Good morning and welcome to the Chatham Lodging Trust Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Andrew. Good morning, everyone, and welcome to the Chatham Lodging Trust third quarter 2022 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 November 08, 2022, unless otherwise noted. And the company undertakes no obligation to update any forward-looking statements 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 2022 third quarter results, allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer; Dennis Craven, Executive Vice President and Chief Operating Officer; and Jeremy Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

I appreciate that. Thanks, Chris. And I certainly appreciate everyone joining us this morning for our call. Again, I'm very proud of our results for the quarter continuing the strong operating trends and certainly continuing the strong flow through to the bottom line of incremental RevPAR and ADR. RevPAR remained strong in the third quarter, up 34% over the same quarter last year. And importantly, up approximately 1% over the 2019 third quarter, strengthened by strong ADR growth of 6% and offset by lower relative occupancy though quarterly occupancy of 80% is still an impressive achievement. Sequentially, third quarter RevPAR of $150 was up a meaningful 9% over the second quarter. And finally, the quarter finished strong with September RevPAR up 6% over 2019, the highest monthly growth over 2019. This year, October's RevPAR looks strong also, with RevPAR only down around 1% compared to 2019. And of course, we expect our seasonal downturn as we head into the fall as normally occurs. Next, our operating margins were strong again, as I said this quarter with same-store hotel margins of 50.5%, up 160 basis points over 2019 and produced with only a 1% increase in RevPAR over the 2019 third quarter. Historically, we produce the highest operating margins of all lodging REITs and our third quarter margins put us right at the top of all our peer companies. Again, I'm certainly pleased and proud of that result, particularly as I indicated with RevPAR up only 1%. Our third quarter adjusted EBIT and SFO were up substantially, and as a result, we saw a healthy increase in free cash flow, which was almost $25 million in the quarter, up almost 25% over our 2022 second quarter and up 150% over our third quarter. Lastly, I am very pleased with our financial condition, which is extremely healthy as we sit here at our lowest leverage levels in over a decade. Since the start of the pandemic, we have reduced our net debt by approximately 40%, by far the highest reduction of any lodging REIT. We exited our credit facility covenant waiver period during the quarter and just recently, we successfully refinanced our senior unsecured credit facility and issued a new $90 million term loan with both facilities now maturing in 2027. With no outstanding borrowings on either facility, we have the flexibility to acquire hotels and/or refinance maturing debt over the next couple of years. And we have 24 unencumbered assets that could serve as additional sources of liquidity. Touching quickly on external growth. As I stated, we have the capacity and desire to acquire hotels. But as I'm sure you've heard, the transaction market is essentially stalled between the significant recent rise in interest rates combined with strong operating results. For the industry, there really is a pretty wide bid-ask spread between buyers and sellers. We are looking at deals, but we don't expect to announce anything soon. However, we are certainly looking forward to 2023, because I believe that bid-ask spread will narrow, and I believe that there will be some debt maturities that owners will have difficulty dealing with in refinancing in this market. I also think some of the pressures from the brands will be significant relative to CapEx and deferred CapEx that certainly has occurred over the last few years and during the pandemic. As we previously stated, we do have the ability also to develop another hotel on our parking lot in Portland, Maine, next to our Hampton Inn and Suites there. Certainly, as you'll hear from Dennis, it continues to be an unbelievably strong market and we are working on a development plan that would work in a difficult environment in the city. Turning back to our operations, our portfolio is still recovering due to our reliance on the higher-rated business traveler in certain of our markets. While with 2019, September was our best month of the year, and that is primarily due to the surge in business travel that has driven up performance during the week and we saw that continuing through October. Since the week of Labor Day, Tuesday and Wednesday occupancy jumped to 87%, surpassing Friday and Saturday occupancy of 82%. Over that same period, marking the first time since before the pandemic that weekday occupancy has consistently outperformed the weekend. Although November to February begins our seasonally slower period, this trend of gaining weekday occupancies is a good indicator of what business travel might trend toward next year. And we continue to push ADRs as much as possible. As a matter of fact, as we look ahead, particularly next year, we do see and our operators are seeing and budgeting for continued strong ADR growth. And we know that as I stated earlier, our operators have always produced great flow through to the bottom line. We're seeing increased demand in many of our primary business travel markets such as Silicon Valley, Seattle, Dallas, and Austin, along with strong group demand also in Dallas, San Diego, and San Antonio from their convention centers. Our macro view is that business travel, including groups, will continue to gain traction next year. And I believe leisure travel will remain strong, but some of the previously hot leisure markets of the last couple of years will experience a decline in RevPAR like we saw with our Destin Hotel, which saw RevPAR decline by a small 3.7% compared to the 2021 third quarter. However, it is still a slight decline. As this transition occurs over the balance of 2022 and into 2023, we will derive the most benefit in changing demand trends compared to many of our peers who have become more dependent on leisure and resort business. Although still down 11% to 2019 levels, Silicon Valley has had a good quarter as we benefited from two months of intern demand in the quarter. October RevPAR trended backwards a little bit versus 2019 with RevPAR off about 30%, better than what we experienced before the summer. However, it is still down from September. The travel to both SFO and San Jose remains well below 2019 levels. At SFO, domestic deployments were down about 25% in the quarter, slightly below the 23% miss in the second quarter, while international deployments improved from down almost 40% to now down about 25%. Similarly, in San Jose, deployments were up 23% in the third quarter versus down 25% in the second quarter. So a slight improvement but still a lot of room for more improvement going forward. If you look at our Residence Inn in Bellevue, Washington, this October was off 15% to 2019. As business travel was a bit stronger than the Valley, if you look at deployments there, domestic deployments improved from off 11% in the second quarter to off about 9% in the third quarter, and international deployments were off 16% to 2019 in the quarter, which has improved from that 24% drop in the second quarter. Given its reliance on a return to office, international travelers, and the longer-term consulting and training business, as we've indicated, Silicon Valley and Seattle will be a little slower to recover than other markets. However, our top clients are continuing to travel, and we are in discussions with them on 2023 travel expectations, including the return of the 2023 intern programs, which at this point, initial indicators seem to be bigger and certainly at higher rates than this year. We are encouraged by the trajectory of these markets and the emergence of digital nomads that we've talked about who are traveling back to the Valley. We think this will generate incremental new demand over the long term. Our other tech-related market, Austin, is bucking these trends with RevPAR up 9% versus 2019 at our Residence Inn. Our TownePlace Suites was not opened in 2019. It's new relative to last year, and this is relevant since Austin was an open market during COVID. RevPAR of both hotels was up almost 25% to $150. This market has benefited from strong business travel demand and has been augmented by a healthy leisure component. We believe, as I said, the future is bright. People still like to travel, and people prefer to do business in person. We've also got some new travelers to the space; the digital nomad, that employee who works away from the office, will now be asked to come back more frequently. These new travelers will be staying for more than one or two nights. So we've got the flexibility to accommodate that since we are over 60% extended-stay hotels. We think those hotels certainly will be the primary beneficiaries of this new added demand. Adding to great top-line performance, of course, is our ability to generate very strong operating margins, and thus, high flow through of that top-line growth to the bottom line, which means our free cash flow will grow. Our balance sheet, as I mentioned, is in great shape. I think we're poised to continue to outperform, and stockholders can expect returning cash to our common shareholders in the near future through the reinstatement of a quarterly dividend. We'll be discussing that in the ensuing month or so. With that, I'd like to turn it over to Dennis for a little more color.

