Summit Hotel Properties, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Summit is a lodging-property REIT; its portfolio comprised 101 properties and 15,035 guestrooms across 24 states. Unless noted, dollar amounts are in millions.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $181.8 | $178.3 | $558.7 | $503.4 |
| Operating income | $16.5 | $17.2 | $58.4 | $61.0 |
| Net income (loss) | $(5.8) | $(1.0) | $(6.8) | $13.3 |
| Net income (loss) attributable to common stockholders | $(5.4) | $(0.5) | $(11.4) | $(5.0) |
| Interest expense | $22.0 | $17.6 | $65.2 | $46.2 |
| FFO applicable to common stock and units | $22.7 | $28.1 | $72.6 | $69.7 |
| AFFO applicable to common stock and units | $26.5 | $30.9 | $85.9 | $83.6 |
- Q3 total-portfolio RevPAR increased 2.9% to $116.91, with occupancy up 2.4% and ADR down 0.6%. Same-store RevPAR rose 2.4%.
- For the first nine months, total-portfolio RevPAR increased 8.6% to $120.53; same-store RevPAR rose 7.7%. Same-store revenue grew 8.3%.
- Q3 operating margin was approximately 9.1%, compared with 9.7% a year earlier. Higher interest expense and corporate costs contributed to the lower GAAP result. Nine-month net income comparisons also reflect a $20.5 million property-sale gain in 2022.
- Operating cash flow was $123.2 million for the nine months, versus $135.7 million. Investing used $84.3 million and financing used $34.1 million; cash, cash equivalents and restricted cash ended at $66.6 million.
- At September 30, gross debt was $1.461 billion ($1.445 billion net of issuance costs), compared with $1.463 billion gross at year-end 2022. The weighted-average borrowing rate, after derivatives, was 5.32%. Debt was 65% fixed-rate and 35% variable-rate after hedging.
Changes, outlook and material matters
- Revenue growth reflected stronger leisure demand and improving group and business-transient travel, as well as acquisitions; the four-property sale in May partly offset growth. Management said Q3 growth rates moderated as prior-year leisure strength normalized.
- Inflation continued to raise labor, insurance, supplies and other costs. Management said lodging price increases partly offset inflation, but further price increases could face consumer resistance.
- Interest expense rose 24.8% in Q3 and 41.1% for the nine-month period, primarily due to higher rates on unhedged floating-rate debt and additional debt associated with the Brickell acquisition. A 1 percentage-point rate change is estimated to affect annual cash flow by about $5.0 million after swaps.
- The company completed two hotel acquisitions in June 2023 for an aggregate purchase price of approximately $42.7 million and sold four properties for $28.1 million gross. It expects $13–$23 million of pro-rata capital expenditures in the remainder of 2023.
- Credit facilities were amended or extended: the company’s senior facility maturities extend to 2026–2027, and the GIC joint venture facility to 2027, subject to extension conditions. The company and GIC joint venture reported compliance with loan covenants. Scheduled principal payments over the next 12 months were $2.4 million, subject to available extension options.
- Management stated it expects adequate liquidity for scheduled obligations but cautioned that refinancing may not be available on favorable terms. The filing does not provide quantitative earnings or RevPAR guidance.
- A mortgage lender, Bayside, continued to allege defaults under the MetaBank loan; the borrower disputes the allegations and the company says it believes the assertion is without merit. The filing reports no other pending legal action expected to materially affect results.
- A $3.0 million letter of credit supports an Onera development loan; management said payment under its contingent guarantee was not probable or reasonably estimable at quarter-end. A hotel sale expected in Q4 and a San Antonio land sale expected in Q1 2024 remained pending at filing.
Investor verification points
- Track interest expense, floating-rate exposure, hedge coverage and upcoming debt maturities, particularly the 2025–2026 obligations.
- Review the disputed MetaBank loan default allegations and any developments affecting covenant compliance or refinancing access.
- Compare future same-store occupancy, ADR, RevPAR and operating-cost trends with management’s commentary on demand moderation and inflation.
- Verify completion and proceeds of the pending property and land sales, and monitor planned capital spending and funding sources.
- Assess recurring cash generation and dividend capacity alongside GAAP results and non-GAAP FFO/AFFO; these non-GAAP measures are not substitutes for cash available to pay dividends.