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Good day, and thank you for standing by. Welcome to the Summit Hotel Properties, Inc. Q1 2023 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, Adam Wudel, SVP of Finance Capital Markets and Treasurer.

Thank you, Tanya, 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 4, 2023, 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 CEO, Jon Stanner.

Thanks, Adam, and thank you all for joining us today for our first quarter 2023 earnings conference call. Overall, we were pleased with our first quarter performance as pro forma RevPAR increased 19.3% compared to the first quarter of last year, which exceeded the high-end of our 17% to 19% growth expectations for the quarter. RevPAR growth was driven by a 7% increase in occupancy and an 11% increase in average rate over last year as we continue to benefit from having broad pricing power across our portfolio. Average rates in our pro forma portfolio surpassed 2019 levels in each month of the quarter by more than $10 on average and increased nearly 8% year-over-year in March despite being out of the easier Omicron variant influence comparisons of January and February. In fact, March ADR was the highest in the history of the Company and drove the highest RevPAR for our portfolio since the onset of the pandemic. While leisure demand remained robust during the first quarter as nearly all leisure-oriented markets and metrics continue to meaningfully exceed 2019 levels. The recovery in our business is increasingly being driven by non-leisure demand segments, most notably, business transient and group demand, particularly in urban and suburban markets. RevPAR in our urban and suburban portfolios, which collectively make up approximately 75% of our revenue base, grew 25% and 21%, respectively, during the quarter. Room night booked in the negotiated segment increased to 130 basis points compared to last year at rates that were 14% higher, reflecting the continued recovery of business travel and the benefits we are seeing from last year's RFP negotiations. Not surprisingly, much of our first quarter growth was concentrated midweek as weekday RevPAR grew 23% compared to weekend RevPAR growth of 10%, albeit off of a much higher baseline. Weekday ADRs within the negotiated segment increased 14% compared to last year, while weekday group rates increased 17% on a year-over-year basis. We expect many of these positive trends to continue into the second quarter. While preliminary April RevPAR growth slowed to 5% on a year-over-year basis, we attribute much of this deceleration to softness earlier in the month around the Easter holiday and a return to more typical seasonality patterns in some of last year's strongest leisure-oriented market with more difficult year-over-year comparisons. RevPAR in the first half of April was down slightly year-over-year, while RevPAR in the second half of the month increased approximately 12%, essentially in line with our March results. Revenue pace in both May and June is trending up in the high single digits compared to last year, driven again by strong rate and occupancy growth in the negotiated segment and strong trends within the NewcrestImage portfolio. First quarter results in the NCI portfolio were particularly encouraging as RevPAR grew 22% compared to the same period of 2022. In 2019, RevPAR recapture rates were approximately 500 basis points higher than the legacy portfolio for the quarter. We're a little over a year into our ownership of the portfolio and our operational business plans to create strategic sales clusters across numerous markets are now beginning to show up in improving top and bottom line results. For example, RevPAR index in the NCI portfolio finished the first quarter at 107%, a 400 basis point improvement from the fourth quarter of last year. While absolute market share metrics still lag the legacy portfolio by 700 basis points, implying additional upside remains. RevPAR index in the NCI portfolio has increased over 800 basis points in just the last nine months alone. Within the NCI portfolio, the Texas markets were the strongest performers during the quarter, highlighted by Houston and Dallas, which generated first quarter RevPAR growth of 77% and 29%, respectively, driven by accelerating corporate travel and strong group and special event demand. Group negotiated RevPAR increased 31% and 25%, respectively, from last year. And midweek RevPAR grew 32% during the quarter. As I mentioned, pace trends for the second quarter reflect the continuation of accelerating midweek demand and the stabilization of many of these newer hotels, several of which are benefiting from operating in the first year following a traditional RFP process. Full week May, June and July revenue pace for the NCI portfolio is up 45% for the three months combined compared to the same period last year, with weekday pace even higher. Our outlook for the portfolio remains extremely positive, and we expect it to continue to generate outsized RevPAR and EBITDA growth throughout 2023, as our operational initiatives drive better performance and the newer hotels continue to ramp towards stabilization. Our recent acquisition outside of the NewcrestImage portfolio, which include the Residence Inn Steamboat, the Embassy Suite Tucson, the AC Element dual-branded hotel in Brickell and Onera Fredericksburg, collectively had a tremendous first quarter with combined RevPAR of nearly $250, 22% above the first quarter of last year. These assets continue to exceed our initial expectations and are collectively expected to generate full year 2023 hotel EBITDA, more than 10% above our underwriting. On the disposition side, we continue to work towards the closing of the sale of the six hotels and a vacant land parcel we announced in last quarter's earnings release. The various sales are expected to generate nearly $80 million of gross proceeds, all deferring $35 million to $40 million of near-term capital needs in total. The sale price for the six hotels represent a capitalization rate of 3.9% on the combined 2022 net operating income or 2.6% when factoring in deferred capital expenditures. The sales of the six hotels are expected to close later in the second quarter, and the sale of the vacant land parcel is expected to close prior to the end of 2023. Finally, last week, we announced an increase of our quarterly common dividend to $0.06 per share, a 50% increase from the prior dividend rate. The increase reflects the strong performance and ongoing recovery of our high-quality portfolio while maintaining a prudent payout ratio. With that, I will turn the call over to our CFO, Trey Conkling.

