Pebblebrook Hotel Trust (PEB) 2015 Q3 法說會逐字稿

Good day everyone, and welcome to the Pebblebrook Hotel Trust third-quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Raymond Martz, Chief Financial Officer. Please go ahead, sir.

Thank you, Dana. Good morning everyone. Welcome to our third-quarter 2015 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer.

But before we start, let me remind everyone that many of the comments we make today are considered forward-looking statements under Federal Securities Laws. These statements are considered subject to numerous risks and uncertainties, as described in our 10-K for 2014, and our other SEC filings, and could cause future results to differ materially from those expressed in or implied by our comments.

Forward-looking statements that we make today are effective only as of today, October 23, 2015, and we undertake no duty to update them later. You can find our SEC reports, and our earnings release, which contains reconciliations of the non-GAAP financial measures we use, on our website at pebblebrookhotels.com.

Okay, so we have another good quarter to talk to you about. During the third quarter, our hotels delivered strong bottom-line results, which resulted in a healthy 22.1% increase in adjusted FFO per share. Let me take you through the detailed results.

Same-property RevPAR for the total portfolio increased 4%, to $230. This is in line with our revised outlook, which we provided in the first half of September, and at the bottom end of the range, we provided with our second-quarter earnings release. The more modest RevPAR growth was largely due to late Labor Day shift to September 7 this year. This negatively affected August, as well as the beginning of September, certainly more than has historically been the case in prior years, when Labor Day fell this late.

September was also negatively impacted by the shift into September of the Jewish holidays. Despite some of the demand shift in the quarter our ADR grew 5.3% to $261 as we continued our focus of growing rate growth at the expense of occupancy which declined 1.3% to 88.4%, in order to drive better bottom line growth. This continued customer re-mixing strategy, combined with our comprehensive asset management and best practice programs, resulted in same-property EBITDA, increasing a healthy 8.6%, as our margins increased 159 basis points. Overall, portfolio-wide operating expenses increased just 1.4%, while revenues increased 3.9%.

If we exclude property taxes, which increased 10.7% in the quarter, primarily as a result of California properties acquired in the last year that were automatically reassessed at the time of acquisition, operating expenses only increased 0.8%. Solid execution, no doubt, by our hotel operating teams, focused on increasing profitability across the portfolio. For our portfolio, on a monthly basis, July RevPAR, which was the strongest month in the quarter for us, increased 6%.

August was up 0.9%, and September climbed 5.1%. Our RevPAR growth was led by our hotels in Nashville, Portland and Boston. Our softer markets this quarter were Washington DC, Minneapolis, New York and San Francisco.

Jon will provide more color on individual markets later on the call. Transient revenue, which makes up almost 76% of the room night demand for our total portfolio, rose 7.3% compared to the prior year, with ADR growing 4.3%. Group revenues declined 5.6%, with ADR up 6.1% and group room nights down 11%.

The shortfall in room nights was primarily due to a weaker convention calendar during Q3, which was largely expected. As a reminder, our Q3 RevPAR and hotel EBITDA results are same-store for our ownership period, and include all of the hotels we owned as of September 30. Our hotels do not exclude hotels under renovation.

RevPAR growth in the quarter was led by Le Meridien Delfina Santa Monica, Hotel Modera Portland, Union Station Nashville, and The Nines Portland. Food and beverage revenues increased 0.4%, or $0.2 million, compared with last year. This is largely attributable to the W LA, where we installed STK Los Angeles as our third-party restaurant lessee operator, effectively eliminating most of our food and beverage revenues, and significantly improving profitability through rent, which falls in a separate revenue line item on the income statement.

Food and beverage expenses declined by 3.7%, or $1.3 million, resulting in overall food and beverage [departmental] profit increasing $1.5 million, with food and beverage margins up 300 basis points. The hotel EBITDA percentage growth leaders in the third quarter were Viceroy Miami, Westin Coral Gables, La Playa Beach Resort, Union Station Nashville, Le Meridien Delfina and The Nines Hotel Portland.

It is noteworthy that four of these six hotels were acquired in 2014 or 2015, highlighting the relatively immediate successes we have achieved implementing our asset management best practices at these hotels. 15 of our 37 hotels grew same-property EBITDA by double-digit rates in the quarter, compared to the same period last year.

Now moving down the income statement, adjusted EBITDA increased 29.6%, and adjusted FFO per share climbed 22.1% compared with last year's third quarter. Switching now to our year-to-date results, same-property RevPAR has increased 3.9%.

Same-property ADR has grown 5.5%, same-property EBITDA has climbed 9.8%, and EBITDA margin is up 187 basis points. Adjusted EBITDA is up 33.4%, or more than $48 million, versus last year, and adjusted FFO per share has grown a very strong 25.3% over prior year. Now let's focus on our capital reinvestment activities in the third quarter.

During the third quarter, we invested $21.9 million into our hotels, as part of our capital reinvestment program, including capital related to the early completions of the Hotel Zephyr Fisherman's Wharf and W LA West Beverly Hills renovations, as well as kicking off the redevelopment of the Prescott in San Francisco, which many of you saw during our investor day tour a few weeks ago. We remain on track to close the Prescott on November 1, and currently plan to reopen and relaunch the hotel as Hotel Zeppelin in 2Q 2016. Year to date, we have invested $77.1 million into our hotels.

On the capital and market side of our business, we funded a new 5.5 year, $125 million unsecured term loan in July. In October, after quarter end, we paid off the $48.6 million mortgage loan secured by our InterContinental Buckhead, with proceeds from our credit facility. In the near-term, you should anticipate that we will originate new, longer-term debt to reduce our current credit facility balance, which stands at approximately $240 million as of today.

I would now like to turn the call over to Jon to provide more color on the recently completed quarter, and some thoughts on what to expect for the remainder of 2015. Jon?

So as Ray said, the third quarter was another good quarter for both the lodging industry and for Pebblebrook, though not as good as we expected three months ago. When we look at the third quarter's overall industry performance, there are a few trends worth noting. First, industry demand was choppy in the quarter, with a number of crosswinds, particularly holiday movements, on a year-over-year basis, that negatively impacted performance in August and September.

The very late Labor Day, on September 7, coupled with the trend over the last few years of schools starting earlier in August in many places around the country, seems to have had a very negative impact on leisure travel in the last 10 days of August. As a result, August industry-wide demand actually declined for the first time since late 2009, and led to RevPAR growth of only 2.2% in the month, also the lowest monthly performance since 2009. The movement of the Jewish holidays into September also had a negative impact on performance.

