XNYS:INN Summit Hotel Properties, Inc. Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________

FORM 10-Q
_________________

[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012

OR

[  ]
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.)
Commission File Number:  001-54273 (Summit Hotel OP, LP)

SUMMIT HOTEL PROPERTIES, INC.
SUMMIT HOTEL OP, LP
(Exact name of registrant as specified in its charter)
_________________

Maryland (Summit Hotel Properties, Inc.)
27-2962512 (Summit Hotel Properties, Inc.)
Delaware (Summit Hotel OP, LP)
27-0617340 (Summit Hotel OP, LP)
(State or other jurisdiction
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
2701 South Minnesota Avenue, Suite 2
Sioux Falls, SD 57105
(Address of principal executive offices, including zip code)

(605) 361-9566
(Registrant’s telephone number, including area code)
_________________
 
 
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.
 
Summit Hotel Properties, Inc.  [x] Yes
[ ]  No
Summit Hotel OP, LP  [x] Yes
[ ]  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).
 
Summit Hotel Properties, Inc.  [x] Yes
[ ]  No
Summit Hotel OP, LP  [x] Yes
[ ]  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.
 
Summit Hotel Properties, Inc.
   
Large accelerated filer  [ ]
 
Accelerated filer  [ ]
Non-accelerated filer [x]
 
Smaller reporting company  [ ]

 
 
 

 
 
Summit Hotel OP, LP
   
Large accelerated filer  [ ]
 
Accelerated filer  [ ]
Non-accelerated filer [x]
 
Smaller reporting company  [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Summit Hotel Properties, Inc.  [ ] Yes
[x]  No
Summit Hotel OP, LP  [ ] Yes
[x]  No

As of August 5, 2012, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 31,501,219 and the number of outstanding units of partnership interest in Summit Hotel OP, LP designated as “Common Units” was 37,586,027, including Common Units held by Summit Hotel Properties, Inc. and its wholly owned subsidiary which is the general partner of Summit Hotel OP, LP.


 
 

 
 
EXPLANATORY NOTE
 
This report combines the Quarterly Reports on Form 10-Q for the three months ended June 30, 2012 of Summit Hotel Properties, Inc., a Maryland corporation, and Summit Hotel OP, LP, a Delaware limited partnership.
 
Unless stated otherwise or the context otherwise requires, references in this report to:
 
    ●  
“Summit REIT” mean Summit Hotel Properties, Inc., a Maryland corporation;
 
    ●  
“Summit OP” or “our operating partnership” mean Summit Hotel OP, LP, a Delaware limited partnership, our operating partnership, and its consolidated subsidiaries; and
 
    ●  
 “we,” “our,” “us,” “our company” or “the company” mean Summit REIT, Summit OP and their consolidated subsidiaries taken together as one enterprise. When this report discusses or refers to activities occurring prior to February 14, 2011, the date on which our operations commenced, these references refer to our predecessor.
 
Summit REIT is the sole member of Summit Hotel GP, LLC, a Delaware limited liability company, which is the sole general partner (the “General Partner”) of Summit OP.  Effective as of February 14, 2011, our predecessor merged with and into Summit OP, with the former members of our predecessor exchanging their membership interests in our predecessor for common units of partnership interest of Summit OP (“Common Units”) and Summit OP succeeding to the business and assets of our predecessor.  Also, on February 14, 2011, Summit REIT completed its initial public offering (“IPO”) and a concurrent private placement of its common stock and contributed the net proceeds of the IPO and concurrent private placement to Summit OP in exchange for Common Units.  On October 28, 2011, Summit REIT completed a follow-on public offering of 2,000,000 shares of its 9.25% Series A cumulative redeemable preferred stock (“Series A Preferred Stock”).  As of June 30, 2012, Summit REIT owned approximately 81.8% of the issued and outstanding Common Units, including the sole general partnership interest held by the General Partner.  As of June 30, 2012, Summit REIT owned all of the issued and outstanding 9.25% Series A Cumulative Redeemable Preferred Units of Summit OP (“Series A Preferred Units”).  As the sole member of the General Partner, Summit REIT has exclusive control of Summit OP’s day-to-day management.  The remaining interests in Summit OP are owned by third parties, including the former members of our predecessor.
 
