Summit Hotel Properties Reports Second Quarter 2018 Results

AUSTIN, Texas, Aug. 1, 2018 /PRNewswire/ — Summit Hotel Properties, Inc. (NYSE: INN) (the “Company”), today announced results for the second quarter ended June 30, 2018.

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“We are pleased with our second quarter Adjusted EBITDAre and Adjusted FFO per share results which came in at the high-end of our expectations as our acquisition activity over the past 18 months continues to drive meaningful year-over-year growth,” said Dan Hansen, the Company’s Chairman, President and Chief Executive Officer. “We also continue to execute on our capital recycling program in a favorable disposition environment with the sale of seven hotels for an aggregate sales price of $90.3 million in the first seven months of 2018, which further deleverages our balance sheet, enhances the overall quality of our portfolio, and creates capacity for future growth.  These transactions resulted in a blended unlevered IRR of over 16%,” commented Mr. Hansen.

Second Quarter 2018 Highlights

  • Net Income:  Net income attributable to common stockholders increased to $33.9 million, or $0.32 per diluted share, compared with $29.8 million, or $0.30 per diluted share, in the same period of 2017.
  • Pro Forma RevPAR:  Pro forma revenue per available room (“RevPAR”) increased 1.9 percent to $127.52 from the same period in 2017.  Pro forma average daily rate (“ADR”) grew to $156.17, an increase of 1.5 percent from the same period in 2017.  Pro forma occupancy increased 0.5 percent to 81.7 percent.  When adjusting for revenue displacement from renovation activity, pro forma RevPAR increased 3.1 percent from the same period in 2017.
  • Same-Store RevPAR:  Same-store RevPAR increased 0.9 percent to $126.41 from the same period in 2017.  Same-store ADR increased 2.0 percent to $154.58 compared to the same period in 2017, which was offset by an occupancy decline of 1.1 percent to 81.8 percent.  When adjusting for revenue displacement from renovation activity, same-store RevPAR increased 2.2 percent from the same period in 2017.
  • Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $56.9 million, an increase of 0.2 percent from the same period in 2017.  Pro forma hotel EBITDA margin contracted by 87 basis points to 38.3 percent from 39.2 percent in the same period of 2017.  Excluding the effect of a 11.9 percent increase in property taxes, pro forma hotel EBITDA margin contracted by 24 basis points to 38.9 percent.
  • Adjusted EBITDAre:  Adjusted EBITDAre increased 17.9 percent to $55.2 million from $46.8 million in the same period of 2017.
  • Adjusted FFO:  Adjusted Funds from Operations (“AFFO”) increased 15.8 percent to $41.4 million, or $0.40 per diluted share, from $35.8 million, or $0.36 per diluted share, in the same period of 2017.
  • Dispositions:  The Company sold four hotels containing 440 guestrooms for an aggregate sales price of $43.8 million, or $99,500 per key.

The Company’s results for the three and six months ended June 30, 2018 and 2017 are as follows:

For the Three Months Ended
June 30,

For the Six Months Ended

June 30,

2018

2017

2018

2017

(Unaudited)

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

Net income attributable to common stockholders

$        33,867

$        29,769

$        34,735

$        58,655

Net income per diluted share

$            0.32

$            0.30

$            0.33

$            0.61

Total revenues

$      152,222

$      129,056

$      292,421

$      247,045

EBITDAre (1)

$        55,993

$        44,750

$      100,716

$        84,434

Adjusted EBITDAre (1)

$        55,155

$        46,782

$      101,902

$        87,838

FFO (1)

$        41,653

$        33,175

$        67,871

$        61,365

Adjusted FFO (1)

$        41,438

$        35,793

$        73,574

$        65,959

FFO per diluted share and unit (1) (2)

$            0.40

$            0.33

$            0.65

$            0.64

Adjusted FFO per diluted share and unit (1) (2)

$            0.40

$            0.36

$            0.71

$            0.68

Pro Forma (3)

RevPAR

$        127.52

$        125.09

$        123.21

$        120.69

RevPAR growth

1.9%

2.1%

Hotel EBITDA

$        56,877

$        56,769

$      106,148

$      106,232

Hotel EBITDA margin

38.3%

39.2%

37.2%

38.2%

Hotel EBITDA margin growth

-87 bps

-98 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 104,273,000 weighted average diluted common shares and units and 99,079,000 weighted average diluted common shares and units for the three months ended June 30, 2018, and 2017, respectively, and 104,360,000 weighted average diluted common shares and units and 96,366,000 weighted average diluted common shares and units for the six months ended June 30, 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 80 hotels owned as of June 30, 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.

