Pebblebrook Hotel Trust (PEB) Q1 2026 Earnings Report, Transcript and Summary

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

Thank you, Donna, and good morning, everyone. Welcome to our first quarter 2026 earnings call. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer; and Tom Fisher, our Co-President and Chief Investment Officer. But before we begin, I'd like to remind everyone that our remarks are as of today, April 29, 2026. Today's comments may include forward-looking statements that are subject to various risks and uncertainties. Please review our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today. Now let's jump into the first quarter financial results. We had an exceptional first quarter with results well above the high end of our outlook across key earnings metrics. Same property hotel EBITDA increased 27.6% to $82.2 million, coming in $8.2 million above the high end of our outlook. Adjusted EBITDA was $73.3 million, up 29.5% from last year and $9.3 million above the high end. Adjusted FFO per diluted share doubled year-over-year to $0.32 and which was $0.09 above the high end of our outlook. So this is a very strong quarter by any measure. Even more important, performance is not narrowly driven. While we had a great setup, the strength was broad across the portfolio and their performance came from both stronger revenues and superb expense control. At the property level, same property occupancy increased 550 basis points, ADR increased 2.8% and RevPAR increased 11.8% and total revenue increased 10.1%. Same-property total expenses increased just 5.6% and driving 327 basis points of hotel EBITDA margin expansion. More than half of the incremental same-property revenue flow through to hotel EBITDA. That reflects the strategic operating initiatives we've been implementing across the portfolio that benefits from our investments in revenue generating in many avenues and strong execution by our property teams and asset managers. The strength extended across the portfolio with 32 exceeding revenue forecast and 34 exceeding GLP forecast in the quarter. In [indiscernible] was exceptional. While benefited from the Super Bowl and a large citywide convention that shifted into the first quarter, all segments, including business and leisure transient were incredibly strong and continue to recover. RevPAR increased a robust 44.5% and hotel EBITDA more than tripled from a year ago, climbing by $11.6 million. Losango also recovered sharply from last year's fire-related disruptions. With RevPAR climbing 31.5% and occupancy growing more than 16 points to 74.6%. Their improvement across LA properties is broad helped by a stronger lease demand and improving entertainment-related group and leisure activity and the ramp-up of our recently renovated and rebranded Hyatt Centric, Delfino in Santa Monica. LA's Q1 same property EBITDA increase, we captured all of the EBITDA loss in the first quarter from last year's files. While San Francisco and L.A. were standout in markets, they were far from the whole story. Our urban portfolio posted RevPAR growth of 14.3%, total RevPAR growth of 12.9% and EBITDA growth of 55.1%. City over Urban Hotels delivered RevPAR growth of 8.7%, driven by a 900 basis point jump in occupancy supported by healthy weekend leisure demand. Chicago also turned in a good quarter with RevPAR increasing 5.6%. Washington, D.C. was our most challenged market in Q1, with RevPAR declining 24.1% and reflecting a very difficult inauguration comparison and continued weakness in government-related travel, though we have seen some recent improvements. Boston was another softer market, with RevPAR down 3% and reflecting lighter citywide calendar, two major winter storms and the rooms renovation of Revere Hotel Boston Common. We expect both markets to improve in the second quarter given the better event calendars. Our resorts also had a very strong quarter, with RevPAR rising 7.5%, total RevPAR increasing 6.7% and EBITDA declining 13.9% and Reserve performance was driven by resilient user demand, healthy on-property spending, favorable holiday timing and the continued ramp-up of our redeveloped assets. We also benefited from an earlier-than-normal spring break, which pulled more spring break travel into March from April. Several resorts delivered double-digit RevPAR gains, including Newport Harbor idle Resort apply Beach Resort and Club, Skamania Lodge, Paradise Point Resort & Spa, [indiscernible] Day Resort and Asana Joya Hotel and Spa. Overall, first quarter demand was encouraging despite heightened geopolitical tensions and increased uncertainty around travel. User demand remained strong, business trends to continue to grow and recover and group was stable. Consistent with broader travel and spending commentary, visibility has shortened somewhat in late March, but we have not seen any material change in booking trends to date. Premium leisure and business travel have remained healthy to date. Weekday RevPAR increased 9.7% overall and 12% in our urban markets, while weekend