Summit Hotel Properties, Inc.

Good day and thank you for standing by. Welcome to the Summit Hotel Properties Q3 2022 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 will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Waddell, Senior Vice President of Finance, Capital Markets, and Treasurer. Please go ahead.

Thank you and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, John Stanner, and Executive Vice President and CFO, 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, November 3rd, 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 CEO, John Sanner.

Thanks, Adam, and thank you all for joining us today for our third quarter 2022 earnings conference call. We were encouraged by our third quarter results, which reflect the ongoing improvement in our operating fundamentals, as same-store rev par recapture was 95% of 2019 levels for the quarter, a 120 basis point increase from the second quarter, and a new quarterly high for our portfolio. The quarter was highlighted by a particularly strong September, when both same-store and comparable 2019 portfolio rev par recapture reached 98%. This represented our best operating performance of any month since the onset of the pandemic at business transient midweek in urban demand improved meaningfully post Labor Day and are increasingly driving growth in our business. Top line growth continues to be driven by strong pricing power as average daily rates are now consistently running higher than 2019 levels across nearly all segments of our business. For the third quarter, same-store and comparable portfolio ADRs were approximately 4% higher than 2019, both of which represented an approximately 200 basis point improvement from the second quarter. While ongoing labor challenges persist in our industry, and rising utility costs combined with a particularly hot summer across the Sun Belt put pressure on operating margins, Hotel Eva Dow Recapture reached 92% in our same-store portfolio. an improvement from the second quarter despite seasonally driven lower nominal rates in RevPAR quarter over quarter. Once again, September's results highlighted the quarter as hotel EBITDA was 6% above 2019 in our same store portfolio. The first month hotel EBITDA was ahead of 2019. Same store property level EBITDA margins exceeded 2019 levels by nearly 300 basis points in September. We continue to see evidence that the recovery in our business is increasingly being driven by business transient and group demand, which are supplementing what has been and continues to be a robust recovery of leisure travel. RevPAR recapture in our urban portfolio was nearly 90% for the quarter, and heavily business transient driven markets such as Boston, Charlotte, Chicago, and Pittsburgh all achieved RevPARs that exceeded 2019 levels during the quarter. While still trailing 2019, rates in our negotiated segment were 95% of 2019 levels, a 300 basis point sequential increase from the second quarter. Average weekday rates during the third quarter fully recovered to 2019 levels for the first time, driven by outsized growth in our urban portfolio. Weekday ADR in our urban portfolio accelerated throughout the third quarter, finishing September a robust 9% above July and 17% higher than September of last year. Preliminary October rev bar of $130 for our comparable 92 hotel portfolio is another new pandemic-era high and represents a 96% recapture to October of 2019. Growth in October again reflects recovering business travel, as occupancy reached 72% in our urban portfolio for the month. And urban rev par increased nearly 14% over September. Midweek demand also continued to strengthen in October, as Tuesday and Wednesday rev par recapture improved sequentially by 300 and 400 basis points, respectively, compared to the third quarter. October is historically the strongest month for our portfolio in the fourth quarter, as normal seasonal trends lead to lower November and December nominal rev pars. However, 2019 REFPA recapture rates for the combined November and December period are expected to be in line with October levels, implying fourth quarter recapture rates generally in line with what we achieved in the third quarter. Likewise, we expect hotel EBITDA recapture rates to also be generally in line with the third quarter. In our earnings release last night, we announced the acquisition of our first high-end glamping asset, a distinctive 11-unit property in Fredericksburg, Texas, the epicenter of the Texas Hill Country Rewind region. Evolving our real estate strategy along with emerging guest preferences has always been a hallmark of our capital allocation strategy, and we believe the demand trends that have elevated glamping from a niche travel market to an institutional asset class are poised to continue their rapid acceleration as robust and resilient leisure demand continues to favor unique and experiential accommodations. Glamping has been the fastest growing accommodation segment in the United States, as revenues grew by nearly 9% on a compound annual basis from 2017 to 2021. Glamping demand is expected to grow by nearly 15% on a compound annual basis between 2022 and 2030. driven predominantly by younger millennial and Gen Z travelers, which are projected to make up more than 75% of the glamping market by the year 2030. We view glamping as highly complimentary, too, and a natural extension of our core business of owning high-quality hotels with efficient operating models, and will benefit from our key operating competencies around asset and revenue management, as well as design, renovation, and construction expertise. Glamping properties feature a labor-light operating model, typically only one or two on-site staff members per site, and properties generally have few, if any, costly ancillary services and amenities. The uniqueness and experiential nature of glamping drives strong pricing power, and combined with a labor-light operating model, drives particularly compelling unit-level economics. We are underwriting unlevered glamping returns to IRRs that are 500 to 1,000 basis points higher than a traditional hotel investment, driven by a significantly higher margin profile and profitability per unit, which can be four to five times greater than a typical hotel EBITDA per key. We've structured an exciting programmatic partnership with Onera, an experienced developer, owner, and operator of glamping and short-term rental accommodations throughout North America, designed to be a growth pipeline for the company. The partnership will develop high-end experiential glamping properties in targeted markets across the country, with our portion of the development capital funded primarily through our mezzanine lending program. As we did very successfully with our recent acquisition of the AC Element Miami Brickell, our mezzanine loans will be structured to provide an attractive in-place yield during the development period, with an option to acquire each property upon completion at a predetermined value within a 90-10 joint venture with Onera. We have an exclusive right of first refusal on the next 10 Onera branded development opportunities and have several exciting projects expected to break ground within the next 12 months. Trey will discuss the specifics of the Onera Fredericksburg acquisition shortly. And with that, I'll turn the call over to our CFO, Trey Conklin.