Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o 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)
12600 Hill Country Boulevard, Suite R-100
Austin, TX 78738
(Address of principal executive offices, including zip code)
(512) 538-2300
(Registrant’s telephone number, including area code)
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.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
As of August 1, 2014, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 85,915,997.
TABLE OF CONTENTS
Page
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets — June 30, 2014 (unaudited) and December 31, 2013
1
Consolidated Statements of Operations (unaudited) — Three and Six Months Ended June 30, 2014 and 2013
2
Consolidated Statements of Comprehensive Income (unaudited) - Three and Six Months Ended June 30, 2014 and 2013
3
Consolidated Statements of Changes in Equity (unaudited) — Six Months Ended June 30, 2014 and 2013
4
Consolidated Statements of Cash Flows (unaudited) — Six Months Ended June 30, 2014 and 2013
5
Notes to the Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
PART II — OTHER INFORMATION
Legal Proceedings
40
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
42
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013
June 30,
December 31,
2014
2013
ASSETS
Investment in hotel properties, net
$
1,271,539
1,149,967
Investment in hotel properties under development
160
—
Land held for development
13,748
Assets held for sale
8,663
12,224
Cash and cash equivalents
41,728
46,706
Restricted cash
54,637
38,498
Trade receivables
13,142
7,231
Prepaid expenses and other
5,681
8,876
Derivative financial instruments
33
253
Deferred charges, net
10,413
10,270
Deferred tax asset
54
49
Other assets
8,525
6,654
TOTAL ASSETS
1,428,323
1,294,476
LIABILITIES AND EQUITY
LIABILITIES
Debt
579,932
435,589
Accounts payable
6,256
7,583
Accrued expenses
36,322
27,154
2,296
1,772
TOTAL LIABILITIES
624,806
472,098
COMMITMENTS AND CONTINGENCIES (Note 7)
EQUITY
Preferred stock, $.01 par value per share, 100,000,000 shares authorized:
9.25% Series A - 2,000,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $50,385 at June 30, 2014 and $50,398 at December 31, 2013)
20
7.875% Series B - 3,000,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $75,492 at June 30, 2014 and $75,324 at December 31, 2013)
30
7.125% Series C - 3,400,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $85,505 at June 30, 2014 and $85,522 at December 31, 2013)
34
Common stock, $.01 par value per share, 450,000,000 shares authorized, 85,857,241 and 85,402,408 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
859
854
Additional paid-in capital
884,420
882,858
Accumulated other comprehensive loss
(2,114
)
(1,379
Accumulated deficit and distributions
(87,724
(72,577
Total stockholders’ equity
795,525
809,840
Non-controlling interests in operating partnership
7,992
4,722
Non-controlling interests in joint venture
7,816
TOTAL EQUITY
803,517
822,378
TOTAL LIABILITIES AND EQUITY
See Notes to the Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)
For the Three Months Ended June 30,
For the Six Months Ended June 30,
REVENUES
Room revenue
99,680
75,123
184,232
131,764
Other hotel operations revenue
5,845
3,982
10,837
7,064
Total Revenues
105,525
79,105
195,069
138,828
EXPENSES
Hotel operating expenses:
Rooms
25,985
20,744
49,677
37,254
Other direct
13,214
9,483
25,234
17,263
Other indirect
27,041
20,267
50,900
35,570
Other
369
193
717
360
Total hotel operating expenses
66,609
50,687
126,528
90,447
Depreciation and amortization
16,645
12,727
32,075
23,378
Corporate general and administrative:
Salaries and other compensation
3,330
2,294
5,489
4,715
2,087
1,729
4,133
2,385
Hotel property acquisition costs
17
786
709
1,440
Loss on impairment of assets
660
Total Expenses
89,348
68,223
169,594
122,365
INCOME FROM OPERATIONS
16,177
10,882
25,475
16,463
OTHER INCOME (EXPENSE)
Interest income
122
18
172
35
Other income
64
63
104
223
Interest expense
(6,846
(4,879
(13,206
(8,929
Gain on disposal of assets
14
11
Gain (loss) on derivative financial instruments
(1
Total Other Expense, net
(6,647
(4,796
(12,920
(8,663
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
9,530
6,086
12,555
7,800
INCOME TAX (EXPENSE) BENEFIT
(329
(407
(149
INCOME FROM CONTINUING OPERATIONS
9,201
6,125
12,148
7,651
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
(41
545
337
902
NET INCOME
9,160
6,670
12,485
8,553
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Operating Partnership
61
133
51
105
Joint venture
124
89
52
NET INCOME ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, INC.
8,975
6,448
12,433
8,396
PREFERRED DIVIDENDS
(4,147
(3,844
(8,294
(6,296
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
4,828
2,604
4,139
2,100
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic
85,165
65,480
85,136
64,090
Diluted
85,663
65,954
85,596
64,452
EARNINGS PER SHARE
Basic and diluted net income per share from continuing operations
0.06
0.03
0.04
0.02
Basic and diluted net income per share from discontinued operations
0.01
Basic and diluted net income per share
0.05
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
Other comprehensive income (loss), net of tax:
Changes in fair value of derivative financial instruments
(676
710
(744
817
Total other comprehensive income (loss)
COMPREHENSIVE INCOME
8,484
7,380
11,741
9,370
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
53
166
143
COMPREHENSIVE INCOME ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, INC.
8,307
7,125
11,698
9,175
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
4,160
3,281
3,404
2,879
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except share amounts)
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)
Accumulated
Shares of
Total
Non-controlling Interests
Preferred
Common
Additional
Comprehensive
Deficit and
Stockholders’
Operating
Stock
Paid-In Capital
Income (Loss)
Distributions
Equity
Partnership
Joint Venture
BALANCES, DECEMBER 31, 2013
8,400,000
84
85,402,408
Common stock redemption of common units
151,504
234
236
(236
Common units issued for acquisition
3,685
Acquisition of non-controlling interest in joint venture
(415
(7,817
(8,232
Dividends paid
(27,580
(243
(27,823
Equity-based compensation
303,329
1,743
1,746
22
1,768
Other comprehensive loss
(735
(9
Net income
BALANCES, JUNE 30, 2014
85,857,241
BALANCES, DECEMBER 31, 2012
5,000,000
50
46,159,652
462
468,820
(528
(31,985
436,819
36,718
473,537
Net proceeds from sale of common stock
17,250,000
147,867
148,039
Net proceeds from sale of preferred stock
3,400,000
81,689
81,723
2,228,544
6,727
6,750
(6,750
Contribution by non-controlling interests in joint venture
7,500
(21,140
(703
(21,843
324,341
1,267
1,270
Other comprehensive income
779
38
BALANCES, JUNE 30, 2013
65,962,537
706,370
251
(44,729
662,636
29,408
7,552
699,596
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
32,084
24,814
Amortization of prepaid lease
24
1,060
1,500
(5
567
(28
(1,666
(Gain) loss on derivative financial instruments
(2
Changes in operating assets and liabilities:
Restricted cash - operating
(2,234
(721
(5,911
(6,250
3,106
(940
Accounts payable and accrued expenses
6,439
7,765
NET CASH PROVIDED BY OPERATING ACTIVITIES
48,789
34,914
INVESTING ACTIVITIES
Acquisitions of hotel properties
(89,985
(388,456
(154
Acquisition of land held for development
(2,800
Improvements and additions to hotel properties
(26,456
(18,292
Amounts drawn under note funding obligation
(2,000
Purchases of office furniture and equipment
(11
(316
Proceeds from asset dispositions, net of closing costs
2,668
25,094
Restricted cash - FF&E reserve
(2,364
(14,156
NET CASH USED IN INVESTING ACTIVITIES
(126,380
(399,080
FINANCING ACTIVITIES
Proceeds from issuance of debt
130,998
268,150
Principal payments on debt
(29,828
(96,810
Financing fees on debt
(734
(2,160
Proceeds from equity offerings, net of offering costs
237,262
Dividends paid and distributions to members
NET CASH PROVIDED BY FINANCING ACTIVITIES
72,613
384,599
NET CHANGE IN CASH AND CASH EQUIVALENTS
(4,978
20,433
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD
13,980
END OF PERIOD
34,413
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest
12,913
8,495
Capitalized interest
116
154
Cash payments for income taxes, net of refunds
617
676
Mortgage debt from acquisitions of hotel properties
43,172
33,532
Fair value of common units issued for acquisition
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS
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. On February 14, 2011, the Company closed on its initial public offering (“IPO”) of 26,000,000 shares of common stock and a concurrent private placement of 1,274,000 shares of common stock. Effective February 14, 2011, the Operating Partnership and Summit Hotel Properties, LLC (the “Predecessor”) completed the merger of the Predecessor with and into the Operating Partnership (the “Merger”). Unless the context otherwise requires, “we”, “us”, and “our” refer to the Company and its subsidiaries.
Summit Hotel OP, LP, the Operating Partnership subsidiary of the Company, filed a Form 15 on December 12, 2013 to voluntarily suspend its duty to file periodic and other reports with the Securities and Exchange Commission (the “SEC”) and to voluntarily deregister its common units of limited partnership interest under the Securities and Exchange Act of 1934 (the “Exchange Act”). As a result of filing the Form 15 with the SEC, the Operating Partnership is no longer required to file annual, quarterly or periodic reports with the SEC. The filing of the Form 15 by the Operating Partnership does not impact the registration of the Company’s common stock under the Exchange Act or the Company’s obligations as a reporting issuer under the Exchange Act.
At June 30, 2014, our portfolio consisted of 90 upscale and upper midscale hotels with a total of 11,367 guestrooms located in 22 states. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes commencing with our short taxable year ended December 31, 2011. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, substantially all of our hotels are leased to subsidiaries (“TRS Lessees”) of our taxable REIT subsidiary (“TRS”). We indirectly own 100% of the outstanding equity interests in all of our TRS Lessees. Prior to the second quarter of 2014, we indirectly owned an 81% controlling interest in the TRS Lessee associated with the Holiday Inn Express & Suites in San Francisco, CA, which we acquired in early 2013 through a joint venture. On June 30, 2014, we acquired the remaining 19% interest in the TRS Lessee as part of the purchase of the non-controlling joint venture interest in the hotel.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
We prepared these 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 of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete audited consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and six months ended June 30, 2014 may not be indicative of the results that may be expected for the full year 2014. For further information, please read the financial statements included in our Form 10-K for the year ended December 31, 2013.
