Q1 2024 Summit Hotel Properties Inc Earnings Call

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Operator: Welcome to the Summit Hotel Properties 2024 First Quarter Earnings Conference Call. I will now be passing the line to Adam Wudel, Senior Vice President of Finance, Capital Markets, and Treasurer.

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Welcome to the Summit Hotel properties 2024 first quarter earnings Conference call.

I'll now be passing along to Adam <unk> Senior Vice President of Finance capital markets and Treasurer.

Adam Wudel: Thank you, Howard, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer John Stanner and Executive Vice President and Chief Financial Officer Trey Conkling.

Operator: Sure.

Adam Wudel: Thank you Howard and good morning, I am joined today by Summit Hotel properties, President and Chief Executive Officer, John Scanner, and Executive Vice President and Chief Financial Officer, Trey calculators.

Adam Wudel: Please note that many of our comments today are considered forward looking statements as defined by federal Securities laws.

Adam Wudel: These statements are subject to risks and uncertainties, both known and unknown as described in our SEC filings.

Adam Wudel: Forward looking statements that we make today are effective only as of today may <unk> 2024, and we undertake no duty to update them later.

Jonathan P. Stanner: 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 Dot SHP REIT Dotcom. Please welcome Summit Hotel properties, President and Chief Executive Officer, John Stanton.

Adam Wudel: Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. Such statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filing. Forward-looking statements that we make today are effective only as of today, May 2nd, 2024, 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.shpreet.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, John Stanner.

Jonathan P. Stanner: Thanks, Adam, and thank you all for joining us today for our first quarter 2024 earnings conference call. We were extremely pleased with our first quarter operating performance and financial results, as adjusted EBITDA RE increased 10% and adjusted FFO increased 14% compared to the first quarter of last year. Proforma ref bar increased 1.5% year over year and meaningfully outperformed the total U.S. lodging industry and upscale chain scale by 130 and 140 basis points, respectively.

William H. Conkling: Thanks, Adam and thank you all for joining us today for our first quarter 2024 earnings conference call.

Jonathan P. Stanner: We were extremely pleased with our first quarter operating performance and financial results as adjusted EBITDA increased 10% and adjusted <unk> increased 14% compared to the first quarter of last year.

Jonathan P. Stanner: Pro forma Revpar increased one 5% year over year and meaningfully outperformed the total U S lodging industry and upscale chain scale by $130 and 140 basis points respectively.

Jonathan P. Stanner: Our asset management team and operating partners did a terrific job managing expenses during the quarter, resulting in hotel EBITDA growth of 6% and margin expansion of over 80 basis points compared to the first quarter of last year. Yesterday, we announced the closing of three additional asset sales, an increase in our common dividend, and a revised 2024 guidance range that reflects our strong first quarter results and a constructive outlook for the remainder of the year.

Jonathan P. Stanner: Our asset management team and operating partners did a terrific job managing expenses during the quarter, resulting in hotel EBITDA growth of 6% and margin expansion of over 80 basis points compared to the first quarter of last year.

Jonathan P. Stanner: And yesterday, we announced the closing of three additional asset sales and increase in our common dividend and our revised 2024 guidance range that reflects our strong first quarter results and a constructive outlook for the remainder of the year.

Jonathan P. Stanner: On today's call, Trey and I will provide more details on our first quarter results and recent capital allocation activity, as well as highlight our longer-term view on the industry outlook and Summit's relative position. Fundamentals continued to improve across the company's portfolio in the first quarter, as our REVPAR growth was driven by a 3% increase in occupancy, predominantly concentrated in urban and suburban markets, which was partially offset by a 1.4% decrease in average rate versus the prior year, which was predominantly concentrated in outperforming leisure-oriented markets. Our roof part growth continues to be driven by weekday and urban demand, which increased approximately 4% and 3%, respectively, in the first quarter.

Jonathan P. Stanner: On today's call train I will provide more details on our first quarter results and recent capital allocation activities as well as highlight our longer term view on the industry outlook in summit's relative positioning.

Jonathan P. Stanner: More specifically, total portfolio REF bar on Mondays, Tuesdays, and Wednesdays increased by 5% year-over-year and a robust 7% when isolating those days of the week to the company's urban portfolio, further evidence of strong group business and the continuing recovery of corporate transient demand. As we discussed on our last call, we believe our portfolio is well-positioned for relative outperformance given our exposure to several urban markets that have been slower to recover. Five of those markets, in particular, the San Francisco Bay Area, New Orleans, Baltimore, Minneapolis, and Louisville, represented 19 of our own hotels in the first quarter that collectively finished 2023, approximately $25 million below 2019 hotel EBITDA levels on REVFAR, which was less than 80% recovered.

Jonathan P. Stanner: Fundamentals continued to improve across the company's portfolio in the first quarter as our Revpar growth was driven by a 3% increase in occupancy predominantly concentrated in urban and suburban markets, which was partially offset by a one 4% decrease in average rate versus the prior year, which was predominantly concentrated in outperforming.

Jonathan P. Stanner: Leisure oriented markets.

Jonathan P. Stanner: Our revpar growth continues to be driven by weekday and urban demand, which increased approximately 4% and 3% respectively in the first quarter.

Jonathan P. Stanner: More specifically total portfolio Revpar on Mondays, Tuesdays and Wednesdays increased by 5% year over year, and a robust 7% when isolating those days of the week the company's urban portfolio.

Jonathan P. Stanner: Further evidence of strong group business and the continuing recovery of corporate transient demand.

Jonathan P. Stanner: As we discussed on our last call. We believe our portfolio is well positioned for relative outperformance given our exposure to several urban markets that have been slower to recover.

Jonathan P. Stanner: Five of those markets in particular, the San Francisco Bay Area, You Orleans, Baltimore, Minneapolis and Louisville.

Jonathan P. Stanner: Represented 19 of our owned hotels in the first quarter that collectively finished 2023, approximately $25 million below 2019 hotel EBITDA levels on Revpar that was less than 80% recovered.

Jonathan P. Stanner: In the first quarter, these 19 hotels produced Rev-Par growth of 12% and Hotel Ibbittag growth of 44%, highlighted by 22% REF PAR growth in Baltimore and 16% REF PAR growth in both New Orleans and Minneapolis. Additionally, we are beginning to see the recovery of technology-related business travel in our Silicon Valley asset, which grew by over 40% during the quarter and nearly 30% after adjusting for renovation tailwinds created last year. Downtown San Francisco remains the lone pocket of weakness among this portfolio, though Rev Parr and our Doubletree in the life science-oriented Oyster Point submarket grew 7% in the quarter. Excluding our three San Francisco assets, RevPAR increased 17% in the remaining 16 hotels, and EBITDA increased nearly 60% year-over-year in the first quarter. The second quarter pace for these lagging markets remains strong.

Jonathan P. Stanner: In the first quarter. These 19 hotels produced revpar growth of 12% and hotel EBITDA growth of 44%.

Jonathan P. Stanner: Highlighted by 22% Revpar growth in Baltimore, and 16% Revpar growth in both New Orleans and Minneapolis.

Jonathan P. Stanner: Encouragingly, we are beginning to see the recovery of technology related business travel and our Silicon Valley asset, which grew revpar by over 40% during the quarter and nearly 30% after adjusting for renovation tailwind created last year.

Jonathan P. Stanner: Downtown San Francisco remains the loan pocket of weakness among this portfolio though.

Jonathan P. Stanner: <unk> at our Doubletree and the life science oriented Oyster point Submarket grew 7% in the quarter.

Jonathan P. Stanner: Excluding our three San Francisco assets, Revpar increased 17% and the remaining 16 hotels and EBITDA increased nearly 60% year over year in the first quarter.

Jonathan P. Stanner: Second quarter pace for these lagging markets remains strong and should continue to facilitate outsized growth in Revpar and hotel EBITDA for the company.

Jonathan P. Stanner: It should continue to facilitate outsized growth in RevPAR and Hotel Ibida for the company. The relative strength of our first quarter is further highlighted by significant market share gains across our portfolio. RevPAR index in the first quarter for the pro forma portfolio was 115%, an increase of 335 basis points, which was driven by occupancy share gains. Our portfolio's market share is approaching the highest levels ever achieved outside of the pandemic era.

Jonathan P. Stanner: The relative strength of our first quarter is further highlighted by significant market share gains across our portfolio.

Jonathan P. Stanner: Our Revpar index in the first quarter for the pro forma portfolio was 115% an increase of 335 basis points, which was driven by occupancy share gains.

Jonathan P. Stanner: Our portfolio's market share is approaching at the highest levels ever achieved outside of the pandemic era and on a trailing 12 month basis, we've seen our biggest gains come from resort airport in urban locations and from within the NCI portfolio.

Jonathan P. Stanner: And on a trailing 12-month basis, we've seen our biggest gains come from resort, airport, and urban locations, as well as from within the NCI portfolio. As we look to the second quarter, preliminary April REVPAR growth is expected to actualize around 4% and benefited from continued midweek strength, the Easter shift, and strong demand related to the solar eclipse in Dallas-Fort Worth, Austin, Indianapolis, and Cleveland. While booking pace for our portfolio remains short-term in nature, Revpart pace for May is encouraging and suggests that underlying demand trends remain stable heading into the peak summer travel month.

