Summit Hotel Properties Stock

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. [Operator Instructions]

Now, I'd like to turn the conference over to Kevin Milota, Senior Vice President, Corporate Finance. Please go ahead.

Thank you, operator, and good morning. I'm joined today by Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner; and Adam Wudel, 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. 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 our earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at www.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our second quarter 2026 earnings conference call. 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 ranges. We will also highlight the continued success we have had selling assets, recycling capital, 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 pro forma 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 EBITDA in our pro forma 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 EBITDAre increased 7.7% to $54.8 million, and adjusted FFO increased 6.7% to $34.9 million, or $0.29 per share in the second quarter. The positive inflection in 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 RevPAR growth and 12% increase in Hotel EBITDA.

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 SMERF business, which will directly benefit our types of hotels. The vast majority of our urban markets saw meaningful RevPAR 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.

Our urban portfolio comprises approximately half of our total rooms and 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 RevPAR 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 in the back half of the year. Collectively, these trends support the narrative that the recent re-acceleration 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 power around World Cup games, importantly, demand strength was broad-based across our portfolio, as 9 of our markets achieved 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 events.

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 6 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 from the first quarter.

Conversely, in-the-week, for-the-week bookings declined 3% and 6% year-over-year and quarter-over-quarter, respectively. 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 team 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.

Pro forma 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. Contract labor declined another 4% versus the prior year, continuing the favorable trend we have discussed over the last several quarters. Overall, 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 Brickell hotels to reduce the interest rate spread by 30 basis points. When accounting for our swap portfolio, approximately 50% of our pro rata share of debt is fixed, and including our 3 series of preferred stock, we are over 60% fixed on a pro rata basis. 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 going forward.

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 FIFA demand window before closing the transaction, which allowed us to capture robust event-driven demand in the Arlington submarket prior to disposition. The 2 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 at the 2 hotels. 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 portfolio. 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 of capital requirements.

The combined RevPAR for the sold hotels was $86, which is an approximate 30% discount to our current pro forma portfolio. The hotel transaction environment is improving as we have seen a notable recent pickup in activity. 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 per share.

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 4th closing stock price. The Board also declared the regular 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 discipline.

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 EBITDAre, 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 EBITDAre 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 5 months of 2026. 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 RevPAR 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 from higher property taxes. We believe the revised ranges appropriately reflect both the better-than-expected results we achieved 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, dispositions, share repurchases, or capital markets activities assumed in the company's full-year outlook beyond those already reflected as of August 5, 2026. From a capital 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 Scottsdale, Homewood Suites Tucson, Hyatt Place Mesa, and Hyatt House Orlando Universal.

Finally, I'd 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 course of the year.

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 provides a secular tailwind that we expect to persist.

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.

[Operator Instructions] Your first question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets.

So Jon, you hit on a little bit of the kind of durable demand trends that you're seeing across the business. And some of the segments that outperformed during the quarter, retail you mentioned, 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?

Yes. Austin, I think you kind of highlighted 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, these -- particularly these smaller groups, we've seen really strong pickup from in the quarter, and our expectation is for that to continue.

Obviously, the quarter -- 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-rated transient?

Yes. Well, I think, you know, when we look at it by segment, 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, you know, 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.

Yes. 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 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 1 or 2 portfolio, maybe 3 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, I do think it broadens what we can look at there.

Your next question comes from the line of Michael Bellisario from Baird.

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 I understand your performance was broad-based, as you mentioned, but trying to understand just how you and your operators are thinking about sort of the underlying demand run rate ex-World Cup.

Yes, I'd say a couple things. When we look at our second quarter, we attributed about 100 basis points of 5% RevPAR growth specifically to the World Cup. I think as kind of everyone has been well documented, as 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 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 as mentioned, I think it was what, 5% RevPAR 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.

Yes, as you alluded to, July, our preliminary numbers are up 6%. 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.

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.

Your next question comes from the line of R.J. Milligan from Raymond James.

Jon, 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 takes as we think about '27.

Yes, sure. We do think -- the first thing I would say is I think the team continues to do a very good job controlling expenses. 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, we do feel like things are pretty stable. Labor is obviously our largest expense line. Our labor costs have been trending up about 4% in 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.

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

Yes. Well, look, I think the first thing I would say is it's been a very positive development to see all the stocks appreciate fairly meaningfully over the last quarter. 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 at large.

I don't think that our capital allocation priorities have changed at all. You know, 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 in 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, R.J.

[Operator Instructions] It seems that as of the moment, we don't have any questions queued up. So that concludes our question and answer session. I will now be passing the call over to Jon Stanner, CEO, for closing remarks.

All right. Well, thank you all for joining us today. 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.

Ladies and gentlemen, thank you for standing by. Welcome to the Summon Hotel Properties First Quarter 2026 Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Kevin Milota. Please go ahead.

Thank you, operator, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, Jon Stanner; and Executive Vice President and Chief Financial Officer, Trey Conkling.

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. Forward-looking statements that we make today are effective only as of today, May 1, 2026, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at www.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our first quarter 2026 earnings conference call. We are pleased with our first quarter financial results, which were driven by a meaningful sequential improvement in operating fundamentals throughout the quarter. RevPAR in our pro forma portfolio inflected positive in the first quarter, increasing 20 basis points year-over-year, which exceeded expectations communicated during our fourth quarter 2025 earnings call by over 200 basis points.

Importantly, operating strength was broad-based across the portfolio, particularly in March, with growth in multiple high-rated demand segments, driving increases in average rates and RevPARs in many of our markets. Operating fundamentals improved each month as the quarter progressed. While RevPAR declined in January and February, those declines were more than offset by 4.1% RevPAR growth in March, which was driven by a robust 5.6% increase in average rate. We were especially encouraged with March results, which represented a relatively clean calendar comparison for our portfolio, despite the lingering government shutdown and highly publicized TSA wait times.

We believe March trends are more indicative of the underlying demand strength in our business and have been pleased to see these trends continue in April. While demand strength and pricing power were broad-based across our portfolio, our best-performing demand segments were our highest rated segments, which allowed us to yield out a portion of lower-rated business and a reversal of the prevailing pricing trends we experienced for most of last year. In particular, the ongoing recovery in business transient travel is driving better midweek performance as RevPAR growth increased 3% for the quarter, and 10% in March in our negotiated segment.

This helped drive double-digit RevPAR growth in a dozen of our markets in March. Including urban center direct markets such as Baltimore, Charlotte, Cleveland, Miami, Pittsburgh, San Francisco and Washington, D.C. As a reminder, we expected our first quarter to be the most challenging of the year. given multiple headwinds based on our portfolio. Notably, a difficult Super Bowl comparison in New Orleans, where we own 6 hotels and continued weakness in government demand with those related travel cuts not lapping year-over-year comparisons until the March, April time frame.

In addition, disruption related to winter storm firm and civil and rest in Minneapolis further reduced first quarter reported RevPAR growth. In total, these events created an approximately 140 basis point headwind to our first quarter RevPAR growth, most significantly in January and February. Our outlook for the remainder of the year has improved. Driven by strengthening demand trends that have persisted into the second quarter. We are also approaching what is expected to be a robust summer of special events driven demand. We expect April RevPAR to increase approximately 3.5%. And our second quarter revenue pace is currently trending approximately 4% ahead of the same time last year.

Pace trends in June are particularly strong, supported by a favorable event calendar, highlighted by our significant exposure to major demand catalysts, including the 2026 FIFA World Cup. Where we have exposure to 6 U.S. host markets, representing approximately 1/3 of our total room count and 44 scheduled matches. In addition, we expect strong incremental demand from the U.S. 250th anniversary celebrations in Boston, Washington, D.C. and Baltimore as well as several other major summer travel and event-driven demand drivers.

As we've discussed on previous calls, government and government-related demand has been a significant headwind for our portfolio since the creation of dose in the first quarter of last year. and the lapping of these comparisons is expected to improve our year-over-year growth rates going forward. While first quarter government-related demand declined 12% year-over-year. This represented a meaningful improvement from the 20%-plus declines we experienced through most of 2025.

Encouragingly, March government revenue increased approximately 3% and our outlook for this demand segment has improved, demonstrated by second quarter government pace currently trending up mid-single digits. Government demand represents approximately 5% to 7% of our total guest room and revenue mix, and we believe this could serve as a potential modest tailwind to our year-over-year growth rates in the last 3 quarters of the year. Given our strong first quarter results and our improved outlook for the remainder of the year, we've increased the guidance ranges for our key operating and financial metrics, which were outlined in our earnings release yesterday.

Trey will provide more details on our updated guidance ranges later in the call, but we believe the revised ranges strike the appropriate balance of reflecting a more positive outlook while acknowledging that our most meaningful quarters are still ahead and macro and geopolitical uncertainty persists. While near-term performance trends are driving our improved outlook. Longer-term lodging fundamentals suggest an improved demand environment has the potential to create an extended period of attractive top line growth. More specifically, supply growth remains meaningfully below historical averages and still elevated construction and financing costs, create an impediment to a meaningful near-term reacceleration in construction starts.

In addition, consumer prioritization of travel and experiences remains paramount, which has driven resilient leisure demand. And finally, improved industry demand has increasingly been driven by the ongoing recovery and acceleration of business travel, which uniquely benefits our urban-centric portfolio. We believe these dynamics create a favorable operating environment. as we move through the balance of 2026 and beyond. From a capital allocation standpoint, in the first quarter, we successfully closed on the previously announced sale of the 122-room Hilton Garden Inn in Longview, Texas a noncore asset owned in our joint venture with GIC.

