Pebblebrook Hotel Trust Aktie

Greetings, and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Conference Call. [Operator Instructions] 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, Christine, and good morning, everyone. Welcome to our second quarter 2026 earnings call. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer. But before we begin, I'd like to remind everyone that our comments today are as of July 30, 2026. Today's comments may include forward-looking statements that are subject to various risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of non-GAAP financial measures mentioned today. Now let's get to the second quarter results.

We delivered another excellent quarter, exceeding the high end of our outlook across every key earnings metric for the second consecutive quarter. Same-property hotel EBITDA increased 7.1% to $123.3 million, $6.6 million above the high end of our outlook. Adjusted EBITDA was $116.2 million, $6.2 million above the high end and adjusted FFO per diluted share was $0.68, $0.06 above the high end. The story of the quarter was straightforward. Our resorts in San Francisco led the portfolio. Stronger pricing drove total revenue growth, our teams expanded margins and disciplined capital allocation activities amplified our per share growth. Let me take each in turn.

At the portfolio level, same-property occupancy increased approximately 130 basis points to 79.4%. ADR grew 4.7%, RevPAR increased 6.5% and total RevPAR climbed 4.7%. Nearly 3/4 of our RevPAR growth came from rate, a meaningful shift from recent quarters when occupancy gains did most of the work. As occupancy rebuilds, greater compression is giving our teams more pricing confidence, which is supporting higher room rates. We also see less price sensitivity among upper-end consumers, benefiting our premium resorts and higher-end urban properties. Let's start with the leaders. Our resorts were the principal growth engine in Q2. Resort RevPAR increased 12% and total RevPAR climbed 10.9%, supported by continued robust out-of-room spending.

The strong revenue growth drove hotel EBITDA for our resorts up 18.5% with 216 basis points of EBITDA margin expansion. Applied led the way with occupancy climbing more than 11 points, RevPAR increasing 33.9% and EBITDA rising 28.8% as this post-hurricane construction ramp-up continued. Paradise Point in San Diego was close behind, growing RevPAR 22% and EBITDA up by more than 40%. Resorts generated roughly $16.5 million of the portfolio's $18.3 million revenue increase and their $8.9 million EBITDA gain more than offset the declines in urban markets held back by weaker convention calendars. More important than the headline growth was the broad nature of the improvement. At our resorts, group room nights increased 18% and group revenue grew nearly 19%, led by association and corporate group demand.

Transient ADR rose more than 12%, producing nearly 10% transient revenue growth on slightly fewer room nights. That powerful combination, rising group volume and stronger transient pricing demonstrates the return on the capital we've invested in guestrooms, meeting spaces, outdoor venues, restaurants and bars. Newport is a good example. RevPAR grew 20.3% on a 13.5% ADR increase with total RevPAR growth of 18.6%, translating into EBITDA growth of almost 26%. Estancia, another recent major development, generated RevPAR growth of 22.8%, total RevPAR growth of 19.6% and EBIT growth of 54.7%. Both of these resorts continue to gain share following their redevelopments and luxury repositioning.

San Francisco was once again our top urban market. Occupancy increased nearly 500 basis points and ADR rose almost 9%, driving RevPAR 16% higher and hotel EBITDA 24.6% higher, roughly 250 basis points of margin expansion, all without the RSA citywide, which shifted to March this year. The Snowflake and Databricks citywides in June more than made up for the difference and business transient and leisure demand were very strong beyond the citywides.

Year-to-date, EBITDA at our 7 San Francisco hotels is up by more than $13 million or 110% versus last year, making significant progress against the $18 million recovery opportunity detailed in our updated investor presentation. Los Angeles is following a similar path, but with less intensity. RevPAR up 8.6%, hotel EBITDA up almost 14% and year-to-date EBITDA higher by approximately $6 million or 73%.

Capturing the larger $22 million upside opportunity for our Empire L.A. portfolio, as outlined in our investor presentation, will require continued market recovery and property level execution, but the momentum is building and the 2027 Super Bowl and the 2028 Olympics will provide a big push.

Our weaker urban markets included downtown San Diego, where RevPAR declined 9.1% against a difficult citywide comparison and Washington, D.C., where RevPAR declined 9.9% amid weak government-related travel demand and significant property level leadership transitions, which are now largely complete. Overall, urban RevPAR increased 4.1%, but urban total RevPAR increased only 0.8% and urban hotel EBITDA declined 1%. The strong performance in San Francisco and Los Angeles was offset by weaker convention calendars and banquet and catering revenue in San Diego and Boston, along with continued government-related weakness in Washington, D.C. The result was a shift from group to transient demand, which is worth a closer look.

Portfolio-wide, the quarter was transient led. Transient revenue was up nearly 10% on a 7% increase in ADR, concentrated in higher rate channels. Group revenue declined approximately 2%, while corporate group revenue was essentially flat. Importantly, the group softness reflected the convention rotation, not demand pullback. That mix also helps explain the gap between the portfolio's 6.5% RevPAR growth and 4.7% total RevPAR growth.

Out-of-room revenues grew 1.7%. Urban banquet and catering revenue declined approximately 20%, concentrated primarily where the citywide calendars were weakest and where World Cup matches scared up groups. By contrast, resort food and beverage revenue grew nearly 11% with banquet and catering revenue increasing more than 16% on resort occupancy growth of 310 basis points. Where group and transient customers showed up, they kept spending and spending a lot.

Looking at how the quarter developed, April started well with RevPAR rising 6%. May was the softest month as we flagged last quarter, up roughly 2% on later convention calendars. June then accelerated sharply with RevPAR up nearly 12%, driven by an ADR increase of 14%.

Occupancy actually dipped slightly, so June was entirely a pricing story. World Cup increased RevPAR modestly in June and in the quarter, but reduced non-room revenues. Jon will discuss the overall World Cup impact in more detail in his comments. So that's the revenue story. The earnings story is how effectively our teams turn that revenue into profits, and they did another great job. They converted 4.8% total revenue growth into 7.1% same-property hotel EBITDA growth with same-property total expenses increasing just 3.8% and margins expanding 67 basis points to 30.6%.

The discipline shows up across the P&L. Rooms expense grew at less than half the pace of rooms revenue, increasing only 3.1%, even as occupancy climbed 130 basis points and room revenue grew 6.6%. Energy expenses were also well contained, up 2.7% for the quarter and flat year-to-date, reflecting the benefit of our energy reduction and sustainability initiatives.

On a per occupied room basis, total expenses increased just 2%, highlighting our team's continued positive results from our ongoing intense focus on operating efficiency. We also completed our property insurance renewal on June 1 at premiums approximately 27% below last year or $6 million lower, which is better than we anticipated and a nice tailwind through next May. A more favorable insurance market helped, but so did a disciplined program design and the capital we've invested to harden weather-exposed assets. Now let's turn to capital allocation. The prior quarter you won't find in any same property statistic.

Despite losing approximately $5 million of hotel EBITDA from hotels we sold and comparing against $3.2 million of prior year business interruption income, adjusted EBITDA declined less than 1% and adjusted FFO dollars were essentially flat. A 4% decrease in diluted share count lifted adjusted FFO per share 4.6%, while retained free cash flow per share after dividends increased nearly 25%. This is what disciplined capital allocation should accomplish. per share earnings and cash flow growing faster than company earnings despite asset sales.

On the investment side, we invested $12.5 million in the portfolio during the quarter and remain on track for $65 million to $75 million for the full year. This lower capital requirement converts more of our earnings into retained free cash flow for debt reduction and opportunistic repurchases of our common and preferred shares. During the quarter, we sold the Chamberlain West Hollywood Hotel for $43.5 million and used $26.1 million of the proceeds to retire $33.7 million in preferred shares at a 23% discount. That single transaction generated approximately $7.6 million of immediate value accretion and eliminated over $2 million of annual preferred distributions.

And over the last 8 months, we sold 3 hotels for just shy of $160 million at an aggregate 15.4x EBITDA multiple and a 4.6% NOI cap rate. These sales as the ones before, continue to validate the portfolio's private market value. The value creation playbook is simple: sell hotels at higher private market values and use the proceeds to reduce debt and buy back common and preferred securities at prices below their underlying value. During the first half, we repurchased 0.9 million common shares at an average price of $13.62 and retired 1.5 million preferred shares at an average 23% discount for liquidation preference.

Our balance sheet also continues to improve. Net debt to trailing 12-month corporate EBITDA declined to 5.3x from 5.5x at the end of Q1 and 5.9x at the end of 2025. We ended the quarter with $270 million of cash, $641 million of revolver availability and $90 million of delayed draw term capacity or a total of $1 billion of liquidity. The remaining $350 million of the 2026 convertible notes are fully funded through existing cash, expected free cash flow and term loan capacity, and we have no other debt maturities until 2028.

Stepping back, the first half demonstrates 2 forms of compounding, operating leverage of the hotels and disciplined capital allocation at the corporate level. Same-property hotel revenues increased 7.2%. Same-property hotel EBITDA grew 14.5%. Adjusted FFO per share improved 23.8% and free cash flow per share surged 69% to $0.76 or $87.8 million. Each layer amplifies the one before. And with that, I'd like to turn the call over to Jon for more color on current demand trends, event-related business, our markets and the outlook for the balance of 2026. Jon?

Thanks, Ray. Since Ray covered our second quarter performance in detail, I thought I'd step back and provide a more high-level view of both the industry and Pebblebrook. So let's start with the industry's performance in the second quarter. As a reminder, the industry setup was very favorable in Q2. Benefits we expected from better holiday calendar, a uniquely active major events calendar and a reconnection between GDP growth and industry demand growth. They all occurred in the second quarter. Going into the quarter, our concern revolved around the potential for geopolitical or policy events that would negatively impact the economy and travel.

Fortunately, the conflict in the Middle East and constantly changing trade policies have not yet had a negative impact on the economy or U.S. travel in general so far this year. As a result, industry demand growth was healthy in the quarter and with little new supply being added, occupancies rose and ADR growth accelerated due to the better setup, more compression days, less price sensitivity by higher-end customers, in particular, all of which led to more pricing confidence. All of the major hotel demand segments remained favorable. Group, corporate transient and leisure travel all grew weekdays and weekends alike.

We even saw the international travel balance improve in June. Inbound travel turned positive for the first time in quite a while, presumably helped by World Cup visitors, while outbound travel declined. Both sides of that provide benefits for U.S. hotels, more foreign visitors coming in and more Americans staying home.

For Pebblebrook, as Ray described in detail, we saw the same industry benefits in Q2 and more, even though we had soft convention calendars in a number of our major markets. During the second quarter, in the quarter, for the quarter pickup was very strong, exceeding last year by $8.4 million. We haven't seen any increase in group cancellations or attrition and attendance levels for group meetings have been more predictable than last year. We continue to watch for signs of weakening, but pickup in and for the month, quarter and year has remained favorable.

World Cup delivered a modest benefit to room revenues. We estimate an increase of between $1.5 million and $2.5 million or roughly 60 to 100 basis points for the quarter in RevPAR. The incremental World Cup demand was largely offset by corporate group and transient business that stayed away due to higher rates and many booking restrictions. So the net room benefit came primarily from rate, not occupancy. This also explains the slight June occupancy dip Ray mentioned.

The change in mix from group to transient, unfortunately also had a negative impact on food and beverage revenues in our match markets, particularly banquet and catering, which declined on a year-over-year basis and offset much of the room revenue gain. In total, we estimate the net benefit to hotel EBITDA from World Cup was between $500,000 and $1 million, a relatively minor benefit overall, but a benefit nonetheless.

Turning back to the industry outlook with a strong economy that remains resilient and with corporate profit growth at high levels and accelerating, there are fundamental reasons to be encouraged about positive industry trends continuing in the second half of this year. However, we remain concerned about potential negative impacts from the protracted and widening Middle East conflict, policy changes and geopolitical instability and the real possibility of another potential government shutdown this fall.

Given the strong operating performance in Q2 and with July continuing that trend, we're increasing our industry RevPAR growth outlook to a range of 3.5% to 4.5%. As we look out beyond this year, we believe we're at the beginning of a strong multiyear up cycle for the hotel industry. I think we can now confidently forecast that supply should remain very limited through most of the rest of this decade.

We're at the beginning of a major multiyear capital investment cycle related to both AI and the reshoring of manufacturing, and we have another huge business investment cycle right behind this one with the creation and build-out of the robotics industry. We also expect very significant and growing benefits from the massive wealth that has been created over the last 15 years for both investors and employees and from the largest transfer of wealth in global history as the baby boomers begin to pass on the wealth they've amassed.

We believe the prospects for healthy multiyear demand growth have never been stronger or clearer in the last 30 years, nor has supply growth been so limited at the same time. These are incredibly positive multiyear fundamentals. The multiyear setup is very good, just like this year's setup was very good. Of course, a lot of things could still go wrong as they did last year.

Before turning to our Q3 and updated full year outlook, I want to spend a few minutes on why we're increasingly constructive about 2027 and the broader multiyear setup. For 2027, we believe the strong demand and supply fundamentals should outweigh any headwinds related to difficult comparisons to this year's numbers. There are a number of reasons for this view. First, we expect the economy to remain strong and potentially accelerate as business capital investments ramp further next year and corporate profit growth remains at high levels. Second, we believe the wealth effect will provide a growing positive impact on spending and travel. Third, while we have a strong holiday calendar this year, it's just as favorable in 2027. In addition, while the industry benefited meaningfully in June and early July from World Cup and America 250, we expect demand to materially outpace supply next year, which will drive occupancies higher, creating more compression and greater pricing power throughout 2027, which should more than offset the loss of this year's event-related benefits.

And finally, we ultimately expect the international inbound outbound travel imbalance to reverse and it could occur next year if the positive experiences foreign travelers had at the World Cup and traveling throughout the U.S. and the very favorable media coverage to the World Cup activities translate as they normally do into increased future travel to the host country. A more positive impression of the U.S. compared to all the previous negative media about our country should help increase travel to the U.S. from abroad.

For Pebblebrook in 2027, we should continue to see significant growth from the recoveries in our urban markets, led by San Francisco and Los Angeles, coupled with more favorable convention calendars in San Diego and Boston that are expected to significantly improve the performance of those markets next year. We also have a number of significant events next year, including the Super Bowl moving from San Francisco to Los Angeles, NCAA Men's Basketball Regional Finals in L.A., the NFL Draft in Washington, D.C., the Star Wars 50th anniversary celebration in L.A., the Major League Baseball All-Star game in Chicago and a significant amount of expected pre-Olympic travel into L.A. We should also see further upside from our redeveloped properties as they gain additional share.

And finally, our resorts should benefit from the ongoing K-shaped economy and the growing wealth of the higher-end consumer. While the Super Bowl won't be in San Francisco next year, we continue to expect strong RevPAR growth in the city as citywides continue to return, albeit at lower rates than the Super Bowl, and corporate transient travel should grow significantly at higher rates as corporate growth in San Francisco continues to boom. We also expect leisure travel to see further increases as the impression of the city's environment has turned positive over the last year, and the city has been a showcase this year during major events.

Turning back to this year. Q3 is off to a great start with July proving to be stronger than we expected. Short-term pickup has surprised to the upside, and we think this indicates that summer vacation travel is starting strong, continuing the positive leisure trends from Q2. Having July 4 fall on a Saturday provided a big lift to our portfolio overall and probably a much bigger lift than the weekend related America 250 events. Group pace for the third quarter is also favorable. Corporate travel growth remains strong and leisure travel is accelerating and allowing us to average higher prices through less discounting, fewer promotions and reduced use of lower-priced wholesale channels. Based on preliminary results through the 25th, July RevPAR is on pace to grow between 7% and 8% over last year. However, we're not prepared to extrapolate July's unusually strong short-term pickup across the entire quarter.

Our Q3 range preserves a prudent allowance for shorter booking windows, potential macroeconomic and policy-related volatility and the impact of geopolitical events. For Q3, our outlook assumes same-property RevPAR growth of 1% to 3%, same-property hotel EBITDA of $100.5 million to $104.5 million, adjusted EBITDA of $92.5 million to $96.5 million and adjusted FFO per share of $0.48 to $0.52.

When we look at our pace for the second half of the year, as of the end of June, room revenues were pacing ahead of same time last year by 5.5%, which is a total of $10.7 million. About 80% of this revenue pace advantage is being driven by transient with the remaining 20% in group. If pickup for the second half of the year equals last year's pickup, it would translate to RevPAR growth equal to roughly 2.4% in the second half.

To put these numbers in perspective, our current nominal pace advantage is in line with the high end of our implied RevPAR growth outlook for the second half of the year. So if pickup in the second half runs ahead of last year, then we would exceed our outlook by the higher pickup. Recall that last year, with everything that happened, we lost pace advantage as the year progressed and finished down for the year in room revenue.

Speaking of our outlook, we're raising our full year outlook to reflect the second quarter outperformance while maintaining our prior assumptions for the second half. With the increased outlook, we're now forecasting same-property RevPAR growth for the year of 4.5% to 5.5%, an increase of 125 basis points at the midpoint.

We're also forecasting same-property EBITDA growth of 8.2% to 10.5% with the midpoint at 9.3%, a healthy increase for the year and a material step-up from our prior outlook. These increases translate into an adjusted FFO outlook of $1.69 to $1.76 per diluted share, an increase of $0.08 at the midpoint with a similar increase in our free cash flow outlook. As I indicated earlier, but worth repeating, current trends remain favorable, but booking windows remain short and the geopolitical policy and macroeconomic environment remains uncertain.

We're encouraged by the industry trends we've been seeing, but we're not yet comfortable assuming visibility we don't yet have. We'll continue to take the year 1 quarter at a time. And if there's no material impact from geopolitical policy or other macroeconomic events, then we should keep performing favorably to our outlook just as we have in the first half.

With a terrific first half behind us and a positive setup in the second half, we remain very excited about the full year for Pebblebrook. Now we just need the rest of the year to cooperate by providing a more stable environment. So with that, we'd now be happy to take your questions. Christine, if you wouldn't mind, please proceed with the Q&A.

[Operator Instructions] Our first question comes from the line of Duane Pfennigwerth with Evercore ISI.

Congrats on these results. I just wondered if you could speak a little bit more to the drivers of the better pickup that you have seen and you're continuing to see. Is that primarily leisure transient? Or are there other drivers to that better pickup, which feels like the key assumption for the back half?

