Q2 2025 Summit Hotel Properties Inc Earnings Call
Day, and thank you for standing by, Welcome to The Summit Hotel Properties Inc. Q2 2025 conference call at this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session to ask a question during the session. You'll need to press star 1, 1 on your telephone.
Which is among the highest levels. We've achieved post-pandemic.
San Francisco and Chicago for which revpar increased 18% and 10% respectively. Continue to reflect resilient group and business, transient demand, that is partially, offsetting slower Leisure and government trends.
Orlando, south Florida, including Fort Lauderdale, and Miami and Tampa, posting robust year-over-year, revpar growth
In Orlando revpar, increased, 9% driven by healthy Leisure demand following the opening of Universal's new epic universe theme park. Alongside solid corporate demand particularly from construction related Crews. Supporting the development
Tampa posted at 5% increase in revpar.
Benefiting from solid group and special event driven demand throughout the quarter.
And in Miami, our brickl properties delivered red car growth of 16%.
As strong demand enabled, our teams to successfully Drive mixed shift into higher rated channels,
Finally, Pittsburgh delivered a strong quarter with red part growth of 11%.
Performance was supported by robust Citywide convention, activity in May, and June complemented, by a diverse lineup of concerts. And the US Open at Oakmont which collectively drove elevated, Leisure demand across the market.
Strengthen these markets was offset by a challenging quarter for several of our largest markets.
in particular Dallas, Atlanta Phoenix and New Orleans all experienced red Park contraction greater than the overall portfolio during the quarter driven by significant renovation, displacement and difficult year-over-year comparisons
In all of these markets, we believe the future operating Outlook is far more positive than second quarter results.
While overall Dallas, red part declined in the quarter, it is important to remember that performance is highly specific to each submarket.
The Grapevine and downtown submarkets were impacted by slower. Convention calendars, which pressured average daily rates, during the quarter.
Downtown in particular is impacted by the ongoing disruption related to the convention center expansion.
While this is creating a headwind to current performance, longer term, we believe the larger, modernized Convention Center will provide a significant lift to the downtown submarket.
For example, Dallas is set to host multiple World Cup events next year,
And the renovated Convention Center, will serve as the global media hub for the North American tournament driving substantial demand during the second and third quarters of 2026.
our Frisco hotels delivered, another strong quarter with revpar growth of nearly 4%
All of which came through average daily rate gains supported by sustained strength in corporate demand.
Looking ahead. We are particularly excited about the opening of The Universal kids Resort in 2026.
Market are well positioned to benefit from the resulting increase in Family Leisure Travel.
Frisco continues to be at the center of the fastest growing corporate relocation Market in the country.
And the frisco station submarket is in the early stages of a long-term growth cycle.
For example, during the second quarter, the health and wellness districts, within Frisco station, commence groundbreaking of an 85,000 square foot Medical Center that will be part of a broader. 35 acre District
Which will further add to the depth and diversity of demand generators in this market.
our results in Atlanta, New Orleans and Phoenix also weighed on our overall, rev Park growth for the quarter,
Though, Atlanta and New Orleans were impacted by displacement due to renovation disruption.
Phoenix in particular faced a difficult comparing to comparison to last year due to the men's final 4.
Looking forward future Convention Center. Pace is up double digits in Phoenix, and New Orleans.
And we expect our newly renovated. Hotels in all 3 markets to provide additional lift to results upon completion.
Despite modest rear headwinds food and beverage and other revenues increased 9% and 3%. Respectively, in the second quarter,
Food and beverage benefited from the Recon setting of The Oceanside Fort Lauderdale including its Oceanfront Bar and Restaurant.
As well as a pilot program to charge for breakfast at certain of our hotels.
Other revenues were driven by the implementation of Resort and parking fees.
We expect continued growth in both of these departments in particular food and beverage through the balance of the year.
As John previously, mentioned successful expense management continued in the second quarter, with proforma operating expenses, increasing 1.5% year-over-year or 2% on a per occupied room basis.
as the company realized incremental progress across our labor structure,
our asset management team and hotel. Managers has successfully focused on managing wages, reducing Hotel, Reliance on contract, labor and improving employee retention.
