Pebblebrook Hotel Trust (PEB +0.82%) checked in with its second-quarter results after the market closed on Thursday. The hotel REIT reported solid growth in adjusted funds from operations, or AFFO, as it cut expenses to offset weaker-than-expected growth in Same-Property Revenue Per Available Room, or RevPAR. The company expects both trends to continue for the balance of the year, which is why it adjusted its full-year outlook accordingly.
Checking in on the numbers
Pebblebrook reported Same-Property RevPAR of $217.23, which was only up 3.8% from last year's second quarter. That growth rate was below the company's projected range of 4%-6% growth that it projected last quarter.
The company more than made up for any weakness by keeping its expenses in check, as Same-Property Hotel expenses slipped by 0.3%. As a result, Same-Property EBITDA grew 10.6%, to $77.8 million, which was above the high-end of its guidance range of $75 million-$77 million. Meanwhile, Same-Property EBITDA Margin was 36%, which was also ahead of its guidance range of 34.7%-35.2%.
This translated into better-than-expected AFFO, which was $52 million for the quarter, and again above the guidance range of $47.8 million-$49.8 million. That equated to AFFO of $0.72 per share, which, unsurprisingly, was above its guidance range of $0.66-$0.69 per share. Overall, AFFO per share is up a robust 28.6% year over year.
Checking in on the outlook
One of the big drivers of Pebblebrook's AFFO growth is acquisitions, and during the quarter, the company made two additions to its portfolio. The company acquired a waterfront, luxury resort and club in Florida for $185.5 million, and an upper-upscale hotel in California for $122 million. Both should provide incremental gains in the future while the company also plans to invest an additional $13 million-$15 million in the hotel starting late next year in a complete renovation to reposition the hotel, and drive revenue and margin growth.
As a result of these transactions and the weaker-than-expected Same-Property RevPAR growth the company experienced in the quarter, it's making some minor adjustments to its guidance. Pebblebrook is actually ratcheting down its full-year guidance for Same-Property RevPAR by 2%; however, the company still expects growth of 4.5%-5.5% for the full year.
The company doesn't expect that to have any impact on full-year AFFO, as it anticipates a slight improvement in Same-Property EBITDA Margin to make up the difference. As a result, the company is reiterating its full-year AFFO guidance at $179.6 million-$185.1 million, or $2.47-$2.55 per share. Of course, this guidance assumes that the company doesn't acquire any additional hotels this year.
Investor takeaway
Despite a bit slower growth in revenue per available room, Pebblebrook Hotel Trust turned in a solid quarter. The company was able to make up for any revenue weakness by cutting its expenses, resulting in much stronger-than-expected AFFO. Looking ahead, the company remains very positive, as it sees favorable growth trends driving a solid second half of the year.
