Yahoo Finance

William Conkling

Thanks, Jon, and good morning, everyone. For the first quarter 2025, RevPAR growth was driven by the company's urban portfolio, for which RevPAR increased nearly 3%, outpacing the total industry by approximately 80 basis points. The strength of the company's urban portfolio is better highlighted by the 6.8% RevPAR growth realized in January and February before broad macro uncertainty disrupted March demand.
Urban markets delivering outsized growth include New Orleans, Tampa, San Francisco, Chicago and Downtown Houston, all of which experienced first quarter RevPAR growth of 7% or higher. San Francisco, in particular, outperformed in the first quarter with RevPAR growth of 13.5%, driven by a successful JPMorgan Healthcare Conference in addition to multiple other citywide events.
This enabled our hotels to maximize compression opportunities, driving a 550 basis point outperformance to first quarter San Francisco MSA RevPAR growth of approximately 8%. Looking ahead, San Francisco is positioned for another strong quarter as convention pace is up over 30% in the second quarter. Strength in group also applied to our urban hotel portfolio broadly, for which group RevPAR increased 17% versus the first quarter of 2024 and over 30% relative to January and February 2024. The performance of our urban portfolio in the first quarter gives us strong conviction that Summit is well positioned to outperform as the macro environment normalizes. Today, urban hotels comprise approximately 48% of our total guest room count.
The company's suburban and small town metro portfolios generated average RevPAR growth of 1.2% in the first quarter, driven by our hotels in Portland, Hillsboro, Greenville, North Dallas, Frisco and Southern California. We have invested significant capital into renovating many of our suburban and small town metro assets over the past 24 months and expect strong relative future performance, assuming normalized conditions.
Today, suburban and small town metro hotels comprise approximately 29% of our total guest room count. Summit's exposure to the resort location type accounts for only 11% of total guest rooms. One of our largest resort assets, the Courtyard Oceanside Fort Lauderdale Beach, just completed a significant repositioning, and we expect this capital investment will provide a tailwind to our resort portfolio RevPAR growth for the remainder of 2025 and into 2026.
Moderating expense growth continued in the first quarter with pro forma operating expenses increasing approximately 1.5% year over year as the company realized incremental progress across multiple aspects of our cost structure. Given modest revenue growth, our asset management team and hotel managers have successfully focused on managing wages, reducing hotel reliance on contract labor and improving employee retention. Hourly wages, excluding contract labor, increased just 1.2% compared to the first quarter of 2024.
The company continues to benefit from reductions in contract labor, which declined by 9% on a nominal basis and -- by 10% on a nominal basis and by 9% on a per occupied room basis versus first quarter 2024. Contract labor now represents 10% of our total labor costs, which is 750 basis points below peak COVID era levels, but 250 basis points above 2019 levels, suggesting the opportunity for further improvement.
We also continue to see improvement in employee retention, which results in improved productivity in the hotels and reduced training costs. Finally, we continue to be encouraged by expense trends in our portfolio and how the current baseline cost structure positions the company for future bottom line growth. Same-store RevPAR growth for the first quarter was 1.5%, driven by gains in both occupancy and average rate. Due to the company's strong retention efforts, hotel EBITDA margin contraction of 49 basis points finished better than the tight end of annual margin guidance provided in February 2025 despite modest RevPAR growth. First quarter adjusted EBITDA was $45 million, a modest decline versus prior year, driven primarily by the net effect of asset sales completed in 2024.
First quarter adjusted FFO was $27.4 million or $0.22 per share as the company continues to benefit from lower interest expense resulting from deleveraging efforts related to our strategic asset sales completed in 2023 and 2024. From a capital expenditure standpoint, in the first quarter, we invested $16 million in our portfolio on a consolidated basis and $14 million on a pro rata basis.
Recently completed and ongoing renovations include the Courtyard Oceanside Fort Lauderdale Beach, Courtyard Grapevine, SpringHill Suites Dallas Downtown, Courtyard Charlotte, Residence Inn Atlanta Midtown and the Hampton Inn & Suites Silverthorne. The company's continued investment in our portfolio resulted in a RevPAR index of 114 for the first quarter of 2025 and a RevPAR index of 116 when excluding the displacement from renovations.
