Tough year-over-year comparisons and price sensitivity among certain segments of guests tempered Summit Hotel Properties’ second-quarter performance.
During the hotel real estate investment trust’s second-quarter earnings call, Summit President and CEO Jonathan Stanner said same-store revenue per available room dropped 3.6%, falling within its forecasted range of 2% to 4% decline. This was due mostly to a decrease in average daily rate of 3.3%.
“We experienced a narrowing in the booking window and heightened price sensitivity beginning in March, which coincided with the first signs of government policy-related disruption,” he said. “These trends continued in the second quarter for several of our demand segments, resulting in an unfavorable shift of room-night mix to lower-rated segments.”
Even so, overall demand across the portfolio remains stable as occupancy declined by less than half a percent compared to last year, Stanner said. Occupancy in the quarter reached 78%, representing its second-highest nominal occupancy in the past five years. The record was set in 2024.
Special events last year and the Easter holiday shift into April were significant drivers of the year-over-year decline in portfolio RevPAR, he said. Some of these events included the solar eclipse, the men’s and women’s NCAA Final Fours, the U.S. Olympic trials for gymnastics and swimming, the 150th Kentucky Derby and the PGA Golf Championships.
“In total, these events benefited over 30% of our portfolio and created a 125-basis-point headwind to RevPAR growth for our results this quarter,” he said.
Additionally, government-related demand accounts for approximately 5% to 7% of Summit’s total room nights, and this demand segment decreased by more than 20% year over year in the quarter, he said. Net inbound international travel remains under pressure, dropping about 18% in the second quarter compared to last year.
The encouraging news is that demand patterns broadly stabilized and improved sequentially through the quarter, Stanner said. There hasn’t been any incremental deterioration of demand or meaningful acceleration in cancellations or attrition seen in previous downturns.
April RevPAR declined by 4.4% in the same-store portfolio, partially driven by the Easter shift and special events, he said. May RevPAR declined by 3.9%, and in June RevPAR dropped by 2.6%.
“While RevPAR trends actualized lower than we expected going into the quarter, we were pleased with our ability to grow market share and effectively manage expenses,” he said.
During the quarter, Summit grew its RevPAR index by nearly 150 basis points to 115%, among the highest levels the REIT has achieved post-pandemic, Stanner said. It continues to see meaningful improvements in the NewcrestImage hotel portfolio, which achieved 114% index in the second quarter, a 240-basis-point increase year over year and a 130-basis-point increase since the first quarter. When Summit acquired this portfolio in the first quarter of 2022, the portfolio’s index was just over 100%.
Updated outlook
“While we expect the operating trends experience in the second quarter to generally continue into the third quarter, we believe the magnitude of RevPAR decline will moderate from the second-quarter levels in our portfolio,” Stanner said.
July RevPAR fell by 3.5% year over year in the same-store portfolio, but the Summit team is optimistic the REIT will realize incremental improvements in August and September, he said. There have been modest gains in forward pace trends in recent weeks. The third-quarter outlook is ahead of where the company was in the second quarter at this time 90 days ago.
The current forecast for the third quarter reflects a RevPAR decline of about 3% while demand patterns are broadly stable, Stanner said. The booking window has narrowed in recent months, and there’s more pace volatility than normal even when considering the typical short-term booking nature of its business.
“This has made forecasting increasingly challenging and widened the range of potential outcomes for the year,” he said.
During the company’s last earnings call, Summit executives said in-place operating trends were tracking toward the low end of the guidance ranges they provided in February as part of their year-end 2024 earnings report for adjusted earnings before interest, taxes, depreciation, amortization and real estate costs, adjusted funds from operations and funds from operations per share.
“Current operating trends now point us to metrics modestly below the low end of that range, driven exclusively by softer second-quarter results and reduced expectations for the third quarter,” he said. “We expect operating trends to improve in the fourth quarter as demand stabilization is augmented with greater macroeconomic and policy clarity and a stronger industry group and convention calendar.”
These expectations have moderated more on the top line than on the bottom line as the REIT continues to benefit from aggressive expense management and its share repurchase program, he said.
Over the long term, Summit continues to emphasize the ongoing prioritization of travel as an important component of discretionary spending and the lack of new hotel supply growth, Stanner said. The silver lining in periods of demand uncertainty and rising construction costs is the positive effect it has on limiting new supply pipeline.
This year is the second consecutive year the hotel industry has grown supply less than 1%, roughly half its historical growth rate, he said.
“Our expectation is for these conditions to continue for several more years, and we are likely in the nascent stages of a period of historically low supply growth for new hotels,” he said. “This lack of supply growth will ultimately amplify the benefits of a more constructive demand and pricing environment over the next several years.”
By the numbers
Summit Hotel Properties reported total revenue of $192.9 million during the second quarter, according to its earnings release. It reported a net loss of $1.6 million, down from a net income of $30.8 million last year.
The REIT reported EBITDA for real estate of $61 million, down from $69.7 million a year ago, and adjusted EBITDAre of $50.9 million, down from $55.9 million.
It achieved RevPAR of $128.79, a 3.8% year-over-year decrease, while same-store RevPAR fell by 3.6%.
Alongside its joint-venture partner Singapore sovereign wealth fund GIC, Summit closed a $400 million senior unsecured term loan to refinance its previous GIC joint-venture term loan scheduled to mature in January 2026. The new term loan has an initial maturity date of July 2028 and can be extended for two 12-month periods. It provides for an interest rate equal to SOFR plus 235 basis points, a 50-basis-point reduction from the previous term loan.
In May, Summit and an affiliate of Robert Finvarb Companies closed on a $58 million mortgage loan secured by the dual-branded 264-guestroom AC Hotel Miami Brickelll and Element Miami Brickell. The proceeds were used to repay the existing $45.4 million mortgage loan that was scheduled to mature in June 2025. It provides for an interest rate equal to SOFR plus 260 basis points, a 40-basis-point reduction form the previous loan. Payments are interest-only for the life of the loan. It will mature in May 2028, and it has two, 12-month extension periods.
Before closing on this loan, Summit entered into a $58 million interest rate swap to fix SOFR until May 2028. It will pay a fixed rate of 3.57%.
These refinancings, plus the $275 million delayed draw term loan closed in the first quarter to retire the outstanding $287.5 million, 1.5% convertible senior notes maturing in February 2028, will result in the company seeing the average length to maturity increasing to nearly four years on a pro forma basis.
On a pro rata basis as of June 30, Summit had outstanding debt of $1.1 billion with a weighted-average interest rate of 4.6%. Due to interest rate derivative agreements, 75% of that debt had a fixed interest rate.
The REIT ended the second quarter with unrestricted cash and cash equivalents of $33.1 million, with total liquidity of more than $310 million when including its revolving credit facility availability.
As of press time, Summit’s stock was trading at $5.13 per share, down 24.1% year to date. The NYSE Composite Index was up 7.3% for the same period.