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Pebblebrook Hotel Trust Reports Third Quarter 2019 Results

October 24, 2019 4:06 PM

BETHESDA, Md.--(BUSINESS WIRE)-- Pebblebrook Hotel Trust (NYSE: PEB):

Q3 FINANCIAL
HIGHLIGHTS

  • Net income: $30.0 million
  • Same-Property EBITDA1: $145.1 million, (6.5%) YOY
  • Adj. EBITDAre1: $136.5 million, +96.7% YOY
  • Adj. FFO1 per diluted share: $0.77, +4.1% YOY

Q3 OPERATING
HIGHLIGHTS

  • Same-Property Total RevPAR1 (1.0%) YOY and RevPAR1 (2.2%) YOY
  • Adjusted EBITDA, Adjusted FFO and Adjusted FFO/diluted share in-line
  • Hotel operating performance slightly below expectations due to further moderation in demand growth and negative impact of lost business from Hurricane Dorian in September
  • RevPAR growth in Philadelphia and Boston offset by weak performance in Seattle, Chicago, San Francisco and Washington, D.C.

STRATEGIC
DISPOSITION
PLAN

  • Sold or executed contracts for $171.2 million: sold Hotel Amarano Burbank ($72.9 million), Rouge Hotel ($42.0 million), and Hotel Madera ($23.3 million); and Topaz Hotel contract executed at $33.0 million
  • On track to sell $1.45 billion of properties from the closing of last year’s corporate acquisition; property transaction market remains healthy and active, and pricing remains stable and attractive

BALANCE SHEET

  • Net Debt to Trailing 12-Month Corporate EBITDA1 at end of Q3: 4.6x
  • Further progress reducing leverage and optimizing portfolio through strategic property sales since corporate acquisition late last year

2019 OUTLOOK

  • Net income: $99.2 million to $103.2 million (midpoint down $52.0 million)
  • Same-Property RevPAR1 Growth Rate: 0.6% to 1.2% (midpoint down 60 bps)
  • Adj. EBITDAre1: $472.7 million to $476.7 million (midpoint down $8.7 million)
  • Adj. FFO1 per diluted share: $2.57 to $2.60 (midpoint down $0.06)

During the third quarter, we continued to execute on our strategic disposition program, completing property sales in Los Angeles and Washington, D.C. at very favorable prices and EBITDA multiples. We’re now three quarters of the way to our 2019 property disposition financial goal. Pursuant to our plans to create long-term value, we’ve made further progress on our redevelopment plans, making operator changes at two properties in Washington, D.C. to be redeveloped and repositioned next year, as well as announcing our future plans to comprehensively renovate and rebrand Paradise Point Resort & Spa as a Margaritaville Island Resort. We also managed to meet our overall corporate performance outlook for the quarter, despite slightly weaker than expected results at the property level due to transient travel demand moderating further and lost business due to the negative impact of Hurricane Dorian in September.”

-Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust

(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.

Third Quarter and Year to Date Highlights

Third Quarter

Nine Months Ended
September 30,

2019

2018

2019

2018

($ in millions except per share and RevPAR data)

Net income

$30.0

$29.9

$96.2

$112.7

Same-Property RevPAR(1)

$226.67

$231.73

$215.28

$213.29

Same-Property RevPAR growth rate

(2.2%)

0.9%

Same-Property Total RevPAR(1)

$323.82

$327.07

$311.83

$306.86

Same-Property Total RevPAR growth rate

(1.0%)

1.6%

Same-Property Total Expenses(1)

$275.3

$269.5

$818.6

$791.7

Same-Property Total Expense growth rate

2.2%

3.4%

Same-Property EBITDA(1)

$145.1

$155.1

$405.7

$413.1

Same-Property EBITDA growth rate

(6.5%)

(1.8%)

Same-Property EBITDA Margin(1)

34.5%

36.5%

33.1%

34.3%

Adjusted EBITDAre(1)

$136.5

$69.4

$378.5

$201.4

Adjusted EBITDAre growth rate

96.7%

87.9%

Adjusted FFO(1)

$100.5

$51.2

$272.9

$153.4

Adjusted FFO per diluted share(1)

$0.77

$0.74

$2.08

$2.21

Adjusted FFO per diluted share growth rate

4.1%

(5.9%)

(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.

