Pebblebrook Hotel Trust Preferreds Offer High Yield Relative To Risk Level (NYSE:PEB)

Group 1: Company Overview - Pebblebrook Hotel Trust (PEB) preferreds are trading at attractive pricing, offering an 8%+ yield and 45% upside to par, indicating a high return potential with relatively low risk [1][34] - PEB operates primarily in the higher end of the Revenue Per Available Room (RevPAR) spectrum, focusing on leisure resorts and group segments, which are better positioned than the national hotel average [10][20] - The company has a strong balance sheet and has shown stability in Net Operating Income (NOI), which has been reliable aside from the pandemic [12][24] Group 2: Industry Fundamentals - The hotel industry faces structural challenges, including competition from online travel agencies and short-term rental platforms like Airbnb, which capture significant revenue while hotel owners bear most capital risk [3][4] - The industry is recovering slowly post-COVID, with national hotel revenue at 116% of pre-pandemic levels, primarily driven by Average Daily Rate (ADR) rather than occupancy, which remains weak at 63.4% [6][5] - There is a significant variance in recovery across different hotel segments, with luxury and resort hotels outperforming while economy hotels and those reliant on international travel are underperforming [7][6] Group 3: Financial Metrics and Valuation - PEB's asset value is estimated at $5.485 billion, with a price per key of $459, which is considered reasonable for high-end hotels [22][28] - Funds From Operations (FFO) per share is projected to grow to $1.68 in 2027 and $2.27 by 2028, providing a healthy cushion for preferred dividends [22][24] - The preferreds have a $25 liquidation preference, and the company has ample asset value to protect this preference, with a $2.7 billion cushion after servicing debt and preferreds [24][22] Group 4: Preferred Stock Analysis - PEB-H preferreds offer the highest return potential within the capital stack due to their substantial discount to par and favorable conversion terms in the event of a change of control [29][32] - The current yield for PEB-H is around 6.5%, with a fair price estimated at about $22, indicating a potential 25% upside from current levels [35][31] - The preferreds are well-positioned in terms of downside protection, as they are pari passu with respect to the waterfall in liquidation scenarios [31][32]