Good day, and welcome to Chatham Lodging Trust Third Quarter 2023 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, Sarah. Good morning, everyone. Welcome to Chatham Lodging Trust third quarter 2023 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 2, 2023, 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 contains reconciliations to non-GAAP financial measures referenced on this call on our website at chathamlodgingtrust.com. Now to provide you with some insight into the Chatham 2023 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?

Thanks, Chris, and good morning, everyone. I appreciate everyone being on the call this morning with us. We know it's a busy morning out there in earnings land. It was a successful quarter, given our earnings beat, but also an interesting quarter, given the unusual and difficult comps created by the substantial cancellation of the 2023 tech intern programs, as we have talked about numerous times in Silicon Valley, Bellevue, Washington, and Austin, Texas. In the third quarter alone, the loss of intern business meant we were missing approximately $8 million of room revenue and $5 million of operating profit. As we all know, starting about this time last year, tech companies started announcing massive layoffs, hiring freezes, and cost-cutting initiatives. Less than six months later, those same companies were announcing significant investments in artificial intelligence, chip manufacturing, and reshoring of technology manufacturing back to the U.S. As previously noted, Applied Materials, which has forever been one of our top five accounts in Sunnyvale announced plans to build a $4 billion 180,000 square foot R&D facility in Sunnyvale just blocks from our two Sunnyvale Residence Inns. The facility will be a state-of-the-art facility for collaborative innovation with chip makers, universities, and ecosystem partners. Some of those partners include AMD, NVIDIA, and Western Digital, all customers of ours. Today, general business travel demand trends remain encouraging in Silicon Valley and Bellevue. Passenger traffic into San Jose has leveled up versus last year, while domestic and international travel continues to improve at SFO and SeaTac, Seattle. At SFO, domestic deployments are down 17% still to 2019, gross down 26% last year with international travel much improved, only down 6% to 2019 versus down 26% last Q3. At SeaTac, domestic passengers are down only 1% to 2019, versus down 10% last year, and international passengers are up 2% to 2019 versus down 16% last year. When you look at international occupancy at our two Sunnyvale hotels, those are the two big hotels, it was 25% in the third quarter versus 20% in 2019, so good improvement there. After getting through the year-over-year intern tough comps, demand has been encouraging. At the five primarily tech-driven hotels, RevPAR was up approximately 11% in October, mostly due to demand or occupancy and we are forecasting RevPAR to grow about that same amount for the entirety of the fourth quarter. Market demand growth is pivotal, of course, for lodging owners and operators to be able to drive rates higher as we move into next year. We have owned these hotels for many years, and we know that the intern programs will come back, and that these companies are continually evolving, investing and developing the world's greatest technologies, and that certainly isn't going to change. At some point, we will get back to 2019 levels and ultimately exceed those levels. And of course, that just means our internal growth prospects continue to be very strong. For 2023, we are projecting just over $19 million of hotel EBITDA from these five hotels, and as a reminder, that’s $16 million short of 2019 levels still. That $16 million of incremental hotel EBITDA equates to $0.32 of FFO per share, a massive increase over our current FFO per share run rate, so that shows you where the upside is. Switching gears back to our third quarter performance, relative to 2019, RevPAR was down less than 2%, though ADR was up 5% to 2019 and occupancy was impacted, of course, down by the tech hotels. Excluding those five hotels, RevPAR would have been up 7% versus the 2019 third quarter. Encouragingly, this 7% increase accelerated from last quarter's growth of 5% versus 2019. Portfolio occupancy was a strong 80% in the quarter, down from 81% last year and 85% in 2019. And within weekday occupancy was 78% in the quarter, and June weekday occupancy of 81.3% was the highest level since the pandemic. ADR was up $3 over last year, but up $9 or 5% over 2019. Given our reliance on the business traveler here, I want to compare performance versus 2019 when we had a lower concentration of intern business. Weekday occupancy was 78% in the quarter, and weekend occupancy was 82%, both measures down to 2019. Weekday ADR was $181 and weekend ADR was $192, which represented increases of 2% and 15% over 2019 levels. And weekday RevPAR was $142 and weekend RevPAR was $158 versus 2019, so weekday RevPAR was up about 5%, which is the lowest quarterly variance this year. And additionally, as we have noted, October performance has been quite strong with portfolio RevPAR growth of 2% and about 1% over last year and 2019. Operationally, we were able to generate margins of 45%, down 50% from last year. But a bunch of that loss, as we have discussed before, was due to our five technology-driven hotels, which again shows you the upside as those hotels recover, with the intern business, specifically last year. And the requirement to clean rooms once a week, if that, the margin differential should definitely abate as we move forward. We continue to generate significant cash flow—over $20 million in the quarter and have been utilizing the excess cash flow after dividends and CapEx to repay a portion of our maturing debt. During 2023, we have repaid $155 million of maturing or amortizing debt. Our balance sheet is strong and with approximately $332 million of liquidity, we are well-positioned to address all remaining debt maturities next year and 2025. We continue to pursue external growth opportunities, though of course, we must be mindful of our cost of capital, while assessing in-place cash flow yield and growth projections on potential acquisitions with a significant rise in interest rates, brands becoming more focused on renovation requirements, and a bunch of maturing debt occurring throughout the industry. As we look forward, we believe there will be some opportunities to acquire hotels that fit into our portfolio. We will continue to seek investments that allow us to add some external growth to supplement the massive internal growth that will come from the continued recovery of our hotels in Silicon Valley and Bellevue. As you know, we don't provide forward-looking guidance, but I do want to address our dividends. We currently pay $0.07 a quarter, and stated upon reinstatement of the dividend last year that we would make a fourth-quarter true-up dividend payment based on our operating results for 2023 and our expected usage of our NOLs. Based on our internal projections, we expect our fourth-quarter dividend will remain at $0.07 and we will continue to evaluate our dividend, of course, on a quarterly basis. With that, I would like to turn it over to Dennis.

