Pebblebrook Hotel Trust(PEB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for Q1 2025, covering balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets Table: Consolidated Balance Sheet Summary | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Total assets | $5,650,621 | $5,693,338 | | Total liabilities | $2,924,205 | $2,905,464 | | Total equity | $2,726,416 | $2,787,874 | - Total assets decreased by $42.7 million from December 31, 2024, to March 31, 2025, primarily due to a decrease in investment in hotel properties, net[12] - Total equity decreased by $61.4 million, mainly driven by distributions in excess of retained earnings and a decrease in accumulated other comprehensive income (loss)[12] Consolidated Statements of Operations and Comprehensive Income Table: Consolidated Statements of Operations Summary | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (YoY) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Total revenues | $320,266 | $314,069 | +$6,197 | | Total operating expenses | $327,503 | $315,448 | +$12,055 | | Operating income (loss) | $(7,237) | $(1,379) | -$5,858 | | Net income (loss) | $(32,180) | $(27,520) | -$4,660 | | Net income (loss) attributable to common shareholders | $(43,578) | $(38,981) | -$4,597 | | Net income (loss) per share, basic | $(0.37) | $(0.32) | -$0.05 | | Comprehensive income (loss) attributable to the Company | $(38,641) | $(21,657) | -$16,984 | - Total revenues increased by $6.2 million year-over-year, primarily driven by recoveries at LaPlaya Beach Resort & Club, Estancia La Jolla Hotel & Spa, and Newport Harbor Island Resort[15][133] - Operating loss widened to $(7.2) million in Q1 2025 from $(1.4) million in Q1 2024, mainly due to a larger increase in total operating expenses ($12.1 million) compared to revenue growth[15][134] Consolidated Statements of Equity Table: Consolidated Statements of Equity Summary | Item | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Balance at December 31, 2024/2023 | $2,787,874 | $2,850,345 | | Repurchase of common shares | $(14,612) | $(6,851) | | Share-based compensation | $2,054 | $2,091 | | Distributions on common shares/units | $(1,184) | $(1,205) | | Distributions on preferred shares/units | $(10,631) | $(10,631) | | Net income (loss) | $(32,180) | $(27,520) | | Balance at March 31, 2025/2024 | $2,726,416 | $2,813,509 | - The company repurchased $14.6 million of common shares in Q1 2025, an increase from $6.9 million in Q1 2024[20] - Total equity decreased by $61.4 million in Q1 2025, primarily due to net loss and distributions, partially offset by share-based compensation[20] Consolidated Statements of Cash Flows Table: Consolidated Statements of Cash Flows Summary | Activity | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (YoY) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net cash provided by operating activities | $50,341 | $46,000 | +$4,341 | | Net cash used in investing activities | $(20,864) | $(38,513) | +$17,649 | | Net cash used in financing activities | $(28,882) | $(136,154) | +$107,272 | | Net change in cash and cash equivalents and restricted cash | $595 | $(128,667) | +$129,262 | | Cash and cash equivalents and restricted cash, end of period | $218,186 | $64,974 | +$153,212 | - Net cash provided by operating activities increased by $4.3 million, driven by adjustments to reconcile net income (loss) and changes in assets and liabilities[22][155] - Net cash used in investing activities decreased significantly by $17.6 million, primarily due to lower capital improvements and additions to hotel properties in Q1 2025 compared to Q1 2024[22][156][158] - Net cash used in financing activities decreased by $107.3 million, mainly due to lower debt repayments and deferred financing costs in Q1 2025[22][157][159] Notes to the Consolidated Financial Statements Note 1. Organization - Pebblebrook Hotel Trust is an internally managed hotel investment REIT, primarily acquiring and investing in hotel properties in major U.S. cities and resort markets[25] - As of March 31, 2025, the Company owned interests in 46 hotels with 11,933 guest rooms across various U.S. markets[26] - The Company operates through Pebblebrook Hotel, L.P. (Operating Partnership), owning 99.0% of common units, and leases properties to a taxable REIT subsidiary (PHL) which engages third-party managers[27] Note 2. Summary of Significant Accounting Policies - The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, with certain disclosures omitted[28] - Interim results are not necessarily indicative of full-year performance due to seasonal variations and property transactions[28] - The adoption of ASU 2023-09 (Income Taxes) and ASU 2024-01 (Stock Compensation) is not expected to have a material impact on the financial statements, while ASU 2024-03 (Expense Disaggregation) and ASU 2024-04 (Convertible Debt) are currently being assessed[33][34][35][36] Note 3. Acquisition and Disposition of Hotel Properties - The Company did not acquire or dispose of any hotel properties during the three months ended March 31, 2025, or March 31, 2024[37][38] Note 4. Investment in Hotel Properties Table: Investment in Hotel Properties | Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Investment in hotel properties, net | $5,281,599 | $5,319,029 | | Accumulated depreciation | $(1,588,140) | $(1,530,854) | | Operating lease liabilities | $320,752 | $320,741 | | Financing lease