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

Austin Wurschmidt - KeyBanc Bill Crow - Raymond James Wes Golladay - RBC Capital Markets Michael Bellisario - R W. Baird Shaun Kelley - Bank of America Chris Woronka - Deutsche Bank.

Good day, ladies and gentlemen and welcome to the Summit Hotel Properties Q1 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session; instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce to your host for today's conference call, Director of Investor Relations, Elisabeth Eisleben, ma’am may now begin..

Thank you, Marcus 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 first quarter 2015 release and filings, and following these comments we'll have an opportunity to address any related questions you may have. As a reminder, this conference call 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, May 05, 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 first quarter 2015 earnings conference call. Let me begin by expressing how thrilled we're with the performance and growth of our portfolio in the first quarter of 2015, exceeding the high-end of our guidance.

For the first quarter, we reported adjusted FFO of $23.2 million, which is a 39.6% increase over the first quarter of 2014. Our AFFO per share increased $42.1 from the first quarter of 2014 to $0.27 per diluted share exceeding the $0.22 to $0.24 per share guidance range we provided for the quarter.

Our same-store RevPAR growth for the first quarter was remarkably strong at 13.3%, compared to the first quarter of 2014. RevPAR growth was driven primarily by strength in average daily rate which was up 9.5%. Our same-store portfolio continues to outperform and has now exceeded the Smith Travel Research overall U.S.

and upscale average for 12 consecutive quarters. This is a credit to our operational team that is truly best-in-class and continues to execute other strategic objectives and drive growth throughout our portfolio. On a pro forma basis, we reported very strong RevPAR growth of 11.9%.

Our RevPAR growth was driven by an 8.8% increase in average daily rate and increased occupancy of 2.8% to 74.3%. Our growth in the quarter was again very broad based. 46 of our 90 properties and 20 of our 38 markets posted double digit RevPAR growth.

San Francisco was again one of our strongest markets posting 40% RevPAR growth for the first quarter aided by a major comparison in the comparable period from renovation construction. Excluding in the San Francisco Holiday Inn Express there was the beneficiary of that comparison.

Our remaining San Francisco hotels posted RevPAR growth of 28.7% for the first quarter 2015.

Our all hotels in the Minneapolis and Phoenix Scottsdale markets were also fantastic performers, which posted approximately 35% and 33% RevPAR growth respectively, benefitting from continuous stabilization from our Hyatt Place in Downtown Minneapolis and the Super Bowl in Phoenix.

Moving on to acquisitions, subsequently at quarter end, we closed in the newly constructed 211-guestroom Hampton Inn & Suite in Minneapolis, Minnesota for a purchase price of $39 million or $185,000 per key.

Situated in the heart of Downtown Minneapolis near the Art and Business district, our hotel is connected to the city's iconic climate-controlled Skyway, placing us minutes from the Convention Center, Hennepin Avenue and Nicollet Mall.

It is less than three blocks away from the Minneapolis METRO Blue Line which provides easy connectivity to the Minneapolis International Airport and the Mall of America.

In addition we’re located within walking distance of Target Field which is home to the Minnesota Twins and the Target Center which is home to the Minnesota Timberwolves and a host of other headlines, entertainment and events.

We’re thrilled at the completion of this new hotel and exceeded the strong addition to our portfolio premium select service assets. During the first quarter, we spend approximately $16.1 million on capital improvement to our portfolio and added five guestrooms.

In addition to the Fairfield Inn & Suites that we highlighted in our release we also completed the renovation at our Hilton Garden Inn located in the Galleria Area of Huston Texas for approximately $1.9 million and also continue the renovation on the rebranded Double Tree in San Francisco. We expect to complete that renovation in the third quarter.

With that I will turn the call over to our CFO, Greg Dowell..

Thanks Dan and good morning everyone. In the first quarter of 2015, we were very pleased with the continued strength of our portfolio and the overall lodging industry.

On our pro forma basis our hotel EBITDA in the first quarter 2015 increased to $38.4 million which was an increase of 18.9% over the same period of 2014, expanding our first quarter pro forma hotel EBITDA margins by a robust 216 basis points to 35.7%.

For the first quarter of 2015 our adjusted-EBITDA grew to $34.5 million an increase of 7.3 million or 26.9% over the same quarter in the prior year. These results were largely driven by exceptional RevPAR growth which was driven primarily by strong growth in our average daily rate.