However, the strong 8% RevPAR growth for the industry is not indicative of the impact in the major cities, where corporate businesses are more sensitive to scheduling meetings and travel. While the industry had strong growth in September, the urban markets were weaker, with RevPAR increasing just 4.2%, and the luxury and upper upscale chain-scale segments increasing just 5.1% and 3.9%, respectively. Indicative of the impact of the holiday shift on September's performance, industry-wide group demand for the month was down over 4.5%, with group occupancy down 3.5% and group RevPAR actually declining 0.7%, certainly creating a drag on the month and the quarter's performance.

As a result of the negative impact from August and September, industry-wide group occupancy for the quarter declined by 1.7%, leading to weak industry-wide group RevPAR growth of just 1.6% in the third quarter. We could see the impact of these holiday shifts, coupled with our anecdotal evidence of soft growth in international inbound travel, in the performance of the top 25 markets, which also materially under-performed the industry, with RevPAR growth of 6% in September and 5.5% for the quarter, versus the industry's RevPAR growth of 8% in September and 5.9% in the third quarter.

Yet with all this noise in the quarter, total US demand growth still increased 2.5%, down slightly from last quarter's 2.7%, but well in excess of the growth in new supply of just 1.2%, and well within our beginning of year forecast of 2.5% to 3% demand growth for the year. I mentioned softer growth in international inbound travel. While we don't yet have comprehensive data for the industry from the Department of Commerce beyond first-quarter data, we do believe that a strong US dollar, and weaker than originally forecasted economies in many countries around the world, have combined to limit growth in inbound international travel, primarily affecting the major gateway cities.

Greater numbers of US travelers going abroad due to the strong dollar has also likely reduced domestic leisure growth this year. While international airlift capacity is up substantially, and air fares have come down very significantly, we don't believe they have offset the negative factors as much as we would have expected earlier this year. The other major trend impacting results has been the cyclical trend of a broadening in the benefits of the economic recovery for the socioeconomic middle, which is clearly benefiting hotels throughout the US, in the economy to mid-priced chain-scale segments, which have outperformed the upper end of the hotel market all year, including in the most recent quarter.

We can see this out-performance in most of our markets, where the suburban markets are actually outperforming the urban or CBD markets. We expect this trend to continue as the economy continues to improve, and the suburban and secondary markets, with much lower current occupancy levels, are able to take advantage of this growth and demand, particularly from the middle class. As a result, the urban markets, on an industry basis, particularly with expected ongoing under-performance in New York and Washington DC, are likely to have a difficult time outperforming overall industry in the near-term, at least until we see renewed growth in international inbound travel, or a renewed strengthening in corporate profits.

As a result of the third quarter's results in our visibility into the rest of the year, we believe industry growth is likely to end the year somewhere in the middle of our industry outlook of 6% to 7% that we gave at the beginning of the year. This suggests we're slightly more cautious in our expectations for the industry for the fourth quarter, with industry results for October so far coming in a little lighter than expected, and a concern that these trends may continue in November and December, particularly with the difficult comparisons to a very strong Q4 last year. For Pebblebrook, as Ray indicated, RevPAR growth in the third quarter came in right on top of our lowered expectations of 4%.

However, please keep in mind that room revenues actually increased 4.6%, due to the additional 54 rooms throughout the portfolio. We continue to focus on re-mixing our business to drive rate growth at the expense of some occupancy, and still more than we would like, in order to drive bottom-line growth and increase long-term values. As we indicated at our investor day last month, our lower top line expectations were primarily a result of weaker than expected results in August and September across the portfolio, with the weakness more pronounced in San Francisco due to leisure travel, both domestic and international, that didn't fill in for a difficult convention calendar.

When we look at our portfolio for the third quarter, our West Coast properties continue to outperform our East Coast properties. RevPAR on our West Coast properties grew 4.7%, with occupancy down 1.1%, to 90%, and ADR increasing 5.9%. This despite the challenges in San Francisco in the quarter, and the loss of competitive share that we expected, and did lose, as a result of the transitions to new managers at our four hotels. Lost share as a result of the management transitions was a little less than our forecast for the quarter, but of course still had a significant impact on our performance in the market.

RevPAR at our seven San Francisco properties rose 1.2% in the third quarter. Had we not lost share at our four transitioned hotels, San Francisco RevPAR would have grown 3.4%. RevPAR at our East Coast properties grew just 2.6%, impacted primarily by continuing weakness in New York and Washington DC.

As we indicated last quarter, the performance of our New York properties improved again, from the quarter before and versus the market. RevPAR for the six hotels in the Manhattan collection was exactly flat in the quarter compared to last year's third quarter, much better than the minus 5.4% in Q2, and 9.6% decline in Q1, and in line with the Manhattan market's RevPAR growth of 0.1% in Q3.

We continue to make progress on our efforts to improve our group sales and revenue management, and the results so far are bearing fruit, as the portfolio gained over 100 basis points of RevPAR share in the quarter, versus the combined competitive sets, the first time this has occurred this year. We are also making progress at Hotel Zephyr San Francisco, which has been receiving incredible reviews from our customers. And while we are nowhere near where we had expected to be at this point in the beginning part of our ramp-up, following the property's transformation, we are encouraged by Q3's results.

RevPAR grew 5.4% in the quarter, with ADR increasing 9.4% and occupancy declining 3.6%. We also gained RevPAR share in the quarter. In this case, we outperformed the property's competitive set by over 400 basis points, with all of the out-performance in rate, which is the focus of our team's efforts.

One of out other properties of focus that was also a drag on the portfolio in Q2, the W LA West Beverly Hills, also improved in Q3, though not as much as we expected, and we continue to be disappointed with our progress. We are working very closely with Starwood to improve the property's performance and pick up positive momentum following the property's transformation, and we should see continued improvement. RevPAR declined 4.3%, though room revenues actually increased 10.2%, with the 39 rooms we added.

And that compares to the second quarter, when RevPAR declined 9.9%, with an increase in room revenues of 3.7%. With the benefit of the additional rooms, EBITDA increased 12.4% in the third quarter, versus an increase of 6.1% in Q2. Even with our challenges at W LA, our West Los Angeles property still did reasonably well last quarter.

RevPAR at our five properties increased 5.4%, and excluding the W LA, the other four properties grew RevPAR 8.6%. Downtown Portland was also very strong in the quarter, with our properties there increasing RevPAR by 14.2%. Other strong markets in the quarter included Boston, where our two properties combined to increase RevPAR by 7.3%, and Miami, where our two properties grew RevPAR by 7.3%, as well.

Nashville was even stronger, with our Union Station property growing RevPAR by 15.1% in the quarter. Our weakest performance was in Washington DC, which had a difficult convention calendar compared to last year. RevPAR at our two properties in DC declined 6.7%, and both under-performed the market.