Thanks, Jeff. Good morning, everyone. Outside of our tech-driven markets, we continue to see RevPAR growth at four of our top six markets, with those markets being Dallas, Washington DC, Los Angeles, and Greater New York. The other two markets, the Coastal Northeast and San Diego market were only down 1%, after having big increases last year and versus 2019. Dallas was our top-performing key market with RevPAR growth of 16% this year as it continues to benefit from stronger travel across all segments. Continuing a positive trend, our second-best key market was Washington DC with RevPAR growth of 8% in the quarter. We continue to see a healthy mix of business and government travelers in these markets, although we did see a small number of cancellations in the last week or so of September, and the first week or so of October due to the potential government shutdown at that time. Taking a quick glimpse into some of our leisure market performance, we had an equal number of gainers as well as decliners. We saw RevPAR increase at our Exeter, Portsmouth, and Fort Lauderdale hotels with RevPAR decreases at our Portland, Savannah, Destin, and Anaheim hotels. Of course, RevPAR at our four Silicon Valley hotels was down 25% versus last year and 33% versus the 2019 third quarter. Silicon Valley EBITDA was 4.2 million, down approximately 3.5 million to last year and down approximately 4.4 million to 2019 levels. We did manage to replace over 50% of the lost intern revenue, and as we sit here today, occupancy levels are healthy; we just need a bit more demand in that market to be able to drive rates as we go into next year. Austin RevPAR was off 11% versus last year, again, really due to the loss of the intern business, which is particularly impactful during the summer months since Austin is a pretty seasonal market with summer being the lowest months of the year. Year to date, RevPAR at our two hotels in Austin is still up approximately 3% versus last year. Some other markets I want to briefly mention as they support our underlying thesis, which is that business travel is steadily improving around the country. We saw double-digit RevPAR growth at both of our Denver hotels, averaging about 15%, and both of our Houston hotels with an average of about 23%. We also saw double-digit RevPAR growth in some of our suburban business markets, such as Billerica, Mass, Brentwood, Tennessee, and Farmington, Connecticut. Lastly, a hotel we really haven't mentioned much this year after a great first year, but our Home2 Woodland Hills Hotel produced RevPAR of $180 in the quarter, which is up 11% over last year, particularly impressive given the lackluster economy in that market with all of the labor strikes that have been occurring this year. Our top five RevPAR hotels for the quarter were led by our Hampton in Portland with a RevPAR of $322, coming in second was another Northeastern hotel, our Hilton Garden in Portsmouth, followed by our Hilton Garden in Marina Del Rey at $210. Our Residence Inn in San Diego, Gaslamp had RevPAR of $205 in the quarter, and coming in fifth was our Residence Inn in White Plains, the Hampton in Exeter, which had RevPAR of $191 in the quarter. Just the same as the second quarter, at post-pandemic high, 21 of our 36 comparable hotels achieved RevPAR higher than the 2019 third quarter, and 27 of our 36 comparable hotels—approximately three-fourths of the portfolio—achieved ADRs higher than 2019 levels. Markets not hitting 2019 levels are certainly our Silicon Valley and Bellevue Hotels, as well as our Houston, Bloomington, Minnesota Hotel, and our Residence Inn in Tyson's Corner. We continue to see an average length of stay approximately 10% longer than our pre-pandemic levels. Our top five producers of GOP in the quarter were led by our Gaslamp Residence Inn with $2.7 million, the seventh straight quarter it has led our portfolio, followed by our Hampton in Portland. Then our Bellevue Residence Inn, a tech-driven market, which is encouraging, rounding out our top five were our Hilton Garden in Portsmouth and our Hyatt Place, Pittsburgh, which I think is the first time that hotel has made this list, benefiting from a little bit of Taylor Swift phenomenon around the country. Just missing the top five were one of our Sunnyvale Residence Inns, and the recently mentioned and recently built Home2 Woodland Hills. With the loss of the intern programs, it was a tough quarter year-over-year in terms of operating margins, which were down approximately 500 basis points. The five primarily tech-driven hotels accounted for 270 basis points of the decline as those hotels generated operating margins of approximately 64% last year versus 50% this year. Year-to-date for the portfolio, our operating margins are off approximately 180 basis points compared to the prior year. So again, some one-time items in the third quarter adversely impacted our margins a little worse than other quarters. At the 34 comparable hotels, excluding Silicon Valley and Bellevue, wage and benefit-related costs adversely impacted margins by approximately 140 basis points. Other adverse impacts on margins were caused by increased maintenance expenses of $0.3 million, which were up 19% year-over-year and impacted margins by 40 basis points. We had about $200,000 of unplanned expenses primarily related to water damage at a couple of our hotels. Commissions were up $0.3 million or 21% year-over-year and impacted margins by 40 basis points. As the business mix shifted with transient revenue up approximately 15% at our Marriott Hotels, a portion of that is due to intern-related business outside of the five tech-driven hotels. On a cost per occupied room basis, commissions were up 8%. Complimentary food and beverage costs rose 18%, bringing down margins by 20 basis points, with pretty much CPOR or cost per occupied room also upped that same amount, as seasonality and the rollout of complimentary F&B last summer wasn't fully baked into our operating results. And lastly, as I think most have heard, insurance costs continued to escalate year-over-year and that impacted our margins by 20 basis points. Our employee headcount was 1,389 at the end of the third quarter, up about 50 employees since September of '22, but down about 100 employees from the end of June this year, as we reduced headcount for seasonality and a bit of overstaffing. Our current employee headcount is still down approximately 20% from pre-pandemic levels. With respect to capital expenditures, we spent approximately $6 million in the quarter and expect to spend approximately $30 million for the year. That includes $22 million of renovation costs at five hotels. During the quarter, we completed the renovation of the Courtyard Charleston, and during the fourth quarter, we have or will commence renovations at our Hilton Garden Inn in Marina Del Rey, our Homewood Suites in San Antonio, and our Hyatt Place, Cherry Creek. We also are expected to accelerate the start date of the Embassy Suites in Springfield to this quarter from starting after the first of the year. So with that, I'll turn it over to Jeremy.

