What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-23 · 70 added, 59 removed, 184 unchanged (41% of the section changed)

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(our "Operating Partnership"), a Delaware limited partnership of which Pebblebrook Hotel Trust is the sole general partner.

In this report, we use the terms "the Company", "we" or "our" to refer to Pebblebrook Hotel Trust and its subsidiaries, unless the context indicates otherwise.

In this report, we use the terms "the Company", "we" or "our" to refer to Pebblebrook Hotel Trust and its subsidiaries and "hotels" and "hotel properties" to refer to hotels and resorts, unless the context indicates otherwise.

FORWARD-LOOKING STATEMENTS

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These factors include, but are not limited to, the following:

• the COVID-19 pandemic has had, and may continue to have, a significant negative impact on our financial condition and operations, which impacts our ability to obtain acceptable financing.

The current and uncertain future impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel, is expected to continue to negatively affect our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity and share price;

• as a result of the COVID-19 pandemic, we suspended operations at most of our hotels and resorts in March 2020.

Operations recommenced between May 2020 and July 2021 and are improving.

However, if continued improvement is interrupted, we may become out of compliance with maintenance covenants in certain of our debt facilities;

• world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels;

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Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The first-quarter operating results surpassed our outlook, largely driven by the continued recovery of our urban hotels.

The second-quarter operating results showed continued recovery of our urban hotels.

Business demand, both group and transient, continued to recover, driving increased occupancy in Washington D.C., San Diego, San Francisco, Los Angeles and Boston.

Leisure demand remained roughly in-line with the prior year and our properties have continued to maintain their significant ADR premiums to 2019.

The ramp-up of LaPlaya Beach Resort & Club has been encouraging and we expect to reopen Newport Harbor Island Resort soon following its closure for several months for a comprehensive property-wide redevelopment and upgrading.

We expect these trends to continue if the overall economic recovery continues and as international inbound travel continues to return.

We have continued to focus on cost controls.

During the three months ended March 31, 2024, we had the following transactions:

Newport Harbor Island Resort reopened in April following its closure for several months for a comprehensive property-wide redevelopment and upgrading.

During the six months ended June 30, 2024, we had the following transactions:

• We repurchased 318,269 common shares for an aggregate purchase price of $5.0 million, or an average of $15.71 per share, under our existing common share repurchase program.

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Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics for our hotels for the three months ended March 31, 2024 and 2023:

For the three months ended March 31,

The following table represents the key same-property hotel operating statistics for our hotels for the three and six months ended June 30, 2024 and 2023:

For the three months ended June 30, For the six months ended June 30,

2024 2023 2024 2023

Same-Property Occupancy 76.6 % 73.8 % 68.9 % 66.6 %

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Same-Property Total RevPAR $ 356.72 $ 348.04 $ 319.64 $ 313.74

The above table of hotel operating statistics includes information from all hotels owned as of March 31, 2024, for the three months ended March 31, 2024 and 2023, except for LaPlaya Beach Resort & Club due to its closure following Hurricane Ian and Newport Harbor Island Resort due to its redevelopment.

For the three and six months ended June 30, 2024 and 2023, the above table of hotel operating statistics includes information from all hotels owned as of June 30, 2024, except for LaPlaya Beach Resort & Club due to its closure following Hurricane Ian and Newport Harbor Island Resort due to its redevelopment.

Non-GAAP Financial Measures

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By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization, gains (losses) from sales of real estate and impairments of real estate assets (including impairment of real estate related joint ventures), all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that FFO provides investors a useful financial measure to evaluate our operating performance.

