Pebblebrook Reports Q3 Revenue Drop, but Remains Optimistic

BETHESDA, MD—Pebblebrook Hotel Trust for the third quarter ended Sept. 30 reported total revenues of $77.0 million, a 80.7% decline from $398.5 million for the prior-year period. But there were positives as occupancy steadily increased as the months progressed.

“Throughout the summer, leisure demand continued to improve across the travel and hotel industries and remained unseasonably healthy post-Labor Day, benefitting our properties and particularly our drive-to resorts and urban getaway hotels,” said Jon Bortz, chairman/president/CEO of Pebblebrook Hotel Trust. “Furthermore, business travel began a modest improvement, indicative of more companies and businesses choosing to get back on the road. Finally, we’ve seen some modest pickup in small group business. This steady but slow recovery in hotel demand has led to improved operating performance and a continuing reduction in our hotel and corporate cash burn from the historic lows in the second quarter. Although we do not expect to eliminate our cash burn before year-end, we are incrementally more optimistic as our improved, efficient hotel operating models materially enhance our bottom-line results. However, we remain cautious about operating trends as we head into winter, due to the recent rise in COVID-19 cases and the predicted second wave.”

During the third quarter, occupancy at Pebblebrook’s open hotels improved from 28.4% in July with 23 hotels open, to 30.4% in August with 34 hotels open, to 38.3% in September with 35 hotels open. The company’s open hotels generated $700,000 of hotel EBITDA in the quarter, even after the negative impact of $2.1 million of retail rent write-offs and straight-line rent adjustments. Its resort portfolio, of which all eight hotels were open throughout the quarter, generated $12.6 million of hotel EBITDA, with an occupancy of 51.3% and an ADR of $302.78, a rate that was 10.3% higher than last year’s third quarter.

“Our hotels experienced improved operating and financial performance each month during the third quarter, and October appears to be tracking in line with September’s results,” noted Bortz. “Combined with our revised hotel operating models following COVID-19, our hotels are running with lower operating expenses, which is enabling them to achieve profitability sooner than we would have anticipated several months ago. Our zero-based budgeting has been embraced by our hotel teams working closely with our asset managers. This is encouraging and will enable our hotels to drive more EBITDA to the bottom line and outperform other hotels in their markets as the recovery accelerates in 2021.”

Reopening of Hotels and Resorts

  • 39 hotels and resorts currently open, which is approximately three-fourths of the company’s portfolio; these 39 properties accounted for 76% of Pebblebrook’s 2019 hotel EBITDA
  • Demand in the third quarter continued to increase from the second quarter’s all-time low, with healthy leisure business throughout the quarter and a modest post-Labor Day improvement in business travel
  • In October, Pebblebrook reopened Hotel Vintage and The Heathman in Portland, OR; Hotel Zena Washington DC; and Hotel Vintage Seattle

Average Monthly Cash Burn

  • Monthly cash burn at the company’s hotels continues to be reduced as the demand recovery continues, additional properties reopen and operating performance ramps up
  • Monthly hotel portfolio cash burn is currently running at $5 million to $8 million, a $10 million reduction to the company’s early May midpoint estimate
  • Total monthly corporate cash burn is now running at $16 million to $21 million, a $9 million reduction to the company’s early May midpoint estimate

Balance Sheet & Liquidity

  • As of Sept. 30, cash on hand of $217.0 million and liquidity of $570.2 million, which includes $353.2 million available on the company’s $650.0 million credit facility
  • Net debt to depreciated book value at the end of Q3 2020 was 38%

Estimated Monthly Cash Use
The company estimates that its monthly cash use for Q3 averaged approximately $18.0 million (excluding capital investments) based on the following:

  • Average hotel-level monthly cash use of approximately $6.0 million, excluding one-time expenses
  • Corporate-level monthly G&A cash use of $2.0 million
  • Corporate finance-related monthly cash use of $10.0 million, which includes interest payments on the company’s outstanding debt as well as both common and preferred dividend payments.

If the recovery continues, demand gradually improves, recently reopened hotel performance ramps up and additional hotels reopen, monthly cash use should continue to be reduced.

Capital Investments and Strategic Property Redevelopments
In the third quarter of 2020, Pebblebrook completed $20.8 million of capital investments throughout its portfolio. It has completed $110.4 million of capital investments and projects year- to-date through September. The company expects to invest an additional $15.0 million to $20.0 million during the remainder of 2020.

Pebblebrook reopened Hotel Zena Washington DC on Oct. 8 following a redevelopment and transformation. The hotel, dedicated to female empowerment, marks the company’s seventh hotel in its proprietary Unofficial Z Collection and the first on the East Coast. In addition to celebrating women’s accomplishments on the 100th anniversary of the Women’s Right to Vote, Hotel Zena Washington DC showcases a diverse art collection with more than 60 gallery-quality art pieces commissioned specifically for the hotel.

Since the beginning of 2020, the company has completed the transformational redevelopments of a number of hotels and resorts that were part of the LaSalle legacy portfolio acquired in late 2018, including Chaminade Resort & Spa in Santa Cruz, CA; San Diego Mission Bay Resort (formerly Hilton San Diego Resort & Spa); Viceroy Washington DC (formerly Mason & Rook Hotel); Hotel Zena Washington DC (formerly Donovan Hotel); Viceroy Santa Monica Hotel in Santa Monica, CA; and Le Parc Suite Hotel in West Hollywood.

As a result of the company’s extensive and comprehensive capital investments, redevelopments and transformations completed over the last few years, its portfolio is currently in outstanding condition. Over the last five years, 40 of the Company’s 53 hotels and resorts have completed transformational redevelopments or comprehensive renovations.

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