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Section 1: 8-K (FORM 8-K)

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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): July 31, 2019

SUMMIT HOTEL PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)

 

Maryland 001-35074 27-2962512

(State or Other Jurisdiction

of Incorporation or Organization)

(Commission File Number) (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 230.425)

 

¨ 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))

 

Securities registered pursuant to Section 12(b) of the Act:    
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value INN New York Stock Exchange
Series D Cumulative Redeemable Preferred Stock, $0.01 par value INN-PD New York Stock Exchange
Series E Cumulative Redeemable Preferred Stock, $0.01 par value INN-PE New York Stock Exchange

 

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 July 31, 2019, Summit Hotel Properties, Inc. (the “Company”) issued a press release announcing the consolidated operating results of the Company and its subsidiaries for the second quarter ended June 30, 2019.

 

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

 

Item 9.01. Financial Statements and Exhibits.

 

  (d) Exhibits

 

  99.1 Press release issued on July 31, 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 thereunto duly authorized.

 

  SUMMIT HOTEL PROPERTIES, INC.
   
   
  By: /s/ Christopher R. Eng  
    Christopher R. Eng
    Executive Vice President, General Counsel,
Dated: July 31, 2019   Chief Risk Officer and Secretary

 

 

 

(Back To Top)

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 SECOND QUARTER 2019 RESULTS

 

AND ANNOUNCES NEWLY-FORMED JOINT VENTURE WITH GIC

 

Net Income Increases to $45.2 million;

Adjusted EBITDAre of $52.4 million; Adjusted FFO per share of $0.37

Initial GIC Joint Venture Acquisition Announced

 

Austin, Texas, July 31, 2019 --- Summit Hotel Properties, Inc. (NYSE: INN) (the “Company”), today announced results for the quarter ended June 30, 2019.

 

“We continue to be pleased with the financial performance of our portfolio as stable top line growth and a focus on cost controls held operating margins generally unchanged during the quarter. Additionally, RevPAR growth for our well-located and diverse portfolio of high-quality hotels exceeded the STR Upscale average by 160 basis points in the second quarter and also surpassed RevPAR growth for the overall industry,” said Dan Hansen, the Company’s Chairman, President and Chief Executive Officer. “We are also thrilled to announce our partnership with GIC, a well-respected and highly regarded investor that shares our disciplined, long-term approach to creating value.  The pending acquisition of the Hampton Inn & Suites Silverthorne will serve as our first investment in the joint venture and we look forward to growing the scale of the partnership,” commented Mr. Hansen.

 

Second Quarter 2019 Highlights

 

·Net Income: Net income attributable to common stockholders increased 33.6 percent to $45.2 million, or $0.43 per diluted share, compared with $33.9 million, or $0.32 per diluted share, in the same period of 2018.

 

·Pro Forma RevPAR: Pro forma revenue per available room (“RevPAR”) increased 1.2 percent to $133.51 from the same period in 2018. Pro forma average daily rate (“ADR”) increased 1.2 percent to $163.15 compared to the same period in 2018 and pro forma occupancy increased 0.1 percent to 81.8 percent.

 

·Same-Store RevPAR: Same-store RevPAR increased 1.1 percent to $131.91 from the same period in 2018. Same-store ADR increased 1.3 percent to $161.64 compared to the same period in 2018 and occupancy decreased 0.2 percent to 81.6 percent.

 

·Pro Forma Hotel EBITDA: Pro forma hotel EBITDA was $55.2 million, an increase of 2.7 percent from the same period in 2018. Pro forma hotel EBITDA margin contracted by 3 basis points to 39.0 percent from 39.1 percent in the same period of 2018.

 

·Adjusted EBITDAre: Adjusted EBITDAre decreased 5.0 percent to $52.4 million from $55.2 million in the same period of 2018.

 

·Adjusted FFO: AFFO decreased 6.7 percent to $38.6 million, or $0.37 per diluted share, from $41.4 million, or $0.40 per diluted share, in the same period of 2018.

 

·Dispositions: The Company sold six hotels, containing 815 guestrooms, for an aggregate gross sales price of $135.0 million. The sale price, plus estimated near-term capital improvements, represented a 12.8x EBITDA multiple and 6.9 percent capitalization rate for the trailing twelve months ended March 31, 2019 and resulted in a net gain of $36.6 million.

