Following its official Q2 announcement last week, Pebblebrook began trading with a significant 5% drop. Pebblebrook continues to tread lightly after seeing business travel getting soft in Q2. The weakening of corporate demand in transient and group travel forced Jon Bortz (Founder, Chairman, and CEO of Pebblebrook) to lower expectations for some of the hotel metrics.
The REIT reported that some industries have been sensitive to costs due to weaker corporate profits. For instance, energy and financial services have been more ‘thoughtful about travel’ and have been cutting back on travel. The drop in corporate earnings has forced management teams to become more conservative when it comes to helping their companies save capital. It is also vital to point out that current global events and a stronger U.S. dollar are making people leery about traveling. This has certainly affected the company’s results.
Despite the market’s negative reaction, the firm owns a portfolio that has the potential to deliver positive results over the next year. The customer base has a mixed profile and the west coast properties (especially Portland and Los Angeles) are performing very well at this time.
The company has also made an earnest effort at reuniting a strong series of internal catalysts of growth. They sold a land parcel and two hotels recently. They have also devoted a great deal of their time in renovating and repositioning a number of hotels. The sales of proceeds will be used to lower outstanding debt on a credit facility. The sales of proceeds may also be used to repurchase stocks and pay special dividends.
Pebblebrook’s 5% dip is not as big as their last major share price fall to $24 in June. The slight dip provides a buy opportunity that shrewd investors cannot afford to ignore. Last year, the company was trading above 20 times its AFFO. It is presently trading at 11 times its AFFO. This is not a solid guarantee that the price will increase, it just points out that investors have seen this before.
In short, one must be prudent when it comes to investing in REIT stocks. There’s much hype out there. Pebblebrook has exceptional management and an impressive portfolio. With this slight dip, we have decided to buy the stock. We didn’t want to miss this opportunity!
Source: Pebblebrook Hotel Trust(NYSE:PEB)
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 is long FCH, XHR, CLDT, and PEB.