Summit Hotel Properties, Inc. (INN) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. My name is Duncan and I will be your conference operator for today. I would like to welcome you to Summit Hotel Properties' second quarter earnings call. All lines have been placed on me to prevent any background noise. Now, I'd like to turn the conference over to Kevin Melora, Senior Vice President, Corporate Finance. Please go ahead.

Thank you, Operator, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer John Stanner and Adam Waddell, Executive Vice President, Corporate Development. 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. The forward-looking statements that we make today are effective only as of today, August 6, 2026, and we undertake no duty to update them later. You can find copies of our SEC filings in an earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, www.shp. Please welcome Summit Hotel Properties President and Chief Executive Officer, John Steader.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our second quarter 2026 earnings. On today's call, we will discuss our terrific second quarter results and our improved outlook for the remainder of the year that together are driving an increase to our full year guidance range. We will also highlight the continued success we have had selling assets, enhancing the overall quality of our portfolio, and strengthening our balance sheet. Operating fundamentals were strong in the second quarter, exceeding our expectations going into the quarter as Proforma RevPAR increased 5% year-over-year, driven by a robust 7.1% increase in average daily rate. We were particularly pleased with the breadth of demand we saw across both segments and markets. Hotel Evita and our Proforma portfolio increased 7.8% in the quarter, resulting in nearly 90 basis points of margin expansion. As rate-driven RevPAR growth and ongoing strong cost controls drove healthy profitability growth. Adjusted EBITDA RE increased 7.7% to $54.8 million, and adjusted FFO increased 6.7% to $34.9 million, or $0.29 per share. The positive inflection and demand trends we first began to see in March of this year accelerated into the second quarter and continued through July. More specifically, strengthening business transient and group demand is driving robust midweek performance, particularly in urban markets, as average daily rate in our urban portfolio increased 9% in the second quarter, driving an 8% increase in rev par growth and 12% increase. We believe the accelerating urban recovery is reflective of a broader, durable trend as corporate travel budgets are growing and group meetings remain a priority. In particular, we have seen relative recent strength in smaller group performance, both corporate and Smurf business, which will directly benefit our types of hotels. The vast majority of our urban markets saw meaningful REFAR and EBITDA growth in the quarter, and markets outside of World Cup host markets were some of our top performers, including Cleveland, Washington, D.C., Indianapolis, Chicago, Charlotte, and New Orleans. Urban portfolio comprises approximately half of our total rooms in Hotel EBITDA, and the positive momentum we are experiencing in this location type bodes well for our future growth. Our highest-rated demand segments continue to be our best-performing segments, as retail REVPAR increased 10%, corporate negotiated REVPAR increased 7.5%, and group REVPAR increased nearly 15% in the quarter. These results were even better when we isolate performance to midweek and in urban locations. Retail negotiated and group ref are all increased greater than 15% in urban locations during the quarter. We also continue to benefit from the gradual recovery in government-related demand, as transient government revenue increased 8.3% year-over-year, after being a meaningful headwind for much of the last year. While the government segment remains well below historical levels, accelerating demand patterns are expected to continue. Collectively, these trends support the narrative that the recent reacceleration in industry fundamentals is increasingly being driven by multiple demand segments across a wide variety of markets. While our portfolio clearly benefited from terrific pricing of power around World Cup games, importantly, demand strength was broad-based across our portfolio. as nine of our markets achieve 10% RevPAR growth or greater in the second quarter. RevPAR growth in our non-FIFA markets increased 4.2% in the quarter, which highlights the strength in demand we are seeing outside of special. RevPAR growth was positive each month of the quarter, with April and May up 4.5% and 1% respectively, and June accelerated to nearly 10% growth as World Cup-related demand and strong citywide calendars supported outsized ADR gains. The