Forward bookings, rates and total revenue at Pebblebrook Hotel Trust’s properties this year are ahead of 2022.
During the hotel real estate investment trust’s first-quarter earnings call, Pebblebrook Chairman and CEO Jon Bortz said group room nights on the books at the end of March were up 5.7% year over year. Group rate was up 6.1%, and group revenue is up 12.1%. Total revenue is pacing 4.9% above 2022 with rate representing 2.1% growth.
“For the entire rest of the year … group room night pace is ahead of last year by a strong 10.3%,” he said.
Group average daily rate is up by 8.7%, and group revenue pace is ahead by 20%, he said. When factoring in group and transient together, total room nights are up by 8%, ADR by 3.9% and total revenue by 12.2%. The second-quarter, year-over-year room revenue pace comparisons are the weakest of the year as it improves in the third and fourth quarters.
“This is encouraging considering the concerns about an economic slowdown or recession later this year, which we certainly do not yet see in our pace for the rest of the year,” he said. “However, we should all remember that in the hotel business, it’s good until it’s not, meaning it can turn very quickly and business on the books can cancel as well.”
There haven’t been any changes in overall demand trends in the hotel industry over the past 60 days, Bortz said. Business travel continues to recover for both the group and transient segments. Demand related to conventions is returning to normal, while international inbound travel continues to improve, with Europe approaching pre-pandemic levels.
Leisure travel remains healthy, but guests aren’t splurging as much on suites and upgrades like they were earlier in the pandemic, he said.
The recovery in business travel has benefited Pebblebrook’s urban properties the most, he said. Urban market occupancy grew by 22.1% compared to the omicron-affected first quarter of 2022. ADR grew by 8.7%, increasing same-property revenue per available room by 32.8%. Non-room revenue grew by 53.1%. Occupancy at urban properties was still 25% below 2019 levels.
“Some of this will be recovered after the three urban [hotel] redevelopments are completed later in the second quarter, but most of it will be recovered as business, leisure and international travel normalize at higher levels,” he said.
The cities that led Pebblebrook’s urban market recovery were San Francisco; Washington, D.C.; Chicago; Portland, Oregon; and Seattle, Bortz said. There’s continuing improvement in San Diego, Boston and Los Angeles.
San Diego benefited from a strong convention calendar even with the negative effects of heavy rains in the quarter, he said. Its core downtown properties under development, the Hilton Gaslamp and Solamar, saw occupancy drop by 17% and 7.8%, respectively, due to the disruption. However, its Westin Gaslamp grew occupancy by 17%, and its Embassy Suites in the market grew occupancy by 33%.
“San Diego is our best-performing urban market, and it has an even better convention calendar next year,” he said.
Pebblebrook’s resorts performed well during the quarter despite year-over-year softness in rate in Key West and continuous heavy rains for all six of its West Coast resorts, he said. On a same-property basis, excluding the LaPlaya Beach Resort & Club due to repairs from Hurricane Ian, the resorts grew occupancy by 12.1%. ADR dropped by 11.7%, resulting in RevPAR dipping 1.1%.
“As expected, the occupancy gains are driven by the recovery in group demand and some lower-rated transient segments,” he said. “The ADR decline resulted from the decline in Key West and the return of demand from some lower-rated channels.”
While the group rate increased at a healthy rate, its first-quarter, same-property ADR for resorts remained at a $126 premium, a 44% increase over the first quarter of 2019, he said. Non-room revenue at resorts grew by 19.2%.
During the quarter, Pebblebrook completed $135.3 million in property sales. That included the Heathman Hotel in Portland, Oregon, for $45 million; the retail parcel at 909 N. Michigan Ave. in Chicago for $27.3 million; and the Hotel Colonnade in Coral Gables, Florida, for $63 million.
The REIT is under contract to sell the Hotel Monaco Seattle for $63.3 million and the Hotel Vintage Seattle for $33.7 million in separate deals. The two transactions are expected to close in the second quarter.
Should those two properties sell, the company will have completed sales of more than $230 million over the last 18 months, Bortz said.
“High-quality and well-located properties like we own continue to be highly desirable to the buying community,” he said. “As a result, we’re bringing additional properties to market.”
