Pebblebrook Hotel Trust (NYSE:PEB) Q2 2023 Earnings Conference Call July 28, 2023 9:00 AM ET Company Participants Raymond Martz - CFO Jon Bortz - Chairman and CEO Conference Call Participants Dori Kesten - Wells Fargo Smedes Rose - Citi Bill Crow - Raymond James Duane Pfennigwerth - Evercore ISI Floris van Dijkum - Compass Point Ari Klein - BMO Capital Markets Michael Bellisario - Baird Gregory Miller - Truist Securities Anthony Powell - Barclays Operator Greetings and welcome to the Pebblebrook Hotel Trust ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 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 Organiz ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q1 2023 was $60.8 million, a 30.9% increase year-over-year [5] - Adjusted FFO was $22.4 million, with adjusted FFO per share of $0.18, representing a 67.3% improvement [5] - Revenue growth was negatively impacted by approximately $11 million due to remediation from Hurricane Ian and ongoing redevelopments [6] Business Line Data and Key Metrics Changes - Same property RevPAR increased by 18.5%, while non-room revenue grew by 34.4% [31] - Non-room revenue growth was particularly strong at 53.1%, driven by increased prices and group demand [17] - San Francisco hotels saw a 117.5% increase in same property RevPAR, with occupancy rising to 46% [32] Market Data and Key Metrics Changes - Markets with robust year-over-year growth included San Francisco, Washington DC, Portland, Seattle, and Chicago [7] - San Diego experienced strong performance, benefiting from a robust convention calendar despite disruptions from heavy rains [19] - Key West was the weakest market, with a 16.6% decline in RevPAR, primarily due to a drop in ADR and occupancy [33] Company Strategy and Development Direction - The company plans to utilize proceeds from asset sales to reduce net debt and potentially repurchase shares [14][15] - Major redevelopment projects include the transition of Hotel Solamar into a Margaritaville Hotel and upgrades at Jekyll Island Club resort [24][49] - The company aims to invest $145 million to $155 million into the portfolio during 2023 [37] Management's Comments on Operating Environment and Future Outlook - Management has not observed noticeable increases in cancellations related to macroeconomic concerns, with disruptions primarily weather-related [12] - The company expects continued recovery in business travel and urban markets, with significant occupancy and revenue opportunities [41] - Management remains cautious about staffing levels and is evaluating hiring processes in light of macroeconomic uncertainties [89] Other Important Information - The company has repurchased 8.5 million common shares since October 2022, utilizing $124.6 million of capital [38] - Insurance costs are expected to rise significantly due to recent weather-related events and inflationary pressures [80] - The company has approximately $800 million in liquidity, providing a buffer against potential economic downturns [118] Q&A Session Summary Question: Can you elaborate on cost pressures related to wages? - Management indicated that wage growth is expected to be in the 4% to 5% range, with pressures stemming from restaffing efforts [52] Question: How are you managing insurance costs? - Insurance costs are projected to increase significantly due to recent storms and inflation, with overall insurance costs being about 1.5% of total expenses [56][80] Question: What is the outlook for urban markets? - Urban markets are seeing a recovery in business travel, with increased group demand and occupancy levels expected to improve [94][115] Question: Are there plans for more asset sales? - The company is focused on selling lower-quality assets and reallocating capital to higher-return opportunities, including stock repurchases [96][116] Question: How is the company addressing potential economic slowdowns? - Management is maintaining a cautious approach to hiring and is prepared to adjust staffing levels based on market conditions [89]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) The unaudited consolidated financial statements for Q1 2023 reflect a reduced net loss and slight asset decrease, driven by increased revenues and strategic transactions [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets slightly decreased to **$6.08 billion**, while total liabilities marginally increased and total equity decreased to **$3.00 billion** Consolidated Balance Sheets | Account | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$6,077,735** | **$6,133,540** | | Investment in hotel properties, net | $5,703,446 | $5,874,876 | | Cash and cash equivalents | $138,515 | $41,040 | | **Total Liabilities** | **$3,073,624** | **$3,048,997** | | Debt | $2,388,017 | $2,387,293 | | **Total Equity** | **$3,004,111** | **$3,084,543** | [Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For Q1 2023, total