Moving on to our balance sheet, we continue to maintain a strong balance sheet and liquidity position at March 31, 2015 we had total outstanding debt of $628.8 million with the weighted average interest rate of 4.33%. We ended the quarter with net debt to trailing 12 months adjusted-EBITDA of 4.4 times which is well inside of our acceptable range.

Subsequent to quarter-end we closed on a $125 million seven-year unsecured term loan, the term loan has an accordion option which provides the company with the ability to increase the term loan commitment to $200 million, subject to certain conditions.

On April 21, 2015, we exercised $15 million of this $75 million accordion feature which increased the aggregate seven year unsecured term loan commitments to $140 million. Proceeds from both the term loan and accordion were used to repay borrowings under our $225 million senior unsecured revolving credit facility.

When factoring into closing of the term loan as accordion we have total outstanding debt of approximately $663 million with the weighted average interest rate of 4.22% and a weighted average maturity for five years.

We currently have approximately $70 million in trailing 12 months unencumbered hotel EBTIDA which represents approximately 46% of our total portfolio on a pro forma basis. Including available capacity on our line and cash and cash equivalents on our balance sheet we have capacity of over $200 million to fund our strategic objectives.

Turning to guidance for 2015, in our release you will see that we increased guidance for the full year 2015 to incorporate our strong first quarter results as well as of the acquisition of the Minneapolis Hampton Inn & Suites. For the full year 2015, we increased our AFFO guidance to $95.6 million to $100.8 million or $1.10 to $1.16 per share.

For the second quarter 2015, we provided guidance for AFFO of $0.32 to $0.34 per share. Metrics supporting our guidance are provided in our release. For the full year 2015, we also increased our pro forma and same store RevPAR growth projections on both the high-end, low-end from 5.5% to 7.5% up to 6% to 8%.

We have also incorporated capital improvements of $32 million to $38 million for the full year 2015, which includes both renovations and recurring capital expenditures. As a reminder our guidance assumes no additional acquisitions dispositions or capital market activities in the second quarter or full year 2015.

With that I will turn the call back over to Dan. .

Thanks Greg. In summary, we’re absolutely thrilled with the performance of our portfolio and the continued success of execution by our team. As always we continue to seek opportunities for growth and to look for additional ways to create value for shareholders. With that let's open the call to your questions. .

(Operator Instructions). Our first question comes from the line of Jordan Sadler from KeyBanc. Please proceed with your question. .

Hey it's Austin Wurschmidt here with Jordan. I was just curious where you saw growth exceed your guy's expectations in the first quarter. You are pretty materially above the guidance you provided earlier this year.

So just curious where you exceeded your expectations?.

The Minneapolis was strong even if we took out the Hyatt Place which was continuing to stabilize that mark was up 27% for us exceeding the market. We got great properties that we have invested in and that was a great addition.

Phoenix even into Super Bowl I had a very strong March, over 20% so those are two key markets that in addition, obvious really outperformed for us and then as said in my comments, San Francisco has been very strong just like having some rooms out for innovation.

I don’t know that there is anything that stuck out as a big surprise, but just a very broad base across the portfolio. We are in that part of the cycle where select services historically outperformed and we are seeing the benefits of that now. .

Would you say that it's a function of better traffic or demand in some of these markets or are folks just a little bit more willing to expect a little bit higher rate than you may have expected?.

Occupancy has been strong, that's for sure. We have been very pleased at our team’s ability to add occupancy and to shoulder nights and weekends. Yeah, the leader segment has been price takers to a great extent.

So, I think that the higher occupancy has allowed us to be very aggressive in pushing rates and when you combine that with a little extra occupancy coming off with some renovation that's loudest to be successful in a really across the board.

That's helpful and then just one last from me; if you sort of strip out I guess some of the benefits that you mention from both Phoenix and some of the renovation properties with the easier comps have you seen any deceleration subsequent to quarter end and your same store growth?.

No I think the -- a key point would be -- we set the full beat all the way through; for the year start, I don’t think you could say -- we think there is a slowdown as we essentially had the same guidance with Q1 actual factored then. We don’t lot of visibility beyond the current quarter.

We talked about that on prior calls so I'd say similar to last year we see more opportunities and think there is more upside potentials should the underlying fundamentals remain strong but no we don’t see a deceleration in a growth potential throughout the year..

