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Pebblebrook: Travel-O-Phobia A Threat To The Entire Lodging REIT Sector

Mar. 06, 2020 1:09 AM ETPebblebrook Hotel Trust (PEB)4 Comments
And Value for All profile picture
And Value for All


  • Lodging REITs are the most sensitive to the overall economy’s health. A decrease in tourism and travel directly has a direct effect on Hotel REITs' FFO;
  • COVID-19 is spreading rapidly outside of China. After Korea, infections are increasing at a fast pace in most European countries (not only Italy).
  • PEB shares look cheap on a P/FFO basis, but if occupancy starts to plunge, so will FFO.
  • The elevated debt load may put Pebblebrook's operations under heavy pressure: don’t fall for the high yield and avoid the whole sector for now.

A bit of catching-up

Before start, let me remind you this is my second article about Pebblebrook Hotel Trust (NYSE:PEB) on Seeking Alpha. I already covered the company in this article last November, when I had a bearish outlook on the stock. Since then, the S&P 500 has returned 3% and PEB -25% (dividends included). I made my call based on the unfavorable macro trends I foresaw for the whole lodging sector rather than problems at the company level. Fast forward a few months, and the spread of the COVID-19 infection has been the catalyst dramatically accelerating the awaited downturn. PEB has been the worst performer within the peer group, which includes Park Hotels & Resorts (PK), Host Hotels & Resorts (HST), Hersha Hospitality Trust (HT), DiamondRock Hospitality Company (DRH), and Sunstone Hotel Investors (SHO). Still, the performance of the entire upper-upscale lodging sector has been abysmal in light of the virus spread.

Source: Morningstar

On February 21, the company also released its FY2019 results. The numbers came in ahead of expectations, with beats at both revenue and FFO levels. Same-Property RevPAR for the fourth quarter increased 2.0% YOY to $196.34, thanks to an occupancy increase of 2.5% to 79.4%, although the company had to sacrifice on the rate side (0.5%) to achieve this result. The company continued managing its portfolio with one additional disposal, bringing the number of owned properties down to 56. Since the integration of the LaSalle portfolio, Pebblebrook completed a total of $1.33 billion of hotel sales, with most of the proceedings used for deleveraging. The D/EBITDA ratio at the end of December stood at 4.7 times, much higher than the more conservatively managed Host but not dissimilar from other names in the lodging space. The leverage employed on a D/EBITDA basis stood at 4.2 times for Park Hotels & Resorts and 4.4 times for Ryman Hospitality Properties (

This article was written by

And Value for All profile picture
Finance Director. I work for a large-cap, EU-listed, consumer goods company. Passionate about everything concerning finance and, in particular, investing. I manage my portfolio. Current equity portfolio follows a buckets allocation strategy (as of 2023) that's about 50% ETF, 25% High Yield (incl. preferred shares), 15% DGI, and 10% high-conviction names (kind of bin collecting anything not fitting the other  categories, but mostly spec growth & deep value).At the ongoing assets progression rate, I am hopeful to retire from corporate life and turn to full-time investing within a decade. In the meantime, I will continue contributing to Seeking Alpha as a hobby and for self-development.I am a former semi-pro chess player, now at high risk of becoming a ski bum: that's why I tend not to write much during winter months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

Their asset sales corroborates their NAV. Good balance sheet will let them ride out this storm.
And Value for All profile picture
Mhh also Wereldhave asset sales corroborated their NAV until it didnt. Guess what, nobody likes to sell for less than what they think something is worth, until they are forced to. Balance sheet is totally in the speculative grade area. That said, I agree they will not go BK, just warning that I believe the stock will go much lower before going up agan.
thkalinke profile picture
"It is hard to hypothesize how severe the impact could be under a worst-case scenario."

HST touched the low single digits back in 2009, so I'm guessing that if we end up in a zombie apocalypse, PEB could end up a penny stock.

I humbly think that world leaders aren't helping. "No reason to be frightened, but if you sneeze, stay home and dead-bolt your doors for two weeks." Then there's the news media. Is it really helpful to watch footage of workers in haz-mat suits spraying bleach on sidewalks?

Sick-outs and cancelled reservations aside, can sentiment get much worse?

FWIW, I bought a little PEB yesterday, and I'll keep nibbling as it keeps going down.
And Value for All profile picture
Thanks for reading. If it goes on like this, we will see a lot of penny stocks in the coming months!
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