Pebblebrook Hotel Trust Reports Third Quarter 2018 Results

Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today reported results for the third quarter ended September 30, 2018. The Company’s results include the following:

“During the third quarter, our overall results topped our expectations as operating fundamentals remained solid,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “Both group and transient business along with leisure travel demand remained healthy in the industry and across our portfolio. Our hotels located in San Francisco led the portfolio during the quarter, aided by an active convention calendar, demonstrating the robust RevPAR growth the city should continue to experience following the completion of the Moscone Convention Center expansion later this year. As we look ahead, our 2019 portfolio-wide pace continues to be strong, with revenues on the books for 2019 up 20.5 percent over the same time last year, as both group and transient booking demand trends remain very positive. We are increasingly excited about 2019 and believe our portfolio is well positioned to take advantage of a growing economy with healthy underlying operating fundamentals.”

Third Quarter Highlights

• Net income: The Company’s net income was $29.9 million in the third quarter of 2018, decreasing $0.7 million as compared to the same period of 2017.
• Same-Property Total RevPAR and Same-Property RevPAR: Same-Property Total RevPAR for the quarter increased 1.5 percent versus 2017 to $321.65. Same-Property RevPAR grew 1.0 percent over the same period of 2017 to $231.94. Same-Property ADR improved 1.1 percent over the prior year to $259.25. Same-Property Occupancy fell 0.1 percent to 89.5 percent.
• Same-Property EBITDA: The Company’s hotels generated $75.9 million of Same-Property EBITDA for the quarter ended September 30, 2018, increasing 1.7 percent over the same period of 2017. Same-Property Revenues grew 1.5 percent, while Same-Property Expenses were held to growth of only 1.4 percent. Same-Property EBITDA Margin increased 6 basis points to 37.8 percent for the third quarter of 2018, as compared to the same period last year.
• Adjusted EBITDAre: The Company’s Adjusted EBITDAre declined to $69.4 million from $70.1 million in the prior-year period, a decrease of 1.0 percent. The Adjusted EBITDAre metric was previously reported as Adjusted EBITDA.
• Adjusted FFO: The Company’s Adjusted FFO decreased 8.1 percent to $51.2 million from $55.8 million in the prior-year period. The decrease is partly due to the Company’s increased interest expense related to the strategic acquisition of LaSalle Hotel Properties (NYSE: LHO) (“LaSalle”) common shares, which amounted to an estimated $3.8 million of additional expense in the third quarter of 2018.
• Dividends: On September 17, 2018, the Company declared a regular quarterly cash dividend of $0.38 per share on its common shares, a regular quarterly cash dividend of $0.40625 per share on its 6.50% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest and a regular quarterly cash dividend of $0.39844 per share on its 6.375% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest.

“While our San Francisco hotels led our portfolio with strong RevPAR growth of 8.0 percent in the quarter, our hotels in Seattle also generated solid RevPAR growth, increasing 4.6 percent,” noted Mr. Bortz. “During the third quarter, our Same-Property RevPAR grew 1.0 percent, which was in line with our guidance of flat to 2.0 percent growth. Same-Property Total Revenue rose 1.5 percent, and non-room revenues increased by 2.8 percent in the third quarter, a direct result of our upgraded amenities, our distinctive public spaces and meeting venues, and our innovative food and beverage outlet concepts and offerings. We limited Same-Property Expense growth to 1.4 percent, as our asset managers and hotel operators continued to successfully innovate and implement our best practices to achieve operational efficiencies. As a result, Same-Property EBITDA increased 1.7 percent, which exceeded the upper end of our outlook.”

Capital Reinvestments

In the third quarter, the Company completed $20.9 million of capital investments throughout its portfolio. During the remainder of 2018, the Company will execute additional renovations at a number of properties to drive improved performance in future years, including:

• Mondrian Los Angeles (estimated at $18.0 million), which includes a renovation of the guestrooms and guest bathrooms, as well as the hotel lobby and our legendary Skybar. The renovation began this week and has an expected completion date in the first quarter of 2019;
• W Hotel Boston (estimated at $10.0 million), which will undergo a guestroom renovation that will begin later in the fourth quarter of 2018, with an expected completion date in the first quarter of 2019;
• Sir Francis Drake (estimated at $9.0 million), which includes a lobby and an expanded guestroom refresh, featuring guest bathroom tub to shower conversions, which began in September this year, to be completed at the end of 2018; and
• Hotel Zelos San Francisco (estimated at $6.0 million), which consists of a guestroom and expanded guest bathroom renovation to be completed by the end of 2018, which will build on the success of the previously transformed lobby, guestroom corridors and the award-winning Dirty Habit, all of which were completed in 2014.

