Executive Summary / Key Takeaways

• Strategic Transformation Driving Outperformance: Pebblebrook Hotel Trust has completed a multi-year, half-billion-dollar portfolio redevelopment, positioning its urban and resort lifestyle hotels for significant market share gains and outperformance against industry averages, particularly in recovering urban markets.
• Operational Excellence and AI-Driven Efficiency: The Company's intense focus on operational efficiencies and early adoption of AI-enabled tools are yielding tangible cost reductions, with hotel expenses per occupied room declining, mitigating inflationary pressures and enhancing profitability.
• Robust Financial Health and Liquidity: With a strong balance sheet, substantial cash reserves, and extended debt maturities, Pebblebrook possesses significant financial flexibility to fund strategic initiatives, manage upcoming obligations, and return capital to shareholders.
• Optimistic Outlook with Clear Catalysts: Despite near-term macroeconomic uncertainties and specific market headwinds, the Company anticipates a strong rebound in 2026, driven by easier comparisons, continued recovery in key urban markets, and a robust calendar of major events.
• Valuation Opportunity Amidst Niche Leadership: Trading at a notable discount to its underlying asset value, Pebblebrook offers a compelling investment proposition, leveraging its differentiated portfolio and operational prowess in a supply-constrained lodging environment.

Setting the Stage: A Differentiated Approach in a Dynamic Industry

Pebblebrook Hotel Trust operates as a Maryland real estate investment trust (REIT), strategically acquiring and investing in urban and resort lifestyle hotels across major U.S. cities and select destination markets, with a strong emphasis on gateway coastal areas. This focused approach distinguishes it within the competitive lodging industry, where it vies for market share against larger, more diversified players like Host Hotels & Resorts (HST), Hyatt Hotels Corporation (H), Marriott International (MAR), and Hilton Worldwide Holdings (HLT).

While industry giants like Marriott and Hilton leverage vast franchising networks and loyalty programs for scale and efficiency, Pebblebrook's strategy centers on direct ownership and intensive asset management. This allows for a more tailored approach to property positioning, revenue optimization, and capital improvements. For instance, Marriott's dominant market share and extensive franchising network enable superior customer acquisition efficiency, often with 15-20% lower costs per booking compared to PEB's owned model. However, Pebblebrook differentiates itself through bespoke resort experiences and localized execution, achieving 10% higher RevPAR in lifestyle segments and 10-15% faster property upgrades.

A key differentiator for Pebblebrook is its proactive embrace of technology and operational innovation. The Company is actively piloting AI-enabled operating tools designed to enhance productivity, reduce hotel operating expenses, improve hiring and retention, and facilitate real-time decision-making. This strategic initiative aims to significantly reshape the operating model, moving beyond traditional hotel management. Furthermore, Pebblebrook is implementing new systems for energy and water usage reduction, including solar and HVA upgrades, and utilizing predictive technologies to mitigate costly issues like pipe breaks. These efforts, supported by its Curator program, contribute to a competitive moat by driving efficiency and cost leadership in its owned portfolio, with energy costs notably down 2.1% in Q2 2025. This focus on operational efficiency is particularly critical given that larger brands, with their legacy systems, may take longer to integrate AI, potentially giving PEB's independent operators a quicker adoption advantage.

A History of Strategic Evolution and Portfolio Enhancement

Pebblebrook's journey since its 2009 inception has been marked by a dynamic evolution of its portfolio. The Company has strategically divested 15 hotels since 2019, primarily from West Coast markets like San Francisco and Portland, reallocating capital to more leisure-focused and East Coast properties. This strategic shift aims to optimize market segment exposure and enhance portfolio resilience.

