Greetings and welcome to the Chatham Lodging Trust, Fourth 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. If anyone should require operator assistance during the conference, [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Chris Daly, President of Daly Gray Public Relations. Thank you. You may begin.

Thank you, Darryl. Good morning, everyone. Welcome to the Chatham Lodging Trust, Fourth 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 February 24th, 2022, unless otherwise noted. And the company undertakes no obligation to update any forward-looking statements 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 some insight into Chatham 's 2021 fourth-quarter results, allow me to introduce Jeff Fisher, Chairman, President & Chief Executive Officer, Dennis Craven, Executive Vice President & Chief Operating Officer, and Jeremy Wegner, Senior Vice President & Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

Thanks, Chris. Appreciate that. And I appreciate everyone who's joining us this morning for our call. It certainly was an interesting end of the year in January, as we all know, the fourth quarter started off strong with October producing the second-best month since the start of the pandemic. As the quarter progressed we were hit with the onset of the Omicron variant exacerbating the impact on December, January, and early February, already seasonally slower months. Now as we sit here today, we've seen a dramatic rebound in travel. We've seen business travel pickup since earlier this month and this past weekend produced our best results of 2022. Through February 21st, REVPAR has jumped significantly from January REVPAR of $67 up $20 to $87, a whopping 30% gain. Gains have been sequential each week, with RevPAR of $75 for the week ended February 7th, $89 for the week ended February 14th, and $96 for the week ended February 21st. RevPAR was over $120 this past weekend and occupancy hit 77%, with 20 of our hotels achieving occupancy of over 90% on Saturday night during the holiday weekend. Weekday travel also continues to rise this month and year-to-date, signifying the return of the non-leisure traveller. We've been seeing improving occupancy during the week with weekday occupancies bottoming out at 46% during the week ending January 8. And we've seen growing midweek occupancies each week of February, currently at 60% midweek for this past week. We've been encouraged by the return of some tech-related group business in Silicon Valley and Bellevue, Washington, as well as smaller convention-related business in San Diego and Downtown Dallas. Like we saw with the explosion of leisure travel on 2021, we believe that business travel is going to come strongly back this year. A clear signal has…

Thanks, Jeff. With the onset of the Omicron variant and normal seasonality, all our key markets accept Dallas saw RevPAR, decline from -- sequentially from the third to the fourth quarter. Not surprising as there is generally a 30% to 40% drop-off in RevPAR between October and December anyways. Dallas benefited from the return of some smaller convention in conference related events. Silicon Valley, our largest market, which comprised almost 25% of our EBITDA in 2019 remains the laggard with RevPAR of $74 in the quarter. Occupancy was 61%, which is up 40% over 2020, and ADR was a $121 up 15%, indicative of market with limited demand growth. As Jeff spoke, things are starting to look up this month and those four hotels are going to provide substantial growth for us in 2022. As a reminder, it was about 25% of our hotel EBITDA in 2019. In 2021, those four hotels comprised only 9% of our hotel EBITDA this past year. Our coastal north-eastern hotels and our suburban New York hotels, continue to produce solid results in spite of obviously seasonality in November and December with cooler weather. Our five highest hotels with absolute RevPAR in the quarter, were a resident in Fort Lauderdale on the inter-coastal waterway with RevPAR over $200 on occupancy of 84%, followed by our Residence Inns in White Plains in New Rochelle, New York, again, the suburban New York hotels. And then our residence in Anaheim and the Hilton Garden in Marina del Rey with Southern California showing some pretty strong performances, Jeff talked about even that our newly opened woodland hills Home2, is showing good quick ramp-up results. Our top six absolute occupancy hotels in the quarter were Residence Inn New Rochelle, New York, our residents in Lauderdale, our residents in white plains,…

