Greetings and welcome to the Chatham Lodging Trust Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Chris Daly, President of Daly Gray Incorporation. Thank you, sir. You may begin.

Thank you, Lathania. Good morning, everyone, and welcome to the Chatham Lodging Trust second quarter 2016 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 2015 Form 10-K and other SEC filings. All information in this call is as of August 3, 2016 and 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 Web site at www.chathamlodgingtrust.com. Now, to provide you with some insight into Chatham's 2016 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?

Okay. Thanks Chris. Good morning everyone. And welcome to our second quarter earnings call. I would like to start by spending a few minute talking about our second quarter results which produced RevPAR growth of 0.6% and it has been well reported already below industry performance and unfortunately below our guidance range of 2% to 3% for the quarter. During the quarter, our RevPAR grew approximately 2% in April; RevPAR declined 1% in May and then grew again up 1% in June. The quarterly increase was driven by a slight up tick in ADR and we are able to maintain occupancy year-over-year at a very high occupancy rate of 86%. From an occupancy perspective our second quarter represented obviously a very tough comp. I think we need to keep in mind as we look at the numbers here that the company in the second quarter produced an ADR of $164 and an occupancy rate of 86%. Obviously, particularly for select service hotels and upscale extended stay hotels, nothing to be -- nothing to sneeze at so to speak very strong numbers, but numbers that from a year-over-year basis are very hard to grow when the overall economy is performing as it is. As I said, we weren't able to drive a meaningful increase in ADR due primarily to a few reasons. We've got some new supply in our gateway urban markets that most of our hotels are located in and specifically certain markets that we talked about in the past that limit our ability to grow ADR. We've got lower GDP growth as I have mentioned, which is impacting business travel and I think we have seen other lodging companies note that pretty much across the board. And one part of business that certainly has contributed to the inability to…

Thanks, Jeff. Good morning everyone. Just add to Jeff's top-line commentary a key point of focus for the industry is the mix of our customers and you've heard it with many of our other peer companies reporting. For us in the second quarter we continued to experience the same shift and mix from the first quarter and that our business transient traveler production is down. In our portfolio transient travel and specifically the corporate traveler makes up about 90% of our overall room demand and again like others we've seen that soften a little bit here in 2016. From a margin perspective, our same-store full quarter operating margins were down 120 basis points to a very, very strong 50.7%, which sequentially just comparing that to the first quarter was up about 410 basis points. And really this goes to show you as Jeff alluded to despite the fact that there are some challenges in our portfolio and in the industry this portfolio has done a very good job of producing a strong cash flow and we were able to get a lot of production in terms of margin performance over the past couple of years and obviously proven out in the high margins. Hotel EBITDA margins were down 150 basis points to 44.2%, which was at the lower end of our guidance range with RevPAR only increasing 0.6% and our operations already very streamlined considering that our hotels ran at an occupancy of 86% really our margins were under pressure and had to decline a little bit. The continuing trend for us and the industry is the growing cost to acquire a guest. OTA booking commissions and brand loyalty program fees discounts and expenses are continuing to increase after significant increases in 2015, we continue to experience a pretty big…

Thanks Dennis. Good morning everyone. For the quarter, we reported net income of $12.3 million or $.031 per diluted share, compared to net income of $12.8 million or $0.33 per diluted share in Q2 2015. The primary differences between net income and FFO relate to non-cash costs, such as depreciation, which was $12.2 million in the quarter. Adjusted FFO for the quarter was $26.7 million compared to $27.2 million in the 2015 second quarter to keep a decrease of 1.8%. Adjusted FFO per share was $0.69 per share versus $0.71 per share in Q2 2015, a 2.8% decrease year-over-year. Adjusted EBITDA increased $100,000 to $36.8 million compared $36.7 million in Q2 2015. In the quarter, our two joint ventures contributed approximately $4.9 million of adjusted EBITDA and $3 million of adjusted FFO, inline with our guidance of $4.8 million to $4.9 million for EBITDA and $2.8 million to $2.9 million for FFO. During the quarter we received distributions of $3.2 million from the JVs. Our balance sheet remains in excellent condition. Our net debt was $586 million at the end of the quarter, our weighted average cost of debt was 4.4%, our weighted average maturity was 7.2 years and our leverage ratio was 41%. In Q2, we used free cash flow to reduce our net debt by $8.1 million. Transitioning to our guidance for Q3 and full year 2016, I would like to note that it takes into account renovations at the Residence Inn San Diego Gaslamp in Q4 and completion of the 32 room expansion of the Residence Inn Mountain View by the end of Q3. We have amended our full year RevPAR guidance to reflect actual performance in the second quarter and current business trends. We are lowering the bottom end of our RevPAR growth range by 200 basis points and the upper end at the range by 250 basis points. In lower end our hotel EBTIDA margin guidance by approximately 100 basis points. We now expect Q3 RevPAR growth of minus 1% to plus 1% and full year RevPAR growth of zero to 1%. As a result of our RevPAR margin adjustments, we are trimming the mid -- of our adjusted EBITDA and FFO per share range by approximately 5%. Operator at this point, we'll open up the call for questions.

