EX-99.2 4 tm228887d2_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONSOLIDATED

FINANCIAL INFORMATION OF

SUMMIT HOTEL PROPERTIES, INC.

 

Summit Hotel Properties, Inc. (the “Company”) is a self-managed hotel investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. Unless 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.

 

On November 3, 2021, the Operating Partnership and Summit Hospitality JV, LP, the Company’s joint venture with GIC, Singapore’s sovereign wealth fund (the “Joint Venture”), entered into a Contribution and Purchase Agreement (the “Contribution and Purchase Agreement”) with NewcrestImage Holdings, LLC, a Delaware limited liability company, and NewcrestImage Holdings II, LLC, a Delaware limited liability company (together, “NewcrestImage”), to purchase from NewcrestImage a portfolio of 27 hotel properties, containing an aggregate of 3,709 guestrooms, and two parking structures, containing 1,002 spaces, and various financial incentives (such hotels, parking structures and financial incentives, the “Portfolio”), for an aggregate purchase price of $822.0 million (the “NCI Transaction”).

 

On January 13, 2022, we completed the acquisition of the Portfolio except for one hotel property, the 176-guestroom Canopy New Orleans, which is still under construction, for an aggregate purchase price of $766.0 million. We expect to acquire the Canopy New Orleans upon completion of its construction, which is expected to occur during the first quarter of 2022, for a purchase price of $56.0 million.

 

The unaudited pro forma consolidated balance sheet as of September 30, 2021 is presented as if the acquisition of the Portfolio had been completed on September 30, 2021. The unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 are presented as if the acquisition of Portfolio had been completed on January 1, 2020.

 

The unaudited pro forma consolidated financial information is not necessarily indicative of what our consolidated financial position and results of operations would have been assuming the acquisition of the Portfolio had been completed at the beginning of the periods presented, nor is it indicative of the consolidated financial position or consolidated results of operations for future periods. In management’s opinion, all adjustments necessary to reflect the effects of the acquisition of the Portfolio have been made. The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.

 

1

 

Summit Hotel Properties, Inc.

Pro Forma Consolidated Balance Sheet

September 30, 2021

(Unaudited)

(in thousands)

 

   Summit Hotel       Pro Forma   Pro Forma   Pro Forma 
   Properties, Inc.   Portfolio   Adjustments   Adjustment Note   Combined 
ASSETS                         
Investment in hotel properties, net  $2,078,014   $565,371   $260,276    (1)  $2,903,661 
Undeveloped land   1,500    -    -         1,500 
Assets held for sale, net   425    -    -         425 
Cash and cash equivalents   59,650    29,486    (33,518)   (1), (2), (5)     55,618 
Restricted cash   25,521    2,129    (2,129)   (1)   25,521 
Investment in real estate loans, net   26,369    -    -         26,369 
Right-of-use assets, net   27,290    2,091    -         29,381 
Trade receivables, net   14,209    3,283    (3,283)   (1)   14,209 
Prepaid expenses and other   7,308    2,306    (2,406)   (1)   7,208 
Deferred charges, net   4,249    -    3,721    (1)   7,970 
Other assets   3,785    1,147    (1,147)   (1)   3,785 
Total assets  $2,248,320   $605,813   $221,514        $3,075,647 
LIABILITIES AND EQUITY                         
Liabilities:                         
Debt, net of debt issuance costs  $1,056,667   $492,887   $(81,608)   (1), (3), (4)    $1,467,946 
Lease liabilities, net   17,527    2,091    -         19,618 
Accounts payable   4,330    2,676    (2,676)   (1)   4,330 
Accrued expenses and other   70,289    22,568    (22,143)   (1)   70,714 
Total liabilities   1,148,813    520,222    (106,427)        1,562,608 
                          
Redeemable non-controlling interests   -    -    50,000    (6)   50,000 
                          
Equity:                         
Stockholders'/Members' Equity   1,222,594    85,591    (70,434)   (1), (8)     1,237,751 
Accumulated other comprehensive loss   (20,925)   -    -         (20,925)
Accumulated deficit and distributions in excess of retained earnings   (247,364)   -    (2,204)   (9)   (249,568)
Total stockholders’ equity   954,305    85,591    (72,638)        967,258 
Non-controlling interests in operating partnership   828    -    144,843    (7), (8)     145,671 
Non-controlling interests in joint venture   144,374    -    205,736    (5)   350,110 
Total equity   1,099,507    85,591    277,941         1,463,039 
Total liabilities and equity  $2,248,320   $605,813   $221,514        $3,075,647 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

 

2

 

 

Summit Hotel Properties, Inc.

Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2021

(Unaudited)

(in thousands, except per share amounts)

 

   Summit Hotel
Properties, Inc.		   Portfolio   Pro forma
Adjustments		   Pro Forma
Adjustment Note		   Pro Forma
Combined		 
Revenues:                         
Room  $235,761   $69,885   $-        $305,646 
Food and beverage   4,656    5,689    -         10,345 
Other   14,647    5,390    -         20,037 
Total revenues   255,064    80,964    -         336,028 
Expenses:                         
Room   52,320    16,654    -         68,974 
Food and beverage   3,000    4,150    -         7,150 
Other hotel operating expenses   88,672    23,246    -         111,918 
Property taxes, insurance and other   32,573    7,602    -         40,175 
Management fees   6,757    3,156    (1,475)   (1)   8,438 
Depreciation and amortization   79,776    17,783    11,651    (2), (3), (4)     109,210 
Corporate general and administrative   18,283    -    -         18,283 
Transaction costs   3,849    -    -         3,849 
provision for credit losses   (2,632)   -    -         (2,632)
Loss on impairment and write-off of assets   4,361    -    -         4,361 
Total expenses   286,959    72,591    10,176         369,726 
Gain on disposal of assets, net   81    -    -         81 
Operating loss   (31,814)   8,373    (10,176)        (33,617)
                          
Other income (expense):                         
Gain on interest rate swap   -    3,134    (3,134)   (5)   - 
Interest expense   (32,567)   (15,837)   5,616    (6), (7)     (42,788)
Other income, net   7,777    5,321    -         13,098 
Total other income (expense)   (24,790)   (7,382)   2,482         (29,690)
Loss from continuing operations before income taxes   (56,604)   991    (7,694)        (63,307)
                          
Less - Loss attributable to non-controlling interests:                         
Operating Partnership   97    -    9,420    (8)   9,517 
Joint venture   2,800    -    3,285    (8)   6,085 
Loss from continuing operations before income taxes attributable to the Company  $(53,707)  $991   $5,011        $(47,705)
                          
Loss per share from continuing operations before income taxes attributable to the Company:                         
Basic and diluted  $(0.65)                 $(0.61)
Weighted average common shares outstanding:                         
Basic and diluted   104,441                   104,441 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

 

3

 

Summit Hotel Properties, Inc.

Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2020

(Unaudited)

(in thousands, except per share amounts)

 

   Summit Hotel
Properties, Inc.		   Portfolio   Pro forma
Adjustments		   Pro Forma
Adjustment Note		   Pro Forma
Combined		 
Revenues:                         
Room  $215,506   $59,633   $-        $275,139 
Food and beverage   6,444    5,037    -         11,481 
Other   12,513    5,616    -         18,129 
Total revenues   234,463    70,286    -         304,749 
Expenses:                         
Room   53,784    15,313    -         69,097 
Food and beverage   5,416    3,951    -         9,367 
Other hotel operating expenses   96,506    23,265    -         119,771 
Property taxes, insurance and other   44,691    8,376    -         53,067 
Management fees   6,276    2,936    (1,452)   (1)   7,760 
Depreciation and amortization   109,619    23,477    15,768    (2), (3), (4)    148,864 
Corporate general and administrative   20,985    -    -         20,985 
Transaction costs   -    -    -         - 
provision for credit losses   4,821    -    -         4,821 
Loss on impairment and write-off of assets   1,759    -    -         1,759 
Total expenses   343,857    77,318    14,316         435,491 
Loss on disposal of assets, net   (16)   -    -         (16)
Operating loss   (109,410)   (7,032)   (14,316)        (130,758)
                          
Other income (expense):                         
    Loss on interest rate swaps   -    (4,813)   4,813    (5)   - 
Interest expense   (43,300)   (19,467)   5,839    (6), (7)    (56,928)
Other income, net   4,841    8,798    (2,206)   (8)   11,433 
Total other income (expense)   (38,459)   (15,482)   8,446         (45,495)
Loss from continuing operations before income taxes   (147,869)   (22,514)   (5,870)        (176,253)
                          