A cornerstone of Pebblebrook's strategy has been its multi-year, portfolio-wide redevelopment program, culminating in 2024 with over $500 million invested. This extensive program has dramatically enhanced the quality and market position of nearly all its properties. Notable examples include the transformation of Hotel Vitale into the 1 Hotel San Francisco, the repositioning of Margaritaville San Diego Gaslamp Quarter, and significant upgrades to Newport Harbor Island Resort and Estancia La Jolla Hotel & Spa. These investments are now yielding substantial market share gains and non-room revenue growth, with many redeveloped properties still in their ramp-up phase, poised for further upside. The completion of this major capital investment program also positions the Company for significantly lower capital expenditures in the coming years, with projected investments of $65 million to $75 million in 2025 and a similar level expected in 2026.

Recent Financial Performance: Resilience Amidst Headwinds

Pebblebrook's recent financial performance reflects both the benefits of its strategic initiatives and the impact of broader market dynamics. For the six months ended June 30, 2025, total hotel revenues reached $727.2 million, a 2.7% increase over the same period in 2024. Despite this revenue growth, Hotel EBITDA for the six months ended June 30, 2025, saw a 5.1% decline to $181.8 million, influenced by specific market challenges and increased operating expenses.

In Q2 2025, same-property total RevPAR grew by 1.3% year-over-year, with urban properties increasing by 1.7% and resorts by 0.6%. Excluding the impact of Los Angeles, which faced unique headwinds from wildfires and exaggerated media coverage, same-property total RevPAR rose a healthy 2.7%, with the urban portfolio climbing 4.1%. This outperformance against industry trends underscores the strength and diversification of Pebblebrook's portfolio. Out-of-room revenues at resorts notably rose 3.3%, with food and beverage up 2.5%, indicating continued guest spending. Overall, out-of-room revenues increased 2.6% (3.5% excluding LA), with food and beverage up 3.3%. Group room nights also rose 1.9% in Q2 2025, contributing 27% of room revenue, reflecting the resilience of this segment and the early success of the Company's strategic reinvestment program, particularly at its resorts.

The Company's focus on operational efficiencies is clearly impacting its expense structure. In Q2 2025, same-property hotel expenses, excluding fixed costs, rose just 1.7% year-over-year. Crucially, on a per occupied room basis, expenses declined by 0.8%, a favorable result attributed to disciplined cost control and efficiency improvements. This disciplined approach is vital in mitigating inflationary pressures, including wage and benefit increases.

Pebblebrook's balance sheet remains robust. As of June 30, 2025, the Company held $267.1 million in cash and cash equivalents, with over $640 million of availability on its unsecured revolving credit facility, totaling $909.2 million in liquidity.

Nearly all of its debt is unsecured, with no significant maturities until December 2026. The weighted average interest cost on its debt is an attractive 4.2%, with 96% of its debt fixed. This strong financial position, bolstered by $1.6 billion in debt refinancing and extensions in 2024, provides significant flexibility for capital allocation, including potential debt paydowns and common share repurchases, as evidenced by the repurchase of 1.30 million common shares for $14.3 million in the first half of 2025.

Operational Excellence and Technological Edge

Pebblebrook's commitment to operational excellence is a core driver of its competitive advantage. The Company's strategic productivity and efficiency program is comprehensive, targeting every expense category. This includes smarter labor scheduling through new technology and training, tighter procurement processes, and aggressive appeals of real estate tax assessments, with nearly 100 appeals currently underway.

The Company is at the forefront of adopting new technologies to enhance efficiency. It is piloting AI-enabled operating tools aimed at improving hiring, retention, service delivery, and real-time decision-making. These tools have the potential to significantly reshape the operating model by automating routine tasks and optimizing resource allocation. Furthermore, Pebblebrook is investing in physical improvements to mitigate weather-related damage, particularly at properties like LaPlaya Beach Resort, which demonstrated enhanced storm resilience after significant post-Hurricane Ian rebuilding. Energy and water usage are being reduced through engineering audits, solar installations, and HVA upgrades. The Company is also leveraging predictive technologies to prevent costly infrastructure failures, such as water main breaks. The Curator program, a strategic initiative, plays a crucial role in analyzing and implementing these innovations at favorable pricing, further enhancing the Company's ability to drive efficiencies.

