Pebblebrook Hotel Trust Reports 2016 Results and Provides 2017 Outlook

Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the fourth quarter and year ended December 31, 2016. The Company’s results include the following:

“We are very pleased with our 2016 results and the continued improvements we made throughout our portfolio in 2016, both operationally and from value-enhancing renovations,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “In addition, we had significant success with our strategic disposition plan, completing numerous property and asset dispositions totaling $463.8 million. The U.S. hotel industry ended yet another year at its highest occupancy ever, despite weak business travel, an uptick in new supply and continued headwinds from global economic challenges including a strong U.S. dollar. For Pebblebrook, in 2016, we grew Same-Property Wholly Owned EBITDA by 4.5 percent, Adjusted EBITDA by 5.3 percent and Adjusted FFO per share by 11.2 percent, and we increased our dividend by 22.6 percent, all representing record levels. We experienced this growth and record numbers while also completing several property dispositions, which reduced the size of the Company’s portfolio, but lowered leverage and increased liquidity.”

2016 Highlights

• Net income: The Company’s net income was $74.0 million for the year ended December 31, 2016, declining $21.0 million as compared to 2015, primarily due to the impairment losses incurred by the redemption of the Company’s now dissolved 49 percent interest in its six-hotel joint venture (the “Manhattan Collection”) and the sale of the DoubleTree by Hilton Hotel Bethesda-Washington DC, which were partly offset by gains on the sales of Viceroy Miami and The Redbury Hotel.
• Same-Property RevPAR and Room Revenue: Same-Property RevPAR for the year increased 2.4 percent over 2015 to $211.28. Same-Property ADR climbed 1.0 percent from the prior year to $247.83. Same-Property Occupancy rose 1.4 percent to 85.3 percent. Same-Property Room Revenue for Wholly Owned properties increased by 3.8 percent, higher than RevPAR, largely due to the increase in same-property room count.
• Same-Property EBITDA: The Company’s Wholly Owned hotels generated $280.3 million of Same-Property EBITDA for the year ended December 31, 2016, increasing 4.5 percent from 2015. Same-Property Wholly Owned Revenues grew 2.5 percent, while Same-Property Wholly Owned Expenses increased only 1.5 percent. Same-Property Wholly Owned EBITDA Margin grew by 65 basis points to 35.3 percent for 2016, as compared to last year.
• Adjusted EBITDA: The Company’s Adjusted EBITDA for 2016 rose to $273.2 million, a gain of 5.3 percent versus $259.5 million in 2015.
• Adjusted FFO: The Company’s Adjusted FFO climbed 11.2 percent to $201.8 million, compared with $181.5 million for the prior year.
• Dividends: During 2016, the Company declared dividends of $1.52 per share on its common shares, $1.625 per share on its 6.50% Series C Cumulative Redeemable Preferred Shares and $0.95626 per share on its 6.375% Series D Cumulative Redeemable Preferred Shares.

“Our recently renovated and repositioned hotels continued to increase market share and grow cash flow in 2016, which we expect to continue in 2017,” said Mr. Bortz. “We also applaud our hotel management teams who continue to work collaboratively with our asset managers to find efficiencies in our operations. Our teams were able to drive impressive operating results in our wholly owned portfolio, which improved margins by 65 basis points despite modest revenue growth and negative disruptions from our renovation projects during the year.”

Fourth Quarter Highlights

• Net income: The Company’s net income was $18.4 million in the fourth quarter of 2016, declining $4.6 million as compared to the same period of 2015.
• Same-Property RevPAR and Room Revenue: Same-Property RevPAR for the quarter remained flat over the same period of 2015 at $191.99. Same-Property ADR increased 0.4 percent from the prior year quarter to $236.82. Same-Property Occupancy fell 0.4 percent to 81.1 percent. Same-Property Room Revenue increased by 0.1 percent.
• Same-Property EBITDA: The Company’s hotels generated $59.6 million of Same-Property EBITDA for the quarter ended December 31, 2016, increasing 0.3 percent from the same period of 2015. Same-Property Revenues declined 0.3 percent, while Same-Property Expenses were reduced by 0.5 percent. Same-Property EBITDA Margin grew by 19 basis points to 32.3 percent for the fourth quarter of 2016, as compared to the same period last year.
• Adjusted EBITDA: The Company’s Adjusted EBITDA declined to $57.7 million from $64.4 million in the prior year period, a decrease of $6.7 million, or 10.4 percent. The declines were primarily a result of the hotels the Company sold during 2016.
• Adjusted FFO: The Company’s Adjusted FFO decreased 7.3 percent to $41.5 million from $44.7 million in the prior year period.
• Dividends: On December 15, 2016, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares, a regular quarterly cash dividend of $0.40625 per share on its 6.50% Series C Cumulative Redeemable Preferred Shares and a regular quarterly cash dividend of $0.39844 per share on its 6.375% Series D Cumulative Redeemable Preferred Shares.

