e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the Quarterly Period Ended September 30, 2007


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: 000-51955

SUMMIT HOTEL PROPERTIES, LLC

(Exact name of registrant as specified in its charter)

South Dakota
(State or other jurisdiction
of incorporation or organization)

20-0617340
(I.R.S. Employer Identification No.)

2701 South Minnesota Avenue, Suite 6
Sioux Falls, SD 57105
(Address of principal executive
offices, including zip code)

(605) 361-9566
(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. þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of the Exchange Act.

Large accelerated filer o Accelerated Filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The number of Class A Membership Units outstanding as of October 1 2007, was 1,166.62 and the number of Class A-1 Membership Units outstanding as of October 1, 2007, was 133.25.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SUMMIT HOTEL PROPERTIES, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006


	(Unaudited)			(Audited)
	2007			2006
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	10,346,357		$	7,999,443
Restricted cash		2,554,018			2,479,940
Trade receivables		5,415,687			3,151,673
Prepaid expenses and other		934,103			1,761,769
Assets held for sale		8,113,178			3,110,559

Total current assets		27,363,343			18,503,384


PROPERTY AND EQUIPMENT, NET		422,813,249			331,706,663


OTHER ASSETS
Deferred charges and other assets, net		4,303,223			4,400,900
Restricted cash		1,172,046			1,348,538

Total other assets		5,475,269			5,749,438


TOTAL ASSETS	$	455,651,861		$	355,959,485


LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Current portion of long-term debt	$	22,066,000		$	12,030,000
Lines of credit		25,450,864			7,432,397
Notes payable		92,001,254			7,472,868
Accounts payable		5,981,880			1,303,471
Related party accounts payable		1,392,886			2,825,398
Accrued expenses		9,502,021			8,044,929

Total current liabilities		156,394,905			39,109,063


LONG-TERM DEBT, NET OF CURRENT PORTION		196,949,563			210,139,609


COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS		(1,576,351	)		(1,511,494	)


MEMBERS’ EQUITY
Class A, 1,166.62 units issued and outstanding		87,393,117			88,253,669
Class A-1, 133.25 units issued and outstanding		10,952,697			11,035,274
Class B, 81.36 units issued and outstanding		4,404,649			4,972,353
Class C, 173.60 units issued and outstanding		1,133,281			3,961,011

Total members’ equity		103,883,744			108,222,307


TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	455,651,861		$	355,959,485

See Notes to Condensed Consolidated Financial Statements

SUMMIT HOTEL PROPERTIES, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006


	Three Months Ended						Nine Months Ended
	September 30, 2007			September 30, 2006			September 30, 2007			September 30, 2006
REVENUES
Room revenues	$	34,712,179		$	30,612,563		$	96,626,561		$	86,759,195
Other hotel operations revenues		440,636			488,514			1,555,818			1,455,938

		35,152,815			31,101,077			98,182,379			88,215,133


COSTS AND EXPENSES
Direct hotel operations		10,531,812			9,316,706			29,560,450			26,872,913
Other hotel operating expenses		3,691,803			3,261,993			10,126,692			9,347,468
General, selling and administrative		5,723,029			5,186,552			17,900,517			15,429,187
Repairs and maintenance		2,676,739			1,949,671			9,120,996			6,628,993
Depreciation and amortization		4,559,084			3,854,526			12,572,609			11,573,924

		27,182,467			23,569,448			79,281,264			69,852,485

INCOME FROM OPERATIONS		7,970,348			7,531,629			18,901,115			18,362,648


OTHER INCOME (EXPENSE)
Interest income		125,565			303,038			306,934			504,051
Interest (expense)		(4,099,368	)		(3,316,032	)		(11,040,364	)		(9,415,134	)
Gain (loss) on disposal of assets		(379,830	)		(863,774	)		(522,493	)		(899,568	)

		(4,353,633	)		(3,876,768	)		(11,255,923	)		(9,810,651	)

INCOME BEFORE MINORITY INTERESTS		3,616,715			3,654,861			7,645,192			8,551,997

MINORITY INTERESTS IN OPERATIONS OF CONSOLIDATED PARTNERSHIPS		(107,439	)		(135,920	)		445,143			319,108


INCOME FROM CONTINUING OPERATIONS		3,724,154			3,790,781			7,200,049			8,232,889

INCOME (LOSS) FROM DISCONTINUED OPERATIONS		1,372,051			390,193			4,379,677			2,421,380


NET INCOME BEFORE INCOME TAXES		5,096,205			4,180,974			11,579,726			10,654,269

STATE INCOME TAX (EXPENSE)		(291,864	)		(264,970	)		(743,863	)		(532,849	)


NET INCOME	$	4,804,341		$	3,916,004		$	10,835,863		$	10,121,420


BASIC AND DILUTED EARNINGS PER CAPITAL UNIT	$	3,089.95		$	2,518.61		$	6,969.16		$	6,572.82


WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT		1,554.83			1,554.83			1,554.83			1,539.89

See Notes to Condensed Consolidated Financial Statements

SUMMIT HOTEL PROPERTIES, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006


	2007			2006
OPERATING ACTIVITIES
Net income	$	10,835,863		$	10,121,420
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		13,409,323			12,555,858
Minority interests in operations of consolidated partnership		445,143			319,108
(Gain) loss on disposal of assets		(3,903,242	)		(1,264,881	)
Changes in current assets and liabilities:
Trade receivables		(2,264,014	)		(1,397,798	)
Prepaid expenses and other		827,666			500,496
Accounts payable and related party accounts payable		2,211,805			(2,060,291	)
Accrued expenses		1,463,506			613,138


NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		23,026,050			19,387,050


INVESTING ACTIVITIES
Land and hotel acquisitions and construction in progress		(1,034,092	)		(3,675,560	)
Purchases of other property & equipment		(7,857,110	)		(6,820,461	)
Proceeds from asset dispositions		12,853,572			8,502,709
Restricted cash fundings		102,414			2,333,784


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		4,064,784			340,472


FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		5,213,669			13,623,349
Principal payments on long-term debt		(9,507,686	)		(2,999,350	)
Financing fees on long-term debt		(472,358	)		(682,919	)
Net change in notes payable		(4,293,119	)		(1,422,338	)
Proceeds from equity contributions		—			—
Distributions to members		(15,174,426	)		(13,983,122	)
Distributions to minority interest		(510,000	)		(510,000	)


NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(24,743,920	)		(5,974,380	)


