Summit Hotel Properties, Inc.

Good day and thank you for standing by. Welcome to the Summit Hotel Properties, Inc. first quarter 2025 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 this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you 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, Kevin Malata. Please go ahead.

Thank you, operator, and good morning. I am joined 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 1st, 2025, 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.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer John Stanner.

Thanks, Kevin, and thank you all for joining us today for our first quarter 2025 earnings conference call. We are pleased with our first quarter results, which were in line with expectations, despite the more challenging operating backdrop we began to experience in early March. RefR and our same-store portfolio increased 1.5% compared to the first quarter of last year, driven by a relatively equal mix of rate and occupancy growth. Continued strong cost controls resulted in EBITDA margin contraction of less than 50 basis points compared to the first quarter of last year, as pro forma operating expenses increased a mere 1.5% year over year. Our REVPAR growth was primarily concentrated in urban and suburban markets, where growth continues to be driven by strength in group demand and the ongoing recovery of corporate transient travel. January RevPAR declined 1.5% in our same-store portfolio, primarily due to weather-related disruption, which created some pent-up demand for February when RevPAR increased a robust 8.1% year-over-year. For the first two months of the year, same-store RevPAR increased over 3%, driven by positive growth in all demand segments when adjusting for assets under renovations. We began to experience demand softening in early March, driven predominantly by weakness in government and government-related travel, as well as a meaningful reduction of outbound international travel, particularly from Canada. March REF PAR declined 1.6% in our same-store portfolio and approximately 10% in our qualified segment specifically, which is a reasonable proxy for government-related demand. For the first quarter, qualified revenue, which represents approximately 5% of total room night demand for our portfolio, declined 7% year-over-year. In certain markets, softening demand has resulted in the need to shift our room night mix to lower-rated segments, which puts downward pressure on year-over-year ADR growth rates. This was particularly evident in March, as modest occupancy growth in our same-store portfolio was offset by a 2% decline in average daily rate, despite absolute ADRs increasing year over year across most of our demand segments. Encouragingly, this suggests outright rate cutting is not yet occurring across the industry. These demand trends mostly persisted into April. However, the company faced particularly challenging calendar comparisons related to the solar eclipse from last year and the shift of Easter from March of 2024 to April of this year. which adds a layer of complication to evaluating year-over-year demand patterns. Driven primarily by these difficult comparisons, we expect April RevPAR to decline between 4% and 5% compared to last year. When isolating the first two weeks of April preceding the Easter holiday, demand in our portfolio remained consistent with January and February trends, as RevPAR increased approximately 3% when excluding markets that were direct beneficiaries of the solar eclipse last year. It's worth noting that approximately 20% of our portfolio benefited from the eclipse, primarily in four markets, Austin, Dallas, Cleveland, and Indianapolis. In our press release yesterday, we announced the completion of the transformational renovation of our courtyard on the beach of Fort Lauderdale, which has been formally renamed the Courtyard by Marriott Oceanside, Fort Lauderdale Beach. The comprehensive repositioning of the hotel includes the complete redesign of the guestrooms and corridors, as well as the re-imaging of all of the public spaces and the exterior of the building. Our poolside bar and sun deck provide unobstructed views of the Atlantic Ocean and have been significantly upgraded to drive incremental revenue. Finally, we unveiled a new lobby, restaurant, fitness center, and retail space to further amenitize the hotel. Directly competitive oceanfront properties have historically achieved a meaningful rate premium to our hotel, and we believe this capital investment will allow us to significantly increase our average rates and close this rate gap. We have also underwritten cash-on-cash yields of over 20% related to our investments enhancing the hotel's public spaces and food and beverage outlets. partially driven by our ability to capture outside guest spend due to the high foot traffic associated with our beachfront location. We believe there is tremendous upside in the operating performance of this hotel given its irreplaceable location in a market with incredibly high barriers to entry. Let me take a minute to provide some perspective on the current outlook for the industry and our portfolio more specifically. Clearly, recent policy changes have created macroeconomic uncertainty and capital markets volatility that complicate the near-term outlook for our business. Our booking window is short-term under normal operating conditions, as we typically book approximately 60% of our room nights within two weeks of stay. As uncertainty persists, we expect our booking window to continue to compress in the near-term. particularly as corporations await further clarity on trade policy and what effect the recent volatility has on the broader economy. We've experienced a modest pullback in demand in March and April, generally concentrated in government and international travel, which are two of our smaller demand segments, but have not yet seen the sort of broad-based reduction in demand or acceleration and cancellations experienced in the more severe downturns of prior cycles. History would suggest leisure demand will remain the most resilient segment during times of uncertainty, and our current expectation is for group demand to remain strong over the medium term. While near-term uncertainty is the prevailing market sentiment, we remain constructive on the long-term prospects for our portfolio and are confident in our ability to manage through a period of softening demand. In prior down cycles, select service assets have outperformed on a relative basis. benefiting from an already lean operating model and, in certain times, a shift from price-sensitive customers away from full-service hotels. We have already been effectively managing expenses in a lower revenue growth environment, as EBITDA margins in our pro forma portfolio have contracted only 15 basis points on 1.6% rep part growth over the past five quarters. This is particularly impressive as the industry has absorbed above inflationary cost increases. With the uncertainty of the current macroeconomic backdrop, we believe it's appropriate to provide a framework to assess potential outcomes for our full year financial results, given the wider range of possible demand patterns for the remainder of the year. Based on first quarter actual results and recent portfolio trends, our performance is currently tracking toward the lower end of our guidance ranges provided as part of our year-end 2024 earnings report, for full-year adjusted EBITDA, adjusted FFO, and adjusted FFO per share. We currently expect second quarter REVPAR to decline between 2% and 4% compared to the second quarter of last year. It's important to note that we face particularly difficult special event comparisons in the second quarter, as our results last year benefited from demand related to the solar eclipse across several markets, the Final Four in Phoenix, the 150th running of the Kentucky Derby and PGA Championship in Louisville, and Olympic trials in both Indianapolis and Minneapolis. Achieving the midpoint of our second quarter REVPAR expectations would result in a REVPAR decline of approximately 1% for the first half of the year in our pro forma portfolio. Finishing the full year at the low end of our guidance range for adjusted EBITDA, FFO, and FFO per share implies positive rev part growth of approximately 1% in the second half of the year, or essentially flat rev part growth for the full year, based on reasonable flow-through assumptions. It is worth highlighting that our full-year assumptions now assume the lower end of our guidance range is achievable with flat rev part growth in 2025. compared to our previous expectations which reflected 1% REVPAR growth at the low end. As a general framework, every 1% of full-year REVPAR growth equates to approximately $5 million in pro-rata EBITDA, or 4 cents of adjusted FFO per share, again assuming reasonable profitability flow-throughs. It is worth emphasizing that it remains relatively early in the year and changes in government policy can have meaningful effects on lodging demand over the short term. Finally, given the significant dislocation we've experienced in our stock price recently, our Board of Directors has approved a $50 million share repurchase program that we intend to utilize opportunistically to return capital to shareholders and drive value creation. Before I turn the call over to Trey, Let me reiterate that we remain confident in the long-term outlook for the industry and our portfolio specifically. Despite the recent market volatility, we expect travel to remain a secular winner through cycles, and our high-quality portfolio of well-located hotels remains poised to benefit from these trends. With the recently announced closing of our delayed draw term loan, we have no significant debt maturities until 2027. ample liquidity under our revolving credit facility, and a track record of successfully navigating through uncertain periods. While we look forward to more stable operating conditions, we also continue to seek opportunities to create value in these volatile times. With that, I'll hand the call over to Trey.