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three months ended March 31, 2024 and 2023 (in thousands):

For the three months ended March 31,

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three and six months ended June 30, 2024 and 2023 (in thousands):

For the three months ended June 30, For the six months ended June 30,

2024 2023 2024 2023

Net income (loss) $ 32,239 $ 46,183 $ 4,719 $ 24,138

Real estate depreciation and amortization 57,215 57,871 114,341 116,155

(Gain) loss on sale of hotel properties — (6,635)

Gain on sale of hotel properties — (23,584) — (30,219)

FFO $ 89,454 $ 80,470 $ 119,060 $ 110,074

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We believe that EBITDA and EBITDA re provide investors useful financial measures to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three months ended March 31, 2024 and 2023 (in thousands):

For the three months ended March 31,

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three and six months ended June 30, 2024 and 2023 (in thousands):

For the three months ended June 30, For the six months ended June 30,

2024 2023 2024 2023

Net income (loss) $ 32,239 $ 46,183 $ 4,719 $ 24,138

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EBITDA $ 118,484 $ 133,715 $ 174,640 $ 197,469

(Gain) loss on sale of hotel properties — (6,635)

Gain on sale of hotel properties — (23,584) — (30,219)

$ 118,484 $ 110,131 $ 174,640 $ 167,250

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Results of Operations

At March 31, 2024 and 2023, we had 46 and 49, respectively, properties and leasehold interests.

At June 30, 2024 and 2023, we had 46 and 47, respectively, properties and leasehold interests.

All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition or through their dates of disposition, as applicable.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three months ended March 31, 2024 and 2023.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three and six months ended June 30, 2024 and 2023.

The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties":

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Hotel Colonnade Coral Gables Coral Gables, FL March 28, 2023

Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023

Revenues — Total revenues increased by $8.4 million primarily due to an increase at LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian.

Repairs are substantially complete and the hotel continues to ramp up from its closure.

This increase was partially offset by an $11.4 million decrease due to the sales of our our non-comparable properties in 2023 as well as a decrease at Newport Harbor Island Resort due to its closure for redevelopment during the first quarter of 2024.

Hotel operating expenses — Total hotel operating expenses increased by $1.7 million primarily due to LaPlaya Beach Resort & Club's increased operations, as well as an increase in staffing, wage rates and benefits at our comparable properties.

This increase was partially offset by a $9.3 million decrease due to the sales of our non-comparable properties in 2023 as well as a decrease at Newport Harbor Island Resort due to its closure for redevelopment during the first quarter of 2024.

Hotel Monaco Seattle Seattle, WA May 9, 2023

Hotel Vintage Seattle Seattle, WA May 24, 2023

Comparison of the three months ended June 30, 2024 to the three months ended June 30, 2023

Revenues — Total revenues increased by $12.8 million primarily due to increases at LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian, and at Margaritaville Hotel San Diego Gaslamp Quarter, which was under renovation in 2023.

This increase was partially offset by a $5.8 million decrease due to the sales of our non-comparable properties in 2023.

Hotel operating expenses — Total hotel operating expenses increased by $1.6 million primarily due to LaPlaya Beach Resort & Club's and Margaritaville Hotel San Diego Gaslamp Quarter's increased operations, as well as an increase in staffing, wage rates and benefits at our comparable properties due to risen demand levels.

This increase was partially offset by a $4.6 million decrease due to the sales of our non-comparable properties in 2023.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $4.6 million primarily due to a $5.8 million decrease in real estate taxes due to lower tax assessments at several of our California properties, which partially settled multiple property tax years, offset by a $1.7 million increase in property insurance due to higher insurance premium assessments.

Gain on sale of hotel properties — We recognized a gain on sale of $23.6 million related to the sales of Hotel Monaco Seattle and Hotel Vintage Seattle in 2023.

Business interruption insurance income — We recognized business interruption insurance income in 2024 and 2023 related to partial settlements with our insurance carriers for lost income at LaPlaya Beach Resort & Club.

Interest expense — Interest expense decreased by $1.6 million due to interest being capitalized related to our Newport Harbor Island Resort renovation and our term loan pay-downs during the first quarter of 2024.

This decrease was partially offset by higher interest rates on our unhedged debt.

Non-controlling interests — Non-controlling interests represents the allocation of income or loss of the Operating Partnership to third-party common OP unit holders and to the preferred OP unit holders.

Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023

Revenues — Total revenues increased by $21.1 million primarily due to an increase at LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian, and at Margaritaville Hotel San Diego Gaslamp Quarter, which was under renovation in 2023.

