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Operator
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.
Adam Waddell
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.
John Stanner
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.
Adam
Thanks, John, and good morning, everyone. From a segmentation perspective, Summit's 42 hotel urban portfolio continued to see robust growth in both weekday and weekend demand, resulting in urban rev park growth of 27% versus third quarter 2021. From a weekday perspective, urban demand continued its strong recovery, with occupancy increasing by 770 basis points and ADR increasing by 19% from the prior year period. This growth was driven primarily by increasing business travel and group demand. From a weekend perspective, urban performance also continued to accelerate, driven primarily by ADR growth of 12% from third quarter 2021. In addition, for our urban hotels with comparable 2019 data, third quarter weekend ADR and REVPAR surpassed 2019 levels by approximately 16% and 2% respectively. For the four-week period following the Labor Day weekend, the 92 hotel comparable portfolio experienced notable strength in weekday demand, in particular Monday through Wednesday, which realized occupancy expansion of 510 basis points versus the first two months of the quarter. Business travel served as the primary catalyst of post-Labor Day performance as midweek recovery in our urban portfolio increased 270 basis points in occupancy and $17 in average rate versus July and August. Strength in our non-urban portfolio was driven heavily by our hotels in suburban and airport locations. Our non-urban portfolio experienced an increase of 112% in weekday REVPAR compared to the post-Labor Day period in 2021. Proforma Hotel EBITDA for the third quarter was $61.1 million. a 24% increase from the third quarter of last year. While labor markets continue to be challenging, we have seen stabilization in wage growth while other operating costs appear to be moderating. Our same store and comparable hotel EBITDA margins were 120 basis points and 170 basis points below 2019 levels respectively, which is in line with the second quarter margin differential. despite lower nominal REVPARs. However, September margins for both same-store and comparable portfolios were 275 basis points and 240 basis points higher than 2019 levels respectively, partially driven by property tax rebates. Third quarter adjusted EBITDA was $47.2 million, an increase of 39% from a year ago. Adjusted FFO in the third quarter was $30.9 million, or 25 cents a share, an increase of $10.4 million from the third quarter of 2021. Adjusted FFO will continue to benefit from our recent hedging activity and the high fixed nature of our capital structure. From a capital expenditure perspective, during the third quarter, on a consolidated basis, we invested approximately $24 million in our portfolio, bringing our year-to-date total to $49 million. The third quarter spend was primarily driven by several transformative renovations within our portfolio, including the Spring Hill Suites Nashville Metro Center and Hilton Garden Inn Houston Energy Corridor, which completed renovations in the quarter, as well as significant ongoing renovations at the Staybridge Suites Denver Cherry Creek, Hyatt Place Orlando Universal Studios, and Residence Inn Portland Downtown. Additional CapEx dollars went to purchasing for future renovation projects and routine maintenance capital. For the full year 2022, we expect to spend $70 to $80 million on a consolidated basis or $60 to $70 million on a pro rata basis in capital expenditures. As John mentioned, we are enthusiastic about our new partnership with Onera Escapes. Our initial investment is the acquisition of the Onera Fredericksburg. an 11-unit high-end glamping property in Fredericksburg, Texas, which is a popular year-round destination in the Texas Hill Country, located within a 90-minute drive of Austin and San Antonio and within a five-hour drive of Dallas and Houston. The 11-unit property consists of 10 unique temperature-controlled unit types with a mix of hard and soft-sided accommodations. Each unit has a private kitchen, bathroom with shower, and most have private patios and hot tubs. Onera opened the property in November of 2021, and it has ramped quickly, generating year-to-date rev par as of September of approximately $425. Preliminary October results indicate the property's strongest month since its opening with occupancy of approximately 90%, ADR of $675, and rev par of $610. The property is expected to generate EBITDA margins of over 55% in our first year of ownership with EBITDA per unit of approximately $80,000. This translates to a NOI yield of 15% to 17% on the joint venture's