Summit Hotel Properties, Inc. (INN) is a real estate investment trust (REIT) that specializes in acquiring, owning, and operating premium-branded select-service and extended-stay hotels. The company has strategically positioned itself as a dominant player in the upscale segment of the lodging industry, boasting a diversified portfolio of 97 properties across 25 states as of December 31, 2024.
Business Overview and Historical Performance Summit Hotel Properties was organized on June 30, 2010 as a Maryland corporation. The company holds both general and limited partnership interests in Summit Hotel OP, LP, a Delaware limited partnership that was also organized on June 30, 2010. At its inception, Summit acquired an initial portfolio of 66 lodging properties, focusing on properties with efficient operating models that generate strong margins and investment returns.
Over the next several years, Summit continued to grow its portfolio through strategic acquisitions. By the end of 2015, the company had expanded to 90 lodging properties across 23 states. This rapid growth presented integration challenges as the company worked to effectively incorporate new properties into its operating platform.
In 2016, Summit formed a joint venture with GIC, a private limited company incorporated in Singapore, to acquire additional assets. This strategic partnership allowed for further portfolio expansion while bringing in a valuable capital partner. The same year, Summit created two additional joint ventures: the Brickell Joint Venture and the Onera Joint Venture, to acquire and operate specialized lodging properties.
The COVID-19 pandemic in 2020 presented a significant challenge for Summit, as it did for the entire hospitality industry. The company faced dramatic declines in occupancy and revenue across its portfolio, necessitating quick adaptations to its operations and capital allocation strategy. These measures included suspending dividends, reducing operating expenses, and selectively disposing of certain properties.
By the end of 2022, Summit had successfully navigated the pandemic and restored stability to its business. The company's portfolio consisted of 97 lodging properties with a total of 14,550 guestrooms located in 25 states. Over 99% of the guestrooms were operated under premium franchise brands owned by Marriott, Hilton, Hyatt, and IHG. Summit's strategic joint ventures had expanded to include 41 hotels, demonstrating its ability to form accretive partnerships to drive growth.
The company's portfolio is primarily concentrated in the top 50 and top 100 metropolitan statistical areas (MSAs), with over 86% of its guestrooms located in these desirable markets. Summit's hotels operate under premium franchise brands such as Marriott, Hilton, Hyatt, and IHG, which provide a stable source of demand through their loyalty programs and global distribution networks.
Financials The company's financial performance has been impressive, particularly in light of the challenges faced by the broader lodging industry in recent years. For the full year 2024, Summit reported a 1.8% increase in pro forma RevPAR (revenue per available room), driven by strength in its urban and suburban portfolios, which outpaced the industry average. This, coupled with the company's effective expense management, led to a 2% increase in pro forma hotel EBITDA and nearly 6% growth in Adjusted FFO (AFFO) per share to $0.96.
In fiscal year 2024, Summit reported total revenue of $731.78 million, with room revenues of $650.71 million, food and beverage revenues of $40.87 million, and other revenues of $40.20 million. The company's net income for the year was $38.89 million, with Hotel EBITDA of $259.64 million and adjusted funds from operations (AFFO) of $119.21 million. These metrics highlight Summit's ability to generate consistent cash flow and maintain profitability across its portfolio.
For the fourth quarter of 2024, Summit reported revenue of $172.93 million, representing a 1.4% year-over-year increase. This growth was primarily driven by gains in both occupancy and average daily rate, particularly in the urban and suburban hotel portfolios. Net income for the quarter stood at $5.31 million.
Looking ahead to 2025, Summit has provided guidance projecting RevPAR growth of 1% to 3%. This is expected to translate to an adjusted EBITDA range of $184 million to $198 million and an adjusted FFO range of $0.90 to $1.00 per share. At the midpoint of the RevPAR guidance range, the company expects hotel EBITDA margins to contract 50 to 100 basis points year-over-year, which incorporates approximately 30 basis points of headwinds from higher property taxes.
Disciplined Capital Allocation and Accretive Transactions A hallmark of Summit's strategy has been its disciplined approach to capital allocation, which has enabled the company to create significant value for shareholders. In 2024, the REIT executed over $200 million of accretive transaction activity, including the acquisition of the 399-room Hampton Inn Boston-Logan Airport and Hilton Garden Inn Tysons Corner for $96 million. These well-located assets feature industry-leading brands and minimal near-term capital needs, with a going-in capitalization rate of 8.8% based on 2024 net operating income.
