Good day, and welcome to the Summit Hotel Properties Q3 2021 Earnings Call. As a reminder, this call is being recorded. I would now like to turn the call over to Adam Wudel, Senior Vice President of Finance, Capital Markets and Treasurer.

Thank you, Michelle, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, Jon Stanner; and Executive Vice President and Chief Financial Officer, Trey Conkling. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, November 4, 2021, 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.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner.

Thanks, Adam, and thank you all for joining us today for our third quarter 2021 earnings conference call. In conjunction with our earnings release last evening, we announced the signing of a definitive agreement for a transformational acquisition of 27 hotels, 2 parking structures and various economic incentives from NewcrestImage for a total consideration of $822 million. I’ll provide more transaction highlights in other details following our prepared remarks for our third quarter financial results, but we are incredibly excited to have the opportunity to acquire these 27 well-located hotels concentrated in high-growth markets. Overall, we are extremely pleased with the continued acceleration of our improving operating trends in the third quarter, which exceeded our initial expectations and resulted in more than a 25% increase in RevPAR from the second quarter. Occupancy average daily rate and overall profitability all reached new highs since the onset of the pandemic, and we more than tripled our positive corporate cash flow compared to last quarter. Demand growth accelerated broadly during the quarter as we sold nearly 7% more room nights in the third quarter than we did in the second quarter, peaking during a historically strong summer travel season in July when occupancy in the portfolio was above 72%. Although August demand pulled back modestly as expected, we saw a reacceleration in the back half of September when occupancy averaged nearly 70% during the last 2 weeks of the quarter. While leisure demand continues to be the primary driver of our operating results, we remain encouraged by improving corporate transient demand trends. Negotiated room revenue increased approximately 28% in the third quarter over the second quarter. And while that is admittedly off of a very small base, we’re also encouraged by some of the anecdotal signs suggesting a more robust return of corporate travel is forthcoming. We reported third quarter pro forma RevPAR of $98, which was more than double our RevPAR in the third quarter of last year and was 24% lower than what was achieved in the third quarter of 2019, a significant improvement from the first half of the year when RevPAR was nearly 43% lower in the second quarter and 59% lower in the first quarter than the comparable 2019 periods. Importantly, the recovery of average rates accelerated meaningfully during the quarter. As ADR across our portfolio increased 19% compared to the second quarter, and weekday ADR growth outpaced weekend growth by nearly 200 basis points. Average rates in our urban portfolio increased 24% from the second quarter, and weekday urban ADR grew 27% from the second quarter, which encouragingly reflects some level of rate accretive remixing of our business with corporate travel. Weekend occupancy was an impressive 80% during the third quarter and averaged 82% in July and September as the recovery continues to clearly be led by exceptionally strong leisure demand. However, mid-week occupancy also continues to steadily improve, climbing to 64% during the first quarter, a full 5 percentage points higher than the second quarter and the gap between weekday and weekend occupancy continues to narrow. Trey will provide some additional color on our operating results later in the call. During the third quarter, we completed the previously announced acquisition of the newly built 110 guestroom residence in Steamboat Springs for $33 million. The extended-stay hotel is the newest hotel in Steamboat, one of only 6 other hotels that have opened in the market since the year 2000, and the first Marriott-branded extended stay product in the market. Since acquisition, the hotel has performed exceptionally well, generating occupancy and RevPAR of nearly 87% and $161, respectively, and hotel EBITDA margin of 49% for the third quarter. On an annualized basis, this equates to a 9% net operating income yield and less than 3 months of ownership, despite the hotel having been open for less than 1 year. During the third quarter, we invested approximately $4.2 million in our portfolio on items primarily related to planned maintenance capital. As we previously mentioned, given our conviction around the long-term improvement in demand trends, we plan to commence several renovations in the fourth quarter of this year and early next year to minimize disruption from these projects. We expect to spend between $15 million and $20 million in capital expenditures for the year on a consolidated basis. And between $14 million and $19 million on a pro rata basis. With that, I’ll turn the call over to our CFO, Trey Conkling.

