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Section 1: 8-K (8-K)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

CURRENT REPORT

 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 26, 2019

 

SUMMIT HOTEL PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Maryland
(State or Other Jurisdiction
of Incorporation or Organization)
001-35074
(Commission File Number)
27-2962512
(I.R.S. Employer Identification No.)

 

13215 Bee Cave Parkway, Suite B-300
Austin, Texas 78738
(Address of Principal Executive Offices) (Zip Code)

(512) 538-2300
(Registrants’ telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

¨Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 2.02.Results of Operations and Financial Condition.

 

On February 26, 2019, Summit Hotel Properties, Inc. (the “Company”) issued a press release announcing the consolidated operating results of the Company and its subsidiaries for the fourth quarter and year ended December 31, 2018.

 

A copy of the press release is furnished as Exhibit 99.1 to this report.

 

Item 9.01.Financial Statements and Exhibits.

 

(d)Exhibits

 

99.1Press release issued on February 26, 2019.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  SUMMIT HOTEL PROPERTIES, INC.
(Registrant)
     
  By:    /s/ Christopher R. Eng
    Christopher R. Eng
    Executive Vice President, General Counsel,
Date: February 26, 2019   Chief Risk Officer and Secretary

 

 

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

  13215 Bee Cave Pkwy, Suite B-300, Austin, TX 78738
Telephone: 512-538-2300 Fax: 512-538-2333
www.shpreit.com

 

 

NEWS RELEASE

 

SUMMIT HOTEL PROPERTIES REPORTS FOURTH QUARTER AND FULL YEAR 2018 RESULTS

 

Net Income of $71.0 million for 2018;

Full Year 2018 Adjusted EBITDAre grows 9.1 percent to $196.5 million;

Adjusted FFO increases to $141.0 million, $1.35 per share for 2018;

 

Austin, Texas, February 26, 2019 --- Summit Hotel Properties, Inc. (NYSE: INN) (the “Company”), today announced results for the fourth quarter and full year ended December 31, 2018.

 

“Our results for the fourth quarter came in at the high-end of our expectations as better than expected demand, across several of our key markets, partially offset the comparison we had to the very strong fourth quarter of 2017,”  said Dan Hansen, the Company’s Chairman, President and Chief Executive Officer. “Our outlook for 2019 assumes a continuation of the current operating environment. We remain confident in our differentiated investment thesis of owning high-quality, well-located assets with efficient operating models and its ability to generate attractive long-term investment returns. We have taken advantage of a favorable transaction environment by completing approximately $120 million of asset sales over the last twelve months at very attractive capitalization rates and we continue to invest capital to add value across the portfolio,” commented Mr. Hansen.

 

Full Year 2018 Highlights

 

·Net Income: Net income attributable to common stockholders decreased to $71.0 million, or $0.68 per diluted share, compared with $79.2 million, or $0.79 per diluted share, in the same period of 2017.

 

·Pro Forma RevPAR: Pro forma revenue per available room (“RevPAR”) increased 0.8 percent to $121.74 from the same period in 2017. Pro forma average daily rate (“ADR”) increased 1.3 percent to $156.18 compared to the same period in 2017, which was partially offset by an occupancy decline of 0.5 percent to 77.9 percent.

 

·Same-Store RevPAR: Same-store RevPAR decreased 0.2 percent to $119.53 from the same period in 2017. Same-store ADR increased 1.6 percent to $153.87 compared to the same period in 2017, which was offset by an occupancy decline of 1.8 percent to 77.7 percent.

 

·Pro Forma Hotel EBITDA: Pro forma hotel EBITDA was $205.9 million, a decrease of 0.2 percent from the same period in 2017. Pro forma hotel EBITDA margin contracted by 81 basis points to 37.0 percent from 37.8 percent in the same period of 2017. Excluding the effect of a 9.3 percent increase in property taxes, pro forma hotel EBITDA margin contracted by 29 basis points to 37.5 percent.

 

·Adjusted EBITDAre: Adjusted EBITDAre increased 9.1 percent to $196.5 million from $180.1 million in the same period of 2017.

 

·Adjusted FFO: AFFO increased 5.1 percent to $141.0 million, or $1.35 per diluted share, from $134.1 million, or $1.34 per diluted share, in the same period of 2017.

 

 

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·Acquisitions: The Company acquired the 150-guestroom Residence Inn by Marriott Boston Watertown on September 12, 2018, for a purchase price of $71.0 million at a forward twelve-month capitalization rate of 8.1 percent.

 

·Dispositions: The Company sold eight hotels containing 910 guestrooms for an aggregate sales price of $106.8 million. The eight properties were sold at a trailing capitalization rate of 7.7 percent and resulted in the realization of an aggregate net gain on sale of $42.5 million.

