Form 8-K/A Summit Hotel Properties, For: Oct 20

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 20, 2015

 

SUMMIT HOTEL PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

12600 Hill Country Boulevard, Suite R-100

Austin, Texas 78738

(Address of Principal Executive Offices) (Zip Code)

 

(512) 538-2300
(Registrants’ telephone number, including area code)

 

Not applicable

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Explanatory Note

 

On October 20, 2015, Summit Hotel Properties, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) to report the sale of 10 hotel properties to affiliates of American Realty Capital Hospitality Trust, Inc. (“ARCH”) and the pending sales of an additional 16 hotels to ARCH pursuant to two agreements, as amended, between the Company and ARCH (collectively, the “ARCH Agreements”) to sell a portfolio of 26 hotels containing an aggregate of 2,793 guestrooms to ARCH for an aggregate purchase price of approximately $347.4 million.  The hotel properties included in the ARCH Agreements were sold or are currently pending sale as follows:

 

				Sales
Sale Tranche		Number of Hotels		Price			Guestrooms		Date Sold
				(in millions)
Completed Dispositions
Tranche 1		10 hotels		$	150.1		1,090		October 15, 2015
Tranche 3		6 hotels		$	108.3		707		February 11, 2016
Tranche 2		1 hotel(1)		$	8.6		136		June 1, 2016
Tranche 2		1 hotel(1)		$	5.9		119		June 7, 2016
Pending Dispositions
Tranche 2		8 hotels		$	77.2		741		Expected to be sold on or before December 30, 2016

 

(1) These hotels were sold to buyers other than ARCH pursuant to a letter agreement dated February 11, 2016 between the Company and ARCH which allows the Company to continue to market for sale the Tranche 2 properties to unrelated third party buyers.

 

Additionally, the Company reported the completed or pending acquisitions at the time of the filing of the Initial Form 8-K of the following hotels:

 

				Purchase
Franchise/Brand		Location		Price			Guestrooms		Date Acquired
				(in millions)
Completed Acquisitions
Hampton Inn		Boston (Norwood), MA		$	24.0		139		June 18, 2015
Hotel Indigo		Asheville, NC		$	35.0		115		June 30, 2015
Residence Inn by Marriott		Branchburg, NJ		$	25.7		101		July 24, 2015
Residence Inn by Marriott		Baltimore (Hunt Valley), MD		$	31.1		141		July 24, 2015
Hyatt House		Miami, FL		$	39.0		156		October 19, 2015
Courtyard by Marriott		Atlanta (Decatur), GA		$	44.0		179		October 20, 2015
Courtyard by Marriott		Nashville, TN		$	71.0		226		January 19, 2016
Residence Inn by Marriott		Atlanta, GA		$	38.0		160		January 20, 2016

 

2

 

In the Initial Form 8-K, the Company presented unaudited pro forma condensed combined financial statements relating to the acquisitions and dispositions described above as of June 30, 2015 and for the year ended December 31, 2014 and the six months ended June 30, 2015.  The Company is amending the Initial Form 8-K with the filing of this Current Report on Form 8-K/A to update the unaudited pro forma condensed combined financial statements as of March 31, 2016 and for the year ended December 31, 2015 and the three months ended March 31, 2016.

 

The financial information in Exhibit 99.1 with respect to the acquired hotels and pending acquisitions has not been audited and is based on information received from the respective sellers of these hotel properties.

 

The unaudited pro forma condensed combined balance sheet at March 31, 2016 included in Exhibit 99.1 adjusts the Company’s historical consolidated balance sheet for the dispositions of the hotel properties described above in this Explanatory Note that have been or are expected to be completed subsequent to March 31, 2016 (the “Pro Forma Transactions”) as if the Pro Forma Transactions had been completed on March 31, 2016.   No pro forma adjustments have been made to the Company’s historical consolidated balance sheet as of March 31, 2016 for acquisitions or dispositions of hotel properties that occurred prior to March 31, 2016 (the “Completed Transactions”) as the balance sheet information related to the Completed Transactions is already included in the Company’s historical consolidated balance sheet at March 31, 2016.

