Chatham Lodging Trust

Greetings. Welcome to Chatham Lodging Trust's first quarter of 2024 financial results. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Chris Daly, President of DG Public Relations. Chris, you may now begin.

Thank you, Rob. Thank you, Rob. Good morning, everyone, and welcome to the Chatham Lodging Trust first quarter 2024 result conference call. Please note that many of our comments today are considered forward-looking statements and 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 May 6, 2024, 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 messengers referenced on this call, on our website at www.chathamlodgingtrust.com. Now to provide you with some insight into Chatham's 2024 first quarter results, allow me to introduce Jeff Fisher, Chairman and President and Chief Executive Officer, Dennis Craven, Executive Vice President and Chief Operating Officer, is Jeremy Wagner, 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 Monday morning for our call. As you know, we beat first quarter consensus estimates as we combined REVPAR growth of 2% together with an almost 20% increase in our other operating profit line and property tax refunds on a couple of our California hotels. We generated free cash flow of $8.3 million in the quarter, up 10% over the 2023 first quarter. From an asset management perspective, we're laser focused on driving free cash flow any way we can, whether that's by increasing revenue or market share, increasing flow through, or enhancing ancillary operating profits. And in the first quarter, we drove other departmental profits up almost 20% as we increased parking rates in certain markets and enhanced our retail market operation, product offerings and pricing. The year over year increase added a penny of FFO to our first quarter performance. The rent per increase of 2% was split evenly between occupancy and ADR and was substantially greater than industry performance above Hilton's North American performance and right in line with Marriott's performance. Generating revpar growth and outperformance despite the bad weather in February and the shift of the Easter from April last year into March this year is noteworthy. Our revpar was boosted by revpar growth of 17% at our five tech hotels in Silicon Valley and Bellevue, and we saw occupancy gain 1,200 basis points at these hotels to 67%, by far the highest level since 2019. Excluding the five tech-driven hotels, first quarter REVPAR was down 1%, but still up over 2019 levels by 3%. Even better news is the strength we're seeing in April with REVPAR up 5% over 2023 and up 4% over 2019 levels With tech hotel rev par up 12% in April, and rev par for all hotels excluding those same five tech hotels in April was up 3.6%. Tech hotel occupancy finished at 73%, only 400 basis points off the 2019 levels. More encouraging news on the surging demand out there. April rent part growth beats most peers that have reported and supports our thesis that we should continue to outperform the industry and most of our peers in 2024 due to surging demand in our primarily tech-driven hotels. Within Silicon Valley, we're confident that the corporate demand growth we saw in the first quarter in April will continue. Additionally, tech companies are moving forward with their intern programs. This year, many of the companies are providing a stipend to each intern to cover room and meals, and the intern can choose where to stay. We're already seeing some intern bookings, not at the level as prior years, but as we talked about in February, so long as the intern programs are active, that is going to generate compression in the market, which is something we did not have last year, and obviously compression boosts occupancy and overall REVPAR results. Mountain View is our strongest market in the quarter, up 19%, as we saw meaningful gains in business travel, specifically from our top accounts here, such as Google, Broadcom, and SureFox. Market demand growth has been upper single digits, and long-term, the market sits up well for us as new supply is zero. Revpar at our two Sunnyvale hotels gained 12% in the quarter, and this market, too, is showing good underlying fundamentals. Demand is up 13%, and future supply is up 1%. We're seeing corporate demand from our top accounts, Apple, Google, Intuitive Surgical, and Applied Materials, and specifically from the start of construction at the big Epic Center, with the garage getting going, and that, as we've talked about many times, should be very beneficial for these two hotels over the next few years. San Mateo Red Park growth was 6% in the quarter versus 2019, and it's recovered more than the three other Silicon Valley hotels. One aspect to that story is that recently the 476th room Marriott San Mateo permanently closed its doors which will increase Marriott's system demand in the market, and we should see some increased production here as well. During the quarter, we sold the Hilton Garden in Denver Tech for $18 million, and including deferred renovation costs, the hotel was sold for an approximate four cap on 2023 NOI. We intend to continue to opportunistically sell some hotels this year with the goal of redeploying those proceeds into higher REVPAR and higher growth hotels and markets. Typical sales targets are gonna be hotels with absolute REVPAR and lower absolute REVPAR and margins, and probably hotels that are older that need some upcoming CapEx or regular cycle renovations. We're targeting sales proceeds of 40 million to $100 million. Continuing to sell these types of hotels while buying, as I said, higher growth, higher rev par and higher margin hotels will enhance shareholder value and cash flow. With respect to hotel investments, we are seeing more deal volume and we hope to have an acquisition announced this quarter. Acquisition targets are coming from developers looking to recycle their own capital as well as owners who are facing some meaningful risk related to refinancing and the effects therefrom. As we all know, the levels of CMBS debt maturing in 24 and 25 is pretty staggering for the industry and should provide additional opportunities for well-capitalized owners like us with the capacity to buy. I want to switch gears to address our capital structure as it's been a critically important focus for us. over the last few quarters especially. At quarter end, we were at the lowest leverage levels in over a decade, with leverage ratio under 25%, and a net debt to EBITDA ratio of very healthy four times. Subsequent to the end of the quarter, we further enhanced our financial strength, raising $50 million via increased borrowings under our term loan. We currently have 25 hotels that are unencumbered, Over the past few years, through a combination of asset sales, free cash flow, and the issuance of common and preferred equity, we repositioned our balance sheet to handle the meaningful tranche of maturing debt this year, debt that dates back to 2014 during one of Chatham's highest growth phases since our IPO. We are well capitalized to repay all maturing debt this year. In April, We repaid the $29 million maturing mortgage on the residence in Anaheim, and we have $255 million maturing in July. Let me tell you, it's great to put this overhang behind us because we've heard about this for some time from analysts and investors, and I'm proud of the work our team's been doing on this front, and I'm sure our investors will share my sentiment. including our $260 million credit facility and our upsized $140 million term loan, we have $400 million of floating rate debt exposure that will allow us to benefit from what should be a declining interest rate environment in the future. So in conclusion, we remain confident that Chatham is well positioned to outperform most peers As we have the most internal growth upside, we think of most other lodging REITs, especially within our tech hotels. The remainder of our portfolio is performing well. New supply is less than 1% across our sub-markets, and our balance sheet is in great shape to be opportunistic on the transaction front. With that, I'd like to turn it over to Dennis.