Less - Loss attributable to non-controlling interests:                         
Operating Partnership   269    -    22,612    (9)   22,881 
Joint venture   5,560    -    13,908    (9)   19,468 
Loss from continuing operations before income taxes attributable to the Company  $(142,040)  $(22,514)  $30,650        $(133,904)
                          
Loss per share from continuing operations before income taxes attributable to the Company:                         
Basic and diluted  $(1.51)                 $(1.45)
Weighted average common shares outstanding:                         
Basic and diluted   104,141                   104,141 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

 

4

 

Summit Hotel Properties, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

(dollars in thousands)

 

1.The pro forma information at September 30, 2021 assumes the acquisition of the Portfolio occurred on September 30, 2021 for a purchase price of $822.0 million. The pro forma information for the nine months ended September 30, 2021 and the year ended December 31, 2020 assumes the acquisition of the Portfolio occurred on January 1, 2020.

 

2.We have performed a valuation analysis of the fair market value of the Portfolio and a preliminary allocation of the purchase price to the assets acquired and liabilities assumed. Using the total consideration for the acquisition, we have estimated the allocations to such assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the transaction’s closing date of January 13, 2022:

 

Assets and Liabilities Acquired
Land  $52,653 
Hotel buildings and improvements   677,177 
Furniture, fixtures and equipment   75,899 
Incentives and other intangibles   19,918 
Other assets   3,721 
Total assets acquired   829,368 
Net debt   (411,279)
Other liabilities   (425)
Net assets acquired (1)  $417,664 

 

Net Cash Disbursed
Purchase price  $822,000 
Acquisition costs   3,647 
Deferred financing fees   5,200 
Debt transaction costs (1)   2,204 
Net working capital   3,296 
   $836,347 
      
Cash  $209,868 
Preferred Operating Partnership Units   50,000 
Common Units   160,000 
Debt   416,479 
   $836,347 

 

 

  (1)Certain debt transaction costs will not be capitalized as part of the recorded amount of net assets acquired as these debt costs related to debt that was assumed and immediately repaid at closing.  As such, these debt transaction costs were expensed on the closing date.

 

The purchase price paid to complete the NCI Transaction has not been allocated to the net assets acquired as we are in the process of determining the relative values of the assets acquired and liabilities assumed to perform the final purchase price allocation. The final purchase price allocation for the NCI Transaction is expected to be completed during the first quarter of 2022. This preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma consolidated balance sheet and pro forma consolidated statements of operations. The final purchase price allocation will be determined when we have completed the detailed valuations and necessary calculations as described in more detail in the notes below. The final allocation is expected to be completed in connection with our report on Form 10-Q for the quarter ending March 31, 2022 and could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of Investments in real estate, net; (2) changes in allocations to intangible assets; and (3) other changes to assets and liabilities.

 

5

 

Summit Hotel Properties, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

(dollars in thousands)

 

3.The pro forma adjustments to the unaudited Pro Forma Consolidated Balance Sheet at September 30, 2021 are as follows:

 

Pro Forma
Adjustments		  Investment
in
hotel
properties,
net		  Cash and
cash
equivalents		  Restricted
cash		  Trade
receivables,
net		  Prepaid
expenses
and other		  Deferred
charges, net		  Other assets  Debt, net
of
debt
issuance
costs		  Accounts
payable		  Accrued
expenses and
other		  Redeemable
Non-
controlling
Interest		  Stockholders'/
Members'
equity		  Accumulated
deficit and
distributions in
excess of
retained
earnings		  Non-
controlliong
interest in
Operating
Partnership		  Non-
controlliong
interest in
joint
venture		  
(1)  Adjustment to record net assets acquired at the Company's basis based on the total purchase price.  $260,276  $(29,386) $(2,129) $(3,283) $(2,406) $3,721  $(1,147) $(492,887) $(2,676) $(22,143) $-  $(85,591) $-  $-  $-  
(2)  Adjustment to reflect cash payment to seller to complete the acquisition.       (209,868)                                                     
(3)  Adjustment to reflect net debt financing to complete the transaction.                               416,479                              
(4)  Adjustment to reflect financing costs incurred to obtain debt to complete the transaction.                               (5,200)                             
(5)  Adjustment to reflect cash equity contribution by the Company's joint venture partner to complete the transaction.       205,736                                                   205,736  
(6)  Adjustment to reflect the issuance of Operating Partnership redeemable preferred units to complete the transaction.                                           50,000                  
(7)  Adjustment to reflect issuance of Operating Partnership common units to complete the transaction.                                                       160,000      
(8)  Adjustment to reflect change in non-controlling interest in SOP due to changes in SOP equity structure.                                               15,157       (15,157)     
(9)  Adjustment to reflect expensed debt transaction costs related interest rate swap settlements at closing.                                                   (2,204)         
      $260,276  $(33,518) $(2,129) $(3,283) $(2,406) $3,721  $(1,147) $(81,608) $(2,676) $(22,143) $50,000  $(70,434) $(2,204) $144,843  $205,736  