Thanks, Dennis. Good morning, everyone. Chatham's Q4 2021 RevPAR of $92 represents a 93% increase versus our Q4 2020 REVPAR of $48. And the 22.7% decline versus our Q4 2019 REVPAR of $119. The Q4 decline of 22.7% versus 2019 showed continued sequential improvement relative to Q2 2021, which is down 39% from 2019 and Q3, which was down 26% from 2019. While the positive trends reversed a little in January, with RevPAR of $67 was down 36% to 2019 and early February due to the Omicron variant, we expect performance to continue recovering with decreasing RevPAR declines relative to 2019 throughout the remainder of 2022. Through our significant efforts to contain costs, we were able to generate a Q4 GOP margin of 41.1%. The 41.1% margin achieved in Q4 at a RevPAR of $92 was only a 100 basis points lower than our Q4, 2019 GOP margin of 42.1%, which was achieved at a RevPAR of a $119. Our Q4 2021 hotel EBITDA was $17.6 million, adjusted EBITDA was $15.2 million, adjusted FFO was $0.12 per share, and cash flow before capital which represents hotel EBITDA less corporate G&A cash interest and $2.2 million of principal amortization was positive $5.1 million. I think it's worth noting that these solid results were achieved even with a somewhat limited amount of business travel in Q4. As Jeff mentioned, some of our largest and most profitable hotels before the start of the pandemic, like the four Residence Inn the Silicon Valley and the Residence Inn Bellevue are very dependent on business travel and have seen the least amount of recovery of all our hotels to date. When business travel starts to recover in a more meaningful way, our portfolio should experience significant upside from its current level. Based on feedback from our…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. One moment, please, while we poll for your questions. Our first question comes from the line of Ari Klein with BMO Capital Markets, please proceed with your questions.

Thank you. And good morning. The signs of recovery in Silicon Valley are pretty encouraging. Fair to say you think about the trajectory of the recovery there. Also to San Francisco, which is also lagged and certainly has some longer-term question marks. Can Silicon Valley and San Francisco run on independent tracks for the recovery?

They really are higher, this is Jeff. I mean, we've always said it's really different demand generators. Obviously, a lot of convention business-related in San Francisco. Silicon Valley is very much dependent on its specific Facebook, Apple, those kind customers, Google obviously. And what they are doing relative to travel and having their office open or not open, which are all pretty much spitting distance from our hotels depending upon which one you're talking about there. So that's really the driver. I wouldn't draw any specific correlation, I guess, for whatever else you’re looking at.

Got it. And then maybe turning to some of the asset acquisitions and dispositions you highlighted, any more specifics as far as the markets, maybe where you're looking to potentially sell and buy. And what kind of pricing looks like in those markets?

We're really trying to focus on looking at older hotels that really are on the bottom end of the absolute RevPAR as you look at the hotels that we own and also considering Capex needs in those hotels. So as we move forward we’re just trying to really maximize our cash flow here as the recovery continues. So combining, I think, all those factors, it's really somewhat less market-driven, I think I'm going to say. For example, you might see us sell an older hotel in Dallas, but we love Dallas. And we would buy something in the same day in Dallas, depending upon obviously, brand and price, et cetera. But so I think it's more oriented towards the age of the asset and where it really, really sits in the food chain here.

And then just maybe on labor, are you where you want to be from an employee standpoint, the number employees you have. And what are you anticipating in 2022 from a wage growth standpoint?

Hey, Ari. This is Dennis. Yeah. I mean, as we sit here today, we're in good position from a labor perspective. Honestly, it's lower seasonal months anyway, so normally, we're trending down in terms of our absolute labor count at this point of the year anyway. And then we will start to ramp up to the summer. So I think we certainly saw that alleviate as we got into the fall last year, we were pretty happy even though our absolute employee count was still down 30% to 35%. And if you looked at our September and October levels, so we don't foresee any problems at the moment filling any major labor needs as we head to the more busier months coming up here as we get through the spring. And I think from a labor cost perspective, I think we’re -- we had a pretty big increase in 2021 on wage per hour and I think as we look kind of 2022 we have a mid single-digit increase for our average labor cost. So we still project that to be higher than what might been historical, but still kind of middle single-digit because we did absorb a lot of that last year.

Got it. Thanks for all the color.

You're welcome.

Thank you. [Operator Instructions]. Our next questions come from the line of Tyler Batory with Janney, please proceed with your questions.

Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me, wanted to follow-up on the labor cost discussion. I was wondering if you could provide color on what drove those GOP margins in December. And I wanted to parse out a little bit in terms of the key drivers of the cost savings going forward. I mean, is that all driven by presumed labor savings or is there something else in there?

