Pebblebrook Hotel Trust 2026 Q3 Earnings Call

Thank you, Donna, and good morning, everyone. Welcome to our Third Quarter 2026 Earnings Call. Joining me today are Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. Before we begin, I'd like to remind everyone today that our remarks are as of October 30, 2026, and today's comments may include forward-looking statements that are subject to risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risk factors and visit our website for reconciliations of any non-GAAP financial measures mentioned today. Now, let's get into the quarter. We're pleased to report that for the third consecutive quarter, our results far exceeded the high end of our outlook across every major earnings and operating measure. Same property hotel EBITDA increased 15.1% to $115.2 million, $10.7 million above the high end.

Adjusted EBITDA was $107.9 million, $11.4 million above the high end, and adjusted FFO per diluted share was $0.63, or $0.11 above the top end of our outlook. Beyond the headline beat, the strength was broad-based across the portfolio. ADR increases drove the bulk of our room revenue growth, and resorts generated strong out-of-room spending, and our hotel operating teams converted a substantial portion of those revenue gains into profit. Same property RevPAR grew a robust 8.3%, driven by a strong 7% increase in ADR and slightly more than a 1% growth in occupied room nights. This is an important shift from earlier in the recovery, when filling rooms did most of the work. We're achieving higher rates while still growing occupancy, and our business and leisure customers continue to spend while on property. Significantly higher transient revenue drove much of this quarter's improvement.

Transient ADR increased 8.5%, producing a very strong 9.1% growth in transient room revenues. Corporate transient ADR increased 9.4%. Room nights also increased significantly in our higher-priced consortia channel, while certain discount channels declined. Overall, that means we had a stronger customer mix, not just higher prices in the same business. Group room nights also grew over 3%, while group ADR increased 1.2%. The monthly trend was encouraging as well. Same property RevPAR grew 10.1% in July and 5.3% in August, before rebounding to 9.4% in September. Importantly, the strength continued beyond the early summer events. Based on our estimates, one-time events accounted for only about 40 basis points of Q3 RevPAR growth. Now, let me break down the portfolio performance, starting with the resorts. Resort RevPAR increased 8.4%, while total RevPAR at our resorts grew 9.2%.

Food and beverage revenue climbed 11.2%, reflecting very strong outlet, banquet, and catering demand. Eight of our 13 resorts generated hotel EBITDA growth of 20% or more, and our resort EBITDA margins expanded 250 basis points to 32.6%. Altogether, our resorts contributed $8.2 million of the $15.2 million increase in same property hotel EBITDA. These results demonstrate the continuing payoff from our strategic redevelopment investments. Newport Harbor Island Resort is a terrific example of this. RevPAR increased more than 14% in Q3, driven by an ADR increase of almost 20%. Total RevPAR grew even faster, and hotel EBITDA increased by more than $2 million, or 19%. We didn't transform Newport simply to sell more room nights. We set out to create a higher-quality resort that attracts guests willing to pay more and spend more throughout the resort.

That strategy is working at Newport, and we're seeing similar success elsewhere in the portfolio. L'Auberge Del Mar, Paradise Point Resort & Spa, and Estancia La Jolla also delivered significant improvements in profitability this quarter. Turning to our urban markets, RevPAR grew 8.3%, generating almost $7 million of incremental hotel EBITDA versus last year. The largest positive contributors came from San Francisco, Boston, and Los Angeles, together adding $8.5 million of hotel EBITDA compared with last year. Those gains were partly offset by weaker results in downtown San Diego, which I'll come back to shortly. San Francisco's strong recovery gained further momentum. RevPAR increased 14.5% in Q3, and hotel EBITDA improved $3 million. At 1 Hotel San Francisco alone, RevPAR rose 21%, adding more than $1 million of EBITDA.

Based on our current full-year forecast, our San Francisco hotel EBITDA is on pace to grow a massive 65% in 2026, following a 59% increase last year. Even with that growth, year-end EBITDA will remain roughly $25 million below its pre-pandemic level, leaving substantial room for further recovery. Boston was another major contributor, adding $2.7 million of incremental hotel EBITDA, supported by 10.6% RevPAR growth. All five of our Boston hotels improved RevPAR, despite a softer convention calendar. The Liberty, W Boston, and Westin Copley each posted double-digit RevPAR gains, showing the strength with broad base. Los Angeles RevPAR increased 10.7%, and hotel EBITDA climbed $2.8 million or 60%. Our full-year forecast still leaves our L.A. hotel EBITDA more than $23 million below its prior peak. But with a favorable lineup of major events in 2027 and 2028, we see a meaningful runway in L.A. for continued earnings recovery.

