Summit Hotel Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The company is a self-managed hotel REIT focused primarily on premium-branded select-service hotels. At quarter-end it had 72 hotels and 11,288 guestrooms across 23 states.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $86.5 | $25.4 | $144.4 | $133.8 |
| Operating loss | $(11.6) | $(42.9) | $(36.8) | $(48.3) |
| Net loss | $(20.6) | $(52.5) | $(53.4) | $(68.8) |
| Net loss attributable to common stockholders | $(22.4) | $(54.1) | $(57.5) | $(73.2) |
| Loss per common share | $(0.21) | $(0.52) | $(0.55) | $(0.70) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $14.8 | $(20.8) |
| Adjusted EBITDAre (non-GAAP) | $21.7 | $(12.8) | $28.0 | $14.0 |
| AFFO applicable to common shares and units (non-GAAP) | $8.4 | $(25.9) | $1.5 | $(12.7) |
Q2 portfolio occupancy was 64.9% versus 24.3%; ADR was $120.05 versus $95.57; and RevPAR was $77.88 versus $23.20. For the first half, occupancy was 57.6% versus 42.8%, ADR was $113.14 versus $139.19, and RevPAR was $65.21 versus $59.59. The filing does not provide a clear GAAP operating-margin figure.
Balance sheet, debt and liquidity
- June 30 cash and cash equivalents were $56.1 million and restricted cash was $22.1 million. Cash, cash equivalents and restricted cash totaled $78.2 million.
- Gross debt was $1.092 billion; balance-sheet debt, net of issuance costs, was $1.079 billion. Weighted-average borrowing cost, after derivatives, was 3.32%. After hedging, 76% of debt was fixed-rate and 24% variable-rate.
- The company reported $340 million available under its revolving facility, plus up to $50 million subject to additional security requirements. Covenant amendments include a minimum liquidity requirement of $150 million; the company reported compliance with its financial covenants at quarter-end.
- Scheduled principal payments for the next 12 months were $4.0 million, with no debt maturities during that period. The filing states that liquidity is expected to be sufficient for obligations for the foreseeable future, but access to financing is not assured.
- Six-month investing cash outflow was $12.5 million, including $6.5 million of hotel improvements. Financing cash inflow was $37.0 million; net cash increased by $39.3 million.
Changes versus comparable periods and significant transactions
- Q2 revenue increased 240.2% year over year, principally reflecting recovery in leisure travel from the severely disrupted 2020 quarter. First-half revenue rose 7.9%; first-half RevPAR improved 9.4%, though ADR remained below the prior-year period.
- Q2 operating expenses increased with occupancy, but more slowly than revenue. First-half hotel operating expenses declined 1.8%, reflecting cost reductions and curtailed services and amenities.
- On May 1, the company contributed six hotels to its consolidated GIC joint venture. The portfolio had an estimated market value of $172 million; GIC contributed $84.3 million for its 49% interest. Proceeds were used to repay $62.5 million of senior debt, with $20.9 million recorded as cash. Transaction costs included $2.1 million of transfer taxes and legal fees.
- The company issued $287.5 million of 1.50% convertible notes due 2026 and purchased capped calls for approximately $21.1 million. Proceeds partially repaid credit-facility and term-loan borrowings. At June 30, gross debt was lower than at year-end 2020, while fixed-rate debt’s share increased from 50% to 76%.
- Q2 transaction costs also included $1.7 million related to a company acquisition pursuit that was not completed. The company recognized $5.5 million of other income in the first half, including mezzanine-loan interest and COVID-19 relief grants.
Outlook, risks and contingencies
- Management reported sequential improvement during the first half, driven mainly by leisure travel. Business and group travel recovery remained slower. The company expects gradual improvement to continue, but estimates that returning to prior peak performance may take multiple years; it expects full-year 2021 results to remain adversely affected by COVID-19.
- No formal earnings or revenue guidance was provided. Management anticipated $23.5 million to $33.5 million of additional 2021 capital expenditures, assuming a reasonable recovery in lodging demand.
- Recovery remains exposed to COVID-19 and variants, travel demand, consumer confidence, government restrictions, labor and other operating costs, financing availability, leverage, interest rates, and the transition away from LIBOR. A 1 percentage-point rate change was estimated to change annual cash flows by approximately $2.6 million after swaps.
- Substantially all deferred tax assets were covered by a valuation allowance because certain taxable REIT subsidiaries had cumulative losses and future realization was not reasonably assured. The company reported a $2.6 million allowance for credit losses on development loans; two loans were extended to March 31, 2022, and seller-financing loans were extended to December 31, 2022.
- Management’s COVID-19 impairment review identified no hotel-property or intangible-asset impairment at June 30. No pending litigation was identified as material, and the filing reported no defaults under the company’s loan agreements.
- After quarter-end, the joint venture acquired a 110-room Residence Inn in Steamboat Springs for $33 million; the company funded its $16.8 million share from cash on hand. Preferred dividends were declared on July 30.
Key facts for investors to verify
- Whether leisure-led RevPAR improvement continues and business/group travel recovers as management anticipates.
- Actual availability under revolving facilities, compliance with minimum-liquidity and amended covenant terms, and refinancing plans for the 2022–2025 maturities.
- Cash requirements for planned capital spending, debt service, loan commitments, and preferred dividends.
- Credit quality and repayment prospects for development and seller-financing loans, including the outstanding loss allowance.
- Potential dilution and cash-settlement exposure under the convertible notes, and the extent to which capped calls offset that exposure.