Pebblebrook Hotel Trust (PEB)

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Lipsonke

COMPANY OVERVIEW

Pebblebrook Hotel Trust is a Real Estate Investment Trust (REIT) which looks to acquire upper uppscale and full-service hotels. PEB is a "blank check REIT" in that the company had an IPO in March of 2009 with no assets in their fund. The company will acquire properties with funds raised through there offering as well as with debt. The fund targets properties located in the United States in core coastal cities such as; Atlanta, Boston, Chicago, Minneapolis, New York, Los Angeles, Philadelphia, San Francisco and Washington, D.C. Furthermore, PEB looks to acquire properties at a significant discount to replacement cost. Additionally, PEB targets investments in resort properties located near their primary urban target markets, as well as in select destination resort markets such as Hawaii, south Florida and southern California. [1]

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PORTERS FIVE FORCES ANALYSIS

Supplier Power: LOW

• New hotel supply is stagnant. The capital markets still have not recovered from the credit crisis and new development of hotels has come to a stand still. Development is not expected to begin to recover until 2013.
• Hotels are very susceptible to customer demand.

Buyer Power: HIGH

• The hospitality industry is very vulnerable to buyer power. Hotels must cater to their customers preferences in order to obtain their business. There are many substitutes for hotels. To keep occupancy high, hotels must constantly renovate their property.
• Hotels are a unique asset class, in that they lease on a daily basis. This makes them very volatile and dependent on high demand.

Threat of Substitutes: HIGH

• The switching costs from hotel to another a very low. Customers are inclined to stay in a hotel that offers the lowest rate. To help lower switching costs, many hotels offer a reward system to retain business.

Threat of New Entrants: LOW

• New hotel supply is stagnant and there a few competitors looking to acquire hotels.
• Due to limited credit in the market today, many firms are only capable of acquiring hotels with limited leverage. There are several REITs with a similar investment strategies to PEB and these firms pose a threat.
• As the credit markets begin to emerge from the recession more competitors will emerge.

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COMPARABLE ANALYSIS

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The graph above illustrates two close competitors to PEB, FelCor Lodging Trust (FCH) and Strategic Hotels & Resorts, Inc. (BEE). Both FCH and BEE have a similar investment strategy and market capitalization to PEB. PEB has a lower price to book then both companies and therefore is potentially undervalued by the market. PEB also has the lowest EPS compared to FCH and BEE. Lastly, PEB has a 2.3% dividend yield, while their competitors have no dividend.[2]

MANAGEMENT TEAM

• Jon E. Bortz:

Mr. Bortz serves as our Chairman, President and Chief Executive Officer. He served as President, Chief Executive Officer and a Trustee of LaSalle Hotel Properties from its formation in April 1998 until his retirement in September 2009. In addition, Mr. Bortz served as Chairman of LaSalle Hotel Properties’ Board of Trustees from January 1, 2001, until his retirement. Under his leadership, LaSalle Hotel Properties focused on investing in upscale and luxury full-service hotels located in urban, resort, and convention markets and grew to 31 upscale and luxury full-service hotels and resorts, with over 8,400 guestrooms in 14 markets in 11 states and the District of Columbia.

• Raymond D. Martz:

Mr. Martz serves as our Executive Vice President and Chief Financial Officer. Mr. Martz most recently served as Chief Financial Officer for Phillips Edison & Company, the largest private owner of community shopping centers in the U.S., from August 2007 until November 2009. Prior to joining Phillips Edison, Mr. Martz served as the Chief Financial Officer, Secretary and Treasurer of Eagle Hospitality Properties Trust, Inc., a NYSE-listed hotel REIT, from May 2005 until August 2007. Prior to that, Mr. Martz was employed by LaSalle Hotel Properties in a variety of finance functions from 1997 to 2005, including serving as its Treasurer from 2004 to 2005, Vice President of Finance from 2001 to 2004 and Director of Finance from 1998 to 2001. Prior to joining LaSalle Hotel Properties, Mr. Martz was an associate with Tishman Hotel Corporation from 1995 through 1997, focusing on a variety of areas including asset management and development. From 1994 to 1995, he served in several hotel operations roles at Orient Hotel Group, a private owner and operator of hotels. Mr. Martz received his B.S. from the School of Hotel Administration at Cornell University in 1993 and a M.B.A. from Columbia University in 2002.

• Thomas C. Fisher:

Mr. Fisher serves as our Executive Vice President and Chief Investment Officer. Mr. Fisher most recently served as Managing Director – Americas for Jones Lang LaSalle Hotels, one of the world’s leading hotel investment services firms. Mr. Fisher joined Jones Lang LaSalle Hotels in 1996 and served in a variety of roles, including his most recent position as Managing Director leading the national full-service investment sales platform. While at Jones Lang LaSalle Hotels, Mr. Fisher was involved in over $5.0 billion of hotel and lodging transactions throughout North America. Prior to joining Jones Lang LaSalle Hotels, Mr. Fisher was an Associate with The Harlan Company from 1994 to early 1996, an investment banking boutique in New York City where he focused on commercial real estate investment services including investment sales, capital raises and tenant representation. Prior to joining The Harlan Company, Mr. Fisher was a Real Estate Analyst in the corporate office of the Prudential Realty Group where he worked on general account investments covering multiple property types including hotel, office and retail. Mr. Fisher received his B.S. with Distinction from the School of Hotel Administration at Cornell University in 1993.[3]

References