Would you say you feel like your trending more towards the high side with the operating margin guidance to 50 or 100 basis points you gave last quarter?.

Yes, we communicated 50 to 100 basis points range. We do as we said in the past have some lingering headwinds from property factors which is a result of the assessment on the high quality assets we acquired.

We will see some incentive management fees this year also as the result of our performance but after posting the 200 plus basis points of margin expansion, we do feel there is a stronger likelihood for our portfolio expand margins to the high end of that 50 to 100 basis points range..

Our next question comes from the line of Bill Crow from Raymond James. Please proceed with your question..

Good morning guys. Dan you just walk us the same question stated differently that we just heard; just walk us down from the strength from the first quarter which admittedly is a slower quarter relative to the rest of the year.

To get down to a 6% to 8% RevPAR growth and I get the you don’t have much visibilities, so maybe it is just conservatism but I think that's what the question was getting that what is the slowdown could impede maybe it's tough comp, maybe its renovation whatever it would be that would take you from the strong outperformance in one Q2 to lower number average for the year?.

Yeah, I think we could backend it another way with the comps from last year in a both Q3 and Q4, were it is of double digit RevPAR quarters for us; so to have the what we will telegraph for the year, on top of that is still very strong performance.

I think that would be part of it having lower RevPAR growth for the year’s result of having a significantly higher RevPAR growth for the second and third quarter, third and fourth quarter last year as well. I think that’s an important factor as well..

You have talked before about a two year ago on margin increase; I think its 250 basis points over a couple of years.

Does that remain intact and how you, especially after this first quarter?.

I think that’s sale a good target for us. It's little early to say whether how that comes in if it's linear of its chunkier early or chunkier later. Pure rate driven RevPAR with obviously translate into higher margin expansions, so we do think there is added opportunity over the next couple of years but I think that's still a good target for us..

Great and then finally from me; if you could just give us some comments on the acquisition environment, your appetite are some of the folks there are -- told this have they come out of the market provide to give you little more opportunity for you and just what are you seeing there? Thanks..

Thanks. We do have a better pipeline and we had last quarter for sure, we've been fairly proactive in sourcing deals and made progress in few off market deals and quite frankly few marketed deals that were in a potentially overlook by others.

So, we do see opportunities in the low eight [Ph] range on forward basis for high quality asset, which is still within that range that we've been targeting, all the way back since IPO. We don't have any assets that under contract with money that's not refundable at this time.

But we'll always continue to look for the superior one off transactions in packages of two or three, still very active in underwriting but plan on being focused on two or three key opportunities, still have a bias to using the sale or disposition of hotels to fund our growth strategy but I think we've been very pleased that the ability to continually find acquisition opportunities that, not only need our underwriting criteria but that offer great growth profile going forward..

Our next question comes from the line of Wes Golladay from RBC Capital Markets. Please proceed with your question..

With that last question, you have mentioned you have a biased force dispositions of fund acquisitions and you're actively underwriting so -- are you actively looking to sale assets right now and if not, how soon could you sell the asset if you found an acquisition?.

We never proactively looked at capital recycling. We did so 24 assets over the last couple of years that we didn't feel would measure up but the remaining assets we have the secondary assets are high quality they renovated. So, if we were to get a compelling offer that is definitely something that we’ve talked about in the past that we would consider.

I think there are opportunities out there from mainly usual suspects that are placed at high value on some of these assets and the integrate quality but almost we're able to transact with something that we feel benefits to our shareholders and have opportunities to redeploy the capital, we're very contempt with the assets.

So, I think as we look forward, we wouldn't be actively marketing but obviously we're receptive to the offers on some of those assets.

Does that answer to your question?.

I need you to close on that at a relatively short period of time, if you?.

We've got after closing in the Minneapolis Hampton Inn & Suites we still have but we've considered $180 million capacity that would leave us that kind of the high end of that, 4.5 to 5.5 times range. But that would be kind of a temporary measure, while we show some assets that kind of assets the acquisitions..

Okay and then looking at our outlook for the balance for the year, I know there is limited visibility into your type of hotels but how do you see your company on a relative basis are outperforming the upscale statement? And what is really driving that, is it the footprint having less [indiscernible], is it renovations headwind or is it product offering with the premium select service? How do you talk that of for the year -- I guess both rate quarters are now performance?.

