Summit Hotel Properties Inc (INN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Summit Hotel Properties, Incorporated Earnings Conference Call. My name is Janaeda and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would not like to turn the conference over to Mr. Dan Boyum, Vice President, Investor Relations. Please proceed.

Thank you, Janaeda, and good morning. I'm joined here today by Summit Hotel Properties' President and Chief Executive Officer, Dan Hansen, and Executive Vice President and Chief Financial Officer, Stuart Becker. Dan and Stuart have prepared comments related to our fourth quarter 2012 release and filing. Following these comments, you'll have an opportunity to address any related questions that you may have.

I'll remind everyone that many of our comments today are considered forward-looking statements as defined by federal securities laws, and these statements are subject to numerous risks and uncertainties, both known and unknown, as described in our 10-K for 2012 and our other SEC filings. These risks and uncertainties could cause results to differ materially from those expressed or implied by our comments. Forward-looking statements that we may make today are effective only as of today, February 27, 2013. We undertake no duty to update them later.

Our earnings release contains reconciliations to non-GAAP financial measures referenced during this call. If you do not have a copy of our release, you may view and print it from our website, shpreit.com. Please welcome Summit Hotel Properties' President and Chief Executive Officer, Dan Hansen.

Thanks, Dan. We are extremely pleased with our fourth quarter and full year results for 2012. Our RevPAR growth in the fourth quarter of 12.4% appears to be near the top of reported lodging companies and marks the third consecutive quarter of outsized RevPAR growth for our Company.

In addition, we achieved AFFO of $0.15 per fully diluted unit, which was the fourth quarter in a row we exceeded consensus estimates. This accomplishment is even more significant when you consider that we raised nearly $180 million in net proceeds in the fourth quarter, which is typically the weakest quarter for the lodging sector, and we still beat our original guidance. While we will not always be able to match fund capital raises this closely with acquisitions, this demonstrates our focus on shareholder value and an unwavering passion to grow with accretive deals.

2012 was a year with solid and consistent quarterly improvement that validates our growth thesis. For the year, our pro forma occupancy was 70.7%, our pro forma ADR was $97.90, and our pro forma RevPAR growth was 9.7%. This compares favorably to the upscale and upper midscale segments, which had 6.7% and 6.6% RevPAR growth, respectively, for the year.

Our strong results in 2012 were a balance of our embedded growth, early acquisitions, freshly renovated properties, and the success of our brand conversions. The outsized growth will moderate in 2013, as we have discussed on previous calls, but with 19 new acquisitions and 13 freshly renovated hotels, we see a continuation of the strong embedded growth story.

We invested approximately $265 million in the purchase of 19 hotels last year and we continue to find value across our core brand. While we always maintain a full pipeline, we do expect to see a few more competitors in 2013 as debt terms are favorable and lodging fundamentals continue to be strong. Many of the best opportunities we are seeing to create value for shareholders are in hotels that suffered from deferred capital investment.

Comprehensive renovation is proving to be a significant driver in our outperformance and we see this as a terrific time to deploy capital into our existing portfolio as well as our new acquisitions. We invested $28 million in 13 hotels as part of our comprehensive renovation, conversion, and investment initiative in 2012 and see 2013 as another year of upside with our continually improving portfolio.

We sold five hotels last year that were no longer strategic and had less growth opportunity for us. This capital recycling initiative is part of the continued gradual transformation of our portfolio and will continue throughout 2013. We will also continue to evaluate each hotel, its contribution to our portfolio, and consider selling when better long-term growth prospects are available.

During 2012, there were two hotels that could have been potential candidates for sale that instead we reclassified as value creation opportunities. We successfully converted two properties to Fairfield Inn and Suites -- one in Fort Worth, Texas and the other in Bellevue, Washington, a suburb of Seattle. These projects included guest room renovations with furniture, soft goods, and guest bathroom updates. At both hotels, the lobbies and breakfast areas were also expanded to improve the guest experience. At our Bellevue property, the exercise room was made slightly larger and had all new fitness equipment installed.

So between the two projects, we spent approximately $5.4 million, which we anticipate will not only greatly improve the guest experience, but also allow us to outperform our competition in these markets. These freshly renovated properties, as well as all our same store hotels, are beneficiaries of our best-in-class asset management team.