World Cup was a meaningful contributor to our June results, particularly our ability to drive premium pricing around game days. Across our six FIFA host markets, June RevPar increased nearly 19% over last year, which exceeded our expectations coming into the event. Atlanta, Dallas, and San Francisco were our top-performing World Cup markets in June, all achieving RevPar growth of over 20% for the month, with Hotel EBITDA increasing 43% year-over-year on a combined basis. We estimate that World Cup demand added approximately 100 basis points to our RevPar growth in the second quarter. More importantly, as I mentioned, World Cup pricing power only amplified strong underlying trends across our portfolio, as RevPar growth in our non-FIFA markets increased nearly 5% in June. We are also encouraged by a notable lengthening of the booking window in the second quarter. Bookings made 30-plus days out increased 6% year-over-year and 18% compared to the first quarter, while bookings made 15-plus days out increased over 300 basis points. Conversely, in the week-for-the-week bookings declined 3% and 6% year-over-year and quarter-over-quarter. This was not just a World Cup phenomenon, as these statistics are similar in both our FIFA and non-FIFA markets. The lengthening of the booking window is an encouraging trend we view as a leading indicator of demand durability. Total revenue in our pro forma portfolio increased 5.2% in the second quarter, supported by continued strength in out-of-room spending. Non-rooms revenue increased 4.9% during the quarter, driven primarily by resort and destination fees, parking, and food and beverage revenue growth. As we've discussed on previous calls, our transformational renovation of the Oceanside Fort Lauderdale Resort continues to drive tremendous growth as total revenue for the hotel increased 31% compared to the second quarter of last year, resulting in a nearly 80% increase in Hotel EBITDA. Once again, our operating teams did a tremendous job controlling expenses and driving strong profitability growth from rate-driven RevPar growth during the quarter. Total operating expenses increased 4% year-over-year on difficult comparisons to last year. Proforma Hotel EBITDA increased 8% in the second quarter, representing a healthy 54% flow-through on incremental revenue. Total labor costs increased 4.3% year-over-year, reflecting modest wage growth, higher incentive compensation associated with improved hotel-level performance, and increases in hotel employee benefit costs were declined another 4% versus the prior year, continuing the favorable trend we have discussed over the last several quarters. The labor environment remains stable as turnover continues to be well below what we experienced in prior years. For the full year, we forecast hotel operating expenses to increase approximately 3% and expect to be able to continue to drive strong flow-through in the second half of the year. We also made meaningful progress strengthening the balance sheet during the quarter. In June, we refinanced our primary corporate credit facility with a new $650 million senior unsecured facility, extending the maturity date of the facility to June of 2031 and lowering our borrowing costs by 20 basis points at our current leverage point. In addition, in May, we amended the mortgage loan encumbering our AC and Element Miami Brickle Hotels to reduce the interest rate spread by 30 basis points. For our SWAT portfolio, approximately 50% of our pro-rata share of debt is fixed. And including our three series of preferred stock, we are over 60% fixed. The overall health of our balance sheet is strong, as we currently have significant corporate liquidity with nothing outstanding on our revolving credit facility and no debt maturities until 2028, giving us flexibility to pursue a variety of value creation opportunities. We also continue to successfully sell assets and recycle capital. In late July, we closed on the previously announced sale of our wholly owned Courtyard and Residence Inn Dallas-Arlington South hotels for a combined sale price of $19 million. We strategically retained ownership of those hotels through the fee-for-demand window before closing the transaction, which allowed us to capture robust, event-driven demand in the Arlington sub-market prior to this. The two hotels achieved combined RevPAR growth of over 45% and EBITDA growth of nearly 85% in the month of June. The sale price represented a 5.4% capitalization rate based on trailing 12-month net operating income as of May 31st prior to FIFA-related demand. And we eliminated $7.6 million of near-term capital needs. This transaction reflects our ongoing commitment to recycling capital out of lower growth assets and assets with outsized capital needs and redeploying proceeds to strengthen the