Pebblebrook Hotel Trust Delivers Strong Third Quarter Performance Amid Continued Recovery

Pebblebrook Hotel Trust, a leading real estate investment trust (REIT) that owns and operates high-end hotels and resorts, has reported impressive financial results for the third quarter of 2024. The company’s performance reflects the ongoing recovery of the hospitality industry as business and leisure travel demand continues to rebound.

Overview of Financial Performance

For the three months ended September 30, 2024, Pebblebrook reported total revenues of $364.36 per available room (Total RevPAR), a 2.7% increase compared to the same period in 2023. This growth was driven by higher occupancy rates and improved performance at several of the company’s key properties, including LaPlaya Beach Resort & Club, Margaritaville Hotel San Diego Gaslamp Quarter, and The Westin Michigan Avenue Chicago.

The company’s funds from operations (FFO), a key metric used to evaluate the performance of REITs, increased by 33.7% to $104.5 million for the quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) also rose by 16.7% to $107.3 million. These strong results demonstrate Pebblebrook’s ability to effectively manage its operations and drive profitability, even in the face of ongoing macroeconomic challenges.

Revenue and Profit Trends

Pebblebrook’s same-property occupancy rate increased to 78.5% in the third quarter of 2024, up from 75.4% in the same period last year. This improvement was particularly notable in the company’s urban hotels located in markets such as Chicago, San Diego, Boston, and Portland, where business group and leisure travel demand has rebounded strongly.

The company’s same-property average daily rate (ADR) decreased slightly to $306.03, compared to $312.05 in the third quarter of 2023. However, the higher occupancy rates helped drive a 2.2% increase in same-property revenue per available room (RevPAR) to $240.28.

Pebblebrook’s hotel operating expenses increased by $7.3 million, or 4.9%, primarily due to higher staffing, wage rates, and benefits at its comparable properties to meet the increased demand. The company was able to partially offset these higher costs through continued focus on cost control measures.

Depreciation and amortization expense decreased by $5.7 million, or 9.0%, due to the sale of several non-comparable properties in 2023 and the useful life reduction of furniture, fixtures, and equipment at the Newport Harbor Island Resort in preparation for its upcoming renovation.

Strengths and Weaknesses

One of Pebblebrook’s key strengths is its diversified portfolio of high-quality hotels and resorts located in desirable markets across the United States. This geographic diversification helps to mitigate the impact of regional economic fluctuations and provides the company with exposure to a variety of demand drivers, including business, leisure, and group travel.

Another strength is the company’s strong balance sheet and access to capital. Pebblebrook has been proactive in managing its debt, recently repaying $110 million of its term loans and extending the maturity of $356.7 million in borrowings. The company also issued $400 million in senior notes, which it used to repay a portion of its existing debt. This financial flexibility allows Pebblebrook to pursue strategic growth opportunities and fund capital improvements at its properties.

However, the company’s performance is still susceptible to external factors, such as macroeconomic conditions and the impact of natural disasters. In the third quarter, Pebblebrook recognized a $1.9 million impairment loss related to damage caused by Hurricane Helene at its LaPlaya Beach Resort & Club. While the company’s property and flood insurance is expected to cover the physical damage and business interruption losses, such events can still disrupt operations and impact financial results.

Outlook and Future Prospects

Looking ahead, Pebblebrook remains cautiously optimistic about the continued recovery of the hospitality industry. The company expects occupancy growth to persist as both business and leisure travelers continue to increase their travel activity, despite concerns about the broader economic environment and the upcoming presidential election.

To support this growth, Pebblebrook plans to invest between $90 million and $95 million in capital improvements and redevelopment projects at its properties in 2024, excluding the costs related to the repair and remediation of the LaPlaya Beach Resort & Club. These investments are aimed at enhancing the guest experience, improving operational efficiency, and positioning the company’s assets for long-term success.

The company’s strong balance sheet and access to capital, combined with its disciplined approach to asset management and capital allocation, position Pebblebrook well to navigate the evolving market conditions and capitalize on future growth opportunities. As the hospitality industry continues to recover, Pebblebrook’s focus on delivering exceptional guest experiences and driving operational excellence should help the company maintain its position as a leading player in the REIT sector.