The hotel was sold for $12.3 million, representing a 6.8% capitalization rate based on trailing 12-month net operating income. After consideration of foregone near-term capital expenditures. In April, we entered into an agreement to sell our wholly owned Courtyard and Residence in Dallas, Arlington South hotels for a combined sale price of $19 million. The 2 hotels total 199 guestrooms and the transaction reflects a 5% capitalization rate based on trailing 12-month NOI after factoring in near-term capital expenditures that we would otherwise have been required to fund. We expect the Arlington transaction to close in the third quarter, which will allow us to capture the demand generated from the FIFO matches in the market.

These dispositions are consistent with our ongoing strategy to selectively recycle capital out of lower growth assets, reduce future capital requirements, enhance the overall quality and growth profile of our portfolio. Proceeds from asset sales support our broader capital allocation priorities, including enhancing liquidity, reducing leverage, repurchasing shares and maintaining the physical condition of our portfolio. During the first quarter, we remained active under our share repurchase program, repurchasing 1.4 million common shares for an aggregate purchase price of $6 million or a weighted average price of approximately $4.17 per share.

As of March 31, 2026, we had approximately $29 million of remaining capacity under the program. Since launching the program in 2025, we've repurchased approximately 5 million shares, representing roughly 4% of total shares outstanding at an average price of $4.26 per share. We believe these repurchases represent an attractive use of capital and reflect our continued confidence in the intrinsic value of the portfolio and the long-term earnings power of the business.

In summary, we're encouraged by the start to the year and remain optimistic about the improved outlook for our industry broadly and our company specifically. While the operating environment remains dynamic, the breadth of demand improvement we are seeing across the portfolio, combined with favorable industry supply conditions, reinforces our confidence in Summit's ability to outperform as fundamentals strengthen. Our priorities are unchanged. And we remain intensely focused on optimizing profitability at the property level, prudently allocating capital and continuing to strengthen the balance sheet. We believe this disciplined approach, supported by our high-quality portfolio and efficient operating model, position Summit to create meaningful long-term value for shareholders. With that, I'll turn the call over to Trey to discuss our financial results for the quarter in more detail.

Thanks, Jon, and good morning, everyone. First quarter pro forma RevPAR increased 0.2% year-over-year. driven exclusively by growth in average daily rate. Strength in rate was a primary theme of the first quarter as nearly all segments generated positive growth year-over-year. In particular, the Retail and negotiated segments our clearest indicators of higher-rated leisure and business transient demand delivered first quarter RevPAR growth of 7% and 8%, respectively, driven by strong rate performance.

Furthermore, the retail and negotiated segments experienced sequential improvement across each month of the quarter, culminating with March RevPAR growth of 11% and 16%, respectively. Finally, as John mentioned, government-related demand within our qualified segment inflected positively during the first quarter, with March RevPAR increasing approximately 3%. Due to the relative strength of the company's first quarter operating results, RevPAR index increased to 116% of fair share. Driven by these positive RevPAR trends and strong cost controls, First quarter operating results materialized above expectations outlined during our February 4th quarter earnings call.

For the first quarter, adjusted EBITDA was $44.2 million, and adjusted FFO was $25.5 million or $0.21 per share. Several core markets delivered strong first quarter results, including continued strength in San Francisco and South Florida. In San Francisco, where the company owns 3 hotels, the market benefited from a strong citywide calendar and several high-impact demand events, including the JPMorgan Healthcare Conference in January, Super Bowl in February and RSA in March.

Our hotels performed exceptionally well during these peak periods. Capitalizing on compression nights to drive strong top line performance, resulting in RevPAR increasing 27% in the quarter. Looking ahead, we expect this momentum to continue in the second quarter, particularly June, supported by a strong convention and special events calendar. Including several major technology conferences, pride and have started the World Cup and related fan activities. In South Florida, our Miami and Fort Lauderdale hotels delivered a strong first quarter performance. with RevPAR growth exceeding 14%, driven by a 9% increase in average daily rate.

In Miami, operating results were supported by peak season demand, several high-impact January events including the NHL Winter Classic and the College Football National Championship and a more condensed spring break calendar due to the shift of the Easter holiday to the first weekend in April. Our South Florida portfolio continues to benefit from the highly successful repositioning of the Oceanside Fort Lauderdale Beach. The hotel generated first quarter revenue and EBITDA growth of 56% and 90%, respectively, as the renovated rooms product and expanded food and beverage amenities appeal to both Taurus and locals alike. Group demand also continues to accelerate at the ocean Side. Given the property's location adjacent to the Fort Lauderdale, aquatic and diving center, which is also home to the international swing [indiscernible].

Looking forward, we expect continued strong demand in the second quarter for South Florida. Our AC and Element hotels located across from Brickell City Center are ideally situated for visitors attending the World Cup Fan Festival at Bayfront Park in Downtown Miami during June and July. In Fort Lauderdale, the ocean side is pacing 12% ahead of second quarter 2025 as the property continues to ramp post renovation. Non-rooms revenue increased 10% year-over-year in the first quarter across the company's portfolio, reflecting continued progress in our efforts to capture a greater share of the customer's discretionary spend.

Food and beverage revenue was again a meaningful contributor, supported by the reconcepted restaurant and bar offerings at the Oceanside Fort Lauderdale Beach, enhanced breakfast programming at select hotels and continued focus on driving higher beverage and outlet sales. In particular, Food and beverage revenues at the Oceanside Fort Lauderdale Beach experienced a fourfold increase year-over-year. and drove the majority of the company's overall increase in food and beverage sales. We also realized healthy growth in other ancillary categories, including marketplace sales, parking income and resort and amenity fees. These revenue streams remain an important component of our broader operating strategy, and we believe there is additional opportunity to build on this momentum throughout 2026.

Pro forma operating expenses increased 3.6% year-over-year in the first quarter, reflecting continued discipline across the portfolio despite ongoing cost pressures. Increases in the quarter were primarily driven by merit-based wage adjustments as well as payroll taxes and employee benefits, which is a result of our strategic shift to internal staffing. Stability in the labor pool is best evidenced by the continued reduction in contract labor, for which nominal costs declined 6% versus first quarter 2025. Contract labor now represents 9% of our total labor pool, which is approaching pre-pandemic levels. Furthermore, employee turnover is also in line with pre-pandemic levels. declining 1,300 basis points from the prior year period.

For the full year 2026, we expect nominal expense growth of approximately 3%. From a capital expenditure perspective, in the first quarter, we invested $12 million across our portfolio on a consolidated basis and $9 million on a pro rata basis. Ongoing and recently completed renovations include the Dallas Downtown Hampton & Suites, Grapevine TownPlace Suites the Scottsdale Courtyard, the Tucson Homewood Suites and our Mesa Hyatt Place. For the full year 2026, the company expects pro rata capital expenditures to range from $55 million to $65 million, the majority of which will be incurred in the second half of the year. Turning to the balance sheet.

During the first quarter, we fully repaid our $288 million, 1.5% convertible senior notes that matured in mid-February, utilizing our $275 million delayed draw term loan and corporate revolver. Pro forma for this refinancing, we have no debt maturities until 2028. When accounting for our swap portfolio, approximately 50% of our pro rata share of debt is fixed, including the company's Series E, Series F and Series Z preferred equity within our capital structure, we were over 60% fixed on a pro rata basis. With ample liquidity and an average length of maturity of nearly 3.5 years, we believe the company is well positioned to navigate any potential near-term volatility and while also pursuing value creation opportunities.

On April 23, 2026, our Board of Directors declared a quarterly common dividend of $0.08 per share. representing a dividend yield of approximately 6.4% based on the annualized dividend of $0.32 per share. The current dividend continues to represent a modest payout ratio relative to our trailing 12-month AFFO. 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. Included in our earnings release last evening, we updated full year guidance for key 2026 operating metrics as well as certain nonoperational assumptions.

Our outlook is based on the 94 lodging assets owned as of March 31, 2026, including the Courtyard and Residence Inn Dallas Arlington South, which are currently under contract for sale and expected to close in the third quarter. Our current range includes $500,000 of hotel EBITDA for the remainder of the year that would be foregone upon closing of the sale. For the full year, we have increased our RevPAR growth outlook to 0.5% to 3%, which translates to adjusted EBITDA of $170 million to $181 million, and adjusted FFO of $0.75 to $0.85 per share. Based on our RevPAR growth outlook of 0.5% to 3% and nominal expense growth of approximately 30%.

We expect full year 2026 hotel EBITDA margins to range from flat to down 75 basis points, which includes approximately 25 basis points of headwinds from higher property taxes. 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 A, Series F and Series Z securities to be $18.5 million. Our outlook does not assume any additional acquisitions, dispositions, share repurchases and or capital markets activity for the balance of the year.

Finally, the GIC joint venture results in net fee income payable to Summit, covering approximately 15% and of annual pro rata cash corporate G&A expense, excluding any promote distributions, some of they earned during the year. And with that, we will now open the call to your questions.

[Operator Instructions]. The first question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Jon, you had mentioned May is pacing up, I think, 4%. And I guess just based on what you've seen in March and April, how much degradation have you seen in pace this far out? And then as you get closer to realization. And then you -- can you compare that to what you saw last year, where if I recall, you kind of saw things maybe you lose a little bit of pace, I guess, as you got closer through the month and what you actually realized.

