Greetings and welcome to the Chatham Lodging Trust Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Chris Daly, President of Daly Gray Public Relations. Thank you, Mr. Daly. You may begin.

Thank you, Michell. Good morning, everyone, and welcome to the Chatham Lodging Trust fourth 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 most recent Form 10-K and other SEC filings. All information in this call is as of February 23, 2017 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 measures referenced on this call on our website at www.chathamlodgingtrust.com. Now, to provide you some insight into Chatham’s 2016 fourth 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 Jeffrey Fisher. Jeff?

Thanks, Chris. Good afternoon, everybody. Our results for the fourth quarter, as you’ve read, significantly outperformed our expectations across the Board. Compared to the midpoint of our guidance, revenue beat by $1.2 million, which translates to $0.5 million of FFO. Hotel EBITDA margins exceeded our guidance by 140 basis points, which generated incremental FFO of $900,000. FFO from our JV surpassed our estimates and we benefited as well from income tax true-ups of approximately $500,000. So with that from a top line perspective, our RevPAR declined 0.8% to $118 on a 1.7% increase in ADR, offset by a 2.4% decrease in occupancy to 75%. Our guidance for the quarter was a RevPAR decline of 1.5% to 3.5% negative. Coming off of third quarter RevPAR decline of 2.1%, we were encouraged by the improvement on a relative basis. Within the fourth quarter, RevPAR performance was sporadic, with October RevPAR down approximately 2%, November up 1%, and December down 1.3%. Our performance through the first-half of 2017 will continue to be negatively impacted by the six hotels that we own and the oil industry influenced Houston and western PA markets, which equates to about 9% of our EBITDA. RevPAR at those six hotels declined almost 20% better than we expected and impacted our overall RevPAR performance by approximately 240 basis points in the quarter. Excluding these six hotels then, RevPAR for the quarter would have risen 1.6%. We certainly felt the impact of new supply at certain of our hotels, new supply has been more concentrated as we discuss in the top MSA and urban markets during the earlier part in this development cycle. So in the end, I think, Chatham recovers earlier sort of where our hotels are located, and in fact, that we’ve been hit earlier than most particularly as…

Thanks, Jeff. Good afternoon. Our same-store operating margins were down 50 basis points to approximately 46%, and for the year were down 130 basis points, but still to a very strong 49% overall. As we discussed on our last call, we aggressively implemented some cost controls a few months ago. And despite a small RevPAR decline in the quarter, we’re able to minimize the margin loss despite that. And these and our margin levels were significantly improved from the margin loss of 120 basis points in the second quarter and 180 basis points in the third quarter. Our fourth quarter operating margin guidance projected a decline of 190 basis points at the midpoint and the significant outperformance in our fourth quarter can be attributable to lower than expected wages due to tightening labor staffing models, lower utility costs, and maintenance expenses.. As stated earlier, compared to last year, operating margins were down 50 basis points. In the fourth quarter, that increase was driven primarily by an increase in reserves related to our hotel employee workers’ compensation costs of about $300,000. On a year-over-year basis for the first time in almost two years, fourth quarter guest acquisition costs were basically flat year-over-year at $3 million. For the year, these costs are approximately 16%, but at least on an incremental basis, and certainly one quarter does not make a trend, but hopefully these costs are beginning to flatten out. When we look at our booking patterns in 2016, there was a market shift in 2015 as the business travel within our negotiated accounts was down 6% in terms of production and this was offset by a 4% increase in production from our retail segment, which includes our e-channels. Accordingly it’s very important for franchise owners to continue to work with its owners…

Thanks Dennis. Good afternoon everyone. For the quarter we reported net income of $2.7 million or $0.07 per diluted share compared to net income of $4.5 million or $0.12 per diluted share in Q4 2015. The $4.5 million of net income in Q4 2015 included a $3.6 million gain from the sale of our Torrance joint venture. The primary differences between net income and FFO relate to non-cash costs such as depreciation which was $12 million in the quarter, and one-time gains or losses and our share of similar items within the joint ventures, which were approximately $2.2 million in the quarter. Adjusted FFO for the quarter were $17 million compared to $16.1 million in Q4 2015, an increase of 6%. Adjusted FFO per share was $0.44, which represents an increase of 5% from the $0.42 a share generated in Q4 2015. Adjusted EBITDA for the company was 1% to $26.3 million compared to $26.0 million in Q4 2015. In the quarter, our joint ventures contributed approximately $3.4 million of adjusted EBITDA and $1.5 million of adjusted FFO. Moving on to the Chatham portfolio, those JV portfolios beat our expectations on both the top and bottom line. Fourth quarter RevPAR was at 0.7% in the Innkeepers portfolio and 0.1% in the Inland portfolio. Our balance sheet remains in excellent condition. Our net debt was $573 million at the end of the quarter and our leverage ratio was 40%. Over the past year, we’ve reduced our net debt by $14 million. Transitioning to our guidance for Q1 and full year 2017, I’d like to note that it takes into account our planned renovation at the Residence Inn, Gaslamp and Courtyard Houston Medical Center in the Q1 and the Residence Inn, Mission Valley; Homewood Suites, Bloomington; Homewood Suites, Brentwood; and Homewood Suites,…

