Greetings. Welcome to the Chatham Lodging Trust First Quarter 2022 Financial Results Conference Call. [Operator Instructions] And please note, that this conference is being recorded. I would now turn the conference over to Chris Daly, President of DG Public Relations. Thank you. You may begin.

Thank you, John. Good morning, everyone, and welcome to the Chatham Lodging Trust first quarter 2022 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 04, 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 2022 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. I appreciate everyone joining us this morning for our call. As I look at these results, I'm very proud of our teams at Chatham and Island, who did a fantastic job during the pandemic maximizing revenue and operating profits, while minimizing cash burn and executing key corporate transactions that have enhanced our financial position. In fact, for the eight quarters just ended, we produced positive corporate cash flow before principal amortization and CapEx. As we sit here today, the business traveler is coming back across the country, and our five primarily tech driven hotels in Silicon Valley and Bellevue, which historically comprise 25% to 30% of our EBITDA. Our seeing demand accelerate rapidly. As a reminder, these five hotels generated EBITDA of $35 million in 2019, but only a mere of $7 million in 2021. This recovery is going to be a major driver behind our outperformance over the foreseeable future. Strategically, we're excited to announce that we're expected to close within the next week on the sale of four hotels, comprising 537 rooms for approximately $80 million in two separate transactions. These older hotels on average 27 years old that have produced RevPAR below our portfolio average. In 2019 and 2021, they produced RevPAR of $96 and $59. Below our 2019 and 2021 portfolio RevPAR by 28%, and 32% respectively. Additionally, two of the four hotels were set for renovation in the next 12 months. And we believe we could put that money to better use buying assets. Through the four hotels are going to be converted for multifamily use, and would represent our second and third hotels sold over the past two years at a very low cap rate for the purposes of converting to apartment use. The proceeds will be used to pay down most…

Thanks, Jeff. Compared to 2019, our monthly RevPAR improved each month of the first quarter, down 36%, 27%, 22% and then only down 13% in April. The acceleration is definitely attributable to the return of the business traveler, especially in our tech driven markets of Silicon Valley and Bellevue, which saw RevPAR jump approximately 45% compared to the first quarter. Large group and convention business is also coming back to life. And we're seeing healthy gains that are hotels and these downtown markets such as San Diego, Dallas and San Antonio, Our five highest hotels with absolute RevPAR in the quarter were our residents in Fort Lauderdale on the inter-costal waterway with RevPAR over $250 on occupancy of 93% followed by Hilton Garden in Marina Del Rey with RevPAR of $147. Then our residents in New Rochelle, New York and then rounded out by two hotels making their first appearance and our top five in some time, which is our Residence Inn San Diego Gaslamp and Homewood Suites, San Antonio Riverwalk again, just seeing the return of convention and group business in those two markets especially. Our top five absolute occupancy hotels in the quarter were the residents in Fort Lauderdale, followed by our residents in New Rochelle, our Homewood Suites in Maitland and then our residents in Charleston, Somerville, and lastly, our newly acquired residents in Austin at the Domain, which is this first time making our top five and all five hotels had occupancy of at least 80% for the entire quarter. Our portfolio did significantly better in the industry with first quarter occupancy of 60% compared to industry wide occupancy of 56%. And we continue to see an average length of stay much longer than our historical leverage levels. And our residents in hotels our average length…

Thanks Dennis. Good morning, everyone. Chatham's Q1 2022 RevPAR of $88 represents a 56% increase versus our Q1 2021 RevPAR of $57 and a 27.2% decline versus our Q1 2019 RevPAR of $146. RevPAR in January in the first half of February was impacted by the Omicron waves, but performance has been strengthening significantly since mid-February. March RevPAR of $109 was down 21.6% to 2019 and April RevPAR of $119 was only down 13.4% since 2019. The early stages of the recovery were driven primarily by leisure travel, but in recent weeks we've been - we've seen a significant uptick and midweek results, which indicates that business travel is now starting to make a meaningful recovery. We expect performance to continue to improve with decreasing RevPAR declines relative to 2019 throughout the remainder of 2022 with much of this recovery being driven by improving demand for business travel. We were able to generate a Q1 GOP margin of 38.3% and hotel EBITDA margin of 29.2% despite the January and February impacts of the Omicron variant. GOP margins recovered as revenue improved during the quarter and in March Chatham's GOP margin reached 44.4% when RevPAR was $109. Our Q1, 2022 hotel EBITDA was $15.9 million. Adjusted EBITDA was $13.3 million and adjusted FFO was $0.07 per share and cash flow before capital which represents hotel EBITDA less corporate G&A cash interest in $2.3 million in principal amortization was positive $2.8 million. Chatham took a number of steps to strengthen its balance sheet in non-dilutive ways during the pandemic. And our balance sheet is now in the best shape it's ever been. At March 31, we had $158 million of liquidity between our unrestricted cash balance of $80 million and $140 million of revolving credit facility availability. As mentioned earlier, we have…

[Operator Instructions] Our first question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi good morning, guys. Morning, appreciate all the color on business travel it's definitely encouraging. I guess looking at leisure travel, have you seen any guests decline and either rate or demand on a year-over-year basis relative to 2021? And what's your guest outlook for those net segments as we kind of approach the peak summer timeframe?

