Pebblebrook Hotel Trust PEB CEO Jon Bortz on Q4 2019 Results

Thanks, Ray. As Ray noted, the fourth quarter turned out better than we expected. The rate of demand growth improved from the third quarter in both business and leisure transient, even with the challenging October. We also saw some improvement in ADR growth in the last two months of the year, which we also just saw in the STR industry results for January. Perhaps eliminating or reducing trade tensions and uncertainties was the trigger for increased confidence and the improvements in the last three months. Unfortunately, with the emergence of the coronavirus and its impact on travel, we won't know whether this was the beginning of a positive trend or just a few good months. For 2019, industry RevPAR growth softened from the year before, ending the year just below the low end of our original industry outlook of 1% to 3%. But as we forecasted, the urban and top-25 markets continued to underperform the industry. In the case of 2019, the urban market segment underperformed by the 100 basis points we had estimated at the beginning of the year, and the top 25 markets underperformed by 110 basis points. Supply growth for the industry remained constant at 2% growth, while supply in the urban markets increased 3.2%, representing the primary reason for the underperformance of the urban markets. For Pebblebrook, for the year, our RevPAR growth significantly outperformed the urban markets as we originally expected, and we outperformed the industry by 30 basis points, which was a little better than our forecasts. The successful ramp-up of numerous properties that we've redeveloped over the last few years was a key factor in this outperformance. With the exception of the unpredictable impact from the evolving coronavirus situation, we expect to continue to outperform the urban markets and perform in line or better than the industry due to the benefits from the major redevelopment projects we completed last year and those underway now. This is reflected in our outlook for 2020. We believe industry RevPAR is likely to range between down 1% and up 1%, with urban underperforming by around 100 basis points. For Pebblebrook, we believe our same property RevPAR growth will again outperform urban by 100 basis points and perform in line with the industry. All of these outlooks exclude any impact from the coronavirus. We also expect same property non-room revenues to grow about 100 basis points higher than our same property RevPAR. Also keep in mind that room revenues should grow about 110 basis points higher than RevPAR in the first quarter due to the extra day from leap year, and about 27 basis points higher for the year. Our same property RevPAR and room revenue outlooks also take into account 90 basis points of impact from renovations and operator and brand transitions. As of the beginning of February, overall revenue on the books from group and transient for the year is supportive of our outlook and pacing ahead 1.1%, with room nights up 1.7% and ADR pacing slightly down at minus 0.6%. Group pace is slightly down, but it's up excluding San Francisco, which has a tough comparison to last year's record year. Boston, Chicago, South Florida, Philadelphia, LA, and Portland are all currently pacing nicely ahead of last year's revenue on the books for the year. In arriving at our same property EBITDA outlook, we're forecasting same property expenses to increase in a range of 2.2% at the low end to 3.2% at the high end, and 2.7% at the midpoint. These modest increases are achieved due to the success of our portfolio-wide initiatives and implementation of our best practices, and they're despite combined wage and benefit increases in the 4% to 5% range and continuing higher-than-inflationary increases in customer acquisition costs, including loyalty costs, insurance, real estate taxes, and technology. As a result, we're forecasting same property EBITDA to decline between 2.8% and 5.6%, with the midpoint at minus 4.2%. This coincides with same property room revenue and RevPAR growth rates of 0.3% and 0% at the midpoint, respectively, and same property expenses growing at 2.7% at the midpoint.

