Pebblebrook Hotel Trust — Q1 2022 Form 10-Q
Business context and reporting period. Pebblebrook is a hotel REIT operating through third-party hotel managers. For the three months ended March 31, 2022, it owned 53 hotels with 13,247 guest rooms. All hotels were open except Hotel Vitale, which was closed for renovations. Comparative operating results are affected by three hotel acquisitions in 2021, three dispositions in 2021, and 13 hotels that remained temporarily closed during Q1 2021.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $258.1 million | $83.6 million |
| Operating loss | $77.7 million | $96.1 million |
| Net loss | $100.2 million | $121.4 million |
| Net loss attributable to common shareholders | $110.9 million; $0.85 per share | $128.7 million; $0.98 per share |
| Operating cash flow | $38.8 million | $(7.1) million |
| Capital improvements | $19.9 million | $9.6 million |
Same-property occupancy rose to 48.3% from 22.1%; ADR increased to $297.29 from $250.47; RevPAR rose to $143.61 from $55.33; and Total RevPAR increased to $219.75 from $89.02. Management attributed the recovery mainly to leisure travel and spring-break demand, with business and group travel recovering more slowly.
FFO was $19.8 million, versus a loss of $51.3 million; FFO available to common shareholders and unit holders was $8.4 million, versus a loss of $59.4 million. EBITDAre was $42.4 million, versus a loss of $25.8 million. These are non-GAAP measures and are not substitutes for GAAP results or operating cash flow.
Q1 included a $61.0 million impairment charge on two hotels, compared with $14.9 million on one hotel in Q1 2021. Interest expense declined to $22.6 million from $25.3 million. Preferred distributions rose to $11.3 million from $8.1 million, primarily following the 2021 Series G and H preferred-share issuances.
Balance sheet, debt, and liquidity
At March 31, 2022, total assets were $6.18 billion, debt carrying value was $2.44 billion (face value $2.46 billion), and total equity was $3.08 billion. Cash and cash equivalents were $69.4 million and restricted cash was $26.5 million. Management reported total liquidity of $694.4 million, including available revolving-credit capacity, and said it expected liquidity to cover obligations for the next 12 months, subject to its recovery assumptions.
The company had no revolver borrowings and $598.4 million of remaining capacity on its $611.0 million senior unsecured revolver; an additional $20.0 million PHL facility was also undrawn. Approximately $454.6 million of debt was exposed to variable interest rates after swaps; a 0.1 percentage-point rate change was estimated to affect annual interest expense by about $0.5 million. Covenant waivers applied through Q2 2022, with substantially less restrictive covenants through Q1 2023. The company reported covenant compliance at quarter-end.
Operating cash flow improved to $38.8 million, primarily because hotel operations resumed. Cash and restricted cash together increased by $3.7 million during the quarter to $96.0 million. The company paid $12.7 million in common and preferred distributions.
Changes, outlook, risks, and unusual items
- Revenue increased by $174.4 million year over year; $38.4 million of the increase came from non-comparable properties, with the balance primarily reflecting stronger demand and reopened hotels. Hotel operating expenses increased by $101.7 million, including $21.0 million related to non-comparable properties.
- Management expected the recovery trend to continue through 2022, while noting that COVID-19 was expected to continue negatively affecting results, financial position, and cash flows for the remainder of the year. Resort properties were operating at or above pre-pandemic levels.
- Management expected $100 million to $120 million of capital investment in 2022, including about $50 million for redevelopment and repositioning projects. Q1 projects included Hotel Vitale and Hotel Ziggy.
- In April 2022, the company repaid a $26.3 million term loan using cash on hand and extended the Margaritaville Hollywood Beach Resort loan maturity to May 2023. It also announced a contract to acquire the Inn on Fifth in Naples, Florida, with closing expected by the end of Q2, subject to customary conditions.
- Key risks include uncertain travel demand and pandemic effects, slower business and group travel recovery, operating-cost and interest-rate increases, debt maturities and covenant terms, and possible delays or cost overruns on renovation projects. Estancia La Jolla cash remained subject to lender cash-trap restrictions. Management reported no material litigation and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether hotel demand, especially business and group travel, continued to recover after Q1 and supported management’s liquidity assumptions.
- Upcoming debt maturities, extension conditions, post-waiver covenant requirements, and the status of refinancing or repayment plans.
- Whether the $100 million to $120 million capital-investment plan and Hotel Vitale reopening proceeded on schedule and within budget.
- Whether the Inn on Fifth acquisition closed and its purchase price, financing, and expected operating contribution.
- The basis and valuation assumptions for the $61.0 million impairment charge, and the continued availability of cash held in lender-controlled accounts.