Company Reports

First-quarter results for no-moat Pebblebrook Hotel Trust were slightly better than we anticipated, giving us confidence in our $26 fair value estimate. Same-store occupancy was up 3.2% year over year to 61.3%, though that is still far below the 74% reported for the same portfolio in the first quarter of 2019. Average daily rate declined for the fifth straight quarter, down 1.5% year over year, as renovations across many resort properties have negatively affected performance. However, nearly all of the renovations are complete, and performance should be better as business ramps back up for the hotels. As a result, revenue per available room was up 1.7%, in line with our 1.9% growth estimate, and revenue was up 2.5% for the same-store portfolio. Hotel operating expenses were up slightly more, growing 3.8%. This led to operating margin falling 90 basis points to 20.3%, though that was in line with our estimate for the quarter. Pebblebrook reopened the LaPlaya Beach Resort & Club in March; operating results were better than we anticipated, and the company also received $4 million in business interruption proceeds for the hotel. This helped drive adjusted funds from operation to $0.21 per share for the first quarter, $0.06 better than our $0.15 estimate.

Pebblebrook Hotel Trust is the largest US lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 46 upper-upscale hotels, with more than 11,900 rooms located primarily in urban gateway markets. Historically, Pebblebrook's combined portfolio has had a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

We believe that there are several attractive opportunities across the US REIT sector for investors to consider. Following the recovery of many REIT sector fundamentals from the pandemic by mid-2021, we viewed the REIT sector as fairly valued through early 2022. However, the past two years have seen the rapid rise in interest rates and a slowing economy, which has led to major valuation declines across the sector. Our analysis of the REIT sector over the past 25 years suggests that the relative stock performance of REITs is negatively correlated with interest rate movements. The second and third quarters of 2023 saw large interest rate increases with the 10-year Treasury approaching 5%, which led to the sector underperforming. This occurred even as many REITs reported same-store net operating income, or NOI, growth at historical highs in 2022 due to high inflation. Higher interest rates, lower liquidity, tighter capital market conditions, and decelerating same-store NOI growth all led to a significant correction in the stock price for many REITs.

Pebblebrook Hotel reported fourth-quarter results that were relatively in line with our estimates, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Same-store occupancy improved 330 basis points to 64.3% in the fourth quarter, though that is still well below the 77% figure the company reported in the fourth quarter of 2019. While average daily rate fell 0.3% year over year in the quarter, the fourth-quarter decline was the smallest decline Pebblebrook reported for the year. As a result, revenue per available room, or revPAR, increased 5.0% year over year, relatively in line with our estimate of 5.8% growth. The firm reported that comparable hotel revenue, expenses, and net operating income were up 5.8% in the quarter, in line with our estimates. Pebblebrook reported adjusted funds from operations, or AFFO, of $0.21 per share in the fourth quarter, which was better than our $0.12 estimate.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 47 upper-upscale hotels, with more than 12,100 rooms located primarily in urban gateway markets. Historically, Pebblebrook's combined portfolio has had a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

Third-quarter results for no-moat Pebblebrook Hotel Trust were better than we anticipated, leading us to reaffirm our $27.50 fair value estimate. Occupancy came in at 75.4% for the third quarter, which is a 260-basis-point improvement over the 72.9% level reported in the third quarter of 2022 but still remains well below the approximately 86% level reported in the third quarter of 2019. Meanwhile, average daily rent fell 4.3% year over year. As a result, revenue per available room fell 1.1% year over year in the quarter, which is in line with our estimate of a 0.9% decline. While room revenues were down, other hotel revenues were up 17.9%, leading to same-store revenues being up 0.3. Same-store operations were up 3.7% in the quarter and led to hotel EBITDA falling 7.1% in the third quarter, though that is better than our estimate of a 12.2% decline. Pebblebrook reported adjusted funds from operations of $0.61 per share, which is $0.05 below the $0.66 figure the company reported in the third quarter of 2022 but is $0.06 better than our $0.55 estimate for this quarter.

