Pebblebrook Hotel Trust · NYSE:PEB
Pebblebrook Hotel Trust — Investor Day (September 2011)
99 slides from Pebblebrook Hotel Trust's investor day presentation, Sep 15, 2011
Slide 1: 2011 Institutional Investor and Analyst Meeting
ph 2011 Institutional Investor pebblebrook ok and Analyst Meeting HOTEL TR US September 14 & 15, 2011 New York, New York HE BENJAMIN, MANHATTAN SEPTEMBER 2011
Slide 2: Forward-Looking Statements
Forward-Looking Statements ‘Company}) business, nancial contin, lqudty, results of operations, plans and These forvard-looking statements are. based on the Company's bale, assumptions taking nfo 2ec0unt information current avaiable fo ecfatons can change as 2 result of many ‘change eccu's, the Compa
Slide 3: Agenda
Agenda = Introductions = Corporate Overview = Portfolio Review = Acquisitions Overview = Internal Growth =» Asset Management Overview and Opportunities = Balance Sheet and Capital Structure = 2011 Performance Update and Outlook = Questions and Answers = Property Tours pebblebrook
Slide 4: Introductions
Introductions = Jon E. Bortz cee Chairman and Chief Executive Officer Vea = Raymond D. Martz Chief Financial Officer = Thomas C. Fisher Chief Investment Officer = Matthew M. Partridge Director, Finance = Krishna J. Deva Analyst, Finance = Susan K. Patterson Assistant to Jon E. Bortz, Chairman and CE
Slide 5: Corporate Overview
corporate overview pet sblebrook
Slide 6: Corporate Highlights
Corporate Highlights + Leading hotel management team with deep industry experience and relationships + Excellent long-term track record of delivering industry-leading shareholder returns with less risk + Hotel demand likely to increase faster than supply, resulting in healthy occupancy and rate grow
Slide 7: Mission Statement
Mission Statement Deliver long-term industry-leading total returns to our shareholders, including a reliable stream of income, through opportunistic investment in high-quality lodging properties, utilizing a conservative capital structure. pet sblebrook
Slide 8: Vision
Vision To be the most respected hotel investment company with the highest enterprise value multiple. pet sblebrook
Slide 9: Core Values
Core Values The essential guiding principles of Pebblebrook, to be held even when it is a detriment to us: « All for one and one for all = Conduct ourselves with the highest degree of honesty and integrity = Treat everyone with respect = Relentlessly pursue continuous improvement (we are never satis
Slide 10: Organization Chart
‘Thomas Fisher EVP & CIO Robin Kennedy vP ‘Acquisitions Jennifer Yager Director ‘Acquisitions Jon Bortz Chairman & CEO Raymond Martz EVP & CFO Asset Management Steve Coe VP Asset Management Sontt Prado Jeff Randall VP Asset Management Kari Olsen VP Asset Management Jennifer Williams VP Asset Managem
Slide 11: Pebblebrook Execution
Pebblebrook Execution = Acquisitions: = IPO - $380.3M Net » DoubleTree Bethesda » Sir Francis Drake = Acquisitions: Westin - Skamania Lodge - Sheraton Santa Monica - Sofitel Philadelphia ‘a4 2009 Q1 2010 ;—— 932010 = Equity Raise - $226.3M Net = $200M Unsecured Credit Facility Conversion = Acquisiti
Slide 12: Corporate Strategy
Corporate Strategy Investment Strategy Invest (and divest) based on extensive research Diversify by geography, brands/independents, operators and customer base Utilize prudent capital structure Focus on properties with ‘opportunities b brook HOTEL TRUST Operating Strategy Staff for intensive asset m
Slide 13: Portfolio Review
portfolio review pebblebrook
