Chatham Lodging Trust

Mr. Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Melissa. Good afternoon, everyone, and welcome to the Chatham Lodging Trust Fourth Quarter 2024 Results Conference Call. Please note that many of our comments today are considered forward-looking statements defined 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 February 26, 2025, 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 measures referenced in this call, on our website at chathamlodgingtrust.com. Now, to provide you with some insight into Chatham's 2024 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 Wagner, 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 here for our call today. Before talking about the fourth quarter specifically and our outlook for 2025, I'd like to spend just a few minutes highlighting some noteworthy accomplishments as we look back at the last year. We had REVPAR growth of 3%, exceeding industry REVPAR performance by 56%. We continue to be aggressive generating profits outside the room division, and we were able to drive other departmental profits 8% higher this year after growth of 25% last year. We generated GOP margins of 43%, minimizing the year-over-year margin decline to 70 basis points. And as REVPAR growth expanded, we closed out the year with 150 basis points of margin expansion in the fourth quarter. Sold or under contract to sell six hotels averaging 24 years of age, and with a REVPAR of $98, way below our average for net proceeds of 101 million at a pro forma capitalization rate of approximately 6% when you include the foregone capital improvements. And in 2024, we repaid 297 million of debt, maturing debt, and reduced our net debt by $29 million in 2024 after reducing net debt by 26 million in 2023. We finally completed our multi-year balance sheet repositioning through the issuance of equity, debt, and asset sales, and reduced our overall leverage ratio to 23% from 25% a year ago, and importantly, down from almost 35% in 2019. I'd say that's quite an accomplishment, particularly during this period of time. And finally, we did participate in the Global Real Estate Sustainability Benchmark. Gresby, for the third time, achieving a great score of 83, earning four out of five Gresby stars and awarded the Green Star. We did return $22 million of dividends to our preferred and common shareholders out of excess cash flow, and we look forward to this year in an environment where if we can achieve similar kinds of REVPAR growth, we look at our margins really back at what have always been the industry leading EBITDA margins of all the select service hotel REITs. Our REVPAR growth has beaten industry performance for three consecutive years, and by far we've got the highest REVPAR of all select service lodging REITs, demonstrating the high quality of our portfolio, and the markets were in. As most of you know, our success is more reliant on the health of the business traveler, and business travel demand continues to grow. In 2024, we saw the health of the business traveler really show up in the non-seasonal month REVPAR growth numbers. Other than March that was impacted by religious holidays, REVPAR growth was over 5% in April and May, 4% in September, and almost 7% in October. The November to February months are slower VT and leisure months, but on the average, our RevPAR growth was about 3% in those months. During the heavy leisure months, interestingly enough, of June through August, our RevPAR growth was about 1%, which reflects the softening leisure travel offset by the higher and healthier VT business travel during those other months and even during those months. Turning our attention to the fourth quarter, which was a great quarter by all metrics, our REVPAR growth of 4%, again, beat industry performance and most peers' performance. Also, we increased our operating margins by a strong 150 basis points as labor and benefit costs continue to moderate at low single-digit levels. Again, this moderation is different than a lot of our full-service peers who are facing much more pressure given their presence in larger markets and reliance on union labor. As a result of great operating performance, we were able to comfortably exceed the upper end of our guidance range and consensus estimates. Additionally, if you look at our largest markets, REVPAR grew in six of our top eight markets with our New York area hotels flat to last year and only Dallas declining. But Dallas' decline is really due to the fact that our hotel is next door to the convention center, which is mostly closed and undergoing major expansion over the next 24 months. When you exclude Dallas, average rent per growth was approximately 7% across our top markets. Leading the way were our technology-dependent markets, And the underlying strength in these markets is encouraging as we move forward into this year. Revpar growth at our four Silicon Valley hotels was up 14% in the quarter after posting 14% growth in the 2023 fourth quarter. And the Bellevue market Revpar was up 9% in the quarter. And I utilized the market here because our Bellevue residence inn was under renovation during the quarter. Chatham has the highest exposure to big tech hotel demand, whether that's in Silicon Valley, Bellevue, or Austin. And tech investment, particularly around AI, chip processing, and next-gen technology is rapidly expanding, as we've all seen even just this past week. For example, Apple has announced a massive $500 billion further investment in the U.S., over the next five years with many of the markets that we have hotels in certainly bound to benefit as that manufacturing and other business expansion continues. On the operations front, we're really pleased and encouraged by our ability to drive this revenue growth to the bottom line as we push our operating margins 150 basis points higher to 41%, the highest fourth quarter operating margins in three years. Our expense controls were really locked in, especially regarding staffing levels and wage growth. As we've stated the last few quarters for us, and this is an important distinction, we've been the beneficiary of moderating wage pressures on a preoccupied room basis. Growth in labor and benefits was less than 1% year over year in the quarter. And if you just consider only wages, On a per-occupied room, they were down year over year. As we close out 2024, we're in great financial position, having delevered over the past few years through the opportunistic sale of hotels and now sit at our lowest leverage levels in over a decade. We've got the ability, therefore, to grow in several ways. Of course, most importantly, through the outperformance of of our existing portfolio, especially given that our largest assets have exhibited the strongest top line growth in the portfolio. Second, we do expect to commence our Portland, Maine hotel development later in the year. This looks like a very profitable investment and return for sure. And lastly, we are of course still seeking hotel acquisitions. We've got the financial ability to grow. As I've said, we have successfully or will successfully complete the sale of the five hotels. Our leverage levels are very low. I'm confident in our future to continue to grow this company and our FFO, particularly this year. And we can grow accretively. It doesn't take meaningful investment dollars to move the needle here at Chatham. And long-term fundamentals are favorable as new supply increases is less than 1% across our portfolio and further increases in new supply are going to be muted given that most new construction is too expensive and the returns, particularly in the markets that we operate in, certainly don't appear to warrant the risk. We've emerged from a slew of maturing debt in a financially strong position and operationally, I think we should continue to outperform the industry and many of our peers. So our ability to increase incremental free cash flow should enable us to return more money to our shareholders moving forward. And with that, I'd like to turn it over to Dennis.