Greetings, welcome to Chatham Lodging Trust Fourth Quarter 2023 Financial Results Conference Call. Please note this conference is being recorded. I will now turn the call over to Chris Daly, Vice President of DG Public Relations. Thank you, you may begin.

Thank you. Good morning, everyone, and welcome to the Chatham Lodging Trust fourth-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 February 27, 2024, 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 2023 fourth-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 I certainly appreciate everyone joining us this morning for our call. Before talking about the fourth quarter and 2024, I'd like to spend just a few minutes highlighting some noteworthy accomplishments as we look back at last year. RevPAR growth of 6.1% with the growth split evenly between occupancy and ADR exceeded industry performance by 25%. This is considerable growth considering we lost $12 million or 400 basis points of intern-related business from 2022 to 2023. Highest RevPAR of all select service lodging rates, demonstrating the high quality of our real estate portfolio. We had a 25% rise in other department profits as we continue to drive non-room revenue profit. We reduced net debt by $26 million and our leverage ratio down to 25%. During that time, we repaid $150 million of maturing debt using available liquidity and successfully issued $83 million of fixed-rate debt. We participated in the GRESB for the second time, increasing our overall score by 9% from 75 to 82 and received an overall score of 82 out of 100, ranking us 31 out of 115 listed companies in the Americas region, and second in Chatham's peer group. We returned $22 million of dividends to our preferred and common shareholders out of excess cash flow. And closing out the year, we sold the Hilton Garden Inn Denver Tech for $18 million, which including deferred renovation costs, the hotel was sold for an approximate four cap on 2023 net operating income. So touching briefly on the fourth quarter, we were pleased to beat fourth consensus estimates as we achieved better-than-expected top and bottom-line performance. We were able to combine RevPAR growth of 2.5% with a 25% increase in our other operating profit while holding down departmental expenses flat year over year on a cost-per-occupied-room basis. The RevPAR increase was driven by a 2% increase in occupancy and less than 1% increase in ADR. Our RevPAR growth was almost double the industry-wide RevPAR growth. RevPAR at our five tech hotels grew 14%, leading the way for the company. All but one of our top markets produced RevPAR growth in the quarter. When taking out the impact of renovations, excluding the five tech-driven hotels, fourth quarter RevPAR was up 5%. For the full year, RevPAR for our entire portfolio was 98% of 2019 levels. And excluding the five tech-driven hotels, 2023 RevPAR of $133 is actually up 6% over 2019 levels. I want to spend a few minutes talking about our outlook. Coming off a volatile 2023, in which our biggest corporate clients in the tech industry were cutting thousands of jobs. Twelve months later, those same companies are hitting all-time high share prices. And of course, everyone is talking about the next big tech expansion, AI. As they always do, big tech is constantly evolving, and we are in the midst of that transformation. Finally, big tech is asking its employees to come back into their corporate offices, another very important trend that certainly directly relates to our hotel performance in Silicon Valley. As we all know and we could see daily, the market cap of all public companies in San Francisco and Silicon Valley combined tech companies reached an all-time high of over $14 trillion this month. Chatham has the highest exposure to big tech hotel demand. As we've discussed, the recovery in these markets has been slower than we'd hoped. However, we know from experience that demand will rebound to new peaks, and as it does, no peer has the internal growth upside as we do. With AI driving a surge in tech investment, travel demand is building. Sunnyvale is becoming the epicenter of AI development. As previously disclosed, Applied Materials, which has forever been one of our top accounts in Sunnyvale, announced plans to build the EPIC Center. That's the equipment and process innovation and commercialization center, which is a $4 billion, 180,000 square foot R&D facility only blocks away from our two Sunnyvale Residence Inns. The EPIC Center will be a state-of-the-art facility for collaborative innovation with chip makers, universities, and ecosystem partners. So some of those partners include AMD, NVIDIA, Western Digital, all customers of ours, and I think because of the collaborative effort, we are hearing that there ought to be plenty of travel once that is open. And of