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#Thank you, Emily, and good morning.
I am joined today by Summit Hotel Properties President and Chief Executive Officer, <UNK> <UNK>, and Executive Vice President and Chief Financial Officer, <UNK> <UNK>.
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 2015 Form 10-K and other SEC filings.
Forward-looking statements that we make today are effective only as of today, May 4, 2016, 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, <UNK> <UNK>.
Thanks, <UNK>, and thank you all for joining us today for our first-quarter 2016 earnings conference call.
We are extremely pleased with the results that our diverse portfolio of premium select-service hotels delivered in the first quarter of 2016.
For the quarter, we reported adjusted FFO of $28.3 million, which is a 21.7% increase over the first quarter 2015.
Our AFFO per share increased 21.2% from the first quarter 2015 to $0.32 per share.
On a pro forma basis, we posted RevPAR growth of 3.8% in the first quarter which was near the midpoint of our outlook and as a reminder, was on top of 11.9% growth in the first quarter of 2015.
Our RevPAR growth was driven by a 2.3% increase in occupancy to 77.6% and an average daily rate increase of 1.5% to $141, both of which were partially offset by a total of 39 basis points due to renovation displacement.
Our same-store RevPAR growth for the quarter was 4.5% compared to the first quarter 2015.
RevPAR was driven by a combination of increases in occupancy, which was up 3.3% and a 1.2% increase in average daily rate.
The strength and quality of our portfolio continues to be evident as we again surpass the Smith Travel Research overall US and Upscale RevPAR growth rates by large margins.
Our RevPAR growth was driven 60% by occupancy as compared to the Smith Travel Research Upscale average, which was flat.
The primary factors behind our occupancy growth were the Super Bowl in San Francisco and the continued ramp from hotels under renovation in the first quarter of 2015.
Looking ahead, we still expect a majority of our full-year 2016 RevPAR growth to be rate driven.
The strength in our first-quarter RevPAR growth was again very broad-based, which is what we would expect from the geographic diversification of a portfolio like ours.
Three of our top five performing markets in the first quarter were on the <UNK>t Coast, those being San Francisco, Portland and Ventura, California, which is in the Los Angeles MSA.
Our three hotels in the San Francisco market delivered 19.4% RevPAR growth, outpacing the MSA average by 370 basis points.
Even more impressive, these hotels were able to capture more than 500 basis points of additional market share in the quarter as compared to their competitive set which is a testament to our best-in-class revenue and asset management team.
Moving on, in the first quarter we closed out the second 1031 with the sale of Tranche 3 and purchased two hotels with a total of 386 rooms for an aggregate purchase price of $109 million, or approximately $282,000 per room.
The 226-room Courtyard by Marriott in Nashville hotel is located in the vibrant Midtown neighborhood near many of the area's finest restaurants and entertainment venues as well as Vanderbilt University, the Ryman Auditorium and Bridgestone Arena.
In addition, the hotel benefits from proximity to Music City Center, historic Second Avenue, Country Music Hall of Fame, Nissan Stadium, Nashville Convention Center and the Centennial Sportsplex, which are all located less than a mile away.
The 160-room Residence Inn by Marriott Atlanta is in the heart of the diverse Midtown neighborhood and conveniently located near the High Museum of Art, Alliance Theatre, Atlantic Station, Center Stage and the Fox Theater.
These institutional quality hotels with strong and diverse demand generators are excellent complements to our existing portfolio and, as a pair, generated RevPAR of $128 and hotel EBITDA margins of 45.1% in 2015.
The two acquisitions have a RevPAR premium of 36% and hotel EBITDA margin premium of more than 700 basis points as compared to the six hotels sold during the quarter.
Our capital recycling initiative continued in the first quarter of 2016 by completing the sale of those six hotels to affiliates of American Realty Capital Hospitality Trust on February 11 for a combined price of approximately $108.3 million.
In addition, we were able to resurrect the purchase and sale agreement on Tranche 2 which consists of 10 hotels.
Under this agreement, the remaining 10 hotels are scheduled to be sold by the end of 2016.
Simultaneous with this sale of the six hotels, we entered into a $27.5 million loan with ARC Hospitality, with $20 million being applied to the purchase of the six hotels and the remaining $7.5 million being applied to the new earnest money deposit on the remaining 10 assets scheduled to be sold in 2016.
Since the transaction to sell 26 hotels was announced in June of 2015, we have fully redeployed the disposition proceeds received so far into $307.8 million of acquisitions that have a RevPAR premium of more than 60% compared to the hotels we have sold and have under contract to sell.
