Pebblebrook Hotel Trust — Q2 2020 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2020. Pebblebrook owned 54 hotels with 13,352 rooms, primarily in major U.S. urban and coastal markets. COVID-19 sharply curtailed travel demand; 16 hotels were open and 38 temporarily suspended operations at quarter-end.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $22.6 million | $442.1 million | $291.7 million | $809.3 million |
| Operating income (loss) | ($110.7 million) | $95.8 million | ($55.8 million) | $125.7 million |
| Net income (loss) | ($130.9 million) | $60.5 million | ($88.8 million) | $66.2 million |
| Net income (loss) attributable to common shareholders | ($138.7 million) | $52.2 million | ($104.8 million) | $49.7 million |
| Common diluted EPS | ($1.06) | $0.40 | ($0.80) | $0.38 |
| Cash from operating activities | Not presented quarterly | ($86.6 million) | $194.1 million |
Same-property Q2 occupancy was 3.3% versus 86.9%; RevPAR was $8.92 versus $233.54, and Total RevPAR was $18.62 versus $339.05. Six-month occupancy was 30.0% versus 81.2%, and RevPAR was $75.32 versus $212.02.
At June 30, cash and cash equivalents were $339.8 million and restricted cash was $13.0 million. Total debt was $2.453 billion, up from $2.229 billion at year-end 2019. The senior revolver had $390.0 million drawn and $253.2 million of remaining capacity; the separate PHL facility had $25.0 million available. Total equity was $3.489 billion. Six-month capital improvements were $89.6 million.
Material changes and unusual items
- Revenue fell $419.5 million in Q2 and $517.6 million in the first half, primarily because of COVID-19 demand loss and hotel suspensions; portfolio dispositions also reduced comparisons.
- Q2 hotel operating expenses declined $210.4 million year over year, but revenue fell much more, resulting in a substantial operating loss.
- First-half results included a $117.4 million gain on the sale of two hotels for an aggregate $331.0 million, a $20.6 million impairment of a hotel retail component, and approximately $8.9 million of suspended-operation costs.
- Cancellation of February 2020 retention awards generated approximately $16.0 million of accelerated compensation expense.
- On June 29, the company amended its credit agreements and senior notes: financial covenants were waived through Q1 2021 and made less restrictive through Q2 2022; $242.6 million of a term-loan tranche was extended from November 2021 to November 2022. A $0.01 quarterly common dividend was permitted during the waiver period subject to compliance.
- The common dividend was reduced to $0.01 per share for Q1 and Q2 and management said it was likely to remain at that level for the rest of 2020. Preferred dividends continued.
- The Union Station Hotel Nashville, classified as held for sale at quarter-end for $56.0 million, was sold on July 29, 2020.
Outlook, risks and contingencies
Management expected COVID-19 to materially affect operations, financial position and cash flow for the remainder of 2020 and into 2021, and could not estimate when travel demand would recover. Cost actions included reduced staffing and hotel expenses, lower planned capital spending and reduced compensation. Management expected $35–$40 million of capital investments for the remainder of 2020 and stated it believed amended debt terms and cost reductions would provide sufficient liquidity for the next 12 months. This is management’s assessment, not a guarantee.
Key risks include prolonged hotel closures or weak demand, possible covenant pressure if operations do not resume, access to financing, floating-rate debt exposure and reliance on third-party hotel managers. The amendments fixed the revolving-credit spread at 2.25% during the waiver period and required a higher spread for certain borrowings; some debt remained floating-rate. No material litigation was reported. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Hotel reopening pace, occupancy, RevPAR and cash burn relative to the company’s liquidity runway.
- Available revolver capacity, covenant compliance and the detailed conditions and duration of the amended debt terms.
- Debt maturities, interest-rate swap exposure and interest expense as rates or borrowing needs change.
- Whether planned capital spending, the minimal common dividend and preferred distributions remain sustainable.
- Cash proceeds and final accounting for the Nashville sale, and any further dispositions, impairments or restructuring costs.