Pebblebrook Hotel Trust PEB recently executed a contract to sell Rouge Hotel in Washington, D.C. for $42 million to a third party.
The sale of the 137-room hotel indicates an EBITDA multiple of 17.4x and net operating income (NOI) capitalization rate of 5%, based on the property’s operating performance in 2018.
Further, the sale price reflects a 17.7x EBITDA multiple and NOI capitalization rate of 4.9%, based on the trailing 12-month period ended March 2019. Notably, the NOI capitalization rate is after considering an assumed annual capital reserve of 4% of total hotel revenues.
This sale is estimated to close in third-quarter 2019. Subsequent to the sale, Pebblebrook’s estimated total net debt to trailing 12-month corporate EBITDA ratio will be around 4.6 times.
Additionally, early this June, the company executed a contract to dispose Hotel Amarano Burbank in Los Angeles, CA, for nearly $72.9 million to a third party.
These asset sales are part of the company’s strategic disposition plan commenced on Nov 30, 2018. Such dispositions will boost its portfolio’s growth profile and aid the company to repay debt and reduce leverage ratio to a target of 4-4.25 times.
In addition, Pebblebrook is reinvesting the sale proceeds for additional renovation and repositioning projects throughout its portfolio.
However, asset sales will likely result in near-term earnings dilution. This may also impact near-term profitability margins. Moreover, shares of the company have declined 3.8% over the past six months, underperforming the industry’s rally of 22%.
Short-term disruption aside, the company’s transition to new operators and timely execution of strategic changes will likely improve long-term operating profitability and value creation for the company.
Pebblebrook currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Key Picks
Investors can also consider other top-ranked stocks from the same space like Host Hotels & Resorts, Inc. HST, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB, carrying a Zacks Rank of 2, currently.
Host Hotels & Resorts’ funds from operations (FFO) per share estimates for 2019 moved marginally north to $1.82 over the past two months.
Lamar Advertising’s FFO per share estimates for the ongoing year have been revised slightly upward to $5.83 in 30 days’ time.
PS Business Parks’ current-year FFO per share estimate moved up marginally to $6.71 in the past month.
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