liabilities | $44,200 | $44,000 | - LaPlaya Beach Resort & Club was impacted by Hurricanes Helene and Milton in late 2024, leading to $4.3 million in business interruption insurance income recognized in Q1 2025, with $11.5 million in preliminary insurance advances received through March 31, 2025[40][41] - No impairment losses were incurred on hotel properties during the three months ended March 31, 2025, or 2024[43] Note 5. Debt Table: Debt Principal Breakdown | Debt Type | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------ | | Total debt principal | $2,263,916 | $2,264,465 | | Unsecured term loans principal | $916,652 | $916,652 | | Convertible senior notes principal | $750,000 | $750,000 | | Senior unsecured notes principal | $402,400 | $402,400 | | Mortgage loans principal | $194,864 | $195,413 | Table: Interest Expense Categories | Interest Expense Category | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total interest expense | $27,133 | $26,421 | | Unsecured term loan facilities | $10,971 | $18,912 | | Senior unsecured notes | $6,192 | $30 | | Mortgage debt | $3,163 | $3,225 | - The Company had $642.6 million borrowing capacity remaining on its senior unsecured revolving credit facility as of March 31, 2025, with no outstanding borrowings[51] - The Company uses interest rate swap agreements to hedge against interest rate fluctuations, with an aggregate notional value of $855.0 million as of March 31, 2025, and expects $10.3 million to be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months[70][71] Note 6. Revenue Table: Revenue by Geographic Location | Geographic Location | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :-------------------- | :--------------------------------------------- | :--------------------------------------------- | | Southern Florida/Georgia | $85,455 | $80,957 | | San Diego, CA | $75,211 | $71,495 | | Boston, MA | $46,773 | $45,920 | | Los Angeles, CA | $34,297 | $44,209 | | San Francisco, CA | $33,741 | $30,545 | | Total Revenues | $320,266 | $314,069 | - Total revenues increased by $6.2 million year-over-year, with significant growth in Southern Florida/Georgia, San Diego, CA, and San Francisco, CA[72] - Los Angeles, CA, experienced a notable decrease in revenue from $44.2 million in Q1 2024 to $34.3 million in Q1 2025[72] Note 7. Equity - The Company repurchased 1,186,797 common shares for $13.3 million (average $11.23/share) in Q1 2025, with $117.6 million remaining under the common share repurchase program[75] Table: Preferred Shares Outstanding | Preferred Share Series | Shares Outstanding (March 31, 2025 & Dec 31, 2024) | | :--------------------- | :------------------------------------------------- | | 6.375% Series E | 4,400,000 | | 6.30% Series F | 6,000,000 | | 6.375% Series G | 9,200,000 | | 5.70% Series H | 8,000,000 | | Total | 27,600,000 | - No preferred shares were repurchased in Q1 2025, with $84.2 million remaining available under the preferred share repurchase program[81] - As of March 31, 2025, the Operating Partnership had 1,154,431 LTIP units outstanding, of which 710,156 have vested, and 3,104,400 Series Z Preferred Units outstanding[87][90] Note 8. Share-Based Compensation Plan - The Company recognized $0.7 million and $0.8 million in share-based compensation expense for service condition restricted shares in Q1 2025 and Q1 2024, respectively[93] - Approximately $1.3 million of share-based compensation expense related to performance-based equity awards was recognized in both Q1 2025 and Q1 2024[95] - Expense related to LTIP units was $1.2 million in Q1 2025, up from $1.0 million in Q1 2024, with 159,594 LTIP Class B units granted to executive officers in February 2025[97][99] Note 9. Income Taxes - As a REIT, the Company is generally not subject to federal corporate income taxes on distributed taxable income but is subject to state, local, federal excise taxes, and corporate income taxes on its taxable REIT subsidiaries (TRSs)[100] - Tax years 2020 through 2024 remain open to examination by major taxing jurisdictions due to net operating loss carryforwards[101] Note 10. Earnings (Loss) Per Share Table: Earnings (Loss) Per Share Details | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) available to common shareholders | $(43,587) | $(38,990) | | Weighted-average number of common shares, basic/diluted | 119,204,243 | 120,085,226 | | Net income (loss) per share, basic/diluted | $(0.37) | $(0.32) | - Unvested service condition restricted shares and performance-based equity awards (1,390,560 in 2025 and 1,217,150 in 2024) and common shares underlying Convertible Notes (29,441,175 in both periods) were excluded from diluted EPS calculations as their effect would have been anti-dilutive[103] Note 11. Commitments and Contingencies - Combined base and incentive management fees paid to hotel managers were $7.6 million in Q1 2025, down from $8.0 million in Q1 2024[107] Table: Ground Rent Components | Ground Rent Component | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :-------------------- | :--------------------------------------------- | :--------------------------------------------- | | Fixed ground rent | $4,810 | $4,796 | | Variable ground rent | $4,186 | $4,006 | | Total ground rent | $8,996 | $8,802 | - The Company had $10.1 million in restricted cash as of March 31, 2025, held for cash management, furniture/fixture replacement reserves, and real estate