Summit Hotel Properties, Inc.

Good day and thank you for standing by. Welcome to the Summit Hotel Properties Q4 2023 and full year 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 1 1 on your telephone. You will then hear an automated message advising 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, Senior Vice President of Finance, Capital Markets, and Treasurer. Please go ahead.

Thank you, DeeDee, 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 29th, 2024, 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 fourth quarter and full year 2023 earnings conference call. 2023 proved to be another highly successful year for Summit, culminating with strong fourth quarter results. For the full year, REF PAR increased 6.6%, which outpaced the broader industry by 170 basis points, and resulted in hotel EBITDA and adjusted EBITDA RE growth of approximately 6% and 5%, respectively. We continue to enhance the overall quality of our portfolio through strategic acquisitions while disposing of non-core assets with meaningful near-term capital investment needs. And we have methodically refinanced approximately $1 billion in bank debt over the past 10 months, further improving the balance sheet and our ability to execute on important strategic initiatives. Today, Trey and I will discuss our 2023 financial results, our outlook for 2024, and how our recent capital allocation and balance sheet activities positioned Summit for growth moving forward. Fundamentals continued to improve across our portfolio in 2023, as RevPAR across all segments experienced positive growth, despite the normalization of leisure travel witnessed throughout the year, most notably in the summer months. Robust demand in group and negotiated business drove 12% and 7% RevPAR growth in those segments respectively, as travel to urban markets continued to accelerate. Full-year pro forma REF PAR growth of 6.6% was comprised of roughly equal increases in occupancy and average rate. While average daily rates in the portfolio are more than 5% ahead of 2019, occupancy continues to trail prior peak levels, creating meaningful opportunity for continued growth, particularly given our exposure to urban markets that have been slower to recover. RevPAR growth in our portfolio is increasingly driven by mid-week demand, as weekday RevPAR for the full year increased over 9% compared to 2022, a trend that accelerated throughout the year and helped partially offset the normalization of leisure demand that has driven weekend RevPARs to all-time highs. More specifically, RevPAR on Tuesdays and Wednesdays increased by 11% year-over-year, again, primarily driven by the strength in the group and negotiated segments. The stable operating trends we experienced throughout the fourth quarter have continued into early 2024, with preliminary January rev par increasing approximately 5% year over year. We expect February to finish relatively flat to 2023, in part driven by the challenging Super Bowl comparison in Phoenix last year, where we own five hotels. Non-rooms revenue increased 15% in 2023, driven primarily by a 20% increase in food and beverage revenue. Midweek occupancy gains, driven in part by robust group demand, facilitated healthy banquet and catering revenue growth and higher in-house outlet utilization. Other non-rooms revenue increased as a result of successful parking contract renegotiations, increased resort fee capture, and various other opportunistic strategies that were deployed. Growth in the Newcrest image portfolio, which we have now owned for approximately two years, continues to be a key driver of our results, as full-year 2023 REVPAR increased a robust 13%, driving a 15% increase in hotel EBITDA. Group and negotiated demand were again the primary drivers of our top-line growth, which generated REVPAR increases of 25% and 17% respectively in those segments for the year. As we have highlighted on prior calls, our ability to deploy cluster sales strategies alongside the benefit of participating in our first traditional corporate RFP process drove the NCI portfolio's REVPAR index to 112% in 2023. This represents a 530 basis point improvement from 2022, driven by index gains in the second half of the year that approached 700 basis points. The performance of the NCI portfolio further validates our conviction in this transformational transaction and highlights our ability to appropriately identify and underwrite opportunities, as well as develop and implement effective business plans for high-quality, well-located hotels. These assets have clearly been a bright spot in our portfolio, and we remain encouraged by the demand trends in these markets and are optimistic in our ability to gain additional market share and improve profitability. positioning the portfolio to deliver continued outsized growth in 2024 and beyond. Expense pressures broadly began to moderate in 2023, particularly in the second half of the year, as the operating