[Operator Instructions] Our first question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi, good afternoon guys.

Hi Anthony.

Hi, just a overall question on capital allocation, I think we’ve heard from a number of the other REITs that they are looking to be more aggressive on the acquisition side. Last time I think we talked, you guys were more willing to – more likely to spend more on your internal growth opportunities. If you could just update us on what you are thinking about how to spend capital that will be great.

I’ll lead it off, Anthony, just by saying that we are always interested and have our eyes and ears to the ground, ground and all the times talking to people that we know privately about good opportunities. But we want to be opportunistic, but we want to be non-dilutive generally, so I think that’s why you have other REITs talking about. And I think we would generally feel similarly that if we could buy something that was going to be an 8 cap, or 8.5 cap, 9 cap, something that’s going to be better than our implied yield or around the same number even, but we thought there was upside with our management team at Island or otherwise, yes, certainly we would take a look at it.

Got it, thanks. And just a bit more detail on the customer acquisition cost, you talked a lot about that in the past year, so it seems like they were flat in the quarter. What specifically drove that improvement in the cost trend there? Was it a mix of customers and mix of channels and why do you think that’s going to moderate in 2017?

We are still – Anthony, this is Dennis. We are still projecting those cost to go up 30 bps in 2017, which is a little over 10% year-over-year, but I will say that the – you know what we’ve talked about in the last year, basically in regard to what the brands are doing in terms of incentivizing travelers to come on the websites, to book through the websites, to become loyalty members. We’ve always said that it’s going to take a little bit of time to tell if that really pays off, which is why in my prepared comments, I said, listen, I’m not sure if the fourth quarter is a trend. In that, does that prove that these efforts are, in fact, finally making it through to us the owner. I think we still have to wait a little bit of time before we can tell if they’re going to flatten out or not, that’s why I said, listen, I’m not sure when the quarter makes a trend. But we are still projecting in our guidance a little over a 10% increase in those costs in 2017.

Got it. But you do believe, at least, in the fourth quarter that you did see some impact of that book direct effort. Am I understanding that?

Listen, we believe so. We haven’t seen anything just to clarify from the brands proving that out yet. But the fact is, volumes were up in the fourth quarter through some of the other channels, especially on the brand website and through e-channels. So whether that’s the brand loyalty programs, or that’s the renegotiation of these with some of the OTAs, it did appear that despite production being up, our costs were level. So we’re not going to, again, we’re not going to make any tremendous conclusions on a go-forward basis because of that one quarter, so we’ll see.

Got it. Final one for me, just on supply growth. There’s obviously a lot of optimism that the economy could do better if there’s some peripheral policies put into place. The negative could be in theory that especially if banks lend more, that supply growth could start to increase again. How do you balance the upside from overall GDP growth versus the risk of new construction starts and higher supply growth over the medium-term?

Listen, I think I’ll chime in. First, this is Dennis. But I think a lot of the markets that we’re in and especially in the upscale segments where our brands are, most of the brands that compete with us have been built or in the process of being built in those markets. So to – we don’t believe that there’s a whole lot of opportunity for the brands all of a sudden grant a ton of new franchise licenses in those same markets again that would create additional new supply with competing markets, they’ve done it. So we believe that is going to be fairly limited in terms of new supply.

All right. Great. That’s it for me. Thank you. Good quarter.

Thank you. Anthony.

Thank you. Our next question comes from the line of Gaurav Mehta with Cantor Fitzgerald. Please proceed with your question.

Yes, hi. Thanks for taking my question. So I wanted to ask you on your RevPAR -- your 4Q RevPAR came in better than what now you were expecting and higher than your guidance. So I guess, if you think about the market, which market surprised due to that buying in the quarter?

