Pebblebrook Hotel Trust
NYSE:PEB
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
11.82
16.62
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Pebblebrook Hotel Trust
You don't have any saved screeners yet
Greetings, and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Raymond Martz, Chief Financial Officer. Thank you. You may begin.
Thank you, Donna, and good morning, everyone. Welcome to our second quarter 2018 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2017 and our other SEC filings, and future results could differ materially from those implied by our comments.
Forward-looking statements that we make today are effective only as of today, July 26, 2018, and we undertake no duty to update them later. You can find our SEC reports in our earnings release, which contain reconciliation of the non-GAAP financial measures that we use on our website at pebblebrookhotels.com.
Okay, we have a lot to cover this morning. So let’s first review the highlights of our second quarter financial results. Our second quarter financial performance exceeded the upper end of our outlook range. Hotel EBITDA was $74.8 million, which was $1.4 million above the upper end of our lookout. Adjusted EBITDA was $72.8 million, $6 million above the upper end of our Q2 outlook and adjusted FFO was $56 million, or $0.81 per share, which exceeded the upper end of our outlook by $0.09 per share, so a solid quarter for us in all financial metrics.
On the hotel operating side, same-property RevPAR increased 2.6%, which is at the upper-end of our RevPAR outlook of 1% to 3%. Our RevPAR increase was driven by 1.5% increase in our average rate and 1.1% increase in occupancy. The hotel operating beat was primarily result of higher growth and forecasted in non-room revenues, which grew a strong 4.4% in the quarter and greater success was ongoing cost reductions and relentless pursuit of operating efficiencies, which limited total same property expense growth to 2.4% even after 1.1% increase in same property occupied room nights.
Our same – our best performing hotels in the quarter were in San Francisco, which had solid convention calendar during the second quarter compared with prior year and created more rate compression opportunities for our hotels. Our San Francisco hotel has generated RevPAR gain of 15.5%. Hotel Zoe, which was under renovation last year and is ramping nicely, that’s a portfolio during the quarter generated RevPAR growth of 143%. Our other strong performing properties the quarter were Hotel Zetta, Hotel Zeppelin, which is also ramping from its 2016 transformation in Sir Francis Drake. Our underperforming hotels included Hotel Modera Portland, which is transitioning from the hotel’s recent renovation in management company change in addition to being negatively impacted from the increased supply in the Portland market, which also affected Hotel Vintage Portland, another underperformer in the quarter.
As we previously discussed, we expect that Portland to be a challenging market this year due to robust supply growth and that has been the case. Our downtown Portland hotel has also generated RevPAR loss of 3.3% compared with the market track decline of 3.9%, so on a relative basis, we declined slightly less in the market. The Westin San Diego Gaslamp Quarter was a significantly lagger in the portfolio in the second quarter as we continue to be negatively impacted by the sales and revenue management reorganization being implemented by Marriott as part of their integration of Starwood into Marriott. Unfortunately, this effort has been ongoing since the end of last year and it’s having a very negative impact on group bookings and overall performance not only at Westin Gaslamp, but our other legacy Starwood managed properties including WLA, West Beverly Hills and W Boston.
The Westin and W underperformed their competitive sets by 600 basis points and 1000 basis points respectively in the second quarter and Westin underperformed the downtown San Diego market by whopping 1,150 basis points. WLA underperformed the market by 120 basis points. What we’re hopeful that the reorganization will often lead to better performance were very disappointed in fact that’s a large impact for such an extended period already this year. And the overall poor performance in group bookings will have a greater than expected impact in the second half of this year as well.
So I suppose the good news is we are able to absorb this worse than expected performance with better performance elsewhere and hopefully these negative impacts will be limited this year and should make for easier comparisons next year. Interestingly during the quarter, our major branded hotels were our worst performing type of hotel posting a RevPAR decline of 1.8%, which is largely due to the Marriott Starwood sales and revenue management reorganization. Our collection branded hotels generated a 4.5% RevPAR increase and our independent hotels produced a 5.4% RevPAR gain being our portfolio in the quarter.
Overall for the quarter, transient revenues, which make up about 74% of our total portfolio room revenues was up 0.5% compared to the prior year and group revenues increased 10.4% in the quarter as all of our group segments were up including convention, association and corporate group, which is an encouraging sign. John will provide additional color including our much improved group pace especially heading the 2019. Because of these dynamics, monthly RevPAR for our portfolio increased 6.7% in April, which benefited from the Easter shift, 1% in May and 0.3% in June, which was dragged down by soft performance from our West Los Angeles Hotel and our Portland Hotels and rooms out of service had a negative impact from our hurricane related go back renovation at LaPlaya Beach Resort in Naples.
