Greetings, and welcome to the Pebblebrook Hotel Trust Third 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, Mr. Raymond Martz, Chief Financial Officer. Thank you, sir. Please go ahead.

Well, thank you, Donna, and good morning, everyone. Welcome to our third quarter 2021 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 SEC filings. Future results could differ materially from those implied by our comments. The forward-looking statements that we make are effective only for today, October 29, 2021, and we undertake no duty to update them later. We'll discuss non-GAAP financial measures during today's call. We provide reconciliations of these non-GAAP financial measures on our website at pebblebrookhotels.com. Okay. So on to the highlights of the third quarter. The third quarter marked another important milestone in our recovery from the pandemic. We generated $21.4 million of adjusted funds from operations, which was the first quarter since the pandemic that we produced a positive FFO and represents considerable progress from Q2 when we had negative FFO of $15.6 million, in Q1 with negative $55.7 million. Third quarter hotel and adjusted EBITDA climbed robustly from the second quarter as well and were driven by significant increases in same-property RevPAR and same-property total revenues while at the same time, costs were well controlled. Same-property hotel EBITDA rose by 136% to $66.6 million from Q2's $28.3 million. The sequential growth was driven by robust leisure travel, improving group and transient business travel and an ability to push pricing higher, particularly at our resort properties. Same-property room revenues rose a substantial 51% from the second quarter and same-property ADR rose 10% from Q2, and for the first time exceeded the comparable quarter in 2019, in this case, by 3.8%. Same-property total revenues…

Okay. Thanks, Ray, and good morning, everyone. So I thought I'd focus on what we're currently seeing in our business, how we think the rest of this year is likely to play out, our current expectations for 2022, will delve a little deeper into the performance of some of our existing properties and markets as well as discuss the capital reallocation decisions we've made in the last 18 months. As Ray said, we're certainly very encouraged by the reacceleration of the recovery we've seen in the last six weeks, particularly as it relates to business travel and group demand. While leisure demand recovery started early and has grown to robust levels, we all know that getting back to 2019 levels for us requires further recovery in business travel. As we stated last quarter, we believe, we should get back to 2019 EBITDA levels before we get to 2019 RevPAR, and we expect to consistently hit or exceed 2019 ADR levels before we get back to 2019 RevPAR. We're very encouraged by the performance of rates in both the industry and our portfolio. We, of course, are aided by our concentration in drive to resorts. And as Ray said, we're achieving ADRs at our resorts that are dramatically higher than 2019 levels. Some of this is due to a lack of competitive alternatives like cruises or traveling abroad or even vacationing in cities. Some of this premium has to do with repositioning resort ADRs to higher levels and a willingness on the part of the consumer to buy up to suites and view rooms and the like. And about a third of the premium is due to the transformational redevelopment projects we undertook in the last few years at our resorts, where we substantially repositioned them higher in quality, and as…

Thank you. The floor is now open for questions. [Operator Instructions]. Our first question is coming from Dori Kesten of Wells Fargo. Please go ahead.

Thanks, good morning everyone. I appreciate the top line guidance for Q4, but I'm just trying to think through how incremental labor will hit the bottom line. So can you put the margin shift from July to September that you saw into some historic context? And I believe in 2019, margins contracted about 600 basis points Q3 to Q4.

Sure. Well, it's a lot of difficult assumptions here, Dory, because we're also -- we have a pretty good handle, obviously, in October -- we're monthly three here. November and December, we're going to see how that would demand. Historically, as you know, as we get until the holiday season after mid-November, business trial tends to slow down and shut down through the end of the year this year, but we think that will be very similar we expect a little bit stronger resort side. But you should expect margins overall. First of all, the portfolio is a little different than prior years. We have a larger reserve component. That's one. But it ultimately will come down to overall the demand. And we're not focused just on margins. We're focused on how do we get the profit per key. But you should expect that October should be better than September. November is probably on a kind of profit side closer to the kind of September area range. In December, we'll see. But likely, December is usually always softer than November even with our current portfolio.

