Greetings, and welcome to the Pebblebrook Hotel Trust First Quarter Earnings Call. Due to another industry call this morning at 9:00 a.m. Eastern, we'll limit today's call to an hour. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you. You may begin.

Thank you, Donna, and good morning, everyone. Welcome to our first quarter 2024 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer. Before we begin, please note that today's comments are effective only for today, April 24, 2024, and our comments may include forward-looking statements as defined under federal securities laws, and actual results could differ materially from those discussed. For a comprehensive analysis of potential risks, please consult our most recent SEC filings and visit our website for detailed reconciliations of any non-GAAP financial measures mentioned today. Now let's move on to our first quarter results. We are pleased to share our solid financial results in Q1 despite the negative impact of some challenging weather conditions on both coasts. Our urban markets, which continue to recover and lead the portfolio, coupled with diligent operating cost reduction efforts by our hotel teams, asset managers, and the company, we handily exceeded the top end of our financial outlook in key metrics, including same-property hotel EBITDA, adjusted EBITDA, and adjusted FFO. Our urban markets were led by Washington, D.C., which has been a standout performer. In Q1, hotel occupancy in D.C. gained an impressive eight points, rising to 61% and RevPAR increased by 7%. San Diego also produced significant gains, benefiting from a strong convention calendar that was bolstered by our prior year's redevelopment investment program. In Downtown San Diego, occupancy at our properties climbed eight points to nearly 75%, and RevPAR surged by an impressive 21.8%. Our recently redeveloped properties, the Hilton San Diego Gaslamp Quarter and the Margaritaville Hotel San Diego Gaslamp Quarter, have been very well received by the market. RevPAR growth for these properties exceeded Q1 2023 by 88% and 60%, respectively. These downtown San Diego hotels have quickly recovered from last year's redevelopment disruptions, regaining more revenue and EBITDA than was displaced last year. San Francisco and Los Angeles were also solid markets this quarter, but 1 Hotel in San Francisco, known for its sustainability and luxury focus, grew RevPAR by 16% in Q1, continuing to gain market share following its redevelopment and reflagging. Overall, our urban properties increased RevPAR by almost 5% year-over-year, which helped to offset a 4.4% decline in RevPAR across our resort portfolio. Notably, our same-property resort portfolio, excluding LaPlaya Beach Club and Resort and Newport Harbor Island Resort, maintained stable occupancy levels compared to Q1 2023, though ADR declined 4.7%. The challenging weather conditions in California, the Pacific Northwest, and South Florida affected our resorts, hindering traditional short-term leisure bookings and leading to increased cancellations. In contrast, our Key West resorts experienced a robust recovery in Q1 compared with last year, generating positive RevPAR growth, reflecting the area's traditional strength in the first quarter. Despite the varied performance of our resort markets in Q1, they maintained a significant 36% premium in rates compared to 2019. Overall, our same-property portfolio has shown a continued recovery from the pandemic, achieving another two points in occupancy and a 1.7% increase in RevPAR versus Q1 of last year. Compared with Q1 2023, our weekday occupancies improved three points with gains in both urban and resort markets, demonstrating the continued recovery of business travel. Our weekend occupancies declined roughly 60 basis points, largely due to weather issues that discouraged leisure travel. However, it is noteworthy that weekend occupancies at our urban properties improved by 50 basis points in March, perhaps an indicator that leisure events and spring break will continue to drive travelers into the cities at a greater pace than last year. In terms of our mix, the group segment led the portfolio as group demand increased 5.7% from Q1 2023 with group revenues growing 4.9% and the group segment increasing to roughly 27.4% of our customer mix in Q1. Transient demand also improved, increasing 4% over last year as transient revenues rose 2.1%. On a monthly basis, RevPAR increased 5.1% in January, 0.1% in February, and 0.6% in March, which was negatively impacted by the Easter holiday shift. February room revenues rose 3.8% higher than the 0.1% RevPAR growth due primarily to the extra day from leap year. Our same-property EBITDA reached $59.8 million, surpassing the upper end of our Q1 outlook by $2.8 million. In addition, our recently reopened LaPlaya Beach Resort had a much better-than-expected Q1, exceeding our outlook by $2.3 million. This performance inspired our enthusiastic Vamos A LaPlaya to our hotel LaPlaya team, which you heard from our opening song this morning. The strength in our same-property hotel EBITDA results also have been bolstered by the success of our highly focused efficiency and cost reduction efforts across all operating departments, which led to an EBITDA margin of 20.3% in Q1. On a per occupied room basis, total hotel operating expenses declined by 0.7% and before fixed expenses, they declined by 2.1%. This reflects our ongoing progress in combating inflationary pressures through an intense focus on efficiency improvements. These measures include optimizing staffing levels and job sharing, enhancing procurement processes, implementing our own workers' compensation program, and leveraging favorable contracts negotiated and arranged by Curator. We also reduced our reliance on third-party contract providers by successfully filling positions internally and reducing staff turnover while continuing to invest in productivity enhancement in energy-efficient technologies and equipment. These strategies are part of our broader initiative to offset above-inflationary cost increases in wages, benefits, energy, and insurance across our portfolio. As a result of the better-than-expected same-property EBITDA and LaPlaya's strong performance, adjusted EBITDA was $5.3 million above the top end of our outlook, and adjusted FFO per share was $0.05 better. Shifting to our strategic reinvestment program, this quarter, we made significant capital investments in progress at several properties. The $49 million transformation of Newport Harbor Island Resort into a premier New England luxury destination is substantially completed, and the resort should open soon. Estancia La Jolla Hotel & Spa $26 million multi-phase redevelopment is also substantially complete. At Skamania Lodge, we introduced eight new alternative lodging combinations, including the completion of two-bedroom cabins, a three-bedroom villa, and on May 1, the expected opening of five unique luxury glamping units. Over the next year, we will evaluate the performance of these new types of experiential accommodations, which also includes nine successful luxury treehouses. This analysis will guide our decision on what types of alternative lodging to add to Skamania in the coming years as we have an opportunity to add 200 or more additional units over the long term. With the $33.9 million investments throughout the portfolio in the first quarter, we remain on track to invest $85 million to $90 million in the portfolio for the year, and we are confident about the substantial upside these repositioned properties will generate in both market share and cash flow in the foreseeable future. In terms of our balance sheet, we remain in very good shape with no meaningful debt maturities until October 2025 following the successful refinancing efforts we completed just three months ago. The weighted average cost of our debt is an attractive 4.6%, with 75% currently at fixed rates and 91% of it unsecured. And with that comprehensive update, I'd like to turn the call over to Jon. Jon?

