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Edited Transcript of CLDT earnings conference call or presentation 25-Feb-19 3:00pm GMT

Q4 2018 Chatham Lodging Trust Earnings Call

PALM BEACH Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Chatham Lodging Trust earnings conference call or presentation Monday, February 25, 2019 at 3:00:00pm 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

* Bryan Anthony Maher

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

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - VP 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 Chatham Lodging Trust Fourth Quarter 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Chris Daly, President of Daly Gray. Thank you, you may begin.

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

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Thank you, Shelly. Good morning, everyone, and welcome to the Chatham Lodging Trust Fourth Quarter 2018 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 25, 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 our 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 insights of the Chatham's 2018 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?

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

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Thanks, Chris. Good morning, everybody. Earlier today, we reported very strong fourth quarter results as our overall portfolio RevPAR growth of 4% easily exceeded our original guidance range of negative 1% to up 1%.

As laid out in our release, about 250 basis points of this increase was attributable to demand from the residential gas explosions in North Boston. Having said that, the balance of the portfolio still generated RevPAR growth of 1.5%, which was better than expected as well. This strong performance allowed us to significantly beat our AFFO guidance to close out 2018.

2018 was a good year operationally, RevPAR growth of almost 1% finished above the upper end of our range of minus 1.5% to plus 0.5% for the year, which ironically is the same range that we're putting out for 2019.

Adjusted EBITDA finished towards the upper end of our range and adjusted FFO beat the upper end of our range by $0.01. Driven by acquisitions in 2017 and 2018, we grew EBITDA and FFO approximately 5% year-over-year.

I'm particularly pleased with the results from certain programs and innovative tools that were implemented in 2017 and 2018 to drive incremental revenue or profits. These programs and tools are the result and product of collaboration between Chatham and Island Hospitality and drives home the huge benefit we derive from working closely together. For example, we analyzed parking rates across the portfolio and successfully raised parking rates generating a $1.5 million incremental parking revenue increase at our 40 comparable hotels.

We introduced room amenity packages in 2018 that generated an additional $200,000 in revenue in 2018. We created tools to help our revenue management and operations teams identify occupancy opportunities, and we'll continue to look at ways to improve our top line and minimize margin erosion.

On the corporate side, we approved our capital structure with the refinancing of our $250 million credit facility, reducing our credit spreads along with improving certain terms and extending our maturity. Additionally, we raised approximately $25 million through our share plans. In fact, since 2017, we've raised over $200 million of equity and along with proceeds from the sale of 1 asset to fully fund our acquisitions over that time.

These events have enabled us to substantially reduce leverage and generate incremental cash flow. We continue to expand our investor relation function, participating in more events and nondeal roadshows than ever.

Strategically, we are very excited to add 2 hotels to our portfolio, investing approximately $70 million for the Courtyard Dallas Downtown and the Residence Inn Charleston Summerville. Both high-quality hotels opened in the second half of 2018 and will take some time to ramp up but are going to be great long-term investments and provide increasing FFO over the ramp-up period.

Shifting gears to 2019, our RevPAR growth range of minus 1.5% to plus 0.5% is adversely impacted by a few items. Demand from the Boston gas explosions of 65 basis points; additional displacement from renovations in Silicon Valley, which is reducing RevPAR growth by 35 basis points; and tough, tough, very tough fourth quarter comps at our San Diego Gaslamp hotel that had a tremendous 2018 fourth quarter. This comp alone is reducing our growth by approximately 25 basis points.

In our release, we laid out the key items driving the AFFO per share decrease in 2019. We tried to be conservative, of course, in our approach so hopefully, there is some upside to our estimates because we remain focused, as I said, on maximizing revenue and minimizing margin erosion. Chatham still generates the highest operating margins of all lodging REITs and we're going to maintain our position at the top in 2019.

In 2019, we are going to continue to explore asset sales with the intention of using those proceeds to invest in acquisitions or potential developments. The acquisition market is pretty thin due to buyer-seller pricing expectations, especially in our kind of assets. So we're going to look at a few value-add opportunities, as we've stated previously, and we may develop 1 or 2 hotels, if the returns generate the proper risk-adjusted return compared to buying an asset of similar quality in that same market.

