Elisabeth Eisleben - Director, IR Dan Hansen - President and CEO Greg Dowell - EVP, CFO and Treasurer.

Chris Woronka - Deutsche Bank Ryan Meliker - MLV & Company David Loeb - Robert W. Baird Austin Wurschmidt - KeyBanc Capital Markets Neil Malkin - RBC Capital Markets.

Good day, ladies and gentlemen and welcome to the Summit Hotel Properties Inc. Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, today’s conference is being recorded. I’d now like to turn the conference over to your host for today, Ms. Elisabeth Eisleben, ma’am you may begin..

Thank you, Ben and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, Dan Hansen; and Executive Vice President and Chief Financial Officer, Greg Dowell.

Dan and Greg have prepared comments related to our fourth quarter 2014 release and filings, and following these comments we will have an opportunity to address any related questions you may have. As a reminder, this conference is the property of Summit Hotel Properties.

Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Summit is prohibited. Please also note that many of our comments today are considered forward-looking statements as defined by federal securities laws.

These statements are subject to numerous risks and uncertainties, both known and unknown as described in our 2014 Form 10-K and other SEC filings. These risks and uncertainties could cause the results to differ materially from those expressed or implied by our comments.

Forward-looking statements that we make today are effective only as of today, March 03, 2015 and we undertake no duty to update them later. Our earnings release contains reconciliations to non-GAAP financial measures referenced during this call. If you do not have a copy of our release, you may view and print it from our Web site www.shpreit.com.

Please welcome Summit Hotel Properties' President and Chief Executive Officer, Dan Hansen..

Thanks, Elisabeth and thank you all for joining us today for our fourth quarter 2014 earnings conference call. Let me begin by expressing how thrilled we're with the performance and growth of our portfolio in 2014, exceeding both the high-end of our guidance and the Street’s estimates.

For the full year 2014, we reported adjusted FFO of $84.3 million which is a 42.2% increase over 2013. Our AFFO of $0.97 per diluted share exceeded the $0.93 to $0.95 per share guidance range we provided for the year. Our AFFO per share of $0.97 represents over 20% growth compared to 2013.

On a pro forma basis, we reported very strong RevPAR growth of 10.9%. Our RevPAR growth was driven by a 6.5% increase in average daily rates and increased occupancy of 4.1% to 75.7%. Our same-store RevPAR growth for the year was 9.7% compared to the full year 2013.

RevPAR was driven by a combination of increases in average daily rates which was up 6.4% and the 3.1% increase in occupancy. For the fourth quarter of 2014, we reported AFFO of $17.5 million, 45.9% above the fourth quarter of 2013.

Our AFFO of $0.20 per share represents 45% growth compared to the same period of 2013 and exceeded the $0.16 to $0.18 per share guidance range we provided for the quarter. On a pro forma basis, we reported RevPAR growth of 9.4% for the quarter which was driven by a 7.1% increase in average daily rate and increased occupancy of 2.1% to 71.1%.

Our same-store RevPAR growth for the quarter was 10.4% compared to the fourth quarter of 2013. Net RevPAR was driven by a combination of increases in average daily rates which was up 7.7% and a 2.5% increase in occupancy. Our continued success in posting robust same-store and pro forma RevPAR growth exceeding the Smith Travel Research overall U.S.

and upscale averages highlights the strength and quality of our portfolio and our operational team’s ability to execute. Two of our strongest markets this quarter were Phoenix Scottsdale and San Francisco which posted approximately 23% and 20% RevPAR growth respectively.

Our six California hotels were again substantial contributors as a group, posting 16% RevPAR growth. All-in-all we had 41 of 90 hotels with double-digit RevPAR growth, so it was very broad-based.

Moving on to acquisitions and capital recycling, in 2014 we purchased six hotels with a total of 990 guestrooms for an aggregate purchase price of $214.7 million. These six assets, three located in California and three at Texas are great additions to our portfolio and are exceeding our underwriting expectations.

In addition to these six high quality acquisitions, we also disposed four less strategic assets for a total sales price of $19.8 million.

We remain extremely selective in targeting hotels that fit our long-term growth objectives and remain focused on the highest quality premium select service assets that will bring in-place deals and create long-term shareholder value. With that, I’ll turn the call over to our CFO, Greg Dowell..

Thanks Dan. Good morning everybody. The fourth quarter was extremely strong for Summit and brought a close to another successful year. We’re very pleased with our results and especially with the performance of our hotels throughout 2014. On a pro forma basis, our annual hotel EBITDA increased to $147.7 million which was an increase of 13.7% over 2013.

