Company executives at Pebblebrook Hotel Trust report that corporate group and transient business has returned, and they’re hoping it’s here to stay.
BETHESDA, Maryland—Pebblebrook Hotel Trust’s first-quarter performance was better than expected, and company executives believe that’s because business travel is finally returning.
Speaking during the company’s recent first-quarter earnings call, Chairman, President and CEO Jon Bortz said the year has started out well for the hotel industry in general and Pebblebrook specifically. There are finally signs of improving business travel, he said, and since the company’s last call in February, the early indications have broadened out to most of the company’s markets and properties.
“Given that continuing strength of the economy, the passage of the new federal tax bill and significant projected increases for corporate profits in 2018, it shouldn't come as a surprise that corporate travel is improving,” he said. “It's only a surprise because everyone would have expected it to have happened much sooner.”
- Pebblebrook’s CEO also talked about the company’s proposal to merge with LaSalle Hotel Properties.
There has been a pickup in corporate transient business on a short-term basis for in-the-week, for-the-week or in-the-month, for-the-month bookings, Bortz said. That’s something the company hasn’t seen for a few years, he said.
The company was down more than 10,000 group rooms at the end of January, he said, but by the end of the quarter, the company finished down by only 4,000 rooms. There are also more groups booking further out, he said, but still in-the-year, for-the-year.
“Our group pace for the year improved meaningfully from the end of January when we last reported to the end of March,” he said.
In that same two-month period, the company went from being down 12,000 group rooms for the year to being up almost 3,000 room nights, which equates to going from down $1.6 million to up $2.5 million. Most of this short-term business comes from corporate clients, he said.
Attendance also has improved for both in-house and convention-related groups, Bortz said, noting attrition has decreased, and there are fewer no-shows.
“It seems that businesses are sending more people to their meetings and allowing more of their employees to go to conventions and conferences,” he said.
Pebblebrook has heard directly or through its operators that business travelers are seeing their company’s travel restrictions lessen or, in some cases, disappear completely, he said.
“Perhaps not a solid trend just yet, but if we see them continue through the heavy business travel months of this quarter, then I suspect we then feel comfortable going on the record that they represent real trends,” he said.
Group spend per group customer has increased compared to last year, he said. Groups are either improving the quality of their meals or breaks, he said, or they are adding additional meals, breaks and cocktail hours.
Industry data corroborates what Pebblebrook has seen in business travel trends, Bortz said. To gauge business travel, his company focuses on midweek data, he said. The data shows weekday occupancies have risen strongly every month in 2018, while weekend occupancies are roughly flat, he said.
“This suggests that business demand has accelerated from last year when weekend demand growth outpaced weekday demand growth,” he said. “We believe leisure demand growth has remained healthy.”
Pebblebrook’s best performing hotels in the first quarter were the hotels that were under renovation in Q1 2017, EVP and CFO Raymond Martz said. That includes the Hotel Zoe Fisherman’s Wharf, the Revere Hotel Boston Common and the Hotel Palomar Los Angeles Beverly Hills.
During the first quarter, earnings before interest, taxes, depreciation and amortization for the three hotels grew by $2.5 million, Bortz said. In the previous quarter, the company predicted EBITDA for these three hotels would grow by $5.2 million, but that has been revised now to $6.5 million.
The four properties that underwent renovation in 2016 gained more than $7 million in 2017. This year, those hotels are expected to add another $1 million as they head to more than $10 million of additional EBITDA stabilization following the company’s investment of $78 million in their redevelopments, Bortz said.
The Grand Hotel in Minneapolis also had a strong quarter, mainly due to the Super Bowl in February and the hotel’s strategy to pre-sell the entire hotel to one event promoter for four days at a high rate, Martz said. Similarly, Sofitel Philadelphia also benefitted as the Eagles made their way to the Super Bowl, but the market also saw an increase in group and transient business travel, he said.
The Hotel Madera Portland and the Embassy Suites San Diego Bay Downtown both underperformed because of renovation work during the quarter, he said.
The Hotel Monaco Washington D.C. faced a challenging comparison to Q1 2017 because of last year’s presidential inauguration and Women’s March, Martz said.
As of press time, Pebblebrook’s stock was trading at $35.03 per share, down 8% year to date. The Baird/STR Hotel Stock Index was down 2% for the same period.