Pebblebrook Hotel Trust (PEB) Q4 2022 Earnings Call Transcript

Pebblebrook Hotel Trust (NYSE:PEB) Q4 2022 Results Conference Call February 22, 2023 9:00 AM ET

Company Participants

Raymond Martz - Chief Financial Officer

Jon Bortz - Chairman and Chief Executive Officer

Conference Call Participants

Shaun Kelley - Bank of America

Duane Pfennigwerth - Evercore ISI

Bill Crow - Raymond James

Gregory Miller - Truist Securities

Smedes Rose - Citi

Ari Klein - BMO Capital Markets

Anthony Powell - Barclays

Jay Kornreich - SMBC

Chris Darling - Green Street

Operator

Greetings and invited to nan Pebblebrook Hotel Trust Fourth Quarter and Full Year 2022 Earnings Call. At this time, each participants are successful a listen-only mode. A little question-and-answer convention will travel nan general presentation. [Operator Instructions] As a reminder, this convention is being recorded.

It is now my pleasance to present your host, Raymond Martz, Chief Financial Officer. Thank you. Please spell ahead.

Raymond Martz

Thank you, Donna, and bully greeting everyone. Welcome to our 4th fourth 2022 net telephone and webcast. Joining maine coming are Jon Bortz, our Chairman and Chief Executive Officer.

But earlier we start, a speedy reminder that galore of our comments coming are considered forward-looking statements nether national securities laws. These statements are taxable to galore risks and uncertainties arsenic described successful our SEC filings. Future results could disagree materially from those implied by our comments. Forward-looking statements that we make coming are effective only today, February 22, 2023, and we undertake nary work to update them later. We'll talk non-GAAP financial measures during today's call, and we supply reconciliations of these non-GAAP financial measures connected our Web site, astatine pebblebrookhotels.com.

Okay. In 2022, we made important advancement connected our roadworthy to a afloat recovery. We want to convey our edifice teams and operating partners for their difficult work, sacrifices and creativity. Our portfolio continues to use from their tremendous effort, arsenic we proceed connected nan way of betterment and maturation pursuing nan pandemic. Our adjusted EBITDA vanished astatine $356.7 cardinal compared pinch $99.8 cardinal successful 2021, a very important advancement from a twelvemonth ago. And while we still person overmuch activity to do, we believe, we person sizeable upside ahead.

Adjusted FFO per stock ended 2022 astatine $1.69, a important betterment from 2021 astatine a antagonistic $0.23 per share. On nan finance side, we were very active. We acquired 2 leisure-focused resorts for $330 cardinal and sold 4 municipality hotels for $261 million. Since 2020, we person acquired six leisure-focused resorts for complete $820 cardinal while trading 11 hotels successful slower to retrieve municipality markets for a full of $957 million. Between acquisitions and dispositions, since 2020, we person recycled almost 30% of our portfolio, representing a melodramatic translator of our company.

As a consequence of these investments and divestitures, we person accrued our marketplace segmentation from leisure, some group and transient to astir 50%, and we are highly excited astir nan galore operating, remerchandising and redevelopment opportunities astatine our caller edifice acquisitions, immoderate of which are already underway, which Jon will talk later. We expect that these awesome projects will make outsized maturation complete nan adjacent respective years.

For nan 4th quarter, aforesaid spot full revenues of $310.6 cardinal were 94.1% recovered successful 2019. And this was driven by continued coagulated request astatine our resorts and further betterment successful group and transient business travel. And these results exclude use a formation edifice owed to its closure from Hurricane Ian, which negatively impacted our aforesaid spot RevPAR maturation by astir 150 ground points and an estimated $16 cardinal successful spot revenues and $12 cardinal of aforesaid spot EBITDA.

In position of markets, we proceed to acquisition coagulated request successful Los Angeles, San Diego and Boston. And encouragingly, we are seeing nan request retrieve accelerate successful our slower to retrieve markets, including San Francisco, Chicago and Washington D.C. Shifting to Q1 2023, request and operating trends person mostly been successful statement pinch expectations, excluding nan effect of nan terrible wintertime storms we person knowledgeable to-date successful nan first quarter.

The important rainfall successful bluish and confederate California disrupted leisure recreation to these markets and past acold temperatures successful Boston disrupted business recreation and caused immoderate h2o harm resulting successful an estimated $1.1 cardinal successful further operating and superior expenditures, which besides includes estimated costs to remediate and cleanable up pursuing these aggregate storms.

On nan request side, contempt nan galore layoffs announced crossed galore industries, we person yet to acquisition immoderate notable changes successful demand, booking activity aliases summation successful cancellations. Leisure request remains patient contempt concerns astir nan user becoming much cautious. Except for immoderate softer request successful Key West, which was robust and comparatively value delicate successful 2021 successful Florida was 1 of nan fewer states to afloat unfastened for business. These are already successful request is maintaining its strength.

Demand started successful nan twelvemonth connected an encouraging statement successful San Francisco pinch a JP Morgan Healthcare Conference successful early January. Compared pinch 2020, nan past time, JP Morgan was held successful person, request astatine our hotels was astatine 76.8% of 2020 levels, pinch ADR up 9.7% and wide revenues astatine astir 84% of nan 2020 convention levels. This is simply a very affirmative commencement to nan twelvemonth for San Francisco, which we expect will proceed pinch a overmuch improved normal almanac this year.

Overall for nan Company, January aforesaid spot RevPAR was up a very beardown 49% benefiting from easy comparisons to nan Omicron impacted January past year. We expect aforesaid spot RevPAR for Q1 to beryllium 15% to 18% higher than Q1 past year. Not surprisingly, nan quarters RevPAR maturation was slow substantially from January's maturation complaint versus past twelvemonth arsenic Omicron easiness arsenic nan 4th progress.

Our Q1 operating results would beryllium negatively impacted from nan closure of use for repair and remediation activity owed to Hurricane Ian, which will trim our Q1 edifice revenues by an estimated $25 cardinal and aforesaid spot EBITDA by astir $14 million. In addition, we will acquisition displacement owed to respective awesome transformational projects underway. This is expected to negatively effect Q1 RevPAR by astir 225 to 300 ground points, and wide aforesaid spot EBITDA by 4.5 cardinal to 6.5 million.

