Summit Hotel Properties, Inc. [INN] Filings

10-Q 1 inn-20230930.htm 10-Q inn-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________________

FORM 10-Q

____________________________________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35074

SUMMIT HOTEL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________________________________________


Maryland						27-2962512
(State or other jurisdiction						(I.R.S. Employer Identification No.)
of incorporation or organization)

13215 Bee Cave Parkway, Suite B-300

Austin, TX 78738

(Address of principal executive offices, including zip code)

(512) 538-2300

(Registrant’s telephone number, including area code)

________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

INN

New York Stock Exchange

Series E Cumulative Redeemable Preferred Stock, $0.01 par value

INN-PE

New York Stock Exchange

Series F Cumulative Redeemable Preferred Stock, $0.01 par value

INN-PF

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of October 20, 2023, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 107,578,703.

TABLE OF CONTENTS


		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — September 30, 2023 (Unaudited) and December 31, 2022	1
	Condensed Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) — Three and Nine Months Ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Changes in Equity and Redeemable Non-controlling Interests (Unaudited) — Three and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended September 30, 2023 and 2022	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54

Item 4.	Controls and Procedures	55

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	56

Item 1A.	Risk Factors	56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 3.	Defaults Upon Senior Securities	56

Item 4.	Mine Safety Disclosures	56

Item 5.	Other Information	56

Item 6.	Exhibits	57

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Investments in lodging property, net	$	2,831,247	$	2,841,856


Assets held for sale, net	9,163		29,166

Cash and cash equivalents	55,307		51,255
Restricted cash	11,268		10,553
Right-of-use assets, net	35,215		35,023
Trade receivables, net	24,209		21,015
Prepaid expenses and other	12,973		8,378

Deferred charges, net	7,066		7,074

Other assets	28,741		17,950
Total assets	$	3,015,189	$	3,022,270

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
Liabilities:
Debt, net of debt issuance costs	$	1,444,637	$	1,451,796
Lease liabilities, net	26,102		25,484
Accounts payable	6,880		5,517
Accrued expenses and other	92,209		81,304

Total liabilities	1,569,828		1,564,101
Commitments and contingencies (Note 11)
Redeemable non-controlling interests	50,219		50,219
Equity:
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:


6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2023 and December 31, 2022 (aggregate liquidation preference of $160,861 at September 30, 2023 and December 31, 2022, respectively)	64		64
5.875% Series F - 4,000,000 shares issued and outstanding at September 30, 2023 and December 31, 2022 (aggregate liquidation preference of $100,506 at September 30, 2023 and December 31, 2022, respectively)	40		40
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 107,573,489 and 106,901,576 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	1,076		1,069
Additional paid-in capital	1,236,864		1,232,302
Accumulated other comprehensive income	20,832		14,538
Accumulated deficit and distributions in excess of retained earnings	(316,780)		(288,200)
Total stockholders’ equity	942,096		959,813


Non-controlling interests	453,046		448,137
Total equity	1,395,142		1,407,950
Total liabilities, redeemable non-controlling interests and equity	$	3,015,189	$	3,022,270

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Room	$	161,712	$	160,133	$	498,982	$	455,747
Food and beverage	9,949		8,854		30,848		22,180
Other	10,155		9,265		28,862		25,442
Total revenues	181,816		178,252		558,692		503,369

Expenses:
Room	37,510		37,525		112,207		101,718
Food and beverage	7,684		7,060		23,679		17,187
Other lodging property operating expenses	55,826		54,883		169,780		154,871
Property taxes, insurance and other	14,369		13,373		43,308		40,036
Management fees	4,177		4,308		13,974		13,145
Depreciation and amortization	37,882		38,130		112,300		112,462
Corporate general and administrative	8,126		6,532		25,225		23,743
Transaction costs	—		56		24		737
Recoveries of credit losses	(250)		(850)		(500)		(1,100)


Total expenses	165,324		161,017		499,997		462,799
(Loss) gain on disposal of assets, net	(16)		(5)		(336)		20,479

