Despite Softening Conditions, Pebblebrook Hotel Trust Delivers High-End Results

The slowdown in the global economy led to noticeably softer operating conditions for the U.S. hotel industry. While those conditions did have some impact on Pebblebrook Hotel Trust's (PEB +1.38%) fourth-quarter results, which were announced on Monday after the market closed, the company was able to overcome much of this weakness to deliver financial results that were at the high-end of its own guidance range.

Pebblebrook results: The raw numbers

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

What happened with Pebblebrook this quarter?
Several of Pebblebrook's key financial metrics were above its guidance range.

• Same-Property RevPAR increased just 1.7% year over year in the fourth quarter, which was below the company's guidance range of $198.50 to $202.50. Further, the company also delivered below-guidance results for Same-Property EBITDA and Same-Property EBITDA Margin. We can blame this on softening travel trends due to global economic weakness. 
• However, Adjusted FFO not only jumped 37.1%, but it was at the high-end of the company's guidance range of $42.7 million to $44.7 million. Meanwhile, AFFO per share was above the high-end of the guidance range of $0.59 to $0.62 per share. This was because Pebblebrook checked its expenses at the door, with Same-Property Hotel Expenses growing by a slower rate than Same-Property Hotel Revenue.

What management had to say
CEO Jon Bortz , discussing the company's fourth-quarter results, said:

Despite a softer environment in the fourth quarter due to global economic challenges, the U.S. hotel industry finished the year at its highest occupancy ever, as demand continued to outpace supply. For Pebblebrook, despite also experiencing a weaker fourth quarter, we still managed to grow Same-Property EBITDA in 2015 by 8.3 percent, Adjusted EBITDA by 31.5 percent, and Adjusted FFO per share by 27.6 percent; and we increased our common dividend by 34.8 percent.

Pebblebrook did a really solid job overcoming softer demand by keeping a lid on costs, which enabled the company to deliver profitability that was at or above its guidance range. Bortz noted that this was accomplished by "working collaboratively with our hotel teams" to "make strides implementing our best practices and other operating initiatives, as well as adjusting revenue management strategies and tactics to mitigate the softer demand trends." These collaborative efforts clearly paid off.

Looking forward
In commenting on what to expect in 2016, Bortz said that:

We believe 2016 will be another solid year for the overall hotel industry and Pebblebrook, despite the amplified challenges to the U.S. economic recovery from global economic weaknesses and geopolitical challenges... We're forecasting Same-Property RevPAR to increase 2% to 4% and Same-Property Room Revenue to increase 2.7% to 4.7%...

While global economic challenges will continue to pressure Pebblebrook and the hotel industry in 2016, it will continue to deliver solid growth. In fact, the company expects to see a 6.8% to 13.6% increase in adjusted FFO in 2016, pushing it up to a range of $194.3 million to $206.3 million, or $2.67 to $2.84 per share. Further, Pebblebrook announced that it intends to increase its dividend by 22.6% in 2016. That's all assuming no additional acquisitions in the year ahead. 

In fact, the company is actually planning to trim its hotel portfolio a bit in 2016, and has retained an advisor to market the sale of its 49% joint venture interest in the Manhattan Collection, as well as to market several additional hotel properties. The company is pursuing these sales because it sees a big disconnect between public and private market values for hotel properties, which is something it wants to take advantage of. In other evidence of that disconnect, the company has authorized a $150 million share repurchase program; however, it only intends to repurchase stock if it sells hotel properties.