course, we're already having discussions relative to the many contractors, architects, engineers, etc., that will start traveling to build that huge center. So again, as a reminder, the two largest hotels, roughly 250 rooms each, are right in the heart of Sunnyvale. And it's not just AMD and NVIDIA expanding in the Valley; there are other large-scale developments occurring right in Sunnyvale. When I was there last, I took a look at the Intuitive Surgical new buildings going up. Already one of our largest corporate clients, they're expanding their footprint, building another 1 million square feet of office space, again, down the road from us about half a mile. Google's expansion into downtown San Jose was delayed, but we're benefiting as they continue to expand their Caribbean campus as they call it in Sunnyvale. Since the summer, we've seen growing demand in our primarily tech-driven hotels. Occupancy growth in Silicon Valley and Bellevue ranged from 13% to 35% from October to January. Year over year, January 2024 versus '23, production from three comparable companies in our top ten accounts across our four hotels was up over 50%. February RevPAR is up slightly at those hotels as well. If we just get back to 2019 levels, again, an important reminder to everybody that would add $16 million of EBITDA, $0.32 of FFO. We expect to see continued improvement in these markets this year. Over the past few years, we prudently positioned our balance sheet. And as we sit here today, we are at the lowest leverage levels in over a decade with a leverage ratio of approximately 25%. By the way, since the pandemic in early 2020, we've sold assets with an average age of 26 years for $165 million. And at the same time, avoided $18 million in near-term renovations that we determined would have no ROI. Of course, we're also investing in new hotels with an average age of approximately two years old. We're fully capable of repaying all our remaining maturing debt without doing anything else. With available cash after the sale of the Denver hotel in early January, we have approximately $350 million of liquidity, plus 24 hotels that are currently unencumbered, as well as eight hotels with maturing debt this year. Although any new debt issuance will be at rates higher than our maturing debt, using our term loan and credit facility to address a portion of the maturing debt, which are floating, will allow us to benefit from what should be a declining interest rate environment this year. With so much flexibility and unencumbered assets, we have the ability to accretively acquire hotels. We also intend to commence the development of a second hotel in Portland, Maine, one of our top-performing hotels, on the site of our existing surface parking lot. We're still, as we've said before, working through city approvals. It does take a while in the city of Portland, Maine, to get things done, but we expect some pretty large returns when it is finally opened. With respect to external growth, we looked at a lot of deals last year, but the bid-ask spread was too wide, as many have commented, and the financing market was still not conducive to making good deals. Over the last couple of months, we have started to see more deal volume. It seems to really be picking up by the month, and pricing seems to have adjusted by at least 100 basis points, which had to occur to make deals make sense. Combined with lower financing costs compared to six months ago, as well as an interest rate curve that is trending down, we certainly are hopeful to be able to execute some deals this year. And that's of course, with the backdrop of a lot of CMBS debt maturing in 2024. For the first time since the pandemic, we are providing guidance on a quarterly basis. The main reason for that is of course, the short booking window for the Silicon Valley hotels. And again, the disproportionate impact those hotels have on our overall performance and the degree to which the intern business returns, which really won't become known until you're pretty much on top of the time that they enter the market. We do know from talking to our customers in our big tech companies that there will be interns this year. In conclusion, I'm confident in the state of the US lodging industry and its future. Fundamentals are solid as the supply-demand equation should benefit owners overall in the next couple of years. At Chatham, new supply in our hotel sub-markets is less than 1% and is only more than 3% in three of our markets. With construction costs elevated and lending restricted, supply should remain muted for the foreseeable years ahead. That bodes well for us, and of course, we have the most internal growth upside than any other lodging company within our big tech hotels in Silicon Valley and Bellevue. With that, I'd like to turn it over to Dennis.

