Welcome to the Chatham Lodging Trust's Second Quarter Earnings Conference Call. [Operator instructions] I would like to remind everyone that this conference call is being recorded today, Tuesday, August 7, 2012, at 10:00 a.m. Eastern Time. I will now turn the conference over to Mr. Jerry Daly of Daly Gray Public Relations. Please go ahead, sir.

Thank you, Ron, and good morning, everyone, and welcome to the Chatham Lodging Trust Second Quarter 2012 Results Conference Call. Yesterday, after the close of the market, Chatham released results for the second quarter ended June 30, 2012, and I hope you had a chance to review the press release. If you did not receive a copy of the release or you would like a copy, please call my office at 703-435-6293 and we'll be happy to e-mail one to you or you may view the release online at Chatham's website www.chathamlodgingtrust.com. Today's conference call is being transmitted live via telephone and by webcast over Chatham's website and at streetevents.com. A recording of the call will be available by telephone until midnight on Tuesday, August 14, 2012, by dialing 1-800-406-7325 with a reference number of 4552955. A replay of the conference call will be posted on Chatham's website. As a reminder, this conference call is the property of Chatham Lodging Trust and any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Chatham is prohibited. Before we begin, management has asked me to remind you that in keeping with the SEC Safe Harbor guidelines, today's conference call may contain forward-looking statements about Chatham Lodging Trust, including statements regarding future operating results and the timing and composition of revenues, among others. Except for historical information, these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including the volatility of the national economy, economic conditions generally and the hotel and real estate markets, specifically. International and geo-political difficulties or health concerns, government actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, supply and demand for lodging facilities in our current and proposed market areas and the company's ability to manage integration and growth. Additional risks are discussed in the company's filings with the Securities and Exchange Commission. All information in this call is as of August 6, 2012 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. During this call we may refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, which we believe to be common in the industry and helpful indicators of our performance. In keeping with SEC regulations, we have provided and encourage you to refer to the reconciliation of these measures, the GAAP results and our earnings release. Now to provide you with some insights into Chatham's 2012 second quarter results, I'd like to introduce Jeff Fisher, Chairman, President and Chief Executive Officer, and Dennis Craven, Executive Vice President and Chief Financial Officer. Jeff?

Thanks, Jerry. Good morning, everyone. We're certainly glad to be here again and talk to you about our second quarter results. We started the second quarter announcing a 14% increase in our annual dividend based on the confidence of our business model, our expectation for a strong 2012 and a very encouraging outlook for the next couple of years based on favorable supply and demand fundamentals in our industry. We finished the quarter producing continued strong results generating adjusted FFO per share of $0.43, in line with consensus and up 79% year-over-year. Results were driven by hotel RevPAR growth of 7.6% at our comparable hotels and continued improving operating margins. As you probably know, our business plan is to build a high quality portfolio of premium branded, select service and upscale extended-stay hotels in great markets with high barriers to entry that will provide industry leading cash flow and dividends with strong revenue and EBITDA growth going forward. The investments we've made with our 18 wholly owned hotels, as well as our investment in the JV with Cerberus in the Innkeeper's portfolio represent our strategy and our performance has been right in line with our plan. The joint venture investment is producing upper teen level cash-on-cash returns within this first year of closing that transaction. We are all very pleased with that investment and the results that we're seeing there. Dennis will give you more color on those shortly. As I said, we've worked on building a well diversified portfolio that produces industry leading cash flow and dividends. The cash flow is the result of strong margins and our premium RevPAR. As a matter of fact, our overall RevPAR on an absolute basis is among the highest of all lodging REITs. We know from our experience at Innkeeper's and looking…

Thanks, Jeff, and thanks everyone for participating in the call. For the quarter we reported net income of $1.1 million or $0.08 a diluted share compared to a net loss of $1.9 million, a $0.14 per share in the 2011 second quarter. Included in our net income was $0.7 million related to our share of earnings or the joint venture for the quarter. Additionally, non-cash charges for depreciation and amortization were $4.1 million in the quarter compared to $3.8 million in the 2011 second quarter. Since this is the second quarter we've seen, I do want to reiterate that we have a new line items within our revenue and expenses on our income statement, which is titled "cost reimbursements from unconsolidated real estate entities." It's merely line items that are shown to present on a gross basis the cost that are reimbursed to Chatham for employees of Chatham who have performed work for the joint venture as Chatham's role is managing member of the JV. These items completely offset and have no impact on net income, EBITDA or FFO. First quarter RevPAR was up 7.6% in our 17 comparable hotels. Late in the first quarter we had a small fire in one of our rooms at a White Plains Hotel that took 43 rooms or almost a third of the hotel out of service for approximately one month of the quarter. The water damage began up on one of the upper floors of the hotel and, basically, moved down that same tower of rooms and caused, obviously, the significant damage. Including the hotel in our 18-hotel portfolio our RevPAR was up 6.9% for the 2012 second quarter. As Jeff alluded to earlier, more than half of our RevPAR growth was attributed to rate increases as opposed to occupancy. We expect…

[Operator instructions] Your first question comes from Patrick Scholes from SunTrust Robinson Humphrey.