Additionally, we'll add value by converting existing space to some of our limited-service hotels into income-producing assets. For example, in 2018, we converted a seldom-used meeting space at our Savannah SpringHill Suites Hotel into a very cool bar called Toasted Barrel. The bar has limited food service and it has only been open, as I said, for 3 or 4 months, however, we are substantially outperforming our original expectations, taking space that otherwise produced no income and will produce substantial income in 2019.

We're looking at opportunities like that in other hotels, we're certainly finding new sources of revenue and profit as a result of adding bar components, like we did about 1.5 years ago in our Downtown Bellevue Residence Inn. It's certainly a very profitable way to go in an environment where RevPAR gains are hard to find. We're going to double down on our efforts in terms of adding bars and facilities like that.

Also, looking at opportunities, for example, with a pool in Washington, D.C. at our Residence Inn that gets very little use to be able to convert that into a few rooms and generate substantial revenue as compared to what that space generated before.

Our annual dividend is expected to remain at $1.32 per share, a level maintained since midway through 2016 and represents an attractive 6.1% yield. We remain comfortable with our current dividend, and we're producing free cash flow, after dividends and CapEx, in 2019. Of course, our long-term goal is to increase free cash flow and guide our strategic efforts to pursue incremental cash flow wherever we can.

With that, I'd like to turn it over to Dennis.

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

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Thanks, Jeff. Good morning, everyone. Our RevPAR growth of 4.1% in the quarter was driven by ER gains of 1.5% to $161 and occupancy also rose 2.4% to 77%.

Our 6th largest market contributed approximately 60% of our hotel EBITDA. And I want to spend a few minutes talking about each of those.

Silicon Valley contributed 23% of our hotel EBITDA on a trailing 12-month basis and RevPAR in our 4 Silicon Valley Residence Inns was up 0.8% to $165, even though our 231 room Sunnyvale Residence Inn was under renovation in November and December.

The RevPAR gain was driven by an increase in AVR of 1.6% to a strong $226 and a decline in occupancy of 0.8% to 73%. RevPAR at the other 3 hotels in the Valley was up approximately 3%, when you take out the first Sunnyvale location.

We remain encouraged by the depth and quality of the economic growth in the Valley. In 2019, given the amount of renovations, and Jeff alluded to the 35 basis point impact on our overall portfolio RevPAR growth, but our RevPAR growth in the Valley, even with 2 of our 4 hotels commencing renovations in '19, is projected to only be down slightly to up slightly for the year.

San Diego represents our second-largest market generating about 9% of our EBITDA, and RevPAR was up 34% at our 2 hotels in San Diego. Mission Valley did benefit from an easy renovation comp last year, but the real story is that our downtown Gaslamp Residence Inn had a huge quarter with RevPAR of 35% to $171.

A strong convention calendar as well as border patrol-related demand, which was about $300,000 of revenue to the hotel in the quarter, drove this to the best fourth quarter performance in our history of ownership of the hotel and 22% higher than our second-highest fourth quarter of ownership.

With tough comps in the 2019 fourth quarter, we are still expecting RevPAR to rise slightly in 2019, with the pretty strong first half of the year and then you have the tough comp in the first quarter.

In our third-largest market, Washington, D.C, RevPAR declined 1.7%, our Tysons Corner Residence Inn was undergoing a major renovation to its rooms and public space and its RevPAR was down almost 7% in the quarter.

RevPAR at the other 2 hotels was slightly down in the fourth quarter and feeling the impact from the government shutdown and incremental weather, RevPAR at those 2 same hotels was down about 5% so far in 2019 as we sit here today. But those are forecast to rebound in March. And I'll revise 2019 projection for our D.C. assets as RevPAR growth of somewhere in kind of a minus 2% to plus 1% range.

Our 3 Northeastern coastal market hotels had a great quarter with RevPAR advancing over 17%, driven by a massive 50% increase in RevPAR at our Hampton Inn and Exeter, New Hampshire, which greatly benefited from demand related to the North Boston gas explosions. And really kudos to our team at Island who quickly seized the opportunity to book business at our hotels, not only with our wholly owned hotels, but also certain of our other hotels within joint venters as well as other hotels that Island operates. Not surprising, given the huge close to 2018, 2019 RevPAR is expected to be down about 2% for the year.

