Pebblebrook Hotel Trust Reports Second Quarter 2017 Results

Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the second quarter ended June 30, 2017. The Company’s results include the following:

“During the second quarter, our hotels generated better than expected revenues, primarily non-room revenues, and lower than forecasted expenses in order to deliver better than expected Same-Property EBITDA, Adjusted EBITDA, Adjusted FFO and Adjusted FFO per diluted share. We achieved these results with in-line room revenues despite greater than expected disruption from the redevelopment of Hotel Zoe San Francisco,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “Overall, our hotels in Seattle, Boston, Washington, D.C. and San Diego experienced solid demand growth during the second quarter, which helped to partly offset the anticipated softness in San Francisco caused by the Moscone Center building closures. Although many leading economic indicators remain positive, business travel demand remained soft in the quarter as companies continue to exercise restraint with discretionary spending such as travel. As a result, we will remain cautious in our outlook for the remainder of 2017 until we are positively impacted by a reacceleration in business investment and spending.”

Second Quarter Highlights

• Net Income: The Company’s net income was $43.7 million in the second quarter of 2017, declining $30.8 million as compared to the same period of 2016. The decline in net income was due to $40.3 million from gains on sale in 2016 compared with $14.6 million in the current period of 2017.
• Same-Property RevPAR and Same-Property Total Revenue per Available Room: Same-Property RevPAR in the second quarter of 2017 declined 2.4 percent to $218.19 compared with the same period of 2016. Excluding San Francisco, Same-Property RevPAR grew 2.0 percent over the prior year. Same-Property ADR dropped 1.7 percent from the prior year quarter to $251.08, and Same-Property Occupancy decreased 0.8 percent to 86.9 percent. Same-Property Total Revenue per Available Room declined 0.3 percent from the same period of 2016.
• Same-Property EBITDA: The Company’s hotels generated $71.6 million of Same-Property EBITDA for the quarter ended June 30, 2017, declining 4.0 percent from the same period of 2016. Same-Property Revenues decreased by 0.2 percent, while Same-Property Expenses grew by 2.1 percent. As a result, Same-Property EBITDA Margin declined 142 basis points to 35.8 percent for the second quarter of 2017, as compared to the same period last year.
• Adjusted EBITDA: The Company’s Adjusted EBITDA declined to $67.2 million from $78.9 million in the prior year period, a decrease of $11.8 million, or 14.9 percent. The decline in Adjusted EBITDA was primarily attributable to the property dispositions completed in 2016.
• Adjusted FFO: The Company’s Adjusted FFO declined 11.5 percent to $52.1 million from $58.9 million in the prior year period. The Company’s Adjusted FFO per diluted share decreased 7.4 percent to $0.75 compared with the same period of 2016.
• Dividends: On June 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.

“While our portfolio was negatively impacted by the temporary challenges in San Francisco, we remain particularly pleased with the performance of our recently renovated hotels as they continue to achieve RevPAR growth and increased market share,” said Mr. Bortz. “In the second quarter, Same-Property RevPAR for our portfolio declined 2.4 percent, which was squarely in the middle of the range of our negative 3.5 percent to negative 1.5 percent outlook. Excluding San Francisco, Same-Property RevPAR increased 2.0 percent. Same-Property Total Revenue declined just 0.2 percent, as our hotel teams continue to make progress growing non-room revenues such as food and beverage – a trend which we expect will continue throughout at least the remainder of 2017.”

Strategic Disposition Plan

During the quarter, the Company completed the sale of the 252-room Dumont NYC for gross proceeds of $118.0 million, as well as the sale of the 826-space parking garage at Revere Hotel Boston Common for gross proceeds of $95.0 million. To date, with the completion of these sales, the Company’s strategic disposition plan has yielded a total of $676.8 million in gross proceeds from sales, including 9 hotel assets and 2 non-hotel assets, as the Company continues to execute on its original disposition goal of between $500 million and $1 billion in assets.

“We are very pleased with the success that we’ve had in executing our strategic disposition plan, including exiting the difficult New York market,” noted Mr. Bortz. “We will continue to be opportunistic in selectively selling hotels and real estate assets as we take advantage of the attractive private market values of our real estate, which we have been selling at prices that represent a significant premium to our public market valuation.”

Share Repurchase Program Increased to $250 Million

During the second quarter, the Company repurchased 1.1 million shares at an average price of $29.80 per share under its $150.0 million share repurchase program. Year-to-date, the Company has repurchased 3.2 million common shares at an average price of $28.77 per share totaling $93.3 million. On July 27, 2017, the Board of Trustees authorized the repurchase of an additional $100.0 million of common shares. Together with the prior repurchase authorization, the Board has authorized the repurchase of $250.0 million of common shares, of which $156.7 million may still be repurchased. The repurchase programs may be suspended or discontinued at any time, and the Company is not obligated to acquire any particular amount of shares.