Hourly wages, excluding contract, labor increased, just 1.2% compared to second quarter of 2024.
The company continues to benefit from reductions in contract labor, which declined by 13% on both a nominal and preoccupied room basis.
Versus second quarter 2024.
Contract labor. Now represents 10.5% of our total labor costs.
Which is over 700 basis points, below Peak Co error levels for 250 basis points above 2019 levels, suggesting the opportunity for further Improvement.
We also continue to see improvements in employee retention, which results in improved productivity in the hotels and reduces training costs.
turnover rates in the second quarter have declined, nearly 40% from Peak, Co era levels,
Below GOP. The company realized a Tailwind in second quarter from insurance expense.
However, increased property taxes more than offset, those Insurance savings.
Acrely expect to continue for the balance of the year.
Mostly driven by favorable property tax appeals and refunds received in 2024.
We continue to be encouraged by expense trends in our portfolio and how the current baseline cost structure positions the company for future bottom line growth.
Second quarter, adjusted ibida was 50.9 Million.
Second quarter adjusted ffo was 32.7 million or 27 cents per share as the company continues to benefit from lower interest expense and a lower share count resulting from our accredited share repurchase activity during the quarter.
From a capital expenditure standpoint. Through the first 2 quarters of the year, we invested 35 million in our portfolio on a Consolidated basis and 30 million dollars on a pro rata basis.
Recently completed an ongoing Renovations include the Oceanside Fort Lauderdale Beach, Courtyard, great time residents in Atlanta, Midtown
Hampton Inn and Suite. Silverthorne, meatery residents in
And the Scottsdale Oldtown Hyatt Place.
In our press release yesterday, we announced the completion of the 23 unit expansion at onera, Fredericksburg our Luxury, Landscape hotel, located in Texas Hill Country.
And hotel even had margins of nearly 50%.
Demonstrating the attractive nature of its low, low, labor-efficient operating model.
The expansion offers multiple new units that merge Innovative architecture and nature.
In addition, the property now offers a multi-unit Lodge to accommodate group events and outings, as well as an additional pool commissary and other guests enhancements.
We have underwritten unlevered yields in the low to mid teens related to the onera Fredericksburg expansion.
And we believe there are significant upside in the operating performance of this hotel.
Given its unique location in the rapidly growing Fredericksburg Market.
Turning to the balance sheet, we continue to be proactive and extending maturities reducing borrowing costs and enhancing corporate liquidity.
In May, we refinanced our AC Element hotel in Miami's Brickell neighborhood with a new $58 million mortgage.
the hotel's, strong performance allowed the partnership to realize over 12 million dollars of incremental proceeds,
The new loan has a fully extended maturity of May 2030 and an interest rate of. So for plus 260 basis points, which represents a 40 basis, point reduction in spread versus the prior loan.
In connection with a new a element mortgage. We entered into a 3-year swap that fixes so far at 3.57%.
In July, subsequent to quarter-end, we refinanced our $396 million GIC joint venture Term Loan that funded the acquisition of the new Crest image portfolio in January 2022.
The new 400 million Term Loan has a fully extended maturity of July 2030 and an interest rate of. So for plus 235 basis points,
Which represents a 50 basis point reduction in spread versus the prior loan.
We estimate annual interest Savings of approximately $2 million related to these 2 refinancing
When combined with the 275 million delayed draw Term Loan, that closed in March 2025 and which will be used to retire, the 288 million convertible notes in February 2026, the company has no debt maturities until 2028.
Due to our interest rate management efforts our interest rate, exposure continues to be effectively hedged with a swap portfolio that has an average fixed sofa rate of approximately 3.1%.
And 75% of our Prada, share of debt is fixed after consideration of interest rate swaps.
When accounting for the company's Series E, F and Z preferred Equity within our capital structure. We were 80% fixed at quarter end.
With liquidity of over 310 million.