Thanks, Jeff. Compared to 2019, our RevPAR was essentially flat in July and August, before accelerating in September. As we talked about in our last earnings call, this quarter marked the return of in-person internships and significant room demand from high-tech companies such as Meta, Apple, eBay, and T-Mobile. Those programs wrapped up in early September, but we've seen strong demand from our intern programs. Our revenue was approximately $13 million in 2022, and that's almost double our 2019 levels. Taking more business was definitely the right decision, as it's proven out by pretty significant RevPAR index gains at our two Sunnyvale hotels. An added benefit is that our operating margin on this business is very high since limited room servicing is part of the arrangement. Our operating margins at those five tech-driven hotels in September were over 60%. As Jeff mentioned in his prepared comments, our five tech-driven hotels, four in Silicon Valley and one in Seattle, are still well off their 2019 results. We do expect that they will ultimately recover and surpass those levels. As a reminder, in 2019, these five hotels produced about $35 million in hotel EBITDA and are expected to do around $23 million to $24 million in 2022. So still about 30% off of 2019 with some good internal growth to come. If you look at our portfolio for the quarter excluding Silicon Valley and our Residence Inn in Bellevue, our third quarter RevPAR was up 4% versus 2019, with ADR growth of 11% offset by a decline in occupancy of about 7%. So again, if we take out those five significant hotels, the portfolio performed really well relative to 2019. Large group and convention business continues to surge. We posted gains in all of our convention-related markets, with Dallas and San Diego posting RevPAR gains of 43% and 20%, respectively, versus 2019. San Antonio posted a RevPAR gain of approximately 4% versus 2019. So far, the schedules are setting up for a pretty good 2023. There continue to be talks in Dallas about the expansion of the Kay Bailey Convention Center in the future without closing any of the Convention Centers. This is merely an expansion of that space, which will attract larger conventions and given our close proximity to the Convention Center, it will set us up pretty well. During the third quarter, 19 of our comparable hotels generated RevPAR greater than 2019, compared to 17 of our hotels last quarter, showing a gradual improvement. Our average travel with us averaged over 85% occupancy in the quarter, continuing to outperform our weekday travel. Notably, the gap has continued to compress, largely due to the business traveler returning; weekday occupancy, which is the best indicator of the business traveler, rose to 79% in the quarter compared to 76% in the second quarter. October weekday occupancy remained healthy at 77%. As Jeff talked about, it's quite interesting for us that our Tuesday and Wednesday occupancy of 87% beat our Friday and Saturday occupancy of 82%. Coinciding with the rising demand, we continue to push our rates in our ADRs throughout the week. Our third-quarter weekday ADR was $184 versus $175 in the second quarter, and weekend ADR was $193 versus $186 last quarter. Our October ADR was slightly higher than our September ADR. Our highest hotels with absolute RevPAR in the quarter included our Hampton Inn Portland at $285, followed by our Hilton Garden Inn Portsmouth at $221, our Foggy Bottom Residence Inn at $206, and our Residence Inn Gaslamp and Hilton Garden Inn Marina Del Rey with RevPAR of approximately $200. Our portfolio is significantly better than the industry, with third-quarter RevPAR growth more than double the industry's performance. Our performance in both occupancy and ADR saw occupancy reach 80% compared to the industry-wide occupancy of 67%. Additionally, our growth relative to 2021 versus the industry indicates that our portfolio is growing more rapidly than the industry as a whole, with our occupancy, ADR, and RevPAR growth of 10%, 22%, and 34%, respectively, compared to the industry's growth of 5%, 11%, and 16%. Our top five absolute occupancy hotels in the quarter were the Hampton Inn Portland with occupancy of 98%, followed by the Residence Inn in New Rochelle, our Hampton Inn Exeter, our Residence Inn in White Plains, New York, and then our Homewood Suites Inn Bloomington making its first appearance. All five hotels had occupancy exceeding 90%. Our top five hotels with the highest ADR were led again by the Hampton Inn Portland with an ADR of $350, $50 higher than our second-ranked hotel, the Portsmouth HGI. The remainder of our top five consisted of the Hilton Garden Inn in Marina Del Rey, our San Diego Gaslamp Residence Inn, and our Residence Inn in Mountain View, all with ADRs over $235. We continue to see an average length of stay longer than our historical levels, which is consistent with the current travel trends. Our average length of stay at both the Residence Inn and Homewood Suites brands remains about 20% higher than pre-pandemic levels. For the quarter, total hotel revenue of $88 million was up 37% compared to last year's revenue of $64 million, and we were able to generate incremental GOP of almost $19 million from flow through with a very strong 65% on that increased top line. Certainly, revenue growth doesn't mean much if you can't push it through; we've seen several of our peers who saw margins decline relative to 2019. Our margin growth is based on our entire comparable portfolio. Our same-store third-quarter operating margins surpassed 50% and were up 160 basis points over the 2019 third quarter. It's pretty impressive to achieve that kind of margin growth on a 1% increase in RevPAR, but we've managed to produce meaningful growth and notably high margins given where we are in our RevPAR recovery. A good portion of this increase is attributed to a more efficient operating structure, especially with respect to labor. Our employee headcount remains down about 20% compared to pre-pandemic levels. Like many, we're a bit understaffed out there, and we're making up for it with casual labor and efficiencies. We believe that, at least on a long-term basis, there will be a permanent headcount reduction, but everyone knows the pressures we've seen with labor rates over the last few years. On a per-occupied-room basis at our comparable hotels, our costs were approximately $33, a decline of about $2, or about 5%, relative to 2019. During the quarter, all hotels generated positive console EBITDA and GOP. Our top producers of GOP in the quarter were the Gaslamp Residence Inn, which was also the highest producing GOP hotel in the first and second quarters, followed by our Silicon Valley hotels, and then our Residence Inn Bellevue, Washington, with our Hampton Inn in Portland rounding out the top five in terms of gross GOP production. The fact that three of our top five hotels are tech-driven serves as a reminder of the upside that is underpinning those hotels as the markets recover. Looking at our recent acquisitions and our development efforts, all four hotels ranked in the top 20 producers of GOP and as a group generated RevPAR of 153 in the quarter, above our portfolio average of 150, with encouraging margins at the four hotels. On the CapEx front, the company incurred capital expenditures of $3 million in the quarter. During the fourth quarter, we will commence renovations at three hotels in Washington, D.C., White Plains, New York and Holtsville, New York, with a total spend for those three renovations expected to be approximately $11 million. We've already incurred about half of that in advance of commencement of the renovations. With that, I'll turn it over to Jeremy.

