Summit Hotel Properties, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. The company is a hotel REIT focused on premium-branded, primarily select-service properties. At year-end it owned 74 hotels with 11,518 guestrooms; all hotels operated under Marriott, Hilton, Hyatt, or IHG brands.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $361.9 million | $234.5 million | +54.4% |
| Net loss | $68.6 million | $149.2 million | Loss narrowed by $80.7 million |
| Net loss attributable to common stockholders | $83.7 million | $158.2 million | Loss narrowed |
| Basic and diluted loss per share | $0.80 | $1.52 | Improved |
| Net cash from operating activities | $66.1 million | $(42.1) million | Improved by $108.1 million |
| FFO attributable to common shares and units | $17.3 million | $(53.5) million | Improved |
| AFFO attributable to common shares and units | $36.8 million | $(38.6) million | Improved |
| Adjusted EBITDAre | $90.5 million | $14.4 million | Improved |
Hotel operating metrics improved substantially: same-store occupancy rose to 62.2% from 43.3%, ADR to $129.35 from $120.36, and RevPAR to $80.41 from $52.16. Total-portfolio RevPAR increased 54.8%. GAAP operating loss was $33.3 million, versus $109.4 million in 2020; net loss equaled approximately 18.9% of revenue, compared with 63.7% in 2020.
Fourth quarter: Revenue was $106.9 million, compared with $48.2 million in fourth-quarter 2020. Net loss was $10.9 million versus $44.7 million, and loss per share was $0.15 versus $0.45.
Balance sheet, debt, and liquidity
- At December 31, 2021, total assets were $2.265 billion and total liabilities were $1.158 billion. Cash and cash equivalents were $64.5 million; restricted cash was $32.5 million.
- Debt principal outstanding was $1.081 billion ($1.070 billion net of issuance costs), compared with $1.101 billion at year-end 2020. Weighted-average borrowing rate, after swaps, was 3.35%. Interest expense was $43.4 million.
- After interest-rate derivatives, 77.9% of debt was fixed-rate and 22.1% variable-rate, versus 49.5% and 50.5%, respectively, in 2020. Management estimated a 1 percentage-point rate move would change annual cash flows by approximately $2.4 million.
- The $400 million revolver had no balance at year-end; reported availability was $340 million, with an additional $50 million subject to security requirements. Financial covenant waivers ran through March 31, 2022, with modified covenant measures through December 31, 2023. The company reported covenant compliance at year-end.
- Debt maturities included $62.0 million in November 2022; management said liquidity was adequate for this maturity. Scheduled 2022 principal amortization was $4.3 million. Capital expenditures were $20.4 million in 2021; expected 2022 spending was $60–$80 million.
- Common dividends were suspended beginning in first-quarter 2020 and remained suspended in 2021; credit amendments restricted common distributions other than those required to maintain REIT status through March 31, 2022. Preferred dividends continued. The board declared preferred dividends payable in February 2022.
Material changes and unusual items
- Recovery from the pandemic drove the improvement in revenue, cash generation, RevPAR, FFO, and Adjusted EBITDAre. Leisure travel led the recovery; business and group travel remained materially below historical levels and recovered more slowly.
- In 2021, the company issued $287.5 million of 1.50% convertible notes due 2026 and used proceeds, in part, to repay existing debt and fund capped-call transactions. It issued $96.6 million net proceeds from Series F preferred shares, redeemed $75.0 million of Series D preferred stock, and used remaining proceeds to repay $22.0 million of senior debt.
- The company contributed six hotels to its GIC joint venture, receiving $84.3 million from GIC for its 49% interest; it used transaction proceeds in part to repay $62.5 million of senior debt. The joint venture acquired two hotels in 2021.
- Corporate G&A increased $8.4 million, including $4.0 million of executive transition costs. Equity compensation included $2.9 million of incremental expense related to the Executive Chairman’s retirement. The company also recorded $3.8 million in transaction costs, including costs for an acquisition pursuit that did not close.
- A $2.6 million credit-loss allowance on two mezzanine loans was reversed after repayment agreements; the company separately wrote off $4.4 million of related purchase options. Other income included interest from mezzanine loans and COVID-19 relief grants.
- Cash from operations was $66.1 million; investing activities used $74.2 million, primarily reflecting hotel acquisitions and capital spending; financing activities provided $66.2 million, including joint-venture contributions and preferred-share proceeds.
Outlook, risks, and contingencies
Management expected operating improvement to depend on continued leisure demand, recovery in business and group travel, easing pandemic concerns and restrictions, and restoration of consumer confidence. The filing provides no quantified revenue, earnings, or occupancy guidance. It states that the timing of a return to pre-pandemic performance is highly uncertain. Management believed liquidity was sufficient to meet obligations for at least the next twelve months and pursue selective growth.
In January 2022, after the reporting period, the joint venture completed the $766 million NCI portfolio acquisition: 26 hotels with 3,533 guestrooms and two parking structures. Consideration included common and preferred partnership units, $382 million drawn on a new joint-venture term loan, assumed PACE debt, and GIC capital contributions. The acquisition expanded the portfolio to 100 hotels and 15,051 guestrooms as of February 11, 2022. The company expected to acquire the 176-room Canopy New Orleans for $56 million after construction completion. These are subsequent events, not 2021 operating results. The purchase-price allocation was still being finalized when the filing was prepared.
Key risks include persistent pandemic effects, inflation and labor or renovation-cost pressures, travel-demand weakness, debt refinancing and covenant availability, interest-rate and benchmark-transition exposure, required hotel renovations, reliance on third-party managers and franchisors, and concentration with Aimbridge, which managed 35 hotels at year-end 2021 and 61 after the acquisition. REIT qualification and distributions, joint-venture execution, acquisitions, and potential uninsured losses are also material risks. The company reported no pending litigation it believed would materially affect financial position or results. Auditors gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the 2021 operating recovery continues beyond leisure travel, particularly in business and group demand, and how occupancy and ADR trends develop.
- Post-acquisition leverage, debt service, covenant headroom, and refinancing plans, including the 2022 $62 million maturity and the new joint-venture borrowing.
- The finalized NCI acquisition purchase-price allocation, integration and renovation needs, and actual returns relative to the $766 million purchase price.
- Whether projected 2022 capital expenditures of $60–$80 million and inflationary operating costs affect liquidity and cash available for distributions.
- Conditions for resuming common dividends after covenant restrictions, and the company’s ability to meet REIT distribution requirements while common dividends are suspended.
- Mezzanine-loan repayment and remaining funding obligations, including the loan with $27.7 million funded, $2.2 million remaining, and a May 2022 maturity.