BETHESDA, Md.– Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the third quarter ended September 30, 2016. The Company’s results include the following:
Third Quarter
Nine Months Ended, September 30
2016 2015 2016 2015 ($ in millions except per share and RevPAR data) Net income (loss) ($35.5) $38.2 $55.5 $72.0 Same-Property RevPAR(1) $231.34 $231.60 $216.92 $210.54 Same-Property RevPAR growth rate (0.1%) 3.0% Same-Property Wholly Owned EBITDA(1) $80.7 $80.6 $220.7 $208.9 Same-Property Wholly Owned EBITDA growth rate 0.2% 5.6% Same-Property Wholly Owned EBITDA Margin(1) 38.6% 38.6% 36.3% 35.5% Same-Property Manhattan Collection EBITDA(1) $5.9 $7.4 $11.7 $15.1 Same-Property Manhattan Collection EBITDA growth rate (19.8%) (22.3%) Same-Property Manhattan Collection EBITDA Margin(1) 26.6% 31.3% 19.6% 24.3% Adjusted EBITDA(1) $80.4 $82.4 $215.5 $195.2 Adjusted EBITDA growth rate (2.4%) 10.4% Adjusted FFO(1) $60.9 $60.4 $160.3 $136.8 Adjusted FFO per diluted share(1) $0.84 $0.83 $2.21 $1.88 Adjusted FFO per diluted share growth rate 1.2% 17.6%
(1) See tables later in this press release for a description of same-property information and reconciliations from net income (loss) to non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Funds from Operations ("FFO"), FFO per share, Adjusted FFO and Adjusted FFO per share.
For the details as to which hotels are included in Same-Property Revenue Per Available Room (“RevPAR”), Average Daily Rate (“ADR”), Occupancy, Revenues, Expenses, EBITDA and EBITDA Margins appearing in the table above and elsewhere in this press release, refer to the Same-Property Inclusion Reference Table later in this press release.
“We were pleased with our operating results during the third quarter, despite headwinds from continued weakness in business travel demand,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “The west coast again led our performance in the third quarter. We experienced strong demand in Los Angeles and benefitted from healthy convention calendars in San Diego and Philadelphia, which was also the host city for the Democratic National Convention in July. Top line performance was in the middle of our expected range, while we had great success driving better profitability to our bottom line.”
Although hotel demand trends remain soft, the Company continues to make progress executing its strategic disposition plan, which included recently completing the Redemption and Asset Exchange Agreement of the Company’s 49 percent interest in its six-hotel joint venture (the “Manhattan Collection”) with Denihan Hospitality Group (“Denihan”). The Company also executed a contract to sell the DoubleTree by Hilton Hotel Bethesda – Washington DC for $50.05 million, with the transaction expected to be completed in November of 2016.
“We’re very pleased with the completion of our asset exchange with our joint venture partner in New York,” noted Mr. Bortz. “By assuming 100 percent ownership of the Manhattan NYC and Dumont NYC hotels and converting the related management agreements to terminable-at-will arrangements, we have substantially improved the valuation and saleability of both hotels.”
Third Quarter Highlights
- Net income (loss): The Company’s net loss was ($35.5) million in the third quarter of 2016, declining $73.8 million over the same period of 2015, primarily due to the impairment losses related to the Manhattan Collection and DoubleTree by Hilton Hotel Bethesda – Washington DC booked in the quarter.
- Same-Property RevPAR and Room Revenue: Same-Property RevPAR in the third quarter of 2016 decreased 0.1 percent over the same period of 2015 to $231.34. Same-Property ADR decreased 0.3 percent from the prior year quarter to $261.00. Same-Property Occupancy rose 0.2 percent to 88.6 percent. Same-Property RevPAR for our Wholly Owned properties, which excludes the Manhattan Collection, increased 0.9 percent from the prior year period. Same-Property Room Revenue for our Wholly Owned properties increased by 1.3 percent, greater than RevPAR, due to the increase in the Same-Property room count. Same-Property RevPAR for the Manhattan Collection decreased 7.1 percent and Same-Property Room Revenue for the Manhattan Collection decreased by 6.9 percent.
- Same-Property EBITDA: The Company’s Wholly Owned hotels generated $80.7 million of Same-Property EBITDA for the quarter ended September 30, 2016, increasing 0.2 percent from the same period of 2015. Same-Property Wholly Owned Revenues increased 0.1 percent, while Same-Property Wholly Owned Expenses rose 0.1 percent. Same-Property Wholly Owned EBITDA Margin grew by 3 basis points to 38.6 percent for the third quarter of 2016, as compared to the same period last year. The Company’s Manhattan Collection hotels generated $5.9 million of Same-Property EBITDA for the quarter ended September 30, 2016, decreasing 19.8 percent from the same period of 2015. Same-Property Manhattan Collection Revenues declined 5.5 percent, while Same-Property Manhattan Collection Expenses rose 1.0 percent. Same-Property Manhattan Collection EBITDA Margin fell by 474 basis points to 26.6 percent for the third quarter of 2016, as compared to the same period last year.
