Summit Hotel Properties Inc (INN) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Summit Hotel Properties, Inc. First Quarter 2017 earnings call. (Operator Instructions) As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Adam Wudel, Vice President of Finance. Please go ahead.

Thank you, and good morning. I'm joined today by Summit Hotel Properties' Chairman, President and Chief Executive Officer, Dan Hansen, and Executive Vice President and Chief Financial Officer, Greg Dowell. 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 2016 Form 10-K and other SEC filings.

Forward-looking statements that we make today are effective only as of today, May 4th, 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' Chairman, President and Chief Executive Officer, Dan Hansen.

Thanks, Adam, and thank you all for joining us today for our first quarter 2017 earnings conference call. We are very pleased with this strong earnings performance that our portfolio delivered in the first quarter and the continued success we've had with high-quality acquisitions as well as opportunistic dispositions. As a whole, our results came in largely as expected. For the first quarter, we reported adjusted FFO of $30.2 million, an increase of 6.7% as compared to the first quarter of 2016. Our adjusted FFO of $0.32 per share came in above the high end of our guidance range of $0.29 to $0.31 per share. The beat was primarily a result of Hospitality Investors Trust, formally known as ARC Hospitality, repaying their outstanding loan to us, which resulted in PIK interest recognition in the first quarter rather than what was anticipated to be in the second quarter. On a pro forma basis, we reported RevPAR growth of 1.5% for the quarter, which was entirely rate driven. As we mentioned last quarter, 2016 capped off 5 consecutive years of Summit exceeding the Smith Travel Research Upscale RevPAR growth rate, and we did so again in the first quarter of 2017 by a margin of 50 basis points. Strength in RevPAR growth is evident in a number of markets across our portfolio with the largest outperformers being Austin, Portland and New Orleans.

Our Hampton Inn & Suites in Austin had a great quarter and was able to capitalize on the strong city-wide events, posting RevPAR growth of 14% and gaining considerable market share while doing so. In Portland, our Residence Inn by Marriott and Hyatt Place continue to be superstars benefiting from fresh renovations and a favorable supply and demand dynamic. During the quarter, these 2 hotels also delivered 13.5% RevPAR growth and experienced a combined hotel EBITDA margin expansion of nearly 300 basis points. Lastly, our 5 hotels throughout the New Orleans market generated RevPAR growth of 9.5% as compared to 8% for the overall market. This strength was driven by an uptick in convention demand in the first quarter. Although this strength is not expected to continue into the second and third quarter, we do see a significant pickup at the end of the year.

Moving on to acquisitions. In the first quarter, we purchased 2 hotels with a total of 281 guest rooms for an aggregate purchase price of $60.2 million. Expanding our presence in Southern California, the Homewood Suites by Hilton located in Aliso Viejo near Laguna Beach was acquired for $38 million in March and has gotten off to a great start in 2017 just as expected. During the quarter, the hotel generated RevPAR of nearly $150, which was more than a 30% premium to our existing portfolio and had a gross operating profit margin of nearly 50%. We also expanded our presence in the Phoenix market with the acquisition of a Hyatt Place in the Mesa suburb of Phoenix for $22.2 million, or $146,000 per key. The hotel was acquired with solid in-place performance and a strong going-in cap rate which will continue to benefit from a variety of demand generators including the Chicago Cubs spring training stadium and just a few miles from the Oakland A's spring training stadium in addition to the numerous shopping, dining and entertainment options.

