Q3 2025 Earnings Call Contradictions: Transaction Market Volatility, Government Shutdown Concerns, and Evolving Pricing Strategies

Guidance:

• Q4 same-property RevPAR expected between -1.25% and 2%; total RevPAR between -1.25% and 2.7% (assumes shutdown ends soon).
• Q4 total hotel expenses expected to grow ~0.8% at the midpoint; expenses per occupied room expected to decline.
• Full-year 2025 capex expected $65–$75M; Q3 capex $14.2M.
• Expect to generate >$100M free cash flow by end-2026 and deploy cash to retire remaining 2026 convertible notes.
• 2026 pacing (as of Oct 1): group room nights +4.1%, ADR ~+3%, group revenues +7% (~$7.6M), total revenue pace +6.1% (~$9M); management expects to outperform the industry.
• Pending $72M hotel disposition not included in Q4/full-year outlook; closing not guaranteed.

Business Commentary:

* Strong Performance Despite Challenges:
- Pebblebrook Hotel Trust reported that same property hotel EBITDA totaled $105.4 million, aligning with the midpoint, while adjusted EBITDA was $99.2 million, exceeding the midpoint by $2.2 million.
- The execution of solid operating results and industry-leading cost controls were key to this performance, despite challenges from geopolitical uncertainty and an unfavorable holiday calendar shift.

• San Francisco Market Recovery:
• San Francisco's RevPAR increased by 8.3% in Q3, driven by a 690 basis point jump in occupancy, leading to a 10.9% increase in EBITDA.

• The recovery was fueled by an active convention calendar and the AI revolution, transforming San Francisco into a cleaner and safer city.
  

  

• Mixed Performance Across Urban Markets:

• Urban total RevPAR declined by 2.7%, impacted by strength in San Francisco and Chicago offset by weakness in Los Angeles and Washington D.C.

• The decline in Los Angeles was attributed to competitive pricing due to disruptions related to ICE activity and National Guard deployments, while Washington D.C. faced reduced government and tourism demand.
  

• Redevelopment Impact on Portfolio:

• Recent redevelopment projects, such as Newport Harbor Island Resort and Jekyll Island Club Resort, demonstrated significant contributions to RevPAR growth.
• These projects illustrate how the redevelopment program is driving market share gains and improved profitability by enhancing property appeal and out-of-room guest spend.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management said Q3 results were “in line with our outlook,” adjusted EBITDA beat midpoint ($99.2M vs midpoint), adjusted FFO was $0.01 (+$0.03 vs midpoint), and repeatedly described a “favorable setup for 2026” citing convention pacing, redeveloped assets driving share gains, and expectations to outperform the industry.

Q&A:

• Question from Gregory Miller (Truist): Can you discuss San Francisco lodging — confidence to push rates during high-occupancy nights and implications for your properties?
  Response: San Francisco demand and convention bookings have strengthened materially; management expects confident weekday and event-driven rate recovery (100k+ room nights booked for 2026, pace up ~20%).

• Question from Cooper Clark (Wells Fargo): How much of expense progress reflects headcount reductions and will labor costs moderate into 2026? And how should we think about L.A. into 2026 given softer comps and demand/labor challenges?
  Response: Expense gains driven by productivity, scheduling efficiencies, tech/AI and reduced third‑party spend; wage growth should moderate in 2026 (offset partially by higher healthcare). L.A. expected to be a relative outperformer in 2026 due to easy comps and a ramp in film/TV production from state credits, with larger effects mid‑year.

• Question from Smedes Rose (Citi): Tell us about the asset held for sale and where transaction markets/pricing stand — how will you execute dispositions? Also examples of resorts performing/weaknesses.
  Response: Equity market is paused awaiting macro clarity though debt markets are improving; Pebblebrook will pursue opportunistic dispositions to repurchase stock or pay down debt but needs visible operational recovery. Redeveloped/luxury resorts (e.g., Newport Harbor, LaPlaya, La Valencia) are driving strong RevPAR and EBITDA and are less price‑sensitive.

• Question from Duane Pfennigwerth (Evercore ISI): How large is the government/travel shutdown impact and how quickly can activity spool back up? Also, what does a no‑storm fall allow you to do for 2026?
  Response: Government travel down an estimated ~33–40% (roughly a 1–2 point hit to portfolio demand); shutdown also suppresses discretionary travel and is material. A calm weather season aids dispositions and allows assets like LaPlaya to ramp EBITDA toward pre‑storm levels.

