Thank you for standing by. This is the conference operator. Welcome to the Pebblebrook Hotel Trust First Quarter Earnings Call. As a reminder, all participants are in listen- only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Raymond Martz, CFO. Please go ahead, sir.
Thank you, Carl. Good morning, everyone. Welcome to our First Quarter 2020 Earnings Call and Webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. Before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws. Any statements are subject to numerous risks and uncertainties as described in our 10-K for 2019 and our other SEC filings, and future results could differ materially from those implied by our comments. The forward-looking statements that we make today are effective only as of today, May 8th, 2020, and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use on our website at pebblebrookhotels.com.
While the first quarter of 2020 has indeed been like no other in the history of the hotel industry, the thoughts of the entire Pebblebrook team are with the families who have lost loved ones to this pandemic, as well as the tremendous thanks and appreciation for all the first responders and healthcare workers on the front lines. The speed at which this pandemic has impacted the world has been incredible, causing cities and states across the U.S. to effectively shut down through the imposition of shelter at home policies and mandating many businesses to close or significantly curtail their operations. The federal government decided to close our borders to international travelers and commerce and restrict all other non-essential travel. All of these factors led to a situation where hotel demand rapidly dropped to virtually zero in a matter of just weeks, beginning in early March.
Our response has been swift and decisive as we reacted to this crisis, which changed by the day. Our three immediate strategic priorities were to first, protect the health and safety of our guests and hotel level workers. Second, to preserve our financial liquidity during this crisis. Third, to ensure we are well prepared to take advantage of the opportunities that arise in the new hotel operating environment after the recovery begins. The year started well as we were ahead of budget in January and February. Yet by late February, we were implementing cost reduction programs, and by mid-March, we commenced temporarily suspending operations at many of our hotels and resorts in response to mandated restrictions and closings required by local and state government officials to help ensure the safety of our guests, workers, and communities.
As of today, 46 of our 54 hotels and resorts have temporarily suspended operations. Our remaining eight hotels, for various reasons, are open and operating with skeleton crews and limited services and amenities. As a result of these actions, first quarter same property RevPAR declined 25.5% compared to the prior year period, with same property total revenues declining 23.1% to $255.8 million. Same property hotel EBITDA declined 55.2% to $40.6 million. Of note, March room revenues declined 65.8%. Our ability to reduce hotel level expenses in March was challenging, given how quickly and substantially the operating environment changed, which caused a rapid and dramatic increase in group and transient cancellations in the month. Nevertheless, total hotel expenses before fixed costs were still reduced by 42.7% compared to last year. Our adjusted EBITDA was $35.9 million, and our adjusted FFO per share was $0.13.
This reflects the impact of the decline in hotel demand and subsequent suspensions of hotel operations. We incurred approximately $5 million of one-time charges relating to the furloughing of hotel-level employees, which included future hotel healthcare benefits and other payroll costs that were recorded in March per GAAP. We also recorded a $16 million non-cash write-off for our long-term retention share awards that had just been issued in late February prior to the pandemic, which our executive team and other officers volunteered to forfeit as part of our corporate expense reduction measures. Imagine that, a $16 million corporate write-off as a result of the forfeiture of restricted shares, which is a benefit for the company. You got to love GAAP.
We also generated gains from the sale in early March of the InterContinental Buckhead and Sofitel D.C. hotels, a GAAP gain of $117 million and a taxable gain of $160 million. The sale of these two properties represent the culmination of two very successful investments, and the timing of the sale was obviously very fortuitous, but also a consequence of negotiating a strong and favorable contract. Since the closing of our corporate acquisition in November 2018, we successfully completed sales totaling $1.66 billion of hotels at a 5.6% cap rate as part of our strategic disposition plan. Shifting to our second priority in response to the COVID pandemic, preserving the liquidity of our business, we took numerous actions since the crisis became apparent.
In addition to instituting drastic expense reductions throughout our portfolio, we also quickly suspended operations at the vast majority of our hotels and resorts, which significantly reduced operating losses. This including furloughing the majority of our hotel-level workers and reducing the number of employees at our hotels to skeleton crews, while also ensuring the security and safety of our hotel associates and our properties. Our hotel asset managers also work closely with our hotel teams and management companies to aggressively reduce our non-payroll expenses across the portfolio. We thank our management teams for reacting so quickly and decisively in a challenging environment. This, of course, mitigates our monthly cash burn during this crisis.
As a result of these swift and decisive actions, we reduced our monthly hotel level operating expenses by more than 75%, leaving an estimated average monthly cash burn at our hotel level of at approximately $15 million-$18 million, or about $1,200 per key per month. We continue our efforts to further reduce this cash burn. At our corporate level, we estimate monthly cash G&A at approximately $2 million, which reflects a reduction in compensation for every Executive Officer, member of the Board of Trustees, and employee at Pebblebrook, including Jon, who volunteered to forgo his salary for the remainder of 2020. We also modified our annual cash bonus program to provide that bonuses earned for 2020, if any, will be paid next year and paid in common shares instead of in cash.
Also, as previously mentioned, our executive team and officers of the company agreed to voluntarily forfeit long-term retention share awards that were issued in late February. Our combined reductions in corporate G&A total approximately $8.5 million for the remainder of the year. As with our hotel-level cash burn, we'll continue to look for further reductions in our corporate G&A expenses as appropriate. Finally, our interest expenses and preferred dividend payments total approximately $8 million-$10 million per month. We reduced our normal quarterly common dividend from $0.38 to $0.01 per share, beginning with the first quarter dividend, preserving $50 million per quarter in cash, totaling $150 million of savings for the year. Combined, given our comprehensive initiatives at the hotel and corporate level, we estimate our average monthly cash burn to be approximately $25 million-$30 million, which excludes any capital investments.
As it relates to our capital investments, we have invested approximately $50.1 million into our hotels through the end of the first quarter. We currently expect to invest an additional $75 million-$85 million over the balance of the year, mostly to complete our ongoing major redevelopment projects. To further enhance our liquidity, we've elected to defer more than $100 million of major redevelopment projects to 2021 and beyond. We will reevaluate these projects as we gain more clarity on the economic environment and our outlook. Turning to our balance sheet, as of the end of March, we had $746.8 million of cash on hand.
