Chatham Lodging Trust

Good morning, ladies and gentlemen, and welcome to the Chatham Lodge and Trust Third Quarter 2025 Financial Results Conference Call. At this time, all lines are in listen-only mode, and following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, November 5th, 2025. I would now like to turn the call over to Mr. Chris Daly. Please go ahead.

Thank you, Kelsey. Happy Wednesday, everybody, and welcome to the Chatham Lodging Trust third quarter 2025 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 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 5, 2025. 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 chathamlodgingtrust.com. Now, to provide you with some insight into Chatham's 2025 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 Wagner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher.

Jeff? Thanks, Chris. Good morning, everyone. I certainly appreciate everybody being on our call today. Before I comment on our third quarter operating results, I'd like to update some of our key corporate initiatives. Earlier this year, we completed the sale of five hotels with an average age of 25 years at an approximate 6% capitalization rate, and each of these five hotels were among the six lowest REVPAR hotels in our portfolio. In the fourth quarter, we are under contract to close on the sale of another hotel for $17 million with similar characteristics and had similar returns to the previously sold five hotels. These opportunistic sales add liquidity to execute on other value-enhancing opportunities for the company. On that note, we've now repurchased approximately 500,000 or 1% of our outstanding shares of our stock at an average price of $6.85. Included in that amount is approximately 230,000 shares that we have repurchased since the end of the third quarter. We intend to remain active repurchasers of shares moving forward since we believe we are trading at a meaningful discount. Lastly, we completed an upsized and recast syndication of our credit facility and term loan, further enhancing our financial condition and lowering overall borrowing costs. We are one of the lowest leveraged lodging REITs and have great flexibility to create value by using that capacity to repurchase shares, acquire hotels, and fund our upcoming home to Portland, Maine development. With respect to acquiring hotels, we are somewhat more bullish on our ability to grow externally than we've been in the last 18 months. Deal flow underwriting has been steady here, and it seems like seller pricing expectations in some cases, are becoming more reasonable. We have been and will continue to exercise great patience and discipline as operating fundamentals are quite volatile. But of course, it is that volatility that I think is partially the catalyst for some movement in cap rates upward. The markets will have to make sense for us And, of course, yields have to approximate the implied yield on buying our own stock. We want to invest in markets that are going to benefit from continued population migration and business investment. The U.S. is poised to benefit from this potential capital expenditure, as they're calling it, super cycle, based on the announced investments from companies based here and abroad and And more specifically, it's expected that the central and southeastern U.S. will be the biggest beneficiaries in some of these investments and additions of employment. Operationally, despite REVPAR growing, excuse me, we'd like it to be growing 2.5%, declining 2.5%, we were able to minimize our margin decline to less than 100 basis points and we're able to deliver hotel EBITDA and FFO per share towards the upper end of our guidance range and beating consensus estimates. Looking at REVPAR performance in our largest markets, I want to address our Silicon Valley performance because on the surface, the decline appears weak. REVPAR at our hotels in Mountain View and San Mateo produced REVPAR growth of 2.5% in the quarter, while RevPar growth at the two Sunnyvale hotels fell 9%. The underlying fundamentals in Sunnyvale are healthy, with the third quarter sub-market and competitive set RevPar up, as opposed to our two hotels. RevPar was up 3% and 6%, respectively, in the market. Given the underlying health of the market, when one of our larger corporate accounts asked us to substantially discount our room rates we declined to participate. We believe the better long-term option for us is to maintain our rate integrity, and that will benefit us in the future as the market outlook, as we've discussed, continues to remain strong and the market is growing and recovering. Our coastal northeast and greater New York markets experienced rip-off growth of 2% and 8% in the quarter, And the coastal northeastern portfolio remains fantastic, benefiting from long-term supply growth restrictions in those markets, combined with a balance of leisure, business, and government demand. In fact, third quarter rev par at our Hampton Inn, Portland, Maine, set an all-time record high for quarterly rev par at any of our hotels. Just fantastic and another reason why we are excited about our upcoming development in downtown Portland on the waterfront. All three hotels in greater New York grew right prior to the quarter, led by our residents in Holksville, Long Island, which had growth of 28%, due in part to having the Ryder Cup on Long Island in September. However, that hotel was still having a great year through August, with year-to-date rent up 17% as corporate demand has greatly improved, really for the first time in that market post-COVID. And three of our top markets, San Diego, Austin, and Dallas, were adversely impacted by convention-related demand losses. The Austin and Dallas Convention Centers are basically closed for renovation, as we've discussed, and expansions, while San Diego is coming off a record year in convention business in 2024, and our 24 third quarter rep part was the second highest quarter ever at that hotel. So the comp is difficult, and the softening relative to 2024 in San Diego is really no surprise to us. Our six predominantly leisure hotels, which account for approximately 20% of our EBITDA produced REVPAR growth of 3% in the quarter. Within that group, our Spring Hill Suites Savannah had a great quarter with REVPAR up over 30% as it has really surged after completing a fantastic renovation that was very well received by our guests and customers. Our fourth quarter rent part guidance assumes that our current rent part trend of a decline of approximately 3% continues for the rest of the year, unfortunately. It's really been a crazy year, a volatile year. Hotel room demand and thus revenue has certainly seen its share of ups and downs this year. Encouraging business demand growth across the portfolio in the first quarter has been adversely impacted since then by Dodge travel spending halts, tariff threats, Liberation Day impacts, and, of course, inbound international travel, and especially from Canada being down substantially, and now with the government shutdown, certainly doesn't help matters. Many of these challenges should be short-term, however, and the impact primarily on 2025 performance. But looking forward, lodging dynamics are very favorable. Forecast for super-cycle capital investments, limited supply growth, and moderating wage increases all tilt in favor of REVPAR and margin expansion as we look forward to next year. Add to this what is projected to be a favorable interest rate curve and thus lower borrowing costs should enable us to accretively grow as we move forward. Good years are ahead. With that, I'd like to turn it over to Dennis.