- Adjusted EBITDA: The Company’s Adjusted EBITDA declined to $80.4 million from $82.4 million in the prior year period, a decrease of $2.0 million, or 2.4 percent.
- Adjusted FFO: The Company’s Adjusted FFO climbed 0.7 percent to $60.9 million from $60.4 million in the prior year period.
- Dividends: On September 15, 2016, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares, a regular quarterly cash dividend of $0.40625 per share on its 6.50% Series C Cumulative Redeemable Preferred Shares and a regular quarterly cash dividend of $0.39844 per share on its 6.375% Series D Cumulative Redeemable Preferred Shares.
“Operationally, our focus remains on implementing our wide array of best practices to drive more efficient operations with our hotel teams in order to achieve stronger flow-through in a weaker demand environment,” said Mr. Bortz. “We feel very good about our ability to make progress as a result of these efforts as evidenced by the success we had limiting portfolio-wide expense growth to just 0.2 percent in the third quarter.”
Strategic Disposition Plan
Subsequent to the end of the third quarter, on October 20, 2016, the Company announced that it had completed an agreement with Denihan to redeem the Company’s 49 percent interest in its joint venture with Denihan which owned six upper upscale hotels in Manhattan, New York. In accordance with the agreement, the Company now owns 100 percent of both the 618-room Manhattan NYC and the 252-room Dumont NYC and no longer owns any interest in the other four properties, which Denihan now owns. The Company also received $59.3 million of proceeds from Denihan and full payment of the $50.0 million, 9.75% preferred investment and reimbursement of additional closing costs as part of the redemption agreement. In connection with the Redemption and Asset Exchange Agreement, the Company incurred an impairment loss of $62.6 million in the third quarter.
Additionally, during the third quarter, the Company executed a purchase and sale agreement to sell the 270-room DoubleTree by Hilton Hotel Bethesda – Washington DC for $50.05 million. In consideration of this pending transaction, the Company has booked an impairment loss of $12.1 million in the third quarter. The sale of the DoubleTree by Hilton Hotel Bethesda – Washington DC is subject to normal closing conditions and the Company offers no assurances that this sale will be completed. The Company is targeting to complete the sale in November 2016.
Capital Reinvestment and Asset Management
During the third quarter, the Company made $29.7 million of capital improvements throughout its portfolio, which includes the Company’s 49 percent interest in the Manhattan Collection (which it owned until mid-October), and year-to-date the Company has made $90.8 million of capital improvements. The Company substantially completed renovations at Union Station Hotel Nashville, an Autograph Collection Hotel, Hotel Colonnade Coral Gables, a Tribute Portfolio Hotel (formerly The Westin Colonnade, Coral Gables) and Dirty Habit DC (formerly Poste), the restaurant at the Hotel Monaco Washington DC.
For the remainder of 2016 and early 2017, the Company has various major renovation and repositioning projects it plans to undertake in order to improve performance in future years at the Company’s hotels which were purchased with a plan of redevelopment including:
- Hotel Palomar Los Angeles Beverly Hills (estimated at $12.0 million), which will undergo a guest rooms and public space renovation to begin later in the fourth quarter of 2016 with expected completion in the first quarter of 2017;
- Revere Hotel Boston Common (estimated at $22.5 million), which will undergo a comprehensive property renovation to start late in the fourth quarter of 2016 with expected completion in the second quarter of 2017; and
- The Tuscan Fisherman’s Wharf, a Best Western Plus Hotel (estimated at $15.0 million), which will become an independent hotel on December 1, 2016, will undergo a comprehensive property renovation starting in the first quarter of 2017, and will be renamed upon completion as an independent hotel.
Year-to-Date Highlights
- Net income: The Company’s net income was $55.5 million for the nine months ended September 30, 2016, a decrease of $16.5 million over the same period of 2015, primarily due to the impairment losses booked in the third quarter.
