Please ensure Javascript is enabled for purposes of website accessibility

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

By Matthew DiLallo - Feb 23, 2016 at 8:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The upper-upscale Hotel REIT unveils its 2016 guidance.

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 5.13%) 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

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Same-Property Rev-PAR

$197.13

$193.81

1.7%

Adjusted FFO

$44.7 million

$32.6 million

37.1%

AFFO Per Share

$0.62

$0.46

34.8%

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pebblebrook Hotel Trust Stock Quote
Pebblebrook Hotel Trust
PEB
$17.61 (5.13%) $0.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.