Year-to-Date Highlights

• Net Income: The Company’s net income was $112.7 million for the nine months ended September 30, 2018, an increase of $24.4 million over the same period of 2017.
• Same-Property Total RevPAR and Same-Property RevPAR: Same-Property Total Revenue per Available Room for the nine months ended September 30, 2018 grew 2.1 percent over the same period of 2017. Year-to-date Same-Property RevPAR increased 1.2 percent over the same period of 2017 to $216.97. Year-to-date Same-Property ADR rose 1.1 percent from the comparable period of 2017 to $253.13, and year-to-date Same-Property Occupancy improved 0.1 percent to 85.7 percent.
• Same-Property EBITDA: The Company’s hotels generated $206.3 million of Same-Property EBITDA for the nine months ended September 30, 2018, up 2.8 percent compared to the same period of 2017. Same-Property Revenues climbed 2.2 percent, while Same-Property Expenses rose just 1.9 percent. As a result, Same-Property EBITDA Margin for the nine months ended September 30, 2018 increased 19 basis points to 35.1 percent as compared to the same period last year.
• Adjusted EBITDAre: The Company’s Adjusted EBITDAre increased 8.1 percent, or $15.2 million, to $201.4 million from $186.3 million in the prior-year period.
• Adjusted FFO: The Company’s Adjusted FFO grew 4.6 percent to $153.4 million from $146.6 million in the prior-year period. The Company’s Adjusted FFO per diluted share grew 6.3 percent to $2.21 compared with the same period of 2017.

Update on Combination with LaSalle Hotel Properties

On September 6, 2018, the Company announced that it had entered into a definitive merger agreement with LaSalle Hotel Properties. Under the terms of the merger agreement, each LaSalle shareholder will have the option to elect to receive for each LaSalle common share owned either a) a fixed amount of $37.80 in cash or b) a fixed exchange ratio of 0.92 Pebblebrook Hotel Trust (“Pebblebrook”) common share. A maximum of 30% of outstanding LaSalle common shares may be exchanged for cash, subject to pro rata cut backs. LaSalle common shares held by Pebblebrook will be excluded from the cash election in the merger, effectively increasing the maximum cash shares to approximately 33 percent of the aggregate number of LaSalle common shares outstanding immediately prior to the effective time of the merger.

The transaction, which is subject to customary closing conditions, including regulatory approvals and approval by LaSalle shareholders and Pebblebrook shareholders, is expected to close on November 30, 2018. Pebblebrook and LaSalle will each hold a special meeting of its shareholders on November 27, 2018, to approve Pebblebrook’s proposed merger with LaSalle. The Pebblebrook Board recommends that shareholders vote “FOR” the proposal to approve the merger and other transactions contemplated by the merger agreement. Pebblebrook and LaSalle shareholders of record as of the close of business on October 23, 2018 will be entitled to vote at the applicable special meeting of shareholders.

Prior to the execution of the merger agreement, three of LaSalle’s hotels were placed under a hard-money contract to be sold just prior to the closing of the merger for a total of approximately $715.0 million. Following the completion of the merger agreement, the Company announced a $500.0 million to $1.0 billion disposition program to sell select LaSalle properties beyond the initial three hotels to quickly reduce the Company’s leverage and to take advantage of a healthy transaction market. In accordance with this disposition program, a fourth hotel was recently placed under an additional hard-money contract with a separate third-party buyer to be sold just prior to the closing of the merger for approximately $38.75 million. The Company has already retained brokers to market for sale more than $750.0 million of additional assets. After completing a thorough review of the portfolio and touring each of the properties, the Company is increasing the range of its disposition program to $750.0 million to $1.25 billion. Overall, the Company has increased the dollar volume of potential assets to be sold and has also accelerated the expected timing of some of the sales.

“We are extremely encouraged by the significant buyer interest we’ve been experiencing for our potential hotel sales,” commented Mr. Bortz. “We look forward to continuing the process and completing our disposition program over the next six to twelve months.”

Capital Markets and Balance Sheet

On October 31, 2018, the Company closed on a new $1.75 billion term loan agreement with a consortium of banks. When funded in connection with the completion of the merger with LaSalle, this financing provides the necessary capital to fund the LaSalle merger and provides increased liquidity and debt capacity. The maturities on the new term loan are allocated across five tranches maturing between the years 2020 and 2024.

As of September 30, 2018, the Company had $1.3 billion in consolidated debt at an effective weighted-average interest rate of 3.6 percent. The Company had $775.0 million outstanding in the form of unsecured term loans and $394.0 million outstanding on its $450.0 million senior unsecured revolving credit facility. As of September 30, 2018, the Company had $26.5 million of consolidated cash, cash equivalents and restricted cash.