Completing the first two phases of the transformation to higher RevPAR assets in markets with strong growth profiles is a milestone that demonstrates our team's thoughtful view on capital allocation and the subsequent value creation.
With that, I will turn the call over to our CFO, <UNK> <UNK>.
Thanks, <UNK>, and good morning, everyone.
We were very pleased with our first-quarter 2016 results.
On a pro forma basis, our hotel EBITDA in the first quarter 2016 increased to $43.8 million, which was an increase of 10.3% over the same period in 2015.
Pro forma hotel EBITDA margins expanded by 112 basis points to 37.5% in the quarter.
For the first quarter, our adjusted EBITDA grew to $40.9 million, an increase of $6.4 million or 18.6% over the same period in 2015.
Moving on to our balance sheet, our balance sheet is arguably in the strongest position it has ever been, and we have continued to strengthen it by reducing leverage, staggering our debt maturities and improving our cost of financing.
At March 31, 2016, we had total outstanding debt of $704.1 million with a weighted average interest rate of 3.76%.
We ended the first quarter with net debt to trailing 12-month adjusted EBITDA of 4.2 times.
Our reduction in leverage is primarily the result of continued EBITDA growth and the sale of 16 hotels to affiliates of ARC Hospitality.
In January 2016, we closed on a new $450 million unsecured credit facility which replaces our former $300 million facility.
As a result of the successful completion of this credit facility, our pricing grid was improved by approximately 30 basis points.
As of April 21, we had total net debt to trailing 12-month adjusted EBITDA of 4.1 times and had total outstanding debt of $693.3 million with a weighted average interest rate of 3.78%.
Subsequent to quarter end, we repaid one CMBS loan in the amount of $5 million and expect to repay another in the amount of $13.4 million this week using our unsecured revolving line of credit.
As a result, more than 60% of our portfolio EBITDA will be unencumbered with less than 5% of our total debt maturing through 2018.
With the continued outperformance of our portfolio and consistent cash flow stream provided by our premium select-service hotels, we are excited to have increased the common dividend for the first quarter of 2016.
On April 29, we declared a cash dividend of $0.1325 per common share which is an increase of 12.8% over the prior quarter.
Turning to our outlook, in our release you will see that we provided our second-quarter outlook and increased our guidance for the full-year 2016.
For the second quarter 2016, we are introducing pro forma and same-store RevPAR growth guidance of 5% to 7%.
Our second-quarter adjusted FFO guidance is $34 million to $35.8 million, or $0.39 to $0.41 per share.
For the full-year 2016, we are increasing our RevPAR growth outlook to a range of 4% to 5.5% for both our pro forma and same-store portfolios.
We are also increasing our adjusted FFO outlook to a range of $114.4 million to $119.6 million, or $1.31 to $1.37 per share, which is an increase of $0.9 million, or $0.01 per share, at the midpoint.
We have incorporated capital improvements of $40 million to $50 million which includes both renovation and recurring capital expenditures.
Our adjusted FFO guidance continues to assume a mid-year sale of 10 hotels totaling $89.1 million.
No additional acquisitions, dispositions or equity raises other than those mentioned are assumed in the second quarter or full-year 2016.
With that I will turn the call back over to <UNK>.
Thanks, <UNK>.
In summary, we are very pleased with the consistent results in our portfolio and remain encouraged about 2016 as the benefits of premium select-service hotels, limited supply growth in our submarkets, and broad geographic diversification continues to show the benefits of our differentiated investment strategy.
With that, we will open the call to your questions.
We haven't triangulated around a specific number market by market.
We watch them very close and as you know, it takes two and sometimes three years to build hotels even in markets outside of the gateway cities, so we are very aware of what is coming.
I would estimate it would be 2% or less as a portfolio.
Some of our markets have zero, some probably have a little bit more but very manageable in our markets.
<UNK>, it is a good question.
At this point, I don't see any direct correlation from the brand initiatives.
I think it is a positive for the industry.
We think it incrementally will help us at the owner level, but I think it is still too early to draw anything from that initiative to our direct performance.
Sure, <UNK>, thanks for the question.
We have had quite a bit of interest in the portfolio.
It is under contract so we don't have to sell it.
What we did decide to do is take seven of the hotels and bring them out to market to better manage the process and be efficient.
So there is quite a bit of demand for one-off and smaller portfolios, and we expect to have more to announce here in the coming quarters.
I don't know that we look at it as a premium.
We have at some level a built-in floor for pricing.
And remember these weren't hotels that we had to sell so in the absence of getting as great a value as we have with the current contract, we would be much less likely to sell.
