Greetings and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Conference Call. All participants are currently in a listen-only mode. This conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Chief Financial Officer. Thank you. Please proceed.

Thank you, Donna, and good morning everyone. Welcome to our second quarter 2022 earnings call and webcast. Joining me today are Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Chief Investment 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 our SEC filings, and future results could differ materially from those implied by our comments today. Forward-looking statements that we make today are effective for today, July 27, 2022, and we undertake no duty to update them later. We'll discuss non-GAAP financial measures on today's call, and we provide reconciliations of these non-GAAP financial measures on our website at pebblebrookhotels.com. Last night, we reported our very favorable Q2 results. Faster growth than we expected in business travel, both group and transient, coupled with continuing robust leisure demand allowed us to significantly exceed our expectations from 90 days ago. Our urban properties led the upside. Second quarter adjusted Funds From Operations of $0.72 per share was $0.09 above the top end of our outlook and 83% of Q2 2019's AFFO. This represents a dramatic improvement to both last year when we had negative AFFO of $0.10 per share in Q1, which was just 23% of Q1 2019. This strong performance was driven by the hard and intelligent work of our hotel operating teams, management companies, and asset managers. We thank each of them for their great effort and achievements in the quarter. On the revenue side, same-property RevPAR came within 5% of Q2 2019, even though occupancy was down 20%, showing a sizable demand recovery opportunity we still have ahead. Average daily rate climbed a very strong 18.7%, compared to Q2 2019. Non-room revenue per occupied room rose an even stronger 25.1%, and total revenue per occupied room increased by 20.8%, all representing an acceleration from Q1's growth rates. These revenue increases demonstrate our sustainability to take room and non-room price increases across the portfolio, which are offsetting operating cost increases. Same-property revenues recovered to 96.9% of 2019 levels, despite occupancy at 69.4% versus 86.7% in Q2 2019. Same-property hotel EBITDA recovered to 94.7% of Q2 2019, which marks our best quarter compared to 2019 since the pandemic. Even more encouraging were the rapidly improving demand trends as the quarter progressed throughout our urban markets from both the business and leisure demand segments. In Q1, our urban hotels ran an occupancy of 45%. In April and May, we experienced a rapid improvement in demand in both business and leisure with both group and transient, driving occupancies up to 65% for both months with another significant step-up in occupancy in June to 72%. For July, we're forecasting occupancy at around 70% or more for urban hotels, down slightly from June as business travel has historically been slower during the heavy summer vacation season in July and August. It does appear that historical seasonal demand patterns, including weekday versus weekend demand, are returning as business travel recovers. For example, we are now experiencing slightly softer occupancy levels, especially from business travel around the weeks of major 3-day holidays like Memorial Day and July 4. This is a reversal from last year when the 3-day holidays represented a more substantial period of hotel demand, given the lackluster level of weekday business travel last year. Driving into the occupancy improvement from Q1 to Q2, Boston improved from 68% in Q1 to 87% in Q2. San Diego from 61% to 78%, Philadelphia from 46% to 72%, Chicago from 28% to 66%, Seattle from 31% to 64%, DC from 27% to 63%, and San Francisco from 24% to 50%. Weekday occupancy at urban hotels, which is a good proxy for business demand, increased to 66.9% in Q2, representing a dramatic improvement from Q1's 43.4%. It's still down about 20 percentage points to 2019, which represents a significant opportunity for further recovery as we head into the prime business travel season in the fall. Weekend occupancy at our urban hotels rose to 73.3% in Q2 compared with 54.4% in Q1. Again, a very encouraging sequential improvement quarter-to-quarter, representative of the domestic and international leisure customers beginning to return to the major cities. At our resorts, we continue to experience robust demand with occupancy at 71% for Q2 compared with 78% in Q2 2019, so down just 7 percentage points, due to normal seasonality. This is a significant sequential improvement from Q1 when we were down 13 percentage points. Our same-property room rates at our urban hotels increased rapidly during the second quarter, growing 22.2% from $234 in Q1 to $286 in Q2. ADR for urban markets in total exceeded Q2 2019 by $19 or 7.2%, and many of our urban markets' ADR exceeded Q2 2019, including Miami, L.A., Boston, San Diego, D.C., and San Francisco, which is a market that probably surprises some of our investors. Weekday ADR at our urban hotels is $279, slightly exceeding Q2 2019, and the first quarter that urban weekday ADR exceeded a comparable quarter in 2019. Weekend ADR was $281, surpassing 2019 by over $40 or 17.4%. This overall increase in demand and pricing continues to be extremely encouraging, especially since our urban markets saw a lot of