Thanks, Ray. As Ray indicated, we're very pleased with our overall performance in the first quarter. Our top-line operating performance was toward the upper end of our outlook range, with our RevPAR growth handily beating the industry. Our bottom-line results well exceeded the top end of our outlook. We benefited from our intense focus on creating further efficiencies in the operations of our properties as Ray detailed. We also realized reduced energy usage and costs, thanks to targeted sustainability initiatives and milder weather conditions. Although the bad weather negatively impacted leisure demand and revenues, it provided a silver lining in terms of energy savings. When we look at the industry results overall in the first quarter, the industry's 0.2% RevPAR growth turned out a little softer than we were expecting. Year-over-year demand declined every month in the quarter, now representing ten straight months of year-over-year declines and twelve straight months of year-over-year declines in occupancy. If you exclude Las Vegas from the industry's results, you get a RevPAR result that is 90 basis points worse at negative 0.7% for the quarter, which doesn't paint a particularly positive view of the rest of the industry's first quarter performance. We believe some of the industry's weaker performance in the quarter was related to bad weather impacting travel and potentially a greater negative impact from the Easter holiday shift. But clearly, the mid-to-lower price scale hotels continue to struggle in a major way. We believe the challenges at the mid-to-lower end are likely related to the economic pressures being experienced by the mid-to-lower socioeconomic class of consumers and businesses. This is consistent with what is being highlighted by many other industries and businesses in their operating reports. Industry results also mirror our results in segmentation performance. Demand from the leisure customer was flat to slightly weaker, impacted by bad weather as evidenced by softer weekend performance. Encouragingly, business travel continued to improve with group leading the way, but with business transient clearly seeing further recovery. ADR growth was slightly softer than in prior quarters, and urban and upper upscale performed the best. Supply growth continues to run well below 1%. We think it will continue to run below 1% through at least 2026 and likely 2027 or even later for our urban and resort markets where it takes longer to build, and the project sizes are larger and harder to finance. In the case of the cities, hotel economics are far below those needed to justify these much higher new development costs. For our portfolio, RevPAR growth was led by our urban markets, which grew 4.9% despite Portland and Chicago being substantially negative. Our urban RevPAR performance exceeded the industry's urban category, which delivered 2.6% growth in the quarter. As Ray indicated, we gained 2.4 points of occupancy or 4.2% growth. However, we still have a huge occupancy recovery opportunity as our urban occupancy was almost 16 points or 21% below 2019 levels, and 2019 was not even our prior peak level of occupancy. We've laid out the occupancy recovery opportunity for our urban portfolio in financial terms in our investor presentation, which we posted last night on our website, so you might want to take a look at that. Our best performing RevPAR growth properties in the quarter were led by our properties that were redeveloped in the last few years. All of these redeveloped and repositioned properties are gaining share and have significant opportunities for RevPAR share growth and other revenue growth over the next few years. As Ray indicated, the two downtown San Diego properties gained the most in the quarter. They were both under redevelopment last year, so the comparisons were easier, but they grew beyond last year's displacement impact. The next best performers were Hotel Zena in D.C. with almost 34% growth, Viceroy Santa Monica at 18.1%, Viceroy D.C. at 16.4%, 1 Hotel San Francisco at 16.2%, and Auberge Del Mar at 15.6%. Again, all of these properties were redeveloped and repositioned in the last few years and demonstrate the upside opportunity of our very substantial investments. We've also detailed the upside opportunity related to these strategic investments in our investor presentation. With Newport Harbor Island Resort and Estancia La Jolla's redevelopments being substantially completed this month, we feel we're in a great position to drive significant RevPAR share and revenue growth over the rest of this year and the next few years. And now we'll be able to do it without all of the noise and disruption that comes along with these major redevelopments. In addition, with the rebuilding of LaPlaya finally complete, we believe its ramp-up will be reasonably quick, and we're already beginning to see that play out. In Q1, LaPlaya achieved $8.3 million of EBITDA, exceeding our expectations by $2.3 million. This was just $240,000 below 2019, but it was ahead of 2019 in total revenues and GOP, driven by the outperformance of the food and beverage outlets and the membership Beach Club. We expect LaPlaya to deliver approximately $7 million of EBITDA in Q2, which, if achieved, would be more than $2.4 million ahead of 2019's second quarter. Combined with the first quarter, these first half results would give us greater confidence in hitting or beating our $22 million EBITDA forecast for LaPlaya for this year, which would put us well ahead of 2019's $17.7 million of EBITDA and well on our way to recovering to our $35 million pre-hurricane forecast for 2022. As another example of the returns on our major