Thanks, Jeff. Good morning, everyone. Continuing on with some color related to Silicon Valley, excluding our two Sunnyvale hotels, Portfolio rev par would have been down 1.7% in the quarter. Occupancy at the four Silicon Valley hotels was still a solid 75%, with a range of 73% to 83% occupancy in the quarter between the four hotels. Importantly, October rev par at our four Silicon Valley hotels was flat to last year compared to the down 4% trend for the quarter. RevPAR was down approximately 5% at the two Sunnyvale hotels and up 7% at the other two hotels. So just adding on to what Jeff talked about earlier in the call, our Silicon Valley hotels were essentially able to, over the last few months, replace approximately half of the business that we chose to to pass on related to one of our larger corporate clients. So good trend developing as we move into the fourth quarter with respect to Silicon Valley and those two hotels. Obviously, our three Washington, D.C. hotels have been for quite a ride this year as evidenced by the following trends, which was first quarter rev par was up 6%. Second quarter rev par was down 2%, feeling the effects of Doge, when April RevPar was down 9%. Our third quarter RevPar really shows the impact of just the threat of a shutdown, as we typically see just the threat of shutdown start to impact government travel into those markets. Our RevPar for those three hotels was flat in July, then down approximately 9% in August and September. The government shutdown impacted the third quarter portfolio RevPar by approximately 40 basis points, In October, the effect of those three hotels, which were down 19%, actually impacted Revpar by 170 basis points. And when you just take out those three hotels, our Revpar was down only about 1% for October. Outside of our top markets, our other tech-heavy hotel, our Bellevue Residence Inn, produced Revpar growth of 1% in the quarter, As we've talked about for the last really two quarters, vehicle border crossings and inbound travel from Canada has been an impact specifically in that region. If you look at vehicle border crossings from British Columbia into Washington State, they were down approximately 35% in the third quarter compared to last year. Having said that, that's better than the 47% that vehicle crossings were down in the second quarter. So at least from a trend perspective, that crossing decline is moderating. At our home two in Phoenix, as a reminder, it opened in early 2024, and we acquired the hotel in late May of 2024. Rev par was up approximately 6% in the quarter. The fourth quarter looked quite strong in Phoenix, and our October rev par at that hotel was up another 8% year over year. Hotels in the Sunbelt continued to perform well for us. In addition to the previously mentioned Savannah Hotel, our two Charleston hotels had another solid quarter with RevPar up 4%. Our two Florida hotels in Destin and Florida, excuse me, Destin and Fort Lauderdale had flat RevPar growth in the quarter. Our top five RepPAR hotels in the quarter were our Hampton Inn Portland, Maine, as Jeff mentioned, with an all-time high of $354, followed by our residence in Washington, D.C., with RepPAR of $247, and our Hilton Garden Inn Portsmouth with RepPAR of $239, followed by our Hilton Garden Inn's Marina Del Rey, residence in White Plains, and Holtzville, New York, with RepPARs of approximately $204. Just to clarify, the second hotel was our Hilton Garden in Portsmouth, not our residence in Washington, D.C. On the operations front, our gross operating profit margins declined 70 points in the quarter to a still strong 44%. As we all know, labor and benefits are by far our largest expense, and on a per-occupied room basis, those costs were up only 2% in the quarter. Headcount is down approximately 3%, from year end at our comparable 34 hotels. With so much top line volatility, it is imperative that we closely monitor our staffing levels and productivity. Outside of labor and benefits, our other operating profit was up slightly year over year and improved margins by 30 basis points. Most other operating line items were basically stable year over year, though guest acquisition related commission costs were up approximately 15% or a half million dollars. Our expenses there have increased really just due to the different booking channels year over year in the quarter. We had 16 hotels produce over a million dollars of GOP in the third quarter compared to 17 in the second quarter with the only difference related to a DC area hotel. What is quite incredible is that for the first time ever following an all-time rev par high, the Hampton Inn Portland led all hotels with GOP of 2.5 million in the quarter, unseating our gas lamp residence inn that had led the way for the past 14 quarters. What's even more incredible is that the Hampton Inn Portland only has 125 rooms, while the gas lamp residence inn has 240 rooms. Gas lamp residence inn did finish second in the quarter, And rounding out the top five were two of our tech-driven hotels, our Bellevue and Sunnyvale II residence inns, and our Hilton Garden Inn in Portsmouth, New Hampshire. On the CapEx front, we spent approximately $4 million in the quarter. Our last two renovations planned for 2025 are commencing in the fourth quarter, and that being the residence in Austin, Texas, which starts this week, and our residence in Mountain View, California, which starts next month. Our common dividend, which was increased almost 30% earlier this year, is currently $0.09 per share per quarter. And we will continue and we'll reevaluate our common dividend in early 2026. With that, I'll turn it over to Jeremy.