These see nan broad redevelopments astatine Hilton Gaslamp San Diego, Solamar arsenic a convertible Margaritaville successful downtown San Diego, Estancia La Jolla, Jekyll Island Club Resort Viceroy Santa Monica. Combined nan disruption of use for hurricane Ian and our redevelopments will negatively effect Q1 aforesaid spot EBITDA by astir $18.5 cardinal to $20.5 million.

Shifting to our superior betterment programme for 2023, we are targeting to put $145 cardinal to $155 cardinal into our portfolio, including respective awesome redevelopments that we're very excited astir and we expect will make patient returns connected our investment. Jon will talk this year's strategical redevelopment projects and wide programs successful much item later successful our remarks.

Also, arsenic we elaborate past night's property release, we've made important advancement successful repairing and restoring nan LaPlaya. We reopened nan spot arsenic Bay Tower and expected to partially unfastened nan Golf Tower shortly. The Golf Tower houses nan lobby, restaurant, barroom and nine areas. So, it's a important constituent of nan resort. We'll besides person opened pinch immoderate 1 of nan 3 poles and a temporarily relocated spa and fittingness center.

The formation has been cleaned and reopened and we'll beryllium providing afloat formation services to our edifice and nine guests. Our formation location nevertheless is still undergoing restoration work, which we expect to beryllium substantially completed successful nan 4th quarter. We received $25 cardinal truthful acold from our security providers to complete nan basal repair and remediation work. We expect further proceeds from our security for nan activity needed to afloat reconstruct this awesome edifice shortly.

Upon completion, it will beryllium amended than ever, and we expect it will beryllium quickly returned to its pre-hurricane performance. We're besides expecting nan first wintertime installment of business interruption proceeds successful this lawsuit $7.2 cardinal for past business during nan 4th fourth of 2022, which is nett of our $2 cardinal BI deductible. This has been incorporated into our Q1 outlook and will deed different income and use adjusted EBITDA and adjusted FFO. We expect to person further BI proceeds for Q4 2022 and 2023 later successful nan twelvemonth aliases by nan clip we scope a last settlement, and we'll update you quarterly arsenic we advancement successful this area.

Turning to our equilibrium expanse and different superior uses, since nan commencement of nan 4th fourth of 2022, we person utilized proceeds from anterior dispositions to repurchase 5.5 cardinal communal shares pinch conscionable complete 4% of our outstanding shares astatine a weighted mean stock value of $15.12, a astir 51% discount to nan midpoint of our precocious updated NAV. In addition, we repurchased 1 cardinal shares of our Series H preferred equity astatine a 36% discount to par aliases $16 per share, compared pinch nan $25 per stock par value.

We besides usage deposition proceeds to salary down indebtedness past year. Our committee has authorized an further $150 cardinal communal stock repurchase program, which mixed pinch nan remaining unused information of our anterior authorization implies we person $224 cardinal disposable for communal stock repurchases. The committee besides approved $100 cardinal preferred stock repurchase program.

As we waste further properties, we will measure really to champion utilize our proceeds including reducing indebtedness and further stock repurchases depending connected our outlook connected nan system and really our capacity progresses. If we do utilize immoderate information of nan proceeds for repurchasing our stock, which we judge is presently trading astatine astir 50% discount aliases astatine nett plus value, we do truthful only, while reducing our indebtedness nary worse than a leverage neutral basis.

And we person been comfortable taking advantage of nan nationalist nan backstage valuation arbitrage for respective reasons. First, our nett indebtedness is astatine 43% of nan nett book worth of our assets, which we judge is very reasonable. Assuming nan $750 cardinal of convertible notes which comprises astir one-third of our full indebtedness are converted to equity earlier nan maturity successful precocious 2026. This would driblet nan 29% of indebtedness to nett book value.

Second, our nett indebtedness to our estimated NAV is besides a reasonable 33%. And third, astir of our indebtedness complete 90% of truth is unsecured slope indebtedness aliases notes mostly held by our slope group, pinch whom we've had relationships for galore years and respective decades for immoderate of them. These relationships spell good beyond conscionable a lender borrower relationship, whether it's finance banking, important rate deposits, in installments paper processing and galore different services, we were very attracted customer to our banking partners.

And arsenic we've seen during nan depths of nan pandemic, relationships do matter. We were 1 of only a fistful of edifice REITs that did not person to unafraid our indebtedness during nan pandemic. This highlights of nan competence and spot our banks person successful us. In addition, only 229 aliases little than 10% of our indebtedness is secured due level of debt, of which only 162 cardinal will mature earlier 2028. That is very manageable.

Finally, our existing liquidity is very substantial. We person much disposable than we did earlier nan pandemic. Our $650 cardinal unsecured in installments facility, which is mostly undrawn, provides elasticity while reducing immoderate refinancing risk. And our mean indebtedness costs is presently conscionable 3.5% possibly nan lowest successful our industry. And this of people enhances our rate travel and our fixed complaint ratio which reduces risk.

In addition, 75% of our indebtedness is fixed done nan extremity of 2023 and 63% is fixed wrong 2024. And we usage a very charismatic model nan marketplace successful January to complete $400 cardinal of swaps for 2 to 3 years to efficaciously widen swaps that expire this year. So nan costs of work our indebtedness is very predictable and manageable, moreover if liking rates amazed to nan upside.

And connected that affirmative note, I'd for illustration to move nan telephone complete to Jon. Jon?

Jon Bortz

Thanks, Ray. I'm going to attraction my comments connected 2 important topics. First, our setup for 2023 and what we're seeing successful nan market. And second, nan EBITDA span we laid retired successful our investor presentation, wherever we are, wherever we are going, and really we're going to get there. It is acold easier to foretell semipermanent worth creation than it is to forecast short-term performance, particularly successful highly uncertain times for illustration today.

As Ray indicated, we person not yet seen immoderate worldly effect from nan macroeconomic slowdown that is either occurring aliases that galore are forecasting. Group, business transient and world inbound recreation each proceed to retrieve and leisure recreation remains very healthy. But we are not truthful naive to deliberation that we won't spot an effect aliases that we are abruptly nary longer a cyclical industry.

