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Pebblebrook (PEB) Sells Hotel, Advances With Hotel Reopenings

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Pebblebrook Hotel Trust PEB completed the disposition of its 416-room Kimpton Sir Francis Drake Hotel in San Francisco, CA, to a third party. With this, the company has generated net proceeds after receiving customary closing costs amounting to $157.6 million.

The sale price indicates an EBITDA multiple of 11.8X and a net operating income (NOI) capitalization rate of 7.2%, after assuming an annual capital reserve of 4% of total hotel revenues. Additionally, the property, which was purchased in 2010 for $90 million, has been a successful investment for the company, delivering an 11-year compounded internal rate of return of more than 12% a year.

Pebblebrook plans to use sale proceeds for general business needs, which will likely include reducing the company’s outstanding borrowings.

Such timely execution of asset disposition will likely boost the long-term operating profitability and aid in value creation for the company. However, asset sales will likely result in near-term earnings dilution. This might also dampen its near-term profitability margins.

The successful rollout of vaccination and the revival of leisure travel demand have led to the recovery of hotel occupancy. Amid this, hotel REITs, which were devastated in the early stages of the coronavirus pandemic, are now surging. Moreover, the relaxation of social-distancing norms and the reopening of cities have enabled hotel operators to restart operations.

In fact, Pebblebrook has recently resumed operations at five urban hotels — Argonaut Hotel San Francisco, Harbor Court Hotel San Francisco, Hotel Monaco Washington DC, Hotel Zelos San Francisco
and Revere Hotel Boston Common.

With this, the company has now reopened 44 of the 52 hotels and resorts in its portfolio. The reopened properties accounted for 86% of its 2019 Hotel EBITDA. Additionally, remaining suspended hotels are anticipated to reopen in the upcoming weeks and months, backed by demand recovery. Such efforts will likely boost the company’s portfolio occupancy and revenues in the upcoming periods.

Shares of this Zacks Rank #3 (Hold) company have surged 147% over the past year compared with the industry's rally of 27%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While the recovery in leisure travel is encouraging, it may take a while for business demand to return to the pre-pandemic levels amid the virtualized work environment. Hence, the outlook for urban and business-focused hotels remains gloomy as these markets have been acutely impacted by Covid-19.

Stocks to Consider

Alpine Income Property Trust, Inc.’s PINE FFO per share estimate for the current year has moved up 3.9% to $1.61 in the past month. The company sports a Zacks Rank of 1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crown Castle International Corp CCI Zacks Consensus Estimate for 2021 FFO per share has moved marginally north to $6.73 over the past month. The company currently carries a Zacks Rank of 2 (Buy).

Global Net Lease, Inc. GNL has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised 4% upward to $2.10 in two month’s time.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Crown Castle International Corporation (CCI) : Free Stock Analysis Report

Pebblebrook Hotel Trust (PEB) : Free Stock Analysis Report

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Alpine Income Property Trust, Inc. (PINE) : Free Stock Analysis Report

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