Although business travel was slowed by the omicron variant of COVID-19 just a few months ago, executives at Pebblebrook Hotel Trust now believe the segment is making a comeback.
Overall demand is recovering from its decline in January, showing dramatic improvements in recent months with a notable improvement in business travel, Chief Executive Officer Jon Bortz said during the company’s first quarter earnings call. hotel real estate investment trust.
Citywide events and meetings of business groups of all sizes are taking place, he said. Attendance at these events is improving and spending per person is high. In a positive sign for future demand, the volume of group leads, venue visits and term bookings continues to grow at Pebblebrook hotels. In many cases, group leads and bookings are coming in at higher levels and with higher rates compared to the same period in 2019.
“These substantial and rapid improvements in business travel have resulted in significant gains in both our city occupancy levels and our average daily rate,” he said.
Excluding Hotel Vitale, which was closed during its repositioning as One Hotel San Francisco, the REIT’s occupancy rate for its urban portfolio fell from 32% in January to 47% in February and then to 59% in March, Bortz said. Until April 24, the occupancy rate rose to 64%. The ADR has also increased every month, from $198 in January to $256 so far in April.
“These occupancy levels are still well below 2019 levels, and with strong pent-up commercial demand, we have significant occupancy growth to recover to drive higher operating performance,” he said. .
Urban markets that were slower to recover quickly gained occupancy through April, he said. Washington, DC had an occupancy rate of 39% in March which rose to 62% through April 24. During the same period, Seattle’s grew from 45% to 53% and San Francisco’s from 36% to 41%.
Given the average price during the first quarter, leisure and business customers continue to show no price sensitivity, he said.
“We are very optimistic that the recovery in business travel will accelerate over the next three to four months, and as indicated, we are already seeing this in the second quarter,” he said. “We are extremely excited about the potential occupancy and rate growth over the next few years with limited housing starts and supply growth for the next few years.”
Pebblebrook Resorts saw ADR increase 29.1% from the prior quarter and 59.4% from the first quarter of 2019, said Raymond Martz, executive vice president and chief financial officer . Its L’Auberge Del Mar in Del Mar, Calif., led the resort portfolio with rate growth of $359.
Each of these stations was recently renovated and gained a share of ADR, he said. Across its resorts, Pebblebrook generated 13.4% non-room revenue per room occupied in the quarter compared to 2019, demonstrating its ability to drive non-room spend even with activity and group levels below 2019 levels.
“These results underscored the financial benefits we are beginning to receive by significantly improving the quality of the overall guest experience at these properties, both physically and operationally,” he said.
The company’s resorts, including the acquisitions of Margaritaville Hollywood Beach, Estancia Ja Jolla Hotel & Spa and Jekyll Island Club Resort, are on track to exceed earnings before interest, taxes, depreciation and amortization in 2019, Bortz said. . During the quarter, the 11 resorts combined achieved EBITDA of $45.4 million, an increase of $12.1 million or 36% over the first quarter of 2019.
Current guidance for these 2022 EBITDA resort projects will exceed their 2019 EBITDA by $50 million to $60 million by reaching a total EBITDA of between $169 million and $179 million, he said.
“We continue to be very focused on harnessing pricing power and a lack of price resistance, not just for rooms but for [food and beverage], banquets and catering, parking, resort fees and service and administrative fees,” he said. “We continue to see very significant spending from business groups and holidaymakers, and we expect this to continue throughout the year.”
Pebblebrook recently announced its impending acquisition of the 119-room inn on Fifth in Naples, Florida for $156 million. The company plans to close the luxury property later in the second quarter, Martz said. It will retain Noble House Resorts for its operations, and the management company also operates the LaPlaya Beach Resort & Club in nearby Pebblebrook.
The deal comes after the REIT’s four acquisitions last year, all of which Bortz said exceeded their underwriting. Although Pebblebrook hasn’t owned them for a full 12 months, the past 12 months and net operating income returns “are terrific,” he said.
The Margaritaville Hollywood Beach acquired in October had an NOI return of 9.1% while the Jekyll Island property that was purchased in July had an NOI return of 8.5%, he said. Estancia La Jolla, bought on December 1, lost 5.5%.
“We expect all of these returns to be higher by the end of 2022,” he said. “While these improved results include some of the benefits of the many operational changes we have already implemented with our operators, this feedback is all before the [return on investment] physics improvements we are planning that will reposition these properties higher.
Since 2018, Pebblebrook has invested $350 million in transformational redevelopment and renovation projects at 25 hotels, 16 of which were part of the LaSalle Hotel Properties acquisition, Bortz said. These improvements have been put in place, but the company is only just beginning to see the returns on these investments.
“We are increasingly excited about the improved performance of these properties as demand returns,” he said. “Their enhanced performance will significantly increase our growth rate over the next few years.”
Through Pebblebrook’s capital improvement program, the company invested about $20 million in its portfolio during the quarter, Martz said. This included completing the renovation and conversion of his Grafton Hotel on the Sunset Strip in West Hollywood to the Ziggy Hotel. The company is working on the redevelopment and reopening of its Vitale hotel as One Hotel San Francisco, which is expected to open later this quarter.
The company is on track to invest between $100 million and $120 million in the portfolio this year, with around $80 million targeted for return-on-investment redevelopment projects that are expected to generate cash returns of 10% or more. as hotels stabilize over the next two years. three years, he said.
Major upcoming projects for the REIT include the $22 million total redevelopment of the Solamar Hotel in San Diego in the Margaritaville neighborhood of San Diego Gaslamp, a decision REIT executives were driven to make in part due to the performance of the Margaritaville property in Florida, Bortz said. . In October, the Hilton San Diego Gaslamp Quarter’s $20 million renovation will begin transforming the property into a lifestyle Hilton property with outdoor spaces, great views and unique architecture.
“We expect our transformed Hilton and Margaritaville to lead the market in terms of rates and [revenue per available room] as they stabilize over the next few years,” he said.
Pebblebrook is currently planning extensive redevelopments at its Jekyll Island and Estancia properties, but the scope of those projects is not yet finalized, Bortz said. It also plans to complete the second and final phase of its Viceroy Santa Monica revitalization project this winter.
The company also worked on two major multi-year projects: the unused acreage master plan for its Skamania Lodge in Washington’s Columbia River Gorge and the Chaminade Resort in Santa Cruz, California.
“With the incredible success of the outdoor lodge and six treehouses we’ve added to Skamania over the past five years and the trend of consumers seeking increasingly experiential lodging alternatives, we believe we have the potential to add up to a few hundred alternative accommodation units at each property,” Bortz said.
Pebblebrook reported a net loss of $100.2 million in the first quarter, according to Press release. Its real estate adjusted EBITDA was $46.5 million, a recovery of 50.3% from 2019 levels.
Same-property RevPAR was $143.61, down 23.4% from Q1 2019, but ADR was $297.29, up 19.4% over the same period. Total comparable property revenue was $258 million, a 76.8% recovery from 2019.
At the end of the quarter, the company had $96 million of consolidated cash, cash equivalents and restricted cash, as well as $598.4 million of undrawn availability on its unsecured revolving credit facility of first rank. This combines for a total liquidity of $694.4 million.
At press time, Pebblebrook stock was trading at $25.17, up 12.12% year-to-date. The NYSE Composite Index fell 8.3% for the same period.
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