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Summit Hotel Properties Third Quarter Total Revenues Up 26.7%

2012-11-08

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Summit Hotels Pro forma RevPAR for the quarter ended September 30, 2012, increased 11.6 percent to $72.24 as a result of a 5.6 percent increase in average daily rate (ADR) to $97.72 and a 5.7 percent increase in occupancy to 73.9 percent.

Summit Hotel Properties, Inc. (NYSE: INN) announced results for the third quarter ended September 30, 2012. The Company’s results include the following:

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

Third Quarter Highlights

Pro forma RevPAR: Pro forma RevPAR for the quarter ended September 30, 2012, increased 11.6 percent to $72.24 as a result of a 5.6 percent increase in average daily rate (ADR) to $97.72 and a 5.7 percent increase in occupancy to 73.9 percent.
Pro forma Hotel EBITDA: Pro forma Hotel EBITDA was $17.4 million for the third quarter, an increase of 20.9 percent over third quarter 2011.
Pro forma Hotel EBITDA Margin: Pro forma Hotel EBITDA Margin for the third quarter was 33.9 percent, an improvement of 261 basis points over the comparable period of 2011. Hotel EBITDA Margin is defined as Hotel EBITDA as a percentage of total revenue.
Adjusted EBITDA: Adjusted EBITDA was $15.2 million, an increase of 25.8 percent as compared to third quarter 2011.
Adjusted FFO: Adjusted FFO for the third quarter 2012 was $9.7 million or $0.26 per diluted share/unit. Included in AFFO is $0.3 million of income tax expense. The Company anticipates a tax benefit in the fourth quarter and for the full year. Therefore, after adjusting for the tax expense, the Company views its third quarter AFFO results as $0.27 per diluted share/unit.
Acquisition: The Company acquired a 96 room Residence Inn by Marriott, located in Dallas (Arlington), TX for a purchase price of $15.5 million on July 2, 2012.
Dividends: The Company declared third quarter 2012 dividends of $0.1125 per common share on October 31, 2012, representing an annualized yield of approximately 5.4 percent based on the closing price of the Company’s common stock on the NYSE on November 6, 2012, and $0.5781 per share on the Company’s 9.25% Series A Cumulative Redeemable Preferred Stock.


Third Quarter and Year-to-Date Results

	Third Quarter				Year-to-Date
	2012		2011		2012		2011
	($ in thousands, except per share/unit data)

Total revenue	$	51,234	$	40,437	$	138,425	$	109,663
EBITDA (1)	$	14,491	$	11,887	$	35,386	$	30,368
Adjusted EBITDA (1)	$	15,246	$	12,120	$	40,691	$	32,125
FFO (1)	$	9,001	$	8,433	$	22,469	$	14,931
Adjusted FFO (1)	$	9,743	$	8,666	$	25,999	$	22,591
FFO per diluted share/unit (1)	$	0.24	$	0.23	$	0.60	$	0.47
Adjusted FFO per diluted share/unit (1)	$	0.26	$	0.23	$	0.70	$	0.49

Pro Forma (2)
RevPAR	$	72.24	$	64.75	$	68.28	$	62.14
RevPAR growth		11.6%				9.9%
Hotel EBITDA	$	17,369	$	14,366	$	47,556	$	40,446
Hotel EBITDA margin		33.9%		31.3%		32.9%		31.0%
Hotel EBITDA margin growth	261 bps				199 bps

(1)		See tables later in this press release for a reconciliation to net income (loss) of earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, funds from operations (“FFO”), FFO per diluted share/unit, adjusted FFO and adjusted FFO per diluted share/unit. EBITDA, adjusted EBITDA, FFO, FFO per diluted share/unit, adjusted FFO and adjusted FFO per diluted share/unit, as well as hotel EBITDA, are non-GAAP financial measures. See further discussions of these non-GAAP measures and reconciliations to net income (loss) later in this press release.
(2)		For purposes of this press release, pro forma information includes operating results for the Company’s 73 hotels owned as of September 30, 2012, as if such hotels had been owned by the Company since January 1, 2011. As a result, these pro forma operating measures include operating results for certain hotels for periods prior to the Company’s ownership.

