Summit Hotel Properties, Inc. Q4 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to the Summit Hotel Properties, Inc. Fourth Quarter 2021 and Full Year Earnings Conference Call. I would now like to hand the conference over to Mr. Adam Wudel, Senior Vice President of Finance Capital Markets and Treasurer. Sir, please begin.

Thank you, Norma, 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, February 24, 2022, 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 fourth quarter and full year 2021 earnings conference call. 2021 was a transformative year for Summit as we saw a significant acceleration in the recovery of our business, meaningfully added to our already strong portfolio of hotels with a series of transactions that improved our growth profile, and prudently raised capital to position our balance sheet for further growth. Today, Trey and I will discuss our results from last year, our outlook for this year, and how our recent transaction activity positions Summit to continue to be a leader in the lodging recovery. Overall, we were extremely pleased with the improving operating trends within our portfolio, which exceeded our expectations for the year. Our pro forma portfolio of 74 hotels generated RevPAR of $81 for the full year, which represents a 55% increase over 2020 and a 63% recapture rate relative to 2019. Leisure demand was particularly strong, beginning its return in earnest around President's Day weekend last year and accelerating through spring break in what was an incredibly strong summer of leisure travel. During the second half of 2021, weekend RevPAR was essentially equal to pre-pandemic levels, primarily driven by strong leisure demand. Midweek non-leisure demand has been slower to return, but began to improve in the fall, driven by a pickup in many local and regional corporate accounts and smaller groups, which drove October RevPAR above $100, the highest nominal RevPAR we've achieved since the pandemic started. While the natural seasonality of our business resulted in lower nominal RevPAR in November and December, the 2019 RevPAR recapture percentages for these months improved sequentially, culminating with December RevPAR down only 9% versus December of 2019, the highest recapture rate we have seen since the onset of the pandemic. We reported fourth quarter pro forma RevPAR of $94, which was driven by a 51% increase in occupancy and a 44% increase in average rate. Despite the seasonal decline in demand experienced in the fourth quarter, average rate actually increased approximately 2% from the third quarter. Although our fourth quarter RevPAR declined slightly from the $98 RevPAR achieved in the third quarter, the rate of 2019 RevPAR recapture continued to accelerate, achieving 80% in the fourth quarter compared to 76% in the third quarter. Our asset and revenue management teams continue to produce tremendous results in what is still a challenging operating environment. RevPAR index for our pro forma portfolio finished the fourth quarter and full year at 119% and 121%, respectively, driven primarily by occupancy premiums of nearly 10 percentage points during each period, demonstrating our ability to continue to capture market share even as the recovery in our markets begins to accelerate. Trey will provide more detail on the cost side of our business shortly as we've been very successful in continuing to manage our hotels with a lean staffing model and create meaningful margin expansion despite some well-documented pressure on wages. Consistent with what was experienced across the industry, demand softened throughout our portfolio in January and early February as Omicron-related concerns caused travel disruptions and led many corporations to further delay their return to office plans. January is not a historically strong leisure travel month to begin with, but this year's performance was undoubtedly exacerbated by a temporary COVID-related dislocation in demand. Our preliminary January RevPAR finished at approximately $75, which was 31% below January 2019 levels. However, encouragingly, pace trends for the next three months are remarkably strong