 

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The Company’s results for the three and six months ended June 30, 2019 and 2018 are as follows:

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
   unaudited 
   (Dollars in thousands, except per share amounts) 
Net income attributable to common stockholders  $45,248   $33,867   $54,416   $34,735 
Net income per diluted share  $0.43   $0.32   $0.52   $0.33 
Total revenues  $142,930   $152,222   $281,882   $292,421 
EBITDAre (1)  $49,409   $55,812   $94,812   $100,354 
Adjusted EBITDAre (1)  $52,420   $55,155   $99,145   $101,902 
FFO (1)  $35,202   $41,472   $65,652   $67,509 
Adjusted FFO (1)  $38,648   $41,438   $70,912   $73,574 
FFO per diluted share and unit (1,2)  $0.34   $0.40   $0.63   $0.65 
Adjusted FFO per diluted share and unit (1,2)  $0.37   $0.40   $0.68   $0.71 
                     
Pro Forma (3)                    
RevPAR  $133.51   $131.90   $129.36   $126.43 
RevPAR Growth   1.2%        2.3%     
Hotel EBITDA  $55,191   $53,715   $103,365   $98,646 
Hotel EBITDA margin   39.0%   39.1%   37.9%   37.6%
Hotel EBITDA margin growth   -3bps        27bps     

 

(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.

 

(2)Amounts are based on 104,255,000 weighted average diluted common shares and units and 104,273,000 weighted average diluted common shares and units for the three months ended June 30, 2019, and 2018, respectively, and 104,261,000 weighted average diluted common shares and units and 104,360,000 weighted average diluted common shares and units for the six months ended June 30, 2019, and 2018, 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 69 hotels owned as of June 30, 2019, as if each hotel had been owned by the Company since January 1, 2018. As a result, all pro forma information includes operating and financial results for hotels acquired since January 1, 2018, which includes periods prior to the Company’s ownership. Pro forma and non-GAAP financial measures are unaudited.

 

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Year-To-Date 2019 Highlights

 

·Net Income: Net income attributable to common stockholders increased 56.7 percent to $54.4 million, or $0.52 per diluted share, compared with $34.7 million, or $0.33 per diluted share, in the same period of 2018.

 

·Pro Forma RevPAR: Pro forma RevPAR increased 2.3 percent to $129.36 from the same period in 2018. Pro forma ADR grew to $163.34, an increase of 1.9 percent from the same period in 2018 and pro forma occupancy increased 0.4 percent to 79.2 percent

 

·Same-Store RevPAR: Same-store RevPAR increased 2.1 percent to $128.21 from the same period in 2018. Same-store ADR increased 2.0 percent to $162.45 compared to the same period in 2018 and same-store occupancy increased 0.1 percent to 78.9 percent.

 

·Pro Forma Hotel EBITDA: Pro forma hotel EBITDA was $103.4 million, an increase of 4.8 percent from the same period in 2018. Pro forma hotel EBITDA margin expanded by 27 basis points to 37.9 percent from 37.6 percent in the same period of 2018.

 

·Adjusted EBITDAre: Adjusted EBITDAre decreased 2.7 percent to $99.1 million from $101.9 million in the same period of 2018.

 

·Adjusted FFO: AFFO decreased 3.6 percent to $70.9 million, or $0.68 per diluted share, from $73.6 million, or $0.71 per diluted share, in the same period of 2018.

 

·Dispositions: The Company sold eight hotels containing 945 guestrooms for an aggregate gross sales price of $146.6 million, or $155,100 per key. The eight properties were sold at an average trailing capitalization rate of 7.0 percent and resulted in the realization of an aggregate net gain on sale of $40.8 million.

 

GIC Joint Venture (the “Joint Venture”)

 

The Company has entered into the Joint Venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria.  The Company will serve as general partner and asset manager of the Joint Venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%.  The Joint Venture intends to finance assets with an anticipated 50% overall leverage target. The Company will earn fees for providing services to the Joint Venture and will have the potential to earn incentive fees based on the Joint Venture achieving certain return thresholds. The pending acquisition of the Hampton Inn & Suites in Silverthorne, CO is expected to be acquired by the Joint Venture. Financial results of the Joint Venture will be consolidated into the Company’s consolidated financial statements.

