Q1 2024 Pebblebrook Hotel Trust Earnings Call

Participants

Raymond Martz; Co-President, Chief Financial Officer, Treasurer, Secretary; Pebblebrook Hotel Trust

Jonathan Bortz; Chairman of the Board of Trustees, Chief Executive Officer; Pebblebrook Hotel Trust

Dori Kesten; Analyst; Wells Fargo Securities, LLC

Presentation

Operator

Greetings and welcome to the Pebblebrook Hotel Trust first-quarter earnings call. (Operator Instructions) It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you, you may begin.

Raymond Martz

Thank you, Donna. And good morning, everyone. Welcome to our first-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 that today's comments are effective only for today, April 24, 2024, and our comments may include forward-looking statements as defined under federal securities laws, and actual results could differ materially from those discussed. For a comprehensive analysis of potential risks, please consult our most recent SEC filings and visit our website for detailed reconciliations of any non-GAAP financial measures mentioned today.
Now, let's move on to our first-quarter results. We are pleased to share our solid financial results in Q1 despite the negative impact of some challenging weather conditions on both coasts. Our urban markets, which continue to recover, led the portfolio.
Coupled with diligent operating cost reduction efforts by our hotel teams, asset managers and the company, we handily exceeded the top end of our financial outlook in key metrics, including same-property hotel EBITDA, adjusted EBITDA, and adjusted FFO. Our urban markets were led by Washington, DC, which has been a standout performer. In Q1, hotel occupancy in DC gained an impressive eight points, rising to 61% and RevPAR increased by 7%. San Diego also produced significant gains, benefiting from a strong convention calendar that, in our case was bolstered by our prior year redevelopment investment program in downtown San Diego occupancy at our properties climbed eight points to nearly 75% and RevPAR surged by an impressive 21.8%. Our recently redeveloped properties, the Hilton San Diego Gaslamp Quarter and the Margaritaville hotel San Diego Gaslamp Quarter had been very well received by the market. Revpar growth for these properties exceeded Q1 2023 by 88% and 60% respectively. These downtown San Diego hotel has quickly recovered from last year's redevelopment disruptions, regaining more revenue and EBITDA that was displaced last year. San Francisco and Los Angeles were also solid markets. This quarter, the one hotel San Francisco known for its sustainability and luxury focus, grew RevPAR by 16% in Q1, continuing to gain market share following its redevelopment and reflagging. Overall, our urban properties increased RevPAR by almost 5% year over year, which helped to offset a 4.4% decline in RevPAR across our resort portfolio. Notably our same property resort portfolio, excluding Playa beach club and resort and Newport Harbor Island Resort maintain stable occupancy levels compared to Q1 2023, though ADR declined 4.7% challenging weather conditions in California, the Pacific Northwest and South Florida affected our resorts, hindering traditional short-term leisure bookings and lead to increased cancellations. In contrast, our Key West resorts experienced a robust recovery in Q1 compared with last year, generating positive RevPAR growth, reflecting the area's traditional strength in the first quarter despite the varied performance of our resort markets in Q1, they maintained a very significant 36% premium in rates compared to 2019. Overall, our same property portfolio has shown a continued recovery from the pandemic, getting another two points in occupancy and a 1.7% increase in RevPAR versus Q1 of last year compared with Q1 2023. Our weekday occupancies improved three points with gains in both our urban and resort markets, demonstrating the continued recovery of business travel. Our weekend occupancies declined roughly 60 basis points, which was largely due to weather issues that discouraged leisure travel However, it is noteworthy that weekend occupancies at our urban properties improved by 50 basis points in March, perhaps an indicator that leisure events and spring travel continued to drive travelers into the cities at a greater clip than last year.
In terms of our mix, the group segment led the portfolio as group demand increased 5.7% from Q1 2023, with group revenues growing 4.9% and group segment increasing to roughly 27.4% of our customer mix in Q1. Transient demand also improved increasing 4% over last year. As transient revenues two point retained revenues rose 2.1% on a monthly basis, RevPAR increased 5.1% in January, 0.1% in February and 0.6% in March, which was negatively impacted by the Easter holiday shift. February room revenues rose 3.8% higher than the 0.1% RevPAR growth due primarily to the extra day from leap year. Our same property EBITDA reached $59.8 million, surpassing the upper end of our Q1 outlook by $2.8 million. In addition, our recently reopened or PI Beach Resort had a much better than expected Q1, exceeding our outlook by $2.3 million. This performance inspired our enthusiastic, but most other Playa to our hotel supplier team, which you heard from our opening song this morning. The strength in our same-property hotel EBITDA results also bolstered was bolstered by the success of our highly focused efficiency and cost reduction efforts across all operating departments, which led to an EBITDA margin of 20.3% in Q1 on a per occupied room basis, total hotel operating expenses declined by 0.7% and before fixed expenses declined by 2.1%. This reflects our ongoing progress in combating inflationary pressures through an intense focus on efficiency improvements. These measures include optimizing staffing levels and job sharing, enhancing procurement processes, implementing our own workers' compensation program and leveraging favorable contracts negotiated rate and arranged by curator. We also reduced our reliance on third-party contract providers by successfully filling positions internally and reducing staff turnover while also continuing to invest in productivity enhancement in energy-saving technologies and equipment. These strategies are part of our broader initiative to offset above inflationary cost increases in wages and benefits, energy and insurance across our portfolio. As a result of the better-than-expected same-property EBITDA and apply a strong performance. Adjusted EBITDA was 5.3 million above the top end of our outlook, and adjusted FFO per share was $0.05 better.
Shifting to our strategic reinvestment program. This quarter, we made significant capital investments and progress at several properties. The $49 million transformation of Newport Harbor Island Resort into a premier New England luxury destination is substantially completed and the resorts should open soon. Estancia lawyers, hotel and spa, $26 million. Multi-phase redevelopment is also substantially complete in its community, a lodge we introduced eight new alternative lodging accommodations, including completion of two two-bedroom cabins, a three bedroom villa and on May first, the expected opening of five unique luxury clamping units over the next year, we will evaluate the performance of these new types of experiential accommodations, which also includes nine successful luxury tree houses. This analysis will guide our decision to what types of alternative lodging to add its media in the coming years as we have an opportunity to add 200 or more additional units over the long term with the 33.9 million invested throughout the portfolio in the first quarter. We remain on track to invest 85 to $90 million in the portfolio for the year, and we are confident about the substantial upside. These repositioned properties will generate in both market share and cash flow in the foreseeable future.
In terms of our balance sheet, we remain in very good shape with no meaningful debt maturities until October 2025. Following the successful refinancing efforts we completed just three months ago. The weighted average cost of our debt is an attractive 4.6% to 75% currently at fixed rates for 91% of an unsecured. And with that comprehensive update, I'd like to turn the call over to Jon. Jon.

