Pebblebrook Hotel Trust Extends 2024 Term Debt to 2028 and Reduces Total Debt

Rhea-AI Summary

Pebblebrook Hotel Trust (PEB) successfully extended $357 million of its $460 million October 2024 maturity term loan to 2028, paying down $157.6 million of existing term loans and unsecured private placement notes. The Company utilized cash from property sales to reduce debt, with no meaningful maturities until October 2025. Approximately $2.2 billion of outstanding debt and convertible notes remain, bearing interest at a weighted average rate of 4.6%.

Insights

Financial Analyst

The strategic financial move by Pebblebrook Hotel Trust to extend the maturity of a significant portion of its debt from 2024 to 2028 is a prudent step in managing its capital structure. By paying down existing term loans and unsecured private placement notes, the company has effectively deferred its debt obligations, thus avoiding a potential liquidity crunch in the near term. This action is indicative of a strong liquidity management, as it demonstrates the company's ability to use its cash reserves strategically. The maintenance of pricing terms on the extended loans suggests confidence from the lending institutions in Pebblebrook's creditworthiness.

The absence of meaningful debt maturities until October 2025 provides the company with a more flexible financial runway to navigate the uncertain economic environment that may arise from external factors such as fluctuating interest rates and tourism trends. Furthermore, the company's approach to reducing its debt through the proceeds of property sales aligns with its capital allocation strategy, which could be seen as a positive signal by investors regarding the management's commitment to enhancing shareholder value.

Lastly, the undrawn $650 million unsecured credit facility offers additional liquidity assurance, which could be beneficial in seizing investment opportunities or cushioning against unforeseen financial strains. The weighted average interest rate of 4.6% on the outstanding debt and convertible notes, with 75% bearing interest at fixed rates after swap agreements, provides predictability in interest expenses, which is crucial for financial planning and stability.

Market Research Analyst

From a market perspective, Pebblebrook's debt refinancing and extension activities signal a strategic maneuver to investors and competitors alike. The real estate investment trust (REIT) sector, particularly those focused on hospitality like Pebblebrook, is highly sensitive to economic cycles. By extending debt maturities and maintaining liquidity, Pebblebrook is positioning itself to weather potential downturns in the hospitality industry, which could be affected by macroeconomic factors such as recessionary pressures or changes in consumer travel behavior.

The company's decision to utilize its balance sheet cash, generated from property sales, to pay down debt rather than aggressively pursue new acquisitions or developments, reflects a conservative and risk-averse strategy. This could resonate well with investors who are cautious about the volatility in the real estate and hospitality markets. Moreover, the commitment to repurchase shares at significant discounts could be interpreted as a sign of management's confidence in the intrinsic value of the company, potentially leading to positive market sentiment.

It is also worth noting that the fixed-rate nature of the majority of the company's debt provides a hedge against the risk of rising interest rates, which is particularly relevant given the current upward trend in rates. This strategic financial structuring can be attractive to investors looking for stability in their REIT holdings.

Economist

The actions taken by Pebblebrook Hotel Trust must be viewed within the broader economic context. The extension of debt maturities is a strategic move in anticipation of potential economic headwinds. As interest rates rise, the cost of borrowing increases and businesses with significant near-term debt maturities may face refinancing risks. Pebblebrook's proactive approach to managing these risks by extending maturities and locking in a substantial portion of its debt at fixed rates can be seen as a hedge against future interest rate volatility.

This financial strategy also reflects a broader trend among corporations to shore up balance sheets in preparation for less favorable credit conditions. The use of property sales to generate liquidity, rather than acquiring more debt, indicates a shift towards more conservative financial practices in the face of economic uncertainty. Such strategic financial management can be crucial for the long-term sustainability of the company, as it balances growth opportunities with the need for financial resilience.

The company's management of its capital allocation, with an emphasis on enhancing liquidity and strengthening the balance sheet, could serve as a model for other firms in the hospitality industry and beyond. It underscores the importance of financial agility and conservative debt management practices during periods of economic flux.