Now I'd like to focus on the four areas where we're going to create value for our shareholders in the years ahead, regardless of the economic environment. Those four areas are: our major hotel and resort redevelopments and transformations, the completion of our strategic disposition plan, our portfolio-wide initiatives, and branding. As we explained last quarter, we identified 16 properties within the acquired portfolio that we determined will benefit from substantial investment through repositioning them to a higher competitive level, improving the guest experience, and driving very attractive returns. With our most recent announcements, we've now disclosed the vast majority of the operator and brand changes we determined were needed to position our properties to maximize performance following redevelopment. The vast majority of these have occurred and are now behind us, with less disruptive transitional performance and better overall performance ahead of us. To date, of the 16 major projects we discussed last quarter, we've commenced or completed construction on eight of them: the Donovan Hotel, which will become the seventh hotel in the Unofficial Z Collection following the completion of its $25 million repositioning and its reopening in the second quarter this year as the reimagined Hotel Zena; Mason & Rook, which will join the luxury Viceroy Collection following an $8 million upgrade which is expected to be completed by mid-year 2020; the first phase of the $23 million repositioning of the 162-key Viceroy Santa Monica, to be completed by the end of the second quarter, consisting of $10.5 million in Phase 1 to reinvigorate this property's reputation as one of the most iconic luxury lifestyle hotels in the highly supply-constrained Santa Monica market, through a complete redo of all of its public areas inside and out, as well as creating value by adding seven keys; the $12.5 million repositioning of Le Parc in West Hollywood through a comprehensive renovation of this entire all-suite hotel, with completion scheduled by the end of Q2; the repositioning of Chaminade Resort & Spa in Santa Cruz following the completion of a $9 million upgrade of the property's vast indoor and outdoor public areas and meeting and event venues, with completion early in the second quarter; the $11 million second and last phase of an overall $32 million redevelopment of the former Hilton San Diego Resort, which is being reinvented as an independent luxury resort under its new name San Diego Mission Bay Resort, with the property already renamed and expected to finish its transformation by the middle of the second quarter; a $5 million luxury repositioning of the 96-room Marker Key West, which is now complete; and finally, a $12 million transformation of the 189-room Villa Florence to commence in the third quarter with completion late in the fourth quarter, at which time the hotel will be renamed and reconcepted as The Bayberry San Francisco. Combined, these eight major redevelopments represent an investment of $93 million with a forecasted increase in EBITDA upon stabilization of over $10 million. All of these projects should be complete this year, with ramp-up beginning next year. The remaining eight projects, all of which constitute 2021 completions, include: a $37 million redevelopment of San Diego Paradise Point Resort into a Margaritaville Island Resort; the just-announced $25 million repositioning and reinvention of Hotel Vitale in San Francisco as the eco-conscious luxury 1 Hotel San Francisco; the repositioning of the already luxurious L'Auberge Del Mar through a $10 million investment to drive higher rates and higher food and beverage profitability; a $20 million redevelopment of the Southernmost Resort in Key West, which is similar to our repositioning project at La Playa that has been so successful; the $20 million recreation of Marker San Francisco as our eighth Unofficial Z Collection hotel; our just-announced transformation of Hotel Solamar to a Margaritaville Resort Hotel through a $20 million redevelopment; a $5 million redevelopment and reconcepting of Grafton on Sunset in West Hollywood; and finally, a $20 million redevelopment of an as-yet unannounced property in the portfolio. These eight 2021 projects, coupled with the $12 million second phase of the repositioning of Viceroy Santa Monica, some of which are scheduled to commence in this year's fourth quarter, total $169 million of investment and are currently forecasted to deliver an EBITDA yield of 10% or more in total upon stabilization in 2023 or 2024. All told, we're currently forecasting that the 16 major repositioning projects will represent a total investment of just over $262 million, with an expected 10% EBITDA yield on investment in total upon stabilization.

