Founder CEO of Hotel REIT Pebblebrook Purchases Shares – Insider Weekends

Pebblebrook Hotel Trust (PEB): $12.68

Market Cap: $1.54B

Enterprise Value: $4.06B

As is typical in weeks when we see an increased number of insider purchases, we often have a plethora of companies to choose from for our Insider Weekends articles. Sometimes the companies that make their way to our Top 5 list of insider purchases and insider sales are companies that we’ve featured multiple times in the past, such as the midstream giant Energy Transfer which we covered in August 2023 or the Amazon of South Korea, Coupang, which we wrote about in May of this year. Similarly, the names on our list of insider sales are familiar – including Director Jay Hoag, who sold over $80 million worth of Netflix stock this week. Mr. Hoag is often on our radar due to his Netflix transactions as well as his purchases and sales of Zillow, which we most recently wrote about in June.

When faced with a list of companies that we’ve already covered in the past, we find it more interesting to look beyond the top five purchases or sales and highlight smaller purchases from more interesting companies that we feature in our daily Event Driven Monitor. This week, the company that caught our eye was Pebblebrook Hotel Trust (PEB).

Pebblebrook Hotel Trust is a REIT founded in 2009 that focuses on acquiring and investing in upscale, full-service hotels located in urban markets within major gateway cities across the United States. They have a number of operator and brand relationships with notable companies such as Marriott International, Springboard Hospitality, Hilton Hotels, Hyatt, and more.

As of July 2024, Pebblebrook owned interests in 46 hotels totaling 11,924 guest rooms, with a 50/50 business and leisure customer mix. In September of 2018, Pebblebrook acquired LaSalle Hotel Properties, which owned 10,451 rooms across 41 US hotels. The $5.2 billion acquisition was highly contentious, especially considering that LaSalle backed out of a $4.8 billion all-cash deal with Blackstone in order to complete the merger with Pebblebrook. The merger made Pebblebrook the largest owner of unique independent, small brand, and collection hotels and the third-largest company in the lodging REIT sector.

However, since 2019, Pebblebrook has sold a number of these properties in an effort to realign its portfolio. The company has sought to reduce smaller urban hotels and add larger, leisure-focused properties to decrease business transient reliance. In total, the company acquired 5 leisure-oriented properties for $802 million while selling 14 urban properties for $1.1 billion, which most notably reduced their west coast urban footprint. As it stands today, Pebblebrook’s portfolio spans key locations in 11 states, including cities like San Francisco, Los Angeles, Boston, Miami, and Washington, D.C.

In addition to the acquisition and disposition of properties over the last few years, Pebblebrook has engaged in a number of redevelopment projects for existing properties in their portfolio. In 2023, capital investments in the portfolio totaled $152.3 million and included 5 different projects to redevelop, renovate, and otherwise upgrade various hotels across the nation. Three more redevelopment initiatives were completed in Q2 2024, bringing the estimated total 2024 portfolio capital investments to about $90 million. However, with the completion of these last few projects, nearly all the hotels in Pebblebrook’s portfolio have undergone significant renovations, and the company plans to reduce capital investment over the next few years and instead focus on driving improvements in cash flow due to the already completed renovations.

The case study below, taken from Pebblebrook’s July 2024 investor presentation details the impact of both a renovation and rebranding, including a 60% increase in RevPAR (revenue per available room) and a cash-on-cash return of 22%, even though the property is not yet fully stabilized.

Overall, Pebblebrook appears to be reaching the end of a transition period, and all the prior capital investment in upgrading the company’s portfolio coupled with increased urban recovery following the end of the pandemic appears to be partly reflected in their recent financial results. Same property occupancy in Q2 2024 (ended June 30, 2024) was 76.6% compared to 73.8%  in Q2 2023 and same property RevPAR increased to $233.51 from $229.56. Funds from operations (FFO) for the quarter were $89.45 million (compared to $80.47 million in Q2 2023) and revenue increased $12.8 million YoY to $397.1 million. However, same property ADR (average daily rate) for the quarter decreased to $304.94 compared to $311.03 in Q2 2023, and net income also dropped by $13.95 million to $32.23 million.

What drew our attention to Pebblebrook this week was the $367,340 purchase by Chairman and CEO Jon E. Bortz, which followed a $790,680 purchase of the company he made on August 5th. Mr. Bortz is the founder of Pebblebrook Hotel Trust, and had previously served as the Chairman and CEO of LaSalle Hotel Properties from April 1998 through September 2009. He founded Pebblebrook a month after retiring from LaSalle. He also currently serves on the Executive Committee of the Board of Governors of NAREIT.