Thanks, Dennis. Good morning, everyone. Our Q3 '23 hotel EBITDA was $32.8 million, adjusted EBITDA was $30.6 million, adjusted FFO was $0.40 per share, and cash flow before capital was $20.4 million. While we have seen costs increase due to a reinstatement of certain brand standards and the impacts of inflation on a number of key line items, we were able to generate a GOP margin of 44.9% and hotel EBITDA margin of 37.9% in Q3, despite the significant impact on margins from the loss of the intern-related business in our Silicon Valley and Bellevue hotels in Q3. Our balance sheet remains in excellent condition, and we have made significant progress on our plan to address debt maturities. As of September 30th, Chatham's net debt-to-LTM EBITDA was 4.1x, which is significantly below our pre-pandemic leverage, which is generally in the 5.5x to 6x area, despite the fact that EBITDA is not fully recovered to pre-pandemic levels. In Q3, we issued $83 million of fixed-rate debt with a weighted average cost of 7.5% through loans on five properties with a mix of five-year and 10-year maturities, and used a portion of the proceeds to repay the $19.7 million loan on the Hyatt Place Pittsburgh and the $40.5 million loan on the Residence Inn Bellevue. We now have no remaining 2023 debt maturities and our quarter-end cash balance of $71.6 million and $260 million of undrawn revolving credit facility capacity provide us with approximately $332 million of liquidity to address the $298 million of debt that matures in 2024. We are likely to consider accessing the CMBS market again in the first half of 2024 to raise additional proceeds to refinance a portion of our 2024 debt maturities, which would enable us to preserve a material amount of undrawn revolving credit facility availability. While we are not going to provide guidance at this time, I do want to remind you that, because of the debt issuance that occurred in mid to late August, interest expense should be approximately $600 million higher in Q4 than it was in Q3. This concludes my portion of the call. Operator, please open the line for questions.

Our first question comes from Tyler Batory with Oppenheimer. Please go ahead.

Thank you. Good morning. First question for me to start on the five tech-focused hotels, I know you talked about $19 million of EBITDA coming from those hotels this year, $16 million short of 2019 levels. The commentary on Q4 October RevPAR sounds encouraging, any early thoughts on 2024? Do you think you can grow year-over-year at those hotels? How much of that $60 million shortfall do you think you can make up next year?