Next, I'd like to make a few comments about the progress on our strategic disposition plan. As you're aware, we recently announced contracts to sell the InterContinental Buckhead and Sofitel Washington DC for $331 million. The buyer of the two hotels has significant hard money down, and assuming the sale closes, we will have sold 15 hotels for a total of $1.664 billion at a combined NOI cap rate of 5.6% and a combined EBITDA multiple of 15.3 times 2018 operating numbers, all since we closed on our corporate acquisition at the end of November 2018. Our sales metrics are clean and do not add in required capital by the buyers, even though most of the properties sold need very significant capital. Of these sales, two are from the Pebblebrook legacy portfolio and 13 are from the acquired portfolio. The NOI cap rate on the $1.46 billion of acquired property sold or being sold equals 5.4%, and the EBITDA multiple equals 15.8 times. As a reminder, we acquired the entire company with all corporate and property transaction costs at a 5.9% NOI cap rate, so our sales of these less desirable properties have certainly been accretive to value. Our total disposition target for 2020 is $375 million, including the two properties currently under contract. We continue to work through preparing retail for sale from potentially four hotels for gross proceeds of up to $150 million by legally separating the retail from the hotel portion prior to offering the real estate for sale. We expect these sales to occur at various times over the course of the next 24 months or so. And while it's likely that there will be a few additional hotel sales over the course of the next 12 to 24 months, our outlook for this year does not include any further hotel sales beyond those already announced.

Next, I want to provide a quick update on our progress on our portfolio-wide initiatives. These are really important. We continue to make significant progress on maximizing the opportunity to recontract many products and services that we and our operators purchase within our portfolio. We've now contracted for over $7 million of annual run-rate savings within the portfolio and have identified another $3 million of savings that should get finalized in the next two quarters. This would bring us to our $10 million of targeted annualized savings a little earlier than the end of the year, which was our original forecast. But we're not stopping there. We believe there are significant additional savings that we can achieve through portfolio-wide initiatives, and our team will continue to work towards these additional savings. In addition to the $10 million of annualized savings either already contracted for, in process, or identified, there's approximately $3 million of annualized savings in process from the creation of seven separate pods involving 16 different hotels utilizing the same operator in the same market, in many cases within a block or two. Over half of these additional podding and portfolio-wide initiative savings are reflected in our 2020 outlook, with the remaining portion expected to benefit 2021. These $13 million of total annual savings should create over $200 million of real estate value for our portfolio through the improved bottom-line performance of our hotels. The opportunity to create value was made possible by the significant economies of scale we achieved through the portfolio acquisition and our creative and relentless efforts to reap the value of all of the benefits available from creating the largest owner of lifestyle hotels and resorts in the United States.

Finally, I want to briefly touch on the branding opportunities within our portfolio and the potential to create significant value from branding in the longer term. As we previously discussed, we've been working on bringing all of the Z hotels that were separately developed by us over the last seven years under a proprietary experiential brand called the Unofficial Z Collection. We recently completed our branding work with an expert third-party branding firm for the Unofficial Z Collection, and we'll spend the better part of this year rolling out the brand to the existing portfolio of seven Z hotels, including Hotel Zena, which will open in the second quarter in Washington DC. Coinciding with the opening of Hotel Zena, we're planning to launch our Unofficial Z Collection website, which will explain and demonstrate the brand's ethos and the individual personalities of each of the Z hotels. After Marker San Francisco is fully renovated and becomes the eighth hotel in the collection, we'll connect it with the rest of the Z's as well as the collection's website. This will allow us to begin to connect all of these hotels together in the eyes of the customer, as well as start to gain recognition of this unique experiential brand out there in the hotel industry. In addition, we've begun work on a second proprietary brand that will be broader in scale and ultimately incorporate the Unofficial Z Collection as part of it. This broader brand will initially be created by incorporating all of the completely independent and unencumbered lifestyle hotels and resorts in our portfolio, which today total 26 hotels and resorts, including our Z Collection hotels. We believe this base of unique lifestyle experiential hotels and resorts, all clustered between the four and four-and-a-half star quality levels, is rare outside of the major brands and offers a very significant opportunity down the road to create substantial value for Pebblebrook shareholders. We look forward to providing you with more information on our plans and our progress throughout the year. To wrap up, we believe that regardless of the economic environment we find ourselves in over the next few years, we have a significant number of substantial organic value creation opportunities within our new combined company that we've identified and we're actively executing on. Not only are most of these opportunities unique to Pebblebrook, but they fall squarely within our core expertise, having successfully executed on these types of value creation opportunities over the last 20 years. So that completes our remarks, Donna. We'd be pleased to answer whatever questions that our callers might have.