Slide 14: Target Markets Identified at IPO
Target Markets Identified at IPO target Market © wo Longer Target Market 4 pebblebrook
Slide 15: Pebblebrook Hotel Portfolio
Pebblebrook Hotel Portfolio Urban, Primarily Coastal, Well Diversified @ Target Market @ Target Market with Acquisitions pebblebrook
Slide 16: Portfolio Operating Summary Run Rate
Portfolio Operating Summary Run Rate Portfolio’) (Hotel EBITDA in millions $) 2011F@) Rooms 4,631 Occupancy 775% ADR $207 RevPAR $159 Hotel EBITDA $98.9 Hotel EBITDA Margin 24.3% 2010 Variance 4,629 0.0% 77.2% 0.3% $192 7.8% $147 8.1% $85.8 15.3% 22.8% 150 bps a pebblebrook
Slide 17: High Quality Portfolio
High Quality Portfolio $230 $210 $190 $170 $150 $130 $110 $90 2010 Lodging REIT ADR") Comparison $226 s192 $185 S173 $162 $149 $136 $123 $98 BEE PEB” LHO HST DRH SHO HT AHT FCH a me gil wna sate pebblel rook
Slide 18: High Quality Hotels in Urban Locations
High Quality Hotels in Urban Locations Upper Upscale/Luxury in Urban Locations (% of Rooms) 83% 41% — 40% 29% 20% 18% 10% 1% PEB” LHO BEE CHSP HST DRH SHO AHT FCH HT® pebblebrook
Slide 19: Portfolio Diversification
Portfolio Diversification Pebblebrook’s portfolio EBITDA has strong geographic and operator diversification Geographic Diversification (%6 of Hotel EBITDA), Seattle, 3% Philadelphia, 6% Boston, 4% Minneapolis, 1 Miami, 0% Portland, 5% New York, 23%! Buckhead, 10% Los Angeles, 18% San Diego, 9% San F
Slide 20: Management Contract Flexibility
Management Contract Flexibility Long Term vs. Terminable Management Contracts (% of Hotel EBITDA() Long-Term, 39% Ll Terminable at Will, 18% Terminable on Sale, 43%2) a pebblebrook
Slide 21: Management and Brand Flexibility
Management and Brand Flexibility 60% 50% 40% 30% 20% 10% 0% Non-Branded/Independent Hotels typically sell for 10%-15% premiums to most Non-Branded/Independent Hotels") 51% 52% 16% branded properties due to their ability to be branded in the future (% of Rooms) 9% 8% 6% 6% 3% 1% 1% gy, PEB"LHO BEE SH
Slide 22: Portfolio Segmentation
Portfolio Segmentation 2011F Portfolio Segmentation (% of Rooms Occupied()) Transient, 71% Group, 29% 22 (omatnninessiean tein pebblebrook
Slide 23: Acquisitions Overview
PEPE ifs acquisitions overview pet sblebrook
Slide 24: Investment Strategy
Investment Strategy Primarily Major Cities (Urban) By de-commoditizing the hotel product, Pebblebrook is able to benefit from increased pricing power and outperformance over the long term Monaran Los Angeles rebblebrook
Slide 25: Urban and Upper Upscale Have Historically Outperformed the Industry
Urban and Upper Upscale Have Historically Outperformed the Industry wer Urban vs. U.S. Hotel Industry RevPAR Performance ‘eae SES industry Year-Over-Year RevPAR % Growth sme US Urban Year-Over-Year RevPAR % Growth = = US industy RevPar cAGR = = us uisan RevPAaR CAGR 10.0% 50% 33% 0.0% “~ 6.0%) a US
Slide 26: Investment Criteria
Investment Criteria Unlevered IRRs, average cash- on-cash, and discount-to- replacement cost are our primary investment criteria. Target 5-year unlevered IRRs Discount-to-replacement cost between 10.0% and 12.0%. ‘of 20%-50%. Investment Criteria Prudently utilize leverage. 5-year average cash-on-cas
Slide 27: Investment Summary
Investment Summary Estimated Estimated Discount-to- Replacement 2010 EBITDA Total Price Price Per Key Replacement Cost Per Key vs. Hotel Name Rooms (Millions) _ (Thousands) Cost (Thousands) Prior Peak@ DoubleTree by Hilton Bethesda 970 $67.1 $249 25% $330 N/A Sir Francis Drake 416 90.0 216 50% 435 (
