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Pebblebrook (PEB) Sells 909 North Michigan Avenue for $27.3M

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Pebblebrook Hotel Trust (PEB - Free Report) recently completed the disposition of 909 North Michigan Avenue to a third party for $27.3 million. The 5,860 square feet, 3-tenant fully occupied high-street retail parcel is situated adjacent to the PEB’s Westin Michigan Avenue Chicago. The move is in sync with the company’s investment strategy.

The sale price of the property reflected almost a 7.7% cap rate based on its net operating income for 2022, making the disposition of the property a strategic fit.

Pebblebrook intends to use the sale proceeds for general corporate purposes, which may include reducing its outstanding debt, and repurchasing its common and preferred shares.

The lodging industry is presently witnessing a rebound in traffic owing to the relaxations in the pandemic-related regulations. Leisure demand remains robust while business transient and group demand continues to recover, with the recovery being more pronounced in the urban markets. This has resulted in a demand surge for Pebblebrook’s urban and resort lifestyle hotels and resorts in the United States.

In fourth-quarter 2022, the same-property total revenue per available room (RevPAR) was up 27.9% year over year. The same-property EBITDA of $65.2 million was 23.3% above the 2021 level.

PEB’s strategic capital-deployment efforts bode well for its growth. The company aims to optimize the use of its dispositions’ proceeds. It is focused on acquisitions and development activities.

In February 2023, it carried out the sale of The Heathman Hotel in Portland, OR, for $45 million to a third party. PEB recorded a net operating income of $1 million and a Hotel EBITDA of $1.2 million for the hotel in the trailing 12 months ended Dec 31, 2022.

The sale price of the property denoted an EBITDA multiple of 10.7X and a net operating income capitalization rate of 8.4% based on the hotel’s operating performance for 2019.

Moreover, in 2022, Pebblebrook disposed of properties worth $260.9 million.

In 2022, the company acquired the 119-room Inn on Fifth in Naples, FL, for $156 million, excluding prorations and transactions costs, and the 257-room Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) in Newport, RI, for $174 million.

PEB currently carries a Zacks Rank #3 (Hold). Its shares have gained 6.7% in the past three months against the industry’s fall of 1.2%.

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However, interest rate hikes, inflation and macroeconomic uncertainty raise concerns for the company.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities (ARE - Free Report) , Terreno Realty (TRNO - Free Report) , each currently carrying a Zacks Rank #2 (Buy) and Service Properties Trust (SVC - Free Report) , currently carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share stands at $8.94.

The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.

The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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