 

The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 included in Exhibit 99.1 combine the Company’s historical consolidated statements of income with the historical statements of operations of the completed and pending acquisitions and dispositions described above in this Explanatory Note as if the transactions had been completed on January 1, 2015.

 

The historical financial information included in Exhibit 99.1 is adjusted in the pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the transactions described herein, (2) factually supportable, and (3) with respect to the condensed combined statements of operations, expected to have a continuing effect on the Company’s combined results of operations.  Please refer to the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” included in Exhibit 99.1.

 

The unaudited pro forma condensed combined financial information is not necessarily indicative of or intended to represent the results that would have been achieved had the transactions been consummated as of the dates indicated or that may be achieved in the future.  The Company’s actual results reported in periods following the completion of the transactions may differ significantly from those reflected in these updated unaudited pro forma condensed combined financial information.

 

The updated unaudited pro forma condensed combined financial information should be read in conjunction with the information provided in the Company’s Current Report on Form 8-K dated October 20, 2015, Current Report on Form 8-K/A dated January 4, 2016 and the historical consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.

 

3

 

Forward Looking Statements

 

The Current Report on Form 8-K/A contains statements that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  These forward-looking statements are based upon the Company’s expectations, but these statements are not guaranteed to occur.  Investors should not place undue reliance upon forward-looking statements.  These statements relate to, among other things, the Company’s pending sale of hotels to ARCH.  No assurances can be given that the transactions will be completed when expected, on the terms described or at all.  These actions are subject to numerous conditions, many of which are beyond the control of the Company, including, without limitation, general economic conditions, market conditions and other factors, including those set forth in the Risk Factors section of the Company’s periodic reports and other documents filed with the Securities and Exchange Commission (the “SEC”).  Copies are available on the SEC’s website, www.sec.gov.  The Company undertakes no obligation to update these statements after the date of this Current Report on Form 8-K/A.

 

Item 9.01              Financial Statements and Exhibits.

 

(a)         Pro forma financial information

 

Updated pro forma financial information of the Company relating to the acquisition and disposition of the hotels referenced in the Explanatory Note above is attached hereto as Exhibit 99.1 and incorporated by reference herein.

 

(d)           Exhibits

 

99.1        Updated Unaudited Pro Forma Condensed Combined Financial Information for Summit Hotel Properties, Inc.

 

4

 

SIGNATURE

 

Pursuant to the requirements 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.
	By:	/s/ Christopher R. Eng
	Name: Christopher R. Eng
Dated: June 20, 2016	Title: Executive Vice President, General Counsel, Chief Risk Officer and Secretary

 

5

Exhibit 99.1

 

SUMMIT HOTEL PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET

AS OF MARCH 31, 2016

(in thousands)

 

		Historical			Pro Forma			Pro Forma
		Summit Hotel			Adjustments			Summit Hotel
		Properties, Inc.			(see Note 2a)			Properties, Inc.
ASSETS
Investment in hotel properties, net		$	1,434,015		$	—		$	1,434,015
Land held for development		5,742			—			5,742
Assets held for sale		86,785			(79,960		)	6,825
Investment in real estate loans, net		17,664			—			17,664
Cash and cash equivalents		33,972			(240		)	33,732
Restricted cash		24,775			—			24,775
Trade receivables, net		15,009			(533		)	14,476
Prepaid expenses and other		6,258			(143		)	6,115
Deferred charges, net		3,842			—			3,842
Other assets		9,375			—			9,375
Total assets		$	1,637,437		$	(80,876	)	$	1,556,561
LIABILITIES AND EQUITY
LIABILITIES
Debt, net of debt issuance costs		$	697,298		$	(78,765	)	$	618,533
Accounts payable		3,782			(50		)	3,732
Accrued expenses and other		43,112			(2,294		)	40,818
Derivative financial instruments		2,443			—			2,443
Total liabilities		746,635			(81,109		)	665,526
EQUITY
Preferred stock		84			—			84
Common stock		872			—			872
Additional paid-in capital		894,482			—			894,482
Accumulated other comprehensive loss		(2,294		)	—			(2,294		)
Accumulated deficit and distributions		(6,495		)	234			(6,261		)
Total stockholders’ equity		886,649			234			886,883
Non-controlling interests in Operating Partnership		4,153			(1		)	4,152
Total equity		890,802			233			891,035
Total liabilities and equity		$	1,637,437		$	(80,876	)	$	1,556,561