Slide 28: Attractive Acquisition Opportunities from Multiple Sources
Attractive Acquisition Opportunities from Multiple Sources Management's extensive long-term relationships with owners, operators, lenders, brokers and other key players provide a healthy pipeline of opportunities dsphoet hltbtht Composition of Acquisition Sources pl la! (0 of capital invested for ac
Slide 29: Acquisition Outlook
Acquisition Outlook = Significant decline in the number of high quality acquisition opportunities in our target markets since Q2 2011. = Slowdown in transactions expected to continue during next 90- 180 days, as gap between buyers and sellers widens. =» Upcoming debt maturities should continue to ca
Slide 30: Acquisition Environment Has Favored Public Buyers
Acquisition Environment Has Favored Public Buyers Transaction activity significantly increased in 2010 and YTD 2011; sellers face significant pending maturities Transaction Volume Pending Commercial Real Estate Debt Maturities “ sooo seco 887 $45 Approximately half of 2011E hasta $339 iansactions of
Slide 31: Internal Growth
internal growth pet sblebrook
Slide 32: Internal Growth
Internal Growth = Improving market fundamentals from the economic recovery = Substantial operating margin growth opportunities within the current portfolio versus the lodging REIT peer group = Considerable RevPAR penetration upside as a result of lost RevPAR penetration during the last two-plus year
Slide 33: Capitalizing on Forecasted Improvement in Fundamentals
Capitalizing on Forecasted Improvement in Fundamentals Lodging industry exhibiting improvement in fundamentals and projecting a sustained recovery Year-Over-Year Trough to Peak Cumulative RevPAR Growth 20% on > ca > =| Ewe > 7.0% 2.0% (3.0%) (8.0%) (13.0%) % Cycle Trough in RevPAR (18.0%) * 2 2 SSS
Slide 34: EBITDA Margin Upside Opportunity
EBITDA Margin Upside Opportunity 35.0% 30.0% 25.0% 20.0% 15.0% 2010 Hotel EBITDA Margin Comparison") 34.2% 29.1% 215% The 630 bps difference in Hotel EBITDA margin between LHO and PEB would represent approximately ‘$24M in Hotel EBITDA for PEB in 2010 Pebbiebrook’s Hotel EBITDA ‘margin without the M
Slide 35: Significant RevPAR Penetration Opportunity
Significant RevPAR Penetration Opportunity Beyond Last Two Years RevPAR Penetration Index Highlights of Properties Variance to ith Significant TIM July Varianceto _ Prior Peak TTM July : 2011 TTM July 2011 Year Prior Peak 2011 Grand Minneapolis 89 114 (2,549 bps) 2008 128 Affinia Manhattan® 73 92 20
Slide 36: RevPAR Penetration
RevPAR Penet RevPAR penetration declines due to capital deprivation, foreclosures, receivership, recent renovation impact and lack of asset management by prior ownership present significant upside Pebblebrook Portfolio Weighted Average RevPaR RevPAR Penetration") 105.0 — The 366 bps decline in RevPA
Slide 37: Portfolio Upside In Perspective
Portfolio Upside In Perspective Estimated F Prior Peak June 2011TTM Opportu Occupancy 80.7% 774% (328 bps) ADR $227 $198 (12.7%) RevPAR $183 $152 (17.2%) Hotel EBITDA (in millions) $129 $79 (38.3%) Hotel EBITDA Margin 32.5% 24.1% (833 bps) EBITDA Yield 9.4% 5.8% (358 bps)
Slide 38: Upside from Major Renovations/Repositionings
Upside from Major Renovations/Repositionings Investment Estimated Hotel Name (in millions) Renovation Highlights Start Completion Guestrooms refresh, corridors, lobby, porte cochere, DoubleTree by Hilton Bethesda $4.4 garage and entrance renovation 410 a2 Comprehensive full property renovation, incl