The implementation of our corporate revenue management and efficiency strategies is exemplified by the results of our portfolio for the year. Our portfolio as a whole is in terrific shape, is well balanced, and is poised for continued growth. In 2012, 70% of our EBITDA came from markets in the top 50 MSAs, and we expect that to continue to grow. Our largest markets or clusters are in the Dallas/Fort Worth Area, Denver, Phoenix, and Atlanta; however, none of these clusters account for more than 10% of our EBITDA.

Our strategy at IPO was clearly defined, has not changed, and continues to be to grow primarily in the top 50 MSAs with Marriott, Hilton, Hyatt, and IHG. Our deep relationships with these companies, the sourcing agreement with have with IHG, and our strong reputation as both a private and public Company has presented us with terrific opportunities and helped transform our Company. We have nearly doubled in size and, despite this transformation we remain rooted in our core philosophy of stewardship of investor capital and a focus on creating shareholder value.

With that, I'll turn it over to Stu Becker for some further details on the fourth quarter and the full year of 2012.

Thanks, Dan. Good morning, everybody. As Dan has previously noted, we continue to be entirely pleased with the performance of and the direction for our Company. Revenue for the year was up nearly 33% as compared to full year 2011. Revenue growth was driven by two main factors -- stellar performance by our same stores and a successful year of really good acquisitions.

For the quarter, RevPAR growth for our same stores was 15.3%. RevPAR for the quarter was $59.60 and consisted of 64.7% occupancy, a quarter-over-quarter increase of 582 basis points, an ADR of $92.18, which was a 4.9% increase over fourth quarter 2011. The better performance compared to our outlook for the same store RevPAR growth was largely the result of improving markets, a more positive effect from renovations completed during the past several quarters, and meaningful results from the rebranding of eight of our hotels.

Dan noted in his previous remarks the success of our full year pro forma RevPAR growth of 12.4%, which again exceeded our outlook. On a same store basis, 2012 annual RevPAR growth was 11.7%. 2012 same store RevPAR was $64.63 and consisted of 69.1% occupancy, which was an increase of 457 basis points year-over-year, and $93.51 ADR, which was up 4.3% in the past year.

We generally believe that when our hotels as a group run an average of 70% to 72% occupancy we have reached a tipping point in which opportunity for ADR growth is more prevalent. Both stabilized occupancy levels and historic low supply levels for hotels in general gives us confidence that as the economy continues to recover ADR growth will continue to be a byproduct.

Regarding revenue growth from acquisitions, we completed 19 acquisitions, an addition of 2,348 guest rooms during 2012. These 19 hotels are excluded from our same store calculations. Since year-end, we have acquired an additional four hotels, totaling 678 guest rooms. Individually and as a group, our acquisitions have higher nominal RevPAR than our same store hotels. We have been strategic in both the location and brands we invested in over the past two years. We believe these acquisitions provide our Company with substantial organic growth over the near-term.

Pro forma hotel EBITDA for Q4 2012 was $15.4 million. Hotel EBITDA margins expanded by 275 basis points quarter-over-quarter after adjusting for the $600,000 one-time adjustment to hotel management fees paid to Interstate Hotels and Resorts during Q4 2011. For full year, hotel EBITDA margins were 31.1%.

During 2012, we were able to expand hotel EBITDA margins by a compelling 249 basis points when compared to the previous year. We were pleased with margin expansion, considering the mix of ADR and occupancy growth.

Once again, when considering the hotel supply profile in the US and stabilized occupancy in many of our hotels, we anticipate that 2013 and beyond we'll have the ability to focus more on ADR, which should have a positive influence on hotel margins going forward. Adjusted EBITDA for full year 2012 was $52.1 million, an increase of 40% year-over-year. Same store performance and significant acquisition activity drove our adjusted EBITDA growth.

General and administrative expenses increased by $3 million in 2012, largely as a result of increased compensation as we continued to build our team to manage current and anticipated growth. During 2012, we began the process of consolidating our regional offices into our home office in Austin, Texas. We believe that synergies are to be gained from the consolidation and earnings for the year were only affected by approximately $200,000 from this relocation charge.

We anticipate completing the relocation in 2013 and expect $400,000 to $600,000 in one-time charges to affect earnings for the year. AFFO for the quarter was $0.15 per fully diluted unit and $0.82 per fully diluted for the full year.