revenues increased to **$305.7 million**, resulting in a net loss of **$22.0 million**, a significant improvement from **$100.2 million** in Q1 2022 due to property sales and insurance income Consolidated Statements of Operations and Comprehensive Income | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $305,719 | $258,068 | | Total Operating Expenses | $300,517 | $335,731 | | Operating Income (Loss) | $5,202 | $(77,663) | | Net Loss | $(22,045) | $(100,216) | | Net Loss Attributable to Common Shareholders | $(33,916) | $(110,874) | | Net Loss Per Share (Basic & Diluted) | $(0.27) | $(0.85) | - Q1 2023 results include a **$6.6 million** gain on sale of hotel properties and **$8.1 million** in business interruption insurance income, which were not present in Q1 2022[16](index=16&type=chunk) - Q1 2022 results were negatively impacted by a **$61.0 million** impairment charge[16](index=16&type=chunk) [Consolidated Statements of Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity decreased to **$3.00 billion** by March 31, 2023, primarily due to the net loss, **$42.7 million** in common share repurchases, and **$12.2 million** in shareholder distributions - The company repurchased **3,003,513** common shares for **$42.7 million** during the three months ended March 31, 2023[22](index=22&type=chunk) - Distributions on common and preferred shares/units amounted to **$1.2 million** and **$11.0 million**, respectively, during Q1 2023[22](index=22&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 saw net cash from operations increase to **$46.2 million**, with investing activities providing **$105.2 million** from property sales, leading to a **$94.3 million** net increase in cash Cash Flow Activities (in thousands) | Cash Flow Activity (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $46,229 | $38,832 | | Net cash provided by (used in) investing activities | $105,176 | $(19,953) | | Net cash used in financing activities | $(57,125) | $(15,173) | | **Net change in cash** | **$94,280** | **$3,706** | - Investing activities in Q1 2023 were significantly boosted by **$131.9 million** in proceeds from the sale of hotel properties[27](index=27&type=chunk) - Financing activities in Q1 2023 included **$42.7 million** for repurchases of common shares, compared to just **$1.1 million** in the prior-year period[27](index=27&type=chunk) [Notes to the Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail the company's REIT structure with **49 hotels**, Q1 2023 property dispositions totaling **$135.3 million**, Hurricane Ian's impact, the **$2.4 billion** debt structure, and share repurchase programs - As of March 31, 2023, the Company owned interests in **49 hotels** with **12,451 guest rooms**[31](index=31&type=chunk) - In Q1 2023, the company sold three properties (The Heathman Hotel, retail at The Westin Michigan Avenue Chicago, and Hotel Colonnade Coral Gables) for total proceeds of **$135.3 million**[40](index=40&type=chunk) - The company's LaPlaya resort in Florida was significantly impacted by Hurricane Ian and is expected to fully reopen by the end of 2023. The company has received **$29.3 million** in preliminary insurance advances through March 31, 2023[45](index=45&type=chunk)[46](index=46&type=chunk) - In Q1 2023, the company repurchased **2.9 million** common shares for **$41.0 million**. A new **$150.0 million** common share repurchase program and a **$100.0 million** preferred share repurchase program were authorized in February 2023[75](index=75&type=chunk)[76](index=76&type=chunk)[81](index=81&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses Q1 2023 operating performance driven by strong leisure travel, strategic property sales, and share repurchases, with **Same-Property RevPAR** increasing to **$171.05** and **$783.4 million** in liquidity [Overview and Key Indicators](index=26&type=section&id=Overview%20and%20Key%20Indicators) Q1 2023 performance was driven by strong leisure travel and improving corporate demand, with **Same-Property Occupancy** rising to **58.0%** and **RevPAR** increasing by **18.5%** year-over-year Same-Property Operating Metrics | Same-Property Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Occupancy | 58.0% | 48.5% | | ADR | $295.02 | $297.31 | | RevPAR | $171.05 | $144.33 | | Total RevPAR | $266.92 | $215.69 | - Key transactions in Q1 2023 included the sale of The Heathman Hotel (**$45.0 million**), retail at The Westin Michigan Avenue Chicago (**$27.3 million**), and Hotel Colonnade Coral Gables (**$63.0 million**)[123](index=123&type=chunk) - The company repurchased **2,923,978** common shares at an average price of **$14.04** per share during the quarter[123](index=123&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) The company's key non-GAAP measures, **FFO** and **EBITDAre**, showed strong Q1 2023 growth, with **FFO** available to common shareholders more than