Greetings and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you. Please go ahead.

Thank you, Donna. Good morning, everyone. Welcome to our second quarter 2024 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer. Before we begin, please note today’s comments are effective only for today, July 25, 2024, and our comments may include forward-looking statements as defined under federal securities laws, and actual results could differ materially from those discussed today. For a comprehensive analysis of potential risks, please consult our most recent SEC filings and visit our website for additional details and reconciliations of any non-GAAP financial measures we use. Now let’s move on to our second quarter results. We are pleased to share that our second quarter bottom line financial results well exceeded our outlook. Overall, hotel demand met our expectations, driven by healthy corporate group, business transient and solid leisure demand across most of our urban markets and resorts. Our newly redeveloped and repositioned properties are also performing well, capturing market share and improving cash flows, in line or exceeding our ramp-up expectations. Our Q2 RevPAR increased by 1.7% and total RevPAR rose by 2.5%, both of which were in the middle of our 2Q outlook range. Operationally, our efficiency and cost-saving initiatives were more than offset inflationary cost pressures. With slightly better-than-expected property tax reductions, our intense focus on operating efficiencies led to lower year-over-year operating expenses, substantially boosting hotel profitability. As a result, our same-property hotel EBITDA exceeded the midpoint of our Q2 outlook by a range of $5.2 million and topped the high-end of our outlook by $2.7 million. Adjusted EBITDA and adjusted FFO also benefited from higher-than-expected business interruption proceeds related to LaPlaya, further enhancing our positive Q2 performance. We exceeded the midpoint of our Q2 outlook for adjusted…

Thanks, Ray. As Ray indicated, we’re very pleased with our overall performance in the second quarter. We successfully implemented many operating efficiencies across our portfolio, driving better than forecast and substantially improved year-over-year bottom line results. Our top line revenue growth was in the middle of our outlook range, yet we exceeded the midpoint of our outlook for same-property hotel EBITDA by $5.2 million and adjusted EBITDA and FFO by $10 million. These operating efficiencies are not one-time cost reductions, they are ongoing and should help mitigate future inflationary cost pressures. When we look at the industry results overall in the second quarter, while we’re encouraged by overall industry demand turning positive for the quarter, we’re increasingly concerned about gradually slowing ADR growth and a slowing economy. The Fed continues to keep its foot on the brake, and it’s clearly showing up in weakening employment growth, increasing unemployment, slowing consumer spending, increasingly restrictive interest rates, and a more cost-conscious consumer. As a result, we’re a little more cautious about RevPAR growth for the second half of this year, particularly ADR growth. As Ray indicated, business travel continues to recover, both group and transient. Leisure demand remains healthy and we certainly saw substantial increases in our portfolio, but leisure demand across the industry remained generally flat. Weekday pricing edged higher in our urban portfolio, while our weekend pricing at both our urban hotels and resorts suffered as we added occupancy at lower rates and as the leisure customer has become more price conscious. In our portfolio, we expect further year-over-year occupancy growth in the third quarter as well as continued pressure on our average rates. As a result of this continuing leakage in ADR, which earlier this year we had thought would reverse and turn positive in the second half of…

Thank you. [Operator Instructions] Today’s first question is coming from Dori Kesten of Wells Fargo. Please go ahead.

Thanks. Good morning. In your reduction for 2024 RevPAR growth, can you dig into if certain markets drove an outsized amount of that reduction or if it was more of a high-level cut for greater price sensitivity of the leisure guests and potential slowing in just general demand?

Yes. I mean, I think it’s – the reductions in demand, it’s really not demand, but it’s really the resulting reductions in ADR as we sort of regrow our distribution channels back to where we were pre-pandemic. But the biggest impacts are falling on weekends and they’re falling in some of the underperforming markets like Portland and San Francisco and LA, and to a lesser extent, in the resort markets.

Okay, thank you.

Thank you. The next question is coming from Floris van Dijkum of Compass Point. Please go ahead.

