After posting a $27.5 million loss in the first quarter, Pebblebrook Hotel Trust CEO and Chairman Jon Bortz said those figures are more tied to industry-wide softness as his company continues to pick up market share.
Speaking during the company's most recent earnings call Wednesday morning, Bortz said renovation work carried out over the last few years is paying dividends for the company. He added that there are increasing signs of life for business transient travel, and the company has made significant strides in cost-cutting efforts after getting "a little bit sloppy in the last 18 months."
Redevelopment Progress
Since 2018, the company has invested $284 million in redevelopment projects — including $33.9 million in the first quarter of this year — and co-President and Chief Financial Officer Raymond Martz noted the properties that have recently completed work are enjoying outperformance in their various markets.
"We are confident in the substantial upside these repositioned properties will generate in both market share and cash flow in the foreseeable future," he said.
In all, the company expects to invest up to $90 million in its portfolio for the remainder of the year.
Multiple properties in San Diego, including the Margaritaville San Diego, the Hilton Gaslamp San Diego and the Estancia La Jolla Hotel & Spa, have seen significant work, with company officials attributing that work to outperformance in that city.
Bortz said the company's other most likely path for investment this year will be buying back stock rather than making outside acquisitions.
Business, Group Changes
Bortz noted one of the clear trends in the quarter is continued momentum in business transient travel across various industries — including technology — but a softening in in-the-quarter-for-the-quarter group demand.
He said even with an increasing belief that interest rates will remain elevated for longer than expected, businesses aren't reluctant to spend.
"We're not hearing comments from clients saying we're changing our policy, we're slowing down, you have to get 35 approvals to travel. We're not hearing those things from the customer base," he said.
In terms of group, Bortz was careful to clarify that they're not seeing a drop-off in overall demand, but just an elongated booking window. Many planners are setting up meetings a year out, which is closer to historical norms.
"We're not seeing reduction in lead volume for group business other than the normalization of the booking trend that we've been talking about," he said.
Cost-Cutting Initiatives
Martz highlighted various cost-cutting efforts the company has taken recently that are now bearing fruit, including taking over their workers' compensation program from its third-party managers.
"We've reduced our workers' comp costs by over 60% versus what it was when our managers were operating it, so that's millions of dollars a year," he said.
He also noted Pebblebrook's collection of independent hotels — Curator Hotels & Resorts Collection — has served as "internal R&D" in terms of developing cost-saving best practices, including more efficient housekeeping tools and deploying chatbots to reduce call-center volume.
Bortz also said the company has seen significant reduction in real estate taxes in its Southern California hotels.
First-Quarter Performance
In the quarter, the company saw a year-over-year increase in revenue per available room of 1.7%. Its earnings before interest, taxes, depreciation and amortization in the quarter was $59.8 million, a $1.4 million year-over-year drop.
Total revenues for the quarter came in at $314 million, compared to $305 million during the same period of 2023.
Pebblebrook officials issued a second quarter outlook with net income projected between $18.8 million and $23.8 million, and adjusted EBITDA for real estate between $111 million and $116 million.
Full-year outlook projects RevPAR growth in a range of flat to up 2% with a net loss for the full year between $47 million and $62 million.
As of press time, Pebblebrook's stock was trading at $15.17 a share, down 4.3% year to date. The NYSE Composite was up 5.4% for the same period.