We believe combining the Quarterly Reports on Form 10-Q of Summit REIT and Summit OP into this single report provides the following benefits:
 
    ●  
it enhances investors’ understanding of Summit REIT and Summit OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
    ●  
it eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both Summit REIT and Summit OP; and
 
    ●  
it creates time and cost efficiencies for both companies through the preparation of one combined report instead of two separate reports.
 
We believe it is important to understand the few differences between Summit REIT and Summit OP in the context of how Summit REIT and Summit OP operate as a consolidated company.  Summit REIT has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its short taxable year ending December 31, 2011 upon filing its federal income tax return for that year.
 
As of June 30, 2012, Summit REIT’s only material assets were its ownership of Common Units and Series A Preferred Units of Summit OP and its ownership of the membership interests in the General Partner.  As a result, Summit REIT does not conduct business itself, other than controlling, through the General Partner, Summit OP, raising capital through issuances of equity securities from time to time and guaranteeing certain debt of Summit OP and its subsidiaries.  Summit OP and its subsidiaries hold all the assets of the consolidated company.  Except for net proceeds from securities issuances by Summit REIT, which are contributed to Summit OP in exchange for partnership units of Summit OP, Summit OP and its subsidiaries generate capital from the operation of our business and through borrowings and the issuance of partnership units of Summit OP.
 
 
 

 
 
Stockholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Summit REIT and those of Summit OP.  As of June 30, 2012, Summit OP’s capital interests include Common Units, representing general and limited partnership interests, and Series A Preferred Units.  The Common Units owned by limited partners other than Summit REIT and its subsidiaries are accounted for in partners’ capital in Summit OP’s consolidated financial statements and (within stockholders’ equity) as noncontrolling interests in Summit REIT’s consolidated financial statements.
 
In order to highlight the differences between Summit REIT and Summit OP, there are sections in this report that separately discuss Summit REIT and Summit OP, including separate financial statements and notes thereto and separate Exhibit 31 and Exhibit 32 certifications.  In the sections that combine disclosure for Summit REIT and Summit OP (i.e., where the disclosure refers to the consolidated company), this report refers to actions or holdings as our actions or holdings and, unless otherwise indicated, means the actions or holdings of Summit REIT and Summit OP and their respective subsidiaries, as one consolidated company.
 
As the sole member of the General Partner, Summit REIT consolidates Summit OP for financial reporting purposes, and Summit REIT does not have assets other than its investment in the General Partner and Summit OP.  Therefore, while stockholders’ equity and partners’ capital differ as discussed above, the assets and liabilities of Summit REIT and Summit OP are the same on their respective financial statements.
 
Finally, we refer to a number of other entities in this report as follows.  Unless the context otherwise requires or indicates, references in this report to:
 
    ●  
“the LLC” refer to Summit Hotel Properties, LLC and references to “our predecessor” include the LLC and its consolidated subsidiaries, including Summit Group of Scottsdale, Arizona, LLC (“Summit of Scottsdale”);
 
    ●  
“our TRSs” refer to Summit Hotel TRS, Inc., a Delaware corporation, and Summit Hotel TRS II, Inc., a Delaware corporation, and any other taxable REIT subsidiaries (“TRSs”) that we may form in the future;
 
    ●  
“our TRS lessees” refer to the wholly owned subsidiaries of our TRSs that lease our hotels from Summit OP or subsidiaries of Summit OP; and
 
    ●  
“The Summit Group” refer to The Summit Group, Inc., our predecessor’s hotel management company, Company Manager and Class C Member, which is wholly owned by our Executive Chairman, Kerry W. Boekelheide.
 
 
 

 

TABLE OF CONTENTS
 
Page      
PART I — FINANCIAL INFORMATION  
Item 1.
Financial Statements.
 