And we are humble and admit we person ne'er been done a pandemic and betterment before, fto unsocial 1 wherever nan Fed is moving overtime to slow down nan system successful bid to bring ostentation down to its target. So, it's highly difficult to forecast really these conflicting waves will effect each different arsenic we move guardant successful 2023. All we tin do is scheme for different scenarios and show each of nan macro and micro indicators very closely, and we will fto you cognize erstwhile we spot nan trends changing.

In nan meantime, we expect our first 4th to importantly amended complete an Omicron impacted Q1 2022. As Ray said, we saw patient year-over-year RevPAR and full gross maturation successful January though it's negatively impacted by different upwind connected some coasts early successful nan year. February continues to spot betterment complete 2022, though we had a bully use from nan Super Bowl successful Los Angeles past year.

As LA is 1 of our largest markets, it does correspond a year-over-year headwind for nan month. Yet, we are seeing important continuing betterment successful LA, which is decidedly mitigating a important information of that awesome 4 time period. Group gait is looking bully for 2023. As of nan opening of February, Q1 group room nighttime gait was up of past twelvemonth by 54% pinch ADR pacing 5.6%, up to past twelvemonth for a full group gross betterment of 62.7%.

Transient is besides retired pacing up of past year's first 4th by 16.2% successful transient room nights, while complaint is up by 1.4%. Total group and transient gait for Q1 was up by 27.5% successful room nights 2.1% successful ADR and 30.2% successful full revenues. While Q1 is an easy comparison, we are presently pacing up year-over-year successful group and transient successful each quarter. This is partially a reflection of nan ongoing betterment successful request and partially owed to greater assurance connected nan partner group and transient customers booking further retired than they did past year.

For 2023, our group revenues are pacing up by 29.1% pinch complaint up by 7.2%. Total room gross connected nan books for 2023 was stronger by 21.3%% pinch ADR up by 4.4%. Our municipality ADRs are driving our complaint advantage, while our edifice rates are up marginally, fixed by group rates that are substantially higher, while our transient rates are somewhat down. We expect this will apt beryllium nan lawsuit for nan year.

As we look astatine our span to nan short to intermediate word EBITDA upside successful our portfolio, we expect our municipality properties will retrieve to their 2019 EBITDA successful full complete nan adjacent mates of years, led by earlier to retrieve markets for illustration San Diego, Boston and Los Angeles, followed by existent recovering markets for illustration San Francisco, Washington DC, Chicago, Portland and Seattle.

In 2022, our resorts achieved an EBITDA level greater than nan precocious extremity of our $55 cardinal to $60 cardinal scope of betterment complete 2019 EBITDA that we had been forecasting. This assumes we utilize LaPlaya's existent results for nan first 3 quarters of past twelvemonth and their forecast astatine nan clip nan hurricane deed for nan 4th fourth of past year.

We expect nan resorts are apt to make full EBITDA that is astir level successful 2023 versus 2022 again ignoring nan effect from LaPlaya being closed. So, our resorts are already up of nan span to a much normalized level of EBITDA upside that we provided successful our investor presentation. In addition, we've already achieved nan costs reductions successful our spot operating models elaborate successful nan aforesaid EBITDA span presentation.

Though from a separator perspective, we wouldn't expect higher margins until we regain a important information of past year's almost 19 constituent occupancy deficit, and arsenic full revenues proceed to recover, on pinch that demand. And location are still much operational efficiencies disposable successful our portfolio. And nan continuing efforts of curator to bring down costs based connected nan increasing standard of curator and nan expanding usage of exertion will connection further benefits successful 2023 and beyond.

That brings america to nan past information of our upside opportunity elaborate successful our EBITDA bridge. That's nan upside from our multiyear extended spot redevelopment and translator program, emanating from nan LaSalle assets we acquired successful precocious 2018 and nan resorts we acquired successful nan past 2 years. We historically person had awesome occurrence redeveloping repositioning, and remerchandising properties to a higher level that we believed had importantly much imaginable than their anterior positioning.

While these projects thin to return anyplace from 1 to 3 years for readying and construction, and past 3 to 4 years to ramp up RevPAR stock gains and substantially higher EBITDA. They person beautiful consistently delivered high-single-digit to low-double-digit only unlevered rate connected rate returns connected our investments upon stabilization.

Since nan LaSalle acquisition backmost successful precocious 2018, erstwhile LaSalle had completed 3 redevelopments, we person redeveloped and repositioned 13 of nan acquired properties including Mission Bay Resort successful San Diego, which was a erstwhile Hilton, L'Auberge Del Mar, Viceroy Santa Monica, Le Parc, Montrose, nan Chamberlain and Grafton connected Sunset to Hotel Ziggy, each 4 of which are successful West Hollywood.

Chaminade Resort successful Santa Cruz, Hotel Vitale successful San Francisco, which is now 1 edifice successful San Francisco, some Southernmost Resort and Marker Harbor Side successful Key West, and Mason & Rook and Donovan, which are now Viceroy, D.C. and Hotel Zena some successful Washington D.C. In summation to these precocious completed projects, we're successful nan process of a melodramatic reimagining of Hilton Gaslamp and San Diego arsenic a manner hotel. And past a artifact away, we're successful nan process of a awesome redevelopment of Solamar which is being transformed into Margaritaville.

During nan aforesaid timeframe, from 2018 to today, we besides afloat renovated, redeveloped aliases transformed 8 of Pebblebrook's properties including Western Gaslamp and Embassy Suites, San Diego Bay, downtown. Mondrian, Los Angeles, nan Hotel Zags successful Portland, Hotel Zelos San Francisco, Skamania Lodge successful nan Pacific Northwest, W Boston, and LaPlaya Beach Resort successful Naples.

Of course, we besides renovated aliases redeveloped astir of our erstwhile acquisitions, but we mostly did truthful 1 aliases 2 years pursuing their acquisition. Just arsenic we're doing now, pinch nan redevelopment and transformations of Jekyll Island Club Resort successful nan Golden Isles of Georgia, Estancia La Jolla a edifice and spa, and Newport Harbor Island Resort, nan erstwhile gurneys edifice successful Newport, Rhode Island.

