Pebblebrook Hotel Trust Reports Second Quarter 2023 Results

“Adjusted EBITDAre and Adjusted FFO exceeded our Outlook in the second quarter. The sustained recovery in demand within our urban markets was predominantly driven by recovering business travel, both group and transient, along with recovering leisure travelers returning to the cities for concerts, events and other activities. This largely offset moderating leisure room rates and premium room and suite purchases by the leisure customer at our resorts. In addition, displaced business from our repositioning projects during the quarter reduced hotel EBITDA by $6.5 million, or $1.0 million more than expected.

“As part of our strategic capital reallocation efforts, we completed the successful divestment of our two properties in Seattle, bringing total gross proceeds from sales this year to $232.3 million. Proceeds generated from our sales to date, after transaction costs, have been allocated towards reducing our net debt and repurchasing our common shares at a significant discount compared to the private market value of our portfolio. These strategic initiatives attest to our commitment to bolstering shareholder value while maintaining liquidity and a prudently leveraged balance sheet.”

-Jon E. Bortz, Chairman and Chief Executive Officer of Pebblebrook Hotel Trust

Second Quarter and Year-to-Date Highlights

“Our urban hotels led the portfolio growth this quarter, with same-property occupancy rising 6.6%,” said Mr. Bortz. “This is a very positive sign and highlights that the recovery of our portfolio is progressing steadily, as business travel continues to make its way back to pre-pandemic levels. We believe this year-over-year growth would have been even higher, if not for the omicron-related rebookings from last year’s first quarter to the second quarter of 2022. This created a tougher comparison to the second quarter of 2022. We expect business travel to continue to improve in the second half of the year, led by group demand which is pacing ahead by 18.5% in group revenue for the second half of this year as compared to last year’s second half. Weekend demand also improved for our portfolio during the second quarter, at both our resorts and urban hotels. This demonstrates that leisure customers are still traveling, despite any macroeconomic concerns.”

Update on Impact from Hurricane Ian

The Company made significant progress restoring and reopening the 189-room LaPlaya Beach Resort & Club (“LaPlaya”) in Naples, Florida. The resort’s Bay Tower (40 rooms) and Gulf Tower (70 rooms) are now substantially restored and both are fully operational, with additional resort services and amenities progressively coming online. The Beach House (79 rooms), with its full-service spa and fitness center, is expected to be substantially completed and returned to service by the end of 2023.

Pebblebrook anticipates that all operational disruption will be covered under its business interruption and property insurance programs, net of deductibles. A preliminary business interruption settlement of $14.0 million was recorded in Q2 related to lost income from Q1 2023. The Company anticipates an additional preliminary business interruption settlement of approximately $10.5 million to be approved in Q3 2023 relating to lost business from Q2 2023. Pebblebrook expects to record additional business interruption settlements in 2023 as these are determined and finalized with its insurance providers.

Update on Strategic Dispositions

The Company completed two property dispositions during the quarter, generating $97.0 million in gross sales proceeds. This included the sales of Hotel Monaco Seattle (189 rooms) for $63.3 million and Hotel Vintage Seattle (125 rooms) for $33.7 million. Year to date, the Company has completed $232.3 million of property dispositions. Net proceeds from the Company’s dispositions are being used for general corporate purposes, including reducing the Company’s outstanding net debt and repurchasing common and preferred shares to further strengthen the Company’s balance sheet and enhance shareholder value.

Common Share Repurchases

In Q2 2023, the Company repurchased 3.6 million common shares at an average price of $13.97 per share. Since the start of our share repurchase initiatives in October 2022, the Company has repurchased over 11 million common shares, or approximately 8% of the Company’s outstanding common shares, at an average price of $14.51 per share, representing an approximate 50% discount to the midpoint of the Company’s most recently published Net Asset Value (“NAV”).

Capital Investments and Strategic Property Redevelopments

The Company made significant progress on its capital improvement program in the second quarter, completing $52.5 million of investments across its portfolio, which excludes capital expenditures related to the repair and remediation of LaPlaya. This includes the redevelopment and repositioning of Viceroy Santa Monica Hotel, Jekyll Island Club Resort, Estancia La Jolla Hotel & Spa, Hilton San Diego Gaslamp Quarter, and the redevelopment and upcoming reflagging of Hotel Solamar as Margaritaville Hotel San Diego Gaslamp Quarter. The Company’s second quarter 2023 RevPAR growth would have been 180 basis points higher by excluding the impact of these five properties on the portfolio.