NET CHANGE IN CASH AND CASH EQUIVALENTS		2,346,914			13,753,142

CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD		7,999,443			7,339,976


END OF PERIOD	$	10,346,357		$	21,093,118

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) — page 2


	2007		2006
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest	$	11,547,315	$	9,993,417


Cash payments for state income taxes	$	384,722	$	1,305,895


SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL INFORMATION:

Acquisitions of hotel properties and land through issuance of capital units	$	—	$	6,547,500


Acquisitions of hotel properties and land through issuance of debt	$	42,341,906	$	26,861,372


Acquisitions of hotel properties and land financed through like-kind exchange	$	—	$	2,592,260


Construction in progress financed through related party accounts payable	$	1,034,092	$	1,007,595


Construction in progress financed through issuance of debt	$	65,638,066	$	5,253,122


Conversion of notes payable to long-term debt	$	—	$	8,551,829


Issuance of long-term debt to refinance existing long-term debt	$	3,286,331	$	14,425,622


Conversion of debt to equity	$	—	$	5,910,000

See Notes to Condensed Consolidated Financial Statements

SUMMIT HOTEL PROPERTIES, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2007

NOTE 1 — SELECTED SUPPLEMENTARY INFORMATION

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on interim periods. Accordingly, certain information and footnotes required by the accounting principles generally accepted in the United States for complete financial statements have been omitted. Interim results may not be indicative of fiscal year performance because of seasonal and other factors. These interim statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K filing for the year ended December 31, 2006. In management’s opinion, all adjustments made were normal and recurring in nature, and were necessary for a fair statement of the results of the interim period.

The condensed consolidated financial statements include the accounts of the Company and Summit Group of Scottsdale, Arizona, LLC. The effects of all intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement". This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. Management believes this Statement will have an immaterial impact on the consolidated financial statements of the Company once adopted.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities". This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. Management believes this Statement will have an immaterial impact on the consolidated financial statements of the Company once adopted.

(continued on next page)

SUMMIT HOTEL PROPERTIES, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2007

Assets Held for Sale

As a part of regular policy, the Company periodically reviews hotels based on established criteria such as age of hotel property, type of franchise associated with hotel property, and adverse economic and competitive conditions in the region surrounding the property.

During 2007, the Company completed a comprehensive review of its investment strategy and of its existing hotel portfolio to identify properties which the Company believes are either non-core or no longer complement the business. As of September 30, 2007, there were two hotel properties (Fenton, MO Fairfield Inn and Fenton, MO Towneplace Suites) that meet the Company’s criteria for held for sale classification.

Assets held for sale at September 30, 2007 and December 31, 2006 are comprised of the following:


	2007		2006
Land	$	1,175,000	$	1,048,864
Building		6,806,174		2,048,055
Furniture, fixtures and equipment		1,772,802		322,834

		9,753,976		3,419,753
Less accumulated depreciation		1,640,798		309,194


	$	8,113,178	$	3,110,559

Discontinued Operations

In accordance with SFAS No. 144, the Company classifies its condensed consolidated financial statements of operations for the three and nine month periods ended September 30, 2007 and 2006, and its condensed consolidated balance sheet as of September 30, 2007. This presentation reflects discontinued operations of eight consolidated hotel properties sold during this period, or to be sold pursuant to the plan for hotel dispositions. This classification has no impact on the Company’s net income or the net income per capital unit. The eight hotel properties are located in Pueblo, CO; Coeur D’Alene, ID; Sioux Falls, SD; Bradford, PA; Lincoln, NE; Jackson, MS; and two in Fenton, MO. Three hotel properties in Bradford, PA; Jackson, MS and Sioux Falls, SD were sold for a total of $11,210,000 during the second quarter of 2006. The Coeur D’Alene, ID; Pueblo, CO and Lincoln, NE hotels were sold for a total of $13,118,000 during the second and third quarters of 2007.

(continued on next page)

SUMMIT HOTEL PROPERTIES, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2007

Condensed financial information of the results of operations for these hotel properties included in discontinued operations for the three and nine month periods ended September 30, 2007 and 2006 are as follows:


	Three Months Ended						Nine Months Ended
	September 30, 2007			September 30, 2006			September 30, 2007			September 30, 2006
REVENUES	$	1,225,428		$	2,423,409		$	4,420,405		$	7,217,421


COSTS AND EXPENSES
Direct hotel operations		402,421			749,860			1,546,948			2,491,683
Other hotel operating expenses		158,621			268,137			616,442			993,970
General, selling and administrative		163,104			377,221			714,386			1,202,817
Repairs and maintenance		69,066			132,763			218,414			579,575
Depreciation and amortization		193,804			256,879			836,714			981,934

		987,016			1,784,860			3,932,904			6,249,979

INCOME FROM OPERATIONS		238,412			638,549			487,501			967,442


OTHER INCOME (EXPENSE)
Interest income		4,346			10,590			10,251			35,818
Interest (expense)		(110,077	)		(229,747	)		(506,951	)		(578,283	)
State income tax (expense)		(6,228	)		(40,086	)		(36,859	)		(168,046	)
Gain (loss) on disposal of assets		1,245,598			10,887			4,425,735			2,164,449

		1,133,639			(248,356	)		3,892,176			1,453,938


INCOME (LOSS) FROM DISCONTINUED OPERATIONS	$	1,372,051		$	390,193		$	4,379,677		$	2,421,380

Acquisitions

The Company applies the principles of SFAS No. 141, “Business Combinations” in accounting for its acquisitions. The Company determines the cost of the acquired property based upon the fair value of assets distributed as consideration and the fair value of liabilities incurred. The cost of the acquired entity includes all direct costs of the business combination whereas indirect and general expenses are expensed as incurred. The Company allocates the cost of the acquired entity to the assets acquired and liabilities assumed based upon their estimated fair market values at the date of acquisition. To determine fair value of the various components acquired, the Company engages independent valuation consultants and other third-party real-estate appraisals as necessary. The Company allocates the cost of the acquired property based upon the relative fair values of the various components contained in the appraisals. In some cases, the cost of the property acquired may be less than the fair value contained in the appraisals. In these cases, the Company reduces the fair values based upon the relative value of the components of the acquisition. The excess of the cost of the acquisition over the fair value will be assigned to intangible assets if the intangible asset is separable and if it arises from a contractual or other legal right. Any remaining excess of the cost of acquisition over fair values assigned to separable assets is recognized as goodwill. Further, many of the Company’s hotel acquisitions to date have been aggregated which in accordance with SFAS No. 141 has resulted in an aggregated purchase price allocation. Since its inception, the Company’s acquisitions and subsequent purchase price allocations have resulted in no goodwill.