As of September 30, 2018, excluding the dividend income and associated debt related to the ownership of the LaSalle common shares, the Company’s fixed charge coverage ratio was 4.2 times and total net debt to trailing 12-month corporate EBITDA was 3.8 times.

2018 Outlook

The Company has updated its 2018 outlook to reflect the Company’s third quarter performance and its revised outlook for the fourth quarter. For the fourth quarter, the Company anticipates approximately 420 basis points of negative impact to portfolio RevPAR growth due to 320 basis points of ongoing renovation disruption and 100 basis points of hotel management company integration issues and other market-based disruption.

The Company’s updated 2018 outlook does not reflect the additional interest expense and costs associated with the recently closed and previously mentioned $1.75 billion term loan, as the term loan will not be funded until the Company’s merger with LaSalle is completed.

The Company’s 2018 outlook, which assumes no additional acquisitions or dispositions, does not assume the closing of the LaSalle merger, reflects the Company’s various planned capital investment projects and includes other significant assumptions, is as follows:

The Company’s estimates and assumptions, including the Company’s outlook for 2018 and the fourth quarter of 2018 for Same-Property RevPAR, Same-Property RevPAR growth rate, Same-Property EBITDA, Same-Property EBITDA growth rate, Same-Property EBITDA Margin and Same-Property EBITDA Margin growth rate include the hotels owned as of September 30, 2018, as if they had been owned by the Company for all of 2017 and 2018, except for LaPlaya Beach Resort & Club, which is not included in the third or fourth quarters. The Company’s 2018 outlook assumes no additional acquisitions or dispositions beyond the hotels the Company owned as of September 30, 2018.

If any of the foregoing estimates and assumptions prove to be inaccurate, actual results, including the outlook, may vary, and could vary significantly, from the amounts shown above.

Third Quarter 2018 Earnings Call

The Company will conduct its quarterly analyst and investor conference call on Friday, November 2, 2018 at 9:00 AM ET. To participate in the conference call, please dial (877) 705-6003 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 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 www.pebblebrookhotels.com.

About Pebblebrook Hotel Trust

Pebblebrook Hotel Trust is a publicly traded real estate investment trust (“REIT”) organized to opportunistically acquire and invest primarily in upper upscale, full-service hotels located in urban markets in major gateway cities. The Company owns 28 hotels, with a total of 6,973 guest rooms. The Company owns hotels located in 9 states and the District of Columbia, including: Los Angeles, California (Beverly Hills, Santa Monica and West Hollywood); San Diego, California; San Francisco, California; Washington, DC; Coral Gables, Florida; Naples, Florida; Buckhead, Georgia; Boston, Massachusetts; Minneapolis, Minnesota; Portland, Oregon; Philadelphia, Pennsylvania; Nashville, Tennessee; Columbia River Gorge, Washington; and Seattle, Washington. For more information, please visit us at www.pebblebrookhotels.com and follow us on Twitter at @PebblebrookPEB.

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 SEC filings, 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 November 1, 2018. 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.

Additional Information about the Proposed Merger Transaction and Where to Find It

This communication relates to the proposed merger transaction pursuant to the terms of the Agreement and Plan of Merger, dated as of September 6, 2018, as amended on September 18, 2018, by and among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Ping Merger Sub, LLC, Ping Merger OP, LP, LaSalle Hotel Properties and LaSalle Hotel Operating Partnership, L.P. In connection with the proposed merger transaction, on September 18, 2018, Pebblebrook filed with the United States Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 (which was declared effective on October 26, 2018) and a definitive joint proxy statement/prospectus dated October 29, 2018 of Pebblebrook and LaSalle that also constitutes a prospectus of Pebblebrook. Pebblebrook and LaSalle also plan to file other relevant documents with the SEC regarding the proposed merger transaction. INVESTORS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN AND WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER TRANSACTION. You may obtain a free copy of the definitive joint proxy statement/prospectus and other relevant documents (if and when they become available) filed by Pebblebrook or LaSalle with the SEC at the SEC’s website at www.sec.gov. Copies of the documents filed by Pebblebrook with the SEC will be available free of charge on Pebblebrook’s website at www.pebblebrookhotels.com or by contacting Pebblebrook’s Investor Relations at (240) 507-1330. Copies of the documents filed by LaSalle with the SEC will be available free of charge on LaSalle’s website at www.lasallehotels.com or by contacting LaSalle’s Investor Relations at (301) 941-1500.

