Summit Hotel Properties Reports Third Quarter 2019 Results

AUSTIN, Texas, Nov. 5, 2019 /PRNewswire/ -- Summit Hotel Properties, Inc. (NYSE: INN) (the "Company"), today announced results for the quarter ended September 30, 2019.

"Our diversified portfolio of hotels continues to benefit from our leading asset management platform and thoughtful capital reinvestment projects as RevPAR in our pro forma portfolio outperformed the STR Upscale segment by 70 basis points and our competitive sets by 150 basis points during the quarter," said Dan Hansen, the Company's Chairman, President and Chief Executive Officer.  "While the industry continues to operate in a challenging environment, we have remained focused on pursuing and executing opportunistic transactions and recently completed the previously announced $249 million four-hotel portfolio acquisition through our unique joint venture with GIC.  Combined with the previous purchase of the Hampton Inn & Suites in Silverthorne, Colorado, the venture currently owns nearly $300 million of high-quality hotel investments.  All five hotels are located in high-growth markets and were acquired at attractive capitalization rates with substantial RevPAR and operating margin premiums to our existing portfolio.  These acquisitions have primarily been funded through a pragmatic capital recycling program as year-to-date we have either sold, or are under contract to sell, 10 hotels for nearly $170 million," commented Mr. Hansen.

Third Quarter 2019 Highlights

• Net Income:  Net income attributable to common stockholders decreased 77.1 percent to $7.8 million, or $0.07 per diluted share, compared with $34.2 million, or $0.33 per diluted share, in the same period of 2018.  Excluding a $24.8 million pretax net gain on disposal of assets during the three months ended September 30, 2018, net income attributable to common stockholders decreased by $1.5 million as compared to the same period in 2018.
• Pro Forma RevPAR: Pro forma revenue per available room ("RevPAR") increased 0.2 percent to $124.45 from the same period in 2018. Pro forma average daily rate ("ADR") decreased 0.8 percent to $155.25 compared to the same period in 2018 and pro forma occupancy increased 1.0 percent to 80.2 percent.
• Same-Store RevPAR: Same-store RevPAR decreased 0.1 percent to $122.73 from the same period in 2018. Same-store ADR decreased 1.0 percent to $153.59 compared to the same period in 2018 and occupancy increased 0.9 percent to 79.9 percent.
• Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $48.3 million, a decrease of 3.4 percent from the same period in 2018.  Pro forma hotel EBITDA margin contracted by 130 basis points to 36.0 percent from 37.3 percent in the same period of 2018.
• Adjusted EBITDAre:  Adjusted EBITDAre decreased 8.8 percent to $45.2 million from $49.6 million in the same period of 2018.
• Adjusted FFO:  AFFO decreased 10.1 percent to $32.5 million, or $0.31 per diluted share, from $36.1 million, or $0.35 per diluted share, in the same period of 2018.
• Acquisitions:  The Company acquired the 88-guestroom Hampton Inn & Suites Silverthorne, CO and two vacant parcels of land through its joint venture with GIC for an aggregate purchase price of $27.9 million.

The Company's results for the three and nine months ended September 30, 2019 and 2018 are as follows:

Year-To-Date 2019 Highlights

• Net Income:  Net income attributable to common stockholders decreased 9.7 percent to $62.2 million, or $0.60 per diluted share, compared with $68.9 million, or $0.66 per diluted share, in the same period of 2018.
• Pro Forma RevPAR: Pro forma RevPAR increased 1.7 percent to $127.88 from the same period in 2018. Pro forma ADR grew to $160.70, an increase of 1.0 percent from the same period in 2018 and pro forma occupancy increased 0.6 percent to 79.6 percent.
• Same-Store RevPAR: Same-store RevPAR increased 1.4 percent to $126.36 from the same period in 2018. Same-store ADR increased 1.0 percent to $159.44 compared to the same period in 2018 and same-store occupancy increased 0.4 percent to 79.3 percent.
• Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $152.9 million, an increase of 2.2 percent from the same period in 2018.  Pro forma hotel EBITDA margin contracted by 22 basis points to 37.3 percent from 37.5 percent in the same period of 2018.
• Adjusted EBITDAre:  Adjusted EBITDAre decreased 4.7 percent to $144.3 million from $151.5 million in the same period of 2018.
• Adjusted FFO:  AFFO decreased 5.8 percent to $103.4 million, or $0.99 per diluted share, from $109.7 million, or $1.05 per diluted share, in the same period of 2018.
• Acquisitions:  The Company acquired the 88-guestroom Hampton Inn & Suites Silverthorne, CO and two vacant parcels of land through its joint venture with GIC for an aggregate purchase price of $27.9 million.
• 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 Update

On October 8, 2019, the joint venture between the Company and GIC ( the "Joint Venture") completed the previously announced acquisition of four hotels located on the west coast for $249 million.  The portfolio is located in three high-growth markets and includes the 258-guestroom Residence Inn by Marriott Portland Downtown/RiverPlace, the 169-guestroom Hilton Garden Inn San Francisco Airport North, the 161-guestroom Hilton Garden Inn San Jose/Milpitas, and the 122-guestroom Residence Inn by Marriott Portland Hillsboro.