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 Statistical Data table footnotes later in this press release.

“During the third quarter, our overall performance versus our expectations was impacted by weaker performance in San Diego, Los Angeles, San Francisco and Washington, D.C.,” said Mr. Bortz. “We also lost business at our hotels and resorts located in South Florida, due to the threat of Hurricane Dorian in early September. Despite the moderating demand growth environment, our hotel teams working closely with our asset managers continue to do a tremendous job limiting expense growth and finding creative and sustainable ways to increase efficiencies and productivity and take advantage of our larger scale through executing on new portfolio-wide initiatives, which are now running at an annual rate of savings of $5 million, halfway to achieving our $10 million objective. We expect to steadily execute on our portfolio-wide initiatives program to generate additional expense savings and operating synergies, create long-term value and achieve our objective by the end of next year.”

Update on Strategic Property Redevelopment Plan

The Company continued to implement its Strategic Property Redevelopment Plan during the third quarter. On July 1, 2019, the Company completed two third-party operator transitions: Mason & Rook Hotel and Donovan Hotel, both in Washington, D.C., are now operated by Viceroy Hotels & Resorts. On July 15, 2019, the Company announced that it had executed a license agreement to convert its Paradise Point Resort & Spa in San Diego, California, to a Margaritaville Island Resort after a comprehensive renovation. Year to date, the Company has made considerable progress on its strategic property repositionings, completing third-party operator or brand changes at 9 hotels and resorts across the portfolio.

Capital Investments

In the third quarter, the Company completed $42.1 million of capital investments throughout its portfolio. The Company has completed $111.1 million of capital investments and projects year to date through September 2019, including the first phase of major renovation and property improvements at Hilton San Diego Resort & Spa, which was completed in the third quarter.

The Company intends to start additional major renovation and repositioning projects in the fourth quarter of 2019 or early next year, with completion expected in the first half of next year, including:

Additionally, the Company intends to continue the following upgrade and repositioning program:

Update on Strategic Disposition Plan

During the third quarter, the Company completed $138.2 million of property sales, including Hotel Amarano Burbank in Los Angeles, California, for $72.9 million, Rouge Hotel in Washington, D.C. for $42.0 million, and Hotel Madera in Washington, D.C. for $23.3 million. In combination with the $310.8 million of sales from the first and second quarters of 2019, the Company has sold properties for a total of $449.0 million year to date.

In October 2019, the Company also announced it executed a contract to sell the Topaz Hotel in Washington, D.C. for $33.0 million. This sale is subject to normal closing conditions, and the Company offers no assurances that the sale will be completed on these terms, or at all. The Company is targeting to complete the transaction late in the fourth quarter of 2019.

The Company continues to be encouraged with pricing levels and overall buyer interest in the investment markets. The Company estimates it will complete or execute contracts to sell an additional $150.0 million of properties during the fourth quarter, which includes the sale of Topaz Hotel for $33.0 million, and an additional $117.0 million for other properties.

Since the Company commenced its strategic disposition plan on November 30, 2018, and assuming the sale of Topaz Hotel is completed, 13 hotels will have been successfully sold or contracted to sell, generating approximately $1.33 billion of gross sales proceeds. The sales to date, including the assumed sale of Topaz Hotel, reflect a very favorable 15.6x EBITDA multiple and a 5.5 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.