This increase from year-end last year is primarily a result of drawing down on the remaining availability on our $650 million unsecured credit facility in mid-March to increase our liquidity, as well as the $331 million of cash proceeds from the sales of InterCon Buckhead and Sofitel D.C. in early March. We believe this provides us with sufficient liquidity over an extended period. We will continue to evaluate other sources of liquidity, including additional term loans, property-level financing, government loan programs, or other debt financings. We will also assess additional property sales. The transaction market is largely frozen currently as the debt markets and buyers and sellers recalibrate values. We believe transactions will likely be on hold until at least the second half of this year, and will likely favor all-cash buyers rather than those who need debt.
Regarding our debt, as a reminder, all of our debt is unsecured, and we have zero debt maturities until November 2021. As of March 31st, our net debt to depreciated book value was just 34%, which indicates that we entered this crisis with very low leverage and demonstrates that we don't have a debt problem, but clearly, we have a revenue and EBITDA problem as a result of the economic stop in response to governmental efforts to contain the pandemic. Looking at net debt to depreciated book value represents a good proxy for leverage given the lack of demand and lack of revenues in the current hotel operating environment. As it relates to our financial covenants under existing unsecured credit facilities and unsecured notes, we are currently in compliance with all of our loan and note agreements.
However, given the substantial decline in hotel revenues, we anticipate the need for a waiver of certain covenants beginning with the second quarter ending June 30th. As a result, we're in discussions with our bank group and note holders. We expect to finalize this waiver agreement soon. We'll update you accordingly. Regarding our third priority, which is to ensure we are well prepared for the new hotel operating environment and to take advantage of the opportunities when the recovery begins, I'd like to turn the call over to Jon to discuss our plans and what lies ahead for the hotel industry and Pebblebrook. Jon?
Thanks, Ray. These are, without question, unprecedented times. Along with many other industries, the hotel industry has never before experienced an event that has effectively eliminated almost all segments of travel and hotel demand around the world at the same time. Since this crisis is a result of a pandemic, it's unclear how long the impact will last, how much damage it will cause to the economy both now and in the future, and what impact it will have over the long term on travel, human behavior, and the lodging business. As a result of this uncertainty, as Ray indicated, it's best to focus our efforts on protecting the business under the assumption that the negative impact will last for a significant period of time. Plan for the worst, and hope for and do everything we can to achieve the best.
As we plan for the remainder of 2020, we start with the knowledge that the recovery will be dictated by the virus and the world's ability to mitigate it, so predictions are obviously difficult. Based upon what we understand, we believe it's reasonable to expect a significant disruption to most of the demand segments for the better part of this year. We currently expect that the second quarter will be the worst quarter, with April being the worst month, and the third and fourth quarters providing a slow but positive improvement. Beyond that level of detail, no one can really know or predict how this is going to play out. Again, the good news is, it should get better from here. Leisure transient should be the first to recover, then business transient, then small group, then larger group and citywide.
We believe group, particularly larger group, will be the hardest hit, and most of it is not likely to return any time this year without an effective health solution. We've counseled our property teams to assume that none of the group on the books will materialize, and they should plan and staff accordingly. It's uncertain when government restrictions on gatherings will moderate, but most state and local governments have already indicated that large gatherings are likely to require significant health advances before being allowed. Even if they are allowed, it's unclear how willing individuals will be to congregate in large groups without substantial physical distancing and other requirements like masks and testing. We also expect companies to be very cautious with travel, likely limiting travel by their employees to truly essential travel only, thereby eliminating much of the demand from business.
We really can't count on the corporate transient business that was previously on the books and may still perhaps be on the books to actually show up. Corporations were the first to impose severe travel restrictions, and we expect they will be the last to reduce or eliminate them. Outside of major corporate travel, we would, however, expect a healthier recovery from some small businesses, service providers, vendors, consultants, and others where travel is more critical to their businesses. In addition, international travel is likely to be fairly minimal for the rest of the year, given not only governmental restrictions, but anxiety on the part of travelers to not only get on a plane, but to go far from home in an uncertain world.
With domestic leisure travel as the one segment likely to return, and hopefully in a material way, we expect resorts to be the biggest beneficiaries, particularly drive-to resorts. For Pebblebrook, drive-to resorts represent about 20% of our historical EBITDA, and leisure travel represents over 80% of the historical demand at our resorts. As a result, we look at our hotels that have suspended operations. We expect our resorts to be some of the first properties we reopen. In fact, we're looking at reopening our first resort late this month, with others likely to follow over the next month or two as states open up and demand returns.
Fortunately, all of our resorts are on large pieces of land, with significant space for guests to spread out and feel safe, such as Skamania Lodge outside of Portland, which sits on almost 200 acres, Chaminade Resort in Santa Cruz on 300 acres, Paradise Point on 44 acres in San Diego, and similar large pieces of property at San Diego Mission Bay Resort, L'Auberge Del Mar, Southernmost Resort in Key West, LaPlaya Beach & Golf Resort in Naples, and The Marker Key West Harbor Resort. While we expect leisure to lead the recovery, we also expect its recovery to be relatively modest as well due to both health risks and economic issues.
Unfortunately, we shouldn't forget that many leisure demand generators are on hold right now, including sporting events, festivals, concerts, marathons, entertainment parks, and other similar attractions, and most cities have closed all of their cultural and tourist facilities, though we expect these to reopen over the next few months. Older travelers can be expected to be more cautious about travel. Positively, some of these leisure headwinds will be offset by Americans who will not go abroad for their vacations and instead vacation here in the U.S. We expect to reopen our properties one at a time based upon demand, and only when they can be operated in a manner that, at a minimum, results in us losing less money than if they were to remain closed. Because we expect demand to recover slowly, unfortunately, we will have no choice but to bring our hotel associates back slowly as well.