taxes/ground rent/property insurance[109] - The Company is not currently subject to any material litigation[113] Note 12. Supplemental Information to Statements of Cash Flows Table: Supplemental Cash Flow Information | Item | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Interest paid, net of capitalized interest | $15,445 | $23,041 | | Income taxes paid (refunded) | $(170) | $0 | | Accrued additions and improvements to hotel properties | $1,600 | $9,551 | | Write-down of investment | $2,662 | $0 | - Interest paid decreased by $7.6 million year-over-year, while accrued additions and improvements to hotel properties significantly decreased by $7.9 million[115] Note 13. Operating Segment Information Table: Operating Segment Performance | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Hotel revenues | $319,888 | $312,351 | | Hotel EBITDA | $60,827 | $66,104 | | Net income (loss) | $(32,180) | $(27,520) | - Hotel revenues increased by $7.5 million year-over-year, but Hotel EBITDA decreased by $5.3 million, indicating higher hotel operating expenses relative to revenue growth[116] Note 14. Subsequent Events - Subsequent to March 31, 2025, the Company repurchased an additional 111,599 common shares at an average price of $8.96 per share[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Q1 2025 financial condition and operations, covering results, key metrics, revenue, expenses, liquidity, and market factors Overview - Q1 operating results showed gains in occupancy and ancillary revenue at resorts and redeveloped properties, while urban properties experienced a decline in total revenue per available room due to wildfires and renovations[123] - Washington D.C. properties benefited from the inauguration, and San Francisco saw strong results from a positive convention calendar and rising business demand[123] - The Company repurchased 1,186,797 common shares for $13.3 million at an average of $11.23 per share during Q1 2025[124] Forward-Looking Statements - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could materially affect actual results[120] - Key risks include those associated with the hotel industry (competition, operating costs, demand fluctuations), global economic conditions, financing availability, dependence on third-party managers, REIT qualification, uninsured losses, and redevelopment project risks[122] Key Indicators of Financial Condition and Operating Performance - The Company measures performance using metrics such as RevPAR, Total RevPAR, ADR, Occupancy, FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA[125] Hotel Operating Statistics Table: Hotel Operating Statistics | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change (YoY) | | :---------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Same-Property Occupancy | 61.9 % | 61.1 % | +0.8 pp | | Same-Property ADR | $301.48 | $305.47 | -$3.99 | | Same-Property RevPAR | $186.57 | $186.58 | -$0.01 | | Same-Property Total RevPAR | $301.22 | $295.04 | +$6.18 | - Same-Property Occupancy increased by 0.8 percentage points, while Same-Property ADR decreased by $3.99, resulting in a flat Same-Property RevPAR[126] - Same-Property Total RevPAR increased by $6.18, indicating growth in ancillary revenues[126] Non-GAAP Financial Measures Table: Non-GAAP Financial Measures | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | FFO | $25,307 | $29,606 | | FFO available to common share and unit holders | $13,512 | $17,811 | | Adjusted FFO available to common share and unit holders | $18,741 | $25,002 | | EBITDA and EBITDAre | $49,334 | $56,156 | | Adjusted EBITDAre | $56,589 | $60,805 | | Hotel EBITDA | $60,827 | $66,104 | - FFO decreased from $29.6 million in Q1 2024 to $25.3 million in Q1 2025, and Adjusted FFO available to common share and unit holders also declined from $25.0 million to $18.7 million[130] - Hotel EBITDA decreased by $5.3 million year-over-year, reflecting a decline in hotel-level operating performance[131] Results of Operations - Total revenues increased by $6.2 million, primarily due to improved performance at LaPlaya Beach Resort & Club, Estancia La Jolla Hotel & Spa, and Newport Harbor Island Resort, partially offset by lower revenue at Hyatt Centric Delfina Santa Monica[133] - Total hotel operating expenses increased by $11.2 million, mainly due to increased operations at the recovering properties and higher wage rates and benefits[134] - Interest expense increased by $0.7 million due to no interest capitalization in 2025, offsetting lower interest rates, while general and administrative expenses rose by $1.0 million due to increased legal costs[136][138] Critical Accounting Policies - The consolidated financial statements are prepared using U.S. GAAP, requiring management to make estimates and assumptions that affect reported amounts, with actual results potentially differing from these estimates[141] New Accounting Pronouncements - Refer to Note 2 for details on recently issued accounting pronouncements and their potential impact on the Company[142] Liquidity and Capital Resources - Primary liquidity sources include cash from operations, credit facilities, equity/debt offerings, and property sales, totaling $860.8 million as of March 31, 2025 (cash, cash equivalents, restricted cash, and available credit facility)[143] - Material cash requirements include $2.3 billion in total debt (face value) as of March 31, 2025, $1.8 billion in future