and point to a meaningful rebound more consistent with the sequential improvements we saw for much of the second, third, and fourth quarters of last year. February RevPAR pace is up over 30% from where January stood 30 days ago. For the full 3-day President's Day weekend that just ended, our portfolio posted RevPAR of $126, which was 62% ahead of the same 3-day weekend a year ago. Saturday was one of our best single nights in nearly two years, as RevPAR reached nearly $150. March pace is currently up approximately 35% compared to the same time a month ago for February, and we continue to feel confident in the favorable demand backdrop for our portfolio, which is well positioned to benefit from the combination of continued robust leisure demand and a more meaningful return of corporate travel as we move through the year. As I mentioned, 2021 was an extremely successful year for Summit on the transaction front, as we were particularly active in our joint venture with GIC, which has proven to be a true differentiator for us and enabled us to pursue a more aggressive growth strategy early in the industry's recovery. In May, we contributed six wholly owned hotels into the venture for total consideration of $172 million, demonstrating the embedded value in our portfolio and creating additional liquidity for the company. In July, we acquired the recently developed 110-room residence in Steamboat Springs for $33 million through the joint venture. Although the asset has only been opened a little over a year, the hotel produced approximately $130 RevPAR in its first year of operation and exceeded our year one underwriting by nearly 30%, generating a nearly 6% NOI yield. The hotel continued to perform exceptionally well early this year, with January RevPAR of approximately $220, which is a 135% increase from last January, and February is pacing significantly ahead of last year. In December, we acquired the 120-guestroom Embassy Suites in the Catalina foothills of Tucson, Arizona, for $25.5 million, also through our joint venture with GIC. Strong peak season demand in Tucson helped drive January RevPAR at the Embassy Suites to over $130, which exceeded last year by nearly 80% and also surpassed January 2019 levels. The Embassy Suites' proximity to our Homewood Suites, Tucson, will allow both hotels to mutually benefit from various operational synergies and complexing opportunities. Both the residence in Steamboat and Embassy Suites Tucson are located in high growth, high barrier to entry resort markets and our top performers in those markets, having generated an average 2021 RevPAR index of over 150%. In January, we completed the initial closing of 26 of the 27 hotels included in the $822 million portfolio acquisition from NewcrestImage. The investments significantly increase Summit's exposure to several dynamic and high-growth Sun Belt markets. The 27th and final hotel, the 176-room canopy in downtown New Orleans is expected to open next month, at which point we would complete the acquisition. The value allocated to the 27 hotels in total equates to approximately $209,000 per key and represents a meaningful discount to estimated replacement cost. The NewcrestImage portfolio acquisition also included two parking garages and various economic incentives. In total, we announced or completed over $1 billion of transaction activity in 2021, which increased the number of hotels in our portfolio by 40%. Our joint venture with GIC now totals 40 hotels, representing over $1.3 billion of invested capital, including the pending acquisition of the Canopy New Orleans. The recent growth of the joint venture will result in a substantially increased ancillary fee stream earned by Summit for asset and capital project management services. For 2022, we estimate our pro rata share of annual fees to be approximately $2 million to $2.5 million, which equates to 10% to 15% of our estimated corporate cash G&A. We expect this fee stream to increase in future years as the performance of the acquired asset stabilizes and planned renovation projects commence. With that, I will turn the call over to our CFO, Trey Conkling.

