Chatham Lodging Trust

Greetings and welcome to the Chatham Lodging Third Quarter 2024 Financial Results Conference Call. 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Daly. Thank you. Chris, you may begin.

Thank you, Julian. Good morning, everyone, and welcome to the Chatham-Rodding Chess Third Quarter 2024 Results Conference Call. Please note that many of our comments today are considered forward-looking statements to define 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 November 7, 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 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 2024 third 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 Redner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher.

Jeff? All right, thanks, Chris, and I certainly appreciate everyone joining us this morning for our call. We've got some good news here throughout. Before I get into our quarterly results, I'd like to provide an update on some key corporate initiatives that we've been undertaking. First, we've entered into separate contracts to sell five hotels and are hopeful that those transactions close in this fourth quarter. when closed, will generate proceeds of approximately $80 million. The five hotels slated for closing are on average 23 years old. Among the six lowest-reg PAR hotels in our portfolio, they have forecasted 24 reg PAR of $101, and importantly, are in need of renovations within the next 24 months. We will use these proceeds to initially pay down debt, but ultimately make additional investments to accretively grow EBITDA and FFO. This recycling initiative will enable us to continue to add hotels in new markets or expand our presence in existing markets. We will continue to look at opportunities to sell assets and reinvest in hotels that enhance our portfolio quality and growth profile. Secondly, our liquidity is strong. We are at the lowest leverage levels in over a decade. We paid off another maturing mortgage in the quarter and have a mere $30 million of debt maturing over the next year. Additionally, we've added exposure to floating rate debt, and with rates expected to decline, we will be able to grow FFO. In fact, based on current borrowings outstanding, Our FFO increase is $2.6 million, or approximately 5 cents per share for every 100 basis points declined in SOFR. I'd like to spend a few minutes on our third quarter results, and you'll hear more detail from Dennis. We're quite pleased to report the EBITDA and FFO near the top of our guidance range. Importantly, our REVPAR growth continues to exceed industry and most peer performance. Our REVPAR growth of 2.1% when you take out the impact of renovations handily beat industry growth of 0.9%. We were able to deliver EBITDA and FFO at the upper end of our guidance range because our operating expenses were at the lower end of our expectations. We were able to limit our same-store GOP margin decline to only 40 basis points. And as we've said the last few quarters, employment and wage pressures are moderating with year-over-year wages up. only 3%, well below what has been experienced over the last five years, and our absolute GOP margins of 45% are strong. I think if you step back, what you really see here is the complete cycle change from the post-COVID environment, and I believe as you look forward, you will see those margins pop back up to some pretty strong levels. Third quarter REVPAR of $150 exceeded 2019 levels, marking the second consecutive quarter beating 2019 levels. And based on our current guidance, full year 2024 REVPAR should exceed 2019 levels for the first time since the pandemic. As most understand, the sluggish recovery in our five tech-driven hotels in Silicon Valley and Bellevue have caused us to lag 2019 levels up till now, but we are moving ahead. If you pull out the five tech-driven hotels... Earth power of $148 is up 7% compared to 2019, with ADR up a strong 14%, and occupancy off 6%, of course, mostly attributable to Silicon Valley. Let's talk about our five tech-driven hotels in Silicon Valley and Bellevue, which achieved third quarter rent power growth of 8% in the quarter and a whopping 14% in October. In the quarter, ADR rose 5% to almost $200, and occupancy rose 3% to almost 79%. We're really encouraged by the demand dynamics we're seeing in the markets, and as we've spoken quite a bit over the last few quarters, a lot of good things are happening in the market related to AI, computer chip initiatives, and re-office efforts by most of the big tech companies announcing the return to office that we've been waiting for. To give you some additional color on what's happening, just a week ago in Sunnyvale, our largest individual market with just about 500 rooms there, it was announced that Sunnyvale was selected as the site for the new CHIPS for America design and collaboration facility. The facility will be one of the flagship R&D facilities for the CHIPS for America initiative. Last month, Applied Materials acquired another site less than half a mile from our Sunnyvale to Residence Inn for about $100 million. Plans for that site have not been announced, but certainly will be beneficial to our hotel, and Applied Materials forever has been one of our top five accounts. Applied Materials previously announced $4 billion, 180,000 square foot R&D facility is expected to break ground shortly, and I know we're already doing business with folks involved in that facility's construction, whether they're consultants, architects, or otherwise. As a reminder, this facility sits about a mile from our two hotels. Within the last quarter, General Motors opened in Mountain View, a technical center to be a focal point for software development and innovation. It's located right in Silicon Valley, and of course we do have a residence in right in Mountain View. And it's certainly going to be beneficial overall to our hotel and the market. As previously mentioned, Intuitive Surgical, another one of our largest corporate clients in Sunnyvale, is also expanding its footprint, building another 1 million square feet of office and R&D. Industrial construction obviously has resumed, and we are pleased with what we see going forward. Looking across the remainder of the portfolio, business travel continues its steady growth across the country, and that certainly was proven not again this quarter. For us, with seven of our largest nine markets delivering their part growth in the quarter, our occupancy for the key weekday business travel days was 79% on Monday, 84% on Tuesday and Wednesday, and 79% on Thursday, all but Thursday up over last year. Weekday, ADI was up 2% in the quarter to $186. And weekend, ADI was down 1%. Just to finish up here in conclusion, we remain encouraged by the fact that our red-par growth continues to outperform the industry and most peers, and we still have the most internal growth upside as we look forward of other lodging REITs, given the recovery still available in those five tech hotels. Additionally, expense pressures, as I've said, have certainly lessened. Labor and benefit wages costs seem to be under control, and by that I mean reverting back to more historical, normal increases that we've experienced over the last five years, and we're hopeful that enables us to drive more. Finally, on the balance sheet side, we are an excellent financial condition, and we're positioned to meaningfully benefit from declining interest rates, and we've got the capacity and flexibility to continue to recycle capital, acquire hotels where they can really be a creditor to FFO, our earnings, and NAV. With that, I'd like to turn it over to Dennis. Thanks, Jeff. Good morning, everyone.