demand recovery, which we expect will continue throughout the year. At our resorts, despite more difficult year-over-year comparisons in several reserve markets such as South Florida, Q2 ADR was $427, which was up 54% compared to Q2 2019 and a substantial 16% over Q2 last year. These powerful pricing trends are continuing into July, which historically is one of the strongest leisure demand months of the year. Same-property hotel EBITDA for Q2 was $138.8 million, down just 5.3% compared to Q2 2019, despite occupancy being about 20 points below 2019. Resulting same-property hotel EBITDA margins for Q2 were down just 83 basis points compared with Q2 2019, mainly due to increased fixed expenses, including property taxes and insurance, which increased 12%, negatively impacting margins by about 100 basis points. Excluding these fixed expenses, hotel EBITDA margins actually increased by 20 basis points compared with the second quarter of 2019. We're pleased with these results given occupancy is still only 80% recovered to 2019 levels. The ability to expand our same-property EBITDA profit margins as occupancy recovers highlights the significant upside going forward as more business travel returns with favorable operating leverage yet to be realized in our portfolio. This also underscores the revised business models at our hotels. Our properties are more operationally and technologically efficient, mitigating operating cost increases in this inflationary environment. As a result of these much better than forecasted hotel operating results, our adjusted EBITDA climbed to $128.8 million, 83.8% recovered versus Q2 2019 and $10.3 million above the top end of our Q2 outlook. As we look forward to the third quarter, the improving business travel demand trends are continuing. There seems to be plenty of pent-up demand for meetings. Corporate group bookings, leads, and site visits remain healthy. We're closely monitoring the overall business and leisure consumer behavior and yet to see any pullback in demand. Future booking pace and room rates are very encouraging. We continue to expect ADRs to be far higher than 2019 for all of 2022 led by our resorts, but with an increasing number of urban markets climbing above 2019 as the year progresses. Based on current trends and increasing visibility of business on the books, our current outlook for Q3 versus 2019 is for RevPAR to be down just 5% to 8% and up 32.5% to 36.8% compared to Q3 2021. Given economic indicators that are showing signs of slowing, while we haven't seen any indication of a slowdown in the travel recovery, we're being significantly responsible for our Q3 outlook. Adjusted EBITDA is expected to be down just 12% to 19% compared to Q3 2019 and up 93% to 110% over Q3 2021. This outlook is better than we expected 90 days ago, reviewing the improving hotel demand and overall travel environment, despite heightened concerns about the economic slowdown. Our Q3 outlook for RevPAR, same-property hotel EBITDA, adjusted EBITDA, and adjusted FFO removed the three properties we currently have under contract as we assume these hotels are sold during the quarter. Shifting to our capital improvement program, we remain on track to invest $100 million to $120 million in the portfolio in 2022 with approximately $80 million targeted for a number of ROI redevelopment projects, which we expect would generate cash and returns of 10% or higher when these transformed and re-merchandized hotels and resorts stabilize over the next two to three years. Jon will provide additional color into some of these projects later on our call. On the investment side, on May 11, we acquired the luxurious Inn on Fifth in Naples, Florida for $156 million. And on June 23, we acquired Gurney’s Newport Resort & Marina for $134 million. Both of these resorts have held the trailing 12-month NOI yields, with the Inn on Fifth at 7%, Gurney’s Newport at 7.1%. Looking at our 2021 acquisitions, they are all exceeding our underwriting and more importantly, they are already generating robust trailing 12-month NOI yields. Margaritaville Hotel Beach Resort has hit 9.8%, Jekyll Island is at 8.5%, Estancia at 7.4%, and the Key West B&Bs at 10% plus. We also made significant progress with our disposition plan. On June 28, we completed the sale of The Marker San Francisco for $77 million. We have also executed three separate purchase and sale agreements, which include hard money deposits with separate buyers for three of our urban hotels totaling $183.9 million in additional gross sales proceeds. We expect these sales to be completed during the third quarter, and we have additional properties on the market for sale. While the transaction market has gotten bumpier due to debt markets, and some deals are taking longer to close, quality assets like ours continue to be desired by the vast amount of equity looking to invest in the hotel industry. Turning to our balance sheet, we have no meaningful debt maturities until November 2023 and as of June 30 with approximately $560 million of liquidity, 75% of our debt was locked in with fixed interest rates, limiting the impact of rising interest rates on our cash flow. Finally, given the current improvement in demand trends, we have exited our covenant waiver period with our bank group. This marks another significant milestone in our road to recovery and substantially enhances our balance sheet and operating flexibility. Now, on that positive note, I'd like to turn the call over to Jon.

