Aryeh Klein

Aryeh Klein asked for more detail on the revised RevPAR guidance, questioning the demand visibility that supports a flat to slightly better performance for the remainder of the year. He also inquired about the current state of the transaction market and Apple Hospitality's expected activity level.

Answer

CFO Liz Perkins explained that the revised guidance implies Q2 will be the weakest quarter, with approximately 1% RevPAR growth expected in the second half of the year, based on current booking positions and opportunities for market share gains. CEO Justin Knight added that the transaction market remains challenging, but the company has been effective in selling smaller assets to local operators and sees significant value in redeploying proceeds into share repurchases.

Aryeh Klein sought clarification on whether the 7-10% of the portfolio identified for potential sale represents the entirety of non-core assets and asked about the mix of occupancy and ADR growth embedded in the 2025 RevPAR guidance.

Answer

CEO Justin Knight confirmed that the 7-10% figure is inclusive of all assets currently considered non-core. CFO Liz Perkins responded that the RevPAR guidance assumes a mix of both occupancy growth and the resulting ability to drive additional ADR.

Aryeh Klein inquired about the primary drivers of the weaker RevPAR trends in April, asking to distinguish between government-related softness and broader business or leisure travel trends. He also asked about the potential for further cost reductions in a softer demand environment and the possible impact of tariffs on the Portland development project's costs.

Answer

Executive Dennis Craven clarified that the significant RevPAR decline in mid-April was primarily driven by a broad slowdown in business travel around the successive Easter and Passover holidays, a post-pandemic trend, rather than being solely a government travel issue. He noted that May was already trending positive. On expenses, Craven stated that the recent headcount reduction was a quick adjustment to demand and that no deep, 'COVID-related' cuts are planned, adopting a 'wait-and-see' approach. Regarding the Portland project, he acknowledged that while some tariff impacts were factored in, cost uncertainty remains. Executive Jeffrey Fisher added this uncertainty would likely suppress new hotel construction nationally.

Aryeh Klein asked about the significant disparity between occupancy growth and ADR in the fourth quarter and the company's ability to increase rates. He also sought clarity on the assumptions underlying the full-year RevPAR guidance, the outlook for the tech intern business, and the company's acquisition capacity or 'dry powder'.

Answer

Executive Dennis Craven stated that strong business travel demand is driving occupancy growth, which typically precedes the ability to increase pricing power. He characterized the full-year guidance as cautious, particularly for the summer months, and confirmed they do not expect a significant return of the tech intern business in 2025. Executive Jeremy Wegner quantified the company's acquisition capacity, stating they could purchase a 'couple of hundred million dollars' of hotels and remain within comfortable leverage levels. Dennis Craven also clarified that any cash outlay for the Portland development in 2025 would be minimal and is not included in the main CapEx budget.

Aryeh Klein of BMO Capital Markets asked about current trends in inbound international travel to the United States. He also questioned if the weakness in U.S. government demand seen in March had stabilized in April and if it was affecting adjacent businesses like consulting.

Answer

CEO Tony Capuano reported that the U.S. international room night mix was up year-over-year in Q1, with strong demand from various countries offsetting a decline from Canada. CFO Leeny Oberg stated that while full April data wasn't available, government demand was expected to remain down. However, she noted a 'really nice pickup' in business from large consulting firms during Q1.

Aryeh Klein of BMO Capital Markets questioned recent leisure demand trends and the full-year outlook for the segment, and also asked about the group booking pace for 2026 and specifically for the Scottsdale property in future years.

Answer

President and COO Barry Bloom noted that leisure trends are market-specific with no clear portfolio-wide pattern. EVP and CFO Atish Shah added that guidance implies a slight decline in leisure RevPAR for the year. Regarding group business, Bloom stated it's too early for 2026 specifics, while Shah confirmed that group production at the Grand Hyatt Scottsdale remains strong and supports its annual EBITDA target.

Aryeh Klein asked for details on the 2025 RevPAR guidance, particularly the 2% growth forecast excluding Scottsdale, and inquired about the expected EBITDA contribution and stabilization timeline for the newly renovated Grand Hyatt Scottsdale.

Answer

CEO Marcel Verbaas explained the RevPAR forecast reflects strong group bookings offset by uncertainty in leisure and corporate transient segments. He projected a three-year stabilization for Grand Hyatt Scottsdale, targeting low $20 million in EBITDA for 2025. CFO Atish Shah added that Scottsdale's seasonality and strong group production pace, up 120% over a comparable 2019-2020 period, support this outlook.

Aryeh Klein inquired about the 2024 EBITDA contribution from Scottsdale and whether 2019 or 2022 performance levels are realistic targets for 2025. He also asked what specifically surprised management regarding recent expense trends.

