Greetings, ladies and gentlemen, and welcome to Chatham Lodging Trust's First Quarter 2021 Financial Results Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Mr. Chris Daly. Sir, you may begin.

Thank you, Jen. Good morning, everyone, and welcome to the Chatham Lodging Trust First Quarter 2021 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 on this call is as of May 4, 2021, unless otherwise noted. And the company undertakes no obligation to update any forward-looking statements to conform the statements 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 to Chatham's 2021 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 Fisher. Jeff?

Thanks, Chris. Good morning, everyone. It's great to be here again with everybody this morning. We're seeing a strong RevPAR growth trend in our portfolio after bottoming out in December. Sequentially versus the prior month, RevPAR grew 18% from December to January, 13% from January to February, 25% from February to March and 14% from March to April. The gains have been driven by both increases in occupancy, up to 65% in April from 40% in December; and rate, which is up 15% to $116 in April from $101 in December. We expect to see continued sequential RevPAR improvement moving forward as leisure travel demand remains very strong, and we are seeing the return of the business and transient traveler beginning. Most importantly, and we are real happy about this, our April RevPAR finished at $75, and at this level, we expect to be positive cash flow after all debt service and corporate overhead. Getting to cash flow breakeven is critical to protecting shareholder value. We are the second hotel REIT to reach this critical point, which should reaffirm that our corporate actions and our portfolio performance have been outstanding. Also, we're thrilled that our Warner Center development is now projected to open in the 2021 fourth quarter and is going to provide incremental revenue and FFO growth in 2022 and 2023 as it ramps up. Our negative cash flow has only been $35 million since the beginning of the pandemic. When you exclude our Warner Center development debt, our net debt has actually declined $46 million over that same time frame as we executed a highly successful sale of our Residence Inn in Mission Valley and we've been producing great operating results throughout the pandemic that minimized cash burn. Our focus on select-service hotels and particularly extended-stay hotels, along…

Thanks, Jeff. I want to fill in some additional revenue and RevPAR facts. 21 of our 39 hotels had occupancy over 50% in the quarter. All hotels have been opened since the beginning of the pandemic. Weekends continue to carry the day. In the first quarter, our Friday, Saturday night RevPAR was $61, which is up 20% over our weekday RevPAR of $51 with the differentiation primarily due to occupancy, which was almost 60% on the weekends, again, up 20% compared to our weekday occupancy of 48%. Our most significant brands had the highest occupancies with Residence Inn at 60%, Homewood Suites of 58% and Hampton at 60%. Our suburban New York assets in New Rochelle and White Plains had average occupancy of 72% in the quarter and ADR of $150, only down 16% over the 2020 first quarter. Despite the challenges that urban New York City is going to face for years to come until the international traveler comes back in full, our hotels are already performing pretty well. And again, a differentiation in our portfolio that often goes unrecognized is the location of many of our assets that are able to benefit from diverse demand drivers. Our San Diego Gaslamp Residence Inn, despite no convention business, had occupancy over 70% at, again, an ADR of $150. Again, diversity of demand. Two hotels saw an ADR increase, and 11 of our 39 hotels saw occupancy gains over the 2020 first quarter. Our top 5 absolute ADR markets were our Residence Inn Fort Lauderdale; our Residence Inn San Diego Gaslamp; our Hilton Garden Inn Marina del Rey; our Embassy Suites Springfield; and our Residence Inn in White Plains, New York. All these hotels had ADRs over $140. And I also might add you've got an incredible representation there with areas…