Segment Disclosure
Accounting Standards Codification (“ASC”), ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, with activities related to investing in real estate. Our investments in real estate are geographically diversified and the chief operating decision makers evaluate operating performance on an individual asset level. As each of our assets has similar economic characteristics, the assets have been aggregated into one reportable segment.
Assets Held for Sale and Discontinued Operations
We classify assets as held for sale in the period in which certain criteria are met, including when the sale of the asset within one year is probable. Assets held for sale are no longer depreciated and are carried at the lower of carrying amount or fair value, less selling costs.
Historically, we presented the results of operations of hotel properties that had been sold or otherwise qualified as assets held for sale in discontinued operations if the operations and cash flows of the hotel properties had been or would be eliminated from our ongoing operations. Following adoption of ASU 2014-08 in the first quarter of 2014, as discussed below, we anticipate that the majority of future property sales will not be classified as discontinued operations.
We periodically review our hotel properties and our land held for development based on established criteria such as age, type of franchise, adverse economic and competitive conditions, and strategic fit, to identify properties which we believe are either non-strategic or no longer complement our business.
Non-controlling interests represent the portion of equity in a subsidiary held by owners other than the consolidating parent. Non-controlling interests are reported in the consolidated balance sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income (loss) attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations.
Our consolidated financial statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties and, prior to the second quarter of 2014, third-party ownership of a 19% interest in a consolidated joint venture.
Income Taxes
We are taxed as a REIT under certain provisions of the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute annually to our shareholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, which does not necessarily equal net income as calculated in accordance with GAAP. As a REIT, we generally will not be subject to federal income tax (other than taxes paid by our TRS) to the extent we distribute 100% of our REIT taxable income to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions.
We account for federal and state income taxes of our TRS using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amounts of existing assets and liabilities based on GAAP and respective carrying amounts for tax purposes, and operating losses and tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change in tax rates. However, deferred tax assets are recognized only to the extent that it is more likely than not they will be realized based on consideration of available evidence, including future reversals of taxable temporary differences, future projected taxable income and tax planning strategies.
7
Fair Value Measurement
Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1:
Observable inputs such as quoted prices in active markets.
Level 2:
Directly or indirectly observable inputs, other than quoted prices in active markets.
Level 3:
Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:
Market approach:
Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach:
Amount required to replace the service capacity of an asset (replacement cost).
Income approach:
Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).
Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.
We elected not to use the fair value option for cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other, debt, accounts payable, and accrued expenses. With the exception of our fixed-rate debt, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates.
New Accounting Standards
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The ASU changed the criteria for reporting discontinued operations while enhancing related disclosures. Criteria for discontinued operations will now include only disposals that represent a strategic shift in operations with a major effect on operations and financial results. The ASU is to be applied on a prospective basis and would be effective for us beginning January 1, 2015; however, we have elected early adoption in the first quarter of 2014, which is permitted for disposals, and classifications as held for sale, which have not been reported previously. While we have elected early adoption for our consolidated financial statements and footnote disclosures, the sale of the AmericInn Hotel & Suites, Aspen Hotel & Suites and Hampton Inn in Fort Smith, AR will be included in discontinued operations as these hotels were classified as held for sale in our consolidated financial statements in prior periods. The AmericInn Hotel & Suites and Aspen Hotel & Suites were sold in January 2014.
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its consolidated financial statements.
8
NOTE 3 - HOTEL PROPERTY ACQUISITIONS
Hotel property acquisitions in the six months ended June 30, 2014 and 2013 include (in thousands):
Date Acquired
Franchise/Brand
Location
Purchase Price
Debt Assumed
First Six Months 2014
January 9
Hilton Garden Inn
Houston, TX
37,500
17,846
January 10
Hampton Inn
Santa Barbara (Goleta), CA
27,900
12,037
January 24
Four Points by Sheraton
San Francisco, CA
21,250
March 14
DoubleTree by Hilton
39,060
13,289
Total Six Months Ended June 30, 2014
4 hotel properties
125,710
First Six Months 2013
January 22
Hyatt Place
Chicago (Hoffman Estates), IL
9,230
Orlando (Convention), FL
12,252
Orlando (Universal), FL
11,843
February 11
Holiday Inn Express & Suites (1)
60,500
23,423
March 11
SpringHill Suites by Marriott
New Orleans, LA
33,095
Courtyard by Marriott
New Orleans (Convention), LA
30,827
New Orleans (French Quarter), LA
25,683
New Orleans (Metairie), LA
23,539
Residence Inn by Marriott
19,890
April 30
Greenville, SC
15,250
May 21
IHG / Holiday Inn Express & Suites
Minneapolis (Minnetonka), MN
6,900
3,724
Minneapolis (Eden Prairie), MN
10,200
6,385
May 23
Fairfield Inn & Suites by Marriott
Louisville, KY
25,023
39,138
Indianapolis, IN
58,634
30,205
Total Six Months Ended June 30, 2013
16 hotel properties
412,209
(1) This hotel property was acquired by a joint venture in which we owned an 81% controlling interest. On June 30, 2014, we acquired the remaining non-controlling interest in the joint venture for $8.2 million. As a result, this hotel property became wholly-owned by us.
The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions follows (in thousands):
Land
8,600
57,276
Hotel buildings and improvements
114,713
341,903
Furniture, fixtures and equipment
3,389
14,996
2,800
11,542
9,308
Total assets acquired
138,244
426,283
Less debt assumed
(43,172
(33,532
Less lease liability assumed
(992
Less other liabilities
(1,402
(1,495
Net assets acquired
92,678
391,256
9
Total revenues and net income for hotel properties acquired in the three and six months ended June 30, 2014 and 2013, which are included in our consolidated statements of operations follows (in thousands):
2014 Acquisitions
2013 Acquisitions
Revenues
8,552
29,044
20,634
13,450
53,444
27,413
869
7,261
4,585
1,102
10,457
5,721
The results of operations of acquired hotel properties are included in the consolidated statements of operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information presents the results of operations as if all acquisitions in 2013 and the first six months of 2014 had taken place on January 1, 2013. The unaudited condensed pro forma information excludes discontinued operations, is for comparative purposes only, and is not necessarily indicative of what actual results of operations would have been had the hotel property acquisitions taken place on January 1, 2013. This information does not purport to represent results of operations for future periods.
The unaudited condensed pro forma financial information for the three and six months ended June 30, 2014 and 2013 follows (in thousands, except per share amounts):
94,607
197,184
179,950
8,527
12,006
12,304
Net income per share attributable to common stockholders - basic and diluted
0.07
0.09
NOTE 4 - INVESTMENT IN HOTEL PROPERTIES
Investment in hotel properties includes (in thousands):
163,359
154,831
1,120,298
993,372
Construction in progress
14,049
24,242
170,373
142,976
1,468,079
1,315,421
Less accumulated depreciation
(196,540
(165,454
10
NOTE 5 - ASSETS HELD FOR SALE
Assets held for sale include (in thousands):
300
1,183
Hotel building and improvements
7,969
10,290
394
751
At June 30, 2014, assets held for sale include a land parcel in Spokane, WA and the Hampton Inn in Fort Smith, AR which are both under contract to sell.
At December 31, 2013, assets held for sale include the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR which were sold on January 17, 2014, and the Hampton Inn in Fort Smith, AR and a land parcel in Spokane, WA, which are under contract to sell.
NOTE 6 - DEBT
Our debt is comprised of a senior unsecured credit facility and mortgage loans secured by various hotel properties. The weighted average interest rate, after giving effect to our interest rate derivatives, for all borrowings was 4.62% at June 30, 2014 and 5.03% at December 31, 2013. Our total fixed-rate and variable-rate debt, after giving effect to our interest rate derivatives, follows (in thousands):
Fixed-rate debt
472,046
358,590
Variable-rate debt
107,886
76,999
Information about the fair value of our fixed-rate debt that is not recorded at fair value follows (in thousands):
June 30, 2014
December 31, 2013
Carrying Value
Fair Value
Valuation Technique
Fixed-rate debt not recorded at fair value
368,712
355,285
329,544
319,429
Level 2 - Market approach
At June 30, 2014 and December 31, 2013, we had variable rate debt of $103.3 million and $104.0 million, respectively, which had effectively been converted to fixed interest rates through derivative financial instruments which are carried at fair value. Differences between carrying value and fair value of our fixed-rate debt are primarily due to changes in interest rates. Inherently, fixed-rate debt is subject to fluctuations in fair value as a result of changes in the current market rate of interest on the valuation date. For additional information on our use of derivatives as interest rate hedges, refer to “Note 11-Derivative Financial Instruments and Hedging.”
Senior Unsecured Credit Facility
At June 30, 2014, we have a $300.0 million senior unsecured credit facility. Deutsche Bank AG New York Branch (“Deutsche Bank”) is the administrative agent and Deutsche Bank Securities Inc. is the sole lead arranger. The syndication of lenders includes Deutsche Bank; Bank of America, N.A.; Royal Bank of Canada; Key Bank; Regions Bank; Fifth Third Bank; Raymond James Bank, N.A.; and U.S. Bank National Association. Certain of our existing and future subsidiaries that own or lease an “unencumbered asset” are required to guaranty this credit facility.
The senior unsecured credit facility is comprised of a $225.0 million revolving credit facility (the “$225 Million Revolver”) and a $75.0 million term loan (the “$75 Million Term Loan”). This credit facility has an accordion feature which will allow us to increase the commitments under the $225 Million Revolver and the $75 Million Term Loan by an aggregate of $100.0 million prior to October 10, 2017. The $225 Million Revolver will mature on October 10, 2017, which can be extended to October 10, 2018 at our option, subject to certain conditions. The $75 Million Term Loan will mature on October 10, 2018.
At June 30, 2014, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which, we had $156.0 million borrowed, $13.8 million in standby letters of credit, and $130.2 million available to borrow.