Thanks, Dennis. Good morning, everyone. Our Q3 2025 hotel EBITDA was $28.8 million. Adjusted EBITDA was $26.2 million. And adjusted FFO was $0.32 per share. Our GOP margin for the quarter of 43.6% was only down 90 basis points from Q3 2024, despite the challenging rev par environment, due to continued strong expense control and moderating inflationary cost pressures. In Q3, we were able to hold year-over-year increase in labor and benefits costs per occupied room to 1.7%. In Q3, we continued to strengthen our balance sheet by refinancing our revolving credit facility and term loan, which were our only near-term debt maturities. With this transaction, we upsized our revolving credit facility from $260 million to $300 million, and upsized our term loan from $140 million to $200 million. Our low leverage of 3.5 times net debt to EBITDA and the liquidity provided by our $300 million undrawn revolving credit facility, provide us with significant capacity to pursue investment opportunities. In Q3, we ramped up utilization of our share repurchase program and repurchased 255,000 shares for $1.8 million. And subsequent to the end of Q3 and early October, we repurchased an additional 230,000 of shares for $1.5 million. At current price levels, we believe acquiring Chatham stock is a very attractive investment, and we continue to expect to actively repurchase our shares in the future. Turning to our Q4 and full-year 2025 guidance, we expect rev par of minus 3.5% to minus 2.5%, adjusted EBITDA of $16.7 million to $18.3 million, and adjusted FFO per share of $0.14 to $0.17 in Q4. and REVPAR growth at minus 0.7% to minus 0.3%, adjusted EBITDA of 89.2 million to 90.8 million, and adjusted FFO per share of 96 cents to 99 cents for the full year. This guidance assumes no further asset sales, capital markets, activity, or changes in floating interest rates. This concludes my portion of the call. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. And your first question comes from Gaurav Mehta from Alliance Global Partners. Please go ahead.

