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Edited Transcript of CLDT earnings conference call or presentation 31-Oct-19 2:00pm GMT

Q3 2019 Chatham Lodging Trust Earnings Call

PALM BEACH Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Chatham Lodging Trust earnings conference call or presentation Thursday, October 31, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis M. Craven

Chatham Lodging Trust - Executive VP & COO

* Jeffrey H. Fisher

Chatham Lodging Trust - Chairman, President & CEO

* Jeremy Bruce Wegner

Chatham Lodging Trust - Senior VP & CFO

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Conference Call Participants

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* Anthony Franklin Powell

Barclays Bank PLC, Research Division - Research Analyst

* Aryeh Klein

BMO Capital Markets Equity Research - Analyst

* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure

* Chris Daly

Daly Gray Public Relations - President

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Presentation

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Operator [1]

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Greetings and welcome to the Chatham Lodging Trust Third Quarter 2019 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Daly, President of Daly Gray. Thank you, Mr. Daly. You may begin.

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Chris Daly, Daly Gray Public Relations - President [2]

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Thank you, Devin. Good morning, everyone, and welcome to the Chatham Lodging Trust Third Quarter 2019 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, and described in our most recent Form 10-K and other SEC filings.

All information in this call is as of October 31, 2019, 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 contain reconciliations to non-GAAP financial measures referenced on this call, on our website at chathamlodgingtrust.com.

Now to provide you with some insight into Chatham 2019 third quarter results, allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer; Dennis Craven, Executive Vice President and Chief Operating Officer; Jeremy Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [3]

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All right. Thank you, Chris. Good morning, everybody. Glad to be here again. Earlier today, we reported our third quarter results, and RevPAR finished at the upper end of our guidance range and adjusted EBITDA and FFO beat consensus and the upper end of our guidance due to very strong margin performance that we'll talk about here. With our two 2018 acquisitions ramping up, our third quarter adjusted EBITDA rose over 3%, and adjusted FFO rose over 2% after accounting for the sale of our 2 Western PA assets earlier this year.

Our improved performance in the third quarter is driving our raised guidance for the full year, which is nice to deliver to our shareholders. As we initially guided at the beginning of the year and have reminded everyone since then, we do have a very tough fourth quarter RevPAR comp due to the significant amount of revenue we earned in 2018 from the gas explosions in North Boston as well as a huge quarter in San Diego. Our 2018 fourth quarter RevPAR grew 4.1%. As a reminder, that was driven by a whopping 36% gain at the 4 hotels which benefited from the gas explosions and 34% RevPAR gain in San Diego last year.

Turning back to our third quarter. This year, I'm particularly proud of our ability to increase operating margins in the quarter, as I said, when comparable RevPAR was down 30 basis points. Even when you look at our year-to-date performance, our comparable operating margins are only down 10 basis points, while RevPAR has declined 50 basis points. This performance, of course, is not typical nor what you should expect from us going forward when RevPAR declines. But I will say that we have invested and are continuing to invest a tremendous amount of energy working with Island Hospitality to examine all facets of our operations with the goal of maximizing our top line and bottom line during the challenging generally flat RevPAR environment that we're in. Through these efforts, we're adding revenue, as we've talked about, and reducing expenses or minimizing expense increases wherever we can.

And I can tell you that we're not done yet. We're continuing to find ways and look for ways to enhance our operating results and enhance our free cash flow as we look forward to 2020 and work with Island in setting the budgets for 2020. We firmly believe we have the best-in-class operating platform, as you've heard before, but our collaborative efforts really with Island really have paid off over the last couple of years. You could see the proof in the lack of margin erosion, if not improvement.

Everything is on the table and our ability to move quickly is paramount. Our other revenue is significantly up. Our RevPAR market share is up. We're adding F&B outlets that are bringing incremental profits in the select service hotels. We are converting inefficient or nonprofitable spaces into, when we say F&B outlets, it really ought to be B&F outlets because we're looking for beverage primarily. Small bars is the key in some of these extended stay hotels.

We're rolling out efficiency programs aimed at improving our housekeeping and maintenance departments. And we're investing dollars to reduce our energy usage where the return on investment is worthwhile. We are enhancing our risk management programs to reduce losses or minimize premium increases.