Operating income	16,476		17,230		58,359		61,049

Other income (expense):
Interest expense	(22,020)		(17,645)		(65,177)		(46,202)
Interest income	474		65		1,190		1,461
Other income (loss), net	661		(481)		458		1,638
Total other expense, net	(20,885)		(18,061)		(63,529)		(43,103)
(Loss) income from continuing operations before income taxes	(4,409)		(831)		(5,170)		17,946
Income tax expense (Note 13)	(1,360)		(210)		(1,679)		(4,647)
Net (loss) income	(5,769)		(1,041)		(6,849)		13,299
Loss (income) attributable to non-controlling interests	4,955		5,148		9,306		(4,481)


Net (loss) income attributable to Summit Hotel Properties, Inc. before preferred dividends and distributions	(814)		4,107		2,457		8,818
Distributions to and accretion of redeemable non-controlling interests	(656)		(656)		(1,970)		(1,866)
Preferred dividends	(3,968)		(3,968)		(11,906)		(11,906)

Net loss attributable to common stockholders	$	(5,438)	$	(517)	$	(11,419)	$	(4,954)

Loss per share:
Basic and Diluted	$	(0.05)	$	—	$	(0.11)	$	(0.05)

Weighted-average common shares outstanding:
Basic and Diluted	105,650		105,232		105,510		105,110

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(5,769)	$	(1,041)	$	(6,849)	$	13,299
Other comprehensive income, net of tax:
Changes in fair value of derivative financial instruments	3,640		16,707		10,225		33,716
Comprehensive (loss) income	(2,129)		15,666		3,376		47,015


Comprehensive loss (income) attributable to non-controlling interests	4,140		2,974		5,375		(7,025)
Comprehensive income attributable to Summit Hotel Properties, Inc.	2,011		18,640		8,751		39,990
Distributions to and accretion of redeemable non-controlling interests	(656)		(656)		(1,970)		(1,866)
Preferred dividends	(3,968)		(3,968)		(11,906)		(11,906)

Comprehensive (loss) income attributable to common stockholders	$	(2,613)	$	14,016	$	(5,125)	$	26,218

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Changes in Equity and Redeemable Non-controlling Interests

For the Three Months Ended September 30, 2023 and 2022

(Unaudited - In thousands, except share amounts)


	Redeemable Non-controlling Interests		Shares of Preferred Stock	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit and Distributions in Excess of Retained Earnings		Total Shareholders’ Equity		Non-controlling Interests		Total Equity
Balance at June 30, 2023	$	50,219	10,400,000	$	104	107,569,738	$	1,076	$	1,234,947	$	18,007	$	(304,888)	$	949,246	$	462,730	$	1,411,976

Adjustment of redeemable non-controlling interests to redemption value	656		—	—		—	—		—		—		(656)		(656)		—		(656)



Common stock redemption of common units	—		—	—		7,000	—		68		—		—		68		(68)		—

Dividends and distributions on common stock and common units	—		—	—		—	—		—		—		(6,454)		(6,454)		(958)		(7,412)
Preferred dividends and distributions	(656)		—	—		—	—		—		—		(3,968)		(3,968)		—		(3,968)
Joint venture partner distributions	—		—	—		—	—		—		—		—		—		(4,518)		(4,518)
Equity-based compensation	—		—	—		—	—		1,867		—		—		1,867		—		1,867
Shares of common stock acquired for employee withholding requirements	—		—	—		(3,249)	—		(18)		—		—		(18)		—		(18)

Other comprehensive income	—		—	—		—	—		—		2,825		—		2,825		815		3,640
Net loss	—		—	—		—	—		—		—		(814)		(814)		(4,955)		(5,769)
Balance at September 30, 2023	$	50,219	10,400,000	$	104	107,573,489	$	1,076	$	1,236,864	$	20,832	$	(316,780)	$	942,096	$	453,046	$	1,395,142

Balance at June 30, 2022	$	50,223	10,400,000	$	104	106,894,011	$	1,069	$	1,229,660	$	1,000	$	(267,158)	$	964,675	$	470,391	$	1,435,066