 

Pending Acquisition

 

An affiliate of the Joint Venture is currently under contract to acquire the 88-guestroom Hampton Inn & Suites located in Silverthorne, Colorado for a purchase price of $25.5 million. Ideally situated near popular ski destinations including Keystone, Breckenridge, Copper Mountain, and Arapahoe Basin, the hotel benefits from strong, year-round leisure demand and a local corporate base. Opened in December 2015, the hotel will require minimal initial capital investment, had trailing twelve-month RevPAR of $153, and hotel EBITDA margin of 45.1 percent for the period ended June 30, 2019, which are premiums to the Company’s pro forma portfolio average. The Company estimates a capitalization rate of 8.3 percent based on management’s current estimate of the hotel’s forward twelve-month net operating income and expects the hotel to generate $0.8 million of EBITDAre from the scheduled acquisition date through the remainder of 2019.

 

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An affiliate of the Joint Venture is also under contract to acquire two adjacent, contiguous land parcels to the Hampton Inn & Suites Silverthorne, totaling 1.3 acres, for an aggregate purchase price of $2.4 million, which offers an attractive opportunity for a potential future development.

 

The Joint Venture expects to close the transactions concurrently during the third quarter. The transactions remain subject to customary closing conditions, and no assurances can be made that the transactions will close on the intended timeline, or at all.

 

Capital Improvements

 

The Company invested $15.3 million and $32.6 million in capital improvements during the three and six months ended June 30, 2019 and anticipates investing a total of $50.0 million to $60.0 million in capital improvements across its portfolio during 2019.

 

Capital Markets & Balance Sheet

 

At June 30, 2019, the Company had the following:

 

·Total outstanding debt of $834.4 million with a weighted average interest rate of 4.21 percent.

 

·After giving effect to interest rate derivative agreements, $550.8 million, or 66 percent, of the Company’s debt had fixed interest rates, and $283.6 million, or 34 percent had variable interest rates.

 

·Undrawn availability on its senior unsecured revolving credit facility of $375.0 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 4.2x.

 

At July 24, 2019, the Company had the following:

 

·Total outstanding debt of $834.2 million with a weighted average interest rate of 4.16 percent.

 

·After giving effect to interest rate derivative agreements, $550.6 million, or 66 percent, of our debt had fixed interest rates, and $283.6 million, or 34 percent had variable interest rates.

 

·Undrawn availability on its senior unsecured revolving credit facility of $375.0 million.

 

·Total net debt to trailing twelve-month pro forma adjusted EBITDAre of 4.2x.

 

Dividends

 

On July 29, 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 share and per unit represents an annual dividend yield of 6.2 percent based on the July 30, 2019 closing stock price.

 

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.

 

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The common and preferred dividends are payable on August 30, 2019 to holders of record as of August 16, 2019.

 

2019 Outlook

 

The Company is providing its updated outlook for the full year 2019 which includes 69 hotels owned as of July 31, 2019 and the pending acquisition of the Hampton Inn & Suites Silverthorne in partnership with GIC, which is expected to close during the third quarter. 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

(Dollars in thousands, except RevPAR and per unit data)

 

   Low   High 
Pro forma RevPAR (70) 1  $123.75   $126.25 
Pro forma RevPAR growth (70) 1   0.50%   2.50%
RevPAR (same-store 67) 2  $122.00   $124.50 
RevPAR growth (same-store 67) 2   0.00%   2.00%
Adjusted EBITDAre  $179,600   $187,900 
Adjusted FFO  $125,400   $133,800 
Adjusted FFO per diluted unit 3  $1.20   $1.28 
Capital improvements  $50,000   $60,000 

 

(1)As of July 31, 2019, the Company owned 69 hotels and is also under contract to purchase the Hampton Inn & Suites Silverthorne which has been included in the Company’s updated outlook. Pro forma outlook information for the full year 2019 includes operating estimates for 70 hotels as if each hotel had been owned since January 1, 2018.

 

(2)As of July 31, 2019, the Company owned 67 same-store hotels. The same-store outlook information includes operating estimates for 67 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.