redevelopment investments, I also wanted to provide some color on the performance of 1 Hotel San Francisco, which was the beneficiary of a $28 million transformative redevelopment and reflagging from the independent Hotel Vitae and also a property team that recently won several Pebby Awards. So far, we're really impressed by the power of the 1 Hotel EcoLuxury brand and how well it resonates with the San Francisco customer. Recall that we reopened 1 Hotel San Francisco on June 1, 2022. In 2023, just our first full year of operations in what is a very difficult market, 1 Hotel San Francisco achieved a 116.7 ADR share and a RevPAR share of 128.3 versus its luxury competitive set, which was up from a 94.9% ADR share and 93.1% RevPAR share for the property as an unrenovated Vitale in 2019. So it's gained more than 200 basis points of ADR share and 3,500 basis points of RevPAR share. And it's far from being stabilized. In 2024, so far through March, 1 Hotel has gained another 150 basis points in ADR share and another 1,400-plus basis points in RevPAR share. In 2023, we achieved 63% of 2019's EBITDA. We recognize that may not sound great, but in a very slow to recover market like San Francisco, it represents, by far, the best performance against 2019 of all of our San Francisco properties. Please feel free to take a look in our investor presentation at this case study and a few other examples that show the returns we've achieved on our redevelopment and repositioning projects. As we look out into Q2 and the rest of the year, as indicated in our press release, we're maintaining our full-year outlook despite our bottom line beat in the first quarter. As you know, Q1 is our smallest EBITDA contributor of all four quarters, and we've become increasingly concerned about the macroeconomic environment for the rest of the year, given the changing expectations regarding the timing and number of Fed rate cuts and the continuing trend of weak demand and very modest industry RevPAR growth and the continuing normalization of the booking window as short-term bookings have not been keeping up with last year. We're not reducing our expectations for the second half of the year; we're just not ready to bank the Q1 beat. So far, for the first 13 days of April, we've achieved RevPAR growth of almost 10%. While that is certainly very positive, it should be recognized that these days have significantly benefited from both the Easter shift as well as the Passover shift. With Passover covering the last ten days of the month, RevPAR for our portfolio is currently tracking to be negative between 1% and 2% for the entire month. For the rest of the quarter, May looks strong, and then June looks to be soft again. Convention timing has some impact on our monthly variability. For the second quarter, our outlook is for RevPAR growth to range from 0.5% to 2.5%. Similar to the first quarter, we expect our RevPAR performance in Q2 will exceed the industry's results. And similar to our first quarter outlook, this is not a conservative outlook; it is a realistic forecast at this point in time. For Q2, we anticipate finalizing and recording several significant real estate tax benefits from prior year periods, and these have been included in our Q2 outlook. Despite the unpredictability of these credits and assessments over which we have no control, these credits would result in an estimated net reduction of approximately $4 million compared to our Q2 2023 tax expense. This will contribute to a reduced expense growth rate for both the quarter and the year. Looking forward, we expect to continue to achieve substantial savings from real estate tax assessments and credits, although the timing remains uncertain. Typically, these results stem from efforts spanning as much as three to five years. We also continue to be encouraged by our current group in total pace. Our group pace for quarters 2 through 4 shows group room nights ahead of the same time last year by 8.5% and group revenue ahead by 10.2%. With transient revenue pace up by 3.9%, our total room night pace is ahead by 7.9%, and our total revenue pace on the books is ahead by 7.1%. Q3 continues to represent the quarter with the largest pace advantage followed by Q4 on a percentage basis. Nevertheless, given the slower month-to-month and quarter-to-quarter booking trends we've been experiencing, we remain cautious about the second half due to this normalization of the group booking window as well as the softening macroeconomic environment. Finally, as Ray indicated, we're very excited about the completion of the $26 million Estancia La Jolla multiphase redevelopment and repositioning. The property looks fantastic and it's already receiving glowing reviews from customers. We should be able to drive strong growth as the La Jolla submarket of San Diego is extremely robust due to the vast amount of capital flowing into the expanding biomedical industry that surrounds the property. In addition, UCSD, which is the largest university in the California system and is located directly across the street from the property, is also growing like crazy and will continue to drive increased demand into the resort. With the additional completion of Newport Harbor Island's $49 million comprehensive transformation and the completed rebuilding of LaPlaya in Naples, along with the recent redevelopments of Jekyll Island Club Resort, Chaminade Resorts, Southernmost Resort, San Diego Mission Bay, and the alternative lodging being added at Skamania Lodge, our resort portfolio is poised for strong growth in the future as leisure and group demand strengthen. That completes our prepared remarks. Donna, you may proceed with the Q&A.