(continued on next page)

SUMMIT HOTEL PROPERTIES, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2007

During the first quarter of 2007, the Company purchased land in Houston, TX for $1,864,000 and in San Antonio, TX for $10,420,000, and plans to build five hotels on the land in 2007 and 2008.

During the second quarter of 2007, the Company purchased a land lease in Portland, OR for $3,650,000, and plans to build two hotels on the land in 2008.

During the third quarter of 2007, the Company purchased land in El Paso, TX for $2,614,000 and in Ft. Myers, FL for $3,307,500 and plans to build three hotels on the land in 2008 and sell a portion of the Ft. Myers, FL land.

On May 2, 2007, the Company purchased two hotel properties in Irving (Las Colinas), TX, for a combined purchase price of approximately $14,110,000. Essentially all of the assets purchased were allocated to property and equipment.

On June 5, 2007, the Company purchased the Staybridge Suites in Ridgeland, MS, for an approximate price of $9,150,000. Essentially all of the assets purchased were allocated to property and equipment.

The following table illustrates the allocation of the respective purchase prices for each of the aggregated property purchases discussed above:


	5/2/07		6/5/07
Current assets	$	—	$	—
Property and equipment		14,110,000		9,150,000
Intangible assets		—		—

Total assets acquired		14,110,000		9,150,000

Current liabilities		—		—
Long-term debt		—		—

Total liabilities assumed		—		—

Net assets acquired	$	14,110,000	$	9,150,000

Accrued Expenses

Accrued expenses at September 30, 2007 and December 31, 2006 are as follows:


	2007		2006
Accrued taxes	$	5,788,096	$	3,810,350
Accrued salaries and benefits		1,396,411		1,517,101
Accrued interest		924,424		901,438
Other accrued expenses		1,393,090		1,816,040


	$	9,502,021	$	8,044,929

(continued on next page)

SUMMIT HOTEL PROPERTIES, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2007

Note Obligations

On March 5, 2007, the Company closed on a loan with Fortress Credit Corporation to refinance the debt on several construction projects and provide equity for the acquisition, development and construction of additional real estate and hotel properties. The loan is in the amount of $99,700,000. The current balance on this note is approximately $39,900,000 and carries a variable interest rate of 30-day LIBOR plus 575 basis points. The maturity date of the note is March 5, 2010.

On April 30, 2007, the Company entered into a loan with General Electric Capital Corporation in the amount of $9,500,000 to fund the land acquisition on hotel construction located in Denver, CO. The loan carries a variable interest rate of LIBOR plus 185 basis points, and matures in May 2017. The current balance is approximately $5,181,000.

On August 15, 2007, the Company entered into a loan with General Electric Capital Corporation in the amount of $11,300,000 to fund the land acquisition and hotel construction located in Baton Rouge, LA. The loan carries a variable interest rate of LIBOR plus 185 basis points, and matures in May 2017. The current balance is approximately $85,000.

Subsequent Events

One purchase agreement has been signed for land in Ft. Collins, CO for approximately $2,350,000, with plans to build one hotel on the land in 2008.

The Company signed a sales contract on the additional 2.76 acres of land in Ft. Myers, FL for $2,200,000 and plans to close on the sale before the end of 2007.

The Company signed a sales contract on the two hotels in Fenton, MO for $11,350,000 and plans to close on the sale during fourth quarter of 2007.

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

Forward-Looking Statements

This report includes “forward-looking” statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, and those disclosed as risks in other reports filed by us with the Securities and Exchange Commission, including those described in Item 1A. of our annual report filed on Form 10-K. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

Overview

Management’s discussion and analysis of financial conditions and results of operations (“MD&A”) discusses our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and costs and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, bad debts, investments, plant, property and equipment and intangible assets, income taxes, financing operations, self-insurance claims payable, contingencies, and litigation.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of the assets and liabilities that are

not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Critical Accounting Policies

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. We periodically review the carrying value of property and equipment and other long-lived assets for indications that the carrying value of such assets may not be recoverable. This review consists of a comparison of the carrying value of the assets with the expected future undiscounted cash flows. If the respective carrying values exceed the expected future undiscounted cash flows, the impairment is measured using fair value measures to the extent available or discounted cash flows.

Impairment of Long-Lived Assets

We consider each individual hotel to be an identifiable component of our business. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we do not consider a hotel as “held for sale” until the potential transaction has been approved by our Board, as may be required, and it is probable that the sale will be completed within one year. We do not consider a sale to be probable until a buyer’s due diligence review is completed and all substantive conditions to the buyer’s performance have been satisfied. Once a hotel is “held for sale,” the operations related to the hotel will be included in discontinued operations.

We do not depreciate hotel assets while they are classified as “held for sale.” Upon designation of a hotel as being “held for sale,” and quarterly thereafter, we review the carrying value of the hotel and, as appropriate, adjust its carrying value to the lesser of depreciated cost or fair value less cost to sell, in accordance with SFAS 144. Any such adjustment in the carrying value of a hotel classified as “held for sale” will be reflected in discontinued operations. We will include in discontinued operations the operating results of hotels classified as “held for sale” or that have been sold.

We periodically review the carrying value of certain long-lived assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. If such reviews indicate that the carrying value of such assets may not be recoverable, we estimate the undiscounted sum of the expected cash flows of such assets to determine if such sum is less than the carrying value of such assets to ascertain if an impairment exists. If an impairment exists, we determine the fair value by using quoted market prices, if available for such assets, or if quoted market prices are not available, we would discount the expected future cash flows of such assets.

Consolidation Policy

The consolidated financial statements include the accounts of the Company and its variable interest entity, Summit Group of Scottsdale, Arizona, LLC. All significant

intercompany accounts and transactions have been eliminated.

In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), “Consolidation of Variable Interest Entities,” which addresses how a business enterprise should evaluate whether or not it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. We adopted FIN 46R beginning October 1, 2004. This Interpretation requires that we present any variable interest entities in which we have a majority variable interest on a consolidated basis in our financial statements.

Revenue Recognition

The revenue from the operation of a hotel is recognized as part of the hotel operations segment when earned. Typically, cash is collected from the guest at the time of check-in or checkout or the guest pays by credit card which is typically reimbursed within 2-3 days; however, we also extend credit to selected corporate customers.

Results of Operations

The following discussion presents an analysis of results of our operations for the three and nine months ended September 30, 2007 and September 30, 2006.

