Pebblebrook Hotel Trust Announces Pricing of 1.625% Convertible Notes Due 2030
Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”), a leading publicly traded real estate investment trust (REIT) focused on urban and resort lifestyle hotels, announced on September 16, 2025, the pricing of its private offering of $350 million aggregate principal amount of its 1.625% Convertible Senior Notes due 2030 (the “Notes”). The offering is being made exclusively to investors reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).
This financing initiative represents a key component of Pebblebrook’s ongoing strategy to manage its balance sheet proactively, extend its debt maturity profile, and reduce refinancing risk while preserving flexibility for future growth opportunities. The private placement is scheduled to close on September 18, 2025, subject to the satisfaction of customary closing conditions.
Importantly, the Company granted the initial purchasers of the offering a 13-day option to buy up to an additional $50 million aggregate principal amount of the Notes to cover potential over-allotments. Concurrent with the pricing, this option was exercised in full, bringing the total offering size to $400 million.
Net Proceeds and Strategic Use of Funds
Pebblebrook estimates that the offering will generate net proceeds of approximately $389.7 million after deducting underwriting discounts, commissions, and estimated transaction-related expenses. These funds, combined with approximately $4.1 million in cash on hand, will be used to repurchase approximately $400 million aggregate principal amount of its outstanding 1.75% Convertible Senior Notes due 2026 (the “2026 Notes”).
The repurchase will occur through privately negotiated transactions with certain holders of the 2026 Notes. By retiring near-term maturities, Pebblebrook is effectively reducing its refinancing exposure in 2026, while at the same time taking advantage of favorable capital market conditions to issue longer-term debt at an attractive rate of 1.625%. This move is expected to provide greater stability in the Company’s liability management strategy and could potentially lower future interest expenses compared to alternative financing scenarios.
Key Terms of the 2030 Convertible Senior Notes
The newly issued Notes will represent senior unsecured obligations of Pebblebrook, ranking equally in right of payment with all of the Company’s existing and future unsecured, unsubordinated indebtedness. They will rank senior to any future subordinated obligations, but will remain structurally junior to all existing and future debt and preferred equity of the Company’s subsidiaries.
The Notes will carry an annual interest rate of 1.625%, payable semiannually, and will mature on January 15, 2030, unless earlier converted, redeemed, or repurchased.
The conversion feature is an essential aspect of the offering. Each $1,000 principal amount of Notes will initially be convertible into 62.9129 Pebblebrook common shares, equivalent to a conversion price of approximately $15.89 per share. This represents a conversion premium of roughly 37.5% over the closing price of Pebblebrook’s common stock of $11.56 per share on September 16, 2025.
The conversion rate will be subject to customary adjustments in the event of certain corporate actions such as stock splits, dividends, or recapitalizations, but will not be adjusted for accrued and unpaid interest.
Holders may convert the Notes prior to July 15, 2029 only under certain circumstances and during specific periods. After this date, conversions can occur at any time until the close of business on the second scheduled trading day immediately preceding maturity. Upon conversion, Pebblebrook will settle its obligations by paying cash equal to the principal amount of the Notes converted and, at its option, either pay or deliver cash, common shares, or a combination thereof for any excess value above the principal.
Capped Call Transactions to Mitigate Dilution
In tandem with the pricing of the Notes, Pebblebrook entered into privately negotiated capped call transactions with one or more of the initial purchasers, their affiliates, and/or other financial counterparties (collectively, the “Option Counterparties”). These capped call agreements are designed to reduce potential dilution to common shareholders upon conversion of the Notes and/or offset any cash payments the Company may need to make above the principal amount of the converted Notes.
The capped call transactions cover, subject to customary adjustments, the same number of Pebblebrook common shares underlying the Notes. The initial cap price has been set at approximately $20.23 per share—representing a 75% premium over the $11.56 closing stock price on September 16, 2025. This pricing threshold effectively limits the dilution impact while aligning incentives for both shareholders and noteholders should Pebblebrook’s stock price appreciate significantly during the term of the Notes.
The use of capped calls underscores Pebblebrook’s commitment to shareholder protection. By proactively entering these derivative agreements, the Company reduces the risk of material equity dilution that often accompanies convertible note offerings.