Thanks, Jon, and good morning, everyone. During the third quarter, our resort and other nonurban hotels continued to show robust sequential improvement with RevPAR growth of 12% relative to the second quarter of this year, and a nominal RevPAR value exceeding $100. This subset of the portfolio illustrates Summit’s diversification and broad exposure to the overall lodging recovery as ADR increased 13% to $135 relative to the second quarter on stable occupancy of 74%. Transitioning to our urban hotels, we were encouraged by the progress in this subset of the portfolio, which, for the first time since the onset of the pandemic experienced meaningful outsized growth relative to our other location types. RevPAR at our urban hotels increased 43% from second quarter 2021 to approximately $94, primarily on the strength of rate, which increased 24%. As an additional point of reference, in third quarter 2020, our urban portfolio posted a RevPAR of $37, further evidence of the strong rebound experienced year-over-year. Key factors driving growth in the urban portfolio include increased business activity, professional and college sports attendance, and group demand. As a final point on our urban portfolio, we believe business travel is now in the early stages of its recovery as urban midweek occupancy increased 10 percentage points from the second quarter to 57%, and ADR increased more than $30 to $144, or a 27% increase for the quarter. This translates to a RevPAR growth rate of 54% versus the second quarter for the urban portfolio. To provide a little more insight into the company’s overall third quarter portfolio segmentation, growth in demand was driven primarily by the increases in group business and negotiated business segments, as previously mentioned. Full week group RevPAR for the company’s total portfolio increased by 76% relative to the second quarter 2021, while weekday group RevPAR increased by 100% during the same time frame. Similarly, full week negotiated RevPAR increased by 28% relative to the second quarter, while weekday negotiated RevPAR increased by 32%. Increases in negotiated RevPAR were driven primarily by travel from small and medium-sized business transient accounts. Although booking windows remain short-term in nature and forecasting continues to be a challenge, we’ve experienced a decline in the percentage of room nights booked near to or on the night of stay. For example, transient room nights booked within 24 hours of stay, declined from 23% of total bookings in the second quarter to 21% of bookings in the third quarter. But importantly, nights booked more than 30 days out, increased by 19% during that same period. While the overall booking window remains shortened relative to pre-pandemic standards, its expansion represents a definitive trend that started earlier in the year and has strengthened throughout the third quarter. From a cash flow perspective, continued growth in demand, combined with thoughtful expense management, enabled Summit to generate positive corporate cash flow of $18.5 million in Q3, which was more than triple the corporate cash flow of Q2 2021. Pro forma hotel EBITDA was $38.8 million in the third quarter, exceeding the previous 2 quarters combined by approximately $5 million. Operating costs per occupied room declined nearly 10% compared to 2019, which drove third quarter gross operating profit margin and hotel EBITDA margin to an impressive 47% and 35%, respectively. We continue to operate our hotels utilizing a very lean staffing model, which consists of approximately 19 FTEs on average or slightly more than 55% of pre-pandemic staffing levels. Rehiring hourly staff, particularly in the housekeeping department has been an ongoing issue across the industry. Despite these challenges and increasing occupancy levels, our asset management team has done a great job controlling operating expenses, leading to hotel EBITDA retention of 54% when compared to the third quarter of 2019. Finally, turning to the balance sheet. Our overall liquidity position continued to strengthen during the quarter as the business made substantial progress generating positive cash flow. Additionally, we accessed the capital markets in August, taking advantage of a favorable preferred equity market with the issuance of $100 million of 5 and 7, 8 Series A perpetual preferred paper. Proceeds from this opportunistic offering were used to accretively refinance our $75 million, 6.45% Series B preferred stock and to reduce the outstanding balance on our November 2022 term loan to its current balance of $62 million. This sub term loan remains the company’s only 2022 maturity, and we continue to maintain ample liquidity to repay all maturing debt through 2024 when considering available extension options. With that, I will turn the call back over to Jon to discuss the acquisition of the NewcrestImage portfolio.