RevPAR increased 15% overall. Weekend leisure demand remains healthy but the improvements in weekday demand is equally important as it reflects the continued recovery in business transient and group travel and creates more meaningful earnings power as Orbis occupancies rebuild. What losses put out this quarter was the quality of the revenue growth. [indiscernible] revenues again grew up nicely 7.6% overall. Food and beverage revenues increased 7.4% and outlet revenues were up 10.2% and bandwidths and cater revenues increased 4.8%. Guests were not only staying with us in greater numbers. but they are also spending more on property, and that is exactly the kind of revenue mix that supports increased profitability. On the expense side, our strategic operating initiatives again delivered this quarter. Total expenses rose by only 5.6%, while total revenues increased 10.2%. Freediverage revenues rose 7.4%, while food and beverage expenses increased just 3.7%. Sales and marketing expenses, excluding franchise fees, grew only 3.9%, while energy costs actually declined 2.8%. And on a per occupied room basis, total expenses declined 2.8% and total expenses or fixed costs declined 3.2%, demonstrating the favorable benefits of the operating leverage in our portfolio. We are generating more efficiencies from improved labor productivity and technologies, tighter cost controls and continued benefits on property level efforts to reduce energy and water consumption. Some more simply, as revenues improve, our portfolio is flowing more of that upside to the bottom line than it did a year or 2 ago. At a quick point on onetime items because it is important to put this quarter is in a proper context. The Super Bowl contributed about 215 basis points to same-property RevPAR and the recovery loss angles contributed another 285 basis points. Offsetting those benefits, the 2 winter storms reduced RevPAR and by about 115 basis points and the difficult inauguration comparison in Washington, D.C., we reduced it by another 105 basis points. Even after adjusting for those items, same-property RevPAR still grew by roughly 9%, underscoring the overall strength of the quarter. This strong underlying performance translated into higher free cash flow and greater financial flexibility. On the capital side, we invested $11.9 million to our properties during the quarter, including guest room renovations at [indiscernible] and Reversal Boston Common, both of which are now substantially complete. For the full year, we still expect capital investments of $65 in $75 million, which represents a much more normalized run rate and an important tailwind for higher discretionary free cash flow and greater flexibility for debt reduction and share repurchases. We also completed the able first rebranding of Mondrian Los Angeles into the Valor Los Angeles, Perception by Hilton. We believe that strategic change has and will create value for the property, rebranding as an independent franchise hotel with Inturio leverages Hilton's distribution platform pairs it with a strong hospital style operator in Pivot and preserved the distinctive character of psychotic hotel, and we made this change in no cost as franchise-related key money funded the changeover. We appreciate the partnership with both helping and pivot during this strategic transition, and we are excited to work together to drive improved performance at this important property in L.A. Moving to our balance sheet. Our net debt-to-EBITDA ratio declined to 5.5x from 5.9x at the end of last year. We ended the quarter with $24.6 million of cash and restricted cash along with roughly $641 million of capacity on our revolving credit city. Our weighted average interest rate remained a very attractive 4.1% with approximately 98% of our debt effectively fixed and 98% unsecured. As of the start of the year, we've repurchased over 400,000 common shares at an average price of $12.11 per share. higher EBITDA, improved debt metrics and strong liquidity all moved in the right direction. Stepping back to the first quarter takeaway is clear. Despite heightened macro uncertainty and risks, the quarter demonstrated stronger demand across both urban and resort markets, healthy revenue quality and dispense control. At the same time, we're not assuming the balance of the year will be as visible as the first quarter. Recent events in the Middle East higher fuel prices, more fall off more and broader economic uncertainty, cook pressure, travel demand and booking patterns. However, based on our current booking trends and broader travel and spending commentary, the demand environment remains constructive, particularly for premium leisure and business travel. So while we feel really good about the first quarter and the underlying trend line, we remain appropriately cautious on the balance of the year. And with that, I'd like to turn the call over to Jon for more color on the quarter, the financings that we're seeing across the portfolio, the broader industry backdrop and our outlook for the balance of 2026. Jon?