total purchase price of $5 million and a 5.7 times EBITDA multiple. Upon stabilization, EBITDA margins and EBITDA per unit are expected to be approximately 60% and $90,000 per unit, respectively. The joint venture also acquired an adjacent 6.4 acre land parcel for a total cost of $770,000, on which we plan to develop an additional 15 to 20 units at an attractive basis with comparable unit level economics. While the initial investment is small relative to our enterprise value, we are confident in the partnership's ability to scale quickly. We have identified several near-term development projects, inclusive of the planned expansion of the Fredericksburg location. These future projects are expected to generate similar REVPARs, margins, and profitability per unit as the Onera Fredericksburg property, with targeted opening dates in the next 24 months. Additional detail on the Onera Fredericksburg acquisition and joint venture are included in the investor presentation filed with earnings. Since July 2021, we have acquired 31 hotels, excluding the Onera Fredericksburg. For those hotels open for the full year 2022, we continue to forecast a blended EBITDA yield of approximately 7%. The Newcrest Image portfolio is beginning to benefit from Summit's sophisticated asset and revenue management strategies, as third quarter ADR recapture improves meaningfully for hotels with comparable 2019 data. achieving a 104% recapture to 2019 compared to 100% in the second quarter. REVPAR index for the new pressed image portfolio also improved significantly, increasing 700 basis points over the second quarter. As a reminder, nearly half of the 31 recently acquired hotels have opened within the past four years, implying considerable upside in many of these assets. Turning to the balance sheet, our current overall liquidity position remains robust at more than $460 million, which positions us well for future growth. During the third quarter, the company defeased three CMBS loans totaling $55 million that were scheduled to mature in 2023. The defeasance event extinguished all but one remaining 2023 debt maturity, released $20 million of restricted cash, and is estimated to generate net interest savings of $1.3 million through the scheduled maturity date. Additionally, the company intends to defease the remaining 2023 debt maturity, a $32 million CMBS loan maturing in August of 2023, during the fourth quarter, which will eliminate all remaining debt maturities until the fourth quarter of 2024 after consideration of extension options. This will result in only 10% of Summit's pro-rata debt maturing between now and year-end 2024, thereby significantly limiting refinancing risk given current volatility in the debt capital markets. The defeasance will also unlock $7 million of restricted cash, generate net cash savings of approximately $300,000, and result in AFFO accretion over the next six months. From an interest rate risk management perspective, our balance sheet is well positioned, including an average pro rata interest rate of 4.4% and approximately 67% of our current outstanding pro rata debt fixed after consideration of interest rate swaps. In addition, to address the pending maturity of $200 million in notional swaps, we entered into two $100 million interest rate swap agreements. that will fix one month's SOFR and carry fixed rates of 2.6% and 2.56%. These new swaps will mature in January 2027 and January 2029. This extends the average duration of our swap portfolio from less than two years to over four years. The swaps will become effective in January of 2023 after the $200 million of existing interest rate swaps expire. The new swap transactions will result in the company maintaining approximately 70% fixed rate debt. And when including the series E, F, and Z preferred equity within our capital structure, we are approximately 75% fixed. On October 28th, our Board of Directors declared a quarterly common dividend for the third quarter of 2022 of $0.04 per share, or an annualized $0.16 per share. The current dividend represents a prudent ASFO payout ratio, leaving ample room for meaningful increases over time. Included in our press release last evening, we provided 2022 guidance on certain non-operational items, including cash corporate G&A, interest expense, preferred dividends, and capital expenditures, both on a consolidated and pro-rata basis. We expect the midpoint of consolidated cash corporate G&A to be $21.5 million, interest expense excluding the amortization of deferred financing costs to be $60.5 million, Series E and Series F preferred dividends to be $15.9 million, Series E preferred distributions to be $2.3 million, and pro-rata capital expenditures to be $65 million. With that, we will open the call to your questions.
