BETHESDA, MD-Reading between the lines of Pebblebrook Hotel Trust’s recent activity, one can conclude the hotel REIT is about to make another acquisition or possibly series of acquisitions. The company has announced it has amended and restated a senior unsecured revolving credit facility, increasing it to $300 million. The facility is composed of a $200-million unsecured revolving credit and a $100-million unsecured term loan.
The credit facility also includes an accordion option that could provide Pebblebrook with additional lender commitments up to $600 million. Most significantly for the commercial real estate community, Pebblebrook says it anticipates using the new $100 million term loan “within the next 30 days.”
CFO Raymond D. Martz declined to elaborate specifically about the REIT’s plans but did note that the company will be an active acquirer in the second of the year. “Our targets continue to be in the large, urban gateway markets,” he tells GlobeSt.com. Most recently, the REIT acquired the 108-key Hotel Milano in San Francisco for $30 million.
“We're seeing a number of high-quality properties becoming available and, with our recent credit facility expansion and our $100-million equity raise in June, we have sufficient capital to be active in these markets.” In June Pebblebrook priced a public offering of 4.5 million common shares at $22.10 per share, for a total of approximately $95.3 million in net proceeds.
Martz also noted that the REIT’s cost of capital is declining, which gives it a boost as well. The pricing on its new amended credit facility has been significantly reduced, for example, even as the other business terms remain the same.
The facility now matures in July 2016 with an option to extend to July 2017. The facility’s interest rate is based on a pricing grid with a range of 175 to 250 basis points over LIBOR, based on Pebblebrook’s leverage ratio. Thus, the interest rate on the revolving credit facility is approximately 2%.
The $100 million unsecured loan has a five-year term maturing July 2017 and a 30-day delayed draw feature. The interest rate on that is based on a pricing grid similar to the pricing grid on the revolving credit facility.
Martz, of course, has been watching the scandal about the Libor unfold in Europe and now as it is spreading to the US. However, he does not see it as having impacting Pebblebrook’s operations. “Libor is still an effective short term rate,” he says. “Right now our bigger takeaway about the financial industry is that the banking environment is interested in lending to high-quality real estate owners, which is why we are seeing a decline in pricing and costs for credit.”
Pebblebrook’s $300-million unsecured credit facility was led by Merrill Lynch, Pierce, Fenner & Smith Inc. Citibank, PNC Bank, Royal Bank of Canada and Capital One also participated.