Jonathan Bortz

Hey, thanks, Ray. As Ray indicated, we're very pleased with our overall performance in the first quarter. Our top line operating performance was toward the upper end of the our outlook range with our RevPAR growth handily beating the industry. Our bottom line results well exceeded the top end of our outlook. We benefited from our intense focus on creating further efficiencies in the operations of our properties. As Ray detail, we also realized reduced energy usage and costs, thanks to targeted sustainability initiatives and milder weather conditions. And although the bad weather negatively impacted leisure demand and revenues, it provided a silver lining in terms of energy savings. When we look at the industry results overall in the first quarter, the industry's 0.2% RevPAR growth turned out a little softer than we were expecting. Year-over-year. Demand declined every month in the quarter now representing 10 straight months of year-over-year declines and 12 straight months of year-over-year declines in occupancy. And if you exclude Las Vegas from the industry's results, you get a RevPAR result that is 90 basis points worse at zero, negative 0.7% for the quarter, which doesn't paint a particularly positive view of the rest of the industry's first quarter performance. We believe some of the industry's weaker performance in the quarter was related to bad weather impacting travel and potentially a greater negative impact from the Easter holiday shift. But clearly, the mid to lower price scale hotels continued to struggle in a major way. We believe the challenges at the mid to lower end are likely related to the economic pressures being experienced by the mid to lower socioeconomic class of consumers and businesses. This is consistent with what is being called out by many other industries and businesses in their operating reports.
Industry results also mirror our results and segmentation performance. Demand from the leisure customer was flat to slightly weaker, impacted by bad weather as evidenced by softer weekend performance. Encouragingly, business travel continued to improve with group leading the way, but with business transient, clearly seeing further recovery ADR growth was slightly softer than in prior quarters, and urban and upper upscale performed the best supply growth continues to run well below 1%, and we think it will continue to run below 1% through at least 2026 and likely 2027 or even later for our urban and resort markets where it takes longer to build and the project sizes are larger and harder to finance. In the case of the cities, hotel economics are far below those needed to justify these much higher new development costs for our portfolio RevPAR growth was led by our urban markets, which grew 4.9% despite Portland and Chicago being substantially negative. Our urban RevPAR performance exceeded the industry's urban category, which delivered 2.6% growth in the quarter. As Ray indicated, we gained 2.4 points of occupancy or 4.2% growth. However, we still have a huge occupancy recovery opportunity as our urban occupancy was almost 16 points or 21% below 2019 levels. And 2019 was not even our prior peak level of occupancy. We've laid out the occupancy recovery opportunity for our urban portfolio in financial terms in our investor presentation, which we posted last night on our website.
So you might want to take a look at that our best performing RevPAR growth properties in the quarter were led by our properties that were redeveloped in the last few years. All of these redeveloped and repositioned properties are gaining share and have significant opportunities for RevPAR share growth and other revenue growth over the next few years.
As Ray indicated, the two downtown San Diego properties gained the most in the quarter. They were both under redevelopment last year. So the comparisons were easier, but they grew beyond last year's displacement impact.
The next best performance for hotel Zena in D.C. with almost 34% growth. Viceroy Santa Monica at 18.1%, Viceroy DC at 16.4%, one hotel, San Francisco at 16.2%, and L'Auberge Del Mar at 15.6%. Again, all of these properties were redeveloped and repositioned in the last few years and demonstrate the upside opportunity of our very substantial investments. We've also detail the upside opportunity related to these strategic investments in our investor presentation with Newport Harbor Island Resort and Estancia Lehigh as redevelopments being substantially completed this month, we feel we're in a great position to drive significant RevPAR share and revenue growth over the rest of this year and the next few years. And now we'll be able to do it without all of the noise and disruption impact that comes along with these major redevelopments. In addition, with the rebuilding of LaPlaya finally complete, we believe its ramp up will be reasonably quick and we're already beginning to see that play out in Q. one reply achieved 8.3 million of EBITDA, exceeding our expectations by $2.3 million. This was just $240,000 below 2019, but it was ahead of 2019 in total revenues and GOP driven by the outperformance of the food and beverage outlets and the membership beach club, we expect to to deliver approximately $7 million of EBITDA in Q2, which if achieved, would be more than $2.4 million ahead of 2019.
Second quarter. Combined with the first quarter, these first half results would give us greater confidence in hitting or beating our $22 million EBITDA forecast for the supplier for this year. Which would put us well ahead of nineteen's 17.7 million of EBITDA and well on our way to recovering to our $35 million pre-hurricane forecast for 2022, as another example, the returns on our major redevelopment investments.