Year-To-Date 2018 Highlights

  • Net Income:  Net income attributable to common stockholders decreased to $34.7 million, or $0.33 per diluted share, compared with $58.7 million, or $0.61 per diluted share, in the same period of 2017.  When excluding the $17.3 million pretax net gain on disposal of assets and the $3.3 million non-cash preferred stock redemption premium during the six months ended June 30, 2018, and the $35.8 million pretax net gain on disposal of assets during the six months ended June 30, 2017, net income attributable to common stockholders decreased by $2.1 million as compared to the same period in 2017.
  • Pro Forma RevPAR:  Pro forma RevPAR increased 2.1 percent to $123.21 from the same period in 2017.  Pro forma ADR grew to $156.04, an increase of 1.3 percent from the same period in 2017.  Pro forma occupancy increased 0.8 percent to 79.0 percent.  When adjusting for revenue displacement from renovation activity, pro forma RevPAR increased 3.2 percent from the same period in 2017.
  • Same-Store RevPAR:  Same-store RevPAR increased 0.5 percent to $121.35 from the same period in 2017.  Same-store ADR increased 1.5 percent to $153.68 compared to the same period in 2017, which was offset by an occupancy decline of 1.0 percent to 79.0 percent.  When adjusting for revenue displacement from renovation activity, same-store RevPAR increased 1.8 percent from the same period in 2017.
  • Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $106.1 million, a decrease of 0.1 percent from the same period in 2017.  Pro forma hotel EBITDA margin contracted by 98 basis points to 37.2 percent from 38.2 percent in the same period of 2017.  Excluding the effect of a 12.1 percent increase in property taxes, pro forma hotel EBITDA margin contracted by 32 basis points to 37.9 percent.
  • Adjusted EBITDAre:  Adjusted EBITDAre increased 16.0 percent to $101.9 million from $87.8 million in the same period of 2017.
  • Adjusted FFO:  AFFO increased 11.5 percent to $73.6 million, or $0.71 per diluted share, from $66.0 million, or $0.68 per diluted share, in the same period of 2017.
  • Dispositions:  The Company sold four hotels containing 440 guestrooms for an aggregate sales price of $43.8 million, or $99,500 per key.

Disposition Activity

Completed Hotel Sales

On June 29, 2018, the Company completed the previously announced transactions to sell four hotels containing 440 guestrooms to two separate, unaffiliated buyers for an aggregate sales price of $43.8 million.  The four hotels sold during the second quarter included:

  • The 88-guestroom Holiday Inn Express & Suites Sandy – South Salt Lake City
  • The 87-guestroom Hampton Inn in Provo, Utah
  • The 143-guestroom Holiday Inn Gwinnett Center in Duluth, Georgia
  • The 122-guestroom Hilton Garden Inn Atlanta NE/Gwinnett Sugarloaf

The sale of the four hotels resulted in an aggregate net gain of $17.4 million and generated a blended hold-period unlevered internal rate of return of 12.8%.  Net proceeds from the sales were applied to the outstanding balance of the Company’s senior unsecured revolving credit facility.  The aggregate sales price of $43.8 million, plus estimated future capital improvements, represents a capitalization rate of 7.6 percent for the trailing twelve months ended June 30, 2018.  The four hotels had an average RevPAR of $87.20 for the trailing twelve months ended June 30, 2018, which was 27% lower than the Company’s pro forma portfolio RevPAR of $120.05, and hotel EBITDA margin of 31.7 percent, which was 530 basis points lower than the portfolio average for the same period.

