inn-20140630.xml

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35074

SUMMIT HOTEL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Maryland	27-2962512
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

12600 Hill Country Boulevard, Suite R-100

Austin, TX 78738

(Address of principal executive offices, including zip code)

(512) 538-2300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

As of August 1, 2014, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 85,915,997.

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TABLE OF CONTENTS

			Page

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

	Consolidated Balance Sheets — June 30, 2014 (unaudited) and December 31, 2013		1
	Consolidated Statements of Operations (unaudited) — Three and Six Months Ended June 30, 2014 and 2013		2
	Consolidated Statements of Comprehensive Income (unaudited) - Three and Six Months Ended June 30, 2014 and 2013		3
	Consolidated Statements of Changes in Equity (unaudited) — Six Months Ended June 30, 2014 and 2013		4
	Consolidated Statements of Cash Flows (unaudited) — Six Months Ended June 30, 2014 and 2013		5
	Notes to the Consolidated Financial Statements		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.		Controls and Procedures	39

PART II — OTHER INFORMATION

Item 1.		Legal Proceedings	40

Item 1A.		Risk Factors	40

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.		Defaults Upon Senior Securities	40

Item 4.		Mine Safety Disclosures	40

Item 5.		Other Information	40

Item 6.		Exhibits	42

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SUMMIT HOTEL PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)

JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013

	June 30,			December 31,
	2014			2013
ASSETS

Investment in hotel properties, net	$	1,271,539		$	1,149,967
Investment in hotel properties under development	160			—
Land held for development	13,748			13,748
Assets held for sale	8,663			12,224
Cash and cash equivalents	41,728			46,706
Restricted cash	54,637			38,498
Trade receivables	13,142			7,231
Prepaid expenses and other	5,681			8,876
Derivative financial instruments	33			253
Deferred charges, net	10,413			10,270
Deferred tax asset	54			49
Other assets	8,525			6,654
TOTAL ASSETS	$	1,428,323		$	1,294,476


LIABILITIES AND EQUITY

LIABILITIES
Debt	$	579,932		$	435,589
Accounts payable	6,256			7,583
Accrued expenses	36,322			27,154
Derivative financial instruments	2,296			1,772
TOTAL LIABILITIES	624,806			472,098

COMMITMENTS AND CONTINGENCIES (Note 7)

EQUITY
Preferred stock, $.01 par value per share, 100,000,000 shares authorized:
9.25% Series A - 2,000,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $50,385 at June 30, 2014 and $50,398 at December 31, 2013)	20			20
7.875% Series B - 3,000,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $75,492 at June 30, 2014 and $75,324 at December 31, 2013)	30			30
7.125% Series C - 3,400,000 shares issued and outstanding at June 30, 2014 and December 31, 2013 (aggregate liquidation preference of $85,505 at June 30, 2014 and $85,522 at December 31, 2013)	34			34
Common stock, $.01 par value per share, 450,000,000 shares authorized, 85,857,241 and 85,402,408 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	859			854
Additional paid-in capital	884,420			882,858
Accumulated other comprehensive loss	(2,114		)	(1,379		)
Accumulated deficit and distributions	(87,724		)	(72,577		)
Total stockholders’ equity	795,525			809,840
Non-controlling interests in operating partnership	7,992			4,722
Non-controlling interests in joint venture	—			7,816
TOTAL EQUITY	803,517			822,378

TOTAL LIABILITIES AND EQUITY	$	1,428,323		$	1,294,476

See Notes to the Consolidated Financial Statements

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SUMMIT HOTEL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013

REVENUES
Room revenue	$	99,680		$	75,123		$	184,232		$	131,764
Other hotel operations revenue	5,845			3,982			10,837			7,064
Total Revenues	105,525			79,105			195,069			138,828

EXPENSES
Hotel operating expenses:
Rooms	25,985			20,744			49,677			37,254
Other direct	13,214			9,483			25,234			17,263
Other indirect	27,041			20,267			50,900			35,570
Other	369			193			717			360
Total hotel operating expenses	66,609			50,687			126,528			90,447
Depreciation and amortization	16,645			12,727			32,075			23,378
Corporate general and administrative:
Salaries and other compensation	3,330			2,294			5,489			4,715
Other	2,087			1,729			4,133			2,385
Hotel property acquisition costs	17			786			709			1,440
Loss on impairment of assets	660			—			660			—
Total Expenses	89,348			68,223			169,594			122,365

INCOME FROM OPERATIONS	16,177			10,882			25,475			16,463

OTHER INCOME (EXPENSE)
Interest income	122			18			172			35
Other income	64			63			104			223
Interest expense	(6,846		)	(4,879		)	(13,206		)	(8,929		)
Gain on disposal of assets	14			—			11			6
Gain (loss) on derivative financial instruments	(1		)	2			(1		)	2
Total Other Expense, net	(6,647		)	(4,796		)	(12,920		)	(8,663		)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	9,530			6,086			12,555			7,800

INCOME TAX (EXPENSE) BENEFIT	(329		)	39			(407		)	(149		)

INCOME FROM CONTINUING OPERATIONS	9,201			6,125			12,148			7,651

INCOME (LOSS) FROM DISCONTINUED OPERATIONS	(41		)	545			337			902

NET INCOME	9,160			6,670			12,485			8,553

INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Operating Partnership	61			133			51			105
Joint venture	124			89			1			52

NET INCOME ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, INC.	8,975			6,448			12,433			8,396

PREFERRED DIVIDENDS	(4,147		)	(3,844		)	(8,294		)	(6,296		)

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	4,828		$	2,604		$	4,139		$	2,100

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	85,165			65,480			85,136			64,090

Diluted	85,663			65,954			85,596			64,452

EARNINGS PER SHARE
Basic and diluted net income per share from continuing operations	$	0.06		$	0.03		$	0.04		$	0.02
Basic and diluted net income per share from discontinued operations	—			0.01			0.01			0.01

Basic and diluted net income per share	$	0.06		$	0.04		$	0.05		$	0.03

See Notes to the Consolidated Financial Statements

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SUMMIT HOTEL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013

NET INCOME	$	9,160		$	6,670		$	12,485		$	8,553

Other comprehensive income (loss), net of tax:
Changes in fair value of derivative financial instruments	(676		)	710			(744		)	817
Total other comprehensive income (loss)	(676		)	710			(744		)	817

COMPREHENSIVE INCOME	8,484			7,380			11,741			9,370

COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Operating Partnership	53			166			42			143
Joint venture	124			89			1			52

COMPREHENSIVE INCOME ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, INC.	8,307			7,125			11,698			9,175

PREFERRED DIVIDENDS	(4,147		)	(3,844		)	(8,294		)	(6,296		)

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	4,160		$	3,281		$	3,404		$	2,879

See Notes to the Consolidated Financial Statements

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SUMMIT HOTEL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except share amounts)

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

										Accumulated
	Shares of			Shares of						Other			Accumulated			Total			Non-controlling Interests
	Preferred	Preferred		Common	Common		Additional			Comprehensive			Deficit and			Stockholders’			Operating						Total
	Stock	Stock		Stock	Stock		Paid-In Capital			Income (Loss)			Distributions			Equity			Partnership			Joint Venture			Equity

BALANCES, DECEMBER 31, 2013	8,400,000	$	84	85,402,408	$	854	$	882,858		$	(1,379	)	$	(72,577	)	$	809,840		$	4,722		$	7,816		$	822,378

Common stock redemption of common units	—	—		151,504	2		234			—			—			236			(236		)	—			—
Common units issued for acquisition	—	—		—	—		—			—			—			—			3,685			—			3,685
Acquisition of non-controlling interest in joint venture	—	—		—	—		(415		)	—			—			(415		)	—			(7,817		)	(8,232		)
Dividends paid	—	—		—	—		—			—			(27,580		)	(27,580		)	(243		)	—			(27,823		)
Equity-based compensation	—	—		303,329	3		1,743			—			—			1,746			22			—			1,768
Other comprehensive loss	—	—		—	—		—			(735		)	—			(735		)	(9		)	—			(744		)
Net income	—	—		—	—		—			—			12,433			12,433			51			1			12,485

BALANCES, JUNE 30, 2014	8,400,000	$	84	85,857,241	$	859	$	884,420		$	(2,114	)	$	(87,724	)	$	795,525		$	7,992		$	—		$	803,517

BALANCES, DECEMBER 31, 2012	5,000,000	$	50	46,159,652	$	462	$	468,820		$	(528	)	$	(31,985	)	$	436,819		$	36,718		$	—		$	473,537

Net proceeds from sale of common stock	—	—		17,250,000	172		147,867			—			—			148,039			—			—			148,039
Net proceeds from sale of preferred stock	3,400,000	34		—	—		81,689			—			—			81,723			—			—			81,723
Common stock redemption of common units	—	—		2,228,544	23		6,727			—			—			6,750			(6,750		)	—			—
Contribution by non-controlling interests in joint venture	—	—		—	—		—			—			—			—			—			7,500			7,500
Dividends paid	—	—		—	—		—			—			(21,140		)	(21,140		)	(703		)	—			(21,843		)
Equity-based compensation	—	—		324,341	3		1,267			—			—			1,270			—			—			1,270
Other comprehensive income	—	—		—	—		—			779			—			779			38			—			817
Net income	—	—		—	—		—			—			8,396			8,396			105			52			8,553

BALANCES, JUNE 30, 2013	8,400,000	$	84	65,962,537	$	660	$	706,370		$	251		$	(44,729	)	$	662,636		$	29,408		$	7,552		$	699,596

See Notes to the Consolidated Financial Statements

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SUMMIT HOTEL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED)

	For the Six Months Ended June 30,
	2014			2013

OPERATING ACTIVITIES
Net income	$	12,485		$	8,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,084			24,814
Amortization of prepaid lease	24			24
Loss on impairment of assets	1,060			1,500
Equity-based compensation	1,768			1,270
Deferred tax asset	(5		)	567
Gain on disposal of assets	(28		)	(1,666		)
(Gain) loss on derivative financial instruments	1			(2		)
Changes in operating assets and liabilities:
Restricted cash - operating	(2,234		)	(721		)
Trade receivables	(5,911		)	(6,250		)
Prepaid expenses and other	3,106			(940		)
Accounts payable and accrued expenses	6,439			7,765

NET CASH PROVIDED BY OPERATING ACTIVITIES	48,789			34,914

INVESTING ACTIVITIES
Acquisitions of hotel properties	(89,985		)	(388,456		)
Acquisition of non-controlling interest in joint venture	(8,232		)	—
Investment in hotel properties under development	—			(154		)
Acquisition of land held for development	—			(2,800		)
Improvements and additions to hotel properties	(26,456		)	(18,292		)
Amounts drawn under note funding obligation	(2,000		)	—
Purchases of office furniture and equipment	(11		)	(316		)
Proceeds from asset dispositions, net of closing costs	2,668			25,094
Restricted cash - FF&E reserve	(2,364		)	(14,156		)

NET CASH USED IN INVESTING ACTIVITIES	(126,380		)	(399,080		)

FINANCING ACTIVITIES
Proceeds from issuance of debt	130,998			268,150
Principal payments on debt	(29,828		)	(96,810		)
Financing fees on debt	(734		)	(2,160		)
Proceeds from equity offerings, net of offering costs	—			237,262
Dividends paid and distributions to members	(27,823		)	(21,843		)

NET CASH PROVIDED BY FINANCING ACTIVITIES	72,613			384,599

NET CHANGE IN CASH AND CASH EQUIVALENTS	(4,978		)	20,433

CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD	46,706			13,980

END OF PERIOD	$	41,728		$	34,413

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest	$	12,913		$	8,495

Capitalized interest	$	116		$	154

Cash payments for income taxes, net of refunds	$	617		$	676

Mortgage debt from acquisitions of hotel properties	$	43,172		$	33,532

Fair value of common units issued for acquisition	$	3,685		$	—

See Notes to the Consolidated Financial Statements

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - DESCRIPTION OF BUSINESS

Summit Hotel Properties, Inc. (the “Company”) is a self-managed hotel investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. On February 14, 2011, the Company closed on its initial public offering (“IPO”) of 26,000,000 shares of common stock and a concurrent private placement of 1,274,000 shares of common stock. Effective February 14, 2011, the Operating Partnership and Summit Hotel Properties, LLC (the “Predecessor”) completed the merger of the Predecessor with and into the Operating Partnership (the “Merger”). Unless the context otherwise requires, “we”, “us”, and “our” refer to the Company and its subsidiaries.

Summit Hotel OP, LP, the Operating Partnership subsidiary of the Company, filed a Form 15 on December 12, 2013 to voluntarily suspend its duty to file periodic and other reports with the Securities and Exchange Commission (the “SEC”) and to voluntarily deregister its common units of limited partnership interest under the Securities and Exchange Act of 1934 (the “Exchange Act”). As a result of filing the Form 15 with the SEC, the Operating Partnership is no longer required to file annual, quarterly or periodic reports with the SEC. The filing of the Form 15 by the Operating Partnership does not impact the registration of the Company’s common stock under the Exchange Act or the Company’s obligations as a reporting issuer under the Exchange Act.

At June 30, 2014, our portfolio consisted of 90 upscale and upper midscale hotels with a total of 11,367 guestrooms located in 22 states. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes commencing with our short taxable year ended December 31, 2011. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, substantially all of our hotels are leased to subsidiaries (“TRS Lessees”) of our taxable REIT subsidiary (“TRS”). We indirectly own 100% of the outstanding equity interests in all of our TRS Lessees. Prior to the second quarter of 2014, we indirectly owned an 81% controlling interest in the TRS Lessee associated with the Holiday Inn Express & Suites in San Francisco, CA, which we acquired in early 2013 through a joint venture. On June 30, 2014, we acquired the remaining 19% interest in the TRS Lessee as part of the purchase of the non-controlling joint venture interest in the hotel.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

We prepared these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete audited consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and six months ended June 30, 2014 may not be indicative of the results that may be expected for the full year 2014. For further information, please read the financial statements included in our Form 10-K for the year ended December 31, 2013.

Segment Disclosure

Accounting Standards Codification (“ASC”), ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, with activities related to investing in real estate. Our investments in real estate are geographically diversified and the chief operating decision makers evaluate operating performance on an individual asset level. As each of our assets has similar economic characteristics, the assets have been aggregated into one reportable segment.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Assets Held for Sale and Discontinued Operations

We classify assets as held for sale in the period in which certain criteria are met, including when the sale of the asset within one year is probable. Assets held for sale are no longer depreciated and are carried at the lower of carrying amount or fair value, less selling costs.

Historically, we presented the results of operations of hotel properties that had been sold or otherwise qualified as assets held for sale in discontinued operations if the operations and cash flows of the hotel properties had been or would be eliminated from our ongoing operations. Following adoption of ASU 2014-08 in the first quarter of 2014, as discussed below, we anticipate that the majority of future property sales will not be classified as discontinued operations.

We periodically review our hotel properties and our land held for development based on established criteria such as age, type of franchise, adverse economic and competitive conditions, and strategic fit, to identify properties which we believe are either non-strategic or no longer complement our business.

Non-controlling Interests

Non-controlling interests represent the portion of equity in a subsidiary held by owners other than the consolidating parent. Non-controlling interests are reported in the consolidated balance sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income (loss) attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations.

Our consolidated financial statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties and, prior to the second quarter of 2014, third-party ownership of a 19% interest in a consolidated joint venture.

Income Taxes

We are taxed as a REIT under certain provisions of the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute annually to our shareholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, which does not necessarily equal net income as calculated in accordance with GAAP. As a REIT, we generally will not be subject to federal income tax (other than taxes paid by our TRS) to the extent we distribute 100% of our REIT taxable income to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions.

We account for federal and state income taxes of our TRS using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amounts of existing assets and liabilities based on GAAP and respective carrying amounts for tax purposes, and operating losses and tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change in tax rates. However, deferred tax assets are recognized only to the extent that it is more likely than not they will be realized based on consideration of available evidence, including future reversals of taxable temporary differences, future projected taxable income and tax planning strategies.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair Value Measurement

Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:	Observable inputs such as quoted prices in active markets.
Level 2:	Directly or indirectly observable inputs, other than quoted prices in active markets.
Level 3:	Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:

Market approach:		Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach:		Amount required to replace the service capacity of an asset (replacement cost).
Income approach:		Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).

Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

We elected not to use the fair value option for cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other, debt, accounts payable, and accrued expenses. With the exception of our fixed-rate debt, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates.

New Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The ASU changed the criteria for reporting discontinued operations while enhancing related disclosures. Criteria for discontinued operations will now include only disposals that represent a strategic shift in operations with a major effect on operations and financial results. The ASU is to be applied on a prospective basis and would be effective for us beginning January 1, 2015; however, we have elected early adoption in the first quarter of 2014, which is permitted for disposals, and classifications as held for sale, which have not been reported previously. While we have elected early adoption for our consolidated financial statements and footnote disclosures, the sale of the AmericInn Hotel & Suites, Aspen Hotel & Suites and Hampton Inn in Fort Smith, AR will be included in discontinued operations as these hotels were classified as held for sale in our consolidated financial statements in prior periods. The AmericInn Hotel & Suites and Aspen Hotel & Suites were sold in January 2014.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its consolidated financial statements.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 - HOTEL PROPERTY ACQUISITIONS

Hotel property acquisitions in the six months ended June 30, 2014 and 2013 include (in thousands):

Date Acquired	Franchise/Brand	Location	Purchase Price		Debt Assumed

First Six Months 2014
January 9	Hilton Garden Inn	Houston, TX	$	37,500	$	17,846
January 10	Hampton Inn	Santa Barbara (Goleta), CA	27,900		12,037
January 24	Four Points by Sheraton	San Francisco, CA	21,250		—
March 14	DoubleTree by Hilton	San Francisco, CA	39,060		13,289
Total Six Months Ended June 30, 2014		4 hotel properties	$	125,710	$	43,172

First Six Months 2013
January 22	Hyatt Place	Chicago (Hoffman Estates), IL	$	9,230	$	—
January 22	Hyatt Place	Orlando (Convention), FL	12,252		—
January 22	Hyatt Place	Orlando (Universal), FL	11,843		—
February 11	Holiday Inn Express & Suites (1)	San Francisco, CA	60,500		23,423
March 11	SpringHill Suites by Marriott	New Orleans, LA	33,095		—
March 11	Courtyard by Marriott	New Orleans (Convention), LA	30,827		—
March 11	Courtyard by Marriott	New Orleans (French Quarter), LA	25,683		—
March 11	Courtyard by Marriott	New Orleans (Metairie), LA	23,539		—
March 11	Residence Inn by Marriott	New Orleans (Metairie), LA	19,890		—
April 30	Hilton Garden Inn	Greenville, SC	15,250		—
May 21	IHG / Holiday Inn Express & Suites	Minneapolis (Minnetonka), MN	6,900		3,724
May 21	Hilton Garden Inn	Minneapolis (Eden Prairie), MN	10,200		6,385
May 23	Fairfield Inn & Suites by Marriott	Louisville, KY	25,023		—
May 23	SpringHill Suites by Marriott	Louisville, KY	39,138		—
May 23	Courtyard by Marriott	Indianapolis, IN	58,634		—
May 23	SpringHill Suites by Marriott	Indianapolis, IN	30,205		—
Total Six Months Ended June 30, 2013		16 hotel properties	$	412,209	$	33,532

(1) This hotel property was acquired by a joint venture in which we owned an 81% controlling interest. On June 30, 2014, we acquired the remaining non-controlling interest in the joint venture for $8.2 million. As a result, this hotel property became wholly-owned by us.

The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions follows (in thousands):

	For the Six Months Ended June 30,
	2014			2013

Land	$	8,600		$	57,276
Hotel buildings and improvements	114,713			341,903
Furniture, fixtures and equipment	3,389			14,996
Land held for development	—			2,800
Other assets	11,542			9,308
Total assets acquired	138,244			426,283
Less debt assumed	(43,172		)	(33,532		)
Less lease liability assumed	(992		)	—
Less other liabilities	(1,402		)	(1,495		)
Net assets acquired	$	92,678		$	391,256

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Total revenues and net income for hotel properties acquired in the three and six months ended June 30, 2014 and 2013, which are included in our consolidated statements of operations follows (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014 Acquisitions		2013 Acquisitions				2014 Acquisitions		2013 Acquisitions
	2014		2014		2013		2014		2014		2013

Revenues	$	8,552	$	29,044	$	20,634	$	13,450	$	53,444	$	27,413

Net income	$	869	$	7,261	$	4,585	$	1,102	$	10,457	$	5,721

The results of operations of acquired hotel properties are included in the consolidated statements of operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information presents the results of operations as if all acquisitions in 2013 and the first six months of 2014 had taken place on January 1, 2013. The unaudited condensed pro forma information excludes discontinued operations, is for comparative purposes only, and is not necessarily indicative of what actual results of operations would have been had the hotel property acquisitions taken place on January 1, 2013. This information does not purport to represent results of operations for future periods.

The unaudited condensed pro forma financial information for the three and six months ended June 30, 2014 and 2013 follows (in thousands, except per share amounts):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013

Revenues	$	105,525	$	94,607	$	197,184	$	179,950

Net income	$	9,160	$	8,527	$	12,006	$	12,304

Net income per share attributable to common stockholders - basic and diluted	$	0.06	$	0.07	$	0.04	$	0.09

NOTE 4 - INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties includes (in thousands):

	June 30,			December 31,
	2014			2013

Land	$	163,359		$	154,831
Hotel buildings and improvements	1,120,298			993,372
Construction in progress	14,049			24,242
Furniture, fixtures and equipment	170,373			142,976
	1,468,079			1,315,421
Less accumulated depreciation	(196,540		)	(165,454		)
	$	1,271,539		$	1,149,967

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 - ASSETS HELD FOR SALE

Assets held for sale include (in thousands):

	June 30,		December 31,
	2014		2013

Land	$	300	$	1,183
Hotel building and improvements	7,969		10,290
Furniture, fixtures and equipment	394		751
	$	8,663	$	12,224

At June 30, 2014, assets held for sale include a land parcel in Spokane, WA and the Hampton Inn in Fort Smith, AR which are both under contract to sell.

At December 31, 2013, assets held for sale include the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR which were sold on January 17, 2014, and the Hampton Inn in Fort Smith, AR and a land parcel in Spokane, WA, which are under contract to sell.

NOTE 6 - DEBT

Our debt is comprised of a senior unsecured credit facility and mortgage loans secured by various hotel properties. The weighted average interest rate, after giving effect to our interest rate derivatives, for all borrowings was 4.62% at June 30, 2014 and 5.03% at December 31, 2013. Our total fixed-rate and variable-rate debt, after giving effect to our interest rate derivatives, follows (in thousands):

	June 30,		December 31,
	2014		2013

Fixed-rate debt	$	472,046	$	358,590
Variable-rate debt	107,886		76,999
	$	579,932	$	435,589

Information about the fair value of our fixed-rate debt that is not recorded at fair value follows (in thousands):

June 30, 2014

December 31, 2013

Carrying
Value

Fair Value

Carrying Value

Fair Value

Valuation Technique

Fixed-rate debt not recorded at fair value

368,712

355,285

329,544

319,429

Level 2 - Market approach

At June 30, 2014 and December 31, 2013, we had variable rate debt of $103.3 million and $104.0 million, respectively, which had effectively been converted to fixed interest rates through derivative financial instruments which are carried at fair value. Differences between carrying value and fair value of our fixed-rate debt are primarily due to changes in interest rates. Inherently, fixed-rate debt is subject to fluctuations in fair value as a result of changes in the current market rate of interest on the valuation date. For additional information on our use of derivatives as interest rate hedges, refer to “Note 11-Derivative Financial Instruments and Hedging.”

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Senior Unsecured Credit Facility

At June 30, 2014, we have a $300.0 million senior unsecured credit facility. Deutsche Bank AG New York Branch (“Deutsche Bank”) is the administrative agent and Deutsche Bank Securities Inc. is the sole lead arranger. The syndication of lenders includes Deutsche Bank; Bank of America, N.A.; Royal Bank of Canada; Key Bank; Regions Bank; Fifth Third Bank; Raymond James Bank, N.A.; and U.S. Bank National Association. Certain of our existing and future subsidiaries that own or lease an “unencumbered asset” are required to guaranty this credit facility.

The senior unsecured credit facility is comprised of a $225.0 million revolving credit facility (the “$225 Million Revolver”) and a $75.0 million term loan (the “$75 Million Term Loan”). This credit facility has an accordion feature which will allow us to increase the commitments under the $225 Million Revolver and the $75 Million Term Loan by an aggregate of $100.0 million prior to October 10, 2017. The $225 Million Revolver will mature on October 10, 2017, which can be extended to October 10, 2018 at our option, subject to certain conditions. The $75 Million Term Loan will mature on October 10, 2018.

At June 30, 2014, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which, we had $156.0 million borrowed, $13.8 million in standby letters of credit, and $130.2 million available to borrow.

Term Loans

At June 30, 2014, we had $498.9 million in term loans outstanding. These term loans are secured primarily by first mortgage liens on hotel properties.

On January 9, 2014, as part of our acquisition of the 182-guestroom Hilton Garden Inn in Houston, TX, we assumed a $17.8 million mortgage loan with a fixed interest rate of 6.22%, an amortization period of 30 years, and a maturity date of November 1, 2016.

On January 10, 2014, as part of our acquisition of the 98-guestroom Hampton Inn in Santa Barbara (Goleta), CA, we assumed a $12.0 million mortgage loan with a fixed interest rate of 6.133%, an amortization period of 25 years, and a maturity date of November 11, 2021.

On March 14, 2014, as part of our acquisition of the 210-guestroom DoubleTree by Hilton in San Francisco, CA, we assumed a $13.3 million mortgage loan with a fixed interest rate of 5.98%, an original amortization period of 30 years, and a maturity date of March 8, 2016.

On March 28, 2014, we amended our loan with GE Capital Financial, cross-collateralized by the Courtyard by Marriott and the SpringHill Suites by Marriott, both located in Scottsdale, AZ. The loan was amended to bear interest at a fixed rate of 5.39% and the maturity date was extended to April 1, 2020.

On March 28, 2014, we amended two loans with General Electric Capital Corp., cross-collateralized by the Hilton Garden Inn (Lakeshore) and the Hilton Garden Inn (Liberty Park), both located in Birmingham, AL. Both loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.

On May 6, 2014, we closed on a $25.0 million loan with Compass Bank. The loan carries a variable rate of 30-day LIBOR plus 240 basis points, amortizes over 25 years, and has a May 6, 2020 maturity date. The loan is secured by first mortgage liens on the Hampton Inn & Suites hotels located in San Diego (Poway), CA, Ventura (Camarillo), CA and Fort Worth, TX. The net proceeds from this loan were used to pay down the $225 Million Revolver.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Pending Hotel Property Acquisition

We have a purchase agreement with a hotel property developer to acquire a Hampton Inn & Suites in downtown Minneapolis, MN for $37.7 million, subject to certain conditions including the completion of construction of the hotel in accordance with agreed upon architectural and engineering designs, receipt of a Hampton Inn & Suites franchise, and receipt of a certificate of occupancy. As this acquisition is contingent upon these customary closing conditions, there is no assurance that it will be completed.

Departure of Executive Officer

As previously reported, at the end of May 2014, Stuart J. Becker resigned from his position as Executive Vice President, Chief Financial Officer and Treasurer of the Company. On June 16, 2014, in connection with Mr. Becker’s resignation, the Company entered into a severance and release agreement with Mr. Becker (the “Agreement”). The Agreement became effective on June 19, 2014 and provides for Mr. Becker’s resignation effective as of May 27, 2014. The Agreement also provides for the following: (i) a release by Mr. Becker of all claims against the Company, its affiliates and other parties; (ii) a covenant by Mr. Becker not to solicit the Company’s employees for employment for a period of one year, and confidentiality and non-disparagement covenants; (iii) a severance payment to Mr. Becker in the gross amount of $348,289 (equal to Mr. Becker’s 2013 base salary plus payment for all accrued and unused vacation), less applicable payroll deductions, all of which was paid in a single lump sum in July 2014; (iv) payment to Mr. Becker for up to twelve months of COBRA premiums; and (v) accelerated vesting of all restricted shares of common stock and options previously awarded to Mr. Becker (all of the options will remain exercisable, in whole or in part, until August 25, 2014, and, if not exercised on or prior to that date, will be forfeited).

Litigation

We are involved from time to time in litigation arising in the ordinary course of business; however, there are currently no actions pending against us that we believe would have a material impact on our financial condition or results of operations.

NOTE 8 - EQUITY

Common Stock

In the first six months of 2014, we issued 151,504 shares of common stock to limited partners of the Operating Partnership upon redemption of their Common Units.

On May 28, 2014, we issued 278,916 shares of common stock to our executive officers and management pursuant to our 2011 Equity Incentive Plan. On June 17, 2014, we issued 20,349 shares of common stock to our directors pursuant

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to our 2011 Equity Incentive Plan. In the first six months of 2014, we issued 4,064 shares of common stock to one of our independent directors in lieu of cash for director fees.

In the first six months of 2013, we issued 2,228,544 shares of common stock to limited partners of the Operating Partnership upon redemption of their Common Units.

On January 14, 2013, we completed an underwritten public offering of 17,250,000 shares of common stock. Net proceeds were $148.1 million, after the underwriting discount and offering-related expenses of $7.2 million.

On March 1, 2013, we issued 292,090 shares of common stock to our executive officers pursuant to our 2011 Equity Incentive Plan. On June 13, 2013, we issued 29,228 shares of common stock to our directors pursuant to our 2011 Equity Incentive Plan. In the first six months of 2013, we issued 3,023 shares of common stock to one of our independent directors in lieu of cash for director fees.

Preferred Stock

On March 20, 2013, we completed a public offering of 3,400,000 shares of 7.125% Series C Cumulative Redeemable Preferred Stock for net proceeds of $81.7 million, after the underwriting discount and offering-related expenses of $3.3 million.

Our Series A, Series B and Series C preferred stock have a $25 per share liquidation preference and pay dividends at an annual rate of $2.3125 per share of Series A, $1.96875 per share of Series B, and $1.78125 per share of Series C preferred stock. Dividend payments are made quarterly in arrears on or about the last day of February, May, August and November of each year.

Non-controlling Interests in Operating Partnership

Pursuant to the limited partnership agreement, beginning on February 14, 2012, the unaffiliated third parties who hold Common Units in our Operating Partnership have the right to cause us to redeem their Common Units in exchange for cash based upon the fair value of an equivalent number of our shares of common stock at the time of redemption, or at our option, shares of our common stock on a one-for-one basis. The number of shares of our common stock issuable upon redemption of Common Units may be adjusted upon the occurrence of certain events such as share dividend payments, share subdivisions or combinations.

At June 30, 2014 and December 31, 2013, unaffiliated third parties owned 1,072,095 and 811,425, respectively, of Common Units of the Operating Partnership, representing a 1% limited partnership interest in the Operating Partnership.

We classify outstanding Common Units held by unaffiliated third parties as non-controlling interests in the Operating Partnership, a component of equity in the Company’s consolidated balance sheets. The portion of net income (loss) allocated to these Common Units is reported on the Company’s consolidated statement of operations as net income (loss) attributable to non-controlling interests of the Operating Partnership.

Non-controlling Interests in Joint Venture

On February 11, 2013, we formed a joint venture with an affiliate of IHG to purchase a Holiday Inn Express & Suites in San Francisco, CA. Prior to June 30, 2014, we owned an 81% controlling interest in the joint venture and our partner owned a 19% interest, which we classified as non-controlling interest in joint venture on our consolidated balance sheets. For the periods prior to June 30, 2014, the portion of net income (loss) allocated to our partner was reported on our consolidated statements of operations as net income (loss) attributable to non-controlling interests in joint venture. On June 30, 2014, we acquired the remaining non-controlling interest for $8.2 million and the hotel property became wholly-owned by us.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 - EQUITY-BASED COMPENSATION

Our equity-based awards were issued under our 2011 Equity Incentive Plan which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based award or incentive awards up to an aggregate of 2,318,290 shares of common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our existing equity-based awards are classified as equity awards.

Stock Options

Stock option activity for the six months ended June 30, 2014 follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms	Aggregate Intrinsic Value (Current Value Less Exercise Price)
		(Per share)		(In years)	(in thousands)
Outstanding, December 31, 2013	893,000	$	9.75	7.2	$	—
Granted	—
Exercised	—
Forfeited	—
Outstanding, June 30, 2014	893,000	$	9.75	6.3	$	759
Exercisable, June 30, 2014	554,600	$	9.75	6.1	$	471

The severance and release agreement between the Company and Stuart J. Becker described above (see “Note 7-Commitments and Contingencies”), provided for accelerated vesting of all options previously granted to Mr. Becker. On the effective date of the severance and release agreement, the option became exercisable with respect to an additional 18,800 shares of common stock. The total option grant to purchase 47,000 shares of common stock will remain exercisable, in whole or in part, until August 25, 2014, and thereafter shall be forfeited.

