Pebblebrook Hotel Trust (PEB) Earnings

Management highlights

### Overall Operating Profitability & Cost Control - 4.8% total revenue growth converted to 7.1% same-property hotel EBITDA growth, with same-property total expenses increasing only 3.8%, expanding margins 67 basis points to 30.6%. - Rooms expense grew at less than half the pace of rooms revenue (only 3.1%) despite a 130 basis point increase in occupancy. - Energy expenses increased only 2.7% for the quarter and were flat year-to-date, driven by energy reduction and sustainability initiatives. - On a per occupied room basis, total expenses increased just 2%, highlighting ongoing cost discipline. - Property insurance renewal completed June 1 came in 27% lower than last year ($6 million lower than expected), due to a more favorable insurance market, disciplined program design, and prior capital investments to harden weather-exposed assets. ### Capital Allocation & Balance Sheet - Despite losing ~$5 million of hotel EBITDA from sold assets and lapping $3.2 million of prior year business interruption income, adjusted EBITDA declined less than 1% and adjusted FFO was essentially flat. A 4% smaller diluted share count lifted adjusted FFO per share 4.6%, while retained free cash flow per share after dividends increased nearly 25%. - $12.5 million invested in the portfolio in Q2, on track for $65-$75 million full-year investment, with excess retained free cash flow directed to debt reduction and opportunistic common/preferred share repurchases. - Sold the Chamberlain West Hollywood Hotel for $43.5 million, used $26.1 million of proceeds to retire $33.7 million in preferred shares at a 23% discount, generating ~$7.6 million of immediate value accretion and eliminating over $2 million in annual preferred distributions. Over 8 months, 3 hotels sold for ~$160 million at an average 15.4x EBITDA multiple and 4.6% NOI cap rate, validating the portfolio's private market value. - Net debt to trailing 12-month corporate EBITDA declined to 5.3x (from 5.5x at Q1 end 2026 and 5.9x at end 2025). Ended Q2 with $1 billion of total liquidity ($270 million cash, $641 million revolver availability, $90 million delayed draw term capacity). The remaining $350 million of 2026 convertible notes are fully funded, with no other debt maturities until 2028. ### Industry Demand & Second Quarter Context - Industry demand was healthy in Q2 2026, with limited new supply pushing occupancies higher and accelerating ADR growth. All major hotel demand segments remained favorable, with inbound international travel turning positive in June for the first time in years, boosted by World Cup visitors. - World Cup provided a modest net benefit to Pebble Brook: an estimated $1.5-$2.5 million increase in room revenue (60-100 bps of RevPAR growth), but this was largely offset by displaced corporate group and transient business, and a decline in food and beverage/banquet catering revenue in host markets, resulting in a net total benefit of $0.5-$1 million. - For Pebble Brook, Q2 group pickup was $8.4 million above last year, with no increase in group cancellations or attrition, and more predictable attendance levels than 2025. - June saw sharp acceleration with RevPAR up nearly 12%, driven entirely by a 14% ADR increase, as occupancy dipped slightly on a shift to higher-rate transient mix.

Guidance

- **Full-year 2026 guidance**: Management raised full-year guidance to reflect Q2 outperformance, maintaining prudent second-half assumptions. Same-property RevPAR growth is now guided to 4.5% to 5.5% (an increase of 125 basis points at the midpoint), same-property EBITDA growth to 8.2% to 10.5% (midpoint 9.3%), and adjusted FFO per diluted share to $1.69 to $1.76 (an 8 cent increase at the midpoint). - **Q3 2026 guidance**: Same-property RevPAR growth of 1% to 3%, same-property hotel EBITDA of $100.5 million to $104.5 million, adjusted EBITDA of $92.5 million to $96.5 million, and adjusted FFO per share of 48 to 52 cents. July RevPAR is currently on pace to grow 7% to 8% year-over-year, but management did not extrapolate this strong start to the full quarter, retaining a buffer for shorter booking windows and macro/geopolitical volatility. As of end-June, second-half 2026 room revenue is pacing 5.5% ($10.7 million) above last year, 80% from transient and 20% from group, implying ~2.4% RevPAR growth for the second half if pickup matches last year's pace. - **Multi-year industry outlook**: Management expects a strong multi-year hotel industry up cycle, with limited new supply through most of the 2020s, driven by multi-year capital investment cycles from AI, reshoring of manufacturing, and robotics growth, plus a growing wealth effect from accumulated wealth and the intergenerational baby boomer wealth transfer. These positive demand-supply fundamentals are expected to support healthy long-term growth. - **2027 outlook**: Management expects strong 2027 performance, with positive demand-supply fundamentals offsetting difficult comparisons to 2026's event tailwinds. For Pebble Brook, headwinds from weak 2026 convention calendars in San Diego and Boston will reverse to tailwinds, multiple major events (Super Bowl, NCAA regional finals, NFL Draft, MLB All-Star Game, pre-Olympic travel) will drive demand in key markets, and ongoing recovery in urban markets (San Francisco, Los Angeles) and further share gains from redeveloped resort properties will support growth. Underlying demand growth is expected to track 1.5% to 2% (in line with expected GDP growth), with limited supply growth (<0.5% net) supporting pricing power. Pebble Brook is expected to outperform industry RevPAR growth by 50 to 100 basis points in 2027, down from the 300 basis point outperformance in the first half of 2026 that reflected recovery from low base levels in hard-hit urban markets.