Thanks, Dennis. Good morning, everyone. Chatham's Q1 2021 RevPAR of $55 represents a 17% increase versus our Q4 RevPAR of $47. Q1 is generally a seasonally low quarter for our portfolio with absolute RevPAR levels in line with Q4 so we are very encouraged by the 17% increase versus Q4. During the quarter, RevPAR increased from $47 in January to $53 in February and $66 in March, and Q2 was off to a great start with RevPAR of $75 in April. Our $55 Q1 RevPAR represents a 54% decline from our RevPAR in Q1 2019, and our April 2021 RevPAR at $75 represents a decline of 45.3% to April 2019. We expect RevPAR declines relative to 2019 will continue to be reduced throughout the remainder of 2021. Through our significant efforts to contain costs, we were able to generate a Q1 hotel EBITDA margin of 11.1% and GOP margin of 29.9%, which is quite strong in light of our absolute RevPAR level of $55 for the quarter. Our Q1 2021 hotel EBITDA was $3.5 million, adjusted EBITDA was $1.2 million. And cash flow before capital, which represents hotel EBITDA less corporate G&A, cash interest and $2.3 million of principal amortization, was minus $7.6 million. Chatham's portfolio has demonstrated remarkable resilience during the pandemic, and our unique focus on extended-stay hotels has enabled us to get through the worst of the pandemic with significantly less cash burn than most of our peers. Our April 2021 RevPAR of $75 is generally what we think we need to be free cash flow neutral through corporate G&A and debt service. And when I say free cash flow neutral, that includes approximately $2.3 million of quarterly CMBS principal amortization. So at April's RevPAR level, we believe our unrestricted cash balance should remain level while we…

[Operator Instructions]. Our first question comes from the line of Aryeh Klein with BMO Capital Markets.

On the ADR front, you noted a lot of positives on the leisure side of things. How should we expect to play -- that to play out in the rest of the portfolio? Is there still a lot of low-rated occupancy that should turn to higher rate business? And are you still expecting the internship programs in Silicon Valley this summer?

Let me start by just talking -- and then, Dennis, you can talk about the interns. Look, the business side of the equation is still, I think, challenged with ADR. We're doing about $15 or even up to $20 better in some cases compared even to the fourth quarter when you look at the segmentation reports for corporate and business travel. But still, without the volume of business traveler there and without that also coming through the various reservation systems at the higher ADRs, you're not going to see the kind of results until that volume picks up. Dennis?

Yes. I think on the intern program, Aryeh, in Silicon Valley, which is normally where we have most of -- the 4 hotels are full with tech interns, a lot of those programs are not occurring this summer, especially at the size that they did previously. We have heard certain companies are looking and believing they're going to do kind of late summer, early fall internships. But additionally, we do have -- and we think we have in even our Tysons, our Springfield hotels some intern -- and our D.C. hotels, some intern business on the East Coast, which is a little bit different for us than prior years. And then we expect a little bit of intern business up in Seattle. But it's certainly -- still this summer is not going to be the significant book of business that it was for us in 2019 and prior, but we do -- we are encouraged that we are going to see some of it.

I think what you want to look at from a macro perspective is just the amount of office reopenings that you read about online or in the newspaper or whatever and how surprising they may be in terms of announcements about office reopening that's earlier than most people had expected. And you're starting to see a little bit of that even in New York City. And when you see announcements from different states about the relaxation of restrictions, of course, not to make a political statement, but we live in quite an interesting state on that front. But anyway, as you see more of the relaxation and the vaccination rate go up, I think that you'll see a faster acceleration of that kind of travel.

And then just on the labor side, how are you thinking about staffing as occupancy kind of ramps? And where do you think it ends up relative to kind of pre-pandemic levels at your hotels?

Yes. I mean listen, it's a challenge, as I said in my prepared remarks. I mean we're throwing out all kinds of incentives to try and hire or retain talent. Thankfully, one of the -- again, one of the benefits of our portfolio, which is the extended-stay hotels and as I talked about, our length of stay is still quite high compared to what it was pre pandemic, is given the size of our hotels, we aren't cleaning them as often. So I think for us, we get a little bit of a benefit there, even though labor is a challenge, in the fact that our guests are staying a little bit longer. Only in a couple of instances that we had an issue with turning rooms to drive revenue or sell rooms for the night. And quite honestly, that was in a couple of what I would call -- those were not extended-stay hotels, so we had a lot of room turn on a couple of nights. But that's -- again, thankfully for us, it hasn't been a significant problem. But finding labor over the next 90 days is going to be important and is a major focus of our operations team.

Our next question comes from the line of Kyle Menges with B. Riley.

