Summit Hotel Properties Results

Summit Hotel Properties Reports Third Quarter 2017 Results

Net Income of $18.2 million; Adjusted FFO climbs 13.6 percent to $36.7 million, $0.35 per share; Pro Forma RevPAR increases 1.2 percent

Summit Hotel Properties

Summit Hotel Properties, Inc. (NYSE:  INN) today announced results for the third quarter of 2017. 

"In the third quarter, both our top and bottom line results came in at or above the high end of our expectations going in to the quarter despite what was generally a challenging operating environment.  Pro forma RevPAR growth of 1.2 percent in the quarter further validates our diverse and well-positioned portfolio as 60 percent of our markets exceeded the STR Upscale average and our portfolio once again gained market share against our respective competitive sets," said Dan Hansen, the Company's Chairman, President and Chief Executive Officer.  "We continued to enhance the flexibility of our balance sheet during the quarter with the closing of a $225 million unsecured term loan.  As a result, we finished the quarter with over $400 million of liquidity to pursue value creation opportunities," commented Mr. Hansen.

Third Quarter 2017 Summary

  • Net Income:  Net income attributable to common stockholders decreased to $18.2 million, or $0.17 per diluted share, compared with $22.1 million, or $0.25 per diluted share, in the same period of 2016.  When excluding the $7.7 million and $10.5 million pretax gain on disposal of assets during the three months ended September 30, 2017 and 2016, respectively, net income attributable to common stockholders decreased by $1.1 million as compared to the same period in 2016. 
  • Pro Forma RevPAR:  Pro forma revenue per available room ("RevPAR") increased 1.2 percent to $119.13 from the same period in 2016.  Pro forma occupancy increased 2.4 percent to 80.5 percent, which was partially offset by a 1.1 percent decrease in average daily rate ("ADR") to $148.05. 
  • Same-Store RevPAR:  Same-store RevPAR grew to $115.04, an increase of 0.6 percent from the same period in 2016.  Same-store occupancy increased by 2.0 percent to 80.6 percent, which was partially offset by a 1.4 percent decrease in ADR to $142.80 compared to the same period in 2016.  
  • Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $50.5 million, a decrease of 3.4 percent over the same period in 2016.  Pro forma hotel EBITDA margin contracted by 160 basis points to 37.0 percent from 38.6 percent in the same period of 2016.  Excluding the effect of property tax increases, pro forma hotel EBITDA margin contracted by 41 basis points to 38.2 percent. 
  • Adjusted EBITDA:  Adjusted EBITDA increased 13.6 percent to $47.8 million from $42.1 million in the same period of 2016. 
  • Adjusted FFO:  Adjusted Funds from Operations ("AFFO") increased 13.6 percent to $36.7 million, or $0.35 per diluted share, from $32.3 million in the same period of 2016. 
  • Acquisitions:  The Company acquired the 255-guestroom AC Hotel by Marriott Atlanta Downtown for an aggregate purchase price of $57.5 million, or $225,500 per key. 
  • Dispositions:  The Company sold three hotels containing a total of 273 guestrooms for an aggregate sales price of $27.8 million, or an average of $101,600 per key.  The hotels had a combined RevPAR of $85.03 for the twelve months ended June 30, 2017 which is a 26.3% discount to the pro forma portfolio's RevPAR for the same period.

The Company's results for the three and nine months ended September 30, 2017 and 2016 are as follows:

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

2017

2016

2017

2016

(Unaudited)

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

Net income attributable to common stockholders

$       18,190

$       22,090

$       76,845

$       84,146

Net income per diluted share and unit

$           0.17

$           0.25

$           0.78

$           0.96

Total revenues

$     136,587

$     118,336

$     383,632

$     363,613

EBITDA (1)

$       53,556

$       50,453

$     173,796

$     173,277

Adjusted EBITDA (1)

$       47,831

$       42,105

$     135,669

$     130,382

FFO (1)

$       34,004

$       30,093

$       95,369

$       88,638

Adjusted FFO (1)

$       36,653

$       32,266

$     102,612

$       97,045

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

$           0.33

$           0.34

$           0.96

$           1.02

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

$           0.35

$           0.37

$           1.04

$           1.11

Pro Forma (3)