Thanks, Ray. In our last earnings call, just 60 days ago, we laid out the extremely favorable setup we were looking at for 2026. We also provided a robust outlook for our portfolio for Q1, but a cautious outlook for the rest of the year, given our experience in 2025 with major policy actions, geopolitical events and weather events that negatively impacted us in a material way. Our concern about major geopolitical risks prove warranty. As the conflict in the Middle East began just 48 hours after our earnings call. To summarize the setup for 2026 that we discussed, we have easy comparisons to a year that was negatively impacted by a number of policy and geopolitical events. We have a favorable macroeconomic environment and a uniquely strong events calendar particularly in our markets. We have the best holiday calendar we could ever remember. There is very limited supply growth for 2026 and beyond. And we maintained our view that hotel demand would re-correlate to GDP, absent major policy or geopolitical surprises. In our markets, we highlighted that San Francisco's recovery will continue to build Los Angeles would benefit from Espie related comparisons. Washington D.C. would benefit from easier government-related comparisons passed the tough inauguration comp and our recently redeveloped and repositioned properties were likely to continue to rain. We also believe our upper upscale and laundry positioning would remain outperformers given the continued strength of the marlin consumer. When we look at how the first quarter played out, that favorable backdrop translated into even better results than we were expecting. I think it's fair to call the first quarter low out quarter on both the top line and the bottom line. This setup was accurate and we delivered with a favorable setting. We haven't seen RevPAR and total RevPAR growth at these levels since the third quarter of 2014. The excluding one unusually strong pandemic recovery quarter in 2023 and our same-property hotel EBITDA growth of 27.6% was even stronger than Q3 '14. At the industry level, Q1 demand growth of 2% clearly began to demonstrate its reconnection with GDP growth and industry demand would have been even better but for 2 of the largest winter storms in history to hit in late January and late February. Occupancies increased as demand follow GDP growth While supply grew just 0.6%. In March, we began to see more compression days and ADR growth improved through an impressive 3.8% and with a solid 2.4% increase for the quarter. Industry RevPAR in Q1 increased by a much improved 3.8%. Leisure demand was very strong throughout the quarter, aided by the favorable holiday timing around New Year's and the combined Valentine's Day and Presidents Day weekend. Importantly, that leisure strength didn't just benefit our resorts. Our urban markets, especially San Francisco, Los Angeles and San Diego, all continued to benefit from the post-pandemic return of leisure demand to the cities. The early Easter and school spring breaks also helped March, so partly at the expense of April performance. We likely also saw some benefit in Southern California and South Florida, from traveler ships away from Mexico and from poor snow conditions out West. For Pebblebrook, we saw the same industry benefits in Q1 and more. The event calendar delivered as we captured increased demand from events throughout our portfolio. Our Hollywood Florida resort benefited from demand from the college football national championship game in Miami as our properties just 11 miles from the stadium, far closer than most hotels in Miami and Miami Beach. All of our San Francisco hotels achieved very robust results from the Super Bowl and its week of activities and events in February, and our L.A. hotels saw a lift from the NBA All-Star game and related activities, which were also in February. Our hotels in San Diego, Chicago and Washington, D.C. saw increased demand due to the NCAA men's basketball tournament games in March. Events in Q1 definitely pushed our results higher, maybe even more than we were expected. As Ray indicated, our redeveloped and repositioned properties all continue to ramp up led by Hyatt Centric Delfina Santa Monica, Skamania Lodge, Newport Harbor Island Resort, the Playa Beach Resort and Club, Estancia La Joya Hotel and Spa and Hilton San Diego Gas Line quarter. They all gained significant share in the quarter with more to go for them and many others in the portfolio where we invested so heavily in prior years and we continue to reap the benefits. Business transient continued to recover across the industry and our portfolio during the quarter. We saw even stronger growth in corporate travel in San Francisco and Los Angeles, where both cities are seeing the benefits from return to office policies. Group also grew industry-wide and for Pebblebrook in Q1. We delivered strong group revenue growth primarily driven by a 7.4% increase in group ADR, that was aided by the Super Bowl. We had a fantastic quarter all around, but it's highly likely to be our strongest quarter of the year by far. Looking ahead, we remain appropriately cautious given policy and geopolitical risks, particularly the potential impact of the ongoing conflict in the Middle East. Right now, we're mostly concerned with the potential economic slowdown, driving airline ticket prices, cutbacks in airline capacity in routes and potential jet fuel shortages elsewhere in the world, it could weigh on inbound international travel. As Ray