Recent Developments

Capital Markets

On October 3, 2012, the Company closed on its initial follow on public offering of 12,000,000 shares of its common stock, par value $0.01 per share, an increase of 20.0 percent over the previously announced offering size of 10,000,000 shares, at a price of $8.15 per share. The underwriters of the Company’s offering fully exercised their option to purchase an additional 1,800,000 shares. The total number of shares sold, including the option shares, was 13,800,000. Total net proceeds of approximately $107.0 million were realized after deducting the underwriting discount and other estimated offering expenses.

On November 6, 2012, the Company increased the commitment on its revolving credit facility to $150 million. The increased revolving credit facility increases the capital the Company has available for future acquisitions and capital investments. The actual amount of borrowing capacity available under the facility depends on the value of the properties comprising the borrowing base that secure the credit facility.

Acquisitions

The Company continues to actively acquire hotels, having closed the acquisition of nine hotels, totaling 1,141 rooms, with an average purchase price per key of $82,901 since September 30, 2012.

The hotels purchased include:


Hotel	Location	Rooms
Hyatt Place-Arlington	Dallas (Arlington), TX	127
Hyatt Place-Park Meadows	Denver (Lone Tree), CO	127
Hyatt Place-Denver Tech Center	Denver (Englewood), CO	126
Hyatt House-Denver Tech Center	Denver (Englewood), CO	135
Hyatt Place-Owings Mills	Baltimore (Owings Mills), MD	123
Hyatt Place-Lombard	Chicago (Lombard), IL	151
Hyatt Place-Phoenix	Phoenix, AZ	127
Hyatt Place-Scottsdale	Scottsdale, AZ	127
Hilton Garden Inn - Fort Worth	Fort Worth, TX	98
	Total	1,141

During 2012, the Company has acquired 16 hotels totaling 2,477 rooms, an increase of 22.3 percent over the number of rooms at December 31, 2011. As of November 6, 2012, the Company owns 82 hotels totaling 8,674 rooms.

Other

On October 30, 2012, we entered into an agreement with an affiliate of Hyatt Hotels Corporation to fund $20 million in the form of a first lien mortgage loan on a hotel property in downtown Minneapolis, MN. The $20 million represents a portion of the total acquisition and renovation costs expected to be incurred to convert the property to a Hyatt Place hotel. Subject to certain conditions, including the successful conversion of the property estimated to be completed in the summer of 2013, we plan to purchase the property and enter into a management agreement with a Hyatt affiliate.

“We had exceptional performance in the third quarter, exceeding expectations,” said Dan Hansen, president and CEO. “Our RevPAR and EBITDA growth were industry leading. We believe our performance combined with our recent acquisition of nine hotels, our successful follow on common stock offering, and our robust pipeline for future acquisitions position us to provide solid shareholder returns.”

Capital Investments

The Company deployed $5.3 million in capital for renovations during the third quarter. The major improvements and capital invested during the third quarter included: Baton Rouge, LA Springhill Suites by Marriott - $0.7 million; Nashville, TN Springhill Suites by Marriott - $0.7 million; Jackson (Ridgeland), MS Homewood Suites - $0.6 million; Baton Rouge, LA Fairfield Inn by Marriott - $0.5 million; Fort Smith, AR Hampton Inn - $0.5 million; El Paso, TX Courtyard by Marriott - $0.4 million; El Paso, TX Hampton Inn & Suites - $0.4 million. Varying in scope, the major improvements listed above include renovation to guestrooms, common areas, and exteriors of the hotels. The Company anticipates deploying up to $11.0 million on renovations and other non-recurring capital expenditures in the fourth quarter.

Dispositions

The Company continued its strategy of recycling capital by selling hotels or land that it no longer considers relevant to its strategy of owning hotels with best brands in best markets. In August 2012, the Company sold the 52 room AmericInn Hotel & Suites in Missoula, MT for approximately $1.9 million.

