Pebblebrook Hotel Trust (NYSE:PEB) Q3 2022 Earnings Conference Call October 28, 2022 9:00 AM ET
Company Participants
Raymond Martz – Chief Financial Officer
Jon Bortz – Chairman and Chief Executive Officer
Conference Call Participants
Dori Kesten – Wells Fargo
Jay Kornreich – SMBC
Floris Van Dijkum – Compass Point
Neil Malkin – Capital One Securities
Duane Pfennigwerth – Evercore ISI
Anthony Powell – Barclays
Shaun Kelley – Bank of America
Michael Bellisario – Robert W. Baird
Gregory Miller – Truist Securities
Bill Crow – Raymond James
Chris Darling – Green Street
Operator
Greetings and welcome to the Pebblebrook Hotel Trust Third Quarter Earnings 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.
Raymond Martz
Thank you, Donna, and good morning everyone. Welcome to our third quarter 2022 earnings call and webcast. Joining me today are 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. Forward-looking statements that we make today are effective only today, October 28, 2022, and we undertake no duty to update them later. We’ll discuss non-GAAP financial measures during today’s call, and we provide reconciliations of these non-GAAP financial measures on our Web site, at pebblebrookhotels.com.
So, last night, reported stronger than expected Q3 results, let by our urban hotels. Business travel, both transient and group, continued its recovery throughout our markets, clearly benefiting our urban properties the most. And leisure travel has returned to the cities as well. Bookings improved after Labor Day as business travelers got on the road to meet with our customers, reconnect with their coworkers, and participate in major conventions and meetings. Leisure travel in the quarter remained robust, along with very strong rate premiums over 2019. We saw solid and consistent improvement in our operating metrics throughout the quarter. Overall, we experienced encouraging trends across our portfolio throughout the quarter, which continued in October.
We’ve not seen any signs of a slowdown in travel demand. However, given the Fed’s actions, we continue to closely monitor bookings, cancellations, activity levels, corporate travel policies, and overall spending for any signs of slowdown. Q3 total revenues exceeded our outlook despite the negative impact of Hurricane Ian, which made landfall near Naples, on September 28. Given Hurricane Ian’s large size, changing track in forecast, and its impact on Florida and the Georgia coast, it had some effect on all of our Southeast properties. Overall, it reduced our hotel revenues by approximately $2 million in September. Of course, the most significant impact was in Naples, with roughly half of the September revenue loss occurring at LaPlaya.
Despite the impact of Hurricane Ian on our results, adjusted EBITDA was above the top end of our Q3 outlook by $1.5 million, and adjusted funds from operations, of $0.66 per share, was $0.01 above the top end of our outlook. On the revenue side, same-property RevPAR exceeded Q3 ’19 by 1.3%. Q3 was the first quarter since the pandemic that we surpassed the 2019 comparable quarter’s results. Both July and September same-property RevPAR total revenues and hotel EBITDA exceeded the comparable months in 2019. July benefited from solid leisure demand, and September benefited from strong business demand, which was very encouraging.
ADR was 20% above Q3 ’19, led by our resorts which were up 57% to Q3 ’19, and our urban ADR was up 8.3%. Both of these represent an increase from their Q2 premiums of 54.4% for our resorts, and 6.8% for our urban hotels. Non-room revenue per occupied room rose an even stronger 23.3% versus 2019. And total revenue per occupied room increased by 21%, maintaining the positive trends we’ve experienced all year. These revenue increases demonstrate our sustained ability to take room and non-room price increases across the portfolio, and our customers’ willingness to accept them, thereby helping to offset operating cost increases.
Q3 occupancy finished at 72.7%, which was still only 85% recovered for 2019, indicating a substantial opportunity to grow revenues further as demand continues to recover and normalize. Our resorts achieved an occupancy of 69.3%, and despite all the discussion about strong leisure, occupancy at our resorts is still only about 88% recovered to 2019. Urban occupancy, which exceeded our resort occupancy for the first time since the pandemic, finished at 73.3%, yet it is still only 83% recovered to 2019, leaving a lot of upside yet to recover. Same-property hotel EBITDA, of $130.9 million, is 96.8% recovered to Q3 ’19, which marks our best quarter compared to 2019 since the pandemic. And it would have been closer to just 2% off from 2019 but for the impact of Hurricane Ian.
Our hotel EBITDA margin was 32.4% versus 34.3% in 2019, so off just 192 basis points, with occupancy down about 13 occupancy points to Q3 ’19, so very encouraging. And when you consider that the CPI had increased over 15% since 2019, this means that in today’s dollars, if our expense growth in 2019 would have followed the increase in the CPI Index, we would have had $300 million of operating expenses in the quarter, versus the $273 million we actually incurred. So, about $27 million less in operating expenses. This underscores our success in mitigating operating cost increases in this inflationary environment through price increases, and also evidences the more efficient operating models created at our properties as a result of the pandemic.
As the recovery continues in the hotel industry, we expect to generate higher profit margins. Shifting to our capital improvement program, we remain on track to invest $100 million to $110 million into the portfolio in 2022, with over $80 million of it targeted for a number of ROI redevelopment projects, which we expect will generate cash and cash returns of 10% or higher when these transformed and re-merchandized hotels and resorts stabilize over the next two to three years. Relating to LaPlaya, we want to provide you an update on the restoration and reopening of the resort following Hurricane Ian. LaPlaya, which sits directly on the Gulf of Mexico beach, was unfortunately impacted by an 8-9 foot storm surge that caused the most damage to the property.
Fortunately, the Gulf Tower lobby and the restaurant start one floor up from the beach, as does the Bay Tower on the other side of the property. As a result, the most significant damage was done to the beach house building, impacting rooms and building equipment on the beach level, as well as their landscaping and hardscaping throughout the property. The buildings also suffered some water infiltration from the heavy rains and wind that was relatively minor compared to the ground floor impact. Fortunately, we were well-prepared and had a large third-party remediation crew positioned nearby who arrived with remediation equipment and a crew of 200 to start the inspections, cleanup, remediation and repairs the day after the hurricane hit.