RevPAR

$       119.13

$       117.69

$       119.18

$       119.32

RevPAR growth

1.2%

-0.1%

Hotel EBITDA 

$       50,458

$       52,250

$     152,282

$     160,450

Hotel EBITDA margin

37.0%

38.6%

37.6%

39.3%

Hotel EBITDA margin growth

-160 bps

-174 bps

Year-To-Date 2017 Summary

  • Net Income:  Net income attributable to common stockholders decreased to $76.8 million, or $0.78 per diluted share, compared with $84.1 million, or $0.96 per diluted share, in the same period of 2016.  When excluding the $43.5 million and $50.0 million pretax gain on disposal of assets during the nine months ended September 30, 2017 and 2016, respectively, net income attributable to common stockholders decreased by $0.8 million as compared to the same period in 2016. 
  • Pro Forma RevPAR:  Pro forma revenue per available room ("RevPAR") decreased 0.1 percent from the same period in 2016 to $119.18.  Pro forma average daily rate ("ADR") decreased 0.4 percent from the same period in 2016 to $150.70.  Pro forma occupancy increased 0.3 percent to 79.1 percent. 
  • Same-Store RevPAR:  Same-store RevPAR declined to $115.87, a decrease of 0.8 percent from the same period in 2016.  Same-store ADR decreased 1.0 percent from the same period in 2016 to $145.20.  Same-store occupancy increased by 0.2 percent to 79.8 percent from the same period in 2016. 
  • Pro Forma Hotel EBITDA:  Pro forma hotel EBITDA was $152.3 million, a decrease of 5.1 percent from the same period in 2016.  Pro forma hotel EBITDA margin contracted by 174 basis points to 37.6 percent from the same period of 2016. 
  • Adjusted EBITDA:  Adjusted EBITDA increased 4.1 percent to $135.7 million from $130.4 million in the same period of 2016. 
  • Adjusted FFO:  Adjusted Funds from Operations ("AFFO") increased to $102.6 million, or $1.04 per diluted share, an increase in AFFO of 5.7 percent from the same period in 2016. 
  • Acquisitions:  The Company acquired ten hotels containing 1,790 guestrooms for an aggregate purchase price of $422.0 million, or an average of $235,700 per key. 
  • Dispositions:  The Company sold twelve hotels containing 1,164 guestrooms for an aggregate sales price of $120.2 million, or an average of $103,200 per key.

Acquisitions

On July 13, 2017, the Company completed the acquisition of the 255-guestroom AC Hotel by Marriott Atlanta Downtown (the "Hotel") for a total purchase price of $57.5 million, or $225,500 per key, and entered into a management agreement with Interstate Hotels & Resorts.  Opened as an AC Hotel by Marriott in May 2017, the Hotel recently underwent a complete renovation and repositioning of approximately $20 million, or $78,400 per key.  The AC Hotel by Marriott is one of Marriott's newest distinctive brands offering a stylish, yet very efficient and purposeful feel.  

The Hotel's prime location in the heart of Downtown Atlanta will benefit from various business and leisure demand generators. Atlanta is home to 27 of the Fortune 1000 companies and benefits from Hartsfield-Jackson Atlanta International Airport, the busiest airport in the world servicing more than 100 million passengers per year. Major corporations and organizations such as the American Cancer Society, Ernst & Young, Georgia Power, Georgia-Pacific, Coca-Cola and Turner Broadcasting System are all located within one mile of the Hotel.  Significant leisure demand generators such as the Georgia Aquarium, World of Coca-Cola, College Football Hall of Fame, CNN Studios, and SkyView Atlanta are also within walking distance.  The recently opened 75,000-seat Mercedes-Benz Stadium, the new home of the NFL's Atlanta Falcons and MLS' Atlanta United, is located only steps from the hotel. 

Dispositions

On July 21, 2017, the Company completed the sale of a 273-guestroom, three-hotel portfolio located in suburban Fort Worth, Texas for a total sales price of $27.8 million, or approximately $102,000 per key.  The portfolio included the 105-guestroom Hampton Inn & Suites Fort Worth West I-30, the 98-guestroom Hilton Garden Inn Fort Worth/Fossil Creek, and the 70-guestroom Fairfield Inn & Suites Fort Worth West I-30.  The sale resulted in a net gain of $8.1 million and represented a capitalization rate of 7.9 percent on the hotels' net operating income, including planned capital improvements, for the trailing twelve months ended June 30, 2017.

