Good day, ladies and gentlemen and welcome to the Summit Hotel Properties Incorporated Q2 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's Ms. Elisabeth Eisleben, ma’am please begin.

Thank you, Lynette 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. Please 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. Forward-looking statements that we make today are effective only as of today, August 04, 2015 and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release which contains 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, Dan Hansen.

Thanks, Elisabeth and thank you all for joining us today for our second quarter 2015 earnings conference call. The second quarter was another strong quarter for Summit and we are thrilled with the record performance and continued growth of our portfolio. For the second quarter, we reported adjusted FFO of $29.7 million, which is a 21.4% increase over the second quarter of 2014. Our AFFO per share increased 21% from the second quarter of 2014 to $0.34 per diluted share, our highest amount per share in history. Our same-store RevPAR growth for the second quarter was remarkably strong at 8.7%, compared to the second quarter of 2014. RevPAR growth was driven primarily by strength in average daily rate which was up 7.3%. Our growth in the quarter was again very broad based with 43 of our 93 properties and 17 of our 39 markets posting double-digit RevPAR growth. Two of our strongest markets in the quarter were New Orleans and Salt Lake City. New Orleans posted 20.3% RevPAR growth due to a very strong May with the citywide convention and we were also successful in the softer months with strong transient demand. Salt Lake City continues to shine posting RevPAR growth of 18.8% with success coming from the capital invested in 2014 and shifting the business to higher rated corporate and transient guests. Our operational team continues to execute and drive growth throughout the portfolio. Our same store portfolio continues to outperform that now exceeded the Smith Travel Research overall U.S. and upscale average for 13 consecutive quarters. This truly validates our mantra of being best in class in operations and shows the value enhancements, capabilities of our team. On a pro forma basis we also had a strong quarter posting RevPAR growth of 7.6%. Our RevPAR growth was driven…

Thanks Dan and good morning everyone. In the second quarter of 2015 we were pleased not only with our operating performance but with the continued strength of the overall U.S. lodging industry. On a pro forma basis our hotel EBITDA in the second quarter of 2015 increased to $47 million which was an increase of 10.4% over the same period in 2014, expanding second quarter pro forma hotel EBITDA margins by 39 basis points to 37.8%. Margin expense in this quarter was held back by increased franchise taxes, additional incentive management fees, and increased property taxes. Half of our franchise fees were a catch up related to prior periods which would have improved the margin expansion for the quarter by an additional 10 basis points. We remain confident that our portfolio will continue to expand margins at or above the high-end of our previously stated branch of 50 to 100 basis points of margin expansion for the full year. For the second quarter of 2015, our adjusted EBITDA grew to $41.7 million, an increase of $6.1 million or 17% over the same quarter in the prior year. Moving on to our balance sheet, we continue to maintain a strong balance sheet and liquidity position. At June 30, 2015 we had total outstanding debt of $721 million with the weighted average interest rate of 4.04%. We ended the quarter with net debt to trailing 12 month adjusted EBITDA of 4.8 times which is well within our acceptable range. At this time our target is still four times for the end of 2016 through the execution of the ARCH transaction as well as the amortization of debt and smart capital allocation. Subsequent to quarter-end we closed on two acquisitions for $56.8 million that were funded by advances on our credit facility. When…

Thanks Greg. Before I turn it back to the operator for questions I did want to take just a minute to thank our founder, Kerry Boekelheide for all his contribution to Summit. As you know Kerry decided to step down from his position as Executive Chairman to return to his interest in hotel development and he does leave behind a legacy of strong work ethics, time world standards, and a singular focus on working to create value for shareholders. In summary, we’re absolutely thrilled with the performance of our portfolio and the continued successful execution by our team. We see a window of opportunities today to create value for shareholders through thoughtful capital allocation in premium select service hotels which today's guests love. We continue to identify the right brands in key locations with outside growth drivers and the operational upside that is possible with the higher margin operational model of premium select service. And with that we will open the call to your questions.

