Summit Hotel Properties, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. The combined filing covers Summit Hotel Properties, Inc. (a REIT) and its operating partnership, Summit Hotel OP, LP. Unless noted, financial amounts below are in millions.
Business context
The company acquires and operates primarily premium-branded select-service hotels. At quarter-end it reported 95 hotels with 11,127 guestrooms across 24 states, including three hotels classified as held for sale. It acquired 16 hotels in the first half for an aggregate purchase price of $414.2 million. The company owned 95.7% of the operating partnership’s common units.
Financial and operating performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Total revenue | $83.1 | $43.5 | $146.3 | $80.8 |
| Operating income | $11.5 | $3.7 | $17.5 | $5.2 |
| Net income (loss) | $6.7 | $(0.4) | $8.6 | $(3.2) |
| Net income (loss) per common share | $0.04 | $(0.04) | $0.03 | $(0.14) |
| Operating cash flow | Not provided for quarter | $34.9 | $13.1 |
- Revenue rose 91.1% in Q2 and 81.1% in the first half, largely reflecting acquired hotels. Same-store revenue increased 8.0% in Q2 and 6.8% in the first half.
- Same-store RevPAR increased 8.0% in Q2 to $75.76 and 7.4% in the first half to $71.24. Q2 same-store occupancy was 75.8% and average daily rate was $99.96.
- Operating income was about 13.8% of revenue in Q2 versus 8.4% in the prior-year quarter. Same-store hotel operating expenses declined as a share of revenue: 66.6% versus 67.4% in Q2.
- First-half cash flow: operating activities provided $34.9; investing activities used $399.1, including $388.5 for hotel acquisitions; financing activities provided $384.6.
- At June 30, total assets were $1,251.5, debt was $517.5, cash and cash equivalents were $34.4, and restricted cash was $27.8. The $150 million revolver had $48.2 available, after $96.6 drawn and $5.2 in standby letters of credit.
Changes and notable transactions
- Debt increased from $312.6 million at year-end 2012 to $517.5 million at June 30, alongside substantial hotel acquisitions. The weighted-average borrowing rate, after derivatives, was 4.37%, down from 5.15% at year-end.
- The company raised $148.0 million net from a common-stock offering and $81.7 million net from Series C preferred stock. Preferred dividends were $3.8 million in Q2 and $6.3 million in the first half.
- It sold five hotels and a land parcel during the first half. Discontinued operations included $1.5 million of impairment charges and a $1.7 million gain on asset dispositions for the six months.
- After quarter-end, the company reported new term loans and repayments that reduced the interim loan and revolver balances. As of August 2, the interim loan balance was $45.7 million and revolver availability was $89.4 million.
Outlook, risks, and contingencies
- Management described its economic outlook as guardedly optimistic, citing improving hotel fundamentals and expected RevPAR gains, while warning that a stalled economic recovery could hurt results. It provided no specific full-year earnings or revenue guidance.
- Management expected to spend $26–$32 million on hotel renovations in the remainder of 2013. It stated that available operating cash, working capital, revolver borrowings, and other funding sources should meet liquidity needs for at least 12 months.
- The $92 million variable-rate interim loan matured in November 2013, with a possible six-month extension subject to conditions. Management also disclosed $116.7 million of debt scheduled to amortize or mature over the following 12 months as of June 30.
- After swaps, 36.9% of debt was variable-rate; a 1 percentage-point rate increase was estimated to reduce annual cash flow by $1.9 million, assuming variable-rate debt remained unchanged.
- The company remained obligated to fund $10 million of a Minneapolis hotel loan and planned a conditional purchase for an estimated $31 million after conversion to a Hyatt Place, expected in Q4 2013. The filing cautions that the acquisition is not assured.
- Risks include leverage and refinancing, hotel demand and operating metrics, interest rates and costs, competition, acquisition integration, capital availability, REIT qualification, and economic or natural-disaster events. The company reported no known litigation expected to materially affect results, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether acquisition-driven growth translates into sustained same-store RevPAR and operating performance.
- How the November 2013 interim-loan maturity and other near-term debt obligations were refinanced or repaid, and the terms and collateral of subsequent borrowing.
- Actual renovation spending, dispositions of hotels and land held for sale, and the status and funding of the proposed Minneapolis acquisition.
- Liquidity and refinancing capacity under the revolver, including the effects of debt levels, interest rates, and hotel collateral availability.
- The effects of common and preferred equity issuance, distributions, and dilution on per-share returns.