Our operating results declined for the three months ended September 30, 2007 compared to the three months ended September 30, 2006 and for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, for three primary reasons. First, we continue our program to renovate our hotels to keep them competitive in their respective markets, therefore, we have incurred significant repairs and maintenance expense during the nine months ended September 30, 2007. Second, we have experienced increased interest expense due to the purchase of three hotels during 2007, and the refinance of a significant portion of our mortgage debt in June 2006 which included taking out equity to fund future acquisitions and development. Management anticipates that operating income of the recently-purchased hotels will increase as the operations of these hotels are stabilized. Third, our General, Selling and Administrative expenses increased as a percentage of revenues largely due to costs related to opening six hotels during the nine months ended September 30, 2007.

All of our revenues are derived from guestroom rentals at our hotels, and revenues from services related to guestroom rentals. In addition to guestroom rental revenue, our hotels derived revenues from fees to guests for telephone usage, hotel meeting room rentals, restaurant and lounge receipts, hotel laundry and valet services, revenues from concessions and other fees charged to hotel users for similar services. All revenues were generated from hotels located in the United States.

Management utilizes a variety of indicators to compare the financial and operating performance of the hotels between periods, as well as the performance of individual hotels or groups of hotels. The key indicators we use include: occupancy percentage rate which is the percentage computed as the number of hotel guestrooms occupied divided by the number of guestrooms available for occupancy; average daily rate (ADR) which is the average rental rate

charged to guests; revenue per available room (RevPAR) which is the product of the occupancy rate and ADR. Each of these indicators is also commonly used throughout the hotel industry. Because the number of hotels we own each year is variable, we believe these indicators give a better indication of our performance.

Three Months Ended September 30, 2007 Compared with Three Months Ended September 30, 2006

Revenues

Total revenue for the three months ended September 30, 2007 was $35.2 million, compared to $31.1 million during the three months ended September 30, 2006. This is an increase of 13.0%. The increase was primarily due to the increased RevPAR generated by the Company’s hotels.

The key indicators for the Company’s hotel performance for the three months ended September 30, 2007 and 2006 are set forth in the following table.


	Three Months Ended			Three Months Ended
	September 30,			September 30,
	2007			2006			Increase/(Decrease)
All Company Hotels
RevPAR	$	69.24		$	66.46		$	2.78
Average Daily Rate	$	96.17		$	88.79		$	7.38
Occupancy Rate		72.00	%		74.85	%		(2.85	)%

Management attributes the success in increasing ADR and RevPAR at our hotels to several factors. First, hotel management continued to emphasize direct-sales efforts to improve results at our hotels. Second, a number of hotels acquired by the Company during 2006 saw significant increases in ADR as a result of improved operations, customer service levels, and improved sales efforts. Third, we remodeled a large number of our hotels during 2006, which attracts guests and allows us to charge higher room rates. Fourth, we have made focused efforts on revenue management to ensure that each of our hotels maximizes its revenues each day by attaining the optimum balance between ADR and occupancy rate. The decrease in occupancy rate was largely due to occupancy rates returning to normal levels in our five hotels located in Louisiana and Mississippi which experienced high occupancy rates while the Red Cross and others stayed in the region to provide services in hurricane affected areas, and newly acquired hotels experiencing lower occupancy rates due to ownership transition and disruptions associated with renovating and re-franchising the hotels.

Hotel Operating Expenses

Our hotel operating expenses increased as a percentage of revenues, and totaled $27.2 million for the three months ended September 30, 2007, which was 77.3% of our total revenues, and $23.6 million for the three months ended September 30, 2006, which was 75.8%. The increase in the percentage of operating expenses to revenues was largely caused by increased repairs and maintenance expense related to hotel renovations. Hotel operating expenses consist primarily of expenses incurred in the day-to-day operation of our hotels such as hotel staff

salaries and wages, hotel utility expenses, hotel real estate taxes, and royalty and other fees charged by our franchisors.

Depreciation

Our depreciation and amortization expenses totaled $4.6 million for the three months ended September 30, 2007, and $3.9 million for the three months ended September 30, 2006. Our buildings and major improvements are recorded at cost and depreciated using the straight-line method over 27 to 40 years, the estimated useful lives of the assets. Hotel equipment, furniture and fixtures are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets of 2 to 15 years. Periodically, we adjust the estimated useful life of an asset based upon our current assessment of the remaining utility of such asset.

Management Expense

We reimburse The Summit Group, Inc. for the expenses it incurs in the management of our hotels and as Company Manager. During the three months ended September 30, 2007, we reimbursed The Summit Group $824,087 in hotel management and Company Manager expenses, which was 2.3% of our total revenues. In the three months ended September 30, 2006, we reimbursed The Summit Group $857,993 in hotel management and Company Manager expenses, which was 2.8% of our total revenues.

Repairs and Maintenance

We incurred $2.7 million in repair and maintenance expenses for the three months ended September 30, 2007, and $1.9 million in repair and maintenance expenses for the three months ended September 30, 2006. The increase in repair and maintenance expenses during this period was due to the large number of properties remodeled, and because several hotels were undergoing their regular improvements as requested by the franchisors. Normal maintenance and repair costs are expensed as they are incurred. Hotel development costs and other direct overhead costs related to the purchase and construction of hotels are capitalized. Expenses related to remodeling hotels are expensed to the extent permitted by generally accepted accounting principles.

Net Income

Net Income for the three months ended September 30, 2007 was $4.8 million compared to $3.9 million for the three months ended September 30, 2006. Income From Continuing Operations remained stable at $3.8 million for the three months ended September 30, 2006 compared to $3.7 million for the three months ended September 30, 2007. We generated Earnings Per Unit of $3,090 for the three months ended September 30, 2007 and $2,519 for the three months ended September 30, 2006.

Nine Months Ended September 30, 2007 Compared with Nine Months Ended September 30, 2006

Revenues

Total revenue for the nine months ended September 30, 2007 was $98.2 million, compared to $88.2 million during the nine months ended September 30, 2006. This is an increase of 11.3%. The increase was primarily due to the increased RevPAR generated by the Company’s hotels.

The key indicators for the Company’s hotel performance for the nine months ended September 30, 2007 and 2006 are set forth in the following table.