Term Loans
At June 30, 2014, we had $498.9 million in term loans outstanding. These term loans are secured primarily by first mortgage liens on hotel properties.
On January 9, 2014, as part of our acquisition of the 182-guestroom Hilton Garden Inn in Houston, TX, we assumed a $17.8 million mortgage loan with a fixed interest rate of 6.22%, an amortization period of 30 years, and a maturity date of November 1, 2016.
On January 10, 2014, as part of our acquisition of the 98-guestroom Hampton Inn in Santa Barbara (Goleta), CA, we assumed a $12.0 million mortgage loan with a fixed interest rate of 6.133%, an amortization period of 25 years, and a maturity date of November 11, 2021.
On March 14, 2014, as part of our acquisition of the 210-guestroom DoubleTree by Hilton in San Francisco, CA, we assumed a $13.3 million mortgage loan with a fixed interest rate of 5.98%, an original amortization period of 30 years, and a maturity date of March 8, 2016.
On March 28, 2014, we amended our loan with GE Capital Financial, cross-collateralized by the Courtyard by Marriott and the SpringHill Suites by Marriott, both located in Scottsdale, AZ. The loan was amended to bear interest at a fixed rate of 5.39% and the maturity date was extended to April 1, 2020.
On March 28, 2014, we amended two loans with General Electric Capital Corp., cross-collateralized by the Hilton Garden Inn (Lakeshore) and the Hilton Garden Inn (Liberty Park), both located in Birmingham, AL. Both loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.
On May 6, 2014, we closed on a $25.0 million loan with Compass Bank. The loan carries a variable rate of 30-day LIBOR plus 240 basis points, amortizes over 25 years, and has a May 6, 2020 maturity date. The loan is secured by first mortgage liens on the Hampton Inn & Suites hotels located in San Diego (Poway), CA, Ventura (Camarillo), CA and Fort Worth, TX. The net proceeds from this loan were used to pay down the $225 Million Revolver.
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NOTE 7 - COMMITMENTS AND CONTINGENCIES
Pending Hotel Property Acquisition
We have a purchase agreement with a hotel property developer to acquire a Hampton Inn & Suites in downtown Minneapolis, MN for $37.7 million, subject to certain conditions including the completion of construction of the hotel in accordance with agreed upon architectural and engineering designs, receipt of a Hampton Inn & Suites franchise, and receipt of a certificate of occupancy. As this acquisition is contingent upon these customary closing conditions, there is no assurance that it will be completed.
Departure of Executive Officer
As previously reported, at the end of May 2014, Stuart J. Becker resigned from his position as Executive Vice President, Chief Financial Officer and Treasurer of the Company. On June 16, 2014, in connection with Mr. Becker’s resignation, the Company entered into a severance and release agreement with Mr. Becker (the “Agreement”). The Agreement became effective on June 19, 2014 and provides for Mr. Becker’s resignation effective as of May 27, 2014. The Agreement also provides for the following: (i) a release by Mr. Becker of all claims against the Company, its affiliates and other parties; (ii) a covenant by Mr. Becker not to solicit the Company’s employees for employment for a period of one year, and confidentiality and non-disparagement covenants; (iii) a severance payment to Mr. Becker in the gross amount of $348,289 (equal to Mr. Becker’s 2013 base salary plus payment for all accrued and unused vacation), less applicable payroll deductions, all of which was paid in a single lump sum in July 2014; (iv) payment to Mr. Becker for up to twelve months of COBRA premiums; and (v) accelerated vesting of all restricted shares of common stock and options previously awarded to Mr. Becker (all of the options will remain exercisable, in whole or in part, until August 25, 2014, and, if not exercised on or prior to that date, will be forfeited).
Litigation
We are involved from time to time in litigation arising in the ordinary course of business; however, there are currently no actions pending against us that we believe would have a material impact on our financial condition or results of operations.
NOTE 8 - EQUITY
Common Stock
In the first six months of 2014, we issued 151,504 shares of common stock to limited partners of the Operating Partnership upon redemption of their Common Units.
On May 28, 2014, we issued 278,916 shares of common stock to our executive officers and management pursuant to our 2011 Equity Incentive Plan. On June 17, 2014, we issued 20,349 shares of common stock to our directors pursuant
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to our 2011 Equity Incentive Plan. In the first six months of 2014, we issued 4,064 shares of common stock to one of our independent directors in lieu of cash for director fees.
In the first six months of 2013, we issued 2,228,544 shares of common stock to limited partners of the Operating Partnership upon redemption of their Common Units.
On January 14, 2013, we completed an underwritten public offering of 17,250,000 shares of common stock. Net proceeds were $148.1 million, after the underwriting discount and offering-related expenses of $7.2 million.
On March 1, 2013, we issued 292,090 shares of common stock to our executive officers pursuant to our 2011 Equity Incentive Plan. On June 13, 2013, we issued 29,228 shares of common stock to our directors pursuant to our 2011 Equity Incentive Plan. In the first six months of 2013, we issued 3,023 shares of common stock to one of our independent directors in lieu of cash for director fees.
Preferred Stock
On March 20, 2013, we completed a public offering of 3,400,000 shares of 7.125% Series C Cumulative Redeemable Preferred Stock for net proceeds of $81.7 million, after the underwriting discount and offering-related expenses of $3.3 million.
Our Series A, Series B and Series C preferred stock have a $25 per share liquidation preference and pay dividends at an annual rate of $2.3125 per share of Series A, $1.96875 per share of Series B, and $1.78125 per share of Series C preferred stock. Dividend payments are made quarterly in arrears on or about the last day of February, May, August and November of each year.
Non-controlling Interests in Operating Partnership
Pursuant to the limited partnership agreement, beginning on February 14, 2012, the unaffiliated third parties who hold Common Units in our Operating Partnership have the right to cause us to redeem their Common Units in exchange for cash based upon the fair value of an equivalent number of our shares of common stock at the time of redemption, or at our option, shares of our common stock on a one-for-one basis. The number of shares of our common stock issuable upon redemption of Common Units may be adjusted upon the occurrence of certain events such as share dividend payments, share subdivisions or combinations.
At June 30, 2014 and December 31, 2013, unaffiliated third parties owned 1,072,095 and 811,425, respectively, of Common Units of the Operating Partnership, representing a 1% limited partnership interest in the Operating Partnership.
We classify outstanding Common Units held by unaffiliated third parties as non-controlling interests in the Operating Partnership, a component of equity in the Company’s consolidated balance sheets. The portion of net income (loss) allocated to these Common Units is reported on the Company’s consolidated statement of operations as net income (loss) attributable to non-controlling interests of the Operating Partnership.
Non-controlling Interests in Joint Venture
On February 11, 2013, we formed a joint venture with an affiliate of IHG to purchase a Holiday Inn Express & Suites in San Francisco, CA. Prior to June 30, 2014, we owned an 81% controlling interest in the joint venture and our partner owned a 19% interest, which we classified as non-controlling interest in joint venture on our consolidated balance sheets. For the periods prior to June 30, 2014, the portion of net income (loss) allocated to our partner was reported on our consolidated statements of operations as net income (loss) attributable to non-controlling interests in joint venture. On June 30, 2014, we acquired the remaining non-controlling interest for $8.2 million and the hotel property became wholly-owned by us.
NOTE 9 - EQUITY-BASED COMPENSATION
Our equity-based awards were issued under our 2011 Equity Incentive Plan which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based award or incentive awards up to an aggregate of 2,318,290 shares of common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our existing equity-based awards are classified as equity awards.
Stock Options
Stock option activity for the six months ended June 30, 2014 follows:
Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Terms
Aggregate Intrinsic Value (Current Value Less Exercise Price)
(Per share)
(In years)
(in thousands)
Outstanding, December 31, 2013
893,000
9.75
7.2
Granted
Exercised
Forfeited
Outstanding, June 30, 2014
6.3
759
Exercisable, June 30, 2014
554,600
6.1
471
The severance and release agreement between the Company and Stuart J. Becker described above (see “Note 7-Commitments and Contingencies”), provided for accelerated vesting of all options previously granted to Mr. Becker. On the effective date of the severance and release agreement, the option became exercisable with respect to an additional 18,800 shares of common stock. The total option grant to purchase 47,000 shares of common stock will remain exercisable, in whole or in part, until August 25, 2014, and thereafter shall be forfeited.
Time-Based Restricted Stock Awards
On May 28, 2014, we awarded time-based restricted stock awards for 116,981 shares of common stock to our executive officers and management. These awards vest over a three year period based on continued service (25% on May 27, 2015 and 2016 and 50% on May 27, 2017), or upon a change in control, and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.
On March 1, 2013, we awarded time-based restricted stock awards for 106,518 shares of common stock to our executive officers. These awards vest over a three year period based on continued service (25% on February 28, 2014 and 2015 and 50% on February 28, 2016), or upon a change in control, and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.
The fair value of time-based restricted stock awards granted is calculated based on the market value on the date of grant.
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Time-based restricted stock activity for the six months ended June 30, 2014 follows:
Number of Shares
Weighted Average Grant Date Fair Value
Aggregate Current Value
(In thousands)
Non-vested, December 31, 2013
161,587
9.10
1,454
116,981
9.82
Vested
49,665
9.42
Non-vested, June 30, 2014
228,903
9.40
2,426
The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 23,035 common shares granted under time-based restricted stock awards.
Performance-Based Restricted Stock Awards
On May 28, 2014, we awarded performance-based restricted stock awards for 161,935 shares of common stock to our executive officers. These awards vest ratably over the next three years (2015, 2016 and 2017) subject to the attainment of certain performance goals and continued service, or upon a change in control and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.
On March 1, 2013, we awarded performance-based restricted stock awards for 185,572 shares of common stock to our executive officers. These awards vest ratably over the next three years (2014, 2015 and 2016) subject to the attainment of certain performance goals and continued service, or upon a change in control and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.
Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. These awards vest based on a performance measurement that requires the Company’s total shareholder return (“TSR”) to exceed the TSR for the SNL U.S. REIT Hotel Index for a designated one, two or three year performance period. The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model.