First, just to clarify what we said in the prepared remarks was our second quarter pace is trending up about 4%. We expect April to finish up around 3.5%. When I look at kind of the monthly cadence for the second quarter, May is a lower pace than we are experiencing in both April and then obviously, June pace is way up given our expectations for the World Cup. I think what we've seen over the last 30 to 60 days has really been an acceleration in the month for the month. And as you alluded to, that is a little bit of a reversal from the trends that we saw last year. Now I would expect our June pace, which is trending up high teens at this point year-over-year to normalize as we get into that month.

A lot of that's being driven by that we're not in kind of the traditional booking window that we would normally see for June, but we do have a fair amount on the books for the month of June, specifically related to World Cup. So we would expect that to normalize. But I think the broader takeaway and the more important takeaway here, Austin, is that what we've seen kind of in the month for the month and even within the last couple of weeks of the month has been a pretty meaningful acceleration from our expectations. You certainly saw that in the month of March. Most of our Q1 outperformance was related to the month of March. And we've seen those trends continue through April.

That's helpful. And I guess then as you think about that pacing and what could be realized in the second quarter is certainly tracking above the high end of the full year guidance range. Like how do we think about cadence and that implied deceleration in the back half of the year? And again, going back to then what you've seen sort of a firming up in that mid-week higher-rated business segment, how does that compare to what you underwrote then looking out into the back half of the year?

Sure. Yes. Well, clearly, we've outperformed our expectations for the first quarter. I will say we did finish the quarter modestly positive, but closer to flat. Our expectation was always that the second and third quarters of the year would be the highest growth rates of the year. And that outlook really hasn't changed. I think we remain constructive on the second and third quarter. Some of that is being driven by the strength we see in World Cup markets. But our outlook is definitely more constructive today for the balance of the year than it was when we reported 60 days ago.

And the next question will come from Michael Bellisario with Baird.

Just two parts here. Just in terms of the pickup in demand that you've seen just, one, how would you separate BT versus leisure trends? And then two, any quantifiable share gains that you might have seen from rebookings from Mexico during the peak springer travel period?

Sure. Yes, I think, again, probably the biggest takeaway from the quarter has been strength was fairly broad-based. And what you saw was really rate-driven RevPAR growth in the quarter and more specifically in March, and that's a reflection of the fact that we were able to either yield out lower rated business or really drive incremental occupancy in our higher-rated channels. And those channels were predominantly our premium-rated retail channels and our negotiated channels.

And so we definitely saw our best growth rates midweek in the negotiated segment. Our first quarter RevPAR in the negotiated segment was up 8%. It was up double that in the month of March. Our urban markets were up 6% in the month of March. So there's no question that we saw really strong driven demand throughout the quarter and again, particularly in the month of March. Leisure was also good. And I think when you look at our markets in South Florida and Scottsdale, we outperformed our expectations going into the quarter. there's likely some benefit from the disruption that we saw in Mexico in the month of March.

But again, I would just go back and emphasize the fact that most of our growth -- more of our growth, I should say, is coming midweek in urban markets and in kind of business transient related demand. And so it was beneficial, but not something that I think is going to create some sort of onetime 1-month distortion in our demand patterns.

And then on Mexico?

Yes, sorry, specifically on Mexico. I think that it was a benefit predominantly in our South Florida and Scottsdale markets. It definitely helped us in March. But as I said, in the prepared remarks, a lot of the trends that we saw in March have continued into April. And I don't expect that to create any type of difficult comparison or distortion and demand patterns going forward.

Got it. And then just one follow-up. 1Q more rate dynamic. Obviously, there are some impacts affecting demand in 1Q, but how should we think about and beyond in terms of the mix between rate growth and occupancy growth going forward? That's all for me.

Yes. Thanks, Mike. I think that the expectation is that the vast majority of our RevPAR growth going forward will be rate driven. Again, the trends that we saw in the first quarter really have continued through April, and our expectation is that the majority, if not all, of our RevPAR growth in April will be rate driven. I think when we gave our initial guidance, we expected kind of a 60-40 rate versus occupancy split that thankfully has shifted to be, again, predominantly rate-driven growth for the remainder of the year, which should have a better flow through to the bottom line.

[Operator Instructions]. The next question will come from Chris Woronka with Deutsche Bank.

So it's a topic we used to talk about a lot. I don't know that we do every quarter now, and I apologize if I missed the prepared comments. But can you talk a little bit about direct bookings and kind of where those stand for your portfolio and also kind of along those lines? Do you think all these new an expanded branded credit cards are helping drive direct bookings to you on the leisure side? And then I have a follow-up.

Yes, sure, Chris. We have continued to grow our share of direct bookings. We're probably plus or minus 70% for the full portfolio. I think that's a reflection of the fact that we do have a lot of high-quality hotels in good locations that are affiliated with really strong brand distribution channels. And so we did see that step up to some extent, particularly our brand.com channels in the first quarter. That's been really a continuation of a lot of the trends that we've seen really coming out of the pandemic.

Last year maybe being a mild exception to that when there was a little bit greater reliance on some of the OTA channels. But Again, as you alluded to, those are very powerful distribution platform, their powerful loyalty programs, and we're driving the majority of our business through those channels.

Okay. Very helpful. And then kind of along those same lines, I know you don't have many resorts and particularly with Hyatt. But I think Hyatt just recently went through another -- I don't know if I'm supposed to call it points devaluation or just adjustments to new kind of award chart tiering. Is that having any impact on you? Again, I know you don't probably get a ton of redemptions, but is that -- I think that was meant to be a little bit more owner friendly. And I guess, along those same lines, the Hyatt breakfast that's been, I know, going through a lot of different iterations in terms of trying to get that right. Any update on whether you're getting any minor bottom line help from those changes?

So I would say, to your point, we don't have a ton of Hyatt properties that are kind of high redemption properties generally, maybe Orlando being the exception of that, where we do get a fair amount of redemptions there. And Orlando has been a terrifically strong market, particularly where we are in our Orlando near the universal development. I would say, generally speaking, kind of the brand redemption programs have been trending in a more kind of owner-friendly way over the last several quarters, and we hope that, that continues. Specifically related to breakfast is you did we were part of some of the pilots on the charge to breakfast at Hyatt Place.

I would say that the overall, it was a very positive experience for us it's more of a property-by-property or market-specific commentary. But I'd say generally, it's been a positive to the bottom line, modestly positive to the bottom line.

And the next question will come from Logan Epstein with Wolfe Research.

SP611542888 Maybe just diving into the government segment, you guys noted the sequential improvement into March in inflecting positive. Can you just dive deeper on -- like was that driven by any specific markets or was it broad-based across the portfolio? And then I guess a follow-up to that is maybe trying to quantify the potential impact given you guys noted it was down 20% for a number of quarters in '25. Can you just talk about what's the embedded expectation for the rest of the year?

Yes, sure. I think you called this out. We've talked for a while about how our comps were going to ease as we got into the March, April time frame, and we started to lap the dose comparison first quarter of last year. And so obviously, that played out in the first quarter. Government revenue for us was down about 12% year-over-year. It had been trending down 20% to 25% for most of last year with maybe the exception of October when we saw some incremental reductions in demand related to the government shutdown. That was really driven in the first quarter.

We actually saw March government-related revenue go up -- as I said in the prepared remarks, our outlook, our pace for the second quarter, specifically related to government. You have to remember, we don't have a lot on the books. It is still a relatively small demand segment. So these tend to be smaller numbers. But we are trending up kind of mid-single digits year-over-year. I think our expectation going into the year was for once we got into the second quarter for government demand to be fairly flat year-over-year.

So this is kind of modestly more positive than maybe we would have expected coming into the year. And in terms of markets, we've seen some lift in markets like Tucson. We had a really strong quarter in Washington, D.C. Some of that was kind of government-related and government adjacent business. So it's been fairly broad-based. Again, I think our expectations are modestly more constructive than they were when we started the year as evidenced by our second quarter pace.

Got it. Maybe a follow-up on a different note. Just one we haven't talked about in a few quarters, given we've seen now, I guess, 3/4 of operations at the [ Enero ] expansion. Can you just talk about how that's performing with the new keys there relative to initial underwriting?

Yes. We've done really well there. We had a nice beat to our internal budgets and expectations in the first quarter. It's a wonderful asset. I think it really feeds off a lot of the growth that's happened in Austin. And there's been just tremendous growth in Fredericksburg. There's been they announced some high-end product that's going to come out in that general area. There's a Waldorf Astoria that's going to get built. There's a man that was recently announced out there.

The growth in the submarket of Fredericksburg has been terrific, which has certainly helped our performance. But we have a really unique, I think, very compelling offering. So the thesis that really got us to invest in that project initially. And then the thesis around the expansion has all played out. And again, we were happy with the first quarter results, which were above our expectations fairly meaningfully.

And I'm showing no further questions at this time. I will now turn the call back over to Jon for closing remarks.

Great. Well, thank you all for joining us today. We look forward to seeing many of you on the conference circuit here over the next several weeks. Thank you again, and hope you all have a nice weekend.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties, Inc. Fourth Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Kevin Milota. Please go ahead, sir.

Thank you, operator, and good morning. I'm joined today by Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner; and Executive Vice President and Chief Financial Officer, Trey Conkling.