 

The Company’s results for the three and twelve months ended December 31, 2018 and 2017 are as follows:

 

   For the Three Months Ended
December 31,
   For the Year Ended
December 31,
 
   2018   2017   2018   2017 
                 
Net income attributable to common stockholders  $2,047   $2,389   $70,973   $79,234 
Net income per diluted share  $0.02   $0.02   $0.68   $0.79 
Total revenues  $132,509   $131,745   $567,270   $515,377 
EBITDAre (1)  $43,839   $43,231   $192,533   $173,496 
Adjusted EBITDAre (1)  $45,015   $44,479   $196,480   $180,148 
FFO (1)  $29,522   $26,487   $131,324   $121,856 
Adjusted FFO (1)  $31,289   $31,499   $140,989   $134,111 
FFO per diluted share and unit (1) (2)  $0.28   $0.25   $1.26   $1.21 
Adjusted FFO per diluted share and unit (1) (2)  $0.30   $0.30   $1.35   $1.34 
                     
Pro Forma (3)                    
RevPAR  $113.55   $115.04   $121.74   $120.83 
RevPAR Growth   -1.3%        0.8%     
Hotel EBITDA  $47,072   $47,506   $205,941   $206,262 
Hotel EBITDA margin   35.5%   36.1%   37.0%   37.8%
Hotel EBITDA margin growth   -61 bps        -81 bps     

  

(1)See tables later in this press release for a discussion and reconciliation of net income to non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDAre, adjusted EBITDAre, funds from operations (“FFO”), FFO per diluted share and unit, adjusted FFO (“AFFO”), and AFFO per diluted share and unit, as well as a reconciliation of operating income to hotel EBITDA. See “Non-GAAP Financial Measures” at the end of this release. Non-GAAP financial measures are unaudited.

 

(2)Amounts are based on 104,143,000 weighted average diluted common shares and units and 104,184,000 weighted average diluted common shares and units for the three months ended December 31, 2018, and 2017, respectively, and 104,315,000 weighted average diluted common shares and units and 100,372,000 weighted average diluted common shares and units for the twelve months ended December 31, 2018, and 2017, respectively. The Company includes the outstanding common units of limited partnership interests (“OP Units”) in Summit Hotel OP, LP, the Company’s operating partnership, held by limited partners other than the Company in the determination of weighted average diluted common shares and units because the OP Units are redeemable for cash or, at the Company’s option, shares of the Company’s common stock on a one-for-one basis.

 

(3)Unless stated otherwise in this release, all pro forma information includes operating and financial results for 77 hotels owned as of December 31, 2018, as if each hotel had been owned by the Company since January 1, 2017. As a result, all pro forma information includes operating and financial results for hotels acquired since January 1, 2017, which includes periods prior to the Company’s ownership. Pro forma and non-GAAP financial measures are unaudited.

 

 

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Fourth Quarter 2018 Highlights

·Net Income: Net income attributable to common stockholders decreased to $2.0 million, or $0.02 per diluted share, compared with $2.4 million, or $0.02 per diluted share, in the same period of 2017.

 

·Pro Forma RevPAR: Pro forma RevPAR decreased 1.3 percent to $113.55 from the same period in 2017. Pro forma ADR increased 0.9 percent to $152.41, which was offset by an occupancy decline of 2.2 percent to 74.5 percent.

 

·Same-Store RevPAR: Same-store RevPAR decreased 1.5 percent to $111.03 from the same period in 2017. Same-store ADR increased 1.3 percent to $150.30 compared to the same period in 2017, which was offset by an occupancy decline of 2.8 percent to 73.9 percent.

 

·Pro Forma Hotel EBITDA: Pro forma hotel EBITDA was $47.1 million, a decrease of 0.9 percent from the same period in 2017. Pro forma hotel EBITDA margin contracted by 61 basis points to 35.5 percent from 36.1 percent in the same period of 2017.

 

·Adjusted EBITDAre: Adjusted EBITDAre increased 1.2 percent to $45.0 million from $44.5 million in the same period of 2017.

 

·Adjusted FFO: Adjusted Funds from Operations (“AFFO”) decreased 0.7 percent to $31.3 million, or $0.30 per diluted share, from $31.5 million, or $0.30 per diluted share, in the same period of 2017.

 

Capital Improvements

 

During the three and twelve months ended December 31, 2018, the Company invested $17.1 million and $66.6 million in capital improvements, respectively. Among the notable projects completed during the year were comprehensive renovations of the 252-guestroom Holiday Inn Express & Suites San Francisco Fisherman’s Wharf and the 165-guestroom Marriott Boulder. In addition, the Company invested $32.4 million into its hotels acquired during 2016 and 2017, which primarily relates to change-of-ownership property improvement plans and represents nearly 50 percent of total spend during the year. The Company anticipates investing $40.0 to $60.0 million in capital improvements across its portfolio in 2019.

 

Capital Markets & Balance Sheet

 

During the fourth quarter, the Company completed the following capital markets transactions:

 

·On December 6, 2018, the Company closed on a new $600 million unsecured credit facility which increased the size of the facility by $150 million, extended the maturity dates, reduced borrowing costs, enhanced flexibility, and expanded the Company’s bank group. The upsized credit facility is comprised of a $400 million unsecured revolving line of credit and a $200 million unsecured term loan and replaced the Company’s previous $450 million unsecured credit facility. The $400 million revolving line of credit matures in March 2023 and can be extended to March 2024, subject to certain conditions, and the $200 million term loan matures in April 2024. The new credit facility includes an accordion feature that will allow the Company to request additional lender commitments up to a total of $900 million. The interest rate on the credit facility is based on a pricing grid ranging from 135 basis points to 210 basis points plus LIBOR for the $200 million term loan and 140 basis points to 215 basis points plus LIBOR for the $400 million revolving line of credit, depending upon the Company’s leverage ratio.

