Pebblebrook Hotel Trust Reports 2012 Results

2012 Pro Forma RevPAR Increased 8.1 Percent; 2012 Pro Forma Hotel EBITDA Rose 17.4 Percent

BETHESDA, Md.--(BUSINESS WIRE)-- Pebblebrook Hotel Trust (NYS: PEB) (the "Company") today reported results for the fourth quarter and year ended December 31, 2012. The Company's results include the following:

       
Fourth Quarter Full Year
2012     2011 2012     2011
($ in millions except per share and RevPAR data)
       
Net income to common shareholders $2.6 $3.5 $8.3 $4.4
Net income per diluted share $0.04 $0.07 $0.14 $0.08
 
Pro forma RevPAR $177.93 $168.24 $173.82 $160.81
Pro forma Hotel EBITDA $36.0 $34.2 $126.6 $107.8
Pro forma Hotel EBITDA Margin 27.5% 27.0% 27.4% 24.8%
 
Adjusted EBITDA(1) $31.9 $28.1 $114.2 $79.3
Adjusted EBITDA growth rate 13.4% 43.9%
 
Adjusted FFO(1) $18.5 $16.5 $66.1 $48.9
Adjusted FFO per diluted share(1) $0.30 $0.32 $1.17 $1.00
Adjusted FFO per diluted share growth rate (4.7%) 17.5%
 

(1) See tables later in this press release for a description of pro forma information and reconciliations from net income to non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization ("EBITDA"), Adjusted EBITDA, Funds from Operations ("FFO"), FFO per diluted share, Adjusted FFO and Adjusted FFO per diluted share.

For the details as to which hotels are included in Pro forma RevPAR, ADR, Occupancy, Hotel Revenues, Hotel Expenses, Hotel EBITDA, Hotel EBITDA Margins and Hotel EBITDA Per Room for the fourth quarter and full year ended December 31, 2012 appearing in the table above and elsewhere in the press release, refer to the Pro Forma Property Inclusion Reference Table later in this press release.

"We're very pleased with our Company's strong performance in 2012," said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. "This was a very good year for the overall hotel industry and our hotels benefitted from the continued resurgence in business transient, leisure and international inbound travel. Despite the negative effects from Superstorm Sandy, as well as the uncertainty surrounding the presidential election and the fiscal cliff, hotel demand remained resilient in most of our markets. As a result, our overall performance exceeded our expectations. Furthermore, we were able to take advantage of opportunities to add five terrific hotels to our portfolio in 2012, all located in major west coast gateway markets."

2012 Highlights

  • Pro forma RevPAR: Pro forma room revenue per available room ("Pro forma RevPAR") for the year ended December 31, 2012 increased by 8.1 percent over the same period of 2011 to $173.82. For 2012, Pro forma average daily rate ("Pro forma ADR") grew 3.8 percent from the comparable period of 2011 to $213.83 and Pro forma Occupancy improved 4.2 percent to 81.3 percent.
  • Pro forma Hotel EBITDA: The Company's hotels generated $126.6 million of Pro forma Hotel EBITDA for the year ended December 31, 2012, an increase of 17.4 percent compared with the same period of 2011. For 2012, Pro forma Hotel Revenues climbed 6.2 percent, while Pro forma Hotel Expenses rose 2.5 percent. As a result, Pro forma Hotel EBITDA Margin for the year ended December 31, 2012 increased 263 basis points to 27.4 percent as compared to the same period last year.
  • Pro forma Hotel EBITDA Per Room: The Company's Pro Forma Hotel EBITDA Per Room for the year ended December 31, 2012 increased 16.7 percent from the comparable period of 2011 to $25,856.
  • Adjusted EBITDA: The Company's Adjusted EBITDA for 2012 rose to $114.2 million from $79.3 million in 2011, an increase of 43.9 percent.
  • Adjusted FFO: The Company's Adjusted FFO increased 35.3 percent to $66.1 million, compared with $48.9 million for the prior year period.
  • Dividends: During 2012, the Company declared dividends of $0.48 per share on its common shares, $1.96875 per share on its 7.875 percent Series A Cumulative Redeemable Preferred Shares and $2.00 per share on its 8.0 percent Series B Cumulative Redeemable Preferred Shares.

Based on the Company's 2013 outlook and the continued improvement in the operating performance of the Company's hotels, the Company expects to increase its quarterly dividend on its common shares to $0.16 per share, commencing with the dividend for the first quarter of 2013. This proposed increase represents a 33.3 percent increase over the Company's current quarterly dividend of $0.12.

