Summit Hotel Properties, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Summit is a lodging-property REIT. At quarter-end, it owned or controlled 99 properties with 14,785 guestrooms across 24 states; more than 99% of guestrooms operated under major franchise brands.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $188.1 million | $182.4 million |
| Operating income | $23.5 million | $18.2 million |
| Operating margin | 12.5% | 10.0% |
| Net income (loss) | $2.8 million | $(2.0) million |
| Net loss attributable to common stockholders | $(2.1) million; $(0.02) per share | $(5.2) million; $(0.05) per share |
| Operating cash flow | $28.2 million | $32.0 million |
| FFO / AFFO applicable to common stock and units | $25.5 million / $30.0 million | $22.1 million / $26.3 million |
| Adjusted EBITDAre | $48.8 million | $44.4 million |
Revenue increased 3.2% and portfolio RevPAR rose 4.9% to $123.92. Same-store RevPAR increased 1.7%: occupancy improved to 71.7% from 69.5%, while ADR declined 1.3% to $171.91. Management attributed stronger demand to group and business transient travel, continued leisure demand, and revenue-management efforts.
Interest expense increased 3.2% to $21.6 million, reflecting higher rates on unhedged floating-rate debt, partly offset by lower average debt. Net income improved year over year, but common stockholders still recorded a loss after preferred dividends and other distributions.
Cash, debt and liquidity
- Cash and cash equivalents were $63.4 million at March 31, 2024; restricted cash was $8.9 million. Operating cash flow was lower year over year, while investing cash outflow narrowed to $10.0 million, including $18.1 million of property improvements and $9.0 million of net disposition proceeds.
- Debt, net of issuance costs, was $1.452 billion, versus $1.431 billion at year-end 2023. Gross debt was $1.467 billion; the weighted-average interest rate after derivatives was 5.35%.
- After swaps effective at quarter-end, 65% of consolidated debt was fixed-rate and 35% variable-rate. Management estimated a 1 percentage-point rate change would affect annual cash flows by approximately $5.1 million. It reported covenant compliance and $16.4 million of scheduled principal amortization over the next 12 months.
- In February, Summit refinanced a $225 million term loan due in 2025 with a fully funded $200 million term loan due in 2027, plus borrowings from its revolver. The revolver had $55 million outstanding at quarter-end; that amount was repaid in April using proceeds from property sales.
Material changes, outlook and notable items
- Summit sold the Hyatt Place in Plano, Texas, for $10.3 million in February. It subsequently closed sales of two New Orleans hotels for $73 million in April; the company expected to record an approximately $28 million gain in Q2. It also sold a College Station-area hotel for $11 million in April. Sale proceeds were used to repay revolver and joint-venture term-loan balances.
- Management expects 2024 pro-rata capital expenditures of approximately $65 million to $85 million, funded through operating cash flows, revolver borrowings or other available capital. The filing provides no specific full-year revenue or earnings guidance.
- Management cited inflation in labor, supplies, insurance and other costs, as well as interest rates, travel demand, occupancy, ADR, refinancing availability, renovation costs and property-sale execution among key uncertainties.
- A lender has alleged technical defaults under a mortgage loan secured by three properties, principally involving non-monetary covenants. Summit disputes the allegations and says it believes them to be without merit; it also reports that it and its GIC joint venture were in compliance with loan covenants at quarter-end.
- The company recorded a $0.2 million income tax expense and maintained a valuation allowance against substantially all deferred tax assets. It reported no pending legal actions believed likely to have a material effect.
Investor verification priorities
- Track same-store occupancy and ADR: occupancy growth supported RevPAR despite lower same-store ADR.
- Verify debt refinancing, maturities, variable-rate exposure and the effect of the April sale-related repayments; assess the disputed mortgage-default allegations.
- Confirm completion, gain recognition and use of proceeds for announced dispositions, and compare actual 2024 capital spending with the $65 million–$85 million outlook.
- Review cash generation and dividend coverage alongside preferred distributions and non-GAAP FFO/AFFO; these measures are not substitutes for GAAP earnings or liquidity.
- Assess whether demand growth can offset inflationary operating costs and higher interest expense.