Jonathan P. Stanner: As we look at the second quarter preliminary April Revpar growth is expected to actual actual lives around 4% and benefited from continued mid week strength, the Easter shift and strong demand related to the solar eclipse and Dallas Fort Worth Austin, Indianapolis and Cleveland.

Jonathan P. Stanner: While booking pace for our portfolio remained short term in nature Revpar pace for May is encouraging and suggest that underlying demand trends remained stable heading into the peak summer travel months.

Jonathan P. Stanner: From a capital allocation standpoint, we continue to improve the overall quality of our portfolio and the health of our balance sheet, including the disposition of three additional hotels subsequent to quarter end. In April, we closed on the sale of two wholly owned hotels, a courtyard and Spring Hill Suites at the New Orleans Convention Center, totaling 410 guest rooms, for a gross sales price of $73 million.

Jonathan P. Stanner: From a capital allocation standpoint, we continue to improve the overall quality of our portfolio and health of our balance sheet, including the disposition of three additional hotels subsequent to quarter end.

Jonathan P. Stanner: In April we closed on the sale of two wholly owned hotels, a courtyard and Springhill suites at the New Orleans Convention Center totaling 410, Guestrooms for a gross sales price of $73 million.

Jonathan P. Stanner: The sale price represents a 6.7% capitalization rate on the estimated 2024 NOI, including foregone near-term capital expenditure requirements. While New Orleans is one of the lagging markets we have identified as augmenting our growth profile, post-asset sale, we still have ample exposure with six hotels in the market and believe our remaining assets are better located and have fewer near-term capital needs. We also sold one non-core hotel in the GIC venture, the 119 guest room Hilton Garden Inn Cod Station for $11 million at an all-in cap rate of less than 8% on estimated 2024 NOI.

Jonathan P. Stanner: The sales price represents a six 7% capitalization rate on the estimated 2020 for NOI, including foregone near term capital expenditure requirements.

Jonathan P. Stanner: While New Orleans is one of the lagging markets, we have identified as augmenting our growth profile post asset sales, we still have ample exposure with six hotels in the market and believe our remaining assets are better located and have less near term capital needs.

Jonathan P. Stanner: We also sold one non core hotel in the GIC venture to 119, Guestroom Hilton Garden in College station for $11 million at an all in cap rate of less than 8% on estimated 2020 for NOI.

Jonathan P. Stanner: In total, over the last 12 months, we have sold nine hotels for a combined $131 million at a blended capitalization rate of approximately 5%, inclusive of approximately $44 million of foregone capital, based on the estimated trailing 12-month NOI at the time of each sale. The combined REVPAR for these hotels was approximately $87, which is nearly a 30% discount to the pro forma portfolio.

Jonathan P. Stanner: In total over the last 12 months, we have sold nine hotels for a combined $131 million.

Jonathan P. Stanner: At a blended capitalization rate of approximately 5% inclusive of approximately $44 million of foregone capital needs.

Jonathan P. Stanner: Based on the estimated trailing 12 month NOI at the time of each sale.

Jonathan P. Stanner: The combined Revpar for these hotels was approximately $87, which is nearly a 30% discount to the pro forma portfolio.

Jonathan P. Stanner: Our disposition efforts have facilitated nearly a full-term reduction in our net debt-to-EBITDA ratio, enhanced the quality and growth profile of our portfolio, and significantly reduced near-term CapEx requirements. Last night, we announced that our Board of Directors approved a $0.02 per share increase in the Common Dividend on a quarterly basis to $0.08 per share, or $0.32 per share on an annualized basis, which represents a 33% increase. The dividend increase is consistent with our strategy of prioritizing returning capital to shareholders and reflects our constructive outlook for our business and the stability of those cash flows.

Jonathan P. Stanner: Our disposition efforts have facilitated nearly a full turn reduction in our net debt to EBITDA ratio.

Jonathan P. Stanner: Enhance the quality and growth profile of our portfolio and significantly reduced near term capex requirements.

Jonathan P. Stanner: Last night, we announced that our board of directors approved <unk> <unk> per share increase in the common dividend on a quarterly basis to <unk> <unk> per share or <unk> 32 per share on an annualized basis, which represents a 33% increase.

Jonathan P. Stanner: The dividend increase is consistent with our strategy of prioritizing returning capital to shareholders and reflects our constructive outlook for our business and the stability of those cash flows.

Jonathan P. Stanner: Our approach to our dividend reinstatement and subsequent growth has been to set payouts at levels that allow for consistent and meaningful increases over time while maintaining a conservative payout ratio to absorb any unforeseen deterioration in demand. With this most recent increase, our dividend yield is approximately 5% based on the current share price. And our AFFO payout ratio increases to a modest 34% at the midpoint of our AFFO guidance range, which remains well below historical levels.

Jonathan P. Stanner: Our approach to our dividend reinstatement and subsequent growth has been to set payout at levels that allow for consistent and meaningful increases over time, while maintaining a conservative payout ratio to absorb any unforeseen deterioration in demand.

Jonathan P. Stanner: With this most recent increase our dividend yield is approximately 5% based on the current share price and our <unk> payout ratio increases to a modest 34% at the midpoint of our <unk> guidance range, which remains well below historical levels.

Jonathan P. Stanner: Finally, before I turn the call over to Trey, let me highlight a few observations about our industry and Summit's relative positioning that give us optimism for the future. While the recovery in travel demand post-pandemic has been uneven by both segment and market, we are beginning to see a more meaningful recovery in many of those segments and markets which have lagged and to which Summit has outsized exposures, namely urban markets and those with a heavier reliance on business travel.

Jonathan P. Stanner: Finally, before I turn the call over to Trey Let me highlight a few observations about our industry and some of its relative positioning that give us optimism for the future.

Jonathan P. Stanner: While the recovery in travel demand post pandemic has been uneven by both segment end market. We are beginning to see a more meaningful recovery in many of those segments and markets, which have lagged and which summit has outsized exposure to.

Jonathan P. Stanner: Namely urban markets and those with a heavier reliance on business travel.

Jonathan P. Stanner: We are also starting to benefit from a gradually easing labor environment, which we believe will facilitate margin changes more in line with historical norms, as utilization of contract labor declines and turnover abates. Combined with post-pandemic enhancements to the core select service operating model and an already superior margin profile, we believe the conditions for better relative future profitability growth exist. As has been well documented, supply growth in our industry is poised to remain subdued for an extended period of time, given elevated construction costs and tight development financing conditions.

Trey: We are also starting to benefit from a gradual easing labor environment, which we believe will facilitate margin changes more in line with historical norms as utilization of contract labor declines in turnover abates.

Jonathan P. Stanner: Combined with post pandemic enhancements to the core select service operating model and then already already superior margin profile, we believe the conditions for better relative future profitability growth exist.

Jonathan P. Stanner: And thats been well documented supply growth in our industry is poised to remain subdued for an extended period of time, given elevated construction cost and tight development financing conditions.

Jonathan P. Stanner: And finally, while macroeconomic growth is slowing in conjunction with tightening monetary policy, a deeper dive into recent trends suggests demand for services broadly and travel more specifically remains robust and enduring. Taken together, this all provides for a positive setup for longer-term hotel-level EBITDA growth. With that, I'll turn the call over to our CFO, Trey Conklin.

Jonathan P. Stanner: And finally, while macroeconomic growth is slowing in conjunction with tightening monetary policy.

Jonathan P. Stanner: Deeper dive into recent trends suggest demand for services broadly and travel more specifically remains robust and enduring.

William H. Conkling: Taken together this all provides for a positive setup for longer term hotel level EBITDA growth.

Jonathan P. Stanner: With that I'll turn the call over to our CFO Trey Conklin.

William H. Conkling: Thanks, John, and good morning, everyone. The first quarter of 2024 represented a continuation of 2023 trends. Growth within our portfolio was once again driven by the company's urban and suburban hotels, which each produced REVPAR increases of approximately 2.5% in the first quarter. Strengthening our Urban and Suburban Portfolios was driven by several of our key Sunbelt Markets, such as Dallas-Fort Worth, Orlando, Charlotte, and Houston, all of which continue to generate REVPAR growth meaningfully above the industry average.

William H. Conkling: Thanks, John and good morning, everyone at.

William H. Conkling: The first quarter of 2024 represented a continuation of 2023 trends.

William H. Conkling: Growth within our portfolio was once again, driven by the company's urban and suburban hotels, which each produced revpar increases of approximately two 5% in the first quarter.

William H. Conkling: Strengthen our urban and suburban portfolios was driven by several of our key sunbelt markets, such as Dallas Fort Worth Orlando, Charlotte and Houston, all of which continued to generate revpar growth meaningfully above the industry average.