Capital Reinvestments

During the second quarter, the Company made $25.5 million of capital improvements throughout its portfolio. In June, the Company completed a $16.0 million comprehensive renovation at Hotel Zoe San Francisco (formerly The Tuscan Inn), which included a renovation of all guest rooms, the guest room corridors, meeting rooms, lobby, public areas, restaurant and entryway. Upon completion, the hotel was fully transformed from an upscale branded product to a boutique, independent, upper-upscale hotel. Additionally, Revere Hotel Boston Common completed a $22.5 million redevelopment and renovation in June, which included a comprehensive reconcepting of the entire hotel.

During the remainder of 2017, the Company will continue and complete its remaining renovation and redevelopment project at LaPlaya Beach Resort & Club. This final major redevelopment project is estimated to cost $8.0 million, and includes a renovation of the lobby, restaurant and bar, and all guest rooms in the resort’s Gulf Tower. Renovation work began right after July 4th and is expected to be completed early in the fourth quarter of 2017.

Year-to-Date Highlights

• Net Income: The Company’s net income was $57.8 million for the six months ended June 30, 2017, a decrease of $33.3 million over the same period of 2016. The decline in net income was primarily attributable to the gain on sale of hotel properties sold in 2016.
• Same-Property RevPAR and Same-Property Total Revenue per Available Room: Same-Property RevPAR for the six months ended June 30, 2017 decreased 2.6 percent over the same period of 2016 to $205.59. Excluding San Francisco, Same-Property RevPAR grew 0.3 percent. Year-to-date Same-Property ADR fell 0.6 percent from the comparable period of 2016 to $245.39, and year-to-date Same-Property Occupancy declined 2.0 percent to 83.8 percent. Same-Property Total Revenue per Available Room declined 1.6 percent from the same period of 2016.
• Same-Property EBITDA: The Company’s hotels generated $125.1 million of Same-Property EBITDA for the six months ended June 30, 2017, down 6.8 percent compared with the same period of 2016. Same-Property Hotel Revenues declined 2.1 percent, while Same-Property Hotel Expenses rose just 0.3 percent. As a result, Same-Property EBITDA Margin for the six months ended June 30, 2017 declined 164 basis points to 33.1 percent as compared to the same period last year.
• Adjusted EBITDA: The Company’s Adjusted EBITDA declined 14.0 percent, or $19.0 million, to $116.2 million from $135.1 million in the prior year period. The decline in Adjusted EBITDA was largely attributable to the property dispositions completed in 2016.
• Adjusted FFO: The Company’s Adjusted FFO declined 8.7 percent to $90.9 million from $99.5 million in the prior year period. The Company’s Adjusted FFO per diluted share decreased 6.6 percent to $1.28 compared with the same period of 2016.

Capital Markets and Balance Sheet

On June 1, 2017, Pebblebrook paid off the last of its remaining 2017 debt maturities with the repayment of the $25.5 million mortgage secured by Hotel Zelos San Francisco, which was subject to a 5.94 percent interest rate. The Company has no debt maturing before 2020.

As of June 30, 2017, the Company had $889.7 million in debt at an effective weighted-average interest rate of 3.3 percent. The Company had $675.0 million outstanding in the form of unsecured term loans and $43.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of June 30, 2017, the Company had $21.0 million of cash, cash equivalents and restricted cash.

On June 30, 2017, as defined in the Company’s credit agreement, the Company’s fixed charge coverage ratio was 3.5 times and total net debt to trailing 12-month corporate EBITDA was 3.6 times.

2017 Outlook

The Company's outlook for 2017 has been updated to reflect the Company’s second quarter performance, the common shares repurchased year-to-date and adjusted expectations from its prior outlook. In addition, the 2017 outlook, which assumes no additional acquisitions or dispositions, includes the Company’s various planned capital investment projects and includes other significant assumptions, is as follows:

“We expect the urban markets to continue to underperform the greater U.S. hotel industry as sluggish growth in business travel and weak international inbound travel combined with greater supply growth negatively impact the urban markets more than the rest of the industry,” commented Mr. Bortz. “Nevertheless, we are increasing the lower end of our Same-Property EBITDA range and increasing the entire range for Adjusted EBITDA, Adjusted FFO and Adjusted FFO per diluted share to reflect the beat in the second quarter. This is due to our success in achieving higher non-room revenues and reduced expenses despite lowering our RevPAR range for the year, which is mostly attributable to the delayed opening of Hotel Zoe San Francisco and our forecast for slightly weaker demand in San Francisco in the third quarter caused by the Moscone Center expansion.”

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

The Company’s outlook for 2017 and the third quarter of 2017 assumes no additional acquisitions or dispositions beyond the hotels the Company owned as of June 30, 2017. The Company’s outlook also incorporates all of the expected disruption associated with the various renovations and repositionings at our properties, including LaPlaya Beach Resort & Club, which has already commenced renovation in 2017.

The Company’s estimates and assumptions, including the Company’s outlook for 2017 and the third quarter of 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 June 30, 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.

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.

Second Quarter 2017 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, July 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 28 hotels, with a total of 6,970 guest rooms. The Company owns hotels located in 9 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; 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, EBITDA Margin growth and their Same-Property equivalents, 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 July 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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