indicated, we're not seeing any negative impact on PACE or bookings at this time, but we're closely monitoring all our data as well as travel data and commentary from others in the travel industry, particularly the airlines. Since our last call, our 2026 room revenue pace advantage versus last year has continued to increase. In the year, for the year pickup in room revenue improved by $12.5 million over the 2 months ended March 31 at an improved for every quarter of the year, which is very encouraging. As of the end of March, full year room revenue pace of $33.5 million ahead of last year, with $21.8 million from Q1 performance and the remaining $11.7 million in quarter 2 for 4. Over 90% of the room revenue pace advantage is in transient revenue with roughly 20% of from higher rates. The $33.5 million advantage is stable, would put us at a 3.8% increase in room revenue for the year. right in the middle of our increased range of 2.75% to 4.25% for the year. If we pick up more in the year for the year, it will go hacker. And if pickup is lower than last year, it will go lower. Recall that last year, with everything that happened, we lost pace advantage as the year progressed. And finished down for the year in room revenue. For Q2, total room revenue pace as of the end of March was ahead of last year by $7.5 million. April pickup for April looks like it will be down year-over-year, but much of that likely reflects pace being so far ahead when we entered the month. We expect April RevPAR and total RevPAR to grow in the 3% to 5% range versus last year. May appears to be our weakest month in the quarter weighed down by the year's most difficult monthly convention comparison in San Diego, along with softer convention calendars in both Boston and San Francisco compared to last year. Finally, I thought I'd provide a few thoughts about this year's World Cup. We've always thought of it as a large collection of college football bowl games. Like the college bowl games, we believe demand for World Cup games will vary dramatically depending on the teams involved and the impact from each game will vary, not only by the Albertan attendance of the games, but also by everything else that is already going on in the specific market. Most of the 48 teams have based themselves in locations across the U.S., including many markets without games. For example, we have a team at benign in Portland, even though there are no games important. I'm sure you've seen the media reports about a propping large blocks of rooms in many markets. Our understanding is that these blocks are intended mostly for fans who can choose to purchase hotel rooms through FFO. Obviously, bands are not choosing to purchase or tells for FIFA in a major way and will likely book the rooms individually through normal hotel booking channels. When teams and ticket holders moving around the country many on extended trips that include non-World Cup destinations and Visa -- and Visa waiver documents required. We expected and continue to expect. Most of the demand to book very short term, certainly within the 60-day window, which we're in now. And consistent with that, we are seeing some of that demand book on and around game days in our markets. We also booked some group demand from teams, sponsors and FIFA. We're currently contracted for about $1.9 million of room revenue. Over half of this group business is booked in our Boston hotels. We don't have an estimate for the total impact of the World Cup on our overall performance, but we do think it will be positive with most of the benefit coming in terms of higher average rates and increased non-room revenues. Occupancy will be aided by the World Cup. However, it comes at what is already a very busy time of year with high occupancies in June and July the norm in our World Cup markets. We also remain concerned about the impact of the conflict in the Middle East on airline ticket pricing, airline capacity jet fuel availability and especially inbound international travel. As a result, our forecast for the World Cup and Q2 remain conservative. For the full year, similar to the second quarter, we remain appropriately more cautious for all the same reasons. We have reflected a significant Q1 in our hotel performance assumptions. But we've left Q2 and the rest of the year unchanged from our prior outlook. As we said last quarter, we're going to take it 1 month at a time, given the volatile and uncertain environment. But we've got a very strong first quarter done and in the books. So we've increased our current outlook for RevPAR and total RevPAR growth for the year by 75 basis points for each, with our RevPAR growth outlook range now at 2.75% to 2% to 4.75% and our total RevPAR growth outlook range now at 3% to 5%. For 2026, we expect to continue delivering operating efficiencies and keeping property expense growth well controlled as our outlook indicates. The Q1 $10 million hotel EBITDA beat has been fully passed along into our hotel EBITDA outlook at the year's midpoint. As a result, we're now forecasting same-property EBITDA growth of 5.2% to 8.6% at the midpoint of almost 7%, a healthy increase for the year and a material step-up from our prior outlook. To wrap up with a terrific first quarter behind us, we remain very excited about the 2026 setup for Pebblebrook. Now we just need the rest of the year to cooperate and provide a more stable environment. And with that, we'd now be happy to take your questions. So Donna, could you please proceed with the Q&A.

