Welcome to the Q1 2017 Chatham Lodging Trust Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Daly, owner of Daly Gray Inc. Thank you. Mr. Daly, you may begin.

Thank you, Doug. Good morning, everybody and welcome to the Chatham Lodging Trust First Quarter 2017 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 May 9, 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 chathamlodgingtrust.com. Now to provide you with some insight in Chatham's 2017 first 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. Jeff?

Thanks, Chris. Good morning, everyone. Our results for the first quarter outperformed our expectations across-the-board. RevPAR growth of 1.2% was 70 basis points higher than our mid-point of our guidance range of flat to plus 1%. Additionally, our operating margins were up 40 basis points over last year and our hotel EBITDA margins were up 70 basis points over 2016, exceeding our guidance by 50 basis points. Given the modest growth in RevPAR, we're very pleased to improve our operating margins which helped us produce a good quarter. Working alongside Island Hospitality, we've been hyper focused on our revenue management strategies. And in the first quarter, we outperformed our market's average RevPAR growth by 90 basis points which is admirable considering the tough comparison, given RevPAR growth for us in the first quarter 2016 was almost 3%. We were very pleased with the mix in ADR growth as we were able to grow ADR 2.5% to $163. That strong ADR is a testament to the quality of our portfolio. I think when most people think of select service hotels, they don't think of an average daily rate of $163. Our long-term goal is to be the best pure-play select service and limited service hotel REIT. With [indiscernible] targeting a different asset class for most of its acquisitions and once ROJ closes on the acquisition of BelCor Chatham will possess the highest RevPAR, ADR and margins among all select or limited service hotel REITs. Today's traveler is very much in tune with the quality and value of hotels such as ours provide which enables us to grow our top line, similar if not better than other hotel classes, while our margins significantly outperform and so does our cash flow. Our guidance for the quarter was a RevPAR increase of flat to…

Thanks, Jeff, good morning. In addition to revenue management, we, as well as Island Hospitality, have dedicated more time and resources to analyzing profitability and determining ways to reduce costs or minimize increases in such -- certain categories. This is a niche that we started talking about a bit over 6 months ago. We saw wage pressures developed early on and saw some other incentives, such as guest acquisition costs and TA commissions inching up. We felt that we needed to get out in front of this and see what we could do to clamp down on the expense creep. We obviously take pride in the fact that our operating margins are the highest of all lodging REITs. Our same-store hotel operating margins advanced 40 basis points to 47% in the quarter. And our hotel EBITDA margins expanded 70 basis points to 39.9%. The incremental improvement in our hotel EBITDA margins of 30 basis points can be attributed to about $0.5 million property tax refund related to one of our hotels. In the quarter, we were able to hold expenses basically flat, with an increase of less than $100,000 which is noteworthy given the significant wage pressures occurring in most markets. We have a tremendous amount of information in our fingertips. Island Hospitality is able to analyze revenue daily versus forecast and determine whether 8 weeks expense levels are necessary within the month, for the month. This could be related to labor thresholds or even things such as supplies for housekeeping. One of the benefits of our working relationship with Island is the ability to move quickly. We can drive profits to the bottom line which translates into enhanced value of our real estate. For the second consecutive quarter, first quarter guest acquisition costs were flat year-over-year at $2.7 million…

Thanks, Dennis. Good morning, everyone. For the quarter, we reported net income of $4.6 million or $0.12 per diluted share compared to net income of $3.3 million or $0.08 per diluted share in Q1 2016. The primary differences between net income and FFO relates to noncash costs such as depreciation which was $12 million in the quarter; onetime gains or losses; and our share of similar items within the joint ventures which were approximately $1.5 million in the quarter. Adjusted FFO for the quarter was $18.1 million compared to $17.7 million in Q1 2016, an increase of 1.9%. Adjusted FFO per share was $0.47 per share which represents an increase of 2.2% from the 46% -- $0.46 per share generated in Q1 2016. Adjusted EBITDA for the company rose 1.8% to $28.1 million compared to $27.6 million in Q1 2016. In the quarter, our 2 joint ventures contributed approximately $3.2 million of adjusted EBITDA and $1.4 million of adjusted FFO. First quarter RevPAR was up 5.7% in the Inland portfolio and down 2.7% in the Innkeepers portfolio. The strong performance in the Inland portfolio is largely attributable to the significant amount of renovation that was completed on those hotels in 2016 and the weaker performance in the Innkeepers portfolio is primarily due to the disruption being caused by renovation occurring in that portfolio in 2017. Our balance sheet remains in excellent condition. Our net debt was $575 million at the end of the quarter and our leverage ratio was 40%. We're currently working with Colony NorthStar, our partner in the 2 joint ventures, to refinance the debt on both joint ventures. We expect that the refinancing will lower the cost of debt for our JVs and extend the maturity of both loans to 2022, including our extension options. We anticipate…

[Operator Instructions]. Our first question comes from the line of Gaurav Mehta from Cantor Fitzgerald.

I want to follow up on your comments on potential asset recycling in 2017 and hoping if you could provide more color on what you're seeing in the market as far as pricing. And if you're going to buy some assets, where would you be buying and looking to sell?

I think that, as you know, we commented that things are expensive out there. And therefore, I think our focus is clearly going to be on expanding or building on sites that we already own where the infrastructure is there and the ground is flat and the costs are fairly reasonable to do stuff that are produced at double-digit unlevered return. But for existing assets, really, I think our strategy there is to look at a value-add opportunity, whether it be for something that just really needs capital or rebranding or otherwise; or for Island Hospitality to bring its abilities to look at a market and look at a hotel and increase market share, so enhance the top line and in some cases, enhance margins. On most cases, we've been successful in enhancing margins in hotels but Island takes over. Therefore, asking cap rates by sellers of 7 to 8 cap, we're not too thrilled about, honestly. And we know that going in yield ought to be 8 plus, given where our stocks trades, so we think the way to get there is probably with a value-add opportunity.

Okay. That's helpful. And again, as a follow-up, you talked about supply impact on your Silicon Valley assets. But I was hoping you could also talk about demand if you're seeing any pickup in demand in 1Q. We know that there were some pickup in venture capital activity in 1Q versus 4Q '16. So have you seen any impact of that on your hotels? Or are you expecting to see any pickup in demand there?

You know when you look at our Residence Inns there and you look at who's staying in them, it's primarily engineers, it's training groups, it's kind of new store openings for Apple where they bring Apple or where they bring in folks and other kinds of training. So no, the answer is venture -- demand is strong. Demand, I would say, is steady. And that demand is getting somewhat diluted by some new select service hotels that have been opening sort of south, let's say, a little bit south of the San Francisco airport down through the heart of Silicon Valley to the San Jose airport. And when you look at that market and just drive up the 101, you'll see things that have opened. We think we're well positioned, given the strength of our sales team and our kind of long-standing relationships in the market with the demand generators with Apple, with Google, with Applied Materials, with Cisco. So I think that this supply, looks like most of it abates by the end of this year, maybe there's a little trickle into the first quarter of 2018.

[Operator Instructions]. There are no further questions in queue. I'd like to hand the call back over to management for closing comments.

So hopefully, it's because we did such a fantastic job that there's no questions or maybe it's because everyone's on the Marriott call. But nonetheless, we appreciate the opportunity to talk to you. We're pleased with the quarter and we're going to continue to buckle down on all the operating fronts we talked about and on the capital recycling side trying to create some accretion here. Thanks for listening. Talk to you soon.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.