The share prices of U.S. real estate investment trusts have fallen by approximately 30% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors. We think that the correction is overdone and the current valuations offer an attractive entry point for patient investors. Our core REIT coverage is trading at a discount of approximately 25% to our fair value estimate. We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield that is 126 basis points higher than the historical average. We see marked differences in valuation across different REIT sectors in the United States. For instance, the industrial sector is fairly valued, with stock valuations already accounting for future growth, but other sectors like offices, hotels, and malls are trading at attractive discounts.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 47 upper-upscale hotels, with more than 12,100 rooms located in urban gateway markets. Pebblebrook's combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

While hotel operations for Pebblebrook declined year over year in the second quarter, the decline was smaller than we had anticipated, leading us to reaffirm our $27 fair value estimate. Occupancy improved to 73.2% in the second quarter compared with 70.0% in the second quarter of 2022. However, the average daily rate fell 4.5% year over year. As a result, revenue per available room remained flat in the second quarter, slightly worse than our estimate of 2.8% growth. However, same-store operating expenses increased 8.0% in the quarter, leading to EBITDA margins falling 370 basis points to 30.1%, in line with our estimate. Same-store EBITDA for the hotel portfolio was down 12.9% in the second quarter, slightly better than our estimate of a 14.8% decline. The company repurchased an additional 3.6 million shares in the second quarter. Therefore, while the decline in hotel operations led to adjusted funds from operations falling 13.9% to $0.62 per share in the second quarter, the lower share count led to the company beating our $0.56 estimate.

Pebblebrook reported first-quarter results that were slightly better than our expectations, leading us to reaffirm our $27 fair value estimate for the no-moat company. Occupancy improved to 58.0% in the first quarter from 48.5% in the first quarter of 2022. However, same-store average daily rate fell 0.8% year over year. Daily rate almost never declines for hotels except when the economy is in a recession and hotels are forced to cut rates to stem occupancy losses. Management explained that resort properties are no longer able to achieve the rate premiums they were charging in 2022 due to softer leisure demand but that urban properties continue to see strong rate growth. Still, the occupancy gains were enough to drive revenue per available room growth of 18.5%, slightly better than our estimate of 17.7%. EBITDA margins improved 30 basis points year over year to 20.5%, leading to same-property EBITDA growth of 25.3% that beat our estimate of 21.4% growth. Therefore, Pebblebrook reported adjusted funds from operations of $0.18 per share in the first quarter that beat our $0.12 estimate.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 51 upper-upscale hotels, with more than 12,700 rooms located in urban, gateway markets. Pebblebrook's combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

Fourth-quarter results for Pebblebrook were below our expectations, though we didn’t see anything in the quarter that would materially change our $27.50 fair value estimate. The company reported occupancy of 60.1% for the quarter, which is better than the 53.0% level reported in the fourth quarter of 2021 but still significantly below the 77.2% level reported in the fourth quarter of 2019. The average daily rate grew 10.8% year over year and 18.4% over the fourth quarter of 2019. As a result, revenue per available room grew 25.6% year over year, which was slightly below our estimate of 29.7% growth. However, operating expenses grew 29.2% in the quarter, leading to EBITDA margins falling 80 basis points to 21.0%, which was well below our estimate of EBITDA margins of 25.6%. Therefore, Pebblebrook reported adjusted funds from operations of $0.20 per share in the fourth quarter that was an improvement over the $0.08 figure reported in the fourth quarter of 2021 but missed our $0.31 estimate for the current quarter.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 51 upper-upscale hotels, with more than 12,800 rooms located in urban, gateway markets. Pebblebrook's combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

No-moat Pebblebrook reported third-quarter results that were slightly ahead of our expectations. However, guidance for the fourth quarter came in below our estimates, leading us to believe we won’t make any material changes to our $29 fair value estimate. Occupancy was 72.7% in the third quarter, which is better than the 54.9% figure reported in 2021, but still below the 86.0% figure reported in 2019. Meanwhile, rate growth continues to be strong at 10.3% year over year and 19.9% higher than 2019’s average rate. As a result, revenue per available room, or revPAR, was up 45.9%, which beat our estimate of 35.1% growth and is now 1.3% higher than 2019’s third-quarter revPAR. However, expense growth was also higher than we anticipated at 40.0%, so while the same-store EBITDA margin improved 200 basis points to 32.4% it did slightly miss our 34.7% estimate. Still, the strong revenue growth was enough for Pebblebrook to report adjusted funds from operations, or FFO, of $0.66 per share in the third quarter, which was 6 cents better than our estimate and 47 cents better than third-quarter 2021.