Answer

Chair and CEO Marcel Verbaas stated Scottsdale's 2024 EBITDA contribution is minimal due to disruption. While expecting to recover that disruption plus some growth in 2025, he cautioned that the 2022 peak was fueled by unusually 'frothy' leisure demand. President and COO Barry Bloom explained that the main surprise was the need to shift strategy mid-quarter from a balanced rate/occupancy approach to lowering rates to drive occupancy, as initial rate offerings were not generating sufficient demand.

Aryeh Klein of BMO Capital Markets sought clarification on how 'in the year, for the year' booking assumptions have changed in the revised guidance and inquired about the potential impact of tariffs on major capital projects.

Answer

Executive Jennifer Hutcheson explained the revised guidance reflects lower assumptions for 'in the year, for the year' group bookings, which drove the 100 basis point reduction in the RevPAR guidance midpoint. Executive Patrick Chaffin addressed tariffs, stating the team has mitigated most of the risk for the Gaylord Texan renovation by procuring materials within the 90-day window and diversifying sourcing. The primary remaining exposure is on steel for the Opryland expansion, which is considered minimal to the overall budget.

Aryeh Klein asked about the timeline for renovations planned beyond the current projects, whether the financial headwinds from disruption would peak in 2025, and what the group business mix looks like for 2026 and 2027.

Answer

EVP and COO Patrick Chaffin detailed the renovation timelines for Gaylord Opryland and Texan, stating that while the volume of work is higher in 2025, the level of disruption is expected to be comparable to 2024. He also noted that the group booking mix for 2026 is trending towards a higher percentage of corporate business. EVP and CFO Mark Fioravanti added that the Opryland meeting space expansion will be most disruptive during its initial phase in 2025.

Aryeh Klein asked if the company is still observing price consciousness among higher-end consumers and how this might affect room rates for the remainder of the year. He also inquired if recent events in Washington, D.C. have altered the company's long-term view of that market.

Answer

CEO Jon Bortz confirmed that recent performance gains have been driven more by occupancy than rate, reflecting consumer price sensitivity. He explained that driving occupancy is highly profitable due to significant ancillary spending at their properties. Regarding Washington, D.C., Bortz stated their long-term view remains unchanged, citing the market's historical resilience and the fact that its growth over the last 20 years has been driven by private industry, not the size of the government workforce.

Aryeh Klein of BMO Capital Markets asked about Pebblebrook's long-term view on the Los Angeles market, given its recent challenges, and how its medium-term outlook compares to that of San Francisco.

Answer

Jon Bortz, Chairman and CEO, affirmed his long-term belief in Los Angeles, citing its economic diversity, amenities, and major upcoming events like the World Cup and Olympics. He acknowledged policy challenges but noted the lack of new hotel supply is a long-term positive. Comparing it to San Francisco, Bortz stated S.F.'s recovery path is currently 'more predictable' but emphasized that both markets represent compelling long-term investment opportunities at their current low valuations.

Aryeh Klein from BMO Capital Markets asked for a ranking of the long-term potential of the struggling San Francisco, Portland, and L.A. markets, questioned the company's comfort with its West Coast exposure, and inquired about the unanticipated impact of the Delfina hotel conversion.

Answer

Jon Bortz, Chairman and CEO, expressed long-term confidence in all three markets, believing their fundamental economic drivers remain intact and that recent political shifts will turn them from headwinds into tailwinds. He confirmed the strategy to continue recycling capital as the transaction market improves. Regarding the Hyatt Centric conversion, Bortz acknowledged the disruption was more significant than forecast but reiterated that it is temporary and will fade over the coming quarters.

Aryeh Klein inquired about recent demand trends in April and whether a performance divergence is expected in gateway markets exposed to inbound international travel.

Answer

President and CEO James Risoleo stated that the top 25 markets are performing well and the company is not seeing a significant drag from international inbound travel, which constitutes about 8% of room nights. He highlighted strong performance in New York City, attributing it to the Marriott Marquis renovation. EVP and CFO Sourav Ghosh added that April travel data shows Host's portfolio trending better than the upper-upscale tier, driven by its luxury resorts.

Aryeh Klein from BMO Capital Markets asked about the recovery expectations for group business in Maui for 2025 and 2026, and whether wage headwinds could affect the ultimate EBITDA recovery potential.

Answer

EVP and CFO Sourav Ghosh reported encouraging signs of group business picking up for Maui in 2025 and beyond. He expressed confidence that the properties can eventually return to their pre-fire $172 million EBITDA level, stating that despite near-term wage pressures, it is 'just a matter of sort of when' they get there.

Aryeh Klein asked for details on the Maui recovery, including why the RevPAR headwind forecast was narrowed and the current performance gap for group versus transient business. He also inquired about the performance of The Ritz-Carlton O'ahu post-conversion.