William H. Conkling: As John mentioned, several of our lagging markets, such as the San Francisco Bay Area, Baltimore, Minneapolis, Louisville, and New Orleans, also experienced strong first quarters, with REVPAR increasing 12% on average. We expect continued outperformance in these lagging markets for the balance of the year.

William H. Conkling: As John mentioned several of our lagging markets such as the San Francisco Bay area, Baltimore, Minneapolis, Louisville, and New Orleans also experienced strong first quarters with revpar, increasing 12% in aggregate.

William H. Conkling: We expect continued outperformance in these lagging markets for the balance of the year.

William H. Conkling: In addition to the urban and suburban portfolios, our airport hotels were amongst our strongest performers, as first quarter REVPAR increased over 5% for this portfolio. From a national perspective, TSA statistics indicate air travel increased 6% in the first quarter of the year, and recent commentary from Delta, American, and other major carriers point towards accelerating corporate transient demand and a strong summer travel season. From a Summit perspective, airport hotel performance was driven by our five Grapevine hotels, where REVPAR increased 6.5% in the first quarter, benefiting from double-digit year-over-year passenger growth at Dallas-Fort Worth International Airport.

William H. Conkling: In addition to the urban and suburban portfolios. Our airport hotels were among amongst our strongest performers as first quarter Revpar increased over 5% for this portfolio.

William H. Conkling: From a national perspective, TSA statistics indicate air travel increased 6% in the first quarter of the year and recent commentary from Delta American and other major carriers point towards accelerating corporate transient demand and a strong summer travel season.

William H. Conkling: From the summit perspective Airport Hotel performance was driven by our five great size hotels, where revpar increased six 5% in the first quarter benefiting from double digit year over year passenger growth at Dallas Fort Worth International Airport.

William H. Conkling: In addition, our Courtyard and Residence Inn, Metairie, generated a first quarter rev part increase of 36% as a result of the recently completed renovation at the Courtyard and 5% year-over-year passenger growth at New Orleans Louis Armstrong International Airport. Although our resort portfolio declined modestly year over year in the first quarter, including a challenging Super Bowl comparison for our Phoenix hotels and several disrupted renovations, we are pleased with the continued strength in our resort market, where average rates and REVPAR remain 14% and 8% above pre-pandemic levels, respectively. We continue to invest in several of our resort hotels, such as the Embassy Suites Tucson, Hotel Indigo Asheville, and Courtyard Fort Lauderdale Beach, given the constructive long-term outlook for leisure demand.

William H. Conkling: In addition, our courtyard and residence Inn battery generated a first quarter Revpar increase of 36% as a result of the recently completed renovations at the courtyard at a 5% year over year passenger growth at New Orleans, Louis Armstrong International Airport.

William H. Conkling: Although our resort portfolio declined modestly year over year in the first quarter, including a challenging Super Bowl comparison for our Phoenix hotels and several disruptive renovations. We're pleased with the continued strength in our resort markets, where average rates and Revpar remained 14% and <unk>.

William H. Conkling: 8% above pre pandemic levels, respectively.

William H. Conkling: We continue to invest in several of our resort hotels, such as the embassy suites, Tucson Hotel, Indigo Asheville, and courtyard Fort Lauderdale Beach, given the constructive long term outlook for leisure demand.

William H. Conkling: From a segmentation perspective, group demand continues to serve as a key catalyst for the company, as first quarter group REVPAR increased in 40 of our 43 markets. In addition, group RevPAR increased across all location types except for our resort portfolio. For the quarter, full week group REVPAR increased over 3%, with weekday group REVPAR increasing approximately 4%. Other segments that demonstrated growth in the first quarter include negotiated discount and contract. The success of our revenue management strategy is perhaps best illustrated in the NCI portfolio, where group and negotiated REVPAR increased by 19% and 15%, respectively, as the operating strategies of those hotels have been reconfigured to take advantage of today's demand trends.

William H. Conkling: From a segmentation perspective group demand continues to serve as a key catalyst for the company as first quarter group Revpar increased in 40 of our 43 markets.

William H. Conkling: In addition group Revpar increased across all location types, except for our resort portfolio.

William H. Conkling: For the quarter full week group Revpar increased over 3% with weekday group group Revpar, increasing approximately 4%.

William H. Conkling: Other segments that demonstrated growth in the first quarter include negotiated discount and contract.

William H. Conkling: The success of our revenue management strategies is perhaps best illustrated in the NCI portfolio, where it group and negotiated revpar increased by 19% and 15% respectively. As the operating strategies of those hotels have been reconfigured to take advantage of today's demand trends.

William H. Conkling: In the first quarter, non-rooms revenue in the Proforma portfolio increased 8 percent, driven largely by midweek occupancy gains, as well as a shift in business mix towards group and corporate transient demand. While higher outlet utilization, as well as banquet and catering demand, resulted in a 3% year-over-year increase in food and beverage revenues, the ongoing benefit of favorable parking contract renegotiations and increased resort fee capture drove non-F&B revenue growth of 14% for the quarter.

William H. Conkling: In the first quarter non rooms revenue and the pro forma portfolio increased 8% driven largely by midweek occupancy gains as well as the shift in business mix towards group and corporate transient demand.

William H. Conkling: While higher outlet utilization as well as banquet and catering demand resulted in a 3% year over year increase in food and beverage revenues.

William H. Conkling: Ongoing benefit of favorable parking contracts renegotiate renegotiations and increased resort fee capture drove non F&B revenue growth of 14% for the quarter.

William H. Conkling: Once again, the new Crest image portfolio was an outperformer, generating 6% RevPAR growth in the quarter. As previously mentioned, group and negotiated demand were the primary drivers of top-line growth, further validation of our team's successful application of strategic sales.

William H. Conkling: Once again, the Newcrest image portfolio was an outperformer generating 6% revpar growth in the quarter.

William H. Conkling: As previously mentioned group and negotiated demand were the primary drivers of top line growth further validation of our team's successful application of strategic sales clusters.

William H. Conkling: As a result, the NCI Portfolio's market share increased 420 basis points compared to the first quarter of last year, driven primarily by games and auctions. The strength and top line performance within the NCI portfolio, coupled with slowing expense growth, resulted in Hotel Evita increasing approximately 12% and its margin expanding by more than 130 basis points in the first quarter. The operating expense environment continues to moderate, and our asset management team did a fantastic job during the first quarter, controlling costs and managing the middle of the P&L.

William H. Conkling: As a result, the NCI portfolio's market share increased 420 basis points compared to the first quarter of last year, driven primarily by gains in occupancy.

William H. Conkling: The strength in topline performance within the NCI portfolio, coupled with slowing expense growth resulted in hotel EBITDA, increasing approximately 12% and hotel EBITDA margin expansion of more than 130 basis points in the first quarter.

William H. Conkling: The operating expense environment continues to moderate.

William H. Conkling: Our asset management team did a fantastic job during the first quarter controlling costs and managing the middle of the P&L.

William H. Conkling: Total expenses increased 2.4% year-over-year, and combined with the increase in occupancy, cost per occupied room declined 1.6 percent from the prior year. From a labor expense perspective, we are experiencing moderating wage growth, reduced utilization of contract labor, and lower turnover. Relative to first quarter 2023, wages increased 2.5 percent, which is increasingly in line with historical norms. However, contract labor declined by 11% on a nominal basis and by 14% on a per-occupied room basis versus the prior year, respectively.

William H. Conkling: Total expenses increased two 4% year over year.

William H. Conkling: Bind with the increase in occupancy cost per occupied room declined one six from the prior year period.

William H. Conkling: From a labor labor expense perspective, we are experiencing moderating wage growth reduced utilization of contract labor and lower turnover.

William H. Conkling: Relative to first quarter 2023 wages increased two 5%, which is increasingly in line with historical norms.

William H. Conkling: Contract labor declined by 11% on a nominal basis and by 14% on a per occupied room basis versus the prior year respectively.

William H. Conkling: This represents the sixth consecutive quarter contract labor has declined on a per-occupied room basis. Today, contract labor comprises 12 percent of our total labor spend, down from 18 percent at its peak in 2022 but still meaningfully above pre-pandemic levels, suggesting additional room for improvement moving forward.

William H. Conkling: This represents the sixth consecutive quarter contract labor has declined on a per occupied room basis.

William H. Conkling: Today contract Labor comprises 12% of our total labor spend down from 18% at its peak in 2022, but still meaningfully above pre pandemic levels, suggesting additional room for improvement moving forward.

William H. Conkling: FTE count increased modestly during the quarter but continues to remain 15 to 20 percent below 2019 levels. A more constructive expense environment serves as a key driver to improving hotel even margin, which expanded year over year by nearly 90 basis points for our same store portfolio and over 80 basis points for our pro forma portfolio in the first quarter. Proforma Hotel Evita's revenue for the first quarter was $68.6 million, a 6% increase from the first quarter of last year. Same store, hotel, and even a flow-through for the quarter was approximately 62 percent, despite REVPAR growth that was entirely occupancy-driven.

William H. Conkling: FTE count increased modestly during the quarter.

William H. Conkling: <unk> two remains 15% to 20% below 2019 levels.