Turning back to third quarter results, RevPAR declined 0.3%, which was at the upper end of our guidance range of flat to minus 1.5%. Silicon Valley was particularly strong with RevPAR up almost 5%, excluding the 1 hotel that was still under renovation, and that RevPAR gain was a few hundred basis points better than our expectation. Also, as I alluded to earlier, we're continuing to gain RevPAR index, which was up almost 1% in the quarter and is up a strong 1.2% for the year. This is really impressive, I think, considering all the new supply that has come into a lot of our markets and continues to be absorbed.

So as we look forward, to touch briefly on supply again, new upscale supply in our market tracks, as measured by Smith Travel, peaked at 5% in 2015 and declined each year to 4% in '16, 3% in '17, 2% in '18, but ticked back up slightly to 3% in 2019. We would expect new supply numbers to be pretty similar in 2020. Strategically, we'll continue to explore asset sales on a limited and opportunistic basis with the intention of using those proceeds to invest in additional development opportunities on a limited basis, where we believe we can add long-term value and incremental cash flow, such as our $65 million Warner Center project in LA.

Acquisitions remain challenging due to what we believe are unreasonable expectations as to going-in cap rates for stabilized assets. So it would take a pretty special situation for us to make an acquisition, more of a value-add opportunity, I think.

Looking ahead to 2020, it's still too early for us to disclose a RevPAR expectation. We're working with and through our budgeting process with Island and continuing to negotiate with top corporate accounts across the country. 2020 does set up better for us though on the renovation front as we will only be renovating 4 hotels next year compared to 6 this year. And this year, 6 includes 2 of our largest hotels, Sili I and Sili II, the Sunnyvale Residence Inns. The number of rooms where renovations are commencing is going to be down 32% next year. This helps our RevPAR performance on a comp basis and reduces our expected CapEx by $5 million to $10 million, and of course, enhancing our free cash flow.

With that, I'd like to turn it over to Dennis for a little more detail. Dennis?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [4]

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Thanks, Jeff. Good morning, everyone. RevPAR declined 30 bps to $145 in the quarter for our 40 comparable wholly owned hotels. ADR rose 0.5% to $173 while occupancy declined 80 basis points to a very strong 85%.

We had some nice RevPAR gains in 4 of the top 6 markets. Houston continues to be weak, and L.A. is underperforming our expectations by a little bit. October RevPAR is forecast to be down a little over 5% for our portfolio, with most of -- all of that decline due to the 4 Boston gas explosion hotels that helped us in 2018 as well as just the San Diego market from 2018, and we've also got a little bit of an extended renovation going on at our San Mateo Residence Inn that's carried into the fourth quarter.

Looking into our 6 largest markets. So starting with Silicon Valley, which is by far our largest market contributing approximately 1/4 of our EBITDA. RevPAR was up almost 5% to $194. ADR was up 3% to $245 and occupancy was up 2% to 90%. Our hotels did a fantastic job with some of our key corporate accounts, including welcoming our largest group of interns earlier this summer. San Diego represents our second largest market and RevPAR was up 1% in the quarter to $180 over a pretty tough comp in the third quarter of '18.

Our Mission Valley Residence Inn had a solid quarter with RevPAR up 3% as it continues to battle and absorb new supply over the last couple of years in that market. And our Gaslamp Residence Inn was down 1% as Downtown San Diego, as Jeff alluded to a bit earlier, had a pretty big second half of 2018.

Washington, D.C. experienced a RevPAR gain of 5.4% to $152, driven by strong gains at our Tysons Residence Inn, where RevPAR grew 14%. The hotel is benefiting from a great renovation earlier this year that's bringing back some corporate guests as well as the deflagging of a hotel that was in our comp set in the past.

Our 3 Northeastern coastal market hotels in New Hampshire and Maine continue to outperform with RevPAR advancing 4% to $225, the highest RevPAR of our top 10 markets. All 3 hotels are benefiting from healthy consumer spending. And our Portsmouth Hilton Garden Inn has done a great job securing both corporate and leisure business within the quarter.