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

 

SUMMIT HOTEL PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(in thousands, except per share amounts)

 

					Historical
					Noble Completed
		Historical			Acquisitions -			Pro Forma			Pro Forma
		Summit Hotel			2016			Adjustments			Summit Hotel
		Properties, Inc.			(2 Hotels)			(see Note 2b)			Properties, Inc.
Revenues:
Room		$	110,595		$	636		$	(8,893	)	$	102,338
Other hotel operations revenue		7,487			104			(342		)	7,249
Total revenues		118,082			740			(9,235		)	109,587
Expenses:
Hotel operating expenses:
Room		27,269			157			(2,452		)	24,974
Other direct		16,240			269			(1,646		)	14,863
Other indirect		30,629			44			(2,530		)	28,143
Total hotel operating expenses		74,138			470			(6,628		)	67,980
Depreciation and amortization		18,143			—			436			18,579
Corporate general and administrative		4,579			—			—			4,579
Hotel property acquisition costs		554			—			—			554
Total expenses		97,414			470			(6,192		)	91,692
Operating income		20,668			270			(3,043		)	17,895
Other income (expense):
Interest expense		(7,483		)	—			995			(6,488		)
Gain on disposal of assets, net		36,780			—			(36,763		)	17
Other income (expense)		340			—			81			421
Total other expense, net		29,637			—			(35,687		)	(6,050		)
Income from continuing operations before income taxes		50,305			270			(38,730		)	11,845
Income tax expense		(1,571		)	—			—			(1,571		)
Net income		48,734			270			(38,730		)	10,274
Less - Income attributable to Operating Partnership		(249		)	—			196			(53		)
Net income before preferred dividends		48,485			270			(38,534		)	10,221
Preferred dividends		(4,147		)	—			—			(4,147		)
Net income attributable to common stockholders		$	44,338		$	270		$	(38,534	)	$	6,074
Earnings per share:
Basic and diluted net income per share		$	0.51								$	0.07
Weighted average common shares outstanding:
Basic		86,360									86,360
Diluted		87,170									87,170

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

 

SUMMIT HOTEL PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share amounts)

 

					Historical Noble Portfolio						Historical
					Completed			Completed			Residence Inn			Historical
		Historical			Acquisitions -			Acquisitions -			Portfolio			Additional			Pro Forma			Pro Forma
		Summit Hotel			2015			2016			Acquisition			Acquisitions			Adjustments			Summit Hotel
		Properties, Inc.			(2 Hotels)			(2 Hotels)			(2 Hotels)			(2 Hotels)			(see Note 2c)			Properties, Inc.
Revenues:
Room		$	436,202		$	12,793		$	18,056		$	6,073		$	5,665		$	(79,783	)	$	399,006
Other hotel operations revenue		27,253			1,844			2,233			121			571			(3,006		)	29,016
Total revenues		463,455			14,637			20,289			6,194			6,236			(82,789		)	428,022
Expenses:
Hotel operating expenses:
Room		109,844			2,606			3,430			1,127			877			(20,147		)	97,737
Other direct		64,010			4,894			6,070			1,557			2,890			(12,015		)	67,406
Other indirect		121,974			1,180			1,631			703			382			(21,604		)	104,266
Total hotel operating expenses		295,828			8,680			11,131			3,387			4,149			(53,766		)	269,409
Depreciation and amortization		64,052			2,282			3,997			512			—			1,409			72,252
Corporate general and administrative		21,204			—			—			—			—			—			21,204
Hotel property acquisition costs		1,246			—			—			—			—			—			1,246
Loss on impairment of assets		1,115			—			—			—			—			—			1,115
Total expenses		383,445			10,962			15,128			3,899			4,149			(52,357		)	365,226
Operating income		80,010			3,675			5,161			2,295			2,087			(30,432		)	62,796
Other income (expense):
Interest expense		(30,414		)	—			—			(279		)	—			1,699			(28,994		)
Gain on disposal of assets, net		65,067			—			—			—			—			(66,344		)	(1,277		)
Other income (expense)		11,146			48			3			—			—			259			11,456
Total other expense, net		45,799			48			3			(279		)	—			(64,386		)	(18,815		)
Income from continuing operations before income taxes		125,809			3,723			5,164			2,016			2,087			(94,818		)	43,981
Income tax expense		(553		)	—			—			—			—			—			(553		)
Net income		125,256			3,723			5,164			2,016			2,087			(94,818		)	43,428
Less - Income attributable to Operating Partnership		(819		)	—			—			—			—			542			(277		)
Net income before preferred dividends		124,437			3,723			5,164			2,016			2,087			(94,276		)	43,151
Preferred dividends		(16,588		)	—			—			—			—			—			(16,588		)
Net income attributable to common stockholders		$	107,849		$	3,723		$	5,164		$	2,016		$	2,087		$	(94,276	)	$	26,563
Earnings per share:
Basic net income per share		$	1.25																	$	0.31
Diluted net income per share		$	1.24																	$	0.30
Weighted average common shares outstanding:
Basic		85,920																		85,920
Diluted		87,144																		87,144