Balance Sheet and Shareholder Distributions

As of September 30, 2019, the Company had $2.2 billion in consolidated debt at an effective weighted-average interest rate of 3.5 percent. Approximately $1.8 billion, or 80 percent of the Company’s total outstanding debt, was at a weighted-average fixed interest rate of 3.5 percent, and approximately $0.4 billion, or 20 percent, was at a weighted-average floating interest rate of 3.6 percent. Of the Company’s outstanding debt, $2.0 billion was in the form of unsecured term loans and $100.0 million was outstanding on its $650.0 million senior unsecured revolving credit facility. As of September 30, 2019, the Company had $56.8 million of consolidated cash, cash equivalents and restricted cash.

As of September 30, 2019, the Company’s fixed charge coverage ratio was 3.0 times, and total net debt to trailing 12-month corporate EBITDA was 4.6 times.

On September 16, 2019, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares as well as a regular quarterly cash dividend for the following preferred shares of beneficial interest:

2019 Outlook

The Company is adjusting its 2019 Outlook to reflect the third quarter results and the expectation that the slowing hotel demand trends and economic uncertainty experienced throughout the third quarter will continue in the fourth quarter.

The 2019 Outlook, which assumes $600.0 million of assets are sold over the course of 2019, with $449.0 million sold year to date and approximately $150.0 million of additional assets sold by the end of the year, is as follows:

Updated
2019 Outlook
as of October 24, 2019

Variance to Prior
Outlook
as of July 25, 2019

Low

High

Low

High

($ and shares/units in millions, except per share and RevPAR data)
Net income

$99.20

$103.20

($51.00)

($53.00)

Adjusted EBITDAre

$472.70

$476.70

($7.70)

($9.70)

Adjusted EBITDAre growth rate

85.50%

87.00%

-3.00%

-3.80%

Adjusted FFO

$336.90

$340.90

($7.00)

($9.00)

Adjusted FFO per diluted share

$2.57

$2.60

($0.05)

($0.07)

Adjusted FFO per diluted share growth rate

4.90%

6.10%

-2.00%

-2.90%

This 2019 Outlook is based, in part, on the following estimates and assumptions:

Asset Sales during 2019

$600.00

$600.00

-

-

Q4 Asset Sales at a 5.5% 2018 NOI Capitalization Rate

$150.00

$150.00

$30.00

$30.00

U.S. GDP growth rate

1.50%

2.00%

-

-

U.S. Hotel Industry RevPAR growth rate

0.60%

1.00%

(40 bps) (100 bps)
Same-Property RevPAR

$209

$211

($1)

($1)

Same-Property RevPAR growth rate

0.60%

1.20%

-0.40%

-0.80%

Same-Property EBITDA

$509.50

$513.50

($7.70)

($9.70)

Same-Property EBITDA growth rate

-2.10%

-1.40%

(150 bps) (200 bps)
Same-Property EBITDA Margin

32.10%

32.20%

-0.50%

-0.50%

Same-Property EBITDA Margin growth rate (100 bps) (90 bps) (50 bps) (50 bps)
Corporate cash general and administrative expenses

$26.60

$26.60

($0.50)

($0.50)

Corporate non-cash general and administrative expenses

$8.40

$8.40

-

-

Preopening and other corporate expenses

$3.20

$3.20

-

-

Total capital investments related to renovations, capital maintenance and return on investment projects

$160.00

$170.00

$10.00

-

Weighted-average fully diluted shares and units

131

131

-0.1

-0.1

The Company’s Outlook for the fourth quarter of 2019 is as follows:

Fourth Quarter
2019 Outlook

Low

High

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

Net income (loss)

$3.0

$7.0

Q4 Asset Sales at a 5.5% 2018 NOI Capitalization Rate

$150.0

$150.0

Same-Property RevPAR

$192

$196

Same-Property RevPAR growth rate

0.0%

2.0%

Same-Property EBITDA

$103.8

$107.8

Same-Property EBITDA growth rate

(3.5%)

0.2%

Same-Property EBITDA Margin

28.6%

29.1%

Same-Property EBITDA Margin growth rate

(75 bps)

(25 bps)

Adjusted EBITDAre

$94.2

$98.2

Adjusted EBITDAre growth rate

76.3%

83.8%

Adjusted FFO

$64.0

$68.0

Adjusted FFO per diluted share

$0.49

$0.52

Adjusted FFO per diluted share growth rate

48.5%

57.6%

Weighted-average fully diluted shares and units

131.1

131.1

The 2019 Outlook excludes the following hotels 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:

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.

