During the company’s second-quarter earnings call, officials with Pebblebrook Hotel Trust said there are lots of reasons to feel good about the broader hotel industry and their ongoing attempts to purchase LaSalle Hotel Properties.
BETHESDA, Maryland—Pebblebrook Hotel Trust President and CEO Jon Bortz currently has a high degree of confidence.
That confidence is driven by a strong quarter of performance among his company’s portfolio and the wider industry, along with what he believes is signs that investors favor his company’s bid for fellow real estate investment trust LaSalle Hotel Properties.
Pebblebrook has been engaged in a public pursuit of LaSalle for months, despite the fact that LaSalle officials in May announced—and have since reaffirmed—plans to sell the company for $33.50 a share in cash to Blackstone.
Pebblebrook’s latest offer is to give LaSalle shareholders an option of $37.80 a share in cash or a fixed exchange set at 0.92 in Pebblebrook shares, with a 20% cap on the cash payout, and Bortz said that offer is clearly superior to Blackstone’s.
“LaSalle shareholders have been consistently valuing our offer at a significant premium to the Blackstone price as clearly evident by LaSalle’s shares consistently trading in a range with a very significant premium to what is now the Blackstone takeunder price,” Bortz said.
Bortz noted LaSalle’s board has been unwilling to engage Pebblebrook officials on a potential deal. He said the company has been engaging with LaSalle’s shareholders, many of which are also shareholders in Pebblebrook, and he doesn’t believe the current deal with Blackstone has a chance of passing a shareholder vote.
“The proposed agreement with Blackstone is not in a position to receive shareholder approval and not surprisingly might not even get any votes today given where our stock and their shares are trading,” he said.
Bortz said his company is prepared to see its pursuit of LaSalle through to a full conclusion, whether that means success or failure.
“I would say for now and for the foreseeable future until there's a resolution we’ll be solely and hyper-focused on trying to put these two companies together, which makes so much sense,” he said.
That is despite the fact that Bortz said the company won’t pursue other potential acquisitions while purchasing LaSalle remains a possibility.
“It's really hard to pursue other acquisitions and plan out your financials with a potential $5-billion combination up in the air,” he said. “We're very comfortable waiting because of the benefits of being successful if we ultimately can be.”
Bortz said he is confident his company could close on a deal with LaSalle in 90 days or less if those companies can reach an agreement.
San Francisco leads recovery
San Francisco, which has recently been a sore spot for Pebblebrook and other REITs with the Moscone Convention Center closed in 2017, turned around for the quarter, and Bortz said he is optimistic about the market heading into 2019.
“Convention roomnights on the books for the city for next year were up by 72% as of June with the number of days, with compression as represented by days with 5,000 or more rooms on the books increasing a whopping 126% going from 39 days in 2018 to 88 days in 2019,” he said. “These are obviously huge increases and are consistent with both our booking pace for 2019, as well as our increasingly confident expectations for at least a high single digit increase in (revenue per available room) in San Francisco for 2019.”
Bortz noted the company should be poised to benefit from recent renovations at its San Francisco properties just as the market gets back to speed in 2019.
He said the company saw some bumps in Q2, particularly its properties with legacy Starwood Hotels & Resorts Worldwide brands as Marriott International reorganized its sales organization, but overall there are more reasons to be optimistic about the hotel industry. EVP and CFO Raymond Martz noted the company is now seeing stronger growth in weekdays than weekends, which is indicative of strong growth in business demand.
Bortz said the macroeconomic signs support further growth in that space.
“It's likely that economic growth will continue at a healthy level in 2019 coming off what is likely to be a record growth in corporate profits in 2017 and 2018, which combined are likely to drive further growth in business in both business travel and leisure travel,” he said. “When we look at our pace for 2019, we’re particularly encouraged. Group revenues for 2019 are up a robust 28.3% over same time last year for 2018.”
For the second quarter, Pebblebrook saw RevPAR increase 2.6% year over year to $223.81 with net income of $58.3 million and earnings before interest, taxes, depreciation and amortization of $74.8 million.
The company saw a boost in the quarter from $20.5 million in insurance proceeds related to the LaPlaya Beach Resort & Club in Naples, Florida, which was damaged by Hurricane Irma in late 2017.
Pebblebrook officials revised upwards their EBITDA forecast for full-year 2018, with the company now projecting a range of $251.6 million to $258.6 million.
As of press time, Pebblebrook stock was trading at $38.74 a share, up 2.2% year to date. The Baird/STR Hotel Stock Index was down 0.4% for the same period.