Pebblebrook Hotel Trust Reports 2023 Results and Provides 2024 Outlook

Pebblebrook Hotel Trust (NYSE: PEB):

Fourth Quarter and Year-to-Date Highlights

"Our fourth quarter results surpassed expectations, driven by healthy urban demand and favorable short-term pickup, notably at our San Francisco, Boston, Los Angeles, and Washington, D.C. hotels,” noted Mr. Bortz. “This momentum underscores strong urban recovery trends, which we anticipate will continue in 2024, barring any major negative movement in the economy. Group bookings for our portfolio for 2024 are also quite positive, currently showing an encouraging 15% revenue increase year-over-year, though we expect this year-over-year increase will moderate as the year unfolds, mirroring normal pre-pandemic booking trends. Additionally, we observed a consistent moderation in the growth rate of operating expenses throughout 2023, including wage and benefits costs, which we expect will continue to ease over the course of 2024."

Update on Impact from Hurricane Ian

The Company has made great progress restoring and reopening the 189-room LaPlaya Beach Resort & Club (“LaPlaya”) in Naples, Florida. The Company expects to substantially complete the last of LaPlaya’s post-hurricane rebuilding by the end of this month. This includes the resort’s pool complex and the Beach House, which includes 79 rooms and a full-service spa and fitness center. No business interruption proceeds were recorded in Q4 2023. However, the Company anticipates recognizing $11 million in business interruption proceeds in 2024, which is reflected in the Company’s full-year outlook. The business interruption income will impact Adjusted EBITDAre and FFO, but it is not included in Same-Property Hotel EBITDA.

Capital Investments and Strategic Property Redevelopments

In 2023, the Company invested $152.3 million in capital improvements, not including the LaPlaya hurricane restoration, with the majority related to several major redevelopment and repositioning projects including Margaritaville Hotel San Diego Gaslamp Quarter (conversion from Solamar), Hilton San Diego Gaslamp Quarter, Jekyll Island Club Resort, Estancia La Jolla Hotel & Spa, and the four guesthouses at Southernmost Beach Resort.

For 2024, the Company expects to invest $85 to $90 million in the portfolio, with highlights including:

• The completion of Newport Harbor Island Resort's $49 million comprehensive redevelopment and transformation into a luxury island resort by early Q2 2024;
• The finalization of Estancia La Jolla Hotel & Spa's $26 million redevelopment and repositioning, including fully renovated public areas, and adding a lobby bar, outdoor meeting venues, an outdoor pool bar and grill, upgraded and additional cabanas, including cabana rooms, and upgrades to the main ballroom, the Mustangs and Burros restaurant, and extensive public area landscaping, all by early Q2 2024; and
• The progression of Skamania Lodge's $20 million phase 1 of its much larger master plan to introduce alternative lodging accommodations, including adding private cabins, villas, luxury glamping units, and other enhancements of resort amenities including a new multi-million-dollar outdoor meeting and event venue, and road and utility infrastructure for existing and future alternative accommodations, with completion of this phase targeted in Q2 2024.

Upon completing these investments in 2024, virtually all of the Company's properties will have undergone recent major renovations or redevelopments. This will mark a transition to a period of significantly reduced capital investments planned for the next few years.

Since 2018, the Company has reinvested approximately $540 million in transforming its hotels and resorts, with over $300 million directed towards Return on Investment (“ROI”)-generating investments, as part of the Company’s broader strategic redevelopment program. These investments have predominantly involved major overhauls and strategic repositionings, elevating the Company's properties to superior standards, and adding amenities and other revenue and profit-generating facilities, including remerchandising existing indoor and outdoor facilities. These ROI-focused projects are anticipated to yield substantial returns, aligning with the outcomes of past redevelopment and repositioning initiatives completed by the Company.

Update on Strategic Dispositions

The Company successfully completed seven property sales, generating $330.8 million of gross proceeds in 2023, despite a challenging financing market that significantly limited overall industry transaction activity. The aggregate sales proceeds reflect a combined 20.2x EBITDA multiple and a 4.2% net operating income capitalization rate (assuming a capital reserve of 4.0% of total hotel revenues) based on the trailing twelve-month performance before the completion of each respective sale. These numbers do not include anticipated capital requirements on the part of the buyers despite properties requiring significant future investments.

Net proceeds from the Company’s dispositions are being used for general corporate purposes, including reducing the Company’s debt, increasing the Company’s cash position, and repurchasing common and preferred shares to further strengthen the Company’s balance sheet and enhance shareholder value.

