Pebblebrook Hotel Trust Reports First Quarter 2017 Results

Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the first quarter ended March 31, 2017. The Company’s results include the following:

(1) See tables later in this press release for a description of same-property information and reconciliations from net income (loss) to non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Funds from Operations ("FFO"), FFO per share, Adjusted FFO and Adjusted FFO per share.

For the details as to which hotels are included in Same-Property Revenue Per Available Room (“RevPAR”), Average Daily Rate (“ADR”), Occupancy, Revenues, Expenses, EBITDA and EBITDA Margins appearing in the table above and elsewhere in this press release, refer to the Same-Property Inclusion Reference Table later in this press release.

“Our portfolio’s operating results in the first quarter were in line with our overall expectations despite greater than anticipated disruption from one of our significant redevelopment projects,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “Our financial results were driven by solid demand in several of our markets, including Washington, D.C., which benefitted from the Inauguration and the Women’s March, as well as Nashville, Seattle and San Diego. As expected, this strength was offset by difficult year-over-year comparisons in San Francisco and Los Angeles. The loss of the Super Bowl in San Francisco and the elimination of the prior year demand from the displaced families affected by the Porter Ranch gas leak in Los Angeles negatively impacted our growth. However, excluding the disruption from the redevelopment projects at Revere Hotel Boston Common, Hotel Palomar Los Angeles Beverly Hills and The Tuscan Fisherman’s Wharf, first quarter RevPAR growth would have been 330 basis points higher, which is a better indication of the operating performance of the portfolio.”

First Quarter Highlights

• Net income: The Company’s net income was $14.1 million in the first quarter of 2017, declining $2.5 million as compared to the same period of 2016.
• Same-Property RevPAR and Room Revenue: Same-Property RevPAR in the first quarter of 2017 declined 2.9 percent to $192.92 compared with the same period of 2016. Same-Property Room Revenue decreased 4.0 percent. There was one day less in the first quarter of 2017 versus last year. Same-Property ADR grew 0.5 percent from the prior year quarter to $239.22. Same-Property Occupancy decreased 3.4 percent to 80.6 percent, primarily due to the negative impact of the major redevelopment projects.
• Same-Property EBITDA: The Company’s hotels generated $53.5 million of Same-Property EBITDA for the quarter ended March 31, 2017, declining 10.2 percent from the same period of 2016. Same-Property Revenues decreased 4.2 percent, while Same-Property Expenses were reduced by 1.4 percent. As a result, Same-Property EBITDA Margin declined 199 basis points to 30.0 percent for the first quarter of 2017, as compared to the same period last year.
• Adjusted EBITDA: The Company’s Adjusted EBITDA declined to $49.0 million from $56.2 million in the prior year period, a decrease of $7.2 million, or 12.8 percent. The decline in Adjusted EBITDA was partly attributable to the property dispositions completed in 2016.
• Adjusted FFO: The Company’s Adjusted FFO declined 4.6 percent to $38.7 million from $40.6 million in the prior year period. The Company’s Adjusted FFO per diluted share decreased 3.6 percent to $0.54 compared with the same period of 2016.
• Dividends: On March 15, 2017, 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.

“During the quarter, our recently renovated hotels continued to make strides improving market share and RevPAR growth,” said Mr. Bortz. “Same-Property RevPAR for our portfolio declined 2.9 percent, which was well within the range of our negative 4.5 percent to negative 2.5 percent outlook. Despite the decline in RevPAR, our management teams did an excellent job controlling expenses, which were actually lowered by 1.4 percent, limiting our hotel EBITDA and margin decline.”

Strategic Disposition Plan

During the quarter, the Company executed a contract to sell the 252-room Dumont NYC to a third party for $118.0 million. The sale of Dumont NYC is subject to normal closing conditions, and the Company offers no assurances that this sale will be completed. Due to higher than expected closing and hotel employee severance costs, the Company is recording a $1.0 million impairment charge related to the sale of Dumont NYC. The Company is targeting to complete the sale in late June.

The expected sale price of $118.0 million reflects a 23.9x EBITDA multiple and a 3.5% net operating income capitalization rate (after an assumed annual capital reserve of 4.0% of total hotel revenues) based on the trailing twelve-month operating performance for the period ended March 31, 2017.

Proceeds from the sale of Dumont NYC will be utilized for general business purposes which may include reducing the Company’s outstanding debt or repurchasing the Company’s common shares.

The Company continues to pursue the selective sale of additional hotels and real estate as part of its overall strategic disposition plan. To date, excluding the potential sale of Dumont NYC, the Company has completed $463.8 million of dispositions including 8 hotels and an excess land parcel located adjacent to one of its hotels.