Regarding our balance sheet and liquidity, we have positioned ourselves to be able to take advantage of the acquisition opportunities we believe will continue in 2013. We completed a $155 million common equity offering on January 14. Following the offering, we completed several capital markets activities. We acquired three upscale Hyatt Place hotels totaling 426 rooms for approximately $36 million. Two of the hotels were in Orlando and one was in Chicago.

We also acquired a Holiday Inn Express and Suites totaling 252 guest rooms at Fisherman's Wharf in San Francisco through a joint venture with an affiliate of IHG. We contributed approximately $35 million to the joint venture for an 80% controlling interest.

We paid down on our revolving line of credit, paid off some of our term debt coming due in 2013, and closed on a $29.4 million CMBS loan related to our recent Hyatt acquisition. As of February 25, we have zero outstanding on our revolver and a cash and cash equivalents of approximately $28 million.

Additionally, we have 19 unencumbered hotels; that gives us the ability to expand the current capacity on our secured revolver or secure more unencumbered funding from our term debt financing. Regarding leverage as of February 25, our secured debt as a percentage of total enterprise value was 27%. Funded debt to last 12 months EBITDA as of February 25 was 3.8 times.

We continue to deploy capital into both our same store hotels and recent acquisitions. The recent recession caused many hotel owners to delay renovation in many of their hotels. We believe completing renovations ahead of competitors provides us with RevPAR advantage. We believe that aggressive renovations have had a significant impact on our RevPAR growth, which has exceeded others in our space over the past several quarters.

For the full year 2012, we spent approximately $28 million on the significant renovation of 13 hotels. The scope of renovations varies between the hotels and included products from basic lobby renovation to complete hotel, lobby, guest room or bathroom renovations, and replacement of both furniture and soft goods.

We are providing outlook for first quarter and full year in 2013. We remain positive about the outlook for the hotel sector over the near, medium, and long-term. Congressional conclusions to the US debt issues are troublesome in the near-term, and an inability to settle fiscal issues could have a significant impact on US GDP and, thus, hotel RevPAR and profits.

Stabilizing the numerous hotels acquired recently and renovation on 13 of our hotels, which had some room displacement during Q1 of 2013, also suggests that conservative RevPAR guidance in the near-term is warranted. However, the muted hotel supply, resolution to these US debt issues, and improving demand should have a positive effect on RevPAR going forward.

We anticipate 5% to 7% RevPAR growth on both our same store and pro forma hotels in Q1 and full year 2013. We anticipate a RevPAR disruption from renovations of approximately 150 basis points in Q1 2013, which would have a $200,000 impact to EBITDA in the quarter. Our outlook for adjusted FFO is in the range of $0.16 to $0.18 per fully diluted unit in Q1 and $0.84 to $0.90 per fully diluted unit for full year 2013. The annual outlook includes the $400,000 to $600,000 in one-time charges to earnings related to the relocation costs previously discussed.

Thanks, Stu. We feel very good about our 2012 results and look forward to another solid year of growth. We greatly appreciate your time in joining our call today and, as always, we welcome your questions. So, let's open the lines.

Thank you. (Operator Instructions). Your first question comes from the line of David Loeb with Baird. Please proceed.

Good morning, gentlemen. I wonder if you could talk a little bit about how you view your capacity for additional acquisitions and investments and where you think those investments would be funded. And also, what you see in your pipeline.

Sure. I guess Stu and I will share the question. We have no immediate need to come to the equity market. I think that's the real question people want to ask. We do have a clear runway to use our balance sheet to acquire, we'd say, $200 million of assets. That could be one or two at a time for the next several quarters, or small portfolios.

We do have assets for sale, some of which we've sold, as we've noted. We've got some land for sale. We do have quite a bit of added flexibility in our facility where we could add unencumbered properties. And we, as always, in discussion with owners considering OP units. So nothing's really changed with our plans. We feel we're in great shape with a strong balance sheet to go forward.

I think -- this is Stu. I think Dan is accurate in that assessment. Relative to the analysis of dry powder, we do think a couple of hundred million dollars is -- we have availability to do acquisitions on a go-forward basis.

And we've talked about the $28 million of cash we currently have on balance sheet. We anticipate closing on about $40 million net dollars on a CMBS transaction yet still here in this first quarter, so our cash position could be much closer to $70 million as we head towards the end of the quarter. And we also have $108 million available on a revolver. So when you combine all those, that's approximately $175 million. At which time when we close on that CMBS, we would anticipate still having about -- 13 hotels would still be unencumbered, which we could use to increase the size of our facility.