As a reminder, our Q2 RevPAR and hotel EBITDA results are same-property for our ownership period and include all the hotels we owned as of June 30. We only exclude hotels under renovation if they are closed during the quarter. Our hotel has generated $74.8 million of same property hotel EBITDA for the quarter which is $1.4 million above the top-end of outlook and $2.4 million above the mid-point. Same property hotel EBITDA margins increased 47 basis points, which was above the top end of our outlook of flat to down 50 basis points.
Our hotel EBITDA margin growth would have been even higher without the negative impact of property taxes, which reduced margins by 42 basis points due to prior year property tax reductions as property taxes increased 16.2% versus the prior year period. Also as a reminder on our restaurant tenant is leaving the property, which negatively impacted margins by 15 basis points or about $320,000 due to the net write-offs of straight line rents associated with this lease. Total revenue increased 3.2% were non-revenue rising 4.4%, which as mentioned earlier was better than we expected. Overall operating expenses increased by just 2.4% in the second quarter as our hotel teams and asset managers continue to manage through wage and benefit pressures across our portfolio to keep expenses in check through finding efficiencies, utilizing our best practices and making investments that improve performance and productivity including the implementation of green programs and conservation best practices.
Year-to-date same property RevPAR increased 1.3%, same property total revenues increased 2.6% and same property operating expense increased 2.2%, resulting a same property EBITDA margins increasing 28 basis points and same property EBITDA increasing 3.5%. Moving down the income statement, the $6 million in Q2 adjusted EBITDA beat was a result of several line items including the same property hotel EBITDA beat of $1.4 million and G&A expenses that were $1.2 million lower than expected. We also successfully finalized our insurance settlement relating to the Hurricane Irma and its impact out over LaPlaya Naples resort. This settlement totaled $20.5 million, which is the expected full cost of repair and remediated damage caused by the hurricane last September.
This incorporates the $3.4 million of 2017 business interruption income we recorded in Q1 and $1.9 million for our actual forecast for 2018 business interruption income as recorded in the second quarter. The 2018 BI was not included in our outlook and helped to contribute to our adjusted EBITDA beat in the quarter. This loss business income relates to the negative impact we incurred in the first two quarters of this year at LaPlaya and agreed upon negative impact forecasted for the remainder of the year primarily due to the significant go back work that’s disrupting the properties performance.
We also received $2.4 million of dividend income from our $349 million strategic investments in LaSalle’s common shares. $1.2 million of this dividend income was above our prior outlook due to the $5.4 million of additional of LaSalle common shares repurchased during the second quarter. However, this dividend income will be eliminating starting in the third quarter due to the merger agreement LaSalle executed with Blackstone, so this would negatively impact our third and fourth quarters by approximately $2.4 million versus our prior outlook, which did not assume the elimination of LaSalle common dividends.
We achieved adjusted FFO of $56 million or $0.81 per share, which exceeded the upper end of our original outlook by $0.09 per share. This resulted from the same property EBITDA and adjusted EBITDA beat, but was probably offset by $0.5 million of increased interest expenses associated with the LaSalle’s shares that we purchased by drawing on our unsecured credit facility. We utilized proceeds from our credit facility to fund the additional LaSalle common share purchases, so our interest expense is now forecasted to be $3.7 million higher during the second half of 2018 versus what was reflected in our prior outlook.
Combined with the reduced LaSalle dividend income of $2.4 million for the second half of 2018, these two items totaled approximately $6.1 million of negative impact or approximately $0.08 per share compared to our prior 2018 outlook. Our $349 million strategic investment in LaSalle common shares has impacted our 2018 operating results and likely makes our outlook somewhat confusion. To try and make the impact clear, have we not purchased the approximately 9.8% of LaSalle’s outstanding shares, our adjusted EBITDA would have been $5.2 million lower for half 2018, but our adjusted FFO and adjusted FFO per share would be $7 million and $0.10 per share higher for the – respectively for the year as compared to our prior outlook to be provided.
This impact to adjusted EBITDA and FFO excludes the unrealized gain of $20.2 million as of June 30. This gain represents the difference between our average costs per acquired share as $32.31 compared with LaSalle’s share price at the end of the quarter at $34.23 calculated for the $10.8 million shares we owned. Given the current LaSalle share price through yesterday's close, the current unrealized gain would be over $26 million. At quarter end, our debt to EBITDA ratio excluding the income and increased debt associated with the strategic purchase of the LaSalle’s shares was 3.4 times and our fixed charge ratio was 4.2 times.
And with that update, I would now like to turn the call over to John to provide more insight into the quarter as well as our outlook for the third quarter and the remainder of 2018. John?
Thanks, Ray. The second quarter was a very positive quarter for both the industry and for Pebblebrook. Overall demand growth accelerated in the second quarter from the first quarter as a healthy signs of improvements in group and transient travel that we saw late in the first quarter, continued throughout the second quarter and certainly seem to be a trend at this point. Leisure travel continues to be strong and data published by tourism economics indicates that international inbound travel has turned positive. So the demand side of the industry’s equation is clearly showing an accelerating trend in growth this year versus last year. And I'll be spending a little more time this morning trying to put all of the industry statistics in perspective in order to help everyone to understand the positive trends.
