Good morning and welcome to the Chatham Lodging Trust Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Andrew. Good morning, everyone, and welcome to the Chatham Lodging Trust third 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 November 08, 2022, 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 2022 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 Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

Appreciate that. Thanks, Chris. And I certainly appreciate everyone joining us this morning for our call. Again, I'm real proud of our results for the quarter continuing the strong operating trends and certainly continuing the strong flow through to the bottom line of incremental RevPAR and ADR. RevPAR remain strong in the third quarter, up 34% over the same quarter last year. And importantly, up approximately 1% over the 2019 third quarter strengthened by strong ADR growth of 6% and offset by lower relative occupancy though quarterly occupancy of 80% is still an impressive achievement. Sequentially third quarter RevPAR of $150 was up a meaningful 9% over the second quarter. And finally the quarter finished strong with September RevPAR up 6% over 2019, the highest monthly growth over 2019. This year, October RevPAR looks strong also, with wood -- excuse me with RevPAR only down around 1% compared to 2019. And of course you stock your seasonal downturn as you as you head into the fall as normally occurs. Next, our operating margins were strong again, as I said this quarter with same-store hotel margins of 50.5%. Up 160 basis points over 2019 and produced with only a 1% increase in RevPAR over the 2019 third quarter. Historically, we produce the highest operating margins of all lodging REITs and our third quarter margins put us right at the top of all our peer companies. Again, I'm certainly pleased and proud that that kind of result, particularly as I indicated with RevPAR up only 1%. Our third quarter adjusted EBIT and SFO were up substantially. And as a result, we saw a healthy increase in free cash flow, which was almost $25 million in the quarter, up almost 25% over our 2022 second quarter and up 150% over our third quarter.…

Thanks, Jeff. Compared to 2019, amount of RevPAR was essentially flat in July and August, before accelerating in September. As we talked about in our last earnings call, this quarter marked the return of in-person internships and significant room demand from high tech companies such as Meta, Apple, eBay, and T-Mobile. [Indiscernible] those programs bought off in early September. But haven't wrapped up our intern programs. Our revenue was approximately $13 million in 2022. And that's almost double from our 2019 levels. Taking more business was definitely the right decision. It's proven out by pretty big RevPAR index gains at our two Sunnyvale hotels. An added benefit is that our operating margin on this business is very high as limited room servicing is part of the arrangement. Our operating margins at those five tech driven hotels in September was over 60%. As Jeff mentioned in his prepared comments, our five tech driven hotels, the four in Silicon Valley, the one in Seattle are still well off in 2019 results. We do expect that they will ultimately recover and surpass those levels. They're just going to be a bit slower. As a reminder in 2019, these five hotels did about $35 million in hotel EBITDA and are expected to do around $23 million to $24 million in 2022. So still about 30% off of 2019 with some good internal growth to come. If you look at our portfolio for the quarter excluding Silicon Valley, or excluding Silicon Valley and in our Residence Inn in Bellevue, our third quarter RevPAR was up 4% versus 2019 with ADR growth of 11% offset by a decline in occupancy of about 7%. So, again, taking out those five pretty significant hotels, the portfolio performed really well relative to 2019. Large Group and Convention business continues…