An average interest rate of 4.6%.
And an average length of a to maturity of over 4 years. When adjusting for the 325 financing, we believe the company is, well, positioned to navigate in a near-term volatility and operating fundamentals as well as to take advantage of potential value creation opportunities.
On August 1st, 2025, our board of directors, declared a quarterly common dividends of 8 cents per share.
Which represents a dividend yield of over 6% based on the annualized dividend of 32 cents per share.
The current dividend rate continues to represent a modest payout ratio of approximately 35% based on the company's trailing 12-month afo.
The company continues to prioritize striking an appropriate balance between returning capital to shareholders, investing in our portfolio, reducing corporate leverage, and maintaining liquidity for future growth opportunities.
As John previously, highlighted while we remain confident in the long-term outlook for both the industry and our portfolio.
Near-term. Fundamentals are being negatively impacted by broader, macroeconomic uncertainty.
Based on second quarter results. And our outlook for the third quarter, our full year performance is currently tracking modestly below the lower end of guidance, ranges provided in February 2025 for adjusted. Evida adjusted ffo and adjusted ffo for share.
From a non-operational perspective, we expect Pro rata interest expense excluding the amortization of deferred financing costs to be 50 to 55 million.
And series Z preferred distributions to be 2.6 million.
From a capital expenditure perspective.
We are reducing our full year 2025 spend to 60 to 65 million on a pro rata basis.
which represents a 2.5 million reduction at the midpoint,
It is worth noting that over the past three years, we have invested over $250 million in capital expenditures on a consolidated basis, resulting in a portfolio that is in excellent physical condition.
This capital investment affords. Us the flexibility to preserve optionality on certain Renovations without risking meaningful downward pressure on overall operating results.
The previously referenced non-operational estimates, do not include any additional acquisition disposition or Capital markets refinancing activity.
Beyond what we have discussed today.
Finally, the increased size of the GIC joint venture results in net fee income payable to Summit covering approximately 15% of annual pro rata cash corporate G&A expense, excluding any promote distributions that it may earn during the year.
And with that, we will open the call to your questions.
Thank you as a reminder, if you would like to ask a question, please press star 1 1 on your telephone.
We also ask that you wait for your name and Company to be announced before proceeding with your question 1 moment while we compile the Q&A roster.
The first question today, will be coming from the line of Austin.
Horsemen's of KeyBank, your line is open.
I'll send. Your line is open.
1 moment for the next question.
And the next question will be coming from the line of Daniel Hogan of beard. Your line is open.
Hi, good morning.
Good morning, Daniel.
Hey, um, just a quick question on the BuyBacks and the quarter.
The $15 million—was that, uh, you stopped there just managing cash flows and leverage, or was that just more proactively in the beginning of the quarter before the stock price improved?
Yeah, you know, some of it was just driven by timing of where we were in the quarter and as we started to get, uh, closer into earnings, um, obviously, we're pleased with the execution on the, the share repurchase during the quarter. Um, we're happy to, uh, have it as a tool as a capital, allocation tool going forward. Um, you know, we tend to kind of continue to be opportunistic around its usage and obviously in the near term we're focused on getting a couple of the asset sales that I mentioned, um, closed uh to to fund the repurchase activity.
Got it and then uh just quickly and I noticed that the manager transitioned in the um in the 10 there, any improved economics on that or any operating efficiencies going forward that you get with those 2 hotels.
Um, similar economics. Uh, we we just did it mostly to kind of focus operations, but the E economics will remain the same.
Okay, got it. That's it for me. Thanks for taking the questions. Thank you.
Thank you. 1 moment for the next question.
And the next question will be coming from the line of Chris W***** of Deutsche Bank. Your line is open.
