Pebblebrook Hotel Trust Reports 2019 Results and Provides 2020 Outlook

Pebblebrook Hotel Trust (NYSE: PEB):

Fourth Quarter and Full-Year Highlights

• Net Income: The Company’s net income was $19.6 million in the fourth quarter of 2019, an increase of $118.9 million as compared to the same period of 2018. The Company’s net income was $115.7 million for the year ended December 31, 2019, an increase of $102.3 million as compared to 2018. The increase is primarily due to the Company’s corporate acquisition completed in November 2018.

• Same-Property Operating Statistics: Same-Property Total RevPAR increased 2.8 percent from the fourth quarter of 2018. Same-Property RevPAR for the fourth quarter increased 2.0 percent from the prior year to $196.34, with Same-Property ADR declining 0.5 percent to $247.18 and Same-Property Occupancy rising 2.5 percent to 79.4 percent. In addition, Same-Property Total RevPAR for full-year 2019 grew 1.9 percent over 2018, and Same-Property RevPAR for the year increased 1.2 percent over the prior year to $210.65. Same-Property ADR rose 1.3 percent for the year to $256.17, and Same-Property Occupancy for the year declined by 0.2 percent to 82.2 percent.

• Same-Property EBITDA, Expenses and Margins: The Company’s hotels generated $109.0 million of Same-Property EBITDA for the quarter ended December 31, 2019, up 1.4 percent versus the same period of 2018. Same-Property Revenues increased 2.8 percent, while Same-Property Expenses rose 3.4 percent, resulting in Same-Property EBITDA Margin for the quarter decreasing 41 basis points to 28.9 percent. The Company’s hotels generated $514.8 million of Same-Property EBITDA for the full-year 2019, down 1.1 percent compared to the prior year. Same-Property Revenues climbed 1.9 percent, while Same-Property Expenses increased 3.4 percent. As a result, Same-Property EBITDA Margin for 2019 decreased 98 basis points to 32.2 percent as compared to the prior year.

• Operating Performance: Excluding the mandatory California Proposition 13 increases in real estate taxes for the California properties acquired as part of the Company’s corporate acquisition in November 2018, Same-Property Expenses increased 3.1 percent during the fourth quarter, resulting in Same-Property EBITDA Margin for the quarter decreasing just 19 basis points. For 2019, also excluding the Proposition 13 impact, Same-Property Expenses increased 2.6 percent, and Same-Property EBITDA margins declined 46 basis points.

“Our hotels performed well in 2019 despite the challenging operating environment, which included disruption from the U.S. government shutdown in early 2019, international trade tensions, a strong U.S. dollar resulting in softer international demand and new hotel supply,” commented Mr. Bortz. “Our recently renovated and repositioned properties continue to gain market share, driving overall market share growth for the entire portfolio for the year. This outperformance is expected to continue over the next several years.”

Update on Strategic Disposition Plan

During the fourth quarter of 2019, the Company completed the sale of Topaz Hotel in Washington, D.C. for $33.1 million. Including the $449.0 million of hotel property sales completed earlier in the year, the Company completed a total of $482.1 million of sales throughout the year.

On January 27, 2020, the Company announced that it executed a contract to sell the InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square for a combined $331.0 million price. This sale is subject to normal closing conditions, and the Company offers no assurances that this sale will be completed on these terms, or at all. The Company is targeting to complete the sale later in the first quarter. For 2020, the Company is targeting to achieve $375.0 million of hotel and asset sales, which includes the previously announced InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square hotels.

Since the Company commenced its strategic disposition plan on November 30, 2018, and through December 31, 2019, 13 hotels have been successfully sold, generating approximately $1.33 billion of gross sales proceeds. The sales to date reflect a very favorable 15.6x EBITDA multiple and a 5.5 percent net operating income capitalization rate (after an assumed annual capital reserve of 4.0 percent of total hotel revenues) based on the operating performance for 2018 of the properties sold.