"The hotel industry's fundamentals continued to strengthen in 2012, as demand for hotel rooms in the U.S. climbed a very healthy 3.0 percent and supply growth remained muted at only 0.5 percent, allowing for significant ADR improvement and resulting in hotel industry RevPAR growth of 6.8 percent," added Mr. Bortz. "Pebblebrook's RevPAR growth of 8.1 percent for 2012 exceeded the industry's results, as we benefitted from our strategy of investing primarily in stronger urban markets in major gateway cities, and we continued to see positive results from our property renovations and the asset management and best practice initiatives we have implemented throughout our portfolio. Travel demand was driven by growth in transient business and leisure travel, as well as strong growth in inbound international travel, despite the continued uncertainty surrounding the global economy, particularly in Europe. Although a great deal of uncertainty remains regarding the debt ceiling and the political process in Washington, we believe that the industry and the Company will continue to benefit in 2013 from strong underlying fundamentals."

Fourth Quarter Highlights

  • Pro forma RevPAR: Pro forma RevPAR in the fourth quarter of 2012 increased 5.8 percent over the same period of 2011 to $177.93. Pro forma ADR grew 3.6 percent from the fourth quarter of 2011 to $224.32. Pro forma Occupancy rose 2.1 percent to a robust 79.3 percent.
  • Pro forma Hotel EBITDA: The Company's hotels generated $36.0 million of Pro forma Hotel EBITDA for the quarter ended December 31, 2012, climbing 5.3 percent compared with the same period of 2011. Pro forma Hotel Revenues increased 3.8 percent, while Pro forma Hotel Expenses rose 3.2 percent. As a result, Pro forma Hotel EBITDA Margin grew to 27.5 percent for the quarter ended December 31, 2012, representing an increase of 42 basis points as compared to the same period last year.
  • Adjusted EBITDA: The Company's Adjusted EBITDA increased to $31.9 million from $28.1 million in the prior year period, an increase of $3.8 million, or 13.4 percent.
  • Adjusted FFO: The Company's Adjusted FFO climbed to $18.5 million from $16.5 million in the prior year period, an increase of 12.5 percent.
  • Dividends: On December 14, 2012, the Company declared a $0.12 per share quarterly dividend on its common shares, a $0.4921875 per share quarterly dividend on its 7.875 percent Series A Cumulative Redeemable Preferred Shares and a $0.50 per share quarterly dividend on its 8.0 percent Series B Cumulative Redeemable Preferred Shares.

Capital Reinvestment and Asset Management

During 2012, the Company made $58.6 million of capital improvements throughout its portfolio, which includes the Company's 49% interest in the joint venture between Pebblebrook Hotel Trust and Denihan Hospitality Group (the "Manhattan Collection"). The Company's capital improvements included $11.5 million at the Westin Gaslamp Quarter, $6.2 million at Hotel Zetta (formerly Hotel Milano), $5.8 million at the Sheraton Delfina Santa Monica, $4.7 million at the Mondrian Los Angeles and $4.4 million at the Sir Francis Drake.

During the second quarter of 2012, the Company completed the comprehensive $25.0 million renovation and redevelopment of the Westin Gaslamp Quarter. This multi-phase, multi-year renovation included the guest rooms, corridors, public areas, meeting space, lobby, entry, porte cochere, exterior and restaurant, as well as a re-concepting of the restaurant and the addition of meeting space.

In May 2012, the Company completed a comprehensive $9.8 million renovation of the Sheraton Delfina, which included the hotel's guest rooms, corridors, meeting rooms, lobby and public space. Also in May 2012, the Company completed a $5.0 million renovation of the Hotel Monaco Seattle, which included renovating the guest rooms, corridors, lobby and meeting space.

In October 2012, the renovation, reconfiguration and expansion of the meeting space and back of house at the Affinia Manhattan was completed, creating 2,200 square feet of additional meeting space. The renovations of the lobby and two entrances of the property are expected to be complete in the second quarter of 2013. The Company expects to fund its 49 percent pro rata interest of the total project costs with available cash.

"The recently completed capital investment programs at the Westin Gaslamp Quarter, Sheraton Delfina, Argonaut, Mondrian Los Angeles and Hotel Monaco Seattle, along with the prior year's renovations of Affinia Manhattan, Sir Francis Drake, Minneapolis Grand and InterContinental Buckhead, have provided us with a sizable opportunity to generate higher room rates and increased RevPAR penetration, which we expect will substantially increase profitability and cash flow at each of these properties in 2013 and beyond," continued Mr. Bortz.