Time-Based Restricted Stock Awards

On May 28, 2014, we awarded time-based restricted stock awards for 116,981 shares of common stock to our executive officers and management. These awards vest over a three year period based on continued service (25% on May 27, 2015 and 2016 and 50% on May 27, 2017), or upon a change in control, and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.

On March 1, 2013, we awarded time-based restricted stock awards for 106,518 shares of common stock to our executive officers. These awards vest over a three year period based on continued service (25% on February 28, 2014 and 2015 and 50% on February 28, 2016), or upon a change in control, and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.

The fair value of time-based restricted stock awards granted is calculated based on the market value on the date of grant.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Time-based restricted stock activity for the six months ended June 30, 2014 follows:

	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Current Value
		(Per share)		(In thousands)
Non-vested, December 31, 2013	161,587	$	9.10	$	1,454
Granted	116,981	9.82
Vested	49,665	9.42
Forfeited	—	—
Non-vested, June 30, 2014	228,903	$	9.40	$	2,426

The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 23,035 common shares granted under time-based restricted stock awards.

Performance-Based Restricted Stock Awards

On May 28, 2014, we awarded performance-based restricted stock awards for 161,935 shares of common stock to our executive officers. These awards vest ratably over the next three years (2015, 2016 and 2017) subject to the attainment of certain performance goals and continued service, or upon a change in control and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.

On March 1, 2013, we awarded performance-based restricted stock awards for 185,572 shares of common stock to our executive officers. These awards vest ratably over the next three years (2014, 2015 and 2016) subject to the attainment of certain performance goals and continued service, or upon a change in control and are subject to the other conditions described in our 2011 Equity Incentive Plan. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.

Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. These awards vest based on a performance measurement that requires the Company’s total shareholder return (“TSR”) to exceed the TSR for the SNL U.S. REIT Hotel Index for a designated one, two or three year performance period. The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model.

Performance-based restricted stock activity for the six months ended June 30, 2014 follows:

	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Current Value
		(Per share)		(In thousands)
Non-vested, December 31, 2013	268,174	$	6.48	$	2,414
Granted	161,935	7.12
Vested	45,551	6.50
Forfeited	—	—
Non-vested, June 30, 2014	384,558	$	6.75	$	4,076

The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 45,551 common shares granted under performance-based restricted stock awards.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

No other performance-based restricted stock awards vested during the six months ended June 30, 2014 because performance goals were not met.

Director Stock Awards

Our directors have the option to receive shares of our common stock in lieu of cash for their director fees. In the six months ended June 30, 2014, we issued 4,064 shares of common stock for director fees and an annual grant of 20,349 shares of common stock to our outside directors.

Equity-Based Compensation Expense

Equity-based compensation expense for the three and six months ended June 30, 2014 and 2013 follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013

Included in corporate general and administrative salaries and other compensation in the statements of operations:
Stock options	$	226	$	156	$	381	$	311
Time-based restricted stock	327		167		494		276
Performance-based restricted stock	509		231		654		371
	1,062		554		1,529		958
Included in corporate general and administrative other in the statements of operations:
Director stock	239		295		239		312
	$	1,301	$	849	$	1,768	$	1,270

The amount of expense may be subject to adjustment in future periods depending upon the attainment of specific goals, which affect the vesting of the performance-based restricted stock, or a change in the forfeiture assumptions.

Unrecognized equity-based compensation expense for all non-vested awards was $4.4 million at June 30, 2014. We expect to recognize this cost over a remaining weighted-average period of 1.1 years.

NOTE 10 - LOSS ON IMPAIRMENT OF ASSETS

During the six months ended June 30, 2014, we recognized a loss on impairment of assets of $0.4 million related to the Hampton Inn in Fort Smith, AR. This property was classified as held for sale at June 30, 2014 and its operating results, including impairment charges, were included in discontinued operations. In addition, we recognized a loss on impairment of assets related to a land parcel in Spokane, WA that was held for sale at June 30, 2014. As a result, a loss on impairment of assets of $0.7 million was charged to operations.

During the six months ended June 30, 2013, we recognized a loss on impairment of assets of $1.5 million related to the SpringHill Suites in Lithia Springs, GA and the Courtyard by Marriott in Memphis, TN. These hotel properties were classified as held for sale prior to being sold in August 2013 and May 2013, respectively. Their operating results, including impairment charges, are included in discontinued operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 - DERIVITIVE FINANCIAL INSTRUMENTS AND HEDGING

Information about our derivative financial instruments at June 30, 2014 and December 31, 2013 follows (dollars in thousands):

	June 30, 2014						December 31, 2013
	Number of Instruments	Notional Amount		Fair Value			Number of Instruments	Notional Amount		Fair Value

Interest rate swaps (asset)	2	$	21,043	$	33		3	$	29,273	$	253
Interest rate swaps (liability)	2	82,598		(2,296		)	1	75,000		(1,772		)

	4	$	103,641	$	(2,263	)	4	$	104,273	$	(1,519	)

Our interest rate swaps are designated as cash flow hedges and are valued using a market approach, which is a Level 2 valuation technique. At June 30, 2014, two of our interest rate swaps were in an asset position and two were in a liability position. We have not posted, and are not required under the terms of the swaps to post, any collateral related to these agreements and are not in breach of any financial provisions of the agreements. If we had breached any agreement provisions at June 30, 2014, we could have been required to settle our obligations under these agreements that were in a liability position at their aggregate termination value, including accrued interest, of $2.4 million at June 30, 2014.

Details of the location in the financial statements of the loss recognized on derivative financial instruments designated as cash flow hedges follows (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013

Gain (loss) recognized in accumulated other comprehensive income on derivative financial instruments (effective portion)	$	(1,111	)	$	623		$	(1,606	)	$	645

Loss reclassified from accumulated other comprehensive income to interest expense (effective portion)	$	(435	)	$	(87	)	$	(862	)	$	(172	)

Gain (loss) recognized in gain (loss) on derivative financial instruments (ineffective portion and amounts excluded from effectiveness testing)	$	(1	)	$	2		$	(1	)	$	2

Amounts reported in accumulated other comprehensive income related to derivative financial instruments will be reclassified to interest expense as interest payments are made on the hedged variable-rate debt.

NOTE 12 — INCOME TAX

Income taxes for the interim periods presented have been included in our consolidated financial statements on the basis of an estimated annual effective tax rate. Our effective tax rate is impacted by the mix of earnings and losses by taxing jurisdictions. Our earnings (losses), other than in our TRS, are not generally subject to federal corporate and state income taxes due to our REIT election.

Due to the decrease in cumulative losses over the past three years, management believes that sufficient positive evidence could become available in the future to reach a conclusion that the valuation allowance will no longer be needed, in whole or in part. Acceleration of improved operating results or significant taxable income from specific non-recurring transactions could further impact this assessment. The likelihood of realizing the benefit of deferred tax assets and the related need for a valuation allowance is assessed on an ongoing basis. This assessment requires estimates and significant management judgment as to future operating results, as well as an evaluation of the effectiveness of our tax planning strategies. At this time, we are not able to reasonably estimate when sufficient positive evidence will require reversals of the valuation allowance or the impact such reversal will have on our effective tax rate.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We recorded an income tax provision attributable to continuing operations of $0.3 million, zero, $0.4 million and $0.1 million for the three month periods ended June 30, 2014 and 2013 and the six month periods ended June 30, 2014 and 2013, respectively. We had no unrecognized tax benefits at June 30, 2014. We expect no significant changes in unrecognized tax benefits within the next year. We recognize interest expense and penalties associated with unrecognized tax benefits as a component of tax expense.

NOTE 13 — FAIR VALUE

The following table presents information about our financial instruments measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Disclosures concerning financial instruments measured at fair value are as follows (in thousands):

	Fair Value Measurements at June 30, 2014 using
	Level 1		Level 2		Level 3		Total
Assets:
Assets held for sale	$	—	$	8,663	$	—	$	8,663
Interest rate swaps (asset)	—		33		—		33
Liabilities:
Interest rate swaps (liability)	—		2,296		—		2,296
Fixed-rate debt	—		355,285		—		355,285

	Fair Value Measurements at December 31, 2013 using
	Level 1		Level 2		Level 3		Total
Assets:
Assets held for sale	$	—	$	12,224	$	—	$	12,224
Interest rate swaps (asset)	—		253		—		253
Liabilities:
Interest rate swaps (liability)	—		1,772		—		1,772
Fixed-rate debt	—		319,429		—		319,429

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2014.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 14 - DISCONTINUED OPERATIONS

We have adjusted our consolidated statement of operations for the three and six months ended June 30, 2014 and 2013 to reflect the operations of hotel properties sold or classified as held for sale in discontinued operations. Discontinued operations include the following hotel properties that have been sold:

· AmericInn & Suites in Golden, CO — sold January 2013;

· Hampton Inn in Denver, CO — sold February 2013;

· Holiday Inn and Holiday Inn Express in Boise, ID — sold May 2013;

· Courtyard by Marriott in Memphis, TN — sold May 2013;

· SpringHill Suites in Lithia Springs, GA — sold August 2013;

· Fairfield Inn in Lewisville, TX — sold August 2013;

· Fairfield Inn in Lakewood, CO — sold September 2013;

· Fairfield Inn in Emporia, KS — sold October 2013;

· SpringHill Suites in Little Rock, AR — sold November 2013;

· Fairfield Inn and AmericInn in Salina, KS — sold November 2013;

· Hampton Inn and Fairfield Inn & Suites in Boise, ID — sold November 2013;

· Holiday Inn Express in Emporia, KS — sold December 2013; and

· AmericInn and Aspen Hotel & Suites in Fort Smith, AR - sold on January 17, 2014.

In addition, discontinued operations also includes the results of the Hampton Inn in Fort Smith, AR, which is classified as held for sale at June 30, 2014.

Condensed results of operations for the hotel properties included in discontinued operations follow (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013

REVENUE	$	1,193		$	5,963		$	2,281		$	12,255

Hotel operating expenses	788			4,399			1,558			9,262
Depreciation and amortization	5			596			9			1,435
Loss on impairment of assets	400			—			400			1,500

INCOME FROM HOTEL OPERATIONS	—			968			314			58
Interest expense	—			47			—			150
(Gain) loss on disposal of assets	46			(26		)	(17		)	(1,660		)

INCOME (LOSS) BEFORE TAXES	(46		)	947			331			1,568

INCOME TAX BENEFIT (EXPENSE)	5			(402		)	6			(666		)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS	$	(41	)	$	545		$	337		$	902

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO NON-CONTROLLING INTEREST	$	(1	)	$	24		$	4		$	42

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(40	)	$	521		$	333		$	860

As discussed above, we have elected to early adopt ASU No. 2014-08 which changes the criteria for discontinued operations to include only disposals that represent a strategic shift in operations with a major effect on operations and results. While we have elected early adoption for our consolidated financial statements and footnote disclosures, hotels that were classified as held for sale in prior periods will continue to be reported in discontinued operations. Under this ASU, the Company anticipates that the majority of future property sales will not be classified as discontinued operations.

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 15 - EARNINGS PER SHARE

We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share amounts for our non-vested time-based restricted stock awards with nonforfeitable dividends and for our common stock. Our non-vested time-based restricted stock awards with nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested time-based restricted stock awards with nonforfeitable dividends do not have such an obligation so they are not allocated losses.

For the three months ended June 30, 2014 and the six months ended June 30, 2014 and 2013, we had 893,000 stock options outstanding which were not included in the computation of diluted earnings per share, as the options’ exercise price was greater than the average market price of our common shares.

A summary of the components used to calculate basic and diluted earnings per share follows (in thousands, except per share):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2014			2013		2014		2013
Numerator:
Income from continuing operations	$	9,201		$	6,125	$	12,148	$	7,651
Less: Preferred dividends	4,147			3,844		8,294		6,296
Allocation to participating securities	26			18		41		27
Attributable to non-controlling interest	186			198		48		115
Income from continuing operations attributable to common stockholders	4,842			2,065		3,765		1,213
Income (loss) from discontinued operations attributable to common stockholders	(40		)	521		333		860

Net income attributable to common stockholders	$	4,802		$	2,586	$	4,098	$	2,073

Denominator:
Weighted average common shares outstanding - basic	85,165			65,480		85,136		64,090
Dilutive effect of equity-based compensation awards	498			474		460		362

Weighted average common shares outstanding - diluted	85,663			65,954		85,596		64,452

Earnings per common share - basic and diluted:
Net income from continuing operations	$	0.06		$	0.03	$	0.04	$	0.02
Net income from discontinued operations	—			0.01		0.01		0.01

Net income	$	0.06		$	0.04	$	0.05	$	0.03

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SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 16 — SUBSEQUENT EVENTS

Appointment of Directors

On July 16, 2014, the Board of Directors (the “Board”) of the Company, based on the recommendation of the Nominating and Corporate Governance Committee of the Board, appointed Jeffrey W. Jones and Kenneth J. Kay as directors of the Company. The Board has determined, based on the recommendation of the Nominating and Corporate Governance Committee, that each appointee is independent in accordance with the applicable rules of the New York Stock Exchange. In connection with Messrs. Jones and Kay appointments, the size of the Board was increased from six (with one vacant seat prior to July 16, 2014) to seven. The two new directors join Kerry W. Boekelheide, the Company’s Executive Chairman of the Board, Daniel P. Hansen, the Company’s President and Chief Executive Officer, Bjorn R. L. Hanson, Thomas W. Storey and Wayne W. Wielgus as members of the Board.

Mr. Jones will serve on the Audit and the Nominating and Corporate Governance Committees of the Board. Mr. Kay will serve on the Audit and the Compensation Committees of the Board. The Board, on the recommendation of the Nominating and Corporate Goverance Committee, has determined that each of the appointees meets the requirements for serving on such committees.

Messrs. Jones and Kay will participate in the Company’s non-employee director compensation programs. On July 21, 2014, Messrs. Jones and Kay each received a stock award pursuant to the Company’s 2011 Equity Incentive Plan, consisting of 5,984 fully vested shares of the Company’s common stock. The Company has entered into an indemnification agreement with each of Messrs. Jones and Kay in the form entered into with other directors and executive officers of the Company.

Equity Transactions

On July 1, 2014, we issued 46,788 shares of common stock for Common Units of our Operating Partnership which were tendered for redemption on May 2, 2014.

On August 1, 2014, our Board of Directors declared cash dividends of $0.1175 per share of common stock, $0.578125 per share of 9.25% Series A Cumulative Redeemable Preferred Stock, $0.4921875 per share of 7.875% Series B Cumulative Redeemable Preferred Stock, and $0.4453125 per share of 7.125% Series C Cumulative Redeemable Preferred Stock. These dividends are payable on August 29, 2014 for holders of record on August 15, 2014.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2013 and our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q.

Unless stated otherwise or the context otherwise requires, references in this report to “we,” “our,” “us,” “our company” or “the company” mean Summit Hotel Properties, Inc. and its consolidated subsidiaries.

Cautionary Statement about Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “forecast,” “project,” “potential,” “continue,” “likely,” “will,” “would” or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenue and expenses, ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

· financing risks, including the risk of leverage and the corresponding risk of default on our mortgage loans and other debt and potential inability to refinance or extend the maturity of existing indebtedness;

· national, regional and local economic conditions;

· levels of spending in the business, travel and leisure industries, as well as consumer confidence;

· declines in occupancy, average daily rate and revenue per available room and other hotel operating metrics;

· hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

· financial condition of, and our relationships with, third-party property managers and franchisors;

· the degree and nature of our competition;

· increased interest rates and operating costs;

· increased renovation costs, which may cause actual renovation costs to exceed our current estimates;

· changes in zoning laws and increases in real property tax rates;

· risks associated with potential acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history, and dispositions of hotel properties;

· availability of and our ability to retain qualified personnel;

· our failure to maintain our qualification as a REIT under the Internal Revenue Code of 1986, as amended;

· changes in our business or investment strategy;

· availability, terms and deployment of capital;

· general volatility of the capital markets and the market price of our shares of common stock;

· environmental uncertainties and risks related to natural disasters; and

· other factors described under the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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Overview

We focus primarily on acquiring and owning premium-branded select-service hotels in the upscale and upper midscale segments of the U.S. lodging industry, as these segments are currently defined by Smith Travel Research (“STR”). Since completion of our IPO on February 14, 2011 and through June 30, 2014, we have acquired 47 hotels containing 6,539 guestrooms for purchase prices aggregating $916.7 million. As of August 1, 2014, we own 90 hotels containing 11,368 guestrooms located in 22 states. Except for six hotels, five of which are subject to ground leases and one of which is subject to a PILOT (payment in lieu of taxes) lease, we own our hotels in fee simple. Our hotels 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.