During the quarter, the Hyatt Place delivered RevPAR growth of 7%, which exceeded the overall Phoenix MSA by 300 basis points. As a whole, our 6 hotels, currently classified as acquisition hotels, posted a very healthy 11.8% RevPAR growth for the quarter, led by the Homewood Suites Aliso Viejo, Courtyard Nashville and Residence Inn Atlanta Midtown. Their success validates our ability to identify and execute on high-quality acquisitions and demonstrates the quality and experience in many of today's premium Upscale hotels, which complete with both full-service and boutique hotels. The one asset we sold during the quarter was the Hyatt Place Atlanta North, which is near the airport, for $14.5 million, which resulted in a net gain of $4.8 million. Based on the net operating income for the trailing twelve months ended December 31, 2016, the sales price represents a 7.9% capitalization rate. Additionally, we are excited to announce that, subsequent to quarter end, we completed the sale of 7 of the remaining 8 properties to Hospitality Investors Trust for a total sales price of $66.8 million, or $102,500 per key. The transaction has taken a lot of patience and creativity to get to this point, including a seller financing component that allowed us to complete the transaction, earn $3.8 million in interest income, and has now been fully repaid. Since the transaction to sell 26 hotels was announced in June 2015, 25 of 26 hotels have been sold, and the remaining hotels are scheduled to be sold in the second quarter of 2017. All of the net proceeds from dispositions over the last two years have been fully redeployed into high-quality, premium branded hotels that we believe are well-positioned to create long-term shareholder value. During the first quarter, we invested $8.3 million into our portfolio on items ranging from common space improvements to complete guestroom renovations including furniture, soft goods, guest bathrooms, lobby upgrades and technology enhancements. Over the last 5 years, we've invested well over $200 million into our portfolio, and the 75 hotels that we own today have an effective age of approximately 3.4 years, which demonstrates our commitment to maintaining a high-quality portfolio where guests want to stay. In addition to capital that we are investing in our existing portfolio, we are allocating capital to a development in Orlando, Florida, on a parcel of land we've owned for quite a while. The 168-guestroom Hyatt House will be located adjacent to our existing Hyatt Place at Universal Studios, and we see this as more of an expansion of an existing, successful hotel. The two brands will complement each other nicely, and we expect there to be top line opportunities that didn't exist with just the one hotel as well as efficiencies throughout the cost structure. To date, we have invested approximately $5.1 million into the project, excluding land, and anticipate investing another $17 million by year end. At a project cost of approximately $30 million, or $179,000 per key excluding land, we feel this is a very attractive entry point for a high-quality, extended-stay product in the market we've had great success in. With that, I'll turn the call over to our CFO, Greg Dowell.

Thanks, Dan, and good morning, everyone. We were very pleased with our first quarter 2017 results. For the quarter our pro forma hotel EBITDA came in at $43.9 million, which was in line with our expectations and slightly below the same period of 2016. As telegraphed on our last call, we expected to experience some margin headwinds primarily in the first half of 2017 as a result of labor and wage pressure across the portfolio, property tax increases and a generally difficult comparison to the first half of 2016. Pro forma hotel EBITDA margin contracted by 130 basis points to 36.5% as expected. Property tax increases accounted for 50 basis points of the contraction, while the remaining 80 basis points of contraction was related to property operations. During the first quarter, adjusted EBITDA grew to $41.1 million, an increase of 0.3% over the same period of 2016.

Moving on to our balance sheet. Our balance sheet continues to be well-positioned with minimal near-term maturities and liquidity of nearly $300 million as of today. At March 31, 2017, we had total outstanding debt of $718.9 million with a weighted average interest rate of 3.65%, which is inside the 3.76% weighted average interest rate we reported on March 31, 2016. We ended the quarter with net debt to trailing twelve month adjusted EBITDA of 3.9x, which is a comfortable level based on our stated range of 3.5x to 4.5x down from what was 4.2x at the end of the first quarter 2016 and, as of last Thursday's dispositions, now sits at 3.6x. During the quarter, we have repaid a $6.5 million mortgage loan in conjunction with the sale of the Hyatt Place Atlanta that had a 2018 maturity date. As a result, only 1% of our total debt is scheduled to mature through 2018. As of April 21st, we had total outstanding debt of approximately $678.3 million with a weighted average interest rate of 3.72%.

