Organization

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.

As of March 31, 2020, the Company owned 54 hotels with a total of 13,352 guest rooms. The hotels are located in the following markets: Boston, Massachusetts; Chicago, Illinois; Key West, Florida; Miami (Coral Gables), Florida; Los Angeles, California (Beverly Hills, Santa Monica, and West Hollywood); Naples, Florida; Nashville, Tennessee; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; San Diego, California; San Francisco, California; Seattle, Washington; Stevenson, Washington; and Washington, D.C.

Substantially all of the Company’s assets are held by, and all of the Company's operations are conducted through, Pebblebrook Hotel, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At March 31, 2020, the Company owned 99.7% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.3% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "PHL"), a taxable REIT subsidiary ("TRS"), which in turn engage third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company’s financial statements.

COVID-19, Management’s Plans and Liquidity

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand has been nearly eliminated. Following the government mandates and health official recommendations, the Company temporarily suspended operations at 46 of its 54 hotels and resorts and dramatically reduced staffing and expenses at the eight hotels that remain operational. Operations will remain suspended until state and local government restrictions and requirements are lifted and the Company can be confident that reopening the hotels will not jeopardize the health and safety of guests, employees and communities. COVID-19 has had a negative impact on the Company's operations and financial results to date, and yet the full financial impact of the reduction in hotel demand caused by the pandemic and suspension of operations at the Company's hotels cannot be reasonably estimated at this time due to uncertainty as to its severity and duration. The Company expects that the COVID-19 pandemic may ultimately have a significant impact on the Company's results of operations, financial position and cash flow in 2020. As a result, in March 2020, the Company fully drew down on its $650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on its common shares to one penny for the first quarter of 2020 and likely the remainder of 2020, reduced planned capital expenditures, reduced the compensation of its executive officers, board of trustees and employees, and, working closely with its hotel operating partners, significantly reduced its hotels' operating expenses. In an effort to protect the health and safety of the Company's employees, the Company adopted an optional remote-work policy and other physical distancing policies at its corporate office and it does not anticipate these policies to have any adverse impact on its ability to continue to operate its business.  Transitioning to a remote-work environment has not had a material adverse impact on the Company's financial reporting system, internal controls or disclosure controls and procedures.

As of March 31, 2020, the Company maintained unrestricted cash of $727.4 million. The Company has no scheduled debt maturities until the fourth quarter of 2021 and all of its debt is unsecured. Management has evaluated the current business environment and its effect on the Company's results of operations, the actions the Company has taken and the other options available to the Company and has determined that the Company has sufficient liquidity in the event of a prolonged decline in hotel demand without additional equity or debt financing or property sales.

Although the Company was in compliance with all its debt covenants as of March 31, 2020, management has determined it is probable the Company will violate certain financial covenants under its credit agreements within the next twelve months if covenant waivers are not obtained. If the Company were to violate one or more financial covenants, the lenders could declare the Company in default and could accelerate the amounts due under a portion or all of the Company’s outstanding debt. The Company is actively negotiating the terms for waivers with its lenders and the Company believes it will receive such waivers before any covenants are violated. However, because any waivers would be granted at the sole discretion of the lenders, the Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern for one

year after the date the financial statements are issued. U.S. generally accepted accounting principles (“U.S. GAAP”) requires that in making this determination, the Company could not consider future fundraising activities, whether through equity or debt offerings or dispositions of hotel properties, or the likelihood of obtaining covenant waivers, all of which are outside of the Company's control. Management believes that obtaining the waivers currently being negotiated will remove the reason for the determination of substantial doubt, however, there can be no assurance that the Company will be able to obtain waivers on acceptable terms or at all. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other possible lender protections. In addition to or in lieu of obtaining waivers as described above, the Company believes it could raise additional funds if needed through a combination of hotel dispositions or debt or equity financings.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.