Houston, which is our fifth largest market, continues to struggle with RevPAR declining 17% to $84. Two of the hotels were under innovation during the quarter but our other 2 hotels were also weak. Supply in our directly competitive markets is up while demand is down. We're especially impacted by a new Residence Inn at the Medical Center as well as a 354-room Intercon at the Medical Center as well, that we believe are certainly trying to ramp up occupancy as quickly as possible, and of course, that comes at a sacrifice to the overall market.

In Los Angeles, RevPAR was down 5%. Our Residence Inn Anaheim was down 8% in the quarter as demand related to Disneyland and specifically the new Star Wars opening earlier this summer, remains softer-than-expected in the market. As Jeff already highlighted, it was really a standout quarter with our operating margins up despite a decline in RevPAR. Total revenue was up $2.6 million in our 40 comparable hotels and operating profit was up $1.2 million so obviously had some pretty good flow through, 46% on that incremental revenue year-over-year.

Parking revenue was up $400,000 or 22% in the quarter. We continue to roll out parking charges at additional hotels where the market allows and increasing parking rates in other hotels. We're examining corporate accounts to ensure that we are earning the approximate amount of total revenue from those accounts, which includes obviously the impact of parking revenue on that group rate.

Payroll and benefits represent approximately 36% of our overall operating expenses and 18% of our revenue. On a per occupied room basis, payroll benefits rose 1.5%. In our overall costs, which includes casual labor and overtime, payroll was up 4.3%, while our benefit costs were actually down 7.6% on a per occupied room basis. Wage pressures remain our biggest concern and are due to historically low unemployment rates, which is obviously driving hourly wages higher but also causing a shortage in qualified workforce. Within the quarter, casual labor doubled and was up $150,000 in our hotels.

We're communicating, and again going back to the platform, we're communicating with our customers to understand the services that they value most on a daily basis so that we can spend our time performing tasks most critical to our guest satisfaction. We're using that knowledge to customize our guest service model. We're sharing those experiences with our brands who are also rolling out pilot programs around the country. We expect to spend over $60 million on payroll and benefits in 2019, and our rooms department will comprise about 60% of that expense.

Working more efficiently will allow us to improve employee satisfaction and offer competitive wages to our employees and hopefully reduce overtime, casual labor and employee-related claims. Working better and more efficiently to improve our employee retention without sacrificing guest experiences would be a model changer that could benefit us down the road.

Lastly, during the quarter, our guest acquisition costs were down 1% in the quarter, and this aided our margins by approximately 18 basis points. Brand-related costs were the primary driver as our retail segment production was down about that same 1% in the third quarter.

With that, I'll turn it over to Jeremy.

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Jeremy Bruce Wegner, Chatham Lodging Trust - Senior VP & CFO [5]

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Thanks, Dennis. Good morning, everyone. For the quarter, we reported net income of $10.1 million compared to net income of $14.7 million in Q3 2018. $3.3 million of the decline was related to impairments recorded on 3 hotels and the JVs in Q3 2019. The primary differences between net income and FFO relate to noncash costs such as depreciation, which was $12.9 million in the quarter; other charges, which were $0.3 million; and our share of similar items within the joint ventures, which were approximately $5.3 million in the quarter.

Adjusted FFO for the quarter was $28.6 million compared to $28.4 million in Q3 2018, an increase of 1%. Adjusted FFO per share was $0.60 compared to the $0.61 per share generated in Q3 2018. Adjusted EBITDA for the company increased 2.1% to $39.4 million compared to $38.6 million in Q2 -- Q3 2018. In the quarter, our 2 joint ventures contributed approximately $5 million of adjusted EBITDA and $2.6 million of adjusted FFO. Third quarter RevPAR was down 0.3% in the Inland portfolio and down 1.5% in the Innkeepers portfolio.

Our balance sheet remains in excellent condition. At the end of Q3, we had $86 million drawn under our revolving credit facility and $164 million of remaining availability. Our reasonable leverage and significant credit facility availability will enable us to fund the remaining $50 million of costs for our $65 million Warner Center California hotel development entirely with our credit facility. At the end of Q3, we had $574.9 million of debt. Our weighted average cost of debt was 4.5% and our weighted average debt maturity is 4.2 years.