And Dory, I guess the way -- look, we don't -- if we had a good feel for above margins and the bottom line operating result, we would have provided that guidance, but we don't really have a great view on that at this point. We don't know how many more people will get hired in the next couple of months as we continue to fill open positions. But one of the things you could use is take a look at the total revenue decline from month-to-month. On the way up, I think we were probably averaging about 50% of additional revenue flowing to the bottom line. In the seasonal slowdown, particularly as we continue to add staffing, it's probably more like 75% of the decline in revenue will help hit bottom line margins. So I think that's a reasonable guess. It could be off by as much as a third. So I'm just letting you know it and provide a contingency that it's hard to forecast at this point in time.

Got you. And can you walk through what you're seeing being marketed for sale or up market? We've heard more city center hotels are coming to market in the near term versus the prior weighting toward more resorts.

Yes. So I guess it's all relative. So the activity on the resort side has brought out a lot more resorts. Lots of resort areas that we weren't familiar with just like Jekyll Island in Georgia. There are additional properties in the cities now coming to market. It's -- I think it continues to be a slower set of offerings, and there's probably a more limited number out there. And as you know, we've sold a few properties in urban markets over the course of the last six months. So I think part of the benefit of our offerings were that there was limited product in those markets. And certainly, our properties reviewed pretty favorably.

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

Hi -- hi good morning. I wanted to ask you two quick questions. First of all, are you seeing any difference between your branded hotel performance versus the non-branded, branded is a smaller piece, maybe just some thoughts around that. And then could you want to just maybe give a little more detail about how you're seeing the recovery in San Francisco and how you think that market could kind of perform over the next several quarters?

Sure. So over the course of the recovery, our recovery has been led by our independent lifestyle properties and some of our branded lifestyle properties. And not surprisingly, some of the larger branded properties like our Westins were a little slower to recover. The independent properties have a lot more appeal to the leisure guest, which has been, as we all know, the driving force behind the major part of the recovery so far. So it shouldn't be surprising at all that that, that's occurred. I think as it relates to San Francisco, it's just slower to recover. The big tech companies have been slower to return to office. We all see the micro data that's put out by some of the companies that provide security and check-in services at office buildings. And so it's definitely been slower to recover in that market. The good news is it has been recovering the case loads in San Francisco are the lowest in the country, frankly. And so we do expect particularly with international travel opening up again to see both some leisure and business travel recovery pick up. But San Francisco like Chicago and DC have struggled without conventions, major conventions in the market and without the major part of the corporate recovery in the case of San Francisco and Chicago and in DC, the federal government, which hasn't come back to their offices yet.

Thank you. Our next question is coming from Rich Hightower of Evercore. Please go ahead.

Hey good morning guys. Thanks for all the detail in the prepared comments. I want to drill down on the NAV analysis for a minute here. So maybe just give us a sense of like, obviously, EBITDA at the resorts is surpassing 2019 levels. It looks like the NAV here is geared toward 2019 actuals across the board. So what's the chance? What's the probability, let's say, that some of your urban markets are sort of non-resort hotels don't get back to that level of performance for the foreseeable future. And then secondly, does it even matter? Are buyers underwriting that either way, whether we believe it or not? And then on the cap rate side, with depressed income levels, obviously, cap rates don't mean a whole lot going in, but is there sort of an IRR target that these would suggest buyers are underwriting to over a longer period of time? Thanks.

Yes. So I'm glad you asked this question because it sort of gets to the heart of how we underwrite these values. These are not theoretical values. We didn't use cap rates to come up with these values. We used market transactions that are occurring. And so what it tells you is how -- we don't know all the variables other buyers are using. When we look at buying, we're looking at forward cash flows. Unlike properties that have long-term leases and where cap rates are sort of the methodology or the dominant methodology, it's not the case in the kind of assets that we own and buy and sell. And so it really is based upon the buyer view of future cash flows, their required IRRs. When we buy, we look at five year cash on cash, we look at fifth year cash on cash. We look at discount to replacement costs, which has an impact on risk in the market. We look at other risks in the market, whether it be legislative, whether it be union, whether it be brand or encumbrance that impacts control and value. And we suspect other buyers are looking at similar items. So these are numbers not driven by cap rates but driven by how folks are underwriting in the market. And not just -- I mean, it's not just 2019, as you pointed out and we've said, our resorts are performing well above 2019 levels. We've done our best at kind of estimating the value improvements in those assets. But it's a hard thing to do. I mean, I'll give you an example, Rich. I mean, LaPlaya in Naples is going to do 50% more EBITDA in 2021 than in 2019. Now we've put significant money into that asset repositioning it up.…

I get it. Either way, the 30 to 35 doesn't necessarily represent a liquidation value that Pebblebrook would be comfortable with. In reality, spot and time today. I mean it's just kind of a helpful guidepost, I think, more than anything. Is that accurate?