Third Quarter 2019 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, October 25, 2019, at 9:00 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 (NYSE: PEB) is a publicly-traded real estate investment trust (“REIT”) and the largest owner of urban and resort lifestyle hotels in the United States. The Company owns 57 hotels, totaling approximately 14,100 guestrooms across 16 urban and resort markets, with a focus on the west coast gateway cities. For more information, visit www.pebblebrookhotels.com and follow us 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.

All information in this press release is as of October 24, 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

Pebblebrook Hotel Trust
Consolidated Balance Sheets
($ in thousands, except for per share data)
September 30, 2019 December 31, 2018
(Unaudited)
ASSETS
Assets:
Investment in hotel properties, net

$

6,329,968

$

6,534,193

Hotels held for sale

28,851

-

Ground lease asset, net

-

199,745

Cash and cash equivalents

29,758

83,366

Restricted cash

27,048

24,445

Hotel receivables (net of allowance for doubtful accounts of $517 and $526, respectively)

70,990

59,897

Prepaid expenses and other assets

57,998

76,702

Total assets

$

6,544,613

$

6,978,348

LIABILITIES AND EQUITY
Liabilities:
Unsecured revolving credit facilities

$

100,000

$

170,000

Term loans, net of unamortized deferred financing costs

1,963,828

2,409,284

Senior unsecured notes, net of unamortized deferred financing costs

99,540

99,469

Mortgage loans, net of unamortized deferred financing costs

66,360

68,145

Accounts payable and accrued expenses

537,016

360,279

Deferred revenues

56,995

54,741

Accrued interest

5,674

2,741

Liabilities related to hotels held for sale

298

-

Distribution payable

58,436

43,759

Total liabilities

2,888,147

3,208,418

Commitments and contingencies
Equity:
Preferred shares of beneficial interest, $0.01 par value (liquidation preference $510,000 at September 30, 2019 and December 31, 2018), 100,000,000 shares authorized; 20,400,000 shares issued and outstanding at September 30, 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 September 30, 2019 and 130,311,289 issued and outstanding at December 31, 2018

1,305

1,303

Additional paid-in capital

4,067,529

4,065,804

Accumulated other comprehensive income (loss)

(36,672

)

1,330

Distributions in excess of retained earnings

(386,631

)

(308,806

)

Total shareholders' equity

3,645,735

3,759,835

Non-controlling interests

10,731

10,095

Total equity

3,656,466

3,769,930

Total liabilities and equity

$

6,544,613

$

6,978,348

Pebblebrook Hotel Trust
Consolidated Statements of Operations
($ in thousands, except for per share data)
(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Revenues:
Room

$

296,622

$

146,907

$

851,899

$

411,396

Food and beverage

90,088

43,141

274,803

136,919

Other operating

36,842

15,432

106,102

44,721

Total revenues

$

423,552

$

205,480

$

1,232,804

$

593,036

Expenses:
Hotel operating expenses:
Room

$

71,878

$

34,675

$

209,707

$

99,540

Food and beverage

64,690

30,687

194,981

93,611

Other direct and indirect

110,922

54,301

330,617

160,663

Total hotel operating expenses

247,490

119,663

735,305

353,814

Depreciation and amortization

69,775

24,765

177,376

74,229

Real estate taxes, personal property taxes, property insurance, and ground rent

31,588

11,206

94,009

35,809

General and administrative

8,315

6,663

25,753

14,794

Transaction costs

4,035

3,188

7,576

5,545

(Gain) loss and other operating expenses

1,529

(357

)

6,219

(11,376

)

Total operating expenses

362,732

165,128

1,046,238

472,815

Operating income (loss)