I think you identified in your question, many of the key areas that are driving our outperformance. We view ourselves as an active manager so to speak so we would always expect to outperform over time.

Twelve quarters is a remarkable consistent track record, a part of that seals by as you pointed out investing capital into renovation of those assets, part of it is making sure we're in the right markets and then part of it is -- just the strength of the brands and our operational teams ability to extract the maximum value and in every last dollar from the market.

So, I wouldn't say there is a secret sauce or black box other than it's a lot of hard work and we got lot of experience through up and down cycles executing..

Okay but I guess would you feel comfortable outperform in the up sale of segment for the balance for the year?.

Yes, I think that's always our expectation and sometime we feel comfortable with..

Okay and then last one for me, looking at the Hyatt Place, is that stabilized yet or is that still waiting for next year Minneapolis and what your expectations for the Hampton Inn stabilization period and EBITDA contribution this year?.

The Hyatt Place probably has another year before it's fully stabilized we've been very pleased with the progress that we've made there, the Hampton on the other hand is the strengthening to the band its allowed -- we think to probably stabilize fully by the end of '16 probably add maybe close to a penny this year in AFFO and obviously more in 2016..

Our next question comes from the line of Michael Bellisario from R. W. Baird. Please proceed. .

Few questions for you, one follow-up from a few of the earlier questions on margins.

Have you guys noticed any increase from the brands and is that negatively impacting your margin at all?.

Nothing that we would highlight there is always a new breakfast somewhere and new allocations are something at lobbies something at another brand. So but nothing that we would point out that would be material at this point. .

Any major difference between your managed and franchised properties to outlook from margin growth?.

I don't think so; I think the managed properties many as you all know started at a much lower margin base, so I think there is still as much opportunity in the managed as well as the third-party managing. .

And then on the acquisition environment, maybe ask a differently than a previous question, how were you guys evaluating potential deal today and those deals potential returns versus your cost of capital does that math depends on any better today versus 90 days or 120 days ago?.

Based on where stock is trading I would say that they would potentially be more accretive based on moment of time but we don't make our investment decisions based on where our stocks trading at moment of time.

We have said consistently over the last four years and even longer that 8% to 10% going in the yield was very important to us, and that operational and value upside on top of that gets us to kind of that double-digit on unlevered return and into the teen. So that’s been a core underwriting tenant for decades. .

And then in your underwriting model whether it's five years seven years how you are modeling and any slowdown or any recession years with that?.

We would look beyond, we've got good visibility for the like the next two years based on trends and the potential new supply. And I think supply has started to pick up as expected but as we see they are being easily absorbed in our markets and having little effect on our results.

At this point it looks like about 1.3% supply for 2015 and I think it’s unlikely we see 2% until at least 2017 or maybe even 2018 the brand companies have some new brands but they are still in a most of areas where there is very limited brand availability and also construction price drop nearly 25% in a last 12 months, the developers are starting to be very selective.

So I think there is some potential headwinds as well. And I would also point out that all the new supply we’re seeing has been in the pipeline for a couple of years so we do know what’s coming. We've got very good visibility of that supply for the next couple of years. So there won't be anything that, that we’re unprepared for.

So does that clarify your question?.

(Operator Instructions). I would now like to introduce the next participants at a question Shaun Kelley from Bank of America. Please proceed. .

I think you alluded to this in the earlier question, but I just wanted a follow-up as it relates to longer-term margins.

I am curious with your experience in limited service at this point in the cycle, what’s the theoretical margin potential of where you go over a longer-term horizon and maybe play this out for a little bit longer but as you look back in performance of cycle peaks how high term portfolio like yours get to at a theoretical level not a target that we’re holding.

.

I think there is definitely a potential to keep up to 40%. It's really a function of link the cycle and I think you tell me to link the cycle I can get back into where we think supply and costs are going to arise to. But I think theoretically for a portfolio like ours we can get to 40% depending upon the life of the cycle. .

And then my second question would be as you were mentioning just a moment ago about supply but we have seen the upscale supply number start to creep up faster than that 1.2%, 1.3% for the industry.

So are you seeing that in your markets or are you seeing above 1.3 as you look at your blended markets or you kind of able to choose locations and places where you got barriers that you are not seeing numbers that would be meaningfully above the industry average?.

