Greetings, and welcome to the Chatham Lodging Trust Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Brock. Good morning, everyone. And welcome to the Chatham Lodging Trust second quarter 2024 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 August 2, 2024 unless otherwise noted. 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 2024 second 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 Friday morning for our call. I understand our time slot does conflict with one of our other peer lodging REITs. So for anyone who ends up listening to our replay, if you have any questions or follow-up items, of course, feel free to call me, Dennis, or Jeremy. Before I get into our strong quarterly results, I want to provide an update on some key corporate initiatives that we have been undertaking. First, we've been quite active, solidifying our balance sheet over the challenges of maturing debt, and just in the past three months we've repaid approximately $280 million of maturing debt. And as we sit here today, we've only got $30 million of maturing debt over the next year. We have no liquidity issues whatsoever, to be clear. We patiently addressed this large wall of maturities through the issuance of debt, asset sales, and free cash flow. Additionally, through the refinancing, we've added exposure to floating rate debt and with rates expected to decline, we will be able to grow FFO. In fact, based on current borrowings outstanding, our FFO increases $2.6 million or $0.05 per share for every 100 basis points decline in SOFR. With interest rates expected to decline as growth opportunities arise, we will then be able to lock in longer-term borrowings at more historically attractive rates. Second, as we disclosed last quarter, we're opportunistically marketing a handful of hotels for sale. We still expect to realize somewhere between $40 million and $80 million of proceeds from the sale of a portion of them or all of them. Not sure if any of the deals will close in the third quarter, but we are pleased with the progress made to date. We're also excited to announce earlier this quarter that for the first time in two years, we acquired a hotel, the brand-new 148-room Home2 Suites by Hilton Phoenix downtown for $43.3 million or approximately $293,000 per room. We are really excited about the hotel. It sits in the heart of downtown Phoenix, strategically located across the street from the Footprint Center, which of course is home to the NBA Phoenix Suns and the WNBA Phoenix Mercury. A block away from Chase Field, which is home to the Arizona Diamondbacks and mere blocks from the Phoenix Convention Center. Those three venues alone bring 5 million annual attendees to downtown Phoenix. Additionally, downtown Phoenix is a vibrant growing 1.7 square miles that drives incredibly diverse demand for hotels into its urban core. In addition to the Footprint Center in Chase Field and the convention center, downtown includes 11.5 million square feet of office space and a 28-acre Bioscience Core, which is currently comprised of 1.6 million square feet of space occupied with plans because it is growing rapidly to essentially double that space in the coming years. Also, there's numerous museums, theaters, and many wedding venues and other event facilities that immediately surround this hotel. We're in a great location. Switching gears back to our second quarter operating results. It was a successful quarter by almost every metric for us with RevPAR, other operating profit, and operating margins coming in at the top of our guidance range. RevPAR growth was a strong 4% in the quarter, and that's despite a sluggish June due to the timing of the Juneteenth holiday. Our second quarter RevPAR of $151 exceeded 2019 second quarter RevPAR, the first time since the pandemic. And if you pull out the five tech-driven hotels, RevPAR for us is up over 10% compared to 2019 levels. As we've said, business travel continues its steady growth across the country and that certainly was proven out this quarter for us. Occupancy was up every day over last year. And by that I mean average second quarter 2024 Sunday occupancy was higher than 2023. Again, each day of the week was higher. Additionally, our highest occupancy day of the week is now a midweek back to more of a normal pattern, a midweek Tuesday night. Our occupancy for the key weekday business travel days was 85% on Monday, 88% on Tuesday, 84% on Wednesday, and 83% on Thursday. Sunday is now our lowest occupancy night again, but it was still running at 76%. Second quarter occupancy at our tech hotels was 78%, only 300 basis points off 2019 levels, and that gap compressed by 100 basis points from the first quarter. Importantly, occupancy in our competitive set at these same hotels was up 8% to approximately 70% in the quarter. Underpinning stronger fundamentals occurring in those markets, which we've always said is necessary for us to drive ADR growth in our hotels. Our second quarter RevPAR gains were broad-based across most of our largest markets, another encouraging sign with our tech-focused hotels in Silicon Valley and Bellevue leading the charge with a RevPAR gain of 10% in the quarter. Tech companies are doing some intern programs this year. We expect to derive about $500,000 of intern-related revenue this year, not at the level as pre-pandemic or 2022. But with the intern programs active, the market is compressing as evidenced by the continued growth in RevPAR. Market demand is starting to feel like it did before the pandemic in the Valley. Bellevue produced the strongest growth for us with RevPAR up 14% over last year and now sits less than 6% below 2019 levels. Special corporate production there was up 27%. And all the companies that we're all familiar with, like Amazon, Microsoft, TikTok, et cetera, have been putting business in the hotels. Additionally, we've got a nice group of eBay interns at the hotel this summer. Bellevue produced RevPAR gains of 13% in the quarter, driven by top account production from the likes of Google, Broadcom, and Surefox. Second quarter RevPAR of $183 is starting to get closer to 2019 levels, roughly 18% shy of that number. RevPAR at our two Sunnyvale hotels gained 8% in the quarter. And this market too is showing good underlying fundamentals with occupancy of 77% for our two large hotels there with the competitive set occupancy at 67%. So still room for growth in that set in Silicon Valley and certainly room for growth, I mean, in Sunnyvale for those two big hotels. The normal accounts in the area are producing good midweek corporate demand. Sunnyvale RevPAR of $144 is still, however, 28% below 2019 levels. So that is the market that suffered the most from the pandemic and has delayed return-to-office policies, et cetera. Certainly, it has cut the RevPAR, but shows the kind of growth that we're having and good prospects going forward in Sunnyvale for us. San Mateo's RevPAR growth was 4% in the quarter and less than 6% shy of 2019 levels. So gaining back pretty strong there as well. Operationally, GOP margins of 46% finished at the top of our guidance range. I will add, we absorbed approximately $700,000 of one-time non-recurring expenses that brought down our margins by 85 basis points. So just to finish up here before I turn it over to Dennis. In conclusion, we're essentially in great financial shape, having successfully recast the balance sheet and refinanced all that debt. I think we still have the most internal growth upside of other lodging REITs, considering the tech hotels and the double-digit RevPAR gains we're experiencing there. Together with very little new supply coming in our markets, we're positioned to benefit from declining interest rates because now we've reset the debt, as I said, with floating rate debt for the most part and do have the capacity and flexibility to acquire hotels if they can be accretive to our FFO and cash flow. So with that, I'd like to turn it over to Dennis.

