Business Context and Reporting Period
Company: Pebblebrook Hotel Trust (Maryland REIT)
Reporting Period: Quarter ended March 31, 2011
Portfolio: As of March 31, 2011, the Company owned nine hotels with 2,552 guest rooms in major U.S. cities (Atlanta, Bethesda, Philadelphia, Minneapolis, San Francisco, Santa Monica, Stevenson, and Washington D.C.). The Company operates through a taxable REIT subsidiary (TRS) structure.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $42.7 million | $0 (No properties owned) |
| Net Loss | $(3.0) million | $(0.6) million |
| Net Loss Attributable to Common Shareholders | $(3.6) million | $(0.6) million |
| Loss Per Share (Basic & Diluted) | $(0.09) | $(0.03) |
| Funds From Operations (FFO) | $1.2 million | $(0.6) million |
| EBITDA | $4.2 million | $(0.6) million |
| Cash Provided by Operating Activities | $0.2 million | $0.4 million |
| Cash Used in Investing Activities | $(62.4) million | $(15.2) million |
| Cash Provided by Financing Activities | $182.1 million | $(1.5) million |
| Total Assets | $1,080.3 million | $855.5 million |
| Total Liabilities | $278.6 million | $167.1 million |
| Mortgage Debt | $252.4 million | $143.6 million |
| Cash and Cash Equivalents | $340.6 million | $220.7 million |
Material Changes vs. Prior Period
- Portfolio Expansion: The Company acquired its ninth property, the Argonaut Hotel in San Francisco, for $84.0 million in February 2011. This acquisition included assuming a $42.0 million mortgage.
- Revenue Growth: Total revenues increased to $42.7 million from zero in the prior year, driven by the addition of new properties. The Company owned no hotels as of March 31, 2010.
- Capital Structure: Issued 5,000,000 shares of 7.875% Series A Cumulative Redeemable Preferred Shares, raising approximately $120.9 million in net proceeds. Mortgage debt increased by $108.8 million due to new financings and assumed debt.
- Investing Activity: Significant cash outflow of $62.4 million for investing activities, primarily due to the Argonaut acquisition ($37.2 million), capital improvements ($9.6 million), and deposits on future acquisitions ($13.5 million).
- Liquidity: Cash and cash equivalents increased by $119.9 million, ending the quarter at $340.6 million, bolstered by equity and debt financing.
Guidance, Outlook, and Risks
- Acquisition Pipeline: The Company has three properties under contract for an aggregate purchase price of $263.5 million, expected to be funded with available cash. Two of these were acquired in April 2011 (Westin Gaslamp Quarter and Hotel Monaco Seattle).
- Capital Expenditures: Invested $9.6 million in renovations during Q1 2011. Management expects to invest approximately $60.0 million in renovation and repositioning projects for the full year 2011.
- Market Outlook: Management views the U.S. hotel industry as recovering, citing strong growth in occupancy and average daily rates (ADR) due to a rebound in corporate and group travel. They remain optimistic about a long-term recovery.
- Risks: Key risks include the timing and availability of acquisitions, dependence on third-party managers, interest rate fluctuations (22% of debt is variable), and general economic conditions affecting travel demand.
- Subsequent Events: In April 2011, the Company raised an additional $226.5 million via a follow-on common share offering and completed the acquisitions of the Westin Gaslamp Quarter and Hotel Monaco Seattle.
Investor Verification Checklist
- Acquisition Completion: Verify the closing status and performance of the three properties under contract ($263.5 million aggregate) and the two properties acquired in April 2011.
- Debt Covenants: Confirm continued compliance with the senior secured credit facility covenants (leverage ratio, fixed charge coverage) as the debt load increases with new acquisitions.
- Capital Deployment: Monitor the execution of the $60.0 million renovation budget and its impact on property operating margins.
- Preferred Share Dividends: Track the quarterly dividend obligations on the newly issued 7.875% Series A Preferred Shares ($0.5 million accrued in Q1).
- Variable Rate Exposure: Assess the impact of potential interest rate hikes on the $56.1 million of variable-rate debt.