The majority of our hotels operate under premium franchise brands owned by Marriott International, Inc. (“Marriott”) (Courtyard by Marriott®, Residence Inn by Marriott®, SpringHill Suites by Marriott®, Fairfield Inn & Suites by Marriott®, and TownePlace Suites by Marriott®), Hilton Worldwide (“Hilton”) (DoubleTree by Hilton®, Hampton Inn®, Hampton Inn & Suites®, Homewood Suites® and Hilton Garden Inn®), Intercontinental Hotel Group (“IHG”) (Holiday Inn®, Holiday Inn Express®, Holiday Inn Express & Suites® and Staybridge Suites®) and an affiliate of Hyatt Hotels Corporation (“Hyatt”) (Hyatt Place® and Hyatt House®).

We have elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year ended December 31, 2011. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, we lease all of our hotels to our TRS lessees.

At June 30, 2014, all of our hotel properties are operated pursuant to hotel management agreements with third party hotel management companies, including the following:

· Interstate Management Company, LLC and its affiliate Noble Management Group, LLC — 50 hotel properties

· Select Hotel Group, LLC — 12 hotel properties

· Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott — six hotel properties

· White Lodging Services Corporation — four hotel properties

· Kana Hotels, Inc. — three hotel properties

· InterMountain Management, LLC and its affiliate, Pillar Hotels and Resorts, LP — seven hotel properties

· Affiliates of IHG including IHG Management (Maryland) LLC and Intercontinental Hotel Group Resources, Inc. — two hotel properties

· HP Hotels Management Company, Inc. — two hotel properties

· OTO Development, LLC — two hotel properties

· American Liberty Hospitality, Inc. — one hotel property

· Stonebridge Realty Advisors, Inc. — one hotel property

Our TRS lessees may also employ other hotel managers in the future. We have, and will have, no ownership or economic interest in any of the hotel management companies engaged by our TRS lessees.

Our revenue is derived from hotel operations and consists of room revenue and other hotel operations revenue. As a result of our focus on select-service hotels in the upscale and upper midscale segments of the U.S. lodging industry, substantially all of our revenue is room revenue generated from sales of hotel rooms. We also generate, to a much lesser extent, other hotel operations revenue, which consists of ancillary revenue related to meeting rooms and other guest services provided at our hotels.

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Industry Trends and Outlook

Room-night demand in the U.S. lodging industry is correlated to macroeconomic trends. Key drivers of demand include growth in gross domestic product, or GDP, corporate profits, capital investments and employment. Following periods of recession, recovery of room-night demand for lodging historically has lagged improvements in the overall economy. However, in the economic recovery beginning in early 2010, room-night demand has led improvements in the overall economy. Although we expect that our hotels will realize meaningful RevPAR gains as the economy and lodging industry continue to improve, the risk exists that global and domestic economic conditions may cause the economic recovery to stall, which likely would adversely affect our growth and financial performance expectations.

We have a positive outlook about macro-economic conditions and their effect on room-night demand. We also expect that our near-term results will not be adversely affected by increased lodging supply in our markets. Growth in lodging supply typically lags growth in room-night demand. Key drivers of lodging supply include the availability and cost of capital, construction costs, local real estate market conditions and availability and pricing of existing properties. As a result of the scarcity of financing, a severe recession and declining operating fundamentals, during 2008 and 2009 many planned hotel developments were cancelled or postponed. We believe the effect of the severe recession will be prolonged compared with prior recessions, which could limit supply growth.

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Our Hotel Property Portfolio

At June 30, 2014, our hotel property portfolio consisted of 90 hotels containing 11,367 guestrooms. Of these hotels, according to STR’s current chain segment designations, 60 hotels containing 7,979 guestrooms are “upscale,” and 30 hotels containing 3,388 guestrooms are “upper midscale.” Information for our hotel properties by franchisor as of June 30, 2014 follows:

Franchise/Brand	Number of Hotel Properties	Number of Guestrooms
*Marriott*
Courtyard by Marriott	11	1,662
SpringHill Suites by Marriott	9	1,188
Residence Inn by Marriott	7	816
Fairfield Inn & Suites by Marriott	7	751
TownePlace Suites by Marriott	1	90
Total Marriott	35	4,507
*Hilton*
Hilton Garden Inn	9	1,076
Hampton Inn (1)	6	634
Hampton Inn & Suites	7	834
DoubleTree by Hilton	2	337
Homewood Suites	1	91
Total Hilton	25	2,972
*Hyatt*
Hyatt Place	16	2,224
Hyatt House	1	135
Total Hyatt	17	2,359
*IHG*
Holiday Inn Express	2	185
Holiday Inn Express & Suites (2)	4	561
Holiday Inn	1	143
Staybridge Suites	2	213
Total IHG	9	1,102
*Starwood*
Aloft	1	136
FourPoints by Sheraton	1	101
Total Starwood	2	237
*Carlson*
Country Inn & Suites by Carlson	2	190
Total	90	11,367	(3)

(1) Includes one hotel property that is classified as held for sale at June 30, 2014 in our financial statements.

(2) Prior to June 30, 2014, we owned an 81% controlling interest in a joint venture that owns the Holiday Inn Express & Suites in San Francisco, CA. On June 30, 2014, we acquired the outstanding non-controlling interest in the joint venture for $8.2 million. As a result, this hotel property became wholly-owned by us.

(3) During the second quarter of 2014, we added 14 guestrooms to our portfolio due to hotel renovations. Thus, at June 30, 2014, our hotel property portfolio consisted of 90 hotels containing 11,367 guestrooms. Due to the addition of one guestroom in July 2014, our hotel property portfolio at August 1, 2014 consisted of 90 hotels containing 11,368 guestrooms.

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Hotel Property Portfolio Activity

Acquisitions

We acquired four hotel properties in the first six months of 2014 and sixteen hotel properties in the first six months of 2013. A summary of these acquisitions follows (dollars in thousands, except Cost per Key):

Date Acquired	Franchise/Brand	Location	Guestrooms as of August 1, 2014	Purchase Price			Renovation Cost			Cost per Key (5)

*First six Months of 2014*
January 9	Hilton Garden Inn	Houston, TX	182	$	37,500		$	3,400	(4)	$	225,000
January 10	Hampton Inn	Santa Barbara (Goleta), CA	101	27,900		(1)	2,600		(4)	302,000
January 24	Four Points by Sheraton	San Francisco, CA	101	21,250			1,400		(4)	224,000
March 14	Double Tree by Hilton	San Francisco, CA	210	39,060			4,500		(4)	207,000
Total six months ended June 30, 2014		4 hotel properties	594	$	125,710		$	11,900		$	232,000

*First Six Months of 2013*
January 22	Hyatt Place	Chicago (Hoffman Estates), IL	126	$	9,230		$	1,400	(4)	$	84,000
January 22	Hyatt Place	Orlando (Convention), FL	150	12,252			1,907		(3)	94,000
January 22	Hyatt Place	Orlando (Universal), FL	150	11,843			1,939		(3)	92,000
February 11	IHG / Holiday Inn Express & Suites	San Francisco, CA	252	60,500		(2)	4,161		(3)	257,000
March 11	SpringHill Suites by Marriott	New Orleans, LA	208	33,095			—		(3)	159,000
March 11	Courtyard by Marriott	New Orleans (Convention), LA	202	30,827			2,350		(3)	164,000
March 11	Courtyard by Marriott	New Orleans (French Quarter), LA	140	25,683			74		(3)	184,000
March 11	Courtyard by Marriott	New Orleans (Metairie), LA	153	23,539			2,465		(3)	170,000
March 11	Residence Inn by Marriott	New Orleans (Metairie), LA	120	19,890			—		(3)	166,000
April 30	Hilton Garden Inn	Greenville, SC	120	15,250			145		(3)	128,000
May 21	IHG / Holiday Inn Express & Suites	Minneapolis (Minnetonka), MN	93	6,900			1,700		(4)	92,000
May 21	Hilton Garden Inn	Minneapolis (Eden Prairie), MN	97	10,200			2,700		(4)	133,000
May 23	Fairfield Inn & Suites by Marriott	Louisville, KY	135	25,023			2,500		(4)	204,000
May 23	SpringHill Suites by Marriott	Louisville, KY	198	39,138			3,600		(4)	216,000
May 23	Courtyard by Marriott	Indianapolis, IN	297	58,634			—		(3)	197,000
May 23	SpringHill Suites by Marriott	Indianapolis, IN	156	30,205			—		(3)	194,000
Total six months ended June 30, 2013		16 hotel properties	2,597	$	412,209		$	24,941		$	168,000

(1) The purchase price for this hotel included the issuance of 412,174 Common Units in our Operating Partnership valued at the time of issuance at $3.7 million.

(3) Actual total renovation cost.

(4) Actual-to-date and estimated remaining costs to complete.

(5) Purchase price and renovation costs are funded by mortgage debt, advances on our senior unsecured revolving line of credit facility, cash and the issuance of Operating Partnership Common Units described in footnote 1 to this table. Additional information about the mortgage debt financing is provided below in “Outstanding Indebtedness — Term Loans.”

Of the total renovation costs detailed in the table above, $17.8 million have been incurred as of June 30, 2014. There is no assurance that our actual renovation costs will not exceed our estimates.

Dispositions

Pursuant to our strategy to continually evaluate our hotel properties and land held for development, we sold two hotel properties in the first six months of 2014. Historically, when a property was identified as being held for sale, we reclassified the property on our consolidated balance sheets, evaluated for potential impairment and, in the case of a hotel property, reported historical and future results of operations in discontinued operations. We recognized impairment charges on hotel properties in discontinued operations and on land held for development in continuing operations of $1.1 million and $1.5 million in the first six months of 2014 and 2013, respectively.

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As discussed in the footnotes to the consolidated financial statements, we have elected to early adopt ASU No. 2014-08 which changes the criteria for discontinued operations to include only disposals that represent a strategic shift in operations with a major effect on operations and results. While we have elected early adoption for our consolidated financial statements and footnote disclosures, the sale of the AmericInn, Aspen Hotel & Suites and Hampton Inn in Fort Smith, AR will be included in discontinued operations as these hotels were classified as held for sale in prior periods. Under this ASU, the Company anticipates that the majority of future property sales will not be classified as discontinued operations.

On January 17, 2014, we sold the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR for $3.1 million. The sale of the AmericInn Hotel & Suites also included the assignment of its related ground lease.

On January 15, 2013, we sold the AmericInn Hotel & Suites in Golden, CO for $2.6 million. On February 15, 2013, we sold the Hampton Inn in Denver, CO for $5.5 million and recognized a gain on the sale of $1.7 million. On February 27, 2013, we sold a parcel of land in Jacksonville, FL for $1.9 million. On May 1, 2013, we sold the Holiday Inn and Holiday Inn Express in Boise, ID for $12.6 million. On May 30, 2013, we sold the Courtyard by Marriott in Memphis, TN for $4.2 million.

Results of Operations of Summit Hotel Properties, Inc.

The comparisons that follow should be reviewed in conjunction with the unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. As noted above, in the first six months of 2014 we sold the AmericInn Hotel & Suites and the Aspen Hotel & Suites in Fort Smith, AR. In addition, at June 30, 2014, we classified as held for sale the Hampton Inn in Fort Smith, AR. Accordingly, we classified these hotel properties as discontinued operations and their operating results are not included in the discussion below.

Comparison of Three Months Ended June 30, 2014 with Three Months Ended June 30, 2013

Key operating metrics for our total portfolio (89 hotels at June 30, 2014 and 82 hotels at June 30, 2013, excluding discontinued operations) and our same-store portfolio (66 hotels) for the three months ended June 30, 2014 (“second quarter of 2014”) and for the three months ended June 30, 2013 (“second quarter of 2013”) follows (dollars in thousands, except ADR and RevPAR):

	Three Months Ended June 30,
	2014						2013						Percentage Change
	Total Portfolio (89 hotels)			Same-Store Portfolio (66 hotels)			Total Portfolio (82 hotels)			Same-Store Portfolio (66 hotels)			Total Portfolio (89/82 hotels)		Same-Store Portfolio (66 hotels)
Total revenues	$	105,525		$	63,694		$	79,105		$	58,472		33.4	%	8.9	%
Hotel operating expenses	$	66,609		$	41,466		$	50,687		$	38,166		31.4	%	8.6	%
Occupancy	79.9		%	78.9		%	77.9		%	77.0		%	2.6	%	2.5	%
ADR	$	122.51		$	111.91		$	110.90		$	105.27		10.5	%	6.3	%
RevPAR	$	97.93		$	88.28		$	86.37		$	81.07		13.4	%	8.9	%

Revenue. Total revenues, including room and other hotel operations revenue, increased $26.4 million in the second quarter of 2014 compared with the second quarter of 2013. The increase in revenues is due to an increase in same-store revenues of $5.2 million and an increase in revenues from the 19 hotel properties acquired in 2013 and four hotel properties acquired in the first six months of 2014 (the “Acquired Hotels”) of $21.2 million.

The same-store revenue increase of $5.2 million, or 8.9%, was due to increases in occupancy to 78.9% in the second quarter of 2014 compared with 77.0% in the second quarter of 2013, and an increase in ADR to $111.91 in the second quarter of 2014 from $105.27 in the second quarter of 2013. The increases in occupancy and ADR resulted in an 8.9% increase in same-store RevPAR to $88.28 in the second quarter of 2014 compared with $81.07 in the second quarter of 2013. These increases were due to the improving economy, hotel industry fundamentals and renovations made at 17 hotel properties in 2013.

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Hotel Operating Expenses. Hotel operating expenses increased $15.9 million in the second quarter of 2014 compared with the second quarter of 2013. The increase is due in part to the additional operating expenses from the Acquired Hotels of $12.6 million. In addition, the increase in same-store hotel operating expenses is due to $3.3 million of variable costs related to the increase in revenue.

A summary of our hotel operating expenses for our same-store portfolio (66 hotels) for second quarter of 2014 and 2013 follows (dollars in thousands):

	Three Months Ended June 30,				Percentage		Percentage of Revenue Three Months Ended June 30,
	2014		2013		Change		2014		2013
Rooms expense	$	16,568	$	15,593	6.3	%	26.0	%	26.7	%
Other direct expense	8,092		7,140		13.3	%	12.7	%	12.2	%
Other indirect expense	16,583		15,251		8.7	%	26.0	%	26.1	%
Other expense	223		182		22.5	%	0.4	%	0.3	%
Total hotel operating expenses	$	41,466	$	38,166	8.6	%	65.1	%	65.3	%

Depreciation and Amortization. Depreciation and amortization expense increased $3.9 million in the second quarter of 2014 compared with second quarter of 2013, primarily due to the depreciation associated with the Acquired Hotels.

Corporate General and Administrative. Corporate general and administrative expenses increased by $1.4 million in the second quarter of 2014 compared with second quarter of 2013. The increase in expense was primarily due to increases in equity-based compensation of $0.5 million and expenses related to the transition of directors and executive officers of $0.6 million.

Other Income/Expense. The $1.9 million increase in other income (expense) was primarily the result of an increase in interest expense due to debt incurred to finance the acquisition of the Acquired Hotels.

Comparison of the First Six Months of 2014 with the First Six Months of 2013

Key operating metrics for our total portfolio (89 hotels at June 30, 2014 and 82 hotels at June 30, 2013, excluding discontinued operations) and our same-store portfolio (66 hotels) for the six months ended June 30, 2014 (the “first six months of 2014”) compared with the six months ended June 30, 2013 (the “first six months of 2013”) follows (dollars in thousands, except ADR and RevPAR):

	Six Months Ended June 30,
	2014						2013						Percentage Change
	Total Portfolio (89 hotels)			Same-Store Portfolio (66 hotels)			Total Portfolio (82 hotels)			Same-Store Portfolio (66 hotels)			Total Portfolio (89/82 hotels)		Same-Store Portfolio (66 hotels)
Total revenues	$	195,069		$	120,944		$	138,828		$	111,417		40.5	%	8.6	%
Hotel operating expenses	$	126,528		$	79,884		$	90,447		$	73,649		39.9	%	8.5	%
Occupancy	76.1		%	75.9		%	74.9		%	73.7		%	1.6	%	3.0	%
ADR	$	120.79		$	111.00		$	109.31		$	105.24		10.5	%	5.5	%
RevPAR	$	91.94		$	84.22		$	81.92		$	77.52		12.2	%	8.6	%

Revenue. Total revenues, including room and other hotel operations revenue, increased $56.2 million in the first six months of 2014 compared with the first six months of 2013. The increase in revenues is due to an increase in same-store revenues of $9.5 million and a $46.7 million increase in revenues from the Acquired Hotels.

