Greetings, and welcome to the Chatham Lodging Trust Third Quarter 2018 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 Instructions] As a reminder, the conference is being recorded. It is now my pleasure to introduce your host, Chris Daly, President of Daly Gray, Inc. Thank you, Mr. Daly. You may begin.

Thank you, Doug. Good morning and a happy Halloween everyone and welcome to the Chatham Lodging Trust third quarter 2018 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 October 31, 2018, 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 with some insight into Chatham's 2018 third 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. Good morning, everyone. We appreciate you being with us today. Earlier, we reported solid results for the third quarter and updated our fourth quarter forecasts, raising the full year midpoint of our guidance. We’re certainly pleased to be able to do that. Looking at our third quarter, RevPAR of 40 comparable hotels rose 1.1% versus our guidance of down 1% to up 0.5%. Adjusted EBITDA of 38.6 million and adjusted FFO per share of $0.61 finished towards the upper end of our guidance range, driven by our RevPAR outperformance, but offset a little bit by operating margins at the lower end of our guidance range. Our six largest markets contributed approximately 60% of our hotel EBITDA and I want to spend a few minutes talking about each of those. First off, RevPAR in our four Silicon Valley Residence Inns was up 1.5% to a strong $205, driven by an increase in both ADR and occupancy. Occupancy was 88% for the quarter in those hotels with an ADR of $234, pretty strong absolute numbers and one of our residence Inns in the valley was still under renovation, Mountain View hotel for some period of time during the quarter. Obviously, tech remains one of the fastest growing sectors in our economy in terms of new hire and the ability to grow, which really drives business into our extended stay hotels. Additionally, the impact of new supply is trending in a more positive direction for us with less new supply and more absorption of the supply as the year has progressed this year. San Diego represents our second largest market and we saw RevPAR rise 2.2%. Our downtown residence Inn RevPAR rose significantly, up almost 7%, downtown San Diego performance has been strong as the impact of new supply Downtown has…

Thanks, Jeff. Our RevPAR increase of 1.1% in the quarter was driven by a 2.3% increase in occupancy to a healthy 86%, while ADR declined slightly down 1% to $171. Our RevPAR growth beat the [Technical Difficulty] of 0.8% in the quarter, I think reiterating something that, a point that Jeff made, as we think of two things, one is, the improving supply demand dynamics in our markets as well as some really outstanding efforts by our revenue management team at Island Hospitality. We're very excited to acquire during the quarter the brand new 96 suite Residence Inn Charleston Somerville, which is adjacent to courtyard at a price we believe was the lowest replacement costs at the time we closed the deal. The market's going to be a good long term market, it has evolved as plant opens this year and with also already announcing a second production live scheduled to open in 2020, the growth outlook remains pretty positive and having that Residence Inn is going to allow us to maximize revenue opportunities by placing. Longer term, it’s fair to say that yes, the Residence Inn is yielding higher ADR at the courtyard. For our portfolio, booking trends remain pretty short term. Growth this year is primarily on the corporate side, which is up 2% in terms of revenue dollars. Island Hospitality has done a great job during the quarter, maximizing revenue on show at weekend nights, which is requiring them to be a little bit more nimble with respect to pricing changes and looking carefully at reservation system recommendations and also making sure that we hit certain thresholds on particular nights. We're continuing to aggressively implement additional revenue opportunities. For example, at our 37 comparable Island managed hotels, which excludes any hotels that were acquired in 2017 or…

