These REITs Are Living in Luxury: Should Investors Join Them?

Find out here why these three luxury hotel REITs have the potential to outperform the broader hotel industry in the United States.

Jun 16, 2014 at 7:02AM

Pebblebrook Hotel Trust (NYSE:PEB), LaSalle Hotel Properties (NYSE:LHO), and Strategic Hotels (NYSE:BEE) are three REITs that target upscale hotel properties in desirable destinations. With such a unique focus, investors should consider all three for their portfolio, as these REITs have the potential to outperform the broader hotel industry in the United States.

Strategic selection
Each of these three luxury hotel REITs have properties that cannot be replicated in both location and character. Strategic Hotels has some of the most notable properties in the U.S., including the Hotel Del Coronado and the Ritz-Carlton Half Moon Bay.

Hotel Del Coronado San Diego, California  Source: Wikimedia Commons.

Pebblebrook and LaSalle, however, are not too far behind the curve in terms of notoriety and respectively operate the Sir Francis Drake in San Francisco and the L'Auberge Del Mar in San Diego.

Being picky isn't always a bad thing
And while these properties are remarkable, it is the precision with which these upscale properties are selected that is most attractive for investors.

Jon Bortz, Pebblebrook's Founder and CEO, provided insight into how Pebblebrook recently selected the Prescott Hotel for its property portfolio:

The property is central to San Francisco's primary business demand drivers, including the Financial District, the Moscone Convention Center and the Union Square submarket, which has historically outperformed all other submarkets within San Francisco due to its well-balanced, diversified mix of leisure, corporate, group and convention demand.

Pebblebrook has added 30 upscale properties to its portfolio since its IPO in 2009 and specifically targets urban properties in coastal gateway cities. Whereas, LaSalle and Strategic Hotels also operate resort properties. 

Pebblebrook's focal point of coastal gateway cities, however, paid off last quarter when it reported the highest increase in revenue per available room, or RevPAR, of the three REITs.

Upward trend in RevPAR
Perhaps the most alluring aspect for investors is that this strategic property selection might allow these REITs to outperform the broader hotel industry in the United States on a RevPAR basis.

RevPAR is calculated by multiplying the average daily room rate by the hotel's occupancy percentage. For example, Pebblebrook had an average daily room rate of $209.98 and an occupancy percentage of 80.5% for a RevPAR of $168.98—an 8.5% increase compared to the first quarter in 2013. 

Pebblebrook clearly blew away its last quarter but all three of these luxury hotel REITs are seeing an upward trend in RevPAR:

Same Property RevPar Growth 2013-14
 Company Q1 2013 Q1 2014 Percentage Change
 LaSalle  $138.81  $144.40  4%
 Pebblebrook  $155.78  $168.98  8.5%
 Strategic Hotels  $184.41  $195.96   6.3%

  Source: Company Filings

Pebblebrook has the most promising near term prospects of the three luxury hotel REITs, as last quarter it had the highest occupancy percentage at 80.5%. It also has a solid 2014 RevPAR growth outlook between 6.5% and 7.5%.

Paying for luxury
But this outlook does come at a price for investors.

Of the three REITs, Pebblebrook has the highest price to funds from operations, or P/FFO, ratio of 21 (using 2014 estimated FFO). P/FFO is the preferred ratio for REITs because it adds back depreciation and other costs and like other valuation ratios: the lower the multiple, the better. Strategic Hotels also has a high P/FFO ratio of 19.   

LaSalle has the most attractive P/FFO of 14 but had the lowest RevPAR percentage growth last quarter. Clearly, investors will have to pay the price for Pebblebrook's prospects. 

Foolish conclusion
These three REITs' strategic selection of upscale hotel properties is an approach that might allow them to outpace the broader hotel industry on a RevPAR basis. All three REITs have an upward trend in RevPAR and have properties that cannot be replicated in both location and character.

While this trend might be great, keep in mind that you'll be paying five-star prices for these stocks.

Do these dividends beat even the luxury REITs?
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Spencer Naake owns shares of Strategic Hotels & Resorts. The Motley Fool recommends Pebblebrook Hotel Trust. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information