60,820

40,352

186,566

120,221

Interest expense

(26,465

)

(12,647

)

(84,512

)

(33,274

)

Other

7

3,931

23

29,409

Income (loss) before income taxes

34,362

31,636

102,077

116,356

Income tax (expense) benefit

(4,382

)

(1,719

)

(5,924

)

(3,628

)

Net income (loss)

29,980

29,917

96,153

112,728

Net income (loss) attributable to non-controlling interests

89

125

254

424

Net income (loss) attributable to the Company

29,891

29,792

95,899

112,304

Distributions to preferred shareholders

(8,139

)

(4,023

)

(24,417

)

(12,070

)

Net income (loss) attributable to common shareholders

$

21,752

$

25,769

$

71,482

$

100,234

Net income (loss) per share available to common shareholders, basic

$

0.17

$

0.37

$

0.55

$

1.45

Net income (loss) per share available to common shareholders, diluted

$

0.17

$

0.37

$

0.55

$

1.44

Weighted-average number of common shares, basic

130,484,956

68,912,185

130,467,193

68,900,402

Weighted-average number of common shares, diluted

130,622,130

69,255,858

130,690,342

69,267,098

Pebblebrook Hotel Trust
Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
($ in thousands, except per share data)
(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Net income (loss)

$

29,980

$

29,917

$

96,153

$

112,728

Adjustments:
Depreciation and amortization

69,712

24,713

177,195

74,072

FFO

$

99,692

$

54,630

$

273,348

$

186,800

Distribution to preferred shareholders

(8,139

)

(4,023

)

(24,417

)

(12,070

)

FFO available to common share and unit holders

$

91,553

$

50,607

$

248,931

$

174,730

Transaction costs

4,035

3,188

7,576

5,545

Non-cash ground rent

1,318

600

3,274

1,807

Management/franchise contract transition costs

810

7

4,783

55

Interest expense adjustment for acquired liabilities

216

184

689

702

Capital lease adjustment

810

143

2,193

427

Non-cash amortization of acquired intangibles

(315

)

334

(1,050

)

610

Estimated hurricane related repairs and cleanup costs

-

74

-

1,452

Gain on insurance settlement

-

(866

)

(672

)

(13,954

)

Business interruption proceeds

-

866

672

6,135

Unrealized gain on investment

-

(3,891

)

-

(24,070

)

Non-cash interest expense

1,379

-

4,761

-

Early extinguishment of debt

726

-

1,698

-

Adjusted FFO available to common share and unit holders

$

100,532

$

51,246

$

272,855

$

153,439

FFO per common share - basic

$

0.70

$

0.73

$

1.90

$

2.53

FFO per common share - diluted

$

0.70

$

0.73

$

1.90

$

2.51

Adjusted FFO per common share - basic

$

0.77

$

0.74

$

2.09

$

2.22

Adjusted FFO per common share - diluted

$

0.77

$

0.74

$

2.08

$

2.21

Weighted-average number of basic common shares and units

130,854,912

69,148,536

130,837,149

69,136,753

Weighted-average number of fully diluted common shares and units

130,992,086

69,492,209

131,060,298

69,503,449

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:

- 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.
- Unrealized gain on investment: The Company excludes the unrealized gain on investment because the Company believes that including this adjustment in FFO does not reflect the underlying financial performance of the Company and its hotels.
- Non-cash interest expense and early extinguishment of debt: The Company excludes non-cash interest expense and early extinguishment of debt because the Company believes that including this adjustment 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.
Pebblebrook Hotel Trust
Reconciliation of Net Income (Loss) to EBITDA, EBITDAre and Adjusted EBITDAre
($ in thousands)
(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Net income (loss)

$

29,980

$

29,917

$

96,153

$

112,728

Adjustments:
Interest expense

26,465

12,647

84,512

33,274

Income tax expense (benefit)