Morning, Rich.

Well, it's a good question. I don't know that our portfolio is big and broad enough across the U.S. to be the ones who can call it, but we do analyze in detail the industry data that Smith Travel puts out and particularly focus on the weekday weekend business and the occupancy levels on a year-over-year basis. And in addition to the more shorter-term positive pickup trends we saw over that three-month period from November through January, when you look through and focus on the weekday business across the industry, you clearly see an improvement overall after October. In business transient, you had demand up in November 2.7% or 2.8%, you had demand for weekday business in December up in the 1.8% to 1.9% range, and then in January it even got a little stronger. And I think January was probably a cleaner comparison month when you think about November and December and the probable benefits that were received in the industry from the holiday shifts which fell better. But occupancy weekday in January was up 0.9%, which means weekday demand was up close to 3%. And so that's clearly an acceleration. Again, maybe some of that was due to better weather and fewer impacts from weather in what might traditionally be a weather-impacted month in January, but clearly there was a positive trend, positive results going on in January.

Yeah, that's a little tougher because we don't really have any portfolios out on the market, and we don't see many other than on the select service side out in the market. But one of the things that was interesting about the sale of the InterContinental and the Sofitel is we had those actually listed separately, and they were being sold separately on a different task. And we had an institutional buyer come in who had an interest in both, who actually indicated they had a much stronger interest in both than they had in either of the individual properties, meaning that they were more focused on getting more capital out to high-quality assets in good markets than just getting it out on a piecemeal basis. And they ultimately preempted the process. So that's one anecdotal piece of information, but it certainly indicates that what we believe, which is for good quality assets and good markets, there's a lot of capital out there.

Yeah, I assume you'll have disruption in 2021 with these projects as well. Yeah, it means we would expect a similar level of disruption in 2021, again give or take a couple of million dollars, as is the case as we're forecasting for this year, which is all of about a million dollars different than last year. So all should continue to be about the same, and the total investment dollars should be about the same as well next year. Even though the number for the projects looks higher, some of those projects start in the fourth quarter of this year, have a little bit of impact which is built into our numbers, and of course there's a lot of pre-start dollars that go out related to not only soft costs but deposits and orders for FF&E well in advance of when they would be installed in the 2021 project. So we think it's pretty smooth between 2019, 2020, and 2021 in total dollars out, again give or take 10 or 20 million, and in disruption. But yes, stabilization and the largest amount of impacted ramp-up would occur in 2022.

Yeah, they might have some specific circumstances within their portfolio. I think it's hard to gauge. It's interesting that we noted a 4% to 5% increase in the combined wage and benefit, that's our forecast for this year, being mitigated elsewhere, particularly through our efforts. But it comes off a base of increases that are generally in the 2.5% to 3% range for much of or the majority of the portfolio. The difference is that benefits are going up at 5% to 7%. You're seeing some minimum wage increases that continue to clip along in numerous cities and states, which again only impacts a small portion of our employees, and often it's the tipped employees. There's not something specifically provided in the legislation that's different as there has been historically for tipped employees. And then a few markets where the wage and benefit combo is driven by contractual union increases, which have fallen again in the 4% to at most 5% annual range. And then a few markets like Nashville, where there's so much new supply being added, with new supply driving up wages and benefits start rates because of their need to hire folks in a very tightly constrained labor market. So you put that together and that's how we get to that 4% to 5% range. It's hard to know whether those are going to abate moving forward. It really depends upon what goes on in the economy.

Thank you, Smedes.