 

 

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·On December 31, 2018, the Company repaid, without any prepayment penalty, four mortgage loans totaling $107.1 million that were scheduled to mature in March 2019 and had an average interest rate of 5.18 percent. The repayment of these loans increased the Company’s average time to maturity to nearly five years and there are no significant debt maturities until November 2022.

 

At December 31, 2018, the Company had the following:

 

·Total outstanding debt of $965.0 million with a weighted average interest rate of 4.27 percent.

 

·After giving effect to interest rate derivative agreements, $569.1 million, or 59 percent, of our debt had fixed interest rates, and $395.9 million, or 41 percent had variable interest rates.

 

·Undrawn availability on its senior unsecured revolving credit facility of $285.0 million.

 

·Total net debt, which the Company defines as total outstanding debt less cash and cash equivalents, to trailing twelve-month pro forma adjusted EBITDAre of 4.7x.

 

At February 18, 2019, the Company had the following:

 

·Total outstanding debt of $949.4 million with a weighted average interest rate of 4.27 percent.

 

·After giving effect to interest rate derivative agreements, $568.7 million, or 60 percent, of our debt had fixed interest rates, and $380.8 million, or 40 percent had variable interest rates.

 

·Undrawn availability on its senior unsecured revolving credit facility of $300.0 million.

 

·Total net debt to trailing twelve-month pro forma adjusted EBITDAre of 4.7x.

  

Subsequent Events

 

On January 31, 2019, the Company acquired a fee simple interest in the real estate at its Residence Inn by Marriott Baltimore Hunt Valley for a purchase price of $4.1 million. The hotel is no longer subject to a ground lease and the Company will no longer be required to make annual ground lease payments equal to $0.4 million, resulting in an effective capitalization rate of 10.0 percent.

 

On February 12, 2019, the Company completed the sale of the 66-guestroom Holiday Inn Express and 64-guestroom Country Inn & Suites located in Charleston, WV for an aggregate sales price of $11.6 million which resulted in an estimated combined gain on sale of $4.1 million. The aggregate sales price, plus estimated future capital improvements, represents a capitalization rate of 7.4 percent for the trailing twelve months ended December 31, 2018. The two hotels had an average RevPAR of $79.82, which was 34 percent lower than the Company’s pro forma portfolio average RevPAR, and hotel EBITDA margin of 33.3 percent, which was 370 basis points lower than the portfolio average for the same period. Net proceeds from the sale were applied to reduce the outstanding balance on the Company’s unsecured revolving credit facility.

 

Dividends

 

On February 1, 2019, the Company declared a quarterly cash dividend of $0.18 per share on its common stock and per common unit of limited partnership interest in Summit Hotel OP, LP. The annualized dividend of $0.72 per common share and per common unit represents an annual dividend yield of 6.2 percent based on the February 25, 2019 closing stock price.

 

 

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In addition, the Company declared a quarterly cash dividend of:

 

·$0.403125 per share on its 6.45% Series D Cumulative Redeemable Preferred Stock.

 

·$0.390625 per share on its 6.25% Series E Cumulative Redeemable Preferred Stock.

 

The common and preferred dividends are payable on February 28, 2019 to holders of record as of February 14, 2019.

 

2019 Outlook

 

The Company is providing its outlook for the full year 2019 based on 75 hotels owned as of February 26, 2019. There are no future acquisitions, dispositions, or additional capital markets activities assumed in the Company’s outlook for full year 2019 beyond those previously mentioned.

  

FULL YEAR 2019
($ in thousands, except RevPAR and per unit data)
   Low   High 
Pro forma RevPAR (75) 1  $122.25   $126.00 
Pro forma RevPAR growth (75) 1   0.00%   3.00%
RevPAR (same-store 73) 2  $121.25   $125.00 
RevPAR growth (same-store 73) 2   0.00%   3.00%
Adjusted EBITDAre  $186,700   $199,000 
Adjusted FFO  $127,200   $140,200 
Adjusted FFO per diluted unit 3  $1.22   $1.34 
Capital improvements  $40,000   $60,000 

 

(1)As of February 26, 2019, the Company owned 75 hotels. Pro forma outlook information for the full year 2019 includes operating estimates for 75 hotels as if each hotel had been owned since January 1, 2018.

 

(2)As of February 26, 2019, the Company owned 73 same-store hotels. The same-store outlook information includes operating estimates for 73 hotels owned by the Company since January 1, 2018.

 

(3)Assumes weighted average diluted common shares and units outstanding of 104,300,000 for the full year 2019.

 

Fourth Quarter and Full Year 2018 Earnings Conference Call

 

The Company will conduct its quarterly conference call on Wednesday, February 27, 2019, at 9:00 AM ET. To participate in the conference call, please dial 877-930-8101. The conference identification code for the call is 2086997. Additionally, a live webcast of the quarterly conference call will be available through the Company’s website, www.shpreit.com. A replay of the quarterly conference call webcast will be available until 12:00 PM ET Wednesday, March 6, 2019, by dialing 855-859-2056, conference identification code 2086997. A replay will also be available in the Investor Relations section of the Company’s website until April 30, 2019.