And, Dan, just to go back to the pipeline, what are you seeing out there in the acquisition world?

It's still very active. It's always been my job to know what acquisitions are out there, but it's also my job to know the competition, which I do. But we've become kind of a big deal in the select service market and we continue to see deals brought to us from sellers or from the owners themselves, some from limited bid opportunities from brokers and were targeted marketing, some from brand companies, and some, quite honestly, were going direct to owners with. So they're still coming from a variety of sources.

I know the competition out there. I know how they underwrite. I know the source of their equity. So I should know where our cost of capital will win a deal, where we can affect operational improvement, and really where our experience can help create value. So pipeline is still full, we continue to see a great amount of opportunities, and we weigh them, as we always do.

With that additional competition, are cap rates coming down at all? Do you think your acquisition returns are likely to be a little lower than they've been?

We haven't seen it. We're still able to transact in that 8 to 10 cap rate market -- or 8 to 10 cap rate area. I think in the bigger markets with higher profile, you're probably closer to 8 to 8.5. And outside of those markets, you may be 8.5 to 9. That's not inconsistent with what we've seen. I think for us it's really understanding what deals work for us that won't work for, let's say, a private equity firm.

And our thesis all along has been higher going into yields, and any cyclical recovery or macroeconomic improvement has just added outperformance for us. So as of yet, we still feel very comfortable in that 8 to 10 cap rate range.

Okay, great. Thanks.

Your next question comes from the line of Ryan Meliker with MLV Company. Please proceed.

Hey. Good morning, guys. A couple of quick little things for you. First of all, I was wondering if you can just refresh my memory. I know you gave some color with regards to some RevPAR disruption with regards to renovations in the first quarter, but you're comping against some relatively difficult comps with regards to the Choice Hotels disruption, again, in the first quarter. Is that correct?

Say that again. We're comping -- is it difficult or easy?

Easy comps.

The first quarter we'll have a little easier comp relative to the full year '13; I think that's fair.

So, given that you're forecasting the same pro forma and the same store RevPAR growth for the first quarter and full year, is it your expectation that fundamentals are going to slow or are you taking a more prudently conservative approach to 1Q?

I think -- this is Stu. Yes, we're taking a conservative approach to it. We do have some disruption in the first quarter, as we talked about, for RevPAR with some renovations. But, as Dan and I both described, we think we feel good about the year, but we know there is a little bit of noise relative to kind of macro events still going in the first quarter. The last couple of years, you've kind of gotten to this point in the year where then things start to get choppy as you got into second quarter, so we're remaining cautiously optimistic and I think conservative with that 5% to 7%.

Ryan, this is Dan. One thing to add there, you'll recall, we added 10 hotels in the fourth quarter that are just coming online. So, we didn't manage those in the first quarter of last year. Some of those hotels, the eight Hyatt's in particular, had some renovations going on as they redid the bathrooms. So I think you could say that conservatism is where we see the first quarter. We obviously want to make sure that we're clear, but there is a little bit of lack of clarity on potential upside. I feel very comfortable that we've underwritten them solid, but without a real baseline, having not owned them last year, it's a little bit harder to triangulate around a number without factoring in a lot of the risks.

Excuse me. That's helpful. I'm sorry. Just one other question I wanted to ask you guys was it looks like your 1Q guidance still doesn't include the Minneapolis acquisitions but your full year does. Can you give us any color on when you're expecting those two properties to close?

Yes. We'd anticipate those closing in the second quarter. Both of those hotels, we're assuming some CMBS debt and we're having -- it's really delaying the process a little bit is trying to get the server to get that process completed. But second quarter is how you should think about it.

Okay, the second quarter. Thanks. And then, one last thing I was hoping to ask was with regards to G&A, obviously, the portfolio is getting materially larger, you're relocating down to Austin. G&A in the quarter was up a lot, as I think you had let people know that it would be on a year-over- year basis. Where do you think about a run rate for total G&A, including stock comp and debt salaries and everything included based on the current portfolio that you guys have in place?

Yes. Based on the current portfolio in nominal dollars, I think $11 million to $12 million all in G&A is probably a good run rate.

Okay, great. That's helpful. That's all I had for now. I'll just back in the queue if I have anything else. Thank you.

Thanks, Ryan.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Please proceed.