In conjunction with this increase, we were also able to expand our full year pro forma hotel EBITDA margin by 94 basis points to 35.4%. For the fourth quarter, pro forma hotel EBITDA was $32.5 million, an increase over the prior year of 13.8% expanding fourth quarter pro forma hotel EBITDA margins by 146 basis points to 32.9%.

For the full year of 2014, our portfolio generated adjusted EBITDA of $127.9 million, which was a $35.4 million increase or 36.9% as compared to 2013. For the fourth quarter of 2014, our adjusted EBITDA grew to $28.4 million, an increase to $7 million or 33.1% over the same quarter in the prior year.

These results were largely driven by exceptional RevPAR growth. Moving on to our balance sheet. We continue to maintain a strong balance sheet and liquidity position. At year-end 2014, we had total outstanding debt of $626.5 million with a weighted average interest rate of 4.35% and a weighted average maturity of nearly five years on term indebtedness.

We ended the quarter with net debt to trailing 12 month adjusted EBITDA of 4.6 times which is well within our acceptable range. At the end of 2014, we had approximately $68 million in unencumbered hotel EBITDA, which represent about 46% of our 2014 total portfolio on a pro forma basis.

Including available capacity on our line, available capacity grew unencumbered assets and cash and cash equivalents on our balance sheet. We have capacity of approximately $175 million to fund our strategic objectives.

Turning to guidance for 2014, in our release you will see that we provide guidance for our full year 2015 AFFO of $91.9 million to $97.1 million or $1.06 to $1.12 per share. For the first quarter of 2015, we provided AFFO guidance of $0.22 to $0.24 per share. Metrics supporting our guidance are provided in our release.

For the full year 2015, we assume pro forma and same-store RevPAR growth of 5.5% to 7.5%. We have incorporated capital improvements of $28 million to $38 million, which includes both renovation and recurring capital expenditures.

As a reminder, our guidance assumes no additional acquisitions, dispositions, equity raises or debt transactions in the first quarter or full year 2015. With that I will turn the call back over to Dan..

Thanks, Greg. In summary, 2014 was really strong for both Summit and the industry as a whole. We’re thrilled with the performance of our portfolio and the continued successful execution by our team. And with that, we’ll open the call to your questions..

[Operator Instructions] Our first question comes from the line of Chris Woronka of Deutsche Bank. Your line is open. Please go ahead. .

Nice quarter and I want to ask you -- you highlighted San Francisco and Phoenix-Scottsdale and California as your best markets.

I guess I have to ask the obligatory Texas question and what you're seeing out of those hotels and specifically on those recent acquisitions, how those are -- I think you mentioned that they are stacking up pretty well so far?.

Sure, Chris this Dan, great question. We have two hotels in Houston, one is in the Galleria, much broader demand generator than just energy -- we're just coming off a renovation there so we don't see an effect there this year.

We also have Hilton Garden Inn in the Energy Corridor which as the name would imply has demand from a lot of energy companies that we do expect to see some softness, but it is just one hotel in the portfolio of 90, so we think that the lower fuel prices and coming in to the summer travel season will far offset any of short-term weakness in that one hotel..

Maybe just a quick update on the Hampton Minneapolis project?.

Yes it's coming along nicely. We expect to close that somewhere probably in latter part of April. Don’t expect a lot of contribution with that for this year we've got some pre-opening expenses, but excited about it opening and getting ramped up..

And then Dan, we're seeing a few more new entrants into select service on the acquisition side.

Maybe a little bit of what you're seeing and if it's your perception that the competition for your type of acquisition is higher now than maybe it was say a year ago?.

Yes, there has been some new participants, there still seems to be an insatiable appetite for premium select service assets. Most of the big portfolios have all been purchased there is more competition for that kind of I think I’d say $200 million to $400 million portfolio anything of size I think continues to get a lot of attention.

We haven’t seen a lot of the private equity buyers on the one-off assets, that's not to say that they wouldn't ever approach those, but the sellers of those assets as you would expect are -- believe their individual assets should get the same pricing as the portfolio, so there is a little bit of a pricing disconnect.

And it happens as far back as when Blackstone purchased the first portfolio from Apple REIT, so I think that overtime that will moderate and we will still be able to identify opportunities..

Thank you. Our next question comes from the line of Ryan Meliker of MLV & Company. Your line is open. Please go ahead..

Just a couple of questions and I think Chris hit a couple of the big ones. Can you walk us through what your visibility looks like? I know with your property type visibility going out is a little challenging, but 4Q RevPAR was obviously strong and did a great year in 2014.

1Q certainly seems like it's coming in pretty strong at 9% to 11% but then you're expecting things I guess to moderate as the year progresses.