We always like to see purchases from founder CEOs who have been with companies through many market cycles, which Mr. Bortz has, and it’s likely Mr. Bortz has a deeper understanding of Pebblebrook, especially in this transition period, compared to the rest of the market. This isn’t Mr. Bortz’s only purchase of Pebblebrook, he’s pretty consistently purchased shares of the company over the last two years or so, all within the $12 to $16 price per share range. However in late 2021, Mr. Bortz was consistently selling Pebblebrook stock when the company was trading at $25 per share, which could be an indicator that he understands when the stock is both undervalued and overvalued.

With a small dividend yield of 0.32%, Pebblebrook doesn’t make much sense as a REIT dividend play but looking at the image above, the company is trading at a discount to NAV, a gap that could be closed as the company continues to profit from the recent renovations and portfolio realignment.

We like Pebblebrook enough to start a position in the model portfolio at our full position size of $5,000.

Welcome to edition 747 of Insider Weekends. Insider buying declined last week with insiders purchasing $175.85 million of stock compared to $188.70 million in the week prior. Insider selling on the other hand increased sharply to $2.72 billion compared to $1.18 billion in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio increased to 15.49. In other words, insiders sold more than 15 times as much stock as they purchased. This week the Sell/Buy ratio was unfavorable compared to the prior week, when the ratio stood at 6.28.

Notable Insider Buys:

1. Energy Transfer LP (ET): $16.3

Shares of this energy infrastructure and midstream services company were acquired by 2 insiders:

• Director Kelcy L. Warren acquired 3,000,000 shares, paying $15.68 per share for a total amount of $47.04 million.
• Co-CEO Thomas E. Long acquired 20,000 shares, paying $15.68 per share for a total amount of $313,600. Mr. Long increased his stake by 0.47% to 4,308,859 shares with this purchase.

You can view the list of recent insider transactions for Energy Transfer LP here.

2. Coupang Inc. (CPNG): $22.45

Director Neil Mehta acquired 1,451,300 shares of this e-commerce giant indirectly via Greenoaks Capital Partners LLC, paying $22.37 per share for a total amount of $32.46 million.

You can view the list of recent insider transactions for Coupang Inc. here.

3. American Public Education Inc (APEI): $14.83

Director Michael David Braner acquired 702,147 shares of this online and on-campus education providing company, paying $13.53 per share for a total amount of $9.50 million.

You can view the list of recent insider transactions for American Public Education Inc here.

4. MeiraGTx Holdings plc (MGTX): $4.23

Director Joseph Edelman acquired 1,250,000 shares of this gene therapy solutions providing company, paying $4.00 per share for a total amount of $5.00 million.

You can view the list of recent insider transactions for MeiraGTx Holdings plc here.

5. Standard BioTools Inc (LAB): $1.77

Director Eli Casdin acquired 2,775,408 shares of this biotechnology research tools providing company indirectly via Casdin Partners Master Fund, L.P., paying $1.61 per share for a total amount of $4.47 million.

You can view the list of recent insider transactions for Standard BioTools Inc here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Netflix Inc (NFLX): $674.07

Shares of Netflix were sold by 2 insiders:

• Director Jay C. Hoag sold 131,749 shares for $632.42, generating $83.32 million from the sale.
• Chief Legal Officer David A. Hyman sold 10,794 shares for $650.00, generating $7.02 million from the sale.

You can view the list of recent insider transactions for Netflix Inc here.

2. nCino Inc (NCNO): $34.24

Director Jeff Horing sold 1,436,477 shares of this cloud banking platform for $33.31, generating $47.85 million from the sale.

You can view the list of recent insider transactions for Ncino Inc here.

3. Quanta Services Inc (PWR): $265.89

Shares of this infrastructure solutions providing company were sold by 3 insiders:

• President and CEO Earl C. Austin sold 130,000 shares for $262.21, generating $34.09 million from the sale.
• Chief Operating Officer James Redgie Probst sold 34,000 shares for $260.03, generating $8.84 million from the sale.
• Pres. – Strategic Operations Gerald A. Ducey sold 15,000 shares for $257.93, generating $3.87 million from the sale.

You can view the list of recent insider transactions for Quanta Services Inc here.

4. Meta Platforms Inc. (META): $527.42

COB and CEO Mark Zuckerberg sold 83,510 shares of Meta for $517.21, generating $43.19 million from the sale. A majority of these shares were sold through the Chan Zuckerberg Initiative Foundation.

You can view the list of recent insider transactions for Meta Platforms Inc. here.

5. Carvana Co. (CVNA): $155.93

Shares of this online automotive retail company were sold by 2 insiders:

• 10% owner Ernest C. Garcia II sold 3,00,000 shares for $138.86, generating $41.66 million from the sale.
• Director Ira J. Platt sold 25,180 shares of this Specialty Retail company for $135.07, generating $3.40 million from the sale.

You can view the list of recent insider transactions for Carvana Co. here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.