Summit Hotel Properties, Inc. (INN) 2026 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties third quarter 2026 conference call. (Operator Instructions) Please be reminded that today's conference is being recorded.

I'd like to hand the conference over to the first speaker today, Kevin Milota, Senior Vice President of Finance. Please go ahead.

Thank you, operator, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, Jon Stanner; Adam Wudel, Executive Vice President and Chief Operating Officer; and Mike Nieves, Executive Vice President and Chief Financial Officer.

Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings.

Forward-looking statements that we make today are effective as of today, November 4, 2026, and we undertake no duty to update them later. You can find copies of our SEC filings in the earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at www.shpreit.com.

Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our third quarter 2026 earnings conference call.

On today's call, we will discuss our outstanding third-quarter results and our improved outlook for the remainder of the year that, together, are driving another increase to our full-year guidance ranges. We will also highlight the continued progress we have made strengthening our balance sheet, reducing borrowing costs, increasing liquidity, and enhancing capacity for future growth.

Operating fundamentals accelerated meaningfully in the third quarter, exceeding our expectations as pro forma RevPAR increased 7.2% year over year, driven by a 5.3% increase in average daily rate and a 1.8% increase in occupancy. Top-line growth accelerated from the strong results we delivered in the second quarter as both rate growth and occupancy gains expanded sequentially, highlighted by a quarter-best 11% RevPAR growth in September.

Hotel EBITDA in our pro forma portfolio increased a robust 14.4% in the third quarter, resulting in nearly 200 basis points of margin expansion as rate-driven RevPAR growth and ongoing strong cost controls drove exceptional profitability growth and nearly 60% EBITDA flow-through. Adjusted EBITDAre increased 12% to $43.9 million, and adjusted FFO increased to $24.2 million, or $0.20 per share in the third quarter, an 18% increase over the third quarter of last year.

We are particularly encouraged by the continued breadth of strong performance across the vast majority of our markets and demand segments, led by midweek demand and urban markets. Our highest rated demand segments continue to be our best performing segments.

Retail RevPAR in our pro forma portfolio increased approximately 15% in the quarter, driven by double-digit growth each month as our hotels continued to meaningfully outperform their competitive sets in both occupancy and rate. Corporate negotiated RevPAR, our best proxy for pure business transient demand, increased 8.3% in the quarter, driven by 17% growth in urban markets. Our hotels are consistently capturing a premium share of corporate negotiated demand, which we attribute to the quality of our assets and the effectiveness of our revenue strategy teams.

Group RevPAR increased 14.4% through both rate and occupancy gains with group room night mix continuing to expand as a share of our total business. All three months of the quarter achieved double-digit group RevPAR growth, led by Charlotte, Indianapolis, Dallas-Fort Worth, Oklahoma City, Pittsburgh, Atlanta, and Washington D.C. The accelerating recovery in business travel continues to be a primary driver of our portfolio's growth and is facilitating a profitable remixing of occupancy, particularly midweek.

Weekday RevPAR increased nearly 8% in the third quarter, driven by broad-based strength across our highest-rated demand segments. Weekday retail RevPAR increased nearly 14% in the third quarter, and weekday negotiated RevPAR increased by over 8% year over year.

Weekday group RevPAR was particularly impressive, increasing by over 15% in each of the three months of the quarter. This dynamic is creating segment and channel remixing opportunities for our revenue strategy teams, resulting in the best pricing environment we've experienced since prior to the pandemic.

More importantly, it reflects compression-driven pricing power that generates the strongest flow-through to hotel profitability. This has been particularly beneficial to our urban-centric portfolio, as RevPAR in our urban markets increased over 11% in the third quarter, the best of any location type for the second quarter in a row, led by Pittsburgh, Washington D.C., Atlanta, Indianapolis, Dallas, Oklahoma City, San Francisco, New Orleans, and San Jose, all of which had RevPAR growth exceeding 15% for the quarter.

ADR increased over 9% in our urban portfolio in the third quarter, driving a 26% increase in hotel EBITDA, highlighting not only the strong pricing power embedded in our urban hotels, but also our ability to continue to effectively manage costs to drive tremendous bottom line growth. As a reminder, our urban portfolio comprises approximately half of our total rooms in hotel EBITDA, and the accelerating momentum in this location type bodes well for our future growth.