On July 24, 2018, the Company completed the sale of three hotels containing 322 guestrooms for an aggregate sales price of $46.5 million.  The three hotels sold after quarter end included:

  • The 83-guestroom Hampton Inn & Suites Nashville-Smyrna
  • The 112-guestroom Hilton Garden Inn Nashville-Smyrna
  • The 127-guestroom Hyatt Place Phoenix-North

The sale of the three hotels resulted in an estimated aggregate net gain of $23.1 million and generated a blended hold-period unlevered internal rate of return of 21.4%.  The aggregate sales price of $46.5 million, plus estimated future capital improvements, represents a capitalization rate of 7.7 percent for the trailing twelve months ended June 30, 2018.  The Company estimates that the hotels would have contributed approximately $1.7 million of EBITDAre through the remainder of 2018.  The three hotels had an average RevPAR of $96.22 for the trailing twelve months ended June 30, 2018, which was 20% lower than the Company’s pro forma portfolio RevPAR of $120.05, and hotel EBITDA margin of 37.0 percent, which was in line with the portfolio average for the same period.

Pending Disposition

During the second quarter, the Company entered into an agreement to sell the 148-guestroom Hyatt Place Fort Myers / at The Forum for a sales price of $16.5 million.  The transaction is expected to close during the third quarter and the Company anticipates applying the net proceeds to the outstanding balance on its senior unsecured credit facility.  The Company estimates that the hotel would have contributed approximately $0.3 million of EBITDAre through the remainder of 2018.  The sales price of $16.5 million, plus estimated future capital improvements, represents a capitalization rate of 7.7 percent for the trailing twelve months ended June 30, 2018.

Hyatt House Across From Orlando Universal Resort™ Project Completed

On June 27, 2018, the Company announced the grand opening of the 168-guestroom Hyatt House Across From Orlando Universal Resort™.  The newly constructed upscale, extended stay hotel is located adjacent to the Company’s existing Hyatt Place hotel and conveniently situated within walking distance of Universal Orlando Resort™ and a short shuttle ride from the new Volcano Bay™ water park.  Other nearby entertainment venues include Walt Disney World® Resort, SeaWorld® Orlando, ICON Orlando 360™, and SEA LIFE Orlando Aquarium.  The total construction cost for the Hyatt House hotel was $32.7 million, or approximately $194,500 per key, excluding land that was acquired as part of a previous transaction. 

Capital Investment

The Company invested $17.7 million and $30.6 million in capital improvements during the three and six months ended June 30, 2018, respectively.  Renovations at the 252-guestroom Holiday Inn Express & Suites San Francisco Fisherman’s Wharf and 165-guestroom Marriott Boulder were completed during the second quarter, including the addition of eight guestrooms at the Marriott Boulder.

Capital Markets & Balance Sheet

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

  • On May 16, 2018, the Company drew the remaining $85.0 million of its seven-year $225.0 million unsecured term loan maturing in February 2025 and used the proceeds to pay down a portion of the outstanding balance on its $300.0 million senior unsecured revolving credit facility.
  • On June 11, 2018, the Company entered into two separate interest rate swap agreements with an aggregate notional amount of $200.0 million to fix the interest rate on a portion of its variable rate unsecured indebtedness.  The $75.0 million swap has an effective date of September 28, 2018 and fixes LIBOR at 2.87% through September 30, 2024, and the $125.0 million swap has an effective date of December 31, 2018 and fixes LIBOR at 2.93% through December 31, 2025.  As a result of the recent swap transactions that will become effective by year-end, and after consideration of the Company’s $75.0 million interest rate swap expiring on October 1, 2018, approximately 75% of the Company’s term indebtedness is fixed rate and its balance sheet is well-positioned for a rising interest rate environment.

At June 30, 2018, the Company had the following:

  • Total outstanding debt of $955.8 million with a weighted average interest rate of 4.20 percent.
  • Undrawn availability on its senior unsecured revolving credit facility of $255.0 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 4.6x.

At July 20, 2018, the Company had the following:

  • Total outstanding debt of $945.2 million with a weighted average interest rate of 4.19 percent.
  • Undrawn availability on its senior unsecured revolving credit facility of $265.0 million.

Dividends

On July 30, 2018, 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 5.1 percent based on the July 31, 2018 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.

The common and preferred dividends are payable on August 31, 2018 to holders of record as of August 16, 2018.

2018 Outlook

The Company is providing its outlook for the third quarter and full year 2018 based on its 77 hotels owned as of August 1, 2018 and transaction activity it expects to complete in the third quarter, which includes the sale of the 148-guestroom Hyatt Place Fort Myers / at The Forum for a sales price of $16.5 million.  There are no future acquisitions, dispositions, or additional capital markets activities assumed in the Company’s outlook for the third quarter and full year 2018 beyond those previously mentioned.