John
Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your touchtone telephone.
spk01
One moment for questions. Our first question comes from the line of Neil Malek with Capital One.
John
Your line is open. Please go ahead.
John
Thanks. Good morning, everyone. Good to be with you. You know, first question, I guess, you know, the Onera. I mean, that looks phenomenal. Very interesting. I think that, you know, maybe a year ago or so you talked about, you know, thinking about some sort of alternative allocations within the hospitality segment in line with changing customer trends and demands. So maybe can you just talk about, you know, how that came to fruition? How long you guys have been in contact, and then maybe if you could quantify it as best you can, what the total investable universe or opportunity looks like with Onera or this type of lodging alternative.
John Stanner
Yeah. Anything else, John? Thank you. First of all, thanks for the sentiment and thank you for the question. I think you alluded to it correctly. This is something we've been working on and thinking about for a long period of time. I think if you go back and look at the hallmark of our capital allocation strategy, it's always been around evolving our own real estate portfolio around where we see changing and emerging guest preferences. And we've been very, very intentional of that, really going back to the IPO. And we've talked over and over again about the number of assets that we've sold out of the IPO portfolio and how many assets we own today. And we've turned over almost the entire portfolio, mostly, again, driven by making sure we own a high quality of hotel, a portfolio of hotels that cater to changing guest preferences. You know, we really started looking to continue to evolve the portfolio even pre-pandemic. The process with Onera started in earnest probably about a year ago. So this is something we've spent a considerable amount of time One, trying to find the right opportunities, the unit level economics that are the most compelling, and then probably very importantly, finding the right partner. And we do think we've got a really high quality partner with the folks at Onera. So we're incredibly excited to work with them. We have mentioned that we do have a pipeline out there. We haven't quantified it. We do have several projects that we think are closer and more likely to get traction even in 2023. We do have, you know, a ROFO on the first, excuse me, on the next 10 Onera branded projects. These projects are, you know, $20 to $25 million type projects generally. Depending on the site, they can be bigger or smaller. But I think that's generally the rough approximation or where most of the projects come out. So we've tried to, we've obviously started small here. Again, we wanted to do something where we could prove the investment pieces out. relatively quickly, but also something that gives us scale to grow this over time as the business proves itself out.
John
Okay, yeah, I mean, I'm sure other people have questions about it. I'll let them ask that, but those economics look compelling. Maybe you can, you know, just kind of trade all your hotels for some of these and then just get the 17% NOI yields. That'd be great. Other one for me is on BT. obviously the segment that has the most uncertainty around it still. I believe you said you gave a data point on the BT recapture versus 19. Correct me if I'm wrong. I thought you said it was about 90%. But more importantly, can you just talk about how you see the BT segment in your portfolio kind of progressing through the latter part of this year and into 23? And then if you could specifically focus on how you see challenge markets like San Fran, Chicago, you know, kind of progressing or shaping up through, you know, next year?
John Stanner
Sure. Well, look, again, we've talked a lot about, you know, how we think kind of the next leg of growth in our business is more BT driven, and it's more urban and midweek driven. And we've seen that, you know, repeatedly in our results. And I think we've seen it particularly in September, and even our results into October, where September, we got to a 98% recapture rate. We actually exceeded our 2019 levels on the bottom line in September. That momentum has very clearly continued into October, where we had our highest nominal rev par of any month since the onset of the pandemic. And we had a recapture rate again at about 95%. Again, more and more of that is being driven midweek. More and more of that is being driven in urban markets and markets that we mentioned a few in our prepared remarks that are specifically driven by BT customers, markets like Boston and Pittsburgh and Charlotte and Chicago. So we've seen very good traction in those markets. I think our expectations are for that business to continue to grow. We saw a very V-shaped life recovery on the leisure demand side. It's been a much more gradual recovery, clearly, on the BT side, but a recovery that we do think is ongoing, that we do think to the extent there has been an inflection point in that recovery of demand. It has been kind of in this post-Labor Day period where we've seen, again, much stronger BT performance. From a market perspective, you know, I think, look, certain markets, and I alluded to them, markets like Chicago, Boston, even some of the suburbs of these markets, the BT business is really, really strong and driving some of Markets that have lagged the first six months of the year have really had a strong post-Labor Day period. I think San Francisco is probably the outlier there. I think we've still seen San Francisco as a slower market to return. They did have their first big meaningful city wide out there in September. I think attendance was good. I think there's good momentum in San Francisco, but I think that's clearly a market that has lagged the recovery of some of the other gateway cities.
