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Pebblebrook Hotel Trust Reports First Quarter 2019 Results

April 25, 2019 4:06 PM

BETHESDA, Md.--(BUSINESS WIRE)-- Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the first quarter ended March 31, 2019. The Company’s results include the following:

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First Quarter
2019 � 2018

($ in millions except per share and RevPAR data)

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Net income $5.7 $24.5
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Same-Property Total RevPAR(1) $276.76 $265.20
Same-Property Total RevPAR growth rate 4.4%
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Same-Property RevPAR(1) $187.76 $179.98
Same-Property RevPAR growth rate 4.3%
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Same-Property EBITDA(1) $100.1 $97.5
Same-Property EBITDA growth rate 2.7%
Same-Property EBITDA Margin(1) 27.6% 28.0%
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Adjusted EBITDAre(1) $90.5 $59.3
Adjusted EBITDAre growth rate 52.7%
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Adjusted FFO(1) $60.7 $46.2
Adjusted FFO per diluted share(1) $0.46 $0.67
Adjusted FFO per diluted share growth rate (31.3%)
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(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"), EBITDA for Real Estate (“EBITDAre”), Adjusted EBITDAre, Funds from Operations ("FFO"), FFO per share, Adjusted FFO and Adjusted FFO per share.

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For the details as to which hotels are included in Same-Property Room Revenue Per Available Room (“RevPAR”), Same-Property Total Revenue Per Available Room (“Total 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.

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“We are very pleased with our portfolio’s operating results in the first quarter,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “Same-Property Total RevPAR, Adjusted EBITDAre and Adjusted FFO per diluted share beat our outlook largely due to healthy RevPAR growth of 4.3 percent, strong growth of 4.4 percent in other revenues, including food and beverage revenues, and slightly better margins than forecasted. Although March demand trends were weaker than expected for the hotel industry and our portfolio, we continue to experience solid group and transient business and leisure travel demand as our group and transient pace advantages over 2018 remain favorable. Our 2019 outlook for the hotel industry and Pebblebrook remains positive, as the U.S. economy rolls on despite geopolitical uncertainty, employment and wages continue to increase, inflation remains low, and consumer and business confidence remain strong.”

First Quarter Highlights

“In the first quarter, Same-Property Total RevPAR growth of 4.4 percent exceeded the upper end of our guidance due to solid room and other non-room revenue growth such as food and beverage revenues,” noted Mr. Bortz. “In addition to the incredibly strong RevPAR growth of 23.7 percent at our 12 hotels in San Francisco, we also achieved healthy RevPAR growth at our properties in South Florida, Buckhead and Boston. As anticipated, weakness in Chicago, Portland, Washington, DC and Los Angeles offset some of this strength. Hotel expense growth was slightly lower than we anticipated, which allowed better than forecasted revenues to flow to the bottom line of the portfolio. We’re also excited about the significant opportunities with increased economies of scale due to our larger portfolio, which we expect will lead to reduced hotel operating expenses and improved profitability throughout the entire portfolio. We anticipate successfully achieving these improvements throughout 2019 and 2020.”

Update on Strategic Property Redevelopment Plan

During the first quarter, the Company made considerable progress on its strategic property redevelopment plan, which includes repositioning the following select hotels and resorts in the Company’s portfolio through third-party operator or brand changes, as well as planned property reinvestment programs:

“We are excited about the great progress we’ve made identifying and implementing management and brand changes at numerous hotels and resorts in our portfolio as part of our strategic property redevelopment plan,” advised Mr. Bortz. “While we expect some short-term disruption, which we believe we’ve accounted for in our outlook as we transition to new operators, we expect these strategic changes will generate enhanced long-term operating profitability and value creation as we unlock the significant opportunities that we believe exist across our portfolio of unique, high-quality, lifestyle hotels and resorts. We have several additional third-party management company and brand changes that we anticipate making and announcing later in 2019 as these agreements and redevelopment plans are finalized.”

Capital Reinvestments

In the first quarter, the Company completed $36.5 million of capital reinvestments throughout its portfolio. The Company intends to start or complete additional renovation and repositioning projects including:

Update on Strategic Disposition Plan

During the first quarter, the Company sold two hotels, Liaison Capitol Hill and Hotel Palomar Washington, DC, for a total of $252.5 million, continuing its previously detailed strategic disposition plan. The Company expects to sell additional assets over the remainder of the year to optimize the portfolio’s growth profile and pay down debt and lower its leverage ratio to a target of 4.0 times to 4.25 times.

