Summit Hotel Properties: Swapping A 6.96% Yield For A 7.44% Yield

seekingalpha10-25

I find Summit Hotel Properties' preferred shares attractive due to their strong dividend coverage and relatively stable risk profile despite the hospitality sector's volatility.The REIT's AFFO of $66M...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2478795376?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2103335569/image_2103335569.jpg","is_english":true,"pubTime":"2024-10-25 22:30","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2478795376","market":"hk","top_or_hot":-1,"title":"Summit Hotel Properties: Swapping A 6.96% Yield For A 7.44% Yield","media":"seekingalpha","content":"<div>\n<p>I find Summit Hotel Properties' preferred shares attractive due to their strong dividend coverage and relatively stable risk profile despite the hospitality sector's volatility.The REIT's AFFO of $66M...</p>\n\n<a href=\"https://seekingalpha.com/article/4729377-summit-hotel-properties-swapping-a-6-96-percent-yield-for-a-7-44-percent-yield\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Summit Hotel Properties: Swapping A 6.96% Yield For A 7.44% Yield</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSummit Hotel Properties: Swapping A 6.96% Yield For A 7.44% Yield\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-25 22:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4729377-summit-hotel-properties-swapping-a-6-96-percent-yield-for-a-7-44-percent-yield><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>I find Summit Hotel Properties' preferred shares attractive due to their strong dividend coverage and relatively stable risk profile despite the hospitality sector's volatility.The REIT's AFFO of $66M...</p>\n\n<a href=\"https://seekingalpha.com/article/4729377-summit-hotel-properties-swapping-a-6-96-percent-yield-for-a-7-44-percent-yield\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4218","symbol_name":"酒店及度假村房地产信托","start_time":0,"source_url":"https://seekingalpha.com/article/4729377-summit-hotel-properties-swapping-a-6-96-percent-yield-for-a-7-44-percent-yield","article_id":"2478795376","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2103335569/image_2103335569.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2478795376","pubTimestamp":1729866600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I find Summit Hotel Properties' preferred shares attractive due to their strong dividend coverage and relatively stable risk profile despite the hospitality sector's volatility.The REIT's AFFO of $66M","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4218":"酒店及度假村房地产信托","INN":"Summit Hotel Properties","BK4181":"酒店及度假村房地产投资信托"},"translate_title":"Summit Hotel Properties：将6.96%的收益率换成7.44%的收益率","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"INN":0.9},"content_text":"I find Summit Hotel Properties' preferred shares attractive due to their strong dividend coverage and relatively stable risk profile despite the hospitality sector's volatility.The REIT's AFFO of $66M in H1 comfortably covers its capex and preferred dividends, indicating a safe dividend coverage ratio.Summit Hotel Properties' balance sheet is solid, with $2.87B in assets and a net debt position of $1.3B, ensuring preferred equity safety.I prefer Series E preferred shares over Series F due to their higher yield, despite both series having similar risk profiles.halbergman/E+ via Getty Images Introduction While I'm not a big fan of hotel REITs, this subtype of REITs sometimes has an attractive series of preferred shares in its capital structure. While this obviously reduces an investment thesis to just generating a (hopefully steady) income while not being exposed to potential capital gains (other than the share price of the preferred shares being impacted by the risk profile of the underlying company as well as the evolution of the interest rates on the financial markets). But in my case, I don't necessarily want to deal with the volatility of the hospitality business, and I'm fine with just receiving the quarterly dividends from, for instance, Summit Hotel Properties (NYSE:INN). Data by YCharts This article is meant as an update to previous coverage on Summit Hotel Properties. You can read all older articles here. The updated guidance for this year makes the preferreds look pretty attractive As you may know by now, I look at preferred shares from two different perspectives. The first question I ask myself is \"how well are the preferred dividends covered.\" The next question is \"does the balance sheet pose any risk to the preferred equity holders?