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

 

SUMMIT HOTEL PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL INFORMATION

(dollars in thousands)

 

1.                                      Basis of Pro Forma Presentation

 

The unaudited pro forma condensed combined balance sheet at March 31, 2016 adjusts the Company’s historical consolidated balance sheet for the dispositions of the hotel properties described in the Explanatory Note that have been or are expected to be completed subsequent to March 31, 2016 (the “Pro Forma Transactions”) as if the Pro Forma Transactions had been completed on March 31, 2016.  No pro forma adjustments have been made to the Company’s historical consolidated balance sheet as of March 31, 2016 for acquisitions or dispositions of hotel properties that occurred prior to March 31, 2016 (the “Completed Transactions”) as the balance sheet information related to the Completed Transactions is already included in the Company’s historical consolidated balance sheet at March 31, 2016.

 

The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 combine the Company’s historical consolidated statements of income with the historical statements of operations of the completed and pending acquisitions and dispositions described in the Explanatory Paragraph as if the transactions had been completed on January 1, 2015.  Certain financing transactions (the “Modification Transactions”) were undertaken to facilitate the disposition of hotel properties reflected in the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015.  The Modification Transactions are included in the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 as if the Modification Transactions had occurred on January 1, 2015.  The Modification Transactions include the following:

 

1.                                      The modification of the term loan with Voya Retirement Insurance and Annuity Company (“Voya”) on September 24, 2015.  The ARCH Sale includes eight properties which serve as collateral for two term loans with Voya totaling $93.9 million. To avoid significant yield maintenance costs associated with an early pay-off of the portion of these term loans related to the sale of the eight properties that are a part of the ARCH Sale, the Company modified the term loans to change the interest rate and to substitute certain existing collateral with properties that are not part of the ARCH Sale.

 

2.                                      The early settlement of interest swaps related to mortgage debt on certain properties sold in the First Closing as a result of the repayment of the mortgage debt at closing.

 

The pro forma adjustments described below were developed based on management’s assumptions and estimates.  The historical financial information related to acquired hotel properties is unaudited information provided by the prior owners of the hotel properties acquired by the Company.  Such information may be abbreviated or prepared on a basis other than in accordance with generally accepted accounting principles in the United States of America.  In management’s opinion, all adjustments necessary to reflect the effect of the transactions in all material respects have been made.

 

 

SUMMIT HOTEL PROPERTIES, INC.

