Pebblebrook Hotel Trust Reports 2010 Results

February 23, 2011

Company acquired nine hotels comprising $700 million of investments since December 2009

Pebblebrook Hotel Trust (NYSE: PEB) reported a net loss to common shareholders of ($6.6) million, or ($0.23) per diluted share, for the year ended December 31, 2010.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

For the year ended December 31, 2010, the Company generated funds from operations (“FFO”) of ($0.9) million, or ($0.03) per diluted share, and Adjusted FFO of $7.3 million, or $0.25 per diluted share. The Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $0.7 million and Adjusted EBITDA was $8.9 million.
Net loss, FFO and EBITDA for the year ended December 31, 2010 were reduced by $6.6 million of costs incurred in connection with potential and completed acquisitions and $2.0 million of non-cash corporate general and administrative expenses.
“The lodging industry commenced a rapid and substantial recovery in 2010 due to a robust rebound in business travel. We expect fundamentals to further improve throughout 2011 as business travel recovers more completely and the industry regains the ability to increase average room rates,” noted Jon Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “We continue to be pleased with the performance of our recently acquired hotels and are encouraged by the increased investment opportunities within our targeted urban markets. We have a strong balance sheet with over $240 million of cash and we continue to operate our company at relatively low leverage levels, providing us the ability to maintain an active approach to the acquisition market.”
Pro forma room revenue per available room (“Pro forma RevPAR”) for the year ended December 31, 2010 was $123.43, an increase of 1.9 percent over 2009. Pro forma average daily rate (“Pro forma ADR”) decreased 1.3 percent from the prior year to $167.99, while Pro forma Occupancy increased 3.2 percent over 2009 to 73.5 percent.
The Company’s hotels generated $36.0 million of Pro forma Hotel EBITDA for the year ended December 31, 2010, compared with $36.3 million for the same period of 2009. Pro forma Hotel Revenues increased 2.7 percent, while Pro forma Hotel Expenses increased 3.8 percent. As a result, the Pro forma Hotel EBITDA Margin for the year ended December 31, 2010 was 21.9 percent, a decrease of 80 basis points compared to the prior year period.
The Company’s 2010 Pro forma RevPAR, Pro forma ADR, Pro forma Occupancy, Pro forma Revenues, Pro forma Expenses, Pro forma Hotel EBITDA and Pro forma Hotel EBITDA Margin include all results of the hotels the Company owned as of December 31, 2010, with the exception of The Grand Hotel Minneapolis. These operating statistics and financial results include periods prior to the Company’s ownership of the hotels. The Company will include historical operating data for The Grand Hotel Minneapolis after the Company has owned the hotel for one year, allowing for verifiable comparative performance data.
2010 Highlights
The Company successfully acquired eight high-quality hotel properties in 2010 for a total of $614.6 million and recently announced its ninth hotel acquisition on February 16, 2011 for $84.0 million. Eight of the Company’s completed acquisitions are well located in high barrier-to-entry urban markets, including the following downtown markets: Washington, DC; Bethesda, Maryland; San Francisco, California; Santa Monica, California; Buckhead, Georgia; Minneapolis, Minnesota; and Philadelphia, Pennsylvania. The remaining hotel is an upper-upscale, conference center/resort property in the Columbia River Gorge area – a 45-minute drive from Portland, Oregon.
During 2010, the Company invested approximately $3.3 million of capital throughout its portfolio, including $1.0 million (out of a planned total of $5 million) at the DoubleTree by Hilton Bethesda – Washington DC and $1.5 million (out of a planned total of $8 million) at the Sir Francis Drake.
The $5 million renovation of the 269-room DoubleTree by Hilton Bethesda – Washington DC’s guestrooms, lobby, entryway and parking facilities is expected to be completed by the end of the second quarter 2011.
The $8 million renovation of the 416-room Sir Francis Drake’s guestrooms, lobby bar and rooftop Starlight Room is expected to be completed by the end of the second quarter 2011.
In addition to the DoubleTree by Hilton Bethesda – Washington DC and Sir Francis Drake renovations, several of the Company’s recently acquired hotels will undergo renovations and repositioning during 2011.
The 140-room Grand Hotel Minneapolis is scheduled to undergo a $5 million renovation of its guestrooms, lobby, bar, entry and meeting space, with completion by the end of the second quarter 2011.
The 310-room Sheraton Delfina is scheduled to undergo a significant guestroom refurbishment beginning in the fourth quarter of 2011.