William H. Conkling: A more constructive expense environment serves as a key driver to improving hotel EBITDA margins, which expanded year over year by nearly 90 basis points for our same store portfolio and over 80 basis points for our pro forma portfolio in the first quarter.

William H. Conkling: Pro forma hotel EBITDA for the first quarter was $68 6 million.

William H. Conkling: A 6% increase from the first quarter of last year.

William H. Conkling: Same store hotel EBITDA flow through for the quarter was approximately 62%. Despite revpar growth that was entirely occupancy driven.

William H. Conkling: Notably, Hotel Evita increased in each of the company's wholly owned GIC joint venture and other joint venture portfolios. Adjusted EBITDA for the quarter was $48.8 million, a 10% increase compared to the first quarter of 2023. An adjusted FFO was $30 million, or $0.24 per share, a 14% increase versus the same period last year. From a capital expenditure standpoint, in the first quarter, we invested approximately $18 million in our portfolio on a consolidated basis and approximately $15 million on a pro rata basis. CapEx spend for the first quarter was driven by transformational renovations at our Hilton Garden Inn, Milpitas, Residence Inn, Hillsboro, Embassy Suites, Tucson, Courtyard, New Haven, and Hotel Indigo, Asheville.

William H. Conkling: Notably hotel EBITDA increased in each of the company's wholly owned GIC joint venture and other joint venture portfolios.

William H. Conkling: Adjusted EBITDA for the quarter was $48 8, million% to 10% increase compared to the first quarter of 2023, and adjusted <unk> was $30 million or 24 per share a 14% increase versus the same period last year.

William H. Conkling: From a capital expenditure standpoint in the first quarter, we invested approximately $18 million in our portfolio on a consolidated basis.

William H. Conkling: Approximately $15 million on a pro rata basis.

William H. Conkling: Capex spend for the first quarter was driven by transformational renovations at our Hilton Garden in Milpitas residents in Hillsboro, and the C suites, Tucson courtyard, New Haven and hotel Indigo Asheville.

William H. Conkling: We continue to ensure that the quality and relative age of our portfolio position the company to drive profitability and marketing. Turning to the balance sheet, the net proceeds from the New Orleans and College Station asset sales were used to repay the $55 million balance outstanding on the company's corporate credit facility as of March 31, and to reduce the balance of the NCI term loan from $402 million at March 31st to $396 million today.

William H. Conkling: We continue to ensure the quality and relative age of our portfolio positions the company to drive profitability and market share.

William H. Conkling: Turning to the balance sheet. The net proceeds from the New Orleans and College station asset sales were used to repay the $55 million balance outstanding on the company's corporate credit facility as of March 31.

William H. Conkling: To reduce the balance of the NCI term loan from $402 million at March $31 million to $396 million today.

William H. Conkling: As John mentioned, our net debt to EBITDA has declined by nearly one turn over the past year, driven by accretive non-core asset sales and continued growth in Hotel EBITDA. In January, we entered into a $100 million interest rate swap, fixing one month's term SOFR at 3.765% for debt within our GIC joint venture. This swap, which is 150 basis points below the current SOFR rate, becomes effective in October of 2024 and expires in January of 2026.

William H. Conkling: As John mentioned, our net debt to EBITDA has declined by nearly one turn over the past year, driven by accretive noncore asset sales and continued growth in hotel EBITDA.

William H. Conkling: In January we entered into a $100 million interest rate swap fixing one months terms sulfur as three 765% for that within our GIC joint venture.

William H. Conkling: This swap, which is 150 basis points below the current sofa rate becomes effective in October of 2024 and expires in January of 2026.

William H. Conkling: Today, the net asset position of our swap portfolio is approximately $20 million. As a result of our interest rate management efforts, our balance sheet is well positioned, with an average pro rata interest rate of 4.7 percent and approximately 77% of our pro rata share of debt fixed after consideration of interest rate swaps. When accounting for the company's Series E, F, and Z preferred equity within our capital structure, we are approximately 80% with no significant maturities until 2026, a fully extended average length of maturity of nearly 3.5 years, and an overall liquidity position of approximately $370 million.

William H. Conkling: Today, the net asset position of our swap portfolio is approximately $20 million.

William H. Conkling: As a result of our interest rate management efforts, our balance sheet is well positioned with an average pro rata interest rate of four 7%.

William H. Conkling: And approximately 77% of our pro rata share of debt fixed after consideration of interest rate swaps.

William H. Conkling: When accounting for the Companys series E S Z preferred equity within our capital structure, where approximately 80% fixed.

William H. Conkling: With no significant maturities until 2026, a fully extended average life to maturity of nearly three five years and an overall liquidity position of approximately $370 million.

William H. Conkling: We believe the company is well positioned to achieve its growth objective. On May 1st, our Board of Directors declared a quarterly common dividend of $0.08 per share, representing a 33% increase from the previous quarter. The resulting annualized dividend of $0.32 per share represents a dividend yield of approximately 5%. The increased dividend continues to represent a prudent AFFO payout ratio, leaving ample room for potential increases over time. Assuming no material changes to the current operating environment.

William H. Conkling: We believe the company is well positioned to achieve its growth objectives.

William H. Conkling: On May one our board of directors declared a quarterly common dividend of <unk> <unk> per share.

William H. Conkling: Representing a 33% increase from the previous quarter.

William H. Conkling: The resulting annualized dividend of <unk> 32 per share represents a dividend yield of approximately 5%.

William H. Conkling: The increased dividend continues to represent a prudent <unk> payout ratio, leaving ample room for potential increases over time, assuming no material changes to the current operating environment.

William H. Conkling: The company continues to prioritize striking an appropriate balance between returning capital to shareholders, reducing corporate leverage, and maintaining liquidity for future growth opportunities. In our press release last evening, we updated our full year guidance for 2024 operational metrics, as well as certain non-operating items, following our April transaction activity. This outlook is based on management's current view and does not account for any unexpected changes to the current operating environment.

William H. Conkling: The company continues to prioritize striking an appropriate balance between returning capital to shareholders, reducing corporate leverage and maintaining liquidity for future growth opportunities.

William H. Conkling: Included in our press release last evening, we updated our full year guidance for 2024 operational metrics as well as certain non operational items.

William H. Conkling: Following our April transaction activity.

William H. Conkling: This outlook is based on management's current view and does not account for any unexpected changes to the current operating environment.

William H. Conkling: Nor does it include any future transaction or capital markets activity. Based on the company's first quarter operating results, as well as our future outlets, we are reiterating full year guidance for REV PAR growth of 2% to 4%. Additionally, we are maintaining our adjusted EBITDA range of $188 million to $200 million, despite foregone hotel EBITDA of approximately $4 million through the balance of 2024 due to April 3 asset sales. This further reflects the strength of our first quarter operating results.

William H. Conkling: Nor does it include any future transaction or capital markets activity.

William H. Conkling: Based on the Companys first quarter operating results as well as our future outlook. We are reiterating full year guidance for revpar growth of 2% to 4%.

William H. Conkling: We are maintaining our adjusted EBITDA range of $188 million to $200 million.

William H. Conkling: Despite foregone hotel EBITDA of approximately $4 million through the balance of 2024 due to April three asset sales.

William H. Conkling: This further reflects the strength of our first quarter operating results.

William H. Conkling: Furthermore, we are also maintaining our adjusted FFO range of $0.90 per share to $1 per share, despite the foregone hotel EBITDA from assets. At the midpoint of our REVPAR guidance range, we would expect hotel EBITDA margins to contract approximately 50 basis points year over year. This implies a 25 basis point improvement over the margin guidance provided in February 2024.

William H. Conkling: Furthermore, we are also maintaining our adjusted <unk> range of <unk> 90 per share to $1 per share. Despite the foregone hotel EBITDA from asset sales.

William H. Conkling: At the midpoint of our Revpar guidance range, we would expect hotel EBITDA margins to contract approximately 50 basis points year over year.

William H. Conkling: This implies a 25 basis point improvement to the margin guidance provided in February 2024.

William H. Conkling: We expect pro-rata interest expense, excluding the amortization of deferred financing, to be approximately $55 million to $60 million, and Series E and Series F preferred dividends to be $15.9 million. Series E preferred distributions to be $2.6 million, and pro-rata capital expenditures to range from $65 million to $85 million. As previously mentioned, given the increased size of the GIC joint venture... The fee income payable to Summit now covers nearly 15% of annual cash corporate G&A expenses, excluding any promotion distributions Summit may earn during the year. And with that, we'll open the call to your

William H. Conkling: We expect pro rata interest expense, excluding the amortization of deferred financing costs to be approximately 55 million to $60 million series E and series F preferred dividends to be $15 $9 million series Z preferred distributions to be $2 6 billion and pro rata capital.

William H. Conkling: Expenditures to range from 65 million to $85 million.

William H. Conkling: As previously mentioned given the increased size of the GIC joint venture with <unk>.

William H. Conkling: Fee income payable to southern now covers nearly 15% of annual cash corporate G&A expense, excluding any promote distributions summit they earned during the year.

