Pebblebrook Hotel Trust Q2 FY2025 earnings call

• Key trend: Continued shortening of booking window for leisure travel putting near-term pressure on leisure rates. Teams adapted to capture demand. Strong hotel EBITDA results, with contributions from Newport Harbor Island Resort and LaPlaya insurance proceeds.
• Market performance: San Francisco, Portland, and redeveloped properties led the recovery. Group and business travel recovered, while leisure demand grew but faced price competition. Expenses were controlled, with same-property total expenses up 1.7% year-over-year and per occupied room expenses declining. Piloting AI-enabled operating tools for efficiency.
• LaPlaya: Fully restored and operational, with full year business interruption income forecast raised to $11.5 million. Property insurance renewal reduced premium by roughly 10%. Capital investment of $21 million during the quarter, on track to invest $65 million to $75 million for the year. Balance sheet in great shape with $267 million cash on hand and over $640 million availability on the unsecured revolver.

Same-property hotel EBITDA totaled $115.8 million for the quarter, $1.8 million ahead of the midpoint. Excluding Los Angeles, same-property hotel EBITDA increased by $2.5 million over the prior year quarter and was up $2.3 million year-to-date. Adjusted EBITDA was $117 million, $6.5 million above the midpoint, and adjusted FFO came in at $0.65 per share, $0.06 ahead of the midpoint. Same-property total RevPAR grew by 1.3% year-over-year, led by a 1.7% increase in the urban portfolio and a 0.6% gain at the resorts. Excluding Los Angeles, same-property total RevPAR rose 2.7%, with the urban portfolio increasing by 4.1%. Newport Harbor Island Resort outperformed expectations, generating $5.1 million of EBITDA in Q2, $1.8 million above forecast, and LaPlaya received $3.2 million of business interruption income, $1.5 million above the outlook.

• Macro outlook: Cautious due to tariff policy and government spending uncertainty. Q3 same-property RevPAR expected to decline 1%-4%, total RevPAR 0.5%-3.2%. Q4 expected better than Q3 with group pace flat and no increase in group cancellations. Full year midpoint reflects the most likely outcome. 2026 outlook positive if economic uncertainty fades, with strong group and total revenue pace.

• Macroeconomic uncertainty impacting demand and rates. Los Angeles facing unique market headwinds. Shortening booking window leading to price competition. Potential group cancellations and attrition. Weather-related issues in Florida affecting performance.

Q: Smedes Rose asked about the contrast between Pebblebrook's LA RevPAR and STR data.

A: The higher end markets in LA were impacted, and media attention around ICE activity and military response created a misperception of safety in the market.

Q: Duane Pfennigwerth inquired about LA recovery trajectory and SF growth.

A: LA recovery is expected to improve, and SF has strong Q4 prospects with a favorable convention calendar.

Q: Aryeh Klein questioned expense growth sustainability and efficiency enhancements.

A: Efficiency programs are significant and can offset wage and benefit increases, with early stages of many initiatives.

Q: Gregory Miller asked about AI opportunities in hotels.

A: More complex properties offer bigger AI opportunities, and independents are quicker to adapt to AI tools.

Q: Cooper Clark asked about wage pressure and CapEx.

A: Active in influencing legislation in LA and SD, with uncertainty around Paradise Point conversion timing.

Q: Daniel Hogan asked about leisure pricing.

A: More discounting and promotions, with booking through different channels due to shorter booking windows.

Q: Ken Billingsley inquired about Paradise Point and 2026 risks.

A: Monitoring group cancellations and booking pace as key factors impacting the outlook.

Q: Chris Darling asked about Paradise Point lease and transaction market.

A: Flexibility in ground lease, and shifting sentiment in the transaction market with renewed investor interest.