Going into the fourth quarter, we knew that Houston faced difficult comps from Hurricane Harvey-related demand in the fourth quarter of 2017. Houston contributes approximately 7% of our EBITDA. RevPAR for our Houston hotels was down 13% in the quarter, which was actually much better than our expected decline of just over 20% going into the quarter.

Looking ahead to 2019, a new Residence Inn is opening up in the Medical Center as well as a large full-service hotel, The Intercontinental, which is 354 rooms and it actually opened just a few weeks ago.

2 of our 4 hotels in Houston will be renovated in 2019, the Hampton Inn at the Medical Center and the Residence Inn Houston West University, and we're expecting RevPAR to be down a few percent in our Houston 4 hotels in 2019.

In addition to San Diego, the L.A. market continues to be strong for us with RevPAR in L.A. hotels rising 2.3% in the quarter, bolstered by our Anaheim Residence Inn, where RevPAR was up almost 4%.

It's nice to see RevPAR in that market rebound and it's been up 4 of the last 5 quarters after being down 8 consecutive quarters prior to that. The Convention Center is fully opened after renovation, which has helped to increase demand and the (inaudible) and getting closer to Disney also helps.

2019 should be a good year for us in our LA hotels with RevPAR growth of approximately 2% to 4%. Other particularly strong markets for us in the quarter were White Plains, San Antonio and Pittsburgh, all of which saw RevPAR growth over 10%. The market, which continues to be weak for us is Denver, which has been inundated with supply over the past few years in a still kind of in the top 6 markets with new supply coming and RevPAR growth was down 8% in the quarter; and for the entire year, it was down 6%.

To touch briefly on supply in our markets, the good news is that it continues to trend down in our direct markets. New upscale supply in our market tracks 3% to 5% in 2015, and this declined each year to 4% in 2016 and 3% in 2017 and 2% in 2018. Additionally, despite all this new supply, we've been able to maintain occupancy levels. In fact, over the last 5 years, our occupancy has finished between 79.5% and 81.5%. It takes a while to absorb the new supply and to be able to drive ADR. But hopefully, we can start to get some pricing power and outperform our expectations in 2019.

At our 37-comparable Island-managed hotels, which excludes hotels acquired in 2018 and 2017, fourth quarter operating margins jumped 80 basis points. Total revenue at our 37-comparable hotels was up 4.8%, driven by that 4% RevPAR increase and a 16% increase in other revenue.

Our departmental expenses were up 3.9%, driven primarily by wage and benefits, which were up 3%. Payroll and benefits represent approximately 36% of our total operating expenses and almost 20% of revenue. For the quarter, on a per occupied room basis, payroll benefits were up 3.4% in the quarter with wages up 4.3% and benefits up 0.4%.

Really, all other expenses were in check during the quarter. And as most of you know, we've been tracking guest acquisition costs closely for the past couple of years and those expenses were down 27 basis points in the quarter and 13 basis points for the full year. Within our joint ventures, RevPAR was up 2% for the quarter and also approximately 2% for the entirety of 2018.

I'll go and 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 a net loss of $0.2 million or $0.01 per share compared to net income of $5.5 million or $0.12 per share in Q4 2017. Our Q4 2018 results included a $3.5 million write-off of costs related to our previously planned Silicon Valley expansions that we have decided to no longer pursue at this time.

The primary differences between net income and FFO relate to noncash costs such as depreciation, which was $12.2 million in the fourth quarter; onetime gains or losses, which were $3.6 million; and our share of similar items within the joint ventures, which were approximately $2.9 million in the quarter.

Adjusted FFO for the quarter was $18.4 million compared to $16 million in Q4 2017, an increase of 15%. Adjusted FFO per share was $0.39, which represents an increase of 8.3% from the $0.36 per share generated in Q4 2017. Our $0.39 of FFO per share for the quarter was $0.03 above the high end of our guidance range of $0.32 to $0.36. Our Q4 FFO per share benefited by approximately $0.03 from demand related to gas leaks in the Boston area. Even excluding this unexpected onetime business, our FFO per share would have been at the high end of our guidance range due to better-than-expected performance of the rest of our portfolio.

Adjusted EBITDA for the company was $28.9 million in Q4, which was up 9.9% from Q4 2017. In the quarter, our 2 joint ventures contributed approximately $3.6 million of adjusted EBITDA and $1 million of adjusted FFO.

For the fourth quarter, RevPAR was up 3.5% in the Inland portfolio and 1.0% in the Innkeepers portfolio. Chatham received $0.8 million of cash distributions from the JV in Q4. In December 2018, we acquired a newly constructed Courtyard Dallas Downtown for $49 million using availability under our revolving credit facility.

At year-end, our net debt was $578 million and our leverage ratio was 34.7%, which is down from the 40% area where we have generally operated in the past. Our balance sheet remains in great condition and provide us with the capacity to pursue potential investment opportunities.

Transitioning to our guidance for Q1 and full year 2019, I'd like to note that it takes into account completion of the renovation of the Residence Inn Sunnyvale 1 in Q1 and commencement of the anticipated renovations of the Residence Inn Dedham and Residence Inn San Mateo in Q1, the Residence Inn Houston and Hampton Inn Houston in Q2 the Residence Inn Fort Lauderdale in Q3 and the Residence Inn Sunnyvale 2 in Q4. We expect to spend approximately $32 million on our 2019 capital plan, which includes the renovations I mentioned as well as other planned capital expenditures.

We expect Q1 RevPAR to be flat to down 1.5%. Our results in January and early February 2019 were impacted by the government shutdown, bad weather, difficult comps at our Homewood Mall of America Hotel, which benefited from the Super Bowl in 2018 and the renovation of our Residence Inn Sunnyvale 1 Hotel.

We expect full year 2019 RevPAR of minus 1.5% to plus 0.5%. In addition to the challenging conditions faced in Q1, our Boston area properties will face a very difficult Q4 comparison due to the surge in onetime gas leak business in Q4 2018. We expect that the impact of these challenging comparisons for our Boston properties will impact our overall 2019 RevPAR growth by approximately 55 basis points. And we expect the Silicon Valley renovations to impact 2019 RevPAR growth by approximately 35 basis points.

Our RevPAR guidance assumes the current trends of healthy GDP growth, combined with elevated supply and the upscale segment will continue throughout the rest of 2019. Our full year forecast for 2019 corporate cash G&A is $9.6 million.

On a full year basis, the 2 joint ventures are expected to contribute $15.4 million to $16.4 million of EBITDA and $5 million to $6 million of FFO. On a full year basis, we expect FFO per share of $1.78 to $1.88 with a midpoint of $1.83 in 2019. Given the $0.12 decline of our $1.83 midpoint from the $1.95 per share generated in 2018, I'd like to provide a little more color on the reasons for the decline.

As previously mentioned, our 2018 results benefited by $0.03 per share from onetime business in the Boston area, and we expect to lose $0.03 relative to our 2018 performance in 2019.

We expect same-store EBITDA at our non-Boston hotels to be down by approximately $2 million or $0.04 per share due to relatively flat RevPAR combined with declining margin, primarily driven by increasing wages. We expect the FFO per share contribution from our JVs to decline by approximately $0.03 in 2019, primarily due to increase in interest expense from the JVs floating rate debt. The remaining $0.02 of the decline is due to increase in interest expense on Chatham's floating rate debt; increase in borrowing levels relative to 2018; a full year impact of the share issuance we did in 2018; and a slight increase in noncash G&A, which is offset by a full year impact of the recently opened hotels, which we acquired in late 2018 and are starting to ramp up in 2019.

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 is from Anthony Powell with Barclays.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [2]

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Just a question on supply growth. You mentioned that supply growth for your markets was down to 2% as of '18, how should that number trend over the next couple of years? Should it stay at 2% or really -- keep going down?

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

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Anthony, it should -- listen, I think if you look at the Smith Travel reports in our market, it shows it's trending upwards a little bit in 2019 and 2020. Now we have that data, and we know there are projects that aren't going to hit that time line that are identified by Smith Travel. So I think it's probably going to stay in the low-2% range. It's not going to go down much further than where it is today. I think it's still a manageable number. And I think what's a little bit confusing -- so if you look at, for example, Nashville, which is one of the top markets for new supply, we have a hotel in Brentwood, which is outside of Nashville now, it might not -- it's not going to be impacted like a hotel that's placed in downtown, but we'll probably feel a little bit of the pain. So for the most part, we're pleased with the new supply in our directly competitive markets staying in kind of a low-2% range. But there will still be some pressures from the surrounding areas that have a little bit more supply.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [4]

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Got it. And can you talk a little bit more about the Dallas acquisition? What cap rate are you underwriting? What kind of ramp up do you expect this year? How much EBITDA contribution this year and next? And [why was] submarket attractive to you?

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

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Well, listen, I think, first, just to talk about the numbers, and then I'll let Jeff talk about the market and why we like it. We've got essentially a ramp, a brand -- yes, it opened in late third quarter 2018. It's going to be ramping throughout 2019 and probably into 2020 because it is pretty closely tied to events at the Convention Center. And being able to get involved with the Convention Center takes a little bit of time to establish those relationships and be involved in their room block pricing. So if you look at kind of 2019, we expect Courtyard Dallas to contribute what seems to be about $3.1 million of EBITDA in 2019 and then ultimately ramping in 2020 to more of an [8] cap type range.

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [6]

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And as to the market. Look, we know Dallas really well. This is a consistent theme, as we have talked about with acquisitions. We, at Island, manage 8 or 9 hotels, obviously, Chatham owns other hotels in Dallas. So we identify downtown as a market, frankly, that we weren't in. And of course, our favorite brands generally are going to be Residence Inn or Courtyard anyway. We pursued this opportunity direct with the builder, and we saw an enormous amount of growth, we think, and demand coming late, frankly, as compared to some other American cities, urban regentrification but Dallas is definitely there and definitely coming. And this hotel is located perfectly and really is the only purpose-built limited-service hotel in that downtown market to take advantage of that office growth, and as Dennis was talking about, the Convention Center too. I talked a little bit about also just looking at food and beverage opportunities, particularly beverage opportunities in limited-service hotels. Well, when we underwrote this deal, we had been given some projected numbers for a rooftop bar and they were pretty aggressive. We cut those to 0 but they'll still like an [8] cap or better after a ramp up, and we decided that we would put some extra effort into that rooftop bar over time and also use it as a facility rental opportunity in the market as well, because it's the entire floor that has adjoining meeting rooms as well as prefunction area. So again, we're just kind of looking at incremental revenue opportunities everywhere during this phase, let's say, of the cycle.

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Operator [7]

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Our next question is from Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [8]

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You talked a little bit about kind of acquisitions in the wide spread out there but can you tell us is the spread narrow enough at least that you are still underwriting deals? And how do you think of 2019 from the prospect of bringing onboard another property or 2?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [9]

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Okay, Bryan, I'll take that one. We are still underwriting deals. As a matter of fact, we're probably going to even broaden our underwriting for deals that on the surface we may not have underwritten before, only because we do have that dry powder. And we did say back when we delevered and raised the equity that we were going to try to apply some more hotels than we've been -- than we have since that delevering effect, which, of course, has negatively impacted our FFO per share. So I think that the bid-ask spread, there's more coming on the market this year, it appears. So therefore, maybe that spread narrows a little bit. And a little more focus, I think, in terms of underwriting deals and looking for the nuances in the deal that I think, for us, Island Hospitality can bring to bear in more of a value-add situation. So that's the focus, it's not a stabilized asset probably because in today's world you buy a stabilized asset and with flattish RevPAR and declining margins, you're probably going backwards faster than you're going forwards, right? So we're looking for more of the value-add opportunity.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [10]

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All right. And that kind of segways well into my next question on, wages and benefits still hanging out in the 3% to 4% range. Is there anything more that can be done there? Or is that just something we're going to have live with for the next year or 2 or 3?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [11]

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Listen, I think -- unfortunately, I don't know about year 2 or year 3, but I think Smith Travel had a slide in their latest deck talking about almost 1 million open hospitality and food service jobs in locations we find ourselves having to use casual labor more than we'd like to fill open gaps on a short-term basis. It's certainly hard to find that qualified labor in most of our -- essentially, our urban markets is really where you feel it the most. But I think it's still -- listen, we projected to be still be kind of in the upper 3% range for 2019. And I think that's probably less than what others may feel this year as it kind of spreads throughout the country, but it's a challenge.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [12]

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And then lastly, we noticed the write-off that you talked about on the Silicon Valley expansion plans. Is there any chance that you, in the next year or 2, revisit that? Or is that just definitively off the table at this point?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [13]

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Listen, I think we've invested a lot of time into those. We believe that expanding our presence in those markets is not a bad way to go, it's one of the -- on a long-term basis, we love that market. So I think just given where construction cost and especially labor cost have gone over the last 36 months, makes it very difficult to take a chunk of rooms out of service and to do those expansions right now. We still, like I said, I think we still love that market and would still like to increase our exposure in that market in some form or fashion.

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [14]

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Yes, I think the comp has made us write that off, frankly. But we've got some pretty good plans and pretty good overall concepts for redeveloping those sites in different ways. So that money was well spent, I think. And certainly, as we move down the road, I can't expectable double digit [wage] inflation in terms of construction labor being the forever mantra out there. And so yes, we've got great real estate and we'll look at ways to enhance it.

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Operator [15]

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(Operator Instructions) Our next question is from Tyler Batory with Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [16]

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A couple of things from me. First, I just wanted to circle back on the 2019 RevPAR guidance, if I could. And I appreciate you guys quantifying the impact to some of those onetime items. But if I add back some of that stuff, there's still a gap between your guidance range and the industry range that was provided. So can you provide a little bit more color on what's driving that delta? And maybe anything else that might be negatively impacting your results?

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [17]

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Yes, this is Jeff. I think I'll start by saying it certainly will be interesting, for example, to see what Marriott says about RevPAR guidance. I think we all know the range the industry's in and the range that their most folks are going to put out. But do they take into account and separately state limited-service hotels, particularly in the [see first], for example, Courtyard, Fairfield, Residence, TownePlace genre. Because I think what you're going to find is that in our asset class you really are flat. And I think when you add back our onetime adjustments, we're flat or a little better than flat. And I expect to be better than flat. But I think we need to position ourselves carefully with our guidance. We know our first quarter already has been negatively impacted by the government shutdown, I mean, we've got a couple of hotels that clearly have seen some numbers that just didn't produce what we expected them to produce because they do have a large component of government business like our Springfield Embassy Suites in Virginia, just outside of D.C., or Tysons Corner and you'll hear a little bit of that probably from some others or maybe you won't. But we tend to kind of try to come clean early and look for upside down the road.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [18]

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Okay. Got it, that's helpful. And then on the follow up on the development side of things, any update there, outside of what you were just talking about with the Silicon Valley properties?

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

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No update yet on that, Tyler, we're still working pretty diligently on a couple of things. But hopefully, we'll have news to report on that later this year.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [20]

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Okay. Great. And then maybe last question for me. The customer acquisition cost or whatnot, can you talk a little bit what was driving that in the fourth quarter and the full year? And then your thoughts on where those could trend in 2019 as well?

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Dennis M. Craven, Chatham Lodging Trust - Executive VP & COO [21]

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Yes. Listen, I think, overall, certainly, the negotiations between Marriott and Hilton over the past couple of years have helped for us in terms of just the overall commission rate. So when you look at our productivity, volume is still up slightly with our OTA-type business. But now as you kind of move into 2019, there is a little bit of a change in the way that Marriott is reimbursing its franchise -- franchisees related to guest reward costs and reward reimbursement. So that is going to turn a little bit. And we think it's a net benefit to us in 2019 by maybe a few hundred thousand dollars, but we'll have to see how that develops. But listen, I think for us, it's been a trend that has been down for the past kind of 4, 6 quarters. And hoping -- again, hopefully, where Marriott is changing the program, it will continue to benefit us a little bit in 2019.

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Operator [22]

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And we do have a follow-up question from Anthony Powell with Barclays.

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

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Just one for me kind of on that Marriott topic. Have you seen any impact, positive or negative, from the loyalty program merger in August or the [deed aberration] news later in the year? Does that have any impact on your bookings or revenues?

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

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For us, no. For us, Anthony, it doesn't. I mean we've got such a little exposure to the Starwood side of things. It does impact a few hotels on the JVs, but for us, it really hasn't -- we haven't seen any impact.

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Operator [25]

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

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Jeffrey H. Fisher, Chatham Lodging Trust - Chairman, President & CEO [26]

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I think that does it for us. We appreciate all the calls, we appreciate everybody's attention. And we're looking forward to a better year as we move forward. Thank you.

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Operator [27]

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Thank you, this concludes today's conference. You may disconnect your lines at this time and thank you for your participation.