Pebblebrook Hotel Trust (PEB 4.86%) closed the sale of another hotel during the quarter bringing its total to nine hotels since beginning its strategic disposition plan. However, with fewer hotels generating revenue, it's causing the company's financial results to decline, which was the case again during the second quarter.
Pebblebrook results: The raw numbers
|
Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Same-property RevPAR |
$218.19 |
$223.63 |
-2.4% |
|
Adjusted FFO |
$52.1 million |
$58.9 million |
-11.5% |
|
AFFO per share |
$0.75 |
$0.81 |
-7.4% |
Data source: Pebblebrook Hotel Trust; RevPAR: revenue per available room; AFFO: adjusted funds from operations.
Image source: Getty Images.
What happened with Pebblebrook this quarter?
Pebblebrook's results continue to fall along with its property count:
- While Same-Property Revenue per Available Room (RevPAR) slipped from the year-ago quarter, that was due to an anticipated weakness in San Francisco after the city's largest convention center closed for renovations. Further, Same-Property RevPAR was in the middle of the company's $216 to $220 guidance range, and if it weren't for the weakness in San Fransisco, it would have been up 2% versus last year.
- Those weaker room rates, when combined with the income loss from the hotels it sold over the past year drove the decline in AFFO. That said, it was above the high end of its $45.7 million to $48.8 million guidance range thanks to solid demand across many of its markets as well as higher-than-expected non-room revenue and lower expenses.
- Those same factors helped pushed AFFO per share above the company's $0.65 to $0.70 guidance range. Another factor boosting the per share results was the company's stock repurchase plan. During the quarter, the company bought back 1.1 million shares at an average price of $29.80 per share, pushing its year-to-date total to 3.2 million shares for $93.3 million. Meanwhile, the company's board authorized an additional $100 million for the repurchase program, giving it $156.7 million left to spend.
- One of the reasons the board increased the repurchase authorization is due to the close of the sale of Dumont NYC for $118 million during the quarter as well as a parking garage at its Revere Hotel Boston Common for $95 million. That brought its total sales up to $676.8 million, which is in the middle of its $500 million to $1 billion disposition goal. Given the current discount between its stock price and what hotel assets fetch in the private market, the company plans to continue opportunistically selling assets and take advantage of that disconnect.
What management had to say
CEO Jon Bortz, commented on the company's second-quarter results, saying that:
During the second quarter, our hotels generated better than expected revenues, primarily non-room revenues, and lower than forecasted expenses in order to deliver better than expected Same-Property EBITDA, Adjusted EBITDA, Adjusted FFO and Adjusted FFO per diluted share. We achieved these results with in-line room revenues despite greater than expected disruption from the redevelopment of Hotel Zoe San Francisco. Overall, our hotels in Seattle, Boston, Washington, D.C. and San Diego experienced solid demand growth during the second quarter, which helped to partly offset the anticipated softness in San Francisco caused by the Moscone Center building closures. Although many leading economic indicators remain positive, business travel demand remained soft in the quarter as companies continue to exercise restraint with discretionary spending such as travel. As a result, we will remain cautious in our outlook for the remainder of 2017 until we are positively impacted by a reacceleration in business investment and spending.
As Bortz notes, the company's hotels are performing well despite several headwinds. However, it remains concerned with softer business travel spending, which will likely mute demand for hotel rooms in the coming quarters.
Looking forward
That said, despite those weaker business travel trends, the company is boosting its full-year guidance. Pebblebrook now sees AFFO coming in between $171.7 million to $177.7 million, which is up from its prior range of $167.2 million to $176.5 million. Meanwhile, it sees AFFO per share between $2.45 to $2.53, which is an improvement from its previous range of $2.37 to $2.50 per share, due in part to the expectation of a lower share count thanks to its repurchase program.