Speaker Change: With that we'll open the call to your questions.

Operator: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star 1 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 1 1 again. Once more, if you have a question or comment at this time, please press star 1 1 on your telephone keypad. Please stand by while we compile the Q&A roster. And our first question or comment comes from the line of Austin Wurschmidt from Key Bank Capital Markets. Mr. Wurschmidt, your line is open.

Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue simply press star one again.

Operator: Just wondering if you have a question or comment at this time. Please press star one on your telephone keypad. Please standby, while we compile the Q&A roster.

Austin Todd Wurschmidt: And our first question or comment comes from the line of Austin or shrink from Keybanc capital markets. Your line is open.

Austin Todd Wurschmidt: Great, thanks. Good morning, guys. John, you flagged the strength of your expansion markets in your prepared remarks, which I believe account for around 20% of hotels. And I was wondering if you could break out what RevPart growth you're assuming this year for these higher growth markets that have lagged in the recovery versus the balance of the portfolio, driven type business.

Austin Todd Wurschmidt: Great. Thanks, Good morning, guys.

Austin Todd Wurschmidt: John you flagged the strength of your expansion markets in your prepared remarks, which I believe account for around 20% of hotels and I was wondering if you could break out what revpar growth you're assuming this year for these expansion kind of higher growth markets that have lagged in the recovery versus the balance of the portfolio and how much.

Austin Todd Wurschmidt: This growth that you're seeing do you think is <unk>.

Austin Todd Wurschmidt: Sustainable demand versus more one time benefits to the markets event.

Austin Todd Wurschmidt: Driven type business.

Jonathan P. Stanner: Yeah, thanks, and good morning, Austin. Look, obviously, we had a really strong first quarter in these kind of lagging markets and these growth markets. We expect that to continue for the year. We haven't provided a specific breakout for the market, but I think on a full year basis, these will be several hundred basis points of incremental growth above and beyond what we see in the quarter. The portfolio grew 12% for the quarter this year versus the full portfolio, sorry, for the quarter versus the full portfolio at one and a half percent.

John: Yes, thanks, and good morning Austin.

Austin Todd Wurschmidt: We do obviously, we had a really strong first quarter in these kind of lagging markets. In these growth markets. We expect that to continue for the year. We haven't provided a specific breakout for the market, but I think on a full year basis there'll be several 100 basis points of incremental growth above and beyond what we see in the quarter that portfolio grew 12% for the quarter.

Jonathan P. Stanner: This year versus the full portfolio and sorry for the quarter versus the full portfolio of one 5% our expectation for the second quarter is similar we think that will have.

Jonathan P. Stanner: Our expectation for the second quarter is similar. We think that we'll have strong growth, probably closer to double-digit growth on a blended basis in these markets. Markets like Louisville, where there is the 150th running of the Kentucky Derby this week, and it hosts the PGA Championship at Valhalla later in the month.

Jonathan P. Stanner: Strong growth probably closer to double digit growth on a blended basis in these markets.

Jonathan P. Stanner: Markets like Louisville, where theres the 150 at the running of the Kentucky Derby. This weekend and host the PGA Championship at Valhalla later in the month.

Jonathan P. Stanner: The signs and our pace in Minneapolis, Baltimore, even Milpitas and Silicon Valley all continue to be very positive. So we don't look at this as kind of a one-time event in the first quarter. We think we'll see similar outperformance in the second quarter. And again, this should really enhance our growth profile for the full year.

Jonathan P. Stanner: The science and our pace in Minneapolis, Baltimore, even in Milpitas in Silicon Valley, all continue to be very positive. So we.

Jonathan P. Stanner: We don't look at this as kind of a onetime event in the first quarter. We think we'll see similar outperformance in the second quarter and again this should really enhance our growth profile for the full year.

Jonathan P. Stanner: So when you kind of take the other side and look at maybe what's weighing in, I guess you know where you are seeing the softest pieces and what segments or markets give you a little bit of pause when you look at the pace kind of up at the other end of the range?

Jonathan P. Stanner: So when you kind of take the other side and look at maybe what's what's weighing I guess.

Jonathan P. Stanner: Where are you seeing I guess, the softness pieces and what segments or markets give you a little bit of pause when you look at pace.

Jonathan P. Stanner: Kind of at the other end of the range.

Jonathan P. Stanner: Yeah, you know, in the first quarter, it was mostly around some leisure-related markets that had ADR declines. I think demand is still solid in the vast majority of those markets, but we did see some softness on the rate side. For us, we have a couple markets in this, a couple assets in ski markets where we just didn't have as strong of a snow season as we did last year. So we were down, you know, close to double digits in Silverthorne and Steamboat, for example, for the quarter.

Speaker Change: Yeah, you know in the first quarter.

Jonathan P. Stanner: It was mostly around some leisure related markets that had had ADR declines I think demand is still solid and the vast majority of those markets, but we did see some softness on the rate side for US we have a couple of markets in a couple of assets in the ski markets, where we just didn't have as strong of a snow season as we did last.

Jonathan P. Stanner: Last year, So we were down close to double digits in Silverthorne Steamboat for example for for the quarter I don't look at that as any type of systemic demand issue I think that more than anything you had very difficult comps year over year and I think as you get into the second and third quarter ended this more peak summer travel season, Youll see a norm.

Jonathan P. Stanner: I don't look at that as any type of systemic demand issue. I think that more than anything, you had very difficult comps year over year, and I think as you get into the second and third quarters, into this more peach summer travel season, you'll see a normalization of those rate patterns. When I look at our expectations and our pace for Q2 and into Q3, and we don't have the most visibility in our quarter, but when I look out into May and June, our pace statistics are, one, very positive, and two, are encouragingly, very broad-based. The vast majority of our markets are showing positive pace outlooks for the quarter in particular.

Jonathan P. Stanner: Amortization of those rate patterns, and when I look at our expectations and our pace for Q2 and into Q3, and we don't have the most visibility in our quarter, but when I look out into May and June our pace statistics Warner very positive into is encouragingly, it's very broad based on the vast majority of our markets are showing positive.

Jonathan P. Stanner: Pes outlooks.

Jonathan P. Stanner: This quarter in particular.

Austin Todd Wurschmidt: Yeah, that's all helpful. And maybe just one on the balance sheet.

Speaker Change: Yes, that's all helpful and maybe just one on the balance sheet you guys have clearly made a lot of progress you alluded to kind of the dividend increase and signaling.

Austin Todd Wurschmidt: That that that provides I guess.

Austin Todd Wurschmidt: Leverage still remains above your long term targets, what sort of next steps to kind of further decreased leverage towards your longer term targets, especially financing markets continue to remain challenging.

William H. Conkling: You guys have clearly made a lot of progress. You alluded to kind of the dividend increase and signaling, you know, that that that that that provides, I guess, leverage still remains above your long-term targets. What sort of next steps to kind of further decrease leverage towards your longer-term targets, you know, especially if financing markets continue to remain challenging?

William H. Conkling: Hey Austin, it's Trey. I would say one thing as we, you know, look at the financing markets. Obviously, we're pleased with the fact that we don't really have any near-term maturities until 2026, and we're effectively kind of hedged at 80%, so that part feels good. As we look to de-lever the balance sheet, I think what we'll do is we'll be very opportunistic around it, which, you know, could potentially be select asset sales over time to the extent that they're accretive and similar to what John had talked about before, but really, I think it comes in the form of a rebound in Hotel Ibida and some of these lagging markets. And so to the extent that you see, you know, these five markets that John had highlighted continue to come back, Hotel Ibida will solve a lot of problems.

William H. Conkling: Hey, Allison, it's Trey I would say one thing as we you look at the financing markets. Obviously, we're pleased with the fact that we don't really have any near term maturities until 2026, and we're effectively kind of hedged at 80%. So that part feels good as we look to delever the balance sheet I think what we'll do is we'll be very opportunistic around it which.

William H. Conkling: It could potentially be select asset sales over time to the extent that they are accretive and similar to what John had talked about before but really I think it comes in a Florida have a rebound.

William H. Conkling: In hotel EBITDA in some of these lagging markets so to the extent that you see.

William H. Conkling: These five markets as John has highlighted to continue to come back.

William H. Conkling: Kelly will solve a lot of a lot of those issues today I think with the asset sales that we announced this quarter a delever the balance sheet, probably another quarter turn so were down close to five times.

William H. Conkling: Incremental movement down into four is probably comes from just improved operations through the balance of the year.

Jonathan P. Stanner: All right. Yeah. Allison, John, maybe just to add a little bit of additional color there.

William H. Conkling: John maybe just to add a little bit of additional color. There I think as Trey alluded to and we talked about this in the prepared remarks. So we've sold nine assets, we've sold over $130 million of assets and we've been I think really strategic around how we've done it and enable to find opportunities to sell assets to at relatively low cap rates we havent.

Jonathan P. Stanner: I think, as Trey alluded to, and we talked about this in the prepared remarks, we've sold nine assets. We've sold over $130 million in assets.

Jonathan P. Stanner: Even up much cash flow in doing that and we felt like taking this very targeted more tactical approach to it ultimately lead to better results and just kind of a rip the band aid and sell a large portfolio in an environment, where it's still very difficult to get transactions done, particularly larger transactions that need a bigger financing check.

Austin Todd Wurschmidt: Understood. Thanks, John. Thanks, Trey.

Jonathan P. Stanner: Understood. Thanks, John Thanks, Jay.

Operator: Thank you. Our next question or comment comes from the line of Bill Crow from Raymond, Jr. Mr. Crow, your line is now open.

Jonathan P. Stanner: Thanks Neil.

Speaker Change: Our next question or comment comes from the line of Bill Crow from Raymond James.

Speaker Change: Mr. <unk>. Your line is now open.

William Andrew Crow: Great. Thank you. Good morning, guys.

Speaker Change: Great. Thank you good morning, guys.

Jonathan P. Stanner: I'm looking for a little bit of color on any incremental demand changes you're seeing on, say, Monday and Thursday nights. Are business travelers extending their trips at all at this juncture? Are we still waiting for a return to the office? And I guess the second part of that would be additional color on what you're seeing on the weekend. Certainly, there's a growing concern that consumer spending might be weakening, especially at the lower end, but perhaps, and maybe Starbucks is evidence of it, perhaps moving up the income scale a little bit. What are your weekends telling you, guys?

William Andrew Crow: I'm looking for a little bit of color any incremental demand changes youre seeing that Monday, and Thursday nights are business travelers extending their trips at all.

Jonathan P. Stanner: At this juncture, we still waiting for a return to office and then I guess the.

Jonathan P. Stanner: The second part of that would be.

Jonathan P. Stanner: Additional color on what Youre seeing that we can certainly there is a growing concern that consumer spending might be weakening, especially at the lower end, but but perhaps and maybe Starbucks is evidence of it perhaps moving up the income scale a little bit what are you what are you.

Jonathan P. Stanner: Your weekends, telling you guys.

Jonathan P. Stanner: Yeah, sure. Thanks, Bill. Good morning. You know, from a day to day perspective, as we said, we're seeing the best growth on Monday, Tuesday, and Wednesday. It's where our occupancy has frankly lagged the most relative to pre-pandemic levels, so it's where we would expect to see it.

Speaker Change: Yes, sure Thanks, Bill and good morning I.

Jonathan P. Stanner: I think from a day of week perspective, as we said, we're seeing the best growth Monday, Tuesday, and Wednesday, it's where our occupancy has frankly lagged the most relative to pre pandemic levels. So it's where we would expect to see it and again, it's driven by the urban portfolio and I do think it reflects the strength the relative strength of group demand in this kind of ever.

Jonathan P. Stanner: And again, it's driven by the urban portfolio. And I do think it reflects the strength, the relative strength of group demand in this kind of ever-grinding higher in business transient travel. Our best day of the week this quarter was Monday night, actually. And I think if you go back and listen to our commentary in previous quarters, we talked about the compression of midweek demand on the BT side into Tuesdays and Wednesday nights.

Jonathan P. Stanner: Grind higher in business transient travel our best day of the week. This.

Jonathan P. Stanner: This quarter was Monday night, actually and I think if you go back and listen to kind of our commentary in previous quarters, we talked about the compression of midweek demand on the BT side into Tuesday, and Wednesday nights, we are starting to see that bleed into Monday nights to some extent in particular in the first quarter and so I think look the trends are coming off.

Jonathan P. Stanner: We are starting to see that bleed into Monday nights to some extent, in particular, in the first quarter. And so I think, look, the trends are coming off of obviously a lower baseline from a BT perspective, midweek from an urban perspective, but that is where we continue to see the vast majority of our growth. I do expect that to continue at least through the second quarter and likely through the balance of the year.

Jonathan P. Stanner: Obviously, a lower baseline from a BT perspective, mid weakening urban perspective, but that is where we continue to see the vast majority of our growth.

Jonathan P. Stanner: As I mentioned, our pace stats look very, very strong, particularly in May, but really as we even look out into June and the full second quarter. I will say that our pace stats are better midweek than they are on the weekends, but they're still positive on the weekends, and rates are still positive year over year from a pace perspective.

Jonathan P. Stanner: Do you expect that to continue at least through the second quarter and likely through the balance of the year as I mentioned, our pace stats look very very strong, particularly in may but really as we even look out into June and into the.

Jonathan P. Stanner: Full second quarter.

Jonathan P. Stanner: We'll say that.

Jonathan P. Stanner: Our pace to takes a statistics are better midweek than they are on the weekends, but theyre still positive on the weekends and rates are still positive year over year from a pace perspective.

Jonathan P. Stanner: So do you see any weakening from a consumer front on weekends? I mean, you said the pace is better during the weekday, but is that really the case? Should there be real concerns about the consumer and maybe change?

Jonathan P. Stanner: So do you see any weakening from a consumer front.

Speaker Change: <unk> you.

Jonathan P. Stanner: You said the pace is better than the weekday but but is there a real should there be real concerns about the consumer may be changing spending habits.

Jonathan P. Stanner: You know, I don't think we've seen a whole lot of evidence to suggest that people are cutting back on leisure travel. I think a lot of the rate, you know, what we describe as rate softness has every bit as much to do with how strong rates have been in 2022 and in the first quarter of 2023. And I do think you'll see some of that normalization play out over the summer. I know there's a lot of concern around general consumer spending.

Jonathan P. Stanner: I don't think we've seen a whole lot of evidence to suggest that people are cutting back on leisure travel I think a lot of the right. What we describe as rate softness has every bit as much to do with how strong rates have been in 2022% in the first quarter of 2023, and I do think youll see some of that normalization.

Jonathan P. Stanner: Lay out over the summer I know Theres a lot of concern around general consumer spending I know, we've all seen.

Jonathan P. Stanner: I know we've all seen the performance of kind of the lower end of the chain scales in the industry. We just haven't seen that really play out in our markets. To the extent that we've seen softness, it's been more rate-oriented, and I think it's been more oriented in our ski markets, where we just didn't have the same strength of a snow season as we did last year. I don't think we're going to have the same ability to drive these enormous rate gains that we saw, you know, particularly in 2022.

Jonathan P. Stanner: The performance of kind of the lower end of the chain scales in the industry. We just haven't seen that really play out in our in our markets to the extent that we've seen softness it's been more rate oriented and I think it's been more oriented in our in our ski markets, where we just didn't have the same strength of snow season as we did.

Jonathan P. Stanner: Last year I don't think were going to have the same ability to drive these enormous rate gains that we saw particularly in 2022, but the pace data again looks look stable. We've tried to be forward leaning on this knowing that in some of these markets will try to build some level of group base demand in these assets to help drive incremental.

Jonathan P. Stanner: But the pace data, again, looks stable. We've tried to be forward-leaning on this, knowing that in some of these markets, we'll try to build some level of group-based demand in these assets to help drive incremental pricing on the retail customer.

Jonathan P. Stanner: Pricing on the retail customer.

William Andrew Crow: Great. I'm gonna apologize because I'm gonna ask one more question here. On asset sales, I'm curious whether you're marketing any additional assets for sale and how you're thinking about balancing the sale properties that are in the wholly owned portfolio versus those that are in the GIC portfolio.

Speaker Change: Great I'm going to apologize because I'm going to ask one more question here.

Speaker Change: On the asset sales I'm curious, whether you're marketing any additional assets for sale and how you're thinking about balancing the sale of properties that are in the wholly owned portfolio versus those that are in the GIC portfolio and thats. It from me. Thanks.

Jonathan P. Stanner: And that's it for me. Thanks. Yeah, thank you, Bill.

Jonathan P. Stanner: Yeah, thanks, Bill. You know, I would say we've tried to be very opportunistic, as I kind of said to Austin, around asset sales. We've targeted assets that have been lower-rev-par assets, those assets that had larger capex needs that we could sell most efficiently in a market where, as I said earlier, it's still difficult to sell bigger, chunkier types of assets. You know, New Orleans was the exception to that.

Speaker Change: Yes, Thanks Bill.

Speaker Change: I would say we've been we've tried to be very opportunistic as I kind of said to Austin around asset sales. We've targeted assets that are have been lower revpar assets those assets that had larger capex needs.

Jonathan P. Stanner: That we could sell to most efficiently in a market where as I said earlier, it's still difficult to sell bigger Chunkier type of assets you know New Orleans was the exception to that I.

Jonathan P. Stanner: I would say that we'll continue to be thoughtful and opportunistic around asset sales. We'd like to continue to do it in a similar way that we did it before, where it's very targeted. It's very focused on finding, oftentimes, the local owner-operator that's willing to pay a little bit extra, that may price things on a per-pound or a per-key basis, and those are a little less focused on in-place NOI. And so there have been a few asset sales.

Jonathan P. Stanner: I would say that we will continue to be thoughtful and opportunistic around asset sales.

Jonathan P. Stanner: We'd like to continue to do it in a similar way that we've done it before where it's very targeted.