Thanks, Trey. We’re thrilled to announce the acquisition of a 27 hotel portfolio from NewcrestImage, which is comprised of approximately 3,700 guest rooms located across 10 high-growth Sunbelt markets in Texas, Oklahoma City, and New Orleans. These hotels are highly complementary to our existing portfolio with premium brand affiliations, excellent locations in strong markets and comprise a relatively new portfolio with approximately 70% of the guest rooms opening since 2015 and more than 1/3 of the guest rooms built in the last 3 years. The hotel portfolio’s allocated value of $776.5 million equates to approximately $209,000 per key, which reflects a significant discount to replacement costs and results in a stabilized NOI yield of 8% to 8.5%, including underwritten capital expenditures. Our increased exposure to Sunbelt markets, which will be approximately 60% of our pro forma room count, positions the combined hotel portfolio to benefit from the favorable migration patterns, labor dynamics, corporate relocation activity, return to office trends, and general pro-business climates in these markets. In addition to the hotel portfolio, we will be acquiring 2 parking structures, totaling approximately 1,000 parking spaces that serve 2 triplex hotel clusters, one in Downtown Dallas and the other in the emerging mixed-use development of Frisco Station, a thriving North Dallas suburb. The transaction also includes an allocation to several financial incentives that will be assumed upon closing of the transaction. Our joint venture with GIC will acquire the assets for a total consideration of $822 million, and we will finance the investment with a new $410 million credit facility. We expect the transaction to be immediately accretive to our earnings and leverage-neutral to our balance sheet. GIC’s 49% equity interest will be a cash contribution totaling approximately $208 million, and our 51% controlling interest will come from a combination of common and preferred operating units. We will issue 15.9 million shares of common operating units valued at $160 million. Based on our common stock’s 10-day average as of Tuesday’s closing price equal to $10.09 per share. Pro forma for the issuance, NewcrestImage ownership will be approximately 13% of our total shares outstanding. The preferred operating units totaling $50 million will be issued at a standard $25 par value and pay an annual coupon equal to 5.25%. As part of the transaction, NewcrestImage will have the right to appoint one representative to the company’s Board of Directors. The transaction would increase our combined room count by over 30% and our total enterprise value by approximately 20%. Acting as a general partner on behalf of the joint venture, we will continue to earn fees for our asset management services and expect our stabilized fee stream earned through the joint venture will cover approximately 17% of our in-place cash corporate G&A. The utilization of common and preferred op units for our 51% equity interest will preserve nearly all of our liquidity of $450 million, leaving us ample runway to pursue additional growth opportunities. While closing remains subject to customary closing conditions and a formal due diligence period, we anticipate closing to occur later this quarter or early in the first quarter of 2022. In closing, I’d like to take just a minute to publicly thank our dedicated team here at Summit, our partners at GIC, and especially Mehul Patel and the team at NewcrestImage for their tireless work in getting a very important transaction for our company to this point. We are incredibly excited about the future of our business and believe this transaction, combined with the continued recovery of lodging fundamentals, positions us particularly well to create long-term value for our shareholders. And with that, we’ll open the call to your questions.

First question, we have Austin Wurschmidt with KeyBanc.

So I was wondering, Jon, if you could just give some additional details around the accretion numbers from the transactions with NewcrestImage or maybe even a going-in yield? And then what did you assume upon stabilization as far as hotel EBITDA relative to pre-pandemic hotel EBITDA?

Yes, good morning, Austin. Appreciate the question. As we said in the press release, we do expect this to be immediately accretive to our earnings. The kind of the hotel operating statistics that we put forth were between 8% and 8.5% of a stabilized NOI yield. That does include about $40 million of underwritten capital expenditures. That does not include any benefit that we will get from a fee stream earned through the joint venture, which would add another 30 basis points or so to our overall yields.

Got it. And then so with NewcrestImage now willing to take op units, it seems to imply that deferred taxes maybe were an important consideration for them, but with them now being your largest shareholder, how should we think about their holding period when the lockup expires?

Yes, the shares will have a 6-month lockup period. I believe our partnership with Newcrest is anticipated to be a long-term one. While I can’t comment on their specific intentions regarding the stock, my understanding is that as we formulated this deal, especially with their representation on the Board, the goal is to foster a lasting relationship. I hope they can assist us in continuing to grow the business.

And then just one last one for me. With the joint venture now, over $1.3 billion of investment, what’s sort of the runway beyond this in terms of continuing to scale up with GIC?

Yes. Currently, it represents about a quarter of our total asset value on a pro-rata basis. We are quite comfortable with that position. It allows us additional capacity to continue growing the venture. We will remain mindful to avoid reaching a situation where our ownership structure becomes inverted, meaning we own more in the joint venture than outright. I believe there is still potential for growth through the venture, but we will also be more open to acquiring assets outright moving forward.