Thank you. Good morning.

I wanted to ask you on investment opportunities. Can you maybe provide some more color on what you guys are seeing in the acquisition market as you're selling hotels? Are there any opportunities to redeploy that capital into acquisition in the future?

Yes, I think I'll take that. Hi, Gaurav.

You know, it feels certainly, and we've been consistently, like a lot of companies, you know, looking at deals, talking to owners. But with Revpart turning in a negative direction, I think that there's – does present and usually has in the past some opportunities. I feel like the overall ask – is certainly now north, even on the asking side, north of 8% on a cap rate basis, whereas everybody was hanging on to a lower number, notwithstanding what the hotel rates trade at as an implied cap rate or otherwise. And I think what we're seeing in a few cases is perhaps the opportunity, as I said, and the goal is to try to create long-term shareholder value here with great hotels that will grow at least as good, if not better than the existing portfolio, that are newer, that are in the brands that we all know we specialize in, and I think we might be able to do that with some yields that will approximate what we can do by buying our own stock as Jeremy was talking about.

Yeah. And Gaurav, I think I'll just add one thing to just add on to Jeff's is when you combine all that with, you know, some of these newer assets are coming up on their next wave or probably really in a lot of cases, first waves of renovations. And as an owner who might've been relatively new to the industry now has to look at a, you know, an environment that's a bit choppy and has to come up with, you know, two to $3 million to renovate a hotel and, you know, that decision might spur a little bit more activity as well. So we're in a great financial position to be able to, you know, take on some of these opportunities in a market that might make others a little bit nervous too.

Great. Second question on the development. Can you remind us on the timing of the Portland main development?

Yeah, I mean, Gaurav, I think we're kind of proceeding as we'll start site work on that in 2026, probably be a 21 to 24-month construction timeline, so kind of an early 2028 opening.

I think the seasonality and the results that Dennis was talking about in the existing assets really dictate we have to be very careful about when we start digging up the parking lot, because it's the same land parcel. As Portland has continued, it seems, beyond obviously summer months, well into the month of October to achieve ADRs, particularly on weekends that are over $300 a night. You know, we're going to look at that carefully and skirt, you know, those time frames as well.

Yeah, I mean, I think October rev par at our Hampton Inn Portland was, I believe, around $380. So just to add on to Jeff's comment, that hotel does really well in almost every month except for, you know, the late December and January and early February when just weather is a little tricky. Yeah.

Okay, thank you. That's all I had.

Thank you.

Thank you. And your next question comes from Tyler Battery from Oppenheimer. Please go ahead.

Hey, guys. Good morning. Thanks for all the details here. Hey, Tyler. Hey. So I wanted to really dive into the RevPAR performance for a little bit, if I could. You missed the midpoint of the guide. Just isolate for us what really drove the variants, just trying to understand what surprised you in the quarter and what caused that shortfall?