In April 2019, the Company executed a contract to sell the 112-room Onyx Hotel in Boston, Massachusetts for approximately $58.3 million to a third party. The contracted sale price reflects a 15.3x EBITDA multiple and a 5.9 percent net operating income capitalization rate (after an assumed annual capital reserve of 4.0 percent of total hotel revenues) based on the hotel’s operating performance for 2018. The sale of the Onyx Hotel is subject to normal closing conditions, and the Company offers no assurances that this sale will be completed on these terms, or at all. The Company is targeting to complete the sale in the second quarter of 2019 and continues to be encouraged with pricing levels and overall buyer interest in the investment markets.

Since the Company commenced its strategic disposition plan on November 30, 2018, and assuming the sale of the Onyx Hotel is completed, 9 hotels will have been successfully sold, generating approximately $1.16 billion of gross sales proceeds. Assuming the sale of the Onyx Hotel is completed, the Company remains on track to generate additional gross sales proceeds during the remainder of 2019 of approximately $290.0 million as part of the plan. The sales to date, including the assumed sale of the Onyx Hotel, reflect a 15.4x EBITDA multiple and a 5.55 percent net operating income capitalization rate (after an assumed annual capital reserve of 4.0 percent of total hotel revenues) based on the operating performance for 2018 of the properties sold.

Capital Markets and Balance Sheet

As of March 31, 2019, the Company had $2.5 billion in consolidated debt at an effective weighted-average interest rate of 3.7 percent. Approximately $1.5 billion, or 60 percent of the Company’s total outstanding debt, was at a weighted-average fixed interest rate of 3.4 percent, and approximately $1.0 billion, or 40 percent, was at a weighted-average floating interest rate of 4.1 percent. The Company had $2.4 billion outstanding in the form of unsecured term loans and no balance outstanding on its $650.0 million senior unsecured revolving credit facility. As of March 31, 2019, the Company had $77.1 million of consolidated cash, cash equivalents and restricted cash.

As of March 31, 2019, the Company’s fixed charge coverage ratio was 3.2 times, and total net debt to trailing 12-month corporate EBITDA was 4.7 times. The Company has no debt maturities until 2020.

2019 Outlook

The Company is revising its 2019 Outlook on the low end of the range to account for the better than forecasted operating performance during the first quarter of 2019. The Company is also updating its outlook for $2.0 million of one-time costs incurred in the first quarter related to last year’s corporate acquisition and approximately $6.5 million of one-time expenses associated with the third-party management company and brand transition costs as part of its strategic property redevelopment plan, of which $3.2 million have already been recorded in the first quarter.

The current 2019 Outlook, which assumes $600.0 million of assets are sold over the course of 2019, with $252.5 million of assets having been sold in February 2019 (Liaison Capitol Hill and Hotel Palomar Washington, DC), $250.0 million of assets being sold in the second quarter of 2019, and $100.0 million of assets being sold at the end of the third quarter of 2019, is as follows:

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2019 Outlook

as of April 25, 2019

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Variance to Prior Outlook

as of February 25, 2019

Low � High � Low � High
($ and shares/units in millions, except per share and RevPAR data)

Net income

$149.2 � $157.2 ($6.5) � ($8.5)
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Adjusted EBITDAre $481.4 $489.4 $2.0 -
Adjusted EBITDAre growth rate 88.9% 92.0% 0.8% -
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Adjusted FFO $341.9 $349.9 $2.0 -
Adjusted FFO per diluted share $2.60 $2.67 $0.01 -
Adjusted FFO per diluted share growth rate 6.1% 9.0% 0.4% -
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This 2019 Outlook is based, in part, on the following estimates and assumptions:

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Asset Sales during 2019 $600.0 $600.0 - -
Q1 Asset Sales at a 5.5% 2018 NOI Capitalization Rate $250.0 $250.0 - -
Q2 Asset Sales at a 5.5% 2018 NOI Capitalization Rate $250.0 $250.0 - -
Q3 Asset Sales at a 5.5% 2018 NOI Capitalization Rate $100.0 $100.0 - -
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U.S. GDP growth rate 2.0% 2.5% - -
U.S. Hotel Industry RevPAR growth rate 1.0% 3.0% - -
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Same-Property RevPAR $210 $214 - -
Same-Property RevPAR growth rate 1.0% 3.0% - -
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Same-Property EBITDA $518.2 $526.2 $2.0 -
Same-Property EBITDA growth rate 0.5% 2.0% 0.4% -
Same-Property EBITDA Margin 32.6% 32.7% - -
Same-Property EBITDA Margin growth rate (50 bps) (40 bps) - -
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Corporate cash general and administrative expenses $27.7 $27.7 ($1.8) ($1.8)
Corporate non-cash general and administrative expenses $8.9 $8.9 - -
Preopening and other corporate expenses $3.6 $3.6 $1.8 $1.8
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Total capital investments related to renovations, capital maintenance and return on investment projects $150.0 $170.0 - -
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Weighted-average fully diluted shares and units 131.3 131.3 - -
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The Company’s Outlook for the second quarter of 2019 is as follows:

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Second Quarter

2019 Outlook

Low � High
($ and shares/units in millions, except per share and RevPAR data)
Net income (loss) $46.4 � $49.4
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Q2 Asset Sales at a 5.5% 2018 NOI Capitalization Rate $250.0 $250.0
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Same-Property RevPAR $229 $234
Same-Property RevPAR growth rate 0.0% 2.0%
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Same-Property EBITDA $153.6 $156.6
Same-Property EBITDA growth rate (1.6%) 0.4%
Same-Property EBITDA Margin 36.0% 36.2%
Same-Property EBITDA Margin growth rate (100 bps) (75 bps)
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Adjusted EBITDAre $147.0 $150.0
Adjusted EBITDAre growth rate 101.8% 106.0%
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Adjusted FFO $104.9 $107.9
Adjusted FFO per diluted share $0.80 $0.82
Adjusted FFO per diluted share growth rate (1.2%) 1.2%
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Weighted-average fully diluted shares and units 131.2 131.2
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The 2019 Outlook excludes Liaison Capitol Hill and Hotel Palomar Washington, DC from Same-Property RevPAR, Same-Property RevPAR growth rate, Same-Property EBITDA, Same-Property EBITDA growth rate, Same-Property EBITDA Margin and Same-Property EBITDA Margin growth rate for all quarters of both 2019 and 2018 due to their sales during the first quarter of 2019.

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.

First Quarter 2019 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, April 26, 2019, at 10:00 AM ET. To participate in the conference call, please dial (877) 705-6003 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 www.pebblebrookhotels.com ten minutes before the conference call. A replay of the conference call webcast will be archived and available online through the Investor Relations section of 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 61 hotels, totaling approximately 14,600 guest rooms, located in 10 states and the District of Columbia, including: Del Mar, California; Los Angeles, California (Beverly Hills, Santa Monica and West Hollywood); San Diego, California; San Francisco, California; Santa Cruz, California; Washington, DC; Coral Gables, Florida; Key West, Florida; Naples, Florida; Buckhead, Georgia; Chicago, Illinois; Boston, Massachusetts; New York, New York; Portland, Oregon; Philadelphia, Pennsylvania; Nashville, Tennessee; Columbia River Gorge, Washington; and Seattle, Washington. For more information, please visit us at www.pebblebrookhotels.com and follow us on Twitter at @PebblebrookPEB.

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.

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 EBITDAre, 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, dispositions 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, 2018. 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 April 25, 2019. 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

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Pebblebrook Hotel Trust
Consolidated Balance Sheets
($ in thousands, except for per share data)
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March 31, 2019 December 31, 2018
(Unaudited)
ASSETS
Assets:
Investment in hotel properties, net $ 6,615,258 $ 6,534,193
Ground lease asset, net - 199,745
Cash and cash equivalents 51,417 83,366
Restricted cash 25,654 24,445
Hotel receivables (net of allowance for doubtful accounts of $374 and $526, respectively) 71,971 59,897
Prepaid expenses and other assets � 68,897 � � 76,702 �
Total assets $ 6,833,197 � $ 6,978,348 �
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LIABILITIES AND EQUITY
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Liabilities:
Unsecured revolving credit facilities $ - $ 170,000
Term loans, net of unamortized deferred financing costs 2,340,319 2,409,284
Senior unsecured notes, net of unamortized deferred financing costs 99,493 99,469
Mortgage debt, net of unamortized deferred financing costs 67,546 68,145
Accounts payable and accrued expenses 503,826 360,279
Deferred revenues 51,235 54,741
Accrued interest 5,800 2,741
Distribution payable � 58,179 � � 43,759 �
Total liabilities 3,126,398 3,208,418
Commitments and contingencies
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Equity:

Preferred shares of beneficial interest, $0.01 par value (liquidation preference $510,000 at March 31, 2019 and December 31, 2018), 100,000,000 shares authorized; 20,400,000 shares issued and outstanding at March 31, 2019 and December 31, 2018

204 204

Common shares of beneficial interest, $0.01 par value, 500,000,000 shares authorized; 130,484,956 issued and outstanding at March 31, 2019 and 130,311,289 issued and outstanding at December 31, 2018

1,305 1,303
Additional paid-in capital 4,063,830 4,065,804
Accumulated other comprehensive income (loss) (7,709 ) 1,330
Distributions in excess of retained earnings � (361,081 ) � (308,806 )
Total shareholders' equity � 3,696,549 � � 3,759,835 �
Non-controlling interests � 10,250 � � 10,095 �
Total equity � 3,706,799 � � 3,769,930 �
Total liabilities and equity $ 6,833,197 � $ 6,978,348 �
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Pebblebrook Hotel Trust
Consolidated Statements of Operations
($ in thousands, except for per share data)
(Unaudited)
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Three months ended

March 31,

� 2019 � � 2018 �
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Revenues:
Room $ 248,986 $ 122,471
Food and beverage 86,750 44,568
Other operating � 31,433 � � 14,016 �
Total revenues $ 367,169 � $ 181,055 �
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Expenses:
Hotel operating expenses:
Room $ 67,375 $ 31,708
Food and beverage 63,357 30,596
Other direct and indirect � 106,075 � � 51,839 �
Total hotel operating expenses 236,807 114,143
Depreciation and amortization 54,302 24,902
Real estate taxes, personal property taxes, property insurance, and ground rent 31,437 12,115
General and administrative 8,629 2,337
Transaction costs 2,497 378
(Gain) loss and other operating expenses � 3,560 � � (4,208 )
Total operating expenses 337,232 149,667
Operating income (loss) 29,937 31,388
Interest expense (29,328 ) (9,811 )
Other � 9 � � 2,510 �
Income (loss) before income taxes 618 24,087
Income tax (expense) benefit � 5,037 � � 429 �
Net income (loss) 5,655 24,516
Net income (loss) attributable to non-controlling interests � 20 � � 107 �
Net income (loss) attributable to the Company 5,635 24,409
Distributions to preferred shareholders � (8,139 ) � (4,023 )
Net income (loss) attributable to common shareholders $ (2,504 ) $ 20,386 �
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Net income (loss) per share available to common shareholders, basic $ (0.02 ) $ 0.29
Net income (loss) per share available to common shareholders, diluted $ (0.02 ) $ 0.29
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Weighted-average number of common shares, basic 130,431,074 68,876,444
Weighted-average number of common shares, diluted 130,431,074 69,208,048
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Pebblebrook Hotel Trust
Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
($ in thousands, except per share data)
(Unaudited)
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Three months ended