Thanks, good morning, everyone. Chatham's Q3 2022 RevPAR of $150 represents a 34% increase versus our Q3 2021 RevPAR of $112 and was up 1% from our Q3 2019 RevPAR of $149. This excellent top-line performance was driven by exceptionally strong leisure demand, unprecedented levels of summer intern business at our Silicon Valley and Bellevue hotels, and the continuing recovery of business transient demand, which really picked up after Labor Day. While we expect business transient demand to continue to improve in Q4, overall RevPAR levels in Q4 relative to Q4 2019 are unlikely to match our Q3 growth of 1% versus 2019, given the checkout of the tech-related intern business and the seasonality of leisure travel in our portfolio. In addition to the exceptional top-line results, Chatham was also able to generate outstanding margins in Q3. Chatham's Q3 hotel EBITDA margins, up 43.6%, are among the highest in the sector, and were 240 basis points higher than our margins in Q3 2019. We were able to achieve this significant increase in margins despite RevPAR only being $1 higher than in Q3 2019. While we're starting to see cost increases, we believe continued growth in RevPAR should help offset the potential impact on margins. Our Q3 2022 hotel EBITDA was $38.2 million. Adjusted EBITDA was $35.1 million. Adjusted FFO was $0.50 per share and cash flow before capital, which represents hotel EBITDA less corporate G&A cash interest and $2.2 million of principal amortization, was positive at $24.6 million. Over the last two years, Chatham has taken a number of steps to strengthen its balance sheet, and as a result, we now have the lowest leverage and most liquidity that we've ever had. In late October, we replaced our $250 million revolving credit facility that was scheduled to mature in 2023 with a $305 million credit facility that consists of a $215 million revolving line of credit and a $90 million delayed-draw term loan, including all extension options. The new revolver and term loan have final maturities in October of 2027. Both the revolving term loan and term loan are currently completely undrawn, and we intend to draw from the term loan in the first half of 2023 and use the proceeds to repay the majority of the $112 million of debt maturing in 2023. With our reasonable leverage, solid liquidity, strong operating performance, sizable portfolio of unencumbered hotels, and meaningful free cash flow, we are well positioned to refinance our remaining debt maturities when needed. This concludes my portion of the call. Operator, please open the line for questions.

