00:04 Good day, and thank you for standing by. Welcome to the Summit Hotel Properties, Inc., Q1 2022 Conference Call. At this time, all participants are on a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. [Operator Instructions] 00:37 I would now like to hand the conference over to your speaker today, Adam Wudel, Senior Vice President of Finance, Capital Markets and Treasurer. Please go ahead.

00:49 Thank you, Carmen and good morning. I am joined today by Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner and Executive Vice President and Chief Financial Officer, Trey Conkling. 01:03 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 4, 2022, 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. 01:44 Please welcome Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner.

01:50 Thanks, Adam, and thank you all for joining us today for our first quarter 2022 earnings conference call. Overall, we are extremely pleased with our portfolio's first quarter performance, as operating trends accelerated rapidly through the quarter, resulting in our highest quarterly RevPAR and best RevPAR recaptured to 2019 levels since the onset of the pandemic, despite a slow start to the year in January and early February. 02:15 RevPAR in March reached a pandemic era high of over $120, a 61% increase from our January results. We continue to benefit from meaningful pricing power throughout the portfolio, highlighted by record average daily rate in our resource segment, which finished the quarter 10.5% higher than the first quarter of 2019. 02:36 We also began to see significant growth in our urban portfolio, particularly mid-week as contribution from corporate group negotiated and business transient demand segments, as well as compression from convention activity in numerous markets drove strong occupancy levels throughout March and April. 02:53 First quarter pro-forma RevPAR increased approximately 78% from the first quarter of 2021, driven by a 21% increase in occupancy and a 47% increase in ADR. For the quarter, RevPAR recapture was 78% of 2019 levels with nominal RevPAR and 2019 recapture rates improving each month. 03:14 RevPAR in March reaching 87% recapture rate till March of 2019 and was 16% higher than our previous pandemic era high in October of 2021. Preliminary April pro forma RevPAR was expected to be $119, essentially flat to March, and approximately 90% of 2019 RevPAR levels, despite some of our stronger mountain and desert markets entering into slower seasonal periods. 03:41 Similar to our results in the back half of the first quarter, April’s better-than-expected performance was driven increasingly by accelerating demand in our urban portfolio, which helped…

09:07 Thanks, Jon, and good morning, everyone. On a pro-forma basis, we experienced continued RevPAR growth across our portfolio in the first quarter and into April. For Summit's 43 hotel urban portfolio, first quarter RevPAR was $87, a level slightly below the third quarter 2021 pandemic peak. 09:26 However, in March and April, our urban hotels generated RevPAR of $113 and $120 respectively, a 7% and 14% premium to the previous pandemic monthly high in October of last year. Strength in our urban portfolio was driven by increased mid-week corporate and group travel in Sunbelt markets such as Dallas, New Orleans, Austin and Nashville, as well as Downtown Chicago, which has seen a meaningful uptick in mid-week corporate demand and Downtown Baltimore, which doubled its anticipated targets for convention center room nights in the quarter. 10:04 We were also encouraged by the week-day performance trends within our urban portfolio. We saw meaningful RevPAR increases in March and April. Urban week-day RevPAR in March and April was $103 and $107 respectively, a significant increase from the previous pandemic monthly high of $86 in October of last year. 10:26 First quarter RevPAR for our non-urban hotels was $106, an increase of over 10% versus both third and fourth quarter 2021. Strength in our non-urban portfolio was driven heavily by our 11 resort hotels, which generated a $183 RevPAR in the first quarter, due to robust spring break demand and peak leisure seasonality in markets such as Phoenix, Tucson, Fort Lauderdale, Orlando, Steamboat Springs, and Silverthorne in Colorado. 10:58 Furthermore, average daily rate for our resort hotels exceeded 2019 levels by more than 10%. As these markets entered shoulder periods, their natural seasonality is expected to be offset by accelerating demand trends within our urban portfolio. Booking windows in the quarter contracted as…

18:21 Thank you. [Operator Instructions] Your first question comes from Michael Bellisario with Baird. Please go ahead.

18:44 Thanks and good morning, everyone.

18:47 Good morning, Mike.

18:49 Jon, first just want to focus on the Newcrest portfolio. I think you mentioned tracking up a couple of percent ahead of underwriting. Is that coming from the top line or the bottom line? And then maybe could you provide any guidance on how you're thinking about EBITDA contribution from that portfolio for the full-year?

19:08 Yes, it's a little bit of both, Mike, and we're definitely ahead on the topline. I think as we alluded to in the prepared remarks, I think we feel better about the acquisition the day even then when we underwrote it in terms of where we think there is opportunity. We think there is great synergies -- opportunities on both the topline and the bottom line, ability to complex some assets that are clustered in certain markets together. So as we said, we are slightly ahead of where we underwrote the assets initially. I do expect that to continue to expand as we progress throughout the year, the markets are more solid than they were at the beginning of the year. And again, I think we're seeing more and more opportunity. We do expect the yield on that acquisition to be in the 7% range on EBITDA for the full-year.

19:55 Got it. That's helpful. And then on the balance sheet, if you could fast forward, you call it a quarter or two, you've completed the two transactions, fundamentals are hopefully continuing to improve. What else do you want to get done or need to get done on the balance sheet side and deleveraging in terms of being in an even stronger position to look to further invest capital on the acquisition side?