Overall for our portfolio, we lost RevPAR share versus our specific competitors in the quarter, as well as versus our markets. In other words, we under-performed, In this case, by 56 basis points for the portfolio, versus our competitive sets. I mention this because given our renovations and re-positionings, we should be outperforming and gaining share in any given quarter, particularly when we are not displacing business directly from an ongoing renovation, which was not the case in Q3.

In addition to the slower ramp-ups at Zephyr and W LA, we've likely lost share due to greater than normal turnover this year of key top line leaders at many of our properties throughout our portfolio. While the annual turnover of property-level executive team members would typically be around 20% to 25%, meaning an average tenure of four to five years, this year, it has been more like 50%. There is no single reason for the turnover, nor is it systematic of any systemic problem.

But we do believe we are seeing more voluntary turnover, because the economic environment is more attractive, and providing more opportunity for those working in our industry. As is often the case when we buy properties, there have been significant leadership changes at properties we acquired in 2014 and 2015. But we have also seen changes throughout the rest of the portfolio, due to promotions, retirements, competitive offers, spousal relocations and individuals leaving the industry for personal or opportunistic reasons.

Not surprisingly, when there are changes in leaders that are key to generating revenues, it can have an impact on property performance. Sometimes we all forget that while we are in the real estate business, our business is also operationally intensive on a day-to-day basis. While these changes often have a negative short-term impact on property performance, and they are having that impact this year, these changes generally lead to better long-term performance, as our operators transition to individuals that are a better fit for our hotels.

Despite relatively modest RevPAR growth in Q3 of 4%, we were able to increase room revenues by 4.6% because of the additional rooms we've added, leading to strong growth in same-property hotel EBITDA of 8.6%. This was primarily a result of our focus on growing rate, which increased 5.3%, while achieving great success by continuing to implement best practices. With total same-property operating expenses limited to a 1.4% increase, we achieved a 78% flow-through of revenues to EBITDA in the quarter, an accomplishment our team is particularly proud of, given the fact that our same-property revenues grew 3.9%.

For the first nine months of the year, we grew same-property EBITDA by a strong 9.8%, with same-property EBITDA margin growth of 187 basis points. We had flow-through of 84% of same-property revenue growth to same-property EBITDA. Or looked at another way, the 9.8% growth in same-property EBITDA is 2.5 times the year-to-date RevPAR growth rate of 3.9%.

Now I would like to give you a quick update on our upcoming renovations and re-positionings. While we have a number of projects later this year and next year, the good news is the expecting negative impact from these renovations should be substantially less then the projects undertaken earlier this year. As Ray mentioned, we started some work at the Prescott in the third quarter, but the major project commences on November 1, when we close the property.

We also started the redevelopment of the Westin Coral Gables on September 1, and we will be doing the work in phases in order to reduce displacement, with completion and re-flagging expected to occur next summer. We are currently in the process of completing the design phase of the redevelopment and repositioning of Union Station Nashville, and expect the work to commence and be complete in next year's third quarter. We also expect to commence our rooms and meeting space renovation at Monaco DC in January, which should be completed by April next year and we plan to begin a rooms, lobby and meeting space renovation at The Nines in Portland this December, with completion in late Q1 next year.

We don't expect either of these projects to incur any major displacement of revenues. Finally, we are also planning to begin a redevelopment of both Palomar Beverly Hills and Revere Boston Common late next year, with completion by early Q2 2017 for both properties. And as a reminder, these renovations are no different than what we described last quarter.

Now, let me turn to an update on our outlook for the remainder of the year. We continue to expect 2015 to be a great year for both the industry and Pebblebrook, though for us, not quite as good as we thought earlier. On RevPAR, our forecast for the industry remains 6% to 7%, for the year.

As indicated earlier, we believe it is likely to end somewhere in the middle of the range. We are a little more cautious about the remainder of the year than we were even a month ago, as a result of the slightly weaker industry trends that we're seeing in October, and weaker economic data that has recently been reported.

Including the most recent jobs report in early October that showed a meaningful slowdown in the rate of job growth in the third quarter, including adjusted jobs growth numbers for July and August that were meaningfully lower than previously reported. There have also been reductions in forecasts for global economic growth and corporate profit growth rates for the remainder of the year. We may have hit another short-term soft patch in the economic recovery that has been bumpy so far, and feel it is prudent to be a little more cautious.

We also think it is worth pointing out that it has been a little more difficult this year than last year to forecast, due to the greater volatility in month-to-month industry and local market demand. And consequently, quarterly performance forecasts have been more challenging. No news there. For our portfolio, we are lowering our same-property RevPAR outlook for the year to 3.5% to 4%, in order to account for our slightly increased cautiousness and continuing trends of giving up more occupancy and RevPAR, while we drive higher ADRs in order to deliver stronger growth in same-property EBITDA and increased values in the long term.

This also reflects an expectation that we will continue to lose some RevPAR share, as the new leaders at our properties get up to maximum speed. With these RevPAR changes, our same-property EBITDA growth rates declined slightly, from a range of 9% to 12%, provided with our second-quarter earnings release, to our current outlook of 8.5% to 9.3%.

For Q4, we are forecasting a our same-property RevPAR to increase by 2.5% to 4.5%. That is lower than our implied outlook at our investor day last month of around 5%, and results from a desire to be more cautious about short-term bookings, based on recent trends we are seeing in October. And an acceptance, as I just said, of the fact that we are likely to continue to lose more occupancy and top line RevPAR while we drive higher ADRs and bottom-line profits, particularly at the many properties that are being repositioned.

Specifically, so far in October, we have been seeing some increases in short-term transient cancellations, and slightly slower net bookings within 10 to 30 days of arrival. Our same-property hotel EBITDA range for Q4 is $70 million to $72 million, with same-property hotel EBITDA increasing by between 5% and 8%. While we are more cautious about short-term trends, we continue to be very positive about the strength of the underlying fundamentals of the industry for the intermediate term.

Supply continues to be restrained, with a three-month trend at just 1.2%, and our expectation is that demand will likely continue to outpace new supply over the next two to three years. On a trailing 12 month basis through September, industry occupancy achieved a new all-time high of 65.4%, and should set records for at least the next couple of years. This bodes well for healthy pricing power and higher ADR growth.

And while we expect to see greater than industry supply growth in our markets beginning next year, we expect RevPAR growth in our currently strong markets to remain strong, due to their extremely high record occupancy levels and higher growth economic environments. For Pebblebrook, when we look at our pace for the fourth quarter as of the end of September, total group and transient revenue on the books was up 6.3%, over same time last year, with ADR up 4.5% and room nights on the books up 1.7%. Group room nights for the fourth quarter are up 0.5%, with group ADR up 2.4%, and total group revenue up by 3%.

