Pebblebrook Hotel Trust Sees Continued Recovery in Urban Hotels

Pebblebrook Hotel Trust, a real estate investment trust (REIT) that owns and operates hotels, has reported its financial results for the second quarter of 2024. The company’s performance shows a continued recovery in its urban hotel properties, driven by increasing business and leisure demand.

Overview of Financial Performance

Pebblebrook’s total revenues increased by $12.8 million in the second quarter of 2024 compared to the same period in 2023. This was primarily due to improved performance at two of its properties - LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian, and Margaritaville Hotel San Diego Gaslamp Quarter, which was under renovation in 2023.

However, this increase was partially offset by a $5.8 million decrease in revenues from the sale of several non-comparable properties in 2023. Overall, the company’s same-property occupancy, average daily rate (ADR), and revenue per available room (RevPAR) all improved compared to the prior year period.

On the expense side, Pebblebrook’s total hotel operating expenses increased by $1.6 million, primarily due to the increased operations at LaPlaya Beach Resort & Club and Margaritaville Hotel San Diego Gaslamp Quarter. This was partially offset by a $4.6 million decrease in expenses from the sale of non-comparable properties.

The company also saw a decrease in real estate taxes, personal property taxes, property insurance, and ground rent, which fell by $4.6 million. This was mainly due to lower tax assessments at several of Pebblebrook’s California properties.

Pebblebrook reported a gain of $23.6 million from the sale of two hotel properties in 2023 - Hotel Monaco Seattle and Hotel Vintage Seattle. The company also recognized business interruption insurance income related to partial settlements for lost revenue at LaPlaya Beach Resort & Club.

Interest expense decreased by $1.6 million, primarily due to interest being capitalized for the renovation of the Newport Harbor Island Resort and the company’s term loan pay-downs during the first quarter of 2024. This was partially offset by higher interest rates on Pebblebrook’s unhedged debt.

Key Indicators of Performance

Pebblebrook uses several key metrics to measure the performance of its hotels and the overall business, including:

Room Revenue per Available Room (RevPAR): For the second quarter of 2024, Pebblebrook’s same-property RevPAR was $233.51, up from $229.56 in the same period of 2023. This indicates that the company’s hotels were able to generate more revenue per available room.

Average Daily Rate (ADR): Pebblebrook’s same-property ADR was $304.94 in the second quarter of 2024, down slightly from $311.03 in the prior year period. However, the company’s properties have continued to maintain significant ADR premiums compared to 2019 levels.

Occupancy: Same-property occupancy increased to 76.6% in the second quarter of 2024, up from 73.8% in the same period of 2023, reflecting the continued recovery in demand.

Funds from Operations (FFO): FFO, a non-GAAP measure used to evaluate a REIT’s performance, increased to $89.5 million in the second quarter of 2024, up from $80.5 million in the same period of 2023.

EBITDA and EBITDA re: Pebblebrook’s EBITDA, which measures earnings before interest, taxes, depreciation, and amortization, was $118.5 million in the second quarter of 2024, down from $133.7 million in the same period of 2023. EBITDA re, which excludes certain one-time items, was $118.5 million in the second quarter of 2024, up from $110.1 million in the prior year period.

Strengths and Weaknesses

Strengths:

• Continued recovery in urban hotel demand, particularly in business travel, driving increased occupancy and ADR
• Successful cost control measures, leading to improved profitability
• Diversified portfolio of hotel properties across various markets
• Strong balance sheet and liquidity position, with $747.5 million available on the company’s credit facility

Weaknesses:

• Reliance on third-party hotel managers, which can limit the company’s ability to implement strategic decisions directly
• Exposure to macroeconomic factors and regional economic conditions that can impact hotel demand
• Potential for increased operating costs due to inflation and rising labor and insurance expenses

Outlook and Future Considerations

Pebblebrook expects the positive trends in its urban hotel properties to continue, driven by the ongoing economic recovery and the return of international inbound travel. The company remains focused on cost control measures and capital investments to further improve the performance of its portfolio.

However, the company faces some risks, including the potential for a slowdown in the overall economy, which could impact hotel demand, and the possibility of increased operating costs due to inflation and other factors. Pebblebrook will need to closely monitor these trends and adjust its strategies accordingly.

Additionally, the company’s ability to maintain its REIT status and continue to pay dividends to shareholders will be an important consideration going forward. Pebblebrook will need to balance its growth and capital investment plans with its obligations to shareholders.

Overall, Pebblebrook’s second-quarter results demonstrate the company’s resilience and its ability to navigate the challenges facing the hotel industry. The continued recovery in its urban hotel properties, combined with its strong financial position, positions the company well for the future.