The full finance successful each of these projects, some completed since 2018 and presently underway is complete $520 million. And astir of these properties person yet to ramp to their afloat stabilized potential. As elaborate successful our EBITDA bridge, we expect these projects to present $27 cardinal of further EBITDA complete nan adjacent 3 to 4 years. And arsenic grounds of nan competence that we person successful delivering this further EBITDA, we person a crisp attraction connected really our customers are responding to our caller products.

Since 2019, our portfolio taken arsenic a full has climbed from an mean customer fame ranking of 45 connected Tripadvisor to an mean ranking of 33 astatine nan extremity of '22, a 26% positive betterment that historically correlates pinch an expertise to summation stock done some complaint and occupancy. So, it seems beautiful clear to america that our investments person dramatically improved nan wide value of our portfolio, that our work levels person besides improved, and that this important betterment will lead to important RevPAR stock gains and EBITDA gains. And we expect capacity overtime to amended nan worth of this ample finance program.

As it relates to this year's projects, nan $25 cardinal complete upgrading and reimagining of nan 286 room Hilton Gaslamp Quarter, arsenic a manner edifice has been underway since November of past twelvemonth and is owed to beryllium completed successful nan 2nd quarter. The $27 cardinal redevelopment of nan Solamar arsenic a Margaritaville Hotel successful downtown San Diego began successful January and should beryllium completed early successful nan 3rd quarter. The $20 cardinal positive repositioning of Jekyll Island Club Resort began early this twelvemonth and should beryllium complete precocious successful nan 2nd quarter.

The first shape of nan repositioning of Estancia commenced earlier this period and is owed to beryllium complete precocious successful nan 2nd quarter, pinch nan last shape starting precocious this twelvemonth and finishing successful nan outpouring of adjacent year. The rooms' renewal astatine Viceroy Santa Monica started successful November of past twelvemonth and should beryllium complete later this quarter. This will complete nan 2 shape $19.5 cardinal repositioning of this iconic luxury manner edifice connected Ocean Boulevard successful Santa Monica.

At Skamania, we conscionable completed nan summation of 3 much character houses, bringing nan number of luxury character houses to nine. And later this year, we will complete 5 luxury glancing units, nan first of their benignant successful Skamania on pinch a 3 chamber villa and 2 chamber cabins and our 2nd ample outdoor pavilion. As we trial these caller replacement lodging experiences retired pinch our guests, nan results will thief to guideline nan programming for nan remaining 100 acres, wherever we judge we tin adhd up to different 200 lodging units.

And this summertime successful Southernmost Resort, we will undertake a complete $220,000 per cardinal redevelopment and upgrading of nan 4 impermanent houses totaling 50 rooms. Recall that 2 of these impermanent houses were purchased successful precocious 2021 and instantly integrated into nan edifice arsenic unsocial and chopped products.

Finally, we commenced nan first shape of nan redevelopment and repositioning of Newport Harbor Island Resort successful December past twelvemonth and we will commence nan 2nd shape later this twelvemonth successful November pinch nan completed merchandise delivered successful Q2 of adjacent year. The full task is presently estimated arsenic a $45 cardinal investment. The first shape is focused chiefly connected deferred superior maintenance, and nan 2nd shape represents each of nan improvements that we will reposition this spot arsenic a luxury resort.

Taken together, this agelong database of awesome repositioning investments, on pinch a very important translator of our portfolio, from a heavy weighted municipality coastal portfolio to a much balanced business and leisure segmented municipality and edifice portfolio, positions america very good for important maturation successful RevPAR stock and EBITDA complete nan adjacent 3 to 5 years, sloppy of nan macro environment.

And by nan extremity of nan first half of adjacent year, pinch nan objection of Paradise Point, we will person completed nan finance information of nan strategical redevelopment programme opportunity that emanated from some nan LaSalle acquisition and nan edifice purchases we person made successful nan past 2 years, pinch only nan important upside to execute and bask complete nan adjacent fewer years.

I'd besides for illustration to make 1 last announcement connected behalf of myself and our Board. It is my awesome pleasance to pass you that, Ray Martz; our Chief Financial Officer; and Tom Fisher, our Chief Investment Officer, person some been promoted to Co-Presidents of Pebblebrook.

Frankly, nan caller title simply reflects nan overmuch greater activity responsibilities these 2 person undertaken connected complete nan past fewer years, and arsenic my longstanding activity partners, I want to congratulate them connected this agelong overdue nickname of their superior efforts and worth to our company.

So pinch that bully news that completes our prepared remarks. We now for illustration to move to nan mobility and reply information of our call. So usability Donna, you whitethorn now proceed pinch nan Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, nan level is now unfastened for questions. [Operator Instructions] The first mobility is coming from Shaun Kelley astatine Bank of America. Please spell ahead.

Shaun Kelley

Hi, bully morning, everyone. Thank you for taking my mobility and congrats to Ray and Tom connected nan caller titles. Guys, there's a fewer different places we could go, but I conjecture successful nan liking of time, possibly nan correct measurement to deliberation astir it. Is it feels for illustration Q1 is ever a really difficult 4th to extrapolate excessively overmuch from and evidently there's a batch that's idiosyncratic that's going connected pinch Pebblebrook's portfolio. So tin you conscionable thief america deliberation done nan equilibrium of nan twelvemonth to immoderate degree?

I mean, obviously, if trends hold, and it seems for illustration everything you're seeing correct now is beautiful positive. Is it reasonable to deliberation Jon aliases Ray that we tin spot year-over-year maturation successful nan Pebblebrook portfolio for nan remaining 3 quarters of nan year? If again, you know, fixed that we there's a batch we don't cognize astir nan macro correct now. Because I deliberation what we're trying to what we're struggling pinch a small spot is nan bridge, Jon, that you laid retired versus nan absolute number and EBITDA that benignant of came successful for Q1 and we look backmost to places for illustration 19. I deliberation immoderate of that seasonality and a batch of these renovations. So conscionable trying to benignant of get a consciousness of really to exemplary aliases equilibrium nan remaining expectations for 2023?

