8-K: Pebblebrook Hotel Trust Reports 2024 Results, Provides Cautious 2025 Outlook Amidst LA Fires Impact

Pebblebrook Hotel Trust announces its 2024 financial results, highlighting RevPAR growth and strategic capital investments, while projecting a 2025 outlook tempered by the impact of the Los Angeles fires.

Summary

• Pebblebrook Hotel Trust reported its 2024 results, with a net income of $0.0 million.
• Same-Property Total RevPAR increased by 2.1% compared to 2023.
• Same-Property Hotel EBITDA was $350.4 million, a 0.9% increase from the previous year.
• Adjusted EBITDAre reached $359.2 million, up 0.8% from 2023.
• Adjusted Funds from Operations (FFO) per diluted share rose to $1.68, a 5.0% increase.
• In Q4 2024, Same-Property Total RevPAR grew by 1.8%, driven by resorts (4.0%) and urban hotels (0.7%).
• Redeveloped properties saw occupancy rise by 4.7 points and Total RevPAR grow by 6.3% in Q4 2024.
• Adjusted EBITDAre for Q4 was $62.7 million, exceeding the outlook midpoint by $11.2 million.
• Adjusted FFO for Q4 was $0.20 per diluted share, surpassing the outlook midpoint by $0.10.
• The company invested approximately $91 million in capital improvements in 2024.
• Pebblebrook successfully executed $1.6 billion in debt financings and extensions.
• The company lowered its Debt/EBITDA ratio to 5.8x and ended 2024 with $217.6 million in cash.
• The 2025 outlook includes a net loss of ($15.5) to ($1.5) million.
• The Los Angeles fires are expected to reduce Same-Property RevPAR growth by 115 basis points and Same-Property Total RevPAR growth by 100 basis points.
• The fires are also projected to impact Same-Property Hotel EBITDA and Adjusted EBITDAre by $9.0 million, reducing Adjusted FFO by $0.07 per diluted share.
• The company projects a Same-Property Total RevPAR Growth Rate of 1.8% to 3.7% for 2025.
• Adjusted EBITDAre for 2025 is projected to be between $341.5 and $355.5 million.
• Adjusted FFO per diluted share for 2025 is expected to be $1.50 to $1.62.
• Capital investments for 2025 are projected to be $65 to $75 million.
• The company repurchased 1.1 million common shares in 2024 at an average price of $13.29 per share.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive, reflecting the company's strong 2024 results and strategic initiatives, but tempered by the cautious 2025 outlook due to the impact of the Los Angeles fires.

Positives

• Same-Property Total RevPAR increased by 2.1% in 2024, indicating growth in revenue generation.
• Adjusted FFO per diluted share increased by 5.0% to $1.68, reflecting improved profitability.
• The successful execution of $1.6 billion in debt financings and extensions enhances balance sheet flexibility.
• The completion of the $525 million multi-year capital reinvestment program positions the company for future growth.
• The company repurchased 1.1 million common shares in 2024, indicating confidence in its valuation.
• LaPlaya generated $19.0 million in Hotel EBITDA for 2024, including $1.2 million in Q4.
• The company realized over $56 million in BI income associated with Hurricane Ian.

Negatives

• The company projects a net loss of ($15.5) to ($1.5) million for 2025.
• The Los Angeles fires are expected to negatively impact Same-Property RevPAR growth by 115 basis points in 2025.
• Same-Property Hotel EBITDA is expected to decrease by 4.2% to 0.4% in 2025.
• The company's nine Los Angeles area hotels experienced a significant increase in business cancellations and a material slowdown in bookings due to the fires.
• Same-Property expenses before fixed expenses rose just 3.1 percent year-over-year in Q4, equating to a decline of 1.7 percent on a per occupied rooms basis.

Risks

• The Los Angeles fires are expected to have a significant negative impact on hotel demand and financial performance in 2025.
• Rising wage pressures from newly ratified labor agreements and city-mandated minimum wage increases in several urban markets could impact profitability.
• The 2025 outlook assumes stable travel conditions unaffected by pandemics, major weather events (other than the LA fires), federal shutdowns, or material adverse macroeconomic factors, which may not hold true.
• The timing and pace of Los Angeles demand and recovery are unknowable.

Future Outlook

The company anticipates a net loss for 2025, with Same-Property Total RevPAR growth between 1.8% and 3.7%. Adjusted EBITDAre is projected to be $341.5 to $355.5 million, and Adjusted FFO per diluted share is expected to be $1.50 to $1.62. Capital investments are expected to be $65 to $75 million.

Management Comments

• In 2024, we experienced a sustained recovery in both business group and transient demand, propelling growth across our urban hotels and lifestyle resorts.
• Our top-performing markets included San Diego, Chicago, Boston, Washington DC, and our West Coast resorts.
• Our recently redeveloped properties generated significant gains in market share and operating performance momentum we anticipate will extend through at least 2027.
• Looking ahead to 2025, we are encouraged by the continued resurgence in leisure demand that began in the fourth quarter of 2024 and has carried into the new year.
• We expect business travel to strengthen alongside the broader economy, supported by a historically low pipeline of new hotel construction in our key markets for the foreseeable future, providing a multi-year runway for our internal growth.
• We are deeply saddened by the devastating fires in Los Angeles and the profound hardships they have caused countless individuals, families and communities, including hotel associates at our properties.
• We remain confident in the citys long-term prospects and resilience.
• We stand firmly with Los Angeles as it rebuilds and believe in the enduring strength of our properties and the broader community.

Industry Context

The announcement reflects the ongoing recovery in the hotel industry, particularly in urban and resort markets. The company's performance is influenced by broader economic trends, travel demand, and specific events like the Los Angeles fires. The low pipeline of new hotel construction in key markets provides a favorable environment for existing properties.

Comparison to Industry Standards

• Comparing Pebblebrook's RevPAR growth to that of major hotel REITs like Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK) would provide a benchmark for performance.
• The Debt/EBITDA ratio of 5.8x can be compared to industry averages and the leverage ratios of competitors like Hersha Hospitality Trust (HT).
• The capital investment strategy can be assessed against the reinvestment rates of other hotel owners and operators.
• The impact of the Los Angeles fires can be compared to the effects of similar events on other hotel companies with properties in the affected areas.
• Pebblebrook's Adjusted FFO per diluted share of $1.68 can be compared to the FFO performance of other REITs in the lodging sector, such as Ryman Hospitality Properties (RHP).

Stakeholder Impact

• Shareholders will be impacted by the projected net loss in 2025 and the reduced RevPAR growth due to the Los Angeles fires.
• Employees in the Los Angeles area may be affected by the slowdown in bookings and potential business disruptions.
• Customers may experience changes in service and availability at hotels impacted by the fires.
• Suppliers and creditors may be affected by the company's financial performance and capital investment plans.

Next Steps

• The company will conduct its quarterly analyst and investor conference call on February 27, 2025.
• Pebblebrook remains committed to supporting the local community and is closely monitoring the ongoing recovery efforts in Los Angeles.
• The company expects the remaining ground-floor rooms (20 rooms) at LaPlaya to be set for substantial completion in Q2 2025.

Key Dates