And while the Naples beach area continues to be without power, our remediation partner brought in large generators to power all the buildings, dry them out, and get their air handling systems working quickly. While LaPlaya remains closed as they begin to do repair and remediation work, we have already begun to make significant progress in the cleanup, repair, and rebuilding, even without electricity being restored to the area. We are striving to reopen parts of the resort by late November, with much of the public areas repaired and renovated. We expect to have most of the guestrooms in the Bay Tower completed and available that time with guest rooms in the Gulf Towers scheduled to open then or perhaps later in the fourth quarter. The Beach house, which as its name suggest is right on the beach, will take more time to repair as this building received the brunt of the damage from the hurricane. Our best estimate at this time is that the beach house building reopens sometime in the second half of next year. But, we are not really comfortable with any forecast at this point. The biggest obstacle to reopening is the long lead time for electrical and elevator equipment. The rest of the down repairs will be completed much earlier.
Based on our review are the resort with our property adjustors and physical property experts, we currently estimate that the cost to remediate, repair, replace, and cleanup LaPlaya will be between $15 million and $25 million. This estimate could increase as we progress through the remediation and repair program. At LaPlaya, we expect that our business interruption insurance will cover all the losses up to the estimated $1.7 million deductible for BI. Beyond LaPlaya at Southernmost Beach Resort, Key West which remained open throughout the hurricane, we incurred wind- and water-related damages to the resort including a tanning pier that was destroyed. We estimated the property damage to be between $7 million and $9 million.
At the Inn on Fifth and Downtown Naples, we expect to incur $1.5 million to $2.5 million of remediation and repair work. And we are already pretty far along into completion. As a result of the impact of hurricane Ian at LaPlaya and Southernmost, we accrued a reduction in property assets of approximately $12.9 million. However, we believe we will cover this write-down through our property insurance program, except for the $7.9 million combined property and casualty deductibles at these two resorts. We have reflected this amount in our impairment and other loss items on our income statement. When we receive the business interruption proceeds from our insurance carriers, we will reflect his in our financial statement. We do not expect this will occur until sometime in 2023.
Shifting now to the investment side of our business, we sold three hotels in the quarter. One is San Francisco, one in Portland, and one in Philadelphia, generating a $183.9 million of sales proceeds. And year-to-date, we have sold four hotels generating $260.9 million. Turning to our balance sheet, we successfully completed $2 billion refinancing of all our credit facilities and term loans. This has allowed us to extend our debt maturities and increase the size of our unsecured revolver for $650 million all while maintaining the same price on this debt as we had pre-pandemic. As a result of the successful refinancing, we have no meaningful debt maturities until October 2024.
We also have limited exposure to rising interest rates as 79% or $1.9 billion of our debt in convertible notes has fixed interest rates, leaving about $500 million of floating rate debt. As a result, our weighted average interest cost is a low 3.2%. This floating rate debt allows us to pay down debt whenever we like without prepayment penalties. From the proceeds of our recent property sales, positive operating cash flow, and debt refinancing, we currently have approximately $120 million of cash. Our $650 million credit facility is completely undrawn providing us with tremendous liquidity and flexibility. We also paid down approximately $127 million of debt since the end of the second quarter.
And on that positive note, I’ll like to turn the call over to Jon. Jon?
Jon Bortz
Thanks, Ray. As Ray indicated despite the impact of Hurricane Ian, the quarter came in slightly above the top end of our outlook with the hotel operating performance at the high end of our outlook. The outperformance was driven by the continuing strong recovery in our urban markets with transient group and citywide demand improving, and leisure customers returning to the cities. This urban recovery in our portfolio was widespread. And it involved all properties and markets.
Every one of our urban markets except Miami achieved better RevPAR performance in the third quarter compared to 2019 versus the second quarter compared to 2019. In the third quarter, our urban RevPAR was down 10.1% versus Q3 2019. And that compares to Q2’s 17.7% shortfall. Clearly that’s a significant improvement. Not surprisingly the markets with the most extensive gains from the second quarter were most of the previously slow to recover markets including Chicago, Seattle, Washington, DC, and San Francisco.
But San Diego also moved ahead strongly with a very active and successful citywide convention calendar in the third quarter. And San Francisco as indicated was one of the most robust recovering markets in the third quarter. Many of you joined us in San Francisco last month when we spend two days touring six of our hotels and several of Parc’s hotels. We happened to be there during Dreamforce which filled the city’s hotels with high-rated customers and was a very successful citywide for the city.
The city looked great. It was clean with lots of people on the streets. The restaurants were overflowing. And the negative elements that have gotten so much publicity were frankly not very noticeable. The city continues to make progress in addressing its problems. The successful Dreamforce convention not only helped September’s overall performance but was clear evidence that a recovery in convention calendar will have a very favorable impact on our industry’s recovery in San Francisco as we move into next year which has a much improved convention calendar compared to this year.
I would also like to highlight the performance of one of our recently redeveloped and transformed properties in San Francisco because due to a great team effort, its strong performance highlights the power and the success of our redevelopment capabilities, our efforts, and extensive program following the LaSalle acquisition. And it does so even in one of the slowest recovery markets in the U.S. I am talking about the $28 million redevelopment and transformation of Hotel Vitale into the eco-focused luxury 1 hotel San Francisco. This extremely well-located property across from the Ferry Building along the Embarcadero reopened as the one on June 1st. This property represents our values and our focus and commitment to sustainability, repurposing, and reuse. And it appeals to a large base of customers with similar values.
Hotel has been extremely well received by the community and customers. And in just a few months has risen to the number four Tripadvisor traveler-ranked hotel in San Francisco, just one spot ahead of our Harbor Court Hotel a block away. Since its reopening as of 1, we have been averaging rates in the $480 to $580 range on a monthly basis. And these rates are between $130 and $165 higher than the comparable months in 2019. In September, room revenues exceeded September 2019 was over 10% even with occupancy lower by almost 12 points. We achieved total revenues that exceeded 2019 by over 18%. And EBITDA was more than 50% higher than in September 2019. Now I am not saying we are going to do this next month or every month going forward.
But we do believe the rate premium we ultimately achieve on a stabilized basis will be similar or higher than what we’ve already been achieving. And as the market continues to recover and we ramp up, we should be able to drive at a minimum of 15% plus cash yield at stabilization on our $28 million investment that created this fantastic conversion. Similar transformational investments we have made recently in so many of our properties obtained through the LaSalle acquisition should also deliver 10% plus cash yields on our investments.