Thanks, Jeff. Good morning, everyone. June RevPAR growth of 1% was impacted by the timing of the Juneteenth holiday. RevPAR for that week was down 2% for the industry and was down 5% for our portfolio. Our July RevPAR growth of approximately 1% also saw us get hit by travel the week following the holiday where industry RevPAR growth was off 5% while we were down 8%. Generally speaking, because of our reliance on the business traveler, especially given that our guests average along with the length of stay, holiday weeks generally adversely impact our performance relative to the industry. Having said that, we still outperformed the industry meaningfully in 2024. Some additional RevPAR statistics from the quarter: markets representing over half of our trailing 12-month EBITDA generated RevPAR growth between 5% and 10%, proving again some encouraging business travel demand underpinnings. Our second quarter RevPAR was not impacted by any renovations as we had three hotels under renovation in the first quarter. And as we look forward, we'll have one hotel under renovation for most of the third quarter being our Courtyard Addison, Texas, and then we'll start the renovation of our SpringHill Suite, Savannah in September. Weekday occupancy was the highest since 2019. RevPAR in our seven predominantly leisure hotels, which comprises approximately 20% of our second quarter room revenue, saw RevPAR decline 2% in the quarter. Other than our residents in Fort Lauderdale, the other six hotels had RevPAR gains or declines ranging from down 5% to up 5%. Our Fort Lauderdale Residence Inn RevPAR was down 13% in the quarter. Sunday to Thursday weekday occupancy was 81% in the quarter with Friday to Sunday occupancy of 86%, all metrics over 2023 levels. Both weekday and weekend ADRs were $183 in the quarter. Our June ADR of $191 matches our June, July 2022 portfolio ADR of $191, which are the highest since 2019, and our June weekday ADR of $191 was in fact the highest monthly weekday ADR since 2019 as well. June RevPAR of $157 matches the third highest monthly RevPAR since 2019. July RevPAR was up 8% in Silicon Valley and 6% across our five tech-driven hotels. Our top five RevPAR hotels were led by the Residence Inn Washington DC with RevPAR of $235, up 11% over last year, followed by our Residence Inn San Diego Gaslamp at $209, up 10%, followed by our Hampton Inn in Portland, Maine with RevPAR of $202, also up 5%. Then followed by our Residence Inn White Plains with RevPAR of $197, again, up 11%. And then our Hilton Garden Inn in Marina Del Rey with RevPAR of $194. We continue to monitor deployments into San Francisco and Seattle, two major gateway airports that do, again, provide some correlation to hotel demand, especially in our tech hotels. San Francisco's airport saw international passenger traffic surpass 2019 levels in April and May. In total, passenger traffic is only off 10% versus 2019 levels, the lowest April and May variance since 2019. Versus last year, April and May passenger traffic is up 3% at SFO. At SeaTac, April and May total passenger traffic is up 3% over last year and importantly, international deployments are up approximately 15% for both of those months. Most of that inbound travel is generally coming from the Asia region. As a reminder, Amazon opened a portion of the Sonic building in Bellevue, which welcomed more than a thousand employees and intends to double its Bellevue workforce from 10,000 to 20,000 employees over the next several years. TikTok continues to expand its office presence in the Bellevue market as well. At our 38 comparable hotels, hotel EBITDA margins were down 230 basis points in the quarter. We are, as always, focused on managing our operating expenses quite difficult over the last five or so years, having absorbed significant inflation across all expense categories, including labor and benefits. Key expenses adversely impacting our margins in the quarter: payroll-related expenses, and I want to emphasize not necessarily wages, down 130 basis points. Complimentary breakfast was up 21% and impacted our margins by approximately 30 basis points. And then insurance was up almost 20% and again, hitting margins by about 20 bps. The 130 basis point impact from payroll-related expenses includes some one-time items that adversely impacted our margins. If you actually look at just pure labor costs, our average hourly wages are only up 1% from December and on a CPOR basis, wages were up only 0.1% versus the 2023 second quarter, essentially flat as our productivity has improved. Even more encouraging, our rooms’ labor costs on a CPOR basis were actually down 1% year-over-year. Our headcount is up about 1% from the last quarter but still remains 19% below pre-pandemic levels. On the positive side, and this is something completely in our control, we continue to push our other operating revenue and profits across all of our hotels with a special emphasis on parking and our retail market revenue. During the second quarter, our other operating profits accelerated 16% or $0.4 million. Again, basically adding a penny of FFO per share to our results. We're on track to add approximately $0.04 of FFO this year in our other operating departments. Our top five producers of GOP in the quarter were led by our Gaslamp Residence Inn with $2.8 million, the 10th straight quarter it's led our portfolio, followed by our Embassy Suite Springfield with government-related business gaining traction. And for the first time since 2019, three of our five tech hotels round out the top five with Bellevue and then our two Sunnyvale Residence Inn coming in our rankings. At our five tech-driven hotels, hotel EBITDA and GOP are up approximately 12% over last year. And as we've previously disclosed, if we get back to 2019 EBITDA levels, we would add approximately $0.30 of FFO. With respect to capital expenditures, we spent $48 million in the quarter, $19 million year-to-date and still expect to spend approximately $37 million in 2024. No renovations during the second quarter, and we've talked about our renovations that will be occurring in the third quarter. Last year, we did have a renovation at our Courtyard Charleston Summerville during the third quarter. So there will be a little bit of adverse impact on RevPAR in the quarter. And I think with that, I'll turn it over to Jeremy.

