Pebblebrook Hotel Trust quarterly report, Q3 FY2023

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Pebblebrook Hotel Trust — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023. Pebblebrook is a hotel REIT; it owned interests in 47 hotels with 12,142 rooms at quarter-end, compared with 51 properties a year earlier.

Financial and operating performance

  • Q3 revenue: $395.8 million, down 5.0% from $416.7 million in Q3 2022. Nine-month revenue: $1.086 billion, up 1.3% from $1.072 billion.
  • Q3 net loss attributable to the company: $57.1 million, versus income of $25.1 million a year earlier; loss attributable to common shareholders was $68.1 million, or $0.57 per share, versus income of $13.7 million, or $0.10 per share. For nine months, the company-attributable loss narrowed to $35.3 million from $46.5 million; common-shareholder loss was $68.3 million, or $0.56 per share.
  • Key Q3 charges and income: $71.4 million impairment loss and $10.9 million of business-interruption insurance income. Nine-month impairment was also $71.4 million, alongside a $30.2 million gain on property sales and $33.0 million of insurance income.
  • Interest and margins: Interest expense rose to $31.0 million for Q3 from $25.0 million, and to $88.0 million for nine months from $70.8 million. Derived operating margin was negative 6.6% in Q3 versus 12.5% in Q3 2022; nine-month operating margin was 5.0% versus 2.5%. Non-GAAP EBITDAre was $110.0 million in Q3 versus $119.4 million, and $277.3 million for nine months versus $286.3 million.
  • Hotel metrics: Same-property Q3 occupancy improved to 75.4% from 72.9%, while ADR fell to $310.67 from $324.78 and RevPAR edged down to $234.09 from $236.69. Total RevPAR increased to $353.85 from $353.06. Nine-month RevPAR rose to $210.16 from $202.15.
  • Cash flow, nine months: Operating cash flow was $202.3 million, down from $254.4 million. Investing activities provided $96.3 million, compared with $66.6 million used in the prior-year period; financing activities used $159.2 million versus $69.9 million. Cash and cash equivalents were $182.7 million at September 30; cash plus restricted cash totaled $191.6 million.
  • Debt and liquidity: Debt principal was $2.378 billion ($2.367 billion net carrying value). The company reported $637.4 million available on its senior revolver and $20.0 million available on PHL’s facility, with no revolver borrowings. Management stated that cash, restricted cash, senior revolver availability and operating cash flow totaled $829.0 million and should cover short-term cash needs. The company was in compliance with debt covenants; no mortgage cash traps were in effect.

Material changes and notable items

  • Q3 revenue declined mainly because of disposed properties and LaPlaya Beach Resort’s continued closure and partial reopening after Hurricane Ian; improvement at 1 Hotel San Francisco partly offset the decline. For the nine-month period, urban-property and 1 Hotel San Francisco growth more than offset LaPlaya weakness and dispositions.
  • Hotel operating costs increased at comparable properties, including from staffing, wage rates and benefits. Higher floating-rate borrowing costs drove the increase in interest expense.
  • The company sold five assets during the first nine months for aggregate stated sale prices of $232.3 million and recognized $30.2 million of related gains. It agreed to sell Hotel Zoe Fisherman’s Wharf for $68.5 million, expected to close in Q4 2023; completion and terms are not assured.
  • Common-share repurchases totaled 6.5 million shares for approximately $91.0 million at an average $14.01 per share during the first nine months. The common-share program had $146.0 million remaining; no preferred shares were repurchased.
  • LaPlaya was reopening in stages. Management expected substantial completion of remediation and repairs in Q1 2024, subject to possible delays. The company had received $55.1 million in preliminary insurance advances and continued negotiating property and business-interruption claims.

Outlook, obligations and risks

  • No specific revenue or earnings guidance is provided in the filing. Management described recovery as led by leisure travel, with corporate and group business improving in urban markets; it said continuation depends on the economic recovery and returning international travel.
  • Management expected 2023 capital investments of $145 million to $155 million, excluding LaPlaya hurricane-related repair costs. Spending through September was $140.1 million.
  • Debt maturities require attention: $47.6 million of Series A notes mature in December 2023 and a $460 million term loan matures in October 2024. Management said it intends to use available cash, revolver borrowings or refinancing for maturities. Principal and interest payable through September 30, 2024 were estimated at $49.5 million and $118.2 million, respectively.
  • Risks include elevated interest rates, inflation and labor costs, hotel-demand sensitivity to economic and travel conditions, property-sale and refinancing execution, renovation delays or cost overruns, and uncertainty over insurance recoveries. The filing reports no material litigation and no material change to previously disclosed risk factors.

Investor verification priorities

  1. Review the impairment assumptions and valuations underlying the $71.4 million write-down across three hotels.
  2. Track LaPlaya’s reopening and repair schedule, remaining insurance settlements, and any unreimbursed costs.
  3. Confirm funding or refinancing plans for the December 2023 notes and October 2024 term loan, and monitor covenant headroom and borrowing costs.
  4. Assess whether hotel demand, ADR, occupancy and operating costs support improved property-level margins, particularly in urban markets.
  5. Verify completion and proceeds of the Hotel Zoe sale and whether planned capital spending and share repurchases remain consistent with liquidity needs.