Thanks, Jon, and good morning, everyone. Throughout 2021, our portfolio demonstrated strong sequential improvement across all location types. While urban hotels looked meaningfully different in the first half of the year, these 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. These RevPAR levels represent 2019 recapture rates of 69% and 72%, respectively. As an additional point of reference, in October, a month which typically produces the portfolio's highest nominal RevPAR, our urban hotels generated $105 RevPAR, representing a recapture rate of approximately 70% to October 2019's urban portfolio RevPAR of $140, further evidence of improving fundamentals. Key factors driving improved performance for the urban portfolio include increased business activity, professional and college sports attendance, and small group demand. RevPAR for the non-urban portfolio was approximately $98 in the fourth quarter, driven by continued strength in our non-resort properties, which generated a RevPAR of $118. December was particularly strong for our resorts with a RevPAR of nearly $130, representing an approximate 5% increase from December 2019. Strength in resort demand has continued into early 2022, with January RevPAR of $129. Shifting to portfolio segmentation, while seasonality translates to slowing demand in the fourth quarter, average rate for the quarter increased across the entire portfolio in most segments. The fourth quarter continued to benefit from strength in leisure demand, particularly within the retail segment as ADR increased 2% relative to the third quarter and generated 100% ADR recapture rate to Q4 2019. On the corporate front, occupancy contribution from the negotiated segment increased modestly from the third quarter, while ADR increased 4%. Throughout 2021, booking windows experienced sequential quarterly improvement. In the fourth quarter, bookings within 24 hours declined by nearly 10% from the third quarter and bookings within one to three days of stay declined by 9% relative to the third quarter. Overall, same-day bookings comprised of less than 20% of our total bookings in the fourth quarter, which is down nearly 10% from the previous quarter. Finally, bookings more than 30 days out increased from 19% of total bookings in the third quarter to 21% of total bookings in the fourth quarter. While the overall booking window remains short relative to pre-pandemic standards, we remain encouraged by the continued improvement in these trends. From a cash flow perspective, continued strength in average rate and ongoing expense management discipline enable Summit to generate its third consecutive quarter of positive adjusted FFO, which was $14.8 million in the fourth quarter, resulting in full year adjusted FFO of $36.8 million. Pro forma hotel EBITDA for the fourth quarter was approximately $36.1 million, resulting in $109.4 million of pro forma hotel EBITDA for the full year 2021. Operating cost per occupied room in the fourth quarter declined more than 5% compared to 2019, which drove fourth quarter gross operating profit margin and hotel EBITDA margin to 44% and 33%, respectively. These margins represent only 115 basis points and 133 basis point declines to Q4 2019 levels despite a 20% decline in revenue. For the full year, operating costs per occupied room declined 13% compared to 2019. We continue to operate our hotels utilizing a relatively lean staffing model, which consists of approximately 19 FTEs on average, or slightly more than 55% of pre-pandemic staffing levels. While staffing shortages and rising labor costs continue to affect our industry, our asset management team has worked diligently to manage operating expenses, which allowed our portfolio to achieve hotel EBITDA retention of 60% when compared to the fourth quarter of 2019. During the fourth quarter and full year 2021, we invested approximately $9.7 million and $20.4 million, respectively, in our portfolio on items primarily related to maintenance capital and advanced purchasing related to upcoming renovations. As communicated on last quarter's call, we have recently commenced, or planned to commence, several renovations in markets where we anticipate a more rapid return of demand in order to minimize disruption from these projects. Throughout 2022, we are planning for a more typical renovation program in line with pre-pandemic levels, although supply chain issues may ultimately impact timing. Finally, turning to the balance sheet. Our current overall liquidity position of nearly $450 million was enhanced throughout 2021, in part due to numerous capital markets transactions. Early in 2021, we completed the issuance of $287.5 million of 1.5% convertible notes to repay over $250 million of debt, including our revolver to its current balance of $0. Additionally, we accessed the preferred market in August, taking advantage of a favorable market backdrop with the issuance of $100 million of 5.875% Series F perpetual preferred. Proceeds from this opportunistic offering were used to accretively refinance our $75 million 6.45% Series D preferred stock and to further reduce the outstanding balance on our November 2022 term loan to its current outstanding 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. From an interest rate risk management perspective, our balance sheet continues to be well positioned, including an average interest rate of 3.3%, with approximately 70% of our current outstanding debt fixed after consideration of various interest rate swaps. In the second quarter of 2022, we expect to exit the existing waivers on certain financial covenants related to our primary corporate credit facility, which will provide for more capital allocation flexibility regarding investment activity, use of proceeds, capital projects, and potential distributions. During the fourth quarter, we were repaid in full on two mezzanine loans that have been outstanding since 2017. Aggregate proceeds from the loan repayments were approximately $26 million, and the company earned an 8% IRR on its debt investment over that whole period. Included in our press release last evening, we provided 2022 guidance on certain nonoperational items, including cash corporate G&A, interest expense, preferred dividends, and capital expenditures, both on a consolidated and pro-rata basis. Based on the hotels that we own today, plus the pending acquisition of the Canopy New Orleans Downtown, we expect the midpoint of consolidated cash corporate G&A to be $20.5 million; interest expense, excluding the amortization of deferred financing costs, to be $53.5 million; preferred dividends to be $18.3 million; and pro-rata capital expenditures to be $70 million. With that, I will turn the call back over to Jon.

