UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

    

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              .

Commission File Number 001-34571

PEBBLEBROOK HOTEL TRUST
	(Exact Name of Registrant as Specified in Its Charter)

 

Maryland		27-1055421
(State of Incorporation or Organization)		(I.R.S. Employer Identification No.)
7315 Wisconsin Avenue,	1100 West
Bethesda,	Maryland	20814
(Address of Principal Executive Offices)		(Zip Code)

(240)	507-1300
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of Beneficial Interest, $0.01 par value per share	PEB	New York Stock Exchange
6.50% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	PEB-PC	New York Stock Exchange
6.375% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	PEB-PD	New York Stock Exchange
6.375% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	PEB-PE	New York Stock Exchange
6.30% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	PEB-PF	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☑  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☑  Yes   ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐ (do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☑  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 22, 2019
Common shares of beneficial interest ($0.01 par value per share)	130,633,110

Pebblebrook Hotel Trust TABLE OF CONTENTS
		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
	Consolidated Balance Sheets - June 30, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Operations and Comprehensive Income (unaudited) - Three and six months ended June 30, 2019 and 2018	4
	Consolidated Statements of Equity (unaudited) - Three and six months ended June 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2019 and 2018	9
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	41
Item 4.	Controls and Procedures.	41
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings.	41
Item 1A.	Risk Factors.	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	41
Item 3.	Defaults Upon Senior Securities.	42
Item 4.	Mine Safety Disclosures.	42
Item 5.	Other Information.	42
Item 6.	Exhibits.	42

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Pebblebrook Hotel Trust Consolidated Balance Sheets (In thousands, except share data)
	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Investment in hotel properties, net	$	6,421,038		$	6,534,193
Hotels held for sale	114,166			—
Ground lease asset, net	—			199,745
Cash and cash equivalents	41,988			83,366
Restricted cash	28,274			24,445
Hotel receivables (net of allowance for doubtful accounts of $540 and $526, respectively)	75,394			59,897
Prepaid expenses and other assets	49,854			76,702
Total assets	$	6,730,714		$	6,978,348
LIABILITIES AND EQUITY
Debt	$	2,398,726		$	2,746,898
Accounts payable and accrued expenses	524,145			360,279
Deferred revenues	53,116			54,741
Accrued interest	4,984			2,741
Liabilities related to hotels held for sale	1,162			—
Distribution payable	58,307			43,759
Total liabilities	3,040,440			3,208,418
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred shares of beneficial interest, $.01 par value (liquidation preference $510,000 at June 30, 2019 and at December 31, 2018), 100,000,000 shares authorized; 20,400,000 shares issued and outstanding at June 30, 2019 and December 31, 2018	204			204
Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 130,484,956 issued and outstanding at June 30, 2019 and 130,311,289 issued and outstanding at December 31, 2018	1,305			1,303
Additional paid-in capital	4,065,672			4,065,804
Accumulated other comprehensive income (loss)	(28,798		)	1,330
Distributions in excess of retained earnings	(358,615		)	(308,806		)
Total shareholders’ equity	3,679,768			3,759,835
Non-controlling interests	10,506			10,095
Total equity	3,690,274			3,769,930
Total liabilities and equity	$	6,730,714		$	6,978,348

The accompanying notes are an integral part of these financial statements.

