Thank you, Donna, and good morning everyone. Welcome to our first quarter 2023 earnings call and webcast. Joining me today are Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher our Chief Investment Officer and Co-President. But before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our SEC filings, and future results could differ materially from those implied by our comments today. Forward-looking statements that we make today are effective only today, April 27, 2023, and we undertake no duty to update them later. We will 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. Our financial results exceeded our outlook for the first quarter. Adjusted EBITDA finished at $60.8 million increasing 30.9% from a year ago. Adjusted FFO was at $22.4 million with adjusted FFO per share of $0.18, a 67.3% improvement, and represented very significant progress from a year ago and a great start to the year, especially in many of our urban markets. We're pleased with our financial results despite cancellations and disruption from numerous winter storms, excessive rain coming from area rivers, and flooding that negatively impacted demand in many of our hotels and resorts during the quarter and knocked out approximately 80 guestrooms in Los Angeles, most of them not coming back into service until mid to late May. Our year-over-year revenue, EBITDA, and FFO would have been higher if not for the remediation and restoration of LaPlaya from Hurricane Ian and the disruption caused by the five significant redevelopments and repositioning taking place in the quarter. These two issues negatively impacted adjusted EBITDA and FFO by approximately $11 million, or about $0.09 per share. On the revenue side, same-property RevPAR increased 18.5% and non-room revenue increased 34.4%, exceeding the top end of our outlook, highlighting the robust out-of-room spend we continue to experience. Our overall comp increased 23.7%, at the high end of our Q1 outlook. The markets showing the most robust year-over-year growth were San Francisco, Washington DC, Portland, Seattle, and Chicago. Our San Francisco hotels generated a 117.5% increase in same-property RevPAR driven by occupancy rising to 46% versus 26% the prior year. Our San Francisco Hotel generated $3.5 million of EBITDA versus negative $2.4 million of EBITDA in Q1 '22, an outstanding $6 million improvement from last year. San Francisco benefited from several citywide groups that performed well, including JP Morgan Healthcare in January and the Game Developers Conference in March, as well as improved corporate transit and leisure demand in the city. Obviously, despite this significant improvement, San Francisco still has a long way to reach full recovery. A Washington DC hotel also exhibited strong improvement during the quarter over the prior year with same-property RevPAR up 126.6% as occupancy increased to 53%, up from 27% the previous year, and ADR rose 13%. We see a benefit from increased group business, group transient convention demand as well as slowly improving international demand. The administration's recent announcement encouraging federal workers to return to the office, if successful, would further boost hotel and restaurant demand in the market. We expect a solid second quarter. Our two key license reports continue to perform well, which typically shows year-over-year comparisons due to last year's quarter in Florida, which was one of the few states fully open for business during the concert. Four times in Florida, year-on-year challenges were primarily focused on Key West as well as your extended Naples, which was still impacted by a negative perception following Hurricane Ian. Margaritaville increased RevPAR by 5% and occupancy up 4% with ADR up 1%, and food and beverage revenues climbing by 14%. As group recovery and transit demand remain healthy, Margaritaville continues to outperform its Fort Lauderdale competitors and our expectations. Key West was our weakest market from a quarterly growth perspective; it declined 16.6%, primarily due to ADR being down 15.5% and occupancy down 130 basis points. We expected a pullback in Key West; the ADR is still up more than 37% versus the comparable period in 2019, with RevPAR up 22.1%. We expect that overall demand in these markets will return to 2019 levels, with ADR premiums remaining very significant to pre-pandemic price levels. As detailed in our last night's earnings release, we've made substantial progress in repairing, restoring, and reopening the plan. We'll be able to open the beach town rooms in Q1, with the Gulf tower partially opened in April. The overall resort is operating with limited services and amenities. But this is positive progress. Other hotels and high-rise apartments and condo buildings along the beach remain completely shuttered. In March, we had 19% occupancy, and in April, we