The drivers have been fairly broad, but I'd say, clearly led by the transient side. And it would be both corporate transient in terms of in the month, for the month, in the quarter, for the quarter pickup, and it would be leisure transient.

And so from a demand side, those are the primary drivers. group stability and group attendance and predictability in group attendance and spend are also positive. I think the other driver of potential revenue growth, which is what we've seen -- been seeing increasingly, and we saw it in Q2, and we saw it in resorts in San Francisco, is an ability to drive pricing higher through increased pricing through increased premiums on premium rooms, no different than the airlines as an example, through using less promotions and discounting and looking at our mix and using channels trying to drive business more through the higher-rated channels and being less focused on some of the lower-rated channels.

So it's fairly comprehensive in terms of what we've seen in the drivers and what we hope will continue in the second half of the year.

Our next question comes from the line of Smedes Rose with Citi.

I was wondering, you provided a lot of detail around the operating outlook, which sounds relatively positive, and I get that you're somewhat tempered. I was just wondering if you could speak to what you're seeing in the transactions market. Is that -- it seems like it's kind of picking up from what we're hearing, but curious as to what you guys are seeing?

Yes, Smedes, this is Tom. Listen, it continues to be more constructive. Obviously, we expected that in terms of the improving operating fundamentals. As we stated previously, capital followed performance. We're seeing more transactions. We're seeing larger transactions. We're seeing more investor depth and performance is leading to more investor conviction. So you have all of the ingredients. I think you have increasing operating fundamentals, you have more investor conviction.

You have more trades, which I think is giving more confidence to other investors to participate. You have the debt markets that continue to remain attractive, both in terms of availability as well as pricing. And so I think overall, it's set up for a more active, although I would tell you that it's somewhat bifurcated that it continues to kind of trend towards the luxury type assets and the resort type assets and then assets where markets have significant growth that investors can underwrite.

Our next question comes from the line of Gregory Miller with Truist.

I'd like to ask about international inbound. As you discussed, the World Cup provided a lot of positive publicity for international audiences. Do you find that the local convention and visitors bureaus are taking advantage of this opportunity to promote their cities in a different way given the goodwill?

I mean we've had a lot of conversations with folks like SF Travel as an example, or the San Diego authority. And we've seen them increasingly as the year has gone on, they have increasingly put more money into the international side and more effort into the international side, including sales trips that they've been making. And I'll give you an example most recently. And I think they were pretty hesitant at the beginning of the year. And as we started to see the imbalance sort of flatten out as the year has gone on and then turn positive in June, like SF Travel has a fairly major marketing effort going on in Canada right now.

And with a view that maybe the Canadians are ready to come back. They love our country. They were here, many of them were here for World Cup. The Canadian team did well, and they had a positive experience like other World Cup travelers. And I think that word of mouth that goes back to those countries is viewed as a positive catalyst and a positive opportunity. And so we are seeing -- I can't speak for all of them, but I know those 2 markets, as an example, San Francisco and San Diego are putting more time, effort and money into wing international inbound back to their markets.

Our next question comes from the line of Aryeh Klein with BMO Capital Markets.

I guess when we look at first half RevPAR growth, what do you think the underlying growth is versus the 8.8% year-to-date that was reported if adjusted for the World Cup and maybe some of the other unique tailwinds like calendar shift? And is that the right way to think about 2027 and that the events that we had this year versus next year kind of net each other out from a tailwind standpoint?

Well, it's a great question and a tough question because as we've talked about historically, people don't always tell you why they're coming. And so I think what we've been seeing is a very broad-based increase in demand in all the segments, except for international inbound, which, again, perhaps finally improved a little bit in June. It seems like demand growth is tracking in the 1.5% to 2% range, I think, from an underlying perspective on a year-over-year basis.

And looking at the Q2 GDP report preliminary that came out this morning, it was right at 1.5%. And so I think as we've talked about in the past, I think demand growth is likely to track reasonably closely to GDP growth, and that's what we've been seeing so far this year. I think that what changes in these kinds of up cycles is what happens with rate.

And I think what we were talking about in the call was that the increased rate that came through World Cup is likely to be more than offset by increasing rate as a result of improving overall industry fundamentals and our own improving fundamentals within our portfolio. I think some of that is -- comes from the competitive framework when the pie is getting bigger, it's easier to price with more confidence.

You don't have to worry about the only way to grow is to take business from my competitor, which is the environment we've been living in the last 2 years to 3 years. And it does take time for that confidence level to improve, and that's what we've started to see. So I think from an underlying demand perspective, I think it's going to continue to track GDP. We know where supply is going to be. I mean it's going to be well south of 1%. And right now, it's running less than 0.5% on a net basis.

So I think that's the fundamental setup that's good. And what will vary is how quickly do we increase confidence, how quickly do the compression nights increase, that will vary by market based upon what's going on in any individual market. And how does it change the behavior in terms of the mix that we have, shifting that mix from discounted channels, which we went deep into to build occupancy in the last few years and coming out of that and pushing less of that and pushing more of the higher-rated channels.

So Ray, I don't know if you have anything to add to that, but that's kind of the way we think about what's going on.

And Aryeh, clearly, there are a lot of benefits this year. And look, our portfolio benefited from the Super Bowl in San Francisco, which we talked about. But we also had some headwinds this year. I take San Diego. San Diego year-to-date, RevPAR is negative. And that's because of a very weak convention calendar. We have 120,000 less convention room nights in San Diego year-to-date than we did last year. But that reverses in '27 and Boston also improves. So although we have some benefits from some of the calendar items, we also had a bunch of headwinds. And I know right now, World Cup is getting a lot of attention with the demand, and it certainly helped some of the markets in the U.S. and helped the U.S. as a whole.

We talked about it's more marginal. But as we get to talk about '27 in the setup, we feel really good because some of these headwinds will turn to tailwinds for us in several of our markets.

Our next question comes from the line of Rich Hightower with Barclays.

I want to dig into the kind of upside from redevelopments and some of the resort properties that are still on the path to recovery. So I didn't get a chance to compare sort of the before and after between the latest investor deck and kind of what came before. But does anything about sort of 2Q strength and what's still very clearly optimism about the second half and beyond, did that change the underlying sort of recovery trajectory from recent redevelopments? And then how much of that recovery path is predicated on macro and kind of basic demand drivers versus, let's say, property level execution?

Sure. So I think the benefit that we saw from less sensitivity to price increases in the second quarter applied pretty much throughout the portfolio. And our redeveloped properties were able to take advantage of that. And part of the upside that has remained in those properties comes from both rate and occupancy share gain. And so we're seeing them, particularly Newport, Estancia as examples, continuing to increase their share in the market, not to a stabilized place yet, but there's certainly -- it's always easier to gain share when things are good, Rich. than when it's difficult.

No different than the conversation -- the discussion I was just having about when the pie is getting bigger, it's always easier to increase pricing. And so I don't know that the pace of the gain has accelerated in a material way in terms of recovery of the next $4 million to $6 million of redevelopment. But I do think we were encouraged by what we saw in the second quarter throughout all of the resorts and that would include the properties that we redeveloped. So we're very encouraged by the progress they're making. We're -- as you know, outside of the redevelopments, the bridge that we laid out really doesn't include increases in performance at the resort level that it wasn't meant to. It wasn't meant to say resorts wouldn't improve. It meant to say that's going to be more macro related. And I think overall, back to your question of execution, we always have varying levels of execution within our portfolio.

We highlighted some challenges in D.C. in our properties there with leadership changes that have happened. And as it relates to the resorts, I mean, execution does matter. We have great execution right now going on at most of the properties, particularly Newport and Estancia within the portfolio. And we still have work to do at Jekyll Island, even though we're encouraged by the pace of further out group bookings at that property.

And Rich, this provides more context, which I'm sure you look at post earnings season when your life gets a little more manageable here. But we talked about Estancia and Newport because those are the most recent redevelopments, and that's on track for those projects getting their ROIs. And we still have -- we identified $6 million of upside from those projects. But just as a reminder, the projects that we started back in 2018, 2019, which these things are multiyear, this is where we invested $270 million of capital.

We've generated over $40 million of ROI from those projects. So we just want to make sure I underscore that these are real achievements that we're gaining. That's why we -- our EBITDA has grown. And as Jon pointed out, what we really don't include is really the further upside we're experiencing in our resorts. But that, again, led the core of the portfolio this quarter. We're really excited about it. So we provide a lot of good detail in the presentation. I encourage you to look at it. We feel confident about it, and we've -- the results have proven itself.

Our next question comes from the line of R.J Milligan with Raymond James.

So along the same lines of some of the questions that have already been asked, but Jon, obviously, a good problem to have. You mentioned difficult comps for next year. You highlighted some of the drivers for RevPAR growth in 2027 for the industry and then some specific drivers for Pebblebrook. I think you guys are trending about 300 basis points ahead of the industry in terms of RevPAR growth so far this year. Given the puts and takes for Pebblebrook next year and the difficult comps, how do you expect that spread to trend in '27?

Well, another good question, another difficult one. Look, the 300 is not a long-term achievable spread. And historically, I think we've run anywhere from 50 to 100 basis points better than the industry overall. And I think the -- early on, we tend to do better for a number of reasons. Sometimes the markets we've been in have been hit harder like this one. So the recovery in San Francisco, the recovery in L.A. and the recoveries in Portland and Chicago examples, they're coming from very low levels. So there's a lot to regain in those markets.

The fires God, let's hope we don't have more of them, although it seems to be an increasing issue around the world. We see what's going on in Europe, some of the fires going on in the Midwest here. Fortunately, we're not seeing that in Southern California at this point in time. But it's going to be a future part of life. But that's an easy comparison for the first half for L.A., and that's part of that higher 300 basis points than maybe what's normal on a go-forward basis. So I do think we should run 50 to 100 basis points higher. I think having Super Bowl in L.A. in '27 will be helpful.

And actually, there's a lot of things going on in L.A. next year, fortunately, which should help with the recovery there. And then, of course, we have the Olympics in '28, which should be a very major lift in that market. And then in '29, we're going to have a little bit of a hangover from L.A. And we don't have a clear enough view into all of our other markets in '29 right now to see if they would offset that, but that's where I would say that the Olympics will be a more difficult one in terms of comparisons to overcome.

Our next question comes from the line of Jamie Feldman with Wells Fargo.

So you achieved RevPAR about 350 basis points above the high end of your guide in 2Q, but expenses were still within your original guidance range for the quarter. Can you talk about how you're able to achieve that favorable flow-through and how we should be thinking about further expense improvements into the back half of the year?

Sure. Sure, Jamie. Well, it's something we're really proud of our hotel teams and our asset managers. And I know we talk about it each quarter, and it's not just talk, it's results. We're excited to the fact that we're able to keep these expenses at much lower levels. It's multiples. We -- through our efficiency studies, we have fewer FTEs on a per occupied room basis than we did pre-COVID. There's a lot of factors there. We're using technology more. We're using other areas that certainly better. So that's how we're able to have our per occupied cost growing less than inflation at 2%. And then we'll start getting the additional benefits on savings like property insurance and other areas. So you shouldn't assume that we're going to have that same expense growth each quarter. There's all other factors that could go on, but we feel good about it. And it does show that at these -- even lower revenue growth levels, we're still able to push margins and expand. So we feel that this is multiyear. We're just scratching the surface in a lot of these initiatives, and we feel good about it. But again, we think our hotel teams and our asset managers are doing a heck of a job finding more efficiencies every day.

Our next question comes from the line of Floris Van Dijkum with Ladenburg Thalmann.

Jon, you mentioned something about reducing Pebblebrooks' reliance on discounted channels. Presumably, you're talking about OTAs. Maybe if you could just remind us what the historical percentage of your demand came from OTAs, where that is now? And is there a difference in urban versus resorts in terms of the reliance on OTAs. I'm thinking in particular, you've got this massive potential upside in occupancy ramp still in urban. I would imagine you probably are maybe more reliant on OTAs to help fill that. But if you can give us a little bit of color on that, that would be great.

Sure. I'm going to talk in general. I'll leave Ray to talk about the OTA percentages. But I think in general, when we talk about fewer discount channels, it goes well beyond the OTAs. It has to do with wholesale channels that we use, where you're selling -- where you're giving them a lower, I'd say, highly discounted rate, maybe up to 25% or 30%, and they're filling it with small to medium-sized tour groups, as an example, through wholesale channels. And it involves some other channels, Crew in many cases, not all cases, is it lower rated, but in some cases, it can be a very low rated -- we tend to pick crew up in a down cycle, and we tend to slowly reduce our crew as the cycle improves and the other demand channels pick up. So those would be some other areas.

And then as it relates to resort and urban, we tend to do more discounting and OTA use at our urban properties than we do -- our independent urban properties, in particular, than we do at our independent resorts. But Ray, if you want to talk about the general numbers?

Yes. So Floris, on a general basis in our transient side, we have about 25% of our mix here comes from OTAs with our brands, that's lower, about 12% to 13%. Our urban lifestyle hotels that's in about, call it, about the 20% to 30% level. And then our resorts are in the 20% to 23% level. So it's a lower level there because the resorts tend to be a little more of a unique buying experience. People rely less on the OTAs. And actually, we have a high number of direct bookings on the resort side because of the premium resorts and experiences.

So we'll continue to push that, whether it's technology and looking at that. I know there's a lot of efforts going on there between all the LLMs and making our hotels appear better, which our teams are working on. But it's something we manage and all of our teams do. But just to be clear, all OTA business isn't negative. OTA business positioned in a proper manner in a proper time can be a benefit. It's just when a hotel team relies too much on the OTAs and not go out and find a direct business or other channels, that's when it's more of a challenge.

So you really have to take each property on a case-by-case basis and not say any OTA business is negative. I know that maybe brands have a different perspective of that because of their focus. But for us, we're about what's the net RevPAR and business being generated and OTAs are part of the mix.

Our next question comes from the line of Chris Darling with Green Street.

Jon, I hoping if you could elaborate on just your broad capital allocation priorities given the meaningful run-up in your share price this year. I appreciate you still trade at a discount relative to the internal estimate of NAV, but that gap has narrowed pretty substantially. So just wondering if your thinking may have evolved.

Sure. Well, our capital allocation strategy is focused on 2 things. It's creating value for the shareholders and driving growth in cash flow per share. Presumably, those 2 are linked over the long term. So while the arbitrage opportunity has clearly for the moment, gone down, the way we look at it is there continues to be a significant discount as we sell assets within the NAV range, and we have continued to do that, using those proceeds opportunistically at the right time to buy our stock back, to buy our preferred securities back at a material discount to pay down debt related to the EBITDA that we're selling. I think those all continue to be the best use of our capital. I don't think we're ready prepared or frankly, it's not the right use of capital to be out buying new assets because we can buy our existing assets at a much more significant discount than the market values.

So while the arbitrage opportunity has shrunk for now, keep in mind that NAV, as an example, it's not static. As operating performance improves, we would expect these values to go up over time. And then we'll see how the stock performs. And as we all know, these stocks tend to be on a kind of a random walk in the near term. So I don't think our allocation strategies have changed at all, but we have to sharpen our pencils because the arbitrage opportunity is not as significant as it was a few months ago.

Our next question comes from the line of Jack Armstrong with Wells Fargo.

Can you take us through some of the moving pieces that brought you to raise your NAV estimate and spend some time talking about how closing the discount to your NAV is changing the way you're thinking about allocating incremental capital once we get to the convert in December?

Sure, Jack. Yes, we updated our NAV presentation. The overall gross value did not change, but some individual markets did. For example, resorts went up just because what we're seeing in the transaction market, as Tom alluded to earlier, is very constructive and pricing continues to be healthy there. We took down a couple of...

And operating performance continue to go up.

And operating performance continue to go up as evidenced by our quarter and how strong the resort segment has been and continues to be. Some markets in San Francisco were also brought up just because of, again, the performance of that market. You've seen some trades in there, which obviously helps affirm the values. A couple of markets we took down were Washington, D.C. because of the performance, Los Angeles nudge as well as the Boston and San Diego. But overall, the gross values did not change on that side. What did change is we have more cash -- we have less preferred through buybacks, and we have less shares through the buyback. So what really moved is on that side of it, we moved the overall value up, and that's what our NAV went from $23.50 last quarter up to $24.50. And as we know, we'll continue -- we look at this every -- pretty frequently, and we'll see what it entails going forward.

And then the capital allocation decision, we just responded to that question there. So as Jon said, we'll continue to be opportunistic and disciplined here as we have. But certainly, having the free cash flow that we have in place provides us with a lot of flexibility to pull a lot of levers, whichever is opportunistic at the time.

We have reached the end of the question-and-answer session. Mr. Bortz, I'd like to turn the floor back over to you for closing comments.

Well, thanks, everybody, for participating. Good luck the rest of the quarter. I hope you have great summers, and we'll be back to update you again on our performance come October. And I know we'll see many of you between now and then. Thanks so much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to Pebblebrook Hotel Trust First Quarter Earnings Conference Call. [Operator Instructions]. 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. Please go ahead.

Thank you, Donna, and good morning, everyone. Welcome to our first quarter 2026 earnings call. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer. But before we begin, I'd like to remind everyone that our remarks are as of today, April 29, 2026 and today's comments may include forward-looking statements that are subject to various risks and uncertainties. Please review our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today.

Now let's jump into the first quarter financial results. We had an exceptional first quarter with results well above the high end of our outlook across key earnings metrics. Same-property hotel EBITDA increased 27.6% to $82.2 million, coming in $8.2 million above the high end of our outlook. Adjusted EBITDA was $73.3 million, up 29.5% from last year and $9.3 million above the high end. Adjusted FFO per diluted share doubled year-over-year to $0.32, which was $0.09 above the high end of our outlook. So this was a very strong quarter by any measure. Even more important, performance was not narrowly driven. While we had a great setup, the strength was broad across the portfolio and the performance came from both stronger revenues and superb expense control.

At the property level, same-property occupancy increased 550 basis points, ADR increased 2.8% and RevPAR increased 11.8% and total revenue increased 10.1%. Same-property total expenses increased just 5.6%, driving 327 basis points of hotel EBITDA margin expansion. More than half of the incremental same-property revenue flow through to hotel EBITDA. That reflects the strategic operating initiatives we've been implementing across the portfolio that benefits from our investments in revenue-generating amenities and venues and strong execution by our property teams and asset managers. The strength extended across the portfolio with 32 hotels exceeding revenue forecast and 34 exceeding GOP forecast in the quarter.

