While the pandemic-caused downturn is unlike any prior cyclical downturn, it will also lead to a recovery unlike any one seen before, said Jon Bortz, chairman, president and CEO of Pebblebrook Hotel Trust.

During the hotel real estate investment trust's second quarter earnings call, Bortz said this recovery will be the result of robust macroeconomic fundamentals as well as consumers with record amounts of savings, net worth and desire to travel. Businesses are reporting profits at record levels and also have a significant need to travel.

“We believe it's likely that this recovery will be swift, with demand returning much more quickly than we previously thought and rates recovering much more rapidly, as well as evidenced by the progress we've already made on rates,” he said.

Uncertainty remains on the path forward given the rise of the Delta variant of COVID-19, but Bortz said he is encouraged by the consistent increases in demand Pebblebrook’s hotels have experienced each month. Leisure demand is outpacing 2019 levels, and business travel is accelerating. The company has also been able to push its average rates close to 2019 levels while the hotels are operating with more efficient models.

August will likely flatten or decline slightly as the prime vacation season winds down in the second half of the month as kids return to school, he said. Business travel gains likely won’t accelerate until after Labor Day. September should pick up the recovery pace, particularly after the Jewish holidays by the middle of the month. That should continue through the rest of the year as business travel continues its recovery while leisure travel and social groups remain at elevated levels.

“When we think about 2022, we're focused strategically on the year being a very strong recovery year overall,” he said.

Group business should be healthy as there's a great deal of pent-up demand, he said. Leisure will continue to be robust, with continuing pent-up demand for vacations and getaways while outbound international travel probably remains more limited.

“This means we don't expect rate discounting in 2022,” he said, adding that this all depends on a return to normal by the end of the year.

As of press time, Pebblebrook's stock was trading at $22.53, up 19.8% year to date. The New York Stock Exchange Composite was up 14.3% during the same period.

Overall demand in the second quarter was much stronger than expected 90 days ago, said Raymond Martz, executive vice president and chief financial officer.

Same-property revenue of $162.5 million was down 57.8% compared to the same period in 2019, but that is an improvement from the first quarter when same-property revenue was down 74.7% compared to 2019, he said. Same-property revenue has grown 95.4% from the first to the second quarter. June’s same-property revenue was more than 50% higher than April’s, and July’s is expected to be 20% higher than June’s.

The company’s eight resorts generated $28.4 million in hotel earnings before interest, taxes, depreciation and amortization, Martz said. This is the result of occupancy of 66% and average daily rate of $386, a 38% increase compared to the second quarter of 2019. Total revenue per occupied room grew by 17% compared to the same time in 2019.

The urban hotels in the portfolio also saw improved performance. Occupancy reached 33.3%, and ADR achieved $198 while total revenue amounted to $91.6 million. The urban properties were just under the break-even level during the quarter, reporting negative EBITDA of $800,000. From a sequential approach, however, the urban resorts achieved $5.3 million in June with 43.5% occupancy and a $210 ADR.

“Impressive results considering the still low occupancy levels in our markets,” he said.

The rate growth at Pebblebrook’s resorts is the result of not only leisure compression and the general lack of consumer rate resistance but to the company’s repositioning efforts, Bortz said.

The LaPlaya Beach Resort & Club in Naples, Florida, has been climbing higher in TripAdvisor traveler rankings, reflecting the increasing desire leisure guests and groups have for redeveloped and luxurious resorts, he said. Total room revenue on the books for LaPlaya is $5.8 million ahead of the total room revenue achieved in 2019, leaving five more months in the year for further bookings.

The company recently completed a $11.7 million renovation on the L’Auberge Del Mar in Del Mar, California.

“We’re looking at dramatically higher rates as we reposition this property to an even higher tier,” Bortz said.

The resort achieved an average rate of $258 in June, 66% higher than June 2019. By July, the rate on the books was $878, a 73% increase over July 2019. Over the last weekend, the resort was at 97% occupancy with a rate at more than $1,000.

During the second quarter, Pebblebrook completed the sale of the 416-room Sir Francis Drake Hotel in San Francisco for $157.6 million and the 194-room The Roger New York for $19 million. It entered into a contract to sell the Villa Florence San Francisco on Union Square for $87.5 million, according to the earnings release.

The REIT also executed a contract to acquire the 369-room Margaritaville Hollywood Beach Resort in Hollywood, Florida, for $270 million. One week ago, it acquired the 200-room Jekyll Island Club Resort in Jekyll Island, Georgia, for $84 million.

The sales and acquisitions have changed the makeup of the company's portfolio. Assuming all pending deals close, the company's 10 resorts will comprise 23% to 24% of Pebblebrook's 2019 property EBIDA, Martz said. The portfolio's San Francisco share in 2019 dollars would decline to 19% with 10 properties. The southeast focus will grow to 15% with five resorts and one hotel.

"The world moving forward will be different, and we expect these 10 resorts will likely represent a more significant percentage of our EBITDA on a go-foward basis than they did in 2019," he said.

Looking to the silver lining of the pandemic, Bortz said he expects there will be opportunities over the next few years to acquire highly desirable properties at the lowest-risk time in the cycle at attractive returns with significant upsides for Pebblebrook to improve performance. Citing the acquisition of the Margaritaville and Jekyll Island resorts, he said he believes the company can make operational and physical improvements to remerchandise the resorts, add and enhance amenities and find better uses for the indoor and outdoor spaces to drive higher rates and revenue.

“We believe the Jekyll Island Club Resort … is the quintessential Pebblebrook investment — that being an extremely unique lifestyle, independent property within almost unlimited list of opportunities that we'll be able to execute on for many years to come,” he said.