     
 
Summit Hotel Properties, Inc. and Summit Hotel Properties, LLC (Predecessor)
 
 
    Condensed Consolidated Balance Sheets — June 30, 2012 (unaudited) and December 31, 2011
1
 
    Condensed Consolidated Statements of Operations (unaudited) — Three and Six Months Ended
2
   
June 30, 2012 and 2011
 
 
    Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and Six Months
3
   
Ended June 30, 2012 and 2011
 
 
    Condensed Consolidated Statements of Changes in Equity (unaudited) —Six Months Ended
4
   
June 30, 2012
 
 
    Condensed Consolidated Statements of Cash Flows (unaudited) — Six Months Ended
5
   
June 30, 2012 and 2011
 
     
 
Summit Hotel OP, LP and Summit Hotel Properties, LLC (Predecessor)
 
 
    Condensed Consolidated Balance Sheets — June 30, 2012 (unaudited) and December 31, 2011
7
 
    Condensed Consolidated Statements of Operations (unaudited) — Three and Six Months Ended
   
June 30, 2012 and 2011
 
 
    Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and Six Months
9
   
Ended June 30, 2012 and 2011
 
 
    Condensed Consolidated Statements of Changes in Equity (unaudited) —Six Months Ended
10
   
June 30, 2012
 
 
    Condensed Consolidated Statements of Cash Flows (unaudited) — Six Months Ended
11
   
June 30, 2012 and 2011
 
 
    Notes to Condensed Consolidated Financial Statements
13
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
31
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
47
     
Item 4.
Controls and Procedures.
47
PART II — OTHER INFORMATION
Item 1.
Legal Proceedings.
48
     
Item 1A.
Risk Factors.
48
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
49
     
Item 3.
Defaults Upon Senior Securities.
49
     
Item 4.
Mine Safety Disclosures
49
     
Item 5.
Other Information.
49
     
Item 6.
Exhibits.
50

 
 
 
 
 

 
 
PART I — FINANCIAL INFORMATION
 
Item 1.               Financial Statements
 
SUMMIT HOTEL PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
 
 
   
2012
   
2011
 
ASSETS
           
             
             
  Cash and cash equivalents
  $ 11,623,207     $ 10,537,132  
  Restricted cash
    3,107,998       1,464,032  
  Trade receivables
    6,946,025       3,424,630  
  Prepaid expenses and other
    3,329,337       4,268,393  
  Land held for development
    19,006,473       20,294,973  
  Assets held for sale
    1,629,412       -  
  Property and equipment, net
    558,546,155       498,876,238  
  Deferred charges and other assets, net
    9,574,069       8,923,906  
  Deferred tax benefit
    2,971,350       2,195,820  
  Other assets
    4,758,390       4,019,870  
          TOTAL ASSETS
  $ 621,492,416     $ 554,004,994  
                 
                 
LIABILITIES AND EQUITY
               
                 
LIABILITIES
               
  Accounts payable
  $ 1,933,060     $ 1,670,994  
  Derivative liabilities
    280,841       -  
  Liabilities related to assets held for sale
    55,410       -  
  Accrued expenses
    15,351,899       15,781,577  
  Mortgages and notes payable
    298,432,922       217,103,728  
          TOTAL LIABILITIES
    316,054,132       234,556,299  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
EQUITY
               
  Preferred stock, $.01 par value per share, 100,000,000 shares authorized,
               
            2,000,000 issued and outstanding
    20,000       20,000  
  Common stock, $.01 par value per share,  450,000,000 shares authorized,
               
            30,756,089 and 27,278,000 issued and oustanding, respectively
    307,561       272,780  
  Additional paid-in capital
    279,911,652       288,902,331  
  Accumulated other comprehensive income (loss)
    (228,980 )     -  
  Accumulated deficit and distributions
    (21,666,806 )     (11,020,151 )
  Total stockholders' equity
    258,343,427       278,174,960  
  Noncontrolling interest
    47,094,857       41,273,735  
          TOTAL EQUITY
    305,438,284       319,448,695  
                 
          TOTAL LIABILITIES AND EQUITY
  $ 621,492,416     $ 554,004,994  
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
1

 
 
SUMMIT HOTEL PROPERTIES, INC. AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
   
Summit Hotel Properties, Inc.
   
Summit Hotel Properties, Inc.
   