“Although there is more optimism regarding the prospects for accelerated hotel demand growth and improved industry performance following the presidential election, we have yet to see any noteworthy increases in business or leisure travel demand since the election,” advised Mr. Bortz. “Leading economic indicators and business sentiment have improved, but until we see actual travel demand increase, we will remain tempered regarding our near-term outlook.”

Strategic Disposition Plan

During 2016, the Company completed numerous strategic property dispositions that harvested significant value for shareholders. In the second quarter of 2016, Pebblebrook sold Viceroy Miami for $64.5 million and The Redbury Hotel for $40.9 million, as well as an excess land parcel adjacent to Revere Hotel Boston Common for $6.0 million. In the fourth quarter of 2016, the Company executed an asset exchange with its joint venture partner to redeem the Company’s 49 percent interest in the Manhattan Collection. The Company then sold the Manhattan NYC for $217.5 million. The Company also sold the DoubleTree by Hilton Hotel Bethesda – Washington DC for $50.1 million in the fourth quarter.

These strategic property dispositions created value for shareholders by taking advantage of the valuation differences between the private and public markets. In addition, the Company utilized the proceeds from these sales to pay down debt, strengthen the Company’s balance sheet and increase liquidity.

Capital Reinvestments

During 2016, the Company completed $124.0 million of capital improvements throughout its portfolio. The Company’s capital improvements included $22.6 million at Hotel Zeppelin San Francisco (part of a $32.0 million project), $15.8 million at Union Station Hotel Nashville, an Autograph Collection Hotel (which included a $15.5 million transformation), $12.0 million at Hotel Colonnade Coral Gables, a Tribute Portfolio Hotel, formerly The Westin Colonnade, Coral Gables, (part of a $17.5 million redevelopment) and $10.7 million at Hotel Monaco Washington DC (part of a $13.0 million renovation), including the reconcepting and renovation of the hotel’s restaurant and bar, Dirty Habit DC, formerly Poste.

In 2017, the Company intends to complete several major renovation and repositioning projects including:

• Hotel Palomar Los Angeles Beverly Hills (estimated at $12.0 million) which is undergoing a comprehensive renovation, including all guestrooms, the guestroom corridors, meeting rooms, lobby, restaurant, pool and entryway with an expected completion date in first quarter 2017;
• Revere Hotel Boston Common (estimated at $22.5 million), which is undergoing a comprehensive property renovation that began in fourth quarter 2016 with an expected completion date in second quarter 2017;
• The Tuscan Fisherman’s Wharf (estimated at $15.0 million), which began a comprehensive property renovation and transformation starting in January 2017 with an expected completion date at the end of second quarter 2017, which will be renamed Hotel Zoe upon completion and will operate as an independent hotel; and
• LaPlaya Beach Resort & Club (estimated at $7.5 million), which will undergo a renovation of the lobby, restaurant and bar, and all guestrooms in the resort’s Gulf Tower, starting in early summer 2017 with an expected completion date in the third quarter 2017.

Capital Markets and Balance Sheet

During 2016, the Company originated $150.0 million of new term loans, paid off $169.3 million of debt maturities and redeemed $225.2 million of its outstanding preferred shares. The Company also issued $125.0 million through an underwritten public offering of 5.0 million shares of its 6.375% Series D Cumulative Redeemable Preferred Shares.

“We made very positive strides in 2016 to lower our overall leverage, increase our coverage ratios, extend our debt maturities and increase our liquidity,” noted Raymond D. Martz, Chief Financial Officer of Pebblebrook Hotel Trust. “We appreciate the continued support and longstanding positive relationships shown by our banking partners.”

As of December 31, 2016, the Company had $1.0 billion in consolidated debt at an effective weighted-average interest rate of 3.4 percent. The Company had $675.0 million outstanding in the form of unsecured term loans and $82.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of December 31, 2016, the Company had $40.8 million of consolidated cash, cash equivalents and restricted cash.

On December 31, 2016, as defined in the Company’s credit agreement, the Company’s fixed charge coverage ratio was 3.6 times and total net debt to trailing 12-month corporate EBITDA was 3.8 times.

