Summit Hotel Properties, Inc. Q3 FY2024 earnings call

• Third quarter had adjusted FFO growth for the third consecutive quarter despite industry challenges. - Effects of hurricanes: Hurricanes Francine and Helene displaced ~$400,000 of revenue and ~$300,000 of EBITDA in Q3; Hurricane Milton caused short-term disruption in Tampa and Orlando, but October RevPAR expected to increase ~2% Y/Y. - Sale of Four Points by Sheraton, San Francisco Airport Hotel for $17.7 million; sold 10 hotels over 18 months generating ~$150 million in gross proceeds, with average trailing 12-month RevPAR at sale ~$85, a 30% discount to remaining portfolio. - Markets: Hotels in San Jose, New Orleans, Louisville, Baltimore, and Minneapolis had 8% RevPAR and 12% EBITDA growth in Q3, with YTD RevPAR up 13% and EBITDA 37% in those markets; San Francisco remains a negative outlier. - Expense trends: Third quarter contract labor declined 13% nominal and 12% preoccupied room basis Y/Y; contract labor now 12% of total labor costs, down from peak COVID levels but above 2019 levels; employee retention improved, down nearly 500 basis points from prior 12-month average; wages up 2.2% Y/Y in Q3.

For the third quarter, same-store portfolio RevPAR increased 0.2% driven by a 1.2% average rate increase partially offset by a 1% occupancy decline. Urban hotels had RevPAR up 1.3% in Q3, suburban up 3.9%. YTD, urban hotels have seen 3% RevPAR growth and suburban 4.2% growth. Resort and small town metro assets saw Y/Y RevPAR decline due to leisure demand normalization. Urban portfolio benefited from robust group demand (RevPAR up 10% Y/Y), while suburban portfolio also saw 10% RevPAR growth in Q3 from group demand. The urban and suburban portfolios combined represent nearly 75% of total guest rooms, with urban at ~50% of guest rooms. Third quarter proforma hotel EBITDA was $59.7 million, a 3% decrease Y/Y due to occupancy contraction, but year-to-date pro forma operating expenses increased 2.9% or 1.4% preoccupied room basis.

• Revised full-year RevPAR growth range to 1% to 2% due to leisure demand normalization and hurricane impact. - Adjusted EBITDA range revised to $188 million to $194 million, a 0.5% decline at midpoint; adjusted FFO midpoint maintained at $0.95 per share, with range narrowed to $0.92 per share to $0.98 per share. - Hotel EBITDA margin expected to contract ~25 basis points Y/Y, with 200 basis points contraction in Q4 due to property tax comparisons. - Pro forma interest expense (excluding deferred financing costs) expected ~$55 million; series E and F preferred dividends ~$15.9 million; series E preferred distributions ~$2.6 million; pro forma capital expenditures range $75 million to $85 million.

• Hurricane impact: Displacement of revenue and EBITDA in Q3, with potential for continued short-term disruption. - Labor market uncertainties: Contract labor still above 2019 levels, with opportunity for further improvement; wage pressures and employee retention dynamics. - Transaction market risks: Seller expectations have adjusted, but transaction market not fully thawed; potential for seller expectations not aligning with buyer expectations. - Union activity: Limited exposure but mindful of maintaining employee relationships and competitive wages in union-exposed markets.

Q: Austin Wurschmidt asked about markets lagging in recovery and confidence in continued growth.

A: Jon Stanner said each market is different; New Orleans has Taylor Swift concert in Oct and Super Bowl next year, San Jose seeing return of tech-driven business transient demand; demand trends in these markets are better off a low base.

Q: Austin Wurschmidt asked about expense comp in 2025.

A: Trey Conkling said 2025 should be a cleaner comp year, expense growth so far this year in 2.5% to 3% range; Jon Stanner added working on 2025 budgets, implied midpoints of guidance show 1.5% RevPAR growth and 25 basis points margin contraction, better than initial guidance.

Q: Michael Bellisario asked about transactions and capital redeployment.

A: Jon Stanner said sold $150 million of assets over 18 months, delevered balance sheet, seller expectations adjusted, market becoming more conducive to transactions; no specific differentiation between leisure resort and urban acquisitions, but sold some lower RevPAR assets; 4 Hyatt Places sold as part of asset sales.

Q: Chris Woronka asked about union markets and brand cost relief.

A: Jon Stanner said limited union exposure, mindful of employee relationships and wages; no tangible insight on brand cost relief but would welcome lower cost programs.

Q: Chris Woronka asked about Hyatt places.

A: Jon Stanner said sold 4 Hyatt Places as part of asset sales, remaining Hyatt Places generally in good condition, no strategic initiative to sell all, but remain opportunistic on asset sales based on ROI.