Pebblebrook Hotel Trust annual report, FY2023

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Pebblebrook Hotel Trust — 2023 Form 10-K Summary

Business context and reporting period

Annual report for the fiscal year ended December 31, 2023; the filing is annual, not a standalone fourth-quarter report. Pebblebrook is a hotel REIT whose portfolio emphasizes upper-upscale urban and resort properties. At year-end, it owned interests in 46 hotels with 11,924 rooms, compared with 51 hotels at December 31, 2022. Its hotels are operated by third-party managers through taxable REIT subsidiaries.

Financial and operating performance

  • Revenue: $1.420 billion, up 2.0% from $1.392 billion in 2022. Growth at comparable properties was partly offset by dispositions and LaPlaya’s hurricane-related closure.
  • Profitability: GAAP operating income was $37.8 million, versus $14.7 million in 2022; net loss was $74.3 million, versus $85.0 million. Net loss attributable to common shareholders was $113.3 million, or $0.93 per diluted share, versus $124.1 million, or $0.95 per share.
  • Non-GAAP measures: EBITDA was $282.7 million, up from $254.9 million. EBITDAre was $334.1 million, down from $338.3 million; FFO was $217.4 million, down from $237.7 million. These measures are not substitutes for GAAP results or cash flow.
  • Same-property hotel metrics: Occupancy rose to 67.7% from 63.1%; ADR declined to $302.96 from $312.01; RevPAR increased to $205.24 from $196.96; and Total RevPAR increased to $316.02 from $298.38. The comparable-property set excludes certain properties and periods affected by closures, redevelopment, acquisitions, or sales.
  • Cash flow and investment: Operating cash flow was $236.2 million, down from $278.7 million. Capital improvements were $200.6 million, versus $116.7 million. Investing activities provided $142.0 million, mainly reflecting $314.9 million of property-sale proceeds and $30.2 million of insurance proceeds.
  • Debt and liquidity: Debt had a $2.330 billion face value ($2.320 billion net carrying value) at year-end. Cash and cash equivalents were $183.7 million, with $9.9 million of restricted cash. The company reported $830.0 million of cash, restricted cash, and senior revolving-credit availability combined; the $650 million facility had $636.4 million available after letters of credit. It reported compliance with debt covenants and no mortgage cash traps at year-end.
  • Preferred equity and distributions: Outstanding preferred shares had an aggregate $690 million liquidation preference and approximately $47.2 million of annual dividends. Common dividends were $0.01 per share for each 2023 quarter.

Material changes versus 2022

  • Total revenue increased $28.1 million, while hotel operating expenses rose $57.6 million, reflecting higher staffing, wages, benefits, and activity at previously renovated properties, partly offset by property dispositions.
  • Interest expense rose $15.7 million to $115.7 million, primarily due to higher rates on floating-rate debt.
  • The company recorded $81.8 million of impairment losses, compared with $89.6 million in 2022, and $30.4 million of gains on hotel-property sales, compared with $6.2 million.
  • It sold five hotels and two retail components for aggregate stated sale prices of $330.8 million. It repurchased 6.5 million common shares for $91.0 million and 1.0 million Series H preferred shares for $15.8 million.

Outlook, commentary, risks, and unusual items

  • Management described continued recovery, with stronger occupancy growth in urban markets including Washington, D.C. and San Francisco, and stable business and leisure demand. It expects ongoing benefits from recovering international travel and a strong 2024 convention calendar. No numerical revenue or earnings guidance is provided.
  • Management expects $85–$90 million of capital investment in 2024. Major projects include Newport Harbor Island Resort, Estancia La Jolla, and Skamania Lodge, with completion expected in the second quarter of 2024.
  • In January 2024, the company extended $356.7 million of Term Loan 2024 debt to January 2028 and repaid $60.0 million of that loan and $50.0 million of Term Loan 2025 with available cash. $43.3 million of Term Loan 2024 remained due in October 2024.
  • LaPlaya Beach Resort was substantially restored after Hurricane Ian; the final resort building was expected to be substantially completed by the end of February 2024. The company recognized $33.0 million of business-interruption insurance income in 2023 following a partial settlement and said it would continue pursuing its claim. It had received $84.3 million in preliminary insurance advances through year-end 2023.
  • Key risks include hotel-demand and economic cyclicality, higher labor and operating costs, interest rates and refinancing, substantial capital needs, dependence on third-party managers, geographic concentration, climate and disaster exposure, insurance adequacy, and maintaining REIT qualification. Management disclosed no cybersecurity threat or prior incident that materially affected the business as of year-end.
  • KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Its critical audit matter focused on management’s estimated holding periods for hotel properties, which inform impairment assessments. The company reported no material litigation.

Important facts for investors to verify

  • Debt maturities, available financing, and refinancing terms following the January 2024 amendments and repayments.
  • LaPlaya’s final restoration costs, timing, and remaining property-damage and business-interruption insurance recoveries.
  • Whether planned renovations are completed on budget and deliver expected operating returns, including the impact on hotel cash flow during construction.
  • Underlying hotel profitability and expense trends: revenue grew, but hotel operating expenses and interest expense also increased; GAAP net income remained negative.
  • The assumptions and property-level details behind the $81.8 million of 2023 impairment losses and the company’s stated liquidity outlook.
  • Capital allocation trade-offs among common-share repurchases, preferred-share repurchases, debt repayment, capital spending, and distributions.