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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2020

OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                to                               
 
Commission File Number:  001-35074
 
SUMMIT HOTEL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________
Maryland 27-2962512
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)  
 
13215 Bee Cave Parkway, Suite B-300
Austin, TX  78738
(Address of principal executive offices, including zip code)
 
(512) 538-2300
(Registrant’s telephone number, including area code)
________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueINNNew York Stock Exchange
Series D Cumulative Redeemable Preferred Stock, $0.01 par valueINN-PDNew York Stock Exchange
Series E Cumulative Redeemable Preferred Stock, $0.01 par valueINN-PENew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No
 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
 Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
 
As of October 23, 2020, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 105,708,787.



TABLE OF CONTENTS
 
  Page
   
   
 
 
 
 
 
   
   
   
   
   
   
   
   
   
   
   
 
i




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Summit Hotel Properties, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
 
September 30, 2020December 31, 2019
 (Unaudited) 
ASSETS  
Investment in hotel properties, net$2,125,446 $2,184,232 
Undeveloped land1,500 1,500 
Assets held for sale, net425 425 
Cash and cash equivalents39,075 42,238 
Restricted cash17,532 27,595 
Investment in real estate loans, net29,689 30,936 
Right-of-use assets, net28,809 29,884 
Trade receivables, net12,512 13,281 
Prepaid expenses and other6,659 8,844 
Deferred charges, net4,364 4,709 
Other assets9,185 12,039 
Total assets$2,275,196 $2,355,683 
LIABILITIES AND EQUITY  
Liabilities:  
Debt, net of debt issuance costs$1,084,092 $1,016,163 
Lease liabilities18,752 19,604 
Accounts payable3,610 4,767 
Accrued expenses and other72,340 71,759 
Total liabilities1,178,794 1,112,293 
Commitments and contingencies (Note 10)
Equity:  
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:
  
6.45% Series D - 3,000,000 shares issued and outstanding at September 30, 2020 and December 31, 2019 (aggregate liquidation preference of $75,403 and $75,417 at September 30, 2020 and December 31, 2019, respectively)
30 30 
6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2020 and December 31, 2019 (aggregate liquidation preference of $160,833 and $160,861 at September 30, 2020 and December 31, 2019, respectively)
64 64 
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 105,696,008 and 105,169,515 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
1,057 1,052 
Additional paid-in capital1,195,700 1,190,949 
Accumulated other comprehensive loss(33,260)(16,034)
Distributions in excess of retained earnings(132,250)(2,283)
Total stockholders’ equity1,031,341 1,173,778 
Non-controlling interests in operating partnership1,265 1,809 
Non-controlling interests in joint venture (Note 8)63,796 67,803 
Total equity1,096,402 1,243,390 
Total liabilities and equity$2,275,196 $2,355,683 
 
