If you had the experience of staying at a full service luxury hotel, you might have found a piece of candy on your pillow. This is part of a “turndown service”, one of many services and amenities that full service hotels provide, which you might not have valued. If that got you thinking about alternative investment ideas, Summit Hotel Properties Inc (NYSE:INN), a lodging REIT that owns upscale and upper midscale select service hotels, will be of interest to you.
As a proxy for select service hotels and taking into account its strong acquisition growth, Summit Hotel Properties Inc (NYSE:INN) is a real bargain trading at book value with a 4.40% yield.
Why guests prefer select service hotels
The 80-20 rule is applicable to hotel stay as well — most hotel guests need and use probably only 20% of a hotel’s amenities 80% of the time. Given lower room rates, select service hotels like those owned by Summit Hotel Properties are as attractive, if not more attractive than their full service hotel counterparts.
Free Wi-fi and free breakfast are the most important factors that guests take into account when choosing hotels, according to a 2013 Hotels.com Amenities Survey. All guests at Summit Hotel Properties Inc (NYSE:INN)’ hotels get to enjoy free Wi-Fi and more than three-quarters of its hotels also provide free breakfast.
Fishing in less crowded waters
Investing is all about demand and supply, and crowded trades tend to lead to sub-par investment performance. The same principle also applies to hotel acquisitions. Most of Summit Hotel Properties Inc (NYSE:INN)’ peers choose to target their acquisitions in the top ten or top twenty populous Metropolitan Statistical Areas (MSAs) in the U.S, which results in higher bid prices or failed bids.
In contrast, Summit Hotel Properties Inc (NYSE:INN) is on the hunt in less populous MSAs, targeting locations with offices, airports, stadiums, hospitals, or colleges in their proximity. Also, private investors typically owned the bulk of select service hotels in Summit Hotel Properties Inc (NYSE:INN)’ target markets, making it easier for Summit Hotel Properties to flex its financial muscle to get the deals. The numbers speak for themselves. Summit Hotel Properties has added more than 4,000 hotel rooms to its portfolio since its IPO in February 2011, far outpacing its peers.
Independent hotel management companies avoid conflicts of interest
Most of the successful entrepreneurs I know did not hire their family members for their start-ups.