Yeah, so the ones that we have planned are mostly complete. So we have a transition that'll take place at Vitale as it becomes the 1 Hotel, and the folks who manage the 1 Hotels, the Starwood Hotel Group, will come in and manage that. So we have that transition. We have a few brand transitions, if you will, within the portfolio. We've probably felt most of that impact, or it's built into our numbers for this year. And then it's always possible. I mean, if we have performance that we just are unsatisfied with on an ongoing basis and we don't think an operator can turn things around for really structural reasons related to their organization, we will make changes in the future. But in terms of what's planned, we're for the most part through the major impact, and in fact this year the impact we believe is less than what it was last year, and we think that will decline again next year.

Yeah, so there is some incremental investment we're going to make in the portfolio to make what were individually created hotels into hotels that all share the ethos that we've determined is underlying the Unofficial Z Collection. So we've already gone through the properties with our designers and project managers. We'll have some work, relatively minor, through the portfolio. We haven't scoped out the full amount of the investment, but I would say at most in the portfolio it's a couple of million dollars in total spread about six of the existing hotels. So pretty minor. And ultimately, I think connecting them in the eyes of the customer will begin to bring a little bit of business across the portfolio that we don't see today, and a little bit of business particularly from the group side where we have some really unique meeting and event venues within the portfolio. And I think providing them as a group and showing them all together is going to be stronger than showing them individually. So I think ultimately it's going to lead to more business and cross business, but I don't want to overstate it. A brand of seven or a brand of eight isn't going to drive a lot of business outside of what each of the property teams is going to drive by themselves.

Thank you.

Yeah, I think what we've been seeing, and you hear this from the brand companies, is that they have fairly dramatic increases in the number of members of their loyalty programs. And if you think about that, if you're in many cases these are people who stay two times a year who booked through other channels perhaps or book direct but never joined the program, and with an aggressive push to get them to join, well what it means is we've taken business that we weren't paying the loyalty percentage on, which might be 4% to 5%, and we've turned it into business that we're now paying loyalty costs on. So generally speaking, through our portfolio, we're seeing an increase in the number of customers as a percentage of our total business of our major branded properties that are loyalty members, which means we pay more into the program. And I think we commented last year, I would say for the most part maybe we were just unlucky, but we lost a lot of redemption business that's clearly gone to others, primarily Starwood business that went over to Marriott properties because there were more choices for what had been a more limited inventory of Starwood properties. And then if you think about what the other benefit of these big brand loyalty programs is, if you take a customer who was paying full price once or twice a year and they join and now they get a 3% to 5% discount depending on the day, we're also having an impact on our average ADR. So there are positives that offset some of this stuff, but on the distribution cost side, we and most everyone in the industry have been seeing significant increases in customer acquisition costs at a much faster pace than inflation. So I'm not here to say they're not valuable programs. All we're stating is that the costs have been going up much faster than inflation, and we don't think we're getting it back in revenue at this point.

Yeah, so I think again, we don't want to get ahead of ourselves and promise something that doesn't turn out to result, but I think it's giving us optionality in a number of areas. One, I think a brand of 26 versus a brand of 8 begins to provide some value across the brand ultimately to each of the properties in the brand. I think the second thing it does is it provides, as we make acquisitions, another opportunity to grow that brand. And third, there potentially is opportunity based upon the scale of that entity to bring others in, whether it's through license arrangements or through affiliations, ultimately to grow that brand. And so what ultimate value there is to that would ultimately get determined by others if at some point we decided it was something we wanted to monetize. But I do think if you think about the major brand companies across the world, their growth is all about unit growth, and in order to get more unit growth over time, they're going to need more brands. And the brands that are generally more difficult for them to grow and create on their own are the kind of brands that we're talking about creating, whether it's the ones that have uniqueness across the portfolio. And so we do think ultimately there will be significant value for the brand scale and the creative nature of the collection, as opposed to just some management fees that in many cases often go away after these acquisitions occur, right?

Yep. Thanks, Anthony.