See Notes to the Condensed Consolidated Financial Statements
1


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
 For the
Three Months Ended
September 30,
For the
Nine Months Ended
September 30,
 2020201920202019
Revenues:    
Room$48,636 $123,112 $171,067 $382,868 
Food and beverage628 5,411 5,760 17,565 
Other3,148 5,162 9,406 15,134 
Total revenues52,412 133,685 186,233 415,567 
Expenses:    
Room11,352 27,898 42,340 84,151 
Food and beverage520 4,437 4,890 13,596 
Other hotel operating expenses22,535 38,969 74,406 118,317 
Property taxes, insurance and other11,007 10,696 34,171 32,799 
Management fees1,335 3,676 5,051 13,280 
Depreciation and amortization27,503 23,202 82,147 72,517 
Corporate general and administrative4,652 5,532 14,635 17,442 
Provision for credit losses  2,530  
Loss on impairment of assets  782 1,685 
Total expenses78,904 114,410 260,952 353,787 
Gain (loss) on disposal of assets, net211 (31)176 39,655 
Operating (loss) income(26,281)19,244 (74,543)101,435 
Other income (expense):    
Interest expense(10,904)(9,450)(32,665)(30,068)
Other income, net1,278 1,808 4,260 3,255 
Total other income (expense)(9,626)(7,642)(28,405)(26,813)
(Loss) income from continuing operations before income taxes(35,907)11,602 (102,948)74,622 
Income tax benefit (expense) (Note 12)132 24 (1,589)(1,027)
Net (loss) income(35,775)11,626 (104,537)73,595 
Less - Loss (income) attributable to non-controlling interests:
Operating Partnership70 (15)203 (150)
Joint venture1,159 (77)4,049 (77)
Net (loss) income attributable to Summit Hotel Properties, Inc.(34,546)11,534 (100,285)73,368 
Preferred dividends(3,710)(3,710)(11,128)(11,128)
Net (loss) income attributable to common stockholders$(38,256)$7,824 $(111,413)$62,240 
(Loss) earnings per share:  
Basic and diluted$(0.37)$0.07 $(1.07)$0.60 
Weighted average common shares outstanding:    
Basic104,200 103,935 104,117 103,861 
Diluted104,200 103,970 104,117 103,916 
 
See Notes to the Condensed Consolidated Financial Statements
2


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands)
 For the
Three Months Ended
September 30,
For the
Nine Months Ended
September 30,
 2020201920202019
Net (loss) income$(35,775)$11,626 $(104,537)$73,595 
Other comprehensive income (loss), net of tax:    
Changes in fair value of derivative financial instruments2,834 (4,140)(17,233)(18,972)
Comprehensive (loss) income(32,941)7,486 (121,770)54,623 
Less - Comprehensive loss (income) attributable to non-controlling interests:    
Operating Partnership63 (6)233 (104)
Joint venture1,159 (77)4,049 (77)
Comprehensive (loss) income attributable to Summit Hotel Properties, Inc.(31,719)7,403 (117,488)54,442 
Preferred dividends(3,710)(3,710)(11,128)(11,128)
Comprehensive (loss) income attributable to common stockholders$(35,429)$3,693 $(128,616)$43,314 
 
See Notes to the Condensed Consolidated Financial Statements


3


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2020 and 2019
(Unaudited)
(in thousands, except share amounts)

Shares
of Preferred
Stock
Preferred
Stock
Shares
of Common
Stock
Common
Stock
Additional
Paid-In Capital
Accumulated Other
Comprehensive
Loss
Retained Earnings
(Deficit) and
Distributions
Total
Stockholders’
Equity
Non-controlling InterestsTotal
Equity
Operating
Partnership
Joint
Venture
Balance at June 30, 20209,400,000 $94 105,696,833 $1,057 $1,194,178 $(36,086)$(93,994)$1,065,249 $1,332 $64,955 $1,131,536 
Common stock redemption of common units— — 921 — 8 (1)— 7 (7)— — 
Dividends— — — — — — (3,710)(3,710)— — (3,710)
Equity-based compensation— — (1,746)— 1,514 — — 1,514 3 — 1,517 
Other comprehensive income— — — — — 2,827 — 2,827 7 — 2,834 
Net loss— — — — — — (34,546)(34,546)(70)(1,159)(35,775)
Balance at September 30, 20209,400,000 $94 105,696,008 $1,057 $1,195,700 $(33,260)$(132,250)$1,031,341 $1,265 $63,796 $1,096,402 
Balance at June 30, 20199,400,000 $94 105,126,626 $1,051 $1,187,715 $(16,236)$22,179 $1,194,803 $2,254 $ $1,197,057 
Contribution by non-controlling interest in joint venture— — — — — — — — — 13,764 13,764 
Common stock redemption of common units— — 40,000 1 383 (28)— 356 (356)— — 
Dividends— — — — — — (22,610)(22,610)(46)— (22,656)
Equity-based compensation— — (1,279)— 1,447 — — 1,447 3 — 1,450 
Other— — — — (44)— — (44)— — (44)
Other comprehensive loss— — — — — (4,131)— (4,131)(9)— (4,140)
Net income— — — — — — 11,534 11,534 15 77 11,626 
Balance at September 30, 20199,400,000 $94 105,165,347 $1,052 $1,189,501 $(20,395)$11,103 $1,181,355 $1,861 $13,841 $1,197,057 