Thanks, Jeff. Good morning. Before getting into specific markets, just a bit more on top line RevPAR statistics. Year over year RevPAR was not meaningfully impacted due to renovations as we completed renovations at three hotels in last year's fourth quarter as well as this year. Weekday and weekend occupancy was up about 100 basis points in the quarter versus last year and is down approximately 9% and 7% versus 2019, respectively. Conversely, weekday ADR was up over 4% versus 2019, and weekend ADR was up approximately 20% over '19 levels. We continue to monitor deployments into our tech-driven markets. Deployments in San Francisco were up 12% over the 2022 fourth quarter and only down 8% to 2019. At FFO, international deployments were only up 3% versus 2019 levels. Again, a positive attribute when looking at international inbound travel into that market in Silicon Valley. San Jose deployments remain off about 27% to 2019 levels. A market that's really coming on quite strongly over the last few months. Seattle deployments are challenging off 2% versus 2019 levels. Again, encouraging activity in San Francisco and Seattle. Outside of our tech-driven markets, we continue to see RevPAR growth at six of our top seven markets with those markets being Dallas, Washington, DC, Los Angeles, Greater New York, Austin, and San Diego. The coastal northeastern market, highly dependent on leisure travel, was really the only market where RevPAR was down in the quarter, but I will say that it is still meaningfully up compared to 2019 levels. Continuing the trend from last quarter, Dallas and Washington, DC produced RevPAR growth of 8% and 5%, respectively, with both markets benefiting from increased business and government travel. Greater New York had an easy comp due to renovations last year at two hotels in the fourth quarter. But we do see outside of that, there's a lot of activity happening in the urban cores of both White Plains and New Rochelle with respect to multi-family office retail development that bodes well for the future. Taking a quick glimpse into our leisure market performance, which is essentially seven of our 38 hotels. RevPAR was only down 1.5% in the quarter. Again, fairly encouraging given some of the drastic leisure market corrections other owners have experienced and talked about. Our top five RevPAR hotels were led by our two New York Residence Inns, with RevPAR of $196 at White Plains and $186 of New Rochelle. Coming in at third was our Residence Inn in Fort Lauderdale Lugano at $183. After that was our Residence Inn in Washington, DC at $171. And tied for fifth, coming in with $164 RevPAR were our hotels in Portland and San Diego. Our top five producers of GOP in the quarter were led by our Gaslamp Residence Inn with $2 million, the eighth straight quarter it has led our portfolio, followed by a tech hotel, our Residence Inn Silicon Valley, two. And then our Residence Inn Anaheim, a good market showing good growth as we head into 2024. Rounding out the top five were the Courtyard Dallas Downtown and our Residence Inn in New Rochelle, New York. Importantly, looking into hotel GOP at our five tech-driven hotels, GOP was about $5 million in the quarter, which is up almost $1 million or essentially 25% year over year. Hotel EBITDA at our Bellevue Residence Inn was actually 99% of 2019 fourth quarter hotel EBITDA. At our 39 comparable hotels, GOP margins were down approximately 90 basis points, with the majority of that, 70 basis points attributable to increased labor and benefits costs. On a CPOR basis, these costs were up approximately 4% year over year. As noted in our press release, our average hourly wages in December were essentially unchanged from July levels, which we believe is indicative of a stabilized workforce environment in our markets. In fact, our employee count was 1,397 at the end of the year, which is up only eight employees from September and down approximately 20% from pre-pandemic levels. Other operating department profits jumped 25% in the quarter due primarily to focused efforts in our parking and retail market operations within our hotels. That alone increased margins by approximately 80 basis points. Offsetting these gains were the higher labor and benefits cost, maintenance costs of approximately 30 basis points, and utility costs of essentially 20 basis points in the quarter. With respect to capital expenditures, we spent approximately $7 million in the quarter and approximately $25 million in 2023. As a reminder, we did not do any capital expenditures at our Hilton Garden Inn Denver due to this impending sale. During the quarter, we commenced renovations at our Hilton Garden Inn Marina del Rey, our Homewood Suites in San Antonio, and our Hyatt Place Cherry Creek, all of which are substantially finished. We started the renovation of our Embassy Suites, Springfield, Virginia, which is a 2024 project in the fourth quarter as we accelerated the start date into December. Looking forward to 2024, in addition to the Springfield Embassy, we will renovate the Courtyard Dallas Addison in the third quarter and the Residence Inns in Austin, in San Diego, as well as the Savannah Springfield in the fourth quarter. With that, I'll turn it over to Jeremy.

