Executive Summary / Key Takeaways

• Summit Hotel Properties is strategically optimizing its portfolio and capital structure, focusing on high-ROI assets and efficient operations to drive shareholder value despite near-term macroeconomic headwinds.
• The company has demonstrated robust operational efficiency, limiting operating expense growth to low single-digits and mitigating EBITDA margin contraction even with RevPAR declines, notably through disciplined labor management and non-rooms revenue growth.
• Proactive balance sheet management, including significant debt refinancings and a share repurchase program, has extended debt maturities to 2028 and enhanced liquidity, positioning the company for stability and opportunistic growth.
• Strategic capital recycling, involving the divestiture of non-core assets with high capital expenditure needs and accretive acquisitions, has significantly improved portfolio quality and reduced leverage.
• A favorable long-term industry outlook, characterized by constrained new hotel supply and anticipated demand tailwinds from major events like the 2026 World Cup, underpins Summit's future growth trajectory.

A Foundation of Efficiency: Summit's Strategic Edge in Upscale Lodging

Summit Hotel Properties, Inc. (NYSE:INN) operates as a self-managed lodging property investment company, strategically focused on acquiring, owning, and asset managing premium-branded hotels within the upscale segment of the U.S. lodging industry. Established in June 2010 and publicly listed in February 2011, Summit's core business model is built on generating strong margins and investment returns through efficient operations. The company's portfolio, comprising 97 lodging properties with 14,577 guestrooms across 25 states, primarily operates under leading franchise brands such as Marriott (MAR), Hilton (HLT), Hyatt (H), and InterContinental Hotels Group (IHG). To maintain its Real Estate Investment Trust (REIT) status, Summit leases its properties to taxable REIT subsidiaries (TRSs), which are then managed by professional third-party lodging property management companies.

The industry landscape in which Summit operates is characterized by fragmentation, but also by the significant brand power of its franchisors. A critical long-term tailwind for the lodging sector is the persistent lack of meaningful new hotel supply growth. Elevated construction costs, higher relative interest rates, and tight construction lending standards continue to constrain hotel development, particularly in the majority of Summit's key markets. This trend is expected to persist for several years, with 2025 marking the second consecutive year of industry supply growth below 1%, roughly half its historical rate. This constrained supply environment is anticipated to amplify the benefits of a more constructive demand and pricing environment in the coming years.

Summit's overarching strategy is deeply rooted in active portfolio management, a strong balance sheet, and high-ROI capital investments. This approach is designed to continuously enhance portfolio quality and create embedded future earnings growth. The company's "technological differentiation" isn't in a hard tech product, but rather in its highly refined operating model and asset management capabilities that drive efficiency and profitability. This "soft technology" encompasses:

• Efficient Operating Models: Focusing on premium-branded select-service hotels inherently provides leaner cost structures compared to full-service properties.
• Asset Management Expertise: The company's team consistently refines revenue management strategies and identifies efficiencies within the operating cost structure. This expertise is a critical differentiator, allowing Summit to outperform in various market conditions.
• Disciplined Labor Management: Proactive strategies to manage wages, reduce reliance on contract labor, and improve employee retention are central to controlling costs.

These operational strengths have yielded tangible benefits. For the nine months ended September 30, 2025, operating expenses increased a modest 1.6% on relatively flat occupancy, effectively mitigating EBITDA losses. In the third quarter of 2025, operating expenses rose only 1.8% year-over-year, or approximately 2% on a per occupied room basis. Hourly wages, excluding contract labor, increased 2% in Q3 2025, while contract labor costs declined 8% nominally. Contract labor now represents 10% of total labor costs, down significantly from peak COVID-era levels, yet still 250-300 basis points above 2019 levels, indicating further potential for efficiency gains. Furthermore, employee retention has improved, with turnover rates in Q3 2025 declining 40% from peak COVID-era levels, leading to enhanced productivity and reduced training costs. This rigorous expense management allowed Summit to achieve essentially flat hotel EBITDA margins in 2024, despite RevPAR growth of less than 2%, a notable achievement given that historically, 2.5% to 3% RevPAR growth was required to maintain margins.

Beyond its traditional hotel portfolio, Summit has strategically ventured into alternative accommodations through its Onera Joint Venture. The Onera Fredericksburg glamping property in Texas Hill Country, which completed its Phase 2 expansion in June 2025, exemplifies a low-labor-efficient operating model. Phase 1 of this property generated a year-to-date RevPAR of $360 and hotel EBITDA margins of nearly 50%. The expansion, adding 23 new units for a total of 35, along with a multi-unit lodge and additional amenities, is underwritten to unlevered yields in the low to mid-teens. This venture represents a natural extension of Summit's core business, leveraging its asset management expertise to capitalize on high-margin, unique lodging experiences.

