Pebblebrook Earnings: Lower Taxes and Cost Efficiencies Lead to Strong Hotel EBITDA Growth

Pebblebrook Hotel Trust reported second quarter results that were better than we expected, giving us confidence in our $25.50 fair value estimate for the no-moat company. Same-store occupancy continues to improve as it was up 3.8% in the quarter to 76.6%. However, the average daily rate fell 2.0%, which is the sixth straight quarter of rates declining. Combined, revenue per available room improved 1.7% for the second quarter, relatively in line with our estimate of 2.1% growth. However, food and beverage revenue grew 4.3% while other hotel revenue was up 3.7%, leading to same-store revenue growth of 2.6%. Additionally, same-store operating expenses were down 0.1% in part due to real estate taxes falling 37.6%. As a result, same-store hotel EBITDA margins went up 180 basis points to 31.5%, better than our 30.3% EBITDA margin estimate, and same-store hotel EBITDA grew 8.9%, better than our 4.1% growth estimate. The higher hotel EBITDA led to Pebblebrook reporting adjusted funds from operations of $0.67 per share for the second quarter that beat our $0.61 estimate.