Summit Hotel Properties, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. The combined filing covers Summit Hotel Properties, Inc. and its operating partnership, Summit Hotel OP, LP. Unless noted otherwise, financial amounts below are in U.S. dollars.
Business context
The company owns and operates select-service hotels, primarily under premium franchise brands. At quarter-end, its portfolio comprised 91 hotels with 10,309 guestrooms across 22 states; six properties were classified as held for sale. Operating comparisons exclude properties classified as discontinued operations, and the total-portfolio operating statistics cover 85 hotels.
Financial and operating performance
- Revenue: $63.2 million, up 69.4% from $37.3 million in Q1 2012. The company attributed $24.0 million of the increase to acquired hotels and $1.9 million to same-store growth.
- Hotel performance: Same-store revenue rose 5.5%; occupancy increased to 67.7% from 66.2%, average daily rate (ADR) to $98.45 from $94.55, and revenue per available room (RevPAR) to $66.67 from $62.56, up 6.6%. Across the total portfolio, RevPAR was $74.33.
- Profit and margins: Operating income was $6.0 million, compared with $1.6 million a year earlier. Consolidated net income was $1.9 million versus a $2.8 million loss. After preferred dividends and other allocations, net loss attributable to common stockholders was $0.5 million, or $0.01 per share, compared with a $2.9 million loss, or $0.11 per share. Same-store hotel operating expenses declined to 68.4% of revenue from 69.3%.
- Cash flow: Operating activities generated $11.1 million, compared with $2.9 million. Investing activities used $226.8 million, primarily for hotel acquisitions; financing activities provided $222.5 million. Cash and cash equivalents ended the quarter at $20.8 million.
- Debt and liquidity: Debt was $332.4 million before subtracting $6.7 million related to properties held for sale; reported balance-sheet debt was $325.7 million. The weighted-average interest rate after swaps was 5.35%. After swaps, 97.9% of debt was fixed-rate. The revolver had $104.4 million available at March 31, 2013, after borrowings and letters of credit.
- Capital and equity: The company raised $148.2 million net from a January common-stock offering and $82.0 million net from a March Series C preferred-stock offering. Total assets were $1.062 billion and total equity was $703.3 million at quarter-end.
Material changes and unusual items
- The company acquired nine hotels for aggregate purchase prices of $231.6 million, compared with three properties totaling $49.0 million in Q1 2012. Acquisitions and the larger portfolio drove much of the reported revenue, expense and depreciation growth.
- Interest expense increased to $4.1 million from $3.2 million, primarily reflecting debt used to finance acquisitions. Corporate general and administrative expenses also increased, including higher compensation and costs related to building corporate functions and relocating headquarters.
- Discontinued operations included a $1.5 million impairment charge and a $1.6 million gain on asset disposal. Results from discontinued operations were income of $0.2 million, versus a $1.3 million loss in Q1 2012.
- Two Boise hotels were sold on May 1, 2013, for $12.6 million. Other properties classified as held for sale were under contract at quarter-end.
Outlook, risks and contingencies
- Management expressed guarded optimism about economic and lodging demand trends and expected meaningful RevPAR gains if the recovery continued. It cautioned that a stalled recovery could weaken growth expectations and said Q1 results may not indicate full-year results.
- The company expected to spend $32 million to $40 million on hotel renovations during the remainder of 2013, funded through operations, working capital, revolver borrowings and other capital sources as available. Management believed available sources would meet ongoing liquidity needs for at least 12 months.
- Management cited financing availability and cost, leverage and refinancing, economic conditions, travel demand, occupancy/ADR/RevPAR, operating costs and interest rates, competition, acquisitions and dispositions, and REIT qualification among key risks.
- At March 31, purchase agreements remained outstanding for two Minneapolis-area hotels with an aggregate stated price of $17.1 million, including assumed debt. A separate planned Minneapolis hotel conversion and acquisition remained conditional. The filing also disclosed a May 6 agreement to acquire four hotels for $153 million, subject to due diligence and customary closing conditions.
- The company reported ordinary-course litigation but was not aware of any matter it believed would materially adversely affect its business or financial condition. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of revenue growth and operating improvement reflects acquisitions versus underlying same-store performance.
- Whether properties classified as held for sale close on expected terms and how proceeds are used to reduce debt or fund investment.
- Progress and final costs for the planned 2013 renovations, and the operating performance of recently acquired hotels.
- Debt maturities, refinancing needs and revolver availability as acquisitions and capital spending continue.
- The terms, dilution and ongoing dividend costs of common and preferred equity issuance; preferred dividends exceeded income attributable to common stockholders in Q1.