expect to achieve 24-25% occupancy as public areas and services return. We expect this to improve throughout the year. We're currently forecasting the beach house to be restored and reopened by the end of the year. Rebuilding inside of that beach house is in progress; it's quite the process. As we saw last week when we toured our board meeting, our insurance carriers have provided approximately $8.1 million in business interruption income during the first quarter, slightly more than we assumed in our outlook. This amount is related to the fourth quarter of 2022 and does not represent the full amount of BI we expect to receive for Q4 of last year. Our Q2 outlook assumes we will receive approval from our insurance carriers for an additional $10 million in business interruption income, which we expect as the initial preliminary amount for last business for the first quarter of this year. Historically, Q2 is the seasonally strongest quarter, and we expect it to generate approximately $14 million in EBITDA for Q1 '23. Our BI has been reflected in adjusted EBITDA and FFO but not hotel EBITDA. This should be noted by our investors in their respective models. Today, we received approximately $35 million from our insurance providers to complete the necessary remediation, repair, and business interruption work. As we look at the second quarter, we haven't experienced any noticeable increase in cancellations or attrition related to concerns about the macroeconomic environment. Generally speaking, the cancellations and negative surprises we've experienced in 2023 have been weather-related, not economic. April same-property RevPAR is expected to be flat to down versus the prior year period, negatively impacted by the five redevelopments and repositioning of out-of-order rooms peaking in April and the storm that led to rooms being out of service affecting RevPAR as well. Our Q2 outlook for same-property RevPAR increases is projected at 1% to 4%, taking into account the disruption from these ongoing redevelopments which we estimate will negatively impact Q2 same-property RevPAR by approximately 150 basis points and total revenues by about $7.5 million and adjusted EBITDA by approximately $5.5 million. Our portfolio continues to narrow the gap to 2019 same-property revenues and EBITDA after adjusting for the impact of the hurricane and our renovations. Same-property EBITDA versus 2019 has improved from down 21% in Q4 '22 to down 8.3% in Q1, and based on the midpoint of our Q2 outlook, it is expected to be down just 8.8%. We have some one-time expenses related to the cleanup and remediation of our hotels in LA that were affected by the storms in Q1, plus increased energy and property insurance costs, which unfortunately are likely to persist for the balance of the year. Our revenues continue to improve as well as our property EBITDA despite some of these operational challenges. Shifting to our capital improvement plan, we completed approximately $26 million of investments during the quarter. The majority of these dollars represent investments in five significant redevelopments and repositioning, which Jon will discuss later. We continue to target investing $145 million to $155 million into the portfolio during 2023. On the investment side, we are very active. We sold three properties in the quarter: one in Portland, a retail parcel on Michigan Avenue, Chicago, and a hotel in Coral Gables generating $135.3 million of proceeds. As we highlighted in last night's earnings release, we also expect to complete the contracts to sell the Monaco Seattle for $63.3 million and another Seattle property for $33.7 million to third parties. We expect both sales to be completed later in the second quarter, subject to normal closing conditions. The net proceeds from our asset sales are being held as cash and will be used to reduce our net debt and for potential additional share repurchases. Since we reported in late February, we have repurchased an additional 3 million common shares, comprising $42 million of capital at an average share price of $13.96. Since October last year, when we commenced repurchases, we have utilized $124.6 million of capital to repurchase 8.5 million common shares or over 6% of the then existing common shares outstanding at an average share price of $14.64, representing a more than 50% discount to the midpoint of our NAV range. These common share repurchases increased our NAV by roughly $1 per share. As we sell additional properties, we will evaluate how to best utilize proceeds, including reducing debt or additional common and preferred share repurchases, depending on our outlook on the economy and how our performance progresses. If we use some portion of future proceeds to repurchase our securities, we will do so only while reducing our net debt on no worse than a leverage-neutral basis.

