Summit Hotel Properties, Inc.

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties Incorporated fourth quarter 2021 and full year earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Mr. Adam Woodell, Senior Vice President of Finance, Capital, Markets, and Treasurer. Sir, please begin.

Thank you, Norma, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer John Stanner and Executive Vice President and Chief Financial Officer Trey Conkling. 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, 2022, 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 John Stanner.

Thanks, Adam, and thank you all for joining us today for our fourth quarter and full year 2021 earnings conference call. 2021 was a transformative year for Summit as we saw a significant acceleration in the recovery of our business, meaningfully added to our already strong portfolio of hotels with a series of transactions that improve our growth profile and prudently raise capital to position our balance sheet for further growth. Today, Trey and I will discuss our results from last year, our outlook for this year, and how our recent transaction activity positioned Summit to continue to be a leader in the lodging recovery. Overall, we were extremely pleased with the improving operating trends within our portfolio, which exceeded our expectations for the year. Our pro forma portfolio of 74 hotels generated rev par of $81 for the full year, which represents a 55% increase over 2020 and a 63% recapture rate relative to 2019. Leisure demand was particularly strong, beginning its return in earnest around President's Day weekend last year and accelerating through spring break in what was an incredibly strong summer of leisure travel. During the second half of 2021, weekend rev par was essentially equal to pre-pandemic levels, primarily driven by strong leisure demand. Midweek non-leisure demand has been slower to return, but began to improve in the fall, driven by a pickup in many local and regional corporate accounts and smaller groups, which drove October RevPAR above $100, the highest nominal RevPAR we've achieved since the pandemic started. While the natural seasonality of our business resulted in lower nominal RevPAR in November and December, the 2019 RevPAR recapture percentages for these months improved sequentially. culminating with December REF PAR down only 9% first December of 2019, the highest recapture rate we've seen since the onset of the pandemic. We reported fourth quarter pro forma REF PAR of $94, which was driven by a 51% increase in occupancy and a 44% increase in average rate. And despite the seasonal decline in demand experienced in the fourth quarter, average rate actually increased approximately 2% from the third quarter. Although our fourth quarter REF PAR declined slightly from the $98 REF PAR achieved in the third quarter, the rate of 2019 REF PAR recapture continued to accelerate, achieving 80% in the fourth quarter compared to 76% in the third quarter. Our asset and revenue management teams continued to produce tremendous results in what is still a challenging operating environment. REF PAR index for our pro forma portfolio finished the fourth quarter in full year at 119 and 121% respectively. which was driven primarily by occupancy premiums of nearly 10 percentage points during each period, demonstrating our ability to continue to capture market share even as the recovery in our markets begins to accelerate. Trey will provide more detail on the cost side of our business shortly, as we've been very successful in continuing to manage our hotels with a lean staffing model and create meaningful margin expansion despite some well-documented pressure on wages. Consistent with what was experienced across the industry, demand softened throughout our portfolio in January and early February, as Omicron-related concerns caused travel disruptions and led many corporations to further delay their return to office plans. January is not a historically strong leisure travel month to begin with, but this year's performance was undoubtedly exacerbated by a temporary COVID-related dislocation in demand. Our preliminary January REF PAR finished at approximately $75, which was 31% below January 2019 levels. However, encouragingly, PACE trends for the next three months are remarkably strong and point to a meaningful rebound more consistent with the sequential improvements we saw for much of the second, third, and fourth quarters of last year. February REF PAR PACE is up over 30% from where January stood 30 days ago. And for the full three-day President's Day weekend that just ended, our portfolio posted RevPAR of $126, which was 62% ahead of the same three-day weekend a year ago. Saturday was one of our best single nights in nearly two years, as RevPAR was nearly $150. March pace is currently up approximately 35% compared to the same time a month ago for February, and we continue to feel confident in the favorable demand backdrop for our portfolio, which is well positioned to benefit from the combination of continued robust leisure demand and a more meaningful return of corporate travel as we move through the year. As I mentioned, 2021 was an extremely successful year for Summit on the transaction front, as we were particularly active in our joint venture with GIC, which has proven to be a true differentiator for us and enabled us to pursue a more aggressive growth strategy early in the industry's recovery. In May, we contributed six wholly owned hotels into the venture for total consideration of $172 million, demonstrating the embedded value in our portfolio and creating additional liquidity for the company. In July, we acquired the recently developed 110-room residence in Steamboat Springs for $33 million through the joint venture. Although the asset has only been open a little over a year, the hotel produced approximately $130 RevPar in its first year of operation and exceeded our year one underwriting by nearly 30%, generating a nearly 6% NOI yield. The hotel has continued to perform exceptionally well early this year, with January RevPar of approximately $220, which is a 135% increase from last January, and February is pacing significantly ahead of last year. In December, we acquired the 120 guest room embassy suites in the Catalina foothills of Tucson, Arizona for $25.5 million, also through our joint venture with GIC. Strong peak season demand in Tucson helped drive January rev par at the embassy suites to over $130, which exceeded last year by nearly 80% and also surpassed January 2019 levels. The Embassy Suites' proximity to our Homewood Suites Tucson will allow both hotels to mutually benefit from various operational synergies and complexing opportunities. Both the Residence in Steamboat and Embassy Suites Tucson are located in high-growth, high-barrier-to-entry resort markets and are top performers in those markets, having generated an average 2021 REVPAR index of over 150%. In January, we completed the initial closing of 26 of the 27 hotels included in the $822 million portfolio acquisition from Newcrest Image. The investment significantly increases Summit's exposure to several dynamic and high-growth Sunbelt markets. The 27th and final hotel, the 176-room Canopy in downtown New Orleans, is expected to open next month, at which point we would complete the acquisition. The value allocated to the 27 hotels in total equates to approximately $209,000 per key and represents a meaningful discount to estimated replacement cost. The new Crest Image portfolio acquisition also included two parking garages and various economic incentives. In total, we announced or completed over $1 billion of transaction activity in 2001-21, which increased the number of hotels in our portfolio by 40%. Our joint venture with GIC now totals 40 hotels, representing over $1.3 billion of invested capital, including the pending acquisition of the Canopy New Orleans. The recent growth of the joint venture will result in a substantially increased ancillary fee stream earned by Summit for asset and capital project management services. For 2022, we estimate our pro rata share of annual fees to be approximately $2 to $2.5 million. which equates to 10% to 15% of our estimated corporate cash G&A. We expect this fee stream to increase in future years as the performance of the acquired assets stabilizes and planned renovation projects commence. With that, I will turn the call over to our CFO, Trey Conkling.