Yeah, good question, Shaun. We actually think we're at the peak for urban at this point, and it's on the way down. And so for us, when we look at what we think supply growth will be next year on a weighted average basis in our portfolio, we see that pretty close to 2% versus the 3.2% it ran last year. And for us, likely to run in the 3% range this year and also in that range for the industry. So we do think it's beginning to peak, that it'll be on the way down as we go across this year. There obviously has been a significant stretching out of the time it takes to build and deliver, and during that period we've seen a decline in urban starts. And so while you can look at what's under construction frankly for the whole industry and see it inching up over the last 18 months, the deliveries have really peaked, and there's more under construction only because it's taking longer for a property to go from beginning to completion, and because starts have declined. And we expect that to accelerate because what we've seen obviously over the last three to four years is we've seen no increase in bottom lines on average in the industry, but we've seen 20% to 30% or more increases in cost to deliver through the increase in development costs. And so the yield, the ability to deliver an attractive yield, has gone down dramatically on new development. And so we think it's turned. We think we're going to see it next year in our portfolio. We think the disadvantage of additional supply growth in the urban markets disappears by next year and then begins to look even more attractive in the industry where you're seeing more development in the suburban markets now than in the urban markets.

Really back in 2018.

Yep. Thank you.

Nope, doesn't say a thing about it. It basically says there are significant attractive returns from these investments. It's the best place to allocate capital today, and the sooner we get them done, the quicker we get those returns. And in a number of cases, these are properties that need to be redeveloped, and if we don't put the capital in, they're going to continue to lose share.

Sure. So as it relates to Margaritaville, I think we feel like there's more power to that brand in San Diego based upon the customer base that is convention and leisure, than a Z Collection, which is much stronger with corporate business, which you see more in the other markets where the Z Collection is. So a market where we're lacking that base of major corporate accounts probably isn't the best place for a Z Collection. So Margaritaville really fills the void for that leisure customer and the convention goer who's looking for that sort of chilled resort-type experience in a downtown location. As relates to the 1 Hotel, I think the fascinating thing about 1 Hotel is it's a Five Diamond product in the eye of the customer, a luxury product in the eye of the customer, but the cost base of operations is Four Diamond. It's a lot like the W, except I would say it's being executed extremely well today and it's very successful with the customer base. And so we have other properties like that where we provide a Five Diamond physical experience but a Four Diamond level of services, but we get Five Diamond rates. And 1 Hotel would fall into that category.

I don't know. We can get back to you on that, Bill.

Morning.

Yeah, many of them have resolved one way or another. I think as it relates to the group sales issues, I think we're in pretty good shape everywhere except for San Diego, where we continue to have issues with group sales. We're very far behind this year, and I know Marriott is working furiously to improve the performance of that cluster sales group. And I don't think we're alone in experiencing issues. As it relates to redemptions, unfortunately I think we just got the shaft at the end of the day. Our properties were disadvantaged by the combination. Marriott's done a very good job working with our teams to replace that business with other business, but that redemption business is not going to come back. It's now subject to different customer behavior because the customers have more choices. So I think we're pretty much behind us with most of it, other than the San Diego group sales issue, which I think is unfortunately going to disadvantage our property this year in that market for the better part of the year.

Yeah, I mean, I'd love to be a great sales pitch to say all we have to do is turn something into a Z and it goes from 32% to 40%. Unfortunately, I don't think we can make that case. I think there's some benefit. Three of them are sold together by Viceroy, they're marketed together. I think that's a good indication of the benefit of connecting them together. That's Zelo, Zetta, and Zeppelin. They're also all within about five blocks of each other in the Union Square-SoMa market. I think some of the benefit is specific to those properties. Two or three of them don't have food and beverage operated by us, they have third-party independent restaurants, and they also do the banquet. But I think part of it is related to how we've approached the food and beverage at those properties in terms of creating unique venues that drive a lot more food and beverage, drive a lot more event business, that the restaurant can be very successful with that help, and which we get significant room rental revenues. Our room rental at this tiny little hotel, Zelo, which has two board rooms and a restaurant with a patio, was over $800,000 last year. And so the ability to drive that through the creation of unique spaces, whether they're Z's or others, but they are in many cases a part of the ethos of the Z Collection, and where we do think there is a competitive opportunity. So there's some of each. At the end of the day, that is a result of the benefits. Some of it is property specific, some of it is specific to what the ethos is for the Z Collection, and some of it is the market being San Francisco being a better market. And some of it, of course, you mentioned the clustering, the ability to cluster operations to some extent.