Common and Preferred Share Repurchases

In January 2024, the Company repurchased approximately 318,000 common shares at an average price of $15.69 per share. On a cumulative basis since October 2022, the Company has repurchased over 11 million common shares, or approximately 9% of the Company’s outstanding common shares, at an average price of $14.54 per share, representing an approximate 51% discount to the midpoint of the Company’s most recently published Net Asset Value (“NAV”) per share.

During the fourth quarter, in two unsolicited transactions, the Company repurchased a total of 1.0 million shares of its Series H preferred shares for $15.79 per share, a 37% discount to the $25.00 liquidation value per share. On a cumulative basis since December 2022, the Company has repurchased 2.0 million shares of its Series H preferred shares for an average price of $15.90, a 36% discount to the $25.00 liquidation value per share.

Balance Sheet and Liquidity

As of December 31, 2023, the Company had $830.0 million in liquidity, consisting of $193.6 million in cash, cash equivalents, and restricted cash, plus $636.4 million of undrawn availability on its senior unsecured revolving credit facility.

The Company's current $2.2 billion of consolidated debt and convertible notes is well-structured, with an effective weighted-average interest rate of 4.6%. 75% of the combined debt and convertible notes is currently fixed at an effective weighted-average interest rate of 3.6%. The remaining 25% of the Company’s debt and convertible notes is currently floating at a weighted-average interest rate of 7.7%. In addition, approximately 91% of the Company’s outstanding debt is unsecured, and the weighted-average maturity of the Company’s debt is 3.2 years. The Company has no meaningful debt maturities until Q4 2025.

Common and Preferred Dividends

On December 15, 2023, the Company declared a quarterly cash dividend of $0.01 per share on its common shares and a regular quarterly cash dividend for the following preferred shares of beneficial interest:

• $0.39844 per 6.375% Series E Cumulative Redeemable Preferred Share;
• $0.39375 per 6.3% Series F Cumulative Redeemable Preferred Share;
• $0.39844 per 6.375% Series G Cumulative Redeemable Preferred Share; and
• $0.35625 per 5.7% Series H Cumulative Redeemable Preferred Share.

Update on Curator Hotel & Resort Collection

Curator Hotel & Resort Collection (“Curator”) is a curated collection of experientially focused small brands and independent lifestyle hotels and resorts worldwide founded by Pebblebrook and several industry-leading independent lifestyle hotel operators. Curator has 106 member hotels and resorts and 118 master service agreements with preferred vendor partners. Curator added 30 new member properties in 2023, up from 23 in 2022. The master service agreements provide Curator member hotels with preferred pricing, enhanced operating terms, and early access to curated new technologies. Curator's mission is to support lifestyle hotels and resorts through its best-in-class operating agreements, services, and technology while helping properties amplify their independent brands and what makes them unique.

2024 Outlook

The Company's 2024 outlook, which does not assume any acquisitions or dispositions, incorporates planned capital investments and key assumptions, including an estimated $11.0 million in business interruption proceeds related to LaPlaya. This forecast assumes stable travel conditions, unaffected by pandemics, major weather events, federal shutdowns, or deteriorating macro-economic factors.

This 2024 Outlook is based, in part, on the following estimates and assumptions:

The Company’s Q1 2024 Outlook is as follows:

This Q1 2024 Outlook is based, in part, on the following estimates and assumptions:

The Q1 2024 outlook includes an estimated $4.0 million from an initial business interruption settlement related to LaPlaya for Q3 2023 lost income. While this does not affect Same-Property Hotel EBITDA, it does impact the Company's Adjusted EBITDAre, Adjusted FFO, and net loss.

Year End 2023 Earnings and 2024 Outlook Call

The Company will conduct its quarterly analyst and investor conference call on Thursday, February 22, 2024, at 11:00 AM ET. To participate, please dial (877) 407-3982 approximately ten minutes before the call begins. A live webcast of the conference call will also be available through the Investor Relations section of www.pebblebrookhotels.com. To access the webcast, click on https://investor.pebblebrookhotels.com/news-and-events/webcasts/default.aspx ten minutes before the conference call. A replay of the conference call webcast will be archived and available online.

About Pebblebrook Hotel Trust

Pebblebrook Hotel Trust (NYSE: PEB) is a publicly traded real estate investment trust (“REIT”) and the largest owner of urban and resort lifestyle hotels and resorts in the United States. The Company owns 46 hotels and resorts, totaling approximately 12,000 guest rooms across 13 urban and resort markets. For more information, visit www.pebblebrookhotels.com and follow @PebblebrookPEB.

