Pebblebrook Hotel Trust — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Pebblebrook owned 52 hotels with 13,006 guest rooms. Its hotel operations were materially affected by the COVID-19 pandemic.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $238.8 million | $77.0 million | $485.8 million | $368.7 million |
| Operating income (loss) | ($0.6) million | ($97.4) million | ($70.5) million | ($153.2) million |
| Net income (loss) | ($23.5) million | ($130.6) million | ($143.6) million | ($219.4) million |
| Net loss attributable to common shareholders | ($44.0) million | ($138.4) million | ($181.3) million | ($243.3) million |
| Loss per common share | ($0.34) | ($1.06) | ($1.39) | ($1.86) |
| EBITDAre | $54.7 million | ($40.5) million | $45.3 million | ($81.5) million |
| FFO available to common shareholders and unit holders | $11.1 million | ($82.1) million | ($66.9) million | ($172.9) million |
Margins: Approximate GAAP operating margin was (0.3)% in Q3 2021 and (14.5)% for the first nine months. EBITDAre margin was approximately 22.9% and 9.3%, respectively. EBITDAre and FFO are non-GAAP measures and are not substitutes for operating cash flow or net income.
- Hotel metrics: Same-property Q3 occupancy was 52.3% versus 21.7%; ADR was $272.54 versus $218.42; RevPAR was $142.48 versus $47.37; and Total RevPAR was $209.02 versus $71.57. The filing notes exclusions and acquisition/disposition effects in these comparisons.
- Cash flow: Nine-month operating cash flow was $44.3 million, versus cash used of $146.9 million in 2020. Investing cash flow was $11.1 million, including $255.9 million of hotel-sale proceeds, $191.0 million of cash used for acquisitions, and $52.8 million of hotel improvements. Financing used $9.0 million. Cash and restricted cash totaled $182.7 million at period-end.
- Debt and liquidity: Debt was $2.384 billion at September 30, up from $2.280 billion at December 31, 2020. The company reported liquidity of $826.9 million, including cash, restricted cash and $644.2 million of available capacity on its $650 million unsecured revolver. Approximately $168.5 million of debt, or 7.0% of total debt, was exposed to floating rates after swaps; a 0.1 percentage-point rate change was estimated to affect annual interest expense by about $0.2 million.
- Balance sheet: Total assets were $6.227 billion and total equity was $3.202 billion at September 30. Preferred shares had a $740 million liquidation preference.
Changes versus prior comparable periods
- Q3 revenue rose $161.8 million year over year as hotels reopened and leisure travel strengthened; most hotels had remained closed through Q3 2020. Hotel operating expenses also increased, by $77.1 million, as properties resumed operations.
- Nine-month revenue increased $117.1 million, while operating cash flow improved from a $146.9 million use to $44.3 million provided. Business travel nevertheless remained substantially below normal.
- Interest expense declined to $73.1 million for the first nine months from $75.2 million, mainly reflecting debt repayments. Preferred distributions increased following Series G and H issuance, partly offset by redemption of Series C and D.
- Year-to-date results included a $64.7 million net gain on hotel sales and a $14.9 million impairment loss. Q3 common-shareholder loss included $8.0 million of costs from redeeming preferred shares.
Outlook, risks and notable items
- Management expected COVID-19 to continue materially affecting results, financial position and cash flow for the remainder of 2021, and anticipated further recovery in 2022. Leisure demand in Q2 and Q3 exceeded expectations, especially at warmer-weather and resort properties; the timing of full travel recovery remained uncertain.
- All hotels were open at September 30 except Hotel Vitale, which was closed for renovation and expected to reopen as 1 Hotel San Francisco in Q1 2022. Management expected $30–$40 million of additional capital investment in the rest of 2021, including the $25 million Hotel Vitale transformation.
- The company issued $480 million gross of Series G and H preferred shares, redeemed $250 million of Series C and D preferred shares, issued $250 million additional 1.75% convertible notes, and repaid $428 million of debt during the first nine months. It also sold three hotels and acquired leasehold interests in Jekyll Island Club Resort and Margaritaville Hollywood Beach Resort.
- Debt agreements waived most financial covenants through Q1 2022, but minimum fixed-charge coverage and unsecured-interest-coverage requirements were extended only through December 31, 2021. The company said it was compliant with applicable covenants at September 30 and believed it had sufficient liquidity for the next 12 months.
- Margaritaville’s assumed $161.5 million floating-rate mortgage matures in May 2022 and has extension options. The hotel was already subject to cash-trap provisions; operating cash is held in lender-controlled accounts until performance thresholds are met or the loan is repaid, potentially limiting liquidity and distributions.
- Management disclosed a dispute with sbe over the Mondrian Los Angeles management agreement; sbe disputed the alleged default and requested arbitration. The filing reported no material litigation otherwise and no material changes to previously disclosed risk factors.
- After quarter-end, the company acquired the 19-room Avalon Bed & Breakfast and 12-room Duval Gardens in Key West for $20 million, to be consolidated with Southernmost Beach Resort.
Important facts for investors to verify
- Hotel demand recovery, particularly the pace of business-travel recovery, and whether the anticipated 2022 improvement materializes.
- Liquidity and covenant compliance as covenant waivers expire, including management’s plans for near-term maturities and extensions.
- When Margaritaville’s cash trap will end and the effect of restricted operating cash on available liquidity and distributions.
- Renovation budgets, completion timing and reopening plans for Hotel Vitale and Southernmost Beach Resort.
- Hotel-level performance underlying same-property statistics and the impact of property sales, acquisitions and operating closures on comparability.
- Impairment assumptions, the sbe arbitration outcome, and the costs and dilution implications of preferred and convertible securities.