Summit Hotel Properties, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 28, 2024. Summit is a lodging-property REIT; at year-end it owned or controlled 100 hotels with 14,912 guestrooms across 24 states. More than 99% of guestrooms operated under major hotel brands, and 86% were in the 50 largest U.S. metropolitan areas.
Financial and operating performance
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total revenue | $736.1 million | $675.7 million | Up 8.9% |
| Operating income | $58.8 million | $67.8 million | Down $9.0 million |
| Net income (loss) | ($28.1) million | $1.2 million | Common-stockholder loss was ($28.0) million, or ($0.27) per share, versus ($16.9) million, or ($0.16) per share |
| Operating cash flow | $153.6 million | $169.6 million | Down $16.0 million |
| Cash used in investing | $102.0 million | $290.5 million | Lower mainly because 2022 included the large NewcrestImage acquisition |
| Cash used in financing | $65.7 million | Cash provided of $85.8 million | 2023 included debt repayments, distributions and financing costs |
| Year-end cash and restricted cash | $47.8 million | $61.8 million | Includes $37.8 million cash and $9.9 million restricted cash |
| Debt | $1,445.8 million principal outstanding | $1,463.1 million | Includes $675.9 million of joint-venture debt; pro rata debt was reported as approximately $1.1 billion |
| FFO / AFFO per share and unit | $0.79 / $0.92 | $0.79 / $0.94 | Non-GAAP measures; AFFO declined $1.1 million |
| Adjusted EBITDAre | $190.0 million | $180.8 million | Up $9.1 million; non-GAAP measure |
Total hotel operating expenses were $404.5 million, or 55.0% of revenue. GAAP operating margin was approximately 8.0%; net margin was approximately (3.8)%. Interest expense rose 32.4% to $86.8 million, primarily from higher rates on unhedged floating-rate debt and additional Brickell debt. Weighted-average interest rate after derivatives was 5.31%, compared with 5.04% in 2022.
Same-store occupancy increased to 72.3% from 70.0%; same-store ADR rose 3.2% to $165.09 and RevPAR increased 6.6% to $119.33. For the total portfolio, RevPAR increased 7.6% to $118.81. The filing attributes improvement to recovering corporate and group demand and continued leisure travel.
Material changes and capital allocation
- Revenue rose as lodging demand improved and acquisitions contributed, while expenses also increased. Same-store hotel operating expenses rose 7.8%, slightly faster than same-store revenue growth of 7.2%.
- Summit recorded $16.7 million of asset write-downs in 2023, versus $10.4 million in 2022. The 2023 charges included properties held or marketed for sale. A $20.3 million gain on a 2022 hotel sale did not recur; 2023 recorded a $0.3 million net loss on disposals.
- Capital expenditures were $89.6 million consolidated, or $73.4 million on a pro rata joint-venture basis. Summit acquired two hotels in 2023 for approximately $42.7 million and completed sales of five hotels for aggregate gross proceeds of approximately $36.4 million.
- The common dividend was restored in 2022 after suspension during the pandemic. Common dividends were $0.22 per share in 2023; the fourth-quarter rate was $0.06 per share.
Liquidity, debt, outlook and risks
- At year-end, Summit had $200 million drawn on its $200 million term loan and no borrowings on its $400 million revolver. The company reported compliance with its loan agreements. Borrowing capacity remains subject to facility terms, covenants and eligible unencumbered assets.
- In February 2024, Summit refinanced its $225 million 2018 Term Loan, which had been due in February 2025, with a new $200 million senior unsecured term loan and revolver advances. The new loan can extend to February 2029; management said this reduced near-term maturities and produced an average debt maturity of approximately 3.6 years. The company still faces material maturities, including joint-venture term debt due in 2026 or 2027, subject to extension options.
- After swaps, 66% of total debt was fixed-rate and 34% variable-rate at year-end; the filing reports a 75% fixed-rate ratio on a pro rata debt basis. Interest-rate exposure remains a risk. A $100 million GIC joint-venture swap entered in January 2024 is scheduled to take effect in October 2024.
- Management expects positive comparable-hotel RevPAR growth in 2024, without providing a numerical forecast. Estimated 2024 capital expenditures are $65 million to $85 million, excluding joint-venture partners’ pro rata share.
- Management cited persistent inflation in labor, insurance, supplies, utilities and renovation costs. Other principal risks include weaker travel demand or recession, higher rates and refinancing, property-manager and franchise dependence, competition from hotels and alternative accommodations, natural disasters and insurance availability, cybersecurity, and maintaining REIT qualification.
- Aimbridge or its affiliates managed 61 of 100 properties, creating significant operator concentration. Summit also disclosed a $3 million letter of credit supporting a development borrower; payment under its contingent portion was not considered probable or reasonably estimable at year-end.
- The company recorded a valuation allowance against substantially all deferred tax assets, citing cumulative losses over three years. Auditors issued unqualified opinions on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting. No pending litigation was identified as likely to have a material adverse effect.
Most important facts for investors to verify
- Reconcile the GAAP net loss with FFO, AFFO and Adjusted EBITDAre, and assess how much of the non-GAAP results reflects recurring operations versus adjustments.
- Track the closing proceeds and timing of properties classified as held for sale, the related write-downs, and the effect of dispositions on revenue and debt repayment.
- Review the 2024 refinancing terms, variable-rate exposure, debt maturities and covenant headroom, especially at the joint ventures.
- Test whether RevPAR growth and cost control can support cash flow after planned capital expenditures, preferred distributions and common dividends.
- Assess dependence on Aimbridge and major franchise brands, and the potential impact of changes in travel demand, inflation, insurance costs or operating disruptions.