Pebblebrook Hotel Trust Preferreds Offer High Yield Relative To Risk Level

Group 1: Core Insights - Pebblebrook (PEB) preferreds are trading at attractive pricing with an 8%+ yield and 45% upside to par, indicating a high return potential relative to the low risk associated with the company's fundamentals [1][22][35] - The hotel industry has faced structural challenges, including competition from online travel agencies and short-term rental platforms, which have impacted revenue for hotel owners [3][4] - The pandemic severely affected the hotel sector, leading to high vacancy rates and negative EBITDA, but Pebblebrook emerged relatively strong due to its solid management and balance sheet [5][6] Group 2: Industry Fundamentals - Nationally, hotel revenue has recovered to 116% of pre-pandemic levels, primarily driven by an increase in Average Daily Rate (ADR), while occupancy rates remain low at 63.4%, down 1.9% year-over-year [6][7] - The recovery varies significantly by market segment, with luxury and resort hotels outperforming economy hotels, particularly those reliant on international travel [7][8] - The construction of new hotels has slowed, which may help balance supply and demand in the long term [7][8] Group 3: Pebblebrook Specifics - Pebblebrook focuses on higher-end RevPAR segments, which are better positioned in the current economic recovery compared to the broader hotel market [10][12] - The company has demonstrated stable Net Operating Income (NOI) and is expected to maintain sufficient cash flow to cover preferred dividends and protect liquidation preferences [16][22] - Pebblebrook's asset value is estimated at $5.485 billion, providing a significant cushion for preferred shareholders [22][24] Group 4: Preferreds Analysis - The preferreds offer higher return potential due to substantial discounts to par, with Series H showing the most upside at 45% compared to other series [29][31] - Preferreds are structured to provide downside protection, with a liquidation preference of $25 per share, and Series H has favorable conversion terms in the event of a change of control [32][31] - Current market conditions, including anticipated interest rate cuts, may increase demand for high-yield investments like PEB-H, which is currently mispriced [34][35]