Thanks, Ray. I'd like to provide some color on the demand trends we have been seeing, where our growth is coming from, our booking trends and pace for Q2, and the rest of this year. I'll discuss the cost pressures we are experiencing. First, the demand trends. It's been just two months since we last reported our year-end earnings and trends, and we provided a mid-quarter update last month with performance through February, and March hasn't been any different. We haven't seen any changes in overall demand trends in our industry in the last 60 days. Business travel continues to recover both group and transient. Demand related to conventions is getting back to normal, and international inbound travel continues to improve with Europe closing in on pre-pandemic levels, while Asia is at the early stages of its recovery but has a long way to go. Leisure travel remains healthy, though with less exuberance than last year, when splurging on suites and upgrades was higher than historical norms. With the continuing recovery in business travel, our urban properties have benefited the most. Our urban market occupancy climbed over 10 points or 22.1% versus an Omicron-impacted first quarter last year, and ADR increased a strong 8.7%, bringing same-property RevPAR for our urban hotels to an increase of 32.8%. Non-room revenue growth was even higher at 53.1%, with increased prices and group demand driving this higher level of growth. Yet, with leisure and international travel still in the early stages of recovery in the cities, and business travel having a ways to go, we have significant occupancy and total revenue opportunities. Our urban market occupancy is still over 19 occupancy points, or 25% below the 2019 level. Some of this will be recovered after the three urban redevelopments are completed later in the second quarter. But most of it will be recovered as business, leisure, and international travel normalize at higher levels. The cities that led to first quarter recovery, as Ray indicated, included San Francisco, Washington DC, Chicago, Portland, and Seattle. We saw continued improvement in San Diego, Boston, and Los Angeles. Our West LA properties were up against a tough comp in Q1 with the Super Bowl in February last year. LA also experienced uniquely heavy and continuous rains throughout the quarter, which negatively impacted leisure travel. Yet we still grew RevPAR by 14.9%. Due to the continuing recovery in business travel, particularly entertainment, that helped drive a 15-point or 28% increase in occupancy in the quarter. We're still 10 points or 12.5% below 2019 occupancy. In San Diego, the first quarter was very strong in the market, benefiting from a robust convention calendar, though it too was negatively impacted by the never-ending heavy rains. We had two of our four downtown properties under redevelopment, Hilton Gaslamp and Solamar. As a result of this disruption, the Hilton lost almost 9 points of occupancy or 17%, while Solamar lost 7.8 points of occupancy or 14%. Comparatively, and as indicative of the market strength, our Western Gaslamp grew occupancy by 12 points, or 17%. And our Embassy Suites grew occupancy by 19.6 points, or 33%. The Western Gaslamp climbed all the way back to 2019's level due to its higher group segmentation. With overall ADR 22% higher than 2019, and the Embassy is still nine and a half points or 11% below 2019's occupancy, but with a rate of 10% higher. San Diego is our best-performing urban market, and it has an even better convention calendar next year. Our resorts performed well in the quarter, despite the year-over-year softness in Key West, and the continuous heavy rains have negatively impacted all six of our West Coast resorts. On the same-property basis, which excludes the LaPlaya, our resorts gained 6.6 points of occupancy or 12.1% growth while ADR declined by 11.7%, resulting in RevPAR down 1.1% year-over-year. As expected, the occupancy gains were driven by the recovery in group demand and some lower-rated trends in segments. The ADR decline resulted from the decline in Key West and the return to demand from some lower-rated channels. While group rates throughout increased at a healthy rate, our Q1 2023 same-property ADR for our resorts remained at a $126 premium, or 44% higher than Q1 2019. Our non-room revenue at our resorts also grew substantially in the quarter by 19.2%. This was primarily due to price increases we've taken and the recovery of group that drives significantly higher non-room revenue spend versus transient. Turning to our pace for Q2 and the rest of the year, it looks pretty good. In Q2, on a year-over-year basis, room nights on the books at the end of March were up 5.7%, group rate was up 6.1% and group revenues were up 12.1%. Total revenue pace for Q2 versus last year, including group and transient, was up 4.9%, with rate representing 2.1% growth. For the entire rest of the year, including Q2 through Q4, group room night paces ahead of last year by a strong 10.3%. Group ADR is up by 8.7% and group revenue paces ahead by 20%. Factoring in group and transient and looking at the total pace for the remainder of the year, total room nights are up by 8%, ADR is ahead by 3.9%, and total revenues are up by 12.2%. Q2 year-over-year total room revenue pace is the weakest of the year. It improves in Q3 and then further in Q4. This is encouraging considering the current concerns about an economic slowdown or recession later this year, which we certainly do not yet see in our pace for the rest of the year. However, we should all remember that in the hotel business, it's good until it's not, meaning it can turn very quickly and business on the books can cancel as well. Outside of the positive demand trends, we're experiencing a challenging cost environment. While we believe the rate of growth in wages and benefits is normalizing this year and generally following inflation, we have significantly restaffed our property teams over the last six months. Total staffing costs versus last year have been and will remain a challenge through September. In addition, as food and beverage and other services volumes, like spa services recover, significant marginal expenses also recover. At this time, we're experiencing significant increases in costs related to energy, water, and property insurance. Despite these expense pressures, we believe that after we lap last year's restaffing success later this year, we'll have significant operating leverage in the business