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Pebblebrook (PEB) Completes Sale of Hotel Spero for $71M

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Pebblebrook Hotel Trust (PEB - Free Report) recently announced that it completed the disposition of Hotel Spero in San Francisco, CA. The 236-room property was sold to a third party for $71 million.

For this hotel, PEB recorded a net operating loss of $1.6 million and a negative Hotel EBITDA of $1.4 million during the trailing 12 months ended Jun 30, 2022. The disposition of the property seems strategic as, based on the hotel’s operating performance for 2019, this $71 million sale price denotes an EBITDA multiple of 9.1X and a net operating income capitalization rate of 9.8%.

Moreover, at the beginning of August, Pebblebrook sold off Sofitel Philadelphia at Rittenhouse Square in Philadelphia, PA, to a third party for $80 million. The company recorded a net operating income of $3.1 million and a Hotel EBITDA of $3.8 million during the trailing 12 months ended Jun 30, 2022, for the hotel. The $80 million sales price reflected an EBITDA multiple of 10.0X and a net operating income capitalization rate of 8.6%, based on the hotel’s operating performance for 2019.

Also, PEB intends to use the proceeds from the sale of these properties for general corporate purposes and to reduce its outstanding debt borrowings related to its recent hotel acquisitions. This is in sync with the company’s investment strategy.

The lodging industry is presently witnessing a rebound in traffic owing to the widespread vaccination drives and relaxations in the pandemic-related regulations. As a result, the demand for Pebblebrook’s urban and resort lifestyle hotels and resorts in the United States has once again revived.

Amid this recovery, PEB’s strategic capital-deployment efforts bode well for its growth. It aims to optimize the use of the proceeds from its dispositions and is focused on acquisitions and development activities. During the six months ended Jun 30, 2022, it acquired Inn on Fifth in Naples, FL, for $156 million and Gurney's Newport Resort & Marina in Newport, RI, for $174 million. It also disposed of The Marker San Francisco in San Francisco, CA, for $77 million during this period.

In addition, in the second quarter, Pebblebrook invested $22.5 million in its portfolio, including the completion of redevelopment and transformation of Hotel Vitale into 1 Hotel San Francisco for $28 million.

Although shares of PEB have declined 15.9% compared with the industry’s fall of 4.3% in the past six months, analysts seem bullish on this Zacks Rank #3 (Hold) stock.

The Zacks Consensus Estimate for the company’s third-quarter 2022 FFO per share has been revised 3.2% upward over the past month to 65 cents.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Extra Space Storage (EXR - Free Report) , Host Hotels & Resorts (HST - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised 2.3% over the past month to $8.46.

The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share has moved 1.2% northward in the past week to $1.75.

The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 4.2% upward in the past month to $1.49.

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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