balance sheet, increase liquidity, and enhance the quality of our work. Since 2023, the company has sold 15 hotels for nearly $220 million at a blended capitalization rate of less than 5% and eliminated nearly $70 million. A combined rev par for the sold hotels was $86, which is an approximate 30% discount to our current Proforma portfolio. The hotel transaction environment is improving, as we have seen a notable recent pitch. During the second quarter, we repurchased approximately 49,000 common shares at a weighted average price of $4.27 per share. Including our repurchase activity in the first quarter, through June 30th, we repurchased 1.5 million shares for $6.2 million, or a weighted average price of $4.17 per share. And since the inception of the program, we've repurchased 5.1 million shares, which represents over 4% of total shares and units outstanding, for $21.6 million at an average price of $4.26. On July 28, 2026, our Board of Directors declared a quarterly common dividend of $0.08 per share, representing an annualized dividend yield of approximately 4.6% based on the August 4 closing stock price. The Board also declared the regularly quarterly dividends on our Series E, Series F, and Series Z preferred securities. The current common dividend continues to represent a modest payout ratio relative to trailing 12-month AFFO, and reflects our ongoing objective of balancing shareholder returns with reinvestment and balance sheet. 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 EBITDA RE, adjusted FFO, and FFO per share. For the full year, we now expect pro-forma REVPAR growth of 1.75% to 3.25%, an increase of 75 basis points at the midpoint. Adjusted EBITDA RE of $175 million to $182 million Adjusted FFO of $95.5 million to $103 million And adjusted FFO per share of $0.79 to $0.85 As a reminder, our previous RevPAR growth EBITDA and FFO ranges included the ownership of the recently sold Courtyard and Residence Inn Arlington Hotels which were expected to contribute approximately $500,000 in the last five months. This contribution has been removed, and the revised midpoints of our EBITDA and FFO per share ranges are increasing $3.5 million and $0.02 per share, respectively, after adjusting for these asset sales. Approximately $2 million of our EBITDA guidance increase is the result of stronger-than-expected second-quarter results, while the remaining $1.5 million reflects our higher expectations for the second half of the year. Operating trends have continued to improve into the third quarter, as preliminary July REV part growth is expected to finish at approximately 6%. We expect full-year 2026 hotel EBITDA margins to range from down 25 basis points to up 25 basis points, or essentially flat at the midpoint, which includes approximately 25 basis points of headwinds. We believe the revised ranges appropriately reflect both the better-than-expected results we achieve in the second quarter and the more favorable outlook we have for the balance of the year, while remaining mindful that the operating environment is dynamic and our long-term visibility remains limited. We expect pro-rata interest expense, excluding the amortization of deferred financing costs, to be $58 million to $62 million, and preferred distributions, including the Series E, Series F, and Series Z securities, to be $18.5 million. There are no additional acquisitions, disposition capital markets activities assumed in the company's full-year outlook beyond those already reflected as of August 5th. To a expenditure perspective, our guidance assumes pro-rata capital expenditures range between $55 million to $65 million for the year. Current renovation activity includes projects at our courtyard at Scottsdale, Homewood Suites Tucson, Hyatt Place Mesa. I note that the pro-rata fee income we earn under the GIC joint ventures covers approximately 15% of our annual cash corporate G&A expense prior to factoring in any potential promote distributions that we may earn over the quarter. In summary, we're incredibly encouraged by our recent operating trends and our second quarter financial results. More importantly, we believe the long-term outlook for the lodging industry is profoundly favorable as new hotel supply growth is expected to remain well below historical averages for several more years, and consumer prioritization of travel and experiences provide the secular tailwind that we expect. The ongoing recovery in business travel is increasingly benefiting our urban-centric portfolio, supported by the breadth and depth of demand we are experiencing across our highest-rated segments. We believe these dynamics support continued top-line growth and margin expansion through the balance of 2026 and beyond. With a strengthened balance sheet, 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.

