Summit Hotel Properties, Inc.

Welcome to the Summit Hotel Properties 2024 First Quarter Earnings Conference Call. I will now be passing the line to Adam Woodell, Senior Vice President of Finance, Capital Markets, and Treasurer.

Thank you, Howard, 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 2, 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 Chief Executive Officer, John Stanner.

Thanks, Adam, and thank you all for joining us today for our first quarter 2024 earnings conference call. We were extremely pleased with our first quarter operating performance and financial results as adjusted EBITDA RE increased 10% and adjusted FFO increased 14% compared to the first quarter of last year. Proforma Ref Bar increased 1.5% year over year and meaningfully outperformed the total US lodging industry and upscale chain scale by 130 and 140 basis points respectively. Our asset management team and operating partners did a terrific job managing expenses during the quarter, resulting in hotel EBITDA growth of 6% and margin expansion of over 80 basis points compared to the first quarter of last year. And yesterday, we announced the closing of three additional asset sales, an increase in our common dividend, and a revised 2024 guidance range that reflects our strong first quarter results and a constructive outlook for the remainder of the year. On today's call, Trey and I will provide more details on our first quarter results and recent capital allocation activity, as well as highlight our longer-term view on the industry outlook and Summit's relative positioning. Fundamentals continued to improve across the company's portfolio in the first quarter, as our REVPAR growth was driven by a 3% increase in occupancy, predominantly concentrated in urban and suburban markets. which was partially offset by a 1.4% decrease in average rate versus the prior year, which was predominantly concentrated in outperforming leisure-oriented markets. Our REFAR growth continues to be driven by weekday and urban demand, which increased approximately 4% and 3% respectively in the first quarter. More specifically, total portfolio REFAR on Mondays, Tuesdays, and Wednesdays increased by 5% year over year, and a robust 7% when isolating those days of the week to the company's urban portfolio, further evidence of strong group business and the continuing recovery of corporate transient demand. As we discussed on our last call, we believe our portfolio is well positioned for relative outperformance, given our exposure to several urban markets that have been slower to recover. Five of those markets in particular, the San Francisco Bay Area, New Orleans, Baltimore, Minneapolis, and Louisville, represented 19 of our owned hotels in the first quarter that collectively finished 2023 approximately $25 million below 2019 hotel EBITDA levels on RevPar that was less than 80% recovered. In the first quarter, these 19 hotels produced RevPar growth of 12% and hotel EBITDA growth of 44%, highlighted by 22% RevPar growth in Baltimore and 16% RevPar growth in both New Orleans and Minneapolis. Encouragingly, we are beginning to see the recovery of technology-related business travel in our Silicon Valley asset, which grew RevPar by over 40% during the quarter and nearly 30% after adjusting for renovation tailwinds created last year. Downtown San Francisco remains the lone pocket of weakness among this portfolio. Though RevPar at our Doubletree in the life science-oriented Oyster Point submarket grew 7% in the quarter. Excluding our three San Francisco assets, Revpar increased 17% in the remaining 16 hotels, and EBITDA increased nearly 60% year-over-year in the first quarter. Second quarter pace for these lagging markets remains strong. It should continue to facilitate outsized growth in Revpar and Hotel EBITDA for the company. The relative strength of our first quarter is further highlighted by significant market share gains across our portfolio. REVPAR index in the first quarter for the pro forma portfolio was 115%, an increase of 335 basis points, which was driven by occupancy share gains. Our portfolio's market share is approaching the highest levels ever achieved outside of the pandemic era. And on a trailing 12-month basis, we've seen our biggest gains come from resort, airport, and urban locations. and from within the NCI portfolio. As we look to the second quarter, preliminary April REVPAR growth is expected to actualize around 4% and benefited from continued midweek strength, the Easter shift, and strong demand related to the solar eclipse in Dallas-Fort Worth, Austin, Indianapolis, and Cleveland. While booking pace for our portfolio remains short-term in nature, RevPAR pace for May is encouraging and suggests that underlying demand trends remain stable heading into the peak summer travel months. From a capital allocation standpoint, we continue to improve the overall quality of our portfolio and health of our balance sheet, including the disposition of three additional hotels subsequent to quarter end. In April, we closed on the sale of two wholly owned hotels, a courtyard and Spring Hill Suites at the New Orleans Convention Center, totaling 410 guest rooms. for a gross sales price of $73 million. The sales price represents a 6.7% capitalization rate on the estimated 2024 NOI, including foregone near-term capital expenditure requirements. While New Orleans is one of the lagging markets we have identified as augmenting our growth profile, post-asset sales, we still have ample exposure with six hotels in the market and believe our remaining assets are better located and have less near-term capital needs. We also sold one non-core hotel in the GIC venture, the 119-guest room Hilton Garden Inn College Station, for $11 million at an all-in cap rate of less than 8% on estimated 2024 NOI. In total, over the last 12 months, we have sold nine hotels for a combined $131 million at a blended capitalization rate of approximately 5%, inclusive of approximately $44 million of foregone capital needs based on the estimated trailing 12-month NOI at the time of each sale. The combined REVPAR for these hotels was approximately $87, which is nearly a 30% discount to the pro forma portfolio. Our disposition efforts have facilitated nearly a full term reduction in our net debt to EBITDA ratio, enhanced the quality and growth profile of our portfolio, and significantly reduced near-term CapEx requirements. Last night, we announced that our board of directors approved a $0.02 per share increase in the common dividend on a quarterly basis to $0.08 per share, or $0.32 per share on an annualized basis, which represents a 33% increase. The dividend increase is consistent with our strategy of prioritizing returning capital to shareholders and reflects our constructive outlook for our business and the stability of those cash flows. Our approach to our dividend reinstatement and subsequent growth has been to set payouts at levels that allow for consistent and meaningful increases over time, while maintaining a conservative payout ratio to absorb any unforeseen deterioration in demand. With this most recent increase, our dividend yield is approximately 5% based on the current share price, and our IFFO payout ratio increases to a modest 34% at the midpoint of our IFFO guidance range. which remains well below historical levels. Finally, before I turn the call over to Trey, let me highlight a few observations about our industry and Summit's relative positioning that give us optimism for the future. While the recovery in travel demand post-pandemic has been uneven by both segment and market, we are beginning to see a more meaningful recovery in many of those segments and markets which have lacked and which Summit has outsized exposure to. namely urban markets and those with a heavier reliance on business travel. We are also starting to benefit from a gradually easing labor environment, which we believe will facilitate margin changes more in line with historical norms, as utilization of contract labor declines and turnover abates. Combined with post-pandemic enhancements to the core select service operating model and an already superior margin profile, we believe the conditions for better relative future profitability growth exist. As has been well documented, supply growth in our industry is poised to remain subdued for an extended period of time, given elevated construction costs and tight development financing conditions. And finally, while macroeconomic growth is slowing in conjunction with tightening monetary policy, a deeper dive into recent trends suggests demand for services broadly and travel more specifically remains robust and enduring. Taken together, this all provides for a positive setup for longer-term hotel-level EBITDA growth. With that, I'll turn the call over to our CFO, Trey Coughlin.