2017 Outlook

The Company's outlook for 2017, which assumes no additional acquisitions or dispositions, reflects the Company’s various planned capital investment projects and includes other significant assumptions, is as follows:

“The hotel industry begins 2017 with more optimism than 2016, despite rising supply growth,” commented Mr. Bortz. “We expect that demand growth from most segments will remain modest until there is more consistent corporate profit growth and clarity on tax reform, the regulatory environment and infrastructure spending. The strong U.S. dollar will continue to serve as a headwind for international inbound travel, especially in major urban markets. As a result, we expect that the major urban markets will again underperform the overall industry in 2017. For Pebblebrook, we expect to generate Same-Property RevPAR growth of (1.0) percent to 1.0 percent. However, we are encouraged with the outlook for our recently renovated hotels, which should continue to gain meaningful market share and increased cash flows in 2017 and beyond.

“The Company’s 2017 Same-Property RevPAR growth rate outlook of (1.0) percent to 1.0 percent incorporates approximately 110 basis points of negative impact caused by our 2017 property renovations. In addition, the outlook also estimates an approximately 190 basis point negative impact to Same-Property RevPAR growth due to the renovation and expansion of the Moscone Center in San Francisco combined with the loss of the benefits from both the 2016 Super Bowl in San Francisco and accommodating the Porter Ranch residents displaced by the Aliso Canyon gas leak in Los Angeles in 2016. The Company’s Adjusted EBITDA is also lower due to the removal of $22.3 million of EBITDA from hotels sold during 2016.”

The Company’s outlook for the first quarter of 2017 is as follows:

The Company’s estimates and assumptions, including the Company’s outlook for 2017 and the first quarter 2017 for Same-Property RevPAR, Same-Property RevPAR growth rate, Same-Property Room Revenue growth rate, Same-Property EBITDA, Same-Property EBITDA growth rate, Same-Property EBITDA Margin and Same-Property EBITDA Margin growth rate include the hotels owned as of December 31, 2016, as if they had been owned by the Company for all of 2016 and 2017, except for Hotel Zeppelin San Francisco, which is not included in the first quarter. The Company’s 2017 outlook assumes no additional acquisitions or dispositions beyond the hotels the Company owned as of December 31, 2016.

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.

Fourth Quarter 2016 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, February 24, 2017 at 10:00 AM ET. To participate in the conference call, please dial (877) 705-6003 approximately ten minutes before the call begins. Additionally, a live webcast of the conference call will be available through the Company’s website. To access the webcast, log on to www.pebblebrookhotels.com ten minutes prior to the conference call. A replay of the conference call webcast will be archived and available online through the Investor Relations section of www.pebblebrookhotels.com.

About Pebblebrook Hotel Trust

Pebblebrook Hotel Trust is a publicly traded real estate investment trust (“REIT”) organized to opportunistically acquire and invest primarily in upper upscale, full-service hotels located in urban markets in major gateway cities. The Company owns 29 hotels, with a total of 7,222 guest rooms. The Company owns hotels located in 10 states and the District of Columbia, including: Los Angeles, California (Beverly Hills, Santa Monica and West Hollywood); San Diego, California; San Francisco, California; Washington, DC; Coral Gables, Florida; Naples, Florida; Buckhead, Georgia; Boston, Massachusetts; Minneapolis, Minnesota; New York, New York; Portland, Oregon; Philadelphia, Pennsylvania; Nashville, Tennessee; Columbia River Gorge, Washington; and Seattle, Washington. For more information, please visit us at www.pebblebrookhotels.com and follow us on Twitter at @PebblebrookPEB.

This press release contains certain “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “forecast,” “continue,” “assume,” “plan,” references to “outlook” or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. Examples of forward-looking statements include the following: projections and forecasts of U.S. GDP growth, U.S. hotel industry RevPAR growth, the Company’s net income, FFO, EBITDA, Adjusted FFO, Adjusted EBITDA, RevPAR, EBITDA Margin and EBITDA Margin growth, and the Company’s expenses, share count or other financial items; descriptions of the Company’s plans or objectives for future operations, acquisitions or services; forecasts of the Company’s future economic performance and its share of future markets; forecasts of hotel industry performance; and descriptions of assumptions underlying or relating to any of the foregoing expectations including assumptions regarding the timing of their occurrence. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, the state of the U.S. economy and the supply of hotel properties, and other factors as are described in greater detail in the Company’s filings with the Securities and Exchange Commission, including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company’s business and financial results, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of the Company’s SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Investor Relations section of the Company’s website at www.pebblebrookhotels.com.

All information in this press release is as of February 23, 2017. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company’s expectations.

For additional information or to receive press releases via email, please visit our website at www.pebblebrookhotels.com

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