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 speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Milota. Please go ahead.

Thank you, operator, and good morning. I'm joined 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 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, Jon 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. RevPAR in 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 renovation. 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 RevPAR 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…

Thanks, Jon, and good morning, everyone. For the first quarter 2025, RevPAR growth was driven by the company's urban portfolio, for which RevPAR increased nearly 3%, outpacing the total industry by approximately 80 basis points. The strength of the company's urban portfolio is better highlighted by the 6.8% RevPAR growth realized in January and February before broad macro uncertainty disrupted March demand. Urban markets delivering outsized growth include New Orleans, Tampa, San Francisco, Chicago, and Downtown Houston, all of which experienced first quarter RevPAR growth of 7% or higher. San Francisco, in particular outperformed in the first quarter with RevPAR growth of 13.5%, driven by a successful JPMorgan Healthcare Conference in addition to multiple other citywide events. This enabled our hotels to maximize compression opportunities, driving a 550 basis point outperformance to first quarter San Francisco MSA RevPAR growth of approximately 8%. Looking ahead, San Francisco is positioned for another strong quarter as convention pace is up over 30% in the second quarter. Strength in group also applied to our urban hotel portfolio broadly, for which group RevPAR increased 17% versus the first quarter of 2024 and over 30% relative to January and February 2024. The performance of our urban portfolio in the first quarter gives us strong conviction that Summit is well-positioned to outperform as the macro environment normalizes. Today, urban hotels comprise approximately 48% of our total guestroom count. The company's suburban and small-town metro portfolios generated average RevPAR growth of 1.2% in the first quarter, driven by our hotels in Portland, Hillsboro, Greenville, North Dallas, Frisco, and Southern California. We have invested significant capital into renovating many of our suburban and small-town metro assets over the past 24 months and expect strong relative future performance, assuming normalized conditions. Today, suburban and small-town metro hotels comprise approximately 29%…

Thank you. [Operator Instructions] Our first question is going to come from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hey, good morning. It's Josh Friedland on for Austin. Can you give us a sense of how trends have evolved within government and international since the initial impact earlier this year? And does it appear that these segments have stabilized or are you continuing to see pressure in the booking window?

Yes. Hey, good morning, Josh. It's Jon. Look, I think that we felt the most acute impact from both segments in the month of March, particularly from a government perspective. I do think that they have stabilized albeit at lower levels. And I think we have some optimism that we'll see some recovery as we progress through the year. I think the sense that we get is that as part of kind of the government efficiency efforts, there was -- there were really broad-based and deep cuts. We lost significant portions of that business in certain markets. I think there's some uncertainty of how some level of that travel comes back, but we would expect some of it to come back as we progress through the year. So it certainly hasn't gotten any worse from a government perspective. And again we think that there is the potential to start to recoup some of those losses as we progress through the year.

Okay. All right. That's helpful. And as it relates to the BT customer, how have those trends evolved at this point relative to your initial expectations? And where do you see those going in the short-term?

Yes. Our mid-week negotiated business, again, which we use as kind of a proxy, broadly for business transient travel has held up reasonably well. I do think that's obviously one segment that you watch very closely as it tends to be a more reactionary to weakness in the broader economy. But the trends to-date there have not trended down in a meaningful manner. We've been fairly pleased with how resilient that demand segment has and it's held in relatively well. As we've said in the prepared remarks most of the softness in demand we have seen has been concentrated in those two demand segments we referenced.

Got it. Thank you very much.

Thanks, Josh.

Thank you. One moment for our next question. Our next question comes from the line of Chris Woronka with Deutsche Bank. Your line is open. Please go ahead.

Hey, good morning, guys, and thanks for all the color so far. So kind of following up on the last question, is it fair to say that in addition to maybe government and maybe set aside a little bit of international inbound that you might have, is it fair to say that what's really being hit the most is kind of the shorter booked weekend leisure kind of these, I mean, what we like call extra trips, is that the bucket that you guys would say has been was kind of impacted the most thus far?