Slide 39: Affinia Manhattan
Affinia Manhattan pet sblebrook
Slide 40: Sir Francis Drake
Sir Francis Drake Before Renovation
Slide 41: Grand Hotel Minneapolis
Grand Hotel Minneapolis Before Renovation
Slide 42: Sheraton Delfina
Sheraton Delfina Before Renovation
Slide 43: Hotel Monaco Seattle
Hotel Monaco Seattle Before Renovation - - — pet sblebrook
Slide 44: Rate Compression Opportunity
Rate Compression Opportunity Pebblebrook’s portfolio occupancy is significantly above the US Industry, Urban and Upper Upscale averages, allowing for outsized rate growth and better flow-through Expected average flow-through: From Occupancy'’:50% - 60% From Rate Growthi"): 65% - 75% Pe US Industry O
Slide 45: Pebblebrook Hotel Portfolio Occupancy Levels
Pebblebrook Hotel Portfolio Occupancy Levels July 2011 TTM Market Tract Occupancy New York Uptown / Midtown, New York Lower Manhattan ‘Santa Monica / Marina Del Rey 81% 82% 78% Last Cycle Prior Peak TTM ‘Occupancy 86% 85% 79% Last Cycle Prior Peak TTM January 2006 February 2008 January 2008 Historic
Slide 46: Asset Management Overview and Opportunities
asset management overview and opportunities pebblebrook
Slide 47: Relentless Asset Management
Relentless Asset Management “We Are Never Satisfied” Capital Investment Strategic planning of short-term and long-term capital investments to increase hotels’ profitability Constant pursuit of retum on investment opportunities including expansions, additions, renovations, technology, energy efficien
Slide 48: Experienced Asset Management Team
Experienced Asset Management Team Steve Coe Jen Williams 26 years in the hotel industry = 15 years in the hotel industry Senior Vice President, Asset = Senior Vice President, Peninsula Management, Highland Hospitality Real Estate Regional Vice President, Hotel Vice President, Tishman Hotel Division,
Slide 49: Broad Portfolio Upside Opportunity (Without Manhattan Collection)
Broad Portfolio Upside Opportunity Without Manhattan Collection 2010 PEBO Nominal PEBM) LHe (in millions) Margin Margin Occupancy 75% 330 bps ‘ADR S178 $185 RevPAR S131 $132 Revenues Rooms ste 60% 55% Food and Beverage sa 22% 28% Other 24 3% 7 Total Revenues 3307 TD0% 700% Expenses Rooms 952 22% 25%
Slide 50: Broad Portfolio Upside Opportunity (With Manhattan Collection)
Broad Portfolio Upside Opportunity With Manhattan Collection 2010 PEBO) Nominal PEBM (in millions) Margin Occupancy 71% 71% ADR $192 $185 RevPAR sia7 $132 Revenues Rooms $248 65% 05% Food and Beverage 102 21% 28% other 27 7% 7 Total Revenues ST 100% 100% Expenses Rooms sm 20% 25% Food and Beverage 7
Slide 51: Broad Opportunity
Broad Opportunity With Manhattan Collection Without Manhattan Collection 2010 Margi Hotel Revenues $377 100% $307 100% Hotel EBITDA $86 23% $64 21% Implied Hotel EBITDA assuming a 29.1% EBITDA Margin sito 29% $89 29% Incremental EBITDA $24 635 bps $25 831 bps Incremental EBITDA Percentage 28% 28% 40
Slide 52: Identified Asset Management Opportunities To Date
Identified Asset Management Opportunities To Date — Portfolio Wide Examples Estimated Savings = Complete comprehensive energy audits Implement energy ROI and conservation programs * Change purchasing programs and implement best practice controls to increase profitability = “Right Size” manager and h
Slide 53: Identified Energy Savings Opportunities
Identified Energy Savings Opportunities ide estimated annual energy savings iden Building HVAC Upgrades and Equipment Refurbishment Estimated Annual Savings - $1,170k Initial Investment - $3,590k Steam to Natural Gas Conversion Estimated Annual Savings - $260k Initial Investment - $1,120k Install/Mo