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. Forward-looking statements that we make today are effective only as of today, February 26, 2026, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at www.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today for our fourth quarter and full year 2025 earnings conference call. As I reflect on last year, I'm pleased with how we executed in what was a complex and challenging operating environment.

Coming out of the first quarter, we understood the year would be defined by uncertainty surrounding macroeconomic conditions, demand visibility and certain policy-related headwinds and I'm proud of how our teams responded. Throughout the year, we remained disciplined and focused on the aspects of the business we can control, growing market share, managing expenses, strengthening the balance sheet, allocating capital prudently and investing in our portfolio to best position Summit for long-term shareholder value creation.

On today's call, we will provide details on our fourth quarter and full year 2025 results, offer our perspective on the current lodging environment and our outlook for 2026, and highlight our recent capital recycling and balance sheet activities.

In the fourth quarter, we experienced an encouraging positive inflection in demand compared to the second and third quarter of 2025, as RevPAR trends improved sequentially by over 200 basis points, resulting in a fourth quarter same-store RevPAR decline of 1.6%. Demand patterns generally stabilized throughout the quarter despite the incremental pressure created by the October government shutdown. In particular, midweek results reflect stable underlying group demand and growing corporate travel, which allowed us to increase rates in each of these segments for both the fourth quarter and full year.

Government and international inbound demand, which combined represent approximately 10% to 15% of total room nights across our portfolio, continued to create meaningful headwinds in the quarter, declining approximately 20% on a blended basis. Excluding these 2 segments, our fourth quarter RevPAR grew by approximately 60 basis points year-over-year, reflecting the overall relative strength of other segments. These are encouraging trends as we move into 2026, particularly with easier government demand comparisons on the horizon.

Our teams continue to do a terrific job growing market share with our fourth quarter RevPAR index improving by 220 basis points to an index of 117, reflecting the high-quality nature and locational strength of our portfolio, complemented by our expertise in revenue management. We are approaching and in many markets surpassing all-time post-pandemic market share highs across our portfolio.

For the full year, same-store RevPAR declined 1.8%, driven predominantly by lower average daily rates as demand shifted towards lower-rated segments starting late in the first quarter when the significant reduction in government demand first began to materialize. While weakness in government demand and international inbound travel has been well documented. It is important to emphasize that demand patterns in other segments have been stable. And we are expecting year-over-year results to improve as comparisons ease starting in the second quarter.

From a capital allocation perspective, we continue to execute on our disciplined capital recycling strategy during the fourth quarter, closing on the sale of 2 noncore hotels, the 107-room Courtyard Amarillo Downtown, which was owned in our joint venture with GIC and the wholly owned 123-room Courtyard Kansas City Country Club Plaza. These dispositions generated aggregate gross proceeds of $39 million, reflecting a blended yield of 4.3% based on trailing 12-month net operating income after consideration of approximately $10 million of foregone near-term capital expenditures.

In addition, last week, we closed on the sale of the 122-room Hilton Garden Inn in Longview, Texas, another noncore asset owned in our GIC joint venture. The $12.3 million sale price represented a 6.7% capitalization rate based on the estimated trailing 12-month net operating income after consideration of approximately $2.6 million of foregone near-term capital expenditures. These 3 assets had a blended RevPAR of $89, a nearly 30% discount to the current pro forma portfolio.

Since 2023, we have sold 13 noncore hotels, generating approximately $200 million of gross proceeds and eliminating nearly $60 million of anticipated capital expenditures at an approximate 4.6% net operating income capitalization rate. These sales reflect our disciplined approach to monetizing lower growth, capital-intensive assets and redeploying proceeds to enhance liquidity, reduce leverage, and support higher return uses across the portfolio.

As we turn to 2026, we believe the fundamental setup for our industry is improving and several company-specific tailwinds position Summit for a positive year. We expect demand trends broadly to continue to improve and year-over-year comparisons to ease as we move through the year. Historically low levels of new supply support incremental demand growth, translating into both occupancy and rate gains in 2026 and for the foreseeable future. While we remain mindful of near-term volatility, we believe these trends create a more constructive backdrop for top line growth in 2026.

With that context, we're introducing our initial outlook for the year. Trey will walk through the details of our ranges later in the call. But broadly speaking, our guidance reflects modest top line growth supported by improving fundamentals, disciplined expense management and the cumulative benefits of our capital reinvestment and recycling efforts, which have enhanced our portfolio and strengthened the balance sheet.

The company is poised to benefit from several special events in 2026, notably the FIFA World Cup. We have exposure to 6 World Cup host markets, which together account for nearly 60% of the matches played domestically, providing a unique demand tailwind in June and July. In addition, convention and special events calendars are favorable in several of our key markets. And we expect continued normalization of government-related demand and international inbound travel as year-over-year comparisons begin to ease in the second quarter. We expect full year 2026 RevPAR to range from flat to up 3%, driven predominantly by gains in average daily rates.

While our outlook for the full year is constructive, we expect the first quarter to be the most difficult of the year with RevPAR trending in line with our fourth quarter 2025 results. January RevPAR declined approximately 3% despite a strong start to the month as Winter Storm Fern created significant disruption across our portfolio.

We also faced difficult comparisons in the quarter as our first quarter last year benefited from incremental demand created by natural disasters in Florida and California; and Super Bowl 59 being hosted in New Orleans, where we have 6 hotels. February represents our most difficult comparison of the quarter as portfolio RevPAR increased over 7% last year.

Finally, the majority of our first quarter of last year was insulated from the significant reduction in government demand we experienced for the remainder of the year. Despite these challenges, our outlook is trending positive as March pace is down less than 1% year-over-year and April pace is up year-over-year, reflecting the ongoing gradual improvement in demand patterns we see across the portfolio. It is important to highlight these pace improvements come at a time of the year prior to lapping the sharp pullback in government demand we experienced last year over the same period, making these trends even more encouraging.

In summary, we believe our industry is beginning 2026 with modest expectations, but with meaningful upside driven by the continued improvement in several of the demand patterns we are already experiencing in our business. Longer term, we are poised to benefit from an extended period of low supply growth and the ongoing societal prioritization of travel and experiences.

Summit is uniquely positioned to benefit from these conditions given our high-quality portfolio, efficient cost structure, and strong balance sheet. Our priorities in 2026 remain clear: a continued relentless focus on optimizing hotel profitability, prudently allocating capital and strengthening our balance sheet, all of which will drive long-term shareholder value.

With that, I will turn the call over to Trey, to walk through the financial results and balance sheet in more detail.

Thanks, Jon, and good morning, everyone. Fourth quarter 2025 RevPAR demonstrated sequential improvement of 240 basis points from the third quarter as operating fundamentals outside of government and inbound international demand remained resilient in the face of broad macroeconomic uncertainty.

Fourth quarter pro forma RevPAR declined 1.8%, driven by occupancy and average daily rate declining by 0.7% and 1.1%, respectively. This outperformed our RevPAR expectations for the quarter of down 2% to 2.5%, as we experienced stability in group and strengthening business transient fundamentals as well as a mix shift to higher-rated demand segments.

Several core markets demonstrated strength in the fourth quarter, including San Francisco, Orlando, South Florida and Nashville. San Francisco is benefiting from improved perception as the market experienced strength from citywide conventions, event-driven leisure demand and improving business travel, which drove outsized RevPAR growth of over 40% year-over-year during the quarter.

Two citywide events, including Dreamforce, which shifted into the fourth quarter and Microsoft Ignite were key contributors to our hotel performance in Fisherman's Wharf and Oyster Point. In addition, continued strength in corporate demand, particularly in the Silicon Valley submarket, resulted in another strong quarter for our Hilton Garden Inn Milpitas.

Looking ahead, we expect continued growth for San Francisco in 2026, driven by citywide events, increasing business transient demand and broader Bay Area activity surrounding Super Bowl 60 and the World Cup.

In Orlando, all 3 of the company's assets are benefiting from the recently opened Epic Universe Park, driving growth in both the leisure and group segments. RevPAR for our Orlando properties increased 9% in the fourth quarter as strong demand enabled our hotels to shift away from advanced purchase rates and back toward higher-rated retail channels, driving meaningful ADR improvement.

In South Florida, where RevPAR grew 4% during the fourth quarter, our hotels are experiencing sustained momentum across leisure, corporate and special event demand, supported by a strong local economy and a continued wave of new business and investment activity in the region.

Miami continues to benefit as a destination for corporate relocations, financial services and international business, translating into solid corporate transient and group demand. In particular, our newly renovated Oceanside Fort Lauderdale Beach is delivering very strong results with fourth quarter RevPAR, total revenue and gross operating profit increasing 9%, 39% and 53%, respectively, as the renovated rooms product and multiple Oceanfront food and beverage outlets are resonating with guests.

We expect another strong year in 2026 from our South Florida properties, which are off to a great start in the first quarter, supported by the College Football National Championship held in January and incremental leisure demand, partially driven by the harsh winter conditions in the Northeast and Midwest. Looking ahead, our portfolio is well positioned to capitalize on World Cup-related activity in South Florida, alongside the continued ramp-up and stabilization at the Oceanside Fort Lauderdale Beach.

In Nashville, fourth quarter performance was primarily driven by strong sports-related and group demand, complemented by our focused transient revenue strategies aimed at capturing high-value weekend leisure travelers. This deliberate mix shift allowed us to optimize rate on peak nights, drive incremental occupancy around key events and further strengthen our properties' position within a resilient and experience-driven market.

