Summit Hotel Properties started experiencing a significant decline in demand during March, which has continued in the second quarter. However, unlike some hotel REITs, Summit has kept the majority of its properties open. That has allowed it to reduce its cash burn rate from $15.1 million per month if it kept all its hotels closed to $10.3 million a month. Thanks to its cash position of $144 million at the end of April, it could operate for 14 months at that cash burn rate, or 29 months when adding in the availability of its credit facility. That liquidity increases the probability that Summit can survive this storm.
Meanwhile, with the bulk of its hotels remaining open, Summit is in the position to capture the early stages of a recovery in travel as states reopen their economies. Because of that, its earnings should bounce back faster than those of other hotel operators that need time to ramp back up after opening.
The potential upcoming earnings improvement is worth noting since investors value commercial properties, like hotels, based on their earnings. In Summit's case, it has focused its efforts on owning highly-profitable hotels. For example, it bought five hotels last year that generated an average of $25,600 in hotel EBITDA per key and had 44.5% hotel EBITDA margins. The average hotel in its portfolio now has a per-key EBITDA of $16,900 and 35.5% margins while those it has sold were well below that level.
The company has also focused on renovating its existing hotels to boost their earnings. Thus, if market conditions bounce back, the value of Summit's earnings-focused hotel portfolio should follow. Further, an earnings improvement should give the company the confidence to reinstate a dividend, which could bring back income-focused investors.