Turning to our outlook for 2017. In our release, you will see that for the second quarter 2017, we provided AFFO guidance of $0.38 to $0.40 per share, a pro forma RevPAR change of negative 1.5% to positive 0.5% and same-store RevPAR change of negative 2% to flat. As anticipated, the second quarter of 2017 will face a challenging comparison as this portfolio of 75 hotels delivered 7.8% RevPAR growth during the second quarter of 2016 and will encounter headwinds associated with the shift in the Easter holiday, changes to the New Orleans convention calendar, and the closure of the Moscone Center in San Francisco. Despite a challenging second quarter, our full-year 2017 guidance for AFFO remains unchanged at $125.6 million to $133.1 million, or $1.34 to $1.42 per share, and RevPAR growth of 0.5% to 2.5% for both our pro forma and same-store portfolios. Metrics supporting our guidance are provided in our release. We have incorporated capital improvements of $35 million to $45 million, which includes both renovation and recurring capital expenditures. Our adjusted FFO guidance for 2017 assumes the sale of the 90-guestroom Courtyard El Paso for $11.2 million in the second quarter. No additional acquisitions, dispositions or equity raises beyond those previously mentioned are assumed in the second quarter or full-year 2017 guidance. With that, I'll turn the call back over to Dan.

Thanks, Greg. In summary, we are very pleased with the performance of our portfolio and the continued focus by our team. Along with all the positive things happening across the portfolio, I'd like to take a quick moment to publicly welcome Jon Stanner. Jon joined our senior leadership team last month as Executive Vice President and Chief Investment Officer and will be integral in our investment, acquisition and capital markets strategy going forward. I have known Jon for quite some time now and continue to be impressed with his extensive knowledge and experience in the public markets and overall lodging industry. With Jon aboard, and an excellent opportunity set that lies ahead, we look forward to the remainder of 2017. And with that, we'll open the call to your questions.

(Operator Instructions) Our first question comes from the line of Austin Wurschmidt from KeyBanc Capital.

Just want to touch a little bit on guidance first and -- with second quarter RevPAR growth expected to be down, it implies some reacceleration in the back half of the year. I know you had some difficult comps in certain markets like Denver and Minneapolis in the third quarter and then Portland and Nashville into the fourth quarter, so I was wondering if you could provide some details as to what gives you the confidence in this environment or what markets you would expect to drive that reacceleration in the back half of the year to achieve the full year guidance?

Sure I'll go ahead and give the answer to the first half of your question and then Dan can jump in on the second half. You know like I mentioned, the visibility is somewhat limited but early indicators on that back half are good. We do want to make everyone aware, remind everyone that we are guiding in anticipation of a disposition in the second quarter; the sale of the Courtyard El Paso for $11.2 million. RevPAR growth is going to be challenged in the second quarter given that 7.8% growth that the portfolio delivered last year, and then we mentioned Easter and New Orleans and San Francisco, you know the Moscone Center there. But despite those Q2 challenges, the strength in the back half is what allowed us to really maintain that full year guidance. On market specifics, Dan can...

Austin, I think the one that would probably stick out is New Orleans. I think the New Orleans performance based on the convention calendar is kind of book ended this year, first and fourth quarter. Beyond that, easier comps and continued success from the new hotels we've bought and the renovations, I think broadly will -- gave us the confidence to maintain our guidance.

Great, thanks for the detail there, and then just want to touch a little bit -- I was hoping that you could provide maybe a little bit more detail on the development announcement and what you'd expect in terms of timing of completion and stabilization as well as how you think about the return on that development versus an acquisition and any additional, I guess, return above and beyond for the incremental risk of development?

Yes, at this point, we expect the project to be completed in August of '18, so timing, we think there will be very good. Obviously, we're not trying to time the market. As I said in the prepared comments, we see this more as an expansion of our Hyatt Place that will benefit alongside the new development of the Hyatt House. Universal Studios is growing and so are several of the demand generators in the market. If we look at how we invest, whether it's acquisitions or development, I think everything is -- every dollar we invest is targeted to have a double-digit unlevered IRR. An acquisition, expansion or development certainly do have some additional risks, so we'd expect a little more. I think it's fair to expect the Hyatt House to have returns in excess of the based expectations. But yes, we feel incredibly positive about the project and the opportunity to grow in that market.

Thanks for that and then just curious a little bit, if you could provide some color on the acquisition market; clearly the acquisition properties have been outperformers for you guys as you kind of drive some of the efficiencies in those properties. So just curious what you're seeing in terms of investment opportunities today?