Non-rooms revenue increased 9% and 5% for the fourth quarter and full year 2025, respectively, in our pro forma portfolio. Food and beverage revenue continues to benefit from the re-concepted restaurant and bar offerings at the aforementioned Oceanside Fort Lauderdale Beach. Our reprogrammed breakfast offering at certain hotels and other ongoing initiatives aimed at improving breakfast and beverage sales. Other non-rooms revenue growth was driven by strong increases in marketplace sales, parking income and resort and amenity fees. We are encouraged by the growth of these ancillary revenue streams and expect this trend to continue in 2026.

Fourth quarter adjusted EBITDA was $39.7 million and adjusted FFO was $22.3 million or $0.18 per share as the company benefited from lower interest expense and a reduced share count resulting from our accretive share repurchases completed in the second quarter.

For the full year 2025, same-store RevPAR declined 1.8%. Adjusted EBITDA was $174.8 million and adjusted FFO was $0.85 per share. The company's intense focus on expense management resulted in pro forma operating expenses increasing approximately 2% year-over-year.

Throughout the year, our asset managers and third-party operators executed effectively on wage management initiatives, reduced reliance on contract labor and improved employee retention. For the year, contract labor declined nearly 9%. And contract labor currently represents less than 10% of total labor costs, which is approaching pre-pandemic levels. We also continue to experience improvement in employee retention, which is driving higher productivity, lower training costs and enhanced guest satisfaction.

Turnover rates at year-end 2025 have declined approximately 24% from year-end 2024, highlighting the ongoing stabilization of the labor market. From a capital expenditure perspective, for the full year 2025, we invested approximately $75 million across our portfolio on a consolidated basis and $63 million on a pro rata basis.

Ongoing and completed renovations during 2025 include the Oceanside Fort Lauderdale Beach, Courtyard Charlotte, Residence Inn Madrid, Scottsdale Oldtown Hyatt Place and the Atlanta Midtown Residence Inn. Over the past 3 years, we have invested more than $250 million in capital expenditures on a consolidated basis, reflecting our continued commitment to maintaining a best-in-class portfolio.

Our 2026 pro rata capital expenditure guidance is $55 million to $65 million, which is consistent with our spend in 2025 and a level we believe is sustainable going forward. This represents a significant reduction relative to the elevated capital spend from 2022 through 2024 as the company addressed deferred capital investment related to the pandemic.

Turning to the balance sheet. During 2025, we made significant progress in extending maturities, reducing borrowing costs and enhancing corporate liquidity. Subsequent to year-end, we fully drew our $275 million delayed draw term loan to retire the $288 million, 1.5% convertible senior notes that matured in mid-February. Pro forma for this refinancing, we have no debt maturities until 2028.

Adjusting for swap activity in the third and fourth quarters as well as the retirement of the fixed rate convertible notes and the draw on the floating rate delayed draw term loan, approximately 50% of our pro rata share of debt is fixed. Including the company's Series E, Series F and Series D preferred equity within our capital structure, we were over 60% fixed on a pro rata basis.

With ample liquidity, an average interest rate of 5.5% and an average length to maturity of nearly 4 years, we believe the company is well positioned to navigate any potential near-term volatility while pursuing value creation opportunities.

On January 22, 2026, our Board of Directors declared a quarterly common dividend of $0.08 per share, representing a dividend yield of approximately 7.7% based on the annualized dividend of $0.32 per share. The current dividend continues to represent a modest payout ratio relative to our trailing 12-month AFFO. 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.

Included in our press release last evening, we provided full year guidance for key 2026 operational metrics in addition to certain nonoperational items. For the full year, we anticipate RevPAR growth of 0% to 3%, which translates to an adjusted EBITDA range of $167 million to $181 million and an adjusted FFO range of $0.73 to $0.85 per share.

It is worth noting that the company's 2 asset sales from the fourth quarter of 2025, the Courtyard Kansas City and the Courtyard Amarillo, as well as the recently announced sale of the Hilton Garden Inn Longview contributed approximately $1.6 million in adjusted EBITDA or $0.01 of AFFO per share in 2025.

Based on the indicated RevPAR range of 0% to 3%, we expect margins to be flat to down 100 basis points, which incorporates approximately 25 basis points of headwinds from higher property taxes and implies operating expenses increasing between 2% and 3% year-over-year.

We expect pro rata interest expense, excluding the amortization of deferred financing costs to be $57 million to $61 million, which includes an incremental $9 million from the recent refinancing of the 1.5% convertible notes with the delayed draw term loan.

Preferred distributions, including the Series E, Series F and Series D securities are forecasted to be $18.5 million. This outlook does not include any additional acquisition, disposition or capital markets refinancing activity beyond what we have discussed today.

Finally, 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 Summit may earn during the year.

With that, we will open the call to your questions.

Our first question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Jon, you discussed the booking pace accelerating into March and April. Can you just dig into kind of the visibility that you have in length of the booking window that underlies your confidence in the trends in the months ahead?

Yes, sure. Thanks, Austin. Look, I think as we said, we've seen some very positive indications from a pacing perspective, really throughout most of the beginning of the year. But I'd say even more specifically over the last couple of weeks. That's translated into a pretty meaningful improvement in March. We're actually now pacing slightly positive for March. Our pace for April has turned almost up mid-single digits.

I think what gives us the most optimism around that is, as we said, we still have not lapped the point where we started to see the effects of the pullback in government demand. So we're still kind of comping against periods where government demand was in place at this point last year. So we have seen -- again, I think a lot of this has been the continued solid performance midweek and particularly in urban markets.

I do think we are seeing some near-term lift in Arizona and Florida markets from folks potentially relocating away from Mexico, given some of the security concerns there. So we do think that's going to give us a bit of a lift, particularly over the spring break period. But I would say more generally, the demand trends and the patterns that are giving confidence are fairly broad-based.

Then you mentioned that rate growth is really underlying the RevPAR growth outlook this year. Is that consistent with what you're seeing in terms of the pace figures in the months ahead? And just for the year, which segments really do you expect to be the biggest drivers of that improvement year-over-year?

Yes. Again, I'd say generally broad-based. But I do think we're -- today, what we're seeing is better performance and better lift midweek. And so I would expect the majority of that lift to come from the BT and group segments. But again, I do think we're encouraged with some of the signs we've seen on the leisure side as well. But I would say it's kind of a 2/3, 1/3 mix for us going into the year. And I think 2/3 will come from rate growth, which obviously has positive flow-through implications to the bottom line.

Then just last one from the World Cup perspective. I mean, how much lift do you have really that we'd call World Cup or event specific this year? You highlighted a number of events, but I assume World Cup is a big piece of that. Could you just kind of peel that off of the 0% to 3% RevPAR growth outlook?

Yes, sure. Look, I will say we're very constructive around World Cup. I do think the industry has tempered expectations to some extent around what that will actually drive. What we pointed out on the call and what I'd emphasize is a couple of things. One, we've got exposure to about 60% of the matches domestically and it touches about 1/3 of our total portfolio. And so we do have a significant amount of exposure to the World Cup.

When we roll it up, again, we expect to see the vast majority of the benefit of those matches in the 6 markets where we host. I think the biggest impacts -- positive impacts for us will come in markets like Atlanta, Miami, and Dallas. But we also expect to see some lift in a market like Orlando, where people will kind of tack on an extra trip in South Florida potentially from Miami.

When we roll it all up for our outlook, we think it probably adds plus or minus 50 to 75 basis points to our full year expectations.

[Operator Instructions] Our next question will come from the line of Michael Bellisario with Baird.

Jon, on your 0% to 3% RevPAR guide, can you maybe help us go from sort of a broader industry outlook to stacking some of the market or asset-specific drivers that are boosting your forecast, maybe like Fort Lauderdale, assumed ramp-up in Asheville, any other markets or assets to call out that are lifting your outlook relative to the broader industry trends?

Sure. Look, I think at the midpoint of our range, we're probably not too far off of where most industry forecasts are for the year. I think you did highlight a couple of what I'll call Summit-specific tailwinds for this year. One is the lift we expect to get in Fort Lauderdale. And Trey commented on this in the prepared remarks.

We are seeing tremendous lift since the renovation has completed. We do lap kind of the renovation comp for the first part of the year. So we'll obviously some significant year-over-year growth. But I think more importantly and more sustainably, we just think that, that asset is going to continue to perform incredibly well given the capital that's been invested there and the market that is strong.

Asheville is another one that we have. We're still recovering from the storm a couple of years ago that we expect to have strong performance. We expect all of our World Cup markets to perform. I talked a little bit about that just a minute ago. But it is meaningful for us given the significant percentage of assets we have in those markets. And then obviously, there are markets like San Francisco, which we expect to continue to be very strong. Obviously, off to a great start to the year with not only the convention calendar, but the Super Bowl is also another World Cup market, which we think we will see some benefits from.

I'd also highlight the South Florida market generally, even outside of Fort Lauderdale. The trends we've seen in Miami, particularly in Brickell, we're off to a tremendous start to the year there and expect that to continue to be a very strong market. And Tampa, once it laps the weather comps from the first quarter in Orlando are both doing very, very well. Orlando, again, is the beneficiary of the new park that's come in at Universal, which is driving incremental demand.

Then just to go back to the prior question on the booking window. I just want to dig a little deeper there. Any changes in discounting or advanced purchase rates? Are you still grouping up? Just anything beneath the surface that you're seeing or doing that gives you more confidence looking ahead? And that's helpful.