to drive higher margins and higher EBITDA. Further on a positive side, we have had great success reducing prior year property assessments. As a result, we achieved a significant property tax reduction that was true up in Q1. We expect to have further success in this market and other markets on prior-year assessments in the coming years. These reductions will help reduce cost increases related to some of these other expense categories. In the transaction market, as Ray indicated, we have had great success selling numerous properties over the last 18 months. We have two additional properties, both in Seattle, under contract with buyers who have completed due diligence and have hard money deposits at risk. Assuming these two property sales close, sales to date will total over $230 million. Sales are not done until they are done, regardless of the contracts. High-quality and well-located properties like we own continue to be highly desirable to buyers, and as a result, we are bringing additional properties to market. While the transaction market for hotels and frankly most property types continues to be challenging because of the debt markets, and has probably been made more difficult by recent events surrounding several smaller regional banks, we will continue to work smartly by seeking out buyers who can overcome these debt market challenges. Finally, I wanted to update you on this year's major redevelopment and repositioning projects. We completed the first phase of the redevelopment of Viceroy Santa Monica earlier this month. Following the renovation of the public areas two years ago, we now have a lifestyle property at the luxury level in Santa Monica that is highly attractive to both business and leisure travelers. We believe we are now in a great position to drive a $30 to $50 higher rate in a market that is seeing some shrinking supply and improving demand. By the end of next month, we expect to be substantially complete with the renovation and transformation of our Hilton Gaslamp Hotel in San Diego into a higher-end lifestyle hotel with a dramatically improved and larger indoor-outdoor bar restaurant, expanded and improved event venues, and a whole new vibe. This property probably has the best location in downtown San Diego and benefits from being the closest hotel to the entrance of the convention center, as well as the main entrance to the Gaslamp District. This repositioning, coupled with the property's premier location, should allow us to drive $25 to $35 of higher ADR and substantially higher non-room revenue and achieve a 10% or better annual cash return on our investment. In July, we expect to complete the redevelopment and transition of Hotel Solamar into the Margaritaville Hotel in the Gaslamp district, just two blocks from our Hilton. We are incredibly excited about this project and expect to drive significantly higher rates and dramatically higher food, beverage, and non-room revenues at this property at Margaritaville. Between the rate share gains and increased total revenues, we expect to deliver a stabilized annual return that is substantially above our typical 10% cash yield on investment. At Estancia La Jolla, a resort we acquired in late 2021, we expect to complete in June the first phase of our two-phase repositioning of this property as a luxury resort that will be more appealing to both leisure travelers and its already heavy social and business group and corporate transient customers. This phase involves a complete renovation of the guestrooms, including bathrooms, and an expansion and upgrading of the many outdoor event venues at this expansive resort. We'll commence the second phase of this redevelopment and repositioning starting late this year. This second phase includes the renovation of the main ballroom meeting space, restaurants, lobby and coffee shop, and involves expanding and upgrading the entire pool complex, including adding high-end cabanas, a new pool bar, and creating a new event venue as part of the pool complex. Finally, we're in the process of completing a major upgrading of Jekyll Island Club resort, which includes a comprehensive guestroom renovation of all of the historic buildings, including the main building and the three large cottages. It also includes complete public area and meeting space renovations and upgrades. Expansion of both pool complexes, including the addition of high-end cabanas for rent, relocating and expanding the property's retail store, and upgrades to the property’s numerous outdoor venues. We believe repositioning this grand and unique historic resort as a luxury regional resort will deliver, upon stabilization, a very attractive double-digit cash yield on our total investment. In addition to these current projects, we expect to commence the complete redevelopment and upgrading of Newport Harbor Island Resort late this year. This represents the last major redevelopment project in our strategic plan involving LaSalle's portfolio and properties we purchased in the last two years. In addition, as you know, we've completed over 24 major repositioning and redevelopment projects throughout our portfolio during the last several years. These projects are gaining share as demand returns, and we expect to achieve very attractive cash yields at these properties upon stabilization. Significant progress has already been made at Chaminade Resort, Mission Bay Resort, Western Gaslamp, Embassy Suites San Diego Downtown, Skamania Lodge, One Hotel San Francisco, W. Boston, The Marker Key West, and L'Auberge Del Mar. All of these projects also involve creating and expanding indoor and outdoor event spaces, re-concepting and upgrading restaurant and bar outlets, and generally merchandising all indoor and outdoor spaces to drive significantly greater out-of-room revenues and EBITDA. We're confident that with a dramatic reshaping of our portfolio during the last several years through dispositions and acquisitions, combined with these many major projects, we're now in a great position to organically grow our top-line and bottom-line beyond the industry's growth in the years ahead. As we achieve the payoff of the very significant dollar investment and hard work that's gone into the dramatic improvement and repositioning of the properties we acquired in the LaSalle transaction and those resort properties we acquired in the last two years. That completes our prepared remarks. We are now happy to take your questions. Donna, you may proceed with Q&A.

