Greetings, welcome to Chatham Lodging Trust Fourth Quarter 2023 Financial Results Conference Call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the call over to Chris Daly, Vice President of DG Public Relations. Thank you, you may begin.

Thank you, . Good morning, everyone, and welcome to the Chatham Lodging Trust fourth-quarter 2023 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 27, 2024, 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 with some insight in Chatham's 2023 fourth 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 I certainly appreciate everyone joining us this morning for our call. Before talking about the fourth quarter and 2024, I'd like to spend just a few minutes highlighting some noteworthy accomplishments as we look back at last year. RevPAR growth of 6.1% with the growth split evenly between occupancy and ADR, exceeded industry performance by 25%. This is considerable growth considering we lost $12 million or 400 basis points of intern-related business from 2022 to 2023. Highest RevPAR of all select service lodging rates, demonstrating the high quality of our real estate portfolio. We had a 25% rise in other department profits as we continue to drive non-room revenue profit. We reduced net debt by $26 million and our leverage ratio down to 25%. During that time, we repaid $150 million of maturing debt using available liquidity and successfully issued $83 million of fixed-rate debt. We participated in the GRESB for the second time, increasing our overall score by 9% from 75 to 82 and received an overall score of 82/100, ranking us 31 out of 115 listed companies in the Americas region, and second in Chatham's peer group. We returned $22 million of dividends to our preferred and common shareholders out of excess cash flow. And closing out the year, sold the Hilton Garden Inn Denver Tech for $18 million, which including deferred renovation costs, the hotel was sold for an approximate four cap on 2023 net operating income. So touching briefly on the fourth quarter. We were pleased to beat fourth consensus estimates as we achieved better than expected top and bottom-line performance. We were able to combine RevPAR growth of 2.5% with a 25% increase in our other operating profit while holding down departmental expenses flat year over year on a cost per occupied…

Thanks, Jeff. Good morning. Before getting into specific markets, just a bit more on top line RevPAR statistics. Year over year RevPAR was not meaningfully impacted due to renovations as we completed renovations at three hotels in last year's fourth quarter as well as this year. Weekday and weekend occupancy was up about 100 basis points in the quarter versus last year and is down approximately 9% and 7% versus 2019, respectively. Conversely, weekday ADR was up over 4% versus 2019 and weekend ADR was up approximately 20% over '19 levels. We continue to monitor deployments into our tech driven markets. Deployments in the San Francisco were up 12% over the 2022 fourth quarter and only down 8% to 2019. At FFO, international deployments we're only up 3% versus 2019 levels. Again, a positive attribute when looking at international inbound travel into that market in Silicon Valley. San Jose deployments remain off about 27% to 2019 levels. A market that's really coming on quite strongly over the last few months. Seattle deployments are [Technical Difficulty] off 2% versus 2019 levels. Again, encouraging activity in San Fran and Seattle. Outside of our tech driven markets, we continue to see RevPAR growth at six of our top seven markets with those markets being Dallas; Washington, DC; LA; Greater New York; Austin; and San Diego. The coastal northeastern market highly dependent on leisure travel, was really the only market where RevPAR was down in the quarter, but I will say that it is still meaningfully up compared to 2019 levels. Continuing the trend from last quarter, Dallas and Washington, DC produced RevPAR growth of 8% and 5% respectively, with both markets benefiting from increased business and government travel. Greater New York had an easy comp due to renovations last year at two hotels…

Thanks, Dennis. Good morning, everyone. Our Q4 hotel EBITDA was $22.8 million. Adjusted EBITDA was $20.8 million and adjusted FFO per share was $0.19. Our Q4 results benefited from approximately $1 million of property tax refunds. While we have seen costs increased due to the reinstatement of certain brand standards and the impacts of inflation on a number of key line items, we were able to generate a GOP margin of 39% and hotel EBITDA margin of 31.6% in Q4. Importantly, we are starting to see a stabilization of some key expense line items, including wages. Our balance sheet remains in excellent condition, and we have made significant progress on our plan to address debt maturities. In 2023, we borrowed $90 million under our term loan and issued $83 million of CMBS at a weighted average cost of 7.5%, which together provided $173 million of proceeds to address debt maturities. In January 2024, we completed the sale of the Hilton Garden Inn Denver Tech for approximately $18 million, which included an expected renovation costs of approximately $6 million, represents a 2023 EBITDA multiple of 20.5 times and cap rate of 3.8%. Our year-end cash balance of $68.1 million, $18 million of proceeds from the January sale of HGI Denver Tech and $260 million of undrawn revolving credit facility capacity provide us with approximately $346 million of liquidity to address the $297 million of debt that matures in 2024. We are planning to access the CMBS market again, in the first half of 2024 to raise approximately $100 million of 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. Based on recent feedback from lenders, we expect this new debt will likely have a…

[Operator Instructions]. Our first question is from Anthony Powell with Barclays.