Yes. Sure, we talked a bit about this -- a lot about this in the second and third quarter. And I think when we looked at -- and we tried to emphasize this on the call. The pressure we saw on RevPAR, particularly in the second and third quarter of the year was so much driven by the pullback in government and international inbound demand. And part of the knock-on effects of that was it forced us to remix our business. And part of that remixing was into lower-rated channels, particularly lower-rated leisure travels, more OTA exposure, more advanced purchase exposure.

We definitely tried to create a layer of group and advanced purchase demand. I think we are successful doing that. I think what's given us some encouragement is while we were still down in the fourth quarter. And we expect the first quarter to still have these government-driven headwinds, we've been forced to do less remixing. And we are seeing a little bit more stability and growth in some of these other segments. And obviously, we're going to get to a point where we lap the very difficult government comparisons.

So again, what we've tried to emphasize is that outside of those demand segments, the performance of other segments of our business has held up reasonably well. I wouldn't say we've seen any significant widening of the booking window at this point. I will say that, again, we feel like there is more and more incremental demand that's helping offset some of the falloff from the government segment in particular.

Our next question will come from the line of Chris Woronka with Deutsche Bank.

Apologies if you might have covered all or part of this earlier. But I was really trying to get a sense for -- as we look out kind of World Cup, 2Q, you have a little bit more visibility now maybe. I'm trying to get a sense for whether you think there's before and after? Is there a lull before and after? And so the markets where you have exposure, is it -- do you have enough visibility to see what happens before?

I think the question is really, does any of the benefit you're likely to get offset at all by things that people not visiting immediately before or after the games?

Look, it's not something that has been particularly high on our list of concerns. I certainly understand that perspective. Look, we think kind of net-net, this is going to be a very positive event for the industry, certainly for our portfolio, given the exposures. I will say and kind of to that point, Chris, part of how we've approached the event, not dissimilar to how we typically approach Super Bowls is we like to create a layer of base demand on the books.

We typically try to get some longer term stay business, whether it's media or takedown setup type of business particularly where we have guaranteed nights for extended lengths of time. And we think that helps derisk match-up scenarios that may not be as favorable.

If there is some softness in the transient pickup, we derisk that to some extent because we've created this base layer of demand. We've taken a very similar approach. Our approach has been very tailored by market because our hotels have different locational strengths and weaknesses relative to where either the fanfests are located or the actual stadiums are located. So those strategies are customized by market. But by and large, I would say we approach this in a way where we try to strike the right balance between taking a base layer of group at still high rates.

I think the rates on the books we have over the World Cup period are north of $300. So we still have very attractive rates on the books. But we do it in a way where, again, we derisk a little bit of the kind of in the period for the period risk around potential matchups. So that's been our approach consistent with how we've approached Super Bowls in the past.

Then as a follow-up, I don't know if there's been any discussion if we drill down a little bit deeper on Hyatt stuff. I know there's the points, big changes to points coming up not great as a customer, but hopefully helpful for you guys. And I know there's been discussions in the past about breakfast at Hyatt Place or Hyatt House. Any color you guys would add? Is that going to be -- is there any measurable benefit you see going from your Hyatt?

Yes. We did -- as you alluded to, we did beta test in a number of our assets, the pay-for breakfast concept at Hyatt Places. I would say, generally speaking, it was successful to the bottom line. I think Hyatt is still evaluating. And we're still working with Hyatt on the evaluation of how that gets rolled out more broadly. But it is something that we felt some benefits of in the second half of last year. I would say more broadly in terms of kind of points and loyalty in these programs. I think, again, the brands have been receptive to making sure that as those loyalty programs are growing, some of that benefit accrues to the hotel owners.

This will now conclude today's question-and-answer session. And I would like to hand the conference back over to Jon Stanner for closing remarks.

Well, thank you, everyone, for joining today for another earnings conference call. We do look forward to seeing many of you at some of the upcoming conferences we have, but we hope you have a wonderful day. Thank you.

This concludes today's conference call. Thank you for participating. And you may now disconnect.

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Milota, Senior Vice President, Finance. Please go ahead.

Thank you, operator, and good morning. I'm joined today by Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner, and Executive Vice President and Chief Financial Officer, Trey Conkling.

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. Forward-looking statements that we make today are effective only as of today, November 5, 2025, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website, www.shpreit.com.

Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thank you, Kevin, and good morning, everyone. We were pleased with our overall execution in the third quarter despite the challenging operating environment, highlighted by our ability to grow market share, prudently manage expenses and strategically invest capital across the portfolio to drive future operating performance. In addition, subsequent to quarter end, we completed the sale of 2 hotels at attractive valuations to further reduce debt, fund the accretive share repurchase activity we executed in the second quarter and enhance corporate liquidity. On today's call, we will provide details on our third quarter results, update our outlook for the remainder of the year, which incorporates sequential improvement in operating trends and highlight our recent balance sheet activities.

Our third quarter operating results were largely in line with the overall demand and RevPAR trends we experienced in the second quarter as the lodging environment remains generally stable. However, performance is mixed across segments. We continue to experience meaningful year-over-year reductions in both government and international inbound travel, which has required some remixing of business to lower-rated demand segments. For the quarter, same-store RevPAR declined 3.7%, which was in line with our second quarter results and driven predominantly by a 3.4% decline in average daily rate as occupancy remained essentially flat year-over-year. The pricing sensitivity we first started experiencing in March persisted through the summer, though the majority of the rate decline across our portfolio is being driven by the unfavorable shift in room night mix to lower-rated business.

In certain markets, this remixing of demand has been intentional as we strategically targeted discount-oriented segments, including advanced purchase offers to build a stronger base of business and reduce exposure to cancellations and rebookings that tend to occur when pricing softens. While individually, government and international inbound demand represent smaller segments of our overall demand mix, collectively, they account for approximately 15% of occupied room nights in our portfolio. Consistent with the second quarter, demand in these segments was down approximately 20% year-over-year in the third quarter, which combined drove nearly 50% of our year-over-year RevPAR decline. While these segments have been a drag on performance for the past couple of quarters, demand trends have largely stabilized prior to the recent government shutdown, which has driven some incremental pullback in government demand in the fourth quarter.

Thankfully, strong midweek demand trends in October have been able to offset much of this softness. And with the successful resolution to the shutdown, we expect a more stable foundation for next year when we will benefit from easier year-over-year comparisons. Hurricane activity in the third quarter of 2024 also created comparison headwinds this year, particularly in our Houston hotels that benefited from Hurricane Barrel-driven demand in July of last year. RevPAR in our Houston hotels declined 17% in the quarter, which reduced our overall third quarter RevPAR growth by approximately 50 basis points. Our portfolio once again delivered strong market share performance during the third quarter as our RevPAR index increased 140 basis points year-over-year to 116%, reflecting solid gains in both occupancy and average daily rate.

Our focus on driving out-of-room spend through food and beverage sales, resort and amenity fees and parking charges continues to be successful as non-rooms revenue increased 5.6% in the third quarter and has grown 4.3% year-to-date. Driven by some of our recent capital investments, most notably the transformational renovation of our Oceanside Fort Lauderdale Beach Hotel, we expect non-rooms revenue growth to continue to outperform. Our operating teams also continue to do a terrific job managing expenses in a challenged top line growth environment, particularly related to labor costs. Trey will provide additional details on expense trends and margin performance later in the call, but we were pleased with our ability to manage operating expenses again in the third quarter, which increased only 1.8% year-over-year or approximately 2% on a per occupied room basis.

Year-to-date, operating expenses have increased a modest 1.6% on relatively flat occupancy, which has mitigated EBITDA losses. On the capital allocation front, we closed on the sale of 2 noncore hotels subsequent to the end of the third quarter, the 107-room Courtyard Amarillo Downtown Hotel, which was owned in our joint venture with GIC and the 123-room Courtyard Kansas City Country Club Plaza Hotel. These divestitures generated combined gross proceeds of $39 million, which reflects a blended yield of 4.3% based on trailing 12-month net operating income and after consideration of approximately $10 million of foregone near-term capital expenditures. The asset sales represent a continuation of our successful capital recycling strategy that has enhanced the overall quality and growth potential of our portfolio, reduced balance sheet leverage, eliminated significant capital expenditure needs and funded our recent accretive share repurchase activity.

Since May of 2023, we've sold 12 noncore hotels, generating over $185 million in gross proceeds and eliminated nearly $60 million of capital expenditure requirements. On a blended basis, the assets were sold at a 4.5% net operating income capitalization rate and had a combined RevPAR of $85, which represents a 30% discount to the remaining portfolio. Over that same time period, we've acquired 4 hotels for approximately $140 million with a trailing 12-month NOI yield of 8.5%, including required near-term capital needs. The blended RevPAR of our acquisition portfolio was $143 at the time of purchase, which represents nearly a 20% premium to the current pro forma portfolio. In addition, these assets were all acquired within our joint venture with GIC, which produces asset management fees that further enhance our return profile.

As I alluded to in the opening, our outlook for the fourth quarter incorporates sequential improvement in operating trends compared to the second and third quarters of this year. As we shift out of the leisure-heavy summer travel months, we are benefiting from relatively stronger business transient trends, which have helped drive -- helped to drive midweek RevPAR growth, particularly in key urban markets. Fourth quarter pace for our pro forma portfolio is tracking approximately 2.5% behind last year, which notably incorporates several difficult special event comparisons that benefited the fourth quarter of 2024 and incremental headwinds driven by the government shutdown. For context, pace for the third quarter was approximately 10% behind last year at this time 90 days ago.

