High-Growth Pebblebrook Wants To Be Better Than LaSalle

peb hotel ebitda margin

Pebblebrook Hotel Trust (NYSE:PEB) has an interesting, diversified portfolio of upper-upscale full-service hotels that closely resemble those of its peer LaSalle Hotel Properties (NYSE:LHO) — and that is no coincidence: Pebblebrook’s Chairman, President and CEO Jon Bortz had been the founder of LaSalle Hotel, of which he was Chairman and CEO for many years following its IPO in 1998.

Like those of LaSalle, Pebblebrook’s locations are roughly split between the two coasts. Both companies also have a high portion of independent hotels. In fact, 60% of Pebblebrook’s hotel EBITDA comes from the West Coast. In addition, 65% thereof is derived from independent hotels.

peb diversificationPebblebrook is toe-to-toe with LaSalle in terms of hotel EBITDA margins, which in 2014 were 32 and 33.2 percent respectively. A significant portion of the difference is associated with greater expenses. Pebblebrook is expecting asset management initiatives to make up for those expenses and to advance its margins to 35%.

Other operational metrics have been strong during Q1 2015 in comparison with the same period last year. Same-property RevPAR and ADR increased 3.6 and 6.3 percent respectively. However — and largely because of renovations — same-property occupancy decreased by 2.5 percent to 78.5 percent. The upper-upscale segment of the hotel business is very competitive.

peb locationThe growths of adjusted EBITDA and FFO per share above 30 percent boosted dividend distribution. Although the company increased its dividends per share by 35 percent in March, its annual payout ratio remained below 50 percent and dividend yield is 2.9 percent — well below its sector median. In terms of price-to-FFO, Pebblebrook is clearly overvalued in comparison with the peer median and even LaSalle. The entry point appears not to be an opportunity.

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Source: Pebblebrook Hotel Trust, Fast Graphs

Written by Heli Brecailo

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