	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2007			2006			Increase/(Decrease)
All Company Hotels
RevPAR	$	66.66		$	63.35		$	3.31
Average Daily Rate	$	96.07		$	88.30		$	7.77
Occupancy Rate		69.39	%		71.74	%		(2.35	)%

Hotel Operating Expenses

Our hotel operating expenses increased as a percentage of revenues, and totaled $79.3 million for the nine months ended September 30, 2007, which was 80.7% of our total revenues, and $69.9 million for the nine months ended September 30, 2006, which was 79.2%. Operating expenses increased as a percentage of revenues largely due to increased repairs and maintenance expense incurred as a result of hotel renovations. In addition, our General, Selling and Administrative expenses increased as a percentage of revenues due to costs related to opening six hotels during the nine months ended September 30, 2007. Hotel operating expenses consist primarily of expenses incurred in the day-to-day operation of our hotels such as hotel staff salaries and wages, hotel utility expenses, hotel real estate taxes, and royalty and other fees charged by our franchisors.

Depreciation

Our depreciation and amortization expenses totaled $12.6 million for the nine months ended September 30, 2007, and $11.6 million for the nine months ended September 30, 2006. Our buildings and major improvements are recorded at cost and depreciated using the straight-line method over 27 to 40 years, the estimated useful lives of the assets. Hotel equipment, furniture and fixtures are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets of 2 to 15 years. Periodically, we adjust the estimated useful life of an asset based upon our current assessment of the remaining utility of such asset.

Management Expense

We reimburse The Summit Group, Inc. for the expenses it incurs in the management of our hotels and as Company Manager. During the nine months ended September 30, 2007, we reimbursed The Summit Group $2,949,068 in hotel management and Company Manager expenses, which was 3.0% of our total revenues. In the nine months ended September 30, 2006, we reimbursed The Summit Group $2,730,060 in hotel management and Company Manager expenses, which was 3.1% of our total revenues.

Repairs and Maintenance

We incurred $9.1 million in repair and maintenance expenses for the nine months ended September 30, 2007, and $6.6 million in repair and maintenance expenses for the nine months ended September 30, 2006. The increase in repair and maintenance expenses during this period was due to the large number of properties remodeled in early 2007, and because several hotels were undergoing their regular improvements as requested by the franchisors. Normal maintenance and repair costs are expensed as they are incurred. Hotel development costs and other direct overhead costs related to the purchase and construction of hotels are capitalized. Expenses related to remodeling hotels are expensed to the extent permitted by generally accepted accounting principles.

Net Income

Net Income for the nine months ended September 30, 2007 was $10.8 million compared to $10.1 million for the nine months ended September 30, 2006. Income From Continuing Operations decreased from $8.2 million for the nine months ended September 30, 2006 to $7.2 million for the nine months ended September 30, 2007. We generated Earnings Per Unit of $6,969 for the nine months ended September 30, 2007 and $6,573 for the nine months ended September 30, 2006. Income From Continuing Operations decreased due to increased repairs and maintenance expense incurred as a result of hotel renovations, and increased interest expense due to the purchase of three hotels during 2007, costs related to opening six hotels during 2007, and the refinance of a significant portion of our mortgage debt in June 2006 which included taking out equity to finance future acquisitions and development.

Seasonality and Diversification

The hotel and leisure industry is seasonal in nature; however, the periods during which our properties experience higher hotel revenue activities vary from property to property and depend principally upon location. Our revenues historically have generally been lower in the first and fourth quarters than in the second or third quarters.

Liquidity and Capital Resources

Cash From Operating Activities

Cash generated from hotel operations is the primary source of funding for operational expenses, debt service and distributions to members. We anticipate that cash flow from operations will be sufficient to fund these requirements. We maintain a cash reserve to fund anticipated and unanticipated shortfalls in liquidity. The cash reserve balance is reviewed and adjusted on a monthly basis to reflect anticipated decreases in revenues resulting from seasonal fluctuations, declines in revenues resulting from significant events affecting the projected industry revenues, and planned major capital expenditures. We also maintain a $40 million line of credit which may be used to fund acquisition, construction or working capital needs.

We generated $23.0 million in cash from operating activities during the nine months ended September 30, 2007, compared to $19.4 million during the nine months ended September 30, 2006. This increase was largely due to an increase in accounts payable of $4.3 million from December 31, 2006 to September 30, 2007. The increase in accounts payable was due to increased construction activity.

Cash From Investing Activities

Proceeds received from the disposition of hotels are generally reinvested and used to finance additional hotel property purchases, construction of new hotels or hotel renovations. During the nine months ended September 30, 2007, we received $12.9 million of net cash proceeds from the disposition of hotels which was reinvested into hotel purchases, construction of new hotels, and hotel renovations.

Certain of our borrowing arrangements require that we maintain cash reserves for payment of property taxes, insurance and maintenance expenses of our hotels. These restricted funds are for use only at the hotels financed by the respective lender requiring the reserve. As of September 30, 2007, $3.7 million of cash on our balance sheet was classified as restricted.

Cash From Financing Activities

Purchases of hotels and new hotel construction have historically been funded with a mix of 35%-40% equity, and 60%-65% debt financing. We anticipate, however, increasing the leverage in our portfolio to approximately 70%. In some cases, the equity may be initially funded through debt financing for several months until we call for capital from equity subscribers.

For the nine months ended September 30, 2007, the Company received no proceeds from equity contributions as no equity offerings were made during such period. During the nine months ended September 30, 2006, the Company received $12.5 million in equity proceeds from the sale of 133.25 Class A-1 Membership Units pursuant to a private equity offering.

During the nine months ended September 30, 2007, we entered into long-term financing arrangements providing $5.2 million of cash to the Company. We paid $9.5 million in principal payments on long-term debt, which included making scheduled monthly debt payments as well as $5.6 million in unscheduled repayment of two long-term notes as a result of hotel sales. In addition, during the nine months ended September 30, 2007, the Company received financing of $65.6 million for construction activities, and financing of $42.3 million for acquisition of hotel properties and land. We acquired five parcels of land for the development of eight hotels at a total cost of $19.1 million, and we acquired three hotels at a total cost of $23.2 million. The financing was primarily from the First National Bank of Omaha line of credit, and advances on the Fortress Credit Corp. note and various other construction notes to pay for land acquisitions and hotel development.

We have entered into agreements securing a $40 million line of credit with First National Bank of Omaha for the purpose of temporarily funding acquisitions and construction of new hotels (“Acquisition Line of Credit”). The Acquisition Line of Credit carries an interest rate at the prime rate for non-real estate secured advances, and at the prime rate less ¹/2 to ³/4% for real estate secured advances. The borrowings under the Acquisition Line of Credit are repaid as permanent financing and equity sources for such acquisitions are secured. The outstanding balance on the Acquisition Line of Credit as of September 30, 2007 was $25.5 million. We are required to maintain a minimum aggregate debt service coverage ratio of 1.50 to 1.00. The Acquisition Line of Credit was amended on April 30, 2007 to provide that the Company and Summit Hospitality V, LLC, a wholly-owned subsidiary of the Company, are co-borrowers for any borrowing related to any property owned by Summit Hospitality V, LLC. The Acquisition Line of Credit was further amended on May 30, 2007 to increase the loan amount available from $30 million to $40 million.