Yes, okay.

Yeah, so it's a very complicated asset. I think the challenges there have more to do with the dynamics of the market, the location of the property, and where it historically has created its segmentation and driven its business. I think its location as one of the farthest hotels away from the convention centers has progressively been an increasing problem, and the replacement of that business is really the key to the success of that property and how to drive other business there. And that's what we've been working with Marriott on in terms of improving the performance. It also was disadvantaged by the Marriott-Starwood merger and the removal of the sales teams from the property and into a cluster. We think that's doing much better today, but perhaps not quite as well as it would have had the team still been at the property. And then finally, we ultimately have some flexibility here with overall real estate use, with a management agreement that's up, I think, at the end of 2026. And so we're putting a lot of time and effort working with third parties on what are the creative alternatives, what are the alternative uses, if any, for this property versus what it is today. Whether it's in hotels and maybe it's dual branding, which can be easily done because of the way the physical property works, or are there alternate uses that might be better. And then finally, we have a small amount of retail, very high-priced, high-rent retail on North Michigan Avenue, that ultimately we're looking at separating that out and selling that separately.

Yeah, so it definitely has to do with our long-term view of the market. I mean, we still are a fan of the market longer term, but we've wanted to reduce our share of our portfolio in that market. And so that's where you've seen quite a few of the dispositions within the portfolio. You're also seeing us completely redevelop two properties in the market, so we do continue to believe in the market. We think there's opportunity, particularly for certain types of assets, but we also think that it's probably a little bit more of a slow grower over the next five or ten years than perhaps some of the other markets we're focused on.

Yeah.

So, Neil, I mean, we've been doing this for almost 20 years, and so one of the things that gives us comfort is our experience in analyzing the market and analyzing the customer base of the market, and understanding if we make investments and we do certain things to improve the properties, that we can create a product that will drive, in many cases, a whole new set of customers to come to the hotel. So if you're taking a property that's three-and-a-half diamonds and you're making it a four or four-and-a-half diamond property, in most cases we have to go out and find all new customers, whether it's meetings, whether it's transient, whether it's leisure, whether it's business. And our comfort comes from understanding the market overall, who would our new competitors be in the market. It's not about raising the rate on the customers you have today. It's about saying, look, we're going to, in many cases, abandon the customers that we have today. We're going to go find the customers who are paying these kinds of rates for this higher quality product with higher quality services than what's been provided in the past. So we go through and we look at the market, we look at those competitive sets, we look at the performance of their rates and their occupancies and their RevPARs, and we say this is where we think we can get to in total. We can be competitive because we're creating a competitive product in a competitive location. And if we get those revenues and get this food and beverage revenue because of the creative nature of the product we're providing, then we can deliver the returns that warrant those capital investments. And that's pretty much the process that we go through. It's very scientific at the end of the day. And you know, also we provide historically all of our hotel EBITDA by property since our period of ownership, in some cases back to 2010, so you can look there and see a lot of these redevelopments we've done, we reinvested meaningful amounts of capital and how we repositioned the properties and how it's benefited the bottom line. So the track record is there to look at and appreciate that.

Thank you.

