Welcome to the Summit Hotel Properties 2024 First Quarter Earnings Conference Call. I will now be passing the line to Adam Wudel, 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, Jon 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.shpreit.com. Please welcome Summit Hotel Properties' President and Chief Executive Officer, Jon 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 EBITDAre increased 10% and adjusted FFO increased 14% compared to the first quarter of last year. Pro forma RevPAR increased 1.5% year-over-year and meaningfully outperformed the total U.S. 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 3 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 RevPAR 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 RevPAR 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…

Thanks, Jon, and good morning, everyone. The first quarter of 2024 represented a continuation of 2023 trends as growth within our portfolio was once again driven by the company's urban and suburban hotels, which each produced RevPAR increases of approximately 2.5% in the first quarter. Strength in our urban and suburban portfolios was driven by several of our key Sunbelt markets such as Dallas-Fort Worth, Orlando, Charlotte and Houston, all of which continue to generate RevPAR growth meaningfully above the industry average. As Jon mentioned, several of our lagging markets such as the San Francisco Bay Area, Baltimore, Minneapolis, Louisville and New Orleans, also experienced strong first quarters with RevPAR increasing 12% in aggregate. We expect continued outperformance in these lagging markets for the balance of the year. In addition to the urban and suburban portfolios, our airport hotels were amongst our strongest performers as first quarter RevPAR increased over 5% for this portfolio. From a national perspective, TSA statistics indicate air travel increased 6% in the first quarter of the year and recent commentary from Delta, American and other major carriers point towards accelerating corporate transient demand and a strong summer travel season. From a Summit perspective, airport hotel performance was driven by our 5 Grapevine hotels, where RevPAR increased 6.5% in the first quarter, benefiting from double-digit year-over-year passenger growth at Dallas-Fort Worth International Airport. In addition, our Courtyard and Residence Inn Metairie generated a first quarter RevPAR increase of 36% as a result of the recently completed renovation at the Courtyard and 5% year-over-year passenger growth at New Orleans Louis Armstrong International Airport. Although our resort portfolio declined modestly year-over-year in the first quarter, including a challenging Super Bowl comparison for our Phoenix hotels and several disruptive renovations, we are pleased with the continued strength in our…

Thank you. (Operator Instructions) And our first question or comment comes from the line of Austin Wurschmidt from KeyBanc Capital Markets.

Jon, you flagged the strength of your expansion markets in your prepared remarks, which I believe account for around 20% of hotels. And I was wondering if you could break out what RevPAR growth you're assuming this year for these expansion kind of higher-growth markets that have lagged in the recovery versus the balance of the portfolio? And how much of this growth that you're seeing do you think is sustainable demand versus more onetime benefits to the market's event-driven type business?

Yes. Thanks, and good morning, Austin. Look, we do -- obviously, we had a really strong first quarter in these kind of lagging markets in these growth markets. We expect that to continue for the year. We haven't provided a specific breakout for the market. But I think on a full year basis, these will be several hundred basis points of incremental growth above and beyond what we see in the quarter. The portfolio grew 12% for the quarter this year versus the full portfolio -- sorry, for the quarter versus the full portfolio at 1.5%. Our expectation for the second quarter is similar. We think that we'll have strong growth probably closer to double-digit growth on a blended basis in these markets. Markets like Louisville, where there's the 150th running of the Kentucky Derby this week and they host the PGA Championship at Valhalla later in the month, the signs in our pace in Minneapolis, Baltimore, even in Milpitas and Silicon Valley, all continue to be very positive. We don't look at this as kind of a onetime event in the first quarter. We think we'll see similar outperformance in the second quarter. And again, this should really enhance our growth profile for the full year.

When you kind of take the other side and look at maybe what's weighing I guess, where are you seeing I guess the softest pieces and what segments or markets give you a little bit of pause when you look at pace kind of at the other end of the range?

Yes. In the first quarter, it was mostly around some leisure-related markets that had ADR declines. I think demand is still solid in the vast majority of those markets, but we did see some softness on the rate side. For us, we have a couple of markets in -- a couple of assets in ski markets where we just didn't have as strong of a snow season as we did last year. We were down close to double digits in Silverthorne and Steamboat for example for the quarter. I don't look at that as any type of systemic demand issue. I think that more than anything, you had very difficult comps year-over-year. And I think as you get into the second and third quarter, into this more peak summer travel season, you'll see a normalization of those rate patterns. When I look at our expectations and our pace for Q2 and into Q3, and we don't have the most visibility in our quarter, but when I look out into May and June, our pace statistics, one, are very positive. And two, is encouragingly, it's very broad-based. The vast majority of our markets are showing positive pace outlooks for the third quarter in particular.