John
Yeah, okay. I guess, would you just expect that to be the case until, you know, sort of some structural things in San Francisco, you know, abate or are fixed? And then does that, you know, portfolio allocation, you know, does that kind of go into it at all when thinking about San Fran?
John Stanner
Yeah, well, a couple things. Look, we did sell an asset in San Francisco early in the year. I wouldn't say that we've given up on San Francisco. I still think that a lot of wood has made San Francisco a really wonderful market for the last decade in the hotel business. A lot of that is still there. It's still a very supply-constrained market generally. It's a hard market to build in. When Moscone is up and running and performing very, very well, there's a great mix of leisure, BT, and group demand in that market. Again, I think we acknowledge the fact that it's a longer road to recovery than most markets. I think it will continue to trail. But I will say the comparisons to last year get easier and easier. So I think from a growth rate perspective, you'll see some better growth rates year over year next year in San Francisco, but probably still lagging pre-pandemic levels more than other markets.
John
Thank you, guys.
John
Thank you.
spk01
And one moment for our next question.
John
And our next question comes from the line of Michael Belisario with RB Barrett. Your line is open. Please go up ahead.
Michael Belisario
Thanks. Good morning, guys. Good morning, Mike. John, just one more on the glamping sort of big picture, just Help us understand how you think about barriers to entry, obviously lower check size, less dense locations, and attractive unit economics, which presumably is one of the reasons why you're doing it. Those unit economics I would think over time could possibly narrow with more entrants coming into the space. But just maybe help us understand how you think about barriers to entry and sort of residual value of this type of real estate.
John Stanner
Yeah, well, thanks, Mike, and I appreciate the question. Look, first and foremost, I think I'd say that we'd acknowledge this is the most significant risk around the segment and probably the one that, you know, we spent the most time as we evaluated this opportunity getting comfortable with. Look, we believe that the kind of relative lack of barriers to entry are mitigated by a number of things. I think like any hotel investment, you know, we prioritize the best locations in any market we enter. And if you look at where we are in Fredericksburg, which is a market that has a real dearth of quality hotel supply in it. This will undoubtedly be the best location in the market, given its proximity to town and the wineries that are in the region. We believe it's important to have the right product and the right partner. And while I, again, would acknowledge that anybody can put up a tent anywhere, the product that we're investing in is highly unique. It's highly differentiated. It's not easy to replicate. We're partnering with a really strong group that has spent an enormous amount of time and capital on building an institutional quality technology-driven operating platform that, again, is very, very difficult to replicate. So I do think you'll see supply growth in this segment. To your point, Mike, the unit level economics here are incredibly compelling. But I also think it's important that we acknowledge kind of the point that we're starting at. The going-in yields in this business are in the mid-teens. That's probably double or more what you're seeing in traditional hotel space today. The demand and the revenue CAGRs for the business are projected also to be in the mid-teens for the segment for the next years. Again, significantly above, I think, what you'd see in the traditional hotel space. So, again, I do expect to see more supply in the business because the unit-level economics are so compelling, and I think the growth profile of the business is so compelling. But we are starting for a place that's far, far ahead from a return perspective than we would a more traditional hotel investment.
Michael Belisario
Got it. That's helpful. And then just one more on that same topic. Can you maybe provide some background on your partner? What other expertise do they have in this segment aside from this one property and who are their partners and their investors?