Capital Investment

The Company invested $11.3 million and $25.3 million in capital improvements during the three and nine months ended September 30, 2017, respectively.  The scope of work ranged from common space improvements to complete guestroom renovations, including furniture, soft goods and guest bathrooms.  Through the remainder of 2017, the Company expects to invest another $15.0 million to $20.0 million in capital improvements.

Capital Markets & Balance Sheet

During the third quarter and subsequent to quarter end, the Company executed on the following capital markets transactions:

  • On September 26, 2017, the Company entered into a new $225 million unsecured term loan.  The loan includes an accordion feature that, subject to certain conditions, allows the Company to request an increase in lender commitments up to an aggregate of $400 million.  The unsecured term loan matures on November 25, 2022, carries an interest rate based on a pricing grid ranging from 145 basis points to 220 basis points plus LIBOR depending upon the Company's leverage ratio, includes a delayed draw feature, and is prepayable without penalty at any time.  At closing, the Company received an initial loan advance of $125 million and may draw the remaining $100 million at any time prior to September 20, 2018.  Net proceeds from the initial loan advance were utilized to pay down outstanding advances under the Company's unsecured revolving credit facility. 
  • On October 2, 2017, the Company entered into two separate $100 million interest rate swap agreements with an effective date of January 29, 2018, to partially fix the interest rate on a portion of its variable interest rate unsecured indebtedness.  The swaps convert LIBOR from a floating rate to an average fixed rate of 1.98% through January 31, 2023.

At September 30, 2017, the Company had the following:

  • Total outstanding debt of $777.5 million with a weighted average interest rate of 3.78 percent. 
  • Undrawn capacity on its unsecured credit facilities and other debt instruments totaling $382.6 million. 
  • Total net debt, which the Company defines as total outstanding debt less cash and cash equivalents, to trailing twelve month pro forma adjusted EBITDA of 3.9x.

At October 20, 2017, the Company had the following:

  • Total outstanding debt of $781.8 million with a weighted average interest rate of 3.78 percent. 
  • Undrawn capacity on its unsecured credit facilities and other debt instruments totaling $377.6 million.

Dividends

On October 30, 2017, the Company declared a quarterly cash dividend of $0.17 per share on its common stock and per common unit of limited partnership interest in Summit Hotel OP, LP.  The annualized dividend of $0.68 per common share and per common unit represents an annual yield of 4.3 percent based on the October 27, 2017 closing stock price.

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

  • $0.4921875 per share on its 7.875% Series B Cumulative Redeemable Preferred Stock. 
  • $0.4453125 per share on its 7.125% Series C Cumulative Redeemable Preferred Stock. 
  • $0.403125 per share on its 6.45% Series D Cumulative Redeemable Preferred Stock.

The dividends are payable on November 30, 2017 to holders of record as of November 16, 2017.

2017 Outlook

The Company is providing its outlook for the fourth quarter and full year 2017 based on its 79 hotels owned as of October 30, 2017.  There are no future acquisitions, dispositions, or capital markets activities assumed in the Company's outlook for the fourth quarter and full year 2017.

 

FOURTH QUARTER 2017

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

Low

High

Pro forma RevPAR (79) 1

$107.75

$109.75

Pro forma RevPAR growth (79) 1

2.00%

4.00%

RevPAR (same-store 65) 2

$103.50

$105.50

RevPAR growth (same-store 65) 2

0.00%

2.00%

Adjusted FFO 

$27,200

$30,200

Adjusted FFO per diluted unit 3

$0.26

$0.29

FULL YEAR 2017

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

Low

High

Pro forma RevPAR (79) 1

$116.25

$116.75

Pro forma RevPAR growth (79) 1

0.25%

0.75%

RevPAR (same-store 65) 2

$112.50

$113.00

RevPAR growth (same-store 65) 2

(0.75%)

(0.25%)

Adjusted FFO 

$129,800

$132,800

Adjusted FFO per diluted unit 3

$1.29

$1.32

Capital improvements

$40,000

$45,000

 

(1)

As of October 30, 2017, the Company owned 79 hotels.  The pro forma outlook information includes operating estimates for 79 hotels as if each hotel had been owned since January 1, 2016.

(2)

As of October 30, 2017, the Company owned 65 same-store hotels.  The same-store outlook information includes operating estimates for 65 hotels owned by the Company as of January 1, 2016.