“We’re pleased with the progress we continue to make with our strategic disposition plan,” noted Mr. Bortz. “Each sale allows us to take advantage of attractive current private market prices for our properties as well as the significant discount between our current share price and the underlying value of our assets on a private market basis.”

Share Repurchase Program

Year-to-date, the Company repurchased 2.65 million common shares at an average price of $28.35 per share totaling $75.0 million. The Company has $75.0 million remaining on its $150.0 million common share repurchase program previously approved by the Board of Trustees. The repurchase program may be suspended or discontinued at any time and does not obligate the Company to acquire any particular amount of shares.

Capital Reinvestments

During the first quarter, the Company made $21.8 million of capital improvements throughout its portfolio. In March, the Company completed a $12.0 million comprehensive renovation at Hotel Palomar Los Angeles Beverly Hills, which included a renovation of all guest rooms, the guest room corridors, meeting rooms, lobby, restaurant, bar, pool and entryway.

During the remainder of 2017, the Company will continue and complete its remaining renovation and redevelopment projects at a number of its properties that will improve performance in future years, including:

• 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 $16.0 million), which began a comprehensive property renovation and transformation starting in January 2017 with an expected completion date towards the end of second quarter 2017, 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 guest rooms in the resort’s Gulf Tower, starting in early summer 2017 with an expected completion date by the end of the third quarter 2017.

Capital Markets and Balance Sheet

Year-to-date, Pebblebrook paid off one of its two remaining 2017 debt maturities, maintaining its strong balance sheet and prudent capital structure. On March 1, 2017, the Company repaid the $44.1 million mortgage secured by the Sofitel Philadelphia, which was subject to a 3.9 percent interest rate. The Company will continue to increase its cash flow and improve its balance sheet through the refinancing of higher-rated mortgage debt and through potential disposition proceeds.

As of March 31, 2017, the Company had $1.1 billion in debt at an effective weighted-average interest rate of 3.2 percent. The Company had $675.0 million outstanding in the form of unsecured term loans and $204.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of March 31, 2017, the Company had $39.1 million of cash, cash equivalents and restricted cash.

On March 31, 2017, 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 4.2 times.

2017 Outlook

The Company's outlook for 2017 has been updated to reflect the Company’s first quarter performance, the common shares repurchased year-to-date, the Dumont NYC sale which is expected to occur in late June, and anticipated additional disruption caused by the renovation at The Tuscan Fisherman’s Wharf. The sale of Dumont NYC is expected to reduce Same-Property EBITDA by $5.5 million, Adjusted EBITDA by $4.6 million and Adjusted FFO by $2.9 million. The additional disruption at The Tuscan Fisherman’s Wharf is estimated to reduce Same-Property EBITDA, Adjusted EBITDA and Adjusted FFO by $0.9 million. In addition, the 2017 outlook, which assumes no additional acquisitions or dispositions, includes its various planned capital investment projects and includes other significant assumptions, is as follows:

“The hotel industry continues to face several headwinds including the strong U.S. dollar, soft business travel, wage pressures and rising levels of new hotel supply growth, particularly in the urban markets,” commented Mr. Bortz. “In addition, international in-bound travel demand is at risk given the potential implementation of travel bans, more restrictive visa requirements, and the negative perception they are creating, all of which could act as a further drag on overall hotel travel demand. As a result, we maintain a cautious outlook for 2017 for both the industry and Pebblebrook. For our portfolio, our outlook for Same-Property RevPAR growth of negative 1.0 percent to positive 1.0 percent remains unchanged. We continue to monitor the impact that the renovation and closure of the Moscone Center in San Francisco will have on our portfolio this year, especially during the second and third quarters of 2017. However, as we complete our redevelopment and repositioning projects at our remaining hotels, we remain confident that our portfolio will gain meaningful market share and increased cash flows in 2017 and beyond.”

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

The Company’s outlook for 2017 and the second quarter of 2017 assumes no additional acquisitions or dispositions beyond the hotels the Company owned as of March 31, 2017 except for Dumont NYC which is expected to be sold in late June, so it and its $5.5 million of Hotel EBITDA have been removed from the same-property operating results. The Company’s outlook also incorporates all of the expected disruption associated with the various renovations and repositionings at our properties, including Revere Hotel Boston Common, The Tuscan Fisherman’s Wharf and LaPlaya Beach Resort & Club, all of which already have or are anticipated to commence renovations in 2017.

The Company’s estimates and assumptions, including the Company’s outlook for 2017 and the second 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 March 31, 2017, 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, and Dumont NYC, which is not included in the second, third and fourth quarters.

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.

First Quarter 2017 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, April 28, 2017 at 9:00 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, dispositions 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 April 27, 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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