Chatham Lodging Trust

Greetings and welcome to the Chatham Lodging Trust fourth quarter 2020 to 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 call is being recorded. It is now my pleasure to introduce to you host, Chris Daly from DG Public Relations. Thank you, Chris. You may begin.

Thank you, Vikram. Good morning, everyone, and welcome to the Chatham Lodging Trust Fourth Quarter 2022 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 22, 2023, 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 contains 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 2022 fourth quarter results, allow me to introduce Jeff Fisher, Chairman and 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. Jeff?

Hey, thanks, Chris, and I certainly appreciate everyone joining us this morning for our call. Before talking about the fourth quarter and 2023 generally, I'm going to spend a few minutes highlighting some noteworthy accomplishments for our company last year. We increased cash flow before CapEx nearly fivefold from $12 million in 2021 to $58 million in 2022. We reinstated the common dividend for the first time since the start of the pandemic. Last year, we had the highest absolute rev par of the select service REITs. We drove EBITDA margins higher by 31 percent, or 900 basis points, from 29 percent to 38 percent. We opened the $70 million, 170-suite Home 2 suites in Woodland Hills, Warner Center, and we acquired the 111-room Hilton Garden Inn in Destin, Miramar Beach, Florida, for $31 million. Then we went ahead and sold four hotels with an average age of 27 years at a cap rate of 2% and 6%, respectively, on 2019 NOI. Strong, strong result there. Completed the refinancing of Chatham's existing $250 million senior unsecured revolving credit facility with a new $260 million senior unsecured credit facility and a new $90 million unsecured term loan. So we improved our overall liquidity from $199 million on January 1, 2022, to $376 million at the end of the year. By doing all that, we reduced our net debt by $82 million, and we reduced our overall leverage ratio. from 31% at the beginning of the year to 26% at year end. Our net debt reduction is second best among all the lodging REITs since the start of the pandemic. And for the first time, we participated in the Global Real Estate Sustainability Benchmark Assessment, most people say Gresby, achieving green star status and achieving a rating 15% higher than our peers. We're very proud of that. Shifting back to our fourth quarter performance, REVPAR remained strong in the quarter, up 24% over the same quarter last year, driven by ADR growth of 20% and occupancy growth of 3%. And relative to 2019, fourth quarter REVPAR was off 4%, with ADR growing 7% and occupancy declining 9%. November to February are always our seasonally slowest months of the year, given our strong reliance on business travel in certain of our key markets. But February is definitely showing signs of improvement as we go through the middle of the back half of this month. In business travel, relative to the past 90 days, forward demand trends are encouraging, and our tech-focused intern programs are planned to occur according to the companies and the conversations that we're having in that regard. As business travel continues its recovery, we will post outsized growth. So our full-year RIP of $124 recovered to 92%. of 2019 REVPAR of $136. And our macro view is that business travel, including groups, will continue to gain traction in 2023, and leisure travel will remain strong. But some of the white-hot leisure markets of the past couple years will give some REVPAR back. As this transition occurs in 2023, we will derive the most benefit in changing demand trends as compared to many of our peers who really have become more dependent on that leisure travel segment. Operationally, our margins remain high, and we should finish 2022 with the highest operating margins of all lodging REITs, a tribute to our platform, which has delivered outstanding results even at rev par levels below 2019. Our fourth quarter adjusted EBITDA and FFO were up substantially, and as a result, we saw a healthy increase and free cash flow to $10 million double our 21 fourth quarter. Hotel operating margins slipped approximately 100 basis points in the quarter, due primarily to some one-time items that either benefited the 2021 fourth quarter or hurt the 2022 fourth quarter. Additionally, labor-related costs, including casual labor, adversely impacted margins by approximately 80 basis points, In these seasonally slower months, optimizing labor efficiency is difficult, especially when weekend demand is higher than weekday demand. Of course, we're closely monitoring those staffing levels as we move through this year. Like others in the industry, we're seeing cost pressures impact other areas of the P&L, so it's not just labor, namely utilities, insurance, and general hotel supplies. Lastly, I want to touch on our financial condition, which is extremely healthy as we sit here at our lowest leverage levels in over a decade. In 2022 alone, we reduced our net debt by over $80 million and reduced our leverage to 26%. We ended the year with approximately $380 million of liquidity, including a new credit facility and term loan. As such, we have the flexibility to acquire hotels and or address or refinance maturing debt over the next couple of years, and we have 24 unencumbered assets that could serve as additional sources of liquidity. During the 2023 first quarter, we've already paid off loans amounting to $73 million, including the high-rated loan on our Woodland Hills Hotel, as well as two maturing loans. We only have three additional loans maturing in 2023 amounting to $77 million, and those maturities will be funded with remaining borrowings on our term loan and free cash flow. Touching quickly on external growth, the transaction market has been dormant, but it seems like it's starting to ease up a bit with a significant rise in interest rates and a bunch of maturing debt occurring throughout the industry We believe there will be some opportunities to acquire hotels that fit into our high-quality portfolio in the back half of the year. So to finish up, we haven't published much during 2022, and we are well-positioned to generate outsized growth both internally and externally, given the strength of our balance sheet. With that, I'd like to turn it over to Dennis for a little more color.