In addition, we entered into agreements securing a $50 million credit pool with First National Bank of Omaha for the permanent financing of hotels. Each loan from the credit pool is classified as either a Pool One loan or a Pool Two loan. Loans from Pool One pay interest only for a maximum of two years, and carry an interest rate of LIBOR plus 2.65%. Loans from Pool Two are for a term of five years, and principal and interest payments are based upon a twenty-year amortization schedule. The Pool Two loans carry an interest rate ranging from LIBOR plus 2.0% to LIBOR plus 2.5%, depending upon the Company’s most recent financial performance. Under this arrangement, our hotels can be financed in Pool One for up to two years and then be financed in Pool Two for up to five years. The outstanding balance on the Credit Pool as of September 30, 2007 was $27.8 million. We are required to maintain a minimum aggregate debt service coverage ratio of 1.50 to 1.00.

We have a permanent loan with Lehman Brothers Bank secured by 27 of our hotels. As of September 30, 2007, the principal balance of the loan was $83.4 million. The interest rate is fixed at

5.4% and the loan matures in January 2012. We are required to maintain a replacement reserve equal to 4% of gross income of the secured hotels.

We have a permanent loan with ING Life Insurance and Annuity Company secured by 6 of our hotels. As of September 30, 2007, the outstanding principal balance on this loan was $32.5 million. This loan carries an interest rate of 5.6% and matures January 2025, with options for the lender to call the note beginning in 2012 upon six months prior notice.

We have a permanent loan with ING Life Insurance and Annuity Company, secured by 9 of our hotels. As of September 30, 2007, the outstanding principal balance on this loan was $35.5 million. This loan carries an interest rate of 6.1% and matures July 2012.

We have a permanent loan with Credit Suisse First Boston Mortgage Capital, LLC secured by 2 of our hotels. As of September 30, 2007, the outstanding principal balance on this loan was $14.7 million. This loan carries an interest rate of 7.5% and matures November 2024. We are required to maintain replacement reserves equal to 5% of the gross income of the secured hotels.

We secured two construction/semi-permanent loans from M&I Marshall & Ilsley Bank to finance the construction of two hotels in Bloomington, Minnesota. The maximum principal available under the loans is $24.5 million, and the outstanding balance as of September 30, 2007 was $17.7 million. The interest rate is variable, at LIBOR plus 2.55%. Both notes mature in March 2009.

On March 5, 2007 we entered into a loan agreement with Fortress Credit Corp. for the purpose of financing our equity requirements for the acquisition, development and construction of real estate and hotel properties. The loan is in the amount of $99.7 million. Up to $75.0 million of the loan may be advanced to fund a portion of real estate acquisition and construction costs. The remaining $24.7 million may be advanced to fund interest payments under the loan. As of September 30, 2007, the outstanding principal balance of the loan was $39.9 million. The loan carries a variable interest rate of 30-day LIBOR plus 575 basis points, and matures March 2010 with two one-year maturity date extensions available. Interest is payable monthly, and no principal payments are scheduled. The loan is secured by a pledge of 49% of the membership interests of our wholly-owned subsidiaries.

We have also obtained financing with regional banks, or in connection with a hotel acquisition have assumed the financing, for several of our hotels. Certain of these loans may contain provisions requiring maintenance of specific leverage ratios or replacement reserves. As of September 30, 2007, 54.4% of our debt on the hotels carried a fixed interest rate, which includes outstanding balances on lines of credit.

Uses of Cash

Our primary uses of cash are to fund operational expenses, debt service, capital improvements on existing hotels, acquisition or construction of new hotels, and distributions to members. Cash generated from hotel operations is the primary source of funding for operational expenses, debt service and distributions to members. We anticipate that cash flow from

operations will be sufficient to fund these requirements for the foreseeable future. Distributions to members totaled $15.2 million and $14.0 million during the nine months ended September 30, 2007 and 2006, respectively.

Major capital improvements on existing hotels and the acquisition or construction of new hotels is funded primarily through financing of hotels with commercial lenders and equity contributions. Due to the rapid increase in construction of new hotels, the total amount of our debt is anticipated to increase quickly. Because the hotels being financed are under construction, however, they are not generating cash from operations. Most of the loans obtained for the construction of new hotels do not require interest payments, and instead interest is financed through advances on the respective construction loans. Hence, we do not anticipate a significant increased short-term use of cash to fund financing costs as financing costs will be funded by additional debt. At such time as the construction loans begin amortizing, the respective hotels will be operating and are expected to generate additional cash from operations to fund debt service. During the nine months ended September 30, 2007 and 2006, we used cash from investing activities in the amount of $8.9 million and $10.5 million, respectively, for hotel and land acquisitions and development.

Additional Information Concerning Sources and Uses of Cash

We have $16.8 million in outstanding debt maturing on or before September 30, 2008, and have approximately $5.3 million in scheduled principal payments during the twelve months from September 30, 2007 through September 30, 2008. Based upon our current level of operations, funds available on our credit pool, and other financing opportunities believed to be available to the Company, management believes that we have sufficient financing sources to meet scheduled maturities, equity distributions, working capital requirements, anticipated capital expenditures, anticipated operational expenses including advertising and marketing, scheduled interest and principal debt payments for the foreseeable future. However, there is no assurance that we will be able to refinance our indebtedness as it becomes due, and if we are able to secure financing, that it will be on favorable terms. In addition, we cannot provide assurance that our business will continue to generate cash flow at or above historical levels or the projected results will be achieved.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our debt or obtain additional financing. Our ability to make scheduled principal payments, to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affect the hotel industry and to general economic, financial, competitive, and other factors beyond our control.

We have historically made monthly Priority Return distributions to Class A and Class A-1 members and plan to continue to do so in the future. In addition, generally during April, July and October, we distribute excess cash resulting from hotel operations. During the nine months ended September 30, 2007 and 2006, the Company’s average monthly Priority Return distribution was $898,269 and $888,124, respectively. The Company made distributions of excess cash during the nine months ended September 30, 2007 in the amount of $7,090,000,

and distributions of excess cash during the nine months ended September 30, 2006 in the amount of $5,990,000. There can be no assurance that we will be able to make the monthly Priority Return or additional distributions in the future. However, based upon current operating conditions, management believes that we will continue such distributions into the foreseeable future.

