Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PEB > SEC Filings for PEB > Form 10-Q on 24-Jul-2014All Recent SEC Filings

Show all filings for PEBBLEBROOK HOTEL TRUST

Form 10-Q for PEBBLEBROOK HOTEL TRUST


24-Jul-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Pebblebrook Hotel Trust is a Maryland real estate investment trust that conducts its operations so as to qualify as a REIT under the Code. Substantially all of the operations are conducted through Pebblebrook Hotel, L.P. (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.

Forward-Looking Statements
This report, together with other statements and information publicly disseminated by us, contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "should", "potential", "could", "seek", "assume", "forecast", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenues and expenses, our ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and our ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

            risks associated with the hotel industry, including competition,
             increases in employment costs, energy costs and other operating
             costs, or decreases in demand caused by events beyond our control
             including, without limitation, actual or threatened terrorist
             attacks, cyber risk, any type or flu or disease-related pandemic, or
             downturns in general and local economic conditions;


            the availability and terms of financing and capital and the general
             volatility of securities markets;


            our dependence on third-party managers of our hotels, including our
             inability to implement strategic business decisions directly;


            risks associated with the real estate industry, including
             environmental contamination and costs of complying with the
             Americans with Disabilities Act and similar laws;

interest rate increases;

            our possible failure to qualify as a REIT under the Code, as
             amended, and the risk of changes in laws affecting REITs;


            the timing and availability of potential hotel acquisitions and our
             ability to identify and complete hotel acquisitions in accordance
             with our business strategy;

the possibility of uninsured losses;

            risks associated with redevelopment and repositioning projects,
             including delays and cost overruns; and


            the other factors discussed under the heading "Risk Factors" in the
             Company's Annual Report on Form 10-K for the year ended December 31,
             2013, as may be updated elsewhere in this report.

Accordingly, there is no assurance that our expectations will be realized. 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. Overview

Pebblebrook Hotel Trust is an internally managed hotel investment company, organized in October 2009, to opportunistically acquire and invest in hotel properties located primarily in major U.S. cities, with an emphasis on the major gateway coastal markets. As of June 30, 2014, the Company owned interests in 30 hotels, including 24 wholly owned hotels with a total of 5,711 guest rooms, and a 49% joint venture interest in six hotels with a total of 1,775 guest rooms.


Table of Contents

During the six months ended June 30, 2014, we acquired one hotel property, the 160-room Prescott Hotel, in San Francisco, California, for $49.0 million. In addition, we paid certain costs of the seller of $1.3 million.
We continue to employ our asset management initiatives at our hotels. While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels' operations, including property positioning and repositioning, revenue management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction. Through these efforts, we seek to improve property efficiencies, lower costs, maximize revenues, and enhance property operating margins which we expect will enhance returns to our shareholders. We expect to invest a total of approximately $40.0 million to $50.0 million for the remainder of 2014 on renovation and repositioning projects and other capital improvements.

The U.S. lodging industry has continued to exhibit strong underlying fundamentals through the first six months of 2014 despite the relatively weak national economic growth and employment levels. While concerns continue about economic growth, global volatility and government fiscal deficits, U.S. employment levels, housing markets and consumer confidence have improved.

The strength in business transient, leisure and international inbound travel, specifically in the major urban markets at our west coast hotels, has continued to drive increases in occupancy and average daily rates. Nationally, group travel is improving and new hotel supply remains low in most markets, although the availability of financing for new hotel construction has also started to increase. We continue to believe that we are in a long and healthy recovery in the lodging industry and believe our properties have significant opportunities to achieve significant growth in their operating cash flows and long-term economic values.

Key Indicators of Financial Condition and Operating Performance

We measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ("RevPAR"); average daily rate ("ADR"); occupancy rate ("occupancy"); funds from operations ("FFO"); and earnings before interest, income taxes, depreciation and amortization ("EBITDA"). We evaluate individual hotel and company-wide performance with comparisons to budgets, prior periods and competing properties. ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events. See "Non-GAAP Financial Matters" for further discussion of FFO and EBITDA.

Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics
for our wholly owned hotels for the three and six months ended June 30, 2014 and
2013.

                                 For the three months ended June 30,           For the six months ended June 30,
                                    2014                     2013                  2014                 2013
Total Portfolio
Same-Property Occupancy                  87.0 %                    86.2 %              83.5 %                82.3 %
Same-Property ADR           $          230.27         $          212.04     $        220.34       $        203.34
Same-Property RevPAR        $          200.24         $          182.72     $        183.95       $        167.30


____________

This schedule of hotel results for the three and six months ended June 30, 2014 and 2013 includes information from all of the hotels we owned as of June 30, 2014, except for the Prescott Hotel and our 49% ownership interest in the Manhattan Collection for both 2014 and 2013. These hotel results for the respective periods include information reflecting operational performance for some hotels prior to our ownership of those hotels. Results of Operations
At June 30, 2014 and 2013, we had 24 and 20 wholly owned properties and leasehold interests, respectively. All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition. Based on when a property was acquired, operating results for certain properties are not comparable for the


Table of Contents

three and six months ended June 30, 2014 and 2013. The properties listed in the table below are hereinafter referred to as the non-comparable properties for the periods indicated and all other properties are considered and referred to as comparable properties:

                                                                Non-comparable property for the
                                                                 Three Months      Six Months
                                                                ended June 30,   ended June 30,
Property                 Location            Acquisition Date   2014 and 2013    2014 and 2013
Embassy Suites San
Diego Bay-Downtown       San Diego, CA       January 29, 2013                          X
Redbury Hotel            Hollywood, CA       August 8, 2013           X                X
Hotel Modera             Portland, OR        August 28, 2013          X                X
Radisson Hotel
Fisherman's Wharf        San Francisco, CA   December 9, 2013         X                X
Prescott Hotel           San Francisco, CA   May 22, 2014             X                X

Comparison of the three months ended June 30, 2014 to the three months ended June 30, 2013
Revenues - Total hotel revenues increased by $21.2 million, of which $6.4 million was contributed by our comparable properties and $14.8 million was contributed by the non-comparable properties. The increase from our comparable properties is primarily a result of increases in revenues at the Embassy Suites San Diego Bay, Argonaut Hotel, Sir Francis Drake and Hotel Zetta as a result of increases in ADR at those hotels.
Hotel operating expenses - Total hotel operating expenses increased by $8.9 million. The comparable properties contributed $1.1 million of the increase, which is a result of cost increases resulting from increased revenues, partially offset by cost reduction initiatives. The remaining $7.8 million of the increase was from the non-comparable properties.
Depreciation and amortization - Depreciation and amortization expense increased by $2.7 million primarily due to the additional depreciation for the non-comparable properties.
Real estate taxes, personal property taxes, property insurance and ground rent - Real estate taxes, personal property taxes insurance and ground rent increased by $0.6 million primarily due to the non-comparable properties. Corporate general and administrative - Corporate general and administrative expenses increased by $1.3 million primarily as a result of increases in non-cash share-based employee compensation costs. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance, state franchise taxes and other expenses. Hotel acquisition costs - Hotel acquisition costs remained consistent with the prior period. Typically, hotel property acquisition costs consist of legal fees, other professional fees, transfer taxes and other direct costs associated with our pursuit of hotel investments. As a result, these costs are generally higher when more properties are acquired or when we have significant ongoing acquisition activity.
Interest income - Interest income remained consistent with the prior period. Interest expense - Interest expense increased by $0.3 million as a result of higher debt balances from mortgage assumptions in connection with properties acquired throughout 2013.
Equity in earnings (losses) of joint venture - Equity in earnings of joint venture increased $1.1 million due to increases in revenues as a result of increases in ADR at the joint venture hotels.
Income tax (expense) benefit - Income tax expense increased $0.5 million due to higher net income at our TRS compared to the prior period.
Non-controlling interests - Non-controlling interests represent the allocation of income or loss of the Operating Partnership to the common units held by the LTIP unit holders. Non-controlling interests increased $0.1 million due to higher income allocation.
Distributions to preferred shareholders - Distributions to preferred shareholders did not change significantly from the prior period.