Transient room nights on the books for the fourth quarter were up 2.6%, with transient rate of 5.7%, and total transient revenues on the books up 8.4%. In the year, for the year, total revenue bookings in the third quarter for 2015 were up 6.2% versus prior-year bookings, which certainly represents an encouraging number. As we take another peek into 2016, we continue to be encouraged by both our group pace and convention calendars for our markets.

While still early, our group pace is up 11.7% in 2016, with room nights down 0.3%, but ADR up 12.1%. This is better than the 7.3% pace benefit we reported last quarter for 2016. Since group room nights on the books currently represent only about one-third of our 2016 target, we caution that our current pace doesn't guarantee anything about the performance in 2016.

But nevertheless, better is still better, especially when it is mostly in ADR. And continuing with the better theme, convention calendars currently look better in many of our markets in 2016, including Atlanta, Boston, San Diego, Washington DC, Portland and Nashville. And they currently look similar to 2015 in pretty much the rest of our markets, except Seattle and Philadelphia.

To wrap up, while we are a bit more cautious about the remainder of this year, we continue to expect 2015 to end as another terrific year for both the lodging industry and Pebblebrook. Underlying industry fundamentals should remain very healthy for the next few years, and we don't see any real trouble ahead. We continue to have tremendous opportunity in the existing portfolio, to drive property ADRs and EBITDAs higher, as a result of renovations completed in previous years, as well as recent and upcoming renovations and re-positionings.

And finally, one final request. As we move to Q&A, please refrain from asking us anything related to the issues or parties surrounding the property transitions in San Francisco. In our remarks, we've said everything that is prudent to say at this time.

And with that, Operator, we would be happy to entertain questions now, if our audience did not hang up.

(Operator Instructions)

Rich Hightower, Evercore ISI.

Hello guys. Good morning. Thanks for taking the question.

Sure.

I want to talk a little bit about the fourth quarter first. So RevPAR guidance, as of the investor day, was 5%, as you mentioned. And then we're taking that down to I guess 3.5% at the midpoint.

I guess that's not so bad, especially given some of the bigger trends you have talked about. But could you give us a little more of a bridge, in terms of the markets and the demand segments that are leading to that 150 basis point reduction there? Just a little more detail, if you don't mind?

Sure. The reduction is spread out throughout the portfolio, because the cancellation trends and the short-term pickup trends we have been seeing have been prevalent throughout the portfolio, though clearly more dominant in the gateway cities. In terms of emphasis, I would say we are seeing more of it in a couple of markets, like San Francisco and Los Angeles and Boston, within the portfolio. And probably a little less, on a weighted basis, in some of the other markets.

We have been seeing that for longer in New York, which we have talked about, again, in previous calls. But we had already changed our strategies and tactics to more significantly over-book than what we had been doing, based upon what was a fairly consistent ability to project the cancellations in the New York market. But otherwise, it is fairly spread out through the portfolio.

Okay. That is helpful.

And then, a question on margins. I guess for the last couple of quarters, and then this would also apply to the fourth quarter looking ahead, it does seem like flow-through has been one of the highlights, relative to what has been happening to the top line, perhaps. And I know that a lot of the RevPAR gains are coming from rate, which is good for margins.

But how long do you think this -- the positive flow-through trends can continue, given some of the deceleration in demand? And maybe a little bit of jittery-ness on the pricing side that I think investors are starting to consider at this point?

Yes. I think we have a ways to go within the portfolio, in terms of productivity enhancements, best practice implementation, improvements in food and beverage.

We have quite a number of significant initiatives within the portfolio, related to restaurants and re-concepting, or leasing them out, that are under -- are different phases of being underway. Some with leases signed, some that are already open. Some that we are in the market leasing right now, some that we are in the process of re-concepting.

And then we continue to have significant savings, particularly at the hotels we bought over the last two to three years. Those have offered us a plethora of opportunity to continue to improve margins.

So I think we have a ways to go, Rich, and much of it is already identified. And it is about execution, and some things take a little longer to execute, in terms of years. Some things we can get done in three, six, nine months within the portfolio.

Okay, thanks. And one last quick follow-up.

So on the GM turnover that you mentioned that is happening at I guess above the average number of properties this year, do you have any idea what margins could have been, if it weren't for some of that extra turnover, versus the historical average?

Yes, it's really -- it's less of an impact on margins. It is more of an impact on top line.

And it's -- the executive leadership that I was referencing was really three main positions at our hotels through the portfolio. The general manager, the director of sales, or director of sales and marketing -- in other words, the head of the sales effort -- and the revenue manager, which might be the most important of the three. And so that is what has been about 50% this year. And it represents probably -- almost an impact of at least one leadership position of those three in the portfolio this year, at two-thirds of the portfolio.

So we know it has had an impact on performance. It is hard to quantify it, but see it in the share that we are losing, at the properties where we have had those changes. And then, when we do get new people in, it does take some time for them to ramp up and understand the dynamics of the property that they are now selling, or revenue managing, or managing.

Okay. That is helpful. Thanks, Jon.

Anthony Powell, Barclays Capital.

Good morning. Just on the cancellations, could you give more detail on which type of customers are canceling?

Are you seeing corporate, transient customers cancel? Or leisure? Or cancellations around groups? That would be helpful, if you could give more detail there.

Sure, Anthony. It is all of the above. But the largest change that we have seen in behavior has been around transient cancellations, not group cancellations.

And as it relates to the transient cancellations, it is more heavily weighted towards business travel than it is to leisure travel. And I think that we could attribute some of that to the greater sophistication of technology that is being used by some corporations to monitor rates and take advantage of any reductions.

I think we have talked in the past about the concern about these loyalty programs that are causing our revenue managers, or revenue managers in the industry at branded properties, to lower rates near arrival, versus raising rates closer to arrival. And so I think it is leading to people with multiple reservations, to monitor different properties.

And also, no penalty for canceling a reservation, or even changing a reservation, if it is more than 24 hours out right now in -- with most of the branded policies out there. So that is where we have been seeing it most.

We have seen a little more attrition in some of the conventions, in various markets that we have. They have been a little hard to predict this year. Again, we are not sure that it is anything other than people playing these rate opportunity games within the market, where sometimes the transient rates become more attractive than the group rate that they might have booked under.

The other thing that is worth mentioning is, I know that we have, but many of the owners, particularly the institutional larger owners out in the industry, have been having a lot of conversations with the major brands about instituting longer cancellation policies, meaning you can't just change your reservation at -- by 6:00 PM and not suffer a penalty.