Sure. So, obviously we know what we've read and what they stated, which was those two reasons you just mentioned. It's hard to take issue with the street condition comment, and I think the city is moving in the right direction, but I think they have a long way to go to make a dramatic impact improving that. There's also a lot of self-help going on within the market in the Business Improvement Districts where we have a lot of properties. The businesses are banded together and are providing cleaning services and security services in and around our neighborhoods. But I think where I might take some issue, I don't think San Francisco, and particularly for the Oracle conference, I don't really think they have unusually high hotel rates. And I know that the hotel community has been working with Oracle on rates over the last few years. So I mean, you can go to just about any other market other than Las Vegas, any of the major markets, and the convention rates for a convention that size are pretty similar across the country. So I do take issue with that. I also think there's perhaps, and I'd be speculating here, but this is a citywide conference that has had declining participation over the last five years and competing with an ever-expanding Salesforce conference and VMware conference, both of which are in the fall, both of which draw similar participants, exhibitors, and attendees. And so perhaps part of the decision making, even though they didn't say it, was because they need a new venue that they're not doing well competitively with two other competing conferences. So there's a lot of work to do in San Francisco related to the cleanup of the city, the understanding of many about how important it is for local businesses to be successful. There's more collaboration that's needed by government with the business community that's working very hard to create better conditions in the city. And perhaps the Oracle move is a bit of a slap in the face that maybe it wakes some people up. And maybe they'll need to be another slap in the face before folks really wake up. It's hard for us to know. But the city is very successful because it draws a lot of people. There's a lot of attendees, and these associations depend on the revenue. And so you can move your conference for whatever reason you want, but if people don't want to go to the city that you're having it in, you're not going to make as much money.

Yes. So to be clear, there's no political statement being made. The narrative is not an activist message. The narrative is a celebration of the success of women, the empowerment of women, the equality of women, and the fight for those things to achieve what should come naturally over centuries around the world. And so it's not a political message, it's not a movement. That's not really what we're geared at. But we are about celebrating, and we think it's time to celebrate those things and really look at things in a positive way. And doing it in DC, hard to think of a better place to launch it. And could there be other hotels within the Z Collection that have a similar narrative? There certainly could be.

Sure. We appreciate the interesting questions. Thanks, Greg.

Yeah, of course we have. We've estimated what we think that impact is going to be in the first quarter and specifically in March, and we built in other cancellations that are for later periods during the year, of which we've had some. So all of that is built in. Of course, we are making modifications to the way we revenue manage. We're over-selling more in our hotels with the expectation that there are more cancellations, that there's more attrition, that there's more competition on a near-term basis near arrival. So yes, we are making lots of different changes and have been for the better part of a month now within our portfolio.

That's a broad generalization. As a broad generalization, we're moving the hotels into a higher set.

Thank you.

Well, I think there is a wide range, as you indicated. I can give you a few of them. I would say in many cases, there's significant capital going in. So in some cases, it involves changing the brand and operator. So the L'Ermitage becoming a Joie de Vivre or Pod, not sure exactly what it's becoming. The Topaz was sold, it's becoming a select service hotel with a lot of work being done to add and subdivide the suites to make a lot more keys. There's some properties that were sold with Kimpton as operator where Kimpton's been kept. There's a property in Boston that was sold with a piece of land next to it where they're adding 77 keys and public areas to the property, and we understand renovating the existing tower. Obviously, the InterContinental and Sofitel, those are long-term encumbered from a brand and operator perspective, so no changes are being made to those two. So it's a pretty diverse set of outcomes, Lukas. At the end of the day, I think the important part is, outside of those two, the InterContinental and the Sofitel, the flexibility of being completely unencumbered provides a broader base of buyers, a deeper base of buyers, and more strategic buyers, and has provided higher multiples and lower cap rates, so higher value for those assets because of the flexibility.

Thanks very much, Lukas.

Well, if anybody's still there, thanks very much for participating. We look forward to updating you in April, and for many of you, we look forward to seeing you at the Raymond James and the Citi conferences and the Wells Fargo conference over the next month. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.