Hello. Lathania, if you are there, we will open it up for questions.

Thank you. [Operator Instructions] Our first question comes from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning guys. Had a question on supply growth, you mentioned the impact suppliers had on some of your markets so far. How the supply growth outlook look for the rest of this year and next year in your key markets?

Anthony, this is Jeff. How are you doing?

Good.

I'll start out by answering that. We've got something that we call a supply calendar here that we use in [indiscernible] hotel lays out the supply over the next couple of years. And I will tell you that, I think for the most part we've got -- we still have little more supply coming not meaningful though in Silicon Valley, so you got that -- do you have that calendar in front of you Dennis.

Yes. So basically if you look at, whether it's Silicon Valley we did -- we still see -- we still have some absorption in Anaheim, Savannah as well that's coming, that we've - we've obviously known about. But, it's really the same markets that we've talked about. So it's Silicon Valley, San Diego, Anaheim and Savannah.

See, I'm looking, Houston is huge.

And Houston in Q4 2017 has a bunch coming on still at least on paper whether that materializes or not that have to be breaking ground about now or so to get there.

In Houston, we -- you still have the 1000 plus room Marriott Marquis that's opened up in Downtown that less than 5 miles away from the Medical Center. So, those are the five markets where -- and again a little bit different this cycle is the fact that the new supply early -- at this point has been in the major markets.

Got it. Thanks. And just on -- some of the OTA cost, you mentioned that you are seeing some pricing pressure given the member discount. I would have thought that, that would have led to fewer OTA cost kind of in real time. What percentage of your bookings are coming from OTAs now versus a year ago? And if you are seeing some impact in the member discounts, why isn't that number going down?

It's only about, it’s only for us about 7% of our production at the moment Anthony. So, it's not as meaningful at the moment, but we need to really look at those acquisition cost. And the acquisition cost aren't just for OTA -- just for the third party booking cost, but even with our brand cost as well, that is certainly impacting not just the OTA line item.

And even though it's not a small base year-over-year, particularly the cost is a large -- it’s a large double-digit cost increase.

Right. What costs are going up there, are they committing in percentages are just, or a point, can you give more clarity that will be great?

Yes. The commission rates are not necessarily going up, but the production, because those contracts have been renegotiated by Hilton and Marriot in the past couple of years to lower the overall commission rates. So, it's the production that's continuing to increase that's the primary driver on the OTA side.

So for example when you've got some hotels, that are hit by less corporate transient travel, what's likely to occur and what we see occurring and what we're looking at very carefully is the e-channel that gets opened up by the revenue managers and by our hotels in order to keep that occupancy in order to fill up the hotel. But there is a cost and the net ADR is really, what you got to think about and consider the increase cost to push that business into Expedia's or otherwise. So that's kind of I think an industry-wide phenomenon that you'll see occurring over time.

Right. I'll get back into the queue. Thank you.

All right.

Our next question comes from Patrick Scholes with SunTrust. Please proceed with your question.

Hi, good morning. A couple of questions here, I may have missed out on the call, you had a Pennsylvania Hotel that experienced negative 30% plus RevPAR, what was the driver of that weakness?

Yes, Pat. That's the one that's in Washington, Pennsylvania which is very much reliant on nothing, but oil and gas production. So it's certainly been pretty decimated by that one.

Okay. Can you give us a little color on how July is fairing so far for you?

Well, not very good Pat, probably, a negative month here in July, I'm not sure we're going to through the number out there now. But, July, I think for the industry and for us was not a good month. We're seeing some little better numbers here in August.

I mean, some of that obviously was the July 4 shift that benefited the last week of June. But, yes, we certainly are expecting better improvement in August and September.

Okay. And that's related to my next and final question here. As you think about the remaining months of the year, I wonder which ones you would think would be outperforming, you would expect to outperform your range for the rest of the year and which ones you think will be on the softer side versus that full year range?