Year-to-Date Highlights

For the nine-months ended September 30, 2012, pro forma RevPAR increased 9.9 percent to $68.28 as a result of pro forma ADR growth of 3.5 percent to $96.22 and a 6.2 percent increase in pro forma occupancy to 71.0 percent. RevPAR improvement was the result of the positive effect of recent renovations, the recent rebranding of 10 hotels, and general economic improvement in many of the Company’s markets. Pro forma Hotel EBITDA year to date was $47.6 million, a 17.6 percent increase over the comparable period in 2011. Pro forma Hotel EBITDA margin was 32.9 percent for the period, a 199 basis points margin expansion over the same period in 2011. The Company’s pro forma Hotel EBITDA margin expansion was 243 basis points after adjusting for the $0.6 million one-time hotel management fee concessions agreed to by Interstate Hotels and Resorts during second quarter 2011.

Adjusted EBITDA was $40.7 million for the first nine-months of 2012, a 26.7 percent increase over the same period in 2011.

Balance Sheet

As of September 30, 2012, the Company had total outstanding debt of $312.3 million, including $69.9 million outstanding on its senior secured credit facility, and the Company had $10.3 million of cash and cash equivalents. As of November 6, 2012, the Company had $69.4 million outstanding on its senior secured credit facility with additional borrowing capacity of $43.0 million on its credit facility and 15 unencumbered hotels available to further expand capacity on its credit facility. The Company’s weighted average interest rate on its secured debt was 5.02% as of November 6, 2012.

2012 Outlook

The Company is providing fourth quarter guidance and increasing its 2012 full year outlook to reflect performance in the third quarter and to include its recent acquisitions including the 96 room Residence Inn by Marriott, Dallas (Arlington), TX, 127 room Hyatt Place, Dallas (Arlington), TX, 127 room Hyatt Place-Park Meadows, Denver (Lone Tree), CO, 126 room Hyatt Place-Denver Tech Center, Denver (Englewood), CO, 135 room Hyatt House-Denver Tech Center, Denver (Englewood), CO, 123 room Hyatt Place-Owings Mills, Baltimore (Owings Mills), MD, 151 room Hyatt Place-Lombard, Chicago (Lombard), IL, 127 room Hyatt Place-Phoenix, Phoenix, AZ, 127 room Hyatt Place-Scottsdale, Scottsdale, AZ and 98 room Hilton Garden Inn, Fort Worth, TX and the issuance of 13,800,000 additional common shares described above. The Company’s outlook is based on 82 current hotels owned and assumes no additional hotels acquired or sold for the remainder of 2012 and no additional issuances of equity securities.


	Fourth Quarter 2012
	Low-end		High-end

RevPAR	$	63.50	$	64.75
RevPAR growth		7.0%		9.0%
RevPAR (same-store 61 hotels)	$	55.50	$	56.50
RevPAR growth (same-store 61 hotels)		8.0%		10.0%
Adjusted FFO	$	5,700	$	6,600
Adjusted FFO per diluted share/unit	$	0.11	$	0.13
Renovation capital deployed	$	8,000	$	11,000


	Updated				Previous
	2012 Full Year Outlook				2012 Full Year Outlook
	Low-end		High-end		Low-end		High-end
RevPAR	$	65.50		66.75	$	71.53	$	72.87
RevPAR Growth		7.0%		9.0%		6.50%		8.50%
RevPAR (same-store 61 hotels)	$	62.00	$	63.25	$	61.54	$	62.70
RevPAR Growth (Same-store 61 hotels)		8.0%		10.0%		6.50%		8.50%
Adjusted FFO	$	31,900	$	32,500	$	28,600	$	29,800
Adjusted FFO per diluted share/unit	$	0.78	$	0.80	$	0.77	$	0.80
Renovation Capital Deployed	$	25,000	$	28,000	$	20,000	$	25,000

(1)		Assumptions include US 2012 GDP growth of 1.75% to 2.0%.
(2)		Fourth quarter and full year same-store RevPAR guidance anticipates 150 basis points of RevPAR disruption and $0.2 million of EBITDA disruption in the fourth quarter of 2012 due to renovation work.
(3)		Fourth quarter 2012 AFFO guidance includes an anticipated $0.8 million to $1.0 million income tax benefit; resulting in a similar anticipated income tax benefit for the full year.
(4)		Assumed weighted average diluted common shares/units of 51,086,000 for fourth quarter and 40,912,000 for the full year 2012.