The floor is now open for questions. Today's first question is coming from Dori Kesten of Wells Fargo.

You note that short-term group bookings have slowed. Can you provide a bit more context around that? And have you seen anything else that has given you pause, such as media planners pushing for lower F&B minimums or pushing harder on room rates?

Sure. Based on our discussions with clients, we believe the slowdown is mainly related to the normalization of booking patterns. Over the past year, meeting planners and businesses have been scheduling their meetings further in advance compared to last year. As we progress through the year, quarter, and month, we are noticing a decrease in last-minute bookings because many meetings have already been arranged. Consequently, we are being a bit more cautious in assuming that all this will translate into the same percentage growth as last year, as we anticipate losing some of our pace advantage due to this shift in the group booking timeline. However, we are not observing any changes in attrition or cancellations, and spending outside of room commitments remains stable. From our viewpoint, this does not suggest a loss of confidence among businesses responding to a more cautious economic environment; we believe it's mainly due to the normalization of booking timing.

The next question is coming from Floris Gerbrand Van Dijkum of Compass Point. I'll move on to the next question coming from Smedes Rose of Citi.

I was just wondering if you could talk a little bit more about any kind of visibility you're seeing into summer leisure trends across your resorts?

Yes. I mean I think it's a little premature to have any kind of judgment based upon what we're seeing from the resorts. I mean the comment I would make that we feel good about right now and we indicated in our call is that the group pace is up significantly in the third quarter, and some of that is in the summer months of July and August. So we certainly look like we have a good base on the books. From a transit perspective, it's not quite as clear. And as you know, folks make airline reservations well before typically they make their hotel reservations. So we're encouraged by the commentary that's coming out of the airlines about strong summer bookings. But I think in terms of how we look, I think it's too early to make a judgment as to whether they're going to be up a lot or they're going to be positive or negative.