These include the previous transformations of the Hilton San Diego Resort into Mission Bay Resort San Diego; the Hotel Donovan into Hotel Zena; Mason & Rook into Viceroy, Washington, DC;. Grafton on Sunset into the funky Hotel Ziggy on the Sunset Strip; the dramatic upgrading of Chaminade Resort in Santa Cruz; Skamania Lodge in the Columbia River Gorge; Le Parc in West Hollywood; Viceroy Santa Monica; L’Auberge Del Mar and Southernmost resort in Key West, as well as the upcoming transformations of Hotel Solamar into Hotel Margaritaville Gaslamp quarter in San Diego; Paradise Point in Mission Bay San Diego into a Margaritaville Island Resort and dramatic transformations and upgrading of our recent acquisitions; The Jekyll Island Club Resort in the Golden Isles of Georgia, Estancia La Jolla in San Diego and Gurney’s in Newport, which has also been renamed Newport Harbor Island Resort.
ADR and RevPAR share gains, as these properties grow to stabilization will add to our growth in the years ahead, regardless of the macro environment. And I’d be remiss if I didn’t mention the dramatic upgrading of LaPlaya in Naples into a luxury resort that we completed before, and unfortunately, again after Hurricane Irma. LaPlaya Beach Resort & Club which of course is currently closed due to Hurricane Ian was on track to deliver over $35 million of EBITDA this year. This would have been a doubling of EBITDA from 2019 when we completed the upgrades post Irma.
The full-year forecast is consistent with the year-to-date improvement through September. And as a result of several positive factors, including the huge upgrades we previously made to the property, a unique and very successful beach membership club that is contained in the property where we’ve upgraded the experience, a great collaboration between our team and Noble House who has done a fantastic job on the ground driving this performance and the ongoing benefits of the pandemic that have led to increased pricing at many high end resorts. I raised LaPlaya not only as an example of a very successful transformation we previously completed that has delivered a very high return on our investment that because it will be built back better after Hurricane Ian’s unfortunate damage.
As we look forward to the fourth quarter, which of course is well underway, the improving business travel trends we experienced in Q3 are continuing. Corporate Group bookings leads and site visits remain very healthy. And at most properties, they’re exceeding 2019 levels. We’re closely monitoring overall business and leisure consumer behavior and have not seen any pullback in demand, future booking pace or room rates other than the normal seasonal slowdown later in the quarter. Nor have we seen any increase in cancellations or any meaningful changes in corporate travel policies. But of course, we will be monitoring these closely as we are now as the macro economy slows down.
We believe that we have strong tailwinds from the continuing recovery of business, leisure and inbound international travel to more normalized levels consistent with the current levels of GDP, which of course are significantly higher than 2019 levels. We believe these strong counter cyclical tailwinds, along with already low and falling levels of supply growth will help pressures from the inevitable economic slowdown that the Fed intends to deliver.
Based on our recent trends, our current outlook for Q4 RevPAR is to be down 3% to flat to 2019 and up 32% to 36% to Q4 2021. The closing of LaPlaya which represents a disproportionate amount of our room revenues and EBITDA has a roughly 150 basis point negative impact in the fourth quarter to our room revenue and total revenue percentage comparisons to 2019. And it has an approximate 750 basis point negative impact to our EBITDA comparison to Q4 ’19. So, our same-property outlook for Q4 assumes LaPlaya is essentially closed for the entire fourth quarter. While we’re currently targeting a partial reopening in the quarter, we still expect additional expenses related to operations and cleanup will exceed any revenues achieved in the quarter by $2.5 million, but though this is obviously a pretty rough guess at this point as we still haven’t even had electricity restored to the Vanderbilt Beach area.
So, we’ve removed approximately $17.1 million in hotel revenues and $10.5 million in hotel EBITDA or $0.08 per share of FFO from our Q4 outlook. So, it is impactful to the quarter. However, expect to recover this last EBITDA less our BI deductible from our insurance claim next year. Adjusted EBITDA for Q4 is expected to be down 30% to 38% to Q4 ’19, and up 45% to 63% to Q4, 2021. Splitting the impact of LaPlaya due to the hurricane, our Q4 outlook would assume same-property RevPAR of down 1.6% to up 1.3% to Q4 2019, with adjusted EBITDA of $74.3 million to $82.3 million, which is roughly in line with 2019 if you add back LaPlaya’s impact.
This outlook is generally in line with our previous expectations, is consistent with our Q3 performance, excluding LaPlaya, and indicates that our expectations for Q4 performance haven’t changed despite heightened concerns about an economic slowdown.
So, that completes our prepared remarks. We’d now like to move on to the Q&A portion of our call. Donna, you may now proceed with the Q&A.
Question-and-Answer Session
Operator
Thank you. The floor is now open for questions. [Operator Instructions] The first question is coming from Dori Kesten of Wells Fargo. Please go ahead.
Dori Kesten
Thanks. Good morning. How long do you think it may take for your Naples properties to return to stabilized operations when you consider the recovery of the entire market also?
Jon Bortz
I don’t think we have an estimate on that yet unfortunately, Dori. It’ll be extremely hard to forecast. We had a pretty quick recovery from Irma; back in ’17, ’18 was a very good year, ’19 was obviously even better for that market and that property. It’s interesting, if you go three blocks inland, there are not a whole lot of visible signs of an impact from Irma. And if you go downtown, which obviously is a very popular destination, where Inn on Fifth is, that the downtown looks like it did before pretty much. So, I do think the recovery will be pretty quick, that the city has already been cleaning up the beach. Their objective is to open the beach as quickly as possible. And, of course, you can’t beat the weather.
The last thing I would say about Naples, which is a little different than maybe some other South Florida markets is there’s a regular crew that comes every year to Naples, and a lot of them have homes down there, their families come to visit, that generates a lot of demand. And we expect them to come back pretty quickly. And in the meantime, there’s a lot of demand in the market and we’re seeing it downtown at Inn on Fifth from folks who need to come to the market for either business purposes or to deal with issues related to their homes that are down in the marketplace. So, it’s pretty hard to forecast at this point, but I would think it would come back pretty quickly, Dori.
Dori Kesten
Okay. And have you noticed any change in the behavior of meeting planners that would make you think recession worries are weighing on them, whether it’s time to sign, [just want the][Ph] negotiation attempt for [lower at a room spend] [Ph]?
Jon Bortz
No, we haven’t seen any of that.
Dori Kesten
Okay, thank you.
Raymond Martz
Thanks, Dori.
Operator
Thank you. The next question is coming from Jay Kornreich of SMBC. Please go ahead.
Jay Kornreich
Hey, good morning, guys. Just curious if you can discuss your current thinking on portfolio repositioning, if strategically it still makes sense to continue selling out of the urban market and investing into leisure resorts or maybe the potential oncoming recession makes you rethink that strategy?