I also wanted to provide some color on the performance of one hotel San Francisco, which was the beneficiary of a $28 million transformative redevelopment and reflagging from the independent hotel vitality and also a property team that recently won several heavy awards. So far, we're really impressed by the power of the one hotel Echo luxury brand and how well it resonates with the San Francisco customer. Recall that we reopened one hotel San Francisco on June first, 2022 in 2023, just our first full year of operations in what is a very difficult market. One hotel at San Francisco achieved a 116.7 ADR share and our RevPAR share of 128.3 versus its luxury competitive set, which was up from a 94.9 ADR share and 93.1 RevPAR share for the property as an unrenovated Metalink in 2019. So it's gained more than 21 hundred basis points of ADR share and 35 hundred basis points of RevPAR share and it's far from being stabilized in 2024. So far through March one hotels gained another 150 basis points in ADR share and another 1,400 plus basis points in RevPAR share. In 2023, we achieved 63% of 2019's EBITDA. We recognize that may not sound great, but in a very slow to recover market like San Francisco. It represents by far the best performance against 2019 of all of our San Francisco properties. Please feel free to take a look at our investor presentation at this case study and a few other examples, it show the returns we've achieved on our redevelopment and repositioning projects as we look out into Q2 and the rest of the year. As indicated in our press release, we're maintaining our full year outlook despite our bottom line beat in the first quarter. As you know, Q1 is our smallest EBITDA contributor of all four quarters. And we've become increasingly concerned about the macro economic environment for the rest of the year, given the changing expectations regarding the timing and number of Fed rate cuts and the continuing trend of weak demand and very modest industry RevPAR growth and the continuing normalization of the booking window as short term bookings have not been keeping up with last year. We're not reducing our expectations for the second half of the year. We're just not ready to bank the Q1 beat so far for the first 13 days of April, we have achieved RevPAR growth of almost 10%. While that is certainly very positive, it should be recognized that these days have significantly benefited from both the Easter shift as well as the Passover shift with Passover covering the last 10 days of the month, RevPAR for our portfolio is currently tracking to be negative between 1% and 2% for the entire month for the rest of the quarter May looks to be strong and then June looks to be soft. Again, convention timing has some impact on our monthly variability for the second quarter, our outlook is for RevPAR growth to range from 0.5% to 2.5%. Similar to the first quarter, we expect our RevPAR performance in Q2 will exceed the industry's results and similar to our first quarter outlook. This is not a conservative outlook. It is a realistic forecast at this point in time. For Q2, we anticipate finalizing and recording several significant real estate tax benefits from prior year periods. And these have been included in our Q2 outlook despite the unpredictability of these credits and assessments over which we have no control. These credits would result in an estimated net reduction of approximately $4 million compared to our Q2 2023 tax expense. This will contribute to reduced expense growth rate for both the quarter and the year. Looking forward, we expect to continue to achieve substantial savings from real estate tax assessments and credits. Although the timing remains uncertain typically, these results stem from efforts spanning as much as three to five years. We also continue to be encouraged by our current group and total pace. Our group pace for quarters two through four shows group room nights ahead of the same time last year by 8.5% and group revenue ahead by 10.2% with transient revenue pace up by 3.9%. Our total room night pace is ahead by 7.9% and our total revenue pace on the books is ahead by 7.1%. Q3 continues to represent the quarter with the largest pace advantage followed by Q4 on a percentage basis. Nevertheless, given the slower in the month for the month and in the quarter for the quarter booking trends we've been experiencing. We remain cautious about the second half due to this normalization of the group booking window as well as the softening macro economic environment.
Finally, as Ray indicated, we're very excited about the completion of the 26 million style and CLO via multi-phase redevelopment and repositioning. The property looks fantastic and is already receiving glowing reviews from customers, we should be able to drive strong growth as the lawyers submarket of San Diego is extremely robust due to the vast amount of capital flowing into the expanding much biomedical industry that surrounds the property. In addition, UCSD., which is the largest university in the California system and is located directly across the street from the property is also growing like crazy and will continue to drive increased demand into the resort with the additional completion of Newport Harbor Island, CAD49 million, comprehensive transformation and the completed rebuilding of a pie in Naples, along with the recent redevelopments of Jekyll Island Club Resort, Chaminade Resort, Southernmost Resort, San Diego, Mission Bay and the alternative lodging being added at Cananea Lodge. Our resort portfolio is poised for strong growth in the future as leisure and group demand strengthen. It completes our prepared remarks data. You may proceed with the Q&A.