fixed minimum payments for long-term operating and finance leases, and approximately $47.2 million in annual preferred dividends and Series Z preferred OP unit distributions[146][151][153] - The Company expects to invest $65.0 million to $75.0 million in capital investments in 2025, excluding hurricane-related repairs, for refurbishments and repositioning projects[163] - The Company was in compliance with all debt covenants as of March 31, 2025, and none of its mortgage loans were in a cash trap[148][149] Sources and Uses of Cash Table: Sources and Uses of Cash | Cash Flow Activity | Three months ended March 31, 2025 (in millions) | Three months ended March 31, 2024 (in millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash from operating activities | $50.3 | $46.0 | | Net cash used in investing activities | $(20.9) | $(38.5) | | Net cash used in financing activities | $(28.9) | $(136.2) | - Cash from operating activities increased by $4.3 million, while cash used in investing activities decreased by $17.6 million due to lower capital improvements[155][156][158] - Cash used in financing activities significantly decreased by $107.3 million, driven by lower debt repayments and deferred financing costs compared to the prior year[157][159] Capital Investments - The Company invested $20.7 million in capital investments in Q1 2025, including $16.7 million excluding hurricane repair and remediation at LaPlaya Beach Resort & Club[162] - Planned capital investments for 2025 are projected to be $65.0 million to $75.0 million, focusing on normal refurbishments and repositioning projects at properties like Hyatt Centric Delfina Santa Monica and Paradise Point Resort & Spa[163] Common Share Repurchase Programs and Preferred Share Repurchase Program - During Q1 2025, the Company repurchased 1,186,797 common shares for $13.3 million, with $117.6 million remaining available under the $150.0 million common share repurchase program[165] - No preferred shares were repurchased in Q1 2025, leaving $84.2 million available under the $100.0 million preferred share repurchase program[168] Inflation - The Company relies on hotel performance to increase revenues to keep pace with inflation, with operators generally able to adjust room rates daily, though competitive pressures may limit rate increases[170] Seasonality - The lodging industry experiences recurring seasonal patterns, with lower revenue, operating income, and cash flow typically in the first quarter and higher in the third quarter of each year[171] Derivative Instruments - The Company uses interest rate swap agreements with an aggregate notional amount of $855.0 million to hedge variable interest rates on unsecured term loans, designated as cash flow hedges[173] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risk exposure, focusing on interest rate sensitivity and derivative-based risk management strategies Interest Rate Sensitivity - As of March 31, 2025, 8.9% ($201.7 million) of the Company's aggregate indebtedness was subject to variable interest rates, excluding hedged amounts[174] - A 0.1% increase or decrease in interest rates on unhedged variable rate debt would result in an approximate $0.2 million annual increase or decrease in interest expense[174] - The Company uses interest rate swaps and other hedging contracts to limit the impact of interest rate changes, though these instruments carry counterparty credit risk and enforceability risks[174] Item 4. Controls and Procedures Addresses the effectiveness of disclosure controls and procedures and reports on changes in internal control over financial reporting Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[175] Changes in Internal Control Over Financial Reporting - There were no changes to the Company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[176] PART II. OTHER INFORMATION Item 1. Legal Proceedings Confirms the absence of any material legal proceedings against the Company - The Company is not currently subject to any material litigation, nor is any material litigation threatened against it[178] Item 1A. Risk Factors Confirms no material changes to risk factors previously disclosed in the Company's Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the Company's common and preferred share repurchase activities during Q1 2025 Issuer Purchases of Equity Securities Table: Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | January 1, 2025 - March 31, 2025 | 1,282,621 | $11.39 | - During Q1 2025, the Company repurchased 1,186,797 common shares under its publicly announced program, with $117.6 million remaining available for repurchase[180] - No preferred shares were repurchased during Q1 2025, with $84.2 million remaining available under the preferred share repurchase program[181] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[182] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[183] Item 5. Other Information Reports on Rule 10b5-1 trading arrangements by officers and trustees - No officers or trustees adopted or terminated any Rule 10b5-1(c) trading arrangements during the three months ended March 31, 2025[185] Item 6. Exhibits Lists exhibits filed with the Form 10-Q report, including organizational documents, indentures, and certifications - The exhibits include the Declaration of Trust, Bylaws, Amended and Restated Agreement of Limited Partnership, Indentures for notes, and certifications from the CEO and CFO[186]