Summit Hotel Properties Reports Third Quarter 2018 Results

AUSTIN, Texas, Oct. 30, 2018 /PRNewswire/ -- Summit Hotel Properties, Inc. (NYSE: INN) (the "Company"), today announced results for the third quarter ended September 30, 2018.

"Our third quarter adjusted EBITDA and adjusted FFO per share results finished in line with our expectations despite some disruption from Hurricane Florence and softening of demand trends in September," said Dan Hansen, the Company's Chairman, President and Chief Executive Officer. "We continue to navigate through a challenging operating environment characterized by low RevPAR growth and rising operating costs pressuring profit margins.  However, we remain confident in the long-term prospects of our business given the progress we have made assembling a high-quality portfolio of geographically diverse assets with efficient operating models and our best-in-class operating platform.  Our recent purchase of the Residence Inn by Marriott Boston Watertown is a reflection of our unique ability to execute off-market, value-creating acquisitions in an otherwise difficult transaction environment and we continue to prioritize the thoughtful allocation of capital as a primary method of maximizing shareholder value," commented Mr. Hansen.

Third Quarter 2018 Highlights

• Net Income:  Net income attributable to common stockholders increased to $34.2 million, or $0.33 per diluted share, compared with $18.2 million, or $0.17 per diluted share, in the same period of 2017.
• Pro Forma RevPAR:  Pro forma revenue per available room ("RevPAR") of $123.76 was unchanged from the same period in 2017.  Pro forma average daily rate ("ADR") grew to $155.66, an increase of 1.7 percent from the same period in 2017.  Pro forma occupancy declined 1.6 percent to 79.5 percent.
• Same-Store RevPAR:  Same-store RevPAR decreased 0.3 percent to $122.54 from the same period in 2017.  Same-store ADR increased 2.3 percent to $154.56 compared to the same period in 2017, which was offset by an occupancy decline of 2.6 percent to 79.3 percent.
• Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $53.4 million, a decrease of 0.2 percent from the same period in 2017.  Pro forma hotel EBITDA margin contracted by 87 basis points to 37.2 percent from 38.1 percent in the same period of 2017.
• Adjusted EBITDAre:  Adjusted EBITDAre increased 3.6 percent to $49.6 million from $47.8 million in the same period of 2017.
• Adjusted FFO:  Adjusted Funds from Operations ("AFFO") decreased 1.4 percent to $36.1 million, or $0.35 per diluted share, from $36.7 million, or $0.35 per diluted share, in the same period of 2017.
• Acquisitions:  The Company acquired the 150-guestroom Residence Inn by Marriott Boston Watertown for a purchase price of $71.0 million, or an implied forward twelve-month capitalization rate of 8.1 percent.
• Dispositions:  The Company sold four hotels containing 470 guestrooms for an aggregate sales price of $63.0 million, that resulted in an aggregate net gain on sale of $25.2 million.  The aggregate sales price, plus estimated foregone capital expenditures, represents a capitalization rate of 7.7 percent.

The Company's results for the three and nine months ended September 30, 2018 and 2017 are as follows:

Year-To-Date 2018 Highlights

• Net Income:  Net income attributable to common stockholders decreased to $68.9 million, or $0.66 per diluted share, compared with $76.8 million, or $0.78 per diluted share, in the same period of 2017.
• Pro Forma RevPAR:  Pro forma RevPAR increased 1.4 percent to $124.52 from the same period in 2017.  Pro forma ADR grew to $157.39, an increase of 1.4 percent from the same period in 2017.  Pro forma occupancy of 79.1 percent was unchanged.
• Same-Store RevPAR:  Same-store RevPAR increased 0.2 percent to $122.40 from the same period in 2017.  Same-store ADR increased 1.7 percent to $154.99 compared to the same period in 2017, which was offset by an occupancy decline of 1.5 percent to 79.0 percent.
• Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $158.9 million, an increase of 0.1 percent from the same period in 2017.  Pro forma hotel EBITDA margin contracted by 89 basis points to 37.4 percent from 38.3 percent in the same period of 2017.  Excluding the effect of a 7.8 percent increase in property taxes, pro forma hotel EBITDA margin contracted by 45 basis points to 37.8 percent.
• Adjusted EBITDAre:  Adjusted EBITDAre increased 11.6 percent to $151.5 million from $135.7 million in the same period of 2017.
• Adjusted FFO:  AFFO increased 6.9 percent to $109.7 million, or $1.05 per diluted share, from $102.6 million, or $1.04 per diluted share, in the same period of 2017.
• Acquisitions:  The Company acquired the 150-guestroom Residence Inn by Marriott Boston Watertown during the third quarter for a purchase price of $71.0 million at a forward twelve-month capitalization rate of 8.1 percent.
• Dispositions:  The Company sold eight hotels containing 910 guestrooms for an aggregate sales price of $106.8 million, or $117,400 per key.  The eight properties were sold at a trailing capitalization rate of 7.7 percent and resulted in the realization of an aggregate net gain on sale of $42.6 million.