Update on Strategic Property Redevelopment Plan

The Company made significant progress on its Strategic Property Redevelopment Plan in 2019. Throughout the year, the Company completed 10 third-party operator or brand changes at the following 9 hotels:

• Hotel Colonnade Coral Gables, Autograph Collection
• The Hotel Zags, “The Unofficial Z Collection”
• Skamania Lodge
• L’Auberge Del Mar
• Paradise Point Resort & Spa
• Villa Florence San Francisco on Union Square
• The Marker San Francisco
• Mason & Rook Hotel, soon to be Viceroy Washington DC
• Donovan Hotel, soon to be Hotel Zena Washington DC

In addition, on January 2, 2020, Hilton San Diego Resort & Spa became San Diego Mission Bay Resort, an independent lifestyle-oriented resort. Also in January, Davidson Hotels & Resorts became the manager of Solamar Hotel in San Diego. Furthermore, as announced on February 13, 2020, Solamar Hotel will become Margaritaville Hotel San Diego Gaslamp Quarter by the end of the second quarter of 2021 following an extensive renovation and transformation.

On February 19, 2020, the Company announced that Hotel Vitale in San Francisco will be renovated and transformed into the eco-lux 1 Hotel San Francisco managed by SH Hotels & Resorts. The hotel will remain Hotel Vitale until the renovation is completed, which is expected to occur by the end of the second quarter of 2021.

In addition to these transformations, the Company is also reinventing and relaunching the Villa Florence San Francisco on Union Square as The Baybury Hotel following a comprehensive renovation and repositioning, which is expected to be completed by the end of this year.

Capital Investments

In the fourth quarter, the Company completed $51.6 million of capital investments throughout its portfolio. The Company completed $162.8 million of capital investments and projects in 2019, including the completion of major renovations and property improvements at W Boston, Mondrian Los Angeles, Sofitel Philadelphia at Rittenhouse Square and Skamania Lodge, all in the second quarter, the completion of the first phase of a substantial renovation at San Diego Mission Bay Resort in the third quarter and the completion of significant upgrades at The Marker Resort Key West in the fourth quarter.

In 2020, the Company intends to start or complete additional major renovation and repositioning projects including:

• Donovan Hotel (estimated at $25.0 million, or $130 thousand per key), which encompasses an exhaustive redevelopment and repositioning, expected to be completed in the second quarter of 2020, at which time the hotel will be relaunched as Hotel Zena Washington DC, the seventh member of “The Unofficial Z Collection,” the Company’s proprietary brand of individually curated, unique urban lifestyle hotels;

• Embassy Suites San Diego Bay Downtown (estimated at $18.0 million), which is receiving a comprehensive guest suite renovation, expected to be completed in the second quarter of 2020;

• Westin San Diego Gaslamp Quarter(estimated at $17.0 million), which consists of a guestroom, lobby, restaurant, and bar renovation, expected to be completed by the end of the first quarter of 2020;

• Le Parc Suite Hotel (estimated at $12.5 million), which consists of a comprehensive hotel renovation, including the guestrooms, lobby, public areas and exterior, which commenced in the first quarter of 2020, expected to be completed by the end of the second quarter of 2020;

• Villa Florence San Francisco on Union Square (estimated at $12.0 million), which will undergo a complete transformation including the guestrooms, corridors, entry and lobby, planned to begin in the third quarter of 2020, expected to be completed by the end of the year, at which time it will be repositioned as The Baybury Hotel;

• San Diego Mission Bay Resort, Phase 2 (estimated at $11.0 million), which is undergoing a reconfiguration and complete renovation of the public areas including the porte-cochere, lobby, entry, pool, restaurants, and bars, retail shop, creation of additional event venues and upgrading of guestrooms and suites, expected to be completed by the end of the second quarter of 2020;

• Viceroy Santa Monica Hotel, Phase 1 (estimated at $10.5 million), which is undergoing a porte-cochere, lobby, public area, pool, restaurant, bar and meeting space renovation, featuring both interior and exterior enhancements, expected to be completed by the end of the second quarter of 2020;

• Chaminade Resort & Spa (estimated at $9.0 million), which is repositioning the property through a redevelopment of the property’s public space, restaurant, lobby, porte-cochere/entry, exterior patio, and all meeting space and venues, expected to be completed in the second quarter of 2020; and

• Mason & Rook Hotel (estimated at $8.0 million), which is undergoing a complete renovation and upgrading of the entry, lobby, guestrooms, restaurant and bar areas, rooftop pool, and its meeting spaces, expected to be completed by the end of the second quarter of 2020, at which time it will be rebranded as the Viceroy Washington DC.