On the supply side over the last twelve to eighteen months, we've seen a flattening of not only net deliveries, which seem to be running in the 1.9% to 2.1% range, but industry-wide construction starts, which are now running slightly below deliveries clearly indicating construction starts are slowing and the industry is in the process of topping out the rate of supply growth. And the good news is the rate of growth in supply is topping out at a level below this year's accelerated rate of demand growth. So occupancies should grow this year by another 50 basis points to 100 basis points on top of an already record level of occupancy overall for the industry.
Supply growth in various urban markets will continue to be a challenge through next year particularly with delivery stretching out due to even longer construction delays. With demand exceeding supply growth this year and occupancy levels rising from record levels, we're seeing industry RevPAR growth accelerate from last year's rate of growth. In the second quarter, RevPAR increased to 4% growth with ADR growth accelerating to a 2.9% increase and occupancy rising 1.1%. We haven't seen 4% or better quarterly industry RevPAR growth outside of the hurricane aided fourth quarter last year since the fourth quarter of 2015.
We also haven't seen industry demand grow by the 3.1% rate of the second quarter outside of last year's hurricane aided fourth quarter since the first quarter of 2015 over three years ago. And finally, we haven't seen ADR growth as good as the second quarter’s 2.9% since the third quarter of 2016. Overall, it's clear the positive momentum continues to the lodging industry. And while the second quarter benefited from holiday shifts affecting both April and June, the rate of demand growth bottomed in the first quarter of 2016 and has been rising consistently ever since, clearly following the improvements in business activity and business profits.
The same can be said for the pace of ADR growth, which bottoms more recently in the third quarter of 2017 and has been raising sense. If we look at the weekday industry statistics in the second quarter, we see the clear presence of improving business travel. Weekday RevPAR increased a strong 4.3% in the second quarter accelerating from 3.9% in the first quarter and 3.6% on a trailing twelve month basis. Weekend industry activity has also been improving, but weekday RevPAR growth is now running higher than we can grow.
Weekend RevPAR grew 3.6% in the quarter compared to 2.2% in the first quarter and 2.7% on a trailing twelve month basis. Year-to-date weekday RevPAR growth of 4% compares to 3% for all of 2017 and weekend year-to-date RevPAR growth of 2.9% compares to 3.2% last year. Weekday ADR growth has also been accelerating growing 3.1% in Q2 versus 2.6% in Q1 and 2% in 2017, clearly a very positive trend. Weekend ADR has also improved growing 2.5% in Q2 versus 2.3% in Q1 against 2.2% in 2017. These improving trends particularly with business travel have been benefiting the urban markets.
We've seen a significant narrowing of the underperformance gap to the industry. At the beginning of the year, we were forecasting urban RevPAR growth would run between 150 basis points and 200 basis points lower primarily due to substantially higher supply growth in the urban markets. In Q2 with industry RevPAR growth of 4%, RevPAR for the STR defined urban markets grew 3.9% or just 10 basis points below the industry's performance. And while the holiday shift in the second quarter benefited business travel more so than leisure, this improvement in the performance of urban markets even with increased supply growth is a very significant positive.
The urban markets are also benefiting from an improvement in international inbound travel, which according to tourism economics has risen 3.9% year-to-date through April and 3.2% when we look at just overseas inbound travel, which excludes Canada and Mexico, which can be influenced by daily cross-border business or leisure travel. Since the Department of Commerce is temporarily halted providing inbound travel data that has indicated its previously provided data was inaccurate. Tourism economics has stepped in utilizing extensive alternative government and private sector datasets to make these estimates. And these numbers seem consistent with what the brands have been communicating.
As it relates to demand at our hotels, we continue to see increases in short-term group bookings as well as short-term pick up in our corporate transient business. In addition for the second quarter in a row, we're seeing increases in group bookings a little further out for both in the year, for the year as well as for next year, which I'll discuss in detail a little later, but this improving trend has already led to an exceptionally strong positive group pace for 2019. Our group pace for this year continued to improve in the second quarter. During the quarter, we went from being ahead by 2,700 group room nights at the end of Q1 to now being up 6,500 group room nights for the year. At the end of Q2 for all of 2018, group room nights were up 1.5% with ADR up 1.6% and group revenues up 3.1%. We booked meaningfully more rooms in Q2 for the year versus last year, 5% more rooms and 5.6% higher combined total revenues for both group and transient.
Most importantly at this point, total revenue pace for the second half of the year is ahead by 3.4% with total room nights group and transient up 1.8% and ADR up 1.6%. Pace for group and transient revenues are ahead equally for the second half both up 3.4%. We continue to see better attendance from groups both in-house and convention related and less attrition and fewer no shows. It seems that businesses are sending more people to their meetings and allowing more of their employees to go to conventions and conferences, maybe it's the same for your businesses.