Encouragingly, RevPAR momentum built through the quarter. July RevPAR increased over 6%, reflecting solid underlying demand as well as some residual benefit from World Cup activity in our host markets during the early weeks of the month. Consistent with our second-quarter results, RevPAR growth in July was primarily rate-driven.

August RevPAR growth was approximately 4%; and September was the standout month of the quarter, with RevPAR growth increasing over 11%, driving a 15% increase in hotel EBITDA. We view the acceleration of demand growth in September across multiple segments and markets as particularly encouraging, supporting the durability of the favorable operating trends currently driving our business.

While FIFA demand provided another lift as expected during the quarter, it was less of a driver of our results than in the second quarter. We estimate World Cup-related demand added 80 to 90 basis points of RevPAR growth for the quarter, roughly half of the impact we benefited from in the second quarter.

July RevPAR in our World Cup markets increased 11%, led by Miami, Dallas, and San Jose, with pricing power particularly strong over the quarter and semifinal gains. For the full year, we estimate that the event will contribute approximately 60 to 70 basis points to our full-year RevPAR growth.

We also gained another 110 basis points of market share relative to our competitive steps in the third quarter as our pro forma RevPAR index was $116 for the quarter, exceeding the portfolio's typical pre-pandemic peak levels of between $113 and $115. Notably, RevPAR index in our NCI portfolio achieved the highest level of our ownership period at $125, representing a nearly 6% gain in market share year over year.

These consistent share gains reflect the quality of our assets, our strategic investment in renovations, and the effectiveness of our operating teams. Non-rooms revenue, which increased approximately 11% in the third quarter, continues to support strong overall top-line growth, driving a pro forma total revenue increase of 7.7% to $185.3 million in the quarter.

As I mentioned, we achieved nearly 60% flow-through to hotel EBITDA in the third quarter as our operating teams did a tremendous job managing expenses. Total pro forma hotel operating expenses increased by just over 3% on a per occupied room basis during the third quarter, well below our rate of revenue growth.

Total labor costs increased by approximately 5.5% year over year, with salaries and wages increasing approximately 3% and the balance driven primarily by higher incentive compensation associated with improved hotel level performance.

Portfolio-wide turnover remains stable and well below the elevated levels we experienced in prior years. And our hotels are operating with approximately 18% fewer FTEs per property compared to 2019, a structural productivity gain that continues to be a benefit of our highly efficient operating model. For the full year, we expect hotel operating expenses to increase by approximately 4%.

Year to date through September 30, pro forma RevPAR increased 4%, driven by a 4.5% increase in average daily rate; and pro forma hotel EBITDA increased 6% with margins expanding 40 basis points. Adjusted EBITDAre increased 5.7% to $142.9 million; and adjusted FFO increased to $0.70 per diluted share, representing a 6.1% increase compared to the same period last year.

We continue to make meaningful progress strengthening the balance sheet, reducing borrowing costs, and enhancing liquidity. During the quarter, we amended our $200 million term loan facility and $275 million delayed draw term loan facility to conform pricing and other material terms with our recently amended $650 million senior credit facility. Based on our leverage as of September 30, these amendments resulted in a 20-basis-point reduction in the applicable interest rate on those facilities.

In addition, our ongoing deleveraging of the balance sheet has resulted in the reduction of our trailing 12-month leverage ratio and an additional 15-basis-point reduction in the interest rate spread across $675 million of term loan debt and our corporate revolver. These spread reductions are expected to generate annual interest expense savings of approximately $2.4 million.

We also continue to successfully sell non-core assets and recycle capital. During the quarter, we completed the previously announced sale of our wholly owned 103-guest-room courtyard and 96-guest-room Residence Inn in Dallas Arlington South for a combined sale price of $19 million.

The sale price represented a 5.9% capitalization rate based on trailing 12-month net operating income through June 30, 2026, and after consideration of approximately $7.6 million of foregone near-term capital expenditures at the two hotels.

As we discussed last quarter, we strategically retained ownership of those hotels through the FIFA demand window before closing the transaction, which allowed us to capture the benefit of robust event-driven demand in the Arlington submarket prior to disposition.

