Greetings, and welcome to the Chatham Lodging Trust Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation [Operator Instruction]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Brock. Good morning, everyone. And welcome to the Chatham Lodging Trust second quarter 2024 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 August 2, 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 messages referenced on this call on our Web site at chathamlodgingtrust.com. Now to provide you with some insight into Chatham's 2024 second 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?

Thanks, Chris. And I certainly appreciate everyone joining us this Friday morning for our call. I understand our time slot does conflict with one of our other peer lodging REITs. So for anyone who ends up listening to our replay, if you have any questions or follow up items, of course, feel free to call me Dennis or Jeremy. Before I get into our strong quarterly results, I want to provide an update on some key corporate initiatives that we have been undertaking. First, we've been quite active, solidifying our balance sheet over the [Technical Difficulty] of maturing debt, and just the past three months we've repaid approximately $280 million of maturing debt. And as we sit here today, we've only got $30 million of maturing debt over the next year. We have no liquidity issues whatsoever, to be clear. We patiently addressed this large wall of maturities through the issuance of debt, asset sales and free cash flow. Additionally, through the refinancing, 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 increases $2.6 million or $0.05 per share for every 100 hundred basis points decline in SOFR. With interest rates expected to decline as growth opportunities arise, we'll then be able to lock in longer term borrowings at more historically attractive rates. Second, as we disclosed last quarter, we're opportunistically marketing a handful of hotels for sale. We still expect to realize somewhere between $40 million and $80 million of proceeds from the sale of a portion of them or all of them. Not sure if any of the deals will close in the third quarter, but we are pleased with the progress made to date. We're also excited…

Thanks, Jeff. Good morning, everyone. June RevPAR growth of 1% was impacted by the timing of the Juneteenth holiday. RevPAR for that week was down 2% for the industry and was down 5% for our portfolio. Our July RevPAR growth of approximately 1% also saw us get hit by travel the week following the holiday where industry RevPAR growth was off 5% while we were down 8%. Generally speaking, because of our reliance on the business traveler, especially given that our guests average along with the length of stay, holiday weeks generally adversely impact our performance relative to the industry. Having said that, we still outperformed the industry meaningfully in 2024. Some additional RevPAR statistics from the quarter. Markets representing over half of our trailing 12 month EBITDA generated RevPAR growth between 5% and 10%, proving, again, some encouraging business travel demand underpinnings. Our second quarter RevPAR was not impacted by any renovations as we had three hotels -- whereas we had three hotels under renovation in the first quarter. And as we look forward, we'll have one hotel under renovation for most of the third quarter being our Courtyard Addison, Texas, and then we'll start the renovation of our SpringHill Suite, Savannah in September. Weekday occupancy was the highest since 2019. And RevPAR in our seven predominantly leisure hotels, which comprises approximately 20% of our second quarter room revenue saw RevPAR decline 2% in the quarter. Other than our residents in Fort Lauderdale, the other six hotels had RevPAR gains or declines ranging from down 5% to up 5%. Our Fort Lauderdale Residence Inn RevPAR was off 13% in the quarter. Sunday to Thursday weekday occupancy was 81% in the quarter with Friday -- Monday to Thursday, and then Friday to Sunday occupancy of 86%, all metrics over 2023…

Thanks, Dennis. Good morning, everyone. Our Q2 2024 hotel EBITDA was $33.7 million, adjusted EBITDA was $31.4 million and adjusted FFO was $0.39 per share. We were able to generate a GOP margin of 46% in hotel EBITDA margin of 39% in Q2. While our Q2 hotel EBITDA margin was down 230 basis points from our Q2 ‘23 margin, much of this was due to a $1.2 million workers' comp refund recognizing Q2 2023. Importantly, we are seeing a stabilization of some of our key expense line items, such as rooms, labor and utilities. Our balance sheet remains in excellent condition and in Q2, we took significant steps to address our near term debt maturity. In Q2, Chatham completed a $50 million increase in its unsecured term loan and enclosed three single asset CMBS financings that generated $60 million of proceeds. We used the proceeds from these financings together with excess cash and $120 million of borrowings under our revolving credit facility to repay $261 million of maturing CMBS and acquired the Home2 Phoenix for $43.3 million in Q2. In July, we borrowed an additional $15 million under our credit facility and used the proceeds to repay an $18.8 million mortgage loan, which was our last piece of debt maturing in July. As of today, we have only $30 million of debt maturing over the next 12 months and have $125 million of availability under our revolving credit facility. As Jeff mentioned, we are exploring several potential asset sales. And if any of these are completed, the proceeds would likely be used to repay credit facility borrowings in the near term and reinvest it into hotel investments in the medium to longer term. As of June 30th, Chatham's net debt to LTM EBITDA was 4.3 times, which is significantly below our pre-pandemic level -- leverage, which was generally in the 5.5 times to 6 times area despite the fact that EBITDA is not fully recovered to pre-pandemic levels. In Q3 2024, we expect RevPAR growth of 0% to 2.5%, adjusted EBITDA of $28.2 million to $30.6 million, adjusted FFO per share of $0.31 to $0.36. Our Q3 cash interest expense guidance of $8 million reflects the financings completed in Q2 and the incremental debt associated with the acquisition of the Home2 Phoenix. Our results over the last few quarters have included a material amount of interest income given the large cash balances that we held during these periods. Now that we have used our excess cash to address debt maturities, we expect interest income to be essentially zero for the balance of the year. This concludes my portion of the call. Operator, please open the line for questions.

[Operator Instructions] Our first question today comes from Ari Klein of BMO Capital Markets.

