Amid further bifurcation of travel of hotel demand, Pebblebrook Hotel Trust's CEO said his company's higher-end portfolio has outperformed the industry.
During the real estate investment trust's second-quarter 2025 earnings call, Pebblebrook Chairman and CEO Jon Bortz said hotel demand softened slightly nationwide from the first quarter to the second. Both demand and revenue per available room were negative in the second quarter compared to the same quarter in 2024.
“The decline was led by group, which was down in all three months versus last year largely due to reduced government travel, weaker international participation in conventions and conferences and some increasing attrition,” he said.
Transient demand held up better, and while it was weaker for the same reasons as group, it remained positive compared to last year, Bortz said.
Industry performance by price point or chain scale shows the sharp divide between the upper and lower ends of the hotel business, he said.
“Premium hotels and resorts continue to perform better while the bottom half has seen more weakness as lower-income consumers shift some of their spending toward necessities,” he said.
Pebblebrook and its higher-end hotel portfolio outperformed the industry during the second quarter, Bortz said. It grew occupancy, including group demand, and delivered modest RevPAR growth even with specific market challenges in Los Angeles.
That outperformance is due to the strong recovery in several previously lagging markets, namely San Francisco, Portland and Chicago, as well as ongoing share gains from its redeveloped properties, he said.
There’s continued recovery in business travel, both in Pebblebrook's transient and group segments, he said. Group room nights, group average daily rate and business transient rates all improvedfor the REIT. Leisure demand grew as well, though the portfolio saw increasing price competition due to much shorter booking windows. Even so, weekend occupancies were up across the hotel portfolio.
The Los Angeles market suffered from the combination of a post-fire slowdown in business and transient demand and the “often exaggerated media coverage” around the Immigration and Customs Enforcement raids, Bortz said. The impression that protests were all over the city — instead of the reality that they were isolated to a few blocks in downtown Los Angeles — led to cancellations and a slower booking pace.
“The administration's military response only amplified the negative media coverage, creating an even broader misperception about safety in the market,” he said.
Despite these short-term challenges, Pebblebrook’s team is confident in Los Angeles’ outlook as it’s a global gateway destination and the entertainment capital of the world, Bortz said. There’s also no new meaningful hotel supply on the horizon over the next five to 10 years.
There’s new state legislation doubling film and television tax credits to $750 million, he said. Los Angeles also passed legislation to make it easier and less expensive to film in Los Angeles. President Donald Trump has also spoken about his desire to bring entertainment productions back to the U.S., generally, and Los Angeles, specifically.
Los Angeles will also play host to the NBA All Star Game in February 2026, eight World Cup matches next summer, the Super Bowl in 2027 and the Summer Olympic Games in 2028, Bortz said. There’s also all the preparation that will take place leading up to these through 2026 and 2027.
The market will also see thousands of homes rebuilt in the two neighborhoods destroyed by the January wildfires, he said.
Elsewhere in California, San Francisco showed strong performance for the second quarter in a row and led all of Pebblebrook’s markets, Bortz said. RevPAR for its seven hotels there rose by 15.2% with occupancy gains from all segments. Business travel rose significantly due to a better convention calendar and an increase in transient and in-house group business. Leisure demand also grew in the market.
SF Travel is bringing in more concerts, sporting events and future conventions to San Francisco, which in turn is drawing in more hotel demand, he said. The city’s new leadership is focused on improving safety, cleanliness and quality of life issues.
“San Francisco looks and feels great,” Bortz said. “It's rapidly getting busier and very positive momentum is clearly building each day. San Francisco has definitely turned, and we're very excited.”
Portland and Chicago have also made progress as both cities are benefiting from cleaner, safer downtowns and are hosting more concerts and sporting event, he added.
Outlook
The Pebblebrook team remains cautious about the U.S. macroeconomic outlook over the next few quarters given the uncertainty stemming from tariff policies and the federal government’s efforts to reduce spending, Bortz said.
“While it's becoming increasingly clear where most tariffs are likely to settle, we believe both businesses and consumers remain hesitant until there's more clarity,” he said.
Because economists continue to forecast slower growth in the back half of this year, Pebblebrook executives expect the demand growth outlook will remain muted in 2025, he said. The third quarter will likely be the weakest quarter of 2025 due to its heavier leisure mix, and leisure demand is expected to stay relatively price-sensitive.
RevPAR is trending down 2% to 3% in the Pebblebrook portfolio in July, Bortz said. However, company executives expect higher occupancy year over year with the increase offset by modest ADR declines.
