Summit Hotel Properties(INN)2021-11-06 21:30Financial Data and Key Metrics Changes - The company reported a pro forma RevPAR of $98 for Q3 2021, more than double the RevPAR from Q3 2020 and 24% lower than Q3 2019, showing significant improvement from earlier in the year [11] - Corporate cash flow reached $18.5 million in Q3, more than triple the cash flow from Q2 2021, with pro forma hotel EBITDA at $38.8 million, exceeding the previous two quarters combined by approximately $5 million [25][28] - Operating costs per occupied room declined nearly 10% compared to 2019, leading to a gross operating profit margin of 47% and hotel EBITDA margin of 35% in Q3 [26] Business Line Data and Key Metrics Changes - The resort and non-urban hotels experienced a RevPAR growth of 12% relative to Q2 2021, with a nominal RevPAR exceeding $100 [18] - Urban hotels saw a RevPAR increase of 43% from Q2 2021 to approximately $94, driven by a 24% increase in ADR [19] - Full week group RevPAR for the total portfolio increased by 76% relative to Q2 2021, while weekday group RevPAR increased by 100% during the same period [22] Market Data and Key Metrics Changes - Demand growth was primarily driven by increases in group business and negotiated business segments, with negotiated room revenue increasing approximately 28% in Q3 over Q2 [10][22] - Weekend occupancy averaged 80% during Q3, with mid-week occupancy climbing to 64%, indicating a narrowing gap between weekday and weekend occupancy [13] - The company noted a reacceleration in demand in the latter half of September, with occupancy averaging nearly 70% during the last two weeks of the quarter [10] Company Strategy and Development Direction - The company announced a transformational acquisition of 27 hotels for a total consideration of $822 million, aimed at enhancing its portfolio in high-growth markets [7][30] - The acquisition is expected to be immediately accretive to earnings and leverage-neutral, with a stabilized NOI yield of 8% to 8.5% [31][33] - The company plans to continue renovations and capital expenditures between $15 million and $20 million for the year, reflecting confidence in long-term demand trends [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of corporate transient demand trends, with indications of a more robust return of corporate travel [10] - The company highlighted the favorable dynamics in Texas and Sunbelt markets, which are expected to benefit from migration patterns and corporate relocation activity [31][52] - Management acknowledged ongoing labor challenges but indicated a commitment to maintaining a lean staffing model while gradually increasing FTEs as demand recovers [26][62] Other Important Information - The company completed the acquisition of a newly built 110 guestroom residence for $33 million, which has performed exceptionally well since acquisition [14][15] - The company accessed capital markets in August, issuing $100 million of preferred equity to refinance existing debt and strengthen liquidity [28] Q&A Session Summary Question: Details on accretion numbers from NewcrestImage transactions - Management expects the transaction to be immediately accretive to earnings, with a stabilized NOI yield between 8% and 8.5% [40] Question: NewcrestImage's holding period intentions - Shares will be subject to a 6-month lockup period, and the partnership is expected to be long-term [42] Question: Ramp-up of EBITDA from the new portfolio - The new portfolio is expected to have a different growth profile, with higher growth potential due to the inclusion of newer assets [48] Question: Comfort with Texas exposure - Management is confident in the growth dynamics in Texas, citing strong migration and job growth [50] Question: Future acquisition plans post-transaction - While the transaction will keep management busy, the company remains open to opportunistic acquisitions [56] Question: Labor dynamics in new markets - Management noted better labor dynamics in the new markets, which were a consideration in the acquisition [75] Question: Supply growth outlook - The new development pipeline has slowed significantly, leading to expectations of below-average supply growth for several years [78]