Summit Hotel Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company is a REIT focused on premium-branded hotels; its portfolio comprised 73 hotels and 11,398 guestrooms in 23 states.
Financial and operating performance
Amounts below are in millions except per-share and hotel operating metrics.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $110.7 | $52.4 | $255.1 | $186.2 |
| Operating income (loss) | $5.0 | $(26.3) | $(31.8) | $(74.5) |
| Net loss | $(4.2) | $(35.8) | $(57.7) | $(104.5) |
| Net loss attributable to common stockholders | $(11.0) | $(38.3) | $(68.4) | $(111.4) |
| Loss per common share | $(0.10) | $(0.37) | $(0.66) | $(1.07) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $50.3 | $(21.4) |
- Q3 revenue increased 111.2% year over year; same-store revenue increased 108.3%. Same-store RevPAR rose 107.7% to $97.29, reflecting occupancy of 68.5% versus 45.0% and ADR of $142.03 versus $103.98. The prior-year comparison was heavily affected by the pandemic.
- For the first nine months, revenue increased 37.0% and same-store RevPAR increased 37.4%. Same-store occupancy was 61.3% versus 43.6%, while ADR declined 2.3% to $124.02.
- Q3 operating margin was approximately 4.5%, compared with a loss-making prior-year quarter. The company nevertheless reported GAAP net losses for both the quarter and year to date.
- FFO applicable to common shares and units was $16.8 million in Q3 and $9.2 million year to date; AFFO was $20.5 million and $22.0 million, respectively. These are non-GAAP measures and should be considered alongside GAAP results.
- At September 30, cash and cash equivalents were $59.7 million and restricted cash was $25.5 million. Net debt carrying value was $1.057 billion; gross debt was $1.069 billion, down from $1.101 billion gross at December 31, 2020. Debt included $287.5 million of 1.50% convertible notes due 2026. After swaps, 78% of debt was fixed rate; weighted average interest rate was 3.34%.
- Debt principal amortization due in the next 12 months was $4.0 million, with no debt maturities then scheduled. The company reported covenant compliance and no defaults. Its senior credit facility amendments include a $150 million minimum liquidity requirement and covenant waivers/adjustments; availability is subject to facility terms and conditions.
Material changes and notable items
- Operating performance improved as leisure travel recovered; business travel and group demand were slower to return. Cost reductions remained in place, while hotel operating expenses increased with occupancy.
- Cash from operations improved by $71.7 million year over year to $50.3 million. Investing cash outflow was $51.9 million, including a $33.2 million hotel acquisition; financing provided $47.9 million.
- The company issued $287.5 million of convertible notes, completed a $96.6 million net Series F preferred-stock offering, and redeemed $75.0 million of Series D preferred stock. It also purchased capped calls for $21.1 million. These transactions changed the capital structure and helped fund debt repayment and liquidity.
- Six hotels were contributed to the GIC joint venture, with GIC contributing $84.3 million; the company also acquired a 110-room Residence Inn through the venture for $33.0 million.
- Q3 included a $2.6 million reversal of a prior credit-loss allowance after agreements for repayment of two mezzanine loans, offset in part by a $4.4 million write-off of associated purchase options. Year-to-date transaction costs were $3.8 million, including costs for the hotel contribution and an unconsummated acquisition pursuit.
Outlook, risks and contingencies
- Management said full-year 2021 results would remain adversely affected by COVID-19, while expecting gradual improvement to continue and operating performance to recover over multiple years. No numerical earnings or revenue guidance was provided.
- Recovery depends on continued leisure travel growth, restoration of business and group travel, easing of restrictions, consumer confidence, and the course of COVID-19 and variants. The company said it believed cash, operating cash flow and credit availability would fund operations for at least the next 12 months, while acknowledging substantial uncertainty.
- Management estimated $4.3 million to $9.3 million of additional 2021 capital expenditures, assuming reasonable lodging-demand recovery. It expected to fund these from cash, working capital, revolver borrowings or other available capital.
- Interest-rate exposure, refinancing and leverage, travel demand, labor and operating-cost inflation, property values, acquisitions, borrower repayment, REIT qualification, and LIBOR transition are among the disclosed risks. A 1 percentage-point rate change was estimated to affect annual cash flows by approximately $2.4 million after swaps.
- Subsequent to quarter-end, the company announced a proposed $822 million acquisition of a 27-hotel portfolio through its GIC joint venture. Planned financing includes a $410 million debt commitment, GIC cash equity, and company-issued common and preferred operating-partnership units. Completion and financing remain important execution considerations.
- The company reported no pending litigation it believed would materially affect financial position or results, and no material change to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether the leisure-led recovery translates into sustained occupancy, ADR and RevPAR growth, particularly as business and group travel recover.
- Actual unrestricted liquidity, credit-facility availability and compliance with minimum-liquidity and amended covenant requirements.
- Debt maturities, refinancing terms, interest-rate exposure and potential dilution or cash obligations associated with convertible notes.
- Repayment of the two mezzanine loans expected in Q4 2021 and the remaining development loan and purchase option.
- Closing conditions, final financing and equity issuance terms, and expected impact of the proposed 27-hotel acquisition.
- Cash needs for property maintenance, renovations, preferred dividends and future capital expenditures; restricted cash is not freely available for general use.