Jon Bortz

I deliberation nan champion measurement to reply it is, if we presume that we don't spot immoderate worldly effect from an economical slowdown aliases recession later this twelvemonth that we would expect Q2, Q3 and Q4 each to transcend past twelvemonth pinch nan caveat of LaPlaya's impact. So, let's group LaPlaya speech for nan moment, we expect to beryllium afloat compensated for its capacity aliases immoderate would person performed had capable successful nan hurricane done our security proceeds.

But yes, we would expect that, you know, continuing important betterment connected nan municipality side. I would opportunity mostly level capacity successful our edifice portfolio pinch ups coming from repositioned assets and continuing betterment and successful nan West Coast markets and astir apt immoderate weakness peculiarly successful nan keys successful position of bottom-line performance. So yes, we would expect two, 3 and 4 to beryllium improved complete past year.

Operator

Next mobility is coming from Duane Pfennigwerth of Evercore ISI. Please spell ahead.

Duane Pfennigwerth

Just pinch respect to nan hiring environment, if you could conscionable play backmost for america your acquisition successful nan 4th quarter. Was this a usability of you had a bunch of unfastened positions that were filling astatine a definite complaint and nan drawback up of that amazed you? And going forward, are you astatine benignant of a much tin you conscionable benignant of qualitatively speak to benignant of nan number of unfastened positions you person going guardant and if you benignant of afloat caught up connected staffing?

Jon Bortz

Yes. So, I break it into 2 areas, benignant of nan guidance team, squad members, arsenic good arsenic folks who autumn nether nan administrative and wide category. So, that's your wide managers, your accounting team, finance team, et cetera., and past your income and trading team, your income agents, your catering folks related to grow, and finally, your engineering team. And I'd abstracted that from your benignant of hourly FTEs connected housekeeping and connected banquet and catering successful peculiar nutrient and beverage.

So, we've had these unfastened positions really since we've reopened nan properties connected nan guidance squad side, and connected nan income squad side. And arsenic measurement came back, we added, we sought to adhd people. We had a batch of struggles successful nan first half of past twelvemonth doing that. And truthful filling those unfastened positions occurred connected a overmuch slower gait than what we would person liked. I'll beryllium it, arsenic we indicated past year, helping nan bottommost lines from, frankly, group having to activity other shifts, managers having to activity shifts, having to deterioration tons of hats, et cetera., wrong our hotels.

It started to amended successful nan 3rd 4th arsenic we were having success, much occurrence filling, unfastened positions, but still, it was still a struggle. And by nan 4th quarter, each of a sudden, it was for illustration it turned nan move connected and those positions mostly sewage filled. So they did capable much quickly than nan gait they had been on. I deliberation that's astir apt thing knowledgeable by a batch of different industries successful nan backmost portion of past year. And wherever we still person hiring to do conscionable relates to volume.

So I deliberation arsenic it relates to our guidance staff, our income team, our engineering team, while we still person openings, they're not materially different than they were pre-pandemic. We ever person openings. We're ever turning complete people. We ever person vacancies. And we're mostly filling those connected a continuous basis. Where we're still hiring is arsenic measurement returns, we're still hiring hourly, some successful housekeeping and successful nutrient and beverage.

And I'd say, it's a batch easier than it was, but there's still positions connected nan FTE broadside connected nan hourly side, that we'd for illustration to capable that are astir apt still having a antagonistic effect connected immoderate of nan revenues we tin make successful those areas. So, I deliberation we're successful beautiful bully shape. I deliberation our tally complaint for what I would telephone nan fixed information of nan business passim nan portfolio is mostly wherever we want it to beryllium aliases astatine slightest astatine nan very slightest it's astatine a akin level to wherever it was pre-pandemic and we're conscionable hiring connected nan hourly side, arsenic measurement goes up.

Raymond Martz

And Duane connected nan costs broadside for nan 4th quarter, if you're going to exemplary it sequentially successful first, you should exemplary it sequentially because it's very seasonal. The 4th fourth behaves otherwise successful nan first quarter. But besides successful nan 4th fourth this year, we had immoderate 1 clip bonuses for a batch of our guidance teams that totaled astir 3.5 cardinal aliases so. That was much of a one-time number, truthful I'm going to needfully extrapolate that retired to early quarters arsenic you exemplary retired for 2023.

Jon Bortz

I deliberation nan 1 different point to mention is, erstwhile we person indicated nan EBITDA impact. But one, having LaPlaya retired of work successful nan first 4th erstwhile successful nan first 4th of past twelvemonth pinch a beautiful overmuch a afloat squad there, our EBITDA separator was 56%. And so, betwixt that and nan antagonistic effect connected margins, erstwhile we do redevelopments, truthful erstwhile we do these redevelopments and we person properties that are moving at, telephone it, 50% aliases 60% of nan rooms available, pinch nationalist areas nether renovation, we still person each nan fixed costs from A&G income and marketing, accounting, engineering, et cetera.

We conscionable don't person nan gross volume. So, location is not overmuch expertise to flex different than nan hourly, which we do and it's suggestive of nan antagonistic travel connected nan redevelopments successful nan first 4th pinch $7.5 cardinal of mislaid revenue. We are losing $5.5 cardinal astatine nan midpoint of nan EBITDA. So, you tin spot there, nan travel is challenging, and so, those 2 mixed make our -- frankly make our margins successful Q1 look acold worse than nan measurement nan business is really performing underneath that.

Operator

Thank you. The adjacent mobility is coming from Bill Crow of Raymond James. Please spell ahead.

Bill Crow

Good morning, Jon. I admit nan elaborate chat connected nan renewal of repositioning program, but arsenic you went done nan timeline of 3 years to creation and scheme a twelvemonth aliases truthful of building and past 3 years of ramp. And you conscionable deliberation astir wherever that fits wrong an manufacture that seems to spell done problems each 7 years aliases 8 years. Just wondering whether nan benefits of that are really going to beryllium recovered wrong nan nationalist markets?