The total purchase price of $249 million, or approximately $351,000 per key, represents an average capitalization rate of 8.4 percent based on management's underwritten estimate of the hotels' net operating income for the full-year 2019.  With an average RevPAR of $162 and average hotel EBITDA margin of over 50 percent, the pending acquisitions will further enhance the Company's diverse portfolio of well-located hotels with efficient operating models.  The Joint Venture expects to invest approximately $23 million of capital on the four hotels during the first three years of ownership.

Also, on October 8, 2019, the Joint Venture successfully closed on a new $200 million credit facility comprised of a $125 million revolving line of credit and a $75 million term loan.  The credit facility includes an accordion feature which will allow commitments to be increased up to a total of $500 million and has an initial four-year term with a maturity date of October 2023 that can be extended for one year at the Joint Venture's option, subject to certain conditions.  The interest rate on the credit facility is based on a credit spread of 215 basis points plus LIBOR for the revolving line of credit and 210 basis points plus LIBOR for the term loan.  The $75 million term loan was fully drawn at closing and $65 million was drawn on the revolving line of credit at closing with $60 million of capacity remaining.  Loan proceeds were used to complete the Joint Venture's acquisition of four hotels for $249 million.

Pending Disposition

On October 7, 2019, the Company announced that it had entered into agreements to sell the 130-guestroom Hilton Garden Inn SE/Liberty Park and the 95-guestroom Hilton Garden Inn Birmingham Lakeshore Drive for an aggregate sales price of $21.8 million, or $97,000 per key, which will result in an estimated combined gain on sale of $4.8 million.  The sales price represents a capitalization rate of 6.9 percent based on the hotel's net operating income for the twelve months ended September 30, 2019 and 5.6 percent including estimated foregone capital improvements.  The combined RevPAR and hotel EBITDA margin for the hotels was $84 and 24.1%, respectively, for the twelve months ending September 30, 2019.  The pending transaction is expected to close during the fourth quarter of 2019.

Capital Improvements

The Company invested $14.1 million and $46.7 million in capital improvements during the three and nine months ended September 30, 2019 and anticipates investing a total of $57.5 million to $62.5 million in capital improvements across its portfolio during 2019.

Capital Markets & Balance Sheet

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

• Total outstanding debt of $848.7 million with a weighted average interest rate of 4.03 percent.
• After giving effect to interest rate derivative agreements, $550.1 million, or 65 percent, of the Company's debt had fixed interest rates, and $298.6 million, or 35 percent, had variable interest rates.
• Undrawn availability on its senior unsecured revolving credit facility of $350.0 million.
• Pro rata net debt, which the Company defines as its pro rata share of total outstanding debt less cash and cash equivalents, to pro rata trailing twelve-month pro forma adjusted EBITDAre of 4.3x.

At October 24, 2019, inclusive of its pro rata share of the new Joint Venture credit facility, the Company had the following:

• Pro rata outstanding debt of $974.7 million with a weighted average interest rate of 3.92 percent.
• After giving effect to interest rate derivative agreements, $549.8 million, or 56 percent, of our pro rata outstanding debt had fixed interest rates, and $424.9 million, or 44 percent had variable interest rates.
• Undrawn availability on its senior unsecured revolving credit facility of $295.0 million.
• Pro rata net debt to trailing twelve-month pro forma adjusted EBITDAre of 4.7x.

Dividends

On November 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 share and per unit represents an annual dividend yield of 5.7 percent based on the November 4, 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.

The common and preferred dividends are payable on November 29, 2019 to holders of record as of November 15, 2019.

2019 Outlook

The Company is providing its updated full year 2019 outlook for the 72 hotels expected to be owned at year-end which assumes the pending disposition of two hotels located in Birmingham, AL is completed during the fourth quarter.  The reduction to the midpoint of our pro forma RevPAR growth outlook is primarily driven by the inclusion of acquired assets as if they were owned for the full year and exclusion of results from completed or pending disposition activity.  The transactions announced subsequent to the quarter ended September 30, 2019 reduced pro forma RevPAR growth by approximately 40 basis points for the full year 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.

Third Quarter 2019 Earnings Conference Call

The Company will conduct its quarterly conference call on Wednesday, November 6, 2019, at 11:00 AM ET.  To participate in the conference call, please dial 877-930-8101.  The conference identification code for the call is 1389184.  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, November 13, 2019, by dialing 855-859-2056, conference identification code 1389184.  A replay will also be available in the Investor Relations section of the Company's website until January 31, 2020.

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 November 5, 2019, the Company's portfolio consisted of 74 hotels, 69 of which were wholly-owned, with a total of 11,513 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.

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.

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.

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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SOURCE Summit Hotel Properties, Inc.