Yeah, Tyler, it really comes down to two things. It's our decision on the two hotels in Sunnyvale and basically the government shutdown impact on August and September. So you had two, you know, the two Sunnyvale hotels are basically 10% of our room count. And, you know, for those two hotels to be down, you know, 9% in the quarter is, following a first and second quarter with growth in the mid-single digits was a very significant impact that I think, as Jeff talked about, is really, for us, we decided, yes, it ultimately was a short-term hit to us, but maintaining that rate integrity, and I think as I spoke about, we were able to, in essence, replace half of that business in October with I think ultimately is going to prove to be a pretty good decision long term. And then obviously in Washington, D.C., it was flat rev par growth in July. And then what we historically see, and by the way, we saw this back late in the first and early in the second quarter with the doge cuts and the threat of a government shutdown, is that as soon as the threat of a government shutdown starts or is kind of out there, Generally speaking, that government travel pulls back, and we saw that leading into the actual shutdown with RevPAR at our three DC hotels down 9% in August and September. That's it.

Great. Awesome. So thinking about the outlook and the guide for Q4, RevPAR down 2.5% in Q3. You're guiding down 2.5% to down 3.5% in Q4, so the declines getting worse. Last time that we spoke and last time you reported, just looking at some of the industry forecasts, there was an expectation that Q4 is going to be a little bit better compared with Q3, just from a year-over-year perspective. So just kind of unpack what's implied in that Q4 and kind of why things on a sequential basis are deteriorating and getting a little bit worse.

Yeah, absolutely. That really has all To do with essentially the same answer, but just to really, you know, put a, you know, put a nail in it is the three DC hotels, you know, reduced our October rev par by approximately almost 200 basis points, 170 basis points. So just those three alone, you know, in essence, if you excluded those, our rev par was off 1% for the, for the month. of October. So, you know, we obviously have, you know, we improved Silicon Valley in fourth quarter to flat rev par, I mean, in October to flat rev par. But, you know, the moderating and lessening range of rev par is strictly due to the shutdown in D.C.

Okay. And then taking a step back and also trying to think about 2026, You know, the convention calendar and some of the disruption in Austin and Dallas and San Diego coming off of a record year in 2024. How are or how is the convention business shaping up for next year in some of those markets? And then the supply picture, I think, has been pretty favorable for lodging. So not sure if you can comment on just supply growth in your markets, whether it's next year or the next couple of years.

Yeah, I mean, with respect to the convention calendars, I mean, listen, I think Austin and Dallas are essentially going to maintain kind of where they are until 27. And with respect to San Diego, you had an all-time year last year. It came down this year. It'll be something similar next year. You know, I think what you also have in San Diego is one thing that did happen, you know, that had a little bit more of an impact as well this year is you had the new Ryman property that opened up just outside of San Diego, and that obviously had an impact on smaller conventions that might have chosen to go there instead of the primary San Diego Convention Center. So I think as you move forward on that respect for 26th, You know, you probably have, you know, no incremental adverse impact from those three hotels. And then I think if you look at the supply outlook, for our market, supply is less than 1% and is projected to remain that way for next year as well. So, you know, I think as just, you know, adding on to Jeff's concluding comment, which was, you know, when you look out into 26 and 27 and the overall macro looks really good, not only to the industry, but specifically to us with respect to some of these key markets. And I think just adding to what Jeff said, 2025 has just been a nut job of a year in terms of just all these things that have impacted the industry and us. And I think when we can get past a lot of these short-term things, which I think are primarily focused here in 2025, I think the outlook for not only the industry, but for us, and I think just with our upside to some of these markets, should be pretty rosy at this point. So it's a little choppy.

So switching gears to the margin side of things, I think the performance in the quarter was really quite strong, all things considered. Just talk a little bit more about how you were able to do that, Anything you want to call out that's just kind of driving the performance there?