Hey, guys. It's Austin Wurschmidt here with Jordan Sadler. Just had a question related to the 2013 RevPAR guidance. It sounds like you guys are expecting that you're in the sweet spot today and that ADR growth will primarily drive RevPAR. But given the addition to the portfolio, could you just provide an update on where the sweet spot is for occupancy and how high that could go?

Sure. I think historically, as a select service Company, we start to push rate fairly aggressively as we cross the 70% occupancy mark. That, we think in this cycle, occupancy will peak for us higher than it did last cycle, which was about 70%, mainly because of the lack of supply. So we think there is some occupancy upside, but we would expect over the next several quarters more of our RevPAR growth to come from rate than occupancy.

Thanks, that's helpful. And then, I didn't know if you guys could provide what RevPAR growth has been year-to-date?

We have not provided that. I think if you look through January, was a pretty strong market -- or pretty strong month for both upscale and upper mid-scale. I think that's a fair barometer to use.

Yes.

Okay. And switching to expenses, do you anticipate any pressure on property taxes or insurance this year, or just kind of general inflationary increases?

Yes, we saw a little bit of pressure on -- we're across the country in a lot of different markets, so it's sort of relative comment, but we have seen some pressure in some markets and then more like inflation in others. As a whole, I wouldn't say we see dramatic impacts for this year. I think a year or two down the road that might be a different story.

Okay, thank you. And just switching to the investment side, given sort of the additional competition that you've seen and the demand pick up here more recently, have you considered ramping up your non-core dispositions at all in 2013?

I wouldn't say we have considered ramping them up. I think I'd say that everything gets evaluated. We don't keep a hotel just for the sake of having a dot on the map. Every hotel gets looked at as we would an acquisition, as how profitable it is for us and whether it's accretive to our portfolio. So where there's an opportunity to create -- take capital and redeploy it, we'd obviously consider that. The challenge really becomes you can't just flip a switch with a lot of these smaller hotels. The buying pool is very fragmented.

Many of the buyers are reliant on SBA financing, bank financing, which some markets is better than others. So there is a group of sophisticated buyers that look at secondary and tertiary markets that are great candidates. So, long answer, but I think as a general rule where we think there's value to be unlocked and to redeploy, we would consider that. So I think on a run rate you should consider we sold five hotels last year, six to eight is probably not out of the question for this year.

Great, that's helpful. Thank you.

Thank you.

Your next question comes from the line of Will Marks with JMP Securities. Please proceed.

Thank you. Good morning, Stu. Good morning, Dan. I wanted to first just ask about supply growth. I don't think you mentioned it all, probably because there isn't much. But is there any markets where it's maybe an issue, where we're seeing, let's say, more than 2% growth?

I think that's a big topic, as I understand it, for a lot of the peers out there. There has been a pretty big -- I shouldn't say pretty big, but a fair amount of rebound in the pipeline, but it has been gradual. As you know, at this point it's weighted heavily in New York City and several other gateway cities.

On the select service side, we're seeing pipeline growth in some core urban areas, college towns, and, ironically, a lot of tertiary markets. I think the true measure, of course, is rooms in construction, not final planning, final final planning, or we're really serious this time planning. But if we go back to that theme I mentioned previously, the brand cleansing, what I think continues to be ignored is the number of room coming out of the market.

And some of the research that we've reviewed, I think Choice converted about 27,000 rooms into their brands last year. And Wyndham converted 29,000 rooms. We just sold -- we've sold several properties that -- out of portfolio that will become other brands. And across the country, there's older Fairfield's, Hampton Inn's, and Holiday Inn Express' that are likely candidates for this strategy.

So I'm really convinced there will be little, if any, net new supply for the next several years in select service. So I think what the investor needs to be looking at in addition to the cyclical recovery is really where the guests want to stay. They want to stay at newer, cleaner, fresher properties. There's even another survey done just a few weeks ago, hotels.com, where 34% of the travelers say free Wi-Fi is the number one factor in choosing a hotel for leisure stays. Business is obviously -- travelers is always higher, but now leisure travelers are laser-focused on that.

So Wi-Fi trumps free parking and complementary breakfast, so I think until someone can show me a survey that says guests enjoy paying $12.00 for a pot of coffee, I'll continue to sing the praises of select service and I think the impact of new development for our portfolio in particular will be minimal.