On November 1, 2012, the Company closed the Hotel Milano and commenced a comprehensive renovation, repositioning and expansion of the hotel, which included the creation of eight additional guest rooms, as well as a re-concepting of the restaurant and all food and beverage operations. The hotel will reopen any day now as Hotel Zetta and we expect the renovation to be fully complete in March 2013.

In January 2013, the Company, along with its joint venture partner, commenced an $18.0 to $20.0 million comprehensive renovation, reconfiguration and expansion of the Affinia 50, which includes renovating the guest rooms, corridors and public areas. The reconfiguration of the hotel will increase the number of guest rooms from 210 to 251. This project is expected to be substantially complete by the fourth quarter of 2013. The Company expects to fund its 49 percent pro rata interest of the total project costs with available cash.

In addition to its capital reinvestment programs, Pebblebrook continues to implement a comprehensive array of asset management best practices and initiatives throughout its portfolio to enhance hotel revenues and improve operating efficiencies to promote expense controls and strong margin growth. To date, the Company has identified approximately $13.9 million of annualized best practices and asset management opportunities throughout its portfolio.

"We're extremely pleased with the progress we continue to make implementing our asset management initiatives and best practices across our hotels, as illustrated by the strong EBITDA margin growth of 263 basis points we achieved in 2012," continued Mr. Bortz. "We greatly appreciate the hard work and support of our hotel management teams, who continue to work collaboratively with our asset managers to find new opportunities to grow revenues, reduce expenses, improve operating efficiencies and increase our cash flow. We expect to continue to improve our performance in 2013 and 2014 as these efficiencies and operating enhancements are fully implemented."

Acquisitions

In 2012, the Company successfully acquired five high-quality, upper upscale, full-service hotels for a total investment of $275.8 million, with a total of 804 guest rooms. The Company's five completed 2012 acquisitions are all located in highly desirable major gateway cities in the United States.

"We're very excited about the acquisitions we've made in 2012, investing in high barrier to entry, urban markets in major gateway cities including San Francisco, Seattle, Los Angeles/Westwood and Portland. We acquired these hotels because they're in great long-term markets and we believe they offer excellent opportunities for outsized RevPAR growth, margin expansion and value creation through renovations and the implementation of our asset management and best practice initiatives," commented Mr. Bortz.

Since its initial public offering in December 2009, the Company has acquired 26 properties (six through a joint venture) totaling $2.1 billion of invested capital.

Capital Markets

During 2012, the Company completed numerous attractive capital market transactions to help fund strategic growth and maintain its strong balance sheet. The Company raised $215.4 million in net proceeds through common share offerings and its ATM program, and originated $734.0 million of new debt.

  • On January 11, 2012, the Company completed a $46.0 million non-recourse, secured loan at a fixed annual interest rate of 4.36 percent and a term of five years. The loan is collateralized by a first mortgage on the 183-room Hotel Monaco Washington, DC.
  • On February 15, 2012, the Company completed a $47.0 million non-recourse, secured loan at a fixed annual interest rate of 4.25 percent and a term of five years. The loan is collateralized by a first mortgage on the 252-room Argonaut Hotel in San Francisco, California.
  • On May 18, 2012, the Company completed a $50.0 million non-recourse, secured loan at a fixed annual interest rate of 3.90 percent and a term of five years. The loan is collateralized by a first mortgage on the 306-room Hotel Sofitel Philadelphia in Philadelphia, Pennsylvania.
  • On June 22, 2012, the Company completed an underwritten public offering of 5.2 million common shares at a price per share of $22.10, resulting in net proceeds of $109.8 million.
  • On July 13, 2012, the Company amended and restated its senior unsecured revolving credit facility. The amended credit facility was increased to $300 million, which is comprised of a $200 million unsecured revolving credit facility and a five-year, $100 million unsecured term loan. The pricing under the amended and restated credit facility was significantly reduced, and the facility now matures in July 2016 with an option to extend to July 2017.
  • On December 27, 2012, the Company completed an $81.0 million non-recourse, secured loan at a fixed annual interest rate of 3.69 percent and a term of seven years. The loan is collateralized by a first mortgage on the 450-room Westin Gaslamp Quarter in San Diego, California.
  • On December 27, 2012, the Manhattan Collection, which owns six upper upscale hotels in New York, New York, successfully completed a new $410.0 million interest-only, non-recourse, secured loan at a fixed annual interest rate of 3.67 percent and a term of five years. In addition to the successful refinancing of the Manhattan Collection debt, the Company provided $50 million of preferred capital to the Manhattan Collection. This preferred capital has a five and a half year term, an annual coupon rate of 9.75 percent and is prepayable at any time by the Manhattan Collection.
  • During 2012, the Company issued and sold 4,519,087 common shares under its ATM offering program at an average price of $23.72 per share, for total net proceeds of $105.6 million.

