While March was a softer month for the first quarter, Pebblebrook executives are positive about the rest of the year, and are expecting strong performance in May and June.
BETHESDA, Maryland—Pebblebrook Hotel Trust saw a softer March, like much of the industry, but executives on the company’s first-quarter earnings call said their outlook for the year remains positive.
Raymond Martz, EVP and CFO of Pebblebrook, said factors such as lower-than-expected income tax refunds (and the impact on consumer spending as a result), the Easter holiday shift, extended spring breaks into April and travel cancellations around the winter storm contributed to a weaker March.
Leisure was soft throughout the quarter and business remained strong, he said. April is expected to be the weakest month due to the holiday shift, but May and June are expected to be strong. Martz said group revenue is ahead by 1.8%, transient is ahead by 3.5% and total revenue is ahead by 2.6%.
“The softness we saw, which was weaker bookings in March, primarily was pretty limited to March,” he said.
San Francisco was the best-performing market in the quarter, with hotels generating a 23.7% increase in revenue per available room, Martz said, adding that the strong performance in the market was expected.
“This (23.7% RevPAR increase) was above the San Francisco urban RevPAR gain of 17.8%,” he said. “This growth was fueled by the 130% increase in convention center attendees in the quarter versus the prior year, as well as continued strong corporate and leisure demand in the market, which created many compression nights for our hotels throughout the quarter.”
Pebblebrook also saw strong performance in Key West and Naples, Florida, during the quarter. Southern Florida markets “grew RevPAR by 7.1%,” he said, which he attributed to “the resurgence in leisure travelers returning to South Florida following the declines that we saw after Hurricane Irma in September 2017. We expect this favorable trend to continue throughout 2019.”
Onyx hotel sale
Boston was another strong market for the company, and also a market where Pebblebrook “executed a contract to sell the 112-room Onyx Hotel,” according to an earnings release, for $58.3 million to a third party.
Jon Bortz, chairman, president and CEO of Pebblebrook, said if the sale is completed, the company would have sold $1.16 billion of gross sales proceeds since the start of its strategic disposition plan on 30 November 2018.
In terms of people integration since the company’s merger with LaSalle, he said, “as stated last quarter, we’re complete.”
“We believe it’s gone extremely well, and we believe this year’s outlook reflects the $18 million-plus of annualized savings in the G&A of the two companies,” he said. “We believe we successfully achieved what we estimated and promised related to corporate synergies, and that risk is off the table.”
On a weighted average basis, Pebblebrook expects to see around 3% supply growth this year and next year and “a more meaningful drop down into the low (2%) for 2021,” Bortz said.
“I think for the most part what we’re seeing—keep in mind we are primarily in major urban markets—what we’re seeing is that with the rise in the development costs without an equivalent rise in operating performance, the development yields have come way down, which means for someone to develop, they either need a lower cost of capital or they need more equity capital or both, and what we’re finding is, for developers, it’s taking a lot longer to find the capital stack if they want to proceed, and if they can convince their capital to proceed at these lower return levels,” he said, adding that this has led to a decline in construction starts on hotels compared to deliveries.
Thoughts on Marriott-Expedia deal
Marriott International recently signed a new multiyear agreement with Expedia Group that “continues Marriott’s long-standing distribution arrangement with Expedia Group for transient bookings, expands Expedia Group’s role related to Vacations by Marriott, the company’s leisure packaging platform, and leverages Expedia Group’s technology capabilities for an innovative distribution arrangement beyond transient retail bookings expected to launch in the fourth quarter,” a Marriott spokesperson told HNN on 11 April.
Bortz told analysts that “Marriott has shared the detail of Expedia contract with the ownership community.”
“I would say they did a very good job; they’ve improved flexibility and terms and there’s a slight improvement in the cost,” he said, adding that he didn’t think it would be “appropriate to share anything” beyond that about the contract.
During the quarter, Pebblebrook completed $36.5 million of capital reinvestments throughout the portfolio, according to the company’s earnings release. The company also made “considerable progress” on its strategic property redevelopment plan, which includes the Hotel Colonnade Coral Gables, which was converted from the Tribute Portfolio to the Autograph Collection; The Hotel Zags Portland, which was formerly Hotel Modera; and more.
Same-property total RevPAR for the quarter increased 4.4% year over year while same-property RevPAR for the quarter grew by 4.3% to $187.76. Same-property average daily rate increased 5.3% to $249 and same-property occupancy decreased by 1% to 75.4%.
As of press time, Pebblebrook’s stocks were trading at $32.86 a share, up 16.1% year to date. The Baird/STR Hotel Stock Index was up 15.5% at the same time.