Yes. Well, I think it's definitely secondarily to the other demand segments that we've seen. I would say, broadly, we would expect leisure to be one of the more resilient demand segments. Our first quarter trends, which again, 60 of the days were under much more normal operating conditions. We continue to see growth driven mid-week and that's the group that we have and the recovery of BT, there was a shift in that beginning in the first part of March that largely carried through to April. Our expectation is there's potentially a little softness on the leisure side. But I do think historically, that's been a demand segment that's been more resilient in periods of economic uncertainty. And we would expect that to happen. Again, we don't think that there is going to be large-scale canceling of summer vacations, that feels almost like non-discretionary spend for the majority of household budgets. It may mean a little bit more domestic travel this year. It may mean a little bit more drive to travel than we've seen in the past, which potentially creates a little bit of a benefit for us. But we do expect that demand segment to hold up reasonably well this year.

Great. Thanks, Jon. And then, yes, look, obviously, Q2 is, you're kind of guiding to negative RevPAR. I think a lot of your peers may get there as well. And then maybe things will turn positive again with Q3, but at what point kind of on the -- when you think about working with the brands on, is it too early to kind of break the glass or on, maybe an opportunity to go back to the brands on some of the, I don't want to say COVID things, but COVID things that you did in kind of an effort because you guys have obviously had a lot of pressure coming out of COVID, you've recovered pretty well from that now. But at what point do you think to go back to the brands and kind of ask for some relief on expenses that might be somewhat discretionary?

Yes. Well, I mean, look, I think, I pointed out a couple of things. I've described what we've seen from a demand perspective as a modest pullback in demand. And I think, obviously, we kind of pointed to RevPAR for the second quarter being down between 2% and 4%. A lot of that is exacerbated by the special events comparisons we've referenced in the prepared remarks. And so this obviously is a very, very different set of dynamics than we had during the pandemic. It really feels nothing like the great financial crisis either. Demand while we wish it was better is far more stable than in either of those circumstances. I will say this. We are being proactive in terms of how we manage expenses and how we think about managing our capital needs. So you saw that in our first quarter numbers where we've -- margins have contracted less than 50 basis points on 1.5% RevPAR growth. We even saw it last year, if you go back to the beginning of last year over the last five quarters, essentially 1.5% RevPAR growth and we're pretty close to breaking even from a margin perspective. So I do think without going back to the brands and trying to put kind of COVID era controls in place like we've done a really good job managing expenses. And then the other thing is, look, we pulled out $10 million in CapEx spend from our initial guide as our expectation, it's about a 15% reduction at the midpoint of that range. To the extent that we see demand deteriorate further, there's probably incremental room for us to pull that lever. I would say those are the starting points for us. And again unless things get significantly worse, I think we'll be able to kind of manage through given the strength of the balance sheet and our ability to pull those levers.

Okay. Fair enough. Thanks, Jon. If I could just sneak a clarification question in. Talking about the mix shift, is that more about kind of going to a little bit more OTA opaque or is that more about contract stuff with cruise and the like?

Yes. It's a little bit more reliance on discount channels and that could be advanced purchase or any type of discount, it could be reliance on the OTAs, which is offsetting kind of declines in the qualified segment, which is government-driven and some declines in retail. But again I'll point out and we'll continue to emphasize this. Part of what we're seeing in the retail segment is driven by calendar shifts. And whether that's the Easter shift or in April in particular, where we had, this really significant demand from the solar eclipse last year, which helped a significant portion of our portfolio. And so April became a very difficult month for us to discern what kind of underlying trends are because of those calendar shifts. And so when we look at the first couple of weeks prior to the Easter holiday, we're up a couple of percent excluding the markets that were affected by the solar eclipse. That's even with knowing we were going to have to shift segments. When I look at the rates, the absolute rates by segment, the majority of our segments are still seeing rate increases. It's this shifting of mix given some of it, again, is driven by calendar comparisons, which is putting the downward pressure on rates. We're going to finish the month of April running high 70% occupancies close to 80% occupancies. I expect it to be close to in line with where we finished last year. The incremental pressure has been on rate. And again, as you alluded to, it's really driven by the shifting in mix.