Jon Bortz
Yes, I mean I don’t see any change in the way we’ve been modifying the portfolio. Our objective was really to get a more balanced segmentation between business and leisure in the portfolio. And we’re pretty close to that level now. I think we’re between leisure and — leisure transient and group, I mean our estimate is we’re about 50-50. So, I don’t see a lot of change to that focus. I don’t think we will be selling resort properties because of our sort of long-term secular view of the opportunity there and the difficulty of adding new supply — competitive supply against those properties in the very long-term. And in the meantime, we’ll continue probably — I mean, our objective is to recirculate capital out of some of the urban markets and use that capital elsewhere.
Jay Kornreich
Got it. And then, I guess maybe in a similar more near-term aspect of that, sure a recession arise over the next year, so would you expect more vulnerability on the business transient side which is still recovering lost occupancy or more the leisure transient side which has been far outperforming historical standards at this point?
Jon Bortz
It really depends upon what kind of downturn it is. We always throw the word recession around like it means the same thing all the time and it doesn’t. Each of the recessions I’ve lived through, five or six of them now, they’ve all been different, and they’ve had different impact. Some have been consumer-focused; some have been business-focused. I think this one will be different for a lot of reasons. I think with the challenging labor markets, I think it won’t be — and I don’t think it’ll be likely to be an employment-led downturn. And there continue to be plenty of open jobs, and businesses, I think, are looking at their employees and hoping they’ll be more sticky.
So, I don’t think we’ll see the same kind of layoffs that perhaps we’ve seen in other recessions where unemployment has gone up to very high levels, like in the last downturn that was driven by the great financial impacts that caused the recession. The other thing is it’s likely that this is going to; again like most recession but not all, impact more folks at the bottom end of the market than the top end of the market. And then the third thing I’d say is these — we’re going through what I would describe as a continuing secular change of consumers’ desire to spend money on things versus spending money on experiences. And so, I think all of that leads to the likelihood that any recession or slowdown has less of a traditional cyclical impact on our industry.
And whether it’s greater on the business group side or — group is usually the first thing cut in a downturn because it’s what makes a major difference from a financial perspective, has the most impact. I just don’t know if we’re going to see that this time given the lack of group meetings over the last two-and-a-half years, and the pent up demand that exists, and the need businesses have to get people together. So, it’s a hard thing to forecast, but I think the one thing we feel pretty good about is that the impact on the industry will be less than a typical — any typical downturn would be. And we still have some strong countercyclical tailwinds of our business recovering to more normalized levels.
Jay Kornreich
Okay, thank you, that’s very helpful color. Appreciate it.
Raymond Martz
Thanks, Jay.
Jon Bortz
Thanks, Jay.
Operator
Thank you. The next question is coming from Smedes Rose of Citi. Please go ahead. Smedes, please make sure your phone line is not on mute.
We’ll move on to the next question, it’s coming from Floris Van Dijkum of Compass Point. Please go ahead.
Floris Van Dijkum
Morning, guys. I had a question on getting back to capital allocation. As part of — I think what helps to explain your view on the resort markets; I mean we looked at your seven resorts that you’ve held since 2010. Now, some of them were obviously LaSalle-held at the time, but be it as it may, I think they’ve averaged something like 8% annual CAGR in hotel NOI. As you think about going forward, and obviously went through some turbulent times from 2010 to 2020-’21, do you think that’s repeatable or have you milked enough of your properties or are you looking to get more things — more assets like this like, for example, with the Gurney’s and the Estancia acquisitions?
Jon Bortz
Yes, Floris, I mean I think, as indicated by the investments we made over the last couple of years of what we’ve acquired and what we’ve disposed, it probably gives an indication of where our thinking is right now. As we’ve reached this more balanced level we feel a lot more comfortable with our city exposure. But for the very long-term, and we’re a long-term investor, right? I mean, we don’t look at these things as opportunities to make a quick buck in a year or two. We really look at where do we want to be over the next five, 10, 15 years, and we do think there are some very positive continuing secular trends, as I mentioned, in the desire of consumers to collect experiences of have experiences driven by social media, the sharing of those online with your friends and family.
And I also think, at least for the next few years and maybe longer, a desire on the part of businesses — some businesses to maybe favor meeting in outdoor areas or resorts, versus meeting in major cities that have sort of come out of the pandemic. So, we do have a little bit of a bias of long-term towards the leisure customer versus business travel, but I don’t think we see overall business travel trends changing dramatically from the last 50 years, where business travel has generally followed GDP growth.
Floris Van Dijkum
Thanks. And maybe if I could follow up, obviously there’s some noise around LaPlaya for the fourth quarter, and presumably some of that could lead into the first quarter a little bit as well. But excluding LaPlaya, you’re essentially at ’19 levels of profitability already despite the fact that you’re still — your occupancy is still lagging significantly. How confident are you about sort of your $500 million hotel EBITDA estimates as you look into ’23 and ’24? And how quickly do you think you can achieve that? Is that going to take two years? Is that going to take — could you achieve that by the end of next year, potentially?
Jon Bortz
Yes, I mean I think — well, first of all, I think we feel very good about the bridge that the resorts this year are going to run right now they’re forecasted to run about $60 million over 2019 levels. When we look, when we look at the operating cost side as we discussed, we think we’ve saved very significantly on the bottom line, and as occupancy comes back, it should deliver a pretty good margins because of the high fixed cost nature of our business overall. So, I think we feel good about the bridge, the share gains we’ve been making, and expect to continue to make in these properties that we’ve completely repositioned to different levels, where we’re picking up very strong share gains in rate, and ultimately RevPAR as demand continues to recover. Will we get there by the end of next year? I doubt it.
I think, first of all, some of these projects were just completed earlier this year or mid-year like the one, some of them take time to regain that share at these higher rates. I mean, we’ve raised rates at L’Auberge by $200 to $250 compared to where it was pre-development, and it takes time to rebuild that clientele because it’s not the same customers. It’s trying to find higher end customers willing to pay for that higher end experience. So, I do think it’ll continue to take time. I think we feel good about next year. Let’s leave the macro out of it for a moment, none of us know what that’s going to look like. And none of us know how it’s going to impact the business. We’re not going to shake being cyclical, but we have some pretty strong countercyclical tailwinds, not the least of which is supply growth has already fallen below 1%. And that’s going to go much lower over the next couple of years.