- Same-Property RevPAR and Room Revenue: Same-Property RevPAR for the nine months ended September 30, 2016 increased 3.0 percent over the same period of 2015 to $216.92. Year-to-date Same-Property ADR grew 1.1 percent from the comparable period of 2015 to $250.84, and year-to-date Same-Property Occupancy climbed 1.9 percent to 86.5 percent. Same-Property RevPAR for our Wholly Owned properties, which excludes the Manhattan Collection, increased 4.1 percent from the prior year period. Same-Property Wholly Owned Room Revenue increased by 5.0 percent, greater than RevPAR largely due to the increase in the Same-Property room count. Year-to-date, Same-Property RevPAR for the Manhattan Collection decreased 4.6 percent and Same-Property Room Revenue for the Manhattan Collection decreased by 3.8 percent.
- Same-Property Hotel EBITDA: The Company’s Wholly Owned hotels generated $220.7 million of Same-Property Wholly Owned Hotel EBITDA for the nine months ended September 30, 2016, an improvement of 5.6 percent compared with the same period of 2015. Same-Property Wholly Owned Hotel Revenues grew 3.4 percent, while Same-Property Wholly Owned Hotel Expenses rose 2.2 percent. As a result, Same-Property Wholly Owned Hotel EBITDA Margin for the nine months ended September 30, 2016 increased 76 basis points to 36.3 percent as compared to the same period last year. The Company’s Manhattan Collection hotels generated $11.7 million of Same-Property Manhattan Collection Hotel EBITDA for the nine months ended September 30, 2016, a decrease of 22.3 percent compared with the same period of 2015. Same-Property Manhattan Collection Hotel Revenues decreased 3.4 percent, while Same-Property Manhattan Collection Hotel Expenses rose 2.6 percent. As a result, Same-Property Manhattan Collection Hotel EBITDA Margin for the nine months ended September 30, 2016 decreased 476 basis points to 19.6 percent as compared to the same period last year.
- Adjusted EBITDA: The Company’s Adjusted EBITDA increased 10.4 percent, or $20.4 million, to $215.5 million from $195.2 million in the prior year period.
- Adjusted FFO: The Company’s Adjusted FFO climbed 17.2 percent to $160.3 million from $136.8 million in the prior year period.
Capital Markets
On September 21, 2016, Pebblebrook redeemed all 3,400,000 of its issued and outstanding 8.00% Series B Cumulative Preferred Shares. Subsequent to the third quarter, as part of the asset exchange with Denihan Hospitality Group, the Company assumed and refinanced all of its outstanding debt previously secured by the Manhattan Collection, which is now fully prepayable without penalty. Additionally, the Company repaid the $50.0 million mortgage secured by Dumont NYC, which was subject to a 3.14 percent interest rate.
Balance Sheet
As of September 30, 2016, the Company had $1.1 billion in consolidated debt and $225.4 million in unconsolidated, non-recourse, secured debt, at weighted-average interest rates of 3.4 percent and 3.6 percent, respectively. The Company had $675.0 million outstanding in the form of unsecured term loans and $130.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of September 30, 2016, the Company had $54.2 million of consolidated cash, cash equivalents and restricted cash and $15.6 million of unconsolidated cash, cash equivalents and restricted cash. The unconsolidated debt, cash, cash equivalents and restricted cash amounts represent the Company’s 49 percent interest in the Manhattan Collection.
On September 30, 2016, as defined in the Company’s credit agreement, the Company’s fixed charge coverage ratio was 3.6 times and total net debt to trailing 12-month corporate EBITDA was 4.7 times.
Following the completion of the Manhattan Collection Redemption and Asset Exchange Agreement, the Company has $1.3 billion of debt outstanding, including $130.0 million outstanding on its $450.0 million senior unsecured revolving credit facility, and an estimated total net debt to trailing 12-month corporate EBITDA of 4.5 times.
2016 Outlook
The Company's outlook for 2016, which has been amended to reflect the Company’s better than expected third quarter performance and reduced expectations from its prior outlook for the remainder of the year, assumes no additional acquisitions or dispositions beyond those previously announced, which include: the redemption of the Company’s 49 percent interest in the Manhattan Collection joint venture, the assumption of 100 percent interest in the Manhattan NYC and Dumont NYC hotels on October 19, 2016 and the pending sale of the DoubleTree by Hilton Hotel Bethesda – Washington DC. As a result of the Manhattan Collection redemption and asset exchange transaction and the pending sale of the DoubleTree by Hilton Hotel Bethesda – Washington DC, the Company is reducing 2016 Same-Property EBITDA by $3.0 million, Adjusted EBITDA by $2.5 million and Adjusted FFO by $1.7 million.