And San Francisco was exceptional, while it benefited from the Super Bowl and a large citywide convention that shifted into the first quarter, all segments, including business and leisure transient, were incredibly strong and continue to recover. RevPAR increased a robust 44.5% and hotel EBITDA more than tripled from a year ago, climbing by $11.6 million. Los Angeles also recovered sharply from last year's fire-related disruptions with RevPAR climbing 31.5% and occupancy growing more than 16 points to 74.6%. The improvement across L.A. properties was broad-based, helped by a stronger leisure demand, improving entertainment-related group and leisure activity and the ramp-up of our recently renovated and rebranded Hyatt Centric Delfino in Santa Monica.

L.A.'s Q1 same-property EBITDA increase, we captured all of the EBITDA loss in the first quarter from last year's fires. While San Francisco and L.A. were standout markets, they were far from the whole story. Our urban portfolio posted RevPAR growth of 14.3%, total RevPAR growth of 12.9% and EBITDA growth of 55.1% San Diego urban hotels delivered RevPAR growth of 8.7%, driven by a 900 basis point jump in occupancy, supported by healthy weekend leisure demand. Chicago also turned in a good quarter with RevPAR increasing 5.6%. Washington, D.C. was our most challenged market in Q1, with RevPAR declining 24.1%, reflecting a very difficult inauguration comparison and continued weakness in government-related travel, though we have seen some recent improvements.

Boston was another softer market with RevPAR down 3%, reflecting lighter citywide calendar, 2 major winter storms and the rooms renovation at Revere Hotel Boston Common. We expect both markets to improve in the second quarter given the better event calendars.

Our resorts also had a very strong quarter with RevPAR rising 7.5%, total RevPAR increasing 6.7% and EBITDA climbing 13.9%. Resort performance was driven by resilient leisure demand, healthy on-property spending, favorable holiday timing and the continued ramp-up of our redeveloped assets. We also benefited from an earlier-than-normal spring break, which pulled more spring break travel into March from April. Several resorts delivered double-digit RevPAR gains, including Newport Harbor Island Resort, LaPlaya Beach Resort and Club, Skamania Lodge, Paradise Point Resort & Spa, San Diego Mission Bay Resort, and Estancia La Jolla Hotel & Spa.

Overall, first quarter demand was encouraging despite heightened geopolitical tensions and increased uncertainty around travel. Leisure demand remained strong. Business transient continued to grow and recover and group was stable. Consistent with broader travel and spending commentary, visibility has shortened somewhat since late March, but we have not seen any material change in booking trends to date. Premium leisure and business travel have remained healthy to date. Weekday RevPAR increased 9.7% overall and 12% in our urban markets, while weekend RevPAR increased 15% overall. Weekend leisure demand remains healthy, but the improvements in weekday demand is equally important as it reflects the continued recovery in business transient and group travel, and creates more meaningful earnings power as urban occupancies rebuild.

What also stood out this quarter was the quality of the revenue growth. Out-of-room revenues again grew up nicely, 7.6% overall. Food and beverage revenues increased 7.4%, outlet revenues were up 10.2% and banquets and catering revenues increased 4.8%. Guests were not only staying with us in greater numbers, but they were also spending more on property, and that is exactly the kind of revenue mix that supports increased profitability.

On the expense side, our strategic operating initiatives again delivered this quarter. Total expenses rose by only 5.6%, while total revenues increased 10.2%. Food and beverage revenues rose 7.4%, while food and beverage expenses increased just 3.7%. Sales and marketing expenses, excluding franchise fees, grew only 3.9%, while energy costs actually declined 2.8%. And on a per occupied room basis, total expenses declined 2.8% and total expenses for fixed costs declined 3.2%, demonstrating the favorable benefits of the operating leverage in our portfolio.

We are generating more efficiencies from improved labor productivity and technology use, tighter cost controls and continued benefits from property level efforts to reduce energy and water consumption. Said more simply, as revenues improve, our portfolio is flowing more of that upside to the bottom line than it did a year or 2 ago. And a quick point on onetime items because it is important to put this quarter into the proper context. The Super Bowl contributed about 215 basis points to same-property RevPAR and the recovery in Los Angeles contributed another 285 basis points. Offsetting those benefits, the 2 winter storms reduced RevPAR by about 115 basis points and the difficult inauguration comparison to Washington, D.C. reduced it by another 105 basis points.

Even after adjusting for those items, same-property RevPAR still grew by roughly 9%, underscoring the overall strength of the quarter. This strong underlying performance translated into higher free cash flow and greater financial flexibility.

On the capital side, we invested $11.9 million to our properties during the quarter, including guest room renovations at Chaminade Resort & Spa and Revere Hotel Boston Common, both of which are now substantially complete.

For the full year, we still expect capital investments of $65 million to $75 million, which represents a much more normalized run rate and an important tailwind for higher discretionary free cash flow and greater flexibility for debt reduction and share repurchases. We also completed the April 1 rebranding of Mondrian Los Angeles into the Valorian Los Angeles, Curio Collection by Hilton. We believe this strategic change has and will create value for the property. Rebranding as an independent franchise hotel within Curio leverages Hilton's distribution platform, pairs it with a strong entrepreneurial style operator in pivot and preserves the distinctive character of this iconic hotel. And we made this change in no cost as franchise-related key money funded the changeover. We appreciate the partnership with both Hilton and Pivot during this strategic transition, and we are excited to work together to drive improved performance at this important property in L.A.

Moving to our balance sheet. Our net debt-to-EBITDA ratio declined to 5.5x from 5.9x at the end of last year. We ended the quarter with $204.6 million of cash and restricted cash, along with roughly $641 million of capacity on our revolving credit facility. Our weighted average interest rate remained a very attractive 4.1% with approximately 98% of our debt effectively fixed and 98% unsecured. And since the start of the year, we've repurchased over 400,000 common shares at an average price of $12.11 per share. Higher EBITDA, improved debt metrics and strong liquidity, all moved in the right direction.

Stepping back, the first quarter takeaway is clear. Despite heightened macro uncertainty and risk, the quarter demonstrated stronger demand across both urban and resort markets, healthy revenue quality and disciplined expense control. At the same time, we're not assuming the balance of the year will be as visible as the first quarter. Recent events in the Middle East, higher fuel prices, more fallout from the war and broader economic uncertainty could pressure travel demand and booking patterns. However, based on our current booking trends and broader travel and spending commentary, the demand environment remains constructive, particularly for premium leisure and business travel. So while we feel really good about the first quarter and the underlying trend line, we remain appropriately cautious on the balance of the year.

And with that, I'd like to turn the call over to Jon for more color on the quarter, the demand trends that we're seeing across the portfolio, the broader industry backdrop and our outlook for the balance of 2026. Jon?

Thanks, Ray. In our last earnings call, just 60 days ago, we laid out the extremely favorable setup we were looking at for 2026. We also provided a robust outlook for our portfolio for Q1, but a cautious outlook for the rest of the year, given our experience in 2025 with major policy actions, geopolitical events and weather events that negatively impacted us in a material way. Our concern about major geopolitical risks proved warranted as the conflict in the Middle East began just 48 hours after our earnings call.

To summarize the setup for 2026 that we discussed, we have easy comparisons to a year that was negatively impacted by a number of policy and geopolitical events. We have a favorable macroeconomic environment and a uniquely strong events calendar, particularly in our markets. We have the best holiday calendar we could ever remember. There is very limited supply growth for 2026 and beyond, and we maintained our view that hotel demand would recorrelate to GDP, absent major policy or geopolitical surprises.

In our markets, we highlighted that San Francisco's recovery would continue to build, Los Angeles would benefit from easy fire-related comparisons. Washington, D.C. would benefit from easier government-related comparisons past the tough inauguration comp and our recently redeveloped and repositioned properties were likely to continue to ramp. We also believed our upper upscale and luxury positioning would remain outperformers given the continued strength of the more affluent consumer.

When we look at how the first quarter played out, that favorable backdrop translated into even better results than we were expecting. I think it's fair to call the first quarter a blowout quarter on both the top line and the bottom line. The setup was accurate, and we delivered with the favorable setup. We haven't seen RevPAR and total RevPAR growth at these levels since the third quarter of 2014, excluding one unusually strong pandemic recovery quarter in 2023. And our same-property hotel EBITDA growth of 27.6% was even stronger than Q3 '14.

At the industry level, Q1 demand growth of 2% clearly began to demonstrate its reconnection with GDP growth and industry demand would have been even better but for 2 of the largest winter storms in history that hit in late January and late February. Occupancies increased as demand followed GDP growth, while supply grew just 0.6%. In March, we began to see more compression days and ADR growth improved to an impressive 3.8% with a solid 2.4% increase for the quarter. Industry RevPAR in Q1 increased by a much improved 3.8%. Leisure demand was very strong throughout the quarter, aided by the favorable holiday timing around New Year's and the combined Valentine's Day and President's Day weekend.

Importantly, that leisure strength didn't just benefit our resorts. Our urban markets, especially San Francisco, Los Angeles and San Diego, all continued to benefit from the post-pandemic return of leisure demand to the cities. The early Easter and school spring breaks also helped March, though partly at the expense of April performance. We likely also saw some benefit in Southern California and South Florida from traveler shifts away from Mexico and from poor snow conditions out West. For Pebblebrook, we saw the same industry benefits in Q1 and more. The event calendar delivered as we captured increased demand from events throughout our portfolio.

Our Hollywood, Florida resort benefited from demand from the College Football National Championship game in Miami as our property is just 11 miles from the stadium, far closer than most hotels in Miami and Miami Beach. All of our San Francisco hotels achieved very robust results from the Super Bowl and its week of activities and events in February. And our L.A. hotels saw a lift from the NBA All-Star game and related activities, which were also in February. Our hotels in San Diego, Chicago and Washington, D.C. saw increased demand due to the NCAA Men's Basketball Tournament games in March. Events in Q1 definitely pushed our results higher, maybe even more than we were expecting.

As Ray indicated, our redeveloped and repositioned properties all continue to ramp up, led by Hyatt Centric Delfina Santa Monica, Skamania Lodge, Newport Harbor Island Resort, LaPlaya Beach Resort & Club, Estancia La Jolla Hotel & Spa, and Hilton San Diego Gaslamp Quarter. They all gained significant share in the quarter with more to go for them and many others in the portfolio where we invested so heavily in prior years, and we continue to reap the benefits. Business transient continued to recover across the industry and our portfolio during the quarter. We saw even stronger growth in corporate travel in San Francisco and Los Angeles, where both cities are seeing the benefits from return to office policies.

Group also grew industry-wide and for Pebblebrook in Q1. We delivered strong group revenue growth, primarily driven by a 7.4% increase in group ADR that was aided by the Super Bowl. We had a fantastic quarter all around, but it's highly likely to be our strongest quarter of the year by far. Looking ahead, we remain appropriately cautious given policy and geopolitical risks, particularly the potential impact of the ongoing conflict in the Middle East.

Right now, we're mostly concerned with the potential economic slowdown, rising airline ticket prices, cutbacks in airline capacity and routes and potential jet fuel shortages elsewhere in the world that could weigh on inbound international travel. As Ray indicated, we're not seeing any negative impact on pace or bookings at this time, but we're closely monitoring all our data as well as travel data and commentary from others in the travel industry, particularly the airlines. Since our last call, our 2026 room revenue pace advantage versus last year has continued to increase. In the year, for the year pickup in room revenue improved by $12.5 million over the 2 months ended March 31, at an improved for every quarter of the year, which is very encouraging.

As of the end of March, full year room revenue pace stood $33.5 million ahead of last year, with $21.8 million from Q1 outperformance and the remaining $11.7 million in quarters 2 through 4. Over 90% of the room revenue pace advantage is in transient revenue with roughly 20% from higher rates. The $33.5 million advantage, if stable, would put us at a 3.8% increase in room revenue for the year, right in the middle of our increased range of 2.75% to 4.75% for the year. If we pick up more in the year for the year, it will go higher. And if pickup is slower than last year, it will go lower. Recall that last year, with everything that happened, we lost pace advantage as the year progressed and finished down for the year in room revenue.

For Q2, total room revenue pace as of the end of March was ahead of last year by $7.5 million. April pickup for April looks like it will be down year-over-year, but much of that likely reflects pace being so far ahead when we entered the month. We expect April RevPAR and total RevPAR to grow in the 3% to 5% range versus last year. May appears to be our weakest month in the quarter, weighed down by the year's most difficult monthly convention comparison in San Diego, along with softer convention calendars in both Boston and San Francisco compared to last year.

Finally, I thought I'd provide a few thoughts about this year's World Cup. We've always thought of it as a large collection of college football bowl games. Like the college bowl games, we believe demand for World Cup games will vary dramatically depending on the teams involved and the impact from each game will vary not only by the out-of-town attendance of the games, but also by everything else that is already going on in the specific market. Most of the 48 teams have based themselves in locations across the U.S., including many markets without games. For example, we have a team at The Nines in Portland even though there are no games in Portland.

I'm sure you've seen the media reports about FIFA dropping large blocks of rooms in many markets. Our understanding is that these blocks were intended mostly for fans who could choose to purchase hotel rooms through FIFA. Obviously, fans are not choosing to purchase hotels through FIFA in a major way and will likely book their rooms individually through normal hotel booking channels. With teams and ticket holders moving around the country, many on extended trips that include non-World Cup destinations and visas and visa waiver documents required, we expected and continue to expect most of the demand to book very short term, certainly within the 60-day window, which we're in now. And consistent with that, we are seeing some of that demand book on and around game dates in our markets.

We've also booked some group demand from teams, sponsors and FIFA. We're currently contracted for about $1.9 million of group room revenue. Over half of this group business is booked in our Boston hotels. We don't have an estimate for the total impact of the World Cup on our overall performance, but we do think it will be positive with most of the benefit coming in terms of higher average rates and increased non-room revenues. Occupancy will be aided by the World Cup. However, it comes at what is already a very busy time of year with high occupancies in June and July than norm in our World Cup markets. We also remain concerned about the impact of the conflict in the Middle East on airline ticket pricing, airline capacity, jet fuel availability and especially inbound international travel.

As a result, our forecast for the World Cup and Q2 remain conservative. For the full year, similar to the second quarter, we remain appropriately more cautious for all the same reasons. We have reflected the significant Q1 beat in our hotel performance assumptions. But we've left Q2 and the rest of the year unchanged from our prior outlook. As we said last quarter, we're going to take it 1 month at a time given the volatile and uncertain environment. But we've got a very strong first quarter done and in the books. So we've increased our current outlook for RevPAR and total RevPAR growth for the year by 75 basis points for each with our RevPAR growth outlook range now at 2.75% to 4.75% and our total RevPAR growth outlook range now at 3% to 5%.

For 2026, we expect to continue delivering operating efficiencies and keeping property expense growth well controlled as our outlook indicates. The Q1 $10 million hotel EBITDA beat has been fully passed along into our hotel EBITDA outlook at the year's midpoint. As a result, we're now forecasting same-property EBITDA growth of 5.2% to 8.6%, with the midpoint at almost 7%, a healthy increase for the year and a material step-up from our prior outlook. To wrap up, with a terrific first quarter behind us, we remain very excited about the 2026 setup for Pebblebrook. Now we just need the rest of the year to cooperate and provide a more stable environment.

And with that, we'd now be happy to take your questions. So Donna, could you please proceed with the Q&A?

[Operator Instructions]. Today's first question is coming from Cooper Clark of Wells Fargo.

I appreciate some of the conservatism baked into the 2Q through 4Q guide as you balance the calendar event with an uncertain macro. I was just hoping you could remind us about the historical impact of higher oil prices on travel demand for your portfolio and maybe certain assets either on the drive to or fly to markets where you see greater impact. And then curious when you may expect to see some of the negative impact from higher oil prices as it relates to room night demand if we do see higher oil prices for longer.

Sure. Thanks, Cooper. So historically, for our portfolio, gas prices -- significant increases in gas prices cannot have an impact. And that's -- a big part of that it has to do with the fact that our resorts in particular, are all in drive to markets. And of course, many of our markets also have other forms of transportation access like trains on the East Coast, in particular, in the trains on the West Coast. But it's really airline ticket prices where there's a clear connection between demand ultimately and people's ability to fly.

Now again, it has more of an impact on middle income and lower, and less of an impact on the upper end. So it's hard to forecast exactly what the impact is going to be. There's certainly, according to the airlines, has been a lot of business booked ahead of ticket prices going up. We've seen -- so far, we've seen increases anywhere from 10% to 20% to -- we've seen much bigger increases for international travel, particularly international travel originating from Europe and Asia.

So it's hard to tell how much of an impact that will have on international inbound, but that is what we most worry about. The resorts are also drive to. And so if people do trade down from flying to driving, which is something we've seen to some extent in the past, the domestically located resorts tend to benefit a little bit more and the ones available by airline flights tend to be impacted a little bit more.

Great. And then just switching over to the expense side. Curious if you could take us through some of the building blocks on the expense guidance for the full year and where you're expecting to see growth come in for wages and benefits, insurance and utilities.

Sure, Cooper. Yes. So our full-year outlook implies expense growth in the 2.4% to 3.8% range. And so on the labor side, which is our largest cost, that's up low single digits. We're in the 3% to 5% range depending on the market, but because of -- in terms of wage increases. But in many cases, we're having FTEs actually in line or declined year-over-year despite the increase in occupancy. So we're finding a lot of efficiencies there, which we'll continue to pursue and we talked about this quarter. In areas like insurance as well as, for example, property insurance, it's a very favorable property insurance market for owners this year, given a lack of storms last year that impacted the U.S. as well as a lot of capacity on that side from insurance.

So it's likely to be pressing, pushing down premiums pretty significantly this year. So our renewal isn't until June 1. So on our July call, we'll have an update there. But we would expect property insurance costs to be declining on a year-over-year basis relative to last year. And outside of that, we're doing what we can on energy initiatives area because given what's going on right now with Middle East, we expect a little more pressure there. But overall, we feel really good about our expense growth that we provided and the fact that we've been able to find new ways to do things accretively and limit this expense growth versus what others are experiencing in the industry.

Our next question is coming from Smedes Rose of Citi.