Thanks for taking my question guys. I had a – I guess, a question on EBITDA. I know everybody tends to focus on RevPAR, but you’ve provided a presentation that talks about some of the upside in EBITDA. I think you talk about $108 million of hotel EBITDA upside. A big chunk of that is your urban. Maybe, Jon, if you could give us a little bit of, in your opinion, I know that there is a 3 to 4 year time horizon with that. But what are the elements that need to happen in your view to get the urban EBITDA to increase significantly? And is it return to office? Is it – what are the – is it greater travel demand? Is it – what are the key things that you are looking at that’s going to give you that comfort to get to that big delta, particularly in your urban EBITDA contribution?

Sure. So, a meaningful part of that upside in EBITDA comes from the returns on the investments we made in the portfolio in terms of redevelopments, upscaling properties to the luxury level from upper upscale, adding outlets and other revenue generating components, amenities, etcetera. And we’re pretty confident in the ability to drive those cash-on-cash returns based upon our experience, not only over our time at Pebblebrook, but the 12 years at LaSalle, where we did a similar strategy. As it relates to the cities, I think it’s clear that there are cities that created issues or had issues created during the pandemic and other cities that didn’t. You can look at – take a look at the positive performing cities like Boston, as an example, which has a lot of similar underlying economic strength as San Francisco. It’s got a strong education system, it’s got a strong venture capital and sort of creation culture and a willingness to fail. It’s got strong technology and biomedical in the markets. But it didn’t suffer a sort of quality of life degradation that occurred in a market like San Francisco. And so, a lot of that was policy driven. Some of that is, I suppose, weather. Weather is a little more difficult in Boston year-round than it is in San Francisco. Some of it has to do with governmental policies. And as those reverse and as these markets – as these cities recover in terms of not only the actual quality of life in the city, but the perception of it, which often takes longer than the actual, we’re confident that these great cities like San Francisco and Los Angeles are going to recover as strong markets like other cities that haven’t been as impacted. All of these cities suffer from the…

Thanks, Jon.

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

Thank you, and good morning. Maybe going back to the consumer, when did you begin to see higher-end consumers become more price conscious? And what is your level of concern that businesses begin to pull back? And then, in addition, out-of-room spend has been strong, but is that something that could begin to soften with a more conscious customer?

Yes. So, we talked about this a little bit on the call 3 months ago, and we said, we’ve seen it. It’s very evident in the lower, and we’re concerned that it’s not unusual for this to bleed, ultimately bleed into the upper upscale and luxury segments. And that’s what we’ve seen to some extent in the third quarter. And so that’s when it started, Ari. Where it goes from here? I mean, I listened to Robert Isom from American Airlines on TV this morning. They’re seeing – he made comments about the same thing, about a more price-conscious domestic customer. And it seems fairly prevalent in other industries as well. So, sometimes we look at these things, and we say, okay, it’s not happening here yet, but it’s happening elsewhere, we should expect it to happen here, and that’s what we’re seeing. And to your question about out-of-room spend, I think as it relates to the leisure customer, wouldn’t surprise us at all if we see some softness. The one area we’ve heard from our properties is that liquor sales are down compared to last year at a number of our properties. And our intuition tells us that, that’s related to exactly the question that you’re asking, which is, I mean, for most people, liquor is discretionary, and they can trade down as well from high-end liquors to lower-end liquors or mid-scale liquors, and they can do the same with beer and wine. So that’s likely what we’re seeing. It’s just not material for us to be spending a lot of time focused on it.

Got it. And then just on the business side of things, is there a level of concern that you begin to see some weakening in that segment?

Well, there’s always concern about that when you’re seeing a slowing in the economy. Businesses, it’s not unusual for businesses to respond and begin to limit travel. We – again, we’ve not seen that yet. We look very closely at that. We monitor that. We talk to our property teams and our sales teams about what feedback they’re getting from their corporate accounts. We’re looking at the volume of our corporate accounts, which continues to increase at this point as it recovers from the pandemic. We’re not seeing any increase at all in attrition and cancellation across the portfolio. And so, at this point in time, we haven’t seen anything on the corporate side or the business side, either in group or in transient, which actually are going in the opposite direction so far. They’re continuing to improve, but it wouldn’t surprise us if it slowed down.