Next question, we have Michael Bellisario with Baird.

Jon, I just want to go back to the kind of underwriting assumptions you made. Can you just talk about whether it’s a high level or specifics, the ramp-up of EBITDA that you guys expect from this portfolio kind of twofold, given the markets that you’re acquiring and that are probably better performing markets over the near term, but also the fact that a bunch of hotels are new or, I think, at least one is soon to open, what the ramp-up of earnings and EBITDA looks like from this portfolio versus your existing portfolio today?

Yes, I think it's important to highlight this. When we try to make direct comparisons based on 2019 metrics, it becomes quite challenging. As you mentioned, there are several new assets, and approximately one-third of the guest rooms have been opened in the last three years. One specific asset, the Canopy in New Orleans, has not opened yet. Many of the assets we anticipate will yield higher RevPAR and likely higher EBITDA per key are part of this newer portfolio. Therefore, we expect this portfolio to show a different growth profile and trajectory, with greater growth potential compared to the existing portfolio, for the reasons you indicated.

Got it. And then just looking at the bigger picture, how did you become comfortable with the significant exposure in Texas? Additionally, what about the smaller Texas markets where you will now have representation, which I think many people outside of Texas may not be familiar with?

That’s probably fair. We believe that the dynamics in Texas, particularly in our areas, are very positive. Being based here, we can observe the significant growth happening in the state. The migration of people, corporate relocations, and job growth are all substantial. Dallas, in many ways, is the center of this growth. We feel that the concentration in various markets, especially in the near term, is beneficial for growth. However, while a significant portion of our portfolio—about 70%—is in Texas, it’s important to note that it’s a very large state with properties in distinct submarkets. For instance, Amarillo is closer to Denver than it is to Austin or Houston. These markets have different supply and demand dynamics, and we are confident in our position here due to the growth profile in Texas compared to many other markets. The Sunbelt, in particular, offers unique and favorable growth prospects. We discovered that smaller markets like Amarillo, Tyler, and others can be surprisingly strong. During our due diligence, we became more comfortable with these smaller markets, recognizing them as valuable. In fact, some of our best acquisitions in the past few years have been in these smaller markets, like Silverthorne, Colorado and Tucson, Arizona. While these may not be top 50 or top 25 markets, they are indeed strong markets with solid regional demand drivers.

Got it. And then just last one for me. You guys still have about the same amount of liquidity, and I assume you structured the deal intentionally for that purpose. Would you expect to remain acquisitive, at least over the near term? Or should we expect a pause for the time being while you digest this big transaction?

This is obviously going to keep us very busy with closing the deal and integrating the 27 assets into the portfolio. One of the positives about the portfolio is that, although there are 27 assets, they are fairly concentrated, with several clusters of two or three assets together. This will allow for efficient management and should fit well into our model. It’s important to note that Trey and Adam structured the deal to utilize essentially none of our $450 million liquidity, which was intentional. We wanted to ensure we maintain the capacity to grow the business, and we will look to continue doing that on an opportunistic basis.

Next, we have Neil Malkin with Capital One.

Congratulations on the transaction. I have a housekeeping question. Does the 8% to 8.5% cap rate stabilization factor in some potential occupancy margin and EBITDA per room upside? In your presentation, there's a distinction between your average portfolio and Newcrest. Are you assuming that, or will that just be an additional benefit to the economy?

Yes. It does not, Neil. I mean we’ve kind of underwritten on a baseline on a typical standard basis. We do think we’ll hopefully be able to find not only some expense synergies, but also some revenue synergies, particularly where we have assets where there are significant clusters. That isn’t baked into the 8.85% that we quoted.

Okay. Great. I wanted to ask about labor. You mentioned having 19 full-time equivalents, which is 55% of the pre-COVID level. I'm curious if you have adjusted your expectations for what a stable headcount should look like at your hotels now that we are well into the COVID period and adapting to this new operating environment. With the experience you've gained operating at these levels, do you believe it’s possible to manage with a lower headcount when demand returns compared to what you thought 3 to 6 months ago, especially considering the challenges in bringing staff back?