Certain Information Regarding Participants

Pebblebrook and LaSalle and their respective trustees, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed merger transaction. You can find information about Pebblebrook’s executive officers and trustees in Pebblebrook’s definitive proxy statement filed with the SEC on April 27, 2018 in connection with Pebblebrook’s 2018 annual meeting of shareholders. You can find information about LaSalle’s executive officers and directors in LaSalle’s definitive proxy statement filed with the SEC on October 29, 2018 in connection with the special meeting of shareholders. Additional information regarding the interests of such potential participants is included in the definitive joint proxy statement/prospectus and may be included in other relevant documents filed with the SEC if and when they become available. You may obtain free copies of these documents from Pebblebrook or LaSalle using the sources indicated above.

No Offer or Solicitation

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended (the “Securities Act”).

Cautionary Statement Regarding Forward Looking Statements

Certain statements in this communication that are not in the present or past tense or that discuss the expectations of Pebblebrook and/or LaSalle are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements, which are based on current expectations, estimates and projections about the industry and markets in which Pebblebrook and LaSalle operate and beliefs of and assumptions made by Pebblebrook management and LaSalle management, involve uncertainties that could significantly affect the financial results of Pebblebrook or LaSalle or the combined company. Pebblebrook and LaSalle intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” and variations of such words and similar expressions are intended to identify such forward looking statements, which generally are not historical in nature. Such forward-looking statements may include, but are not limited to, statements about the anticipated benefits of the proposed merger transaction, including future financial and operating results, the attractiveness of the value to be received by LaSalle shareholders, the attractiveness of the value to be received by Pebblebrook and the combined company’s plans, objectives, expectations and intentions and descriptions relating to these expectations.

All statements that address operating performance, events or developments that Pebblebrook and LaSalle expect or anticipate will occur in the future —including statements relating to expected synergies, improved liquidity and balance sheet strength —are forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although Pebblebrook and LaSalle believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, Pebblebrook and LaSalle can give no assurance that their expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward looking statements. Examples of forward-looking statements include the following: projections and forecasts of U.S. GDP growth, U.S. hotel industry RevPAR growth, the Company’s net income, FFO, EBITDA, EBITDAre, Adjusted FFO, Adjusted EBITDAre, RevPAR, EBITDA Margin and EBITDA Margin growth, and the Company’s expenses, share count or other financial items; descriptions of the Company’s plans or objectives for future operations, acquisitions or services; forecasts of the Company’s future economic performance and its share of future markets; forecasts of hotel industry performance; and descriptions of assumptions underlying or relating to any of the foregoing expectations including assumptions regarding the timing of their occurrence. Some of the factors that may affect outcomes and results include, but are not limited to: (i) the outcome of any legal proceedings that may be instituted against the companies and others related to the proposed merger transaction, (ii) unanticipated difficulties or expenditures relating to the proposed merger transaction, the response of business partners and competitors to the announcement of the proposed merger transaction, and/or potential difficulties in employee retention as a result of the announcement and pendency of the proposed merger transaction, (iii) changes affecting the real estate industry and changes in financial markets, interest rates and foreign currency exchange rates, (iv) increased or unanticipated competition for the companies’ properties, (v) risks associated with the hotel industry, including competition for guests and meetings from other hotels and alternative lodging companies, increases in wages, energy costs and other operating costs, potential unionization or union disruption, actual or threatened terrorist attacks, any type of flu or disease-related pandemic and downturns in general and local economic conditions, (vi) the availability and terms of financing and capital and the general volatility of securities markets, (vii) the companies’ respective dependence on third-party managers of their respective hotels, including their inability to implement strategic business decisions directly, (viii) risks associated with the real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act of 1990, as amended, and similar laws, (ix) the possible failure of the companies to maintain their respective qualifications as a REIT and the risk of changes in laws affecting REITs, (x) the possibility of uninsured losses, (xi) risks associated with redevelopment and repositioning projects, including delays and cost overruns, (xii) the risk of a material failure, inadequacy, interruption or security failure of the companies’ or their respective hotel managers’ information technology networks and systems, (xiii) risks associated with achieving expected revenue synergies or cost savings, (xiv) risks associated with the companies’ ability to consummate the proposed merger transaction and the timing of the closing of the proposed merger transaction, and (xv) those additional risks and factors discussed in reports filed with the SEC by Pebblebrook and LaSalle from time to time, including those discussed under the heading “Risk Factors” in their respective most recently filed reports on Forms 10-K and 10-Q. Neither Pebblebrook nor LaSalle undertakes any duty to update any forward-looking statements appearing in this document.

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

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Pebblebrook Hotel Trust
Raymond D. Martz, Chief Financial Officer
240-507-1330