Good day, and thank you for standing by. Welcome to the Summit Hotel Properties Q4, 2022 and Full-year Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Wudel, Senior Vice President of Finance, Capital Markets and Treasurer. Please go ahead.

Thank you, Kevin, and good morning. I’m joined today by Summit Hotel Properties’ President and Chief Executive Officer, Jon Stanner; and Executive Vice President and CFO, Trey Conkling. 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 SEC filings. Forward-looking statements that we make today are effective only as of today, February 28, 2023, 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 financial measures referenced on this call on our website at www.shpreit.com. Please welcome Summit Hotel Properties’ President and CEO, Jon Stanner.

Thanks, Adam, and thank you all for joining us today for our fourth quarter and full-year 2022 earnings conference call. 2022 was a year of meaningful growth for Summit as we augmented rapidly accelerating operating fundamentals with the acquisition of more than $900 million of high-quality hotels, reinstated our quarterly dividend and made our initial strategic investment in the high growth Glamping segment. Today, Trey and I will discuss our results from last year, our outlook for this year and how our recent transaction activity position Summit to continue to be a leader in the lodging recovery. Overall, we were extremely pleased with the improving operating trends throughout our portfolio, which exceeded our expectations for the year. Pro forma RevPAR increased 38% year-over-year, driven by a 10% increase in and a 26% increase in average rate. In our portfolio of 92 hotels with comparable 2019 data, RevPAR recaptured 90% of 2019 levels and 85% of 2019 EBITDA levels led by average rates, which exceeded 2019 by 2%. Importantly, these RevPAR recapture rates improved sequentially each quarter from 80% in the first quarter to a post pandemic high of 97% in the fourth quarter. Leisure demand led the recovery, as weekend RevPAR for the full-year surpassed 2019 levels by 3%, driven by average rates, which finished the year 12% higher than 2019. Midweek and corporate demand began to improve meaningfully in the second half of 2022, most notably post Labor Day weekend. The acceleration of business transient midweek and urban demand helped drive October RevPAR to $130, our highest nominal RevPAR since the pandemic started. While the natural seasonality of our business resulted in lower nominal RevPARs in the last two-months of the quarter, our December RevPAR recapture for our 92 comparable hotels was 97%, another post pandemic era high. Fourth…

Thanks, Jon, and good morning, everyone. Throughout 2022, our portfolio demonstrated significant improvement across all location types. While urban hotels lagged in the first quarter of the year relative to 2019, these hotels demonstrated strong recovery beginning in the second quarter as RevPAR recapture rates increased from 72% in Q1 to 92% in Q4. The recovery in our urban portfolio was driven by robust pricing power due to the acceleration of business travel, professional and college sporting events, and citywide group and leisure demand in markets such as Dallas, Boston, Miami, Nashville, and Chicago. This resulted in 2019 ADR recapture rates of 105% and 107% in the third and fourth quarters of 2022 respectively versus the 93% recapture rate in the first quarter of the year. The fourth quarter was highlighted by October, a month which typically produces the portfolio’s highest nominal RevPAR as our urban hotels generated $135 RevPAR representing a 5% premium to the pro forma portfolio, and a 93% recovery to 2019 levels. Strength was particularly evident in Dallas, our largest market, where our comparable hotels posted a fourth quarter recapture rate of 102%. Nominal RevPAR for these hotels grew 20% in the fourth quarter in comparison to last year, driven by a $19 or 15% increase in average rate. RevPAR for the non-urban portfolio was $109 in the fourth quarter, representing a recapture rate of 98% to 2019. This was driven by continued strength in our resort properties, which generated a fourth quarter RevPAR of $132 an increase of 11% compared to 2021 and 104% recapture rate to 2019. Additionally, the suburban portfolio experienced the largest year-over-year growth of any location type, as fourth quarter RevPAR increased 18% compared to 2021, driven by a 4% increase in occupancy and a 13% increase in average rate. Shifting…

[Operator Instructions] Our first question comes from Austin Wurschmidt with KeyBank Capital Market. Your line is open.

Hey good morning guys. Jon or Trey, I guess I’m just curious on the six-pack hotel for sale, can you just speak to how you guys arrived at the number of assets that you selectively marketed presumably, and the amount of proceeds you were looking to solve for?

Yes. Sure. Good morning, Austin. First of all, the first thing I point out is there is two separate transaction involves here. There is a sale of the four pack, the two suburban Chicago and too Minneapolis assets and a separate sale for the asset in Atlanta and Kansas City. Look, I think, we have talked for a while now about exiting some of these suburban assets that are lower RevPAR hotels, lower margins and particularly in Minneapolis, which has been a market that has been much slower to recover, we just felt like it was a prudent and opportunistic time to exit those assets. I think, the one common theme that you will see across the six assets is just the need for significant capital to be spent across those for the next - over the near-term, over the next probably 12-months to 18-months. And so between the six assets, we think we will avoid spending somewhere between $30 million and $35 million over that time period. The other thing I would just point out is I think where we have seen, well, it is not the easiest transaction mark today where we have seen the most liquid part of that transaction market has been for some of these smaller hotels and some of the more secondary and tertiary locations, where it appeals to a smaller owner, a local owner operator that can finance it through a local lender that isn’t reliant on big money center banks for the CMBS market to get a financing done. And so, we feel like the execution here is the appropriate one. I will caveat this with as we did in our press release by saying that, these deals have not closed yet, they are under contract. We are optimistic that they will close. And we are happy with the execution if and when they close.

Thanks for the detail there. And then how do we think about the other side of that coin in capital deployment this year. I know you guys are very focused on returns more so than maybe markets, but are there any specific assets or markets you currently have your eye on, if pricing makes sense. And given some of the benefits you highlighted in your opening remarks, about putting assets into the joint venture. I guess how do we think about sort of wholly-owned purchases down the road versus continuing to use the joint venture vehicle with GIC?

Yes. We still really like the joint venture. I think Trey highlighted the fact that, it is getting to a size where particularly the fee income has become a meaningful source of income for us. They have been wonderful partners that allow us to execute on transactions that we otherwise wouldn’t be able to execute on. So we still like that as a vehicle. We don’t have to put everything into the vehicle. I think it will be a case-by-case basis. As we have said, I think a lot historically, we don’t necessarily have a map with a bunch of dots on it that says that, we need to be in certain markets. You can see through our transaction activity post pandemic. We have had a bias towards investing in some markets that we like. The demographic changes, where we see more migration of people, more corporate relocation, that is put us in places like the Sunbelt, that is put us in some of these mountain towns that have performed really, really quite well since the onset of the pandemic. But we are certainly opportunistic. And again, through some of these dispositions, we will create some capacities continue to be opportunistic where we see just better risk adjusted returns on a relative basis.

And then just the last one for me, maybe for Trey. You mentioned that the midpoint of guidance assumes roughly flat hotel EBITDA margin. Can you share what that range is at the high end, low end?

Yes. I think if you look at the high and the low end of the range, we would say, that is kind of minus 50 basis points to plus 50 basis points from 6% to 11% was kind of flat at the midpoint.

Perfect. Thanks, guys.

One moment for our next question. Our next question comes from Bill Crow with Raymond James. Your line is open.

Thanks. Good morning, guys. Just looking for a little bit more detail on the expense expectations for this year. I think you mentioned that, wage rates would be growing at a slower pace, but you also have higher FTEs, I assume, at least to anniversarying those that were added last year. So how are you thinking about overall expense growth? What is going on with property taxes, what you actually were able to appeal, but what do you expect there, property insurance, et cetera?

Yes. Sure, Bill. Thanks. And good morning. As we said in the prepared remarks, we do expect to see some moderating of expense growth. I think as we have gotten later into last year and the first part of this year, we have seen some of particularly on the wage pressure side of a fair amount of that moderating. Tray articulated a little bit on spent on a per occupied room basis at the operating level was up less than 2% in the fourth quarter are actually aggregate dollars of expenses in the fourth quarter, actually declined from where it was in the third quarter. So we have started to see some moderating there. I think you can tell by as Trey just mentioned, our implied margin guidance, which is flat at a midpoint of 8.5% RevPAR growth still does contemplate some level of expense pressure of persisting into next year. And I think what we will see that is a little unique from this year is if you look at our results in 2022, our EBITDA margins expanded more than our GOP margins. Our expectation is that that will flip into 2023 as operating expenses moderate. But we did, as you alluded to, we had some nice successful property tax appeals, which helped our EBITDA margins in 2022. And we will feel some pressure on expenses on the insurance line in 2023 that we will make our EBITDA margin expansion lower than our GOP expansion was or is in the year.

And then, follow-up question for Trey, what was the cost of the two swaps on the a $100 million debt pieces?

The rates there were 2.6% and 2.5% - 5.6 -.

Yes. But what was the actual cost of getting that transaction done?

Bill, this is Adam. Those are settled on a monthly basis going forward. There is no initial out-of-pocket.

Alright, very good. I appreciate it. Thanks, that is it for me.

[Operator Instructions] Our next question comes from Michael Bellisario with Baird. Your line is open.

Thanks, good morning guys. Just want to go back to the asset sales and dispositions. I guess if the six hotels do close on your expected timeline, how much EBITDA in 2023 might be sold for the remainder of the year?

Yeah, well some of that is going to depend on the timing of the sale. Mike, we have kind of outlined that we expect them to close in the second quarter. We will update our guidance at the time that they close. Our expectation on where we sit in the year is somewhere probably between $3 million and $5 million of reduction in EBITDA.

And then maybe this is served just on the margin or not margins, but on the margin. Just as these asset sales are completed, the pro forma remaining portfolio will RevPAR be benefited, will be diluted the growth that is and margins to what is kind of the growth impact in 2023 from these six asset sales?

Yes, it is relatively marginal, Mike. It is slightly accretive to both RevPAR growth and our margin expectations for 2023, not enough that I would expect us to materially change our guidance range as a result of these. Again, these are relatively smaller, as we mentioned, the prepared remarks, they run on average about 30% discounts to our nominal RevPAR levels. And again, we expect this to be accretive from a RevPAR growth perspective. The one thing I will just kind of point out and reemphasize again, is that part of the rationale for these sales is that we are -- while the per key prices aren’t as high as maybe you would expect the cap rates here are quite low. Combined with the asset sale in San Francisco last year, we are selling $155 million of assets at a three cap, and if you adjust for the deferred capital needs, it is sub 2%. And so one of the things that we like is it is going to allow us to continue to bolster the balance sheet without giving up a ton of in place earnings.

Yes. Understood. And then just one more, just thinking about the bottom portion of the portfolio. I guess maybe how many more 60,000 a key, or maybe it is $75,000 or $700,000 per key type of assets do you guys have left in the portfolio?

Yes. Look there is some, I mean, I think, there is always kind of a bottom 10% of your portfolio. Like we don’t have a ton of what I would describe as real non-core assets. I do think, we will try to continue to look opportunistically to sell assets. I think, the execution again on these six plus the sale on FFO last year represent a really, really compelling execution, particularly with where we think we -- and where and how we can redeploy those proceeds. And we have shown, again, I think, a really nice delta between the yields on what we have sold versus the yields on what we have acquired. And so, I think, you can expect us to continue to look opportunistically for asset sales as we go through 2023.

Got it. And then last one from me for Trey, probably just year-end net leverage, where did it stand, and then what would that have been on a pro forma basis if those six asset sales plus the land sale were completed at 12.31?

Yes. I think, if you look at our leverage, what I would say is that pro forma for the asset sales and the kind of $79 million that we anticipate bringing in from that standpoint and kind of what the midpoint of our guidance range is we are probably right around five times. That is obviously about a half a turn higher than where we -- what our target is. But I think it is good progress that we have made over the last year as we have kind of recycled out of some of these non-core assets as well as the EBITDA growth that we have seen.

Got it. Thanks everyone.

And I’m not showing any further questions this time. I would like turn the call back over to Jon Stanner, President and CEO for any closing remarks.

Yes. Well thank you all for joining us today. We are obviously very encouraged by our operating results for 2022. We are excited about the prospects for the acquisition activity that we completed in the year and we are optimistic about the future of Summit. We look forward to seeing many of you as we progress through the year. Thank you all again for joining. Have a good day.

Ladies and gentlemen, that is concludes today’s presentation. You may now disconnect and have a wonderful day.