3

Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income (In thousands, except share and per-share data) (Unaudited)
	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
Revenues:
Room	$	306,291		$	142,018		$	555,277		$	264,489
Food and beverage	97,965			49,210			184,715			93,778
Other operating	37,827			15,273			69,260			29,289
Total revenues	442,083			206,501			809,252			387,556
Expenses:
Hotel operating expenses:
Room	70,454			33,157			137,829			64,865
Food and beverage	66,934			32,328			130,291			62,924
Other direct and indirect	113,620			54,523			219,695			106,362
Total hotel operating expenses	251,008			120,008			487,815			234,151
Depreciation and amortization	53,299			24,562			107,601			49,464
Real estate taxes, personal property taxes, property insurance, and ground rent	30,984			12,488			62,421			24,603
General and administrative	8,809			5,794			17,438			8,131
Transaction costs	1,044			1,979			3,541			2,357
(Gain) loss and other operating expenses	1,130			(6,811		)	4,690			(11,019		)
Total operating expenses	346,274			158,020			683,506			307,687
Operating income (loss)	95,809			48,481			125,746			79,869
Interest expense	(28,719		)	(10,816		)	(58,047		)	(20,627		)
Other	7			22,968			16			25,478
Income (loss) before income taxes	67,097			60,633			67,715			84,720
Income tax (expense) benefit	(6,579		)	(2,338		)	(1,542		)	(1,909		)
Net income (loss)	60,518			58,295			66,173			82,811
Net income (loss) attributable to non-controlling interests	145			192			165			299
Net income (loss) attributable to the Company	60,373			58,103			66,008			82,512
Distributions to preferred shareholders	(8,139		)	(4,024		)	(16,278		)	(8,047		)
Net income (loss) attributable to common shareholders	$	52,234		$	54,079		$	49,730		$	74,465
Net income (loss) per share available to common shareholders, basic	$	0.40		$	0.78		$	0.38		$	1.08
Net income (loss) per share available to common shareholders, diluted	$	0.40		$	0.78		$	0.38		$	1.07
Weighted-average number of common shares, basic	130,484,956			68,912,185			130,458,164			68,894,413
Weighted-average number of common shares, diluted	130,595,854			69,204,571			130,662,407			69,227,098

4

Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income - Continued (In thousands, except share and per-share data) (Unaudited)
	For the three months ended June 30,					For the six months ended June 30,
	2019			2018		2019			2018
Comprehensive Income:
Net income (loss)	$	60,518		$	58,295	$	66,173		$	82,811
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	(21,089		)	2,012		(30,128		)	7,290
Other	—			579		—			—
Comprehensive income (loss)	39,429			60,886		36,045			90,101
Comprehensive income (loss) attributable to non-controlling interests	86			201		80			324
Comprehensive income (loss) attributable to the Company	$	39,343		$	60,685	$	35,965		$	89,777

The accompanying notes are an integral part of these financial statements.

5

Pebblebrook Hotel Trust Consolidated Statements of Equity (In thousands, except share data) (Unaudited)
	Three Months Ended June 30, 2019
	Preferred Shares			Common Shares			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Retained Earnings			Total Shareholders' Equity			Non-Controlling Interests			Total Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2019	20,400,000	$	204	130,484,956	$	1,305	$	4,063,830	$	(7,709	)	$	(361,081	)	$	3,696,549		$	10,250		$	3,706,799
Share-based compensation	—	—		—	—		1,842		—			—			1,842			276			2,118
Distributions on common shares/units	—	—		—	—		—		—			(49,768		)	(49,768		)	(165		)	(49,933		)
Distributions on preferred shares	—	—		—	—		—		—			(8,139		)	(8,139		)	—			(8,139		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	—	—		—	—		—		(21,089		)	—			(21,089		)	—			(21,089		)
Net income (loss)	—	—		—	—		—		—			60,373			60,373			145			60,518
Balance at June 30, 2019	20,400,000	$	204	130,484,956	$	1,305	$	4,065,672	$	(28,798	)	$	(358,615	)	$	3,679,768		$	10,506		$	3,690,274
	Three Months Ended June 30, 2018
	Preferred Shares			Common Shares			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Retained Earnings			Total Shareholders' Equity			Non-Controlling Interests			Total Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2018	10,000,000	$	100	68,912,185	$	689	$	1,683,046	$	8,936		$	(197,359	)	$	1,495,412		$	4,918		$	1,500,330
Share-based compensation	—	—		—	—		1,592		—			—			1,592			276			1,868
Distributions on common shares/units	—	—		—	—		—		—			(26,320		)	(26,320		)	(90		)	(26,410		)
Distributions on preferred shares	—	—		—	—		—		—			(4,024		)	(4,024		)	(16		)	(4,040		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	—	—		—	—		—		2,012			—			2,012			—			2,012
Other	—	—		—	—		—		579			—			579			—			579
Net income (loss)	—	—		—	—		—		—			58,103			58,103			192			58,295
Balance at June 30, 2018	10,000,000	$	100	68,912,185	$	689	$	1,684,638	$	11,527		$	(169,600	)	$	1,527,354		$	5,280		$	1,532,634

