Greetings and welcome to the Chatham Lodging Trust First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Daly, Owner of Daly Gray. Thank you. Mr. Daly, you may begin.

Thank you, Devin. Good morning, everyone, and welcome to the Chatham Lodging Trust first quarter 2020 results conference call. 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 most recent Form 10-K and other SEC filings. All information in this call is as of May 11, 2020 unless otherwise noted and the company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations. 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 chathamlodgingtrust.com. Now to provide you with some insight into Chatham's 2020 first quarter results, allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer; Dennis Craven, Executive Vice President and COO; and Jeremy Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

Okay Chris, thank you very much. Good morning, everyone. First and foremost, thank you for your interest in Chatham, and we sincerely appreciate your participation during these unusual times. The COVID-19 pandemic has been one of the most destructive events to the global and national economy in history, and its impact on the lodging industry is unprecedented, forcing hotel owners and operators to quickly assess hotel operations under the most dire scenarios. Complicating the assessment is not knowing the duration of the current trends and the length of the recovery. Accordingly, all lodging companies are having to analyze liquidity needs, which is something unheard of in our space, especially for well-capitalized companies such as Chatham, whose leverage was reasonable going into the pandemic. We started to feel the impact from the pandemic the second week of March, and knew that we needed to take rapid action to protect our long-term financial stability. Key corporate actions include the following. Of course, we made the extremely difficult decision to suspend our dividend preserving $64 million of cash flow on an annual basis. We suspended all renovations that had not started and all non-emergency CapEx or CapEx required by local regulations, preserving $10 million. We slowed down CapEx spending on our Warner Center development, we amended our credit facility enhancing our liquidity by $77 million and providing key covenant relief through the end of the 2021 first quarter, we appreciate the support of our bank group in that endeavor. Reduced cash corporate G&A expense by $3 million or approximately one-third. Dennis and I took voluntary pay cuts of 50%, and all other Chatham employees took voluntary pay cuts of 25%. Our board of trustees also voluntarily agreed to the 25% reduction in compensation. I’m thankful to have our best-in-class operating platform with Island Hospitality, especially now, which gives us the tools to act properly and more expeditiously than others and has a meaningful impact on the top and bottom line. Furthermore, our teams at Chatham and Island have the experience to persevere through these situations, having successfully navigated through numerous cycles, and we’re thankful to have this platform. Dennis has 20 years of public lodging REIT experience, and I am now working on my 25th year as a public lodging REIT CEO. We know how to lead a public company through these challenging times. Contrary to other hotel companies that closed a significant number of their hotels, we've kept all 40 of our hotels open, as we've been able to provide accommodations to our nation's military infrastructure workers, first responders, and critical medical workers dedicated to ending this pandemic. Our revenue management and direct sales teams are aggressively sourcing revenue opportunities daily, and we all review and look at our national sales team working at Islands reports every single day. I believe that our portfolio has been especially appealing to the limited amount of demand in our markets as over 70% of our portfolio EBITDA was generated from extended-stay hotels. You can also see that our efforts are paying off with the sharp increase in RevPAR index over the last three months, going from an index of 120 in February to now over 150. If you look at our hotel performance since early March, occupancy for us bottomed out at a low of 17% on March 29th and today sits at approximately 30%. Not surprisingly, the industry and we’re no different and we've been unable to hold rates, which have slowly declined since early March. Since early March, our lowest ADRs are happening now in the low $90 range. Having said that, RevPAR is at its highest since bottoming out on March 29 at lower $20. Does that mean the darkest days are behind us? I share hopes of and the current trend is somewhat encouraging. But if we've learned anything, it's in these times, these times are incomparable and there's currently really no way of accurately projecting the future. Looking forward as localities start to reopen, we believe that regional drive to leisure and then corporate demand markets will be the first to come back with urban drive to next followed by flight to urban markets. And then lastly, group or large scale events. We also believe that premium-branded, extended-stay and select and limited service hotels will perform best for the foreseeable future due to their ability to accommodate a variety of different travelers at an attractive price point and provide a safe and reliable environment and a positive experience. Big Box hotels with massive amounts of rooms as well as unbranded hotels will face a longer road to recovery. In addition to the concentration of premium-branded extended-stay hotels in our portfolio. More than 96% of our hotels are limited service rooms, the highest percentage among public lodging REITs. This should bode well for our portfolio as demand returns, as markets reopen. We're situated to capture more of the forthcoming demand and better bridge the gap to recovery. Our hotels are benefiting from the closure of course of many other mostly full-service hotels in our markets. And since our hotels are open, there'll be minimum costs related to ramping-up our hotels when the economic recovery begins. We're able to generate more revenue, retain more employees, and lose less money and better our overall cash position which is paramount during this pandemic. I believe we've got the capital structure to withstand this pandemic. If you assume the full line of credit is drawn, the ratio of our net debt to investment in hotels at cost is approximately 40%. With current cash and available borrowings on our credit facility, our liquidity of $135 million allows us to operate at a RevPAR of $25 until at least January 2022. We certainly don't expect that trend to be the case of course. And additionally, remember we've got six hotels unencumbered by debt, with an aggregate investment value of $276 million available as an additional source of cash, if necessary. Operationally, as a major Hilton and Marriott franchisee, I do believe that our operating model is going to look very different going forward, the pandemic has triggered us as an industry to reevaluate how guests are served, whether that is with respect to housekeeping, food and beverage, or other complimentary services, and what the guests should have to pay for those services that we offer. As most of you have heard from us for a while, we've been pushing for change. These changes won't happen overnight. But of course, the brands are now very much in concert with us relative to making the necessary changes to be successful. Additionally, the impact of new supply, as I'm sure you've read, should mitigate as we move forward. Hotels under construction, at least most will be completed, but slowed down. If you aren't under construction, it's going to be difficult to underwrite the appropriate returns to justify construction. And I do believe it's going to be more difficult than ever to obtain construction loans for new hotels.

