NEW YORK—When it comes to franchisors, Summit Hotel Properties Inc. apparently no longer wants to have a Choice.
HOTEL BUSINESS® has learned the Sioux Falls, SD-based company, in the middle of arbitration with Choice Hotels International over 11 Choice–branded products, including four Cambria Suites, is taking five of those hotels and reflagging them as AmericInns, a largely Midwest brand which recently set in motion an aggressive expansion strategy. According to a source close to the situation, “franchise agreements have been negotiated [by AmericInn]and are expected to be executed.”
At press time the deal was expected to be completed shortly.
The properties would include: the 89-room Comfort Inn, Fort Smith, AR; 60-room Comfort Inn, Salina, KS; 52-room Comfort Inn, Missoula, MT; the 111-room Comfort Inn & Suites, Twin Falls, ID; and a 62-room Comfort Suites in Lakewood, CO.
Summit indicated it is in discussions with other franchisors and brands for the remainder of the Choice properties.
Summit’s other [former]Choice hotels include two Comfort Suites: a 70-room hotel in Fort Worth, TX, which is slated to convert to an Aspen Suites and a 67-room hotel in Charleston, WV, expected to become a Holiday Inn Express & Suites.
Also remaining are four Cambria Suites, Choice’s contemporary lifestyle brand, and anticipated conversions: a 127-room hotel in Baton Rouge, LA (Aspen Suites); a 126-room hotel in San Antonio, TX (Aspen Suites); a 119-room hotel in Boise, ID (Holiday Inn); and a 113-room hotel in Bloomington, MN (unknown).
Summit, which launched an IPO in February, filed a Form 8-K with the U.S. Securities and Exchange Commission on March 23 stating its franchise agreements with Choice for the 11 hotels were terminated.
The REIT detailed its plans in the filing, acknowledging it was “in active negotiations with other franchisors in anticipation of changing all 11 hotels to operate under new franchise brands” and would look to ink new agreements with new franchisors “within the next several weeks.”
On March 30, Choice issued a statement in response to the situation with Summit, noting pending litigation and the “confidential nature of the franchisor-franchisee relationship” precluded greater detail.
Stating “termination is always a last resort for us,” Choice said it terminated the 11 franchise agreements with Summit on March 23.
“We were compelled to do so in this instance in light of Summit’s contractual breaches and material misrepresentations and/or omissions and the responsibility we have to protect our interests and the integrity of franchise agreements,” the statement said.
Choice went on to say: “We are actively working to resolve our claims against Summit through arbitration they have initiated, and we acknowledge Summit’s related request that the properties be reinstated in the Choice system.”
Whether Summit wanted to remain a Choice franchisee in light of the situation could not be confirmed. Summit did not return calls for comment.
An industry source told HOTEL BUSINESS® the Comfort Inns and Comfort Suites in the Summit portfolio were “doing fine” but the Cambria Suites “were not performing.”
Making changes
In a recent report issued March 16 by Janney Capital Markets on Summit following its IPO, analysts Daniel Donlan and Andrew DiZio made the following observations, noting additional upside for Summit could come from conversions of Cambria Suites.
“…We would not be surprised to see management try to reposition these assets with a Marriott or Hilton flag given how poorly the hotels have performed to date…despite opening up within two months of each other in late 2007, the Hampton Inn & Suites in Bloomington, MN, does $27.82 more in RevPAR (51.1 percent higher) than the Cambria Suites that is located just 100 yards away. (We have toured both assets, and frankly, the Cambria is nicer.) We believe this discrepancy in RevPAR is occurring for multiple reasons: 1) Choice’s core customer does not want to pay more than $100 for a hotel room, 2) With less than 30 Cambria Suites’ hotels in the U.S., its brand awareness is extraordinarily weak, and 3) With most business travelers laser focused on getting points/rewards for each hotel stay, loyal Marriott, Hilton and Hyatt members have not been willing to make the switch to this brand despite, in our opinion, the Cambria Suites product being more stylish and amenity rich than many of the competing brand flags.”
The report when on to say, “while it is uncertain when (or if) these four Cambria Suites hotels may be converted, we would expect the all-in cost to convert the hotels to be in the range of a $1 million per asset; and we would expect an immediate positive impact to RevPAR with nearly a 100 percent flow through.”
According to Summit’s 8-K filing, the 11 hotels are encumbered by mortgage debt totaling approximately $58.8 million. The REIT indicated it is in negotiations with Choice with respect to any amounts payable in connection with the terminations.
“Summit probably wouldn’t have taken the Comforts out but they were told they had to by Choice,” the source said, adding: “Choice used it as a leverage—If you’re going to take your Cambrias, you might as well take your Comforts, too—probably thinking it wasn’t going to happen. I think they both came head to head. So, that’s why it’s still in litigation.”
A call for comment by Choice was not returned.
Summit was first out of the ground with the Cambria Suites brand, which launched in 2005, debuting the Boise property amid fanfare almost four years to the day on April 17, 2007.
The new-construction, select-service, all-suites product was among the first of more than two-dozen brands that emerged in 2005 and piqued developer interest. At the time, Summit was so confident about the brand it actually had pushed ahead with plans to build one before Choice had completed the prototype.
The design offers suites that are 25 percent larger than industry standards. Cambria is geared to go head-to-head with Courtyard by Marriott and Hilton Garden Inn, and also serve as a “step-up” brand for Choice’s own franchisees.