I was just interested to hear a little bit more about your decision to rebrand what was, I think, the Mondrian to Valorian and join the Hilton system. Could you just maybe talk about how you weighed what I assume would be maybe higher costs to be in the Hilton system versus the system you were in and sort of how you -- some of the things that help you make that decision?

Sure. So -- and Ray jump in, but I think strategically, as we've seen sort of the L.A. market and the West L.A. market and the Sunset Strip submarket sort of evolve over time, there's been a lot of luxury product that's been added into that market. And what we found over time is Mondrian well and Icon, particularly when it was created and really over up to maybe 5 years ago, I think was sort of the dominant player in the market. And as other luxury products come in, I think what we found is the system, the Accor-Ennismore system was just not delivering to the property at the level that one of the domestic major brands could deliver at.

And so given the positioning of Curio, we felt like tucking under the luxury in terms of their brands was sort of the right positioning for the property. It is a luxury product. I'd say the service levels are more lifestyle than maybe you would consider being luxury. And so we really thought it was a much better positioning with a much more powerful brand and a more entrepreneurial and lifestyle-oriented operator who's really comfortable with the major collection brands like Curio.

And then as it relates to cost, the cost of the Curio program are actually less expensive than the cost of the Curio arrangement or maybe better said the combined cost between the operator and the franchise in total is lower than the cost of where we were with Accor-Ennismore as both the brand and the operator. So a little different than some of our other properties the way the costs laid out.

But also note that, we've been through a number of transitions in the past with switching brands going from one brand to another or going to independent or vice versa. And just a positive call out to the Hilton and they've been fantastic to work with. The transition has been very smooth so far. Hilton has been really additive in the process. And look, with Davidson, we have them at 5 other properties they manage for us. So we have a very good familiarity with their team.

So they've done a very good job for us, and we look forward to in July when we have a full quarter under our belt here to report on the results that we're producing. I realize, of course, the first quarter or so they're usually bumpy when you go from one system to another, but we like the direction we've had so far since April 1.

And maybe one other thing to add is the Hilton distribution in that market is little to none. So we felt like it was really good positioning with Hilton.

That's interesting. And then I wanted to ask you, just coming into the year, you had provided some guidance around what you thought LaPlaya could do. And just how did the first quarter ago? And is that property still kind of on track as what you had initially expected?

Yes. The first quarter for LaPlaya went well. We're on track to be in that $28 million to $30 million range compared to $24 million last year. And I'd say also as well as the first quarter when it's not stabilized yet as we went into the quarter with softer group than we would normally have given all the disruption we have in construction last year. It's tough to sell group into that environment. So, so far, so good. We've also sold -- I think we've already sold 45 or so additional memberships there at the club at well over $100,000 a piece. Those are nonrefundable, and that continues to grow the revenue at the property as well.

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

I'd like to start off with a question on 2027, and I promise to not ask you too much on a guidance perspective. But hopefully, 1 of the more straightforward questions on relates to the Super Bowl change moving from the San Francisco Bay Area down to Los Angeles. And I'm curious, just your general perspective so far, do you consider an LA Super Bowl exposure, superior or inferior to your San Francisco exposure as we think about the implications to 1Q next year?

Sure. Good question, Greg. I think the Super Bowl and L.A. will be obviously an extremely major benefit to the market, particularly in February. And -- but L.A. is a much larger market than San Francisco or even the combined nature of San Francisco and San Jose. And so when we look at where the pricing is already is and where it's likely to be for Super Bowl, not likely to be at the same levels as San Francisco. It will still be super as the name implies, but it won't quite have the same benefit that we had in San Francisco.

Okay. Appreciate it. [Technical Difficulty]

Greg, you're breaking up, so it's hard to hear you. You can't make out your question.

I apologize.

Why don't you dial back in and we'll add you to the queue. So Donna, can you go to the next one with the Aryeh.

Certainly. Our next question is coming from Aryeh Klein of BMO Capital Markets.

I was hoping maybe you can unpack a little bit more about the World Cup and how it's setting up for you. I understand that you're not incorporating potential upside. But is there any risk that if the World Cup does sizzle, it ultimately -- it could ultimately emerge as a headwind if it's also disruptive to other travel into those markets?

It's possible it could be a headwind. I think that's highly unlikely. And I don't think it will be a headwind for our portfolio because we didn't hold rooms off the market for any of the FIFA blocks that we had. And we haven't -- we certainly haven't deterred other business coming into the market. And I think, again, unlike I don't know, maybe Super Bowl or an inauguration or some monstrous event, none of these events are that large that they're deterring normal business coming into the market. And the games are all over the place, and they're generally not back to back in the market. There's gaps.

So I don't really think that's going to be the case. The other thing we've seen is, I mean, the normal business is booked in it. There are markets like L.A., where we have a huge number of concerts in June and July sort of mixed in through World Cup, which we think will be big demand generators in that market as well. So I tend to think I have a hard time seeing World Cup turning out to be a headwind for -- certainly not for us and not for the industry.

Got it. That's helpful. And then maybe just would be great to get your updated views on San Francisco. Obviously, a really strong start to the year, some special events certainly help there. But I think EBITDA in 2025 was still quite a bit below 2019. I think it was 62%. Just curious how you think about that recovery moving forward and some of the tailwinds that you see as sustainable there?

Yes. I mean, San Francisco is crazy right now in terms of the boom recovery that's going on in that market, and it's impacting all segments, whether it's business transient, business group, in-house group, leisure coming back into the market that had stayed away during the pandemic and even many of the post-pandemic years. It's really just starting to recover in the last year. And the convention calendar will continue to get better over the course of the next 3 to 5 years.

So the city is on a roll. It's got good governmental policies. It's got good leadership in place. You see it in the other real estate categories, the very strong, in fact, record office leasing going on in the market, the return to office that has been mandated, AI, obviously being headquartered there, robotics, so many robotics companies are moving into the market. Robotics is being headquartered in San Francisco, in the Bay Area. And so we certainly can see -- I mean, I'll give you an example this year. I think we're probably looking at RevPAR growth again aided by Super Bowl, I think, by about 4 points for the year. But we think RevPAR growth is certainly going to be between 12% and 15% for the year, unless some major macro event has an impact.

And at that level of growth, I mean, we expect to see the bottom line up 40% or more over last year. And you're right about being in the 60s, I think 62% or 65%, 62%. That's if you take that 62% and say we're going to be up 40%, we're going to be down still 40% compared to '19 levels. And -- but we think that with everything going on in San Francisco, and we're just starting to get pricing power back in the market as occupancies have been recovering, which are, by the way, still well below where we were in '19.

We think there's no doubt you could see double-digit RevPAR growth over the next 3 to 5 years in that market, assuming a reasonable macro environment. So we're pretty high on the market right now. And it looks a lot like it did back in the 2010 to '15, '16 period of time when it really exploded.

Yes, Aryeh, as a part of reference for 2026, our San Francisco hotels occupancies should be somewhere in the 74% to 76% range. We'll see where we end at. But that was at 87% in 2019. And that's not to say we're going to get back in the season have the same occupancy level, but it shows that San Francisco is truly a multiyear growth story, and we're just in the early innings of that.

And pricing is still well now from '19. So -- and that's just nominal pricing that's not in place and adjusted pricing. So I think there's huge opportunity in that market, and let's not forget, there isn't going to be any supply in that market for at least the next 5 years and arguably probably 5 to 10 years.

Our next question is coming from Gregory Miller of Truist.

Can you hear me better this time?

Much better.

Okay. Hopefully, they get to my questions. Appreciate it. I'm not sure if I already asked about AI and bookings, but I thought I'd give it a shot. I'm curious where you're at today in terms of your independent hotels showing up on the LLMs. Are you seeing any meaningful traction either from leisure travelers that find your hotels that might not have heard of your hotels otherwise or from a bookings impact itself?

Sure. And Greg, we've been very active in this area, which we think we're encouraged by where it could go in terms of level of the playing field with AI agents going directly to the hotels and more looking to book directly and search directly versus going through either some of the OTAs or the traditional brands. So we've been very active in that. All of our hotels are on a system which we've audited out and where it gets the maximum visibility through the agents. So there's hidden pages out there that all of our independent hotels we've added that are now readable through that.

So we've done a portfolio-wide partnership that our Corporate Vice President of Revenue Management is overseeing. So we're all working on that and monitoring those results. So we're on that side, we're excited. And it will retool change around some of our websites. And what's great on the independent side, we have a lot more flexibility around doing that. And then look, in addition to that, we're also looking at other tools and productivity at the property level. We just came to an agreement with Canary AI, which is a multi-module tools, which handles calls and reservations and handles guest requests.

So we're really excited about that. So again, with independent hotels, we can do a lot of this flexibility and rapid time given how quickly the technology is. So we're excited about where it's going and more to report as we make more progress.

Our next question is coming from Rich Hightower of Barclays.

Obviously covered a lot of ground this morning, but I wanted to dig in a little bit more to the idea that I appreciate the level of caution that's sort of embedded in the guidance for the rest of the year. But you talked about booking window visibility maybe narrowing a little bit. And so I would assume that, that applies to the 2Q outlook as well. And so my question is how much of the 2Q as we sit here at the end of April is really baked at this point? How confident are you in that particular part of the outlook? And how does that inform sort of the rest of the year as well?

Yes, Rich, I think as it relates to Q2. I think we feel fine about our Q2 outlook with April just about done and some reasonable visibility into May. But again, we continue to be cautious because of how quickly trends can change and particularly with the conflict continuing on. And I think the ultimate fallout that we're definitely going to see how much it impacts travel, that's the unknown. And so I think we learned a lesson last year. Look, we went into the year so positive. We had great pace. A lot of stuff happened last year that had, I don't know, you could call it self-inflicted, I guess, certainly came from governmental policies for the most part and government-driven geopolitical issues.

And so that sort of ruin the entire year over the course of the year. And so we're just going to maintain this approach of we're going to take it a month at a time. If there's no fallout from the conflict and there's no other major geopolitical events and policies that impact travel and the economy like happened last year, the numbers are going to be a lot higher than our outlook. And so that's the way we've approached the year. We just think with, this is not a political statement, but it's a factual one with this administration.

There's just a lot of stuff that keeps coming up or being created that causes disruption. And last year, a lot of that disruption impacted travel. So we're going to remain cautious. We built cautiousness in, and we'll take it a month at a time.

Okay. That makes sense. And maybe just to dig in on L.A. specifically for a second. And I appreciate you guys have tried to maybe strip out all of the one-timers that impacted the first quarter and even into next year to some extent. But if we think about the underlying economy in L.A., it's obviously still recovering from the depths of COVID like a lot of places on the West Coast, but maybe not as far along as the Bay Area might be. So what are you seeing in terms of the industry drivers, the types of companies that are booking business travel, the type of leisure demand? Is it more local? Is it from outside the region? Just what's really going on, on the ground in L.A. as we think about the health and growth in that market going forward?

Yes. So I think there's a couple of major drivers in that market. Obviously, the entertainment industry on -- at the broadest level. So you're talking about TVs, movies, commercials, you're talking about TikTok, you're talking about Instagram, you're talking about the music industry. I think these many dramas that are being created that are renting studios now in the market, even for brief periods of time. I think there's this transformation going on in the industry.

And so I think what we've seen so far this year is we've seen improvement of demand coming from the entertainment sector, both TV and film and commercials and other. And then we've seen an increase in the music industry coming through. And one of the things that happens in L.A. and we're not just talking about concerts that actually happen in L.A., but a lot of the music groups come to L.A. to use the facilities, the studio facilities, the entertainment event facilities to practice for 2 or 3 weeks before they go out on the road on tour.

And as we see more and more groups touring, more and more venues being created for music around the country, that industry is on a very strong growth path, which is helping the market. The fashion industry is another demand generator. That's improving at this point in time. We're definitely seeing demand from the fashion side. And then you see a lot of this internet, venture capital, start-up firms, businesses that are being created in L.A. It has -- it's nowhere near the level of VC capital coming into L.A. that's coming into San Francisco, but it's probably in the top 5 in the country or pretty close to that.

So we are seeing industries being created. You're also a little further south of L.A. just down in El Segundo. You have the defense industry that's seeing a resurgence and the space industry as well related to it. All of that is good right now for the industry. We need to change to the politics and the policies in the market similar to what happened in San Francisco. I think to really get more business confidence and more businesses being willing to grow, or relocate into the market instead of relocating out of the market. But I like to think that the next election cycle will be more positive.

And we certainly have been involved with and have seen a lot of business groups who've got to the point that business has got to in San Francisco and said we had it. And certainly, you combine that with all these other spaces and along with the sports industry, which is booming in L.A. with what you had SoFi created, you've had where the Clippers play a new event center being created, the old ones get renovated. So there's generally strong availability and growth on the sporting side as well. Obviously you see that with them attracting the Super Bowl back again to L.A. next year.

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

Great to hear Rich on the call. Maybe just to take it there. You talked a bit about the fundamental recovery in L.A. and San Francisco, but can you speak to the dialogue you're having about asset sales. And just -- you've probably addressed this before, but what was your optimal footprint in those markets look like versus where your exposure is today?

Yes. I mean I think we're going to continue to be opportunistic as it relates to the disposition of assets within the portfolio it shouldn't surprise anyone to see additional sales occur in major cities in the U.S. That's, frankly, where all of our sales have been in the last 7 years. And I think Tom can probably speak a little more to where the investor sentiment is for those markets as well as sort of in general.

Yes, Duane. I think in general, we've been talking about investor conviction in the muted transaction market over the last 2 years. The primary reason for that was growth or more importantly, the lack of growth, which made it hard for investors to underwrite. It seems like we're pivoting and we're transitioning from that, especially given Q1 performance. And when you see markets that have bottomed like San Francisco and you see the growth in 2025 and the continued growth in 2026, -- you see the growth in L.A. in some of these markets. What we've always said is capital follows performance.

There's also a number of high-profile kind of higher-end upper upscale luxury properties in the market and in the final stage of marketing, and we'll be taking bids here over the course of the next 30 days, which I think will give a lot more clarity in terms of investor sentiment, investor depth, investor conviction and ultimately, investor pricing. So I think certainly by the second quarter call, we'll have a lot more visibility in terms of is the market, has the market kind of recovered and are we continuing that momentum.

So I think the setup for a functioning transaction market is there. Debt is still very available and is still very aggressive. But it all remains subject to the conflict in the Middle East. which could pause transaction momentum if it's not resolved in the short term.

Our next question is coming from Michael Bellisario of Baird.

Jon just on the out-of-room spending, I want to focus there. Maybe help us to understand. What did you see throughout the quarter? What did you see in April? Does demand surprise to the upside? Any differentiation between group and transient out-of-room spend? And then sort of what is that telling you about the broader health of the traveler and broader consumer spending trends?

Sure. So we haven't really seen any change in out-of-room spending this year or in April. It remains healthy. It's interesting. You read, you look at the consumer surveys and consumer confidence is at its lowest in history, maybe or very close to it. Yet what we find is when both groups and leisure are on property, they spend. They want to have a great experience, enjoying the facilities and eating there and spending money on activities or treating themselves with spas or other unique activities, it continues.

And I think a big part of that continues to be not only the strength of the upper end consumer, but look, the wealth effect, it has to be having an effect, right? The stock markets at all-time highs or very near. And I think that ultimately, that's playing through in the comfort people have in spending. So, so far, so good, Mike. We haven't seen any change, and we find that very encouraging.

Got it. That's helpful. And then just one follow-up. Just sort of in terms of revenue management. And any change in what you are telling your operators to focus on? And is there still an imperative to build occupancy first?

Yes. That's -- I appreciate the question because we are increasingly focusing on taking pricing opportunity where it exists. We've been doing that more so in the resorts where we've seen this sort of robust leisure growth occur. And also with events and the better holiday calendar, we're seeing more compression as we expected around those better holiday periods. So we are pushing price more. We're not doing it to the detriment of occupancy at this point.

We're trying to do both because we think the opportunity continues to be there for both as we're nowhere near the level of occupancies that we would prefer to operate at on a stabilized basis. But we are taking price where the opportunity exists, and that opportunity seems to have increased over the course of the last 4 months.

Our next question is coming from Chris Darling of Green Street.

What's the latest you can share as it relates potential redevelopment of Paradise Point, I think you have all the requisite permanent approvals, if I'm correct. So wondering if that's a project that you might consider kicking off sooner than later.

Yes. So we'd love to, but we're enjoying, but we have the California coastal approvals for the plan. Now we have a process to go through with the city in terms of getting permit approvals for the actual construction. And that's taking anywhere from 6 to 9 months at this point in time. So there's also some additional work we have to do as part of the California coastal approval that relates to some studies on geological displacement as we do the construction. So it's all part of the process, but it continues to be lengthy and certainly longer than we'd like. So I don't really see the project kicking off this year at this point in time, but it's still on the calendar as we move forward.

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

Thank you all for participating. We know you're really busy. We're here in the heart of earnings season. And we look forward to seeing you at some various conferences. And we look forward to seeing you at NAREIT next, and we'll be prepared to give you an update at that time. Thanks again. We look forward to talking with you.

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

Greetings, and welcome to Pebblebrook Hotel Trust Fourth Quarter Earnings Conference Call. [Operator Instructions] 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. Please go ahead.

Thank you, Donna, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. 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, I'd like to remind everyone that our remarks are as of today, February 26, 2026, and comments may include forward-looking statements that are subject to various risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today. Now let's jump into the fourth quarter and full year results.

We wrapped up 2025 with stronger-than-expected fourth quarter growth despite the demand disruption from the government shutdown. Same-property total RevPAR increased 2.9% and same-property hotel EBITDA grew 3.9% to $64.6 million, $2.2 million above the midpoint of our outlook. This was led by continued strength in San Francisco and better-than-expected performance in Boston, Chicago and at our recently redeveloped resorts.

Year-over-year, adjusted EBITDA climbed 11.1% to $69.7 million, about $6 million above the midpoint, supported by strong hotel results, lower corporate G&A and slightly higher-than-expected business interruption income related to LaPlaya. And with the benefit of a reduced share count from buybacks, adjusted FFO per share increased to $0.27, $0.05 above the midpoint of our outlook and up a robust $0.07 and 35% higher than the fourth quarter of 2024.

From a full year perspective, 2025 was defined by 2 very different storylines. Our redeveloped resorts and our urban recovery markets, especially in San Francisco, drove strong tangible growth while markets like Los Angeles and Washington, D.C. weighed on the headline numbers due to unexpected events that obscured the underlying strength across much of our portfolio. The key point as we enter 2026 is simple. The hotel demand growth engines are getting stronger and several of last year's headwinds are fading and should increasingly become tailwinds.