See Notes to the Condensed Consolidated Financial Statements

4


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(in thousands, except share amounts)
 Shares
of Preferred
Stock
Preferred
Stock
Shares
of
Common
Stock
Common
Stock
Additional
Paid-In Capital
Accumulated Other
Comprehensive
Loss
Retained Earnings (Deficit)
and
Distributions
Total
Stockholders’
Equity
Non-controlling InterestsTotal
Equity
Operating
Partnership
Joint
Venture
Balance at December 31, 20199,400,000 $94 105,169,515 $1,052 $1,190,949 $(16,034)$(2,283)$1,173,778 $1,809 $67,803 $1,243,390 
Contribution by non-controlling interests in joint venture— — — — — — — — — 577 577 
Common stock redemption of common units— — 34,500 — 306 (23)— 283 (283)— — 
Dividends— — — — — — (29,682)(29,682)(37)(535)(30,254)
Equity-based compensation— — 557,338 6 4,943 — — 4,949 9 — 4,958 
Shares acquired for employee withholding requirements— — (65,345)(1)(468)— — (469)— — (469)
Other— — — — (30)— — (30)— — (30)
Other comprehensive loss— — — — — (17,203)— (17,203)(30)— (17,233)
Net loss— — — — — — (100,285)(100,285)(203)(4,049)(104,537)
Balance at September 30, 20209,400,000 $94 105,696,008 $1,057 $1,195,700 $(33,260)$(132,250)$1,031,341 $1,265 $63,796 $1,096,402 
Balance at December 31, 20189,400,000 $94 104,783,179 $1,048 $1,185,310 $(1,441)$4,838 $1,189,849 $2,295 $ $1,192,144 
Contribution by non-controlling interest in joint venture— — — — — — — — — 13,764 13,764 
Common stock redemption of common units— — 46,076 1 436 (28)— 409 (409)— — 
Dividends— — — — — — (67,103)(67,103)(140)— (67,243)
Equity-based compensation— — 410,432 4 4,751 — — 4,755 11 — 4,766 
Shares acquired for employee withholding requirements— — (74,340)(1)(838)— — (839)— — (839)
Other— — — — (158)— — (158)— — (158)
Other comprehensive loss— — — — — (18,926)— (18,926)(46)— (18,972)
Net income— — — — — — 73,368 73,368 150 77 73,595 
Balance at September 30, 20199,400,000 $94 105,165,347 $1,052 $1,189,501 $(20,395)$11,103 $1,181,355 $1,861 $13,841 $1,197,057 
 