Summit Hotel Properties, LLC (Predecessor)
 
   
Three months ended 06/30/12
 
Three months ended 06/30/11
   
Six months ended 06/30/12
   
Period 2/14/11 through 6/30/11
   
Period 1/1/11 through 2/13/11
 
                               
REVENUE
                             
  Room revenue
  $ 46,153,920     $ 36,233,265     $ 85,069,804     $ 54,008,560     $ 13,761,984  
  Other hotel operations revenue
    1,126,223       763,619       2,121,149       1,125,918       330,251  
Total Revenue
    47,280,143       36,996,884       87,190,953       55,134,478       14,092,235  
                                         
EXPENSES
                                       
Hotel operating expenses
                                       
  Rooms
    13,318,174       11,252,600       25,046,345       15,925,611       4,783,081  
  Other direct
    5,274,760       4,856,876       10,025,519       6,934,125       2,533,904  
  Other indirect
    12,617,580       8,849,929       23,801,932       13,610,269       4,521,906  
  Other
    232,318       201,047       443,004       274,085       73,038  
Total hotel operating expenses
    31,442,832       25,160,452       59,316,800       36,744,090       11,911,929  
  Depreciation and amortization
    8,143,923       6,546,156       16,332,359       9,827,698       3,288,931  
  Corporate general and administrative:
                                       
     Salaries and other compensation
    711,770       699,014       1,523,408       1,066,032       -  
     Other
    912,622       751,749       1,772,117       1,513,482       -  
     Equity based compensation
    388,695       175,656       514,569       302,484       -  
  Loan transaction costs
    423,110       -       423,110       -       -  
  Hotel property acquisition costs
    747,295       -       1,327,233       -       -  
Total Expenses
    42,770,247       33,333,027       81,209,596       49,453,786       15,200,860  
                                         
INCOME (LOSS) FROM OPERATIONS
    4,509,896       3,663,857       5,981,357       5,680,692       (1,108,625 )
                                         
OTHER INCOME (EXPENSE)
                                       
  Interest income
    300       10,280       1,691       14,227       7,139  
  Other income
    474,576       -       474,576       -       -  
  Interest expense
    (4,270,723 )     (2,923,852 )     (7,699,198 )     (6,416,058 )     (4,477,631 )
  Gain (loss) on disposal of assets
    (186,589 )     (36,031 )     (186,589 )     (36,031 )     -  
  Gain (loss) on derivatives
    (1,012 )     -       (1,012 )     -       -  
Total Other Income (Expense)
    (3,983,448 )     (2,949,603 )     (7,410,532 )     (6,437,862 )     (4,470,492 )
                                         
INCOME (LOSS) FROM CONTINUING OPERATIONS
                         
      BEFORE INCOME TAXES
    526,448       714,254       (1,429,175 )     (757,170 )     (5,579,117 )
                                         
INCOME TAX (EXPENSE) BENEFIT
    144,101       (329,981 )     411,856       (497,655 )     (325,239 )
                                         
INCOME (LOSS) FROM CONTINUING OPERATIONS
    670,549       384,273       (1,017,319 )     (1,254,825 )     (5,904,356 )
                                         
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
    (1,027,340 )     219,588       (2,144,282 )     244,565       (302,200 )
                                         
NET INCOME (LOSS)
    (356,791 )     603,861       (3,161,601 )     (1,010,260 )     (6,206,556 )
                                         
NET INCOME (LOSS) ATTRIBUTABLE TO
                                 
    NONCONTROLLING INTEREST
    (274,942 )     163,042       (1,345,270 )     (272,770 )     -  
                                         
NET INCOME (LOSS) ATTRIBUTABLE TO SUMMIT
                         
     HOTEL PROPERTIES, INC./PREDECESSOR
    (81,849 )     440,819       (1,816,331 )     (737,490 )     (6,206,556 )
                                         
PREFERRED DIVIDENDS
    (1,156,250 )     -       (2,312,500 )     -       -  
                                         
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
  $ (1,238,099 )   $ 440,819     $ (4,128,831 )   $ (737,490 )   $ (6,206,556 )
   STOCKHOLDERS/MEMBERS
                                       
                                         
                                         
Basic and diluted net income (loss) per share
                                 
   from continuing operations:
  $ (0.01 )   $ 0.01     $ (0.08 )   $ (0.04 )        
Basic and diluted net income (loss) per share
                                 
   from discontinued operations:
    (0.03 )     0.01       (0.06 )     0.01          
Basic and diluted net income (loss) per share:
  $ (0.04 )   $ 0.02     $ (0.14 )   $ (0.03 )        
Weighted-average common shares outstanding:
                                 
  Basic and diluted
    30,553,158       27,278,000       28,915,579       27,278,000          
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
2

 
 
SUMMIT HOTEL PROPERTIES, INC. AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
   
Summit Hotel Properties, Inc.
   