Today's first question is from Smedes Rose with Citi. Please go ahead.

Hi, thanks. Jon, I was wondering if you could just talk a little bit more about some of the cost pressures you mentioned on the wage side, and maybe just kind of give us a sense of the hourly lower-skilled workers versus more on the managerial side. Are you seeing similar pressures across the board? And is it sort of in line with inflationary? So, what is that around? Like maybe a 5% year-over-year increase for the year? Or maybe just a bit more detail there?

Yeah, so generally, when we look at cost pressures, I don't think the biggest cost pressures are the growth in wages and benefits. At this point, I think they're running, they'll run this year in probably the 4% to 5% range, which will vary throughout the portfolio by market. It's pretty similar for the managers and up within the portfolio. So, the increase in costs from wages and benefits is really due to the restaffing within the portfolio, filling a lot of open positions, trying to get off contract with third-party contractors, who are providing people to be able to accommodate, frankly, the occupancy growth that we believed and continue to believe that we will be able to achieve this year and going forward. So, it's not really about the rate of growth in wages or benefits. It's about the increase in volume from staffing up.

And then just I'm sure it's still a relatively small piece of your overall expenses. But could you just kind of quantify what you're seeing on the insurance side in terms of the percent increases that you're having to pay?

Yes, Smedes. We’re negotiating our renewal with our insurance carriers, which is June 1. So, it's going to be a tough market. I think we touched on this last quarter, because of all the storms that occurred throughout the country, as well as inflationary costs. This is going to probably be the second most difficult renewal since Katrina. Costs are going to go up significantly. We certainly don't want to negotiate against ourselves, but it is going to be a headwind. We're going to do our best to evaluate the different areas and how do we frame up some parts of insurance in the stack and maybe take some higher deductibles and other adjustments to work through them, but it is going to be a headwind for us for the year.

And Smedes, in terms of what we’ve experienced prior to the renewal, more of it really comes down to the fact that we've had a lot of smaller weather-related events within the portfolio. Whetherit's the huge freeze we had in the Northeast that led to a lot of pipe breaks and damage from water, or the heavy rains out on the West Coast that inflicted some significant damage on four of our LA properties and rooms within those properties. They're not big in and of themselves, but each one impacts the deductible and that adds up over the course of six weeks.

Overall, insurance costs are about 1.5% of our total expenses, and the property and casualty side is about 75% of that, so it's about $17 million a year.

Great. All right. Thank you, guys.

Thank you. The next question is coming from Shaun Kelley of Bank of America. Please go ahead.

Hey, good morning, everyone. Jon, Ray, maybe to kind of follow-up where I think SMEs was going there. If we put all these pressures together, I think when we rewind of how we thought things would evolve post-pandemic. I think we oftentimes talked about framing things in terms of margin improvement like efficiencies learned or earned during the pandemic about what was able to be done on the staffing side. Fast forward to today and the narrative has shifted to a lot around the cost landscape, multiple years of inflation pressure, and some of the things you just talked about. Should we be thinking really in terms of how much margins are a little bit lower than 2019? Is that too aggressive or too concerning to worry about, or how would you help us update the framework from two years ago where we were talking about on a stabilized basis, things being maybe 100 basis to 200 basis points better on a margin basis than they were? Should we be thinking about 100 basis to 200 basis points possibly worse than where we were, all other things equal?

Yes, sure. Well, the 100 to 200 basis points that we have previously talked about in cost reductions in the operating model have been taken. So, operating more efficiently using more technology and operating with fewer people has actually occurred, Shaun. So, we have taken those costs out of the model, which tells you, it would be worse today had that not been the case. We don't think in terms of margins. We think in terms of profits. We look at expenses and we forecast expense growth as opposed to forecasting margins in our portfolios. Margins get impacted by a dramatic increase in non-room revenues. As we increase the percentage of our revenues to non-room categories with the re-merchandising and redevelopments taking place within the portfolio, that will actually lower our margins, but it will increase our profit per key. Expenses go up over time and the macro environment has an impact, obviously, on profitability as well as revenue growth and expense growth. So, we don't really think about it the way you were describing it. We think about it as how do we make our operations more efficient and how do we mitigate macro and micro pressures on costs that go up and down.

And then maybe one sort of on a couple of either markets or asset specifics. But you obviously called out some of the rate normalization in Key West, and I think that’s certainly not the first we’ve heard of that. Can you just maybe help us think about some of these other resort markets you’ve acquired into on the East, typically off the Coast of Georgia, maybe a market like Newport? Are you seeing similar pressures to a different magnitude? I appreciate there's some renovations and property-specific stuff going on, but just broadly, what is the consumer behavior in some of those assets that I think were really big pandemic winners?

We're not seeing pricing pressures in those markets. Where there's some impact from a change in behavior, it would really come from I would say, a general reduction in demand for premium suites and premium rooms from the high levels we reached last year when people splurged on themselves after being inside for a year or two. So that's pretty general across the board. It's interesting; it's a little different than what the airlines are seeing, in terms of them talking about the premium customer. But it is consistent with the high demand we continue to see at our high-end resorts, in terms of the number of overall luxury customers. So, we're not seeing pricing pressure really elsewhere, but we are seeing some slightly fewer number of premium rooms at higher rates. We're also driving more group at our resort properties. So that's a different segmentation. And our group rates, by and large at our resorts are actually lower than our transient rates, not surprisingly, right? And so, they come with other revenue and other profitability, but they also generally come at lower rates than the leisure transient rates in those markets. So that's the biggest impact on our rates and the trends that we're seeing on the leisure side.

Understood. Thank you very much.

The next question is coming from Bill Crow of Raymond James. Please go ahead.

Good morning. On the expense side of things, is it time yet to start thinking about slowing down the new hire process or maybe even reversing a little bit of it just given the uncertainty in the macro? And what appears to be maybe a slowing consumer?