Hey guys. Good morning. Thanks for taking questions, um, and appreciate all the callers so far. I was hoping maybe we could dive in just a little bit deeper on, you know, bucketing some of the changes in demand that you saw either through the quarter or maybe thus far in Q3 in terms of, you know, corporate transient, um, Leisure, weekday weekend. And if you can talk a little bit about how
Visibility on, um, on each of those buckets looks relative to, you know, maybe last year. That would be uh, terrific. Thanks
Narrow, you know, our reservations May kind of outside 30 days or down. Um, our reservations made inside 30 days are up and in the week for the week are up, pretty significantly year-over-year. We're we're booking, you know, close to 65% of our transient bookings within 2 weeks of stay, so that visibility just generally is less than it was before. Um again I do think that the team's done a really good job, finding the business that's available and we're doing with an eye to try to maximize um our our GOP. And so when you combine that with, you know, the great work, we've done managing expenses, I think that we've, you know, kind of optimized what we could do on the bottom line, given some of the softness and the demand Trends we're seeing in in certain higher rated segments,
Okay, makes sense. Thanks John. And uh, you know, as a follow-up. I um, this is a little bit more of an involved question. But, um, yeah, I think we've all seen, uh, you know, some of these soft Brands. Um, and, and newer selects are brands that, that the brand companies keep creating. And, you know, I think our view is you and I have talked about this before. There's really only 1 brand to these companies and it's their loyalty program and so even though that's not new Supply, it's just different Supply. I feel like it may be competitive with you know, with a lot of your select serve assets and so the the question is, do you think the industry and I know it's fragged very fragmented.
Well, yeah, look, I I for the first thing I'd say is a relation to the soft Brands. I think that they're, you know, an attractive option for owners. Just broadly. I mean, we, this is essentially what we've created with our renovation and for Lauderdale, where we've taken a courtyard, and we've, you know, really taken it up market and we believe that, you know, the location of that asset and the opportunity that that, that creates, um, there's some real rate opportunity, and I think a really high high Roi
Um, I think we all know that the brands are incentivized to, to grow distribution, and, and grow net units. Um, I I think that when we look at the supply, picture more broadly, it's something that we look at very favorable, frankly. Um, now the, the core brand, the main brands are obviously capturing, uh, the vast majority of that Supply growth, but you know, year to date Supply growth in the industry is about a half a percent. Um,
As I mentioned, in our prepared remarks. Um, you know, we think it's going to grow less than 1% or less than half of its annual growth rate for a couple of years um in in 24 and 25. And and we really think those Trends are going to continue as we get out to 34 years. And so we we feel really good um about the supply picture longer term. We think that's part of a a very key component to what makes us construct.
Ive and positive on the longer term outlook for the business.
Okay, appreciate that. John just, uh, if I could speak one more quick one in on the um,
On the onera expansion in in, uh, in Texas. Is that something? You know, I think we've we've talked about this before, where you, you you, you know, you guys might be able to add a little bit of
Almost, you know, secondary platform to the to the portfolio. Um, so the expansion is interesting, obviously the returns are are there you wouldn't be doing it. Are there other just stick with this expansion or are there other things on your radar?
Kind of in that glamping segment. Thanks.
Yeah, we look, we we do love the business, we've talked about that, you know, a lot, um, over the course of the really the past several years. From when we started with, with the first investment out in Fredericksburg and and I think, you know, just to kind of emphasize. You know, what, Trey said we do, think what we have out there is incredibly special um you know, we're running really High. Rev pars we're doing it with a very low labor model. Um, the margins are really attractive and and most importantly, you know, as you alluded to the yields and return profile is is incredibly attractive. And so we look at it, you know, very much like another hotel as kind of a very natural extension. Tomorrow, our more traditional Hotel base. Um, we do have 1 a methane loan outstanding that's been disclosed um we'll have more to discuss on that, I think over the next coming quarters. Uh but we do like the the business and I do think we intend to continue to be opportunistic around finding ways to grow.
That segment.
Okay, very good. I appreciate all the color. Uh, thanks, guys.
Thank you. One moment for the next question.
And the next question will be coming from the line of RJ Milligan of Raymond, James. Your line is open.