Right now, we’re not forecasting supply growth to recover to 1%, or more growth until the 2026-2027 period. And that would be consistent with sort of peak to trough and recovering supply growth history. And here we haven’t stretched out because we have both the pandemic, which obviously dramatically slowed starts, for which we’re benefiting from that now. And now we have a fear of recession and difficult capital markets that have slowed starts even further and for a longer period of time. So, we feel good about getting there. We think the rate growth is probably even more fixed than what we thought a year ago, particularly in the resorts, but all of our urban markets continue to surpass 2019 levels as they recover. So, time if we have a significant downturn and it impacts the travel industry, which cyclical downturns usually do. Again, we think it’ll be less. But that tends to slow your ability to regain share, you really need a growing demand environment to have material impacts there.
Floris Van Dijkum
Thanks, Jon.
Jon Bortz
Thanks, Lars.
Operator
Thank you. The next question is coming from Neil Malkin of Capital One Securities. Please go ahead.
Neil Malkin
Thank you. Good morning, everyone. First one, saw report that you guys may have a couple more assets on the market for sale, can you maybe talk about how you see capital priorities at the current moment, just given the sort of headwinds that we might be facing?
Jon Bortz
Sure. Well, we’re as we’ve indicated, we had we believe we’d be a net seller this year. We’ve had additional properties on the market. And we’ve also indicated that the debt markets have gotten obviously more difficult over the last 90 to 150 days I think. And so, our desire to sell will obviously still be dependent upon value. And then what we do with that capital will depend upon what the other opportunities are, at the time last earlier this year and last year, those opportunities were primarily in properties that we could acquire that were leisure focused, where we could make some very significant improvements and generate high returns. And as we look forward, what we do with any capital that comes out of proceeds will depend upon what the environment is at the time, and where valuations are, not only for assets, but for our own stock and debt in our preferred. So, all of the allocation opportunities are on the table, and they’ll depend upon what the opportunity is at that time.
Neil Malkin
Okay, great. I don’t want to burn my second question. But just to clarify that right now are you more biased toward paying down debt or buying back stock?
Jon Bortz
I think it’s going to depend upon how these things move around. So, I think we feel very comfortable with where our debt is, I think we have a very strong balance sheet, our interest cost is low, most of it is fixed. And our debt-to-EBITDA is about where it was pre-pandemic, when you assume Q1 at the same kind of run rate that, obviously we’ve recovered to already here in Q3, and Q4.
Neil Malkin
Okay, thanks. And the other one for me is, I guess, maybe continuing down the capital allocation path, commentary from different industry participants, data providers suggest that there’s a fair amount of potential distress coming in terms of CMBS maturities, the brands are getting more firm on requiring pips and not deferring them anymore. Same with lenders and the debt markets are obviously, like you spoke to a few minutes ago are very unfavorable. Can you just maybe talk about how you see the potential to be opportunistic and take advantage of a potentially attractive environment to buy assets, potentially at some distress? And how you’re positioning the balance sheet to potentially do that in some form or fashion?
Jon Bortz
Yes, I mean I think the way we’ve always looked at the world, and we’ve talked about this in the past is A, we’re opportunistic in our approach, just as I was just describing in terms of where we might allocate capital. Second, I think what we’ve — what we found in these downturns is it’s not really about taking advantage of distress as much as it’s taking advantage of an opportunity to buy assets that you really want, that might not otherwise trade, or be forced to trade in a more favorable environment. And so, that’s really the way we’re approaching it. And when we think about, it’s funny when you think about distress and if you look at the market or the upcoming market, what’s the distress that’s built into the valuation of our stock already. And so, that again, back to what we were talking about, that’ll be a consideration as we move forward as to how we allocate capital.
Neil Malkin
All right, thank you, appreciate the time.
Jon Bortz
Thanks, Neil.
Operator
Thank you. The next question is coming from Smedes Rose of Citi. Please go ahead.
Unidentified Analyst
Hey, good morning. This is Maddie on for Smedes. Can you hear me?
Jon Bortz
Yes.
Unidentified Analyst
Okay, great. Apologies, if this has been asked already, but I thought you took the full-year guidance range down by $10 million. Is that more of a function of reducing scope or pushing projects to next year? And then as a quick follow-up to that, what are your kinds of initial thoughts on what next year could look like specifically about the Newport asset?
Jon Bortz
Sure, I mean the capital was really just how, what — it’s more of a timing issue than anything. Obviously, we don’t know when dollars can get invested. There’s long longer lead times in certain equipment, replacement and other things like that. So, It’s not a change in scope Maddie, it’s all just about timing of capital. So, if it doesn’t, if it ends up, if it ends up lower than our happens to end up lower than our range as an example it’s capital that would end up probably being put out in the first quarter of next year.
And then as it relates to Newport, as I indicated, we’ve removed the Gurney’s flag, we’ve changed the name to Newport Harbor Island Resort, which I think is representative of exactly what it is, it’s a Newport Harbor, it’s an Island, and it’s the only resort, really in the Newport market. Our focus this year is on planning. We’ve been going through a full plan for both getting deferred capital, invested in the property fixing stuff that’s broken that we’ve talked about previously. And then the plan of repositioning the property higher, providing a higher level experience to the customer that they’re willing to pay more. So, the timing of it would be a lot of the capital maintenance, deferred capital maintenance, which is both ongoing and through this winter, particularly making one of the buildings a little more secure from the weather, which it wasn’t when we bought it, which we knew. And then the upgrades will be primarily the winter following. So, the ’23, ’24 winter given the time it takes to design, go through the plan, make the building weather protected, and then do the interior and exterior improvements that we’re going to do with the property.
Unidentified Analyst
Okay, great. Thank you.
Jon Bortz
Thank you.
Operator
Thank you. The next question is coming from Duane Pfennigwerth of Evercore ISI. Please go ahead.
Duane Pfennigwerth
Hey, thank you. Good morning. On your comments regarding urban markets, leading the improvement in 3Q, was this a leisure driven improvement or BT, just thinking about some commentary from the likes United about extended leisure peaks? Every weekend now behaves like a holiday weekend? I’m not sure if you take it quite that far. But where would you push back on the view that this was all sort of leisure driven improvement in urban markets?
