Pebblebrook Hotel Trust (PEB - Free Report) recently completed the disposition of the company’s 99-room Topaz Hotel in Washington, D.C. to a third party for $33.1 million. The asset sale comes as part of the company’s disposition program aimed at optimizing its portfolio and reducing the leverage level.
The sale price indicates an EBITDA multiple of 19.5x and net operating income (NOI) capitalization rate of 4.4%, based on the property’s operating performance in 2018. Further, the sale price reflects a 17.9x EBITDA multiple and NOI capitalization rate of 4.9%, based on the trailing 12-month period ended Sep 30, 2019.
Pebblebrook plans to use sale proceeds for general business needs, which will likely include reducing the company’s outstanding borrowings.
The company’s strategic disposition plan, which commenced on Nov 30, 2018, aims to improve overall portfolio quality and 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. Therefore, such prudent use of sale proceeds will boost its portfolio’s growth profile.
As part of its strategic disposition program, the company has completed $1.33 billion of asset sales, including the sale of Topaz Hotel. In fact, in third-quarter 2019, it sold or executed contracts for sale of hotel properties worth $171.2 million. This included sale of Hotel Amarano Burbank for $72.9 million, Rouge Hotel for $42 million and Hotel Madera for $23.3 million.
Furthermore, amid favorable pricing levels and active transaction market with decent interest from buyers, the company remains on track to dispose $600 million in 2019, with $482.1 million of asset sales completed so far in the year.
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.
Currently, Pebblebrook carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 12.2% as against the industry’s growth of 1.9%.
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