Pebblebrook Hotel Trust (NYSE: PEB) yesterday announced that it acquired the AAA Four Diamond 210-room Estancia La Jolla Hotel & Spa in La Jolla, California for $108 million. The Company retained Noble House Hotels & Resorts to manage this hacienda-style resort.
Estancia, spanning ten acres, is located in the heart of the affluent coastal La Jolla market. The resort is a short walk from Black’s Beach, next door to the world-renowned Salk Institute for Biological Studies, and adjacent to the University of California, San Diego. This attractive resort contains 210 spacious guestrooms and suites and over 50,000 square feet of indoor and outdoor meeting and event space (originally built as a conference center) surrounded by charming courtyards and verdant gardens perfect for leisure travelers, weddings and corporate groups. The resort also features numerous indoor and outdoor dining venues, including Mustangs & Burros, Greenfinch Restaurant & Bar, Haven Bar & Grill, Blend Café and Secret Garden, which serve an array of authentic West Coast cuisine. Additional resort amenities include Spa Estancia, a 7,000 square-foot sanctuary with 11 indoor and outdoor treatment rooms, a eucalyptus steam room, a fitness center and an outdoor saltwater pool with poolside cabanas, all of which offer guests an opportunity for fun and relaxation.
“We are extremely excited to acquire this premier resort in the rapidly growing La Jolla market,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “With ten lush acres, quiet courtyards and adobe fireplaces, Estancia is a southern California lifestyle destination that blends historic Spanish architecture with modern amenities. This acquisition provides us numerous opportunities to increase the resort’s rate positioning, drive significantly higher total revenues and implement an extensive list of operating and physical enhancements. Our redevelopment expertise, combined with Noble House’s extensive track record of repositioning unique resorts, should generate tremendous value creation for Estancia.”
The coastal La Jolla market is the focal point of a booming life sciences industry, with nearly 19 million square feet of corporate office and lab space, and it is a top drive-to leisure destination. Estancia is just a 20-minute drive from San Diego International Airport, and it is near numerous local demand drivers such as La Jolla Cove, Torrey Pines, University of California, San Diego, the Birch Aquarium and the Scripps Institute, in addition to high-end retail stores and restaurants at the Village of La Jolla. La Jolla’s proximity to the Pacific Ocean and San Diego’s freeways provides visitors with quick and easy access to all of San Diego’s leisure attractions, including SeaWorld, the famous San Diego Zoo, the Gaslamp Quarter, and LEGOLAND, perfectly positioning the resort to capture demand from across the broader market.
“We are thrilled to partner with Noble House on another unique resort offering tremendous upside potential,” continued Mr. Bortz. “We have extensive experience partnering with Noble House to transform and operate high-quality independent resorts, including our own LaPlaya Beach Resort & Club in Florida, our recently acquired Jekyll Island Club Resort in Georgia, our nearby San Diego Mission Bay Resort and our recently renovated L’Auberge Del Mar just up the road from Estancia. The resort’s location near both L’Auberge Del Mar and San Diego Mission Bay Resort will create many operating, complexing and marketing synergies among these three high-end San Diego resorts. We are delighted to add Estancia to our growing resort collection with Noble House.”
Pebblebrook is evaluating numerous operating and physical enhancements for additional upside and increased cash flow, including renovations to the property’s guestrooms, lobby, spa and pool areas, event lawns and expansive ballroom. The resort will also become part of Curator Hotel & Resort Collection, which is expected to result in a wide array of expense reductions and enhanced technology and operating initiatives for the resort.
For full-year 2021, following a slow start to the year due to the COVID-19 pandemic, Estancia is forecasted to produce between $308 and $313 of total revenue per available room (“TRevPAR”). The resort is expected to generate hotel earnings before interest, taxes, depreciation and amortization (“hotel EBITDA”) of $4.6 to $4.7 million and hotel net operating income (“hotel NOI”), after a 4% capital reserve, of $3.7 to $3.8 million. For 2019, the resort generated hotel EBITDA of $8.1 million and hotel NOI of $6.7 million.
The acquisition of Estancia brings the total number of properties in the Company’s portfolio to 53, including 11 unique drive-to, independent lifestyle resorts.
The Company funded the acquisition with approximately $46 million of cash on hand, and it assumed approximately $62 million of existing non-recourse, secured debt. The debt matures in September 2028. The interest rate on the debt is fixed at an annual rate of approximately 5.1%.
| Pebblebrook Hotel Trust | ||||||||
| Estancia La Jolla Hotel & Spa | ||||||||
| Reconciliation of Hotel Net Income to Hotel EBITDA and Hotel Net Operating Income | ||||||||
| (Unaudited, in millions) | ||||||||
| Full-Year 2021 Forecast | ||||||||
| Range | ||||||||
| 2019 | Low | High | ||||||
| Hotel net income | $4.2 | $0.4 | to | $0.5 | ||||
| Adjustment: | ||||||||
| Depreciation and amortization(1) | 3.9 | 4.2 | 4.2 | |||||
| Hotel EBITDA | $8.1 | $4.6 | $4.7 | |||||
| Adjustment: | ||||||||
| Capital reserve | (1.4) | (0.9) | (0.9) | |||||
| Hotel Net Operating Income | $6.7 | $3.7 | $3.8 | |||||
(1) Depreciation and amortization for full-year 2021 forecast have been estimated based on a preliminary purchase price allocation. A change, if any, in the allocation will affect the amount of depreciation and amortization and the resulting change may be material.