Competitive Landscape and Strategic Positioning

Summit operates in a competitive environment alongside major hotel brands and other REITs. Direct competitors include global hospitality giants like Marriott International Inc. and Hilton Worldwide Holdings Inc., as well as other hotel REITs such as Host Hotels & Resorts, Inc. (HST), and franchise-focused companies like Wyndham Hotels & Resorts, Inc. (WH).

Compared to Marriott and Hilton, Summit's strategy is more regionally focused, emphasizing direct operational control over its wholly-owned and joint venture properties. While Marriott and Hilton benefit from vast global footprints, superior brand recognition, extensive loyalty programs, and significant investments in digital innovation, Summit differentiates itself through localized asset management and a relentless focus on cost control. Its efficient operating models allow for potentially stronger capital efficiency and recurring revenue from stable occupancy, aiming to counter the scale and innovation strengths of the larger brands with reliable, profitable execution. However, Summit's growth trajectory may be steadier but potentially less dynamic than these global players, who often exhibit higher revenue growth and stronger margins from their diversified, asset-light models.

Against Host Hotels & Resorts, another hotel REIT, Summit's approach to owning and operating premium-branded hotels with efficient models provides a potentially more targeted operational focus. Both companies are sensitive to real estate cycles, but Summit's emphasis on operational efficiency aims for qualitatively superior cash flow in stable periods. Host Hotels, with its larger portfolio, might achieve stronger growth rates through broader diversification.

In comparison to Wyndham Hotels & Resorts, which primarily employs a franchise-heavy, asset-light model across mid-scale to upscale segments, Summit's wholly-owned, premium-branded strategy offers direct operational control. While Wyndham benefits from wider market positioning and faster scalability through franchising, Summit's model prioritizes profitability and consistent quality within its upscale segment.

Overall, Summit holds a competitive but niche position, leveraging its operational efficiency as a core moat. This focus helps mitigate the broader reach and innovation speed of larger rivals, contributing to qualitatively stronger financial outcomes like enhanced cash flow, particularly in stable market conditions. However, its reliance on wholly-owned assets can lead to higher operational costs and greater sensitivity to economic cycles, making it vulnerable to downturns if not managed effectively.

Financial Performance and Liquidity Strength

Summit's financial performance in 2025 has reflected a challenging operating environment, yet its operational discipline has been a mitigating factor. For the three months ended September 30, 2025, total revenues were $177.12 million, a slight increase from $176.81 million in the prior year period. However, room revenue saw a modest decline to $156.32 million from $157.41 million. The company reported a net loss of $11.76 million for Q3 2025, compared to a net income of $3.56 million in Q3 2024. Adjusted EBITDA for the quarter was $39.3 million, and Adjusted Funds From Operations (AFFO) stood at $21.3 million, or $0.17 per share.

The decline in same-store RevPAR by 3.7% in Q3 2025 was primarily driven by a 3.4% decrease in average daily rate (ADR), with occupancy remaining largely flat. This was largely attributed to significant year-over-year reductions in government and international inbound travel, which necessitated a shift to lower-rated demand segments. These two segments, collectively representing approximately 15% of occupied room nights, were down about 20% year-over-year in Q3 2025, contributing nearly half of the RevPAR decline. Despite these headwinds, non-rooms revenue, including food and beverage sales, resort and amenity fees, and parking charges, demonstrated strong growth, increasing 5.6% in Q3 2025 and 4.3% year-to-date. This outperformance is partly due to strategic capital investments, such as the transformational renovation of the Oceanside Fort Lauderdale Beach Hotel.

For the nine months ended September 30, 2025, total revenues were $554.51 million, with a net loss of $9.1 million. Adjusted EBITDA for this period was $135.19 million, and AFFO was $81.32 million, or $0.66 per share. The company's ability to control operating expenses, which increased only 1.6% year-to-date on relatively flat occupancy, was crucial in mitigating EBITDA losses.

Summit's balance sheet remains a significant strength, characterized by proactive debt management and ample liquidity. The company has strategically refinanced substantial portions of its debt, extending maturities and reducing borrowing costs. A $275 million delayed draw term loan, closed in March 2025, is earmarked to refinance $287.5 million in convertible notes maturing in February 2026. Additionally, the GIC Joint Venture refinanced its $396 million term loan with a new $400 million facility in July 2025, reducing the spread by 50 basis points. These efforts, along with the refinancing of the Brickell Mortgage Loan in May 2025, mean Summit has virtually no significant debt maturities until 2028, boasting an average length to maturity of approximately four years. Approximately 75% of Summit's pro rata debt is fixed, with an average fixed SOFR rate of around 3%, further insulating it from interest rate volatility. Total liquidity stands at over $310 million.

