* Summit priced below expected range
* Recovery's early stages are ripe for hotel IPOs
* Prospective IPO RLJ has 140 hotels vs Summit's 65
(Repeating item that initially moved on Friday)
By Helen Chernikoff
NEW YORK, Feb 11 Summit Hotel Properties Inc
(INN.N) did not get the warmest welcome from investors, but its
ability to sell shares at all indicates that other lodging
companies may also be able to go public.
Investors likely hesitated to buy Summit Hotel's shares
because the real estate investment trust's initial offering was
relatively small, at just $253.5 million.
Also, many of the hotels owned by the trust are in smaller
cities, where lodging profits are not as stable.
The market will probably be more receptive to bigger
offerings, said Dean Frankel, senior portfolio manager with
Urdang Securities Management.
RLJ Lodging Trust, which on Feb. 2 said it intends to raise
up to $550 million in an IPO, has 140 hotels including some in
New York, Chicago and Washington, D.C.
"What do investors want? They want good assets in core
markets priced attractively. They want a big enough size so
that they don't have to worry that something is going to grow,"
That may be why Summit Hotel Properties' shares sold at
$9.75 apiece, below the expected range of $10.50 to $12.50 per
Nevertheless, Summit Hotel Properties is the first real
estate investment trust with actual assets to go public since
before the recession, analysts said.
"These guys pay good dividends and the assets seem to be
appreciating. It's a good time," said Adam Weissenberg, a
Deloitte vice chairman who advises tourism, hospitality and
A smattering of other lodging REITs, which own hotels and
are exempt from corporate taxation because most of their income
goes to investors in the form of dividends, went public in
2010. They were "blind pools" that used the money raised in
their offering to buy their first properties.
Summit already owns 65 hotels in 19 states, including Idaho
and Mississippi, most of which operate under well-known brand
names owned by big franchisers like Marriott International
MAR.N and Hilton Worldwide.
Its properties are often based in smaller cities such as
Boise, Idaho. Many of its hotels offer fewer amenities and
services than those owned by other lodging REITs, like
Strategic Hotels & Resorts BEE.N, which holds upscale hotels
in the top markets.
Investors considering Summit had to weigh the fact that the
properties have relatively cheap prices and therefore higher
potential returns against the risk that demand can drop in more
far-flung markets, said David Rosenberg, an investor at CBRE
Global Real Estate Securities.
Summit's closest competitor will be Chatham Lodging Trust
(CLDT.N), some of whose hotels are similar in style and
location to Summit's. Chatham has a dividend yield of about 4
Summit will offer a higher yield, both to better compete
against Chatham and to compensate for the perceived risks of
second-tier cities, Rosenberg said.
Investors like hotels right now because when demand rises,
room rates increase quickly and profits grow. That makes hotels
better able than other real estate asset classes to benefit
from the early stages of an economic recovery. Offices, for
example, typically carry long-term leases, so their returns can
lag a broader economic recovery.
(Reporting by Helen Chernikoff; Editing by Gary Hill)