This is Kyle on for Bryan. I was curious if you could talk a little bit more about the kind of demand you're seeing heading into the summer in coastal Maine and New Hampshire and maybe more specifically, the kind of booking momentum you're seeing heading into June.

Yes. I mean it's very strong in coastal New Hampshire. We've seen, especially over the last 45 days, a significant uptick in room reservation demand for our Portsmouth, Exeter and Portland hotels. I think we're very bullish on what that summer looks like. As we talked about really last year, those markets were closed to essentially any inbound travel until, I think it was, July 15. So even on a year-over-year basis, that should be very strong. And as Jeff talked about, especially in those markets, we are pushing ADRs, and we believe those are markets that should, even compared to '19, have pretty high, if not higher, ADRs than 2019. So we're very encouraged by the booking pattern for those markets. We think it's going to be really strong.

Great. And then as far as capital allocation is concerned, I was curious kind of how you're weighing looking at acquisitions. I know you mentioned the pipeline is a little slow right now, but kind of how are you looking at acquisitions versus getting CapEx to a more normal level as we head through 2021 into 2022?

Well, on the CapEx side, I think we're conservative there, and our hotels, because of the money we've spent over the years, are in very, very good shape anyway. So by having even up to 24 months of very little CapEx going on, we will come out of the pandemic in good shape. We have allocated some money to 1 or 2 hotels that have about 10 years into their cycle for what really is just a soft good cycle redo, not extremely expensive. So we'll -- on the CapEx side, we'll be looking just fine. And acquisitions are something that just we'll continue to dig for and work on to expand, particularly in the extended-stay arena, our kind of presence there. And I think it's going to take, as we've commented and I think others, a little bit more time here for some of these opportunities to really come to fruition. But we'll continue to utilize our kind of long-standing industry contacts and relationships, and I think we will make some deals down the road here.

Our next question comes from the line of Tyler Batory with Janney Capital Markets.

First question for me, I wanted to zero in on the short-term trends and what you're seeing out there. And I appreciate all the color on April and appreciate all the market commentary as well, but it sounds like you expect continued sequential improvement into May broadly for the portfolio. Can you talk a little bit more about that how much visibility do you have into the rest of May? And how much is seasonality, you think, playing into some of the stronger results that you've been seeing here?

Well, I mean, certainly, Tyler, for our portfolio, November to February are always seasonally lower months and slower months. And then you start to come out of it in March, and you build really through October, with October being historically one of the strongest months for our portfolio. I think from a May perspective, I think we do expect it to be -- continue to have RevPAR growth in May over April. I think you're in that kind of weird period where you're not in the spring break anymore. Schools are kind of starting -- at least colleges are starting to get out of -- to finish their spring semesters in early May and as you move through the month. So we do expect May to be better than April, but I think once you get to June, July and August, I think you are -- we expect to see really strong growth. So I think, yes, we expect that trend to continue.

Okay. Excellent. And then in terms of your RevPAR index, because I think it's really quite impressive and quite good, as we look going forward, do you expect to be able to hold on to that market share or perhaps, I think, level out as some of the other properties that are out there start to reopen and whatnot?

I mean listen, I think we're certainly -- and you've seen over the last few quarters, it has started to come back closer to our 2019 RevPAR index of 118. I think we would like to -- we do believe that even over the next several quarters, that our index remains strong because, again, of our ability to diversify our customer base. But certainly, I think, expecting it to stay 15% to 20% above is not realistic, but we certainly hope to hold on to some of those incremental gains as we move forward.

Okay. Great. And then just the last question for me, to put a finer point on this labor discussion, certainly top of mind for a lot of investors out there. Can you quantify or talk more just about the labor needs in an extended-stay hotel versus -- an extended-stay versus normal select service versus full service? Just trying to get a sense of how much variance there is across the property types here in terms of how many employees are necessary to effectively operate once we get back to more normalized occupancy levels.

