Per Pebblebrook Hotel Trust’s (PEB Quick QuotePEB - Free Report) recently released update, its operating results and demand trends for February were in line with its expectations, with the urban portfolio performing strongly.

The company witnessed same-property total revenue growth of 3.4% year over year. This was driven by a 3.8% rise in room revenues and a 2.7% increase in non-room revenues. The company benefited from an extra day year over year.

There is an ongoing recovery in business groups, and transient and urban hotels continue to make the most of favorable demand trends. However, adverse weather conditions on the West Coast and in Florida affected both business and leisure demand, throwing up challenges for the company’s resorts.

Same-property revenue per available room (RevPAR) increased 0.1%. This was because, though occupancy increased 2.2%, the company experienced a 2.1% decline in the average daily rate (ADR).

Urban and Resort Properties' Update

Speaking of the lodging real estate investment trust’s (REIT) urban portfolio, we note that there has been a solid performance in February, with a two-percentage-point improvement in occupancy and a 7.8% year-over-year increase in total revenues.

Particularly, San Diego reported a robust performance with a 10.9% increase in occupancy and 5.5% growth in ADR, resulting in 16.9% growth in RevPAR. Recently redeveloped properties partly fueled this growth.

However, adverse weather conditions in the southeast region and along the west coast, including atmospheric river occurrences resulting in heavy rains, affected business and leisure demand in San Francisco, Los Angeles and San Diego. As a result, resort same-property RevPAR declined 7.2% year over year.

Nevertheless, with the majority of its resorts undergoing repositioning, the company foresees improvements in both occupancy and RevPAR penetration at its revamped resorts throughout 2024, with these properties ramping up and capturing a larger market share.

With respect to its redevelopment activities, Pebblebrook noted that the final phase of the redevelopment projects — Newport Harbor Island Resort (Newport, RI) & Estancia La Jolla Hotel & Spa (La Jolla, CA) — are proceeding as anticipated. The substantial completion of both these projects is aimed in April.

For the LaPlaya Beach Resort & Club (Naples, FL), the company noted that the comprehensive renovation of the Beach House (79 rooms) is significantly complete. The Beach House has reopened, and the resort is ramping up operations.

In Conclusion

The lodging industry is expected to experience a stable operating environment in 2024 due to the continuous improvement in the group business, a gradual recovery in business transient and steady demand for leisure activities. Nonetheless, elevated interest rates remain a concern.

PEB currently carries a Zacks Rank #3 (Hold). Its shares have rallied 17.3% in the past year, outperforming its industry’s increase of 5.3%.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Host Hotels & Resorts (HST Quick QuoteHST - Free Report) and Iron Mountain (IRM Quick QuoteIRM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for HST’s 2024 funds from operations (FFO) per share is pegged at $1.97, which suggests year-over-year growth of 2.6%.

The Zacks Consensus Estimate for IRM’s 2024 FFO per share stands at $4.42, which indicates an increase of 7.3% from the year-ago quarter.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.