We will now begin the question-and-answer session. The first question comes from Ari Klein with BMO. Please go ahead.

Thanks. And good morning. Can you talk a little bit about the trends you're seeing in Silicon Valley post the intern business and what you're seeing from a demand standpoint from the larger tech companies out there, given some of their challenges, and what some of them said to be clamping down on non-essential travel?

Yes, Ari, this is Dennis. I'll start and anybody else can chime in. But as we talked about, October RevPAR was off about 30% compared to 2019. So certainly, down from the third-quarter levels. We do know that our tech-driven clients out there that we do most of our business with are still doing business and are generating room demand in our hotels and in the market. It's just not at the same level compared to what it was from Memorial Day to Labor Day. So the demand is still out there, it's just not as intense. ADRs are still strong, relative to 2019 and 2021. Obviously, still down, but there isn't a major drop-off compared to what we were getting. So I'd say it's there; it's just not as intense as we would have seen before. We're about to hit the slow season in both Silicon Valley and Bellevue from kind of really the second week of November through to the middle of February, so we're not expecting significant activity between now and then compared to what we saw pre-pandemic.

Got it. Thanks. And then maybe on the margin front, there was some good progress there. Are there any significant incremental costs that you still expect to back and provide some color on what you're seeing from a labor cost standpoint?

Yes, there's not a ton. We've been operating at this minus 20% headcount reduction for the better part of the last six months. As I said in my prepared comments, I still think we're a little understaffed out there. You do have Marriott updating their cleaning standards from an optional standpoint, so we'll need to bring a little bit back for that, but we're entering the slower months of the season as well. So, we're not in a rush to bring back headcount in that respect. So, for the most part, we're in a pretty good position for the next four to five months until things start to ramp back up. I think we're going to be good from an employee perspective for a good bit.

Got it. Just following up, how are you thinking about employee costs kind of year-over-year into 2023 on a like-for-like basis?