Is that just driven by soft comps? Is that driven by anything specific across your portfolio aside from that or is it just that you just don't have a lot of visibility so you don't want to set expectations too high right now?.

Hi, Ryan this is Dan.

I think if you look at our portfolio the renovations in the San Francisco Holiday Inn Express in the first quarter last year which is a big property, the Salt Lake City Residence Inn which was a big renovation as well in the first quarter of last year and then the fact that the Hyatt Palace in Minneapolis just opened and was ramping in the first quarter last year those three assets probably contributed 200 basis points to that Q1 number.

And then for '15 we also had the SuperBowl in Phoenix where we have four hotels. So there are a few assets that are driving that Q1 number higher. I would say that that is maybe a little bit unique to our portfolio and not the industry, so I wouldn't take that as our viewpoint that there is a deceleration in industry fundamentals.

Just maybe there are some anomalies in our portfolio. We're still very optimistic for the year and see a very broad-based strength in our portfolio..

And then just maybe a little bit more color on what Chris was asking about with the competition for acquisitions. It seems like Blackstone has launched a strategy to buy one-off assets which obviously could potentially impact your ability to find the assets that you've been buying over the past few years.

Your acquisition pace slowed down pretty dramatically in ’14.

How do you think about ’15? Are you expecting it to further slow down? Do you think it's stabilizing in the success at a year type dynamic or do you think it actually might be more of a net seller heading into ’15?.

This is Dan again. We have a much more modest pipeline than we have had in prior quarter. We have grown in size and scale and feel really good about our portfolio as a whole. Our presence and reputation does still allow us a fair amount of direct dialog with owners, so we’re still seeing opportunities.

But pricing as you referenced has become more challenging, so we do continue to look for the superior one-off transactions and are still active in underwriting, but I think it’s fair to say we’d be focused on two or three key opportunities.

It doesn’t take as much to move the needle for a company our size, so you should think of us focused really on quality of opportunities and not quantity of opportunities..

Thank you. Our next question comes from the line of David Loeb of Baird. Your line is open. Please go ahead..

First one for Greg, in your discussion of the guidance I may have missed this but can you give us some idea of margin expectations for 2015? What kind of margin growth do you expect?.

Yes, sure last year our pro forma portfolio delivered about, for the year a 35.4 and that was up 94 basis points. As we’re looking up into the coming year, we have kind of seen and planned on about 50 basis points to 100 basis points of expansion in margin. There is always those headwinds that come-ever so often.

This year we think we’re going to be facing a little bit more property taxes, not all of our assessments are in so it’s kind of hard to tell exactly how much of that we’re going to face. But in a couple of the markets where we have started seeing some of those assessments there are some headwinds there.

And then obviously you have to -- when we have instead of management fees and the hotels performed as well as they did in 2014 and are expected to again perform well in 2015, we have a little bit of headwind there as well..

Dan, there's a note funding item on your balance sheet.

Can you give a little more background on what that's about and what purpose it's serving?.

We have a unique opportunity to partner with a strong developer for a potential takeout, so we view it simply as a call option on a quality asset in terrific market.

So it’s not material amount and the disclosure of the asset and market will come at a later date when there is really more certainty around the transaction, the note is secured and has a personal guarantee..

And that sort of leads to the question, what are your thoughts today as you look at an investment opportunity on development versus acquisition of stabilized asset versus deeper turn renovation?.

Well, I think it’s a focus on making sure whatever path we take still meets our underwriting criteria, development or a takeout may have a little bit longer lag to get to our baseline yield expectation because of the ramp, but we’re not afraid or opposed of looking at creative strategies to add quality assets through the different methods, it’s not purely just an acquisition or land grab for us.

So, I think the bias is not one versus the other, but where we think the investors’ capital is best placed..

And then I guess a final question on that similar topic, as you look at acquisition opportunities as you've answered in the last couple of questions, has your analysis of those or your return expectations for those acquisitions changed at all as your cost of capital has changed as implied by your stock price?.

Dave that’s a great question, actually they haven’t, we don’t change our underwriting model based on where our stock is trading, that’s a really core principle we’ve had since the very start of our Company that going in yield is a very important part of our strategy and there are just times where opportunities won’t make sense.

There has never a point where we feel like we have to buy anything, we’re pass on a lot of transactions, many of those come back to us. So, while you could probably justify a change in underwriting criteria, we don’t modify that and we remain resolute in how we look at assets whether it’s acquisitions, development or take outs..

Thank you. Our next question comes from the line of Jordan Sadler of KeyBanc Capital Markets. Your line is open. Please go ahead..

Hi guys, it’s Austin Wurschmidt here with Jordan, just a couple of quick ones.