Performance-based restricted stock activity for the six months ended June 30, 2014 follows:
268,174
6.48
2,414
161,935
7.12
45,551
6.50
384,558
6.75
4,076
The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 45,551 common shares granted under performance-based restricted stock awards.
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No other performance-based restricted stock awards vested during the six months ended June 30, 2014 because performance goals were not met.
Director Stock Awards
Our directors have the option to receive shares of our common stock in lieu of cash for their director fees. In the six months ended June 30, 2014, we issued 4,064 shares of common stock for director fees and an annual grant of 20,349 shares of common stock to our outside directors.
Equity-Based Compensation Expense
Equity-based compensation expense for the three and six months ended June 30, 2014 and 2013 follows (in thousands):
Included in corporate general and administrative salaries and other compensation in the statements of operations:
Stock options
226
156
381
311
Time-based restricted stock
327
167
494
276
Performance-based restricted stock
509
231
654
371
1,062
554
1,529
958
Included in corporate general and administrative other in the statements of operations:
Director stock
239
295
312
1,301
849
The amount of expense may be subject to adjustment in future periods depending upon the attainment of specific goals, which affect the vesting of the performance-based restricted stock, or a change in the forfeiture assumptions.
Unrecognized equity-based compensation expense for all non-vested awards was $4.4 million at June 30, 2014. We expect to recognize this cost over a remaining weighted-average period of 1.1 years.
NOTE 10 - LOSS ON IMPAIRMENT OF ASSETS
During the six months ended June 30, 2014, we recognized a loss on impairment of assets of $0.4 million related to the Hampton Inn in Fort Smith, AR. This property was classified as held for sale at June 30, 2014 and its operating results, including impairment charges, were included in discontinued operations. In addition, we recognized a loss on impairment of assets related to a land parcel in Spokane, WA that was held for sale at June 30, 2014. As a result, a loss on impairment of assets of $0.7 million was charged to operations.
During the six months ended June 30, 2013, we recognized a loss on impairment of assets of $1.5 million related to the SpringHill Suites in Lithia Springs, GA and the Courtyard by Marriott in Memphis, TN. These hotel properties were classified as held for sale prior to being sold in August 2013 and May 2013, respectively. Their operating results, including impairment charges, are included in discontinued operations.
NOTE 11 - DERIVITIVE FINANCIAL INSTRUMENTS AND HEDGING
Information about our derivative financial instruments at June 30, 2014 and December 31, 2013 follows (dollars in thousands):
Number of Instruments
Notional Amount
Interest rate swaps (asset)
21,043
29,273
Interest rate swaps (liability)
82,598
(2,296
75,000
(1,772
103,641
(2,263
104,273
(1,519
Our interest rate swaps are designated as cash flow hedges and are valued using a market approach, which is a Level 2 valuation technique. At June 30, 2014, two of our interest rate swaps were in an asset position and two were in a liability position. We have not posted, and are not required under the terms of the swaps to post, any collateral related to these agreements and are not in breach of any financial provisions of the agreements. If we had breached any agreement provisions at June 30, 2014, we could have been required to settle our obligations under these agreements that were in a liability position at their aggregate termination value, including accrued interest, of $2.4 million at June 30, 2014.
Details of the location in the financial statements of the loss recognized on derivative financial instruments designated as cash flow hedges follows (in thousands):
Gain (loss) recognized in accumulated other comprehensive income on derivative financial instruments (effective portion)
(1,111
623
(1,606
645
Loss reclassified from accumulated other comprehensive income to interest expense (effective portion)
(435
(87
(862
(172
Gain (loss) recognized in gain (loss) on derivative financial instruments (ineffective portion and amounts excluded from effectiveness testing)
Amounts reported in accumulated other comprehensive income related to derivative financial instruments will be reclassified to interest expense as interest payments are made on the hedged variable-rate debt.
NOTE 12 — INCOME TAX
Income taxes for the interim periods presented have been included in our consolidated financial statements on the basis of an estimated annual effective tax rate. Our effective tax rate is impacted by the mix of earnings and losses by taxing jurisdictions. Our earnings (losses), other than in our TRS, are not generally subject to federal corporate and state income taxes due to our REIT election.
Due to the decrease in cumulative losses over the past three years, management believes that sufficient positive evidence could become available in the future to reach a conclusion that the valuation allowance will no longer be needed, in whole or in part. Acceleration of improved operating results or significant taxable income from specific non-recurring transactions could further impact this assessment. The likelihood of realizing the benefit of deferred tax assets and the related need for a valuation allowance is assessed on an ongoing basis. This assessment requires estimates and significant management judgment as to future operating results, as well as an evaluation of the effectiveness of our tax planning strategies. At this time, we are not able to reasonably estimate when sufficient positive evidence will require reversals of the valuation allowance or the impact such reversal will have on our effective tax rate.
We recorded an income tax provision attributable to continuing operations of $0.3 million, zero, $0.4 million and $0.1 million for the three month periods ended June 30, 2014 and 2013 and the six month periods ended June 30, 2014 and 2013, respectively. We had no unrecognized tax benefits at June 30, 2014. We expect no significant changes in unrecognized tax benefits within the next year. We recognize interest expense and penalties associated with unrecognized tax benefits as a component of tax expense.
NOTE 13 — FAIR VALUE
The following table presents information about our financial instruments measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Disclosures concerning financial instruments measured at fair value are as follows (in thousands):
Fair Value Measurements at June 30, 2014 using
Level 1
Level 2
Level 3
Assets:
Liabilities:
Fair Value Measurements at December 31, 2013 using
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2014.
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NOTE 14 - DISCONTINUED OPERATIONS
We have adjusted our consolidated statement of operations for the three and six months ended June 30, 2014 and 2013 to reflect the operations of hotel properties sold or classified as held for sale in discontinued operations. Discontinued operations include the following hotel properties that have been sold:
· AmericInn & Suites in Golden, CO — sold January 2013;
· Hampton Inn in Denver, CO — sold February 2013;
· Holiday Inn and Holiday Inn Express in Boise, ID — sold May 2013;
· Courtyard by Marriott in Memphis, TN — sold May 2013;
· SpringHill Suites in Lithia Springs, GA — sold August 2013;
· Fairfield Inn in Lewisville, TX — sold August 2013;
· Fairfield Inn in Lakewood, CO — sold September 2013;
· Fairfield Inn in Emporia, KS — sold October 2013;
· SpringHill Suites in Little Rock, AR — sold November 2013;
· Fairfield Inn and AmericInn in Salina, KS — sold November 2013;
· Hampton Inn and Fairfield Inn & Suites in Boise, ID — sold November 2013;
· Holiday Inn Express in Emporia, KS — sold December 2013; and
· AmericInn and Aspen Hotel & Suites in Fort Smith, AR - sold on January 17, 2014.
In addition, discontinued operations also includes the results of the Hampton Inn in Fort Smith, AR, which is classified as held for sale at June 30, 2014.
Condensed results of operations for the hotel properties included in discontinued operations follow (in thousands):
REVENUE
1,193
5,963
2,281
12,255
Hotel operating expenses
788
4,399
1,558
9,262
596
1,435
400
INCOME FROM HOTEL OPERATIONS
968
314
58
47
150
(Gain) loss on disposal of assets
46
(26
(17
(1,660
INCOME (LOSS) BEFORE TAXES
(46
947
331
1,568
INCOME TAX BENEFIT (EXPENSE)
(402
(666
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS
(40
521
333
860
As discussed above, we have elected to early adopt ASU No. 2014-08 which changes the criteria for discontinued operations to include only disposals that represent a strategic shift in operations with a major effect on operations and results. While we have elected early adoption for our consolidated financial statements and footnote disclosures, hotels that were classified as held for sale in prior periods will continue to be reported in discontinued operations. Under this ASU, the Company anticipates that the majority of future property sales will not be classified as discontinued operations.
NOTE 15 - EARNINGS PER SHARE
We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share amounts for our non-vested time-based restricted stock awards with nonforfeitable dividends and for our common stock. Our non-vested time-based restricted stock awards with nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested time-based restricted stock awards with nonforfeitable dividends do not have such an obligation so they are not allocated losses.
For the three months ended June 30, 2014 and the six months ended June 30, 2014 and 2013, we had 893,000 stock options outstanding which were not included in the computation of diluted earnings per share, as the options’ exercise price was greater than the average market price of our common shares.
A summary of the components used to calculate basic and diluted earnings per share follows (in thousands, except per share):
Numerator:
Income from continuing operations
Less: Preferred dividends
4,147
3,844
8,294
6,296
Allocation to participating securities
26
41
27
Attributable to non-controlling interest
186
198
48
115
Income from continuing operations attributable to common stockholders
4,842
2,065
3,765
1,213
Income (loss) from discontinued operations attributable to common stockholders
Net income attributable to common stockholders
4,802
2,586
4,098
2,073
Denominator:
Weighted average common shares outstanding - basic
Dilutive effect of equity-based compensation awards
498
474
460
362
Weighted average common shares outstanding - diluted
Earnings per common share - basic and diluted:
Net income from continuing operations
Net income from discontinued operations
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NOTE 16 — SUBSEQUENT EVENTS
Appointment of Directors
On July 16, 2014, the Board of Directors (the “Board”) of the Company, based on the recommendation of the Nominating and Corporate Governance Committee of the Board, appointed Jeffrey W. Jones and Kenneth J. Kay as directors of the Company. The Board has determined, based on the recommendation of the Nominating and Corporate Governance Committee, that each appointee is independent in accordance with the applicable rules of the New York Stock Exchange. In connection with Messrs. Jones and Kay appointments, the size of the Board was increased from six (with one vacant seat prior to July 16, 2014) to seven. The two new directors join Kerry W. Boekelheide, the Company’s Executive Chairman of the Board, Daniel P. Hansen, the Company’s President and Chief Executive Officer, Bjorn R. L. Hanson, Thomas W. Storey and Wayne W. Wielgus as members of the Board.
Mr. Jones will serve on the Audit and the Nominating and Corporate Governance Committees of the Board. Mr. Kay will serve on the Audit and the Compensation Committees of the Board. The Board, on the recommendation of the Nominating and Corporate Goverance Committee, has determined that each of the appointees meets the requirements for serving on such committees.