Outlook and Growth Catalysts

Pebblebrook's outlook for the remainder of 2025 and into 2026 reflects a cautious near-term perspective coupled with increasing long-term optimism. Management anticipates Q3 2025 to be the weakest quarter, with same-property RevPAR expected to decline 1% to 4% and total RevPAR down 0.5% to 3.2%. This is attributed to continued leisure price sensitivity, specific market headwinds in Los Angeles, and tougher convention comparisons in markets like Chicago, Boston, and San Diego. Total hotel expenses are forecasted to grow just 0.2% in Q3, implying a further decline in expenses per occupied room due to efficiency programs. For the full year 2025, the midpoint of guidance remains the most likely outcome, contingent on macro uncertainty.

Looking ahead to 2026, the Company expresses strong optimism. Easier comparisons in Los Angeles, coupled with expected continued recoveries in San Francisco, Portland, and Chicago, are anticipated to turn previous headwinds into tailwinds. San Francisco, in particular, is showing robust momentum, with Q2 2025 RevPAR climbing 15.2% and Q4 group pace flat, indicating a potential low point in Q3. The city's performance is supported by a stronger convention calendar and increased business demand from the tech and AI sectors.

A robust calendar of major events is set to drive incremental demand across Pebblebrook's portfolio in 2026 and beyond. This includes World Cup matches in Boston, Miami, and Los Angeles, NCAA men's basketball tournament rounds in five markets, and the 250th U.S. anniversary celebrations in D.C. and Boston. For 2026, group room nights are already up nearly 9%, ADR is ahead by almost 4%, and group revenues are up 13.1% ($10 million ahead of 2025). Total revenue pace for 2026, including both group and transient, is up a strong 19% ($17 million ahead of the same time last year). This strong setup, combined with restricted new supply growth in the industry, positions Pebblebrook for a very favorable year.

Risks and Mitigation

Despite the optimistic long-term outlook, Pebblebrook faces several pertinent risks. Macroeconomic uncertainty, stemming from tariff policies and government spending, continues to influence consumer and business confidence, potentially leading to slower demand growth. The shortening of booking windows, especially for leisure travel, creates near-term pressure on rates and reduces forward visibility. Specific market challenges, such as the lingering effects of the Los Angeles wildfires and the associated media misperception of safety, have caused cancellations and booking slowdowns. Additionally, shifts in government travel policies and global geopolitical disruptions can impact international inbound demand.

Pebblebrook actively mitigates these risks through proactive strategies. Its intense focus on operational efficiencies and cost controls provides a buffer against revenue fluctuations. The Company's redeveloped properties, with their enhanced amenities and market positioning, are designed to capture market share even in challenging environments. Furthermore, strategic investments in property hardening, particularly at coastal resorts, aim to reduce the financial impact of natural disasters. The Company's strong balance sheet and liquidity provide the financial flexibility to adapt quickly to unforeseen market shifts and maintain operational stability.

Conclusion

Pebblebrook Hotel Trust stands at a pivotal juncture, having completed a transformative portfolio redevelopment and established a clear leadership position in operational efficiency and technological adoption. The Company's strategic focus on urban and resort lifestyle hotels, coupled with its disciplined asset management and innovative use of AI-enabled tools, underpins a compelling investment thesis. While near-term macroeconomic uncertainties and specific market headwinds present challenges, Pebblebrook's robust financial health, strong liquidity, and a pipeline of organic growth from its redeveloped assets position it for significant long-term value creation.

The Company's ability to drive market share gains in recovering urban centers, leverage its enhanced resort portfolio, and continuously optimize its cost structure through technological leadership provides a clear path to improved profitability and cash flow. For discerning investors, Pebblebrook offers an opportunity to participate in the lodging industry's recovery and long-term growth, backed by a resilient business model and a management team adept at navigating dynamic market conditions. The strong setup for 2026, driven by a favorable event calendar and continued operational improvements, further reinforces the Company's trajectory towards sustained outperformance.