As was the case last year, the hotel industry’s recovery in 2021 starts with the leisure traveler, said Jon Bortz, chairman, president and CEO of Pebblebrook Hotel Trust.

Speaking during his company’s fourth quarter and full-year 2020 earnings call, Bortz said leisure guests are the primary demand segment currently traveling and the one likely to increase throughout the year as more people are vaccinated against COVID-19 and government travel restrictions ease.

“We've already been seeing the leisure recovery pickups since the beginning of the year when it was at its low point,” he said. “Not only [has] occupancy been picking up in February, but overall bookings have consistently increased each week so far this year.”

Demand has consistently increased across all Pebblebrook's markets as restrictions have eased and more people feel safe traveling, he said. Revenue per day in February is averaging about 55% higher than in January. As warm weather returns, the company expects to see increased demand at its leisure-focused properties across the country.

Forward transient bookings have picked up as well as leisure travelers are starting to book vacations further out than they did last year, he said.

Leisure travel will likely remain domestic and stay within driving distance, Bortz said. He expects rooms at Pebblebrook’s resorts will be in short supply during prime vacation season with rates generally above those in 2019. The LaPlaya Beach Resort & Club in Naples, Florida, is achieving average transient rates $100 to $200 higher than in 2019.

In September and October, Pebblebrook saw the beginnings of a modest recovery in business travel, but transient business slumped as the number of COVID-19 cases increased along with government travel restrictions, Bortz said.

There has been some business travel in a few areas, such as TV and movie production in Los Angeles, but overall, it remains “very modest,” he said.

“We don't expect to see any significant pickup in business transient travel until the second half of the year,” he said. “We think it will be led by travel from small and medium-sized businesses, especially private businesses. We believe major corporate demand will be the last of business transient to pick up.”

Pebblebrook’s hotels have hosted some groups, but those have been primarily related to social events, such as weddings and sports teams, Bortz said. In the fourth quarter, group accounted for 4% of Pebblebrook’s total room revenue, and that does not include university student business.

Bookings and rebookings of weddings in the second half of 2021 and 2022 have been strong, he said. Other group business has been rebooking in the second half of this year and in 2022, as well.

Group pace for 2022 is down about 21% in room nights compared to the same time last year for 2021, activity is picking up as meeting planners are feeling more confident and there’s greater clarity and optimism, he said.

“A lot of business from 2020 and 2021 is being rebooked into 2022,” he said. “Equally encouraging is that rate is holding as well.”

Group rate for 2022 is currently ahead by 1.4% compared to the same time last year for 2021 before the pandemic started, he said. For 2022, rate is ahead by more than 5% compared to the same time in 2018 and 2019.

• Click here for more Hotel News Now coverage of fourth quarter and full-year 2020 earnings calls.

Pebblebrook now has 38 of its 53 hotels open, the latest of which to reopen was the Hotel Chicago Downtown, Autograph Collection, earlier in February. The company will reopen additional hotels starting in March as demand continues to recover, said Raymond Martz, executive vice president and chief financial officer.

“At the end of the second quarter, we would expect to have the vast majority of our portfolio substantially open, if not all of it,” he said, adding that depends on the progress in vaccinations as well as reduced travel restrictions.

Pebblebrook completed roughly $400 million in property sales in 2020, and the company made its latest disposition on Feb. 3 with the $157.6 million sale of the Sir Francis Drake.

Company executives decided to sell the Sir Francis Drake to reduce its concentration in the San Francisco market, Martz said. The company plans to reallocate the capital elsewhere in upcoming opportunities and absorb the taxable gains from the sale with operating losses in 2020 and 2021.

When Pebblebrook acquired the Sir Francis Drake in June 2010 for $90 million, it was the company’s second investment, Martz said. When the sale closes next quarter, it will have delivered a 12% unlevered internal rate of return in the company’s nearly 11-year ownership period.

In 2020, the company invested $125 million into its portfolio, completing major renovations at a number of its resorts, Martz said. In 2021, the company expects to invest $70 million to $75 million in the portfolio.

Over the last several years, Pebblebrook has completed major renovations and transformations of 28 of its properties. Bortz said the hotels have significant share to continue gaining as the recovery takes hold as they “compete against many other properties have been and will continue to be starved for capital.”

Pebblebrook is currently redeveloping the L’Auberge Del Mar resort in Del Mar, California. It is the portfolio’s highest average daily rate property, achieving an $403 average rate in 2019. The redevelopment focus for L’Auberge is to improve and expand the resort’s revenue-generating public areas, meeting and event spaces and restaurant and bar activities.

“Not only do we expect to achieve a significant increase in ADR, we expect to dramatically increase the other revenues at the property as meetings, events and gatherings return,” he said, adding that improvements should be complete by next quarter. “This resort is a true icon in Del Mar, as it sits in the center of this high-end beach town and has done so for three decades now.”

Pebblebrook took several actions to mitigate the effects of the pandemic, which allowed the company to rebound along with the recovery and to take advantage of the significant opportunities expected to develop in the coming months and years, Martz said.

The decision in mid-March to suspend operations at most hotels in the portfolio allowed the company to reduce its cash burn and preserve liquidity while also protecting hotel-level employees and guests, he said. At the corporate level, the company slashed expenses, which included salary reductions for all employees and Bortz voluntarily giving up his salary from April through the end of the year. The elimination of its common dividend saved another $150 million of liquidity. The company also reduced capital expenditures by $50 million.

Pebblebrook raised $763 million of capital through convertible notes, the first of its kind for hotel REITs, he said. That increased the company’s liquidity by more than $300 million while also paying down $377 million of near-term debt maturities. The company’s lender group agreed to waive Pebblebrook’s financial covenants during the pandemic while extending out $264 million of debt maturities to late 2022.

“These collective actions positioned us in a stronger position today versus when the pandemic started,” he said.

As of today, Pebblebrook has approximately $770 million of liquidity with no loans maturing until 2022, Martz said. The company reduced its monthly cash burn from as much as $30 million a day down to roughly $20 million during the fourth quarter, and that decline is expected to continue as hotel demand recovers, provided there is continuing progress with vaccinations and further reductions in COVID-19 cases and hospitalizations.

In the fourth quarter, Pebblebrook reported same-property total revenue of $74 million, a 79.1% decrease compared to the fourth quarter of 2019, according to the earnings release. Same-property expenses amounted to $93.9 million, a decrease of 62.7% compared to last year. Same-property revenue per available room in the fourth quarter was $40.01, a 79.6% year-over-year decrease.

The company reported a net loss of $173.2 million in the fourth quarter compared to net income of $19.6 million in the last quarter of 2019. Adjusted earnings before interest, taxes, depreciation and amortization was -$27.9 million, down from $100.1 million in the last quarter of 2019.

As of press time, Pebblebrook’s stock was trading at $23 up 25.2% year to date. The New York Stock Exchange Composite Index was up 8.1% for the same period.