Messrs. Jones and Kay will participate in the Company’s non-employee director compensation programs. On July 21, 2014, Messrs. Jones and Kay each received a stock award pursuant to the Company’s 2011 Equity Incentive Plan, consisting of 5,984 fully vested shares of the Company’s common stock. The Company has entered into an indemnification agreement with each of Messrs. Jones and Kay in the form entered into with other directors and executive officers of the Company.
Equity Transactions
On July 1, 2014, we issued 46,788 shares of common stock for Common Units of our Operating Partnership which were tendered for redemption on May 2, 2014.
On August 1, 2014, our Board of Directors declared cash dividends of $0.1175 per share of common stock, $0.578125 per share of 9.25% Series A Cumulative Redeemable Preferred Stock, $0.4921875 per share of 7.875% Series B Cumulative Redeemable Preferred Stock, and $0.4453125 per share of 7.125% Series C Cumulative Redeemable Preferred Stock. These dividends are payable on August 29, 2014 for holders of record on August 15, 2014.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2013 and our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q.
Unless stated otherwise or the context otherwise requires, references in this report to “we,” “our,” “us,” “our company” or “the company” mean Summit Hotel Properties, Inc. and its consolidated subsidiaries.
Cautionary Statement about Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “forecast,” “project,” “potential,” “continue,” “likely,” “will,” “would” or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenue and expenses, ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:
· financing risks, including the risk of leverage and the corresponding risk of default on our mortgage loans and other debt and potential inability to refinance or extend the maturity of existing indebtedness;
· national, regional and local economic conditions;
· levels of spending in the business, travel and leisure industries, as well as consumer confidence;
· declines in occupancy, average daily rate and revenue per available room and other hotel operating metrics;
· hostilities, including future terrorist attacks, or fear of hostilities that affect travel;
· financial condition of, and our relationships with, third-party property managers and franchisors;
· the degree and nature of our competition;
· increased interest rates and operating costs;
· increased renovation costs, which may cause actual renovation costs to exceed our current estimates;
· changes in zoning laws and increases in real property tax rates;
· risks associated with potential acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history, and dispositions of hotel properties;
· availability of and our ability to retain qualified personnel;
· our failure to maintain our qualification as a REIT under the Internal Revenue Code of 1986, as amended;
· changes in our business or investment strategy;
· availability, terms and deployment of capital;
· general volatility of the capital markets and the market price of our shares of common stock;
· environmental uncertainties and risks related to natural disasters; and
· other factors described under the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Overview
We focus primarily on acquiring and owning premium-branded select-service hotels in the upscale and upper midscale segments of the U.S. lodging industry, as these segments are currently defined by Smith Travel Research (“STR”). Since completion of our IPO on February 14, 2011 and through June 30, 2014, we have acquired 47 hotels containing 6,539 guestrooms for purchase prices aggregating $916.7 million. As of August 1, 2014, we own 90 hotels containing 11,368 guestrooms located in 22 states. Except for six hotels, five of which are subject to ground leases and one of which is subject to a PILOT (payment in lieu of taxes) lease, we own our hotels in fee simple. Our hotels are located in markets in which we have extensive experience and that exhibit multiple demand generators, such as business and corporate headquarters, retail centers, airports and tourist attractions.
The majority of our hotels operate under premium franchise brands owned by Marriott International, Inc. (“Marriott”) (Courtyard by Marriott®, Residence Inn by Marriott®, SpringHill Suites by Marriott®, Fairfield Inn & Suites by Marriott®, and TownePlace Suites by Marriott®), Hilton Worldwide (“Hilton”) (DoubleTree by Hilton®, Hampton Inn®, Hampton Inn & Suites®, Homewood Suites® and Hilton Garden Inn®), Intercontinental Hotel Group (“IHG”) (Holiday Inn®, Holiday Inn Express®, Holiday Inn Express & Suites® and Staybridge Suites®) and an affiliate of Hyatt Hotels Corporation (“Hyatt”) (Hyatt Place® and Hyatt House®).
We have elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year ended December 31, 2011. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, we lease all of our hotels to our TRS lessees.
At June 30, 2014, all of our hotel properties are operated pursuant to hotel management agreements with third party hotel management companies, including the following:
· Interstate Management Company, LLC and its affiliate Noble Management Group, LLC — 50 hotel properties
· Select Hotel Group, LLC — 12 hotel properties
· Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott — six hotel properties
· White Lodging Services Corporation — four hotel properties
· Kana Hotels, Inc. — three hotel properties
· InterMountain Management, LLC and its affiliate, Pillar Hotels and Resorts, LP — seven hotel properties
· Affiliates of IHG including IHG Management (Maryland) LLC and Intercontinental Hotel Group Resources, Inc. — two hotel properties
· HP Hotels Management Company, Inc. — two hotel properties
· OTO Development, LLC — two hotel properties
· American Liberty Hospitality, Inc. — one hotel property
· Stonebridge Realty Advisors, Inc. — one hotel property
Our TRS lessees may also employ other hotel managers in the future. We have, and will have, no ownership or economic interest in any of the hotel management companies engaged by our TRS lessees.
Our revenue is derived from hotel operations and consists of room revenue and other hotel operations revenue. As a result of our focus on select-service hotels in the upscale and upper midscale segments of the U.S. lodging industry, substantially all of our revenue is room revenue generated from sales of hotel rooms. We also generate, to a much lesser extent, other hotel operations revenue, which consists of ancillary revenue related to meeting rooms and other guest services provided at our hotels.
Industry Trends and Outlook
Room-night demand in the U.S. lodging industry is correlated to macroeconomic trends. Key drivers of demand include growth in gross domestic product, or GDP, corporate profits, capital investments and employment. Following periods of recession, recovery of room-night demand for lodging historically has lagged improvements in the overall economy. However, in the economic recovery beginning in early 2010, room-night demand has led improvements in the overall economy. Although we expect that our hotels will realize meaningful RevPAR gains as the economy and lodging industry continue to improve, the risk exists that global and domestic economic conditions may cause the economic recovery to stall, which likely would adversely affect our growth and financial performance expectations.
We have a positive outlook about macro-economic conditions and their effect on room-night demand. We also expect that our near-term results will not be adversely affected by increased lodging supply in our markets. Growth in lodging supply typically lags growth in room-night demand. Key drivers of lodging supply include the availability and cost of capital, construction costs, local real estate market conditions and availability and pricing of existing properties. As a result of the scarcity of financing, a severe recession and declining operating fundamentals, during 2008 and 2009 many planned hotel developments were cancelled or postponed. We believe the effect of the severe recession will be prolonged compared with prior recessions, which could limit supply growth.
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Our Hotel Property Portfolio
At June 30, 2014, our hotel property portfolio consisted of 90 hotels containing 11,367 guestrooms. Of these hotels, according to STR’s current chain segment designations, 60 hotels containing 7,979 guestrooms are “upscale,” and 30 hotels containing 3,388 guestrooms are “upper midscale.” Information for our hotel properties by franchisor as of June 30, 2014 follows:
Number of Hotel Properties
Number of Guestrooms
Marriott
1,662
1,188
816
TownePlace Suites by Marriott
90
Total Marriott
4,507
Hilton
1,076
Hampton Inn (1)
634
Hampton Inn & Suites
834
Homewood Suites
91
Total Hilton
2,972
Hyatt
2,224
Hyatt House
135
Total Hyatt
2,359
IHG
Holiday Inn Express
185
Holiday Inn Express & Suites (2)
561
Holiday Inn
Staybridge Suites
213
Total IHG
Starwood
Aloft
136
FourPoints by Sheraton
101
Total Starwood
237
Carlson
Country Inn & Suites by Carlson
190
11,367
(3)
(1) Includes one hotel property that is classified as held for sale at June 30, 2014 in our financial statements.
(2) Prior to June 30, 2014, we owned an 81% controlling interest in a joint venture that owns the Holiday Inn Express & Suites in San Francisco, CA. On June 30, 2014, we acquired the outstanding non-controlling interest in the joint venture for $8.2 million. As a result, this hotel property became wholly-owned by us.
(3) During the second quarter of 2014, we added 14 guestrooms to our portfolio due to hotel renovations. Thus, at June 30, 2014, our hotel property portfolio consisted of 90 hotels containing 11,367 guestrooms. Due to the addition of one guestroom in July 2014, our hotel property portfolio at August 1, 2014 consisted of 90 hotels containing 11,368 guestrooms.
Hotel Property Portfolio Activity
Acquisitions
We acquired four hotel properties in the first six months of 2014 and sixteen hotel properties in the first six months of 2013. A summary of these acquisitions follows (dollars in thousands, except Cost per Key):
Guestrooms as of August 1, 2014
Renovation Cost
Cost per Key (5)
First six Months of 2014
182
3,400
(4)
225,000
(1)
2,600
302,000
1,400
224,000
Double Tree by Hilton
210
4,500
207,000
Total six months ended June 30, 2014
594
11,900
232,000
First Six Months of 2013
126
84,000
1,907
94,000
1,939
92,000
252
(2)
4,161
257,000
208
159,000
202
2,350
164,000
140
74
184,000
153
2,465
170,000
120
166,000
145
128,000
93
1,700
97
2,700
133,000
2,500
204,000
3,600
216,000
297
197,000
194,000
Total six months ended June 30, 2013
2,597
24,941
168,000
(1) The purchase price for this hotel included the issuance of 412,174 Common Units in our Operating Partnership valued at the time of issuance at $3.7 million.
(3) Actual total renovation cost.
(4) Actual-to-date and estimated remaining costs to complete.
(5) Purchase price and renovation costs are funded by mortgage debt, advances on our senior unsecured revolving line of credit facility, cash and the issuance of Operating Partnership Common Units described in footnote 1 to this table. Additional information about the mortgage debt financing is provided below in “Outstanding Indebtedness — Term Loans.”
Of the total renovation costs detailed in the table above, $17.8 million have been incurred as of June 30, 2014. There is no assurance that our actual renovation costs will not exceed our estimates.
