What Pebblebrook Hotel Trust (PEB) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: Same-property hotel EBITDA rose 15.1% to $115.2 million, while RevPAR increased 8.3% on higher room rates and modest occupancy growth. Adjusted FFO reached $0.63 per share, exceeding the high end of guidance by $0.11.
• Resorts and urban markets drove gains: Resort RevPAR grew 9.2% and resort EBITDA margins expanded 250 basis points, while San Francisco, Boston and Los Angeles delivered significant EBITDA growth. Downtown San Diego lagged because of a weak convention calendar.
• Outlook and balance sheet improved: Pebblebrook raised its full-year outlook to 7.6%–8% same-property RevPAR growth and $1.88–$1.92 in adjusted FFO per share. Free cash flow increased 45% through September, net leverage declined to 5.1 times, and the company continued asset sales and share repurchases.

Pebblebrook Hotel Trust NYSE: PEB reported third-quarter results that exceeded the high end of its outlook for a third consecutive quarter, supported by higher room rates, increased transient demand, resort spending and operating-cost discipline.

Same-property hotel EBITDA rose 15.1% year over year to $115.2 million, exceeding the top end of the company’s outlook by $10.7 million, Co-President and Chief Financial Officer Raymond Martz said. Adjusted EBITDA reached $107.9 million, while adjusted funds from operations, or FFO, totaled $0.63 per diluted share, $0.11 above the high end of guidance.

Same-property RevPAR increased 8.3%, driven by a 7% rise in average daily rate, or ADR, and growth of slightly more than 1% in occupied room nights. Martz said the results reflected a change from the earlier stages of the lodging recovery, as the company raised rates while continuing to increase occupancy.

Transient Demand and Resorts Drive Growth

Transient ADR increased 8.5%, contributing to 9.1% growth in transient room revenue. Corporate transient ADR rose 9.4%, while room nights increased in the company’s higher-priced consortia channel and declined in certain discount channels. Group room nights rose more than 3%, while group ADR increased 1.2%.

Monthly RevPAR growth was 10.1% in July, 5.3% in August and 9.4% in September. Martz said one-time events accounted for an estimated 40 basis points of third-quarter RevPAR growth.

Resort RevPAR increased 8.4%, while total resort RevPAR rose 9.2%. Food-and-beverage revenue climbed 11.2%, supported by outlet, banquet and catering demand. Eight of the company’s 13 resorts recorded hotel EBITDA growth of at least 20%, and resort EBITDA margins expanded 250 basis points to 32.6%.

Newport Harbor Island Resort recorded more than 14% RevPAR growth, fueled by an ADR increase of nearly 20%, while hotel EBITDA rose by more than $2 million, or 19%. Martz also cited improved profitability at L’Auberge Del Mar, Paradise Point Resort & Spa and Estancia La Jolla.

Urban-market RevPAR increased 8.3%, producing nearly $7 million of incremental hotel EBITDA. San Francisco, Boston and Los Angeles collectively added $8.5 million of hotel EBITDA from the prior year. San Francisco RevPAR rose 14.5%, including a 21% increase at 1 Hotel San Francisco. Boston RevPAR increased 10.6%, and Los Angeles RevPAR rose 10.7% as hotel EBITDA in the market climbed 60%.

Downtown San Diego was a notable exception, with RevPAR declining 4.5% and hotel EBITDA falling $1.6 million amid a soft convention calendar, particularly in September. Pebblebrook expects a stronger citywide convention schedule in 2027 to support a rebound in the market.

Margins, Cash Flow and Portfolio Actions

The company converted 58% of its $26 million increase in same-property total revenue into $15.2 million of incremental hotel EBITDA. Expenses rose 4%, compared with nearly 7% revenue growth, and hotel EBITDA margin expanded 205 basis points to 28.8%.

Martz said the quarter also benefited from approximately $1 million in lower property taxes and $1.6 million in lower property insurance costs. The company expects lower insurance premiums to benefit 2027 results, while noting that the fixed-cost savings supporting third-quarter flow-through should not be expected every quarter.

Free cash flow rose more than 24% to $55.6 million in the quarter. Through September, free cash flow was $143 million, up 45% from a year earlier after capital investments and common dividends. Pebblebrook invested $14.8 million during the quarter and reduced its full-year capital-investment outlook by $5 million to a range of $60 million to $70 million, primarily because of timing.

After quarter-end, the company completed the sale of The Hotel Zags in Portland for $10 million. Martz said the hotel had generated $600,000 of negative EBITDA during the preceding 12 months. Pebblebrook recorded $77.3 million of non-cash impairment charges related to the sale and updated valuations for several other properties.

Over the past year, Pebblebrook sold nearly $170 million of hotels at an aggregate 17.4-times trailing EBITDA multiple and a 3.9% net operating income cap rate, according to Martz. The company raised its estimated net asset value range by $1 per share to $23.50 to $27.50 per share.

During the third quarter, Pebblebrook repurchased approximately 1.2 million common shares at $18.12 per share and retired $7.2 million of preferred shares at an average 23% discount to liquidation preference. Net debt to trailing 12-month corporate EBITDA fell to 5.1 times from 5.9 times at year-end. The company ended September with $298 million of cash and restricted cash, $641 million of revolver availability and $90 million of undrawn term-loan capacity.

Raised Outlook and 2027 Expectations

Chairman and Chief Executive Officer Jon Bortz said industry demand strengthened during the third quarter as economic growth accelerated, occupancy increased and new hotel supply remained limited. He said Pebblebrook’s third-quarter in-the-quarter pickup exceeded the prior year by $10.5 million, while year-for-year pickup increased by $15.3 million.

For the fourth quarter, Pebblebrook expects same-property RevPAR growth of 4% to 6%, same-property hotel EBITDA of $73 million to $77 million, adjusted EBITDA of $66 million to $70 million and adjusted FFO of $0.26 to $0.30 per share. October RevPAR was tracking toward growth of 6% or more, Bortz said, although the company expects fewer compression days in November and December as seasonal occupancy declines.

For the full year, Pebblebrook raised its outlook to same-property RevPAR growth of 7.6% to 8%, same-property hotel EBITDA growth of 12.9% to 14.1%, and adjusted FFO of $1.88 to $1.92 per share.

Looking toward 2027, Bortz said the company expects continued urban recovery, stronger convention calendars in San Diego, Boston and Washington, D.C., and demand from major events in several markets. He also said the company’s total group and transient revenue pace was nearly 5% ahead of the current year, though first-quarter revenue pace remained negative because of calendar and convention shifts.

Management said it may evaluate selected small- and medium-sized property investments, including potential additional lodging units at Skamania and solar projects. The company remains focused on allocating capital toward opportunities that it believes can increase shareholder value and cash flow per share.

About Pebblebrook Hotel Trust (NYSE:PEB)

Pebblebrook Hotel Trust NYSE: PEB is a publicly traded real estate investment trust that owns and invests in upscale, full-service hotels and resorts in the United States. The company focuses on acquiring, developing, and repositioning lodging properties in major urban and resort destinations.

Its portfolio includes hotels operating under a variety of national, regional, and independent brands. Pebblebrook generally owns the underlying real estate while hotels are operated through management agreements, providing lodging accommodations, food and beverage services, meeting and event facilities, and other guest amenities.

Founded in 2009, Pebblebrook Hotel Trust has emphasized properties in markets with strong tourism, business travel, and cultural or recreational appeal.

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