I mean, listen, Tyler, good to hear from you this morning. Certainly, we expect top-line RevPAR growth at those five hotels last year. It's certainly way too preliminary at this point to know and to really be able to estimate whether that's 25%, 50% of the recovery from where we are now to where we are peak. So, we are certainly not going to go out there. I think the preliminary news is encouraging about 2024. But as we saw last year, I mean, in February of this year, the intern programs were still on and at full steam. So it is a pretty volatile market. I think the underlying trends, as Jeff talked about in his prepared remarks, are good. I think September and October for those five hotels coming out of the intern program were encouraging. November, once you get to the middle of November towards the end of December, you certainly see a drop-off in seasonality at those hotels as long-term guests and business travel start to slow down in Silicon Valley and Bellevue. But at this point, for the last, as we sit here seven weeks, the general trend is certainly that weekday business travel is getting healthier.

As we think about Q4 overall for your portfolio, first, I know you have a number of renovations that are going to be ongoing. I mean, how disruptive are those going to be for results? And then just remind us the normal seasonal progression what November looks like versus October, and then what December looks like versus November?

Yes, Tyler, this is Dennis again. Seasonality-wise, I think as you look at kind of October to November, then November and December, you look at about a 20%, kind of almost 20% drop-off from October to November, and then kind of another 10% drop-off from November to December, just in terms of RevPAR. So that gives you kind of a guesstimate of what that might look like on a normal month. So from a renovation perspective, it's going to have a little bit of an impact. But for the most part, the hotels are at their lowest level. So, hopefully, it minimizes the displacement, but it'll certainly have some impact. It just won't be material.

And then the last question from me. There's a lot of focus from investors on expense growth and margin and some moving pieces in your portfolio. But talk about expense growth, what you're seeing? And what's your kind of expectation for if you were going to maintain margin and keep margin flat, what sort of RevPAR growth would you need to see to achieve that?

I mean, listen, I think as a portfolio you'd have to see mid to upper single digits to increase your operating margins. Certainly, I think the wage pressures of the last few years are coming down, so you're not having double-digit wage increases year after year. So, listen, it's all related to that wage number. So, I think thankfully it seems as if that's easing a little bit. We do have jurisdictions that have federally or statewide mandated minimum wage adjustments, but generally speaking, we're above those already anyways, and therefore really don't have to make much in terms of an adjustment there. But I mean, listen, it's an inflationary environment. It's not just wages. Obviously, everybody you've heard, I think throughout the entire year about property insurance and liability insurance has been a tough hard market. So, there are certainly challenges out there, and I think if you're getting low single-digit RevPAR growth, it's going to be really challenging to keep margins up.

Our next question comes from Bryan Maher with B Riley Securities. Please go ahead.

This is Brandon stepping in for Bryan. Just two quick things from me. So just to reiterate, as far as the secured debt, it sounds like you're taking a more holistic view on that even though you also have enough cash. Is that correct?

I'm not sure I follow the question.

Just as far as the secured debt just wanted to confirm how you're thinking about that. I thought it was mentioned earlier in the call.

We issued $83 million during the quarter to cover the remaining debt maturities for 2023 and begin addressing the 2024 debt maturities. At the end of the quarter, we had $70 million in cash. Typically, we maintain about $10 million in cash, which means we likely have an additional $60 million available to handle the debt maturing in 2024. With this cash and our undrawn revolving credit balance, we have the ability to meet our 2024 maturities, but we want to avoid relying entirely on our revolving credit facility for that purpose. Therefore, we plan to do more security issuance in the first half of next year. I would estimate that it could range from $50 million to $125 million, depending on whether we decide to use any capital for acquisitions or developments. However, if we don't pursue those options, I would expect around $50 million to $100 million in secured debt issuance in the first half of next year.

Got it. That's helpful. And then just as far as you've talked about that we're seeing stronger RevPAR growth in Dallas and Greater New York, so I just wanted to confirm if there's kind of a spillover you're seeing into the fourth quarter. And I believe you've already touched on kind of the momentum of it, so I cannot leave it at that.

Yes, I mean, I think, listen, I think September was certainly—and I think you've probably a couple of other peers talked about that July and August were a little sluggish, but September was a little stronger. I mean, if you look at our non-tech driven hotels, RevPAR was up compared to 2019, essentially 4%, almost 5%, or 5% excluding the tech-driven hotels, 4% for the entire portfolio. And then for October, we had RevPAR growth over 2019 as well. So, certainly encouraging. I think, obviously, as I talked about with Tyler, November and December start to see some—obviously our RevPAR drops off. But I think going into the end of the year and going into the start of next year, that pattern for September and October certainly is encouraging at this point.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Fisher for any closing remarks.

We thank you and appreciate everybody being on the call this morning, and looking forward to our continued progress and improvement as we move into the end of the year into next year. And we'll speak to you soon. Thanks.

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