The next question is coming from Floris Gerbrand of Compass Point.

I wanted to ask you, if I look at your deck, the upside potential on your urban portfolio appears larger than some of the returns that you're penciling in for mostly your resort assets that have been renovated. As you think about capital allocation, John, where would you put incremental capital today? Where would you invest it? Would you invest in your resorts? Or would you invest more in urban assets?

Sure. I believe the answer is different from the two options you mentioned. Any additional capital will continue to be invested in buying back our own stock. Essentially, we would be acquiring a larger percentage of the assets we already control. We think there is a good balance between urban and resort properties, as well as between business, group, and leisure segments. We have invested hundreds of millions of dollars into our portfolio, repositioning properties to maximize their potential for growth in market share, revenue, and profitability. Currently, we are focused on buying back our stock, which is trading at about a 50% discount compared to what we believe the individual assets could sell for. From that viewpoint, the decision is straightforward. Considering our position in the portfolio, if we do sell assets, it will likely involve urban properties in markets that have been slower to recover. This isn't due to poor growth or recovery rates, but because the returns from alternative capital uses are significantly higher, such as buying back stock and paying down debt alongside the EBITDA from any sales. Generally, we wouldn't be considering selling our resort assets within the portfolio, which we believe still hold considerable upside.

And Floris, also, just to highlight in our deck, yes, we have over $50 million of upside we have in the early recovery. But that's primarily because the urban markets fell the most significantly more than leisure markets as a result of the pandemic and solar recovery. So we ended at 23% at 69% occupancy in urban hotels, and the chart just shows us if we get to 80% with the upside opportunity, which is still below where our prior peaks were. So that, again, shows the tremendous growth from the urban assets that are to be realized in the portfolio, and we expect the next couple of years to achieve that.

The next question is coming from Duane Pfennigwerth of Evercore ISI.

Just on the group pacing and the give back kind of in the quarter. I wonder if there's any trend of predictability emerging. So maybe you could just replay the last couple of quarters, how much pace was ahead at the start of the quarter and then ultimately where it ended up just to kind of help put that 20% pacing in context?

Sure. Well, in Q1 for Q1 of this year versus the pickup from the prior Q1, we were short a little less than $1 million in group revenue, which represented about a little under 3,000 group rooms. If we go back to the quarter before that, I think that was relatively flat, but we'll see if we can pull up that data, Florence. I mean, Duane, sorry.

No worries. Yes. No, that makes sense.

I believe the unpredictability has been challenging because the numbers have been fluctuating. Gabby retrieved data from the previous quarter, and it appears that there was approximately $0.5 million less in pickup for Q4. Although this is relatively small, it indicates a trend towards normalizing the booking window.

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

Jon, I'm hoping you can dig into the ADR decline at leisure properties, not just in the fourth quarter, but kind of what you're expecting going forward. How much of that was reactionary to maybe, I don't know, some normalization of consumer spending? How much of that was mix shift? And then you stated in your release that you're kind of bullish on inbound international travel this year, but you're also saying you really don't have much of a window into the summer months. So if you could just kind of square all that up, I'd appreciate it.

Well, I'll take a shot at it, Bill. I don't know if my comments will square it all up. But I think when we look at the resorts, the ADR changes are kind of all over the place. It really depends upon the property, what's been going on at the property, the region; the weather has had an impact as well. There is a mix shift going on at the resorts. So let's talk about the mix shift first because that's the easiest one to look at. As we rebuild group at our resorts, generally speaking, the group rates are substantially lower than the transient rates. It's the base build. It's the midweek, particularly out of season. And so it gets priced lower and competes with urban markets as much as other resort markets. So as we rebuild that group, which is a significant part of our resorts, our resort mix, that naturally brings the rate down in terms of the overall average. As we add and continue to recover leisure, which is still below where it was in 2019, that business has tended to be a business that's being induced, like it was pre-pandemic, through promotions or it represents wholesale international business, which comes in at lower rates or it's off-season where you have to stimulate demand, particularly local demand in markets like Florida, which tends to get pretty hot in the summer. And so getting people to come to your location, hopefully driven by cooler beach weather, brings people in from inland Florida and comes at a lower rate. So there's a good bit of this that is mix. I think the behavioral normalization has mostly happened, meaning the big premiums we were getting on compressed days around some holidays for people coming out of their caves after the pandemic and splurging and paying up; I think most of that has normalized and gone away. It's really where we're losing ADR. We're losing it at a relatively small amount at this point. As we look into Q2, as an example, our rate decline for our resorts looks to be lower than what it was in the first quarter. Right now, it looks like rates for the second half of our resorts will be better than the first half. I think we're getting pretty darn close to stabilization, and also, we're benefiting from our ability to charge more at some of the resorts that we've repositioned to a higher level on the portfolio.

