PRO FORMA REVPAR INCREASED 6.3 PERCENT; PRO FORMA HOTEL EBITDA ROSE 15.8 PERCENT
Pebblebrook Hotel Trust (NYSE: PEB) (the ?Company?) today reported results for the quarter ended September 30, 2012.
?We are pleased with the performance of our portfolio during the third quarter as we continued to outperform the hotel industry?s solid growth,? said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. ?Despite moderating economic trends, the hotel industry continued to generate healthy RevPAR growth through demand that outpaced limited new supply, leading to increased occupancy and pricing power that delivered attractive ADR growth. With the majority of our major property renovations and repositionings now complete, combined with significant upside opportunity at the hotel level through our asset management initiatives and implementation of our best practice programs, we believe we will continue to outperform the industry over the next several years.?
Third Quarter Highlights
- Pro forma RevPAR, ADR and Occupancy: Pro forma room revenue per available room (?Pro forma RevPAR?) in the third quarter of 2012 increased 6.3 percent over the same period of 2011 to $187.18. Pro forma average daily rate (?Pro forma ADR?) grew 3.7 percent over the third quarter of 2011 to $215.69, while Pro forma Occupancy increased 2.5 percent to 86.8 percent.
- Pro forma Hotel EBITDA: The hotels generated $37.5 million of Pro forma Hotel EBITDA for the quarter ended September 30, 2012, an improvement of 15.8 percent compared to the same period of 2011. Pro forma Hotel Revenues increased 5.2 percent, while Pro forma Hotel Expenses rose 1.1 percent. As a result, the Company?s Pro forma Hotel EBITDA Margin was 31.0 percent for the quarter ended September 30, 2012 and represents an increase of 283 basis points as compared to the same period last year.
- Adjusted EBITDA: The Company?s Adjusted EBITDA increased 33.8 percent, or $8.9 million, to $35.4 million, from $26.5 million in the prior year period.
- Adjusted FFO: The Company?s Adjusted FFO grew 26.1 percent to $22.0 million, from $17.5 million in the prior year period.
- Capital Investments: During the third quarter of 2012, the Company invested $12.3 million of capital throughout its portfolio, including $2.2 million at the Westin Gaslamp Quarter, $1.3 million at the Hotel Milano, $1.2 million at the Sir Francis Drake and $1.1 million at the Mondrian Hotel.
- Dividends: On September 14, 2012, the Company declared a $0.12 per share quarterly dividend on its common shares, a $0.4921875 per share quarterly dividend on its 7.875% Series A Cumulative Redeemable Preferred Shares and a $0.50 per share quarterly dividend on its 8.00% Series B Cumulative Redeemable Preferred Shares.
?We were able to grow portfolio-wide Pro forma RevPAR 6.3 percent in the third quarter, well in excess of the industry?s 5.1 percent, despite a weaker September than expected, particularly in Manhattan, and sluggish growth in business travel. This outperformance, combined with our strong expense controls which limited portfolio-wide hotel expense growth to just 1.1 percent, we were able to drive Hotel EBITDA 15.8 percent higher over the prior year and improve operating margins by 283 basis points,? noted Mr. Bortz. ?We?re excited about the progress we?ve made in improving operating performance since acquiring our hotels and are encouraged by the increasingly positive impact our array of best practice programs are having on our portfolio.?
Capital Reinvestment
In October 2012, the renovation, reconfiguration and expansion of the meeting space and back of house at the Affinia Manhattan was completed, creating 2,200 square feet of additional meeting space. The renovation of the lobby and entry of the property is expected to be complete by the end of the first quarter of 2013. The Company expects to fund its 49% pro rata interest of the total project costs with available cash.
In September 2012, the Company commenced a reconfiguration and redesign of the lobby at the Mondrian Los Angeles. As part of this enhancement, additional meeting and function space are being created. This project is expected to be completed in December 2012.
?The recently completed capital investment programs at the Westin Gaslamp Quarter, Sheraton Delfina and Monaco Seattle, along with the prior year?s renovations of Affinia Manhattan, Sir Francis Drake, Minneapolis Grand and InterContinental Buckhead, have provided us with a sizable opportunity to generate higher room rates and increase RevPAR penetration, which should substantially increase profitability and cash flow at each of these properties in 2013 and beyond,? continued Mr. Bortz. ?Guest reviews and results at all of these properties following our renovations continue to be very positive.?
The Company remains on track to close the Hotel Milano on November 1, 2012 in order to proceed with the planned $12.5 million comprehensive renovation, repositioning and expansion of the hotel, which includes the creation of eight additional guest rooms, as well as reconcepting the restaurant and all food and beverage operations. The renovation is anticipated to be complete in the first quarter of 2013 and the hotel will be renamed upon reopening.
In January 2013, the Company, along with its joint venture partner, expect to commence an $18.0 to $20.0 million comprehensive renovation, reconfiguration and expansion of the Affinia 50, which includes renovating the guest rooms, corridors and public areas. The reconfiguration of the hotel will increase the number of guest rooms from 210 to 251. This project is expected to be complete by the end of the third quarter of 2013. The Company expects to fund its 49 percent pro rata interest of the total project costs with available cash.
?We are thrilled with the opportunity to increase the room count at the Affinia 50 by nearly 20%,? noted Mr. Bortz. ?This increase in rooms, coupled with the full property renovation, provides us with a unique opportunity to significantly upgrade the Affinia 50, while at the same time expanding our presence in one of the most desirable areas of Manhattan through a highly attractive return on capital investment. Given the breadth of the renovation, we expect EBITDA displacement to be between $5.0 and $6.0 million during the first three quarters of 2013, of which 49 percent will impact Pebblebrook. While the displacement represents a material disruption in 2013, we believe this investment project will yield outsized returns in the future, similar to the results achieved with the same kind of project recently completed a year ago at the Affinia Manhattan.?
