Summit Hotel Properties, Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021; comparisons are with Q1 2020. Summit is a REIT focused on premium-branded, primarily select-service hotels. Its portfolio comprised 72 hotels and 11,288 rooms in 23 states. COVID-19 remained the principal influence on results; one hotel with 252 rooms remained closed at quarter-end, and guests at two other hotels were directed to sister properties.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $57.9 million | $108.4 million | Down 46.6% |
| Net loss | $32.9 million | $16.2 million | Loss increased |
| Net loss attributable to common stockholders | $35.1 million; $0.34 per share | $19.0 million; $0.18 per share | Loss per share increased |
| Adjusted EBITDAre | $6.2 million | $26.8 million | Down 76.7% |
| FFO per common share/unit | $(0.09) | $0.09 | Declined |
| AFFO per common share/unit | $(0.07) | $0.13 | Declined |
| Operating cash flow | $(3.2) million | $7.3 million | Down $10.5 million |
| Investing cash flow | $(6.2) million | $(12.7) million | Cash use decreased |
Portfolio occupancy was 50.3% versus 61.4%; average daily rate (ADR) was $104.12 versus $156.44, down 33.4%; RevPAR was $52.41 versus $95.99, down 45.4%. Management attributed the declines mainly to reduced demand, particularly in business and group travel. Hotel operating expenses fell 41.0%, reflecting lower activity and cost controls, but did not offset the revenue decline. Depreciation and amortization was $27.3 million; interest expense was $10.8 million. Adjusted EBITDAre, FFO and AFFO are non-GAAP measures and should be considered alongside GAAP results.
Balance sheet, debt and liquidity
- At March 31, 2021, total assets were $2.22 billion, debt net of issuance costs was $1.14 billion, and total equity was $1.00 billion. Gross debt was $1.15 billion.
- Cash and cash equivalents were $27.4 million and restricted cash was $20.0 million. At May 1, management reported $50.4 million of unrestricted cash and $390.0 million of undrawn revolver availability.
- Weighted-average debt interest rate, after derivatives, was 3.27%. Fixed-rate debt represented 72% of gross debt, compared with 50% at year-end 2020, mainly following the convertible-note issuance. Management estimated a 1 percentage-point rate move would change annual cash flows by approximately $3.2 million.
- In January, Summit issued $287.5 million of 1.50% convertible senior notes due 2026. Proceeds were used in part to repay revolving and term-loan borrowings and fund capped-call transactions. Revolver and term-loan amendments provided covenant waivers through March 31, 2022 and modified certain covenants through 2023. The company reported covenant compliance at quarter-end and no debt maturities before November 2022; scheduled principal amortization over the following 12 months was $4.0 million.
- Cash dividends on common stock and operating partnership units remained suspended. Preferred dividends continued; the board declared Q2 preferred dividends after quarter-end.
Changes, outlook, risks and unusual items
- Leisure demand improved sequentially during Q1 as vaccinations increased and some restrictions eased. Management expected leisure recovery to continue, while business-transient and group demand were expected to recover later and more slowly. It expected 2021 results to remain adversely affected and recovery to progress gradually over multiple years; no full-year revenue or earnings forecast was provided.
- Management estimated 2021 hotel capital expenditures of $20–$30 million, assuming a reasonable lodging-demand recovery. Q1 hotel-property capital spending was $3.6 million.
- Cost actions included reduced staffing and amenities, deferral of non-essential capital projects, and suspended or reduced hotel operations where warranted. Common dividend suspension was described as conserving about $19 million quarterly.
- Management stated that cash, credit availability and anticipated operating recovery should fund obligations for at least the next 12 months, while emphasizing substantial uncertainty around the pandemic and recovery. Credit-market access, leverage, refinancing, hotel demand, interest rates, and borrower repayment are material risks.
- No hotel-property impairment was identified at March 31, 2021. A $2.6 million allowance remained against development-loan receivables; a separate $2.4 million seller-financing balance was fully reserved, with interest recognition suspended pending cash receipts. Two development loans were extended to March 31, 2022; related interest payments resulted in $2.1 million of Q1 interest income.
- Substantially all deferred tax assets were subject to a valuation allowance. Q1 2020 tax expense included a $2.1 million non-cash deferred-tax item, so the lower Q1 2021 tax expense partly reflects a comparison against that unusual charge.
- After quarter-end, the joint-venture credit facility was amended with covenant waivers and adjustments. On May 1, Summit contributed six hotels with 846 rooms to its GIC joint venture for $172.0 million of total consideration; GIC contributed $84.3 million for its 49% interest. Proceeds were used to repay $62.5 million of company debt, with $20.9 million available for future investment.
Important facts for investors to verify
- Whether RevPAR, occupancy and room rates continue to improve, and when business and group travel recover.
- Available liquidity after restrictions, borrowing conditions and minimum-liquidity requirements under amended facilities; also monitor covenant compliance and the November 2022 debt maturity.
- Progress on refinancing or repaying debt, the impact of variable rates and the LIBOR transition, and potential dilution or cash obligations under the 2026 convertible notes and capped calls.
- Collection prospects for seller-financing and development loans, and whether deferred or waived hotel and tenant obligations create future cash demands.
- Actual capital spending versus the $20–$30 million estimate, and the eventual reinstatement of common dividends.
- The assumptions supporting recovery, liquidity and asset valuations; management cautioned that actual conditions could differ materially.