2020 is likely to be challenging all the way through unless we have an effective healthcare breakthrough. Hotel operations will certainly be different as we move forward post-lockdown. We'll have enhanced cleaning protocols to protect our hotel associates as well as guests. With an industry-wide certification we're working on through the AHLA, with the cooperation of every major brand in the U.S. The cost of these additional protocols is likely to be covered by reductions in services and amenities, including the likely elimination of in-room housekeeping during a guest's stay. We should expect there will be significantly more cross-training, job-sharing, and shifts worked by managers, particularly until occupancies rebound to more normal levels. Food and beverage, when it does return, is likely to be materially simplified with more preparation and less cooking, which will help reduce costs.
There will be a number of positives longer term that we can expect will come out of this crisis. Let's talk about future supply first. We should expect new starts to quickly fall to a trickle because frankly, who in their right mind would provide financing for a new hotel at this time, given the massive uncertainty that exists? We also think some of the hotels under construction will stop permanently due to financing that backs out. As we know, construction has been stopped or slowed in many markets for various reasons. What we'll deliver in the next couple of years will deliver later and in smaller numbers than previously estimated. In addition, in markets that were challenging even before the pandemic, like New York and Chicago, we expect to see many hotels and rooms fail to reopen.
With perhaps many of them likely converted to affordable housing or homeless facilities as a higher and better use. We don't expect much in the way of new hotel starts for the next 3 to 5 years, given how long it's likely to take for positive economics for hotels to return. Operations will likely become more efficient as has historically occurred in prior black swan-type events. Expect some services and amenities to be reduced or eliminated, with changes in areas such as restaurants, in-room dining, and banquets and catering. High touch will become low touch, or even no touch. Technology will replace hours worked in some cases. Expect more cross-training and job-sharing. More fixed costs will become variable costs. We expect real estate tax assessments to decline.
While tax rates are likely to increase, we still think it's likely the combination results in declines for hotels, in particular, over the next few years. This crisis has also instantly relieved labor pressures. In just one month, we've gone from an industry with a significant lack of labor to an industry with an overabundance of labor. We should expect labor to become more flexible, wage rate increases will abate, and unions should become more flexible on work roles and other matters. This industry will need all the help it can get to reopen and recover. Leverage will surely shift to a better balance between employers and employees, we think it's likely there will be less financial pressure from new requirements imposed on the industry from governments, particularly local and state governments.
For Pebblebrook, we would expect our hotels to outperform their markets in the recovery years, similar to what they did last year and early this year before the pandemic struck. Our hotels are in better condition on average than our competitors in our markets. 40 out of 54 of our properties have undergone major renovations, redevelopments, or transformations in just the last five years. Nine in just the past few months, including those being completed as we speak, and 10 more in 2018. This will be a big advantage over the next few years. Many of our private sector competitors are likely to lack the capital to maintain their hotels in years to come, widening the advantage we already have. We expect hotel conditions will rule with the customer base, as they have in prior recessions and in the early years of prior cyclical recoveries following significantly harmful events.
We also expect our lifestyle hotels to outperform in the recovery because of their experiential focus for customers looking for something that lowers the stress and anxiety that will now likely be associated with travel. We also think they'll outperform because of their more personalized nature of the services we're able to provide to our guests, and because of the attractiveness of our typically smaller-sized footprints and smaller public areas, which should allow our customers to feel safer in our properties. Our smaller-sized lifestyle hotels, including our properties with major lifestyle brands like The Luxury Collection and W, are generally more attractive to transient customers, particularly leisure, and they historically have needed less group to be successful. Our independent lifestyle hotels are also able to operate more efficiently than major brand hotels. They can move faster to adapt to new customer preferences.
They're more flexible in their operations, and they support lower fixed and variable costs in a low occupancy environment, which is what we expect for at least the rest of this year. We also expect there to be significant opportunities over the next few years to acquire properties in distress due to a likely prevalence of cash-strapped and over-levered owners and many properties that go back to lenders. Our team has been through two prior crisis-driven opportunistic periods, including the creation of Pebblebrook in late 2009 following the tail end of the Great Recession. Following that crisis, we were able to fairly quickly and aggressively assemble a very unique portfolio of high-quality hotels and resorts at very attractive prices that also had substantial upside opportunities.
Given our ability to operate our properties more efficiently than the vast majority of buyers and our unique strength in redevelopments and transformations, we believe we'll have a significant advantage as opportunities arise over the next few years. To create long-term value for Pebblebrook, and without taking away from our current efforts to protect the company, we also continue to put time and effort into advancing our branding opportunities. This is an opportunity we believe is unique to us because of the large number of independent lifestyle hotels that we own and control. We expect to roll out our completed Unofficial Z Collection website later this quarter. This will allow us, for the first time, to connect our soon-to-be seven Unofficial Z Collection hotels in the eyes of our guests. This should provide some help to these properties in their recovery.
We also continue to aggressively pursue the creation of a broader independent lifestyle hotel and resort collection by seeding it with our 31 completely independent hotels and resorts. We'll provide more updates as these efforts progress. We're convinced there's a long-term value creation opportunity here that should commence sometime this year. Finally, it's safe to say we all find ourselves in uncharted territory with an almost complete lack of clarity about the future. We're confident, given our senior management team's experience successfully navigating prior crises, including following 9/11 and the Great Recession, that we have the reputation, foresight, creativity, work ethic, track record, and an incredible team, combined with strong liquidity and a fantastic portfolio, to not only grind through the current challenge but thrive during the recovery and next upcycle.
We greatly appreciate your confidence in us, and we look forward to once again proving our ability to create value with our unique portfolio, our experience, our team, and our creative approach to the business. With that, we would be happy to move on to questions. Operator, you may proceed with the Q&A.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Rich Hightower from Evercore. Please go ahead.
Hey, good morning, guys.
Hey, Rich.
Morning, Rich.
Thank you for all of the commentary and the detail in there. I thought that was very helpful. There's a lot of angles to pursue here, but I'll just kick it off with this one. Jon, you've made much, I think, over the past several years in terms of the advantages of a predominantly independent managed model versus the branded hotels. I guess, given that everybody is sort of starting from scratch at this point and the brands themselves are acknowledging the need to fundamentally change the operating model in many of the ways you've described, what do you think that relative advantage of an independent management focus will be over a branded hotel coming out of this downturn? Any differences?
