Pebblebrook strengthens balance sheet through refi, convertibles sale

By Devika Patel

Knoxville, Tenn., July 30 – Pebblebrook Hotel Trust sold convertible notes and completed a preferred refinancing last quarter, leaving its balance sheet improved and able to fund additional investment opportunities.

“On May 13, we raised $230 million of capital through a 6.375% series G preferred equity raise,” executive vice president, treasurer and chief financial officer Raymond D. Martz said on the company’s second quarter ended June 30 earnings conference call on Friday.

“On July 27, we successfully raised $250 million through our 5.7% series H preferred equity raise, the largest preferred offering ever in the lodging space and equal to the lowest rate ever.

“This raise refinances an equivalent amount of higher priced redeemable preferred securities, our 6.5% series C preferred shares and 6.375% series D preferred shares.

“This effective $250 million swap will reduce our preferred dividend payments by approximately $1.8 million annually,” Martz said.

The improved balance sheet will allow the company to fund investment opportunities.

“We are proud of the tremendous progress we have made strengthening our balance sheet, reducing near-term debt maturities and lowering our cost of capital through our various preferred refinancings and convertible notes offerings while also increasing our liquidity,” Martz said.

“This positions us to take advantage of additional new investment opportunities as they become available,” he said.

As of June 30, total liquidity was $967.2 million, including $323 million of cash on hand and $644.2 million available on the $650 million credit facility.

On May 7, the company priced the 8 million shares of series G preferred at par of $25.00.

The deal had a 30-day greenshoe to purchase 1.2 million additional shares for $30 million, which was exercised in full and lifted the total proceeds to $230 million.

Raymond James & Associates, Inc., Wells Fargo Securities, LLC, BofA Securities, Inc. and BMO Capital Markets Corp. were the joint bookrunners.

The preferreds are callable at par beginning May 13, 2026 or upon a change of control.

Distributions will be made on Jan. 15, April 15, July 15 and Oct. 15 of each year, beginning Oct. 15, 2021.

The company said at pricing that it would contribute the net proceeds from the sale to its operating partnership, which would use 50% of the net proceeds to reduce its outstanding debt and the remaining 50% for general corporate purposes, including acquiring and investing in hotel properties.

On July 22, Pebblebrook priced the $250 million, or 10 million shares, of 5.7% preferreds with a liquidation preference per share of $25.00.

There is no greenshoe.

The perpetual securities are non-callable for five years and then optionally callable at par plus accrued dividends.

The preferreds are expected to be listed on the New York Stock Exchange under the symbol “PEBPrH.”

Wells Fargo Securities LLC, Raymond James & Associates and BofA Securities Inc. are the joint bookrunning managers of the deal. Joint lead managers are Robert W. Baird & Co. Inc. and Stifel, Nicolaus & Co., Inc.

The company’s operating partnership will use the proceeds to fund the redemption of its series C and series D preferreds.

On July 22, the company issued a call for the $125 million of 6.375% series D cumulative redeemable preferreds.

The redemption price for the 5 million issued and outstanding preferreds will be $25.00 each plus accrued dividends to but excluding the redemption date of Aug. 21.

Then, on July 23, Pebblebrook issued a call for its $125 million of 6.5% series C cumulative redeemable preferreds.

The redemption price for the 5 million issued and outstanding series C preferreds will be $25.00 each plus accrued dividends to but excluding the redemption date of Aug. 21.

Equiniti Trust Co. (651 450-4064) is the redemption and paying agent for both redemptions.

Pebblebrook is a Bethesda, Md.-based real estate investment trust.

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