Adjustment of redeemable non-controlling interests to redemption value	656		—	—		—	—		—		—		(656)		(656)		—		(656)


Contributions by non-controlling interest in joint venture	—		—	—		—	—		—		—		—		—		20		20
Common stock redemption of common units	—		—	—		5,000	1		49		—		—		50		(50)		—

Common dividends and distributions	—		—	—		—	—		—		—		(4,276)		(4,276)		(639)		(4,915)
Preferred dividends and distributions	(656)		—	—		—	—		—		—		(3,968)		(3,968)		—		(3,968)
Joint venture partner distributions	—		—	—		—	—		—		—		—		—		(11,270)		(11,270)
Equity-based compensation	—		—	—		(5,099)	(1)		1,231		—		—		1,230		—		1,230

Other	—		—	—		—	—		(92)		—		—		(92)		(41)		(133)
Other comprehensive income	—		—	—		—	—		—		14,533		—		14,533		2,174		16,707
Net income (loss)	—		—	—		—	—		—		—		4,107		4,107		(5,148)		(1,041)
Balance at September 30, 2022	$	50,223	10,400,000	$	104	106,893,912	$	1,069	$	1,230,848	$	15,533	$	(271,951)	$	975,603	$	455,437	$	1,431,040

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Changes in Equity and Redeemable Non-controlling Interests

For the Nine Months Ended September 30, 2023 and 2022

(Unaudited - In thousands, except share amounts)


	Redeemable Non-controlling Interests		Shares of Preferred Stock	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit and Distributions in Excess of Retained Earnings		Total Shareholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2022	$	50,219	10,400,000	$	104	106,901,576	$	1,069	$	1,232,302	$	14,538	$	(288,200)	$	959,813	$	448,137	$	1,407,950

Adjustment of redeemable non-controlling interests to redemption value	1,970		—	—		—	—		—		—		(1,970)		(1,970)		—		(1,970)

Sale of non-controlling interests in joint venture	—		—	—		—	—		—		—		—		—		1,353		1,353
Contributions by non-controlling interest in joint venture	—		—	—		—	—		—		—		—		—		20,532		20,532
Common stock redemption of common units	—		—	—		7,000	—		68		—		—		68		(68)		—

Common dividends and distributions	—		—	—		—	—		—		—		(17,161)		(17,161)		(2,555)		(19,716)
Preferred dividends and distributions	(1,970)		—	—		—	—		—		—		(11,906)		(11,906)		(161)		(12,067)
Joint venture partner distributions	—		—	—		—	—		—		—		—		—		(8,673)		(8,673)
Equity-based compensation	—		—	—		848,942	8		5,905		—		—		5,913		—		5,913
Shares of common stock acquired for employee withholding requirements	—		—	—		(184,029)	(1)		(1,387)		—		—		(1,388)		—		(1,388)
Other	—		—	—		—	—		(24)		—		—		(24)		(144)		(168)
Other comprehensive income	—		—	—		—	—		—		6,294		—		6,294		3,931		10,225
Net loss	—		—	—		—	—		—		—		2,457		2,457		(9,306)		(6,849)
Balance at September 30, 2023	$	50,219	10,400,000	$	104	107,573,489	$	1,076	$	1,236,864	$	20,832	$	(316,780)	$	942,096	$	453,046	$	1,395,142

Balance at December 31, 2021	$	—	10,400,000	$	104	106,337,724	$	1,063	$	1,225,184	$	(15,639)	$	(262,639)	$	948,073	$	159,119	$	1,107,192
Redeemable non-controlling interests in operating partnership issued for the acquisition of a portfolio of lodging properties	50,000		—	—		—	—		—		—		—		—		—		—
Adjustment of redeemable non-controlling interests to redemption value	1,866		—	—		—	—		—		—		(1,866)		(1,866)		—		(1,866)
Non-controlling interests in operating partnership issued for the acquisition of a portfolio of lodging properties	—		—	—		—	—		—		—		—		—		157,513		157,513
Sale of non-controlling interests in joint venture	—		—	—		—	—		—		—		—		—		674		674
Contributions by non-controlling interest in joint venture	—		—	—		—	—		1,218		—		—		1,218		209,822		211,040
Common stock redemption of common units	—		—	—		5,000	1		49		—		—		50		(50)		—

