Pebblebrook Hotel Trust reported Q2 2024 results. Highlights include:
- Net income of $32.2 million
- Same-Property Total RevPAR increased by 2.5 percent vs. Q2 2023, with urban properties improving 3.4 percent and resort properties growing 0.6 percent
- Same-Property EBITDA of $117.2 million, up $9.6 million, or 8.9 percent, vs. Q2 2023
- Adjusted EBITDAre of $123.5 million, ahead by $7.2 million, or 6.2 percent, vs. Q2 2023
- Adjusted FFO per diluted share of $0.69, increasing 11.3 percent from Q2 2023
Hotel Operating Trends
- Both urban and resort occupancies grew in Q2. Urban same-property occupancy increased 2.5 percentage points, with gains driven by San Diego, Chicago, Boston, and Washington, D.C. Resort same-property occupancy rose by 3.5 percentage points, bolstered by continued improvement in weekday demand from business transient and groups and weekend occupancy from leisure travelers.
- Focused efforts to achieve operating cost efficiencies, coupled with reduced expense pressures and better-than-expected progress in realizing real estate tax reductions, resulted in a 0.1 percent year-over-year decline in same-property total expenses. This helped to improve same-property EBITDA margins by 182 basis points.
Portfolio Updates & Capital Repositioning
- Pebblebrook’s multiyear comprehensive redevelopment and repositioning projects, totaling over $520 million, have been completed, positioning the company to achieve revenue gains and cash flow improvements over the next several years.
- LaPlaya Beach Resort & Club (LaPlaya) continues to ramp up its operating performance following its redevelopment and restoration after Hurricane Ian. In Q2, EBITDAre reached $7.0 million. Additionally, $7.3 million of business interruption income was recorded, exceeding the company’s Q2 outlook by $3.3 million.
- Le Méridien Delfina Santa Monica will be converted and rebranded to Hyatt Centric in mid-September 2024, becoming the first Hyatt-affiliated franchise in this highly desirable beachfront destination.
2024 Outlook
- Net loss: ($13.0) to ($4.0) million
- Same-Property RevPAR Growth Rate: up 1.25 percent to up 2.25 percent (midpoint down 125 bps)
- Adjusted EBITDAre: $351.0 to $360.0 million (midpoint increased $9.0 million)
- Adjusted FFO per diluted share: $1.59 to $1.67 (midpoint increased $0.08)
“Second quarter demand was in line with our expectations, with healthy business group, transient and leisure boosting the urban markets, and strong weekday and weekend demand positively affecting our resort portfolio. Our recently redeveloped and repositioned properties—Estancia La Jolla Hotel & Spa, Skamania Lodge, Hilton Gaslamp San Diego Quarter, Margaritaville San Diego Gaslamp Quarter, and Newport Harbor Island Resort—are performing well, ramping up successfully and gaining market share. Our bottom-line operating results exceeded our outlook, primarily due to better-than-expected execution of operating efficiency initiatives, reduced expense pressures, and slightly greater-than-expected savings from real estate tax reductions. Both our urban hotels and resorts grew Same-Property EBITDA during the second quarter, which is very encouraging.
“For the remainder of the year, increasing geopolitical and economic uncertainties are likely to impact industry performance and operating results, prompting us to adopt a modestly more cautious outlook. While we are slightly lowering our revenue growth outlook for the year, we are raising our 2024 outlook for Hotel EBITDA, Adjusted EBITDAre, Adjusted FFO, and AFFO/share. Although our overall group and transient pace remains ahead for the balance of the year compared with 2023, the margin of advantage has been narrowing. Business group and transient segments remain healthy. However, leisure consumers have become increasingly price-conscious, particularly within the lower-priced segments, and this trend is beginning to impact some higher-end segments. We were previously expecting overall ADR declines to ease in the second half of this year, but we now expect continued pressure throughout the remainder of the year. Despite this, luxury and upscale travelers have remained resilient, and we are on track for a successful summer season across our portfolio.
“Both our urban hotels and resorts demonstrated positive performance in the second quarter. Year to date, our urban properties have improved occupancy by 2.4 percentage points and increased same-property EBITDA by 7.0 percent over the prior-year period. Meanwhile, our resort same-property occupancy increased by 3.5 percentage points for the quarter and 1.8 percentage points year to date, with resort same-property EBITDA year to date increasing by 2.0 percent over last year.
‘We’re also very pleased with the tremendous progress our property teams and asset managers have made in delivering operating efficiency improvements across the portfolio. It has been a primary focus for our teams. Our same-property hotel operating expenses decreased by 0.1 percent versus Q2 2023, with costs per occupied room declining by 3.8 percent. Excluding property taxes and insurance, our hotel operating expenses rose by only 1.4 percent, while decreasing by 2.4 percent on a per-occupied room basis. Generally, we have also experienced reduced operating cost pressures across the portfolio, which we expect will continue through the remainder of the year,” Jon E. Bortz, chairman and CEO, Pebblebrook Hotel Trust.
LaPlaya Beach Resort & Club
Following the post-hurricane reconstruction completion and full reopening of LaPlaya in Naples, Florida, earlier this year, the luxury resort’s operating performance continues to improve. Year to date, LaPlaya has achieved $15.3 million in hotel EBITDA, as compared to a loss of $3.7 million in the same period last year, and a positive $23.1 million in the same period of 2022, which was the resort’s best-performing year before Hurricane Ian in September 2022. The property’s underlying performance is expected to continue to ramp up, and LaPlaya is poised to capitalize on the upcoming travel season in Naples, starting in the fourth quarter of 2024. As part of the company’s increased 2024 outlook, LaPlaya is expected to contribute $24 million of EBITDA for the entire year, which represents a $2 million improvement from the Company’s prior expectations.