Summit Hotel Properties, Inc.
   
Summit Hotel Properties, LLC (Predecessor)
 
   
Three months ended 06/30/12
   
Three months ended 06/30/11
   
Six months ended 06/30/12
   
Period 2/14/11 through 6/30/11
   
Period 1/1/11 through 2/13/11
 
                               
NET INCOME (LOSS)
  $ (356,791 )   $ 603,861     $ (3,161,601 )   $ (1,010,260 )   $ (6,206,556 )
                                         
Comprehensive income (loss), net of tax:
                                       
  Change in unrealized loss on derivatives
    (279,829 )     -       (279,829 )     -       -  
Total comprehensive income (loss)
    (279,829 )     -       (279,829 )     -       -  
                                         
COMPREHENSIVE INCOME (LOSS)
    (636,620 )     603,861       (3,441,430 )     (1,010,260 )     (6,206,556 )
                                         
NET COMPREHENSIVE INCOME (LOSS)
                                       
    ATTRIBUTABLE TO NONCONTROLLING INTEREST
    (325,791 )     -       (1,396,119 )     -       -  
                                         
NET COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE
                                 
    TO SUMMIT HOTEL PROPERTIES, INC./PREDECESSOR
    (310,829 )     603,861       (2,045,311 )     (1,010,260 )     (6,206,556 )
                                         
PREFERRED DIVIDENDS
    (1,156,250 )     -       (2,312,500 )     -       -  
                                         
NET COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE
                                 
   TO COMMON STOCKHOLDERS/MEMBERS
  $ (1,467,079 )   $ 603,861     $ (4,357,811 )   $ (1,010,260 )   $ (6,206,556 )
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
3

 
 
SUMMIT HOTEL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
 

                                                 
    # of Shares            
# of Shares
                  Accumulated
Other
     
Accumulated
     
Total
             
   
of Preferred
   
Preferred
   
of Common
   
Common
   
Additional
   
Comprehensive
   
Deficit and
   
Stockholders'
   
Noncontrolling
   
Total
 
   
Stock
   
Stock
   
Stock
   
Stock
   
Paid-InCapital
   
Income (Loss)
   
Distributions
   
Equity
   
Interest
   
Equity
 
                                                             
                                                             
BALANCES,
JANUARY 1, 2012
    2,000,000     $ 20,000       27,278,000     $ 272,780     $ 288,902,331     $ -     $ (11,020,151 )   $ 278,174,960     $ 41,273,735     $ 319,448,695  
                                                                                 
Summit Hotel Properties, Inc.
                                                                         
Registration and offering costs
    -       -       -       -       (348,608 )     -       -       (348,608 )     -       (348,608 )
Common stock redemption of
common units
    -       -       3,270,062       32,701       (9,061,055 )     -       -       (9,028,354 )     9,028,354       -  
Dividends paid
    -       -       -       -       -       -       (8,830,324 )     (8,830,324 )     (1,904,618 )     (10,734,942 )
Stock awards
    -       -       208,027       2,080       (2,080 )     -       -       -       -       -  
Equity-based compensation
    -       -       -       -       421,064       -       -       421,064       93,505       514,569  
Comprehensive
income (loss)
    -       -       -       -       -       (228,980 )     -       (228,980 )     (50,849 )     (279,829 )
Net income (loss)
    -       -       -       -       -       -       (1,816,331 )     (1,816,331 )     (1,345,270 )     (3,161,601 )
                                                                                 
BALANCES,
JUNE 30, 2012
    2,000,000     $ 20,000       30,756,089     $ 307,561     $ 279,911,652     $ (228,980 )   $ (21,666,806 )   $ 258,343,427     $ 47,094,857     $ 305,438,284  
 
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
4

 
 