Thanks, Ray. As Ray indicated, the trends are very positive coming out of the second quarter and heading into the third quarter. For Pebblebrook, we're almost back to 2019 levels for both revenues and hotel EBITDA. This recovery and the prior recoveries following the Great Financial Recession, the 2001 recession and the events of 9/11, the great real estate collapse of the early 1990s, and the Fed-induced recession in the early 1980s have clearly demonstrated the incredible resilience of the hotel industry. After each recession, recoveries have led to record highs in hotel revenues and profits. This industry, while obviously much more volatile than other real estate sectors, always bounces back, sets new records relatively quickly, and due to its one-day leases and secular demand growth, has forever followed inflation and replacement costs higher. We see no reason for any different outcome this time, and this year's recovery firmly demonstrates our industry's incredible resilience. With replacement costs for our portfolio currently estimated in the $750,000 per key range, and with supply growth severely restricted by the pandemic, very limited availability of construction financing, and generally challenging economics for new builds, our industry and company have a very long runway to not only fully recover, but to again grow and hit new revenue and bottom line records. We expect the supply-constrained environment to last four or five years. And whether we soon have an economic slowdown or recession, it's just a matter of time before we hit these new records given these supply-restricted fundamentals. In addition, our performance is and will be further bolstered by the benefits coming from the significant investments we've made in our portfolio in the last several years, where we redeveloped, transformed, and repositioned properties, mostly from the LaSalle portfolio to higher quality levels with higher average rates and ultimately higher bottom lines. This is already being demonstrated by our overall ADR share growth in the portfolio, particularly at our resorts, where recovered demand levels have allowed us to price our repositioned properties substantially higher. For example, year to date, our resorts have gained on average over 1,700 basis points of ADR share over their market competitors, representing $57 more in rate or roughly one-third of the massive $171 ADR gain at our resorts since 2019. Gaining this extremely large amount of rate is obviously a big part of the reason for the large bottom line growth at our resorts over 2019 levels. It has already resulted in a very significant return on our investments in repositioning and transforming these resorts over the last few years. Year to date, our resorts, excluding Gurney’s and Inn on Fifth have gained $30 million more in EBITDA than the first half of 2019, and they're on pace to gain between $50 million and $60 million for the entire year. Our investments to redevelop, reposition, and upgrade these properties along with adding amenities and transforming and re-concepting restaurants and bars, and re-merchandising indoor and outdoor spaces totaled approximately $120 million. So, our return on these investments has already been very attractive, and there's more to come as these resorts have not yet stabilized. At LaPlaya, for example, where we invested $20 million to dramatically upgrade this property to its current luxury positioning, our EBITDA has grown from $16.5 million for the full year of 2018 to $33.5 million on a trailing 12-month basis through June 2022. The improvement in bottom line results at LaPlaya, like our other properties, comes not only from gaining significant rate share, in the case of LaPlaya, it's over 2,800 basis points versus 2019 or $129 of ADR, but the EBITDA increase also comes as a result of the improvements we made throughout the resort. This includes the restaurants, including Baleen, which is the main restaurant and bar, which now does over $17 million in revenues on an annual basis, as well as the Tiki Bar, retail outlet, spa, and the club restaurant and improvements to the meeting spaces and other venues. Non-room revenues at LaPlaya have grown from $24.7 million for the full year of 2018 to $36.7 million on a trailing 12-month basis through June 2022. Clearly, this almost 50% increase in non-room revenues is contributing substantially to the almost doubling of EBITDA of this property since 2018, even though we only just completed the full redevelopment last summer. Consider Mission Bay Resort where in the second quarter of 2020, we completed the repositioning of this former Hilton to a luxury independent resort through a two-phase $32 million redevelopment. As this property is just beginning to kick into gear this year, we've gained 680 basis points of rate share versus 2019 and we're building momentum as group returns in a big way. With the dramatic improvements in the public areas and additional outlets to drive increased non-room revenues, San Diego Mission Bay Resort grew non-room revenues by 49% in the second quarter from the same quarter of 2019. The rate improvement combined with a huge growth in non-room revenues led to 124% increase in EBITDA in the second quarter versus 2019. At L'Auberge Del Mar, where we recently completed a dramatic $11.7 million repositioning of the small luxury resort in the second quarter of 2021, we've gained over 3,100 basis points of ADR share versus our luxury competitors or $115 so far this year compared to the first half of 2019. Combined with our substantial improvements to our public areas and the addition and re-concepting of all restaurant and bar outlets, which have also substantially increased our non-room revenues, EBITDA in Q2 grew by 76% compared to the second quarter of 2019. Take Chaminade, where we just completed a $3 million resort pool which we added to our existing pool and follows 2020’s dramatic repositioning of the resort's public areas, meeting space, restaurant and bar, outdoor event spaces, and wedding venues into a luxury product. Chaminade has already gained 920 basis points of rate share year to date, and food and beverage revenues have grown 49% so far this year, altogether delivering growth of 107% in EBITDA versus the first half of 2019. As this property begins to ramp up from its repositioning over the next few years, it