Low Hotel Supply And Sun Belt Expansion Will Strengthen Markets

Key Takeaways

• Limited new hotel supply and rising travel demand underpin stronger pricing, occupancy, and revenue growth in key leisure and urban markets.
  
• Asset-light expansion and active capital recycling drive margin improvements and position the company for long-term outperformance.
  
• Weakening revenue growth, demand challenges, and asset sales are forcing reliance on cost controls, threatening long-term margins, growth prospects, and portfolio strength.

Catalysts

A publicly traded real estate investment trust focused on owning premium-branded lodging facilities with efficient operating models primarily in the upscale segment of the lodging industry.

• Historically low new hotel supply growth is expected to persist for several years, limiting future competition and enabling higher occupancy and stronger pricing power, which should positively impact future revenue and margins.
  
• Ongoing recovery and growth in leisure and experiential travel, especially around new attractions (e.g., Universal's Epic Universe in Orlando, Universal Kids Resort in Frisco) and major events (e.g., World Cup, citywide conventions), is set to drive substantial demand increases in key markets, supporting RevPAR and top-line revenue growth.
  
• Strategic investment focus on fast-growing Sun Belt and urban/suburban markets positions Summit to benefit from long-term demographic shifts and migration patterns, likely supporting revenue outperformance relative to industry peers.
  
• Expansion into high-yield, asset-light experiential offerings such as the Onera Fredericksburg luxury landscape hotel and continued optimization of expense management, including reduction in contract labor and improved employee retention, should result in improved EBITDA margins and higher returns on invested capital.
  
• Prudent capital recycling through non-core asset sales, active balance sheet deleveraging, and accretive share repurchases at substantial discounts to trading price all serve to enhance per-share earnings and free up capital for future growth opportunities.

Summit Hotel Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Summit Hotel Properties's revenue will grow by 2.4% annually over the next 3 years.
• Analysts are not forecasting that Summit Hotel Properties will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Summit Hotel Properties's profit margin will increase from -1.4% to the average US Hotel and Resort REITs industry of 3.7% in 3 years.
• If Summit Hotel Properties's profit margin were to converge on the industry average, you could expect earnings to reach $28.6 million (and earnings per share of $0.26) by about August 2028, up from $-9.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.1x on those 2028 earnings, up from -56.8x today. This future PE is greater than the current PE for the US Hotel and Resort REITs industry at 28.6x.
• Analysts expect the number of shares outstanding to decline by 2.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Summit Hotel Properties Future Earnings Per Share Growth

Risks

• Both second and third quarter 2025 saw year-over-year RevPAR (revenue per available room) and ADR (average daily rate) declines, with specific pressure on higher-rated segments and a shift toward lower-rated demand, signaling persistent pricing sensitivity and reduced top-line revenue growth potential.
  
• The company is relying increasingly on expense management and share repurchases to offset weaker revenue, indicating that recent bottom-line resilience may not be sustainable if top-line softness continues or labor cost pressures return, ultimately threatening margins and earnings.
  
• Shortened booking windows, increased demand volatility, and a lack of visibility make it harder for management to forecast and capitalize on peak demand periods, increasing the risk of missed revenue opportunities and wider earnings variability.
  
• Asset sales required to fund buybacks and deleveraging are primarily of non-core properties needing renovation, potentially indicating underinvestment in the overall portfolio and limiting the company's ability to capture upside in a recovery, constraining future revenue and growth.
  
• A 20%+ decline in government-related demand and 18% decline in international inbound travel-with continued pressure or only stabilization at lower levels-raise questions about long-term demand from key segments, which could weigh on occupancy and inhibit a return to sustained revenue growth.

Valuation

• The analysts have a consensus price target of $6.438 for Summit Hotel Properties based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $780.0 million, earnings will come to $28.6 million, and it would be trading on a PE ratio of 35.1x, assuming you use a discount rate of 12.3%.
• Given the current share price of $5.3, the analyst price target of $6.44 is 17.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.