Regarding insurance claims, the company expects all operational and physical disruptions to be covered under its business interruption (BI) and property insurance policies, net of deductibles. In Q2 2024, a preliminary settlement of $7.3 million for BI proceeds related to income losses from October 2023 through February 2024 was recorded, exceeding the company’s Q2 outlook by $3.3 million. Year to date, the company has recorded $11.3 million in BI income and forecasts an additional $2.7 million for the remainder of 2024, bringing the total expected BI income for 2024 to $14.0 million. This is $3.0 million more than previously expected. These projections are now incorporated into the company’s 2024 Outlook. It is important to note that while business interruption proceeds will increase Adjusted EBITDAre and Adjusted FFO, they are not included in same-property hotel EBITDA. LaPlaya’s operating performance is excluded from all same-property reporting results for 2024 and 2023.
Le Méridien Delfina Santa Monica to Convert to Hyatt Centric
The company recently reached an agreement with Hyatt Hotels & Resorts to reflag its existing 315-room Le Méridien Delfina Santa Monica as the Hyatt Centric Delfina Santa Monica in mid-September 2024. This conversion will include an approximate $16.0 million property refresh, commencing in the fourth quarter of this year, with expected completion in the second quarter of 2025. Hyatt is providing money, offsetting a portion of the property refresh.
“We are thrilled that our lifestyle-oriented Delfina Santa Monica hotel will become part of Hyatt Centric,” noted Bortz. “After evaluating many alternative options, we determined that converting to Hyatt Centric was the optimal choice for this unique lifestyle-oriented property. We were already planning a refresh, and the additional scope to meet Hyatt Centric standards was relatively minor. This will be the only Hyatt-branded hotel in the desirable and high barrier-to-entry beachside Santa Monica hotel market, which should be a tremendous benefit for the property.”
Capital Investments and Strategic Property Redevelopments
During the second quarter, the company completed $28.7 million of capital investments throughout its portfolio, excluding capital expenditures related to the repair and rebuilding of LaPlaya. These investments relate to a number of the company’s last major property redevelopments, including:
- The $50 million comprehensive redevelopment of Newport Harbor Island Resort into a luxury island resort, which fully launched on Memorial Day weekend;
- The finalization of Estancia La Jolla Hotel & Spa’s $26 million redevelopment and repositioning, which was completed in mid-April and included renovating public areas and public area landscaping, adding a lobby bar and patio, outdoor meeting venues, an outdoor pool bar and grill, and new cabanas, and upgrading the main ballroom and the Mustangs and Burros restaurant; and
- The May completion of Skamania Lodge’s $20 million phase 1 of its much larger master plan to expand and introduce alternative lodging accommodations, including the recent addition of two new two-bedroom cabins, one new three-bedroom villa, and five glamping units. Other recent resort additions included a multi-million-dollar outdoor meeting and event venue adjacent to the resort’s new 18-hole putting course, three additional treehouses bringing the total number of treehouses to nine, and road and utility infrastructure for existing and future alternative accommodations.
With the completion of these investments, virtually all of the company’s properties have undergone recent major redevelopments or renovations. This marks a transition to a period of reduced capital investments planned for the next few years. The company continues to expect it will invest a total of $85 to $90 million in the portfolio in 2024, net of key money.
Balance Sheet and Liquidity
As of June 30, 2024, the company had $111.2 million in cash, cash equivalents, and restricted cash, plus $636.3 million of undrawn availability on its $650 million senior unsecured revolving credit facility. The company’s current $2.2 billion of consolidated debt and convertible notes is structured, with an estimated effective weighted-average interest rate of 4.4 percent as of the beginning of the third quarter. Seventy-five percent of the combined debt and convertible notes is fixed at an estimated effective weighted-average interest rate of 3.4 percent, while the remaining 25 percent is floating at an estimated weighted-average interest rate of 7.3 percent. In addition, approximately 91 percent of the company’s outstanding debt is unsecured, and the weighted-average maturity of the company’s debt is approximately 2.7 years. The company has no meaningful debt maturities until Q4 2025.
Common and Preferred Dividends
On June 14, 2024, the company declared a quarterly cash dividend of $0.01 per share on its common shares and a regular quarterly cash dividend for the following preferred shares of beneficial interest:
- $0.39844 per 6.375% Series E Cumulative Redeemable Preferred Share;
- $0.39375 per 6.3% Series F Cumulative Redeemable Preferred Share;
- $0.39844 per 6.375% Series G Cumulative Redeemable Preferred Share; and
- $0.35625 per 5.7% Series H Cumulative Redeemable Preferred Share.
Update on Curator Hotel & Resort Collection
Curator Hotel & Resort Collection is a collection of experientially focused small brands and independent lifestyle hotels and resorts worldwide founded by Pebblebrook and several independent lifestyle hotel operators. As of June 30, 2024, Curator had 97 member hotels and resorts and 117 master service agreements with preferred vendor partners. The master service agreements provide Curator member hotels with preferred pricing, operating terms, and early access to curated new technologies.
2024 Outlook
The company’s 2024 Outlook, which does not assume any acquisitions or dispositions, incorporates planned capital investments and key assumptions, including an estimated $14.0 million in business interruption proceeds and $24.0 million of Hotel EBITDA related to LaPlaya, which is incorporated into Adjusted EBITDAre and Adjusted FFO, but does not impact same-property hotel EBITDA.
This forecast assumes stable travel conditions, unaffected by pandemics, major weather events, federal shutdowns, or deteriorating macro-economic factors.
