• Fri. Jun 21st, 2024

Pebblebrook’s Group, Transient Bookings Pace Ahead for 2023


Feb 22, 2023
Pebblebrook Hotel Trust intends to spend $145 million to $155 million in capital improvements across its portfolio of hotels, including finishing work on the Hilton San Diego Gaslamp Quarter. (CoStar)


There’s been no sign of any material impact of a potential economic slowdown yet, said Pebblebrook Hotel Trust’s Jon Bortz, and guests are booking further and further ahead.

During the hotel real estate investment trust’s fourth-quarter and full-year 2022 earnings call, Pebblebrook Chairman and CEO Bortz said group, business transient and international inbound travel all continued to recover while leisure travel remains healthy.

The company’s executives are not so naive as to think there won’t be any impact or that the industry is no longer cyclical, he said. The industry has never gone through a recovery from a pandemic, nor has it been through a Federal Reserve working so hard to slow the economy to get a handle on inflation.

“So, it’s extremely difficult to forecast how these conflicting waves will impact each other as we move forward in 2023,” he said.

Pebblebrook expects the first quarter to show significant improvement over the omicron variant-affected first quarter of 2022, Bortz said. The company’s hotels saw healthy year-over-year revenue per available room and revenue growth in January despite the negative effects of unusual weather on both the East Coast and West Coast.

Group business pace is looking good for 2023, he said. At the beginning of February, the pace of first-quarter group room nights was ahead of last year by 54%, with average daily rate up 5.6%, for total group revenue improvement of 62.7%. Transient business is also pacing ahead of last year with 16.2% in room nights with rates up 1.4%.

Combined, total group and transient pace for the first quarter was ahead by 27.5% in room nights, 2.1% in ADR and 30.2% in total revenues, Bortz said.

“While [the first quarter] is an easy comparison, we’re currently pacing ahead year-over-year in group and transient in every quarter,” he said. “This is partly a reflection of the ongoing recovery in demand and partly due to greater confidence on the part of group and transient customers booking further out than they did last year.”

For 2023, group revenues are pacing ahead by 29.1% with rate up by 7.2%, Bortz said. Total room revenue on the books for 2023 was stronger by 21.3%, with ADR up by 4.4%. The urban ADRs are driving the company’s rate advantage while the resorts’ rates are up, marginally driven by group rates. Transient rates are slightly down, which is a trend expected to last throughout the year.

The company expects its urban properties will recover to their 2019 earnings before interest, taxes, depreciation and amortization in total over the next couple of years, he said. The markets that will lead this recovery will be San Diego, Boston and Los Angeles, followed by San Francisco, Chicago, Portland, Seattle and Washington, D.C.

During the year, Pebblebrook acquired two leisure-focused properties, the Inn on Fifth Naples and Newport Harbor Island Resort, for a combined $330 million, said Raymond Martz, co-president and chief financial officer. It has also sold four urban hotels for a combined $261 million. Since 2020, the REIT has acquired six leisure-focused resorts for more than $820 million while selling 11 hotels in slower-to-recover urban markets for a total of $957 million.

“We’ve recycled almost 30% of our portfolio, representing a dramatic transformation of our company,” he said. “As a result of these investments and divestitures, we have increased our market segmentation from leisure, both group and transient, to roughly 50%.”

Since Pebblebrook’s acquisition of LaSalle Hotel Properties in 2018, the company has been working on a property redevelopment and transformation program, Bortz said.

“We historically have had great success in redeveloping, repositioning and re-merchandising properties to a higher level that we believe have significantly more potential than their prior positioning,” he said.

The projects can take one to three years for planning and construction and then three to four years to ramp up their RevPAR share gains and higher EBITDA, he said. They have consistently delivered high single-digit to low double-digit unlevered cash-on-cash returns on investment upon stabilization.

The company has redeveloped and repositioned 13 of the properties from the LaSalle portfolio, he said.

During 2022, the company was working on comprehensive redevelopment projects at several properties that will cause disruption during the first quarter of this year, Martz said. The company expects first-quarter RevPAR disruption of about 225 to 300 basis points and $4 million to $6.5 million in overall same-property EBITDA. Those properties include the Estancia La Jolla Hotel & Spa, Jekyll Island Club Resort, the Hilton San Diego Gaslamp Quarter and the Viceroy Santa Monica Hotel.

The company is also redeveloping the Solamar Hotel into the Margaritaville Hotel San Diego Gaslamp Quarter. It will also complete the development of a new outdoor venue and 11 additional alternative lodging units at the Skamania Lodge. The Southernmost Beach Resort will receive an upgrade to its four guest houses and their 50 rooms.

For 2023, Pebblebrook plans to invest $145 million to $155 million into its portfolio through several major redevelopments, he said. That investment includes projects currently underway.

Hurricane Ian-related repairs continue at the LaPlaya Beach Resort & Club in Naples, Florida, he said. The company has reopened its Bay tower and expects to partially reopen its Gulf tower shortly. The Gulf tower houses the lobby, restaurant, bar and club areas. It will also open one of the three pools and a temporarily relocated spa and fitness center. The beach has been cleaned and reopened for guests, who can expect full beach services. The beach house is still undergoing restoration work, which is expected to be substantially finished in the fourth quarter.

For the full year, Pebblebrook reported a net loss of $85 million, according to its earnings release. Its same-property total RevPAR grew by 65.1% compared to 2021 and was 93% recovered to 2019. Its same-property earnings before interest, taxes, depreciation and amortization was $391 million, a 123% year-over-year increase and 84.5% recovered to 2019.

For the fourth quarter, the REIT reported a net loss of $39.9 million. It’s same-property total RevPAR was up 27.9% compared to the fourth quarter of 2021 and was 93.9% recovered to 2019 levels. Its same-property average daily rate exceeded 2021 levels by 10.8% and 2019 by 18.4%. It achieved $65.2 million in same-property EBITDA, a 23.3% increase over 2021 and was 73.1% recovered to 2019.

The company projects a net loss of $43.6 million to $48.6 million in the first quarter of 2023. Same-property RevPAR is expected to grow 15% to 18% year over year. Adjusted earnings before interest, taxes, depreciation and amortization for real estate is projected to range between $46.5 million to $51.5 million compared to the $46.5 million achieved in 2022.

As of Dec. 31, 2022, Pebblebrook had $52.3 million of consolidated cash, cash equivalents and restricted cash. It also had $637.4 million available in its senior unsecured revolving credit facility for total liquidity of $689.7 million.

It had $2.4 billion in consolidated debt and convertible notes with an effective weighted average interest rate of 3.5%. Of that, $1.9 billion, or 79% of its total outstanding debt and convertible notes, was at an effective weighted-average fixed interest rate of 2.7%. The remaining $500 million was at a weighted-average floating rate of 6.3%.

In January, Pebblebrook entered into an additional $400 million in swaps for two- and three-year maturities at 3.2% and 3%, respectively, that replaced an equivalent amount of debt maturing in 2023.

As of press time, Pebblebrook’s stock was trading at $14.83 per share, up 10.8% year to date. The NYSE Composite Index was up 2.8% for the same period. 

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