 

 

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About Summit Hotel Properties

 

Summit Hotel Properties, Inc. is a publicly-traded real estate investment trust focused on owning premium-branded hotels with efficient operating models primarily in the Upscale segment of the lodging industry. As of February 26, 2019, the Company’s portfolio consisted of 75 hotels with a total of 11,529 guestrooms located in 25 states.

 

For additional information, please visit the Company’s website, www.shpreit.com, and follow the Company on Twitter at @SummitHotel_INN.

 

Contact:

Adam Wudel

SVP – Finance & Capital Markets

Summit Hotel Properties, Inc.

(512) 538-2325

 

 

 

(1) Includes all acquisitions and dispositions completed as of February 26, 2019.

 

 

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Forward-Looking Statements

 

This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “forecast,” “continue,” “plan,” “likely,” “would” or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections or other forward-looking information. Examples of forward-looking statements include the following: the Company’s ability to realize growth from the deployment of renovation capital; projections of the Company’s revenues and expenses, capital expenditures or other financial items; descriptions of the Company’s plans or objectives for future operations, acquisitions, dispositions, financings, redemptions or services; forecasts of the Company’s future financial performance and potential increases in average daily rate, occupancy, RevPAR, room supply and demand, EBITDAre, Adjusted EBITDAre, FFO and AFFO; the Company’s outlook with respect to pro forma RevPAR, pro forma RevPAR growth, RevPAR, RevPAR growth, AFFO, AFFO per diluted share and unit and renovation capital deployed; and descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of their occurrence. These forward-looking statements are subject to various risks and uncertainties, not all of which are known to the Company and many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, the state of the U.S. economy, supply and demand in the hotel industry, and other factors as are described in greater detail in the Company’s filings with the Securities and Exchange Commission (“SEC”). Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

For information about the Company’s business and financial results, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC, and its quarterly and other periodic filings with the SEC. The Company undertakes no duty to update the statements in this release to conform the statements to actual results or changes in the Company’s expectations.

 

 

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Summit Hotel Properties, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands)

 

   December 31, 2018   December 31, 2017 
         
ASSETS          
Investment in hotel properties, net  $2,065,554   $2,059,492 
Investment in hotel properties under development   -    23,793 
Undeveloped land   2,267    2,942 
Assets held for sale, net   7,633    1,193 
Investment in real estate loans, net   30,700    12,356 
Cash and cash equivalents   44,088    36,545 
Restricted cash   28,468    29,462 
Trade receivables, net   13,978    16,985 
Prepaid expenses and other   10,111    9,454 
Deferred charges, net   4,691    5,221 
Other assets   14,807    12,431 
Total assets  $2,222,297   $2,209,874 
LIABILITIES AND EQUITY          
Liabilities:          
Debt, net of debt issuance costs  $958,712   $868,236 
Accounts payable   5,391    7,774 
Accrued expenses and other   66,050    56,488 
Total liabilities   1,030,153    932,498 
           
Total stockholders' equity   1,189,849    1,274,502 
Non-controlling interests in operating partnership   2,295    2,874 
Total equity   1,192,144    1,277,376 
Total liabilities and equity  $2,222,297   $2,209,874 

 

 

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Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)

 

   For the Three Months Ended
December 31,
   For the Year Ended
December 31,
 
   2018   2017   2018   2017 
Revenues:  (Unaudited)           
Room  $121,788   $121,824   $523,439   $479,934 
Food and beverage   6,110    6,201    24,773    21,919 
Other   4,611    3,720    19,058    13,524 
Total revenues   132,509    131,745    567,270    515,377 
Expenses:                    
Room   28,752    28,280    119,724    108,715 
Food and beverage   4,657    4,725    19,447    17,002 
Other hotel operating expenses   37,444    37,537    158,917    144,258 
Property taxes, insurance and other   11,089    10,048    43,339    37,419 
Management fees   3,593    4,241    18,521    18,210 
Depreciation and amortization   25,872    23,875    101,013    85,927 
Corporate general and administrative   4,430    4,599    21,509    19,597 
Hotel property acquisition costs   -    -    -    354 
Loss on impairment of assets   1,075    -    1,075    - 
Total expenses   116,912    113,305    483,545    431,482 
(Loss) gain on disposal of assets, net   (640)   (322)   41,474    43,209 
Operating income   14,957    18,118    125,199    127,104 
Other income (expense):                    
Interest expense   (11,365)   (8,201)   (41,944)   (29,687)
Other income, net   1,363    931    6,949    3,778 
Total other expense   (10,002)   (7,270)   (34,995)   (25,909)
Income from continuing operations before income taxes   4,955    10,848    90,204    101,195 
Income tax benefit (expense)   802    (1,061)   922    (1,674)
Net income   5,757    9,787    91,126    99,521 
Non-controlling interest in Operating Partnership   (1)   (18)   (205)   (307)
Net income attributable to Summit Hotel Properties, Inc.   5,756    9,769    90,921    99,214 
Preferred dividends   (3,709)   (4,808)   (16,671)   (17,408)
Premium on redemption of preferred stock   -    (2,572)   (3,277)   (2,572)
Net income attributable to common stockholders  $2,047   $2,389   $70,973   $79,234 
Earnings per share:                    
Basic and diluted  $0.02   $0.02   $0.68   $0.79 
Weighted average common shares outstanding:                    
Basic   103,682    103,265    103,623    99,406 
Diluted   103,759    103,653    103,842    99,780 
Dividends per share  $0.18   $0.17   $0.72   $0.67 