Since 2023, the company has sold 15 hotels for a combined sale price of approximately $219 million at a blended capitalization rate of approximately 4.7%, inclusive of an estimated $68 million of foregone capital needs. The combined RevPAR for the sold hotels was $86, which is an approximate 30% discount to our current pro forma portfolio.

We will continue to evaluate additional opportunities to recycle capital out of lower growth assets with outsized capital needs and redeploy proceeds to strengthen the balance sheet, increase liquidity, enhance the quality of the portfolio.

The overall health of our balance sheet remains strong. We currently have approximately $350 million in total liquidity with nothing outstanding on our revolving credit facility and no debt maturities until 2028.

Approximately 50% of our pro rata share of debt is fixed through interest rate derivative agreements. And including our three series of preferred stock, we are over 60% fixed on a pro rata basis. This combination of liquidity, manageable leverage, and an extended maturity profile positions the company well going forward.

On October 27, 2026, our Board of Directors declared a quarterly common dividend of $0.08 per share, representing an annualized dividend yield of approximately 4.5% based on the November 2 closing stock price. The Board also declared the regular quarterly dividends on our Series E, Series F, and Series Z preferred securities.

The current common dividend continues to represent a modest AFFO payout ratio and reflects our ongoing objective of balancing shareholder returns with reinvestments in our portfolio and balance sheet discipline.

Turning to our outlook for the remainder of the year. In our earnings press release yesterday, we increased our full year guidance ranges for RevPAR growth, adjusted EBITDAre, adjusted FFO, and adjusted FFO per share.

For the full year, we now expect pro forma RevPAR growth of 3.5% to 4.5%, an increase of 150 basis points at the midpoint of the range; adjusted EBITDAre of $181 million to $186 million; adjusted FFO of $102.5 million to $107.5 million; and FFO per share of $0.85 to $0.89.

The increase in our guidance ranges reflects both our outstanding third quarter results and the continued improvement we are seeing in operating trends. The midpoint of our adjusted EBITDAre range is increasing by $5 million, and the midpoint of our adjusted FFO range is increasing by $0.05 per share, or over 6% from our prior guidance range.

This is the second consecutive quarter we've raised our full-year outlook and, combined with our guidance increase last quarter, the midpoint of our adjusted EBITDA and adjusted FFO per share ranges have increased 5.5% and 10%, respectively, since the beginning of the year.

Operating trends have continued to trend positively into the fourth quarter as preliminary October RevPAR growth finished at approximately 5.5% in our pro forma portfolio and fourth quarter paces up approximately 5% over last year.

For the full year, we now expect pro forma hotel EBITDA margins to expand 25 to 50 basis points, driven by the strong rate-driven revenue growth and continued cost discipline. We expect pro rata interest expense, excluding the amortization of deferred financing costs, to be approximately $60 million and preferred distributions, including the Series E, F, and Z securities to be $18.5 million.

There are no additional acquisitions, dispositions, share repurchases, or capital markets activities assumed in the company's full-year outlook beyond those already reflected as of November 3, 2026. Our guidance range for full-year 2026 pro-rata capital expenditures remains $55 million to $65 million.

Current activity includes comprehensive renovations at our Hyatt Place Phoenix Mesa, Hyatt House Orlando Universal, Courtyard Atlanta Decatur, and Residence Inn Cleveland. We plan to commence renovations at three other hotels later this quarter and previously completed renovations at three hotels earlier this year.

Looking forward, I want to share some initial thoughts on how we are thinking about the lodging environment in 2027. The operating trends we've experienced throughout 2026, highlighted by strengthening business transient demand, accelerating midweek impression in our urban markets, broad-based growth across our highest-rated demand segments, and continued group momentum, are trends we believe are durable and will carry into next year.

Urban markets in particular continue to outperform, and we see that momentum continuing into 2027 across many of our urban markets supported by strong convention calendars in Minneapolis, Cleveland, Phoenix, San Francisco, Chicago, Orlando, and Washington D.C. While we recognize that year-over-year comparisons will be modestly more challenging in certain markets, given the special event-driven tailwinds we experienced this year, the breadth and depth of demand across our portfolio gives us conviction that the fundamental recovery and acceleration of pricing and demand trends remains firmly intact.