Order, unless we look into next year and what, what gives you that confidence? That we're going to see that recovery in fourth quarter, maybe bucket, it between group and what you're seeing on the transient side and then and then also with the 4q comps look like
Yeah, sure. Um, well look, I the first thing I just kind of re-emphasize is, you know, we we have seen um, an encouraging stabilization and demand and our expectations. Um where we sit today is for the third quarter to perform a little bit better than we did in in the second quarter from a REV Park perspective. Now, some of that is our comps are easier in the third quarter than they were in the second quarter. And we spent a lot of time talking about you know, special events comps
Between new, we're going to create a difficult headwind for us in the second quarter. Um, I think by and large what you're seeing in the third quarter, is a softer group calendar for the industry. Um, and that's putting some downward pressure, uh, on rates. Um, and I think that's been consistent with, you know, both the brand companies and all of our peers that have reported so far in the third quarter, I, I do think those calendars are more constructive as we start to look out into the fourth quarter of the year. Um, and I think certainly, when you look at our portfolio, we're we're definitely optimistic. Um, when we look into next year, um 1 we've created some easier cops in the middle part of of this year. Um we also think things like the World Cup are going to be you know, really nice um boost to to our demand profile as we get into next year and it will continue to emphasize. You know, there just isn't any Supply in our in our key markets and so as we start to see,
See some recovery and demand, we think that's going to amplify the benefits of of a more robust pricing environment.
Gotcha. And then on the expense side, obviously, a lot of work being done this year. Um, so a little bit easier constant on top line for as we go into next year. Um, but just giving the expense management this year, uh, probably, you know, more difficult comps next year. And I'm just curious, you know, where else what other levers, do you see that you can pull um, to to sort of maintain that that low expense growth?
Well I think the team's done, you know, just a tremendous job managing expenses um and and this didn't start in the second quarter, I mean, this really started, you know. It it going back to last year where uh, the team's really done. A good job managing expenses, tightly and a lower revpar growth environment. Um, you know, if you look at our results year to date, you know, our expenses are up 1 and a half percent. Um, I think despite the fact that we've had some some bigger challenges on the top line, and a lot of that just has to do with with uh, demand segmentation exposures our performance, at the hotel, EB, at that level year to date. I think stands up very favorably. Uh, when you compare it to a lot of peers that have reported. So I think that we've, we'll, we'll continue to manage expenses. Very prudently. I think it also just highlights the efficiency of our operating model and our ability to maintain margins um in lower ref par or in this case you know, modestly declining rev part environments our our our ebit down margins are down.
You know, about 160 basis points here today? Um, I wish it were positive but I would say given the environment, um, we're really quite proud of that statistic, um, and I'm, I'm highly confident that our team and our, and our third party, managers will continue to, to manage expenses. Prudently,
Great. Thanks guys.
Thanks sir.
Thank you. One moment for the next question.
And our next question is coming from the line at Logan, eping of wolf research. Your line is open
Yes, thank you for taking the question, staying on the expense copy. You guys mentioned an opening prepared remarks that uh retention has been stronger, has the labor pool changed at all, in recent months and on the contract, labor topic.
when would you expect if
I don't know over the next year, few years. When would you close that 200 basis point gap, and how much in in annual savings would that potentially result in
Let's try how you doing. Um, look, I'd say from a contract labor perspective, that, you know, or our employee base, more generally, I think that we've obviously seen a base that's much thicker Now versus, you know, probably 2023 and 2022 and we would expect that with what you're seeing kind of in the employment Dynamic that's been released, you know, released in the kind of broader country perspective that, um, you know, our employee base should be sticky or going forward that kind of 40% decline that we referenced on the call has really
Sticky, it's not as, um, you know, there's not as much turnover associated with it, as you would think. Um, my sense is is that, you know, is something that we'll be able to prove on modestly. We're probably 250 basis points away from where we were in in 2019, um, but we'll probably continue to chip away at that and there should be some incremental Improvement. I think over the next 12 months,
Yeah, thanks. And switching to the transaction mark, you guys mentioned you have 2 assets under contract for sale. It's just how are you thinking about?