Thanks. Good morning, everyone. Chatham's Q3 2022 RevPAR of $150 represents a 34% increase versus our Q3 2021 RevPAR of $112 and was up 1% From our q3 2019 Rev par of $149. This excellent top line performance was driven by exceptionally strong leisure demand unprecedented levels of summer intern business at our Silicon Valley and Bellevue hotels in the continuing recovery of business translate demand, which really picked up after Labor Day. While we expect business transient demand to continue to improve in Q4. Overall RevPAR levels in Q4 relative to Q4 2019 are unlikely to match our Q3 growth of 1% versus 2019. Given the checkout of the tech related intern business and the seasonality of the leisure travel in our portfolio. In addition to the exceptional top-line results, Chatham was also able to generate outstanding margins in Q3. Chatham's Q3 hotel EBITDA margins up 43.6% are among the highest in the sector and were 240 basis points higher than our margins in Q3 2019. We were able to achieve this significant increase in margins despite RevPAR only being $1 higher than in Q3 2019. While we're starting to see cost increase, we believe continued growth in RevPAR should help offset the potential impact on margins. Our Q3 2022 hotel EBITDA was $38.2 million. Adjusted EBITDA was $35.1 million. Adjusted FFO was $0.50 per share and cash flow before capital, which represents hotel EBITDA less corporate G&A cash interest and 2.2 million of principal amortization was positive $24.6 million. Over the last two years, Chatham has taken a number of steps to strengthen its balance sheet. And as a result, we now have the lowest leverage and most liquidity that we've ever had. In late October, we replaced our $250 million revolving credit facility that was scheduled to mature in 2023 with a $305 million credit facility that consists of a $215 million revolving line of credit and a $90 million delayed drop term loan, including all extension options, the new revolver and term loan have final maturities in October of 2027. The revolving term loan are both currently completely undrawn, and we intend to drive a $90 million term loan in the first half of 2023 and use the proceeds to repay the majority of the $112 million of debt we have maturing in 2023. With our reasonable leverage solid liquidity, strong operating performance, sizable portfolio of unencumbered hotels and meaningful free cash flow, we are well positioned to refinance our remaining debt maturities when needed. This concludes my portion of the call. Operator, please open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Ari Klein with BMO. Please go ahead.

Thanks. And good morning. Can you talk a little bit about the trends you're seeing in Silicon Valley post the intern business and what you're seeing from a demand standpoint from the larger tech companies out there, given some of their challenges, and what some of them said to be clamping down on non-essential travel?

Yes, Ari, this is Dennis. I'll start and anybody else can chime in. But I think as we talked about October RevPAR was off about 30% compared to 2019. So certainly down from the third quarter levels. We do know that our tech driven clients out there that we do most of our business with, are still doing business and are still generating room demand in our hotels, and in the market. It's just not of a level compared to what it was from Memorial Day to Labor Day. So it's still out there, it's not as is intense. ADRs are still doing pretty well, relative to 2019 and '21. Obviously, still down, but there isn't like a major drop off compared to what we were getting. So I'd say it's there. It's just not as intense, I think kind of we're in as normal. We're about to hit the slow season in both Silicon Valley and Bellevue from kind of really the second week of November, through kind of the middle of February. So not expecting a ton between now and then in terms of relative to what we saw pre pandemic.

Got it. Thanks. And then maybe on the margin front, there was some good progress there. Are there any significant incremental costs that you still expect to back and provide some color out what you're seeing from a labor cost standpoint?

Yes, because there's not a ton. We've kind of been operating at this minus 20%. Headcount reduction for the better part of the last six months. As I said in my prepared comments, I still think we're a little understaffed out there, you do have Marriott came out with kind of updating their cleaning standards from an option standpoint. So we'll need to bring a little bit back for that, but we're entering the slower months of the season as well. So, we're not in a rush to bring back headcount in that respect. So, I think for the most part, you know, we're in a pretty good position for the next, you know, four or five months until things start to ramp back up. But I think we're going to be good at it, at least from an employee perspective, for a good bit.

Got it. Just following up, how are you thinking about employee costs kind of year-over-year into 2023 on a like-for-like basis?

Yes, I mean our year-to-date run rate is about plus 7% or 8%. In terms of wage per hour across our portfolio, which is down from kind of 10% the last couple of years, obviously, 2020 is kind of thrown out, but we are experiencing mid-single-digit increases leading into the pandemic. So it's a little bit down from our average -- from our year-to-date increase last year. I think as we move into 2023, we're still -- we would still expect wages to be up kind of in that kind of middle single-digit area going into 2023.

Great, thanks for all the color.

The next question comes from Anthony Powell with Barclays. Please go ahead.

Hi, good morning. Just a question on the intern business, I know that you're having good positive discussions with clients, because right now, but if that were to be shrunk or even eliminated next year, given some of the tech challenges we were reading about, what's the option to backfill that with other business next year?