Well, I think quite a few. I mentioned a few in the script. I think there's more flexibility, there's more ability to be creative in independent hotels. It's less expensive to operate an independent hotel than a brand. While I know the brands will be working on lowering their expenses, I'm not sure that means lowering the percentages against revenues that are charged. I would hope they would be looking hard at that and understand the need for that, but I'm not confident that they'll be able to do that given the fairly dramatic decline in revenues that they will face, and that they are facing as well. I think independence, it's interesting. First of all, it's pretty hard to view the world and say group is going to come back before transient. I think the independent hotels are far better suited to attract transient.
They always have been, for many of the reasons I mentioned. Also because they're smaller in size, I think people will feel safer, in smaller properties with fewer people around, frankly, at the end of the day. I think there's a lot more opportunities. I think the brands will take time to rebuild their organizations. It's interesting. We have 19 different operators. I think six are major brands. The major brands have laid off huge numbers of people. Our independent properties, I think for every operator, they've not laid anybody off in terms of their corporate offices, and their regional people. There's a lot more staffing, there's a lot more focus interestingly, from the independent side. You would think it would've been the other way around, but that's not the case.
A lot of our operators, the small operators, also qualify for the PPP loans for their companies, whereas obviously the big companies do not.
Okay. I appreciate that. Maybe just with respect to the forthcoming covenant waiver on the credit facility and unsecured debt, are there any special carve-outs that you can negotiate for purposes of acquisitions? You mentioned potential distress and opportunities in that area for Pebblebrook, not today, but certainly over the next few years. How do you get around the mechanics there, given some of the limitations that would come with waivers?
Yeah. First of all, it comes from having a 20 to, in my case, in some cases, 40-year relationship with most of the major banks in our line and in our term loans. I think those banks have been involved in the creation of Pebblebrook. They were involved in the transaction in terms of the acquisition of LaSalle. I think because of our reputation and our track record, I think our bank group will be very supportive of our opportunities to take advantage of the recovery, regrow the company, and drive value for the shareholders. I think we're going to be aligned with the bank group and so that'll be part of the discussions that we have now, but it'll also be part of the discussions over the next year. In fact, we've already started some of those discussions with various members of our bank group.
Rich, to be clear, we decided that our strategy is to get through earnings, focus on our covenant waivers now in May and June because we view it as a better operating environment versus trying to push something through in April, which we could have, we just thought for the timing and perspective, we thought the environment would be better now going forward. We have full confidence we'll work through those waivers. We have term sheets in hand and working through that, and we'll get the best deal for the company that we can in the near term. Great. Thank you, guys.
Thanks, Rich.
The next question comes from Neil Malkin from Capital One Securities. Please go ahead.
Hey, gentlemen. Thanks for all the color. Great color as always. Appreciate your insights. First question, you talked about, I think last call, doing a lot of pre-bookings or forward bookings on your websites to kind of gauge what demand could potentially look like or when it will come back. Based on what you've seen so far, what does it look like, at least for the leisure customer? I know it's kind of hard to discern business versus leisure sometimes, but what does it look like, or when do you start to see a pickup in at least planned return to hotels?
Yeah. It's a good question. The answer isn't a great one for the industry, and I think this is sort of the difference between looking at numbers and understanding what's going on in the world, and what human behavior's going to be, and corporate policies and governmental policies as we've seen this all play out. Look, this is the first time any of us have gone through a pandemic. What little leisure bookings we're seeing are very short-term. We have one resort open. When they opened up Florida, we saw a meaningful increase in bookings. Now, what does meaningful mean? It means we've gone from running on average 5% or 7% occupancy in Naples at a beautiful resort on the beach to, I think this weekend will be our biggest weekend.
Looks like we're going to run 30% with almost all of those bookings in the week for the week. We are beginning to see a few bookings into June, but for that property, we're talking onesies and twosies. Through the rest of the portfolio. Probably our most number of bookings are in Key West for June and beyond. The challenge is we don't know when they're going to open Key West. Right now it's restricted governmentally. They're not allowing anyone onto the Keys who doesn't live there or work there, I guess, and with checkpoints on the one highway that comes into the Keys. We still have a quarter of a million group rooms on the books for the second half of the year, Neil. I doubt much, if any of that actually materializes. We're seeing all of our groups cancel on a rolling basis.
By and large, there's no hurry for them to cancel. In fact, there's a disincentive to cancel ahead of time because if there's a force majeure event, meaning a government restriction they cannot meet, then they don't have to pay any cancellation by and large. They have a better contractual outcome than if they cancel now in advance, when we don't know what the restrictions are going to be later in the year. We frankly, and this is, again, I mentioned this in my comments.
We can look at what's on the books and we can be really positive and say, "Hey, our group bookings in the second half of the year are only down 12% from the year before." We can look at it logically and pragmatically and say, "Yeah, but they're all canceling." What corporation is going to change their policy and allow people to go to group meetings? We're just not optimistic that's going to happen, certainly in the near future. Maybe by the end of the year, the last two months. It's possible, I got to tell you, I'll give you an example. We do a lot of weddings through our portfolio because we have a lot of unique properties. We have a lot of outdoor venues. We have a lot of good weather.
All of the brides are moving their weddings to next year, because they don't look at having a wedding, even if they can gather six feet apart with masks, as being the sort of romantic thing that they've always dreamed about. Now, maybe some people will move ahead because they want to get married. It'll be something to remember always. I would tell you, the vast majority of brides are moving their weddings to next year, and we're cramming in two years' worth of weddings in what may be the back eight months of next year. We're trying to differentiate between the numbers, which I think are very misleading, and the reality of what we think is likely going to happen based upon all of these things we've already seen.
Great. Thank you for that. Just as a follow-up to one of the things you said about your reluctance to view a group that is still on the books for the back half of the year as legitimate. Someone else reported that they had seen 12% or more of the people who'd canceled in March, in the second quarter already rebook for the back half of this year. I guess, how would you rebut that, or what's your view on that? It's a little bit opposed to your view that groups are going to take longer to come back.