Got it. Thank you.

Thank you. The next question is coming from Duane Pfennigwerth of Evercore ISI. Please go ahead.

Hey, thanks. Appreciate the time. Just from super-high level, from a repositioning and renovation perspective, what would you view as Pebblebrook’s key growth drivers into next year?

Well, I mean, the key drivers are clearly the redevelopments that we’ve done, whether it’s Newport Harbor Island Resort, it’s Estancia, it’s Jekyll Island Club Resort, it’s the Margaritaville in San Diego Downtown, it’s the Hilton Gaslamp. They’re all ramping well. They’re picking up new demand. They’re gaining share. They’re improving their pricing. They’re burning through lower group rates were on the books as they put higher rated group on the books with the higher-quality product. And that would apply to many of our more recently renovated properties like Chaminade, like 1 Hotel, San Francisco, even the Westin and Embassy Suites in Downtown San Diego that were completely renovated and repositioned back in 2019 into 2020. So I think that’s the most reliable driver. We’ll gain share regardless of the economic environment. We can gain more share and we can grow to more stabilized returns if it’s good times and demand is growing, and it will take longer if demand growth is slower or if we have an economic downturn. So that’s the main driver. We continue to have a big opportunity, as I mentioned in the three underperforming markets this year, San Francisco, Portland and L.A. as production comes back in L.A., which we continue to hear encouraging things about it as the last strike, that was the last contract for the production workers was resolved in L.A. And then Portland, we think has hit bottom, but most of the decline we’ve seen this year has been rate because of very competitive pricing on the part of properties below our luxury collection names in that market because demand is not growing.

And Duane, also just to add into that, which we don’t normally think about redevelopment in this bucket, but LaPlaya in Naples, that’s coming on strong. That should be a – serve as a tailwind in ‘25 from a hotel EBITDA perspective. And as we noted, we’re ramping up the forecast this year and next year, we’ll have a full season there. So that should be another hotel tailwind. Now the BI impact may be a headwind because presumably we’re not going to have as much beyond ‘25, but certainly from a hotel operational side, LaPlaya should be another headwind in addition to our redevelopment properties.

Thanks. And if I could ask a follow-up, just on the channel commentary and maybe we’re making too much of it, but I thought your comments about like new travel consortia were kind of interesting. What are these new channels that you’re utilizing and how did the economics compare to a traditional OTA? Thanks for taking questions.

Sure. So a couple of the channels, as an example are, Capital One has started their own hotel and travel business like American Express. And Costco has done the same. Obviously, Costco has a huge membership base. Capital One has a huge card base, and they’re taking advantage of their loyalty. And we find it attractive because we find that the cost and the pricing is more attractive than the OTAs. So, if anything, these are a dis-intermediary to the OTAs, and frankly, providing a nice relief of competition to what are – what is a monopoly or an oligopoly by the two OTA companies.

And then Duane, also, we look at the consumer for AMEX and Capital One card users, they also skew to a higher level average income of those users. So also they can spend lot more in the property too. So, it’s a good consumer to come on.

Well, evidently, that’s the case with Costco, too. So – because if you buy one package there, it’s a lot bigger and more expensive than anywhere else.

Thanks, guys.

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

Good morning, guys. Appreciate the time. Ray, if I could start with you, if you go back to your guidance 3 months ago and compare it to the new guidance today, if you could just attribute the change, the delta relative to three items; lower property taxes, higher BI and the favorable variance on property insurance renewal rates versus what you had previously anticipated in guidance. You don’t have to do it individually, but if you could bucket the three of them and tell us how much that impacted the change to the guidance?

Sure. Well, versus 3 months ago, so property taxes are easy. We’re expecting some. They came in about $1 million higher. So that was a little bit better for the guidance switch. And then the BI, ultimately is about $3 million higher as well. So, it’s $4 million and $1 million between the two items there. And then on the property insurance, we’ll get a few hundred thousand dollars a month in savings versus what we were expecting before. We weren’t anticipating a 5% overall increase. So, it was a kind of mid-teens, little bit higher. So overall, a little bit better. So that accounts for some of it. And then look, the other half of the guidance change is the operation efficiencies that we’ve built in. And that was close to $3.5 million to $4 million. So, that accounts for actually the bulk of it. The property taxes are just a – actually a smaller part of the operating savings versus what we expected 3 months ago.