Transitioning to our guidance for Q4 and full year 2019, I'd like to note that our Q4 guidance takes into account the renovations of the Residence Inn San Mateo and Residence Inn Sunnyvale II. We expect Q4 RevPAR decline 6.5% to 5% and full year 2019 RevPAR to decline 2% to 1.5%. As a reminder, our Boston area properties will face very difficult Q4 comparisons due to the surge in onetime gas leak-related business in Q4 2018. We expect that the challenging comparisons for our Boston properties will impact our Q4 RevPAR by approximately 330 basis points.

In addition, our Q4 RevPAR will be impacted by approximately 70 basis points due to renovation delays at our Residence Inn San Mateo property and by an additional 70 basis points due to onetime business in our 2 San Diego properties in Q4 2018. Our full year forecast for corporate cash G&A is $9.5 million.

On a full year basis, the 2 joint ventures are expected to contribute $15.9 million to $16.4 million of EBITDA and $6 million to $6.5 million of FFO. Our full year adjusted EBITDA is now expected to be $128.7 million to $131.1 million (sic) [$130.1 million]. Our full year FFO is now expected to be $85.4 million to $86.8 million, which is an increase of $500,000 or $0.01 per share at the midpoint.

I think at this point, operator, that concludes our remarks and we'll open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Ari Klein with BMO Capital Markets.

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Aryeh Klein, BMO Capital Markets Equity Research - Analyst [2]

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You mentioned EBITDA margins are holding up a little bit better despite the RevPAR declines, but you also mentioned not to necessarily expect that kind of performance going forward. How should we think about the trade-off between RevPAR and EBITDA as we look to next year?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [3]

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This is Dennis. Thanks for joining the call. I appreciate you having us -- being with us and with Chatham. So listen, I think specifically, when we look at the fourth quarter, obviously with RevPAR down 5% to 6.5%, there's no way in heck we're going to be able to maintain our margins for the fourth quarter. But as you asked, as we look ahead to 2020, we've been pretty consistent in saying that for our portfolio, it's going to take somewhere around a 2% RevPAR gain on a stabilized basis to be able to maintain our operating margins.

I think as we've continued to make things a little more efficient and really driving the other revenue over the past kind of 6 quarters or so. And we still got some ramp in that. That number comes down a little bit as we move into 2020. So I think we still got some run rate for year-over-year growth there. So maybe that comes down into the 0% to 1% RevPAR gain and we can possibly maintain margins. But I think certainly, we believe that it's a little bit less for our portfolio than that 2% as we move into 2020, but I think that's pretty encouraging compared to a lot of our peers.

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Aryeh Klein, BMO Capital Markets Equity Research - Analyst [4]

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Yes. And then the 4 hotel renovations for next year, was that always part of the plan or have you pulled back a little, given the current environment?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [5]

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We actually -- it's -- we originally scheduled for -- that's a great question. We originally scheduled for 5 hotels. The one that we pushed into 2021 from 2020 is our Hampton Inn in Portland, Maine, which is just due to condition and performance. We were able to, I think, we think we can competitively push that off 12 months. So it was 5, we've pushed that down to 4.

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Aryeh Klein, BMO Capital Markets Equity Research - Analyst [6]

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Okay. And then just last one for me. To what extent has the parking fees been rolled out across the portfolio? How much opportunity do you think is left in that?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [7]

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There's a couple of different opportunities related around that. So we still have a few hotels that we are not charging for parking yet. So ultimately, we'd like to say that we'll roll out something there. But there's 2 other parts to it, which is one is continuing to find markets that can absorb rate increases; and two is, and what I alluded to in my prepared comments, is the execution of charging and collecting those parking revenues, whether that be for a transient customer or in the essence of a corporate customer, where we're negotiating a rate for next year. In the past, we might have waived parking charges or we might not have had parking charges.

So as we move forward into 2020, we have to analyze for the total revenue for a corporate customer to say, "Hey, are we going to be able to get the right rate out of this customer A or customer B, depending on whether we're going to be able to include parking or charge for parking for that customer?" So we still have some ramp as we get into 2020 to grow that revenue line item.