March 31,

� 2019 � � 2018 �
�
Net income (loss) $ 5,655 $ 24,516
Adjustments:
Depreciation and amortization � 54,243 � � 24,849 �
FFO $ 59,898 � $ 49,365 �
Distribution to preferred shareholders � (8,139 ) � (4,023 )
FFO available to common share and unit holders $ 51,759 � $ 45,342 �
Transaction costs 2,497 378
Non-cash ground rent 972 603
Management/franchise contract transition costs 3,172 52
Interest expense adjustment for acquired liabilities 271 299
Capital lease adjustment 691 142
Non-cash amortization of acquired intangibles (437 ) 141
Estimated hurricane related repairs and cleanup costs - 795
Gain on insurance settlement (220 ) (4,898 )
Business interruption proceeds 220 3,381
Non-cash interest expense � 1,778 � � - �
Adjusted FFO available to common share and unit holders $ 60,703 � $ 46,235 �
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FFO per common share - basic $ 0.40 $ 0.66
FFO per common share - diluted $ 0.40 $ 0.65
Adjusted FFO per common share - basic $ 0.46 $ 0.67
Adjusted FFO per common share - diluted $ 0.46 $ 0.67
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Weighted-average number of basic common shares and units 130,801,030 69,112,795
Weighted-average number of fully diluted common shares and units 130,980,506 69,444,399
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To supplement the Company’s consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission ("SEC") rules.
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These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.
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Funds from Operations (“FFO”) - FFO represents net income (computed in accordance with GAAP), excluding gains or losses from sales of properties, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships. The Company considers FFO a useful measure of performance for an equity REIT because it facilitates an understanding of the Company's operating performance without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, the Company believes that FFO provides a meaningful indication of its performance. The Company also considers FFO an appropriate performance measure given its wide use by investors and analysts. The Company computes FFO in accordance with standards established by the Board of Governors of Nareit in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to that of other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make distributions. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding Operating Partnership units for the periods presented.
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The Company also evaluates its performance by reviewing Adjusted FFO because it believes that adjusting FFO to exclude certain recurring and non-recurring items described below provides useful supplemental information regarding the Company's ongoing operating performance and that the presentation of Adjusted FFO, when combined with the primary GAAP presentation of net income (loss), more completely describes the Company's operating performance. The Company adjusts FFO for the following items, which may occur in any period, and refers to this measure as Adjusted FFO:
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- Transaction costs: The Company excludes transaction costs expensed during the period because it believes that including these costs in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Non-cash ground rent: The Company excludes the non-cash ground rent expense, which is primarily made up of the straight-line rent impact from a ground lease.
- Management/franchise contract transition costs: The Company excludes one-time management and/or franchise contract transition costs expensed during the period because it believes that including these costs in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Interest expense adjustment for acquired liabilities: The Company excludes interest expense adjustment for acquired liabilities assumed in connection with acquisitions, because it believes that including these non-cash adjustments in FFO does not reflect the underlying financial performance of the Company.
- Capital lease adjustment: The Company excludes the effect of non-cash interest expense from capital leases because it believes that including these non-cash adjustments in FFO does not reflect the underlying financial performance of the Company.
- Non-cash amortization of acquired intangibles: The Company excludes the non-cash amortization of acquired intangibles, which includes but is not limited to the amortization of favorable and unfavorable leases or management agreements and above/below market real estate tax reduction agreements because it believes that including these non-cash adjustments in FFO does not reflect the underlying financial performance of the Company.
- Estimated hurricane related repairs and cleanup costs: The Company excludes estimated hurricane related repairs and cleanup costs during the period because it believes that including these adjustments in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Gain on insurance settlement: The Company excludes the gain on insurance settlement because the Company believes that including this adjustment in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Business interruption proceeds: The Company includes business interruption proceeds because the Company believes that including these proceeds reflects the underlying financial performance of the Company and its hotels.
- Non-cash interest expense: The Company excludes non-cash interest expense because the Company believes that including this adjustment in FFO does not reflect the underlying financial performance of the Company and its hotels.
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The Company’s presentation of FFO in accordance with the Nareit White Paper, and as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.
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Pebblebrook Hotel Trust
Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre
($ in thousands)
(Unaudited)
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Three months ended

March 31,

� 2019 � � 2018 �
�
Net income (loss) $ 5,655 $ 24,516
Adjustments:
Interest expense 29,328 9,811
Income tax expense (benefit) (5,037 ) (429 )
Depreciation and amortization � 54,302 � � 24,902 �
EBITDA / EBITDAre $ 84,248 � $ 58,800 �
Transaction costs 2,497 378
Non-cash ground rent 972 603
Management/franchise contract transition costs 3,172 52
Non-cash amortization of acquired intangibles (437 ) 141
Estimated hurricane related repairs and cleanup costs - 795
Gain on insurance settlement (220 ) (4,898 )
Business interruption proceeds � 220 � � 3,381 �
Adjusted EBITDAre $ 90,452 � $ 59,252 �
�
To supplement the Company’s consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission ("SEC") rules.
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These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.
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Earnings before Interest, Taxes, and Depreciation and Amortization ("EBITDA") - The Company believes that EBITDA provides investors a useful financial measure to evaluate its operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).
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Earnings before Interest, Taxes, and Depreciation and Amortization for Real Estate ("EBITDAre") - The Company believes that EBITDAre provides investors a useful financial measure to evaluate its operating performance, and the Company presents EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." EBITDAre adjusts EBITDA for the following items, which may occur in any period, and refers to these measures as Adjusted EBITDAre: (1) gains or losses on the disposition of depreciated property, including gains or losses on change of control; (2) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (3) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

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The Company also evaluates its performance by reviewing Adjusted EBITDAre because it believes that adjusting EBITDAre to exclude certain recurring and non-recurring items described below provides useful supplemental information regarding the Company's ongoing operating performance and that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income (loss), more completely describes the Company's operating performance. The Company adjusts EBITDAre for the following items, which may occur in any period, and refers to these measures as Adjusted EBITDAre:

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- Transaction costs: The Company excludes transaction costs expensed during the period because it believes that including these costs in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Non-cash ground rent: The Company excludes the non-cash ground rent expense, which is primarily made up of the straight-line rent impact from a ground lease.

