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Item 1.01.
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Entry into a Material Definitive Agreement.
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$225 Million Unsecured Term Loan
On September 26, 2017, Summit Hotel OP, LP (“Summit
OP”), as borrower, Summit Hotel Properties, Inc. (“Company”), as parent guarantor, and each party executing the
term loan documentation as a subsidiary guarantor, entered into a $225 million unsecured term loan with KeyBank National Association,
as administrative agent, Deutsche Bank AG New York Branch and Bank of America, N.A., as co-syndication agents, KeyBanc Capital
Markets, Inc., Deutsche Bank Securities, Inc., and Merrill Lynch Pierce Fenner & Smith, as joint bookrunners and joint lead
arrangers, and a syndicate of lenders including KeyBank National Association, Deutsche Bank AG New York Branch, Bank of America,
N.A., Capital One, National Association, PNC Bank, National Association, Regions Bank, Raymond James Bank, N.A., Royal Bank of
Canada, Branch Banking and Trust Company, and U.S. Bank National Association.
The following is a summary of the indicative
terms and conditions for our $225 million term loan. Summit OP is the borrower under the term loan. The term loan is guaranteed
by the Company and all of our existing and future subsidiaries that own or lease an “unencumbered asset.”
The $225 million term loan matures on November
25, 2022.
The $225 million term loan has an accordion
feature which will allow us to increase the total commitments by an aggregate of $175 million prior to the maturity date, subject
to certain conditions.
Outstanding borrowings on the $225 million term
loan are limited to the least of (1) the aggregate commitments of all of the lenders, (2) an amount such that the ratio of the
consolidated unsecured indebtedness of the Company to the aggregate value of the unencumbered assets, all as calculated pursuant
to the terms of the term loan documentation, does not exceed 60%, and (3) an amount such that the ratio of unencumbered adjusted
net operating income to assumed unsecured interest expense, all as defined in the term loan documentation, is equal to or greater
than 2.00:1.00. A minimum of 20 of our hotel properties must qualify as unencumbered assets, as defined in the term loan documentation,
or the aggregate value of the unencumbered assets will be deemed to be $0.
Payment Terms.
We are obligated to pay
interest at the end of each selected interest period, but not less than quarterly, with all outstanding principal and accrued but
unpaid interest due at the maturity of the loan. We have the right to prepay all or any portion of the outstanding borrowings from
time to time without penalty. Prepayments of principal are also subject to customary early payment fees if we repay a LIBOR loan
before the end of the contract period. In addition, we will be required to make earlier principal reduction payments in the event
of certain changes in the unencumbered asset availability or default of the loan. We do not have the right to reborrow any portion
of the term loan that is repaid or prepaid.
We pay interest on advances at varying rates,
based upon, at our option, either (i) 1, 2, 3, or 6-month LIBOR, plus a LIBOR margin between 1.45% and 2.20%, depending upon our
leverage ratio (as defined in the loan documents), or (ii) the applicable base rate, which is the greatest of the administrative
agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin between 0.45%
and 1.20%, depending upon our leverage ratio. We will also be required to pay other fees, including customary arrangement and administrative
fees.
Financial and Other Covenants.
In addition,
we are required to comply with a series of financial and other covenants in order to borrow and maintain borrowings under the $225
million term loan. The material financial covenants include the following:
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a maximum leverage ratio of 6.50:1.00 (as defined by, and subject to the terms described in the term loan documentation), which
may be increased to 7.00:1.00 under certain limited circumstances described in the term loan documentation;
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a minimum consolidated tangible net worth (as defined in the term loan documentation) of not less than $1,105,342,000 plus
75% of the net proceeds of subsequent equity issuances or sales;
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a maximum dividend payout ratio of 95% of funds from operations (as defined in the term loan documentation) or an amount necessary
to maintain REIT tax status and avoid corporate income and excise taxes;
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a minimum consolidated fixed charge coverage ratio of 1.50:1.00 (as defined in the term loan documentation);
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a ratio of secured indebtedness (as defined in the term loan documentation) to total asset value (as defined in the term loan
documentation) of not more than 45%; and
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a ratio of secured recourse indebtedness (as defined in the term loan documentation) to total asset value (as defined in the
term loan documentation) of not more than 10%.
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Concerning the unencumbered asset pool, we are
required to comply with the following covenants:
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a ratio of consolidated unsecured indebtedness of the Company (as defined in the term loan documentation) to unencumbered asset
value (as defined in the term loan documentation) equal to or less than 60%, which may be increased to 65% under limited circumstances
described in the term loan documentation; and
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a ratio of unencumbered adjusted net operating income (as defined in the term loan documentation) to assumed unsecured interest
expense (as defined in the term loan documentation) equal to or greater than 2.00x.
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We are also subject to other customary covenants,
including restrictions on investments and limitations on liens and maintenance of properties. The term loan also contains customary
events of default, including, among others, the failure to make payments when due under any of the term loan documentation, breach
of any covenant continuing beyond any cure period and bankruptcy or insolvency.
Unencumbered Assets
. The $225 million
term loan is unsecured. However, borrowings under the term loan are limited by the value of hotel assets that qualify as unencumbered
assets. As of the date of the term loan, 46 of our hotel properties qualified as, and are deemed to be, unencumbered assets.
Among other conditions, unencumbered assets
must not be subject to liens or security interests, and the owner and operating lessee of such unencumbered asset must execute
a guaranty supplement pursuant to which the owner and operating lessee become subsidiary guarantors of the term loan. In addition,
hotels may be added to or removed from the unencumbered asset pool at any time so long as there is a minimum of 20 hotels in the
unencumbered asset pool and the then-current borrowings on the term loan do not exceed the maximum available under the facility.
Further, to be eligible as an unencumbered asset, the anticipated property must: be franchised with a nationally-recognized franchisor;
satisfy certain ownership, management and operating lessee criteria; not be subject to material defects, such as liens, title defects,
environmental contamination and other standard lender criteria.
The term loan documentation permits Summit OP
and the Company to maintain unsecured credit facilities with other lenders. Furthermore, the term loan documentation permits us
to use those assets included in the unencumbered asset pool as unencumbered assets for credit facilities with other lenders, so
long as all financial and other covenants are maintained.
We have the ability to delay draws of the principal
amount of the term loan and, in addition to making a draw at closing, we may make up to three additional draws prior to September
20, 2018. Beginning December 25, 2017, we pay a facility unused fee of 0.25% per annum on the unused principal amount of the loan.
At closing, we drew $125 million of the $225
million available under the term loan and used the proceeds to pay down the principal balance of our $300 million unsecured revolving
credit facility entered into on January 15, 2016 with Deutsche Bank AG New York Branch, as administrative agent and the lenders
party thereto.