Common dividends and distributions	—		—	—		—	—		—		—		(4,358)		(4,358)		(639)		(4,997)
Preferred dividends and distributions	(1,643)		—	—		—	—		—		—		(11,906)		(11,906)		(83)		(11,989)
Joint venture partner distributions	—		—	—		—	—		—		—		—		—		(77,903)		(77,903)
Equity-based compensation	—		—	—		811,988	7		7,063		—		—		7,070		—		7,070
Shares of common stock acquired for employee withholding requirements	—		—	—		(260,800)	(2)		(2,453)		—		—		(2,455)		—		(2,455)
Other	—		—	—		—	—		(213)		—		—		(213)		(41)		(254)
Other comprehensive income	—		—	—		—	—		—		31,172		—		31,172		2,544		33,716
Net income	—		—	—		—	—		—		—		8,818		8,818		4,481		13,299
Balance at September 30, 2022	$	50,223	10,400,000	$	104	106,893,912	$	1,069	$	1,230,848	$	15,533	$	(271,951)	$	975,603	$	455,437	$	1,431,040

See Notes to the Condensed Consolidated Financial Statements


Summit Hotel Properties, Inc. Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
	Nine Months Ended September 30,
	2023		2022
OPERATING ACTIVITIES
Net (loss) income	$	(6,849)	$	13,299
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	112,300		112,462
Amortization of debt issuance costs	4,379		4,238

Recoveries of credit losses	(500)		(1,100)
Equity-based compensation	5,913		7,070
Deferred tax asset, net	63		—
Loss (gain) on disposal of assets, net	336		(20,479)

Non-cash interest income	(433)		(113)
Debt transaction costs	352		1,166
Other	560		303
Changes in operating assets and liabilities:

Trade receivables, net	(3,195)		(9,755)
Prepaid expenses and other	6,645		(4,828)
Accounts payable	1,005		(244)
Accrued expenses and other	2,591		33,662
NET CASH PROVIDED BY OPERATING ACTIVITIES	123,167		135,681
INVESTING ACTIVITIES
Acquisitions of lodging properties	(44,614)		(281,074)

Improvements to lodging properties	(63,027)		(48,772)

Proceeds from asset dispositions, net	27,632		73,758


Funding of real estate loans	(4,576)		(2,167)
Repayments of real estate loans	250		850

NET CASH USED IN INVESTING ACTIVITIES	(84,335)		(257,405)
FINANCING ACTIVITIES
Proceeds from borrowings on revolving line of credit	65,000		486,500
Repayments of line of credit borrowings	(65,000)		(20,000)
Principal payments on debt	(1,784)		(448,874)
Proceeds from the sale of non-controlling interests	1,353		674



Financing fees, debt transaction costs and other issuance costs	(10,273)		(7,203)
Common dividends and distributions paid	(19,596)		(5,174)
Preferred dividends and distributions paid	(14,037)		(13,632)
Proceeds from contributions by non-controlling interests in joint venture	20,332		204,092

Distributions to joint venture partners	(8,673)		(77,903)
Repurchase of shares of common stock for withholding requirements	(1,387)		(2,455)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(34,065)		116,025
Net change in cash, cash equivalents and restricted cash	4,767		(5,699)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period	61,808		96,944
End of period	$	66,575	$	91,245

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONSOLIDATED BALANCE SHEET TO THE AMOUNTS SHOWN IN THE STATEMENT OF CASH FLOWS ABOVE:
Cash and cash equivalents	$	55,307	$	72,617
Restricted cash	11,268		18,628
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	66,575	$	91,245

See Notes to the Condensed Consolidated Financial Statements

SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

General

Summit Hotel Properties, Inc. (the “Company”) is a self-managed lodging property investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. Unless the context otherwise requires, “we,” “us,” and “our” refer to the Company and its consolidated subsidiaries.