More companies have told us or our operators that their travel restrictions have been lessened or in some cases eliminated completely. These are all signs that we saw late in the first quarter, which continued in the second quarter. At this point, we certainly call these trends. Finally, at our hotels, we continue to see groups spend more per group customer than last year either improving the quality of their meals or breaks or adding additional meals, breaks, cocktail hours or other events. This was a trend we identified at the end of last year and it is definitely continued all year this year.
As Ray said earlier, our overall operating performance was better than we forecasted. Our revenue beat would have been even higher had it not been for a much greater than expected negative impact from Marriott sales and revenue management reorganization. We’ll also have some easier comparisons next year for two other properties. Laplaya Beach Resort in Naples were as planned. We've negatively impacted the performance due to hurricane repair work including in the second quarter. The repair work is forecasted to be complete by the end of the third quarter consistent with our outlook.
And at Embassy Suites San Diego, we've also been completing renovation work as planned including in the second quarter that is negatively impacting room revenues by over $1 million this year. San Francisco let our better performing markets with our seven properties totaling a 15.5% RevPAR increase in the second quarter. Our Union Square properties outperformed our Fisherman’s Wharf properties as well as the market. I think the second quarter’s performance is a great representation of what happens in San Francisco when there is a strong convention calendar, particularly on a year-over-year basis. This bodes extremely well for 2019 with the city's convention business on the books growing dramatically over 2018, very similar to the second quarter of this year.
In addition to San Francisco, Minneapolis, Philadelphia and Naples performed better than expected. San Diego also performed better than expected, but our properties didn't participate given the Marriott reorganization and Embassy renovation impacts previously discussed weaker than expected performance in markets in the second quarter included Boston, Portland and West L.A. In the quarter, we modified some of our booking and revenue management strategies as we experimented with pushing rate in order to take advantage of the improvement and strength in business travel, which also tends to book more short term than other segments.
We're not doing this in all markets or at all times, but we're doing it where we believe there's likely to be more demand and compression due to greater business travel. We're having some decent success with this strategy and in some cases we're willing to give up some occupancy including taking less discount business in order to drive more rate growth and greater profitability. We find the results encouraging so far and we're continuing these efforts in the second half of the year.
I'd like to move on to an update on the performance of our recently redeveloped hotels. We're very pleased with the way our three transformative redevelopments from 2017 are performing so far this year. In the first quarter EBITDA on a combined basis from Palomar Beverly Hills, Revere Boston Common and Zoe Fisherman's Wharf grew by $2.8 million. As a result, you recall, we increased our growth forecast for the year for these three properties from $5.2 million of EBITDA in 2018 to $6.5 million.
In the second quarter, these three transformed properties grew EBITDA by another $2.7 million, which was better than we were forecasting particularly at hotel Zoe Fisherman's Wharf. Given the booking pace for these three properties in the second half, the second quarter beat and the positive momentum generated already this year where again increasing the EBITDA growth forecast for this year by another $1 million from $6.5 million to $7.5 million for these three properties.
Now let's spend a few minutes talking about 2019 before discussing the remainder of 2018. As we've mentioned previously, 2019 is setting up to be a very good year for both the industry and more importantly for Pebblebrook. As it has been discussed at length both by us and many others, San Francisco which represents roughly 25% of our portfolio wide EBITDA for 2018 currently has a spectacular convention calendar next year following the completion of the renovation and expansion of the Moscone Convention Center, which were told continues to be on track for a late 2018 completion.
Convention room nights on the books for the city for next year were up by 72% as of June with the number of days with compression as represented by days with 5,000 or more rooms on the books increasing a whopping 126% going from 39 days in 2018 to 88 days in 2019. These are obviously huge increases and are consistent with both our booking pace for 2019 as well as our increasingly confident expectations for at least a high single digit increase in RevPAR in San Francisco for 2019.
In addition to the strength in San Francisco, we'll have easy comparisons with our legacy Starwood managed hotels and our Kimpton hotels due to the significant negative impact in 2018 from the integrations and reorganizations as well as from the significant growth we expect at Laplaya due to easy comparisons and the benefit from the comprehensive property wide renovations we've undertaken in the last two years. We also have a significant number of properties that we've completely transformed that will be continuing to ramp up in 2019 towards stabilization including the seven properties in just the last two years.
At the same time, it's likely that economic growth will continue at a healthy level in 2019 coming off what is likely to be a record growth in corporate profits in 2017 and 2018, which combined are likely to drive further growth in business in both business travel and leisure travel. When we look at our pace for 2019, we’re particularly encouraged. Group revenues for 2019 are up a robust 28.3% over same time last year for 2018. Group room nights are up 22.9% with ADR up by 4.4%. The pace advantage for 2019 is also broad based with group pace up in all of our markets except Seattle, Coral Gables and Minneapolis, which was already fully booked for the Super Bowl this year.