(3)

Assumes weighted average diluted common shares and units outstanding of 104,200,000 for the fourth quarter 2017 and 100,300,000 for the full year 2017. 

Third Quarter 2017 Earnings Conference Call

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, 2017, the Company's portfolio consisted of 79 hotels with a total of 11,590 guestrooms located in 24 states.  

SUMMIT HOTEL PROPERTIES, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands)

September 30, 2017

December 31, 2016

(Unaudited)

ASSETS

  Investment in hotel properties, net

$     1,902,949

$     1,545,122

  Investment in hotel properties under development

18,754

-

  Land held for development

2,942

5,742

  Assets held for sale

1,193

62,695

  Investment in real estate loans, net

-

17,585

  Cash and cash equivalents

52,451

34,694

  Restricted cash

28,933

24,881

  Trade receivables, net

20,899

11,807

  Prepaid expenses and other

5,294

6,474

  Deferred charges, net

4,669

3,727

  Other assets

5,794

5,778

          Total assets

$     2,043,878

$     1,718,505

LIABILITIES AND EQUITY

Liabilities:

  Debt, net of debt issuance costs

$        772,275

$        652,414

  Accounts payable

7,257

4,623

  Accrued expenses and other

56,306

46,880

  Derivative financial instruments

438

1,118

          Total liabilities

836,276

705,035

          Total stockholders' equity

1,204,516

1,010,042

  Non-controlling interests in operating partnership

3,086

3,428

          Total equity

1,207,602

1,013,470

          Total liabilities and equity

$     2,043,878

$     1,718,505

 

SUMMIT HOTEL PROPERTIES, INC.

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share amounts) 

 For the Three Months Ended 

September 30, 

 For the Nine Months Ended

September 30, 

2017

2016

2017

2016

Revenues:

(unaudited)

  Room

$      127,246

$      110,777

$      358,110

$      340,657

  Other hotel operations revenue

9,341

7,559

25,522

22,956

Total revenues

136,587

118,336

383,632

363,613

Expenses:

Hotel operating expenses:

Room

33,404

28,705

91,221

82,959

Other direct

16,846

15,513

49,255

48,596

Other indirect

35,820

29,312

100,297

92,870

Total hotel operating expenses

86,070

73,530

240,773

224,425

Depreciation and amortization

23,594

17,887

62,052

53,715

Corporate general and administrative

4,550

4,388

14,998

14,358

Hotel property acquisition costs

-

527

354

2,809

Loss on impairment of assets

-

577

-

577

Total expenses

114,214

96,909

318,177

295,884

Operating income

22,373

21,427

65,455

67,729

Other income (expense):

Interest expense

(7,768)

(6,626)

(21,486)

(21,232)

Gain on disposal of assets, net

7,725

10,491

43,531

49,997

Other income (expense), net

(116)

661

2,847

1,854

Total other income (expense)

(159)

4,526

24,892

30,619

Income from continuing operations before income taxes

22,214

25,953

90,347

98,348

Income tax benefit (expense)

231

1,245

(613)

(461)

Net income

22,445

27,198

89,734

97,887

Less - Income attributable to Operating Partnership

(55)

(115)

(289)

(454)

Net income attributable to Summit Hotel Properties, Inc.

22,390

27,083

89,445

97,433

Preferred dividends

(4,200)

(4,993)

(12,600)

(13,287)

Net income attributable to common stockholders

$       18,190

$       22,090

$       76,845

$       84,146

Earnings per share:

Basic

$           0.18

$           0.25

$           0.78

$           0.97

Diluted

$           0.17

$           0.25

$           0.78

$           0.96

Weighted average common shares outstanding:

Basic 

103,253

86,492

98,105

86,428

Diluted

103,632

87,401

98,471

87,319

 

SUMMIT HOTEL PROPERTIES, INC. 