It's definitely a spot in time. And these numbers have gone up substantially in the last six months, not surprisingly in our own internal calculations and -- but we didn't feel like we had enough transactions, actual transactions in the market to feel comfortable putting these numbers out publicly. So they're going to continue to move based upon performance and how the recoveries play out and how buyer perspectives change on the market and how much product becomes available in the market. There's just a lot of variables, obviously, that can impact values.

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

Hey good morning everyone. Jon or Ray, you did give some color throughout, but hoping you could just drill a little deeper on the mid-week occupancy improvement that you're seeing throughout the portfolio so far in October. Yes, I think you said the occupancy is already back to July type levels. It sounds encouraging. But can you give us a little bit more color on markets and industries that might be driving that and a little bit of behavior you're seeing there?

Sure. So I mean, we've all seen the improvement in a lot of the micro data. And I know BofA publishes a lot of it and in some cases, actually accumulates some of it as well. But if we look at October as an example for weekdays, through October 24, the portfolio for weekdays is running at 50.7% at a rate of $249. So that would compare to September weekdays, as an example, that ran 43.3% for the full month at a rate of $244. So again, continuing improvement in both rate and occupancy. And if you go back to July, which was the peak so far in the recovery, we ran -- weekdays, we ran just under 53%. And at a $261 rate, which obviously was dramatically impacted by the much higher resort rate. Resort rate for weekdays ran $424 for our resorts. And for our urban properties ran $218 for weekdays in July. So for urban weekdays in October month to date, we're running at $235. So you can see that's up from the 2018 in July and represents continuing progress we've made on rates and as business travels come back. So I would say, from an industry perspective, Shaun, I mean it's fairly comprehensive across the board. We get reports weekly with a lot of comments from our teams. We asked them to provide comments about which of their corporate accounts are returning even if it's one or two or three rooms and then track that over the course of months. And we've just seen a lot more of the typical corporate names in each of our markets, a lot more of our major accounts, albeit at much lower volumes, but definitely traveling. A lot of volume from consulting, which has come back, project business around the country, medical, pharmaceutical, bio and life, biomedical and life sciences. L.A. is benefiting from entertainment, production, music concerts starting back up. Music groups come to L.A. and practice before they go out on tour as an example. And so they come and their teams stay for weeks at a time before they go out on tour. Fashion is returning, commercials being made. I mean it's -- where we haven't seen it is just volume out of a lot of the larger accounts, which would include financial services, albeit a lot of those are on the road again. All of our banks in our line, 18 of them are all traveling again, even though they're not back at the office yet. So that divergence is a positive. While we do think back to the office will influence it because we think if you're in your office, you're likely to have guests come visit you and invite people to come visit you. But it's definitely -- they've definitely been disconnected so in a positive way.

Great. And maybe just as my follow-up, there's been some increasing delineation in the industry between small corporate and big corporate where we started to see, I think, small- and medium-sized enterprises getting back to normal a little bit faster than maybe the Fortune 500 largest kind of corporate account clients. Any way you could either break that down size-wise for your portfolio? Like do you know your exposure to maybe like larger-scale corporates versus a more mixed bag? Or for the industry, have you ever seen anything interesting there? Just sort of a high-level question because we're getting this one increasingly.

Yes. I mean we -- I would direct you to the brands who might have better information. I mean, frankly, again, since when you think about it, I would guess of our business travel demand, our transient business travel demand, I would guess 60% or 70% of it at least comes through non-corporate account channels. So those are being made through the GDS system, through OTAs and other channels, direct on our websites. And they may or may not provide a corporate name they may or may not be there for business. It's what we've always said. We just don't have the best tracking data. We know it comes through our corporate accounts, but our corporate accounts are a small percentage of our overall business travel. And frankly, when you have citywides and conventions, it gets even more blurred because a lot of people don't stay in the convention blocks, they just book directly with hotels. That comes through as transient for us, but the demand driver is group. It's a convention. It's a big conference. So I wish I could provide you more better information on that. But I'd say anecdotally, 80% of our business right now is probably small and medium business travelers, whereas the larger corporations have been slower to recover their volume from pre-pandemic times.