Okay. Very good. Thanks for all the details, Jon.

Yes. Thanks, Chris.

Thank you. [Operator Instructions] And our next question comes from the line of Michael Bellisario with Baird. Your line is open. Please go ahead.

Thanks. Good morning, guys.

Good morning, Mike.

And Jon just wanted to go back to margins. I know you mentioned sort of contract labor and lower turnover, but anything else sort of more proactive that you're doing in terms of, I don't know, maybe headcount reductions, reduced hours, changing F&B menus, pricing, things like that or is it more sort of more of the same just sort of on the contract labor and turnover side of things?

Look I think that's been the major driver of what's held margins in check. We're still running, really high occupancies. And so we haven't gone to as we kind of alluded to in the last question, we haven't gone to, COVID era levels of cutting expenses, whether that's related to cleaning rooms or how we're managing shifts. We're just not there yet. The demand is still there. As Trey kind of alluded to, there's still some room for us to go particularly on the contract labor side. And as we've seen some softening broadly in the labor markets, that's really helped us to keep margins in check. So there haven't been kind of these deeper cuts that we've had to utilize in prior downturns that were more severe from a demand perspective, because again our occupancies are still high and the demand is still there. Those levers are there and available to pull to the extent that we need to if we see a more significant downturn in demand.

Okay. Understood. And then second question just sort of on the buyback announcement and then capital allocation more broadly, maybe if this is the first time as a public company, you guys have had an authorization in place. Maybe how do you fund it? How do you balance leverage? I mean do you accelerate asset sales from here? Just maybe some more thoughts on sort of triangulating everything and the thought process behind when and how you use that buyback. Thanks.

Yes. No, look, you're correct. I mean this is the first time we've done it. And we've actually talked about this in the past on these calls about this hasn't been necessarily historically the preferred way to allocate capital. Our belief today is that the dislocation in the equity prices, particularly our stock price has gotten so extreme that this really kind of skews the risk reward of this investment asymmetrically to the positive. We recognize that there's always some risk to the operating outlook, but we think what's being priced into the stocks today infers something that's really dramatic to the downside. Our balance sheet is in good shape. As we said, we've taken care of all of our maturities through the end of next year. We have a lot of liquidity, we have the ability to do this. In terms of how we think about funding it, it's going to be a combination of a couple of things. One, we've scaled back on our CapEx expectations for the year. We probably will continue to look to opportunistically sell assets to fund a portion of this. And while we don't really want to lever the balance sheet up in any meaningful way, even if we cut nothing else out from a CapEx perspective or a sale perspective, utilizing the full program takes the leverage profile of the business up about a quarter of return or less than 5%. And again, given the health of the balance sheet, we feel like we have the ability to do that in the short-term. So again, we think this is a really compelling and timely opportunity to buy some stock back at what we believe is a really attractive basis.

Got it. That's very helpful. And then just one more follow-up. Maybe can you give us the latest thoughts and conversations with your joint venture partner and sort of how they are thinking about the world and how their capital deployment view may or may not have changed recently? And that's all from me. Thanks.

Yes. Thanks, Mike. Well, I'd say that, look, we do stay in very regular contact with them. I think, like everybody else, this is an uncertain environment. And so the first thing I would say is there's -- we expect transaction activity to slow off of what has already been fairly low levels. I don't think we're at a period where you're going to see at least in the near-term a lot of distressed selling, and underwriting in this environment is difficult. That being said, as we always reiterate, they are very well-capitalized, and in many ways, they're built to take advantage of environments where you see dislocation in values. We haven't seen that yet. It's certainly possible that we will see it. And look we're very fortunate to have them as a partner because it allows us to participate in those opportunities to a greater extent. So again I think that they are very much kind of watching the markets evolve, but certainly will be willing and able to participate to the extent there is meaningful valuation dislocations.

Understood. Thank you.

Thanks, Mike.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Jon Stanner for closing remarks.

Well, thank you all for joining us today. We look forward to seeing many of you over the next couple of months at the various conferences. Hope you all have a nice day. Thank you.

This concludes today's conference call. Thank you for participating and you may now disconnect.