How important -- on that note, how important is having a new asset versus a renovated asset? Can a renovated asset match the new asset in terms of quality and amenities in the pricing you can get?

I think it can. I think if you look at some of the markets with high barrier to entry, it's a comprehensive renovation. You're putting more capital into it than just carpet, drapes, and beds. But as far as upgrading the HVAC system and making sure the guest experience is in line, I think the -- a lot of the adaptive reuse projects that we've seen out there really do give the guest the same experience that they can get from a select service asset in the suburban or outlier markets.

I think where the differentiation becomes is the old 60-room, 70-room, three-story, first-generation assets. Whether it's an older gen-one Residence Inn or an older gen-one Hampton or a small Holiday Inn Express, I don't think just because the size and construction you can get the same experience. Does that help?

Yes, very helpful. Thank you. A couple other things. One, you mentioned the cap rate range. Is that -- does that stay pretty consistent during the cycle? I imagine it went up a little bit in '08-'09?

Yes, and it moves around a little bit, maybe a half a point. A lot of it is based on the fluctuations in the NOI, the hotel level EBITDA. So I wouldn't say there's never opportunities to buy stuff at ten caps or greater because we've found those, but a lot of it's market-specific to where there's brand conversions available and so it will be easier to underwrite to a more aggressive cap rate.

But I think that eight to ten cap rate in the market that we're buying at is a pretty good range. I think peak, you're probably below that. And sheer trough, when there's distressed sellers, you might be higher than that. But I think that's a good range for our space.

Okay, great. That's all for me. Thank you very much.

Thanks, Will.

Your next question comes from the line of Bob LaFleur with Cantor Fitzgerald. Please proceed.

Hi, good morning. Two questions. One, on the pencil supply front. Could you characterize how you view your market as sort of what percent are highly insulated from supply, versus the percent that might be more susceptible to new supply growth? And then I have a follow-up question on your acquisition pipeline.

Sure. This is Dan. The first question on our pipeline, I think that is the $64,000 question. If you think as far back as the IPO, when we came public, we discussed that very premise, that new supply where brands are available -- builders and developers are incredibly astute, and we argued early on that there would be little new supply outside of the gateway cities. And at that point, two years ago, the thesis was it was impossible to build in New York. And so two years later we're seeing the validation of our thought process, and I think that will continue to translate.

I think if you look out at the market, New York, probably beyond the supply that's coming on, it will become very difficult because every mid-block now has a select service hotel. So, from what I'm hearing, Brooklyn is the new Manhattan and that's a market that people can get their arms around. But the supply coming broad-based across the country, we're not seeing in our markets.

So as far as a percentage, I couldn't really give you that, but in the markets we're in we're not seeing a lot of new supply. The brands are predominantly mostly there. There's not this proliferation of new brands that there was during the last cycle. And you just can't put a Courtyard on top of Courtyard at this point in the cycle. In a market like New York that runs nearly 90%, you can start to justify through feasibility that you can put one another few blocks away, but in most of the markets across the country the math just didn't work.

So maybe that's too long of an answer, but I don't -- we don't really break down what's insulated and not insulated. That's pretty subjective, but we feel really good about the portfolios and the clusters we have and feel very strong that new supply won't affect us to any great degree.

Okay. And my second question is on potential for more acquisitions. You talked about $200 million or so of dry powder gives you sort of the financial capacity to do that level of transaction. What about sort of your institutional bandwidth, your ability to absorb what's been a pretty aggressive program of acquisitions the past few quarters and then doing more this year? Do you guys have the infrastructure in place to be able to handle that? And is there is a digestion process we have to go through or do you maintain this pace of acquisitions with sort of capital being your only limiting factor?

That's a good question. This is Dan again. We've got the infrastructure in place and our model is highly scalable. We feel like we've got very strong asset management processes around, integrating any potential new management companies. So we're not uncomfortable at all about the speed and the pace. This is what we do; been doing this for a long time.

If we look out and the capital constraint is really more of the issue, we continue to have a full pipeline and want to make sure that we're laser-focused on delivering accretive acquisitions. And they ebb and flow, and we stack rank all our opportunities as we always do.

So if we've assembled our own portfolios, so one-off acquisitions are still opportunities that we pursue, and bundling up and creating our own portfolio works well. And that transparency, we feel, is something that maybe separates us a little bit more. So, operationally we feel very good about our ability, and the pace is something that I think is more constrained by the focus on bringing in capital to absorb that.