Thanks, Dennis. Good morning, everyone. Our Q2 2024 hotel EBITDA was $33.7 million, adjusted EBITDA was $31.4 million and adjusted FFO was $0.39 per share. We were able to generate a GOP margin of 46% in hotel EBITDA margin of 39% in Q2. While our Q2 hotel EBITDA margin was down 230 basis points from our Q2 2023 margin, much of this was due to a $1.2 million workers' comp refund recognized in Q2 2023. Importantly, we are seeing a stabilization of some of our key expense line items, such as rooms, labor, and utilities. Our balance sheet remains in excellent condition and in Q2, we took significant steps to address our near-term debt maturity. In Q2, Chatham completed a $50 million increase in its unsecured term loan and closed three single-asset CMBS financings that generated $60 million of proceeds. We used the proceeds from these financings together with excess cash and $120 million of borrowings under our revolving credit facility to repay $261 million of maturing CMBS and acquired the Home2 Phoenix for $43.3 million in Q2. In July, we borrowed an additional $15 million under our credit facility and used the proceeds to repay an $18.8 million mortgage loan, which was our last piece of debt maturing in July. As of today, we have only $30 million of debt maturing over the next 12 months and have $125 million of availability under our revolving credit facility. As Jeff mentioned, we are exploring several potential asset sales. If any of these are completed, the proceeds would likely be used to repay credit facility borrowings in the near term and reinvest it into hotel investments in the medium to longer term. As of June 30, Chatham's net debt to LTM EBITDA was 4.3 times, which is significantly below our pre-pandemic leverage, which was generally in the 5.5 times to 6 times area despite the fact that EBITDA is not fully recovered to pre-pandemic levels. In Q3 2024, we expect RevPAR growth of 0% to 2.5%, adjusted EBITDA of $28.2 million to $30.6 million, adjusted FFO per share of $0.31 to $0.36. Our Q3 cash interest expense guidance of $8 million reflects the financings completed in Q2 and the incremental debt associated with the acquisition of the Home2 Phoenix. Our results over the last few quarters have included a material amount of interest income given the large cash balances that we held during these periods. Now that we have used our excess cash to address debt maturities, we expect interest income to be essentially zero for the balance of the year. This concludes my portion of the call. Operator, please open the line for questions.