We primarily focus on owning lodging properties with efficient operating models that generate strong margins and investment returns. At September 30, 2023, our portfolio consisted of 101 lodging properties with a total of 15,035 guestrooms located in 24 states. As of September 30, 2023, we own 100% of the outstanding equity interests in 57 of our 101 lodging properties. We own a 51% controlling interest in 41 lodging properties through a joint venture (the “GIC Joint Venture”) that was formed in July 2019 with Singapore’s sovereign wealth fund ("GIC"). We also own 90% equity interests in two separate joint ventures (the "Brickell Joint Venture" and the "Onera Joint Venture"). The Brickell Joint Venture owns two lodging properties, and the Onera Joint Venture owns one lodging property.

As of September 30, 2023, 86% of our guestrooms were located in the top 50 metropolitan statistical areas (“MSAs”), 90% were located within the top 100 MSAs and over 98% of our guestrooms operated under premium franchise brands owned by Marriott® International, Inc. (“Marriott”), Hilton® Worldwide (“Hilton”), Hyatt® Hotels Corporation (“Hyatt”), and InterContinental® Hotels Group (“IHG”).

Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. Through a wholly-owned subsidiary, we are the sole general partner of the Operating Partnership. At September 30, 2023, we owned, directly and indirectly, approximately 87% of the Operating Partnership’s issued and outstanding common units of limited partnership interest (“Common Units”), and all of the Operating Partnership’s issued and outstanding 6.25% Series E and 5.875% Series F preferred units of limited partnership interest. NewcrestImage Holdings, LLC owns all of the issued and outstanding 5.25% Series Z Cumulative Perpetual Preferred Units (liquidation preference $25 per unit) of the Operating Partnership ("Series Z Preferred Units"), which was issued as part of the NCI Transaction (described below in "Note 3 - Investments in Lodging Property, net"). We collectively refer to preferred units of limited partnership interests of our Operating Partnership as "Preferred Units."

Pursuant to the Operating Partnership’s partnership agreement, we have full, exclusive and complete responsibility and discretion in the management and control of the Operating Partnership, including the ability to cause the Operating Partnership to enter into certain major transactions including acquisitions, dispositions and refinancings, to make distributions to partners and to cause changes in the Operating Partnership’s business activities.

We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. To qualify as a REIT, we cannot operate or manage our lodging properties. Accordingly, all of our lodging properties are leased to our taxable REIT subsidiaries (“TRS Lessees”) and managed by professional third-party management companies.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepare our Condensed Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenues and expenses in the reporting period. Actual results could differ from those estimates. As interim statements, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and nine months ended September 30, 2023 may not be indicative of the results that may be expected for the full year of 2023. For further information, please read the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

We evaluate joint venture partnerships to determine if they should be consolidated based on whether the partners exercise joint control. For a joint venture where we exercise primary control and we also own a majority of the equity interests, we consolidate the joint venture partnership. We have consolidated the accounts of all of our joint venture partnerships in our accompanying Condensed Consolidated Financial Statements.

Real Estate Development Loans

We selectively provide mezzanine financing to developers where we also have the opportunity to acquire the lodging property at or after the completion of the development project. We classify mezzanine financing loans as Investments in lodging property, net or Investments in real estate loans, net based on the terms of the mezzanine financing loan agreements and criteria for classifying an arrangement as a loan or an investment in real estate under Accounting Standards Codification ("ASC") No. 310, Receivables. At September 30, 2023, we have one mezzanine financing loan that we have classified in Investments in lodging property, net on our Condensed Consolidated Balance Sheet.

Trade Receivables and Current Estimate of Credit Losses

Financial assets (or a group of financial assets) such as real estate development loans and other notes receivable are measured at amortized cost and presented at the net amount expected to be collected in accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). We record an allowance for credit losses as a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We routinely evaluate our real estate development loans, notes receivable and interest receivable for collectability. Probable losses on loans are recognized in a valuation account that is deducted from the amortized cost basis of the loans and recorded as a provision for credit losses in our condensed Consolidated Statements of Operations. When we place a loan on non-accrual status, we suspend the recognition of interest income until cash interest payments are received. Generally, we return loans to accrual status when all delinquent interest becomes current, and collectability is reasonably assured. We do not measure an allowance for credit losses for accrued interest receivable. Accrued interest receivable is written-off to bad debt expense when collection is not reasonably assured.

