Real estate investment trust Summit Hotel Properties, which has a portfolio of 103 assets, is realizing the benefits of more diverse partnerships as traveler trends change.
In an Oct. 26 deal with Onera Escapes, Summit acquired a 90% joint venture interest in the 11-unit glamping asset Onera Fredericksburg in Fredericksburg, Texas, for $4.5 million along with the adjacent 6.4 acre piece of land for $770,000. The company intends to develop 15 to 20 additional glamping units, according to Summit President and CEO Jonathan Stanner.
Onera and its affiliates operate more than 300 alternative accommodations and hotels in 29 different markets across the United States and Mexico.
On a call presenting the company's third-quarter earnings results to investors and analysts, Stanner said the goal with investing in glamping assets is to start small, be able to prove value to investors and then grow in scale. For Summit, Onera was the perfect partner to execute that with, he added.
Through its partnership with Onera, Summit will continue to develop high-end, experiential glamping properties in targeted markets across the country, with a large portion of development capital funded through its mezzanine lending program, Stanner said.
"Evolving our real estate strategy along with emerging guest preferences has always been a hallmark of our capital allocation strategy. We believe the demand trends that have elevated glamping from a niche travel market to an institutional asset class are poised to continue their rapid acceleration as robust and resilient leisure travel demand continues to favor unique and experiential accommodations," he said.
Stanner said glamping has been the fastest-growing accommodation segment in the U.S. From 2017 to 2021, its revenues grew by nearly 9% on a compound annual basis. Demand within the segment is projected to increase by nearly 15% on a compound annual basis between 2022 and 2030.
A large portion of travelers making up this demand segment are younger millennials and Gen Z. Together, they are projected to make up more than 75% of the glamping market by 2030, he added.
Stanner said glamping features a labor-light operating model, with only one or two on-site staff members per location. Additionally, the uniqueness of these assets allows for strong pricing power, which "drives particularly compelling unit level economics," he said.
Onera Fredericksburg opened in November 2021 and, year to date as of September, has achieved a revenue per available room of $425, Executive Vice President and Chief Financial Officer Trey Conkling said. In preliminary October results, occupancy was 90%, average daily rate was $675, and revenue per available room was $610. The property is projected to produce earnings before interest, taxes, deprecation and amortization margins of more than 55% in the first year of Summit's ownership, he added, with EBITDA per unit at roughly $80,000.
Though the initial investment is small, relative to the company's enterprise value, Summit is confident in the partnership's ability to drive scale quickly, executives said.
Broader Traveler Trends
Conkling said Summit's 42-hotel urban portfolio achieved robust growth in both weekday and weekend demand. As a result, urban RevPAR grew 27% in the quarter compared to the same period in 2021.
Weekday occupancy across its urban portfolio increased 770 basis points, and weekday ADR was up 19% from the third quarter of 2021. This growth was driven largely by increasing business travel and group demand, he said.
From a weekend perspective, urban performance was boosted by ADR growth of 12% over third quarter 2021.
"In addition, for our urban hotels with comparable 2019 data, third-quarter weekend ADR and RevPAR surpassed 2019 levels by approximately 15% and 2%, respectively," he said.
Strength in Summit's non-urban portfolio was bolstered by its hotels in suburban and airport locations. The non-urban portfolio achieved a 112% increase in weekday RevPAR compared to the post-Labor Day period in 2021, Conkling said.
Third Quarter Performance
In its third-quarter earnings news release, Summit reported a $500,000 net loss attributable to stockholders, compared to a net loss of $11 million for the same period in 2021.
RevPAR increased 20% to $113.59 year over year, while ADR rose 14.9% to $158.39, and occupancy was up 4.4% to 71.7%.
Hotel EBITDA grew to $61.1 million compared to $49.3 million in the same period in 2021.
During the third quarter, Summit invested $23.5 million in capital improvements as well as $20.5 million on a pro rata basis after consideration of joint ventures, the release states.
As of press time, Summit's stock was trading at $7.76 per share, down 20.5% year to date. The NYSE Composite was down 15.8% for the same period.