Reconciliation of Net Income to Non-GAAP Measures – Funds From Operations

(Unaudited)       

(In thousands except per share and unit amounts)  

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

2017

2016

2017

2016

Net income

$        22,445

$        27,198

$        89,734

$        97,887

Preferred dividends

(4,200)

(4,993)

(12,600)

(13,287)

Net income applicable to common shares and units

18,245

22,205

77,134

84,600

Net income per common share and unit

$            0.18

$            0.25

$            0.78

$            0.97

Real estate-related depreciation (1)

23,484

17,802

61,766

53,458

Loss on impairment of assets

-

577

-

577

Gain on disposal of assets

(7,725)

(10,491)

(43,531)

(49,997)

FFO applicable to common shares and units

34,004

30,093

95,369

88,638

FFO per common share and unit

$            0.33

$            0.34

$            0.96

$           1.02

Amortization of deferred financing costs

539

522

1,553

1,625

Amortization of franchise fees (1)

110

85

286

257

Equity-based compensation

1,489

1,020

4,483

3,202

Hotel property acquisition costs

-

527

354

2,809

Debt transaction costs

23

38

180

514

Gain on derivative instruments

-

(19)

-

-

Loss from net casualties

488

-

387

-

Adjusted Funds From Operations

$        36,653

$        32,266

$      102,612

$        97,045

AFFO per common share and unit

$            0.35

$            0.37

$            1.04

$            1.11

Weighted average diluted common units (2)

104,149

87,401

99,062

87,319

 

(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)

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.

 

SUMMIT HOTEL PROPERTIES, INC.

Reconciliation of Net Income to Non-GAAP Measures – EBITDA

(Unaudited)

(Amounts in thousands)

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

2017

2016

2017

2016

Net income

$        22,445

$        27,198

$       89,734

$        97,887

Depreciation and amortization

23,594

17,887

62,052

53,715

Interest expense

7,768

6,626

21,486

21,232

Interest income

(20)

(13)

(89)

(18)

Income tax (benefit) expense

(231)

(1,245)

613

461

EBITDA

$        53,556

$        50,453

$      173,796

$      173,277

Equity-based compensation

1,489

1,020

4,483

3,202

Hotel property acquisition costs

-

527

354

2,809

Loss on impairment of assets

-

577

-

577

Debt transaction costs

23

38

180

514

Gain on disposal of assets

(7,725)

(10,491)

(43,531)

(49,997)

Gain on derivative instruments

-

(19)

-

-

Loss from net casualties

488

-

387

-

Adjusted EBITDA

$        47,831

$        42,105

$      135,669

$      130,382

 

SUMMIT HOTEL PROPERTIES, INC.

Pro Forma Hotel Operating Data

 (Unaudited)

(Dollars in thousands)

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

Pro Forma Operating Data (1) (2)

2017

2016

2017

2016

Pro forma room revenue

$      127,025

$      125,450

$      377,099

$      377,977

Pro forma other hotel operations revenue

9,344

9,923

28,190

30,127

Pro forma total revenues

136,369

135,373

405,289

408,104

Pro forma total hotel operating expenses

85,911

83,123

253,007

247,654

    Pro forma hotel EBITDA

$        50,458

$        52,250

$      152,282

$      160,450

    Pro forma hotel EBITDA Margin

37.0%

38.6%

37.6%

39.3%

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

Revenue:

Total revenues

$     136,587

$     118,336

$     383,632

$     363,613

Total revenues from acquisitions (1)

200

25,877

35,061

80,717

Total revenues from dispositions (2)

(418)

(8,840)

(13,404)

(36,226)

Pro forma total revenues

136,369

135,373

405,289

408,104

Hotel Operating Expenses:

Total hotel operating expenses

86,070

73,530

240,773

224,425

Total hotel operating expenses from acquisitions (1)

206

15,845

21,938

48,691

Total hotel operating expenses from dispositions (2)

(365)

(6,252)

(9,704)

(25,462)

Pro forma total hotel operating expenses

85,911

83,123

253,007

247,654

Hotel EBITDA:

Operating income

$        22,373

$        21,427

$        65,455

$        67,729

Loss on impairment of assets

-

577

-

577

Hotel property acquisition costs

-

527

354

2,809

Corporate general and administrative expenses

4,550

4,388

14,998

14,358

Depreciation and amortization

23,594

17,887

62,052

53,715

Hotel EBITDA

50,517

44,806

142,859

139,188

Hotel EBITDA from acquisitions (1)

(6)

10,032

13,123

32,026

Hotel EBITDA from dispositions (2)

(53)

(2,588)

(3,700)

(10,764)

Pro forma hotel EBITDA

$        50,458

$        52,250

$      152,282

$      160,450

 

(1)

Pro forma information includes operating results for 79 hotels owned as of September 30, 2017 as if all such hotels had been owned by the Company since January 1, 2016.  For hotels acquired by the Company after January 1, 2016 (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, 2016 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, 2016 and September 30, 2017 (the "Disposed Hotels"), the pro forma information excludes the financial results of each of the Disposed Hotels for the period of ownership by the Company from January 1, 2016 through the date that the Disposed Hotels were sold by the Company.