Thanks, Jon, and good morning, everyone. While all of Summit's location types experienced strong year-over-year growth, our urban hotels experienced the portfolio's highest growth in the first quarter. The urban portfolio, which constitutes approximately 50% of our pro forma portfolio key count, generated first quarter RevPAR growth of 25% versus last year. This translates to an 89% recapture to 2019 RevPAR levels and suggest the potential for continued strong RevPAR growth in our urban assets. Most notably, the urban portfolio experienced outsized RevPAR growth within the negotiated and group segments, which increased 73% and 36%, respectively, versus Q1 2022, further validating the momentum we see in urban weekday demand. Weekend urban RevPAR again exceeded 2019 levels with 103% recapture during the first quarter, driven by a $15 or 10% average rate premium to 2019. The Company's portfolio of suburban assets, our second largest subset by location type, also generated outsized first quarter RevPAR growth of 21%. Similar to our urban assets, suburban RevPAR recapture rates in Q1 2023 remain below 2019 levels, creating the opportunity for strong future growth. It's worth noting the Company's four pack disposition strengthens the overall quality of our suburban portfolio moving forward, given the low RevPAR profile of those four suburban Chicago and Minneapolis hotels. While the urban and suburban assets are driving the largest year-over-year gains in RevPAR, our resort portfolio, which comprises approximately 10% of our pro forma portfolio key count also continues to thrive, producing Q1 RevPAR growth of 12% and a nominal RevPAR that was 111% of 2019 levels. From a segmentation perspective, the retail segment continues to be the largest room night demand contributor with a first quarter average rate equal to $190 or 106% of 2019 levels on growth of $19 or 11% versus prior year. As Jon mentioned earlier, we experienced meaningful increases in midweek room night contribution throughout the quarter, driven by the negotiated and group segments, which increased 200 basis points and 100 basis points, respectively, versus prior year, coupled with average rate growth exceeding 14%. We are further encouraged by pace trends for the second quarter, which indicates sustained growth, in particular, midweek negotiated demand as business travel continues to accelerate. Pro forma hotel EBITDA for the first quarter was $62.9 million, a 27% increase from the first quarter of last year. Hotel EBITDA margins in our same-store portfolio increased nearly 175 basis points compared to the last year. And same-store hotel EBITDA flow-through for the quarter exceeded 43% despite a more normalized operating environment relative to the first quarter of 2022 when Omicron necessitated reduced staffing levels and limited food and beverage amenities and other guest services. Today, the Company is operating at more sustainable staffing levels with the labor model optimized at an FTE count approximately 15% to 20% below 2019. Adjusted EBITDA for the quarter was $44.4 million, a 35% increase compared to the first quarter of 2022. And adjusted FFO was $26.3 million or $0.22 per share, a 30% increase from last year. From a capital expenditure standpoint, in the first quarter, we invested approximately $24.1 million in our portfolio on a consolidated basis and approximately $19.5 million on a pro rata basis. CapEx spend for the first quarter was driven by the completion of transformative renovations at our Residence Inn, Downtown, Portland and Hyatt Place, Orlando International Drive as well as the ongoing renovation at our Staybridge Suites, Cherry Creek, Courtyard New Orleans Metairie, Hilton Garden Inn, Milpitas and SpringHill Suites, Dallas, Downtown. Our portfolio incurred approximately $2 million of net renovation displacement during the first quarter related to these transformative renovations. When adjusting for the net renovation displacement, RevPAR growth increased an additional 140 basis points to nearly 21% during the quarter. We continue to ensure the quality and relative age of our portfolio, positions the Company to drive profitability and market share. Turning to the balance sheet. Our overall liquidity position remains robust at nearly $500 million pro forma for the previously announced four pack and two pack asset sales expected to close in the second quarter. From an interest rate risk management perspective, our balance sheet is well positioned, including an average pro rata interest rate of 4.8% and approximately 64% of our pro rata share of debt fixed after consideration of interest rate swaps at the end of the first quarter. In late March, subsidiaries of our GIC joint venture entered into two $100 million interest rate swaps to fix one-month term SOFR at 3.35%, nearly 150 basis points inside of the current one-month SOFR rate. The term on both swaps is approximately three years, resulting in a Q1 2026 maturity. The interest rate swaps have an effective date of July 1, 2023, and will increase the Company's fixed rate indebtedness from 64% to 73% of total pro rata debt outstanding. When including the Company's fixed coupon preferred securities, the balance sheet is approximately 79% fixed. In March, we exercised the first of four available extension options on our $400 million senior revolving credit facility, which extends the maturity date to September 30, 2023. We have three remaining six-month extension options available that result in a fully extended maturity of March 2025, nearly two years from now. For the Company's balance sheet as a whole, we have no debt maturities until the fourth quarter of 2024, when accounting for all available extension options. As Jon mentioned, on April 27, our Board of Directors declared a quarterly common dividend of $0.06 per share, representing a 50% increase from the previous quarter. The resulting annualized dividend of $0.24 per share represents a dividend yield of approximately 4%. The increased dividend continues to represent a prudent AFFO payout ratio, leaving ample room for increases over time, assuming no material changes to the current operating environment. The Company continues to prioritize striking an appropriate balance between returning capital to shareholders, reducing corporate leverage and maintaining liquidity for future growth opportunities. Included in our press release last evening, we reiterated our full year guidance for 2023 operational metrics as well as certain nonoperational items. This outlook is based on management's current view and does not account for any unexpected changes to the current operating environment nor does it include any pending transaction or capital markets activity. Based on the Company's first quarter operating results as well as our future outlook, we are reiterating full year guidance across all key metrics, including RevPAR growth of 6% to 11%. This RevPAR guidance range translates to an adjusted EBITDA range of $190.4 million to $205.9 million and an adjusted FFO range of $0.92 to $1.05 per share. The midpoint of our RevPAR guidance range implies hotel EBITDA margins to be essentially flat year-over-year. We expect pro rata interest expense, excluding the amortization of deferred financing costs to be approximately $55 million to $60 million, Series E and Series F preferred dividends to be $15.9 million, Series