SUMMIT HOTEL PROPERTIES, INC. AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 

   
2012
   
2011
 
             
OPERATING ACTIVITIES
           
  Net income (loss)
  $ (3,161,601 )   $ (7,216,816 )
  Adjustments to reconcile net income (loss) to
               
   net cash from operating activities:
               
    Depreciation and amortization
    16,657,621       13,678,039  
    Amortization of prepaid lease
    23,700       23,700  
    Loss on impairment of assets
    2,098,000       -  
    Equity-based compensation
    514,569       302,484  
    Deferred tax benefit
    (775,530 )     -  
    (Gain) loss on derivatives
    1,012       -  
    (Gain) loss on disposal of assets
    186,589       36,031  
  Changes in operating assets and liabilities:
               
    Trade receivables
    (3,183,395 )     (1,819,323 )
    Prepaid expenses and other
    939,056       3,239,939  
    Accounts payable and related party accounts payable
    270,517       (694,799 )
    Income tax receivable
    (16,566 )     -  
    Accrued expenses
    (617,719 )     3,531,328  
    Restricted cash released (funded)
    201,291       224,124  
                 
NET CASH PROVIDED BY (USED IN)
    13,137,544       11,304,707  
  OPERATING ACTIVITIES
               
INVESTING ACTIVITIES
               
  Land and hotel acquisitions
    (50,525,000 )     (37,700,000 )
  Purchases of other property and equipment
    (11,665,820 )     (11,147,843 )
  Proceeds from asset dispositions, net of closing costs
    16,786,568       357,843  
  Restricted cash released (funded)
    (1,845,257 )     685,035  
                 
NET CASH PROVIDED BY (USED IN)
    (47,249,509 )     (47,804,965 )
  INVESTING ACTIVITIES
               
FINANCING ACTIVITIES
               
  Proceeds from issuance of debt
    127,085,266       57,882,528  
  Principal payments on debt
    (78,859,072 )     (226,599,060 )
  Financing fees on debt
    (1,944,604 )     (3,641,499 )
  Proceeds from equity offerings, net of offering costs
    (348,608 )     240,855,458  
  Distributions to members and dividends paid
    (10,734,942 )     (10,385,448 )
                 
NET CASH PROVIDED BY (USED IN)
    35,198,040       58,111,979  
  FINANCING ACTIVITIES
               
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    1,086,075       21,611,721  
                 
CASH AND CASH EQUIVALENTS
               
  BEGINNING OF PERIOD
    10,537,132       7,977,418  
 
               
  END OF PERIOD
  $ 11,623,207     $ 29,589,139  
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
5

 
 
SUMMIT HOTEL PROPERTIES, INC. AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 

   
2012
   
2011
 
             
SUPPLEMENTAL DISCLOSURE OF
           
  CASH FLOW INFORMATION:
           
    Cash payments for interest
  $ 7,656,874     $ 12,122,358  
                 
    Cash payments for state income taxes, net of refunds
  $ 316,837     $ 568,967  
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
6

 
 
SUMMIT HOTEL OP, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
 
 
   
2012
   
2011
 
ASSETS
           
             
             
  Cash and cash equivalents
  $ 11,623,207     $ 10,537,132  
  Restricted cash
    3,107,998       1,464,032  
  Trade receivables
    6,946,025       3,424,630  
  Prepaid expenses and other
    3,329,337       4,268,393  
  Land held for development
    19,006,473       20,294,973  
  Assets held for sale
    1,629,412       -  
  Property and equipment, net
    558,546,155       498,876,238  
  Deferred charges and other assets, net
    9,574,069       8,923,906  
  Deferred tax benefit
    2,971,350       2,195,820  
  Other assets
    4,758,390       4,019,870  
          TOTAL ASSETS
  $ 621,492,416     $ 554,004,994  
                 
                 
LIABILITIES AND EQUITY
               
                 
LIABILITIES
               
  Accounts payable
  $ 1,933,060     $ 1,670,994  
  Derivative liabilities
    280,841       -  
  Liabilities related to assets held for sale
    55,410       -  
  Accrued expenses
    15,351,899       15,781,577  
  Mortgages and notes payable
    298,432,922       217,103,728  
          TOTAL LIABILITIES
    316,054,132       234,556,299  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
EQUITY
               
