Pebblebrook Hotel Trust(PEB) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 total revenues exceeded expectations despite the negative impact of Hurricane Ian, with adjusted EBITDA above the top end of the outlook by $1.5 million [6][7] - Adjusted funds from operations were $0.66 per share, $0.01 above the top end of the outlook [7] - Same-property RevPAR exceeded Q3 2019 by 1.3%, marking the first quarter since the pandemic that surpassed 2019 results [8] - Q3 occupancy finished at 72.7%, indicating a substantial opportunity for revenue growth as it is only 85% recovered compared to 2019 [10] - Hotel EBITDA margin was 32.4%, down from 34.3% in 2019, reflecting effective cost management despite inflationary pressures [11] Business Line Data and Key Metrics Changes - Urban hotels showed significant recovery, with urban RevPAR down only 10.1% compared to Q3 2019, an improvement from 17.7% in Q2 [20] - Non-room revenue per occupied room rose 23.3% versus 2019, and total revenue per occupied room increased by 21% [9] - Same-property hotel EBITDA reached $130.9 million, 96.8% recovered to Q3 2019, marking the best quarter since the pandemic [10] Market Data and Key Metrics Changes - Urban markets, except Miami, achieved better RevPAR performance in Q3 compared to 2019, with significant gains in previously slow-recovering markets like Chicago and San Francisco [20][21] - The recovery in convention calendars is expected to positively impact the industry, particularly in San Francisco [22][23] Company Strategy and Development Direction - The company plans to invest $100 million to $110 million into the portfolio in 2022, focusing on ROI redevelopment projects expected to generate cash returns of 10% or higher [12] - The strategy includes a balanced segmentation between business and leisure, with a long-term view favoring leisure properties due to limited new supply [44][56] - The company aims to capitalize on the recovery of business, leisure, and inbound international travel, which are expected to normalize to levels significantly higher than 2019 [32] Management's Comments on Operating Environment and Future Outlook - Management has not seen signs of a slowdown in travel demand, despite monitoring for potential impacts from the Fed's actions [6] - The outlook for Q4 RevPAR is expected to be down 3% to flat compared to 2019, with a significant negative impact from the closure of LaPlaya [33] - Management remains optimistic about the recovery trajectory, citing strong demand and limited supply growth as favorable factors [32][60] Other Important Information - The company sold three hotels in Q3, generating $183.9 million in sales proceeds, and completed a $2 billion refinancing of credit facilities [17][18] - The estimated cost to remediate LaPlaya after Hurricane Ian is between $15 million and $25 million, with business interruption insurance expected to cover losses [15][16] Q&A Session Summary Question: How long for Naples properties to return to stabilized operations? - Management indicated it is hard to forecast but expects a quick recovery due to ongoing demand and city cleanup efforts [37][39] Question: Any change in meeting planners' behavior due to recession worries? - Management has not observed any changes in meeting planners' behavior or negotiations [40] Question: Thoughts on portfolio repositioning and urban market strategy? - Management sees no change in strategy, aiming for a balanced portfolio between business and leisure, and will continue to recirculate capital from urban markets [44][45] Question: Confidence in achieving $500 million hotel EBITDA estimates? - Management feels good about the bridge to recovery but does not expect to reach that figure by the end of next year due to ongoing adjustments and market conditions [58][60] Question: Capital allocation priorities amid potential distress in the market? - Management remains opportunistic and will assess capital allocation based on market conditions and asset valuations [66][69] Question: Dividend outlook for the future? - Management indicated that a dividend is likely in the second half of 2023, depending on the use of net operating losses and overall performance [91][93]