Look, I hope they do come back, Neil. We have to run our business on pragmatism, and we want to staff appropriately. We want to incur costs appropriately based upon what we think is going to happen. We've had plenty of groups that have moved in our properties from March and April and May and June to the back half of the year. First of all, the meeting planners don't have anything else to do. Second of all, there's probably contractual benefit. They don't incur a cancellation fee if they move to later in the year. We're accommodating them because why not? That'd be great if they come at the end of the day. Look, time will play out. Think about your own company. What's Capital One going to do? What have they done about group meetings?
There are companies already who've said they're not going to have a group meeting until the middle of next year. I think that's a little premature myself. The corporate ethos is to protect their employees. You think about when we've talked to corporate accounts, and we've talked to you all who work for some of the biggest companies and the biggest travelers and the biggest meeters in the country. You don't even know when in the fall they're going to say it's okay to come back to the office, let alone take a trip. We think most of this business becomes virtual or it gets rebooked ultimately for next year. I hope we're wrong, Neil. I hope they all come. Everything's wonderful. Everybody meets, nobody gets sick, and everything is back to normal. I just don't believe it
Yeah, no, I appreciate that.
Don't believe it's likely. Again, it could happen. None of us have been through this before, but that's our best guess.
Yeah. All right, just the last one from me. I know it's early still, could you give any general color on the 31 independent hotels that you guys have, excluding the Z Collection you talked about ceding that. Could you just spitball or talk high level on potential outcomes or monetization, that would also still comply with the REIT rules?
Yeah. I can't and won't at this time, but I hope to be able to do that in the next quarter or two.
Okay. Thank you guys very much for the call then.
Thanks, Neil. Next question.
The next question comes from Smedes Rose from Citi. Please go ahead.
Hi, thanks. I wanted to just ask you mentioned on the labor side that, I guess the cost per cleaning a room likely go up, but that you probably don't have labor or you don't have cleaning services during a guest stay. Do you think brands are considering that as well, or were you talking more about for your independent properties?
No, I think that's going to be the industry standard. We've talked to a bunch of the brands, based upon the conversations we've had already, that is what they're planning.
Okay. My other question.
Think about it just for a second, Smedes. I don't think most customers want someone in their room during their stay. You've already seen Hilton, the program they came out with, where they're going to put a little seal on the room that shows that the room's been cleaned and no one's been in there since. I think that actually is what the customer will want for the most part, not everyone, but I think the vast majority of people, and I think it will never come back. Not without an additional cost.
I guess I was wondering about it because I know there's been some You used to sort of be able to get extra points and sort of the green programs, and there was kind of pushback, I think, more from the organized labor side on some of those programs, and I'm just wondering how that's going to play out. I know it's probably less impactful for you maybe versus some of the larger group hotels that have more organized labor, but I guess sort of, do you think they're being flexible on that?
I think they'll have to be. They have been. It's not been restricted by and large by the contracts other than for a lengthier stay. I think the important thing is that cleaning labor counts are probably going to be very similar to, ultimately, be similar on a productivity basis because there'll be additional cleaning that's required. We'll be reallocating people from rooms to public areas, as an example, and probably a longer period of time, to some extent, to clean rooms between guests, versus what it's been historically because of the additional protocol. I don't know that it means fewer people, but I do think it means people will be in different places, when it comes to cleaning.
Okay. Thank you. You also just mentioned it sounds like your resort properties probably opened on the sooner side. Do you have a sense of timing around other properties in the portfolio yet of how they may be timing around reopening?
No, we really don't. We are taking reservations, I would say, through most of our portfolio beginning, I think in most cases, June, maybe a few cases not until July, outside of the resort properties. We'll see what the demand is, and the booking levels. I think our view is we're not going to open based upon anticipation because we want to see the real demand. The last thing we want to do is open up and lose more money than we're losing when we're closed. It's going to need to be confirmed by real demand, and we just don't know when that's going to come back, particularly in the major metropolitan markets.
Okay. Thank you.
Thanks, Smedes.
The next question comes from Ari Klein from BMO Capital Markets. Please go ahead.
Thanks. Maybe just following up on that last question. How do you think about the cost of reopening hotels and then balancing the risk of perhaps COVID coming back in the second half of the year, even if the demand is there potentially?
Yeah. We're not talking about a tsunami wave of demand coming back. We think demand comes back pretty gradually and occupancies come back off a very low level. Our sort of breakeven of not being worse on average is in the mid to upper single digits of occupancy. Some as high as the low to mid teens, depending upon size and whether it's union or not, of the property and some as low as mid single digits. When we reopen, first, there's not going to be much difference in staffing between reopening and being closed in those cases. We'll bring back people in onesies and twosies. Again, we're going to be careful. We're going to bring a salesperson back when there's enough demand for them to have things to do all day long that are legitimate.
If there isn't that level of demand and we're not already overworking the few people that we have, then we're not going to bring them back. We're going to be very cautious about it, Ari, and I think that's the way to avoid a second wave of the virus and some kind of reversion in behavior.
All right. On the Unofficial rebranding strategy, it seems like you're moving ahead with it. Was there any thought to maybe postpone some of that, given everything that's going on?
Yeah, of course, we talked about it. We actually think there's a nice window coming up of an ability to get a lot of press and visibility because the news in a lot of these travel magazines and journals is fairly limited. The ability to get featured or have stories written and get exposure, we think it's probably the highest opportunity window that we're going to have.
Got it. Thank you.
The next question comes from Shaun Kelley from Bank of America. Please go ahead.
Hi. Good morning, everyone. Jon, I think you gave some great sort of overviews about the strategy and some of the things you guys are looking at here, including the movement on the Unofficial Z Collection. I'm curious, just maybe bigger picture, a lot of the business model for Pebblebrook, and a lot of this goes way back, I think if we think about even the predecessor company in your time at LaSalle, was predicated on urban market outperformance. What you're able to do with some of these independent hotels in these urban markets has always been very core to your strategy. My question is, as we think about the implications of the virus here in some of the cities where operating conditions like New York had already gotten very difficult prior to the virus, do you rethink the urban mix at all of the portfolio?
Do you start to lean at all more towards whether it's resorts or other areas where you might have more flexibility, maybe it's to other markets or Sun Belt where some of the rules and labor restrictions aren't as high? Just help us think about how the portfolio looks in the new norm. If you could make some of these bigger changes, we appreciate it'll take a lot of time, just how are you thinking about the portfolio three to five years from today?