Management believes that interest rates will continue to rise. Due to our significant reliance on financing for the acquisition and construction of hotels, continued increases in interest rates may affect our ability to acquire or build hotels which meet our investment objectives. Furthermore, upon the scheduled maturity of existing indebtedness we may be unable to obtain financing at interest rates similar to those on credit facilities currently financing our hotels. In addition, as of September 30, 2007, approximately 45.6% of our indebtedness, including outstanding balances on lines of credit, carried variable interest rates which increase as general interest rates rise. As of December 31, 2006, approximately 21.3% of our indebtedness carried variable interest rates. The increase in the proportion of variable rate debt to fixed rate debt increased due to the increased level of short-term financing used for development and construction activities. Continued increases in interest rates on permanent loans for our hotels are expected to reduce cash flow from operations. The interest accrued on construction loans generally is capitalized with the cost of construction. Therefore, increased interest rates on these loans are not expected to reduce cash flow in the short term, but may increase the cost of construction.

Management periodically reviews our hotel investments to determine whether any assets no longer meet our investment standards, are located in markets in which we no longer desire to own hotels, or no longer complement our core business. In such cases we take steps to dispose of such hotels at commercially reasonable prices and terms. We can provide no assurance that we will be able to complete such dispositions in reasonable time frames or upon reasonable terms.

We have several properties that are under construction and land that is held for future development and construction. The properties under construction and held for development as of October 31, 2007 are described in the table below:


Location	# Rooms		Franchise	Status	Opening Date ⁽¹⁾
Jackson, MS ⁽²⁾		100	Residence Inn	Construction Completed	10/07
Ft. Collins, CO ⁽²⁾		120	Hilton Garden Inn	Construction Completed	09/07
Flagstaff, AZ ⁽²⁾		150	Courtyard by Marriott	Future Construction	06/09
Ft. Worth, TX ⁽²⁾		105	Hampton Inn & Suites	Under Construction	11/07
Denver, CO ⁽²⁾		124	SpringHill Suites	Under Construction	12/07
Bloomington, MN ⁽²⁾		113	Cambria Suites	Under Construction	11/07
Bloomington, MN ⁽²⁾		146	Hampton Inn & Suites	Construction Completed	09/07
Boise, ID ⁽²⁾		119	Cambria Suites	Construction Completed	04/07
Baton Rouge, LA ⁽²⁾		127	Cambria Suites	Under Construction	07/08
Jacksonville, FL⁽²⁾		136	Aloft	Future Construction	TBD
Jacksonville, FL⁽²⁾		119	TBA	Future Construction	TBD
San Antonio, TX ⁽²⁾		126	Cambria Suites	Future Construction	TBD
San Antonio, TX ⁽²⁾		123	TBA	Future Construction	TBD
San Antonio, TX ⁽²⁾		136	Aloft	Future Construction	TBD
San Antonio, TX ⁽²⁾		119	Cambria Suites	Future Construction	TBD
Houston, TX ⁽²⁾		118	Cambria Suites	Under Construction	08/08
Portland, OR ⁽²⁾		120	Residence Inn	Future Construction	TBD
Portland, OR ⁽²⁾		127	Hyatt Place	Future Construction	TBD
El Paso, TX ⁽²⁾		100	Hampton Inn & Suites	Future Construction	TBD
El Paso, TX ⁽²⁾		120	Courtyard by Marriott	Future Construction	TBD
Ft. Myers, FL ⁽²⁾		150	Hyatt Place	Future Construction	TBD


(1)		The opening date is estimated and is subject to change.

(2)		Number of units and franchise indicate our plans as of October 31, 2007, which are subject to change.

The table above does not include renovation or remodeling of hotels, and includes only construction of new hotels. The construction for the Jackson, MS hotel was financed through the $6.6 million and $2.1 million ING loans. Construction for the Ft. Collins, CO hotel was financed through the $8.3 million and $2.6 million ING loans. Construction for the Ft.Worth, TX hotel was financed through the $7.1 million and $1.1 million BNC National Bank loan. Construction for the Bloomington hotels was financed through the $14.1 million and $10.4 million M & I Marshall & Ilsley Bank loans. Construction of the Denver, CO, and Baton Rouge, LA, hotels were financed through the $9.5 million and $11.3 million General Electric Capital Corporation loans, respectively. The other hotels to be constructed are expected to be financed through the Acquisition Line of Credit, the Fortress Credit Corp. loan, future loans from other lenders, proceeds received from the sale of a hotel, or equity contributions.

Recent Developments

Recent Loan Transactions

On August 15, 2007, we entered into a loan with General Electric Capital Corporation in the amount of $11.3 million to fund the acquisition of land and construction of a hotel located in Baton Rouge, Louisiana. The loan carries a variable interest rate of LIBOR plus 180 basis points, and matures on August 15, 2017.

Acquisitions and Dispositions

Since December 31, 2006, we have acquired and disposed of certain properties, and entered into contracts to acquire and dispose of properties. These developments are set forth in the table below.

Location

# Rooms

Franchise

Property Purchased

Status

Closing Date ⁽¹⁾

Coeur d’Alene, ID

Fairfield Inn

Hotel

Sold

4/24/07

San Antonio, TX⁽²⁾

126

Cambria Suites

Land

Purchased

1/12/07

San Antonio, TX⁽²⁾

123

TBA

Land

Purchased

1/12/07

San Antonio, TX⁽²⁾

136

Aloft

Land

Purchased

1/22/07

San Antonio, TX⁽²⁾

119

Cambria Suites

Land

Purchased

1/22/07

Houston, TX⁽²⁾

118

Cambria Suites

Land

Purchased

2/15/07

Irving, TX

124

AmeriSuites

Hotel

Purchased

5/2/07

Irving, TX

128

AmeriSuites

Hotel

Purchased

5/2/07

El Paso, TX⁽²⁾

100

Hampton Inn

Land

Purchased

7/16/07

El Paso, TX⁽²⁾

120

Courtyard

Land

Purchased

7/16/07

Portland, OR⁽²⁾

120

Residence

Land

Leased

6/13/07

Portland, OR⁽²⁾

127

Hyatt Place

Land

Leased

6/13/07

Ridgeland, MS

Staybridge Suites

Hotel

Purchased

6/5/07

Boise, ID

N/A

Land

Sold

11/7/07

Lincoln, NE

Quality Suites

Hotel

Sold

7/27/07

Pueblo, CO

111

Hampton Inn

Hotel

Sold

6/1/07

Ft. Myers, FL⁽²⁾

150

Hyatt Place

Land

Purchased

8/30/07

Ft. Myers, FL⁽³⁾

N/A

Land

Under Contract to Sell

2/22/07

Fenton, MO

TownePlace Suites

Hotel

Under Contract to Sell

11/26/07

Fenton, MO

106

Fairfield Inn

Hotel

Under Contract to Sell

11/26/07

Ft. Collins, CO

TBD

Land

Under Contract

TBD


(1)		For properties under contract, the closing date is estimated.