Question and Answer Session

Operator

(Operator Instructions) Dori Castaigne, Wells Fargo.

Dori Kesten

Yes. On scoring, as you note that short term group bookings has slowed, can you provide a bit more context around? And have you seen anything else that is giving you pause such as meeting planners pushing for lower F&B minimums are pushing harder on room rates?

Jonathan Bortz

Sure.

Raymond Martz

Yes.

Jonathan Bortz

I mean, our best guess today based upon conversations with clients is that it has more to do with the booking pattern normalizing. So really what's been happening over the last year and is that meeting planners and businesses are booking their meetings further out than they were a year before. And so when we're coming upon in the year for the year or in the quarter, for the quarter, certainly in the month for the month, we're seeing we're seeing less pickup versus last year because they've already booked a meeting. And so the pace advantage we've we have. That's part of why we're being a little more cautious with assuming it all converts into the same kind of percentage growth over last year because we think we're going to lose some of that pace advantage due to this normalization of the group booking window. We're not seeing any changes in attrition in cancellation. We're definitely not seeing any reductions in in spend outside of the room or what groups are committing to. So for from our perspective, we don't think it's indicating any change in confidence on the part of businesses reacting to a more cautious economic environment. We do think it has it's primarily due to the normalization of the booking booking timing windows with instant story.

Operator

Thank you. The next question is coming from Floris Van Dijkum of Compass Point.

Dori Kesten

Yes.

Jonathan Bortz

Yes, it's longer thought about AMI.

Operator

We'll move on to the next question coming from Smedes Rose of Citi. Please go.

Jonathan Bortz

Hi, thanks.

Raymond Martz

I was just wondering if you could talk about a little bit more about any kind of visibility you're seeing into summer leisure trends across your resorts?