Thanks, Jeff. I want to take a moment to discuss our hotel operating activities since early March when the pandemic began in the U.S., drawing on our experiences from previous downturns in the lodging industry. Collaborating with Island, we are making significant changes to our operating structure almost daily, using real-time access to revenue and expense data trends. By focusing on direct sales outreach initially, we managed to ease the sharp revenue decline and start rebuilding our income. We have had to adjust our expense structure considerably. Unfortunately, this meant laying off or furloughing about 70% of our hotel staff, reducing our workforce from around 800 employees at the end of February to about 500 employees by the end of April. Across our 40 hotels by April's end, we had roughly 370 full-time equivalents, averaging about 8.5 employees per hotel. We closed all of our food and beverage outlets and only provide a limited grab-and-go breakfast for essential hotel business. We've consolidated operations among nearby hotels, such as those in Silicon Valley, Houston, Dallas, Denver, and Charleston, to achieve better economies of scale, redirecting newly arriving guests to partner hotels. Consequently, we've reduced service levels at all hotels, including housekeeping and hospitality services, while implementing best cleaning practices from Hilton, Marriott, and Hyatt. We've been reviewing all our purchasing and maintenance programs for potential cost savings and are minimizing utility costs by concentrating occupancy in specific hotels or floor levels and adjusting utility expenses in unoccupied areas by monitoring temperature and lighting. Our hotels have never operated at these low levels before. In our release, we mentioned our current estimate of monthly cash burn after debt service and before capital expenditures based on certain RevPAR levels. These figures are preliminary and stem from our April operating results, which were impacted by staffing changes and vacation benefits. We will refine our model as we progress through the second quarter under these low occupancy conditions. On a gross operating profit basis, breakeven cash flow occurs at RevPAR in the low to mid-30s, around $32 to $35. For hotel EBITDA, breakeven is approximately $50 RevPAR, and on a cash flow basis after debt service and before capital expenditures, breakeven stands around $90 to $100, depending on the mix of average daily rate and occupancy. We anticipate our actual breakeven may lean toward the lower end of that range, perhaps even lower, but we will see how things unfold in the second quarter. Regarding capital expenditures for our 40 hotels, we expect to spend about $7 million over the last three quarters of the year, with around $5 million of that happening in the second quarter as we complete renovations in Anaheim and New Rochelle, New York, as well as 32 rooms at our second Silicon Valley location, which are pending final inspections that have been delayed due to the city's shutdown. Looking back at the first quarter, the landscape is different now, so we won't spend too much time rehashing details. RevPAR fell 22% to $96, with ADR down 5% to $153 and occupancy dropping 17% to 63%. Through February, RevPAR was flat year-over-year before the pandemic began impacting us, and ultimately, RevPAR was down 22% for the quarter. Other revenue decreased by about 10%. Improving that other operating revenue line was a major focus for us over the past couple of years, and we were still seeing some year-over-year improvements before this downturn hit. On the expenses side, payroll and benefits only decreased by 10% for the quarter, which reflects a lag in cutting operational costs related to payroll. However, our benefits costs continued to decline, down approximately 15% year-over-year in the quarter. On the supply front, as reported by Smith Travel, new supply peaked at 5% in 2015 and has been decreasing each year through 2018. It ticked up slightly to 3% in 2019 and remained there at the end of the first quarter. Excluding our four Houston hotels that are experiencing significant new supply, our new supply is down about 2% based on the March 31 data. As Jeff mentioned, we believe that the constrained hotel supply will be advantageous for the industry in the coming years, as hotel development will likely be severely affected by the impacts Jeff discussed.

