Pebblebrook Hotel Trust — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Pebblebrook is a hotel REIT that owned interests in 47 hotels with 12,142 guest rooms at quarter-end. Financial amounts below are in U.S. dollars; unless stated otherwise, dollar figures are millions.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $384.3 | $397.5 | $690.1 | $655.6 |
| Operating income (loss) | $74.8 | $51.9 | $80.0 | $(25.7) |
| Net income (loss) | $46.2 | $28.8 | $24.1 | $(71.4) |
| Net income (loss) attributable to common shareholders | $33.7 | $16.6 | $(0.2) | $(94.2) |
| FFO available to common shareholders and unit holders | $68.3 | $89.3 | $85.8 | $97.7 |
| EBITDAre | $110.1 | $124.5 | $167.3 | $166.9 |
Q2 basic and diluted EPS were $0.27 and $0.24, respectively, versus $0.13 and $0.12 a year earlier. Six-month basic and diluted EPS were each reported as $0.00 (rounded; common-shareholder loss was $0.2 million) versus a loss of $0.72 in 2022. FFO and EBITDAre are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Q2 GAAP operating margin was approximately 19.5% versus 13.1% a year earlier; net margin was approximately 12.0% versus 7.2%. The filing reports total hotel operating expenses of $246.0 million in Q2, up from $228.4 million. Interest expense rose to $29.5 million from $23.2 million. For the first six months, operating cash flow was $120.2 million versus $142.6 million.
Hotel operating trends and period comparisons
- Same-property Q2 occupancy increased to 73.2% from 70.0%; ADR declined to $307.64 from $322.05; RevPAR was essentially flat at $225.25 versus $225.36; Total RevPAR rose to $343.66 from $341.45.
- Six-month same-property occupancy rose to 65.5% from 59.2%, and RevPAR increased to $197.95 from $184.53. ADR declined to $302.02 from $311.82; Total RevPAR rose to $305.00 from $278.09.
- Q2 revenue declined $13.2 million, with $11.2 million attributed to properties no longer in the portfolio. Other pressure came from LaPlaya’s post-Hurricane Ian closure and Solamar’s room renovation; higher revenue at 1 Hotel San Francisco partly offset the declines.
- Six-month revenue increased $34.5 million, mainly from improving urban business and group demand and the reopening of 1 Hotel San Francisco. Higher labor, wage and benefit costs contributed to hotel operating expenses rising $57.6 million for the half year.
- Q2 results included a $23.6 million gain on hotel-property sales and $14.0 million of business-interruption insurance income. The six-month figures included a $30.2 million sale gain and $22.1 million of insurance income. No impairment was recorded in 2023; 2022 included $73.3 million of impairment charges for the six-month period.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $175.6 million; restricted cash was $10.7 million. Total assets were $6.07 billion and total equity was $3.00 billion.
- Debt had $2.40 billion of face value ($2.39 billion net carrying value). It included $1.38 billion of term loans, $750 million of 1.75% convertible notes due December 2026, $50 million of senior notes, and $220.0 million of mortgage loans. No revolving-credit borrowings were outstanding.
- The senior unsecured revolver had $637.4 million available after $12.6 million of letters of credit; the separate PHL facility had $20.0 million available. Management stated that cash, restricted cash and the senior revolver totaled $823.7 million and, with operating cash flows, were expected to cover short-term cash needs.
- Management reported compliance with debt covenants, and no mortgage property was in a cash trap. Debt maturities include $49.5 million of principal and $271.9 million of interest payable on or before June 30, 2024. The company intends to use available cash, revolver borrowings or refinancing as needed. It expects to refinance the $161.5 million Margaritaville mortgage before its May 2024 maturity and plans to pay the $47.6 million Series A Notes at their December 2023 maturity.
- Floating-rate exposure was $536.5 million, or 22.4% of indebtedness, after giving effect to swaps. Management estimated that a 0.1 percentage-point rate change would change annual interest expense by approximately $0.5 million.
- Operating, investing and financing cash flows for the half year were $120.2 million, $135.3 million and $(121.5) million, respectively. Investing cash flow included $224.4 million of hotel-sale proceeds and $97.7 million of property improvements; financing included $92.8 million of common-share repurchases and $26.8 million of common and preferred distributions.
Portfolio actions, outlook and risks
- During the first half, the company sold The Heathman Hotel, the retail component of The Westin Michigan Avenue Chicago, Hotel Colonnade Coral Gables, Hotel Monaco Seattle and Hotel Vintage Seattle for aggregate sale prices of $232.3 million. It repurchased 6.5 million common shares at an average price of approximately $14.01 per share, for an aggregate purchase price of $91.0 million. A new common-share authorization had $146.0 million remaining at quarter-end; no preferred shares had been repurchased under the separate $100 million authorization.
- Management said leisure demand had driven resort revenue to pre-pandemic levels and that corporate and group business was progressing in urban markets. It expected these trends to continue if the economic recovery and return of international travel continued. Inflation, labor costs and other expenses remained pressures.
- LaPlaya Beach Resort & Club was reopening in stages after Hurricane Ian. Management expected substantial reopening by year-end 2023, while cautioning that equipment, material and inspection delays could affect timing. The company had received $38.8 million in preliminary insurance advances and continued to pursue property and business-interruption claims. Some repair, payroll and claims-administration costs may not be reimbursed.
- The company expected $145 million to $155 million of 2023 capital investment, excluding Hurricane Ian repair and remediation costs. The filing does not provide a full-year earnings or revenue forecast.
- Key risks include travel demand and economic conditions, inflation and rising interest rates, hotel labor and operating costs, financing and refinancing availability, renovation and restoration delays or overruns, insurance recovery uncertainty, and reliance on third-party hotel managers. The company reported no material litigation and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Progress and costs at LaPlaya, the expected reopening timeline, and final insurance recoveries.
- Ability to refinance or repay 2023–2024 maturities and manage floating-rate exposure while maintaining covenant compliance.
- Whether improving occupancy and urban group demand can offset lower ADR and rising hotel operating costs.
- Actual capital spending versus the $145–$155 million expectation, including Hurricane-related spending excluded from that range.
- Cash and revolver availability after planned capital expenditures, distributions and any further share repurchases.