Thank you. Our next question is coming from Gregory Miller of Truist Securities. Please go ahead.

Good morning. My first question is on hourly staffing trends at your hotels. I appreciate labor models may be quite varied across the portfolio, and there may be structural reasons why you're not seeing as much wage growth. One high-level figure from the Bureau of Labor Statistics noted about a 13% year-to-date increase in hourly earnings for nonsupervisory roles in hospitality. But if I understood your commentary this morning, you're not seeing these hourly wage increases in general, perhaps excluding the resorts. So taking a narrow view, for a housekeeper, for example, roughly how much higher is an average wage today versus earlier this year in your resorts versus your corporate focused hotels, if you're willing to share?

Yes. I mean I would share it if I had that information, but I don't have that information specifically. I would say this, Greg, to think about it in a broader context, if you don't mind, it's probably the best I can do. But in urban markets, what we've done is we followed what we typically do, which is we follow either our union contracts where we're union, those have specific increases each year already negotiated. In many cases, those are obviously a multiyear intermediate-term contracts. Those have generally been anywhere from 3% to 4% a year in terms of the wage side. And as cities, the rest of the properties that are nonunion in those markets typically follow. So we would have had those increases for the most part last year. It's possible there were properties that ended up being closed last year, and they didn't take those increases. So when we came back this year, maybe we went up 6% earlier in the year because it was a two year process where we went up the 3% the market moved last year, and then we caught up in July with another increase. So we're really just following the market. Keep in mind, the urban markets for the vast majority of the cities that we're in are way above where either a minimum wage legislation is or we hear about Amazon and Costco and Walmart or Starbucks taking substantial increases, but they're generally way below where our housekeepers are in our properties. So the cities just don't -- aren't getting impacted by that bureau of labor data, which I don't think breaks it down between a city and -- and a suburban or secondary or tertiary market.

Yes. And Greg, just to add on that, the wage pressures that we're seeing and the wage challenges are more in the suburban markets and the resort markets than urban. Urban had been less of a challenge with the hourlies. Clearly, the demand is at a different level there than the resorts. It's resorts that have been and suburban markets more pressure. And that's also where folks like Amazon and Walmart are also hitting more too because that's a good job in a suburban resort market.

Well, it's where the wages are lower. So it's really the secondary markets, the -- some of the resort markets and Key West has been -- always been a challenging market, and we've had some increases there. I guess they've probably been anywhere from 5% to 10%. And then we've had some of the third-party contractors we use for housekeeping and the keys go out of business. Perhaps they weren't paying their taxes to the federal government. So they got put out of business. And so we've had retention bonuses in place for new hires. six months out, we might pay $250 or $500. We've had referral bonuses. Frankly, that's fairly common practice, but some have increased to -- from $250 to $500 because the best the best channel for hiring are people's friends and family, frankly, in these hourly positions. And I think the other thing to think about is at our properties that have successful outlets, food and beverage and banquet and catering, we're able to pull people from other properties that don't have the same volumes or the same pricing because those people make more money at our properties and in our outlets and they do at another property. And so I do think there's going to be some bifurcation in the ability to hire and the ability to pay and people to earn higher wages and benefits versus in some of these markets between higher quality properties and lower-rated properties.

Thanks for the insights there. And I also struggle with getting to a market level perspective. I don't think BLS does it. So it's all very, very helpful. My follow-up is related to what you're just discussing. There's a bit of a consumer behavior and customer service question. While not specific to your hotels, across the service industry, one emerging theme as of late is that consumers are paying the same or more for services but the service quality is getting worse. NPR had a piece of this recently calling the concept skin inflation. Yes, I guess the ramifications for PEB in several ways. The one that comes to mind is consumers paying up for hotels where there is superior service. Now where that bifurcation that you were just talking about may be applicable. And maybe that applies to PEB where consumers pay up for your hotels. But for other hotels, whether consumers are expecting less service, maybe they are more likely to just pay less. So I'm curious if you have any opinions about this topic or I'm totally off base here.

