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…

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…

[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.