[Operator Instructions]. Our first question comes from the line of Bill Crow with Raymond James. Your line is now open.

Hey, good morning guys. Just a couple of clarifications here, the inclusion of the positive impact from actual acquisitions but we understand that the decision to exclude the expected impact from the sale, does that in anyway indicate that the -- there is increasing risk to the sale closing, the timing of it, the magnitude of it, anything else that has you deciding not to include that in the guidance?

Bill, this is Dan. The only guiding item for the ARC transaction really is fully negotiating the PIP. We did build some flexibility into the closing to the extent it doesn’t affect our 10/31. It is a little unique to have the negotiating part of the PIP for the seller to be involved and to be working with buyer and the brands but we feel it is important to work as partners really to maintain the value of the capital that was invested in this portfolio. The discussions are going exceptionally well with really only one brand which we are not going to name not being quite as flexible yet at this point but we don’t see any issues of getting to the finish line. But there are three parties involved between us, ARC, and the brand so unless one of the parties doesn’t truly act in good faith we should have no problem getting to the finish line. The timing of which is just still flexible. So I hope that helps.

Okay and then one of the items that hurt margins was the increase of incentive management fees, do you have a -– can you give us the number of hotels, percentage of hotels that are paying incentive management fees, and help us think about the ramp to IMF as we go through this year and next year?

I think about 35 basis points is the expected incentive management fee. I think it would be a good way to look at it.

And does that increase next year or just maintains on a higher revenue base, its growth?

I would expect it to maintain on a high revenue base.

Okay and then finally just clarify for us, our understanding is that Kerry has departed, in order to spend more time developing hotels which ultimately could or could not compete against, I am just curious about the decision to pay severance in that case and why it’s appropriate to do so?

This is Dan again. Kerry was an Executive Chairman so he did have an employment contract. It’s something that he started essentially part time with the blessing of the Board with a certain covenants on his ability to do that and this was timing felt right to make that a full time opportunity for Kerry, on his terms. So based on the terms of his contract which as we said he was an employee, that’s where really the severance comes from.

So despite the fact that he is initiating the move it’s under the contract?

Its mutually negotiated severance agreement, it wasn’t a violation of any contract. This was a very comfortable departure and as I said the timing just felt right for Kerry and again it was more of a result of severance package and not any contract.

Perfect, great. Thanks Dan, appreciate it.

Sure.

Our next question comes from the line of David Loeb with Baird. Your line is open.

Hey Dan can I just follow up on Kerry a little bit. I am sure you are going to miss his wisdom and guidance in the Board but just part of those question was about the kind of stuff he is going to be doing. My understanding from the agreement that the Board had with him prior to this was that he wasn’t really anywhere near the kind of markets or properties or I guess type of investments that you guys were looking at and part of that was because you had restricted his ability to compete pretty directly. Can you just talk a little bit more about whether what he is going to do might compete or might be a source of future acquisitions for you, things like that?

We don’t see Kerry's new business venture as a competition at all. Kerry is a very large shareholder, this company is near and dear to his heart, so there is certainly -- I have a 100% confidence that there is no intent to do anything that is in anyway detrimental to the company. As you know specifically and many others may now Kerry has a long history of hotel development for the last 30 years and to the extent he wants to grow the company. We are very supportive and don’t see that as any risk at all to our ability to execute on our strategy.

That helps thanks and just to go back to the ARCH transaction and the acquisitions that you are looking -– it looks like your strategy is to one, replace the lost EBITDA from those dispositions with new acquisitions; two, to do that a little bit in advance; and three, to do that at a pretty attractive rates. I am impressed with the forward cap rates and the stuff you are buying, do you see the market out there for more assets that have that kind of 8 to 8.5 2016 cash flow profile?

