Good day, and welcome to Chatham Lodging Trust Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Daly, President of DG Public Relations. Please go ahead.

Thank you, Sarah. Good morning, everyone. Welcome to Chatham Lodging Trust third quarter 2023 results conference call. Please note that, many of our comments today are considered forward-looking statement 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 2, 2023, 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 contains reconciliations to non-GAAP financial measures referenced on this call on our website at chathamlodgingtrust.com. Now to provide you with some insight, to the Chatham 2023 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, and good morning, everyone. I appreciate everyone being on the call this morning with us. We know it's a busy morning out there in earnings land. It was a successful quarter, given our earnings beat, but also an interesting quarter, given the unusual and difficult comps created by the substantial cancellation of the 2023 tech intern programs, as we have talked about numerous times in Silicon Valley, Bellevue, Washington and Austin, Texas. In the third quarter alone, the loss of intern business meant we were missing approximately $8 million of room revenue and $5 million of operating profit. As we all know, starting about this time last year, tech companies started announcing massive layoffs, hiring freezes and cost cutting initiatives. Less than six months later, those same companies were announced significant investments in artificial intelligence, chip manufacturing, and reshoring of technology manufacturing back to the U.S. As previously noted, Applied Materials, which has forever been one of our top five accounts in Sunnyvale announced plans to build a $4 billion 180,000 square foot R&D facility in Sunnyvale just blocks from our two Sunnyvale Residence Inn. The facility will be a state-of-the-art facility for collaborative innovation with chip makers, universities, and ecosystem partners. Some of those partners include AMD, NVIDIA and Western Digital, all customers of ours. Today, general business travel demand trends remain encouraging in Silicon Valley and Bellevue. Passenger traffic into San Jose has leveled up versus last year, while domestic and international travel continues to improve at SFO and SeaTac, Seattle. At SFO, domestic deployments are down 17% still to 2019, gross down 26% last year with international travel much improved, only down 6% to 2019 versus down 26% last Q3. At SeaTac domestic passengers are down only 1% to 2019, versus down 10% last year,…

Thanks, Jeff. Good morning, everyone. Outside of our tech-driven markets, we continue to see RevPAR growth at four of our top six markets, with those markets being Dallas, Washington DC, Los Angeles and Greater New York. The other two markets, the Coastal Northeast and San Diego market were only down 1%, after having big increases last year and versus 2019. Dallas was our top performing key market with RevPAR growth of 16% this year as it continues to benefit from stronger travel across all segments. Continuing a positive trend, our second best key market was our Washington DC with RevPAR growth of 8% in the quarter. We continue to see a healthy mix of business and government travelers in these markets although we did see a small number of cancellations the last week or so of September, and the fees first week or so of October due to the potential government shutdown at that time. Taking a quick glimpse into some of our leisure market performance, we had an equal number of gainers as well as decliners. We saw RevPAR increase at our Exeter, Portsmouth and Fort Lauderdale hotels with RevPAR decreases at our Portland, Savannah, Destin, and Anaheim hotels. Of course, RevPAR at our four Silicon Valley hotels was down 25% versus last year and 33% versus the 2019 third quarter. Silicon Valley EBITDA was 4.2 million down approximately 3.5 million to last year and down approximately 4.4 million to 2019 levels. We did manage to replace over 50% of the lost intern revenue. And as we sit here today, occupancy levels are healthy, we just need a bit more demand in that market to be able to drive rate as we go into next year. Austin RevPAR was off 11% versus last year, again, really due to the…

Thanks, Dennis. Good morning, everyone. Our Q3 ‘23 hotel EBITDA was 32.8 million, adjusted EBITDA was 30.6 million, adjusted FFO was $0.40 per share and cash flow before capital was 20.4 million. While we have seen cost increase due to a reinstatement of brand, certain brand standards and the impacts of inflation on a number of key line items, we were able to generate a GOP margin of 44.9% and hotel EBITDA margin of 37.9% in Q3 despite the significant impact on margins from the loss of the intern-related business in our Silicon Valley and Bellevue hotels in Q3. Our balance sheet remains in excellent condition and we have significant progress on our plan to address debt maturities. As of September 30th, Chatham's net debt-to-LTM EBITDA was 4.1x, which is significantly below our that EBITDA is not fully recovered to pre-pandemic leverage which is generally in the 5.5x to 6x area, despite the fact that EBITDA is not fully recovered at pre-pandemic levels. In Q3, we issued $83 million of fixed rate debt with a weighted average cost of 7.5% through loans on five properties with a mix of five year and 10 year maturities, and used a portion of the proceeds to repay the $19.7 million loan on the Hyatt Place Pittsburgh and the $40.5 million loan on the residents in Bellevue. We now have no remaining 2023 debt maturities and our quarter end cash balance of $71.6 million and $260 million of undrawn revolving credit facility capacity, provide us with approximately $332 million of liquidity to address the $298 million of debt that matures in 2024. We are likely to consider accessing the CMBS market again in the first half of 2024 to raise additional proceeds to refinance a portion of our 2024 debt maturities, which would enable us to preserve a material amount of undrawn revolving credit facility availability. While we are not going to provide guidance at this time, I do want to remind you that, because of the debt issuance that occurred in mid to late August, interest expense that should be approximately $600 million higher in Q4 than it was in Q3. This concludes my portion of the call. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Tyler Batory with Oppenheimer. Please go ahead.

