Greetings, ladies and gentlemen and welcome to the Chatham Lodging Trust’s Third Quarter 2021 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] It is now my pleasure to introduce your host, Mr. Chris Daly. Thank you, sir. You may begin.

Thank you, Jin. Good morning, everyone and welcome to the Chatham Lodging Trust third 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 in this call is as of November 4, 2021 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 these calls, on our website at chathamlodgingtrust.com. Now, to provide you with some insight in Chatham’s 2021 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?

Thank you. Good morning, everybody. Thanks, Chris. And we appreciate everyone who is joining us this morning for our call. After having a very good second quarter when we became the second hotel REIT to be cash flow positive, we produced a great third quarter that brought our highest RevPAR since the start of the pandemic and a significant increase in free cash flow after all debt service preferred dividends and before CapEx. Our third quarter free cash flow of $10 million was 2.5x greater than our second quarter cash flow of $4 million and that is only on a $20 or 22% increase in RevPAR over the second quarter. We are now positive cash flow for the year and expect to remain so for 2021. Our cumulative cash burn since the start of the pandemic is a mere $25 million or about $0.50 per share. As we move through the end of this year and into next year, many of our peers are still going to be burning cash, but that is not going to be the case for us. We will come out of the pandemic healthier than most of our peers. When EBITDA recovers, many probably don’t realize that our debt to EBITDA ratio is going to be lower than it was heading into the pandemic to the tune of 1.5 to 2 full turns lower, excluding the preferred and a half to a full turn lower when you include the preferred. I am real proud of that. And I think that bodes well for us and our growth going forward in 2022. Coming off a very successful $120 million preferred equity raise at the end of the second quarter, we are in very good shape. From a capital and leverage perspective, our leverage ratio was approximately…

Thanks, Jeff. Good morning, everyone. All but one hotel had occupancy over 50% in the quarter, which compares to two in the second quarter and 20 hotels in the first quarter. 24 of our hotels had occupancy over 70% during the third quarter. Half of our hotels had occupancy over 75% and 14 hotels had higher ADRs as compared to 2019. Relative to 2019, our Residence Inn, Fort Lauderdale, Intercoastal Waterway hotel saw the highest jump in RevPAR, with an increase of 45%, while our lowest hotels were our 2 Sunnyvale Residence Inns, whose RevPAR is down approximately 70% compared to 2019. As Jeff spoke, our Silicon Valley hotels are going to provide substantial growth in 2022 and 2023. Of all our brands bolstered by significant demand at our Coastal Northeastern hotels, our Hampton Inns had the highest occupancy in the quarter at approximately 85%. Our Portland Maine hotel had occupancy of 92%. Our Exeter New Hampshire hotel saw occupancy of almost 90%. Occupancy at our 17 Residence Inns was a solid 75% in the quarter and basically 70% at our 7 Homewood Suites hotels. In addition to our Coastal Northeastern hotels, our suburban New York assets continue to produce great results and really have been consistent outperformers since the start of the pandemic, unlike what has been experienced for most owners in Manhattan. Occupancy at our 3 hotels was 91% in the quarter and ADR was also higher than 2019 at those 3 hotels. Among our major markets, San Diego, Denver and LA are showing decent growth over the second quarter and their near-term outlooks are encouraging. Smaller conventions are coming back to the San Diego and Dallas convention centers and the calendars at both are looking promising for next year. Silicon Valley, our largest market remains laggard with…

Thanks, Dennis. Good morning, everyone. Chatham’s Q3 2021 RevPAR of $107 represents a 23% increase versus our Q2 RevPAR of $87. During the quarter, RevPAR hit a high of $113 in July, which along with June has historically been our strongest month of the year due to peak leisure demand. RevPAR remains strong at $104 in August and $103 in September even as the strongest parts of the summer leisure season came to an end. Chatham’s Q3 RevPAR of $107 was down 26% to our Q3 2019 RevPAR of $145. Chatham’s strong RevPAR recovery continued in October, where our portfolio RevPAR of $107 was the second highest month of the year despite being well beyond our peak summer leisure season. We expect performance to continue recovering with decreasing RevPAR declines relative to 2019, but it’s worth noting that the absolute RevPAR for Chatham’s portfolio typically declines approximately 15% to 20% from October to November and again from November to December due to the seasonality in our business. It’s possible that those seasonal declines could be a little lower this year depending on the timing and strength of the continuing recovery in business travel, but we still expect that seasonality will impact absolute RevPAR levels in November and December. Through our significant efforts to contain costs, we were able to generate a Q3 hotel EBITDA margin of 35.2% and GOP margin of 44.7%. The 44.7% GOP margin achieved in Q3 at a RevPAR of $107 was only 130 basis points lower than our full year 2019 GOP margin of 46%, which was achieved at a RevPAR of $132. Our Q3 2021, hotel EBITDA was $22.5 million, adjusted EBITDA was $19.6 million, adjusted FFO was $0.21 per share and cash flow before capital, which represents hotel EBITDA less corporate G&A cash interest…

[Operator Instructions] Our first question comes from the line of Kyle Menges with B. Riley Securities. Please proceed with your question.

Good morning. This is Kyle on for Brian. I was curious what kind of new development you are seeing in your key markets? And are you seeing any opportunities to enter contracts to buy from developers? Are you still mostly focused on acquiring existing hotels?

Yes. This is Dennis. I mean, listen, I think we are – we certainly have a lot of discussions with developers. And we haven’t historically been takeout partners with those, but certainly they are in our network of people that we reach out to. As far as other new supply in our markets, there is really very little that’s currently under construction that really bothers us. I think if you look at our brand new Home2 Suites in Woodland Hills, its opening up. Really, there has been no new construction there for a long time. Maybe there is another hotel that starts in the next couple of years. So, we are pretty excited about that opportunity. But in general, we experienced a significant amount of directly competitive new supply, kind of in that 2016 to 2019 timeframe, where I think for us new supply was anywhere from kind of 5% to 9% or 10% of our comp set. So, I think a lot of that is behind us.