We have had some success recently identifying opportunities that meet our criteria, which is promising. We haven't seen cap rates move much though. We're still seeing opportunities around a forward 8% cap, and what we do find which is exciting for us is value creation opportunities in those acquisitions. Craig and his team have been successful over the years with thoughtful renovations and operational and revenue management strategies to drive outperformance, so I think there are definitely some opportunities for us.

Our next question comes from the line of Shaun Kelley from Bank of America.

Hey, good morning guys. I would like to pass my welcome on to Jon as well. Dan, maybe you could just start with a high level, one which is we look at the Upscale chain scale segment this quarter across STR, it was one of the weakest if not the weakest of the chain scales that we saw out there. I'm just kind of curious, do you think there's any specific reason for that underperformance in the quarter? And this is, I know it's broad theme, not just for your portfolio that you saw some of the deceleration too. But just kind of curious on your view of the broader segment performance?

It's a tough question. I'll answer it as best as I can. We obviously watch each of our markets, the chain scales closely, Upscale and Upper-upscale predominantly. We're finding our higher-quality acquisitions compete very well with the Upper-upscale segment and that, that line continues to be blurred. So while the Upscale segment is fairly open, I think there is a real bifurcation between higher quality Upscale and the more traditional Upscale. I think you see a lot of the new developments competing at a level that rivals that of the boutique and many Upper-upscale hotels. We're continuing to shift our portfolio into those markets where we think we can compete outside of that traditional Upscale segment. So as you've seen our performance, outperforming the Upscale segment I think that to us is an indication that we've identified the right markets, the right brands and compete very nicely. So to me, I think, there is a real bifurcation within the Upscale segment and there certainly are some that have underperformed and some markets that have underperformed as well. So I don't know if that...

That's great. Then maybe just the supply side, it's always a little bit harder for us to monitor in the broader geographies that you guys compete on. What are you seeing right now in terms of new builds and new developments, we see some pretty healthy pipeline statistics in some of the lower price point brands, but to your point, it can be all over, right? There is stuff that is even down in the Midscale that's starting to get built now. So what's your general take on supply environment for the Upscale type of hotel that you're seeing in your markets?

Yes, for our markets, as a whole -- if you look at our whole portfolio, we're probably between 3% and 4% supply. That's actually pretty heavily weighted between just a few markets: Austin, Boulder, Asheville. So if you look more broad based, I think our portfolio is probably more in line with the 2% growth for the industry, and most of the supply is Upscale, and we've talked about this on prior calls. Those are -- they're easier to build. They are located closer to today's demand generators, and it is something that is growing and competing very nicely. So I think the risk, as we see it in many of these markets, is with the older full-service hotels as opposed to the newer Upscale hotels which offer many of the things that guests want but avoid the things that they don't need.

Our next question comes from the line of Ryan Meliker from Canaccord Genuity.

Hey, good morning guys. Just a couple of them. First of all, to piggyback off of what Austin had said, we look at the RevPAR guidance; obviously it's back half weighted. You gave some good colors surrounding New Orleans as being a driver of your confidence there. I'm just wondering, how much visibility do you guys really have in the back half that gives you confidence that RevPAR across your portfolio will reaccelerate, I mean you mentioned a few different things, but do you have that much on the books or is it just that you know where comps are and you know what's happening in your market, so you feel good.

Ryan, this is Dan. I think it's more of the latter. Our team has been terrific in forecasting in what is probably one of the most challenging environments. It's not -- nothing is changed with our ability to have greater visibility although, we do continue to look at group pace in the markets where that's relevant. You know the competition, we look closely at each of our hotels and how they grow in market share during the challenging environment. So we feel good about the back half of the year, but most of that is the result of having a great operational and revenue management team and confidence in our forecasting as we've been able to consistently hit our numbers during this challenging time.

Okay, that's really helpful. And then the second question I wanted to ask was, we talked a little bit about acquisitions already. Right now it seems like your cost of capital is pretty strong, certainly relative to other of your REIT peers and probably the private equity as well. Are you looking to get more aggressive on the acquisition front? Less aggressive on the acquisition front? Are you looking at more portfolio deals? Is the plan to try to take advantage of that cost of capital advantage while you have it?