Acquisitions
- On July 9, 2012, the Company acquired Hotel Vintage Park Seattle for $32.5 million. The 125-room, AAA four-diamond, full-service, boutique hotel is centrally located in the core of the downtown retail and financial center in Seattle, Washington.
- On July 9, 2012, the Company acquired the Hotel Vintage Plaza Portland for $30.5 million. The 117- room, AAA four-diamond, full-service, boutique hotel is located in the heart of downtown Portland, Oregon.
- On August 23, 2012, the Company acquired the W Los Angeles – Westwood hotel for $125.0 million. The 258-room, all-suite, luxury, full-service hotel is located in the Westwood neighborhood of Los Angeles, California.
- The Company has entered into a contract to acquire the Hotel Palomar San Francisco for $58.0 million and expects to close on the transaction in the near future. The 196-room, AAA four-diamond, full-service boutique hotel is located in downtown San Francisco, California.
?We?re very enthusiastic about the $276 million of high-quality acquisitions this year in our target markets of San Francisco, Seattle, Portland and Los Angeles,? commented Mr. Bortz. ?We continue to?believe these properties offer excellent opportunities for outsized RevPAR growth, margin expansion and value creation through renovations and the implementation of our asset management and best practice initiatives,? continued Mr. Bortz.Since its initial public offering in December 2009, the Company has acquired 24 properties (six through a joint venture) totaling $2.0 billion of invested capital.
Year-to-Date Highlights
- Pro forma RevPAR, ADR and Occupancy: Pro forma RevPAR for the nine months ended September 30, 2012 increased 9.1 percent over the same period of 2011 to $172.26. Year-to-date, Pro forma ADR grew 3.9 percent over the comparable period of 2011 to $209.98, while year-to-date Pro forma Occupancy climbed 4.9 percent to 82.0 percent.
- Pro forma Hotel EBITDA: The Company?s hotels generated $90.6 million of Pro forma Hotel EBITDA for the nine months ended September 30, 2012, an improvement of 23.1 percent compared with the same period of 2011. Pro forma Hotel Revenues grew 7.2 percent, while Pro forma Hotel Expenses rose 2.2 percent. As a result, Pro forma Hotel EBITDA Margin for the nine months ended September 30, 2012 increased 354 basis points to 27.4 percent as compared to the same period last year.
- Adjusted EBITDA: The Company?s Adjusted EBITDA increased 60.8 percent, or $31.1 million, to $82.3 million from $51.2 million in the prior year period.
- Adjusted FFO: The Company?s Adjusted FFO climbed 47.0 percent to $47.6 million from $32.4 million in the prior year period.Balance Sheet
As of September 30, 2012, the Company had $359.1 million in consolidated debt and $274.8 million in unconsolidated, non-recourse debt at weighted-average interest rates of 4.0 percent and 3.2 percent, respectively. The Company had $100.0 million outstanding in the form of an unsecured term loan and complete availability of its $200.0 million senior unsecured credit facility, which had no outstanding balance. As of September 30, 2012, the Company had $158.2 million of consolidated cash, cash equivalents and restricted cash and $19.3 million of unconsolidated cash, cash equivalents and restricted cash. The unconsolidated debt, cash, cash equivalents and restricted cash amounts represent the Company?s 49 percent pro rata interest in the Manhattan Collection, a joint venture with affiliates of Denihan Hospitality Group that owns six upper upscale hotels in Midtown Manhattan, New York. The weighted-average number of fully diluted common shares and units outstanding for the quarter ended September 30, 2012 was 59.7 million.
On September 30, 2012, as defined in the Company?s credit agreement, the Company?s fixed charge coverage ratio was 2.1 times, total net debt to trailing 12-month Corporate EBITDA was 4.1 times and total debt to total assets ratio was 34 percent. Excluding the Manhattan Collection, the Company?s fixed charge coverage ratio was 2.2 times, net debt to trailing 12 month Corporate EBITDA was 2.4 times and total debt to total assets ratio was 23 percent.
Capital Markets
The Company completed several capital transactions to help fund strategic growth and maintain its strong balance sheet.
- On July 13, 2012, the Company amended and restated its senior unsecured revolving credit facility. The amended credit facility was increased to $300 million and is comprised of a $200 million unsecured revolving credit facility and a five year, $100 million unsecured term loan with a current interest rate of 2.55 percent based on the Company?s current leverage ratio. The pricing under the amended and restated credit facility was significantly reduced and the facility now matures in July 2016 with an option to extend to July 2017.
- From August 2012 through October 2012, the Company issued and sold 1,821,332 common shares under its ATM offering program at an average price of $24.76 per share, for total net proceeds of $44.4 million.?We are thrilled with our continued ability to access the debt and equity markets. This has allowed us to take advantage of acquisition opportunities in the marketplace, which we expect will lead to significant increases in value for our shareholders,? noted Raymond D. Martz, Chief Financial Officer of Pebblebrook Hotel Trust.
The Company?s 2012 and Fourth Quarter Outlooks include the effects of its 49 percent pro rata interest in the Manhattan Collection and the anticipated acquisition of the Hotel Palomar San Francisco, but assumes no additional acquisitions.
Earnings Call
The Company will conduct its quarterly analyst and investor conference call on Friday, October 26, 2012, at 9:00 AM EDT. To participate in the conference call, please dial (888) 806-6198 approximately ten minutes before the call begins. Additionally, a live webcast of the conference call will be available through the Company?s website. To access the webcast, log on to http://www.pebblebrookhotels.com ten minutes prior to the conference call. A replay of the conference call webcast will be archived and available online through the Investor Relations section of http://www.pebblebrookhotels.com.