No. I think you're on base, but I would -- and we've talked about this in the past. I don't think it's just service, I think it's the quality of the product as well. And so as we've talked about in the past, in the recovering part of the cycles, our assets tend to gain share, which they are doing now, particularly on the rate side. You can always hold occupancy, you just have to lower your rates to attract people who are price sensitive. So as we've said, we're seeing our rate gains being substantial, particularly at the properties that we've repositioned, but really throughout the portfolio. And part of that is, and we track -- I mean, it's just one measure, but we track our TripAdvisor rankings, traveler rankings. And what we've been gaining over the course of the entire year within our portfolio, we're up from pre-pandemic levels, and we're up from the beginning of the year. So we do think that translates into better performance and properties that are unable to either higher quality talent or enough talent or maintain their properties tend to get into a vicious circle of losing share not generating enough cash flow to improve their properties or pay their people or have enough people. So I do think there's a lot to it. And why we're highly sensitive to the kind of service we provide. We've opened restaurants in facilities where we may be losing money on the restaurant right now but it's important to gaining the visitor and the rates that we're charging on the room side. And if we can hold questions to just one so we can finish before the weekend. I mean, we're happy to stay, but we're just concerned that some of our listeners may -- may depart quickly. So -- and I'll try to make my answers a little more concise.

So just ask us no questions.

No.

Our next question is coming from Michael Bellisario of Baird. Please go ahead.

Hi guys, good morning. Two-part question, but kind of goes hand in hand there's one answer. Just could go back to risks. Just first, kind of fundamentally, what are the bigger picture risks that you're focused on as you look out over the next 12 plus months, virus aside. And then kind of part B to that is what about on the real estate side and on the transaction side in markets as you think about reallocating capital where are the risks there?

Yes. So there's plenty of risk out there other than just the virus. There always have been in our industry. I think the sort of bigger macro risk we think about. We're not too concerned about today, but it potentially could go down that road is if inflation is not transitory, whatever transitory means, meaning, I guess, my view would be if it gets built into permanent expectations of increases and you get into that cycle of response -- increased response, then the Fed has to jam the brakes on, and we have a recession or we have a significant slowdown and not the length of recovery that would be more typical to prior cycles. So that's probably the bigger risk we worry about. We don't generally worry about inflation. We actually think it helps our space. And as we've indicated in our comments, right now, the customer is extremely well off and pretty insensitive to price increases right now. And so we're taking those where it's appropriate. I think on the micro side, it's dealing with the more typical risk that we had pre-pandemic whether that's quality of life in cities, the homeless issue, safety, which has become a bigger issue in many cities, including cities that didn't have a pre-pandemic issue or at least to the same extent because when people aren't around in cities, they tend to become a little bit more active in negative ways, there's just more opportunity for crime. And so with the combination of that with the sensitivity to policing and the manner of policing, the two of those have not interacted well in some places. And so that's a risk we're trying to understand as we move forward. How long does it take? I mean we went through this in some other…

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

Hey good morning. Jon, your scripted remarks are 35 minutes. So it's not fair to blame all the questions here. But I'll ask you one on San Francisco.

We would expect that to lead to fewer questions but evidently, that's a wrong premise, and that's okay. We've done 90 calls, and it's always been the same.

And Bill, was that your question?

Yes, was that?

That was the statement. Jon, we find ourselves kind of what we were pre-pandemic. If you look at Vegas, it seems to be really thriving here and you look at San Francisco what arguably the worst market in the country or one of the worst. And I'm just wondering whether we just have kind of gone back to where we were in this decline in San Francisco from a convention and meeting perspective and continues. And in the interim, we've lost a number of companies to other markets in Texas in particular. So just your thoughts on the future there and maybe how much you're willing to continue to allocate from a percentage of portfolio basis to San Francisco?