Complementing its acquisition strategy, Summit has also been proactive in recycling capital through the strategic sale of 10 hotels over the past 18 months for nearly $150 million in gross proceeds. The company has been disciplined in its disposition approach, with the sales representing a blended trailing 12-month net operating income capitalization rate of less than 5%, while also eliminating approximately $50 million in near-term capital expenditure requirements.
Resilient Operating Model and Expense Management Summit's focus on hotels with efficient operating models has been a key driver of its success. The company's select-service and extended-stay properties are typically operated with approximately 30 full-time equivalent employees, which is significantly lower than full-service hotels. This streamlined operating model enables Summit's assets to generate higher operating margins and cash flow with less volatility.
Moreover, the REIT's intense focus on expense management has been a hallmark of its performance. In 2024, the company's pro forma operating expenses increased just 1.5% on a per-occupied-room basis, despite modest RevPAR growth, highlighting the strength of its operating platform. This effective cost control, combined with the benefits of its efficient operating model, has enabled Summit to maintain Hotel EBITDA margins that were essentially flat year-over-year.
Favorable Industry Dynamics and Growth Opportunities The lodging industry is well-positioned for continued growth, as the recovering economy and pent-up demand for travel support healthy fundamentals. Summit's strategic portfolio, focused on urban and suburban markets, is particularly well-suited to capitalize on the resurgence of business transient and group travel, which are expected to be the primary demand drivers going forward.
Additionally, the lack of meaningful new supply in the industry, driven by elevated construction costs, higher interest rates, and tight lending standards, represents a significant tailwind for established players like Summit. The company's high-quality, well-located portfolio is poised to benefit from these favorable industry dynamics and capture outsized growth in the years ahead.
The overall lodging industry is expected to see a compound annual growth rate (CAGR) of 9.14% from 2024 to 2032, driven by the post-COVID travel rebound, resurgence in leisure and business activities, and increased disposable incomes. This positive outlook bodes well for Summit's future growth prospects.
Liquidity and Capital Structure Summit maintains a strong balance sheet and liquidity position, which provides the company with the financial flexibility to pursue growth opportunities. As of December 31, 2024, the REIT had total liquidity of approximately $350 million, an average debt maturity of nearly three years, and a leverage ratio that is nearly a full turn lower than when the company initiated its disposition activity in 2023.
Furthermore, the REIT's interest rate exposure is effectively managed, with 72% of its pro rata debt fixed after consideration of interest rate swaps. This conservative capital structure and disciplined approach to balance sheet management position Summit to navigate potential market volatility and capitalize on future investments.
As of December 31, 2024, Summit had $40.64 million in cash and $350 million in available credit on its $400 million revolving credit facility. The company's debt-to-equity ratio stood at 1.56, while its current ratio and quick ratio were both 376.59, indicating strong short-term liquidity.
For 2025, Summit expects pro rata interest expense (excluding amortization of deferred financing costs) to be $50 million to $55 million. Series E and Series F preferred dividends are expected to be $15.9 million, and Series Z preferred distributions are expected to be $2.6 million. Pro rata capital expenditures are projected to range from $65 million to $85 million in 2025.
Preferred Stock Offering Summit Hotel Properties has issued 5.88% Series F Cumulative Redeemable Preferred Stock (INN-PF), which provides shareholders with a fixed dividend payment on a quarterly basis. This preferred stock offering is designed to provide investors with a stable and predictable income stream within the lodging industry. The company has consistently paid dividends on the INN-PF preferred stock, underscoring its commitment to delivering value to its shareholders.
Conclusion Summit Hotel Properties has established itself as a premier lodging REIT, leveraging its efficient operating model, disciplined capital allocation, and strategic portfolio to deliver consistent outperformance. The company's focus on the upscale segment of the industry, combined with its proven ability to navigate market cycles, position it well to capitalize on the industry's favorable growth prospects. With a strong balance sheet, ample liquidity, and a track record of value creation, Summit Hotel Properties remains an attractive investment opportunity for investors seeking exposure to the resilient lodging sector.