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

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

Sure. Thanks, Cooper. So historically, for our portfolio, out prices -- significant increases in gas prices cannot have an impact. And that's A big part of that it has to do with the fact that our resorts in particular, are all in dry markets. And of course, many of our markets also have other forms of transportation access like trains on the East Coast, in particular, in the trains on the West Coast. But it's really airline ticket prices where there's a clear connection between demand ultimately and people's ability to fly. Now, again, it has more of an impact on middle income and lower and less of an impact on the upper end. So it's hard to forecast exactly what the impact is going to be. They're certainly according to the airline, he's been a lot of business booked and have ticket prices going up. We've seen -- so far, we've seen increases anywhere from 0% to 2% to -- we've seen much bigger increases for international travel, particularly international travel originating from Europe and Asia. So start to tell how much of an impact that will have on international inbound. That is what we not worry about. But the resorts are also drive to and -- so if people do trade down from flying to driving, which is something we've seen to some extent in the past that domestically located resorts tend to benefit a little bit more and the ones available by airline flights tend to be impacted a little bit more.

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

Sure, Cooper. Yes. So our full year outlook implies on expense growth at 2.4% to 3.8% range. And so on the labor side, which is the largest cost that's low single digits. We're in the 3% to 5% range depending on the market. But because of -- in terms of wage increases, but in many cases, we're having FTEs actually in line or decline year-over-year despite the increase in occupancy. So we're finding a lot of efficiencies there, which we continue to pursue. We talked about this quarter. in areas like insurance as well as, for example, property insurance. It's a very favorable property insurance market for owners this year given a lack of storms last year. that impacted the U.S. as well as a lot of capacity on that side from insurance. So it's likely to be in pushing down premiums pretty significantly this year. So our renewal isn't until June 1. So at our July call, we'll have an update there, but we would expect property insurance costs to be declining on a year-over-year basis. relative to last year. And outside of that, we're doing what we can on energy initiatives [indiscernible] given what's going on right now with Middle East, we expect a little more pressure there. But overall, we feel really good about our expense growth that we provided. And the fact that we've been able to find new ways to do things accretively and limit this expense growth versus what others are experiencing in the industry.

Our next question is coming from Smedes Rose of Citi.