Thanks, Dennis. Good morning, everyone. Our Q4 hotel EBITDA was $22.8 million. Adjusted EBITDA was $20.8 million, and adjusted FFO per share was $0.19. Our Q4 results benefited from approximately $1 million of property tax refunds. While we have seen costs increase due to the 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 39% and hotel EBITDA margin of 31.6% in Q4. Importantly, we are starting to see a stabilization of some key expense line items, including wages. Our balance sheet remains in excellent condition, and we have made significant progress on our plan to address debt maturities. In 2023, we borrowed $90 million under our term loan and issued $83 million of CMBS at a weighted average cost of 7.5%, which together provided $173 million of proceeds to address debt maturities. In January 2024, we completed the sale of the Hilton Garden Inn Denver Tech for approximately $18 million, which included expected renovation costs of approximately $6 million, representing a 2023 EBITDA multiple of 20.5 times and cap rate of 3.8%. Our year-end cash balance of $68.1 million, $18 million of proceeds from the January sale of HGI Denver Tech, and $260 million of undrawn revolving credit facility capacity provide us with approximately $346 million of liquidity to address the $297 million of debt that matures in 2024. We are planning to access the CMBS market again, in the first half of 2024 to raise approximately $100 million of 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. Based on recent feedback from lenders, we expect this new debt will likely have a rate in the low to mid-7% area. As of December 31, Chatham's net debt to LTM EBITDA was 4.1 times, which is significantly below our pre-pandemic leverage, which was generally in the 5.5 to 6 times area, despite the fact that EBITDA has not fully recovered to pre-pandemic levels. As RevPAR trends have started to stabilize following our exit from the pandemic and visibility around expense levels has increased, we feel that it makes sense to reinstate quarterly guidance at this time. As a reminder, pro forma for the sale of the HGI Denver Tech, we now have a total of 5,735 rooms, and our 2023 RevPAR would have been 11,784 in Q1, 14,540 in Q2, 14,790 in Q3, 12,288 in Q4, and 13,356 for the full year. In Q1 2024, we expect RevPAR growth of 0% to 3%, adjusted EBITDA of $16.2 million to $18.2 million, and adjusted FFO per share of $0.10 to $0.14. Our Q1 cash interest expense guidance of $7 million represents an increase of $900,000 from Q1 2023. And based on our current plan to issue approximately $100 million of CMBS in early Q2, in the current forward curve, full year cash interest is likely to be approximately $3.5 million higher than our full year cash interest expense in 2023. Our Q1 2024 RevPAR guidance of 0% to 3% reflects renovation impacts at our HGI Marina del Rey, Homewood San Antonio, Hyatt Place Cherry Creek, and Embassy Suites Springfield properties, along with the impacts of bad weather at a number of our properties in February. I think it's fair to say that we expect RevPAR growth for the rest of the year to be higher than Q1, given these impacts in Q1 and that we believe our RevPAR growth should outpace the overall lodging industry in 2024 with the continuing recovery of our tech-focused markets. With respect to hotel EBITDA margins. In general, we expect year-over-year margin comparisons to be easier in the second half of 2024 as we begin to lap the fuller staffing levels and other costs that were not completely reflected until the second half of 2023. This concludes my portion of the call. Operator, please open the line for questions.

Our first question is from Anthony Powell with Barclays.

Hi, good morning. I have a question regarding the expense growth you have factored into your guidance for the first quarter and possibly for the entire year. It looks like margins have decreased by 200 basis points in the first quarter, with RevPAR growth at 1.5. Should we anticipate this trend to continue for the rest of the year? If you manage to increase RevPAR by a few percentage points, it could lead to improved margin growth.

