As part of its effort to infuse capital, Summit Hotel Properties, Inc. (INN) disclosed a public offering of 15 million common shares. Moreover, the company plans to grant a 30-day option to underwriters to buy up to 2.25 million additional common shares.
In particular, Summit Hotel plans to use the proceeds generated from this public offering to lower the balance outstanding under its $150 million senior secured revolving credit facility and $92 million senior secured interim loan. With the residual amount, the company would meet its general corporate needs, including acquisitions as well as any other debt repayment.
While the impact of share dilution owing to this offering cannot be avoided, we believe that lowering of outstanding balance and other debt repayment would lead to a reduction in interest expense. Moreover, the rise in financial flexibility would help crack opportunistic deals that would help the company enhance its portfolio quality. Consequently, this is expected to be accretive to its earnings going forward.
Notably, the book-running managers for the offering are BofA Merrill Lynch, Deutsche Bank Securities, Baird, Raymond James, and RBC Capital Markets.
Summit Hotel, a real estate investment trust (:REIT), acquires and owns premium-branded select-service hotels in the upscale and upper mid-scale segments of the lodging industry. As of Sep 12, 2013, the company’s portfolio comprised 93 hotels located across 24 states.
Last month, Summit Hotel reported adjusted funds from operations (:FFO) of 26 cents per share, beating the Zacks Consensus Estimate of 25 cents by 4%. The company posted an 8% year-over-year growth in same-store revenue per available room that was driven by a rise in average daily rate and occupancy. During the second quarter of 2013, the company acquired 7 hotels in the upscale and upper mid-scale segments (1,096 guestrooms) for $185.4 million.
Summit Hotel currently carries a Zacks Rank #3 (Hold). Other better-performing companies include CubeSmart (CUBE), Highwoods Properties Inc. (HIW) and SL Green Realty Corp. (SLG), all carrying a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.