Jonathan Bortz

Yes. I mean, I think it's a little premature too, too. I have had any kind of judgment based upon what we're seeing from the rivers from the resorts. I mean the the comment I would make that we feel good about right now. And I and we indicated in our call is that the group pace is up significantly in the third quarter, which means some of that is in the in the summer months of July and August. So and we certainly look like we have a good base on the books from a transit perspective. It's not not quite as clear. And as you know, folks make airline reservations well before typically they make their hotel reservations. So we're encouraged by the commentary that's coming out of the airlines about strong summer bookings. But I think in terms of how we how we look, I think it's too early to make a judgment as to whether they're they're going to be up a lot or they're going to be positive or negative.

Dori Kesten

Okay.

Operator

Thank you.
Your next question is coming from Floris Van Dijkum with Compass Point. Please go.

Jonathan Bortz

Hi, guys.
Morning.
Morning.
Somebody wanted to ask you, if I look at your your deck, the the upside potential on your own urban portfolio appears larger than some of the returns that you are penciling in for mostly your largely your resort assets that have been renovated. As you think about capital allocation, John, where where would you put incremental capital today? Where would you invest it? Would you invest in your resorts or would you invest more in urban assets or so?
I think know that the answer is sort of different than the two alternatives that you provided. So any incremental capital we have been and would continue to invest in buying our own stock back. So basically we'd be buying a greater percentage, if you will, of the assets that we already own. We feel like it's a good mix between urban and resort between business group and transient and leisure. We've invested hundreds of millions of dollars into the portfolio repositioning properties to where we think they have their highest and best positioning where there's significant upside in share growth, revenue growth and profitability. And so today, we'd be buying our existing stock back, which trades at somewhere in the range of a 50% discount to where we think the individual assets would sell. So I think from from that perspective, it's an easy answer, I think based upon where we sit and in the portfolio and maybe this answers your question in one way, we're still likely if we're selling assets, we're still likely to be selling some urban assets in markets that have been slower to recover, not because their growth rate or the recovery rate isn't great, but the alternative capital usage returns are much higher, meaning buying our stock back and paying down debt along with the EBITDA that we sell. So it wouldn't generally involve selling our resort assets within the portfolio, which again, we continue to believe have very significant upside in the portfolio.

Raymond Martz

And for us also just to highlight in our in our deck, yes, we have over $50 million of upside. We're on we have in the in the bridge from the urban recovery. That's but that's primarily because as you know, the urban markets have felt the most significantly more than leisure markets out of the pandemic and slowly recover. So we ended 23 at 69% occupancy in our urban hotels. And the bridge shows that scope we get to 80% what the upside opportunity, which is still below where prior peaks were. So that's against shows the tremendous growth from the urban assets that are to be realized in the portfolio and we expect the next couple of years to achieve that.

Jonathan Bortz

Thanks, guys.
Thanks, Lars.

Operator

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

Jonathan Bortz

Hey, thanks. Just on the group pacing and the giveback kind of in the quarter. I wonder if there's any trend of predictability to it kind of emerging. So maybe you could just replay the last couple of quarters, you know how much pace was ahead at the start of the quarter and then ultimately where it ended up, but just to kind of help put that 20% pacing in context, you're well in Q. one for Q1 of this year versus the pickup from that prior Q one, we were short a little less than 1 million in group revenue, which represented about a little under 3,000 group rooms. If we go back to the quarter before that, I think that was relatively flat. But we'll see if we can pull up that data.
Florence, I mean, up to end sorry, no worries.

Dori Kesten

Yes.

Jonathan Bortz

No, that makes sense. I think what's been hard, the reason it's been hard to predict is it's kind of been bouncing all over the place. So Gavi just pulled up the quarter before and it looks like looking at it here three months, I'm I see.
Okay. Yes, so. So yes, it was about $0.5 million of last pickup in Q4 for Q4. So again, pretty pretty modest. I'm pretty minor, but I think it's it's evidence of the the normalization of the of the of the booking window makes sense. So that up of 20, I think, which is specific to the third quarter, if you had to guess like where do we end up in kind of realized revenue and you can punt on that and say we'll tell you when we get there.
Well, I think the challenge is certainly here's the one thing I know is going to happen, the percentage will be much lower, right? So I mean, as we put more business on the books, obviously that percentage is going to come down some. And I think right now we have I don't know how much what percentage that represents of the of our target for the quarter. Maybe 60, maybe 60%. We'll see if we can pull that up, Duane, but the percentage is going to come down. It comes down naturally just as we as we book more and and the numbers get larger, right. It's just it's just the math from that perspective.
In terms of the impact of the booking window, it's just really hard to forecast that at at this point in time.
Thanks.
Thanks for taking the questions on our early conference call.
Thank you.

