As part of its effort to infuse capital,
Summit Hotel Properties, Inc.
) 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
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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
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
Highwoods Properties Inc.
SL Green Realty Corp.
), all carrying a Zacks Rank #2 (Buy).
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.