Looking at fourth quarter operating performance, same-property occupancy increased 190 basis points, while ADR declined 1.6%, resulting in a 1.2% RevPAR increase. Importantly, out-of-room performance continued to do the heavy lifting with non-room RevPAR climbing 5.5%, which drove total RevPAR growth of 2.9%. These results reflect a deliberate revenue management strategy we executed on throughout the year. We prioritized growing occupancy when it was a higher return lever because higher occupancy at our properties, especially our resorts, drives incremental profit across food and beverage, banquets and catering and other ancillary revenue streams. That occupancy level-led approach remains a core part of our 2026 playbook because it improves both revenue quality and profitability for our portfolio.

Our fourth quarter results reinforce 3 important themes that matter most for 2026. First, leisure demand remains resilient and noticeably improved from Thanksgiving throughout the end of the year, and weekday business travel continues to recover, especially in markets like San Francisco. Second, out-of-room spend remains healthy and continues to be an important profit driver for us, and our strategic reinvestment program is helping capture more group catering, outlet and ancillary spend on property. And third, expense growth remains well contained through an intense focus on creating operating efficiencies, which positions us to expand margins as revenue growth accelerates in 2026.

We saw that relationship clearly in Q4. Same-property revenues grew by 2.9%, while expenses increased 2.6%, supporting modest margin expansion and representing an encouraging setup as demand continues to recover further in 2026. And if you exclude L.A. and D.C., total RevPAR growth was 4.2% up in the quarter, reinforcing that the underlying trend line improves as we exited the year.

Now let's turn to where we're seeing -- where demand show up across the portfolio, starting with the resorts. Our resort portfolio continues to benefit from our completed multiyear strategic reinvestment program. In the fourth quarter, resort occupancy increased by roughly 160 basis points, driving total RevPAR up 4.9% and same-property resort EBITDA up a strong 17.4%. For the full year, resort EBITDA increased 1.3%. Importantly, many of our redevelopment resorts are ramping towards stabilization, and we see further meaningful growth ahead. For example, Newport Harbor Island Resort in its first full year post redevelopment ramped extremely well with total RevPAR increasing 38.5% and EBITDA increasing a significant $9.3 million to $17.7 million with additional upside in 2026 as this property stabilizes.

Turning to our urban markets. Performance remained mixed quarter-to-quarter, but the overall direction improved in our recovery cities where business group and transient are rebuilding and leisure demand is returning. San Francisco led the portfolio again with fourth quarter total RevPAR increasing more than 32%, which was driven by a broad-based recovery across all demand segments, including business transient, group, convention and leisure. For the full year, our San Francisco portfolio grew RevPAR by 15.1% -- total RevPAR by 15.1% and RevPAR by an even stronger 17.5%, with hotel EBITDA increasing by 58.5%. These were great results, and we're very encouraged by the 2026 set in San Francisco, which Jon will provide more color on.

Outside San Francisco, we saw steady improvements in 2025 in select urban markets like Portland and Chicago. Market-specific disruptions such as fires, ICE raids, national guard deployments, government shutdowns and softer convention calendars impact markets like San Diego, Washington, D.C. and Los Angeles. Encouragingly, L.A. improved sequentially as the year progressed with RevPAR finally turning positive in Q4 and early 2026 trends are improving further, which Jon will touch on later. And from a demand standpoint, fourth quarter leisure transient demand was a bright spot with transient room nights up 5.9%, aided by strength in consortia and wholesale channels. Group occupancy declined slightly, primarily due to lower attendance and cancellations from government and government-impacted segments.

On the cost side, the story remains disciplined and consistent. For the full year, same-property expenses rose 3%. And excluding last year's real estate tax and other credits, total expense growth was just 2.2%, with cost per occupied room basically flat. Energy cost growth was held to roughly 2% for the year, reflecting continued progress on property level operating initiatives, investments and productivity programs. We're applying that same efficiency mindset at the corporate level as well. We made progress streamlining our organizational structure, reducing corporate staffing levels by about 10% year-over-year and lowering run rate costs through process improvements, automation and productivity initiatives. As a result, we expect total run rate corporate cash G&A to decline modestly in 2026. So when you put it together, we've got revenues improving, non-room spend positive and resilient and costs staying well controlled. We like the trend line heading into 2026.

Turning to LaPlaya Beach Resort and Club in Naples, Florida. Our weather resiliency improvements are complete, and the resort is fully restored following Hurricanes Helene and Milton. We finalized our insurance settlement before year-end and recorded $3.1 million in business interruption proceeds in the quarter, about $1.1 million above our outlook, bringing total BI proceeds for 2025 to $12.7 million. With our claims now settled, we don't expect additional BI income in 2026. We're currently forecasting LaPlaya to generate hotel EBITDA of $28 million to $30 million in 2026 as resort continues to recover from the extended weather and rebuilding disruptions.

Let me shift now to our capital allocation and balance sheet actions because that's where our increased flexibility shows up. On the capital side, we invested $74.6 million in 2025, including weather resiliency improvements at LaPlaya, refreshes at Argonaut and Hyatt Centric Delfina, the guestroom refresh that commenced at Revere Boston Common, the renovation of the conference center and meeting space at Paradise Point Resort and various sustainability investments across the portfolio. For 2026, we expect capital investments of $65 million to $75 million, reflecting the second year in a row of a more normalized lower capital investment run rate now that our multiyear redevelopment program is largely complete. This lower capital run rate is an important tailwind for 2026 as it supports higher discretionary free cash flow for debt paydowns and share repurchases.

On the transactions front, we completed 2 strategic dispositions in the fourth quarter for gross proceeds of over $116 million, selling both Montrose at Beverly Hills and the Westin Michigan Avenue Chicago and redeploying those proceeds towards debt reduction and repurchasing common and preferred shares at very attractive discounts. Regarding share repurchases in 2025, we retired $13.3 million of preferred shares, buying them back at an attractive 24% discount to par. We also repurchased approximately 6.3 million common shares at an average price of $11.37 per share for a total of $71.3 million. We believe these repurchases represent an attractive discount to the underlying value of our portfolio and a high return use of capital that directly increases value per share.

Turning to our balance sheet. Earlier this month, we refinanced our near-term maturities by closing on a new $450 million senior unsecured term loan due in 2031 and repaying the remaining Margaritaville Hollywood Beach Resort loan using cash on hand. These proactive measures extended our debt maturity profile, increased our unencumbered asset base and provided a clear fully funded path to address the remaining $350 million convertible notes due December 2026. And as a result, we have $150 million of cash on hand and roughly $640 million of revolver capacity. Outside of the convertible notes, we have no significant debt maturities until 2028, and our weighted average interest cost of 4.1% is the lowest in the hotel lodging REIT sector.

All told, the important takeaways from the fourth quarter are about the trend line. The urban recovery is gaining traction. LaPlaya is back online and ramping. Total revenue quality remains strong, especially out-of-room spend, and our underlying cost discipline and search for efficiencies continue to position us for margin expansion as revenues grow. Combined with a lower capital investment run rate, we expect free cash flow to grow again in 2026, providing us with more momentum and capital flexibility.

And with that, I'd like to turn the call over to Jon for more on the 2025 performance trends and our outlook for 2026. Jon?

Thanks, Ray. I believe that we may finally be reaching a favorable transition point in the industry and for Pebblebrook. I'm going to detail the fundamentals behind that view. So I'm going to spend a little time providing some color on Q4 of last year, but my focus will be on the setup for 2026 and what we're already seeing happening here in the first quarter. After all, we're already at the end of February, so it's important that you understand how we think the full year sets up for Pebblebrook and how the first quarter is going so far.

In Q4, our operating performance turned out better than we expected despite the government shutdown and the resulting travel disruptions that followed. This better performance was primarily driven by 3 factors. First, stronger leisure demand throughout our upper upscale and luxury leaning portfolio, and that strength more than made up for the negative impacts from the shutdown and the softer group demand. Second, San Francisco outperformed our expectations. And third, we again delivered strong growth in out-of-room spend, which is being led by the performance of our resorts, particularly our more recently redeveloped resorts.

Our RevPAR in Q4 increased 1.2%, not bad considering the impact from the government shutdown, while the industry's RevPAR declined 1.1%. San Francisco RevPAR increased a massive 37.9%. San Francisco is benefiting from a recovery in all travel demand segments, leisure, business transient and group and convention. For those who believe it's being driven by the recovering citywide convention business, that is true, but it's only part of the story. And as an example, in December, with 0 conventions in San Francisco, that's right, 0 conventions, RevPAR for our San Francisco portfolio climbed 16.2% while the rest of our portfolio, excluding our San Francisco properties experienced a RevPAR decline of 2.5%.

San Francisco has gone from a doom loop to a boom loop with all facets of business and real estate benefiting from a cleaner, safer city and governmental policies and leadership that support the city's recovery. San Francisco, along with the bounce back in Los Angeles, will lead our growth in 2026. And San Francisco showed very well over Super Bowl week with huge positive publicity that will help drive an even faster and stronger hotel recovery.

Before I turn to 2026, I think it's important first to summarize what happened last year as it provides a foundation for our views on this year. Recall that a year ago, we were very excited about the setup for the year with a new business-friendly President, an already well-performing economy, essentially full employment, inflation and interest rates declining, and we were coming off an improving quarter in our industry at the end of 2024, where we saw demand re-correlate to GDP growth. Historically, that relationship holds best when policy noise is limited. We were expecting good things for the economy, for travel and our company. Well, as we all know, it didn't quite turn out as we expected. So what happened?

Well, government policies that created economic uncertainty or downright negative impacts like the freeze on government travel got in the way, along with the government shutdown later in the year. This is very evident in the STR industry numbers. Industry demand started out the year well, but began to weaken in February following a deterioration in our relations with Canada. Then it turned negative in April, coinciding with Liberation Day and heightened policy uncertainty then worsened in October and November with the government shutdown, cutback on airlift and fears about flight safety. Fortunately, once the shutdown ended, travel began to recover with strong leisure trends arriving with Thanksgiving and continuing all the way through the Christmas and New Year's holidays.

The industry also faced a worsening international trade imbalance all year with international outbound travel from the U.S. continuing to grow in 2025, while international inbound travel to the U.S. declined. International outbound travel now sits well above 2019 levels and inbound sits well below 2019 levels. Government travel was also lower than 2024 throughout the year as was government-related travel and government-impacted travel, such as travel associated with health care, universities, research and defense.

So the so-called K-shaped economy developed during the year with the upper half of the socioeconomic spectrum seeing their financials improve and therefore, spend more and the bottom half pulled back and focused more on necessities instead of discretionary purchases like travel. This created a clear bifurcation of performance in the hotel industry, with the upper half performing significantly better than the bottom half. Our portfolio, which almost entirely consists of upper upscale and luxury properties performed better as a result.

But the true underlying performance of our portfolio was obscured by the 9-month impact of the L.A. fires and our then 9 properties in that market and by the negative government-related impact on travel to D.C. and San Diego. Excluding L.A. from our calculations, highlights that the rest of the portfolio performed 180 basis points better in RevPAR and 160 basis points better in total RevPAR. D.C., which is a smaller market for us with 4 properties, negatively impacted RevPAR by 30 basis points and total RevPAR by roughly 60 basis points. These are not excuses. We're just providing the facts and the math so you can understand the performance of the underlying portfolio.

As we look at 2026, we believe both the industry and our portfolio are set up extremely well for the year. Yet our outlook is appropriately cautious given policy and geopolitical risks. If not for the surprises we experienced last year, we'd be more confident providing an outlook for the industry and for Pebblebrook that would be much higher. So our outlooks are cautious and therefore, conservative, but our setup is not. That said, while we're building conservative into our outlook, we're staying nimble with revenue management and cost controls. But consider the following positives for 2026.

Broadly, we have very easy demand and performance comparisons to a very disrupted 2025. Industry demand declined 0.5% last year, and RevPAR was down 0.3%, both of which are historically inconsistent with a growing economy and limited supply growth. Forecasts are indicating an improving macroeconomic environment with less uncertainty, supported by a stable and fully employed labor force, significant increases in business investments and substantially higher income tax refunds. [indiscernible] World Cup in many cities throughout the U.S., including 4 of our cities that will drive compression and longer stays. America250, which is broader than just July 4th events, will be very beneficial.

For Pebblebrook, we already had the Super Bowl in San Francisco in February and it performed exceedingly well. NBA All-Star week in L.A. in February, which also performed well. We have upcoming NCA Men's basketball tournament rounds in 4 of our markets and numerous other special demand-generating events in 2026 throughout our markets.

The year also has the best holiday calendar that I can ever remember, with most major holidays falling on or adjacent to weekends, which helps both weekday business travel as well as leisure on the weekends. We've already seen benefits from this favorable holiday calendar, starting with New Year's Day and then the Valentine's Day President's Day combined weekend and the rest is still unwritten. Assuming no big macro or geopolitical surprises, we believe demand will re-correlate to GDP as it did in Q4 2024 and early 2025 before all of last year's disruptions, and we're already seeing signs of that this year.

Although Winter Storm Fern obscured that reconnection in January, when we look at the first 24 days before the storm hit, industry room demand improved to plus 1.5%. We're definitely seeing that reconnection in February with industry demand in the first 3 weeks up 3.5%, though this week's winter storm will depress the full month numbers somewhat. We have very easy comparisons in Los Angeles and Washington, D.C., and we've already been seeing the snapback in L.A. from the beginning of the year with RevPAR at our L.A. properties increasing 33.1% in January, basically recouping all of the lost room revenue in that month from last year. We're also on track to recoup last year's losses in February, so we're on a good trend so far.

San Francisco is going through a very powerful recovery, and we're expecting another year of double-digit RevPAR growth this year. We're off to a very strong start with RevPAR climbing 12.2% in January, even with a year-over-year decline in citywide rooms on the books for the month. And we're heading for a 65%-plus RevPAR increase in February with the benefit of a very strong performance from Super Bowl and its almost week-long events. We have extremely limited supply growth in the industry to the point of it being a nonfactor, especially in our markets.

We also have further ramp-up to go from our recently redeveloped and repositioned properties that benefited from the huge capital investments we made over the last few years, including at LaPlaya, which has been rebuilt and is even better and more resilient than before the last hurricanes. And finally, our portfolio is essentially all upper upscale and luxury with half of our EBITDA coming from our high-end resorts, all of which should continue to benefit from the strength of the more affluent consumer.

Our first quarter performance so far and our outlook for Q1 illustrate the benefits of the setup that I just described. January RevPAR grew 4.6% and would have been almost 7%, but for Winter Storm Fern, which severely disrupted travel in the last week of January. We also were up against a tough comparison in Washington, D.C., which hosted the inauguration in January last year. February is on pace to achieve RevPAR growth of 15%-plus. As a result, our RevPAR outlook for the first quarter is 7.5% to 9%, with total RevPAR growing 6% to 7.5%.

We're still seeing healthy growth in out-of-room spend by both group and transient guests, but the range for total RevPAR revenues -- for total revenues in the first quarter is lower because these non-room revenues have a harder time keeping up with room revenue growth when RevPAR growth reaches such a high level. For the full year, we're more cautious given the policy and geopolitical risks. We'll take it a quarter at a time. Our outlook provides for RevPAR growth of 2% to 4% for the year, with total RevPAR forecasted to grow between 2.25% and 4.25%.

As of the end of January, our combined group and transient pace for the year was ahead of the same time last year by $21 million. That represents an increase of 2.4% over last year's final same-property room revenues. Pace growth is widespread and is up throughout our markets, except for D.C., which compares against the inauguration in January last year. We were encouraged by the revenue we picked up in January for the full year, which was favorable by $8.1 million over last year. But to be clear, that $8.1 million is part of the $21 million pace advantage for the year.

The key takeaway is we're starting the year ahead. January was a very good pickup month, and we're watching pickup closely. But we believe our outlook is prudent given the risks and uncertainties. For 2026, we expect to continue delivering operating efficiencies and keep total property expense growth well controlled as indicated in our outlook. As a result, we're forecasting same-property EBITDA to increase by 2.1% to 6% with the midpoint at 4%. So even at the 2.25% bottom of the range for total RevPAR growth, we still expect growth in EBITDA.

To wrap up, I hope you can tell that we're very excited about the setup for Pebblebrook for 2026. Now we just need the year to cooperate and provide a more stable environment. So with that, we'd now be happy to take your questions. Donna, you may proceed with the Q&A.

[Operator Instructions] Today's first question is coming from Smedes Rose of Citi.

Jon, I appreciate all your opening remarks. And I guess I was just wondering on kind of the one piece where there is maybe some better visibility. Could you just talk a little bit about what you're seeing on the group side and sort of maybe sort of the composition of those groups in terms of kind of who's coming?

Sure. Well, when we look at our pace, most of our pace advantage is in transient, both leisure and business transient and contract business. So group itself, group room nights right now are down 0.6% for the year. ADR is up 2.4% and group revenue is up 1.8% whereas transient room nights up 11.6%, ADR plus 0.6% and revenue plus 12.2%. Now the one thing I'd say about the group pace, it's still very widespread. We do continue to see the same softness when it comes to government and government-related government-impacted industries.

But one of the things our properties are doing based upon their experience last year is the group that's on the books is washed to a greater extent than it was going into last year. So I think it's a little bit more realistic when you consider what the trends were in terms of attrition and attendance compared to this year where at least right now, I think it's more representative of the trends that we were seeing late last year.

The next question is coming from Rich Hightower of Barclays.

A question on your resort portfolio and specifically the portion that's been -- that's had sort of heavy renovation CapEx over the last number of years. I guess if we look to the end of 2026, embedded with the guidance, what sort of unlevered cash returns do you anticipate on that spend? Or what's baked in the guidance? And then obviously, those assets are still ramping to stabilization. So what's sort of the ultimate stabilized target on that spend, if you don't mind?

Sure, Rich. Yes. and we updated some good detail in our investor presentation, which I encourage you to look at, which talks a lot about these redevelopments where we lay each of these out. The good news is on the 2023 and '24 projects where we invested a little over $100 million of ROI capital, we've realized already about $20 million of that, some of it we talked about today with Newport, a pretty phenomenal improvement during the year. And we have a remaining kind of $4 million to $8 million that we expect here in the next 2 to 3 years as it's further realized. So we've been -- and for these projects, that's actually closer to an ROI -- a cash ROI in that 22% to 26% range. So that's...

