Pebblebrook Hotel Trust Q3 FY2026 earnings call

• Strong Q3 Performance: Results exceeded the high end of outlooks for three consecutive quarters. Same property hotel EBITDA rose 15.1% to $115.2 million, and Adjusted EBITDA was $107.9 million.
• Revenue Drivers: Growth was driven by ADR increases rather than just occupancy. Transient ADR grew 8.5%, and corporate transient ADR grew 9.4%. Out-of-room spending also strengthened.
• Resort Success: Strategic redevelopment investments are paying off. Newport Harbor Island saw RevPAR grow >14% and EBITDA rise 19%. Other resorts like Del Mar, Paradise Point, and Estancia La Jolla also improved profitability.
• Urban Recovery: San Francisco is leading urban recovery with EBITDA on pace for 65% growth in 2026. Boston and Los Angeles also showed significant gains. San Diego’s downtown weakness is attributed to convention timing, not market fundamentals.
• Profitability & Costs: Hotel EBITDA margins expanded 205 basis points to 28.8%. Operating teams converted 58% of revenue growth into EBITDA. Fixed cost savings included ~$1M lower property taxes and $1.6M lower insurance costs.
• Capital Allocation: Free cash flow increased 24% to $55.6 million. The company sold Hotel Zags for $10 million (eliminating negative EBITDA) and recorded $77.3 million in non-cash impairment charges. Net debt/EBITDA fell to 5.1x. Share repurchases continued, including preferred shares at a discount.
• Balance Sheet Strength: Ended September with $298 million in cash/restricted cash, $641 million revolver availability, and no debt maturities until 2028.
• Long-term Fundamentals: Management cites constrained new supply, AI/reshoring-driven business investment, and wealth transfer from baby boomers as multi-year tailwinds. They believe we are at the beginning of a strong up-cycle where rate growth will outpace inflation.

The company reports broad-based financial strength across its portfolio, with Same Property RevPAR growing 8.3% (7% ADR increase, >1% occupancy growth). Resorts performed exceptionally well with an 8.4% RevPAR increase and EBITDA margins expanding 250 basis points to 32.6%, contributing $8.2 million of the total EBITDA growth. Urban markets grew RevPAR by 8.3%, generating nearly $7 million in incremental EBITDA, driven primarily by San Francisco (+14.5% RevPAR), Boston (+10.6% RevPAR), and Los Angeles (+10.7% RevPAR). In contrast, Downtown San Diego declined 4.5% in RevPAR due to a soft convention calendar, while the city's resorts remained strong with a 14% RevPAR increase. Overall, same property hotel EBITDA increased 15.1% to $115.2 million, and adjusted FFO per diluted share reached $0.63.

• Q4 2026 Outlook: Same property RevPAR growth of 4% to 6%; Same property hotel EBITDA of $73–$77 million; Adjusted EBITDA of $66–$70 million; Adjusted FFO per share of $0.26–$0.30.
• Full Year 2026 Revision: Upward revision. Same property RevPAR growth forecast raised to 7.6%–8.0% (midpoint +280 bps). Same property hotel EBITDA growth forecast raised to 12.9%–14.1% (midpoint +420 bps). Adjusted FFO per share now $1.88–$1.92 (midpoint +$0.17).
• Capital Expenditures: Full-year capital investment outlook lowered by $5 million to a range of $60–$70 million, primarily due to timing.

• Geopolitical & Policy Risks: Potential negative impacts from the Middle East conflict, trade policy changes, geopolitical instability, rising interest rates, and potential government shutdowns.
• Market Specific Weaknesses: Downtown San Diego faced headwinds from a soft convention calendar, though expected to rebound in 2027.
• Operational Disruptions: While labor availability is currently stable, management monitors wage pressures (running ~4%) and turnover. Online fraud remains a concern being addressed via FTC collaboration.
• Impairment Charges: Non-cash impairment charges were recorded related to Hotel Zags and other properties, reflecting ongoing portfolio optimization and valuation adjustments.

Q: Dwayne Fenningworth asked if improved performance would accelerate reinvestment pacing in deferred projects or solar initiatives. / A: Jon Bortz confirmed that small-to-medium projects, such as expanding glamping units at Skamania or accelerating solar installations, may move up on the priority list. He noted that major redevelopments are complete, but shareholders prefer value creation through these targeted investments or buybacks over large-scale asset redevelopment at this stage.

Q: Connor (Wells Fargo) questioned the rationale behind the Q4 RevPAR guidance deceleration (4-6%) given strong October trends. / A: Jon Bortz explained that October benefited from DreamWorks moving from Sept to Oct last year, making comps harder. Additionally, Nov/Dec have fewer 'compression days' as occupancies drop 10-12 points, reducing pricing leverage. Ray Martz added that seasonality shifts business travel down in favor of leisure, which typically offers less pricing power.

Q: Rich Hightower asked about the timing of portfolio acquisitions given trading below NAV and capital availability. / A: Jon Bortz stated capital allocation is opportunistic, focused on increasing cash flow per share rather than mere growth. If acquisition risk-return profiles exceed internal hurdles, they will pivot to buying assets. Otherwise, they continue pruning underperforming assets. Ray Martz noted no immediate need to increase dividends for tax purposes due to NOLs, allowing flexibility for buybacks or acquisitions.

Q: Ari Klein asked about the strategy shift toward pricing power and reduced discounting. / A: Jon Bortz described it as a confidence-driven shift. As demand outpaced supply, hotels stopped discounting and pushed corporate accounts into higher categories. Leisure customers also began booking suites earlier. This learning curve has accelerated pricing confidence. Ray Martz highlighted that compression nights are up 12% YTD, particularly benefiting their urban business-transient-focused portfolio.

Q: Chris Darling asked about transaction market trends, buyer types, and debt liquidity. / A: Tom Fisher noted the market is constructive with more bidders, including HNWIs, family offices, and PE groups. There is a trend toward 'pro forma' deals requiring capital injection. Debt liquidity remains high, but lenders are competitive. Investors are comfortable with growth prospects outweighing elevated financing costs, leading to some spread compression for quality deals.