This increase was partially offset by an $17.3 million decrease due to the sales of our our non-comparable properties in 2023 as well as a decrease at Newport Harbor Island Resort due to its closure for redevelopment during the first quarter and part of the second quarter of 2024.

Hotel operating expenses — Total hotel operating expenses increased by $3.4 million primarily due to LaPlaya Beach Resort & Club's and Margaritaville Hotel San Diego Gaslamp Quarter's increased operations, as well as an increase in staffing, wage rates and benefits at our comparable properties due to risen demand levels.

This increase was partially offset by a $13.9 million decrease due to the sales of our non-comparable properties in 2023 as well as a decrease at Newport Harbor Island Resort due to its closure for redevelopment during the first quarter and part of the second quarter of 2024.

Depreciation and amortization — Depreciation and amortization expense decreased by $1.8 million primarily due to the sales of our non-comparable properties in 2023.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $3.5 million primarily due to a $2.0 million increase in property insurance due to higher insurance premium assessments and a $1.5 million increase in real estate taxes due to higher tax assessments.

This decrease was partially offset by an increase at LaPlaya Beach Resort & Club.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $1.1 million primarily due to a $4.3 million decrease in real estate taxes due to lower tax assessments at several of our California properties, which partially settled multiple property tax years, offset by a $3.6 million increase in property insurance due to higher insurance premium assessments.

General and administrative — General and administrative expenses increased by $2.9 million primarily due to an increase in employee compensation expense.

General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Gain on sale of hotel properties — We recognized a gain on sale of $6.6 million related to the sales of The Heathman Hotel, the retail component of The Westin Michigan Avenue Chicago and Hotel Colonnade Coral Gables in 2023.

Gain on sale of hotel properties — We recognized a gain on sale of $30.2 million related to the sales of The Heathman Hotel, the retail component of The Westin Michigan Avenue Chicago, Hotel Colonnade Coral Gables, Hotel Monaco Seattle and Hotel Vintage Seattle in 2023.

Other operating expenses — Other operating expenses decreased by $2.9 million primarily due to a decrease in payroll and claims administration costs at LaPlaya Beach Resort & Club.

Interest expense — Interest expense decreased by $1.0 million due to interest being capitalized related to our Newport Harbor Island Resort construction and our term loan pay-downs during the first quarter of 2024 which were partially offset by higher interest rates on our unhedged debt.

Interest expense — Interest expense decreased by $2.6 million due to interest being capitalized related to our Newport Harbor Island Resort renovation and our term loan pay-downs during the first quarter of 2024.

This decrease was partially offset by higher interest rates on our unhedged debt.

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All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Table of Content

New Accounting Pronouncements

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Our primary sources of liquidity are cash provided by our operations, borrowings under our credit facilities, net proceeds from equity and debt offerings, and net proceeds from property sales.

Our primary cash requirements in the short term (i.e., those requiring cash on or before March 31, 2025) will be to fund property lease obligations, interest and current principal on debt, capital improvements, dividends on common and preferred shares, and working capital of our property operations.

We believe our cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility, which totaled $701.3 million as of March 31, 2024, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements.

As of March 31, 2024, we had no off-balance sheet arrangements.

Our primary cash requirements in the short term (i.e., those requiring cash on or before June 30, 2025) will be to fund property lease obligations, interest and current principal on debt, capital improvements, dividends on common and preferred shares, and working capital of our property operations.

We believe our cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility, which totaled $747.5 million as of June 30, 2024, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements.

As of June 30, 2024, we had no off-balance sheet arrangements.

In order to maintain our qualification as a REIT, we must pay dividends to our shareholders of at least 90% of our taxable income.

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Our material cash requirements include the following contractual and other obligations.

Table of Content

Our outstanding debt consisted of floating- and fixed-rate unsecured term loans, convertible senior notes, senior unsecured notes and mortgage loans with varying maturities.