Thanks Dennis. Good morning everyone. Even though the full impact of the COVID-19 pandemic was only felt for just over half of March, Chatham’s March RevPAR was down 55.6% and Q1 RevPAR was down 21.8%. Adjusted EBITDA was down 38.9% to $16.5 million in Q1. Despite the 21.8% RevPAR decline in Q1, Chatham’s Hotel EBITDA margin was 27.6% in the quarter. Well, this represents an 800 basis point decline from our Q1 2019 margin, it is not far off from the hotel EBITDA margins than many of our lodging REIT peers generated prior to the COVID-19 pandemic. Chatham’s adjusted FFO per share was $0.13 in Q1 2020 down 62% from the $0.34 of adjusted FFO per share in Q1 2019. Our two joint ventures were highly leveraged before the COVID-19 pandemic and are facing significant challenges in the current operating environment. For the full year 2019, before the start of the pandemic, the two JVs had combined leverage of 9.9 times debt-to-EBITDA. Both JVs have not made their debt service payments in April and May, Colony and Chatham are pursuing potential relief from the servicers and lenders for these loans. Both JV loans are non-recourse to Chatham except for certain bad boy acts, and defaults under the JV debt do not trigger cross default under any Chatham debt. In light of current circumstances, Chatham recorded a $15.3 million impairment on its equity investment in the Inland JV which represented the full carrying amount of this investment. Our basis in the Innkeepers JV is negative, so no impairment was necessary for that investment. Chatham’s balance sheet and liquidity profile is significantly different from our JVs. Chatham has a strong balance sheet that positions it to weather the disruption being caused by the COVID-19 pandemic. We ended Q1 with $58 million of unrestricted cash and $11.6 million of restricted cash escrowed with loan servicers that can be used for capital expenditures, property taxes and insurance. At the end of Q1, we had $173 million drawn under our revolving credit facility. And in early May, we completed an amendment to our credit facility that provides us covenant relief for the next year and the ability to utilize the entire $250 million capacity of the facility. When covenants begin to be tested again, starting in June 2021, EBITDA and NOI figures used for covenants will be calculated on an annualized basis through the end of 2021. At March 31, we had $135 million of liquidity between our unrestricted cash balance and revolver credit availability, even at a RevPAR of $25, our monthly cash burn including corporate G&A interest and principal amortization is approximately $6.5 million for CapEx. So our current liquidity position should cover us for approximately 20 months at current performance levels. We expect operating performance will improve materially before that point. While we don't believe that we will need additional liquidity, we have six unencumbered hotels with a book value of $276 million that could serve as collateral to raise additional debt proceeds. Chatham’s balance sheet also benefits from minimal debt maturities over the next several years. The only debt we have maturing between now and the end of 2021 is a single $12.8 million non-recourse mortgage loan that matures in September 2021. After that, the next debt maturity we have is for our credit facility in March 22, but we have an option to extend that maturity through March 2023. We will have a significant amount of time for both hotel operating performance and the capital markets to recover before we need to refinance the material amount of debt beginning in 2023. With the current lack of visibility around operating performance, we withdrew our earnings guidance in March. Since we're in the very early stages of a reopening of the economy and visibility around the timing of a recovery and hotel operating performance remains limited, we’re not going to provide guidance at this time. This concludes my portion of the call. Operator, please open the line for questions.

Our first question comes from Ari Klein with BMO Capital Markets. Please go ahead with your question.

Jeff, you mentioned the operating model looking potentially different post-COVID. Can you elaborate a little bit on some of the changes you expect most likely be implemented and then what this could mean from a structural profitability standpoint longer-term?

