Pebblebrook Hotel Trust (PEB 0.07%) started 2015 off on a very good note. The hotel REIT reported another very strong quarter after the closing bell on Thursday, as it exceeded its expectations, yet again. It doesn't expect that to end, as it sees the hotel industry's strong fundamentals continuing throughout 2015 -- which is why it's already raising its guidance for the full year.
Checking in on the numbers
As a REIT, the number that matters most to investors is the cash flow the company is generating from the properties it owns. That number, in Pebblebrook's case, is measured by its adjusted funds from operations, or FFO, which checked in at $24.4 million, or $0.34 per share, for the first quarter. That was up 30.8% on a per-share basis from last year's first-quarter numbers of $16.9 million, or $0.26 per share.
Driving this result was Same-Property revenue per available room, or RevPAR, which was 3.6% higher, at $174.71, and exceeded the company's outlook. This would have been even higher if it wasn't for the fact that occupancy decreased 2.5% due to renovations during the quarter.
Pebblebrook's Same-Property EBITDA also increased during the quarter, as it was up 10.9%, to $46.2 million. That was due, in part, to the fact that Same-Property EBITDA Margin improved to 26% versus 24.3% in the year-ago quarter. Helping boost margins was the fact that Same-Property Revenue increased by 3.7%, while hotel expenses only rose 1.4% as the company did a solid job managing costs.
In commenting on the quarter in the earnings release, CEO Jon Bortz said, "We had a very good first quarter, especially when factoring in weather related travel disruptions that affected the East Coast as well as the negative impact associated with several significant capital reinvestment projects planned for the quarter."
In fact, if it wasn't for the weather issues and renovations, Pebblebrook's RevPAR would have been 360 basis points higher. With most of those renovations now complete, the company expects to see additional upside in 2015 as its refurbished hotels benefit from strong industry trends.
A look ahead
Bortz noted these trends in the earnings release by saying, "Hotel industry fundamentals remain strong as demand continues to outpace tepid new supply and rates grow at a healthy pace." That outlook, combined with the company's stronger-than-expected first-quarter results, is leading Pebblebrook too boost its outlook for 2015.
The company now sees adjusted FFO in a range of $177.5-$183 million, or $2.44-$2.52 per share. That's up from previous expectations of FFO in a range of $173.5-$180.5 million, or $2.40-$2.50 per share. However, the new outlook doesn't assume the company will acquire any additional hotels this year. If the company does make some acquisitions, which it has historically done, such a deal would likely be additive to 2015 guidance.
Investor takeaway
Pebblebrook delivered another solid quarter as the company managed to beat its own expectations despite the fact that weather and renovations had a noticeable impact on the quarter. Its ability to deliver strong results despite these headwinds, when combined with strong hotel industry fundamentals, is giving the company the opportunity to boost its 2015 outlook.
Moreover, there's significant upside to that outlook as Pebblebrook has historically been a very acquisitive company. This means that additional acquisitions in 2015 could boost its results even higher than its recently raised expectations.