Our first question today comes from Ari Klein of BMO Capital Markets.

Can you elaborate maybe a little bit on the trends you've been seeing in recent weeks? It seems like the comparisons are relatively easy in the tech markets, in particular in the third quarter. What are you seeing from a leisure standpoint, I guess, and how much is that weighing on the third quarter outlook?

I mean, listen, I think, we disclosed what our leisure hotel performance was in the second quarter, which was down 2%. We don't expect that to move a whole lot from there. If it goes from down 2% to down 3% or something. But that's essentially 20% of our portfolio. I think you see a little bit there. Obviously, the week after the July 4th holiday, I think caught a lot of people by surprise with the industry off 5% in RevPAR for a Thursday holiday, and it was really the week after that that really hit the industry. So that alone brings down July RevPAR for us. We were off 8% by about a point or so. So I think not a ton of difference, I think between what we had pre-what we had expected for the third quarter versus our 0% to 2.5% range. But I think it's just a combination of a couple of those things really. I think we do expect as we kind of get out of the summer and into some of the heavier business travel reliant months that we should and I think expect to be able to hopefully outperform a little bit.

And I guess from a RevPAR cadence for the second half of the year, would you expect fourth quarter to be softer than the third quarter? And I know you're not yet providing guidance, but just from a directional standpoint?

I mean, listen, generally October is a pretty strong month, especially when you're looking at our tech hotels as you get towards the end of the year. I think for now I'd say our viewpoint is the range is going to be similar to our third quarter. We have, yes, I think it'll be similar.

And then maybe on the Home2 Phoenix acquisition, are you seeing other similar types of opportunities emerge that you're looking to transact on? And then from a disposition standpoint, you highlighted $40 million to $80 million in potential sales. Curious what types of assets or markets you're looking to sell in and just the level of interest you're seeing on those?

