Pebblebrook bets on asset sales and redevelopment
Pebblebrook bets on asset sales and redevelopment
27 FEBRUARY 2017 9:41 AM

During the company’s latest earnings call with investors, Pebblebrook Hotel Trust executives outlined a strategy that focuses on asset sales and the redevelopment of multiple properties. 

BETHESDA, Maryland—Executives at Pebblebrook Hotel Trust touted the success of the company’s strategic disposition plan, which included $463.8 million in hotel and other asset sales in 2016, during a fourth-quarter and full-year earnings call with investors.

In the fourth quarter, Pebblebrook closed on the sales of the 270-room DoubleTree by Hilton Bethesda – Washington, D.C. for $50.1 million and the 618-room Manhattan NYC for $217.5 million, EVP and CFO Raymond Martz said.

The sale of these two properties fits within the company’s overall plan for the disposition of between $500 million and $1 billion in properties at private market values higher than the public market’s implied value, Chairman, President and CEO Jon Bortz said.

Pebblebrook also sold the Viceroy Miami, the Redbury in Hollywood and a small excess parcel of land adjacent to The Revere Hotel Boston Common in the fourth quarter.

“These values are indicative of values for high-quality hotels in major gateway cities with flexible brand and managers, which represents much of our existing portfolio,” Bortz said.

The company will continue to pursue the sale of other properties throughout 2017 to take advantage of the large differential between private market values and the lower public market values for the combined portfolio and company, he said.

Creating value through renovation
Pebblebrook completed a comprehensive redevelopment and repositioning of the W West Beverly Hills, the Vintage Portland and the Zephyr Fisherman’s Wharf for a combined $65.5 million, Bortz said. In 2016, the three properties brought in $7.5 million in increased earnings before interest, taxes, depreciation and amortization, he said.

In the future, executives expect the properties to pick up share and drive outsized performance relative to their markets through at least 2018, he said.

“The $7.5 million of increased EBITDA in 2016 represents a pretty good first-year return on our $65.5 million of invested capital to execute these repositionings,” he said.

In similar fashion, the company completed the redevelopment of the Union Station Nashville, Hotel Colonnade Coral Gables and Hotel Zeppelin in San Francisco last year, Bortz said. The work at the Monica, Washington, D.C., isn’t quite as comprehensive, he said, but it included the renovation of guestrooms, all meeting spaces and the property rebuilt and rebooted the concept of its restaurant.

“The combined investment in these four properties was $78 million,” Bortz said. “We expect these four properties will drive at least $5.5 million of increased EBITDA in 2017 with ramp up and share gain … continuing through 2019, ultimately adding a total of over $10 million of EBITDA.”

Pebblebrook is on schedule to complete three more redevelopments this year: the Palomar Beverly Hills, The Revere Hotel Boston Common and the Tuscan Fisherman’s Wharf. The Tuscan will become Hotel Zoe, the sixth hotel in the company’s unofficial “Z collection” in San Francisco. These projects represent a $49.5-million investment, and they’re expected to generate at least $5.5 million of increased EBITDA after they stabilize, Bortz said.

“Together these 10 redevelopments with a total investment of $193 million should generate increased EBITDA of $27 million by stabilization or a 14% EBITDA yield on investment,” he said. “That means we should be creating value of more than twice our investment.”

Overall reflections
Same-property revenue per available room grew 2.4% in 2016, Martz said, with room revenue increasing 3.1% after adding 33 guestrooms through the recent redevelopments.

Pebblebrook’s hotels generated $292 million of same-property EBITDA for the year, representing a 3% year-over-year increase, he said. Total hotel revenue grew 2.1%, he said, while expenses amounted to a 1.6% increase.

“This low growth rate in operating expenses reflects the progress we continue to make improving the operating efficiencies of our hotels, which we expect will continue into 2017,” Martz said.

During the fourth quarter, corporate transient and group demand remained soft to stable, Martz said, while leisure transient was relatively healthy in comparison. Optimism increased following the election, he said, but the business and leisure segments didn’t experience any surges in demand afterward.

Group revenue declined 10% during the fourth quarter, Martz said, as roomnights were down 12.1% and average daily rate grew only 2.3%. He added this wasn’t unexpected, as several markets saw weaker calendars. West Coast properties saw a 0.1% decrease in RevPAR, while East Coast properties saw a 0.9% increase in RevPAR.

As of press time, Pebblebrook’s stock was trading at $28, down 5.9% year to date. The Baird/STR Hotel Stock Index was up 18.9% for the same time period.

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