Pebblebrook CFO Talks Turkey as REIT Passes $600M Mark
- Dec 09, 2010
December 8, 2010
By Barbra Murray, Contributing Editor
Pebblebrook Hotel Trust completed its IPO in December 2009, and one year later, the REIT has amassed a portfolio of upper-upscale full-service properties that includes Sofitel Philadelphia Hotel, which the company just acquired for $$87 million, bringing its total acquisitions for 2010 to $614.7 million–so far.
Pebblebrook made its first acquisition in June with the $67.1 million purchase of the 269-room Doubletree Bethesda Hotel and Executive Meeting Center in suburban Washington, D.C., and with the closing of the 306-room Sofitel Philadelphia transaction, the REIT now owns eight hotels in seven metropolitan areas.
Sofitel Philadelphia features 306 guestrooms in a 46-year-old building that once served as the home of the Philadelphia Stock Exchange downtown in the city’s financial district. Transformed into a lodging facility with the addition of a new connecting building one decade ago, the property also encompasses 15,000 square feet of event space, a fitness center, a restaurant, a bar and lounge and underground parking accommodations. The purchase agreement called for Pebblebrook to shell out approximately $30.9 million in cash and assume $56.1 million in existing debt in the form of a non-recourse, interest-only loan with a current interest rate of 1.56 percent and a February 2012 maturity date.
Having snapped up eight hotels in just six months, Pebblebrook has been very busy, much to the surprise of the company. “We thought we would acquire two or three hotels this year, but we saw opportunities earlier in the cycle than we had anticipated,” Raymond D. Martz, CFO of Pebblebrook, told CPE. The amount of opportunities we’ve seen in the market have increased even over the last 120 days. We underestimated the opportunities this year, but that was a good mistake.”
The REIT is one of many companies that have been contributing to the massive increase in hotel sales volume in 2010. Hotel investment services firm Jones Lang LaSalle Hotels released an updated U.S. hotel transaction forecast, predicting that deal volume will reach $6.5 billion by the close of this year; a figure that marks a nearly four-fold increase over 2009. It’s all about access to capital in a credit market that has yet to completely defrost, and apparently, there are enough investment entities that fit the bill. “Public companies are at a distinct advantage because, in general, their cost of capital is lower, they don’t need as much capital to make it work and they have the ability to raise capital,” Martz notes. According to the Jones Lang LaSalle report, the majority of this year’s hotel investment activity can be attributed to REITs.
In terms of its future purchasing activity, Pebblebrook is well positioned, but picky. “We don’t have to acquire,” he says. “We see a lot of opportunities and if it works out we’ll invest, but our goal isn’t growth for growth’s sake–it’s about good investments.” Martz anticipates that the number of attractive hotels up for grabs will continue to increase next year, but that fact will not necessarily influence the REIT’s plans for 2011. “We don’t have any acquisition goal or target. We’re opportunistic investors. If we find a property that meets our investment criteria, we’ll buy it, so next year we could buy no hotels or 10 hotels–it just depends.”
Martz won’t make predictions, but if Pebblebrook’s most recent purchase agreement does not close by the end of the year, the REIT will have at least one new asset to add to its portfolio in 2011. The company signed a deal at the end of November to buy a premier hotel in the San Francisco/Oakland/San Jose region for $84 million.