October RevPAR on a preliminary basis declined between 2% and 2.5% year-over-year, which represents our best monthly performance since February of this year. It's worth noting that historically, October represents approximately 40% of our fourth quarter revenue and 50% of hotel EBITDA. We currently expect fourth quarter RevPAR growth to actualize down between 2% and 2.5% year-over-year, which would result in a full year RevPAR decline of between 2.25% and 2.5%. These expectations should be caveated by the uncertainty created by the U.S. government shutdown. While we have experienced limited negative effects across our portfolio quarter-to-date, the longer-term implications of the shutdown create additional risk for lodging demand broadly, including disruption to air travel.

Looking ahead to 2026, we believe the setup is more favorable than it has been in the past several years. Industry expectations remain low and year-over-year comparisons for government travel eased significantly after March 1. In addition, the 2026 World Cup is expected to create robust demand in several of our key Sunbelt and Gateway markets, providing a unique tailwind in June and July next year as we have exposure to 6 post markets, which will feature nearly 60% of the matches to be held in the U.S.

Finally, we continue to emphasize the benefits that the cumulative effect of the lack of new hotel supply growth will have on industry fundamentals. With construction and financing costs still elevated, we expect this constrained supply environment to persist, supporting healthy future supply-demand dynamics across our markets. In summary, we remain optimistic on the outlook for our industry generally and Summit more specifically. The progress we have made on several of our key strategic initiatives over the past several quarters has enhanced our portfolio, strengthened our balance sheet and created meaningful embedded future earnings growth as demand trends normalize.

With that, I'll turn the call over to Trey to discuss our financial and operating results, recent capital markets activities and guidance in more detail.

Thanks, Jon, and good morning, everyone. Third quarter same-store RevPAR declined 3.7% year-over-year, driven primarily by average daily rate declining 3.4% as reductions in inbound international travel and government demand resulted in a shift in our room night mix to lower-rated segments. Third quarter adjusted EBITDA was $39.3 million, and adjusted FFO was $21.3 million or $0.17 per share as the company continues to benefit from lower interest expense and a lower share count resulting from our accretive share repurchases consummated in the second quarter. From a market perspective, Summit has significant exposure to 3 of the 5 top 25 U.S. markets that generated positive RevPAR growth in the third quarter, Chicago, San Francisco and Orlando, where we own 7 hotels in total.

Chicago generated strong growth despite the difficult comparison to last year's Democratic national convention as a solid convention calendar and multiple special events resulted in 8% ADR growth for the quarter. We expect that Chicago will continue to outperform as it has done all year. Orlando remains a standout performer, supported by robust leisure demand and the continued strength of the theme park ecosystem. The recent opening of Universal's highly anticipated Epic Universe Park is driving increased visitation among both new and repeat visitors, a trend we expect to continue for the foreseeable future. Combined with a robust convention calendar and recent renovations at 2 of our Orlando hotels, we anticipate 2026 to be a strong year for our Orlando portfolio, supported by a healthy balance of leisure and group demand.

In San Francisco, hotel performance continues to benefit from ongoing public and private efforts to enhance the city's overall environment and improve traveler perception. While inbound international and tech-related demand remains below pre-pandemic levels, we are encouraged by improving convention trends, a gradual return of business travel and event-driven leisure demand. We expect these trends to continue into the fourth quarter, which will see outsized RevPAR growth given the calendar shift of the Dreamforce citywide event. Our newly renovated Hilton Garden Milpitas also continues to perform well, reflecting ongoing momentum in corporate transient demand, particularly from technology sector accounts concentrated in the Silicon Valley submarket.

Finally, our Nashville hotels delivered a very strong third quarter, with RevPAR increasing by over 6% on the strength of an 11% increase in ADR. This significantly outperformed the overall market for which RevPAR declined nearly 4% year-over-year and reflects the positive momentum created from renewed revenue strategies at our 2 hotels in the market. Food and beverage and other non-rooms revenue outperformed in the third quarter with same-store revenue growth of 5.9% and 5.5%, respectively. Food and beverage revenue continues to benefit from the re-concepted bar and restaurant offering at the Oceanside Fort Lauderdale Beach, our recently introduced pay-for breakfast program at certain hotels and other ongoing initiatives to drive better breakfast and beverage sales. Other non-rooms revenue was driven by strong growth in resort and amenity fees as well as parking income.

We are pleased with the growth of these ancillary revenue streams and are working with our asset managers to identify additional opportunities to continue these successes. As John previously mentioned, we remain intensely focused on expense management with third quarter pro forma operating expenses increasing 1.8% year-over-year or approximately 2% on a per-occupied room basis as the company continues to identify operational efficiencies. Our asset management team and hotel managers have successfully focused on managing wages, reducing reliance on contract labor and improving employee retention. Hourly wages, excluding contract labor, increased 2% compared to the third quarter of 2024. The company also continues to benefit from reductions in contract labor, which declined by 8% on a nominal basis versus the third quarter of 2024. Contract labor represents 10% of total labor costs, and we believe there is opportunity for incremental improvement given the softening of the labor market.

Finally, we continue to see improvement in employee retention, which results in improved productivity, reduced training costs and greater guest satisfaction. Turnover rates in the third quarter have declined 40% from peak COVID era levels, which highlights the ongoing stabilization of the labor market. As it relates to our nonoperating expenses, we benefited from lower interest expenses in the quarter, which was offset by higher property taxes. We expect that trend to continue through year-end, given the difficult comparisons to 2024 when we benefited from a number of successful property tax refunds. Overall, we are encouraged by our ability to control operating expenses and expect to manage operating expense growth to low-single-digit increases, which we believe further highlights the strength of our efficient operating model.

From a capital expenditure standpoint, through the first 3 quarters of the year, we invested $56 million in our portfolio on a consolidated basis and $49 million on a pro rata basis. Recently completed and ongoing renovations include the Scottsdale Oldtown Hyatt Place, Residence Inn Atlanta Midtown, Hampton Inn Dallas, Homewood Suites Midland and the Residence Inn Mede. It is worth noting that over the past 3 years, we have invested over $260 million in capital expenditures on a consolidated basis as we are committed to maintaining a best-in-class portfolio. Furthermore, this capital investment affords us the flexibility to preserve optionality on certain renovations without risking meaningful downward pressure on overall operating results.

Turning to the balance sheet. We continue to be proactive in extending maturities, reducing borrowing costs and enhancing corporate liquidity. During the third quarter, we refinanced our $396 million GIC joint venture term loan that funded the acquisition of the Newcrest image portfolio in January 2022. The new $400 million term loan has a fully extended maturity of July 2030 at an interest rate of SOFR plus 235 basis points, which represents a 50-basis point reduction in spread versus the prior loan. After closing the loan, we entered into a forward-dated $300 million swap that fixes SOFR at 3.26%, which will accretively replace the $300 million of existing swaps priced at 3.49% and set to expire in mid-January 2026.

In February, we intend to fully draw our $275 million delayed draw term loan to retire the $288 million of convertible notes maturing in the first quarter of 2026. Pro forma for this refinancing, we have 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 SOFR rate of approximately 3% and 75% of our pro rata 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 ample liquidity, an average interest rate of 4.5% and an average length to maturity of nearly 4 years when adjusting for our recent refinancings, we believe the company is well-positioned to navigate near-term volatility in operating fundamentals as well as to take advantage of potential value creation opportunities.

On October 31, 2025, our Board of Directors declared a quarterly common dividend of $0.08 per share. which represents a dividend yield of approximately 6% based on the annualized dividend of $0.32 per share. The current dividend rate continues to represent a modest payout ratio of 38% based on the company's trailing 12-month AFFO. 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. While we remain confident in the long-term fundamentals in our portfolio, near-term results are being negatively affected by increased price sensitivity and continued macroeconomic volatility.

We currently expect fourth quarter 2025 RevPAR to range from minus 2% to minus 2.5% as operating trends demonstrate sequential improvement from the second and third quarters of this year. Operating expense growth is expected to range from 1.5% to 2% for the full year. It is worth noting that the recent sales of the Courtyard Amarillo and Courtyard Kansas City will result in approximately $400,000 of foregone pro rata hotel EBITDA in the fourth quarter, representing the date of sale through year-end. From a nonoperational perspective, we expect full year pro rata interest expense, excluding the amortization of deferred financing costs to be $50 million to $55 million, Series E and Series F preferred dividends to be $16 million and Series D preferred distributions to be $2.6 million. From a capital expenditure perspective, we are targeting a full year 2025 spend of $60 million to $65 million on a pro rata basis. The previously referenced nonoperational estimates do not include any additional acquisition, disposition or capital markets refinancing activity beyond what we have discussed today.

Finally, 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 Summit may earn during the year.

And with that, we will open the call to your questions.

[Operator Instructions] Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets.

It's Josh Friedland on for Austin. I wanted to ask about leisure demand trends across your portfolio. Do you expect further normalization or softening? Or has it reached a point of stabilization in your view?