Yes, sure, I think we're not going to do a deal that doesn't meet our underwriting criteria. We've had plenty of opportunities to raise capital over the last several years. We have largely funded our new growth with dispositions. I wouldn't say we'd be more or less aggressive, but we're always active. So for the right opportunities, as you've seen over the last year, we are not opposed to buying high-quality acquisitions with a good growth profile. As it would relate to becoming more aggressive, if we were to do -- find acquisitions that were outside of the current capacity, an equity raise could be used and it obviously, would be centered around an unidentified acquisition or two and certainly something that we'd have to have a strong confidence in the pipeline. We've had success match funding identified actions within 60 to 90 days in the past and you'd expect that to be the case.

Okay. And you guys obviously have been active picking off an asset here and there. Are you seeing more assets today that fit those underwriting criteria that you just mentioned you'd stay disciplined on or is it kind of more in the same steady-as-she-goes?

It's pretty steady. Our phones aren't just ringing. We're spending a lot of time at conferences meeting with owners, and clawing and scratching to find opportunities. But we are seeing some high-quality acquisitions, I think it's a real validation of the Upscale space because our values have been relatively strong. There is a high amount of demand, which means that we have to find opportunities beyond just going-in cap rate to provide our -- to meet our underwriting criteria.

Our next question comes from the line of Michael Bellisario from Baird.

Good morning everyone. I just wanted to circle back on the Orlando deal, bigger picture question. How does the development more broadly fit into your capital allocation and acquisition strategy, and maybe should we read into this that the acquisition pipeline is still not that deep where you're looking to deploy capital in more creative ways?

This is Dan. I wouldn't look at it anything different than an opportunistic way for us to create value. People may have forgotten, but we've developed over 50 hotels prior to going public. So that's a competency that's very strong with our team. But it is a small part of our business and more opportunistic, so definitely not a change in overall focus. If you recall, we did buy the Hampton Inn & Suites in Minneapolis at certificate of occupancy and our team oversaw that. I think the difference with the Hyatt House is we're not paying a contractor developer fee and that will just go to shareholders. We structured it the same with the guaranteed maximum priced contract and oversight for our team -- or by our team, so we feel strongly about the project.

And that $30 million figure that you mentioned, is that the guaranteed maximum price I suppose. What's the potential risks to pricing there as we think about the impact to our model?

I think the risk to that pricing really is if we decide to change anything along the way. But yes, that's the price for construction of the -- not including land.

Got it. And then switching gears a little bit on the acquisition front. I think it's probably maybe a little bit harder one to answer. But first year outperformance at your recent acquisitions has been stronger than the same-store portfolio. Any maybe qualitative metrics around how those hotels are doing in year 2 and year 3 beyond just that first year outperformance?

That's actually a fair question. I think when you look at an acquisition, that strong full year, first-year outperformance is just part of the component of the total return. Many of them need a renovation, so we tend to have a multi-year growth profile once we purchase them. So generally, there is a market like the Chicago Hyatt Place that was fairly new. So there is -- we'd expect more of a steady state of growth there. But a couple of the assets we bought prior-year, such as the Courtyard Nashville will go through renovations, so we'd expect further growth. I think it's a case-by-case basis, and that's the part of the underwriting that we put when we go through the initial part of our due diligence.

Got it. And then last one from me. How would you characterize your revenue management strategy today, and is it a still fairly, a fairly defensive approach for you guys across the portfolio?

That's something we've spent a lot of time on. Internally, we have 3 revenue managers now. And I think there are markets that clearly we are very defensive in, but I can also say that there are markets that where we've been very much offensive. Some of the newer acquisitions that we've changed strategies and worked on fixing the mix have been incredibly successful. So I think it, again that's one of the items that I think separates us from others, is that we have a very focused operations and revenue management team that looks asset by asset and focuses on building a strategy specific for not just the asset but the market.

Our next question come from the line of Tyler Batory from Janney Capital.