Yes. So I mean I think betting against San Francisco in the long term would be a mistake. We think the underlying fundamentals that have made that city grade still exist. It's not just the weather and the geography and the attractiveness of the city and the surrounding area, but it's the attractiveness of the economic base that generates so many new businesses so much economic growth, so many new jobs, so much more office demand and provides so many reasons for travel. So I don't think that's going to change. A lot of that base comes from the universities. It comes from the clusters that are already there, it comes from venture -- huge amounts of venture capital that flow into that area. I mean you look at biomedical and bioscience that are exploding in the San Francisco Bay Area. And while there are other markets where that is -- while that's happening, it's a fairly limited number and San Francisco would be in the top four for sure in the U.S. So we don't think that changes. We're pleased with some of the near-term changes adopted by the government. There's another $1 billion a year for two years going for homeless. There's more dollars for the police force for maintaining the count in the police force. So bringing on people for those who've retired or left the force, not all markets are doing that. There's another $300 million a year for the next two years for mental health in dealing with those of you. So we think the government is coming around to addressing the issues. And frankly, we think San Francisco is a great long-term market. It's just going to struggle in the short term until we get past this virus and businesses all come back to work. People, which has already been happening, moved back to San Francisco from their parents houses. And you can see the continuing growth. I mean if you look at the numbers for the companies that have gone public or been bought by a SPAC in the Bay Area, it's not even close. It's like 70% of what's happened in the entire country in the last year. So I wouldn't bet against San Francisco, and we're not going to bet against San Francisco. But we do look at relative risk and return. And we've sold a couple of assets in San Francisco. We'll likely sell a few more, and we'll reallocate that capital to markets that we think have more attractive risk return opportunity.

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

Thanks. Maybe just following up on the NAV update. With resort NOI higher in 2021, I imagine the underlying cap rates probably haven't changed that much from where they were in 2019. I guess, first, is that a fair way to think about it? And then if that is the case, what if anything does that imply about the expected durability of the strength you're seeing there, at least in the eyes of investors? And do you think there's room for further cap rate compression?

Yes. So all good questions and all I wish I had great answers to because it's complicated and some of it is a bit unknown. But I would say there's no doubt that resorts would -- all things being equal, I think would trade at lower cap rates today than they did pre-pandemic because I think there's a view that there's less risk in resorts and more risk in urban at the very least in the near term. I mean you're buying an asset that's delivering cash yield versus some urban properties that if they are delivering cash yield or smaller. And so even that gets factored into valuations. I think the part about -- and frankly, the investment brokerage community has a premise for the hotel industry overall, which probably would be amplified in resorts, which is yields have come down in all other product categories, industrials down to 4% cap rates or less. Certainly, residential down to sub-4 cap rates, healthcare down as well. So other product categories also coming down. So their argument would be if you will, cap rates and really cap rates are a result, you don't have stabilized income in many cases. So again, we're back to -- you forecast forward numbers, Cap rates seem to be more relevant in other categories where the changes from year-to-year are much smaller and are driven by existing contracts or leases which is very different. So you have a wider view of valuation assumptions, and that's what makes the market so interesting. And when we get bids on properties, it can be a fairly wide range, which is probably a little bit different than what you might see in other categories. So there's no doubt resorts would trade at lower cap rates, but on what numbers and what do people believe in terms of the -- the stability of the existing numbers. I mean we think our resorts are going to do significantly better next year as an example, and we already see that in the first half numbers that are on the books, and we already see that with group coming back at our properties that also cater to group. So we're going to run much higher revenue numbers and in many cases, much higher ADRs than we did in this year where the rate growth really didn't get humming until late in the second quarter into the third quarter. So sorry, it's -- again, it's a longer answer, but -- and I don't know that there's a right answer to it, Ari. But it's the way we would think about it.

And Ari, I'll also add that we've also renovated or redeveloped several of our resorts recently. So if you're looking at where the values were in '19 and cap rates there and comparing it here there's a change. You have to take into consideration, for example, at L'Auberge Del Mar, the renovation we completed here in this recent May. Southernmost and LaPlaya, we've invested capital there. Mission Bay in San Diego, we deflagged from Hilton and made an independent invested capital there. And it's added some more treehouses and other amenities. So there's a lot of other factors going on in there, which to continue to grow the value of those properties.

We've really read on all the resorts and Southernmost was the last one. So they've all been fully renovated and redeveloped and repositioned in many cases in the last three or four years.

