Summit Hotel Properties(INN) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - RevPAR in the same store portfolio increased by 1.5% year over year, driven by a mix of rate and occupancy growth [4] - EBITDA margin contracted by less than 50 basis points compared to the first quarter of the previous year, with pro forma operating expenses increasing by only 1.5% year over year [4][20] - Adjusted EBITDA for the first quarter was $45 million, a modest decline compared to the prior year, primarily due to net effective asset sales completed in 2024 [22] - Adjusted FFO was $27.4 million or $0.22 per share, benefiting from lower interest expenses due to deleveraging efforts [23] Business Line Data and Key Metrics Changes - Urban portfolio RevPAR increased nearly 3%, outperforming the total industry by approximately 80 basis points [17] - Suburban and small town metro portfolios generated average RevPAR growth of 1.2%, driven by hotels in specific regions [19] - The resort location type accounts for only 11% of total guest rooms, with significant capital investment expected to enhance performance [19] Market Data and Key Metrics Changes - January RevPAR declined by 1.5% due to weather-related disruptions, but February saw a robust increase of 8.1% year over year [5] - March RevPAR declined by 1.6% in the same store portfolio, with a 10% decline in the qualified segment, primarily due to weakness in government-related travel [5][10] - April RevPAR is expected to decline by 45% compared to last year, influenced by difficult calendar comparisons [8][12] Company Strategy and Development Direction - The company is focused on managing expenses effectively in a lower revenue growth environment, with EBITDA margins contracting only 15 basis points on 1.6% RevPAR growth over the past five quarters [11] - A $50 million share repurchase program has been approved to return capital to shareholders and drive value creation [15][26] - The company continues to prioritize a balance between returning capital to shareholders, investing in the portfolio, reducing corporate leverage, and maintaining liquidity for future growth [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term prospects for the portfolio despite near-term macroeconomic uncertainties [11][15] - The company expects a modest pullback in demand, particularly in government and international travel, but anticipates some recovery as the year progresses [10][32] - The outlook for the second quarter indicates a RevPAR decline of 24% compared to the previous year, with expectations for flat RevPAR growth for the full year [12][14] Other Important Information - The company has closed on a $275 million delayed draw term loan to refinance maturing convertible notes, preserving cash flow [24][25] - Total liquidity stands at over $300 million, with an average interest rate of approximately 4.6% [25] Q&A Session Summary Question: How have trends evolved within government and international travel? - Management noted that the most acute impact was felt in March, but there is optimism for recovery as the year progresses [31][32] Question: How have trends for business transient customers evolved? - Business transient travel has held up reasonably well, with no significant downward trend observed [34] Question: Is leisure travel being impacted the most? - Leisure travel is expected to be resilient, with potential shifts towards more domestic travel [40][41] Question: What proactive measures are being taken regarding margins? - Management has focused on managing contract labor and employee turnover, without implementing deeper cuts seen in previous downturns [55][56] Question: Thoughts on the buyback announcement and capital allocation? - The buyback program is seen as a compelling opportunity due to significant dislocation in stock prices, with funding expected from reduced CapEx and potential asset sales [59][61] Question: Latest thoughts on joint venture partner's capital deployment? - The joint venture partner is well-capitalized and prepared to take advantage of dislocation opportunities, though transaction activity is expected to slow [64]