 

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Second Quarter 2019 Earnings Conference Call

 

The Company will conduct its quarterly conference call on Thursday, August 1, 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 3438916. 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 Thursday, August 8, 2019, by dialing 855-859-2056, conference identification code 3438916. A replay will also be available in the Investor Relations section of the Company’s website until October 31, 2019.

 

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 July 31, 2019, the Company’s portfolio consisted of 69 hotels with a total of 10,715 guestrooms located in 24 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 July 31, 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

(Dollars in thousands)

 

  

June 30,
2019

  

December 31,

2018

 
   (unaudited)     
ASSETS          
Investment in hotel properties, net  $1,941,674   $2,065,554 
Undeveloped land   2,267    2,267 
Assets held for sale, net   493    7,633 
Investment in real estate loans, net   31,856    30,700 
Right-of-use assets   29,313    - 
Cash and cash equivalents   48,796    44,088 
Restricted cash   27,066    28,468 
Trade receivables, net   21,253    13,978 
Prepaid expenses and other   7,634    10,111 
Deferred charges, net   4,118    4,691 
Other assets   8,751    14,807 
Total assets  $2,123,221   $2,222,297 
LIABILITIES AND EQUITY          
Liabilities:          
Debt, net of debt issuance costs  $829,001   $958,712 
Lease liabilities   18,887    - 
Accounts payable   5,288    5,391 
Accrued expenses and other   72,988    66,050 
Total liabilities   926,164    1,030,153 
           
Total stockholders' equity   1,194,803    1,189,849 
Non-controlling interests in operating partnership   2,254    2,295 
Total equity   1,197,057    1,192,144 
Total liabilities and equity  $2,123,221   $2,222,297 

 

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Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share amounts)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Revenues:                    
Room  $131,656   $140,650   $259,756   $270,222 
Food and beverage   6,280    6,517    12,442    12,846 
Other   4,994    5,055    9,684    9,353 
Total revenues   142,930    152,222    281,882    292,421 
Expenses:                    
Room   28,413    31,113    56,253    60,118 
Food and beverage   4,688    5,107    9,288    10,106 
Other hotel operating expenses   39,422    41,578    79,219    81,036 
Property taxes, insurance and other   10,695    11,032    22,103    22,030 
Management fees   4,458    5,388    9,604    10,740 
Depreciation and amortization   23,779    24,954    49,315    50,200 
Corporate general and administrative   5,920    5,620    11,910    12,227 
Loss on impairment of assets   1,685    -    1,685    - 
Total expenses   119,060    124,792    239,377    246,457 
Gain on disposal of assets, net   35,520    17,331    39,686    17,288 
Operating income   59,390    44,761    82,191    63,252 
Other income (expense):                    
Interest expense   (9,766)   (10,402)   (20,618)   (19,731)
Other income, net   146    3,470    1,447    4,259 
Total other income (expense)   (9,620)   (6,932)   (19,171)   (15,472)
Income from continuing operations before income taxes   49,770    37,829    63,020    47,780 
Income tax expense   (701)   (152)   (1,051)   (412)
Net income   49,069    37,677    61,969    47,368 
Non-controlling interest in Operating Partnership   (112)   (101)   (135)   (104)
Net income attributable to Summit Hotel Properties, Inc.   48,957    37,576    61,834    47,264 
Preferred dividends   (3,709)   (3,709)   (7,418)   (9,252)
Premium on redemption of preferred stock   -    -    -    (3,277)
Net income attributable to common stockholders  $45,248   $33,867   $54,416   $34,735 
Earnings per share:                    
Basic  $0.43   $0.33   $0.52   $0.33 
Diluted  $0.43   $0.32   $0.52   $0.33 
Weighted average common shares outstanding:                    
Basic   103,896    103,643    103,823    103,572 
Diluted   103,937    103,883    103,888    103,892 
Dividends per share  $0.18   $0.18   $0.36   $0.36 

 

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

(Unaudited)