Yes, thank you. The conversations whether they'd be with Marriott or Hilton, of course for limited service hotels but frankly for all revolve around the two highest cost items, housekeeping and food and beverage. On the housekeeping front and again, all these conversations are currently ongoing as between the brand, the brand's various advisory groups of which I sit on that residence in board, so I can't disclose too much until they really settle on what they want to do with us. But I think for example for stay-overs, there will not be automatic cleaning of the room, or, frankly, any service depending upon the brand you're talking about for I'd say at least three or four nights; maybe it'll even extend beyond that. But of course, you're going to pick up some extra costs on whatever the new cleaning requirements are going to be that each brand is also going to roll out to make guests and the general public feel comfortable about coming to hotels again, and that's going to be a pretty significant effort. And we think it may even take a normal cleaning that took 20 minutes or 25 minutes for a room, maybe even up to 45 minutes a room. So all of that has to really come out in the wash, in real practical everyday experience to see the impact to overall costs and margin on the food and beverage side, at least in select service hotels, we all provided a pretty extensive breakfast buffet. As you probably know, I’d expect those to go away for the foreseeable future, with most brands going to some grab and go concept and a little brown paper bag, with a few items in it, so that should reduce costs pretty substantially. In our Residence Inns and our Homewood Suites, there were evening hours of free cocktails with some food items at least three times a week, I'd expect to see that go away. So there's significant opportunity there. But as I said, I think we need to get our occupancy rates up a little bit more and start testing what the impact is going to be.

Got it. And then what have you seen from an advance booking standpoint in recent weeks? Maybe as you look out to June or July and then it sounds like first responders and others are accounting for a decent percentage of occupancy right now as things start to recover, do you see a step down before you maybe see improvement?

I missed the last part.

Yes, basically, listen I think there will be as far as an industry right, I mean I think as first responders, military that are needed for some of these urban areas as they check out, and you have business travelers or whomever it might be leisure travelers coming back in, there will be a little bit of a disconnect, I think and the timing of how that happens. I don't think you're going to see a massive fall-off though because I think, especially in certain locations primarily in the Southern part of the United States where some of the shelter-in-place restrictions have been relaxed a little bit, we’re seeing a pickup in leisure-related demand, whether it was two weekends ago to this past weekend at our Savannah Hotel, that essentially jumped up about 50%. Now, again a low level from essentially kind of 17% to now 25% of leisure demand. But I think that it really just depends on the timing, but certainly, there is at some point, going to be nurses and first responders checking out, but others I think will be checking in.

Our next question comes from the line of Tyler Batory with Janney Capital Markets. Please proceed with your question.

So I just wanted to follow-up a little bit more on the previous question there and also in the prepared remarks, Jeff, I think you were talking about current trends somewhat encouraging. You talked about the occupancy bottoming of 17% is now closer to 30%, a little bit more. Can you just get more precise in terms of what's driving that? Which markets you're seeing the strength throughout Savannah there, just trying to get a sense of little bit more detail, real-time what you're seeing in some of these markets where the shelter-in-place rules have been removed, just what you're seeing in terms of leisure demand at some of those hotels would be helpful.

Tyler. Yes, I mean just to hit your last point, real quick. I mean, leisure demand is really just a last two weeks phenomenon and it's only in a couple of markets. So the example I gave you for Savannah because Georgia, I think relaxed its standards two weeks ago, the occupancy demand at Savannah was again kind of upper teens, two weekends ago, this past weekend, it was mid-20s. So I think it’s just one hotel but I think as leisure markets, I think will be some of the first to come back, our leisure room count as a percentage of our total portfolio was probably in around 25% of total rooms. So that should bode well for that. Now, as far as from the 17% to 18% occupancy now to 30%, what I would tell you is for us across most of our portfolio, it's occupancies in kind of mid-teen to 35% to 45% occupancy, we have a half a dozen markets or so that are performing meaningfully better. And I would characterize those as coastal markets where there's at least a mix of not only first responders but also military. So between our San Diego markets or even have some military and naval-related business in Silicon Valley, a little in Seattle, in the Northeast. We have some as well, as well as in our Charleston, Summerville area. So I think those types of areas where we're getting a mix of first responders, plus some naval or military business or where we're seeing the highest out performers.

Okay, perfect, that makes sense. And following off the same train of thought just curious, how you guys are thinking about ADR and your ADR strategy both now but also when things reopen. I mean, as some of these markets get going, you get some more demand meaning there's going to be potentially a race to the bottom in terms of some other hotels trying to capture the market, some market share or you're not too concerned about that being an issue?

Yes, no. I mean, we're concerned about it, I mean I think listen, everybody that's all the companies that are giving occupancy breakeven levels are just basically lying because at the end of the day, it all depends on what the heck your rate is. And for us one, you've got a lot of hotels that are closed. So as what in similar to what you've seen in China and Korea, you have as hotels, as hotels open back up, your occupancy levels stay depressed because again, more hotel rooms are open, as you say rates are going to become challenging because as that new hotel inventory opens back up, people are going to try and get business. So rate is going to be an issue. So I think that's why we think it's most appropriate to tell you, hey, on a breakeven basis, we believe that RevPAR which is a mix of OC and ADR is the best guideline at least at this point to what the heck that looks like. So I think for us ADR in everybody, ADR is going to be an issue, as hotels start to come back up, even though demand is going to be picking up. There will be a rate issue for the short term.