Josh, this is Jon. Look, I think we definitely felt some softness on the leisure side over the course of the summer. It does feel to me like it has stabilized. And I think one of the things that we called out in our prepared remarks is that part of what's driving better results in October, and I think a more constructive outlook for the fourth quarter is better midweek performance, particularly in urban markets. And some of that is the transition outside away from leisure towards a more BT-oriented customer. I do think that leisure demand trends are largely stable, and I wouldn't expect any further deterioration of those trends in the fourth quarter.

That's helpful. And as you look into next year, I know you called out a couple of markets in the opening remarks, but which markets are you most optimistic about? And kind of what factors are driving that confidence?

Yes. I mean I think as we look into 2026, I mean, clearly, I think we believe the World Cup is going to be a large driver of demand. And as we alluded to, we've got 6 markets that will benefit from the World Cup, Atlanta, Boston, Dallas, Houston, Miami and San Francisco. San Francisco is also going to host the Super Bowl next year. We think that Boston will benefit from kind of the America's 250 celebration. We'll host the Final 4 in Indianapolis next year. So, we do have a portfolio that has a fair amount of exposure to some of the special event-driven demand that we think will be tailwinds to our performance as we look into '26.

Our next question comes from Chris Woronka with Deutsche Bank.

I guess my first question was kind of related to government and I guess you say government adjacent or government contract. Can you give us a sense, how does that -- what are the booking windows on that? What does the pricing look like versus kind of your, I guess, you want to call it blended portfolio or corporate, whatever you use the best comp for? Just trying to square up what -- how that's going to -- when things open up again is how immediate and how significantly you might feel the impact on the upside?

Yes. Look, government -- the answer on rate is really a market-specific question. And so, there are certain markets where per diem rates are really attractive and we take as much business -- as much of that business as we can take. There are other markets where it ends up getting yielded out when you've got stronger demand. I'd say, overall, our government rates are attractive. And I don't think that the booking window from a transient perspective is any different than the other transient -- the rest of our portfolio's transient window. And I would say the same thing on the group side. I think what's important to point out is it's really the pullback in demand more than it is the pricing dynamics that are forcing this remix. And so, when you look at channel mix or you look at segmentation mix, what you're seeing in the second and third quarter is a heavier emphasis and more business being driven through discounted channels. And some of that is being driven by, again, the lack of demand we've seen from government and international inbound demand.

Those 2 -- we said this in the prepared remarks, but those 2 segments have accounted for about half of our RevPAR reduction year-over-year. And so, not only did we lose the demand, but again, it's forcing this remixing of business towards more discounted channels. And again, that's putting some pressure on rates year-over-year.

And then as you think about World Cup next year, I mean, we understand that a lot of the negotiations are already done, hotels are booked or soft booked in these markets pretty full. You guys have 6 markets, I think 20-some hotels. Is there any way -- how are you guys thinking internally about the, I guess, RevPAR uplift from that. But also, I think on the other side, we've also heard that FIFA requires pretty loose cancellation policies and then there's kind of the debate about what happens in the market before and after the matches come through. So just how are you kind of constructing that internally in terms of potential upside and how much you might underwrite when you give us your initial guidance in, I guess, February or March?

Yes. Look, I think the first thing I would say is we do expect a really nice lift in many of these markets from the demand that's created. Obviously, there's uncertainty on who's going to be playing in which markets. And so that will feed into some of our revenue management strategies around the event. And similar to how we've handled Super Bowls in the past, what we often will do is we'll create a base layer of group demand. I'll give you an example in Dallas, it's going to be the media headquarters for the event, and we've got 4 hotels really proximate to the convention center in downtown Dallas. We'll be able to layer in a base layer of group demand around that event that will insulate us a little bit around who's playing and what games there are. I think without question, you're going to see pretty significant lift in all of these markets in and around the games and in and around kind of all of the pre-game festivities. There certainly could be some demand patterns that change depending on who's playing. And so, we're going to want to revenue manage around those dynamics. And part of that strategy is going to be based on creating a base layer of demand that's in-house prior to getting closer to the actual matches.

I want to be careful around trying to quantify what we think that lift is. We're obviously going through our budget process now other than to say, again, we think the setup in those 6 markets where we do have meaningful exposure is going to be meaningful for us next year.

[Operator Instructions] Our next question comes from Michael Bellisario with Baird.

Jon, do you want to dig into business transient in October, maybe just more specifically, any commentary or color about Tuesday, Wednesday nights, the rate or occupancy pickup? And then any -- excuse me, also commentary on November and November base, what you're seeing so far looking out 30 days, that would be helpful.

Yes, sure. Look, as we said before, despite the fact that there's been some incremental demand challenges on the government side related to the shutdown, our October results are going to finish between 2% and 2.5% down year-over-year, which is a sequential improvement from what we saw really all through the third quarter. A lot of that, as you alluded to, Mike, is driven by the strength of midweek demand. And if I look -- if I isolate Tuesdays and Wednesday nights and just look at occupancies and RevPARs year-over-year, we've actually inflected positively in October, and we were running down 200 or 300 basis points in both the second and third quarter. So, there are some really positive demand trends. A lot of that is really driven by our urban markets. And again, I think speaks to at least the relative strength of business transient travel.

As it relates to November, and I'll talk about fourth quarter pace more generally, our pace for the quarter is tracking about 2.5% behind last year. It's fairly evenly balanced between November and December. I'd highlight a couple of things, some of which we highlighted in our prepared remarks, October represents about half of our EBITDA for the quarter. So, a lot of our quarter has been baked with what has been, again, a relatively more positive October. But we are seeing kind of stability of demand patterns and better pacing trends than we have seen over the last several quarters. When I think about what 2.5% means with 60 days left in the quarter, if I go back and look at where we sat 90 days ago for the third quarter, we were down about 10% in pace and actualized, obviously, plus or minus 4% for the quarter. So, we are much less reliant on in the quarter for the quarter pickup and in the month for the month pickup in the fourth quarter than we were, again, 90 days ago.

That's helpful. And then just switching gears in terms of transactions and the balance sheet. Just remind us of your near-term capital allocation priorities, maybe how many assets are left to be sold? What are the parameters for buybacks? And then maybe when you think about being even more aggressive on the asset sale front? And that's all for me.

Sure. Yes. Well, look, we're pleased with how we've been able to recycle capital. And I think the 2 assets that we sold in October further demonstrate our ability to be really strategic, but also tactical in how we've gone about asset dispositions. Over the last couple of years, we've sold 12 assets. We're doing it mostly onesie-twosies where we're finding the right often local owner operator that has been a little bit less yield sensitive. And so, we've been able to transact at yields that are sub-5% yields. We've obviously eliminated a lot of capital that was going to need to go into those assets. That has been kind of a common thread that's been consistent across all of those dispositions. There will always be more. There will always be assets in our portfolio that we believe it will be time to recycle that capital into something that's a higher and better use. We've done that really historically through -- since the company has gone public as we've been a very active recycler of assets. And I think you should expect that to continue as we get into 2026.

As you alluded to from a share repurchase perspective, obviously, we're very pleased with the execution of where we bought the shares back in the second quarter. The stock is up 20-plus percent since we bought those shares back. We were clearly very focused on getting the asset sales closed in October, but it is nice to have that tool available to us for periods where there's more meaningful dislocations in the equity.

Our next question comes from RJ Milligan with Raymond James.

Jon, I wanted to follow up on your comments just now about continued portfolio recycling. Just curious, how much is left to sell or to recycle through? And can you maybe provide a little bit more color on the asset sales in the quarter and what the buyer pool looks like and the buyer pool expectations for 2026?

Sure. Look, I think, RJ, we always have viewed that there's kind of a bottom 10% of the portfolio. And I think when we think philosophically about capital allocation, what we want to make sure we do is we always have a portfolio, a real estate portfolio that is -- that's consistent with where guest expectations and what guests -- where they want to stay. And so, we feel like we constantly have to evolve the portfolio. That's what we've done historically. That's what you can expect from us going forward. And again, I think without quantifying it or identifying specific assets, you should always expect us to be an active recycler of capital.

One of the things that we have prioritized is identifying slower growth assets that have significant capital needs. And again, if you look at the dozen assets we've sold over the last couple of years, you'll see lower cap rate deals and assets that needed pretty significant capital expenditures over the next several years. And so again, we've been very pleased with that execution. It is still a very soft transaction market generally. As everyone is well aware, there have not been a lot of deals that have gotten done. A lot of that, I think, has been driven by some of the uncertainty on the fundamental side of the business and the lack of RevPAR growth that we've seen over the course of the second and third quarters. We do expect that to improve as we get into the later parts of this year and into next year. But again, our efforts have really been very focused on finding the right buyer in the right market, and I think we've been successful doing that.

And then a follow-up on -- I may have missed this, but clearly, government and government-related demand was low post Liberation Day. But I'm curious if you could quantify what the impact was in October with the incremental government shutdown and how much that contributed?

Yes. Government has been running down about 20% year-over-year really since Liberation Day. Our October numbers are down more than that. They're probably down 30% year-over-year, plus or minus in October. It's off of a smaller base, obviously. And so, we haven't felt -- what we haven't seen is a lot of significant cancellations or lack of check-ins on the government side. We are pacing down. But as we've alluded to a couple of times, thankfully, a lot of that softness has been offset by better midweek trends, particularly related to business transient demand.

I'm showing no further questions at this time. I would now like to turn it back to Jon Stanner for closing remarks.

Well, thank you all for joining us this morning. We look forward to seeing many of you at the various industry conferences we have scheduled for later this year. I hope you have a nice day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.