Dispositions
Pursuant to our strategy to continually evaluate our hotel properties and land held for development, we sold two hotel properties in the first six months of 2014. Historically, when a property was identified as being held for sale, we reclassified the property on our consolidated balance sheets, evaluated for potential impairment and, in the case of a hotel property, reported historical and future results of operations in discontinued operations. We recognized impairment charges on hotel properties in discontinued operations and on land held for development in continuing operations of $1.1 million and $1.5 million in the first six months of 2014 and 2013, respectively.
As discussed in the footnotes to the consolidated financial statements, we have elected to early adopt ASU No. 2014-08 which changes the criteria for discontinued operations to include only disposals that represent a strategic shift in operations with a major effect on operations and results. While we have elected early adoption for our consolidated financial statements and footnote disclosures, the sale of the AmericInn, Aspen Hotel & Suites and Hampton Inn in Fort Smith, AR will be included in discontinued operations as these hotels were classified as held for sale in prior periods. Under this ASU, the Company anticipates that the majority of future property sales will not be classified as discontinued operations.
On January 17, 2014, we sold the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR for $3.1 million. The sale of the AmericInn Hotel & Suites also included the assignment of its related ground lease.
On January 15, 2013, we sold the AmericInn Hotel & Suites in Golden, CO for $2.6 million. On February 15, 2013, we sold the Hampton Inn in Denver, CO for $5.5 million and recognized a gain on the sale of $1.7 million. On February 27, 2013, we sold a parcel of land in Jacksonville, FL for $1.9 million. On May 1, 2013, we sold the Holiday Inn and Holiday Inn Express in Boise, ID for $12.6 million. On May 30, 2013, we sold the Courtyard by Marriott in Memphis, TN for $4.2 million.
Results of Operations of Summit Hotel Properties, Inc.
The comparisons that follow should be reviewed in conjunction with the unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. As noted above, in the first six months of 2014 we sold the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR. In addition, at June 30, 2014, we classified as held for sale the Hampton Inn in Fort Smith, AR. Accordingly, we classified these hotel properties as discontinued operations and their operating results are not included in the discussion below.
Comparison of Three Months Ended June 30, 2014 with Three Months Ended June 30, 2013
Key operating metrics for our total portfolio (89 hotels at June 30, 2014 and 82 hotels at June 30, 2013, excluding discontinued operations) and our same-store portfolio (66 hotels) for the three months ended June 30, 2014 (“second quarter of 2014”) and for the three months ended June 30, 2013 (“second quarter of 2013”) follows (dollars in thousands, except ADR and RevPAR):
Three Months Ended June 30,
Percentage Change
Total Portfolio (89 hotels)
Same-Store Portfolio (66 hotels)
Total Portfolio (82 hotels)
Total Portfolio (89/82 hotels)
Total revenues
63,694
58,472
33.4
%
8.9
41,466
38,166
31.4
8.6
Occupancy
79.9
78.9
77.9
77.0
2.6
2.5
ADR
122.51
111.91
110.90
105.27
10.5
RevPAR
97.93
88.28
86.37
81.07
13.4
Revenue. Total revenues, including room and other hotel operations revenue, increased $26.4 million in the second quarter of 2014 compared with the second quarter of 2013. The increase in revenues is due to an increase in same-store revenues of $5.2 million and an increase in revenues from the 19 hotel properties acquired in 2013 and four hotel properties acquired in the first six months of 2014 (the “Acquired Hotels”) of $21.2 million.
The same-store revenue increase of $5.2 million, or 8.9%, was due to increases in occupancy to 78.9% in the second quarter of 2014 compared with 77.0% in the second quarter of 2013, and an increase in ADR to $111.91 in the second quarter of 2014 from $105.27 in the second quarter of 2013. The increases in occupancy and ADR resulted in an 8.9% increase in same-store RevPAR to $88.28 in the second quarter of 2014 compared with $81.07 in the second quarter of 2013. These increases were due to the improving economy, hotel industry fundamentals and renovations made at 17 hotel properties in 2013.
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Hotel Operating Expenses. Hotel operating expenses increased $15.9 million in the second quarter of 2014 compared with the second quarter of 2013. The increase is due in part to the additional operating expenses from the Acquired Hotels of $12.6 million. In addition, the increase in same-store hotel operating expenses is due to $3.3 million of variable costs related to the increase in revenue.
A summary of our hotel operating expenses for our same-store portfolio (66 hotels) for second quarter of 2014 and 2013 follows (dollars in thousands):
Percentage
Percentage of Revenue Three Months Ended June 30,
Change
Rooms expense
16,568
15,593
26.0
26.7
Other direct expense
8,092
7,140
13.3
12.7
12.2
Other indirect expense
16,583
15,251
8.7
26.1
Other expense
22.5
0.4
0.3
65.1
65.3
Depreciation and Amortization. Depreciation and amortization expense increased $3.9 million in the second quarter of 2014 compared with second quarter of 2013, primarily due to the depreciation associated with the Acquired Hotels.
Corporate General and Administrative. Corporate general and administrative expenses increased by $1.4 million in the second quarter of 2014 compared with second quarter of 2013. The increase in expense was primarily due to increases in equity-based compensation of $0.5 million and expenses related to the transition of directors and executive officers of $0.6 million.
Other Income/Expense. The $1.9 million increase in other income (expense) was primarily the result of an increase in interest expense due to debt incurred to finance the acquisition of the Acquired Hotels.
Comparison of the First Six Months of 2014 with the First Six Months of 2013
Key operating metrics for our total portfolio (89 hotels at June 30, 2014 and 82 hotels at June 30, 2013, excluding discontinued operations) and our same-store portfolio (66 hotels) for the six months ended June 30, 2014 (the “first six months of 2014”) compared with the six months ended June 30, 2013 (the “first six months of 2013”) follows (dollars in thousands, except ADR and RevPAR):
Six Months Ended June 30,
120,944
111,417
40.5
79,884
73,649
39.9
8.5
76.1
75.9
74.9
73.7
1.6
3.0
120.79
111.00
109.31
105.24
5.5
91.94
84.22
81.92
77.52
Revenue. Total revenues, including room and other hotel operations revenue, increased $56.2 million in the first six months of 2014 compared with the first six months of 2013. The increase in revenues is due to an increase in same-store revenues of $9.5 million and a $46.7 million increase in revenues from the Acquired Hotels.
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The same-store revenue increase of $9.5 million, or 8.6%, was due to an increase in occupancy to 75.9% in the first six months of 2014 compared with 73.7% in the first six months of 2013, and an increase in ADR to $111.00 in the first six months of 2014 from $105.24 in the first six months of 2013. The increases in occupancy and ADR resulted in an 8.6% increase in same-store RevPAR to $84.22 in the first six months of 2014 compared with $77.52 in the first six months of 2013. These increases were due to the improving economy and hotel industry fundamentals and renovations made at 17 hotel properties in 2013.
Hotel Operating Expenses. Hotel operating expenses increased $36.1 million in the first six months of 2014 compared with the first six months of 2013. The increase is due in part to a $29.8 million increase in operating expenses at the Acquired Hotels. In addition, the increase in same-store hotel operating expenses is due to $6.2 million of variable costs related to the increase in revenue. Expenses at the same-store hotels declined as a percentage of revenue from 66.1% in the first six months of 2013 to 66.0% in the first six months of 2014, due to stability in expenses despite increasing revenues at the same-store hotel properties.
A summary of our hotel operating expenses for our same-store portfolio (66 hotels) for the first six months of 2014 and the first six months of 2013 follows (dollars in thousands):
Percentage of Revenue Six Months Ended June 30,
32,139
30,179
6.5
26.6
27.1
15,748
14,199
10.9
13.0
31,586
28,925
9.2
411
346
18.8
66.0
66.1
Depreciation and Amortization. Depreciation and amortization expense increased $8.7 million in the first six months of 2014 compared with the first six months of 2013, primarily due to the depreciation associated with the Acquired Hotels.
Corporate General and Administrative. Corporate general and administrative expenses increased $2.5 million in the first six months of 2014 compared with the first six months of 2013. Approximately $1.0 million of the increase was due to increased professional fees and expenses related to establishing new procedures and systems for intercompany account reconciliations, as well as performing the reconciliation of the balance sheets of intercompany accounts between individual hotels and our consolidated statements of operations for the years ended 2013 and 2012. Additional increases in expense were due to increases in equity-based compensation of $0.5 million and expenses related to the transition of directors and executive officers of $0.6 million.
Other Income/Expense. The $4.3 million increase in other income (expense) in the first six months of 2014 compared with the first six months of 2013 was primarily the result of an increase in interest expense due to debt incurred to finance the acquisition of the Acquired Hotels.
Cash Flows
The increase in net cash provided by operating activities of $13.9 million for the first six months of 2014 compared with the first six months of 2013 primarily resulted from a $3.9 million improvement in earnings and a $7.3 million increase in depreciation and amortization. The increase in depreciation was primarily related to the Acquired Hotels. The $272.7 million decrease in net cash used in investing activities for the first six months of 2014 compared with the first six months of 2013 primarily resulted from a $298.5 million decrease in acquisitions of hotel properties and a $11.8 million decrease in restricted cash related to renovation reserves funded; partially offset by an $8.2 million increase in improvements and additions to hotel properties, an $8.2 million payment to acquire the remaining 19% non-controlling interest in a joint venture that owns the Holiday Inn Express & Suites in San Francisco, CA and a $22.4 million decrease in net proceeds from asset dispositions. The $312.0 million decrease in net cash provided by financing activities for the first six months of 2014 compared with the first six months of 2013 resulted from a $237.3 million decrease in proceeds from equity offerings, a decrease in proceeds from issuance of debt of $137.2 million and a $6.0 million increase in dividends and distributions, partially offset by a $67.0 million decrease in payments on debt.
Discontinued Operations
Pursuant to our strategy, we continually evaluate our hotel properties for potential sale and redeployment of capital. Historically, when a hotel property was sold or identified as being held for sale, we reported its historical and future results of operations, including impairment charges, in discontinued operations. As discussed above, while we have elected early adoption of ASU No. 2014-08 for our consolidated financial statements and footnote disclosures, hotels that were classified as held for sale in prior periods will continue to be reported in discontinued operations. In the first six months of 2014, we reported the following hotel properties in discontinued operations:
· AmericInn Hotel & Suites in Fort Smith, AR
· Aspen Hotel & Suites in Fort Smith, AR
· Hampton Inn in Fort Smith, AR
The AmericInn Hotel & Suites and the Aspen Hotel & Suites located in Fort Smith, AR were sold on January 17, 2014. The Hampton Inn in Fort Smith, AR was classified as held for sale at June 30, 2014 and is currently under contract for sale.