See Notes to the Condensed Consolidated Financial Statements

5


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 For the
Nine Months Ended
September 30,
 20202019
OPERATING ACTIVITIES  
Net (loss) income$(104,537)$73,595 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:  
Depreciation and amortization82,147 72,517 
Amortization of deferred financing costs1,655 1,041 
Loss on impairment of assets782 1,685 
Provision for credit losses2,530  
Equity-based compensation4,958 4,766 
Deferred tax asset, net2,058  
Gain on disposal of assets, net(176)(39,655)
Non-cash interest income(2,297)(1,713)
Debt transaction costs336 1,847 
Other303 369 
Changes in operating assets and liabilities:  
Trade receivables, net732 (4,514)
Prepaid expenses and other2,043 1,754 
Accounts payable(311)126 
Accrued expenses and other(11,614)7,796 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES(21,391)119,614 
INVESTING ACTIVITIES  
Acquisition of hotel properties and land (32,277)
Improvements to hotel properties(19,234)(46,708)
Proceeds from asset dispositions, net 143,962 
Contract termination payment for asset dispositions(2,200) 
Funding of real estate loans(6,171)(7,228)
Proceeds from principal payments on real estate loans250 2,050 
Increase in escrow deposits for acquisitions (3,000)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES(27,355)56,799 
FINANCING ACTIVITIES  
Borrowings on revolving credit facilities191,500 135,000 
Principal payments on debt(122,789)(251,360)
Dividends paid(30,495)(67,751)
Proceeds from contribution by non-controlling interests in joint venture577 13,764 
Financing fees on debt and other issuance costs(2,804)(1,873)
Repurchase of common shares for withholding requirements(469)(839)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES35,520 (173,059)
Net change in cash, cash equivalents and restricted cash(13,226)3,354 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH  
Beginning of period69,833 72,556 
End of period$56,607 $75,910 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION  
Cash payments for interest$(30,927)$(30,822)
Accrued improvements to hotel properties$(1,668)$(6,272)
Cash receipts from income tax refunds$516 $369 
 
See Notes to the Condensed Consolidated Financial Statements
6


SUMMIT HOTEL PROPERTIES, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 - DESCRIPTION OF BUSINESS
 
General

Summit Hotel Properties, Inc. (the “Company”) is a self-managed hotel investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. Unless the context otherwise requires, “we,” “us,” and “our” refer to the Company and its consolidated subsidiaries.
 
We focus on owning premium-branded hotels with efficient operating models primarily in the Upscale segment of the lodging industry. At September 30, 2020, our portfolio consisted of 72 hotels with a total of 11,288 guestrooms located in 23 states. As of September 30, 2020, we own 100% of the outstanding equity interests in 67 of our 72 hotels. We own a 51% controlling interest in five hotels that we acquired in 2019 through a joint venture. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to our taxable REIT subsidiaries (“TRS Lessees”).

Risks and Uncertainties
 
The Company is subject to risks and uncertainties as a result of the effects of the novel coronavirus, designated as COVID-19 (“COVID-19”). The COVID-19 pandemic has had and will continue to have a material adverse effect on our operations. The Company first began to experience effects from COVID-19 in March 2020, when the World Health Organization (“WHO”) declared a public health emergency of international concern related to COVID-19. By March 31, 2020, stay-at-home directives had been issued in many states across the United States and many local jurisdictions had additionally required the temporary closure of businesses deemed to be non-essential.

These actions and restrictions have had a significant negative effect on the U.S. and global economies, including a rapid and sharp decline in all forms of travel, both domestic and international, and a significant decline in hotel demand. These conditions have resulted in a substantial decline in our revenues, profitability and cash flows from operations during the first nine months of 2020 and are expected to continue to materially adversely affect our operations and financial results until consumer confidence is restored and a recovery in hospitality and travel-related demand occurs. The COVID-19 pandemic has also led to a disruption and volatility of the capital markets for the hospitality and travel-related industries, which could increase our cost of and limit accessibility to capital. 

During the third quarter of 2020, many jurisdictions eased restrictions on travel and business operations as conditions have permitted. As a result, our business experienced gradual improvement, mostly as the result of an increase in leisure travel and small group business. There can be no assurance that these restrictions will continue to be eased or that we will continue to experience sustained improvement in our operations.

The COVID-19 pandemic caused the Company to temporarily suspend operations at six hotels containing 934 guestrooms in March 2020. An additional nine hotels, containing 1,278 guestrooms, each of which is adjacent to another of our hotels ("Sister Properties"), continued to accept reservations, but guests were directed to Sister Properties. In May of 2020, five hotels containing 682 guestrooms and four hotel properties adjacent to Sister Properties containing 506 guestrooms were re-opened. During the third quarter of 2020, two hotel properties adjacent to Sister Properties containing 309 guestrooms were re-opened. As of September 30, 2020, only one hotel with 252 guestrooms still has suspended operations and guests at three other hotels containing 463 guestrooms are being directed to Sister Properties.

