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Pebblebrook Hotel Trust Overcomes Irma to Deliver a Decent Quarter

By Matthew DiLallo – Oct 24, 2017 at 11:00AM

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The hotel REIT's financial results were above its guidance range despite having to temporarily shut down its resort in Naples.

Pebblebrook Hotel Trust's (PEB 0.44%) third-quarter results came in well ahead of expectations after guests flocked to its recently redeveloped hotels. That said, profitability did decline from the year-ago quarter because the company sold several hotels over the past year. Furthermore, Hurricane Irma forced the closure of the LaPlaya Beach Resort & Club in early September, and it will remain closed until repairs wrap up next month. That said, despite the lost income from that resort, Pebblebrook expects full-year results to be within its guidance range.

Pebblebrook results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Same-property RevPAR

$229.68

$237.15

(3.1%)

AFFO

$55.8 million

$60.9 million

(12.8%)

AFFO per share

$0.80

$0.84

(4.8%)

Data source: Pebblebrook Hotel Trust. RevPAR = revenue per available room. AFFO = adjusted funds from operations.

What happened with Pebblebrook this quarter?

The hotel disposition program continues to impact results:

  • Same-property RevPAR fell due to a decrease in international travel to the U.S. as well as the impact from the renovation of San Francisco's largest convention center. That said, same-property RevPAR still came in above the high end of the company's $223 to $228 guidance range thanks to strong performance at the recently redeveloped Union Station Hotel Nashville and Hotel Zeppelin San Francisco.
  • The decline in RevPAR along with the lost income from several recent hotel sales contributed to the drop in adjust funds from operations. That said, AFFO was well above the high end of Pebblebrook's $48.7 million to $51.7 million guidance range thanks to solid business and leisure travel trends in the U.S.
  • Likewise, AFFO per share was higher than the company's guidance range of $0.70 to $0.74 per share. It's also worth noting that AFFO per share didn't decline as steeply because of the company's share repurchase plan. Pebblebrook bought back 3,800 shares during the quarter, bringing its year-to-date total to 3.2 million. The company still has $156.6 million left on its current share repurchase authorization.
  • The REIT closed the LaPlaya Beach Resort & Club on Sept. 9 due to the impending arrival of Hurricane Irma. Unfortunately, the resort suffered wind- and water-related damage in the range of $12 million to $15 million and remains closed for repairs. Pebblebrook expects insurance to cover all but $2.8 million of those costs and that the hotel should reopen in mid- to late November. That said, the hotel's closure shaved $0.1 million from EBITDA in the third quarter and will further impact the bottom line by $5 million in the current quarter, though the REIT does have business service interruption insurance with a $1.1 million deductible, which should help offset the lost earnings.
The interior of a classic style luxury hotel room.

Image source: Getty Images.

What management had to say

CEO Jon Bortz commented on the company's third-quarter results:

During the third quarter, our hotels performed better than our overall expectations, even with the negative impact from several natural disasters that occurred during the quarter, as Same-Property EBITDA, Adjusted EBITDA and Adjusted FFO exceeded our outlook. Our recently redeveloped hotels including Union Station Hotel Nashville and Hotel Zeppelin San Francisco led the portfolio in the third quarter, as these hotels continue to ramp up their performance following their recent transformations. In addition, overall macro-economic factors remain encouraging and would seem to indicate improvements in the economy and travel demand ahead in 2018. 

Pebblebrook overcame several headwinds during the quarter (both figurative and literal). One of the bright spots was in San Francisco, where the company's hotels performed better than anticipated despite the continued renovation and expansion of the Moscone Convention Center, which is a major driver of hotel stays in the area. Meanwhile, another positive has been the growth in its non-room revenue, which includes food and beverage. The hotel REIT expects these income streams to continue growing, because one of its focuses has been to redevelop many of the restaurants and bars at its hotels.

Looking forward

Pebblebrook is once again tweaking its full-year guidance thanks to better-than-expected quarterly results. The hotel owner now sees AFFO coming in between $173.8 million and $176.8 million, which is slightly higher than the midpoint of its previous guidance range of $171.7 million to $177.7 million. Meanwhile, the company anticipates that AFFO per share will be in the range of $2.48 to $2.52, which is also a bit higher at the midpoint than its prior guidance range of $2.45 to $2.53 per share.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Pebblebrook Hotel Trust. The Motley Fool has a disclosure policy.

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