Our total debt had an aggregate face value of $2.2 billion as of March 31, 2024, as summarized below:

March 31, 2024

Our total debt had an aggregate face value of $2.2 billion as of June 30, 2024, as summarized below:

June 30, 2024

(in thousands)

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We have the option to extend certain of our current debt maturities with the payment of extension fees.

Assuming we exercise all extension options available in our debt agreements, we expect that future principal and interest payments associated with our debt obligations outstanding as of March 31, 2024 will be $2.6 billion through their maturity, with $45.4 million of principal and $101.6 million of interest payable on or before March 31, 2025.

Assuming we exercise all extension options available in our debt agreements, we expect that future principal and interest payments associated with our debt obligations outstanding as of June 30, 2024 will be $2.5 billion through their maturity, with $45.5 million of principal and $100.8 million of interest payable on or before June 30, 2025.

We intend to pay amounts due with available cash, borrowings under our revolving credit facility, proceeds from property sales and/or to refinance amounts due with long-term debt.

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Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender.

As of March 31, 2024, none of the mortgage loans was in a cash trap.

As of June 30, 2024, none of the mortgage loans was in a cash trap.

Hotel, ground and finance lease obligations

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Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases.

Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of March 31, 2024, with $21.6 million payable on or before March 31, 2025.

Table of Content

Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of June 30, 2024, with $22.8 million payable on or before June 30, 2025.

Purchase commitments

As of March 31, 2024, we had $8.6 million of outstanding purchase commitments, all of which will be paid on or before March 31, 2025.

As of June 30, 2024, we had $3.2 million of outstanding purchase commitments, all of which will be paid on or before June 30, 2025.

These purchase commitments represent outstanding purchase orders and contracts that have been executed for capital and renovation projects at our properties.

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Preferred dividends and Series Z operating partnership units

We expect to pay aggregate annual dividends and distributions of approximately $47.2 million on our outstanding Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares and Series Z Cumulative Perpetual Preferred Units on or before March 31, 2025 and in future years until the shares/units are redeemed.

We expect to pay aggregate annual dividends and distributions of approximately $47.2 million on our outstanding Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares and Series Z Cumulative Perpetual Preferred Units on or before June 30, 2025 and in future years until the shares/units are redeemed.

For further discussion on our preferred shares and preferred units, see Note 7.

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Operating Activities.

Our net cash provided by (used in) operating activities was $46.0 million for the three months ended March 31, 2024, and $46.2 million for the three months ended March 31, 2023.

Our net cash provided by operating activities was $129.7 million for the six months ended June 30, 2024, and $120.2 million for the six months ended June 30, 2023.

Fluctuations in our net cash provided by (used in) operating activities are primarily the result of changes in hotel revenues, operating cash requirements and corporate expenses.

Table of Content

Investing Activities.

Our net cash provided by (used in) investing activities was $(38.5) million for the three months ended March 31, 2024, and $105.2 million for the three months ended March 31, 2023.

Our net cash provided by (used in) investing activities was $(61.7) million for the six months ended June 30, 2024, and $135.3 million for the six months ended June 30, 2023.

Fluctuations in our net cash provided by (used in) investing activities are primarily the result of acquisition and disposition activities, as well as capital improvements and additions to our properties.

• During the three months ended March 31, 2024, we invested $49.5 million in improvements to our hotel properties and received $11.5 million in property insurance proceeds.

• During the three months ended March 31, 2023, we invested $34.5 million in improvements to our hotel properties;

received $131.9 million from the sales of two hotel properties and one retail component of a hotel property;

• During the six months ended June 30, 2024, we invested $82.7 million in improvements to our hotel properties and received $21.5 million in property insurance proceeds.

• During the six months ended June 30, 2023, we invested $97.7 million in improvements to our hotel properties;

received $224.4 million from the sales of four hotel properties and one retail component of a hotel property;

and received $11.4 million in property insurance proceeds.

Financing Activities.

Our net cash provided by (used in) financing activities was $(136.2) million for the three months ended March 31, 2024, and $(57.1) million for the three months ended March 31, 2023.