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The same-store revenue increase of $9.5 million, or 8.6%, was due to an increase in occupancy to 75.9% in the first six months of 2014 compared with 73.7% in the first six months of 2013, and an increase in ADR to $111.00 in the first six months of 2014 from $105.24 in the first six months of 2013. The increases in occupancy and ADR resulted in an 8.6% increase in same-store RevPAR to $84.22 in the first six months of 2014 compared with $77.52 in the first six months of 2013. These increases were due to the improving economy and hotel industry fundamentals and renovations made at 17 hotel properties in 2013.

Hotel Operating Expenses. Hotel operating expenses increased $36.1 million in the first six months of 2014 compared with the first six months of 2013. The increase is due in part to a $29.8 million increase in operating expenses at the Acquired Hotels. In addition, the increase in same-store hotel operating expenses is due to $6.2 million of variable costs related to the increase in revenue. Expenses at the same-store hotels declined as a percentage of revenue from 66.1% in the first six months of 2013 to 66.0% in the first six months of 2014, due to stability in expenses despite increasing revenues at the same-store hotel properties.

A summary of our hotel operating expenses for our same-store portfolio (66 hotels) for the first six months of 2014 and the first six months of 2013 follows (dollars in thousands):

	Six Months Ended June 30,				Percentage		Percentage of Revenue Six Months Ended June 30,
	2014		2013		Change		2014		2013
Rooms expense	$	32,139	$	30,179	6.5	%	26.6	%	27.1	%
Other direct expense	15,748		14,199		10.9	%	13.0	%	12.7	%
Other indirect expense	31,586		28,925		9.2	%	26.1	%	26.0	%
Other expense	411		346		18.8	%	0.3	%	0.3	%
Total hotel operating expenses	$	79,884	$	73,649	8.5	%	66.0	%	66.1	%

Depreciation and Amortization. Depreciation and amortization expense increased $8.7 million in the first six months of 2014 compared with the first six months of 2013, primarily due to the depreciation associated with the Acquired Hotels.

Corporate General and Administrative. Corporate general and administrative expenses increased $2.5 million in the first six months of 2014 compared with the first six months of 2013. Approximately $1.0 million of the increase was due to increased professional fees and expenses related to establishing new procedures and systems for intercompany account reconciliations, as well as performing the reconciliation of the balance sheets of intercompany accounts between individual hotels and our consolidated statements of operations for the years ended 2013 and 2012. Additional increases in expense were due to increases in equity-based compensation of $0.5 million and expenses related to the transition of directors and executive officers of $0.6 million.

Other Income/Expense. The $4.3 million increase in other income (expense) in the first six months of 2014 compared with the first six months of 2013 was primarily the result of an increase in interest expense due to debt incurred to finance the acquisition of the Acquired Hotels.

Cash Flows

The increase in net cash provided by operating activities of $13.9 million for the first six months of 2014 compared with the first six months of 2013 primarily resulted from a $3.9 million improvement in earnings and a $7.3 million increase in depreciation and amortization. The increase in depreciation was primarily related to the Acquired Hotels. The $272.7 million decrease in net cash used in investing activities for the first six months of 2014 compared with the first six months of 2013 primarily resulted from a $298.5 million decrease in acquisitions of hotel properties and a $11.8 million decrease in restricted cash related to renovation reserves funded; partially offset by an $8.2 million increase in improvements and additions to hotel properties, an $8.2 million payment to acquire the remaining 19% non-controlling interest in a joint venture that owns the Holiday Inn Express & Suites in San Francisco, CA and a $22.4 million decrease in net proceeds from asset dispositions. The $312.0 million decrease in net cash provided by financing activities for the first six months of 2014 compared with the first six months of 2013 resulted from a $237.3 million decrease in proceeds from equity offerings, a decrease in proceeds from issuance of debt of $137.2 million and a $6.0 million increase in dividends and distributions, partially offset by a $67.0 million decrease in payments on debt.

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Discontinued Operations

Pursuant to our strategy, we continually evaluate our hotel properties for potential sale and redeployment of capital. Historically, when a hotel property was sold or identified as being held for sale, we reported its historical and future results of operations, including impairment charges, in discontinued operations. As discussed above, while we have elected early adoption of ASU No. 2014-08 for our consolidated financial statements and footnote disclosures, hotels that were classified as held for sale in prior periods will continue to be reported in discontinued operations. In the first six months of 2014, we reported the following hotel properties in discontinued operations:

· AmericInn Hotel & Suites in Fort Smith, AR

· Aspen Hotel & Suites in Fort Smith, AR

· Hampton Inn in Fort Smith, AR

The AmericInn Hotel & Suites and the Aspen Hotel & Suites located in Fort Smith, AR were sold on January 17, 2014. The Hampton Inn in Fort Smith, AR was classified as held for sale at June 30, 2014 and is currently under contract for sale.

A summary of results from our hotel properties included in discontinued operations follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues	$	1,193		$	5,963		$	2,281		$	12,255
Hotel operating expenses	788			4,399			1,558			9,262
Depreciation and amortization	5			596			9			1,435
Loss on impairment of assets	400			—			400			1,500
Interest expense	—			47			—			150
(Gain) loss on disposal of assets	46			(26		)	(17		)	(1,660		)
Total expenses	1,239			5,016			1,950			10,687
Income (loss) from discontinued operations before income taxes	(46		)	947			331			1,568
Income tax (expense) benefit	5			(402		)	6			(666		)
Income (loss) from discontinued operations	$	(41	)	$	545		$	337		$	902

Non-GAAP Financial Measures

We consider funds from operations (“FFO”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”), both of which are non-GAAP financial measures, to be useful to investors as key supplemental measures of our operating performance.

We caution investors that amounts presented in accordance with our definitions of FFO and EBITDA may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP measures in the same manner. FFO and EBITDA should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. FFO and EBITDA may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, debt service obligations and other commitments and uncertainties. Although we believe that FFO and EBITDA can enhance the understanding of our financial condition and results of operations, these non-GAAP financial measures are not necessarily better indicators of any trend as compared to a comparable GAAP measure such as net income (loss).

Funds From Operations

As defined by the National Association of Real Estate Investment Trusts, (“NAREIT”), FFO represents net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, impairment, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operational performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or

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fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and impairment losses, it provides a performance measure that, when compared year over year, reflects the effect to operations from trends in occupancy, room rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. Our computation of FFO differs from the NAREIT definition and may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs because the amount of depreciation and amortization we add back to net income or loss includes amortization of deferred financing costs and amortization of franchise royalty fees. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

The following is a reconciliation of our GAAP net income to FFO for the three and six months ended June 30, 2014 and 2013 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
NET INCOME	$	9,160		$	6,670		$	12,485		$	8,553
Preferred dividends	(4,147		)	(3,844		)	(8,294		)	(6,296		)
Depreciation and amortization	16,650			13,324			32,084			24,814
Loss on impairment of assets	1,060			—			1,060			1,500
(Gain) loss on disposal of assets	32			(26		)	(28		)	(1,666		)
Non-controlling interest in joint venture	(124		)	(89		)	(1		)	(52		)
Adjustments related to joint venture	(118		)	(83		)	(204		)	(139		)
Funds From Operations	$	22,513		$	15,952		$	37,102		$	26,714
Per common unit	$	0.26		$	0.23		$	0.43		$	0.40

Weighted average diluted common shares and Common Units (1)	86,735			68,952			86,660			67,598

(1) The Company includes the outstanding Common Units of the Operating Partnership held by limited partners other than the Company because these Common Units are redeemable for shares of the Company’s common stock.

Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDA represents net income or loss, excluding: (i) interest, (ii) income tax expense and (iii) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management also uses EBITDA as one measure in determining the value of acquisitions and dispositions.

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The following is a reconciliation of our GAAP net income to EBITDA for the three and six months ended June 30, 2014 and 2013 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
NET INCOME	$	9,160		$	6,670		$	12,485		$	8,553
Depreciation and amortization	16,650			13,324			32,084			24,814
Interest expense	6,846			4,926			13,206			9,079
Interest income	(122		)	(18		)	(172		)	(35		)
Income tax expense	324			363			401			815
Non-controlling interest in joint venture	(124		)	(89		)	(1		)	(52		)
Adjustments related to joint venture	(118		)	(83		)	(204		)	(139		)
EBITDA	$	32,616		$	25,093		$	57,799		$	43,035

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards, capital expenditures to improve our hotel properties, acquisitions, interest expense and scheduled principal payments on outstanding indebtedness, and distributions to our stockholders.

Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that periodically are made with respect to our hotel properties, and scheduled debt payments, including maturing loans.

To satisfy the requirements for qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually at least 90% of our REIT taxable income to our stockholders, determined without regard to the deduction for dividends paid and excluding any net capital gains. We generally intend to distribute at least 100% of our REIT taxable income to avoid tax on undistributed income. Therefore, if sufficient funds are not available to us from hotel dispositions, our senior unsecured revolving credit facility and mortgage loans, we will need to raise additional capital to grow our business and invest in additional hotel properties.

We expect to satisfy our liquidity requirements with cash provided by operations, working capital, and short-term borrowings under our senior unsecured revolving credit facility. In addition, we may fund the purchase price of hotel acquisitions and cost of required capital improvements by borrowing under our senior unsecured revolving credit facility, assuming existing mortgage debt, issuing securities (including Common Units issued by the Operating Partnership), or incurring other mortgage debt. Further, we may seek to raise capital through public or private offerings of our equity or debt securities. However, certain factors may have a material adverse effect on our ability to access these capital sources, including our degree of leverage, the value of our unencumbered hotel properties, borrowing restrictions

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imposed by lenders and market conditions. We will continue to analyze which sources of capital are most advantageous to us at any particular point in time, but financing may not be consistently available to us on terms that are attractive, or at all. We believe that our cash provided by operations, working capital, borrowings available under our senior unsecured revolving credit facility and other sources of funds available to us will be sufficient to meet our ongoing liquidity requirements for at least the next 12 months.

Restricted Cash

We have submitted requests to our lenders for the release of approximately $20.0 million of our restricted cash. Upon final approval, these funds will be added to our unrestricted cash balance and will be available for use in operations. We believe the release of restricted cash is appropriate under the terms of the respective loan documents, therefore, we expect to receive these funds during the third quarter of 2014. There is no assurance that our lenders will agree to this request and release this cash.

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Outstanding Indebtedness

At June 30, 2014, we had $423.9 million in debt secured by mortgages on 49 hotel properties. We also had $156.0 million outstanding under our senior unsecured credit facility that was supported by 37 hotel properties unencumbered by mortgage debt.

A summary of our debt at June 30, 2014 follows (dollars in thousands):

Lender

Interest Rate
June 30, 2014 (1)

Amortization
Period
(Years)

Maturity Date

Collateral

Amount
of Debt

Senior Unsecured Credit Facility

Deutsche Bank AG New York Branch

$225 Million Revolver

2.26% Variable

n/a

October 10, 2017

n/a

81,000

(2)

$75 Million Term Loan

4.14% Fixed

n/a

October 10, 2018

n/a

75,000

Total Senior Unsecured Credit Facility

156,000

Mortgage Loans

ING Life Insurance and Annuity

6.10% Fixed

March 1, 2019

Fourteen hotels

63,333

4.55% Fixed

March 1, 2019

(cross-collateralized with other ING loan)

33,379

KeyBank National Association

4.46% Fixed

February 1, 2023

Four hotels

28,728

4.52% Fixed

April 1, 2023

Three hotels

22,241

4.30% Fixed

April 1, 2023

Three hotels

21,586

4.95% Fixed

August 1, 2023

Two hotels

38,219

Bank of America Commercial Mortgage

6.41% Fixed

September 1, 2017

One hotel

8,270

Merrill Lynch Mortgage Lending Inc.

6.38% Fixed

August 1, 2016

One hotel

5,201

GE Capital Financial Inc.

5.39% Fixed

April 1, 2020

One hotel

9,390

5.39% Fixed

April 1, 2020

One hotel

5,056

MetaBank

4.25% Fixed

August 1, 2018

One hotel

7,227

Bank of Cascades

4.66% Fixed

September 30, 2021

One hotel

11,854

Goldman Sachs

5.67% Fixed

July 6, 2016

Two hotels

13,940

Compass

4.57% Fixed

(3)

May 17, 2018

One hotel

12,915

2.56% Variable

May 6, 2020

Three hotels

24,948

General Electric Capital Corp.

5.39% Fixed

April 1, 2020

One hotel

5,317

5.39% Fixed

April 1, 2020

One hotel

6,227

4.82% Fixed

April 1, 2018

One hotel

7,414

5.03% Fixed

March 1, 2019

One hotel

9,943

AIG

6.11% Fixed

January 1, 2016

One hotel

13,230

Greenwich Capital Financial Products, Inc.

6.20% Fixed

January 6, 2016

One hotel

22,910

Wells Fargo Bank, National Association

5.53% Fixed

October 1, 2015

One hotel

3,588

5.57% Fixed

January 1, 2016

One hotel

6,151

U.S. Bank, NA

6.22% Fixed

November 1, 2016

One hotel

17,705

6.13% Fixed

November 11, 2021

One hotel

11,937

5.98% Fixed

March 8, 2016

One hotel

13,223

Total Mortgage Loans

423,932

Total Debt

579,932

(1) The interest rates at June 30, 2014 above give effect to our use of interest rate swaps, where applicable.

(2) Excludes outstanding letters of credit.

(3) Interest rate derivative effectively converts 85% of this loan to a fixed rate.

Senior Unsecured Credit Facility

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Bank, Fifth Third Bank, Raymond James Bank, N.A., and U.S. Bank National Association. Certain of our existing and future subsidiaries that own or lease an unencumbered asset, as described below, will be required to guaranty this credit facility.

Outstanding borrowings on this credit facility are limited to the least of (i) the aggregate commitments of all of the lenders, (ii) the aggregate value of the unencumbered assets, less our consolidated unsecured indebtedness, all as calculated pursuant to the terms of the credit facility documentation, multiplied by 60%, and (iii) the principal amount that when drawn under the credit facility would result in an unsecured interest expense, calculated on a pro forma basis for the next consecutive four fiscal quarters after taking such draws into account, equal to 50% of the net operating income of the unencumbered assets, as adjusted pursuant to the credit facility documentation.

Payment Terms. We are obligated to pay interest at the end of each selected interest period, but not less than quarterly, with all outstanding principal and accrued but unpaid interest due at the maturity. We have the right to pay all or any portion of the outstanding borrowings from time to time without penalty or premium. We pay interest on advances at varying rates, based upon, at our option, either (i) 1, 2, 3, or 6-month LIBOR, plus a LIBOR margin between 1.75% and 2.50%, depending upon our leverage ratio (as defined in the credit facility documentation), or (ii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, or 1-month LIBOR plus 1.00%, plus a base rate margin between 0.75% and 1.50%, depending upon our leverage ratio. In addition, on a quarterly basis, we are required to pay a fee on the unused portion of the credit facility equal to the unused amount multiplied by an annual rate of either (i) 0.30%, if the unused amount is equal to or greater than 50% of the maximum aggregate amount of the credit facility, or (ii) 0.20%, if the unused amount is less than 50% of the maximum aggregate amount of the credit facility.

Financial and Other Covenants. We are required to comply with a series of financial and other covenants in order to borrow under this credit facility. The material financial covenants include a maximum leverage ratio, a minimum consolidated tangible net worth, a maximum dividend payout ratio, a minimum consolidated fixed charge coverage ratio, a maximum ratio of secured indebtedness to total asset value, a maximum ratio of secured recourse indebtedness to total asset value, a maximum ratio of consolidated unsecured indebtedness to total unencumbered asset value, and a maximum ratio of unencumbered adjusted net operating income to assumed unsecured interest expense.

We are also subject to other customary covenants, including restrictions on investment and limitations on liens and maintenance of properties. This credit facility also contains customary events of default, including, among others, the failure to make payments when due under the terms of any of the credit facilities, breach of any covenant continuing beyond any cure period, and bankruptcy or insolvency.