Thanks, Trey. In closing, I'd like to take just a minute to publicly thank Craig Aniszewski, our retiring COO, for his tremendous contributions to our growth and success over the years. In his 25 years with Summit, Craig and his team have demonstrated a tremendous ability to produce results in a wide range of operating backdrops, and he deserves immense credit for helping establish our best-in-class operating platform. He leaves the company in extremely good hands, having developed a strong team fully capable of carrying on his legacy of success. I've been truly privileged to have him as a partner and wish him the very best in retirement. And with that, we'll open the call to your questions.

Our first question comes from Austin Wurschmidt with KeyBanc.

First, Jon, just curious how the pace of acceleration you highlighted in some of the booking trends for February and March compare versus the various segments, albeit business weekday, urban resort, and other segments, and certainly, leisure, BT and small group. Any detail would be helpful.

Yes, sure. Thanks for the question. I think where we sit today, you're still seeing strength in similar markets that you've seen strength in over the past 12 months or so. It's still tends to be a leisure dominated market. We saw incredible strength, as we mentioned in the prepared remarks, over President's Day weekend. Our spring break period, particularly in March in some of these leisure-oriented markets, continues to pace very strongly as well. We are starting to see a pickup midweek, not just similar to what we saw later in the fall in October and November, particularly where we are starting to see better performance midweek even over the last couple of weeks, frankly, we've started to see that. So I do think, again, it's more of a continuation of what we saw towards the end of last year, but we are seeing more and more strength midweek.

That's helpful. And then with the NewcrestImage portfolio now closed and the booking trends picking up, what's Summit's leverage to the potential urban recovery today versus prior to the Newcrest acquisition?

Yes, about 50% of our portfolio remains urban-based, but there has been a shift towards Sun Belt urban markets. Overall, the proportion has stayed relatively constant. One key focus has been understanding the diverse potential recovery across different markets, especially as we integrate the Newcrest portfolio. For example, the Dallas market has recovered to over 80% of pre-2019 levels, while other gateway urban markets lag behind. We do not expect a uniform recovery across all markets. We are optimistic about the urban portfolio's potential, particularly in Sun Belt markets, which are experiencing significant population growth and corporate relocations. We anticipate a faster recovery and a stronger growth trajectory in these urban areas compared to some of the more traditional gateway markets.

And then just kind of last as a follow-up to that, how does Newcrest's portfolio perform during this period of disruption relative to your legacy portfolio?

Yes. It has performed better. I think from a recapture perspective. Our overall recapture percentage for the full year last year was about 63%. If we layered in the Newcrest portfolio, it adds a couple of hundred basis points to that recapture percentage. It does get a little bit dicey getting into the numbers in too much detail. As you'll recall, a fair number of the assets in the Newcrest portfolio either weren't open in 2019 or weren't fully ramped up in 2019. But again, if you look at the pace of recovery in those 26 assets that are currently open today, it is a little bit ahead of our legacy portfolio.

Our next question comes from Michael Bellisario with Baird.

Jon, I just wanted to go back to the labor comments that you made. It looks like FTEs were roughly flat versus 3Q. How much of that is it simply hard to find labor today versus seasonality and slightly lower occupancy levels in the fourth quarter versus the third quarter?

Yes, a little bit of both, frankly. I think we've started to see some improvement in the labor market. I think the number of applicants that we're seeing for positions has ticked up. It's still challenging out there. I think you're seeing it really across the industry. We did expect there to be a seasonal slowdown in demand. I think as we've kind of talked about, it's been hard to find people. So once we've been able to find those bodies, we want to make sure that we keep them in place despite the fact that we were moving into what we knew was going to be a little bit slower seasonal period, but we're still running very, very lean. Trey mentioned, we've got roughly 19 FTEs per property. It's about 55% of what our typical run rate is. We've obviously talked a lot about the wage pressure we've seen across the industry. Certainly, some of that was in the fourth quarter, and we're still operating these hotels. Our cost per occupied room is still down more than 5% fourth quarter of this year versus fourth quarter of 2019. So the team has done a really remarkable job continuing to operate the hotels in a very efficient manner. I think they've done a good job positioning hotels from a staffing perspective once we start to see more of a ramp-up in demand here as we progress through this year.

