The pieces are aligned for a potentially stronger fourth quarter and 2026, but the external factors weighing down the hotel industry have executives at Pebblebrook Hotel Trust approaching the short term more cautiously.
Businesses and consumers remain cautious while they wait for clarity on the macroeconomic environment that’s contending with the government shutdown, tariff policy, reduction in government spending and other factors, Pebblebrook Chairman and CEO Jon Bortz said during the hotel real estate investment trust's third-quarter earnings call.
“Economists agree as they continue to forecast slower growth in the near term,” he said. “Specifically, the government shutdown, now in its sixth week, is clearly hurting travel.”
Government travel is down across the country, and it’s more pronounced in Washington, D.C., Bortz said. Plus, many businesses and leisure travelers are becoming more hesitant about air travel while the shutdown persists.
“Unfortunately, we've seen a notable increase in government and government-related cancellations everywhere, and we've experienced slower pickup in many markets around the country, especially in D.C. and to a lesser extent in San Diego,” he said.
Industry data showed hotel revenue per available room growth was primed for a positive October, but now it’s trending slightly negative, he said. Pebblebrook’s preliminary October results were more favorable, with total RevPAR growing 4%. Air travel is a main concern as the shutdown drags on, and the recent announcement there will be a 10% reduction in flights starting Friday won’t help demand unless it leads to a faster resolution to the shutdown.
It's difficult to forecast the rest of the quarter as a result, but Pebblebrook’s current outlook assumes an end to the shutdown in the near future, Bortz said. As of Oct. 1, revenue pace for the quarter was ahead of last year by 2.1%, or $2.6 million, which is an improvement from 90 days ago.
“With the government shutdown lasting the entire month of October and already a week in November, the positive pace for [the fourth quarter] has likely been negatively impacted, but we don't yet have data on that, and we won't for a few more days,” he said.
The REIT's current outlook assumes same-property RevPAR will range between down 1.25% to up 2% in the fourth quarter, with TRevPAR ranging between down 1.25% and up 2.7%, he said.
Pebblebrook's executive team is cautiously optimistic about 2026’s prospects due to the belief the fundamentals provide a favorable setup, Bortz said.
“We believe macroeconomic uncertainty will fade, hotel demand is likely to normalize with [gross domestic product] growth, and we know new supply will remain at historically low levels,” he said. “I know there are many professional prognosticators who are currently forecasting limited RevPAR growth for 2026, but there are several significant pluses for next year, both for the industry and specifically for our portfolio.”
There has long been a positive correlation between GDP growth and hotel industry demand growth, he said. The hospitality industry has experienced a unique set of factors temporarily disrupting the correlation, but those will fade or disappear and the correlation will resume, similar to how it has in past disruptions.
Another tailwind is the more favorable holiday calendar, providing longer weekends and fewer midweek disruptions, he said.
There will be 28 matches for the FIFA World Cup next year in markets where Pebblebrook has a presence, he said. The NCAA Men’s Basketball Tournament has rounds in four of its markets. The U.S. 250th anniversary celebrations will take place in Washington, D.C., Boston and likely other cities. The Super Bowl will take place in San Francisco, the NBA All-Star Game will be in Los Angeles and the college football national championship game will be in Miami — all cities with Pebblebrook hotels.
“While most of these major events have yet to put many rooms on the books for next year, except for the Super Bowl in San Francisco, our group and total revenue pace for next year are currently favorable,” he said.
As of Oct. 1, next year’s group room nights were up 4.1% with average daily rate ahead by nearly 3% and group revenues up over 7% or $7.6 million over 2025, Bortz said.
“By executing on our strategic plan, driving revenue, maximizing efficiencies and growing free cash flow, we're creating the foundation for strong, durable, long-term value creation,” he said. “We have a solid balance sheet, a redeveloped portfolio and a very favorable multi-year supply setup, which positions us well to take advantage of a growing economy. We just need the macro to finally fall into place without major disruptions.”
Performance update
The third quarter looked like the second quarter but softer, Bortz said. Hotel demand was slightly down year over year, and that caused renewed pricing competition, resulting in a lack of ADR growth. Group demand felt the most pressure, and it was lower in all three months due to reduced government travel, weak international participation at conventions and conferences and some increasing attrition.
Transient demand, including leisure, held up better and remained positive year over year, he said. The mix favored weekends over weekdays for the broader industry and Pebblebrook’s portfolio.
Industry-wide, there remains a sharp divide between the upper and lower ends of the market, he said. Premium hotels and resorts continue to perform better while the bottom half sees cost-conscious consumers pull back on discretionary spending.
Localized disruptions in Los Angeles and Washington, D.C., drove third-quarter performance below the industry average, Bortz said. Those markets represented roughly $7 million of the $7.9 million year-over-year decline in same-property hotel earnings before interest, taxes, depreciation and amortization.
Business transient continues to recover, and like the rest of the industry, Pebblebrook’s group room nights and group revenue was slightly negative compared to last year, he said.
Pebblebrook’s redeveloped properties were a key part of the company’s improved performance in 2025 and should provide a similar boost next year, Bortz said. The Newport Harbor Island Resort once again delivered in the third quarter, leading the portfolio with $11.8 million of EBITDA, up $2.9 million over last year on a 21.6% total revenue increase and strong flow through.
“That's exactly the ramp we expected from the comprehensive $50 million transformation completed last spring,” he said. “That's a higher quality overall resort experience with more compelling venues, delivering increased event capacity and a richer food and beverage mix, all together driving higher ADRs and higher out-of-room guest spend.”
By the numbers
For the third quarter, Pebblebrook recorded total revenue of $398.7 million, down from $404.5 million in the third quarter of 2024, according to its earnings report. It reported a net loss of $32.4 million as compared to a net income of $45.1 million the year prior.
Same-property hotel earnings before interest, taxes, depreciation and amortization was $105.4 million, a 7% year-over-year decrease. Adjusted EBITDA from real estate was $99.2 million, an 11.6% year-over-year decrease.
Same-property revenue per available room was $232, a 3.1% year-over-year decrease, while same-property total RevPAR was $362, a 1.5% decline.
As of Sept. 30, Pebblebrook had $232 million in cash and restricted cash on hand. It expects to use its cash for its remaining $350 million of convertible notes maturing in December 2026. It also has $642 million of available capacity on its $650 million senior unsecured revolving credit facility.
On Sept. 18, it completed a $400 million private offering of 1.625% convertible notes due 2030 and used the proceeds to retire an equal amount of its 1.75% convertible notes due in 2026 at a 2% discount to par. This extended the maturity of a significant portion of the company’s debt at an attractive cost of capital, leaving $350 million of the aforementioned 2026 notes outstanding.
Pebblebrook’s debt carries a 4.1% weighted-average interest rate and weighted-average debt maturity of 2.9 years. Ninety-six percent of the debt is effectively fixed at 4%. Net debt to trailing 12-month corporate EBITDA was 6.1-times.
During the quarter, Pebblebrook repurchased $1.4 million of its preferred shares at a 27% average discount to par value. On Oct. 21, the board of trustees approved a new $150 million common share repurchase program.
As of press time, Pebblebrook’s stock was trading at $10.42 per share, down 23.1% year to date. The NYSE Composite Index was up 11.5% for the same period.