Pebblebrook Hotel Trust | July 26, 2016

Adjusted EBITDA Rose 6.7 Percent; Adjusted FFO Per Diluted Share Climbed 12.5 Percent

BETHESDA, Md.– Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the second quarter ended June 30, 2016. The Company’s results include the following:

Second Quarter Six Months Ended, June 30 2016 2015 2016 2015 ($ in millions except per share and RevPAR data) Net income (loss) $74.4 $26.6 $91.1 $33.8 Same-Property RevPAR(1) $223.96 $218.51 $209.58 $199.75 Same-Property RevPAR growth rate 2.5% 4.9% Same-Property EBITDA(1) $83.8 $82.3 $145.8 $136.1 Same-Property EBITDA growth rate 1.9% 7.1% Same-Property EBITDA Margin(1) 36.6% 36.8% 33.3% 32.5% Adjusted EBITDA(1) $78.9 $74.0 $135.1 $112.8 Adjusted EBITDA growth rate 6.7% 19.8% Adjusted FFO(1) $58.9 $52.0 $99.5 $76.4 Adjusted FFO per diluted share(1) $0.81 $0.72 $1.37 $1.05 Adjusted FFO per diluted share growth rate 12.5% 30.5%

(1) See tables later in this press release for a description of same-property information and reconciliations from net income (loss) to non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Funds from Operations ("FFO"), FFO per share, Adjusted FFO and Adjusted FFO per share.

For the details as to which hotels are included in Same-Property Revenue Per Available Room (“RevPAR”), Average Daily Rate (“ADR”), Occupancy, Revenues, Expenses, EBITDA and EBITDA Margins appearing in the table above and elsewhere in this press release, refer to the Same-Property Inclusion Reference Table later in this press release.

“We are pleased with our operating results during the second quarter,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “We continued to experience solid demand in our west coast markets, particularly Portland and Los Angeles. In addition, our recently renovated and repositioned hotels, including Hotel Vintage Portland, Hotel Zephyr Fisherman’s Wharf and W Los Angeles – West Beverly Hills, made further strides increasing market share and improving operating performance and profitability, which we expect will carry on throughout 2016. Despite these positive factors, business travel demand across the industry, both group and transient, continued to soften as companies remain cautious with discretionary expenditures such as travel. And while we’ve seen some positive signs in more recent economic data, our outlook for the remainder of the year remains cautious.”

Second Quarter Highlights

  • Net income: The Company’s net income was $74.4 million in the second quarter of 2016, growing 180.0 percent over the same period of 2015.
  • Same-Property RevPAR and Room Revenue: Same-Property RevPAR in the second quarter of 2016 increased 2.5 percent over the same period of 2015 to $223.96. Same-Property Room Revenue increased by 3.1 percent, greater than RevPAR due to the increase in the Same-Property room count. Same-Property ADR grew 1.4 percent from the prior year quarter to $254.02. Same-Property Occupancy rose 1.1 percent to 88.2 percent. Same-Property RevPAR for our wholly owned properties, which excludes the Company’s 49 percent interest in its six-hotel joint venture (the “Manhattan Collection”), increased 3.5 percent from the prior year period.
  • Same-Property EBITDA: The Company’s hotels generated $83.8 million of Same-Property EBITDA for the quarter ended June 30, 2016, climbing 1.9 percent from the same period of 2015. Same-Property Revenues increased 2.6 percent, while Same-Property Expenses rose 3.0 percent. Same-Property EBITDA Margin decreased 26 basis points to 36.6 percent for the second quarter of 2016, as compared to the same period last year. For the quarter, flow-through of Same-Property Revenues to Same-Property EBITDA was 26.6 percent. Same-Property EBITDA for our wholly owned properties grew 4.1 percent compared with the prior year period.
  • Adjusted EBITDA: The Company’s Adjusted EBITDA rose to $78.9 million from $74.0 million in the prior year period, an increase of $4.9 million, or 6.7 percent.
  • Adjusted FFO: The Company’s Adjusted FFO climbed 13.2 percent to $58.9 million from $52.0 million in the prior year period.
  • Dividends: On June 15, 2016, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares, a regular quarterly cash dividend of $0.50 per share on its 8.00% Series B Cumulative Redeemable Preferred Shares, a regular quarterly cash dividend of $0.40625 per share on its 6.50% Series C Cumulative Redeemable Preferred Shares and a prorated regular quarterly cash dividend of $0.15938 per share on its 6.375% Series D Cumulative Redeemable Preferred Shares.

“During the quarter, our properties on the west coast led our portfolio with RevPAR growth of 6.0 percent, driven by healthy rate improvement of 4.3 percent year-over-year,” said Mr. Bortz. “Same-Property RevPAR for our portfolio increased 2.5 percent, slightly below the industry’s 3.5 percent growth and above our 1.0 percent to 2.25 percent outlook. Our recently renovated hotels continued to demonstrate solid performance in the quarter by driving increased occupancy levels, rates and market share penetration. Overall, second quarter performance was negatively impacted by our New York and Boston hotels, with both markets suffering from new supply. Same-Property EBITDA and flow-through were negatively impacted by property tax increases primarily related to our recent acquisitions and renovations, as well as a property tax credit at one of our properties in last year’s second quarter.”

Capital Reinvestment and Asset Management

During the second quarter, the Company made $24.8 million of capital improvements throughout its portfolio, which includes the Company’s 49 percent interest in the Manhattan Collection. Earlier this year, the Company completed renovations at Hotel Zeppelin San Francisco (formerly the Prescott Hotel San Francisco), The Nines, a Luxury Collection Hotel, Portland and Hotel Monaco Washington DC.