 

 

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Summit Hotel Properties, Inc.
Reconciliation of Net Income to Non-GAAP Measures – Funds From Operations

(Unaudited)

(In thousands except per share and unit amounts)

 

   For the Three Months Ended
December 31,
   For the Year Ended
December 31,
 
   2018   2017   2018   2017 
Net income  $5,757   $9,787   $91,126   $99,521 
Preferred dividends   (3,709)   (4,808)   (16,671)   (17,408)
Premium on redemption of preferred stock   -    (2,572)   (3,277)   (2,572)
Net income applicable to common shares     and units  $2,048   $2,407   $71,178   $79,541 
Real estate-related depreciation (1)   25,759    23,758    100,545    85,524 
Loss on impairment of assets   1,075    -    1,075    - 
Loss (gain) on disposal of assets, net   640    322    (41,474)   (43,209)
FFO applicable to common shares and common units  $29,522   $26,487   $131,324   $121,856 
Amortization of lease-related intangible assets, net   95    -    712    - 
Amortization of deferred financing costs   478    469    1,973    2,022 
Amortization of franchise fees (1)   113    117    468    403 
Equity-based compensation   1,298    1,404    6,665    5,887 
Hotel property acquisition costs   -    -    -    354 
Debt transaction costs   136    15    401    195 
Premium on redemption of preferred stock   -    2,572    3,277    2,572 
Non-cash interest income (2)   (517)   (284)   (2,045)   (284)
Casualty losses (recoveries), net   164    113    (1,786)   500 
Non-cash income tax related to adjustment to deferred tax asset   -    606    -    606 
AFFO applicable to common shares and common units  $31,289   $31,499   $140,989   $134,111 
Weighted average diluted common shares/common units (2)   104,143    104,184    104,315    100,372 
FFO per common share and unit  $0.28   $0.25   $1.26   $1.21 
AFFO per common share and unit  $0.30   $0.30   $1.35   $1.34 

 

(1)The total of these line items represents depreciation and amortization as reported on the Company’s Condensed Consolidated Statements of Operations for the periods presented.

 

(2)Non-cash interest income relates to the amortization of the discount on certain notes receivable. The discount on these notes receivable was recorded at inception of the related loans based on the estimated value of the embedded purchase options in the notes receivable.

 

(3)The Company includes the outstanding OP units issued by Summit Hotel OP, LP, the Company’s operating partnership, held by limited partners other than the Company because the OP units are redeemable for cash or, at the Company’s option, shares of the Company’s common stock on a one-for-one basis.

 

 

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Summit Hotel Properties, Inc.

Reconciliation of Net Income to Non-GAAP Measures – EBITDAre

(Unaudited)

(Amounts in thousands)

 

   For the Three Months Ended
December 31,
   For the Year Ended
December 31,
 
   2018   2017   2018   2017 
Net income  $5,757   $9,787   $91,126   $99,521 
Depreciation and amortization   25,872    23,875    101,013    85,927 
Interest expense   11,365    8,201    41,944    29,687 
Interest income   (68)   (15)   (229)   (104)
Income tax (benefit) expense   (802)   1,061    (922)   1,674 
EBITDA   42,124    42,909    232,932    216,705 
Loss on impairment of assets   1,075    -    1,075    - 
Loss (gain) on disposal of assets, net   640    322    (41,474)   (43,209)
EBITDAre   43,839    43,231    192,533    173,496 
Amortization of lease-related intangible assets, net   95    -    712    - 
Equity-based compensation   1,298    1,404    6,665    5,887 
Hotel property acquisition costs   -    -    -    354 
Debt transaction costs   136    15    401    195 
Non-cash interest income (1)   (517)   (284)   (2,045)   (284)
Casualty losses (recoveries), net   164    113    (1,786)   500 
Adjusted EBITDAre (2)  $45,015   $44,479   $196,480   $180,148 

 

(1)Non-cash interest income relates to the amortization of the discount on certain notes receivable. The discount on these notes receivable was recorded at inception of the related loans based on the estimated value of the embedded purchase options in the notes receivable.

 

(2)Adjusted EBITDAre is consistent with the Company’s presentation of Adjusted EBITDA in historical periods. Please see non-GAAP financial measures disclosure at the end of this release for additional detail.

 

 

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Summit Hotel Properties, Inc.