Got it. And then that 45% that hasn't come back yet, what type of position at the hotel level? Is that? Is it mostly housekeeping?

Yes. It's mostly hourly staff, so mostly housekeeping, front desk.

Got it. And then just switching gears to acquisitions and capital allocation, just digesting the Newcrest portfolio here. What's your view on the transaction landscape? And how much money do you think you guys might be able to put to work on a net basis in 2022, aside from the Newcrest transaction?

Yes. Look, we've only owned the Newcrest portfolio for about 40 days. So we're definitely well on our way to integrating that portfolio within the company. I think we feel better today than we did even when we underwrote or even when we announced the acquisition about what the opportunity set looks like through that acquisition. As we talked a lot about, we were very thoughtful and diligent in how we structured the deal. So we didn't use any of our liquidity. Trey mentioned, we still have nearly $450 million of liquidity available for us to continue to be thoughtful and try to grow the business. We do expect to exit our covenant waivers here over the course of the next quarter. So we'll have even greater flexibility to continue to pursue growth opportunities. On a net basis, we prefer to be a net acquirer early in a cycle. I wouldn't preclude us from looking to sell some assets on an opportunistic basis. I think, as everybody knows, there's a lot of capital chasing high-quality assets like the ones that we own, which speaks to supporting the overall value of the business. So again, I think we've been thoughtful in positioning the company to continue to grow externally, but we'll always continue to be prudent capital allocators and opportunistic both on the buy and the sell side.

Our next question comes from Neil Malkin with Capital One Securities.

Glad we're not in Ukraine right now. Sorry about what's going on. I'm pretty sad and hurting the market. Switching gears to something, I guess, a little less concerning. Can you talk about the benefits from the Aimbridge takeover of the Newcrest hotels. Just in terms of like maybe articulating or giving us some numbers around savings, margins, best practices, leveraging approximate hotels, synergies and things like that, that maybe weren't underwritten in the purchase, that would be great.

Yes, sure. Thanks for the question. First of all, Aimbridge is our largest manager and has been for some time. We have a wonderful relationship that has been amazing partners for us really since the time of the company's IPO. We do have our own dedicated team within the Aimbridge platform that really services our assets in particular that we think is very unique, and we're big believers in that it optimizes overall results. We do think there's real opportunity in terms of the upside in the assets. We haven't quantified that; we didn't underwrite that, but we do think that there's real opportunity, both from a sales and a cost perspective. Some of that is driven by exactly what you've alluded to. There's real complexing activities. We bought 27 hotels; we're in the process of buying 27 hotels. Many of them are complex; they're either dual-branded or Triplex type branded properties where we think there's opportunities to complex positions and ultimately have more efficient sales operations. So we're still, again, we're 40 days into the acquisition. It's part of what I alluded to that we feel better today than we did even when we underwrote the asset because we didn't bake any of that upside into our underwriting. But we do believe there's going to be some real opportunity there to drive better results, not necessarily just because of the Aimbridge relationship. It has a lot to do with the expertise that we have in-house as well, both from a revenue and asset management perspective.

That's super helpful. I guess maybe talking about balance sheet or capital allocation, a bigger picture question. I guess, two parter. One, do you have a different outlook or view toward leverage, just kind of over the last two years going into COVID, a little bit higher leverage; you were more limited in what you could do or how you could do it. Everything you've done COVID to date has been through GIC. So that's kind of the first part. And the second part is, what are the signals, lines in the sand metrics you need to see or achieve before you can start doing things more on the balance sheet?