We grant credit to qualified guests, generally without collateral, in the form of trade accounts receivable. Trade receivables result from the rental of guestrooms and the sales of food, beverage, and banquet services and are payable under normal trade terms. Trade receivables also include credit and debit card transactions that are in the process of being settled. Trade receivables are stated at the amount billed to the guest and do not accrue interest. We regularly review the collectability of our trade receivables. A provision for losses is determined on the basis of previous loss experience and current economic conditions. Our allowance for doubtful accounts was $0.2 million at September 30, 2023 and $0.1 million at December 31, 2022. Bad debt expense was $0.2 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.3 million and $0.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Purchase Option

When we provide mezzanine financing to a developer, we will generally receive a purchase option to acquire a majority interest in the property upon completion of construction. For purchase options with fixed exercise prices at inception, we record the purchase options at their estimated fair values on the transaction date in accordance with ASC No. 820, Fair Value Measurement, under a closed-form model such as the Black-Scholes model or a binomial lattice model such as the Monte Carlo simulation model. Purchase options received in connection with a mezzanine financing loan are recorded as a discount on the note receivable or a contra-asset, depending on the classification of the financial instrument, and amortized over the term of the mezzanine financing loan using the straight-line method, which approximates the interest method, as non-cash interest income on our Condensed Consolidated Statements of Operations. We elected to account for purchase options using the measurement alternative, which is cost less impairment, if any. If the fair value of the financial instrument can be determined from observable transactions for identical or similar investments of the same issuer, then we will record the financial instrument at fair value and adjust the carrying amount for changes in fair value in each period.

Exchange or Modification of Debt

We consider modifications or exchanges of debt as extinguishments in accordance with ASC No. 470, Debt, with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. If the original and new debt instruments are substantially different, the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss. Under an exchange or modification accounted for as a debt extinguishment, fees paid to the lenders are included in the gain or loss on extinguishment of debt. Costs incurred with third parties, such as legal fees, directly related to the exchange or modification are capitalized as deferred financing costs and amortized over the initial term of the new debt. Previously deferred fees and costs for existing debt are included in the calculation of gain or loss. Under an exchange or modification not accounted for as a debt extinguishment, fees paid to the lenders are reflected as additional debt discount and amortized as non-cash interest expense over the remaining initial term of the exchanged or modified debt. Furthermore, costs incurred with third parties, such as legal fees, directly related to the exchange or modification are expensed as incurred. Additionally, previously deferred fees and costs are amortized as non-cash interest expense over the remaining initial term of the exchanged or modified debt.

Financial Guarantee

On occasion, we may provide a financial guarantee on behalf of a mezzanine borrower. We record the non-contingent portion of financial guarantees made on behalf of third-parties as a liability at an amount equal to the premium receivable for the guarantee payable to us by the borrower under the practical expedient provided by ASC No. 460, Guarantees. We periodically evaluate the contingent component of a financial guarantee based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that may require us to record a liability related to the contingent component of a guarantee. We will record a liability for the contingent component of the guarantee when a payment by us under the guarantee is probable and reasonably estimable in accordance with ASC No. 326, Financial Instruments - Credit Losses.

Redeemable Non-controlling Interests

Redeemable non-controlling interests represent redeemable preferred units issued by our Operating Partnership ("Redeemable Preferred Units"). The Redeemable Preferred Units are presented as temporary equity related to our Operating Partnership on our Condensed Consolidated Balance Sheets under the caption of "Redeemable Non-controlling Interests." See "Note 9 - Non-controlling Interests and Redeemable Non-controlling Interests" for further information. We record redeemable non-controlling interests at fair value on the issuance date of the securities. When the carrying value (the acquisition date fair value adjusted for the non-controlling interest’s share of net income (loss) and dividends) is less than the redemption value, we adjust the redeemable non-controlling interest to equal the redemption value with changes recognized as an adjustment to Accumulated deficit and distributions in excess of retained earnings. Any such adjustment, when necessary, is recorded as of the applicable balance sheet date.