presents a huge opportunity for growth. Every one of our resorts, with the exception of Inn on Fifth and Gurney’s Newport, which we just acquired, all of them have gained significant rate share so far in 2022 and all have done so as a result of the significant investments we've made in transforming and upgrading them. Even Jekyll Island Club Resort, where we haven't yet started our redevelopment has gained significant share due to a repositioning opportunity we recognized when acquiring this very unique property. There's a lot more upside to come as we commence our redevelopment this winter. The property investments we've made that drive upside in our bottom line haven't been limited to our resorts. In 2020, we completely renovated both the Embassy Suites and Westin Gaslamp in Downtown San Diego through $34 million in total upgrades between the two properties and we're just beginning to see significant benefits at both of these properties as citywide and group meetings return in a meaningful way. We expect to gain 700 to 1,000 basis points of rate share upon stabilization. In the second quarter of 2020, we also completed the $12.5 million transformation and upgrading of Le Parc Suites in West Hollywood, one of our three all-suite West Hollywood hotels. Year-to-date rate is up 23% or $57 versus 2019 at $307 for the first six months and we're gaining ground on our competitors. For the first quarter since the redevelopment was completed, that being the second quarter, Le Parc’s Q2 EBITDA exceeded Q2 2019 in this case by 10%. Also in West Hollywood, in late March, we completed a $6 million transformation of the 108-room Grafton on Sunset to Hotel Ziggy, the newest member of our unofficial Z Collection. While we're really just getting going, the reviews and customer response at this unique music-focused hotel and venue have been off the charts, so to speak. In our first quarter since the completion and conversion, our ADR has already climbed $45 or 22% compared to 2019. In the second quarter of 2020, we also completed $43.5 million worth of major redevelopments at Viceroy Santa Monica and what are now Hotel Zena DC and Viceroy DC. These three hotels are still in the early stage of their ramp-up, but the new products have been very well received, and all have significant upside as demand returns to these markets, giving us an opportunity to push rates and gain share. Santa Monica's faster market recovery is allowing us to achieve significant improvement at the Viceroy Santa Monica as its rate is up 22% or $82 in the first half of this year compared to 2019. Most recently, we completed the $28 million redevelopment transformation and conversion of Hotel Vitale into the luxury and eco-focused 1 Hotel San Francisco. We reopened the hotel on June 1. The hotel is ramping quite rapidly with occupancy growing from 28% in June to the low to mid-40s here in July with further increases expected through August, September, and the rest of the year. Most impressive and encouraging has been the rate growth we've already achieved. So far, average rates are over $100 higher than in 2019 as we're now competing head-to-head with the luxury set in San Francisco. As demand continues to recover, we feel confident that this hotel will achieve an outstanding return on our $28 million. In addition to the future upside from the 20-plus properties we've transformed and repositioned higher in the last several years, as these properties ramp up to stabilization, we have significant additional upside from the major upcoming redevelopments of some of our recent acquisitions, including Jekyll Island Club Resort in Georgia, Estancia La Jolla Hotel & Spa, Margaritaville Hollywood Resort, and Gurney's Newport Marina & Spa in Newport Rhode Island. These properties were obtained through the LaSalle acquisition. This includes the upcoming conversion of Hotel Solamar to Margaritaville Gaslamp District, the second and final phase of the Viceroy Santa Monica redevelopment, the Lifestyle Transformation of arguably the best-located hotel in downtown San Diego, Hilton Gaslamp District Hotel, and the conversion of Paradise Point Resort at Mission Bay San Diego to a Margaritaville Resort once our plans are approved, alongside the potential addition of hundreds of alternative lodging units and other facilities and amenities at both Skamania and Chaminade. In addition to the very significant upside from these major past, current, and future redevelopments and repositionings, as the recovery continues and we move to the growth phase of the economic cycle, whether next year or the year after, there is very significant operating leverage in our portfolio from the more efficient property-level operating models developed by our operating teams during the pandemic. We've also spent the last almost four years transforming our portfolio to a more balanced leisure and business customer mix, achieving a 50-50 balance through the past and upcoming sales in our urban markets, and the acquisition of a number of more leisure-focused resorts. Our portfolio transformation has been ongoing since we acquired LaSalle and sold roughly $1.6 billion of urban hotels from that portfolio. Finally, the acquisitions we've made this year are being financed by sales, including the recent sale of The Marker San Francisco for $77 million, the three properties currently under separate contracts to be sold for $183.9 million, which we announced yesterday, and additional properties that are on the market. We also funded half of the Inn on Fifth acquisition with $77 million of preferred units. We also expect to bring additional properties to market for sale later this year. At this point in time, we expect to be a net seller for the year. We're very optimistic about the future of our business. We've been very busy working hard to create value, which we believe we are doing successfully, and we're confident the investment community and the market will recognize the very large disconnect between the current public market value of our company, which seems to have already more than discounted moving into the potential danger zone of a recession, and the underlying private market value of our company based upon property values determined by real current transactions. Now, we'd love to move to the question-and-answer portion of our call. So, Donna, you may proceed.

