Pebblebrook Hotel Trust NYSE: PEB reported second-quarter results that exceeded the high end of its outlook, driven by pricing gains, strong resort performance and continued recovery in San Francisco, while raising its full-year outlook for revenue per available room and adjusted funds from operations.
Same-property hotel EBITDA increased 7.1% year over year to $123.3 million, which Co-President and Chief Financial Officer Raymond Martz said was $6.6 million above the high end of the company’s outlook. Adjusted EBITDA totaled $116.2 million, while adjusted FFO reached $0.68 per diluted share, exceeding the high end of guidance by $0.06.
Portfolio occupancy rose about 130 basis points to 79.4%, average daily rate increased 4.7%, and RevPAR grew 6.5%. Martz said nearly three-quarters of RevPAR growth came from higher rates rather than occupancy gains, reflecting greater pricing confidence as hotel demand and compression increased.
Resorts and San Francisco Lead Growth
Resorts were the company’s principal growth driver during the quarter. Resort RevPAR rose 12%, while total RevPAR increased 10.9% and resort hotel EBITDA grew 18.5%. Resorts accounted for roughly $16.5 million of the portfolio’s $18.3 million revenue increase, according to Martz.
LaPlaya benefited from its post-hurricane construction ramp-up, with occupancy rising by more than 11 points, RevPAR increasing 33.9%, and EBITDA climbing 28.8%. Paradise Point in San Diego posted 22% RevPAR growth and EBITDA growth of more than 40%.
Newport and Estancia, two redeveloped resort properties, also posted sizable gains. Newport’s RevPAR rose 20.3%, supported by a 13.5% ADR increase, while EBITDA increased almost 26%. Estancia recorded 22.8% RevPAR growth and 54.7% EBITDA growth. Martz said the company identified $6 million of upside from those two recent redevelopment projects and said their returns remain on track.
San Francisco was Pebblebrook’s strongest urban market. Occupancy increased nearly 500 basis points and ADR rose almost 9%, resulting in 16% RevPAR growth and 24.6% hotel EBITDA growth. The company said Snowflake and Databricks citywide events in June helped offset the absence of the RSA citywide, which shifted to March.
Year to date, EBITDA at the company’s seven San Francisco hotels increased by more than $13 million, or 110%, from the prior year. Los Angeles RevPAR rose 8.6% and hotel EBITDA increased nearly 14%, with year-to-date EBITDA up approximately $6 million, or 73%.
Performance was weaker in certain urban markets. Downtown San Diego RevPAR declined 9.1% against a difficult citywide comparison, while Washington, D.C., RevPAR fell 9.9% amid weak government-related travel demand and property-level leadership transitions. Across the urban portfolio, RevPAR rose 4.1%, but total RevPAR increased only 0.8% and hotel EBITDA declined 1%.
Margins Expand Despite Mixed Group Trends
Transient demand led the quarter, with transient revenue rising nearly 10% on a 7% increase in ADR. Group revenue declined about 2%, while corporate group revenue was essentially flat. Martz said the group softness reflected convention calendar rotation rather than a broad pullback in demand.
Urban banquet and catering revenue declined approximately 20%, concentrated in markets with weaker citywide calendars and World Cup-related disruption to group business. In contrast, resort food-and-beverage revenue grew nearly 11%, and resort banquet and catering revenue increased more than 16%.
The company converted 4.8% total revenue growth into 7.1% same-property hotel EBITDA growth. Same-property total expenses increased 3.8%, and EBITDA margin expanded 67 basis points to 30.6%. Rooms expense rose 3.1%, while energy expense increased 2.7% and was flat year to date. Total expenses per occupied room rose 2%.
Martz also said Pebblebrook renewed its property insurance on June 1 at premiums about 27% below the prior year, or approximately $6 million lower. He attributed the result to a more favorable insurance market, program design and investments to harden weather-exposed assets.
World Cup Effect Was Modest
Chairman and Chief Executive Officer Jon Bortz said the World Cup produced a modest benefit to room revenue, estimated at $1.5 million to $2.5 million, or roughly 60 to 100 basis points of quarterly RevPAR. However, the added demand was largely offset by corporate group and transient customers that avoided higher rates and booking restrictions.
The World Cup’s net room benefit was primarily rate-driven rather than occupancy-driven, Bortz said. The event also reduced food-and-beverage revenue in match markets, particularly banquet and catering sales. Pebblebrook estimated the total net hotel EBITDA benefit from the World Cup at $500,000 to $1 million.
Management said July started stronger than anticipated, with preliminary results through July 25 indicating RevPAR growth of 7% to 8%. Bortz cited strong short-term pickup, corporate travel growth, accelerating leisure demand, less discounting and reduced reliance on lower-priced wholesale channels.
Capital Allocation and Outlook
During the quarter, Pebblebrook sold the Chamberlain West Hollywood Hotel for $43.5 million. It used $26.1 million of the proceeds to retire $33.7 million of preferred shares at a 23% discount, a transaction Martz said generated approximately $7.6 million of immediate value accretion and eliminated more than $2 million in annual preferred distributions.
Over the past eight months, the company sold three hotels for just under $160 million at an aggregate 15.4-times EBITDA multiple and a 4.6% net operating income cap rate. Pebblebrook also repurchased 0.9 million common shares in the first half at an average price of $13.62 and retired 1.5 million preferred shares at an average 23% discount to liquidation preference.
Net debt to trailing 12-month corporate EBITDA declined to 5.3 times from 5.5 times at the end of the first quarter. The company ended the quarter with $270 million in cash, $641 million of revolver availability and $90 million of delayed-draw term capacity, totaling $1 billion of liquidity.
For the third quarter, Pebblebrook forecast same-property RevPAR growth of 1% to 3%, same-property hotel EBITDA of $100.5 million to $104.5 million, adjusted EBITDA of $92.5 million to $96.5 million, and adjusted FFO of $0.48 to $0.52 per diluted share.
For the full year, the company raised its same-property RevPAR outlook to growth of 4.5% to 5.5% and projected same-property EBITDA growth of 8.2% to 10.5%. Its adjusted FFO outlook was increased to $1.69 to $1.76 per diluted share.
Bortz said management remains encouraged by industry fundamentals and limited hotel supply, but continues to account for short booking windows and uncertainty related to geopolitical, policy and macroeconomic developments.
About Pebblebrook Hotel Trust (NYSE:PEB)
Pebblebrook Hotel Trust NYSE: PEB is a real estate investment trust specializing in premium, high-barrier-to-entry hotel properties in gateway markets across the United States. Established in 2009, PEB focuses on lifestyle-oriented lodging assets that cater to business and leisure travelers seeking elevated experiences. The company's investment strategy emphasizes select-service and full-service hotels with established brands and prime urban or resort locations.
PEB's portfolio comprises more than 30 properties in major metropolitan areas including New York City, Los Angeles, Chicago, Miami and San Francisco.
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