Yes. I mean I think when you look at our third quarter August and September are some of the better months, where we don't have as much visibility on the fourth quarter. So, typically October is a strong month for us, but we just don't have enough on the books to confirm that's definitely going to be the case. But those three months are typically at least as we kind of look at where we are forecasting based on what we know, August, September and October.

I will say this. I mentioned it on the call Pat. Our July results in our Houston Hotels is very bad and we're not going to throw a number out there, because it might spook some people, but we're definitely considering that in terms of a large drag on this overall portfolio, which here to four as not existed. So, would -- it seems like that contingent has really spread to our West University and Medical Center assets. So, we're again just kind of with a very short visibility and short booking window can't tell you exactly where it's going to be. So, we're going to hear on the conservative side there without a doubt.

Okay. Thank you. I certainly appreciate you being upfront obviously and telling -- sort of telling how it is. So I appreciate it. Thank you.

You've done a great job in terms of sorting through some of the other conversations as well, around the industry. Thank you, Pat.

Thank you.

[Operator Instructions] Our next question comes from Bryan Maher with FBR. Please proceed with your question.

Yes. Good morning guys. Quick question kind of circling back to Anthony's point on OTA. Do you think that as and if Marriot and Hilton become successful with this membership pricing and kind of shifting reservations to their online system, that the OTAs may come around and be a little bit more agreeable or lightened up on some of the commissions. Do you see that maybe happening in the next six to 12 months?

Bryan, this is Dennis. But I certainly don't see anything like that happen in the next six to 12 months. Certainly as, you get to the end of these agreements with Marriott, Hilton, Expedia's. We would certainly think that over time, the industry is able to have a little more leverage in those negotiations to lessen the impact of those fees.

And then as it relates to what you are seeing now in your portfolio in the second quarter and kind of the back-half of 2016, does that get you to think a little bit more about either acquisitions or distributions or dispositions as it relates to your portfolio. How do you think about, what you are experiencing now as to what you want to do with the portfolio going forward?

In terms of investments whether its acquisitions, we certainly --, we have the Silicon Valley expansions which are in essence an acquisition that is going to produce double-digit return. So, we do believe that is still a meaningful investment and the right thing to do from a disposition perspective that market is pretty quite other than for some headline assets and some of the primarily New York city that are garnering some attention. But other than that the market is pretty slow. So, not sure it's the right time to be selling our asset at this point.

I just want to say, I mean we don't even know we are getting hit pretty hard here. We certainly don't think our fundamental business strategy of owning the best brands and the best locations where there is strong identifying corporate demand generators is the wrong strategy. We think that's the best strategy for the long-haul obviously corporate travel though is experiencing a lot of softness here as everybody commented. But, this portfolio with absolute ADRs and occupancies and debt coverage and dividend coverage of what it produces. And frankly, GOP margins that are over 50% makes us smile. So, we don't -- we see probably great long-term value in the assets putting them into the marketplace today, I don't think you are going to be able to realize that value.

So, seems like your strategy here is just write it out?

Absolutely. We believe in a portfolio. I mean whether we would try to offload Washington PA, once the world stabilizes or not just because of silver line whether Marcellus shale is 50% natural gas or not is one thing, but it's small 70 or 80 room hotel. Yes, we are going to write it out. We are going to add to our Silicon Valley presence because the returns there are very strong. And the customer base there is only growing. So, yes, that's where we are headed.

Okay. Thanks Jeff.

Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Hi, guys. Just one more on Silicon Valley. Do you expect any impact from the Moscone renovation, I guess starting later this year into next year.

We have not identified specifically any business we think is a throw away as a result of that. But, obviously, and we don't think there is really a lot of compression, it's coming our way from that part of the world. So I guess the long-answer for this is no. But, there is a little more supply coming out there because of the absolute high ADRs and occupancy. So I would expect our RevPAR growth to be muted even though the business is strong.

Got it. Thanks. And one more guess on the balance sheet. Most of your [materials] [ph] is a pretty long data that's a positive -- any import to do there, had to work prefer directly any other types of deals this quarter?

Not much on the horizon there, really no debt to refinance, the preferred market is definitely attractive and it's something we look at some times. But, no plans to do anything right now.

All right. Thank you.

Thank you.

Thank you. At this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments.

Well, thank you all for listening and participating, and again, thanks for being on the call. As I indicated, we do firmly believe in our fundamental business strategy here and the hotels and the locations that we are in. And we will do our best on the operating side and the team is working on -- fine tuning, whatever strategies there can be on particularly revenue management and direct sales side to get as much growth out of this hotel as we can. And we look forward to our next conference call with you all. Thank you.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a great day.