Balance Sheet and Shareholder Distributions

As of December 31, 2019, the Company had $2.2 billion in consolidated debt at an effective weighted-average interest rate of 3.5 percent. Approximately $1.7 billion, or 77 percent of the Company’s total outstanding debt, was at a weighted-average fixed interest rate of 3.5 percent, and approximately $0.5 billion, or 23 percent, was at a weighted-average floating interest rate of 3.3 percent. Of the Company’s outstanding debt, $2.0 billion was in the form of unsecured term loans, and $165.0 million was outstanding on its $650.0 million senior unsecured revolving credit facility. As of December 31, 2019, the Company had $56.9 million of consolidated cash, cash equivalents, and restricted cash.

As of December 31, 2019, the Company’s fixed charge coverage ratio was 2.9 times, total net debt to trailing 12-month corporate EBITDA was 4.7 times, and the Company’s debt to net assets after GAAP depreciation was at 30 percent.

On December 16, 2019, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares as well as a regular quarterly cash dividend for the following preferred shares of beneficial interest:

• $0.40625 per 6.50% Series C Cumulative Redeemable Preferred Share;
• $0.39844 per 6.375% Series D Cumulative Redeemable Preferred Share;
• $0.39844 per 6.375% Series E Cumulative Redeemable Preferred Share; and
• $0.39375 per 6.30% Series F Cumulative Redeemable Preferred Share.

2020 Outlook

The Company is providing a 2020 outlook, which assumes $375.0 million of asset sales throughout the year, with $331.0 million of assets sold by the end of the first quarter, and $44.0 million of assets sold by mid-year.

The 2020 asset sales are projected to negatively impact the Company’s Adjusted EBITDAre by $21.6 million, as a result of the lost Hotel EBITDA from the sold assets. Assuming all asset sales proceeds are used to reduce the Company’s outstanding debt, we estimate interest savings of approximately $10.8 million will be generated. The net impact of the 2020 asset sales to Adjusted FFO and Adjusted FFO per diluted share is estimated to be $10.8 million and $0.08, respectively.

The assets that were sold in 2019 contributed $7.5 million in Adjusted EBITDAre, $1.2 million to Adjusted FFO and $0.01 to Adjusted FFO per diluted share, which will be a net loss to 2020’s expected performance.

The 2020 outlook assumes a negative impact of $9.0 million in Same-Property EBITDA from the planned 2020 redevelopments and $1.2 million in Same-Property EBITDA from the operator and brand transitions at the Company’s properties. These estimates assume a total of 90 basis points of negative impact to Same-Property RevPAR Growth as a result of the 2020 renovations and transitions.

Outside of the impact that we’ve already seen and incorporated, the Company’s outlook for 2020 and the first quarter of 2020 does not assume any additional impact from the coronavirus since it is unknowable and unable to be forecasted due to the evolving situation.

The Company’s outlook, which assumes no acquisitions, reflects the Company’s various planned capital investment projects, and includes other significant assumptions, is as follows:

This 2020 Outlook is based, in part, on the following estimates and assumptions:

The Company’s Outlook for the first quarter of 2020 is as follows:

The First Quarter 2020 Outlook assumes an estimated negative impact of 235 basis points on Same-Property RevPAR growth and $5.8 million of negative impact on Same-Property EBITDA, based on the planned repositionings and renovations across the portfolio. Additionally, the First Quarter 2020 Outlook assumes an estimated negative impact of 30 basis points on Same-Property RevPAR growth and $0.7 million of negative impact on Same-Property EBITDA, based on operator transitions across the portfolio.

The 2020 Outlook excludes the following hotels from Same-Property RevPAR, Same-Property RevPAR growth rate, Same-Property EBITDA, Same-Property EBITDA growth rate, Same-Property Expense growth rate, Same-Property EBITDA Margin, and Same-Property EBITDA Margin growth rate:

• Donovan Hotel for the first, second and fourth quarters of both 2020 and 2019 due to its closure in the fourth quarter of 2019 and the first and second quarters of 2020 for redevelopment, renovation, and rebranding; and
• InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square for the first, second, third and fourth quarters of both 2020 and 2019 due to their expected sale sometime in the first quarter of 2020.

If any of the foregoing estimates and assumptions prove to be inaccurate, actual results, including the outlook, may vary and could vary significantly from the amounts shown above.

About Pebblebrook Hotel Trust

Pebblebrook Hotel Trust (NYSE: PEB) is a publicly traded real estate investment trust (“REIT”) and the largest owner of urban and resort lifestyle hotels in the United States. The Company owns 56 hotels, totaling approximately 14,000 guestrooms across 16 urban and resort markets, with a focus on the west coast gateway cities.