Pebblebrook Hotel Trust executives believe the company can surpass pre-pandemic performance levels in the near future due to average daily rate growth and the continuing increase in occupancy driven by business and group travel.
Chairman, President and CEO Jon Bortz said during the real estate investment trust’s second-quarter earnings call that business and international travel demand are still far behind 2019 levels, but he expects both to normalize sometime in the next 12 to 18 months. The new norm will be higher demand levels than before, which will create an opportunity for even more rate growth, he added.
Bortz said the general success of the hotel industry, even with ongoing supply chain challenges, indicates the company is well-positioned to exceed prior highs, even if a slowdown or recession hits.
“Our industry and our company have a very long runway to not only fully recover, but to again grow and hit new revenue and bottom-line records,” he said. “We expect a supply-constrained environment to last four or five years, and whether we soon have an economic slowdown or recession, it’s just a matter of time before we hit these new records given the supply-restricted fundamentals.”
Pebblebrook’s second-quarter ADR exceeded 2019 levels in urban markets by 7.2%, including a 17.4% increase in weekend rates, said Raymond Martz, executive vice president and chief financial officer. The REIT’s second-quarter ADR also exceeded 2019 and 2021 levels at its resort hotels by 54% and 16%, respectively. Its earnings before interest, tax, depreciation and amortization was down 5.3% in the quarter.
The company is projecting its revenue per available room in the upcoming quarter will lag 2019 levels by 5% to 8%, according to Pebblebrook’s earnings release. Martz said the projection doesn't necessarily point to concerns of a looming recession but is more of a precautionary measure.
“Part of this is just to be conservative in an environment that there is uncertainty,” he said. “Again, we’re not seeing any change in booking behavior or pullback on pricing. … It’s a transition of seasonality as we get into the fall season.”
Sellers in the Market
Pebblebrook finalized selling the 208-key The Marker San Francisco to Stockdale Capital Partners for $77 million in the second quarter, a harbinger of more deals to come.
In the company’s earnings release, the REIT announced it parted ways with three additional unnamed urban hotels for a total of $183.9 million. Bortz said Pebblebrook is likely to pursue selling more properties by the end of the year.
“At this point in time, we expect to be a net seller for the year,” he said.
Pebblebrook has put more funds toward buying than selling up to this point, though, acquiring the 119-key The Inn on Fifth for $156 million and the 257-key Gurney's Newport Resort & Marina for $174 million.
Bortz said the goal of the sales and acquisitions is to bring a better balance between business and leisure travel in the company’s portfolio. He said the resorts the company has bought aren’t solely for leisure, as there's a decent amount of business demand at those properties as well.
“It’s not as if we’re eschewing properties that cater to business customers. It’s not the case. But we are trying to get more to a 50/50 balance of segmentation within our portfolio because we think on a risk basis the portfolio will perform better throughout the ups and downs of the cycle,” he said.
By The Numbers
Pebblebrook reported net income of $28.8 million during the second quarter, according to its earnings release. Its adjusted EBITDA for real estate was $128.8 million, an 83.8% recovery to 2019 levels.
Same-property RevPAR was $221.04, down 5% compared to the second quarter of 2019. Same-property ADR was $318.58, up 18.7% compared to the same period in 2019. Same-property occupancy in the second quarter still lagged 2019 levels by 20%.
At the end of the quarter, the company had $117.7 million in consolidated cash, cash equivalents and restricted cash and $560 million of liquidity.
As of press time, Pebblebrook’s stock was trading at $18.94, down 16% year to date. The NYSE Composite Index was down 13% for the same period.