[Operator Instructions] And our first question will come from Chris Woronka of Deutsche Bank.

So I think you just mentioned in the prepared comments as part of guidance range, hotel level margins potentially getting to flat. Is that more a function of kind of top line being good enough to offset the higher labor costs or are you guys actually kind of dialing back or flatlining on the number of FTEs as we get back to stabilized occupancy?

Yes, sure. Chris, this is Jon. I think it's a combination of a couple of things. One, I would point out that margins were up close to 200 basis points in the first quarter. So I think we're off to a healthy start to the year. It's a combination of, one, as you alluded to, the ability to continue to push rates and having RevPAR growth being at least a portion, if not primarily driven by rate growth. And then we do think while we think we're at a more normalized FTE count generally across the portfolio, we do think there's continued opportunities to reduce our reliance on contract labor going forward and our ability to shift some of that contract labor to a traditional FTE should ultimately help generate better margins. So we're hopeful we can continue to have progress, again, we were pleased with the results in the first quarter.

Okay. And then as a follow-up, I think we're all waiting for next year to drop in terms of more the stress for some of the highly levered owners out there. And question is, should those become available? How do you guys prioritize looking at something like your core select service that you -- your bread and butter versus maybe there's a turnaround story, something that can get into one of the soft brands or some kind of rebranding that needs CapEx and then the third option being kind of that skinny full service that you have, some of already, I mean, how do you look at different buckets of opportunity that might come out there?

Yes. Chris, look, I'd say we look at it all through a fairly similar lens, and that's just making sure we're solving for the appropriate risk-adjusted return. So of all the buckets that you just laid out, there wouldn't be an opportunity in any of those buckets that we wouldn't look at. We underwrite them a little bit differently because the risk profile is different between a deep turn renovation and buying just traditional stabilized cash flowing assets. So we are hopeful you -- as you alluded to in the question, the transaction market has been fairly quiet over the last six months. We do expect there to be more transaction activity as we progress, particularly into the back half of the year. How much distress actually comes about, I don't know. But I do think you'll see more pressured sales activity, whether it's from brand-mandated CapEx that we think is going to get pushed more meaningfully in the back half of the year or some refinancing risk that's going to be generated just given the higher rate environment that we're in. So we're hopeful that will generate some opportunities for us in the back half of the year.

And I'm showing no further questions. I would now like to turn the call back to Jon for closing remarks.

Great. Well, thank you all for joining us today and joining our first quarter conference call. We look forward to seeing many of you over the next several months at many of our industry events and conferences. Thank you again. Have a nice day.