Thanks. Good morning, guys. How are you thinking about your dividend, the 2023 debt maturities, and share repurchases as you consider a range of recession or slowdown scenarios over the next year? And in addition, the dispositions you just talked about.

Sure. Well, first of all, as we think about the dividend, that's more of a 2023 story than something that applies this year. As you know, we had some net operating losses that we're carrying forward from the last couple of years, which we have the opportunity to offset. So, that's one thing about the dividend; think about that more in terms of 2023. It also depends on the outlook of the economy at that point in time and other sales as well. On our debt maturities, we look at this on a long-term basis, not just our 2023 maturities, but maturities beyond that, and we feel very confident we'll be extending all those. As you know, we have great relationships with our banking group. They extended out a billion dollars of our debt during the pandemic. So, you should expect that we'll do the same as we have historically, and many of these big relationships have been in place for decades. So, that's also certainly a positive. Additionally, the world right now for the bank segment towards the hotel space is very positive; it's much better than it was 12 months ago. We have no concerns about any of those debt maturities upcoming now or in 2024.

And just the last piece on share repurchases.

Sure. As we go through it, as Jon noted, you should expect us to be funding the acquisitions that we completed this year with our dispositions. So, in addition to The Marker and the three coming up, we may have some additional sales. So that's funding the acquisitions and beyond that we’ll use that to reduce debt and then evaluate share purchases, again, depending on what the environment is and how our share price is at the time. We have about $150 million in share buyback that has been authorized by the Board, and we'll evaluate that, but similar to what we did in 2016 and 2017 when we balanced some sales with debt paydowns and/or stock repurchases, you should expect similar procedures this year.

Good morning. Probably ask about 2023 for what you can share. I know it's early, but I was curious about peak season winter 2023 for some of your warm weather leisure markets. You have benefited from considerable room rate growth post-pandemic, and I’m thinking about South Florida in particular, based on the current macro today, do you anticipate room rates in these leisure markets will rise at or above inflationary levels or operating cost levels in this upcoming winter? Thanks.

Hey, thanks, Greg. So, it's interesting when we look at what's on the books already in Q1 for South Florida, rates are up significantly on both the transient and the group side. Now, we don't have a huge amount of business on the books, but we do have a healthy amount of business in the first quarter, and a lot of people go to South Florida, that go to LaPlaya, that go to the Inn on Fifth, and re-book as soon as they leave for the following year. Certainly, it's very encouraging what we're seeing already in terms of rates in South Florida and frankly for the whole portfolio next year. One of the things we noted in the last call, but it's worth emphasizing again because the group rates for next year continue to increase, particularly at the resorts. We've had a very wide gap created in the last year between transient rates and group rates. This has led to meaningful increases in group rates as we look into next year for those properties. We do feel confident that rate increases are going to continue well into next year, if not all of next year. We do think that's going to happen in the Southeast as well.

Hey, good morning. Thanks. Hey, Jon. I think in hindsight, it's pretty easy to see that e-commerce spiked during the pandemic and is now in the process of normalizing—a kind of painful normalization, I guess? Is lodging going through the same thing? Are we just having a post-pandemic spike that is going to normalize whether it's 2023 or 2024?

Well, there's, I guess, you mean, is it a pull forward of…

Spending and lodging in particular on the rate front? Are we just getting more than our fair share as a part of the economy and we're going to give that back to more normalized travel spending as a part of the overall economy going forward?

