Chatham Lodging Trust

Greetings and welcome to the Chatham Lodging Trust fourth 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Chris Daly, President of Daly Gray Public Relations. Thank you. You may begin.

Thank you, Daryl. Good morning, everyone, and welcome to the Chatham Lodging Trust Fourth 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 SEC filings. All information in this call is as of February 24th, 2022, 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 chathamloungingtrust.com. Now, to provide you with some insight into Chatham's 2021 report, 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. Appreciate that. And I appreciate everyone who's joining us this morning for our call. It certainly was an interesting end of the year and January, as we all know. The fourth quarter started off strong with October producing the second best month since the start of the pandemic. As the quarter progressed, we were hit with the onset of the Omicron variant, exacerbating the impact on December, January, and early February, already seasonally slower months. Now, as we sit here today, we've seen a dramatic rebound in travel. We've seen business travel pick up since earlier this month and this past weekend produced our best results of 2022. Through February 21st, RevPAR has jumped significantly from January RevPAR of $67 up $20 to $87, a whopping 30% gain. Gains have been sequential each week, with RevPAR of $75 for the week ended February 7th, $89 for the week ended February 14th, and $96 for the weekend at February 21st. Revpar was over $120 this past weekend, and occupancy hit 77%, with 20 of our hotels achieving occupancy of over 90% on Saturday night during the holiday weekend. Weekday travel also continues to rise this month and year-to-date, signifying the return of the non-leisure traveler. We've been seeing improving occupancy during the week, with weekday occupancies bottoming out at 46% during the week ending January 8th, and we've seen growing midweek occupancies each week of February, currently at 60% midweek for this past week. We've been encouraged by the return of some tech-related group business in Silicon Valley and Bellevue, Washington, as well as smaller convention-related business in San Diego and downtown Dallas. Like we saw with the explosion of leisure travel in 2021, we believe that business travel is going to come strongly back this year. A clear signal has developed in Silicon Valley and Bellevue, Washington, as tech companies have announced the return, finally, of workers to their offices, which will bring along with that incremental business travel to the area, training, and product launches. Tech companies have been a bellwether for the timing of a return to office for many other companies across the country, as we know, so this should kick-start business travel. Additionally, and meaningfully, we believe that tech companies are going to be hosting in-person internships this summer to which accounted for over $7 million in revenue in the summer of 2019 for us, and should be a major boost to our five hotels in these two markets. As a reminder, our 2019 hotel EBITDA at these five hotels was approximately $35 million, and those same hotels produced a mere $5.5 million of Hotel EBITDA in 2020, and only $7 million of Hotel EBITDA in 2021. So it's those hotels that have really kept our numbers down as the recoveries progressed, but we are seeing a definite different result for 2022, we believe. Chatham is emerging from the pandemic with an even stronger balance sheet, more buying capacity, and an even higher quality portfolio. We minimized cash burned throughout the pandemic by generating impressive operating results, and we were the second fastest hotel read to become corporate cash flow positive. In 2021, we generated positive cash flow before CapEx, of $12 million, and excluding principal amortization, cash flow was $20 million. Now, this is something that I'm extremely proud of, that since April 2020, essentially the start of the pandemic for our portfolio, cumulative cash flow burn before cap expenditures and before principal amortization was zero. Since the start of the pandemic, we have not used any equity dollars to fund our corporate operations. I think a pretty remarkable achievement. As we look forward here, again, beyond the projected REVPAR results and business that we see coming back for this year, we're being pretty active on the asset and capital recycling front. We have and are working on variety of things including a sale of three or four of our hotels we don't have anything specific to announce as of this minute but I do think that we're far enough along to generally talk about those as well as our acquisition pipeline which I had said before we thought this year would be more active it's turning out I think a to be more active. We've got, you know, one or two particular hotels that we're kind of, you know, winding down in terms of, I think, the ability to put them under contract. And I look forward to doing that. Again, I think similar to the acquisitions we made in the domain at Austin last year, and in terms of opening our Warner Center Hotel, really exciting new earnings to be generated this year, and again, increasing the quality of our assets, our REVPAR on an absolute basis, and I think a little more diversity as well in terms of location and market. So I'm really looking forward to this year from that perspective also. Oh, let me talk a little bit more about Warner Center. The Home 2 suite is open. I spent about four or five days out there. During the opening week, it has really opened to great reviews, both from me talking to customers walking in the door, as well as some of the corporate accounts that have already tried us out. The rooms are really far and away the best in the market. The amenities at the hotel are incredible, a huge fitness room, great indoor pool area, and a very large indoor-outdoor bar, which for the L.A. weather should really and is already proven to be quite an attraction for the local folks and the many, many new apartment buildings that are being built all around our hotel within one block. So hotel occupancy there has already been over 50% on a few nights, and we basically haven't even been open a month there. ADR last week was at $186, a very strong result, and $10 above the comp set, and that's in an opening stage of the hotel. Shifting back to the fourth quarter, let me highlight a few things before Dennis gets into all the details. Compared to 2019, our monthly REVPAR improved each month of the fourth quarter, down 26, 24, and 16%, respectively, before slipping back to down 36% in January, obviously the result of Omicron. Through February 21st, REVPAR of $87 is down 27% compared to the first three weeks of 2019. Our margins remain strong and particularly impressive compared to 2019 levels when you consider absolute REVPAR levels. Our fourth quarter gross operating profit margins were strong, 41% on REVPAR of $92, only down 100 basis points to 2019 when Revpar was $26 higher at $118. December was particularly impressive with margins 330 basis points higher than 2019, even though Revpar was $17 lower. It's too early to tell what the margin growth will be at this point, but no REIT is better than us at regularly delivering these kind of results, and we fully expect that same store margins will be higher post pandemic now not operations related but equally important in early 2021 we launched our corporate responsibility section of our website i encourage you to take a look at that which included our inaugural corporate responsibility report and formalized our efforts relating to esg just last month we published a supplement to our report that included more disclosures in compliance with TCFD, SASB, and GRI. It's also included our first disclosure of waste data and disclosed my commitment to the pledge for the CEO action for diversity and inclusion. Chatham is fully committed to sustainability, social matters, and proper corporate governance. We have recently formed an ESG committee comprised of members of management, and our Board of Trustees, and we fully intend to participate in Gresby and its real estate assessment in 2022. Let me just mention dividends for a second here, because recently Host and Apple have announced a dividend that is something other than a nominal dividend. We've minimized equity dilution as I said, more than most of our peers over the past two years, and we're confident in the ultimate recovery and the trajectory of that recovery in our portfolio before reinstating a dividend, though I think I'd like to see continued improvement specifically in our business travel in Silicon Valley and Bellevue because, as you know, that is a very significant piece of of our overall EBITDA, and we will look forward to that recovery as the year progresses. We've historically targeted paying out 100 percent of taxable income, so when we look at any potential dividend, we'll carefully analyze our taxable income for the upcoming years while also, of course, considering use of tax-deductible net operating loss carry-forwards, you know, that came as a result of the pandemic. and we'll look and review at our dividends on a quarterly basis with our board. Let me close by saying and reminding everyone that our relative strong performance to date and expected performance moving forward is going to be significantly enhanced in 2022 and 2023 by three key factors. First, tremendous upside, as I mentioned. in our tech-driven market. Second, meaningful, incremental new cash flow from our Austin acquisitions and the opening of our new home two suites at Woodland Hills. Together, thirdly, with recycling capital from the sales of lower-tier hotels into higher-returning acquisitions. So with that, I'd like to turn it over to Dennis.