Pebblebrook Hotel Trust’s Q1 2025: Operational Grit Amid Economic Crosswinds

Pebblebrook Hotel Trust (NYSE: PEB) delivered a mixed but cautiously optimistic first-quarter 2025 report, balancing operational resilience against a backdrop of macroeconomic uncertainty. While the company reported a net loss of $32.2 million, key metrics such as EBITDA and RevPAR growth signaled progress in its strategy to pivot toward leisure-driven markets and cost discipline. However, revised full-year outlooks underscore lingering risks tied to softening demand and external disruptions.

Financial Highlights: Earnings and Revenue

Pebblebrook’s Q1 results revealed a net loss of $32.2 million, driven by one-time costs and the impact of wildfires in Los Angeles, which disrupted nine properties. However, core operational metrics outperformed expectations:
- Same-Property Hotel EBITDA rose to $62.3 million, exceeding its outlook by $4.3 million.
- Adjusted EBITDAre reached $56.6 million, surpassing the midpoint of its guidance by $4.1 million.
- Adjusted FFO per diluted share came in at $0.16, $0.05 higher than expected.

Total revenue grew 2% year-over-year to $320.27 million, with room revenue at $197.0 million, food and beverage at $86.3 million, and other operating revenue at $36.9 million. Excluding Los Angeles properties, Same-Property Total RevPAR increased 6% year-over-year, while resort RevPAR surged 8.2%, reflecting strong leisure demand.

Operational Drivers: Urban Recovery and Resort Resilience

The quarter’s success hinged on two pillars:
1. Urban Market Turnaround:
- Washington, D.C., benefited from inauguration-related demand, with RevPAR up 15%.
- San Francisco saw a 10% RevPAR increase as business and leisure travel rebounded.
- Portland and Chicago also outperformed broader industry trends, with RevPAR growth of 7% and 5%, respectively.

1. Resort Performance:
2. Resorts, now contributing 45% of EBITDA (up from 17% in 2019), saw RevPAR rise 8.2% amid higher occupancy (up 6.5%).
3. Newly redeveloped properties like the 1 Hotel San Francisco and Viceroy Santa Monica drove RevPAR gains of 15% and 20%, respectively.

Cost controls also shone: Same-Property Expenses grew just 3.7%, outperforming the 5% outlook due to efficiency initiatives and renegotiated vendor contracts.

Strategic Shifts and Portfolio Evolution

Pebblebrook’s long-term strategy—divesting underperforming urban assets and acquiring leisure-focused resorts—is paying dividends:
- Since 2019, the company has sold 15 urban hotels (e.g., in San Francisco) and acquired five resorts (e.g., Margaritaville in San Diego).
- Geographic realignment:
- West Coast urban EBITDA dropped from 56% to 43%, while East Coast markets (e.g., Boston, Naples) now contribute 54% of EBITDA.
- San Diego’s EBITDA share rose to 25%, up from 14%, while San Francisco’s fell to 4% (from 23%).

This shift has diversified demand: leisure transient and group bookings now account for 75% of guest mix, downweighting reliance on volatile business travel.

Revised Outlook: Caution Amid Uncertainty

Despite Q1’s strength, Pebblebrook revised its full-year outlook due to macroeconomic headwinds:
- Same-Property Total RevPAR growth narrowed to a range of -0.5% to +2.3% (previously +1.5% to +4%).
- Adjusted EBITDAre is now projected at $327.5 million–$348.5 million (down from $350 million–$370 million).
- The net loss is expected to remain between $30.2 million and $9.7 million for 2025.

Key risks include:
- Lingering impacts of the Los Angeles fires and hotel renovations.
- Softening demand in business and leisure travel, linked to declining consumer sentiment.

Liquidity and Capital Allocation

Pebblebrook maintained strong liquidity with $218.2 million in cash and a net debt/EBITDA ratio of 5.8x, well below covenant limits. The company repurchased 1.3 million shares at an average price of $11.02 and plans $65–$75 million in capital expenditures for 2025, focusing on property upgrades and technology investments.

Conclusion: A Tale of Two Markets

Pebblebrook’s Q1 results highlight its ability to navigate uneven demand while executing its strategic pivot to leisure and resort markets. Resorts and redeveloped urban properties are delivering outsized returns, but macroeconomic risks and geographic concentration in certain markets (e.g., Los Angeles) remain vulnerabilities.

The company’s $25.00 net asset value (NAV) midpoint estimate contrasts sharply with its current stock price of ~$9.00, suggesting significant upside if operational trends stabilize. Analysts’ average one-year price target of $11.69 (with a high of $15.00) aligns with this view, though execution on cost controls and demand recovery will be critical.

While Pebblebrook’s revised outlook reflects prudent caution, its diversified portfolio and liquidity position position it to weather near-term challenges. Investors should watch closely for stabilization in RevPAR trends and the success of its asset-light strategy. For now, Pebblebrook remains a high-risk, high-reward play on the leisure-driven recovery of the U.S. hotel sector.