Summit Hotel Properties (NYSE:INN) has chosen 2015 as the year to boost its performance. The company has not only posted strong results for the first quarter but has also been through a significant portfolio transformation that will improve operational metrics. Although current dividend yield is 3.6 percent—less exciting than the 4+ percent of its peers—monitoring this makeover will be interesting, for it potentially makes this stock a good purchase candidate.
This month, Summit Hotel announced the sale of 26 of its 91 hotels, representing 20 percent of its pro forma hotel EBITDA, over the next half year, hoping to enhance its performance. They are expecting an increase in revenue per available room and hotel EBITDA margins, as well as a presence in major metropolitan areas, as a result of this sale. Seventy-one percent of Summit’s dispositions are situated outside the fifty major metropolitan statistical areas. Their mission has obviously been in motion: maximizing returns via a portfolio with top brands (Hilton, Hyatt and Marriott) in top markets.
If capital recycling is conducted in the same manner as the featured case where they disposed a Country Inn & Suites in San Antonio and acquired a Hampton Inn & Suites in Austin last year, one can expect a prosperous future for Summit. The operational metrics of Hampton, including occupancy, total revenue and total hotel EBITDA, were far superior to those of the Country Inn, and the capitalization rate is also expected to double. If this is still their best case scenario, one can expect Summit raised the bar high enough for the next acquisitions to improve and keep the company growing.
On top of that, the results of Q1 2015, compared with those of last year, were strong. Revenue per available room and average daily rate increased by about twelve and nine percent respectively, while the occupancy rate advanced almost three percentage points. Adjusted funds from operations went up by 42 percent on a diluted share basis, and dividends more than 4 percent.
In conclusion, Summit Hotel is a strong performing company that is working hard to become one of the best buys in the select-service hotel subsector. The downside is that it has a relatively low dividend; its dividend payout ratio, however, is also low, enabling meaningful dividend hikes in the future. Summit is definitely on my watchlist.
More about the company
Summit Hotel Properties focuses on premium-branded, select-service hotels in the upscale and upper-mid-scale segments of the American lodging industry. Their present portfolio consists of 91 hotels in 21 states whose guestrooms total 11,468. In terms of room total, about 80 percent of Summit’s portfolio is located in the top 50 MSAs.
Source: Summit Hotel Properties, Fast Graphs
Written by Heli Brecailo
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