Pro Forma Hotel Operating Data

(Unaudited)

(Amounts in thousands)

 

   For the Three Months Ended
December 31,
   For the Year Ended
December 31,
 
Pro Forma Operating Data (1) (2)   2018    2017    2018    2017 
Pro forma room revenue  $121,794   $121,525   $514,321   $506,388 
Pro forma other hotel operations revenue   10,723    9,973    42,941    39,713 
Pro forma total revenues   132,517    131,498    557,262    546,101 
Pro forma total hotel operating expenses   85,445    83,992    351,321    339,839 
Pro forma hotel EBITDA  $47,072   $47,506   $205,941   $206,262 
Pro forma hotel EBITDA Margin   35.5%   36.1%   37.0%   37.8%
                     
Reconciliations of Non-GAAP financial measures to comparable GAAP financial measures                    
                     
Revenue:                    
Total revenues  $132,509   $131,745   $567,270   $515,377 
Total revenues - acquisitions (1)   -    7,287    7,862    76,101 
Total revenues - dispositions (2)   8    (7,534)   (17,870)   (45,377)
Pro forma total revenues   132,517    131,498    557,262    546,101 
                     
Hotel Operating Expenses:                    
Total hotel operating expenses   85,535    84,831    359,948    325,604 
Hotel operating expenses - acquisitions (1)   -    4,221    3,547    44,754 
Hotel operating expenses - dispositions (2)   (90)   (5,060)   (12,174)   (30,519)
Pro forma hotel operating expenses   85,445    83,992    351,321    339,839 
                     
Hotel EBITDA:                    
Operating income   14,957    18,118    125,199    127,104 
Loss (gain) on disposal of assets, net   640    322    (41,474)   (43,209)
Loss on impairment   1,075    -    1,075    - 
Hotel property acquisition costs   -    -    -    354 
Corporate general and administrative   4,430    4,599    21,509    19,597 
Depreciation and amortization   25,872    23,875    101,013    85,927 
Hotel EBITDA   46,974    46,914    207,322    189,773 
Hotel EBITDA - acquisitions (1)   -    3,066    4,315    31,347 
Hotel EBITDA - dispositions (2)   98    (2,474)   (5,696)   (14,858)
Pro forma hotel EBITDA  $47,072   $47,506   $205,941   $206,262 

 

(1)Unaudited pro forma information includes operating results for 77 hotels owned as of December 31, 2018, as if all such hotels had been owned by the Company since January 1, 2017. For hotels acquired by the Company after January 1, 2017 (the “Acquired Hotels”), the Company has included in the pro forma information the financial results of each of the Acquired Hotels for the period from January 1, 2017, to the date the Acquired Hotels were purchased by the Company (the “Pre-acquisition Period”). The financial results for the Pre-acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by the Company and have not been audited or reviewed by our auditors or adjusted by us. The pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and are not indicative of future results.

 

(2)For hotels sold by the Company between January 1, 2017 and December 31, 2018 (the “Disposed Hotels”), the unaudited pro forma information excludes the financial results of each of the Disposed Hotels for the period of ownership by the Company from January 1, 2017 through the date that the Disposed Hotels were sold by the Company.

 

 

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Summit Hotel Properties, Inc.

Pro Forma Hotel Operating Data

(Unaudited)

(Amounts in thousands, except operating metrics)

 

   2018     
Pro Forma Operating Data (1) (2)  Q1   Q2   Q3   Q4   Year Ended
December 31, 2018
 
Pro forma room revenue  $123,127   $136,656   $132,744   $121,794   $514,321 
Pro forma other hotel operations revenue   10,218    11,135    10,865    10,723    42,941 
Pro forma total revenues   133,345    147,791    143,609    132,517    557,262 
Pro forma total hotel operating expenses   85,506    90,184    90,186    85,445    351,321 
Pro forma hotel EBITDA  $47,839   $57,607   $53,423   $47,072   $205,941 
Pro forma hotel EBITDA Margin   35.9%   39.0%   37.2%   35.5%   37.0%
                          
Pro Forma Statistics (1) (2)                         
Rooms sold   784,494    856,660    852,779    799,113    3,293,046 
Rooms available   1,033,380    1,046,262    1,072,597    1,072,628    4,224,867 
Occupancy   75.9%   81.9%   79.5%   74.5%   77.9%
ADR  $156.95   $159.52   $155.66   $152.41   $156.18 
RevPAR  $119.15   $130.61   $123.76   $113.55   $121.74 
                          
Actual Statistics                         
Rooms sold   840,173    908,357    855,950    799,113    3,403,593 
Rooms available   1,101,780    1,114,542    1,082,225    1,072,628    4,371,175 
Occupancy   76.3%   81.5%   79.1%   74.5%   77.9%
ADR  $154.22   $154.84   $153.55   $152.40   $153.79 
RevPAR  $117.60   $126.20   $121.44   $113.54   $119.75 
                          
Reconciliations of Non-GAAP financial measures to comparable GAAP financial measures            
                          
Revenue:                         
Total revenues  $140,199   $152,222   $142,340   $132,509   $567,270 
Total revenues from acquisitions (1)   2,038    3,271    2,553    -    7,862 
Total revenues from dispositions (2)   (8,892)   (7,702)   (1,284)   8    (17,870)
Pro forma total revenues   133,345    147,791    143,609    132,517    557,262 
                          
Hotel Operating Expenses:                         
Total hotel operating expenses   89,812    94,218    90,383    85,535    359,948 
Total hotel operating expenses from acquisitions (1)   1,144    1,314    1,089    -    3,547 
Total hotel operating expenses from dispositions (2)   (5,450)   (5,348)   (1,286)   (90)   (12,174)
Pro forma total hotel operating expenses   85,506    90,184    90,186    85,445    351,321 
                          