Answer

EVP and CFO Sourav Ghosh explained the Maui RevPAR drag was reduced from 250 to 220 basis points due to strong transient pacing for the upcoming holidays. He noted group business recovery is slower and remains behind pre-wildfire levels. President and CEO James Risoleo added that The Ritz-Carlton O'ahu is performing in line with underwriting expectations and the brand transition is proceeding smoothly.

Aryeh Klein asked for details on the expected step-up in recurring revenue growth in the second half of 2025 and whether this includes an increase in cabinet net adds.

Answer

CEO and President Adaire Fox-Martin explained the growth will be driven by bookings momentum from late 2024 and strong Q1 2025 performance converting to revenue. She noted evolving power density dynamics and some Q1 churn challenges in EMEA, partly due to unanticipated bankruptcies. CFO Keith Taylor added that despite these challenges, the strong pipeline and conversion rates support their confidence in recurring revenue growth and improving profit margins throughout the year.

Aryeh Klein asked about the strategic benefits of shifting to larger data center campuses and the specific drivers behind significant cabinet capacity additions in the Washington, D.C. market and the Americas region.

Answer

CEO and President Adaire Fox-Martin explained that larger campuses allow Equinix to secure power more effectively and serve the full spectrum of customer needs, from hyperscalers to retail interconnection. She noted that for the Americas, strong demand currently outstrips supply, enabling the company to serve customer needs while commanding premium pricing. CFO Keith Taylor added that larger builds provide economies of scale and are more efficient for handling the increasing size of customer deals.

Aryeh Klein asked if the current acceleration in domestic leasing activity is expected to continue building for the next couple of years. He also questioned if the strong 2025 activity should lead to a significant ramp in leasing revenue growth in 2026.

Answer

President and CEO Brendan Cavanagh stated that while leasing moves in cycles, it's difficult to predict activity with precision multiple years out, but he remains confident in long-term drivers like new spectrum and 6G. He confirmed that if the current leasing trajectory continues through 2025, it should be favorable for 2026 revenue growth due to the lag time between signing leases and recognizing revenue.

Aryeh Klein asked if the 2025 international churn level is expected to be the peak and inquired about the status of share repurchases in light of the pending Millicom transaction.

Answer

President and CEO Brendan Cavanagh stated he does not believe 2025 will be the peak for international churn, expecting a similar level next year, primarily driven by Brazil. He noted that other markets like Central America and Tanzania are performing well. On capital allocation, he explained that share repurchases are somewhat independent of the Millicom deal and that the buyback program remains opportunistic, ready to act on significant stock price dislocations.

Aryeh Klein of BMO Capital Markets asked for color on recent land acquisitions in Atlanta and Charlotte, noting these are markets where Digital Realty has historically had more of a retail than a hyperscale presence.

Answer

CIO Gregory Wright explained that these markets are becoming increasingly attractive for hyperscale development. He noted that Charlotte is seeing major cloud providers establish availability zones, and Digital Realty is creating a hyperscale campus near its existing connectivity hub. Wright stated that similar fundamentals, including low vacancy and competitive power availability, apply to Atlanta, making the new land parcel ideal for both hyperscale and colocation development.

Aryeh Klein from BMO Capital Markets asked how Digital Realty sees demand for AI inference evolving, and whether it would be more beneficial to its sub-1 megawatt or greater-than-1 megawatt business.

Answer

CEO Andrew Power noted that 38% of megawatts signed in the quarter were AI-related, with a growing share in the enterprise segment. CTO Chris Sharp elaborated that as inference evolves with features like video, it will drive demand for larger capacity blocks, potentially greater than one megawatt, located in proximity to the end consumer. He also highlighted the significant opportunity in private AI, which their facilities are ready to support.

Aryeh Klein asked for a reconciliation of the $17 million disruption from the Royal Palm renovation against its ~$14 million 2024 EBITDA, and questioned the modest RevPAR guidance given strong underlying segment trends.

Answer

CFO Sean Dell'Orto explained the $17 million disruption figure includes fixed carrying costs for the hotel while it is closed. He also noted the RevPAR guidance reflects a realistic tone early in the year, as the large, moderately growing leisure segment tempers the stronger but smaller group and business transient segments.

Aryeh Klein sought to clarify Q4 RevPAR growth expectations, excluding strike impacts, relative to prior guidance. He also asked about the outlook for expense growth in 2025 and the RevPAR level needed to achieve EBITDA growth.

Answer

Chairman and CEO Thomas Baltimore stated that the company would not provide an updated Q4 RevPAR forecast at this time, as it is difficult to decouple the various impacts from labor and weather. He also deferred on providing 2025 expense guidance, noting the budgeting process is just beginning, but reiterated confidence in the portfolio's underlying strength and sector-leading performance when adjusted for disruptions.