Pebblebrook Hotel Trust (PEB), a lodging real estate investment trust (REIT), has recently acquired The Westin Gaslamp Quarter hotel in San Diego, California, from Starwood Hotels & Resorts Worldwide Inc. (HOT), one of the leading hotel and leisure companies in the world. The purchase price of $110.0 million was funded entirely through available cash. Starwood had been managing the property since 1996 and would continue to manage the hotel post-acquisition.
The 450-unit Westin Gaslamp is an upper upscale full-service hotel, strategically located in the heart of the Gaslamp Quarter that is widely regarded as one of the premier business, dining, entertainment and shopping destinations of San Diego. The hotel offers panoramic views of the San Diego Bay and downtown San Diego that is home to over 9.5 million square feet of office space. With its superior location advantage, Westin Gaslamp is also expected to benefit from the improving hotel market fundamentals in the U.S. fuelled by the continued economic recovery.
The hotel features over 32,000-square feet of indoor and outdoor meeting space spread across 22 rooms and 3 food and beverage outlets. In addition, the hotel offers other amenities such as the Westin brand’s signature WestinWORKOUT gym with massage room, an outdoor swimming pool with whirlpool, on-site parking and 24-hour room service.
Westin Gaslamp is presently undergoing a multi-phase comprehensive renovation process that includes a makeover of all guestrooms and public areas. The first phase of the overall renovation was completed recently and the guestrooms were refurbished for $12.0 million, the majority of which was funded by Pebblebrook. The public area improvements are expected to start in the summer of 2011 and are scheduled to be completed by late 2011 or early 2012 at an estimated cost of $13.0 million.
Pebblebrook expects a significant negative impact on its operating metrics from the $25.0 million hotel renovation activities. For full year 2011, the company expects an EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately $7.5 to $8.0 million, including the renovation costs. However, on a long-term basis, the investment is likely to substantially improve the performance of the hotel and be accretive to earnings.
Pebblebrook operates premium hotel properties in major cities across the U.S., with an emphasis on the coastal markets typified by high barriers to entry. In addition, the company invests in resort properties located near its primary urban target markets, as well as in select destination markets such as Hawaii, south Florida and southern California. The company currently owns 10 hotels, with a total of 3,002 guest rooms.
We presently have a ‘Neutral’ recommendation on Pebblebrook, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.
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