Pebblebrook Earnings: Hotel EBITDA Decline Not as Large as Anticipated

Third-quarter results for no-moat Pebblebrook Hotel Trust PEB 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.

Several major storms have affected Pebblebrook’s fundamentals for the quarter. Management stated that Tropical Storm Hilary and Hurricane Idalia combined to negatively affect revPAR by 90 basis points and hotel EBITDA by $2.5 million in the third quarter. Additionally, the 189-room LaPlaya Beach & Golf Resort in Naples, Florida, continues to be affected by Hurricane Ian, which occurred in the third quarter of 2022. Pebblebrook managed to restore two of the hotel’s buildings to nearly full operations this quarter after an extensive rebuilding and renovation project, though the third 79-room building won’t be completed until the first quarter of 2024. Pebblebrook reported $10.9 million from business interruption insurance proceeds caused by lost revenues in the second quarter and anticipates that it will continue to collect insurance because of lost revenues until operations are fully restored.