Hotel EBITDA:                         
Operating income   18,491    44,761    46,990    14,957    125,199 
Loss (gain) on disposal of assets, net   43    (17,331)   (24,826)   640    (41,474)
Loss on impairment of assets   -    -    -    1,075    1,075 
Hotel property acquisition costs   -    -    -    -    - 
Corporate general and administrative   6,607    5,620    4,852    4,430    21,509 
Depreciation and amortization   25,246    24,954    24,941    25,872    101,013 
Hotel EBITDA   50,387    58,004    51,957    46,974    207,322 
Hotel EBITDA from acquisitions (1)   894    1,957    1,464    -    4,315 
Hotel EBITDA from dispositions (2)   (3,442)   (2,354)   2    98    (5,696)
Pro forma hotel EBITDA  $47,839   $57,607   $53,423   $47,072   $205,941 

 

(1)Unaudited pro forma information includes operating results for 77 hotels owned as of December 31, 2018 as if all such hotels had been owned by the Company since January 1, 2018. For hotels acquired by the Company after January 1, 2018 (the “Acquired Hotels”), the Company has included in the pro forma information the financial results of each of the Acquired Hotels for the period from January 1, 2018 to the date the Acquired Hotels were purchased by the Company (the “Pre-acquisition Period”). The financial results for the Pre-acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by the Company and have not been audited or reviewed by our auditors or adjusted by us. The pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and are not indicative of future results.

 

(2)For hotels sold by the Company between January 1, 2018 and December 31, 2018 (the “Disposed Hotels”), the pro forma information excludes the financial results of each of the Disposed Hotels for the period of ownership by the Company from January 1, 2018 through the date that the Disposed Hotels were sold by the Company.

 

 

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Summit Hotel Properties, Inc.

Pro Forma and Same-Store Data

(Unaudited)

 

 

   For the Three Months Ended December 31,  

For the Year Ended

December 31,

 
   2018   2017   2018   2017 
Pro Forma (77) ¹                    
Rooms sold   799,113    804,355    3,293,046    3,283,621 
Rooms available   1,072,628    1,056,344    4,224,867    4,190,927 
Occupancy   74.5%   76.1%   77.9%   78.4%
ADR  $152.41   $151.08   $156.18   $154.22 
RevPAR  $113.55   $115.04   $121.74   $120.83 
                     
Occupancy change   -2.2%        -0.5%     
ADR change   0.9%        1.3%     
RevPAR change   -1.3%        0.8%     

 

   For the Three Months Ended December 31,  

For the Year Ended

December 31,

 
   2018   2017   2018   2017 
Same-Store (61) ¹                    
Rooms sold   604,755    621,441    2,522,458    2,567,079 
Rooms available   818,616    817,880    3,247,050    3,244,847 
Occupancy   73.9%   76.0%   77.7%   79.1%
ADR  $150.30   $148.33   $153.87   $151.43 
RevPAR  $111.03   $112.70   $119.53   $119.80 
                     
Occupancy change   -2.8%        -1.8%     
ADR change   1.3%        1.6%     
RevPAR change   -1.5%        -0.2%     

 

(1)Unaudited pro forma information includes operating results for 77 hotels owned as of December 31, 2018, as if each hotel had been owned by the Company since January 1, 2017. As a result, these pro forma operating and financial measures include operating results for certain hotels for periods prior to the Company’s ownership.

 

(2)Same-store information includes operating results for 61 hotels owned by the Company as of January 1, 2017, and at all times during the three months and twelve months ended December 31, 2018, and 2017.

 

 

 

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Summit Hotel Properties, Inc.
Reconciliation of Net Income to Non-GAAP Measures – Funds From Operations for Financial Outlook

(Unaudited)

(Amounts in thousands except per share and unit)

 

   For the Year Ending
December 31, 2019
 
   Low   High 
Net income  $39,800   $52,800 
Preferred dividends   (14,800)   (14,800)
Net income applicable to common shares and units   25,000    38,000 
Real estate-related depreciation   100,100    100,100 
Gain on disposal of assets, net   (4,100)   (4,100)
FFO applicable to common shares and common units   121,000    134,000 
Amortization of lease-related intangible assets, net   400    400 
Amortization of deferred financing costs   1,400    1,400 
Amortization of franchise fees   400    400 
Equity based compensation   5,800    5,800 
Debt transaction costs   100    100 
Non-cash interest income   (2,100)   (2,100)
Non-cash straight-line lease expense, net   200    200 
AFFO applicable to common shares and common units  $127,200   $140,200 
Weighted average diluted common shares/common units (1)   104,300    104,300 
FFO per common share and common unit  $1.16   $1.28 
AFFO per common share and common unit  $1.22   $1.34 

 

(1)The Company includes the outstanding OP units issued by Summit Hotel OP, LP, the Company’s operating partnership, held by limited partners other than the Company because the OP units are redeemable for cash or, at the Company’s option, shares of the Company’s common stock on a one-for-one basis.

