Executive Summary / Key Takeaways

• Strategic Portfolio Refinement Drives Outperformance: Summit Hotel Properties (INN) is executing a disciplined capital allocation strategy, actively recycling capital through accretive dispositions of non-core assets and targeted acquisitions in high-growth submarkets. This has significantly enhanced portfolio quality, reduced leverage, and positioned INN for superior long-term growth.
• Operational Efficiency as a Core Moat: Despite recent RevPAR headwinds, INN's highly efficient operating model and rigorous expense management have enabled it to maintain strong hotel EBITDA margins and grow market share. This operational acuity is a critical differentiator, allowing INN to outperform peers and mitigate top-line pressures.
• Fortified Balance Sheet and Shareholder Returns: Recent debt refinancings have extended maturities to 2028 and beyond, significantly reducing interest rate risk. Coupled with an opportunistic $50 million share repurchase program, INN is actively returning capital to shareholders while maintaining robust liquidity.
• Long-Term Tailwinds Amidst Near-Term Volatility: While macroeconomic uncertainty and specific demand segment softness (government, international travel) present near-term challenges, INN is poised to benefit from historically low new hotel supply growth and a secular consumer shift towards experiences, particularly in its urban and suburban markets.
• Targeted Investments in High-ROI Assets: Strategic renovations, such as the transformational Courtyard Fort Lauderdale Beach, and expansion into unique segments like Onera glamping, demonstrate INN's commitment to high-return capital projects that drive incremental EBITDA and capture market share.

Introduction: Summit's Strategic Resilience in a Dynamic Lodging Landscape

Summit Hotel Properties, a self-managed lodging property investment company established in 2010, operates as a Real Estate Investment Trust (REIT) focused on owning premium-branded, upscale lodging facilities across the United States. Its core business model involves leasing properties to taxable REIT subsidiaries (TRSs) and engaging third-party management companies, a structure designed to optimize operational efficiency and generate strong investment returns. This foundational strategy positions INN to capitalize on the inherent advantages of a lean operating model, a critical differentiator in the competitive hotel REIT sector.

The company's portfolio, comprising 97 properties with 14,577 guestrooms across 25 states as of June 30, 2025, is strategically concentrated, with 86% of its guestrooms located in the top 50 metropolitan statistical areas (MSAs). Over 99% of its properties operate under leading premium franchise brands such as Marriott (MAR), Hilton (HLT), Hyatt (H), and IHG (IHG), providing strong brand recognition and loyalty program benefits. This brand affiliation, combined with INN's relentless focus on operational efficiency, forms a significant competitive moat against rivals like Host Hotels & Resorts (HST), Pebblebrook Hotel Trust (PEB), Sunstone Hotel Investors (SHO), and Xenia Hotels & Resorts (XHR). While larger peers like HST may boast broader diversification, INN's specialized focus on upscale efficiency allows for potentially superior cost management and adaptability in its chosen segments.

INN's operational "technology" is its highly efficient management of these select-service assets, exemplified by its ability to drive market share and control costs. Over the past three years, INN has notably increased its RevPAR market share index by nearly 300 basis points and expanded its hotel EBITDA margin by over 200 basis points. This operational acuity is not merely a cost-cutting exercise; it is a strategic advantage that allows INN to generate superior profitability and cash flow even in challenging environments. For instance, in 2024, INN achieved essentially flat hotel EBITDA margins with just 1.8% RevPAR growth, significantly outperforming its historical requirement of 2.5% to 3% RevPAR growth to maintain margins. This demonstrates the tangible benefits of its lean operating model and disciplined asset management.

The broader industry landscape presents both challenges and opportunities. Macroeconomic uncertainties, including policy shifts and inflationary pressures, have led to demand volatility and pricing sensitivity. However, a significant long-term tailwind is the persistent lack of new hotel supply. With industry supply growth projected to be less than 1% in 2025—roughly half its historical rate—and expected to remain low for several years, INN's existing high-quality portfolio is well-positioned to benefit from amplified pricing power as demand stabilizes. This low supply environment, coupled with a secular consumer shift towards experiences over material goods, underpins INN's confidence in the long-term demand outlook for lodging.

Operational Excellence: The Engine of Profitability

Summit Hotel Properties' recent performance underscores its commitment to operational excellence, particularly in managing expenses and growing market share amidst a challenging demand environment. In the second quarter of 2025, same-store RevPAR declined 3.6%, primarily due to a 3.3% decrease in average daily rate (ADR). This was largely attributable to difficult comparisons to Q2 2024, which benefited from significant special events that impacted over 30% of INN's portfolio and created a 125 basis point headwind to RevPAR growth. Additionally, a narrowing booking window and heightened price sensitivity led to an unfavorable shift in room night mix, with government-related demand (5%-7% of room nights) declining over 20% and inbound international travel falling approximately 18% year-over-year.