Unencumbered Assets. This credit facility is unsecured; however, borrowings are limited by the value of hotel properties that qualify as unencumbered assets supporting this credit facility. At June 30, 2014, 37 of our hotel properties qualify as, and are deemed to be, unencumbered assets that support this credit facility. Among other conditions, unencumbered assets must not be subject to liens or security interests, and the owner and operating lessee of such unencumbered asset must execute a guaranty supplement pursuant to which the owner and operating lessee become subsidiary guarantors of the credit facility. In addition, hotel properties may be added to or removed from the unencumbered asset pool at any time so long as there is a minimum of 20 hotel properties in the unencumbered asset pool, the unencumbered assets meet certain diversity requirements (such as limits on concentrations in any particular market), and the then-current borrowings on the credit facility do not exceed the maximum available under the credit facility given the availability limitations described above. Further, to be eligible as an unencumbered asset, the hotel property must: be franchised with a nationally-recognized franchisor; have been in operation a minimum of one year; satisfy certain ownership, management and operating lessee criteria; and not be subject to material defects, such as liens, title defects, environmental contamination and other standard lender criteria.

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At August 1, 2014, 37 of our unencumbered hotel properties are included in the borrowing base which supports the senior unsecured credit facility. As a result, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which we had $148.0 million borrowed, $13.8 million in standby letters of credit and $138.2 million available to borrow.

Term Loans

At June 30, 2014, we had $498.9 million in term loans outstanding. These term loans are secured primarily by first mortgage liens on hotel properties.

On March 28, 2014, we amended two loans with GE Capital Financial, cross - collateralized by the Courtyard by Marriott and the SpringHill Suites by Marriott, both located in Scottsdale, AZ. The loans were amended to bear interest at a fixed rate of 5.39% and the maturity date was extended to April 1, 2020.

On March 28, 2014, we amended two loans with General Electric Capital Corp., cross - collateralized by the Hilton Garden Inn (Lakeshore) and the Hilton Garden Inn (Liberty Park), both located in Birmingham, AL. Both loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.

For additional information regarding our term loans, please read our consolidated financial statements and related notes thereto, appearing elsewhere in this Form 10-Q.

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Equity Transactions

On April 1, 2014, we redeemed 25,349 Common Units in our Operating Partnership, which had been tendered on January 31, 2014 for shares of our common stock. On May 2, 2014, 46,788 Common Units were tendered for redemption, which we redeemed for 46,788 shares of our common stock on July 1, 2014.

Capital Expenditures

In the first six months of 2014, we spent $22.8 million on renovations, including $17.8 million on hotel properties that we owned at the beginning of 2013 and $5.0 million on hotel properties acquired since the beginning of 2013. We currently have renovations underway at five of our hotel properties. We anticipate spending a total of $14.0 million to $20.0 million on hotel property renovations in the remainder of 2014. We expect to fund these renovations with cash provided by operations, working capital, borrowings under our senior unsecured revolving credit facility, and other potential sources of capital, to the extent available to us.

Off-Balance Sheet Arrangements

From time to time, we enter into off-balance sheet arrangements to facilitate our operations. At June 30, 2014, we had $13.8 million in outstanding stand-by letters of credit, of which $0.7 million was supporting performance bonds related to workers’ compensation insurance and other operational matters and $13.1 million was supporting a purchase agreement for the Hampton Inn & Suites in downtown Minneapolis, MN. At August 1, 2014, we had $13.8 million in outstanding standby letters of credit.

Contractual Obligations

The timing of required payments related to our long-term debt and other contractual obligations at June 30, 2014 follows (in thousands):

	Payments Due By Period
	Total		Less than One Year		One to Three Years		Four to Five Years		More than Five Years
Debt obligations (1)	$	748,779	$	37,340	$	180,496	$	248,512	$	282,431
Operating lease obligations (2)	72,330		819		1,033		786		69,692
Purchase obligations (3)	5,917		5,917		—		—		—
Other long-term liabilities (4)	8,000		8,000		—		—		—
Total	$	835,026	$	52,076	$	181,529	$	249,298	$	352,123

(1) Amounts shown include amortization of principal, maturities, and estimated interest payments. Interest payments on variable rate debt have been estimated using the rates in effect at June 30, 2014, after giving effect to interest rate swaps.

(2) Primarily ground leases and corporate office leases.

(3) Represents purchase orders and executed contracts for renovation projects at our hotel properties.

(4) Represents remaining note funding obligation.

In addition to the contractual obligations in the above table, at June 30, 2014 we are also obligated under a purchase agreement with a hotel property developer to acquire a Hampton Inn & Suites in downtown Minneapolis, MN for $37.7 million subject to certain conditions, including the completion of construction of the hotel in accordance with agreed upon architectural and engineering designs, receipt of a Hampton Inn & Suites franchise, and receipt of a certificate of occupancy. Therefore, there is no assurance that the acquisition will be completed. In January 2014, we issued a standby letter of credit for $13.1 million in support of this purchase agreement. This letter of credit was issued under our senior unsecured credit facility.

Inflation

Operators of hotel properties, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.

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Seasonality

Certain segments of the hotel industry are seasonal in nature. Leisure travelers tend to travel more during the summer. Business travelers occupy hotels relatively consistently throughout the year, but decreases in business travel occur during summer and the winter holidays. The hotel industry is also seasonal based upon geography. Hotels in the southern U.S. tend to have higher occupancy rates during the winter months. Hotels in the northern U.S. tend to have higher occupancy rates during the summer months. Due to our portfolio’s geographic diversification, our revenue has not experienced significant seasonality.

Critical Accounting Policies

There have been no significant changes in our critical accounting policies or estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are currently exposed, and to which we expect to be exposed in the future, is interest rate risk. Our primary interest rate exposure is to 30-day LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis we also use derivative financial instruments to manage interest rate risk.

At June 30, 2014, we were party to four interest rate swap agreements with a total notional amount of $103.6 million, where we receive variable rate payments in exchange for making fixed rate payments. These agreements are accounted for as cash flow hedges and have an aggregate termination value, including accrued interest, of $2.4 million at June 30, 2014.

At June 30, 2014, after giving effect to our interest rate swap agreements, $472.0 million, or 81.4%, of our debt had fixed interest rates and $107.9 million, or 18.6%, had variable interest rates. Assuming no increase in the outstanding balance of our variable rate debt, if interest rates increase by 1.0% our cash flow would decrease by approximately $1.1 million per year.

As our fixed rate debts mature, they will become subject to interest rate risk. In addition, as our variable rate debts mature, lenders may impose interest rate floors on new financing arrangements because of the low interest rates experienced during the past few years. At June 30, 2014, we have no debt that matures in 2014. However, $10.8 million of our long-term debt is scheduled to amortize in the next twelve months, of which $10.5 million has fixed interest rates.

Item 4. Controls and Procedures.

Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

We have continued the implementation of changes to our internal controls over financial reporting to remediate the material weakness identified in our Annual Report on Form 10-K for the year ended December 31, 2013. In the course of preparing our 2013 Annual Report and the consolidated financial statements included therein, our management identified a deficiency in the design of our internal control over financial reporting in that we did not have

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in place controls and procedures that would allow us to reconcile the balance sheets of our individual hotels included in our final consolidated balance sheet to the balance sheet information provided by our third party property managers for each individual hotel. As a result of the design deficiency, the intercompany accounts between the entities which form the consolidated company had not been reconciled in 2013 and in prior periods.

In order to prepare the consolidated financial statements for the year ended December 31, 2013 and for the quarter ended March 31, 2014, the audit committee of our board of directors engaged a nationally recognized consulting and accounting firm to assist our management with the reconciliation of the intercompany accounts for 2012, 2013 and the first quarter of 2014. The Company has developed internal processes and procedures to have its accounting staff reconcile intercompany accounts on a monthly basis as part of its normal accounting close process. Furthermore, the Company has engaged a local consulting firm to assist with the development of processes and procedures related to the reconciliation of the balance sheets of our individual hotels to the balance sheet information provided by our third party property managers at each quarter end and to perform the reconciliation for the second quarter of 2014.

Notwithstanding the material weakness, our management has concluded that the consolidated financial statements included in our 2013 Annual Report and in the Quarterly Reports on Form 10-Q for the periods ended March 31, 2014 and June 30, 2014, present fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries.

Our management continues to work diligently to further identify and implement procedures and controls to remediate the material weakness and strengthen our overall internal controls. We are continuing to retain and develop resources to improve our processes, procedures and internal control environment.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved from time to time in litigation arising in the ordinary course of business, however, we are not currently aware of any actions against us that we believe would materially adversely affect our business, financial condition or results of operations.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On May 28, 2014, the Compensation Committee of the Board of Directors approved the below elements of the 2014 compensation program for the Company’s non-employee directors:

Annual Cash Retainer. An annual cash retainer of $50,000 to each non-employee director.

Presiding Director Fee. A $30,000 annual fee to the presiding director.

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Additional Committee Membership Fee. An additional annual committee membership fee to the members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, with each member of the Audit Committee being paid $12,500, each member of the Compensation Committee being paid $10,000 and each member of the Nominating and Corporate Governance Committee being paid $7,500.

Additional Committee Chairperson Fee. The chairperson of the Audit Committee, the chairperson of the Compensation Committee and the chairperson of the Nominating and Corporate Governance Committee will each receive an annual committee chairperson fee, with the chairperson of the Audit Committee being paid $25,000, the chairperson of the Compensation Committee being paid $20,000 and the chairperson of the Nominating and Corporate Governance Committee being paid $15,000.

Annual Equity Award. An annual award of shares of the Company’s common stock with an aggregate value of approximately $70,000 to each non-employee director (the number of shares awarded to each non-employee director to be determined by dividing $70,000 by the volume weighted-average price of the Company’s common stock on the NYSE for the ten trading days preceding the grant date).

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Item 6. Exhibits.

The following exhibits are filed as part of this report:

Exhibit Number		Description of Exhibit
10.1†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Kerry W. Boekelheide
10.2†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Daniel P. Hansen
10.3†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Craig J. Aniszewski
10.4†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Christopher R. Eng
10.5†		Confidential Severance and Release Agreement, dated June 16, 2014, between Summit Hotel Properties, Inc. and Stuart J. Becker
31.1		Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

† Management contract.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUMMIT HOTEL PROPERTIES, INC. (registrant)

Date: August 6, 2014	By:	/s/ Paul Ruiz
		Paul Ruiz
		Interim Chief Financial Officer
		Chief Accounting Officer

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EXHIBIT INDEX

Exhibit Number		Description of Exhibit
10.1†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Kerry W. Boekelheide
10.2†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Daniel P. Hansen
10.3†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Craig J. Aniszewski
10.4†		Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Christopher R. Eng
10.5†		Confidential Severance and Release Agreement, dated June 16, 2014, between Summit Hotel Properties, Inc. and Stuart J. Becker
31.1		Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Interim Chief Financial Officer Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

† Management contract.

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT, effective as of May 28, 2014, between SUMMIT HOTEL PROPERTIES, INC., a Maryland corporation (the “Company”), and KERRY W. BOEKELHEIDE (the “Executive”), recites and provides as follows:

W I T N E S S E T H:

WHEREAS, the Company desires to employ the Executive to devote sufficient amounts of the Executive’s business time, attention and efforts to the business of the Company as are required to perform the duties of Executive Chairman of the Board of the Company; and

WHEREAS, the Executive desires to be so employed on the terms and subject to the conditions hereinafter stated.

NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth, the parties agree as follows:

1. RECITALS. The above recitals are incorporated by reference herein and made a part hereof as set forth verbatim.

2. EMPLOYMENT. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of the Company’s Executive Chairman of the Board to serve for the Term (as hereinafter defined) hereof, subject to earlier termination as hereinafter provided.

3. TERM. The Initial Term of the Executive’s employment hereunder (the “Initial Term”) shall be for a period of three (3) years commencing on May 28, 2014 (the “Effective Date”), and continuing until May 27, 2017. If neither the Company nor the Executive has provided the other with written notice of an intention to terminate this Agreement at least thirty (30) days before the end of the Initial Term (or any subsequent renewal period), this Agreement will automatically renew for a twelve (12) month period. For purposes of this Agreement, the word “Term” means the Initial Term and any renewal period pursuant to the preceding sentence and any extension pursuant to clause (ii) of the following sentence. Notwithstanding the preceding sentences (i) this Agreement may be terminated earlier as provided herein and (ii) if a Control Change Date (as defined in Section 11 of this Agreement) occurs during the Term, then the Term shall not end before the first anniversary of the Control Change Date or the date this Agreement is terminated earlier as provided herein.

4. SERVICES. The Executive shall devote sufficient business time, attention and effort to the Company’s affairs as required for the performance of the Executive’s duties hereunder. The Company further agrees that the Executive may engage in civic and community activities and endeavors and, to the extent approved by the Company’s Board of Directors (the “Board”) (by resolution, policy or other writing), may engage in personal business endeavors, provided that such civic and community activities and personal business endeavors do not interfere with the performance of the Executive’s duties hereunder. The Executive shall

have full authority and responsibility for formulating policies and administering the Company in all respects, subject to the general direction, approval and control of the Board.

5. COMPENSATION.

(a) Base Salary. During the first twelve (12) months of the Term, the Company shall pay the Executive an annual Base Salary equal to Four Hundred Thirty Six Thousand Dollars ($436,000). Thereafter during the remainder of the Term, the Company shall pay the Executive an annual Base Salary as determined by the Board or its Compensation Committee (the “Committee”). Such Base Salary shall be paid in accordance with the Company’s payroll schedule. Any increase in Base Salary shall not serve to limit or reduce any other obligations to the Executive under this Agreement.

(b) Annual Bonus. In addition to the Executive’s annual Base Salary, for performance in each calendar year during the Term, the Executive shall have the opportunity to earn an Annual Bonus. The Annual Bonus shall be earned and payable to the extent that predetermined individual and/or corporate goals established by the Committee are achieved and any other requirements prescribed by the Committee, at the time the performance goals are established, are satisfied. Subject to the satisfaction of any requirements described in the preceding sentence, the Annual Bonus that will be earned on account of achieving a “target” level of performance (as established by the Committee) shall not be less than 125 percent (125%) of the Executive’s then current Base Salary. Any Annual Bonus that is earned pursuant to the preceding sentence shall be paid in a single lump sum payment no later than March 15 following the calendar year in which the Annual Bonus is earned.

6. BENEFITS. The Company agrees to provide the Executive with the following benefits:

(a) Vacation. The Executive shall be entitled each calendar year to a vacation, during which time the Executive’ compensation shall be paid in full. The time allotted for such vacation shall be an aggregate of four (4) weeks. In the year the Executive terminates employment, the Executive shall be entitled to receive a prorated paid vacation based upon the amount of time that the Executive has worked during the year of termination. In the event that the Executive has not taken all of the vacation time computed on a prorated basis, the Executive shall be paid, at the Executive’s regular rate of Base Salary, for unused vacation. In the event Executive has taken more vacation time than allotted for the year of termination, there shall be no reduction in compensation otherwise payable hereunder.

(b) Employee Benefits. During the Term, the Executive and/or the Executive’s family, as the case may be, shall be eligible to participate in all Company employee benefit plans in which other executive level employees of the Company and/or the members of their families, as the case may be, are eligible to participate including, but not limited to, any retirement, pension, profit-sharing, insurance, or other plans which may now be in effect or which may hereafter be adopted by the Company. Regarding life insurance, the Executive shall have the right to name the beneficiary of such life insurance policy.

(c) Equity Plan Participation. The Executive shall be eligible to participate in the Company’s 2011 Equity Incentive Plan and any subsequent equity incentive plan established during the Term and shall receive awards, in such amounts and subject to such terms, as determined by the Committee.

7. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses related to the Executive’s services and the Company’s business, and the Company agrees to promptly reimburse the Executive for all reasonable expenses necessarily incurred by the Executive in the performance of the Executive’s duties to the Company upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses. These expenses include, but are not limited to, travel, meals and entertainment. Expenses that are reimbursable to the Executive under this Section 7 shall be paid to the Executive in accordance with the Company’s expense reimbursement policy but in no event later than March 15 following the calendar year in which the expense is incurred.