I'll start, and Trey can add his insights regarding the balance sheet. We all would have preferred a lower leverage heading into the downturn, and we share that sentiment. When we evaluate our balance sheet health, we consider more than just the net debt to EBITDA ratio. While that is a straightforward metric for comparison in the industry, we take a comprehensive view. We assess our interest coverage ratio, fixed charge coverage ratios, maturity ladder, and total liquidity. Overall, we felt that we had a healthy balance sheet going into this situation, despite being at the high end of our leverage range. We had substantial liquidity for our business size and no immediate maturities, allowing us to navigate through a challenging period without having to raise dilutive capital. Our balance sheet is currently stronger than it was a couple of years ago, partly due to our careful capital-raising strategies. We feel optimistic about the progress and the natural decrease in leverage we expect over the next few years, moving towards a more normalized range. Regarding acquisitions within or outside the joint venture, we remain positive about the joint venture, which constitutes about a quarter of our overall portfolio. There are still growth opportunities within that venture, and we appreciate the fee stream it generates, as it reduces the capital needed for any deals. GIC has been excellent partners, and we are mindful of avoiding an inverted capital structure. I’m proud of reaching approximately $1.3 billion in invested capital in the venture, and as that continues to grow, we anticipate exploring growth opportunities outside of it as well.

The only thing I'd add to that is, as Jon said, I think organically, we feel like we'll be able to get back into the ZIP code that we've always put out there from a net debt-to-EBITDA perspective over the next couple of years, and we feel good about the kind of embedded growth that's in the portfolio. As Jon said, we don't want to look at that. When we look at our kind of EBITDA to interest coverage ratio, we're at roughly 2.5x. So there's a fair amount of capacity there. As we look at exiting our waivers and what our agreement is within our credit facility, we'll be able to operate within that starting in the second quarter, and that gives us a lot of flexibility to be able to go out to continue to deleverage but also continue to achieve our growth plans. So I think that the long-term goals of the company from a leverage perspective remain the same and we plan to get there in a relatively normal course.

I appreciate that. As a follow-up to a previous question, I wanted to discuss your FTE count. If demand were to return to 2019 levels tomorrow, how close are you to achieving your new brand standard enhanced operating model in the lodging sector? Once everything normalizes and stabilizes, do you anticipate being at around 80% or 75% of FTEs? Could you share your thoughts on that?

Yes. It's a great question. I think where we sit today is we're about 55% of normalized FTE count. I think in fairness, we're still working through with the brands what the normalized brand standards are going to look like. I think in part because we're waiting to see this return of business travel and what the effects of that has on our overall business. I don't suspect that we're ever going to go back to 35 FTEs for asset. I think, as you've alluded to, there's going to be some efficiencies in this business that's going to allow us to continue to operate with a more efficient model and less FTEs per hotel. We're going to still figure that out over time. My guess is that somewhere to use a broad range, somewhere between 70% and 80% of our pre-pandemic total FTE count.

Next question comes from Chris Woronka with Deutsche Bank.

I wanted to revisit the labor issue from a different perspective. What geographic differences do you observe? You mentioned the Newcrest portfolio, but regarding the percentage increase for wages and benefits or availability, is there a significant difference between the Sun Belt and the northern or coastal regions?

Yes. I think it's market by market, Chris. But there is a difference. I mean, we're talking very broadly; we're lumping 40 markets together over 100 hotels when we kind of give statistics about what we're seeing in labor dynamics. There's no question that it's more acute in certain markets. Orlando, as a market, in particular, that we've talked a lot about where we've got some more acute staffing challenges in that market. So where there's demand, particularly service-related demand, it is a tougher staffing market in some of those areas.

That's helpful. I appreciate the capital expenditure outlook for the year. Looking further ahead, I have some directional questions rather than specific numbers. As we consider the Newcrest portfolio and the projects that may have been delayed over the past two years, do you foresee a run rate for 2023 or 2024 that indicates a new peak level of capital expenditures? Essentially, is there a significant spike anticipated?

