Summit Hotel Properties, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Summit is a lodging-property investment company and REIT. At quarter-end, its portfolio comprised 103 properties and 15,334 guestrooms in 24 states.
Financial and operating performance
- Revenue: $182.4 million, up 28.6%. Same-store revenue was $172.0 million, up 19.5%.
- Hotel performance: Total-portfolio occupancy was 68.9% versus 64.2%; average daily rate (ADR) was $171.63, up 12.3%; RevPAR was $118.18, up 20.5%. Same-store RevPAR increased 19.3%.
- Profitability: Operating income was $18.2 million versus $0.7 million, an operating margin of about 10.0% versus 0.5%. Net loss was $2.0 million versus $9.0 million; loss attributable to common stockholders was $5.2 million, or $0.05 per share, versus $12.4 million, or $0.12 per share.
- Non-GAAP measures: FFO applicable to common stock and units was $22.1 million ($0.18 per share/unit), versus $14.5 million ($0.12). AFFO was $26.3 million ($0.22 per share/unit), versus $20.1 million ($0.17). Adjusted EBITDAre was $44.4 million versus $32.9 million. These are supplemental measures, not substitutes for GAAP results or cash available for dividends.
- Cash flow and capital spending: Operating cash flow was $32.0 million versus $25.5 million. Investing cash outflow was $25.4 million, including $24.1 million of property improvements; financing cash inflow was $3.4 million. Cash, cash equivalents and restricted cash totaled $71.8 million, including $60.7 million unrestricted cash.
- Debt and interest: Debt, net of issuance costs, was $1.467 billion at March 31, compared with $1.452 billion at year-end. Gross debt was $1.477 billion; the weighted-average interest rate after derivatives was 5.35%, versus 5.04% at year-end. About 51% of gross debt was fixed-rate and 49% variable-rate after currently effective derivatives.
- Liquidity and equity: Total assets were $3.028 billion and total liabilities $1.585 billion. The company reported compliance with loan covenants. Management said it expects adequate liquidity for scheduled maturities and principal repayments, while noting refinancing is not assured.
Changes versus the prior period
- Revenue growth reflected continued leisure demand and improvement in corporate and group travel, acquisitions of Canopy New Orleans and the AC/Element Hotel, and recovery from Omicron-related weakness in early 2022. Property sales partly offset these gains.
- Higher occupancy and rates lifted operating revenue, but labor, property costs and interest expense also rose. Interest expense increased 55.6% to $20.9 million, attributed primarily to higher rates on unhedged floating-rate debt and debt associated with the Brickell acquisition.
- Cash from operations increased $6.5 million. Investing outflow was substantially lower than in Q1 2022, when the NCI portfolio acquisition drove significant spending.
Outlook, risks and unusual items
- Management said Q1 operating results had recovered to or above pre-pandemic levels, driven mainly by leisure travel; corporate and group demand was improving but remained below historical levels. It expected relatively high inflation and related cost pressures to continue in 2023. The filing provides no full-year revenue or earnings guidance.
- Management anticipated $40.3 million to $60.3 million of pro-rata capital expenditures during the remainder of 2023, to be funded through operating cash flows, revolver borrowings or other available capital.
- Properties with a net carrying amount of $79.2 million were classified as held for sale. Most were under contract and expected to close in Q2 or Q3 2023; completion is not assured.
- Near-term financing is a key risk: the company’s $400 million revolver maturity was extended to September 30, 2023, with further conditional extensions; the GIC joint venture’s $125 million revolver and $75 million term loan mature October 8, 2023, with conditional extensions. The GIC joint venture debt is not debt guaranteed by the company, according to the filing. Scheduled principal amortization over the next 12 months was $2.2 million, taking extension options into account.
- Variable-rate exposure remains material. Management estimated that a 1% rate increase or decrease would reduce or increase annual cash flow by approximately $7.2 million, after existing swaps. Two new $100 million swaps for GIC joint venture debt begin July 1, 2023.
- A lender’s counsel alleged defaults under a $43.5 million MetaBank mortgage, primarily relating to non-monetary covenants; Summit disputed the allegations, and the lender reiterated them in April 2023. Separately, the filing states there were no defaults under mortgage loan agreements and that the company and GIC joint venture were in covenant compliance at March 31.
- The company issued a $3.0 million letter of credit supporting the Onera development loan; it had funded $1.3 million of a commitment of up to $4.6 million by quarter-end. The contingent guarantee payment was not considered probable or reasonably estimable at that date.
- Management recorded a valuation allowance against substantially all deferred tax assets because certain taxable REIT subsidiaries had cumulative losses. It reported no pending legal actions believed likely to materially affect financial position or results.
Important facts for investors to verify
- Whether the September and October 2023 credit-facility maturities are extended or refinanced, and on what terms.
- Progress and closing conditions for the properties held for sale, and how proceeds are used.
- Whether lodging demand, especially corporate and group travel, sustains RevPAR gains amid inflation and labor-cost pressure.
- Developments in the disputed MetaBank loan allegations and the Onera loan and letter-of-credit exposure.
- How variable-rate debt, upcoming swaps and future interest rates affect interest expense, cash flow and dividend capacity.