The transaction market for hotels, as with most property types, continues to be challenging because of the debt markets and regional bank collapses, he said. The company will seek out buyers who can overcome the debt market challenges.
Pebblebrook made $26.2 million in capital investments during the quarter. It intends to invest $145 million to $155 million in capital projects this year, according to its fourth-quarter 2022 earnings release. It completed $108.4 million in projects last year.
Pebblebrook completed the final phase of its redevelopment of the Viceroy Santa Monica in April, fully repositioning it as a lifestyle luxury property that is attractive to business and leisure travelers in the market that has shrinking supply with increasing demand, Bortz said. The hotel should drive a $30 to $50 higher rate in the market because of the project.
By the end of May, the company expects to be substantially complete with its renovation and transformation of the Hilton Gaslamp Hotel in San Diego into a higher-end lifestyle hotel, he said. The property will have an improved and larger indoor/outdoor bar and restaurant, expanded and improved event venues, and “a whole new vibe,” he said. It’s located in downtown San Diego and is the closest to the entrance of the convention center and the Gaslamp district. The repositioning and its location should drive rates $25 to $35 higher.
The Hotel Solamar in San Diego should finish its transition to the Margaritaville Hotel Gaslamp District in July, Bortz said. The hotel should drive higher rates and higher food and beverage and non-room revenue following its conversion.
“Between the rate share gains and increased total revenues, we expect to deliver a stabilized annual return substantially above our typical 10% cash yield on investment,” he said.
The first phase of the project at the Estancia La Jolla, acquired in late 2021, should be complete in June, Bortz said. The company is repositioning it as a luxury resort that will appeal to leisure travelers on top of its existing social and business group demand and corporate transient guests.
The first phase involves the complete renovation of guestrooms, including the bathrooms, and expanding and upgrading its outdoor event venues, he said. The second phase — focusing on its main ballroom, meeting spaces, restaurants, lobby, pool complex and coffee shop — will start later this year.
The last project nearing completion is the upgrade of Pebblebrook Jekyll Island Club Resort in Georgia, Bortz said. It has a comprehensive guestroom renovation for all its historic buildings, including the main building and three large cottages. It also focused on the public areas, meeting spaces, pool complexes and retail store.
The upcoming redevelopment and upgrading of Newport Harbor Island Resort later this year represents the last major redevelopment project in Pebblebrook’s strategic plan involving the former LaSalle Hotel Properties portfolio and the company’s individual acquisitions over the past two years, Bortz said. Pebblebrook has completed more than 24 major repositioning and redevelopment projects over the past several years.
“These projects are gaining share as the demand returns, and we expect to achieve very attractive cash yields at these properties upon stabilization,” he said.
Pebblebrook reported a net loss of $22 million for the quarter, an improvement from a $100.2 million loss in the first quarter of 2022, according to its earnings release. Same-property room revenues reached $289.7 million, up from $234.1 million the year prior. Same-property earnings before interest, taxes, depreciation and amortization was $59.3 million, up from $47.3 million in 2022.
Same-property occupancy grew 19.6% year over year to 58% while same-property ADR dipped 0.8% to $295.02. Same-property RevPAR grew 18.5% year over year to $171.05, and same-property total RevPAR grew 23.8% to $266.92.
By March 31, Pebblebrook had $146.5 million of consolidated cash, cash equivalents and restricted cash. It also had $636.9 million available in its senior unsecured revolving credit facility, bringing the company’s total liquidity to $783.4 million.
It has $2.4 billion in consolidated debt and convertible notes at an effective weighted-average interest rate of $4.1%. Of that, $1.7 billion was at an effective weighted-average fixed interest rate of 3%. The remaining 29% was at a weighted-average floating interest rate of 6.9%.
The REIT’s second-quarter outlook projects net income ranging between $34 million and $38.9 million and adjusted EBITDA for real estate between $107.5 million and $113 million. Same-property RevPAR is expected to range between $227.60 and $234.40.
As of press time, Pebblebrook’s stock was trading at $13.90, up 3.8% year to date. The NYSE Composite was up 1.6% for the same period.
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