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

Sure. So [indiscernible] jump in. But I think strategically, as we've seen sort of the L.A. market and the West L.A. market and the sunset trip submarket sort of evolved over time, there's been a lot of luxury product that's been added into that market. And what we found over time is Mondrian well and Icon, particularly when it was created and really over up to maybe 5 years ago. I think was sort of the dominant player in the market. And as other luxury products come in, I think what we found is the system, the core [indiscernible] system was just not delivering to the property at the level that one of the domestic major brands could deliver it. And so given the positioning of Curio, we felt like tucking under the luxury in terms of their brands with sort of the right positioning for the property -- it is a luxury product. I'd say the service levels are more lifestyle than maybe you would consider being luxury. And so we really thought it was a much better positioning with a much more value brand and a more entrepreneurial and life spot-oriented operator who is really comfortable with the major collection brands like Curio. And then as it relates to cost that the cost of the Interia program are actually less expensive in the cost of the Kerio arrangement or maybe better said, the combined cost between the operator and the franchise in total is lower than the cost of where we were with port anime as both the brand and the operator. So a little different than some of our other properties is the way the cost play down.

And [indiscernible] gone through a number of transitions in the past with switching brands going from one brand to another or going to independent every vice versa. And [indiscernible] in a fantastic to work with. The transition has been very smooth so far. I hope has been really additive in the process. And look, with Davidson, we have demote properties advance for us. So we have a very differ with their team. So they've done a very good job for us and look forward to in July when we have a full quarter under our belt here to report on the results that we're producing. I realize, of course, of course, quarter they're usually bumpy when you are up 1 system to another, but we like the direction we've had so far since April 1.

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

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

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

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

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

Sure. Good question, Greg. I think the Super Bowl and L.A. will be obviously an extremely major benefit to the market, particularly in February. And -- but L.A. is a much larger market in San Francisco or even the combined nature of San Francisco and San Jose. And so -- when we look at where the pricing is already is and where it's likely to be for Super Bowl, likely to be at the same levels as San Francisco. It will still be super as the name implies, but it won't quite have the same benefit that we had discoveries come. Greg it's breaking up a little bit. Greg. Okay. Greg, you're breaking up. So it's -- sorry, Greg. I can't make how your question. I apologize.

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

I was hoping maybe you can unpack a little bit more about the World Cup and how it's setting up for you. I understand that you're not incorporating [indiscernible], but is there any risk that if the world set at sizzle, it ultimately -- it could ultimately emerged as a headwind if it's also disrupted to other travel into those markets.

It's possible it could be a headwind. I think that's highly unlikely. And I don't think there will be a headwind for our portfolio because we didn't hold rooms of the market for any of the PPA blocks that we had. And we haven't -- we certainly have deterred other business coming into the market. And I think, again, unlike I don't know, maybe Super Bowl or an inauguration or some monstrous event. Some of these events are that large that they're deterring normal business coming into the market. And the gains are all over the place, and they're generally not back to back in the market. There's gas. So I don't really think that's going to be the case. The other thing we've seen is, I mean, the [indiscernible] business is booked in it. They're markets like L.A., where we have a huge number of concerts in July -- in June and July, sort of mixed in through World Cup, which we think will be big demand generators in that market as well. So I tend to think -- I have a hard time sitting [indiscernible] turning how to be headwind or certainly not for us and not for the industry.

