by profit flow from room rate gains. Could you provide your latest insights on how we should balance top-line growth, particularly from room rates, with your long-term profit expectations?

Sure. It's one of the more complicated questions because the idea of discussing margins compared to 2019 is a moving target with a lot of variables. We've been trying to convey that costs have been reduced by 100 to 200 basis points permanently from our hotels' operating models. What does that mean? That clustering we did took out at least 50 basis points. For instance, we combined Westin Copley and W in Boston under one executive team, resulting in approximately $1 million in permanent savings for both properties. We've extended our efforts deeper into executive functions—managing revenue, engineering, finance, accounting, HR, and food and beverage across multiple properties. This approach enhances hiring and training of better quality staff, while allowing for increased efficiency, especially during slower periods. We also leveraged technology to eliminate unnecessary expenses, enhancing our operating model. However, we recognize that it may be challenging to model overall margins moving forward. We believe that rate growth flows at about 75%, while occupancy flows at about 65% or even 60%, depending on the property. Given a reasonably normal length of macroeconomic growth cycle, we anticipate peaking at higher margins and profit per key than previous cycles. We focus on growing hotel EBITDA while determining how we can expand it rather than obsessing over margin numbers.

Greg, just to add to Jon's comments, our focus is really more on how to grow hotel EBITDA and ensuring we can eliminate 100 to 200 basis points from our operating model. This approach revolves around a bottom-up buildup versus a top-down perspective. So we primarily look at EBITDA growth, exploring how we can remerchandise underutilized spaces or add additional amenities, which ultimately generates growth in EBITDA, rather than fixating on margins which will be a by-product.

Those are very fair points. I appreciate the detailed responses, especially on these complex topics. Thanks.

Good morning, guys. I have one for Ray and one for Jon, assuming Jon's still in the room. Earlier, Jon mentioned resort fees, and I'm curious about the total resort fee income in 2021, how that compared to 2019, and how you think about the growth of those fees going forward. How important is this growth in resort fees for you to achieve your goal of 100 to 200 basis points of higher margins this cycle?

Anything related to resort or guest amenity fees is distinct from the 100 to 200 basis point increase; that’s a separate matter. Overall, they are a significant part of total revenue. However, as we look at our properties, we have various amenities and services included in guest amenity fees. We don’t want to delve into specific details, but it's worth mentioning that we see brands becoming more receptive to this. Between Marriott and others, there is now a growing acceptance of these fees, which I believe will positively impact the upcoming cycle.

Resort fees have become more accepted by customers. While they may have initially been grudgingly accepted, customers now see the value in them. We try to ensure that there's four to five times worth of value for every dollar charged with these guest amenity fees—whether in resort markets or urban properties. Our focus remains on providing value to the customer.

Jon, were resort fees 20% of your total revenue last year or what's your percentage on a comparative basis to 2019?

No, we don’t break out those revenues, just as we don’t separate other revenue streams. However, they are an important component, and they account for a relatively small percentage of overall revenue, likely in the 3%-4% range. There’s been a notable transition from investors toward leisure destinations and resorts lately during the last 12-18 months. Discussions indicate that while leisure remains critical, investors are also transitioning to urban markets. Many private equity funds and high net worth individuals are looking for urban investments, believing perhaps the worst is behind us. While there isn’t enough data yet, we see an emergence of conviction and will likely see increased activity in urban markets this year.

Urban markets differ from Sunbelt and resort markets, where obtaining loans remains a challenge. It’s still difficult for urban CBD locations to attract enough deep lending pools for transactions. Many buyers, who may otherwise use all-cash purchases, require financing to proceed with urban assets, leading to more obstacles.

Hi, thanks for taking my question. I wanted to ask what you're doing regarding housekeeping, as that is a significant part of expenses. Can you comment on what you’re experiencing in non-branded hotels and what the messaging has been at branded hotels?

At our higher-end properties, luxury, and resorts that can command healthy rates, we fully restored services quite some time ago. Customers paying $500 or more expect full service. Interestingly, room service returned during the pandemic at our properties. We’ve adjusted how we offer room service to be more like typical delivery. The structure around branded properties varies; while some brands have opted in for services during stays, others take an opt-out approach. Our portfolio is doing well in tailoring services based on customer preferences, as evidenced by our increasing Tripadvisor rankings.

That was it from us. Thank you. I appreciate it.

Thanks. Good morning, everyone. I have a two-part question. First, I assume your $30 to $35 per share NAV still holds. Regarding your replacement cost estimate, how do you triangulate that $700,000 to $750,000 key number versus what's implied by the mid to high $500 range? How does this drive your view of value?

Yes, we believe our NAV range still holds. We have not adjusted it, particularly due to transaction movements in leisure properties, considering where cash flows have moved. We also want more data on urban market transactions, as we’re expecting some rapid recovery in business travel over the next few months. Replacement costs have become a significant factor since they provide protection against new supply in any given market, and these replacements have increased by 25% to 35%. They guide us in both values versus recreation in the market, which leads to overall benefits in investment decisions.

Thanks for taking my question. About the NAV, there's noticeable investor comfort with resorts but uncertainty in urban transactions. What does the sustainability of your resorts' value look like? Would that tendency stabilize or keep rising as you market rates increase?

There are many dynamics at play. Our assessment suggests significant growth and recovery in leisure-focused properties, along with some structural changes enhancing pricing consistency. More of our comparative gains have been from market share rather than recovery of prior pricing, serving as a permanent adjustment reflecting renovation investments we’ve made. For us, we believe there will be increased stability as prices remain competitive. While caps are higher now than they were pre-pandemic, property values should align with improved cash flows.

Does this suggest a higher allocation of capital towards resorts, or do you pivot towards more urban exposures?

We assess properties based on risks and returns, in markets where we believe we can add value. Whether in urban or resort markets, our focus remains on unique assets allowing transformation and elevation in service. We are not solely directed by the current trend but evaluate each opportunity.

Hey, everyone. Thanks for taking my question. Jon and Ray, regarding observation on business rates versus leisure rates, I understand you stated that overall rate still reflects health in growth. Can you elaborate on how those segments are positively impacting pricing—especially as you fill in mid-week gaps?

Certainly, Shaun. Business transient and leisure rates have been climbing uniformly. As well as we’ve recently emphasized, total rates are on upward trends. In our data monitoring, the ADR for urban properties has noticeably improved month over month, with a robust rate push moving forward. When we reached December, the urban rates had an almost 2% increase year-over-year compared to December 2019. Even in January, we can observe a rising flow in ADR. Notably, as business transient picks up, we anticipate seeing a notable growth in rates.

Given the companies’ substantial rate increases, are you noticing any consumer fatigue by President's Day? Are consumers still getting value in this range and expecting high service levels?

President's Day performed exceptionally well across all metrics. Rates spiked significantly, coupled with occupancy. We achieved around 69.9% occupancy on Saturday night while maintaining occupancy in the 60s for Friday and Sunday nights. This indicates a thriving market and, as we anticipate, continued growth for the foreseeable future.

If anyone hasn't booked their spring break yet, I encourage you to consider our resorts.

Ladies and gentlemen, thank you for your participation and interest in Pebblebrook Hotel. You may disconnect your lines and end the webcast now. Enjoy the rest of your day.