<UNK>, I think the 3.5 times to 4.5 times is the range we feel comfortable in.
A year ago it was 4 to 5.
This year we think 3.5 times to 4.5 times is appropriate.
I think that range will be what will guide our activities.
So at this point, I don't know that we have a view on deployment other than making sure that whatever we do with our capital creates value for shareholders.
That is correct.
I think single assets have probably backed up maybe 50 to 75 basis points over the year.
A lot of that is offset by increased net operating income.
So I think values have been pretty constant.
There haven't been enough portfolio sales to really have a strong benchmark or basis in our view.
But I think it is fair to say that cap rates have backed up 50 to 75 basis points.
I think that is fair.
That has always been our goal is that kind of forward mid-8 either going in or very quickly after acquisition through operational improvement.
So I think that is still an area that we feel comfortable in.
<UNK>, that is a great question.
We are not seeing it at any level that would give us concern.
Certainly there is a hotel or a submarket that may be experiencing softening due to maybe one demand generator.
But broadly based, we still see the business and leisure transient guest as stable and not affecting our portfolio.
<UNK>, that is a really good question.
I think historically the trade down concept has been a concept that has been very, very well understood and followed but today with the quality of premium upscale select service, I think it is not as much of a trade down as it is really a value proposition.
I think guests are drawn to the quality, the location and the experience in many of the premium upscale hotels and that is driving it more so than a categorical mandate from the business that they cut costs.
Thanks, <UNK>.
I will answer those in reverse order.
I think our revenue management team is focused on creating opportunities in each market every day so I think it is fair to say that a heads in bed strategy or focusing on occupancy in certain markets at certain times is certainly warranted but it is not an across the board strategy that we are employing.
It is a market by market, hotel by hotel initiative.
And as far as the mix, we do believe that the first quarter was not indicative of the full-year and that a more balanced mix of rate and occupancy you will see over the next several quarters and we still expect a majority of our RevPAR to be rate driven for the full-year.
Yes, <UNK>, we said at the beginning of the year that we expected about 25 to 75 basis points of expansion for the year and for the quarter.
That is still very true.
What we did see was we had a $700,000 property tax refund in New Orleans that kind of attributed about 50 basis points to this quarter.
So we still hit 62 basis points of just kind of toward the higher end and we would expect as we go through the year to still see about 25 to 75 basis points of expansion in the operations.
Yes, that was not in the original guidance because we did not have final resolution yet to where we were going to be on that.
So we set our original guidance without it and the 25 to 75 for the rest of the year we still see for the full year without that $700,000 benefit.
<UNK>, this is <UNK>.
New Orleans is a tough market for sure.
Each quarter is either a difficult or an easy comp based on how the citywide events plan out.
It is going to be a tough market for the year and a challenge for us but with the property types that we have and the asset management and revenue management team that is focused day to day in there, it is going to be a challenge but we will find opportunities to create as much growth as we can.
That is a great question.
I think that buybacks are definitely on the list of options for us.
It is a little bit harder because of our size and liquidity to execute a stock buyback that would be meaningful but it is definitely an option that we have.
I think we have demonstrated a bias towards finding unique and creative ways to create value.
So ---+ but I wouldn't say that it is any way off the list.
I guess two questions.
The notion that the consolidation in the space would happen has been an ongoing topic that has never really gotten traction for a lot of reasons, some obvious, some maybe not as obvious.
I think there are definitely benefits to size and scale but I don't think there is any reason that size and scale can drive greater value just on pure size alone.
We have been able to create great value at our size.
Certainly being a little bit bigger would be a benefit but we decided early on that we were going to win on quality and execution and that getting big just to get big really wasn't in keeping with creating value.
I think, <UNK>, this is <UNK>.
I think the two that come to mind mostly for us are Houston.
Houston continues to struggle.
The storms didn't help.
I think the perception out there is that Houston is still completely under water and that has been a market that the most recent storms have kind of exacerbated a challenging market.
And then New Orleans, it is one of our larger markets and is a year that tends to be softer.
So I think those two markets as a whole are our greatest challenges for the year.
And as I referenced earlier, we've got a great asset management and revenue management team that are always looking at unique and creative ways to minimize the effect of some of those events.
Thank you all for joining us today.
Before I go, I did want to reiterate our guidance for the quarter.
For our pro forma and same-store portfolios is 5% to 7% growth for both.
And I do appreciate the trust that you have in us and we will continue to work hard for you by being thoughtful in our capital allocation and continuing to find opportunities to create value in the premium upscale hotel market which are the hotels that today's guests love.
Have a terrific day and we look forward to talking to you again next quarter.