Our net cash used in financing activities was $150.4 million for the six months ended June 30, 2024, and $121.5 million for the six months ended June 30, 2023.

Fluctuations in our net cash provided by (used in) financing activities are primarily the result of our issuance and repurchase of debt and equity securities and distributions paid on our preferred and common shares.

• During the three months ended March 31, 2024, we repaid $110.3 million in other debt;

• During the six months ended June 30, 2024, we repaid $110.9 million in other debt;

repurchased $6.9 million of common shares through our common share repurchase program and for tax withholding purposes in connection with vestings of share-based equity awards;

paid $5.5 million in deferred financing costs and paid $26.0 million in preferred and common distributions.

• During the three months ended March 31, 2023, we repurchased $42.7 million of common shares through our common share repurchase program and for tax withholding purposes in connection with vestings of share-based equity awards;

• During the six months ended June 30, 2023, we repurchased $92.8 million of common shares through our common share repurchase program and for tax withholding purposes in connection with vestings of share-based equity awards;

and paid $26.8 million in preferred and common distributions.

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Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility or proceeds from new debt or equity offerings.

Table of Content

For the three months ended March 31, 2024, we invested $49.5 million in capital investments to reposition and improve our properties, including the renovations of Newport Harbor Island Resort, Estancia La Jolla Hotel & Spa, Jekyll Island Club Resort, Southernmost Beach Resort and Skamania Lodge.

Depending on market conditions, and in some instances subject to approval from governmental authorities, we expect to invest a total of $85.0 million to $90.0 million in capital investments in 2024, which includes normal hotel capital refurbishments as well as redevelopment and repositioning projects at Newport Harbor Island Resort, Estancia La Jolla Hotel & Spa and Skamania Lodge.

For the six months ended June 30, 2024, we invested $82.7 million in capital investments (or $67.7 million in capital investments excluding LaPlaya Beach Resort & Club) to reposition and improve our properties, including the renovations of Newport Harbor Island Resort, Estancia La Jolla Hotel & Spa, Skamania Lodge, Southernmost Beach Resort and Jekyll Island Club Resort.

Common Share Repurchase Programs and Preferred Share Repurchase Program

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Common shares repurchased by the Company cease to be outstanding and become authorized but unissued common shares.

During the three months ended March 31, 2024, we repurchased 318,269 common shares for an aggregate purchase price of $5.0 million, or an average of approximately $15.71 per share.

As of March 31, 2024, $141.0 million of common shares remained available for repurchase under this program.

The timing, manner, price and amount of any repurchases under the 2023 program will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions.

Table of Content

During the six months ended June 30, 2024, we repurchased 318,269 common shares for an aggregate purchase price of $5.0 million, or an average of approximately $15.71 per share.

As of June 30, 2024, $141.0 million of common shares remained available for repurchase under this program.

The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions.

The program does not require us to repurchase any specific number of common shares.

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Under the terms of the program, we may repurchase up to an aggregate of $100.0 million of our 6.375% Series E Cumulative Redeemable Preferred Shares, 6.30% Series F Cumulative Redeemable Preferred Shares, 6.375% Series G Cumulative Redeemable Preferred Shares and 5.70% Series H Cumulative Redeemable Preferred Shares from time to time in transactions on the open market or by private agreement.

During the three months ended March 31, 2024, no preferred shares were repurchased under this program.

As of March 31, 2024, $84.2 million of preferred shares remained available for repurchase under this program.

During the six months ended June 30, 2024, no preferred shares were repurchased under this program.

As of June 30, 2024, $84.2 million of preferred shares remained available for repurchase under this program.

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We believe we minimize the credit risk by transacting with major credit-worthy financial institutions.

Table of Content

As of March 31, 2024, we have interest rate swap agreements with an aggregate notional amount of $855.0 million to hedge variable interest rates on our unsecured term loans.

As of June 30, 2024, we have interest rate swap agreements with an aggregate notional amount of $855.0 million to hedge variable interest rates on our unsecured term loans.

We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis