Good day, ladies and gentlemen, and welcome to the Summit Hotel Properties Third Quarter Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Adam Wudel, Vice President of Finance. Sir, you may begin.

Thank you and good morning, everyone. I’m 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 risks and uncertainties, both known and unknown, as described in our 2015 Form 10-K and other SEC filings. Forward-looking statements that we make today are effective only as of today, November 3, 2016, 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 measures referenced on this call on our Web site at www.shpreit.com. Please welcome Summit Hotel Properties’ President and Chief Executive Officer, Dan Hansen.

Thanks, Adam. And thank you all for joining us today for our third quarter 2016 earnings conference call. We are very pleased with the results that our diverse portfolio of premium select service hotels delivered in the third quarter of 2016. Amidst today’s challenging environment, the solid quarter we delivered can be credited to the relentless effort and focus our team has on working with our management partners, on gaining market share at the top line and finding greater efficiencies throughout the cost structure that we believe will ultimately drive long-term value for shareholders. For the quarter, we recorded adjusted FFO of $32.3 million which is a 0.8% increase over the third quarter of 2015. Our adjusted FFO per share increased 0.4% from the third quarter 2015 to $0.37 per share. On a pro forma basis, we posted RevPAR growth of 2.2% in the third quarter which was above the midpoint of our outlook and exceeded the Smith Travel Research upscale RevPAR growth rate by 20 basis points. Our RevPAR growth was driven by an average daily rate increase of 3.3% to $144 and was moderated by a 1.1% decrease in occupancy to 78.9% both of which were partially offset by a total of 56 basis points due to renovation displacement at our Hyatt House Miami project which is expected to be complete within the next 30 days. Our same-store RevPAR growth for the quarter was 1.6% compared to the third quarter of 2015. RevPAR was again driven by an increase in average daily rate of 3.1% and tempered by a 1.5% decrease in occupancy. Our hotels acquired over the past two years led the way for our portfolio during the quarter having posted RevPAR growth of 5.2%. Most notably, our three hotels acquired through September of this year which…

Thanks, Dan, and good morning, everyone. We were pleased with the solid results our portfolio delivered in the third quarter. On a pro forma basis, our hotel EBITDA in the third quarter grew to $45.4 million which was an increase of 2.4% over the same period in 2015. Pro forma hotel EBITDA margins expanded by 18 basis points to 37.9% compared to 37.7% in the same period of 2015. For the third quarter, our adjusted EBITDA decreased to $42.1 million, a decrease of 1.6 million or 3.7% over the same period in 2015. This decrease comes as an expected result of timing surrounding our capital recycling program and results from us reducing leverage and being a net seller from October 1 of 2015 through September 30 of 2016. Since October of last year, we have sold 20 hotels generating gross proceeds of $297 million as compared to acquiring five hotels for an aggregate purchase price of 253 million. Moving on to our balance sheet, our balance sheet continues to be in great shape and we have continued to strengthen it by increasing our average length to maturity, staggering debt maturities and improving our cost of financing. At September 30, 2016, we had total outstanding debt of $624.6 million with a weighted average interest rate of 3.67% and an outstanding balance of 15 million on our revolving credit facility. We ended the third quarter with net debt to trailing 12-month adjusted EBITDA of 3.6 times. During the quarter, we repaid one CMBS loan in the amount of $17 million that had an interest rate of 6.22% and a maturity date of November 1, 2016. There was no prepayment penalty associated with the early repayment and we added the hotel to our unencumbered asset pool in the third quarter. As a result…

Thanks, Greg. In summary, we are very pleased with the consistent results in our portfolio and remain encouraged as the continued guest preference of premium select service hotels, limited supply growth in our submarkets and broad geographic diversification continues to show the benefits of our differentiated investment strategy. With that, we’ll open the call to your questions.

[Operator Instructions]. Our first question or comment comes from the line of Ryan Meliker from Canaccord Genuity. Your line is open.

Hi. Good morning, guys. I just had a couple of questions. First of all, as you think about your 4Q outlook, I think and correct me if I’m am wrong, but it looked to me like the calendar shifts to September probably had a little bit of a bigger favorable tailwind for kind of more of the urban hotels and kind of the traditional upper upscale and luxury more group focused properties and less of an impact positively on you guys in September. And then conversely in October, if I look at the Smith Travel Research data we’re seeing upscale up 2.6% over the trailing four weeks while upper upscale is only up 0.5%. Is that translating across your portfolio as well? And if that’s the case, is it reasonable to assume that you actually might see stronger RevPAR growth in 4Q than you saw in 3Q?

Ryan, this is Dan. That’s a good question and it’s always hard to just take a chain scale and apply that to a specific portfolio. I think now more than ever an upscale hotel in a major market might act differently than it did historically. I think your point’s well taken and I think there’s always opportunities on the revenue management side as group bookings and travel patterns change and evolve. We’ve talked about it a lot. We just don’t have a lot of visibility. We’ve got good top line numbers for October but clearly the books aren’t closed yet. We’ve got a strong forecast and we’ve been really good, better than I think many people have expected in our ability to forecast accurately in a decelerating RevPAR environment. So I think our guide was more to do with what we felt very strong about and less about maybe a trend going forward if that makes sense.

Yes, I think that does help. So then based on the comments you just made, is it reasonable for us to I guess infer that October data points came in potentially not at the same trend line of decelerating RevPAR growth that we saw from 2Q to 3Q?

I don’t know that I can really say specifically on October yet as far as it relates to a trend line. I think we had some wins in some markets and some markets that continue to be soft but I’m not sure that at this point in the cycle and at this – going into fourth quarter that a trend line is anything we would even contemplate for a forecast.

Okay, that’s helpful. And then shifting gears to 2017, I know you guys have some decent exposure to Minneapolis, to New Orleans, obviously some other markets like San Francisco and Houston that have some challenges. Any idea how your citywide convention calendars look for your biggest markets heading into next year? I think New Orleans has been challenged this year but I think I heard from one of the other companies that it’s going to be a big positive next year?

Yes, New Orleans looks to be better for sure. I think if you look at our portfolio, we don’t have properties that are really focused on the convention market. It’s really the compression around the convention that allows us to drive what we believe is outsized growth. So New Orleans is one that it looks to be much more favorable. Chicago, despite just buying our first hotel there, looks to be stronger next year as well. So we think the group pace across the board appears to be for our portfolio stronger than this year.

That’s helpful. And then lastly, can you just give us a little bit of color surrounding the Chicago acquisition? You mentioned an 8% cap rate, you feel pretty good about the numbers. Is it because you’re underwriting conservative assumptions, is the property still in kind of a ramping process where you guys aren’t really building that into that 8% number? Help us understand kind of how you guys feel so confident in that number?

That’s a great question, Ryan. We were hanging around the hoop for quite a while with this asset based on quality and growth profile. And as pricing expectations came down considerably to what worked for us, we dug in deeper. I think the lack of buyers in the current environment for such a high value target clearly worked in our favor. And as we looked at it, clearly there’s new supply that needs to be absorbed but the hotel as you referenced is still stabilizing, just a year old and we think it competes very strong with not just select service assets but the full service assets in the market as well. So I think some might look at the timing as a little early but having that strong going in yield and a conservative underwriting really does give us great confidence that it’s going to create value for shareholders long term. We did purchase it from a seller that we purchased from before who does manage for us already, so they will continue to operate for us as they did the other two hotels we bought. And they are one of our best-performing management companies. High-level of integrity, very accurate in their forecasting and that partnership gives us really just added confidence that we’ll achieve our expectations.

That’s good. And then you mentioned that there were a lack of buyers. Was this a fully marketed transaction and there just wasn’t anybody else stepping up or is this the property that has kind of been on the block for a long time and you guys had underwritten and had a number out there and they kept looking for something greater and then ultimately months later came back to you? How did that kind of evolve?

It was a fully marketed deal by a nationwide brokerage firm. So I think everybody got a teaser, everybody got a look. I know they did plenty of tours and I don’t know how wide the pool was. We look at things that sometimes are a limited bid and sometimes are widely marketed. But to the extent that it meets our underwriting criteria, the numbers certainly worked in our favor.

All right, that’s helpful. I’ll jump back in queue with anything else. Thanks, Dan.

Thanks, Ryan.

Thank you. Our next question or comment comes from the line of Austin Wurschmidt from KeyBanc. Your line is open.

Hi. Good morning. Dan or Greg, could you guys provide a little bit of additional detail on some of the moving parts in your guidance, maybe just starting with what drove the better than expected result at the AFFO line in the third quarter would be helpful.

Sure, Austin. This is Greg. The core of our third quarter results we were really just pleased with kind of the core earnings. Pro forma RevPAR was there at the 2.2% which was slightly above the midpoint and then you take into account the 25 basis points of stronger than expected margin expansion, kind of was a big piece of that. And then a big driver was the income tax as you saw had a benefit on the income tax there. And then there was also some G&A savings; so a little bit of everything but the primary driver on the beat for Q3 was that income tax savings.

And then how much of the change is related to the investment timing on the later sale on the ARCH deal and then the Chicago acquisition? How big of a benefit or delta is that in the guidance change?

Sure. As you kind of look to – I kind of look at the ARCH transaction and kind of the Hyatt Place Chicago together. Between that, it’s about $0.025 in Q4.

Great. Thanks. And then on the sale of the ARCH, I think last quarter you said you had seven of those were under LOI. Anything changed there? And what is the probability that ARCH could close on those prior to year end?

Austin, this is Dan. The seven remaining assets that were under LOI they did not get to the finish line. So we are looking at different alternatives for that; one of which is for ARC to still bridge them. They do still have some time and they’ve done their due diligence. So truthfully, the ball is kind of in their court.

Thanks for that. And then how should we be thinking about the use of proceeds there and maybe some details on the acquisition pipeline, or would you look to delever a little bit more?

Yes, this is Dan again. I think we’ve talked previously about that 3.5 to 4.5 times range. So proceeds – our highest priority would be to pay back down the line. And as we’ve said before at 3.5 times, we contemplate further acquisitions for the right asset and the right market and at 4.5 times investors should expect sales to bring that in line. So I don’t think there is anything that we’d look at in the pipeline prior to sales that we’d have going.

And then just on the acquisition pipeline, are you seeing more deals that are newer deals of newer vintage assets as supply is creeping up and developers are looking for an exit?

Not yet. We hope we can see those higher quality assets in markets to start doing underwriting. But I think the pipeline clearly has slowed and we are as you see much more selective based on where we are in the cycle. But we’re optimistic that over the next several years, we’ll see some higher-quality assets continue to come our way.

Great. Thanks, Dan.

Thanks, Austin.

Thank you. Our next question or comment comes from the line of Wes Golladay from RBC Capital. Your line is open.

Hi. Good morning, guys. Sticking with that ARC Hospitality transaction, let’s just say they don’t close, what happens after that? I know you guys have a deposit and a loan. What kind of action would you guys look to take?

I think at this point our priority would still be to find a solution. Most of those, the remaining assets have been renovated so there’s very little CapEx needs at those hotels. So we could certainly keep them. But we’ve had a lot of interest most recently at the Lodging Conference in Phoenix in September of people looking to buy more suburban assets. So I think we’d still entertain opportunities to sell those if ARC does not get to the finish line.

Okay. And then what about the – you just keep their deposit but what about the loan you have out to them for the seller financing you provided? Does that move – do you have any action against that to collect it right away or --?

No, as long as they’re current, they can extend that. If you recall, the interest rate ratchets up but they have amortized 5 million of that leaving a remaining balance of about $23 million.

23 million, okay. And I guess would these remaining assets be RevPAR growth accretive if you would look at it this year? Would they be higher growth assets for next year do you think?

We don’t have budgets next year but I wouldn’t say that we’d consider those higher growth assets.

Okay. And then looking at the dividend increases like two nice increases this year. Should we read into that that you’re pretty confident that the cash flow is going to be stabilized at these levels and CapEx requirements are going to start to pare back with the portfolio largely renovated at this point?

Yes, Wes, it’s Greg. We postponed increasing the dividend until we kind of finish at least the majority of this ARCH capital recycling program. And as that has kind of come to an end, you’ve noticed we’ve done the two different increases; got it up to a nice $0.65 per share. We’re pretty proud of the fact that that’s a conservative payout ratio of about 47% of AFFO at the anticipated midpoint of the 2016 number, so pretty pleased with where it came in. Obviously, we feel yes to your question about cash flows supported by mid stable cash flows, and it’s pretty conservative in the payout ratio so feel pretty good about where it is.

Okay. Thanks a lot, guys.

Thanks, Wes.

Thank you. Our next question or comment comes from the line of Shaun Kelley from Bank of America. Your line is open.

Hi. Good morning, guys. This is actually Dany Asad on for Shaun. I kind of wanted just to touch back on the Chicago acquisition that Ryan asked about. Can we maybe just – seeing as how this is more of an urban new build in a major gateway market and that really hasn’t been your bread-and-butter historically. Can we expect to see more of these in the future, or was really this just like a specific – it seems like you guys had like a target on it for a while. Was it more of a one-off or was it maybe a slight change in strategy here?

Dany, this is Dan. That’s a really great question. It really isn’t – shouldn’t be viewed as any indication that we’re changing strategy. We pride ourselves on being market agnostic and opportunistic. We actually had this same discussion a few years back when we bought the Holiday Inn Express in Fisherman’s Wharf in San Francisco. And clearly we’ve shown after that that we remain true to our philosophy of quality select service assets and compact full service assets that act like select service assets. Clearly, I wouldn’t look at this as anything other than a great acquisition that met all of our underwriting criteria.

Got it. And on your top line at the point of being market agnostic, even though you are market agnostic, are there really any markets that you see in the next, let’s say, year or two that really are attractive to you that maybe you don’t have enough exposure to, you think?

Yes, there are some markets we’d like to be in but only for the right reasons that right going in 8% cap rate. So that going in yield keeps us in a lot of respects from making some of those entry mistakes at the wrong timing. There are certain markets that just don’t have job growth that will probably I wouldn’t say ever be in but it’d be unlikely. But I think continued diversification is really more of the governor for us. We like to maintain 10% or less EBITDA in each market that we’re in. So that’s likely more the governor than any specific market.

Got it, sounds good. Thank you very much.

Thanks, Dany.

Thank you. Our next question or comment comes from the line of Bill Crow from Raymond James. Your line is open.

Hi. Good morning, guys. Sticking with that last line of questioning, Dan, are you seeing the pricing get closer to your 8% threshold in some of those markets that you’re not in today, the urban select service targets?

This is Dan. That’s a good question and I didn’t expect we could get that type of pricing in Chicago. I haven’t seen that type of pricing available in many of the gateway urban markets but certain owners need to sell for a variety of reasons whether it’s recycling capital or trying to avoid a renovation. So it wouldn’t surprise me but we haven’t seen cap rates back up categorically like some would think at this point. So still strong assets that compete very well are going to be getting what we’d say is arguably a premium multiple over the older, more tired assets.

All right. And then you mentioned renovation. I think, Greg, you said fourth quarter renovation disruption is a 70 basis point drag on RevPAR growth. Help us think about '17 and what your plans are for any renovations or maybe the tailwind you might get from lack thereof relative to '16?

We’d expect to have less nominal dollars in renovation in '17. Clearly, we haven’t been as acquisitive as we had in the past and that at some level drove that kind of $40 million to $50 million renovation number. So I’d expect at this point to be less than that. But we still don’t have full budgets and renovation plans fully baked for next year but I think it’s safe to say less than this year.

Do we think about maybe a 50 basis point year-over-year benefit from that or more than that, or have you thought about what that might mean for your guidance?

No, I don’t think we’ve contemplated the effect of lower renovations on our guidance yet. I think we clearly want to start with the budgets which we’re just starting that process now.

Two more quickies. So let’s stay on the renovations. We’ve seen with the full service hotels in particular that the ramp up period once you reopen the hotel or you finish renovations, I should say, has taken longer and maybe that’s because of TripAdvisor and other people. Are you seeing that or are you getting the benefits quicker at your select service hotels?

That’s a great question. We tend to see the benefits quite quickly. Typically, our renovations don’t take as long. We’ve got a pretty good science around how to do it to be the least amount disruptive to guests. We do a lot of the planning, purchasing and project management in-house. So I think that keeps them tighter, on time and on budget. So I think a lot of the upside you’ve seen over the last several years has really been the result of the strong execution of that strategy. But to be fair, I think there is a blend of kind of soft, good renovations and different than many of the full blown soup to nuts that you’re seeing in some of the bigger convention and group hotels. So I think I wouldn’t say it’s apples and oranges and I do think we do it better than most, but we tend to see the benefits much quicker and see that sustained over a couple of years post renovation.

Great. And I guess in honor of David Loeb, our friend David Loeb, I’ll ask one more question here. You talked about Google opening in Boulder and the catalyst that might be for the local economy and investment. Any fears that additional hotels will get constructed that would then compete against your new property?

It’s a great question. Actually we have no fear of additional hotels starting construction. It’s incredibly hard to build in Boulder and it takes four to five years. And there are two new hotels – actually three new hotels opening up that we’ll be managing through. We feel good about it. We feel good about the location and the renovation we have planned to compete with these hotels. But on the horizon, we see very little if any supply long term there in Boulder.

Great. Thank you.

Thanks, Bill.

Thank you. Our next question or comment comes from the line of Chris Woronka from Deutsche Bank. Your line is open.

Hi. Good morning, guys. Dan, I wanted to ask you if you – when we kind of collect all the data points from airlines and all the hotel companies, do you think the booking window for corporate business is still contracting and do you think any of it has to do with some of the OTA strategies?

I think corporate travel has slowed. We’re seeing that anecdotally in some of our smaller markets, the smaller groups where there is six people or eight people that maybe don’t need to be meet every quarter that could do a conference call. We’re also seeing the trips that were weekly or biweekly become once a month, things like that. I don’t know that I would look at the OTAs as a contributor to that. I think that the brands are doing a great job with the booking initiatives, supported by all of us as hoteliers to get control of booking of views of that guest and I think we’re – the weakness in corporate travel is just a result of the economy where it is. It’s not growing quite fast enough for people to feel confident to send their people out on the road. But at some point, they’re going to have to travel. I don’t think business travel is going away. Despite it slowing, I still think it’s a sustainable part of our business.

Okay, great. And then the second question was just as we think about – you guys own a lot of – you’re a big owner of hotels and I know you talk to your peers often and is there any sense when you talk to these folks that the brands are becoming so aggressive pushing unit growth that it’s kind of not a level playing field with the current owner community? Is there any kind of sentiment about that yet or do you think everything is still kind of in line like the territorial restrictions that were originally agreed to on the brands?