"We are delighted with our continued ability to access the debt and equity capital markets at attractive terms, and by the strong support that our banks and investors have continued to show in our investment strategy and management team," commented Raymond D. Martz, Chief Financial Officer of Pebblebrook Hotel Trust. "This has allowed us to successfully refinance all of our debt maturities at very attractive interest rates, further strengthen our balance sheet, maintain our targeted conservative capital structure and lower our overall cost of capital, while providing additional capital for acquisitions."

Balance Sheet

As of December 31, 2012, the Company had $466.0 million in consolidated debt and $200.9 million in unconsolidated, non-recourse, secured debt at weighted-average interest rates of 4.1 percent and 3.7 percent, respectively. The Company had $100.0 million outstanding in the form of an unsecured term loan and complete availability of its $200.0 million senior unsecured revolving credit facility, which had no outstanding balance. As of December 31, 2012, the Company had $97.9 million of consolidated cash, cash equivalents and restricted cash and $16.3 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 pro rata interest in the Manhattan Collection. The diluted weighted-average number of common shares and units outstanding for the quarter ended December 31, 2012 was 61.0 million.

On December 31, 2012, as defined in the Company's credit agreement, the Company's fixed charge coverage ratio was 2.1 times and total net debt to trailing 12-month corporate EBITDA was 4.6 times. The Company's total debt to total assets ratio was 32 percent. Excluding its interest in the off-balance sheet Manhattan Collection, the Company's fixed charge coverage ratio was 2.2 times, net debt to trailing 12-month corporate EBITDA was 4.0 times and total debt to total assets ratio was 29 percent.

Subsequent Events

  • On January 29, 2013, the Company acquired the Embassy Suites San Diego Bay - Downtown for $112.5 million. The 337-room, full-service, upper upscale hotel is located in downtown San Diego, California. This acquisition included the assumption of a $66.8 million secured loan, with the balance of the purchase price being funded by the Company with available cash.

2013 Outlook

The Company's outlook provided below for 2013 remains unchanged from our 2013 outlook press release dated January 22, 2013. Our outlook, which assumes continued improvement in economic activity, positive business travel trends and other significant assumptions, is as follows:

       
2013 Outlook
Low     High

($ in millions except

per share and RevPAR data)

Net income $40.8 $44.8
Net income per diluted share $0.66 $0.73
 
Adjusted EBITDA $145.0 $149.0
 
Adjusted FFO $90.0 $94.0
Adjusted FFO per diluted share $1.46 $1.53
 

This 2013 outlook is based, in part, on the following estimates and assumptions:

 
U.S. GDP Growth 1.75% 2.25%
U.S. Hotel Industry RevPAR Growth 4.5% 6.5%
 
Pro Forma Portfolio RevPAR $182.00 $186.00
Pro Forma Portfolio RevPAR Growth 5.0% 7.0%
 
 
Pro Forma Portfolio Hotel EBITDA $157.0 $162.0
Pro Forma Portfolio Hotel EBITDA Margin 28.0% 28.5%
Pro Forma Portfolio Hotel EBITDA Margin Growth 75 bps 125 bps
 
 
Corporate cash general and administrative expenses $11.0 $11.5
Corporate non-cash general and administrative expenses $3.0 $3.5
 
Total capital investments related to renovations, capital maintenance and return on investment projects $55.0 $65.0
 
Weighted-average fully diluted shares and units 61.6 61.6
 

The Company's outlook for the first quarter of 2013 is as follows:

 
First Quarter 2013 Outlook
Low     High

($ in millions except

per share and RevPAR data)

Portfolio RevPAR $156.00 $158.50
Portfolio RevPAR Growth 6.0% 7.5%
 
Portfolio Hotel EBITDA $22.5 $24.5
Portfolio Hotel EBITDA Margin 19.9% 20.4%
Portfolio Hotel EBITDA Margin Growth 50 bps 100 bps
 
Adjusted EBITDA $18.5 $20.5
 
Adjusted FFO $9.0 $11.0
Adjusted FFO per diluted share $0.15 $0.18
 
Weighted-average fully diluted shares and units 61.6 61.6
 

The Company's 2013 and First Quarter Outlooks include the effects of the Company's 49 percent pro rata interest in the Manhattan Collection.