Capital recycling is a cornerstone of Summit's strategy. Since May 2023, the company has divested 12 non-core hotels, generating over $185 million in gross proceeds and eliminating approximately $60 million in near-term capital expenditure requirements. These sales were executed at a blended 4.5% net operating income capitalization rate. Concurrently, Summit acquired four hotels for approximately $140 million, with a trailing 12-month NOI yield of 8.5% and a RevPAR premium of nearly 20% compared to the current pro forma portfolio. This disciplined approach has enhanced portfolio quality and reduced leverage. In Q3 2025, the company completed the sale of two non-core hotels for combined gross proceeds of $39 million, reflecting a blended yield of 4.3% and eliminating approximately $10 million of foregone near-term capital expenditures.

In April 2025, the Board of Directors authorized a $50 million share repurchase program, recognizing a significant dislocation in the company's stock price. By Q2 2025, 3.6 million shares had been repurchased for $15.4 million at an average price of $4.30 per share, representing a 15% discount to the then-current trading price and an implied dividend yield of 7.4%, making these repurchases accretive to cash flow. The quarterly common dividend of $0.08 per share, representing an annualized yield of 6% and a modest 38% payout ratio based on trailing 12-month AFFO, underscores the company's commitment to returning capital to shareholders while maintaining financial flexibility.

Outlook and Growth Catalysts

Summit's outlook for the remainder of 2025 and into 2026 is characterized by cautious optimism, with management anticipating sequential improvements in operating trends. For the fourth quarter of 2025, RevPAR is expected to decline between 2% and 2.5% year-over-year, which would result in a full-year RevPAR decline of 2.25% to 2.5%. Operating expense growth for the full year 2025 is projected to range from 1.5% to 2%. Full-year 2025 pro rata capital expenditures are targeted at $60 million to $65 million, a reduction from earlier guidance, reflecting a flexible approach to capital deployment in a volatile macroeconomic environment.

Looking ahead to 2026, the setup appears more favorable. Industry expectations remain low, and year-over-year comparisons for government travel are expected to ease significantly after March 1. A major catalyst for demand will be the 2026 World Cup, which is expected to generate robust demand in several of Summit's key Sunbelt and Gateway markets, including Atlanta, Boston, Dallas, Houston, Miami, and San Francisco. These six markets will feature nearly 60% of the matches held in the U.S., providing a unique tailwind in June and July 2026. Additionally, San Francisco is slated to host the Super Bowl, Boston will benefit from the America's 250 celebration, and Indianapolis will host the Final Four, further boosting demand in key markets. The opening of Universal's highly anticipated Epic Universe Park in Orlando and the Universal Kids Resort in Frisco in 2026 are also expected to drive increased visitation and demand in those submarkets.

The persistent lack of new hotel supply growth remains a powerful long-term tailwind for the industry. With elevated construction and financing costs, this constrained supply environment is expected to continue for several more years, supporting healthy future supply-demand dynamics across Summit's markets. This structural advantage, combined with a long-term consumer shift towards experiences over material goods, reinforces a strong and stable future demand outlook for lodging.

Risks and Considerations

While Summit Hotel Properties is well-positioned for long-term growth, investors should be mindful of several risks. Ongoing macroeconomic uncertainty, including inflationary pressures on labor and commodities, and potential recessionary environments, could impact costs and demand. Pricing sensitivity and a narrowing booking window, particularly in government and international travel segments, have already created near-term RevPAR pressures. Changes in federal or state regulations, such as tariff policies or government shutdowns, also pose risks to lodging demand.

Financing risks, including the ability to refinance existing indebtedness on favorable terms, remain a consideration, although Summit has proactively addressed near-term maturities. Increases in property taxes and insurance costs could also impact profitability. While the share repurchase program is accretive, its execution and impact on stock price volatility are subject to market conditions. Finally, the competitive landscape, with larger players like Marriott and Hilton continually investing in technology and expanding their global reach, necessitates Summit's continued focus on operational excellence and strategic asset management to maintain its market share and profitability.

Conclusion

Summit Hotel Properties stands as a compelling investment thesis, demonstrating resilience and strategic foresight in a dynamic lodging market. The company's disciplined approach to capital allocation, marked by accretive acquisitions and timely divestitures of non-core assets, has significantly enhanced portfolio quality and strengthened its balance sheet. This strategic recycling, coupled with proactive debt management that has pushed significant maturities to 2028 and secured favorable interest rates, provides a robust financial foundation.

Operationally, Summit's commitment to efficiency, particularly in managing labor costs and driving non-rooms revenue, has proven instrumental in mitigating the impact of recent RevPAR declines and preserving margins. The company's foray into innovative segments like glamping through the Onera Joint Venture further underscores its adaptability and pursuit of high-yield opportunities. With a favorable long-term industry outlook driven by constrained new supply and significant demand tailwinds from major upcoming events, Summit is well-positioned to capitalize on a more constructive operating environment. While macroeconomic uncertainties persist, Summit's proven operational prowess and strategic financial management make it an attractive proposition for discerning investors seeking value in the upscale lodging sector.