John Stanner
Yeah, this is their first glamping operation. It's been open for roughly a year. It's obviously performed incredibly well. They have a fairly broad, diverse mix of other short-term rental properties, I'd say generically, kind of all across North America. I think they're a high-quality institutional group. Again, we've looked We spent a considerable amount of time trying to find the right partner here, and we do think this is very much the right partner. Again, part of the barriers to entry to replicate what I think that we're going to produce is a lot of the time and the effort and the money they've spent building out this technology platform, which is very, very difficult to replicate.
Adam
Yeah, Mike, let's try just to echo on top of kind of what John said. We've provided a little more information in the investor presentation, but they kind of have an additional 300 locations of stays in the alternative accommodation space across 29 different markets. Some of those are urban, some of those are destination markets. The group there, it's comprised of three individuals. They've had a history of partnering with a lot of more sophisticated institutions in the past, MGM, Google Ventures, Greylock, and a variety of others. We view these guys as smart guys. They've been around since 2016 operating in the alternative accommodation space. They navigated the pandemic extraordinarily well, and it was something that we spent a lot of due diligence on before we kind of entered into a partnership with them.
Michael Belisario
Got it. Understood. And then just one more for me, switching gears. Can you give us some context on the non-same-store hotels, particularly Newcrest? It looks like EBITDA sequentially was down like maybe $4 million. How much of that is seasonality? How much of that is maybe ramp up short of your expectations? Any context color that would be helpful?
John Stanner
Yeah, you know, it's predominantly seasonality, Mike. I mean, I think, you know, July and August were really hot months in the Sun Belt, in Texas in particular. And, you know, I think we look at markets like Dallas and New Orleans, you know, we definitely felt the effect of a hotter summer there. Most of that was expected and underwritten. We've seen, again, a fairly dramatic increase in the performance of the NCI portfolio generally in those markets specifically as we've got post-Labor Day. September and October in Dallas both exceeded 2019 levels for the market. There was some margin pressure in the quarter in that portfolio. A lot of it was driven by the margin pressure that we saw generally across the portfolio in July and August. Higher wages, a more challenging labor market. And then just higher utility costs. Again, a lot of that flipped in September when we actually had margin expansion, both in this portfolio and in the broader portfolio over 2019. And I think the operating trends that we've seen in October and what our expectations for the balance of the year We remain very positive on the portfolio. I think that, again, if you go back and we've talked about NCI a lot, a lot of the heavy lifting we've done on that portfolio has been done over the last eight and a half, nine months. I think we're just now starting to see the benefits of that. And you can see that in terms of how we're gaining market share in some of these markets. And so we're every bit as enthusiastic, if not more, about the opportunity set within the NCI portfolio today as the day we close the deal.
Michael Belisario
Thanks. Appreciate it.
spk01
Thanks, Mike. Thank you. And one moment for our next question. Our next question comes from the line of Ashton Warshman with KeyBank.
John
Your line is open. Please go ahead.
Adam
Hey, good morning, guys. So I know the glamping deals are relatively small, but just curious if traditional financing options are available within this segment, both on the construction side as well as more permanent financing, as well as how much leverage do you think you can obtain on a deal on the permanent side? Hey, Austin, it's Trey. I'd say we're acquiring this first deal unencumbered, and that's obviously based on the size of it. As John alluded to, we actually have been evaluating a pipeline of opportunities that we think are actionable in the near term. And I would say that, you know, given the debt capital market backdrop, obviously, financing continues to be challenging for a lot of hotel products. But we've actually had some success in talking to regional lenders who are very familiar with the areas that we're located, where we're looking at potentially developing additional sites. You know, I would say the quotes that we've gotten in those types of markets have been up to 70% of construction costs, usually for a period of up to five years. So there's a, you know, an IO period and then a mini perm portion to it. But I wouldn't say that the construction financing conversations that we've had around the glamping type of product have been materially any different than you would get with construction conversations around traditional type of lodging product in terms of our experience over the past three, four, five months. Now that's helpful. Thanks, Trey. And then also just curious, any parameters that you guys are putting around this segment in terms of either total dollars amount or percent of gross investments until you kind of get a little bit of a better handle on what this looks like through a cycle?