New hotel supply is expected to remain well below historical averages in 2027, which should continue to support pricing power across the vast majority of our markets. On the cost side, we remain focused on disciplined expense management and expect to maintain the operating efficiencies our teams have built over the last several years, facilitated by our asset-efficient operating models.

Overall, we are optimistic about the operating environment next year and expect a continuation of many of the trends that have driven our strong results in 2026. Before I open the call up for questions, I want to take a moment and highlight two important leadership appointments we announced last week.

We are thrilled to welcome Mike Nieves to Summit as our new Executive Vice President and Chief Financial Officer. Mike brings a wealth of financial expertise and capital markets experience across the real estate, hospitality, and entertainment sectors, most recently serving as Senior Vice President and Treasurer at Penn Entertainment. Mike will have the opportunity to meet many of you at NAREIT later this month.

I also want to congratulate Adam Wudel on his well-deserved promotion to Executive Vice President and Chief Operating Officer. Many of you know Adam, and he has been instrumental to Summit's success over his 18-year tenure with the company, leading our asset management and revenue strategy teams as well as overseeing the company's investment activities.

These two appointments round out our executive leadership team, and I am thrilled to partner with them going forward.

In summary, we are encouraged by the accelerating operating trends and our outstanding third-quarter financial results. We believe the long-term outlook for the lodging industry is profoundly positive, as new hotel supply is expected to remain well below historical averages for several more years.

Consumer prioritization of travel and experiences provides a secular tailwind that we expect to persist, and corporate profits continue to grow at historically strong rates. The ongoing recovery in business travel is increasingly benefiting our urban-centric portfolio, evidenced by the midweek impression and pricing power we experienced throughout the third quarter.

We believe these dynamics support continued top-line growth in margin expansion through the balance of 2026 and beyond. With a strengthened balance sheet, a high-quality portfolio, and accelerating operating momentum, we believe Summit is exceptionally well-positioned to deliver strong shareholder returns going forward.

And with that, operator, we'd be happy to open the line for questions.

(Operator Instructions) Austin Wurschmidt, KeyBanc Capital Markets.

John, you've talked a good bit this year just about how ADR growth has been the primary driver of RevPAR, benefiting from that ability to remix the business and really drive flow through. Can you talk about how much of that remixing opportunity remains and any segments that you see occupancy upside to layer on to the ADR growth opportunity that you've capitalized on this year?

Yeah, I think as we look at it, a lot of where our growth came from, specifically in the second and third quarters, were midweek urban markets; and a lot of it is BT-driven demand. And as strong as those demand patterns have been in the last couple of quarters, we do still think there's plenty of room to run there.

If you look industrywide, and our portfolio is no different, we're still running pretty meaningful discounts to peak occupancies prior to the pandemic. And obviously, there's been very low supply growth. So I think there is still more opportunity, particularly midweek in some of those higher-rated segments, to continue to drive occupancy; continue to shift our occupancy mix to more higher-rated demand, particularly retail, negotiated in-group demand; and drive better rate growth and profitability flow through as a result.

I appreciate the answer there. And then on the capital recycling front, you touched on it a little bit, but it looks like you've got some assets held for sale. Just can you talk just high level about how those are proceeding and then just planned use of proceeds?

Yeah, sure. We do have three assets that are held for sale as you'll see in our 10-Q. We're not far enough along in that process to talk specifics about the assets and the metrics.

But I think consistent with what you've seen for us over really the past couple of years is we've tried to be very disciplined around recycling assets -- recycling capital out of older assets, assets that we just don't think have the same growth profile or risk-adjusted return profile that -- where we can otherwise redeploy the proceeds. And it's resulted in us being able to deleverage the balance sheet.

We've enhanced liquidity pretty meaningfully. These sales would add to that liquidity and we think gives us flexibility to evaluate future growth opportunities and I think ultimately will improve the overall quality of the portfolio.

Are you seeing opportunities out there to start to become more available and -- at a pricing level where bid ask makes sense between buyers and sellers?

