The normalization of demand trends during the last quarter of 2024 is continuing into 2025, executives at Pebblebrook Hotel Trust said.
During the hotel-focused real estate investment trust’s fourth-quarter and full-year 2024 earnings call, Pebblebrook Chairman and CEO Jon Bortz said demand grew 2.2% during the fourth quarter, coming in line with gross-domestic-product growth at the time after an extended period of flat demand. That this trend continued into January 2025 with 1.7% growth reinforced their view that industry demand is once again closely tracking economic growth.
In 2024, business, group and transient travel continued to recover, with leisure returning to urban centers that provide safer environments and vibrant cultural, sporting and entertainment attractions.
“By late 2024, we saw early signs of renewed leisure travel growth industrywide, further supporting our view that consumer travel behaviors have normalized,” he said. “While some of the [fourth-quarter] improvement may have been a post-election boost from reduced uncertainty surrounding the election, we believe the primary driver was the renewed link between industry demand and economic growth.”
For 2025, Pebblebrook expects hotel demand will revert to its historic connection with economic growth with GDP projected to grow 2% to 2.5%, Bortz said. The company projects industry demand growth of 1.75% to 2.25% with supply growth under 1%.
The forecast assumes no progress in reducing the current deficit of international inbound travel compared to domestic outbound, he said.
Bortz said the Pebblebrook team is increasingly cautious about the potential for a negative economic impact from the “plethora of domestic policy announcements and threats from the current administration.”
“While we were quite optimistic just a month ago due to the overall optimism expressed by businesses and much of the public following the election, some of that enthusiasm seems to be waning as concerns increase about extensive talk of tariffs, government firings, mass deportations and significant reductions in federal spending, including many spending freezes already put into place,” he said. “Most of these items are not business-friendly. Without these very significant concerns, we would be much more positive and confident in our 2025 outlook for Pebblebrook.”
Market updates
The wildfires in Los Angeles created a tough start to 2025, Bortz said. Past disasters like these wildfires have often brought in longer-term business opportunities for the affected areas, but they tend to primarily benefit lower-priced hotels and submarkets. Pebblebrook’s West LA properties fall into the upper-upscale and luxury segments.
“While other parts of the vast LA market have benefited from evacuees, first responders and early cleanup efforts, our West LA submarkets, which are higher-priced, have not,” he said. “That said, we believe significant new demand will emerge as extensive rebuilding commences over the next few years.”
The LA market can also look forward to major demand drivers including the NBA All-Star Game and World Cup Games in 2026, the Super Bowl in 2027 and the long buildup to the 2028 Summer Olympics, he said.
In the near future, however, the fires caused significant group and transient cancellations and led to a slowdown in bookings at Pebblebrook’s hotels and resorts, Bortz said. There has been some recent recovery and pickup, but booking volumes aren’t back to normal yet. February has been weaker than January while March is showing improvement.
Local leaders, including those in the city government, haven’t done enough to encourage business and leisure travelers to return to LA, he said. The fires affected two major residential neighborhoods, not commercial or tourist areas, and all major attractions remain open.
“All the reasons to go to LA continue to exist and are undamaged,” he said. “The sun is out, the air is as clear as it normally is, and the beaches are beautiful.”
Pebblebrook currently estimates a $9 million to $12 million impact to rooms revenue at its LA-area hotels, $6.5 million to $8.5 million of which occurring in the first quarter, he said. Total revenue is projected to take a hit of $12 million to $16 million, of which $8.5 million to $11 million is expected in the first quarter. That translates to a 115-basis-point drag on full-year revenue per available room growth and a 100-basis-point drag on total RevPAR. As a result, it reduced hotel earnings before interest, taxes, depreciation and amortization by $9 million for the full year.
In Washington, D.C., the general emotion is high anxiety, Bortz said. Many federal employees are nervous about changes being made at different agencies and seeing colleagues get fired and, in some cases, rehired.
“It's all over the board, so I think from a mood perspective, that explains the general mood,” he said. “Now, mood and perception are often different than reality. There's a number of very positive things happening in D.C. related to demand drivers for hotels.”