Yeah, it's a good question. I'd love to tell you we've spent a ton of time thinking about this, but we've been a little bit more in defensive mode so far. I think what we've already demonstrated over the last few years is the markets where it's been difficult to operate in, we either sold out of those markets or we didn't buy into them. Two examples being New York, which we've sold out of now twice, once before and after the acquisition of LaSalle, then we never bought anything in Chicago, but we got a couple of properties through the LaSalle acquisition that we'll ultimately dispose of. I do think we will adapt and evolve.
A lot of the capital we've been putting into the portfolio in the last year, and is happening this year, is in the resort portfolio, where we do think there's significant opportunity, particularly because we think resorts are evolving from being more traditional, almost more passive, lay on the beach, take a spa, play golf, to more active type of resorts, like what we've done up at Skamania in Portland. I certainly think we'll be on the lookout for more resorts. I think they come with more risk in other ways, Shaun. There's more fixed costs. There's more land at these properties. You're living off of fewer segments. There's generally no citywides that you participate in, and there's generally very little corporate transient that you participate in, so you're living off leisure, and you're living off of group. In some ways, there's less risk.
You could think of that coming out of this in resorts, and in some ways, it would continue to have more risk because of the fact that you have fewer segments ultimately to rely on. We'll be reevaluating that over time. I don't think we expect to give up on cities. I think there's a lot of reasons why people like to go to major cities in particular. Look, it's something that we'll be looking at very carefully and trying to understand how corporations react, how people react, and ultimately we'll make changes in our capital allocation strategy as appropriate.
Thanks for that. As a follow-up, on some of the comments around the brand side a little bit, can you just give us your thoughts on how this operating environment, so let's look at kind of the movement from April on, impacts kind of how you're thinking about or how you think your portfolio is going to work through some of the distribution channels? Where are you going to lean a little bit more? Do you go to the OTA partners a little bit more, just because that's where the leisure is? Just how are you going to think? How is that channel shift going to play out, both kind of in a normal cycle, because obviously it's that, but obviously in this one, it's going to be even more pronounced?
Just where do you lean and where gives you the best bang for your buck right now?
Yeah, it's interesting. We're going to go where the customer is, and obviously, the first customer return is leisure. On the other hand, we do need to continue to book group for next year, and this year if someone wants to book it, but it's got to be legitimate at the end of the day. Interestingly, Shaun, there is a bit of a misconception sometimes that we're just non-branded portfolio. Half of our EBITDA comes from major brands, the major brand companies. Half of our EBITDA. We do have a lot of smaller properties, but we have some big properties too. We have an 800-room property, 750-room, big meeting property. We got a couple of 450, 420-room properties that do a lot of group. We have a resort that's 460 rooms that does a ton of group of business.
The nice thing is we get to see all sides of every issue. I think one of the things we commented on is we just think because leisure comes back first that our Francisco today, everything's closed. There's nothing to do as a tourist other than look at the environment. It's still a pretty city. Some might argue it's an even prettier city today without the people. I don't know. I do think we'll see where the customer's shopping and we'll follow them. The nice thing is where we're experimenting now on the digital side, it's very inexpensive because there's not a lot of people paying for marketing and ads on either any of the digital sites or Google or the OTAs or wherever. We'll see what's most effective, and that's where our dollars and our efforts and focus will go.
Thank you very much.
Thanks, Shaun.
The next question comes from Bill Crow from Raymond James. Please go ahead.
Hey, good morning. Jon, maybe we'll role play a little bit. I'll play the 50% of your EBITDA that comes from the brands, and you can represent the independent urban hotels. The reason I say that is the big gating factor here for travel over the intermediate term seems like it's going to be cleanliness. If I'm a brand, and you've already seen four or five or six of them roll out these formal programs with partners and brand names and all this, it seems to me that when travel starts to pick up, they're going to go out and they're going to do TV commercials and radio and all sorts of advertising to show that they're the cleanest, safest. They have the technology investment, the digital key bypassing the front desk. It's different than trying to come back from 9/11.
It's different than trying to come back from 2009. How are we not set up to see urban independent hotels really struggle in this recovery?
I don't think that'll be the driving factor with the whole customer base. If you think about a lot of the folks who go to independent hotels, particularly on the leisure side, it's younger people. Frankly, I'm not sure most of those people feel like they're even at risk, and they're still looking for unique experiences, and they're traveling on a discretionary basis. You might be talking about my generation, which still predominantly goes to brands anyway. I just don't think the brands are going to drive disproportionately the customer base who's even looking for cleanliness because it isn't just about cleanliness, it's about safety. It's about exposure. It's about how many people are you going to be exposed to? How many people are going to be in line? How uncomfortable do you feel at a big hotel?
We think our big hotels will open last. Partly because they're more group-focused, and partly because their transient customer is not likely to want to go to a big hotel versus going to a little hotel. Look, this is our viewpoint. We have some of all. We'll see what happens. It's a great marketing pitch, and this is what these guys do with these major programs, but it doesn't convince everybody. We're not trying to get 100% of the customer base out there. We're trying to get, in our independent lifestyle hotels, that little 3%-5% of the population that wants to go to those properties. I would posit to you that that'll be a greater percentage than normal of the people who are choosing to travel over the next year.
That makes sense. That's a good response. What about the technology side of things, Jon? As you've redone your hotels, reworked your hotels and electronic keys bypassing the front desk, things like that. Those are what the younger consumers, I think, are doing today. Is that fair?
It's interesting. Again, we have major brands. I don't know that any of our properties have mobile key yet. It's a program they were hoping to really roll out in size later this year. I think that's going to be deferred because of lack of capital. I think in our case, we actually may roll it out through the whole portfolio this year. It's something we're looking at right now and evaluating and getting bids on. It's not a major for us. It wouldn't be a major investment, and we don't think it's a major cost on an ongoing basis. The interesting thing about it, Bill, is you're still going to need to stop at the front desk because you got to show ID.