Thanks, Dennis. Good morning, everyone. For the quarter, we reported net income of $14.7 million or $0.31 per diluted share compared to net income of 14.5 million or $0.36 per diluted share in Q3 2017. The primary differences between net income and FFO relate to non-cash costs such as depreciation, which is $11.9 million in the quarter, other charges and our share of similar items within the joint ventures was approximately 1.8 million in the quarter. Adjusted FFO for the quarter was 28.4 million compared to 27.0 million in Q3 2017, an increase of 5.2%. Adjusted FFO per share was $0.61 compared to the $0.68 per share generated in Q2 2017. Adjusted EBITDA for the company increased 3.8% to 38.6 million compared to 37.2 million in Q3 2017. In the quarter, our two joint ventures contributed approximately 4.9 million of adjusted EBITDA and 2.5 million of adjusted FFO. Third quarter RevPAR was up 1.4% in the Inland portfolio and up 0.5% in the innkeepers portfolio. Chatham received 1.4 million of distributions from the JVs in Q3. In Q3, we issued 13.7 million of equity through our ATM and direct stock purchase programs at an average price of $21.46. This further strengthened our balance sheet and will provide us with additional capacity to pursue attractive growth opportunities. Our net debt was $525 million at the end of the quarter and our leverage ratio is 32.6%. Transitioning to our guidance for Q4 and full year 2018, I'd like to note that it takes into account the anticipated renovations of the Residence Inn Sunnyvale 1, Residence Inn Tysons Corner and Homewood Suites Farmington in Q4. We expect Q4 RevPAR growth to be minus 1% to plus 1% and full year 2018 RevPAR to be minus 0.5% to flat. As a reminder, our Q4 RevPAR growth will be impacted by difficult comps for our four hotels in Houston and two hotels in Florida, which benefited from increased demand after hurricanes Harvey and Irma starting in September 2017. Our four hotels in Houston generated RevPAR growth of 23.5% in Q4 2017, which increased Chatham’s overall RevPAR growth by 1.6% in Q4 2017 and we expect the four hotels in Houston to be down approximately 15% in Q4 2018, which would have an impact of approximately 1.3% on our overall RevPAR growth in Q4 2018. Our full year forecast for corporate cash G&A is $10.1 million. On a full year basis, the two JVs are expected to contribute 16.4 million to 16.6 million of EBITDA and 6.9 million to 7.1 million of FFO. I think at this point, operator, that concludes our remarks and we’ll open it up for questions.

[Operator Instructions] Our first question comes from the line of Tyler Batory with Janney Capital Markets.

So just a couple of questions for me here. First, just want to ask a little bit more on the third quarter, obviously the RevPAR growth very strong. Obviously, Houston looked like a big variance versus what you guys were expecting, but can you talk a little bit more about how the quarter played out versus your expectations in some of your other markets. I mean, did you see any significant outperformance or was it kind of broad based across the portfolio?

This is Dennis. It’s a little bit broad based across the portfolio, but certainly Houston was one of the major contributors to the outperformance. If you look at a few of our other major markets, Washington DC, which I think some other peers have been – third quarter was relatively weak for us, we had -- we were expecting RevPAR to be down slightly in that market and obviously, it finished up. And then when you look at our San Diego market, we were expecting that market to be relatively flat. It came in up 2 plus percent. So really when you look at, those are three of our top six markets. Those are really where the outperformance came.

And I did want to follow up a little bit on Houston, obviously, really tricky with the comps and whatnot, but can you just talk a little bit more about what you're seeing there on the corporate side, on demand, if you exclude the weather and then I don’t know if you have any thoughts on supply in Houston as well?

Well, we certainly don't like the supply outlook. It certainly is still one of the more punitive markets going forward and there is more supply. Not only at the Downtown, but especially at the medical center where we are, there's a couple of decent sized hotels that are projected to open up within the next year or slightly over a year at the medical center. So those might occur a little bit. And then as far as the market itself, listen, we’re very surprised with the July and August health of that market, especially at the medical center with our medical center assets where we have a courtyard there at the medical center where RevPAR was actually up 7% in the quarter and our Hampton end of the medical center RevPAR was up 2.5%. So, I think this is the proximity that the medical center, there were a lot of events than prior -- as we went into 2018 around the area that has the market. So, listen, I think, business is generally a little bit better. But it’s still going to be a headwind in terms of supply around the Medical Center.

And then last question for me, more of a big picture question, I think, your commentary Bethylene very positive RevPAR of 2% in October definitely paints a bullish picture as well. I think there is certainly a lot of investors out there that are concerned about maybe slowing economy, maybe slowing growth within lodging. I mean just to be clear, I mean, when you guys look out at your portfolio and your business, I mean, do you see any indications that things might be slowing generally, does it look like things are probably maybe even picking up a little bit for you guys.

This is Jeff. I think it’s important to look at number one, some of our absolute ADR and occupancy numbers, because people I think at last and always looking for RevPAR growth and it’s when you know that RevPAR growth, because it drives earnings growth and that's directly tied to how people view you and your multiple. But when you’ve got hotels for example in Silicon Valley that are select service hotels that run 88% and $234, I think that stuff we’re paying attention too. I think when you look at the overall portfolio, whether it is depending upon the seas in 84% and 86% occupancy rate and the strong ADRs that we've got and RevPAR numbers. This is not a weak part of the lodging cycle, whether it is just a part of the lodging cycle that has a fairly normalized amount of supply that is coming in based upon historical averages, but a little more tilted or a lot more tilted towards no full service hotel development for the most part. Lots of select service hotels develop in, because that’s where their customers want to put their dollar and where they want to say as evidenced by the success of the brands that we’re in and then further focus in the urban areas and the big markets, which is where our hotels are. So, I think that we're in some of the best demand growth markets in the United States and that's why our RevPAR is still moving in a flat to up direction and I would expect that to be the momentum as we move forward into 2019. I don't see any reason for that to change and I think that, we've commented a few times on the fact that, even going back to the end of 2016, we were seeing some supply in our downtown markets and therefore hit a little bit earlier with some of the other hotel companies that you may follow, but we're going to – we’re starting to see that abate and of course absorption of those new rooms in the markets that we’re in which I think bodes better for us in terms of some RevPAR growth as we look forward. Long answer, sorry for that.

Our next question comes from the line of Anthony Powell with Barclays.

Hey, your occupancy was up a good amount in the quarter for the first time and I think in a couple of years, without a deliberate strategy to kind of just add more demand to the system or was that just lapping of supply growth comps or why is that up so much in the quarter?

I think it is two things. I think it is the diminishing impact of supply on our portfolio and secondly, what we have in my prepared remarks as well is that Island Hospitality has spent a lot of time and really has reallocated some resources internally, examining and analyzing children night, weekend nights to ensure that we maximize our revenue dollars and some of that, I think, you are seeing in that occupancy number for the quarter. As we took a look at the performance of our hotels over those children nights and weekends that we left a little bit on the table there.

And again, I think – this is Jeff. When you've got a portfolio of hotels that runs above the upper 70s, let's say in occupancy, certainly at 80, by definition, it means full mid-week and we're really looking for opportunities, the beauty we have in the management company in here is to be able to sit down with them and the revenue managers and look at star reports by day of week and really look and analyze where the opportunity is and of course it’s in the children nights and it’s on the weekends. And so we shifted our focus because the corporate direct sales efforts for this company I think are excellent and those results in that mid-week business and therefore the shift needed to be made towards weekend business and I think you're seeing the results and I would expect you'll continue to see those results.

And we're hearing more developers are hanging on to their hotels, I think they've finished them, because they're not be able to I guess start new construction or it's harder to for them to backfill their pipeline, are you seeing that in the transaction market and is that making harder for you to find deals?

Sure. I mean, look, the commentary around the absolute RevPAR numbers really tells the story because if you build a hotel, your ability to ramp into the ADR and occupancy that you projected is probably pretty strong because the absolute numbers are strong in the markets and of course it's just the guys with the existing hotels that are in the markets whose top line growth goes flat or slows down, which is what you're seeing overall, but as long as they can get to that ramp number pretty quickly, I don't think they have a big desire to sell and as you said, if their pipeline which it is shrinking for new construction because of increased construction costs and the like, then they don't need to recycle their capital and harvest the equity as fast as they otherwise have had to over the last few years.

