Pebblebrook Hotel Trust (PEB) stock intrinsic value fair value estimate & owner earnings analysis

Pebblebrook Hotel Trust owns upscale and luxury hotels in large US urban and resort markets. Revenue is mostly room nights, food and beverage, and resort fees, so results move with travel demand and pricing. Revenue was $1.48 billion in 2025, up about 1.5% from 2024, after $1.45 billion in 2024 and $1.42 billion in 2023. How we measured earnings. We start from cash flow from operations, remove swings in working capital, subtract stock compensation as a real cost, and subtract the renovation spending needed to keep the hotels competitive. Spending that added capacity is treated as growth and left out. On that basis, per-share owner earnings were about $1.50 in 2016, $1.61 in 2017, $1.22 in 2018, $2.49 in 2019 (after the 2018 LaSalle acquisition), then negative in 2020 and 2021 during the pandemic, $0.83 in 2022, $0.18 in 2023, $1.38 in 2024 and $1.27 in 2025. Renovation spending of $201 million in 2023 explains the weak 2023 figure. Rebound years 2021 and 2022 were not treated as growth spending, because the recovery refilled existing rooms rather than adding capacity. Starting level. We use the median of 2023 to 2025, about $1.27 per share, which reflects the business after the pandemic recovery and the 2023 renovation cycle. The 2016 to 2019 era describes a smaller company, with a different share count, before the LaSalle merger. Owner earnings fell about 8% in 2025 (from $1.38 to $1.27), so we assume no growth in any case at the start. Nothing in the filings secures faster growth: hotel revenue growth has been only 1.5% to 2.3% a year, and it depends on travel demand rather than contracts. Base case: about $21 per share. Owner earnings stay at roughly $1.27 per share. The company owns its hotels and reinvests renovation cash before we count earnings, so we let that level continue. We credit no growth, no margin gains and no acquisitions. Share buybacks have been steady (about 130 million diluted shares in 2022, 117 million in 2025), but we do not add future buybacks. Bear case: about $9.50 per share. Debt is large, including $902 million of term loans, $750 million of convertible notes, $400 million of senior notes, plus mortgage debt. A $350 million convertible note comes due in December 2026 and would need refinancing. A downturn like 2020, or a repeat of the heavy 2023 renovation spending on top of higher borrowing costs, would take away earnings for two years. Earnings would then settle near $0.65 per share, similar to 2022 and 2023. Bull case: about $30 per share. Owner earnings rise to about $1.75 per share and stay there. Renovation spending fell to $97 million in 2025 from $201 million in 2023, first-half 2026 operating cash flow was up about 21% from the first half of 2025 with spending on renovations halved, and the share count is lower than in 2019. This does not reach the $2.49 earned in 2019. What we could not fully reconcile. Diluted shares reported for the second quarter of 2026 were about 127 million, above the 117 million for 2025, apparently from counting convertible notes. We used about 117 to 118 million, because the note interest is already deducted from cash flow. If the share count is really higher, each value falls by roughly 5 to 8%. What would make this wrong. Renovation spending staying at or above 2023 levels would put owner earnings closer to our bear level. A sharp fall in city travel and group demand, or higher interest on the floating-rate term loans, would do the same. Being wrong on the upside requires the 2026 cash flow gain to prove lasting, which two quarters do not yet show. The margin-of-safety price of $10 per share is close to our bear case, because the company is leveraged and tied to the travel cycle.