(2)		Number of units and franchise indicate our plans as of September 30, 2007, which are subject to change.

(3)		The Company is selling approximately 2.8 acres of extra land to General Electric for restaurant development.

The aggregate purchase price of the land described in the above table was $24.2 million. The properties acquired were financed through the Acquisition Line of Credit and the Fortress Credit Corp. loan. The aggregate estimated construction cost (including land cost) of the ten hotels to be constructed on the purchased land and land under contract to purchase is estimated to

be $170.0 million. The construction is expected to be financed through the Acquisition Line of Credit, the Fortress Credit Corp. loan, future loans from other lenders, proceeds received from the sale of a hotel, or equity contributions. The hotels that were sold had the following sale prices: Coeur d’Alene hotel, $4.3 million; Lincoln, NE, $3.6 million; Pueblo, CO, $5.2 million. The contracted sale price of the two hotels in Fenton, MO is $11.4 million. The acquisition cost of the two hotels in Irving, TX was $14.1 million, and the acquisition cost of the hotel in Ridgeland, MS was $9.2 million.

Wholly-Owned Subsidiary

Pursuant to the Fortress Credit Corp. loan discussed above, we are required to have a wholly-owned subsidiary own all new hotels purchased or developed. We have recently formed Summit Hospitality V, LLC for this purpose. It is formed under the laws of the State of South Dakota and is wholly-owned by the Company. Depending on financing or other requirements of the Company, we may form additional wholly-owned subsidiaries in the future to hold certain of our hotels. All assets, liabilities, expenses and revenues of our wholly-owned subsidiaries are reflected on our consolidated financial statements.

Commitments and Contingencies

As of September 30, 2007, the Company has entered into construction contracts to develop and build 7 hotels in Louisiana, Mississippi, Texas, Colorado, and Minnesota for approximately $57 million.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are likely to have a material impact on our assets, liabilities, revenues or operating expenses.

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. We use fixed interest rate financing to manage our exposure to fluctuations in interest rates. We do not use any hedge or other instruments to manage interest rate risk.

As of September 30, 2007 and December 31, 2006, 54.4% and 78.7% of our debt carried fixed interest rates, respectively. The increase in the amount of variable rate debt held by the Company is a result of the significant increase in land and hotel development activities, and construction financing incurred by the Company during the nine months ended September 30, 2007. Generally, development and construction debt is short-term financing and carries variable rates. Management anticipates increasing the pace of development and construction of new hotel properties. Therefore, it is anticipated that the proportion of variable rate debt to fixed rated debt held by the Company will continue to increase. In addition, as our debts mature, the financing

arrangements which carry fixed interest rates will become subject to interest rate risk. As of September 30, 2007, our fixed interest rate debt totaled $183.2 million. Our variable interest rate debt totaled $153.3 million as of September 30, 2007, which included amounts outstanding under our lines of credit and construction loans, and not the total available under the lines of credit and construction loans. Assuming no increase in the amount of our variable rated debt, if the interest rates on our existing variable rated debt were to increase by 1.0%, our cash flow would decrease by approximately $1,533,000 per year.

Item 4. Controls and Procedures

Our management conducted an evaluation, under the supervision and with the participation of our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive and principal financial officers concluded our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in our SEC reports.

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 conditions or results of operations. We may be subject to future claims which could cause us to incur significant expenses or damages, including from entities that we have previously acquired. If we acquire or consolidate additional entities in the future, we may assume obligations and liabilities of such entities. We operate in an industry susceptible to personal injury claims and significant personal injury claims could be asserted against us in the future arising out of events not known to us at this time.

Item 1A. Risk Factors

The Company’s annual report on Form 10-K filed on or about March 30, 2007 (the “annual report”) sets forth a number of risk factors and other information which should be carefully considered. In addition to the risks described in the annual report, we are subject to a number of other risks and uncertainties which we may not be aware of or which we currently deem to be immaterial to our business operations. If any of such risks or other risks occur, our business, financial condition, operating results and cash flows could be adversely affected. Management does not believe that there are new material risk factors in addition to those set forth in the annual report.

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

None.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following Exhibits are filed as part of this Form 10-Q:


Exhibit
Number		Description of Exhibit

	31.1	Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Executive Officer.
	31.2	Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Financial Officer.
	32.1	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Executive Officer.
	32.2	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Financial Officer.


	SUMMIT HOTEL PROPERTIES, LLC
Date: November 14, 2007	By:	/s/ Kerry W. Boekelheide
		Kerry W. Boekelheide
		Chief Executive Officer and Manager



Date: November 14, 2007	By:	/s/ Christopher D. Bills
		Christopher D. Bills
		Chief Financial Officer and Manager

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		Page
	PART I

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006		3
	Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2007 and 2006 (Unaudited)		4
	Condensed Consolidated Statements of Changes in Members’ Equity for the nine months ended September 30, 2007 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (Unaudited)		6
	Notes to Condensed Consolidated Financial Statements (Unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27
Item 4.	Controls and Procedures		28
	PART II

Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3.	Defaults Upon Senior Securities		29
Item 4.	Submission of Matters to a Vote of Security Holders		29
Item 5.	Other Information		29
Item 6.	Exhibits		29
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer


	# of Capital
	Units		Class A			Class A-1			Class B			Class C			Total
BALANCES, JANUARY 1, 2007		1,554.83	$	88,253,669		$	11,035,274		$	4,972,353		$	3,961,011		$	108,222,307

Net Income		—		9,887,119			948,744			—			—			10,835,863

Distributions to members		—		(10,747,671	)		(1,031,321	)		(567,704	)		(2,827,730	)		(15,174,426	)


BALANCES, SEPTEMBER 30, 2007		1,554.83	$	87,393,117		$	10,952,697		$	4,404,649		$	1,133,281		$	103,883,744