Can you elaborate maybe a little bit on the trends you've been seeing in recent weeks? It seems like the comparisons are relatively easy in the tech markets, in particular in the third quarter. What are you seeing from a leisure standpoint, I guess, and how much is that weighing on the third quarter outlook?

I mean, listen, I think, we disclosed what our leisure hotel performance was in the second quarter, which was down 2%. We don't expect that to move a whole lot from there if it goes from down 2% to down 3% or something. But that's essentially 20% of our portfolio. I think you see a little bit there. Obviously, the week after the July 4th holiday, I think caught a lot of people by surprise with the industry off 5% in RevPAR for a Thursday holiday, and it was really the week after that that really hit the industry. So that alone brings down July RevPAR for us. We were off 8% by about a point or so. So I think not a ton of difference, I think between what we had pre -- what we had expected for the third quarter versus our 0% to 2.5% range. But I think it's just a combination of a couple of those things really. I think we do expect as we kind of get out of the summer and into some of the heavier business travel reliant months that we should and I think expect to be able to hopefully outperform a little bit.

And I guess from a RevPAR cadence for the second half of the year, would you expect fourth quarter to be softer than the third quarter? And I know you're not yet providing guidance, but just from a directional standpoint?

I mean, listen, generally October is a pretty strong PT month, especially when you're looking at our tech hotels as you get towards the end of the year. I think for now I'd say we -- our viewpoint is the range is going to be similar to our third quarter. We have -- yes, I think it'll be similar.

And then maybe on the Home2 Phoenix acquisition, are you seeing other similar types of opportunities emerge that you're looking to transact on? And then from a disposition standpoint, you highlighted $40 million to $80 million in potential sales. Curious what types of assets or markets you're looking to sell in and just the level of interest you're seeing on those?

I'll take that question on the acquisition side. I've kind of, I think, on the last call, called Phoenix a needle in the haystack. Not a lot of deals like that, being brand new, being in a market that we really wanted some exposure to and being the right brand for us, which is home to kind of our second favorite brand to Residence Inn for the most part and all extended stay as we continue to increase that percentage of our room count. So we're pretty excited about the deal. Look, I think and we still expect that there will be a little more deal flow as the year progresses. And we are talking to a few of our friends that actually do have some maturities for the remainder of this year. And I think most, either special servicers or lenders are extremely patient with their borrower. But in an effort to recycle capital, if nothing else, not necessarily facing foreclosure per se, there could be a few opportunities out there as the year goes on. But we'll be real careful about what we do. We understand our share price, our multiple and what we need to be accretive or non-accretive. So I wouldn't expect to see too much on that front. And then on the disposition side, it's just, again, characterized by some lower RevPAR hotels for us that we don't see a lot of upside in the market. And a common denominator would be that they're facing a renovation, a normal cycle renovation in either 2025 or 2026. And we see that money as probably kind of a no ROI investment. So looking to see if we can recycle that capital into something that's newer and more attractive with a lot more upside.

[Operator Instructions] Our next question comes from Tyler Batory of Oppenheimer & Company.

This is Jonathan on for Tyler. First one for me, maybe just expand on that demand commentary, which so far sounds healthy. Is that a fair characterization of how you're seeing things? And is there anything out there that maybe gives you pause from a demand perspective or concerns you?

I don't think that -- and you read the journal today, for example, and all of a sudden the R word, the nasty old R word popped up for the first time in a while, whether it's a soft landing or otherwise. I don't think there's anything at this point for us to be nervous about in terms of a real economic slowdown and/or demand slowdown, because we read you in the prepared remarks, the occupancy levels, I mean, pretty strong in the 80s. I think everybody's challenge has been the ability to get an ADR increase commensurate perhaps with where they thought they might go, and the leisure pullback depending upon what company you are and what level of exposure you have. We got six hotels really only that expose us to that. So we feel pretty insulated. And that's not a matter of consumers necessarily buttoning up their pocketbooks and saying, I'm not doing anything or going anywhere. It's just a pullback from obviously the COVID revenge travel and otherwise as they used to call it. So I think you're into a normalization phase more than anything else here.

Maybe switching gears, the margin came in stronger than we were expecting and above the guidance range by about 150 basis points, if I'm doing my math correctly. Can you talk about the delta there between the quarter and your original expectations and what drove that outperformance?

Yes, I mean, I think the couple things. One, I think, ultimately our property taxes were a little bit better than we thought for the quarter. But as we -- one of the main things was, especially on the rooms, labor side, are essentially on a CPR basis basically flat year-over-year. And I think that's really the main difference. A little bit on the property tax side but primarily some excellent productivity on rooms, labor.

And last one from me, if I could. Jeff, on the hotel sales, any early feedback in terms of the transaction market right now and maybe how it compares to your original expectations when you went out with those assets, what you're hearing in terms of bid ask spread or any other high level commentary I think would be helpful?

I think, we're going to get on a couple of hotels pretty close to where we had targeted the range towards the high end -- higher end of the range, let's say. So I'm pretty pleased about that. I mean, there are these one-off buyers out there that are smaller regional players that will stretch a little bit to get an asset and to grow, notwithstanding the overall environment and/or the way public companies may look at the environment so far as evaluating whether they should buy a deal or not. So I think there are some opportunities for us to recycle, continue to recycle some capital, the way we've been doing just periodically over the last few years for this year.

There are no additional questions at this time. I'd like to turn the call back over to management for closing remarks.

Well, I appreciate everybody being on the call this morning. And we certainly look forward to continue to put up some good numbers here and getting some of these dispositions done, which only further solidifies our already strong balance sheet and puts us in a great position to take advantage perhaps of some opportunities on the acquisition side down the road. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.