Pebblebrook Hotel Trust — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Pebblebrook is a hotel REIT that owned 53 hotels with 13,247 rooms at year-end, primarily in U.S. urban and resort markets. Its hotels are operated by third-party managers through taxable REIT subsidiaries.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $733.0 million | $442.9 million |
| Operating income (loss) | $(89.8) million | $(292.7) million |
| Net income (loss) | $(186.4) million | $(392.6) million |
| Net income (loss) attributable to common shareholders | $(235.0) million; $(1.80) per share | $(424.3) million; $(3.25) per share |
| Net cash from (used in) operating activities | $70.8 million | $(201.8) million |
| FFO available to common shareholders and unit holders | $(62.6) million | $(243.9) million |
| EBITDA / EBITDAre | $134.6 million / $84.7 million | $(67.6) million / $(110.5) million |
Revenue increased 65.5% year over year as hotel operations resumed and leisure demand recovered. Same-property occupancy was 40.4% versus 26.5%; ADR was $257.86 versus $233.25; RevPAR was $104.12 versus $61.72; and Total RevPAR was $157.69 versus $95.15. These operating statistics exclude certain properties and periods as detailed in the filing. Derived GAAP operating margin was approximately negative 12.2% of revenue; EBITDAre margin was approximately 11.6%. FFO and EBITDA measures are non-GAAP and are not cash-flow measures.
At December 31, 2021, total assets were $6.26 billion, total equity was $3.16 billion, and debt was $2.44 billion on the balance sheet ($2.46 billion face value). Cash and cash equivalents were $58.5 million, with another $33.7 million in restricted cash. Management reported $730.1 million of cash, restricted cash and available revolving-credit capacity and believed liquidity was sufficient for the next 12 months, subject to its recovery assumptions. Future fixed minimum hotel, ground and finance lease payments totaled $1.8 billion; $20.4 million was due within 12 months. Annual preferred dividends were approximately $45.4 million.
Material changes and notable transactions
- Compared with 2020, hotel demand and operating cash flow improved substantially, but the company remained loss-making and results were below pre-pandemic performance.
- Acquired leasehold interests in Jekyll Island Club Resort ($94 million), Margaritaville Hollywood Beach Resort ($270 million, including assumed mortgage debt), and Estancia La Jolla Hotel & Spa ($108 million, including assumed mortgage debt); also acquired two small Key West properties for $20 million.
- Sold three hotels for aggregate stated sale proceeds of approximately $264 million. Recognized a $64.7 million net gain on hotel sales and a $14.9 million impairment loss in 2021, versus a $117.4 million sale gain and $74.6 million impairment loss in 2020.
- Issued $250 million of additional 1.75% convertible notes and raised $464.7 million net from Series G and H preferred-share offerings; redeemed Series C and D preferred shares for $250 million.
- Repayment of $431.9 million of debt was offset in part by new debt and assumed mortgages. Debt amendments extended or offered extensions on more than $1 billion of maturities, increased borrowing costs during the covenant waiver period, and imposed restrictions on capital actions.
- The company early adopted convertible-debt accounting guidance in 2021, recording the convertible notes as a single liability; the adoption reduced equity by a $113.1 million cumulative adjustment.
Outlook, risks and contingencies
- Management expected further recovery in 2022, citing stronger-than-expected leisure travel, especially at warm-weather and resort properties. Business travel remained substantially below prior levels; the timing of a full recovery was uncertain.
- All hotels were open at year-end except Hotel Vitale, which remained closed for renovation and repositioning, with reopening expected in the second quarter of 2022. Planned 2022 capital investment was $100 million to $120 million, including major renovation and repositioning projects.
- Debt financial covenants were waived through the second quarter of 2022, with substantially less-restrictive covenants through the end of the first quarter of 2023. Management warned that future covenant compliance depended on operating recovery; failure could require repayment and adversely affect liquidity. Cash traps on the Margaritaville and Estancia mortgages were already active and restricted property cash; management expected the hotels to meet release thresholds in 2022.
- Common distributions were reduced to $0.01 per share per quarter. Debt agreements prohibited common distributions above that level except as needed to maintain REIT status, and restricted share repurchases and certain other activities. The company also disclosed refinancing and maturity concentration risks, exposure to interest rates and the LIBOR transition, hotel demand and labor-cost risks, and potential renovation delays or cost overruns.
- No material litigation was reported. The auditor issued unqualified opinions on the financial statements and internal controls. Hotel-property impairment testing was identified as a critical audit matter because of uncertainty in projected cash flows, holding periods and terminal capitalization rates amid COVID-19 effects.
Important facts for investors to verify
- Whether leisure demand recovery continues and business, group and convention travel improve enough to support occupancy, ADR and cash generation.
- Available liquidity after restricted cash, capital spending, lease payments, preferred dividends and other obligations; confirm actual availability and terms of revolving facilities.
- Near-term covenant tests and the company’s capacity to satisfy them, as well as maturity extensions, refinancing needs and the 2024 and 2026 debt concentrations.
- Progress and costs of the 2022 renovation program, Hotel Vitale’s reopening, and the timing of cash-trap releases at the two mortgaged hotels.
- How management’s impairment assumptions, sale gains and non-GAAP FFO/EBITDAre reconciliations affect assessment of recurring operating performance.