Summit Hotel Properties, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Summit is a hotel REIT focused primarily on premium-branded, select-service properties. At quarter-end, it held interests in 102 hotels with 15,323 guestrooms across 24 states.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 |
|---|---|---|
| Total revenue | $183.2 million | $86.5 million |
| Operating income (loss) | $43.1 million | $(11.6) million |
| Net income (loss) attributable to common stockholders | $7.9 million | $(22.4) million |
| Diluted EPS | $0.07 | $(0.21) |
| Adjusted EBITDAre (non-GAAP) | $54.6 million | $21.7 million |
| AFFO per common share/unit (non-GAAP) | $0.27 | $0.08 |
- Q2 total-portfolio RevPAR increased 54.9% year over year to $120.64, with occupancy of 74.2% and ADR of $162.68. Same-store RevPAR rose 62.7% to $127.44.
- For the first half, revenue was $325.1 million, operating income $43.8 million, and net income attributable to common stockholders was a loss of $4.4 million, or $(0.04) per diluted share. Adjusted EBITDAre was $87.5 million and AFFO was $0.44 per common share/unit.
- Six-month operating cash flow was $86.9 million, versus $14.8 million in 2021. Investing used $234.8 million and financing provided $197.0 million. Cash, cash equivalents and restricted cash totaled $146.1 million at June 30, including $110.0 million of unrestricted cash.
- At June 30, debt was $1.537 billion gross and $1.524 billion net of issuance costs, up from $1.081 billion gross at year-end 2021. Weighted-average debt interest rate, after derivatives, was 3.95%. Debt was 55% fixed-rate and 45% variable-rate after swaps.
Material changes and unusual items
- The $822 million NewcrestImage transaction added 27 hotels, 3,709 guestrooms and two parking structures, primarily through the GIC joint venture. Consideration included common and preferred operating partnership units, debt and cash contributions. Summit also acquired a 90% interest in the 264-room AC/Element Miami Brickell hotel.
- The GIC joint venture sold a San Francisco-area hotel for $75.0 million gross proceeds, generating a $20.5 million gain. This gain materially contributed to reported operating income and was excluded from FFO and EBITDAre.
- Revenue growth reflects both portfolio expansion and recovery in hotel demand; it is not solely same-store growth. Higher debt and floating-rate exposure increased interest expense, which rose 37.9% year over year in Q2 to $15.1 million.
- Six-month total-portfolio RevPAR increased 68.1%; same-store RevPAR increased 72.5%. The company reported that leisure demand led the recovery, while corporate and group demand remained below historical levels.
Liquidity, outlook and risks
- Management said cash, operating cash flow and available credit were expected to provide sufficient liquidity for at least the next 12 months. The company reported compliance with loan covenants at June 30. It had $4.1 million of scheduled principal amortization and $54.1 million of debt maturities over the following 12 months.
- In July, amendments to the senior credit facility improved certain covenants, eliminated the minimum liquidity covenant, transitioned the facility from LIBOR to SOFR and provided additional six-month extension options. The revolver and term loan could each be extended to 2025, subject to conditions.
- Management anticipated continued improvement through the remainder of 2022, but expected a gradual, multi-year recovery toward prior peak performance. No specific revenue or earnings guidance was provided. The company expected $45–$65 million of additional 2022 capital expenditures, assuming reasonable lodging-demand recovery.
- Key risks include inflation, rising interest rates, labor and operating-cost pressures, recession or weaker travel demand, slower corporate and group recovery, pandemic effects, refinancing risk, and the ability to stabilize newly acquired hotels. A 1 percentage-point interest-rate change was estimated to affect annual cash flows by approximately $6.5 million after existing swaps.
- After quarter-end, the board reinstated a quarterly common-stock dividend of $0.04 per share, alongside declared preferred dividends. The filing states that no pending litigation was expected to materially affect financial position or results.
Important facts for investors to verify
- How much of revenue and RevPAR growth is attributable to same-store recovery versus acquired properties, and whether leisure strength is sustained as business and group travel recover.
- The GIC joint venture’s debt, funding obligations and non-controlling interests, and how these affect cash available to Summit’s common stockholders.
- Exposure to floating-rate debt, the effect of SOFR and future refinancing needs, including the $54.1 million of near-term maturities identified at quarter-end.
- The repeatability of earnings excluding the $20.5 million asset-sale gain, and the definitions and reconciliations of non-GAAP AFFO and Adjusted EBITDAre.
- Whether operating cash flow can support planned capital spending, debt service and the reinstated common dividend as labor, insurance and other costs rise.