- Management/franchise contract transition costs: The Company excludes one-time management and/or franchise contract transition costs expensed during the period because it believes that including these costs in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Non-cash amortization of acquired intangibles: The Company excludes the non-cash amortization of acquired intangibles, which includes but is not limited to the amortization of favorable and unfavorable leases or management agreements and above/below market real estate tax reduction agreements because it believes that including these non-cash adjustments in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Estimated hurricane related repairs and cleanup costs: The Company excludes estimated hurricane related repairs and cleanup costs during the period because it believes that including these adjustments in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Gain on insurance settlement: The Company excludes the gain on insurance settlement because the Company believes that including this adjustment in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Business interruption proceeds: The Company includes business interruption proceeds because the Company believes that including these proceeds reflects the underlying financial performance of the Company and its hotels.
�

The Company’s presentation of EBITDAre, and as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.

�
� � � � � � � � � �
Pebblebrook Hotel Trust
Strategic Disposition Program Summary
(Unaudited)
�

Date of

disposition

Sales price

($ in millions)

EBITDA

multiple

Net operating

capitalization rate

Sales price

per key

($ in thousands)

�
Hotel dispositions:

Park Central San Francisco and Park Central New York / WestHouse New York

11/30/2018 $ 715.0 16.5x 5.1 % $ 443
Gild Hall, New York 11/30/2018 38.8 15.8x 5.3 % 298
Embassy Suites Philadelphia Center City 11/30/2018 67.0 11.0x 8.1 % 233
The Grand Hotel Minneapolis 12/4/2018 30.0 8.5x 10.4 % 214
The Liaison Capitol Hill 2/14/2019 111.0 16.9x 4.9 % 324
Hotel Palomar Washington, DC 2/22/2019 141.5 14.9x 5.9 % 422
Onyx Hotel* TBD 58.3 15.3x 5.9 % 521
� � � � � � �
Total / Average $ 1,162 15.4x 5.55 % $ 392
�
The EBITDA multiple and net operating capitalization rate are based on the applicable hotel's estimated trailing twelve-month operating performance at the time of disposition. The net operating income capitalization rate is based on an assumed annual capital reserve of 4.0% of total hotel revenues.
�
These hotel results for the respective periods may include information reflecting operational performance prior to the Company's ownership of the hotels. Any differences are a result of rounding.
�
The information above has not been audited and is presented only for comparison purposes.
�
*The sale of Onyx Hotel is subject to normal closing conditions, and the Company offers no assurances that this sale will be completed.
�
� � � � � � � �
Pebblebrook Hotel Trust
Reconciliation of 2019 Outlook Net Income (Loss) to FFO and Adjusted FFO
($ in millions, except per share data)
(Unaudited)
�
Three months ending