John Stanner
Yeah, well, we've obviously started pretty small, and I think we're highly aware that we own 102 hotels worth about plus or minus $3 billion and one glamping site worth $5 million, and so we'll obviously manage accordingly. We have tried to structure this for some level of growth, and again, I think you can extrapolate. over a multi-year, four or five-year period, that if we did 10 projects and they're all $25 million plus or minus, you can get a couple hundred million dollars invested in this business. I think what we really prioritize when we structure the joint venture was preserving optionality. And we kind of have two points of optionality in every deal that we do. We're going to have the point of optionality when we do the MES loan and the point of optionality when we exercise the MES loan. And Again, I think our track record using that program, one, is it creates this wonderful in-place yield, and two, it does create very valuable optionality. And I think the deal we did in Miami is a terrific example of how valuable that optionality can be because we stepped into a position that's, again, probably $25 to $30 million in the money day one. So I do think, again, we started small. The nice thing about this product type is that it ramps up incredibly quickly. I think you're seeing... year one yields that maybe aren't fully stabilized, but you're seeing mid-teen year one NOI yields. The ramp up to these projects is very, very quick. So again, we have started small. We've tried to build this pipeline so we can grow it, and so we, again, preserve optionality on that path to growth.
Adam
That's helpful. And then, you know, maybe, you know, given sort of your comments on this being a labor light model, you know, within your traditional hotel portfolio, what's sort of the latest on, you know, labor, you know, what the increases, you know, look like going forward and how that sort of plays out relative to, you know, demand trends?
John Stanner
Yeah, well, look, I think the labor market is still challenging. You know, I think the way I'd characterize it is it's not getting worse. And I think that most of the significant wage increase pressures that we've seen are mostly past us. But, look, we still have – it's still hard to hire people. There's still, you know, two times the number of open positions in this industry than there are available workers. Turnover is still high. The reliance on contract labor is higher than we'd like it to be. It is still very much the number one operating challenge that we have. If you look at our labor expenses relative to what they were in 2019, we were actually up about 1% in the third quarter versus 2019 levels. And that's with lower occupancy and obviously different cleaning standards. And again, that's driven by a lot of things that I just mentioned, wage growth. contract labor and turnover. So, um, I do think we've done a pretty good job managing through a difficult operating labor labor market. Um, you know, our margins for the quarter, we're down 120 basis points from the third quarter of, of 19 on a comparable in our same store portfolio. It was about 170 basis points in the comparable portfolio. That's actually a slight improvement from where we were in the second quarter, despite the fact that REVPAR was 6% lower. Our EBITDA recapture went up a couple hundred basis points quarter over quarter. So it is still challenging. Again, I think the team is doing a very, very good job managing through that, and we continue to make progress on the EBITDA recapture.
Adam
And then just last follow-up to that, John, on the agency labor side, I'm curious what percentage of labor cost that represents today versus maybe what it was, you know, in 19 or, you know, a more normalized period.
John Stanner
Yeah, I mean, it's a fairly small piece of our labor. It's less than 10% of our overall labor dollars, but on a nominal basis, it's probably double what it was pre-pandemic. Great. Thanks for the time. Thanks, Austin.
John
Thank you. And I'm showing no further questions at this time, and I'd like to turn the conference back over to President and CEO Jonathan for closing remarks.
John Stanner
Well, thank you all for joining today. It's an exciting time here at Summit. We look forward to seeing many of you. Thank you.
John
This does conclude today's program. You may now disconnect. Everyone have a great day.
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