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Operator [8]

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Our next question comes from the line of Tyler Batory with Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [9]

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So I've wanted to follow up a little bit more on the third quarter specifically. Could you just talk a little bit more about some of the markets that showed some variance versus your budget? And I'm also curious, you called out some weakness in Houston, Los Angeles and Boston. How did performance in those 3 markets come in versus what you guys were originally budgeting?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [10]

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Tyler, this is Dennis. Yes, I mean, especially compared to our expectations, I think Silicon Valley was better to the tune of a few hundred basis points better than what our third quarter expectations were. Houston was pretty much spot-on our expectations for the quarter. I think maybe it was -- our expectation was down 16%, and it was down 17% or it was pretty darn close. And the same for Boston. So generally, we were right on top of what our expectations were. The biggest outperformer compared to what we -- our guidance was Silicon Valley with -- and that was an outperform to the positive.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [11]

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Okay. And then how about Houston, Los Angeles and Boston?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [12]

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Houston and Boston were spot-on, basically very close to our expectations for the third quarter. L.A. was weaker. And I don't have the number on me but it was definitely weaker by 100 or 200 basis points compared to what we had built into our guidance for the third quarter. And that's primarily due to our Anaheim market, which is just still weaker than what we thought with the Star Wars opening in June.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [13]

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Okay, got it. That makes sense. Then switching to guidance here. Could you talk a little bit more about what you're seeing early in the fourth quarter? And has your view on how the fourth quarter is going to shape up changed since the last time you guys reported?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [14]

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No, it's basically in line. For October right now, obviously, we're at October 31, but our expectation is for RevPAR to be down kind of in the 5% to 5.5% range for October. And if you actually look at the 3 kind of main disruptors for us in the fourth quarter, which is the 4 gas explosion hotels, the 2 San Diego hotels and the San Mateo extended renovation, you back those out and our October RevPAR is down -- it's either flat to down kind of 50 basis points in that range. So those obviously 4 -- those 3 different items have about a 500 basis point impact on where our October performance is.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [15]

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All right. And last question for me. Can you talk a little bit more about the 2018 acquisitions, how the ramp-up is going at those assets?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [16]

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Yes. I mean, I think consistent with what we talked about last call, Tyler, the acquisitions are, I think, underperforming in terms of total revenue especially in our Summerville Residence Inn. I will say that as we've kind of gotten through October, Summerville is doing a little bit better than what we -- what has been the run rate for the last few months.

The Dallas Downtown hotel, even though it's underperforming our original model, I think -- listen, I think we're very encouraged by the efforts of our team there. And I think because it has -- because the Courtyard has not only a tie-in, given its proximity to the convention center, in getting a handle on that business and bringing it in-house, it also has some nice meeting space on the bottom and the top floor. And I think it's taken some time to ramp up those sales efforts to get that business coming in. That hopefully will see some growth -- some outsized growth in 2020 at that hotel.

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Operator [17]

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Our next question comes from the line of Anthony Powell with Barclays.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [18]

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Just stepping back, others in the industry have reported kind of a deceleration of business and leisure travel trends in September and October. It seems like you're seeing more stable trends. Is that the case and why do you think that is?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [19]

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I mean, listen, I think part of that, Anthony, good morning to you. I think part of it is we've absorbed a lot of new supply over the last couple of years. That has waned in 2018 and 2019 so that's certainly helpful for us, especially in our asset classes. And I think that's probably the biggest reason behind that is really just -- we're, I think, hopefully, starting to see the end of that. I mean, we've got hotels that are starting to -- that have been hit pretty hard in the past such as Cherry Creek, Savannah, which had pretty decent quarters with mid- to upper single-digit RevPAR gains. So I think a little bit difference this year versus last year is we're starting to see a little bit of change there.

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [20]

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And I do think, Anthony, it's Jeff, that sometimes management teams or others will just comment on slowing demand and attribute frankly, in my view, new supply to -- well, not attribute the new supply to what they say is just slowing demand. Let's put it that way. In reality, most of the issue seems to be new supply, very competitive pressures, particularly on ADR that we're all familiar with in these markets because occupancy, for the most part, is stable or down 50 basis points max. So that kind of tells you that there's still plenty of people out there wanting to travel.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [21]

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Got it. That makes sense. And just going to Houston, the RevPAR there is $84. I think that's 43% below your portfolio average. At what point does that market become noncore or something that you may want to exit?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [22]

