Summit Hotel Properties, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The company is a hotel REIT with 72 hotels and 11,288 guestrooms across 23 states. Results were heavily affected by the COVID-19 pandemic.
Financial performance and liquidity
Amounts below are in millions, except per-share data and operating metrics.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $25.4 | $142.9 | $133.8 | $281.9 |
| Operating income (loss) | $(42.9) | $59.4 | $(48.3) | $82.2 |
| Net income (loss) | $(52.5) | $49.1 | $(68.8) | $62.0 |
| Common-stockholder earnings (loss) per share | $(0.52) | $0.43 | $(0.70) | $0.52 |
| Operating cash flow | Not separately presented | Not separately presented | $(20.8) | $75.3 |
- Hotel operating metrics: Q2 same-store occupancy was 23.8% versus 81.9%; ADR was $94.30 versus $164.15; and RevPAR was $22.44 versus $134.39. For the first half, RevPAR declined 53.4% for the total portfolio and 54.9% same-store.
- Cash and debt: At June 30, cash and cash equivalents were $124.6 million, restricted cash was $18.7 million, and gross debt was $1,167.4 million (net debt carrying value $1,159.4 million). Gross debt was $1,022.7 million at year-end 2019. Approximately 47% of debt was fixed-rate after swaps; weighted-average borrowing cost was 3.39%.
- Liquidity: At July 31, the company reported $117.3 million of unrestricted cash and $150.0 million of undrawn revolver availability. Management believed available liquidity would meet obligations for at least 12 months, while noting significant uncertainty.
- Other measures: Q2 Adjusted EBITDAre was $(12.8) million versus $52.4 million; first-half Adjusted EBITDAre was $14.0 million versus $99.1 million. These are non-GAAP measures. First-half credit-loss provision was $2.5 million, and impairment charges included $0.8 million on a purchase option. No impairment was identified for hotel properties at June 30.
Material changes and management actions
- Q2 revenue fell 82.2% year over year, primarily because of the collapse in hotel demand and occupancy. First-half revenue declined 52.5%. Operating expenses fell, but not enough to offset lost revenue.
- First-half operating cash flow turned negative. Financing cash flow was $115.2 million, reflecting increased borrowing; the company drew a net $125.0 million on its $400 million revolver during the half. Investing cash outflow was $21.0 million, with no hotel sales in the period, compared with significant disposition proceeds in 2019.
- Operations were temporarily suspended at six hotels in March. By June 30, one hotel remained closed and guests at five additional hotels were being directed to nearby sister properties. Staffing, services, and corporate costs were reduced; certain operations began to resume as demand improved.
- Common-stock and operating-partnership-unit dividends were suspended, expected to conserve about $19 million per quarter. Preferred dividends continued; the board declared the next Series D and E preferred dividends on July 29, payable August 31.
- Non-essential 2020 capital projects were postponed. The company estimated 2020 capital expenditures of $25 million and expected reductions of at least $35 million from prior plans.
Outlook, risks, and contingencies
- Management expected full-year 2020 results to be adversely affected, with material effects continuing into Q3 and beyond. It described recovery timing as highly uncertain, while assuming a gradual recovery beginning in the second half of 2020 and improvement over multiple years. The filing provides no specific revenue or earnings guidance.
- Amendments to corporate credit facilities provided covenant waivers through March 31, 2021, later-period covenant adjustments, and additional borrowing capacity. The joint-venture facility also received covenant relief. The company reported covenant compliance and no loan defaults at June 30, but some mortgage cash-trap events had been triggered.
- There were no debt maturities during the next 12 months; scheduled principal amortization was $3.8 million. The filing cautions that further deterioration or constrained capital markets could undermine liquidity and refinancing access. A 1% rise in interest rates was estimated to reduce annual cash flow by approximately $6.2 million.
- Three development loans had interest-payment deferrals; the company suspended interest recognition until cash payments are received and recorded a $2.6 million allowance for credit losses. Tenant rent deferrals and potential modifications to leases with the company’s taxable REIT subsidiaries were also discussed.
- COVID-19-related uncertainty could lead to future hotel, intangible-asset, or other impairments and further credit losses. Management reported no pending litigation expected to materially affect financial position or results.
Important facts for investors to verify
- Subsequent hotel demand, occupancy, ADR, RevPAR, and the pace of reopening or consolidation of hotel operations.
- Actual unrestricted cash, remaining revolver capacity, and compliance with amended covenants and borrowing-base requirements.
- Common-dividend suspension duration and the company’s capacity to meet preferred-dividend and debt-service obligations.
- Collection of deferred loan interest and tenant rents, and whether credit allowances or asset impairments increase.
- Actual 2020 capital spending and whether management’s liquidity assumptions and gradual-recovery outlook are borne out.