Greetings and welcome to the Pebblebrook Hotel Trust Fourth Quarter and Year-end Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ray Martz, Chief Financial Officer. Thank you. You may begin.

Thank you, Donna, and good morning, everyone and thank you for joining us today. With me this morning is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder, that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2019 and our other SEC filings. And future results could differ materially from those implied by our comments today. Forward-looking statements that we make today are effective only as of today February 21, 2020 and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use on our website at pebblebrookhotels.com. Okay, 2019 marked our tenth year as a public company and we wanted to take a moment to thank our shareholders as well as our hotel and financial partners for their strong support over the last 10 years. Not only have we achieved a lot over the last 10 years, we successfully moved the ball forward in many areas in 2019, following our corporate acquisition in late 2018. And on an operating basis, we outperformed the industry for the year. In 2019, total same-property RevPAR increased by 1.9%, adjusted EBITDA increased 87.8% and adjusted FFO per share increased by 7.3% to $2.63 per share, all of which were ahead of our expectations. Since November 2018 we also completed $1.33 billion of asset sales comprising 13 hotels at very attractive valuations with another $331 million of sales expected to be completed later this quarter. We also successfully completed 12 operator and brand transitions and invested $162.8 million of capital into our hotels, putting us in great position to continue to…

Thanks, Ray. As Ray noted, the fourth quarter turned out better than we expected. The rate of demand growth improved from the third quarter in both business and leisure transient even with the challenging October. We also saw some improvement in ADR growth in the last two months of the year, which we also just saw in the STR industry results for January. Perhaps eliminating or reducing trade tensions and uncertainties was the trigger for increased confidence in the improvements in the last three months. Unfortunately, with the emergence of the coronavirus and its impact on travel, we won't know whether this was the beginning of a positive trend or just a few good months. For 2019, industry RevPAR growth softened from the year before, ending the year just below the low-end of our original industry outlook of 1% to 3%. But as we forecasted, the urban and top 25 markets continued to underperform the industry. In the case of 2019, the urban market segment underperformed by the 100 basis points we had estimated at the beginning of the year and in the top 25 markets underperformed by 110 basis points. Supply growth for the industry remained constant at 2% growth, while supply in the urban markets increased 3.2% representing the primary reason for the underperformance of the urban markets. For Pebblebrook for the year, our RevPAR growth significantly outperformed the urban markets as we originally expected and we outperformed the industry by 30 basis points, which was a little better than our forecast. The successful ramp-up of numerous properties that we've redeveloped over the last few years was a key factor in this outperformance. With the exception of the unpredictable impact from the evolving coronavirus situation, we expect to continue to outperform the urban markets and perform in line…

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Rich Hightower of Evercore ISI. Please go ahead.

Hi. Good morning guys.

Good morning, Rich.

Good morning, Rich.

I just want to dig in quickly to the inflection points in corporate transient that you described and others have described kind of from November through the early part of January. And Jon I know you mentioned maybe some trade war headlines and Brexit resolution maybe contributed to that. But was there anything maybe more tangible that you guys saw in certain hotels or in certain markets that you can really ascribe to sort of the pickup there? And given that you're predominantly a transient portfolio, do you think you guys would be in a position to see if that is indeed a trend once we kind of get out of maybe some of the coronavirus impact in the near term? Would you guys be in a position to sort of call that earlier than most do you think?

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

Okay. That's helpful. And then maybe just on the asset disposition side of things. I know in the past you've mentioned that private equity and high net worth, I think have tended to be the predominant buyer pools for what you guys have been selling. So most of that's been one-off assets for the most part. Where do you peg demand for maybe portfolio trades among that same group at this point in time if you had any insight there?

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

Perfect. Thanks, gen.

Thanks, Rich.

Thank you. Our next question is coming from Smedes Rose of Citi. Please go ahead.

I just wanted to ask you a couple of questions around your projects I guess the scope of investment increases into 2021. So just in terms of I guess more sort of pronounced or stabilized earnings growth that's more of a 2022 event given that I assume you'll have a disruption in 2021 with these projects as well?

Yes. Smedes, we would expect a similar level of disruption in 2021. Again, give or take a couple of million dollars. As is the case as we're forecasting for this year, which is all of about $1 million different than last year. So all should continue to be about the same. And the total investment dollars should be about the same as well next year, even though the number for the projects looks higher. Some of those projects start in the fourth quarter of this year have a little bit of impact which is built into our numbers. And of course, if there's a lot of pre-start dollars that go out related to not only soft cost but deposits and orders for FF&E well in advance of when they would be installed in the 2021 project. So we think it's pretty smooth between 2019, 2020 and 2021 in total dollars out again give or take $10 million or $20 million and in disruption. But yes stabilization and the largest amount of unimpacted ramp-up would occur in 2022.

