Pebblebrook Hotel Trust Q4 FY2024 earnings call

• Strong performance from resort portfolio and redeveloped properties drove outperformance. Full year same-property total RevPAR up 2.1%, adjusted EBITDA and FFO exceeded outlook. - Fourth quarter same-property total RevPAR up 1.8%, resorts up 4%, urban up 0.7%, excluding disruptions ~3.7% growth. - Redeveloped properties in 2023 had strong Q4 and full-year results: occupancy up, RevPAR up, market share expanded. - Focus on operational efficiencies: Q4 same-property hotel expense increase before fixed costs 3.1%, lowered cost per occupied room. Full-year same-property expenses before fixed costs up 2.7%, cost per occupied room down. - Received ~$10M in real estate tax and municipal tax credits in 2024, but 2025 outlook doesn't assume additional credits, creating headwind. - Capital investments in 2024 totaled $91M, 2025 projected $65M-$75M, LaPlaya Beach Resort repair and restoration ongoing with insurance coverage.

For the full year, same-property total RevPAR increased 2.1%. Adjusted EBITDA rose 0.8% to $352 to $359.2 million. Adjusted FFO per diluted share grew 5% to $1.68. In the fourth quarter, same-property total RevPAR increased 1.8%, with resorts up 4% and urban hotels up 0.7%. Excluding disruptions, Q4 same-property total RevPAR would have been ~3.7%. Resort occupancy for full year was 69.9%, urban 71.3%. Resort total revenues rose 1.2%, urban properties 3.1% full year.

• Expect industry hotel demand to revert to connection with economic growth, with GDP projected 2-2.5%, industry demand growth 1.75%-2.25%, RevPAR growth 1-3% in 2025. - Pebblebrook's LA properties impacted by wildfires with ~$12-$16M total revenue hit, $9-$12M rooms revenue hit, drag on full-year RevPAR. - Other markets well-positioned: San Francisco convention calendar up, DC受益于就职典礼和政府活动。 - 2025 total expense growth forecasted at midpoint 4.1%, adjusted for tax credits 3.1%. - Expect significant free cash flow this year and next due to lower near-term capital investment needs.

• Uncertainty around additional real estate tax credits in 2025, creating ~100 basis point headwind. - Potential negative economic impact from domestic policy announcements and threats. - LA wildfires caused significant group and transient cancellations, slow bookings, with $12-$16M total revenue hit. - Challenges in San Francisco, Los Angeles, and Portland markets impacting performance.

Q: Can you dig into your expectations for the outsized out-of-room spend growth in 2025 and just, you know, what your managers are seeing in discussions with groups on their anticipated spend? And then just differences that you'd expect generally for transient spend at your urban versus resort properties.

A: We expect out-of-room spend to increase at a rate greater than RevPAR growth. Managers see healthy out-of-room spend with clients spending more despite cautious booking. Transient spend at urban vs resort properties: details on different demand drivers and spending patterns.

Q: I wondered if we could zoom in a little bit on the DC market. Obviously, you have some assets there, but you're also in the market and have been in the market for a long time. We've just been getting more questions on government exposure, and of course, DC is only a part of that exposure potentially. Can you speak to just generally demand drivers around a change of administration and what the overall vibe is right now?

A: General mood in DC is high anxiety. Positive demand drivers include inauguration, active congressional schedule, return to office. Negative: government spending freezes may impact government meetings. DC hotel government demand is mid-single digits, but broader impact across markets due to government spending reductions.

Q: You mentioned in your comments that you anticipate no further material leisure rates deceleration in 2025. So I was just wondering if you can expand on that comment. What do you see that gives you more confidence on the leisure side? And is there any possibility for leisure rates to even be up by the end of the year?

A: Expectation of no further material leisure rates deceleration due to occupancy gains in resorts and positive booking trends. Confidence from on-the-books business and improved amenities. Possibility of leisure rates up in second half of year depending on market trends.

Q: Just on some of the expense cuts and efficiencies, is there maybe a dollar amount for 2024 that you think you achieved? And then could you provide us with some more sort of on-property examples of things you've done or plan to do in 2025?

A: No specific dollar amount, but continuous efficiency efforts. Examples include food and beverage efficiency, insurance cost reduction, predictive technologies for pipe breaks, remote/mobile check-in, utility consumption reduction, toilet efficiency improvements.

Q: Good morning, everyone. John, just first question for you. Just on some of the expense cuts and efficiencies, is there maybe a dollar amount for 2024 that you think you achieved? And then could you provide us with some more sort of on-property examples of things you've done or plan to do in 2025?

A: No specific dollar amount, but continuous efficiency efforts. Examples include food and beverage efficiency, insurance cost reduction, predictive technologies for pipe breaks, remote/mobile check-in, utility consumption reduction, toilet efficiency improvements.

Q: Thank you. Good morning. I'd like to ask about San Francisco. Certainly, there have been many developments in recent months, including changes to local leadership. Could you provide your latest views on the market beyond convention citywides? Perhaps if you can speak to what you're seeing in the streetscape, changes implemented by the new mayor or the board of supervisors, tourism promotional efforts, or other factors that are top of mind for you.

A: San Francisco is improving with better quality of life, business-friendly policies, positive office absorption, increased demand across segments. New mayor and board of supervisors have implemented business tax reduction, back-to-office mandates, and attracted conventions. Expect mid to high single digits RevPAR growth in 2025.

Q: Thanks, and good morning. Maybe just going back to the LA market. If you, you know, even before the wildfires, 2024 was a very challenging year, and I think EBITDA in 2024 is 55% below the 2016 peak. I guess I'm just curious, you know, what's your long-term view on that market? And just how comfortable are you with your overall exposure there?

A: Long-term view is positive on LA with its industry base, weather, amenities. Challenges include labor movement and policy transition, but big events and rebuilding efforts will drive recovery. Comfortable with overall exposure as LA has significant potential despite current challenges.

Q: Thank you. Good morning. I'd like to ask about San Francisco. Certainly, there have been many developments in recent months, including changes to local leadership. Could you provide your latest views on the market beyond convention citywides? Perhaps if you can speak to what you're seeing in the streetscape, changes implemented by the new mayor or the board of supervisors, tourism promotional efforts, or other factors that are top of mind for you.

A: San Francisco is improving with better quality of life, business-friendly policies, positive office absorption, increased demand across segments. New mayor and board of supervisors have implemented business tax reduction, back-to-office mandates, and attracted conventions. Expect mid to high single digits RevPAR growth in 2025.

Q: Hey. Thanks. Good morning. John, to the extent you're successful in closing any dispositions this year, how are you thinking about use of proceeds, especially with the convertible note maturity date approaching in the next couple of years? And then secondly, you know, is there a scenario here where maybe you look to sell assets in some of your stronger urban markets, potentially even some of your resort hotels? I'd imagine the liquidity profile there is, you know, much superior relative to some of your, you know, West Coast markets.

A: If successful in dispositions, would consider using proceeds for stock buybacks (trading at discount to NAV), selling assets within NAV ranges, and paying down debt related to EBITDA loss. Potential to sell assets in stronger urban markets or resorts due to better liquidity profile, but decision depends on market conditions.