 

SUMMIT HOTEL PROPERTIES, INC.

Pro Forma Hotel Operating Data

(Unaudited)

(Dollars in thousands, except operating metrics)

2016

2017

Trailing Twelve

Months Ended

Sept 30, 2017

Pro Forma Operating Data (1) (2)

Q4

Q1

Q2

Q3

Pro forma room revenue

$    112,523

$    120,174

$    129,900

$    127,025

$           489,622

Pro forma other hotel operations revenue

8,596

9,045

9,802

9,344

36,787

Pro forma total revenues

121,119

129,219

139,702

136,369

526,409

Pro forma total hotel operating expenses

77,110

81,470

85,627

85,911

330,118

Pro forma hotel EBITDA

$      44,009

$      47,749

$      54,075

$      50,458

$           196,291

Pro forma hotel EBITDA Margin 

36.3%

37.0%

38.7%

37.0%

37.3%

Pro Forma Statistics (1) (2)

Rooms occupied

774,433

787,870

856,406

857,975

3,276,684

Rooms available

1,065,636

1,043,100

1,054,687

1,066,280

4,229,703

Occupancy

72.7%

75.5%

81.2%

80.5%

77.5%

ADR

$      145.30

$      152.53

$      151.68

$      148.05

$             149.43

RevPAR

$      105.59

$      115.21

$      123.16

$      119.13

$             115.76

Actual Statistics

Rooms occupied

737,390

761,358

813,577

860,672

3,172,997

Rooms Available

1,002,482

990,913

986,998

1,069,100

4,049,493

Occupancy

73.6%

76.8%

82.4%

80.5%

78.4%

ADR

$      139.16

$      144.94

$      148.13

$      147.84

$             145.20

RevPAR

$      102.36

$      111.36

$      122.10

$      119.02

$             113.77

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

Revenue:

Total revenues

$    110,322

$    117,989

$    129,056

$    136,587

$            493,954

Total revenues from acquisitions (1)

18,927

19,965

14,895

200

53,987

Total revenues from dispositions (2)

(8,130)

(8,735)

(4,249)

(418)

(21,532)

Pro forma total revenues

$    121,119

$    129,219

$    139,702

$    136,369

$            526,409

Hotel Operating Expenses:

Total hotel operating expenses

71,256

75,204

79,499

86,070

312,029

Total hotel operating expenses from acquisitions (1)

11,691

12,472

9,260

206

33,629

Total hotel operating expenses from dispositions (2)

(5,837)

(6,206)

(3,132)

(365)

(15,540)

Total pro forma hotel operating expenses

77,110

81,470

85,627

85,911

330,118

Hotel EBITDA:

Operating income

$      14,758

$      18,567

$      24,515

$      22,373

$             80,213

Hotel property acquisition costs

683

354

-

-

1,037

Corporate general and administrative expenses

4,934

5,138

5,310

4,550

19,932

Depreciation and amortization

18,691

18,726

19,732

23,594

80,743

Hotel EBITDA

39,066

42,785

49,557

50,517

181,925

Hotel EBITDA from acquisitions (1)

7,236

7,493

5,635

(6)

20,358

Hotel EBITDA from dispositions (2)

(2,293)

(2,529)

(1,117)

(53)

(5,992)

Pro forma hotel EBITDA

$      44,009

$      47,749

$      54,075

$      50,458

$           196,291

 

(1)

Pro forma information includes operating results for 79 hotels owned as of September 30, 2017 as if all such hotels had been owned by the Company since October 1, 2016.  For hotels acquired by the Company after October 1, 2016 (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 October 1, 2016 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 October 1, 2016 and September 30, 2017 (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 October 1, 2016 through the date that the Disposed Hotels were sold by the Company.

 

SUMMIT HOTEL PROPERTIES, INC.