Acquisition Activity

On September 12, 2018, the Company completed the acquisition of the 150-guestroom Residence Inn by Marriott Boston Watertown for a purchase price of $71.0 million.  Opened in August 2016, the hotel will have the highest absolute RevPAR and hotel EBITDA margin of any hotel within the Company's portfolio and require very limited near-term capital expenditures.  The Company estimates a capitalization rate of 8.1 percent based on management's current estimate of the hotel's forward twelve-month net operating income.  Located in the emerging submarket of Watertown near Cambridge, along the Charles River in Boston and adjacent to the new mixed-use development known as "Arsenal Yards," the Residence Inn by Marriott Boston Watertown is uniquely positioned to capture business from a large and diverse demand base.  Prestigious universities such as Harvard, MIT, Boston University, Boston College, and Tufts University are within a few miles of the hotel and Kendall Square, Boston's premier technology hub and home to technology giants Microsoft, Facebook, Google, and Amazon as well as small startups and biotech companies, is in close proximity as well.

Disposition Activity

On July 24, 2018, the Company completed the sale of three hotels totaling 322 guestrooms for an aggregate sales price of $46.5 million.  The three hotels sold 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 aggregate net gain of $23.0 million and generated a blended hold-period unlevered internal rate of return of 20.5%.  The aggregate sales price of $46.5 million, plus estimated future capital improvements, represented a capitalization rate of 7.7 percent for the trailing twelve months ended June 30, 2018.  The three hotels had an average RevPAR of $96.22 for the trailing twelve months ended June 30, 2018, which was 21% lower than the Company's pro forma portfolio RevPAR of $122.13.  The proceeds from these sales were used to complete a 1031 like-kind exchange for the acquisition of the Residence Inn by Marriott Boston Watertown during the third quarter.

On September 28, 2018, the Company sold the 148-guestroom Hyatt Place Fort Myers / at The Forum for a sales price of $16.5 million and realized a net gain of $2.2 million.  The sales price of $16.5 million, plus estimated future capital improvements, represented a capitalization rate of 7.7 percent for the trailing twelve months ended June 30, 2018.  Net proceeds from the transaction were used to repay a portion of the outstanding balance on the Company's senior unsecured revolving credit facility.

Capital Improvements

The Company continually reinvests in its diversified portfolio of premium branded hotels to enhance the experience of today's guests and strengthen the competitive position of the portfolio.  During the three and nine months ended September 30, 2018, the Company invested $18.9 million and $49.5 million in capital improvements, respectively, and plans to invest an additional $10.0 to $15.0 million into various hotels during the fourth quarter of 2018.

Capital Markets & Balance Sheet

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

• Total outstanding debt of $974.0 million with a weighted average interest rate of 4.31 percent.
• Undrawn availability on its senior unsecured revolving credit facility of $235.0 million.
• Total net debt, which the Company defines as total outstanding debt less cash and cash equivalents, to trailing twelve-month pro forma adjusted EBITDAre of 4.7x.

At October 22, 2018, the Company had the following:

• Total outstanding debt of $953.3 million with a weighted average interest rate of 4.35 percent.
• Undrawn availability on its senior unsecured revolving credit facility of $255.0 million.

Dividends

On October 26, 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 6.2 percent based on the October 29, 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 November 30, 2018 to holders of record as of November 16, 2018.

2018 Outlook

The Company is providing its outlook for the fourth quarter and full year 2018 based on its 77 hotels owned as of October 30, 2018.  There are no future acquisitions, dispositions, or additional capital markets activities assumed in the Company's outlook for the fourth quarter and full year 2018 beyond those previously mentioned.

Third Quarter 2018 Earnings Conference Call

The Company will conduct its quarterly conference call on Wednesday, October 31, 2018, at 9:00 AM ET.  To participate in the conference call, please dial 877-930-8101.  The conference identification code for the call is 5070518.  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 7, 2018, by dialing 855-859-2056, conference identification code 5070518.  A replay will also be available in the Investor Relations section of the Company's website until January 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 October 30, 2018, the Company's portfolio consisted of 77 hotels with a total of 11,659 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.

Non-GAAP Financial Measures

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

Funds From Operations ("FFO") and Adjusted FFO ("AFFO")

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

EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA

EBITDA

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

EBITDAre and Adjusted EBITDAre

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

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

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

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.