Pebblebrook Hotel Trust — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021. Pebblebrook owned 51 hotels with 12,626 guest rooms. As of quarter-end, 49 hotels were open; operations at Villa Florence San Francisco and Hotel Vitale remained suspended. The filing attributes the continuing recovery in demand mainly to increased vaccinations and easing restrictions, with leisure demand particularly strong at warmer-weather and resort properties.
Financial and operating performance
- Q2 revenue: $163.3 million, versus $22.6 million in Q2 2020. Room revenue was $108.6 million and food-and-beverage revenue was $31.5 million.
- Q2 earnings: Operating income was $26.3 million, compared with an operating loss of $110.7 million a year earlier. The 2021 result included a $64.6 million gain on hotel sales. Net income attributable to common shareholders was a loss of $8.6 million, or $0.07 per share, versus a loss of $138.7 million, or $1.06 per share.
- First-half results: Revenue was $247.0 million, down from $291.7 million. Net loss attributable to common shareholders was $137.3 million, compared with a $104.8 million loss in the prior-year period. First-half results included a $64.6 million sale gain and a $14.9 million impairment loss.
- Same-property statistics: Q2 occupancy was 38.6%, compared with 3.5%; ADR was $247.46 versus $264.01; RevPAR was $95.55 versus $9.36. For the first half, occupancy was 28.5% versus 30.7%, and RevPAR was $69.95 versus $76.98. Comparisons are affected by widespread hotel closures in 2020 and changes in the property portfolio.
- Cash flow: Operating cash use was $2.3 million for the first half, compared with $86.6 million used a year earlier. Investing activities provided $127.8 million, including $172.0 million in hotel-sale proceeds; financing activities provided $61.2 million. Cash and restricted cash totaled $323.0 million at period-end.
- Liquidity and debt: Management reported $967.2 million of liquidity, including cash, restricted cash and available revolving credit. Debt was $2.275 billion, compared with $2.280 billion at year-end 2020. The $650 million senior revolver had no borrowings and $644.2 million of availability after letters of credit. About $1.4 billion of term-loan borrowings was effectively fixed at a 4.12% weighted-average rate; $57.0 million remained floating-rate.
Material changes versus prior comparable periods
Q2 revenue and hotel operating expenses rebounded sharply from the quarter in which most properties had suspended operations. First-half revenue nevertheless remained below 2020, reflecting weaker first-quarter demand and hotel dispositions, partly offset by the Q2 recovery. Pebblebrook sold Sir Francis Drake and The Roger New York in Q2 2021 and recorded a $64.6 million gain. It issued $250 million of additional 1.75% convertible notes in February and 9.2 million Series G preferred shares in May, generating net proceeds of approximately $257.2 million and $222.6 million, respectively. Proceeds were used in part to reduce debt.
Outlook, risks and unusual items
- Management expects COVID-19 to continue to materially affect 2021 results, financial position and cash flow; it cannot estimate when travel demand will fully recover. It believes liquidity is sufficient for obligations over the next 12 months, based on covenant amendments, lower cash burn and access to equity capital.
- Debt amendments waived most financial covenants through Q1 2022; minimum fixed-charge and unsecured-interest coverage tests were extended through December 31, 2021. Amendments also raised borrowing spreads and certain note rates. The company reported covenant compliance at June 30, 2021.
- Management expected $40 million to $60 million of capital investment during the remainder of 2021, including a planned $25 million Hotel Vitale transformation and a $15 million Southernmost Beach Resort renovation. Hotel Vitale was expected to reopen as 1 Hotel San Francisco in Q4 2021.
- On July 22, 2021, the company acquired the 200-room Jekyll Island Club Resort for $94 million. On July 27, it issued 10 million Series H preferred shares, raising approximately $242 million net.
- The company disclosed a management-agreement dispute with sbe concerning Mondrian Los Angeles; sbe disputed the notice of default and requested arbitration. The company said it was not subject to material litigation.
- Other risks include uncertain travel demand, possible covenant pressure if hotel recovery stalls, floating-rate exposure, reliance on third-party hotel managers, renovation execution, and potential financing or capital-market constraints. A $14.9 million impairment was recorded for one hotel in the first half.
Important facts for investors to verify
- Whether occupancy, RevPAR and operating cash flow continue to recover, especially after accounting for portfolio changes and seasonality.
- Liquidity, debt maturities and compliance with financial covenants as waiver periods expire, particularly in late 2021 and 2022.
- Actual costs, timing and reopening progress for Hotel Vitale and other planned renovations.
- Use of proceeds and balance-sheet effects from the post-quarter Jekyll Island acquisition and Series H preferred issuance.
- Resolution and potential financial effects of the Mondrian Los Angeles management dispute and any further hotel impairments.