Summit Hotel Properties(INN) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The pro forma portfolio of 74 hotels generated RevPAR of $81 for the full year, representing a 55% increase over 2020 and a 63% recapture rate relative to 2019 [5] - Fourth quarter pro forma RevPAR was $94, driven by a 51% increase in occupancy and a 44% increase in average rate [7] - Adjusted FFO for the fourth quarter was $14.8 million, resulting in a full year adjusted FFO of $36.8 million [23] - Operating costs per occupied room declined more than 5% compared to 2019, leading to a gross operating profit margin of 44% and hotel EBITDA margin of 33% in the fourth quarter [23][24] Business Line Data and Key Metrics Changes - Urban hotels generated outsized year-over-year growth in the third and fourth quarters of 160% and 200%, respectively, translating to nominal RevPAR of $94 and $88 [19] - Non-urban portfolio RevPAR was approximately $98 in the fourth quarter, driven by strength in non-resort properties, which generated a RevPAR of $118 [20] - Average daily rate (ADR) increased 2% relative to the third quarter across the entire portfolio, with a 100% ADR recapture rate to Q4 2019 [21] Market Data and Key Metrics Changes - January RevPAR was approximately $75, which was 31% below January 2019 levels, but February RevPAR pace was up over 30% from January [11] - The Dallas market recovery is over 80% of 2019 levels, while other gateway urban markets lag behind [36] - January RevPAR at the Embassy Suites in Tucson exceeded last year by nearly 80% and surpassed January 2019 levels [15] Company Strategy and Development Direction - The company was active in transactions, completing over $1 billion of transaction activity in 2021, increasing the number of hotels in the portfolio by 40% [17] - The joint venture with GIC now totals 40 hotels, representing over $1.3 billion of invested capital, which will increase ancillary fee streams for asset and capital project management services [17] - The company plans to continue a more typical renovation program in line with pre-pandemic levels throughout 2022 [26] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the favorable demand backdrop for the portfolio, anticipating a meaningful return of corporate travel alongside robust leisure demand [12] - The company noted that while staffing shortages and rising labor costs affect the industry, they have managed to operate efficiently with a lean staffing model [24] - Management highlighted that guest satisfaction scores have improved as amenities and services have been restored [68] Other Important Information - The company maintains a liquidity position of nearly $450 million, enhanced through various capital markets transactions [27] - The average interest rate on the balance sheet is 3.3%, with approximately 70% of current outstanding debt fixed [28] - The company expects to exit existing waivers on certain financial covenants in the second quarter of 2022, providing more capital allocation flexibility [28] Q&A Session Summary Question: How does the pace of acceleration in booking trends compare across segments? - Management noted strength in leisure-dominated markets, with midweek performance improving recently [34] Question: What is Summit's leverage to urban recovery post-Newcrest acquisition? - The urban mix has shifted towards Sun Belt markets, with recovery rates varying significantly by market [35] Question: How is the labor market affecting staffing levels? - Staffing levels are currently at about 55% of pre-pandemic levels, with challenges in finding labor persisting [39] Question: What is the outlook for capital allocation and acquisitions? - The company has nearly $450 million in liquidity and plans to be a net acquirer early in the cycle, while remaining opportunistic [43] Question: What benefits are expected from the Aimbridge takeover of Newcrest hotels? - Management anticipates operational synergies and improved performance from the integration of the Newcrest portfolio [47] Question: How does the company view leverage and balance sheet health? - The company assesses balance sheet health holistically, feeling confident about its current position and future deleveraging [51] Question: What is the expected run rate for capital expenditures in the coming years? - The company expects capital expenditures to be elevated in 2022, with a run rate similar to pre-pandemic levels in subsequent years [61] Question: Are there any non-core hotels that could be sold? - Management indicated that while there is always a bottom 10% of the portfolio, they do not feel pressured to sell assets [66]