During the first quarter, our portfolio incurred approximately $2 million of revenue displacement related to ongoing renovations, of which 75% was related to the Courtyard Oceanside Fort Lauderdale Beach. Adjusted for net renovation displacement in the first quarter, same-store RevPAR increased 2.4%. Our continued investment ensures the quality of our portfolio positions the company to drive profitability in the future.
Turning to the balance sheet, in March, we closed on a $275 million delayed draw term loan, the proceeds of which will go to refinance the $287.5 million, 1.5% convertible notes maturing in February 2026. The delayed draw option is open until March 2026, which will allow the company to benefit from the lower coupon convertible notes through the balance of 2025, thus preserving meaningful cash flow.
In addition, the balance sheet continues to be well positioned with total liquidity of over $300 million, an average interest rate of approximately 4.6% and an average length to maturity of nearly 4 years when adjusting for the new delayed draw term loan. As a result of our interest rate management efforts, our interest rate exposure continues to be effectively managed with a swap portfolio that has an average fixed SOFR rate of approximately 3% and 71% of our pro rata share of debt is fixed after consideration of interest rate swaps.
When accounting for the company's Series E, F and Z preferred equity within our capital structure, we were 77% fixed at quarter end. With no significant maturities until 2027, a staggered maturity schedule and a strong liquidity profile, we believe the company is well positioned to navigate any near-term volatility in operating fundamentals, as well as to take advantage of potential value creation opportunities. On April 24, 2025, our Board of Directors declared a quarterly common dividend of $0.08 per share, which represents a dividend yield of approximately 8% based on the annualized dividend of $0.32 per share.
The current dividend rate continues to represent a modest payout ratio of nearly 35% based on the company's trailing 12-month AFFO. In addition, our Board of Directors approved a $50 million share repurchase program, given the recent significant dislocation in the company's share price. We will provide updates on the utilization of that program as part of future quarterly earnings.
The company continues to prioritize striking an appropriate balance between returning capital to shareholders, investing in our portfolio, reducing corporate leverage and maintaining liquidity for future growth opportunities. As Jon previously highlighted, while we remain confident in the long-term outlook for both the industry and our portfolio, near-term fundamentals are being negatively impacted by broader macroeconomic uncertainty.
Based on first quarter results and our outlook for the second quarter, our full year performance is currently tracking toward the lower end of our guidance ranges provided in February 2025 for adjusted EBITDA, adjusted FFO and adjusted FFO per share. From a nonoperational perspective, we expect pro rata interest expense, excluding the amortization of deferred financing costs, to be $50 million to $55 million, Series E and Series F preferred dividends to be approximately $16 million and Series E preferred distributions to be $2.6 million.
From a capital expenditure perspective, we are reducing our full-year 2025 spend to $60 million to $70 million on a pro rata basis, which represents a $10 million or an approximate 15% reduction at the midpoint. This will allow us additional time to gain clarity on trade policy and better understand the potential impact of tariffs on both renovation costs, as well as the broader macroeconomic outlook. It is worth noting that over the past three years, we have invested over $250 million in capital expenditures on a consolidated basis, resulting in a portfolio that is generally in excellent physical condition.
This capital investment affords us the flexibility to preserve optionality on certain renovations without risking meaningful downward pressure on overall operating results. The previously referenced nonoperational estimates do not include any additional acquisition, disposition or capital markets refinancing activity beyond what we have discussed today.
Finally, the increased size of the GIC joint venture results in fee income payable to Summit covering approximately 15% of annual cash corporate G&A expense, excluding any promote distributions Summit may earn during the year. And with that, we will open the call to your questions.

