A New Lodging REIT: ‘Wake Up On The Bright Side’
- The midscale and upper-midscale select-service segments are attractive segments because they cater to both business and leisure travelers.
- Today, I am writing this article to introduce readers and investors to the only publicly traded U.S. lodging REIT focusing on the midscale and upper-midscale segments.
- The midscale and upper-midscale select-service segments have experienced less volatility in revPAR growth than the U.S. lodging market as a whole.
Yesterday, I wrote an article on Chatham Lodging (NYSE:CLDT), an investor-friendly monthly dividend payer that owns hotels in the limited-service segment. Although limited service-focused REITs have underperformed year to date, I remain bullish on the property sector given the price-sensitive nature of the business model.
Originally defined as a hotel without restaurant or banquet facilities, the services and amenities offered to guests of limited-service hotels are typically simple.
However, these services and amenities have expanded over the past decade, and in today’s market, a limited-service hotel’s range of amenities might include a business center, a fitness room, a guest laundry facility, a market pantry, an indoor and/or outdoor pool and whirlpool, and small meeting rooms.
“Budget” limited-service hotels offer no-frills rooms at modest prices. More robust limited-service hotels offer many of the same high-quality amenities that guests would expect from full-service hotels, with one significant difference: limited-service hotels lack a dedicated, revenue-producing food and beverage component.
Hence, limited-service hotels typically have the lowest operating costs of all three segments, because they don’t offer catering services or multiple restaurants. Room rates are typically on the lower end of the scale as well, because demand for limited-service properties generally comes from price-sensitive commercial and leisure travelers.
The majority of limited-service brands target the price point of $75 per night or less; however, the higher quality of certain brands’ product offering and finish-out can command a premium. Examples of brands belonging to this asset class include:
The midscale and upper-midscale select-service segments are attractive segments because they cater to both business and leisure travelers, and they provide travelers the most desired amenities and represent an attractive price and value proposition.
The U.S. lodging industry is highly fragmented: as of December 31, 2017, there were 20 publicly traded REITs with over 317,000 rooms and approximately 1,400 hotels, which generated approximately $23 billion in total revenues during the 2017 fiscal year.
Today, I am writing this article to introduce readers and investors to the onlypublicly traded U.S. lodging REIT focusing on the midscale and upper-midscale segments. According to data provided by STR, the midscale and upper-midscale select-service segments have experienced less volatility in revePAR growth than the U.S. lodging market as a whole (as measured by standard deviation of annual growth rates).
Also, these segments grew at faster growth rates than the luxury, upper-upscale and upscale segments, and are expected to continue growing at higher growth rates for the next several years. Give the high fragmentation characteristics, this new player should become a dominant REIT over the next few years.