Annual cash yield.

Yes. Annual cash yield. So that's the ROI increased cash that we're generating the properties. And then when you look at the projects, overall, our strategic reinvestment program, and that's the one where for the last several years, we invested since 2018 in number of projects, we're averaging closer to that 16% to 17% annualized cash-on-cash ROI return. So these projects that were done recently from these resorts, it's adding on a lot of additional areas where we have additional food and beverage outlets, other revenue-generating areas that creates a lot of out-of-room spend.

And that's where we touched upon earlier, our focus has been the occupancy-driven approach, especially at our resorts because when the guest comes to the resort, they stay and they spend a lot of money. That's why these returns have been very healthy and encouraging, and we feel good about the progress. We expect more in '26.

The next question is coming from Cooper Clark of Wells Fargo.

I appreciate the color on the strong first quarter. Curious as we think about the lower implied RevPAR guidance for 2Q through 4Q despite your higher exposure to really strong calendar events. Can you walk us through some of the puts and takes embedded in guidance with respect to leisure trends in the year for the year group pickup or other items where you maybe started a bit more conservatively, as you mentioned earlier, given the macro uncertainty?

Sure. So when we look at last year, we went from a very significant advantage in pace when we reported same time last year to a decline in pace by the end of the year. And that all had to do with events, starting with the fires, the first week of the year that -- where the impact really lingered through much of the year, really 9 months. And so our outlook for this year, and I'm trying to be clear in my comments that we're being very conservative where we don't have full visibility, knowing that there are disruptions that can pop up that we don't anticipate pretty much any given day of the year.

And so when we look at the last 9 months of the year, it really is an implied RevPAR growth of 1% to 2% for our range. And that really doesn't take into account significant benefit from World Cup, from America250, from other events, from the benefit of the holiday calendar. And it doesn't really take into account the assumption that demand re-correlates with GDP because otherwise, with forecast of GDP in the 2%, 2.5% range, our forecast for the industry would be higher than the range that we laid out at 0% to 2%. So we're being very conservative. We think very prudent right now given our experience last year with our outlook for the last 3 quarters.

In terms of the trends we're seeing right now, they're all positive. I mean, other than the weather, where we had a second weather event, a blizzard with Winter Storm Hernando, which really put a damper on what was looking to be a really great month in February for the industry and clearly impacted travel all over the country. So we're still seeing the trends be positive. We are seeing this re-correlation with GDP, but for the weather. And we think so far, despite all the things that have happened geopolitically so far this year, it hasn't really had a big impact on the underlying demand trends. So from that perspective, despite all those things, travel demand seems to be continuing to improve. Does that address your question, Cooper?

[Operator Instructions] Our next question is coming from Aryeh Klein of BMO Capital Markets.

Jon, maybe just on the transaction market. You did sell a couple of hotels late in the year. Just curious what you're seeing about the out there, how you're thinking about the portfolio and just the potential to maybe sell a few more assets this year?

Aryeh, it's Tom. Yes, I mean, obviously, what you've seen is the market is becoming certainly more constructive. You've been reading about more trades, especially kind of the bid for luxury. And I think a number of the trades that have been announced recently have also skewed to much larger transactions. So I think that's a trend that you're going to continue to see. And part of that is the debt markets and the cost and availability of debt continues to improve.

Brokers are certainly more optimistic. Buyer debt seems to be improving. There's a lot of equity capital out there looking for opportunities. But as we've talked about for the last 18 months, they're looking for conviction. And what does that mean? That basically means growth. And as we all know, performance or capital follows performance. So I think everybody is kind of waiting to kind of see if the setup that we've set out for 2026 kind of comes to fruition, you'll continue to see momentum as it relates to the transaction and trades in the market. And I think you'll continue to see us be engaged and be heavy participants in the market as well.

Aryeh, one other thing just to add on the transaction side. We did do those 2 transactions in November. And there were quite a number of sell-side analysts who never updated their numbers for 2026 for the lost EBITDA from those assets sold at the end of 2025. And at least for the community that's on the phone, we'd ask if you could please update your numbers because it's inappropriately skewing consensus numbers for 2026 and then really doing a disservice to the investment community out there. So if the sell side could keep their models up, particularly for these material events that occur that impact future numbers, we think that would be much better for the investment community. That was not directed at you, Aryeh.

For what it's worth, it was out of our numbers, but...

The next question is coming from Michael Bellisario of Baird.

Sort of along those same lines, just relative to your very positive outlook, good start to the year. I mean how do you balance that better performance with those potential asset sales you talked about and further deleveraging in the balance sheet? I guess, maybe said another way, do you rely a little bit more on organic growth to delever in 2026 as opposed to maybe selling a few more hotels to get you to your balance sheet targets?

Yes. I mean I think our strategy continues to be a dual approach. First, it's how do we create value for the shareholders. And one of the ways we do that is by buying our existing assets back at a big discount to what they would trade for in the marketplace. And so I think what the improving underlying performance does is it's going to have an impact on the buyer community. And as Tom said, help it become more constructive because to date, the buyer community, one, has been in no hurry and two, hasn't really been underwriting growth in the future. And for the most part, for the last couple of years, that -- those assumptions have been right. We haven't had growth. We've had shrinkage.

So I think as we get on this positive trend, I mean, remember, we have extremely limited supply growth for the next 3 to 4 years. If you don't start this year, you're not delivering for 3 years at a minimum in the major urban markets and in the resort market. So I think for us, as long as this public-private arbitrage opportunity exists, we're going to continue to sell assets. And we're going to -- we'll pay down debt in order for our ratios to remain the same with the organic growth in EBITDA really driving down the overall ratio because we're not at a stabilized level of EBITDA given the impact on the markets during the pandemic and post pandemic, particularly the urban market.

So we think that will naturally recover as we laid out in our investor presentation in a very significant way. Start -- some of it started over the last couple of years, and it's accelerating, particularly in markets like San Francisco and with the snapback in L.A. from the fire impact last year. So we're really going to focus on taking advantage of the public-private arbitrage opportunity. We'll continue to sell assets as the transaction market allows, if you will, as a functioning market. And we'll use that capital to do 2 things. One is pay down debt related to the EBITDA that we're selling and two, to buy back our stock, both common and preferred, trading at material discounts.

Got it. If I could just sneak in a quick follow-up. Just the new slide in your deck on the brand management encumbrances that you added. What drove that? And what should we read into that data?

Yes. I mean I think the reason we put it together are some misconceptions out in the industry about what unencumbered means and what the impact of being unencumbered has on values. A lot of times, people have this tendency just to look at cap rates, which our industry doesn't really trade at cap rates. Cap rates are really the result of how people are underwriting the future performance of an asset. And as I said in my earlier comments, the buyer community hasn't been underwriting any growth in the future. And that's not normal, but it is consistent with an operating environment that hasn't been increasing.

And so as I said, the buyer community is right. But we wanted to lay out the fact that the vast majority of our portfolio is unencumbered by both brand and by operator, 77% of the portfolio. And those assets trade historically at a 10% to 20% premium on EBITDA multiples or on underwriting future because the buyer community is as broad as it possibly can be. So you get the greatest competition, you get strategic buyers, you get capital being provided by strategic buyers that increases transaction values. And you have upside that people assume from being able to put a flag on or changing operators that improves future performance that also leads to higher values.

So we wanted to provide that detail so people could understand it. It's not always clear, particularly in cases where we have rights like termination on sale that will free an encumbrance that is otherwise a long-term encumbrance for us. But to a new buyer, it becomes free and clear. So we've laid that out here. We also wanted to clarify the understanding about ground leases from 2 perspectives. First, there's some out there who actually take the future liability of ground leases and put that as a liability in calculating NAV. And that's -- it's double counting because we're already reducing EBITDA by the ground rent payments, and therefore, it's factored in. They do tend to trade at higher cap rates, resulting cap rates or lower EBITDA multiples in some cases, because it's not fee simple, and that, of course, makes sense.

But also, the ones that have public entities, those tend to get extended on a regular basis over time because the public entity has no interest in owning the asset. It wants the income and it wants the income to increase over time. So there is a difference, just like there's a difference in debt between CMBS and bank debt. There's a difference between ground leases depending upon whether they're privately -- the landlord is a private entity or whether it's a public entity. And so we wanted to call that out, Mike.

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

I wanted to ask about the Boston market. I was looking on Page 12 of your investor presentation, where you analyze market level anticipated upside from a continued urban recovery. And one of the parts of that slide noted that Boston ranks third on the implied EBITDA recovery despite 2025 occupancy already at 80%. The anticipated EBITDA recovery is almost as big as San Francisco, which remains a more depressed market. So I'm curious where you see Boston's EBITDA growth coming from in the next couple of years? Just general thoughts about the upside in the market going forward.

Sure. Thanks, Greg. So first of all, it's a couple of things. And when comparing it to San Francisco, it's a much bigger market for us in terms of the asset base that we have in that market. We have 5 assets, but they tend to be larger assets and they tend to be higher ADR assets in the marketplace. So those assets have historically run in the upper 80s, mid- to upper 80s and in '19, ran at 88%. Our forecast is to get it to 80%. So Boston as a market and those properties as well have historically run at a higher level.

I think when we look at San Francisco, we're being very -- we're still being conservative with where we think that market can run at. But you can see in the slide, it's very similar to Boston in terms of the recovery range that we've laid out, 80% to 85%. We also think there's more growth in total revenues in that market. We have a lot more meeting and event space in that marketplace. We have a lot more ancillary revenues in that marketplace. And those we think will continue to grow and drive a significant operating leverage in that business because while we've had a decent recovery in Boston, our assets were still running below '19 from an EBITDA perspective, we think there's a lot more upside there.

[Operator Instructions] The next question is coming from Chris Darling of Green Street.

Thinking about your CapEx outlook for the year, obviously, a lower near-term run rate there, and that is supportive from a free cash flow perspective. But the flip side of that equation is obviously the potential over time for deferred maintenance and/or loss of market share. So hoping you could speak to how you balance that trade-off. And maybe you could speak to balancing that trade-off both from sort of a corporate level financial perspective, but also from the standpoint of maximizing value with any future dispositions.

Yes. So first of all, we don't have the issue. We're not doing a trade-off in capital. We're not deferring capital. In fact, we continue to do what we've always done, which is protect the real estate, do all the infrastructure improvement and capital investing, improve systems when new technology comes out and we can lower operating expenses. A significant part of our overall capital relates to that infrastructure, whether it be HVAC systems or modernizing elevators or new roofs or new windows in -- at our properties. And as it relates to the ongoing -- and of course, there's little to no revenue that we get from those infrastructure investments, but it obviously protects the downside. So the trade-off is if you don't do that stuff is exactly what you're talking about.

As it relates to maintaining the interiors, we do that on a regular basis. The major redevelopments that we've done, we did because we bought the asset or we bought LaSalle, and we saw that there was very significant opportunity to reposition those assets. And in some cases, we had to invest capital because capital was deferred. And so we did that. So we don't wait around for 8 years or 10 years to do major renovations in order to catch up on deferred maintenance or deferred investment in the interiors. We're doing that constantly within the portfolio. And fortunately, because we do it at a very high-quality level, we invest very significant dollars in the kind of case goods we buy, the quality of the fabrics that we buy, the lighting, et cetera.

Those generally are fairly limited in terms of how much capital we need to invest. They last longer because we're designed forward in our hotels, they tend not to go out of style. And so in our portfolio, you really don't have deferred capital. We don't have a trade-off issue as a result of that. And we see it 2 ways, Chris, and this is to understand how we do, we're always looking at our customer reviews. We're looking at our rankings on TripAdvisor, on Expedia, on Yelp and the different rating services. And they tell us whether we need to do refreshes or not. They confirm what we're doing or they don't. And if there are issues that come up there with customers, we see it.

We obviously also get the customer reviews that our operators do, but we really look at the public ones because we think, one, they're skewed, they tend to be more negative than positive anyway. But at the end of the day, we look at our rankings and how we compare to the competitive sets. And what we've seen over the last 3 and 4 years is we continue to gain in our rankings with our customers. So we continue to go higher. We continue to increase customer service.

We just find more efficient ways to do it. We have better training programs. We provide better service levels. We get more individual employee comments from our guests about the higher quality level of service and more personalized service that they're getting. So it's really critical to gaining share over time, which is what we've been doing. And that's the other way to see how does your property compete. And if you're gaining share, it's another indication that your property competitively is in the best shape in the marketplace.

And Chris, also, what we found is this leads to better ROI and look at a lot of the capital we've invested into our resorts since we don't have any branded resorts. We have complete discretion on how we want to choose to invest the capital versus a brand telling us, oh, you need to replace that door lock because this is a new brand standard, which has no ROI. So we can really target the capital, which is why in our investor presentation, we detailed some of those returns, and I encourage our investors to look at that. It's some really high returns because, again, a lot of that capital is areas where, to Jon's point, it's going to speak to what the customer is looking for. It's going to lead to higher revenues and other revenue sources, and that also leads to higher ROI and EBITDA growth.

Unfortunately, that is all the time we have today for questions. I would like to turn it back over to Mr. Bortz for closing comments.

Thank you all for participating today. Look, we're -- we'll be back to you in the next 60 days. And of course, we're going to see many of you down at the Citi Conference down in Hollywood, Florida. And let's all continue to root for a more stable environment because that will have a big positive impact on the industry and our own performance over the course of 2026. And we look forward to catching up with you in the not-too-distant future. Thank you.

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

Greetings, and welcome to the Pebblebrook Hotel Trust' Third Quarter Earnings Conference Call. [Operator Instructions] 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, sir. You may begin.

All right. Thank you, Christine, and good morning, everyone. Welcome to our third quarter 2025 earnings call. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer.

But before we start, I'd like to remind everyone that our remarks are effective as of today, November 6, 2025. Our comments may include forward-looking statements that are subject to various risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today.

Now let's jump into the quarter. We're pleased to report that our third quarter performance was in line with our outlook in a challenging quarter shaped by heightened geopolitical and macroeconomic uncertainty as well as an unfavorable holiday calendar shift, we again delivered solid operating results and industry-leading cost controls. This execution sets us up well for 2026, given the robust convention and major event calendars across our markets.

Same-property hotel EBITDA totaled $105.4 million, in line with our midpoint, while adjusted EBITDA came in at $99.2 million, exceeding our midpoint by $2.2 million. Adjusted FFO per share was $0.51, $0.03 above our midpoint. Together, these results reflect the resilience of our operating model, our relentless focus on driving operating efficiencies and our disciplined cost management.

On the ground, performance was led by our properties in San Francisco and Chicago, alongside strong contributions from several of our recently redeveloped resorts, including Newport Harbor Island Resort and Jekyll Island Club Resort.

Turning to portfolio trends. Same-property occupancy increased nearly 190 basis points, while ADR declined 5.4%, resulting in a 3.1% decline in RevPAR and a 1.5% drop in same-property total RevPAR. If you exclude Los Angeles and Washington, D.C., our 2 most challenged markets in the quarter, total RevPAR actually was up 0.6%. The decline in ADR was primarily driven by competitive pricing in D.C. and L.A., stemming from disruptions related to the ICE activity and the National Guard deployments. We also saw more demand coming through lower-priced booking channels, offsetting softer group attendance and government travel. Even so, occupancy increased in 6 of our 7 urban markets and across nearly all of our resorts.

San Francisco was once again the standout. RevPAR rose 8.3% in Q3 on a 690 basis point jump in occupancy, driving EBITDA higher by 10.9%. Growth was broad-based with increases fueled by an active convention calendar and a continued recovery in both business travel and leisure demand. Results would have been even stronger but for the massive Dreamforce citywide convention shifting into October from September of the previous year. Importantly, positive momentum continues in San Francisco with a very strong fourth quarter well underway. No doubt, San Francisco has gone from a laggard to a leader led by the AI revolution, which is headquartered in the city and by San Francisco's tremendous progress in becoming a cleaner, safer and more vibrant city.

Chicago also posted another solid quarter with RevPAR increasing 2.3% on healthy leisure events such as concerts and sports, improving weekday corporate travel and stronger weekend leisure. These positive results were achieved despite Chicago facing an extremely difficult comp to last year when the city hosted the Democratic National Convention in August. Both San Francisco and Chicago continue to pace well through year-end and into 2026, which reflects one of the many reasons we're more constructive on next year.

Our resort portfolio also remained resilient with total RevPAR increasing by 0.7%, led by exceptional growth at Newport Harbor Island Resort, where RevPAR jumped 29% and total RevPAR surged an impressive 35.9% versus its pre-renovation performance in 2023. Jekyll Island Club Resort generated an 8% RevPAR increase with total RevPAR growing over 11%, while Estancia La Jolla's RevPAR rose 5.7%. These properties illustrate the power of our redevelopment program, which is driving market share gains and growing profitability as these properties climb towards stabilization.

Across our urban markets, performance was more mixed. Urban total RevPAR declined 2.7% as strength in San Francisco and Chicago was offset by ongoing weakness in Los Angeles and Washington, D.C. and the lighter year-over-year convention calendars in Boston and San Diego. Washington, D.C. was our softest market, with RevPAR down 16.4% due to reduced government and government-related travel demand and lower tourism activity. We expect these challenges to persist throughout much of Q4 given the federal government shutdown. However, the setup in D.C. should improve significantly in 2026 with more normalized federal travel, a favorable convention calendar and numerous America 250 events.

In Los Angeles, RevPAR declined 10.4%, driven entirely by rain. Greater price competition emerged from the negative impact of the devastating fires earlier in the year and the pressure did not decline in Q3 as the ICE rates and National Guard deployments created a perception of disruption and safety concerns, driving continued rate pressure. Conditions are stabilizing as the political environment cools and entertainment production gradually improves. So we expect L.A. to only be a minor headwind in the fourth quarter.

Boston and San Diego experienced year-over-year declines attributed to lighter convention calendars in the city as well as softer group attendance. San Diego has also been negatively impacted all year by the significant cutback in federal government travel. That said, both markets continue to exhibit steady underlying trends in leisure and business travel.

On a monthly basis, July same-property total RevPAR decreased 1.1%. August was essentially flat and September fell 3.3% with the midweek timing of the Jewish holidays being a major headwind for September as expected.

