Summit Hotel Properties, Inc. Q3 FY2025 earnings call

• Overall execution in Q3 was pleasing despite challenges, with growth in market share, prudent expense management, and strategic capital investment.
• Third quarter operating results were largely in line with prior quarters, but performance was mixed across segments with year-over-year declines in government and international inbound travel.
• Non-rooms revenue grew 5.6% in Q3 and 4.3% year-to-date, driven by capital investments like the Oceanside Fort Lauderdale Beach Hotel renovation.
• Operating expenses increased 1.8% year-over-year in Q3, with labor costs managed well.
• Closed on the sale of 2 noncore hotels post-Q3, generating $39 million in gross proceeds, continuing the capital recycling strategy. Since May 2023, 12 noncore hotels sold for over $185 million, and 4 hotels acquired for ~$140 million.

Same-store RevPAR declined 3.7% in the third quarter, driven by a 3.4% decline in average daily rate due to a shift in room night mix to lower-rated segments. Adjusted EBITDA was $39.3 million, and adjusted FFO was $21.3 million or $0.17 per share. Summit has significant exposure to top U.S. markets like Chicago, San Francisco, Orlando, and Nashville. Chicago had 8% ADR growth despite tough comparisons, Orlando benefited from leisure demand and Universal's Epic Universe Park, San Francisco saw improving convention and business travel trends, and Nashville had over 6% RevPAR growth. In terms of revenue contribution, non-rooms revenue increased 5.6% in Q3 and 4.3% year-to-date.

• Fourth quarter RevPAR is expected to decline 2%-2.5% year-over-year, with sequential improvement from Q2 and Q3. Full year RevPAR decline is projected to be 2.25%-2.5%.
• Operating expense growth is expected to be 1.5%-2% for the full year.
• Targeted full year 2025 capital expenditure is $60 million to $65 million on a pro rata basis.
• Fourth quarter will see approximately $400,000 of foregone pro rata hotel EBITDA from the sale of Courtyard Amarillo and Courtyard Kansas City.

• Uncertainty created by the U.S. government shutdown, which poses risk for lodging demand broadly, including disruption to air travel.
• Ongoing macroeconomic volatility negatively affecting near-term results.

Q: What are near-term capital allocation priorities and asset sales status?

A: Jon Stanner said they've been recycling capital by selling 12 assets, focusing on sub-5% yield assets, with more to come, and share repurchases used when equity is dislocated.

Q: Impact of incremental government shutdown in October on government demand?

A: Jon Stanner said government demand was down ~30% year-over-year in October, offset by better midweek business transient demand.