Summit Hotel Properties, Inc. (INN) is a self-managed lodging REIT that has established itself as a leading player in the higher-end hotel segment. With a well-diversified portfolio of 96 properties across 24 states, the company has demonstrated its ability to navigate the challenges faced by the hospitality industry, delivering consistent financial performance and shareholder returns.
Business Overview and History
Summit Hotel Properties was founded in June 2010 and completed its initial public offering in February 2011. The company's strategy has been to acquire and operate high-quality, efficient lodging properties in markets with multiple demand generators, such as corporate offices, retail centers, airports, and leisure attractions. Over the years, Summit has strategically grown its portfolio, leveraging its expertise in identifying and acquiring properties that align with its investment criteria.
As of September 30, 2024, Summit's portfolio consisted of 96 lodging properties with a total of 14,260 guestrooms across 24 states. The company's hotels primarily operate under premium franchise brands owned by Marriott, Hilton, Hyatt, and IHG, ensuring strong brand recognition and loyalty among guests. In addition to its wholly-owned properties, Summit owns controlling interests in several joint ventures, further diversifying its exposure and providing additional avenues for growth.
Summit has continued to actively manage its portfolio through strategic acquisitions and dispositions. In 2023, the company acquired two additional hotels: the Residence Inn by Marriott in Scottsdale, Arizona, and the Nordic Lodge in Steamboat Springs, Colorado. However, it also sold a portfolio of four hotels in May 2023 and the Hyatt Place hotel in Baltimore, Maryland in December 2023, demonstrating its commitment to optimizing its property mix.
The company faced significant challenges during the COVID-19 pandemic, reporting a net loss of $143.3 million in 2020 as travel demand was severely disrupted. To navigate this period, Summit implemented cost-cutting measures, focused on preserving liquidity, and strengthened its balance sheet. These actions included suspending its dividend, renegotiating property management agreements, and accessing additional financing.
Despite these challenges, Summit Hotel Properties has remained committed to maintaining the quality and competitiveness of its assets. In the first nine months of 2024, the company invested $61.5 million in capital expenditures, underscoring its dedication to enhancing its portfolio and positioning itself for future growth.
Financial Performance and Ratios Financials
Summit Hotel Properties has consistently delivered solid financial results, showcasing its ability to navigate industry headwinds. For the fiscal year 2023, the company reported total revenues of $736.13 million, with a net loss of $9.49 million. Operating cash flow and free cash flow both stood at $153.64 million for the year.
In the most recent quarter (Q3 2024), Summit reported total revenues of $176.81 million, representing a 2.8% increase compared to the same period in the previous year. This growth was primarily driven by a 2.3% increase in average daily rate (ADR), which offset a 1% decline in occupancy. However, the company reported a net loss of $4.27 million for the quarter, primarily due to a 34.7% decline in management fees and a 7.2% decrease in interest expense.
For the nine months ended September 30, 2024, the company reported total revenues of $558.85 million, a slight increase from the $558.69 million generated in the same period of the previous year. Adjusted EBITDA for the nine-month period increased by 4.5% year-over-year, reaching $150.06 million, highlighting the company's operational efficiency and cost management.
Summit's portfolio performance during the third quarter of 2024 demonstrated the company's ability to navigate industry challenges. Same-store RevPAR increased by 0.2% year-over-year, driven by a 1.2% increase in average daily rate, partially offset by a 1% decline in occupancy. The company's urban and suburban hotels, which comprise nearly 75% of its total room mix, continued to outperform, with RevPAR growth of 1.3% and 3.9%, respectively, highlighting the strength of these market segments.
Liquidity
The company's balance sheet remains well-positioned, with total liquidity of over $400 million as of September 30, 2024. Summit's debt profile is also favorable, with an average length of maturity of nearly three years and an average interest rate of approximately 4.7%. The company's leverage ratio, as measured by net debt to EBITDA, has improved by a full term over the past year, providing ample financial flexibility for future growth initiatives.
Summit's debt-to-equity ratio stands at 1.47, indicating a moderate level of leverage. The company maintains a cash position of $51.70 million and has $400 million available on its $400 million Revolver credit facility. Additionally, Summit has a $200 million Term Loan facility. The company's current ratio is 0.53, and its quick ratio is 0.52, suggesting a relatively tight liquidity position in the short term.
Operational Highlights and Outlook
While the third quarter was impacted by revenue displacement from Hurricane Helene, which reduced RevPAR growth by 20 basis points, Summit's diversified portfolio and operational expertise allowed the company to manage the disruption effectively. Looking ahead, the company's updated full-year 2024 guidance reflects a 1% to 2% RevPAR growth range, with Adjusted EBITDA and Adjusted FFO expected to remain relatively stable compared to the prior year.
Summit has revised its 2024 guidance to reflect recent developments and market conditions. The company now expects RevPAR growth in the range of 1% to 2% for the full year, down from its initial guidance, primarily due to the continued normalization of leisure demand and the impact of recent hurricane activity. Hotel EBITDA margin is expected to contract by approximately 25 basis points year-over-year, which is an improvement compared to the initial full-year guidance of 75 basis points of contraction.
The company has also updated its adjusted EBITDA range to $188 million to $194 million, representing a 0.5% decline at the midpoint compared to the initial guidance. This adjustment is primarily attributed to the $100 million of asset sales completed, which resulted in an estimated $3 million of forgone adjusted EBITDA. Despite this, Summit is maintaining its adjusted FFO midpoint of $0.95 per share and narrowing the range to $0.92 to $0.98 per share, citing benefits from recent accretive dispositions and continued deleveraging.
Additional guidance for 2024 includes pro rata interest expense, excluding amortization of deferred financing costs, of approximately $55 million, Series E and Series F preferred dividends of $15.9 million, Series E preferred distributions of $2.6 million, and pro rata capital expenditures ranging from $75 million to $85 million.
Risks and Challenges
Despite Summit's strong performance, the company faces several risks and challenges common to the hospitality industry. These include macroeconomic factors, such as changes in consumer spending patterns, geopolitical tensions, and fluctuations in the labor market, all of which can impact travel demand and operating costs. Additionally, the company's reliance on third-party management companies and franchise agreements introduces additional operational and financial risks that must be effectively managed.
Furthermore, the cyclical nature of the lodging industry and the potential for increased competition from alternative accommodation providers, such as short-term rentals, could pose challenges to Summit's growth and profitability. The company's ability to navigate these risks and continue executing its strategic initiatives will be crucial to its long-term success.
Conclusion
Summit Hotel Properties has demonstrated its resilience and adaptability in the face of industry headwinds, delivering consistent financial performance and shareholder value. The company's diversified portfolio, operational expertise, and prudent capital management have positioned it well to capitalize on opportunities and navigate the evolving hospitality landscape. As Summit continues to execute on its strategic priorities, investors will likely find the company's consistent profitability and growth potential to be appealing considerations.
With a focus on owning and managing a portfolio of premium-branded lodging properties across the United States, Summit Hotel Properties remains well-positioned to capitalize on the ongoing recovery in the hospitality sector. The company's ability to adapt to changing market conditions, as evidenced by its revised guidance and strategic asset management, demonstrates its commitment to long-term value creation for shareholders.