Thank you. We are now opening the question and answer session. If you'd like to ask a question, please press star followed by the number 1 on your telephone If you would like to withdraw your question, please press star 1 again. Thank you. We'll be taking a moment to let the questions come in. Your first question comes from the line of Austin Werschmidt from KeyBank Capital Market. Your line is now open. Please go ahead.

Thanks. Good morning, everybody. So, John, you hit on a little bit of the kind of durable demand trends that you're seeing across the business. and, you know, some of the segments that outperformed during the quarter. Retail, you mentioned, you know, group was another. I guess what's the opportunity going forward to continue to shift mix and really drive rate and flow through to the bottom line towards the back half of the year?

Yeah, thanks, Mornig Austin. I think you kind of highlighted, you know, a lot of the trends that we saw really going back to March of this year, which was a remixing of the business. And this is a reversal of kind of what we dealt with through a lot of 2025 when we were more heavily reliant on some of the discount channels, the OTA channels, and lower-rated transient business. I do think the opportunity is to continue to see more of what we saw in the second quarter. As we alluded to in the prepared remarks, this was, you know, much more than just kind of a World Cup-driven event in the quarter. Our strongest segments were our highest-rated segments. I do think we continue to expect very strong demand and pricing power on the corporate side, both from a group and a transient perspective. And as I said, particularly these smaller groups, we've seen really strong pickup from in the quarter, and our expectation is for that to continue. Obviously, the second quarter was all kind of rate-driven REVPAR growth. We do expect our REVPAR growth in the back half of the year to continue to be mostly rate-driven, although maybe a little more balanced than what we saw in the second quarter.

Can you frame up a little bit of the magnitude of that opportunity to get back to more historical norms or maybe where the trend that you were on prior to kind of last year's disruption, And, you know, you mentioned kind of having to rely more heavily on discount channels and lower rate of transient.

Yeah, well, I think, you know, when we look at it by segment, you know, obviously, BT has lagged in the recovery, really going all the way back to the pandemic. To me, that still feels like where the incremental growth opportunity has been. And I think, you know, we've gotten away a lot in the industry from comparing to 2019 levels. But I do think that has been the slowest segment to recover. you're seeing tremendous momentum there. Some of it is all the growth we're seeing in the technology world. A lot of it's driven by the strength and kind of the AI build-out, and we are definitely benefiting from that to some degree. You know, the other thing that is benefiting our portfolio that has been driven a little bit by easier year-over-year comps is growth in government. And so government was down meaningfully, really starting kind of March 1st of last year. It trended down 20% to 25% through the year. We were up a little over 8% in the quarter. We do expect that to be kind of another leg of growth for us in the back half of the year.

And then just last one for me, switching gears a little bit, with the transaction market thawing, more opportunities to recycle capital out of some of the less core markets on a maybe larger scale than you have been able to do in recent years, or are you still limited to those smaller deals? That's it for me.

Yeah, well, look, I think we alluded to this again in the prepared remarks. We have seen more activity in the transaction market, which has been encouraging. And I think we've always felt like the catalyst for more activity was better operating fundamentals. And clearly, we've started to see that. And so I do think it kind of broadens the aperture in terms of what we can look at. I still feel where we sit today, you know, the most effective transaction for us has been this kind of one or two portfolio, maybe three asset type of portfolio deal where we take a very targeted approach and very often are finding more local regional buyers. I wouldn't say that that has changed yet, but as you alluded to, the financing markets remain very, very strong and we see more activity in the transaction market. and I do think it broadens what we can look at there.

Thanks for the time. Thanks, Austin.

Your next question comes from the line of Michael Belisario from Beard. Your line is now open. Please go ahead.

Hey, John. Just on the demand front, how are you thinking about sort of just the market and segment rotation, customer segment rotation that occurred in June because of the World Cup? And, you know, I understand your performance is broad-based, as you mentioned, but try to understand just how you and your operators are thinking about sort of the underlying demand run rate ex-World Cup.