So, is that the main reason why it's been harder to do deals or is that just something or pricing appreciation still a bit wide between you and sellers or what's the main impediment to getting deals?

Yeah. I mean look, the source of deals is not just the developer, the source of deals is from just existing owners that have and are experiencing good cash flow and good returns and don't have a big incentive to sell and of course their refinance market has been really strong, the availability of debt, particularly CMBS debt for stabilized hotels is still out there and so that is a very strong alternative for an owner because of course he gets to harvest this equity in many cases cash free. So, really it’s the landing environment that provides another problem for us.

Just one more, do you think that lending environment has changed at all over the past I guess few weeks, as the equity markets have been more volatile and as there's been more, I guess, been more uncertainty regarding the macro picture and a lot of the cycle?

We haven't seen a lot of changes in the last few weeks, but we haven’t been in the market with refis recently either, but I mean, hat market overall has been super strong.

[Operator Instructions] Our next question comes from the line of Bryan Maher with B. Riley FBR.

Just sticking with that line of question a little bit on the capital recycling and the bid ask spread being wide and to your comments earlier Jeffrey on not too many strategic -- non-strategic hotels in the portfolio, how many would you say there currently are that you would consider selling to capital recycle and are any of those being currently marketed?

Yeah. Hey, Bryan. This is Dennis. I mean, listen, we do have a few hotels that are out there where we're testing the waters. I think that probably matches what we believe and consider kind of non-core. So I think, it's not that we fall out along with them, we certainly have thought a lot about the few Western PA assets, at least in terms of their fit within our portfolio with kind of RevPAR, certainly well below $100 is a little bit out of character for our portfolio. So I think if you had to say, those were probably two non-core assets, ironically, one of those is having a great year in terms of RevPAR growth, but outside of that, I’d say it’s kind of two or three within the portfolio. And, listen, I think we'd like to be able to recycle some of that capital and hopefully be able to acquire an asset before the end of the year.

And then shifting gears to the wages and benefits commentary, I think you said total payroll was up about 5%, but 3.6% per occupied room. Do you have the number? And then, you broke it down further with 2.9 being payroll and 6% being benefits. Do you have the total payroll breakdown based upon those two metrics, handy?

For the, for what period of time?

For the third quarter?

Total payroll for that, for -- well for absolute dollars, it was 5%. And are you talking out for, because I think the disclosure I gave was for our 37 hotels. What exactly are you looking for?

Yeah. You gave the 3.6% increase per occupied room and then you broke that down further to 2.9 and 6.0 for the benefits. Do you have the total payroll 5% broken down with those two metrics?

Oh, yes, so if you looked at of the 5% total increase, benefit cost is about 9% up for the quarter and on a payroll costs, it was around, I don’t remember the exact number to the first decimal point, but it was in that 3% to 4% range.

That's coming down from 2017, the per occupied room number, do you believe what you're seeing, kind of looking out to 2019, does that get come down even further.

Well, listen, I think you're still going to be faced with kind of normalized in crude in a tight labor market in that 3% range. So, I don't see it coming down much further, but coming down from 4.2% to now 3.6%. I think hopefully it gets a little bit closer to the 3%. We have certainly not seen some of the, within the year increases that we were approving earlier this year and even last year and in 2016. So, I think that at least gives us a little bit of comfort that we are fairly in line with market wages. And, we should see at least hopefully a more normalized inflationary type increase as we move forward hopefully.

And then just lastly a housekeeping item and I think Jeremy you might have commented to this, but I didn't see it in the earnings release, the issuance of shares under the ATM. Can you give us those numbers again for the third quarter?

Yes. So overall, it was $13.7 million at an average price of 21.46. S it was call it 637,000 shares.

There are no further questions in the queue. I’d like to hand the call back to management for closing comments.

We thank everybody for being on call. We look forward to continued success on the Chatham side and sharing that with you on our next call. Thank you.