Yes. Perfect. Jon, if I could ask you two quick industry kind of big picture questions, I’d appreciate it. Number one, on the leisure traveler pushback on rates, is that, you think, driven by the new total cost disclosures related to the kind of so-called junk fees, maybe kind of a shock value that’s going to take some time to work its way into the consumer psyche? And then the second question is really about supply, which remains – new supply, which remains low. But at least two of the third-party data providers are starting to call for a significant – they’re seeing a significant ramp in new starts. And I’m just wondering whether your outlook for kind of 4 or 5 years of very low supply, whether that’s changed at all?

Sure. So, as it relates to the disclosure, the short answer is no. We don’t think it has anything to do with that. We think it’s the overall economic environment, and we really haven’t – we have places where we have that disclosure and places we don’t. We haven’t seen any difference in consumer behavior. And again, it’s not about – it really isn’t about booking per se. It’s not like they’re looking at it and booking elsewhere. We’re doing more promotions to drive that additional occupancy because the occupancy at the margin is more price sensitive. So it’s things we were doing before. We’re just doing more of them now. And we’re going through some – more of those discount channels that we used prior to the pandemic, which we hadn’t used until the back half of last year and into early this year. I think as it relates to your supply question, first of all, I don’t think that the groups are particularly good at forecasting supply growth. I think what supply growth we are seeing is generally smaller, select service or extended stay, mid-scale and down. We’re not really seeing anything start in the major cities, and we don’t think anything is going to start in the major cities for a number of years to come. And given the 3 years to build, 2.5, 3 years to build at a minimum, we still feel very comfortable with a 4 to 5-year period. Same thing for resorts, Bill. They’re larger, they’re very difficult to get build. The process has only gotten harder and more challenging in the last 5 to 10 years. And we’re not really seeing starts in that area, certainly not in any of the major markets like South – like Southern California, like the Keys, as an example. So we still feel good about a very, very limited supply growth over the next few years.

And then, Bill, we regularly update in our investor presentation, in our deck, which we updated last night. We take the data about these third parties, and we go through and actually verify, is it real or is it just – lot of this is, frankly, garbage in, garbage out. But if you look at the supply forecast, we have lease rates that our markets, it’s hard to talk about the markets we’re not in, but in our markets, the 3-year supply growth that we’re forecasting right now is at about 50 basis points a year in weighted average. Now that’s about third of where it has been pre-pandemic. So, at least we can feel better about those numbers, other markets and whatever some third parties reporting can’t verify that. But we feel good about our internal data and the fundamentals going forward here.

Great. Thank you both.

Thanks, Bill.

Thank you. The next question is coming from Jay Kornreich of Wedbush Securities. Please go ahead.

Thanks. Good morning. I believe you mentioned that June RevPAR was up only 0.4%. And so, I’m wondering what may be slipped in June that caused such a deceleration for May? And if you’re seeing that negative trend continue into July, which may be supported the guidance RevPAR decision?

Yes. So, Jay, I mean, keep in mind that we have 46 properties in our portfolio, and we’re not – don’t have hundreds or thousands that either the brands have or that you see in the industry data. So, our markets tend to get impacted by specific events that go on in that market each month as much or more so than the overall economic events that may be happening. So there was – we talked about this on our call in April. May had always set up as a very strong month, an unusually strong month compared to the months around it. So I wouldn’t look at May as any trend there. I think it – particularly for our portfolio, but I think even the industry, it just had a better convention calendar overall around the country, probably partly because Juneteenth in the middle of June, which this year fell dead center on a Wednesday, really killed that week overall. And so, that was a big part of the difference. But I think in a way, May was maybe more of an anomaly than June. I think we’ll continue to see between 1% and 2% growth for the industry on average over the rest of the year. And as ADR growth kind of slides a little bit gradually. And we don’t see a big pickup in demand in the second half of the year, though we do have good months like August and September versus a month like July that we think will be – right now, we are running to achieve about a zero to minus 1% RevPAR in July, but August and September are significantly positive in low-single digits. That would bring us up to our 1.25% to 3.25% outlook for Q3. So, for us, months bounce around and I wouldn’t – we will talk separately from the data about the trends. And hopefully, you can glean what’s going on from that versus this sort of instability and volatility and variability of week-to-week and month-to-month data.