With the United States experiencing historically high inflation growth, many investors are wondering if real estate provides a natural hedge against inflation and if the REIT sector should therefore outperform the broader equity market. Many REITs in our coverage have reported rent and revenue growth at or near historic peaks over the past several quarters, with inflation being one of the largest reasons for the high growth. Given this and some historical evidence that REITs outperformed in the 1970s and early 1980s when inflation was similarly high, some investors are questioning why REITs have not outperformed in 2022.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 54 upper-upscale hotels, with more than 13,300 rooms located in urban, gateway markets. Pebblebrook's combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

Second-quarter results for no-moat Pebblebrook Hotel Trust came in ahead of expectations, though we anticipate materially changing our $26.50 fair value estimate. Occupancy was 69.4% in the second quarter, which is well ahead of the 42.4% figure reported in the second quarter of 2021 but remains below the 86.7% prepandemic level reported in the second quarter of 2019. However, rising demand combined with inflation sent average daily rate up 23.4% year over year and up 18.7% over the second quarter of 2019. As a result, revenue per available room increased 101%, slightly better than our estimate of 79% growth, and is now just 5.0% below the level reported in the second quarter of 2019. EBITDA margins also improved to 35.1%, better than our 25.3% estimate and the 22.0% number reported in the second quarter of 2021. Despite occupancy remaining 20% below prepandemic levels, Pebblebrook has been able to realize enough cost efficiencies over the past few years that EBITDA margins are just 80 basis points below the second quarter of 2019 figure of 35.9%. Pebblebrook reported adjusted funds from operations of $0.72 in the quarter, and while that remains below the $0.87 figure reported in the second quarter of 2019, it is far better than the $0.10 AFFO loss reported in 2021.

No-moat Pebblebrook Hotel Trust reported first-quarter results and second-quarter guidance ahead of our expectations, though we don’t anticipate changing our long-term outlook or $26.50 fair value estimate. Portfolio occupancy came in at 48.3% in the first quarter, far better than the 22.1% reported last year but still below the 75.3% reported in the first quarter of 2019. Average daily rate came in 19.4% above prepandemic levels with 18.7% year-over-year growth. As a result, same-store revenue per available room was up 159.6% year over year, slightly below our estimate of 177.8%, and is only 23.4% below 2019’s level. While revenue came in below expectations, Pebblebrook reported same-store EBITDA of $56.2 million, significantly higher than our $31.5 million estimate, as EBITDA margin of 21.8% in the first quarter beat our 13.9% estimate. Therefore, while the company’s adjusted funds from operations of $0.11 per share is still below the $0.46 reported in the first quarter of 2019, it came in ahead of our estimate of a $0.07 loss and was also better than management’s prior guidance of a $0.13 loss for the first quarter.

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 53 upper-upscale hotels, with more than 13,000 rooms located in urban, gateway markets. Pebblebrook's combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers.

Fourth-quarter results for Pebblebrook Hotel Trust were in line with our expectations, giving us confidence in our $27.50 fair value estimate for the no-moat company. Portfolio occupancy improved to 52.0% in the fourth quarter, which is better than the 22.7% level reported in the fourth quarter of 2020 but below the 78.3% figure for the fourth quarter of 2019. Average daily rate has shown impressive growth, up 27.8% year over year and up 5.6% over the fourth quarter of 2019. As a result, revenue per available room improved 192.6% year over year, relatively in line with our 210.2% growth estimate for the quarter, though revPAR is still 30.0% below the fourth quarter of 2019. Same-store EBITDA margins were 21.7% in the quarter, which is on top of our 21.6% estimate, leading to same-store EBITDA of $53.3 million that is significantly better than the $15.1 million loss recorded in 2020. Adjusted funds from operations matched our $0.06 estimate for the quarter, which is about halfway between the $0.50 loss reported in the fourth quarter of 2020 and the $0.54 positive figure for the fourth quarter of 2019.