BETHESDA, Md.--(BUSINESS WIRE)-- Pebblebrook Hotel Trust (NYSE: PEB) (the “Company” or “Pebblebrook”) today announced the successful extension of approximately $357 million of its $460 million October 2024 maturity term loan to 2028. The Company paid down approximately $157.6 million of existing term loans and unsecured private placement notes. As a result of the refinancing, Pebblebrook has no meaningful debt maturities until October 2025. The Company utilized cash on its balance sheet for the debt paydowns, which was generated from over $330 million of property sales throughout 2023, all in accordance with its stated strategic capital allocation objectives.

Pricing on all the Company’s term loans remained unchanged and is based on a pricing grid of 140 to 245 basis points over the applicable adjusted term SOFR.

“We appreciate and value our bank group’s continued strong support for our company with this debt refinancing,” said Raymond D. Martz, Co-President and Chief Financial Officer for Pebblebrook Hotel Trust. “We will continue to utilize proceeds from additional property sales and operating cash flow to reduce our debt, enhance our liquidity, strengthen our balance sheet, and create value through the repurchase of common and preferred shares at very significant discounts to the underlying private market value of the Company’s properties.”

Pebblebrook paid down its October 2024 maturity term loan to $400 million from $460 million and extended the maturity of $357 million to January 2028. In addition, the Company paid down its October 2025 maturity term loan to $410 million from $460 million, and paid down $47.6 million of its maturing private notes, leaving only approximately $43 million of debt maturing in late 2024. The Company’s $650 million unsecured credit facility remains undrawn and fully available. Following these debt activities, Pebblebrook has approximately $2.2 billion of outstanding debt and convertible notes at a weighted average interest rate of 4.6%. After taking swap agreements into account, approximately 75% of the Company’s total outstanding debt and convertible notes effectively bear interest at fixed rates.

BofA Securities Inc. led the Company’s term loan extension, serving as Joint Lead Arranger and Sole Bookrunner. U.S. Bank National Association serves as the Syndication Agent. Capital One, National Association; PNC Capital Markets LLC; TD Bank, N.A.; Truist Securities, Inc.; and Wells Fargo Bank, National Association serve as Documentation Agents and Joint Lead Arrangers. Raymond James Bank, Regions Bank, and Sumitomo Mitsui Banking Corporation serve as Senior Managing Agents.

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 in the United States. The Company owns 46 hotels, totaling approximately 12,000 guest rooms across 13 urban and resort markets. For more information, visit www.pebblebrookhotels.com and follow us at @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 “estimated” and “will” 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. The potential for additional asset sales and the intended use of proceeds from potential sales and operating cash flow are forward-looking statements. 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 U.S. economy, the operating performance of our hotels and the supply of hotel properties, and other factors as are described in greater detail in the Company’s filings with the Securities and Exchange Commission, including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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 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 January 4, 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

View source version on businesswire.com: https://www.businesswire.com/news/home/20240104777882/en/

Raymond D. Martz, Co-President and Chief Financial Officer, Pebblebrook Hotel Trust - (240) 507-1330

Source: Pebblebrook Hotel Trust

FAQ

What is the current ticker symbol for Pebblebrook Hotel Trust?

The current ticker symbol for Pebblebrook Hotel Trust is PEB.

What was the amount of the term loan extended by Pebblebrook Hotel Trust?

Pebblebrook Hotel Trust extended approximately $357 million of its $460 million October 2024 maturity term loan to 2028.

How did Pebblebrook Hotel Trust utilize cash for the debt paydowns?

Pebblebrook utilized cash on its balance sheet, generated from over $330 million of property sales throughout 2023, to pay down its existing term loans and unsecured private placement notes.

What is the total outstanding debt and convertible notes for Pebblebrook Hotel Trust?

Pebblebrook Hotel Trust has approximately $2.2 billion of outstanding debt and convertible notes at a weighted average interest rate of 4.6%.

Who led the term loan extension for Pebblebrook Hotel Trust?

BofA Securities Inc. led the Company’s term loan extension, serving as Joint Lead Arranger and Sole Bookrunner.