Pebblebrook Hotel Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Pebblebrook Hotel Trust (PEB)

Q2 2012 Earnings Call

August 3, 2012 9:00 a.m. ET

Executives

Jon Bortz - Chairman, President and CEO

Raymond Martz - EVP and CFO

Analysts

Andrew Didora - Bank of America Merrill Lynch

Jeffrey Donnelly - Wells Fargo Securities

Bill Crow - Raymond James

David Loeb - Robert W. Baird

Enrique Torres - Green Street Advisors

Wes Golladay - RBC Capital Markets

Stephen Boyd - Cowen and Company

Dan Donlan - Janney Montgomery Scott

Presentation

Operator

Good day and welcome to the Pebblebrook Hotel Trust second quarter 2012 earnings conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Raymond Martz, Chief Financial Officer. Please go ahead sir.

Raymond Martz

Thank you, Cynthia. Good morning everyone. Welcome to our second quarter 2012 earnings call webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer.

But before we start, let me remind everyone that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risk and uncertainties as described in our 10-K for 2011 and our other SEC filings that could cause results to differ materially from those expressed in or implied by, our comments.

Forward looking statements that we make today are effective only as of today August 3, 2012 and we undertake no duty to update them later. You can find our SEC reports and our earnings release which contain reconciliations of non-GAAP financial measures we use on our website at www.pebblebrookhotels.com.

Okay. The good news is we have another great quarter to talk about. Second-quarter performance was better than we expected on almost all of our operating metrics, pro forma RevPAR for the total portfolio on 12.9% to $186.32. This The exceeded our outlook for RevPAR growth of 10% to 12% primarily due to better-than-expected performance in many of our recently renovated hotels, the July 4 holiday shift that benefitted the last week of June and continued strong transient demand in most of our urban markets.

For our portfolio on a monthly basis, April RevPAR increased 12.1%, May was up 13.4% and June climbed 13.1%. As a reminder, our RevPAR and hotel EBITDA results include all the hotels we owned as of June 30 except for the Milano but do include 49% of the results from Manhattan Collection. The vintage hotels in Seattle and Portland are not included in the second-quarter results, because we didn’t acquire these hotels until July 9.

RevPAR growth in the quarter was led by our properties benefitting from the recent renovations including the Affinia Manhattan, Sir Francis Drake and the Grand in Minneapolis as well as the W Boston. During the second quarter we invested approximately $13.4 million into our hotels as part of our capital reinvestment program which included completing our renovations at the Westin Gaslamp, Sofitel, Affinia, Monaco Seattle and Mondrian Lose Angeles. Year to date we have invested over $30 million into our hotels as part of our capital reinvestment programs.

With a healthy RevPAR growth of 12.9% in the quarter, our hotel EBITDA generated – our hotel portfolio generated $35.9 million of pro forma hotel EBITDA, extremely strong 28.6% increase over the prior year period. During the second-quarter rooms revenue increased 13.5%, which was greater than our RevPAR growth due to the added rooms in Affinia Manhattan reconfiguration.

Our food and beverage revenues were disappointingly flat to last year. This is primarily due to the renovation of the outdoor deck and pool area at Mondrian in Hollywood. They have significantly disrupted operations at SkyBar, which is closed from March through May as well as our restaurant (indiscernible) which locked all the outdoor seating from the deck replacement. Overall this renovation resulted in food and beverage revenue declining about $1.2 million or almost 30% versus the prior year quarter.

So as a result of our hotels strong performance combined with our additional acquisitions generated adjusted EBITDA of $32.9 million in the quarter, an increase of $14.6 million or 80% versus last year’s second-quarter. As a reminder and as we previously discussed, our adjusted EBITDA adds back to $1.1 million of one-time charges associated with the change in hotel management companies at the Doubletree by Hilton Bethesda Hotel. This expense is recorded in the G&A line item in our income statement.

Our G&A expense was also greater in the quarter from higher-than-expected hopefully non-recurring legal costs, some additional non-capitalized expenses related to the reconcepting and relaunching initiative at several of our recently renovated hotels and restaurants and higher-than-expected corporate and business taxes (ph).

Combining these items have caused us to increase our corporate G&A estimate for the year from $12 million to $12.5 million which represents an increase of about $2 million from last quarter. We believe roughly $1.5 million of these G&A expenses are one-time in nature, so we don’t expect this expense level to represent our run rate in future.

Year to date our adjusted EBITDA was up 90% or $22.2 million versus last year. Again this reflects not only the increased number of hotels in our growing portfolio but also higher rate in growth in same store EBITDA of our existing hotels which we believe will continue during the next several years.

Turning to the acquisition side of our business, on April 9 we acquired the 108 room hotel Milano in San Francisco for $29.8 million. This hotel is located in the growing south of market and convention center submarket of San Francisco. Based on our current plan, we now expect to close the hotel in early November for a comprehensive renovation and repositioning. This hotel is expected to reopen during the end of Q1 2013 and be renamed at that time.

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