PEB

Business Context and Reporting Period

Pebblebrook Hotel Trust, a Maryland real estate investment trust (REIT), filed its Form 10-Q for the quarterly and six-month periods ended June 30, 2010. Formed in October 2009, the Company completed its initial public offering (IPO) in December 2009, raising approximately $379.6 million. The Company's strategy focuses on acquiring hotel properties in major U.S. cities, primarily coastal markets. As of June 30, 2010, the Company owned two operating hotels and held deposits on two additional properties under contract.

Key Financial Metrics

Debt and Liquidity: As of June 30, 2010, the Company had no outstanding long-term debt. Total liabilities consisted primarily of accrued underwriter fees ($8.1 million) and accounts payable. The Company held significant liquidity with $182.1 million in cash and $40.0 million in certificates of deposit.

Material Changes and Operational Activity

• Acquisitions: The Company acquired two hotels during the quarter: the Doubletree Bethesda Hotel (June 4, 2010) for $67.1 million and the Sir Francis Drake Hotel (June 22, 2010) for $90.0 million. These acquisitions funded the majority of the $157.1 million used in investing activities.
• Operating Results: Revenues and expenses are limited to the partial periods of operation for the two newly acquired hotels. The Company reported an operating loss of $6.3 million for the six-month period, driven primarily by $3.6 million in corporate general and administrative expenses and $3.1 million in hotel property acquisition costs.
• Interest Income: Interest income was $1.9 million for the six months ended June 30, 2010, generated from the substantial cash balances held from the IPO prior to full deployment.
• Share Count: Common shares outstanding increased slightly to 20,260,590 as of June 30, 2010, from 20,260,000 at year-end 2009.

Guidance, Outlook, and Subsequent Events

Subsequent Events (Post-June 30, 2010):

• Acquisition: On July 1, 2010, the Company acquired the InterContinental Buckhead Hotel in Atlanta for $105.0 million.
• Financing: On July 8, 2010, the Company entered into a $150.0 million senior secured revolving credit facility, with an option to increase to $200.0 million.
• Secondary Offering: On July 28, 2010, the Company completed a secondary offering of 19,550,000 shares at $17.00 per share, raising net proceeds of $318.3 million.

Outlook and Risks: Management expects meaningful growth in RevPAR (Revenue Per Available Room) to continue as the U.S. economy rebounds. The Company intends to deploy proceeds from the secondary offering and credit facility for future acquisitions and property redevelopments. Key risks include the timing of acquisitions, dependence on third-party managers, and general economic conditions affecting the lodging industry.

Investor Verification Checklist

• Deployment of Capital: Verify the closing status of the two properties under contract (Hotel Monaco Washington DC and The Grand Hotel Minneapolis) and the funding sources for the $110 million aggregate purchase price.
• Secondary Offering Impact: Confirm the dilution impact of the July 28, 2010 secondary offering (19.55 million shares) on existing shareholders and the specific allocation of the $318.3 million in net proceeds.
• Debt Covenants: Review the financial covenants of the new $150 million credit facility, specifically the maximum leverage ratio and minimum fixed charge coverage ratio.
• Capital Expenditures: Monitor the $7.3 million capital improvement plan required for the InterContinental Buckhead Hotel over the next three years.
• REIT Compliance: Ensure the Company maintains its REIT qualification status, particularly regarding the 90% distribution requirement of adjusted taxable income.