We do. I think that this is becoming an increasingly interesting time to look at acquisitions. We've always felt like the first catalyst for more transaction activity has been better fundamentals. And we've obviously seen that now for the last six or seven months.

And I think naturally, that's going to facilitate more sellers coming to market. We're certainly active underwriting a number of assets. I think the combination of fairly compelling yield profiles and a lack of new supply does make this an interesting window for us to continue to evaluate opportunities to add to our portfolio and overall enhance the portfolio.

(Operator Instructions) Logan Epstein, Wolfe Research.

Maybe one on the fourth quarter implied RevPAR growth. Just curious if you can talk about both occupancy and rate growth in the third quarter, just what the expectation is for the decomposition of RevPAR growth in the fourth quarter and maybe how that trended in the 5.5% October number that you gave?

As you saw in the third quarter, our 7%-plus RevPAR growth, about 6% was rate growth. The remaining of that was occupancy growth.

We've obviously had much more rate-driven RevPAR growth this year than occupancy-driven. And our expectation is that -- for that to continue into the fourth quarter. The majority of our RevPAR growth, we do expect to be rate growth. Obviously, we view that very favorably given it has better flow-through than the bottom line.

And one more on -- appreciate the thoughts earlier in the prepared remarks about the RevPAR index share gains across the broader portfolio. I was just curious if you can give an update on the Courtyard Ocean ide in Fort Lauderdale, just how that's been performing post renovation last year, and if you can give an idea of what the RevPAR index there was pre-renovation versus today as we head into the high season in a few months.

Sure, yeah. Look, we've been incredibly pleased with the performance of Oceanside coming out of the renovation. We're ahead of where we've underwritten. We're up. We're still lapping some of the renovation comps in the public spaces. But from a rooms perspective, we're up meaningfully year over year. Our index is increasing.

I think maybe even more importantly than just the overall market share index has been our ability to drive very profitable out of room spend. We've implemented an amenity fee there that's flowing through at a very high level and creating meaningful incremental NOI growth.

And then all of the work we've done out on the deck overlooking the ocean and in the interior F&B spaces, we're driving significantly more F&B revenue and ultimately profitability there. So all in all, this was, as expected, a very high ROI renovation for us.

RJ Milligan, Raymond James.

John, some pretty encouraging comments about 2027 in terms of top-line growth demand. Maybe you could just give some color on how you expect expenses to trend, 4% up so far this year, and where you see that trending in '27?

Yeah, look, I think we feel like we're in a pretty good shape and we're in a pretty stable environment from an expense perspective. The 4% increase this year really just reflects really, really strong underlying revenue growth. And there is a portion of our expense base that is purely variable.

So as we see better rate growth and better revenue growth across the business, expenses are growing a little bit higher. But in the third quarter, we grew expenses about 3% on a per occupied room basis. That does continue to feel like the right run rate for us.

We obviously are benefiting meaningfully from the efficiencies of our operating model. We're running these hotels with about 20% fewer FTEs than we did pre-pandemic. A lot of those efficiencies we think are now structural and they should persist into next year. So we think in and around this 3% per occupied basis range is the right run rate from an expense perspective.

That's helpful. And I guess bigger picture -- and John, this might be a little early just given the election last night. But obviously, there's a little room left on the government-related demands. But you've also had some benefit from the AI and data center build out. And I'm just curious, post the election results, how you think about those two demand drivers as we go into next year.

Yeah, well, there's definitely a lot of room left from a government perspective. We're obviously lapping the government shutdown comp in October, in the first parts of November. So we're seeing very solid growth in government, and we really have seen decent growth in that segment in both the second and third quarter of this year. And we expect that to continue into the first quarter.

We're still well, well below previous peak levels, low 2024 levels in government travel. So we do think that there is more room to run from that perspective.

The other segment that really hasn't recovered at all is international inbound travel, which I think is probably more of a long-term recovery. But there's obviously much -- there's a lot of room to run from an international demand perspective.

Without question, we've been beneficiaries of the meaningful amounts of capital that's going into AI infrastructure spending, data center spending, et cetera. I think so much of that spending is already in progress.

As you said, it's a little early to prognosticate how that will change. But at this point, we see the near-term implications continuing to be very positive for the portfolio, given so much of that spending is already underway.