 

6

 

Summit Hotel Properties, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

(dollars in thousands)

 

4.The pro forma adjustments to the unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2021 are as follows:

 

Pro Forma Adjustments  Management fees   Depreciation and
amortization		   Loss on interest
rate swaps		   Interest expense   Loss attributable to
Operating Partnership		   Loss
attributable to
joint venture		 
                           
(1) The pro forma adjustment represents the difference between the management fees previously paid by NewcrestImage prior to the acquisition and the fees that we are contractually obligated to pay.  $(1,475)  $-   $-   $-   $-   $- 
(2) The pro forma adjustment represents the difference between the depreciation recorded by NewcrestImage prior to the acquisition and the amount of depreciation that we expect to record based on our basis in the net assets acquired using the straight-line method of depreciation.        10,106                     
(3) The pro forma adjustment represents the difference between the franchise application fee amortization recorded by NewcrestImage prior to the acquisition and the amount of amortization that we expect to record.        156                     
(4) The pro forma adjustment represents the amortization of acquired intangible assets.        1,389                     
(5) The pro forma adjustment represents the elimination of NewcrestImage's gain on the interest rate swaps as they were settled at closing by NewcrestImage.             (3,134)               
(6) The pro forma adjustment represents the difference between the deferred finance cost amortization recorded by NewcrestImage prior to the acquisition and the amount of amortization that we expect to record.                  (975)          
(7) The pro forma adjustment represents the difference between the interest expense paid by NewcrestImage prior to the acquisition based on NewcrestImage's debt structure and the interest expense that we expect to incur as a result of the debt that we put in place to complete the transaction.                  6,591           
(8) The pro forma adjustment represents the allocation of the pro forma net income to the non-controlling interests of the Company                       9,420    3,285 
     $(1,475)  $11,651   $(3,134)  $5,616   $9,420   $3,285 

 

7

 

Summit Hotel Properties, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

(dollars in thousands)

 

5.The pro forma adjustments to the unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2020 are as follows:

 

Pro Forma Adjustments  Management fees   Depreciation and
amortization		   Loss on interest
rate swaps		   Interest expense   Other income, net   Loss attributable
to Operating
Partnership		   Loss attributable
to joint venture		 
                               
(1) The pro forma adjustment represents the difference between the management fees previously paid by NewcrestImage prior to the acquisition and the fees that we are contractually obligated to pay.  $(1,452)  $-   $-   $-   $-   $-   $- 
(2) The pro forma adjustment represents the difference between the depreciation recorded by NewcrestImage prior to the acquisition and the amount of depreciation that we expect to record based on our basis in the net assets acquired using the straight-line method of depreciation.        13,708                          
(3) The pro forma adjustment represents the difference between the franchise application fee amortization recorded by NewcrestImage prior to the acquisition and the amount of amortization that we expect to record.        208                          
(4) The pro forma adjustment represents the amortization of acquired intangible assets.        1,852                          
(5) The pro forma adjustment represents the elimination of NewcrestImage's gain on the interest rate swaps as they were settled at closing by NewcrestImage.             4,813                     
(6) The pro forma adjustment represents the difference between the deferred finance cost amortization recorded by NewcrestImage prior to the acquisition and the amount of amortization that we expect to record.                  (1,300)               
(7) The pro forma adjustment represents the difference between the interest expense paid by NewcrestImage prior to the acquisition based on NewcrestImage's debt structure and the interest expense that we expect to incur as a result of the debt that we put in place to complete the transaction.                  7,139                
(8) The pro forma adjustment represents interest rate swap breakage fees paid at closing.                       (2,206)          
(9) The pro forma adjustment represents the allocation of the pro forma net income to the non-controlling interests of the Company                            22,612    13,908 
     $(1,452)  $15,768   $4,813   $5,839   $(2,206)  $22,612   $13,908 

 

8