BETHESDA, MD—Pebblebrook Hotel Trust exceeded its outlook for the fourth quarter and year-end of 2019.
“Our operating results for the fourth quarter of 2019 exceeded our outlook primarily due to unexpected increases in hotel demand during November and December throughout many of our markets, including San Francisco, Los Angeles, South Florida and Boston,” said Jon E. Bortz, chairman/president/CEO, Pebblebrook Hotel Trust.
“We also made great progress in transforming the company for stronger growth in future years,” he added. “We completed $1.3 billion in hotel sales, with another $331 million of sales expected in the near term, 12 successful operator or brand transitions, including two in early 2020, and we completed or commenced eight major redevelopment and repositioning projects. Up until the emergence of the coronavirus in China, we were encouraged with the improvements in near-term business and leisure booking trends that we experienced from November through January.”
He continued, “However, we are concerned about the potential negative impact of coronavirus on travel. While we expect some reduced demand outside of what we’ve already experienced and incorporated, our outlook does not reflect any impact since it is not knowable or able to be forecasted due to the unique evolving nature of the situation.”
The company’s net income was $19.6 million in the fourth quarter of 2019, an increase of $118.9 million as compared to the same period of 2018. The company’s net income was $115.7 million for the year ended Dec. 31, 2019, an increase of $102.3 million as compared to 2018. The increase is primarily due to the company’s corporate acquisition completed in November 2018.
Same-property total RevPAR increased 2.8% from the fourth quarter of 2018. Same-property RevPAR for the fourth quarter increased 2% from the prior year to $196.34, with same-property ADR declining 0.5% to $247.18 and same-property occupancy rising 2.5% to 79.4%. In addition, same-property total RevPAR for full-year 2019 grew 1.9% more than 2018, and same-property RevPAR for the year increased 1.2% from the prior year to $210.65. Same-property ADR rose 1.3% for the year to $256.17, and same-property occupancy for the year declined by 0.2% to 82.2%.
The company’s hotels generated $109 million of same-property EBITDA for the quarter ended Dec. 31, 2019, up 1.4% versus the same period of 2018. Same-property revenues increased 2.8%, while same-property expenses rose 3.4%, resulting in same-property EBITDA margin for the quarter decreasing 41 basis points to 28.9%. The company’s hotels generated $514.8 million of same-property EBITDA for the full-year 2019, down 1.1% compared to the prior year. Same-property revenues climbed 1.9%, while same-property expenses increased 3.4%. As a result, same-property EBITDA margin for 2019 decreased 98 basis points to 32.2% as compared to the prior year.
Excluding the mandatory California Proposition 13 increases in real estate taxes for the California properties acquired as part of the company’s corporate acquisition in November 2018, same-property expenses increased 3.1% during the fourth quarter, resulting in same-property EBITDA margin for the quarter decreasing just 19 basis points. For 2019, also excluding the Proposition 13 impact, same-property expenses increased 2.6%, and same-property EBITDA margins declined 46 basis points.
“Our hotels performed well in 2019 despite the challenging operating environment, which included disruption from the U.S. government shutdown in early 2019, international trade tensions, a strong U.S. dollar resulting in softer international demand and new hotel supply,” said Bortz. “Our recently renovated and repositioned properties continue to gain market share, driving overall market share growth for the entire portfolio for the year. This outperformance is expected to continue over the next several years.”
Update on Strategic Disposition Plan
During the fourth quarter of 2019, the company completed the sale of Topaz Hotel in Washington, DC, for $33.1 million. Including the $449 million of hotel property sales completed earlier in the year, the company completed a total of $482.1 million of sales throughout the year.
On Jan. 27, 2020, the company executed a contract to sell the InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square for a combined $331 million price. This sale is subject to normal closing conditions, and the company offers no assurances that this sale will be completed on these terms, or at all. The company is targeting to complete the sale later in the first quarter. For 2020, the company is targeting to achieve $375 million of hotel and asset sales, which includes the previously announced InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square hotels.
Since the company commenced its strategic disposition plan on Nov. 30, 2018, and through Dec. 31, 2019, 13 hotels have been successfully sold, generating approximately $1.33 billion of gross sales proceeds. The sales to date reflect a 15.6x EBITDA multiple and a 5.5% net operating income capitalization rate (after an assumed annual capital reserve of 4% of total hotel revenues) based on the operating performance for 2018 of the properties sold.