Those three markets combined are down roughly $600,000 in group revenues in 2019 while the rest of our markets are up $8.7 million. Combined with transient, total revenue pace for 2019 is ahead by 29.6% with room nights up 23.6% and ADR ahead by 4.9%. It's all extremely positive right now for 2019. With pace for the rest of 2018 ahead in a positive way and with economic and travel trends very favorable, we're optimistic about the second half of this year. As a result, we made a tactical decision 30 days ago to expand the scope of renovations at two of our properties in San Francisco in order to position them competitively to take most advantage of the upcoming strength in 2019 and beyond in the city. The increased scope at Hotel Zelos and Sir Francis Drake, which now includes the addition of relatively disruptive and time consuming bathroom upgrades will reduce our room revenues in the second half of the year and primarily in the fourth quarter by almost $3 million. This represents an impact of almost 60 basis points to 2018’s potential RevPAR growth and over 110 basis points to the second half growth rate. As a result, we're not in a position to increase our RevPAR growth rate or our hotel EBITDA outlook for 2018 even with the second quarter’s favorable performance and our very positive outlook in general for the second half of the year.
So by keeping our hotel EBITDA outlook flat for 2018, we're absorbing this higher level of EBITDA disruption from renovations through the $1.4 million second quarter beat and an improved outlook in general for the second half of the year. And due to our improving expectations for the industry, we're increasing our outlook for industry RevPAR growth to a new range of 2.5% to 3.5% and we're increasing our outlook for the urban segment to a RevPAR growth range of 2% to 3%. While our RevPAR growth and hotel EBITDA outlooks are not increasing, we are increasing our outlook for adjusted EBITDA for 2018 by $2.2 million. Despite the higher interest expense due to our increased strategic ownership of LaSalle and the elimination of dividends on the LaSalle investment that were previously included in our outlook for the second half of the year.
Finally, I'd like to make a few comments about the status of our pursuit to strategically combine with LaSalle Hotel properties. As you know in late May, the LaSalle’s board made a decision to enter into an agreement to sell LaSalle to Blackstone for a price of $33.50 per share despite the 7.1% premium at the time of our stock in cash offer. After increasing our ownership to 9.8%, we decided to revise our offer to fix the cash portion of our offer at $37.80 per share providing a partial but substantial anchor to the value of our offer. At that time, our offer represented a premium of 13% to the agreed upon Blackstone price of $33.50. Despite this huge premium, LaSalle again declined our revised offer and did so without communicating or negotiating with us in any way.
Based upon the favorable industry trends, the continuing positive performance of our stock and all of the lodging REITs, LaSalle shareholders have been consistently valuing our offer at a significant premium to the Blackstone price as clearly evident by LaSalle’s shares consistently trading in a range with a very significant premium to what is now the Blackstone take under price. Based upon our discussions with LaSalle’s shareholders owning the vast majority of LaSalle’s shares, it should come as no surprise that they are overwhelmingly in support of our offer and completely against the existing proposed agreement.
Consequently the proposed agreement with Blackstone is not in a position to receive shareholder approval and not surprisingly might not even get any votes today given where our stock and their shares are trading. After all since LaSalle’s announcement of the Blackstone deal, over 110 million LaSalle’s shares have traded and every single one of those shares traded above the Blackstone price, so clearly any shareholder wanting the certainty of cash has already received it. Consequently, we strongly encourage LaSalle’s board as we did in our most recent letter sent late last week to take advantage of the opportunity to deliver more value to their shareholders by a seeding to those shareholders clear desires, which has been expressed in the many shareholder letters and discussions both publicly and privately provided to the LaSalle board. We urge LaSalle’s board to recognize the changes and facts and circumstances determine that our offer will lead to a superior proposal and move forward with quickly finalizing a merger agreement with Pebblebrook.
Even take into consideration shareholder approvals, we believe we could close in the next 90 days if not sooner. We believe the many benefits of strategically combining our two fine companies are compelling and very clear to our shareholders and LaSalle’s shareholders, many of them continue to be the same and we've clearly laid out those benefits and our letters to LaSalle’s board over the last five months. So we don't feel it's necessary to repeat them here. Given our substantial ownership in LaSalle and the overwhelming preference of LaSalle’s shareholders for the higher value of our offer, we want to again make it clear that we're not going away until LaSalle’s shareholders are satisfied.
We’d now be happy to answer any questions you have. Please keep in mind, due to instructions from our legal counsel, there's limited further comments we can make about the proposed merger. Hey, Donna, you may proceed with the Q&A.
Thank you. The floor is now opened for questions. [Operator Instructions] Our first question is coming from Jeff Donnelly of Wells Fargo. Please go ahead.
Good morning, guys. Actually just maybe a first question for the housekeeping is on – on the disruption what's the total EBITDA that you're expecting to have lost from renovation disruption in 2018 and then specifically LaPlaya.