Jon Bortz
Well, first of all, we have a lot of properties where our corporate transient business is actually at or above ’19 levels. So, as we track just like the airlines do, Duane, obviously we track the accounts that do contract with us, and their use. And we’ve seen a dramatic increase in that level of use of corporate accounts. So, that’s one indicator we look at, clearly our group business is up in our city markets. That is primarily business group. We don’t do a lot of, we don’t do a lot of leisure groups in our cities, we do some, but most of it’s in our — most of the Leisure Group is in our Resort properties. So, it’s honestly, it’s not, it’s not even in question about the increase in business, transient and group and citywide business. And we look at the attendance there. And the pickup in those group blocks, which has increased dramatically in the third quarter versus earlier in the year. And then we look at weekday occupancy, which is a pretty good proxy. So, you look at your Tuesdays, your Wednesdays, in particular, right mid-week. And those occupancies are up four, five points sequentially from the third quarter.
Duane Pfennigwerth
That’s a good answer to that question. My follow-up is more of a comment than a question but to the extent you are repositioning food and beverage Naples, here is one vote for bringing back the cabs. And thanks for taking the questions.
Jon Bortz
Thanks. Well, Phil, Phil McKay would be, he’d be really happy if we did that, but he was the one who eliminated it.
Duane Pfennigwerth
Thank you.
Jon Bortz
You might have to call it something else Duane. No, I don’t think so. But thanks for the suggestion, doesn’t have a very good ring. Go ahead, Donna.
Operator
Thank you. The next question is coming from Anthony Powell of Barclays. Please go ahead.
Anthony Powell
Hi, good morning. Just had a question on Leisure RevPAR growth, I guess algorithm for next year, particularly in the resort side. I think you mentioned that rate has been very strong, obviously, but aka still below prior peaks. Where’s the incremental architecture that come from for the resorts? House pricing looking like next year on top of these rate levels now, I guess what’s the prospect for continued RevPAR growth next year? And this kind of excluding kind of like renovation bumps?
Jon Bortz
Yes, I think most of the recovery at our resorts is going to come from two areas. One is the return of festivals and market events and activities in those markets, and a willingness on the part of the consumer to participate in those larger human activities, if you will meaning they’re more comfortable with the state of the virus in society, and the risk they’re willing to take. But probably the bigger one would be the return of group which we’ve been seeing, which we do a lot again, I’ve talked about this in the past, we do a lot of group at our resorts. It’s I mean, we do historically we do 60,000 plus rooms at Paradise Point as an example. We do almost 50,000 at Mission Bay Resort, we’ll do 30,000 plus at Margaritaville.
So, the return of group, which has been occurring, we’ll continue to add occupancy to the resort properties in the portfolio. Now the rates will not be at the same level as leisure. So, the average rates at some of those properties that are bringing back group are going to be bringing it back that occupancy back at a lower rate, but it’s going to positively impact RevPAR and have a very positive impact on F&B and other revenue at the properties that will help deliver higher EBITDA at the bottom lines. And the rates they’re coming in at next year, I think overall for the portfolio, I don’t have the resort alone handy. But overall on the portfolio for ’23 year-over-year, we’re up about 14% in group revenue on the books versus where we were a year-ago for this year and about half of that, a little under half of that is rate and a little more than half of that is group. And Gabby has flipped me the pace on resorts, the rates up $30 at our resort property. So, again, it’s about the same level, it’s probably 7%, 6%, 7% when you think about where that is compared to this year.
Anthony Powell
Thanks for that. And maybe it’s one more on the dividend. Could you remind us where your annual position is gets in a broad sense that dividend policy, some of the other peers are starting to stay more meaningful dividends here? So maybe what’s the outlook for you on that front?
Raymond Martz
Sure, well, based on our current outlook, it would imply about $100 million or so of NOLs that we will be bringing into 2023. And then it’s we’ll see how next year looks like, and how those would be used up. And of course, those can be used up not just from positive operating performance, but also sales if we have some gains. So, that obviously will move around a little bit, but I think given where our view of the world is unless there’s a significant change in the outlook due to the macro challenge, having some sort of dividend as we get into the second half of 2023 is likely would be required, because we used up our NOLs and our positive income would require one. So, we’ll work through that. Obviously, it has to be approved by the board. But you should expect something unless there’s some unusual thing in the world that occurs, sometime in the second half of ’23.
Jon Bortz
And I think one answer to a question you didn’t answer but I think is relevant is if we had no NOLs today, our forecast for ’23 would be a need to pay about $1 a share.
Raymond Martz
Yes, depending on your assumption, the outlook there, but if you assume we’re at the kind of 2019 kind of run rate, that would be about $1 share dividends that we acquired based on the taxable income.
Anthony Powell
All right, thank you for that, very helpful.
Operator
Thank you. The next question is coming from Shaun Kelley of Bank of America. Please go ahead.
Shaun Kelley
Hey, good morning, everyone. Jon, Ray, just as we think about the outlook for fourth quarter and I know the lead times here are relatively short. But, can you just give us your thoughts on sort of the interplay between I think the two big themes that a lot of people we talk to are interested in, which is the state of the urban recovery where all the signposts continue to sound like they are moving in the right direct relative to the tougher comps and maybe a return to seasonality on leisure? I mean when we put those together relative to your outlook, it’s looking like Q4 comes out — if adjust for LaPlaya, Q4 comes out pretty similar to Q3. And I guess we are sort of asking or wondering is why don’t we have another leg in the urban piece? Especially when you think about the occupancy, some of the recovery in some of your specific market and some of the renovation capital you put in. So, maybe you could just help us think about why we don’t have kind of another leg up from here?
Jon Bortz
Sure. Well, it would really be three things, Shaun. One is we did have a small impact from the hurricane in the first week to 10 days in October beyond LaPlaya. So, obviously, the hurricane went through Florida and up the coast. And we had a lot of cancellations in — at that weekend and into early the next week at places like Jackal, at Margaritaville, and even in Naples market and Key West where the hurricane hit right before it went through Naples. So, there was — again it’s all at the margin. But, when we start talking about an improvement of additional three points or four points in a quarter, and you lose one or two of them to a hurricane, so that’s — they are meaningful. The second thing would be we do have some redevelopments in the urban markets commencing in the fourth quarter. Assuming if we get our permitting, they are soon to start in downtown San Diego both at Hilton Gaslamp as well as the commencement of the conversion of Solamar to Margaritaville.
In fact, we already started the exterior work at the Solamar where we are painting the exterior of the building the Margaritaville green color if you will. And then, the third thing was the as we were talking about earlier the sort of return of normal patterns if you will. And the impact of things like convention calendars in the market. So, Boston, DC, San Diego all had great third quarter calendars compared to ’19. But the fourth quarters aren’t quite as good. So, again it’s an impact at the margin and is probably at least in our numbers perhaps may be not others but in our portfolio, it’s having some impact on the sequential improvement compared to ’19 in the fourth quarter. Keep in mind again, the high end of our range excluding LaPlaya for RevPAR is flat. I mean is up 1.5%.