San Diego had two very different stories. Our four resorts were exceptional, with RevPAR increasing 14% and hotel EBITDA growing $4.5 million. Downtown San Diego was a different story. RevPAR declined 4.5%, and hotel EBITDA fell $1.6 million. The soft convention calendar, especially in September, was a primary headwind for downtown, not a broader market concern. With a much stronger citywide calendar expected in 2027, we anticipate a significant rebound in downtown San Diego. To put that opportunity in perspective, on a comparable basis, our resorts generated $16.8 million more hotel EBITDA in this year's third quarter than in Q3 2019. Our urban hotels, meanwhile, were still $21.8 million below their 2019 third-quarter level. That contrast captures our investment thesis rather well. We've created substantial resort value, in large part through our redevelopment projects, and there remains meaningful earnings recovery potential across our very well-positioned urban portfolio.

Across the portfolio, strong revenue growth translated into an even stronger profitability result. Our teams converted 58% of the $26 million increase in same-property total revenues into $15.2 million of incremental hotel EBITDA. Total expenses increased just 4% compared with almost 7% revenue growth, and hotel EBITDA margins expanded 205 basis points to 28.8%. That reflects tremendous disciplined execution by our operating teams and asset managers. We also benefited from lower fixed costs, which are worth separating from day-to-day operating productivity. Property taxes declined by approximately $1 million, reflecting a property tax credit and lower property taxes in San Diego. Property insurance costs were $1.6 million lower, and the lower property insurance premium run rate should also benefit in 2027. We also have a large number of property tax appeals outstanding, which we expect will generate additional savings, although the timing and magnitude are difficult to predict.

Those fixed cost savings helped drive this quarter's 58% flow-through, but we wouldn't expect that run rate every quarter. The more important point is that our underlying operating efficiencies are consistently improving results. Year-to-date, results have reinforced that point. Through September, same-property revenues increased 7.1%, hotel EBITDA rose 14.7%, and margins expanded almost 190 basis points. We have increased margins each of the first three quarters. At the corporate level, Adjusted EBITDA increased 8.7% in Q3, and Adjusted FFO grew 18.9%. Adjusted FFO per diluted share increased 23.5%, benefiting from both stronger earnings and a reduced share count. Our free cash flow increased more than 24% to $55.6 million in Q3, and even more on a per-share basis. Through September, free cash flow reached $143 million, 45% above last year, and that's after capital investments and common dividends.

That growing cash generation gives us more flexibility to strengthen our balance sheet and allocate capital opportunistically. We invested $14.8 million in the quarter during Q3 and lowered our full-year capital investment outlook by $5 million to a range of $60 million-$70 million. The reduction primarily reflects timing. We also continued to refine the portfolio through selective property sales. Earlier this month, after quarter-end, we completed the sale of The Hotel Zags in Portland for $10 million. The hotel generated $600,000 of negative EBITDA over the preceding 12 months, so the sale improves our ongoing earnings profile while also generating cash for redeployment. We also recorded $77.3 million of non-cash impairment charges related to the sale of Hotel Zags and updated valuations for several other properties. These adjustments reflect our ongoing review of potential dispositions as we work to optimize the portfolio and create value for shareholders.

Over the past year, we've sold nearly $170 million of hotels at an aggregate 17.4x trailing EBITDA multiple and a 3.9% NOI cap rate. These transactions provide meaningful private market valuation benchmarks, and each hotel was sold within our NAV ranges at the time. We also increased our estimated NAV by $1 per share from last quarter to a range of $23.50-$27.50 per share. The updated NAV reflects improved operating performance of our properties, the current transaction market, and the benefit of our common and preferred share buybacks. Speaking of buybacks, during Q3, we repurchased approximately 1.2 million of common shares at an attractive price of $18.12 per share, and deployed $7.2 million to retire preferred shares at an average 23% discount to liquidation preference. Our goal is to grow value per share, not simply to buy back securities.

Our balance sheet continues to strengthen. Net debt to trailing 12-month corporate EBITDA fell to 5.1 times from 5.9 times at year-end. We finished September with $298 million of cash and restricted cash, $641 million of revolver availability, and another $90 million of undrawn term loan capacity. The remaining $350 million of convertible notes due in December are fully funded by existing resources and expected cash flow. After that, we have no other debt maturities until 2028. Stepping back, Q3 demonstrated how our strategies reinforce and build on each other. Our previous major strategic redevelopment investments are helping to drive pricing increases and higher on-property spending. Our operating initiatives are converting more of that revenue into profit, while lower capital requirements are lifting free cash flow.

With a meaningful urban recovery still ahead, we see a compelling path to even stronger FFO and free cash flow growth. With that, I'll turn it back over to Jon to discuss the industry backdrop, our updated outlook for 2026, and the opportunities ahead in 2027.