Give us a second here. I think as it relates to LaPlaya, it's between the $1.5 million and $1.9 million, which represents also the settlement. And then in total, we're talking about $6.3 million from renovations.
Okay, that's helpful. And maybe Jon, I just had a question for you about pricing power. The industry and most of your markets are at record occupancy, but the incremental demand that we're seeing isn't necessarily translating to the rate spikes that maybe were accustomed to seeing in kind of comparable periods in the past. Is that a reflection of just price transparency that now exists in the industry, let’s kind of call it corporate austerity is? I guess I'm curious is there something about the nature of the demand that maybe has curtailed the ADR spikes that maybe we used to see in some markets.
So I think it's likely a result of quite a number of factors, Jeff. I mean I think part of it we've talked about in the past there are some structural issues in the industry that some of which can be addressed obviously the issue of transparency and pricing cannot and that’s to the clear benefit of consumers. But I think as it relates to some of the structural issues we've talked about in the past, most of them are in the process of being corrected. It involves the terms upon which basically the agreements are made with the customer where most of our properties cancellation rights need to be outside of either 48 or 72 days.
The industry as well as our properties have been selling much more advanced purchase rates and terms, which means those are prepaid nonrefundable rates. And both of those allow our properties to at this point as those changes have been made. It allows us to better revenue manage our properties and in many cases to wait for the higher price later business that we've traditionally had particularly coming from business travel. And with the improvement in business travel, we've seen an improvement in ADR growth. We haven't seen a dramatic increase in ADR, but we have been gradually seeing ADR increases as I communicated in detail and in the comments.
But I think the improvements in cancellation terms, the variety of pricing alternatives and term alternatives being provided to the customer are beneficial ultimately to pricing. I think the increased regulation that's being passed in many cities will be passed in additional cities along with increased enforcement related to short-term online rental management that violates zoning. I think that is beginning to benefit markets as we've seen in both New York and probably San Francisco just recently passed in San Diego, just recently passed in Boston was passed in Chicago. So I think that's beneficial.
And then Marriott is relaunching a combined loyalty program of their three brands, the Starwood SPG program as well as the Ritz in the Marriott loyalty programs on August 2018. And with that they're changing the – and we’ve talked about this before. They’re changing the reimbursement formula for redemptions to owners to make it much more of a slope instead of an on/off switch at 95%. And we think that will have as well a very positive impact on future ADR growth and opportunity as revenue managers don't need to try to do everything they can, including really lowering rates at the last minute in order to get to that 95% on/off switch if they have a lot of redemptions on the books. So we are seeing things move in a very positive direction and it certainly wouldn't come as a surprise to us as this demand supply imbalance continues in a positive way that we continue to get more pricing power in many of our markets.
That's helpful. I know it's a far reaching question. And maybe on the expense side, I guess, how do you think we should be thinking about expenses in the next 12 to 18 months? Labor costs seem to be a significant and growing part of the expense pie if you will. And it's hard to point to other expense categories that can provide some offset. I'm just curious how you're thinking about expenses and maybe flow through in the pace of sort of rising RevPAR that we're enjoying.
Yeah, I mean, I think the fallacy of just thinking of it that way Jeff is that there are lots of new ways to do things. And so technology is beneficial. Efficiencies can be found through investment and energy reduction technologies and green programs. There are new technologies that come out every day. As you know we are seeing a shift. It’s very gradual and should be as the technology needs to be substantiated and any bugs taken out. But we're seeing more folks bypassing the front desk completely and going right to their rooms with the ability to open their doors off their phone devices.
So I do think as we've shown already this year and as we're forecasting for the second half of the year, I think we are able to find efficiencies, different ways of doing business, different concepting in our food and beverage outlets, changing the way we do business, job sharing, all sorts of things that offset the wage and benefit pressures, which are probably running 3% plus in our markets throughout our portfolio.
Yeah, thanks. I’ll jump back in the queue. Thank you.
Thank you. Our next question is coming from Rich Hightower of Evercore ISI. Please go ahead.
Hi, good morning guys.
Good morning.
Good morning.
Jon, I want to go back to the question about the Marriott, Starwood sales reorganization and see the impact that it's had on your portfolio this year. Is there a way to frame out for us what the market lost share or RevPAR index share has been this year? And then what those easy comps might look like next year that you sort of alluded to but did you give maybe as much detail on? Is there a way to frame that out quantitatively for us?
Yeah. So, right now, the combination of the lost RevPAR from the Marriott, Starwood integration for the year and the integration of Kimpton with IHG were estimating a total of 100 basis points of RevPAR loss for the whole portfolio. So, obviously, it's much greater with the impact of hotels.
Okay. And is that broad based across every market that you're in? I mean would you say it's isolated to a handful of hotels and markets?