Segment performance

Overall portfolio same-property RevPAR grew 6.5% in the quarter, while total RevPAR grew 4.7%: - **Urban segment**: Overall RevPAR increased 0.8%, with core same-property urban RevPAR up 4.1%. Urban hotel EBITDA declined 1%. Strong performance in San Francisco and Los Angeles was offset by weak convention/banquet catering revenue in San Diego and Boston, and continued government-related travel weakness in Washington D.C. Urban banquet and catering revenue declined ~20% due to weak citywide convention calendars and World Cup-related displacement of group business. - **Resort segment**: Resort food and beverage revenue grew nearly 11%, with banquet and catering revenue increasing more than 16%, driven by a 310 basis point increase in resort occupancy. Resorts outperformed all other segments in aggregate revenue growth for the quarter. By demand segment: - Transient revenue was up nearly 10%, driven by a 7% increase in ADR concentrated in higher-rate channels, leading a portfolio-wide shift from group to transient demand. - Group revenue declined ~2%, while corporate group revenue was flat; the softness reflects convention calendar rotation, not a pullback in corporate demand. - Out-of-room revenue grew 1.7% overall.

Risks & headwinds

- Geopolitical instability, particularly the protracted and widening Middle East conflict, and ongoing changes to trade policy could negatively impact the U.S. economy and travel demand. - There is risk of a U.S. government shutdown in fall 2026, which would negatively impact travel and government-related demand, especially in Washington D.C. - Booking windows remain short, making it difficult to forecast demand accurately through the end of 2026 amid a volatile macro and policy environment. - Increasing wildfire risk, particularly in Southern California, could disrupt travel and negatively impact performance in key resort and urban markets. - A potential reversal of the 2026 inbound-outbound international travel imbalance could reduce tailwinds for U.S. hotel demand, though management views this as unlikely to fully offset underlying demand growth in 2027.

Analyst Q&A

• Q: What are the main drivers of the better-than-expected demand pickup that supports the second half outlook? Is it primarily leisure transient, or are there other key drivers? /

  A: The pickup is broad-based, but clearly led by transient demand, including both corporate and leisure transient. Stable group bookings, more predictable attendance, and steady group spend are also positive contributors. A second major driver is improved pricing: management is shifting demand mix to higher-rated channels, offering premium room upgrades, and reducing discounting and promotions, which is lifting overall ADR across the portfolio, and this trend is expected to continue in the second half.

• Q: How has the hotel transaction market changed recently, in your view? /

  A: The transaction market is becoming more constructive, aligned with improving operating fundamentals. Capital is following performance, with more large transactions and deeper investor demand, which builds broader conviction among market participants. Debt markets also remain attractive, with good availability and competitive pricing. Activity is bifurcated, however, with the most demand centered on luxury and resort assets, and assets in markets with clear projected long-term growth.

• Q: What is underlying demand growth after adjusting for 2026's unique tailwinds like World Cup and calendar shifts, and how will 2027's fundamentals offset the loss of these tailwinds? /

  A: Underlying demand growth is tracking 1.5% to 2% year-over-year, which aligns with recent GDP growth, and this trend is broad-based across all segments except the previously lagging international inbound segment. While 2026 benefited from one-off event tailwinds like the San Francisco Super Bowl, Pebble Brook also faced material 2026 headwinds including 120,000 fewer convention room nights in San Diego and weak performance in Boston that will reverse to tailwinds in 2027. Improving industry fundamentals, growing pricing confidence, and continued limited supply growth will more than offset the loss of 2026's event tailwinds.

• Q: Has your capital allocation strategy changed now that Pebble Brook's share price has rallied, narrowing the discount to estimated NAV? /

  A: The core capital allocation strategy remains unchanged: it is focused on driving per-share cash flow growth and shareholder value via opportunistic repurchases of undervalued securities, debt reduction, and asset sales. While the discount to NAV has narrowed, Pebble Brook can still acquire its own common and preferred shares at a larger discount to underlying value than it can acquire new third-party hotel assets. The strategy will remain disciplined as long as this discount persists, and NAV grows over time as operating performance improves, so the opportunity for accretive repurchases remains.

• Q: Can you explain how you are managing discounted channels like OTAs, and what the current mix looks like across urban and resort properties? /

  A: The focus on reducing discounted channels extends beyond OTAs to low-margin wholesale and crew channels that are relied on more during down cycles. For transient demand, ~25% of Pebble Brook's mix comes from OTAs, with lower share (12-13%) for branded properties, 20-30% for urban lifestyle hotels, and 20-23% for resorts. Resorts have lower OTA reliance because they have more direct bookings from customers seeking unique premium experiences. Not all OTA business is negative, and management manages channel mix on a property-by-property basis to maximize net RevPAR.