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

Yes. I mean, I mean San Francisco is crazy right now in terms of the boom recovery that's going on in that market and impacting all segments, whether it's business transient, business group, in-house group. Lease are coming back into the market that have stayed away during the pandemic and even many of the [indiscernible] pandemic years, it's really just starting to recover in the last year. and the convention calendar will continue to get better over the course of the next 3 to 5 years. So the city is on a roll, it's got good governmental policies. It's got good leadership in place. You see it in the other real estate categories the very strong, in fact, record office leasing going on in the market. The return to office that has been mandated. AI obviously being headquartered there, robotics, so many robotics companies are moving into the market. Robotics is being headquartered in San Francisco and the Bay Area. And so we certainly can see -- I mean, I'll give you an example this year, I think we're probably looking at RevPAR growth, again, aided by Super Bowl, I think, by about 4 points for the year. But we think RevPAR growth is certainly going to be between 12% and 15% for the year, unless some major macro event has an impact. And at that level of growth mean we expect to see the bottom line up 40% or more over last year. And you're right about being in the 60s, I think 62% or 65% 62%. If that's -- if you take that 62 and say we're going to be up we're going to be down still 40% compared to '19 levels. And -- but we think that with everything going on in San Francisco, and we're just starting to get pricing power back in the market as occupancies have been recovering, which are, by the way, still well below where we were in -- we think there's no doubt you can see double-digit RevPAR growth over the next 3 to 5 years in that market, assuming a reasonable macro environment. So we're pretty high on the market right now. And it looks a lot like it did back in the 2010 to '15, '16 period of time when it really exploded.

The part of reference for 20 our services goals occupancies will -- should be somewhere in the 74%, 76% range. We'll see where we end at but that was at 87% in 2019. And that's how to say we're going to get back and the season at the same occupancy level, but it shows that San Francisco is truly a multiyear growth story, and we're just in the early innings of that.

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

Our next question is coming from Gregory Miller of Truist.

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

Sure. Greg, we've been very active in this area, which we think we're encouraged by where it could go in terms of the level of the planes deal with AI agents going directly to the hotels and looking to book direct search directly versus going through either some of the OTAs or the traditional brands. So we've been very active on that. All of our hotels are on a system which we've audited out and where it gets the maximum visibility through the agents. So there's in pages out there that all of our independent tells we've added that are now readable through that. So we've done a portfolio-wide partnership that our Corporate Vice President of Revenue Management is overseeing. So we're all working on that and monitoring those results. So we're on that side, we're excited and [indiscernible] will reach changing around some of our websites. And what created on the independent side, we have a lot more flexibility around doing that. And in addition to that, we're also looking at other tools and productivity at the property level. We just came to an agreement with Canary AI, which is a multimodule tools with panels calls and reservations and in those guest requests. So we're really excited about that. So again, with independent hotels, we could do a lot of those flexibility and [indiscernible], I cannot this technology is over. We're excited about where it's going and more reports to make more progress.

Our next question is coming from Rich Hightower of Barclays.

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

Yes, Rich, I think as it relates to Q2, I think we feel fine about our Q2 outlook with April just about done and some reasonable visibility into May. But we're -- again, we continue to be cautious because of how looks like trends can change. And particularly with the complex continuing on. And I think that also in fall out that we're definitely going to see how much it impacts travel, that's on down and so I think we're -- we learned a lesson last year, but we went into the year so positive. We had great pace. A lot of stuff happened last year that had, I don't know, you could call it self-inflicted, I guess, certainly came from governmental policies for the most part. And government-driven geopolitical issues. And so that sort of really the entire year over the course of the year. And so we're just going to maintain this approach of we're going to take it on for the time. If there's no fallout from the conflict, and there's no other major geopolitical events and policies that impact travel and the economy like happened last year, the numbers are going to be a lot higher than our help. And so that's the way we've approached the year. We just think with -- there's not a political statement, but it's a factual at with this administration. There's just a lot of stuff that keeps coming out are being created that positive disruption. And last year, a lot of that disruption impacted travel. So we're going to remain cautious. We built cautiousness in and we'll take a bit of time.