(Dollars in thousands, except per share and unit amounts)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Net income  $49,069   $37,677   $61,969   $47,368 
Preferred dividends   (3,709)   (3,709)   (7,418)   (9,252)
Premium on redemption of preferred stock   -    -    -    (3,277)
Net income applicable to common shares and common units  $45,360   $33,968   $54,551   $34,839 
Real estate-related depreciation (1)   23,677    24,835    49,102    49,958 
Loss on impairment of assets   1,685    -    1,685    - 
Gain on disposal of assets, net   (35,520)   (17,331)   (39,686)   (17,288)
FFO applicable to common shares and common units  $35,202   $41,472   $65,652   $67,509 
Amortization of lease-related intangible assets, net   36    181    71    362 
Amortization of deferred financing costs   333    504    714    998 
Amortization of franchise fees (1)   102    119    213    242 
Equity-based compensation   1,964    1,821    3,316    4,048 
Debt transaction costs   1,122    129    1,835    217 
Premium on redemption of preferred stock   -    -    -    3,277 
Non-cash interest income (2)   (512)   (502)   (1,019)   (1,011)
Non-cash lease expense, net   123    -    279    - 
Casualty losses (recoveries), net   278    (2,286)   (149)   (2,068)
AFFO applicable to common shares and common units  $38,648   $41,438   $70,912   $73,574 
Weighted average diluted common shares / common units (3)   104,255    104,273    104,261    104,360 
FFO per common share / common unit  $0.34   $0.40   $0.63   $0.65 
AFFO per common share / common unit  $0.37   $0.40   $0.68   $0.71 

 

(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)

(Dollars in thousands)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Net income  $49,069   $37,677   $61,969   $47,368 
Depreciation and amortization   23,779    24,954    49,315    50,200 
Interest expense   9,766    10,402    20,618    19,731 
Interest income   (71)   (42)   (140)   (69)
Income tax expense   701    152    1,051    412 
EBITDA  $83,244   $73,143   $132,813   $117,642 
Loss on impairment of assets   1,685    -    1,685    - 
Gain on disposal of assets, net   (35,520)   (17,331)   (39,686)   (17,288)
EBITDAre  $49,409   $55,812   $94,812   $100,354 
Amortization of lease-related intangible assets, net   36    181    71    362 
Equity-based compensation   1,964    1,821    3,316    4,048 
Debt transaction costs   1,122    129    1,835    217 
Non-cash interest income (1)   (512)   (502)   (1,019)   (1,011)
Non-cash lease expense, net   123    -    279    - 
Casualty losses (recoveries), net   278    (2,286)   (149)   (2,068)
Adjusted EBITDAre  $52,420   $55,155   $99,145   $101,902 

 

(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.

 

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Summit Hotel Properties, Inc.

Pro Forma Hotel Operating Data

(Unaudited)

(Dollars in thousands)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Pro Forma Operating Data (1) (2)                    
Pro forma room revenue  $130,182   $126,656   $250,873   $241,296 
Pro forma other hotel operations revenue   11,228    10,869    21,834    20,825 
Pro forma total revenues   141,410    137,525    272,707    262,121 
Pro forma total hotel operating expenses   86,219    83,810    169,342    163,475 
Pro forma hotel EBITDA  $55,191   $53,715   $103,365   $98,646 
Pro forma hotel EBITDA Margin   39.0%   39.1%   37.9%   37.6%

 

Reconciliations of Non-GAAP financial measures to comparable GAAP financial measures

 

Revenue:                    
Total revenues  $142,930   $152,222   $281,882   $292,421 
Total revenues - acquisitions (1)   -    3,271    -    5,306 
Total revenues - dispositions (2)   (1,520)   (17,968)   (9,175)   (35,606)
Pro forma total revenues   141,410    137,525    272,707    262,121 
                     
Hotel Operating Expenses:                    
Total hotel operating expenses   87,676    94,218    176,467    184,030 
Hotel operating expenses - acquisitions (1)   -    1,314    -    2,455 
Hotel operating expenses - dispositions (2)   (1,457)   (11,722)   (7,125)   (23,010)
Pro forma hotel operating expenses   86,219    83,810    169,342    163,475 
                     
Hotel EBITDA:                    
Operating income   59,390    44,761    82,191    63,252 
(Gain) loss on disposal of assets, net   (35,520)   (17,331)   (39,686)   (17,288)
Loss on impairment of assets   1,685    -    1,685    - 
Corporate general and administrative   5,920    5,620    11,910    12,227 
Depreciation and amortization   23,779    24,954    49,315    50,200 
Hotel EBITDA   55,254    58,004    105,415    108,391 
Hotel EBITDA - acquisitions (1)   -    1,957    -    2,851 
Hotel EBITDA - dispositions (2)   (63)   (6,246)   (2,050)   (12,596)
Pro forma hotel EBITDA  $55,191   $53,715   $103,365   $98,646 