\" To find the answer to the first question, we need to have a look at the FFO and AFFO result (the reported net income isn't a great metric to judge a REIT's performance on). The image below shows Summit Hotel Properties' FFO and AFFO performance in the first half of the year, which already gives a pretty good indication of how well the preferred dividends will be covered this year. As you can see below, the reported net income is the starting point of the FFO calculation, and in Summit's case, the FFO is actually pretty similar to the reported net income attributable to the common shareholders. The depreciation-related adjustment is mitigated by the $28.3M realized gain on the disposal of assets. In the second quarter of this year, the FFO came in at just under $35M while the adjusted FFO was $36.4M for an FFO and AFFO per share of respectively $0.28 and $0.29. INN Investor Relations There are two caveats here: Summit Hotel Properties has to deal with a certain level of seasonality as the demand for hotel rooms is higher and the pricing is stronger during the summer months. Secondly, whereas the AFFO includes maintenance capex in most other jurisdictions, it is an element that is not included in the US way of calculating the AFFO. In the entire first semester, the REIT spent $39M on improvement capex. While only a portion of the capex will be \"pure\" sustaining capex, investors should realize it represents a cash outflow element that is not yet taken into account in the AFFO calculation. That being said, with an AFFO of just over $66M in the first half of the year, the REIT should have no issues covering its capex program this year. Also keep in mind that $66M in AFFO already includes the almost $8M in preferred dividend payments, which means the underlying AFFO excluding preferred dividend payments was approximately $74M and the REIT needed just over 10% of its H1 AFFO to cover the preferred dividends. So from the perspective of the dividend coverage ratio, Summit Hotel's preferred dividends appear to be safe. Based on the full-year AFFO guidance, we should, however, expect the H2 FFO to come in lower than the H1 AFFO. The full-year guidance calls for an AFFO of $112-120M, which implies an H1 AFFO of just $46-56M. That's pretty low (but, of course, keep in mind the REIT sold a few assets earlier this year) and I'll be keeping an eye on a guidance update when the REIT publishes its Q3 update. Looking at the balance sheet, Summit Hotel's balance sheet contains $2.87B in assets on a consolidated basis, of which about $1.36B is backed by equity. Keep in mind that includes the equity portion of just over $327M that's attributable to non-controlling interests. At the end of the second quarter, the net debt position had decreased to approximately $1.3B, backed by $2.7B in assets. Keep in mind the $2.7B is the book value of the hotel assets and this already includes almost $860M in accumulated depreciation. And considering the properties were sold at a premium to the book value earlier this year, it's safe to assume the fair value of the hotels will likely be somewhere in between the book value and the acquisition cost even if I'd use more conservative parameters. INN Investor Relations Of the $932M in equity attributable to Summit Hotel Properties, $260M is related to the two series of preferred shares that are currently outstanding. This means the total amount of common equity, which ranks junior to the preferred equity, is approximately $672M with a coverage ratio of around 358%. Again, this is based on the book value of the assets and if the air value would be around $300M higher, the ratio of total equity vs. preferred equity would increase to almost 475%. The details of the two different preferred share issues Summit Hotel Properties currently has two publicly traded preferred shares outstanding. As explained in a previous article, it issued 6.4M preferred shares series E (NYSE:INN.PR.E) while there are an additional 4 million preferred shares issued as a Series F (NYSE:INN.PR.F). The E-Series pays $1.5625 per share per year in equal quarterly installments and can be called anytime, while the F-shares can only be called from August 2026 on. The preferred dividend payable on the F-shares is $1.46875 per share, also payable in four equal quarterly payments. Interestingly, and surprisingly, the Series E preferred shares are trading at a lower price than the Series F shares. This results in a current yield of 7.44% for the Series E and approximately 6.96% for the Series F. There's no good reason why there should be such a large difference between the yields of both series of preferred shares. Investment thesis My investments in preferred shares issued by hotel REITs are relatively boring, as I'm only interested in securing a steady stream of incoming cash. That need is met with the preferred shares of Summit Hotel Properties, as I like the risk/reward ratio offered by the preferred equity.  I have a long position in both series of preferred shares issued by Summit Hotel, and I wouldn't mind adding to these positions on weakness. That being said, I may sell my position in the Series F to increase my position in the Series E preferred shares.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2478795376"}