Non-controlling Interests

Non-controlling interests represent the portion of equity in a consolidated entity held by owners other than the consolidating parent. Non-controlling interests are reported in the Condensed Consolidated Balance Sheets within equity, separately from stockholders’ equity. Revenues, expenses and net income attributable to both the Company and the non-controlling interests are reported in the Condensed Consolidated Statements of Operations.

Our Condensed Consolidated Financial Statements include non-controlling interests related to Common Units held by unaffiliated third parties and third-party minority ownership interests in our joint ventures.

Earnings Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. We apply the two-class method of computing EPS, which requires the calculation of separate EPS amounts for participating securities. 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. Any anti-dilutive securities are excluded from the basic per-share calculation.

Diluted EPS is computed by dividing net income (loss) available to common stockholders, as adjusted for dilutive securities, by the weighted-average number of shares of common stock outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation. Potentially dilutive shares include unvested restricted share grants, unvested performance share grants, shares of common stock issuable upon conversion of convertible debt and shares of common stock issuable upon conversion of Common Units of our Operating Partnership.

Basic and diluted loss per share for the three and nine months ended September 30, 2023 and 2022 are calculated as Net loss attributable to common stockholders for each respective period divided by weighted average common shares outstanding for each respective period as all other securities are antidilutive. Potentially dilutive shares include unvested restricted share grants, unvested performance share grants, common shares issuable upon conversion of convertible debt and common shares issuable upon conversion of Common Units of our Operating Partnership.

Use of Estimates

Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP, which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions that affect reported amounts and related disclosures in our Condensed Consolidated Financial Statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could materially differ from our expectations, which could materially affect our consolidated financial position and results of operations.

Reclassifications

A portfolio of two lodging properties with an aggregate carrying amount of approximately $49.9 million that were classified as Assets Held for Sale at December 31, 2022 have been reclassified to Investments in Lodging Property, net as the proposed sale of the properties was terminated during the nine months ended September 30, 2023.

NOTE 3 - INVESTMENTS IN LODGING PROPERTY, NET

Investments in Lodging Property, net

Investments in lodging property, net is as follows (in thousands):


	September 30, 2023		December 31, 2022
Lodging buildings and improvements	$	2,876,499	$	2,815,993
Land	383,651		373,106
Furniture, fixtures and equipment	266,212		252,842
Construction in progress	64,810		64,159
Intangible assets	39,954		39,954
Real estate development loan, net	4,042		—
	3,635,168		3,546,054
Less accumulated depreciation and amortization	(803,921)		(704,198)
	$	2,831,247	$	2,841,856

Depreciation and amortization expense related to our lodging properties was $37.7 million and $37.3 million for the three months ended September 30, 2023 and 2022, respectively, and $111.9 million, and $111.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Real Estate Development Loans

Onera Mezzanine Financing Loan

In January 2023, we entered into an agreement with affiliates of Onera Opportunity Fund I, LP ("Onera") to provide a mezzanine financing loan to fund up to $4.6 million (the "Onera Mezzanine Loan") for the development of a glamping property. The Onera Mezzanine Loan is secured by a second mortgage on the property and is subordinate to the senior lender for the development project. The loan matures 24 months from the closing date of the transaction and may be extended for an additional 12 months at the borrower's option. Additionally, we issued a $3.0 million letter of credit to the senior lender of the project as additional support for Onera's construction loan. We also have an option to purchase 90% of the equity of the entity that owns the development property upon completion of construction or upon the one-year anniversary of such completion at a pre-determined price (the "Onera Purchase Option"). The development is expected to be completed in the second half of 2024. As of September 30, 2023, we have funded our entire $4.6 million commitment under the mezzanine financing loan. The balance of the Onera Mezzanine Loan is recorded net of the unamortized discount related to the carrying amount of the Onera Purchase Option of $0.5 million at September 30, 2023, and is classified as Investments in lodging property, net in our Condensed Consolidated Balance Sheets at September 30, 2023.

