Chatham Lodging Trust

Greetings and welcome to the Chatham Lodging Trust second quarter 2020 financial results conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Daley, president of Daley Gray Inc. Please go ahead.

Thanks, Sachi. Good morning, everyone, and welcome to the Chatham Lodging Trust's second quarter 2020 results conference call. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subjects 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 5, 2020, unless otherwise noted. and the company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at chathamlodgingtrust.com. Now, to provide you with some insights into Chatham's 2020 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 Wagner, Senior Vice President. Jeff.

Thanks, Chris. Good morning, everyone. First and foremost, thank you for your interest in Chatham, and we sincerely appreciate your participation during these unusual times. The COVID-19 pandemic has been one of the most destructive events to the global and national economy in history, and its impact on the lodging industry is unprecedented. forcing hotel owners and operators to manage our businesses under the most dire circumstances. This unprecedented period has required intense asset management and operating focus, and I am very proud of the efforts of our teams, both at Chatham and Island Hospitality, allowing us to generate some of the best operating results of all public lodging REITs. We have lauded our best-in-class operating platform since our IPO And during these turbulent times, the benefits of that platform stand out as the ideal operating model, allowing us to work closely together to deliver leading results. For the quarter, our RevPAR declined 77% to $33. Although a dismal absolute RevPAR, the decline of 77% for our entire portfolio, not just some small subset of open hotels, is much better than most companies who have already reported RevPar declines over 90%. I certainly believe that our outperformance is attributable to the fact that 70% of our 2019 EBITDA and 60% of our rooms are made up of extended stay hotels. An important differentiator is that Chatham has the highest percentage of extended stay rooms of all lodging REITs, basically double the next highest REIT and this is often overlooked. Additionally, more than 96% of Chatham's rooms are characterized as limited service rooms, the highest percentage among public lodging REITs. Our upscale extended stay hotels, as well as our select and limited service hotels, provide us the flexibility during periods of growth or weakness to diversify our customer base to maximize revenue. And that's exactly what our operating team has been doing. Within the quarter and in July, we've seen gradual revenue improvements since hitting bottom in late March. We laid out in our press release our monthly REVPAR stats and REVPAR performance by brands for the quarter, and there are some interesting points. First, occupancy improved 1,000 basis points in each of May and June. Companies who have already reported earnings have stated that July has been similar to June, But for us, our occupancy further increased over 400 basis points to 48% for our entire portfolio. Having suites with full kitchens and large rooms has been beneficial in winning business from today's travelers, primarily first responders and government or military in the first couple of months after the collapse. These wins allowed us to keep all 40 of our hotels open. Additionally, in Silicon Valley, where we have four Gen 1 residence inns, those hotels are laid out to provide extra space and rooms well-distanced for longer-term corporate guests when they return, and this should aid our direct sales efforts. In addition, those Gen 1 residence inn hotels have, of course, separate entrances without the need to even enter a lobby of the hotel, and folks can have a contactless experience 100% of the way, which we think, as you move through 2021, will certainly prove to be another big plus for us. Second, average daily rate has rebounded. Not surprising, ADR took a hit, as the rate profile of early pandemic travelers was lower. ADR bottomed out for us in May, but gained 12% in June and another 6% in July. Third, REVPAR index. Let's talk about our market share. REVPAR index measures the share of business you are getting versus your competitors within a market, and it skyrocketed throughout the pandemic. Even as hotels have reopened, in the markets, we've been able to maintain a significant premium of around 144 for the past four months, which is 22% higher than our 2019 average of 118. This fantastic performance is a direct result of the outstanding efforts by Island's direct sales and revenue management efforts, again, winning more than our share of existing demand. Fourth, average length of stay has markedly changed for our portfolio, driven by the type of traveler during the pandemic who prefer our extended stay hotels. Second quarter 2020 average length of stay was up to five nights for the Homewood hotels and 5.9 nights for Residence Inn, which compares to second quarter 2019 average length of stay of 2.6 nights for for Homewood Suites hotels and the same 2.6 nights for residence inns. And fifth, daily demand trends have completely flipped. Of course, you've all read about that for the industry. In our portfolio, demand is strongest on the weekends. For the past couple of months, Friday-Saturday occupancy was 50% at an ADR of $108. while for the remainder of the week, occupancy is 45% and ADR is $105. As most are aware, the leisure traveler is the driver of this trend. People want to travel and get out of their house. Lastly, revenue per day has increased every month since April, and July revenue per day is higher than June. With the exception of the week after July 4th, room revenue has sequentially increased each week for the last nine weeks. The current trends remain somewhat encouraging, although the rate of growth from month to month has slowed. But if we've learned anything, these times are incomparable, and there's really no way of accurately projecting the future. Looking past the summer, we have seen some corporate demand percolating, but only time will tell if, in fact, that comes to fruition And I can say that the corresponding rate is well down from the prior year, but slightly improved from the second quarter. I firmly believe that given our portfolio attributes, we believe that we'll be able to return to 2019 revenue levels sooner than most of our lodging repairs, but the full return of the corporate transient traveler will be predicated on the availability of a vaccine. As I stated earlier, I am thankful to have our best-in-class operating platform with Island Hospitality, and this has been further proven when you look at our ability to operate much leaner at lower operating levels, which allowed us to reach operating profitability much sooner and at lower REVPAR levels than indicated. Dennis and Jeremy will talk a little bit more about that, but I will tell you that it required extensive adjustments to our cost structure. Compared to pre-pandemic levels, we laid off or furloughed approximately 70% of our employees and reduced that number to 60% today as occupancy has come back. We've reduced service levels, reduced staffing at our hotels to minimal but functional levels, reduced compensation, and are carefully analyzing every expense. When you look at the monthly detail of hotel profitability in our release, you can see that we were able to achieve positive GOP gross operating profit at rev par of less than $30 and positive EBITDA at rev par of about $40. Those are remarkable achievements accomplished by staying hyper-focused on managing expenses across all departments using our experienced operating teams and providing them the right tools to actively manage expenses on a daily basis. As a result of much better operating performance, our second quarter cash burn before CapEx of $8.4 million was a meaningful 40% lower than our original estimate of $21.3 million. Our June cash burn before CapEx of $2.8 million was approximately 60% better than our prior forecast of $7.1 million. If you wanted to assume that June was where we were going to perform for the foreseeable future, our liquidity runway is 41 months, enough to get us through the end of 2023. Most industry experts and pundits seem to think that it will take until 2022 or 2023 before REVPAR returns to 2019 levels. how long this downturn is going to last. Operating so efficiently produces operating profit, which lessens our cash burn, and ultimately this has a meaningful impact on long-term equity value for our shareholders. Our teams at Chatham and Island have the experience to persevere through these situations, and we know how to lead a public lodging company through these challenging times. With that, I'd like to turn it over to Dennis.