Yes, this is Jeff, hi, Anthony. I think it's fair to say we will be a better judge of that than most folks will be you know this summer. When especially our Northeastern and New England hotels experience a huge amount of demand there, but I will say that that every particularly weekend and now midweek. Our highest ADR hotels are you know leisure related for the most part whether it's [indiscernible] Savannah crazy, crazy winter there, wonderful winter there, great spring there. So I would say leisure demand is still very, very strong, very strong.

Yes, I think just based on the comments from our operator, Anthony, you know, the Northeast hotels that Jeff just alluded to Exeter and Portland and Portsmouth feel pretty good at the moment about this summer.

So no real sign of any kind of like consumer weakness relative to inflation or price fatigue sounds like things, at least as of now are not showing that they're there?

Not showing up yet. I think we'll have to wait and see where this economy goes. But you know, our efforts, especially on the operating side, are just all around maximizing and working you know, the corporate accounts, now that they're showing willingness, you know, to start travelling again.

Yes, thanks, and maybe related, and - as you kind of get out of the covenant waiver, and as you start to kind of buy hotels over the next few quarters, there's a lot of talk about business travel coming back, and that being favorable. But most of the acquisitions across the industry have been laser focused I mean and often as a bit of a mix. I'm curious as you seek to grow the portfolio size, again, what kind of a target hotel and it's shifted over the past few quarters?

We haven't really substantially shifted our focus, and we're never afraid of acquiring business related in our driven hotels, as evidenced by Austin. I mean, you know, domain, tech driven, all you hear about the next word. And second word, after Austin is always tech. And there we were in Silicon Valley with no business, and we bought these hotels. But as you said, there's some diversified demand generators there as well. And we'll certainly continue to look for markets like that, that have some other sources of business. And one thing that we tried not to do is just completely shift our strategy in terms of the kind of hotels that we believe in, because we've experienced, for me almost 40 years of doing this very, very good results in the kind of business and frankly, the kind of brands and particularly extended stay. And that's not a new idea on our part, either, as you well know, even though it's being talked about, as you know, the best part of the lodging business for the most part, especially during the pandemic. So I think that we're, we feel good about our focus and the brands that we do look to acquire.

Okay, thanks. Appreciate it.

Our next question comes from the line of Ari Klein with BMO Capital Markets. Please proceed with your question.

Thanks and good morning. Maybe just on Silicon Valley, it looks like it's on the path to recovery this summer with interns coming back? How are you thinking about the occupancy recovery more broadly, through the portfolio, and through the remainder of the year? You know, given that what's been lagging seems to be recovering pretty strongly here. How close can we get in 2019 occupancies over I guess the second and third quarter?

Hey Ari, good morning this is Dennis. Listen, I think we're going to get pretty, pretty close to 2019 levels from an occupancy perspective, in the second half of the year. One thing that, you know, once in this intern business, you know, we started talking to them earlier this year. And that's kind of morphed over the last 120 days, in the expansion of the intern programs. Now, we're really seeing some robust requests for rooms, outside of the intern business, you know, even starting this month with some long-term corporate business, i.e. you know two to four weeks of it. And we've - the relationships and the goodwill that we built, I think over the last, you know, two plus years, with some of our key corporate clients, they're talking about in wanting to secure rooms for the fall, again, for kind of some more long-term, product development type business as well. So, I think we're pretty encouraged at the moment of what that second half of the year looks like from an occupancy perspective. And just from a rate perspective Ari I think it's important to note that, you know, when we first were negotiating the internal rates for this summer, as Jeff talked about, they're about $20 or 10%, below 2019. But since we kind of allocated the first chunk of rooms to the intern program, and those companies and other companies are coming back for additional demand, work, you know, those rooms are getting priced, substantially higher. And I think that bodes well for, post intern business into the fall, and for the rest of the year. So I think not only from an occupancy perspective, but rate perspective, things are looking pretty good out there.

And just following up on that, are those rates, those rebooking rate - or new booking rates higher than the original rates or higher than 2019?

Higher than the original and higher than 2019.

Got it. And then just on the supply side, you know, it seems like, you know, the environment is improving, you know, lower supply outlets, but if you could just talk across portfolio, you know, what you're seeing there?

Yes Ari, I think from a supply perspective, you know, we're set up I think, pretty well, we absorbed a tremendous amount of supply, leading into the pandemic, I think one of every select Service brand was in one of our were introduced, if not more than one in certain of our key markets. So, I think as we're in this period, post pandemic, very little new supply in those markets, I think everything if you look it kind of what's being announced and new developments that are out there, those are in markets that generally we're not in. So we're I think we're pretty confident that, we've you know I think we have a pretty good runway here.

Appreciate color.

Our next 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, you mentioned that four hotels that you have under agreement to sell those were among the 15 lowest performing hotels in the portfolio. I'm curious you took four opportunities to sell the other 11?