Okay. And then I just wanted to ask you on another call there was a comment that 2020 would be kind of seen as a year for peak wage and benefit increases. And I was just wondering do you see that as well? Or do you have any thoughts around that?

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

Okay. All right. Thank you very much.

Thanks, Smedes.

Thank you. Our next question is coming from Aryeh Klein of BMO Capital Markets. Please go ahead.

Thanks. There's been a number of management transitions over the last year or so are you comfortable with where you're at right now? Or do you think there's still more to come? And how do you think that headwind evolve maybe over the next year or so?.

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

Okay. And then on the branding side with the unofficial Z. How would you expect that to ultimately translate into performance of those hotels? And is there any incremental investments that are needed as that rebranding or branding kind of ramps?

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

Great. Thank you.

Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.

Hi, good morning, guys. I want to focus more on some of these brands kind of announcements of commentary. First on – on loyalty costs, you mentioned before that you're seeing growing loyalty cost of portfolio. It seems like you're not seeing any kind of RevPAR index benefit. How is the benefit of loyalty programs change over time? And do you see them as less valuable than you did before?

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

Got it. Thanks. And on your commentary on kind of the larger independent lifestyle brand I believe with 26 hotels. Obviously, there have been a lot of brand transactions over the past few years, but they tended to involve management as well. I'm guessing, this larger brand when not involve management given you have third-party managers. So can you talk – can you just talk through what kind of value creation you think may could result from this kind of larger brand effort you're not pursuing?

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

All very interesting. Thank you.

Yeah. Thanks, Anthony.

Thank you. Our next question is coming from Shaun Kelley of Bank of America Merrill Lynch. Please go ahead.

Thanks. Good morning, everyone. Jon a loyalty commentary was interesting that was one of my questions. So the other thing I had, was just to look at the urban side has continued to be sort of a little bit of a different supply curve than what we see across the nation broadly. And you guys from all your experience in these markets have pretty good insight on what that supply curve looks like. So the two-part question is, one, kind of any sense of peak activity just either as things get delayed or construction costs move up across the broader urban set? And then – so kind of how does that trend broadly? And then, probably more importantly for Pebblebrook's portfolio as you look out to kind of 2021, 2022 any sight line that I think the number you called out was 3.2% that that number starts to come down?

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

And Shaun, also add to that construction financing is also getting more difficult to obtain and it's really being more provided by a lot of these more local banks rather than larger banks, and although, if it's a convention center hotel. That's a different story. If I look at New York the number of defaults are already starting to rise on loans. And that should put a big pause to a lot of construction lenders out there, who are thinking about issuing a new commitment. When you see those headlines of defaults rising that somebody puts a pause and helps abate the supply growth.

And I do think it's the mezz players that are going to be taking the hits, where they thought they had a comfortable position ultimately with 20% or 25% equity above them. And I think the challenges in a number of these markets, like in New York, like a Chicago where your operating leverage is really driving down your bottom lines, as revenue is, at best, flat if not declining with expenses going up. I think you're going to be reading more and more about folks taking pretty big hits in the mezz positions. Again, not necessarily the construction lenders who maybe have been down in the 45% to 50% area of cost, but it's the capital above that that's at risk.

Thank you very much. It's a very good color. And I guess the follow-up would just be, when specifically did you see that starts number peak? I mean, I'm sure that's a kind of a time series data point. Was that sometime in -- within the last year and the last couple of months, just, that's a helpful data point?

Really back in 2018.

Back in 2018. Okay. So you're sort of already seeing some of the lag to deliver in that kind of two-and-a-half years. Is what puts you out to kind of next year?

Correct.

Great. Thank you very much.

Yes.

Thank you. Our next question is coming from Bill Crow of Raymond James. Please go ahead.

Yes. Good morning. Jon a couple of questions. The first one, does the push to get all the repositioning done by the end of next year say anything about your view towards 2021 or maybe 2022?

No, doesn't say a thing about it. It basically says there's significant attractive returns from these investments. It's the best place to allocate capital today. And the sooner we get them done, the quicker we get those returns. And in a number of cases, these are properties that need to be redeveloped. And if we don't put the capital in, they're going to continue to lose share.

Okay. On the rebranding, Jon, why is the Solamar better as a Margaritaville than it is a Z collection? And on the Vitale, I've known you for a long time and I don't think you've ever had a big desire to have five diamonds or stars or lucky terms, or whatever they are. It feels like this is more luxury than you have previously experienced?

