While all demand segments will increase as the year goes on, leisure travel is the one likely to remain the driving force behind the recovery, Pebblebrook Hotel Trust Chairman, President and CEO Jon Bortz said.

Speaking during Pebblebrook’s first quarter 2021 earnings call, Bortz said the “recovery is being led by the leisure traveler, who continues to be most of the demand currently traveling.”

As governmental restrictions ease, more people feel safe and comfortable traveling, he said. Leisure recovery has already picked up speed since a low point at the beginning of this year. Occupancy grew in February and March, and overall bookings have consistently increased throughout the quarter.

Demand has grown through all the real estate investment trust's markets. Pebblebrook’s total hotel revenue per day in February averaged about 49% higher than in January, and March grew another 32% from February, he said. April is forecasted to grow another 17% from March based on the first 25 days of the month. Average daily room revenue has increased 55% from January to February and then another 35% into March. Similarly, April is expected to be up another 17% compared to March.

“While the nominal numbers are still very low, averaging about $1.2 million per day in March for total revenues, the improvement in transient demand and occupancy have clearly been significant,” he said.

Except for periods following holidays, total transient bookings have increased week over week almost every week this year, he said. Forward transient bookings are also picking up as the leisure traveler feels more confident in booking vacations and trips further out into the year.

Pebblebrook’s resorts have consistently grown strong average daily rates, as seven out of the eight have achieved “significant increases” over 2019 levels, Bortz said. During the quarter, the average rate at its resorts on a combined basis was an increase of $93.88, or 30.1%, over 2019’s first quarter. The resorts’ weekday rate growth was stronger than weekend growth, up 31.5% compared to 20.6%.

Leisure customers have plenty of money to spend, as evidenced by the growing number who choose to upgrade to more expensive room types, including suites and rooms with views, he said.

The same can’t be said about Pebblebrook’s urban hotels, Bortz said. However, the strength of the resort portfolio has mitigated the urban rate decline of 31.5% compared to the first quarter of 2019. Because of the rate increases at its resorts, Pebblebrook’s portfolio only experienced a 4.7% rate decline.

As of press time, Pebblebrook’s stock was trading at $23.88, up 27% year to date. The NYSE Composite Index was up 12% for the same period.

Pebblebrook saw the beginning of a modest recovery in business travel last September and October, but as the number of COVID-19 cases rose over the winter, followed by travel restrictions, transient business travel slowed significantly, Bortz said.

However, there are encouraging signs some business travel is returning, he said. Pebblebrook is seeing travel related to TV, movie and music production in Los Angeles; consultants, heath care, pharmaceutical and IT-related travel in various markets, including Boston; and government, sports and entertainment travel across the portfolio.

“We expect to see gradual improvements in business travel over the course of the year, but we don’t really expect a major increase until after Labor Day in early September, he said. “Growth in business travel between now and Labor Day will likely come from private businesses and small- to medium-sized public companies.”

Pebblebrook’s hotels have hosted many social groups, especially events related to weddings, he said. Wedding bookings for the second half of the year continue to pick up, possibly resulting in a record number of wedding bookings.

During the first quarter, group accounted for 10.2% of Pebblebrook’s total room revenue, Bortz said. While that does not include housing university students at the W Boston, it does include airline crew business throughout the portfolio, amounting to more than 4% of total room revenue. Corporate room revenue represented a little more than 2% of total room revenue in the quarter.

A significant number of groups already have or intend to rebook into the second half of 2021 and in 2022, he said. At this point, while 2022 pace continues to be down about 28% compared to 2018 for 2019, activity has picked up as meeting planners have returned to work and are more confident about holding meetings.

What's equally encouraging is that Pebblebrook’s hotels are holding rate as well, he said. Group rate for 2022 is currently ahead by 3.8% compared to the same time in 2018 for 2019.

“When we look at the second half of 2021, we're definitely much more cautious about group and trying to forecast when businesses will move forward and meet in person,” he said. “In the last four months, we're encouraged by the continuous improvement in activity related to the number of leads, site tours, discussions and group bookings throughout our portfolio.”

Pebblebrook is in position to take advantage of the recovery in 2022 and beyond because of the outstanding condition of its hotels and resorts, Bortz said. The company is moving forward with a number of redevelopment projects this year.

The company anticipates investing an additional $60 million to $80 million in capital improvements for a total of $70 million to $90 million across the portfolio, said Raymond Martz, executive vice president and chief financial officer. That includes the $25 million redevelopment of the Hotel Vitale into the 1 Hotel San Francisco. The hotel has been closed during the pandemic, and construction will start over the summer and is targeted to be complete by the end of the year.

The company is also moving forward on the $5 million redevelopment and renovation of the Grafton on Sunset in West Hollywood, California, he said. Work will begin in the fourth quarter with completion expected in the first quarter of 2022. The hotel will relaunch as the eighth member of Pebblebrook’s Unofficial Z Collection with a Z-name yet to be finalized.

The $15 million renovation of the Southernmost Beach Resort in Key West, Florida should begin in the third quarter of this year and is expected to be finished in the fourth. The ongoing renovation of L’Auberge Del Mar in Del Mar, California, should be complete in May.

“Our decision to ramp up our reinvestment projects are a very positive indicator of our confidence in the direction of a travel recovery that is beginning to take hold and our strong overall financial condition and resources,” Martz said.

The company is still working to complete plans and permitting for the few remaining redevelopment projects it deferred because of the pandemic, Bortz said. These projects will move forward when there is more clarity on the recovery and progress against the virus.

For one such project, the $37 million transformation of the Paradise Point Resort & Spa in San Diego into a Margaritaville Island Resort, the company is continuing to work with local government authorities. Executives don’t expect construction to start until at least late this year, assuming they get the necessary approvals in the next six months.

“All of these completed redevelopments and transformations, including a large number in the past few years and all of the upcoming projects and improvements, will provide significant upside for our portfolio over the next few years as the recovery takes hold and rolls forward,” he said.

In early April, Pebblebrook announced the completed sale of the Sir Francis Drake Hotel in San Francisco, generating about $157.6 million of proceeds, Martz said. Since the second quarter of 2020, the company has completed approximately $225 million in property dispositions.

“We intend to strategically reallocate this capital into new investment opportunities that we believe will provide enhanced returns and greater diversification for our portfolio as the opportunities become available,” he said.

There will be significant opportunities over the next few years to acquire properties in distress because of the large number of cash-strapped and overlevered owners as well as the number of properties going back to lenders, Bortz said. Pebblebrook is actively looking to reinvest its capital made from hotels sold over the last 12 months.

“We believe we have significant competitive advantages as opportunities arise over the next few years,” he said.