About Summit Hotel Properties

Summit Hotel Properties, Inc. is a publicly traded real estate investment trust focused primarily on acquiring and owning premium-branded select-service hotels in the upscale and upper midscale segments of the lodging industry. As of November 6, 2012, the Company’s portfolio consisted of 82 hotels with a total of 8,674 rooms located in 21 states.



SUMMIT HOTEL PROPERTIES
Condensed Consolidated Balance Sheets
September 30, 2012 (Unaudited) and December 31, 2011

	2012		2011
ASSETS

Cash and cash equivalents	$	10,287,841	$	10,537,132
Restricted cash		4,275,143		1,464,032
Trade receivables		6,666,212		3,424,630
Prepaid expenses and other		4,390,302		4,268,393
Land held for development		19,006,473		20,294,973
Property and equipment, net		572,525,464		498,876,238
Deferred charges and other assets, net		8,986,646		8,923,906
Deferred tax benefit		2,708,849		2,195,820
Other assets		4,257,462		4,019,870
TOTAL ASSETS	$	633,104,392	$	554,004,994


LIABILITIES AND EQUITY

LIABILITIES
Accounts payable	$	1,254,050	$	1,670,994
Derivative liabilities		522,564		-
Accrued expenses		17,723,139		15,781,577
Mortgages and notes payable		312,250,257		217,103,728
TOTAL LIABILITIES		331,750,010		234,556,299

COMMITMENTS AND CONTINGENCIES

EQUITY		301,354,382		319,448,695

TOTAL LIABILITIES AND EQUITY	$	633,104,392	$	554,004,994


SUMMIT HOTEL PROPERTIES
Condensed Consolidated Statements of Operations
(Unaudited)

										Company and
	Company									Predecessor
	Three months			Three months			Nine months			Nine months
	ended 09/30/12			ended 09/30/11			ended 09/30/12			ended 09/30/11

REVENUE
Room revenue	$	50,062,745		$	39,589,802		$	135,132,550		$	107,360,347
Other hotel operations revenue		1,171,162			846,774			3,292,311			2,302,943
Total Revenue		51,233,907			40,436,576			138,424,861			109,663,290

EXPENSES
Hotel operating expenses
Rooms		13,990,364			11,789,795			39,036,709			32,498,487
Other direct		5,957,531			5,371,116			15,983,050			14,839,145
Other indirect		13,690,221			10,354,525			37,492,154			28,486,700
Other		226,496			243,434			669,500			590,557
Total hotel operating expenses		33,864,612			27,758,870			93,181,413			76,414,889
Depreciation and amortization		8,503,841			8,108,644			24,836,200			21,226,273
Corporate general and administrative:
Salaries and other compensation		1,645,359			791,044			3,563,325			2,168,560
Other		823,480			625,609			2,757,611			2,166,420
Loan transaction costs		227,577			-			650,687			-
Hotel property acquisition costs		245,782			181,892			1,573,015			181,892
Total Expenses		45,310,651			37,466,059			126,562,251			102,158,034

INCOME (LOSS) FROM OPERATIONS		5,923,256			2,970,517			11,862,610			7,505,256

OTHER INCOME (EXPENSE)
Interest income		17,863			553			19,554			21,919
Other income		22,697			-			497,273			-
Interest expense		(4,048,676	)		(3,337,485	)		(11,747,874	)		(14,231,174	)
Gain (loss) on disposal of assets		(12,206	)		-			(198,795	)		(36,031	)
Gain (loss) on derivatives		(775	)		-			(1,787	)		-
Total Other Income (Expense)		(4,021,097	)		(3,336,932	)		(11,431,629	)		(14,245,286	)

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES		1,902,159			(366,415	)		430,981			(6,740,030	)

INCOME TAX (EXPENSE) BENEFIT		(313,199	)		1,688			98,657			(821,206	)

INCOME (LOSS) FROM CONTINUING OPERATIONS		1,588,960			(364,727	)		529,638			(7,561,236	)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS		51,866			406,149			(2,050,413	)		385,842

