Pebblebrook Hotel Trust — Q1 2023 Form 10-Q
Business context and period. This Maryland REIT owns and invests in hotels, primarily in major U.S. cities and resort markets. At March 31, 2023, it had interests in 49 hotels with 12,451 rooms. Results below are for the three months ended March 31, 2023, compared with Q1 2022; amounts are in U.S. dollars unless noted. The company cautions that first-quarter results are seasonally lower and are not necessarily indicative of full-year performance.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $305.7 million | $258.1 million |
| Operating income (loss) | $5.2 million | $(77.7) million |
| Net loss attributable to company | $(22.9) million | $(99.5) million |
| Net loss attributable to common shareholders | $(33.9) million; $(0.27) per share | $(110.9) million; $(0.85) per share |
| Net cash from operating activities | $46.2 million | $38.8 million |
| FFO available to common shareholders and unit holders | $17.5 million | $8.4 million |
| EBITDAre | $57.1 million | $42.4 million |
Revenue increased 18.5%. Operating margin was approximately 1.7%, compared with negative 30.1% in Q1 2022; the prior-year quarter included a $61.0 million impairment charge. Hotel operating expenses rose $40.0 million as demand and hotel operations increased. Interest expense increased $4.9 million to $27.4 million, primarily from higher rates on floating-rate debt. FFO and EBITDAre are non-GAAP measures and are not substitutes for GAAP results or operating cash flow.
Same-property occupancy improved to 58.0% from 48.5%; ADR declined to $295.02 from $297.31. RevPAR increased to $171.05 from $144.33, and Total RevPAR rose to $266.92 from $215.69. Statistics exclude 1 Hotel San Francisco, closed for renovations in Q1 2022, and LaPlaya Beach Resort & Club, closed following Hurricane Ian.
Liquidity, debt, and capital
At March 31, 2023, cash and cash equivalents were $138.5 million, restricted cash was $8.0 million, and net debt carrying value was $2.388 billion ($2.400 billion face value). The company reported $636.9 million of remaining availability on its $650 million revolving facility, after letters of credit, and no borrowings under that facility. Management stated that cash, facility availability and operating cash flow—$783.4 million in total as presented in its liquidity discussion—were expected to cover short-term needs. It reported compliance with debt covenants and no mortgage loans in cash trap.
Debt includes $1.38 billion of term loans, $750 million of 1.75% convertible notes due December 2026, $50 million of senior notes and $220.5 million of mortgage loans. The $161.5 million Margaritaville mortgage matures in May 2023; the company expected to extend, refinance or repay it using available cash or revolving borrowings. Debt principal of $49.4 million and interest of $104.8 million were payable on or before March 31, 2024. Approximately $701.5 million of debt, or 29.2% of total indebtedness, was exposed to variable rates after swaps; a 0.1 percentage-point rate move was estimated to change annual interest expense by about $0.7 million.
Operating cash flow was $46.2 million. Investing activities provided $105.2 million, including $131.9 million of hotel and retail-component sale proceeds and $8.4 million of property insurance proceeds, offset in part by $34.5 million of hotel improvements. Financing activities used $57.1 million, including $42.7 million for common-share repurchases and $13.4 million in common and preferred distributions. Cash and restricted cash ended the quarter at $146.5 million.
Material changes, outlook, and risks
- Q1 revenue growth reflected stronger leisure travel and improving business and group bookings; management said urban-market demand was improving. Leisure-led resort revenue had reached pre-pandemic levels, while corporate and group recovery remained slower.
- The company sold The Heathman Hotel, the retail component of The Westin Michigan Avenue Chicago, and Hotel Colonnade Coral Gables for aggregate stated sale prices of $135.3 million. It recorded a $6.6 million gain on sale. Two additional hotels were classified as held for sale at an aggregate expected price of approximately $97 million, with completion expected in Q2 2023; completion and terms were not assured.
- LaPlaya Beach Resort & Club continued reopening in stages after Hurricane Ian. Management anticipated a full reopening by year-end 2023; the Beach House was targeted for Q4, but equipment, material and inspection delays could affect timing. The company recorded $8.1 million of business-interruption insurance income from a partial settlement, had received $29.3 million in preliminary insurance advances through quarter-end, and incurred $2.8 million in costs for which reimbursement was uncertain.
- Management expected 2023 capital investments of $145 million to $155 million, including about $50 million for redevelopment and repositioning projects, excluding Hurricane Ian repair and remediation costs. No full-year earnings or revenue guidance was provided in the supplied filing text.
- Inflation and labor and other cost increases, higher interest rates, economic and travel-demand uncertainty, hotel seasonality, exposure to third-party managers, and possible financing or refinancing constraints are identified risks. The filing notes that travel declines or rising costs could impair cash flow and debt-service capacity. It reported no material litigation and no material changes to previously disclosed risk factors.
- Shareholder actions included Q1 repurchases of 2.924 million common shares under the program for an average $14.04 per share, with $46.0 million remaining under the existing authorization at quarter-end. A new $150 million common-share program was to begin after the existing program; a $100 million preferred-share repurchase program was also authorized. The ATM offering program expired February 21, 2023. After quarter-end, the company repurchased 1.007 million common shares at an average $13.92 per share.
Important facts for investors to verify
- Progress, final costs, insurance recoveries and reopening schedule for LaPlaya, including whether the Beach House reopens as targeted.
- Completion and realized proceeds from the two hotels classified as held for sale, and use of proceeds from completed and future dispositions.
- Refinancing, extension or repayment of the Margaritaville mortgage due May 2023, and upcoming debt maturities and covenant headroom.
- Actual capital spending against the $145–$155 million 2023 estimate, especially Hurricane Ian remediation costs excluded from that range.
- Hotel demand and expense trends, including occupancy, ADR, labor and other cost inflation, and the pace of business and group recovery.
- Repurchase execution and its effect on liquidity, alongside preferred distributions and the REIT’s taxable-income distribution requirements.