Table of Contents

Comparison of the six months ended June 30, 2014 to the six months ended June 30, 2013
Revenues - Total hotel revenues increased by $42.0 million, of which $13.2 million was contributed by our comparable properties and $28.8 million was contributed by the non-comparable properties. The increase from our comparable properties is primarily a result of increases in revenues at our properties located on the west coast as a result of increases in ADR at those hotels. Hotel operating expenses - Total hotel operating expenses increased by $18.4 million. The comparable properties contributed $2.4 million of the increase, which is a result of cost increases resulting from increased revenues, partially offset by cost reduction initiatives. The remaining $16.0 million of the increase was from the non-comparable properties.
Depreciation and amortization - Depreciation and amortization expense increased by $5.3 million primarily due to the additional depreciation for the non-comparable properties.
Real estate taxes, personal property taxes, property insurance and ground rent - Real estate taxes, personal property taxes, insurance and ground rent increased by $2.4 million primarily due to the non-comparable properties. Corporate general and administrative - Corporate general and administrative expenses increased by $3.2 million primarily as a result of increases in non-cash share-based employee compensation costs. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance, state franchise taxes and other expenses. Hotel acquisition costs - Hotel acquisition costs decreased by $0.6 million due to less acquisition activity during the current period compared to the prior period. Typically, hotel property acquisition costs consist of legal fees, other professional fees, transfer taxes and other direct costs associated with our pursuit of hotel investments. As a result, these costs are generally higher when more properties are acquired or when we have significant ongoing acquisition activity.
Interest income - Interest income remained consistent with the prior period. Interest expense - Interest expense increased by $0.9 million as a result of higher debt balances from mortgage assumptions in connection with properties acquired throughout 2013.
Equity in earnings (losses) of joint venture - Equity in earnings of joint venture increased $0.8 million due to increases in revenues as a result of increases in ADR at the Manhattan Collection joint venture hotels.
Income tax (expense) benefit - Income tax benefit decreased $0.7 million due to lower net loss at our TRS compared to the prior period.
Non-controlling interests - Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP unit holders. Non-controlling interests increased $0.2 million due to higher income allocation.
Distributions to preferred shareholders - Distributions to preferred shareholders increased $1.4 million as a result of the issuances of the Series C Preferred Shares on March 18, 2013 and April 12, 2013. Non-GAAP Financial Measures
Non-GAAP financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with U.S. GAAP. We report FFO and EBITDA, which are non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance.
We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income (calculated in accordance with GAAP), excluding real estate related depreciation and amortization, gains (losses) from sales of real estate, impairments of real estate assets, the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization and gains (losses) from sales of real estate, both 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.


Table of Contents

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, 2014 and 2013 (in thousands):

                                          For the three months ended June 30,           For the six months ended June 30,
                                             2014                     2013                  2014                 2013
Net income (loss)                               22,893                    14,931     $        27,014       $        14,685
Adjustments:
Depreciation and amortization                   16,186                    13,522              32,030                26,691
Depreciation and amortization from
joint venture                                    2,240                     2,148               4,451                 4,754
FFO                                  $          41,319         $          30,601     $        63,495       $        46,130
Distribution to preferred
shareholders                                    (6,082 )                  (6,104 )           (12,163 )             (10,772 )
FFO available to common share and
unit holders                         $          35,237         $          24,497     $        51,332       $        35,358

EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. We believe that EBITDA provides investors a useful financial measure 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 for the three and six months ended June 30, 2014 and 2013 (in thousands):