Dan, can you just talk a little bit about corporate travel here. What you're seeing, maybe how corporate travel came in for the fourth quarter compared -- or the first quarter compared with your expectations?

A little bit better than expectations, but I wouldn't say that we've seen an acceleration that would change our outlook. But we were very confident in seeing that things came in as expected generally.

Okay, great. And maybe follow-up on the guidance. There's a lot to talk about volatility out there, obviously the lack of visibility. Is that maybe gotten a little bit better over the past couple of months or is it really just the same as it was bad over the last year or so?

It's about the same. We've never been blessed with great visibility because we tend not to have as much group business. But we've always been able to have a keen look into each of our individual markets, and with our teams on the ground we feel very comfortable inside the quarter with our guidance.

Our next question come from the line of Neil Malkin from RBC Capital Markets.

I noticed that you guys had some other land on your balance sheet. I'm wondering if you have similar opportunities to deploy capital for developments in other markets where you have sort of those top and bottom line synergies?

There's a few parcels that are more restaurant pad and out parcels that we've held. I don't see anything on our balance sheet remaining that would be a development opportunity. We do have a site in San Antonio that we've never felt comfortable with; it's a good site, but it's just not consistent with our growth profile. I wouldn't expect any of our remaining land parcels to be part of the pipeline going forward. The pipeline that we see today is really building on more acquisitions that we're starting to see through our efforts out there.

Okay, great. And then on the operation side. Early indications seems like the Marriott-Starwood merger starting to yield some fruit in terms of maybe lower OTAs or some cost savings on goods for the rooms and such. Are you starting to see that or is it still too soon?

I think it's a little too soon. I mean we're optimistic that the synergies and scale will allow the combined company to help drive value down to the ownership side, but I think it's a little bit too early to tell.

Okay, great. And then as someone mentioned this earlier, but as far as business travel goes, are you seeing any indications from some of your larger clients that maybe some traveling is getting back? Is the pace of booking, I know it's short-term in nature, getting any more robust? Or do you think it's again still too soon to make that call? I guess how are you guys feeling on that property level?

Each one is a little bit different. But as a whole, we think it's pretty stable. We've talked through several other questions about confidence in the back half of the year and clearly, we wouldn't have that level of confidence if we thought there was risk. I think we've settled into a state where business travel is consistent, and I think with a catalyst here or there, I think there's certainly the possibility that we could see some reacceleration, but as of yet, we would just define the market I think as stable.

Our next question comes from the line of Bill Crow from Raymond James.

Dan, on the development, just one last question on that perhaps. Did you have any brand options on that property, or were you locked into a Hyatt brand given the purchase of the land and the other hotel?

It's good question Bill. We actually did have some brand options and as you would expect, the Orlando market is very competitive so there were very limited brands available. But we felt the synergies with the 2 brands really got us very comfortable with it. Hyatt's been a great partner with us since we purchased those hotels and so to have the 2 brands together with the synergies really felt like the best combination.

And did they provide any incentives?

Yes, we've got a little bit of help on ramping the fees going in, and they were obviously very flexible in the design of the hotel. Craig and our development team designed the hotel to really take advantage of opportunities specific to that market in both design and feel. We're putting in a nice resort-style pool so we can draw different guests and groups in that way, so I think it was a great way to create value with Hyatt and their flexibility was that of a true partner.

Great. When you say that the whole Moscone Center challenge is going to impact your result. Just thinking about your portfolio, you've got the airport Four Points and you've got the Holiday Inn Express at Fisherman's Wharf. When I think about Fisherman's Wharf and that asset, I think about more leisure-driven business and maybe not as impacted by Moscone, and I'm not sure if I see the direct relationship necessarily between Moscone and the airport hotel, but maybe you could talk about the impact that you anticipate how it's related to Moscone.

That's fair. We wouldn't see as negative affect as maybe those centered around Moscone Center but the compression nights, the lack of compression nights which are pushing demand to the airport properties and maybe a little bit the Fisherman's Wharf does have an effect, albeit smaller. So not quite as negative affect but as the whole market suffers from the lack of compression nights there is a little bit of affect for us.

And how does the summer leisure season look at Fisherman's Wharf?