A summary of results from our hotel properties included in discontinued operations follows (in thousands):
Total expenses
1,239
5,016
1,950
10,687
Income (loss) from discontinued operations before income taxes
Income tax (expense) benefit
Income (loss) from discontinued operations
Non-GAAP Financial Measures
We consider funds from operations (“FFO”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”), both of which are non-GAAP financial measures, to be useful to investors as key supplemental measures of our operating performance.
We caution investors that amounts presented in accordance with our definitions of FFO and 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. FFO and EBITDA should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. FFO and EBITDA 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 EBITDA 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).
Funds From Operations
As defined by the National Association of Real Estate Investment Trusts, (“NAREIT”), FFO represents net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, impairment, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. 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
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fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and impairment losses, it provides a performance measure that, when compared year over year, reflects the effect to operations from trends in occupancy, room rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. Our computation of FFO differs from the NAREIT definition and may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs because the amount of depreciation and amortization we add back to net income or loss includes amortization of deferred financing costs and amortization of franchise royalty fees. 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.
The following is a reconciliation of our GAAP net income to FFO for the three and six months ended June 30, 2014 and 2013 (in thousands):
Preferred dividends
16,650
13,324
32
Non-controlling interest in joint venture
(124
(89
(52
Adjustments related to joint venture
(118
(83
(204
(139
22,513
15,952
37,102
26,714
Per common unit
0.26
0.23
0.43
0.40
Weighted average diluted common shares and Common Units (1)
86,735
68,952
86,660
67,598
(1) The Company includes the outstanding Common Units of the Operating Partnership held by limited partners other than the Company because these Common Units are redeemable for shares of the Company’s common stock.
Earnings Before Interest, Taxes, Depreciation and Amortization
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 also uses EBITDA as one measure in determining the value of acquisitions and dispositions.
The following is a reconciliation of our GAAP net income to EBITDA for the three and six months ended June 30, 2014 and 2013 (in thousands):
6,846
4,926
13,206
9,079
(122
(18
(35
Income tax expense
324
363
401
815
EBITDA
32,616
25,093
57,799
43,035
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards, capital expenditures to improve our hotel properties, acquisitions, interest expense and scheduled principal payments on outstanding indebtedness, and distributions to our stockholders.
Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that periodically are made with respect to our hotel properties, and scheduled debt payments, including maturing loans.
To satisfy the requirements for qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually at least 90% of our REIT taxable income to our stockholders, determined without regard to the deduction for dividends paid and excluding any net capital gains. We generally intend to distribute at least 100% of our REIT taxable income to avoid tax on undistributed income. Therefore, if sufficient funds are not available to us from hotel dispositions, our senior unsecured revolving credit facility and mortgage loans, we will need to raise additional capital to grow our business and invest in additional hotel properties.
We expect to satisfy our liquidity requirements with cash provided by operations, working capital, and short-term borrowings under our senior unsecured revolving credit facility. In addition, we may fund the purchase price of hotel acquisitions and cost of required capital improvements by borrowing under our senior unsecured revolving credit facility, assuming existing mortgage debt, issuing securities (including Common Units issued by the Operating Partnership), or incurring other mortgage debt. Further, we may seek to raise capital through public or private offerings of our equity or debt securities. However, certain factors may have a material adverse effect on our ability to access these capital sources, including our degree of leverage, the value of our unencumbered hotel properties, borrowing restrictions
imposed by lenders and market conditions. We will continue to analyze which sources of capital are most advantageous to us at any particular point in time, but financing may not be consistently available to us on terms that are attractive, or at all. We believe that our cash provided by operations, working capital, borrowings available under our senior unsecured revolving credit facility and other sources of funds available to us will be sufficient to meet our ongoing liquidity requirements for at least the next 12 months.
Restricted Cash
We have submitted requests to our lenders for the release of approximately $20.0 million of our restricted cash. Upon final approval, these funds will be added to our unrestricted cash balance and will be available for use in operations. We believe the release of restricted cash is appropriate under the terms of the respective loan documents, therefore, we expect to receive these funds during the third quarter of 2014. There is no assurance that our lenders will agree to this request and release this cash.
Outstanding Indebtedness
At June 30, 2014, we had $423.9 million in debt secured by mortgages on 49 hotel properties. We also had $156.0 million outstanding under our senior unsecured credit facility that was supported by 37 hotel properties unencumbered by mortgage debt.
A summary of our debt at June 30, 2014 follows (dollars in thousands):
Lender
Interest Rate June 30, 2014 (1)
Amortization Period (Years)
Maturity Date
Collateral
Amount of Debt
Deutsche Bank AG New York Branch
$225 Million Revolver
2.26% Variable
n/a
October 10, 2017
81,000
$75 Million Term Loan
4.14% Fixed
October 10, 2018
Total Senior Unsecured Credit Facility
156,000
Mortgage Loans
ING Life Insurance and Annuity
6.10% Fixed
March 1, 2019
Fourteen hotels
63,333
4.55% Fixed
(cross-collateralized with other ING loan)
33,379
KeyBank National Association
4.46% Fixed
February 1, 2023
Four hotels
28,728
4.52% Fixed
April 1, 2023
Three hotels
22,241
4.30% Fixed
21,586
4.95% Fixed
August 1, 2023
Two hotels
38,219
Bank of America Commercial Mortgage
6.41% Fixed
September 1, 2017
One hotel
8,270
Merrill Lynch Mortgage Lending Inc.
6.38% Fixed
August 1, 2016
5,201
GE Capital Financial Inc.
5.39% Fixed
April 1, 2020
9,390
5,056
MetaBank
4.25% Fixed
August 1, 2018
7,227
Bank of Cascades
4.66% Fixed
September 30, 2021
11,854
Goldman Sachs
5.67% Fixed
July 6, 2016
13,940
Compass
4.57% Fixed
May 17, 2018
12,915
2.56% Variable
May 6, 2020
24,948
General Electric Capital Corp.
5,317
6,227
4.82% Fixed
April 1, 2018
7,414
5.03% Fixed
9,943
AIG
6.11% Fixed
January 1, 2016
13,230
Greenwich Capital Financial Products, Inc.
6.20% Fixed
January 6, 2016
22,910
Wells Fargo Bank, National Association
5.53% Fixed
October 1, 2015
3,588
5.57% Fixed
6,151
U.S. Bank, NA
6.22% Fixed
November 1, 2016
17,705
6.13% Fixed
November 11, 2021
11,937
5.98% Fixed
March 8, 2016
13,223
Total Mortgage Loans
423,932
Total Debt
(1) The interest rates at June 30, 2014 above give effect to our use of interest rate swaps, where applicable.
(2) Excludes outstanding letters of credit.
(3) Interest rate derivative effectively converts 85% of this loan to a fixed rate.
At June 30, 2014, we have a $300.0 million senior unsecured credit facility. Deutsche Bank AG New York Branch (“Deutsche Bank”) is the administrative agent and Deutsche Bank Securities Inc. is the sole lead arranger. The syndication of lenders includes Deutsche Bank, Bank of America, N.A., Royal Bank of Canada, Key Bank, Regions
Bank, Fifth Third Bank, Raymond James Bank, N.A., and U.S. Bank National Association. Certain of our existing and future subsidiaries that own or lease an unencumbered asset, as described below, will be required to guaranty this credit facility.
Outstanding borrowings on this credit facility are limited to the least of (i) the aggregate commitments of all of the lenders, (ii) the aggregate value of the unencumbered assets, less our consolidated unsecured indebtedness, all as calculated pursuant to the terms of the credit facility documentation, multiplied by 60%, and (iii) the principal amount that when drawn under the credit facility would result in an unsecured interest expense, calculated on a pro forma basis for the next consecutive four fiscal quarters after taking such draws into account, equal to 50% of the net operating income of the unencumbered assets, as adjusted pursuant to the credit facility documentation.
Payment Terms. We are obligated to pay interest at the end of each selected interest period, but not less than quarterly, with all outstanding principal and accrued but unpaid interest due at the maturity. We have the right to pay all or any portion of the outstanding borrowings from time to time without penalty or premium. We pay interest on advances at varying rates, based upon, at our option, either (i) 1, 2, 3, or 6-month LIBOR, plus a LIBOR margin between 1.75% and 2.50%, depending upon our leverage ratio (as defined in the credit facility documentation), or (ii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, or 1-month LIBOR plus 1.00%, plus a base rate margin between 0.75% and 1.50%, depending upon our leverage ratio. In addition, on a quarterly basis, we are required to pay a fee on the unused portion of the credit facility equal to the unused amount multiplied by an annual rate of either (i) 0.30%, if the unused amount is equal to or greater than 50% of the maximum aggregate amount of the credit facility, or (ii) 0.20%, if the unused amount is less than 50% of the maximum aggregate amount of the credit facility.
Financial and Other Covenants. We are required to comply with a series of financial and other covenants in order to borrow under this credit facility. The material financial covenants include a maximum leverage ratio, a minimum consolidated tangible net worth, a maximum dividend payout ratio, a minimum consolidated fixed charge coverage ratio, a maximum ratio of secured indebtedness to total asset value, a maximum ratio of secured recourse indebtedness to total asset value, a maximum ratio of consolidated unsecured indebtedness to total unencumbered asset value, and a maximum ratio of unencumbered adjusted net operating income to assumed unsecured interest expense.
We are also subject to other customary covenants, including restrictions on investment and limitations on liens and maintenance of properties. This credit facility also contains customary events of default, including, among others, the failure to make payments when due under the terms of any of the credit facilities, breach of any covenant continuing beyond any cure period, and bankruptcy or insolvency.