So hopefully, we're going to see those restrictions get pushed out a little bit, because it is really costing the industry. It makes it really hard to manage our business on a short-term basis. And I think what we are going to see, ultimately, is we're likely to see penalty fees for either cancellation or changes. And hopefully that is coming down the pike sometime over the next year.

Right. Got it. Thanks.

And second question is on, I guess, the ramp-up of the Zephyr and WLA. You're getting the price increases, but the -- I guess the occupancy is falling off a bit further than you expected. What customer segments can you target more that you are not getting right now at those two hotels? Thank you.

Sure. We're -- it is interesting. In the case of Hotel Zephyr, it is actually a fairly dramatic change in the customer segments than what it was doing as a Radisson. Primarily because we are pricing $50 higher on average then we were previously.

So it is not necessarily about changing the segmentation per se, as much as it is about changing the customer. And since we are providing a product that has much more value to the customer, we want to charge the customer more. And that generally means you have to find new customers.

So that takes time. It is as if it is a new hotel. And so it really is about all of the segments.

It is about increasing the wholesale business, getting new customers there at higher rates. We get much, much higher rates for the wholesale business at the Argonaut down the street. And so again, the business is out there. We need to get it. And we've got to get the customers to the property to see the property, so they are willing to pay the price that we are asking.

We do expect to actually expand our corporate base there, which was fairly nonexistent previously, based upon the amenity base of the hotel. And then it is really again, on the transient side, about getting exposure to the property to people who are willing to pay more to be down at Fisherman's Wharf. And the TripAdvisor reviews and the Yelp reviews are all extremely helpful in getting us that exposure that we need, to get customers willing to pay more than what they were willing to pay when it was a Radisson.

Great. Thank you.

And as it relates to WLA --

And WLA. Right.

Yes, at WLA, that is a little different. Because in many cases, it is a customer segment modification.

We need to bring in more group, which wasn't coming to the property before because of its condition. And so we think that business, again, is out there. We have other properties in the market.

And we have to get those people to the property, get them to experience it, and then book it. So part of it is group.

A lot of it will be rooms-only group. So that may be entertainment. That may be international travel, longer-term stays.

It will include the business that comes out of the consulting and accounting firms that is project business, which again is more repeat weekly, longer-stay business. And then we need to drive some additional corporate accounts into the property, particularly in order to pick up the 39 additional rooms that we have added, which is about 15% of the inventory.

Thanks for the detailed answer.

Sure.

Shaun Kelley, Bank of America Merrill Lynch.

Hello guys. Can you hear me?

Yes.

Great. Good morning, Jon, and good morning, Ray.

So in the prepared remarks, you guys mentioned a little bit about possibly leaving some RevPAR on the table, as you remixed more towards rate and away from occupancy. And so I was just curious if you could provide a little bit more color on that, given the occupancies in your markets are so high already. In San Francisco, in New York, in a lot of places you guys -- pretty good in some of the CBDs in which you guys operate.

It feels like you should be able to push more rate than perhaps you are getting. And my guess is, you would probably agree with that. So I'm curious, why do you think elasticities are maybe a little different? Or you are not able to get quite the rate boost that you'd expect at this point in the cycle?

And Jon, in your longer-term or historical perspective, is there another period in the past where you have seen similar behavior? And any perspective you could provide on that?

Sure, so it's -- that is a good question, and actually, it is a very complicated -- it is a more complicated answer. Because it is so much about -- and particularly where we are doing it, strategically repositioning properties, as I was talking about with Zephyr. It is more about changing the customer than it is about just increasing prices with existing customers. So it is something that takes time.

And unfortunately, we are running customers off the property, if you will, more quickly then we are getting new customers to the property. But we are getting the rate increases, in many cases, that we are looking for. We're just not getting enough of it yet to offset the occupancy loss.

Or looked at the other way, we're also losing too much occupancy, meaning we did not get enough new customers into the property to make up for the occupancy that we lost by driving away customers who wouldn't be willing to pay that higher rate. And there is nothing new about that. People have their own price range, and they are going to shop properties in the market that provide that price range, even if, in many cases, it means going downhill from a quality perspective.

So I do think it is just a time issue, primarily, within our portfolio. Some of it is execution, Shaun. And it is harder to execute when you don't have the key leaders at some of the properties. So that will tend to stretch out the time period it takes to gain that share and reposition the properties.

And we know we are losing share. We get that data, both obviously on our competitive sets, and in the markets that we are at. And by and large, our markets are not losing occupancy; we are. And again, it is more about the time it takes to get new customers then it is about the customers not being out there at all.

In terms of history, we have never been at levels of occupancies that we are at today, in my career. And so some of the dynamics are new. And I would also say that there are so many things that have changed in the industry that, whether it is technology, whether it is the OTAs, whether it is -- the dynamics of the loyalty programs have never really kicked in at this level. Because the markets have never gotten to these levels of occupancies where it becomes a regular occurrence to be at or near the break point at so many nights during a year.

And most of these programs have also gone to no-blackout date programs. And so, during higher rate period, people are using their points instead of paying cash.

So the dynamics have really changed in the market. And that is part of what is making it a little more difficult, on top of the lots of crosswinds and changing winds on the macro side this year. That is what is making it more difficult to forecast, on even a near-term basis.

And I think I mentioned at your conference, the BofA conference, and the ISI conference I was recently at, we can go into a quarter with 50% or less of our business on the books for the whole quarter. And so what -- the small changes in the dynamics can have a big impact on whether we are at 4%, or we are at 2%, or we are at 6%. And while those things are blowing around, just looking at historical trends has been less than ideal, as we have proven in some of our last forecasts this year.

Thanks for the candor on that. It is really helpful.

And my second question would be just a little bit on, you gave some helpful outlooks for different markets for next year. And I wanted to ask a little bit about supply in some of your markets for next year.

So just any sense you could give us on which markets you are expecting to see some of the biggest supply increases in the CBD next year? Versus some of the markets where you think that is going to be the most benign, or perhaps likely the most bullish for your portfolio?

Sure. So we mentioned this at our investor day. There's a few markets where we are going to see 3% to 4% supply growth next year. They would include Portland. They would include Nashville.

Interesting, Nashville is a good example. It is running at record occupancy. I think supply is up around 7% this year. Demand is up about the same, and the market is up in the low teens, on a RevPar basis.

So clearly, just having more supply is not the only dynamic to look at in a market. But we would always say, no supply is better than supply being added into the market.

San Diego, we should see 3% to 3.5%. Boston, 4% to 4.5%. West LA, 3% to 4%.