Shaun Kelley
Right. Thank you for that. And I know there is probably some conservatism in there a little bit too. So, then I guess the second question would just be thinking about maybe a little bit broader for the industry, it does feel like in recent weeks as we cut the data, urban occupancy has probably leveled out more broadly even sort of not in just Pebblebrook’s market. You guys watch the industry stat as close as anyone. Can you just give us your thoughts on I mean is this kind of it? Or do you think there is something else that can kind of drive or change corporate behavior increasingly from here? Again, I think we were probably little bit more optimistic about that a month ago or six weeks ago. And I am kind curious to get your take.
Jon Bortz
Yes, I mean I don’t think this is it. I actually we have a long way to go sequentially. We are just going into some seasonally slower periods for business travel. And as we indicated, the return of sort of the normal impact of holidays, like Halloween, which is negatively impacting. Again the week before and after Halloween or half of the week before and half of the week after, which is why we want to move Halloween to Saturday night every year. And so, I mean there is — we look at our markets. And we look at what we are seeing on the corporate side, I mean, Santa Monica, which had been slow to recover on the corporate transient side because of its sort of tech and VC-focused, the reports we’re getting from our properties are we’re moving back to hitting transient levels that were similar to ’19. And again, I think it’s just going to continue to happen around the country in the different urban markets that we’re in. So, I don’t really think it is leveling out. I think we have to be careful that the normal seasonal slowdown as we head into mid-November and beyond, all the way until March, it is not going to be a sequential growth over the prior months because it’s seasonally slower.
Raymond Martz
Yes, and Shaun one kind of constraining factor also that does have impact on business travel is airline capacity. And that’s something where we’ve seen — we track the TSA data, that’s been up in the 90%-95% range to ’19, and that’s not moving much, that’s because of the lack of pilots. But as you heard from the other airline calls, they’re training and they’re pumping out more pilots. So, that should be — help improve restoring capacity there which to what it was pre-pandemic. So, as we get more airline capacity, and I don’t know if you’ve been in a plane recently, but every seat is full even though the planes are still down, but as we get more rationales, more flights and then more opportunities for business travel.
Shaun Kelley
Yes, thank you very much, Ray, appreciated both.
Jon Bortz
Thanks, Shaun.
Operator
Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.
Michael Bellisario
Thanks. Good morning, everyone. Just one P&L question from me. Did you guys see any expense pressures tick up during the third quarter? And are you seeing anything improve or worsen now that we’re in 4Q or as you start your budgeting process for ’23?
Raymond Martz
Well, energy. Energy is being a pressure, and will continue to be. So, that’s an area we’re certainly calling out. Then the whole side about other inflationary costs, like labor and input costs, we’ve had a lot of the labor increases during the year strategically they — to attract the best talent to our hotels. So, I would say there’s probably less pressure there on a year-over-year basis than it was earlier. And input costs continue to stay high. But it’s the one area that was or continue to be up is the energy side, and that’s going to — it’s going to be a tough winter.
Jon Bortz
I think one other thing that we have to look forward to, and thankfully we’ve — we don’t what the timing is because we deal with — we have to deal with the governments around the country, but we have claims in for the last few years for property tax assessments that did — in many cases, did not decline with the pandemic. And we think there’s going to be very significant wins there; I mean millions and millions of dollars of savings. But it’s going to take time, in some cases it could be as much as five years from the assessment year. And in other cases, if there’s ultimately a resolution before litigation, that may be two or three years. So, we’re getting close to some of those, hopefully getting — beginning to get resolved. And ultimately, we should begin to see some mitigation of the property tax increases that we’ve continued to see despite negative impact on our industry from the pandemic.
Michael Bellisario
Got it. And just one follow-up there, are you seeing any divergence between urban and your resort properties on the expense side today?
Jon Bortz
I don’t really — I mean, the resorts have probably gone up a little bit more just because they tend to be in resort locations where there’s a lot of competition. It was an industry that came back first. The cities tend to be more, in many cases, fixed and following the contracts — the union contracts in that market regardless of whether you’re union or not. So, I think that would be the only difference I would highlight. I think one of the benefits have seen, Mike, is the — both the return of H-2Bs and J-1 program, but also the administration approved going up to the max number of H-2Bs, which had never been done before, and that will help our industry, particularly the seasonal resorts.
Michael Bellisario
Helpful, thank you.
Operator
Thank you. The next question is coming from Gregory Miller of Truist Securities. Please go ahead.
Gregory Miller
Good morning. I wanted to start off following up on your comments on the tech industry. Could you share what your current expectations are for tech travel budgets for 2023, either compared to 2019 or 2022?
Jon Bortz
Yes, I mean I think that’s, unfortunately, probably a better question for the brands who have a much broader view of that than we do. We’ve seen a continuing, fairly rapid increase more recently on the tech side in their travel. And probably coincides a little bit more with their efforts to return to the office, which we are seeing an increasing number of the tech firms coming back to their office. So, the markets for us that where we see it is our — obviously, San Francisco and Seattle, and as I mentioned, Santa Monica, the — what they call the Silicon Beach, and so, I don’t know where that’ll end up. I don’t — I never believe any of these surveys about budgets or comparisons. I think travel, frankly, is much more controlled by the individual — the employees in the organization than it is by senior management. So, we — and we — outside of that occasional announcement, like Google made about only — what do they call it, Ray?
Raymond Martz
Essential.
Jon Bortz
Only essential travel, which that’s always a debatable issue, obviously, by those who want to travel, so…
Raymond Martz
We think all travel is essential.
Jon Bortz
So, we have a small industry bias.
Raymond Martz
And also, Greg, just so that you know, the tech industry has been a lagging industry in the recovery since the pandemic as it relates to travel demand. It’s really been other industries, like the entertainment industry, life sciences, consulting, and a lot of other sectors have been coming back more than the tech. And, recently, tech has been coming back, but certainly that’s been a noticeable industry that’s been not bouncing back as quickly as others.
Gregory Miller
Thanks, gentlemen. My follow-up, I thought to ask about the two Westins in Boston and Chicago. Combined, and as you know, these hotels are about $50 million of hotel EBITDA in 2016. Could you share, roughly, where these hotels are likely to finish this year? Or more broadly, how you see the recovery for these hotels over the next couple years?
