In the dynamic realm of real estate investment trusts, or REITs, the hospitality sector often presents compelling opportunities alongside unique challenges. This analysis focuses on Summit Hotel Properties, a notable player in the hotel REIT space, with a particular emphasis on its preferred shares. We explore the underlying financial strength of this entity and the protective mechanisms embedded within its preferred stock offerings. For investors seeking income, these shares, trading below their nominal value, offer an attractive yield, underscoring the potential for capital appreciation.
Summit Hotel Properties stands as a significant entity within the hotel REIT landscape, commanding an impressive asset portfolio valued at $2.9 billion. This financial robustness is further affirmed by a BBB- credit rating from S&P, indicating a stable and reliable financial foundation. The company's preferred shares, designated as INN, present an intriguing proposition for income-focused investors. Currently, these shares are available in the market at a discount to their par value, yet they deliver a substantial yield exceeding 8%. A key feature enhancing their appeal is the cumulative distribution structure, which ensures that any missed dividend payments accrue and must be settled before common shareholders receive any distributions. Furthermore, these shares incorporate change-of-control protection, providing an additional layer of security for investors in the event of a significant corporate transaction.
While the investment in hotel REITs naturally involves exposure to the cyclical nature of the hospitality industry, a comprehensive evaluation by Moody's, a leading credit rating agency, assigns Summit Hotel Properties a Ba2 credit rating. Applying their specific methodology, Moody's suggests that the preferred shares themselves would likely be rated B1. This assessment reflects a balanced view, acknowledging both the operational risks inherent to the sector and the company's leverage. However, the compelling aspect for investors lies in the strong asset coverage that underpins these preferred shares, coupled with the company's solid liquidity position. These factors collectively mitigate some of the inherent risks, positioning INN's preferred shares as an attractive vehicle for investors prioritizing consistent income generation and enhanced yield.
For those navigating the complexities of income-generating investments, the preferred shares of Summit Hotel Properties emerge as a noteworthy consideration. Their discounted market price, coupled with a generous yield and the inherent safety features like cumulative distributions and change-of-control provisions, paint a favorable picture. While the broader economic climate and the specific dynamics of the hospitality industry warrant careful consideration, the fundamental strengths of Summit Hotel Properties, as evidenced by its substantial assets and credit standing, underpin the attractiveness of its preferred stock for a yield-centric investment strategy.