 

(1)Unaudited pro forma information includes operating results for 69 hotels owned as of June 30, 2019, 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 June 30, 2019 (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, 2018 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)

(Dollars in thousands, except operating statistics)

 

   2018   2019   Trailing Twelve
Months Ended
 
   Q3   Q4   Q1   Q2   June 30, 2019 
Pro Forma Operating Data (1) (2)                         
Pro forma room revenue  $122,117   $113,523   $120,691   $130,182   $486,513 
Pro forma other hotel operations revenue   10,621    10,455    10,606    11,228    42,910 
Pro forma total revenues   132,738    123,978    131,297    141,410    529,423 
Pro forma total hotel operating expenses   83,396    79,576    83,123    86,219    332,314 
Pro forma hotel EBITDA  $49,342   $44,402   $48,174   $55,191   $197,109 
Pro forma hotel EBITDA Margin   37.2%   35.8%   36.7%   39.0%   37.2%
                          
Pro Forma Statistics (1) (2)                         
Rooms sold   781,137    734,631    737,988    797,948    3,051,704 
Rooms available   985,657    985,688    964,260    975,035    3,910,640 
Occupancy   79.3%   74.5%   76.5%   81.8%   78.0%
ADR  $156.33   $154.53   $163.54   $163.15   $159.42 
RevPAR  $123.89   $115.17   $125.17   $133.52   $124.41 
                          
Actual Statistics                         
Rooms sold   855,950    799,113    796,661    808,354    3,260,078 
Rooms available   1,082,225    1,072,628    1,043,070    988,075    4,185,998 
Occupancy   79.1%   74.5%   76.4%   81.8%   77.9%
ADR  $153.55   $152.40   $160.80   $162.87   $157.35 
RevPAR  $121.44   $113.54   $122.81   $133.25   $122.54 

 

Reconciliations of Non-GAAP financial measures to comparable GAAP financial measures

 

Revenue:                         
Total revenues  $142,340   $132,509   $138,952   $142,930   $556,731 
Total revenues from acquisitions (1)   2,553    -    -    -    2,553 
Total revenues from dispositions (2)   (12,155)   (8,531)   (7,655)   (1,520)   (29,861)
Pro forma total revenues  $132,738   $123,978   $131,297   $141,410   $529,423 
                          
Hotel Operating Expenses:                         
Total hotel operating expenses  $90,383   $85,535   $88,791   $87,676   $352,385 
Total hotel operating expenses from acquisitions (1)   1,089    -    -    -    1,089 
Total hotel operating expenses from dispositions (2)   (8,076)   (5,959)   (5,668)   (1,457)   (21,160)
Pro forma total hotel operating expenses  $83,396   $79,576   $83,123   $86,219   $332,314 
                          
Hotel EBITDA:                         
Operating income  $46,990   $14,957   $22,801   $59,390   $144,138 
(Gain) loss on disposal of assets, net   (24,826)   640    (4,166)   (35,520)   (63,872)
Loss on impairment of assets   -    1,075    -    1,685    2,760 
Corporate general and administrative   4,852    4,430    5,990    5,920    21,192 
Depreciation and amortization   24,941    25,872    25,536    23,779    100,128 
Hotel EBITDA   51,957    46,974    50,161    55,254    204,346 
Hotel EBITDA from acquisitions (1)   1,464    -    -    -    1,464 
Hotel EBITDA from dispositions (2)   (4,079)   (2,572)   (1,987)   (63)   (8,701)
Pro forma hotel EBITDA  $49,342   $44,402   $48,174   $55,191   $197,109 

 

(1)Unaudited pro forma information includes operating results for 69 hotels owned as of June 30, 2019 as if all such hotels had been owned by the Company since July 1, 2018. For hotels acquired by the Company after July 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 July 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 July 1, 2018 and June 30, 2019 (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 July 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
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Pro Forma (69) (1)                
Rooms sold   797,948    785,454    1,535,936    1,505,675 
Rooms available   975,035    960,267    1,939,295    1,908,597 
Occupancy   81.8%   81.8%   79.2%   78.9%
ADR  $163.15   $161.25   $163.34   $160.26 
RevPAR  $133.51   $131.90   $129.36   $126.43 
                     