And let me just add to that because of Island’s day-to-day communications with us and sharing all information relative to what businesses out there and not out there. And conversations tend to be around at least desire and ability of the large corporate users, the ones that really drive corporate rates to come back when they start traveling again, and there's already a little conversation going on here and there, let's just say, with their expectations, to start anyway, at an ADR that's way lower than the ADR they were paying before this whole thing hit in March. So hotels will be responding to those requests and we'll be looking to put heads in beds and we don't want to be too bearish. But we will work like everybody else, I hope to maintain rates and rates that look similar to pre-pandemic rates, but I wouldn't bank on it.

Okay, that's very helpful. Last question for me, I apologize if I miss this, the Warner Center developments, just where are you guys in terms of construction spend on that etc. I mean, probably it's premature, but just any update, possibly, you could provide on timeline in terms of when that could be finished or when you could start working on that again?

Yes, Tyler. Yes, I mean on that listen, we've backed about I'm going to say three weeks ago, four weeks ago, we finished the majority of the concrete pour of the building, which is up through level three. For us and kind of given the challenges associated with the labor, getting it to the site construction, we decided to slow down construction, at least for the next 60 days, essentially to July to hopefully get to where we can be at full operational efficiencies and reconsider kind of the timeline. As we talked about before, we were expecting kind of a July 2021 opening, I think with this 60-day pause, you're now going to push that probably into the fourth quarter of 2021. But we certainly didn't feel and felt that our best use of dollars at the moment was essentially to say hold on, let's wait till we can get that development up full scale. And I think well on the advice of our contractors in the field, that we felt it was best to kind of slow down things at least for the next 60 days. We’re still doing some concrete work on the exterior, and we’re still doing some what they call, B permit work related to utilities and everything like that around the site. So it's still active just on a little bit of a lower scale for the next two months.

Our next question comes from line of Matt Boone with FBR Riley. Please proceed with your questions.

I'm on for Bryan. I just had a quick question on liquidity. You mentioned that you had six hotels that are currently unencumbered, that could serve as collateral for raising additional debt. But I was just curious if you had considered potentially pursuing any dispositions to help improve your liquidity profile?

Yes hey Matt, this is Dennis. I mean, listen, we'd certainly consider it but at this point there is not a whole lot of acquisitions or disposal activity. I think you see everybody that's out there that had contract hotels under contract. Those are all everything is backing out. So the ability, at least in the short-term to get any proceeds from a disposition is really, really limited. So, you're not going to see us do that. I mean, certainly, I think if things start to come back and people can at least start seeing where it's going to go, maybe somebody is willing to buy a hotel. But every hotel doesn't know what next month looks like. So it's going to be hard to buy a deal at that point.

And with our redone facility, there's no fire sale here. And that's the only transaction that I believe in the next 90 days you'll see occur. So yes, I think the liquidity are relative to other hotel REITs like cash burn and the ability to kind of manage day in and day out with Island will prevent us from having to go down that road.

Okay, thank you. That's helpful. And then turning to cost savings, are there any additional initiatives that you're considering deploying at the moment or do you believe that everything that you've already instituted should put you in a good enough position to weather any additional near-term headwinds?

Yes, I mean I think everything we've done so far has provided significant benefit of what we've done to-date. As I've talked about in my prepared remarks, I mean we are still looking at vendor relationships and pricing and utility types of savings but quite honestly, there's not a whole lot of volume anyways on the purchasing side, or the utilization of services such as garbage and everything that we haven't already cut back. So because of limited occupancy and a lot of hotels. So the groundwork and the majority of the work has been done, but we'll obviously continue to look at a little bit here and there that can help us.

Got it. And then my last question is with CapEx, can you remind me what the exact breakdown is supposed to be over the next few quarters? I'm sorry, I missed that.

Yes, we've got about $7 million that we're going to spend. And this isn't related to Warner Center, but $7 million of CapEx for the balance of the year with about $5 million of that in the second quarter related to our Anaheim and New Rochelle Residence Inns that are going to be wrapping up their renovations.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Well, thank you all for listening. And we obviously are looking forward to better days and better times ahead, I think on a comp basis. And of course, you have to look at things on a relative basis. We’re positioned as well as we can be. And we are, by the way, proud of our teams, if any of those which I expect they are. Those folks are listening and particularly proud of our sales teams for the business that being able to secure around the country and put in these hotels. Thank you all.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.