Just let me say a little bit. We talked about the G&A increases this last year. In part, was us bringing on some more resources, not only to backfill work we've been doing, but anticipation of future growth.

Okay, thanks.

(Operator Instructions). Your next question comes from the line of Wes Golladay with RBC Capital Markets. Please proceed.

Hey, good morning, guys. First off, thank you for providing the sources and uses for the post-quarter activity. Now, looking at the comp margins this year, what are you guys expecting on that front?

I'm sorry, say that again?

On the comparable hotel EBITDA margin expansion, what are you guys expecting on that?

We sort of laid out a number for hotel EBITDA margins to expand 100 to 175 basis points. It's in one of our footnotes to our outlook. And we did that off our base hotels. One of the things that's a little bit probably confusing or sometimes hard to track from the analysts' perspective is different hotels and the margins they have.

So as we bring on new hotels -- as an example, when we bought those 11 Hyatt Place hotels, those actually ran at a margin that was less than our group as a whole. So you'll see a little fluctuation in our margins. But what we telegraphed is what was in place at the end of the year, we would expect that 100 to 175 basis of expansion.

Okay, thanks. Now, looking at the development map that you were kind of alluding to, I guess when do you think it will make sense to start developing into the select service space? Is it another one or two years of RevPAR growth and EBITDA margin expansion? Or is it still a little ways away?

Well -- this is Dan, Wes. There is development going on in select service, no doubt. I hope I didn't leave listeners with the impression that we didn't think there was development, because there obviously is. Our point was that there's very little development in select service outside some of the gateway cities and core urban projects. Some of the tertiary markets are -- there's a lot of new supply with some of the extended stay products.

So I think it's really as the market continues to grow and there will be opportunities, but we think it's a couple of years off before the markets really see any sort of influx in development.

And part of that really has to do with just the recovery in the overall economy. If you think about our thesis of growth in the beltway markets, not just core urban, but beltway, the beltway, meaning a highway or interstate around the city, that's created these clusters of opportunities with new business parks and sports complexes and hospitals. Unless there's another kind of sub-market, if there's a Courtyard there, there's not going to be another one. There's got to be a reason for a development outside of one of those demand generators. So that's where we feel we're insulated to a great degree from new supply.

If there's a new business park, if there's some dynamic that changes that, I think that would speed up the development. But these are assets that were built as part of the growth of a lot of these suburban and urban centers as they grew outward. So maybe, again, I apologize if that's too long of an answer, but we think there's quite a bit of time before many of the markets we're in have meaningful select service supply.

Okay. No, that's a fair answer. I guess you had the broader -- yes, I guess there is. But for your markets, though, you guys have a little bit of runway to grow the RevPAR and not worry about the supply coming in -- that's what I was trying to get at.

I think that's a fair assessment, I think, on your part.

And also, I would say that in some markets where there may be a new supply coming in, don't forget, there may be supplying coming out, too. And if we're competing with -- let's say there's a -- we have a Courtyard and there's a Hampton Inn in the market that comes out and there's a new Hampton Inn & Suites that comes in the market, that competition will be -- that new supply will be in our comp set. But because it's newer, fresher, we'll have a higher rate and give greater pricing tension, an upward bias to pricing in the market, too. Having not any net new supply is something that we want people to be thinking about, rather than just new supply.

Okay, that's a good point. And did you guys ever comment on where the corporate negotiated rates went for you guys this year?

It's a pretty mixed bag. That's a good question. It's Dan again. The corporate negotiated rates were positive, really, across the board. But we've got so many hotels, I don't think there's a specific number we could give you.

Okay, thanks a lot, guys.

Thanks, Wes.

And at this time, we have no further questions. I would now like to turn the call back over to Mr. Dan Hansen for any closing remarks.

Thank you all for joining us. 2012 was a year we can look back on with great pride as our portfolio transformed into the solid top 50 market, a portfolio with the best brands. And that transformation will continue as the execution of our simple strategy translates into meaningful results.

As we discussed, our conservative guidance should not in any way be construed as a lack of conviction, but rather a lack of clarity with some headwinds around a potential sequester and continued economic challenges. Those issues aside, we're very optimistic for the industry and for Summit Hotel Properties for the year. We remain highly confident in our plan to create superior shareholder returns and look forward to our next call. Thanks, everyone.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.