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

Hi good morning. Just a question on the recovery of business transient. You mentioned you needed to get that back -- to get back to 2019 EBITDA levels. But have the exact percentage of recovery needed changed given all the strength you've seen in leisure both in the resorts and the urban properties? Is that getting back to maybe 95% or 90%? Do you need to get back to a lower number if you hold on to some of these resort and urban leisure gains you've gotten this year and in fact next year?

Yes. I mean it's a good question, Anthony. And I hope our comment wasn't misinterpreted. We don't need to get back to the same exact levels we were at from a volume perspective for some of those reasons that you provided, one is the strength of the resorts; two, I think ADRs are likely to run above '19 very quickly and in many cases, below past '19 levels in even a transitory inflationary environment. Three, we've changed our models in how we operate these properties, and so we expect to get back, as we said, to bottom line EBITDA numbers before even we get back to the same revenue levels, let alone the same volume numbers. And so no doubt, the segment that will be slowest to recovery is going to be the business travel side and more likely probably a little bit more on the group side than the transient side in terms of timing. But we do think there's a lot of pent-up demand there, and it may happen a lot quicker than what people think, again, with the provider being what happens with the virus and to people begin to behave normally and with the vast majority of the population vaccinated.

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

Hey, thanks guys for taking my question. Hi, my question is sort of related to the NAV, but maybe if you could touch upon 16% of your assets still have Marriott management. How are you incorporating that in your NAV? What is the upside potential? What's the timing of that -- of those contracts when they can become independent or non-Marriott managed maybe? And also if you can talk about the -- how are you capturing things like Paradise Point potentially switching to a Margaritaville? Is that captured in your NAV or not? And curator and the Z Collection, are those -- those presumably are not part of your NAV calculation as well? If you can maybe just touch upon some of those things. I know it's a multifaceted question, but just curious to get your thoughts.

Yes. So Floris, the specific ones you mentioned, so expiring Marriott contracts, we have a couple of them. The Westin Michigan Avenue in the end of 2026. The Westin Copley in Boston in the end of 2028. Both of those are old contracts and have management fees that are dramatically above the market. But we've not factored that in at all in our valuations. We've not factored in Curator into our valuation. And you note no line for curator in our NAV as well, corporate NAV. And we've not factored in any of the future conversions or opportunities within the portfolio like Paradise Point to Margaritaville in the portfolio. So none of that is taken into account. I do think we tend to be pretty conservative with our NAV. The market historically still doesn't believe us even when we sell billions of dollars within the within the value ranges that we've provided. But perhaps it's -- again, if the company is getting valued on cash flow and NAV doesn't matter, that's understandable in how a business is valued. But if the management team is willing to sell and reap those values, then you would think it might be taken into account to a greater extent. But not for me to comment on the stock price, but more -- sorry, just trying to answer your question about the valuation of the company.

Thank you. Our last question today is coming from Chris Darling of Green Street. Please go ahead.

Hi, good morning. Jon, you touched on it on that last answer, but going back to that NAV estimate and the obvious discount there between your share price and your internal estimate of value. It does beg the question, why not look to sell assets more aggressively and try to take advantage of that disconnect. So just curious to maybe better understand how you're thinking about that.

Sure. So when we look at valuations and we look at whether we sell or buy, there's a lot of things we have to take into account the long-term strategy of the company, some of the opportunities that Floris even asked about in terms of how much opportunity is there in the individual assets to drive growth in cash flow and value. And you need to have a place to put those investment dollars many of our properties we've owned for a while or that we acquired from LaSalle, which were owned for a significant period, also have tax issues that we have to take into account within those decisions. And we also are in a business where some of these properties you might never see again in the market in terms of availability. So it's not like trading in and out of stocks. And I know that's not what you're suggesting at all. But it is harder to trade these assets versus looking at them on a long-term basis. But we have sold significantly in the past and when the disconnect has lasted, and that may very well be the case as we move forward.

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

Well, thanks very much, Don, and thanks, everybody, for participating. We -- as much as we joke about it, we appreciate your questions and the thoughtfulness of them. And we look forward to updating you again next year. And we will continue to provide our monthly updates in the meantime. I hope everybody has a nice holiday. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.