Pebblebrook Hotel Trust(PEB) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The financial statements for the three months ended March 31, 2021, reflect a significant negative impact from the COVID-19 pandemic, with total revenues dropping to $83.6 million from $269.1 million year-over-year, resulting in a net loss of $121.4 million compared to a net income of $42.1 million in the prior year. The balance sheet shows an increase in total debt to $2.43 billion and a decrease in total equity. Cash flow from operations was negative at -$7.1 million, a stark contrast to the positive $1.5 million in the same period of 2020 Consolidated Balance Sheets As of March 31, 2021, total assets were $6.01 billion, a slight decrease from $6.08 billion at year-end 2020. Total liabilities increased to $2.99 billion from $2.81 billion, primarily due to a rise in debt from $2.28 billion to $2.43 billion. Consequently, total equity decreased from $3.26 billion to $3.02 billion | | March 31, 2021 (Unaudited) (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $6,008,909 | $6,076,366 | | Total Liabilities | $2,989,753 | $2,812,040 | | Debt | $2,433,980 | $2,280,471 | | Total Equity | $3,019,156 | $3,264,326 | Consolidated Statements of Operations and Comprehensive Income For the first quarter of 2021, the company reported a significant decline in performance compared to the same period in 2020. Total revenues fell by 69% to $83.6 million. This led to an operating loss of $96.1 million, compared to an operating income of $54.9 million in Q1 2020. The net loss attributable to common shareholders was $128.7 million, or ($0.98) per share, a sharp reversal from the net income of $33.8 million, or $0.26 per share, in the prior-year period | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $83,643 | $269,107 | | Operating Income (Loss) | $(96,135) | $54,891 | | Net Income (Loss) attributable to common shareholders | $(128,721) | $33,810 | | Net Income (Loss) per share, diluted | $(0.98) | $0.26 | - The company recorded an impairment loss of $14.9 million in Q1 2021, compared to $20.6 million in Q1 2020. In Q1 2020, there was a significant gain on the sale of hotel properties of $117.4 million, which was absent in Q1 2021[14] Consolidated Statements of Equity Total equity decreased from $3.26 billion at the end of 2020 to $3.02 billion as of March 31, 2021. The decline was primarily driven by the net loss of $121.4 million for the quarter and a cumulative effect adjustment of $113.1 million from adopting a new accounting standard for convertible debt. This was partially offset by changes in the fair value of derivative instruments - A cumulative effect adjustment of ($113.1 million) was made to Additional Paid-In Capital due to the early adoption of ASU 2020-06, which changed the accounting for convertible senior notes[21] - The net loss for the quarter reduced 'Distributions in Excess of Retained Earnings' by $120.6 million[21] Consolidated Statements of Cash Flows For the first quarter of 2021, net cash used in operating activities was $7.1 million, a significant downturn from the $1.5 million provided by operations in Q1 2020. Investing activities used $9.7 million, mainly for property improvements. Financing activities provided a net cash inflow of $5.1 million, resulting from new debt proceeds of $263.8 million, which were largely used for debt repayments ($217.0 million) and the purchase of capped calls ($21.0 million) | Cash Flow Activity | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(7,136) | $1,492 | | Net cash provided by (used in) investing activities | $(9,670) | $269,937 | | Net cash provided by (used in) financing activities | $5,138 | $418,464 | | Net change in cash and cash equivalents | $(11,668) | $689,893 | Notes to Consolidated Financial Statements The notes detail the significant impact of COVID-19, leading to the temporary suspension of 13 out of 53 hotels as of March 31, 2021. The company undertook significant financing activities, including issuing an additional $250.0 million of convertible notes and amending credit facilities to waive financial covenants through Q1 2022. An impairment loss of $14.9 million was recognized on one hotel. The company also details its various debt instruments, equity structure, share-based compensation plans, and lease commitments - As of March 31, 2021, the company owned 53 hotels, with operations at 13 hotels temporarily suspended due to the COVID-19 pandemic[28][30] - In February 2021, the company issued an additional $250.0 million of convertible notes and amended its credit agreements to waive financial covenants through the end of Q1 2022[33][34] - The company recognized a $14.9 million impairment loss on one hotel during Q1 2021 due to the ongoing effects of the COVID-19 pandemic[62] - The company early adopted ASU 2020-06 on January 1, 2021, simplifying the accounting for its convertible debt by reclassifying the equity component to liability[57] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant decline in financial performance directly to the COVID-19 pandemic, which dramatically reduced hotel demand. Same-Property RevPAR plummeted to $45.28 in Q1 2021 from $141.43 in Q1 2020. In response, the company suspended operations at numerous hotels, implemented cost controls, and secured its liquidity by issuing convertible notes and amending debt covenants. As of March 31, 2021, liquidity stood at $767.8 million, which management believes is sufficient to meet obligations for the next twelve months. The company invested $9.6 million in capital improvements and plans to invest an additional $60.0 million to $80.0 million in 2021 Same-Property Hotel Operating Statistics (Q1 YoY) | | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Same-Property Occupancy | 18.8 % | 56.7 % | | Same-Property ADR | $240.27 | $249.64 | | Same-Property RevPAR | $45.28 | $141.43 | Non-GAAP Financial Measures Reconciliation (in thousands) | | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :--- | :--- | :--- | | Net income (loss) | $(121,440) | $42,068 | | FFO available to common share and unit holders | $(59,390) | $(7,232) | | EBITDAre | $(25,807) | $13,865 | - As of March 31, 2021, the company had liquidity of $767.8 million, including cash and available credit. This was further improved by the $157.6 million net proceeds from the sale of the Sir Francis Drake Hotel on April 1, 2021[170] - The company plans to invest an additional $60.0 million to $80.0 million in capital investments during the remainder of 2021[192] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risk from changes in interest rates on its variable-rate debt. As of March 31, 2021, $168.0 million (6.9% of total debt) was subject to variable rates. To mitigate this risk, the company uses interest rate swap agreements, with an aggregate notional amount of $1.4 billion, to hedge its unsecured term loans. A 0.1% change in interest rates would impact annual interest expense by approximately $0.2 million - As of March 31, 2021, $168.0 million of the company's debt was subject to variable interest rates[199] - A 10 basis point (0.1%) change in interest rates on variable rate debt would result in an approximate $0.2 million change in annual interest expense[199] - The company utilizes interest rate swap agreements with a notional value of $1.4 billion to hedge against interest rate fluctuations on its unsecured term loans[198] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter. There were no changes to the internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[200] - No material changes were made to the internal control over financial reporting during the most recent fiscal quarter[201] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material litigation, nor is any material litigation known to be threatened against it, beyond routine claims arising in the ordinary course of business which are not expected to have a material adverse effect - The company is not presently subject to any material litigation[203] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020 were reported[205] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2021, the company purchased 38,310 of its own shares at an average price of $18.80 per share. These purchases were not part of a publicly announced plan. As of March 31, 2021, approximately $56.6 million remained available for repurchase under the company's existing $150.0 million share repurchase program | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2021 | 38,310 | $18.80 | | Feb 1 - Feb 28, 2021 | — | — | | Mar 1 - Mar 31, 2021 | — | — | | Total | 38,310 | $18.80 | - As of the end of the quarter, $56.6 million remained available for repurchase under the $150.0 million share repurchase program authorized in February 2016[206] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, forms of executive compensation agreements, CEO and CFO certifications, and XBRL data files - Exhibits filed include amendments to various credit and note purchase agreements, CEO/CFO certifications, and XBRL interactive data files[211]