Yeah, you know, I'd say a couple things. When we look at our second quarter, you know, we attributed about 100 basis points of 5% rev par growth specifically to the World Cup. I think as kind of everyone has been well-documented, the World Cup was really a rate-driven event and kind of a last-minute transient rate-driven event. We even saw some modest occupancy declines in a lot of the World Cup markets. And so I think as we look forward, we think the magnitude of the World Cup effect will be less or it was less in the month of July than it was certainly in the month of June. It will be less in the third quarter than it was in the second quarter. We think the opportunity is a lot of kind of what we saw really through beginning kind of March 1st through July, which was better performance in retail and our highest rated segments, retail, corporate negotiated rates in particular, and then some on kind of the smaller group opportunity. I think that's where the opportunity lies for the back half of the year, and we would expect those trends to continue. And as I said, you know, in response to Austin's call, we are coming off relatively easy government comps, and that's providing another tailwind from a segmentation perspective. It is replacing some of the lower-rated business. And so if you look at our channel mix, we were actually down year-over-year in the second quarter in our OTA mix, which was very much an intentional strategy.

That's helpful.

And then just, I think it was, what, 5% rev par or 6% for the month. Any specific commentary sort of post-World Cup that you can point to just in sort of the sustainability of the sort of pre-World Cup trends you saw, too? And that's all for me.

Yeah. As you alluded to, you know, July, our preliminary numbers are up 6%. You know, we think that a portion of that was World Cup demand. But I do think a lot of the trends that we saw in the second quarter have continued into the end of the third quarter, specifically in July. A lot of the strength that we just alluded to, you know, for the third quarter, we're currently pacing up, you know, roughly mid single digits, a little bit softer in August, but September much stronger. And so we're very encouraged by the recent trends that we've seen and think a lot of them will persist in the back half of the year.

Got it. Thank you.

Next question comes from the line of RJ Milligan from Raymond James. Your line is now open. Please go ahead.

Yeah, good morning, guys. John, I was wondering if maybe you could talk about expectations for expenses in the back half of the year and maybe some of the puts and tastes as we think about 27.

Yeah, sure. We do think, you know, the first thing I would say is I think the team continues to do a very good job controlling expenses. You know, our expense growth was up 4% in the quarter. We do expect expenses for the full year to come in around 3% up year over year. That does imply slightly tighter expense growth in the back half of the year than the first half of the year. I will say our second quarter was our most difficult comp from an expense growth perspective. So relative to our expectations coming into the quarter, our expenses actually beat expectations, even though they were 4% year over year. And, again, some of that has to do with the year-over-year comp. As I said, I expect us to be able to continue to tightly control expenses in the back half of the year. As we look out beyond that, you know, we do feel like things are pretty stable. Labor is obviously our largest expense line. Our labor costs have been trending up about 4% the first half of the year. A lot of the wage adjustments do get reflected there, and so we think that moderates in the back half of the year. And we feel pretty good about the trajectory that we're on, even as we look out into next year. We feel like things are actually pretty stable on the expense front at this point.

Thanks, Sean. That's helpful. And I guess, you know, in the quarter, bought back a much lower stock price. I'm just curious how you're thinking about buybacks here today versus doing equity. How do you feel about your cost of capital?

Yeah, well, look, I think the first thing I would say is it's been a very positive development to see, you know, all the stocks appreciate fairly meaningfully over the last quarters. As you alluded to, we did buy some stock back early in the quarter when we saw a pretty meaningful dislocation. I think what we've seen is just kind of an improved confidence level around the trajectory of our portfolio in particular and kind of the broader industry as large. I don't think that our capital allocation priorities have changed at all. We've obviously been very focused on selling non-core assets at attractive prices, using the proceeds from that to deleverage the balance sheet, reinvest in the portfolio, and buy back stock when we've seen kind of these kind of obvious enormous dislocations of the stock price, like we saw in the first part of the second quarter. And from a very near-term perspective, I do expect us to continue to be a net seller of assets, RJ.

Great. That's it for me. Thanks, Gus.

Thanks, RJ.

Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. It seems that as of the moment, we don't have any questions skewed up. So, that concludes our question and answer session. I will now be passing the call over to John Stanner, CEO, for closing remarks.

All right. Well, thank you all for joining us today. Well, we look forward to speaking with many of you over the coming weeks and months. Have a great day. Thank you.

Thank you, everyone, for attending this call. You may now disconnect.