doubling to **$17.5 million** Non-GAAP Financial Measures (in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Loss | $(22,045) | $(100,216) | | FFO | $29,604 | $19,777 | | FFO available to common share and unit holders | $17,452 | $8,433 | | EBITDA | $63,754 | $(18,544) | | EBITDAre | $57,119 | $42,439 | [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q1 2023 total revenues increased by **$47.7 million** due to travel recovery, while results benefited from a **$6.6 million** gain on property sales and **$8.1 million** in insurance income - Total revenues increased by **$47.7 million**, primarily due to increased leisure travel and recovery in business and group bookings[130](index=130&type=chunk) - Interest expense increased by **$4.9 million** due to higher interest rates on floating rate debt[133](index=133&type=chunk) - The company recognized **$8.1 million** in business interruption insurance income related to LaPlaya Beach Resort & Club[132](index=132&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2023, total liquidity was **$783.4 million**, with total debt at **$2.4 billion**, and planned 2023 capital investments are estimated at **$145.0 million** to **$155.0 million** - Total liquidity as of March 31, 2023, was **$783.4 million**, comprising cash, restricted cash, and available borrowing capacity on the senior unsecured revolving credit facility[137](index=137&type=chunk) Debt Component (in thousands) | Debt Component (in thousands) | March 31, 2023 | | :--- | :--- | | Term loans | $1,380,000 | | Convertible senior notes | $750,000 | | Senior unsecured notes | $50,000 | | Mortgage loans | $220,487 | | **Total debt at face value** | **$2,400,487** | - The company plans to invest **$145.0 million** to **$155.0 million** in capital investments in 2023, including approximately **$50.0 million** in redevelopment and repositioning projects[155](index=155&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company faces interest rate market risk, with **29.2%** of its debt at variable rates, and uses interest rate swaps to mitigate potential impacts on annual interest expense - As of March 31, 2023, **$701.5 million** (**29.2%**) of the company's debt was subject to variable interest rates[166](index=166&type=chunk) - A **0.1%** (10 basis point) increase or decrease in interest rates on variable rate debt would change annual interest expense by approximately **$0.7 million**[166](index=166&type=chunk) - The company utilizes interest rate swap agreements with an aggregate notional amount of **$840.0 million** to hedge variable interest rates on its unsecured term loans[165](index=165&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of March 31, 2023[167](index=167&type=chunk) - No material changes to internal control over financial reporting occurred during the most recent fiscal quarter[168](index=168&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings.) The company is not currently subject to any material litigation or threatened legal proceedings beyond routine business claims - The Company is not presently subject to any material litigation[171](index=171&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors.) No material changes have occurred in the company's risk factors since the last Annual Report on Form 10-K - No material changes have occurred in the risk factors since the last Annual Report on Form 10-K[172](index=172&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) In Q1 2023, the company repurchased over **3.0 million** common shares at an average price of **$14.03**, with **$46.0 million** remaining under the current program and a new **$150.0 million** program authorized Common Share Repurchases | Period (2023) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January | 977,100 | $14.40 | | February | 111,556 | $14.72 | | March | 1,957,462 | $13.81 | | **Total Q1** | **3,046,118** | **$14.03** | - As of March 31, 2023, **$46.0 million** remained available for repurchase under the **$100.0 million** share repurchase program[173](index=173&type=chunk) [Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) No defaults upon senior securities were reported - None[174](index=174&type=chunk) [Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) Mine safety disclosures are not applicable to the company's operations - Not applicable[175](index=175&type=chunk) [Other Information](index=33&type=section&id=Item%205.%20Other%20Information.) No other material information was reported in this section - None[176](index=176&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Form 10-Q, including amended bylaws, executive compensation agreements, and required certifications - Exhibits filed include amended bylaws, executive compensation agreements, and required certifications under the Sarbanes-Oxley Act[178](index=178&type=chunk)

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