Yes, we anticipate increased spending this year, which we have already indicated. A significant portion of our assets and spending are in the venture, impacting only half of our share. Before the pandemic, we typically spent around $50 million to $60 million annually for about 70 hotels. This year, our pro-rata guidance sets that at $60 million, marking an increase. This is partly due to a larger hotel count and our desire to catch up on renovations. We mentioned early last year that we would accelerate renovations once we were confident in demand. Fortunately, we entered the downturn with a new portfolio free of deferred capital. Additionally, when discussing the integration of the Newcrest portfolio, it's mostly new, with only one asset needing immediate renovation. The majority of the assets were opened in the last three to five years, and we don't face any urgent capital requirements. This allows us to expand the business without significant capital investments in the coming years. You can expect the run rate we provided for 2022 to reflect what we anticipate for the next few years.

Okay, that's very helpful. My last question is about potential sales moving forward. By definition, there’s always a lowest-performing segment. Newcrest might alter what we consider the lowest performers, possibly impacting some older hotels. Can you share your perspective on how many noncore hotels you currently have that you would consider selling if the price was right, compared to those you intend to retain long-term in the core portfolio?

Yes. Look, I don't know that there's anything that we really look as truly noncore that we just don't want to own anymore. As you said, there's always kind of a bottom 10% of the portfolio that you could dispose of. I think more importantly, the way we look at it is, first of all, we don't have to sell. We don't feel like we need to go sell assets to raise capital in some sort of defensive manner. As we all know, there's a tremendous amount of capital chasing high-quality assets in good markets, and we've got a portfolio full of those types of assets. To the extent that we can find a buyer that will pay the right price, every asset in this portfolio is for sale every day. I wouldn't preclude us from being an opportunistic seller of assets this year.

Our next question comes from Bill Crow with Raymond James.

John, any change in guest satisfaction score trends now that the changes in service levels have been implemented for a longer period of time? Are your guests getting used to the changes or, as you welcome more business travelers, are they rediscovering the experience is not quite as good as it used to be?

I believe the issue is less significant now than it was at the beginning of the pandemic. When we removed many amenities and services, it negatively affected guest satisfaction scores. However, we have since reinstated many of those amenities, and breakfast services have returned to normal. I think there has been some level of customer education over the past two years. As a result, guest satisfaction scores have improved compared to before. Together with the brands, we want to ensure that business travelers returning do not face any further disruptions. I don’t anticipate any issues. Business travelers who haven’t traveled for work in two years but have traveled for leisure are likely already well-informed. Overall, this is less of a concern now than it was a year or two ago.

And Jon, shifting over to that leisure traveler. It seems like logic would suggest that $5 per gallon gasoline, higher rental rates for apartments, etc., would take a greater relative toll on maybe select service leisure guests than it would on luxury or even upper upscale leisure guests. I'm just wondering if that's starting to be evident in maybe some pushback on rates or shorter average durations, that sort of thing. Are you seeing any pushback yet?

Yes, Bill. We've been discussing this recently. With the developments in Ukraine, one possible outcome could be an increase in gasoline prices. We've noticed oil prices exceeding $100 a barrel. Historically, even when gasoline prices have risen, we haven't seen a significant impact on our occupancy rates or our ability to raise prices. Currently, our hope is for this situation to be resolved quickly, and we prefer lower gas prices. However, we have not experienced much impact from gas price changes. The consumer base is quite healthy, with significant savings and a strong inclination to spend, especially on travel. This was evident during the President's Day weekend, where our results were up 65% year-over-year, and our RevPAR increased by about 4% to 5% compared to 2019. Our rates were nearly 10% higher this year than in 2019 for that weekend. While we don't want higher gas prices, they haven't historically affected our business significantly, and we have not noticed any impact this year so far.

And I'm currently showing no further questions. I'd like to hand the conference back over to Mr. Stanner for any closing remarks.

Yes. Thank you all for joining us today. We're excited about the future of Summit. We look forward to seeing you all, hopefully, in person soon and speaking with you again next quarter. Have a nice day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.