Slide 54: Case Studies
Case Studies Westin Gaslamp Quarter Renovation & Repositioning Sir Francis Drake Food and Beverage Opportunities & Best Practices Grand Hotel Minneapolis Renovation & Repositioning Viceroy Miami Comprehensive Asset Management pebblebrook
Slide 55: Case Study 1: Renovation & Repositioning
Case Study 1: Renovation & Repositioning Westin Gaslamp Quarter San Diego pebblebrook
Slide 56: Case Study 1: Renovation & Repositioning
Case Study 1: Renovation & Repositioning Westin Gaslamp Quarter San Diego Investment Overview Off-market transaction, acquired directly from Starwood Excellent downtown / Gaslamp location Significant discount to estimated replacement cost (30%) Acquired for $110.0M ($244K per room) Excellent long-te
Slide 57: Case Study 1: Renovation & Repositioning
Case Study 1: Renovation & Repositioning Westin Gaslamp Quarter San Diego Opportunity: Renovation & Repositioning Last major renovation in 1987 Property has lost 1,800 bps in RevPAR penetration since 2006") Previously brand operated with no asset management Planned expansion of convention center sup
Slide 58: Case Study 1: Renovation & Repositioning
Case Study 1: Renovation & Repositioning Westin Gaslamp Quarter San Diego Renovation Focus = $25M comprehensive total property renovation * Renovated/expanded meeting space and = Guestrooms and corridors ballrooms = Public areas and lobby = Restaurant renovation and re-concept = Entry and porte coch
Slide 59: Case Study 1: Renovation & Repositioning
Case Study 1: Renovation & Repositioning Westin Gaslamp Quarter San Diego Opportunity for incremental EBITDA of at least $3.2M in today’s dollars Occupancy 80% 76% ADR $193 $157 RevPAR $154 $119 RevPAR Penetration Index 104.7 87.0 Hotel EBITDA (in millions) $15.4 $7.8 Hotel EBITDA Margin 40% 27% ° p
Slide 60: Case Study 2: F&B Opportunities & Best Practices
Case Study 2: F&B Opportunities & Best Practices Sir Francis Drake San Francisco sebblebrook
Slide 61: Case Study 2: F&B Opportunities & Best Practices
Case Study 2: F&B Opportunities & Best Practices Sir Francis Drake San Francisco Investment Overview Famous historic hotel Excellent Union Square location Extremely high barriers to entry “A” location in a truly world class city Historic meeting space and public areas Destination restaurant and nigh
Slide 62: Case Study 2: F&B Opportunities & Best Practices
Case Study 2: F&B Opportunities & Best Practices Sir Francis Drake San Francisco F&B Best Practice Highlights = Establish new food purchasing and specification program = Review and revise all menu offerings to reduce waste, control portion sizes, consolidate specifications, reduce inventories and si
Slide 63: Case Study 2: F&B Opportunities & Best Practices
Case Study 2: F&B Opportunities & Best Practices Sir Francis Drake San Francisco F&B Best Practice Examples Utilize and consolidate to program vendors Change food specifications to be more efficient and cost effective while retaining quality Weigh and verify all items upon delivery Create detailed c
Slide 64: Case Study 2: F&B Opportunities & Best Practices
Case Study 2: F&B Opportunities & Best Practices Sir Francis Drake San Francisco Food purchasing changes and controls resulting in estimated $300k annual savings = Beverage controls resulting in estimated $25k annual savings = Food cost YTD June down 184 bps = Beverage cost YTD June down 162 bps $1.