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

All right. And then, just a housekeeping question. Given the pending sale of the InterCon. I assume that's taken out of your first quarter RevPAR growth guidance. What would it be if it was in, given the lapping of the Super Bowl?

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

All right. Thanks guys.

All right. Thanks. You have that?

Yes. So -- and, Bill, just a follow-up. So InterCon, if we included that for January and February, it's about $3.3 million to $3.1 million of EBITDA. And in March is about $1.7 million.

Yes. I don't think that's what he was looking for. They're always looking for RevPAR impact.

Do you want pull that, in terms of impact to earnings?

Next question?

Thank you. Our next question is coming from Michael Bellisario of Robert W. Baird. Please go ahead.

Good morning everyone.

Good morning.

Just on the Marriott- Starwood disruption that you guys experienced last year, have all those issues been resolved in your eyes? And then kind of what's the step-up that you're embedding in 2020 guidance?

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

That’s helpful. Thank you.

Thank you. Our next question is coming from Jim Sullivan of BTIG. Please go ahead.

Thank you. So just to follow-up on your discussion about branding. One thing that's interesting in going through your most recent presentation is, how much higher the EBITDA margin is for the Z collection than the rest of the portfolio. I guess, it helps to be in San Francisco and as you expand the collection into new markets. I'm just curious, whether that differential in EBITDA margin that's been running I think at 40% versus like 32% for the portfolio, how do you view that differential going forward? Do we expect that spread to moderate? And is it because -- is it the San Francisco share of the Z collection that's driving that? Is it everything else that you've been talking about?

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

And some of it, of course, you mentioned the clustering -- the ability to cluster operation to some extent. So, as we see the -- you expand into DC and, of course, you've opened as a Z collection and in Portland, the zags and we assume there's going to be a zigs big up there. Just curious whether we would -- whether you anticipate clustering more Z collection assets in these markets as you enter them. Is that part -- I mean there's certainly a customer focus that you mentioned earlier. But is that also part of the strategic plan for expanding the brand?

Yes. Okay.

Okay. And then finally for me you've talked about the issues with the Westin brand over a couple of years and I know there was a prior question that talked about whether you thought you were through the worst of it. Looking through the portfolio and the CAGRs on the EBITDA on, let's say, a trailing three-year basis. I don't think -- I think the Westin Michigan Avenue is probably the weakest asset. Can you just talk to us about your plans for that asset? And to what extent do you think you can -- you're going to be able to reverse that tide?

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

Okay. And then quickly a final question for me in terms of the balance sheet. Asset sale proceeds are being used to reduce debt -- lower coupon debt as opposed to higher coupon preferred. And if you could just talk about how you guys are prioritizing the use of proceeds? And what your target is now for net debt?

Sure. Well, we'll look to the options and depending on what our world is. So, we have two series of preferreds that are redeemable. We have also debt that we can pay down. We're getting our long-term target for leverage is in the debt-to-EBITDA ratio in the 4% to 4.25% level to the sales of these InterCon and sub-hotels that will put us -- we noted in the call around 4.4 times. So, we're in that range now. So, we'll evaluate what's the best use and the other use of proceeds in addition to reducing some leverage could also be stock buybacks. So, we'll also look at each of those, but we'll be opportunistic looking at it. And we'll -- as we make progress here in the sales.

Okay, good. Thank you.

Thank you. Our next question is coming from Neil Malkin of Capital One Securities. Please go ahead.

Hey, thanks guys. Call is going on for a while. So, I'm just going to do two questions like you asked. So, the last slew of dispositions has really been focused or concentrated in the D.C. market. Just wondering if there's a reason or rationale behind that? If it is a tale of kind of your view of that market? And then -- or does it have to do with particular buyer sets that had just been very active there.

Yes. So, it definitely has to do with our long-term view of the market. I mean we still are a fan of the market longer term, but we wanted to reduce our share of our portfolio in that market. And so that's where you've seen quite a few of the dispositions within the portfolio. You're also seeing us completely redevelop two properties in the market. So, we do continue to believe in the market. We think there's opportunity and particularly for certain types of assets, but we also think that it's probably a little bit more of a slow grower over the next five or 10 years than perhaps some of the other markets we're focused on.

Yes, that's helpful. I imagine it's a supply issue.

That's part of it. Yes.

Yes. The last one I have is when you're obviously putting a lot of capital to work over the next 24 months. Maybe if you could just run through sort of how you get comfort in those returns or yields -- the 10%? Like -- because if you think about it, the hotels that are approximate to that hotel, their rates aren't really going up. It's hard for you to say okay well our ADRs are going up like 8% or whatever. Is it that you are comfortable with the corporate meeting planners and there's such a large contributor to that? Or are there increases such a large amount that the potential minimal lift from the leisure customer, sort of, averages it out there. If you could just kind of go over that, because it doesn't involve a fair amount of risk just given the large amount of capital you're putting to work. So what gives you comfort in those returns?