Thank you. Good morning. First question for me to start on the five tech-focused hotels, I know you talked about $19 million of EBITDA coming from those hotels this year, $16 million short of 2019 levels. The commentary on Q4 October RevPAR sounds encouraging, any early thoughts on 2024? Do you think you can grow year-over-year at those hotels? How much of that $60 million shortfall, do you think you can make up next year?

I mean, listen, Tyler, good to hear from you this morning. Certainly, we expect top-line RevPAR growth at those five hotels last year. It's certainly way too preliminary at this point to know and to really be able to estimate, whether that's 25%, 50% of the recovery from, where we are now to where we are peak. So, we are certainly not going to go out there. I think the preliminary news is encouraging about 2024. But as we saw last year, I mean, in February of this year, the intern programs were still on and at full steam. So it is a pretty volatile market. I think the underlying trends as Jeff talked about in his prepared remarks, are good. I think September and October for those five hotels coming out of the intern program were encouraging. November, once you get to the middle of November to towards the end of December, you certainly see a drop-off in seasonality at those hotels as long-term guests and business travel starts to slow down to Silicon Valley and Bellevue. But at this point, for the last, as we sit here seven weeks, the general trend is certainly that weekday business travel is getting healthier.

As we think about Q4 overall for your portfolio, first, I know you have a number of renovations that are going to be ongoing. I mean, how disruptive are those going to be for results? And then just remind us the normal seasonal progression what November looks like versus October, and then what December looks like versus November?

Yes, Tyler, this is Dennis again. Seasonality-wise, I think as you look at kind of October to November, then November and December, you look at about a 20%, kind of almost 20% drop off from October to November, and then kind of another 10% drop off from November, December just in terms of RevPAR. So that gives you kind of a guesstimate of what that might look like on a normal month. So from a renovation perspective, it's going to have a little bit of an impact. But for the most part the hotels are at their lowest level. So, hopefully it minimizes the displacement, but it'll certainly have some impact. It just won't be material.

And then the last question from me. There's a lot of focus from investors on expense growth and margin and some moving pieces in your portfolio. But talk about expense growth, what you're seeing? And what's your kind of expectation for if you were going to maintain margin and keep margin flat, what sort of RevPAR growth you would need to see to achieve that?

I mean, listen, I think as a portfolio you'd have to see middle -- mid to upper single digits to increase your operating margins. Certainly, I think the wage pressures of the last few years are coming down, so you're not having a double digit wage increases year in and year out. So, listen, it's all related to that wage number. So, I think thankfully it seems as if that's easing a little bit. We do have jurisdictions that have federally or statewide mandated minimum wage adjustments, but generally speaking, we're above those already anyways. And therefore, really don't have to make much in terms of an adjustment there. But I mean, listen, it's an inflationary environment. It's not just wages. Obviously, everybody you've heard, I think throughout the entire year about property insurance liability insurance has been a tough hard market. So, there are certainly challenges out there and I think, if you're getting low single digit RevPAR growth, it's going to be really challenging to keep margins up.

[Operator Instructions] Our next question comes from Bryan Maher with B Riley Securities. Please go ahead.

This is Brandon stepping in for Bryan. Just two quick things from me. So just to reiterate, as far as the secured debt, it sounds like you're taking a more holistic view on that even though you also have enough cash. Is that correct?

I'm not sure I follow the question.

Just as far as the secured debt just wanted to confirm how you're thinking about that. I thought it was mentioned earlier in the call.

Yes, so we issued $83 million in the quarter really to cover the remaining 2023 debt maturities and start addressing the 2024 debt maturities. So we have, again, $70 million of cash quarter end. We normally hold kind of 10 million or so of cash, so there's probably an additional 60 million of cash we can use to address debt maturing in 2024. And then with that cash and undrawn revolver balance, we have capacity to really address everything that matures in 2024, but we definitely don't want to be in a spot where we're using our whole revolving credit facility to take down those maturities. So, we'll probably do some more security issuance again in the first half of next year. I mean, I think directionally $50 -- $100, $125 million could depend on whether we deploy any capital with acquisitions or developments or things like that. But barring any of that I would assume it's kind of $50 million to $100 million of secured debt in the first half of next year.

Got it. That's helpful. And then just as far as like you've talked about that we're seeing stronger Red Park growth in Dallas and greater New York, so I just wanted to confirm if there's a kind of a spillover you're seeing into the fourth quarter. And I believe you've already touched on kind of the momentum of it, so I cannot leave it at that.

Yes, I mean, I think, listen, I think September was certainly, and I think you've probably a couple of other, our peers talked about that July and August were a little sluggish, but September was a little stronger. I mean, if you look at our non-tech driven hotels, RevPAR was up compared to 2019, essentially 4%, almost 5%, or 5% excluding the tech driven hotels, 4% for the entire portfolio. And then for October, we had RevPAR growth over 2019 as well. So, certainly encouraging, I think, obviously, as I talked about with Tyler November and December start to see some -- obviously our RevPAR drops off. But I think going into the end of the year and going into the start of next year, that pattern for September and October certainly is encouraging at this point.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Fisher for any closing remarks.

We thank you and appreciate everybody being on the call this morning, and looking forward to our continued progress and improvement as we move into the end of the year into next year. And we'll speak to you soon. Thanks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.