Summit Hotel Properties, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Summit Hotel Properties fourth quarter and full year 2020 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would like to hand the conference to your speaker today, Adam Wudel, Senior Vice President of Finance and Capital Market. Please go ahead, sir.

Thank you, Victor, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, John Stanner. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, Both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, February 24, 2021, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at www.shpreet.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thanks, Adam, and thank you all for joining us today for our fourth quarter and full year 2020 earnings conference call. As you are all well aware, 2020 was a historically challenging year for our industry, as air travel and business and consumer spending deteriorated significantly. primarily as a result of measures taken to slow the spread of the COVID-19 virus, which led to a previously unimaginable over 35% decline in industry-wide demand. Despite the unusually difficult operating environment, we are pleased to have made tremendous progress on several key initiatives during the year that we believe uniquely and favorably position Summit for Growth. Today, I'll provide a recap of our fourth quarter and full year financial results, along with a few of our more notable accomplishments. and update on current operating trends and our outlook for the business and our company going forward. REVPAR in our pro forma portfolio declined 63.7% in the fourth quarter, essentially on top of a 63.5% decline in the third quarter, as the seasonally slower fourth quarter provided slightly easier year-over-year comparisons that mostly offset marginally lower nominal REVPAR. Our fourth quarter REVPAR declined compared favorably to the REVPAR declines in top 25 and urban markets of 69% and 76% respectively. For the second consecutive quarter, our portfolio was profitable at the hotel level and has been profitable on a cumulative basis since May with an average REVPAR of approximately $40, demonstrating the clear benefits of our efficient and flexible operating models. Our asset and revenue management teams continue to do a remarkable job operating in a low-demand environment as our pro forma portfolio achieved a rev part index of nearly 138% during the fourth quarter, which represents a market share gain of nearly 22 percentage points compared to the fourth quarter of 2019. For the full year, our pro forma portfolio finished with a rev part index of 134%, which represents an increase of more than 19 percentage points. During the fourth quarter, the well-documented trend of weekend occupancy and revpar outperformance continued, as leisure travel remains the primary source of demand throughout our portfolio. Weekend occupancy was 52% during the fourth quarter, which led to revpar levels that were 40% higher than weekdays. With the demand profile at our hotels virtually unchanged from recent quarters, occupancy trends across various location types and chain scales remained fairly consistent in the fourth quarter. Hotels in markets we classify as drive-to outperformed hotels in fly-to markets by nearly 20 percentage points, and hotels located outside of CBD locations fared better than our hotels in downtown locations by a similar margin. Our extended-stay hotels posted fourth-quarter occupancy of approximately 60%, achieving a 74% REFAR premium compared to our non-extended-stay hotels. Urban hotels continue to lag the industry recovery, though occupancy in our urban and CBD portfolio has generally stabilized. Our 42 non-urban hotels achieved nearly 55% occupancy during the fourth quarter and ran over 60% on weekends. And our hotels in resort, suburban, airport, and other locations also performed relatively better during the fourth quarter, each posting occupancies of more than 50%. For the full year 2020, we reported pro forma rep R of $52, which represents a decline of 59.2% year over year. This decline also compares favorably to the declines in top 25 in urban markets of 62% and 68%, respectively. While these revenue declines translated into material erosion in the profitability of our hotels, we were pleased to still report positive adjusted EBITDA at the corporate level for the full year. Partially driven by our team's ability to quickly adapt the operating model of our hotels. By the time lodging demand troughed in April of last year, hotel-level full-time equivalents had been reduced by approximately 85%, leading to a 47% reduction in hotel operating expenses in 2020, which were down over 4% on a per-occupied room basis despite historically low occupancy levels. On an aggregate basis, hotel-level operating and fixed expenses were approximately $140 million lower in 2020 than in 2019, and our hotel EBITDA retention was an impressive 46% from April through year-end, despite over a 70% decline in REVPAR during the same period. Hotel-level operating retention also benefited from our ability to thoughtfully modify services and amenities across the portfolio throughout the year. Thank you for joining us. Thank you for joining us. Thank you for joining us. January operating results were stable, generally in line with December, and we are expecting the beginning of a gradual pickup starting in February. Our performance over President's Day weekend was particularly encouraging, as we had our best weekend and best single night since the start of the pandemic on that Saturday, with a portfolio-wide rev par of nearly $90. The near-term pickup in demand in February has been robust. partially aided by the Super Bowl, President's Day weekend, and some pickup from the winter storms in Texas. And February is now pacing toward being our best month post-pandemic, in line with October of last year. As importantly, pace for March is up significantly from where February stood a month ago. We believe this all bodes well for strong leisure demand as we get into the spring and summer months. Assuming a reasonable timeline and trajectory for the continued recovery in demand, we believe we can be cash flow positive at the corporate level in the latter part of the second quarter. Shifting to the balance sheet, in January, we successfully completed a convertible notes offering that generated gross proceeds of $287.5 million at a 1.5% coupon that matured in February 2026. The notes have a base conversion premium of 37.5%. and as part of the transaction, we entered into capped call transactions that increased the effective conversion premium to 75%, or $15.26 per share. Net proceeds from the transaction totaled $258.7 million, which were used to reduce our outstanding revolver balance to zero and partially pay down our $225 million term loan, maturing in November of 2022, to a balance of $127 million. Earlier this month, we successfully amended our senior unsecured credit facilities to extend the covenant waiver period through March 31, 2022, with modified covenant testing through December 31, 2023. In addition to extending our covenant waiver period, our amendment increases liquidity by providing access to the full availability of our $400 million revolver, which currently has an outstanding balance of $10 million. We also have the ability to utilize $150 million of current liquidity to fund new investments and have an unlimited ability to fund acquisitions with equity issuances. We currently have more than $400 million of total liquidity, which includes approximately $23.5 million of unrestricted cash on hand. Today, our weighted average interest rate is approximately 3.2%. We have no debt maturities until November of 2022. and ample liquidity to repay all maturing debt through 2023. While the current operating environment for our business continues to be challenging, we remain decidedly bullish on the outlook for our industry generally and the future of Summit specifically. All indications point to considerable pent-up demand for travel, particularly leisure travel, and as the continued vaccine rollout leads to lower COVID case counts and related hospitalizations globally. We believe a more normal travel environment will take hold. We are blessed with a tremendous portfolio and an experienced and capable team. Combined with our strong liquidity profile and the flexibility of our balance sheet, we believe we are uniquely positioned to pursue value creation opportunities. One housekeeping note on the timing of the filing of our 10K. Typically, we file our 10K simultaneously with the release of our earnings press release. Kevin Milota, Paul Ruiz, We expect to receive an unqualified opinion on the financial statements provided in our earnings release which will be the same as those included in our Form 10-K. Before I open it up to questions, let me take a brief moment to talk about our recent leadership transition. Many of you have had the opportunity to get to know and work closely with Dan over the years and are well aware of his passion for and dedication to this business. In his transition to his new role as our executive chairman, he leaves a lasting legacy of his success, underpinned by a tremendous track record and an unwavering commitment to transparency and integrity. To me, he has been a role model, a mentor, and an inspiration. And while he remains an important part of our organization, I'd like to publicly thank him for all of his contributions to this industry, our company, and me personally. He certainly leaves a large pair of shoes to fill. We're currently conducting a nationwide search for our next CFO and hope to have an announcement coming over the next several weeks. The rest of our team remains engaged, motivated, and extremely excited about the bright future we have in front of us at Summit. And with that, we'll open the call to your questions.