To the extent you do find new acquisitions, I know you guys have plenty of available capacity today but would you look to match funding any of those with some dispositions as well?.

Yes, thanks for the question this is Dan. We do have a strong bias towards dispositions to manage the growth of our portfolio, but it is more of a just an acquisition story. So we do have had plenty of opportunities to raise capital, but we've deliberately chosen to exercise patience.

So, we still have adequate capacity to do select opportunities, but yes I think capital recycling would be our bias at this point..

And then just on the capital improvement side it looks like that's coming down a little bit off of the past couple of years, I guess what's sort of driving that decrease in the capital improvement spend this year?.

Well, we've done a lot of work over the last few years. So, as the acquisition pace has slowed the -- our renovation schedule has slowed there will always be a certain number each year based on having 90 hotels, but that number should continue to moderate then.

It moves around a little bit as with timing of when we take hotels offline in different projects, but I think it's a result of a slowdown in acquisition pace more than anything..

[Operator Instructions] Our next question comes from the line of Neil Malkin of RBC Capital Markets. Your line is open. Please go ahead..

Just a couple of follow-ups, most of my questions have been answered. First, occupancy for you guys and your peers has been running very high, continues to run high relative to historical averages even historical peaks.

I'm wondering are we in a new normal for occupancy? And also how much room do you think is left to run from an occupancy standpoint as a function or as a total proportion of RevPAR?.

Hi, Neil this is Dan. I don't know that I would say it's a new normal, I think it's just part of the typical -- they have inflow of the cycle. There will be in strong markets as evidenced in New York and some of the others that new supply follows all those markets with outsized occupancy.

I think as a company Craig and his team, have done a great job at being able to manage our particular portfolio at higher occupancy levels than we have in the past. Sophisticated revenue management strategies and pricing strategies have given us an opportunity to continue to push occupancy far beyond what we have in the past.

And we think there is a little bit more room in occupancy, but we do also believe that as we have evidenced over the last several quarters a larger portion of the RevPAR growth will start to come in rate and we think that’s really healthy..

A couple of people asked about dispositions.

I'm just wondering just given the fact you guys have been pretty active in recycling this year and last, how much would you say is noncore in your portfolio? Obviously you try to prune the bottom 5%, 10% or something every year but what would you say is left to go?.

That’s a really a great question, I think we look at it and we’d look at our portfolio and say that we don't have anything today that's non-core. We've already sold 24 hotels that we didn't think had the opportunity which is the same opportunity that we have in the remaining portfolio.

But what I would say that where there maybe opportunities three or four years from now there are some maybe secondary market or lower RevPAR markets that don't have as much upside as some of the other markets that we're seeing in the pipeline.

So, we don't have anything listed for sale, but we do get increase from time-to-time and if we have an opportunity to just exit some markets that maybe don't exhibit the same long-term growth trajectories as some of the other markets we're in we could make a change, but I wouldn't be expecting that we're not chasing that.

So, sorry for the long answer but really we don’t have anything that’s non-core it would be fairly looking at if there are better opportunities out there that we could swap out of overtime..

And then last for me is forecasts for your chain scale looked pretty robust relative to industry average. I'm just wondering if you can comment on if you think that's a function of just where we are from an economic standpoint in our growth cycle.

And then also can you comment on besides Houston what you think energy or gas prices could do to your portfolio just given your cluster around the Beltway strategy? It seems like you guys would probably benefit more directly from that? Thanks..

Sure, I think if you look historically kind of the mid-part of the cycle through the balance of the cycle is typically when our nationwide platform of select service should outperform. The gateway cities and the higher urban higher barrier to entry urban markets had strongest RevPAR growth early in the cycle.

We’d expect that to balance out and the more broad-based recovery to a pick up. We’ve talked about that for the last couple of years and we’re starting to see really the validation of that thesis now. As far as the effect of the low fuel prices, we do expect that to be a tailwind for the year.

As far as the amount, I don’t know that anybody has gone and re-budgeted their summer travel plans and said that they had an extra $75 a month to spend on a vacation.

But I think it just makes people feel better that the economy is doing well and they’ve got a little bit more money in their pocket, so I don’t know that it could quantify the effect although we think it’s a tailwind that could offset any potential headwinds of new supply or any potential disruption that way..

And I guess, with that I really wanted to thank everybody for joining us today. To sum up, the real combination of strong industry fundamentals, the limited supply growth and freshly renovated properties and our best-in-class asset management gives us great confidence in our portfolio’s ability to continue to deliver strong results in 2015.

Have a great day and I look forward to talking to you again next quarter..

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day..