                                      For the three months ended
                                               June 30,                 For the six months ended June 30,
                                          2014            2013              2014                 2013
Net income (loss)                          22,893         14,931     $        27,014       $        14,685
Adjustments:
Interest expense                            6,256          5,925              12,331                11,383
Interest expense from joint venture         2,270          2,274               4,534                 4,295
Income tax expense (benefit)                2,121          1,647                (213 )                (951 )
Depreciation and amortization              16,230         13,565              32,118                26,776
Depreciation and amortization from
joint venture                               2,240          2,148               4,451                 4,754
EBITDA                               $     52,010     $   40,490     $        80,235       $        60,942

Neither FFO nor EBITDA represent cash generated from operating activities as determined by U.S. GAAP and neither should be considered as an alternative to U.S. GAAP net income (loss), as an indication of our financial performance, or to U.S. GAAP cash flow from operating activities, as a measure of liquidity. In addition, FFO and EBITDA are not indicative of funds available to fund cash needs, including the ability to make cash distributions. Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. 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, 2013.
Recent Accounting Standards
See Note 2, "Summary of Significant Accounting Policies," to our consolidated interim financial statements for additional information relating to recently issued accounting pronouncements.
Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our senior unsecured revolving credit facility. We expect our existing cash


Table of Contents

balances and cash provided by operations will be adequate to fund operating requirements, service debt and fund dividends in accordance with the REIT requirements of the federal income tax laws.
We expect to meet our long-term liquidity requirements, such as hotel property acquisitions, property redevelopment, investments in existing or new joint ventures, and debt principal payments and debt maturities, through the net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our operating partnership, secured and unsecured borrowings, and cash provided by operations. The success of our business strategy may depend in part on our ability to access additional capital through issuances of debt and equity securities, which is dependent on favorable market conditions.
We strive to maintain prudent debt leverage and intend to opportunistically enhance our capital position.
Senior Unsecured Credit Facility
We have a $300.0 million senior unsecured credit facility to fund acquisitions, property redevelopments, return on investment initiatives and general business needs. The senior unsecured credit facility consists of a $200.0 million revolver and a $100.0 million term loan. As of June 30, 2014, we had $36.0 million outstanding under the revolver and we had $100.0 million outstanding under the term loan. We have the ability to increase the aggregate borrowing capacity under the credit agreement up to $600.0 million, subject to lender approval. We intend to repay indebtedness incurred under our senior unsecured revolving credit facility from time to time out of cash flows from operations and from the net proceeds of issuances of additional equity and debt securities, as market conditions permit.
Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount. The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement. We entered into interest rate swaps to effectively fix the interest rate at 2.55% per annum for the term loan for the full five-year term at the Company's current leverage ratio (as defined in the credit agreement). Debt Summary
Debt as of June 30, 2014 and December 31, 2013 consisted of the following (dollars in thousands):

                                                                         Balance Outstanding as of
                                 Interest Rate   Maturity Date     June 30, 2014       December 31, 2013
Senior unsecured revolving
credit facility                  Floating (1)         July 2016   $       36,000     $                 -

Term loan                         Floating(2)         July 2017          100,000                 100,000

Mortgage loans
InterContinental Buckhead            4.88%         January 2016           49,758                  50,192
Skamania Lodge                       5.44%        February 2016           29,579                  29,811
DoubleTree by Hilton
Bethesda-Washington DC               5.28%        February 2016           34,839                  35,102
Embassy Suites San Diego
Bay-Downtown                         6.28%            June 2016           65,098                  65,725
Hotel Modera                         5.26%            July 2016           23,412                  23,597
Monaco Washington DC                 4.36%        February 2017           44,172                  44,580
Argonaut Hotel                       4.25%           March 2017           44,575                  45,138
Sofitel Philadelphia                 3.90%            June 2017           47,597                  48,218
Hotel Palomar San Francisco          5.94%       September 2017           26,632                  26,802
. . .
  Add PEB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PEB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.