Along with continuing overall weakness in Los Angeles caused by the multitude of negative factors there, the REIT's hotel portfolio is facing less favorable comparisons in the third quarter in Chicago — which hosted the Democratic National Convention last year — as well as Boston and San Diego to lesser extents.
The total revenue pace for the third quarter is down 3% with group pace down 4% mostly on group room nights, he said. Additionally, group attrition has ticked up modestly.
On a more positive note, fourth-quarter group pace is currently flat and the hesitancy by groups to sign contracts has disappeared since the last quarter, Bortz said. There also hasn’t been any increase in group cancellations.
“This gives us greater confidences that [the third quarter] will likely mark the low point in performance for the year,” he said.
The third-quarter outlook assumes same-property RevPAR decline will range from 1% to 4% with total RevPAR down 0.5% to 3.2% on the cost side due to Pebblebrook's strategic efficiency and productivity program, he said. Total hotel expenses should grow only 0.2%, which means expenses per occupied room should decline again.
The midpoint of Pebblebrook’s outlook still reflects its most likely outcome, he said. Same-property RevPAR is expected to range between down 1% and up 1%, and same-property TRevPAR is expected be between down 0.3% and up 1.4%.
“While there's still macro uncertainty, the good news is we see no systemic issues at this time,” Bortz said. “Employment and corporate profits remain solid. If policy uncertainty improves, that alone could give the economy a boost, which should benefit the hotel industry.”
If the uncertainty fades, hotel demand should normalize with gross domestic product growth in 2026, he said. Supply is restricted, and industry fundamentals are set up for a good year.
Group pace and total pace for next year are favorable, Bortz said. Group room nights are up nearly 9%, with ADR ahead by almost 4% and group revenue up by 13.1%, more than $10 million ahead of 2025. Total revenue pace, including both group and transient, is up by 19%, over $17 million ahead of same time last year.
“While none of this guarantees a great year, the setup for 2026 is very strong,” he said.
Ramping portfolio performance
Within Pebblebrook's portfolio, the hotels that have undergone renovation and repositioning projects are seeing stronger performance, Bortz said.
The Newport Harbor Island Resort led the way with its strong ramp-up following the completion of a $50 million transformation last spring. It generated $5.1 million in earnings before interest, taxes, depreciation and amortization in the second quarter, beating estimates by $1.8 million. Revenue there increased more than 60% from the second quarter last year and out-of-room revenue increased by 70%, making up 50% of the resort’s revenue mix.
“This revenue shift demonstrates the benefits of the significant improvements and additions we made to the restaurants and bars, as well as the dramatic enhancements we made to the number and quality of indoor and outdoor event venues,” he said.
The Newport property should generate more than $15 million of EBITDA this year, well ahead of the $13.6 million it achieved when Pebblebrook bought it in mid-2022, a peak year for most resorts, Bortz said.
Across the board, the REIT’s redeveloped hotels and resorts are gaining share and growing cash flow, and most still have multiple years until they stabilize. That includes the Estancia La Jolla Hotel & Spa, the Chaminade Resort & Spa, the 1 Hotel San Francisco, the Hilton San Diego Gaslamp Quarter, the Margaritaville Hotel San Diego Gaslamp Quarter, the Jekyll Island Club Resort and the Southernmost Beach Resort.
During the quarter, Pebblebrook invested $21 million in capital improvements across the portfolio, not counting investments for LaPlaya Beach Club & Resort’s now completed repair and restoration. In April, it substantially completed the $15 million renovation of the newly rebranded Hyatt Centric Delfina Santa Monica. Except for its future conversion of Paradise Point Resort to the Margaritaville Island Resort, the REIT has completed all major transformation projects, having invested $525 million over the past several years.
By the numbers
Pebblebrook reported revenue of $407.5 million for the quarter, up from $397.1 million in 2024, according to the company’s earnings release. It reported net income of $19.3 million, a decrease of 40.2% year over year.
The company achieved same-property EBITDA of $115.8 million and adjusted EBITDAre of $117 million.
It’s projecting a net loss of $12 million to $26.5 million for the full year and adjusted EBITDAre range of $332.5 million to $347.5 million, with its midpoint increasing by $2 million.
At the end of the quarter, Pebblebrook had $267.1 million in cash, cash equivalents and restricted cash as well as $642.1 million of undrawn capacity in its $650 million senior unsecured revolving credit facility. Its debt has a weighted-average interest rate of 4.2% with a weighted-average maturity of 2.6 years. It has no significant maturities until December 2026.
As of press time, Pebblebrook’s stock was trading at $10.03 a share, down 26% year to date. The NYSE Composite Index was up 8% for the same period.