Question and Answer Session

Operator

(Operator Instructions) Austin Wurschmidt, KeyBanc Capital Markets.

Joshua Friedland

Hey, good morning. It's Josh Friedland on for Austin. Can you give us a sense of how trends have evolved within government and international since the initial impact earlier this year? And does it appear that these segments have stabilized? Or are you continuing to see pressure in the booking window?

Jonathan Stanner

Josh, this is Jon. Look, I think that we felt the most acute impact from both segments in the month of March, particularly from a government perspective. I do think that they have stabilized, albeit at lower levels. And I think we have some optimism that we'll see some recovery as we progress through the year. I think the sense that we get is that, as part of kind of the government efficiency efforts, there was -- there were really broad-based and deep cuts.
We lost significant portions of that business in certain markets. I think there's some uncertainty of how some level of that travel comes back, but we would expect some of it to come back as we progress through the year. So it certainly hasn't gotten any worse from a government perspective. And again, we think that there's the potential to start to recoup some of those losses as we progress through the year.

Joshua Friedland

Okay. All right. That's helpful. And as it relates to the BT customer, how have those trends evolved at this point relative to your initial expectations? And where do you see those going in the short term?

Jonathan Stanner

Yes. Our midweek negotiated business, again, which we use as kind of a proxy broadly for business transient travel has held up reasonably well. I do think it's obviously one segment that you watch very closely as it tends to be more reactionary to weakness in the broader economy.
But the trends to date there have not trended down in a meaningful manner. We've been fairly pleased with how resilient that demand segment has, and it's held in relatively well. As we said in the prepared remarks, most of the softness in demand we have seen has been concentrated in those two demand segments we referenced.

Operator

Chris Woronka, Deutsche Bank.

Chris Woronka

Hey, good morning, guys, and thanks for all the color so far. So kind of following up on the last question, is it fair to say that in addition to maybe government and maybe set aside a little bit of international inbound that you might have? Is it fair to say that what's really being hit the most is kind of the shorter booked weekend leisure kind of these, what we like to call extra trips? Is that the bucket that you guys would say has been -- was kind of impacted the most thus far?

Jonathan Stanner

Yes. Well, I think it's definitely secondarily to the other demand segments that we've seen. I would say, broadly, we would expect leisure to be one of the more resilient demand segments. Our first quarter trends, which, again, 60 of the days were under much more normal operating conditions. We continue to see growth-driven midweek, and that's the group that we have and the recovery of BT.
There was a shift in that beginning in the first part of March that largely carried through to April. Our expectation is, there's potentially a little softness on the leisure side. But I do think, historically, that's been a demand segment that's been more resilient in periods of economic uncertainty. And we would expect that to happen again. We don't think that there is going to be large-scale canceling of summer vacations.
That feels almost like nondiscretionary spend for the majority of household budgets. It may mean a little bit more domestic travel this year. It may mean a little bit more drive to travel than we've seen in the past, which potentially creates a little bit of a benefit for us. But we do expect that demand segment to hold up reasonably well this year.

Chris Woronka

Great. And then, yes, look, obviously, Q2 is -- you're kind of guiding to negative RevPAR. I think a lot of your peers may get there as well. And then maybe things will turn around and turn positive again in Q3. But at what point kind of on the -- when you think about working with the brands, is it too early to kind of break the glass on maybe an opportunity to go back to the brands on some of the -- I don't want to say COVID things, but COVID things that you did and kind of an effort because you guys have obviously had a lot of pressure coming out of COVID, you've recovered pretty well from that now. But at what point do you think to go back to the brands and kind of ask for some relief on expenses that might be somewhat discretionary?

Jonathan Stanner

Yes. Well, I mean, look, I think I'd point out a couple of things. I've described what we've seen from a demand perspective as a modest pullback in demand. And I think, obviously, we kind of pointed to RevPAR for the second quarter being down between 2% and 4%. A lot of that is exacerbated by the special events comparisons we referenced in the prepared remarks.
And so, this obviously is a very, very different set of dynamics than we had during the pandemic. It really feels nothing like the great financial crisis either. Demand, while we wish it was better, is far more stable than in either of those circumstances. I will say this, we are being proactive in terms of how we manage expenses and how we think about managing our capital needs. So we've -- you saw that in our first quarter numbers where we -- margins have contracted less than 50 basis points on 1.5% RevPAR growth.
We even saw it last year. If you go back to the beginning of last year over the last five quarters, essentially 1.5% RevPAR growth, and we're pretty close to breaking even from a margin perspective. So I do think without going back to the brands and trying to put kind of COVID era controls in place, like we've done a really good job managing expenses. And then the other thing is, look, we've we pulled out $10 million in CapEx spend from our initial guide as our expectation. It's about a 15% reduction at the midpoint of that range.
To the extent that we see demand deteriorate further, there's probably incremental room for us to pull that lever. I would say, those are the starting points for us. And again, unless things get significantly worse, I think we'll be able to kind of manage through given the strength of the balance sheet and our ability to pull those levers.

Chris Woronka

Okay, fair enough. Thanks, Jon. If I could just sneak a clarification question in, talking about the mix shift, is that more about kind of going to a little bit more OTA opaque or is that more about contract stuff with crews and the like?

Jonathan Stanner

Yeah, it's a little bit more reliance on discount channels, and that could be advanced purchase or any type of discount. It could be reliance on the OTAs, which is offsetting kind of declines in the qualified segment, which is government-driven and some declines in retail.
Again, I'll point out and we'll continue to emphasize this. Part of what we're seeing in the retail segment is driven by calendar shifts, and whether that's the Easter shift or in April, in particular, where we had this really significant demand from the solar eclipse last year, which helped a significant portion of our portfolio.
And so, April became a very difficult month for us to discern what kind of underlying trends are because of those calendar shifts. And so, when we look at the first couple of weeks prior to the Easter holiday, we're up a couple of percent excluding the markets that were affected by the solar eclipse. That's even with knowing we were going to have to shift segments.
When I look at the rates, the absolute rates by segment, the majority of our segments are still seeing rate increases. It's the shifting of mix given some of it, again, is driven by calendar comparisons, which is putting the downward pressure on rates.
We're going to finish the month of April running high 70% occupancies, close to 80% occupancies. I expect it to be close to in line with where we finished last year. The incremental pressure has been on rate. And again, as you alluded to, it's really driven by the shifting in mix.