 

 

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Summit Hotel Properties, Inc.
Reconciliation of Net Income to Non-GAAP Measures – EBITDA for Financial Outlook

(Unaudited)

(Amounts in thousands)

 

   For the Year Ending
December 31, 2019
 
   Low   High 
Net income  $39,800   $52,800 
Depreciation and amortization   100,500    100,500 
Interest expense   43,800    43,100 
Income tax expense   2,300    2,300 
EBITDA   186,400    198,700 
Gain on disposal of assets, net   (4,100)   (4,100)
EBITDAre   182,300    194,600 
Amortization of lease-related intangible assets, net   400    400 
Equity based compensation   5,800    5,800 
Debt transaction costs   100    100 
Non-cash interest income   (2,100)   (2,100)
Non-cash straight-line lease expense, net   200    200 
Adjusted EBITDAre  $186,700   $199,000 

 

 

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Non-GAAP Financial Measures

 

We report certain “non-GAAP financial measures,” which are measures of our historical financial performance. Non-GAAP financial measures are financial measures not prescribed by Generally Accepted Accounting Principles ("non-GAAP"). These measures are as follows: (i) Funds From Operations (“FFO”) and Adjusted Funds from Operations ("AFFO"), (ii) Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("EBITDAre"), Adjusted EBITDAre and hotel EBITDA. We caution investors that amounts presented in accordance with our definitions of FFO and EBITDAre may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP financial measures in the same manner. Our non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. Our non-GAAP financial measures may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, debt service obligations and other commitments and uncertainties. Although we believe that our non-GAAP financial measures can enhance the understanding of our financial condition and results of operations, these non-GAAP financial measures are not necessarily better indicators of any trend as compared to a comparable measure prescribed by Generally Accepted Accounting Principles ("GAAP") such as net income (loss).

 

Funds From Operations (“FFO”) and Adjusted FFO (“AFFO”)

 

As defined by Nareit, FFO represents net income or loss (computed in accordance with GAAP), excluding preferred dividends, gains (or losses) from sales of real property, impairment losses on real estate assets, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization related to real estate assets, and adjustments for unconsolidated partnerships and joint ventures. AFFO represents FFO excluding amortization of deferred financing costs, franchise fees, equity-based compensation, debt transaction costs, premiums on redemption of preferred shares, losses from net casualties, non-cash interest income and non-cash income tax related adjustments to our deferred tax asset. Unless otherwise indicated, we present FFO and AFFO applicable to our common shares and common units. We present FFO and AFFO because we consider it an important supplemental measure of our operational performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and AFFO when reporting their results. FFO and AFFO is intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO and AFFO excludes depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, it provides a performance measure that, when compared year over year, reflects the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. Our computation of FFO differs slightly from the computation of Nareit-defined FFO related to the reporting of corporate depreciation and amortization expense. Our computation of FFO may also differ from the methodology for calculating FFO used by other equity REITs and, accordingly, may not be comparable to such other REITs. FFO and AFFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. Where indicated in this release, FFO is based on our computation of FFO and not the computation of Nareit-defined FFO unless otherwise noted.

 

 

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EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA

 

EBITDA

 

EBITDA represents net income or loss, excluding: (i) interest, (ii) income tax expense and (iii) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions.

 

EBITDAre and Adjusted EBITDAre

 

In September 2017, Nareit proposed a standardized performance measure, called EBITDAre, which is based on EBITDA and is expected to provide additional relevant information about REITs as real estate companies in support of growing interest among generalist investors. The conclusion was reached that, while dedicated REIT investors have long been accustomed to utilizing the industry’s supplemental measures such as FFO and net operating income (“NOI”) to evaluate the investment quality of REITs as real estate companies, it would be helpful to generalist investors for REITs as real estate companies to also present EBITDAre as a more widely known and understood supplemental measure of performance. EBITDAre is intended to be a supplemental non-GAAP performance measure that is independent of a company’s capital structure and will provide a uniform basis to measure the enterprise value of a company compared to other REITs.

 

EBITDAre, as defined by Nareit, is calculated as net income or loss, excluding: (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) loss and gains on disposition of property, (v) impairment and (vi) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates. We believe EBITDAre is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.

 

We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.

 

 

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Hotel EBITDA

 

With respect to hotel EBITDA, we believe that excluding the effect of corporate-level expenses and non-cash items provides a more complete understanding of the operating results over which individual hotels and operators have direct control. We believe the property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

 

We caution investors that amounts presented in accordance with our definitions of EBITDA, EBITDAre, adjusted EBITDAre, and hotel EBITDA may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP measures in the same manner. EBITDA, EBITDAre, adjusted EBITDAre, and hotel EBITDA should not be considered as an alternative measure of our net income (loss) or operating performance. EBITDA, EBITDAre adjusted EBITDAre, and hotel EBITDA may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA, EBITDAre, adjusted EBITDAre, and hotel EBITDA can enhance your understanding of our financial condition and results of operations, these non-GAAP financial measures are not necessarily a better indicator of any trend as compared to a comparable GAAP measure such as net income (loss). Above, we include a quantitative reconciliation of EBITDA, EBITDAre, adjusted EBITDAre and hotel EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss) and operating income (loss).

 

 

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