Jon Bortz
Yes, I mean, Copley is going to be pretty — looks like it’s running pretty darn close to ’19 EBITDA, give or take $1 million or $2 million, depending upon how the last three months end up. So, clearly, a great and pretty quick recovery in that market, rate is up significantly now over ’19, and group bookings for next year look really good, are tracking very close to ’19, but with rate up I think about 5% over ’19. So, I don’t have a comparison back to ’16. Westin Michigan Avenue, obviously much slower market to recover. And I don’t recall, offhand, Ray, where we are. It’s probably — I mean, it’s probably down a lot from ’19.
Raymond Martz
Yes, we’re still likely down 40% to 50% to ’19 on an EBITDA basis.
Jon Bortz
But the summer, in particular, and into the fall, we’ve seen a really nice recovery in business tangent and group at the Westin, in Chicago.
Gregory Miller
Great. Thank you both.
Operator
Thank you. The next question is coming from Bill Crow of Raymond James. Please go ahead.
Bill Crow
Hi, good morning, guys. Jon, not to beat the whole sequential change to death, but when I think about the same-store RevPAR versus ’19, right, going from a 1.5-ish to flatter to your midpoint ex LaPlaya. I think you said there were three items there, the hurricane impact, the rental disruption in San Diego, and seasonality. If we throw seasonality out because I assume seasonality was around in ’19, right? And no recent calendar changes or anything we should know about, but can you quantify the hurricane, if we didn’t have the hurricane impact and maybe if we didn’t have the renovation disruption, although I’m guessing how active you were in ’19, you probably had some disruption there. Where would that same-store RevPAR guidance be for the fourth quarter?
Jon Bortz
Yes, and, Bill, just to clarify, the comment about Q4 compared to Q3 wasn’t about seasonality. The third point related to how to convention calendars fall. And so, when we look at that, and again it all compares back to ’19, but the comparisons were not as good for San Diego, for Boston, and for D.C., which are obviously a meaningful part of our portfolio. And then when we look into next year, as an example, the calendars for San Diego, Boston, and D.C. are actually all up, at least for the year, compared to ’19. But I’m sure there are going to be — and compared to this year, they’re up. And I’m sure there’ll be some quarterly movement from around in all of those markets, but I don’t know that offhand. So, the impact from the hurricane, we don’t have the numbers in for October’s — the impact from October, we’ll get those in about two weeks from the property teams. And you’re right; I think we did have some redevelopment impact in ’19, although I don’t recall exactly which properties it was.
Bill Crow
Okay. That’s — it’s an interesting discussion. It’s one I’m having increasingly with investors with. And I think Shaun went through that dialogue as well, that there’s some suspicion that things are potentially stalling a little bit. And I just — I want to make sure that we understand the progression from third quarter to fourth quarter.
Thanks, Jon.
Jon Bortz
Yes, and thanks. And I think it’s — look, if it was stalling we’d tell you if we saw indications of that. And we’ve looked at others, we look at Visa, we look at American Express, we look at the airlines for the fourth quarter, and it doesn’t appear that any of them are reporting a stall in the recovery. But I promise you that we’ll let you know if that’s — if we see it.
Bill Crow
And I appreciate that. Thanks for the time.
Jon Bortz
Sure.
Operator
Thank you. Our final question for today is coming from Chris Darling of Green Street. Please go ahead.
Chris Darling
Thanks. Good morning. Jon, can you speak to the downward revision of your internal estimate of NAV, maybe elaborate a bit on what you’re seeing in the transaction market and how values may have changed across some of your markets?
Jon Bortz
Sure. Yes, we went — we continuously evaluate the values of each individual property, and take into consideration all the meaningful factors, what is the sentiment in that market, is it union, is it non-union, is it unencumbered, is it encumbered, is it management-encumbered, is it brand-encumbered, because those have negative impacts, and obviously unencumbered has a positive impact on values. What’s going on in the debt capital markets, what’s the equity flow, and, basically, what are the transactions and what’s going on in the pricing and the values of those transactions, whether they’ve been reported or ones we know that are being completed, and what the pricing and valuations of those are in the marketplace. So, we take into account.
Obviously, in the last quarter, what we’ve seen is a continuing increase in the challenges related to the debt capital markets, and an increase in the cost of debt capital, and a decrease in the availability of debt capital. And that is impacting levered buyers in the market, and impacting values in the market. That the mitigation to that continues to be how values are determined based upon increasing confidence in recoveries, both ongoing and expected, on a go-forward basis. And then, ultimately, also I’m sure buyers take into account, as we do, what does the macro look like and what are the risks there.
So, that the long — I want to provide that background because the result is what we delivered to you, which you’re commenting on, which is the ultimate result of that of looking at values on each and every property on an sophisticated basis, based on transactions and buyers sentiment was a reduction of about $330 million in the value of our assets in the portfolio, which is about $2.5 a share. So, the range came down $2.5 from low to middle to top end and it’s now between 27.50 and 32.50 for those on the call who haven’t gotten through the investor presentation, yet, like you have Chris.
Chris Darling
Got it. Appreciate that color, it’s helpful. And then just quickly, I want to return to a point you made around margins and the opportunity to improve bottom line performance as occupancy continues to come back. You mentioned that expenses become relatively fixed at a certain point in demand. And I just wonder, you know how close we are to that inflection point, I guess I’d call it. I know it’s tough to kind of measure this on a portfolio basis. But I just wonder how we should be thinking about the trajectory of expenses from this point forward, excluding really any CPI related cost increases?
Jon Bortz
Yes, and I didn’t mean to say that we get to a point where they’re almost all are fixed there. Obviously, there’s always marginal expenses related to both labor and materials, but volume, revenue volume does matter. Because when you have a full team of all of your people, primarily your management people and you have a lot of your other expenses, insurance taxes, things like that, that are fixed and don’t vary based upon those volumes, your flow obviously for every dollar ultimately improves as your total occupancy and your total revenue base improves. So, you just end up getting much better flow on a marginal basis than what you’ve gotten, what we’ve gotten in prior quarters.
Chris Darling
That’s fair enough, understood. That’s it for me. Thank you.
Jon Bortz
Thank you.
Operator
At this time, I’d like to turn the floor back over to Mr. Bortz for closing comments.
Jon Bortz
Hey thanks everybody, for participating. Those who are still here and hope you enjoyed the song that we provided for you. It’s a classic. And we look forward to seeing you in San Francisco at NAREIT.
Operator
Thank you. Ladies and gentlemen, this concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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