THIRD QUARTER 2018

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

Low

High

Pro forma RevPAR (76) 1

$122.50

$125.00

Pro forma RevPAR growth (76) 1

0.00%

2.00%

RevPAR (same-store 61) 2

$123.00

$125.50

RevPAR growth (same-store 61) 2

0.00%

2.00%

Adjusted FFO

$34,400

$37,500

Adjusted FFO per diluted unit 3

$0.33

$0.36

FULL YEAR 2018

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

Low

High

Pro forma RevPAR (76) 1

$120.50

$122.25

Pro forma RevPAR growth (76) 1

0.50%

2.00%

RevPAR (same-store 61) 2

$119.25

$121.00

RevPAR growth (same-store 61) 2

(0.50%)

1.00%

Adjusted FFO

$135,700

$142,000

Adjusted FFO per diluted unit 3

$1.30

$1.36

Capital improvements

$55,000

$65,000

(1)

As of August 1, 2018, the Company owned 77 hotels.  Pro forma outlook information for the third quarter and full year 2018 includes operating estimates for 76 hotels, which assumes the sale of one hotel during the third quarter 2018.

(2)

As of August 1, 2018, the Company owned 62 same-store hotels.  The same-store outlook information includes operating estimates for 61 hotels, which assumes the sale of one hotel during the third quarter 2018.

(3)

Assumes weighted average diluted common shares and units outstanding of 104,300,000 for the third quarter 2018 and 104,400,000 for the full year 2018.

Second Quarter 2018 Earnings Conference Call

The Company will conduct its quarterly conference call on Thursday, August 2, 2018, at 9:00 a.m. (ET).  To participate in the conference call, please dial 877-930-8101.  The conference identification code for the call is 5686826.  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 9, 2018, by dialing 855-859-2056, conference identification code 5686826.  A replay will also be available in the Investor Relations section of the Company’s website until October 31, 2018.

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 August 1, 2018, the Company’s portfolio consisted of 77 hotels with a total of 11,657 guestrooms located in 26 states. 

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

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, 2017, 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.

Summit Hotel Properties, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands)

June 30,

2018

December 31,
2017

(Unaudited)

ASSETS

  Investment in hotel properties, net

$      2,014,587

$      2,059,492

  Investment in hotel properties under development

23,793

  Land held for development

2,942

2,942

  Assets held for sale, net

37,878

1,193

  Investment in real estate loans, net

28,945

12,356

  Cash and cash equivalents

48,885

36,545

  Restricted cash

32,479

29,462

  Trade receivables, net

20,916

16,985

  Prepaid expenses and other

7,371

9,454

  Deferred charges, net

4,782

5,221

  Other assets

17,483

12,431

          Total assets

$      2,216,268

$      2,209,874

LIABILITIES AND EQUITY

Liabilities:

  Debt, net of debt issuance costs

$         950,497

$         868,236

  Accounts payable

6,224

7,774

  Accrued expenses and other

61,491

56,488

          Total liabilities

1,018,212

932,498

          Total stockholders’ equity

1,195,394

1,274,502

  Non-controlling interests in operating partnership

2,662

2,874

          Total equity

1,198,056

1,277,376

          Total liabilities and equity

$      2,216,268

$      2,209,874

 

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Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share amounts)

For the Three Months Ended

June 30,

For the Six Months Ended

June 30,

2018

2017

2018

2017

Revenues:

Room

$      140,650

$      120,514

$      270,222

$      230,864

Food and beverage

6,517

5,294

12,846

10,253

Other

5,055

3,248

9,353

5,928

Total revenues

152,222

129,056

292,421

247,045

Expenses:

Room

31,113

26,455

60,118

51,459

Food and beverage

5,107

3,909

10,106

7,833

Other hotel operating expenses

41,578

35,259

81,036

68,437

Property taxes, insurance and other

11,032

8,813

22,030

17,182

Management fees

5,388

5,063

10,740

9,792

Depreciation and amortization

24,954

19,732

50,200

38,458

Corporate general and administrative

5,620

5,310

12,227

10,448

Hotel property acquisition costs

354

Total expenses

124,792

104,541

246,457

203,963

Operating income

27,430

24,515

45,964

43,082

Other income (expense):