  Partners' equity:
               
     Summit Hotel Properties, Inc., 30,756,089 and 27,278,000 common units
               
           outstanding, respectively, and 2,000,000 preferred units outstanding
    258,343,427       278,174,960  
     Unaffiliated limited partners, 6,829,938 and 10,100,000 common units
               
           outsanding, respectively
    47,094,857       41,273,735  
          TOTAL EQUITY
    305,438,284       319,448,695  
                 
          TOTAL LIABILITIES AND EQUITY
  $ 621,492,416     $ 554,004,994  
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
7

 
 
SUMMIT HOTEL OP, LP AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
   
Summit Hotel OP, LP
   
Summit Hotel OP, LP
   
Summit Hotel Properties, LLC (Predecessor)
 
   
Three months ended 06/30/12
   
Three months ended 06/30/11
   
Six months ended 06/30/12
   
Period 2/14/11 through 06/30/11
   
Period 1/1/11 through 2/13/11
 
                               
REVENUE
                             
  Room revenue
  $ 46,153,920     $ 36,233,265     $ 85,069,804     $ 54,008,560     $ 13,761,984  
  Other hotel operations revenue
    1,126,223       763,619       2,121,149       1,125,918       330,251  
Total Revenue
    47,280,143       36,996,884       87,190,953       55,134,478       14,092,235  
                                         
EXPENSES
                                       
Hotel operating expenses
                                       
  Rooms
    13,318,174       11,252,600       25,046,345       15,925,611       4,783,081  
  Other direct
    5,274,760       4,856,876       10,025,519       6,934,125       2,533,904  
  Other indirect
    12,617,580       8,849,929       23,801,932       13,610,269       4,521,906  
  Other
    232,318       201,047       443,004       274,085       73,038  
Total hotel operating expenses
    31,442,832       25,160,452       59,316,800       36,744,090       11,911,929  
  Depreciation and amortization
    8,143,923       6,546,156       16,332,359       9,827,698       3,288,931  
  Corporate general and administrative:
                                       
     Salaries and other compensation
    711,770       699,014       1,523,408       1,066,032       -  
     Other
    912,622       751,749       1,772,117       1,513,482       -  
     Equity based compensation
    388,695       175,656       514,569       302,484       -  
  Loan transaction costs
    423,110       -       423,110       -       -  
  Hotel property acquisition costs
    747,295       -       1,327,233       -       -  
Total Expenses
    42,770,247       33,333,027       81,209,596       49,453,786       15,200,860  
                                         
INCOME (LOSS) FROM OPERATIONS
    4,509,896       3,663,857       5,981,357       5,680,692       (1,108,625 )
                                         
OTHER INCOME (EXPENSE)
                                       
  Interest income
    300       10,280       1,691       14,227       7,139  
  Other income
    474,576       -       474,576       -       -  
  Interest expense
    (4,270,723 )     (2,923,852 )     (7,699,198 )     (6,416,058 )     (4,477,631 )
  Gain (loss) on disposal of assets
    (186,589 )     (36,031 )     (186,589 )     (36,031 )     -  
  Gain (loss) on derivatives
    (1,012 )     -       (1,012 )     -       -  
                                         
Total Other Income (Expense)
    (3,983,448 )     (2,949,603 )     (7,410,532 )     (6,437,862 )     (4,470,492 )
                                         
INCOME (LOSS) FROM CONTINUING OPERATIONS
                                 
   BEFORE INCOME TAXES
    526,448       714,254       (1,429,175 )     (757,170 )     (5,579,117 )
                                         
INCOME TAX (EXPENSE) BENEFIT
    144,101       (329,981 )     411,856       (497,655 )     (325,239 )
                                         
INCOME (LOSS) FROM CONTINUING OPERATIONS
    670,549       384,273       (1,017,319 )     (1,254,825 )     (5,904,356 )
                                         
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
    (1,027,340 )     219,588       (2,144,282 )     244,565       (302,200 )
                                         
NET INCOME (LOSS)
    (356,791 )     603,861       (3,161,601 )     (1,010,260 )     (6,206,556 )
                                         
