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CEO Spotlight: Hotel Sector Benefiting From Limited Supply

12/05/2013 | By Sarah Borchersen-Keto

Jon Bortz, chairman and CEO of Pebblebrook Hotel Trust (NYSE: PEB), joined REIT.com for a CEO Spotlight video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

Bortz was asked about the state of lodging industry fundamentals heading into 2014. “Fundamentals are really terrific in the hotel industry,” Bortz replied. He pointed out that the industry continues to benefit from a limited amount of supply growth.

“We’re at relatively low levels, well below historical averages,” Bortz said. He is anticipating about 1.2 percent supply growth for next year, with demand likely to be double that amount. “We’ll continue to see occupancies rise across the industry, and that gives us a decent amount of pricing power.”

Bortz also discussed the local nature of the hotel business, and the variation in market demand. He noted that the San Francisco market, for example, is “really, really strong,” with double -digit revenue per available room (RevPAR) increases.  “If you work your way along the West Coast you’re seeing very strong growth,” with little to no new supply, according to Bortz.

The East Coast, however, is a little more challenged, according to Bortz, with more modest RevPAR growth and additional supply in markets such as New York and Washington, D.C.  “For 2014, and probably for a number of years beyond, we expect the West Coast to significantly outperform the East Coast,” Bortz said.

Turning specifically to Pebblebrook, Bortz described efforts taken by the company to mitigate cost increases, implement best practices across the portfolio, and use technology to increase efficiencies. He noted that Pebblebrook is making significant investments in energy conservation. The typical return on energy investments is about 25 percent, Bortz said, so it’s “good for the planet and, at the same time,it’s great business.”

Bortz pointed out that Pebblebrook has invested upwards of $15 million to $20 million in energy efficiency and sustainability initiatives. Often times these renovations are able to reposition a property to a higher level than it was previously, he said. “We’ve found that with our renovations, design sells. We’re very focused on creating an experience for our customers through these renovations that’s different from what you’d get in a typical hotel,” Bortz said.