Pebblebrook's (PEB) Operating Trend Improves on Healthy Demand

·4 min read

Per Pebblebrook Hotel Trust’s PEB recently released operating update, the company noted that overall demand for first-quarter 2023 continues to align with its expectations, with group room night and average daily rate (ADR) pace for 2023 remaining strongly ahead of 2022. Also, leisure demand continues to stay healthy with spring break season around the corner.  

Reflecting broader market concerns, shares of PEB lost 6.14% on Mar 22 normal trading session on the NYSE.

The same-property ADR for February surpassed the 2019 level by 20%. However, it was 5.1% lower than last year due to significant occupancy gains from the ongoing recovery in group, international and other lower-priced demand.

For the entire portfolio, the same-property revenue per available room (RevPAR) for February improved 13% year over year and the same-property total revenues increased 20% from the prior-year period. The same-property EBITDA was $19.4 million, reflecting a sequential rise of $13 million and a year-over-year increase of $1 million.

Additionally, for the urban portfolio, the February same-property RevPAR and total revenues increased 19% and 26% year over year, respectively. Strong demand recovery in San Francisco, Seattle, Portland, Washington DC, Chicago and San Diego, and substantial rate growth in most of these markets were the prime reason behind the rise.

For PEB’s resort portfolio, the same-property RevPAR and EBITDA in February improved 6% and 9% year over year, respectively. The rise was primarily attributable to the strong year-over-year occupancy gains at the company’s resorts in the San Diego area, Santa Cruz and Hollywood, FL.

Pebblebrook noted that it has not yet witnessed any impact on demand arising from fears of an economic slowdown or recession.

The company also continues to make meaningful progress in completing major repairs at the 189-room LaPlaya Beach Resort & Club (“LaPlaya”) in Naples, FL. It anticipates the full restoration of the hotel by late 2023.

Further, PEB recently completed the disposition of 909 North Michigan Avenue to a third party for $27.3 million. The 5,860 square feet, 3-tenant fully occupied high-street retail parcel is situated adjacent to the PEB’s Westin Michigan Avenue Chicago. The move was part of the company’s investment strategy.

The sale price of the property reflected almost a 7.7% cap rate based on its net operating income for 2022, making the disposition of the property a strategic fit.

Pebblebrook intends to use the sale proceeds for general corporate purposes, which may include reducing its outstanding debt and repurchasing its common and preferred shares.

The lodging industry is presently witnessing a rebound in traffic owing to the relaxations in the pandemic-related regulations. This has resulted in a demand surge for Pebblebrook’s urban and resort lifestyle hotels and resorts in the United States.

Also, PEB’s strategic capital-deployment efforts bode well for its growth. The company aims to optimize the use of its dispositions’ proceeds. It is focused on acquisitions and development activities.

In 2022, the company acquired the 119-room Inn on Fifth in Naples, FL, for $156 million, excluding prorations and transactions costs, and the 257-room Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) in Newport, RI, for $174 million. Moreover, in 2022, it disposed of properties worth $260.9 million.

Nonetheless, interest rate hikes, inflation and macroeconomic uncertainty remain key concerns for the company.

PEB currently carries a Zacks Rank #3 (Hold). Its shares have lost 4.2% in the quarter-to-date period compared with its industry’s decline of 5.7%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities ARE, Terreno Realty TRNO, each currently carrying a Zacks Rank #2 (Buy) and Service Properties Trust SVC, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share stands at $8.95.

The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.

The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Pebblebrook Hotel Trust (PEB) : Free Stock Analysis Report

Terreno Realty Corporation (TRNO) : Free Stock Analysis Report

Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report

Service Properties Trust (SVC) : Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research