4,382

1,719

5,924

3,628

Depreciation and amortization

69,775

24,765

177,376

74,229

EBITDA / EBITDAre

$

130,602

$

69,048

$

363,965

$

223,859

Transaction costs

4,035

3,188

7,576

5,545

Non-cash ground rent

1,318

600

3,274

1,807

Management/franchise contract transition costs

810

7

4,783

55

Non-cash amortization of acquired intangibles

(315

)

334

(1,050

)

610

Estimated hurricane related repairs and cleanup costs

-

74

-

1,452

Gain on insurance settlement

-

(866

)

(672

)

(13,954

)

Business interruption proceeds

-

866

672

6,135

Unrealized gain on investment

-

(3,891

)

-

(24,070

)

Adjusted EBITDAre

$

136,450

$

69,360

$

378,548

$

201,439

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 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.

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 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:

- 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.
- Unrealized gain on investment: The Company excludes the unrealized gain on investment because the Company believes that including this adjustment 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.
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 5/29/2019

58.3

15.3x

5.9%

521

Hotel Amarano Burbank 7/16/2019

72.9

15.8x

5.7%

552

Rouge Hotel 9/12/2019

42.0

17.4x

5.0%

307

Hotel Madera 9/26/2019

23.3

14.3x

5.7%

284

Topaz Hotel* TBD

33.0

19.5x

4.4%

333

Total / Average

$

1,333

15.6x

5.52%

$

391

The EBITDA multiple and net operating capitalization rate are based on the applicable hotel's estimated trailing twelve-month operating performance for 2018. The net operating income capitalization rate is based on an assumed annual capital reserve of 4.0% of total hotel revenues. The EBITDA Multiple and net operating capitalization rate for Hotel Amarano Burbank reflect an estimated adjustment for the annualized impact of real estate taxes for California's Proposition 13 because the Company believes the adjusted hotel results for this period provide investors and analysts with an understanding of the hotel-level operating performance.

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 contracted sale of Topaz 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
December 31, 2019

Year ending
December 31, 2019

Low

High

Low

High

Net income (loss)

$

3

$

7

$

99

$

103

Adjustments:
Depreciation and amortization

80

80

257

257

Loss (gain) on sale of hotel properties

(21

)

(21

)

(21

)

(21

)

FFO

$

62

$

66

$

335

$

339

Distribution to preferred shareholders

(8

)

(8

)

(33

)

(33

)

FFO available to common share and unit holders

$

54

$

58

$

302

$

306

Non-cash ground rent

4

4

7

7

Non-cash interest expense

1

1

6

6

Other

5

5

22

22

Adjusted FFO available to common share and unit holders

$

64

$

68

$

337

$

341

FFO per common share - diluted

$

0.41

$

0.44

$

2.31

$

2.34

Adjusted FFO per common share - diluted

$

0.49

$

0.52

$

2.57

$

2.60

Weighted-average number of fully diluted common shares and units

131.1

131.1

131.0

131.0

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
December 31, 2019		 Year ending
December 31, 2019
Low High Low High
Net income (loss)

$

3

$

7

$

99

$

103

Adjustments:
Interest expense and income tax expense

24

24

114

114

Depreciation and amortization

80

80

257

257

EBITDA

$

107

$

111

$

470

$

474

Loss (gain) on sale of hotel properties

(21

)

(21

)

(21

)

(21

)

EBITDAre

$

86

$

90

$

449

$

453

Non-cash ground rent

4

4

7

7

Other

4

4

17

17

Adjusted EBITDAre

$

94

$

98

$

473

$

477

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
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Same-Property Occupancy

87.2%

88.6%

83.1%

83.9%

Increase/(Decrease)

(1.6%)

(1.0%)

Same-Property ADR

$259.96

$261.57

$258.95

$254.09

Increase/(Decrease)

(0.6%)

1.9%

Same-Property RevPAR

$226.67

$231.73

$215.28

$213.29

Increase/(Decrease)

(2.2%)

0.9%

Same-Property Total RevPAR

$323.82

$327.07

$311.83

$306.86

Increase/(Decrease)

