U.S. REITs – Pebblebrook Prompts New Lodging Selloff (Part 2 of 2)


Click here if you have not read Part 1.

This is not the first time this year that hotels suffered a major selloff. This August, when the market was still on ‘summer vacation,’ hotel REITs suffered one of the biggest drops in any sector. Share prices for the sector dropped by a median of -8.5 percent. In September, hotel REIT shares also fell by 6 percent. Following a rebound in October, they suffered new losses last Friday.

This new attack has positioned lodging unfairly with timber. From a sector standpoint, lodging REIT stocks has been one of the worst year-to-date returns. The difference is that — not to say the least — timber metrics have been suffering, while the lodging industry environment continues positive.

Compared with the same period last year, third-quarter results have been softer than those for second-quarter; yet good, distribution-boosting components have grown more slowly. Revenues increased by 27 percent in Q3, as opposed to 34 percent in Q2. Same-property-hotel EBITDA, an internal profitability metric, increased 8.6 percent, compared with 10.4 percent in Q2. FFO per share increased 22 percent, compared with 29 percent in Q2. As we mentioned, AFFO-per-share growth projected for 2015 has fallen by few basis points, to 27 percent.

Pebblebrook remains on the high end of the valuation range among lodging REITs, second only to Strategic Hotels & Resorts (NYSE:BEE). As of October 23, it has a price-to-AFFO ratio of 17× and a sector median of 13×. As to dividends, Pebblebrook has increased its dividend rate by 35 percent and dividend yield is around 3.7 percent. The company has, as we have observed, been part of a group of REITs that enjoy ‘premium’ valuation because of strong quarterly results and experienced management; also, its US$2½ billion market capitalization puts it in a good size position. We could see Pebblebrook as a top hotel REIT in the mid- to long term.


Note: Last table as of 23 October 2015.

Source: Fast Graphs, Pebblebrook Hotels Trust, Yahoo Finance

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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