On the revenue side, same-property out-of-room revenues grew 1.7%, supported by stronger event space utilization, elevated food and beverage performance and the benefit of upgraded amenities across our redeveloped properties. Transient demand strengthened by 3.8% in Q3 as the booking window remains shorter, aided by growth in our wholesale and consortia channels. Group occupancy declined by 2%, primarily due to lighter-than-expected attendance at health care, education and government attended or related events. This trend is consistent with the national data STR has been publishing, which we also highlighted last quarter.

On the operating expense side, execution remained excellent. Same-property hotel expenses before fixed costs rose just 0.4% year-over-year. And on a per occupied room basis, expenses declined about 2%. That's another quarter of exceptional operating discipline by our hotel teams and asset managers, creating efficiencies and lowering operating costs.

Turning to LaPlaya in Naples, Florida. Our weather resiliency improvements are just a week or 2 away from being substantially complete. We expect LaPlaya to generate approximately $36.6 million in adjusted EBITDA this year, including both hotel EBITDA and BI income. This compares to $42.8 million in 2024, which benefited from elevated BI collections following Hurricane Ian.

On the capital side, we invested $14.2 million in the quarter and remain on track to invest $65 million to $75 million this year, reflecting a return to a normalized capital investment pace following our now completed multiyear redevelopment program. This lower run rate supports higher discretionary free cash flow and gives us more balance sheet flexibility.

We also entered into an agreement to sell one of our hotels for $72 million with a buyer having provided a nonrefundable deposit under the contract. Consistent with the purchase agreement, we can't disclose a specific hotel or buyer at this time. The property has been classified as held for sale, and we expect the transaction to close in the fourth quarter, subject to customary closing conditions. That said, there is no assurance that the sale will be completed on these terms or the time. The potential disposition is not reflected in our fourth quarter or full year outlook.

Shifting to our balance sheet. We remain extremely pleased with the successful $400 million offering of 1.625% convertible notes we completed in September. We used these proceeds to retire $400 million of our 1.75% convertible notes due 2026 at a 2% discount to par, leaving a very manageable $350 million outstanding. We also concurrently repurchased $50 million worth of common shares during the quarter at a significant discount to NAV, which is accretive to FFO and NAV per share. We ended Q3 with $232 million of cash, and we expect to generate over $100 million in free cash flow by the end of 2026. Our plan is straightforward: use cash on hand and free cash flow to take out the remaining convertible notes maturing in December 2026. All told, it was another quarter of disciplined execution amid a choppy and uncertain demand backdrop.

And with that, I'll hand it over to Jon to provide more details on the third quarter, our outlook for Q4 and a look ahead to 2026. Jon?

Thanks, Ray. When we look at the industry's performance, the third quarter looked a lot like the second, only a bit softer. Demand was slightly down year-over-year, and that caused renewed pricing competition, which led to a lack of ADR growth. Group demand was most pressured. It was lower in all 3 months due to reduced government travel, weaker international participation at conventions and conferences and some increasing attrition. Transient demand, including leisure, held up better. It remained positive versus last year. That mix favored weekends over weekdays for the broader industry and for Pebblebrook.

In terms of industry performance by price point or scale, there remains a sharp divide between the upper and lower ends of the market. Premium hotels and resorts continue to perform better, while the bottom half is seeing much more weakness as cost-conscious consumers pull back on their discretionary spending. In Q3, we faced the same fundamental challenges as the industry, but the localized disruptions in L.A. and Washington, D.C. drove our third quarter performance below the industry average. To put that disruptive impact into perspective, L.A. and D.C. represented roughly $7 million of the $7.9 million year-over-year decline in same-property hotel EBITDA.

Throughout our portfolio, we continue to see a recovery in business transient travel. Like the industry, group room nights and group revenues were slightly negative in the quarter versus last year, while business and leisure transient demand continued to improve. Due to the resiliency of leisure demand, weekend occupancies were up all across our portfolio, urban and resort, demonstrating the continued appeal of our high-quality properties, especially for leisure and social group customers. Weekday occupancy also grew due to the continuing recovery in business transient travel and our team's focus on replacing group and government shortfalls and rebuilding overall occupancies through discounted wholesale and consortia channels.

I'd also like to briefly highlight the performance at our redeveloped properties because it's a key part of our improved performance in '25, and it should provide a similar boost in 2026. We praised the terrific performance of Newport Harbor Island Resort last quarter, and it deserves that praise again this quarter. In Q3, Newport led the way in our portfolio, delivering $11.8 million of EBITDA in its most important seasonal quarter, up $2.9 million year-over-year on a 21.6% total revenue increase and strong flow-through. That's exactly the ramp we expected from the comprehensive $50 million transformation completed last spring. That's a higher quality overall resort experience with more compelling venues, delivering increased event capacity and a richer food and beverage mix, all together driving higher ADRs and higher out-of-room guest spend.

For the full year, we now expect Newport to generate almost $17 million of EBITDA, ahead of the $13.6 million at acquisition and much higher than our forecast just 90 days ago. We're very excited about Newport's future. Hats off to the resorts operating team. And 2025 is just our first full year of post redevelopment operations. So we believe the resort is well positioned to generate even stronger performance over the next few years as it continues its ramp and it benefits from increased exposure to group and leisure demand.

And Newport is just one example of the benefits of our strategic redevelopment program. Our comprehensively upgraded and transformed hotels and resorts across our portfolio are gaining share and growing cash flow with more runway ahead. This includes, among others, Estancia La Jolla, Chaminade Resort & Spa in Santa Cruz, Hotel Zena and Viceroy in D.C., 1 Hotel San Francisco, Hilton Gaslamp, Margaritaville Gaslamp, L'Auberge Del Mar and Jekyll Island Club Resort. These properties are demonstrating the benefits of the transformative nature of our redevelopment program through sustained market share gains, higher out-of-room spend and higher profitability.

Operationally, our teams again did the hard things well in the quarter. They found efficiencies and controlled costs. Same-property total expenses were limited to just 0.7% growth. On a per occupied room basis, costs declined. That's a direct result of our team's relentless focus on improving every aspect of our operating cost structure through our strategic productivity and efficiency program.

On the technology front, we continue to pilot AI-enabled tools aimed at improving hiring, retention, service delivery, cleanliness and overall productivity across our portfolio. The pace of AI and robotics innovation is accelerating rapidly, and we're working closely with Curator to identify and implement the most impactful solutions. We expect the hotel operating model to look quite different in a few years from now, and we intend to stay ahead of that curve. We've also begun implementing some of the new technologies aimed at reducing energy and water usage, and we're investing in new systems, including solar and HVAC upgrades, where the ROI is compelling.

Now shifting to the fourth quarter. We remain cautious on Q4 given the macroeconomic outlook and the ongoing uncertainty related to the government shutdown, tariff policy, governmental efforts to reduce government spending and the ultimate impact of these policies on the economy. While it's becoming increasingly clear where the level of most travel -- tariffs, sorry, are likely to settle, particularly with the most recent events in Asia, we believe both businesses and consumers remain more cautious until there's more clarity on the details of these agreements and until the shutdown ends. Economists agree as they continue to forecast slower growth in the near-term.

Specifically, the government shutdown now in its sixth week is clearly hurting travel. Government travel and travel to visit with the government is down all over the country, and it's obviously much more pronounced in Washington, D.C. Many business and leisure travelers are becoming more hesitant about air travel while the shutdown persists. Unfortunately, we've seen a notable increase in government and government-related cancellations everywhere, and we've experienced slower pickup in many markets around the country, especially in D.C. and to a lesser extent, in San Diego. This negative impact is now showing up in the STR numbers for the industry. RevPAR growth, which was primed for a very positive October is now trending closer to slightly negative for the month.

Our preliminary October results were more favorable. Total RevPAR increased approximately 4%. This illustrates the benefits of our high-quality properties and the added and enhanced venues, event spaces and amenities throughout our portfolio. Our concern, of course, for the rest of the quarter is that, air travel is likely to be impacted at increasing levels as the shutdown lengthens and then the recovery may be more gradual once the shutdown ends. DOT's announcement last night of a 10% reduction of flights beginning Friday won't help demand unless it leads to a quicker resolution of the shutdown. As a result, it's difficult to forecast the rest of Q4, but our current outlook assumes the shutdown will end soon. As of October 1, our revenue pace for Q4 was ahead of last year by 2.1% or $2.6 million. This represents an improvement from 90 days ago. With the government shutdown lasting the entire month of October and already a week in November, the positive pace for Q4 has likely been negatively impacted, but we don't yet have data on that, and we won't for a few more days.

Our Q4 outlook assumes same-property RevPAR will range between minus 1.25% to up 2%, with total RevPAR between a negative 1.25% and a positive 2.7%. On the cost side, due to the benefits of our strategic efficiency and productivity efforts, we expect total hotel expenses to grow just 0.8% at the midpoint. That means expenses per occupied room should decline again in Q4.

As we look ahead to 2026, we remain cautiously optimistic due to our belief that fundamentals provide a favorable setup for next year. We believe macroeconomic uncertainty will fade. Hotel demand is likely to normalize with GDP growth, and we know new supply will remain at historically low levels. I know there are many professional prognosticators who are currently forecasting limited RevPAR growth for 2026, but there are several significant pluses for next year, both for the industry and specifically for our portfolio.

Let's start with prospects for favorable demand growth in 2026 and a return to the positive correlation between GDP growth and hotel industry demand growth. I know some skeptics out there believe there's no longer a correlation, but we don't fall into that camp. As the monkey is saying, I'm a believer, we strongly believe that our industry has experienced a unique set of factors that have temporarily disrupted the correlation. And as these factors fade or disappear, demand growth should resume its positive historical connection to GDP growth.

Listen to these numbers for annual hotel room night demand growth beginning back in 2010. 2010, 7.2%, coming out of the Great Financial Recession. 2011, 4.6%, still recovering from the GFC. 2012, 2.8%; 2013, 1.5%; 2014, 3.9%; 2015, 2.4%; '16, 1.6%; '17, 2.2%; '18, 2.2%; and 2019, 1.5%. Pretty consistent and healthy demand growth for every year in the economic cycle. I'm going to skip '20 to '22, which were pandemic impacted with huge negative and then positive volatility. So for '23, demand growth was 1% with continuing normalization from the pandemic growth blip in '22. 2024, 0.6% with the first 3 quarters of normalization. And for 2025 year-to-date through September, it was negative 0.2% with massive disruptions from government cutbacks, material declines in international inbound travel due to nationalistic rhetoric and significant economic uncertainty due to arguably the most significant policy uncertainty in the past 50 years.

Could there be more material disruptions in the future? Of course, there could be. However, we believe it's more likely that much of this uncertainty dissipates and the business and investment-friendly legislation passed a few months ago, combined with the benefits of significant deregulation will finally begin to kick in, in a very favorable way and provide a nice tailwind for the macroeconomic environment in 2026. And the supply picture continues to provide a fundamental tailwind for the industry and for us in our markets. There is very little supply being added in the industry, and new construction starts continue to run lower than deliveries. Given that it takes 3 to 4 years to deliver new high-rise urban or resort properties from the first shovel in the ground, the runway for recovery and improvement is long. Whenever we get to the runway, which we hope is next year.

The other significant tailwind for 2026 is that, the holiday calendar next year is meaningfully more favorable than 2025. For example, for all you sweet hearts out there, take note, Valentine's Day falls on a Saturday next year versus a Friday this year. The gang here is cracking me up. And it also falls over the President's Day weekend, creating the potential for a much stronger leisure weekend with less midweek disruption. Juneteenth shifts to a Friday from a Thursday, reducing the negative impact on a weekday business travel -- on weekday business travel from the holiday. July 4 moves to a Saturday from a Friday, creating the perfect weekend for all the America 250 celebrations. The Jewish holidays in the fall occur either over a weekend or a Monday, thank God, causing less of a negative impact on business travel for those 2 weeks. Halloween falls on a Saturday next year versus a Friday this year. That's a definite treat for less midweek disruption. Christmas provides a nice gift by moving closer to the weekend, creating a more favorable long weekend for holiday leisure travel and New Year's Eve also moves closer to a weekend, creating a better pattern for leisure travel to celebrate the year-end.

The hotel industry will also benefit from a uniquely active major events calendar next year. Numerous cities will be boosted from the World Cup being hosted in the U.S. and from many activities surrounding America's 250th anniversary celebration. For Pebblebrook, we expect to benefit from all these tailwinds as well as a few of our own. Based on what we know today, we believe we'll outperform the industry next year. Our redeveloped properties, which are still ramping up, will contribute to this outperformance. Several of our urban markets, including San Francisco, Portland and Chicago, are primed to continue their recoveries. L.A. comps will be much easier due to the negative impact from the fires and other safety-related disruptions. D.C. too has easy comps for next year, along with a stronger convention calendar.

On top of that, we expect to see significant incremental demand from a multitude of major events across our portfolio, 28 World Cup matches across our markets, featuring 8 matches in L.A., 7 matches each in Boston and Miami and 6 in San Francisco. NCAA men's basketball tournament rounds in 4 of our markets, the 250th U.S. anniversary celebrations in D.C., Boston and likely other cities, the Super Bowl in San Francisco, the NBA All-Star game in Los Angeles and the College Football National Championship game in Miami. While most of these major events have yet to put many rooms on the books for next year, except for the Super Bowl in San Francisco, our group and total revenue pace for next year are currently favorable. As of October 1, 2026 group room nights were up 4.1%, ADR is ahead by almost 3% and group revenues are up over 7% or $7.6 million over 2025. Total revenue pace, including both group and transient, is up by 6.1% or $9 million ahead of the same time last year.

So while none of this guarantees a great year, the setup for 2026 is very positive. We've got a favorable pace. We have easy comps in L.A. D.C. should settle down. San Francisco is recovering very strongly. We've got significant upside from our numerous redevelopments. The holiday calendar is meaningfully more favorable next year. The uniquely strong calendar of events will materially benefit our markets and business uncertainty is likely to significantly dissipate as tariff policy is resolved and as business investment ramps substantially through AI and reshoring.

As a result, we're optimistic about a positive trajectory for next year. By executing on our strategic plan, driving revenue, maximizing efficiencies and growing free cash flow, we're creating the foundation for strong, durable long-term value creation. We have a solid balance sheet, a redeveloped portfolio and a very favorable multiyear supply setup, which positions us well to take advantage of a growing economy. We just need the macro to finally fall into place without major disruptions.

That wraps up our prepared remarks. Christine, we're ready to open it up for Q&A.

[Operator Instructions] Our first question comes from the line of Gregory Miller with Truist.

First off, very detailed and helpful commentary on 2026. I'd like to ask about San Francisco lodging performance given some encouraging trends as of late. I could ask several questions about how you see the market today, but I'll start with a few items in particular. Looking at CoStar data, there has been some encouraging room rate growth, especially during major convention citywides [indiscernible] and obviously, there are many potential citywide sellout days ahead in the next couple of quarters. I'm curious what you're seeing in terms of the level of confidence from hoteliers in the market to push room rates during high occupancy nights and any implications to your properties?

Yes, Greg. So thanks for the focus on San Francisco. Obviously, it's an important market for us, and it's not been a good market for many years. But this year, it's really cranking on all cylinders at this point. And I think your question about rate is really where the market is heading, which is -- and there's a big opportunity that I think has begun to already be capitalized on to push rate, not just over the citywide dates where compression clearly occurs, but much more so on weekdays and certain weekends when there are major events in the city. But as it relates to weekdays, I think what we're seeing is regular Monday, Tuesday, Wednesday nights without a citywide are still selling out. And that increase -- very significant increase in demand is allowing our teams to push rate and do it with increasing confidence. And I think as that permeates through the market, I think we'll continue to see that. I mean we have a lot of rate growth to recover from 2019. And I think we've started to see it, but I think that will be a much bigger part of where we go next year in addition to obviously being able to take advantage of both Super Bowl, which, of course, will drive significantly higher rates as well as World Cup, which will not only drive rates, but even more importantly, drive significant occupancy growth in the market.

And Greg, also just about your question of momentum building in '26. The convention center, the room nights on the books for '26, it's made a lot of really good progress since the start of the year, thanks to SF Travel is doing a great job with the new leadership there. Just to give you an example, they booked over 100,000 room nights or 100,000 room nights have gone definite for '26 since the start of the year. So that's about a 20% increase. So we started the year with '26 convention demand looking like it would be down in '25. It's actually now up in a pretty short amount of time. So it shows the positive momentum there. And the number of sellout nights we had, what, 44 days in '25 that we had over -- redeemed as kind of sellout nights, that's projected to increase in '26. So to Jon's point, we have more opportunities there for hull some great compression opportunities.

And I think one of the things that's kind of unique about San Francisco, obviously, you've got a big factor in that AI and much of technology and biomedical is headquartered there. But a lot of the conventions and citywides that occur in San Francisco are corporate led. And as a result of that, corporate tends to book much more short term than the bigger associations do. So bringing in that major corporate-sponsored events like Microsoft Ignite, which is occurring here in November, where they just canceled out of 2 other markets for '26 and '27 and have signed up to be here in San Francisco. So we're really encouraged about the positive momentum there.

That's all very helpful. Maybe switch gears on a different demand segment in San Francisco. We get a lot of investor questions that relate to transient corporate and specifically how the AI industry is impacting demand at this point or maybe the next couple of months. I'm curious if you could provide a little more context in terms of what you're seeing as of late and perhaps your expectations for the fourth quarter.

Sure. Well, I mean, what we've been seeing and increasingly over the course of the year are more and more companies that we've never heard of. And they're booking not just transient business, they're booking in-house group, they're booking, recruiting people coming in, looking for jobs. They're booking training in our hotels in the marketplace. And some of these have grown to the point where they have their own conferences like Snowflake, which I guess, didn't exist, I don't know, at least certainly people didn't know about 3 or 4 years ago. So it's definitely having an impact on those Tuesday -- those Monday, Tuesday and Wednesdays that I talked about within the market. And so, it's extremely encouraging. They're also coming in. They're taking a lot of office space. Obviously, people have read the stories about these companies growing and they're taking space quickly after they take space because they're growing so fast.

The other thing we've seen is, a significant number of IPOs of companies based in San Francisco over the last 6 months. And again, that's capital flowing into the industry that's being used for growth, and that growth involves to a great extent, high-caliber people being hired.