Yes. I don't think so, Bill. I think, in fact, what we're partly dealing with right now is pent-up demand from people who haven't traveled, but if you look at the overall demand levels, they're not at 2019 levels yet. In fact, we're nowhere near 2019 levels on both the business travel side and the international travel side. So, I think actually we will be normalizing over the next year to 18 months, but we think it's more normalizing to higher demand levels, which will actually continue to put pressure on rates and pricing. Particularly as you look at this environment, not only over the next two years, but as I mentioned in my comments, we have a pretty long runway of opportunity to grow rates in this industry due to a severely supply-constrained environment over that period of time. The more difficult the debt markets have gotten, the more challenging it's been to obtain construction financing to initiate anything new, even if one can make sense of those economics with these much higher development costs today. Thus, I don't think it's the same; we'd love to have the same boom over the next 18 months that they had on the e-commerce side over the last 18 months.

If I could just follow up, it was a question for Ray. I think Ray in your prepared remarks, you talked about responsible guidance for the third quarter. I guess given the macro clouds up there—I think that's what you said. I'm just curious, you've got July pretty much in the books. August seems like it should be just leisure-driven, pretty good month. So, is it really September, which is the biggest contributor, I believe, to the third quarter that causes you consternation or how much conservatism is there in your Q3 outlook?

Sure. Well, yes, as we get to August, as you know, down in Florida, you guys started to go to school in early August now these days. So, there's a lot of–there's a transition from a leisure focus heavy in the first half of July and half of August today, transitioning to back to business travel, back to school and those things. So, we expect in August will give up a couple of points of occupancy, three to four, versus where I think we'll be for July, but then we'll come back with September, coming back into a little late Labor Day this year. What we're seeing right now in business travel is very encouraging. So, part of this is just to be, you're right, be conservative in an environment that there is uncertainty. Again, we're not seeing any change in booking behavior or pullback in pricing. So, again, it's encouraging for what it's worth. Realize we have a pretty short booking window here where most of it is inside of like 30 and 60 days, but given what we're seeing right now, you should not interpret that in a negative light in regard to our outlook for RevPAR looking to decline 5 to 8%. We expect no decline in overall demand trends as it's just a transition and seasonality as we get into the good fall season.

Hey, Bill. The other thing I'd add, and it's totally an appropriate question. I'm sure others might have asked it, is July benefits from five weekends this year compared to 2019 when it had four? The weekends are clearly stronger, and they're particularly stronger in July, which is the strongest leisure month. Then we move to August. As Ray said, we're moving back to normal seasonal patterns, both from a seasonality perspective and from a weekday pattern perspective. So August flips the other way. We actually had five weekends in 2019 in August, and we only have four in August of this year. The double flip kind of hurts on a comparative basis a little bit. The other thing is September has a slightly late Labor Day, which historically has hurt business travel return. As we've indicated, we've gone back to these normal patterns where the weeks around holidays are actually softer because of the impact on business travel, which was typical pre-pandemic. The holiday doesn't help September. In addition to that, we have a Jewish holiday in September, which was not the case back in 2019 when we had two of them in October. So, we're just being prudent as it relates to how the comparisons work to 2019, and October should benefit from that holiday shift.

Great color. I appreciate it. Thank you.

Hey, everyone. Good morning. Thank you. My question is on the capital allocation decisions, specifically the urban hotels you mentioned you were selling. Obviously, you've been cycling significantly into resorts exclusively, and then selling urban hotels. You talked about three additional hotels coming up. I saw some news about that one being one of them. I was wondering if you can give any color on the source of hotels or markets that the other two are going to be in and you mentioned potentially another set later in the year? Can you just maybe talk about that? And then really what does that say, Jon, about your view on urban either recovery or a longer-term operating dynamic versus sort of domestic leisure, just based on where you've been putting your money?

Sure. So, I can't provide you any additional color on either the markets or the individual properties that constitute the three that are under contract or what else is on the market right now. When we will provide you that color along with the math and the financials when those transactions actually close. We're trying to be sensitive to the buyers and our responsibilities under our agreements in these particular cases, but we'll give you all that detail soon enough when those transactions ultimately close. I think the overall capital allocation question brings us really to what we've been talking about or trying to find a more even balance between business travel overall and leisure travel overall, which we believe will continue to grow over the long term, but we—when you think about the resorts that we bought, it's not that they're all leisure-focused; they're not, in fact, many of them do a very large amount of group business, a significant part of which is business travel. So, it's not as if we're assuming properties that cater to business customers. It's not the case, but we are trying to get more to a 50/50 balance of segmentation within our portfolio because we think on a risk basis, the portfolio will perform better through the ups and downs of the cycles.