We recorded the Onera Purchase Option related to the Onera Mezzanine Loan at its estimated fair value of $0.9 million on the transaction date using the Black-Scholes model in Other assets and as a contra-asset to Investments in lodging property, net. The recorded amount of the Onera Purchase Option is being amortized over the term of the Onera Mezzanine Loan using the straight-line method, which approximates the interest method, as non-cash interest income. For the three months ended September 30, 2023, and nine months ended September 30, 2023, we amortized $0.1 million and $0.4 million, respectively, of the carrying amount of the Onera Purchase Option as non-cash interest income.

Our estimate of the fair value of the Onera Purchase Option under the Black-Scholes model requires judgment and estimates primarily related to the volatility of our stock price and expected levels of future dividends on our common stock. Although our estimate contemplates current and expected future conditions, as applicable, it is reasonably possible that actual conditions could materially differ from our expectations.

Brickell Mezzanine Financing Loan

During the year ended December 31, 2019, we executed a mezzanine financing loan to a developer, as amended (the "Brickell Mezzanine Loan"), to fund up to $29.9 million for a mixed-use development project that included the AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL (together the "AC/Element Hotel"), retail space, and parking.

During the second quarter of 2022, we exercised our option (the “Initial Purchase Option”) to purchase a 90% interest in the AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL (together the "AC/Element Hotel"), retail space, and parking that was granted in connection with the Brickell Mezzanine Loan, which resulted in payment in full of the Brickell Mezzanine Loan. We also have the right to purchase the remaining interest in the property five years after the completion of construction. The Brickell Mezzanine Loan was classified as Investments in lodging property, net in our Condensed Consolidated Balance Sheets.

Lodging Property Acquisitions

Acquisition of Residence Inn by Marriott - Scottsdale, AZ

On June 1, 2023, the GIC Joint Venture acquired the Residence Inn by Marriott located in Scottsdale, AZ containing 120 guestrooms for a purchase price of approximately $29.0 million. GIC made a capital contribution of $13.7 million

Summit Hotel Properties, Inc. [INN] Filings
Summit Hotel Properties, Inc. [INN-PE] Filings
Summit Hotel Properties, Inc. [INN-PF] Filings
10-Q	[2023-11-01]
10-Q	[2023-08-02]
10-Q	[2023-05-03]
10-K	[2023-02-27]
10-Q	[2022-11-02]
10-Q	[2022-08-02]
10-Q	[2022-05-04]
10-K	[2022-02-23]
10-Q	[2021-11-03]
10-Q	[2021-08-03]
10-Q	[2021-05-04]
10-K	[2021-02-26]
10-Q	[2020-11-03]
10-Q	[2020-08-05]
10-Q	[2020-05-11]
10-K	[2020-02-25]
10-Q	[2019-11-05]
10-Q	[2019-07-31]
10-Q	[2019-05-01]
10-K	[2019-02-26]
10-Q	[2018-10-30]
10-Q	[2018-08-01]
10-Q	[2018-05-02]
10-K	[2018-02-21]
10-Q	[2017-10-30]
10-Q	[2017-08-02]
10-Q	[2017-05-03]
10-K	[2017-02-23]
10-Q	[2016-11-02]
10-Q	[2016-08-02]
10-Q	[2016-05-03]
10-K	[2016-02-24]
10-Q	[2015-11-02]
10-Q	[2015-08-03]
10-Q	[2015-05-04]
10-K	[2015-03-02]
10-Q	[2014-11-03]
10-Q	[2014-08-06]
10-Q	[2014-05-12]
10-K	[2014-03-25]
10-Q	[2013-11-05]
10-Q	[2013-08-06]
10-Q	[2013-05-06]
10-K	[2013-02-26]
10-Q	[2012-11-07]
10-Q	[2012-08-09]
10-Q	[2012-05-15]
10-K	[2012-02-28]

Summit Hotel Properties, Inc. [INN] Filings

Summit Hotel Properties, Inc. [INN-PE] Filings

Summit Hotel Properties, Inc. [INN-PF] Filings