Yeah, I mean, I think that's what we're doing right now. If a position becomes available, we may or may not fill it. I think that really is more at the manager level than it would be at the hourly level. The hourly level gets dictated by volume. And, of course, many of those people may or may not get hours every week, particularly when it comes to food and beverage and banquet and catering. They probably work multiple properties and they work when there's business. So, the general answer is yes. We are at the property level, talking with our operators about continuing to be more cautious about adding additional staff from here until we actually see greater volumes and a clearer picture of what the macro is going to look like and what its impact is going to be on our industry.

One more follow-up question. You probably have more insight on this topic than the others in the space, but the writers' guild is threatening to go on strike in Los Angeles. I'm just wondering how you assess that disruption to that market, your assets in particular, which tend to rely on entertainment fairly heavily.

Yeah, it's really going to depend upon whether they strike, Bill, and whether it's short or long. Short strikes of three weeks, four weeks, or two weeks mean we've seen these in the past; they tend to get settled pretty quickly and historically at least they've had very little impact on the market. I think, compared to history, the content obviously development volume has morphed in so many different directions. Music, of course, is not impacted, and some other forms of entertainment will still be ongoing. Most production that's going on today, probably will occur over the next three to six months, is already written. So, it likely doesn't have much impact in the short term. That's why I said it really depends on how long it's going to be.

The next question is coming from Floris Van Dijkum with Compass Point. Please go ahead.

Thank you for taking my question. I have a question about the recent asset sales in Seattle. If you are able to complete those sales, it would significantly support your redevelopment pipeline. But could we expect more urban sales, perhaps in markets that have some political issues like Portland? And then maybe talk about because your mix of urban versus resort has changed at the margin, you are now slightly more heavy towards resort at 40%. I think you were at 35% before. How do you see that trending forward?

This is Tom. Thank you for the question. As it relates to locations and that type of thing, we don't necessarily indicate what we're going to do. But I think it's a safe assumption that we will continue to look at some of our urban markets. We are risk-adjusted return investors. When we look at some of the friction cost and other things that are going on from an earnings perspective or political perspective, that certainly influences where we are going to look to sell. But could it be in markets that you suggested? Potentially. The overall transaction market right now has its challenges, but small assets that offer upside could attract buyers.

And does that mean we've heard people talking about assets less than $100 million being much more liquid? Is that what you are seeing in the market as well?

Well, I would say nothing is necessarily easy in today's market given the challenging capital markets. I think you hit it on the head. Certainly, the threshold we see today is that assets less than $100 million are much more transactable than items over $100 million. There are a number of investors that we look at and that we have been successful with who can close on a deal with cash or all equity and finance it later.

Tom, my follow-up question, I guess, and I'll waste on that as well. But maybe if you can touch on the buyers of the assets in Seattle. Given the lending markets are somewhat gummed up and very difficult right now, are these all cash buyers willing to accept a much higher spread and cost? In your view, how are the buyers, what's the mentality of the buyers based on what you're seeing for your assets?

Yes. I can't necessarily comment just based on confidentiality just as it relates to the characterization of buyers. All I can tell you is that for assets like this, there continues to be competitive depth. There are a number of groups that we will look at that potentially will have a strategic reason for being there. They recognize that it is more expensive debt today, but whether relationship lenders determine how they structured their debt may still fit within their strategic plan.

It may be because I've heard some stories in San Francisco of a sale recently that is going to be converted. Are you seeing more of that? Does that sort of feed the supply-demand dynamics that should be working in your favor as well, long term?

We're seeing some in certain markets, but I wouldn't say that's predominant because that has its own challenges. But overall, as Jon indicated before, we think that the supply picture in many of these urban markets looks promising over the next three to five years. It's going to be very difficult from a construction financing perspective, and just from a political climate in terms of what can and can't get done.

The next question is coming from Michael Bellisario of Baird. Please go ahead.

Thanks, good morning everyone. Jon, you talked a little bit about your urban markets, but wanted to dig in a little bit more. It looks like things really stepped up in March, maybe relative to your expectations. Was that more volume or price? And then what industries or what urban markets actually drove that upside in the quarter?

I think in March, it was more volume than it was price. The price growth remains healthy and continues to increase modestly from quarter-to-quarter in the urban markets as they recover. The corporate transit coming back that tends to be more prevalent now, including in markets like San Francisco, Seattle, Portland, and Boston, has been beneficial overall to our business. We’re also seeing more business travel recovery which is broad-based from an industry perspective, though tech businesses are a little heavier weighted in some of our coastal markets. If all businesses ramp back up to three or more days a week, we'll see benefits.

And then maybe tying that together, just to the topic of urban to the prior question on transactions. As you get through some more of these asset sales, presumably, what's the ideal hotel mix look like? And what's the right size of the portfolio possibly a year from now after some more of these hotels could get sold?