June 30, 2019

Year ending

December 31, 2019

Low High Low High
�
Net income (loss) $ 46 $ 49 $ 149 $ 157
Adjustments:
Depreciation and amortization 53 53 218 218
Loss (gain) on sale of hotel properties � 6 � � 6 � � (21 ) � (21 )
FFO $ 105 � $ 108 � $ 346 � $ 354 �
Distribution to preferred shareholders � (8 ) � (8 ) � (33 ) � (33 )
FFO available to common share and unit holders $ 97 � $ 100 � $ 313 � $ 321 �
Non-cash ground rent 2 2 7 7
Non-cash interest expense 2 2 6 6
Other � 4 � � 4 � � 16 � � 16 �
Adjusted FFO available to common share and unit holders $ 105 � $ 108 � $ 342 � $ 350 �
�
FFO per common share - diluted $ 0.74 $ 0.76 $ 2.38 $ 2.44
Adjusted FFO per common share - diluted $ 0.80 $ 0.82 $ 2.60 $ 2.67
�
Weighted-average number of fully diluted common shares and units 131.2 131.2 131.3 131.3
�
To supplement the Company’s consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission ("SEC") rules.
�
These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.
�
Funds from Operations (“FFO”) - FFO represents net income (computed in accordance with GAAP), excluding gains or losses from sales of properties, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships. The Company considers FFO a useful measure of performance for an equity REIT because it facilitates an understanding of the Company's operating performance without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, the Company believes that FFO provides a meaningful indication of its performance. The Company also considers FFO an appropriate performance measure given its wide use by investors and analysts. The Company computes FFO in accordance with standards established by the Board of Governors of Nareit in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to that of other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make distributions. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding Operating Partnership units for the periods presented.
�
The Company also evaluates its performance by reviewing Adjusted FFO because it believes that adjusting FFO to exclude certain recurring and non-recurring items described below provides useful supplemental information regarding the Company's ongoing operating performance and that the presentation of Adjusted FFO, when combined with the primary GAAP presentation of net income (loss), more completely describes the Company's operating performance. The Company adjusts FFO for the following items, which may occur in any period, and refers to this measure as Adjusted FFO:
�
- Non-cash ground rent: The Company excludes the non-cash ground rent expense, which is primarily made up of the straight-line rent impact from a ground lease.
- Non-cash interest expense: The Company excludes non-cash interest expense because the Company believes that including this adjustment in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Other: The Company excludes other expenses, which include transaction costs, management/franchise contract transition costs, interest expense adjustment for acquired liabilities, capital lease adjustment, non-cash amortization of acquired intangibles and estimated hurricane related repairs and cleanup costs because the Company believes that including these non-cash adjustments in FFO does not reflect the underlying financial performance of the Company and its hotels.
�
The Company’s presentation of FFO in accordance with the Nareit White Paper, and as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.
�
Any differences are a result of rounding.
�
� � � � � � � �
Pebblebrook Hotel Trust
Reconciliation of 2019 Outlook Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre
($ in millions)
(Unaudited)
�
Three months ending

June 30, 2019

Year ending

December 31, 2019

Low High Low High
�
Net income (loss) $ 46 $ 49 $ 149 $ 157
Adjustments:
Interest expense and income tax expense 36 36 116 116
Depreciation and amortization � 53 � 53 � 218 � � 218 �
EBITDA $ 135 $ 138 $ 483 � $ 491 �
Loss (gain) on sale of hotel properties � 6 � 6 � (21 ) � (21 )
EBITDAre $ 141 $ 144 $ 462 � $ 470 �
Non-cash ground rent 2 2 7 7
Other � 4 � 4 � 12 � � 12 �
Adjusted EBITDAre $ 147 $ 150 $ 481 � $ 489 �
�
To supplement the Company’s consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission ("SEC") rules.
�
These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.
�

Earnings before Interest, Taxes, and Depreciation and Amortization ("EBITDA") - The Company believes that EBITDA provides investors a useful financial measure to evaluate its operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

�

Earnings before Interest, Taxes, and Depreciation and Amortization for Real Estate ("EBITDAre") - The Company believes that EBITDAre provides investors a useful financial measure to evaluate its operating performance, and the Company presents EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." EBITDAre adjusts EBITDA for the following items, which may occur in any period, and refers to these measures as Adjusted EBITDAre: (1) gains or losses of on the disposition of depreciated property, including gains or losses on change of control; (2) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (3) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

�

The Company also evaluates its performance by reviewing Adjusted EBITDAre because it believes that adjusting EBITDAre to exclude certain recurring and non-recurring items described below provides useful supplemental information regarding the Company's ongoing operating performance and that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income (loss), more completely describes the Company's operating performance. The Company adjusts EBITDAre for the following items, which may occur in any period, and refers to these measures as Adjusted EBITDAre:

�
- Non-cash ground rent: The Company excludes the non-cash ground rent expense, which is primarily made up of the straight-line rent impact from a ground lease.

- Other: The Company excludes other expenses, which include transaction costs, management/franchise contract transition costs, non-cash amortization of acquired intangibles and estimated hurricane related repairs and cleanup costs because the Company believes that including these non-cash adjustments in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

�

The Company’s presentation of EBITDAre, and as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.