• Question from Michael Bellisario (Baird): You mentioned attrition/increased attrition — what markets/segments and short‑term booking trends?
  Response: Attrition is concentrated in government‑related and education groups; not prevalent in tech or medical; overall attrition payments were lower than last year and management is monitoring but not currently highly concerned.

• Question from Jay Cornridge (Cantor Fitzgerald): How price‑sensitive is the leisure transit customer today and where is upside for next year — leisure vs urban?
  Response: Leisure demand is resilient but increasingly price‑sensitive at lower tiers; both leisure (weekend/transit) and urban recovery will drive next‑year upside, with redeveloped assets already gaining ~700 bps penetration and supplying meaningful outperformance.

• Question from Ari Klein (BMO Capital Markets): Why has the historical correlation between GDP and hotel demand weakened and will AI/data‑center investment distort that recovery? Any color on World Cup magnitude?
  Response: Disconnect attributed to policy disruptions and a large international inbound shortfall; AI and related investment still drive broader economic activity and should support demand. Management expects World Cup to add meaningful RevPAR upside (likely >30–40 bps for their portfolio) with heavy last‑minute booking concentrated close to match dates.

• Question from Chris Darling (Green Street): Given improving investor sentiment in San Francisco, is now the time to divest remaining SF assets or hold to ride recovery?
  Response: All properties are saleable, but management prefers to hold given expectations of strong multi‑year rate/RevPAR recovery in SF (potential for double‑digit RevPAR growth over several years); any sale depends on valuation.

Contradiction Point 1

Transaction Market Activity and Pricing

It highlights differing perspectives on the transaction market activity and pricing, which are crucial factors for strategic decision-making and potential asset sales.

What trends are you observing in the transaction market? How is this impacting your asset sale strategy? - Smedes Rose (Citi)

2025Q3: The transaction market has been gyrating, but there's pent-up demand for transactions. Operations need to improve for risk-off situations. We see opportunities with more high-net-worth individuals looking at lodging, and we could see increased activity as operations improve. - Tom Fisher(CIO)

What's the current state of the transaction market? - Chris Darling (Green Street Advisors)

2025Q2: Increased investor interest and brokers showing better sentiment. Debt markets are functioning, suggesting more activity ahead. - Thomas Charles Fisher(CIO)

Contradiction Point 2

Government Shutdown Impacts

It involves differing perspectives on the impact and potential resolution of government shutdowns on discretionary travel and consumer confidence, which directly affects the company's revenue and market outlook.

How quickly will government shutdown impacts ease? Could this lead to a tailwind next year? - Duane Pfennigwerth (Evercore ISI)

2025Q3: Shutdown impacts are material, beyond government travel, affecting discretionary travel and consumer confidence. - Jon Bortz(CEO)

What drove the strong performance in Washington D.C. and San Francisco despite declining government demand? - Shaun Kelley (Bank of America)

2025Q1: The government activity slowdown in Washington, D.C. is tough, and it's impacting for now our San Francisco market. - Jon Bortz(CEO)

Contradiction Point 3

Customer Price Sensitivity

It discusses the differing perceptions of consumer price sensitivity, which impacts pricing strategies and market competitiveness.

How do you assess leisure customer price sensitivity? What’s the outlook for leisure demand in urban markets? - Jay Cornridge (Cantor Fitzgerald)

2025Q3: Leisure demand should improve with economic recovery, although leisure customers have become more price-sensitive. - Jon Bortz(CEO)

Do you see price consciousness among high-end consumers, and how does it affect pricing strategies? - Ari Klein (BMO Capital Markets)

2025Q1: Occupancy gains are more significant than rate gains due to mix and customer sensitivity. The company focuses on value offerings rather than just discounts. - Jon Bortz(CEO)

Contradiction Point 4

Government Travel Impact and Economic Recovery

It involves differing perspectives on the impact of government travel on economic recovery and the overall demand for hotel services.

How soon will government shutdown impacts ease? Will it create a tailwind next year? - Duane Pfennigwerth (Evercore ISI)

2025Q3: Shutdown impacts are material, beyond government travel, affecting discretionary travel and consumer confidence. We need a positive perception shift and clear government travel policies for a tailwind next year. - Jon Bortz(CEO)

What are the current demand drivers in D.C. and government-related factors affecting the business? Is there increased anxiety among stakeholders due to recent policy changes? - Duane Pfennigwerth (Evercore ISI)

2024Q4: We view government travel, particularly federal travel, as more resilient than other travel segments. We believe that federal travel spend will stabilize and slowly improve during 2025. - Jon Bortz(CEO)