Summit Hotel Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company owned 72 hotels with 11,288 guestrooms in 23 states. Results were materially affected by the COVID-19 pandemic.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $52.4 million | $133.7 million | $186.2 million | $415.6 million |
| Net income (loss) attributable to common stockholders | $(38.3) million | $7.8 million | $(111.4) million | $62.2 million |
| Diluted earnings (loss) per share | $(0.37) | $0.07 | $(1.07) | $0.60 |
| Adjusted EBITDAre | $2.5 million | $45.2 million | $16.5 million | $144.3 million |
- Q3 same-store occupancy was 44.4% versus 80.1%; RevPAR was $45.17 versus $124.94, down 63.8%. Nine-month same-store RevPAR fell 57.8% to $54.19.
- Nine-month operating cash flow was $(21.4) million, compared with $119.6 million generated in 2019. Investing cash flow was $(27.4) million; financing cash flow was $35.5 million. Cash, cash equivalents and restricted cash totaled $56.6 million at period-end, including $39.1 million of unrestricted cash.
- Gross debt was $1.091 billion at September 30, up from $1.023 billion at year-end 2019; debt net of issuance costs was $1.084 billion. Weighted-average debt interest rate, after swaps, was 3.44%. Half of debt was fixed-rate and half variable-rate after derivatives.
- At October 23, the company reported $35.3 million of unrestricted cash and $225.0 million of undrawn availability on its $400 million revolver. Management reported no debt maturities before November 2022 and $3.9 million of scheduled principal amortization over the following 12 months.
Material changes and notable items
- Revenue fell 60.8% in Q3 and 55.2% for the first nine months year over year, primarily due to lower hotel demand and occupancy. Cost reductions lowered hotel operating expenses, but did not offset the revenue decline.
- Common-stockholder results swung to losses. Nine-month results also reflect $40.8 million of net gains on hotel sales in the 2019 comparison period; no hotel properties were sold in the first nine months of 2020.
- Interest expense rose 15.4% in Q3 and 8.6% for the first nine months, as increased borrowings more than offset lower base rates. Nine-month results included a $2.5 million provision for credit losses on real estate loans and a $0.8 million impairment of a purchase option.
- The company recorded a $17.2 million nine-month decline in the fair value of interest-rate derivatives in other comprehensive loss. It estimated that $9.3 million would be reclassified from accumulated other comprehensive income to interest expense over the next 12 months.
Outlook, management actions and risks
- Management reported gradual improvement during Q3, mainly from leisure travel and small-group business, but said the pandemic’s duration and recovery timing remained highly uncertain. It expected full-year 2020 results to be adversely affected and described recovery to prior peak performance as gradual over multiple years.
- Management believed available cash and financing would fund obligations for at least 12 months, while cautioning that prolonged disruption could weaken liquidity or access to capital. This is an expectation, not assurance.
- Credit-facility amendments waived certain financial covenants through March 31, 2021, adjusted later-period covenants, and expanded potential revolver access. The company said it was compliant with financial covenants at September 30; certain mortgage cash-trap events had occurred, but no mortgage defaults were reported.
- Common-stock and operating-partnership-unit dividends were suspended, conserving an estimated $19 million quarterly. Preferred dividends continued; after quarter-end, the board declared Q4 Series D and Series E dividends payable November 30, 2020.
- Management postponed non-essential projects and estimated 2020 capital expenditures of $23–25 million, with at least $35 million of planned spending reductions. Q3 hotel operations were largely open, though one hotel remained closed and guests at three others were directed to sister properties.
- COVID-19, travel demand, refinancing and capital-market access, borrower repayment, floating interest rates and possible future asset impairments remain material risks. No pending litigation was reported that management believed would materially affect financial position or results.
Important facts for investors to verify
- Whether hotel occupancy, RevPAR and operating cash flow continue to recover, and whether recovery supports management’s liquidity assumptions.
- Current unrestricted cash, revolver availability, debt balances and covenant terms, including restrictions tied to amended facilities and mortgage cash traps.
- The status and repayment of mezzanine loans, including deferred interest, the $2.6 million credit-loss allowance and the loans’ extension or maturity terms.
- Whether the common-dividend suspension continues and whether preferred dividends remain payable.
- Whether postponed capital spending, hotel closures or pandemic-related conditions lead to additional impairments or credit losses.