Pebblebrook Hotel Trust completes $400 million convertible notes offering

NEW YORK - Pebblebrook Hotel Trust (NYSE:PEB), a hotel REIT with a market capitalization of $1.46 billion, announced Thursday it has closed its previously announced private offering of $400 million in convertible senior notes due 2030, according to a company press release statement. According to InvestingPro analysis, the company currently appears undervalued, despite showing strong returns over the past three months.

The offering, which closed on September 18, includes $50 million in notes sold through the full exercise of the initial purchasers’ over-allotment option. The notes carry a 1.625% interest rate, payable semiannually, and will mature on January 15, 2030.

The notes have an initial conversion rate of 62.9129 per $1,000 principal amount, equivalent to a conversion price of approximately $15.89 per common share, representing a 37.5% premium over the September 16 closing price of $11.56.

Pebblebrook used the net proceeds, along with approximately $4.1 million in cash, to repurchase about $400 million aggregate principal amount of its outstanding 1.75% convertible senior notes due 2026 in privately negotiated transactions.

The company also repurchased approximately 4.3 million common shares at $11.56 per share through its existing share repurchase program in privately negotiated transactions. This aligns with InvestingPro data showing management’s aggressive share buyback strategy, though it’s worth noting the company maintains a healthy current ratio of 1.78, indicating strong short-term financial health. Discover more insights about PEB and 1,400+ other stocks with InvestingPro’s comprehensive research reports.

Concurrent with the pricing of the notes, Pebblebrook entered into privately negotiated capped call transactions using available cash. These transactions are expected to reduce potential dilution to common shares upon conversion of the notes. The cap price was initially set at $20.23, representing a 75% premium over the September 16 closing price.

The notes and any common shares issuable upon conversion have not been registered under the Securities Act of 1933 and were offered only to qualified institutional buyers pursuant to Rule 144A.

Pebblebrook Hotel Trust owns 46 hotels with approximately 12,000 guest rooms across 13 urban and resort markets in the United States. The company generates annual revenue of $1.47 billion, though InvestingPro analysis indicates it hasn’t been profitable over the last twelve months. For deeper insights into PEB’s financial health and growth prospects, including exclusive ProTips and detailed metrics, explore the full InvestingPro analysis platform.

In other recent news, Pebblebrook Hotel Trust has been actively managing its financial strategies with a series of announcements. The company has priced a private offering of $400 million in convertible senior notes due 2030, with the transaction expected to close soon. This offering includes an additional $50 million following the full exercise of the initial purchasers’ over-allotment option, and the company expects net proceeds of approximately $389.7 million. Pebblebrook plans to use these proceeds to retire part of its $750 million convertible notes due 2026 and repurchase approximately $50 million of its common shares.

Analyst activity around Pebblebrook has been noteworthy, with Stifel raising its price target to $14 while maintaining a Buy rating, following the announcement of the convertible notes offering. Meanwhile, Truist Securities has also raised its price target from $9 to $11 and reiterated a Hold rating, adjusting its 2025 Adjusted EBITDAre forecast to $342 million and increasing its AFFO per share estimate to $1.55. These developments reflect the company’s ongoing efforts to manage its debt and enhance shareholder value.

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