It looks strong. We're not seeing anything that would give us great concern. I mean the International travel is always a little bit of question mark. We tend not to get as much advanced bookings as some of the larger hotels, but at this point, it looks to be solid.

And finally from me, from a capital allocation point of view, would you -- you kind of rank it, acquisitions first, maybe mezzanine lending second, development third, or is that a fair way to think about how you're looking to prioritize?

I think we would look at -- clearly acquisitions first. I think that's been the -- we have shown that's the greatest way for us to create value and we spend the majority of our time doing that. Where there are opportunities, for outsized returns, as a small part of our focus, we would look at some of the mezzanine loans with an option to buy at a certificate of occupancy and a one-off development like we found with the extra land parcel but predominantly still growth through the acquisitions, which as we talked about, we're starting to see our pipeline build.

Our next question is a follow-up from the line of Austin Wurschmidt from KeyBanc Capital.

Just had one quick one for Jon if he was available, for a quick question. I was just curious to hear your view about what kind of the opportunity or value proposition you saw in joining a select-service platform, and Summit in particular, given sort of your prior life in the luxury hotel business?

Sure, thanks for the question. Look, I'm also believer in the model. I've had an opportunity to get to know Dan over the course of last 5 or 6 years, I guess, and I have learned a little bit about the business model over the years. It is obviously different from the background that I came to, and I've only been here 3 weeks, so I can't say that I'm an expert yet. But I am a believer. I'm more of a believer today than when I walked in. And so obviously, I think the margins are much higher as everyone knows. But I just think the overall return on your investment is higher in this segment. I think this is a good place to be at. It's a great company. I think there is great team here. And I'm spending time with Craig and his team, and I think they're just doing a tremendous job. So I'm excited to be here, and I think it's a great business model.

Our next question comes from the line of Chris Woronka from Deutsche Bank.

Dan, I want to ask you as you guys kind of scrub your markets for supply, how -- are you looking at kind of net rooms, or do you also look at maybe supply that wasn't previously competitive? Maybe it's going to soft brand or something like that. And you know it's not a net increase in rooms, it could be more competitive and kind of getting at, we're seeing the brands continue to proliferate -- these soft brands. I'm just curious whether you think that ever has any impact on your portfolio?

Actually we do look at that and clearly it does depending upon the asset and the market. For a market like Austin, where we have a Hampton Inn & Suites, it competes with full-service hotels, boutique hotels along with the typical Upscale hotel. You and I have both been through that hotel and you can see when you walk in there is sense of Austin with guitars on the wall and a place for live music upstairs so that entrance and sense of arrival is something that's very authentic. When you take a brand whether it's Upscale or Upper-upscale or boutique and can integrate some of the authenticity of the city and the location, I think you have to look at that as a hotel that competes maybe above where its chain scale is. So maybe little bit too long of answer, but yes, we definitely look at the brands as Upscale continues to challenge some of the boutique and soft brands. We look at those as competition and quite frankly opportunities to earn market share.

And then just a follow-up to that is on the -- we've talked a lot over the years about kind of industry obsolescence, and just curious if your perspective is to whether the industry is making any progress on that, even if it's slow progress.

We tend to try to avoid some of the areas and brands that have continued to become less relevant. I think today's guest, whether they're -- you call them a millennial or a next-generation traveler, is very much focused on quality. As I said in the last question, a sense of authenticity, and that's not cheap. So I think where we're competing is with the higher-end hotels, and in both Upscale and Upper-upscale. And I think those hotels that are unwilling or unable to invest in their hotels will continue to lose market share and have to compete on price. So we've taken the focus of competing on quality, and so far, as we've been able to show on our numbers, it's proven out.

This does conclude the question-and-answer session of today's program. I'd like to hand the program over to Dan Hansen, Chairman, President, and Chief Executive Officer for any further remarks.

Thank you all for joining us today. We continue to see opportunities to create value for shareholders through thoughtful capital allocation and a premium select-service hotels, which today's guests love. Our renovated properties and operational expertise continue to deliver strong results. Have a terrific day, and look forward to talking in next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.