Okay, that’s helpful. Thank you. And then last for me, I am just curious how you are thinking about funding future acquisitions.

We have a ton of availability under our line of credit now. So, I think in the near-term, that’s what we would use.

Okay. Thanks. That’s all for me.

Thanks.

Thank you. Our next question comes from the line of Tyler Batory with Janney. Please proceed with your question.

Good morning. Thanks for taking my questions. First one for me, I just wanted to dive in a little bit more on the performance in the portfolio. October picked up a few points of occupancy compared with September, was that the seasonality impact there, or perhaps the business or corporate travel get a little bit better October compared with September?

Yes. I think – Tyler, this is Dennis. Yes. I mean, business travel, I think as we have seen kind of going from 65% of midweek, almost 70% in the third quarter stayed at a pretty healthy level, about that same level 70%-ish in October. So, it still is kind of maintaining out there. But yes, for us, once we get past October, it does get a little bit seasonal. In October, you also have those Northeastern hotels, the Mid Atlantic hotels, tend to do very well with respect to kind of the leaf peepers and those types getting in from a leisure travel perspective. So, I think for us, October was similar in terms of business travel, but the leisure was just ticked up a little bit with some of that business. So, that will say the one other thing to add to kind of October and even as you look at November and I spoke to in my prepared comments, which is the Dallas Convention Center, the San Diego Convention Center has seen and is seeing a bit of smaller conventions. Comic-Con is not going to be anywhere near what it was in prior years, prior to the pandemic, but they are still at least planning to have some smaller version of it in San Diego. So, there is a little bit here and there that’s incremental. But we will – we do expect November and December to be seasonally lower, so.

Okay, great. And then also wondering if you can expand on the margin performance in the quarter, I thought really impressive, especially given you are adding back some services and some amenities, you still have RevPAR below 2019 level. So, if you could just unpack for us, help us understand a little bit more of what was driving the really strong margin performance in the quarter that would be helpful.

Yes. I mean, I think for us, the biggest cost driver is always going to be labor. And as we mentioned in our prepared comments, one thing that Island has done a lot of work on and continues to do is they have expanded. Really over the last 2 years or 3 years, its internal staffing department, that really is looking day-to-day at expenses, efficiency ratios. And really staying in very regular daily communication with GMs across the country to make sure that everybody is on the same page, with respect to what’s on the books, what’s coming, or what’s not coming, and trying to adjust that – adjust that productivity. So, as we talked about with their cost per occupied room, still a good 15% or 16% below third quarter 2019 levels. And that’s with a wage per hour, that’s certainly higher than what it was 2 years ago. So, I think it’s really just analyzing those expenses day-to-day on a housekeeping basis for the most part, so.

Okay, that’s helpful. And then I am also interested, I think you said in the prepared remarks, maybe Austin hotels had 90% occupancy in October. So, I just wanted to make sure that I have heard that correctly.

Yes.

And maybe you could talk a little bit more about that, that 90% number that’s obviously really, really exceptional.

Yes. I mean, listen, it’s in, especially for a hotel, the TownePlace, which is really only three months old, or now four months old. But I think, listen, in Austin, it’s – and the reason why we like those two acquisitions at the domain, which is it has a very good mix of not only significant office component, with corporate offices there, some of which haven’t even fully reopened yet. But it also has the demand for weekend events. So, whether it was September or October, in October, you had a really strong Formula One weekend, that was basically a citywide sellout. Even though the races were almost 45 minutes away from the hotel, but given its proximity to that domain area, it attracts a lot of interest from a traveler who can walk to whatever they want to do. You also have on weekends, its proximity to the brand new soccer stadium, which again, whether it was a USA World Cup qualifying match, either during the week or the weekend. Again, it just provides kind of a really diverse set of events, outside of just the business travel that allows us to do really well during the week and the weekend. So, we are just very pleased with that. And yes, we spoke correctly, that it was 80% occupancy in September and 90%. in October, so.

Okay. Very good. I think last question for me is in terms of the Warner Center opening in the fourth quarter here. Just help us think about the ramp to stabilization at that property? I know its unique circumstances here. But just kind of curious how quickly you think that could ramp up to stabilization?

Yes. I mean, listen, I think we are really encouraged, as Jeff talked about the stars are showing and Smith Travel reports are showing and have shown in the few months leading up to where we are today. Market occupancy – market occupancies in the 80% to over 80% range. So, that’s really encouraging. I think we have had a lot of we have our full sales team and GM in place there. So, we have got a lot of inbound interest in our hotel. Moving forward, I think if you look at kind of a ramp, we certainly believe it’s, we are going to be able to accelerate from a 12 to 18-month timeframe to probably, I would like to say in six months, we will be fully ramped there, that could be a bit aggressive. But listen, as we have seen with the market is pretty strong. So, I think we are certainly not ready to give any guidance yet on what that looks like in terms of rates and occupancies. But I think we are pretty excited about what that hotel is going to do. And I am sure when we talk again in February and the hotel has been open, at least for six weeks or eight weeks, couple of months that we will have some much better thoughts on what that looks like in the near-term.

Okay. That’s all for me. Appreciate it. Thank you.

Thank you. 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, this is Jeff. Again, thank you all for attending. And as we have said a few times, there is some specific unique characteristics to Chatham, that I think is going to give us some further upside here, particularly as we move through 2022, combining our, I think unusual prospects for internal growth and the external growth that we have already put on the table with more to come. Thank you all. Look forward to speaking with you soon.

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