8. TERMINATION.

(a) Grounds. This Agreement shall terminate in the event of the Executive’s death. In the case of the Executive’s Disability, the Company may elect to terminate the Executive’s employment as a result of such Disability. The Company also may terminate the Executive’s employment pursuant to a Termination With Cause or a Termination Without Cause. Finally, the Executive may terminate the Executive’s employment with the Company pursuant to either a Voluntary Termination or a Voluntary Termination for Good Reason. For purposes of this Agreement, the terms Disability, Voluntary Termination, Voluntary Termination for Good Reason, Termination With Cause and Termination Without Cause are defined in Section 11 of this Agreement.

(b) Notice of Termination. Any termination by the Company or the Executive (other than upon death) shall be communicated by Notice of Termination to the Executive or the Company, as applicable. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon and the specific ground for termination; (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination; and (iii) the date of termination in accordance with Section 8(c) below.

(c) Date of Termination. For the purposes of this Agreement, “Date of Termination” means (i) if the Company intends to treat the termination as a termination based upon the Executive’s Disability, the Executive’s employment with the Company shall terminate effective on the thirtieth day after the date of the Notice of Termination (which may not be given before the Executive has been absent from work on account of a physical or mental illness or physical injury for at least one hundred fifty (150) days) provided that, before such date, the Executive shall not have returned to the performance of the Executive’s duties with or without reasonable accommodation; (ii) if the Executive’s employment is terminated by reason of Death, the Date of Termination shall be the date of death of the Executive; (iii) if the Executive’s employment is terminated by reason of Voluntary Termination, the Date of Termination shall be thirty (30) days from the date of the Notice of Termination (and the Executive shall be deemed to have terminated employment by Voluntary Termination if the Executive voluntarily refuses to

provide substantially all the services described in Section 4 hereof for a period greater than four (4) consecutive weeks, excluding periods in which the Executive is not performing services on account of vacation in accordance with Section 6(a) hereof and periods in which the Executive is not performing services on account of the Executive’s illness or injury or the illness or injury of a member of the Executive’s immediate family or an approved leave under the Family and Medical Leave Act, if applicable); in such event, the Date of Termination shall be the day after the last day of such four-week period; (iv) if the Company intends to treat the termination as a Termination With Cause, the Company shall provide the Executive written notice of such grounds for termination and the Executive shall have, to the extent provided in Section 11(i), the period specified in Section 11(i) to cure such cause to the reasonable satisfaction of the Board or the reasonable satisfaction of the Board’s Audit Committee, as applicable, failing which, the Date of Termination shall be the end of the applicable cure period; (v) if the Executive’s employment is terminated by reason of Voluntary Termination for Good Reason, the Date of Termination shall be thirty (30) days after the end of the thirty (30) day cure period or (vi) if the Executive’s employment is terminated by a Termination Without Cause, the Date of Termination shall be thirty (30) days from the Notice of Termination.

9. COMPENSATION UPON TERMINATION WITH CAUSE, VOLUNTARY TERMINATION, DEATH OR DISABILITY. This Section 9 applies in the event that the Executive’s employment ends upon a Termination With Cause, a Voluntary Termination, death or Disability or any reason other than a Termination Without Cause or a Voluntary Termination With Good Reason. In any of those events, the Executive (or the Executive’s estate in the event of the Executive’s death) shall be entitled to receive the Standard Termination Benefits. The Standard Termination Benefits are the benefits or amounts described in the following subsections (a) and (b):

(a) The Executive shall be entitled to receive any compensation (including Base Salary and Annual Bonus and accrued but unused vacation) that is earned prior to the Date of Termination but that remains unpaid as of the Date of Termination, which shall be paid in a single cash payment within six (6) days of the Date of Termination.

(b) The Executive shall be entitled to receive any benefits due the Executive under the terms of any employee benefit plan maintained by the Company and under the terms of any option, restricted stock or similar equity award; which benefits shall be paid in accordance with the terms of the applicable plan and any award agreement between the Executive and the Company.

Except for the Standard Termination Benefits, the Executive shall not be entitled to receive any compensation after the Date of Termination on account of a Termination With Cause, a Voluntary Termination, death, Disability or any reason other than a Termination Without Cause or a Voluntary Termination With Good Reason.

Agreement, the Executive shall be entitled to receive the benefits and amounts described in the following subsections (a), (b), (c) and (d):

(a) The Company shall pay or provide the Standard Termination Benefits as provided in Section 9 except that all outstanding options, shares of restricted stock and other equity awards, shall be vested and exercisable as of the Date of Termination and outstanding options, stock appreciation rights and similar equity awards shall remain exercisable thereafter until their stated expiration date as if the Executive’s employment had not terminated.

(b) The Company shall pay an amount equal to three (3.0) times the Executive’s Base Salary at the rate in effect on the Date of Termination (or, in the case of a Voluntary Termination for Good Reason, at the rate in effect before a reduction in Base Salary that constitutes Good Reason for resignation), such amount to be paid in accordance with Section 10(g).

(c) The Company shall pay an amount equal to three (3.0) times the Executive’s “target” Annual Bonus under Section 5(b) for the calendar year that includes the Date of Termination. If the “target” Annual Bonus for such year has not been established by the Committee before the Date of Termination, then the amount payable under this Section 10(c) shall be three (3.0) times the amount equal to 125 percent (125%) of the Executive’s Base Salary (or, in the case of a Voluntary Termination for Good Reason, at the rate in effect before a reduction in Base Salary that constitutes Good Reason for resignation), such amount to be paid in accordance with Section 10(g).

(d) The Company shall pay an amount equal to the product of (x) the Annual Bonus earned by the Executive for the fiscal year of the Company ended immediately before the Date of Termination and (y) a fraction, the numerator of which is the number of days the Executive was employed by the Company during the fiscal year that includes the Date of Termination and the denominator of which is 365, such amount to be paid in accordance with Section 10(g).

(e) The Company shall reimburse the Executive for premiums paid by the Executive for COBRA coverage for the Executive and the Executive’s eligible dependents. The Company shall reimburse the Executive for such premium payments for coverage during the twelve (12) months following the Date of Termination or until the termination of the right to coverage under COBRA, whichever occurs first. Each reimbursement shall be paid within fifteen (15) days of the Executive’s premium payment or, if later, within fifteen (15) days after the Executive’s release and waiver of claims becomes effective in accordance with Section 10(f).

(f) No benefits, other than the Standard Termination Benefits, will be paid or provided to, or on behalf of, the Executive under this Section 10 unless the Executive has signed and not revoked a release and waiver of claims in a form reasonably prescribed by the Company and furnished to the Executive within five (5) days after the Date of Termination, releasing the Company and its officers, directors and affiliates from all claims the Executive has or may have against such parties, and such release and waiver of claims has become binding and irrevocable on or before the sixtieth (60th) day after the date the Executive’s employment ends upon a Termination Without Cause or a Voluntary Termination for Good Reason.

(g) Subject to the requirements of Section 10(f) and the provisions of Sections 10(h) and 15(f), the total of the amounts described in Section 10(b), (c) and (d) (the “Cash Severance”) shall be payable as described in the applicable provisions of this Section 10(g).

(1) If a Control Change Event and a Control Change Date have not occurred during the two (2) year period preceding the date of the Executive’s Separation from Service, then the Cash Severance shall be payable in accordance with Section 10(g)(1)(i) if the Executive is not a Specified Employee on the date of Executive’s Separation from Service and in accordance with Section 10(g)(1)(ii) if the Executive is a Specified Employee on the date of Executive’s Separation from Service.

(i) If this Section 10(g)(1)(i) applies, then the Cash Severance shall be payable in thirty-six (36) equal or nearly equal monthly installments. The first installment shall be payable on the sixtieth (60th) day after the Date of Termination or, if later, on the sixtieth (60th) day after the Executive’s Separation from Service. The remaining installments shall be payable on the first day of the month beginning after the date on which the first installment is payable and on the first day of each month thereafter until all of the Cash Severance has been paid.

(ii) If this Section 10(g)(1)(ii) applies, then the Cash Severance shall be payable as follows:

(x) The lesser of (1) one-sixth of the total Cash Severance and (2) the maximum amount of the Cash Severance that can be exempt from Section 409A of the Code pursuant to Treasury Regulation §1.409A-1(b)(9)(iii) (the lesser of (1) and (2) being the “Exempt Amount”) shall be payable in six equal or nearly equal monthly installments. The first installment shall be payable on the sixtieth (60th) day after the Date of Termination or, if later, on the sixtieth (60th) day after the Executive’s Separation from Service.

(y) Any balance of the Cash Severance, i.e., the amount of the Cash Severance that exceeds the Exempt Amount, shall be payable in thirty (30) equal or nearly equal monthly installments. The installments shall be payable on the first day of the seventh (7th) month beginning after the date of the Executive’s Separation from Service and on the first day of each month thereafter until all of the Cash Severance has been paid.

(2) If a Control Change Date and a Control Change Event have occurred during the two (2) year period ending on the date of the Executive’s Separation from Service, then the Cash Severance shall be payable in accordance with Section 10(g)(2)(i) if the Executive is not a Specified Employee on the date of Executive’s Separation from Service and in accordance with Section 10(g)(2)(ii) if the Executive is a Specified Employee on the date of the Executive’s Separation from Service.

(ii) If this Section 10(g)(2)(ii) applies, then the Cash Severance shall be payable as follows:

(x) The Exempt Amount shall be payable in a single cash payment on the sixtieth (60th) day after the Date of Termination or, if later, on the sixtieth (60th) day after the Executive’s Separation from Service.

(y) Any balance of the Cash Severance, i.e., the amount of the Cash Severance that exceeds the Exempt Amount, shall be paid in a single cash payment on the first day of the seventh (7th) month beginning after the date of the Executive’s Separation from Service.

(h) Notwithstanding any other provision of this Section 10, each payment of the Cash Severance, other than Cash Severance payable upon a termination of the Executive’s employment upon a Termination Without Cause, that is payable under Section 10(g)(1) and that becomes payable before a Control Change Date occurs shall be subject to reduction or offset by the amount of any compensation that the Executive earns for personal services (other than amounts payable by the Company) after the Date of Termination and during the period in which such Cash Severance is otherwise payable. Following a termination of the Executive’s employment upon a Voluntary Termination for Good Reason the Executive agrees to promptly notify the Company of any employment or other services that the Executive provides during such period and the amount of compensation payable to the Executive for those services so that the Company can give effect to the offset described in this Section 10(h).

11. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the following definitions:

(a) “COBRA” means continued group health plan coverage under Section 4980B of the Code.

(b) “Code” means the Internal Revenue Code of 1986, as amended.

(c) “Control Change Date” for purposes of this Agreement, has the same meaning as such term is defined in the Company’s 2011 Equity Incentive Plan.

(d) “Control Change Event” has the same meaning as such term is defined under Treasury Regulation §1.409A-3(i)(5).

(e) “Disability” means that the Executive is “disabled” within the meaning of Section 409A(a)(2)(C) of the Code.

(f) “Material Weakness” has the meaning set forth in Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements, in effect on the Effective Date.

(g) “Separation from Service” has the same meaning as such term is defined under Treasury Regulation §1.409A-1(h).

(h) “Specified Employee” has the same meaning as such term is defined under Treasury Regulation §1.409A-1(i).

(i) “Termination With Cause” means the termination of the Executive’s employment by act of the Company’s Board of Directors on account of (i) the Executive’s failure to perform a material duty or the Executive’s material breach of an obligation set forth in this Agreement or a breach of a material and written Company policy other than by reason of mental or physical illness or injury, (ii) the Executive’s breach of Executive’s fiduciary duties to the Company, (iii) the Executive’s conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; provided that, in the cases of the foregoing clauses (i)-(iii), that following written notice from the Board describing any such event, such event is not cured, to the reasonable satisfaction of the Board, within thirty (30) days after such notice is received by the Executive, or (iv) the Executive’s conviction of, or plea of guilty or nolo contendre to, a felony or crime involving moral turpitude or fraud or dishonesty involving assets of the Company or (v) the Material Weakness communicated to management and the Audit Committee of the Board by the Company’s independent registered public accounting firm before the Effective Date is not cured, to the reasonable satisfaction of the Audit Committee prior to the filing of the Company’s annual report on Form 10-K for the period ending December 31, 2014, (vi) the Company’s independent registered public accounting firm shall have communicated, in writing, to management and the Audit Committee a Material Weakness in the Company’s internal control over financial reporting for any reporting period ending after the Effective Date, or (vii) the Company is required to restate a previously filed financial statement for reasons other than a change in accounting policy or a change in accounting standards and which restatement reflects a material change from the previously filed financial statement.

(j) “Termination Without Cause” means the termination of the Executive’s employment by act of the Board that does not constitute a Termination With Cause. For the avoidance of doubt, termination of the Executive’s employment on account of death or Disability or Voluntary Termination is not a Termination Without Cause.

(k) “Voluntary Termination” means the Executive’s voluntary termination of employment hereunder for any reason other than a Voluntary Termination for Good Reason. For purposes of this Section 11, the term Voluntary Termination does not include a voluntary refusal to perform services on account of a vacation taken in accordance with Section 6(a) hereof, the Executive’s failure to perform services on account of the Executive’s illness or injury or the illness or injury of a member of the Executive’s immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board.

(l) Voluntary Termination for “Good Reason” means the Executive’s termination of employment hereunder on account of (i) the Company’s material breach of the terms of this Agreement or a direction from the Board that the Executive act or refrain from acting which in either case would be unlawful or contrary to a material and written Company policy, (ii) a material diminution in the Executive’s duties, functions and responsibilities to the Company and its affiliates without the Executive’s consent such that the Executive’s duties, functions and responsibilities are materially less than the duties, functions and responsibilities typically assigned to a non-employee chairman of the board of a publicly traded real estate

investment trust or the Company preventing the Executive from fulfilling or exercising the Executive’s material duties, functions and responsibilities to the Company and its affiliates, as in effect from time to time, without the Executive’s consent other than on account of a failure of the Company’s shareholders to elect the Executive as a member of the Board, (iii) a material reduction in the Executive’s Annual Bonus opportunity or (iv) a requirement that the Executive relocate the Executive’s employment more than fifty (50) miles from the location of the Company’s principal office in Austin, Texas, without the consent of the Executive. The Executive’s resignation shall not be deemed a “Voluntary Termination for Good Reason” unless the Executive gives the Board written notice (delivered within thirty (30) days after the Executive knows of the event, action, etc. that the Executive asserts constitutes Good Reason), the event, action, etc. that the Executive asserts constitutes Good Reason is not cured, to the reasonable satisfaction of the Executive, within thirty (30) days after such notice and the Executive resigns effective not later than thirty (30) days after the expiration of such cure period.

12. CODE SECTION 280G. The benefits that the Executive may be entitled to receive under this Agreement and other benefits that the Executive is entitled to receive under other plans, agreements and arrangements (which, together with the benefits provided under this Agreement, are referred to as “Payments”), may constitute Parachute Payments that are subject to Sections 280G and 4999 of the Code. As provided in this Section 12, the Parachute Payments will be reduced if, and only to the extent that, a reduction will allow the Executive to receive a greater Net After Tax Amount than the Executive would receive absent a reduction.

The Accounting Firm will first determine the amount of any Parachute Payments that are payable to the Executive. The Accounting Firm also will determine the Net After Tax Amount attributable to the Executive’s total Parachute Payments.

The Accounting Firm will next determine the largest amount of Payments that may be made to the Executive without subjecting the Executive to tax under Section 4999 of the Code (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

The Executive will receive the total Parachute Payments or the Capped Payments, whichever provides the Executive with the higher Net After Tax Amount. If the Executive will receive the Capped Payments, the total Parachute Payments will be adjusted by first reducing the amount of any benefits under this Agreement or any other plan, agreement or arrangement that are not subject to Section 409A of the Code (with the source of the reduction to be directed by the Participant) and then by reducing the amount of any benefits under this Agreement or any other plan, agreement or arrangement that are subject to Section 409A of the Code (with the source of the reduction to be directed by the Participant). The Accounting Firm will notify the Executive and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Executive and the Company a copy of its detailed calculations supporting that determination.

or distributed to the Executive under this Section 12 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Executive must repay to the Company, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Executive to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Executive and the Company of that determination and the amount of that Underpayment will be paid to the Executive promptly by the Company.

For purposes of this Section 12, the term “Accounting Firm” means the independent accounting firm engaged by the Company immediately before the Change in Control. For purposes of this Section 12, the term “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Sections 1, 3101(b) and 4999 of the Code and any State or local income taxes applicable to the Executive on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment. For purposes of this Section 12, the term “Parachute Payment” means a payment that is described in Section 280G(b)(2) of the Code, determined in accordance with Section 280G of the Code and the regulations promulgated or proposed thereunder.