(1.0%)

1.6%

Notes:
This schedule of hotel results for the three months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019. This schedule of hotel results for the nine months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019 and excludes Onyx Hotel for Q2 and Q3 in both 2019 and 2018 due to its sale in the second quarter of 2019 as well as Hotel Amarano Burbank, Rouge Hotel and Hotel Madera for Q3 in both 2019 and 2018 due to their sales in the third quarter of 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
September 30,

Nine months ended
September 30,

2019

2019

Same-Property RevPAR variance to prior-year period:
Boston

1.7%

4.5%

San Diego

0.8%

2.2%

Southern Florida

(0.5%)

4.8%

Portland

(2.5%)

(4.0%)

Los Angeles

(2.5%)

(2.5%)

Other

(2.7%)

(2.5%)

Washington DC

(4.2%)

(4.4%)

San Francisco

(4.9%)

6.2%

Chicago

(6.0%)

(6.4%)

Seattle

(7.9%)

(7.8%)

East Coast

(0.4%)

1.4%

West Coast

(2.7%)

1.4%

Notes:
This schedule of hotel results for the three months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019. This schedule of hotel results for the nine months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019 and excludes Onyx Hotel for Q2 and Q3 in both 2019 and 2018 due to its sale in the second quarter of 2019 as well as Hotel Amarano Burbank, Rouge Hotel and Hotel Madera for Q3 in both 2019 and 2018 due to their sales in the third quarter of 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
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Same-Property Revenues:
Room

$

294,291

$

300,851

$

845,234

$

837,388

Food and beverage

89,675

86,421

273,246

264,616

Other

36,449

37,365

105,832

102,735

Total hotel revenues

420,415

424,637

1,224,312

1,204,739

Same-Property Expenses:
Room

$

71,036

$

71,188

$

207,467

$

204,882

Food and beverage

64,179

60,400

193,106

182,771

Other direct

6,561

6,280

18,435

17,836

General and administrative

31,110

30,240

93,689

90,882

Information and telecommunication systems

5,554

5,502

16,910

17,115

Sales and marketing

30,735

29,448

90,476

87,976

Management fees

10,866

14,236

34,534

38,102

Property operations and maintenance

12,736

12,143

38,262

36,377

Energy and utilities

10,418

10,211

28,900

27,876

Property taxes

19,074

17,026

59,853

53,251

Other fixed expenses

13,056

12,819

36,948

34,616

Total hotel expenses

275,325

269,493

818,580

791,684

Same-Property EBITDA

$

145,090

$

155,144

$

405,732

$

413,055

Same-Property EBITDA Margin

34.5

%

36.5

%

33.1

%

34.3

%

Notes:
This schedule of hotel results for the three months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019. This schedule of hotel results for the nine months ended September 30 includes information from all of the hotels the Company owned as of September 30, 2019 and excludes Onyx Hotel for Q2 and Q3 in both 2019 and 2018 due to its sale in the second quarter of 2019 as well as Hotel Amarano Burbank, Rouge Hotel and Hotel Madera for Q3 in both 2019 and 2018 due to their sales in the third quarter of 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

$238

$263

$262

$247

$253

RevPAR

$181

$229

$232

$192

$208

Hotel Revenues

$340.1

$424.1

$424.6

$371.1

$1,559.8

Hotel EBITDA

$95.6

$156.9

$155.1

$109.1

$516.8

Hotel EBITDA Margin

28.1%

37.0%

36.5%

29.4%

33.1%

First Quarter

Second Quarter

Third Quarter

2019

2019

2019

Occupancy

76%

87%

87%

ADR

$251

$268

$260

RevPAR

$190

$232

$227

Hotel Revenues

$355.8

$433.2

$420.4

Hotel EBITDA

$98.4

$157.5

$145.1

Hotel EBITDA Margin

27.7%

36.3%

34.5%

Notes:
These historical hotel operating results include information for all of the hotels the Company owned as of September 30, 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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