Pebblebrook Reports Revenue Declines in Q1; Puts Action Plan in Place

BETHESDA, MD—Pebblebrook Hotel Trust has reported declines in revenue and EBITDA for the first quarter 2020, citing losses attributed to the COVID-19 pandemic. The company, however, expects to bottom out here.

“We have to plan for the worst and do everything to ensure the best,” said Jon E. Bortz, chairman/president/CEO of Pebblebrook Hotel Trust, in an earnings call. “We currently expect the second quarter to be the worst, with April being the worst month and the third and fourth quarters providing a slow but positive improvement.”

Bortz believes it will get better from here especially in the resort segment, which bodes well for Pebblebrook, having many resorts on large pieces of land that are able to sustain social distancing guidelines. Pebblebrook plans on reopening its first resort later this month, and more as states open up and demand returns.

For more difficult markets like New York and Chicago, Bortz said that they will look to conversion opportunities.

“In March 2020, the hospitality industry suffered the greatest year-over-year loss of demand, occupancy and RevPAR on record as a result of the COVID-19 pandemic,” Bortz said. “We commend our asset management team and our hotel operators who worked together around the clock to swiftly implement dramatic cost-saving measures and previously unimaginable operational changes, including suspending operations at the majority of our properties. The managers of our hotels reacted quickly and conserved significant cash on our behalf. As we prepare our plans to resume operations at our hotels, we are planning for a prolonged and gradual demand recovery over the remainder of 2020.”

Q1 Financial Highlights:

  • Same-Property Total Revenues: $255.8 million, (23.1%) YOY, compared to $332.7 million in the same period 2019
  • Same-Property EBITDA: $40.6 million, (55.2%) YOY, compared to $90.7 million in the same period 2019
  • Adj. EBITDA: $35.9 million, (60.3%) YOY, compared to $90.5 million in the same period 2019
  • Adj. FFO1 per diluted share: $0.13, (71.7%) YOY, compared to $0.46 in the same period 2019
  • Net income: $42.1 million, compared to $5.7 million in the same period 2019
  • Same-Property Total RevPAR: $213.58 million (24%) YOY, compared to $280.88 million in the same period 2019

“As a response to the pandemic, we have had to make the incredibly difficult decision to scale back our operations to an unprecedented and unimaginable level through temporary hotel and resort suspensions and extensive associate furloughs throughout our portfolio,” Bortz said. “As the economy slowly starts to reopen again, we expect substantially weakened hotel demand for the remainder of 2020 due to the likelihood of ongoing travel and meeting restrictions, anxiety on the part of travelers, restrictions on travel instituted by businesses of all kinds and general economic weakness and uncertainty. Of course, the pace of recovery could escalate if there are significant advances in effective health care solutions. Similar to prior crises, we expect there will ultimately be opportunities created, and we are already beginning initial discussions and preparations to position ourselves to aggressively pursue the opportunities we expect to arise in the future.”

Highlights of COVID-19 Cost Mitigation Plan:

  • Temporarily suspended operations at 46 of 54 hotels and resorts in response to both state and local government requirements and recommendations
  • Decreased 2020 capital investments by $50 million, including deferring certain projects to 2021 and beyond
  • Reduced 2020 corporate G&A expenses by $8.5 million, including reductions in compensation for executive management, all employees and all trustees
  • Reduced regular common dividend per share to one penny, conserving approximately $50 million of cash per calendar quarter
  • Cash burn, based on the current state of operations, including all hotel operating costs, corporate G&A, interest and preferred dividend payments estimated to average approximately $25 to $30 million per month, excluding capital investment projects

Balance Sheet and Liquidity

“Despite an estimated average monthly cash burn of $25 million to $30 million, or roughly $1 million a day, Pebblebrook remains in good condition to get through this crisis as we had $746.8 million of cash on hand as of the end of March, no secured debt and no near-term debt maturities,” noted Raymond D. Martz, chief financial officer of Pebblebrook Hotel Trust. “We don’t have a debt issue. We have a revenue and EBITDA issue due to the pandemic. We expect to finalize an agreement with our lending group to provide necessary covenant relief during the second quarter.”

  • As of March 31, 2020, cash on hand of $746.8 million
  • Net Debt to Trailing 12-Month Corporate EBITDA1 at the end of Q1 2020: 4.9x
  • Fixed Charge Coverage Ratio at the end of Q1 2020: 2.5x
  • Net debt to depreciated book value at the end of Q1 2020: 34.3%
  • Actively discussing and expecting to reach an agreement shortly on a waiver of financial maintenance covenants with the bank and private placement groups constituting all the  company’s various unsecured debt agreements
  • The company has no secured debt obligations and no debt maturities until November 2021

Capital Investments and Strategic Property Redevelopments

In response to COVID-19, the company has postponed all major nonessential capital investments other than those necessary to complete its 2020 major projects that were already under construction when the pandemic began. This allows the company to preserve approximately $50.0 million in capital for the year. As a result, the company anticipates total capital investments of approximately $125.0 million to $135.0 million during 2020. The company will re-evaluate all deferred 2020 and 2021 capital projects later in the year as clarity improves.

In the first quarter of 2020, the company completed $50.1 million of capital investments throughout its portfolio.

In 2020, the company intends to complete the major renovation and repositioning projects at the hotels it had already begun either last year or in this year’s first quarter. This will allow these hotels, along with the vast majority of its portfolio, which has been renovated or redeveloped in the last five years, to outperform in the upcoming hotel industry recovery, according to the company.