Got it. That’s super helpful. Thank you. And then just one more, a lot of the commentary as you were just describing is largely based on the rate slowdown, but occupancy holding up relative to your previous expectations. I mean how do you think about that? Does that make you feel like some people still want to travel just at a lower cost? Do you maybe have any levers to support RevPAR versus if there was occupancy, which was slipping, but ADR holding up or just how do you think about that dynamic?

Yes. So, I mean we like ADR more than we like occupancy, but we got to have both. You can’t get ADR growth without the occupancy strength. So, everything always starts with demand. And we are encouraged by the demand turning positive in Q2. Hopefully, that holds up in the second half of the year. But again, we are concerned about the macro. As it relates to how do we deal with it, I mean part of the way we deal with sensitivity to pricing is to do what we did in the third quarter, which is drive more demand that will drive more total revenues in our properties through some use of other channels, through additional discounting and promotions without lowering our base prices, but having sales, whether it’s a flash sale or it’s a weekly sale or whatever it might be. So, we are focused on that. The other thing we are doing as we get a better view of how trends around holidays play out and how these trends move is, we are trying to press up rates where we do see this compression around non-holiday impacted weeks and try to take advantage of those more than perhaps what we and the industry have done historically. So, that’s the sort of other way to respond and take advantage of where demand is healthy and drive a little bit more rate growth in those pockets.

And Jay, just to add just a detail on your first question, in addition to the Juneteenth impact that Jon mentioned, don’t forget we had storms in the beginning of June. So, that had about a 50 basis point impact on RevPAR in June. So, if you look at the storms combined with Juneteenth, RevPAR in June would have been well over 1%. So just, I want to draw a conclusion of May to June and then therefore, July as always is worse. I know there is a tendency to do that, but just know, as Jon mentioned, there is a lot of noise month-to-month, and a lot of things that could benefit or detract in any given month.

Okay. Thank you very much.

Thank you. The next question is coming from Smedes Rose of Citibank. Please go ahead.

Hi, This is Maddie Burgess on for Smedes. I just wanted to ask about the Meridien Santa Monica conversion to Hyatt for Marriott. Can you just talk about the process at all? Was either party willing to provide key money to facilitate the conversion, or I guess the Marriott’s case, keep the property in the system?

Yes. So, I mean we went through a process, but I think the advantage in this particular case, the reason we chose Hyatt is the lack of competition on the west side of LA. I mean it’s – it even goes beyond just the fact that there are no Hyatt family brand properties of any kind in Santa Monica and Marina del Rey, which is really the competitive market there. There is also no beach properties all the way down to, gosh, it goes pretty far and going east. There is nothing until, from a Hyatt perspective, until you get to Century City. So, it’s a very attractive area. It’s a very difficult market for brands to get into. There is little to no new development. Hyatt felt, I am sure you can ask them, but they felt that this was – this would be strongly beneficial to their family of brands to have a property, in fact, a good sized property in good condition in the Santa Monica market. And so, we entered into an attractive franchise arrangement. We indicated there was key money. We were already doing a refresh. That’s why our design plans were, frankly, all completed already, and we were ready to order furniture. We just wanted to make sure that Hyatt was okay with it. And in addition to that, there are some things related to the Hyatt Centric brand that they wanted to add, mostly OS&E and some additional refresh in a couple of areas we weren’t otherwise focused on, so very attractive for both players. We think the property will do exceedingly well because of Hyatt’s strength and also because clearly, the lack of competition in the area.

Great. Thank you.