environment continues to normalize. Operating expenses increased by only 2% for occupied room in the fourth quarter, despite revenue growth that was driven primarily by occupancy gains. Operating expenses per occupied room in the second half of 2023 were approximately 2% lower than the first half of the year. And year-over-year operating expense growth decelerated from 8.5% in the first half of the year to a mere 1.4% in the second half of the year on a per occupied room basis. We anticipate continued stabilization in the labor environment in 2024. and believe there is further opportunity for improved productivity and flow-through with reduced reliance on contract labor and lower turnover, which remain well above 2019 levels. Capital allocation remains a key strategic priority, and 2023 was another successful year from a capital recycling standpoint, as we improved the overall quality of our portfolio through several strategic transactions. In 2023, we closed on the sale of five hotels in the suburbs of Chicago, Minneapolis, and Baltimore. And subsequent to year-end, through our joint venture with GIC, we sold our highest place in Plano, Texas. In aggregate, these six non-core hotels were sold for gross proceeds of $46.6 million at a blended cap rate of 4.3% based on the trailing 12-month net operating income at the time of sale. When adjusted for the approximately $31 million of foregone CapEx, the blended cap rate was 2.6%. These hotels generated a weighted average trailing 12-month rev par of $73 at the time of sale, a 40% discount to our pro forma portfolio. Our non-core dispositions were supplemented by two strategic acquisitions in our joint venture with GIC. In the second quarter, we acquired the 120 guest room residence in Scottsdale North and the 47 guest room Nordic Lodge in downtown Steamboat Springs for a total of $42.7 million. Collectively, these two hotels generated an average 2023 rev par of $137, a 14% premium to the pro forma portfolio and nearly double the blended rev par of the six sold hotels. These hotels require minimal near-term capital expenditures, but offer future high ROI capital investment opportunities and complement our existing exposure in their respective markets, allowing our operations team to create or enhance sales clusters and complex various staffing positions to generate outsized rev par growth and return profiles. On a combined basis, we expect these hotels to generate a yield on cost of over 9% in 2024, as benefits from our asset management initiatives begin to materialize. Before I turn the call over to Trey, let me provide a quick overview of our 2024 outlook. Our full-year REVPAR growth range of 2% to 4% reflects a stable demand outlook and assumes the broad continuation of operating trends we experienced in the second half of 2023. Specifically, we expect continued strength in midweek demand, particularly in urban markets, which constitutes 50% of our portfolio exposure. We also expect to benefit from strong group demand, which accounts for approximately 15% of our room night mix, driven by a combination of small, self-contained events, which in many cases are a function of a more prevalent hybrid work environment, compression from citywide events, and general overflow from full-service hotels. Our RevPAR outlook also reflects the continued normalization of leisure demand, which faces difficult year-over-year comparisons, particularly in the first half of the year, but remains quite strong in a historical context. Finally, we believe our portfolio is positioned to outperform the broader industry again, in part given our exposure to several urban markets that have been slower to recover, including the San Francisco Bay Area, New Orleans, Minneapolis, Baltimore, and Louisville, where combined, Hotel EBITDA at our 19 hotels in these markets remains approximately $25 million below 2019 levels. Broader macroeconomic risk always exists in our business, and as is our custom, we are providing guidance that assumes a continuation of today's stable economic conditions. While we expect a moderation of expense growth we experienced in the second half of 2023 to continue in 2024, Our hotel EBITDA guidance range assumes 4% to 5% annual operating expense growth as a portion of our REVPAR mix is driven by occupancy gains and certain expenses in our business continue to grow at above inflationary levels. This results in positive year-over-year hotel EBITDA growth and modest EBITDA margin contraction at the midpoint of our REVPAR growth range. Lastly, based on our current view of the transaction market, we expect to be a net seller of assets in the first half of the year. However, we do believe the transaction environment will improve throughout the year. And given the progress we've made on the balance sheet, we believe we will be positioned to take advantage of acquisition opportunities as they arise. With that, I will turn the call over to our CFO, Trey Conklin.