13. CODE SECTION 409A. This Agreement and the amounts payable and other benefits provided under this Agreement are intended to comply with, or otherwise be exempt from, Section 409A of the Code (“Section 409A”), after giving effect to the exemptions in Treasury Regulation section 1.409A-1(b)(3) through (b)(12). This Agreement shall be administered, interpreted and construed in a manner consistent with Section 409A. If any provision of this Agreement is found not to comply with, or otherwise not be exempt from, the provisions of Section 409A, it shall be modified and given effect, in the sole discretion of the Board and without requiring the Executive’s consent, in such manner as the Board determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Section 409A; provided, however, that in exercising its discretion under this Section 13, the Board shall modify this Agreement in the least restrictive manner necessary and without reducing any payment or benefit due under this Agreement. Each payment under this Agreement shall be treated as a separate identified payment for purposes of Section 409A.

With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, the Executive, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following limitations: (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense shall be made as specified in this Agreement and in no event later than the

end of the year after the year in which such expense was incurred and (iii) the right to reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit.

If a payment obligation under this Agreement arises on account of a Change in Control or the Executive’s termination of employment and such payment obligation constitutes “deferred compensation” (as defined under Treasury Regulation section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation section 1.409A-1(b)(3) through (b)(12)), it shall be payable only if the Change in Control constitutes a Control Change Event or after the Executive’s Separation from Service; provided, however, that if the Executive is a Specified Employee, any such payment that is scheduled to be paid within six months after such Separation from Service shall accrue without interest and shall be paid on the first day of the seventh month beginning after the date of the Executive’s Separation from Service or, if earlier, within fifteen days after the appointment of the personal representative or executor of the Executive’s estate following the Executive’s death.

14. TAX WITHHOLDING. All payments to be made under this Agreement shall be reduced by applicable income and employment tax withholdings.

15. COVENANTS OF THE EXECUTIVE.

(a) General Covenants of the Executive. The Executive acknowledges that (i) the principal business of the Company is acquiring, owning, renovating and developing premium-branded select-service hotels in the upscale and upper midscale segments of the US lodging industry (such business, and any and all other businesses that after the date hereof, and from time to time during the Term, become material with respect to the Company’s then-overall business, herein being collectively referred to as the “Business”), (ii) the Company knows of a limited number of persons who have developed the Business; (iii) the Business is, in part, national in scope; (iv) the Executive’s work for the Company and its subsidiaries has given and will continue to give the Executive access to the confidential affairs, proprietary information and trade secrets of the Company; (v) the covenants and agreements of the Executive contained in this Section 15 are essential to the business and goodwill of the Company; and (vi) the Company would not have entered into this Agreement but for the covenants and agreements set forth in this Section 15.

capacity although otherwise named in any business or venture engaged in the Business and that owns at least twenty-five (25) hotels, at least one of which is located within twenty-five (25) miles of any hotel acquired, owned, managed, developed or re-developed by the Company and its subsidiary, or within twenty-five (25) miles of any hotel the Company is pursuing to acquire, own, manage, develop or re-develop so long as the pursuit of such began prior to, and remained ongoing at the time of the termination of the Executive’s employment; provided, however, that, notwithstanding the foregoing, (i) the Executive may own or participate in the ownership of any entity which the Executive owned or managed or participated in the ownership or management on February 14, 2011, which ownership, management or participation has been disclosed to the Company or except to the extent approved by the Board (by resolution, policy or other writing); and (ii) the Executive may invest in securities of any entity, solely for investment purposes and without participating in the business thereof, if (A) such securities are traded on any national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System or equivalent non-U.S. securities exchange, (B) the Executive is not a controlling person of, or a member of a group which controls, such entity and (C) the Executive does not, directly or indirectly, own one percent (1%) or more of any class of securities of such entity. Notwithstanding the foregoing, this Section 15(b) shall not apply after the Executive’s Termination Without Cause or Voluntary Termination for Good Reason.

(c) Confidentiality. During and after the Executive’s employment with the Company and its affiliates, except in connection with the business and affairs of the Company and its affiliates: the Executive shall keep secret and retain in strictest confidence, and shall not use for the Executive’s benefit or the benefit of others, all confidential matters relating to the Business and the business of any of its affiliates and to the Company and any of its affiliates, learned by the Executive heretofore or hereafter directly or indirectly from the Company of any of its subsidiaries (or any predecessor of either) (the “Confidential Company Information”), including, without limitation, information with respect to the Business and any aspect thereof, profit or loss figures, and the Company’s or its affiliates’ (or any of their predecessors) properties, and shall not disclose such Confidential Company Information to anyone outside of the Company except with the Company’s express written consent and except for Confidential Company Information which (i) at the time of receipt or thereafter becomes publicly known through no wrongful act of the Executive; (ii) is clearly obtainable in the public domain; (iii) was not acquired by the Executive in connection with the Executive’s employment or affiliation with the Company; (iv) was not acquired by the Executive from the Company or its representatives or from a third-party who has an agreement with the Company not to disclose such information; (v) was legally in the possession of or developed by the Executive prior to February 14, 2011; or (vi) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

the Company and its affiliates; or (ii) whether for the Executive’s own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Company’s or any of its affiliates, relationship with, or endeavor to entice away from the Company or any of its affiliates, any person who during the Executive’s employment with the Company is or was a customer or client of the Company or any of its affiliates (or any predecessor of either). Notwithstanding the above, nothing shall prevent the Executive from soliciting loans, investment capital, or the provision of management services from third parties engaged in the Business if the activities of the Executive facilitated thereby do not otherwise adversely interfere with the operations of the Business.

(e) Company Property. During and after the Executive’s employment with the Company and its affiliates, all memoranda, notes, lists, records, property and any other tangible product and documents (and all copies thereof) made, produced or compiled by the Executive or made available to the Executive during the Term concerning the Business of the Company and its affiliates shall be the Company’s property and shall be delivered to the Company at any time on request. Notwithstanding the above, the Executive’s contacts and contact data base shall not be the Company’s property. Notwithstanding the above, software, methods and material developed by the Executive prior to the Term of the Agreement shall not be the Company’s property.

(f) Nondisparagement. The Executive agrees that during and after the Executive’s employment with the Company and its affiliates the Executive will not make any negative comments or otherwise disparage the Company or its officers, the Board or individual directors, employees, shareholders or agents. Similarly, the Company agrees that during and after the Term, Company officers, executives, members of the Board and members of management shall not make any negative comments or otherwise disparage the Executive. The preceding sentences shall not be violated by (i) truthful statements in response to legal process, required governmental testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) or (ii) communications by the Executive to the Board or an officer of the Company or by the Board, members of the Board, Company officers, executives, or members of management that are made in the good faith performance of their duties.

(g) Rights and Remedies upon Breach. The Executive acknowledges and agrees that any breach by the Executive of any of the provisions of this section 15 (the “Covenants”) would result in irreparable injury and damage for which money damages, would not provide an adequate remedy. Therefore, if the Executive breaches, or threatens to commit a breach of, any of the Covenants, the Company and its affiliates shall have the right and remedy to have the Covenants specifically enforced (without posting bond and without the need to prove damages) by any court having equity jurisdiction, including, without limitation, the right to an entry against the Executive of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants. This right and remedy shall be in addition to, and not in lieu of, any other rights and remedies available to the Company and its affiliates under law or in equity (including, without limitation, the recovery of damages). The existence of any claim or cause of action by the Executive, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of the Covenants. The Company has the right to cease making the

payments of any Cash Severance installments that remains payable under Section 10(g)(1) or other benefits to the Executive in the event of a material breach of any of the Covenants that, if capable of cure and not willful, is not cured within thirty (30) days after receipt of notice thereof from the Company.

(h) Severability. The Executive acknowledges and agrees that the Executive has had an opportunity to seek advice of counsel in connection with this Agreement; and that the Covenants are reasonable in geographical and temporal scope and in all other respects. If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Covenants, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.

(i) Duration and Scope of Covenants. If any court or other decision maker of competent jurisdiction determines that any of the Covenants, including, without or any part thereof are unenforceable because of the duration or geographical scope of such provision, then, after such determination has become final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.

(j) Enforceability of Restrictive Covenants; Jurisdictions. The Company and the Executive intend to and hereby consent to jurisdiction to enforce the Covenants upon the courts of any jurisdiction within the geographical scope of the Covenants. If the courts of any one or more of such jurisdictions hold the Covenants wholly unenforceable by reason of breadth of scope or otherwise it is the intention of the Company and the Executive that such determination not bar or in any way affect the Company’s right, or the right of any of its affiliates, to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Covenants, as to breaches of such Covenants in such other respective jurisdictions, such Covenants as they relate to each jurisdiction’s being, for this purpose, severable, diverse and independent covenants, subject, where appropriate, to the doctrine of res judicata.

16. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or three (3) days following the date when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party:

To the Company: Summit Hotel Properties, Inc.
Attn: Corporate Secretary
12600 Hill Country Boulevard

Suite R-100
Austin, Texas 78738

To the Executive: Kerry W. Boekelheide

[Address]

17. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto.

18. ARBITRATION. Any claim or controversy arising out of, or relating to, this Agreement or its breach or the Executive’s employment with the Company, other than a claim or controversy arising under Section 15, shall be settled by arbitration in Austin, Texas in accordance with the governing Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association. Judgment upon the award rendered may be entered in any court of competent jurisdiction. In the event one of the parties hereto requests an arbitration proceeding under this Agreement, such proceeding shall commence within 30 days from the date of such request. The prevailing party shall be entitled to reasonable attorney’s fees and costs.

19. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Texas.

20. NO SETOFF. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by a setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under the provisions of this Agreement. The provisions of this Section 20 do not affect or detract from the Company’s rights under Section 10(h), Section 15 or Section 22.

21. ASSIGNMENT. The Executive acknowledges that the Executive’s services are unique and personal. Accordingly, the Executive may not assign the Executive’s rights or delegate the Executive’s duties or obligations under this Agreement. The Executive’s rights and obligations under this Agreement shall insure to the benefit of and shall be binding upon the Executive’s successors and assigns.

22. RECOUPMENT. The Executive acknowledges and agrees that any incentive compensation, whether payable in cash or equity (but excluding amounts that vest or become payable solely on account of continued employment or service) that is payable under this Agreement or under any other agreement or any plan or arrangement is subject to recoupment or repayment if such action is required under applicable law or the terms of any Company recoupment or “clawback” policy as in effect on the date that such compensation or benefit was paid.

23. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the 28th day of May, 2014.

	SUMMIT HOTEL PROPERTIES, INC.


	By:	/s/ Christopher Eng
	Title:	Secretary


	EXECUTIVE


	/s/ Kerry W. Boekelheide
	KERRY W. BOEKELHEIDE

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT, effective as of May 28, 2014, between SUMMIT HOTEL PROPERTIES, INC., a Maryland corporation (the “Company”), and DANIEL P. HANSEN (the “Executive”), recites and provides as follows:

W I T N E S S E T H:

WHEREAS, the Company desires to employ the Executive to devote substantially all of the Executive’s business time, attention and efforts to the business of the Company and to serve as the President and Chief Executive Officer of the Company; and

WHEREAS, the Executive desires to be so employed on the terms and subject to the conditions hereinafter stated.

NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth, the parties agree as follows:

1. RECITALS. The above recitals are incorporated by reference herein and made a part hereof as set forth verbatim.

2. EMPLOYMENT. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of the Company’s President and Chief Executive Officer to serve for the Term (as hereinafter defined) hereof, subject to earlier termination as hereinafter provided.

4. SERVICES. The Executive shall devote substantially all of the Executive’s business time, attention and effort to the Company’s affairs. The Company further agrees that the Executive may engage in civic and community activities and endeavors provided that such activities do not interfere with the performance of the Executive’s duties hereunder. The Executive shall have full authority and responsibility for formulating policies and administering the Company in all respects, subject to the general direction, approval and control of the Company’s Board of Directors (the “Board”).

5. COMPENSATION.

(a) Base Salary. During the Term, the Company shall pay the Executive an annual Base Salary equal to Four Hundred Fifty Thousand Dollars ($450,000), subject to any increases approved by the Board or its Compensation Committee (the “Committee”). Such Base Salary shall be paid in accordance with the Company’s payroll schedule. Any increase in Base Salary shall not serve to limit or reduce any other obligations to the Executive under this Agreement.

(b) Annual Bonus. In addition to the Executive’s annual Base Salary, for performance in each calendar year during the Term, the Executive shall have the opportunity to earn an Annual Bonus. The Annual Bonus shall be earned and payable to the extent that predetermined individual and/or corporate goals established by the Committee are achieved and any other requirements prescribed by the Committee, at the time the performance goals are established, are satisfied. Subject to the satisfaction of any requirements described in the preceding sentence, the Annual Bonus that will be earned on account of achieving a “target” level of performance (as established by the Committee), shall not be less than one hundred fifty percent (150%) of the Executive’s then current Base Salary. Any Annual Bonus that is earned pursuant to the preceding sentence shall be paid in a single lump sum payment no later than March 15 following the calendar year in which the Annual Bonus is earned.

6. BENEFITS. The Company agrees to provide the Executive with the following benefits:

8. TERMINATION.

Medical Leave Act, if applicable); in such event, the Date of Termination shall be the day after the last day of such four-week period; (iv) if the Company intends to treat the termination as a Termination With Cause, the Company shall provide the Executive written notice of such grounds for termination and the Executive shall have, to the extent provided in Section 11(i), the period specified in Section 11(i) to cure such cause to the reasonable satisfaction of the Board or to the reasonable satisfaction of the Board’s Audit Committee, as applicable, failing which, the Date of Termination shall be the end of the applicable cure period; (v) if the Executive’s employment is terminated by reason of Voluntary Termination for Good Reason, the Date of Termination shall be thirty (30) days after the end of the thirty (30) day cure period or (vi) if the Executive’s employment is terminated by a Termination Without Cause, the Date of Termination shall be thirty (30) days from the Notice of Termination.

10. COMPENSATION UPON TERMINATION WITHOUT CAUSE OR VOLUNTARY TERMINATION WITH GOOD REASON. This Section 10 applies in the event that the Executive’s employment ends upon a Termination Without Cause or a Voluntary Termination With Good Reason. In either of those events but subject to the provisions of this Agreement, the Executive shall be entitled to receive the benefits and amounts described in the following subsections (a), (b), (c) and (d):

outstanding options, stock appreciation rights and similar equity awards shall remain exercisable thereafter until their stated expiration date as if the Executive’s employment had not terminated.

(c) The Company shall pay an amount equal to three (3.0) times the Executive’s “target” Annual Bonus under Section 5(b) for the calendar year that includes the Date of Termination. If the “target” Annual Bonus for such year has not been established by the Committee before the Date of Termination, then the amount payable under this Section 10(c) shall be three (3.0) times the amount equal to one hundred fifty percent (150%) of the Executive’s Base Salary (or, in the case of a Voluntary Termination for Good Reason, at the rate in effect before a reduction in Base Salary that constitutes Good Reason for resignation), such amount to be paid in accordance with Section 10(g).

(ii) If this Section 10(g)(1)(ii) applies, then the Cash Severance shall be payable as follows:

(x) The lesser of (1) one-sixth of the total Cash Severance and (2) the maximum amount of the Cash Severance that can be exempt from Section 409A of the Code pursuant to Treasury Regulation §1.409A-1(b)(9)(iii) (the lesser of (1) and (2) being the “Exempt Amount”) shall be payable in six (6) equal or nearly equal monthly installments. The first installment shall be payable on the sixtieth (60th) day after the Date of Termination or, if later, on the sixtieth (60th) day after the Executive’s Separation from Service.

(ii) If this Section 10(g)(2)(ii) applies, then the Cash Severance shall be payable as follows:

(h) Notwithstanding any other provision of this Section 10, each payment of the Cash Severance, other than Cash Severance payable on account of a termination of the Executive’s employment upon a Termination Without Cause, that is payable under Section 10(g)(1) and that becomes payable before a Control Change Date occurs shall be subject to reduction or offset by the amount of any compensation that the Executive earns for personal services (other than amounts payable by the Company) after the Date of Termination and during the period in which such Cash Severance is otherwise payable. Following a termination of the Executive’s employment upon a Voluntary Termination for Good Reason the Executive agrees to promptly notify the Company of any employment or other services that the Executive provides during such period and the amount of compensation payable to the Executive for those services so that the Company can give effect to the offset described in this Section 10(h).