Hotel W Los Angeles – West Beverly Hills. Image source: Pebblebrook Hotel Trust.
While demand for hotel rooms remains soft, Pebblebrook Hotel Trust's (PEB +1.05%) second-quarter results were still above its guidance range. Driving this high-end result were the company's West Coast markets, especially at its recently renovated hotels. That said, it remains cautious for the full year due to softening travel trends.
Pebblebrook results: The raw numbers
|
Metric |
Q2 2016 Actuals |
Q2 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Same-Property Rev-PAR |
$223.96 |
$218.51 |
2.5% |
|
Adjusted FFO |
$58.9 million |
$52.0 million |
13.3% |
|
AFFO per share |
$0.81 |
$0.72 |
12.5% |
Data source: Pebblebrook Hotel Trust; RevPAR: revenue per available room; AFFO: adjusted funds from operations; YOY = year over year.
What happened with Pebblebrook this quarter?
Pebblebrook's key financial metrics were above its recently revised guidance range.
- In early June, Pebblebrook closed the sale of the Viceroy Miami, The Redbury Hotel, and a land parcel at Revere Hotel Boston Common as well as a $125 million preferred share offering. As a result of these transactions, and the company's operating performance at that point in the quarter, Pebblebrook revised its second-quarter and full-year guidance lower.
- That said, the company's second-quarter results came in well above not only this adjusted guidance, but several metrics even bested the initial guidance it offered at the end of April. Adjusted FFO, for example, was above the high end of its $53.5 million to $57 million range given in April and the $52.7 million to $55.2 million range provided last month. AFFO per share likewise came in above the top end of both guidance ranges. Meanwhile, same-property rev-PAR came in just above its June revision of $221 to $223.
- Driving these results were the company's hotels in Portland and Los Angeles, led by the recently renovated Hotel Vintage Portland and the W Los Angeles -- West Beverly Hills.
- On the downside, while same-property revenues increased by 2.6% same-property expenses rose by 3% compressing margins.
What management had to say
As CEO Jon Bortz said about second-quarter results:
During the quarter, our properties on the west coast led our portfolio with RevPAR growth of 6%, driven by healthy rate improvement of 4.3%year-over-year. Same-Property RevPAR for our portfolio increased 2.5%, slightly below the industry's 3.5% growth and above our 1% to 2.25% outlook. Our recently renovated hotels continued to demonstrate solid performance in the quarter by driving increased occupancy levels, rates and market share penetration. Overall, second quarter performance was negatively impacted by our New York and Boston hotels, with both markets suffering from new supply.
To put it another way, the company's strong second-quarter showing boils down to its ability to earn immediate dividends on the capital it invested to reposition its hotels.
In addition to its strong operating performance, Bortznoted that the company "was very successful with our property sales in the second quarter." Overall, it raised more than $100 million on the three transactions as it captured "the significant gap between the value attributed to our portfolio by the public market and the private market values for our hotels," according to him.
Pebblebrook was not the only hotel REIT to take advantage of that disconnect. LaSalle Hotel Properties (LHO +0.00%), for example, sold a non-core hotel in Indianapolis at "very compelling valuation metrics for a noncore market with one of the lowest average RevPARs in our portfolio," according to CEO Mike Barnello. Furthermore, LaSalle Hotel Properties was also able to sell a mezzanine loan at par despite the current weakness in the mezzanine loan market. Because of the high demand for hotel assets, both LaSalle Hotel Properties and Pebblebrook remain far more interested in additional asset sales than acquisitions.
Looking forward
While the market for hotels is hot right now, demand for hotel rooms remains a bit muted. That is weighing on Pebblebrook's outlook, causing it to be somewhat more cautious in its guidance for the full year. Compared to its most recent guidance, the company now sees adjusted FFO between $191.5 million to $198.5 million, which is $2.5 million lower on the top end, while AFFO per share is expected to range between $2.63 and $2.73 or about $0.03 per share lower on the top end.
