Summit Hotel Properties, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The company is a self-managed lodging-property REIT; its 103 properties and 15,334 guestrooms were located in 24 states. Most guestrooms operated under Marriott, Hilton, Hyatt, or IHG brands. Results include consolidated joint ventures and reflect acquisitions only from their respective closing dates.
Financial and operating results
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Total revenue | $675.7 million | $361.9 million | Up 86.7%; acquisitions and recovering demand contributed. |
| Operating income (loss) | $67.8 million | $(33.3) million | Recovery from the prior-year loss. |
| Net income (loss) | $1.2 million | $(68.6) million | Net income was thin relative to revenue. |
| Net loss attributable to common stockholders | $(16.9) million; $(0.16) per share | $(83.7) million; $(0.80) per share | Includes preferred dividends and other allocations. |
| FFO / AFFO applicable to common shares and units | $95.3 million / $114.0 million | $17.3 million / $36.8 million | Non-GAAP measures; company cautions they are not substitutes for GAAP results or liquidity. |
| Adjusted EBITDAre | $180.8 million | $90.5 million | Non-GAAP; up $90.3 million. |
| Net cash from operating activities | $169.6 million | $66.1 million | Improved with operating recovery. |
| Cash used in investing activities | $(290.5) million | $(74.2) million | Acquisitions and higher capital spending were major uses. |
| Cash and cash equivalents | $51.3 million | $64.5 million | Restricted cash was an additional $10.6 million. |
| Debt outstanding, including joint ventures | $1.463 billion | $1.081 billion | Company reported pro rata debt of approximately $1.2 billion. |
| Weighted-average debt rate | 5.04% | 3.35% | Higher rates and additional borrowing increased interest expense. |
For the total portfolio, occupancy was 69.7%, ADR was $158.58, and RevPAR was $110.46, up 11.9%, 22.3%, and 36.8%, respectively, from 2021. Same-store RevPAR rose 41.8% to $114.61, with occupancy of 70.0% and ADR of $163.61. Same-store results covered 71 properties; total-portfolio results include 2022 acquisitions for only the portion of the year owned.
Material changes and unusual items
- Completed the $822.0 million NewcrestImage portfolio transaction, acquiring 27 hotels and two parking structures, and completed the Miami AC/Element transaction and a 90% investment in the Onera glamping venture. The company reported approximately $907.3 million of 2022 lodging-property acquisitions in its acquisition schedule.
- Sold a GIC joint-venture hotel for $75.0 million, producing a $20.5 million gain to the joint venture. Consolidated gain on disposal was $20.3 million.
- Recorded $10.4 million of asset write-downs, including $10.4 million associated with properties and land contracted for sale after year-end. The scheduled sales totaled $79.9 million for six hotels and $1.3 million for a land parcel; completion remained subject to closing.
- Interest expense rose 51.2% to $65.6 million. Depreciation and amortization rose 41.7% to $150.2 million, largely reflecting acquisitions and renovation investment.
- Resumed common dividends in August 2022 after suspension during the pandemic and credit-facility restrictions. Paid $0.08 per common share for 2022; the board declared a further $0.04 per share payable in February 2023.
Liquidity, outlook, and risks
- At year-end, debt included $15.0 million drawn on the $400 million revolver. The July 2022 amendments restored revolver access subject to conditions and modified certain financial covenants. The company and its joint ventures reported covenant compliance at year-end.
- Management said it expected adequate liquidity and no debt maturities before the fourth quarter of 2024 when available extension options are considered. However, the debt schedule lists $217.2 million of contractual principal payments in 2023, including $200 million under the GIC joint-venture facility; the company expected to exercise extension options. Scheduled principal amortization over the next 12 months was separately stated as $2.2 million.
- Capital expenditures were $76.5 million in 2022. Management estimated $60 million–$80 million of 2023 capital expenditures, excluding the joint-venture partners’ pro rata share, to be funded from available cash, operating cash flow, restricted cash, borrowing, or other capital sources.
- Management attributed recovery primarily to leisure travel; business and group demand were improving but remained below historical levels. It expected relatively high inflation to continue in 2023, raising costs, and said continued operating improvement depended on leisure strength and business and group recovery. No earnings or hotel-performance guidance is provided in the supplied filing text.
- Interest-rate exposure increased: after swaps, 48.2% of debt was variable-rate at year-end, compared with 22.1% in 2021. Six swaps had $600 million aggregate notional; company-wide reported debt ratios differ from its pro rata debt presentation.
- Other notable risks include inflation and labor costs, recession or weaker travel demand, refinancing and covenant constraints, required renovations, REIT qualification and distribution requirements, and weather, climate, insurance, and cybersecurity risks. Aimbridge or affiliates managed 62 of 103 properties, creating manager concentration.
- A lender alleged non-monetary covenant defaults under the MetaBank loan; the company disputed the allegations and was in discussions with the lender. The filing states there were no defaults under mortgage loan agreements and reports overall covenant compliance at year-end.
Most important facts for investors to verify
- Reconcile contractual 2023 maturities with management’s expected extensions, especially the $200 million GIC facility, and confirm extension conditions and refinancing plans.
- Track variable-rate debt, borrowing costs, swap coverage, and compliance with amended covenants as rates and operating results change.
- Assess whether the leisure-led recovery broadens into business and group travel, and whether ADR increases continue to offset labor and other inflationary costs.
- Confirm closing proceeds and timing for the six hotel and land dispositions, and evaluate the reported write-downs and acquisition valuation assumptions.
- Evaluate cash available for common dividends after preferred distributions, debt service, and planned capital expenditures; distributions remain subject to board discretion and REIT requirements.
Audit: Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting as of December 31, 2022. The audit identified hotel-property acquisition accounting and purchase-price allocation as a critical audit matter.