Chris Woronka, Deutsche Bank.

I wanted to ask, as we see Hyatt opening more of their new extended-stay brand, Studios, and also more of the Select, whether it's conversions of current Hyatt brands or other brands, are you guys seeing any impact, positive or negative, in your -- I think you have 16 Hyatt from the portfolio. Are you seeing any impact when a new Hyatt brand comes into place? Just asking from the standpoint of, is the distribution system deep enough at this point to hold up both properties in a market? And then I have a follow-up.

I think the simple answer is we're not, but mostly because what's open hasn't been in markets where we have exposure, certainly where we have existing Hyatt exposure. And I think that was frankly part of the thesis of both Studios and Select was finding these markets where there wasn't existing Hyatt exposure or product and becoming the anchor Hyatt in some of those smaller, more tertiary or secondary markets.

And so most of our Hyatts are in more primary urban markets. And so we really haven't seen any of that new product come in and have any type of negative effect on the high-end portfolio that we own today.

Okay, that's great to hear. And then the follow-up is, John, I don't know if you guys have ever really constructed like an internal estimate of NAV. And thinking probably more about it from the construction or replacement cost side of things, not necessarily from where you think the market might be -- and you've done that internally.

And maybe if you have, how has it changed in the last couple of years? I think we continue to see development costs rising across the board. So just curious if you have thought about where your portfolio might land on that?

Sure, we definitely take a view on that. It's not something that we typically discuss publicly. I think certainly, from a replacement cost perspective, the implied stock value is certainly significantly below the cost it would take to replace the portfolio today. And as you alluded to, construction costs are probably about 40%-plus from where they were prior to the pandemic.

So it's part of the reason you're seeing very little supply growth across the industry is it's far more expensive to build. And until the last six or seven months, you haven't seen a ton of growth in operating cash flows to keep pace with accelerating construction costs. So I think at a minimum, it's safe to say that where the stock trade today is well below what a reasonable replacement cost would look like for the portfolio.

Michael Bellisario, Baird.

Do you all want to dig into '27 a little bit more? First, any update to talk on the current RevPAR run rate at some of these one-time benefits in both years? And how are you thinking about that underlying trend into next year and whether or not it might be able to accelerate or decelerate in '27?

Yeah, sure. Look, we've spent a lot of time trying to assess what the run rate was, particularly over the summer months when we were getting some level of lift from World Cup. And obviously, we spent a lot of time trying to normalize for that in June and July.

I think when you look at going all the way back to the middle of March through the end of October, even at some of the special events and even if we try to adjust for some of the favorable holiday shift and calendar comparisons through the year, I still do believe that the industry and the business is running mid-single-digits. In some months, that's been a little bit higher from a growth rate perspective.

It's too early for us to really quantify how we think that's going to play into 2027. But I will say or maybe reiterate what we said in the prepared remarks is we do view a lot of the underlying trends, the strength in midweek, the strength in urban markets, the strength in our premium-rated demand segments. Those trends we view as durable; and we do expect many of them to persist into 2027.

So we feel very good about the outlook. Obviously, we talked a little bit about what we're seeing early here in the fourth quarter with October finishing in at around 5.5% and our pace to look quite strong into the fourth quarter. So there's no question this is -- we're well beyond this being special event driven. This is really strong underlying fundamental demand growth across a broad swath of our markets and many of our demand segments.

That's helpful. And then just one more on next year. What are your initial thoughts on CapEx spending and whether you'll more have or less disruption throughout the portfolio? And that's all for me.

Sure. Look, I think, again, we're in the process of going through our budget and our planning for next year right now, so it would be premature for us to give an exact number. But I think we feel like we're at about an appropriate run rate.

If you look at our '25 and '26 CapEx spending, they're pretty well on top of each other. We're spending a little bit less this year. But I think in and around this level is the right run rate for us to think about going into next year.

Thank you. This concludes the question-and-answer session. I'd like to turn it back to Jon Stanner for closing remarks.

Great. Well, thank you all for joining us today. I will look forward to seeing many of you in Atlanta in a couple of weeks for NAREIT. Hope you all have a wonderful day. Thank you.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.