And Bill, and then the second part of your question, international inbound. Just a couple of things to note on that. At least year-to-date through March, international inbound is up over last year. So that shows it's improving. In fact, March on a percentage basis was closest to 2019 than any month of recovery. So it's heading in the right direction. It's still driven more by the transatlantic versus the Pacific demand. But encouragingly, noted on a couple of airlines' calls this recent quarter, they're forecasting record summer travel, especially as it relates to international. A lot of that, of course, is U.S. outbound, and we encourage more Americans to stay here to travel and go to Europe. But it does represent a more increased number coming up. And that fell significantly from the pandemic, but it's heading in a good direction.

The next question is coming from Shaun Kelley of Bank of America.

Ray or Jon, one topic that has emerged in several travel calls this earnings season is a slight recovery in the technology sector. This seems to be more relevant to BT. We’ve discussed groups extensively this morning, but I’m interested in what you’re observing. You have substantial exposure in San Francisco and the Pacific Northwest. Are you noticing any signs of improvement with the large technology accounts? How have those trends been, and is there potential for growth? While it’s clear that group remains the strongest segment, I’m curious if there’s been an increase in lead generation on the BT side from these technology accounts.

Sure. Our general observation is that business transient travel continues to recover and this is evident in the stronger weekday occupancy rates. Across our portfolio, we've seen significant increases from technology companies, particularly in markets like San Francisco and Boston. Our Santa Cruz property, although it doesn't directly benefit from corporate transient travel in the technology sector, has experienced a notable increase in lead volume and group bookings from technology firms in nearby Silicon Valley. There's a clear uptick in technology. Additionally, we are noticing more corporate transient activity in consulting firms, particularly in the financial sector. This reflects a recovery in sectors that may have been slower to bounce back or perhaps experienced rapid growth during the pandemic, followed by layoffs and more cautious spending over the past 12 to 18 months. So far this year, we have definitely observed a turnaround.

The next question is coming from Michael Bellisario of Baird.

Jon, I just want to go back to your expense commentary. Can you maybe help us what's new, what's incremental compared to your prior forecast or prior outlook? And then how much of the savings that you've recognized in Q1 and expect to recognize in Q2? What's the run rate savings look like? And how much of it is maybe just more one-time savings that you've been able to achieve on the expense side?

Sure. It's a combination of factors. As I noted previously, we did not anticipate any real estate tax benefits due to uncertainty around timing. However, we have seen progress in one of our key markets within the portfolio. While many of these real estate tax benefits are one-time, there is a decrease in the ongoing tax expenses related to those properties, mainly in Southern California. Regarding our other expenses, our primary focus is on enhancing efficiencies within our portfolios and collaborating with our partners to achieve this. We're returning to our core principles, reinstating best practices, and leveraging new insights. Some initiatives were established years ago. Ray can elaborate on our workers' comp program and its previous iterations. These efforts are aimed at creating ongoing savings. Most of the savings recognized in the first quarter are tied to our initiatives aimed at reducing expenses, which should lead to a reduction in the expense growth rate. This will depend on whether we see a significant increase in revenue in the second half, which would come with associated expenses likely to boost growth rates. Nevertheless, such growth would also significantly enhance our profitability. We are optimistic about our direction, though there's still much work ahead. We have various programs and projects in motion to cut costs, and I believe we'll see increased effectiveness as the year progresses.

Mike, to provide more detail on some of those programs, the workers' comp program that Jon mentioned was taken back from our third-party managers because we believed we could manage it more effectively. As a result, we've reduced costs at our independent properties by over 60% compared to when it was managed externally, translating to millions saved annually. We're achieving better outcomes. Additionally, Curator acts as our internal R&D group and has introduced new technology, including housekeeping tools that increase efficiency in cleaning and scheduling rooms. We're also developing an AI chatbot to alleviate call center volume and reduce pressure on hotel staff, which will ultimately lead to lower staffing needs. We're actively implementing numerous initiatives at our independent hotels, which offer us more flexibility. While some programs provide greater value than others, we're excited about these developments and anticipate seeing results in the upcoming quarters.