NET INCOME (LOSS)		1,640,826			41,422			(1,520,775	)		(7,175,394	)

PREFERRED DIVIDENDS		(1,156,250	)		-			(3,468,750	)		-

NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON UNIT HOLDERS	$	484,576		$	41,422		$	(4,989,525	)	$	(7,175,394	)


Basic and diluted net income (loss) per unit:	$	0.01		$	0.00		$	(0.13	)	$	(0.03	)

Weighted-average common units outstanding:

Basic		37,393,288			37,378,000			37,384,795			37,378,000

Diluted		37,586,027			37,378,000			37,384,795			37,378,000


SUMMIT HOTEL PROPERTIES
FFO
(Unaudited)

									Company and
	Company								Predecessor
	Three months			Three months		Nine months			Nine months
	ended 09/30/12			ended 09/30/11		ended 09/30/12			ended 09/30/11

NET INCOME (LOSS)	$	1,640,826		$	41,422	$	(1,520,775	)	$	(7,175,394	)
Preferred dividends		(1,156,250	)		-		(3,468,750	)		-
Depreciation and amortization		8,503,841			8,391,915		25,161,462			22,069,954
Loss on impairment of assets		-			-		2,098,000			-
(Gain) loss on disposal of assets		12,206			-		198,795			36,031
Funds From Operations	$	9,000,623		$	8,433,337	$	22,468,732		$	14,930,591
Per Common share/unit	$	0.24		$	0.23	$	0.60		$	0.40


Equity based compensation		268,684			51,201		783,253			353,685
Hotel property acquisition costs		245,782			181,892		1,573,015			181,892
Loan transaction costs		227,577			-		650,687			-
Unrealized (gain) loss on derivatives		775			-		1,787			-
Operating expenses as result of IPO (1)		-			-		-			710,000
Corporate G&A related to IPO (1)		-			-		-			476,000
Interest expense on prepayment penalties (1)		-			-		521,773			5,600,000
Income tax expense as result of IPO (1)		-			-		-			339,000
Adjusted Funds From Operations	$	9,743,441		$	8,666,430	$	25,999,247		$	22,591,168
Per Common share/unit	$	0.26		$	0.23	$	0.69		$	0.60

Weighted average diluted Common shares/units		37,586,027			37,378,000		37,491,872			37,378,000

Note:

	(1)	Includes non-recurring expenses related to the transfer and assumption of indebtedness and other contractual obligations of our predecessor in connection with the IPO and our formation transactions in 2011.


SUMMIT HOTEL PROPERTIES
EBITDA
(Unaudited)

										Company and
	Company									Predecessor
	Three months			Three months			Nine months			Nine months
	ended 09/30/12			ended 09/30/11			ended 09/30/12			ended 09/30/11

NET INCOME (LOSS)	$	1,640,826		$	41,422		$	(1,520,775	)	$	(7,175,394	)
Depreciation and amortization		8,503,841			8,391,915			25,161,462			22,069,954
Interest expense		4,048,676			3,456,335			11,878,610			14,641,320
Interest income		(17,863	)		(553	)		(19,554	)		(21,919	)
Income tax expense (benefit)		315,765			(1,813	)		(113,888	)		853,700
EBITDA	$	14,491,245		$	11,887,306		$	35,385,855		$	30,367,661


Equity based compensation		268,684			51,201			783,253			353,685
Hotel property acquisition costs		245,782			181,892			1,573,015			181,892
Loan transaction costs		227,577			-			650,687			-
Unrealized (gain) loss on derivatives		775			-			1,787			-
(Gain) loss on disposal of assets		12,206			-			198,795			36,031
Loss on impairment of assets		-			-			2,098,000			-
Operating expenses as result of IPO (1)		-			-			-			710,000
Corporate G&A related to IPO (1)		-			-			-			476,000
ADJUSTED EBITDA	$	15,246,269		$	12,120,399		$	40,691,392		$	32,125,269

Note:

	(1)	Includes non-recurring expenses related to the transfer and assumption of indebtedness and other contractual obligations of our predecessor in connection with the IPO and our formation transactions in 2011.