Pebblebrook Hotel Trust — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, not just the fourth quarter. Pebblebrook is a hotel REIT focused on upper-upscale urban and resort properties. At year-end, it owned interests in 51 hotels with 12,756 rooms. Hotels are leased to taxable REIT subsidiaries and operated by third-party managers.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,391.9 million | $733.0 million |
| Operating income (loss) | $14.7 million | $(89.8) million |
| Net income (loss) | $(85.0) million | $(186.4) million |
| Net loss attributable to common shareholders | $(124.1) million; $(0.95) per share | $(235.0) million; $(1.80) per share |
| Net cash from operating activities | $278.7 million | $70.8 million |
| FFO | $237.7 million | $(12.4) million |
| EBITDAre | $338.3 million | $84.7 million |
Revenue rose 89.9% year over year, driven mainly by recovering leisure and business travel and by hotels operating for more of the year. Hotel operating expenses increased $386.9 million; depreciation and amortization was $239.6 million, interest expense $100.0 million, and impairment and other losses $89.9 million. GAAP operating margin was approximately 1.1%, versus a loss in 2021. FFO and EBITDAre are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Same-property occupancy increased to 62.6% from 43.0%; ADR rose to $308.00 from $268.23; RevPAR increased to $192.83 from $115.44; and Total RevPAR rose to $294.49 from $178.40. These statistics exclude specified acquired, sold, renovated, or hurricane-closed hotels and therefore do not represent the entire portfolio.
At December 31, 2022, total debt was $2.401 billion at face value ($2.387 billion net on the balance sheet). Cash and cash equivalents were $41.0 million, restricted cash $11.2 million, and reported short-term liquidity, including revolving-credit availability, was $689.7 million. Total assets were $6.134 billion and total equity $3.085 billion. The company also reported $320.4 million in operating lease liabilities and $715.0 million in preferred-share liquidation preference.
Material changes versus the prior year
- Operating results improved substantially as hotel demand recovered; management said leisure demand was strong and business travel improved compared with 2021.
- The company acquired two hotels for a gross purchase price of $330.0 million and sold four for aggregate sales prices of $260.9 million. It recorded $6.2 million in sale gains, compared with $64.7 million in 2021.
- Impairment and other losses increased to $89.9 million from $14.9 million. The filing attributes impairment charges to three hotels and Hurricane Ian damage at LaPlaya Beach Resort and Southernmost Beach Resort.
- In October 2022, Pebblebrook refinanced its revolving credit facility and term loans with a $2.0 billion credit agreement: a $650 million revolver and three $460 million term loans. It reported compliance with debt covenants at year-end.
- Fourth-quarter common-share repurchases totaled 4.56 million shares for $69.6 million. The company also repurchased 1.0 million Series H preferred shares for $16.0 million, below their $25.0-per-share liquidation value.
Outlook, commentary, and risks
Management expected to invest $145 million to $155 million in hotel capital projects during 2023. Significant projects include renovations and repositioning work at the Hilton San Diego Gaslamp Quarter, Solamar Hotel, Jekyll Island Club Resort, Estancia La Jolla, and Skamania Lodge. LaPlaya, damaged by Hurricane Ian, was expected to reopen in stages through mid-2023; its first building reopened in January 2023. The company reported $15.8 million in preliminary insurance advances by year-end and continued to pursue property-damage and business-interruption claims.
The filing does not provide a clear numeric forecast for 2023 revenue, earnings, or hotel operating performance. Management cited inflation in labor, capital, and other costs, higher interest rates, and economic uncertainty as potential pressures. Principal risks include renewed weakness in travel demand, recession, labor and operating-cost increases, refinancing and interest-rate exposure, capital-project delays or overruns, hotel-market concentration, weather and climate events, insurance limitations, and the ability to maintain REIT status. Future distributions remain subject to board discretion, cash needs, debt terms, and REIT requirements.
As of year-end, the company had $49.6 million of debt principal due on or before January 1, 2024, including a $47.6 million note due in December 2023; it expected to extend the Margaritaville mortgage maturity from May 2023 to May 2024. Debt maturities assume available extension options are exercised. Approximately $1.8 billion of future minimum fixed lease payments were disclosed, with $20.8 million due on or before December 31, 2023. No mortgage loans were in cash trap at year-end. KPMG issued unqualified opinions on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting. The filing disclosed no material litigation.
Important facts for investors to verify
- Whether hotel demand, occupancy, and rate recovery continue, especially in urban markets and business-travel segments.
- Actual 2023 capital spending, project timing and costs, and LaPlaya’s reopening and insurance recoveries.
- Debt refinancing and extension outcomes, floating-rate exposure, covenant headroom, and the maturity schedule; note that $1.0 billion of swaps hedged variable-rate term loans at year-end.
- Assumptions and valuation inputs behind the $89.9 million of impairment and other losses, as well as the expected sale of The Heathman Hotel for approximately $45.0 million.
- How common- and preferred-share repurchases and distributions affect liquidity, given $715.0 million of preferred liquidation preference and substantial lease commitments.