Operator

(Operator Instructions) Michael Bellisario, Baird.

Michael Bellisario

Thanks. Good morning, guys. Jon, I just want to go back to margins. I know you mentioned sort of contract labor and lower turnover. But anything else sort of more proactive that you're doing in terms of, I don't know, maybe headcount reductions, reduced hours, changing F&B menus, pricing, things like that or is it more sort of more of the same just sort of on the contract labor and turnover side of things?

Jonathan Stanner

Look, I think that's been the major driver of what's held margins in check. We're still running really high occupancies. And so, we haven't gone to -- as we kind of alluded to in the last question, we haven't gone to COVID era levels of cutting expenses, whether that's related to cleaning rooms or how we're managing shifts. We're just not there yet. The demand is still there.
As Trey kind of alluded to, there's still some room for us to go, particularly on the contract labor side. And as we've seen some softening broadly in the labor markets, that's really helped us to keep margins in check. So, there haven't been kind of these deeper cuts that we've had to utilize in prior downturns that were more severe from a demand perspective because, again, our occupancies are still high and the demand is still there. Those levers are there and available to pull to the extent that we need to if we see a more significant downturn in demand.

Michael Bellisario

Okay, understood. And then second question, just sort of on the buyback announcement and then capital allocation more broadly. Maybe this is the first time as a public company, you guys have had an authorization in place. Maybe how do you fund it?
How do you balance leverage? I mean, do you accelerate asset sales from here? Just maybe some more thoughts on sort of triangulating everything and the thought process behind when and how you use that buyback.

Jonathan Stanner

Yes. No, you're correct. I mean, this is the first time we've done it. And we've actually talked about this in the past on these calls about this hasn't been necessarily historically the preferred way to allocate capital. Our belief today is that, the dislocation in the equity prices, particularly our stock price has gotten so extreme that this really kind of skews the risk reward of this investment asymmetrically to the positive.
We recognize that there's always some risk to the operating outlook. But we think what's being priced into the stocks today infers something that's really dramatic to the downside.
Our balance sheet is in good shape. As we said, we've taken care of our maturities through the end of next year. We have a lot of liquidity. We have the ability to do this.
In terms of how we think about funding it, it's going to be a combination of a couple of things. One, we've scaled back on our CapEx expectations for the year. We probably will continue to look to opportunistically sell assets to fund a portion of this. And while we don't really want to lever the balance sheet up in any meaningful way, even if we cut nothing else out from a CapEx perspective or a sale perspective, utilizing the full program takes the leverage profile of the business up about a quarter of a turn or less than 5%.
And again, given the health of the balance sheet, we feel like we have the ability to do that in the short-term. So, again, we think this is a really compelling and timely opportunity to buy some stock back at what we believe is a really attractive basis.

Michael Bellisario

Got it. That's very helpful. And then just one more follow-up. Maybe can you give us the latest thoughts and conversations with your joint venture partner and sort of how they are thinking about the world and how their capital deployment view may or may not have changed recently? And that's all for me.

Jonathan Stanner

Yes. Thanks, Mike. Well, I'd say that, look, we do stay in very regular contact with them. I think like everybody else, there -- this is an uncertain environment. And so, the first thing I would say is, there's -- we expect transaction activity to slow off of what has already been fairly low levels.
I don't think we're in a period where you're going to see, at least in the near-term, a lot of distressed selling and underwriting in this environment is difficult. That being said, as we always reiterate, they are very well capitalized. And in many ways, they're built to take advantage of environments where you see dislocation in values. We haven't seen that yet. It's certainly possible that we will see it.
And look, we're very fortunate to have them as a partner because it allows us to participate in those opportunities to a greater extent. So, again, I think that they are very much kind of watching the markets evolve, but certainly we'll be willing and able to participate to the extent there's meaningful valuation dislocations.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Jon Stanner for closing remarks.

Jonathan Stanner

Well, thank you all for joining us today. We look forward to seeing many of you over the next couple of months at the various conference. Hope you all have a nice day. Thank you.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.