With investors looking for the next undervalued REIT, which could gather explosive momentum, we recommend the $2-billion Pebblebrook Hotel Trust (PEB) , operating upscale, full service hotel and resort properties.
Annual revenues have grown 14-fold between 2010 and 2016, from $58 million to $814 million. The REIT has been profitable since 2011 and turned cash flow positive in 2016.
However, it must be said that the hotel REIT has an uncertain record of missing earnings estimates. In the last 4 quarters, Pebblebrook has missed expectations twice.
This is most likely the reason why management at the company has turned cautious.
CEO Jon Bortz has said that PEB isn't seeing any notable surge in business or leisure travel since Election Day in November. The company has also guided full-year 2017 adjusted funds from operations per share of $2.34-$2.50 compared to $2.78 in 2016.
As mentioned, Pebblebrook shares sport a 5.3% dividend yield, supported by a payout ratio of 55%, which has grown every year since 2010.
And from an earnings growth perspective, Pebblebrook offers greater potential. Its 70% EPS outlook dwarfs the 5-12% earnings growth outlook for Hospitality Property Trust (HPT) , Chesapeake Lodging Trust (CHSP) and Chatham Lodging Trust (CLDT) .
Further, price/sales numbers indicate that Pebblebrook Hotel Trust currently trades at a bargain. On a trailing twelve month basis, the company's shares trade at 2.48 times price-to-sales ratio compared to hotel/motel REITs like Chatham Lodging Trust at 2.64 times, 2.69 times for LaSalle Hotel (LHO) , 2.72 times for SunStone Hotel Investors (SHO) and nearly 3 times for Summit Hotel Properties (INN) .
With Pebblebrook management tempering investor expectations going forward, the company's stock is likely to appreciate ahead of its next earnings results.
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