DC, around 4%. Miami, 4% to 5%. And New York, we should continue to see around 4% in the market.

And in markets like San Francisco, 1% to 2%. Buckhead, under 1%. Seattle, between 1% and 2%. Philly, between 1% and 2%. Minneapolis, around 1%.

So that's -- in many cases, that is up from this year. And the one thing that I think is worth mentioning and trying to understand is, one of the reasons you don't see occupancy growth in the stronger markets is because there isn't more occupancy to be had in those markets. If they are running at 84%, 85%, 86%, and they are seasonal, there just isn't more occupancy to be gained. It is going to go somewhere else, either to another city, or it is going to go to the suburbs, or it will go to the airport.

And we saw that in markets like even New York, for the first three years, a very substantial supply growth. We had pretty good ADR growth and strong RevPar growth during that period. So it isn't just about supply.

The economy is really important, in terms of, what is the underlying demand that is being created in a market like Seattle? It is well more than the 1% to 2% demand growth that it is showing for this year, but it can't be accommodated in the city right now. And so certainly, in the first year or two, as we add some supply in some of these markets, it is not really going to have an impact on the ability to continue to drive rate in those markets, because the occupancy is going to get pretty easily absorbed.

Got it. Thank you very much, Jon. Appreciate it.

Yes.

Next to Ian Weissman, Credit Suisse.

Good morning. Just following up on that supply question.

Jon, you have always been pretty candid about supply, at least up until now, being a tailwind for your -- or at least for industry fundamentals. As you think about the challenges across several of your markets -- LA, San Francisco, in particular -- the one thing that nobody has mentioned on this call -- and I'm just curious about your views -- is how much has Airbnb just taken the wind out of the sales of your ability to push rate?

Yes, we talked about this in our prior calls, Ian, and it is no different. We would not say anything has changed in the last three months. And that is, there continues to be some impact that we see, and that is noticeable around some of the more major conventions and events in these markets. Particularly when they are not business meetings.

They are more meetings or events where people are paying their own way. And so it is impacting pricing, to some extent, in those markets. And we are not quite seeing the same compression that we have seen in prior years.

So that is really what -- where it has had an impact. And I would say that is fairly typical, whether it is San Francisco, LA, San Diego, New York. With -- there is no doubt that it is a bigger impact in a major city than it is in a suburban market or a secondary market.

Right. And just another question on San Francisco. Clearly not only with your sector, there are other sectors that are facing dislocation, or at least market concerned about San Francisco, and the future of demand in that marketplace. But the reality is that business is as usual in San Francisco, and tech demand is still very strong, and it is still a very, very healthy market.

So as it relates to hotel fundamentals, and as you think about business demand for lodging in that market, how much of it is just groups saying, you know what, it is an expensive market, and we are looking elsewhere. And we are going to take our group travel to a cheaper city?

Yes, I don't think we are seeing that at all. I think there is a reason that groups go to San Francisco, both to have their meetings and to have their conventions. It's because it is the best business choice for them.

Conventions go there because they get great attendance there, and many of these conventions are for-profit conventions for the associations that might be putting them on. And so where they go is way more important than the hotel rates, which, by the way, are paid for by the individuals, not by the associations.

So when NAREIT picks its city, it's not picking its city based upon the cost of the hotel rooms. It is picking its city based upon where it thinks it's going to get the best attendance, because it is a for-profit meeting.

And of course, people go to San Francisco because it is a great city to go to. It has got great weather most of the year. It has got tremendous amenities. It is beautiful. It has got great airlift. All of those are factors for meetings.

So I think pricing is, by far -- would typically be pretty far down on the list for the kinds of conventions that go there. But the cheerleader convention, or the basket weaver convention, they are not going to San Francisco, because they are not going to do well in San Francisco, because the people who have to pay their own way can't afford it.

But they were never going there. They were going to other cities. They are going to St. Louis and Minneapolis, and Indianapolis and Kansas City, and a lot of the secondary markets.

Okay. Helpful. Thank you very much for your color.

Bill Crow, Raymond James.

Good morning, guys. Jon, let me just make sure I'm clear. Your commentary on 2016 sounded positive, as far as the group business and your forward bookings, et cetera. So should we read into that that there has been no change to the scenarios you painted on 2016 and 2017 on your analyst day last month?

Yes, we haven't seen enough change in the trends that we have adjusted Q4 for to change our view of 2016 yet. If late in the quarter, it looks like there are trends have continued, and may continue, then at that point in time, we certainly would change our view of 2016, and be more cautious.

But as the Fed says, we are data dependent. We need to see what happens on the macro side. Is this a soft patch on a quarterly basis, like we have seen throughout the last five years? Or is it something that is more extensive, from a time perspective?

And Jon, we face very challenging comps for the industry in fourth quarter, but also in the first quarter of next year. And I'm just thinking about how we get some momentum back in the group. How do you -- I'm not looking for guidance for first quarter of 2016. But how do you see that quarter shaping up, relative to your baseline expectations for the year as a whole next year?

Yes, just give me one second to pull up pace for -- how the pace breaks down for the year. So if we look at the first quarter, on a group basis, we are up 7.5% right now. Room nights are down just shy of 5%, but rates up almost 13%.

And some of that is San Francisco, Bill, with Super Bowl. Some of it is JPMorgan in San Francisco, because JPMorgan continues to grow, and become an increasingly higher-rated citywide, for which, five years ago, it almost didn't exist.

Okay. Two other quick topics -- hopefully quickly.

Jon, we have seen some rates in other sectors that have been in hot markets all of a sudden find themselves over-weight a market that might be going in the wrong direction. I'm thinking specifically Houston, which might be unique in the country.

But the success of Houston also has led to challenges for several companies. Do you think about your weighting in San Francisco? And is it where you want to be? Is it ripe for trimming? How do you think about that market?

Yes, we think about our weightings all the time. I think we have indicated previously we feel comfortable with where we are. But we wouldn't feel comfortable being higher than where we are, from a concentration perspective.

From a -- we have to look at these markets all on a long-term basis. And we choose them because of the underlying dynamics, how difficult it is to build.

And so a market like San Francisco is a good example of a market that will likely have more volatility and variability, through different parts of the cycle. But on a long-term basis, based upon the urbanization trend, based upon the difficulty of building, based upon the industries that are there, and their growth outlooks over the long-term. The creative industries, whether it is technology, biomedical, the cloud, some would say Uber is in the transportation business, not the technology business. And the same for other businesses we would typically categorize as technology.

But we view the market as a heavier, not less diversified industry base, because of it being subject to capital and capital flows. And so it is going to have more variability. But it's -- we believe it will have better long-term performance.