Just 2 questions here. I saw that you took down the forecast for RevPAR slightly, but you didn't for the dollar amount of RevPAR is unchanged. Is that just having to do with how you're calculating the comp set in there? And, basically, why isn't the dollar amount unchanged?

Patrick, that's really just rounding within those numbers. I mean it’s less than a buck, it's less than $0.50, so it's more rounding.

Okay. And then, on these renovations, you mentioned you have two coming up that may be material, can you give us more color, exactly what the scope and the extent of these renovations, as well as timing?

Both renovations, your Anaheim Garden Grove renovation is a six-year renovation requirement, which is basically everything within the lobby in the rooms, soft goods, design package, you name it. Within the New Rochelle hotel, it's actually a 12-year renovation requirement. So it's a little more inclusive of items within the room that you have to replace, but they're full public space and room adjustments.

When we look at last year's number, Patrick, one of the key metrics in this portfolio, obviously, is the occupancy rate. So 85% in the second quarter, New Rochelle, for example, ran, I just looked, 87% in November last year, 82%, believe it or not, in December. So, we get disproportionately affected, I think, sometimes by some of these renovations because these hotels run such high occupancy rates.

[Operator instructions] Your next question comes from Whitney Stevenson from JMP Securities. Please go ahead.

I just have a quick question on the margins. Regarding the comment about the margins nowhere near their peak, I see they're up 170 basis points in the quarter. Can you just provide any comments on what we might be able to expect for the back half of the year?

Hey, Whitney, this is Dennis. I think when we look at both the Chatham 18-owned hotels and the joint venture hotels, I think you can expect that the EBITDA margins on a peak, especially within the joint venture, were mid 40s. I think you can assume that there's going to be mid 40s and probably slightly a little bit higher for the Chatham 18 hotel portfolio because what you'll see in the Chatham 18 portfolio is if the actual RevPAR for the hotels is a little bit higher than what we had in the joint venture. So the upside there is a little bit larger. So you're going to expect more from the upper range of the 40s from a margin perspective compared to the joint venture.

When I was referring to the mid-40 EBITDA range for the Innkeeper's portfolio, again, we're looking out over the next couple of years for that kind of margin growth. Certainly, don't expect that kind of growth in the six- to nine-month period of time or something like that.

Your next question comes from Nikhil Bhalla from FBR.

And you may have addressed this a little bit earlier and I apologize as I'm entering the call a little late, are you guys thinking about selling some assets and, if so, what may we expect on that? Thank you.

We are looking at one particular hotel that we had, frankly, been approached on by a few different folks and, therefore, working on that opportunity to sell that hotel and, as we said during our comments, really recycle some capital, generate a pretty significant profit from what we paid for the hotel and use that to buy probably two hotels and grow the FFO, doing all that without raising any equity makes us pretty happy. But there is nothing signed, I want to make it clear, nor imminent in the next month or two is something that will take us a little bit time. Hopefully, we'll get it done.

Got it. And as you look at that asset and maybe the implied cap rate on whatever price you might be able to get on it, any color that you may be able to provide us? Thank you.

Well, the only thing I'll tell you is that this is going to be a hotel that's having a change of use and the beauty of owning these kind of hotels, meaning upscale extended stay hotels, is that in some case, not all, they have been snapped up by residential real estate guys at multiples for hotel guys that make no sense and that's what we're looking at here.

So, it's kind of a redevelopment deal almost.

Correct.

Okay. And one more follow-up question, just with the -- there's been a lot of talk about government per diem rates going down over the next year as when they're released. What's your sense? I mean is this something that maybe benefits the upscale segment in some ways just because you may have some of our demand drive down to the space?

Well, I think you could look at it from both perspectives. You absolutely may have some trade down. On the other hand, I don't think it's good for lodging generally and we do have in our hotels plenty of government business. So, depending on the hotel and the market, that's not something I think anybody's looking forward to.

[Operator instructions] There are no further questions at this time. Please continue.

Well, I appreciate again everybody being on the call and I actually enjoyed the questions we got this time because last time we didn't. But, nonetheless, we are here for your calls and your questions and, again, we are pleased and I hope you are with our results. We look forward to finishing out this year in a strong manner and moving forward in recycling some capital and growing our FFO and continuing to grow our dividend. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thanks for your participation, you may now disconnect your lines.