Hey John, it's mostly labor savings. I mean, we'll have a few things here and there that might change one month to the next, but it's predominantly labor.

Okay. Great. Thank you for that color. And then switching gears a little bit, how much of that lower rated early pandemic government responder, first respondent type business remains in the portfolio? And what's the possibility that as we look out in the later 2022, would that rerate into higher business?

Yeah. I mean, we really don't have a whole lot of first responder business. We still do have some traveling nurses, especially in a few markets that are more of our urban markets, whether that's suburban New York specifically for one of them. And we've seen some of that in Southern California as well. But I think - and a reason why we were able to pivot pretty quickly in the early days of the pandemic and throughout the pandemic was because of our predominantly extended stay rooms and select service rooms. We were able to get demand from the people who are traveling at the time. But also as the business traveller starts to recover for example, in Silicon Valley, we do have a hotel that has a good number of still traveling nurses that we would look to eventually shift out of that as we move towards later in the spring, especially for some of this intern business and Apple-related business and essentially reduced that room count down to pretty much nothing and transitioned to the higher rated customers. So we have nothing on the books from a long-term obligation committed perspective that would not allow us to make that shift, which I think is important.

Okay. Great. I appreciate all the details there. And then last one for me, if I could. Jeff, I believe you mentioned in 2022 looking into different mixes and geographies for the acquisitions. And I'm curious as you look out longer-term, maybe 3, 4, 5 years. Is there any way you more broadly think about reshaping or retooling the portfolio, whether that's geographic exposure or more or less extended stay, any thoughts on that?

We've said on a couple of different conference calls, we want to be about 80% extended stay. That's the primary driver and goal for us. But to be opportunistic in this kind of acquisition environment, our focus is to remain in the kind of markets that we already own in. But we want a diversified demand generator base and we do, over time, I think we end up with less of our EBITDA on a percentage basis in Silicon Valley only because we most likely will grow outside of Silicon Valley. Some of those markets are the obvious Sunbelt markets that it seems like everybody wants to be in but we've always been just attracted by demand generator growth and where that's occurring in the country. And I think we've been pretty good in matching up our acquisitions with pretty vibrant sources of business. And I think we'll just continue to focus along those lines.

Great. Thank you for all the color, that's all for me.

Thanks.

Thank you. Our next questions come from the line of Anthony Powell with Barclays. Please proceed with your questions.

Hi. Good morning. Just one from me, I guess any early learnings, or observations from Home2 in LA, how has it gone so far. Any surprises in terms of demand or cost structure there? Will be super-helpful.

No, I think that honestly, hi, Anthony.

Hi.

It's Jeff. I mean, Dennis or Jeremy might want to chime in after, but I will tell you that it's absolutely according to pro forma and both on the revenue side and the expense side, we've been very lucky in having enough bench talent particularly to staff that hotel in the most important positions. And staff it early on. Unfortunately, we would delay it a little bit in getting it open only primarily from the wonderful folks in Los Angeles and their never-ending request for other things to be added, vis -a - vis the inspection process, but that's my minor political comment for the day. Beyond that, though, operationally, it does feel good and our folks there are really encouraged by what they're hearing from our guests as well.

Got it. And maybe I guess based on that, I know you want to buy more because stabilized hotels, but as the more development an option for you in the coming years, given the experience there.

Yeah, I think so. We talked about always specifically, some extra land that we've got in Portland, Maine, but we really have and we have another piece of land on our balance sheet. But I think that we're encouraged, particularly just as I said in the prior response to what would you sell. I mean, having brand new, or hotels that are five years older or less is a pretty attractive place to be in the upscale extended stay business and generally select service business. Hotels fare well, we know how to open them. We know how to pre -open them on the island side. So we're not go in whole hog into the development business, but certainly I think adding two or three hotels that way over the next two or three years is something we look forward to do.

All right. Thank you.

There are no further questions at this time. I would like to turn the call back over to Jeff Fisher for any closing comments.

Well, I appreciate everybody being on the call today. Obviously, there's a lot of other news that can preoccupy us, but we look forward to working well beyond those current events and frankly, continuing to do the good things we talked about on the call today. Hopefully, the rest of the environment particularly on the virus front, will be favorable for all of us. And we look forward to talking to you next time. Thanks.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.