Part of the reason we're selling is not necessarily because we don't want to be in a particular market. As Tom said, we’re risk-adjusted return investors. The concept of selling has more to do with capital reallocation to places where we believe the returns could be higher. Today, we've been reallocating some of those proceeds to buy back our stock, which we think is far more creative on a value basis per share than reallocating that capital into buying new properties for the portfolio. I'd say that generally, we are selling lower quality assets; all our properties are upper upscale, but we are selling those with lower quality combined with markets that will have less attractive risk-adjusted returns. What our alternative use of capital today is, which is buying back the rest of the portfolio at a 50% discount on a levered basis and a 27% discount on a gross basis.

The next question is coming from Dori Kesten of Wells Fargo. Please go ahead.

Just a follow-up on that, with utilizing sales proceeds to repurchase stock, what would you need to see in the macro environment that would make you shift to retaining more of that cash, effectively holding for that pay down?

I think we would need to see a significant slowdown in the economy that's actually having a meaningful negative impact on the operating business. And even then, it would still depend on what happens to the stock. Liquidity is huge for us; we have almost $800 million in liquidity. If things were to turn bad, we have plenty of liquidity to deal with that, and we don't really have any material maturities until late next year.

We have more liquidity than we had going into the pre-pandemic period.

Thanks. And you've touched on this a bit in your prepared remarks. What are your expectations for out-of-room spend as the year progresses? Would you expect the outperformance versus room spend to continue?

We do expect the out-of-room performance to continue to grow at a higher level than RevPAR. This is really coming from two areas: pricing increases taken to mitigate cost increases, as well as group demand. We do think they will grow faster than RevPAR, and outside of the second quarter, we don't really have any outlook for the rest of the company. So we don't have a specific forecast we can share on non-room revenue.

Thank you. The next question is coming from Duane Pfennigwerth of Evercore ISI. Please go ahead.

Hey, thanks and good morning everyone. This is Peter on for Duane. I think just following up on the previous question. You mentioned weather in the West Coast resorts for 1Q, and maybe some cancellations that resulted because of that weather. Did that impact the out-of-room revenue that we saw in the quarter, or is there a way to put a number on how much effect that weather had?

Yes. I mean, it did have an impact on non-room revenue because certainly leisure at our resorts has pretty good spend levels. It's shocking that people don't go to the beach when it's raining or when there are 50 mph winds. It’s not really a pleasant place to go, which is a lot of what our Southern California properties rely on for leisure travel. We had flooding near Santa Cruz that negatively impacted business along with the heavy rains. In the Pacific Northwest at Skamania, I think they had a four- or five-week period where it didn't get above like 40 degrees and again negatively impacted the leisure customer there. We just saw it in the volumes and bookings; it was probably more bookings than cancellations throughout the portfolio. It's pretty hard to estimate it in terms of how much it was, but it was enough to be material enough to mention in this call.

That included your song.

Evidenced by our song, yes.

Okay. Thanks for that. And then quickly, you mentioned that wages are up maybe about 4% to 5% year-over-year, given the increase in staffing year-over-year as well. How much do you anticipate hours being up, or is there a way to put kind of a volume number into that equation?

Yes. I mean... Look, we are hoping hours are going to go up because that will be a function of occupancy rising as well. Last year, we finished occupancies in the mid to low 60s, that's still well off where we are in '19, which is in the low 80s. So, we are making that climb higher, and as a result, hours will increase and costs will go up because our revenues are going up. But overall, as Jon indicated earlier, the changes we have made, we still have fewer full-time equivalents (FTEs) at our properties than we had pre-COVID. This is a factor of retooling operations, utilizing fewer hourly employees, less management, and combining positions, as well as clustering management in certain markets.

Thank you.

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

Thank you. Good morning. I'd like to start off with San Francisco. I'm curious to get your expectations for 2024 for your hotels, given challenge conventions and pace forecasts. The convention and Visitor's Bureau strategy appears to be shifting to in-house group business at the large box hotels due to some weakness at Moscone?

Sure. It's pretty hard to indicate what we think 2024 is going to look like because we haven't indicated what the second half of this year is going to look like, Greg. I can say that more group rooms on the books are better and fewer are worse. The fact that they are down a couple of 100,000 room nights next year is going to be more of a challenge for that market. As it recovers, it's not a new strategy. It's typical for them to sell both conventions and short-term groups at the convention center. We think it’s positive and we hope that the upcoming search process for a new director will lead to someone with passion and energy that helps drive a better marketing effort moving forward.

As my follow-up, I apologize I couldn't hear Ray very well in the prepared remarks regarding Naples. But given your recent visit to the market, I'm curious, I know it's sort of a crystal ball but what you think the tourist appeal of Naples will look like by the start of 2024 during peak season? Will the demand or rate take a few years to fully recover?