Unencumbered Assets. This credit facility is unsecured; however, borrowings are limited by the value of hotel properties that qualify as unencumbered assets supporting this credit facility. At June 30, 2014, 37 of our hotel properties qualify as, and are deemed to be, unencumbered assets that support this credit facility. Among other conditions, unencumbered assets must not be subject to liens or security interests, and the owner and operating lessee of such unencumbered asset must execute a guaranty supplement pursuant to which the owner and operating lessee become subsidiary guarantors of the credit facility. In addition, hotel properties may be added to or removed from the unencumbered asset pool at any time so long as there is a minimum of 20 hotel properties in the unencumbered asset pool, the unencumbered assets meet certain diversity requirements (such as limits on concentrations in any particular market), and the then-current borrowings on the credit facility do not exceed the maximum available under the credit facility given the availability limitations described above. Further, to be eligible as an unencumbered asset, the hotel property must: be franchised with a nationally-recognized franchisor; have been in operation a minimum of one year; satisfy certain ownership, management and operating lessee criteria; and not be subject to material defects, such as liens, title defects, environmental contamination and other standard lender criteria.
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At June 30, 2014, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which, we had $156.0 million borrowed, $13.8 million in standby letters of credit and $130.2 million available to borrow under the $225 Million Revolver.
At August 1, 2014, 37 of our unencumbered hotel properties are included in the borrowing base which supports the senior unsecured credit facility. As a result, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which we had $148.0 million borrowed, $13.8 million in standby letters of credit and $138.2 million available to borrow.
On March 28, 2014, we amended two loans with GE Capital Financial, cross - collateralized by the Courtyard by Marriott and the SpringHill Suites by Marriott, both located in Scottsdale, AZ. The loans were amended to bear interest at a fixed rate of 5.39% and the maturity date was extended to April 1, 2020.
On March 28, 2014, we amended two loans with General Electric Capital Corp., cross - collateralized by the Hilton Garden Inn (Lakeshore) and the Hilton Garden Inn (Liberty Park), both located in Birmingham, AL. Both loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.
For additional information regarding our term loans, please read our consolidated financial statements and related notes thereto, appearing elsewhere in this Form 10-Q.
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On April 1, 2014, we redeemed 25,349 Common Units in our Operating Partnership, which had been tendered on January 31, 2014 for shares of our common stock. On May 2, 2014, 46,788 Common Units were tendered for redemption, which we redeemed for 46,788 shares of our common stock on July 1, 2014.
Capital Expenditures
In the first six months of 2014, we spent $22.8 million on renovations, including $17.8 million on hotel properties that we owned at the beginning of 2013 and $5.0 million on hotel properties acquired since the beginning of 2013. We currently have renovations underway at five of our hotel properties. We anticipate spending a total of $14.0 million to $20.0 million on hotel property renovations in the remainder of 2014. We expect to fund these renovations with cash provided by operations, working capital, borrowings under our senior unsecured revolving credit facility, and other potential sources of capital, to the extent available to us.
Off-Balance Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements to facilitate our operations. At June 30, 2014, we had $13.8 million in outstanding stand-by letters of credit, of which $0.7 million was supporting performance bonds related to workers’ compensation insurance and other operational matters and $13.1 million was supporting a purchase agreement for the Hampton Inn & Suites in downtown Minneapolis, MN. At August 1, 2014, we had $13.8 million in outstanding standby letters of credit.
Contractual Obligations
The timing of required payments related to our long-term debt and other contractual obligations at June 30, 2014 follows (in thousands):
Payments Due By Period
Less than One Year
One to Three Years
Four to Five Years
More than Five Years
Debt obligations (1)
748,779
37,340
180,496
248,512
282,431
Operating lease obligations (2)
72,330
819
1,033
69,692
Purchase obligations (3)
5,917
Other long-term liabilities (4)
8,000
835,026
52,076
181,529
249,298
352,123
(1) Amounts shown include amortization of principal, maturities, and estimated interest payments. Interest payments on variable rate debt have been estimated using the rates in effect at June 30, 2014, after giving effect to interest rate swaps.
(2) Primarily ground leases and corporate office leases.
(3) Represents purchase orders and executed contracts for renovation projects at our hotel properties.
(4) Represents remaining note funding obligation.
In addition to the contractual obligations in the above table, at June 30, 2014 we are also obligated under a purchase agreement with a hotel property developer to acquire a Hampton Inn & Suites in downtown Minneapolis, MN for $37.7 million subject to certain conditions, including the completion of construction of the hotel in accordance with agreed upon architectural and engineering designs, receipt of a Hampton Inn & Suites franchise, and receipt of a certificate of occupancy. Therefore, there is no assurance that the acquisition will be completed. In January 2014, we issued a standby letter of credit for $13.1 million in support of this purchase agreement. This letter of credit was issued under our senior unsecured credit facility.
Inflation
Operators of hotel properties, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.
Seasonality
Certain segments of the hotel industry are seasonal in nature. Leisure travelers tend to travel more during the summer. Business travelers occupy hotels relatively consistently throughout the year, but decreases in business travel occur during summer and the winter holidays. The hotel industry is also seasonal based upon geography. Hotels in the southern U.S. tend to have higher occupancy rates during the winter months. Hotels in the northern U.S. tend to have higher occupancy rates during the summer months. Due to our portfolio’s geographic diversification, our revenue has not experienced significant seasonality.
Critical Accounting Policies
There have been no significant changes in our critical accounting policies or estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are currently exposed, and to which we expect to be exposed in the future, is interest rate risk. Our primary interest rate exposure is to 30-day LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis we also use derivative financial instruments to manage interest rate risk.
At June 30, 2014, we were party to four interest rate swap agreements with a total notional amount of $103.6 million, where we receive variable rate payments in exchange for making fixed rate payments. These agreements are accounted for as cash flow hedges and have an aggregate termination value, including accrued interest, of $2.4 million at June 30, 2014.
At June 30, 2014, after giving effect to our interest rate swap agreements, $472.0 million, or 81.4%, of our debt had fixed interest rates and $107.9 million, or 18.6%, had variable interest rates. Assuming no increase in the outstanding balance of our variable rate debt, if interest rates increase by 1.0% our cash flow would decrease by approximately $1.1 million per year.
As our fixed rate debts mature, they will become subject to interest rate risk. In addition, as our variable rate debts mature, lenders may impose interest rate floors on new financing arrangements because of the low interest rates experienced during the past few years. At June 30, 2014, we have no debt that matures in 2014. However, $10.8 million of our long-term debt is scheduled to amortize in the next twelve months, of which $10.5 million has fixed interest rates.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
We have continued the implementation of changes to our internal controls over financial reporting to remediate the material weakness identified in our Annual Report on Form 10-K for the year ended December 31, 2013. In the course of preparing our 2013 Annual Report and the consolidated financial statements included therein, our management identified a deficiency in the design of our internal control over financial reporting in that we did not have
in place controls and procedures that would allow us to reconcile the balance sheets of our individual hotels included in our final consolidated balance sheet to the balance sheet information provided by our third party property managers for each individual hotel. As a result of the design deficiency, the intercompany accounts between the entities which form the consolidated company had not been reconciled in 2013 and in prior periods.
In order to prepare the consolidated financial statements for the year ended December 31, 2013 and for the quarter ended March 31, 2014, the audit committee of our board of directors engaged a nationally recognized consulting and accounting firm to assist our management with the reconciliation of the intercompany accounts for 2012, 2013 and the first quarter of 2014. The Company has developed internal processes and procedures to have its accounting staff reconcile intercompany accounts on a monthly basis as part of its normal accounting close process. Furthermore, the Company has engaged a local consulting firm to assist with the development of processes and procedures related to the reconciliation of the balance sheets of our individual hotels to the balance sheet information provided by our third party property managers at each quarter end and to perform the reconciliation for the second quarter of 2014.
Notwithstanding the material weakness, our management has concluded that the consolidated financial statements included in our 2013 Annual Report and in the Quarterly Reports on Form 10-Q for the periods ended March 31, 2014 and June 30, 2014, present fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries.
Our management continues to work diligently to further identify and implement procedures and controls to remediate the material weakness and strengthen our overall internal controls. We are continuing to retain and develop resources to improve our processes, procedures and internal control environment.
Item 1. Legal Proceedings.
We are involved from time to time in litigation arising in the ordinary course of business, however, we are not currently aware of any actions against us that we believe would materially adversely affect our business, financial condition or results of operations.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On May 28, 2014, the Compensation Committee of the Board of Directors approved the below elements of the 2014 compensation program for the Company’s non-employee directors:
Annual Cash Retainer. An annual cash retainer of $50,000 to each non-employee director.
Presiding Director Fee. A $30,000 annual fee to the presiding director.
Additional Committee Membership Fee. An additional annual committee membership fee to the members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, with each member of the Audit Committee being paid $12,500, each member of the Compensation Committee being paid $10,000 and each member of the Nominating and Corporate Governance Committee being paid $7,500.
Additional Committee Chairperson Fee. The chairperson of the Audit Committee, the chairperson of the Compensation Committee and the chairperson of the Nominating and Corporate Governance Committee will each receive an annual committee chairperson fee, with the chairperson of the Audit Committee being paid $25,000, the chairperson of the Compensation Committee being paid $20,000 and the chairperson of the Nominating and Corporate Governance Committee being paid $15,000.
Annual Equity Award. An annual award of shares of the Company’s common stock with an aggregate value of approximately $70,000 to each non-employee director (the number of shares awarded to each non-employee director to be determined by dividing $70,000 by the volume weighted-average price of the Company’s common stock on the NYSE for the ten trading days preceding the grant date).
Item 6. Exhibits.
The following exhibits are filed as part of this report:
Exhibit Number
Description of Exhibit
10.1†
Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Kerry W. Boekelheide
10.2†
Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Daniel P. Hansen
10.3†
Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Craig J. Aniszewski
10.4†
Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Christopher R. Eng
10.5†
Confidential Severance and Release Agreement, dated June 16, 2014, between Summit Hotel Properties, Inc. and Stuart J. Becker
31.1
Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
† Management contract.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUMMIT HOTEL PROPERTIES, INC. (registrant)
Date: August 6, 2014
By:
/s/ Paul Ruiz
Paul Ruiz
Interim Chief Financial Officer
Chief Accounting Officer
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EXHIBIT INDEX
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