Yahoo Finance Summit Hotel Properties Inc (INN) Q1 2024 Earnings Call Transcript Highlights: Robust Growth ...
Adjusted EBITDA: Increased 10% year-over-year.
Adjusted FFO: Increased 14% year-over-year.
Pro forma RevPAR: Increased 1.5% year-over-year.
Hotel EBITDA: Grew 6% with margin expansion over 80 basis points.
Common Dividend: Increased to $0.08 per share quarterly, $0.32 annually, up 33%.
Asset Sales: 3 hotels sold, total $131 million at a blended cap rate of approximately 5%.
Net Debt-to-EBITDA Ratio: Reduced nearly a full turn.
RevPAR Index: For the pro forma portfolio was 115%, up 335 basis points.
Pro forma Hotel EBITDA: $68.6 million, up 6% year-over-year.
Adjusted FFO per Share: $0.24, up 14% from the previous year.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Adjusted EBITDAre and adjusted FFO increased by 10% and 14% respectively, compared to the first quarter of last year.
Pro forma RevPAR increased by 1.5% year-over-year, outperforming the total U.S. lodging industry and upscale chain scale.
Significant market share gains across the portfolio with a RevPAR index of 115% in the first quarter, an increase of 335 basis points.
Strong performance in urban and suburban markets, with specific markets like Baltimore, New Orleans, and Minneapolis showing robust RevPAR growth.
Successful capital allocation with the sale of 9 hotels over the last 12 months for $131 million at a blended capitalization rate of approximately 5%, enhancing portfolio quality and reducing near-term CapEx requirements.
Negative Points
A 1.4% decrease in average rate year-over-year, concentrated in leisure-oriented markets which offset some of the occupancy gains.
Continued softness in the San Francisco market, with downtown San Francisco remaining a pocket of weakness.
Leisure market challenges, particularly in ski markets like Silverthorne and Steamboat, where there was a noticeable decline in ADR due to weaker snow seasons compared to the previous year.
Increased labor costs and challenges, although moderating, still present issues with wage growth and turnover rates higher than pre-pandemic levels.
Potential risks from new brand entries at lower chain scales by major hotel brands, which could impact market dynamics and competitive positioning.
Q & A Highlights
Q: Jon, you flagged the strength of your expansion markets in your prepared remarks, which I believe account for around 20% of hotels. And I was wondering if you could break out what RevPAR growth you're assuming this year for these expansion kind of higher-growth markets that have lagged in the recovery versus the balance of the portfolio? And how much of this growth that you're seeing do you think is sustainable demand versus more onetime benefits to the market's event-driven type business? A: Jonathan P. Stanner - Summit Hotel Properties, Inc. - President, CEO & Director: Yes. Thanks, and good morning, Austin. Look, we do -- obviously, we had a really strong first quarter in these kind of lagging markets in these growth markets. We expect that to continue for the year. We haven't provided a specific breakout for the market. But I think on a full year basis, these will be several hundred basis points of incremental growth above and beyond what we see in the quarter. The portfolio grew 12% for the quarter this year versus the full portfolio -- sorry, for the quarter versus the full portfolio at 1.5%. Our expectation for the second quarter is similar. We think that we'll have strong growth probably closer to double-digit growth on a blended basis in these markets. Markets like Louisville, where there's the 150th running of the Kentucky Derby this week and they host the PGA Championship at Valhalla later in the month, the signs in our pace in Minneapolis, Baltimore, even in Milpitas and Silicon Valley, all continue to be very positive. We don't look at this as kind of a onetime event in the first quarter. We think we'll see similar outperformance in the second quarter. And again, this should really enhance our growth profile for the full year.
Q: When you kind of take the other side and look at maybe what's weighing I guess, where are you seeing I guess the softest pieces and what segments or markets give you a little bit of pause when you look at pace kind of at the other end of the range? A: Jonathan P. Stanner - Summit Hotel Properties, Inc. - President, CEO & Director: Yes. In the first quarter, it was mostly around some leisure-related markets that had ADR declines. I think demand is still solid in the vast majority of those markets, but we did see some softness on the rate side. For us, we have a couple of markets in -- a couple of assets in ski markets where we just didn't have as strong of a snow season as we did last year. We were down close to double digits in Silverthorne and Steamboat for example for the quarter. I don't look at that as any type of systemic demand issue. I think that more than anything, you had very difficult comps year-over-year. And I think as you get into the second and third quarter, into this more peak summer travel season, you'll see a normalization of those rate patterns. When I look at our expectations and our pace for Q2 and into Q3, and we don't have the most visibility in our quarter, but when I look out into May and June, our pace statistics, one, are very positive. And two, is encouragingly, it's very broad-based. The vast majority of our markets are showing positive pace outlooks for the third quarter in particular.
Q: Yes, that's all helpful. And maybe just one on the balance sheet. You guys have clearly made a lot of progress. You alluded to kind of the dividend increase and signaling that that provides. I guess, leverage still remains above your long-term targets. What sort of next steps to kind of further decrease leverage towards your longer-term targets, especially if financing markets continue to remain challenging? A: William H. Conkling - Summit Hotel Properties, Inc. - Executive VP & CFO: Austin, it's Trey. I would say one thing as we -- you look at the financing markets, obviously we're pleased with the fact that we don't really have any near-term maturities until 2026, and we're effectively kind of hedged at 80%, so that part feels good. As we look to de-lever the balance sheet, I think what we'll do is we'll be very opportunistic around it, which could potentially be select asset sales over time to the extent that they're accretive and similar to what Jon had talked about before. But really, I think it comes in the form of a rebound in hotel EBITDA in some of these lagging markets. And so to the extent that you see these 5 markets, as Jon has highlighted continue to come back, hotel EBITDA will solve a lot of those issues today. I think with the asset sales that we announced this quarter, it de-levered the balance sheet probably another quarter turn, so we're down close to 5x. An incremental movement down in the 4s probably comes from just improved operations through the balance of the year.
Q: Yes. Austin, it's Jon. Maybe just to add a little bit of additional color there, I think as Trey alluded to and we talked about this in the prepared remarks, we've sold 9 assets. We sold over $130 million of assets. And we've been I think really strategic around how we've done it and able to find opportunities to sell assets to at relatively low cap rates. We haven't given up much cash flow in doing that. And we felt like taking this very targeted more tactical approach to it ultimately led to better results than just kind of a rip the Band-Aid and sell a large portfolio in an environment where it's still very difficult to get transactions done, particularly larger transactions that need a bigger financing check.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