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

Hi. Good morning everybody. Thanks for putting me in here. So, Jon or Ray, I wanted to go back to the EBITDA bridge, Slide 7, I think from the slide deck. And apologies, I joined a bit late if some of this is a bit of a rehash. But just, if we just start with the starting point of same-store portfolio around $350 million and then we add, I think this year’s anticipated contribution from LaPlaya. And Ray, correct this number, this may be where we are off a little bit. I think that’s around – expected to be around $24 million. And then we look at the total guide for the year, which now the midpoint is around $355 million. It suggests a pretty decent headwind on the core portfolio, probably around mid-single digit. And just kind of wanted to, A, validate is the bridge correct, or are there any other like moving pieces in that? Just as we kind of think about the leverage point in the business, again, get it that RevPAR is now only measured to be up 1.5%. But is that kind of the right spread if RevPAR is in this 1% to 2% range, is a mid-single digit decline the right core headwind or can we do better than that, just based on some of the expense pressures you see in the business?

Well, first on the numbers for LaPlaya, that’s correct for ‘24. And again, what we believe the stabilized EBITDA for LaPlaya is around $35 million. But we are not necessarily going to get there and don’t assume we are going to get there in ‘25. But our hotel team and our asset manager are hyper-focused on that and we think we will have a good kind of ramp up there. And then, just to be clear, the midpoint here of our guidance, $355 million midpoint, that excludes LaPlaya because it’s not the same property. So, when we provide that kind of midpoint range, that’s really the same-property data and also some – that does include some quarters for Newport as well. So, there is a little – just kind of noise there. But we still are confident with the bridge that we are going to get there. We would have put it out. We would have modified it if we thought it was coming out differently. Now, maybe there is a little speed bump here with what’s going on with the economy. Is this short-term, is it run into a – do we have a harder landing than expected because what the Fed is doing or rather not doing, we will have to see how that goes. But as we have seen this quarter here, the ROI coming from the redevelopments, that was very strong on getting a lot of that back. The urban recovery is coming faster in some markets than others. So, it may take a little bit longer, as we said before, in some of those markets. But certainly, the ROI redevelopment and then the LaPlaya seems to be moving probably at a quicker pace than some of the urban recovery in some of the markets like Portland, San Francisco and LA, which we talked about earlier in the call, you missed.

But I think – hey Shaun, when you think about the revenue growth in the second half, with revenue growth at the upper end of the ranges, mid to upper end, we probably have a positive EBITDA growth. And if we are in the middle to the bottom of the range, we are probably going to have negative EBITDA growth. So, we have had good success with reducing our expense run rate. We are continuing to focus on that. We do have some real estate tax comparison headwinds in the second half that show our expense growth percentage higher than it otherwise is on a run rate basis. So, hopefully that helps give you a perspective on how the portfolio, the core portfolio outside of LaPlaya and Newport is doing.

Great. Thanks and Ray thank you for the clarification. And then my follow-up here – but dovetailing on Jon, with some of the comments and even your comment earlier about the liquor sales, which is interesting is, one theme for Pebblebrook for a long time, and I think certainly for much of the industry, post-COVID has been probably the outperformance of, let’s call it, TRevPAR, right, the Total RevPAR relative to just the rooms piece? As you make a comment like what you are seeing, again, from a guest behavior standpoint, possibly some trade down from, let’s call it, suites to regular rooms, just that difference in activity or that elasticity from the customer, does that leave you in a spot where TRevPAR could actually be trailing RevPAR? Is that a risk at all? Are there other levers you can pull to offset that? Again, you are probably the most creative team we talk to in terms of kind of thinking about the guest experience holistically and in different ways to – I think to monetize that. But just kind of how do you think we are in that, let’s call it, that non-RevPAR piece of the revenue cycle right now?