And there will be times where it will under-perform, just like Washington DC, a good example, where it has got high barriers to entry. People will ultimately build, but it is harder to build, it takes longer. And your height limit is a big limiting factor. So it is a place we want to own, and we think it is a good place to own for the long term.

And Jon, finally from me, just looking at, you are coming up on your six-year anniversary, so congratulations on that. When you hired your team, one of the things you stressed was that this was unlikely to be a lifetime sort of job, that you were going to be opportunistic.

I'm looking at the multiples here. You're trading below several of the select service peers, you are trading 20% plus below NAV, 20% plus below what we think the assets, on a private market basis, would be. M&A is conducive to further activity. How do you think about it -- clearly, you can't be having as much fun as you were a year ago.

Yes. So based upon what you said, it sounds like we are pretty cheap, and a good buy. So we certainly would think that is the case.

So really not our job to be focused on value. We think about strategic issues, or major transactional issues, much more on a long-term basis than a short-term basis. And it is the buyers and sellers out there that will have an impact on short-term values, but we are more focused on long-term value creation.

And those who want to participate in that, maybe they will see a good opportunity. And those that are short-term focused, maybe they should be in Alphabet today, and not Pebblebrook. So that is the way we look at it, Bill.

Okay, thanks, Jon and Ray.

Jim Sullivan, Cowen Group.

Thank you. Good morning.

Jon, just to follow on the last question from Bill. I'm curious, when you think about the acquisition market -- this is something that was touched on, I know, in San Francisco. But given the negative revisions we have been seeing, are you tending to see the spread between the bid and the ask in the private market or the acquisition market widening? And what is your outlook for transaction activity, in that respect, over the next year?

I think for -- I think as we said, we are not terribly active in the market today, for obvious reasons. But I think when we -- as we see what is going on in the marketplace, I don't know that we have seen a change in values yet, in the major gateway cities. We have seen some thinning of the buyer pull, obviously, primarily REITs have, in many cases, dropped out on the pursuit side. But in many cases, it has been replaced by international capital today, that has a longer-term focus than maybe some of the domestic buyers do.

So can't really speak too much to the other markets, Jim, because we don't really monitor them. But at least as it relates to the Gateway markets, the buyer pools are a little more limited. But we haven't really seen any kind of material change in pricing.

Okay, then second question, and you may have touched on this earlier, so apologies if I missed it. But on the international inward-bound travel trends, you cited that the data flow that we usually get from the Department of Commerce has been disrupted this year, and is quite late.

But I just wonder if your sense is that that trend is deteriorating, is getting worse? Or has it stabilized? And as we think out toward 2016, any thoughts you have about where that is going to go?

I think we probably have seen it -- and again, it is anecdotal -- but we have probably seen it get a little weaker as the year went on. And we are coming up on -- either late in the quarter or in the first quarter, lapping the exchange rates from earlier this year.

Now, there may be some delay in the impact, just because international travel tends to be booked a little further out than domestic travel. But I think as we lap it, and we continue to see growth in global travel, we should see that pick up, certainly at some point next year. Unless the exchange rates continue to worsen, and/or the economies around the world continue to get weaker.

Okay, and then final question for me. You touched on the personnel turnover at the managerial level earlier. And I know we have talked about the impact of minimum wage changes in some of the markets, particularly in the West Coast. And that continues.

And I'm just curious, as you think about margin opportunity and margin pressure over the next year, to what extent is it going to be hard to resist an upward move in personnel costs?

Yes, I think we have been seeing upward trends in personnel costs, and they have been able to be offset with -- more than offset by productivity enhancements and cost reductions and best practice implementation for us. And so, from our viewpoint, we think that is likely to continue for some time.

Salaries of the top-level executives that are certainly likely to go up more than inflation, as the market becomes, and is, more competitive. It is a pretty small percentage of the overall cost base of our hotels.

So we have had relief from energy. We have had relief from insurance. We have had, and we should continue to have, relief from insurance, as long as there aren't any hurricanes or earthquakes of any material size.

We have had -- in general, we don't have a lot of our stabilized properties growing property taxes, to any great extent, because we have half of our portfolio in California. And prop 13 limits the increases to 2% a year, once reassessed on acquisition. So we have some benefit from that, on an overall basis, as well.

Good. Okay. Thanks, guys.

Jeff Donnelly, Wells Fargo.

Good morning, guys. Just maybe sticking on that topic, Jon, with margins. What sort of revenue growth do you think you need in 2016, to cover the growth in cost per occupied room?

And do you think there is a wide range of that, as you look across your markets? That the hurdle is materially different across markets? Or do you think it's fairly similar?

No, it definitely varies by market, Jeff. And -- but I -- we are just -- we haven't even gotten a budget yet for next year. So we don't really have any data to be able to answer your question.

You can see this year, we have limited our cost increases to 1.4% through -- I think it is 1.4%, right, through the first nine months? And that is with about a 4% increase in revenues.

Likely, that expense level would be higher than that next year. And also higher, assuming our revenues are higher than that. But some of the initiatives that we have, in terms of outsourcing restaurants, leasing them out, outsourcing other business within the hotels. All of those things are leading to greater productivity, and a mitigation of those cost increases we were talking about earlier, from a wage perspective.

I would expect our staff level wages to be up at least -- I would say around 3% next year, throughout the portfolio. And of course, benefit costs are running higher than that, probably mid to upper single digits, at least.

And just maybe going back to Bill's question on group pace, maybe you have the data out. Thanks for giving us Q1. Can you repeat what that group pace numbers are for Q3 and Q4? And maybe even tell us what Q2 of 2016 looks like, as well, just so we can see a figure, maybe ex-Super Bowl?

Yes, I can't repeat them, because I didn't mention them yet. But I will tell you what they are, Jeff.

And again, I -- this is a third for the whole year. The percentages get less and less for each quarter, obviously. And so I don't -- and again, keep in mind that we are 24% group in our portfolio.

So I'm not sure I would want you to read too much into it, from an industry perspective. You would get better information from some of the owners who have a broader group -- larger group and broader group properties. But -- and certainly from the brands.

But Q2 is up for us -- rooms are up 6.2%. ADR is up 8.5% Revenue is up 15.3%.

Third quarter, room nights are up 15%. ADR is up 22%. Revenue is up 40%.

And then we don't really want to talk about Q4. Q4, room nights are down 17.8%, ADR is up 6.5%, Revenue is down 12.4%. Again, the base of these numbers gets pretty small, as the year goes on, Jeff.

And you said those were 2016 numbers?

Those are 2016 numbers, yes.

Okay. No, what I meant repeat was, what were they for Q3 and Q4 this year?