Jon Bortz

Well, I mean, I can't speak to nan nationalist markets. I tin only speak to nan worth creation that goes connected nan individual spot level. And whether that yet is recognized successful nan nationalist market, I'll time off to you and nan finance organization to determine. But location is nary doubt, arsenic we person done these projects and successful cases wherever we person really sold assets that person been redeveloped, nan returns person been rather attractive. And so, building rate travel overtime successful nan semipermanent that's our business and successful nan short-term, for illustration a batch of businesses whitethorn not beryllium recognized, I mean, location is simply a batch of -- obviously, location is simply a batch of businesses retired there, you still request to put for nan semipermanent successful bid to make nan astir charismatic returns.

Bill Crow

Okay. I'm conscionable looking astatine immoderate of your caller income that person been level perchance to wherever you bought them ex nan reinvestment. So I deliberation I'm going to follow-up connected nan 2nd mobility for Ray. Congratulations connected nan caller title. But fixed wherever nan banal is today, it's much difficult to make nan presumption that nan converts are going to beryllium converted successful '26 and I'm conscionable wondering whether that plays immoderate domiciled successful your superior allocation decisions?

Raymond Martz

Sure. Well, we looked each of these decisions arsenic we make further advancement connected sales. And what to do pinch that, whether it's paid connected definite pieces of indebtedness and/or reinvesting successful our portfolio and banal repurchases. So erstwhile we look astatine each of those 2026 is still a agelong clip from now. And we person different levers to pull. One marketplace we haven't accessed is nan precocious output market. That's thing that could measure down nan road.

After nan output curve comes down from wherever it's astatine because correct now it's for us, it's not that attractive. But nan correct now nan end, there's a potential, we could besides conscionable extended rumor a caller convergence successful 2026 to do that, whether it's nan markets aliases are location we desire. So, there's a batch of levers we tin pull, that's a batch of clip betwixt now successful 2026. Really, our attraction now is connected complete nan near-term here, connected addressing various superior uses that we person planned.

We person a mates of maturities coming up, thing excessively significant. We only person 1 spot owe that's maturing betwixt now successful 2028. And that's very manageable and besides conscionable a reminder, we person a $650 cardinal line, which is fundamentally unused, that ever provides that expertise to salary disconnected his indebtedness successful short periods of time, successful nan superior markets aren't accommodated for immoderate refinancing.

Jon Bortz

I deliberation nan different point we should not hide to put it each successful position is simply a twelvemonth agone nan banal was complete nan person price, pinch operating capacity that was acold little than wherever it is today, pinch less dollars invested successful nan portfolio successful position of its transformation. And so, I deliberation it has -- I deliberation wherever nan banal prices has much to do pinch near-term sentiment, and nan cyclicality that nan wide economical cycle, and its imaginable effect connected our manufacture than it does nan existent worth of nan Company.

So, sentiment tin alteration arsenic Bill arsenic you've been astir arsenic agelong arsenic I've been astir successful this industry. And erstwhile nan manufacture erstwhile things move positive, nan manufacture tends to move a batch and it tends to move very accelerated successful nan nationalist markets. So arsenic Ray said, we're a agelong measurement from 2026. But we do evidently look astatine that, and we're not making an assumption, needfully that it will get converted.

Operator

Thank you. The adjacent mobility is coming from Gregory Miller of Truist Securities. Please spell ahead.

Gregory Miller

My mobility betwixt precocious upscale and luxury resorts successful your portfolio and competitors? Which concatenation standard do you deliberation is wide amended positioned connected occupancy and room rates this year? Is nan accepted luxury leisure customer booking distinctly from nan accepted precocious upscale customer?

Jon Bortz

It's an absorbing question. I'm not judge I cognize nan reply to that. I deliberation nan existent luxury customer is successful awesome financial style arsenic frankly arsenic is nan precocious upscale customer. I deliberation astatine nan margin, what we don't cognize is, really will nan customer who was spending up if you will, possibly connected a short-term, impermanent ground aliases possibly it's a alteration successful really they allocate their dollars towards higher extremity experiences, but we don't cognize really that's going to respond successful a downturn whether group either people travel backmost down and opportunity that was a onetime acquisition coming retired of nan pandemic.

I really wanted to splurge aliases whether connected a longer word basis, nan reply is, hey, this is nan measurement life is excessively short. I want to person these awesome experiences each nan time, and I'm consenting to walk money connected this and not bargain different brace of sneakers aliases different sweater, immoderate it mightiness be. So, I'm not judge I tin springiness you a awesome reply to your question. I deliberation we're going to person to spot really those sectors execute successful nan manufacture overall. I deliberation our portfolio is much heavy weighted to nan precocious upscale successful resorts than it is to luxury properties surely for illustration LaPlaya and L'Auberge astatine nan highest extremity of our portfolio, surely entreaty to that luxury customer. So, we're conscionable going to person to spot Greg, really it plays out.

Operator

Thank you. The adjacent mobility is coming from Smedes Rose of Citi. Please spell ahead.

Smedes Rose

I conscionable wanted to get backmost you provided what sounded for illustration a batch of bully news connected nan group front. And that's conscionable wondering, if you could talk a small spot more, benignant of wherever you're seeing that arsenic your larger benignant of Boston Hotel, which I deliberation does a batch much group business. Are you conscionable seeing it evenly crossed nan portfolio? And possibly conscionable benignant of immoderate benignant of themes successful position of what nan request is coming from, successful peculiar versus benignant of pre-pandemic levels?

Jon Bortz

Sure. So I deliberation from a segmentation perspective, wrong group, I'd opportunity it's coming from 2 areas. One is firm group, which is, I would opportunity backmost pinch a vengeance. So we're seeing an atrocious batch of group firm groups that want to meet that request to meet for various different reasons, whether it's bonding, whether it's meetings pinch their customers, and events related to them, whether it's inducement to reward their people, we're seeing large increases successful firm group.

And past connected nan relation side, which of people a batch of nan biggest ones travel done either nan large houses that we have, whether it's Copley successful Boston aliases Western Michigan Avenue successful Chicago aliases Western Gaslamp and successful San Diego aliases it's our larger resorts for illustration Paradise Point successful Mission Bay aliases nan Mission Bay Resort, successful Mission Bay aliases Margaritaville successful Hollywood, Florida. They're each benefiting from some Association and firm group increases.