Yes, that's all helpful. And maybe just one on the balance sheet. You guys have clearly made a lot of progress. You alluded to kind of the dividend increase and signaling that that provides. I guess, leverage still remains above your long-term targets. What sort of next steps to kind of further decrease leverage towards your longer-term targets, especially if financing markets continue to remain challenging?

Austin, it's Trey. I would say one thing as we -- you look at the financing markets, obviously we're pleased with the fact that we don't really have any near-term maturities until 2026, and we're effectively kind of hedged at 80%, so that part feels good. As we look to de-lever the balance sheet, I think what we'll do is we'll be very opportunistic around it, which could potentially be select asset sales over time to the extent that they're accretive and similar to what Jon had talked about before. But really, I think it comes in the form of a rebound in hotel EBITDA in some of these lagging markets. And so to the extent that you see these 5 markets, as Jon has highlighted continue to come back, hotel EBITDA will solve a lot of those issues today. I think with the asset sales that we announced this quarter, it de-levered the balance sheet probably another quarter turn, so we're down close to 5x. An incremental movement down in the 4s probably comes from just improved operations through the balance of the year.

Yes. Austin, it's Jon. Maybe just to add a little bit of additional color there, I think as Trey alluded to and we talked about this in the prepared remarks, we've sold 9 assets. We sold over $130 million of assets. And we've been I think really strategic around how we've done it and able to find opportunities to sell assets to at relatively low cap rates. We haven't given up much cash flow in doing that. And we felt like taking this very targeted more tactical approach to it ultimately led to better results than just kind of a rip the Band-Aid and sell a large portfolio in an environment where it's still very difficult to get transactions done, particularly larger transactions that need a bigger financing check.

Our next question or comment comes from the line of Bill Crow from Raymond James.

I'm looking for a little bit of color on any incremental demand changes you're seeing on say Monday and Thursday nights. Are business travelers extending their trips at all at this juncture? Are we still waiting for a return to office? And I guess the second part of that would be additional color on what you're seeing on weekends. Certainly, there's a growing concern that consumer spending might be weakening, especially at the lower end. But perhaps, and maybe Starbucks is evidence of it, perhaps moving up the income scale a little bit. What are your weekends telling you guys?

Yes. Sure. Thanks, Bill. I think from a day of week perspective, as we said, we're seeing the best growth Monday, Tuesday and Wednesday. It's where our occupancy has frankly lagged the most relative to pre-pandemic levels, so it's where we would expect to see it. And again, it's driven by the urban portfolio. And I do think it reflects the strength, the relative strength of group demand and this kind of ever grind higher in business transient travel. Our best day of the week this this quarter was Monday night actually. And I think if you go back and listen to kind of our commentary in previous quarters, we talked about the compression of midweek demand on the BT side into Tuesday and Wednesday nights. We are starting to see that bleed into Monday nights to some extent, in particular in the first quarter. And so I think, look, the trends are coming off of obviously a lower baseline from a BT perspective midweek and an urban perspective. But that is where we continue to see the vast majority of our growth. I do expect that to continue at least through the second quarter and likely through the balance of the year. As I mentioned, our pace stack looked very, very strong, particularly in May, but really as we even look out into June and into the full second quarter. I will say that our pace statistics are better midweek than they are on the weekends, but they're still positive on the weekends and rates are still positive year-over-year from a pace perspective.

Do you see any weakening from the consumer front on weekends? I mean you said the pace is better during the weekday, but is there a real -- should there be real concerns about the consumer maybe changing spending habits?

I don't think we've seen a whole lot of evidence to suggest that people are cutting back on leisure travel. I think a lot of the rate, what we describe as rate softness, has every bit as much to do with how strong rates have been in 2022 in the first quarter of 2023. And I do think you'll see some of that normalization play out over the summer. I know there's a lot of concern around general consumer spending. I know we've all seen the performance of kind of the lower end of the chain scales in the industry. We just haven't seen that really play out in our markets. To the extent that we've seen softness, it's been more rate oriented. And I think it's been more oriented in our ski markets where we just didn't have the same strength of snow season as we did last year. I don't think we're going to have the same ability to drive these enormous rate gains that we saw particularly in 2022. But the PACE data, again, looks stable. We've tried to be forward leaning on this knowing that in some of these markets we'll try to build some level of group-based demand in these assets to help drive incremental pricing on the retail customer.