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Well, it certainly had a pretty huge decrease from the peak there so far. I think that we're going to still be a believer in Houston as one of the top markets and top cities in the United States and I think, stay with the hotels because we're not really fond of exiting something at the bottom, I think growing and diversifying is another way to kind of get out of the Houston problem frankly, over time, and just have less exposure there by growing as opposed to just cut and run. But we'll see where this thing goes.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [23]

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All right. And on Silicon Valley, demand seems pretty strong there despite some supply growth. Can you update us on the plans that you had to expand your hotels in that market?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [24]

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I mean, yes, those -- I think, at this point, are tabled. We'll continue to -- we've got a great real estate and a lot of land there. So as the land gets sucked up at all these trillion-dollar companies and everything, we like having that -- those plots of land. But as far as the expansions at the moment, those are tabled.

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Operator [25]

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Our next question comes from the line of Bryan Maher with FBR Riley.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [26]

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Shifting gears a little bit. I think you made a comment about unreasonable seller expectations kind of being prohibitive when it comes to making acquisitions. At what point do you consider maybe putting a couple of hotels on the market to play into that high valuation that they're getting?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [27]

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We're always looking at that, as you know, Bryan, and try to see where the real opportunity is to make a good positive spread on a trade and we'll continue to look at that. And I wouldn't be surprised, as we move forward in the next 12 months, that we take advantage of 1 or 2 of those kind of opportunities.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [28]

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Okay. And then the Warner Center hotel, when is that scheduled to open again?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [29]

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It's going to be sometime middle of 2021.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [30]

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And are there thoughts within the REIT to maybe pursue another development opportunity besides that?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [31]

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Yes. I mean, I think we've talked about it previously, Bryan. I think we would certainly be open to doing, on a limited basis, whether that's another 1, or 1 or 2 more, but they're probably going to be staggered in terms of timing to some degree. So listen, I think we believe we can generate some good value there. So especially, as Jeff just talked about potentially selling a couple of hotels opportunistically and taking some of those proceeds and putting it into an investment, we believe that delivers a little bit more return.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [32]

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But there's not a development opportunity kind of imminent in the next quarter or 2 outside of Warner, correct?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [33]

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Not in the immediate future, no.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [34]

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Okay. And then lastly for me on the labor costs. I mean, it was good to see that the benefits were coming down as a cost. But can you talk about what specifically in the benefits? Was it health care? What was it that drove the benefits component down? And which markets are you operating in where labor costs continued to put the most pressure on you?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [35]

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So yes. So on the benefit side, it's a combination of premiums on the health side as well as claims on the health side. And the third point is workers' comp, which is also down year-over-year. So I think on the premium side, again going back to the -- our platform and our close working relationship with Island Hospitality, to have an owner such as Chatham, where we can sit in with our operating partner and -- on renewal meetings and talk about plan design, premium allocation, co-pays, availability of drugs, networks, you name it, we've made some tweaks there, and we were a little bit more aggressive in 2018 to reduce those costs.

But we have seen a pretty good drop in claims, both on the health side and the workers' comp side. And we've invested some dollars into incremental -- or not we but Island invested some dollars on the risk management side that I think have been pretty beneficial in reducing and being a little more active on health and workers' comp claims as far as addressing, closing, and minimizing -- keeping a claim open that just incurs additional costs. So I think those investment dollars have paid off as well already. So I think that's, that. And then I think the second question was...

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [36]

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Wage pressure.

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [37]

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Wage pressures in key markets. Listen, the main thing for us, obviously, we've got a lot of value in California and in Seattle. Those have clearly been the markets where demand, labor demand is high and the availability of labor has shrunk. So we're certainly still seeing the most pressure out west.

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Operator [38]

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We have no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [39]

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Well, we appreciate everybody's attendance today. Good questions today. And we tried hard to set the expectations straight for the fourth quarter, the overall year results. Even when you bake those results in, we think, are pretty much right in line and feel good about where we're headed in terms of some new initiatives for 2020 that we're working on with the operator and the operating team to, again, maximize EBITDA here in a flattish, I'll call it, RevPAR environment. So we're going to keep blocking and tackling on those fronts and look forward to speaking with you again soon. Thanks a lot.

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Operator [40]

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This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.