Well, I mean, we saw -- first of all, we don't think it's going to be canceled or anything like that. I mean, we've been doing that business for a long time, the only thing that ever stopped it was in 2020, and '21 with the pandemic. So despite prior recessions and tech downturns, they still did the intern business. And they still did, group related business, throughout the year in our hotels in terms of demand. So, listen, I think if we were faced with that challenge, we obviously would have to revert to what we did in the 2020 and 2021, which is get as much business as we can, from kind of what we've called non-business travel related segments, we don't think there's a huge risk in that and the discussions we've had with the tech companies where we do intern programs with, in both Austin, each of Austin, Silicon Valley and Bellevue are pretty confident in what's going to happen next year. And we've already, started the discussions with them a little bit earlier than we used to, in regards to rates for that business next year, which right now are pretty encouraging.

Got it, okay. And maybe one more on Portland potential development. Could you maybe update us on what a project like that would take to complete in terms of timeframe, targeted returns? I think you talked about it's hard to build in a city. Maybe that gives more details there. And what you think that -- what you think the overall opportunities for that project?

Well, I think -- we think the overall opportunity is great. it's the Hampton Inn Portland has been one of our top performing assets since we bought it a decade ago. The process there is quite time consuming. We do have and are having active discussions around that project. But I think in terms of building it, and getting first of all getting approval to build it and then building it, it's probably still a good couple of years off from being open in that market.

So 2025 is just kind of the good target?

Probably. So yes, the circle year.

Okay, thank you.

Yes.

The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Hi, thank you. Good morning. First question for me, I really want to dive into trends in the business and what you're seeing, October, I think down versus 2019 September up 6% for 2019, so just trying to understand the delta there in terms of the performance versus 2019. And then if you could -- you remind us seasonality for your portfolio. How you're thinking November and December should shape up compared with 2019?

Sure, yes, I mean November, weekend at the moment. So it's a little too early to tell what we're looking like in terms of RevPAR for the full month, but it's a little bit down from certainly from an absolute RevPAR perspective down from October, usually our RevPAR kind of once you get past October, it goes down in November, down further in December, and then starts building back up January, February into March. So, Jeremy might have some more detail on just how much that is. And I think he does give you…

Yes, just a point of reference, like in 2019, our October RevPAR was $146.50. In November RevPAR was $121.81, in December it was $97. We see a pretty material drop off after October.

Okay, okay, great. That's helpful. And then in terms of the acquisition commentary, you would imagine, perhaps frustrating, there aren't more opportunities out there, right now to transact. What needs to happen in your mind for that bid, ask spread to narrow and kind of what do you think is the catalyst and the timeline for that as well?

Yes, I think as I indicated, it's got to come from pressure and real pressure on owners with deals that really, really are having to go back to their partners with capital calls, that's generally in the past always been sort of the catalyst for deals to happen, some partners will put up the extra capital. But there's always those deals and those partnerships that don't. And instead, they say, let's see if we can sell this hotel, or let's sell this hotel. And that's when opportunities occurred. It's I don't know, the timing exactly. It's hard to predict. But we've positioned our balance sheet purposely to be in good set and to certainly have the capacity to do it. Now look, we've got to get some really clear, really strong returns, and pricing really nice job, given the environment today and given our multiple and given where stock trade. So there's a variety of different things that need to occur and line up for us to really pull the trigger, because we're not going to do dilutive deals. And I think we've been around long enough to understand the math relative to what it takes to really make an acquisition work.

Okay. And last question for me on capital allocation, your balance sheet is in great shape, performance is really strong. You're not a whole lot to do on the acquisition front, it sounds like, where does the dividend fit in here, kind of what are your expectations? What are you looking at in terms of potentially reinstating significant payments?

Yes, I mean we are going to reinstate clearly. We keep talking about our cash flow and talking about our flow through. We're finishing for the board some calculations relative to the NOLs and sort of how that affects overall distribution requirements. And I think either Dennis or Jeremy can kind of chime in on this, but we're going to be in a position here in a relatively short period of time to initiate a dividend. The level of the dividend probably given our conservative nature should ramp up as visibility ramps up into next year on earnings, right.

Okay. Okay, great. That's all for me. Appreciate the detail. Thank you.

All right. All right, any other questions out there?

Just to check that there had been another question. [Operator Instructions] Seeing none, I would like to turn the conference back over to Chatham management for any closing remarks.

Again, I just want to thank everybody for being on the call and follow the company as we move forward in the year towards continuing the kind of results we've been able to post. We look forward to a continued better year in '23. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.