Hi, good morning. Just a question on your expense growth assumed in your guidance for the first quarter and maybe for the full year. It seems like margins are down 200 basis points in the first quarter on RevPAR growth of 1.5. So should we expect that kind of cadence for the rest of the year? If you can get RevPAR higher, maybe by a few percentage points, that should lead to better margin growth and --

Yeah, thank you, Anthony. Sorry, I'm sorry, I think I cut you off. Yeah, I think as Jeremy talked about, we expect to after we get through kind of what's a choppy February. And obviously, you've got the Easter comp in March that RevPAR growth is going to be higher for the balance of the year as opposed to the 0% to 3% growth in the first quarter. So as you look at margins coming out of the first quarter, yeah, do we expect them to continue to go down? Yes, a little bit, but it won't be to the extent of the 200 basis points or so that you're seeing in the fourth quarter. It should be in that kind of mid 50ish to 80ish basis points for the balance of the year.

Okay. And then maybe just one more on the intern business. I guess you should know about that by the end of the second quarter, right? And if you don't get business this year, what's your ability to replace it with corporate transient or other kinds of business in those hotels?

Yeah, no, thanks for the question. Yeah, I mean, I think one thing that's a little bit different this year from all prior years in terms of intern programs, is a lot of the companies are taking a little bit of a different approach. As of today, we're hearing that interns are still coming to the market. The thing that's a little bit different this year is a lot of the bigger intern. Lot of the bigger companies are going to have intern programs or in essence, giving a stipend to their interns and essentially allowing them to go and choose from a menu of hotels or other types of housing if it's available. So I think that's going to -- listen regardless, if you have those intern programs participating as opposed to what happened last year, you're going to see whether it's in our hotels or other types of properties that demand, and that occupancy is going to be a lot better. So that should turn into an overall positive for the market itself. And I think I will say just kind of continuing, and I think Jeff talked about in his prepared remarks, January was really strong for us out in Silicon Valley. If you look at kind of increases for the month, Mountain View was up 23%, Silly I and Silly II were up about 50%, our Residence Inn in Bellevue is up about 33%, San Mateo which is a little bit of a different market was down I think 4% or 5% in January. But again, kind of a lot of good things happening there. February those hotels, at least as of a few nights ago, we're still up year over year in February despite a lot of the bad weather that we saw elsewhere. It didn't really hit Silicon Valley as much. but generally encouraged by what's going on there. So to get back to one of your second points of the question is, listen outside of interns. And I think Jeff spent a lot of time in his prepared remarks talking about the things that are going on out there. The feel, the news that you're getting out of the Silicon Valley newspapers, every day is all kind of pointing towards continued investment and spend, which I think, listen, that's what everybody -- that's what we expect to see as we continue to move through 2024. So we should be able to continue to replace whatever if you go back to or even pre-pandemic levels to the intern contributions to our hotels.

Okay, thanks for all the detail.

[Operator Instructions]. Our next question is from Tyler Batory with Oppenheimer.

Good morning, This is Jonathan on for Tyler. Thanks for taking our questions. First one for me is maybe a clarification question on the occupancy recovery. Any color you can provide on what needs to happen to close that gap to 2019 levels? Is it just Silicon Valley coming back this year with the intern business and kind of how are you thinking about the cadence of that recovery this year?

Yeah, I think -- this is Jeff. Are you talking about the overall portfolio relative to 2019 number?

Yes, correct.

Right. well, we already told you that when you took out the Silicon Valley hotels were 6% above 2019. So yes. Yeah, the money is in Silicon Valley. And there's a combination of things that need to occur. Because first, occupancy needs to get back to a level that will allow everybody in the market to push ADR. So even though we may get occupancies, approaching 2019 numbers, ADRs are still going to be down. I would say for at least the better part of this year because some of those corporate negotiated rates are what they are. And they're coming off of obviously weak numbers in 2023. So the practical side of it is, as with any market, you need some compression to build ADR. And I think that's what you'll start seeing as you move through the year at Silicon Valley, which will propel the company's numbers as you get closer to 2019 numbers.

Okay, very helpful. And then last one for me is just on expense growth. Helpful commentary on the wage piece. But is there any other color you can provide there in terms of what you're seeing on other line items like property taxes, insurance, other expenses, great line items?

Yeah, I mean listen, I think you've heard from others. For us, it's not a huge number, but the impact from property insurance is about a penny a share on a full annualized premium basis. Property taxes, we saw some refunds in '23 that, who knows what will happen in 2024. So yes, I think if you're looking at kind of at above inflationary increases, you'll see in those two-line items and again with property taxes, who knows whether how much that comes to fruition. But I think outside of labor, which labor and benefits are a little over a third of our overall operating costs. I think in general, there isn't a whole lot of pressure on other types of expenses throughout the P&L. Listen, I think we have a lot of focus on the labor side as we get into -- as we move through 2024. And that's where I think when you're looking at total dollars and upside opportunities, it's all going to be generally labor and wage and benefit related.

Okay, very helpful. Thank you for all the color. That's all for me.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Well again, I just want to thank everybody for being on today's call. We will continue to update the guidance on a quarterly basis until we have more visibility. But as Dennis walked you through some of the January numbers, I think we're being pretty conservative here. I think there's good things to come in 2024 for us and for our shareholders. Thank you all for joining.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.