Chatham Lodging Trust

Greetings, ladies and gentlemen, and welcome to Chatham Lodging Trust first quarter 2021 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. Should anyone require operator assistance, 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, Mr. Chris Daly. Thank you, sir. You may begin.

Thank you, Jen. Good morning, everyone, and welcome to the Chatham Lodging Trust First Quarter 2021 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 SDC filings. All information in this call is as of May 4, 2021, as 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 insight into Chatham's 2021 first 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 and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

Thanks, Chris. Good morning, everyone. It's great to be here again with everybody this morning. We're seeing a strong REVPAR growth trend in our portfolio after bottoming out in December. Sequentially versus the prior month, REVPAR grew 18% from December to January, 13% from January to February, 25% from February to March, and 14% from March to April. The gains have been driven by both increases in occupancy, up to 65% in April from 40% in December, and rate, which is up 15% to $116 in April from $101 in December. We expect to see continued sequential REVPAR improvement Moving forward as leisure travel demand remains very strong, and we are seeing the return of the business and transient traveler beginning. Most importantly, and we are real happy about this, our April REVPAR finished at $75, and at this level, we expect to be positive cash flow after all debt service and corporate overhead. Getting the cash flow break-even is critical to protecting shareholder value. we are the second hotel to reach this critical point, which should reaffirm that our corporate actions and our portfolio performance have been outstanding. Also, we're thrilled that our Warner Center development is now projected to open in the 2021 fourth quarter and is going to provide incremental revenue and FFO growth in 2022 and 2023 as it ramps up. Our negative cash flow has only been $35 million since the beginning of the pandemic. When you exclude our Warner Center development debt, our net debt has actually declined 46 million over that same timeframe as we executed a highly successful sale of our residence inn in Mission Valley, and we've been producing great operating results throughout the pandemic that minimized cash burn. Our focus on select service hotels and particularly extended stay hotels, along with our strong operating team, has kept our balance sheet strong. We have no real debt maturities until 2023. And by the way, all of those can be absorbed into today's available liquidity. We firmly believe that Chatham will emerge from the pandemic financially healthier and than many of our lodging peers who have and will continue to burn significant amounts of cash and equity value. As such, we'll be better positioned to be acquisitive and further grow FFO as we move forward. On the acquisition front, as you've heard from others, deal flow has been light. Similar to the financial crisis, it's going to take some time for deals to come to light and become available, but this time, hotels have been losing money, lenders are holding most available cash, and forbearance agreements are expiring. This should provide some interesting opportunities to grow the company over the next few years. We look forward to that. From a top-line perspective, our sales and revenue management teams continue to deliver outstanding results. Our first quarter REVPAR indexed was over 126, still well above our 2019 already strong REVPAR index of 118. The impressive gains are being driven by Island's outstanding direct sales efforts from its national, regional, and local sales teams, as well as concentrated revenue management efforts, ensuring that we're quickly adjusting to the diverse demand sources in today's lodging environment. Although our booking window has been very short We are seeing a lot of bookings for the summer in markets like Portland, Maine, Portsmouth, New Hampshire, Savannah, and Anaheim. And in some of those markets, ADR will be above 2019 levels. We expect summer leisure travel to be very, very strong. Some pundits, of course, are concerned about the return of the business traveler. Will they return at all? To what extent will the business traveler return? I can tell you that business and transient travel is returning. We are seeing demand return from big tech companies in Silicon Valley. Shipbuilders are coming back to life, San Diego and Portsmouth. Patients, doctors, and medical consultants are returning to medical centers, Houston, IT-related projects are starting up, and we're seeing some intern business in some of our markets, and that's leads by Silicon Valley. We're seeing small functions return to some of our hotels with meeting space. Google has announced it's going to fast-track its office reopening plan. Other tech giants, such as Facebook, Uber, and Microsoft, with whom we do a lot of business, are bringing employees back into the office, and that will be occurring all over the country. From a timing perspective, once we move past Labor Day, we believe business and transient travel will be robust. As the recovery continues and the business traveler does come back, we will continue to get more than our fair share of revenue because we have the largest concentration of extended stay rooms of all lodging REITs at 58%, and the business traveler is going to get the most value in our kind of hotels. Our upscale extended stay hotels provide us the flexibility during periods of growth or weakness to diversify our customer base to maximize revenue, a thesis we believed and espoused for almost four decades with these hotels. Our relative RevPAR performance throughout the pandemic has been strong, despite lackluster performance in our most significant market, Silicon Valley. For the quarter, Silicon Valley REVPAR was $54 on ADR of $106 and occupancy of only 51%. The good news is we are seeing business traveler production from some of the big tech companies out there. As I stated previously, we are starting to see the business traveler return to our hotels, And along with the office reopening, when you combine this with other tech companies who are giving employees the opportunity to work from alternative locations, those workers will have to come back frequently to the central office, to the headquarters. And we're bullish that corporate demand in Silicon Valley, especially post-Labor Day, will be even stronger with that kind of travel together with other inbound travel than it was pre-pandemic. Among our top markets, South Florida remains on fire, and our Fort Lauderdale Residence Inn posted the highest rev par of our top markets with rev par of $161, down just a little bit from last year, but almost double its rev par in the fourth quarter just three months ago. As a matter of fact, I was looking over our weekend ADRs and RevPAR for the past weekend, and Lauderdale popped up as having an ADR that was up double digits from our 2019 peak ADR. We expect to see that kind of phenomenon this summer in some of the leisure markets and hotels that I mentioned a little bit earlier. Our bogey in setting our rates and revenue management will be to exceed 2019 ADRs, and I believe we'll get there. From an operating expense standpoint, we continue to be hyper-focused on every expense. On the island side, we have a team of analysts that are in day-to-day touch with every hotel GM and invest in 100 percent of their time to help each hotel micromanage its expenses. As Dennis highlighted in our release, we produced incredible cash flow through of 84% on the sequential revenue improvement from the fourth quarter to our first quarter. On a $2.6 million increase in hotel revenue, we drove an increase in GOP of $2.2 million. Yet again, this is more proof that our platform with Island is producing great results. As trends improve in 2021, this focus will need to be maintained to continue to produce strong flow-through to the bottom line. If you look at our 39 hotels, 32 of the 39 generated positive GOP in the first quarter, and our top five producers of GOP were all residence inns. Gaslamp, San Diego, Fort Lauderdale, Anaheim, Mountain View, California, and New Rochelle, New York. Our liquidity is up from year end. We are cash flow positive. Our balance sheet is strong. And our actions over the past year have protected shareholder value while providing flexibility to add value down the road. Given our portfolio attributes, our industry-leading platform with Island our ability to appeal to the diverse customer base that our room type and hotel type allows, we believe we'll be able to return to 2019 levels sooner than most of our peers. With that, I'd like to turn it over to Dennis.