Chatham Lodging Trust Q3 FY2024 earnings call

• Entered into contracts to sell 5 hotels, expecting closure in Q4 generating ~$80M proceeds. These hotels are 23 years old, among lowest RevPAR in portfolio, need renovations in next 24 months. Proceeds to pay down debt initially, then invest for EBITDA and FFO growth.
• Strong liquidity with lowest leverage in over a decade, paid off maturing mortgage, $30M debt maturing next year, added floating rate debt, benefit from SOFR decline.
• Third-quarter results: EBITDA and FFO near top of guidance range, RevPAR growth 2.1% (excluding renovations) beat industry 0.9%. Operating expenses lower than expected.
• Silicon Valley and Bellevue tech-driven hotels: positive RevPAR trends, good market dynamics related to AI, chip initiatives, reoffice efforts by big tech companies.
• Balance sheet in excellent condition, positioned to benefit from declining interest rates, capacity to recycle capital and acquire accretive hotels.

In the third quarter, the 7 predominantly leisure hotels, comprising approximately 20% of third quarter room revenue, saw RevPAR rise 0.7% (excluding the impact of the Savannah hotel under renovation in August and September). The top 5 RevPAR hotels were dominated by 3 Northeastern assets. Post quarter end, October RevPAR grew 6% with occupancy up 5% to 83% and ADR up 1% to 191. Within the 5 tech-driven hotels in Silicon Valley and Bellevue, RevPAR performance varied: two Sunnyvale hotels had 13% RevPAR growth in the quarter, Mountain View Residence Inn had 3% growth, San Mateo had 2% growth, and Residence Inn Bellevue had 8% growth. At the 38 comparable hotels, hotel EBITDA margins were only down 40 basis points. Labor costs moderated, with wages per occupied room up 0.9% in rooms department but down 1.8% in the quarter. Benefit costs were up 18% in the quarter, complementary breakfast costs up 14%, insurance up 20%, utility costs up, but guest acquisition costs improved margins by ~80 bps.

• Q4 guidance: RevPAR growth 1% to 3%, adjusted EBITDA $19M to $21M, adjusted FFO per share $0.15 to $0.18.
• Guidance reflects renovations of three hotels in Q4 2024, repayment of $14M mortgage loan in December, no impact from acquisitions, dispositions, or other capital markets activity.

Q: RevPAR sequentially improved in September and October. Is it a shift in demand or continuation of steady improvement?

A: Jeff Fisher says it's more the end of leisure summer component, with corporate demand picking up post-Labor Day.

Q: What's the target leverage? Thoughts on asset sales and acquisitions?

A: Dennis Craven says target leverage range is 4.75% to 5.25x. Jeff Fisher mentions renewed focus on recycling capital, looking at opportunities, with more likely in 2025 due to favorable capital markets.

Q: Real-time volume and pricing in market?

A: Jeff Fisher says there's been more BOVs and activity, but lag time historically