Summit Hotel Properties, Inc.

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties Incorporated Q1 2023 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 will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. 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, SVP of Finance Capital Markets and Treasurer.

Thank you, Tanya, 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, May 4, 2023, 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.shpreid.com. Please welcome Summit Hotel Properties President and CEO, John Stanner.

Thanks, Adam, and thank you all for joining us today for our first quarter 2023 earnings conference call. Overall, we were pleased with our first quarter performance as pro forma REF PAR increased 19.3% compared to the first quarter of last year, which exceeded the high end of our 17% to 19% growth expectations for the quarter. RFPAR growth was driven by a 7% increase in occupancy and an 11% increase in average rate over last year, as we continue to benefit from having broad pricing power across our portfolio. Average rates in our pro forma portfolio surpassed 2019 levels in each month of the quarter by more than $10 on average, an increase nearly 8% year over year in March, despite being out of the easier Omicron variant influence comparisons of January and February. In fact, March ADR was the highest in the history of the company and drove the highest rev par for our portfolio since the onset of the pandemic. While leisure demand remained robust during the first quarter, as nearly all leisure-oriented markets and metrics continue to meaningfully exceed 2019 levels, the recovery in our business is increasingly being driven by non-leisure demand segments, most notably business transient and group demand, particularly in urban and suburban markets. REVPAR and our urban and suburban portfolios, which collectively make up approximately 75% of our revenue base, grew 25% and 21%, respectively, during the quarter. Room next booked in the negotiated segment increased 130 basis points compared to last year at rates that were 14% higher, reflecting the continued recovery of business travel and the benefits we are seeing from last year's RFP negotiations. Not surprisingly, much of our first quarter growth was concentrated midweek, as weekday revpar grew 23% compared to weekend revpar growth of 10%, albeit off of a much higher baseline. Weekday ADRs within the negotiated segment increased 14% compared to last year, while weekday group rates increased 17% on a year-over-year basis. We expect many of these positive trends to continue into the second quarter. While preliminary April RevPAR growth slowed to 5% on a year-over-year basis, we attribute much of this deceleration to softness earlier in the month, around the Easter holiday, and a return to more typical seasonality patterns in some of last year's strongest leisure-oriented markets, with more difficult year-over-year comparisons. RevPAR in the first half of April was down slightly year-over-year, while RevPAR in the second half of the month increased approximately 12%, essentially in line with our March results. Revenue pace in both May and June is trending up in the high single digits compared to last year, driven again by strong rate and occupancy growth in the negotiated segment and strong trends within the new Crest Image portfolio. First quarter results in the NCI portfolio were particularly encouraging as RevPAR grew 22% compared to the same period of 2022. In 2019, RevPAR recapture rates were approximately 500 basis points higher than the legacy portfolio for the quarter. We're a little over a year into our ownership of the portfolio, and our operational business plans to create strategic sales clusters across numerous markets are now beginning to show up in improving top and bottom line results. For example, RevPAR index in the NCI portfolio finished the first quarter at 107%, a 400 basis point improvement from the fourth quarter of last year. While absolute market share metrics still lag the legacy portfolio by 700 basis points, implying additional upside remains, REVPAR index in the NCI portfolio has increased over 800 basis points in just the last nine months alone. Within the NCI portfolio, the Texas markets were the strongest performers during the quarter, highlighted by Houston and Dallas, which generated first quarter REVPAR growth of 77% and 29%, respectively, driven by accelerating corporate travel and strong group and special event demand. Group and negotiated REVPAR increased 31% and 25% respectively from last year, and midweek REVPAR grew 32% during the quarter. As I mentioned, pace trends for the second quarter reflect the continuation of accelerating midweek demand and the stabilization of many of these newer hotels, several of which are benefiting from operating in the first year following a traditional RFP process. Full week May, June, and July revenue pace for the NCI portfolio is up 45% for the three months combined, compared to the same period last year, with weekday pace even higher. Our outlook for the portfolio remains extremely positive, and we expect it to continue to generate outsized REVPAR and EBITDA growth throughout 2023, as our operational initiatives drive better performance and the newer hotels continue to ramp towards stabilizations. Our recent acquisitions outside of the new Crest Image portfolio, which include the residence in Steamboat, the Embassy Suite Tucson, the AC Element dual-branded hotel in Brickell, and Onera Fredericksburg, collectively had a tremendous first quarter, with combined rev par of nearly $250, 22% above the first quarter of last year. These assets continue to exceed our initial expectations and are collectively expected to generate full-year 2023 hotel EBITDA, more than 10% above our underwriting. On the disposition side, we continue to work towards the closing of the sale of the six hotels and a vacant land parcel we announced in last quarter's earnings release. The various sales are expected to generate nearly $80 million of gross proceeds, while deferring $35 to $40 million of near-term capital needs in total. The sale price for the six hotels represents a capitalization rate of 3.9% on the combined 2022 net operating income, or 2.6% when factoring in deferred capital expenditures. The sales of the six hotels are expected to close later in the second quarter, and the sale of the vacant land parcel is expected to close prior to the end of 2023. Finally, last week we announced an increase of our quarterly common dividend to $0.06 per share, a 50% increase from the prior dividend rate. The increase reflects the strong performance and ongoing recovery of our high-quality portfolio while maintaining a prudent payout ratio. With that, I will turn the call over to our CFO, Trey Conklin.