Yes. I believe we will operate with a lower full-time equivalent (FTE) count than we did before COVID. Previously, the average FTE count at our hotels was around 35 per hotel, and we are currently about halfway back to that level. I expect that we'll maintain a lower count than our historical levels. We plan to continue adding FTEs from our current position. The challenges in finding labor are influencing this situation, and brands are still in the early stages of implementing brand standards. Therefore, I expect that the FTE count will keep increasing, but I believe it will ultimately stabilize at a level lower than pre-COVID.

Okay, great. Jon, can you speak candidly about what the large portfolio, which is primarily oriented toward the Sunbelt, indicates regarding coastal markets? How do you see those coastal markets evolving in the next 3 to 5 years? It seems like many are transitioning to the Sunbelt while moving away from coastal areas. I’m interested in your thoughts on how this will develop.

Yes. We are eager to invest in the Sunbelt. The dynamics in these markets are well documented, and there is a clear path to above-average growth based on positive trends. However, this does not mean we have abandoned coastal markets. We aim to be opportunistic in our acquisitions and capital allocation, regardless of the market. We have consistently emphasized our market-agnostic approach to capital allocation. Fundamentally, we seek to underwrite high-quality assets that offer risk-adjusted returns exceeding our weighted average cost of capital. We believe we have found a very appealing opportunity to achieve that. Our basis in this portfolio is just over $200,000 a key, which compares favorably to other high-quality assets that have traded in recent months. The growth profile here is expected to outperform what we might find in coastal markets in the near term. That said, we are open to buying in coastal markets as long as we can underwrite returns that are rational and above our cost of capital. We would likely assess a different recovery trajectory compared to the Sunbelt, but it does not mean we no longer value coastal investments.

Next, we have Chris Woronka with Deutsche Bank.

Yes, Jon, you have often discussed the advantages of scale, and this definitely adds significant scale to your platform. My question is, does this also make you more inclined to revisit the legacy portfolio and possibly speed up any asset pruning you were considering? This situation provides you with the chance to maintain a certain level of assets or EBITDA. I would like your thoughts on potentially recycling other noncore assets.

We have always believed that our platform can be utilized for greater scale. Having more assets, especially in high-performing markets, provides advantages. However, we have never pursued acquisitions solely for the sake of increasing scale. As highlighted in our presentation and throughout the Q&A, while scale is beneficial, it was not the main reason for this transaction. The primary motivation was to acquire high-quality real estate at very attractive returns. We are open to selling assets if the conditions are right. We view several assets in our portfolio as noncore and believe selling them may be necessary. If we can find the right price, we would certainly consider those sales.

That’s helpful. I heard the last question regarding how you view the coast and its relation to this, but I want to approach it differently. Are you also suggesting that the labor situation in these markets is improving, with more availability and potentially less wage pressure moving forward? How significant was this factor in your decision-making process?

Yes. I believe this was a factor in our considerations. The labor dynamics in some of these markets appear to be more favorable. While there are labor challenges present everywhere, we find ourselves in predominantly nonunion, pro-business areas. I consider this to be another positive aspect as we evaluate the portfolio.

Okay. Great. And then the last question is about supply growth for select service across the country, not just related to the Newcrest portfolio. What are you observing regarding projects that were in progress or under consideration before COVID and are now getting closer to construction? With current construction costs and the challenges in finding labor, are you noticing any projects in your market pipelines getting delayed or pushed further out?

Yes. Look, I think, the stuff that was in the ground or coming out of the ground pre-COVID is going to get completed. I think the new development pipeline has slowed significantly for all the reasons that you kind of alluded to. Construction costs are materially higher than they were, finding labor has challenges. The supply chain issues that we’ve all been dealing with have been very well documented. So you see it in the national numbers. You see it in the chain scale numbers. I think our expectation here is that we’re going to be in a window for several years where we’re going to have below-average supply growth for the industry and for our markets, in particular.

Next, we have Bill Crow with Raymond James.

Good morning, Bill.

I think he just withdrew his question. So there are no more questions. Please continue, presenters.

Okay. Well, thank you all for joining us today. This is clearly a very exciting time for our business, and we’re very appreciative and thrilled to have the opportunity to work with NewcrestImage on this important transaction. We look forward to speaking with many of you next week at NAREIT. I hope you all have a nice quarter. Thank you.

This concludes today’s conference call. Thank you all for participating. You may now disconnect.