Yeah, I mean, it's, listen, we're putting a lot of focus and energy on day-to-day and week-to-week management of headcount and productivity, specifically, you know, with respect to, you know, anything related to housekeeping. And obviously, that's very that fluctuates based on occupancy levels. So the key is to really keep a laser eye on those items and really just managing incoming and current wage levels. As you look at where we project moving forward, generally speaking, our hospitality staff, their annual wages are generally up for review every July 1. as you look at the wages we put in place across the portfolio, the average wage increase for us post-July 1, year over year, is about 2% as well. So I think kind of as wages have kind of stabilized, we've been able to maximize efficiencies in our housekeeping department, and I think the availability to hire labor for our hotels has really been fairly stable for the past 12 to 18 months. So we're able to, you know, I think, you know, have a 2% wage increase across the board is, again, pretty favorable when you look forward for us.

So last question for me, just capital allocation and balance sheets in great shape, plenty of liquidity. Just given the backdrop, given where the stock trades, just rank order for us, your priorities for your capital here.

Yeah, I mean, listen, I think the first, I think it's what Jeff had in his comment in order, which was we're active repurchasing shares, and we will be and will continue to be active purchasing shares. We have a $25 million plan in place, which is just a little bit less than 10% of our current equity market cap. So we'll continue to be really active there. And then I think the next priority is you know, obviously acquiring hotels if we can do it. And we obviously have our home to Portland development. So, you know, I say number two and number three are kind of about the same, but in the meantime, we're going to be active purchasing shares.

Okay. I appreciate you taking all my questions here. That's all for me. Thank you. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star one. And your next question comes from Johnson Gandy from Brittany Holdings. Please go ahead.

Hi. Good morning, and thank you for the overview here. My question is primarily related to capital deployment as well. You know, from my kind of calculations here, it looks like the stock is trading around $140,000 a key. Any kind of development right now, what we've been seeing is $300,000 a key. Can you walk me through the decision-making process on why to pursue the Portland development when the stock is trading probably around half of what that cost per key would be?

Sure. This is Dennis. Nice to talk to you. I mean, listen, where are equity prices trading at? whether it's $140,000 or $150,000 or $160,000 a key, that's comprised of a valuation based on the entirety of our 34 hotels. This specific hotel, you have to look at that deal individually and look and see what the returns project out to be for that specific asset and whether that's going to add value to the overall portfolio. And if you look at, you know, we're only going to do the deal if we believe it's going to make long-term sense and based on a lot of factors, which is the market is very restrictive on new hotel development. The market is very popular. The rev pars and margins we're able to obtain and able to achieve on our existing Hampton, but also what we project for this particular hotel, based on where we are at the moment and where we believe we'll be after developing that asset, will derive and earn returns well above where the portfolio is returning. So it would certainly add value to not only the company, but obviously then ultimately to our shares and be accretive to that value. So you have to look at each opportunity individually, whether it's buying a hotel, developing a hotel, or selling a hotel. And if those add value ultimately to what you want to do with that with your capital dollars, that's how we assess it.

Got it. And then I think just on the acquisition side, you've mentioned attention looking for acquisitions. How would you allocate that? Discuss that and review that against the share price because that's more of an immediate hit one way or the other with respect to buying shares or acquiring an existing property.

Yeah, I mean, I think for us it's – You look at what we're trading at on an equity share price. You look at the acquisition. Are the yields similar? Does the acquisition provide growth, either consistent with or higher than your portfolio? And does it ultimately drive incremental distributable cash flow that ultimately you'd bring back and deliver to your shareholders via dividend? So, yeah. Okay. Thank you.

Thank you.

Thank you. And there are no further questions at this time. You can proceed with the conference.

Well, thank you all for the questions.

Thank you all for being here today with us. And we will talk to you as time goes by for better times, I think, as we move into next year.

Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation and ask that you please disconnect. Have a great day.