Okay. So, it's less about a call on a specific market or the drivers within those markets or the fundamentals that would support travel pre-versus post-COVID and more of that mix is being at the top of the list of rationale for the decisions?

Yes.

Thank you, and good morning. Maybe just following up on that last question, if you can talk a little bit about what's happening with pricing in the transaction market and if you could tie that into the cap rate in your NAV, which remained unchanged overall even if there were some markets that changed a little bit here or there?

Sure. Tom, you want to handle the first part of that?

Yes. I mean, I think as it relates to pricing, you have to be careful to talk just in general terms. Everything right now, there's a lot of capital available in the system. It's a very market-by-market, asset-by-asset focus. When you look at it, for example, Jon, Ray, and I spent a lot of time on our NAV. We made adjustments to that. We made downward adjustments in markets that are kind of later to recover, including San Francisco and DC, while making some minor increases in markets like San Diego, which is probably one of the most attractive investment markets today. Given the fact that the debt markets are challenging, what you're seeing is many lenders out there, more of the debt funds, may have lower proceeds, higher debt costs, higher coupon costs, but what you're seeing is more conviction in the operating recovery. There's that friction where I think people are having, you know, feeling better about the future while factoring in more normalized financing moving forward as it relates to their underwriting. I think generally, though, if there is an impact on pricing, you're not seeing it on select service or resorts; you might see it in some of the urban markets, but it's anywhere from quite frankly, very nominal from 1% to maybe a massive 5%.

Yes. So, it's a headwind and a tailwind, Aryeh. It's the tailwind from consistently improving performance, particularly big jumps in the urban markets against a more expensive debt market until it stabilizes. So, and likely to stabilize at a more expensive level than where it was 12 months ago.

Okay. Thanks. And then just with regards to real estate taxes, it was higher than we had expected; what kind of outlook are there moving forward?

Yes. We're going to have a lot of fun in some of these cities, in places like Chicago where they actually have the values go up in the middle of the pandemic, which makes absolutely no sense. But we're going to be very aggressive in disputing some of these silly tax bills; we're going to appeal them. But look, a lot of cities have been using this pandemic as an opportunity to fund their other losses through that. It's going to be choppy in some of the areas that typically have had the tax challenges like Chicago. We will continue to appeal those and battle those. It will be less of an issue in markets like California because of Prop 13. We have to keep that in mind, but we'll watch that. It's a little spiky here and there, but hopefully we'll get some progress in some appeals within the coming quarters ahead.

Hi, thanks. I just wanted to ask a little bit about margin expectations since next year. I'm just looking specifically; you broke out from May and June results. It looks like as occupancy continues to normalize, it's sort of outstripping rate growth, and the June implied hotel margin declined a little bit from April. I don't want to get into monthly modeling, but I'm just thinking into next year, do you expect more that the RevPAR growth to be driven mainly by occupancies versus rates, and if so, maybe that has some kind of margin implications? Or could you just kind of talk to that a little bit?

Yes. I mean, I think you're going to see; we haven't provided an outlook for the fourth quarter, and our views going forward are a little more challenged than a normal environment, obviously. But I'd say, in general, Smedes, what I'd state is, you're more likely to see both recovery and occupancy, further recovery in demand and occupancy, particularly in the urban markets, though we still have a little way to go in the resorts as well. I think we'll continue to see significant rate increases. I don't think at the level that we're seeing this year necessarily, but I certainly think they're likely to be fairly significant next year. Like previous recoveries, particularly when supply ultimately becomes constrained, I think over the next few years, you'll see margins continue to improve and get to record levels pretty rapidly, particularly compared to prior recoveries.

And also, Smedes, we caution you about too much month-to-month data because there's a lot of factors that could go on. We could have a property tax appeal within some of those months that influence margins on the bottom line. It's a lot of factors, but overall the trend we feel good about. The other side is you also have to look at the revenue and how that's being driven. We talk a lot about the non-room spend, which is a very healthy 20%, 25% plus in the quarter. In fact, our food and beverage revenue in the second quarter was above that of the second quarter of 2019, and that's with 20 points less occupancy. Food and beverage has lower profit margins than rooms, but it still flows to the bottom line. Again, the margins are an indicator that we look at overall, but ultimately it's hotel EBITDA we aim to drive. It's very encouraging that we're seeing not just increases in the room side but also in non-room spend, which, while less profitable, contributes to EBITDA growth.