You know we do and it a unique window in the market we think where the higher quality institutional assets have fewer bidders and the pricing for the one offs and small portfolios are such that we can essentially match fund and continue to grow our portfolio with higher quality assets. So our pipeline is strong and as I said in my prepared comments, we fully expect to be able to match fund to sale with new acquisitions consistent with what you’ve seen us announce so far.

So I took that comment as being you would essentially redeploy the capital in a pretty close time proximity but can you also talk about whether you would be replacing the earnings or in other words will there be some -- still be some dilution either in the first or the second year following the disposition or the slices of the disposition?

We would expect the first year post closing to be at or above the levels of the portfolio that were solid.

Great, thank you.

Our next question comes from the line of Ryan Meliker with Canaccord Genuity. Your line is now open.

Hey, good morning guys. I just had a couple of questions, first with regards to the guidance increase it sounds like that is primarily driven by the acquisition of these hotels in advance of the disposition of the ARCH portfolio that is still yet to come, is that the primary driver of the 5% increase at the midpoint on FFO?

Yes, I think we brought the pending deed from the quarter through and along with what we telegraph EBIT contribution for the balance of the year that was really the move from guidance to the higher level.

That’s my thought, that’s helpful and then the second question I had was with regards to as we look out on the RevPAR metrics to 4Q, we’ve heard from a lot of other companies that 3Q is going to be softer than 4Q driven by some calendar disparities but it looks like your implied guidance for 4Q is much lower than 3Q, are you really seeing -- obviously you don’t have that much visibility into 4Q but are you expecting a material deceleration into 3Q and then again into 4Q?

No, I think as we’ve talked about each quarter it’s more of a visibility issue than a confidence in the market as a whole. I mean, let’s be honest we are six years into a cycle to expect RevPAR to be accelerating as -- but I’ll just say we’d never expect RevPAR to continue at a double-digit pace forever. So, we are reaffirming our full year guidance for both pro forma and same store. Our Q3 RevPAR guidance of 4% to 6% is truly healthy for us and remember it’s also coming off of 15% RevPAR growth in Q3 of 2014. So we can generate terrific returns with mid single-digit RevPAR and the operating model of premium select services is really built to perform in markets like this. So I wouldn’t read anything into the guidance beyond what we see immediately in front of us.

So it sounds like from a RevPAR perspective you are more comfortable at the high end of the range than the low end of the range?

Yes, I think the opportunity to outperform with the fundamentals remaining strong would put us strongly between the midpoint and high end.

Okay, that’s helpful. And then the last question I had was you guys filed an ATM last night, just some color behind what made you guys decide to do that?

This is Greg. We don’t have any immediate plans to use the ATM but we look at it as a tool to match fund acquisitions. It’s the least costly cap way to raise capitals and we think if thoughtfully used it’s a valuable tool. But as I said there are no immediate plans to use the ATM.

And this is Dan, I would just add we’ve had one in place for quite some time and haven’t used it and it was just time to upgrade it and keep it current.

That makes sense, you don’t hear me argue with any of that. Great quarter and hopefully we’ll see those double-digit RevPAR growth levels continue throughout the rest of the year. Thanks.

Thanks Ryan.

Thanks.

Out next question comes from the line of Wes Golladay with RBC Capital Markets. Your line is now open.

Hey, good morning everyone, excellent quarter. Can you tells us or gives us more visibility on New Orleans in the second half of the year, how you see that progressing in 3Q and 4Q?

I think the calendar feels solid to us and I wouldn’t expect huge volatility. 2016 looks to be okay, 2017 maybe a little bit stronger but I don’t think any one of our markets whether its New Orleans or Indianapolis really has a huge effect on our ability to hit our numbers. But I think conceptually we see the convention market as a whole being much more positive in 2016 but I wouldn’t look at New Orleans as anything other than a positive contributor to our company.

Okay and then looking at the increase in the capital improvements, how much of this is due to new projects or other things such as rise in construction cost and will there be incremental disruption that’s already baked in the guidance?