Operator

Bill Crow, Raymond James.

Jonathan Bortz

Please, but good morning.

Raymond Martz

John, I'm hoping you could dig into the ADR decline at Leisure Properties, not just in the fourth quarter, but kind of what you're expecting going forward.

Jonathan Bortz

How much of that was reactionary to maybe some of that or some some normalization of consumer spending, how much of that was mix shift?

Raymond Martz

And then you you state in your release that you're kind of bullish on inbound international travel this year, but you're also saying you really don't have much of a window into the summer months. So if you could just kind of square all that up. I'd appreciate it.

Jonathan Bortz

Well, I'll take a shot at it, Bill, on a I don't know if my comments I'll square it all up, but I think when we look at the resorts from the ADR, it changes are kind of all over the place. It really depends upon the property. What's been going on at the property, the region the weather has had an impact as well. There is mix shift going on at the resorts. So So let's talk about the mix shift first, because that's the easy easiest one to look at as we rebuild group at our resorts, generally speaking, the group rates are substantially lower than the transient rates. It's the base build. It's the midweek, particularly out of season. And so it gets priced lower and it competes with urban markets as much as other resort markets. So and as we rebuild that group, which is a significant part of our resorts, our resort mix, that naturally brings the rate down in terms of the overall average as we add and continue to recover leisure, which is still below where it was in 19 that that business has tended to be business that's being induced like it was pre pandemic through promotions on it or it represents wholesale international business, which comes in at lower rates on or it's off season where where you have to stimulate typically up to stimulate demand, particularly local demand in markets like Florida that you live in gets pretty hot in the summer. And so getting people to come to your location, hopefully driven by a cooler beach weather, bringing people in from inland Florida. It comes at a lower rate so there's a good bit of this that is mix. I think the behavioral normalization has mostly happened, meaning the big premiums we were getting on compressed days around some holidays and for people coming out of their caves after the pandemic and splurge buying and paying up. I think most of that is normalized and gone away. And and so it's really why where we're losing ADR, we're losing it at a relatively small amount at this point. And as we look into Q2, as an example, you know, our rate decline for our resorts looks to be lower than what it was in the first quarter. And right now, it looks like rates for the second half of our resorts will be better than the first half. So and I think we're getting pretty darn close to stabilization. And also, we're benefiting from the ability to charge more at some of the resorts that we've we've repositioned to a higher level on the portfolio.

Raymond Martz

And Bill, and then the second part of your question on the international inbound, just a couple of things to note that at least year-to-date through March, international inbound is over last year. So that shows it's improving. Margin on a percentage basis was closer to 2019 than any month in recovery. So it's heading in the right direction. It's still driven more by the Trans Atlantic versus the Pacific demand. But encouragingly, you've noted on a couple of airlines calls this recent quarter that they're forecasting record summer travel, especially as it relates to international and have a lot of that, of course, is US outbound. And we encourage more Americans to stay here to travel and go to Europe but it does represent an even more increased number coming up and that it fell significantly from the pandemic, but it's heading in a good direction, specialists, attrition.

Jonathan Bortz

Thanks, Phil.

Operator

Thank you.
The next question is coming from Shaun Kelley of Bank of America, please.

Jonathan Bortz

Hi, good morning, everyone. On Ray or John, I think one thing that's come up on some of the other travel calls, this earnings season has been a bit of a rebound on the technology side. I think this will probably be more on BT. I think we've talked a lot about group this morning, but kind of curious on what you're seeing. You have exposure a lot of exposure in San Francisco, plenty in the Pac Northwest as well. So just are you seeing some signs of life on the sort of large technology accounts? How has that trended? And is there is there more room here? I mean, we've heard you've been pretty clear that by segment group still the strongest. But I'm kind of curious if some you've seen at least maybe some increased lead gen from the BT. side from some of those on those technology?
Sure. So I think the the our general comment is business transient travel continues to recover and it's noticeable and it's it's represented in the stronger weekday occupancy numbers. And as we look throughout our portfolio, there is no doubt that we've seen significant increases in the technology firms that represents itself in markets like San Francisco, like Boston our Santa Cruz property, which doesn't benefit from corporate transient in the technology side, but has seen a very significant change in lead volume and group bookings from the technology firms in the adjacent Silicon Valley. So there's there's no doubt we're seeing. And in technology, we're also seeing increased our corporate transient in the consulting businesses.
On the financial side in your business, as well. And these these are in a way that sort of I don't know if it's the later to recover the sectors or the ones that just got maybe in the case of technology, maybe got ahead of itself during the pandemic and went through this period of time over the last 12 or 18 months of job cuts and a little more cautiousness in total spend, and we've definitely seen that turnaround and so far this year.
Great. Thank you very much.