I think that, definitely the majority of new supply is upscale; there is no question about that. And I think there is a deeper issue is that, that’s become such a popular and desirable place for guest to stay that it's basically been very demand driven that’s where guests want to stay.

So I think that is giving visible lot by today's traveler that doesn't want to stay and full service hotel that maybe [indiscernible] or may have less capital. So I think that's one reason that a lot of that supply is getting absorbed.

For us, the majority of our markets all the existing brands are already there, so there is very limited brand availability absent kind of the new brands that have been recently introduced.

And those take a while to get the stabilized, so the big number of supply that people continue to hone in on is the a lot driven by New York and National and Austin in some of the bigger markets that are kind of headline markets and we've got very limited exposure to that type of markets. So, I think that kind of mid 1% range for our portfolio.

It's probably fair but nothing in that number is something that we're not aware of as I said in with the prior comment, we can see that supply comment two years out. So it's not like something just opens up over night. So we feel very comfortable observing that new supply and don't believe it will affect our numbers..

Thanks for that and I think it's very clear.

And I guess my last question would be – and again I think you have alluded to this a little bit you have heard a little bit about construction costs moving out to developers actually even in some of the secondary and tertiary markets, could you just give a little bit more color there on if you are seeing that and what kind of inflation rates the developers might be seeing right now?.

We were a development company, that's our company started so we've got great visibility and relationships with developers they've been build their hotels in across the country for decades.

I think we've got pretty good sanity checks so to speak to what's going on in the marketplace and what happens when costs go up underwriting becomes tighter and when -- in most markets and they're premium select service, you're looking at 75% occupied type of market.

So, it's not like Manhattan where it’s a 90% market, there is a real stabilization that can take two and three years in some markets. So underwriting starts to get tough and when those construction numbers take off there is two things happen there is really a flight to the higher broad entry, higher RevPAR markets.

And lot of projects just get put on hold, so we haven't seen that the projects put on hold yet we continue to see developers find the opportunities to put brands where they're not today and we don't think that's unhealthy in many of these markets.

Many of these markets would very much with benefit from new clean and fresh premium select service hotels and upside of those secondary markets into some of the top 50 markets. We did expect to be buyers of some of those new premium assets over the next cycle on in the following..

And our next question is a follow up question from line of Wes Golladay from RBC Capital Markets. Please proceed..

One more quick question on the construction cost.

Do you have a replacement cost for a typical [indiscernible] hotel outside the top ten markets?.

I think there is such a wide variance today and what that average price would be I haven't seen the updated numbers from any other brands but I'd suspect you're probably well over 125 key without land in just your average market not counting higher value land and higher entries. So, I think that the real good base line of maybe where to start..

Next question comes from the line of Chris Woronka from Deutsche Bank. Please proceed with your question..

Dan, I want to ask you with the changes that might occur at Starwood whatever they might be, does it make you guys more or less likely to maybe look at some of their assets which obviously lot of REITs don't own many of them, I know it's tough questions we don't know what might happen for maybe some of the gives and takes in your mind what would need to happen for you guys potentially look to do more with them.

Chris, that's actually pretty good question. I think it goes back to we're focused predominantly in Marriott, Hilton Hyatt and IHD brands in our portfolio. There is -- they've got the greatest amount of distribution of premium select service and they've also made the strongest in our view commitment to the space.

I think start with the lot brand in particular reasoning very well with this [indiscernible] traveler and in the right market, it is a great brand. So, we clearly opportunistic if there was a Starwood brand into market that we felt was a strong benefit, a strong performer.

We would be definitely interested; we did buy the Four Points in San Francisco last year which was our second Starwood property. There is not a bias against the Starwood more question in our view their commitment to growing their brands in that space and just a pure math of their distribution and footprint. .

We have no further questions in the queue at this time. I would now like to turn the call back over to speakers for closing comments. .

Thank you all for joining us today. Really just wanted to wrap up with similar comment that we've used in the past, and just that we've got extreme confidence in the portfolio. We continue to see strong fundamentals, limited supply growth, and our operational expertise with our team I’m very pleased they continue to deliver with their strong results.

So thanks again for taking the time. Have a terrific day. And we will talk again next quarter. .

Ladies and gentlemen thank you for attending today's conference. This does conclude today's program. You may now disconnect. Everyone have a fabulous day..