�
Any differences are a result of rounding.
�
�
Pebblebrook Hotel Trust
Same-Property Statistical Data
(Unaudited)
� � � �
Three months ended

March 31,

2019 2018
�
Same-Property Occupancy 75.4% 76.1%
Increase/(Decrease) (1.0%)
Same-Property ADR $249.00 $236.40
Increase/(Decrease) 5.3%
Same-Property RevPAR $187.76 $179.98
Increase/(Decrease) 4.3%
�
Same-Property Total RevPAR $276.76 $265.20
Increase/(Decrease) 4.4%
�

Notes:

This schedule of hotel results for the three months ended March 31 includes information from all of the hotels the Company owned as of March 31, 2019.
�
These hotel results for the respective periods may include information reflecting operational performance prior to the Company's ownership of the hotels. Any differences are a result of rounding.
�
The information above has not been audited and is presented only for comparison purposes.
�
�
Pebblebrook Hotel Trust
Same Property Statistical Data - by Market
(Unaudited)
� �
�
�
Three months ended

March 31,

2019
RevPAR variance to prior-year period:
San Francisco 23.7 %
Boston 7.7 %
Southern Florida 7.1 %
Seattle 1.7 %
San Diego 1.5 %
Washington DC (2.7 %)
Los Angeles (5.1 %)
Other (6.2 %)
Portland (10.0 %)
Chicago (16.5 %)
�
West Coast 6.5 %
East Coast 2.9 %
�

Notes:

This schedule of hotel results for the three months ended March 31 includes information from all of the hotels the Company owned as of March 31, 2019.
�
"Other" includes Atlanta (Buckhead), GA; Nashville, TN; New York City, NY; Philadelphia, PA; and Santa Cruz, CA.
�
These hotel results for the respective periods may include information reflecting operational performance prior to the Company's ownership of the hotels. Any differences are a result of rounding.
�
The information above has not been audited and is presented only for comparison purposes.
�
� � � �
Pebblebrook Hotel Trust
Hotel Operational Data
Schedule of Same-Property Results
($ in thousands)
(Unaudited)
�
Three months ended

March 31,

2019 2018
�
Same-Property Revenues:
Room $ 246,296 $ 236,063
Food and beverage 85,698 81,409
Other � 31,048 � � 30,367 �
Total hotel revenues � 363,042 � � 347,839 �
�
Same-Property Expenses:
Room $ 66,289 $ 63,923
Food and beverage 62,063 58,866
Other direct 5,715 5,511
General and administrative 30,223 29,119
Information and telecommunication systems 5,776 5,918
Sales and marketing 28,651 28,272
Management fees 9,928 9,623
Property operations and maintenance 12,585 12,078
Energy and utilities 9,307 8,702
Property taxes 20,649 18,254
Other fixed expenses � 11,767 � � 10,110 �
Total hotel expenses � 262,953 � � 250,376 �
� � � � � �
Same-Property EBITDA $ 100,089 � $ 97,463 �
�
Same-Property EBITDA Margin 27.6 % 28.0 %

�

Notes:

This schedule of hotel results for the three months ended March 31 includes information from all of the hotels the Company owned as of March 31, 2019.
�
These hotel results for the respective periods may include information reflecting operational performance prior to the Company's ownership of the hotels. Any differences are a result of rounding.
�
The information above has not been audited and is presented only for comparison purposes.
�
� � � � � � � � � �
Pebblebrook Hotel Trust
Historical Operating Data
($ in millions except ADR and RevPAR data)
(Unaudited)
�
�
Historical Operating Data:
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
2018 2018 2018 2018 2018
�
Occupancy 76% 87% 89% 77% 82%
ADR $236 $262 $260 $246 $252
RevPAR $180 $228 $230 $191 $207
�
Hotel Revenues $347.8 $435.1 $434.0 $379.7 $1,596.7
Hotel EBITDA $97.5 $161.7 $158.6 $111.8 $529.6
Hotel EBITDA Margin 28.0% 37.2% 36.5% 29.5% 33.2%
�
First Quarter
2019
�
Occupancy 75%
ADR $249
RevPAR $188
�
Hotel Revenues $363.0
Hotel EBITDA $100.1
Hotel EBITDA Margin 27.6%

�

Notes:

These historical hotel operating results include information for all of the hotels the Company owned as of March 31, 2019. These historical operating results include periods prior to the Company's ownership of the hotels. The information above does not reflect the Company's corporate general and administrative expense, interest expense, property acquisition costs, depreciation and amortization, taxes and other expenses. Any differences are a result of rounding.
�
The information above has not been audited and is presented only for comparison purposes.
�

Raymond D. Martz, Chief Financial Officer, Pebblebrook Hotel Trust - (240) 507-1330

Source: Pebblebrook Hotel Trust

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