 

NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL INFORMATION

(dollars in thousands)

 

2.             Pro Forma Adjustments

 

(a) The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet are as follows:

 

 

																										NON- CONTROLLING
		ASSETS												LIABILITIES									EQUITY			INTERESTS
		Assets held for sale			Cash and equivalents			Trade receivables, net			Prepaid expenses and other			Debt			Accounts payable			Accrued expenses and Other			Accumulated deficit and distributions			Non-controlling interests
ARCH Tranche 2 Properties - sold to new buyers (two hotel properties)
Adjustment to reflect sale of assets(1)		$	(18,211	)	$	(41	)	$	(143	)	$	(41	)	$	—		$	(7	)	$	(563	)	$	(17,866	)	$	—
Adjustment to reflect paydown of revolving line of credit from net cash proceeds														(2,711		)							2,711
Pending ARCH Tranche 2 Sale (eight hotel properties)
Adjustment to reflect expected sale of assets to ARCH(2)		(61,749		)	(199		)	(390		)	(102		)	—			(43		)	(1,731		)	(60,666		)
Adjustment to reflect paydown of revolving line of credit from net cash proceeds														(76,054		)							76,054
Other
Adjustment to reflect the effect of pro forma adjustments on non-controlling interests																							1			(1		)
		$	(79,960	)	$	(240	)	$	(533	)	$	(143	)	$	(78,765	)	$	(50	)	$	(2,294	)	$	234		$	(1	)

 

(1)             The sale of the two properties in June 2016 that were formerly part of Tranche 2 of the ARCH Sale resulted in a net loss of $4.1 million.    The estimated loss on the sale has not been reflected in the pro forma condensed combined statement of operations as it is considered to be non-recurring in nature.

 

(2)             The sale of the remaining eight hotel properties included in Tranche 2 of the ARCH Sale is expected to result in an estimated gain of $14.3 million.  The estimated gain on the sale has not been reflected in the pro forma condensed combined statement of operations as it is considered to be non-recurring in nature.  No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the terms of the purchase and sale agreement.

 

 

SUMMIT HOTEL PROPERTIES, INC.

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

(dollars in thousands)

 

(b)           The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2016 are as follows:

 

																													NON- CONTROLLING
		REVENUES						EXPENSES												OTHER INCOME (EXPENSE)									INTERESTS
								Hotel operating expenses
		Room			Other Hotel Operations Revenue			Room			Other Direct			Other Indirect			Depreciation and Amortization			Interest Expense			Gain on Disposal of Assets, net			Other Income (Expense)			Income Attributable to Non- controlling Interests
ARCH Tranche 3 - Sale (six hotels)
Adjustment to eliminate operating results of sold properties		$	(2,068	)	$	(61	)	$	(592	)	$	(513	)	$	(622	)	$	—		$	56		$	(36,763	)	$	72		$	—
Adjustment to reflect reduction in interest expense due to paydown of revolving line of credit from sales proceeds																				261
ARCH Tranche 2 - Property Sales to New Buyers (two hotels)
Adjustment to eliminate operating results of sold properties		(1,383		)	(57		)	(431		)	(251		)	(422		)	—			42			—			2			—
Adjustment to reflect reduction in interest expense due to paydown of revolving line of credit from sales proceeds																				83
ARCH Tranche 2 - Pending Sale (eight hotels)
Adjustment to eliminate operating results of sold properties		(5,442		)	(224		)	(1,429		)	(882		)	(1,471		)	18			237			—			7			—
Adjustment to reflect reduction in interest expense due to paydown of revolving line of credit from sales proceeds																				442
Hotel Properties Acquired in 2016 (two hotels)
Adjustment for difference in management fees paid by prior owner and the Company														(15		)
Adjustment to reflect difference between depreciation and amortization expense recorded by prior owner and amounts based on our basis in the property																	418
Adjustment to reflect increase in interest expense due to drawdown of revolving line of credit to fund the acquisition																				(126		)
Other
Adjustment to reflect the effect of pro forma adjustments on non-controlling interests																													196
		$	(8,893	)	$	(342	)	$	(2,452	)	$	(1,646	)	$	(2,530	)	$	436		$	995		$	(36,763	)	$	81		$	196

 

No adjustment has been made for the income tax effects of the pro forma adjustments in the interim period, as the pro forma adjustments would not have a material tax effect.