And I'd opportunity a humble moderation successful nan number of weddings, which I deliberation past year, was benignant of a drawback up year, and this twelvemonth seems much normalized successful nan wide wedding pace. So large summation is passim nan portfolio, and I deliberation we've said this before, and it shouldn't beryllium forgotten. We do a batch of group successful our resorts, immoderate of them for illustration Skamania and Chaminade that were antecedently convention centers, do good much than 50% of their full business successful group. And I would say, beautiful overmuch passim nan portfolio group is up.

Raymond Martz

All this intends we besides person a beautiful favorable normal almanac this year, which should use nan municipality hotels successful those markets. San Francisco, nan normal halfway room nights are doubling versus past year, which is now astir nan room nights are astir successful statement to wherever they were successful 2018 truthful a bully encouraging increase. Boston is up astir 37% year-over-year. San Diego is up 25%. Seattle is astir 20%. So those are all, again, encouraging themes for recreation and that really didn't return successful information nan world inbound, which is continuing to amended from Los Angeles, particularly successful nan West Coast, which really hasn't benefited yet from nan Asia Pacific travel, which has been very, very debased for nan past respective years.

Jon Bortz

I deliberation nan different point we person been seeing, which benignant of doesn't travel done pace, but it comes done results is, surely past twelvemonth and earlier successful this quarter, I would say, attendance versus what was connected nan books astatine either citywide aliases ample group tended to beryllium softer, moreover earlier this twelvemonth pinch benignant of nan summation successful number of cases. And not really group being frightened astir it, but frankly much group having COVID aliases nan flu aliases RSV, we astir apt had a small much lavation than what we are seeing now arsenic things settee down connected nan wellness side, and it's bully that group are delicate astir possibly not walking erstwhile they are sick. I dream that's a caller semipermanent inclination that would use each of us. But it surely helps attendance passim nan portfolio.

Operator

Thank you. The adjacent mobility is coming from Ari Klein of BMO Capital Markets. Please spell ahead.

Ari Klein

Thanks and congrats, Ray and Tom arsenic well. I had a speedy follow-up connected nan remark to turn EBITDA year-over-year, nan remainder of '23 x-Naples, would that see nan renewal effect arsenic well?

Jon Bortz

Yes. So it would still beryllium maturation moreover pinch nan effect from nan renovations.

Ari Klein

Got it. And past really are you reasoning astir dispositions moving forward? The markets that person challenges are besides seeing that reflected successful their prices. You've evidently sold successful immoderate of those markets. But to what grade are you consenting to possibly trim bade aliases are you much inclined to hold it out?

Jon Bortz

I deliberation nan measurement we measure dispositions arsenic we look astatine what are -- what nan opportunities are related to what we would different do pinch that capital. And while it's not arsenic easy to waste an plus and bargain an asset, arsenic easy it is to bargain a banal and waste a banal successful nan market.

We do look astatine consequence adjusted returns successful our markets complete a minimum of a 5 twelvemonth period, and understand are location amended places to put that capital, whether it's successful different markets, whether it's successful different types of assets for illustration we person done complete nan past 2 years aliases whether it's to repurchase our stock, which is trading astatine a 50% discount owed to nan leverage level that company, but a 25% to 30% discount successful existent backstage marketplace worth compared to really that's weighted connected an unlevered basis, pinch a company.

So we're taking each of that into account. We evidently besides are looking astatine what's saleable successful nan market, and what mightiness beryllium overmuch much challenging to waste successful a market. I would opportunity today, size is astir apt nan biggest deterrent to a waste unless it's a precocious rate flowing plus of a resort. I think, if one, we're trying to waste up 1000 room normal edifice today, and I'm not taking a changeable astatine anybody, we person a mates of 750 and 800 room properties. It would beryllium much difficult to waste because of nan indebtedness markets today.

Now, obviously, each rate buyers tin bargain those, but they mostly not sold to each rate buyers. So we effort to return everything into relationship alright. But we're looking nan superior driver is what where's nan champion return consequence adjusted return for nan shareholders, and past we person to return into relationship nan clip that it takes to do these transactions.

Operator

Thank you. The adjacent mobility is coming from Anthony Powell of Barclays. Please spell ahead.

Anthony Powell

I conjecture possibly related follow-up, looking astatine your NAV schedule, and successful your deck, you kept benignant of nan mid to high-fives connected a headdress complaint ground versus '19 NOI. That's beautiful affirmative against we've seen different headdress rates roseate elsewhere successful existent estate. So what's holding successful against your views connected headdress rates worth for your portfolio? Is it nan unencumbered nature, smaller assets complete you? There'll beryllium great.

Raymond Martz

First of all, it's a full bunch of factors. We shouldn't look astatine nan headdress rates alteration to find whether we're either decently adjusting values aliases that they're a due reflection of wherever we could waste these assets. Some assets -- first of all, our assemblage mostly doesn't waste and acquisition astatine a headdress rate. It trades astatine value per key. It trades successful 5 twelvemonth IRR. It's very different than a semipermanent lease product, apt having a batch of nan different sectors aliases a shorter word product, for illustration apartments that are acold little volatile.

So, we person markets coming wherever return overmuch of our San Francisco portfolio, nan biggest influencer successful San Francisco, is conscionable value per cardinal astatine this point, conscionable for illustration New York went to value per cardinal complete a agelong span of play successful precocious mid to precocious teens and into nan early portion of this decade. So that's a facet arsenic it relates to valuations. The headdress rates are conscionable a mathematical consequence of america valuing each individual property. The measurement a purchaser would worth those properties, which arsenic I said, is not a headdress complaint approach.

The different point to support successful mind is, we've invested, I think, past twelvemonth retired of nan 100 million, I deliberation you tin reason that location betwixt 70 cardinal and 80 cardinal went into important upgrades astatine nan properties retired of nan 145 to 155 this twelvemonth complete 100 cardinal is going into these transformations and repositioning truthful that nan dollars being invested successful nan portfolio accrued values. Now, possibly not by nan magnitude we put in, I deliberation that that'd beryllium to a purchaser to determine.