It's interesting; we were down there and there's a $20 million beach restoration program underway. These giant dump trucks were driving back and forth on the beach to replenish the sand. If I remember correctly, that's about a six-week process for the full beach; they actually already reached our property and basically added two feet of sand to get back to where it was before the storm. Today, outside of those stretches along the beach, in terms of buildings, it looks pretty normal. All the golf courses are open, all the amenities are open, and the beaches are open. The replenishment program will be completely done within six weeks, so it will be better than new from that perspective. In our case, as we indicated, we should be complete with the beach house and fully reopened all the amenities, rebuilt and reopened to the property. Naples is a sort of an annual retreat for a large number of people who come to the market. The good thing is our experience in the market shows that it bounces back pretty quickly after a disruption. The ramp up has already started in the market, but I think it'll accelerate next year. I don’t believe it will take more than 12 months. They just need to do some significant marketing. The best time to do that will be later this year when everything is back and operating again, as it was pre-hurricane.

The next question is coming from Ari Klein of BMO Capital Markets. Please go ahead.

Thank you, and good morning. Maybe just following up on the resort rates that were talked about a little bit earlier. I think you mentioned they were down 11%. How are you thinking about those year-over-year declines, I guess moving forward through the rest of the year? Do we level off in that range? Or do you think the decline will even continue?

Yeah, I mean, it's hard to predict at this point. We can look at what we have on the books, and it’s probably flattish. But my guess is, the shorter-term bookings at the resorts are probably going to be at lower rates, as we fill in some of the less desirable dates and days of the week. So, I would anticipate, if I had to guess, that they are probably going to be similar to where they are now. As we said earlier in the year, we think resort rates will be down. Occupancy is up at the resorts and the bottom line is flat, but overall, we expect to see strength in urban rates and a stabilizing of resort rates with some growth in RevPAR coming from occupancy and overall growth in total revenues from non-room revenues too.

And I also think it's important to discuss and talk about rates but the occupancy side is important too. As we had commented on our earlier calls, our occupancies are still down to where we were in 2019. Even though we have a rate premium in the first quarter—our occupancies were about 800 basis points below where they were in '19. Thus, we also have the ability to grow there, even though it's perceived that resorts are hitting all cylinders and they’re doing really well. That’s from a rate perspective.

From an occupancy perspective, we will gain more and that's more upside as the recovery happens here. Some of that business is going to come back, like international wholesale. Some of it's going to come back at lower rates, but it’s going to fill down periods, off-season business and drive those occupancies and non-room revenues that ultimately still produce more profits.

Thanks. And then just on the renovation headwinds, there was a meaningful impact in the first half of the year. Would you expect that to be somewhat similar in the second half? And looking out to 2024, as you wrap up a lot of these major projects, would you expect those headwinds to further moderate?

Yes, it will have little to no impact in the second half of the year from renovations with the majority of the impactful parts done. The second phase of Estancia will still involve some public area work for leisure not having services for some time. However, the room rentals, which have the most significant impact on business, will be minimally impacted.

And just to add, most of our heavy lifting on major redevelopments will be done this year after these next couple of quarters. Next year, the only two major projects we have are Newport and the potential conversion of Paradise Point, which is still in process. So, the rest of the portfolio will have been either renovated or redeveloped. So that puts us in a good position as we go into 2024 and beyond.

Our final question for today is coming from Anthony Powell of Barclays. Please go ahead.

Hi, good morning. Just maybe one more from me on expense growth and staffing. What happens, assuming that we escape a downturn next year, with occupancy up 5%? Will you still have to add incremental staff to your hotels and try to figure out when you would be actually able to leverage your staffing and push margins?

Every point of occupancy is always going to require more lease. That always will be the case; it does matter where we are in terms of overall occupancy. It's volume that just has to be dealt with, whether it's housekeeping or in the outlets. Every point of occupancy you have will require more staff. So, assume that if we had five more points of occupancy, we would definitely need more hourly staff, but we're also going to need management. It's a step function, and you'd need to accommodate the volume.

Thanks. And maybe one more if you could just kind of rank the West Coast in terms of desirable markets. You've talked about, in prior times, liking the West Coast and that it's changed a bit given your asset sales. So maybe just rewrite or discuss some of the major markets again and how you're thinking about them from supply-demand recreation on that?

I think most markets, not all of them around the country are going to benefit over the next three to five years from having very limited supply growth, particularly in urban markets. There's a limited supply that gets added to resort markets. We never had a bias to the West Coast. Our bias was based on risk-adjusted return attractiveness that brought us to a lot of those markets early in the last cycle. We're still looking at the 35 risks involved in the markets we underwrite, which informs our positioning on both disposition and acquisition strategy.

At this time, I'd like to turn the floor back over to Mr. Bortz for closing comments.

Thanks, Donna. Thanks, everybody, for participating. Sorry to keep you so long. Hopefully, you found that informative, and we certainly look forward to updating you in 90 days. If you have further questions, feel free to give us a call. Thanks very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy your day.