Summit Hotel Properties, Inc.

Good day and thank you for standing by. Welcome to the Summit Hotel Properties Q3 2023 earnings conference call. At this time, all participants are in 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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 Liddell, Senior Vice President of Finance, Capital Market, and Treasurer. Please go ahead.

Thank you, Victor, 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, November 2, 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.shpreet.com. Please welcome Summit Hotel Properties President and CEO, John Stanner.

Thanks, Adam, and thank you all for joining us today for our third quarter 2023 earnings conference call. We were pleased with our third quarter results as pro forma rev par increased 2.4% compared to the third quarter of last year, driving a 2.6% increase in hotel EBITDA and essentially unchanged operating margins. Accelerating urban and midweek demand, led by improving business transient and strong group trends, as well as continued outperformance within the NCI portfolio, served as our primary growth catalyst in the quarter. Urban and midweek demand trends in September and October were particularly strong, which resulted in September REVPAR growth of 3.6%, and October is expected to finish generally in line with September, a reacceleration from July and August more modest growth levels. RevPAR trends during those peak summer months were pressured by difficult year-over-year comparisons as leisure demand normalized and outbound travel to Europe surged. It is important to note that leisure demand remains strong in a historical context, illustrated by RevPAR in the retail segment of our portfolio, which is a reasonable proxy for the leisure transient customer still trending well above 2019 levels. The outlook for leisure demand broadly remains positive, with more normalized comparisons coming next year. Group demand was especially strong during the third quarter, driving occupancy approximately 250 basis points higher than the third quarter of last year, and a 12% increase in non-rooms revenue. The evolution of hybrid and remote work environments has created increased demand for smaller groups, with shorter-term stays and tighter booking windows, for which our portfolio is particularly well-suited. Overall, pro forma total revenue for the portfolio increased 3.3% in the third quarter. Business travel typically accelerates post-Labor Day, and we were encouraged with the clear upward trends in weekday performance, particularly Tuesday and Wednesday nights, as indicators of growth in business transient and group demand. Since Labor Day weekend, Tuesday and Wednesday absolute occupancy has reached 84%, driving nearly 10% year-over-year REVPAR growth on those days of the week. Encouragingly, the operating expense environment continues to normalize. and our team did a fantastic job during the quarter controlling costs as operating expenses decelerated noticeably from earlier in the year on a preoccupied room basis, driven in part by an approximately 20% reduction in contract labor year over year. Costs for occupied rooms in our pro forma portfolio increased just 1% in the third quarter, a deceleration from the over 8% growth we experienced in the first half of the year. and we expect continued moderation in expense growth through the remainder of the year. We continue to make important capital investments at our hotels to enhance our ability to drive REVPAR growth and gain market share. Recent renovation activity, combined with our boots-on-the-ground approach to asset and revenue management, resulted in our third quarter REVPAR index increasing to 114%. a 230 basis point improvement from the third quarter of last year, and a sequential 100 basis point improvement from the second quarter of this year. Our portfolio's market share is at or approaching the highest levels ever achieved outside of the pandemic years. The NCI portfolio once again produced particularly strong results in the third quarter, as RevFar increased 12% and Hotel EBITDA increased 27% compared to the same period last year. Group and negotiated REVPAR within the NCI portfolio increased 24% and 23% respectively. And midweek REVPAR increased 16% in the quarter, further highlighting the strength we see in business transient and overall weekday demand. REVPAR index in the NCI portfolio also achieved a new post-acquisition high of 116%. increasing nearly 700 basis points from the third quarter of last year and further testament to the great work our team has done deploying cluster sales strategies and other operating initiatives across the 27 hotels. Our outlook for the NCI portfolio remains extremely positive, and we expect to continue to generate outsized REVPAR and EBITDA growth in the near term, as these markets benefit from the favorable trends we identified during our underwriting process. Driven primarily by the strength of the NCI portfolio, much of our recent EBITDA growth can be attributed to our successful acquisition activity coming out of the pandemic. Since July of 2021, we've acquired 34 hotels for a total of approximately a billion dollars. Collectively, these recent acquisitions generated third quarter REVPAR and EBITDA growth of 9% and 19% respectively, and year-to-date REVPAR and EBITDA growth of 14% and 21% respectively. Nearly all of these assets are relatively new developments with minimal near-term capital requirements. Our Texas markets, which in total represent more than one quarter of our total room count, continue to be the strongest performers in our portfolio, as REVPAR grew 12% in the third quarter, highlighted by Dallas and Houston, which generated REVPAR growth of 16% and 14%, respectively. In addition, several of our legacy hotels, particularly in urban markets, delivered outsized growth during the quarter. Our best performing legacy markets included Indianapolis, Boulder, and Austin, as well as, encouragingly, certain markets that have been slower to recover, such as Kansas City, Minneapolis, and Baltimore. Combined, these markets generated approximately 19% rev par growth in the quarter. We believe the next leg of our recovery will be more equally driven by our legacy hotels, which have a significant urban orientation and the majority of our exposure to markets that are earlier in their recovery cycle. We continue to successfully execute on capital recycling opportunities to increase the overall quality of the portfolio and its growth profile, minimize non-core capital expenditures, and enhance our liquidity and balance sheet profiles. In September, we signed an agreement to sell our 123 guest room Hyatt Place in Owings Mills, Maryland for $8.25 million. The sale price equates to a 4.6% capitalization rate on the hotel's trailing 12-month net operating income at quarter end and a 2.9% capitalization rate inclusive of near-term deferred CapEx. The buyer's earnest money is non-refundable, and we currently expect the transaction to close prior to the end of the year. Since May of 2022, we've disposed of six hotels, inclusive of the pending sale of the Haya Place Owings Mills, totaling $111 million and deferred approximately $33 million of near-term capital requirements. The collective sale price for these hotels resulted in a blended capitalization rate on the trailing 12-month net operating income of less than 2%. Although the transaction environment remains generally challenged, we continue to evaluate additional potential asset sales that we believe are similarly value-accretive. Finally, Trey will provide the specifics of our changes in full-year guidance, but I want to highlight we are increasing the midpoint of our EBITDA and AFFO guidance ranges, while leaving the midpoint of our full-year RIP, our guidance range, unchanged, given strong third quarter results and our confidence in the forward outlook. With that, I'll turn the call over to our CFO, Trey Conklin.