Pro Forma and Same-Store Data

(Unaudited)

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

2017

2016

2017

2016

Pro Forma 1 (79 hotels)

Rooms occupied

857,975

837,628

2,502,251

2,497,953

Rooms available 

1,066,280

1,065,946

3,164,067

3,167,865

Occupancy

80.5%

78.6%

79.1%

78.9%

ADR

$       148.05

$       149.77

$          150.70

$       151.31

RevPAR

$       119.13

$       117.69

$          119.18

$       119.32

Occupancy change

2.4%

0.3%

ADR change

-1.1%

-0.4%

RevPAR change

1.2%

-0.1%

For the Three Months Ended 

September 30,

For the Nine Months Ended 

September 30,

2017

2016

2017

2016

Same-Store 2 (65 hotels)

Rooms occupied

670,849

657,474

1,971,825

1,973,084

Rooms available

832,692

832,048

2,470,920

2,478,056

Occupancy

80.6%

79.0%

79.8%

79.6%

ADR

$       142.80

$       144.77

$          145.20

$       146.66

RevPAR

$       115.04

$       114.39

$          115.87

$       116.78

Occupancy change

2.0%

0.2%

ADR change

-1.4%

-1.0%

RevPAR change

0.6%

-0.8%

 

(1)      

Pro forma information includes operating results for 79 hotels owned as of September 30, 2017, as if each hotel had been owned by the Company since January 1, 2016.  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 65 hotels owned by the Company as of January 1, 2016, and at all times during the three and nine months ended September 30, 2017, and 2016.

 

SUMMIT HOTEL PROPERTIES, INC. 

Reconciliation of Net Income to Non-GAAP Measures – Funds From Operations for Financial Outlook

(Unaudited)       

(Amounts in thousands except per share and unit)  

For the Three Months Ending 

December 31, 2017

For the Year Ending 

December 31, 2017

Low

High

Low

High

Net income

$          6,300

$          9,300

$        95,900

$        98,900

Preferred dividends

(4,200)

(4,200)

(16,800)

(16,800)

Net income applicable to common shares and units

2,100

5,100

79,100

82,100

Net income per common share and unit

$            0.02

$            0.05

$            0.79

$            0.82

Real estate-related depreciation

22,900

22,900

84,700

84,700

Gain on disposal of assets

-

-

(43,500)

(43,500)

FFO applicable to common shares and units

25,000

28,000

120,300

123,300

FFO per common share and unit

$            0.24

$            0.27

$            1.20

$            1.23

Amortization of deferred financing costs

600

600

2,100

2,100

Amortization of franchise fees

100

100

400

400

Equity-based compensation

1,500

1,500

6,000

6,000

Hotel property acquisition costs

-

-

400

400

Debt transaction costs

-

-

200

200

Loss from net casualty recoveries

-

-

400

400

Adjusted Funds From Operations

$        27,200

$        30,200

$      129,800

$      132,800

AFFO per common share and unit

$            0.26

$            0.29

$            1.29

$            1.32

Weighted average diluted common units (1)

104,200

104,200

100,300

100,300

 

(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.

Non-GAAP Financial Measures

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

As defined by the National Association of Real Estate Investment Trusts ("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.  Unless otherwise indicated, we present FFO applicable to our common shares and common units.  We present FFO 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 when reporting their results. FFO 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 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 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 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.  References to FFO are based on our computation of FFO and not the computation of NAREIT-defined FFO unless otherwise noted.

We further adjust FFO for certain additional items that are not included in the definition of FFO, such as hotel transaction and pursuit costs, equity-based compensation, loan transaction costs, prepayment penalties and certain other expenses, which we refer to as AFFO. We believe that AFFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs. 

We caution investors that amounts presented in accordance with our definitions of FFO and AFFO may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP measures in the same manner. FFO and AFFO should be considered along with, but not as an alternative to, net income (loss) as a measure of our operating performance. FFO and AFFO 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 FFO and AFFO 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 GAAP measure such as net income (loss). Above we have included a quantitative reconciliation of FFO and AFFO to the most directly comparable GAAP financial performance measure, which is net income (loss). Dollar amounts in such reconciliation are in thousands. 

EBITDA, Adjusted EBITDA, and Hotel 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 investors 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 also uses EBITDA as one measure in determining the value of acquisitions and dispositions. We further adjust EBITDA by adding back hotel transaction and pursuit costs, equity-based compensation, impairment losses, and certain other nonrecurring expenses. We believe that adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs. 

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, adjusted EBITDA, 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, adjusted EBITDA, and hotel EBITDA should not be considered as an alternative measure of our net income (loss) or operating performance. EBITDA, adjusted EBITDA, 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, adjusted EBITDA, 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, adjusted EBITDA 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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