See I wish it had been isolated. Unfortunately, it's pretty broad based across the three Marriott managed hotels because those are the three that have been reorganized and all of the Kimpton properties because the systems integration and changes had an impact on all of them. It was varying degrees at all properties, Rich. Obviously none of them were exactly the same, but it was pretty broad based that none of those ten properties in total were spared.
Got it. Thanks, thanks for the color there. And then the second question here, just as you’ve described the incremental improvement in underlying trends since last quarter, since the beginning of the year, have you thought about updating your NAV estimate in the – for investors now that presumably the value of the properties is going up in that period.
Well, we did do it last quarter in…
In June…
In June, so last month. So I think that that took those things into account already.
Okay, got it. Thank you.
Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.
Hi, good morning everyone. A few questions on the San Francisco renovations. I think every REIT that we cover is doing some kind of renovation in the market this year. Given that do you expect any kind of RevPAR index gains from Sir Francis Drake deals? Or is it more of a matter of keeping up in the market?
Well, we do expect gains not just because of the bathroom work but because of the guest room work that we're doing as well. Those were already previously scheduled renovations for the guest rooms and we made a decision after touring the market and having conversations with our operators that we would benefit from doing additional work and substantive work in the bathrooms. And so, we've done that work previously at Zetta and Zeppelin and Zoe, a lot of Zs, sorry, that's our thing though and it's paid dividends. And so we do think we'll pick up share. Overall, we don't think it's completely defensive. It certainly is some somewhat defensive as others, as you’ve indicated, have made similar improvements in their properties.
Good. Thanks. And a couple of the renovations like I think particularly [ph] Zoe had some delays in recent years given the strength in the market. It's important that the renovations are done on time. How will you ensure that there aren’t any incremental delays at these two projects?
Well, we've been – I don't know if we can ensure given the challenges in the market, but it goes to having extremely experienced project managers on the job now who've gone through many of these in the market same with the contractor and subs that’s get selected making sure they have the crews available and committed to the schedule that that they've provided to us. We've tried to build in plenty of cushion. Don't know if it's enough, but we know how these things have worked in the past. And in our case, we've also built in additional dollars that might be needed in order to accelerate any work that might otherwise get behind.
So we've also been careful in what we've selected, how – try to limit the construction, but for the work we're doing in the bathrooms, we've limited the construction, which limits the permits that are required and the ultimate inspections that are required. So, we're doing everything we can. There's no assurance that that we won't have issues, but hopefully we've built-in enough cushion and enough contingency.
Got in. And so one more for me, supply growth has been an issue in Portland. What's kind of the next two years looks like in terms of supply growth there? And when you think your RevPAR can kind of turnaround in that market?
Yeah, so, it gets a little bit better next year, but not much. And then with the delivery of the 600 room Hyatt over adjacent to the convention center, it continues on into 20. So I'd love to tell you we see a light at the end of the tunnel in Portland, but we don't right now. That's probably one of the markets with the most supply growth outside of maybe Nashville in our whole portfolio. And the good thing is Portland is a strongly growing market economically. It’s benefitting from being between the really strong markets of Seattle and San Francisco, but it's a lot of supply. And we think the Portland market is going to continue to be a challenge over the next couple years.
Okay, got it. That’s it for me. Thank you.
Thanks, Anthony.
Thank you. Our next question is coming from Michael Bellisario of Robert W. Baird. Please go ahead.
Good morning everyone.
Good morning.
Just first on San Francisco maybe kind of your near-term outlook there. How should we think about kind of the quarter to quarter performance 3Q and 4Q this year, volatility up, volatility down before…
Yeah.
We had a good run rate next year.
Yeah, that's a good question because the two quarters are dramatically different. So we think the third quarter is going to be mid to maybe upper middle single digit RevPAR growth. It's a good calendar compared to last year. We’re up in compression nights in the market by 11 versus 8 in the quarter last year. We have sales force that moved from November to September. So that should help obviously July 4th was a big negative following as a Wednesday right in the middle of the week and that impacts all markets and the Jewish holidays in September.
And then Q4 is sort of the last week convention calendar. As I said with sales force moving out of November into September that room nights are down about 205, 24% right now and Q4. So we expect Q4 to be probably flat to down as a market albeit with more than normal rooms out of service for renovations not just with our properties, but a number of properties in the market including as an example the W and the big Marriott marquee.
And all those numbers are for the broader San Francisco market, right?
Correct.
Got it. That's helpful. And then just kind of in the whole LaSalle process, it's clearly dragging on, but maybe when do you think about regardless of the outcome there looking at other acquisition disposition opportunities for your existing portfolio to use your cost of capital advantage that you have today you know obvious smaller deals, but potentially value creating transactions on that outside?
Yeah, I would say for now and for the foreseeable future until there's a resolution will be I guess solely and hyper focused on trying to put these two companies together which makes so much sense.
That makes sense. That’s all for me. Thank you.
Thanks, Mike.