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

Yes. So I think there's a couple of major drivers in that market, obviously, the entertainment industry at the broadest level. So you're talking about TVs, movies, commercials. You're talking about tick top. You're talking about Instagram, you're talking about the music industry. I think these many dramas that are being created that are renting studios now in the market even appropriate periods of time. I think there's this transformation going on in the industry. And so I think what we've seen so far this year is we've seen improvement of demand coming from the entertainment sector, both TV and film and commercials and other. And then we've seen an increase in the bus industry coming through. And one of the things that happens in L.A. And we're not just talking about concerts that actually happened in L.A. But a lot of the music or come to L.A. to use the facilities, the studio facilities, the entertainment event facilities to practice for 2 or 3 weeks before they go out on the road on tour. And as we see more and more verse touring, more and more venues being created for music around the country, that industry is on a very strong growth path, which is helping the market. The fashion industry is another demand generator. That's improving at this point in time. We're definitely seeing demand from the fashion side. And then you see a lot of this internet venture capital, startup programs businesses that are being created in L.A. is somewhere near the level of VC capital coming into L.A. that's coming into San Francisco. But it's probably in the top 5 in the country. We're pretty close to that. So we are seeing industries being created. You're also a little further south of L.A. just down in El Segundo. You have the defense industry that's seeing a resurgence in the space industry as well related to it. So all of that is good right now for the industry. You need to change the politics and the policies in the market, similar to what happened in San Francisco. I think to really get more business confidence and more businesses being willing to grow or relocate into the market instead of relocating out of the market. But I'd like to think that the next election cycle will be more positive. And we certainly have been involved with and have seen a lot of business groups who've gone to the point that business has got to in San Francisco and said we've had it. And so you combine that with all these other spaces along with the sports industry which is booming in L.A. with book, you've had SoFi created. You've had where the clippers play and new events center being created the old ones get renovated. So there's definitely strong availability and growth on the sporting side as well. And obviously, you see that with is them tracking the Super Bowl back again to next year. SP-2 Very helpful.

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

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

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

Yes, Duanne. I think in general, we've been talking about investor conviction in the muted transaction market over the last 2 years. The primary reason for that was growth or more importantly, the lack of growth. which made it hard for investors to underwrite. It seems like we're pivoting, and we're transitioning from that, especially given Q1 performance. And when you see markets that have bottomed like San Francisco, and you see the growth in 2025 and the continued growth in 2026, you see the growth in MA in some of these markets. What we've always said is capital files performance. There's also a number of high-profile kind of higher-end upper-upscale luxury properties in the market and in the final stage of marketing, and we'll be taking bids here over the course of the next 30 days. which I think will give a lot more clarity in terms of investor sentiment, investor depth, investor conviction and ultimately, investor pricing. So I think certainly by the second quarter call, we'll have a lot more visibility in terms of the market, as the market kind of recovered and are we continuing that momentum. So I think the setup for a functioning transaction market is there. That is still very available and is still very aggressive. But it all remains subject to the conflict in the Middle East, which could pause transactions momentum if it's not resolved in the short term.

our next question is coming from Michael Bellisario of Baird.

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

Sure. So we haven't really seen any change in the Alger spending this year or in April. It remains healthy. It's interesting you read -- if you look at the consumer surveys and consumer confidence is at its almost in history, maybe or very close to it, yet what we find is when groups and leisure are on property, they spend, they want to have a great experience. enjoying the facilities and eating there and spending money on activities or treating themselves with spas. Or other unique activities it continues. And I think a big part of that continues to be not only the strength of the upper end consumer. But look, the wealth effect it has to be having an effect, right? The stock market at all-time highs or very bear. And I think that, ultimately, that's planned through and the comfort people have in spending. So, so far, so good. Mike, we haven't seen any change, and we find that very encouraging.

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

Yes, that's -- I appreciate the question because we are increasingly focusing on taking pricing opportunity where it exists. We've been doing that more so in the resorts were we've seen this sort of robust leisure growth occur and also with events and the better holiday calendar we're seeing more compression as we expected around those better holiday periods. So we are pushing price more. We're not doing it to the detriment of occupancy at this point. We're trying to do both because we think the opportunity continues to be there for both as we're nowhere near the level of occupancies that we would prefer to operate at on a stabilized basis. But we are taking price where the opportunity exists, and that opportunity seems to have increased over the course of the last 4 months.

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

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

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

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

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

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