During the remainder of 2016 and early 2017, the Company has various major renovation and repositioning projects it plans to undertake at a number of its properties that will improve performance in future years, including:

  • Union Station Hotel Nashville, Autograph Collection (estimated at $15.5 million), which already began its phased comprehensive guest rooms, public space and meeting space renovation expected to be completed in the third quarter of 2016;
  • The Westin Colonnade, Coral Gables (estimated at $17.5 million), which already began its phased comprehensive guest rooms, public area and meeting space renovation, expected to be completed and re-launched as a Tribute Portfolio property late in the third quarter of 2016;
  • Hotel Palomar Los Angeles Beverly Hills (estimated at $12.0 million), which will undergo a guest rooms and public space renovation to begin in the fourth quarter of 2016 with expected completion in the first quarter of 2017;
  • Revere Hotel Boston Common (estimated at $22.5 million), which will undergo a comprehensive property renovation to start in the fourth quarter of 2016 with expected completion in the first quarter of 2017; and
  • The Tuscan Fisherman’s Wharf, a Best Western Plus Hotel (estimated at $15.0 million), which will undergo a comprehensive property renovation starting in the first quarter of 2017.

Dispositions

  • On May 5, 2016, the Company sold an excess land parcel adjacent to Revere Hotel Boston Common in Boston, Massachusetts for $6.0 million. This property was non-income generating.
  • On June 1, 2016, the Company sold the 148-room, luxury, full-service Viceroy Miami for $64.5 million.
  • On June 1, 2016, the Company sold the 57-room, all-suite, luxury, full-service The Redbury Hotel for $40.9 million.

“We were very successful with our property sales in the second quarter. They illustrate the significant gap between the value attributed to our portfolio by the public market and the private market values for our hotels,” commented Mr. Bortz. “As we pursue additional dispositions as part of our strategic plan, we remain confident in the level of interest from a wide range of investors in high quality hotels in urban markets.”

Year-to-Date Highlights

  • Net income: The Company’s net income was $91.1 million for the six months ended June 30, 2016, an increase of 169.8 percent over the same period of 2015.
  • Same-Property RevPAR and Room Revenue: Same-Property RevPAR for the six months ended June 30, 2016 increased 4.9 percent over the same period of 2015 to $209.58. Same-Property Room Revenue increased by 6.1 percent, greater than RevPAR largely due to the increase in the Same-Property room count. Year-to-date Same-Property ADR grew 2.1 percent from the comparable period of 2015 to $245.48, and year-to-date Same-Property Occupancy climbed 2.8 percent to 85.4 percent. Same-Property RevPAR for our wholly owned properties, which excludes the Manhattan Collection, increased 5.9 percent from the prior year period.
  • Same-Property Hotel EBITDA: The Company’s hotels generated $145.8 million of Same-Property Hotel EBITDA for the six months ended June 30, 2016, an improvement of 7.1 percent compared with the same period of 2015. Same-Property Hotel Revenues grew 4.5 percent, while Same-Property Hotel Expenses rose 3.3 percent. As a result, Same-Property Hotel EBITDA Margin for the six months ended June 30, 2016 increased 81 basis points to 33.3 percent as compared to the same period last year. Same-Property EBITDA for our wholly owned properties grew 9.0 percent compared with the prior year period.
  • Adjusted EBITDA: The Company’s Adjusted EBITDA increased 19.8 percent, or $22.3 million, to $135.1 million from $112.8 million in the prior year period.
  • Adjusted FFO: The Company’s Adjusted FFO climbed 30.3 percent to $99.5 million from $76.4 million in the prior year period.

Balance Sheet

As of June 30, 2016, the Company had $1.0 billion in consolidated debt and $225.4 million in unconsolidated, non-recourse, secured debt, at weighted-average interest rates of 3.5 percent and 3.6 percent, respectively. The Company had $675.0 million outstanding in the form of unsecured term loans and $30.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of June 30, 2016, the Company had $44.2 million of consolidated cash, cash equivalents and restricted cash and $12.4 million of unconsolidated cash, cash equivalents and restricted cash. The unconsolidated debt, cash, cash equivalents and restricted cash amounts represent the Company’s 49 percent interest in the Manhattan Collection.

On June 30, 2016, as defined in the Company’s credit agreement, the Company’s fixed charge coverage ratio was 3.3 times and total net debt to trailing 12-month corporate EBITDA was 4.4 times. Excluding its interest in the off-balance sheet Manhattan Collection, the Company’s fixed charge coverage ratio was 3.4 times, and net debt to trailing 12-month corporate EBITDA was 3.9 times.

Capital Markets

During the second quarter, Pebblebrook completed three capital markets transactions to maintain its strong balance sheet, including the repayment of two property mortgages and a preferred equity issuance:

  • On April 5, 2016, the Company repaid the $62.8 million mortgage secured by the Embassy Suites San Diego Bay – Downtown, which was subject to a 6.28 percent interest rate.
  • On May 6, 2016, the Company repaid the $22.7 million mortgage secured by Hotel Modera, which was subject to a 5.26 percent interest rate.
  • On June 9, 2016, the Company closed an underwritten public offering of 5.0 million shares of its 6.375 percent Series D Cumulative Redeemable Preferred Shares, resulting in net proceeds of $121.0 million.

“We continue to make progress lowering our leverage while also reducing our cost of capital through opportunistic capital raises, such as our recently completed Series D Preferred Shares offering,” noted Raymond D. Martz, Chief Financial Officer of Pebblebrook Hotel Trust. “With no remaining debt maturities in 2016, we anticipate utilizing the proceeds from any future dispositions to further lower our leverage, to pay special dividends or to repurchase our common shares.”

To view full financial results and tables click on PDF icon or visit:

http://investor.pebblebrookhotels.com/file.aspx?IID=4243454&FID=35204445