Despite these top-line pressures, INN's operational prowess shone through. Overall demand remained stable, with occupancy declining less than 0.5% year-over-year in Q2 2025, reaching 78%—the second highest nominal occupancy in the past five years. Crucially, operating expenses increased only 1.5% year-over-year (2% on a per occupied room basis) in Q2 2025. This rigorous expense management limited year-to-date EBITDA margin contraction to 160 basis points, a testament to the effectiveness of INN's lean operating model. The company achieved a RevPAR index of 115% in Q2 2025, a nearly 150 basis point increase, demonstrating its ability to grow market share. The NCI portfolio, acquired in 2022, notably achieved a 114% index, up 240 basis points year-over-year, reflecting successful revenue strategies.

INN's focus on labor efficiency is a key component of its operational moat. Hourly wages, excluding contract labor, increased a modest 1.2% in Q2 2025. Contract labor costs declined 13% (nominal and per occupied room basis) and now represent 10.5% of total labor costs, significantly down from peak COVID levels. Improved employee retention, with turnover rates declining nearly 40% from peak COVID levels, further enhances productivity and reduces training costs. This disciplined approach to labor management provides a competitive edge, particularly against peers who may struggle with higher labor costs or less efficient models.

Beyond its core select-service portfolio, INN is strategically investing in unique, high-ROI assets. The transformational renovation of The Courtyard by Marriott Oceanside, Fort Lauderdale Beach, completed in Q1 2025, exemplifies this. This comprehensive repositioning, including redesigned guestrooms, public spaces, and an enhanced poolside bar, is underwritten to generate cash-on-cash yields over 20% for public spaces and food and beverage outlets. This investment aims to significantly increase average rates and close the rate gap with directly competitive oceanfront properties in a market with high barriers to new supply.

Another innovative venture is the Onera Joint Venture, a glamping property in Fredericksburg, TX. Following a 23-unit expansion completed in Q2 2025, Phase 1 of the property has already generated a remarkable $360 RevPAR and nearly 50% hotel EBITDA margins. This "low-labor-efficient operating model" offers unlevered yields in the low to mid-teens for the expansion, showcasing INN's ability to identify and scale highly profitable, operationally distinct assets. These targeted investments in asset enhancement and new operational models are critical to INN's long-term growth and competitive differentiation.

Disciplined Capital Allocation & Balance Sheet Fortification

Summit Hotel Properties is actively reshaping its portfolio and strengthening its financial foundation through a highly disciplined capital allocation strategy. This involves a methodical approach to acquisitions, strategic dispositions, and opportunistic share repurchases, all while fortifying its balance sheet.

Over the past 18 months, INN has executed a thoughtful disposition strategy, selling 10 non-core hotels for nearly $150 million in gross proceeds. These divested assets had an average trailing 12-month RevPAR of $85, a 30% discount to the remainder of INN's portfolio, and required approximately $50 million in near-term capital expenditures that have now been avoided. The sales were executed at a blended capitalization rate of less than 5% (including foregone CapEx), demonstrating INN's ability to extract value from non-strategic assets. This capital recycling has been instrumental in deleveraging the balance sheet, reducing INN's net debt to EBITDA ratio by nearly a full turn.

Concurrently, INN has made targeted acquisitions, such as the Hampton Inn Boston-Logan Airport and Hilton Garden Inn Tysons Corner in 2024, acquired through its GIC Joint Venture for $96 million. These acquisitions were made at an attractive 8.8% capitalization rate based on 2024 net operating income and a significant discount to replacement costs. The investment profile of INN's acquisition activity compares favorably to its dispositions, yielding a positive NOI spread and a yield spread of over 400 basis points, with a RevPAR premium of approximately 70% between the acquired and divested portfolios. This strategic capital deployment enhances the overall quality and growth profile of INN's portfolio.

INN has also been proactive in managing its debt profile. In March 2025, the company secured a $275 million delayed draw term loan, specifically earmarked to refinance a significant portion of its $287.5 million convertible notes maturing in February 2026. This forward-looking approach ensures financial stability and minimizes refinancing risk. Further strengthening its liquidity, INN completed two significant debt refinancings in Q2 2025: a new $58 million mortgage for the AC Element hotel in Miami (May 2025) and a $400 million term loan for the GIC Joint Venture (July 2025). These refinancings extended maturities to May 2030 and July 2030, respectively, and reduced interest rate spreads by 40-50 basis points, collectively saving an estimated $2 million annually in interest. As a result, INN now has virtually no debt maturities until 2028 and an average length to maturity of approximately four years. Its interest rate exposure is effectively hedged, with 75% of its pro rata share of debt fixed after considering interest rate swaps (average fixed SOFR rate of approximately 3.1%).

