Alarm bells aren't quite going off at real estate investment trust Summit Hotel Properties, with CEO John Stanner describing conditions as a "modest pullback in demand" on the company's first-quarter earnings call Thursday.
This pullback is specifically affecting government and international travel, two of Austin, Texas-based Summit's smaller demand segments. Stanner said he has "not yet seen the sort of broad-based reduction in demand or acceleration in cancellations experienced in the more severe downturns of prior cycles."
Summit's first-quarter results were about in line with expectations for the company, Stanner said. Executives factored in special events that have affected year-over-year comparisons, including Easter falling in April this year and the travel associated with last year's eclipse, which buoyed business for 20% of its portfolio.
"While near-term uncertainty is the prevailing market sentiment, we remain constructive on the long-term prospects for our portfolio and are confident in our ability to manage through a period of softening demand," he said. "In prior down cycles, select-service assets have outperformed on a relative basis, benefiting from an already lean operating model and in certain times, a shift from price-sensitive customers away from full-service hotels."
Without making sweeping changes to Summit's 2025 outlook, Stanner said the company's performance is "currently tracking toward the lower end" of Summit's annual guidance announced on its last earnings call. The company is also reducing its capital expenditure expectations for full-year 2025 to $60 million to $70 million on a pro rata basis.
In light of the uncertainty and "dislocation" of Summit's stock price recently, the company's board voted to approve a $50 million share repurchase program that Stanner said is intended "to utilize opportunistically to return capital to shareholders and drive value creation." He added that the company has no significant debt maturities until 2027 and ample liquidity under its revolving credit facility.
"We remain confident in the long-term outlook for the industry and our portfolio specifically," Stanner said. "Despite the recent market volatility, we expect travel to remain a secular winner through cycles, and our high-quality portfolio of well-located hotels remains poised to benefit from these trends."
Renovations expected to drive revenue
One of Summit's largest resort properties has wrapped up major renovations and its repositioning. The Courtyard Fort Lauderdale Beach has been renamed Courtyard by Marriott Oceanside Fort Lauderdale Beach following the complete redesign of the guest rooms and hallways. The property's lobby, restaurant, fitness center and retail space have all been updated.
"We expect this capital investment will provide a tailwind to our resort portfolio RevPAR growth for the remainder of 2025 and into 2026," said William “Trey” Conkling, the REIT’s executive vice president and chief financial officer.
As promising as the property's new look is, the resort accounted for 75% of the first quarter's $2 million revenue displacement related to ongoing renovations.
Summit's recently renovated hotels include Courtyard Grapevine, SpringHill Suites Dallas Downtown, Courtyard Charlotte, Residence Inn Atlanta Midtown and the Hampton Inn & Suites Silverthorne.
"We have invested significant capital into renovating many of our suburban and small town metro assets over the past 24 months and expect strong relative future performance, assuming normalized conditions," Conkling said. "Today, suburban and small town metro hotels comprise approximately 29% of our total guestroom count. Summit's exposure to the resort location type accounts for only 11% of total guestrooms."
Near-term concerns
Stanner said Summit properties are "still running really high occupancies," and, while there are efforts being made to cut down on the expensive contract labor, the company is not yet making major cost cuts. The reality is that the circumstances are notably different from market responses to the pandemic.
"We haven't gone to COVID-era levels of cutting expenses, whether that's related to cleaning rooms or how we're managing shifts. We're just not there yet. The demand is still there," he said.
When comparing business and leisure demand activity, Stanner has hope for the consistency of business travel and the resiliency of leisure.
"Our midweek-negotiated business, which we use as kind of a proxy broadly for business-transient travel, has held up reasonably well," Stanner said. "I do think it's obviously one segment that you watch very closely as it tends to be more reactionary to weakness in the broader economy. But the trends to date there have not trended down in a meaningful manner."
Stanner doesn't expect to see large-scale cancellations of summer vacations in the U.S. Rather, it's more likely that travelers will pivot to domestic and drive-to trips — something that potentially creates a little bit of a benefit for Summit.
"Our expectation is, there's potentially a little softness on the leisure side. But I do think, historically, that's been a demand segment that's been more resilient in periods of economic uncertainty. And we would expect that to happen again," he said.
By the numbers
For the first quarter, Summit reported a net loss attributable to common stockholders of $4.7 million. The company’s same-store revenue per available room increased 1.5% to $126.26 compared to the first quarter of 2024.
"Our RevPAR growth was primarily concentrated in urban and suburban markets, where growth continues to be driven by strength in group demand and the ongoing recovery of corporate transient travel," Stanner said, pointing to a RevPAR decline in January due to weather-related disruption, with a robust 8.1% year-over-year growth in RevPAR in February.
Same-store average daily rate increased 0.7% to $174.03, and same-store occupancy increased 0.8% to 72.5%.
On the other hand, same-store hotel earnings before interest, taxes, depreciation and amortization decreased 0.8% to $65.2 million from $65.7 million. Adjusted EBITDAre decreased to $45 million from $48.8 million in the first quarter of 2024.
As of press time, Summit stock was trading at $4.16 per share, down 39.2% year to date. The NYSE Composite Index was up 0.2% for the same period.