Acquisitions versus dispositions going forward. And what types of assets or markets, are you interested in both acquiring or disposing Assets in
Yeah, sure. Um, I, I would say that we, you know, in the near term, we're obviously focused on the 2 that we have under contract for sale and, and getting those closed. Um, I think you should expect us to be in that Cellar of assets, uh, for the year, including those assets and part of that is, is really meant, you know, to 1 fun, to share repurchase program as we spoke about, and to continue to deleverage the balance sheet. Um, it's still a fairly, um, light transaction Market. Uh, I would, I would say, um, we've been focused on selling, you know, non-core assets that are in need of capital expenditures, um, that we just don't feel we for. We feel like we have kind of a higher use or better return of of capital on on that Capital spend. So, um, you know, I think you should expect the the, the 2 sales that we hope to get completed here later in the third quarter.
Early in the fourth quarter to to look a lot like the sales we've done over the previous 2 years. Um, both from a non-core perspective and kind of what that yield profile is. Um, and as always, we'll we'll try to remain opportunistic, both on the acquisition and disposition side going forward.
Uh, thanks guys. That's all for me.
Thank you. 1 moment for the next question.
And our next question is coming from the line of Austin Awards of KeyBank. Your line is open.
Hey, good morning. It's Josh from Austin. Can you hear me?
We got you. Thanks. All right.
All right, um so I mean government exposure, created some headwinds for you guys in 2q as we look into the back half. Um, have you seen it? Get worse stabilized better and should we expect these headwinds to continue, uh, to put pressure on, repar, growth through the balance of the year.
No, I I think what we've seen is stability and government, you know, really from, you know, kind of the what was the was a really rapid contraction beginning in April uh, or March and April, I should say uh we have seen it stabilized in the second quarter, we expected to remain relatively stable in the third quarter um, admittedly at lower levels than it was before. And and while we are optimistic that we'll see some growth in government and you know, maybe into the fourth quarter in 2026. At this point in time, we do feel like that demand segment is stable and it's kind of Incorporated in in what we've given from an Outlook perspective.
Okay helpful and is the lower capex guidance related to timing. Are you actively deferring some projects to 2026? As we move through this softer? Repar growth environment.
Yes, some of its timing. Some of it's just related do we have a couple asset sales um that both of which needed significant Renovations and so our our expectation is that we'll sell those assets ra rather than renovate them.
And then John. It's it's Austin here as well. Just had 1 I guess on. You know what, what it is, what do you need to see? You think for kind of the remixing opportunity to, to become, you know, a little bit of a lift to ADR. Now that you've seen kind of condition stabilized. I think you referenced some sequential Improvement through the quarter. And, and hopefully, that's given sort of The Operators and asset managers. A little bit of time to adjust to the the changing demand conditions. But you know, what is it, you think, or what segments, do you think that's going to kind of provide maybe a lift um, you know, to ADR over the next several quarters. Thanks.
Yeah sure. You know look I I think broadly speaking the industry just needs to see you know overall better demand Trends. You know we've been in kind of this flattish uh demand environment um you know demand actually contracted across the industry and and the second quarter. And so you know I think as you start to see demand patterns improve and I think that can be all segments or any of the segments. Um you're going to see that Translate
That, um, we've seen some some pricing headwinds in the second and third quarters. You know what? It's done on the bottom line, our ability to mitigate down on the bottom line. You know, our expectations kind of for our full year. Even down ffo metrics are down, you know, 1 to 2%. And so again I think the team has done a good job managing this environment. Uh we do remain optimistic that we're going to see better kind of demand patterns across the industry. And I think our portfolio in particular certainly well positioned to take advantage of that.
Right. Thanks.
Thank you. This does conclude today's Q&A session, I would like to turn the call back over to John stanner CEO for closing remarks. Please go ahead.
Yeah. Well thank you all for uh, joining us today for our second quarter earnings call. We look forward to speaking to many with you, many of you in the coming weeks, have a nice day.
Thank you all for attending today's conference call. You may now disconnect.