In response to significant dislocation in its stock price, INN's Board of Directors authorized a $50 million share repurchase program in April 2025. In Q2 2025, INN opportunistically repurchased 3.6 million shares for $15.4 million at an average price of $4.30 per share. These repurchases, executed at an implied dividend yield of 7.4% (approximately 120 basis points above borrowing cost), are accretive to INN's cash flow profile and have reduced shares outstanding by approximately 3%. This program, intended to be funded by proceeds from asset sales, underscores INN's commitment to returning capital to shareholders while maintaining a strong balance sheet. The company also declared a quarterly common dividend of $0.08 per share, representing an annualized dividend yield of over 6% and a modest payout ratio of approximately 35% based on trailing 12-month AFFO, indicating sustainability and potential for future growth.

Outlook and Investment Implications

Summit Hotel Properties faces a near-term operating environment characterized by continued macroeconomic uncertainty and demand volatility, yet its long-term outlook remains robust, underpinned by strategic positioning and operational discipline. For the third quarter of 2025, INN anticipates a RevPAR decline of approximately 3%, moderating from the Q2 levels. While July RevPAR declined around 3.5%, management expresses optimism for incremental improvements in August and September. The booking window remains narrow, and pace volatility is higher than normal, making short-term forecasting challenging.

However, INN expects operating trends to improve in the fourth quarter of 2025, driven by demand stabilization, greater macroeconomic and policy clarity, and a stronger industry group and convention calendar. Looking further ahead, future convention center pace is up double digits in key markets like Phoenix and New Orleans, promising additional lift from newly renovated hotels upon completion. Dallas is set to host multiple World Cup events in 2026, with its renovated convention center serving as a global media hub, driving substantial demand. The opening of Universal Kids Resort in Frisco in 2026 and ongoing corporate relocations in the Frisco Station submarket are expected to provide significant tailwinds.

Despite softer Q2 results and reduced Q3 expectations, INN's full-year 2025 adjusted EBITDA and AFFO per share are projected to finish within 1% to 2% of initial guidance figures, even with RevPAR growth approximately 200 basis points below the initial target. This resilience highlights the mitigating impact of aggressive expense management and the share repurchase program. Management estimates that every 1% change in full-year RevPAR growth equates to approximately $4 million of adjusted EBITDAre and $0.03 of adjusted FFO per share, providing clear sensitivity metrics for investors.

Capital expenditures for full-year 2025 have been reduced to $60 million to $65 million (pro rata), reflecting a strategic decision to defer certain renovations or sell assets requiring significant capital, aligning with INN's capital recycling objectives. Pro rata interest expense (excluding amortization of deferred financing costs) is projected to be $50 million to $55 million, with preferred dividends and distributions totaling $18.6 million.

The long-term investment thesis for INN is compelling. The lodging industry benefits from a persistent lack of new supply, with 2025 marking the second consecutive year of sub-1% supply growth—half its historical rate. This trend, expected to continue for several years due to elevated construction costs and tight lending standards, will amplify the benefits of future demand recovery. Coupled with a powerful consumer shift towards experiences, INN's high-quality, well-located portfolio is poised to capture this sustained growth. Its operational efficiency, strategic capital allocation, and fortified balance sheet provide a strong foundation to capitalize on these long-term tailwinds.

Conclusion

Summit Hotel Properties stands as a compelling investment in the upscale lodging sector, distinguished by its strategic agility and unwavering commitment to operational efficiency. The company's narrative is one of continuous refinement, where disciplined capital recycling, targeted high-ROI renovations, and opportunistic share repurchases are actively enhancing portfolio quality and shareholder value. This proactive approach, coupled with a robust balance sheet fortified by recent debt refinancings, positions INN to weather near-term macroeconomic headwinds and capitalize on the industry's favorable long-term dynamics.

While demand volatility and specific segment softness may temper immediate top-line growth, INN's core strength lies in its ability to drive market share and manage expenses with exceptional acuity, a testament to its efficient operating model. The company's strategic investments in unique assets like Onera glamping and transformational renovations further underscore its capacity to generate superior returns. With virtually no debt maturities until 2028 and a clear path for future growth amidst constrained industry supply, Summit Hotel Properties offers investors a resilient and strategically positioned REIT poised for sustained outperformance.