Yes, certainly. So I mean, a couple of them Silicon Valley outperformed a 5% RevPAR growth was about 300 basis points better than we expected. Obviously, those four hotels have a meaningful impact on our results. The four Houston hotels, we expected fourth quarter RevPAR to decline 26%. It was 400 basis points better than that and a decline of 22%. Those two are the primary drivers, I mean, that’s eight of our 38 hotels alone. So I think that’s the first start of it. When you look at the overall trend, we were down almost 2% in October. And really until we saw November, I think, surprised everyone, December was only down about 1.3%. So I think the weak October leading into everybody’s earnings calls certainly and certainly spooked a lot of people in terms of just seeing that continual downdraft that we’ve – we had seen from the second and third quarter and through the end of October. So really those eight hotels between Silicon Valley and Houston had a pretty good impact on our outperformance.

Okay. I think for Houston, you mentioned that they can have – would have easier comps, so it may be better than first-half. So what kind of numbers do you have baked in the guidance for Houston for 2017 for RevPAR?

Yes. So for outside of February during the Super Bowl for those four hotels, we have kind of low to mid-20% declines in January, March, April, May and June. And as Jeff alluded to earlier, really we’re not going to start to see some favorable comps until July. For the rest of the year, we’re still showing a slight decline in RevPAR in those four hotels. For the entire year, those six hotels or the six hotels, which are the four Houston’s and the two western PA hotels are impacting our RevPAR guidance by about a 100 basis points.

Okay. And then lastly, for the hotels that you have under renovation in 2017, what’s the impact of construction at those hotels on your EBITDA guidance?

Well, it – obviously, it’s factored into our guidance. In terms of the actual displacements, we’ve planned the renovations to minimize the amount of displacement. I don’t have the number off the top of my head, I can circle back with you on what the EBITDA impact is on those six. But obviously, we factored it in. We’re going to spend about $20 million on those renovations in 2017. But I can come back to you on that number.

Okay. Thank you.

Thank you. Our next question comes from the line of Bryan Maher with FBR. Please proceed with your question.

Hi, good afternoon, guys.

Hey.

When it comes to the acquisition front, admittedly you are not going to want to do a dilutive deal, or something not within your cap rate target. But are you starting to see anymore opportunities in your product type or the MSAs that you are interested in?

I don’t think there’s really a big pipeline out there. And frankly, you’ve got to work doubly hard to find something that’s interesting. But we’re – as I said earlier, that that’s our job. And so I think that will continue to look. But it’s [fit my understanding] [ph].

Are there any of the newer brands that the Marriott, Hyatt, Hilton are or have introduced that are becoming more interesting to you, where you currently don’t participate, but think you might?

I think that the jury is still out for us on a brand, for example, like Marriott’s AC brand. You can go and look at some. I’m sure you have and they look all wonderful and and attractive to that younger guests. But I think there’s not enough out there, at least, for me to feel real good about the distribution yet. And so we’ll wait to see on that front most likely, unless there’s an usual opportunity in a market that just most likely for us, it’s so familiar to where and who the demand generators are, we feel good on our own without the benefit of a reservation system that we can fill it up and sometimes that happens. So I think that although we do and we are interested in these home-to-suite products, which is sort of a similar competitor, let’s say, at the TownePlace Suite level. The only difference is their actual ADRs and RevPARs that have been achieved in this very fast-growing brand are very close to Homewood’s numbers and spending substantially less dollars to build them and substantially less dollars in the operating model to run them. So that intriguing and we are looking at some of those and thinking about those.

Okay. And then just lastly, are you seeing anything, Jeffrey, in the near or intermediate term as far as headlands would go besides supply creep that could disrupt this elongated lodging cycle thesis?

No, absolutely not. I think that everybody is hoping and tracking for the Trump thump to continue. And for sometime down the road this GDP to really get moving again, which of course, benefits all of us very directly and does extent the cycle. So I think that banks – if RevPAR is going up in the range that everybody has guided and even up 100 basis points or two are not going to jump back on the bandwagon that quickly. So that bodes for a little bit more as you called it or an elongated cycle if that all comes to fruition, we’ll see. Our numbers in our guidance don’t anticipate that per se.

Okay. Thanks, Jeffrey.

Okay. Thank you.

There are no further questions at this time. I’d like to turn the call back over to Mr. Jeff Fisher for closing remarks.

Well, we appreciate everybody being on the call. And we’re just going to work as hard as ever to continue to do the kind of things we’re talking about, both from the capital allocation side and in working with our operators on the operating side. Thank you all. We’ll talk to you soon.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a nice day.