PREFERRED DIVIDENDS
    (1,156,250 )     -       (2,312,500 )     -       -  
                                         
NET INCOME (LOSS) ATTRIBUTABLE TO
                                       
     COMMON UNIT HOLDERS
    (1,513,041 )     603,861       (5,474,101 )     (1,010,260 )     (6,206,556 )
                                         
                                         
Basic and diluted net income (loss) per unit
                                       
   from continuing operations:
  $ (0.01 )   $ 0.01     $ (0.09 )   $ (0.04 )        
Basic and diluted net income (loss) per unit
                                       
   from discontinued operations:
    (0.03 )     0.01       (0.06 )     0.01          
Basic and diluted net income (loss) per unit:
  $ (0.04 )   $ 0.02     $ (0.15 )   $ (0.03 )        
Weighted-average common units outstanding:
                                       
  Basic and diluted
    37,383,096       37,378,000       37,380,548       37,378,000          
 
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
8

 
 
SUMMIT HOTEL OP, LP AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
   
Summit Hotel OP, LP
   
Summit Hotel OP, LP
   
Summit Hotel Properties, LLC (Predecessor)
 
   
Three months ended 06/30/12
   
Three months ended 06/30/11
   
Six months ended 06/30/12
   
Period 2/14/11 through 6/30/11
   
Period 1/1/11 through 2/13/11
 
                               
NET INCOME (LOSS)
  $ (356,791 )   $ 603,861     $ (3,161,601 )   $ (1,010,260 )   $ (6,206,556 )
                                         
Comprehensive income (loss), net of tax:
                                       
  Change in unrealized loss on derivatives
    (279,829 )     -       (279,829 )     -       -  
Total comprehensive income (loss)
    (279,829 )     -       (279,829 )     -       -  
                                         
COMPREHENSIVE INCOME (LOSS)
    (636,620 )     603,861       (3,441,430 )     (1,010,260 )     (6,206,556 )
                                         
PREFERRED DIVIDENDS
    (1,156,250 )     -       (2,312,500 )     -       -  
                                         
NET COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE
                                 
     TO COMMON UNIT HOLDERS
  $ (1,792,870 )   $ 603,861     $ (5,753,930 )   $ (1,010,260 )   $ (6,206,556 )
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
9

 
 
SUMMIT HOTEL OP, LP
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012
 
 
   
Preferred
   
Common
       
               
Total
       
   
Summit Hotel
   
Summit Hotel
   
Unaffiliated Limited
   
Total
 
   
Properties, Inc.
   
Properties, Inc.
   
Partners' Equity
   
Equity
 
                         
BALANCES, JANUARY 1, 2012
  $ 47,875,094     $ 230,299,866     $ 41,273,735     $ 319,448,695  
                                 
Summit Hotel OP, LP
                               
Registration and offering costs
    -       (348,608 )     -       (348,608 )
 Common stock redemption of common units
    -       (9,028,354 )     9,028,354       -  
Distributions
    (2,312,500 )     (6,517,824 )     (1,904,618 )     (10,734,942 )
Equity-based compensation
    -       421,064       93,505       514,569  
Other comprehensive income (loss)
            (228,980 )     (50,849 )     (279,829 )
 Net income (loss)
    2,312,500       (4,128,831 )     (1,345,270 )     (3,161,601 )
                                 
BALANCES, JUNE 30, 2012
  $ 47,875,094     $ 210,468,333     $ 47,094,857     $ 305,438,284  
 
 
(See Notes to Condensed Consolidated Financial Statements)
 
 
10

 
 
SUMMIT HOTEL OP, LP AND SUMMIT HOTEL
PROPERTIES, LLC (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
 
 
   
2012
   
2011
 
             
OPERATING ACTIVITIES
           
  Net income (loss)
  $ (3,161,601 )   $ (7,216,816 )
  Adjustments to reconcile net income (loss) to
               
   net cash from operating activities:
               
    Depreciation and amortization
    16,657,621       13,678,039  
    Amortization of prepaid lease
    23,700       23,700  
    Loss on impairment of assets
    2,098,000       -  
    Equity-based compensation
    514,569       302,484  
    Deferred tax benefit