7


The duration and severity of the effects of the COVID-19 pandemic are highly uncertain and difficult to predict. As such, the Company has taken several actions to mitigate the effects of the COVID-19 pandemic on the Company, including the following:

Borrowed a net amount of $50.0 million on our $400 million unsecured revolving credit facility (“$400 Million Revolver”) during the nine months ended September 30, 2020 to meet our near-term funding needs and ensured the availability of sufficient capacity under the $400 Million Revolver to provide adequate liquidity should we experience a protracted disruption in lodging demand.

Amended loan agreements of our 2018 Unsecured Credit Facility, 2017 Term Loan and 2018 Term Loan to provide for financial covenant waivers through March 31, 2021, to modify or waive compliance with certain financial covenant measures for the final three quarters of 2021 and to access additional borrowing capacity of $150.0 million under our $400 Million Revolver. At October 23, 2020, we had $35.3 million of consolidated unrestricted cash on hand and an additional $225.0 million of undrawn availability on our $400 Million Revolver, as amended by the First Amendment (as defined below). We have no debt maturing before November 2022.

Amended our joint venture credit agreement to provide for a financial covenant waiver through March 31, 2021, to modify certain financial covenant measures through June 30, 2022, and to access additional availability to fund operating expense deficits and various capital expenditures.

Suspended the declaration and payment of dividends on our common stock and operating partnership units. This will conserve an additional $19.0 million of cash quarterly, or $75.0 million on an annualized basis.

Postponed all non-essential capital improvement projects planned for 2020 beyond those already substantially complete, which is expected to reduce previously planned total capital expenditures by at least $35.0 million, or over 50% based on the midpoint of our previously provided guidance range of total capital expenditures for 2020.

Adopted comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities, at all hotels. Certain labor costs and services or amenities have been added back on a limited basis as improvements in occupancy levels have supported. As described above, we temporarily suspended operations at certain hotels in response to specific government mandates or as the result of adverse market conditions.

Negotiated the temporary suspension of FF&E reserve funding requirements for certain of our hotels and facilitated the interim or permanent use of cash deposited in our restricted cash reserve for replacement of furniture, fixtures and equipment ("FF&E Reserve Accounts") of certain of our hotels for general working capital purposes.

Implemented a voluntary 25% temporary reduction of base salaries and fees, respectively, for executive officers and independent members of the Board of Directors from April 2020 to June 2020.

Furloughed approximately 25% of the corporate-level staff in April 2020. Certain of the furloughed staff have been reinstated during the second and third quarters of 2020 to meet specific needs of the Company as supported by our operating performance, but the majority of the furloughed positions were permanently eliminated during the third quarter.

Implemented temporary salary reductions for the majority of our remaining non-executive employees from April 2020 to June 2020.

Implemented a temporary hiring freeze for any new corporate-level positions.

It is currently extremely difficult to predict the length of time it will take for us to return to pre-pandemic operational and financial performance. Despite the uncertainty, based on the actions we have taken, we believe we have sufficient cash and access to liquidity to meet our obligations for at least the next twelve months.

8


NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
We prepare our Condensed Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and nine months ended September 30, 2020 may not be indicative of the results that may be expected for the full year of 2020. For further information, please read the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The accompanying Condensed Consolidated Financial Statements consolidate the accounts of all entities in which we have a controlling financial interest, as well as variable interest entities for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

We evaluate joint venture partnerships to determine if they should be consolidated based on whether the partners exercise joint control. For a joint venture where we exercise primary control and we also own a majority of the equity interests, we consolidate the joint venture partnership. We have consolidated the accounts of our joint venture partnership with GIC in our accompanying Condensed Consolidated Financial Statements. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for further information.
 
Investment in Hotel Properties
 
The Company allocates the purchase price of acquired hotel properties based on the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Intangible assets may include certain value associated with