Slide 65: Case Study 3: Renovation & Repositioning
Case Study 3: Renovation & Repositioning Grand Hotel Minneapolis sebblebrook
Slide 66: Case Study 3: Renovation & Repositioning
Case Study 3: Renovation & Repositioning Grand Hotel Minneapolis Investment Overview Excellent downtown location Significant discount to estimated replacement cost (60%) Unencumbered by brand or operator Strong stable cash flow from Life Time Fitness (NYSE: LTM) athletic club and restaurant leases D
Slide 67: Case Study 3: Renovation & Repositioning
Case Study 3: Renovation & Repositioning Grand Hotel Minneapolis Repositioning Opportunities Healthy business travel recovery No new supply Adding strong boutique brand and new hotel management Significant renovation Effective post-renovation relaunch plan to encourage trial and educate guests Creat
Slide 68: Case Study 3: Renovation & Repositioning
Case Study 3: Renovation & Repositioning Grand Hotel Minneapolis Grand Hotel Minneapolis RevPAR Penetration RevPAR rank increased from #6 at purchase in September 20701031 in | 122% san July 2011 Compettive Set Luxury Collection Hotel Wy Hilton Marquette Hotel uso Wyndham Graves 601 Hotel Westin Min
Slide 69: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami
Slide 70: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami Investment Overview Acquired from lender Premiere location on Brickell High quality asset and amenity base Newly built, luxury quality Gateway city sebblebrook
Slide 71: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami Repositioning Thesis 5 diamond quality; 4 diamond service “Right-size” management and staff Implement best practices Increase ancillary revenues Restructure rental management program Operations yet to stabilize Revise revenue management stra
Slide 72: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami Payroll and Turnover Food and Beverage Other $800k $250k $500k annualized savings annualized savings annualized savings/benefits = Reduce payroll from 186 = Re-engineer menus in = Restructure rental employees to 128 restaurant and management
Slide 73: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Revenue Management Housekeeping Replace off-site third party revenue manager with on- site revenue manager Maintain current business mix — group and transient Properly position hotel at increased pricing levels ADR Penetration Index. increased 9.6% in Jul
Slide 74: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami Small cost savings initiatives add up to contribute to the hotel’s bottom line Rooms Laundry Reduced linen/terry placement in rooms, no second service eis oa * Reduced pounds per occupied room cleaned in July by 2.7Ib Uniform Cleaning Estima
Slide 75: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami ated annual green Replace incandescent lighting in guestrooms, hallways and BOH with fluorescent and LED bulbs Estimated Annual Savings - $85k Range hood controls installed Estimated Annual Savings - $15k Rolling out Choose to Conserve Progr
Slide 76: Case Study 4: Comprehensive Asset Management
Case Study 4: Comprehensive Asset Management Viceroy Miami‘ Broker Pebblebrook 2010A_ _2011F) 2011F Occupancy 68.4% 72.0% 77.8% ADR $188 $222 $201 RevPAR $128 $160 $156 Hotel Revenue (in millions) $14.8 $17.1 $18.1 Hotel EBITDA (in millions) ($0.8) $1.3 $1.8 ier Hotel EBITDA Margin (5.6%) 7.8% 10.2%
Slide 77: Balance Sheet and Capital Structure
balance sheet and capital structure pebblebrook
Slide 78: Long-Term Capital Structure
Long-Term Capital Stru Pebblebrook’s approach is to utilize a conservative amount of debt to minimize risk and absorb cyclical downturns ng-Term Targeted Capital Structure Long-Term oor Current Target sors i a % 50%-60% commen equity | Common Equity/Total Assets 54% — 50%-60% 70% 50% - 60% sare Pref
Slide 79: Credit Facility and Balance Sheet Highlights
Credit Facility and Balance Sheet Highlights Consolidated —Unconsolidated (Sin millions) Portfolio wv Total Invested Assets $1,138 $446 «$1,584 Total Debt and Stockholders Equity: Non-Recourse Secured Debt $252 - $252 Unsecured Credit Facility Debt 42 - 42 Pro-Rata Non-Recourse JV Debt = $292 292 To
Slide 80: Pebblebrook Portfolio Debt Maturities
Pebblebrook Portfolio Debt Maturities Credit Facility = $200M unsecured credit facility, with $158M currently available = Ability to upsize to $400M * Pricing 250-350 bps over LIBOR = Term of 3 years (June 2014) with a one-year extension option to June 2015 Loan Amount Current Property ns) InterestR
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