I'll take that question on the acquisition side. I've kind of, I think, on the last call, called Phoenix a needle in the haystack. Not a lot of deals like that, being brand new, being in a market that we really wanted some exposure to and being the right brand for us, which is Home2, kind of our second favorite brand to Residence Inn for the most part, and all extended stay as we continue to increase that percentage of our room count. So we're pretty excited about the deal. Look, I think and we still expect that there will be a little more deal flow as the year progresses. And we are talking to a few of our friends that actually do have some maturities for the remainder of this year. I think most, either special servicers or lenders are extremely patient with their borrower. But in an effort to recycle capital, if nothing else, not necessarily facing foreclosure per se, there could be a few opportunities out there as the year goes on. But we'll be real careful about what we do. We understand our share price, our multiple and what we need to be accretive or non-accretive. So I wouldn't expect to see too much on that front. And then on the disposition side, it's just, again, characterized by some lower RevPAR hotels for us that we don't see a lot of upside in the market. A common denominator would be that they're facing a renovation, a normal cycle renovation in either 2025 or 2026. We see that money as probably kind of a no ROI investment. So looking to see if we can recycle that capital into something that's newer and more attractive with a lot more upside.

Our next question comes from Tyler Batory of Oppenheimer & Company.

This is Jonathan on for Tyler. First one for me, maybe just expand on that demand commentary, which so far sounds healthy. Is that a fair characterization of how you're seeing things? And is there anything out there that maybe gives you pause from a demand perspective or concerns you?

I don't think that, and you read the journal today, for example, and all of a sudden the 'R' word, the nasty old recession word popped up for the first time in a while, whether it's a soft landing or otherwise. I don't think there's anything at this point for us to be nervous about in terms of a real economic slowdown and/or demand slowdown because we read in the prepared remarks, the occupancy levels, I mean, pretty strong in the 80s. I think everybody's challenge has been the ability to get an ADR increase commensurate perhaps with where they thought they might go, and the leisure pullback depending upon what company you are and what level of exposure you have. We got six hotels really only that expose us to that. So we feel pretty insulated. And that's not a matter of consumers necessarily buttoning up their pocketbooks and saying, I'm not doing anything or going anywhere. It's just a pullback from obviously the COVID revenge travel and otherwise as they used to call it. So I think you're into a normalization phase more than anything else here.

Maybe switching gears, the margin came in stronger than we were expecting and above the guidance range by about 150 basis points, if I'm doing my math correctly. Can you talk about the delta there between the quarter and your original expectations and what drove that outperformance?

Yes, I mean, I think the couple things. One, I think, ultimately our property taxes were a little bit better than we thought for the quarter. But as we, one of the main things was, especially on the rooms, labor side, are essentially on a CPR basis basically flat year-over-year. And I think that's really the main difference. A little bit on the property tax side, but primarily some excellent productivity on rooms, labor.

And last one from me, if I could. Jeff, on the hotel sales, any early feedback in terms of the transaction market right now and maybe how it compares to your original expectations when you went out with those assets, what you're hearing in terms of bid-ask spread or any other high-level commentary I think would be helpful?

I think we're going to get on a couple of hotels pretty close to where we had targeted the range towards the high end of the range, let's say. So I'm pretty pleased about that. I mean, there are these one-off buyers out there that are smaller regional players that will stretch a little bit to get an asset and to grow, notwithstanding the overall environment and/or the way public companies may look at the environment so far as evaluating whether they should buy a deal or not. So I think there are some opportunities for us to recycle, continue to recycle some capital, the way we've been doing just periodically over the last few years for this year.

There are no additional questions at this time. I'd like to turn the call back over to management for closing remarks.

Well, I appreciate everybody being on the call this morning. And we certainly look forward to continuing to put up some good numbers here and getting some of these dispositions done, which only further solidifies our already strong balance sheet and puts us in a great position to take advantage perhaps of some opportunities on the acquisition side down the road. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.