Pebblebrook Hotel Trust has revised its fourth-quarter and full-year 2022 outlook down due to weaker-than-expected performance in November.
In its monthly operating update, the hotel real estate investment trust said that while November’s performance exceeded last year’s, the company has adjusted its outlook because of the impact of Hurricane Nicole and weaker business and leisure demand during the second half of the month. It speculated the demand may be part of new seasonal patterns around holidays due to hybrid work models.
Pebblebrook continues to make repairs on its LaPlaya Beach Resort & Club in Naples, Florida, that was damaged during Hurricane Ian in September. It remains closed during its rebuilding and is scheduled for a partial reopening in the first quarter of 2023. The company has negotiated $25 million in insurance proceeds so far.
For its fourth-quarter outlook, Pebblebrook dropped its net loss range expectations from a loss of $32.2 million to $24.2 million down to a range of $39.9 million to $35.9 million. It also reduced its adjusted earnings before interest, taxes, depreciation and amortization real estate range from $63.8 million to $71.8 million down to $52 million to $56 million.
Its fourth-quarter, same-property revenue per available room outlook dropped from a range of $183 to $188 down to $173 to $175.
For the full-year outlook, the company reduced its net loss expectations from a range of $77.4 million to $69.4 million down to $85.1 million to $81.1 million. Its adjusted EBITDAre expectations dropped from a range of $363 million to $371 million down to $351.2 million to $355.2 million.
Pebblebrook reduced its full-year RevPAR outlook from a range of $195 to $196 down to $193.
In a note to investors, Michael Bellisario, director and equity research senior analyst at Baird, and Josiah Choy, equity research analyst at Baird, wrote that the magnitude of the revision was the most surprising part of the upgrade. Along with the softer demand and the negative impact from Hurricane Nicole in November, flow through in the month took a hit from higher staffing levels and bonus/incentive compensation accruals at the company’s hotels.
They also said the pricing wasn’t an issue as November average daily rate grew compared to October.
“The issues appear to be short-term demand pick-up and growing expense pressures,” according to the note. “We are growing more concerned about the slower/sluggish business travel backdrop and the increasingly less favorable operating environment, particularly compared to the bottom-line outperformance that was realized six to nine months ago.”
In their note to investors, Managing Directors Gregory Miller and C. Patrick Scholes at Truist Securities wrote that in talking with Pebblebrook, the REIT’s executives said there is a difference between the “family-oriented holidays” when business travel remains soft after the holiday week compared to other holidays when business travelers are faster to get back on the road.
“Other experts we speak with have a different view, suggesting other holidays in 2022 also saw unusual changes in travel behavior relative to pre-pandemic years where corporate travel was weak for the week following a holiday,” according to the note.
They also saw “unusual group strength” in part from groups that didn’t meet for the last two years, including around fall holidays that historically have reduced large group travel. It also added that it may be premature to suggest these changes in demand reflect how corporate, leisure and the combination of business and leisure travel around the holidays may evolve in future years.