20:22 Yes, I think from a balance sheet perspective, we're obviously selling the San Francisco asset is, as John mentioned, and that'll result in about $37 million of proceeds that will come up to the Summit parent. We will use that to pay off the balance -- or a portion of our November 2022 term loan, which will get us down to about a $25 million balance there. I think there's a lot of things that we're looking at that we'll be able to basically take care of the rest of that maturity through the balance of this year. 20:51 From a deleveraging standpoint, I don't think that we see anything that we would be doing proactively other than continuing to see kind of the organic rebound in EBITDA across the portfolio. As John mentioned, whether it's the acquisitions of Steamboat and Tucson or how NCI's performing, as well as our performance in the first quarter, we feel really good about the organic growth there and we think that we'll be able to delever pretty meaningfully over the next 12 to 18-months based on the growth in the portfolio. But I'd say those are the two kind of main things in terms of how we think about getting back to a more normalized level of the debt to EBITDA ratio. 21:39 I'd also note that kind of what we're looking at the balance sheet, we're not really just thinking about it purely from a debt to EBITDA standpoint when we look at some of our coverage statistics. If you look at the first quarter on an annualized basis, our interest coverage ratio is nearly 4 times, our fixed charge coverage ratio is nearly 3 times and our consolidated debt to kind of our undepreciated book value is around 40%. So from that perspective, not just looking necessarily at the debt to EBITDA metrics today, we feel really good about those statistics on the whole.

22:14 Got it. That's helpful. And then just one more follow-up just on the dividend, any updated thinking on timing there or your desire to bring that back?

22:22 Yes, no updated thoughts on timing. It is something that we talk about with the Board every quarter as we kind of telegraphed in the past. We think this is a matter of when, not if. We just want to make sure that we're prudent and thoughtful on how -- in terms of how we balance that with other capital allocation priorities.

22:41 Got it. That's all for me. Thank you.

22:43 Thanks, Mike.

22:45 Thank you. Your next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.

22:51 Hey, good morning. This is Daniel Tricarico on for Austin. With respect to inflationary pressures across the economy on leisure travelers, have you seen any evidence or signs of push back from customers? And are there pockets or segments within the portfolio where you've seen sensitivity to rise in hotel rates?

23:09 Yes. No we really haven't seen it anywhere. Certainly something that we're watching closely, particularly as gas prices have risen and the cost of airline tickets have risen. We haven't seen any pockets of softness really anywhere across the portfolio. So I know it's something that we're monitoring very closely, but our pricing power in March and April have been as strong as they've been in any time since the pandemic. And I don't think we've seen at least historically a strong correlation between rising gas prices hurting hotel demand. So we'll hope that continues to hold this cycle, but the simple answer is we haven't seen any effect so far.

23:46 That makes sense, thanks. And then with the mezz book wind down now, what is your future appetite for additional mezz investments? I guess, in contrast to how you're thinking about traditional acquisitions and I guess any update on the transaction market as well?

24:00 Yes, look, we like the mezz program. It's served us very well. And I think you've seen with the couple of transactions that we've entered into. We had a couple of loans that we just got paid back, we earned 8% over the time of -- the time that our money was outstanding, our loan was outstanding during a very challenging period in the hotel business. The option that we've just exercised, we think again that we are 9% on the capital that was outstanding. We think we're buying a tremendous hotel at a significant discount to where it would trade in the market. So we really do like the program. 24:35 We're certainly open to trying to find more opportunities to expand that we won't have any mezz loan dollars outstanding following the exercise of this option. It isn't the easiest environment to develop hotels in today as you are aware construction costs are meaningfully higher than they were pre-pandemic. And so again I think we expect to be in a period where there is just lower supply growth in this industry over a longer period of time. So we love to put some incremental dollars out into the program and we'll continue to look at that and try to be opportunistic around that. 25:08 In terms of the transaction environment, we continue to see a lot of good opportunities out there. We've got a full pipeline that we're continuing to review. We will hope to be able to make some continued progress there through the balance of the year.

25:23 Appreciate it. Thanks, Jon.

25:26 Thank you.

25:27 Thanks. Next question is from Bill Crow with Raymond James. Q - Bill Crow 25:35 Hey, good morning, guys. Just a quick question on the balance sheet. I think you get $300 million of variable rate debt. I just wanted to see how you're thinking about that and the opportunities that you might see to fix some of that?

25:51 Yes. Hi, Bill. I think when we think about the balance sheet today, we've got 70% of our pro rata capital structure as fixed and we generally feel good about that. I will say obviously with what's going on, the Fed needs today and that the future outlook on interest rates is something that we're continuing to review. We have a variety of swaps that are in place that obviously hedge that exposure for a period of time. But I think at a kind of a 70% fixed ratio, we feel good about that right now, but it's obviously an ongoing conversation and something that we're keeping a close eye on.

26:27 Hey, Jon, are you seeing any material differences in the recovery pace between different brand families? Anybody -- and I don't necessarily expect you to call out specific brands, but are there major differences in the recovery?

26:40 No, I wouldn't say it's brand driven Bill. I mean, I think you've seen it incredibly by market and location. And I think early in the pandemic, you saw it in extended stay, which recovered much quicker given the dynamic of the business, but anything leisure oriented has recovered more robustly and quicker. I wouldn't say that we can really delineate between the brand families.

27:02 Okay, that's it from me. Thank you.

27:04 Thanks, Bill.

27:05 Thank you. And with that, we conclude our Q&A session. I will pass the call back to Jon Stanner for his final remarks.

27:13 Yes, thank you all for joining us today. We look forward to speaking with many of you after the call this quarter and look forward to seeing many of you in New York next month for NAREIT, and we'll be back in touch in 90 days to provide another update. Thank you all.

27:27 And with that, we conclude today's conference. Thank you for participating and you may now disconnect.