The Company's estimates and assumptions for pro forma portfolio RevPAR, pro forma portfolio RevPAR growth, pro forma portfolio EBITDA, pro forma portfolio EBITDA margin and pro forma hotel EBITDA margin growth for 2013 include the hotels owned as of December 31, 2012, as well as the Embassy Suites San Diego Bay - Downtown, as if they had been owned by the Company for the entire year of 2012, except for Hotel Zetta, which the Company expects to include after it has owned the hotel for one full year, starting in the second quarter of 2013.

Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, February 22, 2013 at 9:00 AM EST. To participate in the conference call, please dial (800) 289-0552 approximately ten minutes before the call begins. Additionally, a live webcast of the conference call will be available through the Company's website. To access the webcast, log on to http://www.pebblebrookhotels.com ten minutes prior to the conference call. A replay of the conference call webcast will be archived and available online through the Investor Relations section of http://www.pebblebrookhotels.com.

About Pebblebrook Hotel Trust

Pebblebrook Hotel Trust is a publicly traded real estate investment trust ("REIT") organized to opportunistically acquire and invest primarily in upper upscale, full-service hotels located in urban markets in major gateway cities. The Company owns 26 hotels, including 20 wholly owned hotels with a total of 4,960 guest rooms and a 49% joint venture interest in six hotels with a total of 1,733 guest rooms. The Company owns, or has an ownership interest in, hotels located in ten states and the District of Columbia, across 16 markets: Los Angeles, California; San Diego, California; San Francisco, California; Santa Monica, California; West Hollywood, California; Miami, Florida; Buckhead, Georgia; Bethesda, Maryland; Boston, Massachusetts; Minneapolis, Minnesota; New York, New York; Portland, Oregon; Philadelphia, Pennsylvania; Columbia River Gorge, Washington; Seattle, Washington; and Washington, DC. For more information, please visit www.pebblebrookhotels.com.

This press release contains certain "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," "forecast," "continue," "assume," "plan," references to "outlook" or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. Examples of forward-looking statements include the following: projections and forecasts of U.S. GDP growth, U.S. hotel industry RevPAR growth, the Company's net income, FFO, EBITDA, Adjusted FFO, Adjusted EBITDA, RevPAR, EBITDA Margin and EBITDA Margin Growth, and the Company's expenses, share count or other financial items; descriptions of the Company's plans or objectives for future operations, acquisitions or services; forecasts of the Company's future economic performance and its share of future markets; forecasts of hotel industry performance; and descriptions of assumptions underlying or relating to any of the foregoing expectations including assumptions regarding the timing of their occurrence. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, the state of the U.S. economy and the supply of hotel properties, and other factors as are described in greater detail in the Company's filings with the Securities and Exchange Commission, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Investor Relations section of the Company's website at www.pebblebrookhotels.com .

All information in this press release is as of February 21, 2013. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

For additional information or to receive press releases via email, please visit our website at www.pebblebrookhotels.com

 
Pebblebrook Hotel Trust
Consolidated Balance Sheets
($ in thousands, except per share data)
 
 
    December 31, 2012     December 31, 2011
 
ASSETS
Assets:
Investment in hotel properties, net $ 1,417,229 $ 1,127,484
Investment in joint venture 283,011 171,765
Ground lease asset, net 10,283 10,502
Cash and cash equivalents 85,900 65,684
Restricted cash 12,034 9,469
Hotel receivables (net of allowance for doubtful accounts of $28 and $71, respectively) 13,463 11,312
Deferred financing costs, net 5,753 3,487
Prepaid expenses and other assets   18,489     16,929  
Total assets $ 1,846,162   $ 1,416,632  
 
 
LIABILITIES AND EQUITY
 
Liabilities:
Senior unsecured revolving credit facility $ - $ -
Term loan 100,000 -
Mortgage debt (including mortgage loan premium of $2,498 and $0, respectively) 368,508 251,539
Accounts payable and accrued expenses 47,364 33,333
Advance deposits 4,596 4,380
Accrued interest 1,328 1,000
Distribution payable   11,274     10,032  
Total liabilities 533,070 300,284
Commitments and contingencies
Shareholders' equity:

Preferred shares of beneficial interest, $.01 par value (liquidation preference of $225,000 at December 31, 2012 and December 31, 2011), 100,000,000 shares authorized; 9,000,000 shares issued and outstanding at December 31, 2012 and at December 31, 2011

90 90

Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 60,955,090 issued and outstanding at December 31, 2012 and 50,769,024 issued and outstanding at December 31, 2011

610 508
Additional paid-in capital 1,362,349 1,142,905
Accumulated other comprehensive income (loss)

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