6

	Six Months Ended June 30, 2019
	Preferred Shares			Common Shares					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Retained Earnings			Total Shareholders' Equity			Non-Controlling Interests			Total Equity
	Shares	Amount		Shares		Amount
Balance at December 31, 2018	20,400,000	$	204	130,311,289		$	1,303		$	4,065,804		$	1,330		$	(308,806	)	$	3,759,835		$	10,095		$	3,769,930
Issuance of shares, net of offering costs	—	—		—		—			(275		)	—			—			(275		)	—			(275		)
Issuance of common shares for Board of Trustees compensation	—	—		25,282		1			739			—			—			740			—			740
Repurchase of common shares	—	—		(126,681	)	(1		)	(4,008		)	—			—			(4,009		)	—			(4,009		)
Share-based compensation	—	—		275,066		2			3,412			—			—			3,414			552			3,966
Distributions on common shares/units	—	—		—		—			—			—			(99,539		)	(99,539		)	(306		)	(99,845		)
Distributions on preferred shares	—	—		—		—			—			—			(16,278		)	(16,278		)	—			(16,278		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	—	—		—		—			—			(30,128		)	—			(30,128		)	—			(30,128		)
Net income (loss)	—	—		—		—			—			—			66,008			66,008			165			66,173
Balance at June 30, 2019	20,400,000	$	204	130,484,956		$	1,305		$	4,065,672		$	(28,798	)	$	(358,615	)	$	3,679,768		$	10,506		$	3,690,274
	Six Months Ended June 30, 2018
	Preferred Shares			Common Shares					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Retained Earnings			Total Shareholders' Equity			Non-Controlling Interests			Total Equity
	Shares	Amount		Shares		Amount
Balance at December 31, 2017	10,000,000	$	100	68,812,575		$	688		$	1,685,437		$	3,689		$	(191,013	)	$	1,498,901		$	4,625		$	1,503,526
Issuance of common shares for Board of Trustees compensation	—	—		17,410		1			661			—			—			662			—			662
Repurchase of common shares	—	—		(69,687	)	(1		)	(2,506		)	—			—			(2,507		)	—			(2,507		)
Share-based compensation	—	—		151,887		1			1,046			—			—			1,047			552			1,599
Distributions on common shares/units	—	—		—		—			—			—			(52,504		)	(52,504		)	(180		)	(52,684		)
Distributions on preferred shares	—	—		—		—			—			—			(8,047		)	(8,047		)	(16		)	(8,063		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	—	—		—		—			—			7,290			—			7,290			—			7,290
Cumulative effect adjustment from adoption of new accounting standard	—	—		—		—			—			548			(548		)	—			—			—
Net income (loss)	—	—		—		—			—			—			82,512			82,512			299			82,811
Balance at June 30, 2018	10,000,000	$	100	68,912,185		$	689		$	1,684,638		$	11,527		$	(169,600	)	$	1,527,354		$	5,280		$	1,532,634

7

The accompanying notes are an integral part of these financial statements.

8

Pebblebrook Hotel Trust Consolidated Statements of Cash Flows (In thousands) (Unaudited)
	For the six months ended June 30,
	2019			2018
Operating activities:
Net income (loss)	$	66,173		$	82,811
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	107,601			49,464
Share-based compensation	3,966			1,599
(Gain) loss on marketable securities	—			(20,477		)
Amortization of deferred financing costs and mortgage loan premiums	3,901			1,043
Non-cash ground rent	3,051			1,350
Other	4,735			1,146
Changes in assets and liabilities:
Hotel receivables	(17,150		)	(5,731		)
Prepaid expenses and other assets	9,019			(11,355		)
Accounts payable and accrued expenses	13,461			3,140
Deferred revenues	(637		)	(501		)
Net cash provided by (used in) operating activities	194,120			102,489
Investing activities:
Improvements and additions to hotel properties	(75,907		)	(35,301		)
Proceeds from sales of hotel properties	302,323			—
Investment in marketable securities	—			(356,180		)
Sale of marketable securities	—			6,658
Purchase of corporate office equipment, software, and furniture	(398		)	(26		)
Property insurance proceeds	—			2,648
Net cash provided by (used in) investing activities	226,018