“Our hotels continue to perform above our underwriting expectations,” noted Mr. Bortz. “The refurbishments and repositioning programs that we have planned, or already commenced at several of our hotels, will add significant cash flow growth and value in the future. We expect these improvements to be disruptive to operations during the first half of 2011, but they will position us for enhanced performance during the second half of 2011 and beyond.”
During 2010, the Company also completed numerous capital transactions to help fund strategic growth and maintain its strong balance sheet.
On July 8, 2010, the Company executed a $150-million senior secured revolving credit facility. The credit facility matures in July 2013 and has a one-year extension option.
On July 28, 2010, the Company, in an underwritten secondary public offering, sold 19.6 million common shares, resulting in net proceeds of $318.3 million.
On December 10, 2010, the Company completed financing on a 5-year loan secured by the InterContinental Buckhead at an annual interest rate of 4.88 percent.
During the fourth quarter of 2010, the Company initiated a $0.12 per share quarterly dividend to its common shareholders that was paid on January 14, 2011. Of the dividends paid for the fourth quarter 2010, $0.0691 represented ordinary income for 2010, with the remaining $0.0509 to be taxable for 2011.
“We continue to be pleased with our ability to access the equity and debt markets, which has allowed us to execute our disciplined investment strategy during this advantageous part of the cycle,” advised Raymond D. Martz, Chief Financial Officer of Pebblebrook Hotel Trust.
Fourth Quarter Results
For the fourth quarter of 2010, the Company reported a net loss to common shareholders of ($1.9) million, or ($0.05) per diluted share.
For the quarter ended December 31, 2010, the Company generated FFO of $1.6 million and Adjusted FFO of $3.8 million. On a per-diluted share basis, FFO for the fourth quarter of 2010 was $0.04 and Adjusted FFO was $0.10. The Company’s EBITDA for the same quarter was $2.7 million and Adjusted EBITDA was $4.9 million.
Net loss, FFO and EBITDA for the fourth quarter of 2010 were reduced by $1.8 million of costs incurred in connection with completed and potential acquisitions and $0.5 million of non-cash corporate general and administrative expenses.
Pro forma RevPAR in the fourth quarter of 2010 was $118.35, an increase of 2.7 percent over the same period of 2009. Pro forma ADR increased 2.7 percent from the fourth quarter of 2009 to $173.52, while Pro forma Occupancy remained at 68.2 percent.
The Company’s hotels generated $8.6 million of Pro forma Hotel EBITDA for the quarter ended December 31, 2010, compared with $9.2 million for the same period of 2009. Pro forma Hotel Revenues increased 3.9 percent, while Pro forma Hotel Expenses increased 7.1 percent. As a result, the Pro forma Hotel EBITDA Margin for the quarter ended December 31, 2010 was 20.9 percent, a decrease of 235 basis points as compared to the prior year period.
The Company’s fourth quarter Pro forma RevPAR, ADR, Occupancy, Revenues, Expenses, Hotel EBITDA and Hotel EBITDA Margin include results of all of the hotels the Company owned as of December 31, 2010, with the exception of The Grand Hotel Minneapolis. These operating statistics and financial results include periods prior to the Company’s ownership of the hotels. The Company will include historical operating data from The Grand Hotel Minneapolis after the Company has owned the hotel for one year, allowing for verifiable comparative performance data.
As of December 31, 2010, the Company had $143.6 million in outstanding debt and no outstanding balance on its $150-million senior secured revolving credit facility. On December 31, 2010, the Company had $225.2 million of cash, cash equivalents and restricted cash on its balance sheet.
Subsequent Events
On January 6, 2011, the Company completed a 5-year, $31.0 million, secured, non-recourse debt financing collateralized by Skamania Lodge. The loan is subject to a 5.44% fixed annual interest rate and was funded on January 25, 2011.
On January 21, 2011, the Company completed a 5-year, $36.0 million, secured, non-recourse debt financing collateralized by the DoubleTree by Hilton Bethesda – Washington DC. The loan is subject to a 5.28% fixed annual interest rate.
On February 16, 2011, the Company acquired the Argonaut Hotel for $84.0 million. The 252-room, upper-upscale boutique, full-service hotel is located in the heart of Fisherman’s Wharf in San Francisco, California, directly across from San Francisco Bay. The hotel is managed by Kimpton Hotels & Restaurants. As part of the acquisition, the Company assumed a $42.0 million secured, non-recourse loan with a 5.67% fixed annual interest rate that matures in March of 2012.
Following the completion of the acquisition of the Argonaut Hotel on February 16, 2011, the Company now has approximately $252.6 million of debt outstanding. The Company has no outstanding debt on its $150-million senior secured credit revolving facility and has over $243 million of cash, cash equivalents and restricted cash on its balance sheet.
2011 Outlook
The Company’s outlook for 2011 remains unchanged compared with its outlook issued on January 20, 2011. The 2011 outlook is estimated as follows:

  • Net income of $13.1 million to $15.1 million ($0.33 to $0.38 per diluted share);
  • FFO of $28.2 million to $30.2 million ($0.71 to $0.76 per diluted share and unit);
  • Adjusted FFO of $32.0 million to $34.0 million ($0.80 to $0.85 per diluted share and unit),
  • EBITDA of $41.0 million to $43.0 million; and,
  • Adjusted EBITDA of $44.8 million to $46.8 million.

The Company’s 2011 outlook is based on the following estimates and assumptions:

  • No additional acquisitions are included in this outlook; however, the Company does expect to be an active participant in the acquisition market in 2011;
  • Hotel industry room revenue per available room (“RevPAR”) to increase 6.0 percent to 8.0 percent over 2010;
  • Portfolio Pro Forma RevPAR growth of 6.0 percent to 8.0 percent over 2010;
  • Portfolio Pro Forma Hotel EBITDA of $50.0 million to $52.0 million;
  • Portfolio Pro Forma Hotel EBITDA Margin to increase between 170 basis points and 250 basis points over the 2010 Portfolio Pro Forma Hotel EBITDA Margin;
  • Corporate cash general and administrative expenses of approximately $5.8 million to $6.0 million;
  • Corporate non-cash general and administrative expenses of approximately $2.7 million;
  • Acquisition and related expenses of approximately $2.0 million;
  • Total capital investments related to renovations, capital maintenance and return on investment projects of approximately $34.0 million to $37.0 million;
  • Interest expense, including the non-cash amortization of deferred financing fees, of approximately $12.8 million;
  • Interest income of approximately $1.5 million;
  • Weighted-average outstanding debt of approximately $245.0 million; and,
  • Weighted-average fully diluted shares and operating partnership units of approximately 40.0 million.

The Company’s 2011 outlook for corporate cash and non-cash general and administrative expenses does not include any costs related to acquisitions, such as due diligence, transfer taxes, and legal and accounting fees, which are required to be expensed when incurred.
“Our continued success in accessing the debt markets has enabled us to take advantage of the attractive interest rate environment,” noted Mr. Martz. “We continue to be encouraged by the positive feedback we have received from the lending community regarding our high-quality portfolio combined with our strong corporate sponsorship and management team. We are optimistic that with the capital we have generated from our recently completed debt transactions and the capacity from our credit facility, we will continue to be in a terrific position to take advantage of attractive acquisition opportunities in the marketplace. We anticipate that our company will be very active in the acquisition market throughout the year,” continued Mr. Martz.
The Company’s 2011 outlook includes the operating and financial performance from the hotels the Company owned as of February 16, 2011. The Company’s estimates and assumptions for portfolio RevPAR growth and portfolio EBITDA margin growth for 2011 include only the hotels owned as of February 16, 2011, but exclude The Grand Hotel Minneapolis for the first three quarters of both 2011 and 2010, because the operating results of that hotel prior to the Company’s acquisition of it in September 2010 were not auditable. The Company expects to include operating results for The Grand Hotel Minneapolis in year-over-year comparisons after the Company has owned the hotel for one full year.

Comments are closed