The renovation of the four guesthouses (50 rooms/suites) at Southernmost Beach Resort in Key West, FL began this month, and the comprehensive redevelopment and repositioning of Newport Harbor Island Resort is slated to begin in the fourth quarter, with completion expected in Q2 2024.

For 2023, the Company expects to invest $145 to $155 million in capital improvements, which excludes capital expenditures related to the repair and remediation of LaPlaya. Since 2018, the Company has reinvested approximately $660 million into redeveloping its assets, including $325 million of ROI-generating investments. These ROI investments are expected to generate a healthy return on investment in line with the Company’s previous redevelopment and repositioning projects. By early 2024, substantially all of the Company’s properties will have been recently renovated, and future capital investments and repositionings are expected to be substantially reduced.

Balance Sheet and Liquidity

As of June 30, 2023, the Company had $823.7 million in liquidity, consisting of $186.3 million in cash, cash equivalents, and restricted cash, plus $637.4 million of undrawn availability on its senior unsecured revolving credit facility.

The Company's $2.4 billion of consolidated debt and convertible notes is well-structured, with an effective weighted-average interest rate of 4.3%. The majority of the debt and convertible notes, or 78%, is at an effective weighted-average fixed interest rate of 3.4%, which mitigates the exposure to rising interest rates. The remaining 22% of the Company’s debt is at a floating interest rate of 7.5%. In addition, approximately 91% of the Company’s outstanding debt is unsecured, and the weighted-average maturity is 2.8 years. The Company has no meaningful debt maturities until Q4 2024.

Common and Preferred Dividends

On June 15, 2023, the Company declared a quarterly cash dividend of $0.01 per share on its common shares and a regular quarterly cash dividend for the following preferred shares of beneficial interest.

• $0.39844 per 6.375% Series E Cumulative Redeemable Preferred Share;
• $0.39375 per 6.3% Series F Cumulative Redeemable Preferred Share;
• $0.39844 per 6.375% Series G Cumulative Redeemable Preferred Share; and
• $0.35625 per 5.7% Series H Cumulative Redeemable Preferred Share.

Update on Curator Hotel & Resort Collection

Curator Hotel & Resort Collection (“Curator”) is a curated collection of experientially focused small brands and independent lifestyle hotels and resorts worldwide founded by Pebblebrook and several industry-leading independent lifestyle hotel operators. Curator has 101 member hotels and 108 master service agreements with preferred vendor partners. These agreements provide Curator member hotels with preferred pricing, enhanced operating terms, and early access to curated new technologies. Curator's mission is to help independent lifestyle hotels and resorts achieve their full potential by providing them with the resources and support they need to compete with larger brands and operators while remaining independent.

Q3 2023 Outlook

Based on current trends and assuming no material disruptions to travel caused by pandemics or worsening macro-economic conditions, the Company’s outlook for Q3 2023 is as follows:

This Q3 2023 Outlook is based, in part, on the following estimates and assumptions:

This outlook incorporates the Company’s best estimate at this time ($0.5 million of Same-Property EBITDA) of the negative impact of the Writers and Screen Actors Guild strikes in Los Angeles, which is negatively impacting business demand at the Company’s hotels in Los Angeles. It also incorporates a $1.0 million negative impact to Same-Property EBITDA from the completion of our redevelopment projects.

The third quarter outlook assumes an estimated $10.5 million for an additional preliminary business interruption settlement at LaPlaya relating to lost income from the second quarter of 2023. This amount affects the Company’s Adjusted EBITDAre, Adjusted FFO, and net income.

Second Quarter 2023 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, July 28, 2023, at 9:00 AM ET. Please dial (877) 407-3982 approximately ten minutes before the call begins to participate. A live webcast of the conference call will also be available through the Investor Relations section of www.pebblebrookhotels.com. To access the webcast, click on https://investor.pebblebrookhotels.com/news-and-events/webcasts/default.aspx ten minutes before the conference call. A replay of the conference call webcast will be archived and available online.

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 and resorts in the United States. The Company owns 47 hotels and resorts, totaling approximately 12,200 guest rooms across 13 urban and resort markets. For more information, visit www.pebblebrookhotels.com and follow us 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 the 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: descriptions of the Company’s plans or objectives for future capital investment projects, operations or services; forecasts of the Company’s future economic performance; forecasts of hotel industry performance; statements regarding expectations of hotel dispositions and use of proceeds; 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 SEC, including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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 filings with the U.S. Securities and Exchange Commission, 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, 2023. 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.

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