But it surely reduces nan magnitude of superior that a purchaser would beryllium allocating successful their ain underwriting erstwhile they look astatine buying a spot that's been redeveloped, renovated and repositioned. So each of these things get taken into relationship erstwhile we look astatine these values, but it's traditionally it's done by what do we judge a purchaser would salary for that today, and extracurricular of a market, that's non-functioning. These are pretty, I mean, erstwhile we're trading assets, we're trading them wrong our NAV range. Sometimes, it's astatine nan low-end, sometimes it's astatine nan high-end, sometimes it's supra aliases below, but ne'er by much, overmuch of a ample percentage.

Operator

Thank you. The adjacent mobility is coming from Jay Kornreich of SMBC. Please spell ahead.

Jay Kornreich

Just wondering if you tin supply immoderate further commentary connected nan underperforming municipality markets, you called retired successful San Francisco, D.C., Chicago. How you spot those improving 2023 and I conjecture whitethorn beryllium conversed successful nan leisure side, you mentioned immoderate softness expected successful nan keys. But successful different markets, you'd telephone retired location for either spot aliases softness that you'd expect this year?

Jon Bortz

Sure. So I mean, I deliberation erstwhile we deliberation of these slower to retrieve markets, location are evidently a number of factors that person impacted them. One being, really they dealt pinch nan pandemic, and what effect that had connected their cities. Both from a business, underlying manufacture perspective, alteration successful usage patterns, alteration successful activity patterns, whether group travel into nan office, aliases they don't, whether they support their section restaurants and retailers and nan effect that has connected nan leisure experience, and nan normal acquisition that group would person coming to a market.

So they each had, for nan astir portion extracurricular of nan confederate cities. Most of nan cities person a meaningful effect from nan pandemic and nan issues that person been created astir that. Some of them person had value of life issues going into nan pandemic, whitethorn person worse and whitethorn person gotten amended successful immoderate markets. And they're each focused connected improving that today. And we are seeing that betterment successful a number of cities for illustration San Francisco, for illustration Chicago and moreover D.C., which we deliberation is nan activity connected nan streets is continuing to get better.

So, they're conscionable slower to recover. We're seeing a important ramp and betterment successful those markets, arsenic group and transit comes back, and we shouldn't forget. So cities for illustration San Francisco, for illustration San Diego, for illustration Seattle and Portland, for illustration Boston and D.C., these are large leisure destinations. And that leisure customer really didn't statesman to travel backmost successful those markets until nan mediate of past year. So, we're going to spot important maturation successful nan municipality markets. I deliberation I said astir of nan maturation successful our portfolio astatine nan bottommost statement this twelvemonth will travel from nan municipality markets and overmuch of that is coming from nan recovering markets.

I'll beryllium it they're still going to beryllium immoderate of them will still beryllium beneath wherever we were successful '19 and immoderate for illustration San Francisco, which chiefly get to astir 50% of nan EBITDA it was astatine successful '19 this year. But location is simply a batch of operating leverage successful these markets. And we do expect them to afloat recover. As I indicated successful my remarks, we expect nan afloat portfolio to get to '19, nan afloat municipality portfolio to get location successful nan adjacent mates of years, but it still whitethorn mean a marketplace for illustration San Francisco aliases Seattle aliases Portland whitethorn still beryllium beneath wherever it was successful '19.

Operator

Thank you. The adjacent mobility is coming from Chris Darling of Green Street. Please spell ahead.

Chris Darling

Thank you. Just a speedy 1 for me. Can you remark connected really nan costs of security is changing, peculiarly arsenic it relates to immoderate of your Southeast Resorts? And possibly conscionable for context, if you could possibly and connected really overmuch security premiums possibly correspond arsenic a percent of revenue, percent of expense, et cetera?

Raymond Martz

Sure, Chris. Well, what are going connected -- truthful look portion of this is, we don't want to discuss against ourselves pinch our security carriers. We are starting to nan process of nan renewals for us, our spot security renews successful June and past our woody later successful nan year. But each indications of what we are seeing successful nan marketplace is, it is going up, but location were a batch of events past year, which we each cognize evidently took portion of that pinch Hurricane Ian there, but location are different benignant of losses there.

So, we expect that to spell up and past besides nan number of players successful nan security marketplace is besides strong. So it's a double deed there. So correct now connected a afloat twelvemonth basis, our benignant of spot and GL, that's astir 1.5% of our full operating costs there. So, it's a ample number. We're talking astir $20 cardinal aliases so, but it's not a worldly number. So, we expect it to beryllium challenges, particularly successful nan markets connected nan windstorm markets for illustration Florida.

But nan bully point is, we person a very diversified portfolio. So carriers for illustration america because we person a -- we person done a bully occupation here. So, we will emotion them to show that. We will supply an update. My conjecture is by nan 3rd 4th of July net call, we will person bully denotation of wherever that came retired successful nan renewals, and I will show you accordingly there.

Jon Bortz

And Ray, we would expect nan summation for nan P&C to beryllium greater than nan GL, nan wide liability. I mean, we don't spot nan unit connected GL that we're seeing connected piece.

Raymond Martz

Yes. Actually past year, our wide liability security really went down connected a year-over-year ground because of nan losses we person were beautiful managed. But nan P&C will beryllium going, that will beryllium nan area will beryllium increasing. And look, areas for illustration cyber really are besides being held successful check, coming down southbound of nan twelvemonth because of their ransomware and that's overmuch smaller than nan different side, but nan P&C is much of a situation here.

Operator

Thank you. At this time, I'd for illustration to move nan level backmost complete to Mr. Bortz for closing comments.

Jon Bortz

Well, again, convey you each for taking nan clip to subordinate america for our 4th fourth call. We person a speedy turnaround to nan adjacent 4th successful precocious April. We will proceed to supply these monthly updates arsenic we person been doing. And we look guardant to galore of you for seeing you down astatine nan Raymond James Conference and nan Citi Conference early adjacent month.

Operator

Thank you. Ladies and gentlemen, this concludes today's event. You whitethorn disconnect your lines aliases log disconnected nan webcast astatine this clip and bask nan remainder of your day.