The presidential inauguration in January brought in a lot of business, and it added to Pebblebrook’s outlook for the quarter, he said. Changing government always helps, especially with Congress as it brings in more people to meet with new members of Congress.
“In a year that is the first year after elections, it tends to be the most active because it's when the most legislating goes on in that first year when there's sort of that election mandate,” he said.
Additionally, many people have been ordered to come back to the office to work, which benefits the downtown area by increasing activity, he said. It’s good for restaurants, service providers and hotels. Pebblebrook now forecasts Washington, D.C., and San Francisco as its top two urban markets for 2025.
One negative, however, is the freezes in government spending typically don’t help when it comes to government meetings, he said. That’s not a Washington, D.C.-specific issue, however.
Direct government business at Pebblebrook’s D.C.-area hotels amounts to mid-single digits, said Raymond Martz, co-president and chief financial officer. However, that total impact could be larger when accounting for indirect-government business. While D.C. is the base of the federal government, the federal government operates in every state, so any spending freezes will have an impact in other markets.
“It is a broader thing, and we’re all waiting to see how this plays out,” Martz said.
From about every regard — quality of life, policy and optimism — conditions are improving in San Francisco, Bortz said. There’s a lot of momentum now after the trough of the last few years. The city is rebuilding its police force, the Board of Supervisors and mayor are more moderate compared to years ago, and the city has seen its first business tax reduction in decades. There’s been a break in office values and properties are starting to trade, albeit through an opportunistic buyer pool.
From a pricing perspective, all segments of hotel demand are increasing, he said. There have been multiple back-to-office mandates, and that’s had a noticeable impact on area restaurants and services.
“We’ve seen it at our hotels in terms of increased in-house group demand,” Bortz said.
Pebblebrook expects to see mid- to high single-digit RevPAR growth in San Francisco this year, he said. SF Travel has a new leader, and she’s already making a difference. The market is attracting new conventions this year, including Microsoft Ignite, which was in Chicago last year, and returning events, including taking back both Fancy Foods and Snowflake from Las Vegas.
Beyond 2025, the bookings pace has significantly increased over the last six months for 2026, 2027 and 2028, he said.
“We think the convention room-night demand is going to continue to go up in each subsequent year based upon where they are from a pace perspective,” he said.
By the numbers
For the fourth quarter, Pebblebrook reported a net loss of $49.8 million as compared to a net loss of $41.9 million the year before, according to its earnings release. It reported total revenue of $337.6 million for the quarter, up from $334 million in 2023.
Same-property revenue per available room grew 0.9% year over year to $192 during the quarter. Same-property total RevPAR grew 1.9% year over year to $321.60. Same-property hotel earnings before interest, taxes, depreciation and amortization dropped 6.1% year over year to $62.5 million while adjusted EBITDA for real estate dipped 1% to $62.7 million.
For the full year, the REIT reported net income of $16,000 compared to a net loss of $74.3 million in 2023, according to its 10-K filing with the U.S. Securities and Exchange Commission. It reported $1.45 billion in total revenue for the full year, up from nearly $1.42 billion in 2023, according to its earnings release.
Same-property revenue per available room grew 1.6% year over year to $212 during the quarter. Same-property total RevPAR grew 2.4% year over year to $1,383.20. Same-property hotel EBITDA increased 0.9% year over year to $350.4 million while adjusted EBITDA for real estate grew 0.8% to $359.2 million.
As of Dec. 31, 2024, Pebblebrook had about $217.6 million in cash, cash equivalents and restricted cash with another $642.6 million available through its $650 million senior unsecured revolving credit facilities. The REIT completed $1.6 billion in debt financings and extensions in 2024, eliminating significant maturities until December 2026.
Through 2024, Pebblebrook repurchased 1.1 million common shares at an average price of $13.29 per share. Since October 2022, the REIT has repurchased 12 million common shares, roughly 9% of its outstanding shares, at an average price of $14.40, an approximate 42% discount to the midpoint of its most recently published net asset value per share.
As of press time, Pebblebrook's stock was trading at $12.20 a share, down 21.8% year over year. The NYSE Composite Index was up 13% for the same period.