Jonathan P. Stanner: Very focused on finding oftentimes the local owner operator that is willing to pay a little bit extra that may price things on a per pound or a per key basis and it was a little less focused on in place NOI and so there have been a few asset sales. We've sold a couple of assets out of the GIC venture both of those assets were assets that were.

Jonathan P. Stanner: We sold a couple of assets out of the GIC venture. Both of those assets were assets that were part of the NCI transaction that we identified when we did the transaction as being non-long-term holds, non-core assets that we were going to try to sell prior to doing a renovation. And so if there's been one kind of consistent theme to what we've sold, it's been assets that we're ultimately going to need a fairly large capital infusion from a renovation perspective, where we just felt like our capital was better deployed elsewhere. And I would expect that to continue to be a large driver of our capital allocation thesis going forward.

Jonathan P. Stanner: Part of the NCI transaction that we identified when we did the transaction as being non long term holds noncore assets that we were going to try to sell prior to doing a renovation and so if there's been one kind of consistent theme to what we saw that's been assets that we're ultimately going to need a fairly large capital infusion from a renovation perspective, where we just fell.

Jonathan P. Stanner: Like our capital is better deployed elsewhere and I would expect that to continue to be a large driver of our of our capital allocation thesis going forward.

Speaker Change: Thank you great. Thank you.

Operator: Our next question or comment comes from the line of Chris Woronka from Deutsche Bank. Mr. Woronka, your line is now open.

Jonathan P. Stanner: Our next question or comment comes from the line of Chris <unk> from Deutsche Bank, where Rocca. Your line is now open.

Chris Jon Woronka: Okay, thanks. Hey, good morning, guys. I jumped on a little late, so I apologize if there's any repeat questions. I guess the first topic was kind of costs and really on labor. We read the headlines. I think yesterday there were some actions in some cities. How much visibility do you guys think you have on costs, really on labor, as you look out for the balance of the year? And as you look back on the first quarter or even last year, were there any intra-quarter, intra-year surprises, whether it was market-specific, where you had to bring wages up or something like that? Just any comments you can give us on your outlook for that would be great. Thanks.

Jonathan P. Stanner: Yeah.

Jonathan P. Stanner: Okay.

Chris Jon Woronka: Hey, good morning, guys.

Chris Jon Woronka: I jumped on a little late so apologize if there is any.

Chris Jon Woronka: Repeat question.

Chris Jon Woronka: I guess the first the first half it was kind of on costs and really on labor, we read headlines I think yesterday there were.

Chris Jon Woronka: Some actions in some cities how much visibility you guys think you have on cost I really on labor as you look out for the balance of the year I mean, and as you look back in the first quarter or even last year I mean were there any.

Chris Jon Woronka: <unk> quarter entry year surprises, where whether it was market specific where you have to bring bring wages up or something like that just any comments you can give us on your on your outlook for that thanks.

William H. Conkling: Hey Chris, it's Trey. I guess what I'll do is I'll comment a little bit on the trends that we've seen in the expense profile of the business as we've kind of gone through the past half year. If you look at the second half of last year, I think our operating expenses were up, you know, 4% in the third quarter and the fourth quarter. But if you look at that on a cost per occupied room basis, they were up kind of one and a half percent.

Troy: Hey, Chris It's try I guess, what I'll do is I'll comment a little bit on the trends that we've seen in the expense profile of the business as we've kind of gone through the past half year. If you look to the second half of last year I think our operating expenses were up 4% in the third quarter and the fourth quarter. If you look at that on a.

William H. Conkling: If you fast forward to the first quarter here, operating expenses were up about two and a half percent and cost per occupied room was down 1.6%. You know, the first quarter represented the sixth consecutive quarter of cost per occupied room declining, or I'm sorry, on contract labor declining. And contract labor, I think, is the biggest, you know, variable that we've seen in how our expenses are evolving as we go forward here.

William H. Conkling: Cost per occupied room, they were up to one 5%. If you fast forward to the first quarter here operating expenses were up about two 5% in cost per occupied room were down one 6%.

William H. Conkling: First quarter represented the sixth consecutive quarter of cost structure.

William H. Conkling: Declining or im sorry on contract labor declining in contract Labor I think is the biggest.

William H. Conkling: Variable that we've seen and how our expenses as our expenses are evolving as we're going forward here and so continuing to have progress on the contract labor front is something that we've seen and something that we hope will persist through the balance of the year I think the thing that's not talked about quite as much is turnover in the business and I would say that.

William H. Conkling: And so continuing to have progress on the contract labor front is something that we've seen and something that we hope will persist through the balance of the year. I think the thing that's not talked about quite as much is turnover in the business, and I would say that turnover, you know, in the last year, if you look at kind of 2022-2023, was probably two times as high as it was pre-pandemic, and now turnover this quarter versus the previous first quarter of 2023 was down about 20%.

William H. Conkling: Turnover.

William H. Conkling: In the last year, if you look to kind of 2022 2023 was probably two times as high as it was pre pandemic and now I'll turn it over this quarter versus the previous.

William H. Conkling: First quarter of 2023 was down about 20% to the so to the extent the turnover continues to moderate that as significantly beneficial to us both from a training cost perspective and from overall productivity. So looking out we don't have the longest term to USA as a select service portfolio, but I think that the trends that we've seen.

William H. Conkling: So to the extent that turnover continues to moderate, that is significantly beneficial to us both from a training cost perspective and from overall productivity. So looking ahead, we don't have, you know, the longest-term view as a select service portfolio, but I think that the trends that we've seen over the last three to four quarters are fairly encouraging.

William H. Conkling: Over the last three to four quarter are fairly encouraging.

Chris Jon Woronka: Okay, great. Thanks, Trey.

Chris Jon Woronka: Follow-up question on it really has to do with it. We hear a lot about conversions from the big brand companies and how it's becoming a bigger part of their unit growth strategy. Do you guys have a view as you look across all your markets? I mean, obviously, a conversion doesn't add new supply, but it might add a new brand family member or something you already have. Is there any way to measure that in terms of, is there a net positive or net negative?

Speaker Change: Okay, great. Thanks.

Speaker Change: Follow up question on it really has to do with it.

Chris Jon Woronka: We hear a lot about conversions from.

Chris Jon Woronka: The big brand companies and how it has become a bigger part of their.

Chris Jon Woronka: The unit growth strategy, you guys have a view as you look across all your markets I mean, obviously your conversion doesn't add new supply, but it might add a new brand family member and some of you already have.

Chris Jon Woronka: Is there any way to measure that in terms of is there a net positive net negative and secondarily to that as we see Marriott Hilton kind of go down a little bit on the chain scale as I've answered that.

Chris Jon Woronka: And secondarily to that, as we see Marriott Hilton kind of go down a little bit on the chain scales and enter the lower chain scales, which you guys don't really play in, but do you think there's ever gonna be any impact there with someone who goes from a Hampton and now goes to a Spark or a True? Any way to, I know it's a long question, but is there any way to think about that for your business?

Chris Jon Woronka: The lower chain scales, which you guys don't really play in but is there any you think there's ever going to be any impact there with someone who went guestroom Hampton and now goes to a spark or a true anyway. You know it's a long question, but is there any way to think about that for your business.

Jonathan P. Stanner: Yeah, thanks Chris, it's John. Look, we've obviously followed closely what the brands have done, and I don't think that it's terribly surprising that they're searching for additional channels to help grow net unit growth. I do think that it's a market by market type of analysis when you look at the impact, but I would say we haven't felt it yet.

Speaker Change: Yes, Thanks, John look we've obviously followed closely what the brands have done.

Chris Jon Woronka: I don't think that its terribly surprising that they're searching for additional channels to help grow net unit growth I do think that it's a market by market type of analysis. When you look at the impact I would say, we havent felt it yet.

Jonathan P. Stanner: It's not something that is high on my list of concerns. However, I do think to the extent that you're bringing in additional units and rooms into a brand family in a market, it can have an impact. I don't think a lot of those units are gonna be units that we're competing for redemption type customers for. So, something that we're monitoring, again, it's not something that, you know, we've spent a lot of time actively searching to get into some of those new product types, or we certainly haven't felt the impact of them coming into our markets yet. And then, again, a lot of the initial rollout of these new brands has been in markets that we're not in. They've been in more secondary and tertiary markets.

Jonathan P. Stanner: It's not something that is high on my list of concerns I do think to the extent that year.

Jonathan P. Stanner: In addition, all.

Jonathan P. Stanner: Youre, bringing in additional units and rooms into a brand family in a market. It can have an impact I don't think a lot of those units are going to be units that were competing for redemption type of customers for so something that we're monitoring again, it's not something that we.

Jonathan P. Stanner: We've spent a lot of time actively searching to get into some of those new product types are and we certainly haven't felt the impact of them coming into our markets yet and then again a lot of the initial rollout of these new brands frankly have been in markets that we're not in they've been in more secondary and tertiary markets.

Chris Jon Woronka: Okay. Okay. Good to hear. Thanks, Sean. Thanks, Chris.