So we mentioned Q3 in the call. Room nights were down 11%. ADR was up 6.1%. Revenue was down 5.6% on the group side.

And for Q4, room nights are up 0.5%. ADR is up 2.4%. Revenue is up 3%.

Okay, thank you.

And for the year, if you care for the year, room nights are down 4%. ADR is up to 5.6%. Revenue is up 1.3%.

Great. Thank you. And maybe just switching gears, one last question.

With just Denihan, you have got an option to explore exiting your joint venture there in New York, obviously in late summer 2016. Have you seen your partner begin a process of maybe identifying someone to replace you guys? I'm just curious.

In the past, you have talked about it on earnings calls. And I just wasn't sure if you see any shift in there, thinking of what their options are.

Yes, our partner is open to finding a new partner, if we should decide to depart the joint venture.

But nothing that would lead you to believe this could be coming sooner than where your option currently expires or comes about?

I think our partner is motivated to not be in a position where the entire portfolio is sold.

Okay. Thank you.

So that would hopefully answer your question.

Understood. Thank you.

Wes Golladay, RBC Capital Markets.

Good morning, guys. You talked about how hard it is to forecast the current quarters. I imagine it is pretty hard now to revenue management the properties, as well, through the change in dynamics.

How good -- how hard is it to find a good revenue manager these days? And what is your progress on that front?

Yes, so we are actually in pretty good shape right now, on the revenue management side. Though we -- as I mentioned earlier, we have had fairly significant turnover within the portfolio.

And we have been pretty successful in being able to find good revenue managers, because of the quality of our assets, and the interesting nature of our assets, and the kind of culture there is with our operators. So I think right now, we have two vacant positions within the portfolio, which would be pretty typical, on an ongoing basis. And one of those is for the Zeppelin, which -- the hotel is going to close November 1.

Okay, thanks a lot, guys.

Thanks, Wes.

Lukas Hartwich, Green Street Advisors.

Thank you. Good morning, guys.

Can you talk about what you are hearing from the corporate customers in the tech industry? Are you hearing the tone change at all?

Not at all. No, they are all still growing like mad.

So we have started the RFP process. We look to be getting very healthy increases in the tech markets of LA, Santa Monica in particular, San Francisco, Seattle, Portland and Boston. So everybody pushes back on rate increases in corporate negotiations, but they are going to end up pretty healthy in those markets. And we continue to see increased volume out of our technology accounts.

That's helpful. And then also, given where the stock trades right now, the discount, I'm curious how you guys are thinking about asset sales?

It doesn't really change our thinking per se, Lukas. Again, short-term evaluation of the stock is not really a good -- it's not a good criteria to make long-term decisions on. So we're focused on disposing of properties that we ultimately think aren't going to grow and increase in value at a healthy level, or are meaningful laggards within the portfolio.

Great, that is it for me. Thank you.

Neil Malkin, RBC Capital Markets.

Hello guys. Good morning. Just a couple of follow-up questions.

First off, with your guidance reduction, how much of it is a function of Pebblebrook asset-specific issues, versus more macro demand uncertainty?

It is a combination of the two. There is definitely some impact we are seeing within our portfolio, as we have said, of acting on our strategies to change our customer segments, to drive rates and bottom-line profitability, with a willingness to give up occupancy. And not grow revenue as much, but reposition the property to ultimately grow the bottom line in a much more significant way.

And we laid that out in our investor day. We would certainly urge people to take a look at what we laid out for the properties that we bought last year, and how that is leading to healthy growth in bottom-line profitability. Some more quickly then others, as we change the customer segmentation, and in some cases, change the customers completely.

Some of it is slower ramp-up from renovations, as I indicated, related to WLA, in particular, but Zephyr, as well. And then the rest of it is -- would be cautiousness about industry trends. And a macro soft patch, which we will see if it has an impact on travel or not.

Okay. And then second question is on -- you talked about technology, people having more pricing transparency, real time, things of that nature.

Do you think a way that you can [combat it on] year end, in addition to over-booking, is trying to build up your business transient base? Or maybe give some sort of advantage to booking farther out, from your more higher-rated customers? Just so your property managers have more confidence to raise rack rates, or more shorter-term walk-ins? To combat the people balking at your booked rate, when prices go down?

Yes, there's a lot of different strategies, depending on the particular property. But some of the ones that we are using relate to what you described, Neil, which is trying to build a better base. It would not typically be corporate transient, although you can certainly expand your corporate accounts, in order to get more volume, ultimately, into your property.

But it is really about getting -- in many cases, about getting a slightly larger group base on the books. Or getting a group base further out on the books, and not be subject to the short-term volatility, where a group may or may not show up in the short-term.

So it is about getting a base, in some cases. In other cases, it is about over-booking more, understanding that there are going to be more cancellations. In some cases, it can be about trying to understand, further out, what are your high loyalty redemption days? And not waiting until the last minute to get the last 5% on the books, trying to do that further out.

In other cases, it is using a guaranteed rate. So non-refundable rates that might, further out, be a 5% or 10 or 15% discount off your bar rate. So a lot of different strategies that we are using, depending upon the property.

Okay. Great.

And then real quick last question is, you are losing some market RevPar share in San Francisco. I'm assuming -- or what you alluded to. And I'm wondering if -- does that poke a hole in your experiential stays -- trump everything else? Or is it the fact that -- you can get a lot of good Yelp reviews, but if the price is too high, the leisure person just will pick somewhere else to stay?

Is that -- does that poke a hole in that thesis? Or is the reason you are losing share, at least temporarily, because of the repositioning or the turnover in key revenue-driving employees?

Yes. In San Francisco, a meaningful part of the share we have lost, as we mentioned in the call, was for the four properties that have transitioned managers. So -- and in one case, where we not only transitioned the manager, but changed the name of the property. So that share was a couple hundred basis points on our San Francisco performance.

Zephyr actually picked up share in the quarter, and it was all in ADR. So we picked up a little over 400 basis points of share. So good positive signs, in terms of the experiential side.

I don't -- we don't have any lack of confidence about the benefits of delivering a property that is unique and experiential. And that is what the customer is looking for, and willing to pay for.

We do lose some share, and did lose some share, within the portfolio, where we were lacking in the senior leadership out in San Francisco, which is in the process of being remedied. But we know that from just looking at the share side. So no concerns about the experiential side at all, Neil.

All right. Thank you for the color. I appreciate it very much.

And with no further questions in the queue, I'd like to turn the conference back to the CEO, Jon Bortz.

Thanks, Dana. Thanks, everyone, for participating, and we look forward to a better update next quarter. Thank you.

Again, that does conclude today's presentation. We thank you for your participation.