In significant addition to that, I mean, as discussed in my remarks, the redevelopments often include components that relate to re-merchandising both indoor and outdoor spaces and trying to create more revenue per square foot at our property. Again, it doesn't come necessarily at a higher margin level, particularly if it's food and beverage focused, but it does drive more EBITDA per key. So, as Ray said, that's really what we're focused on. Margins are a result obviously of all these things happening.

Okay. That's great. And then I just wanted to quickly ask you, are you could you just maybe touch on what you're seeing in terms of just, sort of wages and benefits pressure at the property level?

Yes. I mean, again, it varies by market. Our greatest increases are in the hourly cash categories at our properties, and within the hourly categories they are more intense in housekeeping and in the kitchen, and they're less intense in other jobs throughout the property. Overall, I'd say, we're probably seeing about 5% give or take in wage increases, smaller in the cities where really either in contract or following the contracts in the market.

Hey, good morning everyone. Maybe just a high-level question. You’ve covered a lot of ground already, but as we think about Pebblebrook's mix overall and obviously it's been shifting between resort and urban areas, could you just talk a little bit about, sort of the remaining recovery that's left in urban and how much or would that be enough to be able to offset some normalization in leisure, some of the leisure pricing that we've seen? Because I think one thing we hear a lot from investors is concerns around lapping some extraordinary comps and what we've seen on some of the resort markets. Jon, we know you put a lot of capital into this. So, there are reasons that you're seeing the rate gains that you've achieved, but even if that normalizes a little bit, is there enough urban recovery left for Pebblebrook here? Just help us kind of think about how those two pieces could fit together in a more stabilized 2023?

Yes, I mean, I actually think there's way more to continue to drive profitability. I think there's been a misconception; there's been a misconception or misbelief in pretty much everything we've said the last two years about pricing. A couple of things to consider: one is, I think resorts to some extent have structurally repriced, and I don't think that those rates are going to be given back. We're seeing very encouraging signs of that in Southeast Florida where demand has normalized out of season, and in season, rates continue to go up. Markets like the West Coast are far away from the kinds of increases we think are available in those markets. Southern California closed for part of the first quarter this year. When you add to that both the demand recovery still to happen in the resorts, particularly on the group side, which is replacing some transient, but it's coming with more food and beverage and other revenues, which continues to increase profitability. You will see at LaPlaya, and we gave you the trailing 12 numbers, but by the time we get to the end of the year, the EBITDA numbers are going to be substantially higher than the trailing 12 numbers. Most of our resorts are expected to see this trend as we go from $30 million over 2019 in the first half to $50 million to $60 million by the end of the year. There's a long way to go on the resort side, and clearly, the urban has a lot to go. Take San Francisco as a good example—a slow to recover market or even DC; both of those markets are ahead of 2019 from a rate perspective at this point. The approach to pricing, what customers are willing to pay, and the value of the product, I think we're going to continue to see further pricing opportunity within the portfolio as we get a significant recovery in occupancy. Well, it's very net accretive off of 2022 numbers. Well, on a trailing basis, or on a full-year basis, next year. It just depends on what you want to compare it to when you talk about accretion or dilution. We think the pivoting we've done out of these assets and others we've sold already into the assets we've bought; I mean Ray mentioned, the yields that we're already achieving at properties like Margaritaville, which is approaching 10%, Jekyll Island at 8.5%, and Estancia at 7.5%, etc. So, those are highly accretive to the assets that we've sold and that we are selling.

Thanks. Good morning, everyone. Just on group, could you maybe provide where the pace is for the second half of the year and then also 2023? And then is there any desire on the revenue management front to maybe group up more to offset a potentially softer transient environment over the coming quarters?

Yes, I mean, we have plenty of room for groups. So, I don't think we need to—we're not displacing anything; we're trying to drive as much group at the right prices and the right contribution to the bottom line as is out there in the marketplace. We're going to continue to maintain rate integrity. However, at our properties and our pace from a rate perspective, I think it’s up, what? 3% to 5% for the second half of the year in the group pace. One of the struggles we have now comparing back to 2019 is we don't have good data for a bunch of the resorts Mike, that we've bought more recently. We know obviously that pace is up substantially over 2019 at those properties, but what I can tell you is from a booking perspective, in the second quarter, we booked more revenue in group and, in fact, in group and transient in total than we did in Q2 of 2019 for the year. The booking pace has picked up substantially. April was the first month we exceeded 2019, and that improved throughout the quarter. Thanks, everyone, for participating. Out of respect for Hilton's call at 10:30, we've made a decision to limit any further questions. Have a great rest of the summer. We look forward to updating you throughout the quarter with our monthly updates, as well as in October when we provide third quarter performance.

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