Occupancy change   0.1%        0.4%     
ADR change   1.2%        1.9%     
RevPAR change   1.2%        2.3%     

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
Same-Store (67) (2)                
Rooms sold   772,098    773,254    1,485,162    1,482,526 
Rooms available   946,097    945,945    1,881,737    1,880,775 
Occupancy   81.6%   81.7%   78.9%   78.8%
ADR  $161.64   $159.64   $162.45   $159.26 
RevPAR  $131.91   $130.49    128.21   $125.54 
                     
Occupancy change   -0.2%        0.1%     
ADR change   1.3%        2.0%     
RevPAR change   1.1%        2.1%     

 

(1)Unaudited pro forma information includes operating results for 69 hotels owned as of June 30, 2019, as if each hotel had been owned by the Company since January 1, 2018. 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 67 hotels owned by the Company as of January 1, 2018, and at all times during the three and six months ended June 30, 2019, and 2018.

 

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

(Unaudited)

(Dollars in thousands, except per share and unit)

 

   For the Year Ending
December 31, 2019
 
   Low   High 
Net income  $73,900   $82,300 
Preferred dividends   (14,800)   (14,800)
Net income applicable to common shares and units   59,100    67,500 
Real estate-related depreciation   96,300    96,300 
Loss on impairment of assets   1,700    1,700 
Gain on disposal of assets, net   (39,700)   (39,700)
Income from non-controlling interest in consolidated joint venture   (200)   (200)
Adjustments from non-controlling interest in consolidated joint venture   (200)   (200)
FFO applicable to common shares and common units   117,000    125,400 
Amortization of lease-related intangible assets, net   200    200 
Amortization of deferred financing costs   1,400    1,400 
Amortization of franchise fees   400    400 
Equity-based compensation   6,200    6,200 
Debt transaction costs   1,900    1,900 
Non-cash interest income   (2,100)   (2,100)
Non-cash lease expense, net   500    500 
Casualty recoveries, net   (100)   (100)
AFFO applicable to common shares and common units  $125,400   $133,800 
Weighted average diluted common shares/common units (1)   104,300    104,300 
FFO per common share and common unit  $1.12   $1.20 
AFFO per common share and common unit  $1.20   $1.28 

 

(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)

(Dollars in thousands)

 

   For the Year Ending
December 31, 2019
 
   Low   High 
Net income  $73,900   $82,300 
Depreciation and amortization   96,700    96,700 
Interest expense   39,800    39,700 
Interest income   (300)   (300)
Income tax expense   1,300    1,300 
EBITDA   211,400    219,700 
Loss on impairment of assets   1,700    1,700 
Gain on disposal of assets, net   (39,700)   (39,700)
EBITDAre   173,400    181,700 
Amortization of lease-related intangible assets, net   200    200 
Equity-based compensation   6,200    6,200 
Debt transaction costs   1,900    1,900 
Non-cash interest income   (2,100)   (2,100)
Non-cash lease expense, net   500    500 
Casualty recoveries, net   (100)   (100)
Income from non-controlling interest in consolidated joint venture   (200)   (200)
Adjustments from non-controlling interest in consolidated joint venture   (200)   (200)
Adjusted EBITDAre  $179,600   $187,900 

 

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Non-GAAP Financial Measures

 

We disclose 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 ("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 (as described below). We caution investors that amounts presented in accordance with our definitions of non-GAAP financial measures 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 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 expense, debt transaction costs, premiums on redemption of preferred shares, losses from net casualties, non-cash lease expense, non-cash interest income and non-cash income tax related adjustments to our deferred tax assets. Unless otherwise indicated, we present FFO and AFFO applicable to our common shares and common units. We present FFO and AFFO because we consider FFO and AFFO 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 are 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 exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, FFO and AFFO provide performance measures that, when compared year over year, reflect 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.

 

 17  | Page

 

 

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

 

EBITDAre 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. 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 EBITDA, excluding: (i) loss and gains on disposition of property and (ii) asset impairments, if any. 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 non-recurring or certain non-cash 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.

 

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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