Thank you. Your next question is coming from Stephen Grambling of Goldman Sachs. Please go ahead.
Hi. Thanks for taking my questions. I guess excluding the proposed transaction out there and I guess given the strengthening debt market and strengthening underlying trends, how are you thinking about approaching hotel acquisitions and dispositions?
So it's similar to what I just mentioned. As it relates to acquisitions, we're really not focused on other acquisitions at this point. It's really hard to pursue other acquisitions and plan out your financials with a potential $5 billion combination up in the air. So for us we're very comfortable waiting because of the benefits of being successful there if we ultimately can be. As it relates to dispositions, our disposition effort will be relatively limited. We’ve talked about a couple of assets in the past that we would have an interest in selling one of those is our Minneapolis property and the second is the retail space, the 44,000 square foot retail space at Hotel Zephyr that we call Zephyr Wharf.
And we're in the process of working with the ground lessor to divide the ground lease into two ground leases, one that would be just for the retail and one for the hotel, the parking and the rest of the property and that that will probably take us another nine months to a year to get finished. We are moving forward with that and hopefully get a final agreement with the ground lessor because it creates great liquidity for them and more flexibility to have two assets that they could treat separately versus us. The other thing is as we've said in the past street retailer, retail in general is not our core discipline and expertise. And so net asset would be much better performing if it were in somebody else's hand too, actually knew what they were doing versus our efforts.
So that's really how we look at it in general. We do continue to receive unsolicited offers for individual properties and we continue to be open to selling any of those properties at the right price and as you know we sold about $700 million over the course of about an eighteen month period and some of those were clearly opportunistic in nature.
Great and maybe a follow up on that. I guess I appreciate the time constraints with the current deal, but maybe more philosophically as you're seeing strengthening trends and loosening debt markets. Are you changing your own or would you be changing your own underwriting standards? And as you look at deals that are done in the markets, do you feel like others may be changing that underwriting standard too?
Yeah that's a fair question. I don't think so, Stephen. In fact we've talked in the past that we would look even before the major trend – potential major transaction here. We've talked about that we'd be looking at acquisitions based upon what we see as maybe reacceleration in the industry and in our portfolio in our markets. But it still has laid in the cycle and frankly going out and paying cash, given the aggressive nature of some other buyers and the pricing that's out there.
I guess we’d be probably – we'd be looking and we'd be underwriting. I'm not sure that we'd be committed enough to take advantage of our cost of capital advantage enough to offset the extra risk we see in buying for cash assets just laid in the cycle. So I think we would be a looker. We'd be in underwriter. I doubt we'd be successful. Given – I do think the levered buyers in general may have an advantage out there given the increasing availability of debt and the attractive cost nature of that debt.
That's super helpful context. Thanks so much.
Sure.
Thank you. [Operator Instructions] Our next question is coming from Lukas Hartwich of Green Street Advisors. Please go ahead.
Thanks. Hey guys, is there a way to quantify the impact on San Francisco’s fundamentals from those new home sharing regulations?
I wish there was. I mean there's not really great data. What we look at is obviously the anecdotal evidence, the drop in the inventory that that’s happened because of the new law going into effect and the enforcement of that. And I think that those will continue actually to decline over time as the enforcement gets batter and in some cases gets more aggressive in the market. So I wish there was a way to quantify it. There wasn't a way to quantify the impact of the growth in the short-term online rental other than anecdotal and there really isn't a way at least for that we've seen to quantify it in the other direction.
That's helpful. And then I have another quick one. Just the 2019 pace that you talked about, what was it 23%, 29% or some like that.
28%, 29%, yeah.
Okay, 29%. What percentage of your expected business in 2019 is that? Is that like 10% to 15% of your total business in 2019?
Yeah so the group – well, the group that we have on the books right now represents about 25% of what we expect will be the budgeted group for the year.
Okay. And then that 29% was that group plus transient or was that just group?
Well, we gave two different numbers, Lukas. Group was up 28.3% on which 22.9% growth in room nights and 4.4% in ADR. And so that number, the 25% I just gave you was for the group.
Okay.
And then the pace in total is up 23.6% in room nights, 4.9% in ADR and 29.6% in revenue. Obviously not a huge amount of transient on the books although the big piece, the big impact would be transient related to JPMorgan, which is in the first two weeks of January in San Francisco and with average rates particularly in the Union Square Market north of $1000, when those are up 10%, its $100. And so some of that obviously is showing up in our pace data.
Great, really helpful. Thank you.
Sure, thank you, Lukas.
Thank you. At this time, I would like to turn the floor back over to Mr. Bortz for closing comments.
Okay, thanks, Donna. Thanks. Thanks everybody for participating. Hopefully, we'll see some progress on some of these issues and certainly we look forward to a great third quarter and second half of the year and we look forward to communicating our results to you in another ninety days and in the meantime we wish everybody a great summer. Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time and have a wonderful day.