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Despite the Impact of Asset Sales, Pebblebrook Hotel Trust Delivers High-End Results

By Matthew DiLallo - Feb 23, 2018 at 9:00AM

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In spite of reasons for optimism, the hotel REIT provided a somewhat tepid view of 2018.

Pebblebrook Hotel Trust (PEB 1.45%) continues to be the tale of two companies. It's not the company it was in 2016 because it sold off some more properties, which caused its year-over-year results to decline. That said, however, those it retained performed better than expected in the fourth quarter.

Pebblebrook results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Same-property RevPAR

$188.54

$188.78

(0.1%)

Same-property EBITDA

$53.8 million

$53.6 million

0.4%

Adjusted FFO

$33.8 million

$41.5 million

(18.6%)

AFFO per share

$0.49

$0.57

(14%)

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

The facade of a hotel bathed in yellow light.

Image source: Getty Images.

What happened with Pebblebrook this quarter?

The drop in the property count continues to impact comparable results:

  • While Pebblebrook's AFFO fell versus the year-ago period, that's almost entirely because it sold two more properties for $213 million during the year, bringing its two-year total to $676.8 million. 
  • That masked the solid performance of the company's retained portfolio. One evidence of this is that the quarterly results came in well above its guidance range for AFFO of $27.2 million-$30.2 million and $0.39-$0.43 per share. 
  • That high-end result pushed full-year AFFO to $2.57 per share. While that was 7.6% below 2016's level, it was above its guidance range of $2.48 to $2.52 per share.
  • Driving the above-guidance performance was stronger-than-expected same-property performance. While RevPAR nudged lower, same-property EBITDA was well ahead of the forecast of $49.8 million to $52.8 million due to higher-end margins.

What management had to say

CEO Jon Bortz commented on the company's results, saying:

We are pleased with our 2017 performance and the continued operating improvements we made throughout the portfolio. We exceeded our outlook for Same-Property EBITDA, Adjusted EBITDA and Adjusted FFO per diluted share for the fourth quarter and the year.

Last year had its share of challenges. Not only did Pebblebrook sell two properties, which impacted comparable results, but it had to overcome redevelopment disruptions at its hotels as well as from a major convention center in San Francisco, which attracts travelers to the company's properties in the region. On top of that, Hurricane Irma forced the temporary closure of its beach resort in Naples, Florida, which didn't reopen until January of this year. However, Pebblebrook outperformed its expectations despite those obstacles.

Looking forward

Pebblebrook gave somewhat mixed guidance for 2018. Bortz noted that "the hotel industry is entering 2018 with an improved economic outlook and more optimism than in 2017." Furthermore, the CEO said:

As we look ahead to 2018, we are incrementally more optimistic about the economy, which should result in increased travel and hotel demand. However, businesses remain cautious, and while we've seen some spotty evidence of progress, we've not yet experienced any material improvement in corporate travel trends. Leisure demand growth remains robust despite declines in international inbound travel, and we expect these trends to continue throughout 2018.

The company's guidance reflects that outlook, with Pebblebrook anticipating that AFFO should be between $2.46 to $2.61 per share, which would just be 1.6% higher than last year at the upper end of that range. 

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Pebblebrook Hotel Trust
PEB
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