A Budget Conscious REIT For A Budget Conscious Investor

One of the reasons that I like Chatham is because of the company’s focus on limited service and more specifically, upscale extended-stay and premium-branded select service hotels. I like this category because the hotels have higher profit margins than full service hotels.

Summary

  • One of the biggest differences between a limited-service hotel and a full-service hotel is the limited-service hotel's lack of in-house drinking and dining options.
  • There is no doubt that Chatham and most all lodging REITs have experienced secular volatility YTD, in large part due to the increased supply hurdles and modest RevPAR growth.
  • While Tax Reform is not a direct catalyst to support my BUY thesis of Chatham, it is clearly a policy that will enhance corporate profits.
  • I am optimistic that Corporate Tax will get done and I am maintaining exposure in my favorite Limited Service Lodging REIT.

Limited-service hotels usually have the lowest operating costs of the three hotel categories (full-service hotels, select-service hotels and limited-service hotels) due to their lack of extras. Room rates are typically lower, because these hotels cater to budget-conscious travelers.

Full-service hotels often need a larger staff and larger facilities to accommodate guests who require more luxurious amenities. In the U.S., no official rules exist as to what defines a limited-service hotel and what defines a full-service hotel; hotels can advertise however they'd like. The hospitality industry, however, generally agrees on the basics of both types of hotels.

A limited-service hotel's budget-friendly rooms are much more basic than their full-service counterparts, which means that limited-service hotels tend to appeal more to leisure travelers, as opposed to conference and business-type travelers.

To appeal to cash-conscious travelers on the go, limited-service hotels often offer microwaves and mini-fridges, as well as cable TV and Internet, in their rooms. Full-service hotels may offer more lavishly decorated, comfortable suites with high-speed wireless Internet and premium cable TV with movies and other entertainment options.

However, over the years, the standards for facilities at limited-service hotels have gone up: Many hotels and motels that fall under the limited-service category now offer a business center, small gym, laundry facility and a swimming pool.

One of the biggest differences between a limited-service hotel and a full-service hotel is the limited-service hotel's lack of in-house drinking and dining options; full-service hotels often have at least one cocktail lounge and restaurant. Full-service hotels also often offer facilities like spas and banquet rooms, dry cleaning and 24-hour valet service.

There are three “pure play” limited-service Lodging REITs and Chatham Lodging (CLDT) has the highest RevPar (of these three):

Today I will attempt to provide investors with the reasons that I own Chatham and why I continue to maintain a BUY rating on shares. Note: I also have BUY ratings on Apple Hospitality (APLE) – see latest article HERE, Pebblebrook Hotel Trust (PEB) – see latest article HERE, Park Hotels (PK) – see latest article HERE, and Hersha Hospitality (HT) – see latest article HERE. I also have a speculative BUY on Ashford Hospitality Prime (AHP) – see latest article HERE.

All Cheers For Chatham

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