Yes. I mean look, is there a risk, it could be lower. I mean there is always risk. I think it’s very, very low. I think we are – for a bunch of reasons. I think one is, we have raised prices. We have added additional charges that drive other revenues. Those are levers that we have pulled in the past. They can continue to be pulled on an ongoing basis. We have re-merchandized a lot of our properties that we have redeveloped. We have added outlets. We just came back from Estancia. We have more larger, luxurious cabanas. We created cabana rooms that surround the pool. They generate more revenue. We have a lobby bar, indoor and outdoor at Estancia. That’s in addition to what we were already there, and it’s not taking business away from the other outlets. And it draws people from the community into the property. These are things we have done. We have added event lawns or increased the quality of them to make them more attractive for weddings and business events. We are adding rooms in different places. But take Skamania, where we have added two cabins, two, two-bedroom cabins, a three-bedroom villa, and five luxury glamping units, and they run on average 2.5x the average rate of the property sold in the lodge at Skamania. So, there are a lot of things we are doing. But I think we are pretty confident, and I think our other revenue is growing significantly faster in the second half of the year than our range for RevPAR.

And also, Shaun, a big part of that too is, it’s not just the rates that are declining or maybe the leisure consumer being more sensitive, but the segment shift also has a big component and we talked about during the call, our corporate group demand is up 10% to 12% year-over-year. That’s about 13,000 more room nights with our corporate group. That corporate group generates a lot of banquet and catering business while they are there. In some cases, they will generate almost as much in food and beverage as they do in the room. So, that’s where – maybe that does offset some of the – and that’s a lower rate, but TRevPAR is higher. And if we are losing some of the more price-sensitive customers that may be using the OTAs, when we look at overall, what was that customer producing on a profit basis, that corporate group is very attractive. So, it’s also the segmentation shift which is having a change. But overall, that long-term, we think it’s helping, it’s encouraging.

Thank you so much.

Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.

Thanks. Good morning. Thanks for sneaking me in here at the end. Jon, just want to go back to the channels one more time. Can you maybe quantify how much lower are the net rates on these rooms that you are getting? Are these bookings still all occurring pretty short-term? And is there any way for you to tell? Are these new customers you are getting or are these existing customers booking through different channels? Thanks.

Hey Mike, just for clarification, what do you mean by net rate?

I mean more broadly, though, you talked about price sensitivity, presumably you are lowering rate or you are offering a fourth night free. What is the – how much lower is the net rate that you are getting versus what you maybe thought you were getting or what you were getting last year on these particular bookings?

Well, that’s all over the place. Depending upon what the promotional offering is, we do all sorts of promotions throughout the year. The biggest one we probably do during the year is Black Friday, right after Thanksgiving where everybody across the country does sales and we may do anywhere from 20% to 30% off around a Black Friday sale. But a typical promotion is probably in that range, Mike. And obviously, to the extent these promotions are generated through the direct channel, it’s kind of on a net basis, pretty close to or the same as what it would cost through an OTA channel to drive that additional business. So, obviously, there is, on a net basis, it’s lower, and that’s what’s impacting our ADR on an average basis or part of what’s doing it, are these new customers. For the most part, they are new customers. It doesn’t mean existing customers who are on a mailing list who we send offers to don’t take advantage of those offers. Sometimes, it’s additional demand from them. I guess sometimes it’s a booking we might have had already. So, we never quite know that at the end of the day and we may have the data on an anecdotal basis, but we don’t have anything on an overall portfolio basis. So, I think again, part – a big part of what we are doing is going through channels that we used pre-pandemic that we kind of dropped from using because we didn’t need it, we couldn’t service it for a number of years. And if other segments, more attractive segments were continuing to grow in a large – on a large basis, we would probably not participate in those segments like we are doing now. But it makes sense, given, again, the high rates our properties achieve, as well as the spend that we get from these customers when they are on property. So, I think it’s very profitable business.

Understood. And then compared to 2019, you are using these channels more or less as the same?

I would say we are probably still not at the same level we were using them before, with the exception of, there has been an introduction of a couple of consortia channels that I mentioned, Capital One, Chase even has one now, although we are not using it. Costco as well, that’s new. So, but the consortia channels are very attractive, and frankly, the net is probably higher than what we would be getting otherwise through – certainly better than anything we get through an OTA channel.

Helpful. Thank you very much.

Thank you. That is all the time we have today for questions and answers. I will turn it back over to Mr. Bortz for closing comments.

Hey. Thanks for participating again. We look forward to giving you an update again in 90 days. Have a great summer.

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