Summit Hotel Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Summit is a hotel REIT focused primarily on premium-branded, select-service properties. At quarter-end, it reported 101 hotels with 15,228 guestrooms across 24 states, including 40 hotels held through a consolidated joint venture with GIC.
Financial and operating highlights
- Revenue: $141.9 million, up 145.2% from $57.9 million a year earlier. The increase reflects both the recovery in hotel demand and the acquisition of 27 hotels and two parking structures.
- Same-store performance: For 72 hotels, revenue increased 87.2%; occupancy was 63.2% versus 50.3%, ADR was $155.63 versus $104.12, and RevPAR was $98.30 versus $52.41. For the total portfolio, RevPAR rose 87.1% to $98.05.
- Profitability: Operating income was $0.7 million, compared with an operating loss of $25.2 million. Net loss was $9.0 million, or $0.12 per share, versus a net loss of $32.9 million, or $0.34 per share. Preferred dividends were $4.0 million.
- Supplemental measures: FFO applicable to common shares and units was $14.5 million, versus a loss of $9.5 million; AFFO was $20.1 million, versus a loss of $6.9 million. Adjusted EBITDAre was $32.9 million, compared with $6.2 million. These are non-GAAP measures and should be read with the filing’s reconciliations.
- Cash flow: Operating activities provided $25.5 million, versus using $3.2 million. Investing activities used $284.8 million, primarily for the acquisition; financing activities provided $277.6 million. Cash, cash equivalents and restricted cash ended at $115.2 million, including $82.4 million of unrestricted cash.
- Debt and liquidity: Debt net of issuance costs was $1.482 billion; gross debt was $1.497 billion, including consolidated joint-venture borrowings. The weighted-average borrowing rate, after derivatives, was 3.34%. The company reported $340 million available on its revolving facility, plus up to $50 million subject to security requirements; it was in compliance with loan covenants at quarter-end. Approximately $62 million of company term debt matures in November 2022.
- Capital and distributions: Stockholders’ equity was $951.3 million and total equity was $1.471 billion. Preferred stock dividends of $4.0 million were recorded; cash dividends paid during the quarter were $4.3 million.
Material changes versus Q1 2021
- Hotel demand and results improved substantially, led by leisure travel; corporate and group demand also showed more modest improvement. Same-store RevPAR rose 87.6%.
- The NewcrestImage transaction materially expanded the portfolio and balance sheet. The joint venture acquired 27 hotels and two parking structures for a stated aggregate purchase price of $822 million. Consideration included cash, assumed debt, OP common and preferred units, and GIC contributions.
- Debt net of issuance costs increased from $1.070 billion to $1.482 billion, primarily reflecting financing associated with the acquisition. Variable-rate debt rose to 43% of gross debt from 22% at year-end 2021.
- Interest expense increased 24.6% to $13.4 million, reflecting higher debt balances and higher base rates on unhedged floating-rate debt. Depreciation and amortization increased 32.9% to $36.3 million.
Outlook, risks and unusual items
- Management described a continued recovery, driven mainly by leisure travel, and expected improvement to continue during 2022 and progress gradually over multiple years. The filing does not provide formal earnings or RevPAR guidance.
- Management estimated $60–$80 million of additional 2022 capital expenditures, assuming a reasonable recovery in lodging demand. It stated that cash on hand, operating cash flow and available credit were expected to provide liquidity for at least the next 12 months, while noting that assumptions may not prove correct.
- Key risks include renewed or lingering effects of COVID-19, slower business-travel recovery, inflation and labor costs, higher interest rates, refinancing and covenant capacity, geopolitical or economic disruption, acquisition integration and disposition execution, and supply-chain constraints. A 1 percentage-point interest-rate change was estimated to affect annual cash flows by approximately $6.5 million after swaps.
- The company recorded a $1.3 million one-time stock-compensation charge related to the former COO’s retirement and award modifications. It also recorded a $2.0 million income-tax benefit; substantially all deferred tax assets remained subject to a valuation allowance.
- Subsequent to quarter-end, Summit exercised an option to acquire a 90% interest in the 264-room AC Hotel and Element Miami Brickell, with closing expected in June 2022. The joint venture’s sale of the 169-room Hilton Garden Inn San Francisco Airport North for $75 million was expected to close in Q2; management estimated an approximately $20.5 million gain.
- The filing states there were no pending legal actions believed to have a material effect and no material changes to the previously disclosed risk factors.
Important facts for investors to verify
- How much of the reported revenue and earnings improvement reflects same-store recovery versus the NewcrestImage portfolio contribution, and whether acquired hotels meet return expectations.
- The status and terms of refinancing or repayment for the $62 million November 2022 maturity, and the conditions attached to revolver availability and covenant adjustments.
- Actual variable-rate exposure, debt-service costs and liquidity after the acquisition, including the joint venture’s obligations and the distinction between joint-venture debt and parent-company obligations.
- Whether the expected Q2 hotel sale and Miami hotel acquisition closed on the anticipated terms, and the resulting impact on cash, debt and reported gains.
- Whether operating trends, business and group travel recovery, and the projected $60–$80 million capital program support management’s liquidity and recovery expectations.