So Neil, I mean we've been doing this for almost 20 years. And so one of the things that gives us comfort is our experience in analyzing the market and analyzing the customer base in the market. And understanding if we make investments and we do certain things to improve the properties that we can create a product that will drive in many cases a whole new set of customers to come to the hotel. So if you're taking a property that's 3.5 diamonds and you're making it a four or 4.5 diamond property. In most cases we have to go out and find all new customers whether it's meeting, whether it's transient, whether it's leisure, whether it's business and our comfort comes from understanding the market overall who would our new competitors be in the market. It's not rate -- it's not about raising the rate on the customers you have today. It's about saying look, we're going to in many cases abandon the customers that we have today. We're going to go find the customers who are paying these kinds of rates for this higher quality product with higher quality services than what's been provided in the past. So we go through and we look at the market, we look at those competitive sets. We look at the performance of their rates and their occupancies and their RevPARs. And we say this is where we think we can get to. In total, we can be competitive because we're creating a competitive product in a competitive location. And if we get those revenues and we get this food and beverage revenue because of the creative nature of the product we're providing then we can deliver the returns that warrant those capital investments. And that's pretty much the process that we go through. It's very scientific at the end of the day.

And Neil also, we provided historically all of our hotel EBITDA by property since our period of ownership in cases back to 2010. So you can look there at Zetta, Zephyr and Zeppelin. And a lot of these redevelopments we've done where we invested meaningful amounts of capital and how we're repositioning the properties and what the -- how it's benefit the bottom line. So we have the track record they were looking at too.

Appreciate that. Thanks guys.

Thank you. Our next question is coming from Gregory Miller of SunTrust Robinson Humphrey. Please go ahead.

Good morning, Jon, Ray. I am curious about what's going to happen to the Austria’s Villa Florence. I do have a more serious question on San Francisco for you. I figured out I soon might ask about the decision of Oracle moving to -- moving it to OpenWorld conference from San Francisco to Las Vegas at least through 2022. So I'll take the lead on asking the question. You haven’t been vocal in the past years on earnings calls about defending the San Francisco market. And I'm curious how you interpret Oracle's decision? And what they claimed as expensive rooms and poor street conditions and deciding to move to Las Vegas?

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

Thanks for the excellent insight there.

Sure.

I want to ask a quick follow-up question on Petrovina, this hotel is likely to have some very clear thematics and potentially politics from what I read and I'm curious how you came to the decision of creating the Zena thematic? And relatedly as a future Z, could a hotel like this or other Zs end up becoming their own sub-brands and other markets. What I've read so far, I could potentially see this concept for Zena taking off elsewhere?

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

Thanks. I appreciate the clarification on that.

Sure.

I appreciate all of the answers to questions.

Okay. Thanks, Greg.

Thank you. Our next question is coming from Wes Golladay of RBC Capital Markets. Please go ahead.

Good morning guys. Looking at the coronavirus has this changed the way you do the revenue management? And then you mentioned the guidance be and not including the coronavirus. But have you put in known cancellations such as Facebook in there?

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

Okay. And then you do have guidance for an $82 million gain for dispositions. Will there have to be a special dividend? Or can you mitigate that?

So, we'll be evolving that between the two sales, the taxable gain between InterCon and Sofitel is over about $160 million. So, clearly well excess of the dollar share. So, we'll evaluate we have means to look at worldwide deductions and so forth. And as I say the year transpires. But is a fairly good chance that it's some type of special dividend that could be needed, but we'll see as the year progresses.

Okay. And then one quick follow-up to Neil's earlier question, you're looking about the potential returns. When you do these big redevelopments, are you trying to get lost share and recapture the lost RevPAR index? Are you looking to move the hotels into a higher comp set? For the -- as a broad generalization.

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

Okay. Thanks a lot, guys. Thank you, Wes.

Thank you. We're showing time for one last question today. Our last question will be coming from Lukas Hartwich of Green Street Advisors. Please go ahead.

Thanks. I just have one. In terms of your dispositions and this is probably a mix. But how are buyers approaching these acquisitions? Are they planning on making major changes in terms of capital spend or operator? Or are they viewing these more stabilized assets?

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

Great. Thank you.

Thanks very much, Lukas.

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

Well, if anybody is still there, thanks very much for participating. We look forward to updating you in April. And for many of you, we look forward to seeing you at the Raymond James and the Citi conferences and the Wells Fargo conference over the next month.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.