Dori Kesten

Yes.

Operator

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

Jonathan Bortz

Yes, thanks. Good morning, everyone and morning. Just want to go back to your expense commentary and maybe help us what's new. What's incremental compared to your prior forecast your prior outlook? And then how much of the savings that you've recognized in 1Q and expect to recognize in 2Q? What's a run rate savings look like? And how much of it is maybe just more of one-time savings that you've been able to achieve on the expense side?

Dori Kesten

Thanks.

Raymond Martz

Sure.

Jonathan Bortz

So there is a combination of the two I mentioned the real estate taxes I think we were pretty clear in our call 60 days ago that we did not forecast any real estate tax benefits because we had no idea of timing and lo and behold, 60 days later, we've seen some success in at least one of our major markets within the portfolio and and some of those real estate tax benefits. I mean those much of that is one-time, but there is a reduction in the run rate in our taxes that relate to those properties, which are primarily in Southern California. And as it relates to the other expense. I mean, we've we have I mean, our number one initiative within the Company right now is a focus on efficiencies, creating efficiencies within the portfolios, collaborating with our partners to do that. I'm getting back to fundamentals reimplementing all of our best practices, taking advantage of new learnings from some of these efforts have put in place years ago and read, you can talk a little bit about our workers' comp program, but that we put in place and what we were doing before. But those are those are ongoing run rate savings that the bulk of the vast majority, I mean, maybe almost all of the savings in Q1 related to our efforts to lower expenses that should result in a run rate reduction and give us much more confidence in our ability to be well in the range in terms of our expense growth rate, of course, depending upon whether if we get a material acceleration in revenue in the second half beyond what we're currently contemplating?
Well, there's going to be expenses that come along with that and increase the growth rate. But obviously that would that would dramatically increase the bottom line as well. So so we feel really good about where we're going and we have a long way to go on this effort. There's a lot of programs and projects that are in place to reduce costs.

Raymond Martz

And I think we'll be increasingly effective over the course of the year and make some moves and put some additional color on some of those programs of workers' comp program that John mentioned. That was something we on a unique and we took it back from our third party managers because we thought we could do a better job actively managing it on and being on top of that. So as a result, that program, we reduced our costs that are these are the independent properties, again, the benefit of the independent hotels. We are more controls and save. It's brand managed properties, which we can't control, but we reduced our worker's comp costs by over 60% versus where it was when our managers we're operating it. So that's millions of dollars a year. We're getting their outcome. We're also the other side is curator curator in a way is also our internal R&D group and they've gone out with new technology. We have new housekeeping tools that on the housekeepers can be more efficient for how they clean rooms and schedule rooms in those areas. We're also working on a new tool that a threat or have put in place is a chat bot, which will reduce the call center volume and pressure on the staff of the hotels where frees up the staffing there and ultimately result in lower staffing. So there's a lot of those areas that we're actively doing. And we have a lot more flexibility at our independent hotels because we could put those programs in place and there's 100 of them that are in place some of them add more value than others. But some of we're excited about, and we should see the results in the coming quarters here.

Jonathan Bortz

We've also we've also been making investments in reducing energy usage and sustainability. And a couple of examples I'll give you which again, it's the same as some of this stuff is not rocket science and it's not new technology but the installation of filtered water dispensers in our hotels as we're replacing ice machines, we're replacing them with dual machines that also provide filtered water so that we can eliminate plastic bottled water and all bottled water in our hotels. And as as we near the end of life on many HVAC systems, we're installing new, higher efficiency systems in those programs in those properties. We've also added solar. We now have solar two properties from Chaminade out in Santa Cruz, but we also have solar on the Monaco DC in the center of the city. So and there's a lot of things we've been implementing over time, but this year, a much more intensive focus on. And frankly, some of this is just doing things. The right way and knock and sloppy. And I think perhaps we've gotten a little bit sloppy in the last 18 months.
Follow-up. Thank you.

Operator

Thank you. The next question is coming from Gregory Miller of Truist Securities.