Speaker Change: Okay. Okay. Good good to hear thanks, Jonathan.

Speaker Change: Thanks, Chris.

Operator: Thank you. Our next question or comment comes from the line of Michael Bellisario from Bayer. Mr. Bellisario, your line is now open.

Jonathan P. Stanner: Thank you. Our next question or comment comes from the line of Michael Bellisario from Baird. Mr. Bill Sorry. Your line is now open.

Michael Joseph Bellisario: Thanks, Good morning, guys.

Michael Joseph Bellisario: Good morning, Mike.

Michael Joseph Bellisario: I won't go back to the leisure commentary.

Michael Joseph Bellisario: I want to go back to the leisure commentary. Did you see cantillations occur? I know you mentioned the weakness in the snow and mountain locations, but did you not see ADR pickup close to the date of arrival, and maybe was that because occupancy was soft, or maybe just help us understand the timeline of events that occurred that led to the lesion or softness on the ADR side.

Michael Joseph Bellisario: And did you see cancellations just for I know you mentioned the weakness in the snow and mountain locations, but are you not did you not see ADR pick up close to the date of arrival and maybe was that because occupancy was soft there maybe just help us understand the timeline of events that occurred that led to the leisure softness on the ATM.

Michael Joseph Bellisario: Our side.

Jonathan P. Stanner: Yeah, you know, we didn't see any cancellations. It's just a slower pickup.

Michael Joseph Bellisario: Yes.

Speaker Change: We didn't see cancellations it just slower pickup.

Michael Joseph Bellisario: And I think part of it again, especially in some of these key markets you get some last minute pickup when the snow is really good we saw that last year was an incredible year from a snow perspective in these markets and so you got a lot of last minute bookings of people seeing what was happening on the mountains and booking.

Jonathan P. Stanner: And I think, you know, part of it, again, especially in some of these ski markets, you get some last minute shoppers when the snow is really good. We saw that, you know, last year was an incredible year from a snow perspective in these markets. And so you got a lot of last minute bookings of people seeing what was happening in the mountains and booking close to their stay. We just got less of that pick-up this year. And I'm not terribly concerned about it in the long term.

Michael Joseph Bellisario: I think we're going to have really strong summers in both of those markets. And the summer has actually become a stronger season than the ski season for some of these markets, but it did influence our rates in the first quarter. But I didn't interpret the rate performance in those two markets, in particular, as there being some sort of read through to, you know, softening leisure demand. I think that there was just an issue around pricing and last minute pickup.

Jonathan P. Stanner: Close to their stay we just got less of that pickup this year end.

Jonathan P. Stanner: I'm not terribly concerned about it long term I think we're going to have really strong summers and both of those markets.

Michael Joseph Bellisario: The summer has actually become.

Michael Joseph Bellisario: Stronger season than the ski season for some of these markets, but it did influence our rates in the first quarter, but I didnt interpret the rate performance in those two markets in particular as there being some sort of read through too.

Michael Joseph Bellisario: <unk>.

Michael Joseph Bellisario: Softening leisure demand I think that there was just it was more of an issue around pricing and last minute pickup.

Jonathan P. Stanner: Any different takeaways from Asheville, Fort Lauderdale, Tucson, Phoenix, other leisure-focused markets? Did you see? Yeah, those are the ones you highlighted.

Michael Joseph Bellisario: Any different takeaways frightening Asheville, Fort Lauderdale, Tucson, Phoenix, other leisure focused markets than you see.

Jonathan P. Stanner: You highlighted some of our leisure-focused markets. We're under renovation in Asheville, so we don't have a clean comp there.

Jonathan P. Stanner: You highlighted some of our leisure focused markets were under renovation in ashville. So we don't have a clean comp there. We did see some similar rate softening in Fort Lauderdale, and some of that was around spring break and I think that's been fairly well documented what happened and kind of the Miami Fort Lauderdale market in it.

Jonathan P. Stanner: We did see some similar rate softening in Fort Lauderdale, and some of that was around spring break. And I think that's been fairly well documented, what happened in the Miami-Fort Lauderdale market around spring break. Demand was fine, a little less last-minute pickup, and a little rate softness. And again, I think you've got to put into context that rate softness is on rates that are, you know, 20, 30% higher than in 2019.

Jonathan P. Stanner: Around spring break.

Jonathan P. Stanner: Demand was fine a little less last minute pickup and a little rate softness and again I think you've got to put into context that rate softness is on rates that are 20%, 30% higher than in 2019, and we just didn't have the same level of pick up I'm not sure that I really would extrapolate that into.

Jonathan P. Stanner: And we just didn't have the same level of pickup. I'm not sure that I really would extrapolate that into, you know, again, something that is showing real weakness on the leisure side. I think we've got to be mindful of what those comparisons look like. And I do think the comparisons were most difficult in the first quarter.

Jonathan P. Stanner: Again, something that is showing real weakness on our leisure side I think we've got to be mindful of what those comparisons look like and I do think the comparisons were most difficult in the first quarter.

Michael Joseph Bellisario: Got it, understood. And then, switching gears just on CapEx, can you maybe provide some numbers around what a standard 7-year, 14-year renovation costs today, what it would cost a couple years ago, and maybe what's the hardest part of the underwriting process for CapEx projects and how you internally decide which projects to do? Thanks.

Speaker Change: Got it understood and then just my follow up switching gears just on Capex can you maybe provide some numbers around what our standard seven year of 2014 year renovation cost today, what are the past couple of years ago, and maybe what's the hardest part of the underwriting process for Capex projects in <unk>.

Michael Joseph Bellisario: How do you internally decide which projects. They do yes. We spent it's a good question we spend an awful lot of time on this internally, particularly as we've talked about before like I think the industry broadly just underinvested in renovations and so one I think that will create some opportunities for those of us that are better capitalized going forward, but.

Jonathan P. Stanner: Yeah, it's a good question. We spend an awful lot of time on this internally. Particularly, as we've talked about before, I think the industry broadly is just under-invested in renovations. And so, one, I think that'll create some opportunities for those of us that are better capitalized going forward. But we've always taken great pride in the physical condition of our portfolio and ensuring we don't have a huge buildup of deferred CapEx in the portfolio. And there's no question that the cost to renovate some of these hotels is significantly higher than they were pre-pandemic.

Jonathan P. Stanner: We've always taken great pride in the physical condition of our portfolio and ensuring we don't have a huge buildup of deferred capex in the portfolio.

Jonathan P. Stanner: There's no question that the cost to renovate some of these hotels are significantly higher than they were pre pandemic, there I would say, 25% or 30% higher and depending on the market potentially even more.

Jonathan P. Stanner: We'll say in the last 30 days, we've actually finally repriced a couple of renovations lower than we did last year or even six months ago. So youre starting to see its not really labor wage related but youre starting to see shipping costs come down youre, starting to see some commodity costs come down and so we believe at the very least the increase.

Jonathan P. Stanner: So you're starting to see, it's not really labor or wage related, but you're starting to see shipping costs come down, you're starting to see some commodity costs come down. And so we believe, at the very least, the increase in costs of those renovations has stopped, and we've got some level of hope or optimism that we'll see some decreases in the cost to renovate these assets. Because it did, as I said, it got very, very expensive, especially relative to where we were renovating pre-pandemic.

Jonathan P. Stanner: And cost of those renovations has stopped and we've got some level of hope or optimism that we'll see some decreases in the cost to renovate these assets because it did as I said it got.

Jonathan P. Stanner: Very very expensive, especially relative to where we are renovating pre pandemic.

Jonathan P. Stanner: Thanks, just any broad strokes around kind of per key costs for those renovations. Yeah, you know, seven years.

Speaker Change: Thanks, just any broad strokes around kind of per key cost for those renovations.

Jonathan P. Stanner: Yeah, you know, seven years ago, we were doing it, you know, $15,000 or $20,000 a key, probably pre-pandemic, and they're, you know, 25% higher than that today, 14 years later, or, you know, probably another $5,000 to $10,000 a key on top of that.

Michael Joseph Bellisario: Got it. That's helpful. Thank you.

Jonathan P. Stanner: Yes, seven years, we were doing 15 or $20000, a key probably pre pandemic in their 2025% higher than that today 14 years.

Michael Joseph Bellisario: Were probably another five to $10000 a key on top of that.

Michael Joseph Bellisario: Got it that's helpful. Thank you.

Speaker Change: Thank you thanks, Mike.

Jonathan P. Stanner: I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. John Stanner for any closing remarks.

John Standard: I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. John standard for any closing remarks.

Jonathan P. Stanner: Great, thank you all for joining us today. We look forward to seeing many of you at one of the conferences over the spring and summer.

Speaker Change: Great. Thank you all for joining US today, we look forward to seeing many of you at one of the conferences over the spring and summer. Thank you.

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

Jonathan P. Stanner: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Speaker Change: We didn't detect any input please try again well wait to be reconnected to the conference.

Speaker Change: We didn't detect any input we connecting you to the conference.

Operator: Okay.

Operator: [music].

Operator: Okay.