We have to verify that the credit card that we have is you, because there's so much fraud that goes on, particularly in the mobile key category. I think we do have at least one property, the Embassy, that has mobile key, and we have had credit issues, fraud issues with that. I do think over time, that'll become much more prevalent, but I think it's going to take a while. I do think it's what customers will want, and I think what we're doing right now is we've constructed a check-in process where it is no touch, and it's limited time.
Okay. All right, Jon, I appreciate your time.
All right. Thanks, Bill.
The next question comes from Wes Golladay from RBC Capital Markets. Please go ahead.
Hey, good morning, guys. Can you touch upon how the cost structure is for your small independent hotels versus your overall portfolio?
Yeah. Do you mean cost structure now when they're suspended? What they were before? What's that?
Yeah, relative to $1,200 a month or per door that they cited.
Yeah. A lot of this also will vary on if you have a ground lease or those sort of charges, but we have some of w hether cost per room and the cash burn. Some of our independent hotels, non-brand affiliated, can operate with $500-$700 per room, per key per month. The larger hotels, and is brand related, can certainly be over $1,200 a room. There's a wide variety, but certainly our independent hotels have done a really good job, particularly some of the hotels on the West Coast there and some of the lodges have operated $500-$600 a room. They've done a good job adjusting the operating expenses.
Yeah. Our brands on average, if you look at it before fixed costs that they have nothing to do with. What would you be at the GOP line? They would run anywhere from 2x-3x the cost as the independent hotels on a per room, per month basis.
Okay. You mentioned about supply coming down the next few years. Is that in relation to competitive supply or just overall supply? Would you expect an even bigger contraction in shadow supply from the likes of Airbnb and such?
All of the above. I think we're going to see a significant number of hotels around the country that don't reopen, may never reopen. A lot of properties that go back to lenders who in many cases really don't even want to take them back. I think in urban markets, because of the higher fixed costs and what will continue to be probably a desire for higher taxes, or a need for higher taxes in some of these cities. We think there could be tens of thousands of rooms in New York that don't ever reopen as hotels. We think there'll be particularly older product in some of these markets, including branded product, in some of these markets, particularly older branded product that may not reopen as hotel as a highest and best use on a go-forward basis.
Okay. That's it for me, and good job on the song choice.
Thanks, Wes.
You're welcome.
Got to keep a sense of humor.
The next question comes from Michael Bellisario from Baird. Please go ahead.
Hi. Good morning, everyone.
Hey, Mike.
Just one from me, kind of circling back to the opportunities that you mentioned that are going to come from the crisis. I guess the question is, when do you switch from defense to offense, and then what are you keying off of to make that decision eventually?
Yeah. As we indicated, we're already starting to plan and have discussions about the offensive side. I think those will ratchet up over the next few months. I don't expect any activity, and frankly, not sure there'll be any opportunity over the next three, four months. I think we start to see the lenders build up their REO departments, which have shrunk to almost nothing, but after 10 years of an upcycle. I think we start to see properties come back in the next four to six months. I mean, keep in mind, this is so different than the other cycles where it took a lot longer, and frankly, not a lot of opportunity came out of the special servicers. Here, the properties are losing money, even before debt service. They have to get funded.
The transfers in these cases are probably going to happen a lot quicker with a lot less fighting going on the part of the borrower, because of an inability to actually fund losses even before the debt service numbers. We want to be prepared for that, and that's where we'll be putting some time and effort over the next few months.
That's helpful. Thank you.
Thanks, Mike.
The next question comes from James Sullivan from BTIG. Please go ahead.
Thank you. Good morning, guys. Jon, just another question on the brand commentary that you've been making throughout this call. Historically, you've always looked at contractual flexibility as providing or justifying a lower cap rate when you're buying or selling a hotel. Arguably, the sales that you guys have completed over the last year and a half kind of indicate that independent, smaller independent hotels have seemingly sold at lower cap rates. So the ability to terminate management contracts, that flexibility certainly has a value.
I just wonder, as you think through the cycle that we're going through and about to go through over the coming quarters here, the limitation on being able to cut costs in the environment we're in for the major branded hotels argues for perhaps another variable that should be taken into account in terms of the cap rate when people think about cap rates for hotels. I'm just curious whether you think going forward, this is likely to become a factor.
Yeah. I would say it's likely to become a factor from this perspective, Jim. Look, people aren't going to say it. I think there are folks who've seen what has happened to their costs, how much carry there continues to be, how some decisions have been made, arguably for the benefit of the brand and not for the benefit of the owner, and are less thrilled with their brand relationship. Along the lines of your question, I do think there are going to be people looking at other opportunities, including, in more cases, trying to move further away from brand-managed versus franchised, where they control the relationship with the employee, and not have a brand company control that relationship. I think you'll see that as well, Jim, in addition to people reevaluating, particularly at smaller properties, whether they want to continue with a brand or not.
A lot of owners were already upset about the dilution in the customer base from the expansion in the number of brands being developed in a lot of the major markets. I think while that issue's probably gone by the wayside for the next four or five years, it shall return. We'll see how it all plays out. Again, we have all kinds. We have brand managed, we have brand franchised, managed by franchisees, and we have independent and small brand. We have seen the fact that it's more expensive to maintain these branded properties in stasis here. In a recovery, it'll be more expensive. People will evaluate that as they make their decisions on a go-forward basis for their own businesses.
Okay, interesting comment. A quick question from me on the West Coast versus the East Coast. You had said in your prepared comments that, the first two months of the year, you guys were kind of ahead of plan, doing relatively well, pleased with the response, particularly at the renovated assets. Here at the end of the quarter, of course, the West Coast underperformed or had a bigger RevPAR decline. I'm just curious, to what extent in February, I think we had the ban on Chinese inbound travel early that month or at the end of January, I think the actual ban went into effect. I'm curious whether you perceived, in any of those markets, a reduction in demand because of that.
I'm thinking here going forward as we think about Chinese inbound travel perhaps being down for a longer period of time, whether that might have more of a negative impact on the West Coast than the East Coast.