Maybe a little bit of disruption, nothing that is not baked into guidance. Mostly its an increase in scope. As we talked about in our prepared comments, that we’ve had great success by being smart about where to invest capital and Craig and our operational team are magicians at some level of being able to create value and a rate grow. So we decided to increase the scope on a couple and then also we did have a hailstorm in Denver that added about $2 million to that budget. The majority of that will be recouped from insurance but nevertheless it is an expenditure in the year.

Okay, thanks for taking the questions.

Sure, thanks Wes.

[Operator Instructions]. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is now open.

Hey, good morning guys, just had a question related to the acquisition pipeline and just sort of how you would characterize I guess the geographic footprint of what you are seeing, are there any regions that the pipelines is more heavily weighted in?

No, I would say it’s fairly broad based.

Seeing, I guess the acquisitions that have closed so far have been very East Coast weighted so, could we see some additional purchases on the West Coast I guess as you look to back sell the hotel EBITDA.

You know Austin we said pretty consistently that we are market agnostic. We’re purely return generated underwriting. We do focus more exclusively on top 50 markets and markets that exhibit some of the similar characteristics. Your question is similar to the question we got, about a year and a half ago when we bought assets in San Francisco and California that was our focus there driven by the desire to be there and the answer is no, it truly is a bottom up underwriting focus where we tend to be more market agnostic. So not to be flip or avoid the question, but it shouldn’t surprise anybody for us to be on the East Coast or West Coast or dead center in Middle America.

That’s fair enough. Given I guess the ability to source deals at higher going in yields I guess, would you guys consider selling some additional assets or is there any part of the portfolio that you looked to kind of opportunistically capitalize on opportunities that you are seeing on the acquisition side?

Austin, it is actually a really great question, I am glad you asked. We do have some work to do to get the first sale closed with ARC. Beyond that we don’t have anything identified sale -- identified for sale and quite frankly the portfolio that we are selling to ARC again wasn’t a portfolio we had gone out and marketed or identified for sale. We think our portfolio as it is today is a very high quality, has a great growth profile. But having said all that if there is an opportunity to capture some value and redeploy into projects that can create outsized growth we are always open to those opportunities.

Thanks and then just last one, kind of going back to Ryan’s question earlier little bit, when you look at the deceleration in the back half of the year, I guess I am curious do you think that that’s a function of you guys have squeezed out a lot of the upside in the existing portfolio and some of the assets that you are selling and do you think that, that streak of outperforming the overall industry could continue, so I guess is it a more broader based slowdown or do you think it is more portfolio specific?

Well, I mean everybody's portfolio is different and unique. Ours is unique for a couple of reasons; one is larger than mostly we have a higher number of properties in a greater number markets. So, to be able to outperform with a broad based portfolio I think is truly remarkable and a credit to Craig and his team. If you look through towards the back half of the year, we do have double-digit RevPAR comparisons in both third and fourth quarter. So, I don’t want that to get lost either. You never quite get credit for difficult comps and you never quite get also credit when you have an easy comp either. So, I think it is more indicative of the choppiness as our properties went through renovation and the industry has recovered. I don’t see it as a material change in underlying business fundamentals and I think 2016 looks very positive. And as I said when -- to Ryan's question, this is the part of the cycle that a portfolio like ours and properties like ours really shine. We can generate terrific returns with these mid to later cycle, mid single-digit RevPAR returns. We have got a great operating model, great operational leverage, and we are excited about the back half of the year and 2016 as well.

Great. Thanks for the time today.

Thanks Austin.

I am showing no further questions on the phone lines at this time. I would like to turn the call back to Dan Hansen for closing remarks.

Thanks everybody for joining us today. I think it is clear from our comments we are very encouraged by the continuation of strong industry fundamentals, the limited supply growth, it gives us great confidence in our outlook. Our revenue -- our renovated properties and operational expertise continues to deliver strong results. We are looking forward to the balance of the year and talking to you again next quarter. Have a terrific day everybody.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.