Summit Hotel Properties, Inc.

Welcome to the Summit Hotel Properties 2024 Second 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, Daniel, 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, July 30, 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.shpreeds.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 second quarter 2024 earnings conference call. We were once again extremely pleased with our second quarter operating performance and financial results. as adjusted EBITDA RE increased 6% to nearly $56 million, which represented a new quarterly record high for the company. And adjusted FFO increased 10% compared to the second quarter of last year, which was our second consecutive quarter of double-digit growth in AFFO. Proforma RFR increased 3.4% year over year, as our portfolio continued to consistently outperform the total U.S. lodging industry and upscale chain scale. The second quarter marked the 13th consecutive quarter that our pro forma portfolio has exceeded the total U.S. average REVPAR growth. Our asset management team and operating partners also continue to do a terrific job managing expenses during the quarter, resulting in hotel EBITDA growth of 6% on a flow-through of more than 70%, which drove hotel EBITDA margin expansion of 120 basis points compared to the second quarter of last year. Fundamentals continued to improve across the company's portfolio in the second quarter, particularly in April and May, which had REVPAR growth of 4.5% and 6.5%, respectively. REVPAR growth for the quarter was predominantly driven by a 2.4% increase in occupancy, which was concentrated in urban and suburban markets. Our portfolio also continues to benefit from the strong group demand the industry is experiencing, as second quarter group REVPAR increased 7.5% compared to the prior year, an increase nearly 20% in our urban portfolio specifically. Our groups are often smaller, self-contained events, which have been robust, and we also continue to benefit from overflow of larger citywide demand in the local marketplace. Our RevPAR growth continues to be driven by strong weekday and urban demand, which increased by approximately 4% and 5% respectively in the second quarter. Total portfolio RevPAR on Mondays, Tuesdays, and Wednesdays improved throughout the second quarter, increasing by 4% year-over-year and 8% when isolating those days of the week to the company's urban portfolio, supported by strong group business and the continuing recovery of corporate transient demand. Weekend REF PAR increased 1.3% during the quarter, as we are seeing moderating leisure demand and a return to more typical travel patterns. As we've discussed on previous calls, 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, New Orleans, Baltimore, Minneapolis, Louisville, and the greater San Francisco Bay and Silicon Valley area, represented 17 of our owned hotels in the second quarter that finished 2023 approximately $22 million below 2019 hotel EBITDA levels on RevPAR that was less than 75% recovered. In the second quarter, these 17 hotels produced RevPAR growth of over 6% and hotel EBITDA growth of 22%, highlighted by 23% RevPAR growth in Louisville and 17% RevPAR growth in Minneapolis. The recovery of technology-related business travel in our Silicon Valley hotel is accelerating, which grew Revpar by nearly 20% and EBITDA by nearly 60% during the quarter. San Francisco remains the one notable and well-publicized pocket of weakness among our recovering markets, as Revpar declined year over year for the quarter. Excluding our three San Francisco assets, Revpar increased 11% in the remaining 14 hotels, and EBITDA increased nearly 40% year-over-year in the second quarter. Year-to-date, this portfolio has grown RevPAR by 8% and EBITDA by over 30%, as we continue to close the gap relative to pre-pandemic performance. We expect these five lagging markets to continue to drive outsized RevPAR and EBITDA growth for our portfolio for the remainder of the year. All our lagging markets have been the primary drivers of our year-to-date RevPAR growth, we've experienced broad-based demand growth in our urban portfolio, highlighted by Indianapolis, Cleveland, and Charlotte, which all experienced double-digit rev par growth during the second quarter. From a capital allocation standpoint, we continue to improve the overall quality of our portfolio and health of our balance sheet during the quarter. Since 2023, we've sold nine hotels for a combined $131 million, including the three hotels sold during the quarter. at a blended capitalization rate of approximately 5%, inclusive of $44 million of foregone capital needs, based on the estimated trailing 12-month net operating income at the time of each sale. The combined rev par of 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. In our earnings press release yesterday, we provided updated guidance ranges that reflect actual first and second quarter results in our revised outlook for the remainder of the year. We reduced our full-year REVPAR growth range to 1% to 2.5%, which was predominantly driven by softer demand and a tempered outlook over peak summer leisure travel months. June was a particularly uneven month, as strength in the first half of the month was offset by a slow travel week around the Juneteenth holiday, which resulted in a RevPAR decline of 1% for the month. July has followed a similar pattern, as RevPAR in the first half of the month declined 2%, driven by a slow post-4th of July holiday week, before rebounding in the back half of the month. We expect full month July RevPAR to be modestly positive year over year. Leisure demand broadly across our industry has continued to normalize this summer, particularly in certain resort markets that experienced tremendous rate growth in 2021 and 2022 coming out of the pandemic, which is offsetting some of the growth we are experiencing in urban and suburban markets, which represent approximately 75% of Summit's portfolio. Last summer's trends towards greater international travel and cruises have largely continued into this year, creating some additional headwinds to domestic leisure travel. All our top-line assumptions have moderated for the second half of the year. We made only a minor adjustment to our adjusted EBITDA RE range, which highlights the strength of our efficient operating model and our ability to drive hotel EBITDA growth and margin expansion despite lower revenue growth expectations. We modestly lowered the top end of our adjusted EBITDA RE range, which reduced the midpoint of the range by just 1%. It's worth noting that the midpoint of our initial full-year adjusted EBITDA guidance range has remained relatively constant despite the sale of three hotels for $84 million in the second quarter. Importantly, we are maintaining the midpoint of our AFFO and AFFO per share ranges, which further highlights these accretive dispositions and our commitment to leveraging the balance sheet, as well as our ability to effectively recycle capital. With that, I'll turn the call over to our CFO, Trey Conklin.