This press release contains certain “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “forecast,” “continue,” “assume,” “plan,” references to “outlook” or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. Examples of forward-looking statements include the following: descriptions of the Company’s plans or objectives for future capital investment projects, operations or services; forecasts of the Company’s future economic performance; forecasts of hotel industry performance; statements regarding expectations of hotel dispositions and use of proceeds; and descriptions of assumptions underlying or relating to any of the foregoing expectations including assumptions regarding the timing of their occurrence. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, the state of the US economy and the supply of hotel properties, and other factors as are described in greater detail in the Company’s filings with the SEC, including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company’s business and financial results, please refer to the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of the Company’s filings with the US Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Investor Relations section of the Company’s website at www.pebblebrookhotels.com.

All information in this press release is as of February 21, 2024. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company’s expectations.

For additional information or to receive press releases via email, please visit www.pebblebrookhotels.com

Considerations Regarding Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

Funds from Operations (“FFO”) - FFO represents net income (computed in accordance with GAAP), excluding gains or losses from sales of properties, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships. The Company considers FFO a useful measure of performance for an equity REIT because it facilitates an understanding of the Company's operating performance without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, the Company believes that FFO provides a meaningful indication of its performance. The Company also considers FFO an appropriate performance measure given its wide use by investors and analysts. The Company computes FFO in accordance with standards established by the Board of Governors of Nareit in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to that of other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make distributions. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding Operating Partnership units for the periods presented.

Earnings before Interest, Taxes, and Depreciation and Amortization ("EBITDA") - The Company believes that EBITDA provides investors a useful financial measure to evaluate its operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

Earnings before Interest, Taxes, and Depreciation and Amortization for Real Estate ("EBITDAre") - The Company believes that EBITDAre provides investors a useful financial measure to evaluate its operating performance, and the Company presents EBITDAre in accordance with Nareit guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." EBITDAre adjusts EBITDA for the following items, which may occur in any period, and refers to these measures as Adjusted EBITDAre: (1) gains or losses on the disposition of depreciated property, including gains or losses on change of control; (2) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (3) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

The Company also evaluates its performance by reviewing Adjusted FFO and Adjusted EBITDAre because it believes that adjusting FFO to exclude certain recurring and non-recurring items described below provides useful supplemental information regarding the Company's ongoing operating performance and that the presentation of Adjusted FFO and Adjusted EBITDAre, when combined with the primary GAAP presentation of net income (loss), more completely describes the Company's operating performance. The Company adjusts FFO available to common share and unit holders for the following items, which may occur in any period, and refers to this measure as Adjusted FFO and Adjusted EBITDAre:

- Transaction costs: The Company excludes transaction costs expensed during the period because it believes that including these costs in FFO does not reflect the underlying financial performance of the Company and its hotels.

- Non-cash ground rent: The Company excludes the non-cash ground rent expense, which is primarily made up of the straight-line rent impact from a ground lease.

- Management/franchise contract transition costs: The Company excludes one-time management and/or franchise contract transition costs expensed during the period because it believes that including these costs in FFO and Adjusted EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

- Interest expense adjustment for acquired liabilities: The Company excludes interest expense adjustment for acquired liabilities assumed in connection with acquisitions, because it believes that including these non-cash adjustments in FFO and Adjusted EBITDAre does not reflect the underlying financial performance of the Company.

- Finance lease adjustment: The Company excludes the effect of non-cash interest expense from finance leases because it believes that including these non-cash adjustments in FFO and Adjusted EBITDAre does not reflect the underlying financial performance of the Company.

- Non-cash amortization of acquired intangibles: The Company excludes the non-cash amortization of acquired intangibles, which includes but is not limited to the amortization of favorable and unfavorable leases or management agreements and above/below market real estate tax reduction agreements because it believes that including these non-cash adjustments in FFO and Adjusted EBITDAre does not reflect the underlying financial performance of the Company.

- Non-cash interest expense, one-time operation suspension expenses, early extinguishment of debt, amortization of share-based compensation expense, issuance costs of redeemed preferred shares, and hurricane-related repairs costs: The Company excludes these items because the Company believes that including these adjustments in FFO does not reflect the underlying financial performance of the Company and its hotels.

- One-time operation suspension expenses, amortization of share-based compensation expense, and hurricane-related costs: The Company excludes these items because it believes that including these costs in EBITDAre does not reflect the underlying financial performance of the Company and its hotels.

The Company presents weighted-average number of basic and fully diluted common shares and units by excluding the dilutive effect of shares issuable upon conversion of convertible debt.

The Company’s presentation of FFO and Adjusted EBITDAre as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity. The Company’s presentation of EBITDAre, and as adjusted by the Company, should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of its liquidity.