Well I mean, listen yes we're not going to sell all the other 11. But I think it's really just a, you know, a highlight of, you know, those assets that really been kind of, you know, just steady producers of RevPAR. But certainly nothing from a major, growth perspective or anything like that. So, we're going to continue and two of those, as Jeff mentioned in his prepared comments are being converted to multifamily within I think a short timeframe. So, we'll just continue to be opportunistic, with recycling capital, which is what we've been doing. But listen, I think even though, you know, those four are definitely below our portfolio averages. We're not just going to, up in mass sell any of our lower RevPAR, we believe that those assets have some nice room for growth from here on.

Okay, thanks for that color. And then how do you feel like you're situated from a staffing perspective, especially in Silicon Valley as occupancy is expected to ramp through 2022?

Yes, good question and I think, one of the benefits, and again, I think in Jeff's prepared remarks that he talked about, the beauty of that intern business is we're going to be running, you know, 90% to 100% occupancy in those five hotels. And with that intern program you know, we might be cleaning the rooms once a week. I think most for the most part at least, you know, not more than once a week. So, even in a hotel like that, and even in a market like that, where hotels are hiring a lot of people, because hotel, because their occupancies are starting to ramp up, we're not going to need the same level of housekeeping services, because the frequency of cleaning is going to be so little. So that bodes well to be, you know, really high margin business for the summer. So from a staffing perspective, we're generally you know, I think in a pretty good position across the portfolio, especially in those five markets for five hotels.

Okay, thanks. That's all from me.

Our next question comes from the line of Tyler Batory with Oppenheimer. Please proceed with your question.

Good morning. Thanks for taking my questions. Few follow-ups for me here in terms of the asset sales, did you run a process in that increase with these inbound inquiries? And can you also talk about pricing valuations for these properties now versus potentially pre-COVID? And then also, I'm not sure if you can say how much EBITDA they contributed to 2019 as well?

Yes Tyler, I mean I think we'll talk about kind of pricing and everything, but the four hotels, I think generated $2.2 million of EBITDA in 2019

In 2021.

Yes I'm sorry 2021. You know, and they recently acquired Destin hotel actually had 2021 Hotel EBITDA of $2.3 million. So that one hotel is producing more than the four that are out. The pricing we think is, you know, attractive that's it, it was a 6% cap rate on 2019 NOI and a 2% cap rate on 2021 NOI. So it was, you know, those assets were part of a process that we've been working on. I think we've talked publicly about here for a couple of quarters that we were going to look to opportunistically sell some assets. And again, I think one of the keys is that, again, two of those four hotels are ultimately going to be converted for multifamily use, which, obviously, from a multifamily buyer, they're able to get a great product at a reasonable cap rate, but it's a very attractive cap rate for us.

Okay, great. In terms of trends in the business here, the base case that you know, May is better than April, June is better than May, July is better than June, et cetera. And we're just continue to progress going forward and you do think it plays out like that sequentially? Is that a reasonable expectation here?

Yes, it should yes it should. And that also reverts back to what I would call normal seasonality, you know, if you think about our portfolio, or the hotel business. So, you'll get that kind of run up, as you always did in the past. And then once October is done, you know, then you start into lower seasonal months.

Okay. And then just last in terms of the dividend, I know, you want to see continued improvement in business travel, see the return in the tech markets? I mean, can you give any more specific color in terms of trigger points that you're looking for. I mean, is there you know, RevPAR level perhaps, or you know comparing EBITDA versus 2019, just trying to get a sense of perhaps a benchmark, you know, that you might look at to start thinking more seriously about reinstating the dividend.

It's really all of those things. There's no one thing, taxable income drives the board's decision, obviously, but I think it's considering every metric that you can, in terms of where the cash flow is, and where it's going.

Okay, and then just last one, I wanted to put a finer point on the corporate travel commentary. You know, are you seeing any price sensitivity from that guest as they're starting to come back? And you know traditionally, when you look at leisure versus corporate, it's usually the corporate side of things that's not that price sensitive, but, you know, over the past six plus months, perhaps it's the leisure that was less price sensitive. So as corporate starts to come back, and is your expectation, that's the pricing power should be similar to what we seen with some of these leisure focused hotels, where you can ensure in some circumstances, essentially charge, whatever you want and guests are still coming?

Well, I wouldn't say we can charge whatever we want. But I will say that the business traveler, at least so far, and as we've kind of looked over the next four or five months, is less averse to pricing as they were pre-pandemic. I think they've, you know, most travelers have been conditioned over the last year and a half, especially for increasing rates. We have certainly an inflationary environment where everybody's paying more for everything that that they're buying on a daily basis. So I think, again, there's less aversion to what that pricing is at the moment. And I think, as we talked about in our prepared comments, you know, we - our message really, since last year has been push rate, hold rate, you know, the travelers are going to be there. And let's capture as much as what we can, as you know, while we're in kind of this environment.

Okay great. That's all from me. Thank you for all the detail.

Thanks Tyler. Thank you.

Thank you. At this time, we have reached the end of the question and answer session. And I will now turn the call back over to Jeff Fisher for any closing remarks.

We appreciate it. Thanks, everybody, for being on the call. And again, we'll continue to do what we're doing and look forward to our next call, with even better results as we go forward. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.