The revised outlook, which reflects the Company’s various planned capital investment projects and includes other significant assumptions, is as follows:
2016 Outlook as of October 27, 2016
Variance to Prior Outlook as of July 25, 2016
Low High Low High ($ and shares/units in millions, except per share and RevPAR data)
Net income
$61.3 $64.7 ($64.0) ($67.6) Adjusted EBITDA $270.3 $272.3 ($1.9) ($4.9) Adjusted EBITDA growth rate 4.1% 4.9% (0.8%) (1.9%) Adjusted FFO $195.5 $198.9 $4.0 $0.4 Adjusted FFO per diluted share $2.69 $2.74 $0.06 $0.01 Adjusted FFO per diluted share growth rate 7.6% 9.6% 2.4% 0.4%
This 2016 outlook is based, in part, on the following estimates and assumptions:
U.S. GDP growth rate 1.5% 2.0% – – U.S. Hotel Industry RevPAR growth rate 2.5% 3.0% 0.3% – Urban Markets RevPAR growth rate 1.0% 2.0% – – Same-Property RevPAR $211 $212 – ($1) Same-Property RevPAR growth rate 2.0% 2.25% – (0.75%) Same-Property Room Revenue growth rate 2.7% 3.0% – (0.7%) Same-Property EBITDA $293.4 $295.4 ($3.0) ($6.0) Same-Property EBITDA growth rate 1.4% 2.1% (0.3%) (1.4%) Same-Property EBITDA Margin 33.7% 34.0% (0.2%) (0.2%) Same-Property EBITDA Margin growth rate (25 bps) 0 bps (25 bps) (25 bps) Corporate cash general and administrative expenses $19.8 $19.8 ($0.5) ($0.5) Corporate non-cash general and administrative expenses $8.5 $8.5 $0.1 $0.1 Total capital investments related to renovations, capital maintenance and return on investment projects $110 $120 $10.0 $10.0 Weighted-average fully diluted shares and units 72.7 72.7 – –
The Company’s outlook for the fourth quarter of 2016 is as follows:
Fourth Quarter 2016 Outlook Low High ($ and shares/units in millions, except per share and RevPAR data) Net income $5.7 $9.1 Same-Property RevPAR $192 $196 Same-Property RevPAR growth rate (2.5%) (0.5%) Same-Property Room Revenue growth rate (2.5%) (0.5%) Same-Property EBITDA $61.0 $63.0 Same-Property EBITDA growth rate (6.8%) (3.8%) Same-Property EBITDA Margin 31.1% 31.6% Same-Property EBITDA Margin growth rate (150 bps) (100 bps) Adjusted EBITDA $54.8 $56.8 Adjusted EBITDA growth rate (14.9%) (11.8%) Adjusted FFO $35.1 $38.5 Adjusted FFO per diluted share $0.48 $0.53 Adjusted FFO per diluted share growth rate (22.6%) (14.5%) Weighted-average fully diluted shares and units 72.7 72.7
The Company’s outlook for 2016 and the fourth quarter of 2016 reflects the hotels owned as of September 30, 2016 and assumes no additional acquisitions, but excludes the DoubleTree by Hilton Hotel Bethesda – Washington DC in the fourth quarter of 2016, as the outlook assumes a sale of this property in November 2016. In addition, the outlook no longer includes the 49 percent interest in The Benjamin, Fifty NYC, Gardens NYC and Shelburne NYC, but does include the Manhattan NYC and Dumont NYC in the fourth quarter of 2016, as these two properties are now wholly owned. The Company’s outlook also incorporates the expected disruption associated with the various renovations and repositionings at our properties, including Revere Hotel Boston Common and Hotel Palomar Los Angeles Beverly Hills, which already have or are expected to commence renovations in 2016.
The Company’s estimates and assumptions, including the Company’s outlook for 2016 and the fourth quarter 2016 for Same-Property RevPAR, Same-Property RevPAR growth rate, Same-Property Room Revenue growth rate, Same-Property EBITDA, Same-Property EBITDA growth rate, Same-Property EBITDA Margin and Same-Property EBITDA Margin growth rate include the hotels owned as of September 30, 2016, as if they had been owned by the Company for all of 2015 and 2016, except for Hotel Vintage Portland, which is not included in the first quarter, Hotel Zeppelin San Francisco, which is not included in the first and fourth quarters, and DoubleTree by Hilton Hotel Bethesda – Washington DC which is not included in the fourth quarter, because it is expected to be sold in November 2016. Additionally, the above-mentioned measures no longer include the 49 percent interest in The Benjamin, Fifty NYC, Gardens NYC and Shelburne NYC, but do include the wholly owned Manhattan NYC and Dumont NYC in the fourth quarter.
If any of the foregoing estimates and assumptions prove to be inaccurate, actual results, including the outlook, may vary, and could vary significantly, from the amounts shown above.
To view full financial release and corresponding tables please click the PDF icon or visit: http://investor.pebblebrookhotels.com/file.aspx?IID=4243454&FID=36430683