Yes, I mean our year-to-date run rate is about plus 7% or 8% in terms of wage per hour across our portfolio, which is down from kind of 10% the last couple of years. Obviously, 2020 is kind of an outlier, but we are experiencing mid-single-digit increases leading into the pandemic. So it's a little bit down from our average -- from our year-to-date increase last year. I think as we move into 2023, we would still expect wages to be up in that kind of mid-single-digit area.

Great, thanks for all the color.

Hi, good morning. Just a question on the intern business. I know that you're having good positive discussions with clients right now, but if that were to be shrunk or even eliminated next year, given some of the tech challenges we're reading about, what's the option to backfill that with other business next year?

Well, first of all, we don't think it's going to be canceled or anything like that. I mean, we've been doing that business for a long time; the only thing that ever stopped it was in 2020 and '21 with the pandemic. So despite prior recessions and tech downturns, they still did the intern business and still did group-related business throughout the year in our hotels in terms of demand. So, listen, I think if we were faced with that challenge, we obviously would have to revert to what we did in 2020 and 2021, which is get as much business as we can from what we've called non-business travel related segments. We don't think there's a huge risk in that, and the discussions we've had with the tech companies where we do intern programs with, in both Austin, Silicon Valley, and Bellevue, are pretty confident in what's going to happen next year. We have already started discussions with them a little bit earlier than we used to regarding rates for that business next year, which right now are pretty encouraging.

Got it, okay. And maybe one more on Portland potential development. Could you update us on what a project like that would take to complete in terms of timeframe and targeted returns? I think you talked about how hard it is to build in a city. Maybe that gives more details there. And what you think the overall opportunities for that project are?

Well, I think overall, we believe the opportunity is great. The Hampton Inn Portland has been one of our top-performing assets since we bought it a decade ago. The process there is quite time-consuming. We do have, and are having, active discussions around that project. But I think, in terms of building it and getting the necessary approvals to build it, it's probably still a good couple of years off from being open in that market.

So 2025 is just kind of the good target?

Probably, yes, that sounds about right.

The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Hi, thank you. Good morning. First question for me, I really want to dive into trends in the business and what you're seeing. October, I think, was down versus 2019. September was up 6% for 2019, so just trying to understand the delta there in terms of the performance versus 2019. Also, if you could remind us of seasonality for your portfolio. How you're thinking November and December should shape up compared with 2019?

Sure. Yes, I mean November is usually a weekend month. So it's a little too early to tell what we're looking like in terms of RevPAR for the full month, but it's a little bit down from an absolute RevPAR perspective compared to October. Typically, our RevPAR kind of, after we get past October, goes down in November, then down further in December, and then starts building back up in January, February into March. Jeremy might have some more detail on just how much that is.

Yes, just a point of reference; in 2019, our October RevPAR was $146.50. In November, RevPAR was $121.81, and in December, it was $97. We see a pretty material drop-off after October.

Okay, great. That's helpful. And then in terms of the acquisition commentary, you'd probably imagine it is frustrating that there aren't more opportunities to transact right now. What needs to happen to narrow that bid-ask spread, and what do you think is the catalyst and the timeline for that?

Yes, as I indicated, it needs to come from pressure on owners with deals that are really faced with having to go back to their partners with capital calls. That's generally in the past always been a catalyst for deals to happen. Some partners will put up the extra capital, but there are partnerships that don't. Instead, they say, let's see if we can sell this hotel. That's when opportunities occur. It's hard to predict the timing exactly, but we've positioned our balance sheet purposely to be in good shape to certainly have the capacity to do it. We need to see really clear, really strong returns and pricing given the environment today, our multiple, and where our stock trades. There are a variety of factors that need to align for us to consider pulling the trigger because we are not looking to make dilutive deals. We've been around long enough to understand the math necessary to make an acquisition work.

Okay. And last question for me on capital allocation. Your balance sheet is in great shape, performance is strong, and there's not a whole lot to do on the acquisition front. Where does the dividend fit into this? What are your expectations about potentially reinstating significant payments?

Yes, we will clearly reinstate it. We keep talking about our cash flow and our flow-through metrics. We're finalizing some calculations related to the NOLs with the board and how that affects our overall distribution requirements. I think either Dennis or Jeremy can chime in, but we are going to be in a position here in a relatively short period of time to initiate a dividend. The level of the dividend probably, given our conservative nature, should ramp up as visibility increases into next year on earnings.

Okay, great. That's all for me. Appreciate the detail. Thank you.

All right. Any other questions out there?

Just to check, there had been another question. Seeing none, I would like to turn the conference back over to Chatham management for any closing remarks.

Again, I just want to thank everybody for being on the call and following the company as we move toward a continued better year in '23. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.