Jonathan Bortz

Yes, thank you. Good morning. Given your commentary on a softening macroeconomic environment, I thought to ask specifically on any affluent leisure trade down and when you review your star competitive set reports for your resorts. Have you seen any evidence of a transient leisure consumer trade down, for example, or upper upscale resorts gaining share from competitive luxury resorts? Or do you sense that you may be losing share to lower price resorts? Or I'm just curious if you're seeing any impact.
Sure. And that's a tough one. I would say, I mean, the answer is no. We're not seeing competitive trade-down. I think I mentioned earlier, certainly when we've seen sort of a trade-down from the perspective of trading back to maybe what people can actually afford versus the splurge suites or view rooms. And that in 22, I'm just coming out of being stuck in their homes during the pandemic. So there's no doubt we saw that again. I think we've I think that's normalized within the portfolio, and we've continued generally to gain share within our resort portfolio. Our occupancy index, as an example in Q1 was it for our resorts in total were up over was up over 200 basis points. So I don't think I think that's probably more to do with that, the dollars we've invested in our properties and the benefits of having higher quality properties with better service versus the properties we've been competing with in the market.

Dori Kesten

Okay.

Jonathan Bortz

Thank you can say.
Hey, Greg, one other thing, just one thing I want to respond to because it's sort of a general was a comment in your question. I don't think we're seeing a slowdown in the economy and in travel per se. And I think we're just more cautious trying to be pragmatic about what impact the Fed's higher for longer is going to have on the economy later this year. It may not materialize to some extent the fact that it hasn't materialized to any great extent yet, but it's also cautiousness based upon what we saw in Q1, although again, how much was weather, how much was the holiday shift and how much was softer performance?
It's hard to differentiate those three at this point in time, what we're not hearing, we're not hearing comments from clients saying we're changing our policy. We're slowing down. You have to get 35 approvals to travel and with we are not hearing those things from the customer base. We're not seeing a reduction in lead volume for group business other than the normalization of the booking trend that we have that we've been talking about.

Dori Kesten

Great.

Jonathan Bortz

I appreciate the clarification on that, sir.

Operator

Thank you.
The next question is coming from Anthony Powell of please.

Raymond Martz

Hi, good morning.

Jonathan Bortz

I guess what are you seeing on the transaction side? I know rates are higher now.

Raymond Martz

So are you still seeing buyer interest for urban assets and how some of the volume out there, maybe a broad overview would be helpful.

Jonathan Bortz

Anthony, Tom Fisher.
Good morning. I think that the to John's earlier point on the said in the previous answer, the question, I think the uncertainty and I think everybody continues to wait for what the Fed's going to do. I would tell you, as we started the year, the investor sentiment was pretty strong. I think there is kind of a spring into action. I think that that's somewhat been delayed as people wait for the Fed to pivot. I think that there is debt availability, but the debt's expensive and that's impacting pricing. So I still think at this point, there's some price even pricing discovery out there. But I think that in terms of actual volume of transactions, I think that's going to continue to be somewhat stalled or delayed until until we see some real movement in terms of the base rates. And there's there's not a lot on the market today I mean, there is not only what I would say to you is kind of doing my survey data.
Yes, broker interviews, so to speak or just surveys of the brokers. I would tell you that there seems to be a very, very high level of the brokers doing brokers' opinions of values or BOV.s, but not necessarily a lot of that's not necessarily translating into listings. And I'd also say that the listings that are out there, the conversion rate from lifting the Crossing is probably as small as it's ever been given the fact that it's very difficult to secure any type of financing.

Raymond Martz

And then Andy, but we were very successful last year, the seven transactions we have would generate over $330 million of sales proceeds on. Certainly as we look, as Tom mentioned, with the Fed keeping rates up, it's likely to reduce the number of transactions are going to happen. This year, including for potentially us on, we'll still be active and look at that. But I'm just saying things are maybe to go a bit slower now given everything that's going on with the interest rates in the Fed.

Jonathan Bortz

Well, thanks, Anthony.

Operator

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

Jonathan Bortz

Great, great. Job everybody I did. I didn't think you'd actually follow the rules and limit your questions to one. So thanks.
Thanks for doing that. Clearly, we're here for additional questions that you have. We're happy to chat with you and we think we thank you for your interest and please enjoy the Hilton call that that starts at nine. And and we appreciate your interest in Pebblebrook, and we look forward to talking with you next quarter.

Operator

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