I mean, I think you start -- I think you first start with, especially as we sit here today and I think even for a little bit of the foreseeable future, which is our length of stay which is longer. So where our length of stay is kind of 4 to 5 nights on average in our extended-stay hotel, it's most likely half of that at something else. And therefore, you're going to be cleaning a room every 2 nights at least instead of every 4 nights. So we can manage to clean the rooms as they turn with essentially, just on a housekeeping perspective, half the labor, I think, just to put it simply. So that at least mitigates some of the concerns and problems we're seeing with hiring the right people that I think other owners who have different types of hotels that are more 1 to 2 night average stay or weekend stays are going to be posed with the problems of cleaning rooms and flipping them.

So you're really talking about housekeepers then at least in our hotels. Comparing a select service -- and so let's start from the bottom. Starting with select service, comparing that to upscale extended stay. I mean Dennis hit the nail on the head. You've got X number of housekeepers depending on the day and depending on the occupancy. But with stay-overs, we're not recleaning the room and there is no expectation that we'll reclean the room, especially coming out of the pandemic. So that works well. As you move up the food chain -- and let me just talk a little bit about food and beverage. On the food and beverage side, you've only got 1 or 2 dedicated employees in a select-service hotel anyway to do the breakfast and to do the evening sort of complementary cocktail hour or otherwise. The evening hour in extended-stay hotels, upscale, is gone and probably going to stay gone. So there's savings there compared to before the pandemic. And what we're working on, and the brands are helpful, is a combination of kind of a service level between the front desk and what happens during the more limited breakfast time, breakfast hour. And so I think there's going to be ultimate -- actually, I know there'll be ultimate labor savings in that arena. Now if you're a full-service hotel, it's a different story because as occupancy comes back, unless full-service hotels want to keep their food and beverage facilities closed the way most are today, then they're going to have, as you know, quadruple the employees that we've got in our hotels. So -- and if they keep them closed, then the ultimate difference between a select-service and a full-service hotel really goes away, and that would be an interesting perspective from a sales and marketing point of view. So we feel, again, pretty good about the kind of hotels that we own.

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

In some of your markets like Fort Lauderdale and New England, where you expect to maybe get ADR at or above 2019 levels, do you also expect to see GOP or wholesale EBITDA -- EBITDA, I guess, above '19 levels? And how much above, given the cost saving you just talked about?

Yes. I mean listen, I think, Anthony, we do expect in some of those markets to have ADRs higher than 2019. And with the challenges and with -- I think there's a very efficient operating model at the moment, as evidenced by our flow-through that we've been producing. We do expect, in that case, GOP to be stronger. But that also assumes that occupancy is similar to what it was in '19, which we think demand is really strong so it should be. So I think we're not going to step out there and say, on a same-store basis, operating margin should be 275 basis points stronger at this point. But especially, I think when you look at this summer, we think the operating margins will be pretty strong.

Got it. And maybe just a broader -- I mean I know you like the upscale extended-stay business. Any changes sort of regional or other allocation as we look forward to buying hotels in the future, more leisure, more Sun Belts? Any change in your -- I guess, your target markets or allocation as you look to the next buying cycle?

Look, I think we're as favorably inclined as we were pre pandemic, frankly. We were talking about Sun Belt. That's only come to be more obvious through the pandemic. But I think you have to be careful because there's a lot of money on the sidelines, and the herd mentality is "We got to buy leisure. We got to buy -- drive 2 markets." You've heard it, right? You've heard it all. So -- and you've written about it. So that might drive the prices up to a point in those particular locations, unless it's a special kind of an opportunity, to make not a lot of sense. So we'll be careful about that. But we certainly, as we look forward to the next 5 years, let's say, want to be fundamentally, as we always have been, in markets with good, diverse demand generators. And I think that's going to be the key.

Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for closing comments.

Well, I appreciate everybody joining us today. I think our hotel's performance throughout the pandemic proves the high quality of our assets and the flexibility that we've talked about a lot of the extended-stay model and the strength of our operating team. We look forward to a multiyear recovery here, and that bodes well for the future of our hotels and our ability to grow cash flow and earnings over the next several years. I'm looking forward to a very robust summer, and I hope you'll join us for our August earnings call. I would think that will be an interesting one. Thank you very much.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.