Summit Hotel Properties(INN) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a pro forma RevPAR increase of approximately 78% from Q1 2021, driven by a 21% increase in occupancy and a 47% increase in ADR [9][32] - First quarter RevPAR reached $87 for the urban portfolio, with March and April RevPAR at $113 and $120 respectively, marking a 7% and 14% premium to the previous pandemic monthly high [23][24] - Pro forma hotel EBITDA for Q1 was $47.3 million, a 200% increase from Q1 2021, resulting in a 33% margin, nearly 13 percentage points higher than the previous year [32] Business Line Data and Key Metrics Changes - The urban portfolio saw significant growth, particularly in mid-week occupancy driven by corporate and group travel, with preliminary April occupancy at approximately 70% [8][11] - Non-urban hotels reported a Q1 RevPAR of $106, with resort hotels achieving a RevPAR of $183 due to strong spring break demand [26][27] - The company anticipates a combined hotel EBITDA yield of 8% to 9% for the newly acquired hotels in Miami and San Francisco [17] Market Data and Key Metrics Changes - RevPAR in March reached a pandemic era high of over $120, a 61% increase from January results, indicating strong recovery trends [7] - Preliminary April pro forma RevPAR was expected to be $119, approximately 90% of 2019 levels, despite entering slower seasonal periods for some markets [10] - The company noted that weekday pro forma RevPAR increased significantly, achieving $113 and $110 in March and April respectively, both over 20% higher than the previous pandemic peak [12] Company Strategy and Development Direction - The company is focused on opportunistic capital allocation, having executed approximately $1 billion in transactions since July 2021, with a strategy to identify and execute accretive transactions [21] - The company plans to close on the sale of the Hilton Garden Inn in San Francisco for $75 million, which will allow it to avoid a $7 million renovation [14][36] - The management emphasized the uniqueness of their mezzanine lending program, which allows for capturing better risk-adjusted returns without taking on outright development risk [17][58] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery trajectory, noting that pricing power remained strong in March and April, with no significant pushback from customers despite rising inflation [56] - The company expects continued improvement in weekday demand and strong performance during the summer season, with May and June recapture rates anticipated to be in line or better than April [13] - Management highlighted that the balance sheet remains robust, with over $450 million in liquidity and a well-positioned interest rate risk management strategy [39] Other Important Information - The company plans to invest $60 million to $80 million in capital expenditures for 2022, focusing on renovations across 13 hotels [34][41] - The company reported an adjusted FFO of $20.1 million for Q1, an increase of $27.1 million from Q1 2021 [33] Q&A Session Summary Question: Performance of Newcrest portfolio - Management indicated that the Newcrest portfolio is tracking slightly ahead of underwriting, with expectations of a 7% EBITDA yield for the full year [47] Question: Balance sheet and deleveraging strategy - Management discussed plans to use proceeds from the San Francisco asset sale to pay down debt, aiming for a more normalized debt to EBITDA ratio [49][50] Question: Impact of inflation on leisure travelers - Management noted no significant signs of pushback from customers regarding rising hotel rates, maintaining strong pricing power [56] Question: Future appetite for mezzanine investments - Management expressed a positive outlook on the mezzanine lending program, indicating a willingness to explore more opportunities despite current market challenges [58] Question: Differences in recovery pace among brand families - Management clarified that recovery differences are more market-driven rather than brand-driven, with leisure-oriented properties recovering more robustly [64]