Summit Hotel Properties IPO: Reception Not as Hospitable as Anticipated

| About: Summit Hotel (INN)

Summit Hotel Properties (NYSE:INN), a hotel investment company, priced its IPO on February , below the expected range, at $9.75 per share.

Business Overview (from prospectus)

We are a self-managed hotel investment company that was recently organized to continue and expand the existing hotel investment business of our predecessor, Summit Hotel Properties, LLC, a leading U.S. hotel owner. We will focus exclusively on acquiring and owning premium-branded limited-service and select-service hotels in the upscale and midscale without food and beverage segments of the U.S. lodging industry. Following completion of this offering, the concurrent private placement and the formation transactions, our initial portfolio will consist of 65 hotels with a total of 6,533 guestrooms located in 19 states. Our initial portfolio consists of what we consider both “seasoned” and “unseasoned” hotels that are located in markets in which we have extensive experience and that exhibit multiple demand generators, such as business and corporate headquarters, retail centers, airports and tourist attractions. Based on total number of rooms, 48% of our portfolio is positioned in the top 50 metropolitan statistical areas, or MSAs, and 68% is located within the top 100 MSAs.

Offering: 26 million shares at $9.75 per share. Net proceeds of approximately $227 million will be used for debt repayment, and approximately $10 million for capital improvements of the hotels.

Lead Underwriters: Deutsche Bank Securities (NYSE:DB), Baird, RBC Capital Markets

Financial Highlights:

Revenues increased by $12 million, or 12.9%, from $92.8 million for the nine months ended September 30, 2009 to $104.8 million for the nine months ended September 30, 2010...Total operating expenses from continuing operations increased by $4.7 million, or 7.0%, to $71.6 million for the nine months ended September 30, 2010 from $66.9 million for the prior period...Income from operations increased by $10.5 million, or 438%, to $12.9 million for the nine months ended September 30, 2010 from $2.4 million for the nine months ended September 30, 2009...


We face competition for investments in hotel properties from institutional pension funds, private equity investors, REITs, hotel companies and others who are engaged in hotel acquisitions and investments. Some of these entities have substantially greater financial and operational resources than we have. This competition may increase the bargaining power of property owners seeking to sell, reduce the number of suitable investment opportunities available to us and increase the cost of acquiring our targeted hotel properties.

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