Our next question comes from the line of Cooper Clark with Wells Fargo.

You continue to make really strong progress on the expense side. Could you provide color on how much of that is the result of reduced headcount? And is it fair to assume we see labor costs moderate into '26?

Yes. I mean I think -- I mean, I've been in the business since the early '90s. And through every cycle, we reduced the headcount of our hotels. Our people become more efficient, more productive, and that's continuing. There's additional tools that people can use. We're better at scheduling through utilization of these tools. We're making fewer mistakes. When it comes to scheduling, we're using third-party services less as a result of more efficient scheduling as examples. So we think that will continue. That's our relentless focus.

And yes, I think the wage side because of the front-end loading of a lot of these city labor contracts, we think that next year, the wage rate growth will be less than it was this year, albeit a little of that will be offset by probably health care costs that are going to be -- that are going to grow at a higher cost -- a higher rate than they did this year. But overall, it should be lower in terms of the growth rate of those wages and benefits combined.

But our focus is on everything that we do in our hotels. It's on how are we more efficient utilizing energy. There's new tools. There's better ways to operate our hotels to use less power, to use less water. It's good for the planet. It's good for the bottom line financially at the end of the day. It's what our customers want. It's more consistent with their values. It's focused on insurance, how do we lower insurance? How do we reduce accidents? Some of that is operating best practices. Some of that involves physical improvements and changes to our properties. How do we increase resiliency from weather? So we have less downtime and less damage. It's infrastructure improvements, roofing, window ceiling, new windows, sealants. It's all sorts of things through the portfolio. It's how do we reduce credit card commissions, how do we encourage people to pay by ACH? All of that is a focus. It's really every line item that we have on our income statements. And it's going to be a significant focus as far as the eye can see, particularly as we get new tools that are AI-enabled or boosted, robotics become a more important factor. And as the quality of that service becomes better, in fact, in many cases, likely better than what a human can provide ultimately. So certainly more knowledge individually.

So we're very encouraged about where the opportunities are to lower costs as we move forward, improve the quality of work for our employees and deal with some of the shortages that are occurring and that we think will occur as a lot of our workforce ages and is not being replaced by others willing to do the same jobs.

Okay. That's really helpful. And then shifting to L.A. I appreciate some of the more positive commentary on L.A. into the fourth quarter. Could you just talk about how we should think about L.A. into 2026, given what should be softer comps, but some continued challenges on the demand and labor side of things? I guess, said differently, do you expect L.A. to continue to drag on results from a RevPAR and EBITDA perspective over the next 12 months relative to the rest of your portfolio?

Yes, Cooper, we -- well, we think actually it will be one of our better performers next year because of the easy comps, the recovery that we are seeing sort of renormalizing back in the market. And then the discussion and data that we're getting related to the future ramping of TV and movie production in the state based upon the approvals of those that are going before the film commission that's providing these grants. From what we see, the big ramp-up of that, there's a small increase that we should see probably not here in the fourth quarter, but in the first quarter of next year, but then a bigger ramp in the second quarter because there's a 6-month requirement that once the application has been approved that they start production in the market. So the doubling -- more than doubling of the credits that the state is providing for production in California is really kicking in by the middle of next year.

So look, presuming we don't have any major events, we don't have political issues going on that disrupt the perception of safety or quality of life or the beauty of the visit. We think L.A. will be a big tailwind for us in the portfolio next year.

Our next question comes from the line of Smedes Rose with Citi.

I appreciate all your detail talking about next year. But I wanted to just ask you a little bit about maybe -- I mean you have an asset held for sale. Just kind of what are you seeing overall in the transaction market in terms of just, I guess, overall pricing? And where are you, I guess, going forward in terms of trying to execute on potential asset sales, assuming there's kind of a constructive transaction market?

Smedes, it's Tom. Thanks for the question. So I think just as a general backdrop, the transaction market has kind of been gyrating between risk-on and risk-off all year. The one constant throughout the year, however, has been the debt markets. The debt markets have been improving. They're getting more competitive. There's more availability, there's better pricing. And in some instances, it's actually becoming an alternative to a sale for many sellers from that perspective. Because I think on the equity side, again, it's kind of more risk-on, risk-off. I think would be government shutdown, would be kind of flat to negative operating performance that you see in the weekly and monthly stars. I think star reports, we're just kind of at a pause right now until there's a little more macro clarity.

But what I would say to you is, over the course of the last 60, 90 days, we've seen, I think, a real pent-up demand by investors. You've seen some larger transactions take place. You've seen a return of some of the bigger private equity names. You've seen some of the owner operators. So I think there -- my sense here is that, there's just -- they're all just waiting for that catalyst. And I think if you listen to what Jon had indicated in our call about 2026, I think once things turn and there's better visibility, I think there's going to be a lot of pent-up demand for transactions moving forward. I think the risk-off situation right now is nobody really wants negative leverage and they're focused on smaller deals and those will continue. But until there's some clarity, I think we're going to be a little bit of a pause here.

And I think from a strategy perspective, our focus continues to be to sell assets and use that capital to take advantage of the public-private arbitrage opportunity to buy our stock back, pay down debt, remain leverage neutral or slightly reduce leverage over time. But I think from the disposition perspective, there have been new entrants into the market. There's certainly a lot more high net worth individuals out there looking at lodging where they might not have previously because I think folks see the potential upside opportunity and the ability to take advantage of what are historically pretty low per key values, particularly as it relates to what has been continuously increasing, which is the replacement cost of hotels.

So I think we're encouraged, but I think what we need, and we've continued to need and we've talked about this before is, we need operations to turn positive. It's hard for a buyer to buy into a market that's declining. They need to see things go up. Everybody is well aware of the long runway of limited supply growth, which will allow for both occupancy and rate to grow arguably faster than inflation, which is what it's done historically. But it's got to turn. So I think that's where we're going. And hopefully, we have fewer of these macro disruptions next year.

That's helpful. And then I was just wondering, just -- you mentioned that you continue to see, which we hear generally across the states, a real discrepancy between higher-end leisure customers and then lower end. And just within your portfolio, what are a couple of examples, I guess, of sort of higher-end resorts where you saw solid maybe RevPAR gains year-over-year and maybe a couple where they were weaker, just given the composition of the customers that go to those properties?

Smedes, well, there's a couple of other moving parts. I mean you take Newport Harbor as an example, which caters to people who are from Boston and New York. So we have a very strong leisure component there and also very strong corporate demand. Our demand has been tremendous there. As we cited during the call, the RevPAR up double-digit, 30-plus when you look at those levels over year-over-year. So those are examples where we're also benefiting from the redevelopment side there, but that's where we continue to have less price sensitivity.

When you get to some of the markets, maybe in some markets, say, like in South Florida for Key West, there's a little more pricing sensitivity. But we've adjusted our revenue management strategies accordingly. So we actually did okay there. But like I think we're opening up channels to look at other sort of customer bases and doing our best there. But I think overall, the quality level of our hotels are so higher. We're a little more insulated versus if you start going down the quality spectrum, and you're seeing in STR numbers much more than our resorts.

And I think a couple of other examples would be LaPlaya in Naples and Inn on Fifth in Naples, both luxury properties, a fair bit of insensitivity to pricing by our customers down there. L'Auberge Del Mar in Del Mar out in California would be another example of a property at much higher average rates, relatively small property where the customers, again, are relatively insensitive to pricing, but very sensitive to us providing them good service. So those would be a couple of other examples.

Our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Jon, on government shutdown impacts, given your time in D.C., any perspective on how quickly this activity can spool back up? Because if I think about this year, we already absorbed the DOGE impacts earlier in the year. I assume you had won some of that back, but maybe not all of that back, and now we have the shutdown. So I don't know if you covered it in your extensive 2026 event navigation, which was very helpful. But have you sized the impact from the government sector this year in totality? And how big of a tailwind could it be next year?

Yes. It's funny. These things are a little harder to estimate. I mean we can look at where government is, and it's probably been down about 1/3 to 40% of what it was the year before. That probably represents, in total, about 1 point to 2 points of total demand for our portfolio and probably fairly similar for the overall industry, although probably more heavily weighted at the low to middle end, generally speaking.

The shutdown is a different matter because it's impacting more -- way more than just government travel. It's impacting people who have discretionary travel, which is what most travel is at the end of the day. So it's more about people who get anxious about flying. It's more about people who don't want to put up or take the risk of cancellations or big delays that they're concerned about and that the media will be keen to report about.

So it's a hard thing to measure, but it's material as is the continuing imbalance of international -- domestic outbound and international inbound. I mean you've got one that's at 120% of 2019 levels, and you have inbound in the 80s of 2019 levels. That could reverse, but it's going to take it sort of creating a different perception on the part of our government's desire to welcome people into the country. And frankly, we're not seeing that yet, although we hope to see that certainly for World Cup next year, which is something that's really important to the President and the administration.

And then just relatedly, I ask you the same question I asked was, given that the assumption that we have a no storm fall and we're not like rebuilding this fall on the Gulf Coast, what does that allow you to do and thinking more about like 2026?

So I think the first thing it allows us to do is sell a property that's not been damaged. One of the things we were hearing from clients in Naples, as an example, is, gosh, you've had all these storms in the last few years. We've had to move our meetings to other markets or other properties. Is this going to ever end? Or is this the new pattern? And having a year where there's no impact, I think, is helpful from a sales perspective. Certainly easier to sell when you don't have that. It's easier to sell when you have a property that's primed and in great condition, which is not what we had last year in terms of selling for this year.

So I think it bodes well for, again, LaPlaya to ramp from $25 million of EBITDA this year to maybe closer to $30 million next year on its way to hopefully getting back to that $35 million or $36 million level of where it was heading in 2022.

Our next question comes from the line of Michael Bellisario with Baird.

Jon, you mentioned attrition or increased attrition during the quarter. Can you dig in there a little bit more? What markets -- what segments did you see that? And presumably, that's continued into the fourth quarter? Just any added color on short-term booking trends would be helpful.

Yes. I mean it varied through the portfolio in markets, but it was much more visibly related to government and government-related, but you don't always know what's government-related until the customer declares it. And in a lot of cases, it involves education. A lot of these conferences are supported by grants or the departments are supported by grants, which they're not getting, they're frozen or they don't expect to get, as you know, with the disruption going on with the universities.

So a lot of it is related to those sectors. We're not really seeing it in technology. We're not really seeing it in medical, biomedical. We do see it some in other conventions where the attendance is lower and it relates to associations where the people are paying their own way. And you get some of that 3%, 4%, 5% falloff in attendance that results from that.

So it's not something that -- I mean, interestingly, I think still on a year-over-year basis, our attrition payments were less this year than they were last year for Q3. So it's certainly not at a high level yet, but it's more clearly impacting those groups that are somehow related to government.

Yes. So, Michael, we're not highly concerned with the attrition cancellation. It's not heading in a really bad direction, but it's certainly something we do monitor because it does go quarter-to-quarter because that's usually maybe early canary in the coal mine, so to speak, if companies are feeling differently about their spending. So nothing materially that we're concerned about, but we continue to monitor it.

Our next question comes from the line of Jay Kornreich with Cantor Fitzgerald.

I just wanted to follow-up on the leisure transient side of the portfolio. The recently renovated resorts have all been performing quite well. But just curious, how would you characterize kind of the overall leisure customer and its price sensitivity these days? And as you look out towards next year, on the same-store part of the portfolio, do you feel like there's more upside from that leisure customer improving or more from the urban side of the portfolio?

Well, interestingly, I mean, the leisure customer impacts our urban properties to a meaningful extent. I mean our cities are, in many cases, very heavily tourist destinations. And when I think about -- when we think about next year, I would say a couple of things. First of all, some of the few cities like D.C., as an example, and L.A., leisure has been meaningfully impacted this year. We should see a recovery next year. I mean when the government shuts down, the Smithsonians closed. Museums are closed here in town. There's not a lot to see here if you were a leisure guest. If you're a group coming from a high school or a middle school somewhere coming to spend their 3, 4, 5 days in D.C., they're not coming right now because there's nothing to do. So that's definitely something that should be a tailwind unless government is going to be shut down next year.

And so, I think from a leisure perspective, as the economy improves, and leisure customers feel better about their jobs, I think leisure will continue to improve. I mean I think it's lost on people that if you -- we were trying to highlight this. If you look at the weekends in the third quarter, they were up year-over-year in occupancy and demand. So the leisure customer has been resilient, but they have become more price sensitive. And as you work your way down the price spectrum, they get more and more -- the customers at those properties are more and more price sensitive. And you're seeing it in the differing rate declines that STR reports every week and every month.

And Jay, I think where we also counter our portfolio is a little bit different is all the redevelopment that we've completed over the last couple of years, that's paying huge dividends. So that's fighting through maybe some of the weaknesses that could be some of these consumers. If you look at our projects that we completed in '23 and '24, we've gained over 700 basis points of penetration over -- year-over-year. So that's a really a good direction there, which helps us counter maybe some weaknesses you may have in individual consumers.

Our next question comes from the line of Aryeh Klein with BMO Capital Markets.

Jon, I appreciate all the color on the disconnect between demand and GDP growth. And I was hoping you can touch more on why you think that disconnect has happened? And what gives you the confidence that, that resolved? And I guess alongside that, do you think that the growth in AI investments where building data centers doesn't provide all that much benefit to lodging demand has distorted the relationship between the 2 and just that maybe the underbelly of the economy isn't all that healthy that can continue into next year?

Sure. Well, I think the disconnect has a lot to do with some of these major policy disruptions and it has to do with sort of the normalization following the pandemic. I mean we had a big demand recovery. We had customers back in '22 as an example, that had no pricing sensitivity whatsoever. And you remember those comments we made about people buying up for suites, and that was the first product that went in our property and nobody really cared what anything cost because we couldn't even meet all the demand that was there. We didn't have the staff to service it. That had to normalize.

And I think the other thing that's had a negative impact on that correlation is this international domestic imbalance, which is really large. And keep in mind, an individual who goes abroad or comes here is usually spending -- I mean, I think here, it's -- the average is somewhere between 10 days to 2 weeks abroad. I think it's a little more like 7 to 10 days of the outbound. But that differential has gotten really, really wide post pandemic, and it's not recovered. And so, I think that's a big part of it, too, Aryeh. I don't think it has anything to do with data centers and the GDP really isn't as good because you have to -- these things -- it's about direct and indirect, right? There's a lot of money being invested. Where is it ultimately going? Ultimately, it's going to go to people and businesses and corporate profits and wages and benefits and bonuses. And so, ultimately, it gets around to enhance the economy. And that -- it doesn't really matter all that much what it gets invested into unless it's -- I don't know, it would have to be something that went out of business really rapidly.

But -- so I do think all that capital, I mean -- and it's not just data centers. You've got a lot of manufacturing reshoring. You have to have materials for that. You've got to ship that stuff. You've got to put it into place. You have to hire a lot of workers to do it. You have to rent a lot of equipment to build those things. You've got to build a lot of new electricity and buy all the equipment. I mean it goes on and on and on. And you still have the vast majority of the CHIPS money that hasn't gone out the door yet. You have a lot of the infrastructure bill money. I mean, you can just go online and ask how much of that money has gone out the door. The majority of it still has not gone out the door for infrastructure, but it's been authorized.

So a lot of these disruptions, hopefully, international begins to normalize over time. It's not in our thoughts for '26. You noticed we didn't mention of that reversing. I mean the dollar, when it retreated in the first half of the year has recovered a lot of that retreat. That's not good for international inbound and it hurts outbound. So I think that's in the pocket. It's something that will ultimately normalize, but I wouldn't count on it for next year unless we see a reversal in the dollar. And some of this other rhetoric that's caused people to go elsewhere.

Maybe just a quick follow-up. Just for the World Cup for next year, any early thoughts on the magnitude or the potential tailwind that, that can add to RevPAR for next year?

Yes. I mean I think some of the brands or prognosticators have suggested it's maybe 30 basis points or 40 basis points of improvement in RevPAR next year. I tend to think it's probably a little more than that for our portfolio given the number of matches that we have. The challenge is, I mean, we've gone -- we've done a lot of research on it with our teams. And if you go to the last World Cup, 70% of the business was booked within 30 days of the matches. What gets booked ahead of time, and we have started to see some of it is some of the group that is regardless of what team is playing and where they're playing.

So we would expect it to be very last minute. We haven't announced the teams yet. There are some, obviously, that are -- that have already qualified, but still the majority have not. Not only have they not determined all the teams, but they haven't said where any of the teams are going to be playing. So all of that just means it's going to be pretty short term.

But the other positive is, there's 50% more teams this year than there were last year, I mean, in the last World Cup. We've gone from 32 to 48 teams. That's also a big positive for the overall impact.

So I think it will be -- I think a lot of it's going to happen late first quarter and second quarter and really the final 30 days before the matches in both June and July. And that just means everybody is going to hold out and keep things frozen until then.

Our next question comes from the line of Chris Darling with Green Street.

Going back to San Francisco, we've obviously talked about how the market has plenty of momentum behind it. I think importantly, it seems like investor sentiment has really changed for the positive as well. With that in mind, Jon, curious where your head is at strategically in regards to your remaining exposure there. Do you think now might be the time to consider divesting some of your remaining assets? Or does it make more sense in your mind to sort of ride the recovery wave out over the next couple of years?

Well, I think from a general perspective, all of our hotels are available for a buyer, particularly strategic buyers because of the flexibility of our properties, all of our properties in San Francisco can be available without management and brand. So ultimately, there's a lot of flexibility there. I think where we are is, it will depend on pricing. I mean there's going to be a really strong growth. We believe in that strong growth. I mean we think we have assets that we think will double or triple their yields over the next 3 years in that market. And we believe you could easily see double-digit RevPAR growth for the next 3 to 5 years there, given the recovery that's needed in rates, the momentum that's going on with the underlying industries and growing confidence as occupancy gets rebuilt here in the market. So we've got great political leadership there.

At this point, I think it will just depend upon pricing, whether we would sell in that market or not. We would just have to take into account what we believe the growth levels are going to be.

Mr. Bortz, we have no further questions at this time. I'd like to turn the floor back to you for closing comments.

Thanks, Christine. Thanks, everybody, for participating. Sorry, we ran long. We had a lot of thoughts we wanted to convey. We look forward to talking to you in February next year, but I'm sure we'll speak to many of you at NAREIT in Dallas next month. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.