I'm not sure which market gets more impacted at this point by all of the things that happened, Jim, related to international travel. We stopped travel from Europe too. The outbreak in Europe has been greater than the outbreak in China, arguably, although obviously, we don't have as much trust in those numbers. I think the big question is the biggest city in the U.S., New York, how are people going to respond to that from a travel perspective, both domestic and international? It's been the one hotspot. It's gotten so much of the publicity around infection and fatalities, how long is it going to take for New York to overcome that negative image? There was a comment earlier, I think Bill asked about cleanliness. I think it's more about safety, which includes cleanliness, but I think it includes a lot of other variables.
How are people going to feel safe in New York? When will that change? I'd be more worried about, frankly, New York and the East Coast, which has had a big outbreak, versus the West Coast, which actually pretty well controlled it outside of the nursing facilities in Seattle. The cases in San Francisco have been very minimal. Even L.A. and San Diego have been on the much, much lower side when it comes to cases and fatalities and publicity, negative publicity at the end of the day. They generally have better weather. There are a lot of factors. I think the one you raised, I just think it's one of many. It's hard to come out with a macro answer on one issue out of 20.
Wes, just kind of a follow-up then. When you look at the relative weakness in Seattle, San Francisco, and San Diego in the quarter, Seattle was obviously one of the first, I think it was the first hotspot, so maybe that was much of that. If you could just kind of summarize why you think they were at the bottom of the performance level for the-
Yeah. San Francisco was the first market to declare a state of emergency. It's where the first companies in the Bay Area said that they were not allowing travel other than essential travel. It's where they were the first companies who said work from home. I remember having conversations with people about this specifically, and they were saying, "West Coast getting hit more because it's closer to China, won't have as much of an impact on the East Coast." Look at it now. It was just a timing issue, Jim. I think if we look at our April numbers, it's zero everywhere. At least for our portfolio, urban or resort, even with the eight hotels that we have open, there was no leisure. It all got eliminated, leisure business group.
The only thing left was some crew, some military business, some emergency business, hospital workers, that kind of stuff. That's all that's been left in the major markets and the major resort markets.
Okay, a final question from me. You have been involved with hotel industry lobbying groups or associations. To what extent are there any ongoing discussions about government programs that might provide some support for the industry? Do you think they'll result in anything meaningful?
Yeah. I think we are continuing to have very significant number of conversations with leadership in the administration as well as in the House and the Senate. I think there's a very good understanding that hotels were one of the first industries impacted, going to be one of the last industries to recover, that the structure also causes issues. Frankly, we had to educate people that Hilton and Marriott and Hyatt don't own a lot of hotels, that they're owned by small businesses and individuals and institutions. There's been a process. Our focus was originally on helping the employees and then the businesses. I think we'll continue those efforts in the future stimulus packages. I think there's a recognition that travel overall is going to need to be stimulated, and that'll take dollars. Then we'll see about whether there's any specific industry support.
We're certainly advocating for it. I think our industry's been hit even harder than the oil industry, where there are discussions going on about industry assistance. Look, I'd love to tell you I was optimistic there'll be any specific industry assistance, but I don't know that there's going to be much that comes for businesses versus just helping the overall travel industry recover from a demand perspective.
Okay, great. Thanks.
The next question comes from Gregory Miller from SunTrust Robinson Humphrey. Please go ahead.
Thank you. Good morning, gentlemen.
Hey, Greg.
Hey. I have a question on your capital investment and repositioning plans. I listened to a couple of recent hotel industry webinars that you both have been on, and to my recollection, you addressed the variety of operating design and room amenity changes that you may need to consider in today's COVID-19 dynamic. You're also in the middle of renovations that will be completed likely before today's health concerns have ameliorated. In that context, how are you weighing moving forward on parts of your renovations that you may perhaps have second thoughts given today's changing consumer behavior trends? Whether this means, for example, changing public area design and flow, figuring out what to do with excess restaurant or lounge space or outlets that simply go away, and other sizable CapEx considerations.
Yeah, good question, Greg. We've had a lot of those conversations, and I think the conclusion we've come to is we don't want to live in a world where you can't ever gather in a group. We're going to make a presumption that there's a health solution that comes out in the next year to two years that will allow individuals to return to some level of normalcy when it comes to meeting, drinking, socializing, entertaining, et cetera. We're not really changing our design focus and our focus on creating spaces that people want to meet in, want to eat in or drink in and want to entertain in. What we'll change is that we'll change the setups of our public areas for whatever the right amount of time is, depending upon both the governmental restrictions and really what people feel comfortable with.
We will likely be moving around furniture. We will likely be removing some furniture. We will likely be removing some tables and chairs. We can also accomplish some of this through the way we seat people. It's interesting. If you remove every seating area where six people could congregate, then if you're a family of six, you can't all sit together. One, I think in many cases, people will self-enforce, but if the governments are requiring us to do that, where every seat has to be six feet away from any other seat, we'll obviously do that. It won't change our design and our approaches in our renovations and our redevelopments.
Thanks. My other question regards to your recent leisure bookings that you discussed in markets such as Naples and Key West, and I'm hoping that you could elaborate on this topic to the extent that you're willing to share. Do you sense that those that are traveling or booking represent the kind of traditional leisure customer that these hotels received before the pandemic? Or is the makeup of the leisure traveler different versus same time last year?
Yeah. Good question. We've been having a lot of those conversations. So far our conclusion is it is the same traveler. In fact, those three properties, which are higher-rated properties, are achieving very high rates right now in their bookings. We're averaging $400-$500 a night in Naples in arguably what is already a shoulder season, or just moving into a shoulder season. Our bookings in Key West, from a rate perspective, have been exactly in line with where they were before the pandemic. So far we haven't seen a change in either the customer or their willingness to spend for the product that's being delivered, even with, frankly, lower services, which all of these properties will have.
Yeah, it's very comforting to hear that. That's all for me, and best of health to you and your teams.
Thanks, Greg. You too.
This concludes the question- and- answer session. I would now like to turn the conference back over to Mr. Jon Bortz for any closing remarks.
Well, if there's anyone still there, hey, thanks for participating. Be careful out there, stay healthy, and stay safe. We wish everybody that for themselves and their families and their friends, and we look forward to updating you with a formal earnings call in three months, and I'm sure there'll be additional public communications between now and then. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.