I think that’s a fair question. I think there was a period maybe a year or so ago where it felt like there was an arms race between the brands. And I think the regulator of that is that what we’re seeing today which is financing and underwriting is becoming more and more relevant. When you go to present a package for development to the bank and then have to go back and show them a new pro forma because building costs are up and rates not growing, I think there’s a fair amount of skepticism by lenders that are going to keep some of the development in check. With all of the new brands coming out and I think our view is that the best quality hotel, best located with the best management team should win. So would we like there to be fewer competitors and fewer supply? Sure. I think that’s only logical for us. But I do think the brands are finding pockets where they can put new hotels to try to grow market share. And to be fair, there are some instances whereas at expense of the existing owner. But I think by and large, they’ve heard our voice and are trying to be as thoughtful as they can. But there is without a doubt a different driver of value for the brands than there is for the owners, which as you said, unit growth is high on their list which could be a detriment to us. So I think it’s a market-by-market issue. In the compressed markets, the bigger cities, the half blocks, I think it could be more impactful. But I think at this point we’re trying to be thoughtful about where we buy hotels, where we sell hotels and contemplate that if there is another brand out there at some point, it will probably be reflected in the market.

Okay, that’s great color. Thanks, Dan.

Thanks, Chris.

Thank you. Our next question or comment comes from the line of Michael Bellisario from Baird. Your line is open.

Good morning, guys. I was hoping you can give us a sense of how your revenue management strategies might have changed recently with top line growth slowing, how that’s impacting your results this quarter? Occupancy was down versus ADR up and as well as your ability to forecast demand in the short run?

Thanks, Mike. It’s Dan. Revenue management is more of an art than a science, so I think it’s fair to say that what strategy that we employ in one market or one region isn’t necessarily the same as we would in another region. So while some markets in individual hotels we may be focusing on occupancy, others we may be focusing on rate. So I think it’s almost an individual hotel-by-hotel process. As it rolls up, I think you could draw some conclusions which is that the pushing rate may come at the expense of occupancy. But I think it’s hard to triangulate around a specific strategy when it is such an individual process hotel-by-hotel.

Overall though, would you say you’re becoming more defensive on the revenue management strategies though?

Yes, I think that’s fair. I think in an environment with decelerating RevPAR, defensive is a good strategy to take at the frontend too. We’ve talked about trying to group up, so to speak, and take some small groups to shrink the box so that those last remaining rooms we can manage the rate a little bit better. So I think that’s a fair assessment of being defensive at this stage of the cycle.

Great. Thank you.

Thanks, Mike.

Thank you. Our next question or comment is a follow up from Mr. Wes Golladay from RBC Capital. Your line is open.

Hi, guys. Just going back to the transaction side. One of the things you guys have done an excellent job this cycle was asset recycling and it sounds like the buyer pool for some of their higher quality assets are spinning out a bit, but you also mentioned there is some demand for your asset that you might want to sell that are non-core. Could we see the asset recycling continue at a pretty high pace next year based on what you’re seeing at the transaction market?

Thanks, Wes. I wouldn’t say at a high pace or a fast pace but clearly we think that there is a lot of value to be created by selling assets and replacing them with hotels with higher growth profiles. So to the extent we can still affect that change, we would do that. It’s unlikely there would be a big portfolio like we did with ARC, so it would be more one-off and small groups of hotels. So I wouldn’t say it would be a high level but it is a high priority for us to continue to create value and that’s one thing that we’ve been very successful at.

Okay. Thanks for taking the follow up.

Thanks, Wes.

Thank you. I’m showing no additional questions in the queue at this time. I’d like to turn the conference back over to management for any closing remarks.

Before I close today, I just also wanted to personally thank David Loeb for being a good partner and friend for seven years with the company and certainly wish him the best going forward. He leaves the franchise in great hands with Mike and Amanda. But thank you all for joining us today. We appreciate the trust you have in us and we will continue to work hard for all of you by continuing to be thoughtful in our capital allocation and finding opportunities to create value in hotels that today’s guests love. Have a terrific day and we’ll talk to you again next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.