Yeah, thank you, Anthony. Sorry, I'm sorry, I think I cut you off. Yeah, I think as Jeremy talked about, we expect to after we get through kind of what's a choppy February. And obviously, you've got the Easter comp in March that RevPAR growth is going to be higher for the balance of the year as opposed to the 0% to 3% growth in the first quarter. So as you look at margins coming out of the first quarter, yeah, do we expect them to continue to go down? Yes, a little bit, but it won't be to the extent of the 200 basis points or so that you're seeing in the fourth quarter. It should be in that kind of mid-50ish to 80ish basis points for the balance of the year.

Okay. And then maybe just one more on the intern business. I guess you should know about that by the end of the second quarter, right? And if you don't get business this year, what's your ability to replace it with corporate transient or other kinds of business in those hotels?

Thank you for the question. This year’s intern programs are different because many companies are adopting new approaches. We are still seeing interns enter the market. Larger companies are offering intern programs that include stipends, allowing interns to select from various housing options, such as hotels, if they're available. This shift, along with increased participation in intern programs compared to last year, will likely improve demand and occupancy across the market. In January, we experienced strong performance in Silicon Valley; Mountain View saw a 23% increase, while Silicon I and Silicon II increased by about 50%. Our Residence Inn in Bellevue was up around 33%, though San Mateo experienced a slight decrease of about 4% or 5%. Overall, there are many positive developments. Moreover, outside of intern-related business, we are seeing continued investment in Silicon Valley, which aligns with our expectations for 2024. We're optimistic about our ability to replace any contributions from interns with corporate transient business in our hotels.

Okay, thanks for all the detail.

Our next question is from Tyler Batory with Oppenheimer.

Good morning, this is Jonathan on for Tyler. Thanks for taking our questions. First one for me is maybe a clarification question on the occupancy recovery. Any color you can provide on what needs to happen to close that gap to 2019 levels? Is it just Silicon Valley coming back this year with the intern business and kind of how are you thinking about the cadence of that recovery this year?

Yeah, I think this is Jeff. Are you asking about the overall portfolio compared to the 2019 numbers?

Yes, correct.

Right. Well, we already told you that when you took out the Silicon Valley hotels we were 6% above 2019. So yes. Yeah, the money is in Silicon Valley. And there's a combination of things that need to occur. Because first, occupancy needs to get back to a level that will allow everybody in the market to push ADR. So even though we may get occupancies approaching 2019 numbers, ADRs are still going to be down. I would say for at least the better part of this year because some of those corporate negotiated rates are what they are. And they're coming off of obviously weak numbers in 2023. So the practical side of it is, as with any market, you need some compression to build ADR. And I think that's what you'll start seeing as you move through the year at Silicon Valley, which will propel the company's numbers as you get closer to 2019 numbers.

Okay, very helpful. And then last one for me is just on expense growth. Helpful commentary on the wage piece. But is there any other color you can provide there in terms of what you're seeing on other line items like property taxes, insurance, and other expenses, great line items?

I think you've heard from others that for us, the impact from property insurance is about a penny per share on a full annualized premium basis. We noticed some refunds in property taxes in 2023, but it’s uncertain what will happen in 2024. If you’re considering above-inflation increases, you'll see it reflected in those two items. With property taxes, it's unclear how much will materialize. Aside from labor, which makes up a little over a third of our overall operating costs, there isn't significant pressure from other expenses on the profit and loss statement. We are focusing heavily on labor as we progress through 2024, and when considering total dollars and potential opportunities, most will be related to labor, wages, and benefits.

Okay, very helpful. Thank you for all the color. That's all for me.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Well again, I just want to thank everybody for being on today's call. We will continue to update the guidance on a quarterly basis until we have more visibility. But as Dennis walked you through some of the January numbers, I think we're being pretty conservative here. I think there's good things to come in 2024 for us and for our shareholders. Thank you all for joining.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.