Great. I'm going to apologize because I'm going to ask one more question here. On the asset sales, I'm curious whether you're marketing any additional assets for sale, and how you're thinking about balancing the sale of properties that are in the wholly owned portfolio versus those that are in the GIC portfolio? And that's it for me, thanks.

Yes. Thanks, Bill. I would say we've been -- we've tried to be very opportunistic, as I kind of said to Austin, around asset sales. We've targeted assets that are -- have been lower RevPAR assets, those assets that had larger CapEx needs that we could sell most efficiently in a market where, as I said earlier, it's still difficult to sell bigger chunkier type of assets. New Orleans was the exception to that. I would say that we'll continue to be thoughtful and opportunistic around asset sales. We'd like to continue to do it in a similar way that we've done it before where it's very targeted. It's very focused on finding oftentimes the local owner operator that's willing to pay a little bit extra, that may price things on a per pound or a per key basis, and was a little less focused on in-place NOI. And so there have been a few asset sales. We sold a couple of assets out of the GIC venture. Both of those assets were assets that were part of the NCI transaction that we identified when we did the transaction as being non-long-term holds, noncore assets that we were going to try to sell prior to doing a renovation. And so if there's been one kind of consistent theme to what we've sold, it's been assets that were ultimately going to need a fairly large capital infusion from a renovation perspective where we just felt like our capital was better deployed elsewhere. And I would expect that to continue to be a large driver of our capital allocation thesis going forward.

Our next question or comment comes from the line of Chris Woronka from Deutsche Bank.

I jumped on a little late, so I apologize if there's any repeat question. I guess the first topic was kind of on costs and really on labor. We read headlines. I think yesterday, there were some actions in some cities. How much visibility do you guys think you have on costs, really on labor, as you look out for the balance of the year? I mean -- and as you look back in the first quarter or even last year, I mean, were there any intra-quarter, intra-year surprises whether it was market specific where you have to bring wages up or something like that? Just any comments you can give us on your outlook for that. Thanks.

Chris, it's Trey. I guess what I'll do is, I'll comment a little bit on the trends that we've seen in the expense profile of the business as we've kind of gone through the past half year. If you look to the second half of last year, I think our operating expenses were up 4% in the third quarter and the fourth quarter. If you look at that on a cost per occupied room, they were up kind of 1.5%. If you fast forward to the first quarter here, operating expenses were up about 2.5% and costs per occupied room were down 1.6%. The first quarter represented the sixth consecutive quarter of cost production room declining -- or I'm sorry, on contract labor declining. And contract labor I think is the biggest variable that we've seen in our expenses are evolving as we're going forward here. Continuing to have progress on the contract labor front is something that we've seen and something that we hope will persist through the balance of the year. I think the thing that's not talked about quite as much is turnover in the business. And I would say that turnover in the last year, if you look to kind of 2022, 2023 was probably 2x as high as it was pre-pandemic. And now turnover this quarter versus the previous first quarter of 2023 was down about 20%. To the extent the turnover continues to moderate, that is significantly beneficial to us, both from a training cost perspective and from overall productivity. Looking out, we don't have the longest-term view as a select service portfolio, but I think that the trends that we've seen over the last 3 to 4 quarters are fairly encouraging.

A follow-up question really has to do with -- we hear a lot about conversions from the big brand companies and how it's becoming a bigger part of their unit growth strategy. Do you guys have a view as you look across all your markets? I mean obviously conversion doesn't add new supply, but it might add a new brand family member, something you already have. Is there any way to measure that in terms of is there a net positive, net negative? And secondarily to that, as we see Mariott Hilton kind of go down a little bit on the chain scales and enter the lower chain scales, which you guys don't really play in, but is there any -- do you think there's ever going to be any impact there with someone who went goes from a Hampton and now goes to a Spark or a True? Any way to -- I know it's a long question, but is there any way to think about that for your business? Thanks.

Yes. Thanks, this is Jon. Look, we've obviously followed closely what the brands have done. And I don't think that it's terribly surprising that they're searching for additional channels to help grow net unit growth. I do think that it's a market-by-market type of analysis when you look at the impact. I would say we haven't felt it yet. It's not something that is high on my list of concerns. I do think to the extent that you're bringing in additional -- you're bringing in additional units and rooms into a brand family in a market, it can have an impact. I don't think a lot of those units are going to be units that we're competing for redemption type of customers for. It's something that we're monitoring, again, it's not something that we've spent a lot of time actively searching to get into some of those new product types and we certainly haven't felt the impact of them coming into our markets yet. And then again, a lot of the initial rollout of these new brands, frankly, have been in markets that we're not in. They've been in more secondary and tertiary markets.

Our next question or comment comes from the line of Michael Bellisario from Baird.

I want to go back to the leisure commentary. Just did you see cancellations occur? I know you mentioned the weakness in the snow and mountain locations. But are you not -- did you not see ADR pick up close to the date of arrival and maybe was that because occupancy was soft? Or maybe just help us understand the timeline of events that occurred that led to the leisure softness on the ADR side.

Yes. Mike, we didn't see cancellations. It's just slower pace. And I think part of it, again, especially in some of these ski markets, you get some last minute up when the snow is really good. We saw that last year was an incredible year from a snow perspective in these markets. And so you've got a lot of last-minute bookings of people seeing what was happening on the mountains and booking close to their stay. We just got less of that pickup this year. And look, I'm not terribly concerned about it long term. I think we're going to have really strong summers in both of those markets. And the summer has actually become a stronger season than the ski season for some of these markets. But it did influence our rates in the first quarter. But I didn't interpret the rate performance in those 2 markets in particular as there being some sort of read-through to softening leisure demand. I think that there was just -- it was more of an issue around pricing and last-minute pickup.

Any different takeaways from Asheville, Fort Lauderdale, Tucson, Phoenix, other leisure focused markets? Did you see softness there?

Those are -- you highlighted some of our leisure focused markets. We're under renovation in Asheville, so we don't have a clean comp there. We did see some similar rate softening in Fort Lauderdale. And some of that was around spring break. And I think that's been fairly well documented what happened in kind of the Miami Fort Lauderdale market in and around spring break. Demand was fine, a little less last-minute pickup and a little rate softness. And again, I think you've got to put into context that rate softness is on rates that are 20%, 30% higher than we were in 2019. And we just didn't have the same level of pickup. I'm not sure that I really would extrapolate that into, again, something that is showing real weakness on a leisure side. I think we've got to be mindful of what those comparisons look like. And I do think the comparisons were most difficult in the first quarter.

Got it. Understood. And then just my follow-up, switching gears just on CapEx, can you maybe provide some numbers around what a standard 7-year or 14-year renovation cost today, what did it cost a couple of years ago? And maybe what's the hardest part of the underwriting process for CapEx projects and how you internally decide which projects to do?

Yes. We spend -- it's a good question. We spend an awful lot of time on this internally. Particularly as we've talked about before, like I think the industry broadly is just underinvested in the renovations. And so one, I think that will create some opportunities for those of us that are better capitalized going forward. But we've always taken great pride in the physical condition of our portfolio and ensuring we don't have a huge buildup of deferred CapEx in the portfolio. And there's no question that the cost to renovate some of these hotels are significantly higher than they were pre-pandemic. They're I would say, 25% or 30% higher. And depending on the market, potentially even more. I will say, in the last 30 days we've actually finally repriced a couple of renovations lower than we did last year or even 6 months ago. You're starting to see it's not really labor or wage related, but you're starting to see shipping costs come down. You're starting to see some commodity costs come down. We believe at the very least, the increase in cost of those renovations has stopped, and we've got some level of hope or optimism that we'll see some decreases in the cost to renovate these assets. Because it did, as I said, it got very, very expensive, especially relative to where we are renovating pre-pandemic.

Just any broad strokes around kind of per key costs for those renovations?

Yes. At 7 years we were doing $15,000 or $20,000 a key probably pre-pandemic in there, 25% higher than that today. 14 years, we're probably another $5,000 to $10,000 a key on top of that.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Jon Stanner for any closing remarks.

Great. Thank you all for joining us today. We look forward to seeing many of you at one of the conferences over the spring and summer. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.