We have also been investing in reducing energy usage and promoting sustainability. For instance, we are installing filtered water dispensers in our hotels as we replace ice machines with dual machines that provide filtered water, eliminating the need for plastic bottled water. As we replace HVAC systems nearing the end of their lifespan, we are installing higher-efficiency systems. Additionally, we have added solar energy at two properties: Chaminade in Santa Cruz and the Monaco D.C. in the city center. There are numerous initiatives we have been implementing, but this year we are placing a stronger emphasis on ensuring we are doing things correctly and not becoming complacent. I believe we may have become a bit complacent over the past 18 months.

The next question is coming from Gregory Miller of Truist Securities.

Given your commentary on a softening macroeconomic environment, I wanted to ask about any changes in the affluent leisure market. When you look at your competitive reports for your resorts, have you noticed any signs of casual leisure consumers opting for lower-priced options? For instance, are your upper upscale resorts attracting more guests from luxury resorts, or do you feel you might be losing customers to more affordable resorts? I'm interested in knowing if there are any noticeable impacts.

Sure, that's a challenging question. I would say no, we are not experiencing a competitive trade down. As I mentioned earlier, we did see some movement from consumers opting for more affordable options compared to the more luxurious suites or view rooms in 2022, as people were emerging from being confined at home during the pandemic. However, I believe that has normalized within our portfolio. We have continued to gain market share in our resort offerings. For instance, our occupancy index in the first quarter showed an increase of over 200 basis points across our resorts. I attribute this success more to the investments we’ve made in our properties and the advantages of offering higher-quality accommodations and superior service compared to our competitors in the market.

Greg, one other thing. Just one thing I want to respond to because it was sort of a general comment in your question. I don't think we're seeing a slowdown in the economy and in travel per se. I think we're just being more cautious, trying to be pragmatic about what impact the Fed's longer rates are going to have on the economy later this year. It may not materialize. To some extent, the fact that it hasn't materialized to any great extent yet. But it's also cautiousness based upon what we saw in Q1, although, again, how much was weather, how much was the holiday shift, and how much was softer performance is hard to differentiate those three at this point in time. What we're not hearing are comments from clients saying, we're changing our policy, we're slowing down. You have to get 35 approvals to travel. We're not hearing those things from the customer base. We're not seeing a reduction in lead volume for group business other than the normalization of the booking trend that we've been talking about.

The next question is coming from Anthony Powell of Barclays.

I guess what you think on the transaction side? I know rates are higher now. So are you still seeing interest for urban assets, and how is some of the volume out there? Maybe a broad overview would be helpful.

I think in response to Jon's earlier point regarding the question, there's a lot of uncertainty as everyone is waiting to see what the Fed will decide. At the beginning of the year, investor sentiment was quite strong, which led to some action. However, that momentum has been somewhat postponed as people anticipate a change from the Fed. While there is access to debt, it's costly, affecting pricing. Currently, there's still some pricing discovery happening, but I believe the actual volume of transactions will remain somewhat stalled until we observe significant changes in base rates.

And there's not a lot on the market today.

I mean... What I would say to you is kind of doing my survey of broker interviews, so to speak, or just surveys of the brokers. I would tell you that there seems to be a very, very high level of the brokers doing brokers' opinions of values or BOVs, but that's not necessarily translating into listings. I'd also say that the listings that are out there, the conversion rate from listing to closing is probably as small as it's ever been, given the fact that it's very difficult to secure any type of financing.

And then Anthony, we were very successful last year with the seven transactions that we had. We generated over $330 million of sales proceeds. Certainly, as we look, as Tom mentioned, with the Fed keeping the rates up, it's likely to reduce the number of transactions that are going to happen this year, including for potentially us. We'll still be active and look at that, but just think things may take a little bit slower now given everything that's going on with the interest rates and the Fed.

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

Great. Great job, everybody. I didn't think you'd actually follow the rules and limit your questions to one. So thanks for doing that. Clearly, we're here for additional questions that you have. We're happy to chat with you, and we thank you for your interest. Please enjoy the Hilton call that starts at 9, and we appreciate your interest in Pebblebrook, and we look forward to talking with you next quarter.

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